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Alpha Natural Resources Reports Results for Fourth Quarter, Full Year 2006

ABINGDON, Va., Feb. 14 /PRNewswire-FirstCall/ -- Alpha Natural Resources, Inc. (NYSE:ANR), a leading supplier of high-quality Appalachian coal, reported that revenues and profitability rose substantially in 2006 on strong pricing and higher sales volumes.

"Alpha's ability to supply premium coals and capture leading per-ton revenues was the key driver behind our solid performance in 2006, and helped us counteract some of the productivity challenges we faced in the second half," said Michael Quillen, Chairman and CEO. "In a business that's very sensitive to changes in supply and demand, we'll be carefully managing our mine portfolio this year to preserve those margins, while remaining prepared to seize growth opportunities in a consolidating industry."

              Financial & Operating Highlights - Fourth Quarter
             (in millions, except per-share and per-ton amounts)

                                        Q4 2006         Q4 2005       % Change
    Coal revenues                        $407.6          $432.1          (6%)
    Net income                            $63.3           $12.4           nm
    Earnings per diluted share            $0.98           $0.20           nm
    EBITDA                                $56.0           $54.0           4%
    Tons of coal produced and processed     6.0             5.5           8%
    Tons of coal sold                       7.1             7.8          (9%)
    Coal margin per ton                  $10.19           $8.55          19%

    Note: A reconciliation of EBITDA to net income is included in the notes
    accompanying the financial schedules.

    Financial Performance - Fourth Quarter

Total revenues for the quarter just ended of $458.0 million were $41.7 million less than the same period the year before, which was Alpha's strongest quarter in 2005. Alpha scaled back its purchased coal volumes by 45 percent compared with the prior year, in tandem with softening market conditions. Coal sales revenues of $407.6 million were 6 percent lower than the fourth quarter of 2005.

Net income for the three months ended Dec. 31, 2006, was $63.3 million, or $0.98 per diluted share. In the fourth quarter of 2005, the company reported net income of $12.4 million, or $0.20 per diluted share.

Results for both periods include a previously announced charge of $3.2 million ($0.05 per diluted share) for stock-based compensation related to Alpha's initial public offering (IPO) and internal restructuring in February 2005. Also in the most recent quarter, Alpha recorded a pre-tax charge of $7 million, equal to $5.2 million after tax ($0.08 per diluted share), for the previously announced buyout of a multi-year legacy coal supply contract.

Results for the quarter just ended were positively affected by the reversal of a portion of the valuation allowance for deferred tax assets. As of year-end 2006, Alpha had a sufficient earnings history and profit expectations going forward to conclude that it was more likely than not that a portion of its deferred tax asset previously reserved through a valuation allowance would be realized. As a result, the company recorded a tax benefit in the fourth quarter 2006 of $55.6 million ($0.86 per diluted share). This amount reflects future cash flow expected to be gained through future tax deductions.

Earnings before interest, taxes, depreciation, depletion and amortization (EBITDA) totaled $56.0 million including the charges noted above in the amount of $10.2 million. In the fourth quarter of 2005, the company reported EBITDA of $54.0 million including charges of $3.2 million.

The definition of EBITDA and a reconciliation to net income, the most closely related GAAP measure, is provided in a table included with the accompanying financial schedules.

Income from operations totaled $21.0 million in the latest quarter compared with $26.3 million in the fourth quarter of 2005. Depreciation, depletion and amortization (DD&A) in the quarter just ended was $9.0 million higher than the fourth quarter of 2005, primarily due to additional DD&A from the Nicewonder and Progress acquisitions.

Interest expense (net) in the most recent quarter was $9.7 million, compared with $10.1 million in the corresponding period of 2005.

Excluding the tax benefit, the company's effective tax rate would have been approximately 21 percent in the fourth quarter of 2006, compared with 23 percent in the prior-year period.

