##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON, DC 20549
 
 FORM 10-Q
 (Mark One)
 þ
    
    Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
 For the quarterly period ended March 31, 2010
 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 
of incorporation or organization)
    
    (I.R.S. Employer
Identification Number)One CityPlace Drive, Suite 300, St. Louis, Missouri
    
    63141(Address of principal executive offices)
    
    (Zip code)
  þ o
 o o
  Large accelerated filer o
    
    Accelerated filer o
    
    Non-accelerated filer þ
    
    Smaller reporting company o(Do not check if a smaller reporting company)
 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
    
    
    14Item 3. Quantitative and Qualitative Disclosures About Market Risk
    
    
    18Item 4. Controls and Procedures
    
    
    18Part II OTHER INFORMATION
    
    
    19Item 1. Legal Proceedings
    
    
    19Item 1A. Risk Factors
    
    
    19Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    19Item 3. Defaults Upon Senior Securities
    
    
    19Item 4. Reserved
    
    
    19Item 5. Other Information
    
    
    19Item 6. Exhibits
    
    
    19EX-10.1EX-31.1EX-31.2EX-32.1EX-32.2




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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 March 312010
    
    
    2009(unaudited)REVENUESCoal sales
    
    $
    472,847
    
    
    $
    416,250COSTS, EXPENSES AND OTHERCost of coal sales
    
    
    397,509
    
    
    
    361,372Depreciation, depletion and amortization
    
    
    44,040
    
    
    
    38,465Amortization of acquired sales contracts, net
    
    
    10,753
    
    
    
    (228
    )Selling, general and administrative expenses
    
    
    7,841
    
    
    
    9,828Other operating income, net
    
    
    (1,390
    )
    
    
    (949
    )458,753
    
    
    
    408,488Income from operations
    
    
    14,094
    
    
    
    7,762Interest expense, net:Interest expense
    
    
    (17,503
    )
    
    
    (17,518
    )Interest
income, primarily from Arch Coal, Inc.
    
    
    11,915
    
    
    
    11,800(5,588
    )
    
    
    (5,718
    )Net income
    
    $
    8,506
    
    
    $
    2,044Net income (loss) attributable to redeemable membership interest
    
    $
    26
    
    
    $
    (7
    )Net income attributable to non-redeemable membership interest
    
    $
    8,480
    
    
    $
    2,051
  1




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Arch Western Resources, LLC and Subsidiaries
Condensed Consolidated Balance Sheets
(In thousands)
 March 31,
    
    
    December 31,2010
    
    
    2009(unaudited)ASSETSCurrent assets:Cash and cash equivalents
    
    $
    10,339
    
    
    $
    6,819Receivables
    
    
    2,768
    
    
    
    8,379Inventories
    
    
    160,137
    
    
    
    165,650Other
    
    
    21,935
    
    
    
    23,350Total current assets
    
    
    195,179
    
    
    
    204,198Property, plant and equipment, net
    
    
    1,514,626
    
    
    
    1,548,300Other assets:Receivable from Arch Coal, Inc.
    
    
    1,617,548
    
    
    
    1,541,243Other
    
    
    15,457
    
    
    
    14,172Total other assets
    
    
    1,633,005
    
    
    
    1,555,415Total assets
    
    $
    3,342,810
    
    
    $
    3,307,913LIABILITIES AND MEMBERSHIP INTERESTSCurrent liabilities:Accounts payable
    
    $
    85,433
    
    
    $
    74,508Accrued expenses
    
    
    134,239
    
    
    
    144,432Commercial paper
    
    
    53,230
    
    
    
    49,452Total current liabilities
    
    
    272,902
    
    
    
    268,392Long-term debt
    
    
    954,440
    
    
    
    954,782Asset retirement obligations
    
    
    280,538
    
    
    
    274,914Accrued postretirement benefits other than pension
    
    
    28,999
    
    
    
    28,819Accrued pension benefits
    
    
    35,863
    
    
    
    34,523Accrued workers compensation
    
    
    3,441
    
    
    
    4,067Other noncurrent liabilities
    
    
    42,147
    
    
    
    26,744Total liabilities
    
    
    1,618,330
    
    
    
