##### 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 March 31, 2006
 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
    
    24212(Address of principal executive offices)
    
    (Zip Code)
 Registrants telephone number, including area code:
(276) 619-4410
 þ o
  o o þ
 o þ




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##### Table of Contents



TABLE OF CONTENTS
 PagePART IITEM 1. FINANCIAL STATEMENTS
    
    
    3Condensed Consolidated Balance Sheets (Unaudited)
    
    
    3Condensed Consolidated Statements of Income (Unaudited)
    
    
    4Condensed Consolidated Statements of Cash Flows (Unaudited)
    
    
    5Notes to Condensed Consolidated Financial Statements (Unaudited)
    
    
    7ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
    
    
    20ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
    
    
    28ITEM 4. CONTROLS AND PROCEDURES
    
    
    29PART IIITEM 1A. RISK FACTORSITEM 6. EXHIBITSEX-10.3: AMENDMENTEX-10.4: AGREEMENTEX-31.A: CERTIFICATIONEX-31.B: CERTIFICATIONEX-32.A: CERTIFICATIONEX-32.B: CERTIFICATION
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##### Table of Contents



Item 1. Financial Statements
 ALPHA NATURAL RESOURCES, INC. AND SUBSIDIARIES
 
 Condensed Consolidated Balance Sheets (Unaudited)
 (In thousands, except share and per share amounts)
 March 31,
    
    
    December 31,2006
    
    
    2005AssetsCurrent assets:Cash and cash equivalents
    
    $
    11,151
    
    
    
    39,622Trade accounts receivable, net
    
    
    164,252
    
    
    
    147,961Notes and other receivables
    
    
    5,139
    
    
    
    10,330Inventories
    
    
    82,817
    
    
    
    84,885Prepaid expenses and other current assets
    
    
    40,805
    
    
    
    36,117Total current assets
    
    
    304,164
    
    
    
    318,915Property, plant, and equipment, net
    
    
    602,865
    
    
    
    582,750Goodwill
    
    
    18,641
    
    
    
    18,641Other intangibles, net
    
    
    10,073
    
    
    
    11,014Deferred income taxes
    
    
    37,990
    
    
    
    38,967Other assets
    
    
    42,388
    
    
    
    43,371Total assets
    
    $
    1,016,121
    
    
    
    1,013,658Liabilities and Stockholders EquityCurrent liabilities:Current portion of long-term debt
    
    $
    2,962
    
    
    
    3,242Notes payable
    
    
    13,957
    
    
    
    59,014Bank overdraft
    
    
    29,378
    
    
    
    17,065Trade accounts payable
    
    
    83,003
    
    
    
    99,746Deferred income taxes
    
    
    12,241
    
    
    
    11,243Accrued expenses and other current liabilities
    
    
    87,016
    
    
    
    93,531Total current liabilities
    
    
    228,557
    
    
    
    283,841Long-term debt, net of current portion
    
    
    445,303
    
    
    
    423,547Workers compensation benefits
    
    
    6,227
    
    
    
    5,901Postretirement medical benefits
    
    
    26,692
    
    
    
    24,461Asset retirement obligation
    
    
    47,676
    
    
    
    46,296Deferred gains on sale of property interests
    
    
    5,523
    
    
    
    5,762Other liabilities
    
    
    11,924
    
    
    
    11,085Total liabilities
    
    
    771,902
    
    
    
    800,893Stockholders equity
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, 64,949,916 and 64,420,414
shares issued and outstanding
    
    
    649
    
    
    
    644Additional paid-in capital
    
    
    197,845
    
    
    
    193,608Retained earnings
    
    
    45,725
    
    
    
    18,513Total stockholders equity
    
    
    244,219
    
    
    
    212,765Total liabilities and stockholders equity
    
    $
    1,016,121
    
    
    
    1,013,658
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ALPHA NATURAL RESOURCES, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Operations (Unaudited)
(In thousands, except share and per share amounts)
 Three months endedMarch 31,2006
    
    
    2005Revenues:Coal revenues
    
    $
    424,374
    
    
    $
    273,134Freight and handling revenues
    
    
    46,392
    
    
    
    31,752Other revenues
    
    
    11,544
    
    
    
