##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON, DC 20549
 
 FORM 10-Q
  þ
    
    Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
 For the quarterly period ended September 30, 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
    
    
    22Item 4T. Controls and Procedures
    
    
    22Part II Other Information
    
    
    23Item 1. Legal Proceedings
    
    
    23Item 1A. Risk Factors
    
    
    23Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    23Item 3. Defaults Upon Senior Securities
    
    
    23Item 4. Submission of Matters to a Vote of Security Holders
    
    
    23Item 5. Other Information
    
    
    23Item 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 September 30
    
    
    Nine Months Ended September 302009
    
    
    2008
    
    
    2009
    
    
    2008(unaudited)RevenuesCoal sales
    
    $
    390,313
    
    
    $
    440,718
    
    
    $
    1,167,369
    
    
    $
    1,337,880Costs, expenses and otherCost of coal sales
    
    
    323,973
    
    
    
    363,500
    
    
    
    1,005,640
    
    
    
    1,059,349Depreciation, depletion and amortization
    
    
    38,368
    
    
    
    37,243
    
    
    
    112,966
    
    
    
    114,769Selling, general and administrative expenses
    
    
    12,654
    
    
    
    5,391
    
    
    
    29,722
    
    
    
    22,281Other operating income, net
    
    
    (3,492
    )
    
    
    (1,048
    )
    
    
    (5,363
    )
    
    
    (3,168
    )371,503
    
    
    
    405,086
    
    
    
    1,142,965
    
    
    
    1,193,231Income from operations
    
    
    18,810
    
    
    
    35,632
    
    
    
    24,404
    
    
    
    144,649Interest income (expense), net:Interest expense
    
    
    (16,915
    )
    
    
    (15,237
    )
    
    
    (50,264
    )
    
    
    (48,819
    )Interest income, primarily from Arch Coal, Inc.
    
    
    11,318
    
    
    
    19,065
    
    
    
    34,684
    
    
    
    59,064(5,597
    )
    
    
    3,828
    
    
    
    (15,580
    )
    
    
    10,245Net income
    
    $
    13,213
    
    
    $
    39,460
    
    
    $
    8,824
    
    
    $
    154,894Net income (loss) attributable to redeemable
membership interest
    
    $
    31
    
    
    $
    179
    
    
    
    (11
    )
    
    
    727Net income attributable to non-redeemable
membership interest
    
    $
    13,182
    
    
    $
    39,281
    
    
    $
    8,835
    
    
    $
    154,167
  1




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Arch Western Resources, LLC and Subsidiaries
Condensed Consolidated Balance Sheets
(In thousands)
 September 30,
    
    
    December 31,2009
    
    
    2008(unaudited)ASSETSCurrent assets:Cash and cash equivalents
    
    $
    3,242
    
    
    $
    2,851Receivables
    
    
    4,936
    
    
    
    2,930Inventories
    
    
    151,544
    
    
    
    133,726Other
    
    
    14,219
    
    
    
    21,617Total current assets
    
    
    173,941
    
    
    
    161,124Property, plant and equipment, net
    
    
    1,361,555
    
    
    
    1,391,841Other assets:Receivable from Arch Coal, Inc.
    
    
    1,506,355
    
    
    
    1,528,068Other
    
    
    14,707
    
    
    
    24,051Total other assets
    
    
    1,521,062
    
    
    
    1,552,119Total assets
    
    $
    3,056,558
    
    
    $
    3,105,084LIABILITIES AND MEMBERSHIP INTERESTSCurrent liabilities:Accounts payable
    
    $
    70,026
    
    
    $
    113,611Accrued expenses
    
    
    114,935
    
    
    
    134,540Commercial paper
    
    
    43,612
    
    
    
    65,671Total current liabilities
    
    
    228,573
    
    
    
    313,822Long-term debt
    
    
    955,123
    
    
    
    956,148Asset retirement obligations
    
    
    241,882
    
    
    
    227,397Accrued postretirement benefits other than pension
    
    
    25,974
    
    
    
    37,491Accrued pension benefits
    
    
    36,617
    
    
    
    36,616Accrued workers compensation
    
    
    4,261
    
    
    
    3,681Other noncurrent liabilities
    
    
    36,319
    
    
    
    25,551Total liabilities
    
    
    1,528,749
    
    
    
    1,600,706Redeemable membership interest
    
    
    8,940
    
    
    
    8,765Non-redeemable membership interest
    
    
    1,518,869
    
    
    
    1,495,613Total liabilities and membership interests
    
    $
    3,056,558
    
    
    $
    3,105,084
  2




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Arch Western Resources, LLC and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(In thousands)
 Nine Months Ended September 302009
    
