Alpha Natural Resources 10Q 2012 Q3 Quarterly report

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

(Mark One)



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

For the quarterly period ended September 30, 2012



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

For the transition period from to

Commission File No. 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 16429, Bristol, Virginia		24209
(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 ¨ 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 ¨ 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). ¨ Yes x No

Number of shares of the registrant's Common Stock, $0.01 par value, outstanding as of October 31, 2012 - 220,498,797

TABLE OF CONTENTS

Table of Contents


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 September 30,						Nine Months Ended September 30,
	2012			2011			2012			2011
Revenues:
Coal revenues	$	1,455,702		$	1,997,933		$	4,660,541		$	4,395,803
Freight and handling revenues	154,450			213,834			597,157			480,760
Other revenues	23,657			96,986			158,833			160,966
Total revenues	1,633,809			2,308,753			5,416,531			5,037,529
Costs and expenses:
Cost of coal sales (exclusive of items shown separately below)	1,259,174			1,683,902			4,080,964			3,525,886
Freight and handling costs	154,450			213,834			597,157			480,760
Other expenses	13,357			54,239			43,194			111,045
Depreciation, depletion and amortization	238,894			249,253			797,516			485,002
Amortization of acquired intangibles, net	(11,682		)	(80,618		)	(64,480		)	(63,563		)
Selling, general and administrative expenses (exclusive of depreciation, depletion and amortization shown separately above)	49,604			75,643			160,626			332,598
Asset impairment and restructuring	13,676			—			1,028,610			—
Goodwill impairment	—			—			1,525,332			—
Total costs and expenses	1,717,473			2,196,253			8,168,919			4,871,728
Income (loss) from operations	(83,664		)	112,500			(2,752,388		)	165,801
Other income (expense):
Interest expense	(47,345		)	(49,148		)	(139,313		)	(94,726		)
Interest income	1,328			930			3,749			2,987
Loss on early extinguishment of debt	—			(5,212		)	—			(9,768		)
Miscellaneous income, net	353			309			1,619			334
Total other expense, net	(45,664		)	(53,121		)	(133,945		)	(101,173		)
Income (loss) before income taxes	(129,328		)	59,379			(2,886,333		)	64,628
Income tax (expense) benefit	83,182			3,225			576,765			(2,244		)
Net income (loss)	$	(46,146	)	$	62,604		$	(2,309,568	)	$	62,384
Basic income (loss) per common share	$	(0.21	)	$	0.28		$	(10.49	)	$	0.37
Diluted income (loss) per common share	$	(0.21	)	$	0.28		$	(10.49	)	$	0.37
Weighted average shares - basic	220,417,448			224,394,487			220,167,198			166,931,448
Weighted average shares - diluted	220,417,448			226,281,985			220,167,198			168,833,010

See accompanying Notes to Condensed Consolidated Financial Statements.

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ALPHA NATURAL RESOURCES INC. AND SUBSIDIARIES

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

(Amounts in thousands)



	Three Months Ended September 30,						Nine Months Ended September 30,
	2012			2011			2012			2011
Net income (loss)	$	(46,146	)	$	62,604		$	(2,309,568	)	$	62,384
Other comprehensive income (loss), net of tax:
Adjustments to and amortization of employee benefit costs, net of income tax of $(40,203) and $46,349, and $(30,028) and $52,490 for the three and nine months ended September 30, 2012 and 2011, respectively	52,136			(77,017		)	35,127			(87,153		)
Change in fair value of cash flow hedges, net of income tax of $(7,672) and $11,019, and $(3,292) and $7,970 for the three and nine months ended September 30, 2012 and 2011, respectively	12,824			(18,310		)	5,486			(13,278		)
Unrealized gains (losses) on available-for-sale marketable securities:
Unrealized holding gains (losses) arising during the period, net of income tax of $(231) and $31, and $(196) and $(45) for the three and nine months ended September 30, 2012 and 2011, respectively	386			(52		)	329			74
Less: reclassification adjustment for (gains) losses included in net income (loss), net of tax of $196 and $(2), and $199 and $(3) for the three and nine months ended September 30, 2012 and 2011, respectively	(327		)	2			(334		)	5
Total other comprehensive income (loss), net of tax	65,019			(95,377		)	40,608			(100,352		)
Total comprehensive income (loss)	$	18,873		$	(32,773	)	$	(2,268,960	)	$	(37,968	)

See accompanying Notes to Condensed Consolidated Financial Statements.

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ALPHA NATURAL RESOURCES INC. AND SUBSIDIARIES

Condensed Consolidated Balance Sheets

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



	September 30, 2012			December 31, 2011
	(Unaudited)
Assets
Current assets:
Cash and cash equivalents	$	342,204		$	585,882
Trade accounts receivable, net	455,238			641,975
Inventories, net	457,195			492,022
Prepaid expenses and other current assets	777,898			828,196
Total current assets	2,032,535			2,548,075
Property, equipment and mine development costs (net of accumulated depreciation and amortization of $1,752,754 and $1,355,937, respectively)	2,316,640			2,812,069
Owned and leased mineral rights and land (net of accumulated depletion of $839,833 and $633,207, respectively)	7,442,438			8,284,328
Goodwill, net	755,859			2,281,191
Other acquired intangibles (net of accumulated amortization of $630,518 and $551,584, respectively)	254,315			347,889
Other non-current assets	303,344			320,493
Total assets	$	13,105,131		$	16,594,045
Liabilities and Stockholders' Equity
Current liabilities:
Current portion of long-term debt	$	80,605		$	46,029
Trade accounts payable	301,266			504,059
Accrued expenses and other current liabilities	924,913			1,359,160
Total current liabilities	1,306,784			1,909,248
Long-term debt	2,912,528			2,922,052
Pension and postretirement medical benefit obligations	1,188,680			1,214,724
Asset retirement obligations	899,157			743,613
Deferred income taxes	961,001			1,507,923
Other non-current liabilities	739,211			921,441
Total liabilities	8,007,361			9,219,001

Commitments and Contingencies (Note 16)
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, 232.1 million issued and 220.5 million outstanding at September 30, 2012 and 231.0 million issued and 219.8 million outstanding at December 31, 2011	2,321			2,310
Additional paid-in capital	8,072,172			8,073,512
Accumulated other comprehensive income (loss)	(161,222		)	(201,830		)
Treasury stock, at cost: 11.6 million and 11.2 million shares at September 30, 2012 and December 31, 2011, respectively	(269,780		)	(262,795		)
Accumulated deficit	(2,545,721		)	(236,153		)
Total stockholders' equity	5,097,770			7,375,044
Total liabilities and stockholders' equity	$	13,105,131		$	16,594,045

See accompanying Notes to Condensed Consolidated Financial Statements.

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ALPHA NATURAL RESOURCES INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Cash Flows (Unaudited)

(Amounts in thousands)



	Nine Months Ended September 30,
	2012			2011
Operating activities:
Net income (loss)	$	(2,309,568	)	$	62,384
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation, depletion, accretion and amortization	878,924			529,825
Amortization of acquired intangibles, net	(64,480		)	(63,563		)
Mark-to-market adjustments for derivatives	(12,820		)	(57,392		)
Stock-based compensation	3,945			55,856
Goodwill impairment	1,525,332			—
Asset impairment and restructuring	1,028,610			—
Employee benefit plans, net	56,033			45,305
Loss on early extinguishment of debt	—			9,768
Deferred income taxes	(577,744		)	(5,801		)
Other, net	(16,271		)	16,064
Changes in operating assets and liabilities:
Trade accounts receivable, net	186,737			(169,509		)
Inventories, net	34,826			122,530
Prepaid expenses and other current assets	170,642			21,486
Other non-current assets	(729		)	(23,528		)
Trade accounts payable	(195,607		)	82,222
Accrued expenses and other current liabilities	(342,838		)	(93,463		)
Pension and postretirement medical benefit obligations	(35,667		)	(89,530		)
Asset retirement obligations	(37,611		)	(13,457		)
Other non-current liabilities	13,933			108,035
Net cash provided by operating activities	305,647			537,232
Investing activities:
Cash paid for Massey Acquisition, net of cash acquired	—			(711,387		)
Capital expenditures	(332,592		)	(314,929		)
Acquisition of mineral rights under federal lease	(53,501		)	(65,013		)
Purchase of equity-method investments	(10,100		)	(8,000		)
Purchases of marketable securities	(419,275		)	(350,617		)
Sales of marketable securities	307,137			434,349
Other, net	7,420			(4,672		)
Net cash used in investing activities	(500,911		)	(1,020,269		)
Financing activities:
Principal repayments of long-term debt	(30,000		)	(1,307,834		)
Principal repayments of capital lease obligations	(3,862		)	—
Proceeds from borrowings on long-term debt	—			2,100,000
Debt issuance costs	(6,737		)	(84,306		)
Common stock repurchases	(6,985		)	(206,381		)
Proceeds from exercise of stock options	170			4,079
Other	(1,000		)	—
Net cash (used in) provided by financing activities	(48,414		)	505,558
Net (decrease) increase in cash and cash equivalents	(243,678		)	22,521
Cash and cash equivalents at beginning of period	585,882			554,772
Cash and cash equivalents at end of period	$	342,204		$	577,293
Supplemental cash flow information:
Cash paid for interest	$	90,946		$	53,178
Cash paid for income taxes	$	2,832		$	17,874
Cash received for income tax refunds	$	36,707		$	—
Non-cash investing and financing activities:
Issuance of equity in connection with Massey Acquisition	$	—		$	5,673,092
Capital equipment leases	$	28,569		$	—

See accompanying Notes to Condensed Consolidated Financial Statements.

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ALPHA NATURAL RESOURCES, INC. AND SUBSIDIARIES

NOTES to CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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


(1)	Business and Basis of Presentation

Business

Alpha Natural Resources, Inc. and its consolidated subsidiaries (the “Company” and “Alpha”) are primarily engaged in the business of extracting, processing and marketing steam and metallurgical coal from surface and deep mines, and mainly sell to electric utilities, steel and coke producers, and industrial customers. The Company, through its subsidiaries, is also involved in marketing coal produced by others to supplement its own production and, through blending, provides its customers with coal qualities 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 and nine months ended September 30, 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 allocated to the net tangible and intangible assets of Massey as follows:

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ALPHA NATURAL RESOURCES, INC. AND SUBSIDIARIES

NOTES to CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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



	Provisional as of December 31, 2011		Adjustments			Final

Inventories	$	414,310	$	—		$	414,310
Other current assets	998,034		61,949			1,059,983
Property, equipment and mine development costs	1,705,531		(8,885		)	1,696,646
Owned and leased mineral rights and land	6,445,688		399			6,446,087
Goodwill	2,613,442		87,646			2,701,088
Other intangible assets	365,379		(5,889		)	359,490
Other non-current assets	90,788		2			90,790
Total assets	12,633,172		135,222			12,768,394

Total current liabilities	1,128,922		145,412			1,274,334
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		18,330			628,836
Deferred income taxes, including current portion	1,303,415		(23,145		)	1,280,270
Below-market contract obligations	707,969		(5,375		)	702,594
Other liabilities, including current portion of black lung and workers' compensation	365,866		—			365,866
Total liabilities	5,808,740		135,222			5,943,962

Equity component of convertible notes	110,375		—			110,375

Net tangible and intangible assets acquired	$	6,714,057	$	—		$	6,714,057

The Company finalized the purchase price allocation as of May 31, 2012.

Goodwill has been allocated to Eastern Coal Operations. The 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.

Prior to the finalization of the purchase price allocation, the Company recorded adjustments to the provisional opening balance sheet and certain immaterial corrections as shown in the above table. Adjustments were made primarily to reflect corrections to asset retirement obligations, updated estimates of certain tax liabilities, updated estimates of certain property values, updated estimates of below market contract liabilities, updated estimates for litigation related matters and related insurance recoveries, other miscellaneous adjustments and the deferred tax impact of all adjustments made.

As previously disclosed, 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, December 31, 2011, and March 31, 2012 for the changes to the provisional opening balance sheet of Massey and for certain other immaterial corrections and reclassifying adjustments. As a result, the Company recorded additional goodwill impairment of $57,012, increased its net loss before income taxes by $50,131, and increased its net loss by $53,152 for the year ended December 31, 2011 and decreased its net loss by $351 for the three months ended March 31, 2012.

The following unaudited pro forma information has been prepared for illustrative purposes only and assumes the Massey Acquisition occurred on January 1, 2011. The unaudited pro forma results have been prepared based on estimates and

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ALPHA NATURAL RESOURCES, INC. AND SUBSIDIARIES

NOTES to CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

assumptions which the Company believes are reasonable, however, they are not necessarily indicative of the consolidated results of operations had the Massey Acquisition occurred on January 1, 2011, or of future results of operations.



	Nine Months Ended September 30, 2011
Total revenues:
As reported	$	5,037,529
Pro forma	$	6,571,944

Net income (loss):
As reported	$	62,384
Pro forma	$	(41,719	)

Income (loss) per common share-basic:
As reported	$	0.37
Pro forma	$	(0.18	)

Income (loss) per common share-diluted:
As reported	$	0.37
Pro forma	$	(0.18	)

(3) Asset Impairment and Restructuring

The Company determined that the undiscounted cash flows were less than the carrying value for certain asset groups. The Company estimated the fair value of these asset groups using a discounted cash flow analysis utilizing market-place participant assumptions. The carrying values of the asset groups exceeded their fair value and accordingly, the Company recorded asset impairment charges during the second quarter of 2012 of $990,923, of which $985,346 was recorded for asset groups in our Eastern Coal Operations segment and $5,577 was recorded for an asset group in the Company's Other segment. The asset impairment charges reduced the carrying values of mineral reserves $714,580, property, plant and equipment $271,827, and other acquired intangibles $4,516. The asset impairments established a new cost basis on which future depreciation, depletion and amortization will be based.

In connection with the plans to curtail mining operations and the associated company actions, the Company also recorded severance expenses of $7,495 and $22,931, professional fees and other expenses of $5,462 and $7,493, and reserved $719 and $7,263 for advanced royalties and deposits which may not be recoverable for the three and nine months ended September 30, 2012, respectively.

(4) Goodwill, Net

In connection with the testing of certain of our long-lived assets for impairment (see Note 3), the Company also performed a goodwill impairment test as of June 1, 2012 and recorded a goodwill impairment charge in the second quarter of $1,525,332 to reduce the carrying value of goodwill to its implied fair value for nine reporting units in its Eastern Coal Operations segment

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ALPHA NATURAL RESOURCES, INC. AND SUBSIDIARIES

NOTES to CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

and one reporting unit in its Western Coal Operations segment.

The valuation methodology utilized to estimate the fair value of the reporting units was based on both a market and income approach and is within the range of fair values yielded under each approach. The income approach was based on a discounted cash flow methodology in which expected future net cash flows were discounted to present value, using an appropriate after-tax weighted average cost of capital. The market approach was based on a guideline company and similar transaction approach. Under the guideline company approach, certain operating metrics from a selected group of publicly traded guideline companies that have similar operations to the Company's reporting units were used to estimate the fair value of the reporting units. Under the similar transaction approach, recent merger and acquisition transactions for companies that have similar operations to the Company's reporting units were used to estimate the fair value of the Company's reporting units.



	Balance as of December 31, 2011			Acquisitions		Impairments			Balance as of September 30, 2012
Goodwill:
Eastern operations	$	3,024,308		$	—	$	—		$	3,024,308
Western operations	53,308			—		—			53,308
All other	5,912			—		—			5,912
Total goodwill	$	3,083,528		$	—	$	—		$	3,083,528

Accumulated impairment losses:
Eastern operations	$	(802,337	)	$	—	$	(1,472,024	)	$	(2,274,361	)
Western operations	—			—		(53,308		)	(53,308		)
All other	—			—		—			—
Total accumulated impairment losses	$	(802,337	)	$	—	$	(1,525,332	)	$	(2,327,669	)

Goodwill, net:
Eastern operations	$	2,221,971		$	—	$	(1,472,024	)	$	749,947
Western operations	53,308			—		(53,308		)	—
All other	5,912			—		—			5,912
Total goodwill, net	$	2,281,191		$	—	$	(1,525,332	)	$	755,859

	Balance as of December 31, 2010			Acquisitions		Impairments			Balance as of December 31, 2011
Goodwill:
Eastern operations	$	323,220		$	2,701,088	$	—		$	3,024,308
Western operations	53,308			—		—			53,308
All other	5,912			—		—			5,912
Total goodwill	$	382,440		$	2,701,088	$	—		$	3,083,528

Accumulated impairment losses:
Eastern operations	$	—		$	—	$	(802,337	)	$	(802,337	)
Western operations	—			—		—			—
All other	—			—		—			—
Total accumulated impairment losses	$	—		$	—	$	(802,337	)	$	(802,337	)

Goodwill, net:
Eastern operations	$	323,220		$	2,701,088	$	(802,337	)	$	2,221,971
Western operations	53,308			—		—			53,308
All other	5,912			—		—			5,912
Total goodwill, net	$	382,440		$	2,701,088	$	(802,337	)	$	2,281,191

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ALPHA NATURAL RESOURCES, INC. AND SUBSIDIARIES

NOTES to CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

(5) 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 outstanding 3.25% convertible senior notes due 2015 issued by Alpha Appalachia Holdings, Inc. (formerly Massey) (the “3.25% Convertible Notes”). As of September 30, 2012 and September 30, 2011, the 2.375% Convertible Notes and the 3.25% Convertible Notes were not convertible. The 2.375% Convertible Notes and 3.25% Convertible Notes become dilutive for earnings per common share calculations in certain circumstances. The shares that would be issued to settle the conversion spread are included in the diluted earnings per share calculation when the conversion option is in the money and amounted to 68,548 shares for the nine months ended September 30, 2011. In periods of net loss, the number of shares used to calculate diluted earnings per share is the same as basic earnings per share.

