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 March 31, 2009


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. 1-32423


ALPHA
NATURAL RESOURCES, INC.


(Exact
name of registrant as specified in its charter)


Delaware
            
            02-0733940(State
      or other jurisdiction of
            
            (I.R.S.
      Employerincorporation
      or organization)
            
            Identification
      Number)One
      Alpha Place, P.O. Box 2345, Abingdon, VA
            
            24212(Address
      of principal executive offices)
            
            (Zip
      Code)


Registrant’s
telephone number, including area code:


(276) 619-4410


Indicate
by check mark whether the registrant (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. þ Yes ̈ No





Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (Sec.232.405 of
this chapter) during the preceding 12 months (or for such shorter period that
the registrant was required to submit and post such files).  ̈ Yes ̈ No





Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting
company.  See the definitions of “large accelerated filer,”
“accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the
Exchange Act.





þ Large accelerated
filer     o Accelerated
filer      ̈ Non-accelerated
filer ̈ Smaller reporting
company





Indicate
by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act).


 ̈ Yesþ  No





Number
of shares of the registrant’s Common Stock, $0.01 par value, outstanding as of
May 1, 2009 – 71,351,023





Table of Contents




TABLE OF CONTENTS


PagePART
      IItem 1.
      Financial StatementsCondensed
      Consolidated Statements of Income (Unaudited)
            
            2Condensed
      Consolidated Balance Sheets (Unaudited)
            
            3Condensed
      Consolidated Statements of Cash Flows
    (Unaudited)
            
            4Notes to
      Condensed Consolidated Financial Statements
      (Unaudited)
            
            5Item 2.
      Management’s Discussion and Analysis of Financial Condition and Results of
      Operations
            
            21Item 3.
      Quantitative and Qualitative Disclosures about Market
      Risk
            
            31Item 4.
      Controls and Procedures
            
            32PART
      IIItem 1.
      Legal Proceedings
            
            33Item 1A.
      Risk Factors
            
            33Item 2. Unregistered Sales of Equity Securities and Use of
      Proceeds
            
            34Item 6.
      Exhibits
            
            34Exhibit IndexEX-12.1: Computation of Ratio of Earnings to Fixed
      ChargesEX-12.2: Computation of Other
      RatiosEX-31.A:
      CertificationEX-31.B:
      CertificationEX-32.A:
      CertificationEX-32.B:
      Certification









- 1
-
 Table of Contents





Item 1.
Financial
Statements





ALPHA NATURAL RESOURCES, INC. AND SUBSIDIARIESCondensed
      Consolidated Statements of Income (Unaudited)(In
      thousands, except per share amounts)Three
      Months EndedMarch
      31,2009
                                                                                                                  
                                                                                                                  2008Revenues:Coal revenues
                                                                                                                  
                                                                                                                  $
                                                                                                                  424,416
                                                                                                                  
                                                                                                                  $
                                                                                                                  422,409Freight and handling revenues
                                                                                                                  
                                                                                                                  
                                                                                                                  46,054
                                                                                                                  
                                                                                                                  
                                                                                                                  59,172Other revenues
                                                                                                                  
                                                                                                                  
                                                                                                                  16,265
                                                                                                                  
                                                                                                                  
                                                                                                                  11,475Total
      revenues
                                                                                                                  
                                                                                                                  
                                                                                                                  486,735
                                                                                                                  
                                                                                                                  
                                                                                                                  493,056Costs
      and expenses:Cost of coal sales (exclusive of items shown separately
    below)
                                                                                                                  
                                                                                                                  
                                                                                                                  303,025
                                                                                                                  
                                                                                                                  
                                                                                                                  338,660Increase in fair value of derivative instruments, net
                                                                                                                  
                                                                                                                  
                                                                                                                  (238
                                                                                                                  )
                                                                                                                  
                                                                                                                  (16,684
                                                                                                                  )Freight and handling costs
                                                                                                                  
                                                                                                                  
                                                                                                                  46,054
                                                                                                                  
                                                                                                                  
                                                                                                                  59,172Cost of other revenues
                                                                                                                  
                                                                                                                  
                                                                                                                  11,863
                                                                                                                  
                                                                                                                  
                                                                                                                  8,137Depreciation, depletion and amortization
                                                                                                                  
                                                                                                                  
                                                                                                                  40,205
                                                                                                                  
                                                                                                                  
                                                                                                                  42,545Selling, general and administrative expenses(exclusive of depreciation and amortization shown separately
    above)
                                                                                                                  
                                                                                                                  
                                                                                                                  16,466
                                                                                                                  
                                                                                                                  
                                                                                                                  15,324Total costs and expenses
                                                                                                                  
                                                                                                                  
                                                                                                                  417,375
                                                                                                                  
                                                                                                                  
                                                                                                                  447,154Income from operations
                                                                                                                  
                                                                                                                  
                                                                                                                  69,360
                                                                                                                  
                                                                                                                  
                                                                                                                  45,902Other
      income (expense):Interest expense
                                                                                                                  
                                                                                                                  
                                                                                                                  (9,853
                                                                                                                  )
                                                                                                                  
                                                                                                                  (9,979
                                                                                                                  )Interest income
                                                                                                                  
                                                                                                                  
                                                                                                                  625
                                                                                                                  
                                                                                                                  
                                                                                                                  750Miscellaneous income, net
                                                                                                                  
                                                                                                                  
                                                                                                                  116
                                                                                                                  
                                                                                                                  
                                                                                                                  125Total other income (expense), net
                                                                                                                  
                                                                                                                  
                                                                                                                  (9,112
                                                                                                                  )
                                                                                                                  
                                                                                                                  (9,104
                                                                                                                  )Income from continuing operations before income taxes
                                                                                                                  
                                                                                                                  
                                                                                                                  60,248
                                                                                                                  
                                                                                                                  
                                                                                                                  36,798Income
      tax expense
                                                                                                                  
                                                                                                                  
                                                                                                                  (13,627
                                                                                                                  )
                                                                                                                  
                                                                                                                  (8,808
                                                                                                                  )Income from continuing operations
                                                                                                                  
                                                                                                                  
                                                                                                                  46,621
                                                                                                                  
                                                                                                                  
                                                                                                                  27,990Discontinued
      operationsLoss from discontinued operations before income taxes
                                                                                                                  
                                                                                                                  
                                                                                                                  (7,251
                                                                                                                  )
                                                                                                                  
                                                                                                                  (3,300
                                                                                                                  )Income tax benefit
                                                                                                                  
                                                                                                                  
                                                                                                                  1,594
                                                                                                                  
                                                                                                                  
                                                                                                                  840Loss from discontinued operations
                                                                                                                  
                                                                                                                  
                                                                                                                  (5,657
                                                                                                                  )
                                                                                                                  
                                                                                                                  (2,460
                                                                                                                  )Net income
                                                                                                                  
                                                                                                                  $
                                                                                                                  40,964
                                                                                                                  
                                                                                                                  $
                                                                                                                  25,530Basic
      earnings per share:Income from continuing operations
                                                                                                                  
                                                                                                                  $
                                                                                                                  0.67
                                                                                                                  
                                                                                                                  $
                                                                                                                  0.43Loss from discontinued operations
                                                                                                                  
                                                                                                                  
                                                                                                                  (0.08
                                                                                                                  )
                                                                                                                  
                                                                                                                  (0.04
                                                                                                                  )Net income
                                                                                                                  
                                                                                                                  $
                                                                                                                  0.59
                                                                                                                  
                                                                                                                  $
                                                                                                                  0.39Diluted
      earnings per share:Income from continuing operations
                                                                                                                  
                                                                                                                  $
                                                                                                                  0.66
                                                                                                                  
                                                                                                                  $
                                                                                                                  0.43Loss from discontinued operations
                                                                                                                  
                                                                                                                  
                                                                                                                  (0.08
                                                                                                                  )
                                                                                                                  
                                                                                                                  (0.04
                                                                                                                  )Net income
                                                                                                                  
                                                                                                                  $
                                                                                                                  0.58
                                                                                                                  
                                                                                                                  $
                                                                                                                  0.39See
      accompanying notes to the condensed consolidated financial
      statements.
  - 2
-
 Table of Contents
   ALPHA NATURAL RESOURCES, INC. AND SUBSIDIARIESCondensed
      Consolidated  Balance Sheets (Unaudited)(In
      thousands, except share and per share amounts)March
      31,
                                                        
                                                        
                                                        December
      31,2009
                                                        
                                                        
                                                        2008AssetsCurrent
      assets:Cash
      and cash equivalents
                                                        
                                                        $
                                                        692,686
                                                        
                                                        
                                                        $
                                                        676,190Trade
      accounts receivable, net
                                                        
                                                        
                                                        162,208
                                                        
                                                        
                                                        
                                                        163,674Notes
      and other receivables
                                                        
                                                        
                                                        13,766
                                                        
                                                        
                                                        
                                                        15,074Deferred
      income taxes
                                                        
                                                        
                                                        3,105
                                                        
                                                        
                                                        
                                                        -Inventories
                                                        
                                                        
                                                        105,371
                                                        
                                                        
                                                        
                                                        86,594Prepaid
      expenses and other current assets
                                                        
                                                        
                                                        52,727
                                                        
                                                        
                                                        
                                                        50,251Total
      current assets
                                                        
                                                        
                                                        1,029,863
                                                        
                                                        
                                                        
                                                        991,783Property,
      plant, and equipment, net
                                                        
                                                        
                                                        528,852
                                                        
                                                        
                                                        
                                                        550,098Goodwill
                                                        
                                                        
                                                        20,547
                                                        
                                                        
                                                        
                                                        20,547Other
      intangibles, net
                                                        
                                                        
                                                        3,290
                                                        
                                                        
                                                        
                                                        3,835Deferred
      income taxes
                                                        
                                                        
                                                        76,630
                                                        
                                                        
                                                        
                                                        83,689Other
      assets
                                                        
                                                        
                                                        55,992
                                                        
                                                        
                                                        
                                                        59,886Total
      assets
                                                        
                                                        $
                                                        1,715,174
                                                        
                                                        
                                                        $
                                                        1,709,838Liabilities
      and Stockholders' EquityCurrent
      liabilities:Current
      portion of long-term debt
                                                        
                                                        $
                                                        178
                                                        
                                                        
                                                        $
                                                        232Note
      payable
                                                        
                                                        
                                                        12,872
                                                        
                                                        
                                                        
                                                        18,288Trade
      accounts payable
                                                        
                                                        
                                                        90,859
                                                        
                                                        
                                                        
                                                        102,975Accrued
      expenses and other current liabilities
                                                        
                                                        
                                                        115,960
                                                        
                                                        
                                                        
                                                        140,459Total
      current liabilities
                                                        
                                                        
                                                        219,869
                                                        
                                                        
                                                        
                                                        261,954Long-term
      debt
                                                        
                                                        
                                                        435,421
                                                        
                                                        
                                                        
                                                        432,795Workers’
      compensation benefit obligations
                                                        
                                                        
                                                        9,819
                                                        
                                                        
                                                        
                                                        9,604Postretirement
      medical benefit obligations
                                                        
                                                        
                                                        61,671
                                                        
                                                        
                                                        
                                                        60,211Asset
      retirement obligation
                                                        
                                                        
                                                        92,023
                                                        
                                                        
                                                        
                                                        90,565Deferred
      gains on sale of property interests
                                                        
                                                        
                                                        2,250
                                                        
                                                        
                                                        
                                                        2,421Other
      liabilities
                                                        
                                                        
                                                        55,874
                                                        
                                                        
                                                        
                                                        56,596Total
      liabilities
                                                        
                                                        
                                                        876,927
                                                        
                                                        
                                                        
                                                        914,146Commitments
      and contingencies (Note 16)Stockholders'
      equity:Preferred
      stock - par value $0.01, 10,000,000 sharesauthorized,
      none issued
                                                        
                                                        
                                                        -
                                                        
                                                        
                                                        
                                                        -Common
      stock - par value $0.01, 100,000,000 sharesauthorized,
      71,455,668 issued and 71,348,929outstandingat
      March 31, 2009 and 70,513,880 shares issued andoutstanding
      at December 31, 2008
                                                        
                                                        
                                                        715
                                                        
                                                        
                                                        
                                                        705Additional
      paid-in capital
                                                        
                                                        
                                                        487,372
                                                        
                                                        
                                                        
                                                        484,261Accumulated
      other comprehensive loss
                                                        
                                                        
                                                        (29,615
                                                        )
                                                        
                                                        
                                                        (30,107
                                                        )Treasury
      stock, at cost: 106,739  and 0 shares at March 31,
      2009and
      December 31, 2008, respectively
                                                        
                                                        
                                                        (2,022
                                                        )
                                                        
                                                        
                                                        -Retained
      earnings
                                                        
                                                        
                                                        381,797
                                                        
                                                        
                                                        
                                                        340,833Total
      stockholders' equity
                                                        
                                                        
                                                        838,247
                                                        
                                                        
                                                        
                                                        795,692Total
      liabilities and stockholders' equity
                                                        
                                                        $
                                                        1,715,174
                                                        
                                                        
                                                        $
                                                        1,709,838See
      accompanying notes to condensed consolidated financial
      statements.
  - 3
-
 Table of Contents
   ALPHA NATURAL RESOURCES, INC. AND SUBSIDIARIESCondensed
      Consolidated Statements of Cash Flows (Unaudited)(In
      thousands)Three
      Months EndedMarch
      31,2009
                            
                            
                            2008Operating
      activities:Net
      income
                            
                            $
                            40,964
                            
                            
                            $
                            25,530Adjustments
      to reconcile net incometo
      net cash provided by operatingactivities:Depreciation,
      depletion and amortization
                            
                            
                            40,734
                            
                            
                            
                            44,260Amortization
      of debt issuance costs
                            
                            
                            647
                            
                            
                            
                            600Accretion
      of asset retirement obligation
                            
                            
                            2,059
                            
                            
                            
                            1,852Accretion
      of debt discount
                            
                            
                            2,626
                            
                            
                            
                            -Share-based
      compensation
                            
                            
                            3,225
                            
                            
                            
                            2,989Amortization
      of deferred gains on salesof
      property interests
                            
                            
                            (171
                            )
                            
                            
                            (213
                            )Gain
      on sale of fixed assets and investments
                            
                            
                            (261
                            )
                            
                            
                            (672
                            )Change
      in fair value of derivative instruments
                            
                            
                            (238
                            )
                            
                            
                            (16,684
                            )Deferred
      income tax expense
                            
                            
                            3,791
                            
                            
                            
                            3,681Other
                            
                            
                            542
                            
                            
                            
                            (469
                            )Changes
      in operating assets and liabilities:Trade
      accounts receivable
                            
                            
                            1,466
                            
                            
                            
                            (12,506
                            )Notes
      and other receivables
                            
                            
                            671
                            
                            
                            
                            (657
                            )Inventories
                            
                            
                            (18,777
                            )
                            
                            
                            (18,621
                            )Prepaid
      expenses and other currentassets
                            
                            
                            (3,187
                            )
                            
                            
                            3,789Other
      assets
                            
                            
                            2,822
                            
                            
                            
                            6,125Trade
      accounts payable
                            
                            
                            (10,576
                            )
                            
                            
                            11,819Accrued
      expenses and other currentliabilities
                            
                            
                            (24,692
                            )
                            
                            
                            (12,875
                            )Workers’
      compensation benefits
                            
                            
                            238
                            
                            
                            
                            (446
                            )Postretirement
      medical benefits
                            
                            
                            2,052
                            
                            
                            
                            2,149Asset
      retirement obligation
                            
                            
                            (802
                            )
                            
                            
                            (1,120
                            )Other
      liabilities
                            
                            
                            617
                            
                            
                            
                            3,222Net
      cash provided byoperating
      activities
                            
                            $
                            43,750
                            
                            
                            $
                            41,753Investing
      activities:Capital
      expenditures
                            
                            $
                            (18,136
                            )
                            
                            $
                            (33,797
                            )Proceeds
      from disposition of property, plant,and
      equipment
                            
                            
                            159
                            
                            
                            
                            786Investment
      in and advances to investee
                            
                            
                            (35
                            )
                            
                            
                            (29
                            )Proceeds
      from sale of investment in coal terminal
                            
                            
                            -
                            
                            
                            
                            1,500Purchase
      of acquired companies
                            
                            
                            (1,750
                            )
                            
                            
                            -Other
                            
                            
                            -
                            
                            
                            
                            (5
                            )Net
      cash used in investing activities
                            
                            $
                            (19,762
                            )
                            
                            $
                            (31,545
                            )Financing
      activities:Repayments
      of note payable
                            
                            $
                            (5,416
                            )
                            
                            $
                            (6,210
                            )Repayments
      on long-term debt
                            
                            
                            (54
                            )
                            
                            
                            (158
                            )Debt
      issuance costs
                            
                            
                            -
                            
                            
                            
                            (1,317
                            )Decrease
      in bank overdraft
                            
                            
                            -
                            
                            
                            
                            (150
                            )Tax
      benefit from share-based compensation
                            
                            
                            -
                            
                            
                            
                            734Common
      stock repurchases
                            
                            
                            (2,022
                            )
                            
                            
                            -Proceeds
      from exercise of stock options
                            
                            
                            -
                            
                            
                            
                            1,688Net
      cash used infinancing
      activities
                            
                            $
                            (7,492
                            )
                            
                            $
                            (5,413
                            )Net
      increase in cashand
      cash equivalents
                            
                            $
                            16,496
                            
                            
                            $
                            4,795Cash
      and cash equivalents at beginning of period
                            
                            
                            676,190
                            
                            
                            
                            54,365Cash
      and cash equivalents at end of period
                            
                            $
                            692,686
                            
                            
                            $
                            59,160See
      accompanying notes to condensed consolidated financial
      statements.
  - 4
-
 Table of Contents


ALPHA NATURAL RESOURCES, INC. AND SUBSIDIARIES


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)


March
31, 2009


(In
thousands, except percentages, share, per share, and per gallon
data)





(1) Business
and Basis of Presentation





Organization
and Business





Alpha
Natural Resources, Inc. and its consolidated subsidiaries (the “Company”) are
primarily engaged in the business of extracting, processing and marketing coal
from deep and surface mines, located in the Central and Northern Appalachian
regions of the United States, for sale to utility and steel companies in the
United States and in international markets.





