Alpha Natural Resources 10-Q 2012 Q1 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 March 31, 2012

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 April 30, 2012 — 220,277,750

TABLE OF CONTENTS

PART I — FINANCIAL INFORMATION
Item 1.	Financial Statements
	Condensed Consolidated Statements of Operations (Unaudited)	2
	Condensed Consolidated Statements of Comprehensive Income (Loss) (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	35
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	47
Item 4.	Controls and Procedures	48
PART II — OTHER INFORMATION
Item 1.	Legal Proceedings	49
Item 1A.	Risk Factors	49
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	51
Item 4.	Mine Safety Disclosures	52
Item 6.	Exhibits	52

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
	March 31,
	2012			2011
Revenues:
Coal revenues	$	1,639,558		$	986,978
Freight and handling revenues	209,350			116,055
Other revenues	85,740			27,705
Total revenues	1,934,648			1,130,738
Costs and expenses:
Cost of coal sales (exclusive of items shown separately below)	1,419,420			734,985
Freight and handling costs	209,350			116,055
Other expenses	19,396			18,579
Depreciation, depletion and amortization	285,895			88,638
Amortization of acquired intangibles, net	(35,267		)	25,983
Selling, general and administrative expenses (exclusive of depreciation, depletion and amortization shown separately above)	65,061			67,284
Total costs and expenses	1,963,855			1,051,524
Income (loss) from operations	(29,207		)	79,214
Other income (expense):
Interest expense	(45,434		)	(15,610		)
Interest income	1,097			1,045
Miscellaneous expense, net	642			(834		)
Total other expense, net	(43,695		)	(15,399		)
Income (loss) before income taxes	(72,902		)	63,815
Income tax (expense) benefit	43,785			(13,967		)
Net income (loss)	$	(29,117	)	$	49,848
Basic earnings (loss) per common share	$	(0.13	)	$	0.42
Diluted earnings (loss) per common share	$	(0.13	)	$	0.41
Weighted average shares - basic	219,785,981			120,014,520
Weighted average shares - diluted	219,785,981			122,035,780

See accompanying Notes to Condensed Consolidated Financial Statements.

2

ALPHA NATURAL RESOURCES INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Comprehensive Income (Loss) (Unaudited)

(Amounts in thousands)

	Three Months Ended
	March 31,
	2012			2011
Net income (loss)	$	(29,117	)	$	49,848
Other comprehensive income (loss), net of tax:
Amortization of employee benefit costs, net of income tax of $1,071 and $114 for the three months ended March 31, 2012 and 2011, respectively	1,789			(175		)
Change in fair value of cash flow hedges, net of income tax of $9,672 and $10,599 for the three months ended March 31, 2012 and 2011, respectively	16,150			16,288
Unrealized gains (losses) on available-for-sale marketable securities:
Unrealized holding gains (losses) arising during the period, net of tax of $47 and $45 for the three months ended March 31, 2012 and 2011, respectively	(77		)	(74		)
Less: reclassification adjustment for (gains) losses included in net income (loss), net of tax of $1 and $1 for the three months ended March 31, 2012 and 2011, respectively	(3		)	3
Total other comprehensive income, net of tax	$	17,859		$	16,042
Total comprehensive income (loss)	$	(11,258	)	$	65,890

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)

	March 31,			December 31,
	2012			2011
	(Unaudited)
Assets
Current assets:
Cash and cash equivalents	$	487,507		$	585,882
Trade accounts receivable, net	440,465			641,975
Inventories, net	551,934			492,022
Prepaid expenses and other current assets	740,142			766,959
Total current assets	2,220,048			2,486,838
Property, equipment and mine development costs (net of accumulated depreciation and amortization of $1,589,829 and $1,397,903, respectively)	2,723,102			2,812,208
Owned and leased mineral rights and land (net of accumulated depletion of $665,997 and $590,575, respectively)	8,202,395			8,283,929
Goodwill, net	2,260,248			2,260,248
Other acquired intangibles (net of accumulated amortization of $587,798 and $552,156, respectively)	314,346			349,988
Other non-current assets	421,027			320,493
Total assets	$	16,141,166		$	16,513,704
Liabilities and Stockholders’ Equity
Current liabilities:
Current portion of long-term debt	$	53,529		$	46,029
Trade accounts payable	366,172			504,059
Accrued expenses and other current liabilities	1,092,413			1,218,366
Total current liabilities	1,512,114			1,768,454
Long-term debt	2,912,683			2,922,052
Pension and postretirement medical benefit obligations	1,219,765			1,214,724
Asset retirement obligations	787,333			731,643
Deferred income taxes	1,455,630			1,528,707
Other non-current liabilities	841,831			923,815
Total liabilities	8,729,356			9,089,395
Commitments and Contingencies (Note 14)
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, 231.8 million issued and 220.3 million outstanding at March 31, 2012 and 231.0 million issued and 219.8 million outstanding at December 31, 2011	2,318			2,310
Additional paid-in capital	8,078,590			8,073,514
Accumulated other comprehensive income (loss)	(183,971		)	(201,830		)
Treasury stock, at cost: 11.5 million and 11.2 million shares at March 31, 2012 and December 31, 2011, respectively	(269,121		)	(262,795		)
Accumulated deficit	(216,006		)	(186,890		)
Total stockholders’ equity	7,411,810			7,424,309
Total liabilities and stockholders’ equity	$	16,141,166		$	16,513,704

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)

	Three Months Ended
	March 31,
	2012			2011
Operating activities:
Net income (loss)	$	(29,117	)	$	49,848
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation, depletion, accretion and amortization	311,829			97,847
Amortization of acquired intangibles, net	(35,267		)	25,983
Mark-to-market adjustments for derivatives	(36,025		)	(140		)
Stock-based compensation	7,014			10,948
Employee benefit plans, net	20,463			12,852
Deferred income taxes	(44,394		)	4,652
Other, net	(6,956		)	(6,360		)
Changes in operating assets and liabilities:
Trade accounts receivable, net	201,510			(74,903		)
Inventories, net	(59,912		)	(19,372		)
Prepaid expenses and other current assets	63,188			(17,458		)
Other non-current assets	10,914			(3,589		)
Trade accounts payable	(128,865		)	109,116
Accrued expenses and other current liabilities	(86,296		)	(13,519		)
Pension and postretirement medical benefit obligations	(10,980		)	(12,110		)
Asset retirement obligations	(10,141		)	(961		)
Other non-current liabilities	(336		)	5,584
Net cash provided by operating activities	166,629			168,418
Investing activities:
Capital expenditures	(125,774		)	(57,101		)
Purchase of equity-method investments	(6,100		)	(2,000		)
Purchases of marketable securities	(194,965		)	(160,372		)
Sales of marketable securities	72,290			60,434
Other, net	3,262			(4,477		)
Net cash used in investing activities	(251,287		)	(163,516		)
Financing activities:
Principal repayments of long-term debt	(7,500		)	(2,960		)
Principal repayments of capital lease obligations	(25		)	—
Debt issuance costs	—			(11,710		)
Excess tax benefit from stock-based awards	—			5,245
Common stock repurchases	(6,327		)	(11,203		)
Proceeds from exercise of stock options	135			1,814
Net cash used in financing activities	(13,717		)	(18,814		)
Net decrease in cash and cash equivalents	(98,375		)	(13,912		)
Cash and cash equivalents at beginning of period	585,882			554,772
Cash and cash equivalents at end of period	$	487,507		$	540,860
Supplemental cash flow information:
Cash paid for interest	$	17,388		$	17,679
Cash paid for income taxes	$	563		$	3,265
Cash received for income tax refunds	$	11,821		$	—

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” or “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 differing from those available from its own production.

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 months ended March 31, 2012 are not necessarily indicative of the results to be expected for the year ending December 31, 2012. 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, 2011, filed February 29, 2012.

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 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.

(2)Acquisition

On June 1, 2011, the Company completed its acquisition (the “Massey Acquisition”) of 100% of the outstanding common stock of Massey Energy Company (“Massey”), a coal producer with operations located primarily in Virginia, West Virginia, and Kentucky.

The total purchase price has been preliminarily allocated to the net tangible and intangible assets of Massey as follows:

6

ALPHA NATURAL RESOURCES, INC. AND SUBSIDIARIES

NOTES to CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

	Provisional as of December 31, 2011		Adjustments			Provisional as of March 31, 2012
Inventories	$	414,310	$	—		$	414,310
Other current assets	998,034		(1,551		)	996,483
Property, equipment and mine development costs	1,705,531		(9,461		)	1,696,070
Owned and leased mineral rights and land	6,445,688		—			6,445,688
Goodwill	2,613,442		17,981			2,631,423
Other intangible assets	365,379		(3,218		)	362,161
Other non-current assets	90,788		1			90,789
Total assets	12,633,172		3,752			12,636,924
Total current liabilities	1,128,922		2,404			1,131,326
Long-term debt, including current portion	1,397,405		—			1,397,405
Pension and post-retirement medical benefits, including current portion	294,657		—			294,657
Asset retirement obligation, including current portion	610,506		6,709			617,215
Deferred income taxes, including current portion	1,303,415		(2,361		)	1,301,054
Below-market contract obligations	707,969		(3,000		)	704,969
Other liabilities, including current portion of black lung and workers’ compensation	365,866		—			365,866
Total liabilities	5,808,740		3,752			5,812,492
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 income taxes, other contingencies, and goodwill. During the measurement period, which will end no later than May 31, 2012, the Company expects to finalize the 2011 tax return for Massey and otherwise complete the final purchase price allocation.

The Company’s provisional estimate of goodwill has been allocated to Eastern Coal Operations. The provisional goodwill recognized is generally attributable to intangible assets that do not qualify for separate recognition such as the Massey workforce, synergies expected to be realized through administrative, sales and operating cost savings and capital expenditure efficiencies and annual revenue synergies expected to be achieved from the integration of the Massey assets into the Company’s existing operations.

During the three months ended March 31, 2012, the Company recorded certain immaterial corrections and adjustments to the provisional opening balance sheet as shown in the above table. Adjustments were made primarily to reflect corrections to asset retirement obligations, updated estimates of franchise tax liabilities, updated estimates of certain property, updated estimates of below-market contract liabilities, other miscellaneous adjustments and the deferred tax impact of all adjustments made.

The Company adjusted depreciation, depletion and amortization, amortization of acquired intangibles, net, cost of coal sales, other expenses, other revenues and goodwill impairment and restated its consolidated balance sheet as of December 31, 2011 and its consolidated results of operations for the three months ended June 30, 2011, September 30, 2011 and December 31, 2011 for the changes to the provisional opening balance sheet of Massey and for certain other immaterial corrections. As a result, the Company recorded additional goodwill impairment of $8,290, increased its net loss before income taxes by $868, and increased its net loss by $3,889 for the year ended December 31, 2011. The following table provides information about Goodwill for the year ended December 31, 2011:

Balance December 31, 2010		Acquisitions		Impairments			Balance December 31, 2011
$	382,440	$	2,631,423	$	(753,615	)	$	2,260,248

7

ALPHA NATURAL RESOURCES, INC. AND SUBSIDIARIES

NOTES to CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

The following unaudited pro forma information has been prepared for illustrative purposes only and assumes the acquisition occurred on January 1, 2011. 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, 2011, or of future results of operations.

	Three Months Ended March 31, 2011
Total revenues:
As reported	$	1,130,738
Pro forma	$	2,062,134
Net income:
As reported	$	49,848
Pro forma	$	16,188
Earnings per common share-basic:
As reported	$	0.42
Pro forma	$	0.07
Earnings per common share-diluted:
As reported	$	0.41
Pro forma	$	0.07

(3)New Accounting Pronouncements

In May 2011, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2011-04, Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs (“ASU 2011-04”), which amended accounting guidance related to fair value measurements and disclosures with the purpose of converging the fair value measurement and disclosure guidance issued by the FASB and the International Accounting Standards Board (“IASB”). The guidance is effective for reporting periods beginning after December 15, 2011. The guidance includes amendments that clarify the intent of the application of existing fair value measurement requirements along with amendments that change a particular principle or requirement for fair value measurements and disclosures. The Company adopted the new guidance on January 1, 2012. The adoption did not have a material impact on the Company’s Condensed Consolidated Financial Statements or related disclosures.

In June 2011, the FASB issued ASU 2011-05, Presentation of Comprehensive Income (“ASU 2011-05”), which amended accounting guidance related to presentation of comprehensive income. The standards update is intended to help financial statement users better understand the causes of an entity’s change in financial position and results of operation. The amendment eliminates the option to present components of other comprehensive income as part of the statement of changes in stockholders’ equity. The amendment requires that all non-owner changes in stockholders’ equity be presented either in a single continuous statement of comprehensive income or in two separate but consecutive statements. The guidance also requires that reclassification adjustments for items that are reclassified from other comprehensive income to net income be presented on the face of the financial statement where the components of net income and other comprehensive income are presented. In December 2011, the FASB issued ASU 2011-12, Deferral of the Effective Date for Amendments to the Presentation of Items Out of Accumulated Other Comprehensive Income in Accounting Standards Update No. 2011-05 (“ASU 2011-12”), which defers only those changes in ASU 2011-5 that relate to the presentation of reclassification adjustments out of accumulated other comprehensive income. ASU 2011-05 and ASU 2011-12 are effective for reporting periods beginning after December 15, 2011. The Company adopted the new guidance on January 1, 2012.

