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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, 2006

or



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

For the Transition Period
From                 to

Commission File Number 001-32331

Foundation Coal Corporation

(Exact Name of Registrant as Specified in Its Charter)



|                                                              |  |                                    
|------------------------------------------------------------- |  | -----------------------------------
|Delaware                                                      |  | 26-0085077                         
|(State or Other Jurisdiction ofIncorporation or Organization) |  | (I.R.S. EmployerIdentification No.)
|                                                              | 
|999 Corporate Boulevard, Suite 300Linthicum 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 large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of
accelerated filer and large accelerated filer in Rule 12b-2 of the Exchange Act. (Check one):



|                         |  |                    |  |                          
|------------------------ |  | ------------------ |  | -------------------------
|Large accelerated filer ̈ |  | Accelerated filer ̈ |  | Non-accelerated filer   x

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 the Registrants ultimate parent, Foundation Coal
Holdings, Inc., began trading on the New York Stock Exchange on December 9, 2004. There were 45,560,398 shares of Foundation Coal Holdings, Inc. common stock outstanding on April 30, 2006. There were 100 shares of Foundation Coal
Corporation common stock outstanding on April 30, 2006, all held by its parent FC2 Corp., which are not publicly traded.



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##### Table of Contents

TABLE OF CONTENTS



|                             |  |                                                                                                                       |  |     
|---------------------------- |  | --------------------------------------------------------------------------------------------------------------------- |  | ----
|                             |  |                                                                                                                       |  | Page
|PART IFINANCIAL INFORMATION |  |                                                                                                                      
|                             |  |                                                                                                                      
|ITEM 1.                      |  | CONSOLIDATED FINANCIAL STATEMENTS                                                                                     |  | 3   
|                             |  | Consolidated Balance Sheets as of March 31, 2006 and December 31, 2005                                                |  | 3   
|                             |  | Statements of Consolidated Operations and Comprehensive Income for the Three Months     Ended March 31, 2006 and 2005 |  | 4   
|                             |  | Statements of Consolidated Cash Flows for the Three Months Ended March 31, 2006 and     2005                          |  | 5   
|                             |  | Notes to Consolidated Financial Statements                                                                            |  | 6   
|ITEM 2.                      |  | MANAGEMENTS DISCUSSION AND ANALYSIS OF CONSOLIDATED FINANCIAL     CONDITION AND RESULTS OF OPERATIONS                |  | 23  
|ITEM 3.                      |  | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK                                                            |  | 38  
|ITEM 4.                      |  | CONTROLS AND PROCEDURES                                                                                               |  | 39  
|                             | 
|PART IIOTHER INFORMATION    |  |                                                                                                                      
|                             |  |                                                                                                                      
|ITEM 1.                      |  | LEGAL PROCEEDINGS                                                                                                     |  | 40  
|ITEM 1A.                     |  | RISK FACTORS                                                                                                          |  | 40  
|ITEM 2.                      |  | UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS                                                           |  | 40  
|ITEM 3.                      |  | DEFAULTS UPON SENIOR SECURITIES                                                                                       |  | 40  
|ITEM 4.                      |  | SUBMISSION OF MATTERS OF VOTE OF SECURITY HOLDERS                                                                     |  | 40  
|ITEM 5.                      |  | OTHER INFORMATION                                                                                                     |  | 40  
|ITEM 6.                      |  | EXHIBITS                                                                                                              |  | 40  



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P
ART 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.



|ITEM 1. | CONSOLIDATE
D FINANCIAL STATEMENTS
|------- | ----------------------------------

Founda
tion Coal Corporation

(An Indirect Wholly Owned Subsidiary of Foundation Coal Holdings, Inc.)

Consolidated Balance Sheets

(Dollars in thousands, except share data)



|                                                                                                             |  |                |           |   |                   |   |           |  
|------------------------------------------------------------------------------------------------------------ |  | -------------- | --------- | - | ----------------- | - | --------- | -
|                                                                                                             |  | March 31, 2006 |           |   | December 31, 2005 |  
|                                                                                                             |  | (Unaudited)    |           |   |                   |  
|ASSETS                                                                                                       |  |                |           |   |                   |   |           |  
|Current assets:                                                                                              |  |                |           |   |                   |   |           |  
|Cash and cash equivalents                                                                                    |  | $              | 56,334    |   |                   | $ | 22,424    |  
|Trade accounts receivable                                                                                    |  |                | 109,783   |   |                   |   | 110,125   |  
|Inventories, net                                                                                             |  |                | 34,962    |   |                   |   | 96,896    |  
|Deferred income taxes                                                                                        |  |                | 4,933     |   |                   |   | 4,933     |  
|Other current assets                                                                                         |  |                | 23,177    |   |                   |   | 25,332    |  
|                                                                                                             |  |                |           |   |                   |   |           |  
|Total current assets                                                                                         |  |                | 229,189   |   |                   |   | 259,710   |  
|Owned surface lands                                                                                          |  |                | 27,943    |   |                   |   | 27,510    |  
|Plant, equipment and mine development costs, net                                                             |  |                | 577,920   |   |                   |   | 567,062   |  
|Owned and leased mineral rights, net                                                                         |  |                | 1,052,919 |   |                   |   | 1,071,596 |  
|Coal supply agreements, net                                                                                  |  |                | 48,184    |   |                   |   | 53,050    |  
|Other noncurrent assets                                                                                      |  |                | 27,958    |   |                   |   | 29,183    |  
|                                                                                                             |  |                |           |   |                   |   |           |  
|Total assets                                                                                                 |  | $              | 1,964,113 |   |                   | $ | 2,008,111 |  
|                                                                                                             |  |                |           |   |                   |   |           |  
|                                                                                                             |  |               
|LIABILITIES                                                                                                  |  |                |           |   |                   |   |           |  
|Current liabilities:                                                                                         |  |                |           |   |                   |   |           |  
|Trade accounts payable                                                                                       |  | $              | 36,013    |   |                   | $ | 35,384    |  
|Accrued expenses and other current liabilities                                                               |  |                | 160,280   |   |                   |   | 181,883   |  
|                                                                                                             |  |                |           |   |                   |   |           |  
|Total current liabilities                                                                                    |  |                | 196,293   |   |                   |   | 217,267   |  
|Long-term debt                                                                                               |  |                | 635,000   |   |                   |   | 635,000   |  
|Deferred income taxes                                                                                        |  |                | 43,149    |   |                   |   | 67,629    |  
|Coal supply agreements, net                                                                                  |  |                | 47,949    |   |                   |   | 59,013    |  
|Postretirement benefits                                                                                      |  |                | 470,147   |   |                   |   | 464,418   |  
|Other noncurrent liabilities                                                                                 |  |                | 232,605   |   |                   |   | 225,413   |  
|                                                                                                             |  |                |           |   |                   |   |           |  
|Total liabilities                                                                                            |  |                | 1,625,143 |   |                   |   | 1,668,740 |  
|                                                                                                             |  |                |           |   |                   |   |           |  
|Commitments and contingencies (Note 18)                                                                      |  |                |           |   |                   |   |           |  
|                                                                                                             |  |               
|STOCKHOLDER EQUITY                                                                                           |  |                |           |   |                   |   |           |  
|Common stock, $0.01 par value; 100 shares authorized and outstanding at March 31, 2006 and December 31, 2005 |  |                |          |   |                   |   |          |  
|Additional paid-in capital                                                                                   |  |                | 243,738   |   |                   |   | 235,011   |  
|Retained earnings                                                                                            |  |                | 95,880    |   |                   |   | 105,137   |  
|Accumulated other comprehensive income (loss)                                                                |  |                | (648      | ) |                   |   | (777      | )
|                                                                                                             |  |                |           |   |                   |   |           |  
|Total stockholder equity                                                                                     |  |                | 338,970   |   |                   |   | 339,371   |  
|                                                                                                             |  |                |           |   |                   |   |           |  
|Total liabilities and stockholder equity                                                                     |  | $              | 1,964,113 |   |                   | $ | 2,008,111 |  
|                                                                                                             |  |                |           |   |                   |   |           |  

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



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##### Table of Contents

Foundati
on Coal Corporation

(An Indirect Wholly Owned Subsidiary of Foundation Coal Holdings, Inc.)

Statements of Consolidated Operations and Comprehensive Income

(Dollars in thousands)



|                                                                                                |  |                                   |         |   |                                   |   |         |  
|----------------------------------------------------------------------------------------------- |  | --------------------------------- | ------- | - | --------------------------------- | - | ------- | -
|                                                                                                |  | Three Months Ended March 31,
2006 |         |   | Three Months Ended March 31,
2005 |  
|                                                                                                |  | (Unaudited)                       |         |   | (Unaudited)                       |  
|Revenues:                                                                                       |  |                                   |         |   |                                   |   |         |  
|Coal sales                                                                                      |  | $                                 | 387,602 |   |                                   | $ | 300,021 |  
|Other revenue                                                                                   |  |                                   | 7,723   |   |                                   |   | 5,485   |  
|                                                                                                |  |                                   |         |   |                                   |   |         |  
|Total revenues                                                                                  |  |                                   | 395,325 |   |                                   |   | 305,506 |  
|Costs and expenses:                                                                             |  |                                   |         |   |                                   |   |         |  
|Cost of coal sales (excludes depreciation, depletion and amortization)                          |  |                                   | 290,242 |   |                                   |   | 215,230 |  
|Selling, general and administrative expense (excludes depreciation, depletion and amortization) |  |                                   | 11,623  |   |                                   |   | 11,431  |  
|Accretion on asset retirement obligations                                                       |  |                                   | 1,905   |   |                                   |   | 2,040   |  
|Depreciation, depletion and amortization                                                        |  |                                   | 44,297  |   |                                   |   | 54,800  |  
|Amortization of coal supply agreements                                                          |  |                                   | (6,198  | ) |                                   |   | (23,379 | )
|                                                                                                |  |                                   |         |   |                                   |   |         |  
|Income from operations                                                                          |  |                                   | 53,456  |   |                                   |   | 45,384  |  
|Other income (expense):                                                                         |  |                                   |         |   |                                   |   |         |  
|Interest expense                                                                                |  |                                   | (13,674 | ) |                                   |   | (14,253 | )
|Interest income                                                                                 |  |                                   | 368     |   |                                   |   | 122     |  
|                                                                                                |  |                                   |         |   |                                   |   |         |  
|Income before income tax expense                                                                |  |                                   | 40,150  |   |                                   |   | 31,253  |  
|Income tax expense                                                                              |  |                                   | (7,881  | ) |                                   |   | (12,211 | )
|                                                                                                |  |                                   |         |   |                                   |   |         |  
|Net income                                                                                      |  |                                   | 32,269  |   |                                   |   | 19,042  |  
|Components of comprehensive income:                                                             |  |                                   |         |   |                                   |   |         |  
|Unrealized gain on interest rate swaps, net of tax expense of $83 in 2006 and $553 in 2005      |  |                                   | 129     |   |                                   |   | 829     |  
|                                                                                                |  |                                   |         |   |                                   |   |         |  
|Comprehensive income                                                                            |  | $                                 | 32,398  |   |                                   | $ | 19,871  |  
|                                                                                                |  |                                   |         |   |                                   |   |         |  







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



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Founda
tion Coal Corporation

(An Indirect Wholly Owned Subsidiary of Foundation Coal Holdings, Inc.)

