19. Supplemental Condensed Consolidating Financial Information

Pursuant to the indenture governing the Arch Coal, Inc. 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, (iii) the guarantors under the Notes, and (iv) the entities which are not guarantors under the Notes (Arch Western Resources, LLC and Arch Receivable Company, LLC):

Condensed Consolidating Statements of Income

Three Months Ended June 30, 2011

(unaudited)


	Parent/Issuer			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Eliminations			Consolidated
	(In thousands)
Revenue
Coal sales	$	—		$	419,454		$	565,633		$	—		$	985,087

Costs, expenses and other
Cost of coal sales	4,940			282,535			447,707			(25,229		)	709,953
Depreciation, depletion and amortization	659			54,008			40,516			—			95,183
Amortization of acquired sales contracts, net	—			(4,113		)	5,602			—			1,489
Selling, general and administrative expenses	18,600			3,170			9,104			(1,835		)	29,039
Change in fair value of coal derivatives and coal trading activities, net	—			2,672			—			—			2,672
Acquisition and transition costs related to ICG	48,666			—			—			—			48,666
Other operating (income) expense, net	(4,831		)	(29,687		)	2,722			27,064			(4,732		)
	68,034			308,585			505,651			—			882,270

Income from investment in subsidiaries	172,831			—			—			(172,831		)	—

Income from operations	104,797			110,869			59,982			(172,831		)	102,817

Interest income (expense), net:
Interest expense	(47,824		)	(1,924		)	(10,962		)	18,461			(42,249		)
Interest income	4,100			135			14,981			(18,461		)	755
	(43,724		)	(1,789		)	4,019			—			(41,494		)

Other non-operating expense:
Bridge financing costs related to ICG	(49,490		)	—			—			—			(49,490		)
Net loss resulting from early retirement of ICG debt	—			(250		)	—			—			(250		)
	(49,490		)	(250		)	—			—			(49,740		)

Income before income taxes	11,583			108,830			64,001			(172,831		)	11,583
Provision for income taxes	186			—			—			—			186

Net income	11,397			108,830			64,001			(172,831		)	11,397
Less: Net income attributable to noncontrolling interest	(318		)	—			—			—			(318		)

Net income attributable to Arch Coal	$	11,079		$	108,830		$	64,001		$	(172,831	)	$	11,079

Condensed Consolidating Statements of Income

Three Months Ended June 30, 2010

(unaudited)


	Parent/Issuer			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Eliminations			Consolidated
	(In thousands)
Revenue
Coal sales	$	—		$	282,817		$	481,478		$	—		$	764,295

Costs, expenses and other
Cost of coal sales	2,148			193,243			396,568			(21,098		)	570,861
Depreciation, depletion and amortization	725			46,941			40,093			—			87,759
Amortization of acquired sales contracts, net	—			—			5,214			—			5,214
Selling, general and administrative expenses	23,251			1,836			12,006			(1,749		)	35,344
Change in fair value of coal derivatives and coal trading activities, net	—			4,587			—			—			4,587
Gain on Knight Hawk transaction	—			(41,577		)	—			—			(41,577		)
Other operating (income) expense, net	(2,818		)	(26,202		)	1,781			22,847			(4,392		)
	23,306			178,828			455,662			—			657,796

Income from investment in subsidiaries	126,555			—			—			(126,555		)	—

Income from operations	103,249			103,989			25,816			(126,555		)	106,499

Interest expense, net:
Interest expense	(33,524		)	(780		)	(18,387		)	17,566			(35,125		)
Interest income	2,272			75			15,842			(17,566		)	623
	(31,252		)	(705		)	(2,545		)	—			(34,502		)

Income before income taxes	71,997			103,284			23,271			(126,555		)	71,997
Provision for income taxes	5,723			—			—			—			5,723

Net income	66,274			103,284			23,271			(126,555		)	66,274
Less: Net income attributable to noncontrolling interest	(118		)	—			—			—			(118		)

Net income attributable to Arch Coal	$	66,156		$	103,284		$	23,271		$	(126,555	)	$	66,156

Condensed Consolidating Statements of Income

Six Months Ended June 30, 2011

(unaudited)


	Parent/Issuer			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Eliminations			Consolidated
	(In thousands)
Revenue
Coal sales	$	—		$	757,988		$	1,100,037		$	—		$	1,858,025

Costs, expenses and other
Cost of coal sales	8,219			534,420			871,030			(50,032		)	1,363,637
Depreciation, depletion and amortization	1,331			97,288			80,101			—			178,720
Amortization of acquired sales contracts, net	—			(4,113		)	11,546			—			7,433
Selling, general and administrative expenses	38,936			5,053			19,017			(3,532		)	59,474
Change in fair value of coal derivatives and coal trading activities, net	—			888			—			—			888
Acquisition and transition costs related to ICG	48,666			—			—			—			48,666
Other operating (income) expense, net	(9,398		)	(57,143		)	7,129			53,564			(5,848		)
	87,754			576,393			988,823			—			1,652,970

