anr10q033109.htm

SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
(Mark One)
     
þ
  
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2009
OR
     
o
  
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. 1-32423
ALPHA NATURAL RESOURCES, INC.
(Exact name of registrant as specified in its charter)
     
Delaware
  
02-0733940
(State or other jurisdiction of
  
(I.R.S. Employer
incorporation or organization)
  
Identification Number)
     
One Alpha Place, P.O. Box 2345, Abingdon, VA
  
24212
(Address of principal executive offices)
  
(Zip Code)
Registrant’s telephone number, including area code:
 (276) 619-4410
     Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. þ 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). ¨ 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.

þ Large accelerated filer     o Accelerated filer     ¨ Non-accelerated filer ¨ 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 þ  No

     Number of shares of the registrant’s Common Stock, $0.01 par value, outstanding as of May 1, 2009 – 71,351,023


 

 
TABLE OF CONTENTS
         
   
Page
    
PART I
        
         
Item 1. Financial Statements
        
 
2
    
 
3
    
 
4
    
 
5
    
 
21
    
 
31
    
 
32
    
         
PART II
        
         
 
33
    
 
33
    
 
34
    
 
34
    
 

 
 
- 1 -


Item 1. Financial Statements


               
 
Condensed Consolidated Statements of Income (Unaudited)
  
(In thousands, except per share amounts)
  
               
   
Three Months Ended
  
   
March 31,
  
   
2009
  
2008
  
               
Revenues:
              
    Coal revenues
  
$
           424,416
  
$
           422,409
  
    Freight and handling revenues
    
             46,054
    
             59,172
  
    Other revenues
    
             16,265
    
             11,475
  
             Total revenues
    
           486,735
    
           493,056
  
Costs and expenses:
              
    Cost of coal sales (exclusive of items shown separately below)
    
           303,025
    
           338,660
  
    Increase in fair value of derivative instruments, net
    
                (238
 )   
           (16,684
 ) 
    Freight and handling costs
    
             46,054
    
             59,172
  
    Cost of other revenues
    
             11,863
    
               8,137
  
    Depreciation, depletion and amortization
    
             40,205
    
             42,545
  
    Selling, general and administrative expenses
              
         (exclusive of depreciation and amortization shown separately above)  
       
             16,466
    
             15,324
  
             Total costs and expenses
    
           417,375
    
           447,154
  
               
              Income from operations
    
             69,360
    
             45,902
  
Other income (expense):
              
    Interest expense
    
             (9,853
 )   
             (9,979
 ) 
    Interest income
    
                  625
    
                  750
  
    Miscellaneous income, net
    
                  116
    
                  125
  
             Total other income (expense), net
    
             (9,112
 )   
             (9,104
 ) 
              Income from continuing operations before income taxes
    
             60,248
    
             36,798
  
Income tax expense
    
           (13,627
 )   
             (8,808
 ) 
              Income from continuing operations
    
             46,621
    
             27,990
  
               
Discontinued operations
              
    Loss from discontinued operations before income taxes
    
             (7,251
 )   
             (3,300
 ) 
    Income tax benefit
    
               1,594
    
                  840
  
              Loss from discontinued operations
    
             (5,657
 )   
             (2,460
 ) 
              Net income
  
$
             40,964
  
$
             25,530
  
               
               
Basic earnings per share:
              
    Income from continuing operations
  
$
                 0.67
  
$
                 0.43
  
    Loss from discontinued operations
    
               (0.08
 )   
               (0.04
 ) 
              Net income
  
$
                 0.59
  
$
                 0.39
  
               
Diluted earnings per share:
              
    Income from continuing operations
  
$
                 0.66
  
$
                 0.43
  
    Loss from discontinued operations
    
               (0.08
 )   
               (0.04
 )
              Net income
  
$
                 0.58
  
$
                 0.39
  
               
               
See accompanying notes to the condensed consolidated financial statements.    
 
        
               



             
 
Condensed Consolidated  Balance Sheets (Unaudited)
  
(In thousands, except share and per share amounts)
  
   
   
March 31,
    
December 31,
  
   
2009
    
2008
  
             
Assets
            
Current assets:
            
Cash and cash equivalents
   $ 692,686     $ 676,190  
Trade accounts receivable, net
     162,208       163,674  
Notes and other receivables
     13,766       15,074  
Deferred income taxes
     3,105       -  
Inventories
     105,371       86,594  
Prepaid expenses and other current assets
     52,727       50,251  
Total current assets
     1,029,863       991,783  
                 
Property, plant, and equipment, net
     528,852       550,098  
Goodwill
     20,547       20,547  
Other intangibles, net
     3,290       3,835  
Deferred income taxes
     76,630       83,689  
Other assets
     55,992       59,886  
Total assets
   $ 1,715,174     $ 1,709,838  
                 
Liabilities and Stockholders' Equity
                
Current liabilities:
                
Current portion of long-term debt
   $ 178     $ 232  
Note payable
     12,872       18,288  
Trade accounts payable
     90,859       102,975  
Accrued expenses and other current liabilities
     115,960       140,459  
Total current liabilities
     219,869       261,954  
Long-term debt
     435,421       432,795  
Workers’ compensation benefit obligations
     9,819       9,604  
Postretirement medical benefit obligations
     61,671       60,211  
Asset retirement obligation
     92,023       90,565  
Deferred gains on sale of property interests
     2,250       2,421  
Other liabilities
     55,874       56,596  
Total liabilities
     876,927       914,146  
                 
Commitments and contingencies (Note 16)
                
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, 71,455,668 issued and 71,348,929 outstanding
                
at March 31, 2009 and 70,513,880 shares issued and
                
outstanding at December 31, 2008
     715       705  
Additional paid-in capital
     487,372       484,261  
Accumulated other comprehensive loss
     (29,615 )     (30,107 )
Treasury stock, at cost: 106,739  and 0 shares at March 31, 2009
                
and December 31, 2008, respectively
     (2,022 )     -  
Retained earnings
     381,797       340,833  
Total stockholders' equity
     838,247       795,692  
Total liabilities and stockholders' equity
   $ 1,715,174     $ 1,709,838  
                 
See accompanying notes to condensed consolidated financial statements.
                
