This document contains "forward-looking statements" - that is, statements related to future, not past, events. In this context, forward-looking statements often address our expected future business and financial performance, and often contain words such as "expects," "anticipates," "intends," "plans," "believes," "seeks," or "will." Forward-looking statements by their nature address matters that are, to different degrees, uncertain. For us, particular uncertainties arise from changes in the demand for our coal by the domestic electric generation industry; from legislation and regulations relating to the Clean Air Act and other environmental initiatives; from operational, geological, permit, labor and weather-related factors; from fluctuations in the amount of cash we generate from operations; from future integration of acquired businesses; and from numerous other matters of national, regional and global scale, including those of a political, economic, business, competitive or regulatory nature. These uncertainties may cause our actual future results to be materially different than those expressed in our forward-looking statements. We do not undertake to update our forward-looking statements, whether as a result of new information, future events or otherwise, except as may be required by law. For a description of some of the risks and uncertainties that may affect our future results, see "Risk Factors" under Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2008 and in the Quarterly Reports on Form 10-Q that we have filed during interim periods.
Overview
We are one of the largest coal producers in the United States. We sell substantially all of our coal to power plants, steel mills and industrial facilities. The locations of our mines enable us to ship coal to most of the major coal-fueled power plants, steel mills and export facilities located in the United States.
Our three reportable business segments are based on the low-sulfur U.S. coal producing regions in which we operate - the Powder River Basin, the Western Bituminous region and the Central Appalachia 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 regions 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. Central Appalachia includes eastern Kentucky, Tennessee, Virginia and southern West Virginia. Coal we mine from both surface and underground mines in this region generally has a high heat content and low sulfur content. In addition, we may sell a portion of the coal we produce in the Central Appalachia region as metallurgical coal, which has high heat content, low expansion pressure, low sulfur content and various other chemical attributes. As such, the prices at which we sell metallurgical coal to customers in the steel industry generally exceed the prices offered by power plants and industrial users for steam coal.
We estimate that 2009 year-to-date U.S. power generation has declined approximately 4% through the third week of October in response to weak domestic and international economic conditions, as well as an unseasonably mild summer in most of the U.S. U.S. coal consumption has declined significantly, primarily as a result of weak industrial demand in geographic regions that traditionally rely more heavily on coal-fueled electricity generation. As a result of these market pressures, coupled with continued geological challenges in certain regions, cost pressures, regulatory hurdles and limited access to capital, coal production and capital spending across the domestic coal industry have been curtailed. While coal demand in Asia has begun to rebound, which we expect will eventually fuel increasing demand in the U.S., we do not expect near-term improvements in domestic coal demand due to high inventory levels at coal-fueled power generators.
In response to weakened demand caused by challenging domestic and international economic conditions, we have curtailed production in all operating regions. In the Powder River Basin, we idled a second dragline and associated equipment in the second quarter of 2009. In the Western Bituminous region, we reduced production at our West Elk mine in response to declining demand from power generation and industrial customers for Western Bituminous coal and elevated levels of lower-quality, mid-ash coal currently being produced at the mine resulting from intermittent sandstone intrusions. As a result of the curtailment, we laid off 61 employees and discontinued the use of 38 contractors in the second quarter of

2009. In Central Appalachia, we reduced production by slowing the rate of advance of equipment, by shortening or eliminating shifts at several mining complexes, and by idling an underground mine and certain surface mining equipment at our Cumberland River mining complex, which included the layoff of 85 employees in the second quarter of 2009. In addition, we have decreased our expected capital expenditures for 2009 and are continuing other process improvement initiatives and cost containment programs.
During the third quarter of 2009 we sold 19.55 million shares of our common stock at a price of $17.50 per share and issued $600.0 million in aggregate principal amount, 8.75% senior unsecured notes due 2016 at an initial issue price of 97.464%. The net proceeds received from the issuance of common stock were $326.5 million and the net proceeds received from the issuance of the 8.75% senior unsecured notes were $570.3 million. See further discussion of these transactions in "Liquidity and Capital Resources". We used the net proceeds from these transactions primarily to finance the purchase of the Jacobs Ranch mining complex, as discussed below.
On October 1, 2009, we consummated the previously announced purchase of the Jacobs Ranch mining operations, for a purchase price of $764.0 million, including approximately 352 million tons of coal reserves located adjacent to our Black Thunder mining complex. We expect to achieve significant operating efficiencies by combining the two operations. Roughly one half of our estimated synergies represent operational cost savings, while others relate to administrative cost reductions as well as enhanced coal-blending optimization opportunities. We also plan to use one of the idled Black Thunder draglines on the new property, subject to permit approval. Results of Operations
Three Months Ended September 30, 2009 Compared to Three Months Ended September 30, 2008
Summary. Our results during the third quarter of 2009, when compared to the third quarter of 2008, were influenced primarily by lower sales volumes due to weak market conditions and a reduction in the third quarter of 2008 in our valuation allowance against deferred tax assets and an increase in interest expense; these factors were partially offset by gains from our coal trading activities, compared to losses in the third quarter of 2008.
Revenues. The following table summarizes information about coal sales for the three months ended September 30, 2009 and compares it with the information for the three months ended September 30, 2008:

                                                          Three Months Ended
                                                             September 30                                  Decrease
                                                     2009                   2008                   Amount                  %
                                                          (Amounts in thousands, except per ton data and percentages)
Coal sales                                      $     614,957          $     769,458          $      (154,501 )          (20.0 )%
Tons sold                                              29,338                 35,239                   (5,901 )          (16.7 )%
Coal sales realization per ton sold             $       20.96          $       21.84          $         (0.88 )           (4.0 )%

Coal sales decreased in the third quarter of 2009 from the third quarter of 2008 primarily due to lower steam coal sales volumes in our western operations and lower volumes of metallurgical coal sales in our Central Appalachia region. Our coal sales realizations per ton were slightly lower in the 2009 quarter, as higher realizations per ton in our western operations were offset by a decrease in metallurgical coal prices, and the impact of lower metallurgical coal volumes on our average coal realizations per ton. 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" beginning on page 19.

Costs, expenses and other. The following table summarizes costs, expenses and other components of operating income for the three months ended September 30, 2009 and compares them with the information for the three months ended September 30, 2008:

                                                                                                   Increase (Decrease)
                                                   Three Months Ended September 30                    in Net Income
                                                    2009                     2008                  $                 %
                                                               (Amounts in thousands, except percentages)
Cost of coal sales                            $        489,290         $        567,372        $   78,082             13.8 %
Depreciation, depletion and amortization                71,468                   72,185               717              1.0
Selling, general and administrative
expenses                                                24,029                   22,235            (1,794 )           (8.1 )
Change in fair value of coal derivatives
and coal trading activities, net                        (3,342 )                 18,382            21,724            118.2
Costs related to acquisition of Jacobs
Ranch                                                      791                        -              (791 )            N/A
Other operating expense (income), net                  (15,617 )                  1,354            16,971          1,253.4

                                              $        566,619         $        681,528        $  114,909             16.9 %

Cost of coal sales. Our cost of coal sales decreased in the third quarter of 2009 from the third quarter of 2008 primarily due to the lower sales volumes in all operating segments, partially offset by the impact of higher per-ton costs due to lower production levels. We have provided more information about our operating segments under the heading "Operating segment results" beginning on page 19.
Depreciation, depletion and amortization. When compared with the third quarter of 2008, lower depreciation and amortization costs in the third quarter of 2009 resulted from the impact of lower volume levels on depletion and amortization costs calculated on a units-of-production method, partially offset by the amortization of development costs related to the new seam at the West Elk mine where we commenced longwall production in the fourth quarter of 2008.
Selling, general and administrative expenses. The increase in selling, general and administrative expenses from the third quarter of 2008 to the third quarter of 2009 is due primarily to the impact in the third quarter of 2008 of a decrease in our stock price of $42.14 per share on our deferred compensation plan obligation. Amounts recognized related to our deferred compensation plan are impacted by changes in the value of our common stock and changes in the value of the underlying investments. The dramatic drop in our stock price in 2008 caused our expense related to the plan to be lower in the third quarter of 2008 when compared with the third quarter of 2009 by $5.9 million, which was partially offset by a decrease in incentive compensation costs of $3.7 million.
Change in fair value of coal derivatives and coal trading activities, net. Net (gains) losses relate to the net impact of our coal trading activities and the change in fair value of other coal derivatives that have not been designated as hedge instruments in a hedging relationship. In 2008, a portion of the unrealized gains generated in the first half of the year by our coal trading function were lost in the third quarter due to a downturn in the over-the-counter coal markets during the quarter.
Costs related to acquisition of Jacobs Ranch. These costs represent costs we incurred during the third quarter of 2009 related to our announced acquisition of the Jacobs Ranch mine. Under accounting rules we adopted in the first quarter of 2009, the costs of acquiring a business are expensed as incurred.
Other operating (income) expense, net. The net other operating income generated in the third quarter of 2009 compared to the losses in the third quarter of 2008 is primarily the result of an increase in net income from bookouts (the offsetting of coal sales and purchase contracts) and contract settlements in 2009.

