SEC Filing | Arch Resources, Inc.

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e10vq

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

(Exact name of registrant as specified in its charter)


Delaware		43-1811130
(State or other jurisdiction		(I.R.S. Employer
of incorporation or organization)		Identification Number)

One CityPlace Drive, Suite 300, St. Louis, Missouri		63141
(Address of principal executive offices)		(Zip code)

Registrant’s telephone number, including area code: (314) 994-2700

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):


Large accelerated filer o	Accelerated filer o	Non-accelerated filer þ	Smaller reporting company o
		(Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No þ

At August 14, 2008, the registrant’s common equity consisted solely of undenominated membership interests, 99.5% of which were held by Arch Western Acquisition Corporation and 0.5% of which were held by a subsidiary of BP p.l.c.

Table of Contents


	Page
Part I Financial Information		1
Item 1. Financial Statements		1
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		16
Item 3. Quantitative and Qualitative Disclosures About Market Risk		21
Item 4T. Controls and Procedures		21

Part II Other Information		22
Item 1. Legal Proceedings		22
Item 1A. Risk Factors		22
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds		22
Item 3. Defaults Upon Senior Securities		22
Item 4. Submission of Matters to a Vote of Security Holders		22
Item 5. Other Information		22
Item 6. Exhibits		23

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 30
	2008			2007			2008			2007
	(unaudited)
REVENUES
Coal sales	$	459,953		$	386,458		$	897,162		$	756,555

COSTS, EXPENSES AND OTHER
Cost of coal sales		359,126			308,067			695,849			591,338
Depreciation, depletion and amortization		37,870			32,939			77,526			65,458
Selling, general and administrative expenses allocated from Arch Coal		9,333			6,786			16,890			12,938
Other operating income, net		(1,169	)		(7,063	)		(2,120	)		(7,986	)

		405,160			340,729			788,145			661,748


Income from operations		54,793			45,729			109,017			94,807

Interest 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			47,211

		2,047			6,312			6,417			11,512

Non-operating expense		—			(1,270	)		—			(2,539	)


Income before minority interest		56,840			50,771			115,434			103,780
Minority interest		(2,027	)		(4,832	)		(5,753	)		(9,564	)

Net income	$	54,813		$	45,939		$	109,681		$	94,216

Net income attributable to redeemable membership interest	$	274		$	230		$	548		$	471
Net income attributable to non-redeemable membership interest	$	54,539		$	45,709		$	109,133		$	93,745

The accompanying notes are an integral part of the condensed consolidated financial statements.

Arch Western Resources, LLC and Subsidiaries
Condensed Consolidated Balance Sheets
(In thousands)


	June 30,		December 31,
	2008		2007
	(unaudited)
ASSETS
Current assets
Cash and cash equivalents	$	206	$	248
Receivables		1,871		3,559
Inventories		134,480		141,626
Other		21,471		27,128

Total current assets		158,028		172,561

Property, plant and equipment, net		1,316,700		1,225,993

Other assets
Receivable from Arch Coal, Inc.		1,517,321		1,427,833
Other		25,279		25,800

Total other assets		1,542,600		1,453,633

Total assets	$	3,017,328	$	2,852,187


LIABILITIES AND MEMBERSHIP INTERESTS

Current liabilities
Accounts payable	$	93,891	$	82,254
Accrued expenses		129,016		128,754
Commercial paper		98,575		74,959

Total current liabilities		321,482		285,967
Long-term debt		956,831		957,514
Accrued postretirement benefits other than pension		38,159		36,805
Asset retirement obligations		201,962		194,190
Accrued workers’ compensation		9,186		8,784
Other noncurrent liabilities		35,959		30,725

Total liabilities		1,563,579		1,513,985


Redeemable membership interest		8,547		8,000

Minority interest		188,772		183,018
Non-redeemable membership interest		1,256,430		1,147,184

Total liabilities and membership interests	$	3,017,328	$	2,852,187

The accompanying notes are an integral part of the condensed consolidated financial statements.

Arch Western Resources, LLC and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(In thousands)


	Six Months Ended June 30
	2008			2007
	(unaudited)
OPERATING ACTIVITIES
Net income	$	109,681		$	94,216
Adjustments to reconcile net income to cash provided by operating activities:
Depreciation, depletion and amortization		77,526			65,458
Prepaid royalties expensed		71			3,069
Net gain on dispositions of property, plant and equipment		(337	)		(6,074	)
Minority interest		5,753			9,564
Other non-operating expense		—			2,539
Changes in:
Receivables		1,688			12,397
Inventories		7,146			(8,983	)
Accounts payable and accrued expenses		11,946			(16,022	)
Other		17,752			15,866

Cash provided by operating activities		231,226			172,030
INVESTING ACTIVITIES
Capital 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			6,327
Reimbursement of deposits on equipment		2,455			18,325

Cash used in investing activities		(254,665	)		(172,126	)
FINANCING ACTIVITIES
Net 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			186

Cash and cash equivalents, end of period	$	206		$	90

The accompanying notes are an integral part of the condensed consolidated financial statements.

Arch Western Resources, LLC and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(unaudited)

1. Basis of Presentation

The unaudited condensed consolidated financial statements include the accounts of Arch Western Resources, LLC and its subsidiaries and controlled entities (the “Company”). Arch Coal, Inc. (“Arch Coal”) has a 99.5% common membership interest in the Company, while BP p.l.c. has a 0.5% common membership interest and a 0.5% preferred membership interest in the Company. Intercompany transactions and accounts have been eliminated in consolidation.

