##### Table of Contents







UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

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

For the Quarterly Period Ended March 31, 2008

or



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

For the Transition Period From  to

Commission
File Number 001-32331

Foundation Coal Holdings, Inc.

(Exact Name of Registrant as Specified in Its Charter)



|                                                               |  |                                     
|-------------------------------------------------------------- |  | ------------------------------------
|Delaware                                                       |  | 42-1638663                          
|(State or Other Jurisdiction of Incorporation or Organization) |  | (I.R.S. Employer Identification No.)



|                                                               |  |           
|-------------------------------------------------------------- |  | ----------
|999 Corporate Boulevard, Suite 300 Linthicum Heights, Maryland |  | 21090     
|(Address of Principal Executive Offices)                       |  | (Zip Code)

Registrants telephone number, including area code (410) 689-7500

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.    Yes  x    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 definition of accelerated filer, large
accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated
filer  x    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   ̈    No  x

There were 45,364,473 shares of common stock outstanding on April 30, 2008.











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##### Table of Contents

TABLE OF CONTENTS



|                             |  |                                                                                                                   |  |     
|---------------------------- |  | ----------------------------------------------------------------------------------------------------------------- |  | ----
|                             |  |                                                                                                                   |  | Page
|PART IFINANCIAL INFORMATION
|                             |  |                                                                                                                  
|ITEM 1.                      |  | FINANCIAL STATEMENTS                                                                                              |  | 3   
|                             |  |                                                                                                                  
|                             |  | Consolidated Balance Sheets as of March 31, 2008 and December 31, 2007                                            |  | 3   
|                             |  |                                                                                                                  
|                             |  | Consolidated Statements of Operations and Comprehensive Income for the Three Months Ended March 31, 2008 and 2007 |  | 4   
|                             |  |                                                                                                                  
|                             |  | Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2008 and 2007                          |  | 5   
|                             |  |                                                                                                                  
|                             |  | Notes to Consolidated Financial Statements                                                                        |  | 6   
|                             |  |                                                                                                                  
|ITEM 2.                      |  | MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS                             |  | 17  
|                             |  |                                                                                                                  
|ITEM 3.                      |  | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK                                                        |  | 31  
|                             |  |                                                                                                                  
|ITEM 4.                      |  | CONTROLS AND PROCEDURES                                                                                           |  | 31  
|                            
|PART IIOTHER INFORMATION   
|                             |  |                                                                                                                  
|ITEM 1.                      |  | LEGAL PROCEEDINGS                                                                                                 |  | 33  
|                             |  |                                                                                                                  
|ITEM 1A.                     |  | RISK FACTORS                                                                                                      |  | 33  
|                             |  |                                                                                                                  
|ITEM 2.                      |  | UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS                                                       |  | 33  
|                             |  |                                                                                                                  
|ITEM 3.                      |  | DEFAULTS UPON SENIOR SECURITIES                                                                                   |  | 33  
|                             |  |                                                                                                                  
|ITEM 4.                      |  | SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS                                                               |  | 33  
|                             |  |                                                                                                                  
|ITEM 5.                      |  | OTHER INFORMATION                                                                                                 |  | 33  
|                             |  |                                                                                                                  
|ITEM 6.                      |  | EXHIBITS                                                                                                          |  | 33  



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PART I  FINANCIAL INFORMATION

Unless the context otherwise indicates, as used in this Form 10-Q the terms we, our, us and similar terms refer to Foundation Coal Holdings, Inc. and its consolidated subsidiaries.



|ITEM 1. | FINANCIAL STATEMENTS.
|------- | ---------------------

Foundation Coal Holdings, Inc. and Subsidiaries

Consolidated Balance Sheets

(Dollars in thousands, except per share data)



|                                                                                                                                                                                                                                      |  |               |           |   |                  |   |           |  
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------- | --------- | - | ---------------- | - | --------- | -
|                                                                                                                                                                                                                                      |  | March 31,2008 |           |   | December 31,2007 |  
|                                                                                                                                                                                                                                      |  | (Unaudited)   |           |   |                  |  
|ASSETS                                                                                                                                                                                                                                |  |               |           |   |                  |   |           |  
|Current assets:                                                                                                                                                                                                                       |  |               |           |   |                  |   |           |  
|Cash and cash equivalents                                                                                                                                                                                                             |  | $             | 23,131    |   |                  | $ | 50,071    |  
|Trade accounts receivable                                                                                                                                                                                                             |  |               | 125,678   |   |                  |   | 100,931   |  
|Inventories, net                                                                                                                                                                                                                      |  |               | 44,217    |   |                  |   | 44,122    |  
|Deferred income taxes, net                                                                                                                                                                                                            |  |               | 11,358    |   |                  |   | 11,358    |  
|Prepaid expenses                                                                                                                                                                                                                      |  |               | 23,083    |   |                  |   | 30,534    |  
|Other current assets                                                                                                                                                                                                                  |  |               | 5,747     |   |                  |   | 6,678     |  
|                                                                                                                                                                                                                                      |  |               |           |   |                  |   |           |  
|Total current assets                                                                                                                                                                                                                  |  |               | 233,214   |   |                  |   | 243,694   |  
|Owned surface lands                                                                                                                                                                                                                   |  |               | 39,198    |   |                  |   | 36,807    |  
|Plant, equipment and mine development costs, net                                                                                                                                                                                      |  |               | 659,080   |   |                  |   | 664,429   |  
|Owned and leased mineral rights, net                                                                                                                                                                                                  |  |               | 944,469   |   |                  |   | 928,439   |  
|Coal supply agreements, net                                                                                                                                                                                                           |  |               | 18,756    |   |                  |   | 20,644    |  
|Other noncurrent assets                                                                                                                                                                                                               |  |               | 23,824    |   |                  |   | 14,151    |  
|                                                                                                                                                                                                                                      |  |               |           |   |                  |   |           |  
|Total assets                                                                                                                                                                                                                          |  | $             | 1,918,541 |   |                  | $ | 1,908,164 |  
|                                                                                                                                                                                                                                      |  |               |           |   |                  |   |           |  
|LIABILITIES                                                                                                                                                                                                                           |  |               |           |   |                  |   |           |  
|Current liabilities:                                                                                                                                                                                                                  |  |               |           |   |                  |   |           |  
|Trade accounts payable                                                                                                                                                                                                                |  | $             | 47,838    |   |                  | $ | 43,206    |  
|Accrued expenses and other current liabilities                                                                                                                                                                                        |  |               | 146,055   |   |                  |   | 160,991   |  
|                                                                                                                                                                                                                                      |  |               |           |   |                  |   |           |  
|Total current liabilities                                                                                                                                                                                                             |  |               | 193,893   |   |                  |   | 204,197   |  
|Long-term debt                                                                                                                                                                                                                        |  |               | 599,785   |   |                  |   | 599,785   |  
|Deferred income taxes                                                                                                                                                                                                                 |  |               | 1,108     |   |                  |   | 3,161     |  
|Coal supply agreements, net                                                                                                                                                                                                           |  |               | 7,653     |   |                  |   | 9,417     |  
|Postretirement benefits                                                                                                                                                                                                               |  |               | 511,004   |   |                  |   | 505,787   |  
|Other noncurrent liabilities                                                                                                                                                                                                          |  |               | 256,829   |   |                  |   | 249,480   |  
|                                                                                                                                                                                                                                      |  |               |           |   |                  |   |           |  
|Total liabilities                                                                                                                                                                                                                     |  |               | 1,570,272 |   |                  |   | 1,571,827 |  
|                                                                                                                                                                                                                                      |  |               |           |   |                  |   |           |  
|Commitments and contingencies (Note 17)                                                                                                                                                                                               |  |               |           |   |                  |   |           |  
|STOCKHOLDERS EQUITY                                                                                                                                                                                                                  |  |               |           |   |                  |   |           |  
|Common stock, $0.01 par value; 100.0 million shares authorized, 46.6 million shares issued and 45.2 million shares outstanding
at March 31, 2008; 46.4 million shares issued and 45.0 million shares outstanding at December 31, 2007 |  |               | 466       |   |                  |   | 464       |  
|Additional paid-in capital                                                                                                                                                                                                            |  |               | 302,667   |   |                  |   | 293,920   |  
|Retained earnings                                                                                                                                                                                                                     |  |               | 90,717    |   |                  |   | 86,800    |  
|Accumulated other comprehensive income                                                                                                                                                                                                |  |               | 3,593     |   |                  |   | 2,403     |  
|Treasury stock, at cost: 1.4 million shares at March 31, 2008; 1.4 million shares at December 31, 2007                                                                                                                                |  |               | (49,174   | ) |                  |   | (47,250   | )
|                                                                                                                                                                                                                                      |  |               |           |   |                  |   |           |  
|Total stockholders equity                                                                                                                                                                                                            |  |               | 348,269   |   |                  |   | 336,337   |  
|                                                                                                                                                                                                                                      |  |               |           |   |                  |   |           |  
|Total liabilities and stockholders equity                                                                                                                                                                                            |  | $             | 1,918,541 |   |                  | $ | 1,908,164 |  
|                                                                                                                                                                                                                                      |  |               |           |   |                  |   |           |  

The accompanying notes are an integral part of these consolidated financial statements.



3



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Foundation Coal Holdings, Inc. and Subsidiaries

Consolidated Statements of Operations and Comprehensive
Income

(Unaudited, dollars in thousands, except per share data)



|                                                                                                                                                |  |                             |            |   |      |   |            |  
|----------------------------------------------------------------------------------------------------------------------------------------------- |  | --------------------------- | ---------- | - | ---- | - | ---------- | -
|                                                                                                                                                |  | Three Months EndedMarch 31, |           
|                                                                                                                                                |  | 2008                        |            |   | 2007 |  
|Revenues:                                                                                                                                       |  |                             |            |   |      |   |            |  
|Coal sales                                                                                                                                      |  | $                           | 406,946    |   |      | $ | 386,232    |  
|Other revenue                                                                                                                                   |  |                             | 5,358      |   |      |   | 8,690      |  
|                                                                                                                                                |  |                             |            |   |      |   |            |  
|Total revenues                                                                                                                                  |  |                             | 412,304    |   |      |   | 394,922    |  
|Costs and expenses:                                                                                                                             |  |                             |            |   |      |   |            |  
|Cost of coal sales (excludes depreciation, depletion and amortization)                                                                          |  |                             | 315,473    |   |      |   | 284,242    |  
|Selling, general and administrative expenses (excludes depreciation, depletion and amortization)                                                |  |                             | 19,791     |   |      |   | 13,827     |  
|Accretion on asset retirement obligations                                                                                                       |  |                             | 2,557      |   |      |   | 2,372      |  
|Depreciation, depletion and amortization                                                                                                        |  |                             | 53,265     |   |      |   | 51,084     |  
|Amortization of coal supply agreements                                                                                                          |  |                             | 125        |   |      |   | (1,130     | )
|Employee and contract termination costs and other                                                                                               |  |                             | -          |   |      |   | 2,252      |  
|                                                                                                                                                |  |                             |            |   |      |   |            |  
|Income from operations                                                                                                                          |  |                             | 21,093     |   |      |   | 42,275     |  
|Other income (expense):                                                                                                                         |  |                             |            |   |      |   |            |  
|Interest expense                                                                                                                                |  |                             | (12,914    | ) |      |   | (13,020    | )
|Interest income                                                                                                                                 |  |                             | 443        |   |      |   | 632        |  
|                                                                                                                                                |  |                             |            |   |      |   |            |  
|Income before income tax expense and equity in losses of affiliate                                                                              |  |                             | 8,622      |   |      |   | 29,887     |  
|Income tax expense                                                                                                                              |  |                             | (2,267     | ) |      |   | (5,333     | )
|Equity in losses of affiliate                                                                                                                   |  |                             | (185       | ) |      |   | -          |  
|                                                                                                                                                |  |                             |            |   |      |   |            |  
|Net income                                                                                                                                      |  |                             | 6,170      |   |      |   | 24,554     |  
|Other comprehensive income:                                                                                                                     |  |                             |            |   |      |   |            |  
|Adjustments to unrecognized gains and losses and amortization of employee benefit plan costs, net of tax expense of $20 in 2008 and $42 in
2007 |  |                             | 613        |   |      |   | 62         |  
|Unrealized gain on natural gas swaps, net of tax expense of $365 in 2008                                                                        |  |                             | 577        |   |      |   | -          |  
|Reclassification of unrealized gain on interest rate swap into interest expense                                                                 |  |                             | -          |   |      |   | (370       | )
|                                                                                                                                                |  |                             |            |   |      |   |            |  
|Comprehensive income                                                                                                                            |  | $                           | 7,360      |   |      | $ | 24,246     |  
|                                                                                                                                                |  |                             |            |   |      |   |            |  
|Basic earnings per common share                                                                                                                 |  | $                           | 0.14       |   |      | $ | 0.54       |  
|Diluted earnings per common share                                                                                                               |  | $                           | 0.13       |   |      | $ | 0.53       |  
|Weighted-average shares-basic                                                                                                                   |  |                             | 45,009,728 |   |      |   | 45,121,903 |  
|Weighted-average shares-diluted                                                                                                                 |  |                             | 46,259,336 |   |      |   | 46,387,018 |  
|Dividends declared per share                                                                                                                    |  | $                           | 0.05       |   |      | $ | 0.05       |  

The accompanying notes are an integral part of these consolidated financial statements.



