Alpha Natural Resources 10-Q 2011 Q3 Quarterly report

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

(Mark One)

xQUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2011

OR

oTRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from            to           

Commission File No. 001-32331

ALPHA NATURAL RESOURCES, INC.

(Exact name of registrant as specified in its charter)

Delaware	42-1638663
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification Number)
One Alpha Place, P.O. Box 2345, Abingdon, Virginia	24212
(Address of principal executive offices)	(Zip Code)

Registrant’s telephone number, including area code:

(276) 619-4410

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

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

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

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

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  o Yes    x No

Number of shares of the registrant’s Common Stock, $0.01 par value, outstanding as of October 31, 2011 — 219,806,137

TABLE OF CONTENTS

PART I — FINANCIAL INFORMATION

Item 1.	Financial Statements
	Condensed Consolidated Statements of Operations (Unaudited)	3
	Condensed Consolidated Balance Sheets (Unaudited)	4
	Condensed Consolidated Statements of Cash Flows (Unaudited)	5
	Notes to Condensed Consolidated Financial Statements (Unaudited)	6
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	46
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	67
Item 4.	Controls and Procedures	68
	PART II — OTHER INFORMATION
Item 1.	Legal Proceedings	69
Item 1A.	Risk Factors	69
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	70
Item 6.	Exhibits	70

2

Item 1. Financial Statements

ALPHA NATURAL RESOURCES INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Operations (Unaudited)

(Amounts in thousands, except share and per share data)

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2011			2010			2011			2010
Revenues:
Coal revenues	$	1,997,934		$	896,435		$	4,395,804		$	2,621,805
Freight and handling revenues	213,834			85,330			480,760			240,386
Other revenues	93,010			19,867			155,419			61,850
Total revenues	2,304,778			1,001,632			5,031,983			2,924,041
Costs and expenses:
Cost of coal sales (exclusive of items shown separately below)	1,675,209			664,723			3,517,796			1,896,989
Freight and handling costs	213,834			85,330			480,760			240,386
Other expenses	58,063			11,967			118,792			36,094
Depreciation, depletion and amortization	242,699			94,003			475,762			280,228
Amortization of acquired intangibles, net	(73,274		)	52,398			(57,023		)	173,988
Selling, general and administrative expenses (exclusive of depreciation, depletion and amortization shown separately above)	72,701			43,584			329,656			135,604
Total costs and expenses	2,189,232			952,005			4,865,743			2,763,289
Income from operations	115,546			49,627			166,240			160,752
Other income (expense):
Interest expense	(49,148		)	(17,834		)	(94,726		)	(58,458		)
Interest income	931			967			2,988			2,495
Loss on early extinguishment of debt	(5,212		)	—			(9,768		)	(1,349		)
Miscellaneous income, net	309			1,261			333			783
Total other expense, net	(53,120		)	(15,606		)	(101,173		)	(56,529		)
Income from continuing operations before income taxes	62,426			34,021			65,067			104,223
Income tax benefit (expense)	4,002			(1,660		)	(2,178		)	(18,010		)
Income from continuing operations	66,428			32,361			62,889			86,213
Discontinued operations:
Loss from discontinued operations before income taxes	—			(911		)	—			(2,574		)
Income tax benefit	—			424			—			1,073
Loss from discontinued operations	—			(487		)	—			(1,501		)
Net income	$	66,428		$	31,874		$	62,889		$	84,712
Basic earnings per common share:
Income from continuing operations	$	0.30		$	0.27		$	0.38		$	0.72
Loss from discontinued operations	—			—			—			(0.01		)
Net income	$	0.30		$	0.27		$	0.38		$	0.71
Diluted earnings per common share:
Income from continuing operations	$	0.29		$	0.27		$	0.37		$	0.71
Loss from discontinued operations	—			—			—			(0.01		)
Net income	$	0.29		$	0.27		$	0.37		$	0.70
Weighted average shares - basic	224,394,487			119,623,075			166,931,448			119,862,369
Weighted average shares - diluted	226,281,985			121,498,825			168,833,010			121,767,294

See accompanying Notes to Condensed Consolidated Financial Statements.

3

ALPHA NATURAL RESOURCES INC. AND SUBSIDIARIES

Condensed Consolidated Balance Sheets

(Amounts in thousands, except share and per share data)

	September 30,			December 31,
	2011			2010
	(Unaudited)
Assets
Current assets:
Cash and cash equivalents	$	575,298		$	554,772
Trade accounts receivable, net	635,840			281,138
Inventories, net	496,105			198,172
Prepaid expenses and other current assets	680,672			341,755
Total current assets	2,387,915			1,375,837
Property, equipment and mine development costs (net of accumulated depreciation and amortization of $1,190,713 and $866,041, respectively)	2,847,355			1,129,222
Owned and leased mineral rights and land (net of accumulated depletion of $506,751 and $337,810, respectively)	8,553,211			1,985,661
Goodwill	2,675,497			382,440
Other non-current assets	717,750			306,123
Total assets	$	17,181,728		$	5,179,283
Liabilities and Stockholders’ Equity
Current liabilities:
Current portion of long-term debt	$	38,529		$	11,839
Trade accounts payable	513,416			121,553
Accrued expenses and other current liabilities	1,008,100			313,754
Total current liabilities	1,560,045			447,146
Long-term debt	2,931,272			742,312
Pension and postretirement medical benefit obligations	1,103,170			719,355
Asset retirement obligations	743,282			209,987
Deferred income taxes	1,570,096			249,408
Other non-current liabilities	1,023,482			155,039
Total liabilities	8,931,347			2,523,247
Commitments and Contingencies (Note 19)
Stockholders’ Equity
Preferred stock - par value $0.01, 10.0 million shares authorized, none issued	—			—
Common stock - par value $0.01, 400.0 million shares authorized, 231.0 million issued and 220.1 million outstanding at September 30, 2011 and 124.3 million issued and 120.5 million outstanding at December 31, 2010	2,310			1,242
Additional paid-in capital	8,075,647			2,238,526
Accumulated other comprehensive loss	(127,935		)	(27,583		)
Treasury stock, at cost: 10.9 million and 3.8 million shares at September 30, 2011 and December 31, 2010, respectively	(256,919		)	(50,538		)
Retained earnings	557,278			494,389
Total stockholders’ equity	8,250,381			2,656,036
Total liabilities and stockholders’ equity	$	17,181,728		$	5,179,283

See accompanying Notes to Condensed Consolidated Financial Statements.

4

ALPHA NATURAL RESOURCES INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Cash Flows (Unaudited)

(Amounts in thousands)

	Nine Months Ended
	September 30,
	2011			2010
Operating activities:
Net income	$	62,889		$	84,712
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation, depletion, accretion and amortization	520,585			307,563
Amortization of acquired intangibles, net	(57,023		)	173,988
Mark-to-market adjustments for derivatives	(57,392		)	11,880
Stock-based compensation	55,856			24,403
Employee benefit plans, net	45,305			40,786
Loss on early extinguishment of debt	9,768			1,349
Deferred income taxes	(5,801		)	(41,668		)
Other, net	16,064			(3,367		)
Changes in operating assets and liabilities:
Trade accounts receivable, net	(169,509		)	(85,342		)
Inventories, net	122,530			(20,766		)
Prepaid expenses and other current assets	27,238			31,692
Other non-current assets	(23,528		)	(2,684		)
Trade accounts payable	82,222			11,029
Accrued expenses and other current liabilities	(97,020		)	30,464
Pension and postretirement medical benefit obligations	(89,530		)	(53,840		)
Asset retirement obligations	(13,457		)	(4,255		)
Other non-current liabilities	108,035			5,107
Net cash provided by operating activities	537,232			511,051
Investing activities:
Cash paid for acquisition, net of cash acquired	(713,382		)	—
Capital expenditures	(314,929		)	(222,960		)
Acquisition of mineral rights under federal lease	(65,013		)	(36,108		)
Purchases of marketable securities	(350,617		)	(322,492		)
Sales of marketable securities	434,349			141,180
Purchase of equity-method investments	(8,000		)	(3,000		)
Other, net	(4,672		)	(1,957		)
Net cash used in investing activities	(1,022,264		)	(445,337		)
Financing activities:
Principal repayments of long-term debt	(1,307,834		)	(50,934		)
Proceeds from borrowings on long-term debt	2,100,000			—
Debt issuance costs	(84,306		)	(8,710		)
Excess tax benefit from stock-based awards	—			8,112
Common stock repurchases	(206,381		)	(41,580		)
Proceeds from exercise of stock options	4,079			4,292
Net cash provided by (used in) financing activities	505,558			(88,820		)
Net increase (decrease) in cash and cash equivalents	20,526			(23,106		)
Cash and cash equivalents at beginning of period	554,772			465,869
Cash and cash equivalents at end of period	$	575,298		$	442,763
Supplemental cash flow information:
Cash paid for interest	$	25,112		$	49,577
Cash paid for income taxes	$	17,874		$	43,737
Non-cash investing and financing activities:
Issuance of equity in connection with Acquisition	$	5,673,092		$	—

See accompanying Notes to Condensed Consolidated Financial Statements.

5

ALPHA NATURAL RESOURCES, INC. AND SUBSIDIARIES

NOTES to CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited, amounts in thousands except share and per share data)

(1)Business and Basis of Presentation

Business

Alpha Natural Resources, Inc. and its consolidated subsidiaries (the “Company” and “Alpha”) are primarily engaged in the business of extracting, processing and marketing steam and metallurgical coal from surface and deep mines, and mainly sell to electric utilities, steel and coke producers, and industrial customers. The Company, through its subsidiaries, is also involved in marketing coal produced by others to supplement its own production and, through blending, provides its customers with coal qualities beyond those available from its own production.

On June 1, 2011, pursuant to the terms of the previously announced Agreement and Plan of Merger dated as of January 28, 2011 (the “Merger Agreement”), the Company completed its acquisition (the “Acquisition”) of Massey Energy Company, a Delaware corporation (“Massey”). Massey, together with its affiliates, was a major U.S. coal producer operating mines and associated processing and loading facilities in Central Appalachia.

Basis of Presentation

The accompanying interim condensed consolidated financial statements of the Company are unaudited and prepared in accordance with the rules and regulations of the United States Securities and Exchange Commission (“SEC”) for Form 10-Q.  Such rules and regulations allow the omission of certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America as long as the financial statements are not misleading.  In the opinion of management, these interim condensed consolidated financial statements reflect all normal and recurring adjustments necessary for a fair presentation of the results for the periods presented.  Results of operations for the three and nine months ended September 30, 2011 are not necessarily indicative of the results to be expected for the year ending December 31, 2011. These interim condensed consolidated financial statements should be read in conjunction with the consolidated financial statements of the Company included in its Annual Report on Form 10-K for the year ended December 31, 2010, filed February 25, 2011.

The Company’s condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of the Company’s condensed consolidated financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Significant items subject to such estimates and assumptions include inventories; mineral reserves; allowance for non-recoupable advanced mining royalties; asset impairments; environmental and reclamation obligations; acquisition accounting; pensions, postemployment, postretirement medical and other employee benefit obligations; useful lives for depreciation, depletion, and amortization; reserves for workers’ compensation and black lung claims; current and deferred income taxes; reserves for contingencies and litigation; revenue recognized using the percentage of completion method; and fair value of financial instruments. Estimates are based on facts and circumstances believed to be reasonable at the time; however, actual results could differ from those estimates.

Reclassifications

Certain amounts in the Condensed Consolidated Balance Sheets as of December 31, 2010 have been reclassified to conform to the current year presentation.

(2)Acquisition

On June 1, 2011, the Company completed its acquisition of 100% of the outstanding common stock of Massey, a coal producer with operations located primarily in Virginia, West Virginia, and Kentucky. The Company issued 1.025 shares of Alpha common stock and $10.00 in cash for each share of Massey common stock. Upon closing of the Acquisition, Alpha shareholders owned 54% of the combined company and Massey shareholders owned 46% of the combined company.

The condensed consolidated statements of operations include acquisition related expenses (on a pre-tax basis) of $101,698 for the three months ended September 30, 2011, which includes $62,625 in cost of coal sales primarily related to the impact of acquisition accounting and related fair value adjustments to coal inventory and expenses for benefit integration activities, $35,993 in other expenses, $7,798 in selling, general and administrative expenses and ($4,718) in other revenues. For the nine months ended September 30, 2011, the condensed consolidated statements of operations include acquisition related expenses (on a pre-tax basis) of $372,037, which includes $180,353 in cost of coal sales primarily related to the impact of

6

ALPHA NATURAL RESOURCES, INC. AND SUBSIDIARIES

NOTES to CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited, amounts in thousands except share and per share data)

acquisition accounting and related fair value adjustments to coal inventory, expenses for benefit integration activities and employee severance and stock compensation expenses, $44,703 in other expenses, $154,729 in selling, general and administrative expenses and ($7,748) in other revenues.

Total revenues reported in the condensed consolidated statements of operations for the three and nine months ended September 30, 2011 included revenues of $811,463 and $1,148,657, respectively, from operations acquired from Massey. The amount of earnings from continuing operations from the operations acquired from Massey included in the consolidated results of operations for the three and nine months ended September 30, 2011 is not readily determinable due to various intercompany transactions and allocations that have occurred in connection with the operations of the combined company.

The fair value of the total consideration transferred was approximately $6,714,057. The acquisition date fair value of each class of consideration transferred was as follows:

Common shares	$	5,649,592
Other equity awards	23,500
Cash	1,040,965
Total purchase price	$	6,714,057

The Company issued 105,984,847 shares of common stock in the transaction. Fair value of common stock issued was determined by the closing price of Alpha’s common stock on the day of the Acquisition. The fair value of other equity awards was determined in accordance with the provisions of Accounting Standards Codification (“ASC”) 505. The total purchase price has been preliminarily allocated to the net tangible and intangible assets of Massey as follows:

	Provisional June 30, 2011		Provisional adjustments			Provisional September 30, 2011
Inventories	$	436,228	$	(15,765	)	$	420,463
Other current assets	810,280		144,174			954,454
Property, equipment and mine development costs	1,721,950		(1,129		)	1,720,821
Owned and leased mineral rights and land	6,636,296		319			6,636,615
Goodwill	2,155,158		137,899			2,293,057
Other intangible assets	368,928		—			368,928
Other non-current assets	91,754		(96		)	91,658
Total assets	12,220,594		265,402			12,485,996
Total current liabilities	737,998		164,465			902,463
Long-term debt, including current portion	1,397,408		(3		)	1,397,405
Pension and post-retirement medical benefits, including current portion	296,631		1,895			298,526
Asset retirement obligation, including current portion	414,925		182,065			596,990
Deferred income taxes, including current portion	1,491,869		(78,895		)	1,412,974
Below-market contract obligations	724,775		(5,397		)	719,378
Other liabilities	332,556		1,272			333,828
Total liabilities	5,396,162		265,402			5,661,564
Equity component of convertible notes	110,375		—			110,375
Net tangible and intangible assets acquired	$	6,714,057	$	—		$	6,714,057

The above purchase price allocation includes provisional amounts for certain assets and liabilities. The purchase price allocation will continue to be refined primarily in the areas of mineral reserves, asset retirement obligations, income taxes, below-market contract obligations (coal supply agreements assumed under which the Company is obligated to deliver coal at below-market prices), other contingencies and goodwill.  During the measurement period, the Company expects to receive additional detailed information to refine the provisional allocation presented above, including final third party valuation reports and pre-acquisition period tax returns. The Company’s provisional estimate of goodwill has been allocated to Eastern Coal Operations; however, the Company has not completed the allocation of goodwill to all of its reporting units. None of the goodwill will be deductible for income tax purposes. During the three months ended September 30, 2011, the Company recorded certain adjustments to the provisional opening balance sheet, including adjustments to total current liabilities primarily for litigation-related matters for which the Company also recorded corresponding increases to other receivables for indemnification and insurance receivables, adjustments to asset retirement obligations of $182,065 for post closing water treatment costs related to selenium discharges and

7

ALPHA NATURAL RESOURCES, INC. AND SUBSIDIARIES

NOTES to CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited, amounts in thousands except share and per share data)

property and equipment and the deferred income tax effects of $78,895 related to all the provisional adjustments. As a result of the provisional adjustments made, the provisional amount of goodwill was increased $137,899. As a result of the provisional changes made during the three months ended September 30, 2011, the Company updated depreciation, amortization and accretion amounts previously recorded and restated its results of operations for the six months ended June 30, 2011 to increase income from continuing operations before income taxes by $4,672 and net income by $2,965. These amounts are also included in the Company’s results of operations for the nine months ended September 30, 2011.

Intangible assets and liabilities related to coal supply agreements and transportation agreements will be amortized over the actual amount of tons shipped under each contract. Noncompete agreements and mine permits will be amortized over weighted average useful lives of approximately 17 months and 94 months, respectively.

The following unaudited pro forma information has been prepared for illustrative purposes only and assumes the Acquisition occurred on January 1, 2010. The unaudited pro forma results have been prepared based on estimates and assumptions, which the Company believes are reasonable, however, they are not necessarily indicative of the consolidated results of operations had the Acquisition occurred on January 1, 2010, or of future results of operations.

The unaudited pro forma results for the nine months ended September 30, 2011 and for the three and nine months ended September 30, 2010 are as follows:

	Three Months Ended September 30, 2010
Total revenues
As reported	$	1,001,632
Pro forma	$	1,809,587
Income from continuing operations
As reported	$	32,361
Pro forma	$	37,053
Earnings per share from continuing operations-basic and diluted
As reported	$	0.27
Pro forma	$	0.16

	Nine Months Ended September 30, 2011			Nine Months Ended September 30, 2010
Total revenues
As reported	$	5,031,983		$	2,924,041
Pro forma	$	6,566,398		$	5,243,574
Income (loss) from continuing operations
As reported	$	62,889		$	86,213
Pro forma	$	(44,251	)	$	87,745
Earnings (loss) per share from continuing operations-basic
As reported	$	0.38		$	0.72
Pro forma	$	(0.20	)	$	0.39
Earnings (loss) per share from continuing operations-diluted
As reported	$	0.37		$	0.71
Pro forma	$	(0.20	)	$	0.39

(3)New Accounting Pronouncements

In September 2011, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2011-08, Testing for Goodwill Impairment (“ASU 2011-08”).  ASU 2011-08 is intended to simplify how entities test for goodwill impairment by adding a qualitative review step to assess whether the required quantitative impairment analysis is necessary.  ASU 2011-08 permits an entity to first

8

ALPHA NATURAL RESOURCES, INC. AND SUBSIDIARIES

NOTES to CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited, amounts in thousands except share and per share data)

assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount.  If it is concluded that this is not the case, it is not necessary to perform the two-step impairment test as described in ASC Topic 350, Intangibles-Goodwill and Other. ASU 2011-08 is effective for annual and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011. The Company anticipates that the adoption of this standard will not have a material impact on its consolidated financial statements and footnote disclosures.

In September 2011, the FASB also issued ASU 2011-09, Disclosures about an Employer’s Participation in a Multiemployer Plan (“ASU 2011-09”), which is intended to increase disclosures about an employer’s participation in a multiemployer pension plan. ASU 2011-09 requires additional disclosures about an employer’s participation in a multiemployer pension plan. This guidance is effective for fiscal years ending after December 15, 2011 and is required to be applied retrospectively for all periods presented.  The Company plans to provide the additional required disclosures in the notes to its December 31, 2011 consolidated financial statements.

(4)Earnings Per Share

The number of shares used to calculate basic earnings per common share is based on the weighted average number of the Company’s outstanding common shares during the respective periods. The number of shares used to calculate diluted earnings per common share is based on the number of common shares used to calculate basic earnings per share plus the dilutive effect of stock options and other stock-based instruments held by the Company’s employees and directors during each period, the Company’s outstanding 2.375% convertible senior notes due 2015 (the “2.375% Convertible Notes”), and for periods subsequent to the Acquisition, the outstanding 3.25% convertible senior notes due 2015 issued by Massey (the “3.25% Convertible Notes”). The 2.375% Convertible Notes and 3.25% Convertible Notes become dilutive for earnings per common share calculations in certain circumstances.  The shares that would be issued to settle the conversion spread are included in the diluted earnings per share calculation when the conversion option is in the money and amounted to 68,548 shares for the nine months ended September 30, 2011 diluted earnings per share calculation. As of September 30, 2011, the 2.375% Convertible Notes and the 3.25% Convertible Notes were not convertible.

The following table provides a reconciliation of the weighted average shares outstanding used in the basic and diluted earnings per share computations for the periods presented:

	Three Months Ended		Nine Months Ended
	September 30,		September 30,
	2011	2010	2011	2010
Weighted average shares - basic	224,394,487	119,623,075	166,931,448	119,862,369
Dilutive impact of stock options and restricted stock plans	1,887,498	1,875,750	1,833,014	1,904,925
Dilutive impact of Convertible Notes - 2.375%	—	—	68,548	—
Weighted average shares - diluted	226,281,985	121,498,825	168,833,010	121,767,294

(5)Inventories, net

Inventories, net consisted of the following:

	September 30,		December 31,
	2011		2010
Raw coal	$	18,358	$	14,115
Saleable coal	373,251		130,364
Materials, supplies and other, net	104,496		53,693
Total inventories, net	$	496,105	$	198,172

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ALPHA NATURAL RESOURCES, INC. AND SUBSIDIARIES

NOTES to CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited, amounts in thousands except share and per share data)

(6)Prepaid Expenses and Other Current Assets

Prepaid expenses and other current assets consisted of the following:

	September 30,		December 31,
	2011		2010
Marketable securities - short term (1)	$	173,087	$	217,191
Prepaid insurance	33,064		3,292
Notes and other receivables	294,183		17,951
Deferred income taxes - current	3,579		29,652
Deferred longwall move expenses	14,993		6,313
Refundable income taxes	16,475		9,918
Derivative financial instruments	12,484		13,558
Prepaid freight	55,779		23,330
Deposits	46,167		293
Other prepaid expenses	30,861		20,257
Total prepaid expenses and other current assets	$	680,672	$	341,755

(1)Short-term marketable securities consisted of the following:

	September 30, 2011
			Unrealized
	Cost		Gain		Loss			Fair value
Short-term marketable securities:
U.S. treasury and agency securities (a)	$	22,330	$	58	$	—		$	22,388
Corporate debt securities (a)	150,704		7		(12		)	150,699
Total short-term marketable securities	$	173,034	$	65	$	(12	)	$	173,087

	December 31, 2010
			Unrealized
	Cost		Gain		Loss			Fair value
Short-term marketable securities:
U.S. treasury and agency securities (a)	$	71,777	$	158	$	—		$	71,935
Corporate debt securities (a)	145,237		24		(5		)	145,256
Total short-term marketable securities	$	217,014	$	182	$	(5	)	$	217,191

(a)       Unrealized gains and losses are recorded as a component of stockholders’ equity.

10

ALPHA NATURAL RESOURCES, INC. AND SUBSIDIARIES

NOTES to CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited, amounts in thousands except share and per share data)

(7)Property, Equipment and Mine Development Costs

Property, equipment, and mine development costs consisted of the following:

	September 30,		December 31,
	2011		2010
Plant and mining equipment	$	3,539,499	$	1,647,217
Mine development	245,316		209,898
Coalbed methane equipment	12,718		10,153
Office equipment and software	50,231		33,416
Vehicles and other	6,606		10,436
Construction in progress	183,698		84,143
Total property, equipment and mine development costs	4,038,068		1,995,263
Less accumulated depreciation, depletion and amortization	1,190,713		866,041
Total property, equipment and mine development costs, net	$	2,847,355	$	1,129,222

(8)Goodwill

Balance at December 31, 2010	$	382,440
Increase in goodwill due to Acquisition	2,293,057
Balance at September 30, 2011	$	2,675,497

(9)Other Non-current Assets

Other non-current assets consisted of the following:

	September 30,		December 31,
	2011		2010
Marketable securities - long term (1)	$	21,143	$	60,159
Acquired intangible assets, net	416,218		162,734
Deferred financing costs, net	91,027		17,041
Advance mining royalties, net	61,542		14,408
Virginia tax credit, net	14,423		16,317
Equity-method investments	41,095		15,130
Derivative financial instruments	1,176		3,045
Other	71,126		17,289
Total other non-current assets	$	717,750	$	306,123

11

ALPHA NATURAL RESOURCES, INC. AND SUBSIDIARIES

NOTES to CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited, amounts in thousands except share and per share data)

(1)Long-term marketable securities, with maturity dates between one and three years, consisted of the following:

	September 30, 2011
			Unrealized
	Cost		Gain		Loss			Fair value
Long-term marketable securities:
U.S. treasury and agency securities (a)	$	17,592	$	87	$	(7	)	$	17,672
Mutual funds held in rabbi trust (b)	3,840		171		(540		)	3,471
Total long-term marketable securities	$	21,432	$	258	$	(547	)	$	21,143

	December 31, 2010
			Unrealized
	Cost		Gain		Loss			Fair value
Long-term marketable securities:
U.S. treasury and agency securities (a)	$	60,326	$	44	$	(211	)	$	60,159

(a)       Unrealized gains and losses are recorded as a component of stockholders’ equity.

(b)Unrealized gains and losses are recorded in current period earnings.

(10)Accrued Expenses and Other Current Liabilities

Accrued expenses and other current liabilities consisted of the following:

	September 30,		December 31,
	2011		2010
Wages and employee benefits	$	202,426	$	111,631
Current portion of asset retirement obligations	143,400		13,006
Taxes other than income taxes	133,654		62,041
Freight	17,904		16,446
Current portion of self insured workers’ compensation obligations	23,010		7,935
Interest payable	37,372		10,590
Derivative financial instruments	66,837		19,929
Current portion of pension and postretirement medical benefit obligations	37,398		28,265
Income taxes payable	6,734		6,278
Other	339,365		37,633
Total accrued expenses and other current liabilities	$	1,008,100	$	313,754

12

ALPHA NATURAL RESOURCES, INC. AND SUBSIDIARIES

NOTES to CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited, amounts in thousands except share and per share data)

(11)         Long-Term Debt

Long-term debt consisted of the following:

	September 30,			December 31,
	2011			2010
6.00% senior notes due 2019	$	800,000		$	—
6.25% senior notes due 2021	700,000			—
Term loan due 2016	592,500			—
Term loan due 2014	—			227,896
3.25% convertible senior notes due 2015	658,673			—
7.25% senior notes due 2014	—			298,285
2.375% convertible senior notes due 2015	287,500			287,500
Other	23,284			7,819
Debt discount, net	(92,156		)	(67,349		)
Total long-term debt	2,969,801			754,151
Less current portion	38,529			11,839
Long-term debt, net of current portion	$	2,931,272		$	742,312

New Notes Indenture and the New Senior Notes

On June 1, 2011, Alpha, certain of Alpha’s wholly owned domestic subsidiaries (collectively, the “Alpha Guarantors”) and Union Bank, N.A., as trustee, entered into an indenture (the “Base Indenture”) and a first supplemental indenture (the “First Supplemental Indenture” and, together with the Base Indenture, the “New Notes Indenture”) governing Alpha’s newly issued 6.00% senior notes due 2019 (the “2019 Notes”) and 6.25% senior notes due 2021 (the “2021 Notes” and, together with the 2019 Notes, the “New Senior Notes”).

On June 1, 2011, in connection with the Acquisition, Alpha, the Alpha Guarantors, Massey, and certain wholly owned subsidiaries of Massey (the “Massey Guarantors” and together with the Alpha Guarantors the “Guarantors”), and Union Bank, N.A., as trustee, entered into a supplemental indenture (the “Second Supplemental Indenture”) to the New Notes Indenture pursuant to which Massey and certain wholly owned subsidiaries of Massey agreed to become additional guarantors for the New Senior Notes.