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States for interim financial reporting and U.S. Securities and Exchange Commission regulations. In the opinion of management, all adjustments, consisting of normal, recurring accruals considered necessary for a fair presentation, have been included. Results of operations for the three and six month periods ended June 30, 2008 are not necessarily indicative of results to be expected for the year ending December 31, 2008. These financial statements should be read in conjunction with the audited financial statements and related notes as of and for the year ended December 31, 2007 included in Arch Western Resources, LLC’s Annual Report on Form 10-K filed with the U.S. Securities and Exchange Commission.

2. Accounting Policies

Accounting Pronouncements Adopted

On January 1, 2008, the Company adopted Statement of Financial Accounting Standards No. 157, Fair Value Measurements (“Statement No. 157”). Statement No. 157 defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements under other accounting pronouncements that require or permit fair value measurements. Statement No. 157 is effective prospectively for financial instruments recorded at fair value on a recurring basis. The FASB deferred the effective date of Statement No. 157 for one year for nonfinancial assets and liabilities that are recognized or disclosed at fair value in the financial statements on a nonrecurring basis, which the Company will adopt effective January 1, 2009.

On January 1, 2008, Statement of Financial Accounting Standards No. 159, The Fair Value Option for Financial Assets and Financial Liabilities – Including an Amendment of FASB Statement No. 115 (“Statement No. 159”) became effective. Statement No. 159 permits entities the choice to measure certain financial instruments and other items at fair value. The Company did not elect to measure any financial instruments or other items at fair value under Statement No. 159.

Accounting Standards Issued and Not Yet Adopted

In December 2007, the FASB issued Statement of Financial Accounting Standards No. 160, Noncontrolling Interests in Consolidated Financial Statements, an amendment of ARB No. 51 (“Statement No. 160”). Statement No. 160 requires that a noncontrolling interest (minority interest) in a consolidated subsidiary be displayed in the consolidated balance sheet as a separate component of equity. The amount of net income attributable to the noncontrolling interest will be included in consolidated net income on the face of the consolidated statement of income. Statement No. 160 also includes expanded disclosure requirements regarding the interests of the parent and its noncontrolling interest. Statement No. 160 is effective for fiscal years beginning on or after December 15, 2008. Early adoption is not allowed. The Company does not expect the adoption of Statement No. 160 will have a material impact on the Company’s financial position or results of operations.

3. Inventories

Inventories consist of the following:


	June 30,		December 31,
	2008		2007
	(In thousands)
Coal	$	27,031	$	42,942
Repair parts and supplies, net of allowance		107,449		98,684

	$	134,480	$	141,626

4. Property Transactions

During the second quarter of 2007, the Company sold non-strategic reserves in the Powder River Basin and recognized a gain on the sale of $6.0 million, reflected in other operating income, net in the accompanying condensed consolidated statements of income.

5. Debt

On April 11, 2008, the Company amended its commercial paper placement program and the related revolving credit facility to increase the maximum aggregate principal amount outstanding to $100.0 million from $75.0 million.

6. Comprehensive Income

Comprehensive income consists of net income and other comprehensive income. Other comprehensive income items under Statement of Financial Accounting Standards No. 130, Reporting Comprehensive Income, are transactions recorded in membership interests during the year, excluding net income and transactions with members.

The following table details the components of comprehensive income:


	Three Months Ended June 30				Six Months Ended June 30
	2008		2007		2008		2007
	(In thousands)
Net income	$	54,813	$	45,939	$	109,681	$	94,216
Other comprehensive income:
Net pension, postretirement and other post-employment benefits adjustments reclassified to income		22		367		160		872
Net losses on derivatives reclassified to income		—		1,270		—		2,539

Total comprehensive income	$	54,835	$	47,576	$	109,841	$	97,627

7. Related Party Transactions

Transactions with Arch Coal may not be at arms length. If the transactions were negotiated with an unrelated party, the impact could be material to the Company’s results of operations.

The Company’s cash transactions are managed by Arch Coal. Cash paid to or from the Company that is not considered a distribution or a contribution is recorded in an Arch Coal receivable account. In addition, any amounts owed between the Company and Arch Coal are recorded in the account. At June 30, 2008 and December 31, 2007, the receivable from Arch Coal was $1.5 billion and $1.4 billion, respectively. This amount earns interest from Arch Coal at the prime interest rate. Interest earned on the note was $18.1 million and $24.2 million for the three months ended June 30, 2008 and 2007, respectively, and $39.9 million and $46.9 million for the six months ended June 30, 2008 and 2007, respectively. The receivable is payable on demand by the Company; however, it is currently management’s intention to not demand payment of the receivable within the next year. Therefore, the receivable is classified on the accompanying condensed consolidated balance sheets as noncurrent.

On February 10, 2006, Arch Coal established an accounts receivable securitization program. Under the program,

the Company sells its receivables to Arch Coal without recourse at a discount based on the prime rate and days sales outstanding. During the three months ended June 30, 2008 and 2007, the Company sold $430.8 million and $373.5 million, respectively, of trade accounts receivable to Arch Coal at a total discount of $1.8 million and $2.6 million, respectively. During the six months ended June 30, 2008 and 2007, the Company sold $843.7 million and $750.7 million, respectively, of trade accounts receivable to Arch Coal at a total discount of $4.1 million and $5.1 million, respectively. These transactions are recorded through the Arch Coal receivable account.

