##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON, DC 20549
 
 FORM 10-Q
  þ
    
    Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
 For the quarterly period ended June 30, 2007
 o
    
    Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
 For the transition period from  to .
 Commission file number: 333-107569-03
 Arch Western Resources, LLC
  Delaware
    
    43-1811130(State or other jurisdiction
    
    (I.R.S. Employerof incorporation or organization)
    
    Identification Number)One CityPlace Drive, Suite 300, St. Louis, Missouri
    
    63141(Address of principal executive offices)
    
    (Zip code)
  þ o
  o o þ
 o þ




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##### 



Table of Contents
 PagePart I Financial Information
    
    
    1Item 1. Financial Statements.
    
    
    1Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations.
    
    
    16Item 3. Quantitative and Qualitative Disclosures About Market Risk.
    
    
    22Item 4. Controls and Procedures.
    
    
    22Part II Other Information
    
    
    22Item 1. Legal Proceedings.
    
    
    22Item 1A. Risk Factors.
    
    
    22Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
    
    
    22Item 3. Defaults Upon Senior Securities.
    
    
    22Item 4. Submission of Matters to a Vote of Security Holders.
    
    
    22Item 5. Other Information.
    
    
    22Item 6. Exhibits
    
    
    22CertificationCertificationSection 1350 CertificationSection 1350 Certification
  i




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##### Table of Contents



PART I
 FINANCIAL INFORMATION
 
 Item 1. Financial Statements.
 Arch Western Resources, LLC and Subsidiaries
Condensed Consolidated Statements of Income
(In thousands)
 Three Months Ended June 30
    
    
    Six Months Ended June 302007
    
    
    2006
    
    
    2007
    
    
    2006(unaudited)REVENUESCoal sales
    
    $
    386,458
    
    
    $
    386,405
    
    
    $
    756,555
    
    
    $
    748,601COSTS, EXPENSES AND OTHERCost of coal sales
    
    
    308,067
    
    
    
    251,276
    
    
    
    591,338
    
    
    
    503,406Depreciation, depletion and amortization
    
    
    32,939
    
    
    
    26,853
    
    
    
    65,458
    
    
    
    50,429Selling, general and administrative
expenses
    
    
    6,786
    
    
    
    6,529
    
    
    
    12,938
    
    
    
    12,018Other operating income, net
    
    
    (7,063
    )
    
    
    (1,391
    )
    
    
    (7,986
    )
    
    
    (1,866
    )340,729
    
    
    
    283,267
    
    
    
    661,748
    
    
    
    563,987Income from operations
    
    
    45,729
    
    
    
    103,138
    
    
    
    94,807
    
    
    
    184,614Interest income (expense), net:Interest expense
    
    
    (18,078
    )
    
    
    (18,516
    )
    
    
    (35,699
    )
    
    
    (36,252
    )Interest income, primarily from Arch
Coal, Inc.
    
    
    24,390
    
    
    
    20,642
    
    
    
    47,211
    
    
    
    36,9646,312
    
    
    
    2,126
    
    
    
    11,512
    
    
    
    712Other non-operating expense:Expenses resulting from early debt
extinguishment and termination of hedge
accounting for interest rate swaps
    
    
    (1,270
    )
    
    
    (2,305
    )
    
    
    (2,539
    )
    
    
    (5,023
    )Income before minority interest
    
    
    50,771
    
    
    
    102,959
    
    
    
    103,780
    
    
    
    180,303Minority interest
    
    
    (4,832
    )
    
    
    (7,388
    )
    
    
    (9,564
    )
    
    
    (20,755
    )Net income
    
    $
    45,939
    
    
    $
    95,571
    
    
    $
    94,216
    
    
    $
    159,548Net income attributable to redeemable
membership interest
    
    $
    230
    
    
    $
    478
    
    
    $
    471
    
    
    $
    798Net income attributable to
non-redeemable membership interest
    
    $
    45,709
    
    
    $
    95,093
    
    
    $
    93,745
    
    
    $
    158,750
  1




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##### Table of Contents



Arch Western Resources, LLC and Subsidiaries
Condensed Consolidated Balance Sheets
(In thousands)
 June 30,
    
