##### 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 June 30, 2009
 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(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
    
    
    16Item 3. Quantitative and Qualitative Disclosures About Market Risk
    
    
    21Item 4T. 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
    
    
    22Item 5. Other Information
    
    
    22Item 6. Exhibits
    
    
    23EX-31.1EX-31.2EX-32.1EX-32.2
  ii




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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 June 30
    
    
    Six Months Ended June 302009
    
    
    2008
    
    
    2009
    
    
    2008(unaudited)RevenuesCoal sales
    
    $
    360,806
    
    
    $
    459,953
    
    
    $
    777,056
    
    
    $
    897,162Costs, expenses and otherCost of coal sales
    
    
    320,295
    
    
    
    359,126
    
    
    
    681,667
    
    
    
    695,849Depreciation, depletion and amortization
    
    
    36,361
    
    
    
    37,870
    
    
    
    74,598
    
    
    
    77,526Selling, general and administrative expenses
    
    
    7,240
    
    
    
    9,333
    
    
    
    17,068
    
    
    
    16,890Other operating income, net
    
    
    (922
    )
    
    
    (1,169
    )
    
    
    (1,871
    )
    
    
    (2,120
    )362,974
    
    
    
    405,160
    
    
    
    771,462
    
    
    
    788,145Income (loss) from operations
    
    
    (2,168
    )
    
    
    54,793
    
    
    
    5,594
    
    
    
    109,017Interest income (expense), net:Interest expense
    
    
    (15,831
    )
    
    
    (16,107
    )
    
    
    (33,349
    )
    
    
    (33,582
    )Interest income, primarily from Arch Coal, Inc.
    
    
    11,566
    
    
    
    18,154
    
    
    
    23,366
    
    
    
    39,999(4,265
    )
    
    
    2,047
    
    
    
    (9,983
    )
    
    
    6,417Net income (loss)
    
    $
    (6,433
    )
    
    $
    56,840
    
    
    $
    (4,389
    )
    
    $
    115,434Net income (loss) attributable to redeemable
membership interest
    
    $
    (35
    )
    
    $
    274
    
    
    
    (42
    )
    
    
    548Net income (loss) attributable to
non-redeemable membership interest
    
    $
    (6,398
    )
    
    $
    56,566
    
    
    $
    (4,347
    )
    
    $
    114,886
  1




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##### Table of Contents



Arch Western Resources, LLC and Subsidiaries
Condensed Consolidated Balance Sheets
(In thousands)
 June 30,
    
    
    December 31,2009
    
    
    2008(unaudited)ASSETSCurrent assets:Cash and cash equivalents
    
    $
    7,617
    
    
    $
    2,851Receivables
    
    
    2,528
    
    
    
    2,930Inventories
    
    
    152,831
    
    
    
    133,726Other
    
    
    22,818
    
    
    
    21,617Total current assets
    
    
    185,794
    
    
    
    161,124Property, plant and equipment, net
    
    
    1,378,606
    
    
    
    1,391,841Other assets:Receivable from Arch Coal, Inc.
    
    
    1,467,606
    
    
    
    1,528,068Other
    
    
    14,996
    
    
    
    24,051Total other assets
    
    
    1,482,602
    
    
    
    1,552,119Total assets
    
    $
    3,047,002
    
    
    $
    3,105,084LIABILITIES AND MEMBERSHIP INTERESTSCurrent liabilities:Accounts payable
    
    $
    78,197
    
    
    $
    113,611Accrued expenses
    
    
    130,669
    
    
    
    134,540Commercial paper
    
    
    38,744
    
    
    
    65,671Total current liabilities
    
    
    247,610
    
    
    
    313,822Long-term debt
    
    
    955,465
    
    
    
    956,148Asset retirement obligations
    
    
    237,458
    
    
    
    227,397Accrued postretirement benefits other than pension
    
    
    39,370
    
    
    
    37,491Accrued pension benefits
    
    
    37,517
    
    
    
    36,616Accrued workers compensation
    
    
    3,757
    
    
    
    3,681Other noncurrent liabilities
    
    
    25,590
    
    
    
    25,551Total liabilities
    
    
    1,546,767
    
    
    
    1,600,706Redeemable membership interest
    
    
    8,844
    
    
    
    8,765Non-redeemable membership interest
    
    
    1,491,391
    
    
    
    1,495,613Total liabilities and membership interests
    
    $
    3,047,002
    
    
    $
    3,105,084
  2




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Arch Western Resources, LLC and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(In thousands)
 Six Months Ended June 302009
    
    
    2008(unaudited)OPERATING ACTIVITIESNet income (loss)
    
    $
    (4,389
    )
    
    $
    115,434Adjustments to reconcile net income to cash provided by operating activities:Depreciation, depletion and amortization
    
    
    74,598
    
    
    
    77,526Net gain on dispositions of property, plant and equipment
    
    
    (30
    )
    
    
    (337
    )Changes in:Receivables
    
    
    402
    
    
    
    1,688Inventories
    
    
    (19,105
    )
    
    
    7,146Accounts payable and accrued expenses
    
    
    (18,600
    )
    
    
    11,946Other
    
    
    22,823
    
    
    
    17,823Cash provided by operating activities
    
    
    55,699
    
    
    
    231,226INVESTING ACTIVITIESCapital expenditures
    
    
    (85,377
    )
    
    
    (171,380
    )Change in receivable from Arch Coal, Inc.
    
