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, 2008
 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
  Large accelerated filer o
    
    Accelerated filer o
    
    Non-accelerated filer þ(Do not check if a smaller reporting company)
    
    Smaller reporting company o
 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
    
    
    17Item 4T.
    
    Controls and Procedures
    
    
    17Part II Other Information
    
    
    18Item 1.
    
    Legal Proceedings
    
    
    18Item 1A.
    
    Risk Factors
    
    
    18Item 2.
    
    Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    18Item 3.
    
    Defaults Upon Senior Securities
    
    
    18Item 4.
    
    Submission of Matters to a Vote of Security Holders
    
    
    18Item 5.
    
    Other Information
    
    
    18Item 6.
    
    Exhibits
    
    
    19
  i




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##### 



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 312008
    
    
    2007(unaudited)REVENUESCoal sales
    
    $
    437,209
    
    
    $
    370,097COSTS, EXPENSES AND OTHERCost of coal sales
    
    
    336,723
    
    
    
    283,271Depreciation, depletion and amortization
    
    
    39,656
    
    
    
    32,519Selling, general and administrative expenses
    
    
    7,557
    
    
    
    6,152Other operating income, net
    
    
    (951
    )
    
    
    (923
    )382,985
    
    
    
    321,019Income from operations
    
    
    54,224
    
    
    
    49,078Interest income, net:Interest expense
    
    
    (17,475
    )
    
    
    (17,621
    )Interest income, primarily from Arch Coal, Inc.
    
    
    21,845
    
    
    
    22,8214,370
    
    
    
    5,200Non-operating expense
    
    
    
    
    
    
    (1,269
    )Income before minority interest
    
    
    58,594
    
    
    
    53,009Minority interest
    
    
    (3,726
    )
    
    
    (4,732
    )Net income
    
    $
    54,868
    
    
    $
    48,277Net income attributable to redeemable membership interest
    
    $
    274
    
    
    $
    241Net income attributable to non-redeemable membership interest
    
    $
    54,594
    
    
    $
    48,036
  1




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##### 



Arch Western Resources, LLC and Subsidiaries
Condensed Consolidated Balance Sheets
(In thousands)
 March 31,
    
    
    December 31,2008
    
    
    2007(unaudited)ASSETSCurrent assetsCash and cash equivalents
    
    $
    2,972
    
    
    $
    248Receivables
    
    
    1,870
    
    
    
    3,559Inventories
    
    
    147,398
    
    
    
    141,626Other
    
    
    23,035
    
    
    
    27,128Total current assets
    
    
    175,275
    
    
    
    172,561Property, plant and equipment, net
    
    
    1,284,230
    
    
    
    1,225,993Other assetsReceivable from Arch Coal, Inc.
    
    
    1,436,707
    
    
    
    1,427,833Other
    
    
    25,685
    
    
    
    25,800Total other assets
    
    
    1,462,392
    
    
    
    1,453,633Total assets
    
    $
    2,921,897
    
    
    $
    2,852,187LIABILITIES AND MEMBERSHIP INTERESTSCurrent liabilitiesAccounts payable
    
    $
    95,926
    
    
    $
    82,254Accrued expenses
    
    
    108,738
    
    
    
    128,754Commercial paper
    
    
    74,905
    
    
    
    74,959Total current liabilities
    
    
    279,569
    
    
    
    285,967Long-term debt
    
    
    957,173
    
    
    
    957,514Accrued postretirement benefits other than pension
    
    
    37,618
    
    
    
    36,805Asset retirement obligations
    
    
    197,756
    
    
    
    194,190Accrued workers compensation
    
    
    9,142
    
    
    
    8,784Other noncurrent liabilities
    
    
    43,728
    
    
    
    30,725Total liabilities
    
    
    1,524,986
    
    
    
    1,513,985Redeemable membership interest
    
    
    8,274
    
    
    
    8,000Minority interest
    
    
    186,744
    
    
    
