**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, 2007**
 **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.
                  Employer**incorporation
                  or organization)*
              
              *Identification
                  Number)***One
                  Alpha Place, P.O. Box 2345, Abingdon, VA**
              
              **24212***(Address
                  of principal executive offices)*
              
              *(Zip
                  Code)*
 **Registrant’s
        telephone number, including area code:**
 **(276) 619-4410**
 Indicate
        by check mark whether the registrant (1) has filed all reports required to
        be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934
        during the preceding 12 months (or for such shorter period that the
        registrant was required to file such reports), and (2) has been subject to
        such filing requirements for the past 90 days. þ Yes ̈
        No
 
 Indicate
        by check mark whether the registrant is a large accelerated filer, an
        accelerated filer, or a non-accelerated filer. See definition of “accelerated
        filer and large accelerated filer” in Rule 12b-2 of the Exchange
        Act.
 
 þ
        Large accelerated
        filer     o Accelerated
        filer      ̈
        Non-accelerated
        filer
 
 Indicate
        by check mark whether the registrant is a shell company (as defined in
        Rule 12b-2 of the Exchange Act).
  ̈
        Yesþ  No
 
 Number
        of shares of the registrant’s Common Stock, $0.01 par value, outstanding as of
        July 31, 2007 — 65,512,287.
 
 
  Table
            Of Content
  
 **TABLE
          OF CONTENTS**
 **Page****PART
                    I**Item 1.
                    Financial StatementsCondensed
                    Consolidated Balance Sheets
                    (Unaudited)
                
                2Condensed
                    Consolidated Statements of Income
                    (Unaudited)
                
                3Condensed
                    Consolidated Statements of Cash Flows
                    (Unaudited)
                
                4Notes
                    to Condensed Consolidated Financial Statements
                    (Unaudited)
                
                6Item 2.
                    Management’s Discussion and Analysis of Financial
                    Condition and Results of Operations
                
                25Item 3.
                    Quantitative and Qualitative Disclosures about
                    Market Risk
                
                37Item 4.
                    Controls and Procedures
                
                37**PART
                    II**Item 1.
                    Legal Proceedings
                
                39Item 1A.
                    Risk Factors
                
                39Item 4.
                    Submission of Matters to a Vote of Security
                    Holders
                
                39Item 6.
                    Exhibits
                
                39EX-10.1:
                    2005 Grant Stock Option
                    AgreementEX-10.2:
                    2004 Grant Stock Option
                    AgreementEX-10.3:
                    Letter of Agreement with Michael D.
                    BrownEX-31.A:
                    CERTIFICATIONEX-31.B:
                    CERTIFICATIONEX-32.A:
                    CERTIFICATIONEX-32.B:
                    CERTIFICATION
 
  -1-
 Table
              Of Content
 **Item 1.*Financial Statements***
 **ALPHA
        NATURAL RESOURCES, INC. AND SUBSIDIARIES**
 **Condensed
        Consolidated Balance Sheets
        (Unaudited)**
 **(In
        thousands, except share and per share amounts)**
 **June
                  30,**
              
              
              **December
                  31,****2007**
              
              
              **2006****Assets**Current
                  assets:Cash
                  and cash equivalents
              
              $
              8,655
              
              
              $
              33,256Trade
                  accounts receivable, net
              
              
              146,525
              
              
              
              171,195Notes
                  and other receivables
              
              
              6,166
              
              
              
              6,466Inventories
              
              
              90,447
              
              
              
              76,844Prepaid
                  expenses and other current assets
              
              
              39,574
              
              
              
              50,893Total
                  current assets
              
              
              291,367
              
              
              
              338,654Property,
                  plant, and equipment, net
              
              
              681,571
              
              
              
              637,136Goodwill
              
              
              20,547
              
              
              
              20,547Other
                  intangibles, net
              
              
              10,185
              
              
              
              11,720Deferred
                  income taxes
              
              
              93,563
              
              
              
              94,897Other
                  assets
              
              
              48,965
              
              
              
              42,839Total
                  assets
              
              $
              1,146,198
              
              
              $
              1,145,793**Liabilities
                  and Stockholders’ Equity**Current
                  liabilities:Current
                  portion of long-term debt
              
              $
              3,230
              
              
              $
              3,254Note
                  payable
              
              
              7,088
              
              
              
              20,941Bank
                  overdraft
              
              
              11,065
              
              
              
              23,814Trade
                  accounts payable
              
              
              68,217
              
              
              
              75,986Deferred
                  income taxes
              
              
              6,940
              
              
              
              7,601Accrued
                  expenses and other current liabilities
              
              
              84,901
              
              
              
              90,594Total
                  current liabilities
              
              
              181,441
              
              
              
              222,190Long-term
                  debt, net of current portion
              
              
              434,816
              
              
              
              421,456Workers’
                  compensation benefits
              
              
              9,086
              
              
              
              7,169Postretirement
                  medical benefits
              
              
              53,669
              
              
              
              50,712Asset
                  retirement obligation
              
              
              81,611
              
              
              
              69,495Deferred
                  gains on sale of property interests
              
              
              3,429
              
              
              
              3,885Other
                  liabilities
              
              
              16,277
              
              
              
              26,837Total
                  liabilities
              
              
              780,329
              
              
              
              801,744Minority
                  interest
              
              
              980
              
              
              
              —Commitments
                  and contingenciesStockholders’
                  equity:Preferred
                  stock — par value $0.01, 10,000,000 shares authorized, none
                  issued
              
              
              —
              
              
              
              —Common
                  stock — par value $0.01, 100,000,000 shares authorized, 65,517,630 and
                  64,964,287 shares issued and outstanding at June 30, 2007 and December
                  31,
                  2006, respectively
              
              
              655
              
              
              
              650Additional
                  paid-in capital
              
              
              218,121
              
              
              
              215,020Accumulated
                  other comprehensive loss
              
              
              (14,381
              )
              
              
              (19,019
              )Retained
                  earnings
              
              
              160,494
              
              
              
              147,398Total
                  stockholders’ equity
              
              
              364,889
              
              
              
              344,049Total
                  liabilities and stockholders’ equity
              
              $
              1,146,198
              
              
              $
              1,145,793
 See
        accompanying notes to condensed consolidated financial statements.
 
  -2-
 Table
            Of Content
  
 
 
 
 **ALPHA
        NATURAL RESOURCES, INC. AND SUBSIDIARIES**
 **Condensed
        Consolidated Statements of Income
        (Unaudited)**
 **(In
        thousands, except share and per share amounts)**
 **Three
                  months ended**
              
              
              **Six
                  months ended****June
                  30,**
              
              
              **June
                  30,****2007**
              
              
              **2006**
              
              
              **2007**
              
              
              **2006**Revenues:Coal
                  revenues
              
              $
              386,130
              
              
              $
              437,323
              
              
              $
              763,060
              
              
              $
              861,854Freight
                  and handling revenues
              
              
              41,588
              
              
              
              50,935
              
              
              
              84,799
              
              
              
              97,327Other
                  revenues
              
              
              6,548
              
              
              
              8,053
              
              
              
              13,778
              
              
              
              19,470Total
                  revenues
              
              
              434,266
              
              
              
              496,311
              
              
              
              861,637
              
              
              
              978,651Costs
                  and expenses:Cost
                  of coal sales (exclusive of items shown separately below)
              
              
              320,807
              
              
              
              345,505
              
              
              
              630,062
              
              
              
              676,391Freight
                  and handling costs
              
              
              41,588
              
              
              
              50,935
              
              
              
              84,799
              
              
              
              97,327Cost
                  of other revenues
              
              
              4,768
              
              
              
              5,445
              
              
              
              10,396
              
              
              
              13,396Depreciation,
                  depletion and amortization
              
              
              37,855
              
              
              
              34,207
              
              
              
              73,644
              
              
              
              67,841Selling,
                  general and administrative expenses (exclusive of depreciation
                  and
                  amortization shown separately above)
              
              
              13,982
              
              
              
              18,013
              
              
              
              27,221
              
              
              
              34,652Total
                  costs and expenses
              
              
              419,000
              
              
              
              454,105
              
              
              
              826,122
              
              
              
              889,607Income
                  from operations
              
              
              15,266
              
              
              
              42,206
              
              
              
              35,515
              
              
              
              89,044Other
                  income (expense):Interest
                  expense
              
              
              (10,030
              )
              
              
              (10,786
              )
              
              
              (20,023
              )
              
              
              (21,063
              )Interest
                  income
              
              
              457
              
              
              
              171
              
              
              
              1,094
              
              
              
              358Miscellaneous
                  income, net
              
              
              512
              
              
              
              213
              
              
              
              554
              
              
              
              296Total
                  other income (expense), net
              
              
              (9,061
              )
              
              
              (10,402
              )
              
              
              (18,375
              )
              
              
              (20,409
              )Income
                  before income taxes and minority interest
              
              
              6,205
              
              
              
              31,804
              
              
              
              17,140
              
              
              
              68,635Income
                  tax expense
              
              
              1,502
              
              
              
              8,676
              
              
              
              4,131
              
              
              
              18,296Minority
                  interest
              
              
              (44
              )
              
              
              —
              
              
              
              (87
              )
              
              
              —Net
                  Income
              
              $
              4,747
              
              
              $
              23,128
              
              
              $
              13,096
              
              
              $
              50,339Net
                  income per shareBasic
                  and diluted:
              
              $
              0.07
              
              
              $
              0.36
              
              
              $
              0.20
              
              
              $
              0.79
 See
        accompanying notes to condensed consolidated financial statements.
 
 
 
 
 
  -3-
 Table
            Of Content
  
 
 
 **ALPHA
        NATURAL RESOURCES, INC. AND SUBSIDIARIES**
 **Condensed
        Consolidated Statements of Cash Flows
        (Unaudited)**
 **(In
        thousands)**
 **Six
                  months ended****June
                  30,****2007**
              
              
              **2006**Operating
                  activities:Net
                  income
              
              $
              13,096
              
              
              $
              50,339Adjustments
                  to reconcile net income to net cash provided by operating
                  activities:Depreciation,
                  depletion and amortization
              
              
              73,644
              
              
              
              67,841Amortization
                  of debt issuance costs
              
              
              1,140
              
              
              
              1,132Accretion
                  of asset retirement obligation
              
              
              3,123
              
              
              
              2,246Change
                  in fair value of derivative instruments
              
              
              (840
              )
              
              
              (4,336
              )Share
                  based compensation
              
              
              4,064
              
              
              
              9,945Amortization
                  of deferred gains on sales of property interests
              
              
              (493
              )
              
              
              (488
              )Amortization
                  of deferred gain on railroad incentives
              
              
              —
              
              
              
              (154
              )Gain
                  on sale of fixed assets, net
              
              
              (1,650
              )
              
              
              (134
              )Loss
                  on settlement of asset retirement obligation
              
              
              —
              
              
              
              322Provision
                  for non-recoupable advance royalties
              
              
              189
              
              
              
              469Minority
                  interest
              
              
              (87
              )
              
              
              —Deferred
                  income taxes
              
              
              (854
              )
              
              
              5,274Other
              
              
              196
              
              
              
              116Changes
                  in operating assets and liabilities:Trade
                  accounts receivable
              
              
              24,512
              
              
              
              (12,198
              )Notes
                  and other receivables
              
              
              (1,036
              )
              
              
              4,558Inventories
              
              
              (6,857
              )
              
              
              4,349Prepaid
                  expenses and other current assets
              
              
              8,647
              
              
              
              3,325Other
                  assets
              
              
              (6,831
              )
              
              
              (1,934
              )Trade
                  accounts payable
              
              
              (6,339
              )
              
              
              (20,891
              )Accrued
                  expenses and other current liabilities
              
              
              (1,866
              )
              
              
              (14,227
              )Workers’
                  compensation benefits
              
              
              1,941
              
              
              
              (928
              )Postretirement
                  medical benefits
              
              
              4,125
              
              
              
              4,413Asset
                  retirement obligation
              
              
              (3,327
              )
              
              
              615Other
                  liabilities
              
              
              (2,189
              )
              
              
              773Net
                  cash provided by operating activities
              
              
              102,308
              
              
              
              100,427
 
 
  -4-
 Table
            Of Content
  
 
 
 **ALPHA
        NATURAL RESOURCES, INC. AND SUBSIDIARIES**
 **Condensed
        Consolidated Statements of Cash Flows (Unaudited) —
(Continued)**
 **(In
        thousands)**
 **Six
                  months ended****June
                  30,****2007**
              
              
              **2006**Investing
                  activities:Capital
                  expenditures
              
              $
              (71,655
              )
              
              $
              (84,000
              )Proceeds
                  from disposition of property, plant, and equipment
              
              
              2,559
              
              
              
              264Purchase
                  of equity investment
              
              
              (147
              )
              
              
              (107
              )Purchase
                  of net assets of acquired companies
              
              
              (43,890
              )
              
              
              (28,273
              )Collections
                  on note receivable from coal supplier
              
              
              —
              
              
              
              3,000Other
              
              
              (630
              )
              
              
              —Net
                  cash used in investing activities
              
              
              (113,763
              )
              
              
              (109,116
              )Financing
                  activities:Repayments
                  of notes payable
              
              
              (13,853
              )
              
              
              (50,232
              )Proceeds
                  from issuance of long-term debt
              
              
              15,000
              
              
              
              200,000Repayments
                  on long-term debt
              
              
              (1,664
              )
              
              
              (171,806
              )Decrease in
                  bank overdraft
              
              
              (12,749
              )
              
              
              (2,649
              )Distributions
                  to prior members of ANR Holdings, LLC subsequent to Internal
                  Restructuring
              
              
              —
              
              
              
              (2,400
              )Proceeds
                  from exercise of stock options
              
              
              120
              
              
              
              954Net
                  cash used by financing activities
              
              
              (13,146
              )
              
              
              (26,133
              )Net
                  decrease in cash and cash equivalents
              
              
              (24,601
              )
              
              
              (34,822
              )Cash
                  and cash equivalents at beginning of period
              
              
              33,256
              
              
              
              39,622Cash
                  and cash equivalents at end of period
              
              $
              8,655
              
              
              $
              4,800
 See
        accompanying notes to condensed consolidated financial statements.
 
 
  -5-
 Table
            Of Content
  
 
 
 
 **ALPHA
        NATURAL RESOURCES, INC. AND SUBSIDIARIES**
 **CONDENSED
        CONSOLIDATED FINANCIAL STATEMENTS
        (Unaudited)**
 **June 30,
        2007**
 **(In
        thousands, except percentages and share data)**
 
 **(1) Business
        and Basis of Presentation**
 
 ***Organization
        and Business***
 
 Alpha
        Natural Resources, Inc. and its operating subsidiaries (the “Company”) are
        engaged in the business of extracting, processing and marketing coal from
        deep
        and surface mines, located in the Central and Northern Appalachian regions
        of
        the United States, for sale to utility and steel companies in the United
        States
        and in international markets.
 
 ***Basis
        of Presentation***
  The
        accompanying interim condensed consolidated financial statements have been
        prepared in accordance with U.S generally accepted accounting principles
        for
        interim financial reporting. Accounting measurements at interim dates inherently
        rely on estimates more than at year-end; however, in the opinion of management,
        all adjustments (consisting of normal recurring accruals) considered necessary
        for a fair presentation have been included. Results of operations for the
        six
        months ended June 30, 2007 are not necessarily indicative of the results
        to be
        expected for the year ending December 31, 2007. Certain prior period
        amounts have been reclassified to conform to the current period presentation.
        These financial statements should be read in conjunction with the audited
        financial statements and related notes as of and for the year ended
        December 31, 2006 included in the Company's Annual Report on Form 10-K
        filed with the Securities and Exchange Commission.
  **(2) Earnings
        Per Share**
 
 Basic
        earnings per share are computed by dividing net income by the weighted average
        number of shares of common stock outstanding during the period. Diluted earnings
        per share are computed using the treasury method by dividing net income by
        the
        weighted average number of shares of common stock and dilutive common stock
        equivalents outstanding during the period. Common stock equivalents include the
        number of shares issuable upon exercise of outstanding options less the number
        of shares that could have been purchased with the proceeds from the exercise
        of
        the options based on the average price of common stock during the period.
        Restricted shares which have not vested at the end of the reporting period
        are
        excluded from the calculation of basic earning per share. The number of stock
        options which were not included in the calculation of diluted earnings per
        share
        because to do so would have been antidilutive in the six months ended June
        30,
        2007 and 2006 was 1,010,502 and 1,109,693, respectively. The number of
        restricted shares which were not included in the calculation of diluted earnings
        per share because to do so would have been antidilutive in the six months
        ended
        June 30, 2007 and 2006 was 698,327 and 741,455, respectively.
 
