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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 333-120979-49

Foundation Coal Corporation

(Exact Name of Registrant as Specified in Its Charter)



|                                                               |  |                                     
|-------------------------------------------------------------- |  | ------------------------------------
|Delaware                                                       |  | 26-0085077                          
|(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   ̈            Accelerated filer   ̈            Non-accelerated filer  x            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

The Registrants common equity is not publicly traded. The common stock of Foundation Coal Holdings, Inc., the Registrants public parent, began trading on the New York Stock Exchange on December 9,
2004. There were 45,364,473 shares of Foundation Coal Holdings, Inc. common stock outstanding on April 30, 2008. There were 100 shares of Foundation Coal Corporation common stock outstanding on April 30, 2008, all held by its parent, FC 2
Corp., which are not publicly traded.









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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                             |  | 23  
|         |  |                                                                                                                  
|ITEM 3.  |  | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK                                                        |  | 39  
|         |  |                                                                                                                  
|ITEM 4.  |  | CONTROLS AND PROCEDURES                                                                                           |  | 40  
|         |  |                                                                                                                  
|ITEM 4T. |  | CONTROLS AND PROCEDURES                                                                                           |  | 40  
|         |  | PART IIOTHER INFORMATION                                                                                         |  |     
|         |  |                                                                                                                  
|ITEM 1.  |  | LEGAL PROCEEDINGS                                                                                                 |  | 41  
|         |  |                                                                                                                  
|ITEM 1A. |  | RISK FACTORS                                                                                                      |  | 41  
|         |  |                                                                                                                  
|ITEM 2.  |  | UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS                                                       |  | 41  
|         |  |                                                                                                                  
|ITEM 3.  |  | DEFAULTS UPON SENIOR SECURITIES                                                                                   |  | 41  
|         |  |                                                                                                                  
|ITEM 4.  |  | SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS                                                               |  | 41  
|         |  |                                                                                                                  
|ITEM 5.  |  | OTHER INFORMATION                                                                                                 |  | 41  
|         |  |                                                                                                                  
|ITEM 6.  |  | EXHIBITS                                                                                                          |  | 41  



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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 Corporation and its
consolidated subsidiaries. Foundation Coal Corporation is an indirect wholly owned subsidiary of Foundation Coal Holdings, Inc. For purposes of this filing, Foundation Coal Holdings, Inc. is referred to as the Public Parent.



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

Foundation Coal Corporation 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                                                                                            |  | $             | 23,124    |                  | $ | 50,064   
|Trade accounts receivable                                                                                            |  |               | 125,678   |                  |   | 100,931  
|Inventories, net                                                                                                     |  |               | 44,217    |                  |   | 44,122   
|Deferred income taxes, net                                                                                           |  |               | 11,358    |                  |   | 11,358   
|Prepaid expenses                                                                                                     |  |               | 22,807    |                  |   | 30,260   
|Other current assets                                                                                                 |  |               | 5,747     |                  |   | 6,677    
|                                                                                                                     |  |               |           |                  |   |          
|Total current assets                                                                                                 |  |               | 232,931   |                  |   | 243,412  
|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    |                  |   | 14,150   
|                                                                                                                     |  |               |           |                  |   |          
|Total assets                                                                                                         |  | $             | 1,918,258 |                  | $ | 1,907,881
|                                                                                                                     |  |               |           |                  |   |          
|LIABILITIES                                                                                                          |  |               |           |                  |   |          
|Current liabilities:                                                                                                 |  |               |           |                  |   |          
|Trade accounts payable                                                                                               |  | $             | 47,838    |                  | $ | 43,206   
|Accrued expenses and other current liabilities                                                                       |  |               | 146,376   |                  |   | 161,192  
|                                                                                                                     |  |               |           |                  |   |          
|Total current liabilities                                                                                            |  |               | 194,214   |                  |   | 204,398  
|Long-term debt                                                                                                       |  |               | 599,785   |                  |   | 599,785  
|Deferred income taxes                                                                                                |  |               | 1,177     |                  |   | 3,263    
|Coal supply agreements, net                                                                                          |  |               | 7,653     |                  |   | 9,417    
|Postretirement benefits                                                                                              |  |               | 511,004   |                  |   | 505,787  
|Other noncurrent liabilities                                                                                         |  |               | 256,829   |                  |   | 249,479  
|                                                                                                                     |  |               |           |                  |   |          
|Total liabilities                                                                                                    |  |               | 1,570,662 |                  |   | 1,572,129
|                                                                                                                     |  |               |           |                  |   |          
|Commitments and contingencies (Note 18)                                                                              |  |               |           |                  |   |          
|STOCKHOLDER EQUITY                                                                                                   |  |               |           |                  |   |          
|Common stock, $0.01 par value; 100 shares authorized, issued and outstanding at March 31, 2008 and December 31, 2007 |  |               | -         |                  |   | -        
|Additional paid-in capital                                                                                           |  |               | 271,883   |                  |   | 265,511  
|Retained earnings                                                                                                    |  |               | 72,120    |                  |   | 67,838   
|Accumulated other comprehensive income                                                                               |  |               | 3,593     |                  |   | 2,403    
|                                                                                                                     |  |               |           |                  |   |          
|Total stockholder equity                                                                                             |  |               | 347,596   |                  |   | 335,752  
|                                                                                                                     |  |               |           |                  |   |          
|Total liabilities and stockholder equity                                                                             |  | $             | 1,918,258 |                  | $ | 1,907,881
|                                                                                                                     |  |               |           |                  |   |          

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



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Foundation Coal Corporation and Subsidiaries

Consolidated Statements of Operations and Comprehensive Income

(Unaudited, dollars in thousands)



|                                                                                                                                                |  |                             |         |   |      |   |         |  
|----------------------------------------------------------------------------------------------------------------------------------------------- |  | --------------------------- | ------- | - | ---- | - | ------- | -
|                                                                                                                                                |  | 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)                                                |  |                             | 19,339  |   |      |   | 13,431  |  
|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                                                                                                                          |  |                             | 21,545  |   |      |   | 42,671  |  
|Other income (expense):                                                                                                                         |  |                             |         |   |      |   |         |  
|Interest expense                                                                                                                                |  |                             | (12,914 | ) |      |   | (13,019 | )
|Interest income                                                                                                                                 |  |                             | 443     |   |      |   | 632     |  
|                                                                                                                                                |  |                             |         |   |      |   |         |  
|Income before income tax expense and equity in losses of affiliate                                                                              |  |                             | 9,074   |   |      |   | 30,284  |  
|Income tax expense                                                                                                                              |  |                             | (2,354  | ) |      |   | (5,481  | )
|Equity in losses of affiliate                                                                                                                   |  |                             | (185    | ) |      |   | -       |  
|                                                                                                                                                |  |                             |         |   |      |   |         |  
|Net income                                                                                                                                      |  |                             | 6,535   |   |      |   | 24,803  |  
|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                                                                                                                            |  | $                           | 7,725   |   |      | $ | 24,495  |  
|                                                                                                                                                |  |                             |         |   |      |   |         |  

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



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Foundation Coal Corporation and Subsidiaries