Statements of Consolidated Cash Flows

(Dollars in thousands)



|                                                                                  |  |                                   |         |   |                                   |   |         |  
|--------------------------------------------------------------------------------- |  | --------------------------------- | ------- | - | --------------------------------- | - | ------- | -
|                                                                                  |  | Three Months Ended March 31,
2006 |         |   | Three Months Ended March 31,
2005 |  
|                                                                                  |  | (Unaudited)                       |         |   | (Unaudited)                       |  
|Operating activities:                                                             |  |                                   |         |   |                                   |   |         |  
|Net income                                                                        |  | $                                 | 32,269  |   |                                   | $ | 19,042  |  
|Adjustments to reconcile net income to net cash provided by operating activities: |  |                                   |         |   |                                   |   |         |  
|Accretion on asset retirement obligations                                         |  |                                   | 1,905   |   |                                   |   | 2,040   |  
|Depreciation, depletion and amortization                                          |  |                                   | 38,099  |   |                                   |   | 31,421  |  
|Amortization of deferred financing costs                                          |  |                                   | 717     |   |                                   |   | 773     |  
|Gain on sale of assets                                                            |  |                                   | (332    | ) |                                   |   |        |  
|Non-cash stock-based compensation                                                 |  |                                   | 796     |   |                                   |   | 308     |  
|Retirement of plant, equipment, and mine development costs                        |  |                                   | 46      |   |                                   |   |        |  
|Deferred income taxes                                                             |  |                                   | (3,447  | ) |                                   |   | 3,824   |  
|Other                                                                             |  |                                   | (41     | ) |                                   |   |        |  
|Changes in operating assets and liabilities:                                      |  |                                   |         |   |                                   |   |         |  
|Trade accounts receivable                                                         |  |                                   | 342     |   |                                   |   | (34,784 | )
|Inventories, net                                                                  |  |                                   | 1,528   |   |                                   |   | (18,593 | )
|Other current assets                                                              |  |                                   | (9,468  | ) |                                   |   | 3,429   |  
|Other noncurrent assets                                                           |  |                                   | 720     |   |                                   |   | 8       |  
|Trade accounts payable                                                            |  |                                   | 629     |   |                                   |   | 818     |  
|Asset retirement obligations                                                      |  |                                   | (438    | ) |                                   |   | (433    | )
|Accrued expenses and other current liabilities                                    |  |                                   | (17,486 | ) |                                   |   | (1,342  | )
|Noncurrent liabilities                                                            |  |                                   | 10,267  |   |                                   |   | 4,753   |  
|                                                                                  |  |                                   |         |   |                                   |   |         |  
|Net cash provided by operating activities                                         |  |                                   | 56,106  |   |                                   |   | 11,264  |  
|                                                                                  |  |                                   |         |   |                                   |   |         |  
|Investing activities:                                                             |  |                                   |         |   |                                   |   |         |  
|Purchases of property, plant and equipment                                        |  |                                   | (39,960 | ) |                                   |   | (36,528 | )
|Proceeds from disposition of property, plant and equipment                        |  |                                   | 406     |   |                                   |   | 4,353   |  
|                                                                                  |  |                                   |         |   |                                   |   |         |  
|Net cash used in investing activities                                             |  |                                   | (39,554 | ) |                                   |   | (32,175 | )
|                                                                                  |  |                                   |         |   |                                   |   |         |  
|Financing activities:                                                             |  |                                   |         |   |                                   |   |         |  
|Proceeds from revolving credit facility                                           |  |                                   |        |   |                                   |   | 39,000  |  
|Repayment of revolving credit facility                                            |  |                                   |        |   |                                   |   | (39,000 | )
|Payment of dividend to parent                                                     |  |                                   | (2,262  | ) |                                   |   |        |  
|Capital contribution from parent                                                  |  |                                   | 14,067  |   |                                   |   |        |  
|Excess tax benefit from stock-based awards                                        |  |                                   | 5,553   |   |                                   |   |        |  
|                                                                                  |  |                                   |         |   |                                   |   |         |  
|Net cash provided by financing activities                                         |  |                                   | 17,358  |   |                                   |   |        |  
|                                                                                  |  |                                   |         |   |                                   |   |         |  
|Net increase (decrease) in cash and cash equivalents                              |  |                                   | 33,910  |   |                                   |   | (20,911 | )
|Cash and cash equivalents at beginning of period                                  |  |                                   | 22,424  |   |                                   |   | 25,043  |  
|                                                                                  |  |                                   |         |   |                                   |   |         |  
|Cash and cash equivalents at end of period                                        |  | $                                 | 56,334  |   |                                   | $ | 4,132   |  
|                                                                                  |  |                                   |         |   |                                   |   |         |  
|Supplemental cash flow information:                                               |  |                                   |         |   |                                   |   |         |  
|Cash paid for interest                                                            |  | $                                 | 17,274  |   |                                   | $ | 17,276  |  
|Cash paid for income taxes                                                        |  | $                                 | 4,202   |   |                                   | $ | 7,563   |  

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



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Foundation Coal Corporation and Subsidiaries

(An Indirect Wholly Owned Subsidiary of Foundation Coal
Holdings, Inc.)

Notes to Consolidated Financial Statements

(Dollars in thousands)



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

The following 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 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 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, 2005,
filed March 17, 2006.

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; post-employment, post-retirement and other employee benefit
liabilities; valuation allowances for deferred taxes; 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 significantly 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, 2006 may not necessarily be indicative of the results to be expected in future quarters or for the twelve months ended December 31, 2006.

Reclassifications

Certain amounts in the prior
period have been reclassified to conform to the 2006 presentation. The Company reclassified the balance sheet amount for prepaid major repairs from the historical presentation in other noncurrent assets to plant, equipment and mine development
costs, net.



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

On
January 1, 2006, the Company adopted Statement of Financial Accounting Standards (SFAS) No. 123 (revised 2004), Share-Based Payment (SFAS No. 123(R)), which replaces SFAS No. 123, Accounting for
Stock-Based Compensation (SFAS No. 123), and supersedes Accounting Principles Board (APB) Opinion No. 25, Accounting for Stock Issued to Employees (APB No. 25). SFAS No. 123(R)
requires all share-based payments to employees, including grants of employee stock options, to be recognized in the consolidated financial statements based on their fair value at the grant date. SFAS No. 123(R) generally requires companies to
measure the cost of employee services received in exchange for an award of equity instruments (such as stock options and restricted stock) based on the grant-date fair value of the award, and to recognize that cost over the period during which the
employee is required to provide service (usually the vesting period of the award). SFAS No. 123(R) also requires the benefits of tax deductions in excess of recognized compensation cost to be reported as a financing cash flow, rather than as an
operating cash flow as previously required. See Note 12 for the impact of adoption on the consolidated financial statements and additional disclosures required by the new accounting standard.



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Foundation Coal Corporation and Subsidiaries

(An Indirect Wholly Owned Subsidiary of Foundation Coal Holdings, Inc.)

Notes to Consolidated Financial Statements(Continued)



The Company adopted Emerging Issues Task Force (EITF) Issue No. 04-6, Accounting
for Stripping Costs Incurred during Production in the Mining Industry, (EITF Issue 04-6) on January 1, 2006. EITF Issue 04-6 addresses the accounting for stripping costs incurred during the production phase of a mine, concluding
that these costs are considered variable production costs and under a full absorption costing system are considered a component of inventory to be recognized in cost of coal sales in the same period as the revenue from the sale of the inventory.
Capitalization of post-production stripping costs is appropriate only to the extent inventory exists at the end of a reporting period. The guidance requires application through recognition of a cumulative effect adjustment to opening retained
earnings in the period of adoption, with no charge to current earnings for prior periods. Accordingly, prior period results have not been restated. At December 31, 2005, stripping costs associated with coal that had not been extracted was
$60,406 which were classified on the consolidated balance sheet as a component of work-in-process inventory referred to as deferred overburden. The effect on the consolidated financial statements upon adoption of EITF Issue 04-6 resulted in a
cumulative effect adjustment which reduced opening retained earnings, as of January 1, 2006, by $39,264, net of tax of $21,142, thereby removing the $60,406 current asset previously classified on the consolidated balance sheet as a component of
work-in-process (deferred overburden) inventory. See Note 3.



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

Inventories consisted of the
following:



|                                                     |  |                |        |   |                   |   |         |  
|---------------------------------------------------- |  | -------------- | ------ | - | ----------------- | - | ------- | -
|                                                     |  | March 31, 2006 |        |   | December 31, 2005 |  
|                                                     |  | (Unaudited)    |        |   |                   |  
|Saleable coal                                        |  | $              | 15,792 |   |                   | $ | 18,820  |  
|Raw coal                                             |  |                | 1,576  |   |                   |   | 2,207   |  
|Work-in-process (deferred overburden)                |  |                |       |   |                   |   | 60,406  |  
|Materials and supplies                               |  |                | 25,392 |   |                   |   | 23,501  |  
|                                                     |  |                |        |   |                   |   |         |  
|                                                     |  |                | 42,760 |   |                   |   | 104,934 |  
|Less materials and supplies reserve for obsolescence |  |                | (7,798 | ) |                   |   | (8,038  | )
|                                                     |  |                |        |   |                   |   |         |  
|                                                     |  | $              | 34,962 |   |                   | $ | 96,896  |  
|                                                     |  |                |        |   |                   |   |         |  

Saleable coal represents coal stockpiles ready for shipment to a customer. Raw coal represents
coal that requires further processing prior to shipment. At December 31, 2005, work-in-process consists of costs incurred to remove overburden above an unmined coal seam as part of the surface mining process and generally includes labor, supplies,
operating overhead and equipment costs charged to operations as coal from the seam is sold.



|(4) | Other Current Assets
|--- | --------------------

Other current assets
consisted of the following:



|                               |  |                |        |                   |   |       
|------------------------------ |  | -------------- | ------ | ----------------- | - | ------
|                               |  | March 31, 2006 |        | December 31, 2005
|                               |  | (Unaudited)    |        |                  
|Prepaid royalties              |  | $              | 1,259  |                   | $ | 2,122 
|Prepaid longwall move expense  |  |                | 8,202  |                   |   | 5,525 
|Prepaid SO2emission allowances |  |                | 1,204  |                   |   | 1,204 
|Prepaid expenses               |  |                | 10,587 |                   |   | 13,596
|Other                          |  |                | 1,925  |                   |   | 2,885 
|                               |  |                |        |                   |   |       
|                               |  | $              | 23,177 |                   | $ | 25,332
|                               |  |                |        |                   |   |       



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Foundation Coal Corporation and Subsidiaries

(An Indirect Wholly Owned Subsidiary of Foundation Coal Holdings, Inc.)

Notes to Consolidated Financial Statements(Continued)



|(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, 2006 |           |   | December 31, 2005 |  
|                                                 |  | (Unaudited)    |           |   |                   |  
|Owned surface and leased mineral rights          |  |                |           |   |                   |   |           |  
|Owned surface lands                              |  | $              | 27,943    |   |                   | $ | 27,510    |  
|                                                 |  |                |           |   |                   |   |           |  
|Owned and leased mineral rights                  |  | $              | 1,245,135 |   |                   | $ | 1,245,135 |  
|Less accumulated depletion                       |  |                | (192,216  | ) |                   |   | (173,539  | )
|                                                 |  |                |           |   |                   |   |           |  
|                                                 |  | $              | 1,052,919 |   |                   | $ | 1,071,596 |  
|                                                 |  |                |           |   |                   |   |           |  
|Plant, equipment and mine development costs      |  |                |           |   |                   |   |           |  
|Plant, equipment and asset retirement costs      |  | $              | 714,267   |   |                   | $ | 678,617   |  
|Mine development costs                           |  |                | 16,312    |   |                   |   | 15,721    |  
|Natural gas well development costs               |  |                | 315       |   |                   |   | 315       |  
|Coal bed methane equipment and development costs |  |                | 4,168     |   |                   |   | 4,024     |  
|                                                 |  |                |           |   |                   |   |           |  
|                                                 |  |                | 735,062   |   |                   |   | 698,677   |  
|                                                 |  |                |           |   |                   |   |           |  
|Less accumulated depreciation and amortization:  |  |                |           |   |                   |   |           |  
|Plant, equipment and asset retirement costs      |  |                | (154,515  | ) |                   |   | (129,654  | )
|Mine development costs                           |  |                | (1,726    | ) |                   |   | (1,187    | )
|Natural gas well development costs               |  |                | (105      | ) |                   |   | (89       | )
|Coal bed methane equipment and development costs |  |                | (796      | ) |                   |   | (685      | )
|                                                 |  |                |           |   |                   |   |           |  
|                                                 |  |                | (157,142  | ) |                   |   | (131,615  | )
|                                                 |  |                |           |   |                   |   |           |  
|                                                 |  | $              | 577,920   |   |                   | $ | 567,062   |  
|                                                 |  |                |           |   |                   |   |           |  



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

Other noncurrent assets
consisted of the following:



|                                     |  |                |        |                   |   |       
|------------------------------------ |  | -------------- | ------ | ----------------- | - | ------
|                                     |  | March 31, 2006 |        | December 31, 2005
|                                     |  | (Unaudited)    |        |                  
|Receivables from asset dispositions  |  | $              | 2,687  |                   | $ | 3,346 
|Unamortized debt issuance costs, net |  |                | 18,638 |                   |   | 19,355
|Advance mining royalties             |  |                | 2,781  |                   |   | 2,828 
|Fair value of interest rate swaps    |  |                | 2,355  |                   |   | 2,143 
|Other                                |  |                | 1,497  |                   |   | 1,511 
|                                     |  |                |        |                   |   |       
|                                     |  | $              | 27,958 |                   | $ | 29,183
|                                     |  |                |        |                   |   |       



8



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##### Table of Contents

Foundation Coal Corporation and Subsidiaries

(An Indirect Wholly Owned Subsidiary of Foundation Coal Holdings, Inc.)

