##### Table of Contents



SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 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 September 30, 2005
 OR
 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 No. 333-124319-17
 ALPHA NR HOLDING, INC.
 (Exact name of registrant as specified in its charter)
 Delaware
    
    02-0590704(State or other jurisdiction of
    
    (I.R.S. Employerincorporation or organization)
    
    Identification Number)406 West Main Street, Abingdon, Virginia
    
    24210(Address of principal executive offices)
    
    (Zip Code)
 Registrants telephone number, including area code:
(276) 619-4410
 þ o
 o þ
 o þ




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TABLE OF CONTENTS
 PagePART IItem 1.
    
    Financial Statements
    
    2Condensed Consolidated Balance Sheets (Unaudited)
    
    2Condensed Consolidated Statements of Income (Unaudited)
    
    3Condensed Consolidated Statement of Stockholders Equity (Unaudited)
    
    4Condensed Consolidated Statements of Cash Flows (Unaudited)
    
    5Notes to Condensed Consolidated Financial Statements (Unaudited)
    
    6Item 2.
    
    Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    18Item 3.
    
    Quantitative and Qualitative Disclosures about Market Risk
    
    30Item 4.
    
    Controls and Procedures
    
    30PART IIItem 5.
    
    Other Information
    
    31Item 6.
    
    Exhibits
    
    31EX-31.A: CERTIFICATIONEX-31.B: CERTIFICATIONEX-32.A: CERTIFICATIONEX-32.B: CERTIFICATION
  1




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##### Table of Contents



ALPHA NR HOLDING, INC. AND SUBSIDIARIES
 
 Condensed Consolidated Balance Sheets (Unaudited)
 (In thousands, except share and per share amounts)
 September 30,
    
    
    December 31,2005
    
    
    2004AssetsCurrent assets:Cash and cash equivalents
    
    $
    111
    
    
    $
    7,391Trade accounts receivable, net
    
    
    151,932
    
    
    
    95,828Notes and other receivables
    
    
    9,708
    
    
    
    9,936Inventories
    
    
    102,856
    
    
    
    54,569Due from affiliate
    
    
    3,566
    
    
    
    323Deferred income taxes
    
    
    401
    
    
    
    4,674Prepaid expenses and other current assets
    
    
    14,662
    
    
    
    29,814Total current assets
    
    
    283,236
    
    
    
    202,535Property, plant, and equipment, net of accumulated depreciation, depletion and
amortization of $127,969 and $83,848 as of September 30, 2005 and
December 31, 2004, respectively
    
    
    267,481
    
    
    
    217,964Goodwill
    
    
    18,641
    
    
    
    18,641Other intangibles, net of accumulated amortization of $1,542 and $2,343 as of
September 30, 2005 and December 31, 2004, respectively
    
    
    560
    
    
    
    1,155Deferred income taxes
    
    
    19,616
    
    
    
    Other assets
    
    
    35,705
    
    
    
    36,826Total assets
    
    $
    625,239
    
    
    $
    477,121Liabilities and Stockholders Equity and Partners CapitalCurrent liabilities:Current portion of long-term debt
    
    $
    1,046
    
    
    $
    1,693Note payable
    
    
    2,815
    
    
    
    15,228Bank overdraft
    
    
    15,165
    
    
    
    10,024Trade accounts payable
    
    
    73,076
    
    
    
    51,050Accrued expenses and other current liabilities
    
    
    59,510
    
    
    
    68,283Total current liabilities
    
    
    151,612
    
    
    
    146,278Long-term debt, net of current portion
    
    
    257,163
    
    
    
    184,784Workers compensation benefits
    
    
    5,113
    
    
    
    4,678Postretirement medical benefits
    
    
    22,226
    
    
    
    15,637Asset retirement obligation
    
    
    34,284
    
    
    
    32,888Deferred gains on sale of property interests
    
    
    5,166
    
    
    
    5,516Deferred income taxes
    
    
    
    
    
    
    7,718Other liabilities
    
    
    4,678
    
    
    
    4,911Total liabilities
    
    
    480,242
    
    
    
    402,410Minority interest
    
    
    
    
    
    
    28,778Stockholders equity and partners capital:Alpha NR Holding, Inc.:Preferred stock  par value $0.01, 1,000 shares
authorized, none issued
    
    
    
    
    
    
    Common stock  par value $0.01, 1,000 shares
authorized, 100 shares issued and outstanding
    
    
    
    
    
    
    Additional paid-in capital
    
    
    138,895
    
    
    
    22,153Retained earnings
    
    
    6,102
    
    
    
    18,828Total Alpha NR Holding, Inc. stockholders equity
    
    
    144,997
    
    
    
    40,981ANR Fund IX Holdings, L.P.:Partners capital
    
    
    
    
    
    
    4,952Total stockholders equity and partners capital
    
    
    144,997
    
    
    
    45,933Total liabilities and stockholders equity and partners capital
    
    $
    625,239
    
    
    $
    477,121
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##### Table of Contents



ALPHA NR HOLDING, INC. AND SUBSIDIARIES
 
 Condensed Consolidated Statements of Income (Unaudited)
 (In thousands, except per share amounts)
 Three months ended
    
    
    Nine months endedSeptember 30,
    
    
    September 30,2005
    
    
    2004
    
    
    2005
    
    
    2004Revenues:Coal revenues
    
    $
    345,179
    
    
    $
    295,208
    
    
    $
    982,383
    
    
    $
    801,021Freight and handling revenues
    
    
    46,659
    
    
    
    37,570
    
    
    
    126,650
    
    
    
    102,846Other revenues
    
    
    5,851
    
    
    
    8,931
    
    
    
    18,447
    
    
    
    20,440Total revenues
    
    
    397,689
    
    
    
    341,709
    
    
    
    1,127,480
    
    
    
    924,307Costs and expenses:Cost of coal sales (exclusive of items shown
separately below)
    
    
    298,522
    
    
    
    250,311
    
    
    
    818,299
    
    
    
    668,887Freight and handling costs
    
    
    46,659
    
    
    
    37,570
    
    
    
    126,650
    
    
    
    102,846Cost of other revenues
    
    
    5,943
    
    
    
    6,603
    
    
    
    16,327
    
    
    
    14,942Depreciation, depletion and amortization
    
    
    16,277
    
    
    
    14,193
    
    
    
    45,521
    
    
    
    38,883Selling, general and administrative expenses
(exclusive of depreciation and amortization shown separately above
and including stock-based compensation of $3,381 and $43,169 for
the three months and nine months ended September 30, 2005, respectively)
    
    
    12,147
    
    
    
    10,124
    
    
    
    75,221
    
    
    
    35,786Total costs and expenses
    
    
    379,548
    
    
    
    318,801
    
    
    
    1,082,018
    
    
    
    861,344Income from operations
    
    
    18,141
    
    
    
    22,908
    
    
    
    45,462
    
    
    
    62,963Other income (expense):Interest expense
    
    
    (6,636
    )
    
    
    (5,666
    )
    
    
    (19,110
    )
    
    
    (14,497
    )Interest income
    
    
    197
    
    
    
    230
    
    
    
    682
    
    
    
    331Miscellaneous income, net
    
    
    50
    
    
    
    154
    
    
    