    Production and Sales - Fourth Quarter

    -- Coal margin per ton, a key profitability measure for the company, rose
       19 percent year-over-year to $10.19 for the fourth quarter, as a
       4 percent increase in per-ton coal prices outpaced a 1 percent rise in
       unit cost of coal sales. It was the eighth consecutive quarter in which
       Alpha's unit margins have improved year-over-year.
    -- Produced and processed tons (representing company and contractor-
       operated mines) totaled 6.0 million tons in the quarter just ended, up
       8 percent from the prior year, while coal purchases were scaled back by
       more than 800,000 tons from an unusually high level in 2005. Coal sales
       for the quarter just ended were 7.1 million tons, compared with
       7.8 million tons sold in the fourth quarter of 2005.
    -- Price realizations for metallurgical coal in the fourth quarter were
       essentially unchanged from the prior year, while steam coal unit
       pricing improved by 10 percent. The company's overall realized price
       per ton for the quarter was $57.71, improving 4 percent year-over-year
       and 2 percent sequentially.
    -- Alpha's average cost of coal sales per ton in the most recent quarter
       was 1 percent higher than the corresponding period in 2005, with lower
       unit costs for purchased coal offsetting cost increases caused by
       productivity shortfalls at certain Alpha mines.

                 Financial & Operating Highlights - Full Year
             (in millions, except per-share and per-ton amounts)

                                        FY 2006         FY 2005       % Change
    Coal revenues                      $1,687.6        $1,413.2          19%
    Net income                           $128.2           $21.2           nm
    Earnings per diluted share            $2.00           $0.38           nm
    EBITDA (as adjusted in 2005)         $279.4          $145.1          93%
    Tons of coal produced and
     processed                             24.8            20.6          21%
    Tons of coal sold                      29.1            26.7           9%
    Coal margin per ton                  $11.52           $8.63          34%

    EBITDA, as adjusted, for 2005 includes minority interest. A reconciliation
    of EBITDA and EBITDA, as adjusted, to net income is included in the notes
    accompanying the financial schedules.

    Financial Performance - Full Year

For the 12 months ended December 31, 2006, Alpha recorded total revenues of $1.91 billion compared with $1.63 billion in 2005. Coal sales revenues climbed 19 percent to $1.69 billion. Other revenues grew 24 percent to $34.7 million, with the company's road construction/coal recovery business contributing $24.0 million of revenue from a full year of operation.

Net income was $128.2 million ($2.00 per diluted share) for the full year 2006 compared with $21.2 million ($0.38 per diluted share) in 2005. Results in 2005 included stock-based compensation charges related to the IPO of $46.4 million ($0.83 per diluted share), while 2006 results included IPO-related charges of $12.8 million after-tax ($0.20 per diluted share), as well as the $5.2 million ($0.08 per diluted share) after-tax charge for the legacy contract buyout in October 2006. 2006 results also were positively affected by the $55.6 million tax benefit that was recorded in the fourth quarter and mentioned earlier.

EBITDA for the full year 2006 rose 93 percent to $279.4 million including charges discussed above for IPO-related stock based compensation and the legacy contract buyout. Excluding those charges, EBITDA was $299.2 million for the full year.

Income from operations totaled $138.1 million in 2006, a $66.0 million increase from 2005. DD&A of $140.9 million increased by $67.7 million from the prior year due to added depreciation from Alpha's most recent acquisitions.

Net interest expense for the year 2006 totaled $40.9 million compared with $28.9 million in 2005, primarily due to financing of the Nicewonder acquisition and higher interest costs from utilization of the company's variable rate line of credit. The company's effective tax rate for the full year 2006 was approximately 26 percent.

