##### 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 March 31, 2007
 o
    
    Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
 For the transition period from  to .
 Commission file number: 333-107569-03
 Arch Western Resources, LLC
  Delaware
    
    43-1811130(State or other jurisdiction
    
    (I.R.S. Employerof incorporation or organization)
    
    Identification Number)One CityPlace Drive, Suite 300, St. Louis, Missouri
    
    63141(Address of principal executive offices)
    
    (Zip code)
  þ o
  o o þ
 o þ




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##### 



Table of Contents
 PagePart I Financial Information
    
    
    1Item 1. Financial Statements
    
    
    1Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    13Item 3. Quantitative and Qualitative Disclosures About Market Risk
    
    
    16Item 4. Controls and Procedures
    
    
    16Part II Other Information
    
    
    17Item 1. Legal Proceedings
    
    
    17Item 1A.
Risk Factors
    
    
    17Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    17Item 3. Defaults Upon Senior Securities
    
    
    17Item 4. Submission of Matters to a Vote of Security Holders
    
    
    17Item 5. Other Information
    
    
    17Item 6. Exhibits
    
    
    17Section 302 CertificationSection 302 CertificationSection 1350 CertificationSection 1350 Certification
  i




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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 312007
    
    
    2006(unaudited)REVENUESCoal sales
    
    $
    370,097
    
    
    $
    362,196COSTS, EXPENSES AND OTHERCost of coal sales
    
    
    283,271
    
    
    
    252,130Depreciation, depletion and amortization
    
    
    32,519
    
    
    
    23,576Selling, general and administrative expenses
    
    
    6,152
    
    
    
    5,489Other operating income, net
    
    
    (923
    )
    
    
    (475
    )321,019
    
    
    
    280,720Income from operations
    
    
    49,078
    
    
    
    81,476Interest income (expense), net:Interest expense
    
    
    (17,621
    )
    
    
    (17,736
    )Interest income, primarily from Arch Coal, Inc.
    
    
    22,821
    
    
    
    16,3225,200
    
    
    
    (1,414
    )Other non-operating expense:Expenses resulting from early debt extinguishment and
termination of hedge accounting for interest rate swaps
    
    
    (1,269
    )
    
    
    (2,718
    )Income before minority interest
    
    
    53,009
    
    
    
    77,344Minority interest
    
    
    (4,732
    )
    
    
    (13,367
    )Net income
    
    $
    48,277
    
    
    $
    63,977Net income attributable to redeemable membership interest
    
    $
    241
    
    
    $
    320Net income attributable to non-redeemable membership interest
    
    $
    48,036
    
    
    $
    63,657
  1




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Arch Western Resources, LLC and Subsidiaries
Condensed Consolidated Balance Sheets
(In thousands)
 March 31,
    
    
    December 31,2007
    
    
    2006(unaudited)ASSETSCurrent assets:Cash and cash equivalents
    
    $
    77
    
    
    $
    186Trade accounts receivable
    
    
    41
    
    
    
    985Other receivables
    
    
    5,208
    
    
    
    14,733Inventories
    
    
    100,218
    
    
    
    94,828Prepaid royalties
    
    
    1,473
    
    
    
    2,945Other
    
    
    23,723
    
    
    
    24,458Total current assets
    
    
    130,740
    
    
    
    138,135Property, plant and equipment, net
    
    
    1,230,325
    
    
    
    1,233,846Other assets:Receivable from Arch Coal, Inc.
    
    
    1,191,460
    
    
    
    1,152,102Other
    
    
    30,442
    
    
    
    33,689Total other assets
    
    
    1,221,902
    
    
    
    1,185,791Total assets
    
    $
    2,582,967
    
    
    $
    2,557,772LIABILITIES AND MEMBERS INTERESTSCurrent liabilities:Accounts payable
    
    $
    91,721
    
    
    $
    110,725Accrued expenses
    
    
    105,601
    
    
    
    129,495Total current liabilities
    
    
    197,322
    
    
    
    240,220Long-term debt
    
    
    958,539
    
    
    
    958,881Accrued postretirement benefits other than pension
    
    
    31,161
    
    
    