Operating segment results. The following table shows results by operating segment for the three months ended September 30, 2009 and compares it with information for the three months ended September 30, 2008:

                                                   Three Months Ended September 30                Increase (Decrease)
                                                     2009                   2008                   $                 %
Powder River Basin
Tons sold (in thousands)                               21,528                 26,153             (4,625 )          (17.7 )%
Coal sales realization per ton sold (1)         $       12.26          $       11.21          $    1.05              9.4 %
Operating margin per ton sold (2)               $        0.95          $        0.81          $    0.14             17.3 %

Western Bituminous
Tons sold (in thousands)                                4,560                  5,135               (575 )          (11.2 )%
Coal sales realization per ton sold (1)         $       29.08          $       26.77          $    2.31              8.6 %
Operating margin per ton sold (2)               $        3.51          $        4.08          $   (0.57 )          (14.0 )%

Central Appalachia
Tons sold (in thousands)                                3,250                  3,951               (701 )          (17.7 )%
Coal sales realization per ton sold (1)         $       59.77          $       75.17          $  (15.40 )          (20.5 )%
Operating margin per ton sold (2)               $        5.47          $       22.22          $  (16.75 )          (75.4 )%

(1) Coal sales prices per ton exclude certain transportation costs that we pass through to our customers. We use these financial measures because we believe the amounts as adjusted better represent the coal sales prices we achieved within our operating segments. Since other companies may calculate coal sales prices per ton differently, our calculation may not be comparable to similarly titled measures used by those companies. For the three months ended September 30, 2009, transportation costs per ton were $0.17 for the Powder River Basin, $3.44 for the Western Bituminous region and $1.52 for Central Appalachia. For the three months ended September 30, 2008, transportation costs per ton were $0.02 for the Powder River Basin, $4.60 for the Western Bituminous region and $4.82 for Central Appalachia.

(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 decrease in sales volume in the Powder River Basin in the third quarter of 2009 when compared with the third quarter of 2008 was due to weak market conditions. At the Black Thunder mining complex, in response to these conditions, we reduced production and idled one dragline in the fourth quarter of 2008 and another dragline in May 2009, along with the related support equipment. Increases in sales prices during the third quarter of 2009 when compared with the third quarter of 2008 primarily reflect higher pricing from contracts committed during 2008, when market conditions were more favorable, partially offset by the effect of lower pricing on market-index priced tons and the effect of lower sulfur dioxide allowance pricing. On a per-ton basis, operating margins in the third quarter of 2009 increased from the third quarter of 2008 due to the higher sales prices, partially offset by an increase in per-ton costs. The increase in per-ton costs, despite our cost containment efforts, resulted primarily from the effect of spreading fixed costs over lower volume.
Western Bituminous - In the Western Bituminous region, we sold fewer tons in the third quarter of 2009 than in the third quarter of 2008 due to weak market conditions, as well as quality issues at the West Elk mining complex. We have encountered sandstone intrusions at the West Elk mining complex that have resulted in a higher ash content in the coal produced, and declining coal demand has had an impact on our efforts to market this coal. As a result of the weak market demand for this coal, we have reduced our production levels at the mine. To address any ongoing quality issues, we plan to build a preparation plant at the mine by mid-2010, with estimated capital costs of $25 million to $30 million. The beneficial impact of the roll-off of lower-priced legacy contracts in 2008 on our per-ton realizations was partially offset by the detrimental impact of selling coal with a higher ash content. Lower per-ton operating margins in the third quarter of 2009 were the result of the West Elk quality issues and lower production levels.
Central Appalachia - The decrease in sales volumes in the third quarter of 2009, when compared with the third quarter of 2008, was due to weaker market demand. In response to the weakened demand, we reduced our production by slowing the rate of advance of equipment, by shortening or eliminating shifts at several mining complexes, and by idling an underground mine and certain surface mining equipment at our Cumberland River mining complex. Weak economic conditions have adversely impacted demand and pricing for metallurgical coal, and lower per-ton realizations in 2009 compared to 2008 resulted from a decrease in our metallurgical coal sales volumes and pricing. We sold 0.5 million tons into metallurgical markets in the third quarter of 2009 compared to 1.3 million tons in the third quarter of 2008. Because metallurgical coal generally commands a higher price than steam coal, the decrease had a detrimental impact on our average realizations. In addition to the lower per-ton realizations, our operating margins were impacted by a slight increase in operating costs per ton from the third quarter of 2008. Despite substantial cost reductions, our per-ton operating costs were higher due primarily to our lower production levels.