 
  -6-
 Table
            Of Content
  
 
 
 
 The
        computations of basic and diluted net income per share are set forth
        below:
 
 **Three
                  Months Ended June 30,**
              
              
              **Six
                  Months Ended June 30,****2007**
              
              
              **2006**
              
              
              **2007**
              
              
              **2006**Numerator:Net
                  income
              
              $
              4,747
              
              
              $
              23,128
              
              
              $
              13,096
              
              
              $
              50,339Denominator:Weighted
                  average shares — basic
              
              
              64,588,324
              
              
              
              64,012,586
              
              
              
              64,583,769
              
              
              
              63,907,353Dilutive
                  effect of stock options and restricted stock awards
              
              
              253,374
              
              
              
              182,153
              
              
              
              205,733
              
              
              
              151,109Weighted
                  average shares — diluted
              
              
              64,841,698
              
              
              
              64,194,739
              
              
              
              64,789,502
              
              
              
              64,058,462Net
                  income per basic and diluted share:
              
              $
              0.07
              
              
              $
              0.36
              
              
              $
              0.20
              
              
              $
              0.79
 
 
 
 **(3) Inventories**
 
 Inventories
        consisted of the following:
 
 **June
                  30,**
              
              
              **December
                  31,****2007**
              
              
              **2006**Raw
                  coal
              
              $
              8,444
              
              
              $
              8,868Saleable
                  coal
              
              
              67,830
              
              
              
              53,428Equipment
                  for resale
              
              
              2,101
              
              
              
              1,774Materials
                  and supplies
              
              
              12,072
              
              
              
              12,774Total
                  inventories
              
              $
              90,447
              
              
              $
              76,844
 
 
  -7-
 Table
            Of Content
  
 
 
 **(4) Long-Term
        Debt**
  Long-term
        debt consisted of the following:
 **June
                  30,**
              
              
              **December
                  31,****2007**
              
              
              **2006**Term
                  loan
              
              $
              246,250
              
              
              $
              247,50010%
                  Senior notes due 2012
              
              
              175,000
              
              
              
              175,000Capital
                  lease obligations
              
              
              1,096
              
              
              
              1,510Revolving
                  credit facility
              
              
              15,000
              
              
              
              —Other
              
              
              700
              
              
              
              700Total
                  long-term debt
              
              
              438,046
              
              
              
              424,710Less
                  current portion
              
              
              3,230
              
              
              
              3,254Long-term
                  debt, net of current portion
              
              $
              434,816
              
              
              $
              421,456
  On
          June
          28, 2007, the Company’s subsidiaries, Alpha NR Holding, Inc. (“Holdings”) and
          Alpha Natural Resources, LLC (“ANR LLC”), entered into an amendment and consent
          (the “Amendment”) to the Credit Agreement, dated as of October 26, 2005 (the
“Credit Agreement”), among Holdings, ANR LLC (as borrower), the lenders and
          issuing banks party thereto from time to time, and Citicorp North America,
          Inc.,
          as administrative agent and as collateral agent for the lenders and issuing
          banks. The Amendment amended the Credit Agreement to, among other things,
          permit
          the merger of Holdings into its direct parent, the Company.  The
          Company assumed the obligations of Holdings under the Credit Agreement
          and
          related guaranty and collateral agreement and became a parent guarantor
          of the
          10% Senior Notes due 2012 co-issued by ANR LLC and Alpha Natural Resources
          Capital Corp in 2004. The Amendment also increased the maximum amount of
          permitted receivables financing from $75,000 to $150,000.
 
 The
          Credit Agreement and the Senior Notes each place restrictions on the ability
          of
          ANR LLC and its subsidiaries to make distributions or loans to the Company.
          At
          June 30, 2007, ANR LLC had net assets of $350,023 and, except for allowable
          distributions for the payment of income taxes, administrative expenses
          and, in
          certain circumstances, dividends or repurchases of common stock of the
          Company,
          the net assets of ANR LLC are restricted.
 
 All
          of
          the Company borrowings under the credit facility are at a variable rate,
          so the
          Company is exposed to the effect of rising interest rates. As of June 30,
          2007,
          the Company has a $246,250 term loan outstanding with a variable interest
          rate
          based upon the 3-month London Interbank Offered Rate (“LIBOR”) (5.36% at June
          30, 2007) plus the applicable margin (1.75%, at June 30, 2007). To reduce
          the
          Company's exposure to rising interest rates, effective May 22, 2006, the
          Company
          entered into a pay-fixed, receive variable interest rate swap on the notional
          amount of $233,125 for a period of approximately six and one-half years.
          In
          effect, this swap converted the variable interest rates based on LIBOR
          to a
          fixed interest rate of 5.59% plus the applicable margin defined in the
          debt
          agreement for a portion of our term loan. The Company accounts for the
          interest
          rate swap as a cash flow hedge and changes in fair value of the swap are
          recorded to other comprehensive income (loss). The critical terms of the
          swap
          and the underlying debt instrument that it hedges coincide, resulting in
          no
          hedge ineffectiveness being recognized in the income statement during the
          quarter ended June 30, 2007. Settlements paid on the swap agreement for
          the six
          months ended June 30, 2007 were $274. The fair value of the swap at June
          30,
          2007 is an obligation of $2,250 ($1,693 net of tax) and is reflected in
          other
          liabilities in the consolidated balance sheet. As interest expense is accrued
          on
          the debt obligation, amounts in accumulated other comprehensive loss related
          to
          the derivative hedging instrument are reclassified into earnings to obtain
          a net
          cost on the debt obligation of 5.59% plus the applicable
          margin.
 **(5) Asset
        Retirement Obligation**
  At
        June 30, 2007 and December 31, 2006, the Company has recorded asset
        retirement obligation accruals for mine reclamation and closure costs totaling
        $90,025 and $77,292, respectively. The portion of the costs expected to be
        incurred within a year in the amounts of $8,414 and $7,797 at June 30, 2007
        and December 31, 2006, respectively, are included in accrued expenses and
        other current liabilities. At June 29, 2007, the Company acquired certain
        coal
        mining assets and assumed certain obligations in West Virginia from Arch
        Coal,
        which included asset retirement obligations of $12,107. These regulatory
        obligations are secured by surety bonds in the amount of $145,642 at
        June 30, 2007 and $138,013 at December 31, 2006. Changes in the
        reclamation obligation were as follows:
  -8-
 Table
            Of Content
  
 Total
                  asset retirement obligation at December 31, 2006
              
              $
              77,292Accretion
                  for the period
              
              
              3,123Sites
                  added during the period
              
              
              867Expenditures
                  for the period
              
              
              (3,328
              )Change
                  in estimates during the period
              
              
              (36
              )Acquisition
                  during the period
              
              
              12,107Total
                  asset retirement obligation at June 30, 2007
              
              $
              90,025
 
 
 **(6) Share-Based
        Compensation Awards**
 
 Stock
        option activity for the six months ended June 30, 2007 is summarized in the
        following table:
 
 **Weighted-****Weighted-**
              
              
              **Average****Average**
              
              
              **Remaining****Number
                  of**
              
              
              **Exercise**
              
              
              **Contract****Shares**
              
              
              **Price**
              
              
              **Life
                  (Years)**Outstanding
                  at December 31, 2006
              
              
              1,137,398
              
              
              $
              16.64Forfeited/Cancelled
              
              
              (114,841
              )
              
              $
              15.57Exercised
              
              
              (12,055
              )
              
              $
              13.77Outstanding
                  at June 30, 2007
              
              
              1,010,502
              
              
              $
              16.81
              
              
              
              7.55Exercisable
                  at June 30, 2007
              
              
              348,369
              
              
              $
              17.11
              
              
              
              7.55
  The
        aggregate intrinsic value of options outstanding at June 30, 2007 was
        $4,022 and the aggregate intrinsic value of exercisable options was $1,282.
        The
        total intrinsic value of options exercised during the three months ended
        June
        30, 2007 and 2006 was $70 and $243, respectively, and for the six months
        ended
        June 30, 2007 and 2006 was $70 and $361, respectively.  Cash received
        from the exercise of stock options during the three months ended June 30,
        2007 and 2006 was $120 and $544, respectively, and $120 and $954 during the
        six
        months ended June 30, 2007 and 2006, respectively. As of June 30, 2007,
        $3,879 of unrecognized compensation cost related to stock options is expected
        to
        be recognized as expense over a weighted-average period of 2.53
        years.
 
 *Restricted
        Stock Awards*
 
 Non-vested
        share award activity for the six months ended June 30, 2007 is summarized
        in the following table:
 
 **Weighted-****Average****Number
                  of**
              
              
              **Grant
                  Date****Shares**
              
              
              **Fair
                  Value**Non-vested
                  shares outstanding at December 31, 2006
              
              
              471,341
              
              
              $
              21.34Granted
              
              
              606,277
              
              
              
              12.75Vested
              
              
              (125,925
              )
              
              
              21.04Forfeited
              
              
              (47,633
              )
              
              
              15.18Non-vested
                  shares outstanding at June 30, 2007
              
              
              904,060
              
              
              $
              15.94
  The
        fair
        value of non-vested share awards is estimated based on the average of the
        high
        and low market stock price on the date of grant, and, for purposes of expense
        recognition, the total number of awards expected to vest is adjusted for
        estimated forfeitures. As of June 30, 2007, there was $11,148 of
        unamortized compensation cost related to non-vested shares, which is expected
        to
        be recognized as expense over a weighted-average period of
        2.09 years.
 
 
 
  -9-
 Table
            Of Content
  
 *Performance
        Units*
  *2007
        Award*
  The
        Company granted 373,422 performance share awards during the first six months
        of
        2007, of which 330,519 remain outstanding as of June 30, 2007. Recipients
        of
        these awards can receive shares of the Company's common stock at the end
        of a
        performance period which ends on December 31, 2009, based on the Company's
        actual performance against pre-established operating income goals, strategic
        goals, and total shareholder return goals. In order to receive the shares,
        the
        recipient must also be employed by the Company on the vesting date. The
        performance share awards represent the number of shares of common stock to
        be
        awarded based on the achievement of targeted performance and may range from
        0
        percent to 150 percent of the targeted amount. The grant date fair value
        of the
        awards related to operating income targets is based on the closing price
        of the
        Company's common stock on the New York Stock Exchange on the grant date of
        the
        award and is being amortized over the performance period. The awards related
        to
        strategic goals do not meet the criteria for grant date pursuant to SFAS
        No.
        123R and the Company has assessed the likelihood of achieving the performance
        goal as not probable at June 30, 2007. The fair value of the awards related
        to
        total shareholder return targets is based upon a Monte Carlo simulation and
        is
        being amortized over the performance period. The Company reassesses at each
        reporting date whether achievement of each of the performance conditions
        is
        probable, as well as estimated forfeitures, and adjusts the accruals of
        compensation expense as appropriate. At June 30, 2007, the Company has assessed
        the operating income and total shareholder return targets as probable of
        achievement. As of June 30, 2007, there was $3,779 of unamortized compensation
        cost related to the 2007 performance share awards which is expected to be
        recognized over the period ending December 31, 2009.
  Share-based
        compensation expense measured in accordance with SFAS 123R totaled $1,393
        ($1,048 on a net-of-tax basis, or $0.02 per basic and diluted share) and
        $6,112
        ($4,600 on a net-of-tax basis, or $0.07 per basic and diluted share) for
        the
        three months ended June 30, 2007 and 2006, respectively.  Share-based
        compensation expense measured in accordance with SFAS 123R totaled $4,028
        ($3,031 on a net-of-tax basis, or $0.05 per basic and diluted share) and
        $9,945
        ($7,485 on a net-of-tax basis, or $0.12 per basic and diluted share) for
        the six
        months ended June 30, 2007 and 2006, respectively.
  Approximately
        70% of share-based compensation expense is reported as selling, general and
        administrative expenses, approximately 30% is reported as a component of
        cost of
        sales, and both are included in the Corporate and Eliminations category for
        segment reporting purposes (Note 10).  At June 30, 2007, approximately
        $192 of stock-based compensation costs was capitalized as a component of
        inventories. Under SFAS 123R, the Company is required to report the benefits
        of
        income tax deductions that exceed recognized compensation as cash flow from
        financing activities. Such excess tax benefits were insignificant for the
        periods ended June 30, 2007 and 2006.
  **(7)
        Derivative Financial Instruments**
  Derivative
        financial instruments are accounted for in accordance with SFAS No. 133,*Accounting for Derivative Instruments and Hedging Activities*. SFAS No. 133
        requires all derivative financial instruments to be reported on the balance
        sheet at fair value. Changes in fair value are recognized either in earnings
        or
        equity, depending on whether the transaction qualifies for hedge accounting
        and
        if so, the nature of the underlying exposure being hedged and how effective
        the
        derivatives are at offsetting price movements in the underlying
        exposure.
  The
        Company accounts for certain forward sale and forward purchase contracts
        that do
        not qualify under the “normal purchase and normal sale” exception of SFAS No.
        133 as derivatives and records these contracts as assets or liabilities at
        fair
        value. These contracts do not currently qualify for hedge accounting.
        Accordingly, changes in fair value for forward sales and forward purchase
        contracts have been recorded in revenue and cost of sales, respectively.
        At June
        30, 2007, the Company had unrealized gains (losses) on open sales and open
        purchase contracts of $1,817 and ($1,847), respectively. These amounts are
        recorded in prepaid expenses and other current assets and accrued expenses
        and
        other current liabilities, respectively.
  The
        Company has utilized interest rate swap agreements to modify the interest
        characteristics of a portion of the Company's outstanding debt. The swap
        agreements essentially convert variable-rate debt to fixed-rate debt and
        have
        been designated as cash flow hedges.
  The
        Company is also exposed to the risk of fluctuations in cash flows related
        to its
        purchase of diesel fuel. The Company has entered into two financial diesel
        fuel
        swap agreements to reduce the volatility in the price of diesel fuel for
        its
        operations for the last six months of 2007. The diesel fuel swap agreements
        are
        not designated as a hedge for accounting purposes, and therefore the changes
        in
        the fair value for these contracts have been recorded in cost of sales. The
        unrealized gain or loss is recorded in other current assets or other current
        liabilities, respectively, depending upon the market value of the swap
        agreement.
  Approximately
        4,000 gallons or 29 percent of the Company's remaining anticipated 2007 fuel
        usage has been fixed with the swap agreements.  At June 30, 2007, the
        Company had unrealized gains on open purchased contracts of $1,018. This
        amount
        was recorded in other current assets in the consolidated balance sheet at
        June
        30, 2007.
 
 
  -10-
 Table
            Of Content
  
 
 
 **(8) Postretirement
        Benefits Other Than Pensions**
 
 The
          following table details the components of the net periodic benefit cost
          for the
          Company’s retiree medical plan (the Plan):
 
 **Three
                  Months Ended**
              
              
              **Six
                  Months Ended****June
                  30,**
              
              
              **June
                  30,****2007**
              
              
              **2006**
              
              
              **2007**
              
              
              **2006**Service
                  cost
              
              $
              536
              
              
              $
              859
              
              
              $
              1,496
              
              
              $
              1,920Interest
                  cost
              
              
              820
              
              
              
              766
              
              
              
              1,526
              
              
              
              1,413Amortization
                  of net actuarial (gain) or loss
              
              
              (47
              )
              
              
              85
              
              
              
              —
              
              
              
              93Amortization
                  of prior service cost
              
              
              599
              
              
              
              489
              
              
              
              1,167
              
              
              
              1,136Net
                  periodic benefit cost
              
              $
              1,908
              
              
              $
              2,199
              
              
              $
              4,189
              
              
              $
              4,562
 
 Employer
        contributions for postretirement medical benefits paid for the six months
        ended
        June 30, 2007 and 2006 were $65 and $0, respectively. Employee
        contributions are not expected to be made and the Plan is unfunded.
  Two
        of
        the Company’s subsidiaries are required to make contributions to the 1974 UMWA
        Pension Plan and Trust and/or the 1993 UMWA Benefit Plan.  The
        contributions made to these plans for the three months and six months ended
        June
        30, 2007 were $353 and $734, respectively.
 
 **(9) Related
        Party Transactions As of December 31, 2006**
 
 The
        Company had the following receivable balances from affiliated parties as
        of
        December 31, 2006:
 
 **December
                  31,****2006**AMCI
              
              
              $
              5,097Robindale
                  Energy & Subsidiary
              
              
              
              11Total
              
              
              $
              5,108
 
 AMCI
        is
        no longer a related party. During 2006, AMCI sold a significant number of
        shares
        of Company common stock to reduce its holdings to below five percent and
        its
        designee on the Company's Board of Directors resigned effective January 3,
        2007.
        Also, Robindale Energy is no longer a related party since its 50% owner is
        no
        longer the Company's Executive Vice President. As of December 31, 2006, $5,097
        of receivables from AMCI is included in trade accounts receivable, net. The
        majority of the AMCI receivables as of December 31, 2006 relate to coal sales
        transactions in the normal course of business.
 
 
 
  -11-
 Table
            Of Content
  **(10) Segment
        Information**
 
 The
        Company extracts, processes and markets steam and metallurgical coal from
        surface and deep mines for sale to electric utilities, steel and coke producers,
        and industrial customers. The Company operates only in the United States
        with
        mines in the Central Appalachian and Northern Appalachian regions. The Company
        has one reportable segment: Coal Operations, which as of June 30, 2007,
        consisted of 34 underground mines and 28 surface mines located in Central
        Appalachia and Northern Appalachia. Coal Operations also includes the Company's
        coal sales function, which markets the Company's Appalachian coal to domestic
        and international customers. The All Other category includes the Company's
        equipment sales and repair operations, as well as other ancillary business
        activities, including terminal services, coal and environmental analysis
        services, and leasing of mineral rights. In addition, the All Other category
        includes the operations of the Company's road construction businesses and
        the
        lime processing business recently acquired and being developed by the Company.
        The Corporate and Eliminations category includes general corporate overhead
        and
        the elimination of intercompany transactions. The revenue elimination amount
        represents inter-segment revenues. The Company evaluates the performance
        of its
        segment based on EBITDA which the Company defines as net income plus interest
        expense, income tax expense, depreciation, depletion and amortization, less
        interest income.
 