    40
    
    
    
    517Total other income (expense), net
    
    
    (6,389
    )
    
    
    (5,282
    )
    
    
    (18,388
    )
    
    
    (13,649
    )Income from continuing operations before income taxes
and minority interest
    
    
    11,752
    
    
    
    17,626
    
    
    
    27,074
    
    
    
    49,314Income tax expense
    
    
    3,542
    
    
    
    2,379
    
    
    
    15,141
    
    
    
    5,852Minority interest
    
    
    
    
    
    
    7,980
    
    
    
    2,918
    
    
    
    22,335Income from continuing operations
    
    
    8,210
    
    
    
    7,267
    
    
    
    9,015
    
    
    
    21,127Discontinued operations (note 11):Loss from discontinued operations before income taxes and
minority interest (including gain on disposal in April 2005 of $704)
    
    
    
    
    
    
    (5,248
    )
    
    
    (379
    )
    
    
    (6,120
    )Income tax benefit
    
    
    
    
    
    
    (1,024
    )
    
    
    (93
    )
    
    
    (1,120
    )Minority interest
    
    
    
    
    
    
    (2,378
    )
    
    
    (72
    )
    
    
    (2,773
    )Loss from discontinued operations
    
    
    
    
    
    
    (1,846
    )
    
    
    (214
    )
    
    
    (2,227
    )Net income
    
    $
    8,210
    
    
    $
    5,421
    
    
    $
    8,801
    
    
    $
    18,900
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ALPHA NR HOLDING, INC. AND SUBSIDIARIES
 
 Condensed Consolidated Statement of Stockholders Equity (Unaudited)
 Nine months ended September 30, 2005
 (In thousands, except per share amounts)
 ANR Fund IXAlpha NR Holding, Inc.
    
    
    Holdings, L.P.
    
    
    TotalStockholdersAdditional
    
    
    
    
    
    
    Total
    
    
    
    
    
    
    Equity andCommon
    
    
    Paid-in
    
    
    Retained
    
    
    Stockholders
    
    
    Partners
    
    
    PartnersStock
    
    
    Capital
    
    
    Earnings
    
    
    Equity
    
    
    Capital
    
    
    CapitalBalances, December 31, 2003
    
    $
    
    
    
    $
    75,710
    
    
    $
    1,442
    
    
    $
    77,152
    
    
    $
    9,215
    
    
    $
    86,367Net income
    
    
    
    
    
    
    
    
    
    
    17,386
    
    
    
    17,386
    
    
    
    2,629
    
    
    
    20,015Noncash distribution of Virginia Tax Credit
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (292
    )
    
    
    (292
    )Distributions
    
    
    
    
    
    
    (53,557
    )
    
    
    
    
    
    
    (53,557
    )
    
    
    (6,600
    )
    
    
    (60,157
    )Balances, December 31, 2004
    
    
    
    
    
    
    22,153
    
    
    
    18,828
    
    
    
    40,981
    
    
    
    4,952
    
    
    
    45,933Noncash distribution of Virginia Tax Credit
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (40
    )
    
    
    (40
    )Net income prior to Internal Restructuring
    
    
    
    
    
    
    
    
    
    
    2,320
    
    
    
    2,320
    
    
    
    379
    
    
    
    2,699Distribution to First Reserve Fund IX, L.P. andANR Fund IX Holdings, L.P. prior
to theInternal Restructuring
    
    
    
    
    
    
    
    
    
    
    (8,160
    )
    
    
    (8,160
    )
    
    
    (1,243
    )
    
    
    (9,403
    )Contribution by First Reserve Fund IX, L.P. ofall of the outstanding common
stock ofAlpha NR Holding, Inc. in exchange
forshares of Alpha Natural Resources,
Inc.common stock
    
    
    
    
    
    
    47,928
    
    
    
    (12,988
    )
    
    
    34,940
    
    
    
    
    
    
    
    34,940Adjustments to give effect to the InternalRestructuring
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (4,048
    )
    
    
    (4,048
    )Change in net deferred income taxes recognizedupon the completion of the InternalRestructuring
    
    
    
    
    
    
    25,729
    
    
    
    
    
    
    
    25,729
    
    
    
    
    
    
    
    25,729Amortization of unearned stock-basedcompensation
    
    
    
    
    
    
    43,085
    
    
    
    
    
    
    
    43,085
    
    
    
    
    
    
    
    43,085Net income subsequent to Internal Restructuring
    
    
    
    
    
    
    
    
    
    
    6,102
    
    
    
    6,102
    
    
    
    
    
    
    
    6,102Balances, September 30, 2005
    
    $
    
    
    
    $
    138,895
    
    
    $
    6,102
    
    
    $
    144,997
    
    
    $
    
    
    
    $
    144,997
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##### Table of Contents



ALPHA NR HOLDING, INC. AND SUBSIDIARIES
 
 Condensed Consolidated Statements of Cash Flows (Unaudited)
 (In thousands)
 Nine months endedSeptember 30,2005
    
    
    2004Operating activities:Net income
    
    $
    8,801
    
    
    $
    18,900Adjustments to reconcile net income to net cash provided by operating activities:Depreciation, depletion and amortization
    
    
    45,805
    
    
    
    39,352Amortization and write-off of debt issuance costs
    
    
    1,325
    
    
    
    4,039Minority interest
    
    
    2,846
    
    
    
    19,562Accretion of asset retirement obligation
    
    
    2,463
    
    
    
    2,902Virginia tax credit
    
    
    (343
    )
    
    
    (1,930
    )Stock-based compensation  non-cash
    
    
    43,169
    
    
    
    Provision for bad debts
    
    
    44
    
    
    
    298Amortization of deferred gains on sales of property interests
    
    
    (595
    )
    
    
    (690
    )Amortization of deferred gain on railroad incentives
    
    
    (478
    )
    
    
    Loss on settlement of asset retirement obligation
    
    
    490
    
    
    
    636Asset impairment charge
    
    
    
    
    
    
    5,100Write-off of advance royalties
    
    
    
    
    
    
    1,099Gains on sales of fixed assets, net
    
    
    (11
    )
    
    
    (342
    )Gain on sale of discontinued operations
    
    
    (704
    )
    
    
    Deferred income taxes
    
    
    2,668
    
    
    
    2,448Changes in operating assets and liabilities:Trade accounts receivable
    
    
    (56,073
    )
    
    
    (27,568
    )Notes and other receivables
    
    
    (1,087
    )
    
    
    (183
    )Inventories
    
    
    (48,294
    )
    
    
    (19,841
    )Due from affiliate
    
    
    (3,566
    )Prepaid expenses and other current assets
    
    
    13,864
    
    
    
    9,478Other assets
    
    
    (5,148
    )
    
    
    (1,497
    )Trade accounts payable
    
    
    20,612
    
    
    
    18,534Accrued expenses and other current liabilities
    
    
    (2,044
    )
    
    
    26,341Workers compensation benefits
    
    
    367
    
    
    
    2,274Postretirement medical benefits
    
    
    6,589
    
    
    
    2,828Asset retirement obligation
    
    
    (2,919
    )
    
    
    (2,495
    )Other liabilities
    
    
    569
    
    
    