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 September 30,		Nine Months Ended September 30,
	2012	2011	2012	2011
Weighted average shares - basic	220,417,448	224,394,487	220,167,198	166,931,448
Dilutive impact of stock options and restricted stock plans	—	1,887,498	—	1,833,014
Dilutive impact of the 2.375% Convertible Notes	—	—	—	68,548
Weighted average shares - diluted	220,417,448	226,281,985	220,167,198	168,833,010

(6) Inventories, net

Inventories, net consisted of the following:



	September 30, 2012		December 31, 2011
Raw coal	$	72,372	$	52,215
Saleable coal	275,757		340,672
Materials, supplies and other, net	109,066		99,135
Total inventories, net	$	457,195	$	492,022

(7) Marketable Securities

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

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ALPHA NATURAL RESOURCES, INC. AND SUBSIDIARIES

NOTES to CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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



	September 30, 2012
			Unrealized
	Cost		Gain		Loss			Fair value
Short-term marketable securities:
U.S. treasury and agency securities ^(a)	$	84,334	$	32	$	(4	)	$	84,362
Corporate debt securities^(a)	122,772		86		(21		)	122,837
Total short-term marketable securities	$	207,106	$	118	$	(25	)	$	207,199

	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:



	September 30, 2012
			Unrealized
	Cost		Gain		Loss			Fair value
Long-term marketable securities:
Corporate debt securities ^(a)	$	755	$	2	$	—		$	757
Mutual funds held in rabbi trust^(b)	7,779		1,519		(1,052		)	8,246
Total long-term marketable securities	$	8,534	$	1,521	$	(1,052	)	$	9,003

	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.

(8) Property, Equipment and Mine Development Costs

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

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NOTES to CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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



	September 30, 2012		December 31, 2011
Plant and mining equipment	$	3,592,290	$	3,641,522
Mine development	293,912		272,629
Coalbed methane equipment	16,024		15,210
Office equipment and software	64,766		56,547
Vehicles and other	6,605		6,605
Construction in progress	95,797		175,493
Total property, equipment and mine development costs	4,069,394		4,168,006
Less accumulated depreciation and amortization	1,752,754		1,355,937
Total property, equipment and mine development costs, net	$	2,316,640	$	2,812,069

For discussion regarding asset impairment charges recorded during the second quarter of 2012, see Note 3.

(9) Long-Term Debt

Long-term debt consisted of the following:



	September 30, 2012			December 31, 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	555,000			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	61,478			23,554
Debt discount, net	(69,518		)	(86,646		)
Total long-term debt	2,993,133			2,968,081
Less current portion	80,605			46,029
Long-term debt, net of current portion	$	2,912,528		$	2,922,052

Credit Agreement Amendment

On June 26, 2012, the Company entered into an amendment (the “Credit Agreement Amendment”) to the Third Amended and Restated Credit Agreement, dated as of May 19, 2011, by and among the Company, the lenders party thereto, the issuing banks party thereto, Citicorp North America, Inc. as administrative and collateral agent and Citigroup Global Markets Inc. and Morgan Stanley Senior Funding, Inc. as joint lead arrangers and joint book managers (the “Credit Agreement”). The Credit Agreement Amendment, among other things:

1) replaces the maximum net leverage ratio covenant with a maximum net secured leverage ratio covenant through the end of 2014, increases the maximum net leverage ratio covenant for the first and second quarters of 2015, and decreases the minimum interest coverage ratio covenant from the fourth quarter of 2012 through the end of 2013;

2) adds a minimum liquidity covenant of $500,000 through the end of 2014;

3) increases the applicable margin for borrowings under the Credit Agreement if the Company’s consolidated net leverage ratio is greater than 3.75 to 1.00 for the preceding fiscal quarter;

4) modifies the requirements for incremental term loan or revolving credit facilities in excess of $500,000; and

5) provides additional real property collateral to secure obligations under the Credit Agreement and certain hedging and cash management obligations with lenders and affiliates of lenders.

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NOTES to CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

Accounts Receivable Securitization Facility Amendment

On June 26, 2012, ANR Receivables Funding, LLC (“ANR Receivables”) and Alpha Natural Resources, LLC (“ANR LLC”), each of which are subsidiaries of the Company, entered into an amendment (the “A/R Facility Amendment”) to the Second Amended and Restated Receivables Purchase Agreement, dated as of October 19, 2011, by and among ANR Receivables, ANR LLC, certain financial institutions from time to time parties thereto as conduit purchasers, committed purchasers, purchaser agents and LC Participants (as defined therein) and PNC Bank, National Association, as administrator and LC Bank (as defined therein). The A/R Facility Amendment, among other things, replaces the maximum net leverage ratio termination event with a termination event based on a maximum net secured leverage ratio through the end of 2014 and increases the maximum net leverage ratio termination event for the first and second quarters of 2015.

Other Debt

In September 2011, the Company entered into a federal coal lease, which contains an estimated 130,200 tons of proven and probable coal reserves in the Powder River Basin. The lease bid was $143,415, payable in five equal annual installments of $28,683. The first installment was paid in September 2011. In August 2012, the Company entered into an agreement with a third party to exchange this federal coal lease for a federal coal lease from a third party, which contains an estimated 222,000 tons of proven and probable coal reserves in the Powder River Basin adjacent to the Company's existing mining operations. As a result of the exchange, the Company paid $17,392 at closing and recorded a note payable, which had a present value of $14,091 as of September 30, 2012, of which $3,946 is recorded as current portion of long-term debt and $10,145 is recorded as long-term debt in the Company's Condensed Consolidated Balance Sheet as of September 30, 2012. The note is payable in four annual installments of $3,946 due each November through 2015.

The Company has entered into capital leases for equipment during the nine months ended September 30, 2012. The Company's liabilities for capital leases as of September 30, 2012 totaled $45,093.

See Note 19 regarding subsequent events related to long-term debt.

(10) Asset Retirement Obligations

As of September 30, 2012 and December 31, 2011, the Company had recorded asset retirement obligation accruals for mine reclamation and closure costs totaling $987,635 and $934,606 respectively. Changes in the asset retirement obligations for the nine months ended September 30, 2012 were as follows:



Total asset retirement obligations at December 31, 2011	$	934,606
Accretion for the period	49,127
Sites added during the period	2,154
Revisions in estimated cash flows	39,359
Expenditures for the period	(37,611		)
Total asset retirement obligations at September 30, 2012	$	987,635
Less current portion	88,478
Long-term portion	$	899,157

(11) 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.

The Company's long-term debt is comprised of the 6.00% senior notes due 2019 and the 6.25% senior notes due 2021 (collectively, the "Senior Notes"), 2.375% Convertible Senior Notes, 3.25% Convertible Senior Notes, and Term Loan due

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NOTES to CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

2016. The following tables set forth by level, within the fair value hierarchy, the Company's long-term debt at fair value as of September 30, 2012 and December 31, 2011, respectively.



	September 30, 2012
	Carrying Amount		Total Fair Value		Quoted Prices in Active Markets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
6.00% senior notes due 2019	$	800,000	$	674,000	$	674,000	$	—	$	—
6.25% senior notes due 2021	700,000		583,625		583,625		—		—
Term loan due 2016⁽¹⁾	554,443		551,553		—		551,553		—
3.25% convertible senior notes due 2015⁽²⁾	631,534		608,751		608,751		—		—
2.375% convertible senior notes due 2015⁽³⁾	245,678		247,624		247,624		—		—
Total long-term debt	$	2,931,655	$	2,665,553	$	2,114,000	$	551,553	$	—



	December 31, 2011
	Carrying Amount		Total Fair Value		Quoted Prices in Active Markets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
6.00% senior notes due 2019	$	800,000	$	780,000	$	780,000	$	—	$	—
6.25% senior notes due 2021	700,000		682,500		682,500		—		—
Term loan due 2016⁽¹⁾	584,330		584,989		—		584,989		—
3.25% convertible senior notes due 2015⁽²⁾	624,946		596,955		596,955		—		—
2.375% convertible senior notes due 2015⁽³⁾	235,251		276,596		276,596		—		—
Total long-term debt	$	2,944,527	$	2,921,040	$	2,336,051	$	584,989	$	—


⁽¹⁾	Net of debt discount of $557 and $670 as of September 30, 2012 and December 31, 2011, respectively.


⁽²⁾	Net of debt discount of $27,139 and $33,727 as of September 30, 2012 and December 31, 2011, respectively.


⁽³⁾	Net of debt discount of $41,822 and $52,249 as of September 30, 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 September 30, 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.

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NOTES to CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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



	September 30, 2012
	Total Fair Value			Quoted Prices in Active Markets (Level 1)		Significant Other Observable Inputs (Level 2)			Significant Unobservable Inputs (Level 3)
Financial assets (liabilities):
U.S. treasury and agency securities	$	84,362		$	84,362	$	—		$	—
Mutual funds held in rabbi trust	$	8,246		$	8,246	$	—		$	—
Corporate debt securities	$	123,594		$	—	$	123,594		$	—
Forward coal sales	$	32,670		$	—	$	32,670		$	—
Forward coal purchases	$	(8,065	)	$	—	$	(8,065	)	$	—
Commodity swaps	$	11,976		$	—	$	11,976		$	—
Commodity options	$	90		$	—	$	90		$	—
Interest rate swaps	$	(1,465	)	$	—	$	(1,465	)	$	—



	December 31, 2011
	Total Fair Value			Quoted Prices in Active Markets (Level 1)		Significant Other Observable Inputs (Level 2)			Significant Unobservable Inputs (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.

Senior Notes, 2.375% Convertible Notes and 3.25% Convertible Notes - The fair value 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

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NOTES to CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

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.

Term Loan due 2016 - The fair value of the Term Loan due 2016 is estimated based on market rates of interest offered for debt of similar maturities.

(12) Derivative Financial Instruments

Forward Contracts

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

Swap Agreements

Commodity Swaps

The Company uses diesel fuel and explosives in its production process and incurs significant expenses for the purchase of these commodities. Diesel fuel and explosives expenses represented approximately 7% of cost of coal sales for the nine months ended September 30, 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 September 30, 2012, the Company had swap agreements outstanding to hedge the variable cash flows related to 79% and 58% of anticipated diesel fuel usage for the remaining three months of 2012 and calendar year 2013, respectively. The average fixed price per swap for diesel fuel hedges is $2.99 per gallon and $3.01 per gallon for the remaining three months of 2012 and calendar year 2013, respectively. As of September 30, 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 three 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 nine months ended September 30, 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 September 30, 2012, the Company had swap agreements outstanding to hedge the variable cash flows related to approximately 81% and 76% of anticipated natural gas production for the remaining three months of 2012 and for calendar year 2013, respectively.

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NOTES to CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

Interest Rate Swap

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

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



	Asset Derivatives
Derivatives designated as cash flow hedging instruments	September 30, 2012		December 31, 2011
Commodity swaps ⁽¹⁾	$	15,549	$	16,532
Commodity options ⁽¹⁾	107		112
	$	15,656	$	16,644

Derivatives not designated as cash flow hedging instruments	September 30, 2012		December 31, 2011
Forward coal sales ⁽²⁾	$	32,670	$	27,254
Commodity swaps ⁽³⁾	57		—
Total	$	32,727	$	27,254

Total asset derivatives	$	48,383	$	43,898


⁽¹⁾	As of September 30, 2012, $10,102 is recorded in prepaid expenses and other current assets and $5,554 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 September 30, 2012, $30,048 is recorded in prepaid expenses and other current assets and $2,622 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 September 30, 2012, $57 is recorded in prepaid expenses and other current assets in the Condensed Consolidated Balance Sheets.



	Liability Derivatives
Derivatives designated as cash flow hedging instruments	September 30, 2012		December 31, 2011
Commodity swaps ⁽¹⁾	$	3,625	$	12,874

Derivatives not designated as cash flow hedging instruments	September 30, 2012		December 31, 2011
Forward coal purchases ⁽²⁾	$	8,065	$	15,456
Commodity swaps ⁽³⁾	5		436
Commodity options-coal ⁽⁴⁾	17		17
Interest rate swaps ⁽⁵⁾	1,465		10,097
Total	$	9,552	$	26,006

Total liability derivatives	$	13,177	$	38,880


⁽¹⁾	As of September 30, 2012, $1,984 is recorded in accrued expenses and other current liabilities and $1,641 is recorded in

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NOTES to CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

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 September 30, 2012, $8,065 is recorded in accrued expenses and other current liabilities in the Condensed Consolidated Balance Sheets. As of December 31, 2011, $15,456 is recorded in accrued expenses and other current liabilities in the Condensed Consolidated Balance Sheets.


⁽³⁾	As of September 30, 2012, $5 is recorded in accrued expenses and other current liabilities 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 September 30, 2012, $17 is recorded in accrued expenses and other 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 September 30, 2012, $1,465 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 nine months ended September 30, 2012 and 2011 and their location within the Condensed Consolidated Financial Statements:



Derivatives designated as cash flow hedging instruments	Gain (loss) reclassified from accumulated other comprehensive income (loss) to earnings				Gain (loss) recorded in accumulated other comprehensive income (loss)
Derivatives designated as cash flow hedging instruments	2012		2011		2012			2011
Commodity swaps^{(1) (2) (3)}	$	9,190	$	11,519	$	14,715		$	(1,759	)
Commodity options ^{(1) (2)}	—		—		(39		)	—
	$	9,190	$	11,519	$	14,676		$	(1,759	)


⁽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.



Derivatives not designated as cash flow hedging instruments	Gain (loss) recorded in earnings
	Three Months Ended September 30,						Nine Months Ended September 30,
	2012			2011			2012			2011
Forward coal sales ⁽¹⁾	$	(48,131	)	$	68,451		$	5,424		$	65,685
Forward coal purchases ⁽¹⁾	16,723			(7,179		)	7,391			(6,757		)
Commodity swaps ⁽²⁾	625			(389		)	377			(780		)
Commodity options-coal ⁽¹⁾	—			311			—			246
Interest rate swap ⁽³⁾	(42		)	434			(372		)	(1,086		)
Freight swap ⁽²⁾	—			—			—			84
	$	(30,825	)	$	61,628		$	12,820		$	57,392


⁽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 three and nine months ended September 30, 2012, the Company reclassified $(260) and $(77), respectively, out of accumulated other comprehensive income (loss) because the underlying forecasted transactions were probable of not occurring. During the next twelve months, the Company expects to reclassify approximately $(4,560), net of tax, to earnings. The following table summarizes the changes to accumulated other comprehensive income (loss) related to hedging activities during the nine months ended September 30,

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NOTES to CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

2012 and 2011:



	Nine Months Ended September 30,
	2012			2011
Balance at beginning of period	$	1,333		$	8,443
Net change associated with current year hedging transactions	14,676			(1,759		)
Net amounts reclassified to earnings	(9,190		)	(11,519		)
Balance at end of period	$	6,819		$	(4,835	)

(13) Income Taxes

Income tax expense (benefit) for the three and nine months ended September 30, 2012 and 2011 was $(83,182), $(576,765), $(3,225) and $2,244, respectively. A reconciliation of the statutory federal income tax expense (benefit) at 35% to the actual income tax expense (benefit) is as follows:



	Three Months Ended September 30,						Nine Months Ended September 30,
	2012			2011			2012			2011
Federal statutory income tax expense (benefit)	$	(45,265	)	$	20,783		$	(1,010,217	)	$	22,620
Increases (reductions) in taxes due to:
Percentage depletion allowance	(28,255		)	(30,060		)	(61,157		)	(29,304		)
State taxes, net of federal tax impact	(10,760		)	532			(32,490		)	371
State statutory tax rate change, net of federal tax impact	—			341			(6,397		)	(8,984		)
State apportionment change, net of federal tax impact	—			—			—			8,343
Non-deductible acquisition costs	—			—			—			5,961
Non-deductible goodwill impairment	—			—			506,634			—
Change in valuation allowance	(2,048		)	—			20,706			—
Other, net	3,146			5,179			6,156			3,237
Income tax expense (benefit)	$	(83,182	)	$	(3,225	)	$	(576,765	)	$	2,244

(14) Employee Benefit Plans

The Company sponsors or participates in several benefit plans for its employees, including postretirement 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:

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NOTES to CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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



	Three Months Ended September 30,						Nine Months Ended September 30,
	2012			2011			2012			2011
Service Cost	$	—		$	3,284		$	—		$	4,379
Interest cost	7,952			8,295			24,148			16,378
Expected return on plan assets	(9,815		)	(9,594		)	(28,978		)	(19,597		)
Amortization of net actuarial (gain) loss	551			(71		)	1,286			(205		)
Gain on settlement	—			(145		)	—			(2,327		)
Net periodic benefit cost (credit)	$	(1,312	)	$	1,769		$	(3,544	)	$	(1,372	)

Components of Net Periodic Costs of Other Postretirement Benefit Plans

The components of net periodic benefit costs are as follows:



	Three Months Ended September 30,					Nine Months Ended September 30,
	2012		2011			2012		2011
Service cost	$	4,381	$	3,218		$	12,465	$	8,426
Interest cost	10,748		11,822			32,923		31,479
Amortization of prior service cost (credit)	104		(238		)	313		(714		)
Amortization of net actuarial loss	1,749		299			3,653		898
Net periodic benefit cost	$	16,982	$	15,101		$	49,354	$	40,089

During the three months ended September 30, 2012, the Company remeasured its retiree medical plans to reflect certain plan changes. As a result of the remeasurement, the discount rate was updated to 3.74% and the accumulated benefit obligation was reduced by approximately $87,891, with an offsetting amount recorded in accumulated other comprehensive income (loss), net of tax.

Components of Net Periodic Costs of Black Lung

The components of net periodic benefit costs are as follows:



	Three Months Ended September 30,						Nine Months Ended September 30,
	2012			2011			2012			2011
Service cost	$	2,080		$	1,450		$	6,034		$	2,611
Interest cost	1,384			1,787			4,228			3,367
Expected return on plan assets	(12		)	(6		)	(39		)	(19		)
Amortization of net actuarial loss	—			209			—			627
Net periodic benefit cost	$	3,452		$	3,440		$	10,223		$	6,586

The Company participates in the United Mine Workers of America 1974 Pension Plan (the “Plan”). The Plan is a multi-employer pension plan and was considered “seriously endangered” by the Plan's certifying actuary for the plan year beginning July 1, 2011. A funding improvement plan was sent to all participating companies for adoption. The goals of the funding improvement plan are to improve the funded status and to avoid an accumulated funding deficiency for all plan years in the funding improvement period. The funding improvement plan provides increased contribution rates beginning in 2017. The Plan's funded status is reviewed annually by the certifying actuary.