Basis
of Presentation




The
accompanying interim condensed consolidated financial statements have been
prepared in accordance with U.S. generally accepted accounting principles for
interim financial reporting. Accounting measurements at interim dates inherently
rely on estimates more than at year-end; however, in the opinion of management,
all adjustments (consisting of normal recurring accruals) considered necessary
for a fair presentation have been included. Significant items subject to such
estimates and assumptions include inventories; mineral reserves; allowance for
non-recoupable advanced mining royalties; asset retirement obligations; employee
benefit liabilities; future cash flows associated with assets; useful lives for
depreciation, depletion, and amortization; workers’ compensation and black lung
claims; postretirement benefits other than pensions; income taxes; revenue
recognized using the percentage of completion method; and fair value of
financial instruments.  Due to the subjective nature of these
estimates, actual results could differ from those estimates.  Results
of operations for the three months ended March 31, 2009 are not necessarily
indicative of the results to be expected for the year ending December 31,
2009. These financial statements should be read in conjunction with the audited
financial statements and related notes as of and for the year ended
December 31, 2008 included in the Company's Annual Report on Form 10-K
filed with the Securities and Exchange Commission.




Reclassifications





Prior
period cost of coal sales have been adjusted to exclude changes in the fair
value of diesel fuel derivative contracts in the amount of $2,365, which is now
included as increase in fair value of derivative instruments, net, to conform to
the current year presentation.  This reclassification adjustment had
no effect on previously reported income from continuing operations or net
income.





On
September 26, 2008, the Company sold its interests in Gallatin Materials, LLC
(“Gallatin”), a lime manufacturing business, to an unrelated third
party.  The results of operations for the prior periods have been
reported as discontinued operations (See Note 15).





On
December 3, 2008, the Company announced the permanent closure of the Whitetail
Kittanning Mine, an adjacent coal preparation plant and other ancillary
facilities (“Kingwood”).  The decision resulted from adverse geologic
conditions and regulatory requirements that rendered the coal seam unmineable at
this location.  The mine stopped producing coal in early January 2009
and Kingwood ceased equipment recovery operations at the end of April
2009.  Beginning in the first quarter of 2009, the results of
operations for the current and prior periods have been reported as discontinued
operations (See Note 15).





On
January 1, 2009, the Company adopted FASB Staff Position (“FSP”) Accounting
Principle Board (“APB”) 14-1, Accounting for Convertible Debt
Instruments That May Be Settled in Cash upon Conversion (Including Partial Cash
Settlement) (“FSP APB 14-1”).  FSP APB 14-1 is effective for
financial statements issued for fiscal years beginning after
December 15, 2008 and interim periods within those fiscal
years.  Early adoption was not permitted and retroactive application
to all periods presented is required.  Due to the adoption of FSP APB
14-1, certain adjustments have been made to the prior period presented for the
Company’s condensed consolidated balance sheets (See Note 6).







- 5
-
 Table of Contents





(2)  New
Accounting Pronouncements





There
were no issued accounting standards not adopted by the Company as of March 31,
2009 that are expected to have a material impact on the Company’s financial
statements.








(3) Earnings
Per Share





The
number of shares used to calculate basic earnings (loss) per share is based on
the weighted average number of the Company’s outstanding common shares during
the respective periods. The number of shares used to calculate diluted earnings
(loss) per share is based on the number of common shares used to calculate basic
earnings (loss) per share plus the dilutive effect of stock options and other
stock-based instruments held by the Company’s employees and directors during
each period and the 2.375% convertible senior notes due 2015 that are
convertible into the Company’s common stock. The convertible senior notes due
2015, which were issued in April 2008, become dilutive for earnings per share
calculations when the average share price for the quarter exceeds the conversion
price of $54.66.  The shares that would be issued to settle the
conversion spread are included in the diluted earnings per share calculation
when the conversion option is in the money. For the three months ended March 31,
2009, the conversion option for the convertible senior notes due 2015 was not in
the money, therefore there was no dilutive earnings per share
impact.





The
computations of basic and diluted net income per share are set forth
below:


Three
      Months Ended March 31,2009
                                                    
                                                    
                                                    2008Numerator:Income from continuing operations
                                                    
                                                    $
                                                    46,621
                                                    
                                                    
                                                    $
                                                    27,990Loss from discontinued operations
                                                    
                                                    
                                                    (5,657
                                                    )
                                                    
                                                    
                                                    (2,460
                                                    )Net
      income
                                                    
                                                    $
                                                    40,964
                                                    
                                                    
                                                    $
                                                    25,530Denominator:Weighted average shares — basic
                                                    
                                                    
                                                    69,884,930
                                                    
                                                    
                                                    
                                                    65,091,470Dilutive effect of stock equivalents
                                                    
                                                    
                                                    811,525
                                                    
                                                    
                                                    
                                                    791,886Weighted
      average shares — diluted
                                                    
                                                    
                                                    70,696,455
                                                    
                                                    
                                                    
                                                    65,883,356Basic
      earnings per share:Income from continuing operations
                                                    
                                                    $
                                                    0.67
                                                    
                                                    
                                                    $
                                                    0.43Loss from discontinued operations
                                                    
                                                    
                                                    (0.08
                                                    )
                                                    
                                                    
                                                    (0.04
                                                    )Net
      income per basic share
                                                    
                                                    $
                                                    0.59
                                                    
                                                    
                                                    $
                                                    0.39Diluted
      earnings per share:Income from continuing operations
                                                    
                                                    $
                                                    0.66
                                                    
                                                    
                                                    $
                                                    0.43Loss from discontinued operations
                                                    
                                                    
                                                    (0.08
                                                    )
                                                    
                                                    
                                                    (0.04
                                                    )Net
      income per diluted share
                                                    
                                                    $
                                                    0.58
                                                    
                                                    
                                                    $
                                                    0.39


(4) Inventories





Inventories
consisted of the following:


March
      31,
                                          
                                          
                                          December
      31,2009
                                          
                                          
                                          2008Raw
      coal
                                          
                                          $
                                          11,339
                                          
                                          
                                          $
                                          9,018Saleable
      coal
                                          
                                          
                                          78,961
                                          
                                          
                                          
                                          61,297Equipment
      for resale
                                          
                                          
                                          1,258
                                          
                                          
                                          
                                          2,282Materials
      and supplies
                                          
                                          
                                          13,813
                                          
                                          
                                          
                                          13,997Total
      inventories
                                          
                                          $
                                          105,371
                                          
                                          
                                          $
                                          86,594





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(5) Income
Taxes





The
income tax provision from continuing operations and discontinued operations for
the three months ended March 31, 2009 is as follows:


Three
      Months EndedMarch
      31,2009
                                
                                
                                2008Continuing
      operations
                                
                                $
                                13,627
                                
                                
                                $
                                8,808Discontinued
      operations
                                
                                
                                (1,594
                                )
                                
                                
                                (840
                                )$
                                12,033
                                
                                
                                $
                                7,968


A
reconciliation of the statutory federal income tax expense at 35% to actual
income tax expense on income from continuing operations is as
follows:


Three
      Months EndedMarch
      31,2009
                              
                              
                              2008Federal
      statutory income tax expense
                              
                              $
                              21,086
                              
                              
                              $
                              12,879Increases
      (reductions) in taxes due to:Percentage depletion allowance
                              
                              
                              (7,667
                              )
                              
                              
                              (3,114
                              )Deduction for domestic production activities
                              
                              
                              (569
                              )
                              
                              
                              (222
                              )State taxes, net of federal tax impact
                              
                              
                              1,490
                              
                              
                              
                              1,126Change in valuation allowance
                              
                              
                              (839
                              )
                              
                              
                              (2,080
                              )Change in state rates
                              
                              
                              -
                              
                              
                              
                              247Other, net
                              
                              
                              126
                              
                              
                              
                              (28
                              )Income tax expense
                              
                              $
                              13,627
                              
                              
                              $
                              8,808


The
Company has concluded that it is more likely than not that deferred tax assets,
net of valuation allowances, currently recorded will be realized. The amount of
the valuation allowance takes into consideration the Alternative Minimum Tax
system as required by Statement of Financial Accounting Standards (“SFAS”) No.
109, Accounting for Income
Taxes (“SFAS 109”). The Company monitors the valuation allowance each
quarter and makes adjustments to the allowance as appropriate.






(6) Long-Term
Debt




Long-term
debt consisted of the following:


March
      31,
                            
                            
                            December
      31,2009
                            
                            
                            2008Term
      loan due 2012
                            
                            $
                            233,125
                            
                            
                            $
                            233,1252.375%
      convertible senior notes due 2015
                            
                            
                            287,500
                            
                            
                            
                            287,500Capital
      lease obligation
                            
                            
                            178
                            
                            
                            
                            232Total long-term debt, excluding discount
                            
                            
                            520,803
                            
                            
                            
                            520,857Convertible
      senior notes discount
                            
                            
                            (85,204
                            )
                            
                            
                            (87,830
                            )Total long-term debt, net of discount
                            
                            
                            435,599
                            
                            
                            
                            433,027Less
      current portion
                            
                            
                            178
                            
                            
                            
                            232Long-term debt, net of current portion
                            
                            $
                            435,421
                            
                            
                            $
                            432,795


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Term
Loan and Revolving Credit Facility





The
Company has a senior secured credit facility (“Credit Agreement”) with a group
of lending institutions led by Citicorp North America, Inc. as the
administrative agent, which consists of a $250,000 term loan facility and a
$375,000 revolving credit facility.  As of March 31, 2009, the Company
had $361,926 available under the revolving credit facility.  The
revolving credit facility will terminate in October 2010 and the term loan will
mature in October 2012.





The
Credit Agreement places restrictions on the ability of Alpha Natural Resources
LLC (“ANR LLC”) and its subsidiaries to make distributions or loans to the
Company. The net assets of ANR LLC are restricted, except for allowable
distributions for the payment of income taxes, administrative expenses, payments
on qualified debt, and, in certain circumstances, dividends or repurchases of
common stock of the Company.





All of
the Company borrowings under the Credit Agreement are at a variable rate, so the
Company is exposed to the effect of rising interest rates. As of March 31, 2009,
the Company has a $233,125 term loan outstanding with a variable interest rate
based upon the 3-month London Interbank Offered Rate (“LIBOR”) (1.25% at March
31, 2009) plus the applicable margin (1.50% at March 31, 2009). To reduce the
Company's exposure to rising interest rates, effective May 22, 2006, the Company
entered into a pay-fixed, receive variable interest rate swap on the notional
amount of $233,125 for a period of approximately six and one-half years. In
effect, this swap converted the variable interest rates based on LIBOR to a
fixed interest rate of 5.59% plus the applicable margin defined in the debt
agreement for the remainder of the term loan. The Company accounts for the
interest rate swap as a cash flow hedge and changes in fair value of the swap
are recorded in other comprehensive income (loss). The critical terms of the
swap and the underlying debt instrument that it hedges coincide, resulting in no
hedge ineffectiveness being recognized in the income statement during the
quarters ended March 31, 2009 and 2008.  The fair value of the swap at
March 31, 2009 was $27,897 which was recorded in other liabilities in the
condensed consolidated balance sheet and the offsetting unrealized loss of
$20,937, net of tax benefit, was recorded in accumulated other comprehensive
loss. As interest expense is accrued on the debt obligation, amounts in
accumulated other comprehensive loss related to the derivative hedging
instrument are reclassified into earnings to obtain a net cost on the debt
obligation of 5.59% plus the applicable margin.





2.375%
Convertible Senior Notes Due June 2015





In April
2008, the Company completed a public offering of $287,500 aggregate principal
amount of 2.375% convertible senior notes due 2015.  The notes bear
interest at a rate of 2.375% per annum, payable semi-annually in arrears on
April 15 and October 15 of each year, beginning on October 15, 2008. The notes
will mature on April 15, 2015, unless previously repurchased by the Company or
converted.  The notes are convertible in certain circumstances and in
specified periods (as described in the Supplemental Indenture) at an initial
conversion rate of 18.2962 shares of common stock per $1,000 principal amount of
notes, subject to adjustment upon the occurrence of certain events set forth in
the Indenture. Upon conversion of notes, holders will receive cash up to the
principal amount of the notes to be converted, and any excess conversion value
will be delivered in cash, shares of common stock or a combination thereof, at
the Company's election.





On
January 1, 2009, the Company adopted FSP APB 14-1, which applies to all
convertible debt instruments that have a ‘‘net settlement feature,” which means
that such convertible debt instruments, by their terms, may be settled either
wholly or partially in cash upon conversion.  FSP APB 14-1
requires issuers of convertible debt instruments that may be settled wholly or
partially in cash upon conversion to separately account for the liability and
equity components in a manner reflective of the issuers’ nonconvertible debt
borrowing rate. Upon adoption of FSP APB 14-1, the Company retrospectively
applied the change in accounting principle to prior accounting
periods.  Adoption of the standard resulted in the following balance
sheet impacts at December 31, 2008: (1) a reduction of debt by $87,830 and an
increase in paid in capital of $69,851, (2) an increase to deferred loan
costs of $5,309, (3) a net reduction to deferred tax assets of $23,124 ($36,262
reduction in deferred tax assets, offset by a $13,138 change in the valuation
allowance), and (4) a net increase in retained earnings of $164.  The
adoption of FSP APB 14-1 resulted in an increase to non-cash interest expense of
$2,838 for the three month period ending March 31, 2009, of which $2,626 is
related to the accretion of the convertible debt discount and $212 is related to
the amortization of the deferred loan fees that were reestablished as described
above.  The deferred loan fees and debt discount will be amortized and
accreted, respectively, over the term of the convertible notes, which are due in
2015.   Adoption of the standard had no impact on the results of
operations for the three months ended March 31, 2008.


As of
March 31, 2009, the notes were not convertible, and the carrying amounts of the
debt and the equity components were $202,296 and $95,511,
respectively.  The unamortized discount of the liability was $85,204
at March 31, 2009 and will continue to be amortized over 6 years.  For
the period ending March 31, 2009, the effective interest rate on the liability
component was 8.64% and the Company recognized interest expense of $1,707 and
$2,626 on the contractual interest coupon and amortization on the discount of
the liability, respectively.








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Accounts
Receivable Securitization





On March
25, 2009, the Company and certain subsidiaries became a party to an $85,000
accounts receivable securitization facility with a third party financial
institution (the “A/R Facility”) by forming ANR Receivables Funding, LLC (the
“SPE”), a special-purpose, bankruptcy-remote subsidiary, wholly-owned
indirectly by Alpha Natural Resources, Inc.  The sole purpose of the
SPE is to purchase trade receivables generated by certain of the Company’s
operating subsidiaries, without recourse (other than customary indemnification
obligations for breaches of specific representations and warranties), and then
transfer senior undivided interests in up to $85,000 of those accounts
receivable to a financial institution for the issuance of letters of credit or
for cash borrowings for the ultimate benefit of the Company.
 
 The SPE
is consolidated into the Company’s financial statements, and therefore the A/R
Facility has no impact on the Company’s consolidated financial statements as of
or for the period ended March 31, 2009. The assets of the SPE, however, are not
available to the creditors of the Company or any other
subsidiary.  The SPE pays facility fees, program fees and letter of
credit fees (based on amounts of outstanding letters of credit), as defined in
the definitive agreements for the A/R Facility.  Available borrowing
capacity is based on the amount of eligible accounts receivable as defined under
the terms of the definitive agreements for the A/R Facility. The receivables
purchase agreement supporting the borrowings under the A/R Facility is subject
to renewal annually and, unless terminated earlier, expires March 24,
2010.
 
 As of
March 31, 2009, letters of credit in the amount $67,000 were outstanding
under the A/R Facility and no cash borrowing transactions had taken place. 
At March 31, 2009, the SPE had available borrowing capacity under the A/R
Facility of $10,800.  Under the A/R Facility, the SPE is subject to
certain affirmative, negative and financial covenants customary for financings
of this type, including restrictions related to, among other things, liens,
payments, merger or consolidation and amendments to the agreements underlying
the receivables pool. Alpha Natural Resources, Inc. has agreed to guarantee the
performance by its subsidiaries, other than the SPE, of their obligations under
the A/R Facility.  The Company does not guarantee repayment of the
SPE’s debt under the A/R Facility.  The financial institution, which
is the administrator, may terminate the A/R Facility upon the occurrence of
certain events that are customary for facilities of this type (with customary
grace periods, if applicable), including, among other things, breaches of
covenants, inaccuracies of representations and warranties, bankruptcy and
insolvency events, changes in the rate of default or delinquency of the
receivables above specified levels, a change of control and material judgments.
A termination event would permit the administrator to terminate the program and
enforce any and all rights and remedies, subject to cure provisions, where
applicable.


(7) Asset
Retirement Obligation




At March
31, 2009 and December 31, 2008, the Company has recorded asset retirement
obligation accruals for mine reclamation and closure costs totaling $101,060 and
$98,940, respectively. The portion of the costs expected to be incurred within a
year in the amounts of $9,037 and $8,375 at March 31, 2009 and December 31,
2008, respectively, are included in accrued expenses and other current
liabilities. These regulatory obligations are secured by surety bonds in the
amount of $159,497 at March 31, 2009 and $148,952 at December 31, 2008.
Changes in the reclamation obligation were as follows:


Total
      asset retirement obligation at December 31, 2008
                        
                        $
                        98,940Accretion for the period
                        
                        
                        2,059Acquisitions during the period
                        
                        
                        336Expenditures for the period
                        
                        
                        (802
                        )Sites added during the period
                        
                        
                        684Revisions in estimated cash flows
                        
                        
                        (157
                        )Total
      asset retirement obligation at March 31, 2009
                        
                        $
                        101,060





(8) Share-Based
Compensation Awards





As of
March 31, 2009, the total number of shares of Alpha Natural Resources, Inc.
common stock available for issuance or delivery under the Company’s current
Long-Term Incentive Plan (“LTIP”) was 4,607,820 shares.  During the
three months ended March 31, 2009 and 2008, all shared-based compensation awards
granted by the Company consisted of non-vested restricted shares, non-vested
performance shares, and restricted stock units.