The 2019 Notes bear interest at a rate of 6.00% per annum, payable semi-annually on June 1 and December 1 of each year, beginning on December 1, 2011, and will mature on June 1, 2019. The 2021 Notes bear interest at a rate of 6.25% per annum, payable semi-annually on June 1 and December 1 of each year, beginning on December 1, 2011, and will mature on June 1, 2021.

As of September 30, 2011, the carrying values of the 2019 Notes and 2021 Notes were $800,000 and $700,000, respectively.

Alpha may redeem the 2019 Notes, in whole or in part, at any time prior to June 1, 2014, at a price equal to 100.000% of the aggregate principal amount of the 2019 Notes plus a “make-whole” premium, plus accrued and unpaid interest, if any, to, but not including, the applicable redemption date.  Alpha may redeem the 2019 Notes, in whole or in part, at any time during the twelve months commencing June 1, 2014, at 103.000% of the aggregate principal amount of the 2019 Notes, at any time during the twelve months commencing June 1, 2015, at 101.500% of the aggregate principal amount of the 2019 Notes, and at any time after June 1, 2016 at 100.000% of the aggregate principal amount of the 2019 Notes, in each case plus accrued and unpaid interest, if any, to, but not including, the applicable redemption date.  In addition, Alpha may redeem up to 35% of the aggregate principal amount of the 2019 Notes with the net cash proceeds from certain equity offerings, at any time prior to June 1, 2014, at a redemption price equal to 106.000% of the aggregate principal amount of the 2019 Notes, plus accrued and unpaid interest, if any, to, but not including the applicable redemption date, provided that at least 65% of the aggregate principal amount of the 2019 notes originally issued under the New Notes Indenture remains outstanding after the redemption and the redemption occurs within 180 days of the closing of such equity offering.

Alpha may redeem the 2021 Notes, in whole or in part, at any time prior to June 1, 2016, at a price equal to 100.000% of the aggregate principal amount of the 2021 Notes plus a “make-whole” premium, plus accrued and unpaid interest, if any, to, but not including, the applicable redemption date.  Alpha may redeem the 2021 Notes, in whole or in part, at any time during the twelve months commencing June 1,

13

ALPHA NATURAL RESOURCES, INC. AND SUBSIDIARIES

NOTES to CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited, amounts in thousands except share and per share data)

2016, at 103.125% of the aggregate principal amount of the 2021 Notes, at any time during the twelve months commencing June 1, 2017, at 102.083% of the aggregate principal amount of the 2021 Notes, at any time during the twelve months commencing June 1, 2018 at 101.042% of the aggregate principal amount of the 2021 Notes, and at any time after June 1, 2019, at 100.000% of the aggregate principal amount of the 2021 Notes, in each case plus accrued and unpaid interest, if any, to, but not including, the applicable redemption date.  In addition, Alpha may redeem up to 35% of the aggregate principal amount of the 2021 Notes with the net cash proceeds from certain equity offerings, at any time prior to June 1, 2016, at a redemption price equal to 106.250% of the aggregate principal amount of the 2021 Notes, plus accrued and unpaid interest, if any, to, but not including the applicable redemption date, provided that at least 65% of the aggregate principal amount of the 2021 notes originally issued under the New Notes Indenture remains outstanding after the redemption and the redemption occurs within 180 days of the date of the closing of such equity offering.

Upon the occurrence of a change in control repurchase event with respect to either series of the New Senior Notes, unless Alpha has exercised its right to redeem those New Senior Notes, Alpha will be required to offer to repurchase each holder’s New Senior Notes of such series at a price equal to 101% of the principal amount thereof, plus accrued and unpaid interest, if any, to, but not including, the date of repurchase.

The New Notes Indenture contains covenants that limit, among other things, Alpha’s ability to:

·incur, or permit its subsidiaries to incur, additional debt;

·issue, or permit its subsidiaries to issue, certain types of stock;

·pay dividends on Alpha’s or its subsidiaries’ capital stock or repurchase Alpha’s common stock;

·make certain investments;

·enter into certain types of transactions with affiliates;

·incur liens on certain assets to secure debt;

·limit dividends or other payments by its restricted subsidiaries to Alpha and its other restricted subsidiaries;

·consolidate, merge or sell all or substantially all of its assets; and

·make certain payments on Alpha’s or its subsidiaries’ subordinated debt.

These covenants are subject to a number of important qualifications and exceptions. These covenants may not apply at any time after the New Senior Notes are assigned a credit grade rating of at least BB+ (stable) from Standard & Poor’s Ratings Services and of at least Ba1 (stable) from Moody’s Investor Service, Inc.

Third Amended and Restated Credit Agreement

On May 19, 2011, in connection with the Acquisition, Alpha entered into a Third Amended and Restated Credit Agreement to amend and restate in its entirety the credit agreement dated as of July 30, 2004, as amended as of November 12, 2004 and as of October 18, 2005, as amended and restated as of July 7, 2006, as amended effective July 31, 2009 and as further amended and restated as of April 15, 2010 (as so amended and restated, the “Existing Credit Agreement”; the Existing Credit Agreement, as amended and restated by the Third Amended and Restated Credit Agreement, is referred to as the “New Credit Agreement”), with Citicorp North America, Inc., as administrative agent and as collateral agent, Bank of America, N.A., JPMorgan Chase Bank, N.A., PNC Bank, National Association, The Royal Bank of Scotland plc and Union Bank, N.A. and The Bank of Tokyo-Mitsubishi UFJ, Ltd., as co-documentation agents, Morgan Stanley Senior Funding, Inc., as sole syndication agent, Citigroup Global Markets Inc. and Morgan Stanley Senior Funding, Inc., as joint lead arrangers and joint book managers, and various other financial institutions, as lenders. The terms of the New Credit Agreement amended and restated and superseded the Existing Credit Agreement in its entirety upon the satisfaction of certain conditions precedent, which included the consummation of the Acquisition (the satisfaction of such conditions precedent is referred to as the “initial Credit Event”). The Existing Credit Agreement remained in full force and effect until the occurrence of the initial Credit Event.

Upon the occurrence of the initial Credit Event, the New Credit Agreement provided for a $600,000 senior secured term loan A facility (the “Term Loan Facility”) and a $1,000,000 senior secured revolving credit facility (the “Revolving Facility”).  Pursuant to the New Credit Agreement, Alpha may request incremental term loans or increase the revolving commitments under the Revolving Facility in an aggregate amount of up to $1,250,000 plus an additional $750,000 subject to compliance with a consolidated senior secured leverage ratio.  The lenders under these facilities will not be under any obligation to provide any such incremental loans or commitments, and any such addition of or increase in such loans or commitments will be subject to certain customary conditions precedent.

As of September 30, 2011, the carrying value of the Term Loan Facility was $591,792, net of debt discount of $708, with $37,500 classified as current portion of long-term debt.  There were no borrowings outstanding under the Revolving Facility as of September 30, 2011.

14

ALPHA NATURAL RESOURCES, INC. AND SUBSIDIARIES

NOTES to CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited, amounts in thousands except share and per share data)

Letters of credit outstanding at September 30, 2011 under the Revolving Facility were $14,411.

Interest Rate and Fees.  Borrowings under the New Credit Agreement bear interest at a rate per annum equal to an applicable margin plus, at Alpha’s option, either (a) a base rate determined by reference to the highest of (i) the rate that Citibank, N.A. announces from time to time as its prime or base commercial lending rate, (ii) the federal funds effective rate plus 0.50% and (iii) a LIBO rate for a 30-day interest period as determined on such day, plus 1.00%, or (b) a LIBO rate for the interest period relevant to such borrowing adjusted for certain additional costs.  The initial applicable margin for borrowings under the New Credit Agreement is 1.50% with respect to base rate borrowings and 2.50% with respect to LIBO rate borrowings.  Commencing October 1, 2011, the applicable margin for borrowings under the New Credit Agreement will be subject to adjustment each fiscal quarter based on Alpha’s consolidated leverage ratio for the preceding fiscal quarter.  Swingline loans will bear interest at a rate per annum equal to the base rate plus the applicable margin.  The interest rate in effect at September 30, 2011 was 2.74%. In addition to paying interest on outstanding principal under the New Credit Agreement, Alpha is required to pay a commitment fee to the lenders under the Revolving Facility in respect of the unutilized commitments thereunder. The initial commitment fee is 0.50% per annum.  Commencing October 1, 2011, the commitment fee will be subject to adjustment each fiscal quarter based on Alpha’s consolidated leverage ratio for the preceding fiscal quarter.  Alpha must also pay customary letter of credit fees and agency fees.

Mandatory Prepayments.  The New Credit Agreement requires Alpha to prepay outstanding loans, subject to certain exceptions, with (i) 100% of the net cash proceeds (including the fair market value of noncash proceeds) from certain asset sales and condemnation events in excess of the greater of $1,500,000 and 15% of consolidated tangible assets as of the end of each fiscal year, (ii) 100% of the aggregate gross proceeds (including the fair market value of noncash proceeds) from certain Intracompany Disposals (as defined in the New Credit Agreement) exceeding $500,000 during the term of the New Credit Agreement and (iii) 100% of the net cash proceeds from any incurrence or issuance of certain debt, other than debt permitted under the New Credit Agreement. Mandatory prepayments will be applied first to the Term Loan Facility and thereafter to reductions of the commitments under the Revolving Facility. If at any time the aggregate amount of outstanding revolving loans, swingline loans, unreimbursed letter of credit drawings and undrawn letters of credit under the Revolving Facility exceeds the commitment amount, Alpha will be required to repay outstanding loans or cash collateralize letters of credit in an aggregate amount equal to such excess, with no reduction of the commitment amount.

Voluntary Prepayments; Reductions in Commitments. Alpha may prepay, in whole or in part, amounts outstanding under the New Credit Agreement, with prior notice but without premium or penalty (other than customary “breakage” costs with respect to LIBO rate loans) and in certain minimum amounts.  Alpha may also repurchase loans outstanding under the Term Loan Facility pursuant to standard reverse Dutch auction and open market purchase provisions, subject to certain limitations and exceptions.  Alpha may make voluntary reductions to the unutilized commitments of the Revolving Facility from time to time without premium or penalty.

Amortization and Final Maturity.  Beginning on September 30, 2011, Alpha is required to make scheduled quarterly amortization payments with respect to loans under the Term Loan Facility.  In the last two quarters of 2011 and the first two quarters of 2012, each quarterly amortization payment will be in an amount equal to 1.25% of the original principal amount of the term loans.  In the last two quarters of 2012 and the first two quarters of 2013, each quarterly amortization payment will be in an amount equal to 2.5% of the original principal amount of the term loans.  In the last two quarters of 2013 and the first two quarters of 2014, each quarterly amortization payment will be in an amount equal to 3.75% of the original principal amount of the term loans.  In the last two quarters of 2014 and the first two quarters of 2015, each quarterly amortization payment will be in an amount equal to 5% of the original principal amount of the term loans.  In the last two quarters of 2015 and the first two quarters of 2016, each quarterly amortization payment will be in an amount equal to 12.5% of the original principal amount of the term loans.  There is no scheduled amortization under the Revolving Facility.  The principal amount outstanding on the loans under the Revolving Facility will be due and payable on June 30, 2016.  The Term Loan Facility and Revolving Facility will each mature on June 30, 2016.

Guarantees and Collateral.  All obligations under the New Credit Agreement are unconditionally guaranteed by certain of Alpha’s existing wholly owned domestic subsidiaries, and are required to be guaranteed by certain of Alpha’s future wholly owned domestic subsidiaries.  All obligations under the New Credit Agreement and certain hedging and cash management obligations with lenders and affiliates of lenders thereunder are secured, subject to certain exceptions, by substantially all of Alpha’s assets and the assets of Alpha’s subsidiary guarantors, in each case subject to exceptions, thresholds and limitations.

Certain Covenants and Events of Default. The New Credit Agreement contains a number of negative covenants that, among other things and subject to certain exceptions, restrict Alpha’s ability and the ability of Alpha’s subsidiaries to:

15

ALPHA NATURAL RESOURCES, INC. AND SUBSIDIARIES

NOTES to CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited, amounts in thousands except share and per share data)

·make investments, loans and acquisitions;

·incur additional indebtedness;

·incur liens;

·consolidate or merge;

·sell assets, including capital stock of its subsidiaries;

·pay dividends on its capital stock or redeem, repurchase or retire its capital stock or its other Indebtedness;

·engage in transactions with its affiliates;

·materially alter the business it conducts; and

·create restrictions on the payment of dividends or other amounts to Alpha from Alpha’s restricted subsidiaries.

In addition, the New Credit Agreement requires Alpha to comply with certain financial ratio maintenance covenants.

The New Credit Agreement also contains customary representations and warranties, affirmative covenants and events of default, including a cross-default provision in respect of any other indebtedness that has an aggregate principal amount exceeding $25,000.

Existing Credit Agreement

The Existing Credit Agreement consisted of term loans and revolving credit facility commitments due on July 31, 2014.  During the nine months ended September 30, 2011, borrowings under the Existing Credit Agreement totaling $227,896 were repaid.  The Existing Credit Agreement was replaced with the New Credit Agreement as described above.  As of December 31, 2010, the Company’s secured term loans under the Existing Credit Agreement had a carrying value of $226,705, net of debt discount of $1,191, with $11,839 classified as current portion of long-term debt.

3.25% Convertible Senior Notes due 2015

As a result of the Acquisition, the Company became a guarantor of Massey’s 3.25% Convertible Notes, with aggregate principal outstanding at June 1, 2011 of $659,063.  The 3.25% Convertible Notes bear interest at a rate of 3.25% per annum, payable semi-annually in arrears on August 1 and February 1 of each year.  The 3.25% Convertible Notes will mature on August 1, 2015, unless earlier repurchased by the Company or converted.  The 3.25% Convertible Notes had a fair value of $730,900 at the acquisition date.  The Company accounts for the 3.25% Convertible Notes under ASC 470-20, which requires issuers of convertible debt instruments that may be settled wholly or partially in cash upon conversion to separately account for the liability and equity components in a manner reflective of the issuers’ nonconvertible debt borrowing rate.  As of September 30, 2011, the carrying amount of the debt was $622,803, net of debt discount of $35,870.  As of September 30, 2011, the carrying amount of the equity component totaled $110,375.  The debt discount is being accreted over the four-year term of the 3.25% Convertible Notes, and provides for an effective interest rate of 4.21%.

The 3.25% Convertible Notes are senior unsecured obligations and rank equally with all of the Company’s existing and future senior unsecured indebtedness. The 3.25% Convertible Notes are guaranteed on a senior unsecured basis by Massey’s subsidiaries (which are among the Company’s subsidiaries), other than certain minor subsidiaries of Massey. The 3.25% Convertible Notes are effectively subordinated to all of the Company’s existing and future secured indebtedness and all existing and future liabilities of the Company’s non-guarantor subsidiaries, including trade payables. The 3.25% Convertible Notes are convertible in certain circumstances and in specified periods at a conversion rate, subject to adjustment, of the value of 11.4560 shares of common stock per $1,000 principal amount of 3.25% Convertible Notes. From and after the effective time of the Acquisition, the consideration deliverable upon conversion of a 3.25% Convertible Notes ceased to be based upon Massey common stock and instead became based upon Reference Property (as defined in the indenture governing the 3.25% Convertible Notes, (the “3.25% Convertible Notes Indenture”)) consisting of 1.025 shares of Alpha common stock (subject to adjustment upon the occurrence of certain events set forth in the 3.25% Convertible Notes Indenture) plus $10.00 in cash per share of Massey common stock. Upon conversion of the 3.25% Convertible Notes, holders will receive cash up to the principal amount of the notes being converted, and any excess conversion value will be delivered in cash, Reference Property, or a combination thereof, at the Company’s election.

6.875% Senior Notes due 2013

The Company assumed Massey’s 6.875% senior notes due 2013 (the “2013 Notes”) with an aggregate principal amount outstanding of $760,000 as part of the Acquisition. On June 1, 2011, the Company paid $525,532, which included a premium payment and accrued but unpaid interest, pursuant to its cash tender offer for the 2013 Notes.  In addition, on June 1, 2011, the Company paid $274,504 into a redemption settlement trust to redeem all the 2013 Notes that remained outstanding after the tender offer.  The Company recorded an asset of $265,557 in prepaid expenses and other current assets at the time of the payment to the redemption trust.  The Company recorded the debt at its fair value, of $264,017, on June 1, 2011. Upon redemption of the 2013 Notes on the redemption date of July 1, 2011, the related asset and liability were removed from the condensed consolidated balance sheets and the Company recorded a loss on early extinguishment of $752.

7.25% Senior Notes Due August 1, 2014

Foundation PA Coal Company, LLC (“Foundation PA”), one of the Company’s subsidiaries, had notes that were scheduled to mature on August 1, 2014 (the “2014 Notes”) in the aggregate principal amount of $298,285 at December 31, 2010. The 2014 Notes were guaranteed on a

16

ALPHA NATURAL RESOURCES, INC. AND SUBSIDIARIES

NOTES to CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited, amounts in thousands except share and per share data)

senior unsecured basis by Alpha Natural Resources, Inc. and all of its subsidiaries other than Foundation PA, Alpha Coal India Private Limited, ANR Receivables Funding LLC, Coalsolv, LLC, Gray Hawk Insurance Company and Rockridge Coal Company. In connection with the Acquisition, Massey and certain subsidiaries of Massey also became guarantors of the 2014 Notes.  The 2014 Notes pay interest semi-annually and were redeemable at Foundation PA’s option, at a redemption price equal to 101.208% and 100% of the principal amount if redeemed during the twelve month periods beginning August 1, 2011 and 2012, respectively, plus accrued interest.  The outstanding 2014 Notes were redeemed and became due and payable on August 18, 2011 (the “Redemption Date”) at a redemption price equal to 101.208% of the principal amount of the 2014 Notes, plus any and all accrued and unpaid interest up to but excluding the Redemption Date.  The Company paid $302,909, including interest, to redeem the 2014 Notes.  The Company recognized a loss on early extinguishment of debt of $4,438 including the premium paid.  As of December 31, 2010, the carrying value of the 2014 Notes was $297,272, net of debt discount of $1,013.

2.375% Convertible Senior Notes Due April 15, 2015

As of September 30, 2011 and December 31, 2010, the Company had $287,500 aggregate principal amount of 2.375% Convertible Notes. The 2.375% Convertible Notes bear interest at a rate of 2.375% per annum, payable semi-annually in arrears on April 15 and October 15 of each year, and will mature on April 15, 2015, unless earlier repurchased by the Company or converted.  The Company accounts for the 2.375% Convertible Notes under ASC 470-20, which requires issuers of convertible debt instruments that may be settled wholly or partially in cash upon conversion to separately account for the liability and equity components in a manner reflective of the issuers’ nonconvertible debt borrowing rate.  The related deferred loan costs and discount are being amortized and accreted, respectively, over the seven-year term of the 2.375% Convertible Notes, and provide for an effective interest rate of 8.64%.  As of September 30, 2011 and December 31, 2010, the carrying amounts of the debt component were $231,922 and $222,355, respectively.  As of September 30, 2011 and December 31, 2010, the unamortized debt discount was $55,578 and $65,145, respectively. As of September 30, 2011 and December 31, 2010, the carrying amount of the equity component was $69,851.

The 2.375% Convertible Notes are the Company’s senior unsecured obligations and rank equally with all of the Company’s existing and future senior unsecured indebtedness. The 2.375% Convertible Notes are effectively subordinated to all of the Company’s existing and future secured indebtedness and all existing and future liabilities of the Company’s subsidiaries, including trade payables. The 2.375% Convertible Notes are convertible in certain circumstances and in specified periods at an initial conversion rate of 18.2962 shares of common stock per $1,000 principal amount of 2.375% Convertible Notes, subject to adjustment upon the occurrence of certain events set forth in the indenture governing the 2.375% Convertible Notes (the “2.375% Convertible Notes Indenture”). Upon conversion of the 2.375% Convertible Notes, holders will receive cash up to the principal amount of the notes to be converted, and any excess conversion value will be delivered in cash, shares of common stock, or a combination thereof, at the Company’s election.

Accounts Receivable Securitization

The Company and certain of its subsidiaries are party to an accounts receivable securitization facility with a third party financial institution (the “A/R Facility”). The capacity of the A/R Facility was increased from $150,000 to $190,000 in June 2011.  As of September 30, 2011 and December 31, 2010, letters of credit in the amount of $151,990 and $63,805, respectively, were outstanding under the A/R Facility and no cash borrowing transactions had taken place.

On October 19, 2011, the Company and certain of its subsidiaries entered into a Second Amended and Restated Receivables Purchase Agreement (the “New A/R Facility”), which expires on October 17, 2014 and replaces the A/R Facility.  The capacity of the New A/R Facility is $275,000.

(12)Asset Retirement Obligations

As of September 30, 2011 and December 31, 2010, the Company had recorded asset retirement obligation accruals for mine reclamation and closure costs totaling $886,682 and $222,993, respectively. Changes in the asset retirement obligations were as follows:

17

ALPHA NATURAL RESOURCES, INC. AND SUBSIDIARIES

NOTES to CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited, amounts in thousands except share and per share data)

Total asset retirement obligations at December 31, 2010	$	222,993
Asset retirement obligations assumed in Acquisition (1)	596,990
Accretion for the period	24,450
Revisions in estimated cash flows (1)	55,706
Expenditures for the period	(13,457		)
Total asset retirement obligations at September 30, 2011	$	886,682
Less current portion	143,400
Long-term portion	$	743,282

(1)As a result of certain matters related to the treatment of mine water discharges for selenium more fully discussed in Note 19, the Company reviewed its asset retirement obligation cost estimates during the quarter and revised estimates where necessary including for those permits where tentative settlements have been reached. During the three months ended September 30, 2011, the Company increased its asset retirement obligations by $55,316, of which $37,137 was related to inactive mine sites and was recorded as a component of cost of coals sales in the Statements of Operations. In addition, the Company increased the provisional opening balance sheet amounts (Note 2) for asset retirement obligations by $182,065 related to the post closing cost of treating water discharges for selenium.

(13)         Other Non-current Liabilities

Other non-current liabilities consisted of the following:

	September 30,		December 31,
	2011		2010
Self insured workers’ compensation obligations	$	168,977	$	43,767
Black lung obligations	135,627		45,021
Below-market contract obligations, net	596,937		13,031
Derivative financial instruments	23,329		9,050
Income taxes	13,960		13,960
Deferred production taxes	19,962		12,230
Other	64,690		17,980
Total other non-current liabilities	$	1,023,482	$	155,039

(14)         Fair Value of Financial Instruments and Fair Value Measurements

The estimated fair values of financial instruments are determined based on relevant market information. These estimates involve uncertainty and cannot be determined with precision. The following methods and assumptions are used to estimate the fair value of each class of financial instruments.

The carrying amounts for cash and cash equivalents, trade accounts receivable, net, prepaid expenses and other current assets, trade accounts payable, and accrued expenses and other current liabilities approximate fair value due to the short maturity of these instruments.

Long-term Debt: The fair values of the 2.375% Convertible Notes, 3.25% Convertible Notes and New Senior Notes, were estimated using observable market prices as these securities are traded. The fair values of the senior notes and the term loans were estimated based on market rates of interest offered to the Company for debt of similar maturities.

The estimated fair values of long-term debt were as follows:

18

ALPHA NATURAL RESOURCES, INC. AND SUBSIDIARIES

NOTES to CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited, amounts in thousands except share and per share data)

	September 30, 2011				December 31, 2010
	Carrying				Carrying
	Amount		Fair Value		Amount		Fair Value
6.00% senior notes due 2019	$	800,000	$	776,000	$	—	$	—
6.25% senior notes due 2021	700,000		675,500		—		—
Term loan due 2016(1)	591,792		611,553		—		—
Term loan due 2014(2)	—		—		226,705		231,475
3.25% convertible senior notes due 2015(3)	622,803		570,592		—		—
7.25% senior notes due 2014(4)	—		—		297,272		303,505
2.375% convertible senior notes due 2015(5)	231,922		209,628		222,355		383,094
Total	$	2,946,517	$	2,843,273	$	746,332	$	918,074

(1)  Net of debt discount of $708 as of September 30, 2011.

(2)  Net of debt discount of $1,191 as of December 31, 2010.

(3)  Net of debt discount of $35,870 as of September 30, 2011.

(4)  Net of debt discount of $1,013 as of December 31, 2010.

(5)  Net of debt discount of $55,578 and $65,145 as of September 30, 2011 and December 31, 2010, respectively.

ASC 820 requires disclosures about how fair value is determined for assets and liabilities and a hierarchy for which these assets and liabilities must be grouped, based on significant levels of inputs as follows:

Level 1 — Quoted prices in active markets for identical assets or liabilities;

Level 2 — Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and

Level 3 — Unobservable inputs in which there is little or no market data which require the reporting entity to develop its own assumptions.

The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements).

The following tables set forth by level, within the fair value hierarchy, the Company’s financial and non-financial assets and liabilities that were accounted for at fair value on a recurring and non-recurring basis as of September 30, 2011 and December 31, 2010, respectively.  Financial and non-financial assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. The Company’s assessment of the significance of a particular input to the fair value measurement requires judgment, and may affect the determination of fair value for assets and liabilities and their placement within the fair value hierarchy levels.

	September 30, 2011
				Quoted Prices		Significant Other			Significant
				in Active		Observable			Unobservable
	Total Fair			Markets		Inputs			Inputs
	Value			(Level 1)		(Level 2)			(Level 3)
Financial assets (liabilities):
U.S. treasury and agency securities	$	40,060		$	40,060	$	—		$	—
Mutual funds held in rabbi trust	$	3,471		$	3,471	$	—		$	—
Corporate debt securities	$	150,699		$	—	$	150,699		$	—
Forward coal sales	$	(56,362	)	$	—	$	(56,362	)	$	—
Forward coal purchases	$	202		$	—	$	202		$	—
Commodity swaps	$	(7,315	)	$	—	$	(7,315	)	$	—
Commodity options	$	(17	)	$	—	$	(17	)	$	—
Interest rate swaps	$	(13,014	)	$	—	$	(13,014	)	$	—

19

ALPHA NATURAL RESOURCES, INC. AND SUBSIDIARIES

NOTES to CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited, amounts in thousands except share and per share data)

	December 31, 2010
				Quoted Prices		Significant Other			Significant
				in Active		Observable			Unobservable
	Total Fair			Markets		Inputs			Inputs
	Value			(Level 1)		(Level 2)			(Level 3)
Financial assets (liabilities):
U.S. treasury and agency securities	$	132,094		$	132,094	$	—		$	—
Corporate debt securities	$	145,256		$	—	$	145,256		$	—
Forward coal sales	$	(3,958	)	$	—	$	(3,958	)	$	—
Forward coal purchases	$	2,674		$	—	$	2,674		$	—
Commodity swaps	$	10,523		$	—	$	10,523		$	—
Commodity options	$	(264	)	$	—	$	(264	)	$	—
Interest rate swaps	$	(21,304	)	$	—	$	(21,304	)	$	—
Freight swaps	$	(47	)	$	—	$	(47	)	$	—

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

Level 1 Fair Value Measurements

U.S. Treasury and Agency Securities and Mutual Funds Held in Rabbi Trust — The fair value of marketable securities is based on observable market data.

Level 2 Fair Value Measurements

Corporate Debt Securities — The fair values of the Company’s corporate debt securities are obtained from a third-party pricing service provider.  The fair values provided by the pricing service provider are estimated using pricing models, where the inputs to those models are based on observable market inputs including credit spreads and broker-dealer quotes, among other inputs.  The Company classifies the prices obtained from the pricing services within Level 2 of the fair value hierarchy because the underlying inputs are directly observable from active markets.  However, the pricing models used do entail a certain amount of subjectivity and therefore differing judgments in how the underlying inputs are modeled could result in different estimates of fair value.

Forward Coal Purchases and Sales — The fair values of the forward coal purchase and sale contracts were estimated using discounted cash flow calculations based upon actual contract prices and forward commodity price curves. The curves were obtained from independent pricing services reflecting broker market quotes. The fair values are adjusted for counter-party risk, when applicable.

