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Alpha Natural Resources Reports Record Results for First Quarter 2006


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

                                           Q1/06     Q1/05

    Coal revenues                         $424.4    $273.1

    Income (loss) from operations*         $46.6    ($14.0)

    Net income (loss)*                     $27.2    ($25.8)

    Earnings (loss) per diluted share*     $0.43    ($0.71)

    EBITDA *                               $80.6     ($3.2)

    Tons of coal produced and processed    6,268     4,872

    Tons of coal sold                      7,123     5,533

    Coal margin per ton                   $13.13     $8.47

All data in the table above and in this news release reflect continuing operations only.

Please see the notes accompanying the financial schedules for reconciliation of EBITDA to GAAP net income.

* Includes charges for stock-based compensation as follows: $3.8 million in Q1/06 (equal to $3.7 million after tax, or $0.06 per diluted share) and $36.4 million in Q1/05 (equal to $35.5 million after tax, or $0.58 per basic share)

ABINGDON, Va., May 4, 2006 /PRNewswire-FirstCall via COMTEX News Network/ -- Alpha Natural Resources, Inc. (NYSE: ANR), a leading Appalachian coal producer, recorded a 29 percent increase in coal production and 21 percent gain in revenue per ton compared with the first quarter of last year due to strong performance from both existing operations and the recently acquired Callaway mining businesses.

For the quarter ended March 31, 2006, Alpha recorded total revenues of $482.3 million including coal sales revenues of $424.4 million. This compares with total revenues of $312.2 million and coal sales revenues of $273.1 million in the corresponding period last year.

Net income for the most recent quarter was a record $27.2 million, or $0.43 per diluted share. These results include a non-cash charge of $3.2 million after tax ($0.05 per diluted share) for stock-based compensation related to the company's initial public offering and related internal restructuring in February 2005, as well as a charge of approximately $500,000 after tax ($0.01 per diluted share) for the recognition of the fair value of employee stock grants as required under SFAS No. 123R, which the company adopted on January 1, 2006.

In the first quarter of 2005, Alpha reported a net loss of $25.8 million, or $0.39 per basic share on a pro-forma basis as if the IPO had occurred at the beginning of 2005. Those results included a stock-based compensation charge related to the IPO of $35.5 million after tax ($0.58 per basic share). Alpha also recorded an after-tax gain of $1.3 million ($0.02 per basic share) in the first quarter of 2005 resulting from the settlement of a funded reclamation bonding program.

Results for the quarter just ended include contribution from the Nicewonder Coal Group acquisition that Alpha completed in October 2005, which has been renamed Callaway Natural Resources.

"Our performance continues to underscore what Alpha excels at: mining high quality coals and optimizing specifications for our customers, which results in excellent margins," said Michael J. Quillen, Alpha's president and CEO. "We're also pleased with the smooth integration of Callaway and the positive contribution this new business unit is already making. So far we've achieved the desired effect of increasing the proportion of lower cost surface mining production while adding more than a million tons of coal sales growth in the first quarter."

Operating and Financial Review

Production from company and contract-operated mines of 6.3 million tons represented an increase of 29 percent from last year, or 7 percent excluding the 1.0 million tons of production contributed by Callaway. Surface mines accounted for 39 percent of company mine production during the quarter compared with 18 percent in the first quarter of 2005. Alpha Coal Sales purchased 1.1 million tons of coal for blending and resale during the quarter, compared with 1.2 million tons in the same period last year and 1.9 million tons in the last quarter of 2005.

Total coal sales for the first quarter of 2006 were 7.1 million tons with an average net realized price per ton of $59.58, compared with coal sales of 5.5 million tons and average net realized price per ton of $49.37 the prior year. Sequentially, Alpha's average price per ton was up $3.90 (7 percent) from the fourth quarter of last year.

In the first quarter of this year, 39 percent of sales volumes were in the domestic and international metallurgical markets, where demand and pricing remains very strong for Alpha's lineup of high performance coals.

Alpha's average cost of coal sales per ton in the most recent quarter was $46.46, down marginally from $47.13 per ton in the preceding quarter. Planned reductions of purchased coal, coupled with higher company mine production, impacted costs favorably. Cost of coal sales per ton for company mines was $40.42, compared with $39.54 in the preceding quarter.

With a total cost per ton increase of 14 percent and a price realization increase of 21 percent year-over-year, Alpha expanded its coal margin per ton by 55 percent, from $8.47 in the first quarter of 2005 to a new quarterly high of $13.13 for the current period.