    
    2008(unaudited)OPERATING ACTIVITIESNet income
    
    $
    8,824
    
    
    $
    154,894Adjustments to reconcile net income to cash provided by operating activities:Depreciation, depletion and amortization
    
    
    112,966
    
    
    
    114,769Net (gain) loss on dispositions of property, plant and equipment
    
    
    225
    
    
    
    (336
    )Changes in:Receivables
    
    
    (2,006
    )
    
    
    310Inventories
    
    
    (17,818
    )
    
    
    18,492Accounts payable and accrued expenses
    
    
    (42,529
    )
    
    
    3,236Other
    
    
    47,054
    
    
    
    29,682Cash provided by operating activities
    
    
    106,716
    
    
    
    321,047INVESTING ACTIVITIESCapital expenditures
    
    
    (106,766
    )
    
    
    (230,829
    )Change in receivable from Arch Coal, Inc.
    
    
    21,760
    
    
    
    (110,791
    )Proceeds from dispositions of property, plant and equipment
    
    
    80
    
    
    
    378Additions to prepaid royalties
    
    
    (2,409
    )
    
    
    (200
    )Reimbursement of deposits on equipment
    
    
    3,209
    
    
    
    2,697Cash used in investing activities
    
    
    (84,126
    )
    
    
    (338,745
    )FINANCING ACTIVITIESNet proceeds from (repayments of) commercial paper
    
    
    (22,059
    )
    
    
    23,102Debt financing costs
    
    
    (140
    )
    
    
    (233
    )Cash provided by (used in) financing activities
    
    
    (22,199
    )
    
    
    22,869Increase in cash and cash equivalents
    
    
    391
    
    
    
    5,171Cash and cash equivalents, beginning of period
    
    
    2,851
    
    
    
    248Cash and cash equivalents, end of period
    
    $
    3,242
    
    
    $
    5,419
  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
   4




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3. Jacobs Ranch Acquisition
  4. Inventories
  September 30,
    
    
    December 31,2009
    
    
    2008(In thousands)Coal
    
    $
    41,409
    
    
    $
    26,989Repair parts and supplies, net of allowance
    
    
    110,135
    
    
    
    106,737$
    151,544
    
    
    $
    133,726
 5. Debt
   6. Comprehensive Income
   Three Months Ended
    
    
    Nine Months EndedSeptember 30
    
    
    September 302009
    
    
    2008
    
    
    2009
    
    
    2008(In thousands)Net income
    
    $
    13,213
    
    
    $
    39,460
    
    
    $
    8,824
    
    
    $
    154,894Other comprehensive income:Pension, postretirement
and other post-employment
benefits, net of
adjustments reclassified
to income
    
    
    14,387
    
    
    
    (318
    )
    
    
    14,680
    
    
    
    (158
    )Total comprehensive income
    
    $
    27,600
    
    
    $
    39,142
    
    
    $
    23,504
    
    
    $
    154,736
 7. Related Party Transactions
   5




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8. Contingencies
  9. Segment Information
   6




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##### Table of Contents



Corporate,Other andPRB
    
    WBIT
    
    Eliminations
    
    Consolidated(In thousands)Three months ended September 30, 2009Coal sales
    
    $
    242,022
    
    
    $
    148,291
    
    
    $
    
    
    
    $
    390,313Income (loss) from operations
    
    
    11,112
    
    
    
    17,083
    
    
    
    (9,385
    )
    
    
    18,810Depreciation, depletion and amortization
    
    
    17,512
    
    
    
    20,856
    
    
    
    
    
    
    
    38,368Capital expenditures
    
    
    7,518
    
    
    
    13,871
    
    
    
    
    
    
    
    21,389Three months ended September 30, 2008Coal sales
    
    $
    280,365
    
    
    $
    160,353
    
    
    $
    
    
    
    $
    440,718Income (loss) from operations
    
    
    16,254
    
    
    
    22,788
    
    
    
    (3,410
    )
    
    
    35,632Depreciation, depletion and amortization
    
    
    19,132
    
    
    
    18,111
    
    
    
    
    
    
    
    37,243Capital expenditures
    
    
    29,432
    
    
    
    30,017
    
    
    
    
    
    
    
    59,449Nine months ended September 30, 2009Coal sales
    
    $
    786,117
    
    
    $
    381,252
    
    
    $
    
    
    
    $
    1,167,369Income (loss) from operations
    
    
    45,834
    
    
    
    5,781
    
    
    
    (27,211
    )
    
    
    24,404Total assets
    
    
    1,896,245
    
    
    
    2,074,321
    
    
    
    (914,008
    )
    
    
    3,056,558Depreciation, depletion and amortization
    
    
    54,257
    
    
    