Consolidated Statements of Cash Flows

(Unaudited, dollars in thousands)



|                                                                                  |  |                             |         |   |      |   |         |  
|--------------------------------------------------------------------------------- |  | --------------------------- | ------- | - | ---- | - | ------- | -
|                                                                                  |  | Three Months EndedMarch 31, |        
|                                                                                  |  | 2008                        |         |   | 2007 |  
|Operating activities:                                                             |  |                             |         |   |      |   |         |  
|Net income                                                                        |  | $                           | 6,535   |   |      | $ | 24,803  |  
|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                                                       |  |                             | 5,990   |   |      |   | 1,565   |  
|Excess tax benefit from stock-based awards                                        |  |                             | (1,664  | ) |      |   | (354    | )
|Deferred income taxes                                                             |  |                             | (2,432  | ) |      |   | (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                                                           |  |                             | (44     | ) |      |   | 223     |  
|Trade accounts payable                                                            |  |                             | 4,632   |   |      |   | (17,614 | )
|Accrued expenses and other current liabilities                                    |  |                             | (7,947  | ) |      |   | (594    | )
|Noncurrent liabilities                                                            |  |                             | 10,020  |   |      |   | 11,161  |  
|                                                                                  |  |                             |         |   |      |   |         |  
|Net cash provided by operating activities                                         |  |                             | 55,836  |   |      |   | 52,075  |  
|                                                                                  |  |                             |         |   |      |   |         |  
|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 to Public Parent                                        |  |                             | (2,253  | ) |      |   | (15,535 | )
|Capital contribution from Public Parent                                           |  |                             | 950     |   |      |   | 315     |  
|Excess tax benefit from stock-based awards                                        |  |                             | 1,664   |   |      |   | 354     |  
|Return of capital to Public Parent                                                |  |                             | (2,232  | ) |      |   | (284    | )
|                                                                                  |  |                             |         |   |      |   |         |  
|Net cash used in financing activities                                             |  |                             | (1,871  | ) |      |   | (15,150 | )
|                                                                                  |  |                             |         |   |      |   |         |  
|Net decrease in cash and cash equivalents                                         |  |                             | (26,940 | ) |      |   | (10,785 | )
|Cash and cash equivalents at beginning of period                                  |  |                             | 50,064  |   |      |   | 33,711  |  
|                                                                                  |  |                             |         |   |      |   |         |  
|Cash and cash equivalents at end of period                                        |  | $                           | 23,124  |   |      | $ | 22,926  |  
|                                                                                  |  |                             |         |   |      |   |         |  
|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 Corporation 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 Corporation 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 of 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 March 19, 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 May 2008 the Financial Accounting Standards Board (the FASB) issued Statement of Financial Accounting Standards (SFAS) No. 162, The Hierarchy of Generally Accepted Accounting
Principles(SFAS No. 162). This standard identifies the sources of accounting principles and the framework for selecting the principles used in the preparation of financial statements of nongovernmental entities that are
presented in conformity with generally accepted accounting principles (GAAP) in the United States (the GAAP hierarchy). SFAS No. 162 will be effective 60 days following the SECs approval of the Public Company Accounting Oversight Board
amendments to AU Section 411, The Meaning of Present Fairly in Conformity with Generally Accepted Accounting Principles. The Company expects to adopt SFAS No. 162 on its effective date and does not believe it will have a material
impact on its consolidated financial statements.

In March 2008, the FASB issued 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 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 Corporation 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     |  | -



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Foundation Coal Corporation and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

(Unaudited, dollars in thousands)



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.

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                  |  |               | 4,022  |                  |   | 5,529 
|Prepaid insurance              |  |               | 6,008  |                  |   | 10,030
|Other                          |  |               | 2,588  |                  |   | 1,996 
|                               |  |               |        |                  |   |       
|                               |  | $             | 22,807 |                  | $ | 30,260
|                               |  |               |        |                  |   |       



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##### Table of Contents

Foundation Coal Corporation 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, an affiliate of 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  |                  |   | 1,570 
|                                          |  |               |        |                  |   |       
|                                          |  | $             | 23,824 |                  | $ | 14,150
|                                          |  |               |        |                  |   |       

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



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##### Table of Contents

Foundation Coal Corporation 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                                      |  |               | 24,051  |                  |   | 20,821 
|                                           |  |               |         |                  |   |        
|                                           |  | $             | 146,376 |                  | $ | 161,192
|                                           |  |               |         |                  |   |        



|(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   |                  |   | 8,492  
|                             |  |               |         |                  |   |        
|                             |  | $             | 256,829 |                  | $ | 249,479
|                             |  |               |         |                  |   |        



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Foundation Coal Corporation 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.



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Foundation Coal Corporation 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 Public Parents Board of Directors (the Board) 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 Public Parent to grant key employees, directors and consultants non-qualified 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 Public Parent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 of the Public Parent. At March 31, 2008, 2,091,314 shares of the Public Parents common stock were available
for grant under the Plan.

The Company has two types of stock-based awards outstanding: restricted stock units 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 $5,990, consisting of $3,375 and $2,615 for restricted stock units 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 $1,565, consisting of $1,131 and $434 for restricted stock
units 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 price 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 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.



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Foundation Coal Corporation and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

(Unaudited, dollars in thousands)



|(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) | Stockholder Equity
|---- | ------------------

During the three months ended March 31, 2008, the Company declared and paid cash dividends of $2,253 to the Public Parent for payment of ordinary dividends to common shareholders of the Public Parent.



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Foundation Coal Corporation and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

(Unaudited, dollars in thousands)



|(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  | ) |  |              | (22,649 | ) |  |   | 21,545   
|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 |   |  | $            | 97,683  |   |  | $ | 1,918,258

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   |   |  |              | (21,394 | ) |  |   | 42,671    |  
|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 |   |  | $            | 127,526 |   |  | $ | 1,907,881 |  



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Foundation Coal Corporation 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
|                                                    |  |                             |       |      |   |      



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Foundation Coal Corporation and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

(Unaudited, dollars in thousands)



|(17) | Supplemental Guarantor and Non-Guarantor Financial Information
|---- | --------------------------------------------------------------

On July 30, 2004, the Companys indirect wholly owned subsidiary, Foundation PA Coal Company (the Issuer or Non-Guarantor Subsidiary), issued $300,000 aggregate
principal amount of 7.25% Notes that mature on August 1, 2014. In accordance with the indenture governing the Notes, the Guarantor Subsidiaries are each of the direct and indirect wholly owned subsidiaries of the Company, other than the Issuer.
The Guarantor Subsidiaries have fully and unconditionally guaranteed the Notes, jointly and severally, on a senior unsecured basis. Separate consolidated financial statements and other disclosures concerning the Guarantor Subsidiaries are not
presented because management believes that such information is not material to holders of the Notes.

