26. Supplemental Condensed Consolidating Financial Information

Pursuant to the indentures governing Arch Coal, Inc.'s 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, (iii) the guarantors under the senior notes, and (iv) the entities which are not guarantors under the senior notes (Arch Western Resources, LLC and its subsidiaries, Arch Receivable Company, LLC and the Company's subsidiaries outside the U.S.):

CONDENSED CONSOLIDATING STATEMENTS OF INCOME

Year Ended December 31, 2011

Parent/Issuer

Guarantor

Subsidiaries

Non-Guarantor Subsidiaries

Eliminations

Consolidated

(In thousands)


Revenues	$ –	$2,024,168	$ 2,261,727	$ –	$ 4,285,895

Costs, expenses and other
Cost of sales	22,925	1,537,697	1,812,461	(105,173)	3,267,910
Depreciation, depletion and amortization	2,883	304,742	158,962	–	466,587
Amortization of acquired sales contracts, net	–	(41,527)	19,458	–	(22,069)
Selling, general and administrative expenses	74,591	13,860	37,839	(7,234)	119,056
Change in fair value of coal derivatives and coal trading activities, net	–	(2,907)	–	–	(2,907)
Acquisition and transition costs	54,676	–	–	–	54,676
Other operating (income) expense, net	(23,306)	(118,767)	18,732	112,407	(10,934)

	131,769	1,693,098	2,047,452	-	3,872,319

Income from investment in subsidiaries	556,448	–	–	(556,448)	–

Income from operations	424,679	331,070	214,275	(556,448)	413,576
Interest income (expense), net:
Interest expense	(256,220)	(5,062)	(43,728)	74,824	(230,186)
Interest income	16,282	759	61,092	(74,824)	3,309
	(239,938)	(4,303)	17,364	–	(226,877)

Other non-operating expense
Bridge financing costs related to ICG	(49,490)	-	-	-	(49,490)
Net loss resulting from early retirement of debt	–	(1,958)	-	–	(1,958)
	(49,490)	(1,958)	-	–	(51,448)

Income before income taxes	135,251	324,809	231,639	(556,448)	135,251
Benefit from income taxes	(7,589)	–	–	–	(7,589)

Net income	142,840	324,809	231,639	(556,448)	142,840
Less: Net income attributable to noncontrolling interest	(1,157)	–	–	–	(1,157)

Net income attributable to Arch Coal	$ 141,683	$ 324,809	$ 231,639	$(556,448)	$141,683

CONDENSED CONSOLIDATING STATEMENTS OF INCOME

Year Ended December 31, 2010

	Parent/Issuer	Guarantor Subsidiaries	Non-Guarantor Subsidiaries	Eliminations	Consolidated
	(In thousands)

Revenues	$ —	$ 1,137,980	$ 2,048,288	$ —	$ 3,186,268

Costs, expenses and other
Cost of sales	11,526	797,917	1,679,872	(93,503)	2,395,812
Depreciation, depletion and amortization	2,933	194,847	167,286	—	365,066
Amortization of acquired sales contracts, net	—	—	35,606	—	35,606
Selling, general and administrative expenses	79,580	7,355	38,496	(7,254)	118,177
Change in fair value of coal derivatives and coal trading activities, net	—	8,924	—	—	8,924
Gain on Knight Hawk transaction	—	(41,577)	—	—	(41,577)
Other operating (income) expense, net	(10,259)	(115,994)	5,772	100,757	(19,724)
	83,780	851,472	1,927,032	—	2,862,284
Income from investment in subsidiaries	393,366	—	—	(393,366)	—

Income from operations	309,586	286,508	121,256	(393,366)	323,984

Interest expense, net:
Interest expense	(143,606)	(2,763)	(64,463)	68,283	(142,549)
Interest income	11,128	456	59,148	(68,283)	2,449
	(132,478)	(2,307)	(5,315)	—	(140,100)
Other non-operating expense
Net loss resulting from early retirement of debt	—	—	(6,776)	—	(6,776)
	—	—	(6,776)	—	(6,776)

Income before income taxes	177,108	284,201	109,165	(393,366)	177,108
Provision for income taxes	17,714	—	—	—	17,714
Net income	159,394	284,201	109,165	(393,366)	159,394
Less: Net income attributable to noncontrolling interest	(537)	—	—	—	(537)
Net income attributable to Arch Coal	$ 158,857	$ 284,201	$ 109,165	$ (393,366)	$ 158,857