In September 2011, the FASB issued 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 assess qualitative factors to determine whether it is more likely than not that the

8

ALPHA NATURAL RESOURCES, INC. AND SUBSIDIARIES

NOTES to CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

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 will adopt the provisions of the new guidance in 2012 during its annual goodwill impairment analysis.

(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 the Company’s outstanding 3.25% convertible senior notes due 2015 (the “3.25% Convertible Notes”). As of March 31, 2012, 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
	March 31,
	2012	2011
Weighted average shares - basic	219,785,981	120,014,520
Dilutive impact of stock options and restricted stock plans	—	1,815,615
Dilutive impact of Convertible Notes - 2.375%	—	205,645
Weighted average shares - diluted	219,785,981	122,035,780

(5)Inventories, net

Inventories, net consisted of the following:

	March 31,		December 31,
	2012		2011
Raw coal	$	48,069	$	52,215
Saleable coal	393,705		340,672
Materials, supplies and other, net	110,160		99,135
Total inventories, net	$	551,934	$	492,022

9

ALPHA NATURAL RESOURCES, INC. AND SUBSIDIARIES

NOTES to CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

(6)Marketable Securities

Short-term marketable securities, included in prepaid expenses and other current assets, consisted of the following:

	March 31, 2012
			Unrealized
	Cost		Gain		Loss			Fair value
Short-term marketable securities:
U.S. treasury and agency securities (a)	$	33,398	$	79	$	—		$	33,477
Corporate debt securities (a)	67,934		3		(18		)	67,919
Total short-term marketable securities	$	101,332	$	82	$	(18	)	$	101,396

	December 31, 2011
			Unrealized
	Cost		Gain		Loss			Fair value
Short-term marketable securities:
U.S. treasury and agency securities (a)	$	18,415	$	61	$	—		$	18,476
Corporate debt securities (a)	61,861		7		(2		)	61,866
Total short-term marketable securities	$	80,276	$	68	$	(2	)	$	80,342

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

Long-term marketable securities, with maturity dates between one and three years, included in other non-current assets, consisted of the following:

	March 31, 2012
			Unrealized
	Cost		Gain		Loss			Fair value
Long-term marketable securities:
U.S. treasury and agency securities (a)	$	44,210	$	9	$	(39	)	$	44,180
Corporate debt securities (a)	67,721		16		(74		)	67,663
Mutual funds held in rabbi trust (b)	5,753		1,015		(678		)	6,090
Total long-term marketable securities	$	117,684	$	1,040	$	(791	)	$	117,933

	December 31, 2011
			Unrealized
	Cost		Gain		Loss			Fair value
Long-term marketable securities:
U.S. treasury and agency securities (a)	$	20,451	$	49	$	(11	)	$	20,489
Mutual funds held in rabbi trust (b)	4,222		578		(671		)	4,129
Total long-term marketable securities	$	24,673	$	627	$	(682	)	$	24,618

(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

ALPHA NATURAL RESOURCES, INC. AND SUBSIDIARIES

NOTES to CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

(7)Long-Term Debt

Long-term debt consisted of the following:

	March 31,			December 31,
	2012			2011
6.00% senior notes due 2019	$	800,000		$	800,000
6.25% senior notes due 2021	700,000			700,000
Term loan due 2016	577,500			585,000
3.25% convertible senior notes due 2015	658,673			658,673
2.375% convertible senior notes due 2015	287,500			287,500
Other	23,576			23,554
Debt discount, net	(81,037		)	(86,646		)
Total long-term debt	2,966,212			2,968,081
Less current portion	53,529			46,029
Long-term debt, net of current portion	$	2,912,683		$	2,922,052

(8)Asset Retirement Obligations

As of March 31, 2012 and December 31, 2011, the Company had recorded asset retirement obligation accruals for mine reclamation and closure costs totaling $930,579 and $922,636, respectively. Changes in the asset retirement obligations were as follows:

Total asset retirement obligations at December 31, 2011	$	922,636
Accretion for the period	15,973
Sites added during the period	2,155
Revisions in estimated cash flows	(44		)
Expenditures for the period	(10,141		)
Total asset retirement obligations at March 31, 2012	$	930,579
Less current portion	143,246
Long-term portion	$	787,333

(9)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 6.00% senior notes due 2019 and the 6.25% senior notes due 2021 (collectively, the “Senior Notes”), 2.375% Convertible Notes, and 3.25% Convertible Notes, were estimated using observable market prices as these securities are traded and are considered Level 1 in the fair value hierarchy. The fair values of the term loan were estimated based on market rates of interest offered to the Company for debt of similar maturities and are considered Level 2 in the fair value hierarchy.

11

ALPHA NATURAL RESOURCES, INC. AND SUBSIDIARIES

NOTES to CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

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

	March 31, 2012				December 31, 2011
	Carrying				Carrying
	Amount		Fair Value		Amount		Fair Value
6.00% senior notes due 2019	$	800,000	$	732,000	$	800,000	$	780,000
6.25% senior notes due 2021	700,000		633,920		700,000		682,500
Term loan due 2016(1)	576,868		577,736		584,330		584,989
3.25% convertible senior notes due 2015(2)	627,116		591,914		624,946		596,955
2.375% convertible senior notes due 2015(3)	238,652		268,345		235,251		276,596
Total long-term debt	$	2,942,636	$	2,803,915	$	2,944,527	$	2,921,040

(1)  Net of debt discount of $632 and $670 as of March 31, 2012 and December 31, 2011, respectively.

(2)  Net of debt discount of $31,557 and $33,727 as of March 31, 2012 and December 31, 2011, respectively.

(3)  Net of debt discount of $48,848 and $52,249 as of March 31, 2012 and December 31, 2011, respectively.

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 March 31, 2012 and December 31, 2011, 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.

	March 31, 2012
				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	$	77,657		$	77,657	$	—		$	—
Mutual funds held in rabbi trust	$	6,089		$	6,089	$	—		$	—
Corporate debt securities	$	135,582		$	—	$	135,582		$	—
Forward coal sales	$	76,504		$	—	$	76,504		$	—
Forward coal purchases	$	(28,740	)	$	—	$	(28,740	)	$	—
Commodity swaps	$	30,063		$	—	$	30,063		$	—
Commodity options	$	225		$	—	$	225		$	—
Interest rate swaps	$	(7,445	)	$	—	$	(7,445	)	$	—

12

ALPHA NATURAL RESOURCES, INC. AND SUBSIDIARIES

NOTES to CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

	December 31, 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	$	38,965		$	38,965	$	—		$	—
Mutual funds held in rabbi trust	$	4,129		$	4,129	$	—		$	—
Corporate debt securities	$	61,866		$	—	$	61,866		$	—
Forward coal sales	$	27,254		$	—	$	27,254		$	—
Forward coal purchases	$	(15,456	)	$	—	$	(15,456	)	$	—
Commodity swaps	$	3,222		$	—	$	3,222		$	—
Commodity options	$	95		$	—	$	95		$	—
Interest rate swaps	$	(10,097	)	$	—	$	(10,097	)	$	—

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.

(10)     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

13

ALPHA NATURAL RESOURCES, INC. AND SUBSIDIARIES

NOTES to CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

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 8% of cost of coal sales for the three months ended March 31, 2012. 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 March 31, 2012, the Company had swap agreements outstanding to hedge the variable cash flows related to 66% and 38% of anticipated diesel fuel usage for the remaining nine months of 2012 and calendar year 2013, respectively. The average fixed price per swap for diesel fuel hedges is $2.88 per gallon and $3.02 per gallon for the remaining nine months of 2012 and calendar year 2013, respectively. As of March 31, 2012, the Company had swap agreements outstanding to hedge the variable cash flows related to approximately 36% of anticipated explosives usage in the Powder River Basin for the remaining nine months of 2012. All cash flows associated with derivative instruments are classified as operating cash flows in the Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2012 and 2011.

The Company sells coalbed methane. 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 March 31, 2012, the Company had swap agreements outstanding to hedge the variable cash flows related to approximately 79% and 76% of anticipated natural gas production for the remaining nine months of 2012 and for calendar year 2013, 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.

14

ALPHA NATURAL RESOURCES, INC. AND SUBSIDIARIES

NOTES to CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

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

	Asset Derivatives
Derivatives designated as	March 31,		December 31,
cash flow hedging instruments	2012		2011
Commodity swaps (1)	$	31,737	$	16,532
Commodity options (1)	242		112
	$	31,979	$	16,644

Derivatives not designated as	March 31,		December 31,
cash flow hedging instruments	2012		2011
Forward coal sales (2)	$	76,504	$	27,254
Commodity swaps (3)	2		—
Total	$	76,506	$	27,254
Total asset derivatives	$	108,485	$	43,898

(1) As of March 31, 2012, $22,742 is recorded in prepaid expenses and other current assets and $9,237 is recorded in other non-current assets in the Condensed Consolidated Balance Sheets.  As of December 31, 2011, $14,436 is recorded in prepaid expenses and other current assets and $2,208 is recorded in other non-current assets in the Condensed Consolidated Balance Sheets.

(2) As of March 31, 2012, $69,321 is recorded in prepaid expenses and other current assets and $7,183 is recorded in other non-current assets in the Condensed Consolidated Balance Sheets. As of December 31, 2011, $20,891 is recorded in prepaid expenses and other current assets and $6,363 is recorded in other non-current assets in the Condensed Consolidated Balance Sheets.

(3) As of March 31, 2012, $2 is recorded in prepaid expenses and other current assets in the Condensed Consolidated Balance Sheets.

	Liability Derivatives
Derivatives designated as	March 31,		December 31,
cash flow hedging instruments	2012		2011
Commodity swaps (1)	$	1,651	$	12,874

Derivatives not designated as	March 31,		December 31,
cash flow hedging instruments	2012		2011
Forward coal purchases (2)	28,740		15,456
Commodity swaps (3)	25		436
Commodity options-coal (4)	17		17
Interest rate swaps (5)	7,445		10,097
Total	$	36,227	$	26,006
Total liability derivatives	$	37,878	$	38,880

(1)  As of March 31, 2012, $840 is recorded in accrued expenses and other current liabilities and $811 is recorded in other non-current liabilities in the Condensed Consolidated Balance Sheets. As of December 31, 2011, $6,222 is recorded in accrued expenses and other current liabilities and $6,652 is recorded in other non-current liabilities in the Condensed Consolidated Balance Sheets.

(2)  As of March 31, 2012, $28,740 is recorded in accrued expenses in the Condensed Consolidated Balance Sheets. As of December 31, 2011, $15,456 is recorded in accrued expenses in the Condensed Consolidated Balance Sheets.

15

ALPHA NATURAL RESOURCES, INC. AND SUBSIDIARIES

NOTES to CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

(3)  As of March 31, 2012, $25 is recorded in accrued expenses in the Condensed Consolidated Balance Sheets. As of December 31, 2011, $436 is recorded in accrued expenses and other current liabilities in the Condensed Consolidated Balance Sheets.

(4)  As of March 31, 2012, $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, 2011, $3 is recorded in accrued expenses and other current liabilities and $14 in other non-current liabilities in the Condensed Consolidated Balance Sheets.

(5)  As of March 21, 2012, $7,445 is recorded in accrued expenses and other current liabilities in the Condensed Consolidated Balance Sheets. As of December 31, 2011, $10,097 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 three months ended March 31, 2012 and 2011 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	2012		2011		2012		2011
Commodity swaps (1) (2) (3)	$	4,500	$	3,448	$	20,650	$	19,736

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

(2)  Net of tax.

(3)  Ineffectiveness during the period was immaterial.

	Gain (loss)
Derivatives not designated as	recorded in earnings
cash flow hedging instruments	2012			2011
Forward coal sales (1)	$	49,259		$	2,363
Forward coal purchases (1)	(13,284		)	(1,883		)
Commodity swaps (2)	372			85
Commodity options-coal (1)	—			(65		)
Interest rate swap (3)	(322		)	(444		)
Freight swap (2)	—			84
	$	36,025		$	140

(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 $20,742, net of tax, to earnings. The following table summarizes the changes to accumulated other comprehensive income (loss) related to hedging activities during the three months ended March 31, 2012 and 2011:

16

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
	March 31,
	2012			2011
Balance at beginning of period	$	1,333		$	8,443
Net change associated with current year hedging transactions	20,650			19,736
Net amounts reclassified to earnings	(4,500		)	(3,448		)
Balance at end of period	$	17,483		$	24,731

(11)     Income Taxes

Income tax expense (benefit) for the three months ended March 31, 2012 and 2011 was ($43,785) and $13,967, respectively. A reconciliation of the statutory federal income tax expense (benefit) at 35% to the actual federal income tax expense (benefit) is as follows:

	Three Months Ended
	March 31,
	2012			2011
Federal statutory income tax expense (benefit)	$	(25,516	)	$	22,335
Increases (reductions) in taxes due to:
Percentage depletion allowance	(18,718		)	(9,282		)
State taxes, net of federal tax impact	(2,697		)	1,090
Deduction for domestic production activities	—			(610		)
Change in valuation allowance	1,454			—
Other, net	1,692			434
Income tax expense (benefit)	$	(43,785	)	$	13,967

(12)     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 are included in the tables below.