Share-based
compensation expense totaled $3,225 and $2,989 for the three months ended March
31, 2009 and 2008, respectively.





For the
three months ended March 31, 2009 and 2008, approximately 72% and 66%,
respectively, of share-based compensation expense is reported as selling,
general and administrative expenses, included in the Corporate and Eliminations
category for segment reporting purposes (Note 13), and approximately 28% and
34%, respectively, is reported as a component of cost of sales, included in the
Coal Operations and All Other segment for segment reporting purposes (Note
13).  As of March 31, 2009 and December 31, 2008, approximately $242
and $170, respectively, of share-based compensation costs was capitalized as a
component of inventories. The Company reports the benefits of income tax
deductions that exceed recognized compensation as cash flow from financing
activities. The excess tax benefits during the three months ended March 31, 2009
and 2008 were $0 and $734, respectively.


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In
November 2008, the Board of Directors authorized the Company to repurchase
common shares from employees to satisfy the employees’ minimum statutory tax
withholdings upon the vesting of restricted stock and performance
shares.   During the three months ended March 31, 2009, 418,433
shares of the Company’s common stock granted to employees vested. During the
three months ended March 31, 2009, the Company repurchased 106,739 common shares
from employees to satisfy the employees’ minimum statutory tax withholdings upon
vesting at an average price paid per share of $18.96.





Stock
Options





Stock
option activity for the three months ended March 31, 2009 is summarized in the
following table:


Weighted-Weighted-
                          
                          AverageAverage
                          
                          RemainingNumber
      of
                          
                          Exercise
                          
                          ContractualShares
                          
                          Price
                          
                          Term
      (Years)Outstanding
      at December 31, 2008
                          519,984
                          
                          $
                          17.87Forfeited/Expired
                          (12,142
                          )
                          
                          17.37Outstanding
      at March 31, 2009
                          507,842
                          
                          
                          17.87
                          
                          5.85Exercisable
      at March 31, 2009
                          306,063
                          
                          
                          18.26
                          
                          5.87


The
aggregate intrinsic value of options outstanding at March 31, 2009 was $722 and
the aggregate intrinsic value of exercisable options was $339. The total
intrinsic value of options exercised during the three months ended March 31,
2009 and 2008 was $0 and $2,048, respectively.  Cash received from the
exercise of stock options during the three months ended March 31, 2009 and 2008
was $0 and $1,688, respectively. As of March 31, 2009, $1,219 of unrecognized
compensation cost related to stock options is expected to be recognized as
expense over a weighted-average period of 0.79 years. The weighted-average grant
date fair value of options outstanding at March 31, 2009 and 2008 was $7.33 and
$7.38, respectively.





Restricted
Share Awards





Restricted
share award activity for the three months ended March 31, 2009 is summarized in
the following table:


Weighted-AverageNumber
      of
                      
                      Grant
      DateShares
                      
                      Fair
      ValueNon-vested
      shares outstanding at December 31, 2008
                      952,789
                      
                      $
                      19.33Granted
                      917,684
                      
                      
                      18.90Vested
                      (383,214
                      )
                      
                      19.86Forfeited/Expired
                      (11,115
                      )
                      
                      17.64Non-vested
      shares outstanding at March 31, 2009
                      1,476,144
                      
                      
                      18.91


The
Company granted 917,684 restricted share awards during the three month period
ending March 31, 2009.  The restricted shares vest ratably over
three-years or cliff vest after three years (with accelerated vesting upon a
change of control), depending on the recipients’ position with the
Company.





The fair
value of restricted share awards is based on the closing stock price on the date
of grant, and, for purposes of expense recognition, the total number of awards
expected to vest is adjusted for estimated forfeitures. As of March 31, 2009,
there was $20,484 of unamortized compensation cost related to non-vested shares,
which is expected to be recognized as expense over a weighted-average period of
2.32 years.







- 10
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Performance
Share Awards




Performance
share award activity for the three months ended March 31, 2009 is summarized in
the following table:


Weighted-AverageNumber
      of
                        
                        Grant
      DateShares
                        
                        Fair
      ValueNon-vested
      shares outstanding at December 31, 2008
                        527,183
                        
                        $
                        16.59Granted
                        403,592
                        
                        
                        24.12Vested
                        (35,219
                        )
                        
                        21.15Forfeited
      or expired
                        (12,936
                        )
                        
                        18.05Non-vested
      shares outstanding at March 31, 2009
                        882,620
                        
                        
                        19.83


The
Company issued 35,219 performance shares to employees on February 10, 2009,
related to the 2006 performance grant, which ended on December 31,
2008.  Based upon the Company’s performance against the
pre-established operating income and return on invested capital targets, a 30%
award was issued to employees.





The
Company granted 403,592 performance share awards during the three month period
ending March 31, 2009.  Recipients of these awards can receive shares
of the Company's common stock at the end of a performance period which ends on
December 31, 2011, based on the Company's actual performance against
pre-established operating income goals, strategic goals, and total shareholder
return goals. In order to receive the shares, the recipient must also be
employed by the Company on the vesting date. The performance share awards
represent the number of shares of common stock to be awarded based on the
achievement of targeted performance and may range from 0% to 200% of the
targeted amount. The grant date fair value of the awards related to operating
income targets is based on the closing price of the Company's common stock on
the New York Stock Exchange on the grant date of the award and is being
amortized over the performance period. The awards related to strategic goals do
not meet the criteria for grant date pursuant to SFAS No. 123(R), Share-based Payments (as
amended) (“SFAS 123”). The fair value of the awards related to total shareholder
return targets is based upon a Monte Carlo simulation and is being amortized
over the performance period. For executive officers of the Company to receive
these performance share awards, the Company must achieve a pre-determined EBITDA
level during the performance period in addition to the criteria set for all
other employees participating in the plan.  The Company reassesses at
each reporting date whether achievement of each of the performance conditions is
probable, as well as estimated forfeitures, and adjusts the accruals of
compensation expense as appropriate.





As of
March 31, 2009, there was $6,828 of unamortized compensation cost related to the
outstanding performance share awards.  This unamortized compensation
cost is expected to be recognized over the remaining periods up to December 31,
2011.








(9)
Derivative Financial Instruments




Derivative
financial instruments are accounted for in accordance with SFAS 133, Accounting for Derivative
Instruments and Hedging Activities (“SFAS 133”), which requires all
derivative financial instruments to be reported on the balance sheet at fair
value. Changes in fair value are recognized either in earnings or equity,
depending on whether the transaction qualifies for hedge accounting and if so,
the nature of the underlying exposure being hedged and how effective the
derivatives are at offsetting price movements in the underlying
exposure.





On
January 1, 2009, the Company adopted SFAS No. 161, Disclosures about Derivative
Instruments and Hedging Activities (“SFAS 161”), which amends SFAS
133.  SFAS 161 requires enhanced disclosures about derivative
instruments and hedging activities to enable investors to better understand
their effects on an entity’s financial position, financial performance, and cash
flows. The new standard also increases required disclosures regarding the
location and amounts of derivative instruments in an entity’s financial
statements; how derivative instruments and related hedged items are accounted
for under SFAS 133; and how derivative instruments and related hedged items
affect its financial position, financial performance, and cash flows. Since SFAS
161 requires only additional disclosures concerning derivatives and hedging
activities, the adoption of SFAS 161 did not affect the Company’s financial
position and results of operations.  The required disclosures for SFAS
161 are included in this footnote.





The
Company accounts for certain forward purchase and forward sale coal contracts
that do not qualify under the “normal purchase and normal sale” exception of
SFAS 133 as derivatives and records these contracts as assets or liabilities at
fair value. Changes in fair value of these coal derivative contracts have been
recorded as an (increase) decrease in fair value of certain derivative
instruments, net, and included as a component of costs and expenses in the
consolidated statements of income.  At March 31, 2009, the Company had
unrealized gains (losses) on open sales and open purchase contracts of $4,568
and ($5,617), respectively. The unrealized gains of $4,568 on open sales
contracts are recorded in prepaid expenses and other current assets.  
The unrealized losses on open
purchase contracts are recorded in accrued expenses and other current
liabilities and other liabilities in the amount of ($5,392) and ($225),
respectively.


- 11
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The
Company has utilized interest rate swap agreements to modify the interest
characteristics of a portion of the Company's outstanding debt. The swap
agreements essentially convert variable-rate debt to fixed-rate debt and have
been designated as cash flow hedges.  Changes in the fair value of
interest rate swaps designated as hedging instruments of the variability of cash
flows associated with floating rate and long-term debt obligations are reported
in accumulated other comprehensive loss.  These amounts are
subsequently reclassified into interest expense in the same period in which the
related floating rate debt obligation affects earnings.  At March 31,
2009, the fair value of the interest rate swap agreements is a liability of
$27,897, which is recorded in other liabilities.





The
Company is also exposed to the risk of fluctuations in cash flows related to its
purchase of diesel fuel. The Company has entered into diesel fuel swap
agreements and diesel put options to reduce the volatility in the price of
diesel fuel for its operations. Changes in fair value are recognized in earnings
if they are not eligible for hedge accounting or other comprehensive income if
they qualify for hedge accounting.  Most of the diesel fuel swap
agreements and put options are not designated as hedges for accounting purposes
and therefore the changes in fair value of these diesel fuel derivative
instrument contracts have been recorded as an (increase) decrease in fair value
of certain derivative instruments, net, and included as a component of costs and
expenses in the consolidated statements of income.  These diesel fuel
swaps and put options use the NYMEX New York Harbor No. 2 Heating Oil (“No. 2
heating oil”) futures contracts as the underlying commodity reference
price. Any unrealized loss is recorded in accrued expenses and other
current liabilities and other liabilities and any unrealized gain is recorded in
prepaid expenses and other current assets and other assets.   For
any hedges that qualify for hedge accounting, the effective portion of any
unrealized gain or loss is recorded in accumulated other comprehensive income
(loss) and any ineffective portion of any unrealized gain (loss) is recorded as
an (increase) decrease in fair value of certain derivative instruments,
net.





As of
March 31, 2009, approximately 11,670 gallons or 52% of the Company's budgeted
2009 remaining diesel fuel usage has been capped with the swap agreements in
which the Company has agreed to pay a fixed price and receive a floating price
per gallon of No. 2 heating oil.  The fixed prices for the notional
quantity of 11,670 gallons range from $1.61 to $4.10 per gallon for the last
nine months of 2009.  In addition, as of March 31, 2009, the Company
has in place swap agreements with respect to 19,310 gallons, at fixed prices
ranging from $1.79 to $3.86 per gallon, which mature in 2010 to
2012.  At March 31, 2009, the fair value of these diesel fuel swap
agreements is a net liability of $36,255, which is recorded in other assets in
the amount of $49, accrued expenses and other current liabilities in the amount
of $21,023, and in other liabilities in the amount of
$15,281.





The
Company has also employed an options strategy – both purchasing and selling put
options – to protect cash flows in the event diesel fuel prices decline. As of
March 31, 2009, the Company had purchased put options for 1,323 gallons at a
strike price of $3.50 per gallon for the second quarter of 2009.  In
the event that No. 2 heating oil prices decline below the strike price, the
Company can exercise the put options and sell the 1,323 gallons at the strike
price, therefore reducing the negative impact of any of the swap agreements that
have settlement prices above market. As of March 31, 2009, the Company had sold
put options for 1,323 gallons for the second quarter of 2009 at a strike price
of $3.00 per gallon. This was part of a put spread strategy that effectively
provided protection for market prices between $3.00 and $3.50. In the event that
No.2 heating oil prices decline below the $3.00 strike price, then the sold put
options will offset the purchased put options with no net benefit or
cost.  At March 31, 2009, the fair value of all diesel fuel put
options is a net asset of $655 of which $2,761 is recorded in prepaid expenses
and other current assets and $2,106 is recorded in accrued expenses and other
current liabilities.








The
following are the derivatives in cash flow hedging relationships and derivatives
not designated as hedging instruments, and their related effect in assets as of
March 31, 2009 and December 31, 2008:


Asset
      Derivatives3/31/2009
                              
                              12/31/2008Balance
      Sheet
                                Location
                              
                              Fair
                                Value
                              
                              Balance
      Sheet
                                Location
                              
                              Fair
                                ValueDerivatives
      Designated as
                                HedgingInstruments:Diesel fuel derivatives
                              Other
      assets
                              
                              $
                              49
                              
                              Other
      assets
                              
                              $
                              -Total
      Derivatives Designated asHedging
      Instruments
                              
                              $
                              49
                              
                              
                              
                              $
                              -Derivatives
      Not Designated as
                                Hedging
      Instruments:Forward coal sales
                              Prepaid
      expenses and other current assets
                              
                              $
                              4,568
                              
                              Prepaid
      expenses and other current assets
                              
                              $
                              2,854Diesel fuel derivatives
                              Prepaid
      expenses and other current assets
                              
                              
                              2,761
                              
                              Prepaid
      expenses and other current assets
                              
                              
                              5,186Total
      Derivatives Designated asHedging
      Instruments
                              
                              $
                              7,329
                              
                              
                              
                              $
                              8,040Total Derivatives
                              
                              
                              $
                              7,378
                              
                              
                              
                              $
                              8,040




- 12
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The
following are the derivatives in cash flow hedging relationships and derivatives
not designated as hedging instruments, and their related effect in liabilities
as of March 31, 2009 and December 31, 2008:


Liabilities
      Derivatives3/31/2009
                              
                              
                              
                              12/31/2008Balance
      Sheet
                                Location
                              
                              Fair
                                Value
                              
                              Balance
      Sheet
                                Location
                              
                              Fair
                                ValueDerivatives
      Designated as
                                HedgingInstruments:Diesel fuel derivatives
                              Other
      liabilities
                              
                              $
                              40
                              
                              Other
      liabilities
                              
                              $
                              -Interest rate swaps
                              Other
      liabilities
                              
                              
                              27,897
                              
                              Other
      liabilities
                              
                              
                              27,929Total
      Derivatives Designated asHedging
      Instruments
                              
                              $
                              27,937
                              
                              
                              
                              $
                              27,929Derivatives
      Not Designated as
                                Hedging
      Instruments:Forward coal purchases
                              Accrued
      expenses and other current liabilities
                              
                              $
                              5,392
                              
                              Accrued
      expenses and other current liabilities
                              
                              $
                              3,042Forward coal purchases
                              Other
      liabilities
                              
                              
                              225
                              
                              Other
      liabilities
                              
                              
                              -Diesel fuel derivatives
                              Accrued
      expenses and other current liabilities
                              
                              
                              23,129
                              
                              Accrued
      expenses and other current liabilities
                              
                              
                              25,081Diesel fuel derivatives
                              Other
      liabilities
                              
                              
                              15,241
                              
                              Other
      liabilities
                              
                              
                              16,812Total
      Derivatives Designated asHedging
      Instruments
                              
                              $
                              43,987
                              
                              
                              
                              $
                              44,935Total Derivatives
                              
                              
                              $
                              71,924
                              
                              
                              
                              $
                              72,864


The
following are the derivatives in cash flow hedging relationships and their
related effect in the Income Statement and Other Comprehensive Income for the
periods ending March 31, 2009 and 2008:


Derivatives
      in Cash Flow
                                      Hedging
      Relationships
                                    
                                    Location
      of (Gain) or Loss
                                      Recognized
      in Income on
                                      Hedged
      Item
                                    
                                    Amount
      of (Gain) or Loss
                                      Recognized
      in Income on
                                      Hedged
      Item
                                    
                                    
                                    Amount
      of (Gain) or Loss
                                      Recognized
      in OCI on
                                      Derivative
      (Effective
                                      Portion)Three
      Months Ending March 31,
                                    
                                    
                                    Three
      Months Ending March 31,2009
                                    
                                    
                                    2008
                                    
                                    
                                    2009
                                    
                                    
                                    2008Diesel
      fuel derivatives
                                    
                                    (Increase)
      decrease in fair valueof
      derivative instruments, net
                                    
                                    $
                                    -
                                    
                                    
                                    $
                                    -
                                    
                                    
                                    $
                                    (6
                                    )
                                    
                                    $
                                    -Interest
      rate swaps
                                    
                                    Interest
      Expense
                                    
                                    
                                    2,408
                                    
                                    
                                    
                                    448
                                    
                                    
                                    
                                    (24
                                    )
                                    
                                    
                                    (6,409
                                    )Total
                                    
                                    $
                                    2,408
                                    
                                    
                                    $
                                    448
                                    
                                    
                                    $
                                    (30
                                    )
                                    
                                    $
                                    (6,409
                                    )


The
following are the derivatives not designated as hedging instruments and their
related effect in the Income Statement for the periods ending March 31, 2009 and
2008:


Derivatives
      Not Designated
                                                                                    as
      Hedging Instruments
                                                                                  
                                                                                  Location
      of (Gain) or Loss
                                                                                    Recognized
      in Income on
                                                                                    Derivative
                                                                                  
                                                                                  Amount
      of (Gain) or Loss
                                                                                    Recognized
      in Income on
                                                                                    DerivativeThree
      Months Ending March 31,2009
                                                                                  
                                                                                  
                                                                                  2008Forward
      coal sales
                                                                                  
                                                                                  (Increase)
      decrease in fair value of derivative
      instruments, net
                                                                                  
                                                                                  $
                                                                                  (1,714
                                                                                  )
                                                                                  
                                                                                  $
                                                                                  18,416Forward
      coal purchases
                                                                                  
                                                                                  (Increase)
      decrease in fair valueof
      derivative instruments, net
                                                                                  
                                                                                  
                                                                                  2,575
                                                                                  
                                                                                  
                                                                                  
                                                                                  (32,734
                                                                                  )Diesel
      fuel derivatives
                                                                                  
                                                                                  (Increase)
      decrease in fair valueof
      derivative instruments, net
                                                                                  
                                                                                  
                                                                                  (1,099
                                                                                  )
                                                                                  
                                                                                  
                                                                                  (2,366
                                                                                  )Total
                                                                                  
                                                                                  $
                                                                                  (238
                                                                                  )
                                                                                  
                                                                                  $
                                                                                  (16,684
                                                                                  )


(10) Fair
Value Measurements





The
Company adopted SFAS No. 157, Fair Value Measurements
(“SFAS 157”), on January 1, 2008. This statement defines fair value, establishes
a framework for measuring fair value and expands disclosures about fair value
measurements.  Additionally, on January 1, 2008, the Company
elected the partial adoption of SFAS 157 under the provisions
of  FSP Financial Accounting Standard (“FAS”) 157-2 (“FSP FAS
157-2”), which amended SFAS 157 to allow an entity to delay the
application of this statement until January 1,
2009 for certain non-recurring non-financial assets and
liabilities. Non-recurring non-financial assets and non-financial
liabilities for which the Company did not apply the provisions of SFAS 157 as of
January 1, 2009,  included those measured at fair value in goodwill
impairment testing, asset retirement obligations initially measured at fair
value, and those non-recurring non-financial assets and non-financial
liabilities initially measured at fair value in a business combination. The
partial adoption of SFAS 157 on January 1, 2008 did not have a material impact
on the Company’s consolidated financial statements.