 Operating
        segment results for the three months ended June 30, 2007 and segment assets
        as of June 30, 2007 were as follows:
 
 **Corporate****Coal**
              
              **All**
              
              **and****Operations**
              
              **Other**
              
              **Eliminations**
              
              **Consolidated**Revenues
              
              $
              430,456
              
              
              $
              13,690
              
              
              $
              (9,880
              )
              
              $
              434,266Depreciation,
                  depletion, and amortization
              
              
              36,504
              
              
              
              1,064
              
              
              
              287
              
              
              
              37,855EBITDA
              
              
              66,795
              
              
              
              871
              
              
              
              (13,989
              )
              
              
              53,677Capital
                  expenditures
              
              
              26,200
              
              
              
              235
              
              
              
              643
              
              
              
              27,078Total
                  assets
              
              
              1,261,122
              
              
              
              122,202
              
              
              
              (237,126
              )
              
              
              1,146,198
  Operating
        segment results for the six months ended June 30, 2007 were as
        follows:
 
 **Corporate****Coal**
              
              **All**
              
              **and****Operations**
              
              **Other**
              
              **Eliminations**
              
              **Consolidated**Revenues
              
              $
              852,320
              
              
              $
              28,546
              
              
              $
              (19,229
              )
              
              $
              861,637Depreciation,
                  depletion, and amortization
              
              
              70,848
              
              
              
              2,262
              
              
              
              534
              
              
              
              73,644EBITDA
              
              
              134,058
              
              
              
              2,967
              
              
              
              (27,225
              )
              
              
              109,800Capital
                  expenditures
              
              
              69,797
              
              
              
              803
              
              
              
              1,055
              
              
              
              71,655Total
                  assets
              
              
              1,261,122
              
              
              
              122,202
              
              
              
              (237,126
              )
              
              
              1,146,198
 
 Operating
        segment results the three months ended June 30, 2006 and segment assets as
        of June 30, 2006 were as follows:
 
 **Corporate****Coal**
              
              **All**
              
              **and****Operations**
              
              **Other**
              
              **Eliminations**
              
              **Consolidated**Revenues
              
              $
              489,605
              
              
              $
              15,339
              
              
              $
              (8,633
              )
              
              $
              496,311Depreciation,
                  depletion, and amortization
              
              
              32,072
              
              
              
              1,435
              
              
              
              700
              
              
              
              34,207EBITDA
              
              
              92,998
              
              
              
              2,209
              
              
              
              (18,581
              )
              
              
              76,626Capital
                  expenditures
              
              
              32,430
              
              
              
              60
              
              
              
              71
              
              
              
              32,561Total
                  assets
              
              
              1,098,569
              
              
              
              90,418
              
              
              
              (135,495
              )
              
              
              1,053,492
 
 Operating
        segment results for the six months ended June 30, 2006 were as
        follows:
 
 **Corporate****Coal**
              
              **All**
              
              **and****Operations**
              
              **Other**
              
              **Eliminations**
              
              **Consolidated**Revenues
              
              $
              962,174
              
              
              $
              34,825
              
              
              $
              (18,348
              )
              
              $
              978,651Depreciation,
                  depletion, and amortization
              
              
              63,132
              
              
              
              3,414
              
              
              
              1,295
              
              
              
              67,841EBITDA
              
              
              187,711
              
              
              
              4,894
              
              
              
              (35,424
              )
              
              
              157,181Capital
                  expenditures
              
              
              76,872
              
              
              
              6,025
              
              
              
              1,103
              
              
              
              84,000Total
                  assets
              
              
              1,098,569
              
              
              
              90,418
              
              
              
              (135,495
              )
              
              
              1,053,492
 
  -12-
 Table
            Of Content
  
 
 Reconciliation
        of total segment EBITDA to net income:
 
 **Three
                  Months Ended**
              
              
              **Six
                  Months Ended****June
                  30,**
              
              
              **June
                  30,****2007**
              
              
              **2006**
              
              
              **2007**
              
              
              **2006**Total
                  segment EBITDA
              
              $
              53,677
              
              
              $
              76,626
              
              
              $
              109,800
              
              
              $
              157,181Interest
                  expense
              
              
              (10,030
              )
              
              
              (10,786
              )
              
              
              (20,023
              )
              
              
              (21,063
              )Interest
                  income
              
              
              457
              
              
              
              171
              
              
              
              1,094
              
              
              
              358Income
                  tax expense
              
              
              (1,502
              )
              
              
              (8,676
              )
              
              
              (4,131
              )
              
              
              (18,296
              )Depreciation,
                  depletion and amortization
              
              
              (37,855
              )
              
              
              (34,207
              )
              
              
              (73,644
              )
              
              
              (67,841
              )Net
                  income
              
              $
              4,747
              
              
              $
              23,128
              
              
              $
              13,096
              
              
              $
              50,339
  The
        Company markets produced, processed, and purchased coal to customers in the
        United States and in international markets. Export revenues totaled $153,404
        and
        $299,869 or approximately 35% of total revenues for each of the three months
        and
        six months ended June 30, 2007. Export revenues were $171,914 and $358,449
        or approximately 35% and 37%, respectively, of total revenues for the three
        and
        six months ended June 30, 2006.
 
 **(11) Commitment
        and Contingencies**
 
 **(***a***)*****Guarantees and Financial Instruments with Off-balance
        Sheet
        Risk***
 
 In
        the normal course of business, the Company is a party to certain guarantees
        and
        financial instruments with off-balance sheet risk, such as bank letters of
        credit and performance or surety bonds. No liabilities related to these
        arrangements are reflected in the Company's condensed consolidated balance
        sheets. Management does not expect any material losses to result from these
        guarantees or off-balance sheet financial instruments. The amount of bank
        letters of credit outstanding as of June 30, 2007 was $87,094. The amount
        of
        surety bonds currently outstanding related to the Company's reclamation
        obligations is presented in Note 5 to the condensed consolidated financial
        statements. The Company has provided guarantees for equipment financing obtained
        by certain of its contract mining operators totaling approximately $1,335.
        The
        estimated fair value of these guarantees is not significant.
 
 ***(**b**)
        Litigation***
 
 The
        Company is involved in various legal proceedings from time to time in the
        normal
        course of business. In management’s opinion, the Company is not currently
        involved in any legal proceeding which individually or in the aggregate could
        have a material effect on the consolidated financial condition, results of
        operations and/or cash flows of the Company.
 
 
  -13-
 Table
            Of Content
  **(12) Income
        Taxes**
 
 A
        reconciliation of the statutory federal income tax expense at 35% to income
        before income taxes and minority interest and the actual income tax expense
        is
        as follows:
 
 **Three
                  Months Ended**
              
              
              **Six
                  Months Ended****June
                  30,**
              
              
              **June
                  30,****2007**
              
              
              **2006**
              
              
              **2007**
              
              
              **2006**Federal
                  statutory income tax expense
              
              $
              2,172
              
              
              $
              11,131
              
              
              $
              5,999
              
              
              $
              24,023Increases
                  (reductions) in taxes due to:Percentage
                  depletion allowance
              
              
              (1,682
              )
              
              
              (5,077
              )
              
              
              (3,807
              )
              
              
              (9,941
              )Extraterritorial
                  income exclusion
              
              
              —
              
              
              
              (469
              )
              
              
              —
              
              
              
              (882
              )Deduction
                  for domestic production activities
              
              
              6
              
              
              
              (101
              )
              
              
              (28
              )
              
              
              (266
              )State
                  taxes, net of federal tax impact
              
              
              94
              
              
              
              806
              
              
              
              288
              
              
              
              1,771Share-based
                  compensation
              
              
              201
              
              
              
              1,199
              
              
              
              385
              
              
              
              2,229Change
                  in valuation allowance
              
              
              651
              
              
              
              986
              
              
              
              1,142
              
              
              
              989Other,
                  net
              
              
              60
              
              
              
              201
              
              
              
              152
              
              
              
              373Income
                  tax expense
              
              $
              1,502
              
              
              $
              8,676
              
              
              $
              4,131
              
              
              $
              18,296
 
  The
        Company has concluded that it is more likely than not that deferred tax assets,
        net of valuation allowances, currently recorded will be realized. The amount
        of
        the valuation allowance takes into consideration the Alternative Minimum
        Tax
        system as required by SFAS No. 109. The Company monitors the valuation allowance
        each quarter and makes adjustments to the allowance as appropriate.
  The
        Company adopted the provisions of Financial Standards Accounting Board
        Interpretation No. 48*Accounting for Uncertainty in Income Taxes* (“FIN
        48”) an interpretation of FASB Statement No. 109 (“SFAS 109”) on January 1,
        2007. As a result of the adoption of FIN 48, the Company recognized no
        adjustment in the unrecognized income tax benefits that existed at December
        31,
        2006. On January 1, 2007, the Company had approximately $1,754 of unrecognized
        tax benefits accrued and of this amount $1,437 would affect the effective
        tax
        rate if recognized. The Company does not anticipate that total unrecognized
        benefits recorded as of January 1, 2007 will significantly change during
        2007.
  The
        Company's policy is to classify interest and penalties related to uncertain
        tax
        positions as part of income tax expense. As of January 1, 2007, the Company
        had
        not recorded any accrued interest expense since no additional cash taxes
        are
        projected to be due as a result of the uncertain tax positions.
  Tax
        years
        2005 and 2006 remain open to federal and state examination. The Internal
        Revenue
        Service initiated a corporate income tax audit during first quarter 2007
        for the
        Company's 2005 tax year.  The audit is still in the initial stages. No
        adjustments have been proposed to date, and the Company expects the examination
        to last through the first quarter of 2008.
 
 -14-
 Table
            Of Content
 **(13) Comprehensive
        Income**
 
 Total
        comprehensive income is as follows for the three months ended June 30,
        2007:
  Net
                  Income
              
              $
              4,747Decrease
                  in fair value of cash flow hedge, net of tax effect of $(1,384)
                  for the
                  period
              
              
              (4,209
              )Decrease
                  in SFAS 158 adjustment related to postretirement medical and black
                  lung
                  obligations, net of tax effect of $(141) for the period
              
              
              (409
              )Total
                  comprehensive income
              
              $
              129
 
 Total
        comprehensive income is as follows for the six months ended June 30,
        2007:
  Net
                  Income
              
              $
              13,096Decrease
                  in fair value of cash flow hedge, net of tax effect of $(1,231)
                  for the
                  period
              
              
              (3,437
              )Decrease
                  in SFAS 158 adjustment related to postretirement medical and black
                  lung
                  obligations, net of tax effect of $(297) for the period
              
              
              (880
              )Total
                  comprehensive income
              
              $
              8,779
  
 The
        following table summarizes the components of accumulated other comprehensive
        loss at June 30, 2007:
  Fair
                  value of cash flow hedge, net of tax effect of $557
              
              $
              1,693SFAS
                  158 adjustment related to black lung obligations, net of tax effect
                  of
                  $121
              
              
              369SFAS
                  158 adjustment related to postretirement medical obligations, net
                  of tax
                  effect of $4,048
              
              
              12,319Total
                  accumulated other comprehensive loss
              
              $
              14,381
 
  
 **(14)
        Mingo Logan Acquisition**
  On
        June
        29, 2007, the Company completed the acquisition of certain coal mining assets
        in
        western West Virginia from Arch Coal, Inc. known as Mingo Logan for $43,890
        including working capital and assumed liabilities.  The Mingo Logan
        purchase consists of coal reserves, two mines and a load-out and processing
        plant and will be managed by Cobra Natural Resources, LLC, an indirect wholly-
        owned subsidiary of the Company.
 
 The
        following table summarizes the
        preliminary estimates of fair values of the assets acquired and liabilities
        assumed at the date of acquisition:
 
 Current
                  assets
              
              $
              6,748Property,
                  plant, and equipment
              
              $
                $
              44,947
                4,402Intangible
                  assetsTotal
                  assets acquired
              
              $
              56,097Asset
                  retirement obligation
              
              $
              (12,107
              )Other
                  liabilities
              
              $
              (100
              )Total
                  liabilities assumed
              
              $
              (12,207
              )Net
                  assets acquired
              
              $
              43,890
 
 Estimates
        of fair value are subject to adjustment based upon completion of an independent
        third-party valuation.
 
 
 
 
  -15-
 Table
            Of Content
  
 
 
 **(15) New
        Accounting Pronouncements**
 
 In
        September 2006, the FASB issued SFAS No. 157, “Fair Value Measures” (“SFAS
        157”). SFAS 157 defines fair value, establishes a framework for measuring fair
        value and enhances disclosures about fair value measures required under other
        accounting pronouncements, but does not change existing guidance as to whether
        or not an instrument is carried at fair value. SFAS No. 157 is effective
        for
        fiscal years beginning after November 15, 2007. The Company is currently
        reviewing the provisions of SFAS 157 to determine the impact on the Company's
        financial statements.
  In
        February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for
        Financial Assets and Financial Liabilities” (SFAS 159”). SFAS 159 permits
        entities to choose to measure many financial instruments and certain other
        items
        at fair value. The objective is to expand the use of fair value measurements
        in
        accounting for financial instruments. SFAS No. 159 is effective for fiscal
        years
        beginning after November 15, 2007. The Company is currently reviewing the
        provisions of SFAS 159 to determine the impact on the Company's financial
        statements.
 
 In
        April
        2007, the FASB issued FASB Staff Position (“FSP”) FIN 39-1, “Amendment of FASB
        Interpretation No. 39.” This FSP amends paragraph 10 of Interpretation 39
        to permit entities to offset fair value amounts recognized for either a
        receivable representing the right to reclaim cash collateral or a payable
        representing an obligation to return cash collateral, if such receivable
        or
        payable arises from derivative instruments executed with the same counterparty
        under the same master netting arrangement. FSP FIN 39-1 also requires entities
        to make an accounting policy decision to offset fair value amounts in accordance
        with FIN 39-1 and apply the policy consistently. An entity may not offset
        fair
        value amounts recognized for derivative instruments without offsetting fair
        value amounts recognized for the right to reclaim cash collateral or the
        obligation to return cash collateral. FSP FIN 39-1 is effective for financial
        statements issued for fiscal years beginning after November 15, 2007,
        however earlier application is permitted. The Company is currently reviewing
        the
        provisions of the FSP to determine the impact on the Company’s financial
        statements.
  On
        January 1, 2007, the Company adopted the provisions of FIN 48, which clarifies
        the accounting for uncertainty in income tax positions. This interpretation
        requires the Company to recognize in the consolidated financial statements
        only
        those tax positions determined to be more likely than not of being sustained
        upon examination, based on the technical merits of the positions. The adoption
        of FIN 48 did not result in an adjustment to the Company's financial
        statements.
  
 -16-
 Table
            Of Content
   **(16) Supplemental
        Guarantor/Non-Guarantor Financial Information**
 
 On
          June
          28, 2007, Holdings was merged into the Company and the Company assumed
          the
          obligations of Holdings under the Credit Agreement and related guaranty
          and
          collateral agreement and became a parent guarantor of the $175,000 10%
          Senior
          Notes due 2012 (the Senior Notes). The payment obligations under the Senior
          Notes, issued jointly by our subsidiary Alpha Natural Resources, LLC and
          its
          wholly-owned subsidiary Alpha Natural Resource Capital Corp. in 2004, are
          unsecured, but are guaranteed fully and unconditionally on a joint and
          several
          basis by the Company and all its subsidiaries other than the issuers of
          the
          notes and our recently formed subsidiary, Gallatin Materials, LLC.  The
          following financial information sets forth separate financial information
          with
          respect to the Company, the issuers, the guarantor subsidiaries and the
          non-guarantor subsidiary. The principal elimination entries eliminate
          investments in subsidiaries and certain intercompany balances and
          transactions.
  Unaudited
                    Supplemental Condensed Consolidating Statement of Income for
                    the Three
                    Months Ended June 30, 2007:Parent
                
                
                Co-Issuers
                Guarantors
                Non-Guarantor
                Eliminations
                ConsolidatedRevenues:Coal
                    sales revenue
                $
                -
                
                
                $
                -
                
                
                $
                386,130
                
                
                $
                -
                
                
                $
                -
                
                
                $
                386,130Freight
                    and handling revenues
                -
                
                
                
                -
                
                
                
                41,588
                
                
                
                -
                
                
                
                -
                
                
                
                41,588Other
                    revenues
                
                
                -
                
                
                
                -
                
                
                
                6,548
                
                
                
                -
                
                
                
                -
                
                
                
                6,548Total
                    revenue
                
                
                -
                
                
                
                -
                
                
                
                434,266
                
                
                
                -
                
                
                
                -
                
                
                
                434,266Cost
                    and expenses:Cost
                    of coal sales
                
                -
                
                
                
                -
                
                
                
                320,807
                
                
                
                -
                
                
                
                
                
                
                
                320,807Freight
                    and handling costs
                -
                
                
                
                -
                
                
                
                41,588
                
                
                
                -
                
                
                
                -
                
                
                
                41,588Cost
                    of other revenue
                
                -
                
                
                
                -
                
                
                
                4,172
                
                
                
                596
                
                
                
                -
                
                
                
                4,768Depreciation,
                    depletion and amortization
                -
                
                
                
                -
                
                
                
                37,853
                
                
                
                2
                
                
                
                -
                
                
                
                37,855Selling,
                    general and administrative expenses
                291
                
                
                
                1,212
                
                
                
                12,449
                
                
                
                30
                
                
                
                -
                
                
                
                13,982Total
                    costs and expenses
                291
                
                
                
                1,212
                
                
                
                416,869
                
                
                
                628
                
                
                
                -
                
                
                
                419,000Income
                    from operations
                
                (291
                )
                
                
                (1,212
                )
                
                
                17,397
                
                
                
                (628
                )
                
                
                -
                
                
                
                15,266Other
                    income (expenses):Interest
                    expense
                
                -
                
                
                
                (10,057
                )
                
                
                (111
                )
                
                
                -
                
                
                
                138
                
                
                
                (10,030
                )Interest
                    income
                
                
                37
                
                
                
                348
                
                
                
                210
                
                
                
                -
                
                
                
                (138
                )
                
                
                457Equity
                    earnings
                
                
                6,503
                
                
                
                17,424
                
                
                
                (584
                )
                
                
                -
                
                
                
                (23,343
                )
                
                
                -Miscellaneous
                    income, net
                -
                
                
                
                -
                
                
                
                512
                
                
                
                -
                
                
                
                -
                
                
                
                512Total
                    other income (expense), net
                6,540
                
                
                
                7,715
                
                
                
                27
                
                
                
                -
                
                
                
                (23,343
                )
                
                
                (9,061
                )Income
                    (loss) before income taxes and minority interest
                6,249
                
                
                
                6,503
                
                
                
                17,424
                
                
                
                (628
                )
                
                
                (23,343
                )
                
                
                6,205Income
                    tax expense
                
                
                1,502
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                1,502Minority
                    interest
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                (44
                )
                
                
                -
                
                
                
                (44
                )Net
                    income (loss)
                $
                4,747
                
                
                $
                6,503
                
                
                $
                17,424
                
                
                $
                (584
                )
                
                $
                (23,343
                )
                
                $
                4,747
    -17-
 Table
              Of Content
  Unaudited
                    Supplemental Condensed Consolidating Balance Sheet at June 30,
                    2007:Parent
                