"Cash cost of sales was in line with our expectations coming into 2006, while per-ton sales revenue is a little better than we anticipated," commented Mike Quillen. "This gave us solid earnings leverage in the quarter."

Earnings before interest, income taxes, depreciation, depletion and amortization (EBITDA) reached a new high of $80.6 million in the most recent quarter, including a $3.2 million stock-based compensation charge related to Alpha's 2005 IPO and a $0.6 million charge from the adoption of SFAS No. 123R. In the comparable quarter last year, Alpha recorded negative EBITDA of $3.2 million including $36.4 million stock-based compensation charges related to the IPO. The definition of EBITDA and a reconciliation to GAAP net income is provided in a table included with the accompanying financial schedules.

Excluding all stock-based compensation charges, selling, general and administrative (SG&A) expenses during the first three months of 2006 were $12.9 million, compared with $11.5 million in 2005. The increase was primarily due to the company's recent growth. As a percentage of total sales revenues, SG&A expenses fell a percentage point to 2.7 percent of revenues compared with 3.7 percent in the first quarter of 2005, excluding the stock-based compensation charges.

Depreciation, depletion and amortization (DD&A) totaled $33.6 million in the most recent quarter, compared with $14.2 million in the same period last year. Substantially all of the increase in DD&A was attributable to the Callaway assets that were acquired last October.

Production and sales highlights for the first quarter are as follows:

                          Production and Sales Data
                    (in thousands, except per-ton amounts)

                                      Q1-06           Q1-05        % Change
    Produced/processed                6,268           4,872           29%
    Purchased                         1,115           1,190           -6%
      Total                           7,383           6,062           22%

    Tons sold:
    Steam                             4,355           3,205           36%
    Metallurgical                     2,768           2,328           19%
      Total                           7,123           5,533           29%

    Coal sales realization/ton:
    Steam                            $49.01          $36.63           34%
    Metallurgical                    $76.22          $66.89           14%
    Total                            $59.58          $49.37           21%

    Cost of coal sales/ton (1):
    Alpha mines                      $40.42          $34.54           17%
    Contract mines (2)               $52.95          $46.33           14%
      Total produced and
       processed                     $42.50          $36.92           15%
    Purchased                        $66.28          $60.63            9%
      Total                          $46.46          $40.90           14%

    Coal margin per ton              $13.13           $8.47           55%

    (1)  Excludes DD&A
    (2)  Includes coal purchased & processed at our plants prior to resale.

Liquidity and Capital Resources

Cash provided from operations for the most recent quarter was $33.4 million, whereas operations consumed $5.2 million in cash flow the prior year. First-quarter 2005 cash flows were impacted by higher working capital requirements due to inventory build-up last year and the cash portion of stock-based compensation charges.

Capital expenditures for the first three months of 2006 totaled $51.4 million and were affected by the timing of new equipment deliveries. Alpha continues to expect total capital expenditures for the year of approximately $150 million.

During the quarter just ended, Alpha had net repayments of debt in the amount of $23.6 million, reducing total debt outstanding at the end of the quarter to $462.2 million. The company had available liquidity of $198.2 million at the end of the first quarter including cash of $11.2 million and $187.0 million available under the company's credit facility.

Alpha's balance sheet at March 31, 2006 included total legacy liabilities (workers' compensation, retiree medical and reclamation) of $88.9 million, including current obligations of about $8 million. Alpha continues to have one of the lowest levels of legacy liabilities among publicly traded coal companies.

Recent Developments

Market Outlook

Contract negotiations for Alpha's European metallurgical export business were substantially concluded during the first quarter, and pricing has remained firm. Due to strength in global steel production and pricing, Alpha expects this may create opportunities for additional metallurgical sales this year both in North America and overseas.

Also, as of April 25, 2006, the company had approximately 48 percent of 2007 planned production committed at a blended (steam and metallurgical) price per ton of approximately $57. Of the uncommitted 2007 production, 36 percent is metallurgical coal and the balance is steam coal. For 2008, Alpha had committed 25 percent of planned production as of April 25, with the uncommitted balance composed of 37 percent met coal and 63 percent steam coal. These figures do not include production from the Progress acquisition just completed.

Financial Outlook

From time to time Alpha updates its annual financial outlook as circumstances dictate. The company gave its financial outlook for the current year on February 13, 2006, including targeted coal sales revenues of $1.6 billion to $1.7 billion, net income of $96 million to $123 million, and earnings per diluted share of $1.50 to $1.91, including the remaining stock- based compensation expense related to the IPO. Alpha also gave an EBITDA target of $306 million to $347 million for 2006, or approximately $320 million to $360 million excluding the remaining stock-based compensation expenses related to the IPO. At this time, Alpha believes there are no developments that would cause the company to alter the financial outlook given on February 13.

