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, 2010


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

One CityPlace Drive, Suite 300, St. Louis, Missouri (Address of principal executive offices)		63141 (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 has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes o 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 16, 2010, 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		22
	Item 4.	Controls and Procedures		22
Part II OTHER INFORMATION				23
	Item 1.	Legal Proceedings		23
	Item 1A.	Risk Factors		23
	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds		23
	Item 3.	Defaults Upon Senior Securities		23
	Item 4.	Reserved		23
	Item 5.	Other Information		23
	Item 6.	Exhibits		24
EX-31.1
EX-31.2
EX-32.1
EX-32.2

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
	2010			2009			2010			2009
				(unaudited)
Revenues
Coal sales	$	481,478		$	360,806		$	954,325		$	777,056

Costs, expenses and other
Cost of coal sales		396,570			320,295			794,079			681,667
Depreciation, depletion and amortization		40,087			36,303			84,127			74,768
Amortization of acquired sales contracts, net		5,214			58			15,967			(170	)
Selling, general and administrative expenses		11,408			7,240			19,249			17,068
Other operating income, net		(1,114	)		(922	)		(2,504	)		(1,871	)

		452,165			362,974			910,918			771,462


Income (loss) from operations		29,313			(2,168	)		43,407			5,594

Interest expense, net:
Interest expense		(17,571	)		(15,831	)		(35,074	)		(33,349	)
Interest income, primarily from Arch Coal, Inc.		14,103			11,566			26,018			23,366

		(3,468	)		(4,265	)		(9,056	)		(9,983	)

Net income (loss)	$	25,845		$	(6,433	)	$	34,351		$	(4,389	)

Net income (loss) attributable to redeemable membership interest	$	118		$	(35	)	$	144		$	(42	)
Net income (loss) attributable to non-redeemable membership interest	$	25,727		$	(6,398	)	$	34,207		$	(4,347	)

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,
	2010		2009
	(unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	32,506	$	6,819
Receivables		1,889		8,379
Receivable from Arch Coal, Inc.		280,625		—
Inventories		153,953		165,650
Other		17,379		23,350


Total current assets		486,352		204,198

Property, plant and equipment, net		1,498,916		1,548,300

Other assets:
Receivable from Arch Coal, Inc.		1,388,153		1,541,243
Other		13,848		14,172

Total other assets		1,402,001		1,555,415

Total assets	$	3,387,269	$	3,307,913


LIABILITIES AND MEMBERSHIP INTERESTS
Current liabilities:
Accounts payable	$	86,163	$	74,508
Accrued expenses		146,549		144,432
Commercial paper and current portion of long-term debt		339,155		49,452

Total current liabilities		571,867		268,392

Long-term debt		676,941		954,782
Asset retirement obligations		286,268		274,914
Accrued postretirement benefits other than pension		29,377		28,819
Accrued pension benefits		36,178		34,523
Accrued workers’ compensation		3,573		4,067
Other noncurrent liabilities		33,050		26,744

Total liabilities		1,637,254		1,592,241

Redeemable membership interest		9,993		8,962

Non-redeemable membership interest		1,740,022		1,706,710


Total liabilities and membership interests	$	3,387,269	$	3,307,913

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
	2010			2009
	(unaudited)
OPERATING ACTIVITIES
Net income (loss)	$	34,351		$	(4,389	)
Adjustments to reconcile net income (loss) to cash provided by operating activities:
Depreciation, depletion and amortization		84,127			74,768
Amortization of acquired sales contracts, net		15,967			(170	)
Changes in:
Receivables		6,490			402
Inventories		11,697			(19,105	)
Accounts payable and accrued expenses		17,193			(18,600	)
Other		26,583			22,793


Cash provided by operating activities		196,408			55,699


INVESTING ACTIVITIES
Capital expenditures		(38,203	)		(85,377	)
Change in receivable from Arch Coal, Inc.		(143,330	)		60,464
Proceeds from dispositions of property, plant and equipment		74			30
Additions to prepaid royalties		(2,635	)		(2,207	)
Reimbursement of deposits on equipment		—			3,209


Cash used in investing activities		(184,094	)		(23,881	)


FINANCING ACTIVITIES
Net proceeds from (repayments on) commercial paper		12,545			(26,927	)
Debt financing costs		(63	)		(125	)
Contribution from non-redeemable membership interest		891			—


Cash provided by (used in) financing activities		13,373			(27,052	)


Increase in cash and cash equivalents		25,687			4,766
Cash and cash equivalents, beginning of period		6,819			2,851


Cash and cash equivalents, end of period	$	32,506		$	7,617

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 accompanying 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 preferred membership interest in the Company. The terms of the Company’s membership agreement grant a put right to BP p.l.c., where BP p.l.c. may require Arch Coal to purchase its membership interest. The terms of the agreement state that the price of the membership interest shall be determined by mutual agreement between the members. 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, 2010 are not necessarily indicative of results to be expected for the year ending December 31, 2010. 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, 2009 included in the Company’s Annual Report on Form 10-K filed with the U.S. Securities and Exchange Commission.

2. Accounting Policies

There are no new accounting pronouncements whose adoption is expected to have a material impact on the Company’s condensed consolidated financial statements.

3. Inventories

Inventories consist of the following:


	June 30,		December 31,
	2010		2009
	(In thousands)
Coal	$	41,099	$	42,316
Repair parts and supplies, net of allowance		112,854		123,334

	$	153,953	$	165,650

The repair parts and supplies are stated net of an allowance for slow-moving and obsolete inventories of $13.3 million at June 30, 2010, and $12.6 million at December 31, 2009.

4. Debt

On March 25, 2010, the Company entered into an amendment to its commercial paper program which decreased the maximum aggregate principal amount of the program to $75 million from $100 million. The commercial paper program is supported by a line of credit that expires on April 30, 2011.

5. Fair Values of Financial Instruments

The following methods and assumptions were used by the Company in estimating its fair value disclosures for financial instruments:

Cash and cash equivalents: At June 30, 2010 and December 31, 2009, the carrying amounts of cash and cash equivalents approximate fair value.

Debt: The fair value of the Company’s debt, including commercial paper, was $1,014.4 million and $992.3 million at June 30, 2010 and December 31, 2009, respectively. Fair values are based upon observed prices in active markets when available or from valuation models using market information.

