##### Table of Contents



SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 Form 10-Q
 (Mark One)
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended June 30, 2005
 OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the transition period from            to
 Commission File No. 1-32423
 ALPHA NATURAL RESOURCES, INC.
 (Exact name of registrant as specified in its charter)
 Delaware(State or other jurisdiction of
incorporation or organization)
    
    02-0733940(I.R.S. Employer
Identification Number)406 West Main Street, Abingdon, Virginia(Address of principal executive offices)
    
    24210(Zip Code)
 Registrants telephone number, including area code:(276) 619-4410
 R £
 £ R




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##### Table of Contents



TABLE OF CONTENTS
 PagePART IItem 1.
    
    Financial StatementsItem 2.
    
    Managements Discussion and Analysis of Financial Condition and Results of OperationsItem 3.
    
    Quantitative and Qualitative Disclosures about Market RiskItem 4.
    
    Controls and ProceduresPART IIItem 4.
    
    Submission of Matters to a Vote of Security HoldersItem 5.
    
    Other MattersItem 6.
    
    ExhibitsEX-10.1: DEFERRED COMPENSATION PLANEX-10.2: FIRST AMENDMENT TO STOCKHOLDER AGREEMENTEX-31.A: CERTIFICATIONEX-31.B: CERTIFICATIONEX-32.A: CERTIFICATIONEX-32.B: CERTIFICATION




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##### Table of Contents



ALPHA NATURAL RESOURCES, INC. AND SUBSIDIARIES
 Condensed Consolidated Balance Sheets (Unaudited)
(In thousands, except share and per share amounts)
 June 30,
    
    December 31,2005
    
    2004AssetsCurrent assets:Cash and cash equivalents
    
    $
    10,117
    
    
    $
    7,391Trade accounts receivable, net
    
    
    151,241
    
    
    
    95,828Notes and other receivables
    
    
    10,645
    
    
    
    9,936Inventories
    
    
    92,515
    
    
    
    54,569Due from affiliate
    
    
    
    
    
    
    323Deferred income taxes
    
    
    605
    
    
    
    4,674Prepaid expenses and other current assets
    
    
    17,692
    
    
    
    29,814Total current assets
    
    
    282,815
    
    
    
    202,535Property, plant, and equipment, net of accumulated depreciation, depletion and amortization of $112,528 and $83,848
as of June 30, 2005 and December 31, 2004, respectively
    
    
    250,931
    
    
    
    217,964Goodwill
    
    
    18,641
    
    
    
    18,641Other intangibles, net of accumulated amortization of $1,378 and $2,343 as of June 30, 2005 and December 31, 2004,
respectively
    
    
    725
    
    
    
    1,155Deferred income taxes
    
    
    20,492
    
    
    
    Other assets
    
    
    34,628
    
    
    
    36,826Total assets
    
    $
    608,232
    
    
    $
    477,121Liabilities and Stockholders Equity and Partners CapitalCurrent liabilities:Current portion of long-term debt
    
    $
    1,349
    
    
    $
    1,693Note payable
    
    
    6,998
    
    
    
    15,228Bank overdraft
    
    
    18,263
    
    
    
    10,024Trade accounts payable
    
    
    65,666
    
    
    
    51,050Accrued expenses and other current liabilities
    
    
    64,924
    
    
    
    68,283Total current liabilities
    
    
    157,200
    
    
    
    146,278Long-term debt, net of current portion
    
    
    254,239
    
    
    
    184,784Workers compensation benefits
    
    
    4,780
    
    
    
    4,678Postretirement medical benefits
    
    
    20,140
    
    
    
    15,637Asset retirement obligation
    
    
    34,274
    
    
    
    32,888Deferred gains on sale of property interests
    
    
    5,366
    
    
    
    5,516Deferred income taxes
    
    
    
    
    
    
    7,718Other liabilities
    
    
    9,352
    
    
    
    4,911Total liabilities
    
    
    485,351
    
    
    
    402,410Minority interest
    
    
    
    
    
    
    28,778Stockholders equity and partners capital:Alpha Natural Resources, Inc.:Preferred stock  par value $0.01, 10,000,000 shares authorized, none issued
    
    
    
    
    
    
    Common stock  par value $0.01, 100,000,000 shares authorized, 62,212,580 shares issued and
outstanding
    
    
    622
    
    
    
    Additional paid-in capital
    
    
    146,372
    
    
    
    Unearned stock-based compensation
    
    
    (22,004
    )Accumulated deficit
    
    
    (2,109
    )
    
    
    Total Alpha Natural Resources, Inc. stockholders equity
    
    
    122,881
    
    
    
    Alpha NR Holding, Inc.:Preferred stock  par value $0.01, 1,000 shares authorized, none issued
    
    
    
    
    
    
    Common stock  par value $0.01, 1,000 shares authorized, 100 shares issued and outstanding
    
    
    
    
    
    
    Additional paid-in capital
    
    
    
    
    
    
    22,153Retained earnings
    
    
    
    
    
    
    18,828Total Alpha NR Holding, Inc. stockholders equity
    
    
    
    
    
    
    40,981ANR Fund IX Holdings, L.P.:Partners capital
    
    
    
    
    
    
    4,952Total stockholders equity and partners capital
    
    
    122,881
    
    
    
    45,933Total liabilities and stockholders equity and partners capital
    
    $
    608,232
    
    
    $
    477,121




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##### Table of Contents



ALPHA NATURAL RESOURCES, INC. AND SUBSIDIARIES
 Condensed Consolidated Statements of Operations (Unaudited)
(In thousands, except share and per share amounts)
 Three months ended
    
    Six months endedJune 30,
    
    June 30,2005
    
    2004
    
    2005
    
    2004Revenues:Coal revenues
    
    $
    364,070
    
    
    $
    293,798
    
    
    $
    637,204
    
    
    $
    505,813Freight and handling revenues
    
    
    48,239
    
    
    
    39,671
    
    
    
    79,991
    
    
    
    65,275Other revenues
    
    
    5,327
    
    
    
    6,406
    
    
    
    12,596
    
    
    
    11,509Total revenues
    
    
    417,636
    
    
    
    339,875
    
    
    
    729,791
    
    
    
    582,597Costs and expenses:Cost of coal sales (exclusive of items shown
separately below)
    
    
    293,493
    
    
    
    233,490
    
    
    
    519,777
    
    
    
    418,572Freight and handling costs
    
    
    48,239
    
    
    
    39,671
    
    
    
    79,991
    
    
    
    65,275Cost of other revenues
    
    
    4,319
    
    
    
    4,928
    
    
    
    10,384
    
    
    
    8,338Depreciation, depletion and amortization
    
    
    15,075
    
    
    
    12,916
    
    
    
    29,245
    
    
    
    24,690Selling, general and administrative expenses (exclusive of depreciation
and amortization shown separately above and including stock-based
compensation of $3,381 and $39,788 for the three months and six months
ended June 30, 2005, respectively)
    
    
    14,870
    
    
    
    13,861
    
    
    
    62,776
    
    
    
    25,666Total costs and expenses
    
    
    375,996
    
    
    
    304,866
    
    
    
    702,173
    
    
    
    542,541Income from operations
    
    
    41,640
    
    
    
    35,009
    
    
    
    27,618
    
    
    
    40,056Other income (expense):Interest expense
    
    
    (6,647
    )
    
    
    (6,780
    )
    
    
    (12,764
    )
    
    
    (8,831
    )Interest income
    
    
    191
    
    
    
    80
    
    
    
    478
    
    
    
    101Miscellaneous income (expense), net
    
    
    32
    
    
    
    151
    
    
    
    (9
    )
    
    
    364Total other income (expense), net
    
    
    (6,424
    )
    
    
    (6,549
    )
    
    
    (12,295
    )
    
    
    (8,366
    )Income from continuing operations before income
taxes and minority interest
    
    
    35,216
    
    
    
    28,460
    
    
    
    15,323
    
    
    
    31,690Income tax expense
    
    
    9,089
    
    
    
    3,119
    
    
    
    11,599
    
    
    
    3,473Minority interest
    
    
    
    
    
    
    12,892
    
    
    
    2,918
    
    
    
    14,356Income from continuing operations
    
    
    26,127
    
    
    
    12,449
    
    
    
    806
    
    
    