CONDENSED CONSOLIDATING STATEMENTS OF INCOME

Year Ended December 31, 2009

	Parent/Issuer	Guarantor Subsidiaries	Non-Guarantor Subsidiaries	Eliminations	Consolidated
	(In thousands)

Revenues	$ —	$ 924,692	$ 1,651,389	$ —	$ 2,576,081

Costs, expenses and other
Cost of sales	7,481	713,782	1,398,663	(49,211)	2,070,715
Depreciation, depletion and amortization	3,678	138,125	159,805	—	301,608
Amortization of acquired sales contracts, net	—	—	19,623	—	19,623
Selling, general and administrative expenses	49,672	7,504	46,563	(5,952)	97,787
Change in fair value of coal derivatives and coal trading activities, net	—	(12,056)	—	—	(12,056)
Acquisition and transition costs	13,726	—	—	—	13,726
Other operating (income) expense, net	(12,909)	(85,460)	4,170	55,163	(39,036)
	61,648	761,895	1,628,824	—	2,452,367
Income from investment in subsidiaries	165,183	—	—	(165,183)	—

Income from operations	103,535	162,797	22,565	(165,183)	123,714

Interest expense, net:
Interest expense	(92,371)	(2,442)	(70,668)	59,549	(105,932)
Interest income	14,240	720	52,211	(59,549)	7,622
	(78,131)	(1,722)	(18,457)	—	(98,310)

Income before income taxes	25,404	161,075	4,108	(165,183)	25,404
Benefit from income taxes	(16,775)	—	—	—	(16,775)
Net income	42,179	161,075	4,108	(165,183)	42,179
Less: Net income attributable to noncontrolling interest	(10)	—	—	—	(10)
Net income attributable to Arch Coal	$ 42,169	$ 161,075	$ 4,108	$ (165,183)	$ 42,169

CONDENSED CONSOLIDATING BALANCE SHEETS

December 31, 2011

	Parent/Issuer	Guarantor Subsidiaries	Non-Guarantor Subsidiaries	Eliminations	Consolidated
	(In thousands)
ASSETS
Cash and cash equivalents	$ 61,375	$ 332	$ 76,442	$ –	$ 138,149
Restricted cash	10,322	–	–	–	10,322
Receivables	65,187	22,037	383,572	(1,617)	469,179
Inventories	–	207,050	170,440	–	377,490
Other	81,732	83,122	22,780	–	187,634
Total current assets	218,616	312,541	653,234	(1,617)	1,182,774
Property, plant and equipment, net	21,241	6,403,658	1,524,251	–	7,949,150
Investment in subsidiaries	8,805,731	–	–	(8,805,731)	–
Intercompany receivables	(1,457,864)	7,010	1,450,854	–	–
Note receivable from Arch Western	225,000	–	–	(225,000)	–
Other	184,266	884,613	13,156	–	1,082,035
Total other assets	7,757,133	891,623	1,464,010	(9,030,731)	1,082,035
Total assets	$ 7,996,990	$7,607,822	$ 3,641,495	(9,032,348)	$10,213,959
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable	$ 25,409	$ 175,196	$ 183,177	$ –	$ 383,782
Accrued expenses and other current liabilities	75,133	115,685	166,834	(1,617)	356,035
Current maturities of debt and short-term borrowings	172,564	1,987	106,300	–	280,851
Total current liabilities	273,106	292,868	456,311	(1,617)	1,020,668
Long-term debt	3,308,674	2,652	450,971		3,762,297
Note payable to Arch Coal	–	–	225,000	(225,000)	–
Asset retirement obligations	877	140,861	305,046	–	446,784
Accrued pension benefits	19,198	4,203	24,843	–	48,244
Accrued postretirement benefits other than pension	13,843	6,271	22,195	–	42,309
Accrued workers' compensation	17,272	48,111	6,565	–	71,948
Deferred income taxes	621,483	355,270	–	–	976,753
Other noncurrent liabilities	152,963	64,795	37,624	–	255,382
Total liabilities	4,407,416	915,031	1,528,555	(226,617)	6,624,385
Redeemable noncontrolling interest	11,534	–	–	–	11,534
Stockholders' equity	3,578,040	6,692,791	2,112,940	(8,805,731)	3,578,040
Total liabilities and stockholders' equity	$ 7,996,990	$7,607,822	$ 3,641,495	$ (9,032,348)	$10,213,959