    
    December 31,2007
    
    
    2006(unaudited)ASSETSCurrent assets:Cash and cash equivalents
    
    $
    90
    
    
    $
    186Trade accounts receivable
    
    
    208
    
    
    
    985Other receivables
    
    
    3,113
    
    
    
    14,733Inventories
    
    
    103,811
    
    
    
    94,828Prepaid royalties
    
    
    480
    
    
    
    2,945Other
    
    
    23,767
    
    
    
    24,458Total current assets
    
    
    131,469
    
    
    
    138,135Property, plant and equipment, net
    
    
    1,223,868
    
    
    
    1,233,846Other assets:Receivable from Arch Coal, Inc.
    
    
    1,273,761
    
    
    
    1,152,102Other
    
    
    28,306
    
    
    
    33,689Total other assets
    
    
    1,302,067
    
    
    
    1,185,791Total assets
    
    $
    2,657,404
    
    
    $
    2,557,772LIABILITIES AND MEMBERS INTERESTSCurrent liabilities:Accounts payable
    
    $
    92,415
    
    
    $
    110,725Accrued expenses
    
    
    131,831
    
    
    
    129,495Total current liabilities
    
    
    224,246
    
    
    
    240,220Long-term debt
    
    
    958,198
    
    
    
    958,881Accrued postretirement benefits other than pension
    
    
    32,922
    
    
    
    31,036Asset retirement obligations
    
    
    182,723
    
    
    
    174,902Accrued workers compensation
    
    
    10,674
    
    
    
    10,027Other noncurrent liabilities
    
    
    37,590
    
    
    
    38,705Total liabilities
    
    
    1,446,353
    
    
    
    1,453,771Redeemable membership interest
    
    
    7,420
    
    
    
    6,934Minority interest
    
    
    172,086
    
    
    
    162,522Non-redeemable membership interest
    
    
    1,031,545
    
    
    
    934,545Total liabilities and membership interests
    
    $
    2,657,404
    
    
    $
    2,557,772
  2




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Arch Western Resources, LLC and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(In thousands)
 Six Months Ended June 302007
    
    
    2006(unaudited)OPERATING ACTIVITIESNet income
    
    $
    94,216
    
    
    $
    159,548Adjustments to reconcile net income to cash provided by
operating activities:Depreciation, depletion and amortization
    
    
    65,458
    
    
    
    50,429Prepaid royalties expensed
    
    
    3,069
    
    
    
    607Net gain on disposition of assets
    
    
    (6,074
    )
    
    
    (89
    )Minority interest
    
    
    9,564
    
    
    
    20,755Other non-operating expense
    
    
    2,539
    
    
    
    5,023Changes in:Receivables
    
    
    12,397
    
    
    
    108,090Inventories
    
    
    (8,983
    )
    
    
    (20,177
    )Accounts payable and accrued expenses
    
    
    (16,022
    )
    
    
    17,083Other
    
    
    15,866
    
    
    
    8,500Cash provided by operating activities
    
    
    172,030
    
    
    
    349,769INVESTING ACTIVITIESCapital expenditures
    
    
    (74,696
    )
    
    
    (133,186
    )Increase in receivable from Arch Coal, Inc.
    
    
    (122,082
    )
    
    
    (216,744
    )Proceeds from dispositions of property, plant and equipment
    
    
    6,327
    
    
    
    93Reimbursement of deposits on equipment
    
    
    18,325
    
    
    
    Cash used in investing activities
    
    
    (172,126
    )
    
    
    (349,837
    )Decrease in cash and cash equivalents
    
    
    (96
    )
    
    
    (68
    )Cash and cash equivalents, beginning of period
    
    
    186
    
    
    