    13,861Discontinued operations (note 11):Income
(loss) from discontinued operations before income taxes and minority interest (including gain on disposal in
April 2005 of $704)
    
    
    359
    
    
    
    (472
    )
    
    
    (379
    )
    
    
    (872
    )Income tax expense (benefit)
    
    
    93
    
    
    
    (52
    )
    
    
    (93
    )
    
    
    (96
    )Minority interest
    
    
    
    
    
    
    (214
    )
    
    
    (72
    )
    
    
    (395
    )Income (loss) from discontinued operations
    
    
    266
    
    
    
    (206
    )
    
    
    (214
    )
    
    
    (381
    )Net income
    
    $
    26,393
    
    
    $
    12,243
    
    
    $
    592
    
    
    $
    13,480Net income per share, as adjusted (note 2):Basic and diluted:Income from continuing operations
    
    $
    0.43
    
    
    $
    0.84
    
    
    $
    0.01
    
    
    $
    0.94Income (loss) from discontinued operations
    
    
    
    
    
    
    (0.01
    )
    
    
    
    
    
    
    (0.03
    )Net income, as adjusted
    
    $
    0.43
    
    
    $
    0.83
    
    
    $
    0.01
    
    
    $
    0.91Pro forma net income per share (note 2):Basic:Income from continuing operations
    
    $
    0.43
    
    
    $
    0.34
    
    
    $
    0.04
    
    
    $
    0.34Income (loss) from discontinued operations
    
    
    
    
    
    
    (0.01
    )
    
    
    
    
    
    
    (0.01
    )Pro forma net income
    
    $
    0.43
    
    
    $
    0.33
    
    
    $
    0.04
    
    
    $
    0.33Diluted:Income from continuing operations
    
    $
    0.43
    
    
    $
    0.34
    
    
    $
    0.04
    
    
    $
    0.33Income (loss) from discontinued operations
    
    
    
    
    
    
    (0.01
    )
    
    
    
    
    
    
    (0.01
    )Pro forma net income
    
    $
    0.43
    
    
    $
    0.33
    
    
    $
    0.04
    
    
    $
    0.32




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##### Table of Contents



ALPHA NATURAL RESOURCES, INC. AND SUBSIDIARIES
 
 ANR FundIXHoldings,Alpha Natural Resources, Inc.
    
    Alpha NR Holding, Inc.
    
    L.P.TotalStockholdersAdditional
    
    Unearned
    
    
    
    
    
    Total
    
    
    
    
    
    Additional
    
    
    
    
    
    Total
    
    
    
    
    
    Equity andCommon Stock
    
    Paid-in
    
    Stock-based
    
    Accumulated
    
    Stockholders
    
    Common
    
    Paid-in
    
    Retained
    
    Stockholders
    
    Partners
    
    PartnersShares
    
    Amount
    
    Capital
    
    Compensation
    
    Deficit
    
    Equity
    
    Stock
    
    Capital
    
    Earnings
    
    Equity
    
    Capital
    
    CapitalBalances, December 31, 2003
    
    
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    75,710
    
    
    $
    1,442
    
    
    $
    77,152
    
    
    $
    9,215
    
    
    $
    86,367Net income
    
    
    
    
    

    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    17,386
    
    
    
    17,386
    
    
    
    2,629
    
    
    
    20,015Noncash distribution of Virginia Tax Credit
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (292
    )
    
    
    (292
    )Distributions
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (53,557
    )
    
    
    
    
    
    
    (53,557
    )
    
    
    (6,600
    )
    
    
    (60,157
    )Balances, December 31, 2004
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    22,153
    
    
    
    18,828
    
    
    
    40,981
    
    
    
    4,952
    
    
    
    45,933Noncash distribution of Virginia Tax Credit
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (40
    )
    
    
    (40
    )Net income prior to Internal Restructuring
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,320
    
    
    
    2,320
    
    
    
    379
    
    
    
    2,699Distribution to First Reserve Fund IX, L.P. and
ANR Fund IX Holdings, L.P. prior to the
Internal Restructuring
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (8,160
    )
    
    
    (8,160
    )
    
    
    (1,243
    )
    
    
    (9,403
    )Contribution by First Reserve Fund IX, L.P. of
all of the outstanding common stock of
Alpha NR Holding, Inc. in exchange for
shares of Alpha Natural Resources, Inc.
common stock
    
    
    12,463
    
    
    
    125
    
    
    
    35,016
    
    
    
    
    
    
    
    
    
    
    
    35,141
    
    
    
    
    
    
    
    (22,153
    )
    
    
    (12,988
    )
    
    
    (35,141
    )
    
    
    
    
    
    
    Contribution by ANR Fund IX Holdings, L.P.
of its membership interest in ANR
Holdings, LLC in exchange for shares of
Alpha Natural Resources, Inc. common
stock upon completion of the Internal
Restructuring
    
    
    1,536
    
    
    
    15
    
    
    
    4,033
    
    
    
    
    
    
    
    
    
    
    
    4,048
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (4,048
    )
    
    
    Contribution by minority interest holders,
including certain members of management,
of their membership interests in ANR
Holdings, LLC in exchange for shares of
Alpha Natural Resources, Inc. common
stock and recognition of unearned
stock-based compensation
    
    
    14,289
    
    
    
    143
    
    
    
    85,424
    
    
    
    (29,122
    )
    
    
    
    
    
    
    56,445
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    56,445Issuance of Restructuring Notes
    
    
    
    
    
    
    
    
    
    
    (517,692
    )
    
    
    
    
    
    
    
    
    
    
    (517,692
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (517,692
    )Tax Distributions payable recorded upon
the completion of the Internal
Restructuring
    
    
    
    
    
    
    
    
    
    
    (10,500
    )
    
    
    
    
    
    
    
    
    
    
    (10,500
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (10,500
    )Change in net deferred income taxes recognized
upon the completion of the Internal
Restructuring
    
    
    
    
    
    
    
    
    
    
    25,729
    
    
    
    
    
    
    
    
    
    
    
    25,729
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    25,729




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##### Table of Contents



ALPHA NATURAL RESOURCES, INC. AND SUBSIDIARIES
 
 ANR FundIXHoldings,Alpha Natural Resources, Inc.
    
    Alpha NR Holding, Inc.
    
    L.P.TotalStockholdersAdditional
    
    Unearned
    
    
    
    
    
    Total
    
    
    
    
    
    Additional
    
    
    
    
    
    Total
    
    
    
    
    
    Equity andCommon Stock
    
    Paid-in
    
    Stock-based
    
    Accumulated
    
    Stockholders
    
    Common
    
    Paid-in
    
    Retained
    
    Stockholders
    
    Partners
    
    PartnersShares
    
    Amount
    
    Capital
    
    Compensation
    
    Deficit
    
    Equity
    
    Stock
    
    Capital
    
    Earnings
    
    Equity
    
    Capital
    
    CapitalProceeds from initial public offering of
common shares ($19 per share), net of
offering costs of $48,296.
    
    
    33,925
    
    
    
    339
    
    
    
    595,940
    
    
    
    
    
    
    
    
    
    
    
    596,279
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    596,279Distribution of net proceeds received from
underwriters exercise of over-allotment
option
    
    
    
    
    
    
    
    
    
    
    (71,135
    )
    
    
    
    
    
    
    
    
    
    
    (71,135
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (71,135
    )Amortization of unearned stock-based
compensation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6,675
    
    
    
    
    
    
    
    6,675
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6,675Cancellation of nonvested stock options
    
    
    
    
    
    
    
    
    
    
    (443
    )
    
    
    443
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Net loss subsequent to Internal Restructuring
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,109
    )
    
    
    (2,109
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,109
    )Balances, June 30, 2005
    
    
    62,213
    
    
    $
    622
    
    
    $
    146,372
    
    
    $
    (22,004
    )
    
    $
    (2,109
    )
    
    $
    122,881
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    122,881




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##### Table of Contents



ALPHA NATURAL RESOURCES, INC. AND SUBSIDIARIES
 Condensed Consolidated Statements of Cash Flows (Unaudited)
(In thousands)
 Six months endedJune 30,2005
    
    2004Operating activities:Net income
    
    $
    592
    
    
    $
    13,480Adjustments to reconcile net income
to net cash provided by (used in) operating activities:Depreciation, depletion and amortization
    
    
    29,528
    
    
    
    25,040Amortization and write-off of debt issuance costs
    
    
    875
    
    
    