    1,592,241Redeemable membership interest
    
    
    8,990
    
    
    
    8,962Non-redeemable membership interest
    
    
    1,715,490
    
    
    
    1,706,710Total liabilities and membership interests
    
    $
    3,342,810
    
    
    $
    3,307,913
  2




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Arch Western Resources, LLC and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(In thousands)
 Three Months Ended March 312010
    
    
    2009(unaudited)OPERATING ACTIVITIESNet income
    
    $
    8,506
    
    
    $
    2,044Adjustments to reconcile net income to cash provided by operating activities:Depreciation, depletion and amortization
    
    
    44,040
    
    
    
    38,465Amortization of acquired sales contracts, net
    
    
    10,753
    
    
    
    (228
    )Changes in:Receivables
    
    
    5,611
    
    
    
    1,242Inventories
    
    
    5,513
    
    
    
    (5,739
    )Accounts payable and accrued expenses
    
    
    4,177
    
    
    
    (23,614
    )Other
    
    
    24,440
    
    
    
    23,347Cash provided by operating activities
    
    
    103,040
    
    
    
    35,517INVESTING ACTIVITIESCapital expenditures
    
    
    (13,826
    )
    
    
    (49,873
    )Change in receivable from Arch Coal, Inc.
    
    
    (86,974
    )
    
    
    41,616Proceeds from dispositions of property, plant and equipment
    
    
    74
    
    
    
    Additions to prepaid royalties
    
    
    (2,509
    )
    
    
    Reimbursement of deposits on equipment
    
    
    
    
    
    
    3,209Cash used in investing activities
    
    
    (103,235
    )
    
    
    (5,048
    )FINANCING ACTIVITIESNet proceeds from (repayments on) commercial paper
    
    
    3,778
    
    
    
    (32,735
    )Debt financing costs
    
    
    (63
    )
    
    
    Cash provided by (used in) financing activities
    
    
    3,715
    
    
    
    (32,735
    )Increase (decrease) in cash and cash equivalents
    
    
    3,520
    
    
    
    (2,266
    )Cash and cash equivalents, beginning of period
    
    
    6,819
    
    
    
    2,851Cash and cash equivalents, end of period
    
    $
    10,339
    
    
    $
    585
  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
  3. Healthcare Reform Legislation
   4. Inventories
  March 31,
    
    
    December 31,2010
    
    
    2009(In thousands)Coal
    
    $
    42,642
    
    
    $
    42,316Repair parts and supplies, net of allowance
    
    
    117,495
    
    
    
    123,334$
    160,137
    
    
    $
    165,650
  4




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5. Debt
  6. Fair Values of Financial Instruments
  Cash and cash equivalents:
 Debt:
 7. Comprehensive Income
   Three Months EndedMarch 312010
    
    
    2009(In thousands)Net income
    
    $
    8,506
    
    
    $
    2,044Other comprehensive income:Pension, postretirement and other
post-employment benefits, reclassifications into net income
    
    
    326
    
    
    
    (82
    )Total comprehensive income
    
    $
    8,832
    
    
    $
    1,962
 8. Related Party Transactions
      5




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9. Contingencies
  10. Segment Information
    Corporate,Other andPRB
    
    
    WBIT
    
    
    Eliminations
    
    
    Consolidated(In thousands)Three months ended March 31, 2010Coal sales
    
    $
    340,166
    
    
    $
    132,681
    
    
    $
    
    
    
    $
    472,847Income (loss) from operations
    
    
    10,147
    
    
    
    12,446
    
    
    
    (8,499
    )
    
    
    14,094Total assets
    
    
    1,020,724
    
    
    
    654,529
    
    
    
    1,667,557
    
    
    
    3,342,810Depreciation, depletion and amortization
    
    
    23,778
    
    
    
    20,262
    
    
    
    
    
    
    
    44,040Amortization of acquired sales contracts, net
    
    
    10,753
    
    
    
    
    
    
    
    
    
    
    
    10,753Capital expenditures
    
    
    725
    
    
    
    13,101
    
    
    
    
    
    
    