For each of the three month periods ended June 30, 2008 and 2007, the Company incurred production royalties of $8.7 million payable to Arch Coal under sublease agreements. For each of the six month periods ended June 30, 2008 and 2007, the Company incurred production royalties of $17.8 million payable to Arch Coal under sublease agreements.

The Company is charged selling, general and administrative services fees by Arch Coal. Expenses are allocated based on Arch Coal’s best estimates of proportional or incremental costs, whichever is more representative of costs incurred by Arch Coal on behalf of the Company. Amounts allocated to the Company by Arch Coal were $9.3 million and $6.8 million for the three months ended June 30, 2008 and 2007, respectively, and $16.9 million and $12.9 million for the six months ended June 30, 2008 and 2007, respectively.

8. Contingencies

The Company is a party to numerous claims and lawsuits with respect to various matters. The Company provides for costs related to contingencies when a loss is probable and the amount is reasonably estimable. After conferring with counsel, it is the opinion of management that the ultimate resolution of pending claims will not have a material adverse effect on the consolidated financial condition, results of operations or liquidity of the Company.

9. Segment Information

The Company has two reportable business segments, which are based on the major low-sulfur coal basins in which the Company operates. Both of these reportable business segments include a number of mine complexes. The Company manages its coal sales by coal basin, not by individual mine complex. Geology, coal transportation routes to customers, regulatory environments and coal quality are generally consistent within a basin. Accordingly, market and contract pricing have developed by coal basin. Mine operations are evaluated based on their per-ton operating costs (defined as including all mining costs but excluding pass-through transportation expenses), as well as on other non-financial measures, such as safety and environmental performance. The Company’s reportable segments are the Powder River Basin (PRB) segment, with operations in Wyoming, and the Western Bituminous (WBIT) segment, with operations in Utah, Colorado and southern Wyoming.

Operating segment results for the three and six month periods ended June 30, 2008 and 2007 are presented below. Results for the operating segments include all direct costs of mining. Corporate, Other and Eliminations includes corporate overhead, other support functions, and the elimination of intercompany transactions.


					Corporate,
					Other and
	PRB		WBIT		Eliminations			Consolidated
Three months ended June 30, 2008
Coal sales	$	268,568	$	191,385	$	—		$	459,953
Income (loss) from operations		20,262		44,642		(10,111	)		54,793
Total assets		1,763,537		2,032,949		(779,158	)		3,017,328
Depreciation, depletion and amortization		18,125		19,745		—			37,870
Capital expenditures		38,385		34,500		—			72,885

Three months ended June 30, 2007
Coal sales	$	249,959	$	136,499	$	—		$	386,458
Income from operations		25,603		19,706		420			45,729
Total assets		1,637,555		1,887,258		(867,409	)		2,657,404
Depreciation, depletion and amortization		17,715		15,224		—			32,939
Capital expenditures		963		30,872		—			31,835

Six months ended June 30, 2008
Coal sales	$	544,256	$	352,906	$	—		$	897,162
Income (loss) from operations		49,049		78,603		(18,635	)		109,017
Depreciation, depletion and amortization		36,348		41,178		—			77,526
Capital expenditures		76,562		94,818		—			171,380

Six months ended June 30, 2007
Coal sales	$	489,416	$	267,139	$	—		$	756,555
Income (loss) from operations		55,852		45,608		(6,653	)		94,807
Depreciation, depletion and amortization		33,753		31,705		—			65,458
Capital expenditures		14,086		60,610		—			74,696

A reconciliation of segment income from operations to consolidated income before minority interest follows:


	Three Months Ended						Six Months Ended
	June 30						June 30
	2008			2007			2008			2007
	(In thousands)
ncome from operations	$	54,793		$	45,729		$	109,017		$	94,807
Interest expense		(16,107	)		(18,078	)		(33,582	)		(35,699	)
Interest income		18,154			24,390			39,999			47,211
Other 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

Pursuant to the indenture governing the Arch Western Finance senior notes, certain wholly-owned subsidiaries of the Company have fully and unconditionally guaranteed the senior notes on a joint and several basis. The following tables present unaudited condensed consolidating financial information for (i) the Company, (ii) the issuer of the senior notes (Arch Western Finance, LLC, a wholly-owned subsidiary of the Company), (iii) the Company’s wholly-owned subsidiaries (Thunder Basin Coal Company, L.L.C., Mountain Coal Company, L.L.C., and Arch of Wyoming, LLC), on a combined basis, which are guarantors under the Notes, and (iv) its majority owned subsidiary (Canyon Fuel Company, LLC) which is not a guarantor under the Notes:

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


	Parent						Guarantor			Non- Guarantor
	Company			Issuer			Subsidiaries			Subsidiaries			Eliminations			Consolidated
Coal sales	$	—		$	—		$	352,248		$	107,705		$	—		$	459,953
Cost of coal sales		824			—			272,046			86,747			(491	)		359,126
Depreciation, depletion and amortization		—			—			23,429			14,441			—			37,870
Selling, general and administrative expenses allocated from Arch Coal		9,333			—			—			—			—			9,333
Other operating income, net		(46	)		—			(889	)		(725	)		491			(1,169	)

		10,111			—			294,586			100,463			—			405,160
Income from investment in subsidiaries		67,366			—			—			—			(67,366	)	—