(15) Stock-Based Compensation Awards

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On May 17, 2012, the Company's stockholders approved the 2012 Long-Term Incentive Plan (the “2012 LTIP”). The principal purpose of the 2012 LTIP is to advance the interests of the Company and its stockholders by providing incentives to certain eligible persons who contribute significantly to the strategic and long-term performance objectives and growth of the Company. The 2012 LTIP is currently authorized for the issuance of awards of up to 6,400,000 shares of common stock, and as of September 30, 2012, 5,690,686 shares of common stock were available for grant under the plan. The 2012 LTIP provides for a variety of awards, including options, stock appreciation rights, restricted stock, restricted share units (both time-based and performance-based), and any other type of award deemed by the Compensation Committee in its discretion to be consistent with the purpose of the 2012 LTIP. Prior to the approval of the 2012 LTIP, the Company issued awards under the 2010 Long Term Incentive Plan (the “2010 LTIP”) and the Alpha Appalachia 2006 Stock and Incentive Compensation Plan (the “2006 SICP”). Upon approval of the 2012 LTIP, no additional awards were issued or are able to be issued under the 2010 LTIP or the 2006 SICP. The 2012 LTIP, the 2010 LTIP and the 2006 SICP are collectively referred to as the “Stock Plans.”

During the nine months ended September 30, 2012, the Company awarded certain of its executives and key employees 1,232,895 time-based restricted share units and 1,149,392 performance-based restricted share units under the Stock Plans. 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 performance-based restricted share units awarded under the Stock Plans during the nine months ended September 30, 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 September 30, 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. As a result of assessing the pre-established performance criteria for the performance-based restricted share units awarded during 2010 and 2011, the cumulative stock-based compensation expense recognized during the related vesting periods was reversed during the nine months ended September 30, 2012. Stock-based compensation expense totaled $6,409 and $8,847 for the three months ended September 30, 2012 and 2011, respectively. Stock-based compensation expense totaled $3,945 and $55,856, for the nine months ended September 30, 2012 and 2011, respectively. For the three months ended September 30, 2012 and 2011, approximately 76% and 72%, respectively, of stock-based compensation expense is reported as selling, general and administrative expenses. For the nine months ended September 30, 2012 and 2011, approximately 15% and 74%, respectively, of stock-based compensation expense is reported as selling, general and administrative expenses. Approximately 24% and 28% of stock-based compensation expense was recorded as cost of coal sales for the three months ended September 30, 2012 and 2011, respectively. Approximately 85% and 26%, of stock-based compensation expense was recorded as cost of coal sales for the nine months ended September 30, 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 nine months ended September 30, 2012 and 2011, the Company repurchased 381,969 and 211,976, respectively, of common shares from employees at an average price paid per share of $18.29 and $56.69, respectively.

(16) 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

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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 a federal coal lease, which contains an estimated 222,000 tons of proven and probable coal reserves in the Powder River Basin. The annual installments due in 2013 through 2015 of $42,130 are due each November until the obligation is satisfied. See Note 9.

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.

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. The Company does not expect any material losses to result from these guarantees or other off-balance sheet financial instruments.

Letters of Credit

The amount of outstanding bank letters of credit issued under the Company's accounts receivable securitization program as of September 30, 2012 was $160,230. As of September 30, 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 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, (i) the claimed amount may be exaggerated or unsupported; (ii) the claim may be based on a novel legal theory or involve a large number of parties; (iii) there may be uncertainty as to the likelihood of a class being certified or the ultimate size of the class; (iv) there may be uncertainty as to the outcome of pending appeals or motions; and/or (v) there may be significant factual issues to be resolved. As a result, the Company may be unable to estimate a range of possible loss for matters that have not yet progressed sufficiently through discovery and development of important factual information and legal issues. Other matters have progressed sufficiently that the Company is able to estimate a range of possible loss. Accordingly, for those legal proceedings and governmental examinations disclosed below as to which a loss is reasonably possible in future periods and for which the Company is able to estimate a range of possible loss, the current estimated range is up to $500,000 in excess of the accrued liability (if any) related to those matters. This aggregate range represents the Company's estimate of additional possible loss in excess of the accrued liability (if any) with respect to these matters and net of third party indemnification arrangements (if any, other than insurance) as described below related to those matters, based on currently available information, including any damages claimed by the plaintiffs, and is subject to significant judgment and a variety of assumptions and inherent uncertainties. For example, at the time of making an estimate, the Company may have only preliminary, incomplete, or inaccurate information about the facts underlying a claim; its assumptions about the future rulings of the court or other tribunal on significant issues, or the behavior and incentives of adverse parties, regulators, indemnitors or co-defendants, may prove to be wrong; and the outcomes it is attempting to predict are often not amenable to the use of statistical or other quantitative analytical tools. In addition, from time to time an outcome may occur that the Company had not accounted for in its estimate because it had considered that outcome to be remote. Furthermore, as noted above, the aggregate range does not include any matters for which the Company is not able to estimate a range of possible loss. Accordingly, the estimated aggregate range of possible loss does not represent the Company's maximum loss exposure. The legal proceedings and governmental examinations underlying the estimated range will change from time to time, and actual results may vary significantly from the

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current estimate. The Company intends to defend these legal proceedings vigorously, litigating or settling cases where in the Company's judgment it would be in the best interest of shareholders to do so.

For purposes of Financial Accounting Standards Board Accounting Standards Codification Topic 450 (“ASC 450”), an event is “reasonably possible” if “the chance of the future event or events occurring is more than remote but less than likely” and an event is “remote” if “the chance of the future event or events occurring is slight.” ASC 450 requires accrual for a liability when it is (a) “probable that one or more future events will occur confirming the fact of loss” and (b) “the amount of loss can be reasonably estimated.” If a range of loss is estimated, the best estimate within the range is required to be accrued. If no amount within the range is a better estimate, the minimum amount of the range is required to be accrued.

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 $7,893 and $41 during the three months ended September 30, 2012 and 2011, respectively.

Federal Securities Class Actions

Upper Big Branch ("UBB") Purported 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 March 30, 2012, the court entered an order setting a July 13, 2012 deadline for the parties to serve their initial discovery disclosures. On July 9, 2012, the Court entered an order maintaining the stay of discovery until the earlier of either the completion of the United States' criminal investigation of the UBB explosion or January 15, 2013.

On April 25, 2011, the defendants moved to dismiss the operative complaint. On March 27, 2012, the court denied the defendants' motion to dismiss. On July 16, 2012, the Company filed its answer to the consolidated amended class action complaint.

Emerald Purported Securities Class Action

On July 13, 2012, a purported class action brought on behalf of a putative class of former Massey stockholders was filed in Boone County, West Virginia Circuit Court. The complaint asserts claims under the Securities Act of 1933, as amended, against the Company and certain of its officers and current and former directors, and generally asserts that the defendants made false statements about the Company's Emerald mine in its public filings associated with its acquisition of Massey. The plaintiff seeks, among other relief, an award of compensatory damages in an amount to be proven at trial.

On August 16, 2012, the defendants removed the case to the United States District Court for the Southern District of West Virginia. On August 30, 2012, the plaintiff filed a motion to remand the case back to the Circuit Court of Boone County, West Virginia. On September 13, 2012, the defendants filed an opposition to the plaintiff's motion to remand. Alpha filed a motion to dismiss the action on October 19, 2012, and the plaintiff filed an opposition to that motion on November 2, 2012. On November 5, 2012, the federal court remanded the case back to the Circuit Court of Boone County.

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

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, 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 has 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. On April 20, 2012, the Company was authorized by regulatory authorities to close the UBB mine permanently, and on June 19, 2012, the sealing of the mine was completed.

On June 28, 2012, sixteen individuals who claim to have been injured in the UBB explosion filed a petition in the United States District Court for the Southern District of West Virginia to amend or set aside the Agreement. On July 27, 2012, Alpha and Alpha Appalachia filed a motion to dismiss. The injury claims of those sixteen individuals were separately settled in August 2012, and on August 29, 2012, the court ordered that the action be dismissed and stricken from the docket.

On October 19, 2012, the administrators for the estates of three miners who died in the UBB explosion filed an action in the United States District Court for the Southern District of West Virginia claiming they are entitled to "criminal restitution" under the Agreement. The Company has not yet responded to the complaint.

Wrongful Death and Personal Injury Suits

As of November 1, 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 November 1, 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 has reached agreements to settle with all twenty-nine families of the deceased miners as well as the two employees who were seriously injured. The settlements reached with the families of the deceased miners 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

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the court. The stay was lifted on July 6, 2012 but mediation was ordered to continue. On July 20, 2012, the stay was reinstated for discovery-related activities at the request of the United States Attorney and by agreement of the parties. This stay is expected to remain in effect until the United States' criminal investigation of the UBB explosion is completed or until January 15, 2013, whichever is earlier. Mediation efforts in August 2012 successfully resolved all but two of the personal injury and emotional distress claims. A motion to dismiss these two claims is pending before the Boone County Circuit 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. 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. On May 14, 2012, the Court entered an order dismissing this case with prejudice.

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 Suit

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. 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, which were consolidated for all purposes with In re Massey on February 9, 2011 and February 24, 2011, respectively.

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

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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.

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. On June 15, 2012, the Court held a hearing on Defendants' motion to extend the Stay Order and granted the motion, extending the stay of proceedings until the earlier of either the completion of the United States' criminal investigation of the UBB explosion or January 15, 2013.

West Virginia State Court Derivative Suit

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.

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West Virginia State Court - 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 had 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.

U.S. District Court - Eastern District of Virginia - Purported Stockholder Class Action

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.

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.

On September 10, 2012, the court denied plaintiffs' motion for attorneys' fees, reimbursement of expenses and incentive awards. On September 24, 2012, the court dismissed the action with prejudice.

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

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, 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 ("WVDEP") 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, other additional materials, in excess of permitted levels. The Company has reached agreements to resolve both claims with WVDEP. The circuit court has approved the Pioneer Fuel consent decree, and Pioneer Fuel has paid the civil penalty. The Paynter Branch Mining consent decree is awaiting court approval. The Company does not believe the amounts of any civil penalties or fines resulting from the Paynter Branch Mining, Inc. case 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 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-mine 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.

On May 9, 2012, three environmental groups filed a citizen's suit in federal court in the Southern District of West Virginia against two of the Company's subsidiaries alleging violations of the terms of the subsidiaries' water discharge permits. The plaintiffs seek a civil penalty as well as injunctive relief.

On May 15, 2012, WVDEP filed a civil enforcement action against the Company's subsidiary Riverside Energy Company, LLC, in McDowell County Circuit Court in West Virginia seeking civil penalties and injunctive relief based on alleged discharge of selenium in excess of permitted levels.

On July 16, 2012, three environmental groups filed a filed a citizen's suit in federal court in the Southern District of West Virginia against seven of the Company's subsidiaries alleging violations of the terms of the subsidiaries' water discharge permits. The plaintiffs seek a civil penalty as well as injunctive relief.

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

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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 challenged the order denying its summary judgment motion to the West Virginia Supreme Court of Appeals.

On June 21, 2012, the West Virginia Supreme Court of Appeals issued an opinion finding that ACTF has standing to pursue its claims and remanded the case back to the Circuit Court of Kanawha County, West Virginia for further proceedings. NCI's portion of the highway project under the contract is complete.

The case is now pending in the Circuit Court of Kanawha County, West Virginia, with discovery and other pretrial proceedings underway. Trial is scheduled to commence on January 14, 2013. ACTF has moved for summary judgment on the merits of its claims. A hearing on that motion is set for November 8, 2012. The only relief currently requested by ACTF is a declaration that the contract at issue does not comply with West Virginia laws applicable to government contracts in regards to competitive bidding and payment of prevailing wages, and is therefore void. ACTF has withdrawn its request for injunctive relief.

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 September 30, 2012. The appeal of the judgments in the Alexander-Pederson-Helig cases remains pending

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.

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

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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. On June 21, 2012, Missouri federal court stayed the case before it in favor of the suit pending in the Missouri state court.

On April 4, 2012, the Rennert entities moved to dismiss the Missouri state court action. On July 13, 2012, the Missouri state court scheduled an expedited hearing on the Rennert entities' pending motions to dismiss for August 15, 2012. On October 5, 2012, the court denied the Rennert entities' motions to dismiss each of Fluor's and Alpha Appalachia's subsidiaries' claims except for one claim for contribution, which the court dismissed.

Other Legal Proceedings

In addition to the matters disclosed above, the Company and its subsidiaries are involved in a number of legal proceedings and governmental examinations 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.

(17) Segment Information

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

The Company extracts, processes and markets steam and metallurgical coal from surface and deep mines for sale to electric utilities, steel and coke producers, and industrial customers. The Company operates only in the United States with mines in Northern and Central Appalachia and the Powder River Basin. The Company has two reportable segments: Western Coal Operations, which consists of two Powder River Basin surface mines as of September 30, 2012, and Eastern Coal Operations, which consists of 74 underground mines and 32 surface mines in Northern and Central Appalachia as of September 30, 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 September 30, 2012 were as follows:



	Eastern Coal Operations			Western Coal Operations		All Other			Consolidated
Total revenues	$	1,446,374		$	171,982	$	15,453		$	1,633,809
Depreciation, depletion, and amortization	$	215,961		$	16,868	$	6,065		$	238,894
Amortization of acquired intangibles, net	$	(15,940	)	$	3,480	$	778		$	(11,682	)
EBITDA	$	123,544		$	42,305	$	(21,948	)	$	143,901
Capital expenditures	$	80,695		$	4,150	$	2,503		$	87,348
Acquisition of mineral rights under federal lease	$	—		$	17,393	$	—		$	17,393

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

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	Eastern Coal Operations			Western Coal Operations		All Other			Consolidated
Total revenues	$	2,134,246		$	151,617	$	22,890		$	2,308,753
Depreciation, depletion, and amortization	$	228,066		$	15,293	$	5,894		$	249,253
Amortization of acquired intangibles, net	$	(89,918	)	$	7,960	$	1,340		$	(80,618	)
EBITDA	$	274,801		$	14,081	$	(12,650	)	$	276,232
Capital expenditures	$	126,580		$	5,084	$	10,597		$	142,261
Acquisition of mineral rights under federal lease	$	—		$	28,905	$	—		$	28,905

Segment operating results and capital expenditures for the nine months ended September 30, 2012 were as follows:



	Eastern Coal Operations			Western Coal Operations		All Other			Consolidated
Total revenues	$	4,899,430		$	459,320	$	57,781		$	5,416,531
Depreciation, depletion, and amortization	$	730,894		$	47,284	$	19,338		$	797,516
Amortization of acquired intangibles, net	$	(78,067	)	$	10,472	$	3,115		$	(64,480	)
EBITDA	$	(1,978,561	)	$	25,616	$	(64,788	)	$	(2,017,733	)
Capital expenditures	$	304,010		$	16,927	$	11,655		$	332,592
Acquisition of mineral rights under federal lease	$	—		$	53,501	$	—		$	53,501

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



	Eastern Coal Operations			Western Coal Operations		All Other			Consolidated
Total revenues	$	4,545,854		$	434,846	$	56,829		$	5,037,529
Depreciation, depletion, and amortization	$	425,422		$	44,779	$	14,801		$	485,002
Amortization of acquired intangibles, net	$	(91,312	)	$	25,874	$	1,875		$	(63,563	)
EBITDA	$	728,248		$	45,757	$	(196,199	)	$	577,806
Capital expenditures	$	246,712		$	24,516	$	43,701		$	314,929
Acquisition of mineral rights under federal lease	$	—		$	65,013	$	—		$	65,013

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



	Three Months Ended September 30,						Nine Months Ended September 30,
	2012			2011			2012			2011
EBITDA	$	143,901		$	276,232		$	(2,017,733	)	$	577,806
Interest expense	(47,345		)	(49,148		)	(139,313		)	(94,726		)
Interest income	1,328			930			3,749			2,987
Income tax (expense) benefit	83,182			3,225			576,765			(2,244		)
Depreciation, depletion and amortization	(238,894		)	(249,253		)	(797,516		)	(485,002		)
Amortization of acquired intangibles, net	11,682			80,618			64,480			63,563
Net income (loss)	$	(46,146	)	$	62,604		$	(2,309,568	)	$	62,384

The following table presents total assets and goodwill as of September 30, 2012 and December 31, 2011:

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	Total Assets				Goodwill
	September 30, 2012		December 31, 2011		September 30, 2012		December 31, 2011
Eastern Coal Operations	$	11,192,521	$	14,427,166	$	749,947	$	2,221,971
Western Coal Operations	625,185		657,419		—		53,308
All Other	1,287,425		1,509,460		5,912		5,912
Total	$	13,105,131	$	16,594,045	$	755,859	$	2,281,191

The Company markets produced, processed, and purchased coal to customers in the United States and in international markets. Export revenues totaled $639,977 and $2,296,369, or approximately 39% and 42%, respectively, of total revenues for the three and nine months ended September 30, 2012, respectively. Export revenues totaled $998,601 and $2,290,309, or approximately 43% and 45%, respectively, of total revenues for the three and nine months ended September 30, 2011, respectively.

(18) Supplemental Guarantor and Non-Guarantor Financial Information

On June 1, 2011, the Company issued the Senior Notes, and on October 11, 2012, it issued the 9.75% Senior Notes (as defined in Note 19). See Note 19. The Company 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 September 30, 2012 and December 31, 2011 and for the three and nine months ended September 30, 2012 and 2011, respectively, based on the guarantor structure for the Company's Senior Notes and 9.75% Senior Notes, and would apply in the event the Company issues New Notes in the future. The tables below refer to the Company as the issuer of the Senior Notes, the 9.75% Senior Notes and any New Notes that may be issued in the future. "Non-Guarantor Subsidiaries" refers, for the tables below, to ANR Receivables Funding LLC, Alpha Australia Pty. Limited, Alpha Coal India Private Limited, Coalsolv, LLC, Gray Hawk Insurance Company and Rockridge Coal Company. The Non-Guarantor Subsidiaries are not guarantors of the Senior Notes or 9.75% 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 the Senior Notes or 9.75% Senior Notes or to holders of any New Notes or related guarantees that may be issued by the Company.