Income from investment in subsidiaries	297,834			—			—			(297,834		)	—

Income from operations	210,080			181,595			111,214			(297,834		)	205,055

Interest income (expense), net:
Interest expense	(88,445		)	(2,638		)	(21,944		)	36,198			(76,829		)
Interest income	7,842			432			29,425			(36,198		)	1,501
	(80,603		)	(2,206		)	7,481			—			(75,328		)

Other non-operating expense:
Bridge financing costs related to ICG	(49,490		)	—			—			—			(49,490		)
Net loss resulting from early retirement of ICG debt	—			(250		)	—			—			(250		)
	(49,490		)	(250		)	—			—			(49,740		)

Income before income taxes	79,987			179,139			118,695			(297,834		)	79,987
Provision for income taxes	12,716			—			—			—			12,716

Net income	67,271			179,139			118,695			(297,834		)	67,271
Less: Net income attributable to noncontrolling interest	(591		)	—			—			—			(591		)

Net income attributable to Arch Coal	$	66,680		$	179,139		$	118,695		$	(297,834	)	$	66,680

Condensed Consolidating Statements of Income

Six Months Ended June 30, 2010

(unaudited)


	Parent/Issuer			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Eliminations			Consolidated
	(In thousands)
Revenue
Coal sales	$	—		$	521,845		$	954,324		$	—		$	1,476,169

Costs, expenses and other
Cost of coal sales	4,976			361,961			794,079			(39,405		)	1,121,611
Depreciation, depletion and amortization	1,476			90,659			84,143			—			176,278
Amortization of acquired sales contracts, net	—			—			15,967			—			15,967
Selling, general and administrative expenses	41,894			3,642			20,409			(3,435		)	62,510
Change in fair value of coal derivatives and coal trading activities, net	—			10,464			—			—			10,464
Gain on Knight Hawk transaction	—			(41,577		)	—			—			(41,577		)
Other operating (income) expense, net	(4,778		)	(48,924		)	3,079			42,840			(7,783		)
	43,568			376,225			917,677			—			1,337,470

Income from investment in subsidiaries	173,820			—			—			(173,820		)	—

Income from operations	130,252			145,620			36,647			(173,820		)	138,699

Interest expense, net:
Interest expense	(64,955		)	(1,359		)	(36,503		)	32,609			(70,208		)
Interest income	4,155			164			29,251			(32,609		)	961
	(60,800		)	(1,195		)	(7,252		)	—			(69,247		)

Income before income taxes	69,452			144,425			29,395			(173,820		)	69,452
Provision for income taxes	4,948			—			—			—			4,948

Net income	64,504			144,425			29,395			(173,820		)	64,504
Less: Net income attributable to noncontrolling interest	(144		)	—			—			—			(144		)

Net income attributable to Arch Coal	$	64,360		$	144,425		$	29,395		$	(173,820	)	$	64,360

Condensed Consolidating Balance Sheets

June 30, 2011

(unaudited)


				Guarantor		Non-Guarantor
	Parent/Issuer			Subsidiaries		Subsidiaries		Eliminations			Consolidated
	(In thousands)
Assets
Cash and cash equivalents	$	9,350		$	2,134	$	70,861	$	—		$	82,345
Restricted cash	74,814			276,152		—		—			350,966
Receivables	51,241			134,803		241,653		(1,581		)	426,116
Inventories	—			177,614		172,587		—			350,201
Other	29,418			133,887		15,732		—			179,037
Total current assets	164,823			724,590		500,833		(1,581		)	1,388,665

Property, plant and equipment, net	11,268			6,257,368		1,457,820		—			7,726,456
Investment in subsidiaries	8,492,557			—		—		(8,492,557		)	—
Intercompany receivables	(2,160,682		)	818,816		1,341,866		—			—
Note receivable from Arch Western	225,000			—		—		(225,000		)	—
Other	445,302			577,022		14,000		—			1,036,324
Total other assets	7,002,177			1,395,838		1,355,866		(8,717,557		)	1,036,324
Total assets	$	7,178,268		$	8,377,796	$	3,314,519	$	(8,719,138	)	$	10,151,445