                 



             
 
Condensed Consolidated Statements of Cash Flows (Unaudited)
  
(In thousands)
  
             
   
Three Months Ended
  
   
March 31,
  
   
2009
    
2008
  
             
Operating activities:
            
Net income
   $ 40,964     $ 25,530  
Adjustments to reconcile net income
                
to net cash provided by operating
                
activities:
                
Depreciation, depletion and amortization
     40,734       44,260  
Amortization of debt issuance costs
     647       600  
Accretion of asset retirement obligation
     2,059       1,852  
Accretion of debt discount
     2,626       -  
Share-based compensation
     3,225       2,989  
Amortization of deferred gains on sales
                
of property interests
     (171 )     (213 )
Gain on sale of fixed assets and investments
     (261 )     (672 )
Change in fair value of derivative instruments
     (238 )     (16,684 )
Deferred income tax expense
     3,791       3,681  
Other
     542       (469 )
Changes in operating assets and liabilities:
                
Trade accounts receivable
     1,466       (12,506 )
Notes and other receivables
     671       (657 )
Inventories
     (18,777 )     (18,621 )
Prepaid expenses and other current
                
assets
     (3,187 )     3,789  
Other assets
     2,822       6,125  
Trade accounts payable
     (10,576 )     11,819  
Accrued expenses and other current
                
liabilities
     (24,692 )     (12,875 )
Workers’ compensation benefits
     238       (446 )
Postretirement medical benefits
     2,052       2,149  
Asset retirement obligation
     (802 )     (1,120 )
Other liabilities
     617       3,222  
Net cash provided by
                
   operating activities
   $ 43,750     $ 41,753  
                 
Investing activities:
                
Capital expenditures
   $ (18,136 )   $ (33,797 )
Proceeds from disposition of property, plant,
                
and equipment
     159       786  
Investment in and advances to investee
     (35 )     (29 )
Proceeds from sale of investment in coal terminal
     -       1,500  
Purchase of acquired companies
     (1,750 )     -  
Other
     -       (5 )
Net cash used in investing activities
   $ (19,762 )   $ (31,545 )
                 
Financing activities:
                
Repayments of note payable
   $ (5,416 )   $ (6,210 )
Repayments on long-term debt
     (54 )     (158 )
Debt issuance costs
     -       (1,317 )
Decrease in bank overdraft
     -       (150 )
Tax benefit from share-based compensation
     -       734  
Common stock repurchases
     (2,022 )     -  
Proceeds from exercise of stock options
     -       1,688  
Net cash used in
                
   financing activities
   $ (7,492 )   $ (5,413 )
Net increase in cash
                
   and cash equivalents
   $ 16,496     $ 4,795  
Cash and cash equivalents at beginning of period
     676,190       54,365  
Cash and cash equivalents at end of period
   $ 692,686     $ 59,160  
                 
See accompanying notes to condensed consolidated financial statements.
  
                 


ALPHA NATURAL RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
March 31, 2009
 (In thousands, except percentages, share, per share, and per gallon data)

(1) Business and Basis of Presentation

Organization and Business

Alpha Natural Resources, Inc. and its consolidated subsidiaries (the “Company”) are primarily engaged in the business of extracting, processing and marketing coal from deep and surface mines, located in the Central and Northern Appalachian regions of the United States, for sale to utility and steel companies in the United States and in international markets.

Basis of Presentation
 
The accompanying interim condensed consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles for interim financial reporting. Accounting measurements at interim dates inherently rely on estimates more than at year-end; however, in the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Significant items subject to such estimates and assumptions include inventories; mineral reserves; allowance for non-recoupable advanced mining royalties; asset retirement obligations; employee benefit liabilities; future cash flows associated with assets; useful lives for depreciation, depletion, and amortization; workers’ compensation and black lung claims; postretirement benefits other than pensions; income taxes; revenue recognized using the percentage of completion method; and fair value of financial instruments.  Due to the subjective nature of these estimates, actual results could differ from those estimates.  Results of operations for the three months ended March 31, 2009 are not necessarily indicative of the results to be expected for the year ending December 31, 2009. These financial statements should be read in conjunction with the audited financial statements and related notes as of and for the year ended December 31, 2008 included in the Company's Annual Report on Form 10-K filed with the Securities and Exchange Commission.
 
Reclassifications

Prior period cost of coal sales have been adjusted to exclude changes in the fair value of diesel fuel derivative contracts in the amount of $2,365, which is now included as increase in fair value of derivative instruments, net, to conform to the current year presentation.  This reclassification adjustment had no effect on previously reported income from continuing operations or net income.

On September 26, 2008, the Company sold its interests in Gallatin Materials, LLC (“Gallatin”), a lime manufacturing business, to an unrelated third party.  The results of operations for the prior periods have been reported as discontinued operations (See Note 15).

On December 3, 2008, the Company announced the permanent closure of the Whitetail Kittanning Mine, an adjacent coal preparation plant and other ancillary facilities (“Kingwood”).  The decision resulted from adverse geologic conditions and regulatory requirements that rendered the coal seam unmineable at this location.  The mine stopped producing coal in early January 2009 and Kingwood ceased equipment recovery operations at the end of April 2009.  Beginning in the first quarter of 2009, the results of operations for the current and prior periods have been reported as discontinued operations (See Note 15).

On January 1, 2009, the Company adopted FASB Staff Position (“FSP”) Accounting Principle Board (“APB”) 14-1, Accounting for Convertible Debt Instruments That May Be Settled in Cash upon Conversion (Including Partial Cash Settlement) (“FSP APB 14-1”).  FSP APB 14-1 is effective for financial statements issued for fiscal years beginning after December 15, 2008 and interim periods within those fiscal years.  Early adoption was not permitted and retroactive application to all periods presented is required.  Due to the adoption of FSP APB 14-1, certain adjustments have been made to the prior period presented for the Company’s condensed consolidated balance sheets (See Note 6).

 
- 5 -


(2)  New Accounting Pronouncements

There were no issued accounting standards not adopted by the Company as of March 31, 2009 that are expected to have a material impact on the Company’s financial statements.


(3) Earnings Per Share

The number of shares used to calculate basic earnings (loss) per 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 (loss) per share is based on the number of common shares used to calculate basic earnings (loss) 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 and the 2.375% convertible senior notes due 2015 that are convertible into the Company’s common stock. The convertible senior notes due 2015, which were issued in April 2008, become dilutive for earnings per share calculations when the average share price for the quarter exceeds the conversion price of $54.66.  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. For the three months ended March 31, 2009, the conversion option for the convertible senior notes due 2015 was not in the money, therefore there was no dilutive earnings per share impact.