    183,018Non-redeemable membership interest
    
    
    1,201,893
    
    
    
    1,147,184Total liabilities and membership interests
    
    $
    2,921,897
    
    
    $
    2,852,187
  2




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##### 



Arch Western Resources, LLC and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(In thousands)
 Three Months Ended March 312008
    
    
    2007(unaudited)OPERATING ACTIVITIESNet income
    
    $
    54,868
    
    
    $
    48,277Adjustments to reconcile net income to cash provided by operating activities:Depreciation, depletion and amortization
    
    
    39,656
    
    
    
    32,519Prepaid royalties expensed
    
    
    20
    
    
    
    1,615Net gain on dispositions of property, plant and equipment
    
    
    (150
    )
    
    
    Minority interest
    
    
    3,726
    
    
    
    4,732Other non-operating expense
    
    
    
    
    
    
    1,269Changes in:Receivables
    
    
    1,689
    
    
    
    10,469Inventories
    
    
    (5,772
    )
    
    
    (5,390
    )Accounts payable and accrued expenses
    
    
    (6,272
    )
    
    
    (43,444
    )Other
    
    
    22,396
    
    
    
    18,769Cash provided by operating activities
    
    
    110,161
    
    
    
    68,816INVESTING ACTIVITIESCapital expenditures
    
    
    (98,495
    )
    
    
    (42,861
    )Increase in receivable from Arch Coal, Inc.
    
    
    (9,038
    )
    
    
    (39,788
    )Proceeds from dispositions of property, plant and equipment
    
    
    150
    
    
    
    232Reimbursement of deposits on equipment
    
    
    
    
    
    
    13,492Cash used in investing activities
    
    
    (107,383
    )
    
    
    (68,925
    )FINANCING ACTIVITIESNet payments on commercial paper
    
    
    (54
    )
    
    
    Cash used in financing activities
    
    
    (54
    )
    
    
    Increase (decrease) in cash and cash equivalents
    
    
    2,724
    
    
    
    (109
    )Cash and cash equivalents, beginning of period
    
    
    248
    
    
    
    186Cash and cash equivalents, end of period
    
    $
    2,972
    
    
    $
    77
  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 Pronouncements Adopted
 Fair Value Measurements
 The Fair Value Option
for Financial Assets and Financial Liabilities  Including an Amendment of FASB Statement No. 115
 Accounting Standards Issued and Not Yet Adopted
 Noncontrolling Interests in Consolidated Financial Statements, an amendment of ARB No. 51
 4




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##### 



3. Inventories
  March 31,
    
    
    December 31,2008
    
    
    2007(In thousands)Coal
    
    $
    43,684
    
    
    $
    42,942Repair parts and supplies, net of allowance
    
    
    103,714
    
    
    
    98,684$
    147,398
    
    
    $
    141,626
 4. Comprehensive Income
 Reporting
Comprehensive Income
  Three Months Ended March 312008
    
    
    2007(In thousands)Net income
    
    $
    54,868
    
    
    $
    48,277Other comprehensive income:Pension, postretirement and other
post-employment benefits, net of
reclassifications into net income
    
    
    138
    
    
    
    505Net losses on derivatives reclassified to income
    
    
    
    
    
    
    1,269Total comprehensive income
    
    $
    55,006
    
    
    $
    50,051
 5. Related Party Transactions
      5




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##### 



6. Contingencies
  7. Segment Information
   Corporate,Other andPRB
    
    WBIT
    
    Eliminations
    
    Consolidated(In thousands)Three months ended March 31, 2008Coal sales
    
    $
    275,688
    
    
    $
    161,521
    
    
    $
    
    
    
    $
    437,209Income (loss) from operations
    
    
    28,787
    
    
    
    33,961
    
    
    
    (8,524
    )
    
    
    54,224Total assets
    
    
    1,751,366
    
    
    
    1,965,108
    
    
    
    (794,577
    )
    
    
    2,921,897Depreciation, depletion and amortization
    
    
    18,223
    
    
    