6. Comprehensive Income (Loss)

Comprehensive income (loss) consists of net income (loss) and other comprehensive income (loss). Other comprehensive income (loss) items are transactions recorded in membership interests during the year, excluding net income and transactions with members.

The following table presents the components of comprehensive income (loss):


	Three Months Ended June 30						Six Months Ended June 30
	2010			2009			2010			2009
				(In thousands)
Net income (loss)	$	25,845		$	(6,433	)	$	34,351		$	(4,389	)
Other comprehensive income (loss):
Pension, postretirement and other post-employment benefits reclassifications into net income		(1,177	)		375			(851	)		293

Total comprehensive income (loss)	$	24,668		$	(6,058	)	$	33,500		$	(4,096	)

7. Related Party Transactions

Transactions with Arch Coal may not be at arm’s 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, 2010 and December 31, 2009 the receivable from Arch Coal was approximately $1.7 billion and $1.5 billion, respectively. This amount earns interest from Arch Coal at the prime interest rate. Interest earned on the note was $13.9 million and $11.6 million for the three months ended June 30, 2010 and 2009, respectively, and $25.8 million and $23.3 million for the six months ended June 30, 2010 and 2009, respectively. The receivable is payable on demand; 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, except for the anticipated payment referenced in Note 10, “Subsequent Event.”

The Company is a party to Arch Coal’s accounts receivable securitization program. Under the program, the Company sells its receivables to Arch Coal without recourse at a discount based on the prime interest rate and days sales outstanding. During the three months ended June 30, 2010 and 2009, the Company sold $405.5 million and $322.5 million, respectively, of trade accounts receivable to Arch Coal at a total discount of $1.0 million and $0.8 million, respectively. During the six months ended June 30, 2010 and 2009, the Company sold $817.3 million and $707.6 million, respectively, of trade accounts receivable to Arch Coal at a discount of $1.9 million and $1.8 million, respectively. These transactions are recorded through the Arch Coal receivable account.

For the three month periods ended June 30, 2010 and 2009, the Company incurred production royalties of $20.8 million and $9.9 million, respectively, payable to Arch Coal under sublease agreements. For the six month periods ended June 30, 2010 and 2009, the Company incurred production royalties of $38.9 million and $21.2 million, respectively, 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 $11.4 million and $7.2 million for the three months ended June 30, 2010 and 2009, respectively, and $19.2 million and $17.1 million for the six months ended June 30, 2010 and 2009, respectively. Such amounts are reported as selling, general and administrative expenses in the accompanying condensed consolidated statements of income.

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 condensed 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, 2010 and 2009 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.

The asset amounts below represent an allocation of assets used in the segments’ cash-generating activities. The amounts in the Corporate, Other and Eliminations represent primarily intercompany receivables.


						Corporate,
						Other and
	PRB		WBIT			Eliminations			Consolidated
	(In thousands)
Three months ended June 30, 2010
Coal sales	$	349,369	$	132,109		$	—		$	481,478
Income from operations		24,714		13,864			(9,265	)		29,313
Depreciation, depletion and amortization		21,922		18,165			—			40,087
Amortization of acquired sales contracts, net		5,214		—			—			5,214
Capital expenditures		3,674		20,703			—			24,377

Three months ended June 30, 2009
Coal sales	$	248,785	$	112,021		$	—		$	360,806
Income (loss) from operations		9,330		(4,265	)		(7,233	)		(2,168	)
Depreciation, depletion and amortization		17,861		18,442			—			36,303
Amortization of acquired sales contracts, net		58		—			—			58
Capital expenditures		8,092		27,412			—			35,504

Six months ended June 30, 2010
Coal sales	$	689,535	$	264,790		$	—		$	954,325
Income from operations		34,861		26,310			(17,764	)		43,407
Total assets		1,025,456		654,493			1,707,320			3,387,269
Depreciation, depletion and amortization		45,700		38,427			—			84,127
Amortization of acquired sales contracts, net		15,967		—			—			15,967
Capital expenditures		4,399		33,804			—			38,203

Six months ended June 30, 2009
Coal sales	$	544,095	$	232,961		$	—		$	777,056
Income (loss) from operations		34,722		(11,302	)		(17,826	)		5,594
Total assets		850,482		709,731			1,486,789			3,047,002
Depreciation, depletion and amortization		36,604		38,164			—			74,768
Amortization of acquired sales contracts, net		141		(311	)		—			(170	)
Capital expenditures		41,871		43,506			—			85,377

A reconciliation of segment income from operations to consolidated net income is presented below.


	Three Months Ended						Six Months Ended
	June 30						June 30
	2010			2009			2010			2009
	(In thousands)
Income (loss) from operations	$	29,313		$	(2,168	)	$	43,407		$	5,594
Interest expense		(17,571	)		(15,831	)		(35,074	)		(33,349	)
Interest income		14,103			11,566			26,018			23,366

Net income (loss)	$	25,845		$	(6,433	)	$	34,351		$	(4,389	)

10. Subsequent Event

On August 5, 2010, the Company gave notice of its intent to redeem $500.0 million aggregate principal amount of the outstanding 6.75% senior notes on September 9, 2010 at a redemption price of 101.125%. The Company expects to fund this redemption with cash transferred from Arch Coal in the form of a loan of approximately $225.0 million and a repayment of a portion of the balance receivable from Arch Coal.

11. 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 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, LLC, Mountain Coal Company, LLC, and Arch of Wyoming, LLC), on a combined basis, which are guarantors under the Notes, and (iv) the Company’s majority-owned subsidiary, Canyon Fuel LLC, which is not a guarantor under the Notes.