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Alpha Natural Resources, Inc. and Subsidiaries
Supplemental Condensed Consolidating Balance Sheet
September 30, 2012
	Parent (Issuer)		Guarantor Subsidiaries		Non-Guarantor Subsidiaries		Eliminations			Total Consolidated
Assets
Current assets:
Cash and cash equivalents	$	—	$	341,188	$	1,016	$	—		$	342,204
Trade accounts receivable, net	—		33,431		421,807		—			455,238
Inventories, net	—		457,195		—		—			457,195
Prepaid expenses and other current assets	—		775,145		2,753		—			777,898
Total current assets	—		1,606,959		425,576		—			2,032,535
Property, equipment and mine development costs, net	—		2,316,640		—		—			2,316,640
Owned and leased mineral rights and land, net	—		7,442,438		—		—			7,442,438
Goodwill, net	—		755,859		—		—			755,859
Other acquired intangibles, net	—		254,315		—		—			254,315
Other non-current assets	8,826,492		8,965,764		5,236		(17,494,148		)	303,344
Total assets	$	8,826,492	$	21,341,975	$	430,812	$	(17,494,148	)	$	13,105,131
Liabilities and Stockholders' Equity
Current liabilities:
Current portion of long-term debt	$	67,500	$	13,105	$	—	$	—		$	80,605
Trade accounts payable	5,039		296,203		24		—			301,266
Accrued expenses and other current liabilities	3,130		921,780		3		—			924,913
Total current liabilities	75,669		1,231,088		27		—			1,306,784
Long-term debt	2,232,621		679,907		—		—			2,912,528
Pension and postretirement medical benefit obligations	—		1,188,680		—		—			1,188,680
Asset retirement obligations	—		899,157		—		—			899,157
Deferred income taxes	—		961,001		—		—			961,001
Other non-current liabilities	1,420,432		1,743,290		416,353		(2,840,864		)	739,211
Total liabilities	3,728,722		6,703,123		416,380		(2,840,864		)	8,007,361
Stockholders' Equity
Total stockholders' equity	5,097,770		14,638,852		14,432		(14,653,284		)	5,097,770
Total liabilities and stockholders' equity	$	8,826,492	$	21,341,975	$	430,812	$	(17,494,148	)	$	13,105,131

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Alpha Natural Resources, Inc. and Subsidiaries
Supplemental Condensed Consolidating Balance Sheet
December 31, 2011
	Parent (Issuer)		Guarantor Subsidiaries		Non-Guarantor Subsidiary		Eliminations			Total Consolidated
Assets
Current assets:
Cash and cash equivalents	$	613	$	584,273	$	996	$	—		$	585,882
Trade accounts receivable, net	—		284,675		357,300		—			641,975
Inventories, net	—		492,022		—		—			492,022
Prepaid expenses and other current assets	—		825,348		2,848		—			828,196
Total current assets	613		2,186,318		361,144		—			2,548,075
Property, equipment and mine development costs, net	—		2,812,069		—		—			2,812,069
Owned and leased mineral rights, net	—		8,284,328		—		—			8,284,328
Goodwill, net	—		2,281,191		—		—			2,281,191
Other acquired intangibles, net	—		347,889		—		—			347,889
Other non-current assets	11,627,250		11,772,085		4,272		(23,083,114		)	320,493
Total assets	$	11,627,863	$	27,683,880	$	365,416	$	(23,083,114	)	$	16,594,045
Liabilities and Stockholders' Equity
Current liabilities:
Current portion of long-term debt	$	45,000	$	1,029	$	—	$	—		$	46,029
Trade accounts payable	5,018		499,016		25		—			504,059
Accrued expenses and other current liabilities	9,151		1,349,986		23		—			1,359,160
Total current liabilities	59,169		1,850,031		48		—			1,909,248
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	—		743,613		—		—			743,613
Deferred income taxes	—		1,507,923		—		—			1,507,923
Other non-current liabilities	1,919,070		2,494,411		346,099		(3,838,139		)	921,441
Total liabilities	4,252,819		8,458,174		346,147		(3,838,139		)	9,219,001
Stockholders' Equity
Total stockholders' equity	7,375,044		19,225,706		19,269		(19,244,975		)	7,375,044
Total liabilities and stockholders' equity	$	11,627,863	$	27,683,880	$	365,416	$	(23,083,114	)	$	16,594,045

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Alpha Natural Resources, Inc. and Subsidiaries
Supplemental Condensed Consolidating Statement of Operations
For the Three Months Ended September 30, 2012
	Parent (Issuer)			Guarantor Subsidiaries			Non-Guarantor Subsidiary			Eliminations		Total Consolidated
Revenues:
Coal revenues	$	—		$	1,455,702		$	—		$	—	$	1,455,702
Freight and handling revenues	—			154,450			—			—		154,450
Other revenues	—			20,324			3,333			—		23,657
Total revenues	—			1,630,476			3,333			—		1,633,809
Cost and expenses:
Cost of coal sales (exclusive of items shown separately below)	—			1,259,174			—			—		1,259,174
Freight and handling costs	—			154,450			—			—		154,450
Other expenses	—			13,357			—			—		13,357
Depreciation, depletion, and amortization	—			238,894			—			—		238,894
Amortization of acquired intangibles, net	—			(11,682		)	—			—		(11,682		)
Selling, general and administrative expenses (exclusive of depreciation, depletion and amortization shown separately above)	—			48,246			1,358			—		49,604
Asset impairment and restructuring	—			13,676			—			—		13,676
Total costs and expenses	—			1,716,115			1,358			—		1,717,473
Income (loss) from operations	—			(85,639		)	1,975			—		(83,664		)
Other income (expense):
Interest expense	(40,125		)	(6,451		)	(769		)	—		(47,345		)
Interest income	—			1,325			3			—		1,328
Miscellaneous expense, net	—			321			32			—		353
Total other expense, net	(40,125		)	(4,805		)	(734		)	—		(45,664		)
Income (loss) before income taxes and equity in earnings of investments in Issuer and Guarantor Subsidiaries	(40,125		)	(90,444		)	1,241			—		(129,328		)
Income tax benefit (expense)	15,649			68,017			(484		)	—		83,182
Equity in earnings of investments in Issuer and Guarantor Subsidiaries	(21,670		)	—			—			21,670		—
Net income (loss)	$	(46,146	)	$	(22,427	)	$	757		$	21,670	$	(46,146	)

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Alpha Natural Resources, Inc. and Subsidiaries
Supplemental Condensed Consolidating Statement of Operations
For the Three Months Ended September 30, 2011
	Parent (Issuer)			Guarantor Subsidiaries			Non-Guarantor Subsidiary			Eliminations			Total Consolidated
Revenues:
Coal revenues	$	—		$	1,997,933		$	—		$	—		$	1,997,933
Freight and handling revenues	—			213,834			—			—			213,834
Other revenues	—			94,314			2,672			—			96,986
Total revenues	—			2,306,081			2,672			—			2,308,753
Cost and expenses:
Cost of coal sales (exclusive of items shown separately below)	—			1,683,902			—			—			1,683,902
Freight and handling costs	—			213,834			—			—			213,834
Other expenses	—			54,239			—			—			54,239
Depreciation, depletion, and amortization	—			249,253			—			—			249,253
Amortization of acquired intangibles, net	—			(80,618		)	—			—			(80,618		)
Selling, general and administrative expenses (exclusive of depreciation, depletion and amortization shown separately above)	—			74,541			1,102			—			75,643
Total costs and expenses	—			2,195,151			1,102			—			2,196,253
Income from operations	—			110,930			1,570			—			112,500
Other income (expense):
Interest expense	(40,191		)	(8,303		)	(654		)	—			(49,148		)
Interest income	—			930			—			—			930
Loss on early extinguishment of debt	—			(5,212		)	—			—			(5,212		)
Miscellaneous expense, net	—			309			—			—			309
Total other expense, net	(40,191		)	(12,276		)	(654		)	—			(53,121		)
Income (loss) before income taxes and equity in earnings of investments in Issuer and Guarantor Subsidiaries	(40,191		)	98,654			916			—			59,379
Income tax benefit (expense)	15,673			(12,091		)	(357		)	—			3,225
Equity in earnings of investments in Issuer and Guarantor Subsidiaries	87,122			2,306			—			(89,428		)	—
Net income (loss)	$	62,604		$	88,869		$	559		$	(89,428	)	$	62,604

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ALPHA NATURAL RESOURCES, INC. AND SUBSIDIARIES

NOTES to CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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



Alpha Natural Resources, Inc. and Subsidiaries
Supplemental Condensed Consolidating Statement of Operations
For the Nine Months Ended September 30, 2012
	Parent (Issuer)			Guarantor Subsidiaries			Non-Guarantor Subsidiary			Eliminations		Total Consolidated
Revenues:
Coal revenues	$	—		$	4,660,541		$	—		$	—	$	4,660,541
Freight and handling revenues	—			597,157			—			—		597,157
Other revenues	—			148,623			10,210			—		158,833
Total revenues	—			5,406,321			10,210			—		5,416,531
Cost and expenses:
Cost of coal sales (exclusive of items shown separately below)	—			4,080,964			—			—		4,080,964
Freight and handling costs	—			597,157			—			—		597,157
Other expenses	—			43,194			—			—		43,194
Depreciation, depletion, and amortization	—			797,516			—			—		797,516
Amortization of acquired intangibles, net	—			(64,480		)	—			—		(64,480		)
Selling, general and administrative expenses (exclusive of depreciation, depletion and amortization shown separately above)	—			157,344			3,282			—		160,626
Asset impairment and restructuring	—			1,028,610			—			—		1,028,610
Goodwill impairment	—			1,525,332			—			—		1,525,332
Total costs and expenses	—			8,165,637			3,282			—		8,168,919
Income (loss) from operations	—			(2,759,316		)	6,928			—		(2,752,388		)
Other income (expense):
Interest expense	(118,015		)	(19,106		)	(2,192		)	—		(139,313		)
Interest income	—			3,732			17			—		3,749
Miscellaneous expense, net	—			1,648			(29		)	—		1,619
Total other expense, net	(118,015		)	(13,726		)	(2,204		)	—		(133,945		)
Income (loss) before income taxes and equity in earnings of investments in Issuer and Guarantor Subsidiaries	(118,015		)	(2,773,042		)	4,724			—		(2,886,333		)
Income tax benefit (expense)	46,025			532,582			(1,842		)	—		576,765
Equity in earnings of investments in Issuer and Guarantor Subsidiaries	(2,237,578		)	—			—			2,237,578		—
Net income (loss)	$	(2,309,568	)	$	(2,240,460	)	$	2,882		$	2,237,578	$	(2,309,568	)

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ALPHA NATURAL RESOURCES, INC. AND SUBSIDIARIES

NOTES to CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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



Alpha Natural Resources, Inc. and Subsidiaries
Supplemental Condensed Consolidating Statement of Operations
For the Nine Months Ended September 30, 2011
	Parent (Issuer)			Guarantor Subsidiaries			Non-Guarantor Subsidiary			Eliminations			Total Consolidated
Revenues:
Coal revenues	$	—		$	4,395,803		$	—		$	—		$	4,395,803
Freight and handling revenues	—			480,760			—			—			480,760
Other revenues	—			153,130			7,836			—			160,966
Total revenues	—			5,029,693			7,836			—			5,037,529
Cost and expenses:
Cost of coal sales (exclusive of items shown separately below)	—			3,525,886			—			—			3,525,886
Freight and handling costs	—			480,760			—			—			480,760
Other expenses	—			111,045			—			—			111,045
Depreciation, depletion, and amortization	—			485,002			—			—			485,002
Amortization of acquired intangibles, net	—			(63,563		)	—			—			(63,563		)
Selling, general and administrative expenses (exclusive of depreciation, depletion and amortization shown separately above)	—			329,876			2,722			—			332,598
Total costs and expenses	—			4,869,006			2,722			—			4,871,728
Income from operations	—			160,687			5,114			—			165,801
Other income (expense):
Interest expense	(69,871		)	(23,358		)	(1,497		)	—			(94,726		)
Interest income	—			2,987			—			—			2,987
Loss on early extinguishment of debt	(4,751		)	(5,017		)	—			—			(9,768		)
Miscellaneous expense, net	—			334			—			—			334
Total other expense, net	(74,622		)	(25,054		)	(1,497		)	—			(101,173		)
Income (loss) before income taxes and equity in earnings of investments in Issuer and Guarantor Subsidiaries	(74,622		)	135,633			3,617			—			64,628
Income tax benefit (expense)	29,102			(29,935		)	(1,411		)	—			(2,244		)
Equity in earnings of investments in Issuer and Guarantor Subsidiaries	107,904			(17,195		)	—			(90,709		)	—
Net income (loss)	$	62,384		$	88,503		$	2,206		$	(90,709	)	$	62,384

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ALPHA NATURAL RESOURCES, INC. AND SUBSIDIARIES

NOTES to CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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



Alpha Natural Resources, Inc. and Subsidiaries
Supplemental Condensed Consolidating Statements of Comprehensive Income (Loss)
For the Three Months Ended September 30, 2012
	Parent (Issuer)			Guarantor Subsidiaries			Non-Guarantor Subsidiaries		Eliminations		Total Consolidated
Net income (loss)	$	(46,146	)	$	(22,427	)	$	757	$	21,670	$	(46,146	)
Total comprehensive income (loss)	$	18,873		$	(87,446	)	$	757	$	86,689	$	18,873



Alpha Natural Resources, Inc. and Subsidiaries
Supplemental Condensed Consolidating Statements of Comprehensive Income (Loss)
For the Three Months Ended September 30, 2011
	Parent (Issuer)			Guarantor Subsidiaries		Non-Guarantor Subsidiaries		Eliminations			Total Consolidated
Net income (loss)	$	62,604		$	88,869	$	559	$	(89,428	)	$	62,604
Total comprehensive income (loss)	$	(32,773	)	$	184,246	$	559	$	(184,805	)	$	(32,773	)



Alpha Natural Resources, Inc. and Subsidiaries
Supplemental Condensed Consolidating Statements of Comprehensive Income (Loss)
For the Nine Months Ended September 30, 2012
	Parent (Issuer)			Guarantor Subsidiaries			Non-Guarantor Subsidiaries		Eliminations		Total Consolidated
Net income (loss)	$	(2,309,568	)	$	(2,240,460	)	$	2,882	$	2,237,578	$	(2,309,568	)
Total comprehensive income (loss)	$	(2,268,960	)	$	(2,281,068	)	$	2,882	$	2,278,186	$	(2,268,960	)



Alpha Natural Resources, Inc. and Subsidiaries
Supplemental Condensed Consolidating Statements of Comprehensive Income (Loss)
For the Nine Months Ended September 30, 2011
	Parent (Issuer)			Guarantor Subsidiaries		Non-Guarantor Subsidiaries		Eliminations			Total Consolidated
Net income (loss)	$	62,384		$	88,503	$	2,206	$	(90,709	)	$	62,384
Total comprehensive income (loss)	$	(37,968	)	$	188,855	$	2,206	$	(191,061	)	$	(37,968	)

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ALPHA NATURAL RESOURCES, INC. AND SUBSIDIARIES

NOTES to CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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



Alpha Natural Resources, Inc. and Subsidiaries
Supplemental Condensed Consolidating Statement of Cash Flows
For the Nine Months Ended September 30, 2012
	Parent (Issuer)			Guarantor Subsidiaries			Non-Guarantor Subsidiary			Total Consolidated
Net cash (used in) provided by operating activities	$	(6,000	)	$	311,667		$	(20	)	$	305,647
Investing activities:
Capital expenditures	—			(332,592		)	—			(332,592		)
Acquisition of mineral rights under federal lease	—			(53,501		)	—			(53,501		)
Purchase of equity-method investments	—			(10,100		)	—			(10,100		)
Purchases of marketable securities, net	—			(112,138		)	—			(112,138		)
Other, net	—			7,420			—			7,420
Net cash used in investing activities	—			(500,911		)	—			(500,911		)
Financing activities:
Principal repayments of long-term debt	(30,000		)	—			—			(30,000		)
Principal repayments of capital lease obligations	—			(3,862		)	—			(3,862		)
Debt issuance costs	(6,737		)	—			—			(6,737		)
Common stock repurchases	(6,985		)	—			—			(6,985		)
Proceeds from exercise of stock options	170			—			—			170
Other, net	—			(1,000		)	—			(1,000		)
Transactions with affiliates	48,939			(48,979		)	40			—
Net cash (used in) provided by financing activities	5,387			(53,841		)	40			(48,414		)
Net increase (decrease) in cash and cash equivalents	(613		)	(243,085		)	20			(243,678		)
Cash and cash equivalents at beginning of period	613			584,273			996			585,882
Cash and cash equivalents at end of period	$	—		$	341,188		$	1,016		$	342,204

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ALPHA NATURAL RESOURCES, INC. AND SUBSIDIARIES

NOTES to CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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



Alpha Natural Resources, Inc. and Subsidiaries
Supplemental Condensed Consolidating Statement of Cash Flows
For the Nine Months Ended September 30, 2011
	Parent (Issuer)			Guarantor Subsidiaries			Non-Guarantor Subsidiary		Total Consolidated
Net cash provided by operating activities	$	10,406		$	526,738		$	88	$	537,232
Investing activities:
Cash paid for Massey Acquisition, net of cash acquired	(711,387		)	—			—		(711,387		)
Capital expenditures	—			(314,929		)	—		(314,929		)
Acquisition of mineral rights under federal lease	—			(65,013		)	—		(65,013		)
Purchase of equity-method investment	—			(8,000		)	—		(8,000		)
Purchases of marketable securities, net	—			83,732			—		83,732
Other, net	—			(4,672		)	—		(4,672		)
Net cash used in investing activities	(711,387		)	(308,882		)	—		(1,020,269		)
Financing activities:
Principal repayments of long-term debt	(235,396		)	(1,072,438		)	—		(1,307,834		)
Proceeds from borrowing on long-term debt	2,100,000			—			—		2,100,000
Debt issuance	(84,306		)	—			—		(84,306		)
Common stock repurchases	(206,381		)	—			—		(206,381		)
Proceeds from exercise of stock options	4,079			—			—		4,079
Transactions with affiliates	(896,491		)	896,079			412		—
Net cash provided by (used in) financing activities	681,505			(176,359		)	412		505,558
Net increase (decrease) in cash and cash equivalents	(19,476		)	41,497			500		22,521
Cash and cash equivalents at beginning of period	20,331			534,441			—		554,772
Cash and cash equivalents at end of period	$	855		$	575,938		$	500	$	577,293

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ALPHA NATURAL RESOURCES, INC. AND SUBSIDIARIES

NOTES to CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

(19) Subsequent Events

9.75% Senior Notes due 2018

On October 11, 2012, Alpha, certain of its wholly-owned domestic subsidiaries, as guarantors, and Union Bank, N.A., as trustee, entered into a third supplemental indenture (the “Third Supplemental Indenture”) to the indenture dated June 1, 2011 (the “Base Indenture” and, together with the Third Supplemental Indenture, the “9.75% Senior Notes Indenture”). The 9.75% Senior Notes Indenture governs Alpha's 9.75% senior notes due 2018 (the “9.75% Senior Notes”), which were issued on October 11, 2012 in an aggregate principal amount of $500,000.