Supplemental Condensed
Consolidating Balance Sheet

March 31, 2008



|                                                 |  |              |          |   |                                 |   |                       |  |              |           |  |              |            |   |  |   |          
|------------------------------------------------ |  | ------------ | -------- | - | ------------------------------- | - | --------------------- |  | ------------ | --------- |  | ------------ | ---------- | - |  | - | ---------
|                                                 |  | GuarantorFCC |          |   | Non-GuarantorSubsidiary(Issuer) |   | GuarantorSubsidiaries |  | Eliminations |           |  | Consolidated
|Assets                                           |  |              |          |   |                                 |   |                       |  |              |           |  |              |            |   |  |   |          
|Current assets:                                  |  |              |          |   |                                 |   |                       |  |              |           |  |              |            |   |  |   |          
|Cash and cash equivalents                        |  | $            | 23,050   |   |                                 | $ | -                     |  | $            | 74        |  | $            | -          |   |  | $ | 23,124   
|Trade accounts receivable                        |  |              | -        |   |                                 |   | -                     |  |              | 125,678   |  |              | -          |   |  |   | 125,678  
|Inventories, net                                 |  |              | -        |   |                                 |   | -                     |  |              | 44,217    |  |              | -          |   |  |   | 44,217   
|Deferred income taxes, net                       |  |              | (3,718   | ) |                                 |   | -                     |  |              | 15,076    |  |              | -          |   |  |   | 11,358   
|Prepaid expenses                                 |  |              | 4,045    |   |                                 |   | 877                   |  |              | 17,885    |  |              | -          |   |  |   | 22,807   
|Other current assets                             |  |              | 954      |   |                                 |   | -                     |  |              | 4,793     |  |              | -          |   |  |   | 5,747    
|                                                 |  |              |          |   |                                 |   |                       |  |              |           |  |              |            |   |  |   |          
|Total current assets                             |  |              | 24,331   |   |                                 |   | 877                   |  |              | 207,723   |  |              | -          |   |  |   | 232,931  
|Owned surface lands                              |  |              | -        |   |                                 |   | -                     |  |              | 39,198    |  |              | -          |   |  |   | 39,198   
|Plant, equipment and mine development costs, net |  |              | 26,897   |   |                                 |   | -                     |  |              | 632,183   |  |              | -          |   |  |   | 659,080  
|Owned and leased mineral rights, net             |  |              | -        |   |                                 |   | -                     |  |              | 944,469   |  |              | -          |   |  |   | 944,469  
|Coal supply agreements, net                      |  |              | (758     | ) |                                 |   | -                     |  |              | 19,514    |  |              | -          |   |  |   | 18,756   
|Other noncurrent assets                          |  |              | 448,677  |   |                                 |   | 1,020,778             |  |              | 828,269   |  |              | (2,273,900 | ) |  |   | 23,824   
|                                                 |  |              |          |   |                                 |   |                       |  |              |           |  |              |            |   |  |   |          
|Total assets                                     |  | $            | 499,147  |   |                                 | $ | 1,021,655             |  | $            | 2,671,356 |  | $            | (2,273,900 | ) |  | $ | 1,918,258
|                                                 |  |              |          |   |                                 |   |                       |  |              |           |  |              |            |   |  |   |          
|Liabilities                                      |  |              |          |   |                                 |   |                       |  |              |           |  |              |            |   |  |   |          
|Current liabilities:                             |  |              |          |   |                                 |   |                       |  |              |           |  |              |            |   |  |   |          
|Trade accounts payable                           |  | $            | 3,019    |   |                                 | $ | -                     |  | $            | 44,819    |  | $            | -          |   |  | $ | 47,838   
|Accrued expenses and other current liabilities   |  |              | 6,345    |   |                                 |   | 4,573                 |  |              | 135,458   |  |              | -          |   |  |   | 146,376  
|                                                 |  |              |          |   |                                 |   |                       |  |              |           |  |              |            |   |  |   |          
|Total current liabilities                        |  |              | 9,364    |   |                                 |   | 4,573                 |  |              | 180,277   |  |              | -          |   |  |   | 194,214  
|Long-term debt                                   |  |              | -        |   |                                 |   | 599,785               |  |              | -         |  |              | -          |   |  |   | 599,785  
|Deferred income taxes                            |  |              | (161,556 | ) |                                 |   | -                     |  |              | 162,733   |  |              | -          |   |  |   | 1,177    
|Coal supply agreements, net                      |  |              | -        |   |                                 |   | -                     |  |              | 7,653     |  |              | -          |   |  |   | 7,653    
|Postretirement benefits                          |  |              | 1,245    |   |                                 |   | -                     |  |              | 509,759   |  |              | -          |   |  |   | 511,004  
|Other noncurrent liabilities                     |  |              | 302,498  |   |                                 |   | 177,026               |  |              | 785,764   |  |              | (1,008,459 | ) |  |   | 256,829  
|                                                 |  |              |          |   |                                 |   |                       |  |              |           |  |              |            |   |  |   |          
|Total liabilities                                |  |              | 151,551  |   |                                 |   | 781,384               |  |              | 1,646,186 |  |              | (1,008,459 | ) |  |   | 1,570,662
|Stockholder Equity                               |  |              |          |   |                                 |   |                       |  |              |           |  |              |            |   |  |   |          
|Stockholder equity                               |  |              | 347,596  |   |                                 |   | 240,271               |  |              | 1,025,170 |  |              | (1,265,441 | ) |  |   | 347,596  
|                                                 |  |              |          |   |                                 |   |                       |  |              |           |  |              |            |   |  |   |          
|Total liabilities and stockholder equity         |  | $            | 499,147  |   |                                 | $ | 1,021,655             |  | $            | 2,671,356 |  | $            | (2,273,900 | ) |  | $ | 1,918,258
|                                                 |  |              |          |   |                                 |   |                       |  |              |           |  |              |            |   |  |   |          



16



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##### Table of Contents

Foundation Coal Corporation and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

(Unaudited, dollars in thousands)