CONDENSED CONSOLIDATING STATEMENTS OF INCOME
Three Months Ended June 30, 2010
(in thousands)



	Parent						Guarantor			Non-Guarantor
	Company			Issuer			Subsidiaries			Subsidiaries			Eliminations			Consolidated
Coal sales	$	—		$	—		$	387,161		$	94,317		$	—		$	481,478
Cost of coal sales		(2,088	)		—			325,633			74,192			(1,167	)		396,570
Depreciation, depletion and amortization		—			—			27,958			12,129			—			40,087
Amortization of acquired sales contracts, net		—			—			5,214			—			—			5,214
Selling, general and administrative expenses		11,408			—			—			—			—			11,408
Other operating income, net		(56	)		—			(759	)		(1,466	)		1,167			(1,114	)

		9,264			—			358,046			84,855			—			452,165

Income from investment in subsidiaries		38,366			—			—			—			(38,366	)		—

Income from operations		29,102			—			29,115			9,462			(38,366	)		29,313
Interest expense		(17,155	)		(16,230	)		—			(218	)		16,032			(17,571	)
Interest income		13,898			16,032			185			20			(16,032	)		14,103

		(3,257	)		(198	)		185			(198	)		—			(3,468	)

Net income	$	25,845		$	(198	)	$	29,300		$	9,264		$	(38,366	)	$	25,845

CONDENSED CONSOLIDATING STATEMENTS OF INCOME
Three Months Ended June 30, 2009
(in thousands)


										Non-
	Parent						Guarantor			Guarantor
	Company			Issuer			Subsidiaries			Subsidiaries			Eliminations			Consolidated
Coal sales	$	—		$	—		$	283,203		$	77,603		$	—		$	360,806
Cost of coal sales		30			—			258,283			62,604			(622	)		320,295
Depreciation, depletion and amortization		—			—			23,972			12,331			—			36,303
Amortization of acquired sales contracts, net		—			—			58			—			—			58
Selling, general and administrative expenses		7,240			—			—			—			—			7,240
Other operating income, net		(63	)		—			(571	)		(910	)		622			(922	)

		7,207			—			281,742			74,025			—			362,974

Income from investment in subsidiaries		6,060			—			—			—			(6,060	)		—

Income (loss) from operations		(1,147	)		—			1,461			3,578			(6,060	)		(2,168	)
Interest expense		(16,807	)		(16,004	)		1,151			(203	)		16,032			(15,831	)
Interest income		11,521			16,032			2			43			(16,032	)		11,566

		(5,286	)		28			1,153			(160	)		—			(4,265	)

Net income (loss)	$	(6,433	)	$	28		$	2,614		$	3,418		$	(6,060	)	$	(6,433	)

CONDENSED CONSOLIDATING STATEMENTS OF INCOME
Six Months Ended June 30, 2010
(in thousands)


	Parent						Guarantor			Non- Guarantor
	Company			Issuer			Subsidiaries			Subsidiaries			Eliminations			Consolidated
Coal sales	$	—		$	—		$	765,596		$	188,729		$	—		$	954,325
Cost of coal sales		(1,121	)		—			650,193			147,571			(2,564	)		794,079
Depreciation, depletion and amortization		—			—			58,694			25,433			—			84,127
Amortization of acquired sales contracts, net		—			—			15,967			—			—			15,967
Selling, general and administrative expenses		19,249			—			—			—			—			19,249
Other operating income, net		(365	)		—			(1,532	)		(3,171	)		2,564			(2,504	)

		17,763			—			723,322			169,833			—			910,918

Income from investment in subsidiaries		60,575			—			—			—			(60,575	)		—

Income from operations		42,812			—			42,274			18,896			(60,575	)		43,407
Interest expense		(34,251	)		(32,460	)		—			(426	)		32,063			(35,074	)
Interest income		25,790			32,063			186			42			(32,063	)		26,018

		(8,461	)		(397	)		186			(384	)		—			(9,056	)

Net income (loss)	$	34,351		$	(397	)	$	42,460		$	18,512		$	(60,575	)	$	34,351

CONDENSED CONSOLIDATING STATEMENTS OF INCOME
Six Months Ended June 30, 2009
(in thousands)


	Parent						Guarantor			Non- Guarantor
	Company			Issuer			Subsidiaries			Subsidiaries			Eliminations			Consolidated
Coal sales	$	—		$	—		$	609,147		$	167,909		$	—		$	777,056
Cost of coal sales		864			—			547,285			134,985			(1,467	)		681,667
Depreciation, depletion and amortization		—			—			49,147			25,621			—			74,768
Amortization of acquired sales contracts, net		—			—			(170	)		—			—			(170	)
Selling, general and administrative expenses		17,068			—			—			—			—			17,068
Other operating income, net		(132	)		—			(1,212	)		(1,994	)		1,467			(1,871	)

		17,800			—			595,050			158,612			—			771,462

Income from investment in subsidiaries		24,139			—			—			—			(24,139	)		—

Income from operations		6,339			—			14,097			9,297			(24,139	)		5,594
Interest expense		(33,902	)		(32,037	)		982			(455	)		32,063			(33,349	)
Interest income		23,174			32,063			29			163			(32,063	)		23,366

		(10,728	)		26			1,011			(292	)		—			(9,983	)

Net income (loss)	$	(4,389	)	$	26		$	15,108		$	9,005		$	(24,139	)	$	(4,389	)

CONDENSED CONSOLIDATING BALANCE SHEETS
June 30, 2010
(in thousands)


						Guarantor		Non-Guarantor
	Parent Company			Issuer		Subsidiaries		Subsidiaries		Eliminations			Consolidated
Cash and cash equivalents	$	2,390		$	—	$	30,053	$	63	$	—		$	32,506
Receivables		673			—		587		629		—			1,889
Receivable from Arch Coal		280,625			—		—		—		—			280,625
Inventories		—			—		112,173		41,780		—			153,953
Other		4,299			2,146		3,692		7,242		—			17,379

Total current assets		287,987			2,146		146,505		49,714		—			486,352


Property, plant and equipment, net		—			—		1,225,879		273,037		—			1,498,916

Investment in subsidiaries		2,682,792			—		—		—		(2,682,792	)		—
Receivable from Arch Coal		1,363,466			—		—		24,687		—			1,388,153
Intercompanies		(2,499,917	)		993,857		1,237,183		268,877		—			—
Other		1,105			4,252		4,262		4,229		—			13,848

Total other assets		1,547,446			998,109		1,241,445		297,793		(2,682,792	)		1,402,001

Total assets	$	1,835,433		$	1,000,255	$	2,613,829	$	620,544	$	(2,682,792	)	$	3,387,269