    7,269Total revenues
    
    
    482,310
    
    
    
    312,155Costs and expenses:Cost of coal sales (exclusive of items shown
separately below)
    
    
    330,885
    
    
    
    226,284Freight and handling costs
    
    
    46,392
    
    
    
    31,752Cost of other revenues
    
    
    7,951
    
    
    
    6,065Depreciation, depletion and amortization
    
    
    33,634
    
    
    
    14,170Selling, general and administrative expenses
(exclusive of depreciation and amortization shown separately above
and including stock-based compensation of $3,833 and $36,407 for
the three months ended March 31, 2006 and 2005, respectively)
    
    
    16,809
    
    
    
    47,906Total costs and expenses
    
    
    435,671
    
    
    
    326,177Income (loss) from operations
    
    
    46,639
    
    
    
    (14,022
    )Other income (expense):Interest expense
    
    
    (10,277
    )
    
    
    (6,117
    )Interest income
    
    
    188
    
    
    
    287Miscellaneous income (expense), net
    
    
    282
    
    
    
    (41
    )Total other income (expense), net
    
    
    (9,807
    )
    
    
    (5,871
    )Income (loss) from continuing operations before income taxes
and minority interest
    
    
    36,832
    
    
    
    (19,893
    )Income tax expense
    
    
    9,620
    
    
    
    2,510Minority interest
    
    
    
    
    
    
    2,918Income (loss) from continuing operations
    
    
    27,212
    
    
    
    (25,321
    )Discontinued operations:Loss from discontinued operations before income taxes and
minority interest
    
    
    
    
    
    
    (738
    )Income tax benefit
    
    
    
    
    
    
    (186
    )Minority interest
    
    
    
    
    
    
    (72
    )Loss from discontinued operations
    
    
    
    
    
    
    (480
    )Net income (loss)
    
    $
    27,212
    
    
    $
    (25,801
    )Net income
(loss) per share, as adjusted in 2005: Note (2)Basic and diluted:Income from continuing operations
    
    $
    0.43
    
    
    $
    (0.70
    )Loss from discontinued operations
    
    
    
    
    
    
    (0.01
    )Net income
(loss), as adjusted in 2005
    
    $
    0.43
    
    
    $
    (0.71
    )
  4




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ALPHA NATURAL RESOURCES, INC. AND SUBSIDIARIES
 
 Condensed Consolidated Statements of Cash Flows (Unaudited)
 (In thousands)
 Three months endedMarch 31,2006
    
    
    2005Operating activities:Net income (loss)
    
    $
    27,212
    
    
    
    (25,801
    )Adjustments to reconcile net income (loss)
to net cash provided by (used in) operating
activities:Depreciation, depletion and amortization
    
    
    33,634
    
    
    
    14,480Amortization of debt issuance costs
    
    
    566
    
    
    
    435Accretion of asset retirement obligation
    
    
    1,077
    
    
    
    808Virginia tax credit
    
    
    
    
    
    
    (343
    )Stock-based
compensation - non-cash
    
    
    3,833
    
    
    
    28,932Amortization of deferred gains on sales
of property interests
    
    
    (239
    )
    
    
    (204
    )Gain on sale of fixed assets, net
    
    
    (153
    )
    
    
    (363
    )Minority interest
    
    
    
    
    
    
    2,846Deferred income taxes
    
    
    1,975
    
    
    
    58Other
    
    
    384
    
    
    
    Changes in operating assets and liabilities:Trade accounts receivable
    
    
    (16,333
    )
    
    
    (15,903
    )Notes and other receivables
    
    
    4,679
    
    
    
    (384
    )Inventories
    
    
    2,068
    
    
    
    (36,293
    )Prepaid expenses and other current
assets
    
    
    (4,688
    )
    
    
    5,344Other assets
    
    
    (980
    )
    
    
    (2,731
    )Trade accounts payable
    
    
    (16,693
    )
    
    
    21,465Accrued expenses and other current
liabilities
    
    
    (6,790
    )
    
    
    917Workers compensation benefits
    
    
    326
    
    
    
    (295
    )Postretirement medical benefits
    
    
    2,231
    
    
    
    2,163Asset retirement obligation
    
    
    325
    
    
    