Conference Call Webcast

Alpha will hold a conference call to discuss first-quarter results on Thursday, May 4, 2006 at 11:00 a.m. ET. The call will be accessible through the Internet at Alpha's web site, , and will be archived on the site as well. A replay will be available through May 18 on the company's web site, or can be accessed by phone by dialing 800-642-1687 (toll- free) or 706-645-9291 and entering pass code 8021210.

About Alpha Natural Resources

Alpha Natural Resources is a leading producer of high-quality Appalachian coal. Including the newly acquired Progress operations, 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 72 mines feeding 12 coal preparation and blending plants. The company and its subsidiaries employ more than 3,700 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," "should," "estimate," "expect," "intend," "may," "predict," "project," "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; the company's ability to integrate the Progress acquisition into Alpha's existing operations; 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; Alpha's assumptions concerning economically recoverable coal reserve estimates; regulatory and court decisions; future legislation and changes in regulations or governmental policies; uncertainties of pending litigation; changes in postretirement benefit and pension obligations; and Alpha's liquidity, results of operations and financial condition. These and other additional 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 Non-GAAP Measures

This news release includes certain non-GAAP financial measures as defined by SEC regulations. EBITDA is a 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 GAAP and should not be considered as an alternative to net income, operating income or cash flow as determined in accordance with GAAP. Moreover, EBITDA is not calculated identically by all companies. A reconciliation of these measures to the most directly comparable GAAP measures is provided in an accompanying table.

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

                                                    Three months ended
                                                         March 31,
                                                   2006             2005

      Coal revenues                              $424,374         $273,134
      Freight and handling revenues                46,392           31,752
      Other revenues                               11,544            7,269
          Total revenues                          482,310          312,155
    Costs and expenses:
      Cost of coal sales (exclusive of items
       shown separately below)                    330,885          226,284
      Freight and handling costs                   46,392           31,752
      Cost of other revenues                        7,951            6,065
      Depreciation, depletion and
       amortization                                33,634           14,170
      Selling, general and administrative
        (exclusive of depreciation and
         amortization shown separately above
         and including stock-based compensation
         of $3,833 and $36,407 for the three
         months ended March 31, 2006 and 2005)     16,809           47,906
          Total costs and expenses                435,671          326,177

          Income (loss) from operations            46,639          (14,022)
    Other income (expense):
      Interest expense                            (10,277)          (6,117)
      Interest income                                 188              287
      Miscellaneous income (expense), net             282              (41)
        Total other income (expense), net          (9,807)          (5,871)
        Income (loss) from continuing
         operations before income taxes
         and minority interest                     36,832          (19,893)
    Income tax expense                              9,620            2,510
    Minority interest                                  -             2,918
        Income from continuing operations          27,212          (25,321)

    Discontinued operations:
      Loss from discontinued operations
       before income taxes and minority
       interest                                        -              (738)
      Income tax (benefit)                             -              (186)
      Minority interest                                -               (72)
        Loss from discontinued operations              -              (480)

          Net income (loss)                       $27,212         $(25,801)

    Net income (loss) per share, (as
     adjusted in 2005):
      Basic and diluted:
        Income (loss) from continuing
         operations                                 $0.43           $(0.70)
        Loss from discontinued operations              -             (0.01)
          Net income (loss), as adjusted            $0.43           $(0.71)