Accounts payable	$	5,691		$	—	$	65,991	$	14,481	$	—		$	86,163
Accrued expenses		2,152			32,063		100,595		11,739		—			146,549
Commercial paper and current portion of long-term debt		61,998			277,157		—		—		—			339,155

Total current liabilities		69,841			309,220		166,586		26,220		—			571,867

Long-term debt		—			676,941		—		—		—			676,941
Asset retirement obligations		—			—		275,761		10,507		—			286,268
Accrued postretirement benefits other than pension		6,270			—		15,147		7,960		—			29,377
Accrued pension benefits		9,377			—		19,361		7,440		—			36,178
Accrued workers’ compensation		(1,468	)		—		1,178		3,863		—			3,573
Other noncurrent liabilities		1,398			—		31,602		50		—			33,050

Total liabilities		85,418			986,161		509,635		56,040		—			1,637,254

Redeemable membership interest		9,993			—		—		—		—			9,993
Non-redeemable membership interest		1,740,022			14,094		2,104,194		564,504		(2,682,792	)		1,740,022

Total liabilities and membership interests	$	1,835,433		$	1,000,255	$	2,613,829	$	620,544	$	(2,682,792	)	$	3,387,269

CONDENSED CONSOLIDATING BALANCE SHEETS
December 31, 2009
(in thousands)


						Guarantor		Non-Guarantor
	Parent Company			Issuer		Subsidiaries		Subsidiaries		Eliminations			Consolidated
Cash and cash equivalents	$	6,714		$	—	$	61	$	44	$	—		$	6,819
Receivables		5,536			—		2,123		720		—			8,379
Inventories		—			—		127,907		37,743		—			165,650
Other		10,423			2,153		3,892		6,882		—			23,350

Total current assets		22,673			2,153		133,983		45,389		—			204,198


Property, plant and equipment, net		—			—		1,258,695		289,605		—			1,548,300

Investment in subsidiaries		2,621,530			—		—		—		(2,621,530	)		—
Receivable from Arch Coal		1,509,032			—		—		32,211		—			1,541,243
Intercompanies		(2,364,534	)		993,857		1,141,474		229,203		—			—
Other		1,785			5,325		2,543		4,519		—			14,172

Total other assets		1,767,813			999,182		1,144,017		265,933		(2,621,530	)		1,555,415

Total assets	$	1,790,486		$	1,001,335	$	2,536,695	$	600,927	$	(2,621,530	)	$	3,307,913


Accounts payable	$	4,176		$	—	$	55,514	$	14,818	$	—		$	74,508
Accrued expenses		2,885			32,063		97,649		11,835		—			144,432
Commercial paper		49,452			—		—		—		—			49,452

Total current liabilities		56,513			32,063		153,163		26,653		—			268,392

Long-term debt		—			954,782		—		—		—			954,782
Asset retirement obligations		—			—		264,873		10,041		—			274,914
Accrued postretirement benefits other than pension		6,346			—		14,858		7,615		—			28,819
Accrued pension benefits		11,307			—		16,936		6,280		—			34,523
Accrued workers’ compensation		(1,199	)		—		1,217		4,049		—			4,067
Other noncurrent liabilities		1,847			—		24,864		33		—			26,744

Total liabilities		74,814			986,845		475,911		54,671		—			1,592,241

Redeemable membership interest		8,962			—		—		—		—			8,962
Non-redeemable membership interest		1,706,710			14,490		2,060,784		546,256		(2,621,530	)		1,706,710

Total liabilities and membership interests	$	1,790,486		$	1,001,335	$	2,536,695	$	600,927	$	(2,621,530	)	$	3,307,913

CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
Six Months Ended June 30, 2010
(in thousands)


	Parent					Guarantor			Non-Guarantor
	Company			Issuer		Subsidiaries			Subsidiaries			Consolidated
Cash provided by (used in) operating activities	$	(18,021	)		—	$	173,321		$	41,108		$	196,408
Investing Activities
Capital expenditures		—			—		(29,361	)		(8,842	)		(38,203	)
Change in receivable from Arch Coal		(150,854	)		—		—			7,524			(143,330	)
Proceeds from dispositions of property, plant and equipment		—			—		45			29			74
Additions to prepaid royalties		—			—		(2,509	)		(126	)		(2,635	)

Cash used in investing activities		(150,854	)		—		(31,825	)		(1,415	)		(184,094	)

Financing Activities

Net proceeds from commercial paper		12,545			—		—			—			12,545
Debt financing costs		(63	)		—		—			—			(63	)
Contribution from non-redeemable membership interest		891			—		—			—			891
Transactions with affiliates, net		151,178			—		(111,504	)		(39,674	)		—

Cash provided by (used in) financing activities		164,551			—		(111,504	)		(39,674	)		13,373

Increase (decrease) in cash and cash equivalents		(4,324	)		—		29,992			19			25,687
Cash and cash equivalents, beginning of period		6,714			—		61			44			6,819

Cash and cash equivalents, end of period	$	2,390		$	—	$	30,053		$	63		$	32,506

CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
Six Months Ended June 30, 2009
(in thousands)


	Parent						Guarantor			Non-Guarantor
	Company			Issuer			Subsidiaries			Subsidiaries			Consolidated
Cash provided by (used in) operating activities	$	(54,165	)	$	422		$	85,110		$	24,332		$	55,699
Investing Activities
Capital expenditures		—			—			(70,322	)		(15,055	)		(85,377	)
Change in receivable from Arch Coal		56,561			—			—			3,903			60,464
Proceeds from dispositions of property, plant and equipment		—			—			5			25			30
Additions to prepaid royalties		—			—			(2,207	)		—			(2,207	)
Reimbursement of deposits on equipment		—			—			3,209			—			3,209

Cash provided by (used in) investing activities		56,561			—			(69,315	)		(11,127	)		(23,881	)

Financing Activities

Net payments on commercial paper		(26,927	)		—			—			—			(26,927	)
Debt financing costs		(125	)		—			—			—			(125	)
Transactions with affiliates, net		29,455			(422	)		(15,818	)		(13,215	)		—

Cash provided by (used in) financing activities		2,403			(422	)		(15,818	)		(13,215	)		(27,052	)

Increase (decrease) in cash and cash equivalents		4,799			—			(23	)		(10	)		4,766
Cash and cash equivalents, beginning of period		2,690			—			84			77			2,851

Cash and cash equivalents, end of period	$	7,489		$	—		$	61		$	67		$	7,617


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 regulations relating to mine safety; 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, 2009.