    Production and Sales - Full Year

    -- Coal margin per ton of $11.52 for the full year 2006 climbed 34 percent
       from the previous year, as price realizations increased by 10 percent
       while unit cost of coal sales grew only 5 percent.
    -- Alpha produced and processed 24.8 million tons of coal in 2006,
       21 percent more than in 2005, with acquisitions contributing
       5.3 million tons to 2006 production. Alpha scaled back coal purchases
       as planned, with 4.1 million tons purchased in 2006 compared with
       6.3 million tons in 2005. Coal sales volumes reached a new high of
       29.1 million tons in 2006, up 9 percent from prior-year levels.
    -- Sales of metallurgical coal topped 10 million tons for the second
       consecutive year in 2006, representing 33 percent of the company's
       annual sales volume. Steam coal sales rose from 16.7 million tons to
       19.1 million tons, a new high.
    -- Price realizations for both steam and metallurgical coal improved year-
       over-year, with steam unit prices up 18 percent to $49.05 and
       metallurgical prices up 4 percent to $75.09 per ton. The company's
       overall realized price per ton for the full year 2006 topped $58,
       representing the highest average realization among the major domestic
       public coal companies.
    -- Average unit cost of coal sales for Alpha mines was $42.71 for 2006,
       while the average unit cost for contract production was $52.83 and
       $58.76 for coal purchases. The proportion of production coming from
       lower cost surface mines rose to 36 percent last year from 19 percent
       in 2005.

               Quarterly & Full Year Production and Sales Data
                    (in thousands, except per-ton amounts)

                          Q4 '06    Q4 '05  %Change FY 2006   FY 2005 %Change

    Produced/processed     5,967     5,541      8%   24,827    20,602     21%
    Purchased              1,043     1,888    -45%    4,090     6,284    -35%
      Total                7,010     7,429     -6%   28,917    26,886      8%

    Tons Sold
    Steam                  4,706     4,974     -5%   19,050    16,674     14%
    Metallurgical          2,357     2,786    -15%   10,029    10,023      0%
      Total                7,063     7,760     -9%   29,079    26,698      9%

    Coal sales
    Steam                 $48.86    $44.61     10%   $49.05    $41.41     18%
    Metallurgical         $75.38    $75.46      0%   $75.09    $72.24      4%
      Total               $57.71    $55.68      4%   $58.03    $52.98     10%

    Cost of coal
    Alpha mines           $44.62    $39.54     13%   $42.71    $37.34     14%
    Contract mines(2)     $53.30    $50.59      5%   $52.83    $50.55      5%
       Produced/processed $45.96    $41.68     10%   $44.33    $40.07     11%

    Purchased             $55.50    $61.90    -10%   $58.76    $58.88      0%
      Total               $47.52    $47.14      1%   $46.51    $44.35      5%

    Coal margin/ton(3)    $10.19     $8.55     19%   $11.52     $8.63     34%

    (1) Excludes DD&A and SG&A
    (2) Includes coal purchased from third parties and processed at our plants
        prior to resale
    (3) Coal sales realization per ton less cost of coal sales per ton

    Liquidity and Capital Resources

Cash provided by operations during the most recent quarter was $61.8 million and $210.1 million for the full year 2006. For the full year 2005, cash provided by operations was $149.6 million.

Capital expenditures, excluding acquisitions, totaled $21.4 million for the quarter just ended and $131.9 million for the year. The company invested $28.3 million to acquire the Progress Energy assets in May 2006, and made an initial investment of $3.2 million to acquire an interest in Gallatin Materials LLC, a lime manufacturing venture.

At December 31, 2006, Alpha's total debt outstanding was $445.7 million, compared with $485.8 million at the end of 2005. The company had available liquidity of $227.2 million at the end of 2006, including cash of $33.3 million and $193.9 million available under the company's credit facility. For the year ended December 31, 2006, the company's leverage ratio -- defined in the company's credit facility as debt less cash and cash equivalents divided by adjusted EBITDA -- stood at 1.44, and Alpha's interest coverage ratio -- defined in the credit facility as adjusted EBITDA divided by cash interest expense -- was 7.52.

Alpha's balance sheet at December 31, 2006 included total legacy liabilities (workers' compensation, retiree medical and reclamation) of $136.5 million, with current obligations of $9.1 million. Included in the amounts above are adjustments of $18.0 million to postretirement benefit obligations related to the adoption of SFAS 158, Employers' Accounting for Defined Pension and Other Postretirement Plans.