    3,531Minority interest
    
    
    2,846
    
    
    
    13,961Accretion of asset retirement obligation
    
    
    1,631
    
    
    
    1,943Virginia tax credit
    
    
    (343
    )
    
    
    (1,292
    )Stock-based compensation  non-cash
    
    
    32,312
    
    
    
    Provision for bad debts
    
    
    44
    
    
    
    46Amortization of deferred gains on sales of property interests
    
    
    (395
    )
    
    
    (459
    )Amortization of deferred gain on railroad incentives
    
    
    (340
    )
    
    
    Loss on settlement of asset retirement obligation
    
    
    490
    
    
    
    (Gain) loss on disposal of fixed assets, net
    
    
    113
    
    
    
    (376
    )Gain on sale of discontinued operations
    
    
    (704
    )
    
    
    Deferred income taxes
    
    
    1,588
    
    
    
    1,748Changes in operating assets and liabilities:Trade accounts receivable
    
    
    (55,382
    )
    
    
    (36,019
    )Notes and other receivables
    
    
    (477
    )
    
    
    (2,068
    )Inventories
    
    
    (37,953
    )
    
    
    (17,819
    )Prepaid expenses and other current assets
    
    
    10,261
    
    
    
    7,127Other assets
    
    
    (4,065
    )
    
    
    (1,411
    )Trade accounts payable
    
    
    16,275
    
    
    
    23,668Accrued expenses and other current liabilities
    
    
    (1,386
    )
    
    
    12,481Workers compensation benefits
    
    
    (266
    )
    
    
    2,517Postretirement medical benefits
    
    
    4,503
    
    
    
    697Asset retirement obligation
    
    
    (1,772
    )
    
    
    (1,464
    )Other liabilities
    
    
    605
    
    
    
    1,743Net cash provided by (used in)
operating activities
    
    
    (1,420
    )
    
    
    47,074Investing activities:Capital expenditures
    
    $
    (66,521
    )
    
    $
    (33,842
    )Proceeds from disposal of property, plant, and equipment
    
    
    5,148
    
    
    
    793Purchase of net assets of acquired companies
    
    
    (389
    )
    
    
    (2,891
    )Purchase of equity investment
    
    
    (654
    )
    
    
    Payment of additional consideration on prior acquisition
    
    
    (5,000
    )
    
    
    Issuance of note receivable to coal supplier
    
    
    
    
    
    
    (10,000
    )Collections on note receivable from coal supplier
    
    
    2,612
    
    
    
    Increase in due from affiliate
    
    
    
    
    
    
    (209
    )Net cash used in investing activities
    
    
    (64,804
    )
    
    
    (46,149
    )Financing activities:Repayments of notes payable
    
    
    (8,230
    )
    
    
    (7,841
    )Proceeds from issuance of long-term debt
    
    
    70,000
    
    
    
    175,000Repayments on long-term debt
    
    
    (944
    )
    
    
    (45,410
    )Increase in bank overdraft
    
    
    8,239
    
    
    
    4,064Proceeds from initial public offering, net of offering costs
    
    
    598,066
    
    
    
    Repayment of restructuring notes payable
    
    
    (517,692
    )
    
    
    Distributions to prior members of ANR Holdings, LLC
subsequent to Internal Restructuring
    
    
    (72,335
    )
    
    
    Distributions to prior members of ANR Holdings, LLC
prior to Internal Restructuring
    
    
    (7,732
    )
    
    
    (113,169
    )Debt issuance costs
    
    
    (422
    )
    
    
    (10,500
    )Net cash provided by financing activities
    
    
    68,950
    
    
    
    2,144Net increase in cash
and cash equivalents
    
    
    2,726
    
    
    
    3,069Cash and cash equivalents at beginning of period
    
    
    7,391
    
    
    
    11,246Cash and cash equivalents at end of period
    
    $
    10,117
    
    
    $
    14,315




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##### Table of Contents



ALPHA
NATURAL RESOURCES, INC. AND SUBSIDIARIES
 CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
June 30, 2005
(In thousands, except percentages and share data)
 (1) Business and Basis of Presentation
 Organization and Business
   Basis of Presentation
   (2) Earnings Per Share




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##### Table of Contents



ALPHA
NATURAL RESOURCES, INC. AND SUBSIDIARIES
 CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
June 30, 2005
(In thousands, except percentages and share data)
 Net Income (Loss) Per Share, as Adjusted




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##### Table of Contents



ALPHA
NATURAL RESOURCES, INC. AND SUBSIDIARIES
 CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
June 30, 2005
(In thousands, except percentages and share data)
  Three Months Ended June 30,
    
    Six Months Ended June 30,2005
    
    2004
    
    2005
    
    2004Numerator:Income from continuing operations
    
    $
    26,127
    
    
    $
    12,449
    
    
    $
    806
    
    
    $
    13,861Deduct: Income tax effect of ANR Fund IX Holdings, L.P. income
from continuing operations prior to Internal Restructuring
    
    
    
    
    
    
    (649
    )
    
    
    (91
    )
    
    
    (722
    )Income from continuing operations, as adjusted
    
    
    26,127
    
    
    
    11,800
    
    
    
    715
    
    
    
    13,139Income (loss) from discontinued operations
    
    
    266
    
    
    
    (206
    )
    
    
    (214
    )
    
    
    (381
    )Add: Income tax effect of ANR Fund IX Holdings, L.P. loss
from discontinued operations prior to Internal Restructuring
    
    
    
    
    
    
    11
    
    
    
    2
    
    
    
    20Income (loss) from discontinued operations, as adjusted
    
    
    266
    
    
    
    (195
    )
    
    
    (212
    )
    
    
    (361
    )Net income, as adjusted
    
    $
    26,393
    
    
    $
    11,605
    
    
    $
    503
    
    
    $
    12,778Denominator:Weighted average shares  denominator for basic
    
    
    61,091,806
    
    
    
    13,998,911
    
    
    
    50,220,404
    
    
    
    13,998,911Dilutive effect of stock options and restricted stock grants
    
    
    471,167
    
    
    
    
    
    
    
    218,607
    
    
    
    Adjusted weighted average shares for diluted
    
    
    61,562,973
    
    
    
    13,998,911
    
    
    
    50,439,011
    
    
    
    13,998,911Net income per basic share, as adjusted:Income from continuing operations, as adjusted
    
    $
    0.43
    
    
    $
    0.84
    
    
    $
    0.01
    
    
    $
    0.94Income (loss) from discontinued operations, as adjusted
    
    
    
    
    
    
    (0.01
    )
    
    
    
    
    
    
    (0.03
    )Net income per basic share, as adjusted
    
    $
    0.43
    
    
    $
    0.83
    
    
    $
    0.01
    
    
    $
    0.91Net income per diluted share, as adjusted:Income from continuing operations, as adjusted
    
    $
    0.43
    
    
    $
    0.84
    
    
    $
    0.01
    
    
    $
    0.94Income (loss) from discontinued operations, as adjusted
    
    
    
    
    
    
    (0.01
    )
    
    
    
    
    
    
    (0.03
    )Net income per diluted share, as adjusted
    
    $
    0.43
    
    
    $
    0.83
    
    
    $
    0.01
    
    
    $
    0.91
 Pro Forma Net Income (Loss) Per Share
  (i)
    
    the additional income taxes on the portion of reported pre-tax income (loss)
attributable to the portion owned by ANR Fund IX Holdings, L.P. for the periods from
January 1, 2005 to February 11, 2005, and from January 1, 2004 to June 30, 2004;(ii)
    
    the add back of minority interest for the periods from January 1, 2005 to
February 11, 2005, and from January 1, 2004 to June 30, 2004 because the ownership
held by the minority interest owners of ANR Holdings were exchanged for shares of Alpha
National Resources, Inc. as part of the Internal Restructuring;(iii)
    
    the additional income taxes that would have been incurred by the Company on the
minority interest added back for the periods from January 1, 2005 to February 11, 2005,
and from January 1, 2004 to June 30, 2004; and(iv)
    
    the issuance of $175,000 principle amount of 10% senior notes due 2012 by our
subsidiaries Alpha Natural Resources, LLC and Alpha Natural Resources Capital Corp. and
the entry by Alpha Natural Resources, LLC into a $175,000 credit facility in May 2004,
which we refer to as the 2004 Financings, as if these transactions had occurred on
January 1, 2004.