    2Net cash provided by operating activities
    
    
    28,350
    
    
    
    99,247Investing activities:Capital expenditures
    
    
    (95,919
    )
    
    
    (52,984
    )Proceeds from disposal of property, plant and equipment
    
    
    5,282
    
    
    
    595Purchase of net assets of acquired companies
    
    
    (961
    )
    
    
    (2,891
    )Equity investments
    
    
    (1,234
    )
    
    
    (3,250
    )Payment of additional consideration on acquisition
    
    
    (5,000
    )
    
    
    Issuance of note receivable to coal supplier
    
    
    
    
    
    
    (10,000
    )Collections on note receivable from coal supplier
    
    
    4,442
    
    
    
    675Increase in due from affiliate
    
    
    
    
    
    
    620Net cash used in investing activities
    
    
    (93,390
    )
    
    
    (67,235
    )Financing activities:Repayments of notes payable
    
    
    (12,413
    )
    
    
    (11,787
    )Proceeds from issuance of long-term debt
    
    
    73,000
    
    
    
    175,000Repayments on long-term debt
    
    
    (1,323
    )
    
    
    (64,920
    )Increase in bank overdraft
    
    
    5,141
    
    
    
    396Reimbursement of deferred common stock offering costs by parent
    
    
    1,655
    
    
    
    Distributions to prior members of ANR Holdings, LLC prior to Internal Restructuring
    
    
    (7,732
    )
    
    
    (115,573
    )Debt issuance costs
    
    
    (568
    )
    
    
    (10,563
    )Net cash provided by (used in) financing activities
    
    
    57,760
    
    
    
    (27,447
    )Net increase (decrease) in cash and cash equivalents
    
    
    (7,280
    )
    
    
    4,565Cash and cash equivalents at beginning of period
    
    
    7,391
    
    
    
    11,246Cash and cash equivalents at end of period
    
    $
    111
    
    
    $
    15,811
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ALPHA NR HOLDING, INC. AND SUBSIDIARIES
 
 CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
September 30, 2005
(In thousands, except percentages and share data)
 (1) Business and Basis of Presentation
 Organization and Business
   Basis of Presentation
   (2) Pro Forma Financial Information
  Three Months Ended September 30,
    
    
    Nine Months Ended September 30,2005
    
    
    2004
    
    
    2005
    
    
    2004Pro forma revenues
    
    $
    397,689
    
    
    $
    341,709
    
    
    $
    1,127,480
    
    
    $
    924,307Pro forma net income
    
    
    8,210
    
    
    
    8,613
    
    
    
    10,888
    
    
    
    28,430
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##### Table of Contents



ALPHA NR HOLDING, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
September 30, 2005
(In thousands, except percentages and share data)
  Three Months Ended
    
    
    Nine Months Ended September 30,September 30,2004
    
    
    2005
    
    
    2004Reported income from continuing operations
    
    $
    7,267
    
    
    $
    9,015
    
    
    $
    21,127Deduct: Income tax effect of ANR Fund IX Holdings, L.P. income
from continuing operations prior to Internal Restructuring
    
    
    (402
    )
    
    
    (91
    )
    
    
    (1,124
    )Deduct: Pro forma effects of the 2004 Financings, net of income taxes
    
    
    
    
    
    
    
    
    
    
    (1,614
    )Add: Minority interest in income from continuing operations, net of
income tax effect
    
    
    4,948
    
    
    
    2,231
    
    
    
    13,848Pro forma income from continuing operations
    
    
    11,813
    
    
    
    11,155
    
    
    
    32,237Reported income loss from discontinued operations
    
    
    (1,846
    )
    
    
    (214
    )
    
    
    (2,227
    )Add: Income tax effect of ANR Fund IX Holdings, L.P. loss from
from discontinued operations prior to Internal Restructuring
    
    
    120
    
    
    
    2
    
    
    
    139Add: Minority interest in loss from discontinued operations, net of
income tax effect
    
    
    (1,474
    )
    
    
    (55
    )
    
    
    (1,719
    )Pro forma loss from discontinued operations
    
    
    (3,200
    )
    
    
    (267
    )
    
    
    (3,807
    )Pro forma net income
    
    $
    8,613
    
    
    $
    10,888
    
    
    $
    28,430
 Accounting for Stock Issued to Employees,
 Accounting for
Stock-Based Compensation.
 Three months ended
    
    
    Nine months endedSeptember 30, 2005
    
    
    September 30, 2005Net income (pro forma net income
for the nine months ended September
30, 2005)
    
    $
    8,210
    
    
    $
    10,888Add: Stock-based compensation expense
included in pro forma net income, net of income taxes
    
    
    2,362
    
    
    
    40,391Deduct: Total stock-based compensation expense
determined under fair-value based method, net of income
taxes
    
    
    (2,572
    )
    
    
    (40,945
    )Pro forma net income, adjusted for effect of fair value of stock options
    
    $
    8,000
    
    
    $
    10,334
  Expected life (years)
    
    
    4.0Expected volatility
    
    
    38.0
    %Risk-free interest rate
    
    
    3.38
    %Expected annual dividend
    
    $
    0.10
  7




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##### Table of Contents



ALPHA NR HOLDING, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
September 30, 2005
(In thousands, except percentages and share data)
 (3) Inventories
  September 30,
    
    
    December 31,2005
    
    
    2004Raw coal
    
    $
    5,473
    
    
    $
    3,888Saleable coal
    
    
    87,982
    
    
    
    42,899Materials and supplies
    
    
    9,401
    
    
    
    7,782Total inventories
    
    $
    102,856
    
    
    $
    54,569
 (4) Long-Term Debt
  September 30,
    
    
    December 31,2005
    
    
    200410% Senior notes due 2012
    
    $
    175,000
    
    
    $
    175,000Revolving credit facility
    
    
    81,000
    
    
    
    8,000Variable rate term notes
    
    
    586
    
    
    
    1,466Capital lease obligation
    
    
    1,623
    
    
    
    1,995Other
    
    
    
    
    
    
    16Total long-term debt
    
    
    258,209
    
    
    
    186,477Less current portion
    
    
    1,046
    
    
    
    1,693Long-term debt, net of current
portion
    
    $
    257,163
    
    
    $
    184,784
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##### Table of Contents



ALPHA NR HOLDING, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
September 30, 2005
(In thousands, except percentages and share data)
 (5) Asset Retirement Obligation
  Total asset retirement obligation at December 31, 2004
    
    $
    39,579Accretion for the nine months ended September 30, 2005
    
    
    2,463Sites added during the nine months ended September 30, 2005
    
    
    1,156Expenditures for the nine months ended September 30, 2005
    
    
    (2,919
    )Loss on settlement of asset retirement obligation
    
    
    371Revision to estimate
    
    
    325Total asset retirement obligation at September 30, 2005
    
    $
    40,975
 (6) Stock-Based Compensation Awards
 Accounting for Stock
Issued to Employees,
  Number of
    
    
    ExerciseOptions
    
    
    PriceOutstanding at January 1, 2005
    
    
    596,985
    
    
    $
    12.73Granted at initial public offering
    
    
    692,905
    
    
    $
    19.00Additional grants
    
    
    70,000
    
    
    $
    23.69Exercised
    
    
    
    
    