Components of Net Periodic Pension Costs

The components of net periodic benefit costs (credits) are as follows:

	Three Months Ended
	March 31,
	2012			2011
Interest cost	$	7,863		$	3,151
Expected return on plan assets	(10,034		)	(4,085		)
Amortization of net actuarial (gain) loss	179			(260		)
Net periodic benefit credit	$	(1,992	)	$	(1,194	)

17

ALPHA NATURAL RESOURCES, INC. AND SUBSIDIARIES

NOTES to CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

Components of Net Periodic Costs of Other Postretirement Benefit Plans

The components of net periodic benefit costs are as follows:

	Three Months Ended
	March 31,
	2012		2011
Service cost	$	4,600	$	4,288
Interest cost	11,900		8,793
Amortization of prior service cost (credit)	100		(238		)
Amortization of net actuarial loss	2,250		—
Net periodic benefit cost	$	18,850	$	12,843

Components of Net Periodic Costs of Black Lung

The components of net periodic benefit costs are as follows:

	Three Months Ended
	March 31,
	2012			2011
Service cost	$	1,507		$	407
Interest cost	1,793			591
Expected return on plan assets	(13		)	(6		)
Amortization of net actuarial loss	318			209
Net periodic benefit cost	$	3,605		$	1,201

(13)     Stock-Based Compensation Awards

The Company provides incentives to certain eligible persons who contribute significantly to the strategic and long-term performance objectives and growth of the Company under the 2010 Long Term Incentive Plan (the “2010 LTIP”) and the Alpha Appalachia 2006 Stock and Incentive Compensation Plan (the “2006 SICP”), (collectively the “Stock Plans”). The Stock Plans provide 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 Stock Plans. The 2010 LTIP is currently authorized for the issuance of awards for up to 3,250,000 shares of common stock, and as of March 31, 2012, 25,801 shares of common stock were available for grant under the plan. The 2006 SICP is currently authorized for the issuance of awards for up to 6,110,500 shares of common stock, and as of March 31, 2012, the Company had 3,212,234 shares of common stock available for grant under the plan.

During the three months ended March 31, 2012, the Company awarded certain of its executives and key employees 823,895 time-based restricted share units and 1,026,368 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 1,026,368 performance-based restricted share units awarded during the three months ended March 31, 2012 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.

At March 31, 2012, 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 $7,014 and $10,948, for the three months ended March 31, 2012 and 2011, respectively. For the three months ended March 31, 2012 and 2011, approximately 70% and 69%, respectively, of

18

ALPHA NATURAL RESOURCES, INC. AND SUBSIDIARIES

NOTES to CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

stock-based compensation expense is reported as selling, general and administrative expenses. Approximately 30% and 31%, of stock-based compensation expense was recorded as cost of coal sales for the three months ended March 31, 2012 and 2011, respectively.

The Company is authorized 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 three months ended March 31, 2012 and 2011, the Company repurchased 310,909 and 191,849, respectively, of common shares from employees at an average price paid per share of $20.35 and $58.39, respectively.

(14) 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.

(b) Commitments and Contingencies

Commitments

The Company leases coal mining and other equipment under long-term operating leases with varying terms. In addition, the Company leases mineral interests and surface rights from land owners under various terms and royalty rates.

The Company has obligations for federal coal leases, which contain an estimated 354.2 million tons of proven and probable coal reserves in the Powder River Basin. The original lease bids totaled $323,955, payable in annual installments. The annual installments due in 2012 total $64,791. The annual installments due in 2013 through 2015 of $28,683 are due each September until the obligation is satisfied.

Contingencies

Extensive regulation of the impacts of mining on the environment and of maintaining workplace safety, and related litigation, has 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 March 31, 2012 was $159,987. As of March 31, 2012, the Company had $300 of additional letters of credit outstanding under its senior secured 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

19

ALPHA NATURAL RESOURCES, INC. AND SUBSIDIARIES

NOTES to CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

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.  The outcome of any litigation depends on a variety of factors, many of which are outside the Company’s control. As a result, the Company believes that an estimate of possible loss in excess of amounts accrued, if any, to which the Company is exposed in future periods relating to the legal proceedings disclosed below, would either be premature or impossible to determine or so imprecise, uncertain or wide as to be potentially misleading. 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 $1,200 and $3 during the three months ended March 31, 2012 and 2011, respectively.

Federal Securities Class Action

On April 29, 2010 and May 28, 2010, two purported class actions that 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 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 a memorandum in opposition to the defendants’ motion to dismiss.  On March 27, 2012, the court denied the defendants’ motion to dismiss.

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.  On March 30, 2012, the court entered an order setting a July 13, 2012 deadline for the parties to serve their initial discovery disclosures.

Upper Big Branch (“UBB”) Explosion and Related Investigations

On April 5, 2010, before the acquisition of Massey by the Company, an explosion occurred at the UBB mine, resulting in the deaths of 29 miners. 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”) initiated investigations into the cause of the UBB explosion and related issues.  Additionally, the U.S. Attorney for the Southern District of West Virginia (the “Office”) commenced a grand jury investigation.  The GIIP published its final report on May 19, 2011; MSHA released its final report on December 6, 2011; and the State released its final report on February 23, 2012.

On December 6, 2011, the Company, the Office and the United States Department of Justice entered into a Non-Prosecution Agreement (the “Agreement”) resolving the criminal investigation against Massey and its affiliates relating to the UBB explosion and other health and safety related issues at Massey, and the Company also reached a comprehensive settlement with MSHA resolving outstanding civil citations,

20

ALPHA NATURAL RESOURCES, INC. AND SUBSIDIARIES

NOTES to CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

violations, and orders related to MSHA’s investigation arising from the UBB explosion and other non-UBB related matters involving legacy Massey entities prior to the Massey Acquisition. The Agreement does not resolve individual responsibilities related to the UBB explosion.

Under the terms of the Agreement and settlement, the Company agreed to pay outstanding MSHA fines, and has agreed to invest in additional measures designed to improve miner health and safety, provide restitution to the families of the fallen miners and two individuals injured in the UBB explosion, and create a charitable organization to research mine safety. The Company has further agreed to cooperate fully with all governmental agencies in all continuing investigations and prosecutions against any individuals that arise out of the UBB explosion and related conduct described in the Agreement until such investigations and prosecutions are concluded.

The Company cannot predict the outcome of these investigations, including whether or not any individual will become 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. As of April 20, 2012, the Company has been authorized by regulatory authorities to close the UBB mine permanently.

Wrongful Death and Personal Injury

As of May 9, 2012, twenty of the twenty-nine families of the deceased miners had filed wrongful death suits against Massey and certain of its subsidiaries in Boone County Circuit Court and Wyoming County Circuit Court. In addition, as of May 9, 2012, two seriously injured employees had filed personal injury claims against Massey and certain of its subsidiaries in Boone County Circuit Court seeking damages for physical injuries and/or alleged psychiatric injuries, and thirty-nine employees had filed lawsuits against Massey and certain of its subsidiaries in Boone County Circuit Court and Wyoming County Circuit Court alleging emotional distress or personal injuries due to their proximity to the explosion. On April 19, 2012, the Company filed a motion to transfer the Wyoming County lawsuits to Boone County.

On October 19, 2011, the Boone County Circuit Court ordered that the cases pending before it be mediated by a panel of three mediators.  These mediations are, per order of the court, strictly confidential.  The Company had reached agreements in principle to settle with all twenty-nine families of the deceased miners as well as the two employees who were seriously injured.  However, families of two of the deceased miners have recently withdrawn their prior agreements to settle, and settlement negotiations in those cases are ongoing.  Of the twenty-seven settlements that have been reached with the families of the deceased miners, all have received court approval. The settlements relating to the two serious injuries did not require court approval.

On May 4, 2012, the Boone County Circuit Court ordered that the remaining personal injury and emotional distress claims continue to be mediated through July 6, 2012. Until that date, a stay was in place for all remaining cases until further order from the court.

On April 5, 2012, one of the families of the deceased miners filed a class action suit in Boone County Circuit Court, purportedly on behalf of the families that settled their claims prior to the mediation, alleging fraudulent inducement into a contract, naming as defendants Massey, the Company and certain of its subsidiaries,the Company’s CEO and the Company’s Board of Directors.

Uniform Fraudulent Transfers Act Action

On June 1, 2011, certain of the plaintiffs who had filed wrongful death cases filed a complaint against Massey, Massey Coal Services, Inc., Performance Coal Company, and certain individuals in the Circuit Court of Boone County, West Virginia, alleging that the Massey 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.

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. Each plaintiff in this action has agreed to settle their wrongful death cases, as discussed above, and as part of those settlements, has also agreed to dismiss this action.

21

ALPHA NATURAL RESOURCES, INC. AND SUBSIDIARIES

NOTES to CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

Derivative 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 the UBB mine 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 Massey 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 Massey 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 Massey 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 Massey 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 Massey Acquisition, which, at the effective time of the Massey 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 Massey 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 Massey 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 Massey 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 Alpha Appalachia 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 stayed 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.  On January 31, 2012, the Company and Alpha Appalachia requested that the Delaware Plaintiffs consent to a six month extension of the stay order (the “Stay Order”); the Delaware Plaintiffs refused to do so.  On February 21, 2012, the Company and Alpha Appalachia filed a motion to extend the Stay Order for an additional five months through August 1, 2012. The motion remains pending.

22

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, three 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 Massey 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 Massey 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 Massey 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 Massey 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 Massey 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 Massey 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.

23

ALPHA NATURAL RESOURCES, INC. AND SUBSIDIARIES

NOTES to CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

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 things, 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 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, which remains pending.

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. Court approval of the settlement was granted on April 20, 2012. 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 West Virginia Department of Environmental Protection has brought civil enforcement actions against two of the Company’s subsidiaries, 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, additional materials, in excess of permitted levels. These suits remain ongoing. The Company does not believe the amounts of any civil penalties or fines resulting from the Paynter Branch Mining, Inc. and Pioneer Fuel Corporation cases will be material to its results of operations.

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

24

ALPHA NATURAL RESOURCES, INC. AND SUBSIDIARIES

NOTES to CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

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.

On March 20, 2012, three environmental groups filed a citizen’s suit against two of the Company’s subsidiaries, Alex Energy, Inc. and Elk Run Coal Company, Inc., in federal court in the Southern District of West Virginia alleging violations of the terms of the subsidiaries’ water discharge permits. The plaintiffs seek a civil penalty as well as injunctive relief.

On April 16, 2012, three environmental groups filed a citizen’s suit in federal court in the Southern District of West Virginia against one of the Company’s subsidiaries, Boone East Development Company (“Boone East”), which owns land previously mined and reclaimed by other companies, alleging that Boone East is discharging pollutants without a permit.

Nicewonder Litigation

In December 2004, prior to the Company’s acquisition of Nicewonder in October 2005, the Affiliated Construction Trades Foundation (“ACTF”), a division of the West Virginia State Building and Construction Trades Council, 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 of Kanawha County, West Virginia for resolution.  On May 7, 2010, the Circuit Court of Kanawha County entered summary judgment in favor of NCI.  On June 22, 2011, the West Virginia Supreme Court of Appeals reversed the Circuit Court order granting summary judgment in favor of NCI, and remanded the case back to the Circuit Court for further proceedings. Following remand, ACTF filed a motion for summary judgment, which the Circuit Court denied on November 9, 2011.  ACTF has challenged the order denying its summary judgment motion to the West Virginia Supreme Court of Appeals. Oral arguments were heard by the West Virginia Supreme Court of Appeals on this matter on April 25, 2012. A decision on this matter is anticipated later this year.

Fluor Litigation

Alpha Appalachia and certain of its subsidiaries are also parties to a number of lawsuits and other legal proceedings related to certain non-coal businesses (the “Prior Business”) previously conducted by its former affiliate Fluor Corporation.  These lawsuits include the Alexander-Pederson-Helig cases in which two of Alpha Appalachia’s subsidiaries, Appalachia Holding Company (“Appalachia Holding”) and DRIH Corporation (“DRIH”), were named defendants along with Fluor. In July 2011, those cases resulted in a 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 Alpha Appalachia’s subsidiaries is $118,500.