    
    60,464
    
    
    
    (86,119
    )Proceeds from dispositions of property, plant and equipment
    
    
    30
    
    
    
    379Additions to prepaid royalties
    
    
    (2,207
    )
    
    
    Reimbursement of deposits on equipment
    
    
    3,209
    
    
    
    2,455Cash used in investing activities
    
    
    (23,881
    )
    
    
    (254,665
    )FINANCING ACTIVITIESNet proceeds from (repayments of) commercial paper
    
    
    (26,927
    )
    
    
    23,616Debt financing costs
    
    
    (125
    )
    
    
    (219
    )Cash provided by (used in) financing activities
    
    
    (27,052
    )
    
    
    23,397Increase (decrease) in cash and cash equivalents
    
    
    4,766
    
    
    
    (42
    )Cash and cash equivalents, beginning of period
    
    
    2,851
    
    
    
    248Cash and cash equivalents, end of period
    
    $
    7,617
    
    
    $
    206
  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
 New Accounting Pronouncements
 Noncontrolling Interests in Consolidated Financial Statements, an amendment of ARB No. 51
 Subsequent Events
 4




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3. Inventories
  June 30,
    
    
    December 31,2009
    
    
    2008(In thousands)Coal
    
    $
    38,550
    
    
    $
    26,989Repair parts and supplies, net of allowance
    
    
    114,281
    
    
    
    106,737$
    152,831
    
    
    $
    133,726
 4. Debt
   5. Comprehensive Income (Loss)
   Three Months Ended June 30
    
    
    Six Months Ended June 302009
    
    
    2008
    
    
    2009
    
    
    2008(In thousands)Net income (loss)
    
    $
    (6,433
    )
    
    $
    56,840
    
    
    $
    (4,389
    )
    
    $
    115,434Other comprehensive income:Net pension, postretirement and
other post-employment benefits
adjustments reclassified to
income
    
    
    375
    
    
    
    22
    
    
    
    293
    
    
    
    160Total comprehensive income (loss)
    
    $
    (6,058
    )
    
    $
    56,862
    
    
    $
    (4,096
    )
    
    $
    115,594
 6. Related Party Transactions
    5




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7. Contingencies
  8. Segment Information
   6




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##### Table of Contents



Corporate,Other andPRB
    
    WBIT
    
    Eliminations
    
    Consolidated(In thousands)Three months ended June 30, 2009Coal sales
    
    $
    248,785
    
    
    $
    112,021
    
    
    $
    
    
    
    $
    360,806Income (loss) from operations
    
    
    9,330
    
    
    
    (4,265
    )
    
    
    (7,233
    )
    
    
    (2,168
    )Depreciation, depletion and amortization
    
    
    17,919
    
    
    
    18,442
    
    
    
    
    
    
    
    36,361Capital expenditures
    
    
    8,092
    
    
    
    27,412
    
    
    
    
    
    
    
    35,504Three months ended June 30, 2008Coal sales
    
    $
    268,568
    
    
    $
    191,385
    
    
    $
    
    
    
    $
    459,953Income (loss) from operations
    
    
    20,262
    
    
    
    44,642
    
    
    
    (10,111
    )
    
    
    54,793Depreciation, depletion and amortization
    
    
    18,125
    
    
    
    19,745
    
    
    
    
    
    
    
    37,870Capital expenditures
    
    
    38,385
    
    
    
    34,500
    
    
    
    
    
    
    
    72,885Six months ended June 30, 2009Coal sales
    
    $
    544,095
    
    
    $
    232,961
    
    
    $
    
    
    
    $
    777,056Income (loss) from operations
    
    
    34,722
    
    
    
    (11,302
    )
    
    
    (17,826
    )
    
    
    5,594Total assets
    
    
    1,880,823
    
    
    
    2,070,520
    
    
    
    (904,341
    )
    
    
    3,047,002Depreciation, depletion and amortization
    
    
    36,745
    
    
    
    37,853
    
    
    
    
    
    
    
    74,598Capital expenditures
    
    
    41,871
    
    
    
    43,506
    
    
    
    
    
    
    
    85,377Six months ended June 30, 2008Coal sales
    
    $
    544,256
    
    
    $
    352,906
    
    
    $
    
    
    
    $
    897,162Income (loss) from operations
    
    
    49,049
    
    
    
    78,603
    
    
    
    (18,635
    )
    
    
    109,017Total assets
    
    
    1,763,537
    
    
    
    2,032,949
    
    
    
    (779,158
    )
    
    
    3,017,328Depreciation, depletion and amortization
    
    
    36,348
    
    
    
    41,178
    
    
    
    
    
    
    
    77,526Capital expenditures
    
    
    76,562
    
    
    
    94,818
    
    
    
    
    
    
    
    171,380
  Three Months Ended
    
    
    Six Months EndedJune 30
    
    
    June 302009
    
    
    2008
    
    
    2009
    
    
    2008(In thousands)Income (loss) from operations
    
    $
    (2,168
    )
    