    
    Forfeited
    
    
    (90,696
    )
    
    $
    14.11Outstanding at September 30, 2005
    
    
    1,269,194
    
    
    $
    16.66
 9




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ALPHA NR HOLDING, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
September 30, 2005
(In thousands, except percentages and share data)
 (7) Postretirement Benefits Other Than Pensions
  Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2005
    
    
    2004
    
    
    2005
    
    
    2004Service cost
    
    $
    940
    
    
    $
    925
    
    
    $
    2,884
    
    
    $
    1,323Interest cost
    
    
    601
    
    
    
    525
    
    
    
    1,856
    
    
    
    837Amortization of net (gain) or loss
    
    
    10
    
    
    
    (6
    )
    
    
    19
    
    
    
    (18
    )Amortization of prior service cost
    
    
    535
    
    
    
    698
    
    
    
    1,841
    
    
    
    698Net periodic benefit cost
    
    $
    2,086
    
    
    $
    2,142
    
    
    $
    6,600
    
    
    $
    2,840
   (8) Related Party Transactions
  September 30,
    
    
    December 31,2005
    
    
    2004AMCI
    
    $
    14,271
    
    
    $
    7,121Robindale Energy & Subsidiary
    
    
    34
    
    
    
    6Total
    
    $
    14,305
    
    
    $
    7,127
   September 30,
    
    
    December 31,2005
    
    
    2004AMCI
    
    $
    
    
    
    $
    262Robindale Energy & Subsidiary
    
    
    139
    
    
    
    42Total
    
    $
    139
    
    
    $
    304
  10




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ALPHA NR HOLDING, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
September 30, 2005
(In thousands, except percentages and share data)
 (9) Segment Information
   CorporateCoal
    
    
    All
    
    
    andOperations
    
    
    Other
    
    
    Eliminations
    
    
    ConsolidatedRevenues
    
    $
    394,331
    
    
    $
    9,084
    
    
    $
    (5,726
    )
    
    $
    397,689Depreciation, depletion, and amortization
    
    
    15,543
    
    
    
    361
    
    
    
    373
    
    
    
    16,277EBITDA, as adjusted
    
    
    46,144
    
    
    
    468
    
    
    
    (12,144
    )
    
    
    34,468Capital expenditures
    
    
    29,312
    
    
    
    
    
    
    
    86
    
    
    
    29,398Total assets
    
    
    536,792
    
    
    
    72,019
    
    
    
    16,428
    
    
    
    625,239
  CorporateCoal
    
    
    All
    
    
    andOperations
    
    
    Other
    
    
    Eliminations
    
    
    ConsolidatedRevenues
    
    $
    1,116,447
    
    
    $
    29,313
    
    
    $
    (18,280
    )
    
    $
    1,127,480Depreciation, depletion, and amortization
    
    
    43,037
    
    
    
    1,149
    
    
    
    1,335
    
    
    
    45,521EBITDA, as adjusted
    
    
    162,519
    
    
    
    2,809
    
    
    
    (74,305
    )
    
    
    91,023Capital expenditures
    
    
    94,770
    
    
    
    322
    
    
    
    517
    
    
    
    95,609
  CorporateCoal
    
    
    All
    
    
    andOperations
    
    
    Other
    
    
    Eliminations
    
    
    ConsolidatedRevenues
    
    $
    337,950
    
    
    $
    6,771
    
    
    $
    (3,012
    )
    
    $
    341,709Depreciation, depletion, and amortization
    
    
    13,447
    
    
    
    246
    
    
    
    500
    
    
    
    14,193EBITDA, as adjusted
    
    
    47,039
    
    
    
    351
    
    
    
    (10,135
    )
    
    
    37,255Capital expenditures
    
    
    18,918
    
    
    
    105
    
    
    
    116
    
    
    
    19,139Total assets
    
    
    390,341
    
    
    
    76,337
    
    
    
    (8,855
    )
    
    
    457,823
  CorporateCoal
    
    
    All
    
    
    andOperations
    
    
    Other
    
    
    Eliminations
    
    
    ConsolidatedRevenues
    
    $
    912,810
    
    
    $
    20,111
    
    
    $
    (8,614
    )
    
    $
    924,307Depreciation, depletion, and amortization
    
    
    36,652
    
    
    
    740
    
    
    
    1,491
    
    
    
    38,883EBITDA, as adjusted
    
    
    135,943
    
    
    
    2,191
    
    
    
    (35,771
    )
    
    
    102,363Capital expenditures
    
    
    51,787
    
    
    
    248
    
    
    
    449
    
    
    
    52,484
 11




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ALPHA NR HOLDING, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
September 30, 2005
(In thousands, except percentages and share data)
  Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2005
    
    
    2004
    
    
    2005
    
    
    2004Total segment EBITDA, as adjusted, from
continuing operations
    
    $
    34,468
    
    
    $
    37,255
    
    
    $
    91,023
    
    
    $
    102,363Interest expense
    
    
    (6,636
    )
    
    
    (5,666
    )
    
    
    (19,110
    )
    
    
    (14,497
    )Interest income
    
    
    197
    
    
    
    230
    
    
    
    682
    
    
    
    331Income tax expense from continuing operations
    
    
    (3,542
    )
    
    
    (2,379
    )
    
    
    (15,141
    )
    
    
    (5,852
    )Depreciation, depletion and amortization from
continuing operations
    
    
    (16,277
    )
    
    
    (14,193
    )
    
    
    (45,521
    )
    
    
    (38,883
    )Minority interest in income from continuing
operations
    
    
    
    
    
    
    (7,980
    )
    
    
    (2,918
    )
    
    
    (22,335
    )Income from continuing operations
    
    $
    8,210
    
    
    $
    7,267
    
    
    $
    9,015
    
    
    $
    21,127
  (10) Contingencies
 ( a ) Guarantees and Financial Instruments with Off-balance Sheet Risk
  ( b ) Litigation
  (c) Hurricane Katrina
  12




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ALPHA NR HOLDING, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
September 30, 2005
(In thousands, except percentages and share data)
 (11) Discontinued Operations
   Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2005
    
    
    2004
    
    
    2005
    
    
    2004Total revenues
    
    $
    
    
    
    $
    5,255
    
    
    $
    4,523
    
    
    $
    12,756Total costs and expenses
    
    
    
    
    
    
    10,510
    
    
    
    5,607
    
    
    
    18,887Gain on sale of discontinued operations
    
    
    
    
    
    
    
    
    
    
    704
    
    
    
    Loss from operations
    
    
    
    
    
    
    (5,255
    )
    
    
    (380
    )
    
    
    (6,131
    )Miscellaneous income
    
    
    
    
    
    
    7
    
    
    
    1
    
    
    
    11Income tax benefit from discontinued
operations
    
    
    
    
    
    
    (1,024
    )
    
    
    (93
    )
    
    
    (1,120
    )Minority interest in loss from
discontinued operations
    
    
    
    
    
    
    (2,378
    )
    
    
    (72
    )
    
    
    (2,773
    )Loss from discontinued operations
    
    $
    
    
    
    $
    (1,846
    )
    
    $
    (214
    )
    