    Recent Developments

    -- On Jan. 13 two miners working the day shift at the Cucumber, W. Va.
       mine operated by Brooks Run Mining Company, a subsidiary, were fatally
       injured in a localized roof fall. No other employees were injured in
       the accident. Our deepest sympathies have been extended to the families
       of both miners. State and federal inspections of the accident site have
       been completed with the full cooperation and assistance of Alpha and
       Brooks Run, and the mine was allowed to reopen on January 18.
    -- On Jan. 11, Alpha's Brooks Run and Callaway Natural Resources
       subsidiaries won five of 25 Mountaineer Guardian Safety awards jointly
       presented by the West Virginia Coal Association and the state Office of
       Miners' Health, Safety and Training. Three Brooks Run operations
       amassed a total of 240,000 manhours in 2006 with zero lost-time
       accidents, while the Callaway division logged more than 600,000
       manhours at two surface mines with just one lost-time injury.
    -- In early January Alpha announced that it was acquiring a 77.5 percent
       interest in Gallatin Materials LLC, a lime manufacturing venture in
       Verona, Ky. Gallatin plans to construct two rotary lime kilns, the
       first of which is expected to come on line late this year. The lime
       will be sold to coal-burning electric utilities for use in their
       scrubbers and to steel producers as a fluxing agent in their furnaces.
       Alpha's initial investment in the first phase of the project will be
       $10.3 million plus a $3.8 million shareholder loan, and will be
       financed primarily in 2007 either from cash on hand or the company's
    -- On Jan. 8 Alpha announced that Kevin Crutchfield was promoted to
       president of the company. In addition to his current duties,
       Crutchfield will assume responsibility for the company's operations,
       sales and marketing, and other functions. He succeeds Michael Quillen
       in that role. Quillen will remain chairman of the board, a position to
       which he was appointed in October, as well as chief executive officer,
       a post he has held with Alpha and its predecessor companies since the
       beginning of 2003.
    -- On Jan. 17 the Virginia Department of Transportation (VDOT) announced
       that it was authorizing Alpha and another coal company to perform a
       limited feasibility study on the Coalfields Expressway. The expressway
       is a proposed four-lane, 51-mile highway through the coalfields of
       southwestern Virginia. The study will evaluate possible highway
       alignments that will enable the two coal producers to recover coal
       while developing the road base for the highway.  VDOT Commissioner
       David Ekern said the study will bring the state "one step closer to a
       win-win situation where the cost of this important expressway is
       reduced while the valuable natural resources can be recovered."


With utilities adjusting their coal inventories to more normalized levels, and U.S. coal supply outpacing consumption in 2006, the market has softened for steam coal with little clarity on when conditions might turn around sufficiently to support price improvements. Metallurgical markets have been more insulated from significant price movement, and Alpha has contracted most of its metallurgical business for 2007, including virtually all domestic business. Metallurgical coal sales are expected to account for 30-35 percent of expected 2007 sales volumes, similar to 2006.

As of Feb. 5, 2007, 83 percent of Alpha's planned 2007 production was committed and priced and 7 percent was committed and unpriced, with approximately 2 million tons uncommitted. Committed steam coal prices for 2007 average $48 to $49 a ton and metallurgical prices average $72 to $73 a ton. Approximately 42 percent of the company's planned production in 2008 was committed, also as of Feb. 5.

    Alpha's expectations for 2007 are as follows:

    Planned production (produced & processed)     24 - 25 million tons
    Purchased coal                                4 - 5 million tons
    Avg. realized price/ton sold                  $55 - $56
    DD&A                                          $150 million - $155 million
    Effective tax rate                            26 - 27 percent
    Capital expenditures *                        $120 million - $150 million
    *(includes Gallatin)

Commenting on Alpha's outlook for 2007, Quillen said: "Until we see evidence of sustained coal price improvements, we have put together an operating plan that maintains current production levels. During the past year, we reorganized our Kentucky and West Virginia mining operations, and a similar process is now underway in Virginia and Pennsylvania to concentrate production, manpower and capital in lower-cost, more productive reserves. If market conditions warrant it, we're prepared to take additional steps to rationalize production further to maximize operating margins. We are also going to be prudent with our contract pricing decisions, preserving our opportunities, particularly regarding commitments in 2008 and beyond."