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

                                                  March 31,     December 31,
                                                     2006          2005
    Current assets:
      Cash and cash equivalents                    $11,151           39,622
      Trade accounts receivable, net               164,252          147,961
      Notes and other receivables                    5,139           10,330
      Inventories                                   82,817           84,885
      Prepaid expenses and other current
       assets                                       40,805           36,117
              Total current assets                 304,164          318,915
    Property, plant, and equipment, net            602,865          582,750
    Goodwill                                        18,641           18,641
    Other intangibles, net                          10,073           11,014
    Deferred income taxes                           37,990           38,967
    Other assets                                    42,388           43,371
              Total assets                      $1,016,121        1,013,658
         Liabilities and Stockholders' Equity
    Current liabilities:
      Current portion of long-term debt             $2,962            3,242
      Notes payable                                 13,957           59,014
      Bank overdraft                                29,378           17,065
      Trade accounts payable                        83,003           99,746
      Deferred income taxes                         12,241           11,243
      Accrued expenses and other current
       liabilities                                  87,016           93,531
              Total current liabilities            228,557          283,841
    Long-term debt, net of current portion         445,303          423,547
    Workers' compensation benefits                   6,227            5,901
    Postretirement medical benefits                 26,692           24,461
    Asset retirement obligation                     47,676           46,296
    Deferred gains on sale of property
     interests                                       5,523            5,762
    Other liabilities                               11,924           11,085
              Total liabilities                    771,902          800,893
    Stockholders' equity
    Alpha Natural Resources, Inc.:
      Preferred stock - par value $0.01,
       10,000,000 shares authorized, none
       issued                                           -                -
      Common stock - par value $0.01,
       100,000,000 shares authorized,
       64,949,916 shares issued and outstanding        649              644
      Additional paid-in capital                   197,845          193,608
      Retained earnings                             45,725           18,513
        Total stockholders' equity                 244,219          212,765
        Total liabilities and stockholders'
         equity                                 $1,016,121        1,013,658

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

                                                   Three months ended
                                                        March 31,
                                                  2006              2005

    Operating activities:
      Net income (loss)                          $27,212           (25,801)
      Adjustments to reconcile net income
       (loss) to net cash provided by
       (used in) operating activities:
          Depreciation, depletion and
           amortization                           33,634            14,480
          Amortization of debt issuance
           costs                                     566               435
          Accretion of asset retirement
           obligation                              1,077               808
          Stock-based compensation - non- cash     3,833            28,932
          Minority interest                           -              2,846
          Deferred income taxes                    1,975                58
          Other non-cash items                        (8)             (910)
          Changes in operating assets and
           liabilities                           (34,861)          (26,040)
                Net cash provided by (used in)
                 operating activities             33,428            (5,192)

    Investing activities:
      Capital expenditures                      $(51,439)          (30,268)
      Proceeds from disposition of
       property, plant, and equipment                182               501
      Purchase of net assets of acquired
       companies                                      -               (389)
      Investment in and advances to investee         (15)             (500)
      Collections on note receivable from
       coal supplier                               1,432             1,223
      Payment of additional consideration
       on prior acquisition                           -             (5,000)
                Net cash used in
                 investing activities            (49,840)          (34,433)

    Financing activities:
      Repayments of notes payable                (45,457)           (4,092)
      Proceeds from issuance of long-term debt    95,000            24,500
      Repayments on long-term debt               (73,125)             (440)
      Increase in bank overdraft                  12,313            10,918
      Proceeds from initial public
       offering, net of offering costs                -            598,190
      Repayment of restructuring notes payable        -           (517,692)
      Distributions to prior members of
       ANR Holdings, LLC
        subsequent to Internal Restructuring      (1,200)          (71,135)
      Distributions to prior members of
       ANR Holdings, LLC
        prior to Internal Restructuring               -             (7,732)
      Proceeds from exercise of stock
       options                                       410                -
                Net cash provided by (used in)
                  financing activities           (12,059)           32,517
                Net (decrease) in cash
                  and cash equivalents           (28,471)           (7,108)
    Cash and cash equivalents at
     beginning of period                          39,622             7,391
    Cash and cash equivalents at end of
     period                                      $11,151               283

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

Quarter ended
                                                March 31,
                                         2006             2005
                                             (In thousands)

    Net income (loss)                   $27,212          (25,801)
    Interest expense                     10,277            6,117
    Interest income                        (188)            (287)
    Income tax expense                    9,620            2,324
    Depreciation, depletion and
     amortization                        33,634           14,480
      EBITDA                             80,555           (3,167)

    The following unaudited table reconciles reported net loss to pro forma
net loss as if the Internal Restructuring, and initial public offering had
occurred on January 1, 2005:

                                                        Three months
                                                       March 31, 2005

    Reported net loss                                   ($25,801)
    Add:  Elimination of minority interest,
     net of income tax effects of Internal
     Restructuring                                         2,087

    Pro forma net loss                                  ($23,714)

    Pro forma earnings per share data:
    Basic earnings per share                              ($0.39)
    Shares outstanding - basic                        60,923,689

    Diluted loss per share is not shown because
     the effect is anti-dilutive.

SOURCE Alpha Natural Resources, Inc.

Ted Pile for Alpha Natural Resources, Inc., +1-276-623-2920

Copyright (C) 2006 PR Newswire. All rights reserved.

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