    (874
    )Other liabilities
    
    
    994
    
    
    
    551Net cash provided by (used in)
operating activities
    
    
    33,428
    
    
    
    (5,192
    )
 5




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ALPHA NATURAL RESOURCES, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows (Unaudited) - (Continued)
(In thousands)
 Three months endedMarch 31,2006
    
    
    2005Investing activities:Capital expenditures
    
    $
    (51,439
    )
    
    
    (30,268
    )Proceeds from disposition of property, plant,
and equipment
    
    
    182
    
    
    
    501Purchase of net assets of acquired companies
    
    
    
    
    
    
    (389
    )Investment in and advances to investee
    
    
    (15
    )
    
    
    (500
    )Collections on note receivable from coal supplier
    
    
    1,432
    
    
    
    1,223Payment of additional consideration on prior acquisition
    
    
    
    
    
    
    (5,000
    )Net cash used in investing activities
    
    
    (49,840
    )
    
    
    (34,433
    )Financing activities:Repayments of notes payable
    
    
    (45,457
    )
    
    
    (4,092
    )Proceeds from issuance of long-term debt
    
    
    95,000
    
    
    
    24,500Repayments on long-term debt
    
    
    (73,125
    )
    
    
    (440
    )Increase in bank overdraft
    
    
    12,313
    
    
    
    10,918Proceeds from initial public offering, net of offering costs
    
    
    
    
    
    
    598,190Repayment of restructuring notes payable
    
    
    
    
    
    
    (517,692
    )Distributions to prior members of ANR Holdings, LLC
subsequent to Internal Restructuring
    
    
    (1,200
    )
    
    
    (71,135
    )Distributions to prior members of ANR Holdings, LLC
prior to Internal Restructuring
    
    
    
    
    
    
    (7,732
    )Proceeds from exercise of stock options
    
    
    410
    
    
    
    Net cash provided by (used in)
financing activities
    
    
    (12,059
    )
    
    
    32,517Net (decrease) in cash
and cash equivalents
    
    
    (28,471
    )
    
    
    (7,108
    )Cash and cash equivalents at beginning of period
    
    
    39,622
    
    
    
    7,391Cash and cash equivalents at end of period
    
    $
    11,151
    
    
    
    283
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ALPHA NATURAL RESOURCES, INC. AND SUBSIDIARIES
 
 CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
 March 31, 2006
 (In thousands, except percentages and share data)
 (1) Business and Basis of Presentation
 Organization and Business
   Basis of Presentation
   (2) Earnings Per Share
    7




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Three Months Ended March 31,2006
    
    
    2005Numerator:Reported income(loss) from continuing operations
    
    $
    27,212
    
    
    $
    (25,321
    )Deduct: income tax effect of ANR Fund IX Holdings, L.P. income
from continuing operations prior to Internal Restructuring
    
    
    
    
    
    
    (91
    )Income(loss) from continuing operations, as adjusted
    
    
    27,212
    
    
    
    (25,412
    )Reported loss from discontinued operations
    
    
    
    
    
    
    (480
    )Add: income tax effect of ANR Fund IX Holdings, L.P. loss
from discontinued operations prior to Internal Restructuring
    
    
    
    
    
    
    2Loss from discontinued operations, as adjusted in 2005
    
    
    
    
    
    
    (478
    )Net income(loss), as adjusted
    
    $
    27,212
    
    
    $
    (25,890
    )Denominator:Weighted average shares  basic
    
    
    63,800,952
    
    
    
    36,413,000Dilutive effect of stock options and restricted stock awards
    
    
    145,206
    
    
    
    Weighted average shares  diluted
    
    
    63,946,158
    
    
    
    36,413,000Net income(loss) per basic share, as adjusted in 2005:Income(loss) from continuing operations, as adjusted
    
    $
    0.43
    
    
    $
    (0.70
    )Loss from discontinued operations, as adjusted
    
    
    
    
    
    
    (0.01
    )Net income(loss) per basic share, as adjusted
    
    $
    0.43
    
    
    $
    (0.71
    )Net income(loss) per diluted share, as adjusted in 2005:Income(loss) from continuing operations, as adjusted
    