Supplemental Condensed Consolidating Balance Sheet

December 31, 2007



|                                                 |  |              |          |   |                                 |   |          |                       |  |              |           |  |              |            |   |  |   |          
|------------------------------------------------ |  | ------------ | -------- | - | ------------------------------- | - | -------- | --------------------- |  | ------------ | --------- |  | ------------ | ---------- | - |  | - | ---------
|                                                 |  | GuarantorFCC |          |   | Non-GuarantorSubsidiary(Issuer) |   |          | GuarantorSubsidiaries |  | Eliminations |           |  | Consolidated
|Assets                                           |  |              |          |   |                                 |   |          |                       |  |              |           |  |              |            |   |  |   |          
|Current assets:                                  |  |              |          |   |                                 |   |          |                       |  |              |           |  |              |            |   |  |   |          
|Cash and cash equivalents                        |  | $            | 49,993   |   |                                 | $ | -        |                       |  | $            | 71        |  | $            | -          |   |  | $ | 50,064   
|Trade accounts receivable                        |  |              | -        |   |                                 |   | -        |                       |  |              | 100,931   |  |              | -          |   |  |   | 100,931  
|Inventories, net                                 |  |              | -        |   |                                 |   | -        |                       |  |              | 44,122    |  |              | -          |   |  |   | 44,122   
|Deferred income taxes, net                       |  |              | (3,718   | ) |                                 |   | -        |                       |  |              | 15,076    |  |              | -          |   |  |   | 11,358   
|Prepaid expenses                                 |  |              | 3,763    |   |                                 |   | 870      |                       |  |              | 25,627    |  |              | -          |   |  |   | 30,260   
|Other current assets                             |  |              | 1,490    |   |                                 |   | -        |                       |  |              | 5,187     |  |              | -          |   |  |   | 6,677    
|                                                 |  |              |          |   |                                 |   |          |                       |  |              |           |  |              |            |   |  |   |          
|Total current assets                             |  |              | 51,528   |   |                                 |   | 870      |                       |  |              | 191,014   |  |              | -          |   |  |   | 243,412  
|Owned surface lands                              |  |              | -        |   |                                 |   | -        |                       |  |              | 36,807    |  |              | -          |   |  |   | 36,807   
|Plant, equipment and mine development costs, net |  |              | 28,267   |   |                                 |   | -        |                       |  |              | 636,162   |  |              | -          |   |  |   | 664,429  
|Owned and leased mineral rights, net             |  |              | -        |   |                                 |   | -        |                       |  |              | 928,439   |  |              | -          |   |  |   | 928,439  
|Coal supply agreements, net                      |  |              | (842     | ) |                                 |   | -        |                       |  |              | 21,486    |  |              | -          |   |  |   | 20,644   
|Other noncurrent assets                          |  |              | 381,944  |   |                                 |   | 540,756  |                       |  |              | 1,143,541 |  |              | (2,052,091 | ) |  |   | 14,150   
|                                                 |  |              |          |   |                                 |   |          |                       |  |              |           |  |              |            |   |  |   |          
|Total assets                                     |  | $            | 460,897  |   |                                 | $ | 541,626  |                       |  | $            | 2,957,449 |  | $            | (2,052,091 | ) |  | $ | 1,907,881
|                                                 |  |              |          |   |                                 |   |          |                       |  |              |           |  |              |            |   |  |   |          
|Liabilities                                      |  |              |          |   |                                 |   |          |                       |  |              |           |  |              |            |   |  |   |          
|Current liabilities:                             |  |              |          |   |                                 |   |          |                       |  |              |           |  |              |            |   |  |   |          
|Trade accounts payable                           |  | $            | 6,413    |   |                                 | $ | -        |                       |  | $            | 36,793    |  | $            | -          |   |  | $ | 43,206   
|Accrued expenses and other current liabilities   |  |              | 8,465    |   |                                 |   | 9,769    |                       |  |              | 142,958   |  |              | -          |   |  |   | 161,192  
|                                                 |  |              |          |   |                                 |   |          |                       |  |              |           |  |              |            |   |  |   |          
|Total current liabilities                        |  |              | 14,878   |   |                                 |   | 9,769    |                       |  |              | 179,751   |  |              | -          |   |  |   | 204,398  
|Long-term debt                                   |  |              | -        |   |                                 |   | 599,785  |                       |  |              | -         |  |              | -          |   |  |   | 599,785  
|Deferred income taxes                            |  |              | (159,469 | ) |                                 |   | -        |                       |  |              | 162,732   |  |              | -          |   |  |   | 3,263    
|Coal supply agreements, net                      |  |              | -        |   |                                 |   | -        |                       |  |              | 9,417     |  |              | -          |   |  |   | 9,417    
|Postretirement benefits                          |  |              | 1,125    |   |                                 |   | -        |                       |  |              | 504,662   |  |              | -          |   |  |   | 505,787  
|Other noncurrent liabilities                     |  |              | 268,611  |   |                                 |   | (289,393 | )                     |  |              | 1,129,884 |  |              | (859,623   | ) |  |   | 249,479  
|                                                 |  |              |          |   |                                 |   |          |                       |  |              |           |  |              |            |   |  |   |          
|Total liabilities                                |  |              | 125,145  |   |                                 |   | 320,161  |                       |  |              | 1,986,446 |  |              | (859,623   | ) |  |   | 1,572,129
|Stockholder Equity                               |  |              |          |   |                                 |   |          |                       |  |              |           |  |              |            |   |  |   |          
|Stockholder equity                               |  |              | 335,752  |   |                                 |   | 221,465  |                       |  |              | 971,003   |  |              | (1,192,468 | ) |  |   | 335,752  
|                                                 |  |              |          |   |                                 |   |          |                       |  |              |           |  |              |            |   |  |   |          
|Total liabilities and stockholder equity         |  | $            | 460,897  |   |                                 | $ | 541,626  |                       |  | $            | 2,957,449 |  | $            | (2,052,091 | ) |  | $ | 1,907,881
|                                                 |  |              |          |   |                                 |   |          |                       |  |              |           |  |              |            |   |  |   |          



17



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##### Table of Contents

Foundation Coal Corporation and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

(Unaudited, dollars in thousands)



Supplemental Condensed Consolidating Statement of Operations

For the Three Months Ended March 31, 2008



|                                                                                                                                                               |  |              |         |   |                                 |   |        |                       |  |   |              |   |  |              |         |   |  |   |         |  
|-------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------ | ------- | - | ------------------------------- | - | ------ | --------------------- |  | - | ------------ | - |  | ------------ | ------- | - |  | - | ------- | -
|                                                                                                                                                               |  | GuarantorFCC |         |   | Non-GuarantorSubsidiary(Issuer) |   |        | GuarantorSubsidiaries |  |   | Eliminations |   |  | Consolidated |        
|Total revenues                                                                                                                                                 |  | $            | (202    | ) |                                 | $ | -      |                       |  | $ | 412,506      |   |  | $            | -       |   |  | $ | 412,304 |  
|Costs and expenses:                                                                                                                                            |  |              |         |   |                                 |   |        |                       |  |   |              |   |  |              |         |   |  |   |         |  
|Cost of sales (excludes depreciation, depletionand amortization)                                                                                               |  |              | -       |   |                                 |   | 240    |                       |  |   | 315,233      |   |  |              | -       |   |  |   | 315,473 |  
|Selling, general and administrative expenses(excludes depreciation, depletion and amortization)                                                                |  |              | 13,234  |   |                                 |   | -      |                       |  |   | 6,105        |   |  |              | -       |   |  |   | 19,339  |  
|Accretion on asset retirement obligations                                                                                                                      |  |              | -       |   |                                 |   | -      |                       |  |   | 2,557        |   |  |              | -       |   |  |   | 2,557   |  
|Depreciation, depletion and amortization                                                                                                                       |  |              | 1,423   |   |                                 |   | -      |                       |  |   | 51,842       |   |  |              | -       |   |  |   | 53,265  |  
|Amortization of coal supply agreements                                                                                                                         |  |              | (84     | ) |                                 |   | -      |                       |  |   | 209          |   |  |              | -       |   |  |   | 125     |  
|                                                                                                                                                               |  |              |         |   |                                 |   |        |                       |  |   |              |   |  |              |         |   |  |   |         |  
|(Loss) income from operations                                                                                                                                  |  |              | (14,775 | ) |                                 |   | (240   | )                     |  |   | 36,560       |   |  |              | -       |   |  |   | 21,545  |  
|Other income (expense):                                                                                                                                        |  |              |         |   |                                 |   |        |                       |  |   |              |   |  |              |         |   |  |   |         |  
|Interest expense                                                                                                                                               |  |              | (6,763  | ) |                                 |   | (6,072 | )                     |  |   | (79          | ) |  |              | -       |   |  |   | (12,914 | )
|Interest income                                                                                                                                                |  |              | 417     |   |                                 |   | -      |                       |  |   | 26           |   |  |              | -       |   |  |   | 443     |  
|                                                                                                                                                               |  |              |         |   |                                 |   |        |                       |  |   |              |   |  |              |         |   |  |   |         |  
|(Loss) income from operations before income taxes and equity in losses of affiliate and equity in earnings of
investments in Issuer and Guarantor Subsidiaries |  |              | (21,121 | ) |                                 |   | (6,312 | )                     |  |   | 36,507       |   |  |              | -       |   |  |   | 9,074   |  
|Income tax expense                                                                                                                                             |  |              | (1,956  | ) |                                 |   | (28    | )                     |  |   | (370         | ) |  |              | -       |   |  |   | (2,354  | )
|Equity in losses of affiliate                                                                                                                                  |  |              | -       |   |                                 |   | (185   | )                     |  |   | -            |   |  |              | -       |   |  |   | (185    | )
|Equity in earnings of investments in Issuer and GuarantorSubsidiaries                                                                                          |  |              | 29,612  |   |                                 |   | 32,492 |                       |  |   | -            |   |  |              | (62,104 | ) |  |   | -       |  
|                                                                                                                                                               |  |              |         |   |                                 |   |        |                       |  |   |              |   |  |              |         |   |  |   |         |  
|Net income                                                                                                                                                     |  | $            | 6,535   |   |                                 | $ | 25,967 |                       |  | $ | 36,137       |   |  | $            | (62,104 | ) |  | $ | 6,535   |  
|                                                                                                                                                               |  |              |         |   |                                 |   |        |                       |  |   |              |   |  |              |         |   |  |   |         |  



