##### Table of Contents



SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549
 Form 10-Q
 (Mark One) þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended March 31, 2005
 OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the transition period from   
            
               
to
 Commission File No. 1-32423 ALPHA NATURAL RESOURCES, INC.
 (Exact name of registrant as specified in its charter)
 Delaware
    
    02-0733940(State or other jurisdiction of
    
    (I.R.S. Employerincorporation or organization)
    
    Identification Number)406 West Main Street, Abingdon, Virginia
    
    24210(Address of principal executive offices)
    
    (Zip Code)
 Registrants telephone number, including area code:
(276) 619-4410 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. Yes þ   No o Indicate by check mark whether the registrant is an accelerated filer (as defined in Exchange
Act Rule 12b-2). Yes o   No þ Number of shares of the Registrants Common Stock, $0.01 par value, outstanding as of May
2, 2005  62,212,580.




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TABLE OF CONTENTS PagePART IItem 1.
    
    Financial Statements
    
    3Item 2.
    
    Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    25Item 3.
    
    Quantitative and Qualitative Disclosures about Market Risk
    
    36Item 4.
    
    Controls and Procedures
    
    36PART IIItem 2.
    
    Unregistered Sales of Equity Securities and Use of Proceeds
    
    38Item 4.
    
    Submission of Matters to a Vote of Security Holders
    
    38Item 6.
    
    Exhibits
    
    38EX-31.A CERTIFICATIONEX-31.B CERTIFICATIONEX-32.A CERTIFICATIONEX-32.B CERTIFICATION
  2




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##### Table of Contents



PART I 
 Item 1.Financial Statements ALPHA NATURAL RESOURCES, INC. AND SUBSIDIARIES Condensed Consolidated Balance Sheets (Unaudited)
 (In thousands, except
share and per share amounts)
 March 31,
    
    
    December 31,2005
    
    
    2004AssetsCurrent assets:Cash and cash equivalents
    
    $
    283
    
    
    $
    7,391Trade accounts receivable, net
    
    
    111,806
    
    
    
    95,828Notes and other receivables
    
    
    11,294
    
    
    
    10,835Inventories
    
    
    90,862
    
    
    
    54,569Due from affiliate
    
    
    
    
    
    
    323Deferred income taxes
    
    
    909
    
    
    
    4,674Prepaid expenses and other current assets
    
    
    23,390
    
    
    
    28,915Total current assets
    
    
    238,544
    
    
    
    202,535Property, plant, and equipment, net
    
    
    232,802
    
    
    
    217,964Goodwill
    
    
    18,641
    
    
    
    18,641Other intangibles, net
    
    
    862
    
    
    
    1,155Deferred income taxes
    
    
    21,718
    
    
    
    Other assets
    
    
    34,704
    
    
    
    36,826Total assets
    
    $
    547,271
    
    
    $
    477,121Liabilities and Stockholders Equity and Partners CapitalCurrent liabilities:Current portion of long-term debt
    
    $
    1,707
    
    
    $
    1,693Note payable
    
    
    11,136
    
    
    
    15,228Bank overdraft
    
    
    20,942
    
    
    
    10,024Trade accounts payable
    
    
    71,243
    
    
    
    51,050Accrued expenses and other current liabilities
    
    
    67,246
    
    
    
    68,283Total current liabilities
    
    
    172,274
    
    
    
    146,278Long-term debt, net of current portion
    
    
    208,885
    
    
    
    184,784Workers compensation benefits
    
    
    4,751
    
    
    
    4,678Postretirement medical benefits
    
    
    17,800
    
    
    
    15,637Asset retirement obligation
    
    
    33,978
    
    
    
    32,888Deferred gains on sale of property interests
    
    
    5,312
    
    
    
    5,516Deferred income taxes
    
    
    
    
    
    
    7,718Other liabilities
    
    
    11,162
    
    
    
    4,911Total liabilities
    
    
    454,162
    
    
    
    402,410Minority interest
    
    
    
    
    
    
    28,778Stockholders equity and partners capital:Alpha Natural Resources, Inc.:Preferred stock  par value $0.01, 10,000,000 shares
authorized, none issued
    
    
    
    
    
    
    Common stock  par value $0.01, 100,000,000 shares
authorized, 62,212,580 shares issued and outstanding
    
    
    622
    
    
    
    Additional paid-in capital
    
    
    146,815
    
    
    
    Unearned stock-based compensation
    
    
    (25,828
    )Accumulated deficit
    

    
    (28,500
    )
    
    
    Total Alpha Natural Resources, Inc. stockholders equity
    
    
    93,109
    
    
    
    Alpha NR Holding, Inc.:Preferred stock  par value $0.01, 1,000 shares
authorized, none issued
    
    
    
    
    
    
    Common stock  par value $0.01, 1,000 shares
authorized, 100 shares issued and outstanding
    
    
    
    
    
    
    Additional paid-in capital
    
    
    
    
    
    
    22,153Retained earnings
    
    
    
    
    
    
    18,828Total Alpha NR Holding, Inc. stockholders equity
    
    
    
    
    
    
    40,981ANR Fund IX Holdings, L.P.:Partners capital
    
    
    
    
    
    
    4,952Total stockholders equity and partners capital
    
    
    93,109
    
    
    
    45,933Total liabilities and stockholders equity and partners capital
    
    $
    547,271
    
    
    $
    477,121
 See accompanying notes to condensed consolidated financial statements. 3




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ALPHA NATURAL RESOURCES, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Operations (Unaudited)
(In thousands, except per share amounts) Three months endedMarch 31,2005
    
    
    2004Revenues:Coal revenues
    
    $
    275,333
    
    
    $
    214,373Freight and handling revenues
    
    
    33,165
    
    
    
    25,604Other revenues
    
    
    7,275
    
    
    
    6,761Total revenues
    
    
    315,773
    
    
    
    246,738Costs and expenses:Cost of coal sales (exclusive of items shown
separately below)
    
    
    228,845
    
    
    
    187,593Freight and handling costs
    
    
    33,165
    
    
    
    25,604Cost of other revenues
    
    
    6,138
    
    
    
    5,161Depreciation, depletion and amortization
    
    
    14,480
    
    
    
    11,929Selling, general and administrative expenses
(exclusive of depreciation and amortization shown separately
above and including stock-based compensation of $36,407 in 2005)
    
    
    47,905
    
    
    
    11,805Total costs and expenses
    
    
    330,533
    
    
    
    242,092Income (loss) from operations
    
    
    (14,760
    )
    
    
    4,646Other income (expense):Interest expense
    
    
    (6,117
    )
    
    
    (2,051
    )Interest income
    
    
    287
    
    
    
    21Miscellaneous income (expense), net
    
    
    (41
    )
    
    
    213Total other income (expense), net
    
    
    (5,871
    )
    
    
    (1,817
    )Income (loss) before income taxes
and minority interest
    
    
    (20,631
    )
    
    
    2,829Income tax expense
    
    
    2,324
    
    
    
    310Income (loss) before minority interest
    
    
    (22,955
    )
    
    
    2,519Minority interest
    
    
    2,846
    
    
    
    1,282Net income (loss)
    
    $
    (25,801
    )
    
    $
    1,237Net income
(loss) per share, as adjusted (see Note #2):Basic
    
    $
    (0.71
    )
    
    $
    0.08Diluted
    
    $
    (0.71
    )
    
    $
    0.08Pro forma
net income (loss) per share  (see Note #2):Pro forma basic
    
    $
    (0.39
    )
    
    $
    0.03Pro forma diluted
    
    $
    (0.39
    )
    
    $
    0.03
 See accompanying notes to condensed consolidated financial statements. 4




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ALPHA NATURAL RESOURCES,
INC. AND SUBSIDIARIES  Condensed Consolidated
Statement of Stockholders Equity (Unaudited)  Three months ended
March 31, 2005  (In thousands, except per share amounts)
 Alpha Natural Resources, Inc.
    
    
    Alpha NR Holding, Inc.
    
    

    ANR
Fund IX Holdings, L. P.TotalAddi-
    
    
    
    
    
    
    
    
    
    
    Total
    
    
    
    
    
    
    Addi-
    
    
    
    
    
    
    Total
    
    
    
    
    
    
    Stockholderstional
    
    
    Unearned
    
    
    Accumu-
    
    
    Stock-
    
    
    
    
    
    
    tional
    
    
    
    
    
    
    Stock-
    
    
    
    
    
    
    Equity andCommon Stock
    
    
    Paid-in
    
    
    Stock-based
    
    
    lated
    
    
    holders
    
    
    Common
    
    
    Paid-in
    
    
    Retained
    
    
    holders
    
    
    Partners
    
    
    PartnersShares
    
    
    Amount
    
    
    Capital
    
    
    Compensation
    
    
    Deficit
    
    
    Equity
    
    
    Stock
    
    
    Capital
    
    
    Earnings
    
    
    Equity
    
    
    Capital
    
    
    CapitalBalances, December 31, 2004
    
    
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    22,153
    
    
    $
    18,828
    
    
    $
    40,981
    
    
    $
    4,952
    
    
    $
    45,933Noncash distribution of Virginia Tax Credit
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (40
    )
    
    
    (40
    )Net income prior to Internal Restructuring
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,320
    
    
    
    2,320
    
    
    
    379
    
    
    
    2,699Distribution
to First Reserve Fund IX, L. P.  and ANR Fund IX Holdings,
L.P. prior to the
Internal Restructuring
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (8,160
    )
    
    
    (8,160
    )
    
    
    (1,243
    )
    
    
    (9,403
    )Contribution by First Reserve Fund IX, L.P. of
all of the outstanding common stock of
Alpha NR Holding, Inc. in exchange for
shares of Alpha Natural Resources, Inc.
common stock
    
    
    12,463
    
    
    
    125
    
    
    
    35,016
    
    
    
    
    
    
    
    
    
    
    
    35,141
    
    
    
    
    
    
    
    (22,153
    )
    
    
    (12,988
    )
    
    
    (35,141
    )
    
    
    
    
    
    
    Contribution by ANR Fund IX Holdings, L.P.
of its membership interest in ANR
Holdings, LLC in exchange for shares of
Alpha Natural Resources, Inc. common
stock upon completion of the Internal
Restructuring
    
    
    1,536
    
    
    
    15
    
    
    
    4,033
    
    
    
    
    
    
    
    
    
    
    
    4,048
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (4,048
    )
    
    
    Contribution by minority interest holders,
including certain members of management,
of their membership interests in ANR
Holdings, LLC in exchange for shares of
Alpha Natural Resources, Inc. common
stock and recognition of unearned
stock-based compensation
    
    
    14,289
    
    
    
    143
    
    
    
    85,424
    
    
    
    (29,396
    )
    
    
    
    
    
    
    56,171
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    56,171Issuance of
Restructuring Notes payable upon completion of the Internal
Restructuring
    
    
    
    
    
    
    
    
    
    
    (517,692
    )
    
    
    
    
    
    
    
    
    
    
    (517,692
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (517,692
    )Tax Distributions payable recorded upon
the completion of the Internal
Restructuring
    
    
    
    
    
    
    
    
    
    
    (10,500
    )
    
    
    
    
    
    
    
    
    
    
    (10,500
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (10,500
    )Change in net deferred income taxes recognized
upon the completion of the Internal
Restructuring
    
    
    
    
    
    
    
    
    
    
    25,729
    
    
    
    
    
    
    
    
    
    
    
    25,729
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    25,729Proceeds from initial public offering of










common shares ($19 per share), net of
offering costs of $48,296.
    
    
    33,925
    
    
    
    339
    
    
    
    595,940
    
    
    
    
    
    
    
    
    
    
    
    596,279
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    596,279Distribution of net proceeds received from
underwriters exercise of over-allotment
of shares
    
    
    
    
    
    
    
    
    
    
    (71,135
    )
    
    
    
    
    
    
    
    
    
    
    (71,135
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (71,135
    )Recognition of stock-based compensation earned
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,568
    
    
    
    
    
    
    
    3,568
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,568Net loss subsequent to Internal Restructuring
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (28,500
    )
    
    
    (28,500
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (28,500
    )Balances, March 31, 2005
    
    
    62,213
    
    
    $
    622
    
    
    $
    146,815
    
    
    $
    (25,828
    )
    
    $
    (28,500
    )
    
    $
    93,109
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    93,109
 See accompanying notes to condensed consolidated financial statements. 5




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ALPHA NATURAL RESOURCES,
INC. AND SUBSIDIARIESCondensed Consolidated Statements of Cash Flows (Unaudited)(In thousands) Three months endedMarch 31,2005
    
    
    2004Operating activities:Net income (loss)
    
    $
    (25,801
    )
    
    $
    1,237Adjustments to reconcile net income (loss)
to net cash provided by (used in) operating
activities:Depreciation, depletion and amortization
    
    
    14,480
    
    
    
    11,929Amortization of debt issuance costs
    
    
    435
    
    
    
    384Minority interest
    
    
    2,846
    
    
    
    1,282Accretion of asset retirement obligation
    
    
    808
    
    
    
    976Virginia tax credit
    
    
    (343
    )
    
    
    (637
    )Stock-based
compensation - non-cash
    
    
    28,932
    
    
    
    Bad debt provision
    
    
    
    
    
    
    15Amortization of deferred gains on sales
of property interests
    
    
    (204
    )
    
    
    (238
    )Gain on sale of fixed assets, net
    
    
    (363
    )
    
    
    (196
    )Deferred income taxes
    
    
    58
    
    
    
    160Changes in operating assets and liabilities:Trade accounts receivable
    
    
    (15,903
    )
    
    
    (5,724
    )Notes and other receivables
    
    
    (384
    )
    
    
    (1,865
    )Inventories
    
    
    (36,293
    )
    
    
    (6,221
    )Prepaid expenses and other current
assets
    
    
    5,344
    
    
    
    3,384Other assets
    
    
    (2,731
    )
    
    
    (23
    )Trade accounts payable
    
    
    21,465
    
    
    
    2,302Accrued expenses and other current
liabilities
    
    
    917
    
    
    
    7,576Workers compensation benefits
    
    
    (295
    )
    
    
    1,608Postretirement medical benefits
    
    
    2,163
    
    
    
    348Asset retirement obligation
    
    
    (874
    )
    
    
    (492
    )Other liabilities
    
    
    551
    
    
    
    219Net cash provided by (used in)
operating activities
    
    
    (5,192
    )
    
    
    16,024
 6




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ALPHA NATURAL RESOURCES,
INC. AND SUBSIDIARIESCondensed Consolidated Statements of Cash Flows (Unaudited) 
(Continued)(In thousands) Three months endedMarch 31,2005
    
    
    2004Investing activities:Capital expenditures
    
    $
    (30,268
    )
    
    $
    (16,269
    )Proceeds from disposition of property, plant,
and equipment
    
    
    501
    
    
    
    214Purchase of net assets of acquired companies
    
    
    (389
    )
    
    
    Purchase of equity investment
    
    
    (500
    )
    
    
    Collections on note receivable from coal supplier
    
    
    1,223
    
    
    
    Payment of additional consideration on prior acquisition
    
    
    (5,000
    )
    