    $
    0.43
    
    
    $
    (0.70
    )Loss from discontinued operations, as adjusted
    
    
    
    
    
    
    (0.01
    )Net income(loss) per diluted share, as adjusted
    
    $
    0.43
    
    
    $
    (0.71
    )
 8




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(3) Inventories
  March 31,
    
    
    December 31,2006
    
    
    2005Raw coal
    
    $
    5,681
    
    
    $
    6,401Saleable coal
    
    
    65,322
    
    
    
    65,318Materials and supplies
    
    
    11,814
    
    
    
    13,166Total inventories
    
    $
    82,817
    
    
    $
    84,885
 (4) Long-Term Debt
  March 31,
    
    
    December 31,2006
    
    
    2005Term loan
    
    $
    249,375
    
    
    $
    250,00010% Senior notes due 2012
    
    
    175,000
    
    
    
    175,000Revolving credit facility
    
    
    22,500
    
    
    
    Variable rate term notes
    
    
    
    
    
    
    293Capital lease obligation
    
    
    1,390
    
    
    
    1,496Total long-term debt
    
    
    448,265
    
    
    
    426,789Less current portion
    
    
    2,962
    
    
    
    3,242Long-term debt, net of current
portion
    
    $
    445,303
    
    
    $
    423,547
 (5) Asset Retirement Obligation
  Total asset retirement obligation at December 31, 2005
    
    $
    53,487Accretion for the three months ended March 31, 2006
    
    
    1,077Sites added during the three months ended March 31, 2006
    
    
    965Expenditures for the three months ended March 31, 2006
    
    
    (640
    )Loss on settlement of asset retirement obligation
    
    
    (48
    )Total asset retirement obligation at March 31, 2006
    
    $
    54,841
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(6) Stock-Based Compensation Awards
 Adoption of New Accounting Method
     Three monthsendedMarch 31,2005Net loss, as adjusted (Note 2)
    
    $
    (25,890
    )Add: shared-based employee compensation cost, included in net loss,
as adjusted, net of income taxes and minority interest
    
    
    35,656Deduct: share-based employee compensation cost determined
under the fair value based method,
net of income taxes and minority interest
    
    
    (35,800
    )Pro forma net loss, adjusted for effect of fair value of
stock options
    
    $
    (26,034
    )Net loss per share  basic and diluted:Net loss, as adjusted (Note 2)
    
    $
    (0.71
    )Pro forma net loss, adjusted for effect of fair value of
stock options
    
    $
    (0.71
    )
  Expected life (years)
    
    
    4.0Expected volatility
    
    
    38.0
    %Risk-free interest rate
    
    
    3.38
    %Expected annual dividend
    
    $
    0.10
 10




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Disclosure of Share-Based Payment Arrangements
    11




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Weighted-Weighted-
    
    
    AverageAverage
    
    
    RemainingNumber of
    
    
    Exercise
    
    
    ContractShares
    
    
    Price
    
    
    Life (Years)Outstanding at December 31, 2005
    
    
    1,253,593
    
    
    $
    16.71Granted
    
    
    
    
    
    
    Exercised
    
    
    (24,380
    )
    
    $
    16.85Forfeited/Cancelled
    
    
    (20,000
    )
    
    $
    19.00Outstanding at March 31, 2006
    
    
    1,209,213
    
    
    $
    16.68
    
    
    
    8.78Exercisable at March 31, 2006
    
    
    195,856
    
    
    $
    16.40
    
    
    
    8.77
  12




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Weighted-AverageNumber of
    
    
    Grant DateShares
    
    
    Fair ValueNonvested restricted shares outstanding at December 31, 2005
    
    
    684,465
    
    
    $
    19.15Granted
    
    
    505,122
    
    
    
    21.22Vested
    
    
    (168,117
    )
    
    
    19.00Forfeited
    
    
    Nonvested restricted shares outstanding at March 31, 2006
    
    
    1,021,470
    
    
    $
    20.20
   (7) Postretirement Benefits Other Than Pensions
  March 31,2006
    
    
    2005Service cost
    
    $
    1,053
    
    
    $
    944Interest cost
    
    
    685
    
    
    
    538Amortization of net actuarial (gain) or loss
    
    
    67
    
    
    