Liabilities and Stockholders' Equity
Accounts payable	$	26,716		$	164,243	$	95,478	$	—		$	286,437
Accrued expenses and other current liabilities	86,198			164,682		151,512		(1,581		)	400,811
Current maturities of debt and short-term borrowings	131,750			296,860		—		—			428,610
Total current liabilities	244,664			625,785		246,990		(1,581		)	1,115,858
Long-term debt	3,321,528			1,101		451,294		—			3,773,923
Note payable to Arch Coal	—			—		225,000		(225,000		)	—
Asset retirement obligations	622			105,428		306,274		—			412,324
Accrued pension benefits	13,087			4,333		18,627		—			36,047
Accrued postretirement benefits other than pension	14,888			49,734		23,004		—			87,626
Accrued workers' compensation	15,042			43,140		6,845		—			65,027
Deferred income taxes	(20,679		)	884,649		—		—			863,970
Other noncurrent liabilities	50,707			171,002		36,552		—			258,261
Total liabilities	3,639,859			1,885,172		1,314,586		(226,581		)	6,613,036
Redeemable noncontrolling interest	11,032			—		—		—			11,032
Stockholders' equity	3,527,377			6,492,624		1,999,933		(8,492,557		)	3,527,377
Total liabilities and stockholders' equity	$	7,178,268		$	8,377,796	$	3,314,519	$	(8,719,138	)	$	10,151,445

Condensed Consolidating Balance Sheets

December 31, 2010

(unaudited)


	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

Six Months Ended June 30, 2011

(unaudited)


				Guarantor			Non-Guarantor
	Parent/Issuer			Subsidiaries			Subsidiaries			Eliminations			Consolidated
	(In thousands)
Cash provided by (used in) operating activities	$	(109,358	)	$	278,596		$	144,962		$	—		$	314,200

Investing Activities
Acquisition of ICG, net of cash acquired	(2,910,380		)	—			—			—			(2,910,380		)
Change in restricted cash	(74,814		)	—			—			—			(74,814		)
Capital expenditures	(2,459		)	(65,927		)	(39,339		)	—			(107,725		)
Proceeds from dispositions of property, plant and equipment	—			1,315			96			—			1,411
Purchases of investments and advances to affiliates	(725,938		)	(27,058		)	—			714,937			(38,059		)
Additions to prepaid royalties	—			(21,440		)	(3,772		)	—			(25,212		)
Cash used in investing activities	(3,713,591		)	(113,110		)	(43,015		)	714,937			(3,154,779		)

Financing Activities
Proceeds from the issuance of senior notes	2,000,000			—			—			—			2,000,000
Proceeds from the issuance of common stock, net	1,249,407			—			—			—			1,249,407
Contributions from parent	—			714,937						(714,937		)	—
Payments to retire ICG debt	—			(307,984		)	—			—			(307,984		)
Increase in restricted cash for retirement of ICG debt	—			(260,663		)	—			—			(260,663		)
Net increase (decrease) in borrowings under lines of credit and commercial paper program	360,000			—			(56,904		)	—			303,096
Net payments on other debt	(8,845		)	—			—			—			(8,845		)
Debt financing costs	(112,326		)	—			(8		)	—			(112,334		)
Dividends paid	(34,192		)	—			—			—			(34,192		)
Issuance of common stock under incentive plans	846			—			—			—			846
Transactions with affiliates, net	363,696			(309,706		)	(53,990		)	—			—
Cash provided by (used in) financing activities	3,818,586			(163,416		)	(110,902		)	(714,937		)	2,829,331

Increase (decrease) in cash and cash equivalents	(4,363		)	2,070			(8,955		)	—			(11,248		)
Cash and cash equivalents, beginning of period	13,713			64			79,816			—			93,593
Cash and cash equivalents, end of period	$	9,350		$	2,134		$	70,861		$	—		$	82,345

Condensed Consolidating Statements of Cash Flows

Six Months Ended June 30, 2010

(unaudited)


	Parent/Issuer			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Consolidated
	(in thousands)
Cash provided by (used in) operating activities	$	(134,960	)	$	240,408		$	153,907		$	259,355

Investing Activities
Capital expenditures	(1,006		)	(123,761		)	(47,191		)	(171,958		)
Proceeds from dispositions of property, plant and equipment	—			155			74			229
Purchases of investments and advances to affiliates	(11,303		)	(2,946		)	—			(14,249		)
Additions to prepaid royalties	—			(20,831		)	(2,635		)	(23,466		)
Cash used in investing activities	(12,309		)	(147,383		)	(49,752		)	(209,444		)

Financing Activities
Net increase (decrease) in borrowings under lines of credit and commercial paper program	(55,000		)	—			39,445			(15,555		)
Net payments on other debt	(8,249		)	—			—			(8,249		)
Debt financing costs	(32		)	—			(405		)	(437		)
Dividends paid	(30,870		)	—			—			(30,870		)
Issuance of common stock under incentive plans	137			—			—			137
Contribution from noncontrolling interest	—			—			891			891
Transactions with affiliates, net	211,424			(93,025		)	(118,399		)	—
Cash provided by (used in) financing activities	117,410			(93,025		)	(78,468		)	(54,083		)

Increase (decrease) in cash and cash equivalents	(29,859		)	—			25,687			(4,172		)
Cash and cash equivalents, beginning of period	54,255			64			6,819			61,138
Cash and cash equivalents, end of period	$	24,396		$	64		$	32,506		$	56,966