    $
    54,793
    
    
    $
    5,594
    
    
    $
    109,017Interest expense
    
    
    (15,831
    )
    
    
    (16,107
    )
    
    
    (33,349
    )
    
    
    (33,582
    )Interest income
    
    
    11,566
    
    
    
    18,154
    
    
    
    23,366
    
    
    
    39,999Net income (loss)
    
    $
    (6,433
    )
    
    $
    56,840
    
    
    $
    (4,389
    )
    
    $
    115,434
 9. Supplemental Condensed Consolidating Financial Information
  7




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CONDENSED CONSOLIDATING STATEMENTS OF INCOME
Three Months Ended June 30, 2009
(in thousands)
 Parent
    
    
    
    
    
    
    Guarantor
    
    
    Non-GuarantorCompany
    
    
    Issuer
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    ConsolidatedCoal sales
    
    $
    
    
    
    $
    
    
    
    $
    283,203
    
    
    $
    77,603
    
    
    $
    
    
    
    $
    360,806Cost of coal sales
    
    
    30
    
    
    
    
    
    
    
    258,283
    
    
    
    62,604
    
    
    
    (622
    )
    
    
    320,295Depreciation, depletion and
amortization
    
    
    
    
    
    
    
    
    
    
    24,030
    
    
    
    12,331
    
    
    
    
    
    
    
    36,361Selling, general and administrative
expenses
    
    
    7,240
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    7,240Other operating income, net
    
    
    (63
    )
    
    
    
    
    
    
    (571
    )
    
    
    (910
    )
    
    
    622
    
    
    
    (922
    )7,207
    
    
    
    
    
    
    
    281,742
    
    
    
    74,025
    
    
    
    
    
    
    
    362,974Income from investment in subsidiaries
    
    
    6,060
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (6,060
    )
    
    
    Income (loss) from operations
    
    
    (1,147
    )
    
    
    
    
    
    
    1,461
    
    
    
    3,578
    
    
    
    (6,060
    )
    
    
    (2,168
    )Interest expense
    
    
    (16,807
    )
    
    
    (16,004
    )
    
    
    1,151
    
    
    
    (203
    )
    
    
    16,032
    
    
    
    (15,831
    )Interest income
    
    
    11,521
    
    
    
    16,032
    
    
    
    2
    
    
    
    43
    
    
    
    (16,032
    )
    
    
    11,566(5,286
    )
    
    
    28
    
    
    
    1,153
    
    
    
    (160
    )
    
    
    
    
    
    
    (4,265
    )Net income (loss)
    
    $
    (6,433
    )
    
    $
    28
    
    
    $
    2,614
    
    
    $
    3,418
    
    
    $
    (6,060
    )
    
    $
    (6,433
    )
 8




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CONDENSED CONSOLIDATING STATEMENTS OF INCOME
Three Months Ended June 30, 2008
(in thousands)
 Non-Parent
    
    
    
    
    
    
    Guarantor
    
    
    GuarantorCompany
    
    
    Issuer
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    ConsolidatedCoal sales
    
    $
    
    
    
    $
    
    
    
    $
    352,248
    
    
    $
    107,705
    
    
    $
    
    
    
    $
    459,953Cost of coal sales
    
    
    824
    
    
    
    
    
    
    
    272,046
    
    
    
    86,747
    
    
    
    (491
    )
    
    
    359,126Depreciation, depletion
and amortization
    
    
    
    
    
    
    
    
    
    
    23,429
    
    
    
    14,441
    
    
    
    
    
    
    
    37,870Selling, general and
administrative expenses
    
    
    9,333
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    9,333Other operating income, net
    
    
    (46
    )
    
    
    
    
    
    
    (889
    )
    
    
    (725
    )
    
    
    491
    
    
    
    (1,169
    )10,111
    
    
    
    
    
    
    
    294,586
    
    
    
    100,463
    
    
    
    
    
    
    
    405,160Income from investment in
subsidiaries
    
    
    67,366
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (67,366
    )
    
    
    Income from operations
    
    
    57,255
    
    
    
    
    
    
    
    57,662
    
    
    
    7,242
    
    
    
    (67,366
    )
    
    
    54,793Interest expense
    
    
    (18,290
    )
    
    
    (13,254
    )
    
    
    (171
    )
    
    
    (424
    )
    
    
    16,032
    
    
    
    (16,107
    )Interest income
    
    
    17,875
    
    
    
    16,032
    
    
    
    54
    
    
    
    225
    
    
    
    (16,032
    )
    
    
    18,154(415
    )
    
    
    2,778
    
    
    
    (117
    )
    
    
    (199
    )
    
    
    
    
    
    
    2,047Net income
    
    $
    56,840
    
    
    $
    2,778
    
    
    $
    57,545
    
    
    $
    7,043
    
    
    $
    (67,366
    )
    
    $
    56,840
 9




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CONDENSED CONSOLIDATING STATEMENTS OF INCOME
Six Months Ended June 30, 2009
(in thousands)
 Non-Parent
    
    
    
    
    
    
    Guarantor
    
    
    GuarantorCompany
    
    
    Issuer
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    ConsolidatedCoal sales
    
    $
    
    
    
    $
    
    
    
    $
    609,147
    
    
    $
    167,909
    
    
    $
    
    
    