Commodity Swaps — The fair values of commodity swaps are estimated using valuation models which include assumptions about commodity prices based on those observed in the underlying markets. The fair values are adjusted for counter-party risk, when applicable.

Commodity Options — The fair values of the commodity options were estimated using an option pricing model that incorporates historical volatility of the underlying commodity, the strike price, notional amount, current market price and risk free interest rate. The fair values are adjusted for counter-party risk, when applicable.

Interest Rate Swaps — The fair values of the interest rate swaps were estimated using discounted cash flow calculations based upon forward interest-rate yield curves. The curves were obtained from independent pricing services reflecting broker market quotes. The fair values are adjusted for counter-party risk, when applicable.

Freight Swaps — The fair values of freight swaps are estimated using valuation models which include assumptions about freight prices based on those observed in the underlying markets. The fair values are adjusted for counter-party risk, when applicable.

20

ALPHA NATURAL RESOURCES, INC. AND SUBSIDIARIES

NOTES to CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited, amounts in thousands except share and per share data)

(15)     Derivative Financial Instruments

Forward Contracts

The Company manages price risk for coal sales and purchases through the use of coal supply agreements. The Company evaluates each of its coal sales and coal purchase forward contracts to determine whether they meet the definition of a derivative and if so, whether they qualify for the normal purchase normal sale (“NPNS”) exception. The majority of the Company’s forward contracts do not qualify as derivatives. For those contracts that do meet the definition of a derivative, certain contracts also qualify for the NPNS exception based on management’s intent and ability to physically deliver or take physical delivery of the coal. Contracts that meet the definition of a derivative and do not qualify for the NPNS exception are accounted for at fair value and, accordingly, the Company includes the unrealized gains and losses in current period earnings or losses.

Swap Agreements

Commodity Swaps

The Company uses diesel fuel and explosives in its production process and incurs significant expenses for the purchase of these commodities. Diesel fuel and explosives expenses represented approximately 6% of cost of coal sales for the nine months ended September 30, 2011. The Company is subject to the risk of price volatility for these commodities and as a part of its risk management strategy, the Company enters into swap agreements with financial institutions to mitigate the risk of price volatility for both diesel fuel and explosives. The terms of the swap agreements allow the Company to pay a fixed price and receive a floating price, which provides a fixed price per unit for the volume of purchases being hedged. As of September 30, 2011, the Company had swap agreements outstanding to hedge the variable cash flows related to 38% and 48% of anticipated diesel fuel usage for the remaining three months of 2011 and calendar year 2012, respectively. The average fixed price per swap for diesel fuel hedges is $2.40 per gallon and $2.83 per gallon for the remaining three months of 2011 and calendar year 2012, respectively. As of September 30, 2011, the Company had swap agreements outstanding to hedge the variable cash flows related to approximately 26% and 35% of anticipated explosives usage in the Powder River Basin for the remaining three months of 2011 and calendar year 2012, respectively. All cash flows associated with derivative instruments are classified as operating cash flows in the Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2011 and 2010.

The Company sells coalbed methane through its Coal Gas Recovery business. The revenues derived from the sale of coalbed methane are subject to volatility based on the changes in natural gas prices. In order to reduce that risk, the Company enters into “pay variable, receive fixed” natural gas swaps for a portion of its anticipated gas production in order to fix the selling price for a portion of its production. The natural gas swaps have been designated as qualifying cash flow hedges. As of September 30, 2011, the Company had swap agreements outstanding to hedge the variable cash flows related to approximately 77% and 59% of anticipated natural gas production for the remaining three months of 2011 and for fiscal year 2012, respectively.

Interest Rate Swap

The Company has variable rate debt outstanding and is subject to interest rate risk based on volatility in underlying interest rates. The interest rate swap is not designated as a qualifying cash flow hedge and, therefore, changes in fair value are recorded in current period earnings and losses.

The following tables present the fair values and location of the Company’s derivative instruments within the Condensed Consolidated Balance Sheets:

21

ALPHA NATURAL RESOURCES, INC. AND SUBSIDIARIES

NOTES to CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited, amounts in thousands except share and per share data)

	Asset Derivatives
Derivatives designated as	September 30,		December 31,
cash flow hedging instruments	2011		2010
Commodity swaps (1)	$	13,329	$	13,910

Derivatives not designated as	September 30,		December 31,
cash flow hedging instruments	2011		2010
Forward coal purchases (2)	$	202	$	2,674
Commodity swaps (3)	129		19
Total	$	331	$	2,693
Total asset derivatives	$	13,660	$	16,603

(1) As of September 30, 2011, $12,160 is recorded in prepaid expenses and other current assets and $1,169 is recorded in other non-current assets in the Condensed Consolidated Balance Sheets.  As of December 31, 2010, $10,865 is recorded in prepaid expenses and other current assets and $3,045 is recorded in other non-current assets in the Condensed Consolidated Balance Sheets.

(2) As of September 30, 2011, $195 is recorded in prepaid expenses and other current assets and $7 is recorded in other non-current assets in the Condensed Consolidated Balance Sheets. As of December 31, 2010, $2,674 is recorded in prepaid expenses and other current assets in the Condensed Consolidated Balance Sheets.

(3) As of September 30, 2011, $129 is recorded in prepaid expenses and other current assets in the Condensed Consolidated Balance Sheets. As of December 31, 2010, $19 is recorded in prepaid expenses and other current assets in the Condensed Consolidated Balance Sheets.

	Liability Derivatives
Derivatives designated as	September 30,		December 31,
cash flow hedging instruments	2011		2010
Commodity swaps (1)	$	19,947	$	3,370

Derivatives not designated as	September 30,		December 31,
cash flow hedging instruments	2011		2010
Forward coal sales (2)	$	56,362	$	3,958
Commodity swaps (3)	826		36
Commodity options-coal (4)	17		264
Interest rate swap (5)	13,014		21,304
Freight swap (6)	—		47
Total	$	70,219	$	25,609
Total liability derivatives	$	90,166	$	28,979

(1) As of September 30, 2011, $5,059 is recorded in accrued expenses and other current liabilities and $14,888 is recorded in other non-current liabilities in the Condensed Consolidated Balance Sheets. As of December 31, 2010, $3,256 is recorded in accrued expenses and other current liabilities and $114 is recorded in other non-current liabilities in the Condensed Consolidated Balance Sheets.

(2)  As of September 30, 2011, $49,071 is recorded in accrued expenses and other current liabilities and $7,291 is recorded in other non-current liabilities in the Condensed Consolidated Balance Sheets.  As of December 31, 2010, $3,958 is recorded in accrued expenses and other current liabilities in the Condensed Consolidated Balance Sheets.

(3) As of September 30, 2011, $584 is recorded in accrued expenses and other current liabilities and $242 is recorded in other non-current liabilities in the Condensed Consolidated Balance Sheets. As of December 31, 2010, $36 is recorded in accrued expenses and other current liabilities in the Condensed Consolidated Balance Sheets.

(4) As of September 30, 2011, $3 is recorded in accrued expenses and other current liabilities and $14 is recorded in other non-current liabilities in the Condensed Consolidated Balance Sheets. As of December 31, 2010, $40 is recorded in accrued expenses and other current liabilities and $224 is recorded in other non-current liabilities in the Condensed Consolidated Balance Sheets.

22

ALPHA NATURAL RESOURCES, INC. AND SUBSIDIARIES

NOTES to CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited, amounts in thousands except share and per share data)

(5) As of September 30, 2011, $12,120 is recorded in accrued expenses and other current liabilities and $894 is recorded in other non-current liabilities in the Condensed Consolidated Balance Sheets. As of December 31, 2010, $12,592 is recorded in accrued expenses and other current liabilities and $8,712 is recorded in other non-current liabilities in the Condensed Consolidated Balance Sheets.

(6) As of December 31, 2010, $47 is recorded in accrued expenses and other current liabilities in the Condensed Consolidated Balance Sheets.

The following tables present the gains and losses from derivative instruments for the nine months ended September 30, 2011 and 2010 and their location within the Condensed Consolidated Financial Statements:

	Gain (loss) reclassified				Gain (loss) recorded
	from accumulated other				in accumulated other
Derivatives designated as	comprehensive income (loss) to earnings				comprehensive income (loss)
cash flow hedging instruments	2011		2010		2011			2010
Commodity swaps (1) (2)	$	11,519	$	361	$	(1,759	)	$	2,330

(1)  Amounts are recorded as a component of cost of coal sales in the Condensed Consolidated Statements of Operations.

(2)  Net of tax.

	Gain (loss) recorded in earnings
	Three months ended						Nine Months Ended
Derivatives not designated as	September 30,						September 30,
cash flow hedging instruments	2011			2010			2011			2010
Forward coal sales (1)	$	68,451		$	(2,093	)	$	65,685		$	(5,159	)
Forward coal purchases (1)	(7,179		)	2,677			(6,757		)	3,134
Commodity swaps (2)	(389		)	128			(780		)	(483		)
Commodity options-diesel fuel (2)	—			(3		)	—			(94		)
Commodity options-coal (1)	311			(217		)	246			(375		)
Interest rate swap (3)	434			(2,951		)	(1,086		)	(8,903		)
Freight swap (2)	—			—			84			—
	$	61,628		$	(2,459	)	$	57,392		$	(11,880	)

(1) Amounts are recorded as a component of other revenues in the Condensed Consolidated Statements of Operations.

(2) Amounts are recorded as a component of other expenses in the Condensed Consolidated Statements of Operations.

(3) Amounts are recorded as a component of interest expense in the Condensed Consolidated Statements of Operations.

Unrealized losses recorded in accumulated other comprehensive income (loss) are reclassified to income or loss as the financial swaps settle and the Company purchases the underlying items that are being hedged. During the next twelve months, the Company expects to reclassify approximately ($5,521), net of tax, to earnings. The following table summarizes the changes to accumulated other comprehensive income (loss) related to hedging activities during the nine months ended September 30, 2011 and 2010:

23

ALPHA NATURAL RESOURCES, INC. AND SUBSIDIARIES

NOTES to CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited, amounts in thousands except share and per share data)

	Nine Months Ended
	September 30,
	2011			2010
Balance at beginning of period	$	8,443		$	899
Net change associated with current year hedging transactions	(1,759		)	2,330
Net amounts reclassified to earnings	(11,519		)	(361		)
Balance at end of period	$	(4,835	)	$	2,868

(16)     Income Taxes

The total income tax expense (benefit) provided on pretax income was allocated as follows:

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2011			2010			2011		2010
Continuing operations	$	(4,002	)	$	1,660		$	2,178	$	18,010
Discontinued operations	—			(424		)	—		(1,073		)
Total	$	(4,002	)	$	1,236		$	2,178	$	16,937

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

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2011			2010			2011			2010
Federal statutory income tax expense	$	21,849		$	11,908		$	22,773		$	36,478
Increases (reductions) in taxes due to:
Percentage depletion allowance	(28,810		)	(13,355		)	(29,504		)	(44,275		)
State taxes, net of federal tax impact	227			(259		)	374			(696		)
Deduction for domestic production activities	—			1,844			—			(1,927		)
Change in law - Medicare Part D Subsidy	—			—			—			25,566
State statutory tax rate change, net of federal tax impact	341			—			(8,984		)	—
State apportionment change, net of federal tax impact	—			—			8,343			—
Non-deductible acquisition costs	—			—			5,961			—
Other, net	2,391			1,522			3,215			2,864
Income tax expense (benefit) from continuing operations	$	(4,002	)	$	1,660		$	2,178		$	18,010

The Patient Protection and Affordable Care Act (the “PPACA”) and the Reconciliation Act were signed into law in March 2010. As a result of these two acts, tax benefits available to employers that receive the Medicare Part D subsidy will be eliminated beginning in years ending after December 31, 2012. During the nine months ended September 30, 2010, the income tax effect related to the acts was a reduction of $25,566 to the deferred tax asset related to the postretirement prescription drug benefits.

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 Balance Sheets include the following amounts:

24

ALPHA NATURAL RESOURCES, INC. AND SUBSIDIARIES

NOTES to CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited, amounts in thousands except share and per share data)

	September 30,			December 31,
	2011			2010
Deferred tax assets
Asset retirement obligations	$	250,898		$	87,904
Other liabilities	60,285			48,989
Pension and postretirement medical obligations	462,163			280,490
Alternative minimum tax credit carryforwards	234,408			120,431
Goodwill	9,795			10,848
Workers’ compensation obligations	120,848			38,928
Acquired intangibles, net	125,422			—
Other assets	—			13,012
Net operating loss carryforwards	306,348			18,251
Gross deferred tax assets	1,570,167			618,853
Less valuation allowance	(29,943		)	(10,975		)
Total net deferred tax assets	1,540,224			607,878
Deferred tax liabilities
Property, equipment and mineral reserves	(3,079,161		)	(707,616		)
Acquired coal supply agreements	—			(55,408		)
Other assets	—			(38,061		)
Debt discount	(27,580		)	(26,549		)
Total deferred tax liabilities	(3,106,741		)	(827,634		)
Net deferred tax liability	$	(1,566,517	)	$	(219,756	)

The breakdown of the net deferred tax liability as recorded in the accompanying Condensed Consolidated Balance Sheets is as follows:

	September 30,			December 31,
	2011			2010
Current asset	$	3,579		$	29,652
Noncurrent liability	(1,570,096		)	(249,408		)
Total net deferred tax liability	$	(1,566,517	)	$	(219,756	)

(17)     Employee Benefit Plans

The Company sponsors or participates in several benefit plans for its employees, including postemployment health care and life insurance, defined benefit and defined contribution pension plans, and provides workers’ compensation and black lung benefits.

The components of net periodic cost, including the portion related to the obligations assumed in the Acquisition, are included in the tables below.

Components of Net Periodic Pension Costs

The components of net periodic benefit costs are as follows:

25

ALPHA NATURAL RESOURCES, INC. AND SUBSIDIARIES

NOTES to CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited, amounts in thousands except share and per share data)

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2011			2010			2011			2010
Service cost	$	3,284		$	1,864		$	4,379		$	5,671
Interest cost	8,295			3,407			16,378			10,646
Expected return on plan assets	(9,594		)	(3,349		)	(19,597		)	(9,805		)
Amortization of net actuarial (gain) loss	(71		)	58			(205		)	116
Curtailment gain	—			(5,052		)	—			(5,052		)
Gain on settlement	(145		)	—			(2,327		)	—
Net periodic benefit cost	$	1,769		$	(3,072	)	$	(1,372	)	$	1,576

Components of Net Periodic Costs of Other Postretirement Benefit Plans

The components of net periodic benefit costs are as follows:

	Three Months Ended					Nine Months Ended
	September 30,					September 30,
	2011			2010		2011			2010
Service cost	$	3,218		$	2,576	$	8,426		$	7,679
Interest cost	11,822			9,282		31,479			27,199
Amortization of prior service cost (credit)	(238		)	298		(714		)	1,372
Amortization of net actuarial (gain) loss	299			355		898			104
Net periodic benefit cost	$	15,101		$	12,511	$	40,089		$	36,354

Components of Net Periodic Costs of Black Lung

The components of net periodic benefit costs are as follows:

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2011			2010			2011			2010
Service cost	$	1,450		$	360		$	2,611		$	1,034
Interest cost	1,787			578			3,367			1,635
Expected return on plan assets	(6		)	(17		)	(19		)	(53		)
Amortization of net actuarial loss	209			106			627			240
Net periodic benefit cost	$	3,440		$	1,027		$	6,586		$	2,856

During the third quarter of 2011, the Company internally announced the comprehensive integration of employee benefits programs to align the employee benefits of Massey and Alpha employees which included a freeze of the Massey defined benefit plan to new participants as of January 1, 2012.  As a result, the Company re-measured the obligations related to the defined benefit pension and other postretirement benefit plans assumed in the Acquisition, resulting in estimated increases of $70,333 and $34,788, to the pension and other postretirement benefit obligations, respectively, as of September 30, 2011, with an offset to accumulated other comprehensive loss, net of taxes.

26

ALPHA NATURAL RESOURCES, INC. AND SUBSIDIARIES

NOTES to CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited, amounts in thousands except share and per share data)

(18)     Stock-Based Compensation Awards

On May 19, 2010, the Company’s stockholders approved the 2010 Long-Term Incentive Plan (the “2010 LTIP”). The principal purpose of the 2010 LTIP is to advance the interests of the Company and its stockholders by providing incentives to certain eligible persons who contribute significantly to the strategic and long-term performance objectives and growth of the Company. The 2010 LTIP provides for a variety of awards, including options, stock appreciation rights, restricted stock, restricted share units (both time-based and performance-based), and any other type of award deemed by the Compensation Committee in its discretion to be consistent with the purposes of the 2010 LTIP.  The 2010 LTIP is currently authorized for the issuance of awards for up to 3,250,000 shares of common stock, and as of September 30, 2011, 2,481,462 shares of common stock were available for grant under the plan.

During the nine months ended September 30, 2011, the Company awarded certain of its executives and key employees 304,943 time-based restricted share units and 227,199 performance-based restricted share units. The time-based share units vest, subject to continued employment, ratably over three-years or cliff vest after three years (with accelerated vesting upon a change of control and certain retirement scenarios). The performance-based share units cliff vest after three years, subject to continued employment and the satisfaction of the performance criteria (with accelerated vesting upon a change of control and certain retirement scenarios). The 227,199 performance-based restricted share units awarded during the nine months ended September 30, 2011 have the potential to be distributed from 0% to 200% of the awarded amount, depending on the actual results versus the pre-established performance criteria over the three-year period. The Company issued 915,509 fully vested stock options to Massey employees to replace outstanding options with an estimated fair market value of $29,217, of which $5,717 was expensed immediately and the remainder was treated as part of the purchase consideration for the Acquisition. The Company estimated the fair market value using a trinomial lattice model with assumptions for volatility, expected remaining life of options, expected dividend yield and a risk-free rate of interest.

At September 30, 2011, the Company had three types of stock-based awards outstanding: restricted stock, restricted share units (both time-based and performance-based), and stock options. Stock-based compensation expense totaled $8,847 and $7,395, for the three months ended September 30, 2011 and 2010, respectively. Stock-based compensation expense totaled $55,856 and $24,403, for the nine months ended September 30, 2011 and 2010, respectively. For the three months ended September 30, 2011 and 2010, approximately 72% and 76%, respectively, of stock-based compensation expense is reported as selling, general and administrative expenses. For the nine months ended September 30, 2011 and 2010, approximately 74% and 74%, respectively, of stock-based compensation expense is reported as selling, general and administrative expenses. Approximately 28% and 24%, of stock-based compensation expense was recorded as cost of coal sales for the three months ended September 30, 2011 and 2010, respectively. Approximately 26% and 26%, of stock-based compensation expense was recorded as cost of coal sales for the nine months ended September 30, 2011 and 2010, respectively.

Stock-based compensation expense for the three and nine months ended September 30, 2011 included $21,216, inclusive of the $5,717 discussed above, related to replacing or otherwise settling outstanding stock-based compensation awards for Massey employees in connection with the Acquisition.

In November 2008, the Board of Directors authorized the Company to repurchase common shares from employees (upon the election by the employee) to satisfy the employees’ minimum statutory tax withholdings upon the vesting of restricted stock and restricted share units (both time-based and performance-based).  Shares that are repurchased to satisfy the employees’ minimum statutory tax withholdings are recorded in treasury stock at cost, and these shares are not added back into the pool of shares available for grant of the respective plans the shares were granted from. During the nine months ended September 30, 2011 and 2010, the Company repurchased 211,976 and 366,329, respectively, of common shares from employees at an average price paid per share of $56.69 and $45.26, respectively.

(19) Commitments and Contingencies

(a) General

Estimated losses from loss contingencies are accrued by a charge to income when information available indicates that it is probable that an asset has been impaired or a liability has been incurred and the amount of the loss can be reasonably estimated. If a loss contingency is not probable or reasonably estimable, disclosure of the loss contingency is made in the consolidated financial statements when it is at least reasonably possible that a loss may be incurred and that the loss could be material.

27

ALPHA NATURAL RESOURCES, INC. AND SUBSIDIARIES

NOTES to CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited, amounts in thousands except share and per share data)

(b) Commitments and Contingencies

Commitments

In connection with the July 31, 2009 merger of Alpha Natural Resources, Inc. and Foundation Coal Holdings, Inc. (“Foundation”) (the “Foundation Merger”), the Company assumed the obligations for a federal coal lease, which contains an estimated 224.0 million tons of proven and probable coal reserves in the Powder River Basin. The lease bid was $180,540, payable in five equal annual installments of $36,108. The first two installments were paid in 2009 and 2008 by Foundation. The third and fourth installments have been paid by the Company. The remaining annual installment of $36,108 is due on May 1, 2012.

In September 2011, the Company entered into a federal coal lease, which contains an estimated 130.2 million tons of proven and probable coal reserves in the Powder River Basin. The lease bid was $143,415, payable in five equal annual installments of $28,683. The first installment was paid in September 2011. The remaining four annual installments of $28,683 are due each September until the obligation is satisfied in 2015.

Also, see Note 11 regarding the Company’s other debt.

Contingencies

Extensive regulation of the impacts of mining on the environment and of maintaining workplace safety, and related litigation, have had or may have a significant effect on the Company’s costs of production and results of operations. Further regulations, legislation or litigation in these areas may also cause the Company’s sales or profitability to decline by increasing costs or by hindering the Company’s ability to continue mining at existing operations or to permit new operations.

(c) 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, performance or surety bonds, and other guarantees and indemnities related to the obligations of affiliated entities which are not reflected in the Company’s Condensed Consolidated Balance Sheets. Management does not expect any material losses to result from these guarantees or other off-balance sheet financial instruments.

Letters of Credit

The amount of outstanding bank letters of credit issued under the Company’s accounts receivable securitization program as of September 30, 2011 was $151,990. As of September 30, 2011, the Company had $14,411 of additional letters of credit outstanding under the Revolving Facility.

(d) Legal Proceedings

The Company’s legal proceedings range from cases brought by a single plaintiff to class actions. These legal proceedings, as well as governmental examinations, involve various business units and a variety of claims including, but not limited to, contract disputes, personal injury claims, property damage claims (including those resulting from blasting, trucking and flooding), environmental and safety issues, and employment matters. While some matters pending against the Company or its subsidiaries specify the damages claimed by the plaintiffs, many seek an unquantified amount of damages or are at very early stages of the legal process. Even when the amount of damages claimed against the Company or its subsidiaries is stated, the claimed amount may be exaggerated or unsupported. As a result, some matters have not yet progressed sufficiently through discovery and development of important factual information and legal issues to enable the Company to estimate a range of possible loss. The Company intends to defend these legal proceedings vigorously, litigating or settling cases where in management’s judgment it would be in the best interest of shareholders to do so.

The Company evaluates, on a quarterly basis, developments in legal proceedings and governmental examinations that could cause an increase or decrease in the amount of the reserves previously recorded. Excluding fees paid to external legal counsel, the Company recognized (income) expense, net of expected insurance recoveries, associated with litigation-related reserves of $(41) and $230 during the three months ended September 30, 2011 and 2010, respectively.

Federal Class Action

On April 29, 2010 and May 28, 2010, two purported class actions  which were subsequently consolidated into one case were brought against, among others, Massey, now the Company’s subsidiary Alpha Appalachia Holdings, Inc. (“Massey” or “Alpha Appalachia”), in the

28

ALPHA NATURAL RESOURCES, INC. AND SUBSIDIARIES

NOTES to CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited, amounts in thousands except share and per share data)

United States District Court for the Southern District of West Virginia in connection with alleged violations of the federal securities laws.  The lead plaintiffs allege, purportedly on behalf of a class of former Massey stockholders, that (i) Massey and certain former Massey directors and officers violated Section 10(b) of the Securities and Exchange Act of 1934, as amended, (the “Exchange Act”) and Rule 10b-5 thereunder by intentionally misleading the market about the safety of Massey’s operations and that (ii) Massey’s former officers violated Section 20(a) of the Exchange Act by virtue of their control over persons alleged to have committed violations of Section 10(b) of the Exchange Act.  The lead plaintiffs seek a determination that this action is a proper class action; certification as class representatives; an award of compensatory damages in an amount to be proven at trial, including interest thereon; and an award of reasonable costs and expenses, including counsel fees and expert fees.

On February 16, 2011, the lead plaintiffs moved to partially lift the statutory discovery stay imposed under the Private Securities Litigation Reform Act of 1995 (“PSLRA”).  On March 3, 2011, the United States moved to intervene and to stay discovery until the completion of criminal proceedings allegedly arising from the same facts that allegedly give rise to this action.  On April 15, 2011, the United States and the lead plaintiffs informed the court that they had reached an agreement regarding the United States’ motions and jointly requested that if the court  decided to lift the statutory discovery stay, the court limit the discovery to be provided by Massey in certain respects.

On April 25, 2011, the defendants moved to dismiss the operative complaint.  On June 9, 2011, plaintiffs filed an opposition to the defendants’ motion to dismiss.  The defendants’ motion to dismiss is currently pending.

On September 28, 2011, the court granted plaintiffs’ motion to partially lift the PSLRA discovery stay, granted the United States’ motion to intervene and imposed the conditions on discovery requested by the United States and plaintiffs.  Massey intends to comply fully with its discovery obligations in accordance with the court’s order.

Upper Big Branch (“UBB”) Mine

On April 5, 2010, an explosion occurred at the UBB mine, tragically resulting in the deaths of 29 miners and serious physical injuries and/or alleged psychiatric injuries to two others.  The Federal Mine Safety and Health Administration (“MSHA”), the Office of Miner’s Health, Safety, and Training of the State of West Virginia (“State”), and the Governor’s Independent Investigation Panel (“GIIP”) have undertaken investigations into the cause of the UBB explosion.  Additionally, the U.S. Attorney for the Southern District of West Virginia has commenced a grand jury investigation. The Company’s own investigation is on-going.  The GIIP published its final report on May 19, 2011.  MSHA and the State have indicated that they will issue their respective reports later this year.

The Company cannot provide any assurance as to the outcome of these investigations, including whether or not it becomes subject to possible criminal and civil penalties or enforcement actions.  In order to accommodate these investigations, the UBB mine has been idled since the explosion. The Company has sought permission to close the UBB mine permanently; regulatory authorities have not yet granted such permission.

Wrongful Death and Personal Injury

As of October 28, 2011, eighteen of the families of the deceased miners had filed wrongful death suits against Massey and certain of its subsidiaries, while eight of the families had signed court-approved agreements to settle their claims, seven of which have received their settlement. In addition, as of September 30, 2011, nine employees had filed lawsuits against Massey and certain of its subsidiaries alleging emotional distress or personal injuries due to their proximity to the explosion.  On October 14, 2011, certain of the individual defendants filed motions to dismiss several of the wrongful death actions.  On the same date, Massey and its subsidiaries that are named as defendants answered several of the wrongful death actions.

On September 22, 2011, the court ordered that these cases, along with the Uniform Fraudulent Transfer Act action described below be mediated by a panel of three mediators.  Defendants and plaintiffs have each selected one mediator and have mutually agreed on the third.  The court ordered that mediation be completed by November 21, 2011.

Uniform Fraudulent Transfers Act Action

On June 1, 2011, certain of the plaintiffs who had filed wrongful death cases filed a complaint in the Circuit Court of Boone County, West Virginia, alleging that the Acquisition represented a fraudulent transfer intended to prevent plaintiffs from recovering damages in their wrongful death actions.  Plaintiffs request that the court order defendants to post a bond of at least $500,000.

29

ALPHA NATURAL RESOURCES, INC. AND SUBSIDIARIES

NOTES to CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited, amounts in thousands except share and per share data)

On June 22, 2011, certain of the former Massey directors filed a motion for a more definite statement, requesting that the court order plaintiffs to clarify their allegations and how their allegations constitute a violation of the Uniform Fraudulent Transfer Act.  On July 27, 2011, plaintiffs opposed the motion for a more definite statement.  On August 24, 2011, the former directors filed a reply brief in further support of their motion.  The court heard oral arguments on defendants’ motion on September 22, 2011.  At the hearing, the court ordered that this case be mediated with the wrongful death cases, as discussed above.