    152Cash and cash equivalents, end of period
    
    $
    90
    
    
    $
    84
  3




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Arch Western Resources, LLC and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(unaudited)
 1. Basis of Presentation
   2. Accounting Policies
 Accounting Standards Issued and Not Yet Adopted
 The Fair Value Option for Financial Liabilities  Including
an amendment of FASB Statement No. 115
 3. Inventories
  June 30,
    
    
    December 31,2007
    
    
    2006(In thousands)Coal
    
    $
    21,413
    
    
    $
    31,350Repair parts and supplies
    
    
    82,398
    
    
    
    63,478$
    103,811
    
    
    $
    94,828
 4. Comprehensive Income
 Reporting
Comprehensive Income
 4




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Three Months Ended June 30
    
    
    Six Months Ended June 302007
    
    
    2006
    
    
    2007
    
    
    2006(In thousands)Net income
    
    $
    45,939
    
    
    $
    95,571
    
    
    $
    94,216
    
    
    $
    159,548Other comprehensive incomePension, postretirement and
other post-employment benefits
adjustment
    
    
    367
    
    
    
    14,531
    
    
    
    872
    
    
    
    14,531Unrealized gains on derivatives
    
    
    1,270
    
    
    
    2,305
    
    
    
    2,539
    
    
    
    5,023Total comprehensive income
    
    $
    47,576
    
    
    $
    112,407
    
    
    $
    97,627
    
    
    $
    179,102
 5. Related Party Transactions
      6. Contingencies
  7. Segment Information
  5




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Corporate,Other andPRB
    
    
    WBIT
    
    
    Eliminations
    
    
    Consolidated(In thousands)Three 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
    
    
    
    
    
    
    
    31,835
 Corporate,Other andPRB
    
    
    WBIT
    
    
    Eliminations
    
    
    Consolidated(In thousands)Three months ended June 30, 2006Coal sales
    
    $
    276,054
    
    
    $
    110,351
    
    
    $
    
    
    
    $
    386,405Income (loss) from operations
    
    
    70,499
    
    
    
    40,509
    
    
    
    (7,870
    )
    
    
    103,138Total assets
    
    
    1,454,686
    
    
    
    1,784,718
    
    
    
    (856,537
    )
    
    
    2,382,867Depreciation, depletion and amortization
    
    
    15,666
    
    
    
    11,187
    
    
    
    
    
    
    
    26,853Capital expenditures
    
    
    30,052
    
    
    
    42,038
    
    
    
    
    
    
    
    72,090
 Corporate,Other andPRB
    
    
    WBIT
    
    
    Eliminations
    
    
    Consolidated(In thousands)Six 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
 Corporate,Other andPRB
    
    
    WBIT
    
    
    Eliminations
    
    
    Consolidated(In thousands)Six months ended June 30, 2006Coal sales
    
    $
    528,443
    
    
    $
    220,158
    
    
    $
    
    
    
    $
    748,601Income (loss) from operations
    
    
    132,712
    
    
    
    66,222
    
    
    
    (14,320
    )
    
    
    184,614Depreciation, depletion and amortization
    
    
    30,264
    
    
    
    20,165
    
    
    
    
    
    
    
    50,429Capital expenditures
    
    
    69,207
    
    
    
    63,979
    
    
    
    
    
    
    
    133,186
 6




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##### Table of Contents



Three Months Ended
    
    
    Six Months EndedJune 30
    
    

June
302007
    
    
    2006
    
    
    2007
    
    
    2006(In thousands)Income from operations
    
    $
    45,729
    
    
    $
    103,138
    
    
    $
    94,807
    
    
    $
    184,614Interest expense
    
    
    (18,078
    )
    
    
    (18,516
    )
    
    
    (35,699
    )
    
    
    (36,252
    )Interest income
    
    
    24,390
    
    
    
    20,642
    
    
    
    47,211
    
    
    
    36,964Other non-operating expense
    
    
    (1,270
    )
    
    
    (2,305
    )
    
    
    (2,539
    )
    