    
    Net cash used in investing activities
    
    
    (34,433
    )
    
    
    (16,055
    )Financing activities:Repayments of notes payable
    
    
    (4,092
    )
    
    
    (5,230
    )Proceeds from issuance of long-term debt
    
    
    24,500
    
    
    
    Repayments on long-term debt
    
    
    (440
    )
    
    
    (3,435
    )Increase in bank overdraft
    
    
    10,918
    
    
    
    6,635Proceeds from initial public offering, net of offering costs
    
    
    598,190
    
    
    
    Repayment of restructuring notes payable
    
    
    (517,692
    )
    
    
    Distributions to prior members of ANR Holdings, LLC
subsequent to Internal Restructuring
    
    
    (71,135
    )
    
    
    Distributions to
prior members of ANR Holdings, LLC prior to Internal Restructuring
    
    
    (7,732
    )
    
    
    (24
    )Debt issuance costs
    
    
    
    
    
    
    (647
    )Net cash provided by (used in)
financing activities
    
    
    32,517
    
    
    
    (2,701
    )Net decrease in cash
and cash equivalents
    
    
    (7,108
    )
    
    
    (2,732
    )Cash and cash equivalents at beginning of period
    
    
    7,391
    
    
    
    11,246Cash and cash equivalents at end of period
    
    $
    283
    
    
    $
    8,514
 See accompanying notes to condensed consolidated financial statements. 7




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##### Table of Contents



ALPHA NATURAL RESOURCES, INC.
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
March 31, 2005
(In thousands, except percentages and share data) (1) Business and Basis of Presentation Organization and Business Alpha Natural Resources, Inc. and its operating subsidiaries 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. On February 11, 2005, Alpha Natural Resources, Inc., a Delaware corporation (Alpha) succeeded
to the business of ANR Holdings, LLC, a Delaware limited liability company (ANR Holdings) in a
series of internal restructuring transactions described below which are referred to collectively as
the Internal Restructuring, and on February 18, 2005, Alpha completed the initial public offering
of its common stock. Prior to the Internal Restructuring, ANR Fund IX Holdings, L.P. and Alpha NR
Holding, Inc. (the FR Affiliates), entities under the common control of First Reserve GP IX,
Inc., were the owners of 54.7% of the membership interests in ANR Holdings, and the remaining
membership interests in ANR Holdings were held by affiliates of American Metals & Coal
International, Inc. (AMCI), Alpha Coal Management, LLC (ACM) and Madison Capital Funding, LLC. The
financial statements for the quarter ended March 31, 2005 are presented on a combined basis
including the combined financial results for the FR Affiliates and subsidiaries for the period from
January 1, 2005 to February 11, 2005, and the consolidated results for Alpha and subsidiaries from
February 12, 2005 to March 31, 2005. The financial statements for the period from January 1, 2004
to March 31, 2004 are presented for the FR Affiliates and subsidiaries on a combined basis. The
entities included in the accompanying financial statements are collectively referred to as the
Company. On February 11, 2005, the Company completed the Internal Restructuring to transition from a
structure in which the Companys top-tier holding company was a limited liability company, ANR
Holdings, to one in which the top-tier holding company is a corporation, Alpha. The Internal
Restructuring included the following transactions:  ACM was dissolved and liquidated, after which (1) the interests in ANR Holdings
previously held by ACM were distributed to and held directly by the Companys officers and
employees who were owners of ACM prior to its dissolution and (2) outstanding options to purchase
units in ACM were automatically converted into options to purchase up to 596,985 shares of Alpha
common stock at an exercise price of $12.73 per share, and Alpha assumed the obligations of ACM
under the Alpha Coal Management, LLC 2004 Long-Term Incentive Plan.  Alpha assumed the obligations of ANR Holdings to make distributions to (1) affiliates of
AMCI in an aggregate amount of $6,000, representing the approximate incremental tax resulting
from the recognition of additional tax liability resulting from the Internal Restructuring and
(2) First Reserve Fund IX, L.P. in an aggregate amount of approximately $4,500, representing the
approximate value of tax attributes conveyed as a result of the Internal Restructuring
(collectively, the Tax Distributions). The Tax Distributions to affiliates of AMCI are payable
in five equal installments on the dates for which estimated income tax payments are due in each
of April 2005, June 2005, September 2005, January 2006 and April 2006. The Tax Distributions to
First Reserve Fund IX, L.P. are payable in three installments of approximately $2,100, $2,100 and
$300 on December 15, 2007, 2008 and 2009, respectively. The Tax Distributions will be payable in
cash or, to the extent Alpha is not permitted by the terms of the senior credit facility or the
indenture governing the senior notes to pay the Tax Distributions in cash, in shares of Alpha
common stock.  First Reserve Fund IX, L.P., the direct parent of Alpha NR Holding, Inc. prior to the
Internal Restructuring, contributed all of the outstanding common stock of Alpha NR Holding, Inc.
to Alpha in exchange for 12,462,992 shares of Alpha common stock and demand promissory notes in
an aggregate adjusted principal amount of $206,734.  ANR Fund IX Holdings, L.P., Madison Capital Funding, LLC and affiliates of AMCI
contributed all of their membership interests in ANR Holdings to Alpha in exchange for 13,052,431
shares of Alpha common stock and demand promissory notes in an aggregate adjusted principal
amount of $310,958.  The officers and employees who were the members of ACM contributed all of their interests
in ANR Holdings to Alpha in exchange for 2,772,157 shares of Alpha common stock. 8




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##### Table of Contents



ALPHA NATURAL RESOURCES, INC.
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
March 31, 2005
(In thousands, except percentages and share data)  The Board of Directors of Alpha declared a pro rata distribution to the former members of
ANR Holdings in an aggregate amount of $78,610 equal to the net proceeds Alpha received upon the
exercise by the underwriters of their over-allotment option with respect to the public offering
described below.  Alpha recorded a change of $25,729 in net deferred income taxes (an estimated increase of
$132,637 in gross deferred tax assets, less an estimated increase of $106,908 in the valuation
allowance for deferred tax assets) recognized upon the completion of the Internal Restructuring.  Alpha and certain of its subsidiaries, the FR Affiliates and affiliates of AMCI amended
certain of the post-closing arrangements previously entered into as part of the Companys
acquisition of the U.S. coal production and marketing operations of AMCI (U.S. AMCI) that was
completed on March 11, 2003.  Alpha contributed the membership interests in ANR Holdings received in the Internal
Restructuring to Alpha NR Holding, Inc. and another indirect wholly-owned subsidiary of Alpha. On February 18, 2005, Alpha completed the initial public offering of 33,925,000 shares of its
common stock, including 4,425,000 shares issued pursuant to the exercise in full of the
underwriters over-allotment option. Alpha received net proceeds (after deducting issuance costs)
of $596,279 from the offering. Alpha used $517,982 of the net proceeds to repay all outstanding
principal and accrued interest on its demand promissory notes issued in the Internal Restructuring
to the FR Affiliates, affiliates of AMCI and Madison Capital Funding LLC, and the remaining $78,610
(including $7,475 distributed to management and recorded as compensation expense) of the net
proceeds were distributed by Alpha on a pro rata basis to its stockholders of record as of the
close of business on February 11, 2005 pursuant to the distribution declared by Alphas Board of
Directors in connection with the Internal Restructuring. 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 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 period ended
March 31, 2005 are not necessarily indicative of the results to be expected for the year ending
December 31, 2005. 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, 2004 included in
the Annual Report on Form 10-K of Alpha filed with the Securities and Exchange Commission. The financial statements for the three months ended March 31, 2005 are presented on a combined
basis including the combined financial results for the FR Affiliates and subsidiaries for the
period from January 1, 2005 to February 11, 2005 and the consolidated results for Alpha and
subsidiaries from February 12, 2005 to March 31, 2005. The financial statements for the period
from January 1, 2004 to March 31, 2004 are presented for the FR Affiliates and subsidiaries on a
combined basis. 9




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ALPHA NATURAL RESOURCES, INC.
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
March 31, 2005
(In thousands, except percentages and share data)  (2)
    Earnings Per ShareBasic earnings per share is computed by dividing net income or loss by the weighted average
number of shares of common stock outstanding during the periods. Diluted earnings per share is
computed by dividing net income or loss by the weighted average number of shares of common
stock and dilutive common stock equivalents outstanding during the periods. Common stock
equivalents include the number of shares issuable on 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. Due to the Internal
Restructuring on February 11, 2005 and initial public offering of common stock completed on
February 18, 2005, the Company has disclosed for informational purposes two sets of earning
per share data on the face of the accompanying condensed consolidated statements of
operations.Net Income (Loss) Per Share, as AdjustedThe first set of earning per share data is labeled net income (loss) per share, as adjusted.
The numerator for purposes of computing basic and diluted net income (loss) per share, as
adjusted, includes the reported net income (loss) and a pro forma adjustment for income taxes
to reflect the pro forma income taxes for ANR Fund IX Holdings, L.P.s portion of reported
pre-tax income (loss), which would have been recorded if the issuance of the shares of common
stock received by the FR Affiliates in exchange for their ownership in ANR Holdings in
connection with the Internal Restructuring had occurred as of January 1, 2004. For purposes of
the computation of basic and diluted net income (loss) per share, as adjusted, the pro forma
adjustment for income taxes only applies to the percentage interest owned by ANR Fund IX
Holding, L.P., the non-taxable FR Affiliate. No pro forma adjustment for income taxes is
required for the percentage interest owned by Alpha NR Holding, Inc., the taxable FR
Affiliate, because income taxes have already been recorded in the historical results of
operations. Furthermore, no pro forma adjustment to reported net income (loss) will be
necessary subsequent to February 11, 2005 because the Company will be subject to income taxes.The denominator for purposes of computing basic net income (loss) per share, as adjusted,
reflects the retroactive impact of the common shares received by the FR Affiliates in exchange
for their ownership in ANR Holdings in connection with the Internal Restructuring on a
weighted-average outstanding share basis as being outstanding as of January 1, 2004. The
common shares issued to the minority interest owners of ANR Holdings in connection with the
Internal Restructuring, including the immediately vested shares granted to management, have
been reflected as being outstanding as of February 11, 2005 for purposes of computing the
basic net income (loss) per share, as adjusted. The unvested shares granted to management
that vest over the two-year period from January 1, 2005 to December 31, 2006 have been
included in the basic net income (loss) per share, as adjusted, computation on a
weighted-average outstanding share basis starting on February 11, 2005 based on the monthly
vesting. The 33,925,000 new shares issued in connection with the initial public offering have
been reflected as being outstanding as of February 14, 2004, the date of the initial public
offering, for purposes of computing the basic net income (loss) per share, as adjusted.The unvested shares issued to management are considered options for purposes of computing
diluted net income (loss) per share, as adjusted. Therefore, for diluted purposes, all
remaining unvested shares granted to management would be added to the denominator as of
February 11, 2005 using the treasury stock method, if the effect is dilutive. In addition,
the treasury stock method would be used for outstanding stock options, if dilutive, beginning
with the November 10, 2004 grant of options to management to purchase units in ACM that were
automatically converted into options to purchase up to 596,985 shares of Alpha Natural
Resources, Inc. common stock at an exercise price of $12.73 per share.The computations of basic and diluted net income (loss) per share, as adjusted, are set forth
below: 10




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##### Table of Contents



Three months ended March 31,2005
    
    
    2004Numerator:Reported net income (loss)
    
    $
    (25,801
    )
    
    $
    1,237Deduct: Income tax effect of ANR Fund IX Holdings,
L.P. income prior to Internal Restructuring
    
    
    (89
    )
    
    
    (65
    )Net income (loss), as adjusted
    
    $
    (25,890
    )
    
    $
    1,172Denominator:Weighted average shares  denominator for basic
    
    
    36,413,000
    
    
    
    13,998,911Dilutive effect of stock options and restricted stock
grants
    
    
    
    
    
    
    Adjusted weighted average shares for diluted
    
    
    36,413,000
    
    
    
    13,998,911Net income (loss) per share, as adjusted:Basic
    
    $
    (0.71
    )
    
    $
    0.08Diluted
    
    
    (0.71
    )
    
    
    0.08
 The dilutive effect of 543,729 options and restricted stock was excluded from the
calculation of diluted loss per share, as adjusted, for the three months ended March 31, 2005
since the effect would have been anti-dilutive. Pro Forma Net Income (Loss) Per Share The second set of earnings per share data is labeled pro forma net income (loss) per share.
The numerator for purposes of computing basic and diluted pro forma net income (loss) per
share includes the reported net income (loss) and pro forma adjustments to reflect the impact
of:  (i)
    the additional income taxes on the portion of reported pre-tax income (loss)
attributable to the portion owned by ANR Fund IX Holdings, L.P. for the periods from
January 1, 2005 to February 11, 2005, and from January 1, 2004 to March 31, 2004;(ii)
    the add back of minority interest for the periods from January 1, 2005 to
February 11, 2005, and from January 1, 2004 to March 31, 2004 because the ownership
held by the minority interest owners of ANR Holdings were exchanged for shares of
Alpha National Resources, Inc. as part of the Internal Restructuring; and(iii)
    the additional income taxes that would have been incurred by the Company on
the minority interest added back for the periods from January 1, 2005 to February 11,
2005, and from January 1, 2004 to March 31, 2004. No pro forma adjustment to reported net income (loss) will be necessary subsequent to February
11, 2005. The denominator for purposes of computing basic pro forma net income (loss) per share
reflects:  (i)
    the retroactive impact of the common shares received by the FR Affiliates in
exchange for their ownership in ANR Holdings in connection with the Internal
Restructuring on a weighted-average outstanding share basis as being outstanding as of
January 1, 2004;(ii)
    the retroactive impact of the common shares issued to the minority interest
owners of ANR Holdings in connection with the Internal Restructuring, including the
immediately vested shares granted to management, on a weighted-average outstanding
share basis as being outstanding as of January 1, 2004;(iii)
    the unvested shares granted to management that vest over the two-year period
from January 1, 2005 to December 31, 2006 have been included in the basic computation
on a weighted-average outstanding share basis which is based on the monthly vesting beginning
as of January 1, 2005; and 11




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ALPHA NATURAL RESOURCES, INC.
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
March 31, 2005
(In thousands, except percentages and share data)  (iv)
    the retroactive impact of the 33,925,000 new shares issued in connection with
the initial public offering on a weighted-average outstanding share basis as being
outstanding as of January 1, 2004 since 100 percent of the net proceeds from the
initial public offering was distributed to the previous owners of ANR Holdings. The unvested shares issued to management are considered options for purposes of computing
diluted pro forma net income (loss) per share. Therefore, for diluted purposes, all remaining
unvested shares granted to management would be added to the denominator as of January 1,
2004 using the treasury stock method, if the effect is dilutive. In addition, the treasury
stock method would be used for outstanding stock options, if dilutive, beginning with the
November 10, 2004 grant of options to management to purchase units in ACM that were
automatically converted into options to purchase up to 596,985 shares of Alpha Natural
Resources, Inc. common stock at an exercise price of $12.73 per share. The computations of basic and diluted pro forma net income (loss) per share are set forth
below: Three months ended March 31,2005
    