    58,709
    
    
    
    
    
    
    
    112,966Capital expenditures
    
    
    49,389
    
    
    
    57,377
    
    
    
    
    
    
    
    106,766Nine months ended September 30, 2008Coal sales
    
    $
    824,621
    
    
    $
    513,259
    
    
    $
    
    
    
    $
    1,337,880Income (loss) from operations
    
    
    65,303
    
    
    
    101,391
    
    
    
    (22,045
    )
    
    
    144,649Total assets
    
    
    1,798,793
    
    
    
    2,049,686
    
    
    
    (783,479
    )
    
    
    3,065,000Depreciation, depletion and amortization
    
    
    55,481
    
    
    
    59,288
    
    
    
    
    
    
    
    114,769Capital expenditures
    
    
    105,994
    
    
    
    124,835
    
    
    
    
    
    
    
    230,829
  Three Months Ended
    
    
    Nine Months EndedSeptember 30
    
    
    September 302009
    
    
    2008
    
    
    2009
    
    
    2008(In thousands)Income from operations
    
    $
    18,810
    
    
    $
    35,632
    
    
    $
    24,404
    
    
    $
    144,649Interest expense
    
    
    (16,915
    )
    
    
    (15,237
    )
    
    
    (50,264
    )
    
    
    (48,819
    )Interest income
    
    
    11,318
    
    
    
    19,065
    
    
    
    34,684
    
    
    
    59,064Net income
    
    $
    13,213
    
    
    $
    39,460
    
    
    $
    8,824
    
    
    $
    154,894
 10. Supplemental Condensed Consolidating Financial Information
  7




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CONDENSED CONSOLIDATING STATEMENTS OF INCOME
Three Months Ended September 30, 2009
(in thousands)
 Parent
    
    
    
    
    
    
    Guarantor
    
    
    Non-GuarantorCompany
    
    
    Issuer
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    ConsolidatedCoal sales
    
    $
    
    
    
    $
    
    
    
    $
    272,170
    
    
    $
    118,143
    
    
    $
    
    
    
    $
    390,313Cost of coal sales
    
    
    (220
    )
    
    
    
    
    
    
    242,086
    
    
    
    82,508
    
    
    
    (401
    )
    
    
    323,973Depreciation, depletion and amortization
    
    
    
    
    
    
    
    
    
    
    23,355
    
    
    
    15,013
    
    
    
    
    
    
    
    38,368Selling, general and administrative expenses
    
    
    12,654
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    12,654Other operating income, net
    
    
    (3,049
    )
    
    
    
    
    
    
    (440
    )
    
    
    (404
    )
    
    
    401
    
    
    
    (3,492
    )9,385
    
    
    
    
    
    
    
    265,001
    
    
    
    97,117
    
    
    
    
    
    
    
    371,503Income from investment in subsidiaries
    
    
    28,064
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (28,064
    )
    
    
    Income from operations
    
    
    18,679
    
    
    
    
    
    
    
    7,169
    
    
    
    21,026
    
    
    
    (28,064
    )
    
    
    18,810Interest expense
    
    
    (16,745
    )
    
    
    (15,940
    )
    
    
    1
    
    
    
    (262
    )
    
    
    16,031
    
    
    
    (16,915
    )Interest income
    
    
    11,279
    
    
    
    16,031
    
    
    
    1
    
    
    
    38
    
    
    
    (16,031
    )
    
    
    11,318(5,466
    )
    
    
    91
    
    
    
    2
    
    
    
    (224
    )
    
    
    
    
    
    
    (5,597
    )Net income
    
    $
    13,213
    
    
    $
    91
    
    
    $
    7,171
    
    
    $
    20,802
    
    
    $
    (28,064
    )
    
    $
    13,213
 8




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CONDENSED CONSOLIDATING STATEMENTS OF INCOME
Three Months Ended September 30, 2008
(in thousands)
 Non-Parent
    
    
    
    
    
    
    Guarantor
    
    
    GuarantorCompany
    
    
    Issuer
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    ConsolidatedCoal sales
    
    $
    
    
    
    $
    
    
    
    $
    323,277
    
    
    $
    117,441
    
    
    $
    
    
    
    $
    440,718Cost of coal sales
    
    
    (1,744
    )
    
    
    
    
    
    
    274,979
    
    
    
    90,965
    
    
    
    (700
    )
    
    
    363,500Depreciation, depletion and amortization
    
    
    
    
    
    
    
    
    
    
    22,270
    
    
    
    14,973
    
    
    
    
    
    
    
    37,243Selling, general and administrative expenses
    
    
    5,391
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,391Other operating income, net
    
    
    (237
    )
    
    
    
    
    
    
    (431
    )
    