    $
    777,056Cost of coal sales
    
    
    864
    
    
    
    
    
    
    
    547,285
    
    
    
    134,985
    
    
    
    (1,467
    )
    
    
    681,667Depreciation, depletion
and amortization
    
    
    
    
    
    
    
    
    
    
    48,977
    
    
    
    25,621
    
    
    
    
    
    
    
    74,598Selling, general and
administrative expenses
    
    
    17,068
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    17,068Other operating income, net
    
    
    (132
    )
    
    
    
    
    
    
    (1,212
    )
    
    
    (1,994
    )
    
    
    1,467
    
    
    
    (1,871
    )17,800
    
    
    
    
    
    
    
    595,050
    
    
    
    158,612
    
    
    
    
    
    
    
    771,462Income from investment in
subsidiaries
    
    
    24,139
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (24,139
    )
    
    
    Income from operations
    
    
    6,339
    
    
    
    
    
    
    
    14,097
    
    
    
    9,297
    
    
    
    (24,139
    )
    
    
    5,594Interest expense
    
    
    (33,902
    )
    
    
    (32,037
    )
    
    
    982
    
    
    
    (455
    )
    
    
    32,063
    
    
    
    (33,349
    )Interest income
    
    
    23,174
    
    
    
    32,063
    
    
    
    29
    
    
    
    163
    
    
    
    (32,063
    )
    
    
    23,366(10,728
    )
    
    
    26
    
    
    
    1,011
    
    
    
    (292
    )
    
    
    
    
    
    
    (9,983
    )Net income (loss)
    
    $
    (4,389
    )
    
    $
    26
    
    
    $
    15,108
    
    
    $
    9,005
    
    
    $
    (24,139
    )
    
    $
    (4,389
    )
 10




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CONDENSED CONSOLIDATING STATEMENTS OF INCOME
Six Months Ended June 30, 2008
(in thousands)
 Non-Parent
    
    
    
    
    
    
    Guarantor
    
    
    GuarantorCompany
    
    
    Issuer
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    ConsolidatedCoal sales
    
    $
    
    
    
    $
    
    
    
    $
    692,382
    
    
    $
    204,780
    
    
    $
    
    
    
    $
    897,162Cost of coal sales
    
    
    1,822
    
    
    
    
    
    
    
    538,567
    
    
    
    156,582
    
    
    
    (1,122
    )
    
    
    695,849Depreciation, depletion
and amortization
    
    
    
    
    
    
    
    
    
    
    46,169
    
    
    
    31,357
    
    
    
    
    
    
    
    77,526Selling, general and
administrative expenses
    
    
    16,890
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    16,890Other operating income, net
    
    
    (77
    )
    
    
    
    
    
    
    (1,664
    )
    
    
    (1,501
    )
    
    
    1,122
    
    
    
    (2,120
    )18,635
    
    
    
    
    
    
    
    583,072
    
    
    
    186,438
    
    
    
    
    
    
    
    788,145Income from investment in
subsidiaries
    
    
    131,832
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (131,832
    )
    
    
    Income from operations
    
    
    113,197
    
    
    
    
    
    
    
    109,310
    
    
    
    18,342
    
    
    
    (131,832
    )
    
    
    109,017Interest expense
    
    
    (37,072
    )
    
    
    (27,411
    )
    
    
    (276
    )
    
    
    (886
    )
    
    
    32,063
    
    
    
    (33,582
    )Interest income
    
    
    39,309
    
    
    
    32,063
    
    
    
    142
    
    
    
    548
    
    
    
    (32,063
    )
    
    
    39,9992,237
    
    
    
    4,652
    
    
    
    (134
    )
    
    
    (338
    )
    
    
    
    
    
    
    6,417Net income
    
    $
    115,434
    
    
    $
    4,652
    
    
    $
    109,176
    
    
    $
    18,004
    
    
    $
    (131,832
    )
    
    $
    115,434
 11




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##### Table of Contents



CONDENSED CONSOLIDATING BALANCE SHEETS
June 30, 2009
(in thousands)
 Parent
    
    
    
    
    
    
    Guarantor
    
    
    Non-GuarantorCompany
    
    
    Issuer
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    ConsolidatedCash and cash equivalents
    
    $
    7,489
    
    
    $
    
    
    
    $
    61
    
    
    $
    67
    
    
    $
    
    
    
    $
    7,617Receivables
    
    
    565
    
    
    
    
    
    
    
    1,399
    
    
    
    564
    
    
    
    
    
    
    
    2,528Inventories
    
    
    
    
    
    
    
    
    
    
    113,305
    
    
    
    39,526
    
    
    
    
    
    
    
    152,831Other
    
    
    6,226
    
    
    
    2,146
    
    
    
    5,453
    
    
    
    8,993
    
    
    
    
    
    
    
    22,818Total current assets
    
    
    14,280
    
    
    
    2,146
    
    
    
    120,218
    
    
    
    49,150
    
    
    
    
    
    
    
    185,794Property, plant and equipment, net
    
    
    
    
    
    
    
    
    
    
    1,062,707
    
    
    
    315,899
    
    
    
    
    
    
    
    1,378,606Investment in subsidiaries
    
    
    2,376,858
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,376,858
    )
    