Overview

We are a subsidiary of Arch Coal, Inc., one of the largest coal producers in the United States. We sell substantially all of our coal to power plants and industrial facilities. 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 the other region in which we operate. The price of Powder River Basin coal is generally less than that of coal produced in other regions because Powder River Basin coal exists in greater abundance, is easier to mine and thus has a lower cost of production. In addition, Powder River Basin coal is generally lower in heat content, which requires some electric power generation facilities to blend it with higher Btu coal or retrofit some existing coal plants to accommodate lower Btu coal. The Western Bituminous region includes western Colorado, eastern Utah and southern Wyoming. Coal we mine from underground and surface mines in this region typically has a low sulfur content and varies in heat content.

Favorable weather patterns, an improving U.S. economy, growth in global coal demand, and declining domestic coal production are all positively impacting coal markets. We witnessed better market conditions during the second quarter of 2010, and we estimate that coal markets during the remainder of 2010 will continue to reflect improvement over the weak domestic steam coal markets that prevailed in 2009. Year-to-date U.S. power generation increased approximately 4% through the third week of July, in response to slowly improving domestic and international economic conditions, as well as cold winter/hot summer weather in most of the U.S. We estimate that U.S. steam coal demand will grow in 2010, fueled by growth in power generation and declining generator stockpile levels.

We also expect positive price improvements in 2010 in the steam coal markets, due to improving demand. In addition to stronger demand in 2010, we expect steam coal markets to benefit from the crossover of high-quality steam coal into the metallurgical markets, and declining supply in the Eastern U.S. due to increasing regulatory pressures and degradation and depletion of the reserve base.

We temporarily suspended production at our Dugout Canyon mine in Carbon County, Utah, on April 29, 2010 after an increase in carbon monoxide levels resulted from a heating event in a previously mined area. After permanently sealing the area, we resumed full coal production on May 21, 2010. On June 22, 2010, an ignition event at our longwall resulted in a second evacuation of all underground employees at the mine. In both events, all employees were safely evacuated. We rendered the atmosphere inert and in early August began to reestablish ventilation at the longwall. The resumption of mining is dependent upon the time required to ventilate the longwall area, determine the cause of the ignition, implement preventive measures, and secure an MSHA-approved longwall ventilation plan. We expect that the outages resulted in a loss of income of approximately $6.5 million during the quarter.

Results of Operations

Three Months Ended June 30, 2010 Compared to Three Months Ended June 30, 2009

Summary. Our results during the second quarter of 2010, when compared to the second quarter of 2009, were influenced primarily by higher operating margins stemming from the contribution of the Jacobs Ranch mining complex to us from Arch Coal on October 1, 2009 and improved geologic conditions at our West Elk mine in the Western Bituminous region.

Revenues. The following table summarizes information about coal sales for the three months ended June 30, 2010 and compares it with the information for the three months ended June 30, 2009:


	Three Months Ended June 30				Increase (Decrease)
	2010		2009		Amount			%
	(Amounts in thousands, except per ton data and percentages)
Coal sales	$	481,478	$	360,806	$	120,672			33.4	%
Tons sold		33,922		23,649		10,273			43.4	%
Coal sales realization per ton sold	$	14.19	$	15.26	$	(1.07	)		(7.0	)%

Coal sales increased in the second quarter of 2010 from the second quarter of 2009, primarily due to the contribution of the Jacobs Ranch mining complex to us from Arch Coal in the fourth quarter of 2009. Our coal sales realizations per ton were lower in the 2010 quarter due to lower realizations per ton in our Powder River Basin segment, as well as the impact on our average selling price of the higher Powder River Basin volumes. 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”.

Costs, expenses and other. The following table summarizes costs, expenses and other components of operating income for the three months ended June 30, 2010 and compares them with the information for the three months ended June 30, 2009:


							Increase (Decrease)
	Three Months Ended June 30						in Net Income
	2010			2009			$			%
	(Amounts in thousands, except percentages)
Cost of coal sales	$	396,570		$	320,295		$	(76,275	)		(23.8	)%
Depreciation, depletion and amortization		40,087			36,303			(3,784	)		(10.4	)
Amortization of acquired sales contracts, net		5,214			58			(5,156	)		N/A
Selling, general and administrative expenses		11,408			7,240			(4,168	)		(57.6	)
Other operating income, net		(1,114	)		(922	)		192			20.8

	$	452,165		$	362,974		$	(89,191	)		(24.6	)%

Cost of coal sales. Our cost of coal sales increased in the second quarter of 2010 from the second quarter of 2009 primarily due to the higher sales volumes discussed above, which was partially offset by the impact of a lower average cost per ton sold. We have provided more information about our operating segments under the heading “Operating segment results”.

Depreciation, depletion and amortization and amortization of acquired sales contracts, net. When compared with the second quarter of 2009, higher depreciation and amortization costs in the second quarter of 2010 resulted primarily from the impact of the contribution of the Jacobs Ranch mining complex to us in the fourth quarter of 2009.

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.

Operating segment results. The following table shows results by operating segment for the three months ended June 30, 2010 and compares it with information for the three months ended June 30, 2009:


	Three Months Ended June 30					Increase (Decrease)
	2010		2009			$			%
Powder River Basin
Tons sold (in thousands)		29,927		20,176			9,751			48.3	%
Coal sales realization per ton sold ⁽¹⁾	$	11.58	$	12.28		$	(0.70	)		(5.7	)%
Operating margin per ton sold ⁽²⁾	$	0.80	$	0.43		$	0.37			86.0	%

Western Bituminous
Tons sold (in thousands)		3,995		3,473			522			15.0	%
Coal sales realization per ton sold ⁽¹⁾	$	30.08	$	29.93		$	0.15			0.5	%
Operating margin per ton sold ⁽²⁾	$	3.09	$	(1.51	)	$	4.60			304.6	%


⁽¹⁾		Coal sales prices per ton exclude certain transportation costs that we pass through to our customers. We use these financial measures because we believe the amounts as adjusted better represent the coal sales prices we achieved within our operating segments. Since other companies may calculate coal sales prices per ton differently, our calculation may not be comparable to similarly titled measures used by those companies. For the three months ended June 30, 2010, transportation costs per ton were $0.09 for the Powder River Basin and $2.98 for the Western Bituminous region. For the three months ended June 30, 2009, transportation costs per ton were $0.05 for the Powder River Basin and $2.32 for the Western Bituminous region.