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Foundation Coal Holdings, Inc. and Subsidiaries

Consolidated Statements of Cash Flows

(Unaudited, dollars in thousands)



|                                                                                  |  |                             |         |   |      |   |         |  
|--------------------------------------------------------------------------------- |  | --------------------------- | ------- | - | ---- | - | ------- | -
|                                                                                  |  | Three Months EndedMarch 31, |        
|                                                                                  |  | 2008                        |         |   | 2007 |  
|Operating activities:                                                             |  |                             |         |   |      |   |         |  
|Net income                                                                        |  | $                           | 6,170   |   |      | $ | 24,554  |  
|Adjustments to reconcile net income to net cash provided by operating activities: |  |                             |         |   |      |   |         |  
|Accretion on asset retirement obligations                                         |  |                             | 2,557   |   |      |   | 2,372   |  
|Depreciation, depletion and amortization                                          |  |                             | 53,390  |   |      |   | 49,954  |  
|Amortization of deferred financing costs                                          |  |                             | 454     |   |      |   | 457     |  
|Gain on sale of assets                                                            |  |                             | (84     | ) |      |   | (343    | )
|Non-cash stock compensation                                                       |  |                             | 6,134   |   |      |   | 1,663   |  
|Excess tax benefit from stock-based awards                                        |  |                             | (1,664  | ) |      |   | (354    | )
|Deferred income taxes                                                             |  |                             | (2,398  | ) |      |   | (7,394  | )
|Asset retirement obligations                                                      |  |                             | (322    | ) |      |   | (108    | )
|Equity in losses of affiliate                                                     |  |                             | 185     |   |      |   | -       |  
|Other                                                                             |  |                             | 643     |   |      |   | 119     |  
|Changes in operating assets and liabilities:                                      |  |                             |         |   |      |   |         |  
|Trade accounts receivable                                                         |  |                             | (24,747 | ) |      |   | (3,809  | )
|Inventories, net                                                                  |  |                             | (145    | ) |      |   | (12,829 | )
|Prepaid expenses and other current assets                                         |  |                             | 8,815   |   |      |   | 4,466   |  
|Other noncurrent assets                                                           |  |                             | (43     | ) |      |   | 224     |  
|Trade accounts payable                                                            |  |                             | 4,632   |   |      |   | (17,614 | )
|Accrued expenses and other current liabilities                                    |  |                             | (8,067  | ) |      |   | (742    | )
|Noncurrent liabilities                                                            |  |                             | 10,018  |   |      |   | 11,162  |  
|                                                                                  |  |                             |         |   |      |   |         |  
|Net cash provided by operating activities                                         |  |                             | 55,528  |   |      |   | 51,778  |  
|                                                                                  |  |                             |         |   |      |   |         |  
|Investing activities:                                                             |  |                             |         |   |      |   |         |  
|Purchases of property, plant and equipment                                        |  |                             | (35,252 | ) |      |   | (48,059 | )
|Lease by application bonus bid deposit                                            |  |                             | (36,108 | ) |      |   | -       |  
|Purchases of equity-method investments                                            |  |                             | (9,799  | ) |      |   | -       |  
|Proceeds from disposition of property, plant and equipment                        |  |                             | 254     |   |      |   | 349     |  
|                                                                                  |  |                             |         |   |      |   |         |  
|Net cash used in investing activities                                             |  |                             | (80,905 | ) |      |   | (47,710 | )
|                                                                                  |  |                             |         |   |      |   |         |  
|Financing activities:                                                             |  |                             |         |   |      |   |         |  
|Payment of cash dividends                                                         |  |                             | (2,253  | ) |      |   | (2,255  | )
|Proceeds from issuance of common stock                                            |  |                             | 950     |   |      |   | 315     |  
|Excess tax benefit from stock-based awards                                        |  |                             | 1,664   |   |      |   | 354     |  
|Common stock repurchases                                                          |  |                             | (1,924  | ) |      |   | (13,267 | )
|                                                                                  |  |                             |         |   |      |   |         |  
|Net cash used in financing activities                                             |  |                             | (1,563  | ) |      |   | (14,853 | )
|                                                                                  |  |                             |         |   |      |   |         |  
|Net decrease in cash and cash equivalents                                         |  |                             | (26,940 | ) |      |   | (10,785 | )
|Cash and cash equivalents at beginning of period                                  |  |                             | 50,071  |   |      |   | 33,720  |  
|                                                                                  |  |                             |         |   |      |   |         |  
|Cash and cash equivalents at end of period                                        |  | $                           | 23,131  |   |      | $ | 22,935  |  
|                                                                                  |  |                             |         |   |      |   |         |  
|Supplemental cash flow information:                                               |  |                             |         |   |      |   |         |  
|Cash paid for interest                                                            |  | $                           | 16,422  |   |      | $ | 17,196  |  
|Cash paid for income taxes, net of refunds                                        |  | $                           | (282    | ) |      | $ | (495    | )

The accompanying notes are an integral part of these consolidated financial statements.



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Foundation Coal Holdings, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

(Unaudited, dollars in thousands)



|(1) | Basis of Presentation of Consolidated Financial Statements
|--- | ----------------------------------------------------------

The accompanying interim consolidated financial statements of Foundation Coal Holdings, Inc. and Subsidiaries (the Company) are unaudited and prepared in accordance with the rules and regulations of the United States
Securities and Exchange Commission for Form 10-Q. Such rules and regulations allow the omission of certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles
generally accepted in the United States of America as long as the statements are not misleading. In the opinion of management, these interim consolidated financial statements reflect all normal and recurring adjustments necessary for a fair
presentation of the results for the periods presented. These interim consolidated financial statements should be read in conjunction with the consolidated financial statements of the Company included in its Annual Report on Form 10-K for the
twelve months ended December 31, 2007, filed February 29, 2008.

The Companys consolidated financial statements have been
prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of the Companys consolidated financial statements requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. The more significant areas requiring the use of management estimates and
assumptions relate to coal reserves that are the basis for future cash flow estimates and units-of-production depreciation, depletion and amortization calculations; environmental and reclamation obligations; asset impairments; postemployment,
postretirement and other employee benefit liabilities; valuation allowances for deferred income taxes; income tax provision calculations; reserves for contingencies and litigation; and the fair value and accounting treatment of certain financial
instruments. Management bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances. Accordingly, actual results may differ from these estimates. In addition, different
assumptions or conditions could reasonably be expected to yield different results. The operating results for the three months ended March 31, 2008 may not necessarily be indicative of the results to be expected in any quarter or for the twelve
months ended December 31, 2008.



|(2) | Recent Accounting Pronouncements
|--- | --------------------------------

In March 2008,
the Financial Accounting Standards Board (the FASB) issued Statement of Financial Accounting Standards (SFAS) No. 161, Disclosures about Derivative Instruments and Hedging Activities (SFAS
No. 161). This standard amends and expands the disclosure requirements of SFAS No. 133, Accounting for Derivative Financial Instruments and Hedging Activities (SFAS No. 133) and establishes, among other
things, the disclosure requirements for derivative instruments and for hedging activities. SFAS No. 161 is effective for fiscal years beginning after November 15, 2008. The Company expects to adopt SFAS No. 161 on January 1, 2009
and does not believe it will have a material impact on its consolidated financial statements.

In December 2007, the FASB issued SFAS
No. 160, Noncontrolling Interests in Consolidated Financial Statements (SFAS No. 160). This standard outlines the accounting and reporting for an ownership interest in a subsidiary held by parties other than the parent.
SFAS No. 160 is effective for fiscal years beginning after December 15, 2008. The Company expects to adopt SFAS No. 160 on January 1, 2009 and does not believe it will have a material impact on its consolidated financial
statements.

In December 2007, the FASB issued SFAS No. 141(R), Business Combinations (SFAS No. 141(R)). This
standard amends SFAS No. 141, Business Combinations and revises established principles and requirements for identifiable assets and goodwill acquired, liabilities assumed, and non-controlling interest in the acquiree. This statement also
establishes disclosure requirements which will enable users to evaluate the nature and financial effects of the business combination. SFAS No.141(R) is effective for acquisitions for which the acquisition date is on or after the beginning of the
first annual reporting period beginning on or after December 15, 2008. The Company expects to apply the provisions of SFAS No. 141(R) to acquisitions made on or after January 1, 2009.



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Foundation Coal Holdings, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

(Unaudited, dollars in thousands)



In February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial Assets
and Liabilities Including an amendment of FASB Statement No. 115 (SFAS No. 159). SFAS No. 159 permits entities to choose to measure many financial instruments and certain other items at fair value that are not
currently required to be measured at fair value. SFAS No. 159 also establishes presentation and disclosure requirements designed to facilitate comparisons between entities that choose different measurement attributes for similar types of assets
and liabilities. SFAS No. 159 is effective as of the beginning of an entitys first fiscal year that begins after November 15, 2007. The Company did not elect the fair value option under SFAS No. 159 for any of its financial
assets or liabilities that are not required to be presented at fair value under generally accepted accounting principles and therefore the adoption of SFAS No. 159 had no impact on the Companys consolidated financial statements.

In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements (SFAS No. 157) which defines fair
value, establishes a framework for measuring fair value in generally accepted accounting principles and expands disclosures about fair value measurements. SFAS No. 157 clarifies how to measure fair value as permitted under other accounting
pronouncements but does not require any new fair value measurements. SFAS No. 157 was originally effective for financial statements issued for fiscal years beginning after November 15, 2007, and interim periods within those fiscal years.
On February 12, 2008, the FASB issued Final FASB Staff Position (FSP) No. Financial Accounting Standard (FAS) 157-2, Effective Date of FASB Statement No. 157 (FSP No. 157-2). FSP
No. 157-2 was effective upon issuance and delayed the effective date of SFAS No. 157 for nonfinancial assets and nonfinancial liabilities, except for items that are recognized or disclosed at fair value in the financial statements on a
recurring basis or at least once a year, to fiscal years beginning after November 15, 2008. The provisions of FSP No. 157-2 are effective for the Companys fiscal year beginning January 1, 2009.

The Company adopted the provisions of SFAS No. 157 on January 1, 2008. SFAS No. 157 establishes a fair value hierarchy that prioritizes
the inputs to valuation techniques used to measure fair value. Inputs are either observable or unobservable and refer broadly to the assumptions that are used in pricing assets or liabilities. Observable inputs are reflective of market data and
unobservable inputs reflect the entitys own assumptions about pricing assets or liabilities. As defined below, the fair value hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or
liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3). The three levels of the fair value hierarchy under SFAS 157 are further described as follows:



|        |  |                                                                                                                                                                                                                                                        
|------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Level 1 |  | Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities;                                                                                                              
|        | 
|Level 2 |  | Quoted prices for identical or similar assets or liabilities in markets that are not active, or inputs that are observable, either directly or indirectly, for substantially the full term of
the asset or liability, or by market-corroborated inputs;
|        | 
|Level 3 |  | Unobservable inputs for the assets or liability in which the fair value measurement is supported by little or no market activity but reflects the best information available to the reporting
entity and may include the entitys own data.            

These levels are not necessarily an indication of the risk or liquidity associated with the
financial assets or liabilities disclosed. The following table sets forth the Companys financial assets and liabilities measured at fair value by level within the fair value hierarchy at March 31, 2008. As required by SFAS No. 157,
assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement.



|                                   |  |         |        |         |   |         |  |  
|---------------------------------- |  | ------- | ------ | ------- | - | ------- |  | -
|                                   |  | Level 1 |        | Level 2 |   | Level 3
|Cash equivalents                   |  | $       | 26,000 |         |   | -       |  | -
|Sulfur dioxide emission allowances |  |         | -      |         | $ | 1,082   |  | -
|Derivative instruments             |  |         | -      |         | $ | 916     |  | -

The Companys cash equivalents represent investments in short-term commercial paper,
consisting of short-term debt obligations of the issuer bank earning money market rates of return, which are used by the Company primarily for the overnight investment of excess cash and are classified within Level 1 of the fair value hierarchy. The
instruments are valued based on unadjusted market prices in active markets for investment grade commercial paper held on a short-term basis.



7



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##### Table of Contents

Foundation Coal Holdings, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

(Unaudited, dollars in thousands)



The Companys sulfur dioxide emission allowances (emission allowances) are reported
at fair value and are valued based on quoted prices in markets where there are fewer transactions as they are less actively traded due to the limited market for emission allowances. As such, the emission allowances are classified within Level 2 of
the fair value hierarchy.

The Companys derivative instruments are reported at fair value which are derived using valuation models
commonly used for derivatives. Where possible, the Company verifies the values produced by such models to market prices. Valuation models require a variety of inputs, including contractual terms, market fixed prices, inputs from forward price yield
curves, notional quantities, measures of volatility and correlations of such inputs. The Companys derivatives trade in liquid markets, and as such, model inputs can generally be verified and do not involve significant management judgment. Such
instruments are typically classified within Level 2 of the fair value hierarchy.



|(3) | Inventories
|--- | -----------

Inventories consisted of the
following:



|                                                     |  |               |        |   |                  |   |        |  
|---------------------------------------------------- |  | ------------- | ------ | - | ---------------- | - | ------ | -
|                                                     |  | March 31,2008 |        |   | December 31,2007 |  
|Saleable coal                                        |  | $             | 17,220 |   |                  | $ | 16,317 |  
|Raw coal                                             |  |               | 1,972  |   |                  |   | 2,497  |  
|Materials and supplies                               |  |               | 33,022 |   |                  |   | 31,930 |  
|                                                     |  |               |        |   |                  |   |        |  
|                                                     |  |               | 52,214 |   |                  |   | 50,744 |  
|Less materials and supplies reserve for obsolescence |  |               | (7,997 | ) |                  |   | (6,622 | )
|                                                     |  |               |        |   |                  |   |        |  
|                                                     |  | $             | 44,217 |   |                  | $ | 44,122 |  
|                                                     |  |               |        |   |                  |   |        |  

Saleable coal represents coal stockpiles ready for shipment to a customer. Raw coal represents
coal that requires further processing prior to shipment.



|(4) | Prepaid Expenses
|--- | ----------------

Prepaid expenses consisted of the
following:



|                               |  |               |        |                  |   |       
|------------------------------ |  | ------------- | ------ | ---------------- | - | ------
|                               |  | March 31,2008 |        | December 31,2007
|Prepaid royalties              |  | $             | 1,127  |                  | $ | 1,358 
|Prepaid longwall move expenses |  |               | 7,980  |                  |   | 9,636 
|Prepaid SO2emission
allowances |  |               | 1,082  |                  |   | 1,711 
|Prepaid taxes                  |  |               | 4,296  |                  |   | 5,803 
|Prepaid insurance              |  |               | 6,008  |                  |   | 10,030
|Other                          |  |               | 2,590  |                  |   | 1,996 
|                               |  |               |        |                  |   |       
|                               |  | $             | 23,083 |                  | $ | 30,534
|                               |  |               |        |                  |   |       



8



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##### Table of Contents

Foundation Coal Holdings, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

(Unaudited, dollars in thousands)



|(5) | Plant, Equipment, Mine Development Costs and Owned and Leased Mineral Rights
|--- | ----------------------------------------------------------------------------

Plant, equipment, mine development costs and owned and leased mineral rights consisted of the following:



|                                                |  |               |           |   |                  |   |           |  
|----------------------------------------------- |  | ------------- | --------- | - | ---------------- | - | --------- | -
|                                                |  | March 31,2008 |           |   | December 31,2007 |  
|Owned surface lands and mineral rights          |  |               |           |   |                  |   |           |  
|Owned surface lands                             |  | $             | 39,198    |   |                  | $ | 36,807    |  
|                                                |  |               |           |   |                  |   |           |  
|Owned and leased mineral rights                 |  | $             | 1,291,326 |   |                  | $ | 1,255,218 |  
|Less accumulated depletion                      |  |               | (346,857  | ) |                  |   | (326,779  | )
|                                                |  |               |           |   |                  |   |           |  
|                                                |  | $             | 944,469   |   |                  | $ | 928,439   |  
|                                                |  |               |           |   |                  |   |           |  
|Plant, equipment and mine development costs     |  |               |           |   |                  |   |           |  
|Plant, equipment and asset retirement costs     |  | $             | 942,584   |   |                  | $ | 921,446   |  
|Mine development costs                          |  |               | 51,531    |   |                  |   | 48,693    |  
|Internal use software                           |  |               | 35,890    |   |                  |   | 35,838    |  
|Coalbed methane equipment and development costs |  |               | 13,317    |   |                  |   | 11,684    |  
|                                                |  |               |           |   |                  |   |           |  
|                                                |  |               | 1,043,322 |   |                  |   | 1,017,661 |  
|                                                |  |               |           |   |                  |   |           |  
|Less accumulated depreciation and amortization: |  |               |           |   |                  |   |           |  
|Plant, equipment and asset retirement costs     |  |               | (362,363  | ) |                  |   | (332,492  | )
|Mine development costs                          |  |               | (8,158    | ) |                  |   | (7,144    | )
|Internal use software                           |  |               | (10,847   | ) |                  |   | (11,347   | )
|Coalbed methane equipment and development costs |  |               | (2,874    | ) |                  |   | (2,249    | )
|                                                |  |               |           |   |                  |   |           |  
|                                                |  |               | (384,242  | ) |                  |   | (353,232  | )
|                                                |  |               |           |   |                  |   |           |  
|                                                |  | $             | 659,080   |   |                  | $ | 664,429   |  
|                                                |  |               |           |   |                  |   |           |  

On February 20, 2008, the Company was the successful bidder on a new federal coal lease
adjacent to the western boundary of the Eagle Butte mine located north of Gillette, Wyoming. The Companys lease bonus bid was $180,540, payable in five equal annual installments of $36,108. The Company made the first payment of $36,108 as a
deposit on the lease during the three months ended March 31, 2008. The lease became fully executed in April with an effective date of May 1, 2008. The payment was capitalized as a component of Owned and leased mineral rights, netin
the Consolidated Balance Sheets. The cost of owned and leased mineral rights are depleted using the units-of-production method over proven and probable reserves directly benefiting from the capital expenditure. This Federal coal lease contains an
estimated 255 million tons of minable coal reserves.



