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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
 
FORM 11-K
(Mark One)
     
ý   Annual Report Pursuant to Section 15(d) of the Securities Exchange Act of 1934
For the fiscal year ended December 31, 2005
     
o   Transition Report Pursuant to Section 15(d) of the Securities Exchange Act of 1934
For the transition period from ____________ to ______________.
Commission file number: 1-13105
Arch Coal, Inc. Employee Thrift Plan
(Full title of the plan and the address of the plan, if different from that of the issuer named below)
Arch Coal, Inc.
One CityPlace Drive, Suite 300
St. Louis, Missouri 63141
(Name of issuer of the securities held pursuant to the plan and the address of its principal executive office)
 
 

 

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ARCH COAL, INC.
EMPLOYEE THRIFT PLAN
FINANCIAL STATEMENTS
DECEMBER 31, 2005
 
 

 

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FINANCIAL STATEMENTS AND EXHIBIT
 
Financial Statements And Schedule
 
        
 
        
Exhibit:
 
        
 Consent of Independent Registered Public Accounting Firm

 

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Report Of Independent Registered Public Accounting Firm
To the Pension Committee
Arch Coal, Inc. Employee Thrift Plan
We have audited the accompanying statement of net assets available for benefits of the Arch Coal, Inc. Employee Thrift Plan (the Plan) as of December 31, 2005 and 2004, and the related statement of changes in net assets available for benefits for the years then ended. These financial statements are the responsibility of the Plan’s management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Plan’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the net assets available for benefits at December 31, 2005 and 2004, and the changes in net assets available for benefits for the years then ended, in conformity with accounting principles generally accepted in the United States of America.
/s/ RubinBrown LLP
St. Louis, Missouri
June 23, 2006

 

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ARCH COAL, INC. EMPLOYEE THRIFT PLAN
 
STATEMENT OF NET ASSETS AVAILABLE FOR BENEFITS
                 
    December 31,  
    2005     2004  
     
 
                
Assets
                
Investments, At Fair Value (Note 3)
                
Money market
   $ 2,521,074     $ 2,078,221  
Mutual funds and common/collective fund
     196,403,572       164,696,914  
Guaranteed investment account
     64,984,586       61,236,705  
Company stock
     29,362,090       15,133,166  
Brokerage securities
     17,501,232       16,637,272  
Participant loans (Note 4)
     13,247,484       11,880,873  
 
 
                
Net Assets Available For Benefits
   $ 324,020,038     $ 271,663,151  
 
     
 
 
See the accompanying notes to financial statements.   Page 2

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ARCH COAL, INC. EMPLOYEE THRIFT PLAN
 
STATEMENT OF CHANGES IN NET ASSETS
AVAILABLE FOR BENEFITS
                 
    For The Years  
    Ended December 31,  
    2005     2004  
     
 
                
Additions To Net Assets Attributed To:
                
Investment Income (Note 3)
                
Dividends and interest
   $ 9,702,428     $ 6,290,664  
Net appreciation in fair value of investments
     26,443,068       19,449,026  
 
 
Net Investment Income
     36,145,496       25,739,690  
 
 
                
Transfer Into The Plan (Note 7)
     11,091,394       —  
 
 
                
Contributions
                
Salary deferral
     16,179,664       12,890,588  
Employer
     12,225,450       9,681,067  
Employee after-tax
     1,289,169       1,122,335  
Rollover
     844,043       413,592  
 
Total Contributions
     30,538,326       24,107,582  
 
 
                
Total Additions
     77,775,216       49,847,272  
 
 
                
Deductions From Net Assets Attributed To:
                
Benefits paid directly to participants
     25,418,329       20,979,554  
 
 
                
Net Increase
     52,356,887       28,867,718  
 
                
Net Assets Available For Benefits -
                
Beginning Of Year
     271,663,151       242,795,433  
 
 
                
Net Assets Available For Benefits -
                
End Of Year
   $ 324,020,038     $ 271,663,151  
 
     
 
 
See the accompanying notes to financial statements.   Page 3

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ARCH COAL, INC. EMPLOYEE THRIFT PLAN
 
NOTES TO FINANCIAL STATEMENTS
December 31, 2005 And 2004
1.   Description Of The Plan
 
    The Arch Coal, Inc. Employee Thrift Plan (the Plan) was established by Arch Coal, Inc. (the Company) for the benefit of the eligible employees of the Company, its subsidiaries and controlled affiliates.
 