                
                Co-Issuers
                
                
                Guarantors
                
                
                Non-Guarantor
                
                
                Eliminations
                
                
                ConsolidatedAssets:Current
                    assets:Cash
                    and cash equivalents
                
                $
                -
                
                
                $
                3,016
                
                
                $
                1,679
                
                
                $
                3,960
                
                
                $
                -
                
                
                $
                8,655Trade
                    accounts receivable, net
                
                
                -
                
                
                
                -
                
                
                
                146,525
                
                
                
                -
                
                
                
                -
                
                
                
                146,525Notes
                    and other receivables
                
                
                2,568
                
                
                
                67,494
                
                
                
                16,507
                
                
                
                -
                
                
                
                (80,403
                )
                
                
                6,166Inventories
                
                
                -
                
                
                
                -
                
                
                
                90,447
                
                
                
                -
                
                
                
                -
                
                
                
                90,447Due
                    from affiliates
                
                
                -
                
                
                
                -
                
                
                
                329,621
                
                
                
                -
                
                
                
                (329,621
                )
                
                
                -Prepaid
                    expenses and other current assets
                
                
                4,316
                
                
                
                730
                
                
                
                34,414
                
                
                
                114
                
                
                
                -
                
                
                
                39,574Total
                    current assets
                
                
                6,884
                
                
                
                71,240
                
                
                
                619,193
                
                
                
                4,074
                
                
                
                (410,024
                )
                
                
                291,367Property,
                    plant, and equipment, net
                
                
                -
                
                
                
                -
                
                
                
                673,997
                
                
                
                7,574
                
                
                
                -
                
                
                
                681,571Goodwill
                
                
                -
                
                
                
                -
                
                
                
                20,547
                
                
                
                -
                
                
                
                -
                
                
                
                20,547Other
                    intangibles, net
                
                
                -
                
                
                
                -
                
                
                
                7,334
                
                
                
                2,851
                
                
                
                -
                
                
                
                10,185Deferred
                    income taxes
                
                
                88,839
                
                
                
                4,724
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                93,563Other
                    assets
                
                
                356,362
                
                
                
                988,438
                
                
                
                37,247
                
                
                
                520
                
                
                
                (1,333,602
                )
                
                
                48,965Total
                    assets
                
                $
                452,085
                
                
                $
                1,064,402
                
                
                $
                1,358,318
                
                
                $
                15,019
                
                
                $
                (1,743,626
                )
                
                $
                1,146,198Liabilities
                    and Stockholder's/Member's EquityCurrent
                    liabilities:Current
                    portion of long-term debt
                
                $
                -
                
                
                $
                14,600
                
                
                $
                68,230
                
                
                
                -
                
                
                $
                (79,600
                )
                
                $
                3,230Notes
                    payable
                
                
                -
                
                
                
                7,088
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                7,088Bank
                    overdrafts
                
                
                -
                
                
                
                -
                
                
                
                11,065
                
                
                
                -
                
                
                
                -
                
                
                
                11,065Due
                    to affiliates
                
                
                75,467
                
                
                
                254,154
                
                
                
                -
                
                
                
                -
                
                
                
                (329,621
                )
                
                
                -Trade
                    accounts payable
                
                
                -
                
                
                
                72
                
                
                
                67,495
                
                
                
                650
                
                
                
                -
                
                
                
                68,217Deferred
                    income tax
                
                
                6,940
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                6,940Accrued
                    expenses and other current liabilities
                
                
                2,389
                
                
                
                2,559
                
                
                
                80,796
                
                
                
                280
                
                
                
                (1,123
                )
                
                
                84,901Total
                    current liabilities
                
                
                84,796
                
                
                
                278,473
                
                
                
                227,586
                
                
                
                930
                
                
                
                (410,344
                )
                
                
                181,441Long-term
                    debt, net of current portion
                
                
                -
                
                
                
                433,750
                
                
                
                366
                
                
                
                4,533
                
                
                
                (3,833
                )
                
                
                434,816Workers'
                    compensation benefits
                
                
                -
                
                
                
                -
                
                
                
                9,086
                
                
                
                -
                
                
                
                -
                
                
                
                9,086Postretirement
                    medical benefits
                
                
                -
                
                
                
                -
                
                
                
                53,669
                
                
                
                -
                
                
                
                -
                
                
                
                53,669Asset
                    retirement obligation
                
                
                -
                
                
                
                -
                
                
                
                81,611
                
                
                
                -
                
                
                
                -
                
                
                
                81,611Deferred
                    gains on sales of property interest
                
                
                -
                
                
                
                -
                
                
                
                3,429
                
                
                
                -
                
                
                
                -
                
                
                
                3,429Other
                    liabilities
                
                
                2,400
                
                
                
                2,260
                
                
                
                11,617
                
                
                
                -
                
                
                
                -
                
                
                
                16,277Total
                    liabilities
                
                
                87,196
                
                
                
                714,483
                
                
                
                387,364
                
                
                
                5,463
                
                
                
                (414,117
                )
                
                
                780,329Minority
                    interest
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                980
                
                
                
                -
                
                
                
                980Stockholders/member's
                    equity
                
                
                364,889
                
                
                
                349,919
                
                
                
                970,954
                
                
                
                8,576
                
                
                
                (1,329,449
                )
                
                
                364,889Total
                    liabilities and stockholders/members equity
                
                $
                452,085
                
                
                $
                1,064,402
                
                
                $
                1,358,318
                
                
                $
                15,019
                
                
                $
                (1,743,626
                )
                
                $
                1,146,198
  -18-
 Table
              Of Content
  Unaudited
                    Supplemental Condensed Consolidating Statement of Income for
                    the Three
                    Months Ended June 30, 2006:Parent
                
                
                Co-Issuers
                Guarantors
                Non-Guarantor
                Eliminations
                ConsolidatedRevenues:Coal
                    sales revenue
                $
                -
                
                
                $
                -
                
                
                $
                437,323
                
                
                $
                -
                
                
                $
                -
                
                
                $
                437,323Freight
                    and handling revenues
                -
                
                
                
                -
                
                
                
                50,935
                
                
                
                -
                
                
                
                -
                
                
                
                50,935Other
                    revenues
                
                
                -
                
                
                
                -
                
                
                
                8,053
                
                
                
                -
                
                
                
                -
                
                
                
                8,053Total
                    revenue
                
                
                -
                
                
                
                -
                
                
                
                496,311
                
                
                
                -
                
                
                
                -
                
                
                
                496,311Cost
                    and expenses:Cost
                    of coal sales
                
                -
                
                
                
                -
                
                
                
                345,505
                
                
                
                -
                
                
                
                -
                
                
                
                345,505Freight
                    and handling costs
                -
                
                
                
                -
                
                
                
                50,935
                
                
                
                -
                
                
                
                -
                
                
                
                50,935Cost
                    of other revenue
                
                -
                
                
                
                -
                
                
                
                5,445
                
                
                
                -
                
                
                
                -
                
                
                
                5,445Depreciation,
                    depletion and amortization
                -
                
                
                
                -
                
                
                
                34,207
                
                
                
                -
                
                
                
                -
                
                
                
                34,207Selling,
                    general and administrative expenses
                141
                
                
                
                5,728
                
                
                
                12,144
                
                
                
                -
                
                
                
                -
                
                
                
                18,013Total
                    costs and expenses
                141
                
                
                
                5,728
                
                
                
                448,236
                
                
                
                -
                
                
                
                -
                
                
                
                454,105Income
                    from operations
                
                (141
                )
                
                
                (5,728
                )
                
                
                48,075
                
                
                
                -
                
                
                
                -
                
                
                
                42,206Other
                    income (expenses):Interest
                    expense
                
                -
                
                
                
                (10,772
                )
                
                
                (93
                )
                
                
                -
                
                
                
                79
                
                
                
                (10,786
                )Interest
                    income
                
                
                52
                
                
                
                78
                
                
                
                120
                
                
                
                -
                
                
                
                (79
                )
                
                
                171Equity
                    earnings
                
                
                31,893
                
                
                
                48,315
                
                
                
                -
                
                
                
                -
                
                
                
                (80,208
                )
                
                
                -Miscellaneous
                    income, net
                -
                
                
                
                -
                
                
                
                213
                
                
                
                -
                
                
                
                -
                
                
                
                213Total
                    other income (expense), net
                31,945
                
                
                
                37,621
                
                
                
                240
                
                
                
                -
                
                
                
                (80,208
                )
                
                
                (10,402
                )Income
                    (loss) before income taxes and minority interest
                31,804
                
                
                
                31,893
                
                
                
                48,315
                
                
                
                -
                
                
                
                (80,208
                )
                
                
                31,804Income
                    tax expense
                
                
                8,676
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                8,676Minority
                    interest
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -Net
                    income (loss)
                $
                23,128
                
                
                $
                31,893
                
                
                $
                48,315
                
                
                $
                -
                
                
                $
                (80,208
                )
                
                $
                23,128
   -19-
 Table
              Of
              Content
  Unaudited
                      Supplemental Condensed Consolidating Balance Sheet at December
                      31,
                      2006:Parent
                  
                  
                  Co-Issuers
                  
                  
                  Guarantors
                  
                  
                  Non-Guarantor
                  
                  
                  Eliminations
                  
                  
                  ConsolidatedAssets:Current
                      assets:Cash
                      and cash equivalents
                  
                  $
                  -
                  
                  
                  $
                  27,101
                  
                  
                  $
                  5,414
                  
                  
                  $
                  741
                  
                  
                  $
                  -
                  
                  
                  $
                  33,256Trade
                      accounts receivable, net
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  171,195
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  171,195Notes
                      and other receivables
                  
                  
                  2,568
                  
                  
                  
                  67,498
                  
                  
                  
                  13,702
                  
                  
                  
                  20
                  
                  
                  
                  (77,322
                  )
                  
                  
                  6,466Inventories
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  76,844
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  76,844Due
                      from affiliates
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  276,063
                  
                  
                  
                  -
                  
                  
                  
                  (276,063
                  )
                  
                  
                  -Prepaid
                      expenses and other current assets
                  
                  
                  3,337
                  
                  
                  
                  1,437
                  
                  
                  
                  46,119
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  50,893Total
                      current assets
                  
                  
                  5,905
                  
                  
                  
                  96,036
                  
                  
                  
                  589,337
                  
                  
                  
                  761
                  
                  
                  
                  (353,385
                  )
                  
                  
                  338,654Property,
                      plant, and equipment, net
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  637,136
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  637,136Goodwill
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  20,547
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  20,547Other
                      intangibles, net
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  7,803
                  
                  
                  
                  3,917
                  
                  
                  
                  -
                  
                  
                  
                  11,720Deferred
                      income taxes
                  
                  
                  88,644
                  
                  
                  
                  6,253
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  94,897Other
                      assets
                  
                  
                  330,983
                  
                  
                  
                  897,664
                  
                  
                  
                  21,625
                  
                  
                  
                  -
                  
                  
                  
                  (1,207,433
                  )
                  
                  
                  42,839Total
                      assets
                  
                  $
                  425,532
                  
                  
                  $
                  999,953
                  
                  
                  $
                  1,276,448
                  
                  
                  $
                  4,678
                  
                  
                  $
                  (1,560,818
                  )
                  
                  $
                  1,145,793Liabilities
                      and Stockholder's/Member's EquityCurrent
                      liabilities:Current
                      portion of long-term debt
                  
                  $
                  -
                  
                  
                  $
                  12,300
                  
                  
                  $
                  68,254
                  
                  
                  
                  -
                  
                  
                  $
                  (77,300
                  )
                  
                  $
                  3,254Notes
                      payable
                  
                  
                  -
                  
                  
                  
                  20,941
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  20,941Bank
                      overdrafts
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  23,814
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  23,814Due
                      to affiliates
                  
                  
                  69,087
                  
                  
                  
                  206,976
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  (276,063)
                  
                  
                  
                  -Trade
                      accounts payable
                  
                  
                  -
                  
                  
                  
                  144
                  
                  
                  
                  75,534
                  
                  
                  
                  308
                  
                  
                  
                  -
                  
                  
                  
                  75,986Deferred
                      income tax
                  
                  
                  7,601
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  7,601Accrued
                      expenses and other current liabilities
                  
                  
                  2,395
                  
                  
                  
                  6,695
                  
                  
                  
                  81,878
                  
                  
                  
                  -
                  
                  
                  
                  (374
                  )
                  
                  
                  90,594Total
                      current liabilities
                  
                  
                  79,083
                  
                  
                  
                  247,056
                  
                  
                  
                  249,480
                  
                  
                  
                  308
                  
                  
                  
                  (353,737
                  )
                  
                  
                  222,190Long-term
                      debt, net of current portion
                  
                  
                  -
                  
                  
                  
                  420,000
                  
                  
                  
                  756
                  
                  
                  
                  700
                  
                  
                  
                  -
                  
                  
                  
                  421,456Workers'
                      compensation benefits
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  7,169
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  7,169Postretirement
                      medical benefits
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  50,712
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  50,712Asset
                      retirement obligation
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  69,495
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  69,495Deferred
                      gains on sales of property interest
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  3,885
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  3,885Other
                      liabilities
                  
                  
                  2,400
                  
                  
                  
                  8,676
                  
                  
                  
                  15,811
                  
                  
                  
                  (50
                  )
                  
                  
                  -
                  
                  
                  
                  26,837Total
                      liabilities
                  
                  
                  81,483
                  
                  
                  
                  675,732
                  
                  
                  
                  397,308
                  
                  
                  
                  958
                  
                  
                  
                  (353,737
                  )
                  
                  
                  801,744Minority
                      interest
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -Stockholders/member's
                      equity
                  
                  
                  344,049
                  
                  
                  
                  324,221
                  
                  
                  
                  879,140
                  
                  
                  
                  3,720
                  
                  
                  
                  (1,207,081
                  )
                  
                  
                  344,049Total
                      liabilities and stockholders/members equity
                  
                  $
                  425,532
                  
                  
                  $
                  999,953
                  
                  
                  $
                  1,276,448
                  
                  
                  $
                  4,678
                  
                  
                  $
                  (1,560,818
                  )
                  
                  $
                  1,145,793
   -20-
 Table
                Of Content
  Unaudited
                    Supplemental Condensed Consolidating Statement of Income for
                    the Six
                    Months Ended June 30, 2007:Parent
                
                
                Co-Issuers
                Guarantors
                
                Non-Guarantor
                Eliminations
                ConsolidatedRevenues:Coal
                    sales revenue
                $
                -
                
                
                $
                -
                
                
                $
                763,060
                
                
                $
                -
                
                
                $
                -
                
                
                $
                763,060Freight
                    and handling revenues
                -
                
                
                
                -
                
                
                
                84,799
                
                
                
                -
                
                
                
                -
                
                
                
                84,799Other
                    revenues
                
                -
                
                
                
                -
                
                
                
                13,778
                
                
                
                -
                
                
                
                -
                
                
                
                13,778Total
                    revenue
                
                
                -
                
                
                
                -
                
                
                
                861,637
                
                
                
                -
                
                
                
                -
                
                
                
                861,637Cost
                    and expenses:Cost
                    of coal sales
                
                -
                
                
                
                -
                
                
                
                630,062
                
                
                
                -
                
                
                
                -
                
                
                
                630,062Freight
                    and handling costs
                -
                
                
                
                -
                
                
                
                84,799
                
                
                
                -
                
                
                
                -
                
                
                
                84,799Cost
                    of other revenue
                
                -
                
                
                
                -
                
                
                
                9,057
                
                
                
                1,339
                
                
                
                -
                
                
                
                10,396Depreciation,
                    depletion and amortization
                -
                
                
                
                -
                
                
                
                73,642
                
                
                
                2
                
                
                
                -
                
                
                
                73,644Selling,
                    general and administrative expenses
                565
                
                
                
                2,758
                
                
                
                23,839
                
                
                
                59
                
                
                
                -
                
                
                
                27,221Total
                    costs and expenses
                565
                
                
                
                2,758
                
                
                
                821,399
                
                
                
                1,400
                
                
                
                -
                
                
                
                826,122Income
                    from operations
                
                (565
                )
                
                
                (2,758
                )
                
                
                40,238
                
                
                
                (1,400
                )
                
                
                -
                
                
                
                35,515Other
                    income (expenses):Interest
                    expense
                
                -
                
                
                
                (20,078
                )
                
                
                (181
                )
                
                
                -
                
                
                
                236
                
                
                
                (20,023
                )Interest
                    income
                
                
                74
                
                
                
                887
                
                
                
                369
                
                
                
                -
                
                
                
                (236
                )
                
                
                1,094Equity
                    earnings
                
                
                17,718
                
                
                
                39,665
                
                
                
                (1,313
                )
                
                
                -
                
                
                
                (56,070
                )
                
                
                -Miscellaneous
                    income, net
                -
                
                
                
                2
                
                
                
                552
                
                
                
                -
                
                
                
                
                
                
                
                554Total
                    other income (expense), net
                17,792
                
                
                
                20,476
                
                
                
                (573
                )
                
                
                -
                
                
                
                (56,070
                )
                
                
                (18,375
                )Income
                    (loss) before income taxes and minority interest
                17,227
                
                
                
                17,718
                
                
                
                39,665
                
                
                
                (1,400
                )
                
                
                (56,070
                )
                
                
                17,140Income
                    tax expense
                
                
                4,131
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                4,131Minority
                    interest
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                (87
                )
                
                
                -
                
                
                
                (87
                )Net
                    income (loss)
                $
                13,096
                
                
                $
                17,718
                
                
                $
                39,665
                
                
                $
                (1,313
                )
                
                $
                (56,070
                )
                
                $
                13,096
    -21-
 Table
              Of Content
  Unaudited
                    Supplemental Condensed Consolidating Statement of Income for
                    the Six
                    Months Ended June 30, 2006:Parent
                
                
                Co-Issuers
                Guarantors
                
                Non-Guarantor
                Eliminations
                ConsolidatedRevenues:Coal
                    sales revenue
                $
                -
                