|(6) | Other Noncurrent Assets
|--- | -----------------------

Other noncurrent assets
consisted of the following:



|                                          |  |               |        |                  |   |       
|----------------------------------------- |  | ------------- | ------ | ---------------- | - | ------
|                                          |  | March 31,2008 |        | December 31,2007
|Receivables from asset dispositions       |  | $             | 943    |                  | $ | 943   
|Unamortized deferred financing costs, net |  |               | 9,568  |                  |   | 10,022
|Advance mining royalties                  |  |               | 1,637  |                  |   | 1,615 
|Equity-method investments                 |  |               | 9,614  |                  |   | -     
|Other                                     |  |               | 2,062  |                  |   | 1,571 
|                                          |  |               |        |                  |   |       
|                                          |  | $             | 23,824 |                  | $ | 14,151
|                                          |  |               |        |                  |   |       

During the three months ended March 31, 2008, the Company acquired a 49% interest in the
common stock of Target Drilling Inc. (Target), a privately-held contract drilling company for $9,246. The Company has the ability to exercise significant influence over, but not control the operating activities of Target and accordingly
uses the equity method of accounting in accordance with Accounting Principles Board Opinion No. 18, The Equity Method of Accounting for



9



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##### Table of Contents

Foundation Coal Holdings, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

(Unaudited, dollars in thousands)



Investments in Common Stock (APB 18). The Company records its proportionate share of earnings or losses of Target in its Consolidated
Statements of Operations and Comprehensive Income under the caption Equity in earnings (losses) of affiliate. The Company adjusts the carrying amount of its investment in Target for its share of earnings or losses of Target accordingly. The
difference, if any, between the cost of the investment and the Companys underlying equity in the net assets of Target will be accounted for as if Target was a consolidated subsidiary. The Company is currently undergoing a fair value analysis
on Target to determine any allocations that may be necessary in accounting for its investment in accordance with APB 18.



|(7) | Accrued Expenses and Other Current Liabilities
|--- | ----------------------------------------------

Accrued expenses and other current liabilities consisted of the following:



|                                           |  |               |         |                  |   |        
|------------------------------------------ |  | ------------- | ------- | ---------------- | - | -------
|                                           |  | March 31,2008 |         | December 31,2007
|Wages and employee benefits                |  | $             | 30,201  |                  | $ | 37,503 
|Employee termination costs                 |  |               | 129     |                  |   | 214    
|Postretirement benefits other than pension |  |               | 23,304  |                  |   | 23,304 
|Interest                                   |  |               | 3,604   |                  |   | 9,011  
|Royalties                                  |  |               | 7,020   |                  |   | 5,492  
|Taxes, other than income taxes             |  |               | 36,506  |                  |   | 38,107 
|Asset retirement obligations               |  |               | 4,386   |                  |   | 4,649  
|Workers compensation                      |  |               | 10,450  |                  |   | 10,450 
|Accrued capital expenditures               |  |               | 6,725   |                  |   | 11,641 
|Other                                      |  |               | 23,730  |                  |   | 20,620 
|                                           |  |               |         |                  |   |        
|                                           |  | $             | 146,055 |                  | $ | 160,991
|                                           |  |               |         |                  |   |        



|(8) | Other Noncurrent Liabilities
|--- | ----------------------------

Other noncurrent
liabilities consisted of the following:



|                             |  |               |         |                  |   |        
|---------------------------- |  | ------------- | ------- | ---------------- | - | -------
|                             |  | March 31,2008 |         | December 31,2007
|Postemployment benefits      |  | $             | 5,120   |                  | $ | 5,090  
|Pension benefits             |  |               | 29,994  |                  |   | 28,564 
|Workers compensation        |  |               | 23,462  |                  |   | 24,268 
|Black lung reserves          |  |               | 12,944  |                  |   | 12,377 
|Contract settlement accrual  |  |               | 8,498   |                  |   | 10,272 
|Asset retirement obligations |  |               | 151,912 |                  |   | 149,414
|Deferred production tax      |  |               | 16,284  |                  |   | 11,002 
|Deferred credits and other   |  |               | 8,615   |                  |   | 8,493  
|                             |  |               |         |                  |   |        
|                             |  | $             | 256,829 |                  | $ | 249,480
|                             |  |               |         |                  |   |        



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##### Table of Contents

Foundation Coal Holdings, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

(Unaudited, dollars in thousands)



|(9) | Accumulated Other Comprehensive Income
|--- | --------------------------------------

Accumulated
other comprehensive income consisted of the following:



|                                                  |  |               |       |                  |   |       |  
|------------------------------------------------- |  | ------------- | ----- | ---------------- | - | ----- | -
|                                                  |  | March 31,2008 |       | December 31,2007 |  
|Defined benefit pension, postretirement and other |  |               |       |                  |   |       |  
|Company sponsored plans                           |  | $             | 3,042 |                  | $ | 2,429 |  
|Unrealized gain (loss) on natural gas swaps       |  |               | 551   |                  |   | (26   | )
|                                                  |  |               |       |                  |   |       |  
|Total                                             |  | $             | 3,593 |                  | $ | 2,403 |  
|                                                  |  |               |       |                  |   |       |  



|(10) | Pension, Other Postretirement Benefit Plans and Pneumoconiosis
|---- | --------------------------------------------------------------

Components of Net Periodic Pension Costs

The components of net periodic benefit costs are as follows:



|                               |  |                             |        |   |      |   |        |  
|------------------------------ |  | --------------------------- | ------ | - | ---- | - | ------ | -
|                               |  | Three Months EndedMarch 31, |       
|                               |  | 2008                        |        |   | 2007 |  
|Service cost                   |  | $                           | 1,575  |   |      | $ | 1,531  |  
|Interest cost                  |  |                             | 3,118  |   |      |   | 2,954  |  
|Expected return on plan assets |  |                             | (3,333 | ) |      |   | (2,928 | )
|Amortization of:               |  |                             |        |   |      |   |        |  
|Prior service cost             |  |                             | (3     | ) |      |   | (2     | )
|Actuarial losses               |  |                             | 38     |   |      |   | 62     |  
|                               |  |                             |        |   |      |   |        |  
|Net expense                    |  | $                           | 1,395  |   |      | $ | 1,617  |  
|                               |  |                             |        |   |      |   |        |  

Components of Net Periodic Other Postretirement Benefit Plans Costs

The components of net periodic benefit costs are as follows:



|              |  |                             |        |      |   |       
|------------- |  | --------------------------- | ------ | ---- | - | ------
|              |  | Three Months EndedMarch 31,
|              |  | 2008                        |        | 2007
|Service cost  |  | $                           | 1,925  |      | $ | 2,256 
|Interest cost |  |                             | 8,525  |      |   | 8,140 
|              |  |                             |        |      |   |       
|Net expense   |  | $                           | 10,450 |      | $ | 10,396
|              |  |                             |        |      |   |       

The Companys postretirement medical and life insurance plans are unfunded.



11



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##### Table of Contents

Foundation Coal Holdings, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

(Unaudited, dollars in thousands)



Components of Pneumoconiosis Costs

The components of net periodic benefit costs are as follows:



|                                 |  |                             |      |   |      |   |      |  
|-------------------------------- |  | --------------------------- | ---- | - | ---- | - | ---- | -
|                                 |  | Three Months EndedMarch 31, |     
|                                 |  | 2008                        |      |   | 2007 |  
|Service cost                     |  | $                           | 168  |   |      | $ | 182  |  
|Interest cost                    |  |                             | 353  |   |      |   | 334  |  
|Expected return on plan assets   |  |                             | (107 | ) |      |   | (131 | )
|Amortization of actuarial losses |  |                             | 14   |   |      |   | 44   |  
|Other                            |  |                             | 125  |   |      |   | -    |  
|                                 |  |                             |      |   |      |   |      |  
|Net expense                      |  | $                           | 553  |   |      | $ | 429  |  
|                                 |  |                             |      |   |      |   |      |  



|(11) | Stock-Based Compensation
|---- | ------------------------

On July 30, 2004,
the Companys Board of Directors adopted the Foundation Coal Holdings, Inc. 2004 Stock Incentive Plan (the Plan), which is designed to assist the Company in recruiting and retaining key employees, directors and consultants. The
Plan, which was amended and restated December 14, 2006, permits the Company to grant its key employees, directors and consultants nonqualified stock options (options), stock appreciation rights, restricted stock or other stock-based
awards. The shares under the Plan may be issued at an exercise price of no less than 100% of the fair market value of the Companys common stock on the date of grant. The Plan is currently authorized for the issuance of awards for up to
5,978,483 shares of common stock. At March 31, 2008, 2,091,314 shares of common stock were available for grant under the Plan.

The
Company has three types of stock-based awards: restricted stock units, restricted stock and options. Total compensation expense related to the stock-based awards recognized in Selling, general and administrative expenses for the three months
ended March 31, 2008 was $6,134, consisting of $3,375, $144 and $2,615 for restricted stock units, restricted stock and options, respectively. Compensation expense related to stock-based awards recognized in Selling, general and
administrative expenses for the three months ended March 31, 2007 was $1,663, consisting of $1,131, $98 and $434 for restricted stock units, restricted stock and options, respectively. During the three months ended March 31, 2008, the
Company modified the vesting conditions for certain of its outstanding stock-based awards. As a result, the Company remeasured the affected stock-based awards in accordance with SFAS No. 123 (revised 2004), Share-Based Payment
(SFAS No. 123(R)) and recognized additional compensation expense of approximately $2,544 in Selling, general and administrative expenses for the three months ended March 31, 2008.



|(12) | Interest Rate Swaps
|---- | -------------------

The Companys objectives
for holding or issuing derivative instruments are to mitigate its exposure to variability in the prices of certain operating supplies and to interest rate risk. The Companys strategy for minimizing exposure to variability is to enter into
pay-fixed, receive-variable financial swaps.

On September 30, 2004, the Company entered into pay-fixed, receive-variable interest
rate swap agreements on a notional amount of $85,000. The term of these swaps was for three years. Under these swaps, the Company received a variable rate of three month US dollar LIBOR and paid a fixed rate of 3.26%. Settlement of interest payments
occurred quarterly. The Company was required to enter into these swaps in order to maintain at least 50% of its outstanding debt at a fixed rate as required by the original facility. These swap agreements essentially converted $85,000 of the
Companys variable rate borrowings under the original facility to fixed rate borrowings beginning September 30, 2004. The Company designated these interest rate swaps at inception as cash flow hedges of the variable interest payments due
on $85,000 of its variable rate debt through September 2007 under SFAS No. 133. In connection with the closing of the Senior Secured Credit Facility on July 7, 2006, the Company terminated the interest rate swaps. On the date the Company
made the decision to terminate the interest rate swaps, the interest rate swaps no longer qualified for cash flow hedge accounting treatment and accordingly, any change in the market value of the interest rate swaps affected net income. On
July 11, 2006, the Company monetized the $2,371 derivative asset included in Other noncurrent assets in the Consolidated Balance Sheets at June 30, 2006 and recognized a $112 mark-to-market loss on the swaps in Other income
(expense). The $1,841 unrealized gain from the change in the market value of the interest rate swaps recorded in Accumulated other comprehensive income (loss)was being amortized into income on a prorated basis over the remaining term of
the original interest rate swap agreement through



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##### Table of Contents

Foundation Coal Holdings, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

(Unaudited, dollars in thousands)



September 28, 2007, in accordance with SFAS No. 133 and related amendments. At December 31, 2007 and 2006, the unamortized unrealized gain on
the swaps was $0 and $1,114, respectively. During the three months ended March 31, 2008 and 2007, the Company amortized $0 and $370, respectively, which was recorded as an offset against Interest expense.



|(13) | Asset Retirement Obligations
|---- | ----------------------------

The Companys
mining activities are subject to various federal and state laws and regulations governing the protection of the environment. These laws and regulations are continually changing and are generally becoming more restrictive. The Company conducts its
operations to protect the public health and environment and believes its operations are in material compliance with all applicable laws and regulations. The Company has made, and expects to make in the future, expenditures to comply with such laws
and regulations, but cannot predict the exact amount of such future expenditures. Estimated future reclamation costs are based principally on legal and regulatory requirements.

The following table is a reconciliation of the Companys asset retirement obligation liability from December 31, 2007 through March 31,
2008:



|                                               |  |   |         |  
|---------------------------------------------- |  | - | ------- | -
|Asset retirement obligation, December 31, 2007 |  | $ | 154,063 |  
|Accretion expense                              |  |   | 2,557   |  
|Payments                                       |  |   | (322    | )
|                                               |  |   |         |  
|Asset retirement obligation, March 31, 2008    |  | $ | 156,298 |  
|                                               |  |   |         |  

The current portions of the asset retirement obligation liabilities of $4,386 and $4,649 at
March 31, 2008 and December 31, 2007, respectively, are included in Accrued expenses and other current liabilities. See Note 7. The noncurrent portions of the Companys asset retirement obligation liabilities of $151,912 and
$149,414 at March 31, 2008 and December 31, 2007, respectively, are included in Other noncurrent liabilities. See Note 8. There were no assets that were legally restricted for purposes of settling asset retirement obligations at
March 31, 2008 or December 31, 2007. At March 31, 2008, regulatory obligations for asset retirements are secured by surety bonds in the amount of $268,106. These surety bonds are partially collateralized by letters of credit issued by
the Company.



|(14) | Stockholders Equity, Earnings Per Share and Common Share Repurchases
|---- | ---------------------------------------------------------------------

Stockholders Equity

During the three months ended March 31, 2008, the Company declared and paid cash
dividends of $2,253.

During the three months ended March 31 2008, 142,624 options were exercised.

Earnings Per Share

The following table
provides a reconciliation of weighted-average shares outstanding used in the basic and diluted earnings per share computations for the periods presented:



|                                                               |  |                             |  |           
|-------------------------------------------------------------- |  | --------------------------- |  | ----------
|                                                               |  | Three Months EndedMarch 31,
|                                                               |  | 2008                        |  | 2007      
|Weighted average shares outstanding-basic                      |  | 45,009,728                  |  | 45,121,903
|Dilutive impact of stock options                               |  | 1,010,061                   |  | 1,205,452 
|Dilutive impact of restricted stock and restricted stock units |  | 239,547                     |  | 59,663    
|                                                               |  |                             |  |           
|Weighted average shares outstanding-diluted                    |  | 46,259,336                  |  | 46,387,018
|                                                               |  |                             |  |           

Common Share Repurchases

In July 2006, the Board of Directors authorized a stock repurchase program (the Repurchase Program), authorizing the Company to repurchase
shares of its common stock. The Company may repurchase its common stock from time to time,



13



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##### Table of Contents

Foundation Coal Holdings, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

(Unaudited, dollars in thousands)



as determined by authorized officers of the Company, up to an aggregate amount of $100,000. During the three months ended March 31, 2008, the Company
did not purchase any shares under the Repurchase Program. At March 31, 2008, $52,849 of funds remained under the Repurchase Program. During the three months ended March 31, 2008, the Company issued 103,518 shares of common stock to
employees upon vesting of restricted stock units. The Company withheld 36,546 shares of common stock to satisfy the employees minimum statutory tax withholding upon vesting.



|(15) | Segment Information
|---- | -------------------

The Company produces primarily
steam coal from surface and deep mines for sale to utility and industrial customers, which is distributed by rail, barge and/or truck. The Company operates only in the United States with operating mines in three of the major coal basins. The Company
has four reportable business segments: Northern Appalachia, consisting of two underground mines in southwestern Pennsylvania; Central Appalachia, consisting of seven underground mines and two surface mines in southern West Virginia; the Powder River
Basin, consisting of two surface mines in Wyoming and the Companys Other segment. Other includes an idled underground mine in Illinois; expenses associated with closed mines; Dry Systems Technologies; purchased coal activities, which are for
physical delivery; coalbed methane operations; selling, general and administrative expenses not charged out to the Powder River Basin, Northern Appalachia or Central Appalachia mines and the elimination of intercompany transactions. The Company
evaluates the performance of its segments based on income (loss) from operations.