    
    (5,023
    )Income before minority interest
    
    $
    50,771
    
    
    $
    102,959
    
    
    $
    103,780
    
    
    $
    180,303
 8. Supplemental Condensed Consolidating Financial Information
  7




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Statements of Operations
Three Months Ended June 30, 2007
(in thousands)
 Guarantor
    
    
    Non-GuarantorParent Company
    
    
    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
    )
    
    
    
    
    
    
    6,312Other non-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
 8




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Statements of Operations
Three Months Ended June 30, 2006
(in thousands)
 Guarantor
    
    
    Non-GuarantorParent Company
    
    
    Issuer
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    ConsolidatedCoal sales revenues
    
    $
    
    
    
    $
    
    
    
    $
    315,888
    
    
    $
    70,517
    
    
    $
    
    
    
    $
    386,405Cost of coal sales
    
    
    1,391
    
    
    
    
    
    
    
    202,677
    
    
    
    47,208
    
    
    
    
    
    
    
    251,276Depreciation, depletion and amortization
    
    
    
    
    
    
    
    
    
    
    20,820
    
    
    
    6,033
    
    
    
    
    
    
    
    26,853Selling, general and administrative
expenses allocated from Arch Coal
    
    
    6,529
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6,529Other operating income
    
    
    (50
    )
    
    
    
    
    
    
    (722
    )
    
    
    (619
    )
    
    
    
    
    
    
    (1,391
    )7,870
    
    
    
    
    
    
    
    222,775
    
    
    
    52,622
    
    
    
    
    
    
    
    283,267Income from investment in subsidiaries
    
    
    111,681
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (111,681
    )
    
    
    Income from operations
    
    
    103,811
    
    
    
    
    
    
    
    93,113
    
    
    
    17,895
    
    
    
    (111,681
    )
    
    
    103,138Interest expense
    
    
    (18,717
    )
    
    
    (15,271
    )
    
    
    (78
    )
    
    
    (481
    )
    
    
    16,031
    
    
    
    (18,516
    )Interest income, primarily from Arch Coal
    
    
    20,170
    
    
    
    16,031
    
    
    
    137
    
    
    
    335
    
    
    
    (16,031
    )
    
    
    20,6421,453
    
    
    
    760
    
    
    
    59
    
    
    
    (146
    )
    
    
    
    
    
    
    2,126Other non-operating expense
    
    
    (2,305
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,305
    )Minority interest
    
    
    (7,388
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (7,388
    )Net income
    
    $
    95,571
    
    
    $
    760
    
    
    $
    93,172
    
    
    $
    17,749
    
    
    $
    (111,681
    )
    
    $
    95,571
 9




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##### Table of Contents



Statements of Operations
Six Months Ended June 30, 2007
(in thousands)
 Guarantor
    
    
    Non-GuarantorParent Company
    
    
    Issuer
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    ConsolidatedCost
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
    )
    
    
    
    
    
    
    11,512Other non-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
 10




---



##### Table of Contents



Statements of Operations
Six Months Ended June 30, 2006
(in thousands)
 Guarantor
    
    
    Non-GuarantorParent Company
    
    
    Issuer
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    ConsolidatedCoal sales revenues
    
    $
    
    
    
    $
    
    
    
    $
    578,893
    
    
    $
    169,708
    
    
    $
    
    
    
    $
    748,601Cost of coal sales
    
    
    2,370
    
    
    
    
    
    
    
    394,803
    
    
    
    106,233
    
    
    
    
    
    
    
    503,406Depreciation, depletion and amortization
    
    
    
    
    
    
    
    
    
    
    38,526
    
    
    
    11,903
    
    
    
    
    
    
    
    50,429Selling, general and administrative
expenses allocated from Arch Coal
    
    
    12,018
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    12,018Other operating income
    
    
    (68
    )
    
    
    
    
    
    
    (1,010
    )
    
    
    (788
    )
    
    
    
    
    
    
    (1,866
    )14,320
    
    
    
    
    
    
    
    432,319
    
    
    
    117,348
    
    
    
    
    
    
    