Fourth-Quarter Earnings Conference Call

Alpha management will hold a conference call at 11:00 a.m. today, Feb. 14, 2007, to discuss the company's fourth-quarter and full-year results, general performance and outlook. The call will be accessible through the company's web site ( ), and will be archived on the site for a period of two weeks. A replay will also be available through Feb. 28, 2007 by calling 800-642-1687 (toll-free) or 706-645-9291 and entering pass code 7464690.

About Alpha Natural Resources

Alpha Natural Resources is a leading supplier of high-quality Appalachian coal to electric utilities, steel producers and heavy industry. Approximately 91 percent of the company's reserve base is high Btu coal and 84 percent is low sulfur, qualities that are in high demand among electric utilities which use steam coal. Alpha is also one of the nation's largest producers and exporters of metallurgical coal, a key ingredient in steel manufacturing. Alpha and its subsidiaries currently operate mining complexes in four states, consisting of 65 mines feeding 10 coal preparation and blending plants. The company and its subsidiaries employ more than 3,500 people.


Forward-Looking Statements

Certain statements in this news release are forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. Alpha Natural Resources, Inc. ("Alpha" or "the company") uses the words "anticipate," "believe," "could," "estimate," "expect," "intend," "may," "predict," "project," "should," "target" and similar terms and phrases, including references to assumptions, to identify forward-looking statements. These forward-looking statements are based on Alpha's expectations and beliefs concerning future events affecting the company and involve certain risks and uncertainties that may cause actual results to differ materially from expectations as of the date of this release. These factors are difficult to accurately predict and may be beyond the control of the company. The following factors are among those that may cause actual results to differ materially from our forward-looking statements: market demand for coal, electricity and steel; competitive factors in the coal industry; the company's ability to integrate acquired businesses into Alpha's existing operations; successful completion of project construction plans and marketing agreements for the Gallatin Materials LLC investment; Alpha's ability to maintain an adequate labor force and other employee workforce factors; weather conditions or catastrophic weather-related damage; the company's production capabilities; the company's relationships with, and other conditions affecting its customers; the timing of reductions or increases in customer coal inventories; long-term coal supply arrangements; environmental laws, including those directly affecting Alpha's coal mining and production, and those affecting its customers' coal usage; railroad, vessel and other transportation performance and costs; the geological characteristics of Central and Northern Appalachian coal reserves; Alpha's assumptions concerning economically recoverable coal reserve estimates; regulatory and court decisions; future legislation and changes in regulations, governmental policies or taxes; uncertainties of pending litigation; changes in postretirement benefit and pension obligations; and Alpha's liquidity, results of operations and financial condition. These and other risk factors and uncertainties are discussed in greater detail in the company's Annual Report on Form 10-K and other documents filed with the Securities and Exchange Commission. Forward-looking statements made by the company in this news release or elsewhere speak only as of the date made. New uncertainties and risks come up from time to time, and it is impossible for the company to predict these events or how they may affect the company. The company has no duty to, and does not intend to, update or revise the forward-looking statements in this news release after the date it is issued. In light of these risks and uncertainties, investors should keep in mind that the results, events or developments disclosed in any forward-looking statement made in this news release may not occur.


    Reconciliation of EBITDA

EBITDA is a non-GAAP financial measure used by management to gauge operating performance. Alpha defines EBITDA as net income or loss plus interest expense, income taxes, and depreciation, depletion and amortization, less interest income. Management presents EBITDA as a supplemental measure of the company's performance and debt-service capacity that may be useful to securities analysts, investors and others. EBITDA is not, however, a measure of financial performance under U.S. GAAP and should not be considered as an alternative to net income, operating income or cash flow as determined in accordance with U.S. GAAP. Moreover, EBITDA is not calculated identically by all companies. A reconciliation of EBITDA and EBITDA as adjusted for minority interest to net income, the most directly comparable U.S. GAAP measure, is provided in an accompanying table.