    
    (1,080
    )
    
    
    700
    
    
    
    (1,048
    )3,410
    
    
    
    
    
    
    
    296,818
    
    
    
    104,858
    
    
    
    
    
    
    
    405,086Income from investment in subsidiaries
    
    
    42,187
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (42,187
    )
    
    
    Income from operations
    
    
    38,777
    
    
    
    
    
    
    
    26,459
    
    
    
    12,583
    
    
    
    (42,187
    )
    
    
    35,632Interest expense
    
    
    (18,069
    )
    
    
    (12,616
    )
    
    
    (117
    )
    
    
    (466
    )
    
    
    16,031
    
    
    
    (15,237
    )Interest income
    
    
    18,752
    
    
    
    16,031
    
    
    
    54
    
    
    
    259
    
    
    
    (16,031
    )
    
    
    19,065683
    
    
    
    3,415
    
    
    
    (63
    )
    
    
    (207
    )
    
    
    
    
    
    
    3,828Net income
    
    $
    39,460
    
    
    $
    3,415
    
    
    $
    26,396
    
    
    $
    12,376
    
    
    $
    (42,187
    )
    
    $
    39,460
 9




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CONDENSED CONSOLIDATING STATEMENTS OF INCOME
Nine Months Ended September 30, 2009
(in thousands)
 Non-Parent
    
    
    
    
    
    
    Guarantor
    
    
    GuarantorCompany
    
    
    Issuer
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    ConsolidatedCoal sales
    
    $
    
    
    
    $
    
    
    
    $
    881,317
    
    
    $
    286,052
    
    
    $
    
    
    
    $
    1,167,369Cost of coal sales
    
    
    644
    
    
    
    
    
    
    
    789,371
    
    
    
    217,493
    
    
    
    (1,868
    )
    
    
    1,005,640Depreciation, depletion and amortization
    
    
    
    
    
    
    
    
    
    
    72,332
    
    
    
    40,634
    
    
    
    
    
    
    
    112,966Selling, general and administrative expenses
    
    
    29,722
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    29,722Other operating income, net
    
    
    (3,181
    )
    
    
    
    
    
    
    (1,652
    )
    
    
    (2,398
    )
    
    
    1,868
    
    
    
    (5,363
    )27,185
    
    
    
    
    
    
    
    860,051
    
    
    
    255,729
    
    
    
    
    
    
    
    1,142,965Income from investment in subsidiaries
    
    
    52,203
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (52,203
    )
    
    
    Income from operations
    
    
    25,018
    
    
    
    
    
    
    
    21,266
    
    
    
    30,323
    
    
    
    (52,203
    )
    
    
    24,404Interest expense
    
    
    (50,647
    )
    
    
    (47,977
    )
    
    
    983
    
    
    
    (717
    )
    
    
    48,094
    
    
    
    (50,264
    )Interest income
    
    
    34,453
    
    
    
    48,094
    
    
    
    30
    
    
    
    201
    
    
    
    (48,094
    )
    
    
    34,684(16,194
    )
    
    
    117
    
    
    
    1,013
    
    
    
    (516
    )
    
    
    
    
    
    
    (15,580
    )Net income
    
    $
    8,824
    
    
    $
    117
    
    
    $
    22,279
    
    
    $
    29,807
    
    
    $
    (52,203
    )
    
    $
    8,824
 10




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##### Table of Contents



CONDENSED CONSOLIDATING STATEMENTS OF INCOME
Nine Months Ended September 30, 2008
(in thousands)
 Non-Parent
    
    
    
    
    
    
    Guarantor
    
    
    GuarantorCompany
    
    
    Issuer
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    ConsolidatedCoal sales
    
    $
    
    
    
    $
    
    
    
    $
    1,015,659
    
    
    $
    322,221
    
    
    $
    
    
    
    $
    1,337,880Cost of coal sales
    
    
    78
    
    
    
    
    
    
    
    813,546
    
    
    
    247,547
    
    
    
    (1,822
    )
    
    
    1,059,349Depreciation, depletion and amortization
    
    
    
    
    
    
    
    
    
    
    68,439
    
    
    
    46,330
    
    
    
    
    
    
    
    114,769Selling, general and administrative expenses
    
    
    22,281
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    22,281Other operating income, net
    
    
    (314
    )
    
    
    
    
    
    
    (2,095
    )
    
    
    (2,581
    )
    
    
    1,822
    
    
    
    (3,168
    )22,045
    
    
    
    
    
    
    
    879,890
    
    
    
    291,296
    
    
    
    
    
    
    
    1,193,231Income from investment in subsidiaries
    
    
    174,019
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (174,019
    )
    
    
    Income from operations
    
    
    151,974
    
    
    