    
    Receivable from Arch Coal
    
    
    1,441,642
    
    
    
    
    
    
    
    
    
    
    
    25,964
    
    
    
    
    
    
    
    1,467,606Intercompanies
    
    
    (2,267,630
    )
    
    
    993,470
    
    
    
    1,106,492
    
    
    
    167,668
    
    
    
    
    
    
    
    Other
    
    
    1,414
    
    
    
    6,399
    
    
    
    2,783
    
    
    
    4,400
    
    
    
    
    
    
    
    14,996Total other assets
    
    
    1,552,284
    
    
    
    999,869
    
    
    
    1,109,275
    
    
    
    198,032
    
    
    
    (2,376,858
    )
    
    
    1,482,602Total assets
    
    $
    1,566,564
    
    
    $
    1,002,015
    
    
    $
    2,292,200
    
    
    $
    563,081
    
    
    $
    (2,376,858
    )
    
    $
    3,047,002Accounts payable
    
    $
    1,874
    
    
    $
    
    
    
    $
    60,571
    
    
    $
    15,752
    
    
    $
    
    
    
    $
    78,197Accrued expenses
    
    
    3,692
    
    
    
    32,063
    
    
    
    85,966
    
    
    
    8,948
    
    
    
    
    
    
    
    130,669Commercial paper
    
    
    38,744
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    38,744Total current liabilities
    
    
    44,310
    
    
    
    32,063
    
    
    
    146,537
    
    
    
    24,700
    
    
    
    
    
    
    
    247,610Long-term debt
    
    
    
    
    
    
    955,465
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    955,465Asset retirement obligations
    
    
    
    
    
    
    
    
    
    
    223,873
    
    
    
    13,585
    
    
    
    
    
    
    
    237,458Accrued postretirement benefits other
than pension
    
    
    8,827
    
    
    
    
    
    
    
    18,374
    
    
    
    12,169
    
    
    
    
    
    
    
    39,370Accrued pension benefits
    
    
    13,040
    
    
    
    
    
    
    
    19,364
    
    
    
    5,113
    
    
    
    
    
    
    
    37,517Accrued workers compensation
    
    
    (1,350
    )
    
    
    
    
    
    
    1,123
    
    
    
    3,984
    
    
    
    
    
    
    
    3,757Other noncurrent liabilities
    
    
    1,502
    
    
    
    
    
    
    
    24,072
    
    
    
    16
    
    
    
    
    
    
    
    25,590Total liabilities
    
    
    66,329
    
    
    
    987,528
    
    
    
    433,343
    
    
    
    59,567
    
    
    
    
    
    
    
    1,546,767Redeemable membership interest
    
    
    8,844
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    8,844Non-redeemable membership interest
    
    
    1,491,391
    
    
    
    14,487
    
    
    
    1,858,857
    
    
    
    503,514
    
    
    
    (2,376,858
    )
    
    
    1,491,391Total liabilities and membership
interests
    
    $
    1,566,564
    
    
    $
    1,002,015
    
    
    $
    2,292,200
    
    
    $
    563,081
    
    
    $
    (2,376,858
    )
    
    $
    3,047,002
 12




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##### Table of Contents



CONDENSED CONSOLIDATING BALANCE SHEETS
December 31, 2008
(in thousands)
 Parent
    
    
    
    
    
    
    Guarantor
    
    
    Non-GuarantorCompany
    
    
    Issuer
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    ConsolidatedCash and cash equivalents
    
    $
    2,690
    
    
    $
    
    
    
    $
    84
    
    
    $
    77
    
    
    $
    
    
    
    $
    2,851Receivables
    
    
    1,250
    
    
    
    
    
    
    
    1,138
    
    
    
    542
    
    
    
    
    
    
    
    2,930Inventories
    
    
    
    
    
    
    
    
    
    
    102,216
    
    
    
    31,510
    
    
    
    
    
    
    
    133,726Other
    
    
    10,330
    
    
    
    2,154
    
    
    
    4,669
    
    
    
    4,464
    
    
    
    
    
    
    
    21,617Total current assets
    
    
    14,270
    
    
    
    2,154
    
    
    
    108,107
    
    
    
    36,593
    
    
    
    
    
    
    
    161,124Property, plant and equipment, net
    
    
    
    
    
    
    
    
    
    
    1,065,064
    
    
    
    326,777
    
    
    
    
    
    
    
    1,391,841Investment in subsidiaries
    
    
    2,362,717
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,362,717
    )
    
    
    Receivable from Arch Coal
    
    
    1,498,201
    
    
    
    
    
    
    
    
    
    
    
    29,867
    
    
    
    
    
    
    
    1,528,068Intercompanies
    
    
    (2,238,175
    )
    
    
    993,048
    
    
    
    1,090,674
    
    
    
    154,453
    
    
    
    
    
    
    
    Other
    
    
    700
    
    
    
    7,471
    
    
    
    11,474
    
    
    
    4,406
    
    
    
    
    
    
    
    24,051Total other assets
    
    
    1,623,443
    
    
    
    1,000,519
    
    
    
    1,102,148
    
    
    
    188,726
    
    
    
    (2,362,717
    )
    