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##### Table of Contents



ALPHA
NATURAL RESOURCES, INC. AND SUBSIDIARIES
 CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
June 30, 2005
(In thousands, except percentages and share data)
   (i)
    
    the retroactive impact of the common shares received by the FR Affiliates in
exchange for their ownership in ANR Holdings in connection with the Internal
Restructuring on a weighted-average outstanding share basis as being outstanding as of
January 1, 2004;(ii)
    
    the retroactive impact of the common shares issued to the minority interest
owners of ANR Holdings in connection with the Internal Restructuring, including the
immediately vested shares granted to management, on a weighted-average outstanding share
basis as being outstanding as of January 1, 2004;(iii)
    
    the unvested shares granted to management that vest over the two-year period
from January 1, 2005 to December 31, 2006 have been included in the basic computation on
a weighted-average outstanding share basis which is based on the monthly vesting
beginning as of January 1, 2005; and(iv)
    
    the retroactive impact of the 33,925,000 new shares issued in connection with the
initial public offering on a weighted-average outstanding share basis as being
outstanding as of January 1, 2004 since 100 percent of the net proceeds from the initial
public offering was distributed to the previous owners of ANR Holdings.
   Three Months Ended June 30,
    
    Six Months Ended June 30,2005
    
    2004
    
    2005
    
    2004Pro forma revenues
    
    $
    417,636
    
    
    $
    339,875
    
    
    $
    729,791
    
    
    $
    582,597Pro forma net income
    
    
    26,393
    
    
    
    20,137
    
    
    
    2,679
    
    
    
    19,820




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##### Table of Contents



ALPHA
NATURAL RESOURCES, INC. AND SUBSIDIARIES
 CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
June 30, 2005
(In thousands, except percentages and share data)
  Three Months Ended June 30,
    
    Six Months Ended June 30,2005
    
    2004
    
    2005
    
    2004Numerator:Reported income from continuing operations
    
    $
    26,127
    
    
    $
    12,449
    
    
    $
    806
    
    
    $
    13,861Deduct: Income tax effect of ANR Fund IX Holdings, L.P. income
from continuing operations prior to Internal Restructuring
    
    
    
    
    
    
    (649
    )
    
    
    (91
    )
    
    
    (722
    )Deduct: Pro forma effects of the 2004 Financings, net of income taxes
    
    
    
    
    
    
    672
    
    
    
    
    
    
    
    (1,614
    )Add: Minority interest in income from continuing operations, net of
income tax effect
    
    
    
    
    
    
    7,993
    
    
    
    2,231
    
    
    
    8,901Pro forma income from continuing operations
    
    
    26,127
    
    
    
    20,465
    
    
    
    2,946
    
    
    
    20,426Reported income (loss) from discontinued operations
    
    
    266
    
    
    
    (206
    )
    
    
    (214
    )
    
    
    (381
    )Add: Income tax effect of ANR Fund IX Holdings, L.P. loss
from discontinued operations prior to Internal Restructuring
    
    
    
    
    
    
    11
    
    
    
    2
    
    
    
    20Add: Minority interest in income (loss) from discontinued operations, net of
income tax effect
    
    
    
    
    
    
    (133
    )
    
    
    (55
    )
    
    
    (245
    )Pro forma income (loss) from discontinued operations
    
    
    266
    
    
    
    (328
    )
    
    
    (267
    )
    
    
    (606
    )Pro forma net income
    
    $
    26,393
    
    
    $
    20,137
    
    
    $
    2,679
    
    
    $
    19,820Pro forma denominator:Weighted average shares  denominator for basic
    
    
    61,091,806
    
    
    
    60,867,650
    
    
    
    61,008,212
    
    
    
    60,867,650Dilutive effect of stock options and restricted stock grants
    
    
    471,167
    
    
    
    292,472
    
    
    
    523,260
    
    
    
    330,090Adjusted weighted average shares for diluted
    
    
    61,562,973
    
    
    
    61,160,122
    
    
    
    61,531,472
    
    
    
    61,197,740Pro forma net income per basic share:Pro forma income from continuing operations
    
    $
    0.43
    
    
    $
    0.34
    
    
    $
    0.04
    
    
    $
    0.34Pro forma income (loss) from discontinued operations
    
    
    
    
    
    
    (0.01
    )
    
    
    
    
    
    
    (0.01
    )Pro forma net income per basic share
    
    $
    0.43
    
    
    $
    0.33
    
    
    $
    0.04
    
    
    $
    0.33Pro forma net income per diluted share:Pro forma income from continuing operations
    
    $
    0.43
    
    
    $
    0.34
    
    
    $
    0.04
    
    
    $
    0.33Pro forma income (loss) from discontinued operations
    
    
    
    
    
    
    (0.01
    )
    
    
    
    
    
    
    (0.01
    )Pro forma net income per diluted share
    
    $
    0.43
    
    
    $
    0.33
    
    
    $
    0.04
    
    
    $
    0.32
 Pro Forma Earnings Per Share Disclosure Provisions of SFAS No. 123
 Accounting for Stock Issued to Employees,
 Accounting for
Stock-Based Compensation.




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##### Table of Contents



ALPHA
NATURAL RESOURCES, INC. AND SUBSIDIARIES
 CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
June 30, 2005
(In thousands, except percentages and share data)
 Three months ended
    
    Six months endedJune 30, 2005
    
    June 30, 2005Pro forma net income (see above)
    
    $
    26,393
    
    
    $
    2,679Add: Stock-based compensation expense
included in pro forma net income, net of income taxes
    
    
    2,508
    
    
    
    38,029Deduct: Total stock-based compensation expense
determined under fair-value based method, net of income
taxes
    
    
    (2,709
    )
    
    
    (38,375
    )Pro forma net income, adjusted for effect of fair value of stock options
    
    $
    26,192
    
    
    $
    2,333Income per share:Basic and diluted  pro forma (see above)
    
    $
    0.43
    
    
    $
    0.04Basic and diluted  pro forma, adjusted
    
    $
    0.43
    
    
    $
    0.04
  Expected life (years)
    
    
    4.0Expected volatility
    
    
    38.0
    %Risk-free interest rate
    
    
    3.38
    %Expected annual dividend
    
    $
    0.10
  (3) Inventories
  June 30,
    
    December 31,2005
    
    2004Raw coal
    
    $
    5,050
    
    
    $
    3,888Saleable coal
    
    
    80,615
    
    
    
    42,899Materials and supplies
    
    
    6,850
    
    
    
    7,782Total inventories
    
    $
    92,515
    
    
    $
    54,569




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##### Table of Contents



ALPHA
NATURAL RESOURCES, INC. AND SUBSIDIARIES
 CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
June 30, 2005
(In thousands, except percentages and share data)
 (4) Long-Term Debt
  June 30,
    
    December 31,2005
    
    200410% Senior notes due 2012
    
    $
    175,000
    
    
    $
    175,000Revolving credit facility
    
    
    78,000
    
    
    
    8,000Variable rate term notes
    
    
    879
    
    
    
    1,466Capital lease obligation
    
    
    1,709
    
    
    
    1,995Other
    
    
    
    
    
    
    16Total long-term debt
    
    
    255,588
    
    
    
    186,477Less current portion
    
    
    1,349
    
    
    
    1,693Long-term debt, net of current
portion
    
    $
    254,239
    
    
    $
    184,784




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##### Table of Contents



ALPHA
NATURAL RESOURCES, INC. AND SUBSIDIARIES
 CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
June 30, 2005
(In thousands, except percentages and share data)
 (5) Asset Retirement Obligation
  Total asset retirement obligation at December 31, 2004
    
    $
    39,579Accretion for the six months ended June 30, 2005
    
    
    1,631Sites added in first six months of 2005
    
    
    1,156Expenditures for the six months ended June 30, 2005
    
    
    (1,772
    )Loss on
settlement of asset retirement obligation
    
    
    371Total asset retirement obligation at June 30, 2005
    
    $
    40,965
 (6) Stock-Based Compensation Awards
 Accounting for Stock Issued to Employees,
  WeightedAverageNumber of
    
    Exercise
    
    RemainingOptions
    
    Price
    
    Life at 6-30-05Outstanding at January 1, 2005
    
    
    596,985
    
    
    $
    12.73
    
    
    