    
    
    
    
    135,769
    
    
    
    30,925
    
    
    
    (174,019
    )
    
    
    144,649Interest expense
    
    
    (55,141
    )
    
    
    (40,027
    )
    
    
    (393
    )
    
    
    (1,352
    )
    
    
    48,094
    
    
    
    (48,819
    )Interest income
    
    
    58,061
    
    
    
    48,094
    
    
    
    196
    
    
    
    807
    
    
    
    (48,094
    )
    
    
    59,0642,920
    
    
    
    8,067
    
    
    
    (197
    )
    
    
    (545
    )
    
    
    
    
    
    
    10,245Net income
    
    $
    154,894
    
    
    $
    8,067
    
    
    $
    135,572
    
    
    $
    30,380
    
    
    $
    (174,019
    )
    
    $
    154,894
 11




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##### Table of Contents



CONDENSED CONSOLIDATING BALANCE SHEETS
September 30, 2009
(in thousands)
 Parent
    
    
    
    
    
    
    Guarantor
    
    
    Non-GuarantorCompany
    
    
    Issuer
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    ConsolidatedCash and cash equivalents
    
    $
    3,164
    
    
    $
    
    
    
    $
    59
    
    
    $
    19
    
    
    $
    
    
    
    $
    3,242Receivables
    
    
    2,350
    
    
    
    
    
    
    
    2,149
    
    
    
    437
    
    
    
    
    
    
    
    4,936Inventories
    
    
    
    
    
    
    
    
    
    
    114,648
    
    
    
    36,896
    
    
    
    
    
    
    
    151,544Other
    
    
    2,672
    
    
    
    2,157
    
    
    
    3,080
    
    
    
    6,310
    
    
    
    
    
    
    
    14,219Total current assets
    
    
    8,186
    
    
    
    2,157
    
    
    
    119,936
    
    
    
    43,662
    
    
    
    
    
    
    
    173,941Property, plant and equipment, net
    
    
    
    
    
    
    
    
    
    
    1,055,816
    
    
    
    305,739
    
    
    
    
    
    
    
    1,361,555Investment in subsidiaries
    
    
    2,417,020
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,417,020
    )
    
    
    Receivable from Arch Coal
    
    
    1,473,876
    
    
    
    
    
    
    
    
    
    
    
    32,479
    
    
    
    
    
    
    
    1,506,355Intercompanies
    
    
    (2,304,197
    )
    
    
    977,714
    
    
    
    1,125,165
    
    
    
    201,318
    
    
    
    
    
    
    
    Other
    
    
    1,626
    
    
    
    5,862
    
    
    
    2,669
    
    
    
    4,550
    
    
    
    
    
    
    
    14,707Total other assets
    
    
    1,588,325
    
    
    
    983,576
    
    
    
    1,127,834
    
    
    
    238,347
    
    
    
    (2,417,020
    )
    
    
    1,521,062Total assets
    
    $
    1,596,511
    
    
    $
    985,733
    
    
    $
    2,303,586
    
    
    $
    587,748
    
    
    $
    (2,417,020
    )
    
    $
    3,056,558Accounts payable
    
    $
    6,285
    
    
    $
    
    
    
    $
    49,720
    
    
    $
    14,021
    
    
    $
    
    
    
    $
    70,026Accrued expenses
    
    
    1,426
    
    
    
    16,031
    
    
    
    84,404
    
    
    
    13,074
    
    
    
    
    
    
    
    114,935Commercial paper
    
    
    43,612
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    43,612Total current liabilities
    
    
    51,323
    
    
    
    16,031
    
    
    
    134,124
    
    
    
    27,095
    
    
    
    
    
    
    
    228,573Long-term debt
    
    
    
    
    
    
    955,123
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    955,123Asset retirement obligations
    
    
    
    
    
    
    
    
    
    
    228,011
    
    
    
    13,871
    
    
    
    
    
    
    
    241,882Accrued postretirement benefits other than pension
    
    
    6,289
    
    
    
    
    
    
    
    12,117
    
    
    
    7,568
    
    
    
    
    
    
    
    25,974Accrued pension benefits
    
    
    10,674
    
    
    
    
    
    
    
    20,247
    
    
    
    5,696
    
    
    
    
    
    
    
    36,617Accrued workers compensation
    
    
    (1,334
    )
    
    
    
    
    
    
    1,357
    
    
    
    4,238
    
    
    
    
    
    
    
    4,261Other noncurrent liabilities
    
    
    1,750
    
    
    
    
    
    
    
    34,544
    
    
    
    25
    
    
    
    
    
    
    
    36,319Total liabilities
    
    
    68,702
    
    
    