18



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##### Table of Contents

Foundation Coal Corporation and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

(Unaudited, dollars in thousands)



Supplemental Condensed Consolidating Statement of Operations

For the Three Months Ended March 31, 2007



|                                                                                                                             |  |              |         |   |                                 |   |        |                       |  |   |              |   |  |              |         |   |  |   |         |  
|---------------------------------------------------------------------------------------------------------------------------- |  | ------------ | ------- | - | ------------------------------- | - | ------ | --------------------- |  | - | ------------ | - |  | ------------ | ------- | - |  | - | ------- | -
|                                                                                                                             |  | GuarantorFCC |         |   | Non-GuarantorSubsidiary(Issuer) |   |        | GuarantorSubsidiaries |  |   | Eliminations |   |  | Consolidated |        
|Total revenues                                                                                                               |  | $            | 10      |   |                                 | $ | -      |                       |  | $ | 394,912      |   |  | $            | -       |   |  | $ | 394,922 |  
|Costs and expenses:                                                                                                          |  |              |         |   |                                 |   |        |                       |  |   |              |   |  |              |         |   |  |   |         |  
|Cost of coal sales (excludes depreciation, depletionand amortization)                                                        |  |              | -       |   |                                 |   | 257    |                       |  |   | 283,985      |   |  |              | -       |   |  |   | 284,242 |  
|Selling, general and administrative expenses(excludes depreciation, depletion and amortization)                              |  |              | 7,670   |   |                                 |   | -      |                       |  |   | 5,761        |   |  |              | -       |   |  |   | 13,431  |  
|Accretion on asset retirement obligations                                                                                    |  |              | -       |   |                                 |   | -      |                       |  |   | 2,372        |   |  |              | -       |   |  |   | 2,372   |  
|Depreciation, depletion and amortization                                                                                     |  |              | 393     |   |                                 |   | -      |                       |  |   | 50,691       |   |  |              | -       |   |  |   | 51,084  |  
|Amortization of coal supply agreements                                                                                       |  |              | (119    | ) |                                 |   | -      |                       |  |   | (1,011       | ) |  |              | -       |   |  |   | (1,130  | )
|Employee and contract termination costs and other                                                                            |  |              | -       |   |                                 |   | -      |                       |  |   | 2,252        |   |  |              | -       |   |  |   | 2,252   |  
|                                                                                                                             |  |              |         |   |                                 |   |        |                       |  |   |              |   |  |              |         |   |  |   |         |  
|(Loss) income from operations                                                                                                |  |              | (7,934  | ) |                                 |   | (257   | )                     |  |   | 50,862       |   |  |              | -       |   |  |   | 42,671  |  
|Other income (expense):                                                                                                      |  |              |         |   |                                 |   |        |                       |  |   |              |   |  |              |         |   |  |   |         |  
|Interest expense                                                                                                             |  |              | (6,719  | ) |                                 |   | (5,453 | )                     |  |   | (847         | ) |  |              | -       |   |  |   | (13,019 | )
|Interest income                                                                                                              |  |              | 481     |   |                                 |   | -      |                       |  |   | 151          |   |  |              | -       |   |  |   | 632     |  
|                                                                                                                             |  |              |         |   |                                 |   |        |                       |  |   |              |   |  |              |         |   |  |   |         |  
|(Loss) income from operations before income taxes and equity in earnings of investments in Issuer and Guarantor
Subsidiaries |  |              | (14,172 | ) |                                 |   | (5,710 | )                     |  |   | 50,166       |   |  |              | -       |   |  |   | 30,284  |  
|Income tax expense                                                                                                           |  |              | (3,493  | ) |                                 |   | (265   | )                     |  |   | (1,723       | ) |  |              | -       |   |  |   | (5,481  | )
|Equity in earnings of investments in Issuer and Guarantor Subsidiaries                                                       |  |              | 42,468  |   |                                 |   | 37,249 |                       |  |   | -            |   |  |              | (79,717 | ) |  |   | -       |  
|                                                                                                                             |  |              |         |   |                                 |   |        |                       |  |   |              |   |  |              |         |   |  |   |         |  
|Net income                                                                                                                   |  | $            | 24,803  |   |                                 | $ | 31,274 |                       |  | $ | 48,443       |   |  | $            | (79,717 | ) |  | $ | 24,803  |  
|                                                                                                                             |  |              |         |   |                                 |   |        |                       |  |   |              |   |  |              |         |   |  |   |         |  



19



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##### Table of Contents

Foundation Coal Corporation and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

(Unaudited, dollars in thousands)