    21,433
    
    
    
    
    
    
    
    39,656Capital expenditures
    
    
    38,177
    
    
    
    60,318
    
    
    
    
    
    
    
    98,495
 Corporate,Other andPRB
    
    WBIT
    
    Eliminations
    
    Consolidated(In thousands)Three months ended March 31, 2007Coal sales
    
    $
    239,457
    
    
    $
    130,640
    
    
    $
    
    
    
    $
    370,097Income (loss) from operations
    
    
    30,249
    
    
    
    25,902
    
    
    
    (7,073
    )
    
    
    49,078Total assets
    
    
    1,615,854
    
    
    
    1,844,506
    
    
    
    (877,393
    )
    
    
    2,582,967Depreciation, depletion and amortization
    
    
    16,038
    
    
    
    16,481
    
    
    
    
    
    
    
    32,519Capital expenditures
    
    
    13,123
    
    
    
    29,738
    
    
    
    
    
    
    
    42,861
  Three Months EndedMarch 312008
    
    
    2007(In thousands)Income from operations
    
    $
    54,224
    
    
    $
    49,078Interest expense
    
    
    (17,475
    )
    
    
    (17,621
    )Interest income
    
    
    21,845
    
    
    
    22,821Other non-operating expense
    
    
    
    
    
    
    (1,269
    )Income before minority interest
    
    $
    58,594
    
    
    $
    53,009
 6




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##### 



8. Supplemental Condensed Consolidating Financial Information
  7




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##### 



CONDENSED CONSOLIDATING STATEMENTS OF INCOME
Three Months Ended March 31, 2008
(in thousands)
 Guarantor
    
    
    Non- GuarantorParent Company
    
    
    Issuer
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    ConsolidatedCoal sales
    
    $
    
    
    
    $
    
    
    
    $
    340,134
    
    
    $
    97,075
    
    
    $
    
    
    
    $
    437,209Cost of coal sales
    
    
    998
    
    
    
    
    
    
    
    266,521
    
    
    
    69,835
    
    
    
    (631
    )
    
    
    336,723Depreciation, depletion and amortization
    
    
    
    
    
    
    
    
    
    
    22,740
    
    
    
    16,916
    
    
    
    
    
    
    
    39,656Selling, general and administrative
expenses allocated from Arch Coal
    
    
    7,557
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    7,557Other operating income, net
    
    
    (31
    )
    
    
    
    
    
    
    (775
    )
    
    
    (776
    )
    
    
    631
    
    
    
    (951
    )8,524
    
    
    
    
    
    
    
    288,486
    
    
    
    85,975
    
    
    
    
    
    
    
    382,985Income from investment in subsidiaries
    
    
    64,466
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (64,466
    )
    
    
    Income from operations
    
    
    55,942
    
    
    
    
    
    
    
    51,648
    
    
    
    11,100
    
    
    
    (64,466
    )
    
    
    54,224Interest expense
    
    
    (18,782
    )
    
    
    (14,157
    )
    
    
    (105
    )
    
    
    (462
    )
    
    
    16,031
    
    
    
    (17,475
    )Interest income, primarily from Arch Coal
    
    
    21,434
    
    
    
    16,031
    
    
    
    88
    
    
    
    323
    
    
    
    (16,031
    )
    
    
    21,8452,652
    
    
    
    1,874
    
    
    
    (17
    )
    
    
    (139
    )
    
    
    
    
    
    
    4,370Minority interest
    
    
    (3,726
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3,726
    )Net income
    
    $
    54,868
    
    
    $
    1,874
    
    
    $
    51,631
    
    
    $
    10,961
    
    
    $
    (64,466
    )
    
    $
    54,868
 8




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##### 



CONDENSED CONSOLIDATING STATEMENTS OF INCOME
Three Months Ended March 31, 2007
(in thousands)
 Guarantor
    