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On
January 1, 2009, the one year deferral under the provisions of FSP FAS 157-2
expired and the Company fully adopted SFAS 157.  The full adoption of
SFAS 157 did not have a material impact on the Company’s consolidated financial
statements.





The
following table sets forth by level within the fair value hierarchy the
Company's financial and non-financial assets and liabilities that are
accounted for at fair value on a recurring and non-recurring basis as of March
31, 2009.  As required by SFAS 157, financial and non-financial assets
and liabilities are classified in their entirety based on the lowest level of
input that is significant to the fair value measurement.  The
Company's assessment of the significance of a particular input to the fair value
measurement requires judgment, and may affect the valuation of fair value assets
and liabilities and their placement within the fair value hierarchy
levels.


As
      of March 31, 2009Fair
      Value Measurements Using:Quoted
                                                            
                                                            
                                                            SignificantPrices
      in
                                                            
                                                            
                                                            Other
                                                            
                                                            
                                                            SignificantActive
                                                            
                                                            
                                                            Observable
                                                            
                                                            
                                                            UnobservableCarrying
                                                            
                                                            
                                                            Total
      Fair
                                                            
                                                            
                                                            Markets
                                                            
                                                            
                                                            Inputs
                                                            
                                                            
                                                            InputsAmount
                                                            
                                                            
                                                            Value
                                                            
                                                            
                                                            (Level
      1)
                                                            
                                                            
                                                            (Level
      2)
                                                            
                                                            
                                                            (Level
      3)Financial
      Assets (Liabilities):Forward
      coal sales
                                                            
                                                            $
                                                            4,568
                                                            
                                                            
                                                            $
                                                            4,568
                                                            
                                                            
                                                            $
                                                            -
                                                            
                                                            
                                                            $
                                                            4,568
                                                            
                                                            
                                                            $
                                                            -Forward
      coal purchases
                                                            
                                                            $
                                                            (5,617
                                                            )
                                                            
                                                            $
                                                            (5,617
                                                            )
                                                            
                                                            $
                                                            -
                                                            
                                                            
                                                            $
                                                            (5,617
                                                            )
                                                            
                                                            $
                                                            -Diesel
      fuel derivatives
                                                            
                                                            $
                                                            (35,600
                                                            )
                                                            
                                                            $
                                                            (35,600
                                                            )
                                                            
                                                            $
                                                            -
                                                            
                                                            
                                                            $
                                                            (35,600
                                                            )
                                                            
                                                            $
                                                            -Interest
      rate swaps
                                                            
                                                            $
                                                            27,897
                                                            
                                                            
                                                            $
                                                            27,897
                                                            
                                                            
                                                            $
                                                            -
                                                            
                                                            
                                                            $
                                                            27,897
                                                            
                                                            
                                                            $
                                                            -Asset
      Retirement Obligations
                                                            
                                                            $
                                                            (1,020
                                                            )
                                                            
                                                            $
                                                            (1,020
                                                            )
                                                            
                                                            $
                                                            -
                                                            
                                                            
                                                            $
                                                            -
                                                            
                                                            
                                                            $
                                                            (1,020
                                                            )


The
following methods and assumptions were used to estimate the fair values of the
assets and liabilities in the tables above.





Level 2
Fair Value Measurements




Forward Coal Purchases and
Sales — The fair value of the forward coal purchases and sales
contracts were estimated using discounted cash flow calculations based upon
forward commodity price curves.  The curves were obtained from
independent pricing services reflecting broker market quotes.




Diesel Fuel
Derivatives — Since the Company’s diesel fuel derivative instruments
are not traded on a market exchange, the fair values are determined using
valuation models which include assumptions about commodity prices based on those
observed in the underlying markets.





Interest Rate Swaps —
The fair value of the interest rate swaps were estimated using discounted cash
flow calculations based upon forward interest-rate yield curves.  The
curves were obtained from independent pricing services reflecting broker market
quotes.





Level 3
Fair Value Measurements





Asset
Retirement Obligation





Minimum
standards for mine reclamation have been established by various regulatory
agencies and dictate the reclamation requirements at the Company's operations.
The Company records these reclamation obligations under the provisions of
SFAS No. 143,Accounting for Asset Retirement Obligations (“SFAS 143”) (Note 7).  SFAS 143
requires the fair value of a liability for an asset retirement obligation to be
recognized in the period in which the legal obligation associated with the
retirement of the long-lived asset is incurred. The fair value of the liability
was determined in accordance with SFAS No. 157, Fair Value Measurements(“SFAS 157”),using expected
discounted cash flows developed using the Company’s own data, including actual
asset retirement costs associated with previous projects.  The inputs
associated with the expected cash flows would be considered unobservable (Level
3) under SFAS 157.





When the
liability is initially recorded, the offset is capitalized by increasing the
carrying amount of the related long-lived asset. Over time, the liability is
accreted to its present value each period, and the capitalized cost is
depreciated over the useful life of the related asset. To settle the liability,
the obligation is paid, and to the extent there is a difference between the
liability and the amount of cash paid, a gain or loss upon settlement is
recorded.





SFAS 143
also provides for recognition of period-to-period changes in the liability as a
result of revisions to the timing or amount of the estimated original
undiscounted cash flows. The Company annually reviews its estimated future cash
flows for its asset retirement
obligations with the changes to estimated undiscounted cash flows being
incorporated into a remeasurement of the liability.  Although upward
revisions to the liability use fair value measurement concepts, the incremental
layers cannot be transferred separately and therefore subsequent measurements of
the entire obligation are not fair value measurements and are not subject to the
requirements of SFAS 157.


- 14
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The
following table summarizes the changes in the Company’s recurring
Level 3 net non-financial assets (liabilities):


January
      1, 2009
                                    
                                    $
                                    -Realized
      gains (losses)
                                    
                                    
                                    -Unrealized
      gains (losses)
                                    
                                    
                                    -Additions
      to reclamation liabilities
                                    
                                    
                                    (1,020
                                    )Transfers
      in and/or out
                                    
                                    
                                    -March 31,
      2009
                                    
                                    $
                                    (1,020
                                    )


The
Company has no change in unrealized gains (losses) relating to
Level 3 asset retirement obligations noted in the table above for the
period ending March 31, 2009.





(11) Postretirement
Benefits Other Than Pensions





The
following table details the components of the net periodic benefit cost for the
Company’s retiree medical plan (the “Plan”):


Three
      Months EndedMarch
      31,2009
                                        
                                        
                                        2008Service
      cost
                                        
                                        $
                                        694
                                        
                                        
                                        $
                                        693Interest
      cost
                                        
                                        
                                        855
                                        
                                        
                                        
                                        873Amortization
      of prior service cost
                                        
                                        
                                        592
                                        
                                        
                                        
                                        615Net
      periodic benefit cost
                                        
                                        $
                                        2,141
                                        
                                        
                                        $
                                        2,181


The
Company provides current and certain retired employees and their dependents
postretirement medical benefits by accruing the costs of such benefits over the
service lives of employees.  Premiums are paid by the Company based on
years of service, with the difference contributed by the employee, if any. 
Employer contributions for postretirement medical benefits paid for the three
months ended March 31, 2009 and 2008 were $90 and $32,
respectively.  Employee contributions are insignificant and the Plan
is unfunded.





Two
of the Company’s subsidiaries are required to make contributions to the 1974
UMWA Pension Plan and Trust and/or the 1993 UMWA Benefit Plan.  The
contributions made to these plans for the three months ended March 31, 2009 and
2008 were $49 and $45, respectively.







- 15
-
 Table of Contents





(12) Comprehensive
Income





Total
comprehensive income is as follows for the three months ended March 31,
2009:


Net
      Income
                                              
                                              $
                                              40,964Change
      in fair value of cash flow hedge related to interest rate swaps, net of
      tax effect of $8 for the period
                                              
                                              
                                              24Change
      in SFAS 158 adjustment related to postretirement medical, net of tax
      effect of $147 for the period
                                              
                                              
                                              445Change
      in SFAS 158 adjustment related to black lung obligations, net of tax
      effect of $6 for the period
                                              
                                              
                                              17Change
      in fair value of cash flow hedge related to diesel fuel swaps, net of tax
      effects of $2 for the period
                                              
                                              
                                              6Total
      comprehensive income
                                              
                                              $
                                              41,456


Total
comprehensive income is as follows for the three months ended March 31,
2008:


Net
      Income
                                                    
                                                    $
                                                    25,530Change
      in fair value of cash flow hedge related to interest rate swaps, net of
      tax effect of ($5,435) for the period
                                                    
                                                    
                                                    (4,831
                                                    )Change
      in SFAS 158 adjustment related to postretirement medical, net of tax
      effect of $151 for the period
                                                    
                                                    
                                                    464Change
      in SFAS 158 adjustment related to black lung obligations, net of tax
      effect of $6 for the period
                                                    
                                                    
                                                    17Total
      comprehensive income
                                                    
                                                    $
                                                    21,180




The
following table summarizes the components of accumulated other comprehensive
loss at March 31, 2009:


Fair
      value of cash flow hedge related to interest rate swaps, net of tax effect
      of $6,960
                      
                      $
                      20,937SFAS
      158 adjustment related to postretirement medical obligations, net of tax
      effect of $2,648
                      
                      
                      8,102SFAS
      158 adjustment related to black lung obligations, net of tax effect of
      $189
                      
                      
                      582Fair
      value of cash flow hedge related to diesel fuel swaps, net of tax effect
      of ($2)
                      
                      
                      (6
                      )Total
      accumulated other comprehensive loss
                      
                      $
                      29,615




The
following table summarizes the components of accumulated other comprehensive
loss at December 31, 2008:


Fair
      value of cash flow hedge related to interest rate swaps, net of tax effect
      of $6,968
                          
                          $
                          20,961SFAS
      158 adjustment related to postretirement medical obligations, net of tax
      effect of $2,795
                          
                          
                          8,547SFAS
      158 adjustment related to black lung obligations, net of tax effect of
      $195
                          
                          
                          599Total
      accumulated other comprehensive loss
                          
                          $
                          30,107


(13) Segment
Information





The
Company extracts, processes and markets steam and metallurgical coal from
surface and deep mines for sale to electric utilities, steel and coke producers,
and industrial customers. The Company operates only in the United States with
mines in the Central Appalachian and Northern Appalachian regions. The Company
has one reportable segment: Coal Operations, which as of March 31, 2009,
consisted of 30 underground mines and 20 surface mines located in Central
Appalachia and Northern Appalachia. Coal Operations also includes the Company's
coal sales function, which markets the Company's Appalachian coal to domestic
and international customers. The All Other category includes the Company's
equipment sales and repair operations, as well as other ancillary business
activities, including terminal services, coal and environmental analysis
services, and leasing of mineral rights. In addition, the All Other category
includes the operations of the Company's road construction businesses. The
Corporate and Eliminations category includes general corporate overhead and the
elimination of intercompany transactions. The revenue elimination amount
represents inter-segment revenues. The Company evaluates the performance of its
segment based on EBITDA from continuing operations which the Company defines as
income from continuing operations plus interest expense, income tax expense, and
depreciation, depletion and amortization, less interest income.


- 16
-
 Table of Contents


Segment
operating results and capital expenditures from continuing operations for the
three months ended March 31, 2009 and segment assets as of March 31, 2009 were
as follows:


CorporateCoal
                    
                    
                    All
                    
                    
                    andOperations
                    
                    
                    Other
                    
                    
                    Eliminations
                    
                    
                    ConsolidatedRevenues
                    
                    $
                    472,700
                    
                    
                    $
                    24,097
                    
                    
                    $
                    (10,062
                    )
                    
                    $
                    486,735Depreciation,
      depletion, and amortization
                    
                    
                    38,198
                    
                    
                    
                    1,431
                    
                    
                    
                    576
                    
                    
                    
                    40,205EBITDA
      from continuing operations
                    
                    
                    117,857
                    
                    
                    
                    7,683
                    
                    
                    
                    (15,859
                    )
                    
                    
                    109,681Capital
      expenditures
                    
                    
                    17,134
                    
                    
                    
                    178
                    
                    
                    
                    824
                    
                    
                    
                    18,136Total
      assets
                    
                    
                    1,679,692
                    
                    
                    
                    128,148
                    
                    
                    
                    (92,666
                    )
                    
                    
                    1,715,174


Segment
operating results and capital expenditures from continuing operations for the
three months ended March 31, 2008 and segment assets as of March 31, 2008 were
as follows:


CorporateCoal
                                          
                                          
                                          All
                                          
                                          
                                          andOperations
                                          
                                          
                                          Other
                                          
                                          
                                          Eliminations
                                          
                                          
                                          ConsolidatedRevenues
                                          
                                          $
                                          483,508
                                          
                                          
                                          $
                                          22,773
                                          
                                          
                                          $
                                          (13,225
                                          )
                                          
                                          $
                                          493,056Depreciation,
      depletion, and amortization
                                          
                                          
                                          40,850
                                          
                                          
                                          
                                          1,287
                                          
                                          
                                          
                                          408
                                          
                                          
                                          
                                          42,545EBITDA
      from continuing operations
                                          
                                          
                                          99,518
                                          
                                          
                                          
                                          4,377
                                          
                                          
                                          
                                          (15,323
                                          )
                                          
                                          
                                          88,572Capital
      expenditures
                                          
                                          
                                          28,896
                                          
                                          
                                          
                                          159
                                          
                                          
                                          
                                          360
                                          
                                          
                                          
                                          29,415Total
      assets
                                          
                                          
                                          1,383,229
                                          
                                          
                                          
                                          102,607
                                          
                                          
                                          
                                          (229,896
                                          )
                                          
                                          
                                          1,255,940





Reconciliation
of EBITDA from continuing operations to income from continuing
operations:


Three
      Months EndedMarch
      31,2009
                              
                              
                              2008EBITDA
      from continuing operations
                              
                              $
                              109,681
                              
                              
                              $
                              88,572Interest
      expense
                              
                              
                              (9,853
                              )
                              
                              
                              (9,979
                              )Interest
      income
                              
                              
                              625
                              
                              
                              
                              750Income
      tax expense
                              
                              
                              (13,627
                              )
                              
                              
                              (8,808
                              )Depreciation,
      depletion and amortization
                              
                              
                              (40,205
                              )
                              
                              
                              (42,545
                              )Income
      from continuing operations
                              
                              $
                              46,621
                              
                              
                              $
                              27,990




The
Company markets produced, processed, and purchased coal to customers in the
United States and in international markets. Export revenues totaled $195,097 or
approximately 41% of total coal and freight revenues for the three months ended
March 31, 2009. Export revenues totaled $212,526 or approximately 44% of total
coal and freight revenues, for the three months ended March 31,
2008.







- 17
-
 Table of Contents





(14) Business
Combinations





Clover
Run





On March
19, 2009, the Company completed the acquisition of a small surface mining
operation in Pennsylvania, known as Clover Run, for $1,750 in cash and $336 in
assumed reclamation liabilities.  The Clover Run purchase consisted of
coal reserves and a surface mine with related mining equipment that will be
managed by the Company’s AMFIRE business unit.





The
following table summarizes the fair values of the acquired assets and
liabilities assumed at the date of acquisition:


Property,
      plant, and equipment
                                      
                                      $
                                      2,086Total
      assets acquired
                                      
                                      
                                      2,086Asset
      retirement obligation
                                      
                                      
                                      (336
                                      )Total
      liabilities assumed
                                      
                                      
                                      (336
                                      )Net
      assets acquired
                                      
                                      $
                                      1,750


(15) Discontinued
Operations





Gallatin
Materials, LLC





On
September 26, 2008, the Company completed the sale of its interest in Gallatin,
a lime manufacturing business, to an unrelated third party for cash in the
amount of $45,000.  An escrow balance of $4,500 was established at the
time of the sale by the Company to indemnify and guarantee the buyer against
breaches of representations and warranties in the sale agreement and
contingencies that may have existed at closing and materialize within one year
from the date of the sale.  As of March 31, 2009, the balance of the
escrow account is $4,045.  The results of operations for the prior
period have been reported as discontinued operations.  Previously, the
results of operations were reported in the All Other segment of the Company’s
business.