    4.4Granted at initial public offering
    
    
    692,905
    
    
    $
    19.00
    
    
    
    4.6Exercised
    
    
    
    
    
    
    Forfeited
    
    
    (90,696
    )
    
    $
    14.11Issued during period
    
    
    10,000
    
    
    $
    24.85
    
    
    
    4.8Outstanding at June 30, 2005
    
    
    1,209,194
    
    
    $
    16.32
    
    
    
    4.5




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##### Table of Contents



ALPHA
NATURAL RESOURCES, INC. AND SUBSIDIARIES
 CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
June 30, 2005
(In thousands, except percentages and share data)
 (7) Postretirement Benefits Other Than Pensions
  Three Months Ended
    
    Six Months EndedJune 30,
    
    June 30,2005
    
    2004
    
    2005
    
    2004Service cost
    
    $
    1,000
    
    
    $
    199
    
    
    $
    1,944
    
    
    $
    398Interest cost
    
    
    717
    
    
    
    156
    
    
    
    1,255
    
    
    
    312Amortization of net (gain) or loss
    
    
    15
    
    
    
    (6
    )
    
    
    9
    
    
    
    (12
    )Amortization of prior service cost
    
    
    608
    
    
    
    
    
    
    
    1,306
    
    
    
    Net periodic benefit cost
    
    $
    2,340
    
    
    $
    349
    
    
    $
    4,514
    
    
    $
    698
   (8) Related Party Transactions
  June 30,
    
    December 31,2005
    
    2004AMCI
    
    $
    28,019
    
    
    $
    7,121Robindale Energy & Subsidiary
    
    
    
    
    
    
    6Total
    
    $
    28,019
    
    
    $
    7,127




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##### Table of Contents



ALPHA
NATURAL RESOURCES, INC. AND SUBSIDIARIES
 CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
June 30, 2005
(In thousands, except percentages and share data)
  June 30,
    
    December 31,2005
    
    2004AMCI
    
    $
    3,600
    
    
    $
    262Robindale Energy & Subsidiary
    
    
    
    
    
    
    42First Reserve Fund IX, L.P.
    
    
    4,500
    
    
    
    Total
    
    $
    8,100
    
    
    $
    304
  (9) Segment Information
   CorporateCoal
    
    All
    
    andOperations
    
    Other
    
    Eliminations
    
    ConsolidatedRevenues
    
    $
    414,660
    
    
    $
    10,517
    
    
    $
    (7,541
    )
    
    $
    417,636Depreciation, depletion, and amortization
    
    
    14,344
    
    
    
    369
    
    
    
    362
    
    
    
    15,075EBITDA, as adjusted
    
    
    70,502
    
    
    
    1,112
    
    
    
    (14,867
    )
    
    
    56,747Capital expenditures
    
    
    35,924
    
    
    
    40
    
    
    
    235
    
    
    
    36,199Total assets
    
    
    505,097
    
    
    
    72,329
    
    
    
    30,806
    
    
    
    608,232




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##### Table of Contents



ALPHA
NATURAL RESOURCES, INC. AND SUBSIDIARIES
 CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
June 30, 2005
(In thousands, except percentages and share data)
  CorporateCoal
    
    All
    
    andOperations
    
    Other
    
    Eliminations
    
    ConsolidatedRevenues
    
    $
    722,116
    
    
    $
    20,229
    
    
    $
    (12,554
    )
    
    $
    729,791Depreciation, depletion, and amortization
    
    
    27,494
    
    
    
    788
    
    
    
    963
    
    
    
    29,245EBITDA, as adjusted
    
    
    116,377
    
    
    
    2,341
    
    
    
    (61,864
    )
    
    
    56,854Capital expenditures
    
    
    65,458
    
    
    
    322
    
    
    
    431
    
    
    
    66,211
  CorporateCoal
    
    All
    
    andOperations
    
    Other
    
    Eliminations
    
    ConsolidatedRevenues
    
    $
    335,237
    
    
    $
    7,289
    
    
    $
    (2,651
    )
    
    $
    339,875Depreciation, depletion, and amortization
    
    
    12,190
    
    
    
    244
    
    
    
    482
    
    
    
    12,916EBITDA, as adjusted
    
    
    60,782
    
    
    
    1,159
    
    
    
    (13,865
    )
    
    
    48,076Capital expenditures
    
    
    17,006
    
    
    
    39
    
    
    
    31
    
    
    
    17,076Total assets
    
    
    366,991
    
    
    
    74,554
    
    
    
    19,658
    
    
    
    461,203
  CorporateCoal
    
    All
    
    andOperations
    
    Other
    
    Eliminations
    
    ConsolidatedRevenues
    
    $
    574,860
    
    
    $
    13,340
    
    
    $
    (5,603
    )
    
    $
    582,597Depreciation, depletion, and amortization
    
    
    23,205
    
    
    
    494
    
    
    
    991
    
    
    
    24,690EBITDA, as adjusted
    
    
    88,904
    
    
    
    1,840
    
    
    
    (25,634
    )
    
    
    65,110Capital expenditures
    
    
    32,869
    
    
    
    143
    
    
    
    333
    
    
    
    33,345




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##### Table of Contents



ALPHA
NATURAL RESOURCES, INC. AND SUBSIDIARIES
 CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
June 30, 2005
(In thousands, except percentages and share data)
  Three Months Ended
    
    Six Months EndedJune 30,
    
    June 30,2005
    
    2004
    
    2005
    
    2004Total segment EBITDA, as adjusted, from
continuing operations
    
    $
    56,747
    
    
    $
    48,076
    
    
    $
    56,854
    
    
    $
    65,110Interest expense
    
    
    (6,647
    )
    
    
    (6,780
    )
    
    
    (12,764
    )
    
    
    (8,831
    )Interest income
    
    
    191
    
    
    
    80
    
    
    
    478
    
    
    
    101Income tax expense from continuing operations
    
    
    (9,089
    )
    
    
    (3,119
    )
    
    
    (11,599
    )
    
    
    (3,473
    )Depreciation, depletion and amortization from
continuing operations
    
    
    (15,075
    )
    
    
    (12,916
    )
    
    
    (29,245
    )
    
    
    (24,690
    )Minority interest in income from continuing
operations
    
    
    
    
    
    
    (12,892
    )
    
    
    (2,918
    )
    
    
    (14,356
    )Income from continuing operations
    
    $
    26,127
    
    
    $
    12,449
    
    
    $
    806
    
    
    $
    13,861
  (10) Contingencies
 ( a ) Guarantees and Financial Instruments with Off-balance Sheet Risk
  ( b ) Litigation




---



##### Table of Contents



ALPHA
NATURAL RESOURCES, INC. AND SUBSIDIARIES
 CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
June 30, 2005
(In thousands, except percentages and share data)
 (11) Discontinued Operations
   Three Months Ended
    
    Six Months EndedJune 30,
    
    June 30,2005
    
    2004
    
    2005
    
    2004Total revenues
    
    $
    906
    
    
    $
    3,484
    
    
    $
    4,523
    
    
    $
    7,501Total costs and expenses
    
    
    1,251
    
    
    
    3,960
    
    
    
    5,607
    
    
    
    8,377Gain on sale of discontinued operations
    
    
    704
    
    
    
    0
    
    
    
    704
    
    
    
    0Income (loss) from operations
    
    
    359
    
    
    
    (476
    )
    
    
    (380
    )
    
    
    (876
    )Miscellaneous income
    
    
    0
    
    
    
    4
    
    
    
    1
    
    
    
    4Income tax
expense (benefit)  from discontinued
operations
    
    
    93
    
    
    
    (52
    )
    
    
    (93
    )
    
    
    (96
    )Minority interest in income (loss) from
discontinued operations
    
    
    0
    
    
    
    (214
    )
    
    
    (72
    )
    
    
    (395
    )Income (loss) from discontinued operations
    
    $
    266
    
    
    $
    (206
    )
    
    $
    (214
    )
    
    $
    (381
    )
 (12) Income Taxes




---



##### Table of Contents



ALPHA
NATURAL RESOURCES, INC. AND SUBSIDIARIES
 CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
June 30, 2005
(In thousands, except percentages and share data)
  Three Months Ended
    
    Six Months EndedJune 30,
    
    June 30,2005
    
    2004
    
    2005
    
    2004Current tax expense:Federal
    
    $
    6,639
    
    
    $
    1,461
    
    
    $
    8,684
    
    
    $
    1,629State
    
    
    935
    
    
    