    13,826Three months ended March 31, 2009Coal sales
    
    $
    295,310
    
    
    $
    120,940
    
    
    $
    
    
    
    $
    416,250Income (loss) from operations
    
    
    25,392
    
    
    
    (7,037
    )
    
    
    (10,593
    )
    
    
    7,762Total assets
    
    
    862,275
    
    
    
    694,790
    
    
    
    1,493,152
    
    
    
    3,050,217Depreciation, depletion and amortization
    
    
    18,743
    
    
    
    19,722
    
    
    
    
    
    
    
    38,465Amortization of acquired sales contracts, net
    
    
    83
    
    
    
    (311
    )
    
    
    
    
    
    
    (228
    )Capital expenditures
    
    
    33,779
    
    
    
    16,094
    
    
    
    
    
    
    
    49,873
 6




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Three Months Ended March 312010
    
    
    2009(In thousands)Income from operations
    
    $
    14,094
    
    
    $
    7,762Interest expense
    
    
    (17,503)
    
    
    
    (17,518
    )Interest income
    
    
    11,915
    
    
    
    11,800Net income
    
    $
    8,506
    
    
    $
    2,044
 11. Supplemental Condensed Consolidating Financial Information
  7




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CONDENSED CONSOLIDATING STATEMENTS OF INCOME  Three Months Ended March 31, 2010
(in thousands)
 Guarantor
    
    
    Non-GuarantorParent Company
    
    
    Issuer
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    ConsolidatedCoal sales
    
    $
    
    
    
    $
    
    
    
    $
    378,435
    
    
    $
    94,412
    
    
    $
    
    
    
    $
    472,847Cost of coal sales
    
    
    967
    
    
    
    
    
    
    
    324,560
    
    
    
    73,379
    
    
    
    (1,397
    )
    
    
    397,509Depreciation, depletion and amortization
    
    
    
    
    
    
    
    
    
    
    30,736
    
    
    
    13,304
    
    
    
    
    
    
    
    44,040Amortization of acquired sales contracts, net
    
    
    
    
    
    
    
    
    
    
    10,753
    
    
    
    
    
    
    
    
    
    
    
    10,753Selling, general and administrative
expenses
    
    
    7,841
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    7,841Other operating income, net
    
    
    (309
    )
    
    
    
    
    
    
    (773
    )
    
    
    (1,705
    )
    
    
    1,397
    
    
    
    (1,390
    )8,499
    
    
    
    
    
    
    
    365,276
    
    
    
    84,978
    
    
    
    
    
    
    
    458,753Income from investment in subsidiaries
    
    
    22,209
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (22,209
    )
    
    
    Income from operations
    
    
    13,710
    
    
    
    
    
    
    
    13,159
    
    
    
    9,434
    
    
    
    (22,209
    )
    
    
    14,094Interest expense
    
    
    (17,096
    )
    
    
    (16,230
    )
    
    
    
    
    
    
    (208
    )
    
    
    16,031
    
    
    
    (17,503
    )Interest income
    
    
    11,892
    
    
    
    16,031
    
    
    
    1
    
    
    
    22
    
    
    
    (16,031
    )
    
    
    11,915(5,204
    )
    
    
    (199
    )
    
    
    1
    
    
    
    (186
    )
    
    
    
    
    
    
    (5,588
    )Net income (loss)
    
    $
    8,506
    
    
    $
    (199
    )
    
    $
    13,160
    
    
    $
    9,248
    
    
    $
    (22,209
    )
    
    $
    8,506
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CONDENSED CONSOLIDATING STATEMENTS OF INCOME

Three Months Ended March 31, 2009
(in thousands)
 Guarantor
    
    
    Non-GuarantorParent Company
    
    
    Issuer
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    ConsolidatedCoal sales
    
    $
    
    
    
    $
    
    
    
    $
    325,944
    
    
    $
    90,306
    
    
    $
    
    
    
    $
    416,250Cost of coal sales
    
    
    834
    
    
    
    
    
    
    
    289,002
    
    
    
    72,381
    
    
    
    (845
    )
    
    
    361,372Depreciation, depletion and amortization
    
    
    
    
    
    
    
    
    
    
    25,175
    
    
    