Segment results for the three months ended
March 31, 2008 are as follows:



|                                         |  |                   |         |                    |   |         |                   |  |   |         |   |  |              |         |   |  |   |           |  | 
|---------------------------------------- |  | ----------------- | ------- | ------------------ | - | ------- | ----------------- |  | - | ------- | - |  | ------------ | ------- | - |  | - | --------- |  | 
|                                         |  | Powder RiverBasin |         | NorthernAppalachia |   |         | CentralAppalachia |  |   | Other   |   |  | Consolidated |         |  
|Total revenues                           |  | $                 | 128,137 |                    | $ | 176,155 |                   |  | $ | 102,690 |   |  | $            | 5,322   |   |  | $ | 412,304   |  | 
|Income (loss) from operations            |  |                   | 12,755  |                    |   | 34,140  |                   |  |   | (2,701  | ) |  |              | (23,101 | ) |  |   | 21,093    |  | 
|Depreciation, depletion and amortization |  |                   | 11,756  |                    |   | 22,132  |                   |  |   | 17,131  |   |  |              | 2,246   |   |  |   | 53,265    |  | 
|Amortization of coal supply agreements   |  |                   | 1,139   |                    |   | (76     | )                 |  |   | (1,067  | ) |  |              | 129     |   |  |   | 125       |  | 
|Capital expenditures                     |  |                   | 2,844   |                    |   | 28,616  |                   |  |   | 3,414   |   |  |              | 378     |   |  |   | 35,252    |  | 
|Federal coal lease bonus bid deposit     |  |                   | 36,108  |                    |   | -       |                   |  |   | -       |   |  |              | -       |   |  |   | 36,108    |  | 
|Total assets at March 31, 2008           |  | $                 | 523,315 |                    | $ | 881,144 |                   |  | $ | 416,116 |   |  | $            | 97,966  |   |  | $ | 1,918,541 |  | 

Segment results for the three months ended March 31, 2007 are as follows:



|                                         |  |                   |         |                    |   |                   |  |   |         |   |  |              |         |   |  |   |           |   |  | 
|---------------------------------------- |  | ----------------- | ------- | ------------------ | - | ----------------- |  | - | ------- | - |  | ------------ | ------- | - |  | - | --------- | - |  | 
|                                         |  | Powder RiverBasin |         | NorthernAppalachia |   | CentralAppalachia |  |   | Other   |   |  | Consolidated |         |   | 
|Total revenues                           |  | $                 | 115,741 |                    | $ | 148,139           |  | $ | 116,673 |   |  | $            | 14,369  |   |  | $ | 394,922   |   |  | 
|Income (loss) from operations            |  |                   | 20,830  |                    |   | 40,110            |  |   | 3,125   |   |  |              | (21,790 | ) |  |   | 42,275    |   |  | 
|Depreciation, depletion and amortization |  |                   | 10,627  |                    |   | 21,824            |  |   | 17,019  |   |  |              | 1,614   |   |  |   | 51,084    |   |  | 
|Amortization of coal supply agreements   |  |                   | 872     |                    |   | 546               |  |   | (2,359  | ) |  |              | (189    | ) |  |   | (1,130    | ) |  | 
|Capital expenditures                     |  |                   | 2,591   |                    |   | 17,276            |  |   | 15,198  |   |  |              | 12,994  |   |  |   | 48,059    |   |  | 
|Total assets at December 31, 2007        |  | $                 | 490,343 |                    | $ | 862,972           |  | $ | 427,040 |   |  | $            | 127,809 |   |  | $ | 1,908,164 |   |  | 



14



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##### Table of Contents

Foundation Coal Holdings, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

(Unaudited, dollars in thousands)



|(16) | Other Revenue
|---- | -------------

Other revenue consisted of the
following:



|                                                    |  |                             |       |      |   |      
|--------------------------------------------------- |  | --------------------------- | ----- | ---- | - | -----
|                                                    |  | Three Months EndedMarch 31,
|                                                    |  | 2008                        |       | 2007
|Royalty income                                      |  | $                           | 1,325 |      | $ | 793  
|Synfuel fees                                        |  |                             | -     |      |   | 1,279
|Coalbed methane                                     |  |                             | 1,748 |      |   | 728  
|Transloading and plant processing fees              |  |                             | 397   |      |   | 184  
|Gain on disposition of assets                       |  |                             | 84    |      |   | 343  
|Combined Benefit Fund refund                        |  |                             | -     |      |   | 1,325
|Natural gas                                         |  |                             | 156   |      |   | 196  
|Dry Systems Technologies equipment and filter sales |  |                             | 1,648 |      |   | 1,011
|Other                                               |  |                             | -     |      |   | 2,831
|                                                    |  |                             |       |      |   |      
|Total other revenue                                 |  | $                           | 5,358 |      | $ | 8,690
|                                                    |  |                             |       |      |   |      



|(17) | Commitments and Contingencies
|---- | -----------------------------

General

The Company follows SFAS No. 5, Accounting for Contingencies, in determining its accruals and disclosures with respect to loss contingencies.
Accordingly, estimated losses from loss contingencies and legal expenses associated with the contingency are accrued by a charge to income when information available indicates that it is probable that an asset had been impaired or a liability had
been incurred and the amount of the loss can be reasonably estimated. If a loss contingency is not probable or reasonably estimable, disclosure of the loss contingency is made in the consolidated financial statements when it is at least reasonably
possible that a loss will be incurred and the loss is material. Additionally, see Note 13 regarding Asset Retirement Obligations.

Commitments

On February 20, 2008, the Company was determined to be the successful bidder on a federal coal lease by the Bureau of Land
Management (BLM), a unit of the United States Department of the Interior. The bid was accepted as submitted in the amount of $180,540 for an approximate 1,428 acre tract of federal land. The lease became fully executed in April with an
effective date of May 1, 2008. This lease is subject to the deferred bonus payment provisions of the Code of Federal Regulations and as such, the Company remits the bonus payments in five equal installments, the first of which was submitted
with the bid as a deposit on the lease in February 2008. The remaining four annual installments of $36,108 are due on the annual anniversary dates of the lease as required by the deferral provisions.

Guarantees

Neweagle Industries, Inc.,
Neweagle Coal Sales Corp., Laurel Creek Co., Inc. and Rockspring Development, Inc. (Sellers) are indirect wholly owned subsidiaries of the Company. The Sellers sell coal to Birchwood Power Partners, L.P. (Birchwood) under a
Coal Supply Agreement dated July 22, 1993 (Birchwood Contract). Laurel Creek Co., Inc. and Rockspring Development, Inc. were parties to the Birchwood Contract since its inception, at which time those entities were not affiliated
with Neweagle Industries, Inc., Neweagle Coal Sales Corp. or the Company. Effective January 31, 1994, the Birchwood Contract was assigned to Neweagle Industries, Inc. and Neweagle Coal Sales Corp. by AgipCoal Holding USA, Inc. and AgipCoal
Sales USA, Inc., which at the time were affiliates of Arch Coal, Inc. Despite this assignment, Arch Coal, Inc. (Arch) and its affiliates have separate contractual obligations to provide coal to Birchwood if Sellers fail to perform.
Pursuant to an Agreement & Release dated September 30, 1997, the Company agreed to defend, indemnify and hold harmless Arch and its subsidiaries from and against any claims arising out of any failure of Sellers to perform under the
Birchwood Contract. By acknowledgement dated February 16, 2005, the Company and Arch acknowledged the continuing validity and effect of said Agreement & Release.



15



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##### Table of Contents

Foundation Coal Holdings, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

(Unaudited, dollars in thousands)



In the normal course of business, the Company is a party to guarantees and financial instruments with
off-balance sheet risk, such as bank letters of credit, performance or surety bonds and other guarantees and indemnities related to the obligations of affiliated entities, which are not reflected in the accompanying Consolidated Balance Sheets.
Management does not expect any material losses to result from these guarantees and other off-balance sheet instruments.

Contingencies

Extensive regulation of the impacts of mining on the environment and of maintaining workplace safety, and related litigation, has
had or may have a significant effect on the Companys costs of production and results of operations. Further regulations, legislation or litigation in these areas may also cause the Companys sales or profitability to decline by increasing
costs or by hindering the Companys ability to continue mining at existing operations or to permit new operations.

Legal Proceedings

The Company is involved in various claims and other legal actions arising in the ordinary course of business. In the opinion of management,
the ultimate disposition of these matters will not have a material adverse effect on the Companys consolidated financial position, consolidated results of operations or consolidated cash flows.

Letters of Credit

At March 31, 2008, the
Company had $172,623 of letters of credit outstanding under its revolving credit facility.



|(18) | Employee and Contract Termination Costs and Other
|---- | -------------------------------------------------

Employee
Termination Costs

In April 2007, Wabash Mine Holding Company (Wabash) announced the idling of the mine in southern
Illinois. The mining operation had become economically unviable at that time as a result of a combination of factors, including aging infrastructure, softening market conditions and the prospect of a new higher cost labor contract with the UMWA. The
Wabash mine remains idled and the effects of the idling had been negotiated with the UMWA.

During the three months ended March 31,
2007, as a result of the Wabash mine idling, the Company recognized employee termination costs for salaried employees resulting from ongoing benefit obligations of $2,252 in accordance with the provisions of SFAS No. 112, Employers
Accounting for Postemployment Benefits. These costs are recorded as Employee and contract termination costs and other in the Consolidated Statements of Operations and Comprehensive Income for the three months ended March 31, 2007.
The Wabash mine is included in the Companys Other segment. See Note 15.

As of March 31, 2008 and December 31, 2007,
the Companys liabilities for employee termination costs were $129 and $214, respectively, and are included in Accrued Expenses and Other Current Liabilities. See Note 7.



|(19) | Income Taxes
|---- | ------------

For the three months ended
March 31, 2008, income taxes were provided at an effective rate of 26% and for the three months ended March 31, 2007, income taxes were provided at an effective rate of 18%. The effective rate in the three months ended March 31, 2008
is comprised of two elements: (1) a 14% effective rate based on forecasted annual results for 2008; and (2) a discrete tax expense of $1,129 recorded in the first quarter of 2008. Without the discrete expense, the forecasted effective rate
of 14% for 2008 decreased from the 2007 effective rate of 18% due primarily to the expected benefit obtained from excess depletion deductions which are projected to be greater in 2008 than in 2007.



16



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##### Table of Contents

|ITEM 2. | MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
|------- | --------------------------------------------------------------------------------------

Special Note Regarding Forward-Looking Statements

This Form 10-Q contains forward-looking
statements that are not statements of historical fact and may involve a number of risks and uncertainties. These statements relate to analyses and other information that are based on forecasts of future results and estimates of amounts not yet
determinable. These statements may also relate to our future prospects, developments and business strategies.

We have used the words
anticipate, believe, could, estimate, expect, intend, may, plan, predict, project and similar terms and phrases, including
references to assumptions, in this Form 10-Q to identify forward-looking statements. These forward-looking statements are made based on expectations and beliefs concerning future events affecting us and are subject to uncertainties and factors
relating to our operations and business environment, all of which are difficult to predict and many of which are beyond our control, that could cause our actual results to differ materially from those matters expressed in or implied by these
forward-looking statements. The following factors are among those that may cause actual results to differ materially from our forward-looking statements:



| |  |  | market demand for coal, electricity and steel;
| | - |  | ----------------------------------------------



| |  |  | future economic or capital market conditions;
| | - |  | ---------------------------------------------



| |  |  | weather conditions or catastrophic weather-related damage;
| | - |  | ----------------------------------------------------------



| |  |  | our ability to produce coal at existing and planned future operations;
| | - |  | ----------------------------------------------------------------------



| |  |  | the consummation of financing, acquisition or disposition transactions and the effect thereof on our business;
| | - |  | --------------------------------------------------------------------------------------------------------------



| |  |  | our plans and objectives for future operations and expansion or consolidation;
| | - |  | ------------------------------------------------------------------------------



| |  |  | our relationships with, and other conditions affecting, our customers;
| | - |  | ----------------------------------------------------------------------



| |  |  | timing of reductions or increases in customer coal inventories;
| | - |  | ---------------------------------------------------------------



| |  |  | long-term coal supply arrangements;
| | - |  | -----------------------------------



| |  |  | risks in coal mining;
| | - |  | ---------------------



| |  |  | environmental laws, including those directly affecting our coal mining and production, and those affecting our customers coal usage;
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------



| |  |  | competition;
| | - |  | ------------



| |  |  | railroad, barge, trucking and other transportation performance and costs;
| | - |  | -------------------------------------------------------------------------



| |  |  | our assumptions concerning economically recoverable coal reserve estimates;
| | - |  | ---------------------------------------------------------------------------



| |  |  | employee workforce factors;
| | - |  | ---------------------------



| |  |  | regulatory and court decisions;
| | - |  | -------------------------------



| |  |  | future legislation and changes in regulations or governmental policies or changes in interpretations thereof;
| | - |  | -------------------------------------------------------------------------------------------------------------



| |  |  | changes in postretirement benefit and pension obligations;
| | - |  | ----------------------------------------------------------



| |  |  | our liquidity, results of operations and financial condition;
| | - |  | -------------------------------------------------------------



| |  |  | disruptions in delivery or changes in pricing from third party vendors of goods and services which are necessary for our operations, such as fuel, steel products,
explosives and tires.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

You should keep in mind that any forward-looking statement made by us in this Form 10-Q or
elsewhere speaks only as of the date on which we make it. New risks and uncertainties come up from time to time, and it is impossible for us to predict these events or how they may affect us. We have no duty to, and do not intend to, update or
revise the forward-looking statements in this Form 10-Q after the date of this Form 10-Q, except as may be required by law. In light of these risks and uncertainties, you should keep in mind that any forward-looking statement made in this
Form 10-Q or elsewhere might not occur.



17



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##### Table of Contents

Overview

We are the fourth largest coal producer in the United States, operating eight mining complexes that consist of thirteen individual coal mines. Our mining operations are located in southwest Pennsylvania, southern West Virginia and the
southern Powder River Basin region of Wyoming. Four of our operations are surface mines, two of our operations are underground mines using highly efficient longwall mining technology and the remaining seven operations are underground mines that
utilize continuous miners. In addition to mining coal, we also purchase coal from other producers and utilize it with our own production in coal brokering and trading activities.

For the three months ended March 31, 2008, we sold 18.5 million tons of coal, including 17.9 million tons that were produced and processed
at our operations. For the comparable period in 2007, we sold 18.8 million tons of coal, including 18.4 million tons that were produced and processed at our operations. As of December 31, 2007, we had approximately 1.6 billion
tons of proven and probable coal reserves. On February 20, 2008, we were the successful bidder on a new federal coal lease adjacent to the western boundary of the Eagle Butte mine located north of Gillette, Wyoming. The lease became fully
executed in April with an effective date of May 1, 2008. This federal coal lease contains an estimated 255 million tons of minable coal reserves. In addition to mining coal, we are also involved in marketing coal produced by others to
supplement our own production and, through blending, provide our customers with a wide array of coal qualities beyond those available from our own production. We purchased and resold approximately 0.6 million and 0.4 million tons of coal
in the three months ended March 31, 2008 and 2007, respectively.