⁽²⁾		Operating margin per ton sold is calculated as coal sales revenues less cost of coal sales and depreciation, depletion and amortization divided by tons sold.

Powder River Basin — The increase in sales volume in the Powder River Basin in the second quarter of 2010 when compared with the second quarter of 2009 resulted from the contribution of the Jacobs Ranch mining operations to us from Arch Coal on October 1, 2009. Decreases in sales prices during the second quarter of 2010 when compared with the second quarter of 2009 primarily reflect the roll-off of contracts committed when market conditions were more favorable, as well as the effect of lower pricing on market-index priced tons. On a per-ton basis, operating margins in the second quarter of 2010 increased from the second quarter of 2009 due to a decrease in per-ton costs, which offset the impact of the lower per-ton sales prices. The decrease in per-ton costs resulted from efficiencies achieved from combining the acquired Jacobs Ranch mining operations with our existing Black Thunder operations and our cost containment efforts, as well as a decrease in hedged diesel fuel costs.

Western Bituminous — In the Western Bituminous region, despite the two production outages at the Dugout Canyon mine, sales volumes in the second quarter of 2010 increased when compared to the second quarter of 2009, when quality issues at the West Elk mining complex in Colorado resulted in the decision to decrease production levels at the mine. Despite the detrimental impact in 2009 on our per-ton realizations of selling coal with a higher ash content, our realizations increased only slightly in 2010, due to ongoing soft steam coal market conditions in the region and an unfavorable mix of customer contracts. Effective cost control in the region resulted in the higher per-ton operating margins in the second quarter of 2010. In the second quarter of 2010, we continued to mine in more favorable geologic conditions at West Elk. To address any future quality issues that could result from sandstone intrusions similar to those we encountered previously, we are building a preparation plant at the mine, to be completed in late August 2010.

Net interest expense. The following table summarizes our net interest expense for the three months ended June 30, 2010 and compares it with the information for the three months ended June 30, 2009:


							(Increase )Decrease in
	Three Months Ended June 30						Net Income
	2010			2009			$			%
	(Amounts in thousands, except percentages)
Interest expense	$	(17,571	)	$	(15,831	)	$	(1,740	)		(11.0	)%
Interest income		14,103			11,566			2,537			21.9

	$	(3,468	)	$	(4,265	)	$	797			18.7	%

Interest expense consists primarily of interest on our 6.75% 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.

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 through a receivable from Arch Coal. The receivable balance earns interest from Arch Coal at the

prime interest rate. The increase in interest income during the second quarter of 2010 when compared to the second quarter of 2009 resulted primarily from higher average receivable balance during 2010.

Six Months Ended June 30, 2010 Compared to Six Months Ended June 30, 2009

Summary. Our results during the first half of 2010, when compared to the first half of 2009, were influenced primarily by higher operating margins stemming from the contribution of the Jacobs Ranch mining complex to us on October 1, 2009 and improved geologic conditions at our West Elk mine in the Western Bituminous region.

Revenues. The following table summarizes information about coal sales for the six months ended June 30, 2010 and compares it with the information for the six months ended June 30, 2009:


	Six Months Ended June 30						Increase (Decrease)
	2010			2009			Amount			%
	(Amounts in thousands, except per ton data and percentages)
Coal sales	$	954,325		$	777,056		$	177,269			22.8	%
Tons sold		67,730			49,905			17,825			35.7	%
Coal sales realization per ton sold	$	14.09		$	15.57		$	(1.48	)		(9.5	)%

Coal sales increased in the first half of 2010 from the first half of 2009, primarily due to the contribution of the Jacobs Ranch mining complex to us in the fourth quarter of 2009. Our coal sales realizations per ton were lower in the first half of 2010 due to lower realizations per ton in our Powder River Basin segment, as well as the impact on our average selling price of the higher Powder River Basin volumes. 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”.

Costs, expenses and other. The following table summarizes costs, expenses and other components of operating income for the six months ended June 30, 2010 and compares them with the information for the six months ended June 30, 2009:

							Increase (Decrease)
	Six Months Ended June 30						in Net Income
	2010			2009			$			%
	(Amounts in thousands, except percentages)
Cost of coal sales		794,079			681,667		$	(112,412	)		(16.5	)%
Depreciation, depletion and amortization		84,127			74,768			(9,359	)		(12.5	)
Amortization of acquired sales contracts, net		15,967			(170	)		(16,137	)		N/A
Selling, general and administrative expenses		19,249			17,068			(2,181	)		(12.8	)
Other operating income, net		(2,504	)		(1,871	)		633			33.8

		910,918			771,462		$	(139,456	)		(18.1	)%

Cost of coal sales. Our cost of coal sales increased in the first half of 2010 from the first half of 2009 primarily due to the higher sales volumes discussed above, which was partially offset by the impact of a lower average cost per ton sold. We have provided more information about our operating segments under the heading “Operating segment results”.

Depreciation, depletion and amortization and amortization of acquired sales contracts, net. When compared with the first half of 2009, higher depreciation and amortization costs in the first half of 2010 resulted primarily from the impact of the contribution of the Jacobs Ranch mining complex to us in the fourth quarter of 2009.

Operating segment results. The following table shows results by operating segment for the six months ended June 30, 2010 and compares it with information for the six months ended June 30, 2009:


	Six Months Ended June 30					Increase (Decrease)
	2010		2009			$			%
Powder River Basin
Tons sold (in thousands)		59,608		42,533			17,075			40.2	%
Coal sales realization per ton sold ⁽³⁾	$	11.48	$	12.66		$	(1.18	)		(9.3	)%
Operating margin per ton sold ⁽⁴⁾	$	0.56	$	0.79		$	(0.23	)		(29.1	)%

Western Bituminous
Tons sold (in thousands)		8,122		7,372			750			10.2	%
Coal sales realization per ton sold ⁽³⁾	$	29.52	$	28.96		$	0.56			1.9	%
Operating margin per ton sold ⁽⁴⁾	$	2.84	$	(1.82	)	$	4.66			256.0	%


⁽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 months ended June 30, 2010, transportation costs per ton were $0.09 for the Powder River Basin and $3.08 for the Western Bituminous region. For the six months ended June 30, 2009, transportation costs per ton were $0.13 for the Powder River Basin and $2.64 for the Western Bituminous region.