    (6
    )Amortization of prior service cost
    
    
    558
    
    
    
    698Net periodic benefit cost
    
    $
    2,363
    
    
    $
    2,174
  13




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(8) Related Party Transactions
  March 31,
    
    
    December 31,2006
    
    
    2005AMCI
    
    $
    8,722
    
    
    $
    10,390Robindale Energy & Subsidiary
    
    
    14
    
    
    
    63Total
    
    $
    8,736
    
    
    $
    10,453
   March 31,
    
    
    December 31,2006
    
    
    2005AMCI
    
    $
    10,760
    
    
    $
    13,735First Reserve Fund IX, L.P.
    
    
    
    
    
    
    4,500Foundation Energy
    
    
    
    
    
    
    2,605Robindale Energy & Subsidiary
    
    
    14
    
    
    
    51Total
    
    $
    10,774
    
    
    $
    20,891
  (9) Segment Information
  14




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CorporateCoal
    
    All
    
    andOperations
    
    Other
    
    Eliminations
    
    ConsolidatedRevenues
    
    $
    472,539
    
    
    $
    19,486
    
    
    $
    (9,715
    )
    
    $
    482,310Depreciation, depletion, and amortization
    
    
    31,060
    
    
    
    1,979
    
    
    
    595
    
    
    
    33,634EBITDA, as adjusted
    
    
    94,713
    
    
    
    2,685
    
    
    
    (16,843
    )
    
    
    80,555Capital expenditures
    
    
    44,442
    
    
    
    5,965
    
    
    
    1,032
    
    
    
    51,439Total assets
    
    
    990,254
    
    
    
    87,373
    
    
    
    (61,506
    )
    
    
    1,016,121
  CorporateCoal
    
    All
    
    andOperations
    
    Other
    
    Eliminations
    
    ConsolidatedRevenues
    
    $
    307,454
    
    
    $
    9,712
    
    
    $
    (5,011
    )
    
    $
    312,155Depreciation, depletion, and amortization
    
    
    13,150
    
    
    
    419
    
    
    
    601
    
    
    
    14,170EBITDA, as adjusted
    
    
    45,873
    
    
    
    1,229
    
    
    
    (46,995
    )
    
    
    107Capital expenditures
    
    
    29,534
    
    
    
    282
    
    
    
    196
    
    
    
    30,012Total assets
    
    
    465,047
    
    
    
    70,752
    
    
    
    11,472
    
    
    
    547,271
 15




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Three Months EndedMarch 31,2006
    
    
    2005Total segment EBITDA, as adjusted, from
continuing operations
    
    $
    80,555
    
    
    $
    107Interest expense
    
    
    (10,277
    )
    
    
    (6,117
    )Interest income
    
    
    188
    
    
    
    287Income tax expense from continuing operations
    
    
    (9,620
    )
    
    
    (2,510
    )Depreciation, depletion and amortization from
continuing operations
    
    
    (33,634
    )
    
    
    (14,170
    )Minority interest in income from continuing
operations
    
    
    
    
    
    
    (2,918
    )Income (loss) from continuing operations
    
    $
    27,212
    
    
    $
    (25,321
    )
  (10) Contingencies
 ( a ) Guarantees and Financial Instruments with Off-balance Sheet Risk
  ( b ) Litigation
  16




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(11) Discontinued Operations
   Three Months EndedMarch 31,2005Total revenues
    
    $
    3,617Total costs and expenses
    
    
    4,356Loss from operations
    
    
    (739
    )Miscellaneous income
    
    
    1Income tax benefit from discontinued
operations
    
    
    (186
    )Minority interest in loss from
discontinued operations
    
    
    (72
    )Loss from discontinued operations
    
    $
    (480
    )
 (12) Income Taxes
     17




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Three Months EndedMarch 31,2006
    
    
    2005Continuing operations
    
    $
    9,620
    
    
    $
    2,510Discontinued operations
    
    
    
    
    
    
    (186
    )$
    9,620
    
    
    $
    2,324
  Three Months EndedMarch 31,2006
    
    
    2005Federal statutory income tax expense
    
    $
    12,891
    
    
    $
    (6,963
    )Increases (reductions) in taxes due to:Percentage depletion allowance
    
