UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON, DC 20549
 
 FORM 10-Q
 (Mark One)
 þ
    
    Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
 For the quarterly period ended June 30, 2008
 o
    
    Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
 For the transition period from  to .
 Commission file number: 333-107569-03
 Arch Western Resources, LLC
  Delaware
    
    43-1811130(State or other jurisdiction
    
    (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
  Large accelerated filer o
    
    Accelerated filer o
    
    Non-accelerated filer þ
    
    Smaller reporting company o(Do not check if a smaller reporting company)
 o þ




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##### 



Table of Contents
 PagePart I Financial Information
    
    
    1Item 1. Financial Statements
    
    
    1Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    16Item 3. Quantitative and Qualitative Disclosures About Market Risk
    
    
    21Item 4T. Controls and Procedures
    
    
    21Part 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
    
    
    23
  i




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##### 



PART I
FINANCIAL INFORMATION
 
 Item 1. Financial Statements.
 Arch Western Resources, LLC and Subsidiaries
Condensed Consolidated Statements of Income
(In thousands)
 Three Months Ended June 30
    
    
    Six Months Ended June 302008
    
    
    2007
    
    
    2008
    
    
    2007(unaudited)REVENUESCoal sales
    
    $
    459,953
    
    
    $
    386,458
    
    
    $
    897,162
    
    
    $
    756,555COSTS, EXPENSES AND OTHERCost of coal sales
    
    
    359,126
    
    
    
    308,067
    
    
    
    695,849
    
    
    
    591,338Depreciation, depletion and amortization
    
    
    37,870
    
    
    
    32,939
    
    
    
    77,526
    
    
    
    65,458Selling, general and administrative expenses
allocated from Arch Coal
    
    
    9,333
    
    
    
    6,786
    
    
    
    16,890
    
    
    
    12,938Other operating income, net
    
    
    (1,169
    )
    
    
    (7,063
    )
    
    
    (2,120
    )
    
    
    (7,986
    )405,160
    
    
    
    340,729
    
    
    
    788,145
    
    
    
    661,748Income from operations
    
    
    54,793
    
    
    
    45,729
    
    
    
    109,017
    
    
    
    94,807Interest income, net:Interest expense
    
    
    (16,107
    )
    
    
    (18,078
    )
    
    
    (33,582
    )
    
    
    (35,699
    )Interest income, primarily from Arch Coal, Inc.
    
    
    18,154
    
    
    
    24,390
    
    
    
    39,999
    
    
    
    47,2112,047
    
    
    
    6,312
    
    
    
    6,417
    
    
    
    11,512Non-operating expense
    
    
    
    
    
    
    (1,270
    )
    
    
    
    
    
    
    (2,539
    )Income before minority interest
    
    
    56,840
    
    
    
    50,771
    
    
    
    115,434
    
    
    
    103,780Minority interest
    
    
    (2,027
    )
    
    
    (4,832
    )
    
    
    (5,753
    )
    
    
    (9,564
    )Net income
    
    $
    54,813
    
    
    $
    45,939
    
    
    $
    109,681
    
    
    $
    94,216Net income attributable to redeemable
membership interest
    
    $
    274
    
    
    $
    230
    
    
    $
    548
    
    
    $
    471Net income attributable to non-redeemable
membership interest
    
    $
    54,539
    
    
    $
    45,709
    
    
    $
    109,133
    
    
    $
    93,745
  1




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##### 



Arch Western Resources, LLC and Subsidiaries
Condensed Consolidated Balance Sheets
(In thousands)
 June 30,
    
    
    December 31,2008
    
    
    2007(unaudited)ASSETSCurrent assetsCash and cash equivalents
    
    $
    206
    
    
    $
    248Receivables
    
    
    1,871
    
    
    
    3,559Inventories
    
    
    134,480
    
    
    
    141,626Other
    
    
    21,471
    
    
    
    27,128Total current assets
    
    
    158,028
    
    
    
    172,561Property, plant and equipment, net
    
    
    1,316,700
    
    
    
    1,225,993Other assetsReceivable from Arch Coal, Inc.
    
    
    1,517,321
    
    
    
    1,427,833Other
    
    
    25,279
    
    
    
    25,800Total other assets
    
    
    1,542,600
    
    
    
    1,453,633Total assets
    
    $
    3,017,328
    
    
    $
    2,852,187LIABILITIES AND MEMBERSHIP INTERESTSCurrent liabilitiesAccounts payable
    
    $
    93,891
    
    
    $
    82,254Accrued expenses
    
    
    129,016
    
    
    
    128,754Commercial paper
    
    
    98,575
    
    
    
    74,959Total current liabilities
    
    
    321,482
    
    
    
    285,967Long-term debt
    
    
    956,831
    
    
    
    957,514Accrued postretirement benefits other than pension
    
    
    38,159
    
    
    
    36,805Asset retirement obligations
    
    
    201,962
    
    
    