We are primarily a supplier of steam coal to U.S. utilities for use
in generating electricity. We also sell steam coal to industrial plants. Steam coal sales accounted for approximately 98% and 97% of our coal sales volume for the three month periods ended March 31, 2008 and 2007, respectively, representing
approximately 92% and 90% of our coal sales revenue in the three month periods ended March 31, 2008 and 2007, respectively. We sell metallurgical coal to steel producers where it is used to make coke for steel production. Metallurgical coal
accounted for approximately 2% and 3% of our coal sales volume for the three month periods ended March 31, 2008 and 2007, respectively, representing approximately 8% and 10% of our coal sales revenue in the three month periods ended
March 31, 2008 and 2007, respectively.

While the majority of our revenues are derived from the sale of coal, we also realize revenues
from coal production royalties, override royalty payments from a coal supply agreement now fulfilled by another producer, fees to transload coal through our Rivereagle facility on the Big Sandy River and revenues from the sale of coalbed methane,
Dry Systems Technologies equipment and filters and natural gas.

Results of Operations

Three Months Ended March 31, 2008 Compared to Three Months Ended March 31, 2007

Coal sales realization per ton sold represents the average revenue realized on each ton of coal sold. It is calculated by dividing coal sales revenues by
tons sold.

Revenues



|                                    |  |                                                |         |                     |   |         |  |   |         |   |  |     |   
|----------------------------------- |  | ---------------------------------------------- | ------- | ------------------- | - | ------- |  | - | ------- | - |  | --- | --
|                                    |  | Three Months EndedMarch 31,                    |         | Increase (Decrease) |  
|                                    |  | 2008                                           |         | 2007                |   | Amount  |  |   | Percent |  
|                                    |  | (Unaudited, in thousands, except per ton data) |        
|Coal sales                          |  | $                                              | 406,946 |                     | $ | 386,232 |  | $ | 20,714  |   |  | 5   | % 
|Other revenue                       |  |                                                | 5,358   |                     |   | 8,690   |  |   | (3,332  | ) |  | (38 | )%
|                                    |  |                                                |         |                     |   |         |  |   |         |   |  |     |   
|Total revenues                      |  | $                                              | 412,304 |                     | $ | 394,922 |  | $ | 17,382  |   |  | 4   | % 
|                                    |  |                                                |         |                     |   |         |  |   |         |   |  |     |   
|Tons sold                           |  |                                                | 18,451  |                     |   | 18,804  |  |   | (353    | ) |  | (2  | )%
|Coal sales realization per ton sold |  | $                                              | 22.06   |                     | $ | 20.54   |  | $ | 1.52    |   |  | 7   | % 



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##### Table of Contents

Coal sales revenues for the three months ended March 31, 2008 increased by $20.7 million, or 5% compared
to coal sales revenues for the three months ended March 31, 2007. Our consolidated average coal sales realization per ton increased 7% period-over-period, while tons sold decreased by 2% period-over-period. The consolidated weighted-average coal
sales realization per ton for the three months ended March 31, 2008 reflected increased prices per ton sold in all three of our operating segments consisting of an 11% increase in Central Appalachia and the Powder River Basin, respectively, and a 6%
increase in Northern Appalachia.

Coal sales revenues in Northern Appalachia for the three months ended March 31, 2008 increased by $28.8
million, or 20% compared to coal sales revenues for the three months ended March 31, 2007 due primarily to a combination of higher coal sales volumes from higher tons shipped and higher average sales realization per ton. Coal sales realization per
ton in Northern Appalachia increased 6% period-over-period due to increased pricing per ton sold. Coal sales volumes in Northern Appalachia increased by 0.5 million tons, or 13% period-over-period as a result of increased shipments from both
mines, which included the purchase of approximately 0.3 million tons of coal to fulfill existing contracts so that coal produced by the Emerald mine could be sold at prices more indicative of the current market prices. Despite a scheduled longwall
move during the last week of the quarter, tons sold at the Cumberland mine increased 9% in the three months ended March 31, 2008 compared to the prior year period. Tons sold at the Emerald mine increased 18% in the three months ended March 31, 2008
compared to the prior year period primarily due to sales of purchased coal mentioned previously. Production at Emerald decreased 12% period-over-period due to a decrease in tons mined by the longwall mining units. Lower tons mined resulted from
production delays that were caused by hard cutting conditions due to sandstone intrusions, equipment failures, weather-related power outages and reduced mining rates to maintain compliance with ventilation plans. This lower production was partially
offset by the introduction of a second longwall operating in a new district at Emerald in late February 2008.

Coal sales revenues in
Central Appalachia for the three months ended March 31, 2008 decreased $11.7 million, or 10% compared to coal sales revenues for the three months ended March 31, 2007 primarily as a result of lower coal sales volumes, partially offset by
higher coal sales realization per ton. Coal sales realization per ton increased 11% period-over-period as a result of increased pricing per ton sold. Coal sales volumes declined by 0.4 million tons, or 19% in the three months ended
March 31, 2008 compared to the prior year period. Coal sales volumes in Central Appalachia decreased at all mining operations except for the Rockspring mine. Coal sales volumes were negatively impacted by the absence of coal purchased and
resold due to the expiration of the synfuel tax credit in December 2007.

Coal sales revenues in the Powder River Basin for the three
months ended March 31, 2008 increased $11.9 million, or 10% compared to coal sales revenues for the three months ended March 31, 2007 as a result of higher coal sales realization per ton. Coal sales realization per ton sold increased 11%
due to increased pricing per ton sold. Coal sales volumes in the Powder River Basin remained flat period-over-period. An 8% period-over-period increase in both production and shipments at the Belle Ayr mine were offset by lower period-over-period
production and shipments at the Eagle Butte mine.

Coal sales revenues in the Illinois Basin for the three months ended March 31, 2008 were
$0 compared to coal sales revenues of $10.9 million for the three months ended March 31, 2007 due to the April 4, 2007 idling of the Wabash mine in southern Illinois.



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##### Table of Contents

Revenues from purchased coal activities by our trading group increased $2.7 million in the three months
ended March 31, 2008 compared to the prior year period. Coal is purchased for physical delivery to customers.

Other revenues for the
three months ended March 31, 2008 decreased by $3.3 million (38%) compared to the three months ended March 31, 2007. The decrease was due to: (a) the absence of synfuel revenues due to the expiration of the synfuel tax credit in
December, 2007 ($1.3 million); (b) decreased gains on sales of assets ($0.3 million); (c) the absence of a refund from the Combined Benefit Fund received in the first quarter of 2007 ($1.3 million); (d) lower other miscellaneous
revenues ($2.7 million); partially offset by (e) increased royalty fees ($0.5 million); (f) increased transloading and plant processing fees ($0.2 million); (g) increased coalbed methane revenues ($1.0 million); and (h) higher
revenues from the sale of equipment and filters by Dry Systems Technologies ($0.6 million).

Costs and Expenses



|                                                                                                 |  |                             |         |      |                     |         |        |  |   |         |   |  |      |   
|------------------------------------------------------------------------------------------------ |  | --------------------------- | ------- | ---- | ------------------- | ------- | ------ |  | - | ------- | - |  | ---- | --
|                                                                                                 |  | Three Months EndedMarch 31, |         |      | Increase (Decrease) |        
|                                                                                                 |  | 2008                        |         | 2007 |                     |         | Amount |  |   | Percent |  
|                                                                                                 |  | (Unaudited, in thousands)   |        
|Cost of coal sales (excludes depreciation, depletion and amortization)                           |  | $                           | 315,473 |      | $                   | 284,242 |        |  | $ | 31,231  |   |  | 11   | % 
|Selling, general and administrative expenses (excludes depreciation, depletion and amortization) |  |                             | 19,791  |      |                     | 13,827  |        |  |   | 5,964   |   |  | 43   | % 
|Accretion on asset retirement obligations                                                        |  |                             | 2,557   |      |                     | 2,372   |        |  |   | 185     |   |  | 8    | % 
|Depreciation, depletion and amortization                                                         |  |                             | 53,265  |      |                     | 51,084  |        |  |   | 2,181   |   |  | 4    | % 
|Amortization of coal supply agreements                                                           |  |                             | 125     |      |                     | (1,130  | )      |  |   | 1,255   |   |  | 111  | % 
|Employee and contract termination costs and other                                                |  |                             | -       |      |                     | 2,252   |        |  |   | (2,252  | ) |  | (100 | )%
|                                                                                                 |  |                             |         |      |                     |         |        |  |   |         |   |  |      |   
|Total costs and expenses                                                                         |  | $                           | 391,211 |      | $                   | 352,647 |        |  | $ | 38,564  |   |  | 11   | % 
|                                                                                                 |  |                             |         |      |                     |         |        |  |   |         |   |  |      |   

Cost of coal sales.Cost of coal sales increased $31.2 million for the three months
ended March 31, 2008 compared to the three months ended March 31, 2007, primarily due to: (a) increases in labor and benefit costs as a result of both compensation increases and hiring of additional personnel ($5.6 million);
(b) increases in royalties due to mining a higher proportion of coal subject to federal royalty ($6.8 million); (c) higher repair and maintenance and operating supply costs ($4.4 million); (d) increases in outside services ($1.7
million); (e) an increase in inventory charges to expense related to an overall higher ratio of tons sold vs. tons produced in the three months ended March 31, 2008 compared to the prior year period ($12.4 million); (f) increased
longwall move expenses ($1.4 million); (g) increased purchased coal costs as a result of higher purchased coal volumes ($1.6 million) and (h) increased miscellaneous other expenses ($0.3 million); partially offset by (i) decreased
transportation and loading costs ($3.0 million). Cost of coal sales per ton was $17.10 for the three months ended March 31, 2008 compared to $15.12 per ton for the three months ended March 31, 2007.

Selling, general and administrative expenses. Selling, general and administrative expenses for the three months ended March 31, 2008
increased $6.0 million compared to the three months ended March 31, 2007. Period-over-period increases were due to: (a) higher expenses incurred for employee compensation and benefit related expenses ($5.2 million) which includes
approximately $2.5 million in additional stock-based compensation related to modifying the vesting conditions for certain stock-based awards; (b) higher miscellaneous overhead expenses including legal and insurance expenses ($1.0 million);
partially offset by (c) lower consulting fees ($0.2 million).



20



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##### Table of Contents

Accretion on asset retirement obligations.Accretion on asset retirement obligations is a
result of accounting for asset retirement obligations under Statement of Financial Accounting Standards (SFAS) No. 143, Accounting for Asset Retirement Obligations (SFAS No. 143). Accretion represents the
increase in the asset retirement liability to reflect the change in the liability for the passage of time because the initial liability is recorded at present value. Higher accretion expense in 2008 was due to increased asset retirement obligation
estimates for the comparable periods.

Depreciation, depletion and amortization. Depreciation, depletion and amortization
includes depreciation of plant and equipment, cost depletion of amounts assigned to owned and leased mineral rights and amortization of mine development costs, internal use software and leasehold improvements. Depreciation, depletion and
amortization expense increased $2.2 million for the three months ended March 31, 2008 compared to the three months ended March 31, 2007, primarily due to higher depreciation and amortization partially offset by decreased cost depletion.
Depreciation and amortization increased by $3.8 million in the three months ended March 31, 2008 compared to the prior year period mainly due to depreciation associated with capital additions to plant and equipment during the twelve months
ended March 31, 2008, including depreciation of the Companys enterprise resource planning (ERP) software and implementation costs for which depreciation began in April 2007. Also contributing to higher depreciation expense in
the three months ended March 31, 2008 was the completion of an overland conveyor belt that was placed into service in the third quarter of 2007 at the Powder River Basin. Cost depletion decreased by $1.6 million due to decreased production
period-over-period.

Coal supply agreement amortization. Application of purchase accounting in 2004 resulted in the
recognition of a significant liability for below market priced coal supply agreements as well as a significant asset for above market priced coal supply agreements, both in relation to market prices at the date of acquisition of mining assets by the
Company in 2004. Coal supply agreement amortization increased $1.3 million for the three months ended March 31, 2008 compared to the three months ended March 31, 2007 primarily due to a decrease in the amortization expense credit from
below market liability contracts of $2.3 million combined with a $1.0 million decrease in amortization expense from above market contracts. Amortization of the liability for below market priced coal supply agreements during the three months ended
March 31, 2008 was $1.7 million of credit to expense compared to $4.0 million of credit to expense in the comparable period of the prior year. Amortization of the asset for above market priced coal supply agreements during the three months
ended March 31, 2008 was $1.9 million of expense compared to $2.9 million of expense in the comparable period of the prior year. As shipments on coal supply agreements valued in purchase accounting are completed, the period-over-period impact
of the amortization on both the asset and liability balances will continue to diminish until approximately 2010 when shipments associated with these coal supply agreements are estimated to be complete.

Employee and contract termination costs and other. On April 4, 2007, Wabash announced the idling of the mine in southern Illinois. The
mine had become economically unviable at that time as a result of a combination of factors, including aged infrastructure, softening market conditions and the prospect of a new higher cost labor contract with the UMWA. The Company recognized
employee termination costs for salaried employees resulting from ongoing benefit obligations of $2.3 million in accordance with the provisions of SFAS No. 112, Employers Accounting for Postemployment Benefits. These costs are
recorded as Employee and contract termination costs and other in the Consolidated Statements of Operations and Comprehensive Income for the three months ended March 31, 2007. As of March 31, 2008 and December 31, 2007, the
Companys liabilities for employee termination costs were $0.1 million and $0.2 million, respectively, and are included in Accrued Expenses and Other Current Liabilities.



21



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##### Table of Contents

Segment Analysis

Utilizing data published by Argus Media, the following graph sets forth representative steam coal prices in various U.S. markets. The prices are not necessarily representative of the coal prices actually obtained by
the Company. Changes in coal prices have an impact over time on the Companys average sales realization per ton and, ultimately, its consolidated financial results.

LOGO



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##### Table of Contents

|                                  |  |                                                             |         |                     |      |   |         |  |   |         |   |  |      |   
|--------------------------------- |  | ----------------------------------------------------------- | ------- | ------------------- | ---- | - | ------- |  | - | ------- | - |  | ---- | --
|                                  |  | Three Months EndedMarch 31,                                 |         | Increase (Decrease) |     
|                                  |  | 2008                                                        |         |                     | 2007 |   | Tons/$  |  |   | Percent |  
|                                  |  | (Unaudited, in thousands, except sales realization per ton) |        
|Powder River Basin                |  |                                                             |         |                     |      |   |         |  |   |         |   |  |      |   
|Tons sold                         |  |                                                             | 12,603  |                     |      |   | 12,637  |  |   | (34     | ) |  |     |   
|Average sales realization per ton |  | $                                                           | 10.10   |                     |      | $ | 9.13    |  | $ | 0.97    |   |  | 11   | % 
|Total revenues                    |  | $                                                           | 128,137 |                     |      | $ | 115,741 |  | $ | 12,396  |   |  | 11   | % 
|Income from operations            |  | $                                                           | 12,755  |                     |      | $ | 20,830  |  | $ | (8,075  | ) |  | (39  | )%
|Northern Appalachia               |  |                                                             |         |                     |      |   |         |  |   |         |   |  |      |   
|Tons sold                         |  |                                                             | 4,072   |                     |      |   | 3,600   |  |   | 472     |   |  | 13   | % 
|Average sales realization per ton |  | $                                                           | 42.97   |                     |      | $ | 40.61   |  | $ | 2.36    |   |  | 6    | % 
|Total revenues                    |  | $                                                           | 176,155 |                     |      | $ | 148,139 |  | $ | 28,016  |   |  | 19   | % 
|Income from operations            |  | $                                                           | 34,140  |                     |      | $ | 40,110  |  | $ | (5,970  | ) |  | (15  | )%
|Central Appalachia                |  |                                                             |         |                     |      |   |         |  |   |         |   |  |      |   
|Tons sold                         |  |                                                             | 1,750   |                     |      |   | 2,161   |  |   | (411    | ) |  | (19  | )%
|Average sales realization per ton |  | $                                                           | 58.04   |                     |      | $ | 52.41   |  | $ | 5.63    |   |  | 11   | % 
|Total revenues                    |  | $                                                           | 102,690 |                     |      | $ | 116,673 |  | $ | (13,983 | ) |  | (12  | )%
|(Loss) income from operations     |  | $                                                           | (2,701  | )                   |      | $ | 3,125   |  | $ | (5,826  | ) |  | (186 | )%

Powder River BasinIncome from operations decreased $8.1 million
period-over-period due to increased production costs of $20.5 million partially offset by increased revenues of $12.4 million. As explained in the revenue section above, the increased revenues resulted from an 11% increase in average coal sales
realization per ton. Assuming acceptable market conditions exist, we expect future increases in tons sold at the Belle Ayr mine primarily due to the expansion of its annual capacity. Production costs increased $20.5 million for the three months
ended March 31, 2008 compared to the three months ended March 31, 2007, reflecting higher period-over-period cost of sales of $18.8 million, an increase in depreciation, depletion and amortization costs of $1.4 million and an increase in
other miscellaneous expenses of $0.3 million.