    
    Non- GuarantorParent Company
    
    
    Issuer
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    ConsolidatedCoal sales
    
    $
    
    
    
    $
    
    
    
    $
    282,422
    
    
    $
    87,675
    
    
    $
    
    
    
    $
    370,097Cost of coal sales
    
    
    946
    
    
    
    
    
    
    
    219,310
    
    
    
    63,684
    
    
    
    (669
    )
    
    
    283,271Depreciation, depletion and amortization
    
    
    
    
    
    
    
    
    
    
    21,440
    
    
    
    11,079
    
    
    
    
    
    
    
    32,519Selling, general and administrative
expenses allocated from Arch Coal
    
    
    6,152
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6,152Other operating income, net
    
    
    (25
    )
    
    
    
    
    
    
    (611
    )
    
    
    (956
    )
    
    
    669
    
    
    
    (923
    )7,073
    
    
    
    
    
    
    
    240,139
    
    
    
    73,807
    
    
    
    
    
    
    
    321,019Income from investment in subsidiaries
    
    
    56,987
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (56,987
    )
    
    
    Income from operations
    
    
    49,914
    
    
    
    
    
    
    
    42,283
    
    
    
    13,868
    
    
    
    (56,987
    )
    
    
    49,078Interest expense
    
    
    (17,947
    )
    
    
    (15,013
    )
    
    
    (99
    )
    
    
    (582
    )
    
    
    16,020
    
    
    
    (17,621
    )Interest income, primarily from Arch Coal
    
    
    22,311
    
    
    
    16,020
    
    
    
    133
    
    
    
    377
    
    
    
    (16,020
    )
    
    
    22,8214,364
    
    
    
    1,007
    
    
    
    34
    
    
    
    (205
    )
    
    
    
    
    
    
    5,200Other non-operating expense
    
    
    (1,269
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,269
    )Minority interest
    
    
    (4,732
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (4,732
    )Net income
    
    $
    48,277
    
    
    $
    1,007
    
    
    $
    42,317
    
    
    $
    13,663
    
    
    $
    (56,987
    )
    
    $
    48,277
 9




---



##### 



CONDENSED CONSOLIDATING BALANCE SHEETS
March 31, 2008
(in thousands)
 Guarantor
    
    
    Non- GuarantorParent Company
    
    
    Issuer
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    ConsolidatedCash and cash equivalents
    
    $
    2,911
    
    
    $
    
    
    
    $
    44
    
    
    $
    17
    
    
    $
    
    
    
    $
    2,972Receivables
    
    
    316
    
    
    
    
    
    
    
    1,346
    
    
    
    208
    
    
    
    
    
    
    
    1,870Inventories
    
    
    
    
    
    
    
    
    
    
    98,712
    
    
    
    48,686
    
    
    
    
    
    
    
    147,398Other
    
    
    7,753
    
    
    
    2,149
    
    
    
    6,442
    
    
    
    6,691
    
    
    
    
    
    
    
    23,035Total current assets
    
    
    10,980
    
    
    
    2,149
    
    
    
    106,544
    
    
    
    55,602
    
    
    
    
    
    
    
    175,275Property, plant and equipment, net
    
    
    
    
    
    
    
    
    
    
    936,468
    
    
    
    347,762
    
    
    
    
    
    
    
    1,284,230Investment in subsidiaries
    
    
    2,206,091
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,206,091
    )
    
    
    Receivable from Arch Coal, Inc.
    