The
following table reflects the results of operations for Gallatin’s discontinued
operations for the three months ended March 31, 2008:


Total
      revenues
                                            
                                            $
                                            580Total
      costs and expenses
                                            
                                            
                                            (1,995
                                            )Loss
      from operations
                                            
                                            
                                            (1,415
                                            )Other
      Income
                                            
                                            
                                            20Income
      Tax benefit
                                            
                                            
                                            621Loss from
      discontinued operations
                                            
                                            $
                                            (774
                                            )








Kingwood
Mining Company, LLC





On
December 3, 2008, the Company announced the permanent closure of
Kingwood.  The decision was a result of adverse geologic conditions
and regulatory requirements that rendered the coal seam unmineable at this
location.   The mine stopped producing coal in early January 2009 and
Kingwood ceased equipment recovery operations at the end of April
2009.  Beginning in the first quarter of 2009, the results of
operations for the current and prior periods have been reported as discontinued
operations.  Previously, the results of operations were reported in
the Coal Operations segment of the Company’s business.




- 18
-
 Table of Contents





The
following table reflects the results of operations for Kingwood’s discontinued
operations for the periods ended March 31, 2008 and March 31, 2009:


Three
      Months EndedMarch
      31,2009
                              
                              
                              2008Total
      revenues
                              
                              $
                              2,907
                              
                              
                              $
                              23,270Total
      costs and expenses
                              
                              
                              (10,158
                              )
                              
                              
                              (25,179
                              )Loss
      from operations
                              
                              
                              (7,251
                              )
                              
                              
                              (1,909
                              )Other
      income
                              
                              
                              -
                              
                              
                              
                              4Income
      tax benefit
                              
                              
                              1,594
                              
                              
                              
                              219Loss
      from discontinued operations
                              
                              $
                              (5,657
                              )
                              
                              $
                              (1,686
                              )


The
assets and liabilities of Kingwood’s discontinued operations as of March 31,
2009 and December 31, 2008 are shown below:


March
      31,
                                      
                                      
                                      December
      31,2009
                                      
                                      
                                      2008Current
      assets
                                      
                                      $
                                      -
                                      
                                      
                                      $
                                      246Property,
      plant, and equipment, net
                                      
                                      
                                      5,680
                                      
                                      
                                      
                                      12,387Other
      assets
                                      
                                      
                                      440
                                      
                                      
                                      
                                      457Total
      assets
                                      
                                      $
                                      6,120
                                      
                                      
                                      $
                                      13,090Current
      liabilities
                                      
                                      $
                                      7,034
                                      
                                      
                                      $
                                      10,308Noncurrent
      liabilities
                                      
                                      
                                      11,313
                                      
                                      
                                      
                                      11,606Total
      liabilities
                                      
                                      $
                                      18,347
                                      
                                      
                                      $
                                      21,914


The
following table displays a roll-forward of Kingwood’s liability for the
severance charge, included in current liabilities above, from December 31, 2008
through March 31, 2009:


Accrual
      at
                          
                          
                          
                          
                          
                          Accrual
      atDecember
      31,
                          
                          
                          
                          
                          
                          March
      31,2008
                          
                          
                          Payments
                          
                          
                          2009Severance
      and related personnel expenses
                          
                          $
                          3,433
                          
                          
                          $
                          2,046
                          
                          
                          $
                          1,387





(16) Commitments
and Contingencies





(a)
Guarantees and Financial Instruments with Off-balance Sheet Risk





In
the normal course of business, the Company is a party to certain guarantees and
financial instruments with off-balance sheet risk, such as bank letters of
credit and performance or surety bonds.  No liabilities related to
these arrangements are reflected in the Company's condensed consolidated balance
sheets.  Management does not expect any material losses to result from
these guarantees or off-balance sheet financial instruments.  The
amount of bank letters of credit, issued under the Company’s accounts receivable
securitization program, outstanding as of March 31, 2009 was $67,000. The amount
of surety bonds outstanding at March 31, 2009 related to the Company's
reclamation obligations is presented in Note 7 to the condensed consolidated
financial statements.







- 19
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(b)
Litigation





The
Company is a party to a number of legal proceedings incident to its normal
business activities. While the Company cannot predict the outcome of these
proceedings, the Company does not believe that any liability arising from these
matters individually or in the aggregate should have a material impact upon its
consolidated cash flows, results of operations or financial
condition.





Nicewonder
Litigation





In
December 2004, prior to the Company’s Nicewonder acquisition in October 2005,
the Affiliated Construction Trades Foundation brought an action against the West
Virginia Department of Transportation, Division of Highways (“WVDOH”) and
Nicewonder Contracting, Inc. ("NCI"), which became our wholly-owned indirect
subsidiary as a result of the Nicewonder acquisition, in the United States
District Court in the Southern District of West Virginia. The plaintiff sought a
declaration that the contract between NCI and the State of West Virginia related
to NCI's road construction project was illegal as a violation of applicable West
Virginia and federal competitive bidding and prevailing wage laws. The plaintiff
also sought an injunction prohibiting performance of the contract but has not
sought monetary damages.





On
September 5, 2007, the Court ruled that the WVDOH and the Federal Highway
Administration (which is now a party to the suit) could not, under the
circumstances of this case, enter into a contract that did not require the
contractor to pay the prevailing wages as required by the Davis-Bacon Act.
Although the Court has not yet decided what remedy it will impose, the Company
expects a ruling before mid-2010.  We anticipate that the most likely
remedy is a directive that the contract be renegotiated for such payment. If
that renegotiation occurs, the WVDOH has committed to agree, and NCI has a
contractual right to insist, that additional costs resulting from the order will
be reimbursed by the WVDOH.  Accordingly, the Company does not believe
that it will incur any monetary expense as a result of this ruling. As of March
31, 2009, the Company has an $8,400 long-term receivable for the recovery of
these costs from the WVDOH and an $8,400 long-term liability for the potential
obligations under the ruling.







- 20
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Item 2. Management’s Discussion and Analysis of Financial Condition and
Results of Operations





You
should read the following discussion and analysis in conjunction with our
financial statements and related notes included elsewhere in this report and our
Annual Report on Form 10-K for the year ended December 31,
2008.  Unless we have indicated otherwise, or the context otherwise
requires, references in this report to “Alpha,” “the Company,” “we,” “us” and
“our” or similar terms are to Alpha Natural Resources, Inc. and its consolidated
subsidiaries.





Cautionary
Note Regarding Forward Looking Statements





This
report includes statements of our expectations, intentions, plans and beliefs
that constitute “forward-looking statements” within the meaning of
Section 27A of the Securities Act of 1933 and Section 21E of the
Securities Exchange Act of 1934 and are intended to come within the safe harbor
protection provided by those sections. These statements, which involve risks and
uncertainties, relate to analyses and other information that are based on
forecasts of future results and estimates of amounts not yet determinable and
may also relate to our future prospects, developments and business strategies.
We have used the words “anticipate,” “believe,” “could,” “estimate,” “expect,”
“intend,” “may,” “plan,” “predict,” “project,” “should” and similar terms and
phrases, including references to assumptions, in this report to identify
forward-looking statements. These forward-looking statements are made based on
expectations and beliefs concerning future events affecting us and are subject
to uncertainties and factors relating to our operations and business
environment, all of which are difficult to predict and many of which are beyond
our control, that could cause our actual results to differ materially from those
matters expressed in or implied by these forward-looking
statements.





The
following factors are among those that may cause actual results to differ
materially from our forward-looking statements:





·
            worldwide
      market demand for coal, electricity and
steel;


·
            global
      economic, capital market or political conditions, including a prolonged
      economic recession in the markets in which we
  operate;


·
            decline
      in coal prices;


·
            our
      liquidity, results of operations and financial
      condition;


·
            regulatory
      and court decisions;


·
            competition
      in coal markets;


·
            changes
      in environmental laws and regulations, including those directly affecting
      our coal mining and production, and those affecting our customers' coal
      usage, including potential carbon or greenhouse gas related
      legislation;


·
            changes
      in safety and health laws and regulations and the ability to comply with
      such changes;


·
            availability
      of skilled employees and other employee workforce factors, such as labor
      relations;


·
            the
      inability of our third-party coal suppliers to make timely deliveries and
      our customers refusing to receive coal under agreed contract
      terms;


·
            ongoing
      instability and volatility in worldwide financial
  markets;


·
            future
      legislation and changes in regulations, governmental policies or
      taxes;


·
            inherent
      risks of coal mining beyond our
control;


·
            disruption
      in coal supplies;


·
            the
      geological characteristics of Central and Northern Appalachian coal
      reserves;


·
            our
      production capabilities and costs;


·
            our
      ability to integrate the operations we have acquired or developed with our
      existing operations successfully, as well as those operations that we may
      acquire or develop in the future;


·
            our
      plans and objectives for future operations and expansion or
      consolidation;


·
            the
      consummation of financing transactions, acquisitions or dispositions and
      the related effects on our
business;


·
            our
      relationships with, and other conditions affecting, our
      customers;


·
            changes
      in customer coal inventories and the timing of those
    changes;


·
            changes
      in and renewal or acquisition of new long-term coal supply
      arrangements;


·
            railroad,
      barge, truck and other transportation availability, performance and
      costs;


·
            availability
      of mining and processing equipment and
parts;


·
            our
      assumptions concerning economically recoverable coal reserve
      estimates;


·
            our
      ability to obtain, maintain or renew any necessary permits or rights, and
      our ability to mine properties due to defects in title on leasehold
      interest;


·
            changes
      in postretirement benefit
obligations;


·
            fair
      value of derivative instruments not accounted for as hedges that are being
      marked to market;


·
            indemnification
      of certain obligations not being
met;


·
            continued
      funding of the road construction business, related costs, and
      profitability estimates;


·
            restrictive
      covenants in our credit facility and the indenture governing our
      convertible notes;


·
            certain
      terms of our convertible notes, including any conversions, that may
      adversely impact our liquidity;


·
            weather
      conditions or catastrophic weather-related damage;
  and


·
            other
      factors, including the other factors discussed in “Overview - Coal Pricing
      Trends, Uncertainties and Outlook” below, and Part I, Item 1A, “Risk
      Factors,” of our annual report on Form 10-K for the year ended December
      31, 2008.




When
considering these forward-looking statements, you should keep in mind the
cautionary statements in this report and the documents incorporated by
reference. We do not undertake any responsibility to release publicly any
revisions to these forward-looking statements to take into account events or
circumstances that occur after the date of this report. Additionally, we do not
undertake any responsibility to update you on the occurrence of any
unanticipated events which may cause actual results to differ from those
expressed or implied by the forward-looking statements contained in this
report.





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Overview





We have
one reportable segment, Coal Operations, which includes all of our revenues and
costs from coal production and sales, freight and handling, rentals,
commissions, coal handling and processing operations and coal recovery
incidental to our road construction operations. These revenues and costs
included in our Coal Operations segment are reported by us in our coal revenues
and cost of coal sales, except for the revenues and costs from rentals,
commissions, and coal handling and processing operations, which we report in our
other revenues and cost of other revenues, respectively.





On
September 26, 2008, the Company sold its interests in Gallatin Materials, LLC
(“Gallatin”), a lime manufacturing business, to an unrelated third
party.  The results of operations for the prior periods have been
reported as discontinued operations.





On
December 3, 2008, we announced the permanent closure of the Whitetail Kittanning
Mine, an adjacent coal preparation plant and other ancillary facilities
(“Kingwood”).  The decision resulted from adverse geologic conditions
and regulatory requirements that rendered the coal seam unmineable at this
location.  The mine stopped producing coal in early January 2009 and
Kingwood ceased equipment recovery operations at the end of April
2009.  Beginning in the first quarter of 2009, the results of
operations for the current and prior periods have been reported as discontinued
operations.  Previously, the results of operations were reported in
the Coal Operations segment of our business.





We
produce, process and sell steam and metallurgical (met) coal from seven regional
business units, which, as of March 31, 2009, were supported by 30 active
underground mines, 20 active surface mines and 10 preparation plants located
throughout Virginia, West Virginia, Kentucky, and Pennsylvania, as well as a
road construction business in West Virginia and Virginia that recovers coal. We
also sell coal produced by others, the majority of which we process and/or blend
with coal produced from our mines prior to resale, providing us with a higher
overall margin for the blended product than if we had sold the coals separately.
For the three months ended March 31, 2009, sales of steam coal were 3.2 million
tons and accounted for approximately 61% of our coal sales volume. For the three
months ended March 31, 2009, sales of metallurgical coal, which generally sells
at a premium over steam coal, were 2.0 million tons and accounted for
approximately 39% of our sales volume.  Our sales of steam coal were
made to large utilities and industrial customers in the Eastern region of the
United States, and our sales of metallurgical coal were made to steel companies
in the Northeastern and Midwestern regions of the United States and in several
countries in Europe, South America, Africa and Asia. Approximately 41% of our
coal sales and freight revenue for the three months ended March 31, 2009 was
derived from sales made outside the United States, primarily in Brazil, Italy,
Belgium, Spain, Sweden, and India.





In
addition, we generate other revenues from equipment and parts sales, equipment
repair, road construction, rentals, royalties, commissions, coal handling,
terminal and processing fees, and coal and environmental analysis fees. We also
record revenue for freight and handling charges incurred in delivering coal to
our customers, which we treat as being reimbursed by our customers. However,
these freight and handling revenues are offset by equivalent freight and
handling costs and do not contribute to our profitability.





Our
primary expenses are for wages and benefits, supply costs, repair and
maintenance expenditures, cost of purchased coal, royalties, freight and
handling costs, and taxes incurred in selling our coal. Historically, our cost
of coal sales per ton is lower for sales of our produced and processed coal than
for sales of purchased coal that we do not process prior to resale.





On
January 1, 2009, we adopted FASB Staff Position (“FSP”) Accounting Principle
Board (“APB”) 14-1, Accounting
for Convertible Debt Instruments That May Be Settled in Cash upon Conversion
(Including Partial Cash Settlement) (“FSP APB 14-1”).  FSP APB
14-1 is effective for financial statements issued for fiscal years beginning
after December 15, 2008 and interim periods within those fiscal
years.  Early adoption was not permitted and retroactive application
to all periods presented is required.  FSP APB 14-1 requires
issuers of convertible debt instruments that may be settled wholly or partially
in cash upon conversion to separately account for the liability and equity
components in a manner reflective of the issuers’ nonconvertible debt borrowing
rate. Upon adoption of FSP APB 14-1, we retrospectively applied the change in
accounting principle to prior accounting periods.  Adoption of the
standard resulted in the following balance sheet impacts at December 31, 2008:
(1) a reduction of debt by $87.8 million and an increase in paid in capital of
$69.9 million, (2) an increase to deferred loan costs of $5.3 million, (3)
a net reduction to deferred tax assets of $23.1 million ($36.3 million reduction
in deferred tax assets, offset by a $13.1 million change in the valuation
allowance), and (4) a net increase in retained earnings of $0.2
million.  The adoption of FSP APB 14-1 resulted in an increase to
non-cash interest expense of $2.8 million for the three month period ending
March 31, 2009, of which $2.6 million is related to the accretion of the
convertible debt discount and $0.2 million is related to the amortization of the
deferred loan fees that were reestablished as described above.  The
deferred loan fees and debt discount will be amortized and accreted,
respectively, over the term of the convertible notes, which are due in
2015.   Adoption of the standard had no impact on the results of
operations for the three months ended March 31, 2008.
  - 22
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Coal
Pricing Trends, Uncertainties and Outlook





Most key
drivers of coal demand remain mired in a slump of historic proportions. U.S.
electricity output was down 3.3% through mid-April 2009, with coal consumption
in the sector running an estimated 18 million tons lower than the comparable
period in 2008. Utility coal stockpiles, meanwhile, are running nearly a third
higher than the average for the last 10 years.
 
 In the
steel sector, several major producers have extended shutdowns of their blast
furnaces, which we expect to continue to crimp demand for raw materials along
the supply chain including coking coal. As of late April 2009, raw steel
production was down nearly 53% from the comparable period in 2008, with weak
demand from automakers and durable goods manufacturers continuing to fuel the
trend. On the positive side, U.S. steel service centers continued to pare
inventories during the first quarter of 2009, which portends well for steel
orders once demand levels rebound.
 
 Given a
continued flow of mostly negative macro economic forecasts, we believe the
volume trend for the balance of 2009 is more likely to be down than
up.  We now project sales volumes for 2009 of approximately 22 million
tons, consisting of approximately 18.5 million tons of company mine production,
1.3 million tons of third-party contractor production, 0.5 million tons of coal
purchases at the plant level and 1.8 million tons of purchased brokerage
coal.  Our actual sales results could vary significantly, depending on
how business conditions continue to evolve the rest of this year.
 
 As of
March 9, 2009, we had committed and priced metallurgical sales for 2009 of 4.8
million tons, at an average price of approximately $114 per ton at the mine.
Both were up slightly from January 2009 levels due mostly to business that was
contracted and shipped in the quarter just ended.  In addition, we had
3.2 million tons of metallurgical coal sales committed but unpriced as of March
9, 2009, and less than one million tons uncommitted for 2009.  Also as
of March 9, 2009, we had committed and priced thermal coal sales for this year
of approximately 12.6 million tons, at an average price of approximately $70 per
short ton, with less than one million tons uncommitted for this
year.  These figures include brokerage coal that is opportunistically
purchased, blended and/or resold with our produced tons.
 