Under the terms of the Distribution Agreement entered into by Alpha Appalachia (then called Massey) and Fluor as of November 30, 2000 in connection with the spin-off of Fluor by Massey, Fluor agreed to indemnify Massey with respect to all such legal proceedings and assumed defense of the proceedings. Consistent with that agreement, in September 2011, Fluor submitted to the Court a number of surety bonds covering the full amount of the judgments against Fluor and Alpha Appalachia’s subsidiaries in the Alexander-Pederson-Helig cases.  On January 24, 2012, Fluor moved for a reduction in the surety bond amount pending appeal.  The Missouri Court of Appeals granted Fluor’s motion on March 1, 2012 and reduced the amount of the surety bonds required to be submitted by the defendants collectively to $150,000, which Fluor has submitted on behalf of itself and Alpha Appalachia’s subsidiaries. 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 March 31, 2012.

In connection with Fluor’s sale of the Prior Business to a group of purchasers (the “Rennert Entities”) in 1994, the Rennert Entities had agreed to indemnify Fluor and its affiliates for losses and liabilities arising from the Prior Business. In late 2010, the Rennert Entities settled with the plaintiffs in the Alexander-Pederson-Helig cases without indemnifying or obtaining a release for the benefit of Fluor and Alpha Appalachia’s subsidiaries.

25

ALPHA NATURAL RESOURCES, INC. AND SUBSIDIARIES

NOTES to CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

In January 2012, the Rennert Entities filed suit against Fluor and two of Alpha Appalachia’s subsidiaries in the United States District Court for the Eastern District of Missouri seeking return of funds previously paid by the Rennert Entities to settle personal injury and property damage claims against Fluor and Alpha Appalachia’s subsidiaries allegedly arising out of the Prior Business and a declaration of non-liability for indemnification with respect to the Alexander-Pederson-Helig cases and any future claims or judgments against Fluor and Alpha Appalachia’s subsidiaries arising out of the Prior Business.  Also in January 2012, Fluor filed suit against the Rennert Entities in Missouri state court alleging various breach of contract and tort claims and seeking a declaratory judgment regarding the Rennert Entities’ indemnification obligations to Fluor and Alpha Appalachia’s subsidiaries against claims arising out of the Prior Business.  On February 21, 2012, Appalachia Holding and DRIH joined Fluor as plaintiffs in this suit. At the same time, Fluor, Appalachia Holding and DRIH moved to dismiss, or in the alternative, to stay the suit pending in federal court in Missouri in favor of the Missouri state court action.

Other Legal Proceedings

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.

(15)     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 March 31, 2012, and Eastern Coal Operations, which consists of 87 underground mines and 43 surface mines in Northern and Central Appalachia as of March 31, 2012, 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 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, which the Company defines as net income (loss) 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 for the three months ended March 31, 2012 were as follows:

	Eastern			Western
	Coal			Coal		All
	Operations			Operations		Other			Consolidated
Total revenues	$	1,756,508		$	154,737	$	23,403		$	1,934,648
Depreciation, depletion, and amortization	$	264,105		$	15,001	$	6,789		$	285,895
Amortization of acquired intangibles, net	$	(40,474	)	$	3,581	$	1,626		$	(35,267	)
EBITDA	$	216,718		$	19,948	$	(14,603	)	$	222,063
Capital expenditures	$	110,524		$	8,100	$	7,150		$	125,774

26

ALPHA NATURAL RESOURCES, INC. AND SUBSIDIARIES

NOTES to CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

Segment operating results and capital expenditures for the three months ended March 31, 2011 were as follows:

	Eastern		Western
	Coal		Coal		All
	Operations		Operations		Other			Consolidated
Total revenues	$	965,063	$	150,535	$	15,140		$	1,130,738
Depreciation, depletion, and amortization	$	69,658	$	15,075	$	3,905		$	88,638
Amortization of acquired intangibles, net	$	14,931	$	11,052	$	—		$	25,983
EBITDA	$	196,622	$	22,703	$	(26,324	)	$	193,001
Capital expenditures	$	23,514	$	9,723	$	23,864		$	57,101

The following table presents a reconciliation of EBITDA to net income (loss):

	Three Months Ended
	March 31,
	2012			2011
EBITDA	$	222,063		$	193,001
Interest expense	(45,434		)	(15,610		)
Interest income	1,097			1,045
Income tax (expense) benefit	43,785			(13,967		)
Depreciation, depletion and amortization	(285,895		)	(88,638		)
Amortization of acquired intangibles, net	35,267			(25,983		)
Net income (loss)	$	(29,117	)	$	49,848

The following table presents total assets and goodwill as of March 31, 2012 and December 31, 2011:

	Total Assets				Goodwill, net
	March 31,		December 31,		March 31,		December 31,
	2012		2011		2012		2011
Eastern Coal Operations	$	14,076,954	$	14,391,584	$	2,201,028	$	2,201,028
Western Coal Operations	652,411		657,419		53,308		53,308
All Other	1,411,801		1,464,701		5,912		5,912
Total	$	16,141,166	$	16,513,704	$	2,260,248	$	2,260,248

The Company markets produced, processed, and purchased coal to customers in the United States and in international markets. Export revenues totaled $767,707, or approximately 40%, of total revenues for the three months ended March 31, 2012. Export revenues totaled $498,994, or approximately 44%, of total revenues for the three months ended March 31, 2011.

(16)    Supplemental Guarantor and Non-Guarantor Financial Information

On June 1, 2011, the Company issued 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 “Guarantor Subsidiaries”).

Presented below are condensed consolidating financial statements as of March 31, 2012 and December 31, 2011 and for the three months ended March 31, 2012 and 2011, respectively, based on the guarantor structure that was put in place in connection with the issuance of the Company’s 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 its 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

27

ALPHA NATURAL RESOURCES, INC. AND SUBSIDIARIES

NOTES to CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

Rockridge Coal Company. The Non-Guarantor Subsidiaries are not guarantors of the Company’s senior notes and would not be guarantors of any New Notes. Separate consolidated financial statements and other disclosures concerning the 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.

Alpha Natural Resources, Inc. and Subsidiaries

Supplemental Condensed Consolidating Balance Sheet

March 31, 2012

	Parent		Guarantor		Non-Guarantor					Total
	(Issuer)		Subsidiaries		Subsidiaries		Eliminations			Consolidated
Assets
Current assets:
Cash and cash equivalents	$	3,965	$	483,403	$	139	$	—		$	487,507
Trade accounts receivable, net	—		39,408		401,057		—			440,465
Inventories, net	—		551,934		—		—			551,934
Prepaid expenses and other current assets	—		737,344		2,798		—			740,142
Total current assets	3,965		1,812,089		403,994		—			2,220,048
Property, equipment and mine development costs, net	—		2,723,102		—		—			2,723,102
Owned and leased mineral rights and land, net	—		8,202,395		—		—			8,202,395
Goodwill, net	—		2,260,248		—		—			2,260,248
Other acquired intangibles, net	—		314,346		—		—			314,346
Other non-current assets	11,653,330		11,905,923		5,141		(23,143,367		)	421,027
Total assets	$	11,657,295	$	27,218,103	$	409,135	$	(23,143,367	)	$	16,141,166
Liabilities and Stockholders’ Equity
Current liabilities:
Current portion of long-term debt	$	52,500	$	1,029	$	—	$	—		$	53,529
Trade accounts payable	5,318		360,830		24		—			366,172
Accrued expenses and other current liabilities	33,794		1,058,414		205		—			1,092,413
Total current liabilities	91,612		1,420,273		229		—			1,512,114
Long-term debt	2,263,019		649,664		—		—			2,912,683
Pension and postretirement medical benefit obligations	—		1,219,765		—		—			1,219,765
Asset retirement obligations	—		787,333		—		—			787,333
Deferred income taxes	—		1,455,630		—		—			1,455,630
Other non-current liabilities	1,864,876		2,318,045		388,661		(3,729,751		)	841,831
Total liabilities	4,219,507		7,850,710		388,890		(3,729,751		)	8,729,356
Stockholders’ Equity
Total stockholders’ equity	7,437,788		19,367,393		20,245		(19,413,616		)	7,411,810
Total liabilities and stockholders’ equity	$	11,657,295	$	27,218,103	$	409,135	$	(23,143,367	)	$	16,141,166

28

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, 2011

	Parent		Guarantor		Non-Guarantor					Total
	(Issuer)		Subsidiaries		Subsidiary		Eliminations			Consolidated
Assets
Current assets:
Cash and cash equivalents	$	613	$	585,130	$	139	$	—		$	585,882
Trade accounts receivable, net	—		284,675		357,300		—			641,975
Inventories, net	—		492,022		—		—			492,022
Prepaid expenses and other current assets	—		764,145		2,814		—			766,959
Total current assets	613		2,125,972		360,253		—			2,486,838
Property, equipment and mine development costs, net	—		2,812,208		—		—			2,812,208
Owned and leased mineral rights and land, net	—		8,283,929		—		—			8,283,929
Goodwill, net	—		2,260,248		—		—			2,260,248
Other acquired intangibles, net	—		349,988		—		—			349,988
Other non-current assets	11,314,958		11,458,894		5,170		(22,458,529		)	320,493
Total assets	$	11,315,571	$	27,291,239	$	365,423	$	(22,458,529	)	$	16,513,704
Liabilities and Stockholders’ Equity
Current liabilities:
Current portion of long-term debt	$	45,000	$	1,029	$	—	$	—		$	46,029
Trade accounts payable	5,019		499,016		24		—			504,059
Accrued expenses and other current liabilities	9,150		1,209,206		10		—			1,218,366
Total current liabilities	59,169		1,709,251		34		—			1,768,454
Long-term debt	2,274,580		647,472		—		—			2,922,052
Pension and postretirement medical benefit obligations	—		1,214,724		—		—			1,214,724
Asset retirement obligations	—		731,643		—		—			731,643
Deferred income taxes	—		1,528,707		—		—			1,528,707
Other non-current liabilities	1,557,513		2,135,353		345,975		(3,115,026		)	923,815
Total liabilities	3,891,262		7,967,150		346,009		(3,115,026		)	9,089,395
Stockholders’ Equity
Total stockholders’ equity	7,424,309		19,324,089		19,414		(19,343,503		)	7,424,309
Total liabilities and stockholders’ equity	$	11,315,571	$	27,291,239	$	365,423	$	(22,458,529	)	$	16,513,704

29

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 Three Months Ended March 31, 2012

	Parent			Guarantor			Non-Guarantor					Total
	(Issuer)			Subsidiaries			Subsidiaries			Eliminations		Consolidated
Revenues:
Coal revenues	$	—		$	1,639,558		$	—		$	—	$	1,639,558
Freight and handling revenues	—			209,350			—			—		209,350
Other revenues	—			82,385			3,355			—		85,740
Total revenues	—			1,931,293			3,355			—		1,934,648
Costs and expenses:
Cost of coal sales (exclusive of items shown separately below)	—			1,419,420			—			—		1,419,420
Freight and handling costs	—			209,350			—			—		209,350
Other expenses	—			19,396			—			—		19,396
Depreciation, depletion and amortization	—			285,895			—			—		285,895
Amortization of acquired intangibles, net	—			(35,267		)	—			—		(35,267		)
Selling, general and administrative expenses (exclusive of depreciation, depletion and amortization shown separately above)	—			63,781			1,280			—		65,061
Total costs and expenses	—			1,962,575			1,280			—		1,963,855
Income (loss) from operations	—			(31,282		)	2,075			—		(29,207		)
Other income (expense):
Interest expense	(38,600		)	(6,120		)	(714		)	—		(45,434		)
Interest income	—			1,097			—			—		1,097
Miscellaneous expense, net	—			642			—			—		642
Total other expense, net	(38,600		)	(4,381		)	(714		)	—		(43,695		)
Income (loss) before income taxes and equity in earnings of investments in Issuer and Guarantor Subsidiaries	(38,600		)	(35,663		)	1,361			—		(72,902		)
Income tax benefit (expense)	15,054			29,262			(531		)	—		43,785
Equity in earnings of investments in Issuer and Guarantor Subsidiaries	(5,571		)	—			—			5,571		—
Net income (loss)	$	(29,117	)	$	(6,401	)	$	830		$	5,571	$	(29,117	)

30

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 Three Months Ended March 31, 2011