    
    1,410,980
    
    
    
    
    
    
    
    
    
    
    
    25,727
    
    
    
    
    
    
    
    1,436,707Intercompanies
    
    
    (2,120,056
    )
    
    
    967,401
    
    
    
    1,071,105
    
    
    
    81,550
    
    
    
    
    
    
    
    Other
    
    
    1,135
    
    
    
    9,081
    
    
    
    11,625
    
    
    
    3,844
    
    
    
    
    
    
    
    25,685Total other assets
    
    
    1,498,150
    
    
    
    976,482
    
    
    
    1,082,730
    
    
    
    111,121
    
    
    
    (2,206,091
    )
    
    
    1,462,392Total assets
    
    $
    1,509,130
    
    
    $
    978,631
    
    
    $
    2,125,742
    
    
    $
    514,485
    
    
    $
    (2,206,091
    )
    
    $
    2,921,897Accounts payable
    
    
    4,808
    
    
    
    
    
    
    
    76,041
    
    
    
    15,077
    
    
    
    
    
    
    
    95,926Accrued expenses
    
    
    2,335
    
    
    
    16,031
    
    
    
    81,936
    
    
    
    8,436
    
    
    
    
    
    
    
    108,738Commercial paper
    
    
    74,905
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    74,905Total current liabilities
    
    
    82,048
    
    
    
    16,031
    
    
    
    157,977
    
    
    
    23,513
    
    
    
    
    
    
    
    279,569
    
    
    
    957,173
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    957,173Accrued postretirement benefits other
than pension
    
    
    25,001
    
    
    
    
    
    
    
    2,485
    
    
    
    10,132
    
    
    
    
    
    
    
    37,618Asset retirement obligations
    
    
    
    
    
    
    
    
    
    
    185,389
    
    
    
    12,367
    
    
    
    
    
    
    
    197,756Accrued workers compensation
    
    
    4,473
    
    
    
    
    
    
    
    837
    
    
    
    3,832
    
    
    
    
    
    
    
    9,142Other noncurrent liabilities
    
    
    697
    
    
    
    
    
    
    
    37,905
    
    
    
    5,126
    
    
    
    
    
    
    
    43,728Total liabilities
    
    
    112,219
    
    
    
    973,204
    
    
    
    384,593
    
    
    
    54,970
    
    
    
    
    
    
    
    1,524,986Redeemable membership interest
    
    
    8,274
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    8,274Minority interest
    
    
    186,744
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    186,744Non-redeemable membership interest
    
    
    1,201,893
    
    
    
    5,427
    
    
    
    1,741,149
    
    
    
    459,515
    
    
    
    (2,206,091
    )
    
    
    1,201,893Total liabilities and membership
interests
    
    $
    1,509,130
    
    
    $
    978,631
    
    
    $
    2,125,742
    
    
    $
    514,485
    
    
    $
    (2,206,091
    )
    
    $
    2,921,897
 10




---



##### 



CONDENSED CONSOLIDATING BALANCE SHEETS
December 31, 2007
(in thousands)
 Guarantor
    
    
    Non- GuarantorParent Company
    
    
    Issuer
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    ConsolidatedCash and cash equivalents
    
    $
    78
    
    
    $
    
    
    
    $
    16
    
    
    $
    154
    
    
    $
    
    
    
    $
    248Receivables
    
    
    1,145
    
    
    
    
    
    
    
    1,224
    
    
    
    1,190
    
    
    
    
    
    
    
    3,559Inventories
    
    
    
    
    
    
    
    
    
    
    98,638
    
    
    
    42,988
    
    
    
    
    
    
    
    141,626Other
    
    
    11,342
    
    
    
    2,153
    
    
    
    5,868
    
    
    
    7,765
    
    
    
    
    
    
    
    27,128Total current assets
    
    
    12,565
    
    
    
    2,153
    
    
    
    105,746
    
    
    
    52,097
    
    
    
    
    
    
    
    172,561Property, plant and equipment, net
    
    
    
    
    
    
    
    
    
    
    864,575
    
    
    
    361,418
    
    
    
    
    
    
    
    1,225,993Investment in subsidiaries
    
    
    2,140,722
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,140,722
    )
    
    
    Receivable from Arch Coal, Inc.
    