Notes to Consolidated Financial Statements(Continued)



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

Accrued expenses and other current liabilities consisted of the following:



|                                           |  |                |         |                   |   |        
|------------------------------------------ |  | -------------- | ------- | ----------------- | - | -------
|                                           |  | March 31, 2006 |         | December 31, 2005
|                                           |  | (Unaudited)    |         |                  
|Accrued federal and state income taxes     |  | $              | 6,515   |                   | $ | 4,979  
|Accrued sales contract settlements         |  |                |        |                   |   | 150    
|Wages and employee benefits                |  |                | 26,476  |                   |   | 33,998 
|Pension benefits                           |  |                | 14,395  |                   |   | 15,439 
|Postretirement benefits other than pension |  |                | 23,464  |                   |   | 23,464 
|Interest                                   |  |                | 3,625   |                   |   | 9,063  
|Royalties                                  |  |                | 4,857   |                   |   | 8,823  
|Taxes other than income taxes              |  |                | 33,991  |                   |   | 31,866 
|Asset retirement obligations               |  |                | 3,846   |                   |   | 4,376  
|Workers compensation                      |  |                | 8,259   |                   |   | 8,297  
|Other                                      |  |                | 34,852  |                   |   | 41,428 
|                                           |  |                |         |                   |   |        
|                                           |  | $              | 160,280 |                   | $ | 181,883
|                                           |  |                |         |                   |   |        

(8)    Other Noncurrent Liabilities

Other noncurrent liabilities consisted of the following:



|                                       |  |                |         |                   |   |        
|-------------------------------------- |  | -------------- | ------- | ----------------- | - | -------
|                                       |  | March 31, 2006 |         | December 31, 2005
|                                       |  | (Unaudited)    |         |                  
|Post employment benefits               |  | $              | 4,989   |                   | $ | 5,028  
|Pension benefits                       |  |                | 35,986  |                   |   | 34,529 
|Workers compensation                  |  |                | 20,883  |                   |   | 20,525 
|Minimum royalty obligations            |  |                | 86      |                   |   | 83     
|Black lung reserves                    |  |                | 6,617   |                   |   | 6,206  
|Contract settlement accrual            |  |                | 17,934  |                   |   | 20,044 
|Asset retirement obligations           |  |                | 113,775 |                   |   | 111,778
|Deferred production tax                |  |                | 11,852  |                   |   | 7,254  
|Deferred credits and other             |  |                | 1,449   |                   |   | 1,847  
|Deferred equipment purchase commitment |  |                | 19,034  |                   |   | 18,119 
|                                       |  |                |         |                   |   |        
|                                       |  | $              | 232,605 |                   | $ | 225,413
|                                       |  |                |         |                   |   |        

During 2005, the Companys Northern Appalachia business unit took delivery of one hundred new
longwall shields to remedy a warranty issue associated with shields currently used in their underground mining operations. The Company entered into a purchase commitment for the shields in the amount of $21,685 and in accordance with the payment
terms, periodic progress payments to the manufacturer are not scheduled to start until the fourth quarter of 2007, with scheduled completion within one year. The Company recorded a deferred equipment purchase commitment liability representing the
present value of the future payments due in accordance with the terms of the purchase commitment. Interest expense is imputed and recognized in a manner consistent with the established payment terms, over which, the liability will be increased to
the full value of $21,685.



9



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##### Table of Contents

Foundation Coal Corporation and Subsidiaries

(An Indirect Wholly Owned Subsidiary of Foundation Coal Holdings, Inc.)

Notes to Consolidated Financial Statements(Continued)



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

Accumulated other comprehensive income (loss) consisted of the following:



|                                                                                                                 |  |                |        |   |                   |   |        |  
|---------------------------------------------------------------------------------------------------------------- |  | -------------- | ------ | - | ----------------- | - | ------ | -
|                                                                                                                 |  | March 31, 2006 |        |   | December 31, 2005 |  
|                                                                                                                 |  | (Unaudited)    |        |   |                   |  
|Changes in fair value of interest rate swaps, net of tax of $731 at March 31, 2006 and $648 at December 31, 2005 |  | $              | 1,093  |   |                   | $ | 964    |  
|Minimum pension liability adjustments, net of tax of $933                                                        |  |                | (1,741 | ) |                   |   | (1,741 | )
|                                                                                                                 |  |                |        |   |                   |   |        |  
|                                                                                                                 |  | $              | (648   | ) |                   | $ | (777   | )
|                                                                                                                 |  |                |        |   |                   |   |        |  



|(10) | Pension and Postretirement Benefit Plans
|---- | ----------------------------------------

Components of Net
Periodic Pension Costs

Net periodic pension costs included the following:



|                               |  |                                  |        |   |                                  |   |        |  
|------------------------------ |  | -------------------------------- | ------ | - | -------------------------------- | - | ------ | -
|                               |  | Three MonthsEnded March 31, 2006 |        |   | Three MonthsEnded March 31, 2005 |  
|                               |  | (Unaudited)                      |        |   | (Unaudited)                      |  
|Service cost                   |  | $                                | 1,393  |   |                                  | $ | 1,281  |  
|Interest cost                  |  |                                  | 2,688  |   |                                  |   | 2,560  |  
|Expected return on plan assets |  |                                  | (2,648 | ) |                                  |   | (2,249 | )
|Amortization of:               |  |                                  |        |   |                                  |   |        |  
|Prior service cost             |  |                                  | (3     | ) |                                  |   |       |  
|Actuarial losses               |  |                                  | 27     |   |                                  |   | 21     |  
|                               |  |                                  |        |   |                                  |   |        |  
|Net expense                    |  | $                                | 1,457  |   |                                  | $ | 1,613  |  
|                               |  |                                  |        |   |                                  |   |        |  

Components of Net Periodic Postretirement Benefit Costs

Net periodic postretirement medical and life insurance benefit costs are as follows:



|                   |  |                                  |        |                                  |   |       
|------------------ |  | -------------------------------- | ------ | -------------------------------- | - | ------
|                   |  | Three MonthsEnded March 31, 2006 |        | Three MonthsEnded March 31, 2005
|                   |  | (Unaudited)                      |        | (Unaudited)                     
|Service cost       |  | $                                | 2,200  |                                  | $ | 2,035 
|Interest cost      |  |                                  | 7,848  |                                  |   | 8,465 
|Amortization of:   |  |                                  |        |                                  |   |       
|Prior service cost |  |                                  |       |                                  |   |      
|Actuarial losses   |  |                                  | 572    |                                  |   |      
|                   |  |                                  |        |                                  |   |       
|Net expense        |  | $                                | 10,620 |                                  | $ | 10,500
|                   |  |                                  |        |                                  |   |       

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



10



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##### Table of Contents

Foundation Coal Corporation and Subsidiaries

(An Indirect Wholly Owned Subsidiary of Foundation Coal Holdings, Inc.)

Notes to Consolidated Financial Statements(Continued)



|(11) | Pneumoconiosis (Black Lung) Expense and Trust
|---- | ---------------------------------------------

The
components of net periodic benefit cost are as follows:



|                               |  |                                  |      |   |                                  |   |      |  
|------------------------------ |  | -------------------------------- | ---- | - | -------------------------------- | - | ---- | -
|                               |  | Three MonthsEnded March 31, 2006 |      |   | Three MonthsEnded March 31, 2005 |  
|                               |  | (Unaudited)                      |      |   | (Unaudited)                      |  
|Service cost                   |  | $                                | 176  |   |                                  | $ | 84   |  
|Interest cost                  |  |                                  | 329  |   |                                  |   | 211  |  
|Expected return on plan assets |  |                                  | (144 | ) |                                  |   | (145 | )
|Amortization of:               |  |                                  |      |   |                                  |   |      |  
|Prior service cost             |  |                                  |     |   |                                  |   |     |  
|Actuarial losses               |  |                                  | 50   |   |                                  |   | 60   |  
|                               |  |                                  |      |   |                                  |   |      |  
|Net expense                    |  | $                                | 411  |   |                                  | $ | 210  |  
|                               |  |                                  |      |   |                                  |   |      |  



|(12) | Stock-Based Compensation
|---- | ------------------------

On July 30, 2004,
Foundation Coal Holdings, Inc.s board of directors adopted the Foundation Coal Holdings, Inc. (FCL) 2004 Stock Incentive Plan (the Plan), which is designed to assist the Company in recruiting and retaining key
employees, directors and consultants. The Plan permits FCL to grant key employees, directors and consultants of the Company nonqualified stock options (options), stock appreciation rights, restricted stock grants or other stock-based
awards. The Plan is currently authorized for the issuance of awards for up to 5,978,483 shares of FCLs common stock.

Prior to
January 1, 2006, the Company accounted for its stock-based compensation expense under the recognition and measurement provisions of APB No. 25, and related interpretations, as permitted by SFAS No. 123. Effective January 1, 2006,
the Company adopted the fair value recognition provisions of SFAS No. 123(R), using the modified prospective transition method. Under the modified prospective transition method, compensation cost recognized in 2006 includes:
(a) compensation cost for all stock-based awards granted prior to but not yet vested as of January 1, 2006, based on the grant-date fair value estimated in accordance with the original provisions of SFAS No. 123; and
(b) compensation cost for all stock-based awards granted subsequent to January 1, 2006, based on the grant-date fair value estimated in accordance with the provisions of SFAS No. 123(R). For all grants, the amount of compensation
expense to be recognized is adjusted for an estimated forfeiture rate which is based on historical data. Results for prior periods have not been restated. There were no modifications made to outstanding options prior to the adoption of the standard.
There were no changes made by FCL to the terms, quantity or type of instruments used for stock-based compensation as a result of the adoption of the new standard.

The Company recorded expense for two types of stock-based awards: restricted stock units and nonqualified stock options. Total compensation expense related to the stock-based awards recognized in selling, general and
administrative expense for the three months ended March 31, 2006 was $796, consisting of $408 and $388 for restricted stock units and nonqualified stock options, respectively. For the three months ended March 31, 2005, compensation expense
of $308 was recognized as a component of selling, general and administrative expense for restricted stock units. No expense related to nonqualified stock options was charged against income in the prior periods as the Company elected to apply the
provisions of APB No. 25 to those periods as permitted by SFAS No. 123.



11



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##### Table of Contents

Foundation Coal Corporation and Subsidiaries

(An Indirect Wholly Owned Subsidiary of Foundation Coal Holdings, Inc.)

Notes to Consolidated Financial Statements(Continued)



Pursuant to the adoption of this new accounting standard, the table below provides a summary of the
effect of applying the provisions of SFAS No. 123(R) on the Companys consolidated financial statements related to nonqualified stock options for the three months ended March 31, 2006.



|                               |  |   |      |  
|------------------------------ |  | - | ---- | -
|Net income (loss) before taxes |  | $ | (388 | )
|Income taxes                   |  | $ | 78   |  
|                               |  |   |      |  
|Net income(loss)               |  | $ | (310 | )
|                               |  |   |      |  

SFAS No. 123(R) also requires that the excess tax benefit from the exercise of options be
reflected in the consolidated statement of cash flows as a cash inflow from financing activities. Prior to the adoption of SFAS No. 123(R), this excess tax benefit would have been reflected as a cash inflow from operations. The excess tax
benefit from the exercise of options was $5,553 and $0 during the three months ended March 31, 2006 and March 31, 2005, respectively.

SFAS No. 123(R) also requires that forfeitures be estimated and included in the calculation of compensation cost. Upon adoption of SFAS No. 123(R), the Company quantified the effect related to the estimation of forfeitures for
stock-based awards that were not vested at December 31, 2005. The Companys estimate was based on previous forfeiture activity combined with the Companys reasonable expectations of forfeitures. The gross adjustment for forfeitures
was not material to the consolidated financial statements.

Below is a summary of the key terms and methods of valuation for the
Companys stock-based compensation awards granted by FCL to employees of the Company:

Restricted Stock Units

At December 31, 2005, 180,948 restricted stock performance units (performance units) were outstanding. The units are earned ratably each
December 31 over the vesting period upon achievement of certain annual performance targets. The earned units vest subject to continued employment with the Company through the vesting date, at which time shares of common stock of FCL are
distributed. Also, at December 31, 2005, 15,000 restricted stock time units (time units) were outstanding. These time units vest subject to continued employment with the Company through the vesting date at which time shares of
common stock of FCL will be distributed. The weighted-average grant-date fair value of restricted stock units granted in 2005 was $27.75 per unit.

During the three months ended March 31, 2006, employees of the Company were granted 95,088 performance units. These performance units are earned each December 31, beginning December 31, 2006 and ending December 31, 2008,
contingent upon the achievement of certain annual performance targets. The earned units vest subject to continued employment with the Company through February 28, 2009, at which time shares of common stock of FCL will be distributed. The
weighted-average grant-date fair value of restricted stock units granted in 2006 was $39.99 per unit.