Net interest expense. The following table summarizes our net interest expense for the three months ended September 30, 2009 and compares it with the information for the three months ended September 30, 2008:

                                                                    Increase (Decrease)
                          Three Months Ended September 30              in Net Income
                            2009                   2008                $              %
                                   (Amounts in thousands, except percentages)
   Interest expense   $        (29,791 )     $        (17,019 )   $    (12,772 )     (75.0 )%
   Interest income                 399                    235              164        69.8

                      $        (29,392 )     $        (16,784 )   $    (12,608 )     (75.1 )%

The increase in net interest expense in the third quarter of 2009 compared to the third quarter of 2008 is primarily due to the issuance of the 8.75% senior notes as discussed in the "Overview" and a decrease in interest costs capitalized in the third quarter of 2009. Interest costs capitalized were $0.3 million during the third quarter of 2009, compared with $3.6 million during the third quarter of 2008.
Income taxes. Our effective income tax rate is sensitive to changes in estimates of annual profitability and the deduction for percentage depletion. The following table summarizes our income taxes for the three months ended September 30, 2009 and compares it with information for the three months ended September 30, 2008:

Three Months Ended September 30 Decrease in Net Income 2009 2008 $ %

The benefit from income taxes for the three months ended September 30, 2009 represents the adjustment needed to reflect the benefit for the nine months ended September 30, 2009 at the estimated annual effective tax rate for the year ended December 31, 2009. The benefit from income taxes for the three months ended September 30, 2008 includes a $52.6 million reduction in our valuation allowance against net operating loss and alternative minimum tax credit carryforwards.
Nine Months Ended September 30, 2009 Compared to Nine Months Ended September 30, 2008
Summary. Our results during the first nine months of 2009 when compared to the first nine months of 2008 were influenced primarily by lower sales volumes due to weak market conditions, a decrease in gains from our coal trading activities, a reduction in 2008 in our valuation allowance against deferred tax assets and higher interest expense.
Revenues. The following table summarizes information about coal sales for the nine months ended September 30, 2009 and compares it with the information for the nine months ended September 30, 2008:

                                                            Nine Months Ended
                                                               September 30                                   Decrease
                                                      2009                     2008                   Amount                 %
                                                           (Amounts in thousands, except per ton data and percentages)
Coal sales                                      $     1,850,609          $     2,253,925          $    (403,316 )          (17.9 )%
Tons sold                                                87,888                  104,887                (16,999 )          (16.2 )%
Coal sales realization per ton sold             $         21.06          $         21.49          $       (0.43 )           (2.0 )%

Coal sales decreased in the nine months ended September 30, 2009 from the nine months ended September 30, 2008 primarily due to lower sales volumes in all operating regions. Average sales prices during the nine months ended September 30, 2009 were lower than during the nine months ended September 30, 2008 due primarily to a decrease in metallurgical sales volumes in our Central Appalachia region, which offset the impact of generally higher base pricing on steam coal. 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" beginning on page 22.
Costs, expenses and other. The following table summarizes costs, expenses and other components of operating income for the nine months ended September 30, 2009 and compares them with the information for the nine months ended September 30, 2008:

                                                                                               Increase (Decrease)
                                                 Nine Months Ended September 30                   in Net Income
                                                    2009                   2008                 $                 %
                                                             (Amounts in thousands, except percentages)
Cost of coal sales                            $      1,503,937         $  1,650,259        $    146,322            8.9 %
Depreciation, depletion and amortization               212,986              217,180               4,194            1.9
Selling, general and administrative
expenses                                                70,770               80,937              10,167           12.6
Change in fair value of coal derivatives
and coal trading activities, net                       (10,328 )            (65,336 )           (55,008 )        (84.2 )
Costs related to acquisition of Jacobs
Ranch                                                    7,166                    -              (7,166 )          N/A
Other operating income, net                            (28,141 )             (2,993 )            25,148          840.2

                                              $      1,756,390         $  1,880,047        $    123,657            6.6 %

Cost of coal sales. Our cost of coal sales decreased in the nine months ended September 30, 2009 from the nine months ended September 30, 2008 due to the lower sales volumes across all operating segments, partially offset by the impact of higher per-ton costs due to lower production levels. We have provided more information about our operating segments under the heading "Operating segment results" beginning on page 22.
Depreciation, depletion and amortization. When compared with the nine months ended September 30, 2008, lower depreciation and amortization costs in the nine months ended September 30, 2009 resulted from the impact of lower volume levels on depletion and amortization costs calculated on a units-of-production method, partially offset by the amortization of development costs related to the new seam at the West Elk mine where we commenced longwall production in the fourth quarter of 2008.
Selling, general and administrative expenses. The decrease in selling, general and administrative expenses from the nine months ended September 30, 2008 to the nine months ended September 30, 2009 is due primarily to a decrease . . .