The computations of basic and diluted net income per share are set forth below:
             
   
Three Months Ended March 31,
  
   
2009
    
2008
  
Numerator:
            
    Income from continuing operations
   $ 46,621     $ 27,990  
    Loss from discontinued operations
     (5,657 )     (2,460 )
    Net income
   $ 40,964     $ 25,530  
                 
Denominator:
                
    Weighted average shares — basic
     69,884,930       65,091,470  
    Dilutive effect of stock equivalents
     811,525       791,886  
    Weighted average shares — diluted
     70,696,455       65,883,356  
                 
Basic earnings per share:
                
    Income from continuing operations
   $ 0.67     $ 0.43  
    Loss from discontinued operations
     (0.08 )     (0.04 )
    Net income per basic share
   $ 0.59     $ 0.39  
                 
Diluted earnings per share:
                
    Income from continuing operations
   $ 0.66     $ 0.43  
    Loss from discontinued operations
     (0.08 )     (0.04 )
    Net income per diluted share
   $ 0.58     $ 0.39  
                 

(4) Inventories

Inventories consisted of the following:
             
   
March 31,
    
December 31,
  
   
2009
    
2008
  
Raw coal
   $ 11,339     $ 9,018  
Saleable coal
     78,961       61,297  
Equipment for resale
     1,258       2,282  
Materials and supplies
     13,813       13,997  
        Total inventories
   $ 105,371     $ 86,594  
                 



- 6 -

(5) Income Taxes

The income tax provision from continuing operations and discontinued operations for the three months ended March 31, 2009 is as follows:
                 
   
Three Months Ended
  
   
March 31,
  
   
2009
    
2008
  
Continuing operations
  
$
                          13,627
    
$
                            8,808
  
Discontinued operations
    
                          (1,594
 )     
                             (840
 ) 
   
$
                          12,033
    
$
                            7,968
  
                 

A reconciliation of the statutory federal income tax expense at 35% to actual income tax expense on income from continuing operations is as follows:
                 
   
Three Months Ended
  
   
March 31,
  
   
2009
    
2008
  
Federal statutory income tax expense
  
$
       21,086
    
 $
       12,879
  
Increases (reductions) in taxes due to:
                
    Percentage depletion allowance
    
        (7,667
 )     
        (3,114
 ) 
    Deduction for domestic production activities
    
           (569
 )     
           (222
 ) 
    State taxes, net of federal tax impact
    
         1,490
      
         1,126
  
    Change in valuation allowance
    
           (839
 )     
        (2,080
 ) 
    Change in state rates
    
                 -
      
            247
  
    Other, net
    
            126
      
             (28
 ) 
        Income tax expense
  
$
       13,627
    
 $
         8,808
  
                 

The Company has concluded that it is more likely than not that deferred tax assets, net of valuation allowances, currently recorded will be realized. The amount of the valuation allowance takes into consideration the Alternative Minimum Tax system as required by Statement of Financial Accounting Standards (“SFAS”) No. 109, Accounting for Income Taxes (“SFAS 109”). The Company monitors the valuation allowance each quarter and makes adjustments to the allowance as appropriate.
 
 
(6) Long-Term Debt
 
Long-term debt consisted of the following:
                 
   
March 31,
    
December 31,
  
   
2009
    
2008
  
Term loan due 2012
  
$
           233,125
    
$
           233,125
  
2.375% convertible senior notes due 2015
    
           287,500
      
           287,500
  
Capital lease obligation
    
                  178
      
                  232
  
    Total long-term debt, excluding discount
    
           520,803
      
           520,857
  
Convertible senior notes discount
    
           (85,204
 )     
           (87,830
 ) 
    Total long-term debt, net of discount
    
           435,599
      
           433,027
  
Less current portion
    
                  178
      
                  232
  
    Long-term debt, net of current portion
  
$
           435,421
    
$
           432,795
  
                 

- 7 -


Term Loan and Revolving Credit Facility

The Company has a senior secured credit facility (“Credit Agreement”) with a group of lending institutions led by Citicorp North America, Inc. as the administrative agent, which consists of a $250,000 term loan facility and a $375,000 revolving credit facility.  As of March 31, 2009, the Company had $361,926 available under the revolving credit facility.  The revolving credit facility will terminate in October 2010 and the term loan will mature in October 2012.

The Credit Agreement places restrictions on the ability of Alpha Natural Resources LLC (“ANR LLC”) and its subsidiaries to make distributions or loans to the Company. The net assets of ANR LLC are restricted, except for allowable distributions for the payment of income taxes, administrative expenses, payments on qualified debt, and, in certain circumstances, dividends or repurchases of common stock of the Company.

All of the Company borrowings under the Credit Agreement are at a variable rate, so the Company is exposed to the effect of rising interest rates. As of March 31, 2009, the Company has a $233,125 term loan outstanding with a variable interest rate based upon the 3-month London Interbank Offered Rate (“LIBOR”) (1.25% at March 31, 2009) plus the applicable margin (1.50% at March 31, 2009). To reduce the Company's exposure to rising interest rates, effective May 22, 2006, the Company entered into a pay-fixed, receive variable interest rate swap on the notional amount of $233,125 for a period of approximately six and one-half years. In effect, this swap converted the variable interest rates based on LIBOR to a fixed interest rate of 5.59% plus the applicable margin defined in the debt agreement for the remainder of the term loan. The Company accounts for the interest rate swap as a cash flow hedge and changes in fair value of the swap are recorded in other comprehensive income (loss). The critical terms of the swap and the underlying debt instrument that it hedges coincide, resulting in no hedge ineffectiveness being recognized in the income statement during the quarters ended March 31, 2009 and 2008.  The fair value of the swap at March 31, 2009 was $27,897 which was recorded in other liabilities in the condensed consolidated balance sheet and the offsetting unrealized loss of $20,937, net of tax benefit, was recorded in accumulated other comprehensive loss. As interest expense is accrued on the debt obligation, amounts in accumulated other comprehensive loss related to the derivative hedging instrument are reclassified into earnings to obtain a net cost on the debt obligation of 5.59% plus the applicable margin.