    43
    
    
    
    1,315
    
    
    
    477,574
    
    
    
    1,504
    
    
    
    9,999
    
    
    
    1,676Deferred tax expense:Federal
    
    
    1,218
    
    
    
    1,191
    
    
    
    1,287
    
    
    
    1,324State
    
    
    297
    
    
    
    424
    
    
    
    313
    
    
    
    4731,515
    
    
    
    1,615
    
    
    
    1,600
    
    
    
    1,797Total income tax expense:Federal
    
    
    7,857
    
    
    
    2,652
    
    
    
    9,971
    
    
    
    2,953State
    
    
    1,232
    
    
    
    467
    
    
    
    1,628
    
    
    
    520$
    9,089
    
    
    $
    3,119
    
    
    $
    11,599
    
    
    $
    3,473
  Three Months Ended
    
    Six Months EndedJune 30,
    
    June 30,2005
    
    2004
    
    2005
    
    2004Federal statutory income tax expense
    
    $
    12,325
    
    
    $
    9,961
    
    
    $
    5,362
    
    
    $
    11,092Increases (reductions) in taxes due to:Percentage depletion allowance
    
    
    (4,895
    )
    
    
    (1,979
    )
    
    
    (6,563
    )
    
    
    (2,205
    )Extraterritorial income exclusion
    
    
    (521
    )
    
    
    
    
    
    
    (705
    )
    
    
    Deduction for domestic production activities
    
    
    (202
    )
    
    
    
    
    
    
    (279
    )
    
    
    State taxes, net of federal tax impact
    
    
    757
    
    
    
    304
    
    
    
    1,056
    
    
    
    338Stock-based compensation
    
    
    1,300
    
    
    
    
    
    
    
    13,354
    
    
    
    Change in valuation allowance
    
    
    268
    
    
    
    (134
    )
    
    
    397
    
    
    
    (149
    )Taxes not provided for minority interest
    
    
    
    
    
    
    (4,644
    )
    
    
    (1,001
    )
    
    
    (5,171
    )Taxes not provided for pass-through entity
    
    
    
    
    
    
    (469
    )
    
    
    (133
    )
    
    
    (522
    )Other, net
    
    
    57
    
    
    
    80
    
    
    
    111
    
    
    
    90Actual income tax expense
    
    $
    9,089
    
    
    $
    3,119
    
    
    $
    11,599
    
    
    $
    3,473
  June 30,
    
    December 31,2005
    
    2004Deferred tax assets:Investment in limited liability company subsidiary
    
    $
    124,701
    
    
    $
    Net operating loss carryforwards
    
    
    3,238
    
    
    
    5,598Charitable contribution carryforwards
    
    
    136
    
    
    
    207Alternative minimum tax credit carryforward
    
    
    4,364
    
    
    
    1,249Gross deferred tax assets
    
    
    132,439
    
    
    
    7,054Less valuation allowance
    
    
    (108,677
    )
    
    
    (1,374
    )Total net deferred tax assets
    
    
    23,762
    
    
    
    5,680Deferred tax liabilities:Investment in limited liability company subsidiary
    
    
    
    
    
    
    (6,869
    )Virginia tax credit
    
    
    (2,665
    )
    
    
    (1,855
    )Total deferred tax liabilities
    
    
    (2,665
    )
    
    
    (8,724
    )Net deferred tax asset(liability)
    
    $
    21,097
    
    
    $
    (3,044
    )
    Table of Contents  ALPHA
NATURAL RESOURCES, INC. AND SUBSIDIARIES
 CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
June 30, 2005
(In thousands, except percentages and share data)
  ANR Fund IX Holdings, L.P. and Alpha NR Holding, Inc. and Subsidiaries:Deferred tax liability balance at December 31, 2004
    
    $
    (3,044
    )Deferred tax benefit recorded in period from January 1, 2005 to February 11, 2005
for continuing and discontinued operations
    
    
    192Deferred tax liability balance at February 11, 2005
    
    $
    (2,852
    )Alpha
Natural Resources, Inc.:Deferred tax liability balance on February 12, 2005
    
    $
    (2,852
    )Estimated deferred tax asset generated from the Internal Restructuring
    
    
    132,637Valuation allowance established at the time of the Internal Restructuring
    
    
    (106,908
    )Net deferred taxes recorded as part of Internal Restructuring, with offsetting
increase to additional paid-in capital
    
    
    25,729Deferred tax expense recorded in period from February 12, 2005 to June 30, 2005
for continuing and discontinued operations
    
    
    (1,780
    )Net deferred tax asset at June 30, 2005
    
    $
    21,097
    Table of Contents  ALPHA
NATURAL RESOURCES, INC. AND SUBSIDIARIES
 CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
June 30, 2005
(In thousands, except percentages and share data)
  June 30,
    
    December 31,2005
    
    2004Current asset
    
    $
    605
    
    
    $
    4,674Current liability
    
    
    
    
    
    
    Net current asset
    
    
    605
    
    
    
    4,674Noncurrent asset
    
    
    23,157
    
    
    
    1,006Noncurrent liability
    
    
    (2,665
    )
    
    
    (8,724
    )Net noncurrent asset (liability)
    
    
    20,492
    
    
    
    (7,718
    )Total net deferred tax asset (liability)
    
    $
    21,097
    
    
    $
    (3,044
    )
 (13) New Accounting Pronouncements
 Share-Based Payment, Accounting for Stock Based Compensation. Accounting for Stock Issued to Employees,
    Table of Contents  Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
  Cautionary Note Regarding Forward Looking Statements
   
    
    market demand for coal, electricity and steel;
    
    future economic or capital market conditions;
    
    weather conditions or catastrophic weather-related damage;
    
    our production capabilities;
    
    the consummation of financing, acquisition or disposition transactions and the effect thereof on our business;
    
    our plans and objectives for future operations and expansion or consolidation;
    
    our relationships with, and other conditions affecting, our customers;
    
    timing of reductions in customer coal inventories;
    
    long-term coal supply arrangements;
    
    inherent risks of coal mining beyond our control;
    
    environmental laws, including those directly affecting our coal mining and production,
and those affecting our customers coal usage;
    
    competition in coal markets;
    
    railroad and other transportation performance and costs;
    
    availability of mining and processing equipment and parts;
    
    our assumptions concerning economically recoverable coal reserve estimates;
    
    availability of skilled employees and other employee workforce factors;
    Table of Contents  
    
    regulatory and court decisions;
    
    future legislation and changes in regulations, governmental policies or taxes;
    
    changes in postretirement benefit obligations;
    
    our liquidity, results of operations and financial condition; and
    
    other factors, including the other factors discussed in Overview  Coal Pricing Trends
and Uncertainties and Outlook below, and the Risks Related to our Company section of
Managements Discussion and Analysis of Financial Condition and Results of Operations, set
forth in our annual report on Form 10-K for the year ended December 31, 2004.
  Overview
      NKC Disposition.
    Table of Contents  Coal Pricing Trends and Uncertainties.
    Table of Contents  Reconciliation of Non-GAAP Measures
  Three months ended
    
    Six months endedJune 30,
    
    June 30,2005
    
    2004
    
    2005
    
    2004(in thousands)Net income
    
    $
    26,393
    
    
    $
    12,243
    
    
    $
    592
    
    
    $
    13,480Interest expense
    
    
    6,647
    
    
    
    6,780
    
    
    
    12,764
    
    
    
    8,831Interest income
    
    
    (191
    )
    
    
    (80
    )
    
    
    (478
    )
    
    
    (101
    )Income tax expense
    
    
    9,182
    
    
    
    3,067
    
    
    
    11,506
    
    
    
    3,377Depreciation, depletion and amortization
    
    
    15,048
    
    
    
    13,111
    
    
    
    29,528
    
    
    
    25,040EBITDA (1)
    
    
    57,079
    
    
    
    35,121
    
    
    
    53,912
    
    
    
    50,627Minority interest
    
    
 

    
    
    
    12,678
    
    
    
    2,846
    
    
    
    13,961EBITDA, as adjusted (1)
    
    $
    57,079
    
    
    $
    47,799
    
    
    $
    56,758
    
    
    $
    64,588
 
 
 Results of Operations
  Three months Ended June 30, 2005 Compared to the Three months Ended June 30, 2004
 Summary
    Table of Contents  Revenues
 Three months Ended
    