Income from operations		57,255			—			57,662			7,242			(67,366	)		54,793
Interest 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	)		—			2,047
Minority interest		(2,027	)		—			—			—			—			(2,027	)

Net income	$	54,813		$	2,778		$	57,545		$	7,043		$	(67,366	)	$	54,813

CONDENSED CONSOLIDATING STATEMENTS OF INCOME
Three Months Ended June 30, 2007
(in thousands)


	Parent						Guarantor			Non- Guarantor
	Company			Issuer			Subsidiaries			Subsidiaries			Eliminations			Consolidated
Coal sales revenues	$	—		$	—		$	288,268		$	98,190		$	—		$	386,458
Cost of coal sales		(1,166	)		—			235,322			74,504			(593	)		308,067
Depreciation, depletion and amortization		—			—			22,388			10,551			—			32,939
Selling, general and administrative expenses allocated from Arch Coal		6,786			—			—			—			—			6,786
Other operating income		(6,040	)		—			(736	)		(880	)		593			(7,063	)

		(420	)		—			256,974			84,175			—			340,729
Income from investment in subsidiaries		45,712			—			—			—			(45,712	)		—

Income from operations		46,132			—			31,294			14,015			(45,712	)		45,729
Interest 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	)		24,390

		5,909			608			(2	)		(203	)		—			6,312
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

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


	Parent						Guarantor			Non- Guarantor
	Company			Issuer			Subsidiaries			Subsidiaries			Eliminations			Consolidated
Coal sales	$	—		$	—		$	692,382		$	204,780		$	—		$	897,162
Cost of coal sales		1,822			—			538,567			156,582			(1,122	)		695,849
Depreciation, depletion and amortization		—			—			46,169			31,357			—			77,526
Selling, general and administrative expenses allocated from Arch Coal		16,890			—			—			—			—			16,890
Other operating income, net		(77	)		—			(1,664	)		(1,501	)		1,122			(2,120	)

		18,635			—			583,072			186,438			—			788,145
Income from investment in subsidiaries		131,832			—			—			—			(131,832	)		—

Income from operations		113,197			—			109,310			18,342			(131,832	)		109,017
Interest 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	)		39,999

		2,237			4,652			(134	)		(338	)		—			6,417
Minority interest		(5,753	)		—			—			—			—			(5,753	)

Net income	$	109,681		$	4,652		$	109,176		$	18,004		$	(131,832	)	$	109,681

CONDENSED CONSOLIDATING STATEMENTS OF INCOME
Six Months Ended June 30, 2007
(in thousands)


	Parent						Guarantor			Non- Guarantor
	Company			Issuer			Subsidiaries			Subsidiaries			Eliminations			Consolidated
Coal sales revenues	$	—		$	—		$	570,690		$	185,865		$	—		$	756,555
Cost of coal sales		(220	)		—			454,632			138,188			(1,262	)		591,338
Depreciation, depletion and amortization		—			—			43,828			21,630			—			65,458
Selling, general and administrative expenses allocated from Arch Coal		12,938			—			—			—			—			12,938
Other operating income		(6,065	)		—			(1,347	)		(1,836	)		1,262			(7,986	)

		6,653			—			497,113			157,982			—			661,748
Income from investment in subsidiaries		102,699			—			—			—			(102,699	)		—

Income from operations		96,046			—			73,577			27,883			(102,699	)		94,807
Interest 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	)		47,211

		10,273			1,615			32			(408	)		—			11,512
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

CONDENSED CONSOLIDATING BALANCE SHEETS
June 30, 2008
(in thousands)


								Non-
	Parent					Guarantor		Guarantor
	Company			Issuer		Subsidiaries		Subsidiaries		Eliminations			Consolidated
Cash and cash equivalents	$	38		$	—	$	18	$	150	$	—		$	206
Receivables		621			—		589		661		—			1,871
Inventories		—			—		101,524		32,956		—			134,480
Other		4,527			2,146		6,530		8,268		—			21,471

Total current assets		5,186			2,146		108,661		42,035		—			158,028


Property, plant and equipment, net		—			—		976,330		340,370		—			1,316,700

Investment in subsidiaries		2,215,899			—		—		—		(2,215,899	)		—
Receivable from Arch Coal, Inc.		1,484,185			—		—		33,136		—			1,517,321
Intercompanies		(2,114,503	)		986,408		1,023,079		105,016		—			—
Other		1,137			8,544		11,553		4,045		—			25,279

Total other assets		1,586,718			994,952		1,034,632		142,197		(2,215,899	)		1,542,600

Total assets	$	1,591,904		$	997,098	$	2,119,623	$	524,602	$	(2,215,899	)	$	3,017,328


Accounts payable	$	3,078		$	—	$	75,914	$	14,899	$	—		$	93,891
Accrued expenses		4,643			32,063		81,718		10,592		—			129,016
Commercial paper		98,575			—		—		—		—			98,575

Total current liabilities		106,296			32,063		157,632		25,491		—			321,482

Long-term debt		—			956,831		—		—		—			956,831

Accrued postretirement benefits other than pension		25,138			—		2,485		10,536		—			38,159
Asset retirement obligations		—			—		189,317		12,645		—			201,962
Accrued workers’ compensation		4,641			—		685		3,860		—			9,186
Other noncurrent liabilities		2,080			—		28,355		5,524		—			35,959