                
                $
                -
                
                
                $
                861,854
                
                
                $
                -
                
                
                $
                -
                
                
                $
                861,854Freight
                    and handling revenues
                -
                
                
                
                -
                
                
                
                97,327
                
                
                
                -
                
                
                
                -
                
                
                
                97,327Other
                    revenues
                
                -
                
                
                
                -
                
                
                
                19,470
                
                
                
                -
                
                
                
                -
                
                
                
                19,470Total
                    revenue
                
                
                -
                
                
                
                -
                
                
                
                978,651
                
                
                
                -
                
                
                
                -
                
                
                
                978,651Cost
                    and expenses:Cost
                    of coal sales
                
                -
                
                
                
                -
                
                
                
                676,391
                
                
                
                -
                
                
                
                
                
                
                
                676,391Freight
                    and handling costs
                -
                
                
                
                -
                
                
                
                97,327
                
                
                
                -
                
                
                
                -
                
                
                
                97,327Cost
                    of other revenue
                
                -
                
                
                
                -
                
                
                
                13,396
                
                
                
                -
                
                
                
                -
                
                
                
                13,396Depreciation,
                    depletion and amortization
                -
                
                
                
                
                
                
                
                67,841
                
                
                
                -
                
                
                
                -
                
                
                
                67,841Selling,
                    general and administrative expenses
                552
                
                
                
                9,972
                
                
                
                24,128
                
                
                
                -
                
                
                
                -
                
                
                
                34,652Total
                    costs and expenses
                552
                
                
                
                9,972
                
                
                
                879,083
                
                
                
                -
                
                
                
                -
                
                
                
                889,607Income
                    from operations
                
                (552
                )
                
                
                (9,972
                )
                
                
                99,568
                
                
                
                -
                
                
                
                -
                
                
                
                89,044Other
                    income (expenses):Interest
                    expense
                
                -
                
                
                
                (21,045
                )
                
                
                (159
                )
                
                
                -
                
                
                
                141
                
                
                
                (21,063
                )Interest
                    income
                
                
                96
                
                
                
                205
                
                
                
                198
                
                
                
                -
                
                
                
                (141
                )
                
                
                358Equity
                    earnings
                
                69,091
                
                
                
                99,943
                
                
                
                -
                
                
                
                -
                
                
                
                (169,034
                )
                
                
                -Miscellaneous
                    income, net
                -
                
                
                
                (40
                )
                
                
                336
                
                
                
                -
                
                
                
                
                
                
                
                296Total
                    other income (expense), net
                69,187
                
                
                
                79,063
                
                
                
                375
                
                
                
                -
                
                
                
                (169,034
                )
                
                
                (20,409
                )Income
                    (loss) before income taxes and minority interest
                68,635
                
                
                
                69,091
                
                
                
                99,943
                
                
                
                -
                
                
                
                (169,034
                )
                
                
                68,635Income
                    tax expense
                
                
                18,296
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                18,296Minority
                    interest
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -Net
                    income (loss)
                $
                50,339
                
                
                $
                69,091
                
                
                $
                99,943
                
                
                $
                -
                
                
                $
                (169,034
                )
                
                $
                50,339
  -22-
 Table
              Of
              Content
  Unaudited
                      Supplemental Condensed Consolidating Statement of Cash Flows
                      for the Six
                      Months Ended June 30, 2007:Parent
                  
                  
                  Co-Issuers
                  
                  
                  Guarantors
                  
                  
                  Non-Guarantor
                  
                  
                  Eliminations
                  
                  
                  ConsolidatedNet
                      cash flows from operating activities
                  
                  $
                  (120
                  )
                  
                  $
                  (23,482
                  )
                  
                  $
                  122,081
                  
                  
                  $
                  16
                  
                  
                  $
                  3,813
                  
                  
                  $
                  102,308***Cash
                      flows from investing activities:***Capital
                      expenditures
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  (64,081
                  )
                  
                  
                  (7,574
                  )
                  
                  
                  -
                  
                  
                  
                  (71,655
                  )Proceeds
                      from disposition of property, plant, & equipment
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  2,559
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  2,559Equity
                      investments
                  
                  
                  -
                  
                  
                  
                  (110
                  )
                  
                  
                  (7,019
                  )
                  
                  
                  -
                  
                  
                  
                  6,982
                  
                  
                  
                  (147
                  )Purchase
                      of acquired companies - Mingo Logan
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  (43,890
                  )
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  (43,890
                  )Deferred
                      acquisition costs
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -Other,
                      net
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  (612
                  )
                  
                  
                  (18
                  )
                  
                  
                  -
                  
                  
                  
                  (630
                  )Net
                      cash flows from investing activities
                  
                  
                  -
                  
                  
                  
                  (110
                  )
                  
                  
                  (113,043
                  )
                  
                  
                  (7,592
                  )
                  
                  
                  6,982
                  
                  
                  
                  (113,763
                  )***Cash
                      flows from financing activities:***Net
                      draws (repayments) of notes payable
                  
                  
                  -
                  
                  
                  
                  (13,829
                  )
                  
                  
                  (24
                  )
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  (13,853
                  )Proceeds
                      from issuance of long-term debt
                  
                  
                  -
                  
                  
                  
                  15,000
                  
                  
                  
                  -
                  
                  
                  
                  3,813
                  
                  
                  
                  (3,813
                  )
                  
                  
                  15,000Repayments
                      on long-term debt
                  
                  
                  -
                  
                  
                  
                  (1,664
                  )
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  (1,664
                  )Change
                      in bank overdraft
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  (12,749
                  )
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  (12,749
                  )Proceeds
                      from exercise of stock options
                  
                  
                  120
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  120Capital
                      contributions from parent
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  6,982
                  
                  
                  
                  (6,982
                  )
                  
                  
                  -Net
                      cash flows from financing activities
                  
                  
                  120
                  
                  
                  
                  (493
                  )
                  
                  
                  (12,773
                  )
                  
                  
                  10,795
                  
                  
                  
                  (10,795
                  )
                  
                  
                  (13,146
                  )**Increase
                      (decrease) in cash**
                  
                  
                  -
                  
                  
                  
                  (24,085
                  )
                  
                  
                  (3,735
                  )
                  
                  
                  3,219
                  
                  
                  
                  -
                  
                  
                  
                  (24,601
                  )Cash
                      and cash equivalants at beginning of period
                  
                  
                  -
                  
                  
                  
                  27,101
                  
                  
                  
                  5,414
                  
                  
                  
                  741
                  
                  
                  
                  -
                  
                  
                  
                  33,256Cash
                      and cash equivalants at end of period
                  
                  $
                  -
                  
                  
                  $
                  3,016
                  
                  
                  $
                  1,679
                  
                  
                  $
                  3,960
                  
                  
                  $
                  -
                  
                  
                  $
                  8,655
     -23-
 Table
                Of Content
   Unaudited
                    Supplemental Condensed Consolidating Statement of Cash Flows
                    for the Six
                    Months Ended June 30, 2006:Parent
                
                
                Co-Issuers
                
                
                Guarantors
                
                
                Non-Guarantor
                
                
                Eliminations
                
                
                ConsolidatedNet
                    cash flows from operating activities
                
                $
                1,446
                
                
                $
                (37,679
                )
                
                $
                136,660
                
                
                $
                -
                
                
                $
                -
                
                
                $
                100,427***Cash
                    flows from investing activities:***Capital
                    expenditures
                
                
                -
                
                
                
                -
                
                
                
                (84,000
                )
                
                
                -
                
                
                
                -
                
                
                
                (84,000
                )Proceeds
                    from disposition of property, plant, & equipment
                
                
                -
                
                
                
                -
                
                
                
                264
                
                
                
                -
                
                
                
                -
                
                
                
                264Equity
                    investments
                
                
                -
                
                
                
                (30
                )
                
                
                (77
                )
                
                
                -
                
                
                
                -
                
                
                
                (107
                )Purchase
                    of acquired companies - Progress
                
                
                -
                
                
                
                -
                
                
                
                (28,273
                )
                
                
                -
                
                
                
                -
                
                
                
                (28,273
                )Other,
                    net
                
                
                -
                
                
                
                -
                
                
                
                3,000
                
                
                
                -
                
                
                
                -
                
                
                
                3,000Net
                    cash flows from investing activities
                
                
                -
                
                
                
                (30
                )
                
                
                (109,086
                )
                
                
                -
                
                
                
                -
                
                
                
                (109,116
                )***Cash
                    flows from financing activities:***Net
                    draws (repayments) of notes payable
                
                
                -
                
                
                
                (50,250
                )
                
                
                18
                
                
                
                -
                
                
                
                -
                
                
                
                (50,232
                )Proceeds
                    from issuance of long-term debt
                
                
                -
                
                
                
                200,000
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                200,000Repayments
                    on long-term debt
                
                
                -
                
                
                
                (171,806
                )
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                (171,806
                )Change
                    in bank overdraft
                
                
                -
                
                
                
                -
                
                
                
                (2,649
                )
                
                
                -
                
                
                
                -
                
                
                
                (2,649
                )Proceeds
                    from exercise of stock options
                
                
                954
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                954Distributions
                    to original shareholders of Alpha NR Holding
                
                
                (2,400
                )
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                (2,400
                )Capital
                    contributions from parent
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -Net
                    cash flows from financing activities
                
                
                (1,446
                )
                
                
                (22,056
                )
                
                
                (2,631
                )
                
                
                -
                
                
                
                -
                
                
                
                (26,133
                )**Increase
                    (decrease) in cash**
                
                
                -
                
                
                
                (59,765
                )
                
                
                24,943
                
                
                
                -
                
                
                
                -
                
                
                
                (34,822
                )Cash
                    and cash equivalants at beginning of period
                
                
                -
                
                
                
                46,669
                
                
                
                (7,047
                )
                
                
                -
                
                
                
                -
                
                
                
                39,622Cash
                    and cash equivalants at end of period
                
                $
                -
                
                
                $
                (13,096
                )
                
                $
                17,896
                
                
                $
                -
                
                
                $
                -
                
                
                $
                4,800
  -24-
 Table
            Of Content
  **Item
        2. *Management’s Discussion and Analysis of Financial Condition
        and Results of Operation***
 
 You
        should read the following discussion and analysis in conjunction with our
        financial statements and related notes included elsewhere in this report
        and the
        Company's Annual Report on Form 10-K for the year ended December 31,
        2006.
 
 **Cautionary
        Note Regarding Forward Looking Statements**
 
 This
        report includes statements of our expectations, intentions, plans and beliefs
        that constitute “forward-looking statements” within the meaning of
        Section 27A of the Securities Act of 1933 and Section 21E of the
        Securities Exchange Act of 1934 and are intended to come within the safe
        harbor
        protection provided by those sections. These statements, which involve risks
        and
        uncertainties, relate to analyses and other information that are based on
        forecasts of future results and estimates of amounts not yet determinable
        and
        may also relate to our future prospects, developments and business strategies.
        We have used the words “anticipate,” “believe,” “could,” “estimate,” “expect,”
“intend,” “may,” “plan,” “predict,” “project,” “should” and similar terms and
        phrases, including references to assumptions, in this report to identify
        forward-looking statements. These forward-looking statements are made based
        on
        expectations and beliefs concerning future events affecting us and are subject
        to uncertainties and factors relating to our operations and business
        environment, all of which are difficult to predict and many of which are
        beyond
        our control, that could cause our actual results to differ materially from
        those
        matters expressed in or implied by these forward-looking
        statements.
 
 The
        following factors are among those that may cause actual results to differ
        materially from our forward-looking statements:
 
 **·**
              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 have acquired
                  with our
                  existing operations, 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;
  **·**
              the
                  progress of project construction plans and marketing agreements
                  relating
                  to Gallatin Materials, LLC;
 
 **·**
              timing
                  of changes in customer coal
                  inventories;
 
 **·**
              changes
                  in, renewal of and acquiring new 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;
 
 **·**
              the
                  geological characteristics of Central and Northern Appalachian
                  coal
                  reserves;
  **·**
              availability
                  of mining and processing equipment and
                  parts;
 
 **·**
              our
                  assumptions concerning economically recoverable coal reserve
                  estimates;
 
 
  -25-
 Table
            Of Content
   **·**
              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;
 
 **·**
              decline
                  in coal prices;
 
 **·**
              forward
                  sales and purchase contracts not accounted for as a
                  hedge;
 
 **·**
              indemnification
                  of certain obligations not being
                  met;
  **·**
              continued
                  funding of the road construction
                  business;
  **·**
              disruption
                  in coal supplies; and
  **·**
              other
                  factors, including the other factors discussed in “Overview - Coal Pricing
                  Trends and Uncertainties” and “Outlook” below, and the factors discussed
                  in Part I, Item 1A “Risk Factors” section of our annual report on Form
                  10-K for the year ended December 31,
                  2006.
  When
        considering these forward-looking statements, you should keep in mind the
        cautionary statements in this report and the documents incorporated by
        reference. We do not undertake any responsibility to release publicly any
        revisions to these forward-looking statements to take into account events
        or
        circumstances that occur after the date of this report. Additionally, we
        do not
        undertake any responsibility to update you on the occurrence of any
        unanticipated events which may cause actual results to differ from those
        expressed or implied by the forward-looking statements contained in this
        report.
 
 **Overview**
 
 We
        produce, process and sell steam and metallurgical coal (met coal) from eight
        regional business units, which, as of June 30, 2007, are supported by 34
        active
        underground mines, 28 active surface mines and 11 preparation plants located
        throughout Virginia, West Virginia, Kentucky and Pennsylvania. We also sell
        coal
        produced by others, the majority of which we process and/or blend with coal
        produced from our mines prior to resale, providing us with a higher overall
        margin for the blended product than if we had sold the coals separately.
        For the
        three months and six month ended June 30, 2007, sales of steam coal were
        4.3 and 8.6 million tons, respectively, and accounted for approximately 63%
        and 64%, respectively, of our coal sales volume. For the three and six months
        ended June 30, 2007, sales of metallurgical coal, which generally sells at
        a
        premium over steam coal, were 2.5 and 4.9 million tons, respectively, and
        accounted for approximately 37% and 36%, respectively, of our sales volume.
        Our
        sales of steam coal were made primarily to large utilities and industrial
        customers in the Eastern region of the United States, and our sales of
        metallurgical coal were made primarily to steel companies in the Northeastern
        and Midwestern regions of the United States and in several countries in Europe,
        Asia and South America. Approximately 35% of our coal sales volume in the
        first
        six months of 2007 was derived from sales made outside the United States,
        primarily in Egypt, Turkey, Belgium and India.
 
 On
          June
          29, 2007, the Company completed the acquisition of certain coal mining
          assets in
          western West Virginia from Arch Coal, Inc. known as Mingo Logan for $43.9
          million including working capital and assumed liabilities.  The Mingo
          Logan purchase consists of coal reserves, two mines and a load-out and
          processing plant and will be managed by Cobra Natural Resources, LLC, an
          indirect wholly owned subsidiary of the Company.
 We
        also
        own 94% of Gallatin Materials, LLC (“Gallatin”), a lime manufacturing venture
        near Cincinnati, Ohio. Construction of the first of two lime plants has begun
        and is on schedule. Fabrication and site work has been ongoing since January
        and
        major component assembly is expected to continue for the next few months.
        The
        first of two planned kilns is targeted to start producing late this year,
        with
        about three-fourths of planned production already sold through 2012. We have
        funded our total contribution of $10.3 million as well as our loan requirement
        of $3.8 million for the project's first phase. In addition, we are providing
        a
        $2.6 million letter of credit to cover any potential cost overruns related
        to
        the project's first phase.  Approximately $7.3 million was spent on capital
        expenditures by Gallatin in the first six months of 2007.
 
  -26-
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            Of Content
  
 In
        addition, we generate other revenues from road construction, equipment and
        parts
        sales, equipment repair income, rentals, royalties, commissions, coal handling,
        terminal and processing fees, and coal and environmental analysis fees.  We
        also record revenue for freight and handling charges incurred in delivering
        coal
        to our customers, which we treat as being reimbursed by our customers. However,
        these freight and handling revenues are offset by equivalent freight and
        handling costs and do not contribute to our profitability.
 
 Our
        business is seasonal, with operating results varying from quarter to quarter.
        Primarily due to the freezing of the lakes that we use to transport coal
        to some
        of our customers, we generally experience lower sales and hence build coal
        inventory during the winter months.
 
 Our
        primary expenses are wages and benefits, supply costs, repair and maintenance
        expenditures, cost of contract mining services, cost of purchased coal,
        royalties, freight and handling costs, and taxes incurred in selling our
        coal.
        Historically, our cost of coal sales per ton is lower for sales of our produced
        and processed coal than for sales of purchased coal that we do not process
        prior
        to resale.
 
 We
        have
        one reportable segment, Coal Operations, which includes all of our revenues
        and
        costs from coal production and sales, freight and handling, rentals, commissions
        and coal handling and processing operations and coal recovery incidental
        to our
        road construction operations. These revenues and costs included in our Coal
        Operations segment are reported by us in our coal sales revenues and cost
        of
        coal sales, except for the revenues and costs from rentals, commissions,
        and
        coal handling, processing operations and road construction, which we report
        in
        our other revenues and cost of other revenues, respectively.
  **Coal
        Pricing Trends, Uncertainties and Outlook.**
  Due
            to
            the softer market conditions we anticipated for the first half of 2007,
            we idled
            approximately a million tons of capacity last year in response to the
            decline in
            steam coal pricing.  In addition, we also purposely held back sales in
            the second quarter on the presumption that we would be able to take advantage
            of
            a strengthening met coal market.
 
 We
            believe that difficult conditions for the coal markets this year are
            transitioning to more positive conditions in 2008 and 2009. Based on
            various
            data sources, we believe that a combination of reduced domestic coal
            production,
            higher net electrical generation by coal-burning utilities, reduced coal
            imports
            from South America and a surge in exports to Europe has led to a 20-25
            million
            ton swing in the balance of coal supply and demand compared with last
            year,
            through mid-July.
 