Performance units for which the
annual performance targets have been set at the date of grant are valued at the market price on the date of grant. The measurement date for performance units for which annual performance targets have not been set at the date of grant is the date on
which the performance target is approved. At March 31, 2006, the measurement date had not occurred for 111,346 performance units. Compensation expense is recognized ratably from the measurement date of each tranche through the vesting date at
which time the number of shares of common stock of FCL which have been earned are distributed.



12



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##### Table of Contents

Foundation Coal Corporation and Subsidiaries

(An Indirect Wholly Owned Subsidiary of Foundation Coal Holdings, Inc.)

Notes to Consolidated Financial Statements(Continued)



The following is a summary of the restricted stock unit activity during the three months ended
March 31, 2006:



|                                                        |  |                 |   |  |                                      |      
|------------------------------------------------------- |  | --------------- | - |  | ------------------------------------ | -----
|                                                        |  | Numberof Shares |   |  | Weighted-AverageGrant-Date FairValue
|Restricted stock units outstanding at December 31, 2005 |  | 195,948         |   |  | $                                    | 27.75
|Granted                                                 |  | 95,088          |   |  |                                      | 39.99
|Vested                                                  |  |                |   |  |                                      | N/A  
|Forfeited                                               |  | (2,094          | ) |  |                                      | 24.66
|                                                        |  |                 |   |  |                                      |      
|Restricted stock units outstanding at March 31, 2006    |  | 288,942         |   |  | $                                    | 31.85
|                                                        |  |                 |   |  |                                      |      

As of March 31, 2006, there was approximately $3,672 of total unrecognized compensation
expense from restricted stock units, which is expected to be recognized over a weighted-average period of 2.0 years.

Nonqualified Stock Options

On August 10, 2004, options to acquire 3,536,432 shares of common stock of FCL were issued to eight members of senior management
of the Company. No options were granted during 2006 or 2005. Of the total options granted, there were 982,343 options granted at an exercise price of $4.87 per share, which are subject to continued employment, vest and become exercisable on each
December 31 beginning December 31, 2004 and ending on December 31, 2008. Additionally, there were 2,554,089 options granted at an exercise price of $8.53 per share, which are subject to continued employment, vest and become
exercisable on the eighth anniversary of the date of grant and provide for partial accelerated vesting each calendar year through December 31, 2008 upon achievement of certain annual performance targets. During 2005 and 2004, respectively,
766,230 and 255,409 of the options granted at the $8.53 per-share exercise price vested on an accelerated basis as a result of achieving certain performance targets.

The fair market value of option grants was estimated on the date of the grant using the Black-Scholes option-pricing model using the following assumptions:



|                        |  |       |  
|----------------------- |  | ----- | -
|Risk-free interest rate |  | 3.94  | %
|Dividend yield          |  | 0.70  | %
|Expected volatility     |  | 55.00 | %
|Expected life in years  |  | 8.00  |  

As FCL lacked a sufficient trading history at the date the fair value of options was estimated in
2004, FCLs volatility was based on the volatility of other companies in the mining industry. The weighted-average grant-date fair value of the options was $2.45.



13



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##### Table of Contents

Foundation Coal Corporation and Subsidiaries

(An Indirect Wholly Owned Subsidiary of Foundation Coal Holdings, Inc.)

Notes to Consolidated Financial Statements(Continued)



The following is a summary of all option activity during the three months ended March 31, 2006:



|                                              |  |                  |   |  |                               |      |                         |   |       
|--------------------------------------------- |  | ---------------- | - |  | ----------------------------- | ---- | ----------------------- | - | ------
|                                              |  | Number of Shares |   |  | Weighted-AverageExercisePrice |      | AggregateIntrinsicValue
|Outstanding at December 31, 2005              |  | 3,491,244        |   |  | $                             | 7.52 |                         |   |       
|Granted                                       |  |                 |   |  |                               | N/A  |                         |   |       
|Exercised                                     |  | (688,829         | ) |  |                               | 6.60 |                         |   |       
|Forfeited                                     |  | (144,587         | ) |  |                               | 7.60 |                         |   |       
|                                              |  |                  |   |  |                               |      |                         |   |       
|Outstanding at March 31, 2006                 |  | 2,657,828        |   |  |                               | 7.76 |                         | $ | 88,014
|                                              |  |                  |   |  |                               |      |                         |   |       
|Exercisable at March 31, 2006                 |  | 698,982          |   |  | $                             | 8.38 |                         | $ | 22,710
|                                              |  |                  |  
|Vested and expected to vest at March 31, 2006 |  | 2,548,312        |   |  | $                             | 7.75 |                         | $ | 84,395

The total intrinsic value, the difference between the exercise price and the market price on the
date of exercise, of all options exercised during the three months ended March 31, 2006 was $22,913. No options were exercised during the three months ended March 31, 2005.

A summary of the stock options outstanding at March 31, 2006 follows:



|               |  |                     |  |                                      |  |                                |      |        |         |                                |   |     
|-------------- |  | ------------------- |  | ------------------------------------ |  | ------------------------------ | ---- | ------ | ------- | ------------------------------ | - | ----
|               |  | Options Outstanding |  | Options Exercisable                 
|Exercise Price |  | Shares              |  | Weighted-averageremaining life (yrs) |  | Weighted-averageexercise price |      | Shares |         | Weighted-averageexercise price
|$4.87          |  | 562,735             |  | 8.4                                  |  | $                              | 4.87 |        | 28,589  |                                | $ | 4.87
|$8.53          |  | 2,095,093           |  | 8.4                                  |  | $                              | 8.53 |        | 670,393 |                                | $ | 8.53

Total unrecognized compensation expense from stock options was $4,089 which is expected to be
recognized over a weighted-average period of 2.85 years.

For the three months ended March 31, 2005, the Company applied the intrinsic
value based method of accounting for stock options prescribed by APB No. 25. Accordingly, no compensation expense was recognized for these stock options since all options granted have an exercise price equal to the market value of the
underlying stock on the grant date. If compensation expense had been recognized based on the estimate of the fair value of each option granted in accordance with the provisions of SFAS No. 123 as amended by SFAS No. 148, Accounting for
Stock-Based CompensationTransition and Disclosure, the Companys net income would have been reduced to the following pro forma amounts as follows:



|                                                                        |  |                                  |        |  
|----------------------------------------------------------------------- |  | -------------------------------- | ------ | -
|                                                                        |  | Three MonthsEnded March 31, 2005 |       
|                                                                        |  | (in thousands)                   |       
|Net income as reported                                                  |  | $                                | 19,042 |  
|Add: stock based employee compensation expense recorded, net of tax     |  |                                  | 188    |  
|Deduct: pro forma stock based employee compensation expense, net of tax |  |                                  | (376   | )
|                                                                        |  |                                  |        |  
|Pro forma net income                                                    |  | $                                | 18,854 |  
|                                                                        |  |                                  |        |  



14



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##### Table of Contents

Foundation Coal Corporation and Subsidiaries

(An Indirect Wholly Owned Subsidiary of Foundation Coal Holdings, Inc.)

Notes to Consolidated Financial Statements(Continued)



Pro forma compensation expense recognized under SFAS No. 123 does not consider potential
forfeitures. This computational difference creates incomparability between the pro forma stock compensation presented above and the stock compensation recognized in 2006. However, the impact of estimated forfeitures on such compensation expense is
immaterial.



|(13) | Derivative Instruments and Hedging Activities
|---- | ---------------------------------------------

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 is for three years. Under these swaps, the Company receives a variable rate of three
month US dollar LIBOR and pays a fixed rate of 3.26%. Settlement of interest payments occurs 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
Senior Credit Facility. These swap agreements essentially convert $85,000 of the Companys variable rate borrowings under the Senior Credit Facility to fixed rate borrowings for a three year period 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 date through September 2007 under SFAS No. 133, Accounting for Derivative Financial Instruments
and Hedging Activities. As of March 31, 2006, the fair value of this cash flow hedge was $2,355 which was recorded as a noncurrent asset and the offsetting unrealized gain of $1,093, net of tax expense was recorded in accumulated other
comprehensive income. At December 31, 2005, the fair value of these swaps was $2,143 which was recorded as a noncurrent asset and the offsetting unrealized gain of $964, net of tax expense, was recorded in accumulated other comprehensive
income.



|(14) | 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 so as to protect the public health and environment and believes its operations are in 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 (ARO) liability from December 31, 2005 through
March 31, 2006:



|                                                           |  |   |         |  
|---------------------------------------------------------- |  | - | ------- | -
|Asset retirement obligation, December 31, 2005             |  | $ | 116,154 |  
|Accretion expense                                          |  |   | 1,905   |  
|Revisions in estimated cash flows and liabilities incurred |  |   |        |  
|Payments                                                   |  |   | (438    | )
|                                                           |  |   |         |  
|Asset retirement obligation, March 31, 2006                |  | $ | 117,621 |  
|                                                           |  |   |         |  

The current portions of the asset retirement obligation liabilities of $3,846 and $4,376 at
March 31, 2006 and December 31, 2005, respectively, are included in accrued expenses and other current liabilities. See Note 7. The noncurrent portion of the Companys asset retirement obligation liabilities of $113,775 and $111,778
at March 31, 2006 and December 31, 2005, respectively, are included in noncurrent liabilities. See Note 8. There



15



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##### Table of Contents

Foundation Coal Corporation and Subsidiaries

(An Indirect Wholly Owned Subsidiary of Foundation Coal Holdings, Inc.)

Notes to Consolidated Financial Statements(Continued)



were no assets that were legally restricted for purposes of settling asset retirement obligations at March 31, 2006 or December 31, 2005. At
March 31, 2006, regulatory obligations for asset retirements are secured by surety bonds in the amount of $239,006. These surety bonds are partially collateralized by letters of credit issued by the Company.



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

The Company produces primarily
steam coal from surface and deep mines for sale to utility and industrial customers. The Company operates only in the United States with mines in all of the major coal basins. The Company has three reportable business segments: Northern Appalachia,
consisting of two underground mines in southwestern Pennsylvania, Central Appalachia, consisting of six underground mines and two surface mines in southern West Virginia and the Powder River Basin, consisting of two surface mines in Wyoming. Other
includes an underground mine in Illinois, centralized sales functions, corporate overhead, business development activities, expenses for closed mines and the elimination of intercompany transactions. The Company evaluates the performance of its
segments based on income from operations.

Operating segment results for the three months ended March 31, 2006 are as follows:



|                                         |  |                  |         |                    |   |         |                   |  |   |         |   |  |              |         |   |  |   |           |  
|---------------------------------------- |  | ---------------- | ------- | ------------------ | - | ------- | ----------------- |  | - | ------- | - |  | ------------ | ------- | - |  | - | --------- | -
|                                         |  | PowderRiverBasin |         | NorthernAppalachia |   |         | CentralAppalachia |  |   | Other   |   |  | Consolidated |        
|Revenues                                 |  | $                | 103,329 |                    | $ | 151,647 |                   |  | $ | 124,666 |   |  | $            | 15,683  |   |  | $ | 395,325   |  
|Income (loss) from operations            |  |                  | 8,530   |                    |   | 54,014  |                   |  |   | 10,453  |   |  |              | (19,541 | ) |  |   | 53,456    |  
|Depreciation, depletion and amortization |  |                  | 10,288  |                    |   | 18,026  |                   |  |   | 14,003  |   |  |              | 1,980   |   |  |   | 44,297    |  
|Amortization of coal supply agreements   |  |                  | 3,518   |                    |   | (2,583  | )                 |  |   | (7,136  | ) |  |              | 3       |   |  |   | (6,198    | )
|Capital expenditures                     |  |                  | 4,938   |                    |   | 8,222   |                   |  |   | 21,521  |   |  |              | 5,279   |   |  |   | 39,960    |  
|Total assets                             |  | $                | 510,388 |                    | $ | 879,076 |                   |  | $ | 462,009 |   |  | $            | 112,640 |   |  | $ | 1,964,113 |  

Operating segment results for the three months ended March 31, 2005 are as follows:



|                                         |  |                  |         |                    |   |         |                   |  |   |         |   |  |              |         |   |  |   |           |  
|---------------------------------------- |  | ---------------- | ------- | ------------------ | - | ------- | ----------------- |  | - | ------- | - |  | ------------ | ------- | - |  | - | --------- | -
|                                         |  | PowderRiverBasin |         | NorthernAppalachia |   |         | CentralAppalachia |  |   | Other   |   |  | Consolidated |        
|Revenues                                 |  | $                | 82,576  |                    | $ | 113,989 |                   |  | $ | 85,626  |   |  | $            | 23,315  |   |  | $ | 305,506   |  
|Income (loss) from operations            |  |                  | 5,558   |                    |   | 42,472  |                   |  |   | 12,970  |   |  |              | (15,616 | ) |  |   | 45,384    |  
|Depreciation, depletion and amortization |  |                  | 19,556  |                    |   | 19,585  |                   |  |   | 13,837  |   |  |              | 1,822   |   |  |   | 54,800    |  
|Amortization of coal supply agreements   |  |                  | 4,643   |                    |   | (16,501 | )                 |  |   | (12,115 | ) |  |              | 594     |   |  |   | (23,379   | )
|Capital expenditures                     |  |                  | 10,049  |                    |   | 13,263  |                   |  |   | 12,761  |   |  |              | 455     |   |  |   | 36,528    |  
|Total assets                             |  | $                | 591,194 |                    | $ | 943,985 |                   |  | $ | 486,740 |   |  | $            | 82,625  |   |  | $ | 2,104,544 |  



16



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##### Table of Contents

Foundation Coal Corporation and Subsidiaries

(An Indirect Wholly Owned Subsidiary of Foundation Coal Holdings, Inc.)