Total liabilities		138,155			988,894		378,474		58,056		—			1,563,579

Redeemable membership interest		8,547			—		—		—		—			8,547
Minority interest		188,772			—		—		—		—			188,772
Non-redeemable membership interest		1,256,430			8,204		1,741,149		466,546		(2,215,899	)		1,256,430

Total liabilities and membership interests	$	1,591,904		$	997,098	$	2,119,623	$	524,602	$	(2,215,899	)	$	3,017,328

CONDENSED CONSOLIDATING BALANCE SHEETS
December 31, 2007
(in thousands)



	Parent					Guarantor			Non-Guarantor
	Company			Issuer		Subsidiaries			Subsidiaries		Eliminations			Consolidated
Cash and cash equivalents	$	78		$	—	$	16		$	154	$	—		$	248
Receivables		1,145			—		1,224			1,190		—			3,559
Inventories		—			—		98,638			42,988		—			141,626
Other		11,342			2,153		5,868			7,765		—			27,128

Total current assets		12,565			2,153		105,746			52,097		—			172,561


Property, plant and equipment, net		—			—		864,575			361,418		—			1,225,993

Investment in subsidiaries		2,140,722			—		—			—		(2,140,722	)		—
Receivable from Arch Coal, Inc.		1,399,046			—		(112	)		28,899		—			1,427,833
Intercompanies		(2,105,212	)		981,359		1,064,385			59,468		—			—
Other		802			9,617		11,611			3,770		—			25,800

Total other assets		1,435,358			990,976		1,075,884			92,137		(2,140,722	)		1,453,633

Total assets	$	1,447,923		$	993,129	$	2,046,205		$	505,652	$	(2,140,722	)	$	2,852,187


Accounts payable	$	3,434		$	—	$	62,504		$	16,316	$	—		$	82,254
Accrued expenses		2,863			32,063		83,515			10,313		—			128,754
Commercial paper		74,959			—		—			—		—			74,959

Total current liabilities		81,256			32,063		146,019			26,629		—			285,967

Long-term debt		—			957,514		—			—		—			957,514
Accrued postretirement benefits other than pension		24,482			—		2,485			9,838		—			36,805
Asset retirement obligations		—			—		182,101			12,089		—			194,190
Accrued workers’ compensation		4,293			—		1,053			3,438		—			8,784
Other noncurrent liabilities		(310	)		—		25,886			5,149		—			30,725

Total liabilities		109,721			989,577		357,544			57,143		—			1,513,985

Redeemable membership interest		8,000			—		—			—		—			8,000
Minority interest		183,018			—		—			—		—			183,018
Non-redeemable membership interest		1,147,184			3,552		1,688,661			448,509		(2,140,722	)		1,147,184

Total liabilities and membership interests	$	1,447,923		$	993,129	$	2,046,205		$	505,652	$	(2,140,722	)	$	2,852,187

CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
Six Months Ended June 30, 2008
(in thousands)



	Parent						Guarantor			Non-Guarantor
	Company			Issuer			Subsidiaries			Subsidiaries			Consolidated
Cash provided by operating activities	$	49,042		$	5,049		$	116,216		$	60,919		$	231,226
Investing Activities
Capital 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			379
Reimbursement of deposits on equipment		—			—			2,455			—			2,455

Cash used in investing activities		(81,770	)		—			(157,520	)		(15,375	)		(254,665	)

Financing Activities
Net proceeds from commercial paper		23,616			—			—			—			23,616
Debt 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	)		23,397

Increase (decrease) in cash and cash equivalents		(40	)		—			2			(4	)		(42	)
Cash and cash equivalents, beginning of period		78			—			16			154			248

Cash and cash equivalents, end of period	$	38		$	—		$	18		$	150		$	206

CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
Six Months Ended June 30, 2007
(in thousands)


	Parent						Guarantor			Non-Guarantor
	Company			Issuer			Subsidiaries			Subsidiaries			Consolidated
Cash provided by (used in) operating activities	$	(258	)	$	2,012		$	112,601		$	57,675		$	172,030

Investing Activities
Capital 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			6,327
Reimbursement of deposits on equipment		—			—			18,325			—			18,325

Cash used in investing activities		(106,227	)		—			(13,689	)		(52,210	)		(172,126	)

Financing Activities
Transactions 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			186

Cash and cash equivalents, end of period	$	—		$	—		$	75		$	15		$	90

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

Arch Western Resources, LLC is a subsidiary of Arch Coal, Inc., one of the largest coal producers in the United States. We focus on mining, processing and marketing coal with low sulfur content for sale to power plants and industrial facilities primarily in the United States.

The locations of our mines enable us to ship coal to numerous major coal-fueled power plants. Our two reportable business segments are based on the low-sulfur U.S. coal producing regions in which we operate — the Powder River Basin and the Western Bituminous region. These geographically distinct areas are characterized by geology, coal transportation routes to consumers, regulatory environments and coal quality. These regional similarities have caused market and contract pricing environments to develop by coal region and form the basis for the segmentation of our operations.

The Powder River Basin is located in northeastern Wyoming and southeastern Montana. The coal we mine from surface operations in this region has a very low sulfur content and a low heat value compared to other coal-producing regions. The price of Powder River Basin coal is generally less than that of coal produced in other regions because Powder River Basin coal is generally lower in heat value, exists in greater abundance, is easier to mine and thus has a lower cost of production. Because Powder River Basin coal is generally lower in heat value, some power plants must blend it with higher Btu coal or retrofit existing coal plants to accommodate Powder River Basin coal. The Western Bituminous region includes western Colorado, eastern Utah and southwestern Wyoming. Coal we mine from underground mines in this region typically has a low sulfur content and varies in heat value.