    31,036Asset retirement obligations
    
    
    178,887
    
    
    
    174,902Accrued workers compensation
    
    
    10,170
    
    
    
    10,027Other noncurrent liabilities
    
    
    48,213
    
    
    
    38,705Total liabilities
    
    
    1,424,292
    
    
    
    1,453,771Redeemable membership interest
    
    
    7,183
    
    
    
    6,934Minority interest
    
    
    167,254
    
    
    
    162,522Non-redeemable membership interest
    
    
    984,238
    
    
    
    934,545Total liabilities and membership interests
    
    $
    2,582,967
    
    
    $
    2,557,772
  2




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Arch Western Resources, LLC and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(In thousands)
 Three Months Ended March 312007
    
    
    2006(unaudited)OPERATING ACTIVITIESNet income
    
    $
    48,277
    
    
    $
    63,977Adjustments to reconcile net income to cash provided by operating activities:Depreciation, depletion and amortization
    
    
    32,519
    
    
    
    23,576Prepaid royalties expensed
    
    
    1,615
    
    
    
    103Minority interest
    
    
    4,732
    
    
    
    13,367Other non-operating expense
    
    
    1,269
    
    
    
    2,718Changes in:Receivables
    
    
    10,469
    
    
    
    112,854Inventories
    
    
    (5,390
    )
    
    
    576Accounts payable and accrued expenses
    
    
    (43,444
    )
    
    
    (25,171
    )Other
    
    
    18,769
    
    
    
    13,021Cash provided by operating activities
    
    
    68,816
    
    
    
    205,021INVESTING ACTIVITIESCapital expenditures
    
    
    (42,861
    )
    
    
    (61,096
    )Increase in receivable from Arch Coal, Inc.
    
    
    (39,788
    )
    
    
    (144,027
    )Proceeds from dispositions of property, plant and equipment
    
    
    232
    
    
    
    Reimbursement of deposits on equipment
    
    
    13,492
    
    
    
    Cash used in investing activities
    
    
    (68,925
    )
    
    
    (205,123
    )Decrease in cash and cash equivalents
    
    
    (109
    )
    
    
    (102
    )Cash and cash equivalents, beginning of period
    
    
    186
    
    
    
    152Cash and cash equivalents, end of period
    
    $
    77
    
    
    $
    50
  3




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Arch Western Resources, LLC and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(unaudited)
 1. Basis of Presentation
   2. Accounting Policies
 Accounting Standards Issued and Not Yet Adopted
 The Fair Value Option for Financial Liabilities  Including
an amendment of FASB Statement No. 115
 3. Inventories
  March 31,
    
    
    December 31,2007
    
    
    2006(In thousands)Coal
    
    $
    31,133
    
    
    $
    31,350Repair parts and supplies
    
    
    69,085
    
    
    
    63,478$
    100,218
    
    
    $
    94,828
 4




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4. Comprehensive Income
 Reporting
Comprehensive Income
  Three Months Ended March 312007
    
    
    2006(In thousands)Net income
    
    $
    48,277
    
    
    $
    63,977Other comprehensive income, net of income taxes:Pension, postretirement and other post-employment benefits adjustment
    
    
    505
    
    
    
    Unrealized gains on derivatives
    
    
    1,269
    
    
    
    2,718Total comprehensive income
    
    $
    50,051
    
    
    $
    66,695
 5. Related Party Transactions
      6. Contingencies
  7. Segment Information
  5




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Corporate,Other andPRB
    
    WBIT
    
    Eliminations
    
    Consolidated(In thousands)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
 Corporate,Other andPRB
    
    WBIT
    
    Eliminations
    
    Consolidated(In thousands)March 31, 2006Coal sales
    
    $
    252,389
    
    
    $
    109,807
    
    
    $
    
    
    
    $
    362,196Income (loss) from operations
    
    
    62,213
    
    
    
    25,713
    
    
    
    (6,450
    )
    
    
    81,476Total assets
    
    
    1,373,537
    
    
    
    1,722,528
    
    
    
    (854,540
    )
    
    
    2,241,525Depreciation, depletion and amortization
    
    
    14,598
    
    
    