 We are in
the midst of discussions with international steel producers on contracting our
remaining metallurgical business for 2009. At this time the picture for
international settlements remains unclear, and we cannot predict the volumes and
pricing that ultimately will be settled.
 At March
31, 2009, we had unrealized gains (losses) on open sale and purchase contracts
that meet the definition of a derivative under SFAS 133 in the amount of $4.6
million and ($5.6 million), respectively. Since we intend to take delivery
or provide delivery of coal under these contracts, the unrealized gains and
losses recorded as of March 31, 2009 will reverse into the income statement in
future periods. The reversal of the net unrealized loss related to these
contracts will result in higher costs of sales in future periods when we
ultimately take delivery of the coal under these contracts and sell it to our
customers.
 
 In
addition, as of March 31, 2009, we had net unrealized losses of $36.3 million on
diesel swap agreements and net unrealized gains of $0.7 million on put options
that met the definition of a derivative under SFAS 133 that are marked to
market.  Periodic changes in fair value for diesel swap agreements and
put options are recorded to the income statement and other comprehensive
income.  Prior period cost of coal sales have been adjusted to exclude
changes in the fair value of diesel fuel derivative contracts in the amount of
$2.4 million, which is now included as increase in fair value of derivative
instruments, net, to conform to the current year presentation.  This
reclassification adjustment had no effect on previously reported income from
continuing operations or net income.
 
 Due to
market price fluctuations, we could experience significant earnings
volatility related to coal contracts, diesel swap agreements, and diesel put
options that are classified as derivatives.
 
 For
additional information regarding some of the risks and uncertainties that affect
our business, see Item 1A “Risk Factors,” in our Annual Report on Form
10-K.


- 23
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Reconciliation
of Non-GAAP Measures





EBITDA
from continuing operations is defined as income from continuing operations plus
interest expense, income tax expense, and depreciation, depletion and
amortization, less interest income. EBITDA from continuing operations is a
non-GAAP measure used by management to measure operating performance, and
management also believes it is a useful indicator of our ability to meet debt
service and capital expenditure requirements. Because EBITDA from continuing
operations is not calculated identically by all companies, our calculation may
not be comparable to similarly titled measures of other companies.





The
following unaudited table reconciles EBITDA from continuing operations to income
from continuing operations, the most directly comparable GAAP
measure.


Three
      Months EndedMarch
      31,2009
                                
                                
                                2008(in
      thousands)Income
      from continuing operations
                                
                                $
                                46,621
                                
                                
                                $
                                27,990Interest
      expense
                                
                                
                                9,853
                                
                                
                                
                                9,979Interest
      income
                                
                                
                                (625
                                )
                                
                                
                                (750
                                )Income
      tax expense
                                
                                
                                13,627
                                
                                
                                
                                8,808Depreciation,
      depletion and amortization
                                
                                
                                40,205
                                
                                
                                
                                42,545EBITDA
      from continuing operations
                                
                                $
                                109,681
                                
                                
                                $
                                88,572





Results
of Operations





Three
Months Ended March 31, 2009 Compared to the Three Months Ended March 31,
2008





Summary





For the
three months ended March 31, 2009, we recorded revenues of $486.7 million
compared to $493.1 million for the three months ended March 31, 2008, a
decrease of $6.4 million. Net income increased from $25.5 million
($0.39 per diluted share) in the first quarter of 2008 to $41.0 million ($0.58
per diluted share) for the first quarter of 2009.





As
previously reported in 2008, we sold our interest in Gallatin and closed our
Kingwood operations and those operating results have been reported as
discontinued operations for all periods.





Income
from continuing operations increased from $28.0 million in the first
quarter of 2008 to $46.6 million for the first quarter of 2009. EBITDA, as
reconciled to our income from continuing operations in the table under
“Reconciliation of Non-GAAP Measures” above, was $109.7 million and $88.6
million in the first quarter of 2009 and 2008, respectively. Income from
continuing operations in the first quarter of 2009 and 2008 included an
unrealized gain from the change in the fair value of our derivative instruments
in the amount of $0.2 million and $16.7 million, respectively.





We sold
5.2 million tons of coal during the first quarter of 2009, 1.3 million less
than the comparable period in 2008.  Coal margin, which we define as coal
revenues less cost of coal sales, divided by coal revenues, increased from 20%
in the first quarter of 2008 to 29% in the first quarter of 2009. Coal margin
per ton was a record $23.48 in the first quarter of 2009, an 81% increase from
$13.00 in the first quarter of 2008, due to improved pricing of this year’s
thermal coal contracts from the comparable period in 2008.  Coal
margin per ton is calculated as coal sales realization (sales price) per ton
less cost of coal sales per ton.







- 24
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Revenues


Three
      Months Ended
                                                                                
                                                                                
                                                                                
                                                                                IncreaseMarch
      31,
                                                                                
                                                                                
                                                                                
                                                                                (Decrease)2009
                                                                                
                                                                                
                                                                                2008
                                                                                
                                                                                
                                                                                
                                                                                $
      or Tons
                                                                                
                                                                                %(in
      thousands, except per ton data)Coal
      revenues
                                                                                
                                                                                $
                                                                                424,416
                                                                                
                                                                                
                                                                                $
                                                                                422,409
                                                                                
                                                                                1
                                                                                
                                                                                $
                                                                                2,007
                                                                                
                                                                                -Freight
      and handling revenues
                                                                                
                                                                                
                                                                                46,054
                                                                                
                                                                                
                                                                                
                                                                                59,172
                                                                                
                                                                                
                                                                                
                                                                                
                                                                                (13,118
                                                                                )
                                                                                (22%
                                                                                )Other
      revenues
                                                                                
                                                                                
                                                                                16,265
                                                                                
                                                                                
                                                                                
                                                                                11,475
                                                                                
                                                                                2
                                                                                
                                                                                
                                                                                4,790
                                                                                
                                                                                42%Total
      revenues
                                                                                
                                                                                $
                                                                                486,735
                                                                                
                                                                                
                                                                                $
                                                                                493,056
                                                                                
                                                                                
                                                                                
                                                                                $
                                                                                (6,321
                                                                                )
                                                                                (1%
                                                                                )Tons
      Produced:Production/processed
                                                                                
                                                                                
                                                                                5,223
                                                                                
                                                                                
                                                                                
                                                                                5,656
                                                                                
                                                                                1
                                                                                
                                                                                
                                                                                (433
                                                                                )
                                                                                (8%
                                                                                )Purchased
                                                                                
                                                                                
                                                                                393
                                                                                
                                                                                
                                                                                
                                                                                1,066
                                                                                
                                                                                
                                                                                
                                                                                
                                                                                (673
                                                                                )
                                                                                (63%
                                                                                )Total
                                                                                
                                                                                
                                                                                5,616
                                                                                
                                                                                
                                                                                
                                                                                6,722
                                                                                
                                                                                
                                                                                
                                                                                
                                                                                (1,106
                                                                                )
                                                                                (16%
                                                                                )Tons
      Sold:Steam
                                                                                
                                                                                
                                                                                3,146
                                                                                
                                                                                
                                                                                
                                                                                3,706
                                                                                
                                                                                1
                                                                                
                                                                                
                                                                                (560
                                                                                )
                                                                                (15%
                                                                                )Metallurgical
                                                                                
                                                                                
                                                                                2,024
                                                                                
                                                                                
                                                                                
                                                                                2,736
                                                                                
                                                                                1
                                                                                
                                                                                
                                                                                (712
                                                                                )
                                                                                (26%
                                                                                )Total
                                                                                
                                                                                
                                                                                5,170
                                                                                
                                                                                
                                                                                
                                                                                6,442
                                                                                
                                                                                
                                                                                
                                                                                
                                                                                (1,272
                                                                                )
                                                                                (20%
                                                                                )Coal
      sales realization per ton:Steam
                                                                                
                                                                                $
                                                                                67.70
                                                                                
                                                                                
                                                                                $
                                                                                50.39
                                                                                
                                                                                1
                                                                                
                                                                                $
                                                                                17.31
                                                                                
                                                                                34%Metallurgical
                                                                                
                                                                                $
                                                                                104.47
                                                                                
                                                                                
                                                                                $
                                                                                86.12
                                                                                
                                                                                1
                                                                                
                                                                                $
                                                                                18.35
                                                                                
                                                                                21%Total
                                                                                
                                                                                $
                                                                                82.09
                                                                                
                                                                                
                                                                                $
                                                                                65.57
                                                                                
                                                                                1
                                                                                
                                                                                $
                                                                                16.52
                                                                                
                                                                                25%Notes:1
      - 2008 amounts have been adjusted from amounts previously reported to
      exclude discontinued operations related to our closure of the Kingwood
      operations in the first quarter of 2009.2
      - 2008 amounts have been adjusted from amounts previously reported to
      exclude discontinued operations related to our sale of Gallatin Materials,
      LLC in the third quarter of 2008.


Coal Revenues. Coal revenues
increased by less than 1% ($2.0 million) for the quarter ended March 31, 2009
from the comparable period of 2008, driven by a 25% increase in sales
realization from $65.57 per ton in the first quarter of 2008 to $82.09 per ton
in the first quarter of 2009, almost entirely offset by a 20% decrease in coal
sales volume as recessionary business conditions drove down coal use by steel
mills, electric utilities, and industrial manufacturers.  Our met coal
realization per ton increased by 21% from $86.12 per ton to $104.47 per ton, and
steam coal realization per ton increased by 34% from $50.39 per ton to $67.70
per ton. Met coal sales accounted for 39% of our coal sales volume in the first
quarter of 2009 compared with 42% in the first quarter of 2008.  The
decrease in met coal sales volumes is due to the continuing decline in world
steel production. Total tons sold for the first quarter of 2009 was 5.2 million,
including 2.0 million tons of met coal and 3.2 million tons of steam
coal. Sales volume for the first quarter of 2008 was 6.4 million tons of
which 2.7 million tons were met coal and 3.7 million tons were steam
coal.





Freight and Handling
Revenues. Freight and handling revenues were $46.1 million for the three
months ended March 31, 2009, a decrease of $13.1 million or 22% compared
with the three months ended March 31, 2008.  This decrease was mainly
due to lower export shipments. These revenues are offset by equivalent costs and
do not contribute to our profitability.





Other Revenues. Other
revenues increased by $4.8 million mainly due to increases in revenues from
our terminal operations of $3.9 million and our road construction business of
$3.4 million partially offset by lower revenues from Maxxim Rebuild and coal
processing operations in the amount of $2.7 million.







- 25
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 Table of Contents


Costs
and Expenses


Three
      Months Ended
                                                                
                                                                
                                                                
                                                                
                                                                IncreaseMarch
      31,
                                                                
                                                                
                                                                
                                                                
                                                                (Decrease)2009
                                                                
                                                                2008
                                                                
                                                                
                                                                
                                                                
                                                                $
                                                                
                                                                %(in
      thousands, except per ton data)Cost
      of coal sales (exclusive of items shown separately below)
                                                                
                                                                $
                                                                303,025
                                                                
                                                                
                                                                $
                                                                338,660
                                                                
                                                                
                                                                1,
      3
                                                                
                                                                $
                                                                (35,635
                                                                )
                                                                (11%
                                                                )Increase
      in fair value of derivative instruments, net
                                                                
                                                                
                                                                (238
                                                                )
                                                                
                                                                
                                                                (16,684
                                                                )
                                                                
                                                                3
                                                                
                                                                
                                                                16,446
                                                                
                                                                (99%
                                                                )Freight
      and handling costs
                                                                
                                                                
                                                                46,054
                                                                
                                                                
                                                                
                                                                59,172
                                                                
                                                                
                                                                
                                                                
                                                                
                                                                (13,118
                                                                )
                                                                (22%
                                                                )Cost
      of other revenues
                                                                
                                                                
                                                                11,863
                                                                
                                                                
                                                                
                                                                8,137
                                                                
                                                                
                                                                2
                                                                
                                                                
                                                                3,726
                                                                
                                                                46%Depreciation,
      depletion and amortization
                                                                
                                                                
                                                                40,205
                                                                
                                                                
                                                                
                                                                42,545
                                                                
                                                                
                                                                1,
      2
                                                                
                                                                
                                                                (2,340
                                                                )
                                                                (6%
                                                                )Selling,
      general and administrative expenses
                                                                
                                                                
                                                                16,466
                                                                
                                                                
                                                                
                                                                15,324
                                                                
                                                                
                                                                2
                                                                
                                                                
                                                                1,142
                                                                
                                                                7%Total
      costs and expenses
                                                                
                                                                $
                                                                417,375
                                                                
                                                                
                                                                $
                                                                447,154
                                                                
                                                                
                                                                
                                                                
                                                                $
                                                                (29,779
                                                                )
                                                                (7%
                                                                )Cost
      of coal sales per ton:Company
      mines
                                                                
                                                                $
                                                                55.12
                                                                
                                                                
                                                                $
                                                                49.93
                                                                
                                                                
                                                                1,
      3
                                                                
                                                                $
                                                                5.19
                                                                
                                                                10%Contract
      mines (including purchased and processed)
                                                                
                                                                
                                                                73.86
                                                                
                                                                
                                                                
                                                                57.71
                                                                
                                                                
                                                                1
                                                                
                                                                
                                                                16.15
                                                                
                                                                28%Total
      produced and processed
                                                                
                                                                
                                                                57.08
                                                                
                                                                
                                                                
                                                                50.89
                                                                
                                                                
                                                                1,
      3
                                                                
                                                                
                                                                6.19
                                                                
                                                                12%Purchased
      and sold without processing
                                                                
                                                                
                                                                81.39
                                                                
                                                                
                                                                
                                                                61.30
                                                                
                                                                
                                                                1,
      3
                                                                
                                                                
                                                                20.09
                                                                
                                                                33%Cost
      of coal sales per ton
                                                                
                                                                
                                                                58.61
                                                                
                                                                
                                                                
                                                                52.57
                                                                
                                                                
                                                                1,
      3
                                                                
                                                                
                                                                6.04
                                                                
                                                                11%Notes:1
      - 2008 amounts have been adjusted from amounts previously reported to
      exclude discontinued operations related to our closure of the Kingwood
      operations in the first quarter of 2009.2
      - 2008 amounts have been adjusted from amounts previously reported to
      exclude discontinued operations related to our sale of Gallatin Materials,
      LLC in the third quarter of 2008.3
      - 2008 amounts have been adjusted from amounts previously reported to
      exclude changes in the presentation of fair value of diesel fuel
      derivative instruments, which are now recorded as a component of costs and
      expenses, to conform to current year income statement presentation. The
      adjustments have no effect on previously reported income from operations
      or net income.


Cost of Coal Sales. Our cost
of coal sales decreased by $35.6 million from $338.7 million in the first
quarter of 2008 to $303.0 million in the first quarter of
2009.  The decrease was primarily due to lower production volumes,
improvement in deep mine productivity, and decreasing mine supply and
maintenance costs.  Our cost of coal sales per ton increased from
$52.57 in the first quarter of 2008 to $58.61 in the first quarter of
2009.  This $6.04 per ton increase is primarily due to higher contract
mining costs.  Our cost of coal sales per ton for our produced and
processed coal was $57.08 per ton in the three months ended March 31, 2009 as
compared to $50.89 per ton in the comparable period in 2008.  This
$6.19 per ton increase is due to a decrease in our surface mine productivity, an
increase in price per ton of purchased coal at our plants, and increases in per
ton costs for supplies and maintenance,  labor and benefits, and
royalties and severance taxes.  The cost of sales per ton of our
purchased coal was $81.39 per ton in the first quarter of 2009 and $61.30 per
ton for the corresponding period of 2008. This $20.09 per ton increase in costs
is mainly due to higher purchased coal contract prices that were negotiated when
coal prices were higher.  Approximately 78% of our purchased coal sold
during the first quarter of 2009 was blended with our produced and processed
coal prior to resale.





Increase in Fair Value of Derivative
Instruments, Net.  The changes in fair value for certain forward
purchase and forward sale coal contracts and diesel fuel swap and put
agreements, which are considered derivatives, decreased cost of sales by $0.2
million in the first quarter of 2009 and decreased cost of sales by $16.7
million in the first quarter of 2008.  The net change in fair value of
derivative instruments in the first quarter of 2009 includes (increases)
decreases in fair value of diesel fuel swap and put agreements and forward
purchase coal contracts in the amounts of ($1.1 million) and $0.9 million,
respectively.  The net unrealized loss on our balance sheet at March
31, 2009 for our forward purchase and forward sale coal contracts of $1.1
million will reverse into the income statement in future periods when we
ultimately take delivery of the coal under these contracts and sell it to our
customers, resulting in higher costs of sales in future periods.  The
net unrealized losses from the diesel fuel swap and put agreements on our
balance sheet at March 31, 2009 of $35.6 million will not reverse into the
income statement in future periods since these will be settled in
cash.





Freight and Handling Costs.
Freight and handling costs decreased to $46.1 million for the three months ended
March 31, 2009, a decrease of $13.1 million compared with the three months
ended March 31, 2008.  This decrease was mainly due to lower export
shipments. These costs are offset by equivalent revenues.


- 26
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Cost of Other
Revenues.  Cost of other revenues increased $3.7 million, or
46%, to $11.9 million for the quarter ended March 31, 2009 as compared to
the first quarter of 2008 due to higher terminal volumes which led to an
increase in operating costs in the amount of $3.2 million and increased
costs with road construction in the amount of $3.3 million. These increases were
partially offset by lower operating costs at Maxxim Rebuild and our coal
processing operations in the amount of $2.7 million.





Depreciation, Depletion and
Amortization. Depreciation, depletion, and amortization decreased $2.3
million, or 6%, to $40.2 million for the three months ended March 31, 2009 as
compared with the same period of 2008.  The decrease is mainly due to lower
depletion expense of $4.2 million as a result of lower production, partially
offset by higher depreciation expense due to capital expenditures.