The 9.75% Senior Notes bear interest at a rate of 9.75% per annum, payable semi-annually on April 15 and October 15 of each year, beginning on April 15, 2013, and will mature on April 15, 2018.

Alpha may redeem the 9.75% Senior Notes, in whole or in part, at any time prior to maturity, at a price equal to 100% of the aggregate principal amount of the 9.75% Senior Notes plus a “make whole” premium, plus accrued and unpaid interest, if any, to, but not including, the applicable redemption date. In addition, Alpha may redeem up to 35% of the aggregate principal amount of the 9.75% Senior Notes with the net cash proceeds from certain equity offerings, at any time prior to October 15, 2015, at a redemption price equal to 109.75% of the aggregate principal amount of the 9.75% Senior Notes, plus accrued and unpaid interest, if any, to, but not including the applicable redemption date, if at least 65% of the aggregate principal amount of the 9.75% Senior Notes originally issued under the 9.75% Senior Notes Indenture remains outstanding immediately after the redemption and the redemption occurs within 180 days of the date of the closing of such equity offering.

Upon the occurrence of a change of control repurchase event with respect to the 9.75% Senior Notes, unless Alpha has exercised its right to redeem the 9.75% Senior Notes, Alpha will be required to offer to repurchase each holder's 9.75% Senior Notes at a price equal to 101% of the principal amount thereof, plus accrued and unpaid interest, if any, to, but not including, the date of repurchase.

The 9.75% Senior Notes Indenture contains covenants that limit, among other things, Alpha's ability to:


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


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


•	pay dividends on its or its subsidiaries' capital stock or repurchase its capital stock;


•	make certain investments;


•	enter into certain types of transactions with affiliates;


•	incur liens on certain assets to secure debt;


•	limit dividends or other payments by its restricted subsidiaries to it and its other restricted subsidiaries;


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


•	make certain payments on its or its subsidiaries' subordinated debt.

These covenants are subject to a number of qualifications and exceptions. These covenants may not apply at any time after the 9.75% Senior Notes are assigned a credit grade rating of at least BB+ (stable) from Standard & Poor's Ratings Services and of at least Ba1 (stable) from Moody's Investor Service, Inc.

3.25% Convertible Senior Notes due 2015

In October, 2012, pursuant to a cash tender offer with respect to the 3.25% Convertible Notes, the Company and Alpha Appalachia Holdings, Inc. (formerly Massey) repurchased $122,511 in aggregate principal amount of the 3.25% Convertible Notes using a portion of the net proceeds from the offering of the 9.75% Senior Notes.

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

You should read the following discussion and analysis in conjunction with our financial statements and related notes included elsewhere in this Quarterly Report on Form 10-Q and our Annual Report on Form 10-K for the year ended December 31, 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, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), 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;


•	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;


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


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


•	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, increased unionization of our workforce in the future, and any strikes by our workforce;


•	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 outcome of pending or potential litigation or governmental investigations, including with respect to the Upper Big

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Branch explosion;


•	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;


•	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 our Quarterly Report on Form 10-Q for the quarters ended June 30, 2012 and March 31, 2012, respectively,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. Accordingly, our consolidated results of operations for the nine months ended September 30, 2011 include Massey's results of operations only for the period June 1, 2011 to September 30, 2011.

Overview

We are one of America's premier coal suppliers, operating 108 mines and 30 coal preparation and load-out facilities as of September 30, 2012 in Northern and Central Appalachia and the Powder River Basin, with approximately 13,000 employees.

During the nine months ended September 30, 2012, we announced the planned idling of certain mining operations and preparation plants in our eastern operations and other planned production curtailments and organizational streamlining. The mines impacted are located in Virginia, West Virginia, Pennsylvania, Kentucky and Wyoming. The combination of mine and equipment idlings, production curtailments and mining out reserves will take place through early 2013, reducing annualized coal production and shipments by approximately 32 million tons. Approximately 20 million tons of the reduction will come from higher-cost thermal coal operations in the east and approximately 8 million tons of the reduction will come from production curtailments in the Power River Basin in order to match currently committed sales volumes in 2013. These reductions of higher-cost and lower-quality production will allow us to focus on higher margin products. We will continue to evaluate market conditions and will make further adjustments if market conditions warrant. The balance will come from reduced production of lesser quality metallurgical coal. Additionally, to align with our smaller production footprint, in the future we plan to operate under two regions to reduce overhead while enhancing operational effectiveness. We plan to establish an operational performance group to support the deployment of best practices across the organization in areas such as

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operations improvement and predictive/preventive maintenance. Satellite offices in Richmond, VA., Denver, CO., Latrobe, PA., and Linthicum Heights, MD. will be closed by the end of 2012 and overhead support functions will be consolidated from other locations as well. We expect to achieve overhead savings from the streamlining of field and corporate support functions which are expected to be reflected in lower cost of coal sales and lower selling, general and administrative expenses.

During the nine months ended September 30, 2012, we tested certain of our long-lived assets and goodwill for impairment. In the second quarter of 2012, we recorded charges for asset impairment of $990.9 million and goodwill impairment of $1,525.3 million. Additionally, we recorded severance expenses of $7.5 million and $22.9 million, professional fees and other expenses of $5.5 million and $7.5 million, and reserves of $0.7 million and $7.3 million for advanced royalties and deposits which may not be recoverable for the three and nine months ended September 30, 2012, respectively.

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 coal separately. For the three and nine months ended September 30, 2012, sales of steam coal were 23.1 million and 67.5 million tons, respectively, and accounted for approximately 83% and 81%, respectively, of our coal sales volume. Comparatively, for the three and nine months ended September 30, 2011, sales of steam coal were 25.3 million and 61.3 million tons, respectively, and accounted for approximately 81% and 82%, respectively, of our coal sales volume. For the three and nine months ended September 30, 2012, sales of metallurgical coal, which generally sells at a premium over steam coal, were 4.9 million and 15.4 million tons, respectively, and accounted for approximately 17% and 19%, respectively, of our coal sales volume. For the three and nine months ended September 30, 2011, sales of metallurgical coal were 5.9 million and 13.9 million tons, respectively, and accounted for approximately 19% and 18%, respectively, of our coal sales volume.

Our sales of steam coal for the three and nine months ended September 30, 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 and nine months ended September 30, 2012, approximately 39% and 42% of our total revenues were derived from coal sales made to customers outside the United States, compared to 43% and 45% for the three and nine months ended September 30, 2011, respectively.

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

Our primary expenses are for operating supply costs, repair and maintenance expenditures, cost of purchased coal, royalties, current wages and benefits, post-employment benefits, freight and handling costs, and taxes incurred in selling our coal. Historically, our cost of coal sales per ton is lower for sales of our produced and processed coal than for sales of purchased coal that we do not process prior to resale.

We have two reportable segments, Eastern Coal Operations and Western Coal Operations. Eastern Coal Operations consists of our operations in Northern and Central Appalachia 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

The global seaborne metallurgical coal market has been recently characterized by excess supply, weak demand and falling prices which, based on spot market transactions, are estimated to be below production costs for a portion of the world's supply. This market weakness, which is expected to continue into the fourth quarter of 2012, has driven a rapid supply response, and producers in the U.S., Australia and elsewhere have curtailed an estimated 20 to 30 million tons of annualized production. Taken together with renewed expectations of increasing infrastructure spending in China, this recent supply response is anticipated to restore the market to a more balanced supply/demand picture in the near-term. We have responded to the deterioration in market conditions, reducing our production of lower quality metallurgical coal by three to four million tons on

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an annual run-rate basis through a series of cutbacks announced throughout 2012. When the market rebounds from its recent weakness, we have the capability to increase our metallurgical coal shipments to take advantage of opportunities in this highly cyclical market.

The thermal market in the United States has rebounded from levels in the Spring of 2012 when coal reached its lowest proportional level of electricity generation in four decades, and nationwide utility inventories peaked at an estimated 213 million tons due to the combined and inter-related forces of weak winter burn and natural gas prices that were briefly below $2 per thousand cubic feet ("MCF"). However, the improvement has been gradual, and inventories remain elevated, falling to 191 million tons by the end of September 2012, a level still well above historical averages. Despite the inventory drawdown, an improvement in coal's share of electricity generation, and the expectation of increased natural gas prices in 2013, the domestic market for steam coal currently remains weak. Requests for shipment deferrals have become commonplace in all regions. The Energy Information Administration ("EIA") 2012 Annual Energy Outlook forecasts that coal-fired electrical generation will decrease by an average annual rate of 3.1% through 2015. The EIA estimates that electric power generation from coal decreased by 9.2% in the third quarter of 2012 compared to the same period in 2011 as low natural gas prices, increased environmental regulation, and other factors weighed on coal-fired generation. Based on weekly coal production reporting through September 30, 2012 from the EIA, year-over-year Appalachian production decreased by approximately 8.5% and western coal production decreased by approximately 5.8% in the first nine months of 2012. In light of this market environment, we announced plans in September to curtail production in the Powder River Basin (PRB) and Central Appalachia. In the PRB, we plan to ship only those tons that are currently committed and priced and provide acceptable profit levels until the market comes back into balance. In Central Appalachia, where we believe steam coal demand has been structurally reduced due to plant retirements, competition from natural gas and coal supplied from other basins, we are idling high cost thermal coal production to create a sustainable thermal coal business that can profitably dispatch throughout the business cycle.

In terms of exports, the U.S. is on pace for a record year of export volumes for both steam and metallurgical coal, with the majority of the export growth coming from steam coal. However, weak demand and ample supply have resulted in lower seaborne prices, and, as expected, U.S. exports have slowed since mid-year 2012 in the face of these cyclical market headwinds. Looking past the current market downturn, seaborne demand for both metallurgical and thermal coal is expected to grow in 2013 and beyond. We are well-positioned to take advantage of future growth in the seaborne market with more export terminal capacity than any other U.S. producer, at approximately 25 million to 30 million tons of potential annual throughput, and we are on pace to more than double thermal exports in 2012 to approximately five million tons. We will seek to expand our export thermal business while ensuring that we have sufficient capacity to take advantage of the relatively higher-margin export opportunities for our metallurgical coal, where we already rank third globally in annual shipment volumes.

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 base load sources of electric power, geopolitical risks associated with importing large quantities of global oil, increasing demand for coal outside the U.S. resulting in increased exports, and the relatively abundant steam coal reserves located within the United States. In this environment, we will continue to assess expected demand and adjust our thermal coal production accordingly.

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

Results of Operations

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:

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	Three Months Ended September 30,						Nine Months Ended September 30,
	2012			2011			2012			2011
	(in thousands)						(in thousands)
Net income (loss)	$	(46,146	)	$	62,604		$	(2,309,568	)	$	62,384
Interest expense	47,345			49,148			139,313			94,726
Interest income	(1,328		)	(930		)	(3,749		)	(2,987		)
Income tax expense (benefit)	(83,182		)	(3,225		)	(576,765		)	2,244
Depreciation, depletion and amortization	238,894			249,253			797,516			485,002
Amortization of acquired intangibles, net	(11,682		)	(80,618		)	(64,480		)	(63,563		)
EBITDA	$	143,901		$	276,232		$	(2,017,733	)	$	577,806

Three Months Ended September 30, 2012 Compared to the Three Months Ended September 30, 2011

Summary

Total revenues decreased $674.9 million, or 29%, for the three months ended September 30, 2012 compared to the prior year period. The decrease in total revenues was due to decreased coal revenues of $542.2 million, decreased freight and handling revenues of $59.4 million and decreased other revenues of $73.3 million. The decrease in coal revenues was due primarily to lower coal sales volumes and lower coal sales realization per ton for metallurgical and eastern steam coal. The decrease in coal revenues consisted of decreased steam coal revenues of $179.7 million and decreased metallurgical coal revenues of $362.5 million. The decrease in freight and handling revenues was due primarily to decreased freight rates and decreased export shipments. The decrease in other revenues was due primarily to derivative contracts accounted for at fair value, partially offset by contractual settlement-related revenues.

Net loss increased $108.7 million for the three months ended September 30, 2012 compared to the prior year period. The increase was largely due to decreased coal and other revenues discussed above, and restructuring and asset impairment charges of $13.7 million, partially offset by decreased certain operating costs and expenses, which are described below, of $433.0 million, decreased other expense, net of $7.5 million and increased tax benefits of $80.0 million.

The decrease in certain operating costs and expenses of $433.0 million consisted of decreased cost of coal sales of $424.7 million, or 25%, decreased selling, general and administrative expenses of $26.0 million, or 34%, decreased other expenses of $40.9 million, or 75%, decreased depreciation, depletion and amortization expenses of $10.3 million, partially offset by decreased credits to expense for amortization of acquired intangibles, net of $68.9 million.

The decrease in cost of coal sales was due primarily to decreased supplies and maintenance expenses, decreased purchased coal expenses, decreased merger-related expenses and decreased sales-related variable costs associated with decreased coal revenues and decreased expenses related to production curtailments at certain of our eastern mines that were announced during the three and nine months ending September 30, 2012, partially offset by increased costs related to regulatory compliance, including the impacts of MSHA and environmental compliance. Cost of coal sales for the three months ended September 30, 2012 included a benefit of approximately $1.5 million related to a closed mine. Comparatively, the same period in 2011 included approximately $10.6 million of expenses related to a closed mine and approximately $62.6 million of merger-related expenses related to severance and stock compensation expenses and the fair value adjustments made in acquisition accounting to Massey's beginning inventory.

The decrease in selling, general and administrative expenses was due primarily to decreased stock compensation expense, decreased merger-related expenses and decreased professional fees. Selling, general and administrative expenses for the three months ended September 30, 2012 included approximately $0.9 million of expenses related primarily to professional fees. The same period in 2011 included approximately $8.6 million of expenses related primarily to professional fees and severance.

The decrease in depreciation, depletion and amortization expenses was primarily due to decreased depletion expense as a result of lower coal production and decreased depreciation for property, plant and equipment, partially offset by increased amortization of asset retirement obligation assets. The decrease in credits to expense for amortization of acquired intangibles, net, was primarily due to lower amortization of below-market contracts assumed in the Massey Acquisition.

Coal sales volumes decreased 3.3 million tons, or 10% compared to the prior year period. The decrease in coal sales

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volumes was due to decreases of 2.9 million and 1.0 million tons of eastern steam and metallurgical coal, respectively, partially offset by an increase of 0.6 million tons of western steam coal. The decrease in eastern steam and metallurgical coal was due primarily to decreased demand.

The consolidated average coal sales realization per ton for the three months ended September 30, 2012 was $52.12 compared to $64.08 in the prior year period, a decrease of $11.96 per ton, or 19%. The decrease was largely attributable to a decrease of $38.53 per ton, or 23%, in metallurgical average coal sales realization per ton, and a higher proportion of western steam coal in the average during the third quarter of 2012. The average coal sales realization per ton for metallurgical coal and eastern steam coal was $129.96 and $66.40, respectively, for the three months ended September 30, 2012 compared to $168.49 and $67.07 in the prior year period. The average coal sales realization per ton for western steam coal was $12.87 for the three months ended September 30, 2012 compared to $11.98 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 September 30, 2012 compared to 17% in the prior year period. Coal margin percentage for our Eastern and Western Coal Operations was 13% and 27%, respectively, for the three months ended September 30, 2012 compared to 17% and 14% 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 $7.73 for the three months ended September 30, 2012 compared to $10.76 in the prior year period. Coal margin per ton for our Eastern and Western Coal Operations was $11.56 and $3.47, respectively, for the three months ended September 30, 2012 compared to $16.90 and $1.64 in the prior year period.



	Three Months Ended September 30,				Increase (Decrease)
	2012		2011		$ or Tons			%
	(in thousands, except per ton data)
Revenues:
Coal revenues:
Eastern steam	$	653,948	$	853,361	$	(199,413	)	(23	)%
Western steam	170,160		150,483		19,677			13	%
Metallurgical	631,594		994,089		(362,495		)	(36	)%
Freight and handling revenues	154,450		213,834		(59,384		)	(28	)%
Other revenues	23,657		96,986		(73,329		)	(76	)%
Total revenues	$	1,633,809	$	2,308,753	$	(674,944	)	(29	)%
Tons sold :
Eastern steam	9,849		12,723		(2,874		)	(23	)%
Western steam	13,219		12,556		663			5	%
Metallurgical	4,860		5,900		(1,040		)	(18	)%
Total	27,928		31,179		(3,251		)	(10	)%
Coal sales realization per ton:
Eastern steam	$	66.40	$	67.07	$	(0.67	)	(1	)%
Western steam	$	12.87	$	11.98	$	0.89		7	%
Metallurgical	$	129.96	$	168.49	$	(38.53	)	(23	)%
Average	$	52.12	$	64.08	$	(11.96	)	(19	)%

Coal revenues. Coal revenues decreased $542.2 million, or 27%, for the three months ended September 30, 2012 compared to the prior year period. The decrease in coal revenues consisted of decreased eastern steam and metallurgical coal revenues, partially offset by increased western steam revenues.