Supplemental Condensed Consolidating Statements of Cash Flows

Three Months Ended March 31, 2008



|                                                           |  |              |         |   |                                 |   |        |                       |  |   |              |   |  |   |         |  
|---------------------------------------------------------- |  | ------------ | ------- | - | ------------------------------- | - | ------ | --------------------- |  | - | ------------ | - |  | - | ------- | -
|                                                           |  | GuarantorFCC |         |   | Non-GuarantorSubsidiary(Issuer) |   |        | GuarantorSubsidiaries |  |   | Consolidated |  
|Net cash (used in) provided by operating activities        |  | $            | (15,587 | ) |                                 | $ |       |                       |  | $ | 71,423       |   |  | $ | 55,836  |  
|                                                           |  |              |         |   |                                 |   |        |                       |  |   |              |   |  |   |         |  
|Investing activities:                                      |  |              |         |   |                                 |   |        |                       |  |   |              |   |  |   |         |  
|Purchases of property, plant and equipment                 |  |              | (239    | ) |                                 |   |       |                       |  |   | (35,013      | ) |  |   | (35,252 | )
|Lease by application bonus bid deposit                     |  |              |        |   |                                 |   |       |                       |  |   | (36,108      | ) |  |   | (36,108 | )
|Purchases of equity-method investments                     |  |              |        |   |                                 |   | (9,246 | )                     |  |   | (553         | ) |  |   | (9,799  | )
|Proceeds from disposition of property, plant and equipment |  |              |        |   |                                 |   |       |                       |  |   | 254          |   |  |   | 254     |  
|                                                           |  |              |         |   |                                 |   |        |                       |  |   |              |   |  |   |         |  
|Net cash used in investing activities                      |  |              | (239    | ) |                                 |   | (9,246 | )                     |  |   | (71,420      | ) |  |   | (80,905 | )
|                                                           |  |              |         |   |                                 |   |        |                       |  |   |              |   |  |   |         |  
|Financing activities:                                      |  |              |         |   |                                 |   |        |                       |  |   |              |   |  |   |         |  
|Payment of cash dividends to Public Parent                 |  |              | (2,253  | ) |                                 |   |       |                       |  |   |             |   |  |   | (2,253  | )
|Capital contributions from Public Parent                   |  |              | 950     |   |                                 |   |       |                       |  |   |             |   |  |   | 950     |  
|Excess tax benefit from stock-based awards                 |  |              | 1,664   |   |                                 |   |       |                       |  |   |              |   |  |   | 1,664   |  
|Return of capital to Public Parent                         |  |              | (2,232  | ) |                                 |   |       |                       |  |   |             |   |  |   | (2,232  | )
|Capital contribution to Non-Guarantor Subsidiary           |  |              | (9,246  | ) |                                 |   |       |                       |  |   |             |   |  |   | (9,246  | )
|Capital contribution from Guarantor                        |  |              |        |   |                                 |   | 9,246  |                       |  |   |             |   |  |   | 9,246   |  
|                                                           |  |              |         |   |                                 |   |        |                       |  |   |              |   |  |   |         |  
|Net cash used in financing activities                      |  |              | (11,117 | ) |                                 |   | 9,246  |                       |  |   |             |   |  |   | (1,871  | )
|                                                           |  |              |         |   |                                 |   |        |                       |  |   |              |   |  |   |         |  
|Net (decrease) increase in cash and cash equivalents       |  |              | (26,943 | ) |                                 |   |       |                       |  |   | 3            |   |  |   | (26,940 | )
|Cash and cash equivalents at beginning of period           |  |              | 49,993  |   |                                 |   |       |                       |  |   | 71           |   |  |   | 50,064  |  
|                                                           |  |              |         |   |                                 |   |        |                       |  |   |              |   |  |   |         |  
|Cash and cash equivalents at end of period                 |  | $            | 23,050  |   |                                 | $ |       |                       |  | $ | 74           |   |  | $ | 23,124  |  
|                                                           |  |              |         |   |                                 |   |        |                       |  |   |              |   |  |   |         |  

Three Months Ended March 31, 2007



|                                                           |  |              |         |   |                                 |   |                       |  |   |              |   |  |   |         |  
|---------------------------------------------------------- |  | ------------ | ------- | - | ------------------------------- | - | --------------------- |  | - | ------------ | - |  | - | ------- | -
|                                                           |  | GuarantorFCC |         |   | Non-GuarantorSubsidiary(Issuer) |   | GuarantorSubsidiaries |  |   | Consolidated |  
|Net cash provided by operating activities                  |  | $            | 9,213   |   |                                 | $ | -                     |  | $ | 42,862       |   |  | $ | 52,075  |  
|                                                           |  |              |         |   |                                 |   |                       |  |   |              |   |  |   |         |  
|Investing activities:                                      |  |              |         |   |                                 |   |                       |  |   |              |   |  |   |         |  
|Purchases of property, plant and equipment                 |  |              | (4,845  | ) |                                 |   | -                     |  |   | (43,214      | ) |  |   | (48,059 | )
|Proceeds from disposition of property, plant and equipment |  |              | -       |   |                                 |   | -                     |  |   | 349          |   |  |   | 349     |  
|                                                           |  |              |         |   |                                 |   |                       |  |   |              |   |  |   |         |  
|Net cash used in investing activities                      |  |              | (4,845  | ) |                                 |   | -                     |  |   | (42,865      | ) |  |   | (47,710 | )
|                                                           |  |              |         |   |                                 |   |                       |  |   |              |   |  |   |         |  
|Financing activities:                                      |  |              |         |   |                                 |   |                       |  |   |              |   |  |   |         |  
|Payment of cash dividends to Public Parent                 |  |              | (15,535 | ) |                                 |   | -                     |  |   | -            |   |  |   | (15,535 | )
|Capital contributions from Public Parent                   |  |              | 315     |   |                                 |   | -                     |  |   | -            |   |  |   | 315     |  
|Excess tax benefit from stock-based awards                 |  |              | 354     |   |                                 |   | -                     |  |   | -            |   |  |   | 354     |  
|Return of capital to Public Parent                         |  |              | (284    | ) |                                 |   | -                     |  |   | -            |   |  |   | (284    | )
|                                                           |  |              |         |   |                                 |   |                       |  |   |              |   |  |   |         |  
|Net cash used in financing activities                      |  |              | (15,150 | ) |                                 |   | -                     |  |   | -            |   |  |   | (15,150 | )
|                                                           |  |              |         |   |                                 |   |                       |  |   |              |   |  |   |         |  
|Net decrease in cash and cash equivalents                  |  |              | (10,782 | ) |                                 |   | -                     |  |   | (3           | ) |  |   | (10,785 | )
|Cash and cash equivalents at beginning of period           |  |              | 33,655  |   |                                 |   | -                     |  |   | 56           |   |  |   | 33,711  |  
|                                                           |  |              |         |   |                                 |   |                       |  |   |              |   |  |   |         |  
|Cash and cash equivalents at end of period                 |  | $            | 22,873  |   |                                 | $ | -                     |  | $ | 53           |   |  | $ | 22,926  |  
|                                                           |  |              |         |   |                                 |   |                       |  |   |              |   |  |   |         |  



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##### Table of Contents

Foundation Coal Corporation and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

(Unaudited, dollars in thousands)



|(18) | 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, an affiliate of the Company was determined to be the successful bidder on a federal coal lease by the Bureau of Land Management, 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.

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.



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##### Table of Contents

Foundation Coal Corporation and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

(Unaudited, dollars in thousands)



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.



|(19) | Employee and Contract Termination Costs and Other
|---- | -------------------------------------------------

Employee Termination Costs

In April 2007 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.



|(20) | 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.



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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.



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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, an affiliate of 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 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) |  |                             | 19,339  |      |                     | 13,431  |        |  |   | 5,908   |   |  | 44   | % 
|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                                                                         |  | $                           | 390,759 |      | $                   | 352,251 |        |  | $ | 38,508  |   |  | 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 $5.9 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 ($0.9
million); partially offset by (c) lower consulting fees ($0.2 million).



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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.



27



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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 partially offset by the late February 2008 introduction of a second
longwall operating in a new district at Emerald.



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##### Table of Contents

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 $22.6 million compared to a loss from operations of $21.4 million in the three months ended
March 31, 2007. The increased period-over-period loss from operations of $1.2 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    | ) |                     |   | (486    | )      |  |   | (283    | ) |  | (58 | )%
|                                                          |  |                             |         |   |                     |   |         |        |  |   |         |   |  |     |   
|Total interest expense                                    |  |                             | (12,914 | ) |                     |   | (13,019 | )      |  |   | (105    | ) |  | (1  | )%
|Interest income                                           |  |                             | 443     |   |                     |   | 632     |        |  |   | (189    | ) |  | (30 | )%
|                                                          |  |                             |         |   |                     |   |         |        |  |   |         |   |  |     |   
|Interest expense, net                                     |  | $                           | (12,471 | ) |                     | $ | (12,387 | )      |  | $ | 84      |   |  | 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 |  | $                           | 2,354 |        | $ | 5,481  |  | $ | (3,127  | ) |  | (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.



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##### Table of Contents

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.