 We
            believe that these strengthening conditions helped our sales group obtain
            commitments during the second quarter of 2007 for approximately 3.5 million
            tons
            of thermal coal for 2008, with realizations ranging from $47 to $50 per
            ton for
            typical Central Appalachian specification coals, excluding sulfur or
            other
            premiums. Additionally, during the second quarter, we committed and priced
            close
            to one million tons of thermal coal for 2009 in excess of $50 per ton.
            Approximately 20 percent of planned thermal production remains uncommitted
            for
            2008 and approximately 66 percent is uncommitted for 2009.
 
 As
            the
            leading exporter of metallurgical coal from the U.S., we are pursuing
            opportunities to capitalize on tight global supplies and sustained buyer
            interest from a number of foreign countries. Strong global steel production,
            coupled with high ocean freight rates and weather and logistical problems
            encountered by Australian producers, has created opportunities for unplanned
            met
            sales overseas this year. We will use our high quality reserve base,
            blending
            capabilities and spot purchases of specific coal types to shift sales
            from the
            steam to the met markets. Year-to-date, our met sales have been running
            ahead of
            target, at 36 percent of overall sales. Three-fourths of our planned
            met coal
            production remains unpriced for next year.
 
 As
            of
            July 17, 2007, we had 99 percent of this year’s total planned production of
            24-25 million tons committed and priced.
 
 Supply
              costs have stabilized in virtually all categories, and some have even
              declined
              with the exception of diesel fuel, which has allowed us to keep cost inflation
              to 1% year-over-year. Last year we called attention to geological and
              turnover
              issues that impacted our productivity and costs, particularly in our
              deep mines
              and that situation seems to be improving. Per-ton production costs
              for our 34
              underground mines have been flat for the last two quarters driven by
              lower
              employee turnover that seems to be settling into the single digit
              range.
   -27-
 Table
                  Of Content
 
 Factors
        that may impact our future cost of coal production are:
  ·
                The
                    Miner Act and various other state legislation continue to place
                    upward
                    cost pressure on mine operators as they attempt to comply with
                    the new
                    statutes.·
                The
                    recent ratification of the Bituminous Coal Operators and Associates
                    new
                    contract will increase the cost structures of mine operators
                    who have
                    United Mine Workers of America representation, which could impact
                    the cost
                    structures of non-represented workforces.·
                A
                    recent court decision, initially impacting surface mining operations
                    in
                    the Huntington District of the U.S. Corps of Engineers, threatens
                    to
                    further slow the issuance of mining permits and constrain production.
                    This
                    decision could spread to other districts, including ones where
                    we
                    operate.·
                New
                    technological advances in coal-to-gas and coal-to-liquids are
                    increasing
                    the demand for coal usage and could cause upward pressure on
                    the demand
                    for coal and
                    increase the price we pay for purchased
                    coal.
  For
        additional information regarding some of the risks and uncertainties that
        affect
        our business, see Item 2 and Item 1A “Risk Factors” in our Annual Report on Form
        10-K.
 
 **Reconciliation
        of Non-GAAP Measures**
 
 The
        following unaudited table reconciles EBITDA to net income, the most directly
        comparable GAAP measure.
 
 **Three
                  months ended**
              
              
              **Six
                  months ended****June
                  30,**
              
              
              **June
                  30,****2007**
              
              
              **2006**
              
              
              **2007**
              
              
              **2006****(in
                  thousands)**Net
                  income
              
              $
              4,747
              
              
              $
              23,128
              
              
              $
              13,096
              
              
              $
              50,339Interest
                  expense
              
              
              10,030
              
              
              
              10,786
              
              
              
              20,023
              
              
              
              21,063Interest
                  income
              
              
              (457
              )
              
              
              (171
              )
              
              
              (1,094
              )
              
              
              (358
              )Income
                  tax expense
              
              
              1,502
              
              
              
              8,676
              
              
              
              4,131
              
              
              
              18,296Depreciation,
                  depletion and amortization
              
              
              37,855
              
              
              
              34,207
              
              
              
              73,644
              
              
              
              67,841EBITDA
                  (1)
              
              $
              53,677
              
              
              $
              76,626
              
              
              $
              109,800
              
              
              $
              157,181
  (1
              )
              EBITDA
                  is defined as net income plus interest expense, income tax expense,
                  depreciation, depletion and amortization, less interest income.
                  EBITDA is
                  a non-GAAP measure used by management to measure operating performance,
                  and management also believes it is a useful indicator of our ability
                  to
                  meet debt service and capital expenditure requirements. Because
                  EBITDA is
                  not calculated identically by all companies, our calculation may
                  not be
                  comparable to similarly titled measures of other companies. Adjusted
                  EBITDA, as it is used and defined in our debt covenants, is described
                  and
                  reconciled to net income in “-- Analysis of Material Debt Covenants”
                  below.
 
 
 -28-
 Table
            Of Content
 **Results
        of Operations**
 
 ***Three
        Months Ended June 30, 2007 Compared to the Three Months Ended June 30,
        2006***
 
 *Summary*
 
 For
        the quarter ended June 30, 2007, we recorded revenues of
        $434.3 million compared to $496.3 million for the quarter ended
        June 30, 2006, a decrease of $62.0 million. Net income decreased from
        $23.1 million ($0.36 per diluted share) in the second quarter of 2006 to
        $4.7 million ($0.07 per diluted share) for the second quarter of 2007. EBITDA,
        as reconciled to our net income in the table under “Reconciliation of Non-GAAP
        Measures” above, was $53.7 million and $76.6 million in the second quarter of
        2007 and 2006, respectively.
  We
        sold 6.8 million tons of coal
        during the second quarter of 2007, 0.6 million less than the comparable
        period in 2006.  This
        decrease reflects the result of our planned reduction of about 1.0 million
        tons
        of production this year and our decision to hold back sales in this weak
        market.Coal margin, which we define as coal revenues less cost of
        coal sales, divided by coal revenues, decreased from 21.0% in the second
        quarter
        of 2006 to 16.9% in the second quarter of 2007. Coal margin per ton was $9.55
        in
        the second quarter of 2007, a 22.4% decrease from the second quarter of 2006.
        Coal margin per ton is calculated as coal sales realization (sales price)
        per
        ton less cost of coal sales per ton.  The
        decrease in coal margin from our second quarter 2006 to the second quarter
        2007
        is the result of an 8% lower coal sales volume, a 4% decrease in our average
        coal sales revenue per ton and a 1% increase in our average cost of coal
        sales
        per ton.
 
 *Revenues*
 **Three
                  months Ended**
              
              
              **Increase****June
                  30,**
              
              
              **(Decrease)****2007**
              
              
              **2006**
              
              
              **$
                  or Tons**
              
              
              **%****(in
                  thousands, except per ton data)**Coal
                  revenues
              
              $
              386,130
              
              
              $
              437,323
              
              
              $
              (51,193
              )
              
              
              (12%)
                %Freight
                  and handling revenues
              
              
              41,588
              
              
              
              50,935
              
              
              
              (9,347
              )
              
              
              (18%)Other
                  revenues
              
              
              6,548
              
              
              
              8,053
              
              
              
              (1,505
              )
              
              
              (19%)Total
                  revenues
              
              $
              434,266
              
              
              $
              496,311
              
              
              $
              (62,045
              )
              
              
              (13%)Tons
                  Sold:Steam
              
              
              4,326
              
              
              
              4,893
              
              
              
              (567
              )
              
              
              (12%)Metallurgical
              
              
              2,515
              
              
              
              2,567
              
              
              
              (52
              )
              
              
              (2%)Total
              
              
              6,841
              
              
              
              7,460
              
              
              
              (619
              )
              
              
              (8%)Coal
                  sales realization per ton:Steam
              
              $
              47.76
              
              
              $
              50.08
              
              
              $
              (2.32
              )
              
              
              (5%)Metallurgical
              
              
              71.39
              
              
              
              74.90
              
              
              
              (3.51
              )
              
              
              (5%)Total
              
              $
              56.45
              
              
              $
              58.62
              
              
              $
              (2.17
              )
              
              
              (4%)
 
 *Coal
        Revenues.*Coal
        revenues decreased by 12% ($51.2 million) for the quarter ended June 30,
        2007 from the comparable period of 2006, driven by an 8% reduction in coal
        sales
        volume and a 4% decrease in sales realization from $58.62 per ton in the
        second
        quarter of 2006 to $56.45 per ton in the second quarter of 2007. The
        mark-to-market adjustment for certain forward sales contracts decreased revenue
        from the sale of steam coal by $1.1 million, or $0.25 per ton, in the
        second quarter of 2007. Our met coal realization per ton decreased by 5%
        from
        $74.90 per ton to $71.39 per ton, and steam coal realization per ton decreased
        by 5% from $50.08 to $47.76. Met coal sales accounted for 37% of our coal
        sales
        volume in the second quarter of 2007 compared with 34% in the second quarter
        of
        2006. Total tons sold for the second quarter of 2007 were 6.8 million,
        including 2.5 million tons of met coal and 4.3 million of steam coal.
        Sales volume for the second quarter of 2006 was 7.5 million tons of which
        2.6 million tons were met coal and 4.9 million were steam
        coal.  Steam coal sales for the second quarter 2007 were less than
        that for the second quarter of 2006 mainly due to our decision to idle capacity
        last year and hold back sales in response to a continued soft spot
        market.
 
 *Freight
        and Handling Revenues.*Freight
        and handling revenues were $41.6 million for the three months ended
        June 30, 2007, a decrease of $9.3 million compared with the three
        months ended June 30, 2006 due to 0.6 million fewer tons sold as well
        as a decrease in the overall freight rate caused by a change in the mix of
        shipping point locations related to our steam customer base.  These
        revenues are offset by equivalent costs and do not contribute to our
        profitability.
  *Other
        Revenues.* Other revenues decreased by $1.5 million mainly due to a
        decrease of $1.9 million in revenue from our road construction business
        partially offset by an increase in revenues from our coal processing and
        terminal operations of $0.5 million. Approximately $1.3 million of the decrease
        in road construction revenue was due to the completion of a portion of the
        King
        Coal Highway in West Virginia in September 2006.
 
 
 
  -29-
 Table
            Of Content
  
 *Costs
        and Expenses*
 
 **Three
                  months ended**
              
              
              **Increase****June
                  30,**
              
              
              **(Decrease)****2007**
              
              
              **2006**
              
              
              **$**
              
              
              **%****(in
                  thousands, except per ton data)**Cost
                  of coal sales (exclusive of items shown separately below)
              
              $
              320,807
              
              
              $
              345,505
              
              
              $
              (24,698
              )
              
              
              (7
              %)Freight
                  and handling costs
              
              
              41,588
              
              
              
              50,935
              
              
              
              (9,347
              )
              
              
              (18
              %)Cost
                  of other revenues
              
              
              4,768
              
              
              
              5,445
              
              
              
              (677
              )
              
              
              (12
              %)Depreciation,
                  depletion and amortization
              
              
              37,855
              
              
              
              34,207
              
              
              
              3,648
              
              
              
              11
              %Selling,
                  general and administrative expenses
              
              
              13,982
              
              
              
              18,013
              
              
              
              (4,031
              )
              
              
              (22
              %)Total
                  costs and expenses
              
              $
              419,000
              
              
              $
              454,105
              
              
              $
              (35,105
              )
              
              
              (8
              %)Cost
                  of coal sales per ton:Company
                  mines
              
              $
              46.05
              
              
              $
              42.73
              
              
              $
              3.32
              
              
              
              8
              %Contract
                  mines (including purchased and processed)
              
              
              51.29
              
              
              
              53.26
              
              
              
              (1.97
              )
              
              
              (4
              %)Total
                  produced and processed
              
              
              46.98
              
              
              
              44.39
              
              
              
              2.59
              
              
              
              6
              %Purchased
                  and sold without processing
              
              
              46.31
              
              
              
              57.82
              
              
              
              (11.51
              )
              
              
              (20
              %)Cost
                  of coal sales per ton
              
              $
              46.90
              
              
              $
              46.32
              
              
              $
              0.58
              
              
              
              1
              %
  *Cost
        of Coal Sales.* Our cost of coal sales decreased by $24.7 million and
        increased by $0.58 per ton, from $345.5 million and  $46.32 per
        ton in the second quarter of 2006 to $320.8 million and $46.90 per ton in
        the second quarter of 2007. The mark-to-market adjustment for forward purchase
        contracts on the OTC market decreased cost of sales by $1.1 million, or $0.16
        per ton. Our cost of coal sales per ton for our produced and processed coal
        was
        $46.98 per ton in the three months ended June 30, 2007 as compared to
        $44.39 per ton in the comparable period in 2006. This $2.59 per ton increase
        is
        attributable mainly to increased costs for labor and benefits, repairs and
        maintenance, mine supplies, cost of contract mining services and an increase
        in
        volume of coal purchased and processed. The cost of sales per ton of our
        purchased coal was $46.31 per ton in the second quarter of 2007 and $57.82
        per
        ton for the corresponding period of 2006. This $11.51 per ton decrease in
        costs
        is mainly due to a change in the mix of coal qualities we purchased for resale
        as well as the current market condition which has exerted downward pricing
        pressures. We sold more met quality coal that we had previously purchased
        from
        third parties in the second quarter of 2006 than in the second quarter of
        2007.
        Approximately 63% of our purchased coal sold during the second quarter of
        2007
        was blended with our produced and processed coal prior to resale.
 
 *Freight
        and Handling Costs.*Freight
        and handling costs decreased to $41.6 million for the three months ended
        June 30, 2007, a decrease of $9.3 million compared with the three
        months ended June 30, 2006 due to 0.6 million fewer tons sold as well as a
        decrease in the overall freight rate caused by a change in the mix of shipping
        point locations related to our steam customer base. These costs are offset
        by
        equivalent revenues.
  *Cost
        of Other Revenues*. Our
        cost
        of other revenues decreased by $0.7 million in the second quarter of 2007
        compared with the second quarter of 2006 due to a decrease of $1.4 million
        of costs from our road construction business partially offset by an increase
        in
        costs associated with our Gallatin lime venture of $0.6 million. Approximately
        $0.6 million of the decrease in road construction cost was due to the completion
        of a portion of the King Coal Highway in West Virginia in September
        2006; while approximately $0.5 million of the decrease is due to higher
        coal recovery compared with the second quarter of 2006 from our ongoing road
        project resulting in a higher allocation of shared costs from road construction
        to cost of coal sales.  The increase in cost from our Gallatin lime
        venture is primarily due to compensation charges related to the vesting of
        restricted stock compensation and other payroll costs. The margin from other
        revenues decreased by $0.8 million in the second quarter of 2007 when compared
        with the second quarter of 2006 mainly due to the reduced road construction
        operations and the additional cost associated with the Gallatin lime
        venture.
 *Depreciation,
        Depletion and Amortization.* Depreciation, depletion, and amortization
        increased $3.6 million, or 11%, to $37.9 million for the three months ended
        June
        30, 2007 as compared with the same period of 2006, due mainly to additional
        capital expenditures. Depreciation, depletion and amortization per ton increased
        from $4.59 per ton for the three months ended June 30, 2006 to $5.53 per
        ton in
        the same period of 2007.
 
 *Selling,
        General and Administrative Expenses.*These
        expenses decreased by $4.0 million to $14.0 million in the second quarter
        of 2007 from $18.0 million in the second quarter of 2006. This decrease is
        mainly due to the decrease of $3.2 million of share-based compensation charges
        recorded in the second quarter of 2006 for restricted stock issued to management
        in connection with our initial public offering (IPO). These charges ended
        at
        December 31, 2006. As a percentage of revenues, these expenses were 3.2%
        and
        3.6% for the second quarter of 2007 and 2006, respectively, including
        share-based compensation charges related to our IPO.
  -30-
 Table
            Of Content
  *Interest
        Expense.* Interest expense decreased $0.8 million to $10.0 million
        during the second quarter of 2007 compared to the same period in 2006. The
        decrease in interest expense is attributable to our lower debt levels in
        the
        second quarter of 2007.
 
 *Interest
        Income.* Interest income increased by $0.3 million in the three months
        ended June 30, 2007 from the three months ended June 30, 2006, mainly due
        to
        additional interest earned on invested cash.
 
 *Income
        Tax Expense.* Income tax expense of $1.5 million was recorded for the three
        months ended June 30, 2007 on income before income taxes and minority interest
        of $6.2 million, which equates to an effective tax rate of 24.2%. This rate
        is
        lower than the federal statutory rate of 35% due primarily to the tax benefits
        associated with percentage depletion, partially offset by state income taxes,
        change in the valuation allowance, and share-based compensation charges which
        are not deductible for tax purposes. Income tax expense of $8.7 million was
        recorded for the three months ended June 30, 2006 on income before income
        taxes
        and minority interest of $31.8 million, which equates to an effective rate
        of
        27.3%. This
        rate
        is lower than the federal statutory rate of 35% due primarily to the tax
        benefits associated with percentage depletion and the extraterritorial income
        exclusion, partially offset by state income taxes and the portion of the
        share-based compensation charge associated with the issuance of common stock
        to
        management in connection with our IPO which is not deductible for tax
        purposes.
 
 ***Six
        Months Ended June 30, 2007 Compared to the Six Months Ended June 30,
        2006***
 
 *Summary*
 
 For
        the
        six months ended June 30, 2007, we recorded revenues of
        $861.6 million, compared to $978.7 million for the six months ended
        June 30, 2006, a decrease of $117.1 million. Net income decreased from
        $50.3 million ($0.79 per diluted share) in the 2006 period to
        $13.1 million ($0.20 per diluted share) for the 2007 period. EBITDA, as
        reconciled to our net income in the table under “Reconciliation of Non-GAAP
        Measures” above, was $109.8 million in the first half of 2007 and was
        $157.2 million the same period in 2006.
 
 We
          sold
          13.5 million tons of coal during the first half of 2007, 1.1 million less
          than the comparable period in 2006. We expected this decease due to our
          planned
          reduction of about 1.0 million ton of production this year and our decision
          to
          hold back sales due to a weak coal market in the period just ended. Coal
          margin
          decreased from 21.5% in 2006 to 17.4% in 2007. Coal margin per ton was
          $9.88 in
          the six months ended June 30, 2007, a 22.3% decrease from the first half of
          2006.  The
          decrease in coal margin from our second quarter 2006 to the second quarter
          2007
          is the result of an 8% lower coal sales volume, a 4% decrease in our average
          coal sales revenue per ton and a 1% increase in our average cost of coal
          sales
          per ton.
 