Notes to Consolidated Financial Statements(Continued)



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

Other revenue consisted of the
following:



|                                       |  |                                  |       |                                   |   |      
|-------------------------------------- |  | -------------------------------- | ----- | --------------------------------- | - | -----
|                                       |  | Three MonthsEnded March 31, 2006 |       | Three Months Ended March 31,
2005
|                                       |  | (Unaudited)                      |       | (Unaudited)                      
|Royalty income                         |  | $                                | 428   |                                   | $ | 177  
|Synfuel fees                           |  |                                  | 2,139 |                                   |   | 1,377
|Coalbed methane                        |  |                                  | 1,138 |                                   |   | 1,102
|Transloading and plant processing fees |  |                                  | 835   |                                   |   | 1,130
|Natural gas                            |  |                                  | 290   |                                   |   | 235  
|Gain on disposition of assets          |  |                                  | 332   |                                   |   |     
|Coal sales contract settlements        |  |                                  | 64    |                                   |   |     
|Other                                  |  |                                  | 2,497 |                                   |   | 1,464
|                                       |  |                                  |       |                                   |   |      
|Total other revenue                    |  | $                                | 7,723 |                                   | $ | 5,485
|                                       |  |                                  |       |                                   |   |      



17



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##### Table of Contents

Foundation Coal Corporation and Subsidiaries

(An Indirect Wholly Owned Subsidiary of Foundation Coal Holdings, Inc.)

Notes to Consolidated Financial Statements(Continued)



|(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% Senior Notes (the Notes) that mature on August 1, 2014. In accordance with the indenture governing the Notes, the Guarantor Subsidiaries (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.

Unaudited Supplemental Condensed Consolidating Balance Sheet

March 31, 2006



|                                                 |  |                            |          |   |                                 |   |          |                       |  |              |           |  |              |            |   |  |   |          
|------------------------------------------------ |  | -------------------------- | -------- | - | ------------------------------- | - | -------- | --------------------- |  | ------------ | --------- |  | ------------ | ---------- | - |  | - | ---------
|                                                 |  | Foundation CoalCorporation |          |   | Non-GuarantorSubsidiary(Issuer) |   |          | GuarantorSubsidiaries |  | Eliminations |           |  | Consolidated
|Assets                                           |  |                            |          |   |                                 |   |          |                       |  |              |           |  |              |            |   |  |   |          
|Current assets:                                  |  |                            |          |   |                                 |   |          |                       |  |              |           |  |              |            |   |  |   |          
|Cash and cash equivalents                        |  | $                          | 56,267   |   |                                 | $ |         |                       |  | $            | 67        |  | $            |           |   |  | $ | 56,334   
|Trade accounts receivable                        |  |                            |         |   |                                 |   |         |                       |  |              | 109,783   |  |              |           |   |  |   | 109,783  
|Inventories, net                                 |  |                            |         |   |                                 |   |         |                       |  |              | 34,962    |  |              |           |   |  |   | 34,962   
|Deferred income taxes                            |  |                            |         |   |                                 |   | 3,797    |                       |  |              | 1,136     |  |              |           |   |  |   | 4,933    
|Other current assets                             |  |                            | 1,174    |   |                                 |   | 756      |                       |  |              | 21,247    |  |              |           |   |  |   | 23,177   
|                                                 |  |                            |          |   |                                 |   |          |                       |  |              |           |  |              |            |   |  |   |          
|Total current assets                             |  |                            | 57,441   |   |                                 |   | 4,553    |                       |  |              | 167,195   |  |              |           |   |  |   | 229,189  
|Owned surface lands                              |  |                            |         |   |                                 |   |         |                       |  |              | 27,943    |  |              |           |   |  |   | 27,943   
|Plant, equipment and mine development costs, net |  |                            | 7,012    |   |                                 |   |         |                       |  |              | 570,908   |  |              |           |   |  |   | 577,920  
|Owned and leased mineral rights, net             |  |                            |         |   |                                 |   |         |                       |  |              | 1,052,919 |  |              |           |   |  |   | 1,052,919
|Coal supply agreements, net                      |  |                            |         |   |                                 |   |         |                       |  |              | 48,184    |  |              |           |   |  |   | 48,184   
|Other noncurrent assets                          |  |                            | 496,606  |   |                                 |   | 408,702  |                       |  |              | 780,515   |  |              | (1,657,865 | ) |  |   | 27,958   
|                                                 |  |                            |          |   |                                 |   |          |                       |  |              |           |  |              |            |   |  |   |          
|Total assets                                     |  | $                          | 561,059  |   |                                 | $ | 413,255  |                       |  | $            | 2,647,664 |  | $            | (1,657,865 | ) |  | $ | 1,964,113
|                                                 |  |                            |          |   |                                 |   |          |                       |  |              |           |  |              |            |   |  |   |          
|Liabilities and Stockholder Equity               |  |                            |          |   |                                 |   |          |                       |  |              |           |  |              |            |   |  |   |          
|Current liabilities:                             |  |                            |          |   |                                 |   |          |                       |  |              |           |  |              |            |   |  |   |          
|Trade accounts payable                           |  | $                          | 2,490    |   |                                 | $ |         |                       |  | $            | 33,523    |  | $            |           |   |  | $ | 36,013   
|Accrued expenses and other current liabilities   |  |                            | 24,883   |   |                                 |   | 5,755    |                       |  |              | 129,642   |  |              |           |   |  |   | 160,280  
|                                                 |  |                            |          |   |                                 |   |          |                       |  |              |           |  |              |            |   |  |   |          
|Total current liabilities                        |  |                            | 27,373   |   |                                 |   | 5,755    |                       |  |              | 163,165   |  |              |           |   |  |   | 196,293  
|Long-term debt                                   |  |                            |         |   |                                 |   | 635,000  |                       |  |              |           |  |              |           |   |  |   | 635,000  
|Deferred income taxes                            |  |                            | (140,208 | ) |                                 |   | 104,621  |                       |  |              | 78,736    |  |              |           |   |  |   | 43,149   
|Coal supply agreements, net                      |  |                            |         |   |                                 |   |         |                       |  |              | 47,949    |  |              |           |   |  |   | 47,949   
|Postretirement benefits                          |  |                            | 685      |   |                                 |   |         |                       |  |              | 469,462   |  |              |           |   |  |   | 470,147  
|Other noncurrent liabilities                     |  |                            | 334,239  |   |                                 |   | (433,846 | )                     |  |              | 1,104,073 |  |              | (771,861   | ) |  |   | 232,605  
|                                                 |  |                            |          |   |                                 |   |          |                       |  |              |           |  |              |            |   |  |   |          
|Total liabilities                                |  |                            | 222,089  |   |                                 |   | 311,530  |                       |  |              | 1,863,385 |  |              | (771,861   | ) |  |   | 1,625,143
|Stockholder equity                               |  |                            | 338,970  |   |                                 |   | 101,725  |                       |  |              | 784,279   |  |              | (886,004   | ) |  |   | 338,970  
|                                                 |  |                            |          |   |                                 |   |          |                       |  |              |           |  |              |            |   |  |   |          
|Total liabilities and stockholder equity         |  | $                          | 561,059  |   |                                 | $ | 413,255  |                       |  | $            | 2,647,664 |  | $            | (1,657,865 | ) |  | $ | 1,964,113
|                                                 |  |                            |          |   |                                 |   |          |                       |  |              |           |  |              |            |   |  |   |          



18



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##### Table of Contents

Foundation Coal Corporation and Subsidiaries

(An Indirect Wholly Owned Subsidiary of Foundation Coal Holdings, Inc.)

Notes to Consolidated Financial Statements(Continued)



Unaudited Supplemental Condensed Consolidating Statement of Operations

For the Three Months Ended March 31, 2006



|                                                                                                 |  |                            |         |   |                                  |   |         |                        |  |   |              |   |  |              |          |   |  |   |         |  
|------------------------------------------------------------------------------------------------ |  | -------------------------- | ------- | - | -------------------------------- | - | ------- | ---------------------- |  | - | ------------ | - |  | ------------ | -------- | - |  | - | ------- | -
|                                                                                                 |  | FoundationCoal Corporation |         |   | Non-Guarantor Subsidiary(Issuer) |   |         | Guarantor Subsidiaries |  |   | Eliminations |   |  | Consolidated |         
|Total revenues                                                                                   |  | $                          | 7       |   |                                  | $ |        |                        |  | $ | 395,318      |   |  | $            |         |   |  | $ | 395,325 |  
|Costs and expenses:                                                                              |  |                            |         |   |                                  |   |         |                        |  |   |              |   |  |              |          |   |  |   |         |  
|Cost of sales (excludes depreciation, depletion and amortization)                                |  |                            |        |   |                                  |   | 181     |                        |  |   | 290,061      |   |  |              |         |   |  |   | 290,242 |  
|Selling, general and administrative expenses (excludes depreciation, depletion and amortization) |  |                            | 6,873   |   |                                  |   |        |                        |  |   | 4,750        |   |  |              |         |   |  |   | 11,623  |  
|Accretion on asset retirement obligations                                                        |  |                            |        |   |                                  |   |        |                        |  |   | 1,905        |   |  |              |         |   |  |   | 1,905   |  
|Depreciation, depletion and amortization                                                         |  |                            | 324     |   |                                  |   |        |                        |  |   | 43,973       |   |  |              |         |   |  |   | 44,297  |  
|Amortization of coal supply agreements                                                           |  |                            |        |   |                                  |   |        |                        |  |   | (6,198       | ) |  |              |         |   |  |   | (6,198  | )
|                                                                                                 |  |                            |         |   |                                  |   |         |                        |  |   |              |   |  |              |          |   |  |   |         |  
|Income (loss) from operations                                                                    |  |                            | (7,190  | ) |                                  |   | (181    | )                      |  |   | 60,827       |   |  |              |         |   |  |   | 53,456  |  
|Other income (expense):                                                                          |  |                            |         |   |                                  |   |         |                        |  |   |              |   |  |              |          |   |  |   |         |  
|Interest expense:                                                                                |  |                            |         |   |                                  |   |         |                        |  |   |              |   |  |              |          |   |  |   |         |  
|Debt and other                                                                                   |  |                            | 34      |   |                                  |   | (11,489 | )                      |  |   | (2,219       | ) |  |              |         |   |  |   | (13,674 | )
|Intercompany                                                                                     |  |                            | (5,526  | ) |                                  |   | 7,899   |                        |  |   | (2,373       | ) |  |              |         |   |  |   |        |  
|Interest income                                                                                  |  |                            | 316     |   |                                  |   |        |                        |  |   | 52           |   |  |              |         |   |  |   | 368     |  
|                                                                                                 |  |                            |         |   |                                  |   |         |                        |  |   |              |   |  |              |          |   |  |   |         |  
|Income (loss) before income taxes                                                                |  |                            | (12,366 | ) |                                  |   | (3,771  | )                      |  |   | 56,287       |   |  |              |         |   |  |   | 40,150  |  
|Income tax expense                                                                               |  |                            | (6,823  | ) |                                  |   |        |                        |  |   | (1,058       | ) |  |              |         |   |  |   | (7,881  | )
|                                                                                                 |  |                            |         |   |                                  |   |         |                        |  |   |              |   |  |              |          |   |  |   |         |  
|Income (loss) from operations                                                                    |  |                            | (19,189 | ) |                                  |   | (3,771  | )                      |  |   | 55,229       |   |  |              |         |   |  |   | 32,269  |  
|Equity in earnings of investments in Issuer and Guarantor Subsidiaries                           |  |                            | 51,458  |   |                                  |   | 48,798  |                        |  |   |             |   |  |              | (100,256 | ) |  |   |        |  
|                                                                                                 |  |                            |         |   |                                  |   |         |                        |  |   |              |   |  |              |          |   |  |   |         |  
|Net income (loss)                                                                                |  | $                          | 32,269  |   |                                  | $ | 45,027  |                        |  | $ | 55,229       |   |  | $            | (100,256 | ) |  | $ | 32,269  |  
|                                                                                                 |  |                            |         |   |                                  |   |         |                        |  |   |              |   |  |              |          |   |  |   |         |  



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##### Table of Contents

Foundation Coal Corporation and Subsidiaries

(An Indirect Wholly Owned Subsidiary of Foundation Coal Holdings, Inc.)