    13,290
    
    
    
    
    
    
    
    38,465Amortization of acquired sales
contracts, net
    
    
    
    
    
    
    
    
    
    
    (228
    )
    
    
    
    
    
    
    
    
    
    
    (228
    )Selling, general and administrative
expenses
    
    
    9,828
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    9,828Other operating income, net
    
    
    (69
    )
    
    
    
    
    
    
    (641
    )
    
    
    (1,084
    )
    
    
    845
    
    
    
    (949
    )10,593
    
    
    
    
    
    
    
    313,308
    
    
    
    84,587
    
    
    
    
    
    
    
    408,488Income from investment in subsidiaries
    
    
    18,079
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (18,079
    )
    
    
    Income from operations
    
    
    7,486
    
    
    
    
    
    
    
    12,636
    
    
    
    5,719
    
    
    
    (18,079
    )
    
    
    7,762Interest expense
    
    
    (17,095
    )
    
    
    (16,033
    )
    
    
    (169
    )
    
    
    (252
    )
    
    
    16,031
    
    
    
    (17,518
    )Interest income
    
    
    11,653
    
    
    
    16,031
    
    
    
    27
    
    
    
    120
    
    
    
    (16,031
    )
    
    
    11,800(5,442
    )
    
    
    (2
    )
    
    
    (142
    )
    
    
    (132
    )
    
    
    
    
    
    
    (5,718
    )Net income (loss)
    
    $
    2,044
    
    
    $
    (2
    )
    
    $
    12,494
    
    
    $
    5,587
    
    
    $
    (18,079
    )
    
    $
    2,044
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CONDENSED CONSOLIDATING BALANCE SHEETS
March 31, 2010
(in thousands)
 Parent
    
    
    
    
    
    
    Guarantor
    
    
    Non-GuarantorCompany
    
    
    Issuer
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    ConsolidatedCash and cash equivalents
    
    $
    10,188
    
    
    $
    
    
    
    $
    55
    
    
    $
    96
    
    
    $
    
    
    
    $
    10,339Receivables
    
    
    318
    
    
    
    
    
    
    
    2,256
    
    
    
    194
    
    
    
    
    
    
    
    2,768Inventories
    
    
    
    
    
    
    
    
    
    
    118,594
    
    
    
    41,543
    
    
    
    
    
    
    
    160,137Other
    
    
    7,313
    
    
    
    2,150
    
    
    
    3,199
    
    
    
    9,273
    
    
    
    
    
    
    
    21,935Total current assets
    
    
    17,819
    
    
    
    2,150
    
    
    
    124,104
    
    
    
    51,106
    
    
    
    
    
    
    
    195,179Property, plant and equipment, net
    
    
    
    
    
    
    
    
    
    
    1,235,562
    
    
    
    279,064
    
    
    
    
    
    
    
    1,514,626Investment in subsidiaries
    
    
    2,644,731
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,644,731
    )
    
    
    Receivable from Arch Coal
    
    
    1,594,978
    
    
    
    
    
    
    
    
    
    
    
    22,570
    
    
    
    
    
    
    
    1,617,548Intercompanies
    
    
    (2,457,428
    )
    
    
    977,825
    
    
    
    1,224,742
    
    
    
    254,861
    
    
    
    
    
    
    
    Other
    
    
    1,214
    
    
    
    4,789
    
    
    
    5,027
    
    
    
    4,427
    
    
    
    
    
    
    
    15,457Total other assets
    
    
    1,783,495
    
    
    
    982,614
    
    
    
    1,229,769
    
    
    
    281,858
    
    
    
    (2,644,731
    )
    
    
    1,633,005Total assets
    
    $
    1,801,314
    
    
    $
    984,764
    
    
    $
    2,589,435
    
    
    $
    612,028
    
    
    $
    (2,644,731
    )
    
    $
    3,342,810Accounts payable
    
    $
    5,233
    
    
    $
    
    
    
    $
    64,449
    
    
    $
    15,751
    
    
    $
    
    
    
    $
    85,433Accrued expenses
    
    
    1,518
    
    
    
    16,031
    
    
    
    104,777
    
    
    