    The following description of the Plan provides only general information. Participants should refer to the Plan Agreement for a more complete description of the Plan’s provisions.
 
    Certain provisions of the Plan as described below do not apply to or have been modified for certain subsidiaries and affiliates of the Company.
 
    General
 
    The Plan, which has been adopted by Arch Coal, Inc., is a defined contribution plan, which includes a 401(k) provision. The Plan covers all full-time salaried employees, all full-time nonunion hourly employees, and certain union employees where specified by applicable collective bargaining agreements of the Company, its subsidiaries, and any controlled affiliates that elect to participate in the Plan. It is subject to the provisions of the Employee Retirement Income Security Act of 1974 (ERISA).
 
    Contributions
 
    Participants may elect to defer between 1 percent and 50% of compensation. Highly compensated employees may contribute up to 16%, with the exception of the highly compensated hourly employees at Mingo Logan and Mountain Laurel who may contribute up to 17%. The percentage of employer match or nondiscretionary contribution depends upon the location.
 
    Participant Accounts
 
    Each participant’s account is credited with the participant’s contributions, the employer’s matching contribution, if applicable, or employer non-discretionary contribution, if applicable, and an allocation of Plan earnings. The allocation of earnings is determined by the earnings of the participant’s investment selection based on each participant’s account balance, as defined in the Plan agreement. The benefit to which a participant is entitled is the benefit that can be provided from the participant’s account.
     
 
 
    Page 4

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ARCH COAL, INC. EMPLOYEE THRIFT PLAN
 
Notes To Financial Statements (Continued)
    Vesting
 
    Participants are fully vested in their contributions plus actual earnings. All eligible employees of the Company at December 31, 1997 became fully vested in the Plan. Eligible employees hired subsequent to December 31, 1997 vest in Company contributions and earnings upon the completion of three full and consecutive years of service. The hourly employees at Mingo Logan and Mountain Laurel are fully vested after the completion of two full and consecutive years of service.
 
    All participants become fully vested upon death while employed, total disability, or normal retirement age, regardless of the number of months of participation.
 
    Participant Loans
 
    Active participants, with some exceptions, may borrow from their fund accounts a minimum of $500 or up to a maximum equal to the lesser of $50,000 or 50 percent of their vested account balances. Loan terms range from one to five years or longer for the purchase of a primary residence. The loans are secured by the balance in the participant’s account and bear interest at the prime rate listed in the Wall Street Journal on the first day of the month the loan is processed. Principal and interest are paid ratably through payroll deductions.
 
    Payment Of Benefits
 
    Upon death, termination of service, or attainment of age 70-1/2, a participant may elect to receive either a lump-sum amount equal to the value of the participant’s vested interest in his or her account, a single annuity, the purchase of a joint and survivorship annuity with various survivor options, or a series of installment payments.
 
    Forfeited Accounts
 
    Forfeited amounts of employer contributions are used to offset future Company matching contributions of the Plan. At December 31, 2005 and 2004, forfeited amounts available to reduce future Company contributions were $161,849 and $39,409, respectively.
 
    Investment Options
 
    Upon enrollment in the Plan, a participant may direct contributions in a number of investment options offered by the Plan.
     
 
 
    Page 5

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ARCH COAL, INC. EMPLOYEE THRIFT PLAN
 
Notes To Financial Statements (Continued)
    Hardship Withdrawals
 
    A participant who has reached age 59-1/2 or experienced a qualifying financial hardship may withdraw all or part of his or her vested account. Hardship withdrawals will be approved only if they conform to the Plan provisions and established Internal Revenue Service safe harbors.
 
2.   Summary Of Significant Accounting Policies
 
    Basis Of Accounting
 
    The financial statements of the Plan are prepared under the accrual basis of accounting.
 
    Estimates And Assumptions
 
    The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of additions to and deductions from net assets during the reporting period. Actual results could differ from those estimates.
 