    563,987Income from investment in subsidiaries
    
    
    199,685
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (199,685
    )
    
    
    Income from operations
    
    
    185,365
    
    
    
    
    
    
    
    146,574
    
    
    
    52,360
    
    
    
    (199,685
    )
    
    
    184,614Interest expense
    
    
    (36,149
    )
    
    
    (30,772
    )
    
    
    (349
    )
    
    
    (1,011
    )
    
    
    32,029
    
    
    
    (36,252
    )Interest income, primarily from Arch Coal
    
    
    36,110
    
    
    
    32,029
    
    
    
    258
    
    
    
    596
    
    
    
    (32,029
    )
    
    
    36,964(39
    )
    
    
    1,257
    
    
    
    (91
    )
    
    
    (415
    )
    
    
    
    
    
    
    712Other non-operating expense
    
    
    (5,023
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (5,023
    )Minority interest
    
    
    (20,755
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (20,755
    )Net income
    
    $
    159,548
    
    
    $
    1,257
    
    
    $
    146,483
    
    
    $
    51,945
    
    
    $
    (199,685
    )
    
    $
    159,548
 11




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##### Table of Contents



Balance Sheets
June 30, 2007
(in thousands)
 Guarantor
    
    
    Non-GuarantorParent Company
    
    
    Issuer
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    ConsolidatedCash and cash equivalents
    
    $
    
    
    
    $
    
    
    
    $
    75
    
    
    $
    15
    
    
    $
    
    
    
    $
    90Trade accounts receivable
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    208
    
    
    
    
    
    
    
    208Other receivables
    
    
    500
    
    
    
    
    
    
    
    2,267
    
    
    
    346
    
    
    
    
    
    
    
    3,113Inventories
    
    
    
    
    
    
    
    
    
    
    73,443
    
    
    
    30,368
    
    
    
    
    
    
    
    103,811Prepaid royalties
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    480
    
    
    
    
    
    
    
    480Other
    
    
    4,551
    
    
    
    2,147
    
    
    
    7,904
    
    
    
    9,165
    
    
    
    
    
    
    
    23,767Total current assets
    
    
    5,051
    
    
    
    2,147
    
    
    
    83,689
    
    
    
    40,582
    
    
    
    
    
    
    
    131,469Property, plant and equipment, net
    
    
    
    
    
    
    
    
    
    
    849,240
    
    
    
    374,628
    
    
    
    
    
    
    
    1,223,868Investment in subsidiaries
    
    
    2,022,001
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,022,001
    )
    
    
    Receivable from Arch Coal, Inc.
    
    
    1,237,137
    
    
    
    
    
    
    
    (2
    )
    
    
    36,626
    
    
    
    
    
    
    
    1,273,761Intercompanies
    
    
    (2,009,763
    )
    
    
    979,108
    
    
    
    1,009,674
    
    
    
    20,981
    
    
    
    
    
    
    
    Other
    
    
    736
    
    
    
    10,690
    
    
    
    12,618
    
    
    
    4,262
    
    
    
    
    
    
    
    28,306Total other assets
    
    
    1,250,111
    
    
    
    989,798
    
    
    
    1,022,290
    
    
    
    61,869
    
    
    
    (2,022,001
    )
    
    
    1,302,067Total assets
    
    $
    1,255,162
    
    
    $
    991,945
    
    
    $
    1,955,219
    
    
    $
    477,079
    
    
    $
    (2,022,001
    )
    
    $
    2,657,404Accounts payable
    
    
    9,490
    
    
    
    
    
    
    
    61,691
    
    
    
    21,234
    
    
    
    
    
    
    
    92,415Accrued expenses
    
    
    1,753
    
    
    
    32,062
    
    
    
    88,397
    
    
    
    9,619
    
    
    
    
    
    
    
    131,831Total current liabilities
    
    
    11,243
    
    
    
    32,062
    
    
    
    150,088
    
    
    
    30,853
    
    
    
    
    
    
    
    224,246Long-term debt
    
    
    
    
    