    11,913
    
    
    
    
    
    
    
    134,239Commercial paper
    
    
    53,230
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    53,230Total current liabilities
    
    
    59,981
    
    
    
    16,031
    
    
    
    169,226
    
    
    
    27,664
    
    
    
    
    
    
    
    272,902Long-term debt
    
    
    
    
    
    
    954,440
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    954,440Asset retirement obligations
    
    
    
    
    
    
    
    
    
    
    270,265
    
    
    
    10,273
    
    
    
    
    
    
    
    280,538Accrued postretirement benefits
other
than pension
    
    
    6,249
    
    
    
    
    
    
    
    15,115
    
    
    
    7,635
    
    
    
    
    
    
    
    28,999Accrued pension benefits
    
    
    10,761
    
    
    
    
    
    
    
    18,105
    
    
    
    6,997
    
    
    
    
    
    
    
    35,863Accrued workers compensation
    
    
    (1,616
    )
    
    
    
    
    
    
    1,201
    
    
    
    3,856
    
    
    
    
    
    
    
    3,441Other noncurrent liabilities
    
    
    1,459
    
    
    
    
    
    
    
    40,626
    
    
    
    62
    
    
    
    
    
    
    
    42,147Total liabilities
    
    
    76,834
    
    
    
    970,471
    
    
    
    514,538
    
    
    
    56,487
    
    
    
    
    
    
    
    1,618,330Redeemable membership interest
    
    
    8,990
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    8,990Non-redeemable membership interest
    
    
    1,715,490
    
    
    
    14,293
    
    
    
    2,074,897
    
    
    
    555,541
    
    
    
    (2,644,731
    )
    
    
    1,715,490Total liabilities and
membership
interests
    
    $
    1,801,314
    
    
    $
    984,764
    
    
    $
    2,589,435
    
    
    $
    612,028
    
    
    $
    (2,644,731
    )
    
    $
    3,342,810
 10




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##### Table of Contents



CONDENSED CONSOLIDATING BALANCE SHEETS
December 31, 2009
(in thousands)
 Parent
    
    
    
    
    
    
    Guarantor
    
    
    Non-GuarantorCompany
    
    
    Issuer
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    ConsolidatedCash and cash equivalents
    
    $
    6,714
    
    
    $
    
    
    
    $
    61
    
    
    $
    44
    
    
    $
    
    
    
    $
    6,819Receivables
    
    
    5,536
    
    
    
    
    
    
    
    2,123
    
    
    
    720
    
    
    
    
    
    
    
    8,379Inventories
    
    
    
    
    
    
    
    
    
    
    127,907
    
    
    
    37,743
    
    
    
    
    
    
    
    165,650Other
    
    
    10,423
    
    
    
    2,153
    
    
    
    3,892
    
    
    
    6,882
    
    
    
    
    
    
    
    23,350Total current assets
    
    
    22,673
    
    
    
    2,153
    
    
    
    133,983
    
    
    
    45,389
    
    
    
    
    
    
    
    204,198Property, plant and equipment, net
    
    
    
    
    
    
    
    
    
    
    1,258,695
    
    
    
    289,605
    
    
    
    
    
    
    
    1,548,300Investment in subsidiaries
    
    
    2,621,530
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,621,530
    )
    
    
    Receivable from Arch Coal
    
    
    1,509,032
    
    
    
    
    
    
    
    
    
    
    
    32,211
    
    
    
    
    
    
    
    1,541,243Intercompanies
    
    
    (2,364,534
    )
    
    
    993,857
    
    
    
    1,141,474
    
    
    
    229,203
    
    
    
    
    
    
    
    Other
    
    
    1,785
    
    
    
    5,325
    
    
    
    2,543
    
    
    
    4,519
    
    
    
    
    
    
    
    14,172Total other assets
    
    
    1,767,813
    
    
    
    999,182
    
    
    
    1,144,017
    
    
    
    265,933
    
    
    
    (2,621,530
    )
    
    
    1,555,415Total assets
    
    $
    1,790,486
    
    
    $
    1,001,335
    
    
    $
    2,536,695
    
    
    $
    600,927
    
    
    $
    (2,621,530
    )
    