The decrease in eastern steam and metallurgical coal revenues was largely due to fewer coal shipments as a result of decreased demand and lower metallurgical coal sales realization per ton. Total eastern steam coal shipments decreased 2.9 million tons, which consisted of decreased domestic shipments of 3.6 million tons, or 30%, partially offset by increased export shipments of 0.7 million tons, or 168%, compared to the prior year period. Total eastern steam coal revenues decreased $199.4 million, or 23%, which consisted of decreased domestic coal revenues of $249.4 million, or 30%, partially offset by increased

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export coal revenues of $50.0 million, or 189%, compared to the prior year period.

Metallurgical coal shipments decreased 1.0 million tons, which consisted of decreased export shipments of 0.8 million tons, or 18%, and decreased domestic shipments of 0.2 million tons, or 17%, compared to the prior year period. Total metallurgical coal revenues decreased $362.5 million, or 36%, which consisted of decreased export coal revenues of $338.4 million, or 44%, and decreased domestic coal revenues of $24.1 million, or 11%, compared to the prior year period.

The increase in western steam coal revenues was due to increased coal shipments and an increase of $0.89, or 7%, in average coal sales realization. Western coal sales volumes increased 0.7 million tons 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 September 30, 2012 compared with 19% and 81% 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 September 30, 2012 compared with 50% in each case in the prior year period.

Freight and handling. Freight and handling revenues and costs were $154.5 million for the three months ended September 30, 2012, a decrease of $59.4 million, or 28%, compared to the prior year period. The decrease was primarily due to decreased export volumes and decreased rates compared to the prior year period.

Other. Other revenues decreased $73.3 million, or 76%, and other expenses decreased $40.9 million, or 75%, for the three months ended September 30, 2012 compared to the prior year period resulting in a net decrease to income from operations of $32.4 million. The decrease was due primarily to decreased mark-to-market gains for derivative contracts accounted for at fair value, partially offset by increased contractual settlement related income.



	Three Months Ended September 30,						Increase (Decrease)
	2012			2011			$ or Tons			%
	(in thousands, except per ton data)
Cost of coal sales (exclusive of items shown separately below)	$	1,259,174		$	1,683,902		$	(424,728	)	(25	)%
Freight and handling costs	154,450			213,834			(59,384		)	(28	)%
Other expenses	13,357			54,239			(40,882		)	(75	)%
Depreciation, depletion and amortization	238,894			249,253			(10,359		)	(4	)%
Amortization of acquired intangibles, net	(11,682		)	(80,618		)	68,936			(86	)%
Selling, general and administrative expenses (exclusive of depreciation, depletion and amortization shown separately above)	49,604			75,643			(26,039		)	(34	)%
Asset impairment and restructuring	13,676			—			13,676			NM
Total costs and expenses	$	1,717,473		$	2,196,253		$	(478,780	)	(22	)%
Cost of coal sales per ton:¹
Eastern coal operations	$	75.84		$	82.30		$	(6.46	)	(8	)%
Western coal operations	$	9.40		$	10.34		$	(0.94	)	(9	)%
Average	$	44.39		$	53.32		$	(8.93	)	(17	)%

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 decreased $424.7 million, or 25%, for the three months ended September 30, 2012 compared to the prior year period. The decrease in cost of coal sales was due primarily to decreased supplies and maintenance expenses, decreased purchased coal expenses, decreased merger-related expenses and decreased sales-related variable costs associated with decreased coal revenues and decreased expenses related to production curtailments at certain of our eastern mines that were announced during the three and nine months ending September 30, 2012, partially offset by increased costs related to regulatory compliance, including the impacts of MSHA and environmental compliance. Cost of coal sales for the three months ended September 30, 2012 included a benefit of approximately $1.5 million related to a closed mine. The same period in 2011 included approximately $10.6 million of expenses related to a closed mine and approximately $62.6 million of merger-related expenses related to severance and stock compensation expenses and the fair value adjustments made in acquisition accounting to Massey's beginning inventory.

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Depreciation, depletion and amortization. Depreciation, depletion, and amortization decreased $10.3 million, or 4%, for the three months ended September 30, 2012 compared to the prior year period. The decrease was primarily due to decreased depletion expense due to lower coal production and decreased depreciation for property, plant and equipment, partially offset by increased amortization of asset retirement obligation assets.

Amortization of acquired intangibles, net. Amortization of acquired intangibles, net decreased $68.9 million, or 86%, for the three months ended September 30, 2012 compared to the prior year period. The decrease in credits to expense for amortization of acquired intangibles, net, was primarily due to lower amortization of below-market contracts assumed in the Massey Acquisition.

Selling, general and administrative expenses. Selling, general and administrative expenses decreased $26.0 million, or 34%, for the three months ended September 30, 2012 compared to the prior year period. The decrease in selling, general and administrative expenses was due primarily to decreased stock compensation expense, decreased merger-related expenses and decreased professional fees. Selling, general and administrative expenses for the three months ended September 30, 2012 included approximately $0.9 million of merger-related expenses related primarily to professional fees. The same period in 2011 included approximately $8.6 million of merger-related expenses related primarily to professional fees and severance.

Asset impairment and restructuring. Asset impairment and restructuring expenses were $13.7 million for the three months ended September 30, 2012 and consisted primarily of severance and benefits and professional fees.

Interest expense. Interest expense decreased $1.8 million, or 4%, during the three months ended September 30, 2012 compared to the prior year period.

Income taxes. Income tax benefit of $83.2 million was recorded for the three months ended September 30, 2012 on a loss before income taxes of $129.3 million. The benefit rate is higher than the federal statutory rate of 35% primarily due to the impact of the percentage depletion allowance and state taxes.

Income tax benefit of $3.2 million was recorded for the three months ended September 30, 2011 on income before income taxes of $59.4 million. The rate is lower than the federal statutory rate of 35% primarily due to the impact of the percentage depletion allowance.

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.

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	Three Months Ended September 30,				Increase (Decrease)
	2012		2011		$ or Tons			%
	(in thousands, except per ton data)
Western Coal Operations
Steam tons sold	13,219		12,556		663			5	%
Steam coal sales realization per ton	$	12.87	$	11.98	$	0.89		7	%
Total revenues	$	171,982	$	151,617	$	20,365		13	%
EBITDA	$	42,305	$	14,081	$	28,224		200	%
Eastern Coal Operations
Steam tons sold	9,849		12,723		(2,874		)	(23	)%
Metallurgical tons sold	4,860		5,900		(1,040		)	(18	)%
Steam coal sales realization per ton	$	66.40	$	67.07	$	(0.67	)	(1	)%
Metallurgical coal sales realization per ton	$	129.96	$	168.49	$	(38.53	)	(23	)%
Total revenues	$	1,446,374	$	2,134,246	$	(687,872	)	(32	)%
EBITDA	$	123,544	$	274,801	$	(151,257	)	(55	)%

Western Coal Operations - EBITDA increased $28.2 million for the three months ended September 30, 2012 compared to the prior year period. The increase in EBITDA was due primarily to increased coal and other revenues of $20.4 million, or 13%, decreased cost of coal sales of $5.6 million, or 4%, and decreased selling, general and administrative expenses of $2.7 million, or 39%.

The increase in coal and other revenues consisted of increased coal revenues of $19.7 million, or 13%, and increased other revenues of $0.7 million. The increase in coal revenues was due to increased coal shipments and higher average coal sales realization per ton compared to the prior year period.

The decrease in cost of coal sales was primarily due to decreased supplies and maintenance costs and outside services, partially offset by increased sales-related variable costs due to the increase in coal revenues. Cost of coal sales per ton decreased $0.94, or 9%, while average coal sales realization per ton increased $0.89, or 7%, resulting in an increase to coal margin per ton of $1.83, or 111%. The decrease in cost of coal sales per ton is primarily attributable to higher shipment volumes and decreased overburden movement due to revised near-term production outlook.

Eastern Coal Operations - EBITDA decreased $151.3 million for the three months ended September 30, 2012 compared to the prior year period. The decrease in EBITDA was largely due to decreased coal and other revenues of $628.7 million, and asset impairment and restructuring expenses of $5.0 million, partially offset by decreased cost of coal sales of $417.1 million, decreased other expense of $39.7 million, decreased selling general and administrative expenses of $21.5 million and decreased loss on early extinguishment of debt of $4.5 million.

The decrease in coal and other revenues consisted of decreased coal revenues of $561.9 million, or 30%, and decreased other revenues of $66.8 million, or 91% . The decrease in coal revenues consisted of decreased steam and metallurgical coal revenues. The decrease in other revenues was due primarily to derivative contracts accounted for at fair value offset by contractual settlement-related revenues.

The decrease in eastern steam coal revenues was largely due to decreased tons shipped as a result of decreased demand and lower average coal sales realizations per ton. Total eastern steam coal shipments decreased 2.9 million tons, which consisted of decreased domestic shipments of 3.6 million tons, or 30%, partially offset by increased export shipments of 0.7 million tons, or 168%, compared to the prior year period. Total eastern steam coal revenues decreased $199.4 million, or 23%, which consisted of decreased domestic coal revenues of $249.4 million, or 30%, partially offset by increased export coal revenues of $50.0 million, or 189%, compared to the prior year period. Coal sales realization per ton for eastern steam export sales was $62.01 per ton compared to $57.60 per ton in the prior year period and coal sales realization per ton for eastern steam domestic sales was $67.02 per ton compared to $67.43 per ton in the prior year period.

The decrease in eastern metallurgical coal revenues was largely due to decreased tons shipped due to decreased demand and lower coal sales realizations on export coal sales. Total eastern metallurgical coal shipments decreased 1.0 million tons, which consisted of decreased export shipments of 0.8 million tons, or 18%, and decreased domestic shipments of 0.2 million tons, or 17%, compared to the prior year period. Total eastern metallurgical coal revenues decreased $362.5 million, or 36%,

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which consisted of decreased export metallurgical coal revenues of $338.4 million, or 44%, and decreased domestic metallurgical coal revenues of $24.1 million, or 11%, compared to the prior year period. Coal sales realization per ton for eastern metallurgical export sales was $118.61 per ton compared to $174.39 per ton in the prior year period and coal sales realization per ton for eastern metallurgical domestic sales was $162.64 per ton compared to $151.27 per ton in the prior year period.

Average coal sales realization per ton decreased $11.80, or 12%, while cost of coal sales per ton decreased $6.46, or 8%, resulting in a decrease to coal margin per ton of $5.34, or 32%. The decrease in average coal sales realization per ton was due primarily to a decrease in metallurgical coal sales realization per ton. The decrease in cost of coal sales per ton was due primarily to lower volumes of purchased coal, a higher mix of steam coal in the average compared to the prior year period and the impact of cost control efforts.

Nine Months Ended September 30, 2012 Compared to the Nine Months Ended September 30, 2011

Summary

Total revenues increased $379.0 million, or 8%, for the nine months ended September 30, 2012 compared to the prior year period. The increase in total revenues was due to increased coal revenues of $264.7 million, increased freight and handling revenues of $116.4 million, partially offset by decreased other revenues of $2.1 million. The increase in coal revenues was due primarily to the inclusion of the Massey operations for the full nine month period in 2012. The increase in coal revenues consisted of increased steam coal revenues of $480.8 million, partially offset by decreased metallurgical coal revenues of $216.1 million. The increase in freight and handling revenues was due primarily to increased average freight rates and increased export shipments. The decrease in other revenues was due primarily to derivative contracts accounted for at fair value offset by increased contractual settlement-related revenues.

Net loss increased $2,372.0 million for the nine months ended September 30, 2012 compared to the prior year period. The increase was largely due to goodwill impairment expense of $1,525.3 million, asset impairment and restructuring expense of $1,028.6 million, increased certain operating costs and expenses, which are described below, of $626.9 million, and increased other expense, net of $32.8 million, partially offset by changes in coal and other revenues discussed above and increased tax benefits of $579.0 million.

The increase in certain operating costs and expenses of $626.9 million consisted of increased cost of coal sales of $555.1 million, or 16%, increased depreciation, depletion and amortization expenses of $312.5 million, or 64%, partially offset by decreased selling, general and administrative expenses of $172.0 million, or 52%, decreased other expenses of $67.8 million, or 61%, and increased credits to expense for amortization of acquired intangibles, net of $0.9 million.

The increase in cost of coal sales was due primarily to the inclusion of the Massey operations for the full nine month period in 2012 and increased costs related to regulatory compliance, including the impacts of MSHA and environmental compliance, partially offset by decreased purchased coal expenses and decreased merger-related expenses. Cost of coal sales for the nine months ended September 30, 2012 included approximately $25.7 million of expenses related to a closed mine and approximately $34.2 million of merger-related expenses primarily related to contract matters. Comparatively, cost of coal sales for the nine months ended September 30, 2011 included approximately $16.4 million of expenses related to a closed mine and approximately $180.3 million of merger-related expenses related to severance and stock compensation expenses and the fair value adjustments made in acquisition accounting to Massey's beginning inventory.

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 decreased primarily due to decreased stock compensation expenses associated with performance-based awards and decreased merger-related expenses incurred in the first nine months of 2011 in

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connection with the acquisition of Massey for professional fees, advisory services and severance and stock compensation expenses.

Coal sales volumes increased 7.7 million, or 10%, for the nine months ended September 30, 2012 compared to the prior year period. The increase in coal sales volumes was due to increases of 7.1 million and 1.5 million tons of eastern steam and metallurgical coal, respectively, and a decrease of 0.9 million tons of western steam coal. The increase in eastern steam and metallurgical coal was due primarily to the inclusion of the Massey operations for the full nine month period in 2012.

The consolidated average coal sales realization per ton for the nine months ended September 30, 2012 was $56.24 compared to $58.46 in the prior year period, a decrease of $2.22 per ton, or 4%. The decrease was largely attributable to a decrease of $29.75 per ton, or 18%, in metallurgical average coal sales realization per ton. The average coal sales realization per ton for metallurgical coal and eastern steam coal was $134.15 and $66.32, respectively, for the nine months ended September 30, 2012 compared to $163.90 and $66.91 in the prior year period. The average coal sales realization per ton for western steam coal was $12.92 compared to $11.94 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 14% for the nine months ended September 30, 2012 compared to 21% in the prior year period. Coal margin percentage for our Eastern and Western Coal Operations was 13% and 20%, respectively, for the nine months ended September 30, 2012 compared to 21% and 15% 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 $7.70 for the nine months ended September 30, 2012 compared to $12.16 in the prior year period. Coal margin per ton for our Eastern and Western Coal Operations was $11.49 and $2.53, respectively, for the nine months ended September 30, 2012 compared to $21.76 and $1.74 in the prior year period.



	Nine Months Ended September 30,				Increase (Decrease)
	2012		2011		$ or Tons			%
	(in thousands, except per ton data)
Revenues:
Coal revenues:
Eastern steam	$	2,146,788	$	1,689,802	$	456,986		27	%
Western steam	454,334		430,485		23,849			6	%
Metallurgical	2,059,419		2,275,516		(216,097		)	(9	)%
Freight and handling revenues	597,157		480,760		116,397			24	%
Other revenues	158,833		160,966		(2,133		)	(1	)%
Total revenues	$	5,416,531	$	5,037,529	$	379,002		8	%
Tons sold :
Eastern steam	32,368		25,255		7,113			28	%
Western steam	35,152		36,054		(902		)	(3	)%
Metallurgical	15,353		13,883		1,470			11	%
Total	82,873		75,192		7,681			10	%
Coal sales realization per ton:
Eastern steam	$	66.32	$	66.91	$	(0.59	)	(1	)%
Western steam	$	12.92	$	11.94	$	0.98		8	%
Metallurgical	$	134.15	$	163.90	$	(29.75	)	(18	)%
Average	$	56.24	$	58.46	$	(2.22	)	(4	)%

Coal revenues. Coal revenues increased $264.7 million, or 6%, for the nine months ended September 30, 2012 compared to the prior year period. The increase in coal revenues consisted of increased eastern and western steam coal revenues, partially offset by decreased metallurgical coal revenues.

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eastern steam coal shipments increased 7.1 million tons, which consisted of increased export shipments of 3.1 million tons, or 227%, and increased domestic shipments of 4.0 million tons, or 17%, compared to the prior year period. Total eastern steam coal revenues increased $457.0 million, or 27%, which consisted of increased export coal revenues of $195.0 million, or 239%, and increased domestic coal revenues of $262.0 million, or 16%, compared to the prior year period.

The decrease in metallurgical coal revenues was largely due to lower average coal sales realizations per ton. Metallurgical coal shipments increased 1.5 million tons, which consisted of increased export shipments of 1.3 million tons, or 13%, and increased domestic shipments of 0.2 million tons, or 4%, compared to the prior year period. Total metallurgical coal revenues decreased $216.1 million, or 9%, which consisted of decreased export metallurgical coal revenues of $265.7 million, or 15%, partially offset by increased domestic metallurgical coal revenues of $49.6 million, or 9%, compared to the prior year period.

The increase in western steam coal revenues was due to an increase of $0.98, or 8%, in average coal sales realization. Western coal sales volumes decreased 0.9 million tons compared to the prior year period.

Our sales mix of metallurgical coal and steam coal based on volume was 19% and 81%, respectively, for the nine months ended September 30, 2012 compared with 18% and 82% in the prior year period. Our sales mix of metallurgical coal and steam coal based on coal revenues was 44% and 56%, respectively, for the nine months ended September 30, 2012 compared with 52% and 48% in the prior year period.

Freight and handling. Freight and handling revenues and costs were $597.2 million for the nine months ended September 30, 2012, an increase of $116.4 million, or 24%, compared to the prior year period. The increase was primarily due to increased export volumes and increased average freight rates compared to the prior year period.

Other. Other revenues decreased $2.1 million and other expenses decreased $67.8 million, or 61%, for the nine months ended September 30, 2012 compared to the prior year period resulting in a net increase to income from operations of $65.7 million. The increase was due primarily to increased contractual settlement related income of $95.6 million, partially offset by decreased mark-to-market gains of $45.3 million for derivative contracts accounted for at fair value.