    $
    (2,227
    )
 (12) Income Taxes
     13




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ALPHA NR HOLDING, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
September 30, 2005
(In thousands, except percentages and share data)
   Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    
    
    
    
    September 30,2005
    
    
    2004
    
    
    2005
    
    
    2004Current tax expense:Federal
    
    $
    2,149
    
    
    $
    944
    
    
    $
    10,833
    
    
    $
    2,573State
    
    
    314
    
    
    
    18
    
    
    
    1,629
    
    
    
    652,463
    
    
    
    962
    
    
    
    12,462
    
    
    
    2,638Deferred tax expense:Federal
    
    
    868
    
    
    
    1,113
    
    
    
    2,155
    
    
    
    2,437State
    
    
    211
    
    
    
    304
    
    
    
    524
    
    
    
    7771,079
    
    
    
    1,417
    
    
    
    2,679
    
    
    
    3,214Total income tax expense:Federal
    
    
    3,017
    
    
    
    2,057
    
    
    
    12,988
    
    
    
    5,010State
    
    
    525
    
    
    
    322
    
    
    
    2,153
    
    
    
    842$
    3,542
    
    
    $
    2,379
    
    
    $
    15,141
    
    
    $
    5,852
  Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2005
    
    
    2004
    
    
    2005
    
    
    2004Federal statutory income tax expense
    
    $
    4,114
    
    
    $
    6,169
    
    
    $
    9,476
    
    
    $
    17,260Increases (reductions) in taxes due to:Percentage depletion allowance
    
    
    (1,137
    )
    
    
    (800
    )
    
    
    (7,700
    )
    
    
    (3,005
    )Extraterritorial income exclusion
    
    
    (541
    )
    
    
    
    
    
    
    (1,246
    )
    
    
    Deduction for domestic production activities
    
    
    (68
    )
    
    
    
    
    
    
    (347
    )
    
    
    State taxes, net of federal tax impact
    
    
    342
    
    
    
    209
    
    
    
    1,398
    
    
    
    547Stock-based compensation
    
    
    1,031
    
    
    
    
    
    
    
    14,385
    
    
    
    Change in valuation allowance
    
    
    (260
    )
    
    
    (54
    )
    
    
    137
    
    
    
    (203
    )Taxes not provided for minority interest
    
    
    
    
    
    
    (2,572
    )
    
    
    (1,001
    )
    
    
    (7,743
    )Taxes not provided for pass-through entity
    
    
    
    
    
    
    (259
    )
    
    
    (133
    )
    
    
    (781
    )Other, net
    
    
    61
    
    
    
    (314
    )
    
    
    172
    
    
    
    (223
    )Actual income tax expense
    
    $
    3,542
    
    
    $
    2,379
    
    
    $
    15,141
    
    
    $
    5,852
 14




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ALPHA NR HOLDING, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
September 30, 2005
(In thousands, except percentages and share data)
  September 30,
    
    
    December 31,2005
    
    
    2004Deferred tax assets:Investment in limited liability company subsidiary
    
    $
    123,696
    
    
    $
    Net operating loss carryforwards
    
    
    2,212
    
    
    
    5,598Alternative minimum tax credit carryforward
    
    
    5,489
    
    
    
    1,249Charitable contribution carryforwards
    
    
    93
    
    
    
    207Gross deferred tax assets
    
    
    131,490
    
    
    
    7,054Less valuation allowance
    
    
    (108,584
    )
    
    
    (1,374
    )Total net deferred tax assets
    
    
    22,906
    
    
    
    5,680Deferred tax liabilities:Investment in limited liability company subsidiary
    
    
    
    
    
    
    (6,869
    )Virginia tax credit
    
    
    (2,889
    )
    
    
    (1,855
    )Total deferred tax liabilities
    
    
    (2,889
    )
    
    
    (8,724
    )Net deferred tax asset (liability)
    
    $
    20,017
    
    
    $
    (3,044
    )
  ANR Fund IX Holdings, L.P. and Alpha NR Holding, Inc. and Subsidiaries:Deferred tax liability balance at December 31, 2004
    
    $
    (3,044
    )Deferred tax benefit recorded in period from January 1, 2005 to February 11, 2005
for continuing and discontinued operations
    
    
    192Deferred tax liability balance at February 11, 2005
    
    $
    (2,852
    )Alpha NR Holding, Inc.:Deferred tax liability balance on February 12, 2005
    
    $
    (2,852
    )Estimated deferred tax asset generated from the Internal Restructuring
    
    
    132,637Valuation allowance established at the time of the Internal Restructuring
    
    
    (106,908
    )Net deferred taxes recorded as part of Internal Restructuring, with offsetting
increase to additional paid-in capital
    
    
    25,729Deferred tax expense recorded in period from February 12, 2005 to September 30, 2005
for continuing and discontinued operations
    
    
    (2,860
    )Net deferred tax asset at September 30, 2005
    
    $
    20,017
   15




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ALPHA NR HOLDING, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
September 30, 2005
(In thousands, except percentages and share data)
  September 30,
    
    
    December 31,2005
    
    
    2004Current asset
    
    $
    $401
    
    
    $
    4,674Current liability
    
    
    
    
    
    
    Net current asset
    
    
    401
    
    
    
    4,674Noncurrent asset
    
    
    22,505
    
    
    
    1,006Noncurrent liability
    
    
    (2,889
    )
    
    
    (8,724
    )Net noncurrent asset (liability)
    
    
    19,616
    
    
    
    (7,718
    )Total net deferred tax asset (liability)
    
    $
    20,017
    
    
    $
    (3,044
    )
 (13) New Accounting Pronouncements
  Share-Based Payment, Accounting for Stock Based Compensation. Accounting for Stock Issued to Employees,
 (14) Subsequent Events
 Acquisition
  Debt Refinancing
  16




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ALPHA NR HOLDING, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
September 30, 2005
(In thousands, except percentages and share data)
     17




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Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
  Cautionary Note Regarding Forward Looking Statements
   
    
    market demand for coal, electricity and steel;
    
    future economic or capital market conditions;
    
    weather conditions or catastrophic weather-related damage;
    
    our production capabilities;
    
    the consummation of financing, acquisition or disposition transactions and the effect thereof on our business;
    
    our ability to successfully integrate the operations we acquired in the Nicewonder
Acquisition with our existing operations, and to successfully operate the highway
construction business we acquired in the Nicewonder Acquisition;
    
    our plans and objectives for future operations and expansion or consolidation;
    
    our relationships with, and other conditions affecting, our customers;
    
    timing of reductions in customer coal inventories;
    
    long-term coal supply arrangements;
    
    inherent risks of coal mining beyond our control;
    
    environmental laws, including those directly affecting our coal mining and production,
and those affecting our customers coal usage;
    
    competition in coal markets;
    
    railroad and other transportation performance and costs;
    
    availability of mining and processing equipment and parts;
    
    our assumptions concerning economically recoverable coal reserve estimates;
    
    availability of skilled employees and other employee workforce factors;
 18




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##### Table of Contents




    
    regulatory and court decisions;
    
    future legislation and changes in regulations, governmental policies or taxes;
    
    changes in postretirement benefit obligations;
    
    our liquidity, results of operations and financial condition; and
    
    other factors, including the other factors discussed in Overview  Coal Pricing Trends
and Uncertainties and Outlook below, the Risks Factors section of our registration
statement on Form S-4 (file number 333-124319-17) and the Risk Factors  Risks Relating to
our Business section of Alpha Natural Resources, Inc.s registration statement on Form S-1
(file number 333-129030).
  Overview
      NKC Disposition.
 19