    194,190Accrued workers compensation
    
    
    9,186
    
    
    
    8,784Other noncurrent liabilities
    
    
    35,959
    
    
    
    30,725Total liabilities
    
    
    1,563,579
    
    
    
    1,513,985Redeemable membership interest
    
    
    8,547
    
    
    
    8,000Minority interest
    
    
    188,772
    
    
    
    183,018Non-redeemable membership interest
    
    
    1,256,430
    
    
    
    1,147,184Total liabilities and membership interests
    
    $
    3,017,328
    
    
    $
    2,852,187
  2




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##### 



Arch Western Resources, LLC and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(In thousands)
 Six Months Ended June 302008
    
    
    2007(unaudited)OPERATING ACTIVITIESNet income
    
    $
    109,681
    
    
    $
    94,216Adjustments to reconcile net income to cash provided by operating activities:Depreciation, depletion and amortization
    
    
    77,526
    
    
    
    65,458Prepaid royalties expensed
    
    
    71
    
    
    
    3,069Net gain on dispositions of property, plant and equipment
    
    
    (337
    )
    
    
    (6,074
    )Minority interest
    
    
    5,753
    
    
    
    9,564Other non-operating expense
    
    
    
    
    
    
    2,539Changes in:Receivables
    
    
    1,688
    
    
    
    12,397Inventories
    
    
    7,146
    
    
    
    (8,983
    )Accounts payable and accrued expenses
    
    
    11,946
    
    
    
    (16,022
    )Other
    
    
    17,752
    
    
    
    15,866Cash provided by operating activities
    
    
    231,226
    
    
    
    172,030INVESTING ACTIVITIESCapital expenditures
    
    
    (171,380
    )
    
    
    (74,696
    )Increase in receivable from Arch Coal, Inc.
    
    
    (86,119
    )
    
    
    (122,082
    )Proceeds from dispositions of property, plant and equipment
    
    
    379
    
    
    
    6,327Reimbursement of deposits on equipment
    
    
    2,455
    
    
    
    18,325Cash used in investing activities
    
    
    (254,665
    )
    
    
    (172,126
    )FINANCING ACTIVITIESNet proceeds from commercial paper
    
    
    23,616
    
    
    
    Debt financing costs
    
    
    (219
    )
    
    
    Cash provided by financing activities
    
    
    23,397
    
    
    
    Decrease in cash and cash equivalents
    
    
    (42
    )
    
    
    (96
    )Cash and cash equivalents, beginning of period
    
    
    248
    
    
    
    186Cash and cash equivalents, end of period
    
    $
    206
    
    
    $
    90
  3




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##### 



Arch Western Resources, LLC and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(unaudited)
 1. Basis of Presentation
   2. Accounting Policies
 Accounting Pronouncements Adopted
 Fair Value Measurements
 The Fair Value Option
for Financial Assets and Financial Liabilities  Including an Amendment of FASB Statement No. 115
 Accounting Standards Issued and Not Yet Adopted
 Noncontrolling Interests in Consolidated Financial Statements, an amendment of ARB No. 51
 4




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##### 



3. Inventories
  June 30,
    
    
    December 31,2008
    
    
    2007(In thousands)Coal
    
    $
    27,031
    
    
    $
    42,942Repair parts and supplies, net of allowance
    
    
    107,449
    
    
    
    98,684$
    134,480
    
    
    $
    141,626
 4. Property Transactions
  5. Debt
  6. Comprehensive Income
 Reporting
Comprehensive Income
  Three Months Ended June 30
    
    
    Six Months Ended June 302008
    
    
    2007
    
    
    2008
    
    
    2007(In thousands)Net income
    
    $
    54,813
    
    
    $
    45,939
    
    
    $
    109,681
    
    
    $
    94,216Other comprehensive income:Net pension, postretirement and other
post-employment benefits adjustments
reclassified to income
    
    
    22
    
    
    
    367
    
    
    
    160
    
    
    
    872Net losses on derivatives reclassified to income
    
    
    
    
    
    
    1,270
    
    
    
    
    
    
    
    2,539Total comprehensive income
    
    $
    54,835
    
    
    $
    47,576
    
    
    $
    109,841
    
    
    $
    97,627
 7. Related Party Transactions
    5




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##### 



8. Contingencies
  9. Segment Information
   6




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##### 



Corporate,Other andPRB
    
    WBIT
    
    Eliminations
    
    ConsolidatedThree months ended June 30, 2008Coal sales
    
    $
    268,568
    
    
    $
    191,385
    
    
    $
    
    
    
    $
    459,953Income (loss) from operations
    
    
    20,262
    
    
    
    44,642
    
    
    
    (10,111
    )
    
    
    54,793Total assets
    
    
    1,763,537
    
    
    
    2,032,949
    
    
    
    (779,158
    )
    
    
    3,017,328Depreciation, depletion and amortization
    
    
    18,125
    
    
    
    19,745
    
    
    
    
    
    
    