    Investment Valuation And Income Recognition
 
    Investments in mutual funds are valued at reported net asset value at December 31 as determined by the fund manager. Participant loans are valued at their outstanding balances, which approximate fair value.
 
    Investment income is recorded as earned on the accrual basis. Purchases and sales of securities are recorded on a trade-date basis. Dividends are recorded on the ex-dividend date.
 
    Payment Of Benefits
 
    Benefits are recorded when paid.
 
3.   Investments
 
    The Company has established a Pension Committee to oversee the activities of the Plan and has appointed the Vice President — Human Resources as the Plan Administrator. Mercer Fiduciary Trust Company is the Trustee for the Plan and Mercer HR Services is the Plan recordkeeper.
    Page 6

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ARCH COAL, INC. EMPLOYEE THRIFT PLAN
 
Notes To Financial Statements (Continued)
Net Assets Available For Benefits
                 
    December 31,  
    2005     2004  
     
 
                
Putnam Money Market Fund
   $ 2,521,074     $ 2,078,221  
 
 
        
Mutual Funds And Common/Collective Fund
                
American Century Income and Growth Fund
     32,171,638 *     33,023,173 *
Growth Fund of America
     24,631,761 *     18,556,267 *
Investment Company of America
     1,927,475       1,414,736  
Black Rock Small Cap Core Equity Fund
     3,079,098       —  
Dodge & Cox Balanced Fund
     27,074,513 *     22,148,939 *
Franklin Templeton Balance Sheet Fund
     26,176,501 *     20,582,889 *
Julius Baer International Equity Fund
     15,964,475 *     —  
PIMCO Total Return Fund
     16,434,041 *     15,641,715 *
Putnam Asset Allocation: Balanced Fund
     5,352,404       1,733,323  
Putnam S&P 500 Index
     25,145,367 *     22,702,828 *
Putnam Vista Fund
     13,299,605       9,704,941  
Wells Fargo Advantage Outlook 2010
     2,114,854       1,882,094  
Wells Fargo Advantage Outlook 2020
     1,340,528       1,004,852  
Wells Fargo Advantage Outlook 2030
     898,320       564,358  
Wells Fargo Advantage Outlook 2040
     792,992       703,981  
Fidelity Diversified International Equity Fund
     —       12,285,398 *
Fidelity Small Cap Fund
     —       2,747,420  
 
Total Mutual Funds And Common/Collective Fund
     196,403,572       164,696,914  
 
 
        
Invesco Stable Value Fund
     64,984,586 *     61,236,705 *
 
 
        
Arch Coal, Inc. Common Stock
     29,362,090 *     15,133,166 *
 
 
        
Putnam Direct Personal Choice Retirement Account
     17,501,232 *     16,637,272  
 
 
        
Participant Loans
     13,247,484       11,880,873  
 
 
        
 
   $ 324,020,038     $ 271,663,151  
 
* Investment represents 5% or more of net assets at the beginning of the respective Plan year.
     
 
 
    Page 7

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ARCH COAL, INC. EMPLOYEE THRIFT PLAN
 
Notes To Financial Statements (Continued)
Changes In Net Assets Available For Benefits
                 
    For The Years  
    Ended December 31,  
    2005     2004  
     
 
                
Investment Income
                
Dividends and interest
   $ 9,702,428     $ 6,290,664  
Net appreciation in fair value of investments
     26,443,068       19,449,026  
 
 
        
Net Investment Income
   $ 36,145,496     $ 25,739,690  
 
    Interest income on the Invesco Stable Value Fund is calculated and credited daily based on the aggregate contract yield of the underlying investments. The investment contracts included in this fund had an average yield of 4.68% and 4.56% for the years ended December 31, 2005 and 2004, respectively. The average crediting interest rate was 4.71% and 4.59% at December 31, 2005 and 2004, respectively. The fair value of the investment contract was $64,984,586 and $61,236,705 at December 31, 2005 and 2004, respectively.
4.   Participant Loans
 
    Participant loans are secured by participants’ vested balances. The loans are due in bi-weekly payments including principal and interest at varying rates reflective of the prime rate as of the time of issue. At December 31, 2005, the interest rates on the participant loans range from 4% — 10%. The final installments are due at various dates through October 2019.
 