    
    2004Pro forma numerator:Reported net income (loss)
    
    $
    (25,801
    )
    
    $
    1,237Deduct: Income tax effect of ANR Fund IX Holdings,
L.P. income prior to Internal Restructuring
    
    
    (89
    )
    
    
    (65
    )Add: Elimination of minority interest, net of income
tax effect
    
    
    2,176
    
    
    
    795Pro forma net income (loss)
    
    $
    (23,714
    )
    
    $
    1,967Pro forma denominator:Weighted average shares  denominator for basic
    
    
    60,923,689
    
    
    
    60,867,650Dilutive effect of stock options and restricted stock
grants
    
    
    
    
    
    
    399,198Adjusted weighted average shares for diluted
    
    
    60,923,689
    
    
    
    61,266,848Pro forma net income (loss) per share:Basic
    
    $
    (0.39
    )
    
    $
    0.03Diluted
    
    
    (0.39
    )
    
    
    0.03
 The dilutive effect of 620,101 options and restricted stock was excluded from the
calculation of diluted pro forma loss per share for the three months ended March 31, 2005
since the effect would have been anti-dilutive. Pro Forma Earnings Per Share Disclosure Provisions of SFAS No. 123 The Company accounts for stock-based compensation awards granted to employees in accordance
with Accounting Principles Board (APB) Opinion No. 25, Accounting for Stock Issued to
Employees, and related interpretations. Compensation cost for stock-based awards is recognized
in an amount equal to the difference between the exercise price of the award and the fair
value of the Companys common stock on the date of grant. 12




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ALPHA NATURAL RESOURCES, INC.
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
March 31, 2005
(In thousands, except percentages and share data) The Company has implemented the disclosure-only provisions of SFAS No. 123, Accounting for
Stock-Based Compensation. The following table illustrates the effect on pro forma net loss as
if the Company had applied the fair value recognition provisions of SFAS No. 123 to
stock-based employee compensation using the Black-Scholes option-pricing model for the three
months ended March 31, 2005: Three monthsendedMarch 31,2005Pro forma net loss (see above)
    
    $
    (23,714
    )Add: Stock-based compensation expense included
in pro forma net loss, net of income taxes
    
    
    135Deduct: Total stock-based compensation expense
determined under fair value based method, net
of income taxes
    
    
    (279
    )Pro forma net loss, adjusted for effect
of fair value of stock options
    
    $
    (23,858
    )Pro forma net loss per share:Basic  pro forma (see above)
    
    $
    (0.39
    )Basic  pro forma, adjusted for effect of fair
value of stock options
    
    
    (0.39
    )Diluted  pro forma (see above)
    
    
    (0.39
    )Diluted  pro forma, adjusted for effect of fair
value of stock options
    
    
    (0.39
    )
 The fair value of stock-based awards was estimated on the date of the grant using the
Black-Scholes option pricing model with the following assumptions: Expected life (years)
    
    
    4.0Expected volatility
    
    
    38.0
    %Risk-free interest rate
    
    
    3.38
    %Expected annual dividend
    
    $
    0.10
 The effects on pro forma net income or loss of expensing the estimated fair value of
stock-based awards are not necessarily representative of the effects on reported net income or
loss for future periods due to such factors as the vesting periods of stock options and the
potential issuance of additional awards in future years. (3) Inventories Inventories consisted of the following: March 31,
    
    
    December 31,2005
    
    
    2004Raw coal
    
    $
    2,510
    
    
    $
    3,888Saleable coal
    
    
    82,156
    
    
    
    42,899Materials and supplies
    
    
    6,196
    
    
    
    7,782Total inventories
    
    $
    90,862
    
    
    $
    54,569
 13




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##### Table of Contents



ALPHA NATURAL RESOURCES, INC.
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
March 31, 2005
(In thousands, except percentages and share data) (4) Property, Plant, and Equipment Property, plant, and equipment consisted of the following: March 31,
    
    
    December 31,2005
    
    
    2004Land
    
    $
    5,424
    
    
    $
    5,380Mineral rights
    
    
    85,245
    
    
    
    85,245Plant and mining equipment
    
    
    211,821
    
    
    
    188,891Vehicles
    
    
    2,602
    
    
    
    2,058Mine development
    
    
    18,827
    
    
    
    11,205Office equipment and software
    
    
    7,410
    
    
    
    7,264Construction in progress
    
    
    1,096
    
    
    
    1,769332,425
    
    
    
    301,812Less accumulated depreciation,
depletion, and amortization
    
    
    99,623
    
    
    
    83,848Property, plant, and
equipment, net
    
    $
    232,802
    
    
    $
    217,964
 (5) Long-Term Debt Long-term debt consisted of the following: March 31,
    
    
    December 31,2005
    
    
    200410% Senior notes due 2012
    
    $
    175,000
    
    
    $
    175,000Revolving credit facility
    
    
    32,500
    
    
    
    8,000Variable rate term notes
    
    
    1,173
    
    
    
    1,466Capital lease obligation
    
    
    1,875
    
    
    
    1,995Other
    
    
    44
    
    
    
    16Total long-term debt
    
    
    210,592
    
    
    
    186,477Less current portion
    
    
    1,707
    
    
    
    1,693Long-term debt, net of current
portion
    
    $
    208,885
    
    
    $
    184,784
 14




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##### Table of Contents



ALPHA NATURAL RESOURCES, INC.
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
March 31, 2005
(In thousands, except percentages and share data) On May 18, 2004, our indirect subsidiary Alpha Natural Resources, LLC and its wholly-owned
subsidiary, Alpha Natural Resources Capital Corp., issued $175,000 of 10% senior notes due June
2012 in a private placement offering under Rule 144A of the Securities Act of 1933, as amended,
resulting in net proceeds of approximately $171,500 after fees and other offering costs. The senior
notes are unsecured but are guaranteed fully and unconditionally on a joint and several basis by
all of our subsidiaries other than the issuers of the notes. Interest is payable semi-annually in
June and December. Additional interest on the senior notes is payable in certain circumstances if
a registration statement with respect to an offer to exchange the notes for a new issue of
equivalent notes registered under the Securities Act has not been declared effective on or prior to
February 14, 2005 (270 days after the notes were issued), or if the offer to exchange the notes is
not consummated within 30 business days after February 14, 2005. The amount of this additional
interest is equal to 0.25% of the principal amount of the notes per annum during the first 90-day
period after a failure to have the registration statement declared effective or consummate the
exchange offer, and it will increase by an additional 0.25% per annum with respect to each
subsequent 90-day period until the registration statement has been declared effective and the
exchange offer has been consummated, up to a maximum amount of additional interest of 1.0% per
annum. The additional amount of interest accrued for the quarter ended March 31, 2005 was $55. On
April 26, 2005, the issuers and guarantors of the senior notes filed a registration statement on
Form S-4 with the SEC with respect to an offer to exchange the notes for a new issue of equivalent
notes registered under the Securities Act, which was declared effective by the SEC on May 11, 2005. Alpha Natural Resources, LLC has a revolving credit facility with a group of lending
institutions led by Citicorp North America, Inc., as administrative agent (Citicorp Credit
Facility). The Citicorp Credit Facility, as amended, provides for a revolving line of credit of up
to $125,000 and a funded letter of credit facility of up to $50,000. As of March 31, 2005, Alpha
Natural Resources, LLC had $32,500 principal amount in borrowings outstanding under the revolving
line of credit and $3,408 in letters of credit outstanding, leaving $89,092 available for
borrowing. As of March 31, 2005, the funded letter of credit facility was fully utilized at $50,000
at an annual fee of 3.1% of the outstanding amount. Amounts drawn under the revolver bear interest
at a variable rate based upon either the prime rate or a London Interbank Offered Rate (LIBOR), in
each case plus a spread that is dependent on our leverage ratio. The weighted average interest rate
applicable to our borrowings under the revolver was 6.9% as of March 31, 2005. The principal
balance of the revolving credit note is due in May 2009. Each of our subsidiaries other than Alpha
Natural Resources, LLC has guaranteed Alpha Natural Resources, LLCs obligations under the
revolving credit facility. The obligations of Alphas subsidiaries under the Citicorp Credit
Facility are collateralized by all of their assets. The Citicorp Credit Facility contains various
affirmative and negative covenants which, among others, establish net worth, interest coverage and
leverage ratio requirements. Alpha Natural Resources, LLC must pay an annual commitment fee up to a
maximum of 1/2 of 1% of the unused portion of the commitment. Alphas subsidiaries were in
compliance with their debt covenants under the Citicorp Credit Facility as of March 31, 2005. The Company has term notes payable to The CIT Group Equipment Financing, Inc. in the amount of
$1,173 at March 31, 2005 and $1,466 at December 31, 2004. The term notes bear interest at variable
rates with a rate of 6.17% at March 31, 2005 and 5.71% at December 31, 2004 are payable in monthly
installments ranging from $34 to $64, through April 2, 2006. 15




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##### Table of Contents



ALPHA NATURAL RESOURCES, INC.
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
March 31, 2005
(In thousands, except percentages and share data) (6) Asset Retirement Obligation At March 31, 2005 and December 31, 2004, the Company has recorded asset retirement obligation
accruals for mine reclamation and closure costs totaling $40,669 and $39,579, respectively. The
portion of the costs expected to be incurred within a year in the amount of $6,691 at March 31,
2005 and December 31, 2004 is included in accrued expenses and other current liabilities. These
regulatory obligations are secured by surety bonds in the amount of $93,216 at March 31, 2005 and
$91,394 at December 31, 2004 Changes in the reclamation obligation were as follows: Total asset retirement obligation at December 31, 2004
    
    $
    39,579Accretion for the quarter ended March 31, 2005
    
    
    808Sites added in first quarter of 2005
    
    
    1,156Expenditures for the quarter ended March 31, 2005
    
    
    (874
    )Total asset retirement obligation at March 31, 2005
    
    $
    40,669
 (7) Stock-Based Compensation Awards The Company accounts for stock-based compensation awards granted to employees in accordance
with Accounting Principles Board (APB) Opinion No. 25, Accounting for Stock Issued to Employees,
and related interpretations. Compensation cost for equity-based awards is recognized in an amount
equal to the difference between the exercise price of the award and the fair value of the Companys
equity on the date of grant. In accordance with APB Opinion No. 25, the Company recognized
compensation expense of $36,407 related to the period ended March 31, 2005 for equity-based awards
that had an exercise or issuance price less than the fair value of the Companys common shares on
the grant or issue date. The options granted in November 2004 to purchase units of ACM were automatically converted
into options to purchase 596,985 shares of Alpha common stock in connection with the Internal
Restructuring on February 11, 2005. After the Internal Restructuring, there are outstanding under the
plan options to purchase an aggregate of 596,985 shares of Alpha common stock at an exercise price
of $12.73 per share. No additional options or awards will be granted under this plan. On
February 14, 2005, Alpha granted certain of its executive officers, directors and key
employees options to purchase an aggregate of 692,905 shares of Alphas common stock at the initial
public offering price of $19 per share. These options vest over five years and expire ten
years after the grant date. The total number of options outstanding at March 31, 2005 were 1,289,890 shares at a weighted
average price of $16.10. None of these options were exercisable as of
March 31, 2005. Transactions for the three months ended
March 31, 2005 are summarized as follows: WeightedAverageRemainingNumber of
    
    
    Exercise
    
    
    Life
(in Years)Shares
    
    

Price
    
    

at 3-31-05Outstanding at January 1, 2005
    
    
    596,985
    
    
    $
    12.73
    
    
    
    4.6Granted at initial public offering
    
    
    692,905
    
    
    
    19.00
    
    
    
    4.9Exercised
    
    
    
    
    
    
    
    
    
    

    Forfeited
    
    
    
    
    
    
    
    
    
    
    Outstanding at March 31, 2005
    
    
    1,289,890
    
    
    $
    16.10
    
    
    
    4.7
 16




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##### Table of Contents



ALPHA NATURAL RESOURCES, INC.
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
March 31, 2005
(In thousands, except percentages and share data) As part of the Internal Restructuring, the officers and employees who were the members of ACM
contributed all of their interests in ANR Holdings to Alpha in exchange for 2,772,157 shares of
Alpha common stock. Pursuant to the stockholder agreement, an aggregate of 1,344,930 shares of
common stock held by the Companys executives are unvested and subject to forfeiture. The stockholder
agreement provides that an executive holding unvested shares whose employment is terminated by us
for cause, as defined in the stockholder agreement, or who voluntarily terminates his employment
will forfeit all of the unvested shares if the termination is prior to December 31, 2005 and one
half of the unvested shares if the termination is after December 31, 2005 and prior to December 31,
2006. The stockholder agreement also provides that an executive holding unvested shares whose
employment is terminated by us without cause, or due to retirement, death or disability, will
become vested upon termination in a percentage of the total shares initially subject to vesting
equal to the number of full calendar months then elapsed since December 31, 2004 divided by 24. The
stockholder agreement further provides that vesting of all unvested shares will accelerate upon a
change of control of the Company, as defined in the stockholder agreement. Subsequent
to March 31, 2005, Alpha granted options to purchase 10,000
shares to a new member of the board of
directors at an exercise price of $24.85 per share. These options vest
over five years and expire ten years after the grant date. (8) Employee Benefit Plans Postretirement Benefits Other Than Pensions The following table details the components of the net periodic benefit cost for postretirement
benefits other than pensions: Three Months EndedMarch 31,2005
    
    
    2004Service cost
    
    $
    944
    
    
    $
    199Interest cost
    
    
    538
    
    
    
    156Amortization of net (gain) or loss
    
    
    (6
    )
    
    
    (6
    )Amortization of prior service cost
    
    
    698
    
    
    
    Net periodic benefit cost
    
    $
    2,174
    
    
    $
    349
 The discount rates used in determining net periodic postretirement benefit cost were 5.75% and
6.25% for the quarters ended March 31, 2005 and 2004, respectively. Employer contributions for benefits paid for the quarters ended March 31, 2005 and 2004 were
$10. Employee contributions are not expected to be made and the plan is unfunded. 17