    37,870Capital expenditures
    
    
    38,385
    
    
    
    34,500
    
    
    
    
    
    
    
    72,885Three months ended June 30, 2007Coal sales
    
    $
    249,959
    
    
    $
    136,499
    
    
    $
    
    
    
    $
    386,458Income from operations
    
    
    25,603
    
    
    
    19,706
    
    
    
    420
    
    
    
    45,729Total assets
    
    
    1,637,555
    
    
    
    1,887,258
    
    
    
    (867,409
    )
    
    
    2,657,404Depreciation, depletion and amortization
    
    
    17,715
    
    
    
    15,224
    
    
    
    
    
    
    
    32,939Capital expenditures
    
    
    963
    
    
    
    30,872
    
    
    
    
    
    
    
    31,835Six months ended June 30, 2008Coal sales
    
    $
    544,256
    
    
    $
    352,906
    
    
    $
    
    
    
    $
    897,162Income (loss) from operations
    
    
    49,049
    
    
    
    78,603
    
    
    
    (18,635
    )
    
    
    109,017Depreciation, depletion and amortization
    
    
    36,348
    
    
    
    41,178
    
    
    
    
    
    
    
    77,526Capital expenditures
    
    
    76,562
    
    
    
    94,818
    
    
    
    
    
    
    
    171,380Six months ended June 30, 2007Coal sales
    
    $
    489,416
    
    
    $
    267,139
    
    
    $
    
    
    
    $
    756,555Income (loss) from operations
    
    
    55,852
    
    
    
    45,608
    
    
    
    (6,653
    )
    
    
    94,807Depreciation, depletion and amortization
    
    
    33,753
    
    
    
    31,705
    
    
    
    
    
    
    
    65,458Capital expenditures
    
    
    14,086
    
    
    
    60,610
    
    
    
    
    
    
    
    74,696
  Three Months Ended
    
    
    Six Months EndedJune 30
    
    
    June 302008
    
    
    2007
    
    
    2008
    
    
    2007(In thousands)ncome from operations
    
    $
    54,793
    
    
    $
    45,729
    
    
    $
    109,017
    
    
    $
    94,807Interest expense
    
    
    (16,107
    )
    
    
    (18,078
    )
    
    
    (33,582
    )
    
    
    (35,699
    )Interest income
    
    
    18,154
    
    
    
    24,390
    
    
    
    39,999
    
    
    
    47,211Other non-operating expense
    
    
    
    
    
    
    (1,270
    )
    
    
    
    
    
    
    (2,539
    )Income before minority interest
    
    $
    56,840
    
    
    $
    50,771
    
    
    $
    115,434
    
    
    $
    103,780
 10. Supplemental Condensed Consolidating Financial Information
  7




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##### 



CONDENSED CONSOLIDATING STATEMENTS OF INCOME
Three Months Ended June 30, 2008
(in thousands)
 Parent


    
    
    
    
    
    Guarantor
    
    Non-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 allocated from Arch Coal
    
    
    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, primarily from Arch
Coal
    
    
    17,875
    
    
    
    16,032
    
    
    
    54
    
    
    
    225
    
    
    
    (16,032
    )
    
    
    18,154(415
    )
    
    
    2,778
    
    
    
    (117
    )
    
    
    (199
    )
    
    
    
    
    
    
    2,047Minority interest
    
    
    (2,027
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,027
    )Net income
    
    $
    54,813
    
    
    $
    2,778
    
    
    $
    57,545
    
    
    $
    7,043
    
    
    $
    (67,366
    )
    
    $
    54,813
 8




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##### 



CONDENSED CONSOLIDATING STATEMENTS OF INCOME
Three Months Ended June 30, 2007
(in thousands)
 Parent
    
    
    
    
    
    Guarantor
    
    
    Non-GuarantorCompany
    
    
    Issuer
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    ConsolidatedCoal sales revenues
    
    $
    
    
    
    $
    
    
    
    $
    288,268
    
    
    $
    98,190
    
    
    $
    
    
    
    $
    386,458Cost of coal sales
    
    
    (1,166
    )
    
    
    
    
    
    
    235,322
    
    
    
    74,504
    
    
    
    (593
    )
    
    
    308,067Depreciation, depletion and
amortization
    
    
    
    
    
    
    
    
    
    
    22,388
    
    
    
    10,551
    
    
    
    
    
    
    
    32,939Selling, general and administrative
expenses allocated from Arch Coal
    
    
    6,786
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6,786Other operating income
    
    
    (6,040
    )
    
    
    
    
    
    
    (736
    )
    
    
    (880
    )
    
    
    593
    
    
    
    (7,063
    )(420
    )
    
    
    
    
    
    
    256,974
    
    
    
    84,175
    
    
    
    
    
    
    
    340,729Income from investment in subsidiaries
    
    
    45,712
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (45,712
    )
    
    
    Income from operations
    
    
    46,132
    
    
    
    
    