Derivative Litigation and Related Class Action Litigation

A number of purported former Massey stockholders have brought lawsuits derivatively, purportedly on behalf of Massey, in West Virginia and Delaware state courts, in connection with the April 5, 2010 explosion at UBB and related claims. Certain of these former stockholders have also initiated contempt proceedings in West Virginia state court in connection with alleged violations of the settlement of a previous derivative lawsuit. In addition, these and other purported former Massey stockholders have asserted class action claims allegedly arising out of the Acquisition in Delaware and West Virginia state courts and Virginia federal court. These cases are summarized below.

Delaware Chancery Court

In a case filed on April 23, 2010 in Delaware Chancery Court, In re Massey Energy Company Derivative and Class Action Litigation (“In re Massey”), a number of purported former Massey stockholders (the “Delaware Plaintiffs”) allege, purportedly on behalf of Massey, that certain former Massey directors and officers breached their fiduciary duties by failing to monitor and oversee Massey’s employees, allegedly resulting in fines against Massey and the explosion at UBB, and by wasting corporate assets by paying allegedly excessive and inflated amounts to former Massey Chairman and Chief Executive Officer Don L. Blankenship as part of his retirement package.  The Delaware Plaintiffs also allege, on behalf of a purported class of former Massey stockholders, that certain former Massey directors breached their fiduciary duties by agreeing to the Acquisition.  The Delaware Plaintiffs allege that defendants breached their fiduciary duties by failing to secure the best price possible, by failing to secure any downside protection for the acquisition consideration, and by purportedly eliminating the possibility of a superior proposal by agreeing to a “no shop” provision and a termination fee.  In addition, the Delaware Plaintiffs allege that defendants agreed to the Acquisition to eliminate the liability that defendants faced on the Delaware Plaintiffs’ derivative claims.  Finally, the Delaware Plaintiffs allege that defendants failed to fully disclose all material information necessary for Massey stockholders to cast an informed vote on the Acquisition.

The Delaware Plaintiffs also name the Company and Mountain Merger Sub, Inc. (“Merger Sub”), the Company’s wholly-owned subsidiary created for purposes of effecting the Acquisition, which, at the effective time of the Acquisition, was merged with and into Massey, as defendants. The Delaware Plaintiffs allege that the Company and Merger Sub aided and abetted the former Massey directors’ alleged breaches of fiduciary duty and agreed to orchestrate the Acquisition for the purpose of eliminating the former Massey directors’ potential liability on the derivative claims.

The Delaware Plaintiffs seek an award against each defendant for restitution and/or compensatory damages, plus pre-judgment interest; an order establishing a litigation trust to preserve the derivative claims asserted in the complaint; and an award of costs, disbursements and reasonable allowances for fees incurred in this action. The Delaware Plaintiffs also sought to enjoin consummation of the Acquisition.  The court denied their motion for a preliminary injunction on May 31, 2011.

Two additional putative class actions were brought against Massey, certain former Massey directors and officers, the Company and Merger Sub in the Delaware Court of Chancery following the announcement of the Acquisition. Silverman v. Phillips, et al., filed on February 7, 2011 (“Silverman”), and Goe v. Massey Energy Company, et al., filed on February 14, 2011 (“Goe”), assert allegations that are nearly identical to those made by the Delaware Plaintiffs in In re Massey.  Silverman and Goe were consolidated for all purposes with In re Massey on February 9, 2011 and February 24, 2011, respectively.

On June 10, 2011, Massey moved to dismiss the Delaware Plaintiffs’ derivative claims on the ground that the Delaware Plaintiffs, as former Massey stockholders, lacked the legal right to pursue those claims, and the Company and Merger Sub moved to dismiss the purported class action claim against them for failure to state a claim upon which relief may be granted.  On June 10 and 13, 2011, certain former Massey director and officer defendants moved to dismiss the derivative claims and filed answers to the remaining direct claims.

On September 14, 2011, the parties submitted a Stipulation Staying Proceedings, which stays the matter until March 1, 2012, without prejudice to the parties’ right to seek an extension or a termination of the stay by application to the court.  The court approved the stipulation and entered the stay that same day.

30

ALPHA NATURAL RESOURCES, INC. AND SUBSIDIARIES

NOTES to CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited, amounts in thousands except share and per share data)

West Virginia State Court

In a case filed on April 15, 2010 in West Virginia state court, a number of purported former Massey stockholders (the “West Virginia Plaintiffs”) allege, purportedly on behalf of Massey, that certain former Massey directors and officers breached their fiduciary duties by failing to monitor and oversee Massey’s employees, allegedly resulting in fines against Massey and the explosion at UBB. The West Virginia Plaintiffs seek an award against each defendant and in favor of Massey for the amount of damages sustained by Massey as a result of defendants’ alleged breaches of fiduciary duty and an award to the West Virginia Plaintiffs of the costs and disbursements of the action, including reasonable attorneys’ fees, accountants’ and experts’ fees, costs, and expenses.

On May 2, 2011, the West Virginia Plaintiffs moved for leave to amend their complaint to add Alpha and Merger Sub as additional defendants and to add claims allegedly arising out of the then-proposed Acquisition. In their proposed amended complaint, the West Virginia Plaintiffs allege that certain former Massey directors breached their fiduciary duties by failing to obtain the highest price reasonably available for Massey and by failing to disclose material information to Massey’s then-stockholders in connection with the stockholder vote on the Acquisition. The West Virginia Plaintiffs also allege that Massey, Merger Sub and the Company aided and abetted the former Massey directors’ breaches of fiduciary duty. The West Virginia Plaintiffs further allege that certain former Massey directors wasted corporate assets by failing to maintain sufficient internal controls over Massey’s safety and environmental reporting; failing to properly consider the interests of Massey and its stockholders, including the value of the derivative claims asserted by the West Virginia Plaintiffs in the Acquisition; failing to conduct proper supervision; paying undeserved incentive compensation to certain Massey executive directors, particularly former Massey Chairman and CEO Don L. Blankenship during Massey’s alleged years of noncompliance with safety regulations and more recently as part of Blankenship’s retirement package; incurring millions of dollars in fines due to safety and environmental violations; and incurring potentially hundreds of millions of dollars of legal liability and/or legal costs to defend defendants’ allegedly unlawful actions. Finally, the West Virginia Plaintiffs’ proposed amended complaint alleges that certain former Massey directors were unjustly enriched by their compensation as directors.

On May 25, 2011, the West Virginia Plaintiffs filed a petition with the West Virginia Supreme Court for a preliminary injunction against the consummation of the Acquisition, which was denied on May 31, 2011.

On June 24, 2011, the defendants moved to dismiss the West Virginia Plaintiffs’ original complaint on the grounds that plaintiffs, as former Massey stockholders, lacked the legal right to pursue those claims, or, alternatively, to stay this case in favor of In re Massey, described above.  Defendants also filed an opposition to the West Virginia Plaintiffs’ motion to amend.  On August 19, 2011, the West Virginia Plaintiffs filed a combined memorandum in opposition to defendants’ motion to dismiss or stay and in further support of their motion to amend.  On August 22, 2011, defendants filed a memorandum in further support of their motion to dismiss or stay and in further opposition to plaintiffs’ motion to amend.  On August 23, 2011, the court held a hearing on defendants’ motion to dismiss and plaintiffs’ motion to amend.  Without deciding the motions, the court requested the parties to submit competing proposed orders containing findings of fact and conclusions of law and proposed scheduling orders for the court’s consideration, which the parties did on September 9, 2011.  The motions remain pending.

U.S. District Court — Eastern District of Virginia

In the United States District Court for the Eastern District of Virginia, purported former Massey stockholder Benjamin Mostaed (“Mostaed”) alleges in a suit filed on February 2, 2011, and amended thereafter, purportedly on behalf of a class of former Massey stockholders, that Massey, Alpha and certain former Massey directors violated Sections 14(a) of the Exchange Act and Rule 14a-9 thereunder by filing a false and misleading preliminary proxy statement in connection with the then-proposed Acquisition; that Massey and certain former Massey directors violated Section 20(a) of the Exchange Act by virtue of their control over persons alleged to have committed violations of Section 14(a) of the Exchange Act; that certain former Massey directors violated their fiduciary duties by causing Massey to enter into the Merger Agreement with Alpha pursuant to an unfair process that resulted in an unfair offer with preclusive deal protection devices that allegedly inhibited superior proposals; and that Massey and Alpha aided and abetted the former Massey directors’ alleged breaches of fiduciary duty.  Mostaed sought an injunction preventing the consummation of the Acquisition; rescission of the Merger Agreement; and an award of the costs and disbursements of the action, including reasonable attorneys’ and experts’ fees.

On February 4, 2011, William D. Perkins (“Perkins”), another purported former Massey stockholder, filed a suit in the Eastern District of Virginia similar to Mostaed’s.  On February 17, 2011, Mostaed requested that the court consolidate the two pending actions, along with any subsequently filed actions challenging the proposed transaction.  Defendants did not oppose the motion.  On June 3, 2011, the court granted the motion.

31

ALPHA NATURAL RESOURCES, INC. AND SUBSIDIARIES

NOTES to CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited, amounts in thousands except share and per share data)

On February 18, 2011, purported Massey shareholder Henry Mandel filed, on behalf of a proposed class of Massey shareholders, a complaint for breach of fiduciary duty similar to the complaints filed by Mostaed and Perkins.  On June 9, 2011, the parties submitted an agreed order dismissing Mr. Mandel’s action without prejudice, which the court entered on June 13, 2011.

On June 24, 2011, Mostaed informed the court that, aside from a motion for an award of attorneys’ fees, he did not intend to prosecute the action further and would voluntarily dismiss his claims.

On July 13, 2011, Mostaed and Perkins moved for an award of attorneys’ fees, reimbursement of expenses and incentive awards, contending that voluntary remedial measures implemented by defendants and sought by Mostaed (i.e., additional disclosure) had mooted Mostaed’s claims.  On July 26, 2011, defendants filed their opposition and on August 4, 2011, Mostaed and Perkins filed their reply brief.  The court subsequently denied plaintiffs’ request for oral argument.  The motion remains pending.

Contempt Proceedings

On April 16, 2010, Manville Personal Injury Settlement Trust (“Manville”), one of the West Virginia Plaintiffs, filed a petition in the Circuit Court of Kanawha County, West Virginia, requesting that the court initiate civil contempt proceedings against certain of the then-current members of Massey’s board of directors with respect to alleged violations of a settlement agreement.  In July 2007, Manville filed a complaint, purportedly on behalf of Massey, alleging that certain of Massey’s then directors and officers breached their fiduciary duties.  On May 20, 2008, the parties executed a stipulation of settlement, which the court subsequently approved.  The settlement provided for a release of all claims that were or could have been asserted on behalf of Massey in exchange for, among other thing, certain corporate governance reforms and an agreement that the Massey board of directors would make a Corporate Social Responsibility Report to its stockholders on an annual basis that would include, among other things, a report on Massey’s environmental and worker safety compliance.  Manville alleges that Massey’s 2009 Corporate Social Responsibility Report did not contain a sufficient report on worker safety compliance.  On April 22, 2010, the court issued an order for a rule to show cause, initiating the contempt proceedings.

On May 31, 2011, Manville, now joined by the other two West Virginia Plaintiffs, filed a new petition for civil contempt, requesting that the court initiate civil contempt proceedings against certain of the then-current members of Massey’s board of directors and certain then-current Massey officers in connection with certain additional alleged violations of the settlement.  On June 14, 2011, the court entered the rule to show cause.

On June 22, 2011, the individual defendants that have been served with the new petition filed a motion to dismiss that petition, as well as the original April 16 petition, and also moved to vacate the 2008 order, in which the court approved the settlement, as against them.  On June 28, 2011, nominal defendant Alpha Appalachia joined in the individual defendants’ motions to dismiss and vacate.  On July 21, 2011, the court held a hearing on the defendants’ motions to dismiss and vacate.

On September 29, 2011, the court granted the individual defendants’ motions to dismiss and vacate and ordered that the contempt proceedings be terminated in their entirety.  The plaintiffs have filed an appeal.

Well Water Suit

Since September 2004, approximately 738 plaintiffs have filed approximately 400 suits against the Company’s subsidiaries Alpha Appalachia and Rawl Sales & Processing Co. in the Circuit Court of Mingo County, West Virginia (“Mingo Court”), for alleged property damage and personal injuries arising out of slurry injection and impoundment practices during the period of 1978 through 1987 allegedly contaminating plaintiffs’ water wells. Plaintiffs sought injunctive relief and compensatory damages in excess of $170,000 and unquantified punitive damages, including medical monitoring for the next 30 years.

A mediation session held on July 25-27, 2011 resulted in settlement of all plaintiffs’ claims.  A hearing was held on September 29, 2011 for Court approval of the settlement, but no ruling has been entered by the Court. The Company believes that the terms of the settlement will not result in any material impact on its results of operations.

Mine Water Discharge Suits

The Sierra Club and others have filed two citizens’ suits against several of the Company’s subsidiaries in federal court in the Southern District of West Virginia (“Southern District Court”) alleging violations of the terms of its water discharge permits.  The plaintiffs in both cases have sought a civil penalty as well as injunctive relief.

32

ALPHA NATURAL RESOURCES, INC. AND SUBSIDIARIES

NOTES to CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited, amounts in thousands except share and per share data)

One of the cases is limited to allegations that two of the Company’s subsidiaries, Independence Coal Company and Jacks Branch Coal Company, are violating limits on the allowable concentrations of selenium in their discharges of storm water from several surface mines. In August 2011, the Company’s subsidiaries reached a tentative settlement with plaintiffs on material terms and are continuing to work with plaintiffs on a final agreement.

The other action is limited to claims that several of the Company’s subsidiaries are violating discharge limits on substances other than selenium, such as aluminum. The Company has entered into a tentative settlement regarding this case, which is subject to court approval.  The Company has made all the payments called for under the agreement and believes that the terms of the settlement will not result in any material impact on its results of operations.

The West Virginia Department of Environmental Protection has brought civil enforcement actions against three of the Company’s subsidiaries, Riverside Energy Company, LLC, Paynter Branch Mining, Inc. and Pioneer Fuel Corporation, in various West Virginia state courts seeking civil penalties based on alleged discharge of selenium, and in one case, other additional materials, in excess of permitted levels.  In October 2011, Riverside Energy Company, LLC reached a tentative agreement to settle the dispute, and the parties are awaiting court approval of that settlement. The suits against Paynter Branch Mining, Inc. and Pioneer Fuel Corporation remain ongoing. The Company does not believe that the amounts of any civil penalties fines resulting from the Paynter Branch Mining, Inc. and Pioneer Fuel Corporation cases will be material to its results of operations.

The tentative settlements reached in the selenium cases above include fines and penalties, which the Company believes will not be material to its results of operations, and requirements to comply with selenium discharge limits on specific permits involved in the cases. The estimated future costs to treat for selenium discharges on specific permits involved include costs to build and to maintain water treatment systems. For permits that are active, capital costs (expected to be approximately $23,000) will be capitalized as property and equipment and depreciated over the expected lives and annual water treatment costs (expected to be approximately $2,300 annually) will be expensed as incurred. For post closing periods on active permits as well as non-active permits, estimated future treatment costs have been included in asset retirement obligations. As of September 30, 2011, asset retirement obligations related to permits involved in the tentative settlements include approximately $126,000 ($95,000 for non-active permits and $31,000 for active permits) related to the treatment for selenium discharges.

Nicewonder Litigation

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

On September 30, 2009, the District Court issued an order that dismissed or denied for lack of standing all of the plaintiff’s claims under federal law and remanded the remaining state claims to the Circuit Court in Kanawha County, West Virginia for resolution.  On May 7, 2010, the Circuit Court of Kanawha County entered summary judgment in favor of NCI.  The plaintiffs have filed a petition for appeal with the West Virginia Supreme Court of Appeals and the Court of Appeals accepted the appeal by order dated November 17, 2010.  On June 22, 2011, the West Virginia Supreme Court reversed the circuit court order granting summary judgment in favor of NCI, and remanded the case for further proceedings.

Other Legal Proceedings

Massey and certain of its subsidiaries are also parties to numerous lawsuits and other legal proceedings related to certain non-coal businesses previously conducted by its predecessor, Fluor Corporation.  These lawsuits include the Alexander-Pederson-Helig cases, which resulted in late July 2011 in an unexpected jury award in the City of St. Louis Circuit Court in favor of the plaintiffs for $38,500 in compensatory and economic damages and $320,000 in punitive damages.  The total aggregate judgment against Massey’s subsidiaries is $118,500.  Under the terms of the Distribution Agreement entered into by Massey and Fluor as of November 30, 2000 in connection with the spin-off of Fluor by Massey, Fluor has agreed to indemnify Massey with respect to all such legal proceedings and has assumed defense of the proceedings.   Consistent with that agreement, on September 28, 2011, Fluor submitted to the Court a number of surety bonds covering the full

33

ALPHA NATURAL RESOURCES, INC. AND SUBSIDIARIES

NOTES to CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited, amounts in thousands except share and per share data)

amount of the judgments against Fluor and Massey’s subsidiaries in the Alexander-Pederson-Helig cases.  The Company has recorded an indemnity receivable of $118,500 and has accrued a liability of $118,500, included in prepaid expenses and other current assets and accrued expenses and other current liabilities, respectively, in the condensed consolidated balance sheet at September 30, 2011.

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

(20) Comprehensive Income (Loss)

Total comprehensive income (loss) is as follows for the three months ended September 30, 2011 and 2010:

	Three Months Ended
	September 30,
	2011			2010
Net income	$	66,428		$	31,874
Adjustments to unrecognized gains and losses and amortization of employee benefit costs, net of income tax of $46,349 and $47,791 for the three months ended September 30, 2011 and 2010, respectively	(77,017		)	(76,148		)
Change in fair value of cash flow hedges, net of income tax of $11,019 and ($2,581) for the three months ended September 30, 2011 and 2010, respectively	(18,311		)	4,337
Change in fair value of available-for-sale marketable securities, net of income tax of $29 and ($33) for the three months ended September 30, 2011 and 2010, respectively	(50		)	53
Total comprehensive income (loss)	$	(28,950	)	$	(39,884	)

Total comprehensive income (loss) is as follows for the nine months ended September 30, 2011 and 2010:

	Nine Months Ended
	September 30,
	2011			2010
Net income	$	62,889		$	84,712
Adjustments to unrecognized gains and losses and amortization of employee benefit costs, net of income tax of $52,490 and $59,890 for the nine months ended September 30, 2011 and 2010, respectively	(87,153		)	(95,427		)
Change in fair value of cash flow hedges, net of income tax of $7,970 and ($1,234) for the nine months ended September 30, 2011 and 2010, respectively	(13,278		)	1,969
Change in fair value of available-for-sale marketable securities, net of income tax of ($48) and ($230) for the nine months ended September 30, 2011 and 2010, respectively	79			365
Total comprehensive income (loss)	$	(37,463	)	$	(8,381	)

The following table summarizes the components of accumulated other comprehensive income (loss) as of September 30, 2011 and December 31, 2010:

	September 30,			December 31,
	2011			2010
Adjustments to unrecognized gains and losses and amortization of employee benefit costs, net of income tax of $72,222 and $19,732 as of September 30, 2011 and December 31, 2010, respectively	$	(123,183	)	$	(36,030	)
Unrealized gains (losses) on cash flow hedges, net of income tax of $2,935 and ($5,035) as of September 30, 2011 and December 31, 2010, respectively	(4,835		)	8,443
Change in fair value of available-for-sale marketable securities, net of income tax of of ($50) and ($2) as of September 30, 2011 and December 31, 2010, respectively	83			4
Total accumulated other comprehensive income (loss)	$	(127,935	)	$	(27,583	)

34

ALPHA NATURAL RESOURCES, INC. AND SUBSIDIARIES

NOTES to CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited, amounts in thousands except share and per share data)

(21)     Segment Information

The Company discloses information about operating segments based on the way that management organizes the enterprise for making operating decisions and assessing performance. The Company periodically evaluates its application of accounting guidance for reporting its segments.

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 Northern and Central Appalachia and the Powder River Basin. The Company has two reportable segments: Western Coal Operations, which consists of two Powder River Basin surface mines as of September 30, 2011, and Eastern Coal Operations, which consists of 101 underground mines and 46 surface mines in Northern and Central Appalachia as of September 30, 2011, as well as road construction and coal brokerage activities.

In addition to the two reportable segments, the All Other category includes an idled underground mine in Illinois; expenses associated with certain closed mines; Dry Systems Technologies; revenues and royalties from the sale of coalbed methane at the Company’s Coal Gas Recovery business and natural gas extraction; equipment sales and repair operations; terminal services; the leasing of mineral rights; general corporate overhead and corporate assets and liabilities. The Company evaluates the performance of its segments based on EBITDA from continuing operations, which the Company defines as income (loss) from continuing operations plus interest expense, income tax expense, amortization of acquired intangibles, net, and depreciation, depletion and amortization, less interest income and income tax benefit.

Segment operating results and capital expenditures from continuing operations for the three months ended September 30, 2011 were as follows:

	Eastern			Western
	Coal			Coal		All
	Operations			Operations		Other			Consolidated
Total revenues	$	2,130,268		$	151,617	$	22,893		$	2,304,778
Depreciation, depletion, and amortization	$	221,148		$	15,293	$	6,258		$	242,699
Amortization of acquired intangibles, net	$	(82,823	)	$	7,960	$	1,589		$	(73,274	)
EBITDA from continuing operations	$	277,300		$	14,081	$	(11,313	)	$	280,068
Capital expenditures	$	126,580		$	5,084	$	10,597		$	142,261
Acquisition of mineral rights under federal lease	$	—		$	28,905	$	—		$	28,905

Segment operating results and capital expenditures from continuing operations for the three months ended September 30, 2010 were as follows:

	Eastern		Western
	Coal		Coal		All
	Operations		Operations		Other		Consolidated
Total revenues	$	850,690	$	139,353	$	11,589	$	1,001,632
Depreciation, depletion, and amortization	$	75,932	$	14,636	$	3,435	$	94,003
Amortization of acquired intangibles, net	$	28,403	$	23,995	$	—	$	52,398
EBITDA from continuing operations	$	171,547	$	25,239	$	503	$	197,289
Capital expenditures	$	58,645	$	13,685	$	14,735	$	87,065

Segment operating results and capital expenditures from continuing operations for the nine months ended September 30, 2011 were as follows:

35

ALPHA NATURAL RESOURCES, INC. AND SUBSIDIARIES

NOTES to CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited, amounts in thousands except share and per share data)

	Eastern			Western
	Coal			Coal		All
	Operations			Operations		Other			Consolidated
Total revenues	$	4,540,306		$	434,846	$	56,831		$	5,031,983
Depreciation, depletion, and amortization	$	415,752		$	44,779	$	15,231		$	475,762
Amortization of acquired intangibles, net	$	(85,017	)	$	25,874	$	2,120		$	(57,023	)
EBITDA from continuing operations	$	724,663		$	45,756	$	(194,875	)	$	575,544
Capital expenditures	$	246,712		$	24,516	$	43,701		$	314,929
Acquisition of mineral rights under federal lease	$	—		$	65,013	$	—		$	65,013

Segment operating results and capital expenditures from continuing operations for the nine months ended September 30, 2010 were as follows:

	Eastern		Western
	Coal		Coal		All
	Operations		Operations		Other			Consolidated
Total revenues	$	2,494,433	$	395,941	$	33,667		$	2,924,041
Depreciation, depletion, and amortization	$	226,168	$	43,628	$	10,432		$	280,228
Amortization of acquired intangibles, net	$	106,254	$	67,734	$	—		$	173,988
EBITDA from continuing operations	$	566,311	$	63,549	$	(15,458	)	$	614,402
Capital expenditures	$	162,041	$	29,197	$	31,722		$	222,960
Acquisition of mineral rights under federal lease	$	—	$	36,108	$	—		$	36,108

The following table presents a reconciliation of EBITDA from continuing operations to income from continuing operations:

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2011			2010			2011			2010
EBITDA from continuing operations	$	280,068		$	197,289		$	575,544		$	614,402
Interest expense	(49,148		)	(17,834		)	(94,726		)	(58,458		)
Interest income	931			967			2,988			2,495
Income tax (expense) benefit	4,002			(1,660		)	(2,178		)	(18,010		)
Depreciation, depletion and amortization	(242,699		)	(94,003		)	(475,762		)	(280,228		)
Amortization of acquired intangibles, net	73,274			(52,398		)	57,023			(173,988		)
Income from continuing operations	$	66,428		$	32,361		$	62,889		$	86,213

The following table presents total assets and goodwill as of September 30, 2011 and December 31, 2010:

	Total Assets				Goodwill
	September 30,		December 31,		September 30,		December 31,
	2011		2010		2011		2010
Eastern Coal Operations	$	14,607,635	$	3,382,335	$	2,616,277	$	323,220
Western Coal Operations	671,028		651,479		53,308		53,308
All Other	1,903,065		1,145,469		5,912		5,912
Total	$	17,181,728	$	5,179,283	$	2,675,497	$	382,440

The Company markets produced, processed, and purchased coal to customers in the United States and in international markets. Export coal revenues totaled $794,603 and $1,831,592, or approximately 34% and 36%, respectively, of total revenues for the three and nine months ended September 30, 2011, respectively. Export coal revenues totaled $278,333 and $763,323, or approximately 28% and 26%, respectively, of total revenues for the three and nine months ended September 30, 2010, respectively.

36

ALPHA NATURAL RESOURCES, INC. AND SUBSIDIARIES

NOTES to CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited, amounts in thousands except share and per share data)

(22)    Supplemental Guarantor and Non-Guarantor Financial Information

On June 1, 2011, the Company issued the New Senior Notes and may issue new registered debt securities (the “New Notes”) in the future that are and will be, respectively, fully and unconditionally guaranteed, jointly and severally, on a senior or subordinated unsecured basis by certain of the Company’s subsidiaries (the “New Notes Guarantor Subsidiaries”).

Presented below are condensed consolidating financial statements as of September 30, 2011 and December 31, 2010 and for the three and nine months ended September 30, 2011 and 2010, respectively, based on the guarantor structure that was put in place in connection with the issuance of the New Senior Notes, and would be in place in the event the Company issues New Notes in the future. The tables below refer to the Company as the issuer of the New Senior Notes and of any New Notes that may be issued in the future. “Non-Guarantor Subsidiaries” refers, for the tables below, to ANR Receivables Funding LLC, Alpha Coal India Private Limited, Coalsolv, LLC, Gray Hawk Insurance Company and Rockridge Coal Company, that were not guarantors of the New Senior Notes and would not be guarantors of the New Notes. Separate consolidated financial statements and other disclosures concerning the New Notes Guarantor Subsidiaries are not presented because management believes that such information would not be material to holders of any New Notes or related guarantees that may be issued by the Company.