5.   Plan Termination
 
    Although it has not expressed intent to do so, the Company has the right under the Plan to discontinue its contributions at any time and to terminate the Plan, subject to the provisions of ERISA. In the event of Plan termination, participants will become 100% vested in their accounts.
     
 
 
    Page 8

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ARCH COAL, INC. EMPLOYEE THRIFT PLAN
 
Notes To Financial Statements (Continued)
6.   Income Tax Status
 
    The Plan obtained its latest determination letter on September 26, 2002 in which the Internal Revenue Service stated that the Plan, as then designed, was in compliance with the applicable requirements of the Internal Revenue Code. The Plan has been amended since receiving the determination letter. The Plan Administrator is working with the Plan’s counsel to correct certain design and operational failures of the Plan. The Plan Sponsor will submit the corrections for approval through the Internal Revenue Service’s voluntary correction program. The Plan Administrator believes that the corrective actions will maintain the tax qualifications of the Plan and the related trust will continue to be tax exempt.
 
7.   Plan Amendments
 
    Effective January 1, 2005, the Plan was amended to include participants in Triton Coal Company, LLC 401(k) Plan as a result of the merger of this company with Arch Coal, Inc. Prior to that date, the former Triton employees participated in the Triton Coal Company, LLC 401(k) Plan until its merger into the Plan. In addition, the Plan was amended to reduce the minimum participant account balance for which automatic cash distribution is required from $5,000 to $1,000.
 
8.   New Accounting Pronouncement
 
    In December 2005, the Financial Accounting Standards Board (FASB) issued FASB Staff Position (FSP) AAG INV-1 and SOP 94-4-1 Reporting of Fully Benefit-Responsive-Investment Contracts Held By Certain Investment Companies Subject to the AICPA Investment Company Guide and Defined-Contribution Health and Welfare and Pension Plans, which affects defined contribution pension plans that hold fully benefit-responsive investment contracts. The FSP is effective for all investment contracts as of the last day of the annual period ending after December 15, 2006. The Plan invests in the Invesco Stable Value Fund, which is a fully benefit-responsive investment as defined in the FSP. The Plan will implement the new accounting standard for the year ending December 31, 2006 and will apply the standard retrospectively to the year ended December 31, 2005.
 
 
    Page 9

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ARCH COAL, INC. EMPLOYEE THRIFT PLAN
 
Notes To Financial Statements (Continued)
9.   Subsequent Events
 
    On December 31, 2005, Arch Coal, Inc. sold three of its subsidiaries; Hobet Mining, Apogee Coal Company and Catenary Coal Company, to Magnum Coal Company. The employees of these subsidiaries remained participants in the Plan at December 31, 2005. Subsequent to year end, their account balances were transferred to Magnum’s 401(k) Plan.
 
    Effective January 1, 2006, the Plan was amended to increase the default percentage deferral rate from 3% to 6% for those new participants who did not make an election under the Plan.
 
    Page 10

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Report Of Independent Registered Public
Accounting Firm On Supplementary Information
Our audits were performed for the purpose of forming an opinion on the basic financial statements taken as a whole. The supplemental schedule of assets held at end of year is presented for purposes of additional analysis and is not a required part of the basic financial statements, but is supplementary information required by the Department of Labor’s Rules and Regulations for Reporting and Disclosure under the Employee Income Security Act of 1974. This supplemental schedule is the responsibility of the Plan’s management. The supplemental schedule has been subjected to the auditing procedures applied in the audit of the basic financial statements and, in our opinion, is fairly stated in all material respects in relation to the basic financial statements taken as a whole.
/s/ RubinBrown LLP
June 23, 2006

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ARCH COAL, INC. EMPLOYEE THRIFT PLAN
 
E.I.N.: 43-0921172 PLAN NO.: 006
SCHEDULE OF ASSETS HELD AT END OF YEAR
December 31, 2005
Page 1 Of 2

             
Identity Of Issuer   Description Of Investment   Current Value
 
            
Money Market
            
Putnam Investments*
  Putnam Money Market Fund   $ 2,521,074  
 
         
 