    
    
    31,294
    
    
    
    14,015
    
    
    
    (45,712
    )
    
    
    45,729Interest expense
    
    
    (17,974
    )
    
    
    (15,423
    )
    
    
    (105
    )
    
    
    (607
    )
    
    
    16,031
    
    
    
    (18,078
    )Interest income, primarily from Arch
Coal
    
    
    23,883
    
    
    
    16,031
    
    
    
    103
    
    
    
    404
    
    
    
    (16,031
    )
    
    
    24,3905,909
    
    
    
    608
    
    
    
    (2
    )
    
    
    (203
    )
    
    
    
    
    
    
    6,312Non-operating expense
    
    
    (1,270
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,270
    )Minority interest
    
    
    (4,832
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (4,832
    )Net income
    
    $
    45,939
    
    
    $
    608
    
    
    $
    31,292
    
    
    $
    13,812
    
    
    $
    (45,712
    )
    
    $
    45,939
 9




---



##### 



CONDENSED CONSOLIDATING STATEMENTS OF INCOME
Six Months Ended June 30, 2008
(in thousands)
 Parent
    
    
    
    
    
    Guarantor
    
    
    Non-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 allocated from Arch Coal
    
    
    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, primarily from Arch Coal
    
    
    39,309
    
    
    
    32,063
    
    
    
    142
    
    
    
    548
    
    
    
    (32,063
    )
    
    
    39,9992,237
    
    
    
    4,652
    
    
    
    (134
    )
    
    
    (338
    )
    
    
    
    
    
    
    6,417Minority interest
    
    
    (5,753
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (5,753
    )Net income
    
    $
    109,681
    
    
    $
    4,652
    
    
    $
    109,176
    
    
    $
    18,004
    
    
    $
    (131,832
    )
    
    $
    109,681
 10




---



##### 



CONDENSED CONSOLIDATING STATEMENTS OF INCOME
Six Months Ended June 30, 2007
(in thousands)
 Parent
    
    
    
    
    
    Guarantor
    
    
    Non-GuarantorCompany
    
    
    Issuer
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    ConsolidatedCoal sales revenues
    
    $
    
    
    
    $
    
    
    
    $
    570,690
    
    
    $
    185,865
    
    
    $
    
    
    
    $
    756,555Cost of coal sales
    
    
    (220
    )
    
    
    
    
    
    
    454,632
    
    
    
    138,188
    
    
    
    (1,262
    )
    
    
    591,338Depreciation, depletion and
amortization
    
    
    
    
    
    
    
    
    
    
    43,828
    
    
    
    21,630
    
    
    
    
    
    
    
    65,458Selling, general and administrative
expenses allocated from Arch Coal
    
    
    12,938
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    12,938Other operating income
    
    
    (6,065
    )
    
    
    
    
    
    
    (1,347
    )
    
    
    (1,836
    )
    
    
    1,262
    
    
    
    (7,986
    )6,653
    
    
    
    
    
    
    
    497,113
    
    
    
    157,982
    
    
    
    
    
    
    
    661,748Income from investment in subsidiaries
    
    
    102,699
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (102,699
    )
    
    
    Income from operations
    
    
    96,046
    
    
    
    
    
    
    
    73,577
    
    
    
    27,883
    
    
    
    (102,699
    )
    
    
    94,807Interest expense
    
    
    (35,921
    )
    
    
    (30,436
    )
    
    
    (204
    )
    
    
    (1,189
    )
    
    
    32,051
    
    
    
    (35,699
    )Interest income, primarily from Arch
Coal
    
    
    46,194
    
    
    
    32,051
    
    
    
    236
    
    
    
    781
    
    
    
    (32,051
    )
    
    
    47,21110,273
    
    
    
    1,615
    
    
    
    32
    
    
    
    (408
    )
    
    
    
    
    
    
    11,512Non-operating expense
    
    
    (2,539
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,539
    )Minority interest
    
    
    (9,564
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (9,564
    )Net income
    
    $
    94,216
    
    
    $
    1,615
    
    
    $
    73,609
    
    
    $
    27,475
    
    
    $
    (102,699
    )
    
    $
    94,216
 11




---



##### 



CONDENSED CONSOLIDATING BALANCE SHEETS
June 30, 2008
(in thousands)
 Non-Parent
    
    
    
    
    
    
    Guarantor
    
    
    GuarantorCompany
    
    
    Issuer
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    ConsolidatedCash and cash equivalents
    
    $
    38
    
    
    $
    
    
    
    $
    18
    
    
    $
    150
    
    
    $
    
    
    
    $
    206Receivables
    
    
    621
    
    
    
    
    
    
    
    589
    
    
    
    661
    
    
    
    
    
    
    
    1,871Inventories
    
    
    
    
    
    
    
    
    
    
    101,524
    
    
    
    32,956
    
    
    
    
    
    
    
    134,480Other
    
    
    4,527
    
    
    
    2,146
    
    
    
    6,530
    
    
    
    8,268
    
    
    
    
    
    
    
    21,471Total current assets
    
    
    5,186
    
    
    
    2,146
    
    
    
    108,661
    
    
    
    42,035
    
    
    
    
    
    
    
    158,028Property, plant and equipment, net
    
    
    
    
    
    
    
    
    
    
    976,330
    
    
    
    340,370
    
    
    
    
    
    
    
    1,316,700Investment in subsidiaries
    
    
    2,215,899
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,215,899
    )
    
    
    Receivable from Arch Coal, Inc.
    