⁽⁴⁾		Operating margin per ton sold is calculated as coal sales revenues less cost of coal sales and depreciation, depletion and amortization divided by tons sold.

Powder River Basin — The increase in sales volume in the Powder River Basin in the first half of 2010 when compared with the first half of 2009 resulted from the contribution of the Jacobs Ranch mining operations to us from Arch Coal on October 1, 2009. Decreases in sales prices during the first half of 2010 when compared with the first half of 2009 primarily reflect the roll-off of contracts committed when market conditions were more favorable, as well as the effect of lower pricing on market-index priced tons. On a per-ton basis, operating margins in the first half of 2010 decreased from the first half of 2009 due to the lower sales prices, partially offset by a decrease in per-ton costs. The decrease in per-ton costs resulted from efficiencies achieved from combining the acquired Jacobs Ranch mining operations with our existing Black Thunder operations and our cost containment efforts, as well as a decrease in hedged diesel fuel costs.

Western Bituminous — In the Western Bituminous region, despite a soft steam coal market in the region and the two outages at the Dugout Canyon mine in the first half of 2010, sales volumes increased compared to the first half of 2009, when quality issues at the West Elk mining complex in Colorado resulted in the decision to decrease production levels at the mine. Despite the detrimental impact in 2009 on our per-ton realizations of selling coal with a higher ash content, our realizations increased only slightly in 2010, due to the soft steam coal market and an unfavorable mix of customer contracts. Effective cost control in the region resulted in the higher per-ton operating margins in the first half of 2010. In the first half of 2010, we continued to mine in more favorable geologic conditions at West Elk. To address any future quality issues that could result from sandstone intrusions similar to those we encountered previously, we are building a preparation plant at the mine, to be completed in late August 2010.

Net interest expense. The following table summarizes our net interest expense for the six months ended June 30, 2010 and compares it with the information for the six months ended June 30, 2009:


							Increase (Decrease) in
	Six Months Ended June 30						Net Income
	2010			2009			$			%
	(Amounts in thousands, except percentages)
Interest expense	$	(35,074	)	$	(33,349	)	$	(1,725	)		(5.2	)%
Interest income		26,018			23,366			2,652			11.3	%

	$	(9,056	)	$	(9,983	)	$	927			9.3	%

Liquidity and Capital Resources

Liquidity and capital resources

Our primary sources of cash are sales of our coal production to customers, borrowings under our commercial paper program and debt related to significant transactions. Excluding any significant business acquisitions, we generally satisfy our working capital requirements and fund capital expenditures and debt-service obligations with cash generated from operations, and if necessary, from Arch Coal. 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 receivable balance earns interest from Arch Coal at the prime interest rate. We are also party to Arch Coal’s accounts receivable securitization program. Under the program, we sell our receivables to a subsidiary of Arch Coal without recourse at a discount based on the prime rate and days sales outstanding.

We believe that cash generated from operations will be sufficient to meet working capital requirements, anticipated capital expenditures and scheduled debt payments for at least the next several years. We manage our exposure to changing commodity prices for our long-term coal contract portfolio through the use of long-term coal supply agreements. We enter into fixed price, fixed volume supply contracts with terms generally greater than one year with customers with whom we have historically had limited collection issues. 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.

Under Arch Coal’s accounts receivable securitization program, we sold $405.5 million of trade accounts receivable to Arch Coal during the second quarter of 2010, at a total discount of $1.0 million. During the second quarter of 2009, we sold $322.5 million of trade accounts receivable to Arch Coal, at a total discount of $0.8 million. During the first half of 2010, we sold $817.3 million of trade accounts receivable to Arch Coal, at a total discount of $1.9 million. During the first half of 2009, we sold $707.6 million of trade accounts receivable to Arch Coal, at a total discount of $1.8 million.

On March 25, 2010, we entered into an amendment to our commercial paper program which decreased the maximum aggregate principal amount of the program to $75 million from $100 million. The commercial paper program is supported by a line of credit that expires on April 30, 2011. We had commercial paper outstanding of $62.0 million at June 30, 2010 and $49.5 million at December 31, 2009. Our commercial paper placement program provides short-term financing at rates that are generally lower than the rates available under our revolving credit facility.

Our subsidiary, Arch Western Finance LLC, has outstanding an aggregate principal amount of $950.0 million of 6.75% senior notes due on July 1, 2013. The notes are guaranteed by AWR and certain of its subsidiaries and are secured by an intercompany note from AWR to Arch Coal, Inc. The indenture under which the notes were issued contains certain restrictive covenants that limit AWR’s ability to, among other things, incur additional debt, sell or transfer assets and make certain investments. The notes may be redeemed as follows: at 101.125% of par for notes redeemed between July 1, 2010 and June 30, 2011, and 100% for notes redeemed on or after July 1, 2011.

On August 5, 2010, we gave notice of our intent to redeem $500.0 million aggregate principal amount of our outstanding 6.75% senior notes on September 9, 2010 at a redemption price of 101.125%. We expect to fund this redemption with cash transferred from Arch Coal in the form of a loan of approximately $225.0 million and a repayment of a portion of our balance receivable from Arch Coal.

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


	Six Months Ended June 30
	2010			2009
	(in thousands)
Cash provided by (used in):
Operating activities	$	196,408		$	55,699
Investing activities		(184,094	)		(23,881	)
Financing activities		13,373			(27,052	)

Cash provided by operating activities increased in the first half of 2010 compared to the first half of 2009, primarily as a result of our improved operating performance.

We used $160.2 million more cash in investing activities for the first half of 2010 than in the first half of 2009, primarily due to an increase in amounts loaned to Arch Coal, partially offset by a decrease in capital expenditures.