    
    958,198
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    958,198Accrued postretirement benefits
other than pension
    
    
    20,515
    
    
    
    
    
    
    
    2,485
    
    
    
    9,922
    
    
    
    
    
    
    
    32,922Asset retirement obligations
    
    
    
    
    
    
    
    
    
    
    171,144
    
    
    
    11,579
    
    
    
    
    
    
    
    182,723Accrued workers compensation
    
    
    5,642
    
    
    
    
    
    
    
    1,188
    
    
    
    3,844
    
    
    
    
    
    
    
    10,674Other noncurrent liabilities
    
    
    6,711
    
    
    
    
    
    
    
    25,593
    
    
    
    5,286
    
    
    
    
    
    
    
    37,590Total liabilities
    
    
    44,111
    
    
    
    990,260
    
    
    
    350,498
    
    
    
    61,484
    
    
    
    
    
    
    
    1,446,353Redeemable equity interests
    
    
    7,420
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    7,420Minority interest
    
    
    172,086
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    172,086Non-redeemable members equity
    
    
    1,031,545
    
    
    
    1,685
    
    
    
    1,604,721
    
    
    
    415,595
    
    
    
    (2,022,001
    )
    
    
    1,031,545Total liabilities, redeemable
membership
interests and non-redeemable
membership interests
    
    $
    1,255,162
    
    
    $
    991,945
    
    
    $
    1,955,219
    
    
    $
    477,079
    
    
    $
    (2,022,001
    )
    
    $
    2,657,404
 12




---



##### Table of Contents



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




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##### Table of Contents



Statements of Cash Flows
Six Months Ended June 30, 2007
(in thousands)
 Guarantor
    
    
    Non-GuarantorParent Company
    
    
    Issuer
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    ConsolidatedOperating ActivitiesCash 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 capital
assets
    
    
    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
 14




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##### Table of Contents



Statements of Cash Flows
Six Months Ended June 30, 2006
(in thousands)
 Guarantor
    
    
    Non-GuarantorParent Company
    
    
    Issuer
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    ConsolidatedOperating ActivitiesCash provided by operating activities
    
    $
    71,919
    
    
    $
    1,654
    
    
    $
    189,093
    
    
    $
    87,103
    
    
    $
    349,769Investing ActivitiesCapital expenditures
    
    
    
    
    
    
    
    
    
    
    (75,730
    )
    
    
    (57,456
    )
    
    
    (133,186
    )Increase in receivable from Arch Coal
    
    
    (198,878
    )
    
    
    
    
    
    
    (13
    )
    
    
    (17,853
    )
    
    
    (216,744
    )Proceeds from dispositions of capital
assets
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    93
    
    
    
    93Cash used in investing activities
    
    
    (198,878
    )
    
    
    
    
    
    
    (75,743
    )
    
    
    (75,216
    )
    
    
    (349,837
    )Financing ActivitiesTransactions with affiliates, net
    
    
    126,959
    
    
    
    (1,654
    )
    
    
    (113,399
    )
    
    
    (11,906
    )
    
    
    Cash provided by (used in) financing
activities
    
    
    126,959
    
    
    
    (1,654
    )
    
    
    (113,399
    )
    
    
    (11,906
    )
    
    
    Decrease in cash and cash equivalents
    
    
    
    
    
    
    
    
    
    
    (49
    )
    
    
    (19
    )
    
    
    (68
    )Cash and cash equivalents, beginning
of period
    
    
    
    
    
    
    
    
    
    
    126
    
    
    
    26
    
    
    
    152Cash and cash equivalents, end of
period
    
    $
    
    
    
    $
    
    
    
    $
    77
    
    
    $
    7
    
    
    $
    84
 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, 2006 and the Quarterly
Reports on form 10-Q that we filed during the interim period.
 Executive Overview
    Results of Operations
 Items Affecting Comparability of Reported Results
  Three Months Ended June 30, 2007 Compared to Three Months Ended June 30, 2006
  Revenues.
 16