                           FINANCIAL TABLES FOLLOW

             Condensed Consolidated Statements of Income (Unaudited)
                (In thousands, except share and per share amounts)

                               Three months ended       Twelve months ended
                                  December 31,              December 31,
                                2006        2005         2006          2005

     Coal revenues           $407,614    $432,110    $1,687,553    $1,413,174
     Freight and handling
      revenues                 45,234      58,904       188,366       185,555
     Other revenues             5,105       8,669        34,743        27,926
       Total revenues         457,953     499,683     1,910,662     1,626,655
    Costs and expenses:
     Cost of coal sales
      (exclusive of items
      separately below)       335,619     365,792     1,352,450     1,184,092
     Freight and handling
      costs                    45,234      58,904       188,366       185,555
     Cost of other revenues     3,812       7,349        22,982        23,675
     Depreciation, depletion
      and amortization         36,588      27,600       140,851        73,122
     Selling, general and
      expenses (exclusive of
      depreciation and
      amortization shown
      separately above)        15,723      13,718        67,952        88,132
       Total costs and
        expenses              436,976     473,363     1,772,601     1,554,576

       Income from
        operations             20,977      26,320       138,061        72,079
    Other income
     Interest expense          (9,976)    (10,537)      (41,774)      (29,937)
     Interest income              325         389           839         1,064
     Miscellaneous income
      (expense), net           (1,600)         52           523            91
      Total other income
       (expense), net         (11,251)    (10,096)      (40,412)      (28,782)
      Income from
       continuing operations
       before income taxes
       and minority interest    9,726      16,224        97,649        43,297
    Income tax expense
     (benefit)                (53,559)      3,812       (30,519)       18,953
    Minority interest              -           -             -          2,918
      Income from
       continuing operations   63,285      12,412       128,168        21,426

    Discontinued operations:
     Loss from discontinued
      operations before
      income taxes and
      minority interest            -           -             -           (378)
     Income tax benefit            -           -             -            (93)
     Minority interest             -           -             -            (72)
      Loss from discontinued
       operations                  -           -             -           (213)

       Net income             $63,285     $12,412      $128,168       $21,213

    Net income per basic and
     diluted share, as
     adjusted in 2005
     Income from continuing
      operations                $0.98       $0.20         $2.00         $0.38
     Loss from discontinued
      operations                    -           -             -             -
     Net income per basic
      and diluted share         $0.98       $0.20         $2.00         $0.38
     Weighted average
      shares-basic         64,361,693  63,023,258    64,093,571    55,664,081
     Weighted average
      shares-diluted       64,389,995  63,401,287    64,150,780    56,049,546

                Condensed Consolidated Balance Sheets (Unaudited)
                (In thousands, except share and per share amounts)

                                                 December 31,     December 31,
                                                    2006             2005
    Current assets:
      Cash and cash equivalents                     $33,256           39,622
      Trade accounts receivable, net                171,195          147,961
      Notes and other receivables                     6,466           10,330
      Inventories                                    76,844           76,788
      Prepaid expenses and other current assets      50,893           44,214
              Total current assets                  338,654          318,915
    Property, plant, and equipment, net             637,136          582,750
    Goodwill                                         20,547           18,641
    Other intangibles, net                           11,720           11,014
    Deferred income taxes                            94,897           38,967
    Other assets                                     42,839           43,371
              Total assets                       $1,145,793        1,013,658

        Liabilities and Stockholders' Equity
    Current liabilities:
      Current portion of long-term debt              $3,254            3,242
      Notes payable                                  20,941           59,014
      Bank overdraft                                 23,814           17,065
      Trade accounts payable                         75,986           99,746
      Deferred income taxes                           7,601           11,243
      Accrued expenses and other current
       liabilities                                   90,594           93,531
              Total current liabilities             222,190          283,841
    Long-term debt, net of current portion          421,456          423,547
    Workers' compensation benefits                    7,169            5,901
    Postretirement medical benefits                  50,712           24,461
    Asset retirement obligation                      69,495           46,296
    Deferred gains on sale of property
     interests                                        3,885            5,762
    Other liabilities                                26,887           11,085
              Total liabilities                     801,794          800,893