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Nicewonder Acquisition and 2005 Financing.
  Coal Pricing Trends and Uncertainties.
     20




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Reconciliation of Non-GAAP Measures
  Three months ended
    
    
    Nine months endedSeptember 30,
    
    

September 30,2005
    
    
    2004
    
    
    2005
    
    
    2004(in thousands)Net income
    
    $
    8,210
    
    
    $
    5,421
    
    
    $
    8,801
    
    
    $
    18,900Interest expense
    
    
    6,636
    
    
    
    5,666
    
    
    
    19,110
    
    
    
    14,497Interest income
    
    
    (197
    )
    
    
    (230
    )
    
    
    (682
    )
    
    
    (331
    )Income tax expense
    
    
    3,542
    
    
    
    1,355
    
    
    
    15,048
    
    
    
    4,732Depreciation, depletion and amortization
    
    
    16,277
    
    
    
    14,312
    
    
    
    45,804
    
    
    
    39,352EBITDA (1)
    
    
    34,468
    
    
    
    26,524
    
    
    
    88,081
    
    
    
    77,150Minority interest
    
    
    
    
    
    
    5,602
    
    
    
    2,846
    
    
    
    19,562EBITDA, as adjusted (1)
    
    $
    34,468
    
    
    $
    32,126
    
    
    $
    90,927
    
    
    $
    96,712
 
 (1)
    
    EBITDA is defined as net income plus interest expense, income tax expense (benefit),
depreciation, depletion, and amortization, less interest income. EBITDA, as adjusted,
includes EBITDA plus minority interest. EBITDA and EBITDA, as adjusted, are used by management to
measure operating performance, and management also believes they are useful indicators of our
ability to meet debt service and capital expenditure requirements. Because EBITDA and EBITDA, as
adjusted, are not calculated identically by all companies, our calculation may not be comparable to
similarly titled measures of other companies. In addition, the amounts presented for EBITDA and
EBITDA, as adjusted, differ from the amounts calculated under the definition of EBITDA used in our
debt covenants. The definition of EBITDA used in our debt covenants is further adjusted for certain
cash and non-cash charges and is used to determine compliance with financial covenants and our
ability to engage in certain activities such as incurring debt and making certain payments.
Adjusted EBITDA as it is used and defined in our debt covenants is described and reconciled to net
income (loss) in  Analysis of Material Debt Covenants below. Results of Operations
 Three months Ended September 30, 2005 Compared to the Three months Ended September 30, 2004
 Summary
    21




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Revenues
 Three months Ended
    
    
    IncreaseSeptember 30,
    
    
    (Decrease)2005
    
    
    2004
    
    
    $ or Tons
    
    
    %(in thousands, except per ton data)Coal revenues
    
    $
    345,179
    
    
    $
    295,208
    
    
    $
    49,971
    
    
    
    17
    %Freight and handling revenues
    
    
    46,659
    
    
    
    37,570
    
    
    
    9,089
    
    
    
    24
    %Other revenues
    
    
    5,851
    
    
    
    8,931
    
    
    
    (3,080
    )
    
    
    (34
    %)Total revenues
    
    $
    397,689
    
    
    $
    341,709
    
    
    $
    55,980
    
    
    
    16
    %Tons Sold:Steam
    
    
    4,589
    
    
    
    3,995
    
    
    
    594
    
    
    
    15
    %Metallurgical
    
    
    2,125
    
    
    
    2,488
    
    
    
    (363
    )
    
    
    (15
    %)Total
    
    
    6,714
    
    
    
    6,483
    
    
    
    231
    
    
    
    4
    %Coal sales realization per ton:Steam
    
    $
    41.66
    
    
    $
    33.73
    
    
    $
    7.93
    
    
    
    24
    %Metallurgical
    
    
    72.49
    
    
    
    64.49
    
    
    
    8.00
    
    
    
    12
    %Total
    
    
    51.41
    
    
    
    45.53
    
    
    
    5.88
    
    
    
    13
    %
 Coal Revenues.
 Freight and Handling Revenues.
 Other Revenues.
 Costs and Expenses
 Three months ended
    
    
    IncreaseSeptember 30,
    
    
    (Decrease)2005
    
    
    2004
    
    
    $
    
    
    %(in thousands, except per ton data)Cost of coal sales (exclusive of items shown separately below)
    
    $
    298,522
    
    
    $
    250,311
    
    
    $
    48,211
    
    
    
    19
    %Freight and handling costs
    
    
    46,659
    
    
    
    37,570
    
    
    
    9,089
    
    
    
    24
    %Cost of other revenues
    
    
    5,943
    
    
    
    6,603
    
    
    
    (660
    )
    
    
    (10
    %)Depreciation, depletion and amortization
    
    
    16,277
    
    
    
    14,193
    
    
    
    2,084
    
    
    
    15
    %Selling, general and administrative expenses (exclusive of
depreciation and amortization shown separately above and including
stock-based compensation
expense in the amount of $3,381 for the three months ended
September 30, 2005)
    
    
    12,147
    
    
    
    10,124
    
    
    
    2,023
    
    
    
    20
    %Total costs and expenses
    
    $
    379,548
    
    
    $
    318,801
    
    
    $
    60,747
    
    
    
    19
    %Cost of coal sales per ton:Company mines
    
    $
    38.07
    
    
    $
    31.93
    
    
    $
    6.14
    
    
    
    19
    %
 22




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##### Table of Contents



Three months ended
    
    
    IncreaseSeptember 30,
    
    
    (Decrease)2005
    
    
    2004
    
    
    $
    
    
    %(in thousands, except per ton data)Contract mines (including purchased and processed)
    
    
    51.34
    
    
    
    43.42
    
    
    
    7.92
    
    
    
    18
    %Total produced and processed
    
    
    40.77
    
    
    
    34.52
    
    
    
    6.25
    
    
    
    18
    %Purchased and sold without processing
    
    
    56.14
    
    
    
    48.90
    
    
    
    7.24
    
    
    
    15
    %Cost of coal sales per ton
    
    
    44.46
    
    
    
    38.61
    
    
    
    5.85
    
    
    
    15
    %
 Cost of Coal Sales:
 Freight and Handling Costs.
 Cost of Other Revenues
 Depreciation, Depletion and Amortization.
 Selling, General and Administrative Expenses.
 Interest Expense.
 Income Tax Expense:
  Nine months Ended September 30, 2005 Compared to the Nine months Ended September 30, 2004
 Summary
  23




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##### Table of Contents



Revenues
 Nine months Ended
    
    
    IncreaseSeptember 30,
    
    
    (Decrease)2005
    
    
    2004
    
    
    $ or Tons
    
    
    %(in thousands, except per ton data)Coal revenues
    
    $
    982,383
    
    
    $
    801,021
    
    
    $
    181,362
    
    
    
    23
    %Freight and handling revenues
    
    
    126,650
    
    
    
    102,846
    
    
    
    23,804
    
    
    