    
    1,484,185
    
    
    
    
    
    
    
    
    
    
    
    33,136
    
    
    
    
    
    
    
    1,517,321Intercompanies
    
    
    (2,114,503
    )
    
    
    986,408
    
    
    
    1,023,079
    
    
    
    105,016
    
    
    
    
    
    
    
    Other
    
    
    1,137
    
    
    
    8,544
    
    
    
    11,553
    
    
    
    4,045
    
    
    
    
    
    
    
    25,279Total other assets
    
    
    1,586,718
    
    
    
    994,952
    
    
    
    1,034,632
    
    
    
    142,197
    
    
    
    (2,215,899
    )
    
    
    1,542,600Total assets
    
    $
    1,591,904
    
    
    $
    997,098
    
    
    $
    2,119,623
    
    
    $
    524,602
    
    
    $
    (2,215,899
    )
    
    $
    3,017,328Accounts payable
    
    $
    3,078
    
    
    $
    
    
    
    $
    75,914
    
    
    $
    14,899
    
    
    $
    
    
    
    $
    93,891Accrued expenses
    
    
    4,643
    
    
    
    32,063
    
    
    
    81,718
    
    
    
    10,592
    
    
    
    
    
    
    
    129,016Commercial paper
    
    
    98,575
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    98,575Total current liabilities
    
    
    106,296
    
    
    
    32,063
    
    
    
    157,632
    
    
    
    25,491
    
    
    
    
    
    
    
    321,482Long-term debt
    
    
    
    
    
    
    956,831
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    956,831Accrued postretirement benefits
other
than pension
    
    
    25,138
    
    
    
    
    
    
    
    2,485
    
    
    
    10,536
    
    
    
    
    
    
    
    38,159Asset retirement obligations
    
    
    
    
    
    
    
    
    
    
    189,317
    
    
    
    12,645
    
    
    
    
    
    
    
    201,962Accrued workers compensation
    
    
    4,641
    
    
    
    
    
    
    
    685
    
    
    
    3,860
    
    
    
    
    
    
    
    9,186Other noncurrent liabilities
    
    
    2,080
    
    
    
    
    
    
    
    28,355
    
    
    
    5,524
    
    
    
    
    
    
    
    35,959Total liabilities
    
    
    138,155
    
    
    
    988,894
    
    
    
    378,474
    
    
    
    58,056
    
    
    
    
    
    
    
    1,563,579Redeemable membership interest
    
    
    8,547
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    8,547Minority interest
    
    
    188,772
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    188,772Non-redeemable membership interest
    
    
    1,256,430
    
    
    
    8,204
    
    
    
    1,741,149
    
    
    
    466,546
    
    
    
    (2,215,899
    )
    
    
    1,256,430Total liabilities and
membership
interests
    
    $
    1,591,904
    
    
    $
    997,098
    
    
    $
    2,119,623
    
    
    $
    524,602
    
    
    $
    (2,215,899
    )
    
    $
    3,017,328
 12




---



##### 



CONDENSED CONSOLIDATING BALANCE SHEETS
December 31, 2007
(in thousands)
 Parent
    
    
    
    
    
    
    Guarantor
    
    
    Non-GuarantorCompany
    
    
    Issuer
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    ConsolidatedCash and cash equivalents
    
    $
    78
    
    
    $
    
    
    
    $
    16
    
    
    $
    154
    
    
    $
    
    
    
    $
    248Receivables
    
    
    1,145
    
    
    
    
    
    
    
    1,224
    
    
    
    1,190
    
    
    
    
    
    
    
    3,559Inventories
    
    
    
    
    
    
    
    
    
    
    98,638
    
    
    
    42,988
    
    
    
    
    
    
    
    141,626Other
    
    
    11,342
    
    
    
    2,153
    
    
    
    5,868
    
    
    
    7,765
    
    
    
    
    
    
    
    27,128Total current assets
    
    
    12,565
    
    
    
    2,153
    
    
    
    105,746
    
    
    
    52,097
    
    
    
    
    
    
    
    172,561Property, plant and equipment, net
    
    
    
    
    
    
    
    
    
    
    864,575
    
    
    
    361,418
    
    
    
    
    
    
    
    1,225,993Investment in subsidiaries
    
    
    2,140,722
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,140,722
    )
    
    
    Receivable from Arch Coal, Inc.
    