 *Revenues*
 
 **Six
                  months ended**
              
              
              **Increase****June
                  30,**
              
              
              **(Decrease)****2007**
              
              
              **2006**
              
              
              **$
                  or Tons**
              
              
              **%****(in
                  thousands, except per ton data)**Coal
                  revenues
              
              $
              763,060
              
              
              $
              861,854
              
              
              $
              (98,794
              )
              
              
              (11
              %)Freight
                  and handling revenues
              
              
              84,799
              
              
              
              97,327
              
              
              
              (12,528
              )
              
              
              (13
              %)Other
                  revenues
              
              
              13,778
              
              
              
              19,470
              
              
              
              (5,692
              )
              
              
              (29
              %)Total
                  revenues
              
              $
              861,637
              
              
              $
              978,651
              
              
              $
              (117,014
              )
              
              
              (12
              %)Tons
                  Sold:Steam
              
              
              8,586
              
              
              
              9,247
              
              
              
              (661
              )
              
              
              (7
              %)Metallurgical
              
              
              4,882
              
              
              
              5,336
              
              
              
              (454
              )
              
              
              (9
              %)Total
              
              
              13,468
              
              
              
              14,583
              
              
              
              (1,115
              )
              
              
              (8
              %)Coal
                  sales realization per ton:Steam
              
              $
              47.92
              
              
              $
              49.57
              
              
              $
              (1.65
              )
              
              
              (3
              %)Metallurgical
              
              
              72.02
              
              
              
              75.62
              
              
              
              (3.60
              )
              
              
              (5
              %)Total
              
              $
              56.66
              
              
              $
              59.10
              
              
              $
              (2.44
              )
              
              
              (4
              %)
 
  -31-
 Table
            Of Content
  
 *Coal
        Revenues.*Coal
        sales revenues decreased by 11% ($98.8 million) for the six months ended
        June 30, 2007 from the comparable period of 2006, driven by an 8% decrease
        in
        coal sales volume and a 4% decrease in sales realization from $59.10 per
        ton in
        the first six months of 2006 to $56.66 per ton in the first six months of
        2007.
        The mark-to-market adjustment for certain forward sales contracts decreased
        revenues from the sale of steam coal by $4.3 million or $0.50 per ton in
        the
        first six months of 2007. Our met coal realization per ton decreased by 5%
        from
        $75.62 per ton to $72.02 per ton, and steam coal realization per ton decreased
        by 3% from $49.57 to $47.92.  Met coal sales accounted for 36% of our
        coal sales volume in the six months ended June 30, 2007 compared to 37% in
        the comparable period of 2006. Total tons sold during the first half of 2007
        were 13.5 million, including 4.9 million tons of met coal and
        8.6 million of steam coal. Sales volumes for the first half of 2006 were
        14.6 million tons of which 5.3 million were met coal and
        9.3 million were steam coal. Steam coal sales for the six months ended June
        30, 2007 were less than that for the six month ended June 30, 2006 mainly
        due to
        a continued soft spot market where utility stock piles remained high due
        to mild
        weather conditions throughout the United States.  Met sales for the
        six months ended June 30, 2007 were less than that for the comparable period
        in
        2006 due to stronger export sales resulting in higher volumes in the first
        quarter of 2006.  Also in early 2006, the lakes opened earlier,
        allowing an increase in Canadian met sales volume.
  *Freight
        and Handling Revenues.*Freight
        and handling revenues decreased to $84.8 million for the six months ended
        June 30, 2007, a decrease of $12.5 million compared with the six
        months ended June 30, 2006 mainly due to 1.1 million fewer tons of
        coal sold as well as a decrease in the overall freight rate caused by a change
        in the mix of shipping point locations related to our steam customer base
        and
        lower export met coal shipments which generally have higher freight rates.
        These
        revenues are offset by equivalent costs and do not contribute to our
        profitability.
  *Other
        Revenues.* Other revenues decreased by $5.7 million mainly due to a
        decrease of $5.3 million in revenue from our road construction business and
        by a
        decrease in revenues from our Maxxim Rebuild operation of $1.0 million,
        partially offset by an increase in terminal and process fee revenue of $0.6
        million.  Approximately $4.3 million of the decrease in road
        construction revenue was due to the completion of a portion of the King Coal
        Highway in West Virginia in September 2006.  Maxxim Rebuild has
        reduced its third-party selling activity which contributed to its reduced
        revenues.
 
 *Costs
        and Expenses*
 **Six
                  months ended**
              
              
              **Increase****June
                  30,**
              
              
              **(Decrease)****2007**
              
              
              **2006**
              
              
              **$**
              
              
              **%****(in
                  thousands, except per ton data)**Cost
                  of coal sales (exclusive of items shown separately below)
              
              $
              630,062
              
              
              $
              676,391
              
              
              $
              (46,329
              )
              
              
              (7
              %)Freight
                  and handling costs
              
              
              84,799
              
              
              
              97,327
              
              
              
              (12,528
              )
              
              
              (13
              %)Cost
                  of other revenues
              
              
              10,396
              
              
              
              13,396
              
              
              
              (3,000
              )
              
              
              (22
              %)Depreciation,
                  depletion and amortization
              
              
              73,644
              
              
              
              67,841
              
              
              
              5,803
              
              
              
              9
              %Selling,
                  general and administrative expenses
              
              
              27,221
              
              
              
              34,652
              
              
              
              (7,431
              )
              
              
              (21
              %)Total
                  costs and expenses
              
              $
              826,122
              
              
              $
              889,607
              
              
              $
              (63,485
              )
              
              
              (7
              %)Cost
                  of coal sales per ton:Company
                  mines
              
              $
              45.75
              
              
              $
              41.66
              
              
              $
              4.09
              
              
              
              10
              %Contract
                  mines (including purchased and processed)
              
              
              50.76
              
              
              
              53.25
              
              
              
              (2.49
              )
              
              
              (5
              %)Total
                  produced and processed
              
              
              46.60
              
              
              
              43.48
              
              
              
              3.12
              
              
              
              7
              %Purchased
                  and sold without processing
              
              
              48.17
              
              
              
              62.27
              
              
              
              (14.10
              )
              
              
              (23
              %)Cost
                  of coal sales per ton
              
              $
              46.78
              
              
              $
              46.38
              
              
              $
              0.40
              
              
              
              1
              %
 
 *Cost
        of Coal Sales.*Our cost of coal sales decreased by $46.3 million and
        increased $0.40 per ton, from $676.4 million and $46.38 per ton in the six
        months ended June 30, 2006 to $630.1 million and $46.78 per ton in the six
        months ended June 30, 2007. The mark-to-market adjustment for certain forward
        purchase contracts decreased cost of sales by $4.1 million or $0.30 per ton.
        Our
        cost of coal sales per ton for our produced and processed coal was $46.60
        per
        ton in the six months ended June 30, 2007 as compared with $43.48 per ton
        in the comparable period in 2006. This increase is attributable mainly to
        increased costs for labor and benefits, repairs and maintenance, diesel fuel
        and
        other mine supplies, and cost of contract mining services partially offset
        by a
        decrease in cost of coal purchased and processed.  The cost of sales
        per ton for our purchased coal was $48.17 in the first half of 2007, and
        $62.27
        per ton for the corresponding period of 2006. This $14.10 per ton decrease
        in
        costs is mainly due to a change in the mix of coal qualities we purchased
        for
        resale. We sold more met quality coal that we had previously purchased from
        third parties in the first half of 2006 than in the first half of 2007, in
        addition to downward pricing pressures caused by current market conditions.
        Approximately 62% of our purchased coal sold during the first half of 2007
        was
        blended with our produced and processed coal prior to resale.
  -32-
 Table
            Of Content
  *Freight
        and Handling Costs.*Freight
        and handling costs decreased to $84.8 million for the six months ended
        June 30, 2007, a decrease of $12.5 million compared with the six
        months ended June 30, 2006 due 1.1 million fewer tons sold as well as a
        decrease in the overall freight rate caused by a change in the mix of shipping
        point locations related to our steam customer base and lower export met coal
        shipments, which generally have higher freight rates.  These costs
        were offset by an equivalent amount of freight and handling
        revenue.
  *Cost
        of Other Revenues*. Our
        cost
        of other revenues decreased by $3.0 million in the six months of 2007 when
        compared with the six months of 2006 due to a decrease of $3.4 million of
        costs from our road construction business and a decrease in cost from our
        Maxxim
        Rebuild operation of $1.4 million, partially offset by an increase in costs
        associated with our Gallatin lime venture of $1.3 million and terminal,
        processing, and other costs of $0.5 million. Approximately $2.2 million of
        the
        decrease in road construction cost was due to the completion of a portion
        of the
        King Coal Highway in West Virginia in September 2006; while approximately
        $1.1
        million of the decrease is due to higher coal recovery compared with the
        second
        quarter of 2006 from our ongoing road project resulting in a higher allocation
        of shared costs from road construction to cost of coal sales. Maxxim Rebuild
        has
        reduced its third-party activity and the corresponding costs. The increase
        in
        cost from our Gallatin lime venture is primarily due to compensation charges
        related to the vesting of restricted membership interest and bonus accruals.
        The
        margin from other revenues decreased by $2.7 million in the first six months
        of
        2007 when compared with the same period of 2006 mainly due to the reduced
        road
        construction and Maxxim Rebuild operations and the additional cost associated
        with the Gallatin lime venture.
 
 *Depreciation,
        Depletion and Amortization.* Depreciation, depletion, and amortization
        increased $5.8 million, or 9%, to $73.6 million for the six months
        ended June 30, 2007 as compared with the same period in 2006 due mainly to
        the Progress acquisition in the second quarter of 2006 and additional capital
        expenditures. Depreciation, depletion, and amortization per ton of coal sold
        increased from $4.65 per ton for the six months ended June 30, 2006 to
        $5.47 per ton in the same period of 2007.
  *Selling,
        General and Administrative Expenses**.* These expenses decreased by
        $7.4 million to $27.2 million during the first six months of 2007 from the
        corresponding period in 2006. The cost decrease was mainly due to decreases
        in
        incentive compensation accruals, labor and related expenses and office supplies
        and maintenance costs, partially offset by an increase in professional fees.
        As
        a percentage of revenue, these costs (including our share-based compensation
        charge related to our IPO) were 3.2% and 3.5% for the first six months of
        2007
        and 2006, respectively.
  *Interest
        Expense.* Interest expense decreased $1.0 million to $20.0 million
        during the six months ended June 30, 2007 compared with the same period in
        2006. The decrease in interest expense is attributable to our lower debt
        levels
        in the first half of 2007.
  *Interest
        Income.* Interest income increased by $0.7 million in the six months
        ended June 30, 2007 over the six months ended June 30, 2006, mainly
        due to additional interest earned on invested cash.
 
 *Income
        Tax Expense.* Income tax expense of $4.1 million was recorded for the
        six months ended June 30, 2007 on income before income taxes and minority
        interest of $17.1 million, which equates to an effective rate of 24.1%. This
        rate is lower than the federal statutory rate of 35% due primarily to the
        tax
        benefits associated with percentage depletion, partially offset by state
        income
        taxes, change in the valuation allowance, and share-based compensation charges
        which are not deductible for tax purposes.  Income tax expense of
        $18.3 million was recorded for the six months ended June 30, 2006 on income
        before income taxes and minority interest of $68.6 million, which equates
        to an
        effective rate of 26.7%. This
        rate
        is lower than the federal statutory rate of 35% due primarily to the tax
        benefits associated with percentage depletion, partially offset by state
        income
        taxes, change in the valuation allowance, and share-based compensation charges
        related to our IPO which are not deductible for tax
        purposes.
 
 **Liquidity
        and Capital Resources**
 
 Our
        primary liquidity and capital resource requirements are to finance the cost
        of
        our coal production and purchases, to make capital expenditures, to pay income
        taxes, and to service our debt and reclamation obligations. Our primary sources
        of liquidity are cash flow from sales of our produced and purchased coal,
        other
        income and borrowings under our credit facility.
 
 At
        June
        30, 2007, we had available liquidity of $170.5 million, including cash of
        $8.7
        million and $172.9 million available under our credit facility less checks
        issued in excess of bank balance (bank overdraft) of $11.1 million. Our total
        indebtedness was $445.1 million at June 30, 2007, a decrease of $0.5 million
        from the year ended December 31, 2006.
 
 Our
        cash
        capital spending for the six months ended June 30, 2007 was $71.7 million
        and we currently project cash capital spending for the full year of 2007
        to be
        between $105 and $130 million. These expenditures have been and are
        forecasted to be used to develop new mines, purchase
        of required safety equipment,replace or add equipment and to construct
        the first of two lime kilns for the Gallatin lime venture. We believe that
        cash
        generated from our operations and borrowings under our credit facility will
        be
        sufficient to meet our working capital requirements, anticipated capital
        expenditures and debt service requirements for at least the next twelve
        months.
  -33-
 Table
            Of Content
  
 On
          June
          29, 2007, we completed the acquisition of certain coal mining assets in
          western
          West Virginia from affiliates of Arch Coal, Inc. known as Mingo Logan for
          approximately $43.9 million including working capital and assumed
          liabilities.
 ***Cash
        Flows***
 
 Net
        cash
        provided by operating activities during the six months ended June 30, 2007
        was
        $102.3 million, an increase of $1.9 million from the $100.4 million of
        net cash provided by operations during the six months ended June 30, 2006.
        Our
        cash requirements to fund operating assets and liabilities decreased by $42.9
        million mainly driven by a reduction in our accounts receivable from the
        prior
        year period, partially offset by a decrease in net income of $37.2 million
        and a decrease in non-cash charges of $3.8 million.
 
 Net
        cash
        used in investing activities was $113.8 million during the six months ended
        June 30, 2007, $4.7 million more than in the comparable period in 2006. We
        spent less on capital expenditures ($12.3 million) and more on the purchase
        of
        the net assets of acquired companies ($15.7 million).  There was an
        additional decrease of $3.6 million related to collections from coal suppliers
        and other investing costs as well as an increase in proceeds from disposition
        of
        property, plant and equipment of $2.3 million.
 
 Net
        cash
        used in financing activities during the six months ended June 30, 2007 was
        $13.0 million compared with net cash used by financing activities of $26.1
        million in the six months ended June 30, 2006. During the six months just
        ended
        compared to the equivalent period in 2006, we increased our debt by
        $21.5 million, decreased our bank overdraft by $10.1 million, and used cash
        of $1.6 million for other financing activities.
 
 ***Credit
        Facility and Long-term Debt***
 
 As
        of June 30, 2007 our total long-term indebtedness, including capital lease
        obligations, consisted of the following (in thousands):
 
 **June
                  30,****2007**10%
                  Senior notes due 2012
              
              $
              175,000Term
                  Loan
              
              
              246,250Capital
                  lease obligations
              
              
              1,096Revolving
                  credit facility
              
              
              15,000Other
              
              
              700Total
                  long-term debt
              
              
              438,046Less
                  current portion
              
              
              3,230Long-term
                  debt, net of current portion
              
              $
              434,816
 
 Our
        credit facility and the indenture governing our senior notes each impose
        certain restrictions on our subsidiaries, including restrictions on our
        subsidiaries' ability to: incur debt; grant liens; enter into agreements
        with
        negative pledge clauses; provide guarantees in respect of obligations of
        any
        other person; pay dividends and make other distributions; make loans,
        investments, advances and acquisitions; sell assets; make redemptions and
        repurchases of capital stock; make capital expenditures; prepay, redeem or
        repurchase debt; liquidate or dissolve; engage in mergers or consolidations;
        engage in affiliate transactions; change businesses; change our fiscal year;
        amend certain debt and other material agreements; issue and sell capital
        stock
        of subsidiaries; engage in sale and leaseback transactions; and restrict
        distributions from subsidiaries. In addition, the credit facility provides
        that
        we must meet or exceed certain interest coverage ratios and must not exceed
        certain leverage ratios.
 
 Borrowings
        under our credit facility will be subject to mandatory prepayment (1) with
        100% of the net cash proceeds received from asset sales or other dispositions
        of
        property by the Company or its subsidiaries (including insurance and other
        condemnation proceedings), subject to certain exceptions and reinvestment
        provisions and (2) with 100% of the net cash proceeds received by the
        Company and its subsidiaries from the issuance of debt securities or other
        incurrence of debt, excluding certain indebtedness.
 
 On
          June
          28, 2007, our subsidiaries, Alpha NR Holding, Inc. (“Holdings”) and Alpha
          Natural Resources, LLC (“ANR LLC”), entered into an amendment and consent (the
“Amendment”) to the Credit Agreement, dated as of October 26, 2005 (the “Credit
          Agreement”), ANR LLC (as borrower), the lenders and issuing banks party there to
          from time to time, and Citicorp North America, Inc., as administrative
          agent and
          as collateral agent for the lenders and issuing banks. The Amendment amended
          the
          Credit Agreement to, among other things, permit the merger of Holdings
          into
          us, its direct parent.  We assumed the obligations of Holdings
          under the Credit Agreement and related guaranty and collateral agreement
          and
          became a parent guarantor of the 10% Senior Notes due 2012 co-issued by
          ANR LLC
          and Alpha Natural Resources Capital Corp in 2004. The Amendment also increased
          the maximum amount of permitted receivables financing from $75 million
          to $150
          million.
  -34-
 Table
            Of Content
  ***Analysis
        of Material Debt Covenants***
 
 We
        were
        in compliance with all covenants under our credit facility and the indenture
        governing our senior notes as of June 30, 2007.
  The
        financial covenants in our credit facility require, among other things,
        that:
 
 **·**
              
              The
                  Company must maintain a leverage ratio, defined as the ratio of
                  consolidated adjusted debt (consolidated debt less unrestricted
                  cash and
                  cash equivalents) to EBITDA (as defined in the Credit Facility,
                  (“Adjusted
                  EBITDA”)), of not more than 3.75 at 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**·**
              
              The
                  Company 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.
 