    8,978
    
    
    
    
    
    
    
    23,576Capital expenditures
    
    
    39,155
    
    
    
    21,941
    
    
    
    
    
    
    
    61,096
  Three Months EndedMarch 312007
    
    
    2006(In thousands)Income from operations
    
    $
    49,078
    
    
    $
    81,476Interest expense
    
    
    (17,621
    )
    
    
    (17,736
    )Interest income
    
    
    22,821
    
    
    
    16,322Other non-operating expense
    
    
    (1,269
    )
    
    
    (2,718
    )Income before minority interest
    
    $
    53,009
    
    
    $
    77,344
 8. Supplemental Condensed Consolidating Financial Information
  6




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Statements of Operations
Three Months Ended March 31, 2007
(in thousands)
 Guarantor
    
    
    Non-GuarantorParent Company
    
    
    Issuer
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    ConsolidatedCoal sales revenues
    
    $
    
    
    
    $
    
    
    
    $
    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
    
    
    (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 (loss)
    
    $
    48,277
    
    
    $
    1,007
    
    
    $
    42,317
    
    
    $
    13,663
    
    
    $
    (56,987
    )
    
    $
    48,277
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Statements of Operations
Three Months Ended March 31, 2006
(in thousands)
 Guarantor
    
    
    Non-GuarantorParent Company
    
    
    Issuer
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    ConsolidatedCoal sales revenues
    
    $
    
    
    
    $
    
    
    
    $
    263,005
    
    
    $
    99,191
    
    
    $
    
    
    
    $
    362,196Cost of coal sales
    
    
    979
    
    
    
    
    
    
    
    192,126
    
    
    
    59,025
    
    
    
    
    
    
    
    252,130Depreciation, depletion and amortization
    
    
    
    
    
    
    
    
    
    
    17,706
    
    
    
    5,870
    
    
    
    
    
    
    
    23,576Selling, general and administrative
expenses allocated from Arch Coal
    
    
    5,489
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,489Other operating income
    
    
    (18
    )
    
    
    
    
    
    
    (288
    )
    
    
    (169
    )
    
    
    
    
    
    
    (475
    )6,450
    
    
    
    
    
    
    
    209,544
    
    
    
    64,726
    
    
    
    
    
    
    
    280,720Income from investment in subsidiaries
    
    
    88,004
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (88,004
    )
    
    
    Income from operations
    
    
    81,554
    
    
    
    
    
    
    
    53,461
    
    
    
    34,465
    
    
    
    (88,004
    )
    
    
    81,476Interest expense
    
    
    (17,432
    )
    
    
    (15,501
    )
    
    
    (271
    )
    
    
    (530
    )
    
    
    15,998
    
    
    
    (17,736
    )Interest income, primarily from Arch Coal
    
    
    15,940
    
    
    
    15,998
    
    
    
    121
    
    
    
    261
    
    
    
    (15,998
    )
    
    
    16,322(1,492
    )
    
    
    497
    
    
    
    (150
    )
    
    
    (269
    )
    
    
    
    
    
    
    (1,414
    )Other non-operating expense
    
    
    (2,718
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,718
    )Minority interest
    
    
    (13,367
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (13,367
    )Net income (loss)
    
    $
    63,977
    
    
    $
    497
    
    
    $
    53,311
    
    
    $
    34,196
    
    
    $
    (88,004
    )
    
    $
    63,977
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Balance Sheets
March 31, 2007
(in thousands)
 Guarantor
    
    
    Non-GuarantorParent Company
    
    
    Issuer
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    ConsolidatedCash and cash equivalents
    
    $
    
    
    
    $
    
    
    
    $
    13
    
    
    $
    64
    
    
    $
    
    
    
    $
    77Trade accounts receivable
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    41
    
    
    
    
    
    
    
    41Other receivables
    
    
    221
    
    
    
    
    
    
    
    4,093
    
    
    
    894
    
    
    
    
    
    
    
    5,208Inventories
    
    
    
    
    
    
    
    
    
    
    63,065
    
    
    
    37,153
    
    
    
    
    
    
    
    100,218Prepaid royalties
    
    
    