    
    1,399,046
    
    
    
    
    
    
    
    (112
    )
    
    
    28,899
    
    
    
    
    
    
    
    1,427,833Intercompanies
    
    
    (2,105,212
    )
    
    
    981,359
    
    
    
    1,064,385
    
    
    
    59,468
    
    
    
    
    
    
    
    Other
    
    
    802
    
    
    
    9,617
    
    
    
    11,611
    
    
    
    3,770
    
    
    
    
    
    
    
    25,800Total other assets
    
    
    1,435,358
    
    
    
    990,976
    
    
    
    1,075,884
    
    
    
    92,137
    
    
    
    (2,140,722
    )
    
    
    1,453,633Total assets
    
    $
    1,447,923
    
    
    $
    993,129
    
    
    $
    2,046,205
    
    
    $
    505,652
    
    
    $
    (2,140,722
    )
    
    $
    2,852,187Accounts payable
    
    $
    3,434
    
    
    $
    
    
    
    $
    62,504
    
    
    $
    16,316
    
    
    $
    
    
    
    $
    82,254Accrued expenses
    
    
    2,863
    
    
    
    32,063
    
    
    
    83,515
    
    
    
    10,313
    
    
    
    
    
    
    
    128,754Commercial paper
    
    
    74,959
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    74,959Total current liabilities
    
    
    81,256
    
    
    
    32,063
    
    
    
    146,019
    
    
    
    26,629
    
    
    
    
    
    
    
    285,967Long-term debt
    
    
    
    
    
    
    957,514
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    957,514Accrued postretirement benefits
other
than pension
    
    
    24,482
    
    
    
    
    
    
    
    2,485
    
    
    
    9,838
    
    
    
    
    
    
    
    36,805Asset retirement obligations
    
    
    
    
    
    
    
    
    
    
    182,101
    
    
    
    12,089
    
    
    
    
    
    
    
    194,190Accrued workers compensation
    
    
    4,293
    
    
    
    
    
    
    
    1,053
    
    
    
    3,438
    
    
    
    
    
    
    
    8,784Other noncurrent liabilities
    
    
    (310
    )
    
    
    
    
    
    
    25,886
    
    
    
    5,149
    
    
    
    
    
    
    
    30,725Total liabilities
    
    
    109,721
    
    
    
    989,577
    
    
    
    357,544
    
    
    
    57,143
    
    
    
    
    
    
    
    1,513,985Redeemable membership interest
    
    
    8,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    8,000Minority interest
    
    
    183,018
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    183,018Non-redeemable membership interest
    
    
    1,147,184
    
    
    
    3,552
    
    
    
    1,688,661
    
    
    
    448,509
    
    
    
    (2,140,722
    )
    
    
    1,147,184Total liabilities and
membership
interests
    
    $
    1,447,923
    
    
    $
    993,129
    
    
    $
    2,046,205
    
    
    $
    505,652
    
    
    $
    (2,140,722
    )
    
    $
    2,852,187
 13




---



##### 



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
 14




---



##### 



CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
Six Months Ended June 30, 2007
(in thousands)
 Parent
    
    
    
    
    
    Guarantor
    
    
    Non-GuarantorCompany
    
    
    Issuer
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    ConsolidatedCash provided by (used in) operating
activities
    
    $
    (258
    )
    
    $
    2,012
    
    
    $
    112,601
    
    
    $
    57,675
    
    
    $
    172,030Investing ActivitiesCapital expenditures
    
    
    
    
    
    
    
    
    
    
    (32,150
    )
    
    
    (42,546
    )
    
    
    (74,696
    )Increase in receivable from Arch Coal
    
    
    (112,227
    )
    
    
    
    
    
    
    (112
    )
    
    
    (9,743
    )
    
    
    (122,082
    )Proceeds from dispositions of property,
plant and equipment
    
    
    6,000
    
    
    
    
    
    
    
    248
    
    
    
    79
    
    
    
    6,327Reimbursement of deposits on equipment
    
    
    
    
    
    
    
    
    
    
    18,325
    
    
    
    
    
    
    
    18,325Cash used in investing activities
    
    
    (106,227
    )
    
    
    
    
    
    
    (13,689
    )
    
    
    (52,210
    )
    
    
    (172,126
    )Financing ActivitiesTransactions with affiliates, net
    
    
    106,485
    
    
    
    (2,012
    )
    
    
    (98,998
    )
    
    
    (5,475
    )
    
    
    Cash provided by (used in) financing
activities
    
    
    106,485
    
    
    
    (2,012
    )
    
    
    (98,998
    )
    
    
    (5,475
    )
    
    
    Decrease in cash and cash equivalents
    
    
    
    
    
    
    
    
    
    
    (86
    )
    
    
    (10
    )
    
    
    (96
    )Cash and cash equivalents, beginning of
period
    
    
    
    
    
    
    
    
    
    
    161
    
    
    
    25
    
    
    