    
    1,552,119Total assets
    
    $
    1,637,713
    
    
    $
    1,002,673
    
    
    $
    2,275,319
    
    
    $
    552,096
    
    
    $
    (2,362,717
    )
    
    $
    3,105,084Accounts payable
    
    $
    7,167
    
    
    $
    
    
    
    $
    88,938
    
    
    $
    17,506
    
    
    $
    
    
    
    $
    113,611Accrued expenses
    
    
    4,293
    
    
    
    32,063
    
    
    
    90,605
    
    
    
    7,579
    
    
    
    
    
    
    
    134,540Commercial paper
    
    
    65,671
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    65,671Total current liabilities
    
    
    77,131
    
    
    
    32,063
    
    
    
    179,543
    
    
    
    25,085
    
    
    
    
    
    
    
    313,822Long-term debt
    
    
    
    
    
    
    956,148
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    956,148Asset retirement obligations
    
    
    
    
    
    
    
    
    
    
    214,388
    
    
    
    13,009
    
    
    
    
    
    
    
    227,397Accrued postretirement benefits other
than pension
    
    
    23,492
    
    
    
    
    
    
    
    2,485
    
    
    
    11,514
    
    
    
    
    
    
    
    37,491Accrued pension benefits
    
    
    32,671
    
    
    
    
    
    
    
    
    
    
    
    3,945
    
    
    
    
    
    
    
    36,616Accrued workers compensation
    
    
    (1,045
    )
    
    
    
    
    
    
    642
    
    
    
    4,084
    
    
    
    
    
    
    
    3,681Other noncurrent liabilities
    
    
    1,086
    
    
    
    
    
    
    
    24,465
    
    
    
    
    
    
    
    
    
    
    
    25,551Total liabilities
    
    
    133,335
    
    
    
    988,211
    
    
    
    421,523
    
    
    
    57,637
    
    
    
    
    
    
    
    1,600,706Redeemable membership interest
    
    
    8,765
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    8,765Non-redeemable membership interest
    
    
    1,495,613
    
    
    
    14,462
    
    
    
    1,853,796
    
    
    
    494,459
    
    
    
    (2,362,717
    )
    
    
    1,495,613Total liabilities and membership
interests
    
    $
    1,637,713
    
    
    $
    1,002,673
    
    
    $
    2,275,319
    
    
    $
    552,096
    
    
    $
    (2,362,717
    )
    
    $
    3,105,084
 13




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##### Table of Contents



CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
Six Months Ended June 30, 2009
(in thousands)
 Parent
    
    
    
    
    
    
    Guarantor
    
    
    Non-GuarantorCompany
    
    
    Issuer
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    ConsolidatedCash provided by (used in) operating
activities
    
    $
    (54,165
    )
    
    $
    422
    
    
    $
    85,110
    
    
    $
    24,332
    
    
    $
    55,699Investing ActivitiesCapital expenditures
    
    
    
    
    
    
    
    
    
    
    (70,322
    )
    
    
    (15,055
    )
    
    
    (85,377
    )Change in receivable from Arch Coal
    
    
    56,561
    
    
    
    
    
    
    
    
    
    
    
    3,903
    
    
    
    60,464Proceeds from dispositions of property, plant and equipment
    
    
    
    
    
    
    
    
    
    
    5
    
    
    
    25
    
    
    
    30Additions to prepaid royalties
    
    
    
    
    
    
    
    
    
    
    (2,207
    )
    
    
    
    
    
    
    (2,207
    )Reimbursement of deposits on equipment
    
    
    
    
    
    
    
    
    
    
    3,209
    
    
    
    
    
    
    
    3,209Cash provided by (used in) investing activities
    
    
    56,561
    
    
    
    
    
    
    
    (69,315
    )
    
    
    (11,127
    )
    
    
    (23,881
    )Financing ActivitiesNet payments on commercial paper
    
    
    (26,927
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (26,927
    )Debt financing costs
    
    
    (125
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (125
    )Transactions with affiliates, net
    
    
    29,455
    
    
    
    (422
    )
    
    
    (15,818
    )
    
    
    (13,215
    )
    
    
    Cash provided by (used in) financing
activities
    
    
    2,403
    
    
    
    (422
    )
    
    
    (15,818
    )
    
    
    (13,215
    )
    
    
    (27,052
    )Increase (decrease) in cash and cash equivalents
    
    
    4,799
    
    
    
    
    
    
    
    (23
    )
    
    
    (10
    )
    
    
    4,766Cash and cash equivalents, beginning of
period
    
    
    2,690
    
    
    
    
    
    
    
    84
    
    
    
    77
    
    
    
    2,851Cash and cash equivalents, end of period
    
    $
    7,489
    
    
    $
    
    
    
    $
    61
    
    
    $
    67
    
    
    $
    7,617
 14




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##### Table of Contents



CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
Six Months Ended June 30, 2008
(in thousands)
 Parent
    
    
    
    
    
    
    Guarantor
    
    
    Non-GuarantorCompany
    
    
    Issuer
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    ConsolidatedCash provided by operating
activities
    
    $
    49,042
    
    
    $
    5,049
    
    
    $
    116,216
    
    
    $
    60,919
    
    
    $
    231,226Investing ActivitiesCapital expenditures
    
    
    