    23
    %Other revenues
    
    
    18,447
    
    
    
    20,440
    
    
    
    (1,993
    )
    
    
    (10
    %)Total revenues
    
    $
    1,127,480
    
    
    $
    924,307
    
    
    $
    203,173
    
    
    
    22
    %Tons Sold:Steam
    
    
    11,700
    
    
    
    11,801
    
    
    
    (101
    )
    
    
    (1
    %)Metallurgical
    
    
    7,237
    
    
    
    7,261
    
    
    
    (24
    )
    
    
    0
    %Total
    
    
    18,937
    
    
    
    19,062
    
    
    
    (125
    )
    
    
    (1
    %)Coal sales realization per ton:Steam
    
    $
    40.05
    
    
    $
    31.93
    
    
    $
    8.12
    
    
    
    25
    %Metallurgical
    
    
    70.99
    
    
    
    58.43
    
    
    
    12.56
    
    
    
    21
    %Total
    
    
    51.88
    
    
    
    42.02
    
    
    
    9.86
    
    
    
    23
    %
 Coal Revenues.
 Freight and Handling Revenues.
 Other Revenues.
 Costs and Expenses
 Nine months ended
    
    
    IncreaseSeptember 30,
    
    
    (Decrease)2005
    
    
    2004
    
    
    $
    
    
    %(in thousands, except per ton data)Cost of coal sales (exclusive of items shown separately below)
    
    $
    818,299
    
    
    $
    668,887
    
    
    $
    149,412
    
    
    
    22
    %Freight and handling costs
    
    
    126,650
    
    
    
    102,846
    
    
    
    23,804
    
    
    
    23
    %Cost of other revenues
    
    
    16,327
    
    
    
    14,942
    
    
    
    1,385
    
    
    
    9
    %
 24




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##### Table of Contents



Nine months ended
    
    
    IncreaseSeptember 30,
    
    
    (Decrease)2005
    
    
    2004
    
    
    $
    
    
    %(in thousands, except per ton data)Depreciation, depletion and amortization
    
    
    45,521
    
    
    
    38,883
    
    
    
    6,638
    
    
    
    17
    %Selling, general and administrative expenses (exclusive of
depreciation and amortization shown separately above and including
stock-based compensation
expense in the amount of $43,169 for the nine months ended
September 30, 2005)
    
    
    75,221
    
    
    
    35,786
    
    
    
    39,435
    
    
    
    110
    %Total costs and expenses
    
    $
    1,082,018
    
    
    $
    861,344
    
    
    $
    220,674
    
    
    
    26
    %Cost of coal sales per ton:Company mines
    
    $
    36.49
    
    
    $
    29.95
    
    
    $
    6.54
    
    
    
    22
    %Contract mines (including purchased and processed)
    
    
    50.54
    
    
    
    39.97
    
    
    
    10.57
    
    
    
    26
    %Total produced and processed
    
    
    39.46
    
    
    
    32.22
    
    
    
    7.24
    
    
    
    22
    %Purchased and sold without processing
    
    
    57.30
    
    
    
    43.71
    
    
    
    13.59
    
    
    
    31
    %Cost of coal sales per ton
    
    
    43.21
    
    
    
    35.09
    
    
    
    8.12
    
    
    
    23
    %
 Cost of Coal Sales:
 Freight and Handling Costs.
 Cost of Other Revenues
 Depreciation, Depletion and Amortization.
 Selling, General and Administrative Expenses.
 Interest Expense.
 Interest Income.
 Income Tax Expense:
 25




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##### Table of Contents



Liquidity and Capital Resources
    Cash Flows
  26




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##### Table of Contents




 
 
   Credit Facility and Long-term Debt
  September 30,200510% Senior notes due 2012
    
    $
    175,000Revolving credit facility
    
    
    81,000Variable rate term notes
    
    
    586Capital lease obligation
    
    
    1,623Total long-term debt
    
    
    258,209Less current portion
    
    
    (1,046
    )Long-term debt, net of current portion
    
    $
    257,163
   Other
  27




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##### Table of Contents



Analysis of Material Debt Covenants
   
    
    Alpha Natural Resources, LLC, our indirect wholly-owned subsidiary, must maintain a
leverage ratio, defined as the ratio of total debt to Adjusted EBITDA (as defined in the
prior credit agreement), of less than 3.75 at December 31, 2004, 3.50 at March 31 and
September 30, 2005, 3.25 at September 30 and December 31, 2005, 3.15 at March 31, September
30, September 30 and December 31, 2006 and 3.00 at March 31, 2007 (and thereafter),
respectively, with Adjusted EBITDA being computed using the most recent four quarters; and
    
    Alpha Natural Resources, LLC must maintain an interest coverage ratio, defined as the
ratio of Adjusted EBITDA (as defined in the prior credit agreement), to cash interest
expense (defined as the sum of cash interest expense plus cash letter of credit fees and
commissions), of greater than 2.50 at September 30, 2004 and at each quarter end thereafter.
    28




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##### Table of Contents



Three Months
    
    
    Three Months
    
    
    Three Months
    
    
    Three Months
    
    
    Twelve MonthsEnded
    
    
    Ended
    
    
    Ended
    
    
    Ended
    
    
    EndedDecember 31,
    
    
    March 31,
    
    
    June 30,
    
    
    September 30,
    
    
    September 30,2004
    
    
    2005
    
    
    2005
    
    
    2005
    
    
    2005(in thousands)Net income (loss)
    
    $
    1,115
    
    
    $
    (25,430
    )
    
    $
    26,022
    
    
    $
    8,210
    
    
    $
    9,917Interest expense, net
    
    
    5,344
    
    
    
    5,534
    
    
    
    6,456
    
    
    
    6,439
    
    
    
    23,773Income tax expense (benefit)
    
    
    (772
    )
    
    
    2,458
    
    
    
    9,048
    
    
    
    3,542
    
    
    
    14,276Depreciation, depletion and amortization
expenses
    
    
    16,660
    
    
    
    14,480
    
    
    
    15,048
    
    
    
    16,277
    
    
    
    62,465EBITDA
    
    
    22,347
    
    
    
    (2,958
    )
    
    
    56,574
    
    
    
    34,468
    
    
    
    110,431Minority interest(1)
    
    
    268
    
    
    
    2,846
    
    
    
    
    
    
    
    
    
    
    
    3,114Stock-based compensation charge(2)
    
    
    
    
    
    
    36,407
    
    
    
    3,381
    
    
    
    3,381
    
    
    
    43,169Asset impairment charge and write-offs (2)
    
    
    
    
    
    
    
    
    
    
    683
    
    
    
    
    
    
    
    683Adjusted EBITDA
    
    $
    22,615
    
    
    $
    36,295
    
    
    $
    60,638
    
    
    $
    37,849
    
    
    $
    157,397Leverage ratio(3)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1.66Interest coverage ratio(4)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    8.80
 
 (1)
    
    Because our prior credit facility and our senior notes are issued by our subsidiaries, we
are required to adjust our EBITDA for our minority interest which does not exist at the
subsidiary level.(2)
    