    186Cash and cash equivalents, end of period
    
    $
    
    
    
    $
    
    
    
    $
    75
    
    
    $
    15
    
    
    $
    90
 15




---



##### 



Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations.
 This document contains forward-looking statements  that is, statements related to future,
not past, events. In this context, forward-looking statements often address our expected future
business and financial performance, and often contain words such as expects, anticipates,
intends, plans, believes, seeks, or will. Forward-looking statements by their nature
address matters that are, to different degrees, uncertain. For us, particular uncertainties arise
from changes in the demand for our coal by the domestic electric generation industry; from
legislation and regulations relating to the Clean Air Act and other environmental initiatives; from
operational, geological, permit, labor and weather-related factors; from fluctuations in the amount
of cash we generate from operations; from future integration of acquired businesses; and from
numerous other matters of national, regional and global scale, including those of a political,
economic, business, competitive or regulatory nature. These uncertainties may cause our actual
future results to be materially different than those expressed in our forward-looking statements.
We do not undertake to update our forward-looking statements, whether as a result of new
information, future events or otherwise, except as may be required by law. For a description of
some of the risks and uncertainties that may affect our future results, see Risk Factors under
Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2007 and in Part II, Item
1A of this Quarterly Report on Form 10-Q .
 Overview
      16




---



##### 



Results of Operations
 Three Months Ended June 30, 2008 Compared to Three Months Ended June 30, 2007
 Summary
 Revenues.
 Three Months Ended June 30
    
    Increase2008
    
    2007
    
    $
    
    %(Amounts in thousands, except per ton data)Coal sales
    
    $
    459,953
    
    
    $
    386,458
    
    
    $
    73,495
    
    
    
    19.0
    %Tons sold
    
    
    29,692
    
    
    
    29,193
    
    
    
    499
    
    
    
    1.7
    %Coal sales realization per ton sold
    
    $
    15.49
    
    
    $
    13.24
    
    
    $
    2.25
    
    
    
    17.0
    %
 Coal sales
 Expenses, costs and other.
 DecreaseThree Months Ended June 30
    
    
    in Net Income2008
    
    
    2007
    
    
    $
    
    
    %(Amounts in thousands)Cost of coal sales
    
    $
    359,126
    
    
    $
    308,067
    
    
    $
    (51,059
    )
    
    
    (16.6
    )%Depreciation, depletion and amortization
    
    
    37,870
    
    
    
    32,939
    
    
    
    (4,931
    )
    
    
    (15.0
    )Selling, general and administrative expenses
    
    
    9,333
    
    
    
    6,786
    
    
    
    (2,547
    )
    
    
    (37.5
    )Other operating income, net
    
    
    (1,169
    )
    
    
    (7,063
    )
    
    
    (5,894
    )
    
    
    (83.4
    )$
    405,160
    
    
    $
    340,729
    
    
    $
    (64,431
    )
    
    
    (18.9
    )%
 Cost of coal sales.
 Depreciation, depletion and amortization.
 Selling, general and administrative expenses.
 Other operating income, net.
 17




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##### 



Operating segment results
 Three Months Ended June 30
    
    Increase (Decrease)2008
    
    2007
    
    $
    
    %(Tons in thousands)Powder River BasinTons sold
    
    
    24,077
    
    
    
    24,237
    
    
    
    (160
    )
    
    
    (0.7
    )%Coal sales realization per ton sold (1)
    
    $
    11.12
    
    
    $
    10.29
    
    
    $
    0.83
    
    
    
    8.1
    %Operating margin per ton sold (2)
    
    $
    0.81
    
    
    $
    1.03
    
    
    $
    (0.22
    )
    
    
    (21.4
    )%Western BituminousTons sold
    
    
    5,615
    
    
    
    4,956
    
    
    
    659
    
    
    
    13.3
    %Coal sales realization per ton sold (1)
    
    $
    29.93
    
    
    $
    24.13
    
    
    $
    5.80
    
    
    
    24.0
    %Operating margin per ton sold (2)
    
    $
    7.78
    
    
    $
    3.77
    
    
    $
    4.01
    
    
    
    106.4
    %
 
 (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 quarter ended June
30, 2008, transportation costs per ton billed to customers were $0.03 for the Powder River
Basin and $4.16 for the Western Bituminous region. Transportation costs per ton billed to
customers for the quarter ended June 30, 2007 were $0.03 for the Powder River Basin and $3.41
for the Western Bituminous region.(2)
    
    Operating margin per ton is calculated as the result of coal sales revenues less
cost of coal sales and depreciation, depletion and amortization divided by tons sold. Powder River Basin 
 Western Bituminous 
 Net interest income
 Increase (Decrease)Three Months Ended June 30
    
    
    in Net Income2008
    
    
    2007
    
    
    $
    
    
    %(Amounts in thousands)Interest expense
    
    $
    (16,107
    )
    
    $
    (18,078
    )
    
    $
    1,971
    
    
    