	Nine Months Ended September 30,						Increase (Decrease)
	2012			2011			$ or Tons			%
	(in thousands, except per ton data)
Cost of coal sales (exclusive of items shown separately below)	$	4,080,964		$	3,525,886		$	555,078		16	%
Freight and handling costs	597,157			480,760			116,397			24	%
Other expenses	43,194			111,045			(67,851		)	(61	)%
Depreciation, depletion and amortization	797,516			485,002			312,514			64	%
Amortization of acquired intangibles, net	(64,480		)	(63,563		)	(917		)	1	%
Selling, general and administrative expenses (exclusive of depreciation, depletion and amortization shown separately above)	160,626			332,598			(171,972		)	(52	)%
Asset impairment and restructuring	1,028,610			—			1,028,610			NM
Goodwill impairment	1,525,332			—			1,525,332			NM
Total costs and expenses	$	8,168,919		$	4,871,728		$	3,297,191		68	%
Cost of coal sales per ton:¹
Eastern coal operations	$	76.65		$	79.56		$	(2.91	)	(4	)%
Western coal operations	$	10.39		$	10.2		$	0.19		2	%
Average	$	48.54		$	46.3		$	2.24		5	%

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 $555.1 million, or 16%, for the nine months ended September 30, 2012 compared to the prior year period. The increase in cost of coal sales was primarily related to the inclusion of the Massey operations for the full nine month period in 2012, and increased costs related to regulatory compliance, including the impacts of MSHA and environmental compliance, partially offset by decreased purchased coal expenses and decreased merger-related

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expenses. Cost of coal sales for the nine months ended September 30, 2012 included approximately $25.7 million of expenses related to a closed mine and approximately $34.2 million of merger-related expenses primarily related to contract matters. Cost of coal sales for the nine months ended September 30, 2011 included approximately $16.4 million of expenses related to a closed mine, approximately $180.3 million of merger-related expenses related to severance and stock compensation expenses and the fair value adjustments made in acquisition accounting to Massey's beginning inventory.

Depreciation, depletion and amortization. Depreciation, depletion, and amortization increased $312.5 million, or 64%, for the nine months ended September 30, 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 increased $0.9 million for the nine months ended September 30, 2012 compared to the prior year period.

Selling, general and administrative expenses. Selling, general and administrative expenses decreased $172.0 million, or 52%, for the nine months ended September 30, 2012 compared to the prior year period. Selling, general and administrative expenses decreased primarily due to decreased stock compensation expenses associated with performance-based awards and decreased merger-related expenses incurred in the first nine months of 2011 in connection with the Massey Acquisition for professional fees, advisory services and severance and stock compensation expenses. For the nine months ended September 30, 2012, selling, general and administrative expenses included approximately $11.2 million in merger-related expenses primarily related to professional fees and severance. The same period in 2011 included approximately $155.5 million in merger-related expenses primarily related to professional fees for legal and transaction services, severance and stock compensation, and bridge loan fees incurred in connection with the Massey Acquisition.

Asset impairment and restructuring. See Note 3 to the Condensed Consolidated Financial Statements included elsewhere in this Quarterly Report on Form 10-Q. Also, see Critical Accounting Policies.

Goodwill impairment. See Note 4 to the Condensed Consolidated Financial Statements included elsewhere in this Quarterly Report on Form 10-Q. Also, see Critical Accounting Policies.

Interest expense. Interest expense increased $44.6 million, or 47%, during the nine months ended September 30, 2012 compared to the prior year period due primarily 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 $576.8 million was recorded for the nine months ended September 30, 2012 on a loss before income taxes of $2,886.3 million. The benefit rate is lower than the federal statutory rate of 35% primarily due to the impact of the non-deductible goodwill impairment and changes to the valuation allowance, partially offset by the impact of the percentage depletion allowance and state taxes.

Income tax expense of $2.2 million was recorded for the nine months ended September 30, 2011 on income before income taxes of $64.6 million. The rate is lower than the federal statutory rate of 35% primarily due to the impact of the percentage depletion allowance, partially offset by non-deductible acquisition costs.

Segment Analysis

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	Nine Months Ended September 30,					Increase (Decrease)
	2012			2011		$ or Tons			%
	(in thousands, except per ton data)
Western Coal Operations
Steam tons sold	35,152			36,054		(902		)	(3	)%
Steam coal sales realization per ton	$	12.92		$	11.94	$	0.98		8	%
Total revenues	$	459,320		$	434,846	$	24,474		6	%
EBITDA	$	25,616		$	45,757	$	(20,141	)	(44	)%
Eastern Coal Operations
Steam tons sold	32,368			25,255		7,113			28	%
Metallurgical tons sold	15,353			13,883		1,470			11	%
Steam coal sales realization per ton	$	66.32		$	66.91	$	(0.59	)	(1	)%
Metallurgical coal sales realization per ton	$	134.15		$	163.90	$	(29.75	)	(18	)%
Total revenues	$	4,899,430		$	4,545,854	$	353,576		8	%
EBITDA	$	(1,978,561	)	$	728,248	$	(2,706,809	)	(372	)%

Western Coal Operations - EBITDA decreased $20.1 million for the nine months ended September 30, 2012 compared to the prior year period. The decrease in EBITDA was due primarily to goodwill impairment expense of $53.3 million, partially offset by increased coal and other revenues of $24.5 million, decreased selling, general and administrative expenses of $7.6 million and decreased cost of coal sales of $2.6 million.

The increase in coal and other revenues consisted of increased coal revenues of $23.8 million, or 6%, and increased other revenues of $0.7 million. The increase in coal revenues was due to higher average coal sales realization per ton compared to the prior year period. Tons shipped decreased 0.9 million, or 3%, compared to the prior year period.

Eastern Coal Operations - EBITDA decreased $2,706.8 million for the nine months ended September 30, 2012 compared to the prior year period. The decrease in EBITDA was largely due to goodwill impairment expense of $1,472.0 million, asset impairment and restructuring expenses of $1,005.9 million, and increased cost of coal sales of $544.1 million, partially offset by increased coal and other revenues of $242.7 million and decreased other expense of $70.6 million.

The increase in coal and other revenues consisted of increased coal revenues of $240.9 million and increased other revenues of $1.8 million. The increase in coal revenues consisted of increased steam coal revenues of $457.0 million, partially offset by decreased metallurgical coal revenues of $216.1. The increase in other revenues was due primarily to increased contractual settlement related income, partially offset by decreased mark-to-market gains for derivative contracts accounted for at fair value.

The increase in eastern steam coal revenues was largely due to increased tons shipped due to the inclusion of the Massey operations for the full nine month period in 2012, partially offset by slightly lower average coal sales realizations per ton. Total eastern steam coal shipments increased 7.1 million tons, or 28%, which consisted of increased export shipments of 3.1 million tons, or 227%, and increased domestic shipments of 4.0 million tons, or 17%, compared to the prior year period. Total eastern steam coal revenues increased $457.0 million, or 27%, which consisted of increased export coal revenues of $195.0 million, or 239%, and increased domestic coal revenues of $262.0 million, or 16%, compared to the prior year period. Coal sales realization per ton for eastern steam export sales was $61.43 per ton compared to $59.22 per ton in the prior year period and coal sales realization per ton for eastern steam domestic sales was $67.11 per ton compared to $67.35 per ton in the prior year period.

The decrease in eastern metallurgical coal revenues was largely due to lower coal sales realizations on export coal sales. Total eastern metallurgical coal shipments increased 1.5 million tons, which consisted of increased export shipments of 1.3 million tons, or 13%, and increased domestic shipments of 0.2 million tons, or 4%, compared to the prior year period. Total eastern metallurgical coal revenues decreased $216.1 million, or 9%, which consisted of decreased export metallurgical coal

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revenues of $265.7 million, or 15%, partially offset by increased domestic metallurgical coal revenues of $49.6 million, or 9%, compared to the prior year period. Coal sales realization per ton for eastern metallurgical export sales was $126.42 per ton compared to $167.98 per ton in the prior year period and coal sales realization per ton for eastern metallurgical domestic sales was $159.02 per ton compared to $151.73 per ton in the prior year period.

The increase in cost of coal sales was primarily related to the inclusion of the Massey operations for the full nine month period in 2012, increased costs related to regulatory compliance, including the impacts of MSHA and environmental compliance, partially offset by decreased purchased coal expenses and decreased merger-related expenses. Cost of coal sales for the nine months ended September 30, 2012 included approximately $25.7 million of expenses related to a closed mine and approximately $34.2 million of merger-related expenses primarily related to contract matters. Comparatively, cost of coal sales for the nine months ended September 30, 2011 included approximately $16.7 million of expenses related to a closed mine and approximately $180.3 million of merger-related expenses related to severance and stock compensation expenses and the fair value adjustments made in acquisition accounting to Massey's beginning inventory.

Average coal sales realization per ton decreased $13.18, or 13%, while cost of coal sales per ton decreased $2.91, resulting in a decrease to coal margin per ton of $10.27, or 47%. The decrease in average coal sales realization per ton was due primarily to a decrease in metallurgical coal sales realization per ton. The decrease in cost of coal sales per ton was due primarily to lower volumes of purchased coal and the impact of general cost control efforts.

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 securities repurchases. Our primary sources of liquidity have been from sales of coal, 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 Third Amended and Restated Credit Agreement (the "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 securities repurchases, and expected settlements and costs related to outstanding litigation for at least the next twelve months.

At September 30, 2012, we had total liquidity of $1,609.6 million, including cash and cash equivalents of $342.2 million, marketable securities of $208.0 million and $1,059.4 million of unused commitments available under our Credit Agreement's revolving credit facility and our A/R Facility, after giving effect to $0.3 million and $160.2 million of letters of credit outstanding, respectively, as of September 30, 2012, subject to limitations described in our Credit Agreement and the A/R Facility. Our total long-term debt, including debt discount, was $2,993.1 million at September 30, 2012. For a discussion of actions taken in October, 2012, see "Long-Term Debt."

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 6.00% senior notes due 2019 and our 6.25% senior notes due 2021, and lowered its rating of our 2.375% convertible senior notes due 2015 (the "2.375% Convertible Notes"). On June 27, 2012, Moody's lowered our corporate family rating from Ba2 to B1 and also lowered the ratings on our senior unsecured debt from Ba3 to B2. Additionally, on September 27, 2012 Standard & Poor's rating service lowered its rating for our overall corporate credit to B+ from BB-. Given that we do not have negative ratings triggers in our credit facilities or bond indentures, availability of funds under these facilities has not been impacted by these downgrades.

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 were 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

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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 of approximately $0.5 million for our defined benefit pension plans.

In September 2011, we entered into a federal coal lease, which contains an estimated 130.2 million tons of proven and probable coal reserves in the Powder River Basin. The lease bid was $143.4 million, payable in five equal annual installments of $28.7 million. The first installment was paid in September 2011. In August 2012, we entered into an agreement with a third party to exchange our federal coal lease for another federal coal lease, which contains an estimated 222.0 million tons of proven and probable coal reserves in the Powder River Basin adjacent to our existing mining operations. As a result of the exchange, we paid $17.4 million at closing and have four annual remaining lease bid installments of $42.1 million due each November until the obligation is satisfied in 2015. Also, as a result of the exchange, we recorded a note payable which had a present value of approximately $14.0 million as of September 30, 2012, of which approximately $3.9 is included in current portion of long-term debt and approximately $10.1 million is included in long-term debt on our consolidated balance sheet. This note is payable in four annual installments of $3.9 million due each November through 2015.

With respect to global economic events, there continues to be uncertainty in the financial markets and weakness in the coal industry, and these issues bring potential liquidity risks for us. These risks could include declines in our stock value, declines in our cash and cash equivalents, less availability and higher costs of additional credit, restrictions to or the loss of our self-bonding capability and requests for additional collateral by surety providers and potential counterparty defaults and failures. The creditworthiness of our customers is constantly monitored by us. We believe that our current group of customers is sound and represents no abnormal business risk.

Cash Flows

Cash and cash equivalents decreased by $243.7 million for the nine months ended September 30, 2012. The net change in cash and cash equivalents was attributable to the following:



	Nine Months Ended September 30,
	2012			2011
Cash Flows (in thousands):
Net cash provided by operating activities	$	305,647		$	537,232
Net cash used in investing activities	(500,911		)	(1,020,269		)
Net cash (used in) provided by financing activities	(48,414		)	505,558
Net (decrease) increase in cash and cash equivalents	$	(243,678	)	$	22,521

Net cash provided by operating activities for the nine months ended September 30, 2012 was $305.6 million compared to $537.2 million for the nine months ended September 30, 2011. In addition to reduced cash earnings, the decrease in operating cash flows is partially due to cash payments, net of insurance recoveries, to settle litigation matters acquired from Massey, including UBB wrongful death claims.

Net cash used in investing activities for the nine months ended September 30, 2012 was $500.9 million, a decrease of $519.4 million from the $1,020.3 million of net cash used in investing activities during the nine months ended September 30, 2011. The primary uses of cash for investing activities included $332.6 million in capital expenditures, $53.5 million used in the acquisition of mineral rights under federal lease and $419.3 million of purchases of marketable securities, offset by cash generated from sales of marketable securities of $307.1 million for the nine months ended September 30, 2012.

Net cash used in financing activities for the nine months ended September 30, 2012 was $48.4 million compared to net cash provided by financing activities of $505.6 million for the nine months ended September 30, 2011. The primary uses of cash for financing activities included principal repayments of long-term debt of $30.0 million, debt issuance costs of $6.7 million and common stock repurchases of $7.0 million for the nine months ended September 30, 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

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capacity of $275.0 million. As of September 30, 2012, letters of credit in the amount of $160.2 million were outstanding under the A/R Facility and no cash borrowing transactions had taken place.

On June 26, 2012, ANR Receivables Funding, LLC (“ANR Receivables”) and Alpha Natural Resources, LLC (“ANR LLC”), each of which are our subsidiaries, entered into an amendment to the A/R Facility (the “A/R Facility Amendment”). The A/R Facility Amendment, among other things, replaces the maximum net leverage ratio termination event with a termination event based on a maximum net secured leverage ratio through the end of 2014 and increases the maximum net leverage ratio termination event for the first and second quarters of 2015.

Long-Term Debt

As of September 30, 2012, our total long-term indebtedness consisted of the following (in thousands):



	September 30, 2012
6.00% senior notes due 2019	$	800,000
6.25% senior notes due 2021	700,000
Term loan due 2016	555,000
3.25% convertible senior notes due 2015	658,673
2.375% convertible senior notes due 2015	287,500
Other	61,478
Debt discount, net	(69,518		)
Total long-term debt	$	2,993,133
Less current portion	80,605
Long-term debt, net of current portion	$	2,912,528

Credit Agreement

On June 26, 2012, we entered into an amendment (the “Credit Agreement Amendment”) to the Credit Agreement. The Credit Agreement Amendment, among other things:

2) adds a minimum liquidity covenant of $500 million through the end of 2014;

3) increases the applicable margin for borrowings under the Credit Agreement if our consolidated net leverage ratio is greater than 3.75 to 1.00 for the preceding fiscal quarter;

4) modifies the requirements for incremental term loan or revolving credit facilities in excess of $500 million; and

5) provides additional real property collateral to secure obligations under the Credit Agreement and certain hedging and cash management obligations with lenders and affiliates of lenders.

9.75% Senior Notes due 2018

On October 11, 2012, we and certain of our wholly-owned domestic subsidiaries, as guarantors, and Union Bank, N.A., as trustee, entered into a third supplemental indenture (the “Third Supplemental Indenture”) to the base indenture dated June 1, 2011 (the “Base Indenture” and, as supplemented by the Third Supplemental Indenture, the “9.75% Senior Notes Indenture”). The 9.75% Senior Notes Indenture governs our 9.75% senior notes due 2018 (the “9.75% Senior Notes”), which were issued on October 11, 2012 in an aggregate principal amount of $500 million.

The 9.75% Senior Notes bear interest at a rate of 9.75% per annum, payable semi-annually on April 15 and October 15 of each year, beginning on April 15, 2013, and will mature on April 15, 2018.

We may redeem the 9.75% Senior Notes, in whole or in part, at any time prior to maturity, at a price equal to 100% of the aggregate principal amount of the 9.75% Senior Notes plus a “make whole” premium, plus accrued and unpaid interest, if any, to, but not including, the applicable redemption date. In addition, we may redeem up to 35% of the aggregate principal amount of the 9.75% Senior Notes with the net cash proceeds from certain equity offerings, at any time prior to October 15, 2015, at a

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redemption price equal to 109.75% of the aggregate principal amount of the 9.75% Senior Notes, plus accrued and unpaid interest, if any, to, but not including the applicable redemption date, if at least 65% of the aggregate principal amount of the 9.75% Senior Notes originally issued under the 9.75% Senior Notes Indenture remains outstanding immediately after the redemption and the redemption occurs within 180 days of the date of the closing of such equity offering.

Upon the occurrence of a change of control repurchase event with respect to the 9.75% Senior Notes, unless we have exercised our right to redeem the 9.75% Senior Notes, we will be required to offer to repurchase each holder's 9.75% Senior Notes at a price equal to 101% of the principal amount thereof, plus accrued and unpaid interest, if any, to, but not including, the date of repurchase.

The 9.75% Senior Notes Indenture contains covenants that limit, among other things, our ability to:

•incur, or permit our subsidiaries to incur, additional debt;

•issue, or permit our subsidiaries to issue, certain types of stock;

•pay dividends on our or our subsidiaries' capital stock or repurchase our capital stock;

•make certain investments;

•enter into certain types of transactions with affiliates;

•incur liens on certain assets to secure debt;


•	limit dividends or other payments by our restricted subsidiaries to us and our other restricted subsidiaries;

•consolidate, merge or sell all or substantially all of our assets; and

•make certain payments on our or our subsidiaries' subordinated debt.

3.25% Convertible Senior Notes due 2015

In October, 2012, pursuant to a cash tender offer with respect to the 3.25% convertible senior notes due 2015 (the “3.25% Convertible Notes”) issued by Alpha Appalachia Holdings, Inc. (formerly Massey Energy Company), we repurchased $122.5 million in aggregate principal amount of the 3.25% Convertible Notes using a portion of the net proceeds from the offering of the 9.75% Senior Notes.

