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Notes to Consolidated Financial Statements

Note 1 – Summary of Significant Account Policies Note 2 – Segment Information Note 3 – Earnings Per Share Note 4 – Employee and Retiree Benefits Note 5 – Investments held by VEBA Trust Note 6 – Former Natural Resource Operations Note 7 – Costs Associated With Exit Activities Note 8 – Property and Equipment Note 9 – Impairment of Long-Lived Assets Note 10 – Other Assets Note 11 – Accrued Liabilities Note 12 – Other Liabilities Note 13 – Long-Term Debt Note 14 – Accounts Receivable and Asset Securitization Note 15 – Operating Leases Note 16 – Share-Based Compensation Plans Note 17 – Capital Stock Note 18 – Income Taxes Note 19 – Supplemental Cash Flow Information Note 20 – Other Operating Income, Net Note 21 – Other Nonoperating Income (Expense), Net Note 22 – Risk Management Note 23 – Other Commitments and Contingencies Note 24 – Selected Quarterly Financial Data (unaudited)

Note 6 – Former Natural Resource Operations

The Company has disposed of essentially all of its natural resources interests.

Summary of Proceeds from Sales of Natural Resource Interests

(In millions)		Net Cash Received		Liabilities Assumed by Purchaser (a)		Notes Receivable and Royalty Agreement (b)		Fair Value Received for Assets Disposed
2002
Coal business
(Virginia and Kentucky)	$	42.3		22.1		24.0		88.4
2003
Natural gas business	$	81.2		-		-		81.2
Portion of timber business		5.4		-		-		5.4
Equity interest in MPI Mines Ltd.		18.8		-		-		18.8
Coal assets (West Virginia)		14.0		14.8		-		28.8
2003	$	119.4		14.8		-		134.2
2004
Remainder of timber business	$	33.7		-		-		33.7
Purchase of leased assets		(6.2)		-		-		(6.2)
Gold business		1.1		2.6		-		3.7
2004	$	28.6		2.6		-		31.2
2005
Coal business (Virginia) (c)	$	5.0		-		-		5.0

(a)

Liabilities in this column are primarily reclamation liabilities and exclude working capital liabilities.

(b)

The Company settled the royalty agreement and collected the notes receivables in 2003 for $26.0 million in cash.

(c)

Additional proceeds from the sale of the coal business in Virginia; collected in early 2005 and accrued in 2004 in discontinued operations.

Discontinued Operations

		Years Ended December 31,
(In millions)		2004	2003	2002
Gain (loss) on sale of
Timber	$	20.7	4.8	-
Gold		(0.9)	-	-
Natural Gas		-	56.2	-
Coal		5.0	-	13.2
Results from operations
Timber		(0.5)	(0.2)	(1.0)
Gold		(1.2)	(4.1)	(7.6)
Natural Gas		-	11.2	9.0
Coal (a)		-	-	(28.1)
Adjustments to contingent liabilities of former operations
Health Benefit Act liabilities (See note 4)		3.2	(31.3)	(24.0)
Withdrawal liabilities (See note 4)		15.4	(17.0)	(26.8)
Reclamation liabilities		(0.1)	(3.2)	-
Workers’ compensation liabilities		(4.9)	0.2	-
Recovery of environmental costs (See note 23)		-	5.3	-
Other		(3.3)	(2.7)	-
Income (loss) from discontinued operations before income taxes		33.4	19.2	(65.3)
Income tax benefit (expense)		(12.5)	(8.0)	22.0
Income (loss) from discontinued operations	$	20.9	11.2	(43.3)

(a)

Coal’s loss was recognized under APB No. 30, “Reporting the Results of Operations – Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions,” in which future losses are estimated and accrued in advance of the period in which losses occur.

Gain (loss) on Sale

In December 2003, the Company sold a portion of its timber business for $5.4 million in cash and recognized a $4.8 million pretax gain. In 2004, the Company received an additional $33.7 million for the remaining portion of its timber business. After deducting the book value of related assets and the payment of $6.2 million in 2004 to purchase equipment formerly leased, the Company recognized a $20.7 million pretax gain in discontinued operations in 2004.