37

ALPHA NATURAL RESOURCES, INC. AND SUBSIDIARIES

NOTES to CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited, amounts in thousands except share and per share data)

Alpha Natural Resources, Inc. and Subsidiaries

Supplemental Condensed Consolidating Balance Sheet

September 30, 2011

			New Notes
	Parent		Guarantor		Non-Guarantor					Total
	(Issuer)		Subsidiaries		Subsidiaries		Eliminations			Consolidated
Assets
Current assets:
Cash and cash equivalents	$	856	$	574,303	$	139	$	—		$	575,298
Trade accounts receivable, net	—		259,118		376,722		—			635,840
Inventories, net	—		496,105		—		—			496,105
Prepaid expenses and other current assets	—		677,858		2,814		—			680,672
Total current assets	856		2,007,384		379,675		—			2,387,915
Property, equipment and mine development costs, net	—		2,847,355		—		—			2,847,355
Owned and leased mineral rights and land, net	—		8,553,211		—		—			8,553,211
Goodwill	—		2,675,497		—		—			2,675,497
Other non-current assets	11,832,672		12,364,851		4,674		(23,484,447		)	717,750
Total assets	$	11,833,528	$	28,448,298	$	384,349	$	(23,484,447	)	$	17,181,728
Liabilities and Stockholders’ Equity
Current liabilities:
Current portion of long-term debt	$	37,500	$	1,029	$	—	$	—		$	38,529
Trade accounts payable	4,851		508,443		122		—			513,416
Accrued expenses and other current liabilities	33,758		974,336		6		—			1,008,100
Total current liabilities	76,109		1,483,808		128		—			1,560,045
Long-term debt	2,286,922		644,350		—		—			2,931,272
Pension and postretirement medical benefit obligations	—		1,103,170		—		—			1,103,170
Asset retirement obligations	—		743,282		—		—			743,282
Deferred income taxes	—		1,570,096		—		—			1,570,096
Other non-current liabilities	1,220,116		1,878,095		365,503		(2,440,232		)	1,023,482
Total liabilities	3,583,147		7,422,801		365,631		(2,440,232		)	8,931,347
Stockholders’ Equity
Total stockholders’ equity	8,250,381		21,025,497		18,718		(21,044,215		)	8,250,381
Total liabilities and stockholders’ equity	$	11,833,528	$	28,448,298	$	384,349	$	(23,484,447	)	$	17,181,728

38

ALPHA NATURAL RESOURCES, INC. AND SUBSIDIARIES

NOTES to CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited, amounts in thousands except share and per share data)

Alpha Natural Resources, Inc. and Subsidiaries

Supplemental Condensed Consolidating Balance Sheet

December 31, 2010

			New Notes
	Parent		Guarantor		Non-Guarantor					Total
	(Issuer)		Subsidiaries		Subsidiaries		Eliminations			Consolidated
Assets
Current assets:
Cash and cash equivalents	$	20,331	$	534,441	$	—	$	—		$	554,772
Trade accounts receivable, net	—		18,432		262,706		—			281,138
Inventories, net	—		198,172		—		—			198,172
Prepaid expenses and other current assets	—		341,755		—		—			341,755
Total current assets	20,331		1,092,800		262,706		—			1,375,837
Property, equipment and mine development costs, net	—		1,129,222		—		—			1,129,222
Owned and leased mineral rights and land, net	—		1,985,661		—		—			1,985,661
Goodwill	—		382,440		—		—			382,440
Other non-current assets	5,167,187		5,460,341		4,705		(10,326,110		)	306,123
Total assets	$	5,187,518	$	10,050,464	$	267,411	$	(10,326,110	)	$	5,179,283
Liabilities and Stockholders’ Equity
Current liabilities:
Current portion of long-term debt	$	—	$	11,839	$	—	$	—		$	11,839
Trade accounts payable	2,091		119,462		—		—			121,553
Accrued expenses and other current liabilities	1,423		312,305		26		—			313,754
Total current liabilities	3,514		443,606		26		—			447,146
Long-term debt	222,355		519,957		—		—			742,312
Pension and postretirement medical benefit obligations	—		719,355		—		—			719,355
Asset retirement obligations	—		209,987		—		—			209,987
Deferred income taxes	—		249,408		—		—			249,408
Other non-current liabilities	2,305,613		2,199,281		261,372		(4,611,227		)	155,039
Total liabilities	2,531,482		4,341,594		261,398		(4,611,227		)	2,523,247
Stockholders’ Equity
Total stockholders’ equity	2,656,036		5,708,870		6,013		(5,714,883		)	2,656,036
Total liabilities and stockholders’ equity	$	5,187,518	$	10,050,464	$	267,411	$	(10,326,110	)	$	5,179,283

39

ALPHA NATURAL RESOURCES, INC. AND SUBSIDIARIES

NOTES to CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited, amounts in thousands except share and per share data)

Alpha Natural Resources, Inc. and Subsidiaries

Supplemental Consolidating Statement of Operations

For the Three Months Ended September 30, 2011

				New Notes
	Parent			Guarantor			Non-Guarantor						Total
	(Issuer)			Subsidiaries			Subsidiaries			Eliminations			Consolidated
Revenues:
Coal revenues	$	—		$	1,997,934		$	—		$	—		$	1,997,934
Freight and handling revenues	—			213,834			—			—			213,834
Other revenues	—			90,325			2,685			—			93,010
Total revenues	—			2,302,093			2,685			—			2,304,778
Costs and expenses:
Cost of coal sales (exclusive of items shown separately below)	—			1,675,209			—			—			1,675,209
Freight and handling costs	—			213,834			—			—			213,834
Other expenses	—			58,063			—			—			58,063
Depreciation, depletion and amortization	—			242,699			—			—			242,699
Amortization of acquired intangibles, net	—			(73,274		)	—			—			(73,274		)
Selling, general and administrative expenses (exclusive of depreciation, depletion and amortization shown separately above)	—			71,696			1,005			—			72,701
Total costs and expenses	—			2,188,227			1,005			—			2,189,232
Income from operations	—			113,866			1,680			—			115,546
Other income (expense):
Interest expense	(40,191		)	(8,303		)	(654		)	—			(49,148		)
Interest income	—			931			—			—			931
Loss on early extinguishment of debt	—			(5,212		)	—			—			(5,212		)
Miscellaneous expense, net	—			309			—			—			309
Total other expense, net	(40,191		)	(12,275		)	(654		)	—			(53,120		)
Income (loss) from continuing operations before income taxes and equity in earnings of investments in Issuer and Guarantor Subsidiaries	(40,191		)	101,591			1,026			—			62,426
Income tax benefit (expense)	15,674			(11,272		)	(400		)	—			4,002
Equity in earnings of investments in Issuer and Guarantor Subsidiaries	88,766			2,306			—			(91,072		)	—
Net income (loss)	$	64,249		$	92,625		$	626		$	(91,072	)	$	66,428

40

ALPHA NATURAL RESOURCES, INC. AND SUBSIDIARIES

NOTES to CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited, amounts in thousands except share and per share data)

Alpha Natural Resources, Inc. and Subsidiaries

Supplemental Consolidating Statement of Operations

For the Three Months Ended September 30, 2010

				New Notes
	Parent			Guarantor			Non-Guarantor						Total
	(Issuer)			Subsidiaries			Subsidiaries			Eliminations			Consolidated
Revenues:
Coal revenues	$	—		$	896,435		$	—		$	—		$	896,435
Freight and handling revenues	—			85,330			—			—			85,330
Other revenues	—			17,697			2,170			—			19,867
Total revenues	—			999,462			2,170			—			1,001,632
Costs and expenses:
Cost of coal sales (exclusive of items shown separately below)	—			664,723			—			—			664,723
Freight and handling costs	—			85,330			—			—			85,330
Other expenses	—			11,967			—			—			11,967
Depreciation, depletion and amortization	—			94,003			—			—			94,003
Amortization of acquired intangibles, net	—			52,398			—			—			52,398
Selling, general and administrative expenses (exclusive of depreciation, depletion and amortization shown separately above)	(14		)	42,880			718			—			43,584
Total costs and expenses	(14		)	951,301			718			—			952,005
Income from operations	14			48,161			1,452			—			49,627
Other income (expense):
Interest expense	(4,225		)	(12,859		)	(750		)	—			(17,834		)
Interest income	—			967			—			—			967
Loss on early extinguishment of debt	—			—			—			—			—
Miscellaneous expense, net	—			1,261			—			—			1,261
Total other expense, net	(4,225		)	(10,631		)	(750		)	—			(15,606		)
Income (loss) from continuing operations before income taxes and equity in earnings of investments in Issuer and Guarantor Subsidiaries	(4,211		)	37,530			702			—			34,021
Income tax benefit (expense)	1,642			(3,028		)	(274		)	—			(1,660		)
Equity in earnings of investments in Issuer and Guarantor Subsidiaries	34,443			(7,201		)	—			(27,242		)	—
Income (loss) from continuing operations	31,874			27,301			428			(27,242		)	32,361
Discontinued operations:
Loss from discontinued operations before income taxes	—			(911		)	—			—			(911		)
Income tax benefit	—			424			—			—			424
Loss from discontinued operations	—			(487		)	—			—			(487		)
Net income (loss)	$	31,874		$	26,814		$	428		$	(27,242	)	$	31,874

41

ALPHA NATURAL RESOURCES, INC. AND SUBSIDIARIES

NOTES to CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited, amounts in thousands except share and per share data)

Alpha Natural Resources, Inc. and Subsidiaries

Supplemental Consolidating Statement of Operations

For the Nine Months Ended September 30, 2011

				New Notes
	Parent			Guarantor			Non-Guarantor						Total
	(Issuer)			Subsidiaries			Subsidiaries			Eliminations			Consolidated
Revenues:
Coal revenues	$	—		$	4,395,804		$	—		$	—		$	4,395,804
Freight and handling revenues	—			480,760			—			—			480,760
Other revenues	—			147,583			7,836			—			155,419
Total revenues	—			5,024,147			7,836			—			5,031,983
Costs and expenses:
Cost of coal sales (exclusive of items shown separately below)	—			3,517,796			—			—			3,517,796
Freight and handling costs	—			480,760			—			—			480,760
Other expenses	—			118,792			—			—			118,792
Depreciation, depletion and amortization	—			475,762			—			—			475,762
Amortization of acquired intangibles, net	—			(57,023		)	—			—			(57,023		)
Selling, general and administrative expenses (exclusive of depreciation, depletion and amortization shown separately above)	—			326,934			2,722			—			329,656
Total costs and expenses	—			4,863,021			2,722			—			4,865,743
Income from operations	—			161,126			5,114			—			166,240
Other income (expense):
Interest expense	(69,989		)	(23,240		)	(1,497		)	—			(94,726		)
Interest income	—			2,988			—			—			2,988
Loss on early extinguishment of debt	(4,751		)	(5,017		)	—			—			(9,768		)
Miscellaneous expense, net	—			333			—			—			333
Total other expense, net	(74,740		)	(24,936		)	(1,497		)	—			(101,173		)
Income (loss) from continuing operations before income taxes and equity in earnings of investments in Issuer and Guarantor Subsidiaries	(74,740		)	136,190			3,617			—			65,067
Income tax benefit (expense)	29,149			(29,916		)	(1,411		)	—			(2,178		)
Equity in earnings of investments in Issuer and Guarantor Subsidiaries	108,480			(17,196		)	—			(91,284		)	—
Net income (loss)	$	62,889		$	89,078		$	2,206		$	(91,284	)	$	62,889

42

ALPHA NATURAL RESOURCES, INC. AND SUBSIDIARIES

NOTES to CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited, amounts in thousands except share and per share data)

Alpha Natural Resources, Inc. and Subsidiaries

Supplemental Condensed Consolidating Statement of Operations

For the Nine Months Ended September 30, 2010

				New Notes
	Parent			Guarantor			Non-Guarantor						Total
	(Issuer)			Subsidiaries			Subsidiaries			Eliminations			Consolidated
Revenues:
Coal revenues	$	—		$	2,621,805		$	—		$	—		$	2,621,805
Freight and handling revenues	—			240,386			—			—			240,386
Other revenues	—			55,355			6,495			—			61,850
Total revenues	—			2,917,546			6,495			—			2,924,041
Costs and expenses:
Cost of coal sales (exclusive of items shown separately below)	—			1,896,989			—			—			1,896,989
Freight and handling costs	—			240,386			—			—			240,386
Other expenses	—			36,094			—			—			36,094
Depreciation, depletion and amortization	—			280,228			—			—			280,228
Amortization of acquired intangibles, net	—			173,988			—			—			173,988
Selling, general and administrative expenses (exclusive of depreciation, depletion and amortization shown separately above)	—			133,418			2,186			—			135,604
Total costs and expenses	—			2,761,103			2,186			—			2,763,289
Income from operations	—			156,443			4,309			—			160,752
Other income (expense):
Interest expense	(13,853		)	(42,371		)	(2,234		)	—			(58,458		)
Interest income	—			2,495			—			—			2,495
Loss on early extinguishment of debt	—			(1,349		)	—			—			(1,349		)
Miscellaneous expense, net	—			783			—			—			783
Total other expense, net	(13,853		)	(40,442		)	(2,234		)	—			(56,529		)
Income (loss) from continuing operations before income taxes and equity in earnings of investments in Issuer and Guarantor Subsidiaries	(13,853		)	116,001			2,075			—			104,223
Income tax benefit (expense)	5,402			(22,603		)	(809		)	—			(18,010		)
Equity in earnings of investments in Issuer and Guarantor Subsidiaries	93,163			18,967			—			(112,130		)	—
Income (loss) from continuing operations	84,712			112,365			1,266			(112,130		)	86,213
Discontinued operations:
Loss from discontinued operations before income taxes	—			(2,574		)	—			—			(2,574		)
Income tax benefit	—			1,073			—			—			1,073
Loss from discontinued operations	—			(1,501		)	—			—			(1,501		)
Net income (loss)	$	84,712		$	110,864		$	1,266		$	(112,130	)	$	84,712

43

ALPHA NATURAL RESOURCES, INC. AND SUBSIDIARIES

NOTES to CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited, amounts in thousands except share and per share data)

Alpha Natural Resources, Inc. and Subsidiaries

Supplemental Condensed Consolidating Statement of Cash Flows

Nine Months Ended September 30, 2011

				New Notes
	Parent			Guarantor			Non-Guarantor		Total
	(Issuer)			Subsidiaries			Subsidiaries		Consolidated
Net cash provided by operating activities	$	10,406		$	526,738		$	88	$	537,232
Investing activities:
Cash paid for acquisition, net of cash acquired	(713,382		)	—			—		(713,382		)
Capital expenditures	—			(314,929		)	—		(314,929		)
Acquisition of mineral rights under federal lease	—			(65,013		)	—		(65,013		)
Sales of marketable securities, net	—			83,732			—		83,732
Purchase of equity-method investment	—			(8,000		)	—		(8,000		)
Other, net	—			(4,672		)	—		(4,672		)
Net cash used in investing activities	(713,382		)	(308,882		)	—		(1,022,264		)
Financing activities:
Principal repayments of long-term debt	(235,396		)	(1,072,438		)	—		(1,307,834		)
Proceeds from borrowings on long-term debt	2,100,000			—			—		2,100,000
Debt issuance costs	(84,306		)	—			—		(84,306		)
Common stock repurchases	(206,381		)	—			—		(206,381		)
Proceeds from exercise of stock options	4,079			—			—		4,079
Transactions with affiliates	(894,495		)	894,444			51		—
Net cash provided by (used in) financing activities	683,501			(177,994		)	51		505,558
Net decrease in cash and cash equivalents	(19,475		)	39,862			139		20,526
Cash and cash equivalents at beginning of period	20,331			534,441			—		554,772
Cash and cash equivalents at end of period	$	856		$	574,303		$	139	$	575,298

44

ALPHA NATURAL RESOURCES, INC. AND SUBSIDIARIES

NOTES to CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited, amounts in thousands except share and per share data)

Alpha Natural Resources, Inc. and Subsidiaries

Supplemental Condensed Consolidating Statement of Cash Flows

Nine Months Ended September 30, 2010

				New Notes
	Parent			Guarantor			Non-Guarantor			Total
	(Issuer)			Subsidiaries			Subsidiaries			Consolidated
Net cash (used in) provided by operating activities	$	(12,146	)	$	516,702		$	6,495		$	511,051
Investing activities:
Capital expenditures	—			(222,960		)	—			(222,960		)
Acquisition of mineral rights under federal lease	—			(36,108		)	—			(36,108		)
Purchases of equity-method investment	—			(3,000		)	—			(3,000		)
Purchase of marketable securities, net	—			(181,312		)	—			(181,312		)
Other, net	—			(1,957		)	—			(1,957		)
Net cash used in investing activities	—			(445,337		)	—			(445,337		)
Financing activities:
Principal repayments of long-term debt	—			(50,934		)	—			(50,934		)
Debt issuance costs	—			(8,710		)	—			(8,710		)
Proceeds from exercise of stock options	4,292			—			—			4,292
Excess tax benefit from stock-based awards	—			8,112			—			8,112
Common stock repurchases	(41,580		)	—			—			(41,580		)
Transactions with affiliates	4,653			1,842			(6,495		)	—
Net cash (used in) provided by financing activities	(32,635		)	(49,690		)	(6,495		)	(88,820		)
Net (decrease) increase in cash and cash equivalents	(44,781		)	21,675			—			(23,106		)
Cash and cash equivalents at beginning of period	69,410			396,459			—			465,869
Cash and cash equivalents at end of period	$	24,629		$	418,134		$	—		$	442,763

(23)   Share Repurchase Program

On May 19, 2010, the Board of Directors authorized a share repurchase program, which permits the Company to repurchase up to $125,000 of its outstanding common stock, par value $0.01 per share (“Shares”). The program enables the Company to repurchase Shares from time to time, as market conditions warrant. The Company repurchased $79,001 of Shares, representing 2,596,424 Shares, under this program during the three months ended September 30, 2011, and $100,001 of Shares, representing 3,086,118 Shares during the nine months ended September 30, 2011. The repurchased Shares are recorded as treasury stock in the Condensed Consolidated Balance Sheets.  As of September 30, 2011, the Company had repurchased the full amount authorized under the program.

On August 22, 2011, the Board of Directors authorized an additional share repurchase program, which permits the Company to repurchase up to $600,000 of its outstanding common stock, par value $0.01 per share.  The program enables the company to repurchase Shares from time to time as market conditions warrant.  The Company repurchased $94,349 of Shares, representing 3,811,900 Shares under this program during the three and nine months ended September 30, 2011.  The repurchased Shares are recorded as treasury stock in the Condensed Consolidated Balance Sheets.  Subsequent to September 30, 2011, the Company repurchased $5,651 of Shares representing 285,100 Shares, with an additional $500,000 of Shares remaining under the program.

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

You should read the following discussion and analysis in conjunction with our financial statements and related notes included elsewhere in this Quarterly Report on Form 10-Q and our Annual Report on Form 10-K for the year ended December 31, 2010.

CAUTIONARY NOTE REGARDING FORWARD LOOKING STATEMENTS

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

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

·        ��         worldwide market demand for coal, electricity and steel;

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

·decline in coal prices;

·our liquidity, results of operations and financial condition;

·regulatory and court decisions;

·competition in coal markets;

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

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

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

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

·potential instability and volatility in worldwide financial markets;

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

·inherent risks of coal mining beyond our control;

·disruption in coal supplies;

·the geological characteristics of the Powder River Basin, Central and Northern Appalachian coal reserves;

·our production capabilities and costs;

·our ability to integrate successfully operations that we have acquired or developed with our existing operations, including those of Massey Energy Company (“Massey”), as well as those operations that we may acquire or develop in the future, or the risk that any such integration could be more difficult, time-consuming or costly than expected;

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

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

·uncertainty of the expected financial performance of Alpha following the Acquisition (defined below);

·Alpha’s ability to achieve the cost savings and synergies contemplated by the Acquisition within the expected time frame;

·disruption from the Acquisition making it more difficult to maintain relationships with customers, employees or suppliers;

·the final allocation of the acquisition price in connection with the Acquisition to the net assets acquired in accordance with applicable accounting rules and methodologies;

·the outcome of pending or potential litigation or governmental investigations, including with respect to the Upper Big Branch explosion;

·our relationships with, and other conditions affecting, our customers, including the inability to collect payments from our customers if their creditworthiness declines;

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

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

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

·availability of mining and processing equipment and parts;

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·disruptions in delivery or changes in pricing from third party vendors of goods and services that are necessary for our operations, such as diesel fuel, steel products, explosives and tires;

·our assumptions concerning economically recoverable coal reserve estimates;

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

·our ability to negotiate new UMWA wage agreements on terms acceptable to us;

·changes in postretirement benefit obligations, pension obligations and federal and state black lung obligations;

·increased costs and obligations potentially arising from the Patient Protection and Affordable Care Act;

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

·indemnification of certain obligations not being met;

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

·restrictive covenants in our secured credit facility and the indentures governing the 6% senior notes due 2019, the 6.25% senior notes due 2021, the 2.375% convertible senior notes due 2015 and the 3.25% convertible senior notes due 2015;

·certain terms of the 6% senior notes due 2019, the 6.25% senior notes due 2021, the 2.375% convertible senior notes due 2015 and the 3.25% convertible senior notes due 2015, including any conversions, that may adversely impact our liquidity;

·our substantial indebtedness following the completed Acquisition and potential future indebtedness;

·our work force could become increasingly unionized in the future and our unionized or union-free hourly work force could strike;

·significant or rapid increases in commodity prices;

·our ability to obtain or renew surety bonds on acceptable terms or maintain self bonding status;

·reclamation and mine closure obligations;

·terrorist attacks and threats, and escalation of military activity in response to such attacks;

·inflationary pressures on supplies and labor;

·weather conditions or catastrophic weather-related damage; and

·other factors, including the other factors discussed in the “Management’s Discussion and Analysis of Financial Condition and Results of Operations”, and “Risk Factors” sections of our Annual Report on Form 10-K for the year ended December 31, 2010 and Quarterly Reports on Form 10-Q for the quarters ended June 30, 2011 and March 31, 2011, respectively.

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.

Explanatory Note

On June 1, 2011, we completed our acquisition (the “Acquisition”) of Massey. Massey, together with its affiliates, was a major U.S. coal producer operating mines and associated processing and loading facilities in Central Appalachia. Our consolidated results of operations for the three and nine months ended September 30, 2011 include Massey’s results of operations for the period June 1, 2011 through September 30, 2011. Our consolidated results of operations for the three and nine months ended September 30, 2010 do not include amounts related to Massey’s results of operations.

Overview

We are one of America’s premier coal suppliers, operating 149 mines and 35 coal preparation and load-out facilities as of September 30, 2011 in Northern and Central Appalachia and the Powder River Basin, with approximately 14,000 employees.

We produce, process, and sell steam and metallurgical coal from twelve business units located throughout Virginia, West Virginia, Kentucky, Pennsylvania, and Wyoming. 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 and nine months ended September 30, 2011, sales of steam coal were 25.3 million and 61.3  million tons, respectively, and accounted for approximately 81% and 82%, respectively, of our coal sales volume. Comparatively, for the three and nine months ended September 30, 2010, sales of steam coal were 18.2 million and 53.8 million tons, respectively, and accounted for approximately 86% of our coal sales volume. For the three and nine months ended September 30, 2011, sales of metallurgical coal, which generally sells at a premium over steam coal, were 5.9 million and 13.9 million tons, respectively, and accounted for approximately 19% and 18%, respectively, of our coal sales volume. For the three and nine months ended September 30, 2010, sales of metallurgical coal were 3.0 million and 8.9 million tons, respectively, and accounted for approximately 14% of our coal sales volume.

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Our sales of steam coal for the three and nine months ended September 30, 2011 and 2010 were made primarily to large utilities and industrial customers throughout the United States, and our sales of metallurgical coal were made primarily to steel companies in the Northeastern and Midwestern regions of the United States and in several countries in Europe, Asia and South America. For the three and nine months ended September 30, 2011, approximately 34% and 36% of our total revenues were derived from coal sales made outside the United States, compared to 28% and 26% for the three and nine months ended September 30, 2010, respectively.

In addition, we generate other revenues from equipment and parts sales and repair, Dry Systems Technologies equipment and filters, road construction, rentals, commissions, coal handling, terminal and processing fees, coal and environmental analysis fees, royalties and the sale of coalbed methane and natural gas. We also record revenue for freight and handling charges incurred in delivering coal to certain customers, for which we are reimbursed by our customers. As such, freight and handling revenues are offset by equivalent freight and handling costs and do not contribute to our profitability.

Our primary expenses are for operating supply costs, repair and maintenance expenditures, cost of purchased coal, royalties, current wages and benefits, post employment benefits, 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 two reportable segments, Eastern Coal Operations and Western Coal Operations. Eastern Coal Operations consists of our operations in Northern and Central Appalachia, our coal brokerage and road construction activities. All of the active mines we acquired from Massey are included in our Eastern Coal Operations. Western Coal Operations consists of two Powder River Basin mines in Wyoming. Our All Other category includes an idled underground mine in Illinois; expenses associated with closed mines; Dry Systems Technologies; revenues and royalties from the sale of coalbed methane and natural gas extraction; equipment sales and repair operations; terminal services; the leasing of mineral rights; general corporate overhead and corporate assets and liabilities.

Coal Pricing Trends, Uncertainties and Outlook

Our long-term outlook for global coal markets remains positive. The U.S. Energy Information Administration (EIA) in its 2011 Annual Energy Outlook forecasts that coal-fired electricity generation in the United States will decrease by an average annual rate of 0.7% from 2011 through 2015. In the third quarter of 2011, the EIA estimated that domestic electric power generation from coal decreased by 1.2% compared to the third quarter of 2010. Through 2035, however, the long-term demand for coal-fired electricity generation in the U.S. is expected to grow by an annual average rate of 0.7%. Long-term demand for coal and coal-based electricity generation in the U.S. will likely be driven by various factors such as the economy, increasing population, increasing demand to power residential electronics and plug-in hybrid electric vehicles, public demands for affordable electricity, the inability of renewable energy sources such as wind and solar to become the base load source of electric power, geopolitical risks associated with importing large quantities of global oil and natural gas resources, increasing demand for coal outside the U.S. resulting in increased exports, and the relatively abundant steam coal reserves located within the United States. As the U.S. and global economies emerge from the recent economic downturn, the International Monetary Fund’s September 2011 World Economic Outlook forecasts U.S. annual GDP to grow 1.5% and 1.8% in 2011 and 2012, respectively. Although the global economy improved as compared with 2010, many economic indicators continue to point to a slow and uneven recovery. High unemployment and a weak housing sector in the United States (U.S.) continue to dampen consumer sentiment domestically, while concerns over European sovereign debt issues and the deficit debate in Washington, D.C., and related downgrade of U.S. government debt continue to plague financial markets and constrain government spending in certain countries.

According to the National Energy Technology Laboratory’s (“NETL”) July 2011 report on new coal-fired power plants, there are 7,384 megawatts of new coal-fired electrical generation under construction in the United States and 320 megawatts of new coal-fired electrical generation capacity near construction in the United States. This total expected capacity will increase the annual coal consumption for electrical generation by an estimated twenty to thirty million tons, much of which is expected to be supplied from the Powder River Basin in Wyoming. Additionally, approximately 9,621 megawatts of coal-fired electrical generation are permitted and 13,884 megawatts of coal-fired electrical generation have been announced and are in the early stages of permitting and development.

Coal exports from the U.S. increased from approximately 21.1 million tons in the third quarter of 2010 to approximately 22.8 million tons in the third quarter of 2011 in response to the growing global demand for coal. Export volumes have rebounded significantly since hitting recession lows in 2009. According to the EIA’s 2011 International Energy Outlook (“IEO”), global primary energy demand is expected to grow by 53% between 2008 and 2035, with coal demand rising most in absolute terms and fossil fuels accounting for most of the increase in demand between now and 2035. The IEO estimates that half the growth in world energy consumption will come from India and China. In total, coal consumption from non-OECD countries is expected to grow at an annual rate of 2.1%, accounting for nearly all the growth in world coal

48

consumption. The IEO has reached a general conclusion that dependence on coal for power rises strongly in countries with emerging economies and relatively large coal reserves, while it stagnates in the more developed nations and nations with smaller coal reserves.