    
    
    
    
    
    
    
    1,089
    
    
    
    384
    
    
    
    
    
    
    
    1,473Other
    
    
    7,752
    
    
    
    2,151
    
    
    
    7,273
    
    
    
    6,547
    
    
    
    
    
    
    
    23,723Total current assets
    
    
    7,973
    
    
    
    2,151
    
    
    
    75,533
    
    
    
    45,083
    
    
    
    
    
    
    
    130,740Property, plant and equipment, net
    
    
    
    
    
    
    
    
    
    
    865,051
    
    
    
    365,274
    
    
    
    
    
    
    
    1,230,325Investment in subsidiaries
    
    
    1,976,988
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,976,988
    )
    
    
    Receivable from Arch Coal, Inc.
    
    
    1,165,017
    
    
    
    
    
    
    
    (2
    )
    
    
    26,445
    
    
    
    
    
    
    
    1,191,460Intercompanies
    
    
    (1,951,274
    )
    
    
    962,270
    
    
    
    975,928
    
    
    
    13,076
    
    
    
    
    
    
    
    Other
    
    
    687
    
    
    
    11,226
    
    
    
    13,248
    
    
    
    5,281
    
    
    
    
    
    
    
    30,442Total other assets
    
    
    1,191,418
    
    
    
    973,496
    
    
    
    989,174
    
    
    
    44,802
    
    
    
    (1,976,988
    )
    
    
    1,221,902Total assets
    
    $
    1,199,391
    
    
    $
    975,647
    
    
    $
    1,929,758
    
    
    $
    455,159
    
    
    $
    (1,976,988
    )
    
    $
    2,582,967Accounts payable
    
    
    7,053
    
    
    
    
    
    
    
    69,350
    
    
    
    15,318
    
    
    
    
    
    
    
    91,721Accrued expenses
    
    
    3,236
    
    
    
    16,031
    
    
    
    78,215
    
    
    
    8,119
    
    
    
    
    
    
    
    105,601Total current liabilities
    
    
    10,289
    
    
    
    16,031
    
    
    
    147,565
    
    
    
    23,437
    
    
    
    
    
    
    
    197,322Long-term debt
    
    
    
    
    
    
    958,539
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    958,539Accrued postretirement benefits other
than pension
    
    
    19,063
    
    
    
    
    
    
    
    2,486
    
    
    
    9,612
    
    
    
    
    
    
    
    31,161Asset retirement obligations
    
    
    
    
    
    
    
    
    
    
    167,562
    
    
    
    11,325
    
    
    
    
    
    
    
    178,887Accrued workers compensation
    
    
    5,428
    
    
    
    
    
    
    
    1,220
    
    
    
    3,522
    
    
    
    
    
    
    
    10,170Other noncurrent liabilities
    
    
    5,936
    
    
    
    
    
    
    
    36,725
    
    
    
    5,552
    
    
    
    
    
    
    
    48,213Total liabilities
    
    
    40,716
    
    
    
    974,570
    
    
    
    355,558
    
    
    
    53,448
    
    
    
    
    
    
    
    1,424,292Minority interest
    
    
    167,254
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    167,254Redeemable equity interests
    
    
    7,183
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    7,183Non-redeemable members equity
    
    
    984,238
    
    
    
    1,077
    
    
    
    1,574,200
    
    
    
    401,711
    
    
    
    (1,976,988
    )
    
    
    984,238Total liabilities, redeemable membership
interests and non-redeemable
membership interests
    
    $
    1,199,391
    
    
    $
    975,647
    
    
    $
    1,929,758
    
    
    $
    455,159
    
    
    $
    (1,976,988
    )
    
    $
    2,582,967
 9




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##### Table of Contents



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




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##### Table of Contents



Statements of Cash Flows
Three Months Ended March 31, 2007
(in thousands)
 Guarantor
    
    
    Non-GuarantorParent Company
    
    
    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 capital
assets
    
    
    
    
    
    
    
    
    
    
    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
    
    
    
    (Decrease) increase 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
 11




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##### Table of Contents



Statements of Cash Flows
Three Months Ended March 31, 2006
(in thousands)
 Guarantor
    