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ALPHA NATURAL RESOURCES, INC.
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
March 31, 2005
(In thousands, except percentages and share data) Two of the Companys subsidiaries are required to make contributions to the 1993 UMWA Benefit
Plan of fifty cents per signatory hour worked. The contributions that the Company made to this
plan for the quarters ended March 31, 2005 and 2004 were $7 and $9, respectively. (9) Workers Compensation Benefits The Companys operations generally are fully insured for workers compensation and black lung
claims. Insurance premium expense for the quarters ended March 31, 2005 and 2004 was $3,592 and
$3,944, respectively. A portion of the West Virginia operations of the Company are self-insured for
workers compensation and state black lung claims. The liability for these claims is an estimate of
the ultimate losses to be incurred on such claims based on the Companys experience and published
industry data. Adjustments to the probable ultimate liability are made annually based on an
actuarial valuation and are included in operations as they are determined. The obligations incurred
prior to January 31, 2003 are currently secured by surety bonds of El Paso Corporation, an
unrelated entity. The liability for self-insured workers compensation benefits at March 31, 2005 and December
31, 2004 was $6,474 and $6,290, respectively, including a current portion of $1,724 and $1,612,
respectively. Workers compensation expense for the quarters ended March 31, 2005 and 2004 was
$1,374 and $1,922, respectively, including fees paid to the State of West Virginia to be
self-insured. The Company is required to post bonds in the amount of $2,288 with the state of West
Virginia to secure estimated self-insured liabilities for the period from February 1, 2003 through
June 30, 2004. The state of West Virginia allows the self-insured companies to post these bonds in
installments to be fully secured by June 30, 2006. The Company posted a bond of $727 as the first
installment for the year ended December 31, 2004, and the second installment of $780 is due by June
6, 2005. (10) Related Party Transactions In conjunction with the acquisition of U.S. AMCI, ANR Holdings entered into an agreement with
entities affiliated with AMCI that requires the AMCI parties to pay reclamation and other
obligations of one of the former U.S. AMCI entities acquired by the Company (Solomons Mining
Company). In April 2004, the Company entered into an arrangement with the former owners of U.S.
AMCI (the AMCI Parties) to purchase 350 tons of coal from a third party at a price of $54.50 per
ton at various times from April 2004 through November 2005. An amount of $34.50 will be paid to the
producer of that coal, $12.00 per ton is payable to the AMCI Parties and $8.00 per ton is retained
by the Company to fund the remaining reclamation obligation of Solomons Mining Company. As of
March 31, 2005, the Company has retained an aggregate of $2,227 under this arrangement. After the
Company has retained $2,300, the $8.00 per ton will thereafter be paid to the U.S. AMCI parties. In April 2004, we entered into a coal sales arrangement with AMCI Metall & Kohle AG to sell
750 metric tons through March 2005. Fritz R. Kundrun and Hans J.
Mende, two of the Companys directors, control AMCI Metall & Kohle AG. For the quarter ended March 31, 2005, total sales
of $7,545 have been recorded under this contract. The Company is obligated to deliver 300 firm tons
and 200 optional tons of coal during April 2005 through March 2006 under an arrangement whereby we
sell coal to AMCI Metall & Kohle AG at a price that is $1.00 per metric ton less than the price at
which AMCI Metall & Kohle AG resells the coal to an international customer. The Company also had
total sales and accounts receivable of $8,216 as of and for the quarter ended March 31, 2005 to
AMCI Australia Pty Ltd., an entity that is 51% owned by Messrs. Kundrun and Mende and 49% owned by affiliates of First Reserve Corporation. In addition,
the Company recorded commission income of $26 from American Metals and Coal International,
 Inc., an entity owned by Messrs. Kundrun and Mende, during the quarter ended March 31, 2005. (11) Mergers and Acquisitions Black Dog Coal Corporation On February 1, 2005, the Company acquired the common stock of Black Dog Coal Corporation for
$389 in net cash. Assets acquired totaled $955 and liabilities assumed were $566. (12) 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 April 15, 18




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ALPHA NATURAL RESOURCES, INC.
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
March 31, 2005
(In thousands, except percentages and share data) 2005 (see note 17), consisted of 43 underground mines and 21 surface mines located in Central
Appalachia and Northern Appalachia. Coal Operations also includes the Companys purchased 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, trucking services, coal
and environmental analysis services, and leasing of mineral rights. 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, as adjusted, which the Company defines as net income
(loss) plus interest expense, income tax expense (benefit), depreciation, depletion and
amortization, less interest income, and adjusted for minority interest. Operating segment results for the three months ended March 31, 2005 and segment assets as of
March 31, 2005 were as follows: CorporateCoal
    
    
    All
    
    
    andOperations
    
    
    Other
    
    
    Eliminations
    
    
    ConsolidatedRevenues
    
    $
    311,066
    
    
    $
    9,718
    
    
    $
    (5,011
    )
    
    $
    315,773Depreciation, depletion, and amortization
    
    
    13,452
    
    
    
    427
    
    
    
    601
    
    
    
    14,480EBITDA, as adjusted
    
    
    45,545
    
    
    
    1,129
    
    
    
    (46,995
    )
    
    
    (321
    )Capital expenditures
    
    
    29,790
    
    
    
    282
    
    
    
    196
    
    
    
    30,268Total assets
    
    
    465,047
    
    
    
    70,752
    
    
    
    11,472
    
    
    
    547,271
 Operating segment results for the three months ended March 31, 2004 and segment assets as of
March 31, 2004 were as follows: CorporateCoal
    
    
    All
    
    
    andOperations
    
    
    Other
    
    
    Eliminations
    
    
    ConsolidatedRevenues
    
    $
    241,981
    
    
    $
    7,709
    
    
    $
    (2,952
    )
    
    $
    246,738Depreciation, depletion, and amortization
    
    
    11,160
    
    
    
    259
    
    
    
    510
    
    
    
    11,929EBITDA, as adjusted
    
    
    27,977
    
    
    
    581
    
    
    
    (11,770
    )
    
    
    16,788Capital expenditures
    
    
    15,863
    
    
    
    104
    
    
    
    302
    
    
    
    16,269Total assets
    
    
    356,749
    
    
    
    69,604
    
    
    
    (36,601
    )
    
    
    389,752
 Reconciliation of total segment EBITDA, as adjusted, to net income (loss) follows: Three Months EndedMarch 31,2005
    
    
    2004Total segment EBITDA, as adjusted (1)
    
    $
    (321
    )
    
    $
    16,788Interest expense
    
    
    (6,117
    )
    
    
    (2,051
    )Interest income
    
    
    287
    
    
    
    21Income tax expense
    
    
    (2,324
    )
    
    
    (310
    )Depreciation, depletion and amortization
    
    
    (14,480
    )
    
    
    (11,929
    )Minority interest
    
    
    (2,846
    )
    
    
    (1,282
    )Net income (loss)
    
    $
    (25,801
    )
    
    $
    1,237
 19




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ALPHA NATURAL RESOURCES, INC.
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
March 31, 2005
(In thousands, except percentages and share data)   (1)
    
    EBITDA, as adjusted, is defined as net income (loss) plus interest expense, income tax
expense (benefit), depreciation, depletion and amortization, less interest income, and
adjusted for minority interest. The Company markets produced, processed and purchased coal to customers in the United States
and in international markets. Export revenues totaled $141,410 or approximately 45% of total
revenues for the quarter ended March 31, 2005. Export revenues were $90,742 or approximately 37%
of total revenues, for the quarter ended March 31, 2004. (13) 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 combined 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
March 31, 2005 is $53,408. The amount of surety bonds currently outstanding related to the
Companys reclamation obligations is presented in note 6 to the condensed consolidated financial
statements. The Company has provided guarantees for equipment financing obtained by certain of its
contract mining operators totaling approximately $2,600. 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 financial condition,
results of operations and/or cash flows of the Company. (c) Other Contingencies In connection with the Companys acquisition of Coastal Coal Company, the seller, El Paso CGP
Company, has agreed to retain and indemnify the Company for all workers compensation and black
lung claims incurred prior to the acquisition date of January 31, 2003. The majority of this
liability relates to claims in the state of West Virginia. If El Paso CGP Company fails to honor
its agreement with the Company, then the Company would be liable for the payment of those claims,
which were estimated in April 2004 by the West Virginia Workers Compensation Commission to be
approximately $5,369 on an undiscounted basis using claims data through June 30, 2003. El Paso
has posted a bond with the state of West Virginia for the required discounted amount of $3,722 for
claims incurred prior to the acquisition. (14) Supplemental Cash Flow Disclosures Cash paid for interest for the quarters ended March 31, 2005 and 2004 was $667 and $1,429,
respectively. There were no income taxes paid by the Company for the quarters ended March 31, 2005
and 2004. Non-cash investing and financing activities are excluded from the condensed consolidated
statements of cash flows. Significant non-cash activity for the quarter ended March 31, 2005 includes:  
    Increase in accrued expenses of $4,800, increase in other liabilities of $5,700, and a
decrease of $10,500 in stockholders equity for Tax Distributions payable to former
members of ANR Holdings.
    Increase of $18,011 in deferred tax assets, decrease of $7,718 in deferred tax
liabilities, and an increase in stockholders equity of $25,729 as a result of the
Internal Restructuring.
    Decrease in stockholders equity and an increase in
notes payable for issuance of restructuring notes payable of $517,692 as a result
of the Internal Restructuring.
    Distribution to FR Affiliates of $2,184 for prepaid
taxes and receivables from affiliates.
    Decrease in other assets of $3,665, decrease in accrued
expenses of $1,754 and decrease in stockholders equity of $1,911 for stock offering costs. 20




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ALPHA NATURAL RESOURCES, INC.
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
March 31, 2005
(In thousands, except percentages and share data) (15) Income Taxes Since the condensed consolidated statements of operations for the three months ended March 31,
2005 include activity both prior to and after the Internal Restructuring and IPO, the total income
tax provision is the sum of the provisions for the pre and post restructuring periods. Prior to February 12, 2005, the minority interest owners and ANR Fund IX Holdings, L.P. owned
interests in ANR Holdings, a limited liability company and pass-through entity for income tax
purposes. As a pass-through entity, ANR Holdings provides information returns reflecting the
allocated income (loss) to the minority interest owners and ANR Fund IX Holdings, L.P based upon
their respective ownership percentage and certain special allocations as provided by the limited
liability company agreement and the Internal Revenue Code. The income tax consequences of the
income (loss) allocated to these owners for the period from January 1, 2005 to February 11, 2005
and from January 1, 2004 to March 31, 2004 is not reflected in the financial statements. For these
periods, only the income tax expense associated with Alpha NR Holding, Inc., a taxable entity, is
included. The primary source of the income tax impact is derived from the allocated income (loss)
from ANR Holdings, Alpha Natural Resources, LLC and its operating subsidiaries, all of which are
pass-through entities for tax purposes. Subsequent to the Internal Restructuring and IPO, all of
the income of ANR Holdings is taxed to Alpha Natural Resources, Inc. A tax provision of $2,324 was recorded for the three months ended March 31, 2005 on a pre-tax
loss of $20,631 which equates to an effective tax rate of (11.3%). This rate differs from the
federal statutory rate of 35% due primarily to a significant portion of the stock-based compensation charge
associated with the issuance of common stock to management in connection with the Internal
Restructuring and IPO not being deductible for tax purposes. The increase in expected income tax
expense related to the stock-based compensation charge is offset in part by the tax benefits
associated with percentage depletion and taxes not being provided for on the minority interest and
pass-through entity owners respective shares for the period prior to the Internal Restructuring. As
$33,029 of the stock-based compensation charge has been identified as a significant unusual item,
the tax effect of the $33,029 expense (no tax benefit) has been
accounted for in the current period tax provision and
excluded from the estimated annual effective tax rate of approximately 26%. The Companys estimated annual effective
income tax rate is applied to pre-tax income exclusive of the $33,029
stock-based compensation charge.  Significant components of income tax expense were as follows: Three Months EndedMarch 31,2005
    
    
    2004Current tax expense:Federal
    
    $
    1,906
    
    
    $
    146State
    
    
    360
    
    
    
    42,266
    
    
    
    150Deferred tax expense:Federal
    
    
    47
    
    
    
    117State
    
    
    11
    
    
    
    4358
    
    
    
    160Total income tax expense:Federal
    
    
    1,953
    
    
    
    263State
    
    
    371
    
    
    
    47$
    2,324
    
    
    $
    310
 21




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ALPHA NATURAL RESOURCES, INC.
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
March 31, 2005
(In thousands, except percentages and share data) A reconciliation of the statutory federal income tax expense (benefit) at 35% to income (loss)
before income taxes and minority interest, and the actual income tax expense is as follows: Three Months EndedMarch 31,2005
    
    
    2004Federal statutory income tax expense (benefit)
    
    $
    (7,221
    )
    
    $
    990Increases (reductions) in taxes due to:Percentage depletion allowance
    
    
    (1,596
    )
    
    
    (197
    )Extraterritorial income exclusion
    
    
    (176
    )
    
    
    Deduction for domestic production activities
    
    
    (74
    )
    
    
    State taxes, net of federal tax impact
    
    
    287
    
    
    
    30Stock-based
compensation not deductible
    
    
    12,054
    
    
    
    Change in
valuation allowance, excluding allowance recorded in the Internal Restructuring
    
    
    125
    
    
    
    (13
    )Taxes not provided for minority interest
    
    
    (996
    )
    
    
    (462
    )Taxes not provided for pass-through entity
    
    
    (132
    )
    
    
    (47
    )Other, net
    
    
    53
    
    
    
    9Actual income tax expense
    
    $
    2,324
    
    
    $
    310
 Deferred income taxes result from temporary differences between the reporting of amounts for
financial statement purposes and income tax purposes. The net deferred tax assets and liabilities
included in the condensed consolidated financial statements include the following amounts: March 31,
    
    
    December 31,2005
    
    
    2004Deferred tax assets:Investment in limited liability company subsidiary
    
    $
    126,037
    
    
    $
    Net operating loss carryforwards
    
    
    4,690
    
    
    
    5,598Charitable contribution carryforwards
    
    
    197
    
    
    
    207Alternative minimum tax credit carryforward
    
    
    2,416
    
    
    
    1,249Gross deferred tax assets
    
    
    133,340
    
    
    
    7,054Less valuation allowance
    
    
    (108,524
    )
    
    
    (1,374
    )Total net deferred tax assets
    
    
    24,816
    
    
    
    5,680Deferred tax liabilities:Investment in limited liability company subsidiary
    
    
    
    
    
    
    (6,869
    )Virginia tax credit
    
    
    (2,189
    )
    
    
    (1,855
    )Total deferred tax liabilities
    
    
    (2,189
    )
    
    
    (8,724
    )Net deferred tax asset (liability)
    
    $
    22,627
    
    
    $
    (3,044
    )
 22




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ALPHA NATURAL RESOURCES, INC.
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
March 31, 2005
(In thousands, except percentages and share data) Changes in the net deferred tax asset (liability) balance during the three months ended March
31, 2005 were as follows: ANR Fund IX
Holdings, L.P. and Alpha NR Holding, Inc. and Subsidiaries:Deferred tax liability balance at December 31, 2004
    
    $
    (3,044
    )Deferred tax benefit recorded in January 1, 2005 to February 11, 2005 period
    
    
    192Deferred tax liability balance at February 11, 2005
    
    $
    (2,852
    )Alpha
Natural Resources, Inc.:Deferred tax liability balance acquired on February 12, 2005
    
    $
    (2,852
    )Estimated deferred tax asset generated from the Internal Restructuring
    
    
    132,637Valuation allowance established at the time of the Internal Restructuring
    
    
    (106,908
    )Net deferred taxes recorded as part of Internal Restructuring, with offsetting
increase to additional paid-in capital
    
    
    25,729Deferred tax expense recorded in February 12, 2005 to March 31, 2005 period
    