Ultimately, the global demand for and use of coal may be limited by any global treaties which place restrictions on carbon dioxide emissions. As part of the United Nations Framework Convention on Climate Change, representatives from 187 nations, including the U.S., met in Bali, Indonesia in December 2007 to discuss a program to limit greenhouse gas emissions after 2012. The convention adopted the “Bali Road Map” that detailed a two-year process to finalizing a binding agreement in Copenhagen in 2009. In December 2009 participants gathered in Copenhagen to develop a framework for climate change mitigation beyond 2012. The principal output of the Copenhagen summit was the Copenhagen Accord, a document that is neither legally binding nor voted upon nor signed, but was simply “noted” by the 194 participating countries. The ensuing UN Framework Convention on Climate Change held in Cancun in December 2010 resulted in an agreement that pushes most of the important decisions to future negotiations. Although the results from the Copenhagen and Cancun summits were considered modest by many participants, the ultimate outcome of future summits, and any treaty or other arrangement ultimately adopted by the United States or other countries, may have a material adverse impact on the global demand for and supply of coal. This is particularly true if cost effective technology for the capture and storage of carbon dioxide is not sufficiently developed.

Proposed coal-fired electricity generating facilities that do not include technologies to capture and store carbon dioxide are facing increasing opposition from environmental groups as well as state and local governments, which are concerned with global climate change and uncertain financial impacts of potential greenhouse gas regulations. Coal-fired electricity generating plants incorporating carbon dioxide capture and storage technologies will be more expensive to build than conventional pulverized coal generating plants and the technologies are still in the developmental stages. This dynamic may cause power generating companies to cut back on plans to build coal-fired plants in the near term. In addition, the U.S. Environmental Protection Agency (“EPA”) has recently finalized the Cross-State Air Pollution Rule (“CSAPR”), requiring twenty-seven Eastern states to reduce power plant emissions that contribute to ozone and/or fine particle pollution in other states.  For states to meet their requirements under the CSAPR, a number of coal-fired electric generating units will likely need to be retired, rather than be retrofitted with the necessary emission control technologies, reducing demand for domestic steam coal. Nevertheless, the desire to attain U.S. energy independence suggests the construction of new coal-fired generating facilities is likely to remain a viable option. This desire, coupled with heightened interest in coal gasification and coal liquefaction, is a potential indicator of increasing demand for coal in the United States.

Based on weekly coal production reporting through October 1, 2011 from the EIA, year-over-year Appalachian production increased by approximately 0.8% due in part to increased export demand. Compared to the same period of 2010, Western coal production decreased by approximately 2.4% through October 1, 2011. In Central Appalachia, a boost in exports has increased demand for metallurgical and export quality steam coals. However, delays with respect to permits to construct valley fills at surface mines are likely to slow the permitting process for surface mining in that region with resultant uncertainties for producers. Increased Mine Safety Health Administration (“MSHA”) mine inspection activity may also impact production levels. Average spot market prices in the third quarter of 2011 for Central Appalachian and Northern Appalachian coals increased by approximately 17% and 11%, respectively, compared to third quarter 2010 prices. Average spot market prices for Powder River Basin coal decreased by approximately 1% in the third quarter compared to the same period in 2010, with the Basin offering the least expensive fossil fuel on a dollar per Btu basis. Long-term, the delicate balance of coal supply and increasing coal demand is expected to result in strong, but potentially volatile fundamentals for the U.S. coal industry.

Our revenues depend on the price at which we are able to sell our coal. The pricing environment for U.S. steam coal production in 2011 has recovered significantly from 2009 recession lows. Recent steam coal market conditions indicate that supply and demand have largely come into balance and the forecasted upswing in demand may result in improved prices for suppliers. Prices for metallurgical coal, used to manufacture coke for steelmaking, strengthened in 2010 in response to increased worldwide demand for steel and remain strong thus far in 2011 although pricing has declined some what from the record highs achieved earlier this year as Australia has largely recovered from severe flooding earlier in the year and the European debt crisis has created some uncertainty in the near-term. Continued strong global demand for steel, particularly in China, and limited metallurgical coal supply, have created market conditions that we believe may suggest strong pricing conditions in 2012.

The worldwide economic slowdown and the volatility and uncertainty in the credit markets seen through much of 2008 and 2009 began to ease over the past year. Global energy fundamentals, including the return of electricity demand and increased steel production have supported increased spot prices for coal in the marketplace. Steel manufacturers had shut-in significant capacity in 2009 due to the lack of near-term visibility but have since added back significant production capacity to meet increased global demand for steel for construction, automobile manufacturing and other down-stream products. We believe continued recovery from the global recession, increased steel plant utilization and continued supply disruptions due to factors such as adverse weather, labor interruptions and transportation constraints may contribute to a strong global market for metallurgical coal in 2012. However, depressed natural gas prices are placing competitive pressure on the demand for steam coal. A weak economic recovery could slacken demand for metallurgical and steam coals and could negatively influence pricing in the near-term. Longer-term, coal industry fundamentals remain intact and significant additional growth is expected worldwide. Seaborne coal is expected to grow significantly as developing nations rely heavily on coal for their power needs. U.S. exports will be needed to help meet the

49

anticipated increase in worldwide coal demand. We believe these factors should lead to stronger demand for coal, both globally and in the United States, in the coming years.

For additional information regarding some of the risks and uncertainties that affect our business, see Item 1A “Risks Factors.”

Results of Operations

As noted previously, the results of operations for the three and nine months ended September 30, 2011 include three months and four months of operations, respectively, from the acquired operations of Massey due to the timing of the closing of the Acquisition on June 1, 2011.  The corresponding periods in 2010 do not include any amounts related to Massey. To help understand the operating results for the periods, the term “Massey operations” refers to the results of Massey on a stand-alone basis for the three and nine months ended September 30, 2011 and the term “Alpha operations” refers to the results of Alpha on a stand-alone basis and not inclusive of results from the acquired operations of Massey for the three and nine months ended September 30, 2011.

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

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

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2011			2010			2011			2010
	(in thousands)						(in thousands)
Income from continuing operations	$	66,428		$	32,361		$	62,889		$	86,213
Interest expense	49,148			17,834			94,726			58,458
Interest income	(931		)	(967		)	(2,988		)	(2,495		)
Income tax expense (benefit)	(4,002		)	1,660			2,178			18,010
Depreciation, depletion and amortization	242,699			94,003			475,762			280,228
Amortization of acquired intangibles, net	(73,274		)	52,398			(57,023		)	173,988
EBITDA from continuing operations	$	280,068		$	197,289		$	575,544		$	614,402

Three Months Ended September 30, 2011 Compared to the Three Months Ended September 30, 2010

Summary

Total revenues increased $1,303.1 million, or 130%, for the three months ended September 30, 2011 compared to the prior year period. The increase in total revenues was due to increased coal revenues of $1,101.5 million, increased freight and handling revenues of $128.5 million and increased other revenues of $73.1 million. The increase in coal revenues consisted of an increase from the Alpha operations of $296.1 million, or 33%, and $805.4 million from the Massey operations. The increase in freight and handling revenues was primarily related to the Alpha operations. The increase in other revenues consisted of an increase of $67.1 million, or 338%, from the Alpha operations, and $6.0 million from the Massey operations.

Income from continuing operations increased $34.0 million, or 105%, for the three months ended September 30, 2011 compared to the prior year period. The increase was largely due to increased coal revenues and other revenues discussed above and increased tax benefits of $5.7 million, or 341%, partially offset by increases in certain operating costs and expenses of $1,108.7 million, or 128%, and increased other expense, net of $37.6 million, or 240%.

The increase in certain operating costs and expenses of $1,108.7 million was due to increased cost of coal sales of $1,010.5 million, or 152%, increased depreciation, depletion and amortization expenses of $148.7 million, or 158%, increased other expenses of $46.1 million, or 385%, increased selling, general and administrative expenses of $29.1 million, or 67%, and decreased expenses for amortization of acquired intangibles, net of $125.7 million, or 240%. The increase in cost of coal sales consisted of an increase of $240.7 million, or 36%, from the Alpha operations and $769.8 million from the Massey operations. The increase in depreciation, depletion and amortization expenses consisted

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of $150.7 million from the Massey operations partially offset by a decrease of $2.0 million, or 2%, from the Alpha operations. The increase in other expenses consisted of an increase of $45.4 million, or 379%, from the Alpha operations and $0.7 million from the Massey operations. The increase in selling, general and administrative expenses consisted of an increase of $15.7 million, or 36%, from the Alpha operations and $13.4 million from the Massey operations. The decrease in expense for amortization of acquired intangibles, net, consisted of a decrease in amortization expense of $28.4 million, or 54%, from the Alpha operations and a credit to amortization expense of $97.3 million from the Massey operations.

We sold 31.2 million tons of coal during the three months ended September 30, 2011 compared to 21.2 million tons in the prior year period, an increase of 10.0 million tons, or 47%. The 31.2 million tons consisted of 12.7 million tons of steam coal and 5.9 million tons of metallurgical coal from our Eastern Coal Operations and 12.6 million tons of steam coal from our Western Coal Operations. The 21.2 million tons in the prior year consisted of 5.9 million tons of steam coal and 3.0 million tons of metallurgical coal from our Eastern Coal Operations and 12.3 million tons of steam coal from our Western Coal Operations.

The increase in coal sales volumes of 10.0 million tons was due to increases of 6.9 million and 2.9 million tons of eastern steam and metallurgical coal, respectively, due primarily to the inclusion of 7.0 million tons of eastern steam and 2.1 million tons of metallurgical coal from the Massey operations, a decrease of 0.1 million tons of eastern steam and an increase of 0.8 million tons of metallurgical coal from the Alpha operations and an increase of 0.2 million tons of western steam coal.

The consolidated average coal sales realization per ton for the three months ended September 30, 2011 was $64.08 compared to $42.37 in the prior year period, an increase of $21.71 per ton, or 51%. The increase was largely attributable to the $46.25 per ton, or 38%, increase in metallurgical average coal sales realization per ton as well as increased proportion of Eastern coal in relation to total sales. The average coal sales realization per ton for metallurgical coal and eastern steam coal was $168.49 and $67.07, respectively, for the three months ended September 30, 2011 compared to $122.24 and $67.72, respectively, in the prior year period. The average coal sales realization per ton for western steam coal was $11.98 for the three months ended September 30, 2011 compared to $11.10 in the prior year period.

Consolidated coal margin percentage, calculated as consolidated coal revenues less consolidated cost of coal sales (excluding cost of coal sales in our All Other segment), divided by consolidated coal revenues, was 17% for the three months ended September 30, 2011 compared to 26% in the prior year period. Coal margin percentage for our Eastern and Western Coal Operations was 18% and 14%, respectively, for the three months ended September 30, 2011 compared to 27% and 23%, respectively, in the prior year period. Consolidated coal margin per ton, calculated as consolidated coal sales realization per ton less consolidated cost of coal sales per ton, was $11.09 for the three months ended September 30, 2011 compared to $11.12 in the prior year period. Coal margin per ton for our Eastern and Western Coal Operations was $17.46 and $1.64, respectively, for the three months ended September 30, 2011 compared to $23.16 and $2.53, respectively, in the prior year period.

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Revenues

	Three Months Ended
	September 30,				Increase (Decrease)
	2011		2010		$ or Tons			%
	(in thousands, except per ton data)
Revenues:
Coal revenues:
Eastern steam	$	853,361	$	394,342	$	459,019		116	%
Western steam	150,484		137,111		13,373			10	%
Metallurgical	994,089		364,982		629,107			172	%
Freight and handling revenues	213,834		85,330		128,504			151	%
Other revenues	93,010		19,867		73,143			368	%
Total revenues	$	2,304,778	$	1,001,632	$	1,303,146		130	%
Tons sold :
Eastern steam	12,723		5,823		6,900			119	%
Western steam	12,556		12,349		207			2	%
Metallurgical	5,900		2,986		2,914			98	%
Total	31,179		21,158		10,021			47	%
Coal sales realization per ton:
Eastern steam	$	67.07	$	67.72	$	(0.65	)	(1	)%
Western steam	$	11.98	$	11.10	$	0.88		8	%
Metallurgical	$	168.49	$	122.24	$	46.25		38	%
Average	$	64.08	$	42.37	$	21.71		51	%

Coal revenues. Coal revenues increased $1,101.5 million, or 123%, for the three months ended September 30, 2011 compared to the prior year period. The increase in coal revenues consisted of an increase in metallurgical coal revenues of $629.1 million, or 172%, an increase in eastern steam coal revenues of $459.0 million, or 116%, and an increase in western steam coal revenues of $13.4 million, or 10%.

The increase in metallurgical coal revenues was largely due to an increase in tons shipped and increased average coal sales realization per ton. Metallurgical tons shipped increased 2.9 million, or 98%, compared to the prior year period and consisted of an increase of 0.8 million tons, or 27%, from the Alpha operations and 2.1 million tons from the Massey operations. The average coal sales realization per ton for metallurgical coal increased $46.25, or 38%, due primarily to robust global pricing and demand for metallurgical coal.

The increase in eastern steam coal revenues was due to $479.7 million from the Massey operations, partially offset by decreases of $20.7 million from the Alpha operations. The decrease in eastern steam coal revenues from the Alpha operations was primarily due to a decrease in eastern steam coal sales volumes, which decreased 0.1 million tons, or 2%, compared to the prior year period.

The increase in western steam coal revenues was due to an increase in tons shipped and an increase in average coal sales realization per ton. Tons shipped increased 0.2 million tons, or 2%, compared to the prior year period and average coal sales realization per ton increased $0.88, or 8%, compared to the prior year period as a result of increased pricing on contracted tons shipped.

Our sales mix of metallurgical coal and steam coal based on volume for the three months ended September 30, 2011 was 19% and 81%, respectively, compared with 14% and 86% in the prior year period. Our sales mix of metallurgical coal and steam coal based on coal revenues for the three months ended September 30, 2011 was 50%, compared with 41% and 59% in the prior year period.

Freight and handling. Freight and handling revenues and costs were $213.8 million, for the three months ended September 30, 2011, an increase of $128.5 million, or 151%, compared to the prior year period. The increase was due to higher export shipments combined with higher shipping rates compared to the prior year period.

Other revenues. Other revenues increased $73.1 million, or 368%, for the three months ended September 30, 2011 compared to the prior year period. The increase in other revenues was largely due to a favorable $61.2 million change in fair value of derivative coal contracts a majority of which were assumed in the Acquisition, sublease revenues of approximately $5.4 million related to a sea-going vessel charter that

52

we entered into in December, 2010, increased royalty and rental revenues of approximately $3.7 million and increased road construction revenues of approximately $2.0 million. The increase in other revenues related to an increase of $67.1 million, or 338%, from the Alpha operations and $6.0 million from the Massey operations.

Costs and Expenses

	Three Months Ended
	September 30,					Increase (Decrease)
	2011			2010		$ or Tons			%
	(in thousands, except per ton data)
Cost of coal sales (exclusive of items shown separately below)	$	1,675,209		$	664,723	$	1,010,486		152	%
Freight and handling costs	213,834			85,330		128,504			151	%
Other expenses	58,063			11,967		46,096			385	%
Depreciation, depletion and amortization	242,699			94,003		148,696			158	%
Amortization of acquired intangibles, net	(73,274		)	52,398		(125,672		)	(240	)%
Selling, general and administrative expenses (exclusive of depreciation, depletion and amortization shown separately above)	72,701			43,584		29,117			67	%
Total costs and expenses	$	2,189,232		$	952,005	$	1,237,227		130	%
Cost of coal sales per ton:(1)
Eastern coal operations	$	81.74		$	63.04	$	18.70		30	%
Western coal operations	$	10.34		$	8.57	$	1.77		21	%
Average	$	52.99		$	31.25	$	21.74		70	%

(1) Cost of coal sales per ton includes only costs associated with our Eastern and Western Coal Operations.

Cost of coal sales. Cost of coal sales increased $1,010.5 million, or 152%, for the three months ended September 30, 2011 compared to the prior year period. The increase in cost of coal sales consisted of an increase of $240.7 million, or 36%, from the Alpha operations and $769.8 million from the Massey operations. The increases from the Alpha operations were primarily driven by increased production of higher cost metallurgical coal tons, increases in purchased coal expenses, increased costs for commodities used in the production process and higher sales related variable costs such as royalties and production and severance taxes due to higher sales realizations for metallurgical coal, transportation expenses and wages and employee benefits. Cost of coal sales from the Alpha operations included charges of approximately $37.1 million related to changes in asset retirement obligation related estimates of water treatment costs at certain closed mines. Cost of coal sales from the Massey operations included charges of approximately $39.7 million related to the fair value adjustment made in acquisition accounting to Massey’s beginning inventory recognized upon sale of the inventories, approximately $23.0 million related to accruals made in connection with aligning certain employee benefits for former Massey employees and approximately $10.6 million of operating costs related to an idled mine. The consolidated average cost of coal sales per ton was $52.99 compared to $31.25 in the prior year period. The average cost of coal sales per ton for Eastern and Western Coal Operations was $81.74 and $10.34, respectively, compared to $63.04 and $8.57, respectively, in the prior year period.

Other expenses. Other expenses increased $46.1 million, or 385%, for the three months ended September 30, 2011 compared to the prior year period. The increase in other expenses was primarily due to increased expenses of approximately $34.2 million from contract-related matters primarily related to contracts assumed in the Acquisition, an increase of approximately $5.2 million in road construction expenses and approximately $4.8 million related to sea-going vessel charters that we entered into in the fourth quarter of 2010 and the first half of 2011.

Depreciation, depletion and amortization. Depreciation, depletion, and amortization increased $148.7 million, or 158%, for the three months ended September 30, 2011 compared to the prior year period. The increase consisted of $150.7 million from the Massey operations partially offset by decreased depreciation, depletion, and amortization of $2.0 million, or 2%, from the Alpha operations.

Amortization of acquired intangibles, net. Amortization of acquired intangibles, net decreased $125.7 million, or 240%, for the three months ended September 30, 2011 compared to the prior year period. The decrease consisted of a $28.4 million decrease in amortization expense of acquired above-market coal supply agreements from the Alpha operations and a net credit to amortization expense from the Massey operations of $97.3 million related to the amortization of acquired below-market coal supply agreements and amortization of other intangible assets that were valued in the Acquisition.

Selling, general and administrative expenses. Selling, general and administrative expenses increased $29.1 million, or 67%, for the three months ended September 30, 2011 compared to the prior year period. The increase was due primarily to increases to legal and professional fees, employee wages and benefits and other related overhead expenses.  Selling, general and administrative expenses included acquisition-

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related expenses totaling $7.8 million for employee compensation and professional fees incurred for legal and integration services in connection with the Acquisition.

Interest expense. Interest expense increased $31.3 million, or 176%, during the three months ended September 30, 2011 compared to the prior year period primarily due to a larger average outstanding balance of debt during the period as a result of the debt assumed in the Acquisition and the financing transactions that were completed in June 2011.

Income tax benefit. Income tax benefit from continuing operations of $4.0 million was recorded for the three months ended September 30, 2011 on income from continuing operations before income taxes of $62.4 million. The rate is lower than the federal statutory rate of 35% primarily due to percentage depletion.

Income tax expense from continuing operations of $1.7 million was recorded for the three months ended September 30, 2010 on income from continuing operations before income taxes of $34.0 million. The rate differed from the federal statutory rate of 35% due primarily to the tax benefits associated with percentage depletion.

Segment Analysis

The price of coal is influenced by many factors that vary by region. Such factors include, but are not limited to: (1) coal quality, which includes energy (heat content), sulfur, ash, volatile matter and moisture content; (2) transportation costs; (3) regional supply and demand; (4) available competitive fuel sources such as natural gas, nuclear or hydro; and (5) production costs, which vary by mine type, available technology and equipment utilization, productivity, geological conditions, and mine operating expenses.

The energy content or heat value of coal is a significant factor influencing coal prices as higher energy coal is more desirable to consumers and typically commands a higher price in the market. The heat value of coal is commonly measured in British thermal units or the amount of heat needed to raise the temperature of one pound of water by one degree Fahrenheit. Coal from the Eastern and Midwest regions of the United States tends to have a higher heat value than coal found in the Western United States.

Powder River Basin coal, with its lower energy content, lower production cost and often greater distance to travel to the consumer, typically sells at a lower price than Northern and Central Appalachian coals that have higher energy content and are often located closer to the end user.

	Three Months Ended
	September 30,				Increase (Decrease)
	2011		2010		$ or Tons			%
	(in thousands, except per ton data)
Western Coal Operations
Steam tons sold	12,556		12,349		207			2	%
Steam coal sales realization per ton	$	11.98	$	11.10	$	0.88		8	%
Total revenues	$	151,617	$	139,353	$	12,264		9	%
EBITDA from continuing operations	$	14,081	$	25,239	$	(11,158	)	(44	)%
Eastern Coal Operations
Steam tons sold	12,723		5,823		6,900			119	%
Metallurgical tons sold	5,900		2,986		2,914			98	%
Steam coal sales realization per ton	$	67.07	$	67.72	$	(0.65	)	(1	)%
Metallurgical coal sales realization per ton	$	168.49	$	122.24	$	46.25		38	%
Total revenues	$	2,130,268	$	850,690	$	1,279,578		150	%
EBITDA from continuing operations	$	277,300	$	171,547	$	105,753		62	%

Western Coal Operations — EBITDA from continuing operations for our Western Coal Operations decreased $11.2 million, or 44%, compared to the prior year period. The decrease was due primarily to increased cost of coal sales of $23.9 million and increased selling, general and administrative expenses of $0.1 million, partially offset by increased total revenues of $12.3 million and decreased other expenses of $0.5 million. Cost of coal sales per ton increased $1.77, or 21% while average coal sales realization per ton increased $0.88, or 8%, resulting in a decrease to coal margin per ton of $0.89, or 35%. The increase in cost of coal sales per ton was due primarily to the completion of certain development projects for which costs were capitalized in the prior year, increased diesel fuel expenses and a higher ratio of production from the Belle Ayr mine which incurs higher production costs due to higher stripping ratios. The increase in total revenues consisted of increased coal

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revenues of $13.4 million, or 10%, partially offset by decreased other revenues of $1.1 million. The increase in coal revenues was largely due to the increase in average coal sales realization, which reflected increased contractual pricing on tons shipped during the period compared to the prior year.

Eastern Coal Operations — EBITDA from continuing operations increased $105.8 million, or 62%, compared to the prior year period. The increase was due to increased coal and other revenues of $1,088.1 million and $63.2 million, respectively, partially offset by increased cost of coal sales of $967.0 million, increased other expenses of $39.6 million, increased selling, general and administrative expenses of $33.5 million, decreased other miscellaneous expenses of $1.1 million and a loss on early extinguishment of debt of $4.5 million. Average coal sales realization per ton increased $13.0, or 15%, while cost of coal sales per ton increased $18.70, or 30%, resulting in a decrease to coal margin per ton of $5.70, or 25%.

The increase in average coal sales realization per ton was due primarily to an increase of $46.25, or 38%, related to metallurgical average coal sales realization. The average coal sales realization per ton for metallurgical coal related to the Alpha operations increased $53.15, or 43%, compared to the prior year period. The average coal sales realization per ton for metallurgical coal related to the Massey operations was $155.89 per ton. The increase in cost of coal sales per ton was due primarily to increased production of higher cost metallurgical tons in response to the increase in demand, lower production at our Emerald mine due to geological factors, lower than expected production from our mines in Central Appalachia, charges of approximately $37.1 million related to changes in asset retirement obligation related estimates of water treatment costs at certain closed mines, charges of approximately $39.7 million related to the fair value adjustment made in acquisition accounting to Massey’s beginning inventory, charges of approximately $23.0 million related to accruals made in connection with aligning certain employee benefits for former Massey employees and approximately $10.6 million related to an idled mine.

Coal revenues and cost of coal sales for the East include $805.4 million and $769.8 million, respectively, from the Massey operations for the three months ended September 30, 2011.

Nine Months Ended September 30, 2011 Compared to the Nine Months Ended September 30, 2010

Summary

Total revenues increased $2,108.0 million, or 72%, for the nine months ended September 30, 2011 compared to the prior year period. The increase in total revenues was due to increased coal revenues of $1,774.0 million, increased freight and handling revenues of $240.4 million and increased other revenues of $93.6 million. The increase in coal revenues consisted of an increase from the Alpha operations of $634.3 million, or 24%, and $1,139.7 million from the Massey operations. The increase in freight and handling revenues was primarily related to the Alpha operations. The increase in other revenues consisted of an increase of $84.6 million, or 137%, from the Alpha operations, and $9.0 million from the Massey operations.

Income from continuing operations decreased $23.4 million, or 27%, for the nine months ended September 30, 2011 compared to the prior year period. The decrease was largely due to increases in certain operating costs and expenses of $1,862.1 million, or 74%, and increased other expense, net of $44.7 million, or 79%, partially offset by increased coal revenues of $1,774.0 million or 68%  and other revenues discussed above and decreased tax expense of $15.8 million, or 88%.

The increase in certain operating costs and expenses of $1,862.1 million was due to increased cost of coal sales of $1,620.8 million, or 85%, increased depreciation, depletion and amortization expenses of $195.5 million, or 70%, increased selling, general and administrative expenses of $194.1 million, or 143%, increased other expenses of $82.7 million, or 229%, and a decrease in expense for amortization of acquired intangibles, net of $231.0 million, or 133%. The increase in cost of coal sales consisted of an increase of $466.5 million, or 25%, from the Alpha operations and $1,154.3 million from the Massey operations. The increase in depreciation, depletion and amortization expenses consisted of $202.7 million from the Massey operations and a decrease of $7.2 million, or 3%, from the Alpha operations. The decrease in expense for amortization of acquired intangibles, net, consisted of a decrease in amortization expense of $98.5 million, or 57%, from the Alpha operations and a credit to expense of $132.5 million from the Massey operations. The increase in other expenses consisted of an increase of $81.5 million, or 226%, from the Alpha operations and $1.2 million from the Massey operations. The increase in selling, general and administrative expenses consisted of an increase of $136.9 million, or 101%, from the Alpha operations and $57.2 million from the Massey operations.

We sold 75.2 million tons of coal during the nine months ended September 30, 2011 compared to 62.7 million tons in the prior year period, an increase of 12.5 million tons, or 20%. The 75.2 million tons consisted of 25.2 million tons of steam coal and 13.9 million tons of metallurgical coal from our Eastern Coal Operations and 36.1 million tons of steam coal from our Western Coal Operations. The 62.7 million tons in the prior year consisted of 18.2 million tons of steam coal and 8.9 million tons of metallurgical coal from our Eastern Coal Operations

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and 35.6 million tons of steam coal from our Western Coal Operations.

The consolidated average coal sales realization per ton for the nine months ended September 30, 2011 was $58.46 compared to $41.79 in the prior year period, an increase of $16.67 per ton, or 40%. The increase was largely attributable to a 44% increase in metallurgical average coal sales realization per ton. The average coal sales realization per ton for metallurgical coal and eastern steam coal was $163.90 and $66.91, respectively, for the nine months ended September 30, 2011 compared to $113.56 and $67.08, respectively, in the prior year period. The average coal sales realization per ton for western steam coal was $11.94 for the nine months ended September 30, 2011 compared to $10.95 in the prior year period.

Consolidated coal margin percentage, calculated as consolidated coal revenues less consolidated cost of coal sales (excluding cost of coal sales in our All Other segment), divided by consolidated coal revenues, was 21% for the nine months ended September 30, 2011 compared to 28% in the prior year period. Coal margin percentage for our Eastern and Western Coal Operations was 22% and 15%, respectively, for the nine months ended September 30, 2011 compared to 30% and 20%, respectively, in the prior year period. Consolidated coal margin per ton, calculated as consolidated coal sales realization per ton less consolidated cost of coal sales per ton, was $12.29 for the nine months ended September 30, 2011 compared to $11.74 in the prior year period. Coal margin per ton for our Eastern and Western Coal Operations was $22.02 and $1.74, respectively, for the nine months ended September 30, 2011 compared to $24.36 and $2.14, respectively, in the prior year period.