2.375% Convertible Senior Notes Due June 2015

In April 2008, the Company completed a public offering of $287,500 aggregate principal amount of 2.375% convertible senior notes due 2015.  The notes bear interest at a rate of 2.375% per annum, payable semi-annually in arrears on April 15 and October 15 of each year, beginning on October 15, 2008. The notes will mature on April 15, 2015, unless previously repurchased by the Company or converted.  The notes are convertible in certain circumstances and in specified periods (as described in the Supplemental Indenture) at an initial conversion rate of 18.2962 shares of common stock per $1,000 principal amount of notes, subject to adjustment upon the occurrence of certain events set forth in the Indenture. Upon conversion of notes, holders will receive cash up to the principal amount of the notes to be converted, and any excess conversion value will be delivered in cash, shares of common stock or a combination thereof, at the Company's election.

On January 1, 2009, the Company adopted FSP APB 14-1, which applies to all convertible debt instruments that have a ‘‘net settlement feature,” which means that such convertible debt instruments, by their terms, may be settled either wholly or partially in cash upon conversion.  FSP APB 14-1 requires issuers of convertible debt instruments that may be settled wholly or partially in cash upon conversion to separately account for the liability and equity components in a manner reflective of the issuers’ nonconvertible debt borrowing rate. Upon adoption of FSP APB 14-1, the Company retrospectively applied the change in accounting principle to prior accounting periods.  Adoption of the standard resulted in the following balance sheet impacts at December 31, 2008: (1) a reduction of debt by $87,830 and an increase in paid in capital of $69,851, (2) an increase to deferred loan costs of $5,309, (3) a net reduction to deferred tax assets of $23,124 ($36,262 reduction in deferred tax assets, offset by a $13,138 change in the valuation allowance), and (4) a net increase in retained earnings of $164.  The adoption of FSP APB 14-1 resulted in an increase to non-cash interest expense of $2,838 for the three month period ending March 31, 2009, of which $2,626 is related to the accretion of the convertible debt discount and $212 is related to the amortization of the deferred loan fees that were reestablished as described above.  The deferred loan fees and debt discount will be amortized and accreted, respectively, over the term of the convertible notes, which are due in 2015.   Adoption of the standard had no impact on the results of operations for the three months ended March 31, 2008.

As of March 31, 2009, the notes were not convertible, and the carrying amounts of the debt and the equity components were $202,296 and $95,511, respectively.  The unamortized discount of the liability was $85,204 at March 31, 2009 and will continue to be amortized over 6 years.  For the period ending March 31, 2009, the effective interest rate on the liability component was 8.64% and the Company recognized interest expense of $1,707 and $2,626 on the contractual interest coupon and amortization on the discount of the liability, respectively.



- 8 -


Accounts Receivable Securitization

On March 25, 2009, the Company and certain subsidiaries became a party to an $85,000 accounts receivable securitization facility with a third party financial institution (the “A/R Facility”) by forming ANR Receivables Funding, LLC (the “SPE”), a special-purpose, bankruptcy-remote subsidiary, wholly-owned indirectly by Alpha Natural Resources, Inc.  The sole purpose of the SPE is to purchase trade receivables generated by certain of the Company’s operating subsidiaries, without recourse (other than customary indemnification obligations for breaches of specific representations and warranties), and then transfer senior undivided interests in up to $85,000 of those accounts receivable to a financial institution for the issuance of letters of credit or for cash borrowings for the ultimate benefit of the Company.

The SPE is consolidated into the Company’s financial statements, and therefore the A/R Facility has no impact on the Company’s consolidated financial statements as of or for the period ended March 31, 2009. The assets of the SPE, however, are not available to the creditors of the Company or any other subsidiary.  The SPE pays facility fees, program fees and letter of credit fees (based on amounts of outstanding letters of credit), as defined in the definitive agreements for the A/R Facility.  Available borrowing capacity is based on the amount of eligible accounts receivable as defined under the terms of the definitive agreements for the A/R Facility. The receivables purchase agreement supporting the borrowings under the A/R Facility is subject to renewal annually and, unless terminated earlier, expires March 24, 2010.

As of March 31, 2009, letters of credit in the amount $67,000 were outstanding under the A/R Facility and no cash borrowing transactions had taken place.  At March 31, 2009, the SPE had available borrowing capacity under the A/R Facility of $10,800.  Under the A/R Facility, the SPE is subject to certain affirmative, negative and financial covenants customary for financings of this type, including restrictions related to, among other things, liens, payments, merger or consolidation and amendments to the agreements underlying the receivables pool. Alpha Natural Resources, Inc. has agreed to guarantee the performance by its subsidiaries, other than the SPE, of their obligations under the A/R Facility.  The Company does not guarantee repayment of the SPE’s debt under the A/R Facility.  The financial institution, which is the administrator, may terminate the A/R Facility upon the occurrence of certain events that are customary for facilities of this type (with customary grace periods, if applicable), including, among other things, breaches of covenants, inaccuracies of representations and warranties, bankruptcy and insolvency events, changes in the rate of default or delinquency of the receivables above specified levels, a change of control and material judgments. A termination event would permit the administrator to terminate the program and enforce any and all rights and remedies, subject to cure provisions, where applicable.
 
(7) Asset Retirement Obligation
 
At March 31, 2009 and December 31, 2008, the Company has recorded asset retirement obligation accruals for mine reclamation and closure costs totaling $101,060 and $98,940, respectively. The portion of the costs expected to be incurred within a year in the amounts of $9,037 and $8,375 at March 31, 2009 and December 31, 2008, respectively, are included in accrued expenses and other current liabilities. These regulatory obligations are secured by surety bonds in the amount of $159,497 at March 31, 2009 and $148,952 at December 31, 2008. Changes in the reclamation obligation were as follows:
       
Total asset retirement obligation at December 31, 2008
   $ 98,940  
    Accretion for the period
     2,059  
    Acquisitions during the period
     336  
    Expenditures for the period
     (802 )
    Sites added during the period
     684  
    Revisions in estimated cash flows
     (157 )
Total asset retirement obligation at March 31, 2009
   $ 101,060  
         


(8) Share-Based Compensation Awards

As of March 31, 2009, the total number of shares of Alpha Natural Resources, Inc. common stock available for issuance or delivery under the Company’s current Long-Term Incentive Plan (“LTIP”) was 4,607,820 shares.  During the three months ended March 31, 2009 and 2008, all shared-based compensation awards granted by the Company consisted of non-vested restricted shares, non-vested performance shares, and restricted stock units.

Share-based compensation expense totaled $3,225 and $2,989 for the three months ended March 31, 2009 and 2008, respectively.