Selling, General and Administrative
Expenses. Selling, general and administrative expenses increased by $1.1
million to $16.5 million in the first quarter of 2009 from
$15.3 million in the first quarter of 2008.  This increase is
mainly due to increases in wages and benefits of $0.7 million, share-based
compensation expense of $0.3 million, and an incentive compensation accrual of
$0.2 million, partially offset by lower travel and entertainment costs of $0.3
million and legal and professional fees of $0.2 million.  As a percentage
of revenues, these expenses were 3.3% and 3.1% for the first quarter of 2009 and
2008, respectively.





Interest Expense. Interest
expense decreased $0.1 million to $9.9 million during the first
quarter of 2009 compared to the same period in 2008.  Interest expense
only slightly decreased despite the significant reduction in the average cash
interest rates on our debt as a result of the issuance of our $287.5 million
aggregate principal 2.375% convertible senior notes due 2015 in the second
quarter of 2008 and the repayment of our $175.0 million 10% senior notes due
2012 in the same quarter due to the adoption of FSP APB 14-1 on January 1, 2009,
which increased our non-cash interest expense in the amount of $2.8 million for
the period ending March 31, 2009.  Cash interest expense for the
period ending March 31, 2009 was $6.7 million, compared to $9.5 million for the
period ending March 31, 2008.





Interest Income. Interest
income decreased by $0.1 million in the three months ended March 31, 2009
from the three months ended March 31, 2008.





Income Tax Expense. Income
tax expense from continuing operations of $13.6 million was recorded for the
three months ended March 31, 2009 on income from continuing operations before
income taxes of $60.2 million, which equates to an effective tax rate of 22.6%.
This rate is lower than the federal statutory rate of 35% due primarily to the
tax benefits associated with percentage depletion and the domestic production
activities deduction, and the change in the valuation allowance, partially
offset by state income taxes. Income tax expense from continuing operations of
$8.8 million was recorded for the three months ended March 31, 2008 on income
from continuing operations before income taxes of $36.8 million, which equates
to an effective rate of 23.9%. This rate is lower than the federal statutory
rate of 35% due primarily to the tax benefits associated with percentage
depletion and the domestic production activities deduction, and the change in
the valuation allowance, partially offset by state income taxes.





We have
concluded that it is more likely than not that our deferred tax assets, net of
valuation allowances, currently recorded will be realized. The amount of the
valuation allowance takes into consideration the Alternative Minimum Tax system
as required by SFAS No. 109, Accounting for Income Taxes
(“SFAS 109”). We monitor the valuation allowance each quarter and make
adjustments to the allowance as appropriate.





Discontinued
Operations.  Loss from discontinued operations for the first quarter
of 2009 of $5.7 million, related entirely to Kingwood, consists of revenues of
$2.9 million, costs and expenses of $10.2 million, and an income tax benefit of
$1.6 million.  Loss from discontinued operations for the first quarter
of 2008 of $2.5 million consists of revenues from Kingwood of $23.3 million,
costs and expenses of $25.2 million, and an income tax benefit of $0.2 million,
and revenues from Gallatin of $0.6 million, costs and expenses of $2.0 million,
and an income tax benefit of $0.6 million.








Liquidity
and Capital Resources





Our
primary liquidity and capital resource requirements are to finance the cost of
our coal production and purchases, to make capital expenditures, to pay income
taxes, and to service our debt and reclamation obligations.  Our primary
sources of liquidity are cash flows from sales of our produced and purchased
coal, other income and borrowings under our credit facility.





On March
25, 2009, we and certain subsidiaries became a party to an $85.0 million
accounts receivable securitization facility with a third party financial
institution (the “A/R Facility”) by forming ANR Receivables Funding, LLC (the
“SPE”), a special-purpose, bankruptcy-remote subsidiary, wholly-owned indirectly
by Alpha Natural Resources, Inc.  The sole purpose of the SPE is to
purchase trade receivables generated by certain of our operating subsidiaries,
without recourse (other than customary indemnification obligations for breaches
of specific representations and warranties), and then transfer senior undivided
interests in up to $85.0 million of those accounts receivable to a financial
institution for the issuance of letters of credit or for cash borrowings for our
ultimate benefit.
 The SPE
is consolidated into our financial statements, and therefore the A/R Facility
has no impact on our consolidated financial statements as of or for the period
ended March 31, 2009. The assets of the SPE, however, are not available to our
creditors or our subsidiaries’ creditors.  The SPE pays facility fees,
program fees and letter of credit fees (based on amounts of outstanding letters
of credit), as defined in the definitive agreements for the A/R
Facility.  Available borrowing capacity is based on the amount of
eligible accounts receivable as defined under the terms of the definitive
agreements for the A/R Facility. The receivables purchase agreement supporting
the borrowings under the A/R Facility is subject to renewal annually and, unless
terminated earlier, expires March 24, 2010.
  - 27
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As of
March 31, 2009, letters of credit in the amount $67.0 million were
outstanding under the A/R Facility and no cash borrowing transactions had taken
place.  At March 31, 2009, the SPE had available borrowing capacity
under the A/R Facility of $10.8 million.  Under the A/R Facility, the
SPE is subject to certain affirmative, negative and financial covenants
customary for financings of this type, including restrictions related to, among
other things, liens, payments, merger or consolidation and amendments to the
agreements underlying the receivables pool. Alpha Natural Resources, Inc. has
agreed to guarantee the performance by its subsidiaries, other than the SPE, of
their obligations under the A/R Facility.  We do not guarantee
repayment of the SPE’s debt under the A/R Facility.  The financial
institution, which is the administrator, may terminate the A/R Facility upon the
occurrence of certain events that are customary for facilities of this type
(with customary grace periods, if applicable), including, among other things,
breaches of covenants, inaccuracies of representations and warranties,
bankruptcy and insolvency events, changes in the rate of default or delinquency
of the receivables above specified levels, a change of control and material
judgments. A termination event would permit the administrator to terminate the
program and enforce any and all rights and remedies, subject to cure provisions,
where applicable.


At March
31, 2009, we had available liquidity of $1,054.6 million, including cash and
cash equivalents of $692.7 million and $361.9 million available under our credit
facility, subject to limitations described in the facility. Our total long-term
debt, excluding discount, was $520.8 million at March 31, 2009, a decrease of
$0.1 million from the year ended December 31, 2008.  In addition to
amounts included in long-term debt, excluding discount, at March 31, 2009, we
also had a note payable of $12.9 million, related to our insurance premium
financing, a decrease of $5.4 million from the year ended December 31,
2008.


Our cash
capital spending for the three months ended March 31, 2009 was
$18.1 million and we currently project capital expenditures for the full
year of 2009 to be approximately $120.0 million. These expenditures have been
and are forecasted to be used to develop new mines, purchase required safety
equipment, and replace or add equipment.





We
believe that cash on hand and cash generated from our operations and borrowings
under our credit facility will be sufficient to meet our working capital
requirements, anticipated capital expenditures and debt service requirements for
at least the next twelve months.








Cash
Flows





Net cash
provided by operating activities, including discontinued operations, during the
first quarter 2009 was $43.8 million an increase of $2.0 million over the
comparable period in 2008. This increase is due to higher net income in the
current period in the amount of $15.4 million and higher noncash amounts
included in net income, mainly attributable to an increase in the change in fair
value of derivative instruments of $16.4 million, mostly offset by an increase
in cash used by operating assets and liabilities. Net cash used by operating
activities from our discontinued operations during the three months ended March
31, 2009 and 2008 was ($7.8) million and ($5.4) million, respectively.
 
 Net cash
used in investing activities, including discontinued operations, during the
three months ended March 31, 2009 was $19.8 million, a decrease of $11.7 million
from the $31.5 million of net cash used in investing activities during the
three months ended March 31, 2008.  The decrease is primarily due to
lower capital expenditures in the current period as we pared back planned
equipment purchases while redeploying surface and underground mining equipment.
Cash used in investing activities from our discontinued operations during the
three months ended March 31, 2009 and 2008 was $6.4 million and ($5.0)
million, respectively, which were primarily used for capital
expenditures.
 
 Net cash
used in financing activities, including discontinued operations, during the
three months ended March 31, 2009 was $7.5 million, an increase of
$2.1 million from the $5.4 million of net cash used in financing
activities during the three months ended March 31, 2008.  This
increase was primarily due to our repurchase of common stock from our employees
to satisfy their income tax withholding requirement upon the vesting of
share-based compensation.  Net cash provided by financing activities from
our discontinued operations during the three months ended March 31, 2009 and
2008 was $2.8 million and $3.9 million, respectively.







- 28
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Credit
Agreement and Long-term Debt





As of
March 31, 2009, our total long-term indebtedness, including capital lease
obligations, consisted of the following (in thousands):


March
      31,2009Term
      loan
                        
                        $
                        233,1252.375%
      convertible senior notes due 2015
                        
                        
                        287,500Capital
      lease obligations
                        
                        
                        178Total long-term debt
                        
                        
                        520,803Convertible
      senior notes discount
                        
                        
                        (85,204
                        )Total long-term debt, net of discount
                        
                        
                        435,599Less
      current portion
                        
                        
                        178Long-term debt, net of current portion
                        
                        $
                        435,421


Our
senior secured credit facility (“Credit Agreement”) consists of a $250.0 million
term loan facility and a $375.0 million revolving credit facility. As of March
31, 2009, there was $361.9 million available under the revolving credit
facility.  The revolving credit facility will terminate in October
2010 and the term loan will mature in October 2012.





The
Credit Agreement places certain restrictions on Alpha Natural Resources LLC
(“ANR LLC”) and its subsidiaries, including with respect to their ability to
make distributions or loans to us. The net assets of ANR LLC are restricted,
except for allowable distributions for the payment of income taxes,
administrative expenses, payments on qualified debt, and, in certain
circumstances, dividends or repurchases of our common stock.  The
Credit Agreement also requires ANR LLC to satisfy two financial performance
covenants: a maximum leverage ratio and a minimum interest coverage ratio, as
described below.  For more information about the restrictions and
other provisions of the Credit Agreement, see our annual report on Form 10-K for
the year ended December 31, 2008.





Analysis
of Material Debt Covenants





We were
in compliance with all covenants under our Credit Agreement as of March 31,
2009.




The
financial covenants in our Credit Agreement require, among other
things:





·
            We
      must maintain a maximum leverage ratio, defined as the ratio of
      consolidated debt less unrestricted cash and cash equivalents to EBITDA
      (as defined in the Credit Agreement, “Adjusted EBITDA”), of not more than
      3.50:1.0 for the period of four fiscal quarters ended on March 31, 2009
      and for each period of four fiscal quarters ending on each quarter end
      thereafter.





·
            We
      must maintain a minimum interest coverage ratio, defined as the ratio of
      Adjusted EBITDA to cash interest expense, of not less than 2.50:1.0 for
      the four fiscal quarters ending on the last day of any fiscal
      quarter.





A breach
of the covenants in the Credit Agreement, including these financial covenants
that are tied to ratios based on Adjusted EBITDA, could result in a default
under the Credit Agreement and the lenders could elect to declare all amounts
borrowed due and payable.  Any acceleration under our Credit Agreement
would also result in a default under the indenture governing our 2.375%
convertible senior notes due 2015.





In order
for Alpha Natural Resources LLC to be permitted to pay dividends or make
distributions to Alpha Natural Resources, Inc. to make payments of principal or
premium on the convertible notes in excess of $20.0 million that become due
solely as a result of the conversion of convertible notes, we must be able to
satisfy the following two financial performance tests both immediately before
and immediately after giving effect to the payment of any such dividend or
distribution, in addition to being in compliance with the maximum leverage and
minimum interest coverage ratios described above:





·
            We
      must have a maximum senior secured leverage ratio, defined as the ratio of
      consolidated debt that is secured by a lien less unrestricted cash and
      cash equivalents to Adjusted EBITDA, of
2.0:1.0.





·
            We
      must satisfy a liquidity test, i.e., the sum of the
      unused commitments under the Credit Agreement’s revolving line of credit
      plus our unrestricted cash and cash equivalents must not be less than
      $100.0 million.





At March
31, 2009, our leverage ratio and senior secured leverage ratio were both less
than zero, significantly below the requirement, and the interest coverage ratio
was 25.26, and the sum of the unused commitments under the credit facility’s
revolving line of credit plus our unrestricted cash and cash equivalents was
$1,054.6 million.


- 29
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If
certain circumstances exist (as described in the Supplemental Indenture) where
all of our $287.5 million aggregate principal amount of 2.375% convertible
senior notes due 2015 were converted at the option of the holders, we believe we
would have adequate liquidity to satisfy the obligations under the notes and
remain in compliance with any required covenants.




Adjusted
EBITDA is used in our Credit Agreement to determine compliance with many of the
covenants under the facility.  Adjusted EBITDA is defined in our
Credit Agreement as EBITDA, further adjusted to exclude non-recurring items,
non-cash items and other adjustments permitted in calculating covenant
compliance under our Credit Agreement, as shown in the table
below.  We believe that the inclusion of supplementary adjustments to
EBITDA applied in presenting Adjusted EBITDA is appropriate to provide
additional information to investors to demonstrate compliance with our financial
covenants.


TwelveMonthsThree
      Months Ended
                                            
                                            
                                            EndedJune
      30,
                                              2008
                                            
                                            
                                            September
      30,
                                              2008
                                            
                                            
                                            December
      31,
                                              2008
                                            
                                            
                                            March
      31,
                                              2009
                                            
                                            
                                            March
      31,
                                              2009(in
      thousands)Net
      income
                                            
                                            $
                                            67,132
                                            
                                            
                                            $
                                            67,431
                                            
                                            
                                            $
                                            5,608
                                            
                                            
                                            $
                                            40,964
                                            
                                            
                                            $
                                            181,135Interest
      expense
                                            
                                            
                                            11,001
                                            
                                            
                                            
                                            11,117
                                            
                                            
                                            
                                            9,587
                                            
                                            
                                            
                                            9,853
                                            
                                            
                                            
                                            41,558Interest
      income
                                            
                                            
                                            (2,234
                                            )
                                            
                                            
                                            (2,728
                                            )
                                            
                                            
                                            (1,650
                                            )
                                            
                                            
                                            (625
                                            )
                                            
                                            
                                            (7,237
                                            )Income
      tax expense
                                            
                                            
                                            20,964
                                            
                                            
                                            
                                            9,609
                                            
                                            
                                            
                                            2,666
                                            
                                            
                                            
                                            12,033
                                            
                                            
                                            
                                            45,272Depreciation,
      depletion and amortization
                                            
                                            
                                            44,910
                                            
                                            
                                            
                                            42,197
                                            
                                            
                                            
                                            41,203
                                            
                                            
                                            
                                            40,734
                                            
                                            
                                            
                                            169,044EBITDA
                                            
                                            
                                            141,773
                                            
                                            
                                            
                                            127,626
                                            
                                            
                                            
                                            57,414
                                            
                                            
                                            
                                            102,959
                                            
                                            
                                            
                                            429,772Unrestricted
      subsidiary
                                            
                                            
                                            1,131
                                            
                                            
                                            
                                            3,504
                                            
                                            
                                            
                                            13
                                            
                                            
                                            
                                            -
                                            
                                            
                                            
                                            4,648Change
      in fair value of derivative   instruments,
    net
                                            
                                            
                                            (6,516
                                            )
                                            
                                            
                                            34,294
                                            
                                            
                                            
                                            36,171
                                            
                                            
                                            
                                            (238
                                            )
                                            
                                            
                                            63,711Write-off
      of assets
                                            
                                            
                                            -
                                            
                                            
                                            
                                            -
                                            
                                            
                                            
                                            25,687
                                            
                                            
                                            
                                            -
                                            
                                            
                                            
                                            25,687Other
      allowance adjustments
                                            
                                            
                                            131
                                            
                                            
                                            
                                            914
                                            
                                            
                                            
                                            1,235
                                            
                                            
                                            
                                            1,590
                                            
                                            
                                            
                                            3,870Accretion
      expense
                                            
                                            
                                            1,855
                                            
                                            
                                            
                                            1,846
                                            
                                            
                                            
                                            1,947
                                            
                                            
                                            
                                            2,059
                                            
                                            
                                            
                                            7,707Amortization
      of deferred gains
                                            
                                            
                                            (205
                                            )
                                            
                                            
                                            (177
                                            )
                                            
                                            
                                            (84
                                            )
                                            
                                            
                                            (171
                                            )
                                            
                                            
                                            (637
                                            )Loss
      on early extinguishment of debt
                                            
                                            
                                            14,669
                                            
                                            
                                            
                                            33
                                            
                                            
                                            
                                            -
                                            
                                            
                                            
                                            -
                                            
                                            
                                            
                                            14,702Stock-based
      compensation charges
                                            
                                            
                                            11,456
                                            
                                            
                                            
                                            635
                                            
                                            
                                            
                                            1,999
                                            
                                            
                                            
                                            3,226
                                            
                                            
                                            
                                            17,316Adjusted
      EBITDA
                                            
                                            $
                                            164,294
                                            
                                            
                                            $
                                            168,675
                                            
                                            
                                            $
                                            124,382
                                            
                                            
                                            $
                                            109,425
                                            
                                            
                                            $
                                            566,776Leverage
      ratio (1)
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            NMInterest
      coverage ratio (2)
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            25.26Senior
      Secured Leverage Ratio (3)
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            NM





(1)
              Leverage
      ratio is defined in our Credit Agreement as total net debt divided by
      Adjusted EBITDA.





(2)
              Interest
      coverage ratio is defined in our Credit Agreement as Adjusted EBITDA
      divided by cash interest
expense.





(3)
              The
      senior secured leverage ratio is defined as consolidated debt that is
      secured by a lien less unrestricted cash and cash equivalents to Adjusted
      EBITDA.