The $18.8 million increase in cost of sales referred to above resulted from an increase in
cash costs ($18.7 million) and increased miscellaneous other expenses ($0.1 million). The $18.7 million period-over-period increase in cash costs were primarily in the following areas: (a) supply and service costs primarily consisting of
operating supply costs, explosives, diesel fuel and outside services ($8.4 million); (b) labor and employee benefits ($1.9 million); (c) increased royalty costs mainly due to mining a higher amount of coal that is subject to federal
royalties ($7.2 million); and (d) miscellaneous expenses ($1.2 million). Cost of coal sales per ton increased 24% period-over-period.

Higher total depreciation, depletion and amortization costs of $1.4 million related primarily to a period-over-period $0.3 million increase in amortization of coal supply agreements due to a decrease in the credit to amortization expense
from below market liability contracts, as shipments on a number of these below market liability coal supply agreements valued in purchase accounting were completed and higher depreciation of $1.1 million as a result of higher capital expenditures
during the prior twelve months and increased depreciation related to the completion of an overland conveyor belt that was placed into service during the three months ended September 30, 2007.

Northern AppalachiaIncome from operations decreased by $6.0 million period-over-period due to increased production costs of $34.2
million partially offset by increased revenues of $28.0 million and decreased other miscellaneous costs of $0.2 million. As explained in the revenue section above, the increase in revenues resulted from a 13% period-over-period increase in tons sold
and a 6% increase in average sales realization per ton. Coal sales volumes increased as a result of increased shipments from both mines, which included the purchase of approximately 0.3 million tons of coal to fulfill existing contracts so that coal
produced by the Emerald mine could be sold at prices more indicative of the current market prices. Despite a scheduled longwall move during the last week of the quarter, tons sold at the Cumberland mine increased 9% in the three months ended March
31, 2008 compared to the prior year period. Tons sold at the Emerald mine increased 18% in the three months ended March 31, 2008 compared to the prior year period primarily due to sales of purchased coal mentioned previously. Production at Emerald
decreased 12% period-over-period due to a decrease in tons mined by the longwall mining units. Lower tons mined resulted from production delays that were caused by hard cutting conditions due to sandstone intrusions, equipment failures,
weather-related power outages and reduced mining rates to maintain compliance with ventilation plans. This lower production was offset partially by the late February 2008 introduction of a second longwall operating in a new district at Emerald.



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Total production costs increased $34.2 million for the three months ended March 31, 2008 compared
to the three months ended March 31, 2007, reflecting higher period-over-period cost of sales of $34.3 million and higher miscellaneous other costs of $0.2 million, partially offset by lower depreciation, depletion and amortization costs of $0.3
million.

The $34.3 million period-over-period increase in cost of sales referred to above was the result of increased cash costs ($9.7
million), increased purchased coal expense ($14.9 million), increased inventory charges to expense related to a higher ratio of tons sold vs. tons produced in the three months ended March 31, 2008 compared to the prior year period ($9.5
million) and increased miscellaneous other costs ($0.2 million). The $9.7 million increase in cash costs were primarily incurred in the following areas: (a) higher labor and employee benefit costs, due to a higher number of employees and
period-over-period wage and benefit increases, due primarily to the UMWA wage agreement signed in the second quarter of 2007 ($8.1 million); (b) higher supply and service costs primarily consisting of operating supply costs from increased usage
of roof bolts, miner bits and water handling requirements, repairs and maintenance costs due to the timing of rebuilding longwall and other mining equipment and outside services ($1.7 million); (c) higher longwall move expenses ($1.4 million);
(d) increased miscellaneous expenses ($0.1 million); partially offset by (e) lower transportation and loading costs ($1.6 million). Cost of coal sales per ton increased by 25% period-over-period.

Lower total depreciation, depletion and amortization costs of $0.3 million related primarily to: (a) a period-over-period decrease in expense
associated with the amortization of coal supply agreements as shipments on a number of coal supply agreements valued in purchase accounting were completed ($0.6 million); (b) lower depletion expense ($0.9 million) as a result of lower
production; partially offset by (c) increased depreciation primarily related to a batch weigh system, longwall shields, face conveyors and other mining equipment ($1.2 million).

Central Appalachia(Loss) income from operations decreased by $5.8 million period-over-period due to decreased revenues of $14.0
million that were partially offset by decreased production costs of $8.2 million. As explained in the revenue section above, the decrease in revenues resulted from a 19% decrease in tons sold partially offset by an 11% increase in average sales
realization per ton. Coal sales volumes in Central Appalachia decreased by 0.4 million tons period-over-period primarily from decreased shipments at all mining operations except for the Rockspring mine and by the absence of coal purchased and
resold due to the expiration of the synfuel tax credit in December 2007. Total coal sales revenues for the three months ended March 31, 2008 decreased 10% compared to the three months ended March 31, 2007.

The decrease in production costs of $8.2 million for the three months ended March 31, 2008 compared to the three months ended March 31, 2007
consisted of higher depreciation, depletion and amortization ($1.4 million), partially offset by decreased cost of sales of ($9.6 million). The $9.6 million decrease in cost of sales was a result of a reduction in purchased coal expense ($15.2
million) and decreased miscellaneous other expenses ($0.6 million); partially offset by increased cash costs ($3.2 million) and a period-over-period increase in inventory charges to expense related to a higher ratio of tons sold vs. tons produced
($3.0 million).

The $3.2 million period-over-period increase in cash costs referred to above was primarily due to increases in the
following areas: (a) labor and fringe benefits ($2.8 million); (b) supply and service costs primarily consisting of repairs and maintenance costs, operating supplies, utility, explosives, fuel costs and outside services ($1.1 million);
(c) higher miscellaneous expense ($0.2 million); partially offset by (d) lower transportation and loading costs ($0.9 million). Cost of coal sales per ton increased approximately 11% period-over-period.

The $1.4 million increase in depreciation, depletion and amortization consisted of a reduced credit to expense for amortization of coal supply agreements
of $1.3 million as shipments on a number of below market liability coal supply agreements valued in purchase accounting were completed, higher depreciation of $0.7 million related to increased capital expenditures during the prior twelve months,
partially offset by lower reserve depletion of $0.6 million related to decreased production period-over-period at all mines except the Pax and Rockspring mines.

OtherIncludes the Companys Illinois Basin operation, including the idled Wabash mine, which ceased operations in the second quarter of 2007; expenses associated with closed mines; Dry Systems
Technologies; coal trading operations; coalbed methane operations and selling, general and administrative expenses not charged out to the Powder River Basin, Northern Appalachia or Central Appalachia mines. During the three months ended
March 31, 2008, the Other segment reported a loss from operations of $23.1 million compared to a loss from operations of $21.8 million in the three months ended March 31, 2007. The increased period-over-period loss from operations of $1.3
million in 2008 was primarily due to the increase in selling, general and administrative costs, partially offset by the absence of employee termination costs incurred in 2007 as a result of the idling of the Wabash mine and decreased other revenues.



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##### Table of Contents

Interest Expense, Net



|                                                          |  |                             |         |   |                     |   |         |        |  |   |         |   |  |     |   
|--------------------------------------------------------- |  | --------------------------- | ------- | - | ------------------- | - | ------- | ------ |  | - | ------- | - |  | --- | --
|                                                          |  | Three Months EndedMarch 31, |         |   | Increase (Decrease) |  
|                                                          |  | 2008                        |         |   | 2007                |   |         | Amount |  |   | Percent |  
|                                                          |  | (Unaudited, in thousands)   |        
|Interest expense-debt related                             |  | $                           | (10,620 | ) |                     | $ | (10,784 | )      |  | $ | (164    | ) |  | (2  | )%
|Interest expense-amortization of deferred financing costs |  |                             | (454    | ) |                     |   | (457    | )      |  |   | (3      | ) |  | (1  | )%
|Interest expense-surety bond and letter of credit fees    |  |                             | (1,637  | ) |                     |   | (1,292  | )      |  |   | 345     |   |  | 27  | % 
|Interest expense-other                                    |  |                             | (203    | ) |                     |   | (487    | )      |  |   | (284    | ) |  | (58 | )%
|                                                          |  |                             |         |   |                     |   |         |        |  |   |         |   |  |     |   
|Total interest expense                                    |  |                             | (12,914 | ) |                     |   | (13,020 | )      |  |   | (106    | ) |  | (1  | )%
|Interest income                                           |  |                             | 443     |   |                     |   | 632     |        |  |   | (189    | ) |  | (30 | )%
|                                                          |  |                             |         |   |                     |   |         |        |  |   |         |   |  |     |   
|Interest expense, net                                     |  | $                           | (12,471 | ) |                     | $ | (12,388 | )      |  | $ | 83      |   |  | 1   | % 
|                                                          |  |                             |         |   |                     |   |         |        |  |   |         |   |  |     |   

Interest expense, net for the three months ended March 31, 2008 increased slightly compared
to the three months ended March 31, 2007 due primarily to increased interest expense related to surety bonds and letters of credit, offset by decreases in debt-related and other interest expense.

Income Tax Expense



|                   |  |                             |       |        |   |        |  |   |         |   |  |     |   
|------------------ |  | --------------------------- | ----- | ------ | - | ------ |  | - | ------- | - |  | --- | --
|                   |  | Three Months EndedMarch 31, |       | Change |  
|                   |  | 2008                        |       | 2007   |   | Amount |  |   | Percent |  
|                   |  | (Unaudited, in thousands)   |      
|Income tax expense |  | $                           | 2,267 |        | $ | 5,333  |  | $ | (3,066  | ) |  | (57 | )%

For the three months ended March 31, 2008, income taxes were provided at an effective rate of
26% and for the three months ended March 31, 2007, income taxes were provided at an effective rate of 18%. The effective rate in the three months ended March 31, 2008 is comprised of two elements: (1) a 14% effective rate based on
forecasted annual results for 2008; and (2) a discrete tax expense of $1.1 million recorded in the first quarter of 2008. Without the discrete expense, the forecasted effective rate of 14% for 2008 decreased from the 2007 effective rate of 18%
due primarily to the expected benefit obtained from excess depletion deductions which are projected to be greater in 2008 than in 2007.

Expected Coal Shipments

As of April 15, 2008, uncommitted and unpriced tonnage was 4%, 21%, 58% and 81% of
planned shipments in 2008, 2009, 2010 and 2011, respectively.

In 2008 through 2011, the Company expects coal shipments within the
following ranges (millions of tons):



|                   |  |           |  |           |  |           |  |          
|------------------ |  | --------- |  | --------- |  | --------- |  | ---------
|                   |  | 2008      |  | 2009      |  | 2010      |  | 2011     
|East               |  | 21.3-22.8 |  | 20.5-22.0 |  | 20.5-22.0 |  | 20.5-22.0
|West               |  | 52.0-53.0 |  | 54.0-56.0 |  | 54.0-56.0 |  | 54.0-56.0
|Total consolidated |  | 73.3-75.8 |  | 74.5-78.0 |  | 74.5-78.0 |  | 74.5-78.0

Based on its committed and priced planned shipments as of April 15, 2008, the Company
estimates its committed and priced tonnage from its Eastern mines, encompassing Northern Appalachia and Central Appalachia, to realize $47.88, $52.65, $60.66 and $68.90 per ton in 2008, 2009, 2010 and 2011, respectively. The Company also expects its
committed and priced tonnage from the Powder River Basin to realize $9.96, $10.28, $10.62 and $10.98 per ton in 2008, 2009, 2010 and 2011, respectively. These estimated per ton average realizations include forecasted sulfur dioxide and btu premiums
based on contract terms, projected coal qualities and historical realized premiums. Committed and priced shipments do not include committed shipments subject to price re-determination via an interval within which the price can adjust or index based
adjustments.

Liquidity and Capital Resources

Sources and Uses of Cash

Our primary sources of cash have been from sales of our coal production and, to a much
lesser extent, sales of purchased coal to customers, cash from sales of non-core assets and miscellaneous revenues.



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##### Table of Contents

Our primary uses of cash have been our cash costs of coal production, capital expenditures, interest
costs, income tax payments, cash payments for employee benefit obligations such as defined benefit pensions and retiree health care benefits, cash outlays related to post mining asset retirement obligations and support of working capital
requirements. Our ability to service debt and acquire new productive assets for use in our operations has been and will be dependent upon our ability to generate cash from our operations. We generally fund all of our capital expenditure requirements
with cash generated from operations. Historically, we have not engaged in financing assets such as through operating leases.

The following
is a summary of cash provided by or used in each of the indicated categories of activities during the three months ended March 31, 2008 and 2007, respectively.



|                                                                                                   |  |                             |         |   |      |   |         |  
|-------------------------------------------------------------------------------------------------- |  | --------------------------- | ------- | - | ---- | - | ------- | -
|                                                                                                   |  | Three Months EndedMarch 31, |        
|                                                                                                   |  | 2008                        |         |   | 2007 |  
|                                                                                                   |  | (Unaudited, in thousands)   |        
|Cash provided by (used in):                                                                        |  |                             |         |   |      |   |         |  
|Operating activities                                                                               |  | $                           | 55,528  |   |      | $ | 51,778  |  
|Investing activities                                                                               |  |                             | (80,905 | ) |      |   | (47,710 | )
|Financing activities-stock option exercise proceeds and excess tax benefit from stock-based awards |  |                             | 2,614   |   |      |   | 669     |  
|Financing activities-dividends on common stock                                                     |  |                             | (2,253  | ) |      |   | (2,255  | )
|Financing activities-common stock repurchases                                                      |  |                             | (1,924  | ) |      |   | (13,267 | )
|                                                                                                   |  |                             |         |   |      |   |         |  
|Net decrease in cash and cash equivalents                                                          |  | $                           | (26,940 | ) |      | $ | (10,785 | )
|                                                                                                   |  |                             |         |   |      |   |         |  

Cash provided by operating activities increased $3.8 million for the three months ended
March 31, 2008 compared to the three months ended March 31, 2007, primarily due to a $12.6 million increase in non-cash add-backs to net income period-over-period and a $9.6 million increase in cash flows from working capital changes,
partially offset by a $18.4 million decrease in net income. Working capital changes consisted primarily of a $22.2 million cash flow increase from changes in trade accounts payable and a $16.8 million cash flow increase from changes in
inventories, net, prepaid expenses and other current and non-current assets. These cash flow increases were partially offset by decreases in cash flows related to trade accounts receivable ($20.9 million) and accrued expenses and other current and
non-current liabilities ($8.5 million).