For the three months ended March 31, 2009 and 2008, approximately 72% and 66%, respectively, of share-based compensation expense is reported as selling, general and administrative expenses, included in the Corporate and Eliminations category for segment reporting purposes (Note 13), and approximately 28% and 34%, respectively, is reported as a component of cost of sales, included in the Coal Operations and All Other segment for segment reporting purposes (Note 13).  As of March 31, 2009 and December 31, 2008, approximately $242 and $170, respectively, of share-based compensation costs was capitalized as a component of inventories. The Company reports the benefits of income tax deductions that exceed recognized compensation as cash flow from financing activities. The excess tax benefits during the three months ended March 31, 2009 and 2008 were $0 and $734, respectively.

- 9 -

In November 2008, the Board of Directors authorized the Company to repurchase common shares from employees to satisfy the employees’ minimum statutory tax withholdings upon the vesting of restricted stock and performance shares.   During the three months ended March 31, 2009, 418,433 shares of the Company’s common stock granted to employees vested. During the three months ended March 31, 2009, the Company repurchased 106,739 common shares from employees to satisfy the employees’ minimum statutory tax withholdings upon vesting at an average price paid per share of $18.96.

Stock Options

Stock option activity for the three months ended March 31, 2009 is summarized in the following table:
             
           
Weighted-
     
Weighted-
  
Average
     
Average
  
Remaining
 
Number of
  
Exercise
  
Contractual
 
Shares
  
Price
  
Term (Years)
Outstanding at December 31, 2008
     519,984
  
$
         17.87
    
    Forfeited/Expired
      (12,142
 )   
         17.37
    
Outstanding at March 31, 2009
     507,842
    
         17.87
  
               5.85
Exercisable at March 31, 2009
     306,063
    
         18.26
  
               5.87
             

The aggregate intrinsic value of options outstanding at March 31, 2009 was $722 and the aggregate intrinsic value of exercisable options was $339. The total intrinsic value of options exercised during the three months ended March 31, 2009 and 2008 was $0 and $2,048, respectively.  Cash received from the exercise of stock options during the three months ended March 31, 2009 and 2008 was $0 and $1,688, respectively. As of March 31, 2009, $1,219 of unrecognized compensation cost related to stock options is expected to be recognized as expense over a weighted-average period of 0.79 years. The weighted-average grant date fair value of options outstanding at March 31, 2009 and 2008 was $7.33 and $7.38, respectively.

Restricted Share Awards

Restricted share award activity for the three months ended March 31, 2009 is summarized in the following table:
           
     
Weighted-
  
     
Average
  
 
Number of
  
Grant Date
  
 
Shares
  
Fair Value
  
Non-vested shares outstanding at December 31, 2008
     952,789
  
$
         19.33
  
    Granted
     917,684
    
         18.90
  
    Vested
    (383,214
 )   
         19.86
  
    Forfeited/Expired
      (11,115
 )   
         17.64
  
Non-vested shares outstanding at March 31, 2009
  1,476,144
    
         18.91
  
           

The Company granted 917,684 restricted share awards during the three month period ending March 31, 2009.  The restricted shares vest ratably over three-years or cliff vest after three years (with accelerated vesting upon a change of control), depending on the recipients’ position with the Company.  

The fair value of restricted share awards is based on the closing stock price on the date of grant, and, for purposes of expense recognition, the total number of awards expected to vest is adjusted for estimated forfeitures. As of March 31, 2009, there was $20,484 of unamortized compensation cost related to non-vested shares, which is expected to be recognized as expense over a weighted-average period of 2.32 years.

 
- 10 -


Performance Share Awards
 
Performance share award activity for the three months ended March 31, 2009 is summarized in the following table:
           
     
Weighted-
  
     
Average
  
 
Number of
  
Grant Date
  
 
Shares
  
Fair Value
  
Non-vested shares outstanding at December 31, 2008
     527,183
  
$
         16.59
  
  Granted
     403,592
    
         24.12
  
  Vested
      (35,219
 )   
         21.15
  
  Forfeited or expired
      (12,936
 )   
         18.05
  
Non-vested shares outstanding at March 31, 2009
     882,620
    
         19.83
  
           

The Company issued 35,219 performance shares to employees on February 10, 2009, related to the 2006 performance grant, which ended on December 31, 2008.  Based upon the Company’s performance against the pre-established operating income and return on invested capital targets, a 30% award was issued to employees.

The Company granted 403,592 performance share awards during the three month period ending March 31, 2009.  Recipients of these awards can receive shares of the Company's common stock at the end of a performance period which ends on December 31, 2011, based on the Company's actual performance against pre-established operating income goals, strategic goals, and total shareholder return goals. In order to receive the shares, the recipient must also be employed by the Company on the vesting date. The performance share awards represent the number of shares of common stock to be awarded based on the achievement of targeted performance and may range from 0% to 200% of the targeted amount. The grant date fair value of the awards related to operating income targets is based on the closing price of the Company's common stock on the New York Stock Exchange on the grant date of the award and is being amortized over the performance period. The awards related to strategic goals do not meet the criteria for grant date pursuant to SFAS No. 123(R), Share-based Payments (as amended) (“SFAS 123”). The fair value of the awards related to total shareholder return targets is based upon a Monte Carlo simulation and is being amortized over the performance period. For executive officers of the Company to receive these performance share awards, the Company must achieve a pre-determined EBITDA level during the performance period in addition to the criteria set for all other employees participating in the plan.  The Company reassesses at each reporting date whether achievement of each of the performance conditions is probable, as well as estimated forfeitures, and adjusts the accruals of compensation expense as appropriate.

As of March 31, 2009, there was $6,828 of unamortized compensation cost related to the outstanding performance share awards.  This unamortized compensation cost is expected to be recognized over the remaining periods up to December 31, 2011.


(9) Derivative Financial Instruments
 
Derivative financial instruments are accounted for in accordance with SFAS 133, Accounting for Derivative Instruments and Hedging Activities (“SFAS 133”), which requires all derivative financial instruments to be reported on the balance sheet at fair value. Changes in fair value are recognized either in earnings or equity, depending on whether the transaction qualifies for hedge accounting and if so, the nature of the underlying exposure being hedged and how effective the derivatives are at offsetting price movements in the underlying exposure.