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                                            |  | $                           | 55,836  |   |      | $ | 52,075  |  
|Investing activities                                            |  |                             | (80,905 | ) |      |   | (47,710 | )
|Financing activities-payment of cash dividends to Public Parent |  |                             | (2,253  | ) |      |   | (15,535 | )
|Financing activities-capital contribution from Public Parent    |  |                             | 950     |   |      |   | 315     |  
|Financing activities-excess tax benefit from stock-based awards |  |                             | 1,664   |   |      |   | 354     |  
|Financing activities-return of capital to Public Parent         |  |                             | (2,232  | ) |      |   | (284    | )
|                                                                |  |                             |         |   |      |   |         |  
|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 $12.5 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 $18.3 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 $1.9 million during the three months
ended March 31, 2008 consisted of: (a) $2.2 million for the return of capital to the Public Parent; (b) payment of cash dividends to the Public Parent of $2.3 million for the payment of ordinary dividends on the Public Parents
common equity; offset by (c) cash proceeds related to capital contributions from the Public Parent 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) payment of cash dividends to the Public Parent of $15.5 million for the repurchase of common stock in accordance with an authorized stock repurchase program of the Public Parent and for the payment of ordinary dividends
on the Public Parents common equity; (b) $0.3 million for the return of capital to the Public Parent; offset by (c) $0.7 million in cash proceeds from capital contributions from the Public Parent and excess tax benefits from the
issuance of stock-based awards.



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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 amended and restated Senior Secured Credit Agreement, 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.

Covenant Compliance

The Company is required to comply with certain financial covenants which are considered material terms of the Senior Secured Credit Facility and the indenture governing Companys outstanding 7.25% Senior Notes.
Information about the financial covenants is material to an investors understanding of the Company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, the Company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.



33



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##### Table of Contents

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



|                                                                                                             |  |                                                  |  |                                                             |  |                                                      
|------------------------------------------------------------------------------------------------------------ |  | ------------------------------------------------ |  | ----------------------------------------------------------- |  | -----------------------------------------------------
|                                                                                                             |  | ActualCovenant Levels;Period EndedMarch 31, 2008 |  | RequiredCovenant Levels;January 1, 2008 toDecember 31, 2008 |  | RequiredCovenant Levels;January 1, 2009and Thereafter
|Senior Secured Credit Facility(1)                                                                            |  |                                                  |  |                                                             |  |                                                      
|Minimum Adjusted EBITDA to cash interest ratio                                                               |  | 6.5x                                             |  | 2.5x                                                        |  | 2.5x                                                 
|Maximum total debt less unrestricted cash to Adjusted EBITDA ratio                                           |  | 2.0x                                             |  | 3.75x                                                       |  | 3.5x                                                 
|Indenture(2)                                                                                                 |  |                                                  |  |                                                             |  |                                                      
|Minimum Adjusted EBITDA to fixed charge ratio required to incur additional debt pursuant to ratio provisions |  | 6.5x                                             |  | 2.0x                                                        |  | 2.0x                                                 



|(1) | The Senior Secured Credit Facility requires us 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 us 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) | Our ability 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. The amounts shown for EBITDA as presented, may differ from amounts calculated and may not be comparable to other similarly titled measures used by other companies.

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



|                                        |  |                                    |         |                                |   |                                |  |   |                                 |   |  |   |        
|--------------------------------------- |  | ---------------------------------- | ------- | ------------------------------ | - | ------------------------------ |  | - | ------------------------------- | - |  | - | -------
|                                        |  |                                    |         | Deduct:                        |   | Add:                           |  |   |                                
|                                        |  | Twelve MonthsEndedDecember 31,2007 |         | Three MonthsEndedMarch 31,2007 |   | Three MonthsEndedMarch 31,2008 |  |   | Twelve MonthsEndedMarch 31,2008
|EBITDA(1)                               |  | $                                  | 274,627 |                                | $ | 92,625                         |  | $ | 74,750                          |   |  | $ | 256,752
|Non-cash charges (income)(2)            |  |                                    | 16,770  |                                |   | 4,378                          |  |   | 9,455                           |   |  |   | 21,847 
|Extraordinary or non-recurring items(3) |  |                                    | 15,770  |                                |   | 2,252                          |  |   | (332                            | ) |  |   | 13,186 
|Other adjustments(4)                    |  |                                    | 1,770   |                                |   | 412                            |  |   | 21                              |   |  |   | 1,379  
|                                        |  |                                    |         |                                |   |                                |  |   |                                 |   |  |   |        
|Adjusted EBITDA                         |  | $                                  | 308,937 |                                | $ | 99,667                         |  | $ | 83,894                          |   |  | $ | 293,164
|                                        |  |                                    |         |                                |   |                                |  |   |                                 |   |  |   |        



34



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##### Table of Contents

|(1) | EBITDA is calculated in the table below:
|--- | ----------------------------------------



|                                         |  |                                    |         |   |                                |   |        |                                |  |   |                                 |   |  |   |         |  
|---------------------------------------- |  | ---------------------------------- | ------- | - | ------------------------------ | - | ------ | ------------------------------ |  | - | ------------------------------- | - |  | - | ------- | -
|                                         |  |                                    |         |   | Deduct:                        |   |        | Add:                           |  |   |                                 |  
|                                         |  | Twelve MonthsEndedDecember 31,2007 |         |   | Three MonthsEndedMarch 31,2007 |   |        | Three MonthsEndedMarch 31,2008 |  |   | Twelve MonthsEndedMarch 31,2008 |  
|Net income                               |  | $                                  | 33,689  |   |                                | $ | 24,803 |                                |  | $ | 6,535                           |   |  | $ | 15,421  |  
|Interest expense                         |  |                                    | 53,666  |   |                                |   | 13,019 |                                |  |   | 12,914                          |   |  |   | 53,561  |  
|Interest income                          |  |                                    | (3,531  | ) |                                |   | (632   | )                              |  |   | (443                            | ) |  |   | (3,342  | )
|Income tax (benefit) expense             |  |                                    | (7,812  | ) |                                |   | 5,481  |                                |  |   | 2,354                           |   |  |   | (10,939 | )
|Depreciation, depletion and amortization |  |                                    | 202,029 |   |                                |   | 51,084 |                                |  |   | 53,265                          |   |  |   | 204,210 |  
|Amortization of coal supply agreements   |  |                                    | (3,414  | ) |                                |   | (1,130 | )                              |  |   | 125                             |   |  |   | (2,159  | )
|                                         |  |                                    |         |   |                                |   |        |                                |  |   |                                 |   |  |   |         |  
|EBITDA                                   |  | $                                  | 274,627 |   |                                | $ | 92,625 |                                |  | $ | 74,750                          |   |  | $ | 256,752 |  
|                                         |  |                                    |         |   |                                |   |        |                                |  |   |                                 |   |  |   |         |  



|(2) | We are required to adjust EBITDA, as defined above, for the following non-cash charges:
|--- | ---------------------------------------------------------------------------------------