    
    Non-GuarantorParent Company
    
    
    Issuer
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    ConsolidatedOperating ActivitiesCash provided by (used in) operating activities
    
    $
    75,704
    
    
    $
    (15,336
    )
    
    $
    76,298
    
    
    $
    68,355
    
    
    $
    205,021Investing ActivitiesCapital expenditures
    
    
    
    
    
    
    
    
    
    
    (42,207
    )
    
    
    (18,889
    )
    
    
    (61,096
    )Increase in receivable from Arch Coal
    
    
    (112,493
    )
    
    
    
    
    
    
    (32
    )
    
    
    (31,502
    )
    
    
    (144,027
    )Cash used in investing activities
    
    
    (112,493
    )
    
    
    
    
    
    
    (42,239
    )
    
    
    (50,391
    )
    
    
    (205,123
    )Financing ActivitiesTransactions with affiliates, net
    
    
    36,789
    
    
    
    15,336
    
    
    
    (34,147
    )
    
    
    (17,978
    )
    
    
    Cash provided by (used in) financing activities
    
    
    36,789
    
    
    
    15,336
    
    
    
    (34,147
    )
    
    
    (17,978
    )
    
    
    Decrease in cash and cash equivalents
    
    
    
    
    
    
    
    
    
    
    (88
    )
    
    
    (14
    )
    
    
    (102
    )Cash and cash equivalents, beginning of period
    
    
    
    
    
    
    
    
    
    
    126
    
    
    
    26
    
    
    
    152Cash and cash equivalents, end of period
    
    $
    
    
    
    $
    
    
    
    $
    38
    
    
    $
    12
    
    
    $
    50
 12




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##### Table of Contents



Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations.
 This document contains forward-looking statements  ̄ that is, statements related to future,
not past, events. In this context, forward-looking statements often address our expected future
business and financial performance, and often contain words such as expects, anticipates,
intends, plans, believes, seeks, or will. Forward-looking statements by their nature
address matters that are, to different degrees, uncertain. For us, particular uncertainties arise
from changes in the demand for our coal by the domestic electric generation industry; from
legislation and regulations relating to the Clean Air Act and other environmental initiatives; from
operational, geological, permit, labor and weather-related factors; from fluctuations in the amount
of cash we generate from operations; from future integration of acquired businesses; and from
numerous other matters of national, regional and global scale, including those of a political,
economic, business, competitive or regulatory nature. These uncertainties may cause our actual
future results to be materially different than those expressed in our forward-looking statements.
We do not undertake to update our forward-looking statements, whether as a result of new
information, future events or otherwise, except as may be required by law. For a description of
some of the risks and uncertainties that may affect our future results, see Risk Factors under
Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2006.
 Executive Overview
   Results of Operations
 Items Affecting Comparability of Reported Results
  Three Months Ended March 31, 2007 Compared to Three Months Ended March 31, 2006
  Revenues.
 Three months ended March 31
    
    Increase (decrease)2007
    
    2006
    
    $
    
    %(Amounts in thousands, except per ton data)Coal sales
    
    $
    370,097
    
    
    $
    362,196
    
    
    $
    7,901
    
    
    
    2.2
    %Tons sold
    
    
    27,706
    
    
    
    26,234
    
    
    
    1,472
    
    
    
    5.6Coal sales realization per ton sold
    
    $
    13.36
    
    
    $
    13.81
    
    
    $
    (0.45
    )
    
    
    (3.3
    )
  13




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##### Table of Contents



Three months ended March 31
    
    Increase2007
    
    2006
    
    Tons
    
    %(Amounts in thousands)Powder River Basin
    
    
    22,942
    
    
    
    22,174
    
    
    
    768
    
    
    
    3.5
    %Western Bituminous Region
    
    
    4,764
    
    
    
    4,060
    
    
    
    704
    
    
    
    17.3Total
    
    
    27,706
    
    
    
    26,234
    
    
    
    1,472
    
    
    
    5.6
    %
    Three months ended March 31
    
    Increase (decrease)2007
    
    2006
    
    $
    
    %Powder River Basin
    
    $
    10.37
    
    
    $
    11.34
    
    
    $
    (0.97
    )
    