CONDENSED CONSOLIDATING BALANCE SHEETS

December 31, 2010

	Parent/Issuer	Guarantor Subsidiaries	Non-Guarantor Subsidiaries	Eliminations	Consolidated
	(In thousands)
ASSETS
Cash and cash equivalents	$ 13,713	$ 64	$ 79,816	$ —	$ 93,593
Receivables	31,458	12,740	210,075	(1,953)	252,320
Inventories	—	85,196	150,420	—	235,616
Other	29,575	102,375	21,435	—	153,385
Total current assets	74,746	200,375	461,746	(1,953)	734,914
Property, plant and equipment, net	9,817	1,800,578	1,498,497	—	3,308,892
Investment in subsidiaries	4,555,233	—	—	(4,555,233)	—
Intercompany receivables	(1,807,902)	508,624	1,299,278	—	—
Note receivable from Arch Western	225,000	—	—	(225,000)	—
Other	481,345	344,698	10,920	—	836,963
Total other assets	3,453,676	853,322	1,310,198	(4,780,233)	836,963
Total assets	$ 3,538,239	$ 2,854,275	$ 3,270,441	$ (4,782,186)	$ 4,880,769
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable	$ 10,753	$ 65,793	$ 121,670	$ —	$ 198,216
Accrued expenses and other current liabilities	75,746	31,123	153,217	(1,953)	258,133
Current maturities of debt and short-term borrowings	14,093	—	56,904	—	70,997
Total current liabilities	100,592	96,916	331,791	(1,953)	527,346
Long-term debt	1,087,126	—	451,618	—	1,538,744
Note payable to Arch Coal	—	—	225,000	(225,000)	—
Asset retirement obligations	873	32,029	301,355	—	334,257
Accrued pension benefits	20,843	4,407	23,904	—	49,154
Accrued postretirement benefits other than pension	14,284	—	23,509	—	37,793
Accrued workers' compensation	15,383	13,805	6,102	—	35,290
Other noncurrent liabilities	51,187	22,135	36,912	—	110,234
Total liabilities	1,290,288	169,292	1,400,191	(226,953)	2,632,818
Redeemable noncontrolling interest	10,444	—	—	—	10,444
Stockholders' equity	2,237,507	2,684,983	1,870,250	(4,555,233)	2,237,507
Total liabilities and stockholders' equity	$ 3,538,239	$ 2,854,275	$ 3,270,441	$ (4,782,186)	$ 4,880,769

CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS

Year Ended December 31, 2011

	Parent/Issuer	Guarantor Subsidiaries	Non-Guarantor Subsidiaries	Eliminations	Consolidated
		(In thousands)
Cash provided by (used in) operating activities	$ (561,704)	$801,201	$ 402,745	$ –	$ 642,242
Investing Activities
Acquisitions of businesses, net of cash acquired	(2,894,339)	–	–	–	(2,894,339)
Decrease in restricted cash	5,167	–	–	–	5,167
Capital expenditures	(12,809)	(353,441)	(174,686)	–	(540,936)
Proceeds from dispositions of property, plant and equipment	–	25,730	157	–	25,887
Additions to prepaid royalties	-	(25,982)	(3,975)	-	(29,957)
Purchases of investments and advances to affiliates	(633,534)	(33,553)	-	605,178	(61,909)
Consideration paid related to prior business acquisitions	(829)	–	–	–	(829)
Cash used in investing activities	(3,536,344)	(387,246)	(178,504)	605,178	(3,496,916)
Financing Activities
Proceeds from the issuance of senior notes	2,000,000	–	–	–	2,000,000
Proceeds from the issuance of common stock, net	1,267,933	–	–	–	1,267,933
Contributions from parent	–	605,178	–	(605,178)	–
Payments to retire debt	–	(605,178)	–	–	(605,178)
Net increase (decrease) in borrowings under lines of credit and commercial paper program	481,300	–	(56,904)	–	424,396
Net proceeds from other debt	5,334	–	–	–	5,334
Debt financing costs	(114,799)	–	(24)	–	(114,823)
Dividends paid	(80,748)	–	–	–	(80,748)
Issuance of common stock under incentive plans	2,316	–	–	–	2,316
Transactions with affiliates, net	584,374	(413,687)	(170,687)	–	–
Cash provided by (used in) financing activities	4,145,710	(413,687)	(227,615)	(605,178)	2,899,230
Increase (decrease) in cash and cash equivalents	47,662	268	(3,374)	–	44,556
Cash and cash equivalents, beginning of period	13,713	64	79,816	–	93,593
Cash and cash equivalents, end of period	$ 61,375	$ 332	$ 76,442	$ –	$ 138,149

CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS

Year Ended December 31, 2010

	Parent/Issuer	Guarantor Subsidiaries	Non-Guarantor Subsidiaries	Consolidated
	(In thousands)
Cash provided by (used in) operating activities	$ (238,736)	$ 503,766	$ 432,117	$ 697,147
Investing Activities
Capital expenditures	(4,814)	(198,243)	(111,600)	(314,657)
Proceeds from dispositions of property, plant and equipment	—	251	79	330
Additions to prepaid royalties	—	(24,381)	(2,974)	(27,355)
Purchases of investments and advances to affiliates	(40,421)	(5,764)	—	(46,185)
Consideration paid related to prior business acquisitions	(1,262)	—	—	(1,262)
Cash used in investing activities	(46,497)	(228,137)	(114,495)	(389,129)
Financing Activities
Proceeds from the issuance of senior notes	500,000	—	—	500,000
Payments to retire debt	—	—	(505,627)	(505,627)
Net decrease in borrowings under lines of credit and commercial paper program	(120,000)	—	(76,549)	(196,549)
Net proceeds from other debt	82	—	—	82
Debt financing costs	(12,022)	—	(729)	(12,751)
Dividends paid	(63,373)	—	—	(63,373)
Issuance of common stock under incentive plans	1,764			1,764
Contribution from noncontrolling interest	—	—	891	891
Transactions with affiliates, net	(61,760)	(275,629)	337,389	—
Cash provided by (used in) financing activities	244,691	(275,629)	(244,625)	(275,563)
Increase (decrease) in cash and cash equivalents	(40,542)	—	72,997	32,455
Cash and cash equivalents, beginning of period	54,255	64	6,819	61,138
Cash and cash equivalents, end of period	$ 13,713	$ 64	$ 79,816	$ 93,593

CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS

Year Ended December 31, 2009

	Parent/Issuer	Guarantor Subsidiaries	Non-Guarantor Subsidiaries	Consolidated
	(In thousands)
Cash provided by (used in) operating activities	$ (168,427)	$ 338,956	$ 212,451	$ 382,980
Investing Activities
Acquisitions of businesses, net of cash acquired	(768,819)	—	—	(768,819)
Capital expenditures	(2,940)	(194,756)	(125,454)	(323,150)
Proceeds from dispositions of property, plant and equipment	—	734	91	825
Additions to prepaid royalties	—	(23,991)	(2,764)	(26,755)
Purchases of investments and advances to affiliates	(8,000)	(2,925)	—	(10,925)
Consideration paid related to prior business acquisitions	(4,767)	—	—	(4,767)
Reimbursement of deposits on equipment	—	—	3,209	3,209
Cash used in investing activities	(784,526)	(220,938)	(124,918)	(1,130,382)
Financing Activities
Proceeds from the issuance of senior notes	584,784	—	—	584,784
Proceeds from the sale of common stock, net	326,452	—	—	326,452
Net decrease in borrowings under lines of credit and commercial paper program	(85,000)	—	(815)	(85,815)
Net payments on other debt	(2,986)	—	—	(2,986)
Debt financing costs	(29,456)	—	(203)	(29,659)
Dividends paid	(54,969)	—	—	(54,969)
Issuance of common stock under incentive plans	84	—	—	84
Transactions with affiliates, net	200,562	(118,015)	(82,547)	—
Cash provided by (used in) financing activities	939,471	(118,015)	(83,565)	737,891
Increase (decrease) in cash and cash equivalents	(13,482)	3	3,968	(9,511)
Cash and cash equivalents, beginning of period	67,737	61	2,851	70,649
Cash and cash equivalents, end of period	$ 54,255	$ 64	$ 6,819	$ 61,138