    
    (250
    )Net deferred tax asset at March 31, 2005
    
    $
    22,627
 The
Internal Restructuring resulted in an increase in the basis of assets for
income tax purposes, currently estimated at $346,000, which resulted in a gross deferred
tax asset of $132,637. This amount was offset by an increase to the valuation allowance
of $106,908 as of the date of the Internal Restructuring. The resulting net increase to
deferred income taxes of $25,729 was recorded as an increase to
additional paid-in capital, as the
underlying change in the tax basis of assets of the Company was caused by the Internal
Restructuring transactions between the Company and its stockholders. Since the Company has not been in business long enough to develop a strong earnings
history (objective evidence required to recognize a net deferred tax
asset), and due to
the likelihood that the alternative minimum tax will exceed the regular tax in the future, the
Company has recorded a valuation allowance of $108,524 as of March 31, 2005. The Company will
monitor the valuation allowance each quarter and will make adjustments to the allowance through the
tax provision as appropriate. The breakdown of the net deferred tax asset (liability), net of valuation allowance, recorded
in the accompanying condensed consolidated balance sheets is as follows: March 31,
    
    
    December 31,2005
    
    
    2004Current asset
    
    $
    909
    
    
    $
    4,674Current liability
    
    
    
    
    
    
    Net current asset
    
    
    909
    
    
    
    4,674Noncurrent asset
    
    
    23,907
    
    
    
    1,006Noncurrent liability
    
    
    (2,189
    )
    
    
    (8,724
    )Net noncurrent asset (liability)
    
    
    21,718
    
    
    
    (7,718
    )Total net deferred tax asset (liability)
    
    $
    22,627
    
    
    $
    (3,044
    )
 23




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ALPHA NATURAL RESOURCES, INC.
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
March 31, 2005
(In thousands, except percentages and share data) (16) New Accounting Pronouncements On March 17, 2005, the Emerging Issues Task Force (EITF) of the Financial Accounting Standards
Board (FASB) reached consensus on EITF Issue No. 04-6, Accounting for Stripping Costs Incurred
during Production in the Mining Industry,and on March 30, 2005, the FASB Board ratified the
consensus. The EITF reached consensus that stripping costs incurred
during the production phase of a mine are variable production costs that should be included in the costs of inventory produced
during the period that the stripping costs are incurred. ETIF 04-6 is effective for the first
reporting period in fiscal years beginning after December 15, 2005 with early adoption permitted.
The Company does not expect that the adoption of EITF 04-6 will have any material financial
statement impact. In March 2005, the Financial Accounting Standards Board (the FASB) issued Interpretation No.
47, Accounting for Conditional Asset Retirement Obligations, an interpretation of SFAS No. 143,
Accounting for Asset Retirement Obligations. This Interpretation clarifies that an entity is
required to recognize a liability for the fair value of a conditional asset retirement obligation
when incurred if the liabilitys fair value can be reasonably estimated. The provisions of this
pronouncement are effective for fiscal years ending after December 15, 2005. The Company does not
expect the adoption of Interpretation No. 47 will have any material financial statement impact. In December 2004, the FASB issued SFAS No. 123(R), Share-Based Payment,which requires companies to
expense the fair value of equity awards over the required service period. This Statement is a
revision of SFAS No. 123, Accounting for Stock-Based Compensation.SFAS No. 123(R) supersedes APB
Opinion No. 25, Accounting for Stock Issued to Employees,which uses the intrinsic value method to
value stock-based compensation. On April 14, 2005, the SEC adopted a new rule that amends the
effective date of SFAS No. 123(R) to allow SEC registrants to implement SFAS No. 123(R) as of the
beginning of the first annual reporting period that begins after June 15, 2005. This ruling by the
SEC changes the effective date. (17) Subsequent Event On April 14, 2005, the Company sold the assets of its Colorado mining subsidiary National King
Coal LLC and related trucking subsidiary Gallup Transportation and Transloading Company, LLC
(collectively, NKC) to an unrelated third party for cash in the amount of $4,400, plus an amount
in cash equal to the fair market value of NKCs coal inventory, and the assumption by the buyer of
certain liabilities of NKC. For the quarter ended March 31, 2005, NKC contributed revenues of
$3,617, and incurred a net operating loss before income taxes and minority interest of $925. The
Company estimates the gain on the sale of NKC to approximate $500. In connection with the closing
of the transaction, National King Coal LLC was renamed NatCoal LLC, and Gallup Transportation and
Transloading Company, LLC was renamed GTTC LLC. 24




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##### Table of Contents



Item 2.Managements Discussion and Analysis of Financial Condition and Results of Operations You should read the following discussion and analysis in conjunction with our financial statements
and related notes included elsewhere in this report. The combined historical financial information
discussed below for all periods prior to the completion of our Internal Restructuring on February
11, 2005, is for ANR Fund IX Holdings, L.P. and Alpha NR Holding, Inc. and subsidiaries, which
prior to the completion of our Internal Restructuring were the owners of a majority of the
membership interests of ANR Holdings, and for all periods after our Internal Restructuring is for
Alpha Natural Resources, Inc., the owner of 100% of the membership interests of ANR Holdings after
our Internal Restructuring. 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 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 plans and objectives for future operations and expansion or consolidation;
    our relationships with, and other conditions affecting, our customers;
    timing of reductions in customer coal inventories;
    long-term coal supply arrangements;
    inherent risks of coal mining beyond our control;
    environmental laws, including those directly affecting our coal mining and production,
and those affecting our customers coal usage;
    competition in coal markets;
    railroad and other transportation performance and costs;
    availability of mining and processing equipment and parts;
    our assumptions concerning economically recoverable coal reserve estimates;
    employee workforce factors; 25




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##### Table of Contents




    regulatory and court decisions;
    future legislation and changes in regulations, governmental policies or taxes;
    changes in postretirement benefit obligations;
    our liquidity, results of operations and financial condition; and
    other factors, including the other factors discussed in Overview  Coal Pricing Trends
and Uncertainties and Outlook below, and the Risks Related to our Company section of
Managements Discussion and Analysis of Financial Condition and Results of Operations, set
forth in our annual report on Form 10-K for the year ended December 31, 2004. 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 from seven regional business units, which,
as of April 15, 2005, are supported by 43 active underground mines, 21 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 ended March 31, 2005, sales of steam coal
were 3.3 million tons which accounted for approximately 59% of our coal sales volume. Sales of
metallurgical coal, which generally sells at a premium over steam coal, were 2.3 million tons and
accounted for approximately 41% of our first quarter 2005 coal sales volume. Our sales of steam
coal during the first quarter of 2005 were made primarily to large utilities and industrial
customers in the Eastern region of the United States, and our sales of metallurgical coal during
the quarter were made primarily to steel companies in the Northeastern and Midwestern regions of
the United States and in several countries in Europe and Asia. Approximately 45% of
our sales revenue in the first three months of 2005 was derived from sales made outside the United
States. In addition, we generate other revenues from 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. We generally
experience lower sales and hence build coal inventory during the winter months primarily due to the
freezing of lakes that we use to transport coal to some of our customers. Our primary expenses are for wages and benefits, supply costs, repair and maintenance expenditures,
cost of purchased coal, royalties, freight and handling costs, and taxes incurred in selling our
coal. Historically, our cost of coal sales per ton is lower for sales of our produced and processed
coal than for sales of purchased coal that we do not process prior to resale. 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. We report the revenues and costs from rentals, commissions and coal handling
and processing operations in our other revenues and cost of other revenues, respectively. Internal Restructuring and Initial Public Offering.On February 11, 2005, we completed a
series of transactions in connection with our Internal Restructuring for the purpose of
transitioning our top-tier holding company from a limited liability company to a corporation, and
on February 18, 2005 we completed the initial public offering of our common stock. As a result of
our initial public offering and our Internal Restructuring, we have incurred during the period
after our initial public offering and Internal Restructuring and will continue to incur additional
expenses that we have not incurred in prior periods, including expenses associated with 26




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compliance with corporate governance and periodic financial reporting requirements for public
companies. Moreover, all of our income is now subject to income tax and therefore the effective tax
rates reflected in our financial statements for periods prior to the Internal Restructuring are not
indicative of our effective tax rates after our Internal Restructuring. As part of our Internal Restructuring, our executive officers and certain other key employees
exchanged their interests in ANR Holdings for shares of our common stock and the right to
participate in a distribution of the proceeds received by us from the underwriters as a result of
the underwriters exercise of their over-allotment option in connection with our initial public
offering. As a result, we recorded stock-based compensation expense and deferred stock-based
compensation equal to the fair value of the shares issued and distributions paid of $59.1 million.
Of this amount, $36.2 million was recorded as compensation
expense for the quarter ended March 31,
2005, equal to the distributions paid and the vested portion of the shares issued and we recorded
the remaining $22.9 million as deferred stock-based compensation
for the quarter ended March 31,
2005, equal to the unvested portion of the shares issued, which will be amortized over the two-year
vesting period of the unvested shares. In addition, as a result of the conversion of outstanding
options held by members of our management to purchase units of Alpha Coal Management into options
to purchase up to 596,985 shares of our common stock in connection with the Internal Restructuring
(the ACM Converted Options), we recorded deferred stock-based compensation of $3.7 million in the
first quarter of 2005, which is being amortized over the five-year vesting period of the options
beginning November 10, 2004. Compensation expense of
$0.2 million was recorded for the quarter ended
March 31, 2005, with the balance of $3.5 million to be amortized
over the remaining vesting period. The aggregate amount of stock-based compensation expense we recorded in the first
quarter of 2005 was $36.4 million ($28.9 million non-cash), equal to the $36.2 million of expense
associated with distributions paid and the vested portions of shares issued in the Internal
Restructuring, and $0.2 million of amortization expense from the
ACM Converted Options. The
amortization of deferred stock-based compensation relating to the unvested shares issued in the
Internal Restructuring and the ACM Converted Options over the applicable two-year and five-year
vesting periods will result in a non-cash amortization expense in these periods, thereby reducing
our earnings in those periods. In connection with our Internal Restructuring, we assumed the obligation of ANR Holdings to
make distributions to (1) affiliates of AMCI in an aggregate amount of $6.0 million, representing
the approximate incremental tax resulting from the recognition of additional tax liability
resulting from our Internal Restructuring, and (2) First Reserve Fund IX, L.P. in an aggregate
amount of approximately $4.5 million, representing the approximate value of tax attributes conveyed
as a result of the Internal Restructuring (collectively, the Tax Distributions). The Tax
Distributions to affiliates of AMCI are payable in five equal installments on the dates for which
estimated income tax payments are due in each of April 2005 (we paid this installment on April 15,
2005 in cash), June 2005, September 2005, January 2006 and April 2006. The Tax Distributions to
First Reserve Fund IX, L.P. will be paid in three installments of approximately $2.1 million, $2.1
million and $0.3 million on December 15, 2007, 2008 and 2009, respectively. The Tax Distributions
will be payable by Alpha Natural Resources, Inc. in cash or, to the extent our subsidiaries are not
permitted by the terms of our credit facility or the indenture governing our senior notes to
distribute cash to Alpha Natural Resources, Inc. to pay the Tax Distributions, in shares of our
common stock. Subsequent
NKC Disposition.On April 14, 2005, we sold the assets of our Colorado mining
subsidiary National King Coal, LLC and related trucking subsidiary Gallup Transportation and
Transloading Company, LLC (collectively, NKC) to an unrelated third party for cash in the amount
of $4.4 million, plus an amount in cash equal to the fair market value of NKCs coal inventory, and
the assumption by the buyer of certain liabilities of NKC. For the three months ended March 31,
2005, NKC contributed revenues of $3.6 million, an after-tax and
minority interest loss of $0.6
million on 0.1 million tons of steam coal sold. In connection with the closing of the transaction,
National King Coal, LLC was renamed NatCoal LLC, and Gallup Transportation and Transloading
Company, LLC was renamed GTTC LLC. Giving effect to this disposition as if it had occurred on
January 1, 2005, our revenues would have been reduced by $3.6 million and our net loss would have
decreased by $0.6 million. Coal Pricing Trends and Uncertainties.During the three months ended March 31, 2005 when
compared to the corresponding period in 2004, prices for our coal increased significantly due to a
combination of conditions in the United States and internationally, including an improving U.S.
economy and robust economic growth in Asia, relatively low customer stockpiles, limited
availability of high-quality coal from competing producers in Central Appalachia, capacity
constraints of U.S. nuclear-powered electricity generators, high current and forward prices for
natural gas and oil, and increased international demand for U.S. coal. This strong coal pricing
environment has contributed to our growth in revenues during the quarter ended March 31, 2005.
While our outlook on coal pricing remains positive as noted below under Outlook, future coal
prices are subject to factors beyond our control and we cannot predict whether and for how long
this strong coal pricing environment will continue. As of April 15, 2005, approximately 1% of our
planned 2005 production, 34% of our planned 2006 production and 66% of our planned 2007 production
was uncommitted and was not yet priced. 27




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During the first quarter 2005, we continued to experience increased costs for purchased coal
which have risen with coal prices generally, and increased operating costs for steel manufactured
equipment and supplies, employee wages and salaries and contract mining and trucking. We also
experienced disruptions in railroad service during the first three months of 2005, which caused
delays in delivering products to customers and increased our internal coal handling costs at our
operations. While as noted under Outlook, we anticipate gradual improvement in railroad service
beginning in the second half of 2005, conditions affecting railroad service are subject to factors
beyond our control and we cannot predict the future impact of rail
related service issues on our operations and costs. We continued to experience a tight market for supplies of mining and processing equipment and
parts during this quarter, due to increased demand by coal producers attempting to increase
production in response to the strong market demand for coal. Although we are attempting to obtain
adequate supplies of mining and processing equipment and parts to meet our production forecasts,
continued limited availability of equipment and parts could prevent us from meeting those
forecasts. The supply of mining and processing equipment and parts is subject to factors beyond
our control and we cannot predict whether and for how long this supply market will remain limited. In January 2005, the state of West Virginia passed legislation to increase the severance tax
on coal by $0.56 per ton effective December 1, 2005. The estimated impact for this increased
severance tax in 2005 is approximately $0.3 million and we estimate an annual impact beginning in
2006 of approximately $4.0 million based on current operating levels. A portion of this increase
may be recoupable from customers based on allowances in some sales contracts for changes in law. The U.S. dollar has weakened over the last two years, which has made U.S. coal relatively less
expensive and, therefore, more competitive in foreign markets. We believe that the weakening of the
U.S. dollar has enabled us to export more metallurgical coal at higher prices than would otherwise
have been the case during 2003 and 2004, and this trend has contributed to our growth in revenues
and income during those periods. Changes in currency conversion rates are subject to factors beyond
our control and we cannot predict whether and for how long the dollar will continue to weaken
against foreign currencies. We believe that a strengthening of the U.S. dollar would adversely
affect our exports. Two
negotiated wage agreements between one of our subsidiaries and the
United Mine Workers of America (UMWA) have expired. One
agreement, covering approximately 125 employees as of March 31,
2005, expired on December 31, 2003. Following 15 months of
negotiations with the UMWA over successor agreement, our subsidiary
determined that an impasse had been reached and implemented the terms
of its last offer to the UMWA on April 4, 2005. The UMWA has not
challenged this implementation. The second agreement, covering
approximately 75 employees as of March 31, 2005 at our Cherokee
mine, expired on March 23, 2005. Our subsidiary is currently in
negotiations with the UMWA over a successor agreement to cover union
workers at this mine. For additional information regarding some of the risks and uncertainties that affect our
business, see the Risks Related to our Company section of Managements Discussion and Analysis
of Financial Condition and Results of Operations, set forth in our annual report on Form 10-K for
the year ended December 31, 2004 28