On January 1, 2009, the Company adopted SFAS No. 161, Disclosures about Derivative Instruments and Hedging Activities (“SFAS 161”), which amends SFAS 133.  SFAS 161 requires enhanced disclosures about derivative instruments and hedging activities to enable investors to better understand their effects on an entity’s financial position, financial performance, and cash flows. The new standard also increases required disclosures regarding the location and amounts of derivative instruments in an entity’s financial statements; how derivative instruments and related hedged items are accounted for under SFAS 133; and how derivative instruments and related hedged items affect its financial position, financial performance, and cash flows. Since SFAS 161 requires only additional disclosures concerning derivatives and hedging activities, the adoption of SFAS 161 did not affect the Company’s financial position and results of operations.  The required disclosures for SFAS 161 are included in this footnote.

The Company accounts for certain forward purchase and forward sale coal contracts that do not qualify under the “normal purchase and normal sale” exception of SFAS 133 as derivatives and records these contracts as assets or liabilities at fair value. Changes in fair value of these coal derivative contracts have been recorded as an (increase) decrease in fair value of certain derivative instruments, net, and included as a component of costs and expenses in the consolidated statements of income.  At March 31, 2009, the Company had unrealized gains (losses) on open sales and open purchase contracts of $4,568 and ($5,617), respectively. The unrealized gains of $4,568 on open sales contracts are recorded in prepaid expenses and other current assets.   The unrealized losses on open purchase contracts are recorded in accrued expenses and other current liabilities and other liabilities in the amount of ($5,392) and ($225), respectively.

- 11 -

The Company has utilized interest rate swap agreements to modify the interest characteristics of a portion of the Company's outstanding debt. The swap agreements essentially convert variable-rate debt to fixed-rate debt and have been designated as cash flow hedges.  Changes in the fair value of interest rate swaps designated as hedging instruments of the variability of cash flows associated with floating rate and long-term debt obligations are reported in accumulated other comprehensive loss.  These amounts are subsequently reclassified into interest expense in the same period in which the related floating rate debt obligation affects earnings.  At March 31, 2009, the fair value of the interest rate swap agreements is a liability of $27,897, which is recorded in other liabilities.

The Company is also exposed to the risk of fluctuations in cash flows related to its purchase of diesel fuel. The Company has entered into diesel fuel swap agreements and diesel put options to reduce the volatility in the price of diesel fuel for its operations. Changes in fair value are recognized in earnings if they are not eligible for hedge accounting or other comprehensive income if they qualify for hedge accounting.  Most of the diesel fuel swap agreements and put options are not designated as hedges for accounting purposes and therefore the changes in fair value of these diesel fuel derivative instrument contracts have been recorded as an (increase) decrease in fair value of certain derivative instruments, net, and included as a component of costs and expenses in the consolidated statements of income.  These diesel fuel swaps and put options use the NYMEX New York Harbor No. 2 Heating Oil (“No. 2 heating oil”) futures contracts as the underlying commodity reference price. Any unrealized loss is recorded in accrued expenses and other current liabilities and other liabilities and any unrealized gain is recorded in prepaid expenses and other current assets and other assets.   For any hedges that qualify for hedge accounting, the effective portion of any unrealized gain or loss is recorded in accumulated other comprehensive income (loss) and any ineffective portion of any unrealized gain (loss) is recorded as an (increase) decrease in fair value of certain derivative instruments, net.

As of March 31, 2009, approximately 11,670 gallons or 52% of the Company's budgeted 2009 remaining diesel fuel usage has been capped with the swap agreements in which the Company has agreed to pay a fixed price and receive a floating price per gallon of No. 2 heating oil.  The fixed prices for the notional quantity of 11,670 gallons range from $1.61 to $4.10 per gallon for the last nine months of 2009.  In addition, as of March 31, 2009, the Company has in place swap agreements with respect to 19,310 gallons, at fixed prices ranging from $1.79 to $3.86 per gallon, which mature in 2010 to 2012.  At March 31, 2009, the fair value of these diesel fuel swap agreements is a net liability of $36,255, which is recorded in other assets in the amount of $49, accrued expenses and other current liabilities in the amount of $21,023, and in other liabilities in the amount of $15,281. 

The Company has also employed an options strategy – both purchasing and selling put options – to protect cash flows in the event diesel fuel prices decline. As of March 31, 2009, the Company had purchased put options for 1,323 gallons at a strike price of $3.50 per gallon for the second quarter of 2009.  In the event that No. 2 heating oil prices decline below the strike price, the Company can exercise the put options and sell the 1,323 gallons at the strike price, therefore reducing the negative impact of any of the swap agreements that have settlement prices above market. As of March 31, 2009, the Company had sold put options for 1,323 gallons for the second quarter of 2009 at a strike price of $3.00 per gallon. This was part of a put spread strategy that effectively provided protection for market prices between $3.00 and $3.50. In the event that No.2 heating oil prices decline below the $3.00 strike price, then the sold put options will offset the purchased put options with no net benefit or cost.  At March 31, 2009, the fair value of all diesel fuel put options is a net asset of $655 of which $2,761 is recorded in prepaid expenses and other current assets and $2,106 is recorded in accrued expenses and other current liabilities.


The following are the derivatives in cash flow hedging relationships and derivatives not designated as hedging instruments, and their related effect in assets as of March 31, 2009 and December 31, 2008:
                 
 
Asset Derivatives
  
 
3/31/2009
  
12/31/2008
  
 
 Balance Sheet
Location
  
Fair
Value
  
 Balance Sheet
Location
  
Fair
Value
  
Derivatives Designated as
 Hedging Instruments:
              
    Diesel fuel derivatives
 Other assets
   $ 49  
 Other assets
   $ -  
Total Derivatives Designated as Hedging Instruments
   $ 49       $ -  
                     
                     
Derivatives Not Designated as
 Hedging Instruments:
                  
    Forward coal sales
 Prepaid expenses and other current assets
   $ 4,568  
 Prepaid expenses and other current assets
   $ 2,854  
    Diesel fuel derivatives
 Prepaid expenses and other current assets
     2,761  
 Prepaid expenses and other current assets
     5,186  
Total Derivatives Designated as Hedging Instruments
   $ 7,329       $ 8,040  
                     
        Total Derivatives
     $ 7,378       $ 8,040  
                     

 
- 12 -


The following are the derivatives in cash flow hedging relationships and derivatives not designated as hedging instruments, and their related effect in liabilities as of March 31, 2009 and December 31, 2008:
                 
 
Liabilities Derivatives
  
 
3/31/2009
      
12/31/2008
      
 
 Balance Sheet
Location
  
Fair
Value
  
 Balance Sheet
Location
  
Fair
Value
  
Derivatives Designated as
 Hedging Instruments:
              