	Parent			Guarantor			Non-Guarantor						Total
	(Issuer)			Subsidiaries			Subsidiary			Eliminations			Consolidated
Revenues:
Coal revenues	$	—		$	986,978		$	—		$	—		$	986,978
Freight and handling revenues	—			116,055			—			—			116,055
Other revenues	—			25,288			2,417			—			27,705
Total revenues	—			1,128,321			2,417			—			1,130,738
Costs and expenses:
Cost of coal sales (exclusive of items shown separately below)	—			734,985			—			—			734,985
Freight and handling costs	—			116,055			—			—			116,055
Other expenses	—			18,579			—			—			18,579
Depreciation, depletion and amortization	—			88,638			—			—			88,638
Amortization of acquired intangibles, net	—			25,983			—			—			25,983
Selling, general and administrative expenses (exclusive of depreciation, depletion and amortization shown separately above)	—			66,482			802			—			67,284
Total costs and expenses	—			1,050,722			802			—			1,051,524
Income from operations	—			77,599			1,615			—			79,214
Other income (expense):
Interest expense	(8,364		)	(6,860		)	(386		)	—			(15,610		)
Interest income	—			1,045			—			—			1,045
Miscellaneous expense, net	—			(834		)	—			—			(834		)
Total other expense, net	(8,364		)	(6,649		)	(386		)	—			(15,399		)
Income (loss) before income taxes and equity in earnings of investments in Issuer and Guarantor Subsidiaries	(8,364		)	70,950			1,229			—			63,815
Income tax benefit (expense)	3,262			(16,750		)	(479		)	—			(13,967		)
Equity in earnings of investments in Issuer and Guarantor Subsidiaries	54,950			(20,244		)	—			(34,706		)	—
Net income (loss)	$	49,848		$	33,956		$	750		$	(34,706	)	$	49,848

31

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 Statements of Comprehensive Income (Loss)

For the Three Months Ended March 31, 2012

	Parent			Guarantor			Non-Guarantor				Total
	(Issuer)			Subsidiaries			Subsidiaries		Eliminations		Consolidated
Net income (loss)	$	(29,117	)	$	(6,401	)	$	830	$	5,571	$	(29,117	)
Total comprehensive income (loss)	$	(11,258	)	$	(12,088	)	$	830	$	11,258	$	(11,258	)

Alpha Natural Resources, Inc. and Subsidiaries

Supplemental Condensed Consolidating Statements of Comprehensive Income (Loss)

For the Three Months Ended March 31, 2011

	Parent		Guarantor		Non-Guarantor					Total
	(Issuer)		Subsidiaries		Subsidiaries		Eliminations			Consolidated
Net income (loss)	$	49,848	$	33,956	$	750	$	(34,706	)	$	49,848
Total comprehensive income (loss)	$	65,890	$	65,140	$	750	$	(65,890	)	$	65,890

32

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

Three Months Ended March 31, 2012

	Parent			Guarantor			Non-Guarantor			Total
	(Issuer)			Subsidiaries			Subsidiary			Consolidated
Net cash provided by operating activities	$	24,944		$	141,477		$	208		$	166,629
Investing activities:
Capital expenditures	$	—		$	(125,774	)	$	—		$	(125,774	)
Purchase of equity-method investments	—			(6,100		)	—			(6,100		)
Purchases of marketable securities, net	—			(122,675		)	—			(122,675		)
Other, net	—			3,262			—			3,262
Net cash used in investing activities	$	—		$	(251,287	)	$	—		$	(251,287	)
Financing activities:
Principal repayments of capital lease obligations	$	—		$	(25	)	$	—		$	(25	)
Principal repayments of long-term debt	(7,500		)	—			—			(7,500		)
Common stock repurchases	(6,327		)	—			—			(6,327		)
Proceeds from exercise of stock options	135			—			—			135
Transactions with affiliates	(7,900		)	8,108			(208		)	—
Net cash (used in) provided by financing activities	$	(21,592	)	$	8,083		$	(208	)	$	(13,717	)
Net increase (decrease) in cash and cash equivalents	$	3,352		$	(101,727	)	$	—		$	(98,375	)
Cash and cash equivalents at beginning of period	613			585,130			139			585,882
Cash and cash equivalents at end of period	$	3,965		$	483,403		$	139		$	487,507

33

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

Three Months Ended March 31, 2011

	Parent			Guarantor			Non-Guarantor			Total
	(Issuer)			Subsidiaries			Subsidiary			Consolidated
Net cash (used in) provided by operating activities	$	(192	)	$	166,193		$	2,417		$	168,418
Investing activities:
Capital expenditures	$	—		$	(57,101	)	$	—		$	(57,101	)
Purchase of equity-method investments	—			(2,000		)	—			(2,000		)
Purchases of marketable securities, net	—			(99,938		)	—			(99,938		)
Other, net	—			(4,477		)	—			(4,477		)
Net cash used in investing activities	$	—		$	(163,516	)	$	—		$	(163,516	)
Financing activities:
Principal repayments of long-term debt	$	—		$	(2,960	)	$	—		$	(2,960	)
Debt issuance costs	—			(11,710		)	—			(11,710		)
Excess tax benefit from stock-based awards	—			5,245			—			5,245
Common stock repurchases	(11,203		)	—			—			(11,203		)
Proceeds from exercise of stock options	1,814			—			—			1,814
Transactions with affiliates	(10,304		)	12,721			(2,417		)	—
Net cash (used in) provided by financing activities	$	(19,693	)	$	3,296		$	(2,417	)	$	(18,814	)
Net increase (decrease) in cash and cash equivalents	$	(19,885	)	$	5,973		$	—		$	(13,912	)
Cash and cash equivalents at beginning of period	20,331			534,441			—			554,772
Cash and cash equivalents at end of period	$	446		$	540,414		$	—		$	540,860

34

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, 2011.

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;

·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;

·inherent risks of coal mining beyond our control;

·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;

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

·competition in coal markets;

·our assumptions concerning economically recoverable coal reserve estimates;

·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;

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

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

·potential instability and volatility in worldwide financial markets;

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

·disruption in coal supplies;

·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 Massey Acquisition (defined below);

·our ability to achieve the cost savings and synergies contemplated by the Massey Acquisition within the expected time frame;

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

·the final allocation of the acquisition price in connection with the Massey 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;

35

·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;

·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;

·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;

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

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

·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 our outstanding debt securities;

·certain terms of our outstanding debt securities,, including any conversions of our convertible debt, that may adversely impact our liquidity;

·our substantial indebtedness and potential future indebtedness;

·significant or rapid increases in commodity prices;

·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;

·utilities switching to alternative energy sources such as natural gas, renewables and coal from basins where we do not operate;

·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 this Quarterly Report on Form 10-Q for the quarter ended March 31, 2012 and our Annual Report on Form 10-K for the year ended December 31, 2011.

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 “Massey Acquisition”) of Massey. Our consolidated results of operations include Massey’s results of operations beginning June 1, 2011 and accordingly, our consolidated results of operations for the three months ended March 31, 2011 do not include amounts related to Massey.

Overview

We are one of America’s premier coal suppliers, operating 132 mines and 34 coal preparation and load-out facilities as of March 31, 2012 in Northern and Central Appalachia and the Powder River Basin, with approximately 14,000 employees.

On February 3, 2012, we announced that subsidiaries in Kentucky and West Virginia planned to idle four mines immediately and two others between the date of announcement and early 2013, while several other mines altered work schedules or reduced the number of production crews. Altogether ten mining operations are affected, four in eastern Kentucky and six in southern West Virginia. The adjustments are expected to reduce 2012 coal production by approximately 4.0 million tons. The total includes approximately 2.5 million tons of thermal coal and 1.5 million tons of lower quality, high-volatility metallurgical coal. Additionally, in the future we plan to announce further production adjustments to match our production with current demand which may require the idling of additional facilities.

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 months ended March 31, 2012, sales of steam coal were 23.2 million tons, and accounted for approximately 83% of

36

our coal sales volume. Comparatively, for the three months ended March 31, 2011, sales of steam coal were 17.4 million tons accounted for approximately 83% of our coal sales volume. For the three months ended March 31, 2012, sales of metallurgical coal, which generally sells at a premium over steam coal, were 4.9 million tons and accounted for approximately 17% of our coal sales volume. For the three months ended March 31, 2011, sales of metallurgical coal were 3.6 million tons and accounted for approximately 17% of our coal sales volume.

Our sales of steam coal for the three months ended March 31, 2012 and 2011 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 months ended March 31, 2012, approximately 40% of our total revenues were derived from coal sales made outside the United States, compared to 44% for the three months ended March 31, 2011.

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 and our coal brokerage and road construction activities. All of the active mines we acquired from Massey were located in Central Appalachia and accordingly 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

Following a year of record-high metallurgical coal pricing in 2011, the market for metallurgical coal experienced a period of relative weakness in the opening months of 2012. Recent data suggests that pricing is not expected to deteriorate further for premium, benchmark quality coals in Asia due to Chinese steel production that rose four percent in March to an annualized rate of approximately 725 million metric tons and labor and weather-related supply disruptions in Australia. However, European steel production has been lower in the first quarter of 2012 compared to the same period in 2011, and demand and pricing in the Atlantic basin remain under pressure relative to the markets in Asia, particularly for lower quality and blended products that comprise the bulk of U.S. export products. While the export market for U.S. metallurgical coal has been under pressure recently, the market appears unlikely to deteriorate further and may strengthen in coming quarters, depending upon a host of variables, including expected continued growth in Asian steel production, any further supply disruptions in Australia, expected gradual economic recovery in Europe, and potential additional cutbacks in U.S. production of lower quality coking coals.

The EIA in the early release of its 2012 Annual Energy Outlook forecasts that coal-fired electrical generation will decrease by an average annual rate of 2.7% through 2015. The EIA estimates that electric power generation from coal decreased by 6.1% in 2011 compared to 2010 as low natural gas prices, increased environmental regulation, and other factors weighed on coal-fired generation. Demand for domestic thermal coal has significantly declined in recent months due to the effects of mild winter weather and extremely low natural gas prices which have reduced coal burn by domestic utilities. Utility inventories have grown rapidly to greater than 200 million tons nationwide. Based on recent natural gas prices, coal-to-gas switching has expanded into areas served by Powder River Basin (“PRB”) coals. Based on weekly coal production reporting through March 31, 2012 from the Energy Information Administration (“EIA”), year-over-year Appalachian production decreased by approximately 6.9% and western coal production decreased by approximately 6.1% in the first quarter. Requests for shipment deferrals have become commonplace in all regions, and spot pricing is below production costs for much of Central Appalachia and certain PRB operations. In light of increasing inventories, some thermal coal shipments have been re-sold either to other utilities or to traders with some of the coal ultimately moving into the seaborne market. Producers are also striving to maximize exports in order to place thermal coal production, and seaborne thermal coal exports from the U.S. have increased significantly in the first quarter of 2012. U.S. coal producers have responded to the current market environment by adjusting production volumes and idling high cost mines. 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, relative costs for competing fuels for base-load generation such as natural gas and nuclear, the extent to which renewable energy sources such as wind and solar might become

37

base load sources 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.

The volatility and uncertainty in the credit markets seen through much of the past two years continued to ease in the first quarter, though slow domestic growth and European debt challenges continue to hamper markets. We believe that the steel business will continue to show strength in the long-term despite normal cyclical volatility. Long-term global coal industry fundamentals remain intact, and we believe these factors should lead to stronger global demand for coal in the coming years. This global demand growth is expected to increase the need for seaborne coal as developing nations rely heavily on coal for their power needs. Increases in U.S. exports should be required to help meet this anticipated growth in worldwide coal demand.

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

Results of Operations

As noted previously, the results of operations for the three months ended March 31, 2011 do not include the results of operations from the acquired operations of Massey due to the timing of the closing of the Massey Acquisition on June 1, 2011. To help understand the operating results for the periods, the term “Massey operations” refers to the estimated results from former Massey operations for the three months ended March 31, 2012 and the term “Alpha operations” refers to the results of Alpha not inclusive of results from the Massey operations for the three months ended March 31, 2012.

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

The following table reconciles EBITDA to net income (loss), the most directly comparable GAAP measure:

	Three Months Ended
	March 31,
	2012			2011
	(in thousands)
Net income (loss)	$	(29,117	)	$	49,848
Interest expense	45,434			15,610
Interest income	(1,097		)	(1,045		)
Income tax expense (benefit)	(43,785		)	13,967
Depreciation, depletion and amortization	285,895			88,638
Amortization of acquired intangibles, net	(35,267		)	25,983
EBITDA	$	222,063		$	193,001

Three Months Ended March 31, 2012 Compared to the Three Months Ended March 31, 2011

Summary

Total revenues increased $803.9 million, or 71%, for the three months ended March 31, 2012 compared to the prior year period. The increase in total revenues was due to increased coal revenues of $652.6 million, increased freight and handling revenues of $93.3 million and increased other revenues of $58.0 million. The increase in coal revenues consisted of a decrease from the Alpha operations of $27.6 million, or 3%, offset by the addition of $680.2 million from the Massey operations. The increase in freight and handling revenues was primarily due to increased shipping rates. The increase in other revenues was due primarily to derivative contracts accounted for at fair value, increased rental and royalty revenues, contractual settlement related revenues and rebate-related revenues.

Net income (loss) decreased $79.0 million, or 158%, for the three months ended March 31, 2012 compared to the prior year period. The decrease was largely due to increased certain operating costs and expenses, which are described below, of $819.0 million, or 88%, and increased other expense, net of $28.3 million, or 184%, partially offset by increased coal revenues and other revenues discussed above and increased tax benefits of $57.8 million.