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Reconciliation of Non - GAAP
Measures The following unaudited table reconciles EBITDA and EBITDA, as adjusted, to net income (loss) the
most directly comparable GAAP measure: Three months endedMarch 31,2005
    
    
    2004Net income (loss)
    
    $
    (25,801
    )
    
    $
    1,237Interest expense
    
    
    6,117
    
    
    
    2,051Interest income
    
    
    (287
    )
    
    
    (21
    )Income tax expense
    
    
    2,324
    
    
    
    310Depreciation, depletion and amortization
    
    
    14,480
    
    
    
    11,929EBITDA (1)
    
    
    (3,167
    )
    
    
    15,506Minority interest
    
    
    2,846
    
    
    
    1,282EBITDA, as adjusted (1)
    
    $
    (321
    )
    
    $
    16,788
   (1)
    
    EBITDA is defined as net income (loss) plus interest expense, income tax expense
(benefit), depreciation, depletion and amortization, less interest income. EBITDA, as
adjusted, includes EBITDA plus minority interest. EBITDA and EBITDA, as adjusted, are used
by management to measure operating performance, and management also believes they are
useful indicators of our ability to meet debt service and capital expenditure requirements.
Because EBITDA and EBITDA, as adjusted, are not calculated identically by all companies,
our calculations may not be comparable to similarly titled measures of other companies. Results of Operations Three months Ended March 31, 2005 Compared to the Three months Ended March 31, 2004 Summary For the quarter
ended March 31, 2005, our revenues increased $69.0 million to $315.8 million compared to
$246.7 million for the quarter ended March 31, 2004. Net income
decreased from $1.2 million in 2004 to a loss of $25.8 million for 2005, after our stock-based
compensation charge in the amount of $36.4 million ($35.5 million after-tax) and a benefit in the
amount of $1.8 million ($0.8 million after-tax and minority interest) related to the settlement of
a funded reclamation bonding program. EBITDA, as reconciled to our net income or loss in the table
above, was $(3.2) million in the first quarter 2005, including the non-cash portion of the
stock-based compensation charge in the amount of $28.9 million and was $18.7 million less than the
same period in 2004. On a pro forma basis as calculated in the table above, our net loss was $23.7
million or $(0.39) per basic share. The combination of the stock-based compensation charge and the
settlement discussed above had a negative $0.56 effect on our per share earnings. We sold 5.6 million tons
of coal during the first quarter of 2005, 0.4 million less than the comparable
period in 2004. Production for the first quarter of 2005 totaled
6.2 million tons including 5.0 million tons of produced and
processed coal and 1.2 million tons of purchased coal. Our
production for the first quarter of 2004 was 5.1 million tons of
produced and processed coal and 1.2 million tons of purchased
coal. Coal margin, which we define as coal revenues less cost of coal sales, divided by
coal revenues, increased from 12.5% in 2004 to 16.9% in 2005. Coal margin per ton was $8.26 in the
first quarter 2005, an 87% increase from the first quarter of 2004. Coal margin per ton is calculated
as coal sales realization per ton less cost of coal sales per ton. Cost of coal sales and coal
sales per ton exclude depreciation, depletion and amortization. 29




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##### Table of Contents



Revenues Three months Ended
    
    
    IncreaseMarch 31,
    
    
    (Decrease)2005
    
    
    2004
    
    
    $ or Tons
    
    
    %(in thousands, except per ton data)Coal revenues
    
    $
    275,333
    
    
    $
    214,373
    
    
    $
    60,960
    
    
    
    28
    %Freight and handling revenues
    
    
    33,165
    
    
    
    25,604
    
    
    
    7,561
    
    
    
    30
    %Other revenues
    
    
    7,275
    
    
    
    6,761
    
    
    
    514
    
    
    
    8
    %Total revenues
    
    $
    315,773
    
    
    $
    246,738
    
    
    $
    69,035
    
    
    
    28
    %Tons Sold:Steam
    
    
    3,304
    
    
    
    3,881
    
    
    
    (577
    )
    
    
    (15
    )%Metallurgical
    
    
    2,328
    
    
    
    2,180
    
    
    
    148
    
    
    
    7
    %Total
    
    
    5,632
    
    
    
    6,061
    
    
    
    (429
    )
    
    
    (7
    )%Coal sales realization per ton:Steam
    
    $
    36.20
    
    
    $
    30.11
    
    
    $
    6.09
    
    
    
    20
    %Metallurgical
    
    
    66.89
    
    
    
    44.73
    
    
    
    22.16
    
    
    
    50
    %Total
    
    $
    48.89
    
    
    $
    35.37
    
    
    $
    13.52
    
    
    
    38
    %
 Coal Revenues.Coal
revenues increased by $61.0 million, or 28%, for the quarter ended March 31, 2005
as compared to the first quarter of 2004. This increase was primarily driven by a 38% increase in sales realization from $35.37 per
ton in the first quarter 2004 to $48.89 per ton in the first quarter of 2005. Our metallurgical
coal (met coal) realization per ton increased 50% from $44.73 per ton in the first quarter of 2004 to
$66.89 per ton in the first quarter of 2005, and steam coal realization per ton increased
20% from $30.11 to $36.20. Met coal sales were for 41% of our coal sales volume in the first
quarter of 2005 compared to 36% in the first quarter 2004. Total tons sold for the first quarter of
2005 were 5.6 million, including 2.3 million tons of met coal and 3.3 million of steam coal. Sales
for the first quarter of 2004 were 6.1 million tons of which 2.2 million were met coal and 3.9
million were steam coal. Our total revenues increased by $69.0 million, or 28%, from the first
quarter of 2004 to the first quarter of 2005. Freight and Handling Revenues.Freight and handling revenues increased to $33.2 million for the
three months ended March 31, 2005, an increase of $7.6 million compared to the three months ended
March 31, 2004 due to an increase of 0.2 million tons of
export shipments and higher freight rates.
However, these revenues are offset by equivalent costs and do not contribute to our profitability. Other Revenues.Other revenues increased by $0.5 million mainly due to higher coal processing fees
and equipment sales and repair partially offset by a decrease in trucking revenues and sales
commissions. Net sales commission recorded for the first quarter of 2005 were $1.2 million less
than in the first quarter of 2004. Costs and Expenses Three months ended
    
    
    IncreaseMarch 31.
    
    
    (Decrease)2005
    
    
    2004
    
    
    $
    
    
    %(in thousands, except per ton data)Cost of coal sales (exclusive of items shown separately below)
    
    $
    228,845
    
    
    $
    187,593
    
    
    $
    41,252
    
    
    
    22
    %Freight and handling costs
    
    
    33,165
    
    
    
    25,604
    
    
    
    7,561
    
    
    
    30
    %Cost of other revenues
    
    
    6,138
    
    
    
    5,161
    
    
    
    977
    
    
    
    19
    %Depreciation, depletion and amortization
    
    
    14,480
    
    
    
    11,929
    
    
    
    2,551
    
    
    
    21
    %Selling, general and administrative expenses (exclusive of
depreciation and amortization shown separately above and including
stock-based compensation
expense in the amount of $36,407 in 2005)
    
    
    47,905
    
    
    
    11,805
    
    
    
    36,100
    
    
    
    306
    %Total costs and expenses
    
    $
    330,533
    
    
    $
    242,092
    
    
    $
    88,441
    
    
    
    37
    %
 30




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##### Table of Contents



Three months ended
    
    
    IncreaseMarch 31.
    
    
    (Decrease)2005
    
    
    2004
    
    
    $
    
    
    %(in thousands, except per ton data)Cost of coal sales per ton:Company mines
    
    $
    33.77
    
    
    $
    27.24
    
    
    $
    6.53
    
    
    
    24
    %Contract mines (including purchased and processed)
    
    
    48.28
    
    
    
    35.17
    
    
    
    13.11
    
    
    
    37
    %Total produced and processed
    
    
    36.68
    
    
    
    29.03
    
    
    
    7.65
    
    
    
    26
    %Purchased and sold without processing
    
    
    60.67
    
    
    
    38.55
    
    
    
    22.12
    
    
    
    57
    %Cost of coal sales per ton
    
    $
    40.63
    
    
    $
    30.95
    
    
    $
    9.68
    
    
    
    31
    %
 Cost of Coal Sales:Our cost of coal sales increased by $41.3 million, or $9.68 per ton, from
$187.6 million, or $30.95 per ton, in the first quarter of 2004 to $228.8 million, or $40.63 per
ton, in the first quarter of 2005. Our cost of sales per ton of our produced and processed tons was
$36.68 per ton in the first three months of 2005 as compared to $29.03 per ton in the comparable
period in 2004. This increase is attributable to increased costs for steel-related mine supplies,
added costs involved in increasing the proportion of our sales made to the metallurgical markets,
such as higher preparation and trucking costs, and increased variable sales-related costs, such as
royalties and severance taxes. Also, our cost for contract miner services increased 37% in the
current quarter as compared to the first quarter 2004. The cost of sales per ton of our purchased
coal was $60.67 per ton in the first quarter of 2005, and $38.55 per ton for the corresponding
period of 2004. This $22.12 per ton increase in costs is due to the general increase in coal prices
since the first quarter 2004 and the change in the mix of coal
qualities purchased. Approximately 62% of our purchased coal sold during
the first quarter of 2005 was blended with our produced and processed
coal prior to resale. Freight and Handling Costs.Freight and handling costs increased to $33.2 million for the three
months ended March 31, 2005, an increase of $7.6 million compared to the three months ended March
31, 2004 due to an increase of 0.2 million tons of export shipments and higher freight rates. Cost of Other Revenues. Our cost of other revenues increased by 19% or $1.0 million in the first
quarter of 2005 when compared to the first quarter of 2004 due to increased costs associated with
higher coal processing volumes and increases in costs to sell and repair equipment. The margin
(other revenues less cost of other revenues) on other revenues
reflects a decrease of $0.5 million
compared to the first quarter of 2004 due to the decrease in sales commission revenue discussed
above. Depreciation, Depletion and Amortization.Depreciation, depletion, and amortization increased $2.6
million or 21%, to $14.5 million for the three months ended March 31, 2005 as compared to the same
period of 2004 due mainly to capital additions during 2004. Depreciation, depletion and
amortization per ton increased from $1.97 per ton for the three months ended March 31, 2004 to
$2.57 per ton in the same period of 2005. Approximately $0.18 per ton of the $0.60 per ton increase
was due to lower coal sales volumes, as depreciation of our mining
equipment was spread over a smaller volume of production. Selling, General and Administrative Expenses.Our selling, general and administrative expenses
increased by $36.1 million during the first quarter of 2005 over the corresponding quarter last
year. Excluding our stock-based compensation charge of $36.4 million for the first
quarter of 2005, selling, general and administrative costs decreased in the first quarter of 2005
by $0.3 million from the first quarter of last year. Our selling expenses were negatively impacted
in the first quarter 2004 because we repurchased approximately 0.1 million tons from a customer for
a payment in the amount of $3.1 million in order to sell additional met tons in the second quarter
2004. In the first quarter of 2005, in addition to a 24% increase in staffing over the first
quarter 2004 levels, we incurred additional professional fees related to compliance with the
Sarbanes-Oxley Act of 2002, our purchasing initiative and our annual audit. These increased
staffing costs and professional fees totaled approximately $2.4 million. Interest Expense.Interest expense increased $4.1 million to $6.1 million during the first quarter
2005 compared to the same period in 2004. The increase was mainly due to the additional interest
expense related to our 10% senior notes issued in May 2004. Interest Income.Interest income increased by $0.3 million in the three months ended March 31, 2005
from the three months ended March 31, 2004. The majority of this increase was related to our $10.0
million loan to a coal supplier which we made in June 2004. Income Tax Expense:Since the condensed consolidated statements of operations for the three months
ended March 31, 2005 include activity both prior to and after the Internal Restructuring and IPO,
the total income tax provision is the sum of the provisions for the pre and post restructuring
periods. Prior to February 12, 2005, the minority interest owners and ANR Fund IX Holdings, L.P. owned
interests in ANR Holdings, a limited liability company and pass-through entity for income tax
purposes. As a pass-through entity, ANR Holdings provides information returns reflecting the
allocated income (loss) to the minority interest owners and ANR
Fund IX Holdings, L.P. based upon
their respective ownership percentage and certain special allocations as provided by the limited
liability company agreement and the Internal Revenue Code. The income tax consequences of the
income (loss) allocated to these owners for the period from January 1, 2005 to February 11, 2005
and from January 1, 2004 to March 31, 2004 is not reflected in the financial statements. For these
periods, only the income tax expense associated with Alpha NR Holding, Inc., a taxable entity, is
included. The primary source of the income 31




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##### Table of Contents



tax impact is derived from the allocated income (loss) from ANR Holdings, Alpha Natural Resources,
LLC and its operating subsidiaries, all of which are pass-through entities for tax purposes.
Subsequent to the Internal Restructuring and IPO, all of the income of ANR Holdings is taxed to
Alpha Natural Resources, Inc. A tax provision
of $2.3 million was recorded for the three months ended March 31, 2005 on a pre-tax
loss of $20.6 million which equates to an effective tax rate of (11.3%). This rate differs from the
federal statutory rate of 35% due primarily to a significant portion of the stock-based compensation charge
associated with the issuance of common stock to management in connection with the Internal
Restructuring and IPO not being deductible for tax purposes. The increase in expected income tax
expense related to the stock-based compensation charge is offset in part by the tax benefits
associated with percentage depletion and taxes not being provided for on the minority interest and
pass-through entity owners respective shares for the period
prior to the Internal Restructuring. As
$33.0 million of the stock-based compensation charge has been identified as a significant unusual item,
the tax effect of the $33.0 million expense (no tax benefit) has
been accounted for in the current period tax provision and
excluded from the estimated annual effective tax rate of approximately 26%. The Companys effective
tax rate is applied to pre-tax income exclusive of the $33.0 million
stock-based compensation charge. Since the majority of the 2005 stock-based compensation is recorded in the first
quarter, the first quarters effective tax rate will not be indicative of the effective tax for the
remainder of 2005. We estimate that exclusive of the stock-based compensation charge
(both the $33.0 million significant unusual portion and the recurring portion for the full year of 2005),
our 2005 effective tax rate would be approximately 23.5%, which is lower than the federal
statutory rate of 35% due to the benefits of percentage depletion and a combination of the
Extraterritorial Income Exclusion and deduction for domestic production activities enacted as part
of the American Jobs Creation Act of 2004, partially offset by state
income taxes and increases in the valuation
allowances. Actual pre-tax income for the year will have an impact on
the effective tax rates and therefore our estimate of the estimated
annual income tax rate may change in subsequent quarters. Alphas effective tax rate for the first quarter of 2005 is much greater compared to the first
quarter of 2004 primarily due to the significant stock-based compensation charge for 2005 that did
not exist in 2004. In addition, the portion of pre-tax income related to the minority interest and
pass-through entity owners not tax affected is greater in the first quarter of 2004, thereby
reducing the effective rate more in that period of 2004 compared to the same period in 2005. Liquidity and Capital Resources Our primary sources of liquidity are cash flow from sales of our produced and
purchased coal, other income and borrowings under our senior credit
facility. Our primary liquidity and capital resource requirements are to finance the cost of our coal
production and purchases, to make capital expenditures, and to service our debt and reclamation
obligations. Historically we have made significant distributions to our equity holders, and in
connection with our Internal Restructuring we have agreed to pay the Tax Distributions totaling
$10.5 million in cash or, to the extent we are not permitted by the terms of our credit facility or
the indenture governing our senior notes to pay the Tax Distributions in cash, in shares of our
common stock. At March 31, 2005, our available liquidity was $89.4 million, including cash of $0.3 million and
$89.1 million available under our credit facility. Total debt represented 70% of our total
capitalization at March 31, 2005. We
currently project cash capital spending for the full year of 2005 at
the upper end of our previously-stated range of $90 million to $120
million. These forecasted expenditures will be used to develop new mines and replace or add
equipment. 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. Cash Flows Cash used by operating activities was $5.2 million for the three months ended March 31, 2005
compared to $16.0 million of cash provided by operations in the corresponding period in 2004. This
decrease is attributable to an additional investment in net operating assets and liabilities of
$27.2 million in the 2005 quarter as compared to the 2004
quarter. The increase in net operating assets and liabilities is due to increased coal inventory
($30.1 million) caused by delays in export shipments, poor rail
service and an increase in the cost per ton of our inventory; an increase in trade accounts receivables ($10.2 million) due to the increase in total
sales; and an offsetting net increase in accounts payable and accrued
expenses of $12.5 million. Our net loss and non-cash charges provided net cash in the
amount of $20.8 million, an
increase from the first quarter 2004 of $5.9 million mainly due to the non-cash portion of our
stock-based compensation charge included in our net loss in the amount of $28.9 million ($7.5
million of the total stock-based compensation charge of
$36.4 million was paid in cash) and higher depreciation expense. Net cash used in investing activities was $34.4 million during the three months ended March
31, 2005, $18.4 million more than the same period of 2004. Capital expenditures increased $14.0
million from the first quarter 2004 level, to $30.3 million during the 2005 32