    Diesel fuel derivatives
 Other liabilities
   $ 40  
 Other liabilities
   $ -  
    Interest rate swaps
 Other liabilities
     27,897  
 Other liabilities
     27,929  
Total Derivatives Designated as Hedging Instruments
   $ 27,937       $ 27,929  
                     
                     
Derivatives Not Designated as
 Hedging Instruments:
                  
    Forward coal purchases
 Accrued expenses and other current liabilities
   $ 5,392  
 Accrued expenses and other current liabilities
   $ 3,042  
    Forward coal purchases
 Other liabilities
     225  
 Other liabilities
     -  
    Diesel fuel derivatives
 Accrued expenses and other current liabilities
     23,129  
 Accrued expenses and other current liabilities
     25,081  
    Diesel fuel derivatives
 Other liabilities
     15,241  
 Other liabilities
     16,812  
Total Derivatives Designated as Hedging Instruments
   $ 43,987       $ 44,935  
                     
       Total Derivatives
     $ 71,924       $ 72,864  
                     

The following are the derivatives in cash flow hedging relationships and their related effect in the Income Statement and Other Comprehensive Income for the periods ending March 31, 2009 and 2008:
                             
Derivatives in Cash Flow
Hedging Relationships
  
Location of (Gain) or Loss
Recognized in Income on
Hedged Item
  
Amount of (Gain) or Loss
Recognized in Income on
Hedged Item
    
Amount of (Gain) or Loss
Recognized in OCI on
Derivative (Effective
Portion)
  
       
Three Months Ending March 31,
    
Three Months Ending March 31,
  
       
2009
    
2008
    
2009
    
2008
  
                             
Diesel fuel derivatives
  
(Increase) decrease in fair value of derivative instruments, net
   $ -     $ -     $ (6 )   $ -  
Interest rate swaps
  
Interest Expense
     2,408       448       (24 )     (6,409 )
   
Total
   $ 2,408     $ 448     $ (30 )   $ (6,409 )
                                     

The following are the derivatives not designated as hedging instruments and their related effect in the Income Statement for the periods ending March 31, 2009 and 2008:
                 
Derivatives Not Designated
as Hedging Instruments
  
Location of (Gain) or Loss
Recognized in Income on
Derivative
  
Amount of (Gain) or Loss
Recognized in Income on
Derivative
  
       
Three Months Ending March 31,
  
       
2009
    
2008
  
Forward coal sales
  
(Increase) decrease in fair value of derivative instruments, net
   $ (1,714 )   $ 18,416  
Forward coal purchases
  
(Increase) decrease in fair value of derivative instruments, net
     2,575       (32,734 )
Diesel fuel derivatives
  
(Increase) decrease in fair value of derivative instruments, net
     (1,099 )     (2,366 )
   
Total
   $ (238 )   $ (16,684 )
                     

(10) Fair Value Measurements

The Company adopted SFAS No. 157, Fair Value Measurements (“SFAS 157”), on January 1, 2008. This statement defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements.  Additionally, on January 1, 2008, the Company elected the partial adoption of SFAS 157 under the provisions of  FSP Financial Accounting Standard (“FAS”) 157-2 (“FSP FAS 157-2”), which amended SFAS 157 to allow an entity to delay the application of this statement until January 1, 2009 for certain non-recurring non-financial assets and liabilities. Non-recurring non-financial assets and non-financial liabilities for which the Company did not apply the provisions of SFAS 157 as of January 1, 2009,  included those measured at fair value in goodwill impairment testing, asset retirement obligations initially measured at fair value, and those non-recurring non-financial assets and non-financial liabilities initially measured at fair value in a business combination. The partial adoption of SFAS 157 on January 1, 2008 did not have a material impact on the Company’s consolidated financial statements.

- 13 -

On January 1, 2009, the one year deferral under the provisions of FSP FAS 157-2 expired and the Company fully adopted SFAS 157.  The full adoption of SFAS 157 did not have a material impact on the Company’s consolidated financial statements.

The following table sets forth by level within the fair value hierarchy the Company's financial and non-financial assets and liabilities that are accounted for at fair value on a recurring and non-recurring basis as of March 31, 2009.  As required by SFAS 157, 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 valuation of fair value assets and liabilities and their placement within the fair value hierarchy levels.
                               
   
  As of March 31, 2009
  
               
Fair Value Measurements Using:
  
               
Quoted
    
Significant
        
               
Prices in
    
Other
    
Significant
  
               
Active
    
Observable
    
Unobservable
  
   
Carrying
    
Total Fair
    
Markets
    
Inputs
    
Inputs
  
   
Amount
    
Value
    
(Level 1)
    
(Level 2)
    
(Level 3)
  
                               
Financial Assets (Liabilities):
                              
Forward coal sales
   $ 4,568     $ 4,568     $ -     $ 4,568     $ -  
Forward coal purchases
   $ (5,617 )   $ (5,617 )   $ -     $ (5,617 )   $ -  
Diesel fuel derivatives
   $ (35,600 )   $ (35,600 )   $ -     $ (35,600 )   $ -  
Interest rate swaps
   $ 27,897     $ 27,897     $ -     $ 27,897     $ -  
Asset Retirement Obligations
   $ (1,020 )   $ (1,020 )   $ -     $ -     $ (1,020 )
                                         

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

Level 2 Fair Value Measurements
 
Forward Coal Purchases and Sales — The fair value of the forward coal purchases and sales contracts were estimated using discounted cash flow calculations based upon forward commodity price curves.  The curves were obtained from independent pricing services reflecting broker market quotes.
 
Diesel Fuel Derivatives — Since the Company’s diesel fuel derivative instruments are not traded on a market exchange, the fair values are determined using valuation models which include assumptions about commodity prices based on those observed in the underlying markets.

Interest Rate Swaps — The fair value 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.

Level 3 Fair Value Measurements

Asset Retirement Obligation

Minimum standards for mine reclamation have been established by various regulatory agencies and dictate the reclamation requirements at the Company's operations. The Company records these reclamation obligations under the provisions of SFAS No. 143, Accounting for Asset Retirement Obligations (“SFAS 143”) (Note 7).  SFAS 143 requires the fair value of a liability for an asset retirement obligation to be recognized in the period in which the legal obligation associated with the retirement of the long-lived asset is incurred. The fair value of the liability was determined in accordance with SFAS No. 157, Fair Value Measurements (“SFAS 157”), using expected discounted cash flows developed using the Company’s own data, including actual asset retirement costs associated with previous projects.  The inputs associated with the expected cash flows would be considered unobservable (Level 3) under SFAS 157.