    
    (4,864
    )
    
    
    (1,668
    )Extraterritorial income exclusion
    
    
    (413
    )
    
    
    (184
    )Deduction for domestic production activities
    
    
    (165
    )
    
    
    (77
    )State taxes, net of federal tax impact
    
    
    965
    
    
    
    298Stock-based compensation
    
    
    1,030
    
    
    
    12,054Change in valuation allowance (excluding allowance recorded in the Internal Restructuring)
    
    
    3
    
    
    
    129Taxes not provided for minority interest
    
    
    
    
    
    
    (1,002
    )Taxes not provided for pass-through entity
    
    
    
    
    
    
    (133
    )Other, net
    
    
    173
    
    
    
    56Actual income tax expense
    
    $
    9,620
    
    
    $
    2,510
 18




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##### Table of Contents



(13) Subsequent Events
 Acquisition
  19




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##### 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 ability to successfully integrate the operations we acquired in the Nicewonder and
Progress acquisitions with our existing operations, and to successfully operate the highway
construction business we acquired in the Nicewonder Acquisition, as well as our ability to
successfully integrate operations we may acquire in the future;
    
    our plans and objectives for future operations and expansion or consolidation;
    
    our relationships with, and other conditions affecting, our customers;
    
    timing of changes 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, barge, truck and other transportation performance and costs;
    
    availability of mining and processing equipment and parts;
 20




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##### Table of Contents




    
    our assumptions concerning economically recoverable coal reserve estimates;
    
    availability of skilled employees and other employee workforce factors;
    
    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 factors discussed in Part 1, Item 1A Risk
Factors section of our annual report on Form 10-K for the year ended December 31, 2005.
  Overview
      21




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##### Table of Contents



Coal Pricing Trends and Uncertainties.
   Unaudited Pro Forma Financial Information
  Three monthsendedMarch 31, 2005Reported net loss
    
    ($
    25,801
    )Add: Elimination of minority interest, net of income tax effects of Internal Restructuring
    
    
    2,087Pro forma net loss
    
    ($
    23,714
    )Pro forma earnings per share data:Basic earnings per share
    
    ($
    0.39
    )Shares outstanding  basic
    
    
    60,923,689
  Quarter endedMarch 31,2006
    
    
    2005(In thousands)Net income (loss)
    
    $
    27,212
    
    
    
    (25,801
    )Interest expense
    
    
    10,277
    
    
    
    6,117Interest income
    
    
    (188
    )
    
    
    (287
    )Income tax expense
    
    
    9,620
    
    
    
    2,324Depreciation, depletion and amortization
    
    
    33,634
    
    
    
    14,480EBITDA
    
    
    80,555
    
    
    
    (3,167
    )
 22




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##### Table of Contents



Results of Operations
 Three months Ended March 31, 2006 Compared to the Three months Ended March 31, 2005
 Summary
   Revenues
 Three months Ended
    
    
    IncreaseMarch 31,
    
    
    (Decrease)2006
    
    
    2005
    
    
    $ or Tons
    
    
    %(in thousands, except per ton data)Coal revenues
    
    $
    424,374
    
    
    $
    273,134
    
    
    $
    151,240
    
    
    
    55
    %Freight and handling revenues
    
    
    46,392
    
    
    
    31,752
    
    
    
    14,640
    
    
    
    46
    %Other revenues
    
    
    11,544
    
    
    
    7,269
    
    
    
    4,275
    
    
    
    59
    %Total revenues
    
    $
    482,310
    
    
    $
    312,155
    
    
    $
    170,155
    
    
    
    55
    %Tons Sold:Steam
    
    
    4,355
    
    
    
    3,205
    
    
    
    1,150
    
    
    
    36
    %Metallurgical
    
    
    2,768
    
    
    
    2,328
    
    
    
    440
    
    
    
    19
    %Total
    
    
    7,123
    
    
    
    5,533
    
    
    
    1,590
    
    
    
    29
    %Coal sales realization per ton:Steam
    
    $
    49.01
    
    
    $
    36.63
    
    
    $
    12.38
    
    
    
    34
    %Metallurgical
    
    
    76.22
    
    
    
    66.89
    
    
    