Notes to Consolidated Financial Statements(Continued)



Unaudited Supplemental Condensed Consolidating Statement of Cash Flows

Three Months Ended March 31, 2006



|                                                           |  |                            |        |   |                                  |   |                        |  |   |              |   |  |   |         |  
|---------------------------------------------------------- |  | -------------------------- | ------ | - | -------------------------------- | - | ---------------------- |  | - | ------------ | - |  | - | ------- | -
|                                                           |  | Foundation CoalCorporation |        |   | Non-Guarantor Subsidiary(Issuer) |   | Guarantor Subsidiaries |  |   | Consolidated |  
|Net cash provided by operating activities                  |  | $                          | 19,839 |   |                                  | $ |                       |  | $ | 36,267       |   |  | $ | 56,106  |  
|                                                           |  |                            |        |   |                                  |   |                        |  |   |              |   |  |   |         |  
|                                                           |  |                            |        |   |                                  |   |                        |  |   |              |   |  |   |         |  
|Investing activities:                                      |  |                            |        |   |                                  |   |                        |  |   |              |   |  |   |         |  
|Purchases of property, plant and equipment                 |  |                            | (3,337 | ) |                                  |   |                       |  |   | (36,623      | ) |  |   | (39,960 | )
|Proceeds from disposition of property, plant and equipment |  |                            |       |   |                                  |   |                       |  |   | 406          |   |  |   | 406     |  
|                                                           |  |                            |        |   |                                  |   |                        |  |   |              |   |  |   |         |  
|Net cash used in investing activities                      |  |                            | (3,337 | ) |                                  |   |                       |  |   | (36,217      | ) |  |   | (39,554 | )
|                                                           |  |                            |        |   |                                  |   |                        |  |   |              |   |  |   |         |  
|Financing activities:                                      |  |                            |        |   |                                  |   |                        |  |   |              |   |  |   |         |  
|Payment of dividend to parent                              |  |                            | (2,262 | ) |                                  |   |                       |  |   |             |   |  |   | (2,262  | )
|Capital contribution from parent                           |  |                            | 14,067 |   |                                  |   |                       |  |   |             |   |  |   | 14,067  |  
|Excess tax benefit from stock-based awards                 |  |                            | 5,553  |   |                                  |   |                       |  |   |             |   |  |   | 5,553   |  
|                                                           |  |                            |        |   |                                  |   |                        |  |   |              |   |  |   |         |  
|Net cash provided by financing activities                  |  |                            | 17,358 |   |                                  |   |                       |  |   |             |   |  |   | 17,358  |  
|                                                           |  |                            |        |   |                                  |   |                        |  |   |              |   |  |   |         |  
|Net increase in cash and cash equivalents                  |  |                            | 33,860 |   |                                  |   |                       |  |   | 50           |   |  |   | 33,910  |  
|Cash and cash equivalents at beginning of period           |  |                            | 22,407 |   |                                  |   |                       |  |   | 17           |   |  |   | 22,424  |  
|                                                           |  |                            |        |   |                                  |   |                        |  |   |              |   |  |   |         |  
|Cash and cash equivalents at end of period                 |  | $                          | 56,267 |   |                                  | $ |                       |  | $ | 67           |   |  | $ | 56,334  |  
|                                                           |  |                            |        |   |                                  |   |                        |  |   |              |   |  |   |         |  



|(18) | Contingencies and Commitments
|---- | -----------------------------

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 prior to issuance of the consolidated financial statements 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 may be incurred.

Guarantees

Our former parent company, Cyprus Amax Minerals Company (Cyprus Amax), remains a guarantor with regard to the following obligation included in
the consolidated financial statements of the Company.

Future minimum royalties are payable under leases through the first quarter 2006 to
Blackhawk Coal Company, an affiliate of American Electric Power. Under the terms of the Stock Purchase Agreement, dated May 12, 1999 between RAG Coal International AG and Cyprus Amax, RAG American Coal Holding, Inc. guaranteed Cyprus Amax
performance under this obligation by issuing an irrevocable letter of credit to secure the minimum royalty payments still due. The Company assumed this guarantee on July 30, 2004 when the Company acquired the North American coal mining assets
of RAG American Coal Holding, Inc. The amount of



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##### Table of Contents

Foundation Coal Corporation and Subsidiaries

(An Indirect Wholly Owned Subsidiary of Foundation Coal Holdings, Inc.)

Notes to Consolidated Financial Statements(Continued)



this letter of credit is reduced as the Company makes the scheduled payments. As of December 31, 2005 the letter of credit amount was $3,000. The last
scheduled minimum royalty payment was made on March 1, 2006. The associated letter of credit terminated on March 20, 2006 and was not renewed.

Neweagle Industries, Inc. (Neweagle) is a wholly owned indirect subsidiary of the Company. Starting in early 2001, Neweagle supplied and sold coal to Arch Coal Sales Company, Inc. (Arch
Sales) pursuant to a Conditional Coal Supply Agreement dated October 1, 1996 (CCSA). This coal was in turn resold by Arch Sales under a separate and distinct Coal Sales Agreement dated October 1, 1989 (Rocky Mount
Contract) with Cogentrix of Rocky Mount, Inc. (Cogentrix) as the buyer. On March 23, 2003, Foundation American Coal Holding, LLC (FACH) conditionally issued to Arch Sales a Guaranty and Indemnity
(Guaranty) of Neweagles performance under the CCSA, and also agreed to indemnify Arch Sales and its affiliates and other parties for any liability related to the Rocky Mount Contract. As part of a global settlement of litigation
relating to numerous issues between affiliates of FACH and Arch Sales, a Mutual Release and Settlement Agreement (MRSA) was executed effective November 12, 2004. Pursuant to the MRSA, the CCSA and the Guaranty were terminated. Also
pursuant to the MRSA, Neweagle agreed to continue selling and supplying coal to Arch Sales in the quantities required under the Rocky Mount Contract for re-sale by Arch Sales to Cogentrix thereunder. The MRSA also was executed by FACH. As a
signatory to the MRSA, FACH and Neweagle agreed to indemnify, defend, and save harmless Arch Sales and its affiliates from any non-performance, default or breach of (i) Neweagles obligation to supply coal to Arch Sales under the MSRA and
(ii) for so long as the MRSA remains in force, any default, breach, or non-fulfillment of Arch Sales contract obligations under the Rocky Mount Contract as a result of acts or omissions (other than by Cogentrix) occurring on or after
November 12, 2004. Pursuant to certain agreements dated February 14, 2006, the Rocky Mount Contract was assigned from Arch Sales to Neweagle and from Cogentrix to its affiliate, Edgecombe Genco, LLC. As a result of these transactions, Arch
Sales is no longer obligated to sell and supply coal under the Rocky Mount Contract. As such, the aforesaid obligations of FACH and Neweagle under the MRSA to indemnify, defend, and save harmless Arch Sales and its affiliates effectively have been
canceled.

Neweagle Industries, Inc., Neweagle Coal Sales Corp., Laurel Creek Co., Inc. and Rockspring Development, Inc.
(Sellers) are wholly owned indirect 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, FACH 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, FACH 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, which are not reflected in the
accompanying consolidated balance sheets. Such financial instruments are valued based on the amount of exposure under the instrument and likelihood of performance being required. In the Companys past experience, no claims have been made
against these financial instruments. Management



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##### Table of Contents

Foundation Coal Corporation and Subsidiaries

(An Indirect Wholly Owned Subsidiary of Foundation Coal Holdings, Inc.)

Notes to Consolidated Financial Statements(Continued)



does not expect any material losses to result from these guarantees or off-balance-sheet instruments and, therefore, is of the opinion that their fair value
is zero.

Contingencies

Three of our
subsidiaries were named as defendants in six separate complaints filed in Raleigh and Wyoming Counties, West Virginia, in late 2001, alleging personal injury and property damage allegedly caused by flooding on or about July 8, 2001. Similar
suits may be filed in the future based on other weather events. The general alleged basis for the lawsuits is that coal mining, oil and gas drilling and timbering operations altered the topography in the area to such an extent that flooding
resulting from heavy rains caused more severe damage than would have otherwise resulted. Numerous similar complaints and amended complaints have been filed by more than 1,000 plaintiffs against over 100 defendants, in a total of at least seven
southern West Virginia counties. All such civil actions relating to the July 8, 2001 flood were referred by the West Virginia Supreme Court to a three-judge panel, sitting in Raleigh County, pursuant to the courts mass litigation rule.

On December 9, 2004, the West Virginia Supreme Court issued an opinion addressing certain questions of law certified to it by the
three-judge panel. Among other rulings, the Supreme Court decision held that plaintiffs may not proceed under a strict liability theory, as had been asserted in their complaints. The court also held that where damages can be shown to have been
caused by an unusual act of nature combined with the conduct of a defendant, the defendant should be given an opportunity to show by clear and convincing evidence that it caused only a portion of those damages, in order to avoid incurring liability
for all damages.

In March 2005 the three judge panel issued a scheduling order indicating that six different trials will be held, one
for each watershed impacted. Each trial will be held in two phases with the liability phase being held first, and then a damages phase. The first trial commenced in March 2006. This trial related to flooding in the Upper Guyandotte River
watershed in which our affiliates have operations. In April 2006, and prior to the matter being submitted to the jury, our affiliates named as defendants and the respective insurance carriers, settled the matter. The settlement covers all remaining
affiliated entities with operations in all of the affected watersheds and applies to claims arising out of flood events in 2001 and 2002. The settlement amount does not have a material adverse impact on our financial condition, results of operations
or cash flow.

Extensive regulation of the impacts of mining on the environment and related litigation has had and may have a significant
effect on our costs of production and competitive position. Further regulations, legislation or litigation may also cause our sales or profitability to decline by hindering our ability to continue our mining operations or by increasing our costs.

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 financial position,
results of operations or cash flows.



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##### Table of Contents

|ITEM 2. | MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RES
ULTS 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 factors, described below and elsewhere in this Form 10-Q, and in other documents we
file with the United States Securities and Exchange Commission from time to time, 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 production capabilities;
| | - |  | ----------------------------



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



23



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##### Table of Contents

| |  |  | 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; and
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | continuation of other revenues from fees received from synthetic fuel (synfuel) processors.
| | - |  | ---------------------------------------------------------------------------------------------

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.

Overview

We are the fifth largest coal company in
the United States operating nine mining complexes that consist of thirteen individual coal mines. Our mining operations are located in southwest Pennsylvania, southern West Virginia, southern Illinois and the southern Powder River Basin region of
Wyoming. Three of our mining complexes are surface mines, two of our complexes are underground mines using highly efficient longwall mining technology and the remaining four complexes 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.

Our primary product is steam coal, sold primarily to electric power generators located in the United States. Approximately 8% of our coal sales revenue for the three months ended March 31, 2006 and 10% of our sales revenue for the
three months ended March 31, 2005 was made from the sale of metallurgical coal to the domestic and export metallurgical coal markets where it is used to make coke for steel production.

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 from the processing of our production by a synfuel facility, fees to transload coal through our Rivereagle facility on the Big Sandy River and revenues from the sale of coalbed
methane.

Results of Operations

Three months ended March 31, 2006 compared to three months ended March 31, 2005

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 MonthsEnded March 31, 2006              |       | Three MonthsEnded March 31, 2005 |   |         |  |   |     
|                                    |  |                                               |       | Increase (Decrease)              |  
|                                    |  |                                               |       | Amount                           |   | Percent | 
|                                    |  | (Unaudited, in millions, except per ton data) |      
|Coal sales                          |  | $                                             | 387.6 |                                  | $ | 300.0   |  | $ | 87.6 |  | 29 | %
|Other revenue                       |  |                                               | 7.7   |                                  |   | 5.5     |  |   | 2.2  |  | 40 | %
|                                    |  |                                               |       |                                  |   |         |  |   |      |  |    |  
|Total revenues                      |  | $                                             | 395.3 |                                  | $ | 305.5   |  | $ | 89.8 |  | 29 | %
|                                    |  |                                               |       |                                  |   |         |  |   |      |  |    |  
|Tons sold                           |  |                                               | 18.5  |                                  |   | 17.3    |  |   | 1.2  |  | 7  | %
|Coal sales realization per ton sold |  | $                                             | 20.92 |                                  | $ | 17.38   |  | $ | 3.54 |  | 20 | %



24



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##### Table of Contents

Coal sales revenues for the three months ended March 31, 2006 increased by 29% compared to the coal
sales revenues for the three months ended March 31, 2005 as a result of a 7% increase in tons sold and a 20% increase in average coal sales realization per ton.