    
    1,399,046
    
    
    
    
    
    
    
    (112
    )
    
    
    28,899
    
    
    
    
    
    
    
    1,427,833Intercompanies
    
    
    (2,105,212
    )
    
    
    981,359
    
    
    
    1,064,385
    
    
    
    59,468
    
    
    
    
    
    
    
    Other
    
    
    802
    
    
    
    9,617
    
    
    
    11,611
    
    
    
    3,770
    
    
    
    
    
    
    
    25,800Total other assets
    
    
    1,435,358
    
    
    
    990,976
    
    
    
    1,075,884
    
    
    
    92,137
    
    
    
    (2,140,722
    )
    
    
    1,453,633Total assets
    
    $
    1,447,923
    
    
    $
    993,129
    
    
    $
    2,046,205
    
    
    $
    505,652
    
    
    $
    (2,140,722
    )
    
    $
    2,852,187Accounts payable
    
    
    3,434
    
    
    
    
    
    
    
    62,504
    
    
    
    16,316
    
    
    
    
    
    
    
    82,254Accrued expenses
    
    
    2,863
    
    
    
    32,063
    
    
    
    83,515
    
    
    
    10,313
    
    
    
    
    
    
    
    128,754Commercial paper
    
    
    74,959
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    74,959Total current liabilities
    
    
    81,256
    
    
    
    32,063
    
    
    
    146,019
    
    
    
    26,629
    
    
    
    
    
    
    
    285,967
    
    
    
    957,514
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    957,514Accrued postretirement benefits other
than pension
    
    
    24,482
    
    
    
    
    
    
    
    2,485
    
    
    
    9,838
    
    
    
    
    
    
    
    36,805Asset retirement obligations
    
    
    
    
    
    
    
    
    
    
    182,101
    
    
    
    12,089
    
    
    
    
    
    
    
    194,190Accrued workers compensation
    
    
    4,293
    
    
    
    
    
    
    
    1,053
    
    
    
    3,438
    
    
    
    
    
    
    
    8,784Other noncurrent liabilities
    
    
    (310
    )
    
    
    
    
    
    
    25,886
    
    
    
    5,149
    
    
    
    
    
    
    
    30,725Total liabilities
    
    
    109,721
    
    
    
    989,577
    
    
    
    357,544
    
    
    
    57,143
    
    
    
    
    
    
    
    1,513,985Redeemable membership interest
    
    
    8,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    8,000Minority interest
    
    
    183,018
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    183,018Non-redeemable membership interest
    
    
    1,147,184
    
    
    
    3,552
    
    
    
    1,688,661
    
    
    
    448,509
    
    
    
    (2,140,722
    )
    
    
    1,147,184Total liabilities and membership
interests
    
    $
    1,447,923
    
    
    $
    993,129
    
    
    $
    2,046,205
    
    
    $
    505,652
    
    
    $
    (2,140,722
    )
    
    $
    2,852,187
 11




---



##### 



CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
Three Months Ended March 31, 2008
(in thousands)
 Parent
    
    
    
    
    
    
    Guarantor
    
    
    Non- GuarantorCompany
    
    
    Issuer
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    ConsolidatedOperating ActivitiesCash provided by (used in) operating activities
    
    $
    141
    
    
    $
    (13,958
    )
    
    $
    101,249
    
    
    $
    22,729
    
    
    $
    110,161Investing ActivitiesCapital expenditures
    
    
    
    
    
    
    
    
    
    
    (94,539
    )
    
    
    (3,956
    )
    
    
    (98,495
    )Increase in receivable from Arch Coal
    
    
    (12,098
    )
    
    
    
    
    
    
    (112
    )
    
    
    3,172
    
    
    
    (9,038
    )Proceeds from dispositions of property, plant
and
equipment
    
    
    
    
    
    
    
    
    
    
    150
    
    
    
    
    
    
    
    150Cash used in investing activities
    
    
    (12,098
    )
    
    
    
    
    
    
    (94,501
    )
    
    
    (784
    )
    
    
    (107,383
    )Financing ActivitiesNet payments on commercial paper
    
    
    (54
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (54
    )Transactions with affiliates, net
    