    9.33
    
    
    
    14
    %Total
    
    $
    59.58
    
    
    $
    49.37
    
    
    $
    10.21
    
    
    
    21
    %
 Coal Revenues.
 23




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##### Table of Contents



Freight and Handling Revenues.
 Other Revenues.
 Costs and Expenses
 Three months ended
    
    
    IncreaseMarch 31,
    
    
    (Decrease)2006
    
    
    2005
    
    
    $
    
    
    %(in thousands, except per ton data)Cost of coal sales (exclusive of items shown separately below)
    
    $
    330,885
    
    
    $
    226,284
    
    
    $
    104,601
    
    
    
    46
    %Freight and handling costs
    
    
    46,392
    
    
    
    31,752
    
    
    
    14,640
    
    
    
    46
    %Cost of other revenues
    
    
    7,951
    
    
    
    6,065
    
    
    
    1,886
    
    
    
    31
    %Depreciation, depletion and amortization
    
    
    33,634
    
    
    
    14,170
    
    
    
    19,464
    
    
    
    137
    %Selling, general and administrative expenses (exclusive of
depreciation and amortization shown separately above and including
stock-based compensation
expense in the amount of $3,833 and $36,407 respectively
    
    
    16,809
    
    
    
    47,906
    
    
    
    (31,097
    )
    
    
    (65
    %)Total costs and expenses
    
    $
    435,671
    
    
    $
    326,177
    
    
    $
    109,494
    
    
    
    34
    %Cost of coal sales per ton:Company mines
    
    $
    40.42
    
    
    $
    34.54
    
    
    $
    5.88
    
    
    
    17
    %Contract mines (including purchased and processed)
    
    
    52.95
    
    
    
    46.33
    
    
    
    6.62
    
    
    
    14
    %Total produced and processed
    
    
    42.50
    
    
    
    36.92
    
    
    
    5.58
    
    
    
    15
    %Purchased and sold without processing
    
    
    66.28
    
    
    
    60.63
    
    
    
    5.65
    
    
    
    9
    %Cost of coal sales per ton
    
    $
    46.45
    
    
    $
    40.90
    
    
    $
    5.55
    
    
    
    14
    %
 Cost of Coal Sales:
 Freight and Handling Costs.
 Cost of Other Revenues
 24




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##### Table of Contents



Depreciation, Depletion and Amortization.
 Selling, General and Administrative Expenses
 Interest Expense.
 Interest Income.
 Income Tax Expense:
  Liquidity and Capital Resources
    Cash Flows
  25




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##### Table of Contents



Credit Facility and Long-term Debt
  Term Loan B
    
    $
    249,37510% Senior notes due 2012
    
    
    175,000Revolving credit facility
    
    
    22,500Capital lease obligation
    
    
    1,390Total long-term debt
    
    
    448,265Less current portion
    
    
    (2,962
    )Long-term debt, net of current portion
    
    $
    445,303
   Analysis of Material Debt Covenants
  26




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##### Table of Contents




    
    Alpha NR Holding Inc. must maintain a leverage ratio,
defined as the ratio of consolidated adjusted debt
(consolidated debt less unrestricted cash and cash
equivalents) to Adjusted EBITDA (as defined in the new
credit agreement), of not more than 4.00 at December 31,
2005, March 31, June 30, September 30 and December 31,
2006, 3.75 at March 31, June 30, September 30 and December
31, 2007, and 3.50 at March 31, 2008 and each quarter end
thereafter, with Adjusted EBITDA being computed using the
most recent four quarters; and
    
    Alpha NR Holding Inc. must maintain an interest coverage
ratio, defined as the ratio of Adjusted EBITDA to cash
interest expense, of 2.50 or greater on the last day of any
fiscal quarter.
   Three Months
    
    
    Three Months
    
    
    Three Months
    
    
    Three Months
    
    
    Twelve MonthsEnded
    
    
    Ended
    
    
    Ended
    
    
    Ended
    
    
    EndedJune 30,
    
    
    September 30,
    
    
    December 31,
    
    
    March 31,
    
    
    March 31,2005
    
    
    2005
    
    
    2005
    
    
    2006
    
    
    2006(in thousands)Net income
    
    $
    26,019
    
    
    $
    8,210
    
    
    $
    12,413
    
    
    $
    27,212
    
    
    $
    73,854Interest expense, net
    
    
    6,456
    
    
    