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first quarter. The increase
in capital expenditures was primarily due to the purchase of new and
replacement mining equipment and the development of new mines. Also during the current quarter, we
paid $5.0 million as contingent purchase price related to the coal assets purchased from The Brinks
Company. We also paid our final installment in the amount of $0.5 million related to our equity
investment in Excelven. Net cash provided by financing activities during the quarter ended March 31, 2005 was $32.5
million compared with net cash used in financing activities of $2.7 million in the quarter ended
March 31, 2004. On February 11, 2005, as part of our Internal Restructuring, we issued 28,287,580
shares of $.01 par value stock to the members of ANR Holdings, LLC in exchange for their membership
interest in ANR Holdings, LLC. Also the members, except management members, received notes in the
aggregate principal amount $517.7 million in the Internal Restructuring to be paid from the
proceeds of our initial public offering. On February 18, 2005, we completed our initial public
offering of 29,500,000 million shares of $.01 par value stock for net proceeds, after the payment
of underwriters discounts, of $524.1 million. These net proceeds were used to pay the notes and
accrued interest and other fees associated with our offering. The underwriters exercised their
over-allotment option for an additional 4,425,000 shares and we distributed the net proceeds
received on February 18, 2005 in the amount of
$78.6 million to our stockholders of record as of
February 11, 2005 (including $7.5 million distributed to
management and recorded as compensation expense). Credit Facility and Long-term Debt As of March 31, 2005 our total long-term indebtedness, including capital lease obligations,
consisted of the following (in thousands): March 31,200510% Senior notes due 2012
    
    $
    175,000Revolving credit facility
    
    
    32,500Variable rate term notes
    
    
    1,173Capital lease obligation
    
    
    1,875Other
    
    
    44Total long-term debt
    
    
    210,592Less current portion
    
    
    (1,707
    )Long-term debt, net of current portion
    
    $
    208,885
 The credit facility and the indenture governing the 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 ANR Holdings
and its subsidiaries (including insurance and other condemnation proceedings), subject to certain
exceptions and reinvestment provisions, (2) with 100% of the net cash proceeds received by ANR
Holdings and its subsidiaries from the issuance of debt securities or other incurrence of debt,
excluding certain indebtedness, and (3) 50% (or 25%, if our leverage ratio is less than or equal to
2.00 to 1.00 but greater than 1.00, or 0% if our leverage ratio is less than or equal to 1.00) of
the net cash proceeds of equity issuances of ANR Holdings and its subsidiaries. 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, which may be
binding or nonbinding, that are customarily subject to a variety of conditions and usually permit
us to terminate the discussions and any related agreement if, among 33




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##### Table of Contents



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. 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 March 31, 2005. The financial covenants in our credit facility require, among other things, that:  
    Alpha Natural Resources, LLC must maintain a leverage ratio, defined as the ratio of
total debt to Adjusted EBITDA (as defined in the credit agreement), of less than 3.75 at
December 31, 2004, 3.50 at March 31 and June 30, 2005, 3.25 at September 30 and December 31,
2005, 3.15 at March 31, June 30, September 30 and December 31, 2006 and 3.00 at March 31,
2007 (and thereafter), respectively, with Adjusted EBITDA being computed using the most
recent four quarters; and
    Alpha Natural Resources, LLC must maintain an interest coverage ratio, defined as the
ratio of adjusted EBITDA (as defined in the credit agreement), to cash interest expense
(defined as the sum of cash interest expense plus cash letter of credit fees and
commissions), of greater than 2.50 at September 30, 2004 and at each quarter end thereafter. Based upon Adjusted EBITDA (as defined in the credit agreement), Alpha Natural Resources,
LLCs leverage ratio and interest coverage ratio for the twelve
months ended March 31, 2005 were 1.62 (maximum of 3.50) and 9.51 (minimum of 2.50), respectively. Alpha Natural Resources, LLC maintained
the leverage and interest coverage ratios specified in, and were in compliance with, the credit
facility as of March 31, 2005. Adjusted EBITDA, as defined in the credit agreement, is used to determine compliance with many
of the covenants under the credit facility. The breach of 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 would also
result in a default under our indenture. Because the covenants in our credit facility relate to Alpha Natural Resources, LLC, EBITDA as
presented in the table below reflects adjustments for minority interest necessary to reconcile our
net income to Alpha Natural Resources, LLCs EBITDA. Adjusted EBITDA is defined 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. 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. 34




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##### Table of Contents



Three Months
    
    
    Three Months
    
    
    Three Months
    
    
    Three Months
    
    
    Twelve MonthsEnded
    
    
    Ended
    
    
    Ended
    
    
    Ended
    
    
    EndedJune 30,
    
    
    September 30,
    
    
    December 31,
    
    
    March 31,
    
    
    March 31,2004
    
    
    2004
    
    
    2004
    
    
    2005
    
    
    2005(in thousands)Net income (loss)
    
    $
    12,088
    
    
    $
    5,342
    
    
    $
    1,115
    
    
    $
    (25,801
    )
    
    $
    (7,256
    )Interest expense, net
    
    
    6,711
    
    
    
    5,449
    
    
    
    5,344
    
    
    
    5,830
    
    
    
    23,334Income tax expense (benefit)
    
    
    3,022
    
    
    
    1,335
    
    
    
    (772
    )
    
    
    2,324
    
    
    
    5,909Depreciation, depletion and
amortization expenses
    
    
    13,111
    
    
    
    14,312
    
    
    
    16,660
    
    
    
    14,480
    
    
    
    58,563EBITDA
    
    
    34,932
    
    
    
    26,438
    
    
    
    22,347
    
    
    
    (3,167
    )
    
    
    80,550Minority interest(1)
    
    
    12,872
    
    
    
    5,688
    
    
    
    268
    
    
    
    2,846
    
    
    
    21,674Stock-based compensation charge(2)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    28,932
    
    
    
    28,932Asset impairment charge(2)
    
    
    
    
    
    
    5,100
    
    
    
    
    
    
    
    
    
    
    
    5,100Alpha
Natural Resources, Inc. expenses(2)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    209
    
    
    
    209Adjusted
EBITDA for debt covenant compliance
    
    $
    47,804
    
    
    $
    37,226
    
    
    $
    22,615
    
    
    $
    28,820
    
    
    $
    136,465Leverage ratio(3)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1.62Interest coverage ratio(4)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    9.51
   (1)
    
    Because our credit facility and our senior notes are issued by our subsidiaries, we are
required to adjust our EBITDA for our minority interest which does not exist at the subsidiary
level.(2)
    
    Adjusted EBITDA as defined in the credit agreement is
adjusted to add back for the non-cash portion of the
stock-based compensation charge related to our Internal Restructuring and initial public
offering, for the asset impairment charge related to our NKC
operations and expenses related to the parent of Alpha Natural
Resources, LLC. Expenses related solely to Alpha Natural Resources,
Inc. are excluded from the calculation of Adjusted EBITDA under our
credit agreement.(3)
    
    Leverage ratio is defined in our credit facility
as total debt divided by Adjusted EBITDA for debt covenant compliance.(4)
    
    Interest coverage ratio is defined in our credit facility as Adjusted EBITDA divided by cash
interest expense. Outlook While our business is subject the general risks of the coal industry and specific individual risks,
we believe that the outlook for coal markets remains positive worldwide, assuming continued growth
in the U.S., China, Pacific Rim, Europe and other industrialized economies that are increasing coal
demand for electricity generation and steelmaking. Published indices show improved year-over-year
coal prices in most U.S. and global coal markets, and worldwide coal supply/demand fundamentals
remain tight due to high market demand, transportation constraints and production difficulties in
most countries. Metallurgical coal is generally selling at a significant premium to steam coal, and
we expect that pricing relationship to continue based on the same assumptions made above. For 2005, we are targeting annual production of 20 million to 22 million tons and total sales
volume of 25 million to 26 million tons. Approximately 99%,
66% and 34% of our planned production in
2005, 2006 and 2007, respectively, has been priced as of April 15, 2005. We anticipate continued challenges with railroad service, hopefully with gradual improvement in
rail service beginning in the second half of 2005. We are working with our customers and the
railroads in an effort to address these issues in a timely manner. Based on current market conditions in the steam and metallurgical coal markets, we anticipate
increasing the proportion of our metallurgical coal sales that are committed under long-term
contracts as compared to prior years and continuing to market portions of our high quality steam
coal production as metallurgical coal. We plan to focus on organic growth by continuing to develop
our existing reserves. In addition, we also plan to evaluate attractively priced acquisitions that
create potential synergies with our existing operations. Critical Accounting Estimates and Assumptions The preparation of financial statements in conformity with accounting principles generally accepted
in the United States 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 quarterly period ended March 31,
2005 are not necessarily indicative of results that can be expected for the full year. Please refer
to the section entitled Critical Accounting Estimates and 35




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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, 2004 for a discussion
of our critical accounting estimates and assumptions. 
 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 prices,
interest rates and customer credit. We are exposed to market price risk in the normal course of selling coal. As of April 15,
2005, approximately 1%, 34% and 66% of our estimated 2005, 2006 and 2007 planned production,
respectively, was uncommitted. We have increased the proportion of our planned future production in
2006 and 2007 for which we have contracts to sell coal, which has the
effect of reducing our
market price risk. All of our borrowings under the revolving credit facility are at a variable rate, so we are
exposed to rising interest rates in the United States. A one percentage point increase in interest
rates would result in an increase in our annual interest expense of less than $0.3 million based on
our variable rate borrowings as of March 31, 2005. Our concentration of credit risk is substantially with electric utilities, producers of steel
and foreign customers. Our policy is to independently evaluate a customers creditworthiness prior
to entering into transactions and to periodically monitor the credit extended. 
 Item 4.Controls and Procedures Evaluation of disclosure 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.
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. Changes in internal control over financial reporting.Beginning with the year ending December
31, 2006, Section 404 of the Sarbanes-Oxley Act of 2002 will require us to include managements
report on our internal control over financial reporting in our Annual Report on Form 10-K. The
internal control report must contain (1) a statement of managements responsibility for
establishing and maintaining adequate internal control over our financial reporting, (2) a
statement identifying the framework used by management to conduct the required evaluation of the
effectiveness of our internal control over financial reporting, (3) managements assessment of the
effectiveness of our internal control over financial reporting as of the end of our most recent
fiscal year, including a statement as to whether or not our internal control over financial
reporting is effective, and (4) a statement that our registered independent public accounting firm
has issued an attestation report on managements assessment of our internal control over financial
reporting. In order to achieve compliance with Section 404 within the prescribed period, management has
commenced a Section 404 compliance project under which management has engaged outside consultants
and adopted a detailed project work plan to assess the adequacy of our internal control over
financial reporting, remediate any control deficiencies that may be identified, validate through
testing that controls are functioning as documented and implement a continuous reporting and
improvement process for internal control over financial reporting. In connection with our Section
404 compliance project, during the first quarter of fiscal 2005 we continued the process of
implementing measures designed to improve our internal control over financial reporting in the
following areas: documentation of controls and procedures; segregation of duties; timely
reconciliation of accounts; methods of reconciling fixed asset accounts; the structure of our
general ledger information; security access controls and testing of our disaster recovery plan for our information
technology systems; and the level of experience in public company accounting and periodic reporting
matters among our financial and accounting staff. We expect to continue to make changes in our
internal control over financial reporting from time to time during the period prior to December 31,
2006 in connection with our Section 404 compliance project. Except as described above, during the
first quarter of fiscal year 2005, there have been no changes in our internal control over
financial reporting that have materially affected, or are reasonably likely to materially affect,
our internal control over financial reporting. Limitations of the effectiveness of internal control.A control system, no matter how well
conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of
the internal control system are met. Because of the inherent limitations of any internal control
system, no evaluation of controls can provide absolute assurance that all control issues, if any,
within a company have been detected. Notwithstanding these limitations, our disclosure controls and
procedures are designed to provide 36




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##### Table of Contents



reasonable assurance of achieving their objectives. Our Chief Executive Officer and Chief
Financial Officer have concluded that our disclosure controls and procedures are, in fact,
effective at the reasonable assurance level as of the end of the period covered by this report. 37




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##### Table of Contents



PART II 
 Item 2.Unregistered Sales of Equity Securities and Use of Proceeds As part of our Internal Restructuring on February 11, 2005, (1) Alpha Natural Resources, Inc.
issued an aggregate of 28,287,580 shares of its common stock in exchange for the contribution of
shares of common stock of Alpha NR Holding, Inc. and interests in ANR Holdings, LLC and (2)
outstanding options held by members of our management to purchase units of Alpha Coal Management,
LLC were converted into options to purchase up to 596,985 shares of our common stock. These
issuances were made in reliance upon Section 4(2) of the Securities Act or under Rules 506 or 701
promulgated by the SEC. 
 Item 4.Submission of Matters to a Vote of Security Holders Effective immediately following the closing of our Internal Restructuring on February 11,
2005, the Alpha Natural Resources 2005 Long-Term Incentive Plan, the Amended and Restated Alpha
Coal Management, LLC 2004 Long-Term Incentive Plan and the Alpha Natural Resources Annual Incentive
Bonus (AIB) Plan were approved by all of the holders of then-outstanding shares of common stock of
Alpha Natural Resources, Inc. pursuant to a consent in lieu of meeting of the stockholders. 
 Item 6.Exhibits Exhibit No
    