    IncreaseJune 30,
    
    (Decrease)2005
    
    2004
    
    $ or Tons
    
    %(in thousands, except per ton data)Coal revenues
    
    $
    364,070
    
    
    $
    293,798
    
    
    $
    70,272
    
    
    
    24
    %Freight and handling revenues
    
    
    48,239
    
    
    
    39,671
    
    
    
    8,568
    
    
    
    22
    %Other revenues
    
    
    5,327
    
    
    
    6,406
    
    
    
    (1,079
    )
    
    
    (17
    %)Total revenues
    
    $
    417,636
    
    
    $
    339,875
    
    
    $
    77,761
    
    
    
    23
    %Tons Sold:Steam
    
    
    3,906
    
    
    
    4,037
    
    
    
    (131
    )
    
    
    (3
    %)Metallurgical
    
    
    2,784
    
    
    
    2,593
    
    
    
    191
    
    
    
    7
    %Total
    
    
    6,690
    
    
    
    6,630
    
    
    
    60
    
    
    
    1
    %Coal sales realization per ton:Steam
    
    $
    40.97
    
    
    $
    31.58
    
    
    $
    9.39
    
    
    
    30
    %Metallurgical
    
    
    73.29
    
    
    
    64.13
    
    
    
    9.16
    
    
    
    14
    %Total
    
    $
    54.42
    
    
    $
    44.31
    
    
    $
    10.11
    
    
    
    23
    %
 Coal Revenues.
 Freight and Handling Revenues.
 Other Revenues.
 Costs and Expenses
 Three months ended
    
    IncreaseJune 30.
    
    (Decrease)2005
    
    2004
    
    $
    
    %(in thousands, except per ton data)Cost of coal sales (exclusive of items shown separately below)
    
    $
    293,493
    
    
    $
    233,490
    
    
    $
    60,003
    
    
    
    26
    %Freight and handling costs
    
    
    48,239
    
    
    
    39,671
    
    
    
    8,568
    
    
    
    22
    %Cost of other revenues
    
    
    4,319
    
    
    
    4,928
    
    
    
    (609
    )
    
    
    (12
    %)Depreciation, depletion and amortization
    
    
    15,075
    
    
    
    12,916
    
    
    
    2,159
    
    
    
    17
    %Selling, general and administrative expenses (exclusive of
depreciation and amortization shown separately above and including
stock-based compensation
expense in the amount of $3,381 in 2005)
    
    
    14,870
    
    
    
    13,861
    
    
    
    1,009
    
    
    
    7
    %Total costs and expenses
    
    $
    375,996
    
    
    $
    304,866
    
    
    $
    71,130
    
    
    
    23
    %
    Table of Contents  Three months ended
    
    IncreaseJune 30.
    
    (Decrease)2005
    
    2004
    
    $
    
    %(in thousands, except per ton data)Cost of coal sales per ton:Company mines
    
    $
    36.65
    
    
    $
    30.51
    
    
    $
    6.14
    
    
    
    20
    %Contract mines (including purchased and processed)
    
    
    53.12
    
    
    
    41.39
    
    
    
    11.73
    
    
    
    28
    %Total produced and processed
    
    
    40.40
    
    
    
    32.97
    
    
    
    7.43
    
    
    
    23
    %Purchased and sold without processing
    
    
    56.46
    
    
    
    41.80
    
    
    
    14.66
    
    
    
    35
    %Cost of coal sales per ton
    
    $
    43.87
    
    
    $
    35.22
    
    
    $
    8.65
    
    
    
    25
    %
 Cost of Coal Sales:
 Freight and Handling Costs.
 Cost of Other Revenues
 Depreciation, Depletion and Amortization.
 Selling, General and Administrative Expenses.
 Interest Expense.
 Interest Income.
 Income Tax Expense:
    Table of Contents  Six months Ended June 30, 2005 Compared to the Six months Ended June 30, 2004
 Summary
   Revenues
 Six months Ended
    
    IncreaseJune 30,
    
    (Decrease)2005
    
    2004
    
    $ or Tons
    
    %(in thousands, except per ton data)Coal revenues
    
    $
    637,204
    
    
    $
    505,813
    
    
    $
    131,391
    
    
    
    26
    %Freight and handling revenues
    
    
    79,991
    
    
    
    65,275
    
    
    
    14,716
    
    
    
    23
    %Other revenues
    
    
    12,596
    
    
    
    11,509
    
    
    
    1,087
    
    
    
    9
    %Total revenues
    
    $
    729,791
    
    
    $
    582,597
    
    
    $
    147,194
    
    
    
    25
    %Tons Sold:Steam
    
    
    7,111
    
    
    
    7,806
    
    
    
    (695
    )
    
    
    (9
    %)Metallurgical
    
    
    5,112
    
    
    
    4,773
    
    
    
    339
    
    
    
    7
    %Total
    
    
    12,223
    
    
    
    12,579
    
    
    
    (356
    )
    
    
    (3
    %)Coal sales realization per ton:Steam
    
    $
    39.01
    
    
    $
    31.01
    
    
    $
    8.00
    
    
    
    26
    %Metallurgical
    
    
    70.37
    
    
    
    55.27
    
    
    
    15.10
    
    
    
    27
    %Total
    
    $
    52.13
    
    
    $
    40.21
    
    
    $
    11.92
    
    
    
    30
    %
 Coal Revenues.
 Freight and Handling Revenues.
    Table of Contents  Other Revenues.
 Costs and Expenses
 Six months ended
    
    IncreaseJune 30.
    
    (Decrease)2005
    
    2004
    
    $
    
    %(in thousands, except per ton data)Cost of coal sales (exclusive of items shown separately below)
    
    $
    519,777
    
    
    $
    418,572
    
    
    $
    101,205
    
    
    
    24
    %Freight and handling costs
    
    
    79,991
    
    
    
    65,275
    
    
    
    14,716
    
    
    
    23
    %Cost of other revenues
    
    
    10,384
    
    
    
    8,338
    
    
    
    2,046
    
    
    
    25
    %Depreciation, depletion and amortization
    
    
    29,245
    
    
    
    24,690
    
    
    
    4,555
    
    
    
    18
    %Selling, general and administrative expenses (exclusive of
depreciation and amortization shown separately above and including
stock-based compensation
expense in the amount of $39,788 in 2005)
    
    
    62,776
    
    
    
    25,666
    
    
    
    37,110
    
    
    
    145
    %Total costs and expenses
    
    $
    702,173
    
    
    $
    542,541
    
    
    $
    159,632
    
    
    
    29
    %Cost of coal sales per ton:Company mines
    
    $
    35.65
    
    
    $
    28.99
    
    
    $
    6.66
    
    
    
    23
    %Contract mines (including purchased and processed)
    
    
    50.14
    
    
    
    38.32
    
    
    
    11.82
    
    
    
    31
    %Total produced and processed
    
    
    38.78
    
    
    
    31.12
    
    
    
    7.66
    
    
    
    25
    %Purchased and sold without processing
    
    
    58.09
    
    
    
    40.43
    
    
    
    17.66
    
    
    
    44
    %Cost of coal sales per ton
    
    $
    42.52
    
    
    $
    33.28
    
    
    $
    9.24
    
    
    
    28
    %
 Cost of Coal Sales:
 Freight and Handling Costs.
 Cost of Other Revenues
 Depreciation, Depletion and Amortization.
 Selling, General and Administrative Expenses.
    Table of Contents  Interest Expense.
 Interest Income.
 Income Tax Expense:
    Liquidity and Capital Resources
    Table of Contents  Cash Flows
  §  Our trade accounts receivable used $19.4 million more cash in the first six months of
2005 than in the comparable period last year, due to the 25% increase in our total revenues in
the six months ended June 30, 2005 compared to the prior year period. There has been no change
in our credit terms and over 93% of our receivables were current in both
periods.
 §  The cash required to carry inventories increased by $20.1 million in the current six
month period over the corresponding period last year mainly due to an increase in tons in
inventory and an increase in the associated cost per ton.§  Accounts payable and other current accrued liabilities provided cash in the six months
ended June 30, 2005 in the amount of $14.9 million while these liabilities provided cash in the
amount of $36.2 million in the year ago period, an additional $21.3 million use of cash in the
current period.
   Credit Facility and Long-term Debt
  June 30,200510% Senior notes due 2012
    