    6,439
    
    
    
    10,155
    
    
    
    10,089
    
    
    
    33,139Income tax expense
    
    
    9,050
    
    
    
    3,542
    
    
    
    3,812
    
    
    
    9,620
    
    
    
    26,024Depreciation, depletion and
amortization expenses
    
    
    15,048
    
    
    
    16,277
    
    
    
    27,600
    
    
    
    33,634
    
    
    
    92,559EBITDA
    
    
    56,573
    
    
    
    34,468
    
    
    
    53,980
    
    
    
    80,555
    
    
    
    225,576Stock-based compensation charge(1)
    
    
    3,381
    
    
    
    3,381
    
    
    
    3,350
    
    
    
    3,833
    
    
    
    13,945Other EBITDA Charges (1)
    
    
    1,203
    
    
    
    520
    
    
    
    930
    
    
    
    1,213
    
    
    
    3,866Callaway EBITDA before integration (1)
    
    
    16,509
    
    
    
    18,581
    
    
    
    4,832
    
    
    
    
    
    
    
    39,922Adjusted EBITDA
    
    $
    77,666
    
    
    $
    56,950
    
    
    $
    63,092
    
    
    $
    85,601
    
    
    $
    283,309Leverage ratio(2)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1.70Interest coverage ratio(3)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    8.60
 
 (1)
    
    We are required to adjust EBITDA under our credit facility for the stock-based
compensation charge, the EBITDA related to our Callaway operations before integration into
Alphas system, and other minor EBITDA charges such as secondary offering costs, accretion
expense, and amortization of deferred gains.(2)
    
    Leverage ratio is defined in our credit facility as total debt divided by Adjusted EBITDA.(3)
    
    Interest coverage ratio is defined in our credit facility as Adjusted EBITDA divided by cash
interest expense. Other
  27




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##### Table of Contents



Outlook
      Critical Accounting Estimates and Assumptions
  
 Item 3. Quantitative and Qualitative Disclosures About Market Risk
    28




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##### Table of Contents



Item 4. Controls and Procedures
 Evaluation of disclosure controls and procedures.
 Changes in internal control over financial reporting.
 Limitations of the effectiveness of internal control.
 29




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##### Table of Contents



PART II
 
 Item 1A. Risk Factors
  
 Item 6. Exhibits




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##### Table of Contents



SIGNATURE
  ALPHA NATURAL RESOURCES, INC.By: /s/ David C. StuebeName: David C. StuebeTitle: Vice President and Chief Financial OfficerDate:
May 11, 2006




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##### Table of Contents



10-Q EXHIBIT INDEX
 Exhibit No
    
    Description of Exhibit2.1
    
    Letter Agreement, dated January 25, 2006 among Alpha NR Holding, Inc., the FRC Parties named therein and
the AMCI Parties named therein, amending certain provisions of the Contribution Agreement, as amended
(Incorporated by reference to Exhibit 2.1 to the Current Report on Form 8-K of Alpha Natural Resources,
Inc. (File No. 1-32423) filed on January 27, 2006).3.1
    
    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 30,
2005).10.1
    
    Form of Restricted Stock Agreement for Alpha Natural Resources, Inc. 2005 Long-Term Incentive Plan (for
grants after March 3, 2006) (Incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K
of Alpha Natural Resources, Inc. (File No. 1-32423) filed on March 10, 2006).10.2
    
    Form of Performance Share Award Agreement for Alpha Natural Resources, Inc. 2005 Long-Term Incentive Plan
(Incorporated by reference to Exhibit 10.2 to the Current Report on Form 8-K of Alpha Natural Resources,
Inc. (File No. 1-32423) filed on March 10, 2006).10.3*
    
    Amendment dated January 1, 2006, by and between ACIN LLC and Alpha Land and Reserves, LLC, amending the
ACIN Lease10.4*
    
    Agreement dated February 17, 2006 between ACIN LLC, Alpha Land and Reserves, LLC and Virginia Electric
and Power Company, relating to the ACIN Lease31(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.