    10.9
    %Interest income
    
    
    18,154
    
    
    
    24,390
    
    
    
    (6,236
    )
    
    
    (25.6
    )$
    2,047
    
    
    $
    6,312
    
    
    $
    (4,265
    )
    
    
    (67.6
    )%
 3 4
  18




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##### 



Other non-operating expense.
 Six Months Ended June 30, 2008 Compared to Six Months Ended June 30, 2007
 Summary
 Revenues.
 Six Months Ended June 30
    
    Increase2008
    
    2007
    
    $
    
    %(Amounts in thousands, except per ton data)Coal sales
    
    $
    897,162
    
    
    $
    756,555
    
    
    $
    140,607
    
    
    
    18.6
    %Tons sold
    
    
    59,878
    
    
    
    56,899
    
    
    
    2,979
    
    
    
    5.2
    %Coal sales realization per ton sold
    
    $
    14.98
    
    
    $
    13.30
    
    
    $
    1.68
    
    
    
    12.6
    %
 Coal sales
 Expenses, costs and other.
 DecreaseSix Months Ended June 30
    
    
    in Net Income2008
    
    
    2007
    
    
    $
    
    
    %(Amounts in thousands)Cost of coal sales
    
    $
    695,849
    
    
    $
    591,338
    
    
    $
    (104,511
    )
    
    
    (17.7
    )%Depreciation, depletion and amortization
    
    
    77,526
    
    
    
    65,458
    
    
    
    (12,068
    )
    
    
    (18.4
    )Selling, general and administrative expenses
    
    
    16,890
    
    
    
    12,938
    
    
    
    (3,952
    )
    
    
    (30.5
    )Other operating income, net
    
    
    (2,120
    )
    
    
    (7,986
    )
    
    
    (5,866
    )
    
    
    (73.4
    )$
    788,145
    
    
    $
    661,748
    
    
    $
    (126,397
    )
    
    
    (19.1
    )%
 Cost of coal sales.
 Depreciation, depletion and amortization.
 Selling, general and administrative expenses.
 Other operating income, net.
 19




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##### 



Operating segment results
 Six Months Ended June 30
    
    Increase (Decrease)2008
    
    2007
    
    $
    
    %(Tons in thousands)Powder River BasinTons sold
    
    
    49,229
    
    
    
    47,179
    
    
    
    2,050
    
    
    
    4.3
    %Coal sales realization per ton sold (3)
    
    $
    11.01
    
    
    $
    10.33
    
    
    $
    0.68
    
    
    
    6.6
    %Operating margin per ton sold (4)
    
    $
    0.97
    
    
    $
    1.16
    
    
    $
    (0.19
    )
    
    
    (16.4
    )%Western BituminousTons sold
    
    
    10,649
    
    
    
    9,720
    
    
    
    929
    
    
    
    9.6
    %Coal sales realization per ton sold (3)
    
    $
    28.42
    
    
    $
    24.44
    
    
    $
    3.98
    
    
    
    16.3
    %Operating margin per ton sold (4)
    
    $
    7.22
    
    
    $
    4.49
    
    
    $
    2.73
    
    
    
    60.8
    %
 
 (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-month period
ended June 30, 2008, transportation costs per ton were $0.04 for the Powder River Basin and
$4.72 for the Western Bituminous region. Transportation costs per ton for the six-month
period ended June 30, 2007 were $0.05 for the Powder River Basin and $3.04 for the Western
Bituminous region.(4)
    
    Operating margin per ton is calculated as the result of coal sales revenues less
cost of coal sales and depreciation, depletion and amortization divided by tons sold. Powder River Basin 
 Western Bituminous 
 Net interest expense
 Increase (Decrease)Six Months Ended June 30
    
    
    in Net Income2008
    
    
    2007
    
    
    $
    
    
    %(Amounts in thousands)Interest expense
    
    $
    (33,582
    )
    
    $
    (35,699
    )
    
    $
    2,117
    
    
    
    5.9
    %Interest income
    
    
    39,999
    
    
    
    47,211
    
    
    
    (7,212
    )
    
    
    (15.3
    )$
    6,417
    
    
    $
    11,512
    
    
    $
    (5,095
    )
    
    
    (44.3
    )%
 3 4
  20




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##### 



Other non-operating expense.
 Liquidity and Capital Resources
    Six Months Ended June 302008
    
    2007(in thousands)Cash provided by (used in):Operating activities
    
    $
    231,226
    
    
    $
    172,030Investing activities
    
    
    (254,665
    )
    
    
    (172,126
    )Financing activities
    
    
    23,397
    
    
    
    
    
 Item 3. Quantitative and Qualitative Disclosures About Market Risk.
  
 Item 4T. Controls and Procedures.
  21




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##### 



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.
  22




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##### 



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




---



##### 



Signatures
  Arch Western Resources, LLCBy:
    /s/ John T. DrexlerJohn T. DrexlerVice PresidentAugust 14, 2008 24