Other





As a
regular part of our business, we review opportunities for, and engage in
discussions and negotiations concerning, the acquisition of coal mining assets
and interests in coal mining companies, and acquisitions of, or combinations
with, coal mining companies. When we believe that these opportunities are
consistent with our growth plans and our acquisition criteria, we will make bids
or proposals and/or enter into letters of intent and other similar agreements.
These bids or proposals, which may be binding or nonbinding, are customarily
subject to a variety of conditions and usually permit us to terminate the
discussions and any related agreement if, among other things, we are not
satisfied with the results of our due diligence investigation. Any acquisition
opportunities we pursue could materially affect our liquidity and capital
resources and may require us to incur indebtedness, seek equity capital or both.
There can be no assurance that additional financing will be available on terms
acceptable to us, or at all.





Critical
Accounting Policies and Estimates





The
preparation of financial statements in conformity with U.S. GAAP requires
management to make estimates and assumptions that affect reported amounts. These
estimates and assumptions are based on information available as of the date of
the financial statements. Accounting measurements at interim dates inherently
involve greater reliance on estimates than at year-end. The results of
operations for the quarter ended March 31, 2009 are not necessarily indicative
of results that can be expected for the full year. Please refer to the section
entitled “Critical Accounting Policies and Estimates” of “Management's
Discussion and Analysis of Financial Condition and Results of Operations” in our
annual report on Form 10-K for the year ended December 31, 2008 for a
discussion of our critical accounting policies and estimates.





- 30
-
 Table of Contents


Item 3. Quantitative and Qualitative Disclosures About Market
Risk




In
addition to risks inherent in operations, we are exposed to market risks. The
following discussion provides additional detail regarding our exposure to the
risks of changing coal and diesel fuel prices and interest rates.





Commodity
Price Risk





We are
exposed to market price risk in the normal course of selling coal. As of March
9, 2009, approximately 79% of our 2009 estimated sales are committed and priced,
approximately 14% are committed and unpriced, and approximately 7% are
uncommitted.  The committed and unpriced and uncommitted estimated
sales are subject to the future market price volatility.


We use
significant quantities of diesel fuel in our operations and are also exposed to
risk in the market price for diesel fuel. We have entered into diesel swap
agreements and diesel put options to reduce the volatility in the price of
diesel fuel for our operations. Changes in fair value are recognized in earnings
if they are not eligible for hedge accounting or other comprehensive income if
they qualify for hedge accounting.  Most of the diesel fuel swap
agreements and put options are not designated as hedges for accounting purposes
and therefore the changes in the fair value for these derivative instrument
contracts are required to be recorded in cost of sales.  These diesel fuel
swaps and put options use the NYMEX New York Harbor No. 2 Heating Oil (“No. 2
heating oil”) futures contract as the underlying commodity reference price. Any
unrealized loss is recorded in other current liabilities and other liabilities
and any unrealized gain is recorded in other current assets and other
assets.   For any hedges that qualify for hedge accounting, the
effective portion of any unrealized gain or loss is recorded in other
comprehensive income and any ineffective portion of any unrealized gain is
recorded as an (increase) decrease in fair value of certain derivative
instruments, net.





As of
March 31, 2009, approximately 11.7 million gallons or approximately 52% of
our remaining budgeted 2009 diesel fuel usage has been capped with the swap
agreements in which we have agreed to pay a fixed price and receive a floating
price per gallon of No. 2 heating oil.  The fixed prices for the
notional quantity of 11.7 million gallons range from $1.61 to $4.10 per
gallon for the last nine months of 2009.  In addition, as of March 31,
2009, we had in place swap agreements with respect to 19.3 million gallons, at
fixed prices ranging from $1.79 to $3.86 per gallon, which mature in 2010 to
2012.  The fair value of these diesel fuel swap agreements is a net
liability of $36.3 million as of March 31, 2009.





We
have also employed an options strategy – both purchasing and selling put options
– to protect cash flows in the event diesel prices decline. As of March 31,
2009, we had purchased put options for 1.3 million gallons at a strike price of
$3.50 per gallon for the second quarter of 2009. In the event that No. 2 heating
oil prices decline below the strike price, we can exercise the put options and
sell the 1.3 million gallons at the strike price, therefore reducing the
negative impact of any of the swap agreements that have settlement prices above
market. As of March 31, 2009, we had sold put options for 1.3 million gallons
for the second quarter of 2009 at a strike price of $3.00 per gallon. This was
part of a put spread strategy that effectively provided protection for market
prices between $3.00 and $3.50.  In the event that No.2 heating oil
prices decline below the $3.00 strike price, then the sold put options will
offset the purchased put options with no net benefit or cost.  The
fair value of these diesel fuel put options is a net asset of $0.7 million as of
March 31, 2009.





During
the first quarter of 2009, we entered into a forward physical purchase contract
for the notional amount of 7.1 million gallons to reduce the volatility in the
price of diesel fuel for its operations.  As of March 31, 2009,
approximately 4.7 million gallons or 21% of our remaining anticipated 2009
diesel fuel usage has been fixed with this physical purchase agreement at $1.61
per gallon.  The physical forward purchase contract does not meet the
definition of a derivative under SFAS 133.





We
purchase coal in the OTC market and directly from third parties to supplement
and blend with our produced and processed coal in order to provide coal of the
quality and quantity to meet certain of our customer's requirements. We also
sell in the OTC market to hedge the price risk of uncommitted future production
from our mines. Certain of these purchase and sale contracts meet the definition
of a derivative instrument. The use of purchase and sales contracts which are
considered derivative instruments could materially affect our results of
operations as a result of the requirement to mark them to market at the end of
each reporting period.







- 31
-
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These
transactions give rise to commodity price risk, which represents the potential
loss that can be caused by an adverse change in the price of coal. Outstanding
purchase and sales contracts that are considered derivative instruments at March
31, 2009 and are marked to market each period are summarized as
follows:


Purchase
      Contracts
                                                            
                                                            
                                                            Purchase Price 
      Range
                                                            
                                                            Tons
      Outstanding
                                                            Delivery
      Period
                                                            
                                                            Fair
      Value (In Millions) (Liability)$
                                                            50-60
                                                            
                                                            150,000
                                                            04/01/09-12/31/09
                                                            
                                                            $
                                                            (1.2
                                                            )60-70
                                                            
                                                            300,000
                                                            04/01/09-12/31/10
                                                            
                                                            
                                                            (2.4
                                                            )110-120
                                                            
                                                            30,000
                                                            04/01/09-06/30/09
                                                            
                                                            
                                                            (2.0
                                                            )480,000
                                                            
                                                            
                                                            $
                                                            (5.6
                                                            )Sales
      Contracts
                                                            
                                                            Selling
      Price Range
                                                            
                                                            Tons
      Outstanding
                                                            Delivery
      Period
                                                            
                                                            Fair
      Value (In Millions) Asset$
                                                            50-60
                                                            
                                                            90,000
                                                            04/01/09-12/31/09
                                                            
                                                            $
                                                            0.960-70
                                                            
                                                            90,000
                                                            04/01/09-12/31/09
                                                            
                                                            
                                                            1.170-80
                                                            
                                                            90,000
                                                            04/01/09-12/31/09
                                                            
                                                            
                                                            2.5270,000
                                                            
                                                            
                                                            $
                                                            4.5





Interest
Rate Risk




All of
our borrowings under our credit facility are at a variable rate, exposing us to
the effect of rising interest rates in the United States. As of March 31, 2009,
our Credit Facility had a $233.1 million term loan outstanding with a variable
interest rate based upon the 3-month London Interbank Offered Rate (“LIBOR”)
(1.25% at March 31, 2009) plus an applicable margin (1.50% at March 31,
2009).  To reduce our exposure to rising interest rates, effective May 22,
2006 we entered into a pay-fixed, receive variable interest rate swap on the
notional amount of $233.1 million for a period of approximately six and one-half
years. In effect, this swap converted the variable interest rates based on the
LIBOR to a fixed interest rate of 5.59% plus the applicable margin defined in
the Credit Agreement (1.50% at March 31, 2009) for the remainder of our term
loan. We account for the interest rate swap as a cash flow hedge and accordingly
changes in fair value of the swap are recorded to other comprehensive income
(loss).  The fair value of the swap at the quarter ended March 31, 2009 was
a liability of $27.9 million ($20.9 million net of tax).





Item 4. Controls and Procedures




Under the
supervision and with the participation of our management, including our Chief
Executive Officer and our Chief Financial Officer, we evaluated the
effectiveness of our disclosure controls and procedures, as such term is defined
under Rule 13a-15(e) promulgated under the Securities Exchange Act of 1934, as
amended, as of the end of the period covered by this report. Based upon that
evaluation, our Chief Executive Officer and Chief Financial Officer concluded
that our disclosure controls and procedures were effective, as of the end of the
period covered by this report, in ensuring that material information relating to
Alpha Natural Resources, Inc., required to be disclosed in reports that it files
or submits under the Securities Exchange Act of 1934, is recorded, processed,
summarized and reported within the requisite time periods and is accumulated and
communicated to our management, including our Chief Executive Officer and our
Chief Financial Officer, as appropriate to allow timely decisions regarding
disclosure.





Additionally,
during the most recent fiscal quarter, there have been no changes to our
internal control over financial reporting that materially affected, or are
reasonably likely to materially affect, our internal control over financial
reporting.




- 32
-
 Table of Contents





PART II





Item
1. Legal Proceedings





We are a
party to a number of legal proceedings incident to its normal business
activities.  While we cannot predict the outcome of these proceedings,
we do not believe that any liability arising from these matters individually or
in the aggregate should have a material impact upon our consolidated cash flows,
results of operations or financial condition.





Nicewonder
Litigation





In
December 2004, prior to our Nicewonder acquisition in October 2005, the
Affiliated Construction Trades Foundation brought an action against the West
Virginia Department of Transportation, Division of Highways (“WVDOH”) and
Nicewonder Contracting, Inc. ("NCI"), which became our wholly-owned indirect
subsidiary as a result of the Nicewonder acquisition, in the United States
District Court in the Southern District of West Virginia. The plaintiff sought a
declaration that the contract between NCI and the State of West Virginia related
to NCI's road construction project was illegal as a violation of applicable West
Virginia and federal competitive bidding and prevailing wage laws. The plaintiff
also sought an injunction prohibiting performance of the contract but has not
sought monetary damages.





On
September 5, 2007, the Court ruled that the WVDOH and the Federal Highway
Administration (which is now a party to the suit) could not, under the
circumstances of this case, enter into a contract that did not require the
contractor to pay the prevailing wages as required by the Davis-Bacon Act.
Although the Court has not yet decided what remedy it will impose, we expect a
ruling before mid-2010.  We anticipate that the most likely remedy is a
directive that the contract be renegotiated for such payment. If that
renegotiation occurs, the WVDOH has committed to agree, and NCI has a
contractual right to insist, that additional costs resulting from the order will
be reimbursed by the WVDOH.  Accordingly, we do not believe, that we
will incur any monetary expense as a result of this ruling. As of March 31,
2009, we have an $8.4 million long-term receivable for the recovery of these
costs from the WVDOH and an $8.4 million long-term liability for the potential
obligations under the ruling.








Item 1A. Risk Factors





In
addition to the other information set forth in this report, you should carefully
consider the factors discussed in Part I, Item 1A, “Risk Factors,” in
our Annual Report on Form 10-K for the year ended December 31, 2008,
together with the cautionary statement under the caption “Cautionary Note
Regarding Forward Looking Statements” in “Management’s Discussion and Analysis
of Financial Condition and Results of Operations” of this report. These
described risks are not the only risks we face. Additional risks and
uncertainties not currently known to us or that we currently deem to be
immaterial also may materially adversely affect our business, financial
condition and/or operating results.







- 33
-
 Table of Contents





Item 2. Unregistered Sales of Equity Securities and Use of
Proceeds





Issuer
Purchase of equity securities (1):


Total
      Number of Shares Purchased (1)
                                                                                                                                                        
                                                                                                                                                        Average
      Price Paid per Share
                                                                                                                                                        
                                                                                                                                                        Total
      Number of
                                                                                                                                                          Shares
      Purchased as
                                                                                                                                                          Part
      of Publicly
                                                                                                                                                          Announced
      Share
                                                                                                                                                          Repurchase
                                                                                                                                                          Program
      (2)
                                                                                                                                                        
                                                                                                                                                        
                                                                                                                                                        Approximate
      Dollar
                                                                                                                                                          Value
      of Shares that
                                                                                                                                                          May
      Yet Be
                                                                                                                                                          Purchased
      Under
                                                                                                                                                          the
      Program (3)January
      1, 2009 through January 31, 2009
                                                                                                                                                        
                                                                                                                                                        
                                                                                                                                                        97,944
                                                                                                                                                        
                                                                                                                                                        $
                                                                                                                                                        18.80
                                                                                                                                                        
                                                                                                                                                        
                                                                                                                                                        -
                                                                                                                                                        
                                                                                                                                                        
                                                                                                                                                        -February
      1, 2009 through February 28, 2009
                                                                                                                                                        
                                                                                                                                                        
                                                                                                                                                        7,670
                                                                                                                                                        
                                                                                                                                                        
                                                                                                                                                        20.91
                                                                                                                                                        
                                                                                                                                                        
                                                                                                                                                        -
                                                                                                                                                        
                                                                                                                                                        
                                                                                                                                                        -March
      1, 2009 through March 31, 2009
                                                                                                                                                        
                                                                                                                                                        
                                                                                                                                                        1,125
                                                                                                                                                        
                                                                                                                                                        
                                                                                                                                                        20.12
                                                                                                                                                        
                                                                                                                                                        
                                                                                                                                                        -
                                                                                                                                                        
                                                                                                                                                        
                                                                                                                                                        -Total
                                                                                                                                                        
                                                                                                                                                        
                                                                                                                                                        106,739
                                                                                                                                                        
                                                                                                                                                        
                                                                                                                                                        18.96
                                                                                                                                                        
                                                                                                                                                        
                                                                                                                                                        -
                                                                                                                                                        
                                                                                                                                                        
                                                                                                                                                        -(1
                                                                                                                                                        )
                                                                                                                                                        On
      December 12, 2008, the Board of Directors authorized the Company to
      repurchase common shares from employees to satisfy the employees’ minimum
      statutory tax withholdings upon the vesting of restricted stock and
      performance shares. During the three months ended March 31, 2009, the
      Company issued 418,433 shares of common stock to employees upon vesting of
      restricted stock.(2
                                                                                                                                                        )
                                                                                                                                                        We
      currently do not have a publicly announced share repurchase program with
      the exception of the Board approved program described in footnote
      (1).(3
                                                                                                                                                        )
                                                                                                                                                        Management
      cannot estimate the number of shares or the related dollar value that may
      be repurchased because purchases are based on vesting of issued common
      shares to employees and directors, and participants have the ability to
      elect the net share settlement option.





Item 6.
ExhibitsSee
the Exhibit Index following the signature page of this quarterly
report.





- 34
-
 Table of Contents








SIGNATURE


Pursuant
to the requirements of the Securities Exchange Act of 1934, the registrant has
duly caused this report to be signed on its behalf by the undersigned thereunto
duly authorized.


ALPHA
      NATURAL RESOURCES, INC.By:/s/
      Eddie W. NeelyName:
      Eddie W. NeelyTitle:
                  Executive
      Vice President, Chief Financial Officer, Assistant Secretary and
      Controller





Date: May 7,
2009








Table of Contents





10-Q EXHIBIT INDEX





Pursuant
to the rules and regulations of the Securities and Exchange Commission, we have
filed certain agreements as exhibits to this Quarterly Report on Form 10-Q.
These agreements may contain representations and warranties by the parties.
These warranties have been made solely for the benefit of the other party or
parties to such agreements and (i) may have been qualified by disclosure made to
such other party or parties, (ii) were made only as of the date of such
agreements or such other date(s) as may be specified in such agreements and are
subject to more recent developments, which may not be fully reflected in the
Company’s public disclosure, (iii) may reflect the allocation of risk among the
parties to such agreements and (iv) may apply materiality standards different
from what may be viewed as material to investors. Accordingly, these
representations and warranties may not describe the Company's actual state of
affairs at the date hereof and should not be relied upon.





Exhibit
      No
                                                                                      
                                                                                      Description
      of Exhibit3.1
                                                                                      
                                                                                      Restated
      Certificate of Incorporation of Alpha Natural Resources,
      Inc. (Incorporated by reference to Exhibit 3.1 to the Annual Report
      on Form 10-K of Alpha Natural Resources, Inc. (File No. 1-32423) filed on
      March 30, 2005)3.2
                                                                                      
                                                                                      Amended
      and Restated Bylaws of Alpha Natural Resources, Inc. (Incorporated by
      reference to Exhibit 3.2 to the Annual Report on Form 10-K of Alpha
      Natural Resources, Inc. (File No. 1-32423) filed on March 1,
      2007)12.1*
                                                                                      
                                                                                      Computation
      of Ratio of Earnings to Fixed Charges12.2*
                                                                                      
                                                                                      Computation
      of Other Ratios31(a)*
                                                                                      
                                                                                      Certification
      Pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934,
      as adopted pursuant to Sec. 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 Sec. 302 of the Sarbanes-Oxley Act of
      200232(a)*
                                                                                      
                                                                                      Certification
      Pursuant to 18 U.S.C. Sec. 1350, As Adopted Pursuant to Sec. 906 of the
      Sarbanes-Oxley Act of 200232(b)*
                                                                                      
                                                                                      Certification
      Pursuant to 18 U.S.C. Sec. 1350, As Adopted Pursuant to Sec. 906 of the
      Sarbanes-Oxley Act of 2002101.INS
                                                                                      
                                                                                      XBRL
      instance document101.SCH
                                                                                      
                                                                                      XBRL
      taxonomy extension schema101.CAL
                                                                                      
                                                                                      XBRL
      taxonomy extension calculation linkbase101.LAB
                                                                                      
                                                                                      XBRL
      taxonomy extension label linkbase101.PRE
                                                                                      
                                                                                      XBRL
      taxonomy extension presentation linkbase




*
              
              Filed
      herewith.