    971,154
    
    
    
    430,400
    
    
    
    58,493
    
    
    
    
    
    
    
    1,528,749Redeemable membership interest
    
    
    8,940
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    8,940Non-redeemable membership interest
    
    
    1,518,869
    
    
    
    14,579
    
    
    
    1,873,186
    
    
    
    529,255
    
    
    
    (2,417,020
    )
    
    
    1,518,869Total liabilities and membership interests
    
    $
    1,596,511
    
    
    $
    985,733
    
    
    $
    2,303,586
    
    
    $
    587,748
    
    
    $
    (2,417,020
    )
    
    $
    3,056,558
 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
Nine Months Ended September 30, 2009
(in thousands)
 Parent
    
    
    
    
    
    
    Guarantor
    
    
    Non-GuarantorCompany
    
    
    Issuer
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    ConsolidatedCash provided by (used in) operating activities
    
    $
    (67,736
    )
    
    $
    (15,319
    )
    
    $
    120,076
    
    
    $
    69,695
    
    
    $
    106,716Investing ActivitiesCapital expenditures
    
    
    
    
    
    
    
    
    
    
    (86,665
    )
    
    
    (20,101
    )
    
    
    (106,766
    )Change in receivable from Arch Coal
    
    
    24,372
    
    
    
    
    
    
    
    
    
    
    
    (2,612
    )
    
    
    21,760Proceeds from dispositions of property, plant and equipment
    
    
    
    
    
    
    
    
    
    
    55
    
    
    
    25
    
    
    
    80Additions to prepaid royalties
    
    
    
    
    
    
    
    
    
    
    (2,209
    )
    
    
    (200
    )
    
    
    (2,409
    )Reimbursement of deposits on equipment
    
    
    
    
    
    
    
    
    
    
    3,209
    
    
    
    
    
    
    
    3,209Cash provided by (used in) investing activities
    
    
    24,372
    
    
    
    
    
    
    
    (85,610
    )
    
    
    (22,888
    )
    
    
    (84,126
    )Financing ActivitiesNet payments on commercial paper
    
    
    (22,059
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (22,059
    )Debt financing costs
    
    
    (125
    )
    
    
    (15
    )
    
    
    
    
    
    
    
    
    
    
    (140
    )Transactions with affiliates, net
    
    
    66,022
    
    
    
    15,334
    
    
    
    (34,491
    )
    
    
    (46,865
    )
    
    
    Cash provided by (used in) financing activities
    
    
    43,838
    
    
    
    15,319
    
    
    
    (34,491
    )
    
    
    (46,865
    )
    
    
    (22,199
    )Increase (decrease) in cash and cash equivalents
    
    
    474
    
    
    
    
    
    
    
    (25
    )
    
    
    (58
    )
    
    
    391Cash and cash equivalents, beginning of period
    
    
    2,690
    
    
    
    
    
    
    
    84
    
    
    
    77
    
    
    
    2,851Cash and cash equivalents, end of period
    
    $
    3,164
    
    
    $
    
    
    
    $
    59
    
    
    $
    19
    
    
    $
    3,242
 14




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##### Table of Contents



CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
Nine Months Ended September 30, 2008
(in thousands)
 Parent
    
    
    
    
    
    
    Guarantor
    
    
    Non-GuarantorCompany
    
    
    Issuer
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    ConsolidatedCash provided by (used in) operating activities
    
    $
    (19,582
    )
    
    $
    (7,369
    )
    
    $
    140,658
    
    
    $
    207,340
    
    
    $
    321,047Investing ActivitiesCapital expenditures
    
    
    
    
    
    
    
    
    
    
    (105,994
    )
    
    
    (124,835
    )
    
    
    (230,829
    )Increase in receivable from Arch Coal
    
    
    (102,825
    )
    
    
    
    
    
    
    (112
    )
    
    
    (7,854
    )
    
    
    (110,791
    )Proceeds from dispositions of property, plant and equipment
    
    
    
    
    
    
    
    
    
    
    355
    
    
    
    23
    
    
    
    378Additions to prepaid royalties
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (200
    )
    
    
    (200
    )Reimbursement of deposits on equipment
    
    
    
    
    
    
    
    
    
    
    2,697
    
    
    
    
    
    
    
    2,697Cash
provided by (used in) investing activities
    
    
    (102,825
    )
    
    
    
    
    
    
    (103,054
    )
    
    
    (132,866
    )
    
    
    (338,745
    )Financing ActivitiesNet proceeds from commercial paper
    
    
    23,102
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    23,102Debt financing costs
    
    
    (219
    )
    
    
    (14
    )
    
    
    
    
    
    
    
    
    
    
    (233
    )Transactions with affiliates, net
    
    
    104,773
    
    
    