38

The increase in certain operating costs and expenses of $819.0 million was due to increased cost of coal sales of $684.4 million, or 93%, increased depreciation, depletion and amortization expenses of $197.3 million, or 223%, increased other expenses of $0.8 million, or 4%, partially offset by decreased selling, general and administrative expenses of $2.2 million, or 3%, and decreased expenses for amortization of acquired intangibles, net of $61.3 million, or 236%.

The increase in cost of coal sales consisted of the addition of $690.8 million from the Massey operations, partially offset by a decrease of $6.4 million, or 1%, from the Alpha operations. Cost of coal sales for the three months ended March 31, 2012 included approximately $34.7 million in expenses associated with lower of cost or market adjustments to inventory, approximately $14.3 million of expenses related to a closed mine, approximately $3.9 million of merger-related expenses from the Massey Acquisition consisting primarily of charges related to the fair value adjustment made in acquisition accounting to Massey’s beginning inventory, approximately $2.3 million for weather-related property damage expenses and approximately $4.1 million in severance expenses associated with production adjustments announced during the first quarter of 2012.

The increase in depreciation, depletion and amortization expenses was primarily due to the inclusion of the Massey operations, including the fair value adjustments made in acquisition accounting to property, equipment and owned and leased mineral rights. Selling, general and administrative expenses included approximately $5.5 million in merger-related expenses primarily related to professional fees and severance for the first quarter in 2012 compared to approximately $22.1 million primarily related to professional advisory fees and bridge financing fees in the prior year period. The decrease in expense for amortization of acquired intangibles, net, was primarily due to the net credit to amortization expense from amortizing below-market contracts assumed in the Massey Acquisition.

We sold 28.1 million tons of coal during the three months ended March 31, 2012 which consisted of 11.5 million tons of steam coal and 4.9 million tons of metallurgical coal from our Eastern Coal Operations and 11.8 million tons of steam coal from our Western Coal Operations, compared to 21.0 million tons in the prior year period which consisted of 4.9 million tons of steam coal and 3.6 million tons of metallurgical coal from our Eastern Coal Operations and 12.5 million tons of steam coal from our Western Coal Operations.

Coal sales volumes increased 7.2 million, or 34% compared to the prior year period. The increase in coal sales volumes was due to increases of 6.6 million and 1.3 million tons of eastern steam and metallurgical coal, respectively, and a decrease of 0.7 million tons of western steam coal. The increase in eastern steam and metallurgical coal was due primarily to the inclusion of 6.0 million tons of eastern steam and 1.8 million tons of metallurgical coal from the Massey operations.

The consolidated average coal sales realization per ton for the three months ended March 31, 2012 was $58.25 compared to $47.08 in the prior year period, an increase of $11.17 per ton, or 24%. The increase was largely attributable to a higher proportion of eastern metallurgical and steam coal in the average during the first quarter of 2012, an increase of $3.75 per ton, or 3%, in metallurgical average coal sales realization per ton and an increase of $1.04 per ton, or 9%, in western steam average coal sales realization per ton. The average coal sales realization per ton for metallurgical coal and eastern steam coal was $145.51 and $67.48, respectively, for the three months ended March 31, 2012 compared to $141.76 and $66.89 in the prior year period. The average coal sales realization per ton for western steam coal was $12.95 for the three months ended March 31, 2012 compared to $11.91 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 15% for the three months ended March 31, 2012 compared to 27% in the prior year period. Coal margin percentage for each of our Eastern and Western Coal Operations was 15% for the three months ended March 31, 2012 compared to 28% and 19%, 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 $8.58 for the three months ended March 31, 2012 compared to $12.49 in the prior year period. Coal margin per ton for our Eastern and Western Coal Operations was $13.32 and $1.99, respectively, for the three months ended March 31, 2012 compared to $27.56 and $2.25 in the prior year period.

39

Revenues

	Three Months Ended
	March 31,				Increase (Decrease)
	2012		2011		$ or Tons			%
	(in thousands, except per ton data)
Revenues:
Coal revenues:
Eastern steam	$	774,424	$	325,011	$	449,413		138	%
Western steam	152,441		148,779		3,662			2	%
Metallurgical	712,693		513,188		199,505			39	%
Freight and handling revenues	209,350		116,055		93,295			80	%
Other revenues	85,740		27,705		58,035			209	%
Total revenues	$	1,934,648	$	1,130,738	$	803,910		71	%
Tons sold :
Eastern steam	11,476		4,859		6,617			136	%
Western steam	11,772		12,487		(715		)	(6	)%
Metallurgical	4,898		3,620		1,278			35	%
Total	28,146		20,966		7,180			34	%
Coal sales realization per ton:
Eastern steam	$	67.48	$	66.89	$	0.59		1	%
Western steam	$	12.95	$	11.91	$	1.04		9	%
Metallurgical	$	145.51	$	141.76	$	3.75		3	%
Average	$	58.25	$	47.08	$	11.17		24	%

Coal revenues. Coal revenues increased $652.6 million, or 66%, for the three months ended March 31, 2012 compared to the prior year period. The increase in coal revenues consisted of an increase in metallurgical coal revenues of $199.5 million, or 39%, an increase in eastern steam coal revenues of $449.4 million, or 138%, and an increase in western steam coal revenues of $3.7 million, or 2%.

The increase in metallurgical coal revenues was largely due to the inclusion of the Massey operations which shipped approximately 1.8 million tons of metallurgical coal at an average coal sales realization per ton of $142.70. Metallurgical coal shipments from the Alpha operations decreased approximately 0.6 million tons, or 16%, compared to the prior year period.

The increase in eastern steam coal revenues was largely due to the inclusion of the Massey operations which shipped approximately 6.0 million tons of steam coal at an average coal sales realization per ton of $69.49. Eastern steam coal shipments from the Alpha operations increased approximately 0.6 million tons, or 13%, compared to the prior year period.

The increase in western steam coal revenues was due to an increase of $1.04 in average coal sales realization as a result of increased pricing on tons shipped. Western coal sales volumes decreased 0.7 million compared to the prior year period.

Our sales mix of metallurgical coal and steam coal based on volume was 17% and 83%, respectively for the three months ended March 31, 2012 and 2011. Our sales mix of metallurgical coal and steam coal based on volume was 24% and 76%, respectively, for the Massey operations for the three months ended March 31, 2012. Our sales mix of metallurgical coal and steam coal based on volume was 15% and 85%, respectively, for the Alpha operations for the three months ended March 31, 2012 compared to 17% and 83% in the prior year period.

Our sales mix of metallurgical coal and steam coal based on coal revenues was 43% and 57%, respectively, for the three months ended March 31, 2012 compared with 52% and 48% in the prior year period. Our sales mix of metallurgical coal and steam coal based on coal revenues was 39% and 61%, respectively for the Massey operations for the three months ended March 31, 2012. Our sales mix of metallurgical coal and steam coal based on coal revenues was 47% and 53%, respectively for the Alpha operations for the three months ended March 31, 2012, compared with 52% and 48% in the prior year period.

40

Freight and handling. Freight and handling revenues and costs were $209.3 million, for the three months ended March 31, 2012, an increase of $93.3 million, or 80%, compared to the prior year period. The increase was due to higher shipping rates compared to the prior year period.

Other. Other revenues and other expenses increased $58.0 million and $0.8 million, respectively, or 209% and 4%, for the three months ended March 31, 2012 compared to the prior year period resulting in a net increase to income from operations of $57.2 million. The increase was due primarily to increases of $35.8 million for derivative contracts accounted for at fair value, increased rental and royalty income of $9.2 million, contractual settlement related income of $6.0 million and rebate-related income of $6.2 million.

Costs and Expenses

	Three Months Ended
	March 31,					Increase (Decrease)
	2012			2011		$ or Tons			%
	(in thousands, except per ton data)
Cost of coal sales (exclusive of items shown separately below)	$	1,419,420		$	734,985	$	684,435		93	%
Freight and handling costs	209,350			116,055		93,295			80	%
Other expenses	19,396			18,579		817			4	%
Depreciation, depletion and amortization	285,895			88,638		197,257			223	%
Amortization of acquired intangibles, net	(35,267		)	25,983		(61,250		)	(236	)%
Selling, general and administrative expenses (exclusive of depreciation, depletion and amortization shown separately above)	65,061			67,284		(2,223		)	(3	)%
Total costs and expenses	$	1,963,855		$	1,051,524	$	912,331		87	%
Cost of coal sales per ton:(1)
Eastern coal operations	$	77.50		$	71.30	$	6.20		9	%
Western coal operations	$	10.96		$	9.66	$	1.30		13	%
Average	$	49.67		$	34.59	$	15.08		44	%

(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 $684.4 million, or 93%, for the three months ended March 31, 2012 compared to the prior year period. The increase in cost of coal sales was primarily related to the inclusion of $690.8 million from the Massey operations. Cost of coal sales related to the Alpha operations decreased $6.4 million which was primarily due to decreased production of metallurgical coal and decreased purchased coal expenses. Cost of coal sales for the three months ended March 31, 2012 included approximately $34.7 million in expenses associated with lower of cost or market adjustments to inventory, approximately $14.3 million of expenses related to a closed mine, approximately $3.9 million of merger-related expenses from the Massey Acquisition consisting primarily of expenses related to the fair value adjustment made in acquisition accounting to Massey’s beginning inventory, approximately $2.3 million for weather-related property damage expenses and approximately $4.1 million in severance expenses associated with production adjustments announced during the first quarter of 2012.

The consolidated average cost of coal sales per ton was $49.67 compared to $34.59 in the prior year period. The average cost of coal sales per ton for Eastern and Western Coal Operations was $77.50 and $10.96, respectively, compared to $71.30 and $9.66, respectively, in the prior year period.

Depreciation, depletion and amortization. Depreciation, depletion, and amortization increased $197.3 million, or 223%, for the three months ended March 31, 2012 compared to the prior year period. The increase was primarily due to depreciation, depletion and amortization of assets acquired in the Massey Acquisition, which include the impacts of fair value adjustments made in acquisition accounting.

Amortization of acquired intangibles, net. Amortization of acquired intangibles, net decreased $61.3 million, or 236%, for the three months ended March 31, 2012 compared to the prior year period. The decrease in expense for amortization of acquired intangibles, net, was primarily due to the net credit to amortization expense from amortizing below-market contracts assumed in the Massey Acquisition.

Selling, general and administrative expenses. Selling, general and administrative expenses decreased $2.2 million, or 3%, for the three months ended March 31, 2012 compared to the prior year period. Selling, general and administrative expenses included approximately $5.5 million in merger-related expenses primarily related to professional fees and severance for the first quarter in 2012 compared to approximately $22.1 million primarily related to professional advisory fees and bridge financing fees in the prior year period. Excluding merger-related expenses, selling, general and administrative expenses increased primarily due to the Massey Acquisition.

41

Interest expense. Interest expense increased $29.8 million, or 191%, during the three months ended March 31, 2012 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 Massey Acquisition and the financing transactions that were completed in June 2011.

Income taxes. Income tax benefit of $43.8 million was recorded for the three months ended March 31, 2012 on a loss before income taxes of $72.9 million. The benefit rate is higher than the federal statutory rate of 35% primarily due to the impact of the percentage depletion deduction. The percentage depletion deduction results in the recording of additional income tax benefit in excess of the federal statutory rate.

Income tax expense of $14.0 million was recorded for the three months ended March 31, 2011 on income before income taxes of $63.8 million. The expense rate is lower than the federal statutory rate of 35% primarily due to the impact of the percentage depletion deduction.

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
	March 31,				Increase (Decrease)
	2012		2011		$ or Tons			%
	(in thousands, except per ton data)
Western Coal Operations
Steam tons sold	11,772		12,487		(715		)	(6	)%
Steam coal sales realization per ton	$	12.95	$	11.91	$	1.04		9	%
Total revenues	$	154,737	$	150,535	$	4,202		3	%
EBITDA	$	19,948	$	22,703	$	(2,755	)	(12	)%
Eastern Coal Operations
Steam tons sold	11,476		4,859		6,617			136	%
Metallurgical tons sold	4,898		3,620		1,278			35	%
Steam coal sales realization per ton	$	67.48	$	66.89	$	0.59		1	%
Metallurgical coal sales realization per ton	$	145.51	$	141.76	$	3.75		3	%
Total revenues	$	1,756,508	$	965,063	$	791,445		82	%
EBITDA	$	216,719	$	196,622	$	20,097		10	%

Western Coal Operations — EBITDA for our Western Coal Operations decreased $2.8 million, or 12%, compared to the prior year period. The decrease in EBITDA was due primarily to increased cost of coal sales of $8.5 million and increased other expenses of $0.6 million, partially offset by decreased selling, general and administrative expenses of $2.1 million and increased total revenues of $4.2 million. Cost of coal sales per ton increased $1.30, or 13% while average coal sales realization per ton increased $1.04, or 9%, resulting in a decrease to coal margin per ton of $0.26, or 11%. The increase in cost of coal sales per ton was due primarily to reduced coal production volumes and higher variable costs driven by higher per ton coal sales realizations. The increase in total revenues consisted of increased coal revenues of $3.7 million, or 2%, and increased other revenues of $0.5 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 increased $20.1 million, or 10%, compared to the prior year period. The increase in EBITDA was largely due to increased coal and other revenues of $648.9 million and $52.4 million, respectively, increased other miscellaneous income, net of $1.2 million, and decreased other expense of $7.1 million, partially offset by increased cost of coal sales of $664.3 million and increased

42

selling, general and administrative expenses of $25.2 million. Total revenues and cost of coal sales for the East include $699.7 million and $690.8 million, respectively, from the Massey operations for the three months ended March 31, 2012.