Coal sales volumes in Northern Appalachia increased by 0.3 million tons (9%) mainly as a result of increased shipments and production from the Cumberland mine, partly offset by reduced shipments from the
Emerald mine due to a scheduled longwall move in the first quarter of 2006. There were no longwall moves in the first quarter of 2005.

Coal sales volumes in Central Appalachia increased by 0.4 million tons (20%) primarily due to higher shipments of purchased coal utilized on selected steam coal contracts to increase the availability of our production for sale to
higher margin industrial markets plus additional volumes of coal purchased from an independent synfuel operation. Production in Central Appalachia was comparable between the two periods as slightly higher production at the Kingston and Pioneer/Pax
complexes offset slightly reduced production at the Laurel Creek complex and from the Rockspring mine. The Pax surface mine has been increasing its production as the mine becomes more fully developed. The Pax mine, which replaces the Simmons Fork
mine that depleted its reserves in 2004, produced at an annualized rate of 0.6 million tons during the first quarter of 2006. When fully developed later in 2006, it is expected to produce at an annual rate of approximately 1 million tons
per year.

Coal sales volumes in the Powder River Basin increased by 0.8 million tons (7%) to a record quarterly shipment level
of 12.0 million tons primarily due to higher production and shipments from the Belle Ayr mine where annual production capacity was increased by 5.0 million tons effective January 1, 2006.

Coal sales volumes from the Illinois Basin decreased by 0.1 million tons (19%) reflecting lower production from the Wabash mine due to
diversion of scheduled operating shifts to maintain the mines underground infrastructure and the mines compliance with federal and state regulations, coupled with a lower clean coal recovery percentage as compared to the first quarter of
2005. Purchased coal activities by our trading group decreased by approximately 0.2 million tons, compared to the first quarter of 2005, due to the timing of purchased coal transactions.

Coal sales realization per ton sold in Northern and Central Appalachia increased by 20% and 24%, respectively, in 2006 due to a combination of:
(a) substitution of higher priced contracts which took effect in late 2005 and early 2006 for lower priced contracts that expired; and (b) higher coal quality premiums reflecting both increased prices for sulfur dioxide emission allowances
and more favorable coal quality. In the Powder River Basin, coal sales realizations per ton increased by 17% due to the commencement of shipments under higher priced contracts and higher coal quality premiums reflecting both increased prices for
sulfur dioxide allowances and favorable coal quality. The weighted average sales realization per ton for the first quarter of 2006 reflected a higher proportion of high value Northern Appalachia shipments compared to lower value Powder River Basin
shipments than is expected for the full year 2006.

Other revenues for the three months ended March 31, 2006 increased by $2.2 million
compared to the three months ended March 31, 2005. The increase was due to the sum of: (a) increased synfuel fees ($0.8 million); (b) decreased transloading fees ($0.3 million); (c) gains on asset sales ($0.3 million);
(d) increased royalty and rental income ($0.3 million); (e) increased natural gas revenues ($0.1 million); and (f) increased miscellaneous revenues ($1.0 million).



25



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##### Table of Contents

Costs and Expenses



|                                                                                                |  |                                   |       |        |                                  |   |         |                     |  |   |       |   |  |     |   
|----------------------------------------------------------------------------------------------- |  | --------------------------------- | ----- | ------ | -------------------------------- | - | ------- | ------------------- |  | - | ----- | - |  | --- | --
|                                                                                                |  | Three Months Ended March 31,
2006 |       |        | Three MonthsEnded March 31, 2005 |   |         | Increase (Decrease) | 
|                                                                                                |  |                                   |       | Amount |                                  |   | Percent |                    
|                                                                                                |  | (Unaudited, in millions)          |      
|Cost of coal sales (excludes depreciation, depletion and amortization                           |  | $                                 | 290.2 |        |                                  | $ | 215.2   |                     |  | $ | 75.0  |   |  | 35  | % 
|Selling, general and administrative expense (excludes depreciation, depletion and amortization) |  |                                   | 11.6  |        |                                  |   | 11.4    |                     |  |   | 0.2   |   |  | 2   | % 
|Accretion on asset retirement obligations                                                       |  |                                   | 1.9   |        |                                  |   | 2.0     |                     |  |   | (0.1  | ) |  | (5  | )%
|Depreciation, depletion and amortization                                                        |  |                                   | 44.3  |        |                                  |   | 54.8    |                     |  |   | (10.5 | ) |  | (19 | )%
|Amortization of coal supply agreements                                                          |  |                                   | (6.2  | )      |                                  |   | (23.4   | )                   |  |   | 17.2  |   |  | 74  | % 
|                                                                                                |  |                                   |       |        |                                  |   |         |                     |  |   |       |   |  |     |   
|Total costs and expenses                                                                        |  | $                                 | 341.8 |        |                                  | $ | 260.0   |                     |  | $ | 81.8  |   |  | 31  | % 
|                                                                                                |  |                                   |       |        |                                  |   |         |                     |  |   |       |   |  |     |   

Cost of coal sales.The cost of coal sales increased $75.0
million for the three months ended March 31, 2006 compared to the three months ended March 31, 2005 primarily due to: (a) increases in labor costs as a result of both compensation increases and hiring of additional personnel ($8.5
million); (b) increases in many categories of materials and services, most notably diesel fuel, large equipment tires and explosives ($19.2 million); (c) increases in royalties and coal production taxes as a result of higher revenues ($8.0
million); (d) increases in purchased coal costs as a result of higher purchased coal volumes and increased purchase prices ($7.3 million); (e) an accounting change, effective January 1, 2006, requiring expensing of overburden
stripping costs ($11.2 million); and (f) an expense for reduction of coal inventories in the first quarter of 2006 compared to a credit to expense from increases in coal inventories during the first quarter of 2005 ($18.8 million). Cost of coal
sales per ton was $15.67 for the three months ended March 31, 2006 compared to a pro forma figure, after adjusting for the impact of the accounting change for overburden stripping costs, of $13.12 per ton for the three months ended
March 31, 2005, an increase of 19%.

Selling, general and administrative expense.Selling,
general and administrative expense for the three months ended March 31, 2006 were $11.6 million compared to $11.4 million for the three months ended March 31, 2005. Period-over-period increases were due to additional expenses incurred in
the areas of: (a) employee expenses ($0.2 million); (b) audit fees, including Sarbanes Oxley 404 compliance ($0.5 million); (c) information technology costs ($0.1 million); and (d) non-cash stock compensation expense ($0.3
million); partly offset by: (i) reduced expenses for outside services ($0.7 million); and (ii) lower insurance expenses and reduced sales commissions (combined $0.2 million).

Accretion on asset retirement obligations.Accretion on asset retirement obligations is a component of accounting
for asset retirement obligations under Statement of Financial Accounting Standards (SFAS) No. 143, Accounting for Asset Retirement Obligations. Accretion represents the increase in the asset retirement liability to reflect
the change in the liability for the passage of time. Slightly lower accretion expense in 2006 was due to reduced asset retirement obligations at closed mines.

Depreciation, depletion and amortization.Depreciation, depletion and amortization (DD&A) includes depreciation of plant and equipment, cost depletion of amounts
assigned to coal lands and mining rights and amortization of mine development costs and leasehold improvements. DD&A expense decreased $10.5 million for the three months ended March 31, 2006 compared to the three months ended March 31,
2005 primarily due to lower cost depletion partially offset by higher depreciation and amortization. Cost depletion declined by $14.9 million due to a combination of: (a) lack of depletion expense in the first quarter of 2006 pertaining to
purchase accounting values assigned to partially and fully uncovered coal at the Powder River Basin surface mines as these assets were fully depleted during 2005; and (b) final purchase accounting adjustments recorded in 2005 that reduced the
values assigned to coal lands and mining rights, partly offset by higher production in the Powder River Basin during 2006. Depreciation and amortization increased by $4.4 million in the first quarter of 2006 mainly due to capital additions to
plant & equipment during the twelve months ended March 31, 2006.



26



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##### Table of Contents

Coal supply agreement amortization.Application of purchase
accounting resulted in 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 Acquisition date.
Coal supply agreement amortization decreased $17.2 million for the three months ended March 31, 2006 compared to the three months ended March 31, 2005. Amortization of the liability for below market priced coal supply agreements during the
three months ended March 31, 2006 was $11.1 million of credit to expense compared to $30.9 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, 2006 was $4.9 million of expense compared to $7.5 million of expense in the comparable period of the prior year. During the twelve months ended March 31, 2006, a number of coal supply agreements
valued in purchase accounting have been completed.

Segment Analysis



|                                  |  |                                                          |       |                                  |   |                     |         |   |      |   |  |     |   
|--------------------------------- |  | -------------------------------------------------------- | ----- | -------------------------------- | - | ------------------- | ------- | - | ---- | - |  | --- | --
|                                  |  | Three MonthsEnded March 31, 2006                         |       | Three MonthsEnded March 31, 2005 |   | Increase (Decrease) |        
|                                  |  |                                                          |       | Tons/$                           |   |                     | Percent |  
|                                  |  | (Unaudited, in millions except sales realizationper ton) |      
|Powder River Basin                |  |                                                          |       |                                  |   |                     |         |   |      |   |  |     |   
|Tons sold                         |  |                                                          | 12.0  |                                  |   | 11.2                |         |   | 0.8  |   |  | 7   | % 
|Average sales realization per ton |  | $                                                        | 8.55  |                                  | $ | 7.31                |         | $ | 1.24 |   |  | 17  | % 
|Revenues                          |  | $                                                        | 103.3 |                                  | $ | 82.6                |         | $ | 20.7 |   |  | 25  | % 
|Income from operations            |  | $                                                        | 8.5   |                                  | $ | 5.6                 |         | $ | 2.9  |   |  | 52  | % 
|                                  |  |                                                          |       |                                 
|Northern Appalachia               |  |                                                          |       |                                  |   |                     |         |   |      |   |  |     |   
|Tons sold                         |  |                                                          | 3.7   |                                  |   | 3.4                 |         |   | 0.3  |   |  | 9   | % 
|Average sales realization per ton |  | $                                                        | 40.16 |                                  | $ | 33.48               |         | $ | 6.68 |   |  | 20  | % 
|Revenues                          |  | $                                                        | 151.6 |                                  | $ | 114.0               |         | $ | 37.6 |   |  | 33  | % 
|Income from operations            |  | $                                                        | 54.0  |                                  | $ | 42.5                |         | $ | 11.5 |   |  | 27  | % 
|                                  |  |                                                          |       |                                 
|Central Appalachia                |  |                                                          |       |                                  |   |                     |         |   |      |   |  |     |   
|Tons sold                         |  |                                                          | 2.4   |                                  |   | 2.0                 |         |   | 0.4  |   |  | 20  | % 
|Average sales realization per ton |  | $                                                        | 51.23 |                                  | $ | 41.31               |         | $ | 9.92 |   |  | 24  | % 
|Revenues                          |  | $                                                        | 124.7 |                                  | $ | 85.6                |         | $ | 39.1 |   |  | 46  | % 
|Income from operations            |  | $                                                        | 10.5  |                                  | $ | 13.0                |         | $ | (2.5 | ) |  | (19 | )%

Powder River BasinIncome from operations increased $2.9 million
period-over-period due to increased revenues of $20.7 million, partly offset by increased production costs of $17.8 million. As explained in the revenue section above, the increased revenues resulted from a 7% increase in tons sold and a 17%
increase in average sales realization per ton. The increase in tons sold is primarily due to the 5 million ton expansion of annual capacity at the Belle Ayr mine. Increased production costs were primarily in the following areas:
(a) royalties, excise taxes and coal production taxes, which respond to changes in coal sales revenues ($5.3 million); (b) diesel fuel ($3.4 million); (c) repairs and maintenance ($2.2 million); (d) large equipment tires ($2.1
million); (e) explosives ($0.7 million); (f) labor and employee benefits ($2.0 million); (g) other operating supplies ($0.4 million); and (h) depreciation and amortization ($1.9 million). A period-over-period $1.1 million
reduction in amortization of coal supply agreements was largely offset by small increases in several production expense categories other than those listed above. Production costs in the three months ended March 31, 2005 included an $11.2
million credit for overburden stripping costs added to work-in-process inventory offset by an $11.1 million in higher cost depletion expense in the prior year mainly relating to depletion of partially and fully uncovered coal established in purchase
accounting. With the implementation of Emerging Issues Task Force (EITF) Issue No. 04-6, Accounting for Stripping Costs Incurred during Production in the Mining Industry (EITF Issue 04-6) effective January 1,
2006, the Powder River Basin mines are no longer recognizing



27



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##### Table of Contents

work-in-process inventory for uncovered coal. Cost of coal sales per ton, after adjusting for the impact of the accounting change for overburden stripping
costs, increased approximately 18% period-over-period.