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##### Table of Contents



Three Months Ended June 30
    
    Increase (Decrease)2007
    
    2006
    
    $
    
    %(Amounts in thousands, except per ton data)Coal sales
    
    $
    386,458
    
    
    $
    386,405
    
    
    $
    53
    
    
    
    0.0
    %Tons sold
    
    
    29,193
    
    
    
    28,608
    
    
    
    585
    
    
    
    2.0Coal sales realization per ton sold
    
    $
    13.24
    
    
    $
    13.51
    
    
    $
    (0.27
    )
    
    
    (2.0
    )
   Three Months Ended June 30
    
    Increase2007
    
    2006
    
    Tons
    
    %(Amounts in thousands)Powder River Basin
    
    
    24,237
    
    
    
    24,107
    
    
    
    130
    
    
    
    0.5
    %Western Bituminous
    
    
    4,956
    
    
    
    4,501
    
    
    
    455
    
    
    
    10.1Total
    
    
    29,193
    
    
    
    28,608
    
    
    
    585
    
    
    
    2.0
    %
    Three Months Ended June 30
    
    Increase (decrease)2007
    
    2006
    
    $
    
    %Powder River Basin
    
    $
    10.29
    
    
    $
    11.44
    
    
    $
    (1.15
    )
    
    
    (10.1
    )%Western Bituminous
    
    
    24.13
    
    
    
    22.08
    
    
    
    2.05
    
    
    
    9.3
  Expenses, costs and other.
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Increase (Decrease)Three Months Ended June 30
    
    in Net Income2007
    
    2006
    
    $
    
    %(Amounts in thousands)Cost of coal sales
    
    $
    308,067
    
    
    $
    251,276
    
    
    $    (56,791
    )
    
    
    (22.6
    )%Depreciation, depletion and amortization
    
    
    32,939
    
    
    
    26,853
    
    
    
    (6,086
    )
    
    
    (22.7
    )Selling, general and administrative expenses
    
    
    6,786
    
    
    
    6,529
    
    
    
    (257
    )
    
    
    (3.9
    )Other operating income, net
    
    
    (7,063
    )
    
    
    (1,391
    )
    
    
    5,672
    
    
    
    407.8$
    340,729
    
    
    $
    283,267
    
    
    $    (57,462
    )
    
    
    (20.3
    )%
 Cost of coal sales
 Depreciation, depletion and amortization.
 Selling, general and administrative expenses
 Other operating income, net.
 Operating margins.
 Three Months Ended June 30
    
    Decrease2007
    
    2006
    
    $
    
    %Powder River Basin
    
    $
    1.03
    
    
    $
    2.90
    
    
    $    (1.87
    )
    
    
    (64.5
    )%Western Bituminous Region
    
    
    3.77
    
    
    
    8.85
    
    
    
    (5.08
    )
    
    
    (57.4
    )
   Net interest expense
 IncreaseThree Months Ended June 30
    
    in Net Income2007
    
    2006
    
    $
    
    %(Amounts in thousands)Interest expense
    
    $    (18,078
    )
    
    $    (18,516
    )
    
    $
    438
    
    
    
    2.4
    %Interest income
    
    
    24,390
    
    
    
    20,642
    
    
    
    3,748
    
    
    
    18.2$
    6,312
    
    
    $
    2,126
    
    
    $
    4,186
    
    
    
    196.9
    %
  18




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Six Months Ended June 30, 2007 Compared to Six Months Ended June 30, 2006
  Revenues.
 Six Months Ended June 30
    
    Increase (Decrease)2007
    
    2006
    
    $
    
    %(Amounts in thousands, except per ton data)Coal sales
    
    $
    756,555
    
    
    $
    748,601
    
    
    $
    7,954
    
    
    
    1.1
    %Tons sold
    
    
    56,899
    
    
    
    54,842
    
    
    
    2,057
    
    
    
    3.8Coal sales realization per ton sold
    
    $
    13.30
    
    
    $
    13.65
    
    
    $
    (0.35
    )
    