    $
    175,000Revolving credit facility
    
    
    78,000Variable rate term notes
    
    
    879Capital lease obligation
    
    
    1,709Total long-term debt
    
    
    255,588Less current portion
    
    
    (1,349
    )Long-term debt, net of current portion
    
    $
    254,239
    Table of Contents  Other
  Analysis of Material Debt Covenants
   
    
    Alpha Natural Resources, LLC must maintain a leverage ratio, defined as the ratio of
total debt to Adjusted EBITDA (as defined in the credit agreement), of less than 3.75 at
December 31, 2004, 3.50 at March 31 and June 30, 2005, 3.25 at September 30 and December 31,
2005, 3.15 at March 31, June 30, September 30 and December 31, 2006 and 3.00 at March 31,
2007 (and thereafter), respectively, with Adjusted EBITDA being computed using the most
recent four quarters; and
    
    Alpha Natural Resources, LLC must maintain an interest coverage ratio, defined as the
ratio of Adjusted EBITDA (as defined in the credit agreement), to cash interest expense
(defined as the sum of cash interest expense plus cash letter of credit fees and
commissions), of greater than 2.50 at September 30, 2004 and at each quarter end thereafter.
    Table of Contents   Three Months
    
    Three Months
    
    Three Months
    
    Three Months
    
    Twelve MonthsEnded
    
    Ended
    
    Ended
    
    Ended
    
    EndedSeptember 30,
    
    December 31,
    
    March 31,
    
    June 30,
    
    June 30,2004
    
    2004
    
    2005
    
    2005
    
    2005(in thousands)Net income (loss)
    
    $
    5,342
    
    
    $
    1,115
    
    
    $
    (25,801
    )
    
    $
    26,393
    
    
    $
    7,049Interest expense, net
    
    
    5,449
    
    
    
    5,344
    
    
    
    5,830
    
    
    
    6,456
    
    
    
    23,079Income tax expense (benefit)
    
    
    1,335
    
    
    
    (772
    )
    
    
    2,324
    
    
    
    9,182
    
    
    
    12,069Depreciation, depletion and amortization
expenses
    
    
    14,312
    
    
    
    16,660
    
    
    
    14,480
    
    
    
    15,048
    
    
    
    60,500EBITDA
    
    
    26,438
    
    
    
    22,347
    
    
    
    (3,167
    )
    
    
    57,079
    
    
    
    102,697Minority
interest(1)
    
    
    5,688
    
    
    
    268
    
    
    
    2,846
    
    
    
    
    
    
    
    8,802Stock-based
compensation charge(2)
    
    
    
    
    
    
    
    
    
    
    36,407
    
    
    
    3,381
    
    
    
    39,788Asset impairment charge and write-offs (2)
    
    
    5,100
    
    
    
    
    
    
    
    
    
    
    
    683
    
    
    
    5,783Alpha
Natural Resources, Inc. (income) expense (2)
    
    
    
    
    
    
    
    
    209
    
    
    
    (505
    )
    
    
    (296
    )


Adjusted EBITDA
    
    $
    37,226
    
    
    $
    22,615
    
    
    $
    36,295
    
    
    $
    60,638
    
    
    $
    156,774Leverage ratio(3)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1.67
    

Interest coverage ratio(4)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    7.44
 
 (1)
    
    Because our credit facility and our senior notes are issued by our subsidiaries, we are
required to adjust our EBITDA for our minority interest which does not exist at the subsidiary
level.(2)
    
    Adjusted EBITDA as defined in our credit facility is adjusted to add back for the non-cash
portion of the stock-based compensation charge related to our Internal Restructuring and
initial public offering as recorded by Alpha Natural Resources, LLC, for the asset impairment
charge related to our NKC operations, for other asset write-offs and amounts of income or
expense related to the parent of Alpha Natural Resources, LLC. Income or expenses related
solely to Alpha Natural Resources, Inc. are excluded from the calculation of Adjusted EBITDA
under our credit agreement.(3)
    
    Leverage ratio is defined in our credit facility as total debt divided by Adjusted EBITDA.(4)
    
    Interest coverage ratio is defined in our credit facility as Adjusted EBITDA divided by cash
interest expense. Outlook
    Table of Contents  Critical Accounting Estimates and Assumptions
  
 Item 3. Quantitative and Qualitative Disclosures About Market Risk
     
 Item 4. Controls and Procedures
 Evaluation of disclosure controls and procedures.
 Changes in internal control over financial reporting.
    Table of Contents  Limitations of the effectiveness of internal control.
    Table of Contents  PART II
 
 Item 4. Submission of Matters to a Vote of Security Holders
   Nominee
    
    Total Votes For
    
    Total Votes WithheldE. Linn Draper, Jr.
    
    
    58,614,273
    
    
    
    1,500,695Glenn A. Eisenberg
    
    
    58,615,673
    
    
    
    1,499,295John W. Fox, Jr.
    
    
    58,614,173
    
    
    
    1,500,795Alex T. Krueger
    
    
    51,638,124
    
    
    
    8,476,844Fritz R. Kundrun
    
    
    51,667,586
    
    
    
    8,447,382William E. Macaulay
    
    
    52,061,951
    
    
    
    8,053,017Hans J. Mende
    
    
    52,078,586
    
    
    
    8,036,382Michael J. Quillen
    
    
    52,322,904
    
    
    
    7,792,064
  Vote totals:For:
    
    
    59,902,994Against:
    
    
    182,031Abstained:
    
    
    29,943
 
 Item 5. Other Information
    Table of Contents  Item 6. Exhibits
 Exhibit No
    
    Description of Exhibit10.1*
    
    Amended and Restated Alpha Natural Resources, Inc. and Subsidiaries Deferred Compensation Plan10.2*
    
    First Amendment to Stockholder Agreement10.3
    
    Form of Alpha Natural Resources, Inc. Restricted Stock Agreement for Alpha Natural Resources, Inc. 2005
Long-Term Incentive Plan (Incorporated by reference to Exhibit 4.7 to the Registration Statement on Form
S-8 of Alpha Natural Resources, Inc. (File No. 333-127528) filed on August 15, 2005.)31(a)*
    
    Certification Pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934, as adopted pursuant
to § 302 of the Sarbanes-Oxley Act of 200231(b)*
    
    Certification Pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934, as adopted pursuant
to § 302 of the Sarbanes-Oxley Act of 200232(a)*
    
    Certification Pursuant to 18 U.S.C. § 1350, As Adopted Pursuant to § 906 of the Sarbanes-Oxley Act of 200232(b)*
    
    Certification Pursuant to 18 U.S.C. § 1350, As Adopted Pursuant to § 906 of the Sarbanes-Oxley Act of 2002
 
 *
    
    Filed herewith.
    
    Management contract or compensatory plan or arrangement.
    Table of Contents  SIGNATURE
  ALPHA NATURAL RESOURCES, INC.By:
    /s/ David C. StuebeName:
    David C. StuebeTitle:
    Vice President and Chief Financial Officer
    Table of Contents  10-Q EXHIBIT INDEX
 Exhibit No
    
    Description of Exhibit10.1*
    
    Amended and Restated Alpha Natural Resources, Inc. and Subsidiaries Deferred Compensation Plan10.2*
    
    First Amendment to Stockholder Agreement10.3
    
    Form of Alpha Natural Resources, Inc. Restricted Stock Agreement for Alpha Natural Resources, Inc. 2005
Long-Term Incentive Plan (Incorporated by reference to Exhibit 4.7 to the Registration Statement on Form
S-8 of Alpha Natural Resources, Inc. (File No. 333-127528) filed on August 15, 2005.)31(a)*
    
    Certification Pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934, as adopted pursuant
to § 302 of the Sarbanes-Oxley Act of 200231(b)*
    
    Certification Pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934, as adopted pursuant
to § 302 of the Sarbanes-Oxley Act of 200232(a)*
    
    Certification Pursuant to 18 U.S.C. § 1350, As Adopted Pursuant to § 906 of the Sarbanes-Oxley Act of 200232(b)*
    
    Certification Pursuant to 18 U.S.C. § 1350, As Adopted Pursuant to § 906 of the Sarbanes-Oxley Act of 2002
 
 *
    
    Filed herewith.
    
    Management contract or compensatory plan or arrangement.