    Adjusted EBITDA as defined in our prior credit facility is adjusted to add back for the
non-cash portion of the stock-based compensation charge related to our Internal Restructuring
and initial public offering, for the asset impairment charge related to our NKC operations,
for other asset write-offs and amounts of income or expense related to the parent of Alpha
Natural Resources, LLC.(3)
    
    Leverage ratio is defined in our prior credit facility as total debt divided by Adjusted
EBITDA.(4)
    
    Interest coverage ratio is defined in our prior credit facility as Adjusted EBITDA divided by
cash interest expense. Outlook
       29




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##### Table of Contents



Critical Accounting Estimates and Assumptions
  
 Item 3. Quantitative and Qualitative Disclosures About Market Risk
  
 Item 4. Controls and Procedures:
 Evaluation of disclosure controls and procedures.
 Changes in internal control over financial reporting.
  Limitations of the effectiveness of internal control.
 30




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##### Table of Contents



PART II
 
 Item 5.  Other Information
  
 Item 6. Exhibits
 Exhibit No
    
    Description of Exhibit2.1
    
    Acquisition Agreement dated as of September 23, 2005 among Alpha Natural Resources, LLC, Mate Creek
Energy of W. Va., Inc., Virginia Energy Company, the unitholders of Powers Shop, LLC, and the
shareholders of White Flame Energy, Inc., Twin Star Mining, Inc. and Nicewonder Contracting, Inc. (the
Acquisition Agreement) (Incorporated by reference to Exhibit 2.1 to the Current Report on Form 8-K of
Alpha Natural Resources, Inc. (File No. 1-32423) filed on September 26, 2005).2.2
    
    Membership Unit Purchase Agreement dated as of September 23, 2005 among Premium Energy, LLC and the
unitholders of Buchanan Energy Company, LLC (the Membership Unit Purchase Agreement) (Incorporated by
reference to Exhibit 2.2 to the Current Report on Form 8-K of Alpha Natural Resources, Inc. (File No.
1-32423) filed on September 26, 2005).2.3
    
    Agreement and Plan of Merger dated as of September 23, 2005 among Alpha Natural Resources, Inc., Alpha
Natural Resources, LLC, Premium Energy, LLC, Premium Energy, Inc. and the shareholders of Premium Energy,
Inc. (the Premium Energy Shareholders) (the Merger Agreement) (Incorporated by reference to Exhibit
2.3 to the Current Report on Form 8-K of Alpha Natural Resources, Inc. (File No. 1-32423) filed on
September 26, 2005).2.4
    
    Indemnification Agreement dated as of September 23, 2005 among Alpha Natural Resources, Inc., Alpha
Natural Resources, LLC, Premium Energy, LLC, the other parties to the Acquisition Agreement, the Premium
Energy Shareholders, and certain of the unitholders of Buchanan Energy Company, LLC (Incorporated by
reference to Exhibit 2.4 to the Current Report on Form 8-K of Alpha Natural Resources, Inc. (File No.
1-32423) filed on September 26, 2005).2.5
    
    Letter Agreement dated of as September 23, 2005 among Alpha Natural Resources, Inc., Alpha Natural
Resources, LLC, Premium Energy, LLC and the other parties to the Acquisition Agreement, the Membership
Unit Purchase Agreement and the Merger Agreement (Incorporated by reference to Exhibit 2.5 to the Current
Report on Form 8-K of Alpha Natural Resources, Inc. (File No. 1-32423) filed on September 26, 2005).31(a)*
    
    Certification Pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934, as adopted pursuant
to § 302 of the Sarbanes-Oxley Act of 200231(b)*
    
    Certification Pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934, as adopted pursuant
to § 302 of the Sarbanes-Oxley Act of 200232(a)*
    
    Certification Pursuant to 18 U.S.C. § 1350, As Adopted Pursuant to § 906 of the Sarbanes-Oxley Act of 200232(b)*
    
    Certification Pursuant to 18 U.S.C. § 1350, As Adopted Pursuant to § 906 of the Sarbanes-Oxley Act of 2002
 
 *
    
    Filed herewith. 31




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##### Table of Contents



SIGNATURE
  ALPHA NATURAL RESOURCES, INC.By: /s/ David C. StuebeName: David C. StuebeTitle: Vice President and Chief Financial Officer




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##### Table of Contents



10-Q EXHIBIT INDEX
 Exhibit No
    
    Description of Exhibit2.1
    
    Acquisition Agreement dated as of September 23, 2005 among Alpha Natural Resources, LLC, Mate Creek
Energy of W. Va., Inc., Virginia Energy Company, the unitholders of Powers Shop, LLC, and the
shareholders of White Flame Energy, Inc., Twin Star Mining, Inc. and Nicewonder Contracting, Inc. (the
Acquisition Agreement) (Incorporated by reference to Exhibit 2.1 to the Current Report on Form 8-K of
Alpha Natural Resources, Inc. (File No. 1-32423) filed on September 26, 2005).2.2
    
    Membership Unit Purchase Agreement dated as of September 23, 2005 among Premium Energy, LLC and the
unitholders of Buchanan Energy Company, LLC (the Membership Unit Purchase Agreement) (Incorporated by
reference to Exhibit 2.2 to the Current Report on Form 8-K of Alpha Natural Resources, Inc. (File No.
1-32423) filed on September 26, 2005).2.3
    
    Agreement and Plan of Merger dated as of September 23, 2005 among Alpha Natural Resources, Inc., Alpha
Natural Resources, LLC, Premium Energy, LLC, Premium Energy, Inc. and the shareholders of Premium Energy,
Inc. (the Premium Energy Shareholders) (the Merger Agreement) (Incorporated by reference to Exhibit
2.3 to the Current Report on Form 8-K of Alpha Natural Resources, Inc. (File No. 1-32423) filed on
September 26, 2005).2.4
    
    Indemnification Agreement dated as of September 23, 2005 among Alpha Natural Resources, Inc., Alpha
Natural Resources, LLC, Premium Energy, LLC, the other parties to the Acquisition Agreement, the Premium
Energy Shareholders, and certain of the unitholders of Buchanan Energy Company, LLC (Incorporated by
reference to Exhibit 2.4 to the Current Report on Form 8-K of Alpha Natural Resources, Inc. (File No.
1-32423) filed on September 26, 2005).2.5
    
    Letter Agreement dated of as September 23, 2005 among Alpha Natural Resources, Inc., Alpha Natural
Resources, LLC, Premium Energy, LLC and the other parties to the Acquisition Agreement, the Membership
Unit Purchase Agreement and the Merger Agreement (Incorporated by reference to Exhibit 2.5 to the Current
Report on Form 8-K of Alpha Natural Resources, Inc. (File No. 1-32423) filed on September 26, 2005).31(a)*
    
    Certification Pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934, as adopted pursuant
to § 302 of the Sarbanes-Oxley Act of 200231(b)*
    
    Certification Pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934, as adopted pursuant
to § 302 of the Sarbanes-Oxley Act of 200232(a)*
    
    Certification Pursuant to 18 U.S.C. § 1350, As Adopted Pursuant to § 906 of the Sarbanes-Oxley Act of 200232(b)*
    
    Certification Pursuant to 18 U.S.C. § 1350, As Adopted Pursuant to § 906 of the Sarbanes-Oxley Act of 2002
 
 *
    
    Filed herewith.