Average coal sales realization per ton decreased $8.03, or 8%, while cost of coal sales per ton increased $6.20, or 9%, resulting in a decrease to coal margin per ton of $14.23, or 52%. The decrease in average coal sales realization per ton was due primarily to a higher proportion of steam tons in the average compared to the prior year period. The average coal sales realization per ton for metallurgical coal related to the Alpha operations was $147.21, an increase of $5.45, or 4%, compared to the prior year period. The average coal sales realization per ton for steam coal related to the Alpha operations was $65.28, compared to $66.89 in the prior year period.

Average cost of coal sales per ton increased $6.20, or 9%, compared to the prior year period. Cost of coal sales in the east for the three months ended March 31, 2012 included approximately $34.7 million in expenses associated with lower of cost or market adjustments to inventory, approximately $14.3 million of expenses related to a closed mine, approximately $3.9 million of merger-related expenses from the Massey Acquisition consisting primarily of expenses related to the fair value adjustment made in acquisition accounting to Massey’s beginning inventory, approximately $2.3 million for weather-related property damage expenses and approximately $4.1 million in severance expenses associated with production adjustments announced during the first quarter of 2012.

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 debt service, our reclamation obligations, and from time to time, our share repurchases. Our primary sources of liquidity have been from sales of our coal production; borrowings under our credit facility and debt arrangements (see “—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.

We believe that cash on hand, cash generated from our operations and borrowing capacity available under our credit agreement and our  accounts receivable securitization facility (the “A/R Facility”) will be sufficient to meet our working capital requirements, anticipated capital expenditures, debt service requirements, reclamation obligations, potential share and debt repurchases, and expected settlements and costs related to outstanding litigation for at least the next twelve months.

At March 31, 2012, we had available liquidity of $1,815.4 million, including cash and cash equivalents of $487.5 million, marketable securities of $213.2 million and $1,114.7 million of unused revolving credit facility commitments available under our credit agreement and our A/R Facility, after giving effect to $0.3 million and $160.0 million of letters of credit outstanding, respectively, as of March 31, 2012, subject to limitations described in our credit agreement and the A/R Facility. Our total long-term debt, including debt discount, was $2,966.2 million at March 31, 2012.  On May 8, 2012, Standard & Poor’s rating service lowered its rating for our overall corporate credit to BB- from BB, lowered its rating for our senior notes due 2019 and 2021, and lowered its rating of our 2.375% convertible notes. We do not expect these rating changes to have an impact on our liquidity or a material impact on our financial position or results of operations.

We sponsor pension plans in the United States for salaried and non-union hourly employees. For these plans, the Pension Protection Act of 2006 (“PPA”) requires a funding target of 100% of the present value of accrued benefits. 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 PPA.  Our pension plans are not at risk as of December 31, 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, 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 income (loss). The volatile financial markets in 2008 and 2009 caused investment income and the value of investment assets held in our pension trust to decline. 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 trust in order to comply with the funding requirements of the PPA. We currently expect to make contributions in 2012 in the range of $25.0 million to $30.0 million for our defined benefit pension plans.

We have obligations for federal coal leases, which contain an estimated 354.2 million tons of proven and probable coal reserves in the Powder River Basin. The original lease bonus bids totaled $323.9 million, payable in annual installments. Annual installments totaling $64.8 million are due in 2012. 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. The credit worthiness of our customers is constantly monitored by us. We believe that our current group of customers is sound and represents no abnormal business risk. Additionally, in the future we plan to announce

43

production adjustments to match our production with current demand which may require the idling of one or more facilities. As a result, we may be required to test one or more asset groups for impairment under current accounting standards and may be required to test our goodwill for impairment prior to our annual goodwill impairment testing date of October 31. This may require us to record impairment expenses that could be material to our results of operations.

Cash Flows

Cash and cash equivalents decreased by $98.4 million for the three months ended March 31, 2012.  The net change in cash and cash equivalents was attributable to the following:

	Three Months Ended
	March 31,
	2012			2011
Cash Flows (in thousands):
Net cash provided by operating activities	$	166,629		$	168,418
Net cash used in investing activities	(251,287		)	(163,516		)
Net cash used in financing activities	(13,717		)	(18,814		)
Net decrease in cash and cash equivalents	$	(98,375	)	$	(13,912	)

Net cash provided by operating activities for the three months ended March 31, 2012 was $166.6 million compared to $168.4 million for the three months ended March 31, 2011.

Net cash used in investing activities for the three months ended March 31, 2012 was $251.3 million, an increase of $87.8 million from the $163.5 million of net cash used in investing activities during the three months ended March 31, 2011.  The increase was primarily due to an increase of $68.7 million in capital expenditures and an increase of $34.6 million in purchases of marketable securities, offset by an increase of $11.9 million in sales of marketable securities.

Net cash used in financing activities for the three months ended March 31, 2012 was $13.7 million compared to net cash used in financing activities of $18.8 million for the three months ended March 31, 2011. The primary uses of cash for financing activities included principal repayments of long-term debt of $7.5 million and common stock repurchases of $6.3 million for the three months ended March 31, 2012.  Common stock repurchases consist of repurchases of common shares from employees to satisfy the employees’ minimum statutory tax withholdings upon the vesting of restricted stock and performance shares.

Accounts Receivable Securitization

We and certain of our subsidiaries are party to the A/R Facility. The A/R Facility expires on October 17, 2014 and has a capacity of $275.0 million. As of March 31, 2012, letters of credit in the amount of $160.0 million were outstanding under the A/R Facility and no cash borrowing transactions had taken place.

44

Long-Term Debt

As of March 31, 2012, our total long-term indebtedness consisted of the following (in thousands):

	March 31,
	2012
6.00% senior notes due 2019	$	800,000
6.25% senior notes due 2021	700,000
Term loan due 2016	577,500
3.25% convertible senior notes due 2015	658,673
2.375% convertible senior notes due 2015	287,500
Other	23,576
Debt discount, net	(81,037		)
Total long-term debt	2,966,212
Less current portion	53,529
Long-term debt, net of current portion	$	2,912,683

Analysis of Material Debt Covenants

We were in compliance with all covenants under our credit agreement and the indentures governing our notes as of March 31, 2012. A breach of the covenants in our credit agreement or the indentures governing our notes, including the financial covenants under our credit agreement that measure ratios based on Adjusted EBITDA, could result in a default under our credit agreement or the indentures governing our notes and the respective lenders and note holders could elect to declare all amounts borrowed due and payable. Any acceleration under either our credit agreement or one of the indentures governing our notes would also result in a default under the other indentures governing our notes. Additionally, under our credit agreement and the indentures governing our 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 our credit agreement are:

	Actual
	Covenant Levels;
	Period Ended	Required
	March 31, 2012	Covenant Levels;
Minimum adjusted EBITDA to cash interest ratio	8.5	2.5x
Maximum total debt less unrestricted cash to adjusted EBITDA ratio	1.95	3.75x

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 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 recorded 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

45

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 our credit agreement and therefore, is different from EBITDA presented elsewhere in this Quarterly Report on Form 10-Q.

													Twelve
													Months
	Three Months Ended												Ended
	June 30,			Sept 30,			Dec 31,			March 31,			March 31,
	2011(2)			2011(2)			2011(2)			2012			2012
	(In thousands)
Net income (loss)	$	(53,349	)	$	65,143		$	(742,921	)	$	(29,117	)	$	(760,244	)
Interest expense	29,968			49,148			47,188			45,434			171,738
Interest income	(1,012		)	(930		)	(991		)	(1,097		)	(4,030		)
Income tax (benefit) expense	(8,498		)	(3,225		)	(38,150		)	(43,785		)	(93,658		)
Amortization of acquired intangibles, net	(8,928		)	(80,291		)	(50,613		)	(35,267		)	(175,099		)
Depreciation, depletion and amortization	147,111			248,850			285,504			285,895			967,360
EBITDA	105,292			278,695			(499,983		)	222,063			106,067
Non-cash charges (1)	160,671			4,708			704,799			(4,451		)	865,727
Extraordinary or non-recurring items (1)	94,815			70,814			28,379			5,713			199,721
Other adjustments (1)	157			428			459			4,471			5,515
Pro forma Massey (1)	17,393			—			—			—			17,393
Pro forma adjusted EBITDA	$	378,328		$	354,645		$	233,654		$	227,796		$	1,194,423

(1)Calculated in accordance with our credit agreement.

(2)Restated to reflect immaterial corrections and adjustments to the provisional opening balance sheet of Massey. See Note 2 in the Notes to Condensed Consolidated Financial Statements contained elsewhere in this Quarterly Report on Form 10-Q.

Adjusted EBITDA to cash interest ratio	8.5
Total debt less unrestricted cash to adjusted EBITDA ratio	1.95

Cash interest is calculated in accordance with our 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 March 31, 2012 is calculated as follows (in thousands):

Interest expense	$	171,738
Less interest income	(4,030		)
Less non-cash interest expense	(38,551		)
Plus pro forma interest	11,680
Net cash interest expense (1)	$	140,837

(1) Calculated in accordance with our 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.

46

We had outstanding surety bonds with a total face amount of $947.3 million as of March 31, 2012 to secure various obligations and commitments. In addition, we had $160.3 million of letters of credit in place, of which $0.3 million was outstanding under our credit agreement, and $160.0 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 or disposition of coal mining assets and interests in coal mining companies, and acquisitions or dispositions of, or combinations with, coal mining companies. When we believe that these opportunities are consistent with our strategic plans and our acquisition or disposition 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

Our coal purchase commitments totaled $211.4 million for the remainder of 2012, $30.3 million for 2013 and $30.3 million for 2014. There have been no other significant changes as of March 31, 2012 to contractual obligations as reported in our Annual Report on Form 10-K for the twelve months ended December 31, 2011.

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 months ended March 31, 2012 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, 2011 for a discussion of our critical accounting policies and estimates.

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 April 20, 2012, we had sales commitments for approximately 99% of planned shipments for 2012. The discussion below presents the sensitivity of the market value of selected 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 27,000 tons of explosives for the last nine months of 2012 for our Western Coal Operations. Through our derivative swap contracts, we have fixed prices for approximately 36 % of our expected explosive needs for the remaining nine months of 2012. If the price of natural gas were to decrease during the remaining nine months of 2012, 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 69.3 million gallons of diesel fuel for the last nine months of 2012 and 91.7 million gallons of diesel fuel for 2013. Through our derivative swap contracts, we have fixed prices for approximately 66% and 38% of our expected diesel fuel needs for

47

the remaining nine months of 2012 and for the year of 2013, respectively. If the price of diesel fuel were to decrease in 2012, 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.

We sell coalbed methane and 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, we enter into “pay variable, receive fixed” natural gas swaps for a portion of our anticipated gas production in order to fix the selling price for a portion of our production. The natural gas swaps have been designated as qualifying cash flow hedges. As of March 31, 2012, we had swap agreements outstanding to hedge the variable cash flows related to approximately 79% and 76% of anticipated natural gas production for the remaining nine months of 2012 and for calendar year 2013, respectively.

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 credit agreement, which has a variable interest rate of 2.25 percentage points over the LIBO rate, subject, in the case of the revolving credit line, to adjustment based on leverage ratios. As of March 31, 2012, our term loan due 2016 under our credit agreement had an outstanding balance of $577.5 million. The current portion of the term loan due is $52.5 million. A 50 basis point increase or decrease in interest rates would increase or decrease our quarterly interest expense by $0.7 million, which would be partially offset by our interest rate swap.

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 2012, 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 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.

Under the supervision and with the participation of our management, including our Chief Executive Officer and our Chief Financial Officer, we evaluated the effectiveness of our disclosure controls and procedures, as such term is defined under Rule 13a-15(e) promulgated under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), 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 Exchange Act, 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.

48

On June 1, 2011, Alpha acquired Massey. Management’s assessment of internal controls over financial reporting as of December 31, 2011 excluded certain controls of Massey and we are in the process of integrating those controls into our control environment. The integration of those controls will be complete as soon as practical and will be included in Management’s assessment as of December 31, 2012.

There have not been any significant changes, except as described in the preceding 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.

PART II — OTHER INFORMATION

Item 1. Legal Proceedings

For a description of the Company’s legal proceedings, see Note 14 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, 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.

Our mining operations are extensively regulated, which imposes significant costs on us, and future regulations or violations of regulations could increase those costs or limit our ability to produce coal.