    $
    3,307,913Accounts payable
    
    $
    4,176
    
    
    $
    
    
    
    $
    55,514
    
    
    $
    14,818
    
    
    $
    
    
    
    $
    74,508Accrued expenses
    
    
    2,885
    
    
    
    32,063
    
    
    
    97,649
    
    
    
    11,835
    
    
    
    
    
    
    
    144,432Commercial paper
    
    
    49,452
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    49,452Total current liabilities
    
    
    56,513
    
    
    
    32,063
    
    
    
    153,163
    
    
    
    26,653
    
    
    
    
    
    
    
    268,392Long-term debt
    
    
    
    
    
    
    954,782
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    954,782Asset retirement obligations
    
    
    
    
    
    
    
    
    
    
    264,873
    
    
    
    10,041
    
    
    
    
    
    
    
    274,914Accrued postretirement benefits
other
than pension
    
    
    6,346
    
    
    
    
    
    
    
    14,858
    
    
    
    7,615
    
    
    
    
    
    
    
    28,819Accrued pension benefits
    
    
    11,307
    
    
    
    
    
    
    
    16,936
    
    
    
    6,280
    
    
    
    
    
    
    
    34,523Accrued workers compensation
    
    
    (1,199
    )
    
    
    
    
    
    
    1,217
    
    
    
    4,049
    
    
    
    
    
    
    
    4,067Other noncurrent liabilities
    
    
    1,847
    
    
    
    
    
    
    
    24,864
    
    
    
    33
    
    
    
    
    
    
    
    26,744Total liabilities
    
    
    74,814
    
    
    
    986,845
    
    
    
    475,911
    
    
    
    54,671
    
    
    
    
    
    
    
    1,592,241Redeemable membership interest
    
    
    8,962
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    8,962Non-redeemable membership interest
    
    
    1,706,710
    
    
    
    14,490
    
    
    
    2,060,784
    
    
    
    546,256
    
    
    
    (2,621,530
    )
    
    
    1,706,710Total liabilities and membership
interests
    
    $
    1,790,486
    
    
    $
    1,001,335
    
    
    $
    2,536,695
    
    
    $
    600,927
    
    
    $
    (2,621,530
    )
    
    $
    3,307,913
 11




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##### Table of Contents



CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
Three Months Ended March 31, 2010
(in thousands)
 Parent
    
    
    
    
    
    
    Guarantor
    
    
    Non-GuarantorCompany
    
    
    Issuer
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    ConsolidatedCash provided by (used in) operating
activities
    
    $
    (7,279
    )
    
    $
    (16,032
    )
    
    $
    107,573
    
    
    $
    18,778
    
    
    $
    103,040Investing ActivitiesCapital expenditures
    
    
    
    
    
    
    
    
    
    
    (11,087
    )
    
    
    (2,739
    )
    
    
    (13,826
    )Change in receivable from Arch Coal, Inc.
    
    
    (96,616
    )
    
    
    
    
    
    
    
    
    
    
    9,642
    
    
    
    (86,974
    )Proceeds from dispositions of property,
plant and equipment
    
    
    
    
    
    
    
    
    
    
    45
    
    
    
    29
    
    
    
    74Additions to prepaid royalties
    
    
    
    
    
    
    
    
    
    
    (2,509
    )
    
    
    
    
    
    
    (2,509
    )Cash provided by (used in) investing
activities
    
    
    (96,616
    )
    
    
    
    
    
    
    (13,551
    )
    
    
    6,932
    
    
    
    (103,235
    )Financing ActivitiesNet proceeds on commercial paper
    
    
    3,778
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,778Debt financing costs
    
    
    (63
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (63
    )Transactions with affiliates, net
    
    
    103,654
    
    
    
    16,032
    
    
    
    (94,028
    )
    
    
    (25,658
    )
    
    
    Cash provided by (used in) financing
activities
    
    
    107,369
    
    
    
    16,032
    
    
    
    (94,028
    )
    
    
    (25,658
    )
    
    
    3,715Increase (decrease) in cash and cash
equivalents
    
    
    3,474
    
    
    
    
    
    
    