    7,383
    
    
    
    (37,594
    )
    
    
    (74,562
    )
    
    
    Cash provided by (used in) financing activities
    
    
    127,656
    
    
    
    7,369
    
    
    
    (37,594
    )
    
    
    (74,562
    )
    
    
    22,869Increase (decrease) in cash and cash equivalents
    
    
    5,249
    
    
    
    
    
    
    
    10
    
    
    
    (88
    )
    
    
    5,171Cash and cash equivalents, beginning of period
    
    
    78
    
    
    
    
    
    
    
    16
    
    
    
    154
    
    
    
    248Cash and cash equivalents, end of period
    
    $
    5,327
    
    
    $
    
    
    
    $
    26
    
    
    $
    66
    
    
    $
    5,419
 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 in the Quarterly
Reports on Form 10-Q that we have filed during interim periods.
 Overview
      16




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##### Table of Contents



Results of Operations
 Three Months Ended September 30, 2009 Compared to Three Months Ended September 30, 2008
 Summary
 Revenues.
 Three Months Ended September 30
    
    Increase (Decrease)2009
    
    2008
    
    Amount
    
    %(Amounts in thousands, except per ton data and percentages)Coal sales
    
    $
    390,313
    
    
    $
    440,718
    
    
    $
    (50,405
    )
    
    
    (11.4
    )%Tons sold
    
    
    24,703
    
    
    
    30,765
    
    
    
    (6,062
    )
    
    
    (19.7
    )%Coal sales realization per ton sold
    
    $
    15.80
    
    
    $
    14.33
    
    
    $
    1.47
    
    
    
    10.3
    %
  Costs, expenses and other.
 Increase (Decrease)Three Months Ended September 30
    
    
    in Net Income2009
    
    
    2008
    
    
    $
    
    
    %(Amounts in thousands, except percentages)Cost of coal sales
    
    $
    323,973
    
    
    $
    363,500
    
    
    $
    39,527
    
    
    
    10.9
    %Depreciation, depletion and amortization
    
    
    38,368
    
    
    
    37,243
    
    
    
    (1,125
    )
    
    
    (3.0
    )Selling, general and administrative expenses
    
    
    12,654
    
    
    
    5,391
    
    
    
    (7,263
    )
    
    
    (134.7
    )Other operating income, net
    
    
    (3,492
    )
    
    
    (1,048
    )
    
    
    2,444
    
    
    
    233.2$
    371,503
    
    
    $
    405,086
    
    
    $
    33,583
    
    
    
    8.3
    %
 Cost of coal sales.
 Depreciation, depletion and amortization.
 Selling, general and administrative expenses.
 Other operating income, net
 17




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##### Table of Contents



Operating segment results
 Three Months Ended September 30
    
    Increase (Decrease)2009
    
    2008
    
    $
    
    %Powder River BasinTons sold (in thousands)
    
    
    20,142
    
    
    
    25,658
    
    
    
    (5,516
    )
    
    
    (21.5
    )%Coal sales realization per ton sold (1)
    
    $
    11.84
    
    
    $
    10.91
    
    
    $
    0.93
    
    
    
    8.5
    %Operating margin per ton sold (2)
    
    $
    0.53
    
    
    $
    0.61
    
    
    $
    (0.08
    )
    
    
    (13.1
    )%Western BituminousTons sold (in thousands)
    
    
    4,561
    
    
    
    5,107
    
    
    
    (546
    )
    
    
    (10.7
    )%Coal sales realization per ton sold (1)
    
    $
    29.07
    
    
    $
    26.80
    
    
    $
    2.27
    
    
    
    8.5
    %Operating margin per ton sold (2)
    
    $
    3.66
    
    
    $
    4.27
    
    
    $
    (0.61
    )
    
    
    (14.3
    )%
 
 (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
September 30, 2009, transportation costs per ton were $0.18 for the Powder River Basin and
$3.44 for the Western Bituminous region. For the three months ended September 30, 2008,
transportation costs were $0.02 for the Powder River Basin and $4.60 for the Western
Bituminous region.(2)
    
    Operating margin per ton sold is calculated as coal sales revenues less cost of coal
sales and depreciation, depletion and amortization divided by tons sold. Powder River Basin 
 Western Bituminous 
 Net interest income (expense)
 Three Months Ended September 30
    
    
    Decrease in Net Income2009
    
    
    2008
    
    
    $
    
    
    %(Amounts in thousands, except percentages)Interest expense
    
    $
    (16,915
    )
    
    $
    (15,237
    )
    
    $
    (1,678
    )
    
    
    (11.0
    )%Interest income
    
    
    11,318
    
    
    