    Description of Exhibit2.1
    
    Internal Restructuring Agreement dated as of February 11, 2005 by and among Alpha Natural Resources,
Inc., Alpha NR Ventures, Inc., ANR Holdings, LLC, the FRC Parties named therein, the AMCI Parties named
therein, Madison Capital Funding LLC, Alpha Coal Management, LLC and the Management Members named therein
(Incorporated by reference to Exhibit 2.16 to the Annual Report on Form 10-K of Alpha Natural Resources,
Inc. (File No. 1-32423) filed on March 30, 2005).2.2
    
    Sixth Amendment to Contribution Agreement by and among the FRC Parties, the AMCI Parties, ANR Holdings,
LLC and Alpha Natural Resources, Inc. (Incorporated by reference to Exhibit 2.17 to the Annual Report on
Form 10-K of Alpha Natural Resources, Inc. (File No. 1-32423) filed on March 30, 2005.)2.3
    
    Asset Purchase Agreement dated April 14, 2005, by and among Gallup Transportation and Transloading
Company, LLC, NATIONAL KING COAL LLC and NKC Acquisition, LLC (Incorporated by reference to Exhibit 2.1
to the Current Report on Form 8-K of Alpha Natural Resources, Inc. (File No. 1-32423) filed on April 15,
2005.)3.1
    
    Restated Certificate of Incorporation of Alpha Natural Resources, Inc. (Incorporated by reference to
Exhibit 3.1 to the Annual Report on Form 10-K of Alpha Natural Resources, Inc. (File No. 1-32423) filed
on March 30, 2005).3.2
    
    Amended and Restated Bylaws of Alpha Natural Resources, Inc. (Incorporated by reference to Exhibit 3.2 to
the Annual Report on Form 10-K of Alpha Natural Resources, Inc. (File No. 1-32423) filed on March 30,
2005).4.1
    
    First Supplemental Indenture dated as of February 1, 2005 among Alpha Natural Resources, LLC, Alpha
Natural Resources Capital Corp., the Guarantors party thereto and Wells Fargo Bank, N.A., as Trustee
(Incorporated by reference to Exhibit 4.3 to the Annual Report on Form 10-K of Alpha Natural Resources,
Inc. (File No. 1-32423) filed on March 30, 2005.)4.2
    
    Second Supplemental Indenture dated as of March 30, 2005 among Alpha Natural Resources, LLC, Alpha
Natural Resources Capital Corp., Alpha NR Holding, Inc., Alpha NR Ventures, Inc., ANR Holdings, LLC, the
Guarantors party thereto and Wells Fargo Bank, N.A., as Trustee (Incorporated by reference to Exhibit 4.4
to the Annual Report on Form 10-K of Alpha Natural Resources, Inc. (File No. 1-32423) filed on March 30,
2005.)10.1
    
    Third Amendment, dated as of January 25, 2005, to Credit Agreement (Incorporated by reference to Exhibit
10.16 to Amendment No. 2 to the Registration Statement on Form S-1 of Alpha Natural Resources, Inc. (File
No. 333-121002) filed on February 2, 2005.)10.2
    
    Fourth Amendment, dated as of March 28, 2005, to Credit Agreement (Incorporated by reference to Exhibit
10.5 to the Annual Report on Form 10-K of Alpha Natural Resources, Inc. (File No. 1-32423) filed on March
30, 2005.)
 38




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##### Table of Contents



Exhibit No
    
    Description of Exhibit10.3
    
    Second Amended and Restated Employment Agreement between Alpha Natural Resources Services, LLC and
Michael J. Quillen dated January 28, 2005 (Incorporated by reference to Exhibit 10.6 to Amendment No. 2
to the Registration Statement on Form S-1 of Alpha Natural Resources, Inc. (File No. 333-121002) filed on
February 2, 2005.)10.4
    
    Stockholder Agreement dated as of February 11, 2005 by and among Alpha Natural Resources, Inc., the FRC
Parties named therein, the AMCI Parties named therein, Madison Capital Funding LLC and the other
stockholders named therein (the Stockholder Agreement) (Incorporated by reference to Exhibit 10.10 to
the Annual Report on Form 10-K of Alpha Natural Resources, Inc. (File No. 1-32423) filed on March 30,
2005.)10.5
    
    Letter agreement waiving certain provisions of the Stockholder Agreement dated March 28, 2005 by the FRC
Parties and the AMCI Parties (Incorporated by reference to Exhibit 10.11 to the Annual Report on Form
10-K of Alpha Natural Resources, Inc. (File No. 1-32423) filed on March 30, 2005.)10.6
    
    Alpha Natural Resources Annual Incentive Bonus (AIB) Plan (the AIB Plan) (Incorporated by reference to
Exhibit 10.9 to Amendment No. 2 to the Registration Statement on Form S-1 of Alpha Natural Resources,
Inc. (File No. 333-121002) filed on February 2, 2005.)10.7
    
    Amended and Restated Alpha Coal Management LLC 2004 Long-Term Incentive Plan (Incorporated by reference
to Exhibit 10.10 to Amendment No. 2 to the Registration Statement on Form S-1 of Alpha Natural Resources,
Inc. (File No. 333-121002) filed on February 2, 2005.)10.8
    
    Alpha Natural Resources, Inc. 2005 Long-Term Incentive Plan (Incorporated by reference to Exhibit 10.11
to Amendment No. 2 to the Registration Statement on Form S-1 of Alpha Natural Resources, Inc. (File No.
333-121002) filed on February 2, 2005.)10.9
    
    Form of Alpha Natural Resources, Inc. Grantee Stock Option Agreement for Alpha Natural Resources, Inc.
2005 Long-Term Incentive Plan (Incorporated by reference to Exhibit 10.15 to the Annual Report on Form
10-K of Alpha Natural Resources, Inc. (File No. 1-32423) filed on March 30, 2005.)10.10
    
    Cash bonus awards paid to Alpha Natural Resources, Inc.s named executive officers with respect to fiscal
2004 pursuant to the AIB Plan as reported on Alpha Natural Resources, Inc.s current report on Form 8-K
filed on March 4, 2005 and incorporated by this reference10.11
    
    Base salary amounts set for Alpha Natural Resources, Inc.s named executive officers as reported on Alpha
Natural Resources, Inc.s current report on Form 8-K filed on March 4, 2005 and incorporated by this
reference10.12
    
    Summary of Alpha Natural Resources, Inc. Director Compensation Policy (Incorporated by reference to
Exhibit 10.21 to the Annual Report on Form 10-K of Alpha Natural Resources, Inc. (File No. 1-32423) filed
on March 30, 2005.)31(a)*
    
    Certification Pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934, as adopted pursuant
to § 302 of the Sarbanes-Oxley Act of 200231(b)*
    
    Certification Pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934, as adopted pursuant
to § 302 of the Sarbanes-Oxley Act of 200232(a)*
    
    Certification Pursuant to 18 U.S.C. § 1350, As Adopted Pursuant to § 906 of the Sarbanes-Oxley Act of 200232(b)*
    
    Certification Pursuant to 18 U.S.C. § 1350, As Adopted Pursuant to § 906 of the Sarbanes-Oxley Act of 2002
   *
    
    Filed herewith.
    
    Management contract or compensatory plan or arrangement. 39




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##### Table of Contents



SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly
caused this report to be signed on its behalf by the undersigned thereunto duly authorized. ALPHA NATURAL RESOURCES, INC.By:
    
    /s/ DAVID C. STUEBEName: David C. StuebeTitle: Vice President and Chief Financial Officer
 Date: May 16, 2005 40




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##### Table of Contents



10-Q EXHIBIT INDEX Exhibit No
    
    Description of Exhibit2.1
    
    Internal Restructuring Agreement dated as of February 11, 2005 by and among Alpha Natural Resources,
Inc., Alpha NR Ventures, Inc., ANR Holdings, LLC, the FRC Parties named therein, the AMCI Parties named
therein, Madison Capital Funding LLC, Alpha Coal Management, LLC and the Management Members named therein
(Incorporated by reference to Exhibit 2.16 to the Annual Report on Form 10-K of Alpha Natural Resources,
Inc. (File No. 1-32423) filed on March 30, 2005).2.2
    
    Sixth Amendment to Contribution Agreement by and among the FRC Parties, the AMCI Parties, ANR Holdings,
LLC and Alpha Natural Resources, Inc. (Incorporated by reference to Exhibit 2.17 to the Annual Report on
Form 10-K of Alpha Natural Resources, Inc. (File No. 1-32423) filed on March 30, 2005.)2.3
    
    Asset Purchase Agreement dated April 14, 2005, by and among Gallup Transportation and Transloading
Company, LLC, NATIONAL KING COAL LLC and NKC Acquisition, LLC (Incorporated by reference to Exhibit 2.1
to the Current Report on Form 8-K of Alpha Natural Resources, Inc. (File No. 1-32423) filed on April 15,
2005.)3.1
    
    Restated Certificate of Incorporation of Alpha Natural Resources, Inc. (Incorporated by reference to
Exhibit 3.1 to the Annual Report on Form 10-K of Alpha Natural Resources, Inc. (File No. 1-32423) filed
on March 30, 2005).3.2
    
    Amended and Restated Bylaws of Alpha Natural Resources, Inc. (Incorporated by reference to Exhibit 3.2 to
the Annual Report on Form 10-K of Alpha Natural Resources, Inc. (File No. 1-32423) filed on March 30,
2005).4.1
    
    First Supplemental Indenture dated as of February 1, 2005 among Alpha Natural Resources, LLC, Alpha
Natural Resources Capital Corp., the Guarantors party thereto and Wells Fargo Bank, N.A., as Trustee
(Incorporated by reference to Exhibit 4.3 to the Annual Report on Form 10-K of Alpha Natural Resources,
Inc. (File No. 1-32423) filed on March 30, 2005.)4.2
    
    Second Supplemental Indenture dated as of March 30, 2005 among Alpha Natural Resources, LLC, Alpha
Natural Resources Capital Corp., Alpha NR Holding, Inc., Alpha NR Ventures, Inc., ANR Holdings, LLC, the
Guarantors party thereto and Wells Fargo Bank, N.A., as Trustee (Incorporated by reference to Exhibit 4.4
to the Annual Report on Form 10-K of Alpha Natural Resources, Inc. (File No. 1-32423) filed on March 30,
2005.)10.1
    
    Third Amendment, dated as of January 25, 2005, to Credit Agreement (Incorporated by reference to Exhibit
10.16 to Amendment No. 2 to the Registration Statement on Form S-1 of Alpha Natural Resources, Inc. (File
No. 333-121002) filed on February 2, 2005.)10.2
    
    Fourth Amendment, dated as of March 28, 2005, to Credit Agreement (Incorporated by reference to Exhibit
10.5 to the Annual Report on Form 10-K of Alpha Natural Resources, Inc. (File No. 1-32423) filed on March
30, 2005.)10.3
    
    Second Amended and Restated Employment Agreement between Alpha Natural Resources Services, LLC and
Michael J. Quillen dated January 28, 2005 (Incorporated by reference to Exhibit 10.6 to Amendment No. 2
to the Registration Statement on Form S-1 of Alpha Natural Resources, Inc. (File No. 333-121002) filed on
February 2, 2005.)10.4
    
    Stockholder Agreement dated as of February 11, 2005 by and among Alpha Natural Resources, Inc., the FRC
Parties named therein, the AMCI Parties named therein, Madison Capital Funding LLC and the other
stockholders named therein (the Stockholder Agreement) (Incorporated by reference to Exhibit 10.10 to
the Annual Report on Form 10-K of Alpha Natural Resources, Inc. (File No. 1-32423) filed on March 30,
2005.)10.5
    
    Letter agreement waiving certain provisions of the Stockholder Agreement dated March 28, 2005 by the FRC
Parties and the AMCI Parties (Incorporated by reference to Exhibit 10.11 to the Annual Report on Form
10-K of Alpha Natural Resources, Inc. (File No. 1-32423) filed on March 30, 2005.)10.6
    
    Alpha Natural Resources Annual Incentive Bonus (AIB) Plan (the AIB Plan) (Incorporated by reference to
Exhibit 10.9 to Amendment No. 2 to the Registration Statement on Form S-1 of Alpha Natural Resources,
Inc. (File No. 333-121002) filed on February 2, 2005.)
 41




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##### Table of Contents



Exhibit No
    
    Description of Exhibit10.7
    
    Amended and Restated Alpha Coal Management LLC 2004 Long-Term Incentive Plan (Incorporated by reference
to Exhibit 10.10 to Amendment No. 2 to the Registration Statement on Form S-1 of Alpha Natural Resources,
Inc. (File No. 333-121002) filed on February 2, 2005.)10.8
    
    Alpha Natural Resources, Inc. 2005 Long-Term Incentive Plan (Incorporated by reference to Exhibit 10.11
to Amendment No. 2 to the Registration Statement on Form S-1 of Alpha Natural Resources, Inc. (File No.
333-121002) filed on February 2, 2005.)10.9
    
    Form of Alpha Natural Resources, Inc. Grantee Stock Option Agreement for Alpha Natural Resources, Inc.
2005 Long-Term Incentive Plan (Incorporated by reference to Exhibit 10.15 to the Annual Report on Form
10-K of Alpha Natural Resources, Inc. (File No. 1-32423) filed on March 30, 2005.)10.10
    
    Cash bonus awards paid to Alpha Natural Resources, Inc.s named executive officers with respect to fiscal
2004 pursuant to the AIB Plan as reported on Alpha Natural Resources, Inc.s Current Report on Form 8-K
filed on March 4, 2005 and incorporated by this reference10.11
    
    Base salary amounts set for Alpha Natural Resources, Inc.s named executive officers as reported on Alpha
Natural Resources, Inc.s Current Report on Form 8-K filed on March 4, 2005 and incorporated by this
reference10.12
    
    Summary of Alpha Natural Resources, Inc. Director Compensation Policy (Incorporated by reference to
Exhibit 10.21 to the Annual Report on Form 10-K of Alpha Natural Resources, Inc. (File No. 1-32423) filed
on March 30, 2005.)31(a)*
    
    Certification Pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934, as adopted pursuant
to § 302 of the Sarbanes-Oxley Act of 200231(b)*
    
    Certification Pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934, as adopted pursuant
to § 302 of the Sarbanes-Oxley Act of 200232(a)*
    
    Certification Pursuant to 18 U.S.C. § 1350, As Adopted Pursuant to § 906 of the Sarbanes-Oxley Act of 200232(b)*
    
    Certification Pursuant to 18 U.S.C. § 1350, As Adopted Pursuant to § 906 of the Sarbanes-Oxley Act of 2002
 ____________ * Filed herewith.  Management contract or compensatory plan or arrangement. 42