    
    (8.6
    )%Western Bituminous Region
    
    
    24.77
    
    
    
    23.31
    
    
    
    1.46
    
    
    
    6.3
  Expenses, costs and other.
 Increase (decrease)Three months ended March 31
    
    
    in Net Income2007
    
    2006
    
    $
    
    %(Amounts in thousands)Cost of coal sales
    
    $
    283,271
    
    
    $
    252,130
    
    
    $
    (31,141
    )
    
    
    (12.4
    )%Depreciation, depletion and amortization
    
    
    32,519
    
    
    
    23,576
    
    
    
    (8,943
    )
    
    
    (37.9
    )Selling, general and administrative expenses
    
    
    6,152
    
    
    
    5,489
    
    
    
    (663
    )
    
    
    (12.1
    )Other operating income, net
    
    
    (923
    )
    
    
    (475
    )
    
    
    448
    
    
    
    94.3$
    321,019
    
    
    $
    280,720
    
    
    $
    (40,299
    )
    
    
    (14.4
    )
 Cost of coal sales
 14




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##### Table of Contents



Depreciation, depletion and amortization.
 Selling, general and administrative expenses
 Operating margins.
 Three months ended March 31
    
    Decrease2007
    
    2006
    
    $
    
    %Powder River Basin
    
    $
    1.29
    
    
    $
    2.79
    
    
    $
    (1.50
    )
    
    
    (53.8
    )%Western Bituminous Region
    
    
    5.23
    
    
    
    6.28
    
    
    
    (1.05
    )
    
    
    (16.7
    )
   Net interest expense
 IncreaseThree months ended March 31

    
    in Net Income2007
    
    
    2006
    
    $
    
    %(Amounts in thousands)Interest expense
    
    $
    (17,621
    )
    
    $
    (17,736
    )
    
    $
    115
    
    
    
    0.6
    %Interest income
    
    
    22,821
    
    
    
    16,322
    
    
    
    6,499
    
    
    
    39.8$
    5,200
    
    
    $
    (1,414
    )
    
    $
    6,614
    
    
    
    467.8
   Liquidity and Capital Resources
  15




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##### Table of Contents



Three months endedMarch 312007
    
    2006(in thousands)Cash provided by (used in):Operating activities
    
    $
    68,816
    
    
    $
    205,021Investing activities
    
    
    (68,925
    )
    
    
    (205,123
    )
   Contingencies
 Reclamation. Accounting for Asset Retirement
Obligations
   
 Item 3. Quantitative and Qualitative Disclosures About Market Risk.
  
 Item 4. Controls and Procedures.
  16




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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. Submission of Matters to a Vote of Security Holders.
  
 Item 5. Other Information.
  
 Item 6. Exhibits.
  Exhibit
    
    Description3.1
    
    Certificate of Formation (incorporated herein by
reference to Exhibit 3.3 to the Form S-4 (File No.
333-107569) filed on August 1, 2003 by Arch Western Finance,
LLC, Arch Western Resources, LLC, Arch of Wyoming, LLC,
Mountain Coal Company, L.L.C., and Thunder Basin Coal
Company, L.L.C.).3.2
    
    Limited Liability Company Agreement (incorporated herein by
reference to Exhibit 3.4 to the Form S-4 (File No.
333-107569) filed on August 1, 2003 by Arch Western Finance,
LLC, Arch Western Resources, LLC, Arch of Wyoming, LLC,
Mountain Coal Company, L.L.C., and Thunder BasinCoal Company,
L.L.C.).31.1
    
    Rule 13a-14(a)/15d-14(a) Certification of Paul A. Lang.31.2
    
    Rule 13a-14(a)/15d-14(a) Certification of Robert J. Messey.32.1
    
    Section 1350 Certification of Paul A. Lang.32.2
    
    Section 1350 Certification of Robert J. Messey.
 17




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##### Table of Contents



Signatures
  Arch Western Resources, LLCBy:
    /s/ Robert J. MesseyRobert J. Messey
Vice President May 14, 2007
 18