Revenues

	Nine Months Ended
	September 30,				Increase (Decrease)
	2011		2010		$ or Tons			%
	(in thousands, except per ton data)
Revenues:
Coal revenues:
Eastern steam	$	1,689,802	$	1,222,478	$	467,324		38	%
Western steam	430,486		389,931		40,555			10	%
Metallurgical	2,275,516		1,009,396		1,266,120			125	%
Freight and handling revenues	480,760		240,386		240,374			100	%
Other revenues	155,419		61,850		93,569			151	%
Total revenues	$	5,031,983	$	2,924,041	$	2,107,942		72	%
Tons sold :
Eastern steam	25,255		18,223		7,032			39	%
Western steam	36,054		35,620		434			1	%
Metallurgical	13,883		8,889		4,994			56	%
Total	75,192		62,732		12,460			20	%
Coal sales realization per ton:
Eastern steam	$	66.91	$	67.08	$	(0.17	)	(0	)%
Western steam	$	11.94	$	10.95	$	0.99		9	%
Metallurgical	$	163.90	$	113.56	$	50.34		44	%
Average	$	58.46	$	41.79	$	16.67		40	%

Coal revenues. Coal revenues increased $1,774.0 million, or 68%, for the nine months ended September 30, 2011 compared to the prior year period. The increase in coal revenues consisted of an increase in metallurgical coal revenues of $1,266.1 million, or 125%, an increase in eastern steam coal revenues of $467.3 million, or 38%, and an increase in western steam coal revenues of $40.6 million, or 10%.

The increase in metallurgical coal revenues was largely due to an increase in tons shipped and increased average coal sales realization per ton. Metallurgical tons shipped increased 5.0 million, or 56%, compared to the prior year period and consisted of an increase of 2.0 million tons, or 22%, from the Alpha operations and 3.0 million tons from the Massey operations. The average coal sales realization per ton for metallurgical coal increased $50.34, or 44%, due primarily to robust global pricing and demand for metallurgical coal.

The increase in eastern steam coal revenues was due to 9.4 million tons or $647.0 million from the Massey operations, partially offset by decreases of $179.7 million from the Alpha operations. The decrease in eastern steam coal revenues from the Alpha operations was primarily

56

due to a decrease in eastern steam coal sales volumes, which decreased 2.4 million tons, or 13% compared to the prior year period due primarily to increased production of metallurgical tons in response to the increase in demand, lower than expected production from our mines in Central Appalachia primarily during the third quarter of 2011, lower production at our longwall mines due to a planned longwall move at the Cumberland mine, the operation of a single longwall at the Emerald mine during the first half of 2011 and geological factors that impacted production at the Emerald mine.

The increase in western steam coal revenues was due primarily to an increase in average coal sales realization per ton. Average coal sales realization per ton increased $0.99, or 9%, compared to the prior year period as a result of increased pricing on contracted tons shipped.

Our sales mix of metallurgical coal and steam coal based on volume for the nine months ended September 30, 2011 was 18% and 82%, respectively, compared with 14% and 86% in the prior year period. Our sales mix of metallurgical coal and steam coal based on coal revenues for the nine months ended September 30, 2011 was 52% and 48%, respectively, compared with 39% and 61% in the prior year period.

Freight and handling. Freight and handling revenues and costs were $480.8 million, respectively, for the nine months ended September 30, 2011, an increase of $240.4 million, or 100%, compared to the prior year period. The increase was due to higher export shipments combined with higher shipping rates compared to the prior year period.

Other revenues. Other revenues increased $93.6 million, or 151%, for the nine months ended September 30, 2011 compared to the prior year period. The increase in other revenues was largely due to increased revenues of approximately $61.6 million from changes in fair value of derivative coal contracts a majority of which were assumed in the Acquisition, sublease revenues of approximately $10.2 million related to a sea-going vessel charter that we entered into in December, 2010, increased road construction revenues of approximately $5.6 million, increased royalty and rental revenues of approximately $3.9 million, increased revenues of approximately $3.7 million from sales of natural gas and increased revenues of approximately $3.4 million from Dry Systems Technology.

Costs and Expenses

	Nine Months Ended
	September 30,					Increase (Decrease)
	2011			2010		$ or Tons			%
	(in thousands, except per ton data)
Cost of coal sales (exclusive of items shown separately below)	$	3,517,796		$	1,896,989	$	1,620,807		85	%
Freight and handling costs	480,760			240,386		240,374			100	%
Other expenses	118,792			36,094		82,698			229	%
Depreciation, depletion and amortization	475,762			280,228		195,534			70	%
Amortization of acquired intangibles, net	(57,023		)	173,988		(231,011		)	(133	)%
Selling, general and administrative expenses (exclusive of depreciation, depletion and amortization shown separately above)	329,656			135,604		194,052			143	%
Total costs and expenses	$	4,865,743		$	2,763,289	$	2,102,454		76	%
Cost of coal sales per ton:(1)
Eastern coal operations	$	79.30		$	57.96	$	21.34		37	%
Western coal operations	$	10.20		$	8.81	$	1.39		16	%
Average	$	46.17		$	30.05	$	16.12		54	%

(1) Cost of coal sales per ton includes only costs associated with our Eastern and Western Coal Operations.

Cost of coal sales. Cost of coal sales increased $1,620.8 million, or 85%, for the nine months ended September 30, 2011 compared to the prior year period. The increase in cost of coal sales consisted of an increase of $466.5 million, or 25%, from the Alpha operations and $1,154.3 million from the Massey operations. The increases from the Alpha operations were primarily driven by increased production of higher cost metallurgical coal tons, increases in purchased coal expenses, increased costs for commodities used in the production process, higher sales related variable costs such as royalties and production and severance taxes due to higher sales realizations for metallurgical coal, transportation expenses and wages and employee benefits. Cost of coal sales from the Alpha operations included charges of approximately $37.1 million related to changes in asset retirement obligation related estimates of water treatment costs at certain closed mines. Cost of coal sales from the Massey operations included charges of approximately $148.0 million related to the fair value adjustment made in acquisition accounting to Massey’s beginning inventory, approximately $23.0 million related to accruals made in connection with aligning certain employee benefits for employees from Massey and approximately $16.4 million of operating costs related to an idled mine. The consolidated average cost of coal sales per ton was $46.17 compared to $30.05 in the prior year period. The average cost of coal sales per ton for Eastern and Western Coal Operations was $79.30 and $10.20, respectively, compared to $57.96 and $8.81, respectively, in the prior year period.

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Other expenses. Other expenses increased $82.7 million, or 229%, for the nine months ended September 30, 2011 compared to the prior year period. The increase in other expenses was primarily due to increased expenses of approximately $48.2 million from contract-related matters primarily related to contracts assured in the Acquisition, an increase of approximately $13.0 million related to sea-going vessel charters that we entered into in the fourth quarter of 2010 and the first half of 2011, an increase of approximately $12.5 million in road construction expenses and increases of approximately $2.8 million and $2.7 million, related to Dry Systems Technologies and sales of natural gas, respectively.

Depreciation, depletion and amortization. Depreciation, depletion, and amortization increased $195.5 million, or 70%, for the nine months ended September 30, 2011 compared to the prior year period. The increase consisted of depreciation, depletion and amortization of $202.7 million from the Massey operations and decreased depreciation, depletion and amortization of $7.2 million, or 3%, from the Alpha operations.

Amortization of acquired intangibles, net. Amortization of acquired intangibles, net decreased $231.0 million, or 133%, for the nine months ended September 30, 2011 compared to the prior year period. The decrease consisted of a $98.5 million decrease in amortization expense of acquired above-market coal supply agreements from the Alpha operations and a net credit to amortization expense from the Massey operations of $132.5 million related to the amortization of acquired below-market coal supply agreements and amortization of other intangible assets that were valued in the Acquisition.

Selling, general and administrative expenses. Selling, general and administrative expenses increased $194.1 million, or 143%, for the nine months ended September 30, 2011 compared to the prior year period.  The increase was due primarily to acquisition-related expenses totaling $154.7 million for employee compensation, professional fees incurred for legal, valuation and financial services in connection with the Acquisition and related debt financing transactions, as well as increased stock-based compensation.

Interest expense. Interest expense increased $36.3 million, or 62%, during the nine months ended September 30, 2011 compared to the prior year period primarily due to a larger average outstanding balance of debt during the period as a result of the debt assumed in the Acquisition and the financing transactions that were completed during the period.

Income tax expense. Income tax expense from continuing operations of $2.2 million was recorded for the nine months ended September 30, 2011 on income from continuing operations before income taxes of $65.1 million. The rate is lower than the federal statutory rate of 35% primarily due to percentage depletion.

Income tax expense from continuing operations of $18.0 million was recorded for the nine months ended September 30, 2010 on income from continuing operations before income taxes of $104.2 million, which equates to an effective tax rate of 17%. This rate is lower than the federal statutory rate of 35% due primarily to the tax benefits associated with percentage depletion, partially offset by a $25.6 million deferred tax charge required for the legislative change related to the deductibility of retiree prescription drug expenses (Medicare Part D).

Segment Analysis

	Nine Months Ended
	September 30,				Increase (Decrease)
	2011		2010		$ or Tons			%
	(in thousands, except per ton data)
Western Coal Operations
Steam tons sold	36,054		35,620		434			1	%
Steam coal sales realization per ton	$	11.94	$	10.95	$	0.99		9	%
Total revenues	$	434,846	$	395,941	$	38,905		10	%
EBITDA from continuing operations	$	45,756	$	63,549	$	(17,793	)	(28	)%
Eastern Coal Operations
Steam tons sold	25,255		18,223		7,032			39	%
Metallurgical tons sold	13,883		8,889		4,994			56	%
Steam coal sales realization per ton	$	66.91	$	67.08	$	(0.17	)	(0	)%
Metallurgical coal sales realization per ton	$	163.90	$	113.56	$	50.34		44	%
Total revenues	$	4,540,306	$	2,494,433	$	2,045,873		82	%
EBITDA from continuing operations	$	724,663	$	566,311	$	158,352		28	%

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Western Coal Operations — EBITDA from continuing operations for our Western Coal Operations decreased $17.8 million, or 28%, compared to the prior year period. The decrease was due primarily to increased cost of coal sales, selling, general and administrative and other expenses of $53.9 million, $2.3 million and $0.5 million, respectively, partially offset by increased total revenues of $38.9 million. Cost of coal sales per ton increased $1.39, or 16% while average coal sales realization per ton increased $0.99, or 9%, resulting in a decrease to coal margin per ton of $0.40, or 18%. The increase in cost of coal sales per ton was due primarily to increased diesel fuel expenses, and a higher ratio of production from the Belle Ayr mine which incurs higher production costs due to higher stripping ratios and weather related delays experienced in the second quarter of 2011 that impacted transportation and coal shipments. The increase in total revenues consisted of increased coal revenues of $40.6 million, or 10%, partially offset by decreased other revenues of $1.7 million. The increase in coal revenues was largely due to the increase in average coal sales revenue, which reflected increased contractual pricing on tons shipped during the period compared to the prior year.

Eastern Coal Operations — EBITDA from continuing operations increased $158.4 million, or 28%, compared to the prior year period. The increase was due to increased coal and other revenues of $1,733.4 million and $72.2 million, respectively, partially offset by increased cost of coal sales of $1,532.6 million, increased other expenses of $62.0 million and increased selling, general and administrative expenses of $48.2 million, increased other miscellaneous expenses of $1.3 million and an increase in loss on early extinguishment of debt of $3.1 million. Average coal sales realization per ton increased $19.0, or 23%, while cost of coal sales per ton increased $21.35, or 37%, resulting in a decrease to coal margin per ton of $2.35, or 10%.

The increase in average coal sales realization per ton was due primarily to an increase of $50.34, or 44%, related to metallurgical average coal sales realization. The average coal sales realization per ton for metallurgical coal related to the Alpha operations increased $50.51, or 44%, compared to the prior year period. The average coal sales realization per ton for metallurgical coal related to the Massey operations was $163.31. The increase in cost of coal sales per ton was due primarily to increased production of metallurgical tons in response to the increase in demand, lower production at our longwall mines due to a planned longwall move at the Cumberland mine that was completed in the second quarter of 2011, the operation of a single longwall at the Emerald mine and geological factors that impacted production at the Emerald mine. Cost of coal sales from the Alpha operations included charges of approximately $37.1 million related to changes in asset retirement obligation related estimates of water treatment costs at certain closed mines. Cost of coal sales from the Massey operations included charges of approximately $148.0 million related to the fair value adjustment made in acquisition accounting to Massey’s beginning inventory, charges of approximately $23.0 million related to accruals made in connection with aligning certain employee benefits for former Massey employees and charges of approximately $16.4 million related to an idled mine.

Coal revenues and cost of coal sales for the East include $1,139.7 million and $1,154.3 million, respectively, from the Massey operations for the nine months ended September 30, 2011.

Liquidity and Capital Resources

Our primary liquidity and capital resource requirements stem from the cost of our coal production and purchases, our capital expenditures, our income taxes, our share repurchases and our debt service and reclamation obligations. Our primary sources of liquidity have been from sales of our coal production; borrowings under our credit facility and debt arrangements (see “—Credit Agreement and Long-Term Debt”); and to a much lesser extent, sales of purchased coal to customers, cash from sales of non-core assets and miscellaneous revenues.

At September 30, 2011, we had available liquidity of $1,789.6 million, including cash and cash equivalents of $575.3 million, marketable securities of $190.7 million and $1,023.6 million of unused revolving credit facility commitments available under the Third Amended and Restated Credit Agreement and our accounts receivable securitization facility (the “A/R Facility”), after giving effect to $14.4 million and $152.0 million of letters of credit outstanding, respectively, as of September 30, 2011, subject to limitations described in the Third Amended and Restated Credit Agreement and the A/R Facility. Our total long-term debt, including debt discount, was $2,969.8 million at September 30, 2011.

We believe that cash on hand, cash generated from our operations and borrowing capacity available under the Third Amended and Restated Credit Agreement and our A/R Facility will be sufficient to meet our working capital requirements, anticipated capital expenditures, debt service requirements, and reclamation obligations, potential share and debt repurchases, and expected settlements and costs related to outstanding litigation for at least the next twelve months.

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We sponsor pension plans in the United States for certain employees. For these plans, the Pension Protection Act of 2006 (“Pension Act”) requires a funding target of 100% of the present value of accrued benefits. The Pension Act includes a funding target phase-in provision that establishes a funding target of 92% in 2008, 94% in 2009, 96% in 2010 and 100% thereafter for defined benefit pension plans. Generally, any such plan with a funding ratio of less than 80% will be deemed at risk and will be subject to additional funding requirements under the Pension Act.  Our pension plans are approximately 90% funded as of January 1, 2011. Annual funding contributions to the plans are made as recommended by consulting actuaries based upon the Employee Retirement Income Security Act (“ERISA”) funding standards. Plan assets consist of cash and cash equivalents, corporate and government bonds, preferred and common stocks, an investment in a group annuity contract, equity and fixed income funds, and private equity funds. We are required to measure plan assets and benefit obligations as of the date of our fiscal year-end balance sheet, or sooner under certain circumstances, and recognize the overfunded or underfunded status of our defined benefit pension and other postretirement plans (other than a multi-employer plan) as an asset or liability in our balance sheet and recognize changes in that funded status in the year in which the changes occur through other comprehensive (loss) income. The recent volatile financial markets caused investment income and the value of investment assets held in our pension trust to decline and lose value. As a result, depending on economic recovery and growth in the value of our invested assets, we may be required to increase the amount of cash contributions into the pension trusts in order to comply with the funding requirements of the Pension Act. We currently do not expect to make additional contributions in 2011 to the pension plans. We have made contributions totaling $64.2 million in 2011 to the pension plans.

We have obligations for a federal coal lease, which contains an estimated 224.0 million tons of proven and probable coal reserves in the Powder River Basin. The original lease bonus bid was $180.5 million, payable in five equal annual installments of $36.1 million. The remaining annual installment of $36.1 million is due on May 1, 2012.

In September 2011, we entered into a federal coal lease, which contains an estimated 130.2 million tons of proven and probable coal reserves in the Powder River Basin. The lease bid was $143.4 million, payable in five equal annual installments of $28.7 million. The first installment was paid in September 2011. The remaining four annual installments of $28.7 million are due each September until the obligation is satisfied in 2015.

With respect to global economic events, there continues to be uncertainty in the financial markets and this uncertainty brings potential liquidity risks for us. These risks could include declines in our stock value, less availability and higher costs of additional credit, potential counterparty defaults and further commercial bank failures. We believe that our current group of customers are sound and represent no abnormal business risk.

Financing Relating to the Acquisition

On June 1, 2011, pursuant to the terms of the previously announced Agreement and Plan of Merger dated as of January 28, 2011, we completed the Acquisition of Massey. Massey stockholders received 1.025 shares of our common stock and $10.00 in cash for each share of Massey common stock.

The proceeds we received from our term loan facility, revolving credit facility and the issuance of our 2019 and 2021 Notes were used to:

·fund the cash portion of the Acquisition consideration (inclusive of payments due to holders of Massey equity awards);

·repay approximately $227.9 million outstanding under our existing senior secured term loan and replace $1.3 million in letters of credit issued under our revolving credit facility;

·retire $760.0 million of Massey’s 6.875% senior notes due 2013 (the “2013 Notes”) that were outstanding prior to the Acquisition through a combination of a cash tender offer and redemption on July 5, 2011;

·replace Massey’s existing asset-backed revolving credit facility and restricted cash letter of credit facility, which had no borrowings outstanding and approximately $135.4 million of letters of credit outstanding;

·redeem the $298.3 million aggregate outstanding principal amount of the 7.25% notes due 2014 (the “2014 Notes”) of Foundation PA Coal Company LLC (“Foundation PA”), one of our subsidiaries, on August 18, 2011 (the “Redemption Date”) at a redemption price equal to 101.208% of the principal amount of the 2014 Notes, plus any and all accrued and unpaid interest; and

·pay transaction fees and expenses.

During the nine months ended September 30, 2011, we incurred fees totaling $121.8 million related to the financing of the Acquisition. Of the total incurred, $84.0 million was capitalized as debt issuance costs and will be amortized over the life of the related financing arrangements. The remaining $37.8 million was recognized as selling, general and administrative expense during the nine months ended September 30, 2011, including $24.7 million related to the commitment fees incurred on the unsecured bridge loan facility which was in place during the process of the Acquisition.

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Accounts Receivable Securitization

We and certain of our subsidiaries are party to the A/R Facility. The capacity of the A/R Facility was increased from $150.0 million to $190.0 million in June 2011. As of September 30, 2011, letters of credit in the amount of $152.0 million were outstanding under the A/R Facility and no cash borrowing transactions had taken place. On October 19, 2011, we and certain of our subsidiaries entered into a Second Amended and Restated Receivables Purchase Agreement (the “New A/R Facility”), which expires on October 17, 2014, and which replaces the A/R Facility.  The capacity of the New A/R Facility is $275.0 million.

Cash Flows

Cash and cash equivalents increased by $20.5 million for the nine months ended September 30, 2011. The net change in cash and cash equivalents was attributable to the following:

	Nine Months Ended
	September 30,
	2011			2010
Cash Flows (in thousands):
Net cash provided by operating activities	$	537,232		$	511,051
Net cash used in investing activities	(1,022,264		)	(445,337		)
Net cash provided by (used in) financing activities	505,558			(88,820		)
Net increase (decrease) in cash and cash equivalents	$	20,526		$	(23,106	)

Net cash provided by operating activities for the nine months ended September 30, 2011 was $537.2 million, an increase of $26.1 million from the $511.1 million of net cash provided by operations for the nine months ended September 30, 2010.  Non-cash amounts included in net income for the nine months ended September 30, 2011 were primarily related to an increase in depreciation, depletion, accretion and amortization expense, an increase in stock-based compensation, a decrease in amortization of acquired intangibles, net, a decrease in mark-to-market adjustments for derivatives and a decrease in deferred income taxes. The cash generated by changes in operating assets and liabilities for the nine months ended September 30, 2011 was primarily related to a decrease in accounts receivable, net of $169.5 million, an increase in inventories, net of $122.5 million, an increase in trade accounts payable of $82.2 million, a decrease in accrued expenses and other current liabilities of $97.0 million, a decrease in pension and postretirement medical benefits of $89.5 million, and an increase in other non-current liabilities of $108.0 million.

Net cash used in investing activities for the nine months ended September 30, 2011 was $1,022.3 million, an increase of $577.0 million from the $445.3 million of net cash used in investing activities during the nine months ended September 30, 2010.  The increase was primarily due to the cash portion of consideration paid to acquire Massey, $713.4 million, net of cash acquired offset by an increase of $265.0 million in sales of marketable securities, net.

Net cash provided by financing activities for the nine months ended September 30, 2011 was $505.6 million compared to net cash used by financing activities of $88.8 million for the nine months ended September 30, 2010. The primary source of cash for financing activities included $2,100.0 million of proceeds from borrowings of long-term debt, offset by principal repayments of long-term debt of $1,307.8 million. In addition, common stock repurchases of $206.4 million and debt issuance costs of $84.3 million accounted for $290.7 million of the use of cash for financing activities for the nine months ended September 30, 2011.  Common stock repurchases consist of shares repurchased as part of publically announced share repurchase programs and repurchase of common shares from employees to satisfy the employees’ minimum statutory tax withholdings upon the vesting of restricted stock and performance shares. The majority of the financing activities for the nine months ended September 30, 2011 relate to the Acquisition.

Credit Agreement and Long-Term Debt

As of September 30, 2011, our total long-term indebtedness consisted of the following (in thousands):

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	September 30,
	2011
6.00% senior notes due 2019	$	800,000
6.25% senior notes due 2021	700,000
Term loan due 2016	592,500
3.25% convertible senior notes due 2015	658,673
2.375% convertible senior notes due 2015	287,500
Other	23,284
Debt discount, net	(92,156		)
Total long-term debt	2,969,801
Less current portion	38,529
Long-term debt, net of current portion	$	2,931,272

New Notes Indenture and the New Senior Notes

On June 1, 2011, we, certain of our wholly owned domestic subsidiaries (collectively, the “Alpha Guarantors”) and Union Bank, N.A., as trustee, entered into an indenture (the “Base Indenture”) and a first supplemental indenture (the “First Supplemental Indenture” and, together with the Base Indenture, the “New Notes Indenture”) governing our newly issued 6.00% senior notes due 2019 (the “2019 Notes”) and 6.25% senior notes due 2021 (the “2021 Notes” and, together with the 2019 Notes, the “New Senior Notes”).

On June 1, 2011, in connection with the Acquisition, we, the Alpha Guarantors, Massey, and certain wholly owned subsidiaries of Massey (the “Massey Guarantors” and together with the Alpha Guarantors the “Guarantors”), and Union Bank, N.A., as trustee, entered into a supplemental indenture (the “Second Supplemental Indenture”) to the New Notes Indenture pursuant to which Massey and certain wholly owned subsidiaries of Massey agreed to become additional guarantors for the New Senior Notes.

The 2019 Notes bear interest at a rate of 6.00% per annum, payable semi-annually on June 1 and December 1 of each year, beginning on December 1, 2011, and will mature on June 1, 2019.  The 2021 Notes bear interest at a rate of 6.25% per annum, payable semi-annually on June 1 and December 1 of each year, beginning on December 1, 2011, and will mature on June 1, 2021.

As of September 30, 2011, the carrying values of the 2019 Notes and 2021 Notes were $800.0 million and $700.0 million, respectively.

Third Amended and Restated Credit Agreement

On May 19, 2011, in connection with the Acquisition, we entered into a Third Amended and Restated Credit Agreement to amend and restate in its entirety the credit agreement dated as of July 30, 2004, as amended as of November 12, 2004 and as of October 18, 2005, as amended and restated as of July 7, 2006, as amended effective July 31, 2009 and as further amended and restated as of April 15, 2010 (as so amended and restated, the “Existing Credit Agreement”; the Existing Credit Agreement, as amended and restated by the Third Amended and Restated Credit Agreement, is referred to as the “New Credit Agreement”), with Citicorp North America, Inc., as administrative agent and as collateral agent, Bank of America, N.A., JPMorgan Chase Bank, N.A., PNC Bank, National Association, The Royal Bank of Scotland plc and Union Bank, N.A. and The Bank of Tokyo-Mitsubishi UFJ, Ltd., as co-documentation agents, Morgan Stanley Senior Funding, Inc., as sole syndication agent, Citigroup Global Markets Inc. and Morgan Stanley Senior Funding, Inc., as joint lead arrangers and joint book managers, and various other financial institutions, as lenders. The terms of the New Credit Agreement amended and restated and superseded the Existing Credit Agreement in its entirety upon the satisfaction of certain conditions precedent, which included the consummation of the Acquisition (the satisfaction of such conditions precedent is referred to as the “initial Credit Event”). The Existing Credit Agreement remained in full force and effect until the occurrence of the initial Credit Event.

Upon the occurrence of the initial Credit Event, the New Credit Agreement provided for a $600.0 million senior secured term loan A facility (the “Term Loan Facility”) and a $1.0 billion senior secured revolving credit facility (the “Revolving Facility”).  Pursuant to the New Credit Agreement, we may request incremental term loans or increase the revolving commitments under the Revolving Facility in an aggregate amount of up to $1.25 billion plus an additional $750.0 million subject to compliance with a consolidated senior secured leverage ratio.  The lenders under these facilities will not be under any obligation to provide any such incremental loans or commitments, and any such addition of or increase in such loans or commitments will be subject to certain customary conditions precedent.

As of September 30, 2011, the carrying value of the Term Loan Facility was $591.8 million, net of debt discount of $0.7 million, with $37.5 million classified as current portion of long-term debt.  There were no borrowings outstanding under the Revolving Facility as of

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September 30, 2011.  Letters of credit outstanding at September 30, 2011 under the Revolving Facility were $14.4 million.  The Term Loan Facility and Revolving Facility will each mature on June 30, 2016.

Interest Rate and Fees.  Borrowings under the New Credit Agreement bear interest at a rate per annum equal to an applicable margin plus, at our option, either (a) a base rate determined by reference to the highest of (i) the rate that Citibank, N.A. announces from time to time as its prime or base commercial lending rate, (ii) the federal funds effective rate plus 0.50% and (iii) a LIBO rate for a 30-day interest period as determined on such day, plus 1.00%, or (b) a LIBO rate for the interest period relevant to such borrowing adjusted for certain additional costs.  The initial applicable margin for borrowings under the New Credit Agreement is 1.50% with respect to base rate borrowings and 2.50% with respect to LIBO rate borrowings.  Commencing October 1, 2011, the applicable margin for borrowings under the New Credit Agreement will be subject to adjustment each fiscal quarter based on our consolidated leverage ratio for the preceding fiscal quarter.  Swingline loans will bear interest at a rate per annum equal to the base rate plus the applicable margin.  The interest rate in effect at September 30, 2011 was 2.74%.  In addition to paying interest on outstanding principal under the New Credit Agreement, we are required to pay a commitment fee to the lenders under the Revolving Facility in respect of the unutilized commitments thereunder. The initial commitment fee is 0.50% per annum.  Commencing October 1, 2011, the commitment fee will be subject to adjustment each fiscal quarter based on our consolidated leverage ratio for the preceding fiscal quarter.  We must also pay customary letter of credit fees and agency fees.

3.25% Convertible Senior Notes due 2015

As a result of the Acquisition, we became a guarantor of Massey’s 3.25% convertible senior notes due 2015 (the “3.25% Convertible Notes”) with aggregate principal outstanding at June 1, 2011 of $659.1 million. The 3.25% Convertible Notes bear interest at a rate of 3.25% per annum, payable semi-annually in arrears on August 1 and February 1 of each year.  The 3.25% Convertible Notes will mature on August 1, 2015, unless earlier repurchased by us or converted.  The 3.25% Convertible Notes had a fair value of $730.9 million at the acquisition date.  We account for the 3.25% Convertible Notes under Accounting Standards Codification (“ASC”) 470-20, which requires issuers of convertible debt instruments that may be settled wholly or partially in cash upon conversion to separately account for the liability and equity components in a manner reflective of the issuers’ nonconvertible debt borrowing rate.  As of September 30, 2011, the carrying amount of the debt was $622.8 million, net of debt discount of $35.9 million.  As of September 30, 2011, the carrying amount of the equity component totaled $110.4 million.  The debt discount is being accreted over the four-year term of the 3.25% Convertible Notes, and provides for an effective interest rate of 4.21%.