    
    14,844
    
    
    
    13,958
    
    
    
    (6,720
    )
    
    
    (22,082
    )
    
    
    Cash provided by (used in) financing activities
    
    
    14,790
    
    
    
    13,958
    
    
    
    (6,720
    )
    
    
    (22,082
    )
    
    
    (54
    )Increase (decrease) in cash and cash
equivalents
    
    
    2,833
    
    
    
    
    
    
    
    28
    
    
    
    (137
    )
    
    
    2,724Cash and cash equivalents, beginning of period
    
    
    78
    
    
    
    
    
    
    
    16
    
    
    
    154
    
    
    
    248Cash and cash equivalents, end of period
    
    $
    2,911
    
    
    $
    
    
    
    $
    44
    
    
    $
    17
    
    
    $
    2,972
 12




---



##### 



CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
Three Months Ended March 31, 2007
(in thousands)
 Parent
    
    
    
    
    
    
    Guarantor
    
    
    Non- GuarantorCompany
    
    
    Issuer
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    ConsolidatedOperating ActivitiesCash provided by (used in) operating activities
    
    $
    (7,889
    )
    
    $
    (14,826
    )
    
    $
    72,330
    
    
    $
    19,201
    
    
    $
    68,816Investing ActivitiesCapital expenditures
    
    
    
    
    
    
    
    
    
    
    (20,819
    )
    
    
    (22,042
    )
    
    
    (42,861
    )Increase in receivable from Arch Coal
    
    
    (40,107
    )
    
    
    
    
    
    
    (112
    )
    
    
    431
    
    
    
    (39,788
    )Proceeds from dispositions of property, plant and
equipment
    
    
    
    
    
    
    
    
    
    
    213
    
    
    
    19
    
    
    
    232Reimbursement of deposit on equipment
    
    
    
    
    
    
    
    
    
    
    13,492
    
    
    
    
    
    
    
    13,492Cash used in investing activities
    
    
    (40,107
    )
    
    
    
    
    
    
    (7,226
    )
    
    
    (21,592
    )
    
    
    (68,925
    )Financing ActivitiesTransactions with affiliates, net
    
    
    47,996
    
    
    
    14,826
    
    
    
    (65,252
    )
    
    
    2,430
    
    
    
    Cash provided by (used in) financing activities
    
    
    47,996
    
    
    
    14,826
    
    
    
    (65,252
    )
    
    
    2,430
    
    
    
    Increase (decrease) in cash and cash equivalents
    
    
    
    
    
    
    
    
    
    
    (148
    )
    
    
    39
    
    
    
    (109
    )Cash and cash equivalents, beginning of period
    
    
    
    
    
    
    
    
    
    
    161
    
    
    
    25
    
    
    
    186Cash and cash equivalents, end of period
    
    $
    
    
    
    $
    
    
    
    $
    13
    
    
    $
    64
    
    
    $
    77
 13




---



##### 



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, 2007 and in Part II, Item
1A of this Quarterly Report on Form 10-Q .
 Overview
      14




---



##### 



Results of Operations
 Three Months Ended March 31, 2008 Compared to Three Months Ended March 31, 2007
 Summary
 Revenues.
 Three Months Ended March 31
    
    Increase (Decrease)2008
    
    2007
    
    $
    
    %(Amounts in thousands, except per ton data)Coal sales
    
    $
    437,209
    
    
    $
    370,097
    
    
    $
    67,112
    
    
    
    18.1
    %Tons sold
    
    
    30,185
    
    
    
    27,706
    
    
    
    2,479
    
    
    
    8.9Coal sales realization per ton sold
    
    $
    14.48
    
    
    $
    13.36
    
    
    $
    1.12
    
    
    
    8.4
 Coal sales
 Expenses, costs and other.
 Increase (Decrease)Three Months Ended March 31
    
    
    in Net Income2008
    
    
    2007
    
    
    $
    
    
    %(Amounts in thousands)Cost of coal sales
    
    $
    336,723
    
    
    $
    283,271
    
    
    $
    (53,452
    )
    