Our operations are subject to a variety of federal, state and local environmental, health and safety, transportation, labor and other laws and regulations. Examples include those relating to employee health and safety; emissions to air and discharges to water; plant and wildlife protection; the reclamation and restoration of properties after mining or other activity has been completed; the storage, treatment and disposal of wastes; remediation of contaminated soil, surface and groundwater; surface subsidence from underground mining; noise; and the effects of operations on surface water and groundwater quality and availability. In addition, we are subject to significant legislation mandating certain benefits for current and retired coal miners. We incur substantial costs to comply with the laws and regulations that apply to our mining and other operations, and those laws and regulations are becoming increasingly stringent.

In particular, in March 2012, MSHA announced a final rule to expand the existing requirements for preshift, supplemental, on-shift, and weekly examinations of underground coal mines to require operators identify, record and correct violations of health or safety standards related to ventilation, methane, roof control, combustible materials, rock dust, equipment guarding and other safeguards.  MSHA has proposed additional regulations concerning proximity detection systems on continuous miners, revisions to pattern of violation regulations and new respirable dust regulations.

The state of West Virginia has enacted a change in its mine safety law, effective as of July 1, 2012.  Among the provisions in this legislation are the requirements to modify the methane detection systems on mining machines, increase civil penalty charges for violations and establish as a felony the giving of advance notice of inspector activities. In addition, the U.S. Congress continues to consider changes to the federal mine safety laws, which could potentially result in or require additional or enhanced safety features, more frequent mine inspections, stricter enforcement practices and enhanced reporting requirements.

Due in part to the extensive and comprehensive regulatory requirements, violations of laws, regulations and permits occur at our operations from time to time and may result in significant costs to us to correct the violations, as well as substantial civil or criminal penalties and limitations or shutdowns of our operations.  For more information concerning violations that occur, see Exhibit 95 to the Annual Report on Form 10-K for the year ended December 31, 2011 and Exhibit 95 to this Quarterly Report on Form 10-Q and to future Quarterly Reports filed on Form 10-Q.

Federal and state authorities inspect our operations, and given the UBB explosion and related announcements by government authorities, we anticipate additional requirements may be imposed, as well as heightened inspection intensity. In response to the explosion,

49

federal and West Virginia authorities have conducted special inspections of coal mines for, among other safety concerns, the accumulation of coal dust and the proper ventilation of gases such as methane. These inspections are continuing.

The costs, liabilities and requirements associated with addressing the outcome of inspections and complying with these environmental, health and safety requirements are often significant and time-consuming and may delay commencement or continuation of exploration or production. For example, in December 2011, we entered into a comprehensive settlement with MSHA in which we resolved various outstanding MSHA civil citations, violations and orders related to the UBB explosion and other matters for approximately $34.8 million (see “Legal Proceedings”). Additionally, MSHA may further utilize the temporary closure provisions at mines in the event of certain violations of safety rules, accidents or imminent dangers. These factors could have a material adverse effect on our results of operations, cash flows and financial condition.

In addition, these laws and regulations require us to obtain numerous governmental permits. Many of our permits are subject to renewal from time to time, and renewed permits may contain more restrictive conditions than our existing permits. Many of our permits governing discharges to or impacts upon surface streams and groundwater will be subject to new and more stringent conditions to address various new water quality requirements that permitting authorities are now required to address when those permits are renewed over the next several years. To obtain new permits, we may have to petition to have stream quality designations changed based on available data, and if we are unsuccessful, we may not be able to operate the facility as planned or at all. Although we have no estimates at this time, our costs to satisfy such conditions could be substantial. We may also be required under certain permits to provide authorities data pertaining to the effect or impact that a proposed exploration for or production of coal may have on the environment.

In recent years, the permitting required for coal mining, particularly under the Surface Mining Control and Reclamation Act and the Clean Water Act to address filling ephemeral and intermittent streams and other valleys with materials from mining operations and preparation plant refuse disposal has been the subject of increasingly stringent regulatory and administrative requirements and extensive litigation by environmental groups against coal mining companies and environmental regulatory authorities. Congress has also considered legislation to impose additional limitations on surface mining. It is unclear at this time how the issues will ultimately be resolved, but for this as well as other issues that may arise involving permits necessary for coal mining and other operation, such requirements could prove costly and time-consuming, and could delay commencing or continuing exploration or production operations. New laws and regulations, as well as future interpretations or different enforcement of existing laws and regulations, may require substantial increases in equipment and operating costs to us and delays, interruptions or a termination of operations, the extent of which we cannot predict.

Extensive regulation of these matters has had and will continue to have a significant effect on our costs of production and competitive position. Further legislation, regulations or enforcement may also cause our sales or profitability to decline by hindering our ability to continue our mining operations, by increasing our costs or by causing coal to become a less attractive fuel source.

Climate change initiatives could significantly reduce the demand for coal, increase our costs and reduce the value of our coal and gas assets.

Global climate change continues to attract considerable public and scientific attention with widespread concern about the impacts of human activity, especially the emissions of GHGs, such as carbon dioxide and methane. Combustion of fossil fuels, such as the coal and gas we produce, results in the creation of carbon dioxide that is currently emitted into the atmosphere by coal and gas end users, such as coal-fired electric generation power plants.  The EPA has commenced regulatory action that could lead to controls on carbon dioxide from larger emitters such as coal-fired power plants and industrial sources. In March 2012, the EPA issued a proposed rule that would for the first time impose federal limits on carbon dioxide emissions from new power plants. The current proposed rule would not apply to existing power plants or those that will start construction over the next 12 months.

In advance of federal action, state and regional climate change initiatives, such as the Regional Greenhouse Gas Initiative of eastern states, the Western Regional Climate Action Initiative, and recently enacted legislation in California and other states are taking effect before federal action. In addition, some states and municipalities in the United States have adopted or may adopt in the future regulations on GHG emissions. Some states and municipal entities have commenced litigation in different jurisdictions seeking to have certain utilities, including some of our customers, reduce their emission of carbon dioxide. Apart from governmental regulation, in February 2008, three of Wall Street’s largest investment banks announced that they had adopted climate change guidelines for lenders. The guidelines require the evaluation of carbon risks in the financing of utility power plants which may make it more difficult for utilities to obtain financing for coal-fired plants.

Considerable uncertainty is associated with these climate change initiatives. The content of new treaties, legislation or regulation is not yet determined, and many of the new regulatory initiatives remain subject to review by the agencies or the courts. Predicting the economic effects of climate change legislation is difficult given the various alternatives proposed and the complexities of the interactions between economic and environmental issues. Any regulations on GHG emissions, however, are likely to impose significant emissions control

50

expenditures on many coal-fired power plants and industrial boilers and could have the effect of making them unprofitable. As a result, these generators may switch to other fuels that generate less of these emissions, which would reduce future demand for coal and the construction of coal-fired power plants. For example, if the EPA’s current proposed rule limiting carbon dioxide emissions from new power plants becomes final, the construction of new coal-fired power plants may become economically infeasible using currently available technology. In this regard, many of our coal supply agreements contain provisions that allow a purchaser to terminate its contract if legislation is passed that either restricts the use or type of coal permissible at the purchaser’s plant or results in specified increases in the cost of coal or its use to comply with applicable ambient air quality standards.

Any switching of fuel sources away from coal because of increased costs of coal use or other reasons, closure of existing coal-fired plants, or reduced construction of new plants could have a material effect on demand for and prices received for our coal which could adversely affect our financial condition, results of operations and cash flows. In addition, if regulation of GHG emissions does not exempt the release of coalbed methane, we may have to curtail coal production, pay higher taxes, or incur costs to purchase credits that permit us to continue operations as they now exist at our underground coal mines.

Any change in coal consumption patterns by steel producers or North American electric power generators resulting in a decrease in the use of coal by those consumers could result in less demand and lower prices for our coal, which would reduce our revenues and adversely impact our earnings and the value of our coal reserves.

Steam coal accounted for approximately 82% and 86% of our coal sales volume during 2011 and 2010, respectively. The majority of our sales of steam coal were to U.S. and Canadian electric power generators. The amount of coal consumed for U.S. and Canadian electric power generation is affected primarily by the overall demand for electricity, the location, availability, quality and price of competing fuels for power such as natural gas, nuclear fuel, oil and alternative energy sources such as hydroelectric power, technological developments, and environmental and other governmental regulations. Demand for coal also has been negatively impacted by the milder than normal winter that has been experienced in North America and the higher than normal coal inventories at many utilities.. We expect may new power plants will be built to produce electricity during peak periods of demand, when the demand for electricity rises above the “base load demand,” or minimum amount of electricity required if consumption occurred at a steady rate. However, we also expect that many of these new power plants will be fired by natural gas because they are cheaper to construct than coal-fired plants and because natural gas is a cleaner burning fuel with plentiful supplies and low cost at the current time. In addition, the increasingly stringent requirements of the Clean Air Act and EPA regulations may result in more electric power generators shifting from coal to natural gas-fired power plants. These factors contributed to our recent decision to reduce coal production at certain mines in the Central Appalachia region. Any further reduction in the amount of coal consumed by North American electric power generators could further reduce the price of steam coal that we mine and sell, thereby reducing our revenues and adversely impacting our earnings and the value of our coal reserves.

We produce metallurgical coal that is used in both the U.S. and foreign steel industries. Metallurgical coal accounted for approximately 18% and 14% of our coal sales volume during 2011 and 2010, respectively.  Any deterioration in conditions in the U.S. steel industry would reduce the demand for our metallurgical coal and could impact the collectability of our accounts receivable from U.S. steel industry customers. In addition, the U.S. steel industry increasingly relies on electric arc furnaces or pulverized coal processes to make steel. These processes do not use coke. If this trend continues, the amount of metallurgical coal that we sell and the prices that we receive for it could decrease, thereby reducing our revenues and adversely impacting our earnings and the value of our coal reserves. If the demand and pricing for metallurgical coal in international markets decreases in the future, the amount of metallurgical coal that we sell and the prices that we receive for it could decrease, thereby reducing our revenues and adversely impacting our earnings and the value of our coal reserves.

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)
January 1, 2012 through January 31, 2012	81,859	$	21.20	—	$	500,002
February 1, 2012 through February 29, 2012	228,935	$	20.50	—	$	500,002
March 1, 2012 through March 31, 2012	115	$	16.49	—	$	500,002
	310,909			—	$	500,002

51

(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 March 31, 2012, the Company issued 1,263,708 shares of common stock to employees upon vesting of restricted stock and restricted stock units and repurchased 310,909 shares of common stock to satisfy the employees’ minimum statutory tax withholdings.

(2)On August 22, 2011, the Board of Directors authorized the company to repurchase up to $600,000,000 of common shares.  Under this program, 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 4. Mine Safety Disclosures

Information concerning mine safety violations or other regulatory matters required by Section 1503(a) of the Dodd-Frank Wall Street Reform and Consumer Protection Act and Item 104 of Regulation S-K is included in Exhibit 95 to this Quarterly Report on Form 10-Q.

Item 6. Exhibits

See the Exhibit Index following the signature page to this Quarterly Report on Form 10-Q.

52

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: May 10, 2012	By:	/s/ Frank J. Wood
	Name:	Frank J. Wood
	Title:	Executive Vice President and Chief Financial Officer (Principal Financial and Accounting Officer)

53

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 3.4 to the Current Report on Form 8-K of Alpha Natural Resources, Inc. (File No. 001-32331) filed on December 27, 2011).
10.1*‡	Form of Restricted Stock Unit Award Agreement for Employees (Alternative) (Grades 22-30) under the Alpha Natural Resources, Inc. 2010 Long-Term Incentive Plan.
10.2*‡	Form of Performance Share Unit Award Agreement for Employees (Alternative) (Grades 22-30) under the Alpha Natural Resources, Inc. 2010 Long-Term Incentive Plan.
10.3*‡	Form of Performance-Based Incentive Compensation Award Agreement for Employees (Grades 22-30) under the Alpha Natural Resources, Inc. 2010 Long-Term Incentive Plan.
10.4*‡	Form of Restricted Stock Unit Award Agreement for Non-Employee Directors under the Alpha Natural Resources, Inc. 2006 Stock and Incentive Compensation Plan.
10.5	Separation of Employment Agreement and General Release dated April 11, 2012, by and between Alpha Natural Resources, Inc. and Kurt D. Kost (Incorporated by reference to Exhibit 10.2 to the Current Report on Form 8-K of Alpha Natural Resources, Inc. (File No. 001-32331) filed on April 11, 2012).
10.6	Alpha Natural Resources, Inc. Key Employee Separation Plan, as amended and restated on April 6, 2012 (Incorporated by reference to Exhibit 10.3 to the Current Report on Form 8-K of Alpha Natural Resources, Inc. (File No. 001-32331) filed on April 11, 2012).
10.7*	Limited Waiver dated as of February 14, 2012 pursuant to that certain Second Amended and Restated Receivables Purchase Agreement dated as of October 19, 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.
95*	Mine Safety Disclosure Exhibit
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.
‡	Management contract of compensatory plan or arrangement.

54