    
    (2.6
    )
   Six Months Ended June 30
    
    Increase2007
    
    2006
    
    Tons
    
    %(Amounts in thousands)Powder River Basin
    
    
    47,179
    
    
    
    46,281
    
    
    
    898
    
    
    
    1.9
    %Western Bituminous Region
    
    
    9,720
    
    
    
    8,561
    
    
    
    1,159
    
    
    
    13.5Total
    
    
    56,899
    
    
    
    54,842
    
    
    
    2,057
    
    
    
    3.8
    %
    Six Months Ended June 30
    
    Increase (Decrease)2007
    
    2006
    
    $
    
    %Powder River Basin
    
    $
    10.33
    
    
    $
    11.39
    
    
    $
    (1.06
    )
    
    
    (9.3
    )%Western Bituminous Region
    
    
    24.44
    
    
    
    22.66
    
    
    
    1.78
    
    
    
    7.9
  19




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##### Table of Contents



Expenses, costs and other.
 Increase (Decrease)Six Months Ended June 30
    
    in Net Income2007
    
    2006
    
    $
    
    %(Amounts in thousands)Cost of coal sales
    
    $    591,338
    
    
    $    503,406
    
    
    $    (87,932
    )
    
    
    (17.5
    )%Depreciation, depletion and amortization
    
    
    65,458
    
    
    
    50,429
    
    
    
    (15,029
    )
    
    
    (29.8
    )Selling, general and administrative expenses
    
    
    12,938
    
    
    
    12,018
    
    
    
    (920
    )
    
    
    (7.7
    )Other operating income, net
    
    
    (7,986
    )
    
    
    (1,866
    )
    
    
    6,120
    
    
    
    328.0$    661,748
    
    
    $    563,987
    
    
    $    (97,761
    )
    
    
    (17.3
    )%
 Cost of coal sales
 Depreciation, depletion and amortization.
 Selling, general and administrative expenses
 Other operating income, net.
 Operating margins.
 Six Months Ended June 30
    
    Decrease2007
    
    2006
    
    $
    
    %Powder River Basin
    
    $    1.16
    
    
    $    2.85
    
    
    $    (1.69
    )
    
    
    (59.3
    )%Western Bituminous Region
    
    
    4.49
    
    
    
    7.64
    
    
    
    (3.15
    )
    
    
    (41.2
    )
   Net interest expense
 IncreaseSix Months Ended June 30
    
    in Net Income2007
    
    2006
    
    $
    
    %(Amounts in thousands)Interest expense
    
    $    (35,699
    )
    
    $    (36,252
    )
    
    $    553
    
    
    
    1.5
    %Interest income
    
    
    47,211
    
    
    
    36,964
    
    
    
    10,247
    
    
    
    27.7$    11,512
    
    
    $    712
    
    
    $    10,800
    
    
    
    1,516.9
    %
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Liquidity and Capital Resources
   Six Months EndedJune 302007
    
    2006(in thousands)Cash provided by (used in):Operating activities
    
    $
    172,030
    
    
    $
    349,769Investing activities
    
    
    (172,126
    )
    
    
    (349,837
    )
   Contingencies
 Reclamation. Accounting for Asset Retirement
Obligations
   21




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##### Table of Contents



Item 3. Quantitative and Qualitative Disclosures About Market Risk.
  
 Item 4. Controls and Procedures.
  
 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
 22




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##### Table of Contents



Exhibit
    
    DescriptionThunder BasinCoal Company, L.L.C.).31.1
    
    Rule 13a-14(a)/15d-14(a) Certification of Paul A. Lang.31.2
    
    Rule 13a-14(a)/15d-14(a) Certification of Robert J. Messey.32.1
    
    Section 1350 Certification of Paul A. Lang.32.2
    
    Section 1350 Certification of Robert J. Messey.
 23




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##### Table of Contents



Signatures
  Arch Western Resources, LLCBy:
    /s/ Robert J. MesseyRobert J. MesseyVice President  24