Analysis of Material Debt Covenants

We were in compliance with all covenants under the Credit Agreement and the indentures governing our notes as of September 30, 2012. A breach of the covenants in the Credit Agreement or the indentures governing our notes, including the financial covenants under the Credit Agreement that measure ratios based on Adjusted EBITDA, could result in a default under the 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 the 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 the 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 September 30, 2012		Required Covenant Levels;
Minimum Adjusted EBITDA to cash interest ratio	6.3		2.5x
Maximum total senior secured debt less unrestricted cash to Adjusted EBITDA ratio	0.1		2.5x
Minimum consolidated liquidity	$	1,609,561	$	500,000

Adjusted EBITDA is defined as EBITDA further adjusted to exclude certain non-cash items, non-recurring items, and

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other adjustments permitted in calculating covenant compliance under the 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 of 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 calculation are: (a) after-tax gains or losses from discontinued operations; (b) franchise taxes; and (c) other non-cash expenses that do not represent an accrual or reserve for future cash expense.

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



	Three Months Ended												Twelve Months Ended
	December 31, 2011 ⁽²⁾			March 31, 2012 ⁽²⁾			June 30, 2012			September 30, 2012			September 30, 2012
	(In thousands)
Net loss	$	(792,927	)	$	(28,766	)	$	(2,234,656	)	$	(46,146	)	$	(3,102,495	)
Interest expense	47,188			45,434			46,534			47,345			186,501
Interest income	(991		)	(1,097		)	(1,324		)	(1,328		)	(4,740		)
Income tax benefit	(38,150		)	(43,785		)	(449,798		)	(83,182		)	(614,915		)
Amortization of acquired intangibles, net	(50,859		)	(35,512		)	(17,286		)	(11,682		)	(115,339		)
Depreciation, depletion and amortization	285,767			285,772			272,850			238,894			1,083,283
EBITDA	$	(549,972	)	$	222,046		$	(2,383,680	)	$	143,901		$	(2,567,705	)
Non-cash charges ^{(1) (3)}	753,521			(4,451		)	1,526,823			56,800			2,332,693
Other adjustments ^{(1) (4)}	28,838			10,184			1,042,389			14,206			1,095,617
Adjusted EBITDA	$	232,387		$	227,779		$	185,532		$	214,907		$	860,605


⁽¹⁾	Calculated in accordance with the 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.


⁽³⁾	Includes $1,525.3 million for the three months ended June 30, 2012 and $802.3 million for the three months ended December 31, 2011 characterized under the Credit Agreement as goodwill impairment, which corresponds to goodwill impairment described elsewhere in this Quarterly Report on Form 10-Q.


⁽⁴⁾	Includes $1,010.9 million for the three months ended June 30, 2012 and $13.7 million for the three months ended September 30, 2012 characterized under the Credit Agreement as business optimization expenses and other restructuring charges, which corresponds to asset impairment and restructuring charges described elsewhere in this Quarterly Report on Form 10-Q.

Cash interest is calculated in accordance with the Credit Agreement and is equal to interest expense less interest income and non-cash interest expense plus pro forma interest expense. Cash interest for the twelve months ended September 30, 2012 is calculated as follows (in thousands):

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Interest expense	$	186,501
Less interest income	(4,740		)
Less non-cash interest expense	(44,594		)
Plus pro forma interest	(678		)
Net cash interest expense ⁽¹⁾	$	136,489


⁽¹⁾	Calculated in accordance with the Credit Agreement

Consolidated liquidity is calculated in accordance with our Credit Agreement and is equal to the sum of all unrestricted cash and cash equivalents, marketable securities and unused revolving credit facility commitments available under our Credit Agreement and our A/R Facility. At September 30, 2012, we had available liquidity of $1.6 billion, including cash and cash equivalents of $342.2 million, marketable securities of $208.0 million and $1.1 billion of unused revolving credit facility commitments available under our Credit Agreement and our A/R Facility.

Convertible Notes Repurchases

We may from time to time repurchase some of the 2.375% Convertible Notes or the 3.25% Convertible Notes, through open market purchases, privately negotiated transactions, tender offers, exchange offers or otherwise, upon such terms and at such prices as permitted by securities laws and other legal requirements, and subject to market conditions and other factors. To facilitate repurchases, we may make purchases pursuant to one or more trading plans under Rule 10b5-1 of the Exchange Act, which allow us to repurchase securities during periods when we otherwise might be prevented from doing so under insider trading laws or because of self-imposed trading blackout periods. Any such plans may be discontinued at any time.

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.

As of September 30, 2012, we had outstanding surety bonds with a total face amount of $996.9 million to secure various obligations and commitments. In addition, as collateral for various obligations and commitments, we had $160.5 million of letters of credit in place, of which $0.3 million was outstanding under our Credit Agreement and $160.2 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. We meet frequently with our surety providers and have had discussions with certain providers regarding the extent of and the terms of their participation in the program. These discussions may cause us to shift surety bonds between providers or to alter the terms of their participation in our program. In the event that our self-bonding capacity or additional surety bonds become unavailable or our surety bond providers require additional collateral, we would seek to secure our obligations with letters of credit, cash deposits or other suitable forms of collateral, which would likely require greater use of our credit facility and A/R Facility for this purpose. A failure to maintain our self-bonding status, an inability to acquire surety bonds or additional collateral requirements could result from a variety of factors, including a significant decline in our financial position or creditworthiness, and restrictions on the availability of collateral under our credit agreements and indentures.

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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 $101.9 million for the remainder of 2012, $42.0 million for 2013 and $30.2 million for 2014. We entered into capital leases during the nine months ended September 30, 2012 which have principal payments of $1.9 million in the remainder of 2012, $8.1 million in 2013, $8.2 million in 2014, $3.6 million in 2015, $2.1 million in 2016 and $0.8 million thereafter. We also entered into a lease bid agreement during the nine months ended September 30, 2012 which has annual payments of $42.1 million due each November 1 of 2012, 2013, 2014 and 2015. As a result of remeasuring our retiree medical plans to reflect certain plan changes during 2012, the estimated undiscounted cash flows for these obligations are $87.4 million for 2013-2014, $99.1 million for 2015-2016 and $2.0 billion after 2016. There have been no other significant changes as of September 30, 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 and nine months ended September 30, 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.

Postretirement Medical Benefits.

During the three months ended September 30, 2012, we remeasured our retiree medical plans to reflect certain plan changes. As a result of the remeasurments, the accumulated benefit obligations were reduced by approximately $87.9 million. The discount rate used to measure the accumulated benefit obligations as of September 30, 2012 was updated to 3.74% and the future health care cost trend rate remained consistent. A one half percentage increase in the discount rate would reduce the accumulated benefit obligation by approximately $73.2 million and a one half percentage decrease in the discount rate would increase the accumulated benefit obligation by approximately $82.9 million. As of September 30, 2012, we had total postretirement medical benefit obligations of approximately $999.4 million.

Asset Impairment.

U.S. GAAP requires that a long-lived asset group that is held and used should be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the long-lived asset group might not be recoverable. As a result of certain announcements regarding production curtailments at certain mining operations, in the second quarter of 2012, we determined that an indicator of impairment of certain of our long-lived assets may exist. Testing long-lived assets for impairment after indicators of impairment have been identified is a two-step process. Step one compares the net undiscounted cash flows of an asset group to its carrying value. If the carrying value of an asset group exceeds the net undiscounted cash flows of that asset group, step two is performed whereby the fair value of the asset group is estimated and compared to its carrying amount. The amount of impairment, if any, is equal to the excess of the carrying value of an asset group over its estimated fair value. The amount of impairment, if any, is allocated to the long-lived assets on a pro-rata basis, except that the carrying value of the individual long-lived assets are not reduced below their estimated fair value. Our asset groups generally consist of the assets and applicable liabilities of one or more mines and preparation plants and associated coal reserves for which cash flows are largely independent of cash flows of other mines, preparation plants and associated reserves.

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We determined that the undiscounted cash flows were less than the carrying value for five of our asset groups. For these five asset groups, we proceeded to step two and estimated the fair values of the asset groups. The fair values of the asset groups were estimated using an income approach utilizing market-place participant assumptions. The income approach is based on a discounted cash flow methodology in which expected future net cash flows are discounted to present value, using an appropriate after-tax weighted average cost of capital (discount rate).The income approach is dependent upon a number of significant management estimates about future performance including sales volumes and prices, costs to produce, income taxes, capital spending, working capital changes and the after-tax weighted average cost of capital. Changes in any of these assumptions could materially impact the estimated fair value of our asset groups. Our forecasts of coal prices generally reflect a long-term outlook of market prices expected to be be received for our coal. If actual coal prices are less than our expectations, it could have a material impact on the fair value of our asset groups. Our forecasts of costs to produce coal are based on our operating forecasts and an assumed inflation rate for materials and supplies such as steel, diesel fuel and explosives. If actual costs are higher or if inflation increases above our expectations, it could have a material impact on the fair value of our asset groups. We also are faced with increasingly stringent safety standards and governmental regulation, much of which is beyond our control, which could increase our costs and materially decrease the fair value of our asset groups.

The carrying values of the five asset groups that proceeded to step two exceeded their estimated fair values and accordingly, we recorded asset impairment charges in the second quarter of 2012 of $990.9 million. The asset impairment charges reduced the carrying values of mineral reserves $714.6 million, property, plant and equipment $271.8 million, and other acquired intangibles $4.5 million. The asset impairments established a new cost basis on which future depreciation, depletion and amortization will be based.

Goodwill. Goodwill represents the excess of purchase price over the fair value of the identifiable net assets of acquired companies. Goodwill is not amortized; instead, it is tested for impairment annually or more frequently if indicators of impairment exist.

We test goodwill for impairment using a fair value approach at the reporting unit level. We perform our goodwill impairment test in two steps. Step one compares the fair value of each reporting unit to its carrying value, including goodwill. If the fair value of a reporting unit determined in step one is lower than its carrying value, we proceed to step two, which compares the carrying value of goodwill to its implied fair value. In estimating the implied fair value of goodwill at a reporting unit, we assigned the fair value of the reporting unit to all of the assets and liabilities associated with the reporting unit as if the reporting unit had been acquired in a business combination. Any excess of carrying value of goodwill over its implied fair value at a reporting unit is recorded as impairment.

The valuation methodology utilized in step one to estimate the fair value of the reporting units is based on both a market and income approach and is within the range of fair values yielded under each approach. The income approach is based on a discounted cash flow methodology in which expected future net cash flows are discounted to present value, using an appropriate after-tax weighted average cost of capital (discount rate). The market approach is based on a guideline company and similar transaction methodology. Under the guideline company approach, certain operating metrics from a selected group of publicly traded guideline companies that have similar operations to the Company's reporting units are used to estimate the fair value of the reporting units. Under the similar transaction approach, recent merger and acquisition transactions for companies that have similar operations to the Company's reporting units are used to estimate the fair value of the Company's reporting units.

The income approach is dependent upon a number of significant management estimates about future performance including sales volumes and prices, costs to produce, income taxes, capital spending, working capital changes and the after-tax weighted average cost of capital. Changes in any of these assumptions could materially impact the estimated fair value of our reporting units. Our forecasts of coal prices generally reflect a long-term outlook of market prices expected to be be received for our coal. If actual coal prices are less than our expectations, it could have a material impact on the fair value of our reporting units. Our forecasts of costs to produce coal are based on our operating forecasts and an assumed inflation rate for materials and supplies such as steel, diesel fuel and explosives. If actual costs are higher or if inflation increases above our expectations, it could have a material impact on the fair value of our reporting units. We also are faced with increasingly stringent safety standards and governmental regulation, much of which is beyond our control, which could increase our costs and materially decrease the fair value of our reporting units.

In connection with the testing of certain of our long-lived assets for impairment, we performed a goodwill impairment test as of June 1, 2012 and recorded goodwill impairment of $1,525.3 million to reduce the carrying value of goodwill to its implied fair value for nine of our reporting units in our Eastern Coal Operations segment and one reporting unit in our Western Coal Operations segment.

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The fair values of our other reporting units exceeded their carrying values by a total of $457.9 million, or 41%.

We may be required to further adjust our production to match demand which may require the idling of additional facilities and may require us to test one or more asset groups and goodwill for impairment. This may require us to record additional impairment expenses that could be material to our results of operations. Additionally, we have announced plans to make structural changes in the future to our organizational design. Such changes may impact our reporting units, including their fair values, and the allocation of goodwill amongst them.

Income taxes. We recognize deferred tax assets and liabilities using enacted tax rates for the effect of temporary differences between book and tax bases of recorded assets and liabilities. Deferred tax assets are reduced by a valuation allowance if it is more likely than not that some portion or all of the deferred tax assets will not be realized. In evaluating the need for a valuation allowance, we analyze both positive and negative evidence. Such evidence includes historical earnings, forecasted future results, timing of temporary differences reversals, and tax planning strategies. The valuation allowance is monitored and reviewed quarterly. We recorded $21.3 million of valuation allowances during the second quarter of 2012, due in part to long-lived asset impairment charges recorded during that quarter. During the third quarter of 2012, we recorded an additional $3.6 million of valuation allowance, a portion of which was recorded to other comprehensive income. As of September 30, 2012, we have $90.9 million of valuation allowance booked against our deferred tax assets.

If our conclusions change in the future regarding the realization of some or all of our deferred tax assets, we may record a change to the valuation allowance resulting in income tax expense in the period the determination is made. As of September 30, 2012, we were in a net deferred tax liability position with respect to deferred taxes computed at regular tax rates on the gross temporary differences. If federal tax attributes related to alternative minimum tax credit carryforwards and federal net operating loss carryforwards increase relative to our deferred tax liabilities, we may be required to establish additional valuation allowances which could materially impact our financial position and results of operations.


Item 3.	Quantitative and Qualitative Disclosures about Market Risk

Commodity Price Risk

We manage our commodity price risk for coal sales through the use of long-term coal supply agreements. As of October 25, 2012, we had sales commitments for approximately 100% 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 9,000 tons of explosives for the last three 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 three months of 2012. If the price of natural gas were to decrease during the remaining three 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 17.5 million gallons of diesel fuel for the last three months of 2012 and 64.6 million gallons of diesel fuel for 2013. Through our derivative swap contracts, we have fixed prices for approximately 79% and 58% of our expected diesel fuel needs for the remaining three months of 2012 and for the year of 2013, respectively. If the price of diesel fuel were to decrease during the remaining three months of 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 September 30, 2012, we had swap agreements outstanding to hedge the variable cash flows related to approximately 81% and 76% of anticipated natural gas production for the remaining three months of 2012 and for calendar year 2013, respectively.

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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 2.50 percentage points over the LIBOR rate, subject, in the case of the revolving credit line, to adjustment based on leverage ratios. As of September 30, 2012, our term loan due 2016 under our credit agreement had an outstanding balance of $554.4 million. The current portion of the term loan due is $67.5 million. A 50 basis point increase or decrease in interest rates would increase or decrease our quarterly interest expense by $0.7 million.


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 Securities and Exchange Commission ("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 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.

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. The integration of those controls 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 16, part (d), to the unaudited condensed consolidated financial statements, which is incorporated herein by reference.

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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, the Quarterly Report on Form 10-Q for the quarter ended March 31, 2012 and the Quarterly Report on Form 10-Q for the quarter ended June 30, 2012, together with the cautionary statement under the caption “Cautionary Note Regarding Forward Looking Statements” in “Management's Discussion and Analysis of Financial Condition and Results of Operations” of this report. These described risks are not the only risks 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.

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



	Total Number of Shares Purchased ⁽¹⁾	Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Share Repurchase Program ⁽²⁾	Approximate Dollar Value of Shares that May Yet Be Purchased Under the Program (000's omitted) ⁽³⁾
July 1, 2012 through July 31, 2012	388	$	8.71	—	500,002
August 1, 2012 through August 31, 2012	17,282	$	6.37	—	500,002
September 1, 2012 through September 30, 2012	8,782	$	7.73	—	500,002
	26,452			—	500,002

⁽¹⁾

In November 2008, the Board of Directors authorized the Company to repurchase common shares from employees to satisfy the employees' minimum statutory tax withholdings upon the vesting of restricted stock and performance shares. During the three months ended September 30, 2012, the Company issued 159,982 shares of common stock to employees upon vesting of restricted stock and restricted stock units and repurchased 26,452 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.

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SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.



	ALPHA NATURAL RESOURCES, INC.
Date: November 8, 2012	By:	/s/ Frank J. Wood
	Name:	Frank J. Wood
	Title:	Executive Vice President and Chief Financial Officer (Principal Financial and Accounting Officer)

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Exhibit No.	Description of Exhibit
3.1	Amended and Restated Certificate of Incorporation of Alpha Natural Resources, Inc. (Incorporated by reference to Exhibit 3.1 to the Current Report on Form 8-K of Alpha Natural Resources, Inc. (File No. 001-32331) filed on August 5, 2009).

3.2	Certificate of Amendment of the Restated Certificate of Incorporation of Alpha Natural Resources, Inc. (Incorporated by reference to Exhibit 3.2 to the Current Report on Form 8-K of Alpha Natural Resources, Inc. (File No. 001-32331) filed June 1, 2011).

3.3	Amended and Restated Bylaws of Alpha Natural Resources, Inc. (Incorporated by reference to Exhibit 3.4 to the Current Report on Form 8-K of Alpha Natural Resources, Inc. (File No. 001-32331) filed on December 27, 2011).

4.1	Third Supplemental Indenture, dated as of October 11, 2012, among Alpha Natural Resources, Inc., the Guarantors named therein and Union Bank, N.A., as trustee (Incorporated by reference to Exhibit 4.2 to the Current Report on Form 8-K of Alpha Natural Resources, Inc. (File No. 001-32331) filed on October 11, 2012).

10.1‡	Separation Agreement and General Release, dated September 18, 2012, by and between Alpha Natural Resources, Inc. and Randy L. McMillion, (Incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K of Alpha Natural Resources, Inc. (File No. 001-32331) filed on September 18, 2012).

10.2*‡	Form of Retention Restricted Stock Unit Award Agreement for Employees under the Alpha Natural Resources, Inc. 2012 Long-Term Incentive Plan.

10.3*‡	Alpha Natural Resources, Inc. and Subsidiaries Deferred Compensation Plan, as Amended and Restated Effective August 1, 2012.

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

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Negative
Uncertain
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Litigous
Readability	H.S. sophomore Avg

Alpha Natural Resources Inactive 10-Q2012 Q3 Quarterly report

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