We believe that growing domestic and international coal demand, along with persistent challenges in augmenting global coal production, infrastructure and transportation networks, has led to a shift in worldwide coal trade. Constrained global coal supply has allowed the United States to become a more significant exporter of metallurgical and steam coal. A strengthening international coal market has positively influenced domestic coal markets during the first half of 2008, due to increases in global and domestic coal-based electricity generation and steel production, increases in net coal exports from the United States and production difficulties, particularly in the Central Appalachian region. We believe these industry fundamentals will continue, and, together with expected new coal-based electricity generation capacity will favorably influence future coal prices in all regions, including in the Powder River Basin.

During the second quarter of 2008, we continued construction of a new loadout facility at our Black Thunder mining complex in Wyoming. This facility, which we have strategically located in relation to the direction of our mining activities, will replace the facility that we currently lease from a third party under an agreement set to expire within the next year. In the second quarter of 2008, we also continued development of a new reserve area at our West Elk mining complex in Colorado.

Results of Operations

Three Months Ended June 30, 2008 Compared to Three Months Ended June 30, 2007

Summary. Our results during the three months ended June 30, 2008 when compared to the three months ended June 30, 2007 were affected primarily by stronger market conditions in the Western Bituminous region, offset in part by an upward pressure on commodity costs and higher depreciation, depletion and amortization costs.

Revenues. The following table summarizes information about coal sales during the three months ended June 30, 2008 and compares those results to the comparable information for the three months ended June 30, 2007:


	Three Months Ended June 30				Increase
	2008		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. Coal sales increased from the second quarter of 2007 to the second quarter of 2008 due to higher price realizations across both segments and an increase in sales volumes in the Western Bituminous region. We have provided more information about the tons sold and the coal sales realizations per ton by operating segment under the heading “Operating segment results” on page 18.

Expenses, costs and other. The following table summarizes expenses, costs and other operating income, net for the three months ended June 30, 2008 and compares those results to the comparable information for the three months ended June 30, 2007:


							Decrease
	Three Months Ended June 30						in Net Income
	2008			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. Our cost of coal sales increased from the second quarter of 2007 to the second quarter of 2008 primarily due to higher per-ton production costs in the Powder River Basin, the increase in sales volumes in the Western Bituminous region, and an increase in sales-sensitive costs and transportation costs. We have provided more information about our operating segments under the heading “Operating segment results” on page 18.

Depreciation, depletion and amortization. The increase in depreciation, depletion and amortization expense from the second quarter of 2007 to the second quarter of 2008 is due primarily to the costs of capital improvement projects that we capitalized in 2007. We have provided more information about our operating segments under the heading “Operating segment results” on page 18 and our capital spending in the section entitled “Liquidity and Capital Resources” on page 21.

Selling, general and administrative expenses. Selling, general and administrative expenses represent expenses allocated to us from Arch Coal. Expenses are allocated based on Arch Coal’s best estimates of proportional or incremental costs, whichever is more representative of costs incurred by Arch Coal on our behalf.

Other operating income, net. The decrease in income from changes in other operating income, net in the second quarter of 2008 compared to the second quarter of 2007 is due primarily to a $6.0 million gain in 2007 on the sale of non-core reserves in the Powder River Basin.

Operating segment results. The following table shows results by operating segment for the three months ended June 30, 2008 and compares those amounts to the comparable information for the three months ended June 30, 2007:


	Three Months Ended June 30				Increase (Decrease)
	2008		2007		$			%
	(Tons in thousands)
Powder River Basin
Tons 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 Bituminous
Tons 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 — Sales volume in the Powder River Basin was flat in the second quarter of 2008 when compared to the second quarter of 2007. In 2007, our production levels reflected planned reductions due to market conditions. In the second quarter of 2008, we encountered weather-related production and shipment challenges that affected our sales volumes. Increases in sales prices during the second quarter of 2008 when compared with the second quarter of 2007 reflect higher pricing on contract and market index-priced tons. On a per-ton basis, operating margins in the second quarter of 2008 decreased from the second quarter of 2007 due to an increase in per-ton costs, which offset the contribution from higher sales prices. The increase in per-ton costs resulted primarily from higher diesel fuel and explosives prices and higher sales-sensitive costs.

Western Bituminous — In the Western Bituminous region, sales volume increased during the second quarter of 2008 when compared with the second quarter of 2007, driven largely by increased demand in the region. Higher sales prices during the second quarter of 2008 represent higher contract pricing from a more favorable customer mix and the effect of market-based spot sales during the quarter. Higher sales prices resulted in higher operating margins per ton for the second quarter of 2008 compared to the second quarter of 2007, partially offset by an increase in depreciation, depletion and amortization and the impact of higher sales-sensitive costs.

Net interest income. The following table compares our net interest income for the three months ended June 30, 2008 with the comparable information for the three months ended June 30, 2007:


							Increase (Decrease)
	Three Months Ended June 30						in Net Income
	2008			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	)%

Interest expense consists of interest on our 6³/4% senior notes, the discount on trade accounts receivable sold to Arch Coal under Arch Coal’s accounts receivable securitization program and interest on our commercial paper. The decrease in interest expense from the second quarter of 2007 to the second quarter of 2008 is the result of an increase in interest costs capitalized, in part offset by interest on our commercial paper program, which commenced in August 2007. For more information on our ongoing capital improvement and development projects, see “Liquidity and Capital Resources” on page 21.