|                                          |  |                                    |        |                                |   |                                |  |                                 |       |  |   |       
|----------------------------------------- |  | ---------------------------------- | ------ | ------------------------------ | - | ------------------------------ |  | ------------------------------- | ----- |  | - | ------
|                                          |  |                                    |        | Deduct:                        |   | Add:                           |  |                                
|                                          |  | Twelve MonthsEndedDecember 31,2007 |        | Three MonthsEndedMarch 31,2007 |   | Three MonthsEndedMarch 31,2008 |  | Twelve MonthsEndedMarch 31,2008
|Accretion on asset retirement obligations |  | $                                  | 10,155 |                                | $ | 2,372                          |  | $                               | 2,557 |  | $ | 10,340
|Stock-based compensation expense(a)       |  |                                    | 6,178  |                                |   | 1,565                          |  |                                 | 5,990 |  |   | 10,603
|Other                                     |  |                                    | 437    |                                |   | 441                            |  |                                 | 908   |  |   | 904   
|                                          |  |                                    |        |                                |   |                                |  |                                 |       |  |   |       
|Total                                     |  | $                                  | 16,770 |                                | $ | 4,378                          |  | $                               | 9,455 |  | $ | 21,847
|                                          |  |                                    |        |                                |   |                                |  |                                 |       |  |   |       



|(a) | Amount represents compensation expense for nonqualified stock options and restricted stock units under SFAS No. 123 (revised 2004) Share-Based
Payment.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------



|(3) | We are also required by the credit agreement to adjust EBITDA, as defined above, for the following extraordinary or non-recurring expense:
|--- | ------------------------------------------------------------------------------------------------------------------------------------------



|                                                    |  |                                    |        |                                |   |                                |  |   |                                 |   |  |   |       
|--------------------------------------------------- |  | ---------------------------------- | ------ | ------------------------------ | - | ------------------------------ |  | - | ------------------------------- | - |  | - | ------
|                                                    |  |                                    |        | Deduct:                        |   | Add:                           |  |   |                                
|                                                    |  | Twelve MonthsEndedDecember 31,2007 |        | Three MonthsEndedMarch 31,2007 |   | Three MonthsEndedMarch 31,2008 |  |   | Twelve MonthsEndedMarch 31,2008
|Litigation/arbitration/contract settlements, net(a) |  | $                                  | 6,285  |                                | $ | -                              |  | $ | (500                            | ) |  | $ | 5,785 
|Other(b)                                            |  |                                    | 9,485  |                                |   | 2,252                          |  |   | 168                             |   |  |   | 7,401 
|                                                    |  |                                    |        |                                |   |                                |  |   |                                 |   |  |   |       
|Total                                               |  | $                                  | 15,770 |                                | $ | 2,252                          |  | $ | (332                            | ) |  | $ | 13,186
|                                                    |  |                                    |        |                                |   |                                |  |   |                                 |   |  |   |       



|(a) | In 2007, amount primarily represents contract termination costs of $5.2 million incurred in connection with the idling of the Wabash mine.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------



|(b) | In the twelve and three month periods in 2007, amounts primarily represent employee termination costs incurred of $9.3 million and $2.3 million, respectively, in
connection with the idling of the Wabash mine.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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|(4) | We are also required to make adjustments to EBITDA for items such as incremental insurance costs and franchise taxes not included in income tax expense.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------

Cash interest for the twelve months ended March 31, 2008 is calculated as follows:



|                                                                                         |  |                           |       
|---------------------------------------------------------------------------------------- |  | ------------------------- | ------
|                                                                                         |  | (Unaudited)(In thousands)
|                                                                                         | 
|Pro forma cash interest expense for the twelve months ended December 31, 2007(a)         |  | $                         | 44,614
|Add: Interest expense for the three months ended March 31, 2008                          |  |                           | 12,914
|Less: Amortization of deferred financing costs for the three months ended March 31, 2008 |  |                           | 454   
|Less: Cash interest income for the three months ended March 31, 2008                     |  |                           | 443   
|Less: Other non cash interest expense for the three months ended March 31, 2008(b)       |  |                           | 200   
|Less: Pro forma cash interest expense for the three months ended March 31, 2007(a)       |  |                           | 10,992
|                                                                                         |  |                           |       
|                                                                                         |  | $                         | 45,439
|                                                                                         |  |                           |       



|(a) | As defined by Foundation Coal Corporations bank credit agreement.
|--- | ------------------------------------------------------------------



|(b) | Other non cash interest expense for the three months ended March 31, 2008 relates to imputed interest expense on a contract settlement liability recorded on
a present value basis.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

In future periods, adjustments to EBITDA that could be used to calculate
compliance with the debt covenants are: (a) accretion on asset retirement obligations; (b) non-recurring litigation or arbitration settlements; (c) any non-cash expenses or charges arising as a result of the application of purchase
accounting in acquisitions; (d) business optimization expenses or other restructuring charges; (e) non-cash impairment charges resulting from the application of SFAS No. 142, Goodwill and Other Intangible Assets, or
SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets; (f) amortization of intangibles pursuant to SFAS No. 141, Business Combinations; and (g) any long-term incentive plan accruals or
any non-cash compensation expense realized from grants of stock appreciation or similar rights, stock options or other rights to officers, directors and employees.

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%.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------

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.



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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 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.



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##### Table of Contents

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 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.



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##### Table of Contents

|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.



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##### Table of Contents

|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 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.



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

Not Applicable.



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##### Table of Contents

PART IIOTHER INFORMATION



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

Information required by this Item is contained in Note 18, 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 March 19, 2008.



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

None.



|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 15, 2008   |  |      |  |                                                             |  | FOUNDATION COAL CORPORATION(Registrant)
|                     |  |      |  |                                                            
|                     |  | Name |  |                                                             |  |                                         |  | Title
|                     |  |     
|/s/ JAMES F. ROBERTS |  |      |  | President, Chief Executive Officer and Director            
|James F. Roberts     |  |      |  | (Principal Executive Officer)                              
|                     |  |     
|/s/ FRANK J. WOOD    |  |      |  | Senior Vice President, Chief Financial Officer and Director
|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 Foundation Coal Holdings, Inc., previously filed as an exhibit to Foundation Coal Holdings, Inc.s Form
10-Q on August 9, 2006, and incorporated by reference.                                                                                                                                                                                                                                                                                                                                                                   
|            | 
|3.2         |  | Amended and Restated By-laws of Foundation Coal Holdings, Inc., previously filed as an exhibit to Foundation Coal Holdings, Inc.s Form 8-K on May 22, 2006, and
incorporated by reference.                                                                                                                                                                                                                                                                                                                                                                                                 
|            | 
|4.1         |  | Form of certificate of Foundation Coal Holdings, Inc.s common stock, previously filed as an exhibit to Foundation Coal Holdings, Inc.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 Foundation Coal Holdings, Inc., 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 Foundation Coal Holdings, Inc.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 Foundation Coal Holdings, Inc., 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 Foundation Coal Holdings, Inc.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 Foundation Coal Holdings, Inc.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 the Company, Foundation PA Coal Company, LLC and The Bank of New York, as
Trustee, previously filed as an exhibit to Foundation Coal Holdings, Inc.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 the Company, Foundation PA Coal Company, LLC and The Bank of
New York, as Trustee, filed as an exhibit to Foundation Coal Holdings, Inc.s Form 10-Q on November 9, 2007 and incorporated by reference.                                                                                                                                                                                                                                                                         
|            | 
|10.1        |  | Federal Coal Lease WYW 155132: Eagle Butte Mine, previously filed as an exhibit to Foundation Coal Holdings, Inc.s Form 10-Q on May 9, 2008 and incorporated by
reference.                                                                                                                                                                                                                                                                                                                                                                                                                 
|            | 
|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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