When the liability is initially recorded, the offset is capitalized by increasing the carrying amount of the related long-lived asset. Over time, the liability is accreted to its present value each period, and the capitalized cost is depreciated over the useful life of the related asset. To settle the liability, the obligation is paid, and to the extent there is a difference between the liability and the amount of cash paid, a gain or loss upon settlement is recorded.

SFAS 143 also provides for recognition of period-to-period changes in the liability as a result of revisions to the timing or amount of the estimated original undiscounted cash flows. The Company annually reviews its estimated future cash flows for its asset retirement obligations with the changes to estimated undiscounted cash flows being incorporated into a remeasurement of the liability.  Although upward revisions to the liability use fair value measurement concepts, the incremental layers cannot be transferred separately and therefore subsequent measurements of the entire obligation are not fair value measurements and are not subject to the requirements of SFAS 157.

- 14 -


The following table summarizes the changes in the Company’s recurring Level 3 net non-financial assets (liabilities):
         
January 1, 2009
  
$
                               -
  
Realized gains (losses)
    
                               -
  
Unrealized gains (losses)
    
                               -
  
Additions to reclamation liabilities
    
                     (1,020
 ) 
Transfers in and/or out
    
                               -
  
March 31, 2009
  
$
                     (1,020
 ) 
         

The Company has no change in unrealized gains (losses) relating to Level 3 asset retirement obligations noted in the table above for the period ending March 31, 2009.

 (11) Postretirement Benefits Other Than Pensions

The following table details the components of the net periodic benefit cost for the Company’s retiree medical plan (the “Plan”):
                 
   
Three Months Ended
  
   
March 31,
  
   
2009
    
2008
  
Service cost
  
$
            694
    
$
            693
  
Interest cost
    
            855
      
            873
  
Amortization of prior service cost
    
            592
      
            615
  
 Net periodic benefit cost
  
$
         2,141
    
$
         2,181
  
                 

The Company provides current and certain retired employees and their dependents postretirement medical benefits by accruing the costs of such benefits over the service lives of employees.  Premiums are paid by the Company based on years of service, with the difference contributed by the employee, if any.  Employer contributions for postretirement medical benefits paid for the three months ended March 31, 2009 and 2008 were $90 and $32, respectively.  Employee contributions are insignificant and the Plan is unfunded.

 Two of the Company’s subsidiaries are required to make contributions to the 1974 UMWA Pension Plan and Trust and/or the 1993 UMWA Benefit Plan.  The contributions made to these plans for the three months ended March 31, 2009 and 2008 were $49 and $45, respectively.

 
- 15 -


(12) Comprehensive Income

 Total comprehensive income is as follows for the three months ended March 31, 2009:
         
Net Income
  
$
                       40,964
  
Change in fair value of cash flow hedge related to interest rate swaps, net of tax effect of $8 for the period
  
 
                              24
  
Change in SFAS 158 adjustment related to postretirement medical, net of tax effect of $147 for the period
  
 
                            445
  
Change in SFAS 158 adjustment related to black lung obligations, net of tax effect of $6 for the period
  
 
                              17
  
Change in fair value of cash flow hedge related to diesel fuel swaps, net of tax effects of $2 for the period
 
  
                                6
  
Total comprehensive income
  
$
                       41,456
  
         
 
 Total comprehensive income is as follows for the three months ended March 31, 2008:
         
Net Income
  
$
                       25,530
  
Change in fair value of cash flow hedge related to interest rate swaps, net of tax effect of ($5,435) for the period
  
 
                        (4,831
 ) 
Change in SFAS 158 adjustment related to postretirement medical, net of tax effect of $151 for the period
  
 
                            464
  
Change in SFAS 158 adjustment related to black lung obligations, net of tax effect of $6 for the period
    
                              17
  
Total comprehensive income
  
$
                       21,180
  
         
 
The following table summarizes the components of accumulated other comprehensive loss at March 31, 2009:
         
Fair value of cash flow hedge related to interest rate swaps, net of tax effect of $6,960
  
$
       20,937
  
SFAS 158 adjustment related to postretirement medical obligations, net of tax effect of $2,648
    
         8,102
  
SFAS 158 adjustment related to black lung obligations, net of tax effect of $189
    
            582
  
Fair value of cash flow hedge related to diesel fuel swaps, net of tax effect of ($2)
    
               (6
 )
Total accumulated other comprehensive loss
  
$
       29,615
  
         
 
The following table summarizes the components of accumulated other comprehensive loss at December 31, 2008:
         
Fair value of cash flow hedge related to interest rate swaps, net of tax effect of $6,968
  
$
       20,961
  
SFAS 158 adjustment related to postretirement medical obligations, net of tax effect of $2,795
    
         8,547
  
SFAS 158 adjustment related to black lung obligations, net of tax effect of $195
    
            599
  
Total accumulated other comprehensive loss
  
$
       30,107
  
         

(13) Segment Information

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 the Central Appalachian and Northern Appalachian regions. The Company has one reportable segment: Coal Operations, which as of March 31, 2009, consisted of 30 underground mines and 20 surface mines located in Central Appalachia and Northern Appalachia. Coal Operations also includes the Company's coal sales function, which markets the Company's Appalachian coal to domestic and international customers. The All Other category includes the Company's equipment sales and repair operations, as well as other ancillary business activities, including terminal services, coal and environmental analysis services, and leasing of mineral rights. In addition, the All Other category includes the operations of the Company's road construction businesses. The Corporate and Eliminations category includes general corporate overhead and the elimination of intercompany transactions. The revenue elimination amount represents inter-segment revenues. The Company evaluates the performance of its segment based on EBITDA from continuing operations which the Company defines as income from continuing operations plus interest expense, income tax expense, and depreciation, depletion and amortization, less interest income.

- 16 -

Segment operating results and capital expenditures from continuing operations for the three months ended March 31, 2009 and segment assets as of March 31, 2009 were as follows:
                                 
                   
Corporate
          
   
Coal
    
All
    
and
          
   
Operations
    
Other
    
Eliminations
    
Consolidated
  
Revenues
  
$
                    472,700
    
$
                 24,097
    
$
                      (10,062
 )  
$
                    486,735
  
Depreciation, depletion, and amortization
    
                      38,198
      
                   1,431
      
                             576
      
                      40,205
  
EBITDA from continuing operations