In February 2004, the Company sold its gold operations for approximately $1.1 million in cash plus the assumption of liabilities and recognized a $0.9 million loss.

In August 2003, the Company sold its natural gas business and received $81.2 million in cash and recognized a $56.2 million gain.

In 2004, the Company recognized a $5.0 million gain from additional consideration earned under its agreement to sell its former coal business in Virginia. The additional $5.0 million in consideration was collected in February 2005.

During 2000 and 2001, the Company recorded charges of $101.8 million to reflect the estimated loss on the sale of the coal business. A $13.2 million reversal of the previously estimated loss on sale was recorded during 2002 to reflect the amount of actual proceeds and values of assets and liabilities at the dates of sale. The assets disposed of in 2002 primarily consisted of operations including coal reserves, property, plant and equipment, the Company’s economic interest in Dominion Terminal Associates and inventory. Certain liabilities, primarily reclamation costs related to properties disposed of, were assumed by the purchasers.

Interest expense allocated to discontinued operations in the last three years was not material.

Results of Operations

The following tables show selected financial information for the results from operations for discontinued operations for the three years ended December 31, 2004.

		Years Ended December 31,
(In millions)		2004	2003	2002
Timber
Revenues	$	1.2	21.1	20.9
Pretax loss		(0.5)	(0.2)	(1.0)
Gold
Revenues	$	4.4	23.5	15.2
Pretax loss		(1.2)	(4.1)	(7.6)
Natural Gas
Revenues	$	-	7.3	6.8
Pretax income		-	11.2	9.0
Coal
Revenues	$	-	-	266.5
Pretax loss		-	-	(77.5)

Continuing Operations

In October 2003, the Company sold its 23.3% equity interest in MPI Mines Ltd., an Australian exploration and development company with interests in gold and nickel, for $18.8 million in cash and recognized a $10.4 million pretax gain in continuing operations.

In November 2003, the Company sold substantially all of its remaining coal-related assets for $14 million in cash plus the assumption of reclamation and other liabilities for total proceeds of $28.8 million. A gain of up to $6 million may be recognized in 2005 as liabilities related to reclamation are formally transferred to the buyer.

Classification of Ongoing Expenses in the Statements of Operations

The classification of income statement items related to the Company’s former coal business during the last three years is set forth in the following table. After the disposal of the coal business, certain expenses began to be classified within continuing operations, while adjustments to coal-related contingent assets and liabilities continue to be reported within discontinued operations. The classification of expenses in 2005 and beyond is expected to be the same as in 2003 and 2004:

	Years Ended December 31,
	2004	2003	2002
Classification as Continuing or Discontinued Operations
Ongoing expenses:
Company-sponsored postretirement benefits	Continuing	Continuing	Discontinued
Black lung obligations	Continuing	Continuing	Discontinued
Pension	Continuing	Continuing	Discontinued
Administrative, legal and other coal expenses	Continuing	Continuing	Discontinued
Adjustments to contingent assets and liabilities of former businesses (a)	Discontinued	Discontinued	Discontinued

(a)

Includes contingent reclamation liabilities of closed mines, Health Benefit Act liabilities, withdrawal liabilities from multi-employer pension plans, workers’ compensation liabilities, and Federal Black Lung Excise Tax contingent assets.

Costs of Former Operations Included in Continuing Operations

		Years Ended December 31,
(In millions)		2004	2003	2002
Postretirement benefits other than pensions:
Retiree medical benefits	$	37.1	49.8	-
Black lung		4.8	6.0	-
Pension		1.8	(0.8)	-
Administrative, legal and other coal expenses, net		9.2	17.4	-
Other income, net		(7.0)	(2.9)	-
Impairment and other costs		-	-	19.2
Total	$	45.9	69.5	19.2