Cash used in investing activities increased $33.2 million in the three months ended March 31,
2008 compared to the three months ended March 31, 2007, primarily due to a $36.1 million lease bonus bid deposit related to the successful bid on new federal coal lease located in the Powder River Basin and $9.8 million in purchases of
equity-method investments. These increased investing cash outflows were partially offset by decreased capital expenditures for projects and equipment of $12.8 million. Capital expenditures in the three months ended March 31, 2008 totaled $35.3
million which included $15.7 million for the following projects: (a) the acquisition of longwall components and expenditures for a face conveyor system at Emerald; (b) capital expenditures related to our coal gas recovery projects; and
(c) airshaft and elevator expenditures for installation and components. Capital expenditures in the three months ended March 31, 2007 totaled $48.1 million, including a total of $13.7 million of expenditures related to the following
projects: (a) an overland coal conveyor at the Belle Ayr Mine in the Powder River Basin; (b) the acquisition of longwall components and upgrades to the rail loading facility at Emerald; and (c) the acquisition and implementation of
company wide ERP software.

Cash used in financing activities of $1.6 million during the three months ended March 31, 2008 consisted
of (a) $1.9 million for the repurchase of common shares withheld from employees to satisfy employees minimum statutory tax withholding upon vesting of restricted stock units; (b) payment of cash dividends of $2.3 million ($0.05 per
share paid in March, 2008); and (c) cash proceeds related to the issuance of common stock for stock option exercises and excess tax benefits from stock-based awards ($2.6 million). Cash used in financing activities during the three months ended
March 31, 2007 consisted of (a) $0.7 million in cash proceeds from exercise of nonqualified stock options and excess tax benefits from issuance of stock-based awards; offset by (b) payment of cash dividends of $2.3 million ($0.05 per
share paid in March, 2007); and (c) $13.3 million related to the repurchase of common shares in accordance with the stock repurchase program initiated by the Company during the third quarter of 2006.



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##### Table of Contents

Liquidity and Long-Term Debt

Our primary source of liquidity will continue to be cash from sales of our coal production and to a much lesser extent, sales of purchased coal to customers. We have borrowing availability under our revolving credit
facility, subject to certain conditions.

Based on our current levels of operations, we believe that remaining cash on hand, cash flow from
operations and available borrowings under the revolving credit portion of our Senior Secured Credit Facility will enable us to meet our working capital, capital expenditure, debt service and other funding requirements for at least the next twelve
months.

As of March 31, 2008, we have outstanding $599.8 million in aggregate indebtedness, with an additional $327.4 million of
available borrowings under our revolving credit facility after giving effect to $172.6 million of letters of credit outstanding as of March 31, 2008. Debt service and projected capital expenditures represent our most significant liquidity
requirements.

Interest Rate Swaps

On September 30, 2004, the Company entered into pay-fixed, receive-variable interest rate swap agreements on a notional amount of $85.0 million. The maturity date on the swap agreements was September 28, 2007. The Company
designated these interest rate swaps as cash flow hedges of the variable interest payments and recorded the quarterly changes in the fair value of the instruments in Other noncurrent assets with an offsetting unrealized gain, net of tax
expense, in Accumulated other comprehensive income.

In connection with the July 7, 2006 closing of the facility, the Company
terminated the swap agreements, which no longer qualified for cash flow hedge accounting treatment and monetized the $2.4 million derivative asset included in Other noncurrent assets at June 30, 2006 and recognized a $0.1 million
mark-to-market loss on the swaps. The $1.8 million unrealized gain from the change in the market value of the interest rate swaps recorded in Accumulated other comprehensive income was being recognized into income on a prorated basis over the
remaining term of the original interest rate swap agreement through September 28, 2007, in accordance with SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities, and related amendments. At December 31, 2007
and 2006, the unamortized unrealized gain on the swaps was $0 and $1.1 million, respectively. During the three months ended March 31, 2008 and 2007, the Company amortized $0 and $0.4 million, respectively, which was recorded as an offset
against Interest expense.

Other

As a regular part of our business, we review opportunities for, and engage in discussions and negotiations concerning, the acquisition of coal mining assets, including Lease by Application (LBA) bids to procure federal coal, and
acquisitions of, or combinations with, coal mining companies. When we believe that these opportunities are consistent with our growth plans and our acquisition criteria, we will make bids or proposals and/or enter into letters of intent and other
similar agreements, which may be binding or nonbinding, that are customarily subject to a variety of conditions and usually permit us to terminate the discussions and any related agreements if, among other things, we are not satisfied with the
results of our due diligence investigation. Any acquisition opportunities we pursue could materially affect our liquidity and capital resources and may require us to incur indebtedness, seek equity capital or both. There can be no assurance that
such additional indebtedness and/or equity capital will be available on terms acceptable to us, if at all.

On February 20, 2008, an
affiliate of the Company successfully bid on a new federal coal lease which contains an estimated 255 million tons of minable coal reserves. The lease bonus bid was $180.5 million to be paid in five equal annual installments of $36.1 million.
The first installment was paid as a deposit on the lease during the three months ended March 31, 2008. The lease became fully executed in April with an effective date of May 1, 2008.

On July 18, 2006, the Board of Directors authorized a stock repurchase program (the Repurchase Program), authorizing the Company to
repurchase share of its common stock. The Company may repurchase its common stock from time to time as determined by authorized officers of the Company, up to an aggregate amount of $100.0 million. During the three months ended March 31, 2008,
the Company did not repurchase any shares pursuant to the Repurchase Program. During the three months ended March 31, 2007, the Company expended $13.3 million to repurchase 433,653 shares of its common stock at an average price of $30.59 per
share under the Repurchase Program. At March 31, 2008, there was $52.8 million available for future repurchases under the Repurchase Program.

Covenant Compliance

Our indirect wholly-owned subsidiary, Foundation Coal Corporation (FCC) is required to
comply with certain financial covenants which are considered material terms of the Senior Secured Credit Facility and the indenture governing



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##### Table of Contents

FCCs outstanding 7.25% Senior Notes. Information about the financial covenants is material to an investors understanding of FCCs financial
condition and liquidity. The breach of covenants in the Senior Secured Credit Facility that are tied to ratios based on Adjusted EBITDA, as defined below, could result in a default under the Senior Secured Credit Facility and the lenders could elect
to declare all amounts borrowed due and payable. Any such acceleration would also result in a default under our indenture. Additionally, under the Senior Secured Credit Facility and indenture, FCCs ability to engage in activities such as
incurring additional indebtedness, making investments and paying dividends is also tied to ratios based on Adjusted EBITDA.

Covenants and
required levels as defined by the Senior Secured Credit Facility and the indenture governing the outstanding 7.25% Senior Notes are:



|                                                                                                             |  |                                                    |  |                                            
|------------------------------------------------------------------------------------------------------------ |  | -------------------------------------------------- |  | -------------------------------------------
|                                                                                                             |  | January 1, 2008 toDecember 31, 2008Covenant Levels |  | January 1, 2009and ThereafterCovenantLevels
|Senior Secured Credit Facility(1)                                                                            |  |                                                    |  |                                            
|Minimum Adjusted EBITDA to cash interest ratio                                                               |  | 2.5x                                               |  | 2.5x                                       
|Maximum total debt less unrestricted cash to Adjusted EBITDA ratio                                           |  | 3.75x                                              |  | 3.5x                                       
|                                                                                                             |  |                                                   
|Indenture(2)                                                                                                 |  |                                                    |  |                                            
|Minimum Adjusted EBITDA to fixed charge ratio required to incur additional debt pursuant to ratio provisions |  | 2.0x                                               |  | 2.0x                                       



|(1) | The Senior Secured Credit Facility requires FCC to maintain an Adjusted EBITDA to cash interest ratio at a minimum of
2.5x and a total debt less unrestricted cash to Adjusted EBITDA ratio starting at a maximum of 3.75x in each case for the most recent twelve-month period. Failure to satisfy these ratio requirements would constitute a default by FCC under the Senior
Secured Credit Facility. If lenders under the Senior Secured Credit Facility fail to waive any such default, repayment obligations under the Senior Secured Credit Facility could be accelerated, which would also constitute a default under the
indenture. Covenants reflect the definition and levels required by the Senior Secured Credit Facility.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(2) | The ability for FCC to incur additional debt and make certain restricted payments under our indenture, subject to
specified exceptions, is tied to an Adjusted EBITDA to fixed charge ratio of at least 2.0 to 1.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Adjusted
EBITDA is defined as EBITDA further adjusted to exclude non-recurring items, non-cash items and other adjustments permitted in calculating covenant compliance under the indenture and the Senior Secured Credit Facility. EBITDA, a measure used by
management to evaluate its ongoing operations for internal planning and forecasting purposes, is defined as net income (loss) from operations plus interest expense, net of interest income, income tax expense (benefit), depreciation and amortization
and charges for early extinguishment of debt. EBITDA is not a financial measure recognized under United States generally accepted accounting principles and does not purport to be an alternative to net income as a measure of operating performance or
to cash flows from operating activities as a measure of liquidity.

As of March 31, 2008, FCC was in compliance with all required
financial covenants of the Senior Secured Credit Facility.

Contractual Obligations

The following is a summary of our significant future contractual obligations by year as of March 31, 2008:



|                                                         |  |                           |         |           |   |           |  |            |         |       |   |         |  |   |          
|-------------------------------------------------------- |  | ------------------------- | ------- | --------- | - | --------- |  | ---------- | ------- | ----- | - | ------- |  | - | ---------
|                                                         |  | 2008                      |         | 2009-2010 |   | 2011-2012 |  | After 2012 |         | Total
|                                                         |  | (Unaudited, in thousands)
|Long-term debt                                           |  | $                         | -       |           | $ | 50,250    |  | $          | 251,250 |       | $ | 298,285 |  | $ | 599,785  
|Estimated cash interest on long-term debt(1)             |  |                           | 25,377  |           |   | 66,401    |  |            | 48,443  |       |   | 34,241  |  |   | 174,462  
|Estimated cash payments for asset retirement obligations |  |                           | 4,330   |           |   | 9,198     |  |            | 8,208   |       |   | 225,207 |  |   | 246,943  
|Unconditional purchase commitments                       |  |                           | 117,863 |           |   | 10,650    |  |            | -       |       |   | -       |  |   | 128,513  
|Operating leases                                         |  |                           | 3,580   |           |   | 4,682     |  |            | 2,214   |       |   | 3,999   |  |   | 14,475   
|                                                         |  |                           |         |           |   |           |  |            |         |       |   |         |  |   |          
|Total                                                    |  | $                         | 151,150 |           | $ | 141,181   |  | $          | 310,115 |       | $ | 561,732 |  | $ | 1,164,178
|                                                         |  |                           |         |           |   |           |  |            |         |       |   |         |  |   |          



|(1) | The variable interest rate on debt is 4.05%, reflecting a LIBOR estimate, based on the 39 month swap rate effective
March 31, 2008, plus a margin of 1.25%.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------



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We expect to use cash flows provided by operating activities to invest in the range of $180.0 million to
$190.0 million in capital expenditures during calendar year 2008 of which $120.0 million to $130.0 million is to maintain production and replace mining equipment. The additional $60.0 million is expected to be directed toward improvements
in productivity and selective expansions of production. Approximately $61.8 million of the 2008 capital expenditures are included in unconditional purchase commitments shown above. The remaining 2008 unconditional purchase commitments consist of
$43.8 million for purchased coal in normal quantities for delivery to customers and $12.2 million pertaining to forward contracts to purchase explosives and diesel fuel in normal quantities for use at our mines. Unconditional purchase commitments
represent contractual commitments to purchase assets in the future. We expect to contribute approximately $8.0 million to our defined benefit retirement plans and to pay approximately $25.1 million of retiree health care benefits, gross of
Medicare Part D subsidies, in calendar year 2008. We also expect to incur approximately $7.8 million per year for surety bond premiums and letters of credit fees. We believe that cash balances plus cash generated by operations will be
sufficient to meet these obligations plus fund requirements for working capital and capital expenditures without incurring additional borrowings.

Off-Balance Sheet Arrangements

In the normal course of business, we are a party to certain off-balance sheet arrangements.
These arrangements include guarantees, indemnifications and financial instruments with off-balance sheet risk, such as bank letters of credit and performance or surety bonds. Liabilities related to these arrangements are not reflected in our
Consolidated Balance Sheets. However, the underlying obligations that they secure, such as asset retirement obligations, self-insured workers compensation liabilities, royalty obligations and certain retiree medical obligations, are reflected
in our Consolidated Balance Sheets.

We are required to provide financial assurance in order to perform the post-mining reclamation
required by our mining permits, pay our federal production royalties, pay workers compensation claims under self-insured workers compensation laws in various states, pay federal black lung benefits, pay retiree health care benefits to
certain retired UMWA employees and perform certain other obligations.

In order to provide the required financial assurance, we generally
use surety bonds for post-mining reclamation and royalty payment obligations and bank letters of credit for self-insured workers compensation obligations and UMWA retiree health care obligations. Federal black lung benefits are paid from a
dedicated trust fund that has sufficient assets to fund these obligations for the next several years. Bank letters of credit are also used to collateralize a portion of the surety bonds.

We had outstanding surety bonds with a total face amount of $319.4 million as of March 31, 2008, of which $268.1 million secured reclamation
obligations; $42.3 million secured coal lease obligations; $7.1 million secured self-insured workers compensation obligations; and $1.9 million secured other miscellaneous obligations. In addition, we had $172.6 million of letters of credit in
place for the following purposes: $37.2 million for workers compensation, including collateral for workers compensation bonds; $8.0 million for UMWA retiree health care obligations; $112.2 million for collateral for reclamation surety
bonds; and $15.2 million for other miscellaneous obligations. In the last few years, the market terms under which surety bonds can be obtained have generally become less favorable to all mining companies. In the event that additional surety bonds
become unavailable, we would seek to secure our obligations with letters of credit, cash deposits or other suitable forms of collateral.

Certain Trends
and Uncertainties

Our long-term outlook for the coal markets in the United States remains positive. The Energy Information
Administration in its Annual Energy Outlook2008 forecasts that coal fired electrical generation will increase by an average annual growth rate of 1.1% through 2015. Through November 2007, electric power generation from coal is estimated to
have increased 1.5% from the comparable period of 2006. Strong demand for coal and coal-based electricity generation in the U.S. is being driven by various factors such as the growing economy, increasing population, public demands for low
electricity costs, relatively high prices for the alternative fossil fuels of gas and oil for electricity generation, the inability for renewable energy sources such as wind and solar to become the base load source of electric power, geopolitical
risks for continuing to import large quantities of global oil and natural gas resources, increasing demand for coal outside the U.S. resulting in increased exports and the relatively abundant steam coal reserves located within the United States.

According to the U.S. Department of Energy, National Energy Technology Laboratory, Tracking New Coal-Fired Power Plants, dated
February 18, 2008, there are approximately 14,900 megawatts of new coal fired electrical generation



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under construction in the United States. There is an additional approximately 8,300 megawatts of new coal fired electrical generating capacity permitted and
expected to be constructed. This new capacity will increase the annual coal consumption for electrical generation by an estimated eighty million tons, much of which is expected to be supplied from the Powder River Basin in Wyoming. Approximately
42,400 megawatts of additional coal fired electrical generation has been announced and is in the early stages of permitting and development.