    
    
    
    
    
    
    
    (160,219
    )
    
    
    (11,161
    )
    
    
    (171,380
    )Increase in receivable from Arch Coal
    
    
    (81,770
    )
    
    
    
    
    
    
    (112
    )
    
    
    (4,237
    )
    
    
    (86,119
    )Proceeds from dispositions of property, plant and equipment
    
    
    
    
    
    
    
    
    
    
    356
    
    
    
    23
    
    
    
    379Reimbursement of deposits on equipment
    
    
    
    
    
    
    
    
    
    
    2,455
    
    
    
    
    
    
    
    2,455Cash used in investing activities
    
    
    (81,770
    )
    
    
    
    
    
    
    (157,520
    )
    
    
    (15,375
    )
    
    
    (254,665
    )Financing ActivitiesNet proceeds from commercial paper
    
    
    23,616
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    23,616Debt financing costs
    
    
    (219
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (219
    )Transactions with affiliates, net
    
    
    9,291
    
    
    
    (5,049
    )
    
    
    41,306
    
    
    
    (45,548
    )
    
    
    Cash provided by (used in) financing
activities
    
    
    32,688
    
    
    
    (5,049
    )
    
    
    41,306
    
    
    
    (45,548
    )
    
    
    23,397Increase (decrease) in cash and cash equivalents
    
    
    (40
    )
    
    
    
    
    
    
    2
    
    
    
    (4
    )
    
    
    (42
    )Cash and cash equivalents, beginning of
period
    
    
    78
    
    
    
    
    
    
    
    16
    
    
    
    154
    
    
    
    248Cash and cash equivalents, end of period
    
    $
    38
    
    
    $
    
    
    
    $
    18
    
    
    $
    150
    
    
    $
    206
 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, 2008 and under Part III,
Item 1A of this report.
 Overview
    Results of Operations
 Three Months Ended June 30, 2009 Compared to Three Months Ended June 30, 2008
 Summary
 16




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##### Table of Contents



Revenues.
 Three Months Ended June 30
    
    Decrease2009
    
    2008
    
    Amount
    
    %(Amounts in thousands, except per ton data and percentages)Coal sales
    
    $
    360,806
    
    
    $
    459,953
    
    
    $
    (99,147
    )
    
    
    (21.6
    )%Tons sold
    
    
    23,649
    
    
    
    29,692
    
    
    
    (6,043
    )
    
    
    (20.4
    )%Coal sales realization per ton sold
    
    $
    15.26
    
    
    $
    15.49
    
    
    $
    (0.23
    )
    
    
    (1.5
    )%
  Costs, expenses and other.
 Increase (Decrease)Three Months Ended June 30
    
    
    in Net Income2009
    
    
    2008
    
    
    $
    
    
    %(Amounts in thousands, except percentages)Cost of coal sales
    
    $
    320,295
    
    
    $
    359,126
    
    
    $
    38,831
    
    
    
    10.8
    %Depreciation, depletion and amortization
    
    
    36,361
    
    
    
    37,870
    
    
    
    1,509
    
    
    
    4.0Selling, general and administrative expenses
    
    
    7,240
    
    
    
    9,333
    
    
    
    2,093
    
    
    
    22.4Other operating income, net
    
    
    (922
    )
    
    
    (1,169
    )
    
    
    (247
    )
    
    
    (21.1
    )$
    362,974
    
    
    $
    405,160
    
    
    $
    42,186
    
    
    
    10.4
    %
 Cost of coal sales.
 Depreciation, depletion and amortization.
 Selling, general and administrative expenses.
 Operating segment results
 Three Months Ended June 30
    
    Increase (Decrease)2009
    
    2008
    
    $
    
    %Powder River BasinTons sold (in thousands)
    
    
    20,176
    
    
    
    24,077
    
    
    
    (3,901
    )
    
    
    (16.2
    )%Coal sales realization per ton sold (1)
    
    $
    12.28
    
    
    $
    11.12
    
    
    $
    1.16
    
    
    
    10.4
    %Operating margin per ton sold (2)
    
    $
    0.43
    
    
    $
    0.81
    
    
    $
    (0.38
    )
    
    
    (46.9
    )%Western BituminousTons sold (in thousands)
    
    
    3,473
    
    
    
    5,615
    
    
    
    (2,142
    )
    
    
    (38.1
    )%Coal sales realization per ton sold (1)
    
    $
    29.93
    
    
    $
    29.93
    
    
    $
    
    
    
    
    
    %Operating margin per ton sold (2)
    
    $
    (1.51
    )
    
    $
    7.78
    
    
    $
    (9.29
    )
    
    
    (119.4
    )%
 
 (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
June 30, 2009, transportation costs per ton were $0.05 for the Powder River Basin and $2.32
for the Western Bituminous region. For the three months ended June 30, 2008, transportation
costs were $0.03 for the Powder River Basin and $4.16 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. 17




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##### Table of Contents



Powder River Basin 
 Western Bituminous 
 Net interest expense
 Increase (Decrease) in NetThree Months Ended June 30
    
    
    Income2009
    
    
    2008
    
    
    $
    
    
    %(Amounts in thousands, except percentages)Interest expense
    
    $
    (15,831
    )
    