    (6
    )
    
    
    52
    
    
    
    3,520Cash and cash equivalents, beginning of
period
    
    
    6,714
    
    
    
    
    
    
    
    61
    
    
    
    44
    
    
    
    6,819Cash and cash equivalents, end of period
    
    $
    10,188
    
    
    $
    
    
    
    $
    55
    
    
    $
    96
    
    
    $
    10,339
 12




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##### Table of Contents



CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
Three Months Ended March 31, 2009
(in thousands)
 Parent
    
    
    
    
    
    
    Guarantor
    
    
    Non-GuarantorCompany
    
    
    Issuer
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    ConsolidatedCash provided by (used in) operating
activities
    
    $
    (17,468
    )
    
    $
    (15,834
    )
    
    $
    51,906
    
    
    $
    16,913
    
    
    $
    35,517Investing ActivitiesCapital expenditures
    
    
    
    
    
    
    
    
    
    
    (47,504
    )
    
    
    (2,369
    )
    
    
    (49,873
    )Change in receivable from Arch Coal, Inc.
    
    
    43,321
    
    
    
    
    
    
    
    
    
    
    
    (1,705
    )
    
    
    41,616Reimbursement of deposits on equipment
    
    
    
    
    
    
    
    
    
    
    3,209
    
    
    
    
    
    
    
    3,209Cash provided by (used in) investing
activities
    
    
    43,321
    
    
    
    
    
    
    
    (44,295
    )
    
    
    (4,074
    )
    
    
    (5,048
    )Financing ActivitiesNet payments on commercial paper
    
    
    (32,735
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (32,735
    )Transactions with affiliates, net
    
    
    4,673
    
    
    
    15,834
    
    
    
    (7,631
    )
    
    
    (12,876
    )
    
    
    Cash provided by (used in) financing
activities
    
    
    (28,062
    )
    
    
    15,834
    
    
    
    (7,631
    )
    
    
    (12,876
    )
    
    
    (32,735
    )Decrease in cash and cash equivalents
    
    
    (2,209
    )
    
    
    
    
    
    
    (20
    )
    
    
    (37
    )
    
    
    (2,266
    )Cash and cash equivalents, beginning of
period
    
    
    2,690
    
    
    
    
    
    
    
    84
    
    
    
    77
    
    
    
    2,851Cash and cash equivalents, end of period
    
    $
    481
    
    
    $
    
    
    
    $
    64
    
    
    $
    40
    
    
    $
    585
 13




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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
regulations relating to mine safety; 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, 2009.
 Overview
     Results of Operations
 Three Months Ended March 31, 2010 Compared to Three Months Ended March 31, 2009
 Summary
 14




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##### Table of Contents



Revenues.
 Increase (Decrease)Three Months Ended March 31
    
    in Net Income2010
    
    2009
    
    Amount
    
    %(Amounts in thousands, except per ton data and percentages)Coal sales
    
    $
    472,847
    
    
    $
    416,250
    
    
    $
    56,597
    
    
    
    13.6
    %Tons sold
    
    
    33,808
    
    
    
    26,256
    
    
    
    7,552
    
    
    
    28.8
    %Coal sales realization per ton sold
    
    $
    13.98
    
    
    $
    15.85
    
    
    $
    (1.87
    )
    
    
    (11.8
    )%
  Costs, expenses and
other.
 Increase (Decrease)Three Months Ended March 31
    
    
    in Net Income2010
    
    
    2009
    
    
    $
    
    
    %(Amounts in thousands, except percentages)Cost of coal sales
    
    $
    397,509
    
    
    
    361,372
    
    
    
    (36,137
    )
    
    
    (10.0
    )%Depreciation, depletion and amortization
    
    
    44,040
    
    
    
    38,465
    
    
    
    (5,575
    )
    
    
    (14.5
    )Amortization of acquired sales contracts, net
    
    
    10,753
    
    
    
    (228
    )
    
    
    (10,981
    )
    
    
    N/ASelling, general and administrative expenses
    
    
    7,841
    
    
    
    9,828
    
    
    
    1,987
    
    
    
    20.2Other operating income, net
    
    
    (1,390
    )
    