During 2007 coal exports from the United States increased significantly in response to strong worldwide demand for coal. The largest increases in international coal demand are from the rapidly growing and industrializing economies of China
and India. Due partly to weather-related and infrastructure constraints in Australia and reduced exports from South Africa and other coal exporting countries, the seaborne coal trade has struggled to keep up with these increases in demand. Seaborne
coal shipments traditionally destined for Europe have been diverted to Asia creating opportunities to increase exports from the United States. Coal export volumes increased nearly 20% in 2007 compared to 2006. Export volumes for 2008 are forecast to
increase by an estimated 32% to levels last seen in the early 1990s. The surge in demand for exports, combined with recent weather-related coal production outages in Queensland, Australia and South Africa as well as the harshest Chinese winter
in the last fifty years, has increased prompt prices for metallurgical and steam coals produced in the Eastern United States by an estimated 200% and 100%, respectively, since 2007. The actual and anticipated increases in coal exports have also
tightened fundamentals in the domestic steam and metallurgical coal markets leading to higher prices in all regions.

According to the
World Energy Outlook 2007 (WEO), global primary energy demand will grow by more than 42% by 2030, with coal rising most in absolute terms and fossil fuel accounting for most of the increase between now and 2030. China and India have
contributed more than half the increase in global demand for energy, and over 80% for coal, since 2000. The WEO estimates these two growing economies will contribute more than 40% of the increase in global energy demand through 2030. China and India
account for 72% of the growth of coal use in power generation. The WEO has a general conclusion that dependence on coal for power rises strongly in countries with emerging economies and relatively large coal reserves, while it stagnates in the more
developed nations and nations with smaller coal reserves.

Ultimately, the global demand for and use of coal may be limited by any global
treaties which place restrictions on carbon dioxide emissions. As part of the United Nations Framework Convention on Climate Change, representatives from 187 nations met in Bali, Indonesia in December 2007 to discuss a program to limit greenhouse
gas emissions after 2012. The United States participated in the conference. The convention adopted what is called the Bali Action Plan. The Bali Action Plan contains no binding commitments, but concludes that deep cuts in global
emissions will be required and provides a timetable for two years of talks to shape the first formal addendum to the 1992 United Nations Framework Convention on Climate Change treaty since the Kyoto Protocol. The ultimate outcome of the Bali
Action Plan, and any treaty or other arrangement ultimately adopted by the United States or other countries, may have a material adverse impact on the global supply and demand for coal. This is particularly true if cost effective technology for the
capture and sequestration of carbon dioxide is not sufficiently developed.

Proposed coal fired electric generating facilities that do not
include technologies to capture and store carbon dioxide are facing increasing opposition from environmental groups as well as state and local governments who are concerned with global climate change and uncertain financial impacts of potential
greenhouse gas regulations. Coal fired generating plants incorporating carbon dioxide capture and storage technologies are more expensive to build than conventional pulverized coal generating plants and the technologies are still in the
developmental stages. This dynamic may cause power generating companies to cut back on plans to build coal fired plants in favor of alternative forms of baseload electrical generation in the near-term. Nevertheless, the level of interest in new coal
fired generating facilities remains strong. In combination with heightened interest in coal gasification and coal liquefaction, this level of interest is a potential indicator of increasing demand for coal in the United States.

Based on weekly production reporting through March 31, 2008 from the Energy Information Administration, Appalachian production trails the comparable
period of 2007 by approximately 2.2% partially as a result of regulatory burdens, rising production costs and less favorable geological conditions in 2008. Coal producers in Northern Appalachia and the Powder River Basin continue to report deferrals
of previously announced mine expansion projects. Through March 31, 2008, Western coal production has increased approximately 6.8% from the comparable period of the prior year. Judicial decisions in Central Appalachia with respect to permits to
construct valley fills at surface mines are likely to slow the process of obtaining surface mining permits in that region with resultant uncertainties for producers. The combination of strong demand for coal fired electric power and production
declines and uncertainties, particularly in Central Appalachia, has led to forecasts of declines in stockpiles at coal fired electric generating plants over the next year. For reasons described above, spot market prices for Central Appalachian and
Powder River Basin coals increased by 110% and 109%, respectively, as of March 31, 2008, compared to the same date one year earlier. Long-term, the delicate balance of coal supply and increasing coal demand is expected to result in strong, but
volatile, fundamentals for the U.S. coal industry.

Our revenues depend on the price at which we are able to sell our coal. The current
pricing environment for U.S. steam coal production is strong in relation to historical pricing levels, and has strengthened, notably in the past several weeks, in comparison to pricing levels prevailing in the first three quarters of 2007. Prices
for high quality metallurgical coal, used to



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manufacture coke for steelmaking, have remained strong in response to increased worldwide demand for steel and production and transportation constraints in
exporting metallurgical coal from Australia. As of April 15, 2008, we have committed and priced 96% and 79% respectively, of our planned shipment ranges for 2008 and 2009.

We may also experience difficult geologic conditions, delays in obtaining permits, labor shortages, unforeseen equipment problems and shortages of
critical materials such as tires and explosives that may limit our ability to produce at forecasted levels. To the extent upward pressure on costs exceed our ability to realize sales increases, or if we experience unanticipated operating or
transportation difficulties, our operating margins would be negatively impacted. See the Special Note Regarding Forward-Looking Statements contained elsewhere in this Quarterly Report on Form 10-Q for additional considerations regarding our outlook.

Recent Accounting Pronouncements

See
Note 2 to the Consolidated Financial Statements in ITEM I.



|ITEM 3. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
|------- | -----------------------------------------------------------

Price Risk

We manage our price risk for coal sales through the use of long-term coal supply agreements rather than through
the use of derivative instruments. As of April 15, 2008, we had sales commitments for approximately 96% of our planned 2008 shipments. As of April 15, 2008, uncommitted and unpriced tonnage was 4%, 21% and 58% and 81% of planned shipments
in 2008, 2009, 2010 and 2011, respectively.

We also have exposure to price risk for commodities that are used directly or indirectly in
the normal course of production such as diesel fuel, steel and other items such as explosives. We manage our risk for these items through strategic sourcing contracts in normal quantities with our suppliers and may use financial derivative contracts
from time to time, primarily swap contracts with financial institutions, for a certain percentage of our monthly requirements.

Notional
amounts outstanding under explosives-related swap contracts, scheduled to expire in 2008, were 405,000 mmbtu. We expect to use approximately 33,154 tons of explosives in the remainder of 2008. Through our hedging contracts, we have fixed prices for
approximately 60% of our remaining expected explosive needs for 2008.

Credit Risk

Our credit risk is primarily with electric power generators and, to a lesser extent, steel producers. Most electric power generators to whom we sell have
investment grade credit ratings. Our policy is to independently evaluate each customers creditworthiness prior to entering into transactions and to constantly monitor outstanding accounts receivable against established credit limits. When
appropriate (as determined by our credit management function), we have taken steps to reduce our credit exposure to customers that do not meet our credit standards or whose credit has deteriorated. These steps include obtaining letters of credit or
cash collateral, requiring prepayments for shipments or establishing customer trust accounts held for our benefit in the event of a failure to pay.

Interest Rate Risk

Our objectives in managing exposure to interest rate changes are to limit the impact of interest rate
changes on earnings and cash flows and to lower overall borrowing costs. We have exposure to changes in interest rates through our bank term loan and our revolving credit facility. To achieve risk mitigation objectives, we have in the past managed
our interest rate exposure through the use of interest rate swaps.

The interest rate on the outstanding principal of our Senior Secured
Credit Facility was 4.05% as of March 31, 2008. A hypothetical 1% increase in interest rates would have increased our interest expense approximately $0.8 million for the three months ended March 31, 2008.

As we continue to monitor the interest rate environment in concert with our risk mitigation objectives, consideration is being given to future interest
rate risk reduction strategies.



|ITEM 4. | CONTROLS AND PROCEDURES.
|------- | ------------------------

Evaluation of Disclosure Controls and
Procedures

We maintain disclosure controls and procedures and internal controls designed to ensure that information required to be
disclosed in our filings under the Securities Exchange Act of 1934, as amended, is recorded, processed, evaluated, summarized and reported accurately within the time periods specified in the Securities and Exchange Commissions rules and forms.
In designing and evaluating the disclosure controls and procedures, our management recognized that any controls and



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procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives and management
necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.

As of the
end of the period covered by this report, an evaluation was performed under the supervision and with the participation of management, including the Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation
of our disclosure controls and procedures pursuant to Exchange Act Rule 13a-15(e) and 15d-15(e). Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the Companys disclosure controls and
procedures are effective and are designed to (a) ensure that information required to be disclosed by us in reports we file or submit under the Act are recorded, processed, summarized and reported within the time periods specified in the
Securities and Exchange Commissions rules and forms; and (b) ensure that information required to be disclosed by us in reports filed or submitted under the Act is accumulated and communicated to our management, including our Chief
Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

Changes in Internal Control Over
Financial Reporting

There have not been any changes in our internal control over financial reporting that occurred during the quarter
ended March 31, 2008 that have materially affected, or are reasonably likely to affect, our internal control over financial reporting.



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PART IIOTHER INFORMATION



|ITEM 1. | LEGAL PROCEEDINGS.
|------- | ------------------

Information required by this
Item is contained in Note 17, PART I, ITEM 1 entitled Commitments and Contingencies contained in this Report and is incorporated herein by reference.



|ITEM 1A. | RISK FACTORS.
|-------- | -------------

There were no material changes from
risk factors as previously disclosed in the Companys Annual Report on Form 10-K for the twelve months ended December 31, 2007, as filed February 29, 2008.



|ITEM 2. | UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.
|------- | ------------------------------------------------------------

Issuer Purchase of equity securities(1)



|                                     |  |                                 |  |                             |       |                                                                                    |   |                                                                            |   |  
|------------------------------------ |  | ------------------------------- |  | --------------------------- | ----- | ---------------------------------------------------------------------------------- | - | -------------------------------------------------------------------------- | - | -
|                                     |  | Total Number ofShares Purchased |  | Average Price Paidper Share |       | Total Number ofShares Purchased asPart of PubliclyAnnounced
ShareRepurchaseProgram |   | Approximate DollarValue of Shares thatMay Yet BePurchased Underthe
Program
|March 1, 2008 through March 17, 2008 |  | 36,546                          |  | $                           | 52.64 |                                                                                    | - |                                                                            | $ | -



|(1) | These are shares that were purchased by the Company from
employees to satisfy statutory minimum tax withholdings related to vested stock-based awards.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------



|ITEM 3. | DEFAULTS UPON SENIOR SECURITIES.
|------- | --------------------------------



| | (a) | None.
| | --- | -----



| | (b) | None.
| | --- | -----



|ITEM 4. | SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
|------- | ----------------------------------------------------

No matters were submitted to a vote of security holders during the period covered by this report.



|ITEM 5. | OTHER INFORMATION.
|------- | ------------------



| | (a) | None.
| | --- | -----



| | (b) | None.
| | --- | -----



|ITEM 6. | EXHIBITS.
|------- | ---------

The exhibits to this report are listed
in the Exhibit Index.



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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.



|                     |  |                                |  |                                                  
|-------------------- |  | ------------------------------ |  | -------------------------------------------------
|Date: May 9, 2008    |  | FOUNDATION COAL HOLDINGS, INC.
|                     |  | (Registrant)                  
|                     |  |                               
|Name                 |  |                                |  | Title                                            
|                     |  |                               
|/s/ JAMES F.
ROBERTS |  |                                |  | President, Chief Executive Officer and Chairman  
|James F. Roberts     |  |                                |  | (Principal Executive Officer)                    
|                     |  |                               
|/s/ FRANK J.
WOOD    |  |                                |  | Senior Vice President and Chief Financial Officer
|Frank J. Wood        |  |                                |  | (Principal Financial and Accounting Officer)     



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EXHIBIT INDEX



|            |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|----------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit No. |  | Description of Exhibit                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|            | 
|3.1         |  | Third Amended and Restated Certificate of Incorporation of the Company, previously filed as an exhibit to the Companys Form 10-Q on August 9, 2006, and incorporated by
reference.                                                                                                                                                                                                                                                                                                                                                                   
|            | 
|3.2         |  | Amended and Restated By-laws of the Company, previously filed as an exhibit to the Companys Form 8-K on May 22, 2006, and incorporated by reference.                                                                                                                                                                                                                                                                                                                                                                                                 
|            | 
|4.1         |  | Form of certificate of the Companys common stock, previously filed as an exhibit to the Companys Registration Statement on Form S-1 (File No. 333-118427) and incorporated by
reference.                                                                                                                                                                                                                                                                                                                                                            
|            | 
|4.2         |  | Amended and Restated Stockholders Agreement, dated as of October 4, 2004, by and among the Company, Blackstone FCH Capital Partners IV, L.P., Blackstone Family Investment Partnership IV-A
L.P., First Reserve Fund IX, L.P., AMCI Acquisition, LLC and the management stockholders parties thereto, previously filed as an exhibit to the Companys Registration Statement on Form S-1 (File No. 333-118427) and incorporated by reference.                                                                                                         
|            | 
|4.2.1       |  | Termination Agreement, dated as of February 6, 2006, by and among the Company, Blackstone FCH Capital Partners IV, L.P., Blackstone Family Investment Partnership IV-A L.P., First Reserve Fund
IX, L.P., AMCI Acquisition, LLC (nka AMCI Acquisition III, LLC), and the management stockholders parties thereto, terminating the Amended and Restated Stockholders Agreement dated as of October 4, 2004, by and among the same parties, previously
filed as an exhibit to the Companys Form 8-K on February 23, 2006 and incorporated by reference.
|            | 
|4.3         |  | Senior Notes Indenture, dated as of July 30, 2004, among Foundation PA Coal Company (nka Foundation PA Coal Company, LLC), the Guarantors named therein and The Bank of New York, as Trustee,
previously filed as an exhibit to the Companys Registration Statement on Form S-1 (File No. 333-118427) and incorporated by reference.                                                                                                                                                                                                                 
|            | 
|4.3.1       |  | Supplemental Indenture dated as of September 6, 2005 among Foundation Mining, LP, a subsidiary of Foundation Coal Corporation, Foundation PA Coal Company, LLC and The Bank of New York, as
Trustee, previously filed as an exhibit to the Companys Form 10-Q on November 14, 2005 and incorporated by reference.                                                                                                                                                                                                                                    
|            | 
|4.3.2       |  | Supplemental Indenture dated as of October 5, 2007, among Foundation PA Coal Terminal, LLC, a subsidiary of Foundation Coal Corporation, Foundation PA Coal Company, LLC and The Bank of New York,
as Trustee, filed as an exhibit to the Companys 10-Q on November 9, 2007 and incorporated by reference.                                                                                                                                                                                                                                           
|            | 
|10.1*       |  | Federal Coal Lease WYW 155132: Eagle Butte Mine.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|            | 
|31.1*       |  | Certification of periodic report by the Companys Chief Executive Officer pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934, as amended pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002.                                                                                                                                                                                                                                                                                                                                 
|            | 
|31.2*       |  | Certification of periodic report by the Companys Chief Financial Officer pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934, as amended pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002.                                                                                                                                                                                                                                                                                                                                 
|            | 
|32.1*       |  | Certification of periodic report by the Companys Chief Executive Officer pursuant to 18 U.S.C. Section 1350, adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.                                                                                                                                                                                                                                                                                                                                                                      
|            | 
|32.2*       |  | Certification of periodic report by the Companys Chief Financial Officer pursuant to 18 U.S.C. Section 1350, adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.                                                                                                                                                                                                                                                                                                                                                                      



|* | Filed herewith.
|- | ---------------



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