    
    (18.9
    )%Depreciation, depletion and amortization
    
    
    39,656
    
    
    
    32,519
    
    
    
    (7,137
    )
    
    
    (21.9
    )Selling, general and administrative expenses
    
    
    7,557
    
    
    
    6,152
    
    
    
    (1,405
    )
    
    
    (22.8
    )Other operating income, net
    
    
    (951
    )
    
    
    (923
    )
    
    
    28
    
    
    
    3.0$
    382,985
    
    
    $
    321,019
    
    
    $
    (61,966
    )
    
    
    (19.3
    )%
 Cost of coal sales.
 Depreciation, depletion and amortization.
 Selling, general and administrative expenses.
 15




---



##### 



Operating segment results
 Three Months Ended March 31
    
    Increase (Decrease)2008
    
    2007
    
    $
    
    %(Tons in thousands)Powder River BasinTons sold
    
    
    25,151
    
    
    
    22,942
    
    
    
    2,209
    
    
    
    9.6
    %Coal sales realization per ton sold (1)
    
    $
    10.90
    
    
    $
    10.37
    
    
    $
    0.53
    
    
    
    5.1
    %Operating margin per ton sold (2)
    
    $
    1.11
    
    
    $
    1.29
    
    
    $
    (0.18
    )
    
    
    (14.0
    )%Western BituminousTons sold
    
    
    5,034
    
    
    
    4,764
    
    
    
    270
    
    
    
    5.7
    %Coal sales realization per ton sold (1)
    
    $
    26.74
    
    
    $
    24.77
    
    
    $
    1.97
    
    
    
    8.0
    %Operating margin per ton sold (2)
    
    $
    6.59
    
    
    $
    5.23
    
    
    $
    1.36
    
    
    
    26.0
    %
 
 (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 period ended March
31, 2008, transportation costs per ton billed to customers were $0.06 for the Powder River
Basin and $5.34 for the Western Bituminous region. Transportation costs per ton billed to
customers for the period ended March 31, 2007 were $0.07 for the Powder River Basin and $2.65
for the Western Bituminous region.(2)
    
    Operating margin per ton is calculated as the result of coal sales revenues less
cost of coal sales and depreciation, depletion and amortization divided by tons sold. Powder River Basin 
 Western Bituminous 
 Net interest income
 Increase (Decrease)Three Months Ended March 31
    
    
    in Net Income2008
    
    
    2007
    
    
    $
    
    
    %(Amounts in thousands)Interest expense
    
    $
    (17,475
    )
    
    $
    (17,621
    )
    
    $
    146
    
    
    
    0.8
    %Interest income
    
    
    21,845
    
    
    
    22,821
    
    
    
    (976
    )
    
    
    (4.3
    )$
    4,370
    
    
    $
    5,200
    
    
    $
    (830
    )
    
    
    (16.0
    )%
 3 4
  16




---



##### 



Other non-operating expense.
 Liquidity and Capital Resources
    Three Months EndedMarch 312008
    
    2007(in thousands)Cash provided by (used in):Operating activities
    
    $
    110,161
    
    
    $
    68,816Investing activities
    
    
    (107,383
    )
    
    
    (68,925
    )Financing activities
    
    
    (54
    )
    
    
    
    
 Item 3. Quantitative and Qualitative Disclosures About Market Risk.
  
 Item 4T. Controls and Procedures.
  17




---



##### 



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. Submission of Matters to a Vote of Security Holders.
  
 Item 5. Other Information.
  18




---



##### 



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 John T. Drexler.32.1
    
    Section 1350 Certification of Paul A. Lang.32.2
    
    Section 1350 Certification of John T. Drexler.
 19




---



##### 



Signatures
  Arch Western Resources, LLCBy:
    /s/ John T. DrexlerJohn T. DrexlerVice PresidentMay 15, 2008 20