    19,065
    
    
    
    (7,747
    )
    
    
    (40.6
    )$
    (5,597
    )
    
    $
    3,828
    
    
    $
    (9,425
    )
    
    
    (246.2
    )%
 18




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##### Table of Contents



Nine Months Ended September 30, 2009 Compared to Nine Months Ended September 30, 2008
 Summary
 Revenues.
 Nine Months EndedSeptember 30
    
    Increase (Decrease)2009
    
    2008
    
    Amount
    
    %(Amounts in thousands, except per ton data and percentages)Coal sales
    
    $
    1,167,369
    
    
    $
    1,337,880
    
    
    $
    (170,511
    )
    
    
    (12.7
    )%Tons sold
    
    
    74,608
    
    
    
    90,643
    
    
    
    (16,035
    )
    
    
    (17.7
    )%Coal sales realization per ton sold
    
    $
    15.65
    
    
    $
    14.76
    
    
    $
    0.89
    
    
    
    6.0
    %
  Costs, expenses and other.
 Increase (Decrease)Nine Months Ended September 30
    
    
    in Net Income2009
    
    
    2008
    
    
    $
    
    
    %(Amounts in thousands, except percentages)Cost of coal sales
    
    $
    1,005,640
    
    
    $
    1,059,349
    
    
    $
    53,709
    
    
    
    5.1
    %Depreciation, depletion and amortization
    
    
    112,966
    
    
    
    114,769
    
    
    
    1,803
    
    
    
    1.6Selling, general and administrative expenses
    
    
    29,722
    
    
    
    22,281
    
    
    
    (7,441
    )
    
    
    (33.4
    )Other operating income, net
    
    
    (5,363
    )
    
    
    (3,168
    )
    
    
    2,195
    
    
    
    69.3$
    1,142,965
    
    
    $
    1,193,231
    
    
    $
    50,266
    
    
    
    4.2
    %
 Cost of coal sales.
 Depreciation, depletion and amortization.
 Selling, general and administrative expenses.
 19




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##### Table of Contents



Other operating income, net
 Operating segment results
 Nine Months Ended September 30
    
    Increase (Decrease)2009
    
    2008
    
    $
    
    %Powder River BasinTons sold (in thousands)
    
    
    62,675
    
    
    
    74,887
    
    
    
    (12,212
    )
    
    
    (16.3
    )%Coal sales realization per ton sold (3)
    
    $
    12.39
    
    
    $
    10.98
    
    
    $
    1.41
    
    
    
    12.8
    %Operating margin per ton sold(4)
    
    $
    0.70
    
    
    $
    0.85
    
    
    $
    (0.15
    )
    
    
    (17.6
    )%Western BituminousTons sold (in thousands)
    
    
    11,933
    
    
    
    15,756
    
    
    
    (3,823
    )
    
    
    (24.3
    )%Coal sales realization per ton sold (3)
    
    $
    29.00
    
    
    $
    27.90
    
    
    $
    1.10
    
    
    
    3.9
    %Operating margin per ton sold(4)
    
    $
    0.28
    
    
    $
    6.26
    
    
    $
    (5.98
    )
    
    
    (95.5
    )%
 
 (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 nine months ended
September 30, 2009, transportation costs per ton were $0.15 for the Powder River Basin and
$2.95 for the Western Bituminous region. For the nine months ended September 30, 2008,
transportation costs were $0.03 for the Powder River Basin and $4.68 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 
 Net interest income (expense)
 Nine Months Ended September 30
    
    
    Decrease in Net Income2009
    
    
    2008
    
    
    $
    
    
    %(Amounts in thousands, except percentages)Interest expense
    
    $
    (50,264
    )
    
    $
    (48,819
    )
    
    $
    (1,445
    )
    
    
    (3.0
    )%Interest income
    
    
    34,684
    
    
    
    59,064
    
    
    
    (24,380
    )
    
    
    (41.3
    )$
    (15,580
    )
    
    $
    10,245
    
    
    $
    (25,825
    )
    
    
    (252.1
    )%
 20




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##### Table of Contents



Liquidity and Capital Resources
 Credit crisis and economic environment
  Liquidity and capital resources
    21




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##### Table of Contents



Nine Months Ended September 302009
    
    2008(in thousands)Cash provided by (used in):Operating activities
    
    $
    106,716
    
    
    $
    321,047Investing activities
    
    
    (84,126
    )
    
    
    (338,745
    )Financing activities
    
    
    (22,199
    )
    
    
    22,869
    
 Item 3.
    
    Quantitative and Qualitative Disclosures About Market Risk.
  
 Item 4T.
    
    Controls and Procedures.
  22




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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 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 PresidentNovember 13, 2009
 24