Cash provided by financing activities was $13.4 million during the first half of 2010, compared to cash used in financing activities of $27.1 million during the first half of 2009. In 2009, we repaid a net $26.9 million under our commercial paper program. As a result of the poor credit markets, we had been unable to issue commercial paper up to the maximum amount allowed under the program. We have since reduced the maximum allowed under the program to $75 million from $100 million, as discussed previously, but during the first half of 2010, we increased the amount of commercial paper issued by $12.5 million to $62.0 million.

Critical Accounting Policies

For a description of our critical accounting policies, see “Critical Accounting Policies” under Item 7 of our Annual Report on Form 10-K for the year ended December 31, 2009. There have been no significant changes to our critical accounting policies during the three months ended June 30, 2010.


Item 3.		Quantitative and Qualitative Disclosures About Market Risk.

We manage our commodity price risk for our long-term coal contract portfolio through the use of long-term coal supply agreements. The majority of our tonnage is sold under long-term contracts. We are also exposed to price risk related to the value of sulfur dioxide emission allowances that are a component of quality adjustment provisions in many of our coal supply contracts. We manage this risk through the use of long-term coal supply agreements.

We are also exposed to the risk of fluctuations in cash flows related to our purchase of diesel fuel. We use approximately 40 to 45 million gallons of diesel fuel annually in our operations. Arch Coal enters into heating oil swaps and options to reduce volatility in the price of diesel fuel for our operations. The swap agreements essentially fix the price paid for diesel fuel by requiring us to pay a fixed heating oil price and receive a floating heating oil price. The call options protect against increases in diesel fuel by granting us the right to participate in increases in heating oil prices. The cash settlements related to these swaps and options are allocated to us through the Arch Coal intercompany account.

We are exposed to market risk associated with interest rates due to our existing level of indebtedness. At June 30, 2010, with the exception of our outstanding commercial paper, all of our outstanding debt bore interest at fixed rates.


Item 4.		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, 2010. 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 quarter ended June 30, 2010 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.


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, 2009 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.		Reserved


Item 5.		Other Information.

We believe that our operations are some of the safest coal producers in the world. Safety is a core value at our parent company, Arch Coal, and at each of its subsidiary operations. We have in place a comprehensive safety program that includes extensive health & safety training for all employees, site inspections, emergency response preparedness, crisis communications training, incident investigation, regulatory compliance training and process auditing, as well as an open dialogue between all levels of employees. The goals of our processes are to eliminate exposure to hazards in the workplace, ensure that we comply with all mine safety regulations, and support regulatory and industry efforts to improve the health and safety of our employees along with the industry as a whole.

Under the recently enacted Dodd-Frank Wall Street Reform and Consumer Protection Act, each operator of a coal or other mine is required to include certain mine safety results in its periodic reports filed with the Securities and Exchange Commission. The operation of our mines is subject to regulation by the federal Mine Safety and Health Administration (“MSHA”) under the Federal Mine Safety and Health Act of 1977 (the “Mine Act”). Below we present the following items regarding certain mining safety and health matters, broken down by mining complex owned and operated by Arch Western Resources, LLC or our subsidiaries, for the three-month period ended June 30, 2010:

	•		Total number of violations of mandatory health or safety standards that could significantly and substantially contribute to the cause and effect of a coal or other mine safety or health hazard under section 104 of the Mine Act for which we have received a citation from MSHA;

	•		Total number of orders issued under section 104(b) of the Mine Act;

	•		Total number of citations and orders for unwarrantable failure of the mine operator to comply with mandatory health or safety standards under Section 104(d) of the Mine Act;

	•		Total number of imminent danger orders issued under section 107(a) of the Mine Act; and

	•		Total dollar value of proposed assessments from MSHA under the Mine Act.


	Mine Act
	Section 104				Mine Act Section		Mine Act
	Significant				104(d)		Section 107(a)		Total Dollar Value of
	and		Mine Act		Unwarrantable		Imminent		Proposed MSHA
	Substantial		Section 104(b)		Failure		Danger		Assessments
Mining complex(1)	Citations		Orders		Citations/Orders		Orders		(in thousands)(2)

Power River Basin:
Black Thunder		6		—		—		—	$	12
Coal Creek		2		—		—		—	$	—
Western Bituminous:
Arch of Wyoming		1		—		—		—	$	—
Dugout Canyon		16		1		—		—	$	10
Skyline		3		—		—		—	$	4
Sufco		16		—		—		—	$	22
West Elk		9		—		—		2	$	91


⁽¹⁾		MSHA assigns an identification number to each coal mine and may or may not assign separate identification numbers to related facilities such as preparation plants. We are providing the information in this table by mining complex rather than MSHA identification number because we believe this format will be more useful to investors than providing information based on MSHA identification numbers. For descriptions of each of these mining operations, please refer to the descriptions under Item 1. Business, in Part I of our Annual Report on Form 10-K for the fiscal year ended December 31, 2009.

⁽²⁾		Amounts included under the heading “Proposed MSHA Assessments” are the total dollar amounts for proposed assessments received from MSHA on or before August 4, 2010, for citations and orders occurring during the three-month period ended June 30, 2010.

For the three-month period ended June 30, 2010, none of our mining complexes received written notice from MSHA of (i) a flagrant violation under section 110(b)(2) of the Mine Act; (ii) a pattern of violations of mandatory health or safety standards that are of such nature as could have significantly and substantially contributed to the cause and effect of coal or other mine health or safety hazards under section 104(e) of the Mine Act; or (iii) the potential to have such a pattern. For the three-month period ended June 30, 2010, we experienced no fatalities.

As of June 30, 2010, we have a total of forty-four matters pending before the Federal Mine Safety and Health Review Commission. This includes legal actions that were initiated prior to the three-month period ended June 30, 2010 and which do not necessarily relate to the citations, orders or proposed assessments issued by MSHA during such three month period.

In evaluating the above information regarding mine safety and health, investors should take into account factors such as: (i) the number of citations and orders will vary depending on the size of a coal mine, (ii) the number of citations issued will vary from inspector to inspector and mine to mine, and (iii) citations and orders can be contested and appealed, and during that process are often reduced in severity and amount, and are sometimes dismissed.


Item 6.		Exhibits.

The following is a list of exhibits filed as part of this Quarterly Report on Form 10-Q:


Exhibit		Description
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 16, 2010

ARCH WESTERN RESOURCES LLC 10-Q