    
    (949
    )
    
    
    441
    
    
    
    (46.5
    )$
    458,753
    
    
    $
    408,488
    
    
    $
    (50,265
    )
    
    
    (12.3
    )%
 Cost of coal sales.
 Depreciation, depletion and amortization and amortization of acquired sales contracts, net.
 Selling, general and administrative expenses.
 15




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##### Table of Contents



Operating segment results
 Three Months Ended March 31
    
    Increase (Decrease)2010
    
    2009
    
    $
    
    %Powder River BasinTons sold (in thousands)
    
    
    29,681
    
    
    
    22,357
    
    
    
    7,324
    
    
    
    32.8
    %Coal sales realization per ton sold (1)
    
    $
    11.38
    
    
    $
    13.00
    
    
    $
    (1.62
    )
    
    
    (12.5
    )%Operating margin per ton sold (2)
    
    $
    0.32
    
    
    $
    1.11
    
    
    $
    (0.79
    )
    
    
    (71.2
    )%Western BituminousTons sold (in thousands)
    
    
    4,127
    
    
    
    3,899
    
    
    
    228
    
    
    
    5.9
    %Coal sales realization per ton sold (1)
    
    $
    28.98
    
    
    $
    28.09
    
    
    $
    0.89
    
    
    
    3.2
    %Operating margin per ton sold (2)
    
    $
    2.60
    
    
    $
    (2.10
    )
    
    $
    4.70
    
    
    
    (223.8
    )%
 
 (1)
    
    Coal sales prices per ton exclude certain transportation costs that we pass
through to our customers. We use these financial measures because we believe the amounts as
adjusted better represent the coal sales prices we achieved within our operating segments.
Since other companies may calculate coal sales prices per ton differently, our calculation may
not be comparable to similarly titled measures used by those companies. For the three months
ended March 31, 2010, transportation costs per ton were $0.08 for the Powder River Basin and
$3.17 for the Western Bituminous region. For the three months ended March 31, 2009,
transportation costs per ton were $0.21 for the Powder River Basin and $2.92 for the Western
Bituminous region.(2)
    
    Operating margin per ton sold is calculated as coal sales revenues less cost of coal
sales and depreciation, depletion and amortization divided by tons sold. Powder River Basin 
 Western Bituminous 
  16




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##### Table of Contents



Net interest expense
 Three Months Ended March 31
    
    
    Decrease in Net Income2010
    
    
    2009
    
    
    $
    
    
    %(Amounts in thousands, except percentages)Interest expense
    
    $
    (17,503
    )
    
    $
    (17,518
    )
    
    $
    (15
    )
    
    
    0.1
    %Interest income
    
    
    11,915
    
    
    
    11,800
    
    
    
    (115
    )
    
    
    (1.0
    )$
    (5,588
    )
    
    $
    (5,718
    )
    
    $
    (130
    )
    
    
    2.3
    %
 Liquidity and Capital Resources
 Liquidity and capital resources
      17




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##### Table of Contents



Three Months Ended March 312010
    
    
    2009(in thousands)Cash provided by (used in):Operating activities
    
    $
    103,040
    
    
    $
    35,517Investing activities
    
    
    (103,235
    )
    
    
    (5,048
    )Financing activities
    
    
    3,715
    
    
    
    (32,735
    )
    Critical Accounting Policies
  
 Item 3. Quantitative and Qualitative Disclosures About Market Risk.
    
 Item 4. Controls and Procedures.
  18




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##### Table of Contents



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.
  
 Item 4. Reserved
 
 Item 5. Other Information.
  
 Item 6. Exhibits.
  Exhibit
    
    Description10.1
    
    First Amendment to Purchase and Sale Agreement, dated February 24, 2010, by and  among various entities party thereto, as originators, and Arch Coal, Inc.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 John T. Drexler.32.1
    
    Section 1350 Certification of Paul A. Lang.32.2
    
    Section 1350 Certification of John T. Drexler.
 19




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##### Table of Contents



Signatures
  Arch Western Resources, LLCBy:
    /s/  John T. DrexlerJohn T. DrexlerVice PresidentMay  17, 2010 20