Our cash transactions are managed by Arch Coal. Cash paid to or from us that is not considered a distribution or a contribution is recorded as a receivable from Arch Coal. The receivable balance earns interest from Arch Coal at the prime interest rate. The decrease in interest income results primarily from a lower prime interest rate during

the three months ended June 30, 2008 as compared to the three months ended June 30, 2007. This decrease was partially offset by a higher average receivable balance during the three months ended June 30, 2008 as compared to the same period in 2007.

Other non-operating expense. Our non-operating expense is related to the termination of hedge accounting on interest rate swaps and the resulting amortization of amounts that had previously been deferred. We previously had amounts deferred from the termination of hedge accounting related to interest rate swaps, and other non-operating expense for the three months ended June 30, 2007 represents the amortization of the amounts that had previously been deferred.

Six Months Ended June 30, 2008 Compared to Six Months Ended June 30, 2007

Summary. Our results during the six months ended June 30, 2008 when compared to the six months ended June 30, 2007 were influenced primarily by stronger market conditions in the Western Bituminous region, offset in part by an upward pressure on commodity costs and higher depreciation, depletion and amortization costs.

Revenues. The following table summarizes information about coal sales during the six months ended June 30, 2008 and compares those results to the comparable information for the six months ended June 30, 2007:


	Six Months Ended June 30				Increase
	2008		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. Coal sales increased from the first half of 2007 to the first half of 2008 due to higher price realizations in both segments and higher sales volumes in both segments. We have provided more information about the tons sold and the coal sales realizations per ton by operating segment under the heading “Operating segment results” on page 20.

Expenses, costs and other. The following table summarizes expenses, costs, and other operating income, net for the six months ended June 30, 2008 and compares those results to the comparable information for the six months ended June 30, 2007:


							Decrease
	Six Months Ended June 30						in Net Income
	2008			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. Our cost of coal sales increased from the first half of 2007 to the first half of 2008 primarily due to higher sales-sensitive costs and transportation costs, higher per-ton production costs in the Powder River Basin, and the increase in sales volumes. We have provided more information about our operating segments under the heading “Operating segment results” on page 20.

Depreciation, depletion and amortization. The increase in depreciation, depletion and amortization expense from the first half of 2007 to the first half of 2008 is due primarily to the costs of capital improvement and mine development projects that we capitalized in 2007. We have provided more information about our operating segments under the heading “Operating segment results” on page 20 and our capital spending in the section entitled “Liquidity and Capital Resources” on page 21.

Other operating income, net. The decrease in other operating income, net in the first half of 2008 compared to the first half of 2007 is due primarily to a $6.0 million gain in 2007 on the sale of non-core reserves in the Powder River Basin.

Operating segment results. The following table shows results by operating segment for the six months ended June 30, 2008 and compares those amounts to the comparable information for the six months ended June 30, 2007:


	Six Months Ended June 30				Increase (Decrease)
	2008		2007		$			%
			(Tons in thousands)
Powder River Basin
Tons 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 Bituminous
Tons 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 — Sales volume in the Powder River Basin was higher in the first half of 2008 when compared to the first half of 2007 due primarily to planned production cutbacks in the first half of 2007 in response to weak market conditions. Increases in sales prices during the first half of 2008 when compared with the first half of 2007 reflect higher pricing on contract and market index-priced tons. On a per-ton basis, operating margins in the first half of 2008 decreased from the first half of 2007 due to an increase in per-ton costs, which offset the contribution of higher sales prices. The increase in per-ton costs resulted primarily from higher diesel fuel and explosives prices, higher sales-sensitive costs and costs in 2008 related to planned maintenance.

Western Bituminous — In the Western Bituminous region, sales volume increased during the first half of 2008 when compared with the first half of 2007, driven largely by increased demand in the region. Higher sales prices during the first half of 2008 when compared with the first half of 2007 resulted from higher contract pricing from the roll off of lower-priced legacy contracts and the effect of market-based spot sales during the first half of 2008. Higher sales prices resulted in higher per-ton operating margins for the first half of 2008 compared to the first half of 2007, partially offset by an increase in depreciation, depletion and amortization and the impact of higher sales-sensitive costs.

Net interest expense. The following table summarizes our net interest expense for the six months ended June 30, 2008 and compares that information to the comparable information for the six months ended June 30, 2007:


							Increase (Decrease)
	Six Months Ended June 30						in Net Income
	2008			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	)%

at the prime interest rate. The decrease in interest income results primarily from a lower prime interest rate during the six months ended June 30, 2008 as compared to the six months ended June 30, 2007. This decrease was partially offset by a higher average receivable balance during the six months ended June 30, 2008 as compared to the same period in 2007.

Other non-operating expense. Our non-operating expense is related to the termination of hedge accounting on interest rate swaps and the resulting amortization of amounts that had previously been deferred. We previously had amounts deferred from the termination of hedge accounting related to interest rate swaps, and other non-operating expense for the six months ended June 30, 2007 represents the amortization of the amounts that had previously been deferred.