    $
    (16,107
    )
    
    $
    276
    
    
    
    1.7
    %Interest income
    
    
    11,566
    
    
    
    18,154
    
    
    
    (6,588
    )
    
    
    (36.3
    )%$
    (4,265
    )
    
    $
    2,047
    
    
    $
    (6,312
    )
    
    
    (308.4
    )%
   Six Months Ended June 30, 2009 Compared to Six Months Ended June 30, 2008
 Summary
 Revenues.
 Six Months Ended June 30
    
    Decrease2009
    
    2008
    
    Amount
    
    %(Amounts in thousands, except per ton data and percentages)Coal sales
    
    $
    777,056
    
    
    $
    897,162
    
    
    $
    (120,106
    )
    
    
    (13.4
    )%Tons sold
    
    
    49,905
    
    
    
    59,878
    
    
    
    (9,973
    )
    
    
    (16.7
    )%Coal sales realization per ton sold
    
    $
    15.57
    
    
    $
    14.98
    
    
    $
    0.59
    
    
    
    3.9
    %
  18




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##### Table of Contents



Costs, expenses and other.
 Increase (Decrease)Six Months Ended June 30
    
    
    in Net Income2009
    
    
    2008
    
    
    $
    
    
    %(Amounts in thousands, except percentages)Cost of coal sales
    
    $
    681,667
    
    
    $
    695,849
    
    
    $
    14,182
    
    
    
    2.0
    %Depreciation, depletion and amortization
    
    
    74,598
    
    
    
    77,526
    
    
    
    2,928
    
    
    
    3.8Selling, general and administrative expenses
    
    
    17,068
    
    
    
    16,890
    
    
    
    (178
    )
    
    
    (1.1
    )Other operating income, net
    
    
    (1,871
    )
    
    
    (2,120
    )
    
    
    (249
    )
    
    
    (11.7
    )$
    771,462
    
    
    $
    788,145
    
    
    $
    16,683
    
    
    
    2.1
    %
 Cost of coal sales.
 Depreciation, depletion and amortization.
 Selling, general and administrative expenses.
 Operating segment results
 Six Months Ended June 30
    
    Increase (Decrease)2009
    
    2008
    
    $
    
    %Powder River BasinTons sold (in thousands)
    
    
    42,533
    
    
    
    49,229
    
    
    
    (6,696
    )
    
    
    (13.6
    )%Coal sales realization per ton sold (3)
    
    $
    12.66
    
    
    $
    11.01
    
    
    $
    1.65
    
    
    
    15.0
    %Operating margin per ton sold(4)
    
    $
    0.79
    
    
    $
    0.97
    
    
    $
    (0.18
    )
    
    
    (18.6
    )%Western BituminousTons sold (in thousands)
    
    
    7,372
    
    
    
    10,649
    
    
    
    (3,277
    )
    
    
    (30.8
    )%Coal sales realization per ton sold (3)
    
    $
    28.96
    
    
    $
    28.42
    
    
    $
    0.54
    
    
    
    1.9
    %Operating margin per ton sold(4)
    
    $
    (1.82
    )
    
    $
    7.22
    
    
    $
    (9.04
    )
    
    
    (125.2
    )%
 
 (3)
    
    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 six months ended
June 30, 2009, transportation costs per ton were $0.13 for the Powder River Basin and $2.64
for the Western Bituminous region. For the six months ended June 30, 2008, transportation
costs were $0.04 for the Powder River Basin and $4.72 for the Western Bituminous region.(4)
    
    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 
 19




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##### Table of Contents



Net interest expense
 Increase (Decrease) in NetSix Months Ended June 30
    
    
    Income2009
    
    
    2008
    
    
    $
    
    
    %(Amounts in thousands, except percentages)Interest expense
    
    $
    (33,349
    )
    
    $
    (33,582
    )
    
    $
    233
    
    
    
    0.7
    %Interest income
    
    
    23,366
    
    
    
    39,999
    
    
    
    (16,633
    )
    
    
    (41.6
    )%$
    (9,983
    )
    
    $
    6,417
    
    
    $
    (16,400
    )
    
    
    (255.6
    )%
   Liquidity and Capital Resources
 Credit crisis and economic environment
  Liquidity and capital resources
   20




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##### Table of Contents



Six Months Ended June 302009
    
    2008(in thousands)Cash provided by (used in):Operating activities
    
    $
    55,699
    
    
    $
    231,226Investing activities
    
    
    (23,881
    )
    
    
    (254,665
    )Financing activities
    
    
    (27,052
    )
    
    
    23,397
    
 Item 3. Quantitative and Qualitative Disclosures About Market Risk.
  21




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##### Table of Contents



Item 4T. Controls and Procedures.
  
 PART II
OTHER INFORMATION
 
 Item 1. Legal Proceedings.
   
 Item 1A. Risk Factors.
  Certain of our customers have deferred, and other customers may in the future seek to defer,
contracted shipments of coal, which could affect our results of operations and liquidity.
  
 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.
  22




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##### Table of Contents



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.
 23




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##### Table of Contents



Signatures
  Arch Western Resources, LLCBy:
    
    /s/ John T. DrexlerJohn T. DrexlerVice PresidentAugust 14, 2009
 24