 Based
        upon Adjusted EBITDA, the Company’s leverage ratio and interest coverage ratio
        (as such ratios are defined in the credit agreement) at June 30, 2007 were
        1.77
        and 6.78, respectively. Adjusted EBITDA is used in our credit facility to
        determine compliance with many of the covenants under the facility. A breach
        of
        the covenants in the credit facility that are tied to ratios based on Adjusted
        EBITDA could result in a default under the credit facility and the lenders
        could
        elect to declare all amounts borrowed due and payable. Any acceleration under
        our credit facility would also result in a default under our
        indenture.
  Adjusted
        EBITDA is defined in our credit facility as EBITDA, further adjusted to exclude
        non-recurring items, non-cash items and other adjustments permitted in
        calculating covenant compliance under our credit facility, as shown in the
        table
        below. EBITDA (as defined in the credit agreement) is referred to herein
        and in
        the table below as “Adjusted EBITDA.” We believe that the inclusion of
        supplementary adjustments to EBITDA applied in presenting Adjusted EBITDA
        is
        appropriate to provide additional information to investors to demonstrate
        compliance with our financial covenants.
 
  -35-
 Table
            Of Content
  
 
 
 **Three
                  Months**
              
              
              **Three
                  Months**
              
              
              **Three
                  Months**
              
              
              **Three
                  Months**
              
              
              **Twelve
                  Months****Ended**
              
              
              **Ended**
              
              
              **Ended**
              
              
              **Ended**
              
              
              **Ended****September
                  30,**
              
              
              **December
                  31,**
              
              
              **March
                  31,**
              
              
              **June
                  30,**
              
              
              **June
                  30,****2006**
              
              
              **2006**
              
              
              **2007**
              
              
              **2007**
              
              
              **2007****(in
                  thousands)**Net
                  income
              
              $
              14,544
              
              
              $
              63,284
              
              
              $
              8,349
              
              
              $
              4,747
              
              
              $
              90,924Interest
                  expense, net
              
              
              10,579
              
              
              
              9,652
              
              
              
              9,356
              
              
              
              9,573
              
              
              
              39,160Income
                  tax expense (benefit)
              
              
              4,744
              
              
              
              (53,559)
              
              
              
              2,629
              
              
              
              1,502
              
              
              
              (44,684
              )Depreciation,
                  depletion and amortization
              
              
              36,422
              
              
              
              36,588
              
              
              
              35,789
              
              
              
              37,855
              
              
              
              146,654EBITDA
              
              
              66,289
              
              
              
              55,965
              
              
              
              56,123
              
              
              
              53,677
              
              
              
              232,054Fair
                  value of forward purchase and sales contracts
              
              
              2,060
              
              
              
              2,126
              
              
              
              (449
              )
              
              
              (391
              )
              
              
              3,346Other
                  allowable adjustments
              
              
              18
              
              
              
              (1,108
              )
              
              
              (71
              )
              
              
              (1,098
              )
              
              
              (2,259
              )Accretion
                  expense
              
              
              1,226
              
              
              
              1,402
              
              
              
              1,556
              
              
              
              1,566
              
              
              
              5,750Amortization
                  of deferred gains
              
              
              (257
              )
              
              
              (97
              )
              
              
              (228
              )
              
              
              (265
              )
              
              
              (847
              )Share-based
                  compensation charges
              
              
              5,870
              
              
              
              4,649
              
              
              
              2,650
              
              
              
              1,414
              
              
              
              14,583Adjusted
                  EBITDA
              
              $
              75,206
              
              
              $
              62,937
              
              
              $
              59,581
              
              
              $
              54,903
              
              
              $
              252,627Leverage
                  ratio(1)
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              1.77Interest
                  coverage ratio(2)
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              6.78
   (1
              )
              Leverage
                  ratio is defined in our credit facility as total debt divided by
                  Adjusted
                  EBITDA.
 
 (2
              )
              Interest
                  coverage ratio is defined in our credit facility as Adjusted EBITDA
                  divided by cash interest expense.
 
 ***Other***
  As
        a
        regular part of our business, we review opportunities for, and engage in
        discussions and negotiations concerning, the acquisition of coal mining assets
        and interests in coal mining companies, and acquisitions of, or combinations
        with, coal mining companies. When we believe that these opportunities are
        consistent with our growth plans and our acquisition criteria, we will make
        bids
        or proposals and/or enter into letters of intent and other similar agreements.
        These bids or proposals, which may be binding or nonbinding, are customarily
        subject to a variety of conditions and usually permit us to terminate the
        discussions and any related agreement if, among other things, we are not
        satisfied with the results of our due diligence investigation. Any acquisition
        opportunities we pursue could materially affect our liquidity and capital
        resources and may require us to incur indebtedness, seek equity capital or
        both.
        There can be no assurance that additional financing will be available on
        terms
        acceptable to us, or at all.
 
 
 
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 **Critical
        Accounting Estimates and Assumptions**
 
 The
        preparation of financial statements in conformity with US GAAP requires
        management to make estimates and assumptions that affect reported amounts.
        These
        estimates and assumptions are based on information available as of the date
        of
        the financial statements. Accounting measurements at interim dates inherently
        involve greater reliance on estimates than at year-end. The results of
        operations for the quarter and six months ended June 30, 2007 are not
        necessarily indicative of results that can be expected for the full year.
        Please
        refer to the section entitled “Critical Accounting Estimates and Assumptions” of
“Management's Discussion and Analysis of Financial Condition and Results of
        Operations” in our annual report on Form 10-K for the year ended
        December 31, 2006 for a discussion of our critical accounting estimates and
        assumptions.
  **New
        Accounting Pronouncements**
  On
          January 1, 2007, the Company adopted the provisions of FIN 48, which clarifies
          the accounting for uncertainty in income tax positions. This interpretation
          requires the Company to recognize in the consolidated financial statements
          only
          those tax positions determined to be more likely than not of being sustained
          upon examination, based on the technical merits of the positions. The adoption
          of FIN 48 did not result in an adjustment to the Company's financial
          statements.
  In
        September 2006, the FASB issued SFAS No. 157, “Fair Value Measures” (“SFAS
        157”). SFAS 157 defines fair value, establishes a framework for measuring fair
        value and enhances disclosures about fair value measures required under other
        accounting pronouncements, but does not change existing guidance as to whether
        or not an instrument is carried at fair value. SFAS No. 157 is effective
        for
        fiscal years beginning after November 15, 2007. We are currently reviewing
        the
        provisions of SFAS 157 to determine the impact on our financial
        statements.
  In
        February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for
        Financial Assets and Financial Liabilities” (SFAS 159”). SFAS 159 permits
        entities to choose to measure many financial instruments and certain other
        items
        at fair value. The objective is to expand the use of fair value measurements
        in
        accounting for financial instruments. SFAS No. 159 is effective for fiscal
        years
        beginning after November 15, 2007. We are currently reviewing the provisions
        of
        SFAS 159 to determine the impact on our financial statements.
 
 In
        April
        2007, the FASB issued FASB Staff Position (“FSP”) FIN 39-1, “Amendment of FASB
        Interpretation No. 39.” This FSP amends paragraph 10 of Interpretation 39
        to permit entities to offset fair value amounts recognized for either a
        receivable representing the right to reclaim cash collateral or a payable
        representing an obligation to return cash collateral, if such receivable
        or
        payable arises from derivative instruments executed with the same counterparty
        under the same master netting arrangement. FSP FIN 39-1 also requires entities
        to make an accounting policy decision to offset fair value amounts in accordance
        with FIN 39-1 and apply the policy consistently. An entity may not offset
        fair
        value amounts recognized for derivative instruments without offsetting fair
        value amounts recognized for the right to reclaim cash collateral or the
        obligation to return cash collateral. FSP FIN 39-1 is effective for financial
        statements issued for fiscal years beginning after November 15, 2007,
        however earlier application is permitted. We are currently reviewing the
        provisions of the FSP to determine the impact on our financial
        statements.
 
 **Item 3.*Quantitative and Qualitative Disclosures About Market
        Risk***
  In
        addition to risks inherent in operations, we are exposed to market risks.
        The
        following discussion provides additional detail regarding our exposure to
        the
        risks of changing coal and diesel fuel prices and interest rates.
 
 ***Commodity
        Price Risk***
 
 We
        are exposed to market price risk in the normal course of selling coal. As
        of
        July 17, 2007, approximately 1% and 35% of our estimated 2007 and 2008 planned
        production, respectively, was uncommitted. We have been and will continue
        to be
        cautious not to commit to forward steam production in 2008 and 2009 that
        does
        not provide adequate returns to us.
 
 We
        use
        significant quantities of diesel fuel in our operations and are also exposed
        to
        risk in the market price for diesel fuel. We currently have two financial
        diesel
        fuel swap agreements to reduce the volatility in the price of diesel fuel
        for
        our operations. The diesel fuel swap agreements are not designated as hedges
        for
        accounting purposes and therefore the changes in the fair value for these
        derivative instrument contracts are required to be recorded in cost of
        sales. As of June 30, 2007, approximately 4.0 million gallons, or 29%, of
        the
        Company's remaining anticipated 2007 fuel usage has been fixed with the swap
        agreements.
 
 
 
 
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 We
        purchase coal in the over-the-counter market (OTC) and directly from third
        parties to supplement and blend with our produced and processed coal in order
        to
        provide coal of the quality and quantity to meet certain of our customer's
        requirements. We also sell in the OTC market to fix the price of uncommitted
        future production from our mines. Certain of these purchase and sales contracts
        meet the definition of a derivative instrument. Any derivative instruments
        that
        we hold are held for purposes other than trading. Our risk management policy
        prohibits the use of derivatives for speculative purpose. The use of purchase
        and sales contracts which are considered derivative instruments could materially
        affect our results of operations as a result of the requirement to mark them
        to
        market at the end of each reporting period. However, we believe that use
        of
        these instruments will not have a material adverse effect on our financial
        position or results of operations because these transactions account for
        only a
        small portion of our business.
  These
        transactions give rise to commodity price risk, which represents the potential
        loss that can be caused by an adverse change in the price of coal. Outstanding
        purchase and sales contracts at June 30, 2007 that are considered derivative
        instruments are summarized as follows:
 **Purchase
                  Contracts**
              Purchase Price Range
              
              Tons
                  Outstanding
              
              Delivery
                  Period
              Mark-To-Market
                  Adjustment (In Millions) Asset/(Liability)$
              35.00-49.50
              
              
              
              720,000
              
              
              07/01/07-12/31/07
              
              
              $
              (0.2
              )$
              49.50-56.00
              
              
              
              301,310
              
              
              07/01/07-12/31/07
              
              
              $
              (1.6
              )1,021,310
              
              
              
              
              
              $
              (1.8
              )**Sales
                  Contracts**
              Selling
                  Price Range
              
              Tons
                  Outstanding
              
              Delivery
                  Period
              Mark-To-Market
                  Adjustment (In Millions) Asset/(Liability)$
              50.00-60.00
              
              
              
              122,079
              
              
              07/01/07-12/31/07
              
              
              $
              1.2$
              40.00-50.00
              
              
              
              268,444
              
              
              07/01/07-12/31/07
              
              
              $
              .6390,523
              
              
              
              
              
              $
              1.8
 ***Interest
        Rate Risk***
  All
        of our borrowings under our credit facility are at a variable rate, exposing
        us
        to the effect of rising interest rates in the United States. As of June 30,
        2007, we have a $246.3 million term loan outstanding with a variable interest
        rate based upon the 3-month London Interbank Offered Rate (“LIBOR”) (5.36% at
        June 30, 2007) plus an applicable margin (1.75% at March 31, 2007).  To
        reduce our exposure to rising interest rates, effective May 22, 2006 we entered
        into a pay-fixed, receive variable interest rate swap on the notional amount
        of
        $233.1 million for a period of approximately six and one-half years. In effect,
        this swap converted the variable interest rates based on the LIBOR to a fixed
        interest rate of 5.59% plus the applicable margin defined in the debt agreement
        (1.75%, at June 30, 2007) for a portion of our term loan.  A one percentage
        point increase in interest rates would result in an annualized increase in
        interest expense of approximately $0.1 million based on our variable rate
        borrowing as of June 30, 2007 in excess of the notional amount of the interest
        rate swap of $ 233.1 million at June 30, 2007. We account for the interest
        rate
        swap as a cash flow hedge and accordingly changes in fair value of the swap
        are
        recorded to other comprehensive income (loss).  The fair value of the swap
        at the quarter ended June 30, 2007 was a liability of $2.3 million ($1.7
        million
        net of tax).
 
 
 **Item 4.*Controls and
        Procedures***
  Under
        the
        supervision and with the participation of our management, including our Chief
        Executive Officer and our Chief Financial Officer, we evaluated the
        effectiveness of our disclosure controls and procedures, as such term is
        defined
        under Rule 13a-15(e) promulgated under the Securities Exchange Act of 1934,
        as
        amended, as of the end of the period covered by this report. Based upon that
        evaluation, our Chief Executive Officer and Chief Financial Officer concluded
        that our disclosure controls and procedures were effective, as of the end
        of the
        period covered by this report, in ensuring that material information relating
        to
        Alpha Natural Resources, Inc., required to be disclosed in reports that it
        files
        or submits under the Securities Exchange Act of 1934, is recorded, processed,
        summarized and reported within the requisite time periods and is accumulated
        and
        communicated to our management, including our Chief Executive Officer and
        our
        Chief Financial Officer, as appropriate to allow timely decisions regarding
        disclosure.
 
 Additionally,
        during the most recent fiscal quarter, there have been no changes to our
        internal control over financial reporting that materially affected, or are
        reasonably likely to materially affect, our internal control over financial
        reporting.
 
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 **PART
        II**
 **Item
        1. Legal Proceedings**
 
 General.  We
        are a party to a number of legal proceedings incident to our normal business
        activities.  While we cannot predict the outcome of these proceedings,
        we do not believe that any liability arising from these matters individually
        or
        in aggregate should have a material impact upon our consolidated cash flows,
        results of operations or financial condition.
 
 **Item 1A.
        Risk Factors**
 
 In
        addition to the other information set forth in this report, you should carefully
        consider the factors discussed in Part I, Item 1A “Risk Factors” in
        our Annual Report on Form 10-K for the year ended December 31, 2006,
        together with the cautionary statement under the caption “Cautionary Note
        Regarding Forward Looking Statements” in “Management’s Discussion and Analysis
        of Financial Condition and Results of Operations” of this report. These
        described risks are not the only risks facing our company. Additional risks
        and
        uncertainties not currently known to us or that we currently deem to be
        immaterial also may materially adversely affect our business, financial
        condition and/or operating results.
 
 
 **Item 4.*Submission of Matters to a Vote of Security
        Holders***
  The
        Annual Meeting of Stockholders of Alpha Natural Resources, Inc. was held
        on
        May 22, 2007 at the Marriott MeadowView Conference Resort & Convention
        Center located at 1901 MeadowView Parkway, Kingsport, Tennessee.
  At
        the
        Annual Meeting, the holders of the Company’s common stock elected the following
        nominees for director for a one-year term expiring at the annual meeting
        in 2008
        and until their respective successors are elected and qualified:
 
 Nominee
              
              Total
                  Votes For
              
              Total
                  Votes WithheldMary
                  Ellen Bowers
              
              
              59,555,769
              
              
              
              244,258John
                  S. Brinzo
              
              
              50,680,688
              
              
              
              9,119,339E.
                  Linn Draper, Jr.
              
              
              50,713,835
              
              
              
              9,086,192Glenn
                  A. Eisenberg
              
              
              50,741,393
              
              
              
              9,058,634John
                  W. Fox, Jr.
              
              
              50,739,785
              
              
              
              9,060,242Michael
                  J. Quillen
              
              
              50,720,145
              
              
              
              9,079,882Ted
                  G. Wood
              
              
              47,169,181
              
              
              
              12,630,846
 
 In
        addition, the holders of our common stock ratified the appointment of KPMG
        LLP
        to be our independent auditors for the fiscal year ending December 31,
        2007:
 
 Vote
                  totals:For:
              
              
              59,505,100Against:
              
              
              241,958Abstained:
              
              
              52,969
 
 **Item 6.*Exhibits***
 
 See
        the Exhibit Index following the signature page of this quarterly
        report
 
 
  -39-
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 **SIGNATURE**
 Pursuant
        to the requirements of the Securities Exchange Act of 1934, the registrant
        has
        duly caused this report to be signed on its behalf by the undersigned thereunto
        duly authorized.
 **ALPHA
                  NATURAL RESOURCES, INC.**By:/s/
                  David C. StuebeName:
                  David C. StuebeTitle:
                  Vice
                    President and Chief Financial Officer
 
 Date:
        August 09, 2007
 
 
 
  Table
            Of Content
  
 
 
 **10-Q
        EXHIBIT INDEX**
 **Exhibit
                  No**
              
              **Description
                  of Exhibit**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 1,
                  2007)10.1*
              
              Form
                  of Alpha Natural Resources, Inc. Grantee Stock
                  Option Agreement under the Alpha Natural Resources, Inc. 2005 Long-Term
                  Incentive Plan, as amended and restated.10.2*
              
              Form
                  of Alpha Natural Resources, Inc. Grantee Stock
                  Option Agreement under the Alpha Natural Resources, Inc. Amended
                  and
                  Restated 2004 Long-Term Incentive Plan.10.3*
              
              Letter
                  Agreement with Michael D. Brown, dated May 23,
                  2007.10.4
              
              Second
                  Amendment and Consent, dated as of June 28, 2007, to Credit Agreement
                  among Alpha NR Holding, Inc., Alpha Natural Resources, LLC, the
                  Lenders
                  and Issuing Banks party thereto from time to time, and Citicorp
                  North
                  America, Inc., as administrative agent and as collateral agent
                  for the
                  Lenders and Issuing Banks (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 July 5, 2006.)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.