The 3.25% Convertible Notes are senior unsecured obligations and rank equally with all of our existing and future senior unsecured indebtedness.  The 3.25% Convertible Notes are guaranteed on a senior unsecured basis by Massey’s subsidiaries (which are among our subsidiaries), other than certain minor subsidiaries of Massey.  The 3.25% Convertible Notes are effectively subordinated to all of our existing and future secured indebtedness and all existing and future liabilities of our non-guarantor subsidiaries, including trade payables. The 3.25% Convertible Notes are convertible in certain circumstances and in specified periods at a conversion rate, subject to adjustment, of the value of 11.4560 shares of common stock per $1,000 principal amount of 3.25% Convertible Notes. From and after the effective time of the Acquisition, the consideration deliverable upon conversion of a 3.25% Convertible Notes ceased to be based upon Massey common stock and is instead became based upon Reference Property (as defined in the indenture governing the 3.25% Convertible Notes, (the “3.25% Convertible Notes Indenture”)) consisting of 1.025 shares of Alpha common stock (subject to adjustment upon the occurrence of certain events set forth in the 3.25% Convertible Notes Indenture) plus $10.00 in cash per share of Massey common stock. Upon conversion of the 3.25% Convertible Notes, holders will receive cash up to the principal amount of the notes being converted, and any excess conversion value will be delivered in cash, Reference Property, or a combination thereof, at our election. One of the circumstances under which the 3.25% Convertible Notes would become convertible is if our common stock price exceeds a set threshold during a reference period specified in the 3.25% Convertible Notes Indenture.

The 3.25% Convertible Notes Indenture contains customary terms and covenants, including that upon certain events of default occurring and continuing, either the trustee or the holders of at least 25% in aggregate principal amount of the 3.25% Convertible Notes then outstanding may declare the principal of the 3.25% Convertible Notes and any accrued and unpaid interest immediately due and payable. In the case of certain events of bankruptcy, insolvency or reorganization relating to Alpha, the principal amount of the 3.25% Convertible Notes together with any accrued and unpaid interest thereon will automatically become due and immediately payable.

The 3.25% Convertible Notes were not convertible as of September 30, 2011 and as a result have been classified as long-term.

6.875% Senior Notes due 2013

We assumed Massey’s 2013 Notes with an aggregate principal amount outstanding of $760.0 million as part of the Acquisition. On June 1, 2011, we paid $525.5 million, which included a premium payment and accrued but unpaid interest, pursuant to our cash tender offer for the 2013 Notes.  In addition, on June 1, 2011, we paid $274.5 million into a redemption settlement trust to redeem all of the 2013 Notes that remained outstanding after the tender offer. We recorded the debt at its fair value on June 1, 2011 of $264.0 million.  Upon redemption of the 2013 Notes on the redemption date of July 1, 2011, the related asset and liability were removed from the consolidated balance sheets and the Company recorded a loss on early extinguishment of $752.

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7.25% Senior Notes Due 2014

The 2014 Notes were scheduled to mature on August 1, 2014 in the aggregate principal amount of $298.3 million.  The 2014 Notes were guaranteed on a senior unsecured basis by Alpha Natural Resources, Inc. and all of our subsidiaries other than Foundation PA, Alpha Coal India Private Limited, ANR Receivables Funding LLC, Coalsolv, LLC, Gray Hawk Insurance Company and Rockridge Coal Company. In connection with the Acquisition, Massey and certain subsidiaries of Massey also become guarantors of the 2014 Notes. The 2014 Notes pay interest semi-annually and are redeemable at Foundation PA’s option, at a redemption price equal to 101.208%, and 100% of the principal amount if redeemed during the twelve month periods beginning August 1, 2011 and 2012, respectively, plus accrued interest. The outstanding 2014 Notes were redeemed and became due and payable on August 18, 2011, the Redemption Date, at a redemption price equal to 101.208% of the principal amount of the 2014 Notes, plus any and all accrued and unpaid interest up to but excluding the Redemption Date.  We paid $302,909, including interest, to redeem the 2014 Notes.  We recognized a loss on early extinguishment of debt of $4,438 including the premium paid.

2.375% Convertible Senior Notes Due April 15, 2015

As of September 30, 2011, we had $287.5 million aggregate principal amount of 2.375% Convertible Notes (“the 2.375% Convertible Notes”).  The 2.375% Convertible Notes bear interest at a rate of 2.375% per annum, payable semi-annually in arrears on April 15 and October 15 of each year, and will mature on April 15, 2015, unless earlier repurchased by us or converted.  We separately account for the liability and equity components of our 2.375% Convertible Notes in a manner reflective of our nonconvertible debt borrowing rate.  The related deferred loan costs and discount are being amortized and accreted, respectively, over the seven-year term of the 2.375% Convertible Notes, and provide for an effective interest rate of 8.64%.  As of September 30, 2011, the carrying amount of the debt component was $231.9 million, the unamortized debt discount was $55.6 million and the carrying amount of the equity component was $69.9 million.

The 2.375% Convertible Notes are our senior unsecured obligations and rank equally with all of our existing and future senior unsecured indebtedness. The 2.375% Convertible Notes are effectively subordinated to all of our existing and future secured indebtedness and all existing and future liabilities of our subsidiaries, including trade payables. The 2.375% Convertible Notes are convertible in certain circumstances and in specified periods at an initial conversion rate of 18.2962 shares of common stock per $1,000 principal amount of 2.375% Convertible Notes, subject to adjustment upon the occurrence of certain events set forth in the indenture governing the 2.375% Convertible Notes (the “2.375% Convertible Notes Indenture”). Upon conversion of the 2.375% Convertible Notes, holders will receive cash up to the principal amount of the notes to be converted, and any excess conversion value will be delivered in cash, shares of common stock, or a combination thereof, at our election.

The 2.375% Convertible Notes were not convertible as of September 30, 2011 and as a result have been classified as long-term debt.

Analysis of Material Debt Covenants

We were in compliance with all covenants under the New Credit Agreement and the indentures governing the New Senior Notes and the 3.25% Convertible Notes as of September 30, 2011. A breach of the covenants in the New Credit Agreement, the New Senior Notes or the 3.25% Convertible Notes, including the financial covenants under the New Credit Agreement that measure ratios based on Adjusted EBITDA, could result in a default under the New Credit Agreement, the New Senior Notes or the 3.25% Convertible Notes and the respective lenders and note holders could elect to declare all amounts borrowed due and payable. Any acceleration under either the New Credit Agreement, the New Senior Notes or the 3.25% Convertible Notes would also result in a default under the indenture governing our 2.375% Convertible Notes, our 2019 Notes and our 2021 Notes. Additionally, under the New Credit Agreement, the New Senior Notes and the 3.25% Convertible Notes, our ability to engage in activities such as incurring additional indebtedness, making investments and paying dividends is also tied to ratios based on Adjusted EBITDA.

Covenants and required levels set forth in the New Credit Agreement are:

	Actual	Required
	Covenant Levels;	Covenant Levels;
	Twelve Months Ended	June 1, 2011
	September 30, 2011	and Thereafter
Minimum adjusted EBITDA to cash interest ratio	8.9x	2.5x
Maximum total debt less unrestricted cash to adjusted EBITDA ratio	1.8x	3.75x

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Adjusted EBITDA is defined as EBITDA further adjusted to exclude certain non-cash items, non-recurring items, and other adjustments permitted in calculating covenant compliance under the New Credit Agreement. EBITDA, a measure used by management to evaluate its ongoing operations for internal planning and forecasting purposes, is defined as net income (loss) from operations plus interest expense, income tax expense, amortization of acquired intangibles, net and depreciation, depletion and amortization, less interest income and income tax benefit. EBITDA is not a financial measure recognized under United States generally accepted accounting principles and does not purport to be an alternative to net income as a measure of operating performance or to cash flows from operating activities as a measure of liquidity. The amounts shown for EBITDA as presented may differ from amounts calculated and may not be comparable to other similarly titled measures used by other companies.

Certain non-cash items that may adjust EBITDA in the compliance calculation are: (a) accretion on asset retirement obligations; (b) amortization of intangibles; (c) any long-term incentive plan accruals or any non-cash compensation expense realized from grants of stock appreciation or similar rights, stock options or other rights to officers, directors and employees; and (d) gains or losses associated with the change in fair value of derivative instruments. Certain non-recurring items that may adjust EBITDA in the compliance calculation are: (a) business optimization expenses or other restructuring charges; (b) non-cash impairment charges; (c) certain non-cash expenses or charges arising as a result of the application of acquisition accounting; (d) non-cash charges associated with loss on early extinguishment of debt; and (e) charges associated with litigation, arbitration, or contract settlements. Certain other items that may adjust EBITDA in the compliance calculation are: (a) after-tax gains or losses from discontinued operations; (b) franchise taxes; and (c) other non-cash expenses that do not represent an accrual or reserve for future cash expense.

The calculation of adjusted EBITDA shown below is based on our results of operations in accordance with the New Credit Agreement and therefore, is different from EBITDA presented elsewhere in this Quarterly Report on Form 10-Q.

													Twelve
													Months
	Three Months Ended												Ended
	December 31,			March 31,			June 30,			September 30,			September 30,
	2010			2011			2011			2011			2011
	(In thousands)
Net income (loss)	$	10,839		$	49,848		$	(53,387	)	$	66,428		$	73,728
Interest expense	15,005			15,610			29,968			49,148			109,731
Interest income	(963		)	(1,045		)	(1,012		)	(931		)	(3,951		)
Income tax (benefit) expense	(13,771		)	13,967			(7,787		)	(4,002		)	(11,593		)
Amortization of acquired intangibles, net	52,805			25,983			(10,028		)	(73,274		)	(4,514		)
Depreciation, depletion and amortization	90,715			88,638			144,721			242,699			566,773
EBITDA	154,630			193,001			102,475			280,068			730,174
Non-cash charges (1)	13,742			16,687			159,041			1,758			191,228
Extraordinary or non-recurring items (1)	—			—			94,815			70,814			165,629
Other adjustments (1)	—			115			157			428			700
Pro forma Massey (1)	35,789			112,700			17,393			—			165,882
Pro forma adjusted EBITDA	$	204,161		$	322,503		$	373,881		$	353,068		$	1,253,613

(1) Calculated in accordance with the New Credit Agreement

Adjusted EBITDA to cash interest ratio	8.9x
Total debt less unrestricted cash to adjusted EBITDA ratio	1.8x

Cash interest is calculated in accordance with the New Credit Agreement and is equal to interest expense less interest income and non-cash interest expense plus pro forma interest expense. Cash interest for the twelve months ended September 30, 2011 is calculated as follows (in thousands):

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Interest expense	$	109,731
Less interest income	(3,951		)
Less non-cash interest expense	(27,434		)
Plus pro forma interest	62,451
Net cash interest expense (1)	$	140,797

(1) Calculated in accordance with the New Credit Agreement

Off-Balance Sheet Arrangements

In the normal course of business, we are a party to certain off-balance sheet arrangements. These arrangements include guarantees, operating leases, indemnifications and financial instruments with off-balance sheet risk, such as bank letters of credit and performance or surety bonds. Liabilities related to these arrangements are not reflected in our Condensed Consolidated Balance Sheets. However, the underlying obligations that they secure, such as asset retirement obligations, self-insured workers’ compensation liabilities, royalty obligations and certain retiree medical obligations, are reflected in our Condensed Consolidated Balance Sheets.

We are required to provide financial assurance in order to perform the post-mining reclamation required by our mining permits, pay our federal production royalties, pay workers’ compensation claims under self-insured workers’ compensation laws in various states, pay federal black lung benefits, pay retiree health care benefits to certain retired United Mine Workers of America (“UMWA”) employees and perform certain other obligations. In order to provide the required financial assurance, we generally use surety bonds and self bonding for post-mining reclamation and bank letters of credit for self-insured workers’ compensation obligations and UMWA retiree health care obligations. Federal black lung benefits are paid from a dedicated trust fund to which future contributions will be required. Bank letters of credit are also used to collateralize a portion of the surety bonds.

We had outstanding surety bonds with a total face amount of $952.5 million as of September 30, 2011 to secure various obligations and commitments. In addition, we had $166.4 million of letters of credit in place, of which $14.4 million was outstanding under the New Credit Agreement, and $152.0 million was outstanding under our A/R Facility. These outstanding letters of credit served as collateral for workers’ compensation bonds, reclamation surety bonds, secured UMWA retiree health care obligations, secured workers’ compensation obligations and other miscellaneous obligations. In the event that additional surety bonds or self bonding capacity become unavailable, we would seek to secure our obligations with letters of credit, cash deposits or other suitable forms of collateral.

Other

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

Contractual Obligations

The following is a summary of our significant contractual obligations as of September 30, 2011 (in thousands):

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	2011		2012-2013		2014-2015		After 2015		Total
Long-term debt (1)	$	7,500	$	120,000	$	1,261,173	$	1,650,000	$	3,038,673
Other debt (2)	—		2,048		1,709		19,527		23,284
Equipment purchase commitments	243,918		96,129		—		—		340,047
Operating leases	17,567		108,679		27,222		1,226		154,694
Minimum royalties	8,730		68,562		47,785		94,219		219,296
Federal coal lease	—		93,475		57,367		—		150,842
Coal purchase commitments	286,328		78,509		—		—		364,837
Total	$	564,043	$	567,402	$	1,395,256	$	1,764,972	$	4,291,673

(1)Long-term debt includes principal amounts due in the years shown. Cash interest payable on these obligations, with interest rates ranging between 2.375% and 6.25% on our loans, would be approximately $38.6 million in 2011, $270.6 million in 2012 to 2013, $255.7 million in 2014 to 2015, and $402.8 million after 2015.

(2)Other debt includes principal amounts due in the years shown.  Cash interest payable on these obligations, with interest rates ranging between 6.132% and 13.86%, would be approximately $6.5 million in 2012 to 2013, $5.5 million in 2014 to 2015, and $39.9 million after 2015.

Additionally, we have long-term liabilities relating to asset retirement obligations, postretirement, pension, workers’ compensation and black lung benefits. The table below reflects the estimated undiscounted cash flows for these obligations (in thousands):

	2011		2012-2013		2014-2015		After 2015		Total
Asset retirement obligation	$	58,659	$	197,442	$	90,899	$	882,943	$	1,229,943
Postretirement benefit obligation	36,750		85,278		99,557		2,674,622		2,896,207
Workers’ compensation benefit and black lung benefit obligations	13,326		41,020		35,436		605,924		695,706
Total	$	108,735	$	323,740	$	225,892	$	4,163,489	$	4,821,856

Critical Accounting Policies and Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States (“U.S. GAAP”) requires management to make estimates and assumptions that affect reported amounts. These estimates and assumptions are based on information available as of the date of the financial statements. Accounting measurements at interim dates inherently involve greater reliance on estimates than at year-end. The results of operations for the three and nine months ended September 30, 2011 are not necessarily indicative of results that can be expected for the full year. Please refer to the section entitled “Critical Accounting Policies and Estimates” of “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the year ended December 31, 2010 for a discussion of our critical accounting policies and estimates.

Mine Safety and Health Administration Data

The information required under the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 has been included in Exhibit 99.1 to this Quarterly Report on Form 10-Q and is incorporated by reference herein.

Item 3. Quantitative and Qualitative Disclosures about Market Risk

Commodity Price Risk

We manage our commodity price risk for coal sales through the use of long-term coal supply agreements. As of October 24, 2011, we had sales commitments for approximately 100% of planned shipments for 2011. Unpriced tonnage, including committed and uncommitted, was 0%, 36% and 69% for 2011, 2012 and 2013, respectively. The discussion below presents the sensitivity of the market value of selected

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financial instruments to selected changes in market rates and prices. The range of changes reflects our view of changes that are reasonably possible over a one-year period. Market values are the present value of projected future cash flows based on the market rates and prices chosen.

We have exposure to price risk for supplies that are used directly or indirectly in the normal course of production such as diesel fuel, steel and other items such as explosives. We manage our risk for these items through strategic sourcing contracts in normal quantities with our suppliers and may use derivative instruments from time to time, primarily swap contracts with financial institutions, for a certain percentage of our monthly requirements. Swap agreements essentially fix the price paid for our diesel fuel and explosives by requiring us to pay a fixed price and receive a floating price.

We expect to use approximately 11,000 tons of explosives for the last three months of 2011 for our Western Coal Operations. Through our derivative swap contracts, we have fixed prices for approximately 26% of our expected explosive needs for the remaining three months of 2011. If the price of natural gas were to decrease during the remaining three months of 2011, our expense resulting from our natural gas derivatives would increase, which would be largely offset by a decrease in the cost of our physical explosive purchases.

We expect to use approximately 25.1 million gallons of diesel fuel for the last three months of 2011 and 95.3 million gallons of diesel fuel for 2012. Through our derivative swap contracts, we have fixed prices for approximately 38% and 48% of our expected diesel fuel needs for the remaining three months of 2011 and for the year of 2012, respectively. If the price of diesel fuel were to decrease in 2011, our expense resulting from our diesel fuel derivative swap contracts would increase, which would be offset by a decrease in the cost of our physical diesel fuel purchases.

Credit Risk

Our credit risk is primarily with electric power generators and steel producers. Our policy is to independently evaluate each customer’s creditworthiness prior to entering into transactions and to constantly monitor outstanding accounts receivable against established credit limits. When appropriate (as determined by our credit management function), we have taken steps to reduce our credit exposure to customers that do not meet our credit standards or whose credit has deteriorated. These steps include obtaining letters of credit or cash collateral, requiring prepayments for shipments or establishing customer trust accounts held for our benefit in the event of a failure to pay.

Interest Rate Risk

Our objectives in managing exposure to interest rate changes are to limit the impact of interest rate changes on earnings and cash flows and to lower overall borrowing costs. As we continue to monitor the interest rate environment in concert with our risk mitigation objectives, consideration is being given to future interest rate risk reduction strategies.

We have exposure to changes in interest rates through our New Credit Agreement, which has a variable interest rate of 2.5 percentage points over the LIBO rate, subject, in the case of the revolving credit line, to adjustment based on leverage ratios. As of September 30, 2011, our term loan due 2016 under the New Credit Agreement had an outstanding balance of $592.5 million. The current portion of the term loan due is $37.5 million. A 50 basis point increase or decrease in interest rates would increase or decrease our quarterly interest expense by $0.8 million, which would be partially offset by our interest rate swaps.

To achieve risk mitigation objectives, we have in the past managed our interest rate exposure through the use of interest rate swaps. To reduce our exposure to rising interest rates, effective May 22, 2006 we entered into an interest rate swap to reduce the risk that changing interest rates could have on our operations. If interest rates were to decrease in 2011, our expense resulting from our interest rate swap would increase, which would be partially offset by a decrease in the amount of actual interest paid on our New Credit Agreement.

Item 4. Controls and Procedures

Our Disclosure Committee has responsibility for ensuring that there is an adequate and effective process for establishing, maintaining and evaluating disclosure controls and procedures that are designed to ensure that information required to be disclosed by us in our SEC reports is timely recorded, processed, summarized and reported. In addition, we have established a Code of Business Ethics designed to provide a statement of the values and ethical standards to which we require our employees and directors to adhere. The Code of Business Ethics provides the framework for maintaining the highest possible standards of professional conduct.  We also maintain an ethics hotline for employees. There are inherent limitations to the effectiveness of any system of disclosure controls and procedures, including the possibility of human error and the circumvention or overriding of the controls and procedures. Accordingly, even effective disclosure controls and procedures can only provide reasonable assurance of achieving their control objectives.

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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 (the “Exchange Act”), as amended, as of the end of the period covered by this report. Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective, as of the end of the period covered by this report, in ensuring that material information relating to Alpha Natural Resources, Inc., required to be disclosed in reports that it files or submits under the Securities Exchange Act of 1934, is recorded, processed, summarized and reported within the requisite time periods and is accumulated and communicated to our management, including our Chief Executive Officer and our Chief Financial Officer, as appropriate to allow timely decisions regarding disclosure.

There have not been any significant changes, except as described in the following paragraph, in our internal control over financial reporting during the fiscal quarter to which this report relates that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

We are currently in the process of integrating the internal controls and procedures of Alpha and Massey, which may materially affect our internal control over financial reporting.  We expect to exclude Massey from our December 31, 2011 assessment of and report on internal control over financial reporting, but expect to perform an assessment of and report on internal control over financial reporting of the combined company as of December 31, 2012.

PART II — OTHER INFORMATION

Item 1. Legal Proceedings

For a description of the Company’s legal proceedings, see Note 19 to the unaudited condensed consolidated financial statements, which is incorporated herein by reference.

Item 1A. Risk Factors

In addition to the other information set forth in this report, you should carefully consider the factors discussed in the “Risk Factors” Section in the Annual Report on Form 10-K for the year ended December 31, 2010 and the Quarterly Reports on Form 10-Q for the quarters ended March 31, 2011 and June 30, 2011, together with the cautionary statement under the caption “Cautionary Note Regarding Forward Looking Statements” in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of this report and the additional risks set forth below.  These described risks are not the only risks we face.  Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition and/or operating results.

Massey and Massey’s directors and officers are named parties to a number of lawsuits, including various lawsuits relating to the explosion at the Upper Big Branch mine and safety conditions at Massey mines. One of Massey’s employees has been indicted by a grand jury and one of Massey’s former employees pled guilty to two felony charges and has been sentenced, Massey’s former head of security has been found guilty of two felony charges, and further lawsuits may be filed against Massey and charges may also be brought against Massey and certain other of Massey’s directors, officers and employees by the U.S. Attorney’s Office.

A number of legal actions are pending in Delaware state court and West Virginia state and federal courts relating to safety conditions at Massey’s mines, the April 2010 explosion at the Upper Big Branch mine, which we refer to as the UBB explosion, and other related matters, including accusations of securities fraud. These include derivative actions against current and former Massey directors and officers and actions brought by certain of the families of the twenty-nine miners that died in the UBB explosion and actions brought by certain employees and contractors alleging injuries as a result of the April 2010 explosion. Massey and its officers, directors and employees may be subject to future claims, including additional claims from families of the twenty-nine miners that died in the UBB explosion. In addition, the U.S. Attorney’s Office and the federal Mine Safety and Health Administration (“MSHA”), in conjunction with the State of West Virginia, are currently investigating the UBB explosion, including the role various employees and contractors who were working at the UBB mine might have played in the incident. We are cooperating with these government investigations. On February 28, 2011, Massey’s former head of security at the UBB mine was charged with obstruction of justice and making false statements in connection with the U.S. Attorney’s investigation. The case went to trial on October 24, 2011 in the United States District Court for the Southern District of West Virginia, Beckley. On October 26, 2011, a jury delivered a guilty verdict on both pending felony counts, that is making a false statement and trying to destroy records subject to a federal investigation.  The UBB head of security is scheduled for sentencing in late February 2012. On March 22, 2011, federal criminal charges were filed against a former Massey employee who worked at UBB until August 2009 in connection with falsifying his foreman’s license and making

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false statements in connection with the U.S. Attorney’s investigation.  This former Massey employee pled guilty to both charges and was sentenced to ten months in jail and three years of post-release supervision.

The outcomes of these pending and potential cases, claims, and investigations are uncertain. Depending on the outcome, these actions could have adverse financial effects or cause reputational harm to us. We may not resolve these actions favorably, may agree to settle or may not be successful in implementing remedial safety measures that may be imposed as a result of some of these actions and/or investigations. Also, under the Merger Agreement, we agreed to leave in place and not to modify those provisions granting rights to indemnification and exculpation from liabilities for acts or omissions occurring at or prior to the effective time of the Acquisition and related rights to the advancement of expenses in favor of any current or former director, officer, employee or agent of Massey contained in the organizational documents of Massey and its subsidiaries and certain related indemnification agreements.

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

	Total Number of Shares Purchased (1)	Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Share Repurchase Program (2)	Approximate Dollar Value of Shares that May Yet Be Purchased Under the Program (000’s omitted) (3)
July 1, 2011 through July 31, 2011	1,019	$	43.63	—	$	79,001
August 1, 2011 through August 31, 2011	2,612,105	$	30.48	2,596,424	$	600,000
September 1, 2011 through September 30, 2011	3,813,400	$	24.75	3,811,900	$	505,651
	6,426,524	$	27.09	6,408,324

(1)In November 2008, the Board of Directors authorized the Company to repurchase common shares from employees to satisfy the employees’ minimum statutory tax withholdings upon the vesting of restricted stock and performance shares. During the three months ended September 30, 2011, the Company issued 45,347 shares of common stock to employees upon vesting of restricted stock and restricted stock units and repurchased 18,200 shares of common stock to satisfy the employees’ minimum statutory tax withholdings.

(2)On May 19, 2010, the Board of Directors authorized the Company to repurchase up to $125,000,000 of common shares.  On August 22, 2011, the Board of Directors authorized the company to repurchase up to $600,000,000 of common shares.  Under these programs, we may repurchase shares from time to time on the open market or in privately negotiated transactions, including structured or accelerated transactions, at prevailing prices as permitted by securities laws and other legal requirements, and subject to market conditions and other factors.  To facilitate repurchases, we make purchases pursuant to one or more trading plans under Rule 10b5-1 of the Exchange Act, which allow us to repurchase shares during periods when we otherwise might be prevented from doing so under insider trading laws or because of self-imposed trading blackout periods.  This program may be discontinued at any time.

(3)Management cannot estimate the number of shares that will be repurchased because decisions to purchase are based on company outlook, business conditions and current investment opportunity.

Item 6. Exhibits

See the Exhibit Index following the signature page of this quarterly report.

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SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) 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.
Date: November 9, 2011	By:	/s/ Frank J. Wood
	Name:	Frank J. Wood
	Title:	Executive Vice President and Chief Financial Officer (Principal Financial and Accounting Officer)

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Exhibit No.	Description of Exhibit
3.1	Amended and Restated Certificate of Incorporation of Alpha Natural Resources, Inc. (Incorporated by reference to Exhibit 3.1 to the Current Report on Form 8-K of Alpha Natural Resources, Inc. (File No. 001-32331) filed on August 5, 2009).
3.2	Certificate of Amendment of the Restated Certificate of Incorporation of Alpha Natural Resources, Inc. (Incorporated by reference to Exhibit 3.2 to the Current Report on Form 8-K of Alpha Natural Resources, Inc. (File No. 001-32331) filed June 1, 2011).
3.3	Amended and Restated Bylaws of Alpha Natural Resources, Inc. (Incorporated by reference to Exhibit 3.2 to the Current Report on Form 8-K of Alpha Natural Resources, Inc. (File No. 001-32331) filed on November 18, 2010).
10.1	Second Amended and Restated Receivables Purchase Agreement Dated as of October 19, 2011 (Incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K of Alpha Natural Resources, Inc. (File No. 001-32331) filed on October 21, 2011).
12.1*	Computation of Ratio of Earnings to Fixed Charges
12.2*	Computation of Other Ratios
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 2002.
31(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 2002.
32(a)*	Certification Pursuant to 18 U.S.C. §1350, As Adopted Pursuant to §906 of the Sarbanes-Oxley Act of 2002.
32(b)*	Certification Pursuant to 18 U.S.C. §1350, As Adopted Pursuant to §906 of the Sarbanes-Oxley Act of 2002.
99.1*	Mine Safety and Health Administration Data
101.INS*	XBRL instance document
101.SCH*	XBRL taxonomy extension schema
101.CAL*	XBRL taxonomy extension calculation linkbase
101.LAB*	XBRL taxonomy extension label linkbase
101.PRE*	XBRL taxonomy extension presentation linkbase

* Filed herewith.

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