    Minority Interest                                   (50)              -

    Stockholders' equity
      Preferred stock - par value $0.01,
       10,000,000 shares authorized, none issued          -                -
      Common stock - par value $0.01,
       100,000,000 shares authorized, 64,964,287
       and 64,420,414 shares issued and
       outstanding                                      650              644
      Additional paid-in capital                    215,020          193,608
      Accumulated other comprehensive loss          (19,019)              -
      Retained earnings                             147,398           18,513
        Total stockholders' equity                  344,049          212,765
        Total liabilities and stockholders'
         equity                                  $1,145,793        1,013,658

           Condensed Consolidated Statements of Cash Flows (Unaudited)
                                  (In thousands)

                                                   Twelve months ended
                                                       December 31,
                                                  2006               2005

    Operating activities:
      Net income                                 $128,168            21,213
      Adjustments to reconcile net income
       to net cash provided by operating
          Depreciation, depletion and
           amortization                           140,851            73,405
          Amortization of debt issuance costs       2,282             3,357
          Accretion of asset retirement
           obligation                               4,874             3,514
          Virginia tax credit                          -               (343)
          Stock-based compensation - non-cash      20,463            39,045
          Minority interest                            -              2,846
          Deferred income taxes                   (47,803)            3,736
          Other non-cash items                     (1,524)           (1,219)
          Changes in operating assets and
           liabilities                            (37,230)            4,089
                Net cash provided by
                 operating activities             210,081           149,643

    Investing activities:
      Capital expenditures                      $(131,943)         (122,342)
      Proceeds from disposition of
       property, plant, and equipment               1,471             5,450
      Purchase of acquired companies              (31,532)         (221,869)
      Payment of additional consideration
       on prior acquisition                            -             (5,000)
      Investment in and advances to investee         (344)           (1,234)
      Collections on note receivable from
       coal supplier                                3,000             5,608
      Other                                          (698)               -
                Net cash used in
                 investing activities            (160,046)         (339,387)

    Financing activities:
      Repayments of notes payable                 (58,315)          (15,228)
      Proceeds from issuance of long-term debt    286,821           323,000
      Repayments of long-term debt               (290,210)          (82,743)
      Increase in bank overdraft                    6,749             7,041
      Proceeds from initial public
       offering, net of offering costs                 -            598,066
      Repayment of restructuring notes
       payable                                         -           (517,692)
      Distributions to prior members of
       ANR Holdings, LLC subsequent to
       Internal Restructuring                      (2,400)          (71,135)
      Distributions to prior members of
       ANR Holdings, LLC prior to Internal
       Restructuring                                   -             (7,732)
      Payment of Sponsor Distribution
       related to Internal Restructuring               -             (3,600)
      Debt issuance costs                              -             (8,201)
      Proceeds from exercise of stock options         954                -
      Other                                            -                199
                Net cash provided by
                 (used in) financing activities   (56,401)          221,975
                Net increase (decrease)
                 in cash and cash equivalents      (6,366)           32,231
    Cash and cash equivalents at beginning of
     period                                        39,622             7,391
    Cash and cash equivalents at end of period    $33,256            39,622

    The following table reconciles EBITDA and EBITDA, as adjusted, to net
    income, the most directly comparable
    GAAP measure:

                                      Quarter ended      Twelve months ended
                                      December 31,          December 31,
                                     2006       2005       2006       2005
                                     (In thousands)        (In thousands)

        Net income                 $63,285    12,412    $128,168     21,213
        Interest expense             9,976    10,537      41,774     29,937
        Interest income               (325)     (389)       (839)    (1,064)
        Income tax expense
         (benefit)                 (53,559)    3,812     (30,519)    18,953
        Depreciation, depletion
         and amortization           36,588    27,600     140,851     73,122
             EBITDA                 55,965    53,972     279,435    142,161

        Minority interest               -         -           -       2,918
             EBITDA, as adjusted   $55,965    53,972    $279,435    145,079

Source: Alpha Natural Resources, Inc.

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