Liquidity and Capital Resources

Our primary sources of cash include sales of our coal production to customers, sales of assets, our commercial paper program and debt related to significant transactions. Excluding any significant mineral reserve acquisitions, we generally satisfy our working capital requirements and fund capital expenditures and debt-service obligations with cash generated from operations and, if necessary, cash from Arch Coal. Our ability to satisfy debt service obligations, to fund planned capital expenditures and to make acquisitions will depend upon our future operating performance, which will be affected by prevailing economic conditions in the coal industry and financial, business and other factors, some of which are beyond our control.

Arch Coal manages our cash transactions. Cash paid to or from us that is not considered a distribution or a contribution is recorded in an Arch Coal receivable account.

The following is a summary of cash provided by or used in each of the indicated types of activities:


	Six Months Ended June 30
	2008			2007
	(in thousands)
Cash provided by (used in):
Operating activities	$	231,226		$	172,030
Investing activities		(254,665	)		(172,126	)
Financing activities		23,397			—

Cash provided by operating activities increased $59.2 million in the first half of 2008 compared to the first half of 2007 primarily as a result of an increase in net income and decrease in our investment in working capital in the first half of 2008 compared to the first half of 2007.

Cash used in investing increased $82.5 million in the first half months of 2008 compared to the first half of 2007. This increase was primarily due to an increase in capital expenditures of $96.7 million. During the first half of 2008, we spent approximately $60.0 million on the construction of a new loadout facility at our Black Thunder mine in Wyoming and $85.0 million in maintenance capital for the transition to a new reserve area at our West Elk mining complex in Colorado. We expect to complete the work on the loadout facility and to transition to the new seam at West Elk in the fourth quarter of 2008. In the first half of 2007, we made payments of approximately $31.0 million for a new longwall at our Sufco mine in Utah. Also during the first six months of 2007, we recovered $18.3 million from the lease of equipment in the Powder River Basin. We had previously made deposits to purchase the equipment. In addition, the receivable from Arch Coal increased approximately $86.1 million in the first half of 2008 compared with $122.1 million in the first half of 2007.

The cash provided from financing activities during the first half of 2008 was the result of proceeds from additional commercial paper issued. In April 2008, we increased our commercial paper program to $100.0 million from $75.0 million.

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

In addition to the other quantitative and qualitative disclosures about market risk contained in this report, you should see Item 7A of our Annual Report on Form 10-K for the year ended December 31, 2007. There have been no other material changes in our exposure to market risk since December 31, 2007.

Item 4T. Controls and Procedures.

We performed an evaluation under the supervision and with the participation of our management, including our

chief executive officer and chief financial officer, of the effectiveness of the design and operation of our disclosure controls and procedures as of June 30, 2008. Based on that evaluation, our management, including our chief executive officer and chief financial officer, concluded that the disclosure controls and procedures were effective as of such date. There were no changes in internal control over financial reporting that occurred during our fiscal quarter ended June 30, 2008 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II
OTHER INFORMATION

Item 1. Legal Proceedings.

We are involved in various claims and legal actions in the ordinary course of business. In the opinion of management, the outcome of such ordinary course of business proceedings and litigation currently pending will not have a material adverse effect on our results of operations or financial results.

You should see Part I, Item 3 of our Annual Report on Form 10-K for the year ended December 31, 2007 for more information about some of the proceedings and litigation in which we are involved.

Item 1A. Risk Factors.

Our business inherently involves certain risks and uncertainties. The risks and uncertainties described in Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2007 are not the only ones we face. Additional risks and uncertainties not presently known to us or that we currently deem immaterial may also impair our business operations. Should one or more of any of these risks materialize, our business, financial condition, results of operations or liquidity could be materially adversely affected.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

None.

Item 3. Defaults Upon Senior Securities.

None.

Item 4. Submission of Matters to a Vote of Security Holders.

None.

Item 5. Other Information.

None.

Item 6. Exhibits.

Exhibits filed as part of this Quarterly Report on Form 10-Q are as follows:


Exhibit		Description
3.1		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.

Signatures

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.


	Arch Western Resources, LLC
	By:	/s/ John T. Drexler
		John T. Drexler
		Vice President

	August 14, 2008

exv31w1

Exhibit 31.1

Certification

I, Paul A. Lang, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Arch Western Resources, LLC;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

	(a)		Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

	(b)		Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

	(c)		Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

	(d)		Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

	(a)		All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

	(b)		Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.



	/s/ Paul A. Lang
	Paul A. Lang
	President

Date: August 14, 2008

exv31w2

Exhibit 31.2

Certification

I, John T. Drexler, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Arch Western Resources, LLC;

	(c)		Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

	(d)		Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

	(c)		Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

	(d)		Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

	(a)		All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

	(b)		Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.



	/s/ John T. Drexler
	John T. Drexler
	Vice President

Date: August 14, 2008

exv32w1

Exhibit 32.1

Certification of Periodic Financial Reports

I, Paul A. Lang, President of Arch Western Resources, LLC, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

(1) the Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2008 (the “Periodic Report”) which this statement accompanies fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m or 78o(d)); and

(2) information contained in the Periodic Report fairly presents, in all material respects, the financial condition and results of operations of Arch Western Resources, LLC.



	/s/ Paul A. Lang
	Paul A. Lang
	President

Date: August 14, 2008

exv32w2

Exhibit 32.2

Certification of Periodic Financial Reports

I, John T. Drexler, Vice President of Arch Western Resources, LLC, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

(2) information contained in the Periodic Report fairly presents, in all material respects, the financial condition and results of operations of Arch Western Resources, LLC.



	/s/ John T. Drexler
	John T. Drexler
	Vice President

Date: August 14, 2008