            
Mutual Funds And Common/Collective Fund
            
American Century
  American Century Income and Growth Fund     32,171,638  
American Fund Corporation
  Growth Fund of America     24,631,761  
American Fund Corporation
  Investment Company of America     1,927,475  
Black Rock Funds
  Black Rock Small Cap Core Equity Fund     3,079,098  
Dodge & Cox Funds
  Dodge & Cox Balanced Fund     27,074,513  
Franklin Investments
  Franklin Templeton Balance Sheet Fund     26,176,501  
Julius Baer Group
  Julius Baer International Equity Fund     15,964,475  
PIMCO Investments
  PIMCO Total Return Fund     16,434,041  
Putnam Investments*
  Putnam Asset Allocation: Balanced Fund     5,352,404  
Putnam Investments*
  Putnam S&P 500 Index     25,145,367  
Putnam Investments*
  Putnam Vista Fund     13,299,605  
Wells Fargo
  Wells Fargo Advantage Outlook 2010     2,114,854  
Wells Fargo
  Wells Fargo Advantage Outlook 2020     1,340,528  
Wells Fargo
  Wells Fargo Advantage Outlook 2030     898,320  
Wells Fargo
   Wells Fargo Advantage Outlook 2040     792,992  
 
         
Total Mutual Funds And Common/Collective Fund
        196,403,572
 
         
 
            
Common Stock
            
Arch Coal, Inc. *
  Common Stock     29,362,090  
 
         
 
            
Participant Directed Brokerage Accounts
            
Putnam*
  Putnam Direct Personal Choice
Retirement Account (Participant
Directed Brokerage Accounts) 		    17,501,232  
 
         
 
            
Balance Carried Forward
        245,787,968  
 
         
* Represents party-in-interest
The above information is a required disclosure for IRS Form 5500, Schedule H, Part IV, line 4i.
     
 
 
    Page 12

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ARCH COAL, INC. EMPLOYEE THRIFT PLAN
 
E.I.N.: 43-0921172 PLAN NO.: 006
SCHEDULE OF ASSETS HELD AT END OF YEAR
December 31, 2005
Page 2 Of 2

                 
Identity Of Issuer   Description Of Investment       Current Value  
 
 
                
Balance Brought Forward
         $ 245,787,968  
 
          
 
                
Guaranteed Investment Account -
                
Invesco Stable Value Fund
                
Bank of America NT & SA
   01-257       13,124,614  
Bank of America NT & SA Wrapper
   01-257       (20,676 )
ING Life & Annuity
   60034       8,501,277  
ING Life & Annuity Wrapper
   60034       63,049  
JP Morgan Chase Bank
   433119-MGC       11,418,025  
JP Morgan Chase Bank Wrapper
   433119-MGC       125,228  
Mellon Bank STIF Account
   6070002       953,105  
Monumental Life Insurance Co.
   MDA-00589TR       9,838,559  
Monumental Life Insurance Co. Wrapper
   MDA-00589TR       220,227  
State Street Bank & Trust Co.
   103077       11,423,089  
State Street Bank & Trust Co. Wrapper
   103077       120,478  
Union Bank of Switzerland
   5043       1,654,576  
Union Bank of Switzerland Wrapper
   5043       14,151  
Union Bank of Switzerland
   5155       7,473,955  
Union Bank of Switzerland Wrapper
   5155       74,929  
 
          
Total Guaranteed Investment Account
           64,984,586  
 
          
 
                
Participant Loans
   Bearing interest at 4% - 10%, due at various dates through October 2019       13,247,484  
 
          
 
         $ 324,020,038  
 
          
 
The above information is a required disclosure for IRS Form 5500, Schedule H, Part IV, line 4i.
      
 
      
 
      
    Page 13

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Signatures
     Pursuant to the requirements of the Securities Exchange Act of 1934, the trustees (or other persons who administer the employee benefit plan) have duly caused this annual report to be signed on its behalf by the undersigned thereunto duly authorized.
         
  Arch Coal, Inc. Employee Thrift Plan
 		  
  By:   /s/ Sheila B. Feldman    
    Sheila B. Feldman   
    Plan Administrator   
 
June 28, 2006

 

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Exhibit Index
     
Exhibit   Description
 
    
23.1
  Consent of Independent Registered Public Accounting Firm