Northern AppalachiaIncome from operations increased by $11.5
million period-over-period due to increased revenues of $37.6 million, partly offset by increased production costs of $26.1 million. As explained in the revenue section above, the increased revenues resulted from a 9% increase in tons sold and a 20%
increase in average sales realization per ton. The increase in shipments was primarily due to increased production at the Cumberland mine as a result of good mining conditions and strong longwall productivity. Period-over-period production from the
Emerald mine decreased due to a scheduled longwall move in the first three months of 2006; there was no longwall move in the first three months of 2005. Higher production costs were primarily due to increases in the following areas: (a) labor
and employee benefit costs ($2.9 million); (b) change in coal inventories ($9.7 million); (c) materials, supplies and services ($0.4 million); (d) insurance premiums ($0.3 million); (e) charged in selling, general
and administrative expenses ($0.2 million); (f) depreciation and amortization ($0.9 million); and (g) reduced credit for amortization of coal supply agreements ($13.9 million). These increases were partially offset by reduced cost
depletion of $2.5 million. Cost of coal sales per ton increased approximately 8% period-over-period.

Central
AppalachiaIncome from operations decreased by $2.5 million period-over-period due to increased cost of coal sales of $36.4 million, increased depreciation and amortization expense of $1.4 million and a reduced credit to expense for
amortization of coal supply agreements of $5.0 million, partly offset by increased revenues of $39.1 million and reduced cost depletion expense of $1.2 million. As explained in the revenue section above, the increase in revenues resulted from a 20%
increase in tons sold and a 24% increase in average sales realizations per ton. Tons sold increased primarily due to increased tons that were purchased and resold. Higher cost of coal sales were primarily due to increases in the following areas:
(a) labor and fringe benefits ($2.0 million); (b) materials, supplies and services, led by increases for maintenance and repairs, diesel fuel, explosives, contract trucking, contract mining ($8.6 million); (c) purchased coal ($23.4
million); and (d) royalties and severance taxes driven by higher sales revenues ($2.5 million). Cost of coal sales per ton increased approximately 23% period-over-period.

OtherIncludes the Companys Illinois Basin operation, the Wabash mine, expenses associated with closed mines, its coal trading
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, 2006, the Other segment reported a loss from
operations of $19.5 million compared to a loss from operations of $15.6 million in the three months ended March 31, 2005. The increased period-over-period loss from operations of $3.9 million was primarily a result of an increased operating
loss at the Wabash mine ($6.5 million) due to: (a) lower production and shipments as described in the revenue section above; (b) higher cost of coal sales; and (c) a reduced credit to expense from amortization of coal supply
agreements. The operating losses attributable to closed mines and selling, general and administrative expenses not charged out were less by $0.6 million and $2.0 million, respectively, in the first three months of 2006 compared to the first three
months of 2005.

Interest Expense, Net



|                                                         |  |                                   |       |        |                                  |   |         |                     |  |   |      |   |  |      |   
|-------------------------------------------------------- |  | --------------------------------- | ----- | ------ | -------------------------------- | - | ------- | ------------------- |  | - | ---- | - |  | ---- | --
|                                                         |  | Three Months Ended March 31,
2006 |       |        | Three MonthsEnded March 31, 2005 |   |         | Increase (Decrease) | 
|                                                         |  |                                   |       | Amount |                                  |   | Percent |                    
|                                                         |  | (Unaudited, in millions)          |      
|Interest expensedebt related                            |  | $                                 | (10.9 | )      |                                  | $ | (10.6   | )                   |  | $ | 0.3  |   |  | 3    | % 
|Interest expenseamortization of deferred financing fees |  |                                   | (0.7  | )      |                                  |   | (0.8    | )                   |  |   | (0.1 | ) |  | (13  | )%
|Interest expensesurety bond and letter of credit fees   |  |                                   | (1.5  | )      |                                  |   | (2.4    | )                   |  |   | (0.9 | ) |  | (38  | )%
|Interest expenseother                                   |  |                                   | (0.6  | )      |                                  |   | (0.5    | )                   |  |   | 0.1  |   |  | 20   | % 
|Interest income                                          |  |                                   | 0.4   |        |                                  |   | 0.2     |                     |  |   | (0.2 | ) |  | (100 | )%
|                                                         |  |                                   |       |        |                                  |   |         |                     |  |   |      |   |  |      |   
|Interest expense, net                                    |  | $                                 | (13.3 | )      |                                  | $ | (14.1   | )                   |  | $ | (0.8 | ) |  | (6   | )%
|                                                         |  |                                   |       |        |                                  |   |         |                     |  |   |      |   |  |      |   



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##### Table of Contents

Debt related interest expense for the three months ended March 31, 2006 was slightly higher than the
debt related interest expense for three months ended March 31, 2005 due to: (a) an approximate 166 basis point increase in the interest rate on variable rate debt, partly offset by the impact of repaying $50 million of variable rate debt
in the second half of 2005. Amortization of deferred financing fees and other interest were comparable between the two periods. The reduction in surety bond and letter of credit fees was primarily attributable to fewer letters of credit outstanding.

Income Tax Expense



|                   |  |                                  |      |        |                                  |   |         |                     |  |   |      |   |  |     |   
|------------------ |  | -------------------------------- | ---- | ------ | -------------------------------- | - | ------- | ------------------- |  | - | ---- | - |  | --- | --
|                   |  | Three MonthsEnded March 31, 2006 |      |        | Three MonthsEnded March 31, 2005 |   |         | Increase (Decrease) | 
|                   |  |                                  |      | Amount |                                  |   | Percent |                    
|                   |  | (Unaudited, in millions)         |     
|Income tax expense |  | $                                | (7.9 | )      |                                  | $ | (12.2   | )                   |  | $ | (4.3 | ) |  | (35 | )%

For the three months ended March 31, 2006, income taxes were provided at an effective rate of
approximately 20% based on projected full year taxable income and projected full year temporary differences. For the three months ended March 31, 2005 income taxes were provided at an effective rate of approximately 39%. The reduction in
effective income tax rate period-over-period is primarily due to an increase in the percentage depletion projected at the Cumberland mine due to fully depleting its tax basis in coal reserves late in 2005. Percentage depletion from Cumberland was
treated as a temporary difference in the effective income tax rate used during 2005 and is now treated as a permanent difference in estimating the effective income tax rate for 2006. In addition, the Emerald mine and the Central Appalachia mines are
expected to generate increased percentage depletion, which is treated as a permanent difference, during 2006.

Expected Coal
Production

96% of our 2006 projected production is committed and priced. As of April 10, 2006, uncommitted and unpriced
tonnage was 17%, 39% and 59% of planned production in 2007, 2008 and 2009, respectively. Eastern coals account for the majority of uncommitted tonnage as 11%, 35%, 57% and 86% of the Companys planned eastern production remains uncommitted and
unpriced in 2006, 2007, 2008 and 2009, respectively.

In 2006 through 2009, the Company expects coal production within the following
ranges:



|                                            |  |           |  |           |  |           |  |          
|------------------------------------------- |  | --------- |  | --------- |  | --------- |  | ---------
|Expected Coal Production (Millions
of Tons)
|                                            |  | 2006      |  | 2007      |  | 2008      |  | 2009     
|East                                        |  | 21.523.5 |  | 21.523.5 |  | 21.523.5 |  | 21.523.5
|West                                        |  | 49.051.0 |  | 49.051.0 |  | 54.056.0 |  | 54.056.0
|Total Consolidated                          |  | 70.574.5 |  | 70.574.5 |  | 75.579.5 |  | 75.579.5

Based on its committed and priced planned production as of April 10, 2006, the Company
expects its committed and priced production from its Eastern mines, encompassing Northern Appalachia, Central Appalachia and the Illinois Basin, to realize in the range of $41.50 to $42.50 per ton in 2006. The Company also expects its committed and
priced production from the Powder River Basin to realize in the range of $8.25 to $8.60 per ton in 2006. These ranges of expected per ton average realizations include forecast sulfur dioxide and btu premiums based on contract terms, projected coal
qualities and sulfur dioxide emissions prices in the range of $850 to $1,200 per ton. The above tonnages and expected per ton average realizations exclude coal that may be purchased and resold during 2006.

Liquidity and Capital Resources

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



29



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Our primary uses of cash have been our cash costs of coal production, the cash cost of purchased coal,
capital expenditures, interest costs, 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 such as coal inventories and trade accounts receivable. 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 engaged in minimal financing of 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,
2006 and 2005, respectively.



|                                                                |  |                                  |       |   |                                  |   |       |  
|--------------------------------------------------------------- |  | -------------------------------- | ----- | - | -------------------------------- | - | ----- | -
|                                                                |  | Three Months EndedMarch 31, 2006 |       |   | Three Months EndedMarch 31, 2005 |  
|                                                                |  | (Unaudited, in millions)         |      
|Cash provided by (used in):                                     |  |                                  |       |   |                                  |   |       |  
|Operating activities                                            |  | $                                | 56.1  |   |                                  | $ | 11.3  |  
|Investing activities (primarily capital expenditures)           |  |                                  | (39.5 | ) |                                  |   | (32.2 | )
|Financing activitiesborrowings (1)                             |  |                                  |      |   |                                  |   | 39.0  |  
|Financing activitiesrepayments (1)                             |  |                                  |      |   |                                  |   | (39.0 | )
|Financing activitiescapital contribution from parent           |  |                                  | 14.1  |   |                                  |   |      |  
|Financing activitiesexcess tax benefit from stock-based awards |  |                                  | 5.5   |   |                                  |   |      |  
|Financing activitiespayment of dividend to parent              |  |                                  | (2.3  | ) |                                  |   |      |  
|                                                                |  |                                  |       |   |                                  |   |       |  
|Change in cash and cash equivalents                             |  | $                                | 33.9  |   |                                  | $ | (20.9 | )
|                                                                |  |                                  |       |   |                                  |   |       |  

---

|(1) | The borrowings and repayments during the three months ended March 31, 2005 in the amount of $39.0 million represent use of the Revolving Credit facility to maintain
day-to-day liquidity.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Cash provided by operating activities increased in the three months ended March 31, 2006 compared
to the three months ended March 31, 2005 due to higher net income and smaller changes in operating working capital, principally trade accounts receivable and inventories.

Cash used in investing activities increased in the three months ended March 31, 2006 as compared to the three months ended March 31, 2005
primarily from an increase in capital expenditures. Capital expenditures in the three months ended March 31, 2006 totaled $40.0 million, including a total of $15.0 million of expenditures related to the following projects: (a) an overland
coal conveyor at the Belle Ayr Mine in the Powder River Basin, (b) equipment for and development of the Pax surface mine and related rail loading facility in Central Appalachia, (c) upgrades to the rail loading facility at Emerald, and
(d) construction of a new slope, overland coal conveyor and related coal handling facilities at the Wabash mine in Illinois. Capital expenditures for the three months ended March 31, 2005 totaled $36.5 million, including a total of $17.7
million of expenditures related to the following projects: (a) expansion of the Belle Ayr Mine in the Powder River Basin, (b) development of the Pax surface mine in Central Appalachia, (c) addition of a continuous mining unit to the
Kingston Mine in Central Appalachia, (d) the widening of the Emerald Mine longwall face to 1,450 feet from 1,250 feet and (e) upgrades to the rail loading facility at Emerald.

Cash provided by financing activities during the three months ended March 31, 2006 consisted of a $14.1 million capital contribution from the
parent and $5.5 million in excess income tax benefits from issuance of stock-based awards, partly offset by a $2.3 million dividend to the parent in March 2006.



30



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##### Table of Contents

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

As of March 31,
2006, we have outstanding $635.0 million in aggregate indebtedness, with an additional $167.2 million of available borrowings under our revolving credit facility (after giving effect to $182.8 million of letters of credit outstanding
as of March 31, 2005). Our liquidity requirements will be significant due to debt service requirements and projected capital expenditures. Of the $13.3 million of interest expense, net of interest income, for the three months ended
March 31, 2006, approximately $12.0 million has or will be paid in cash.

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 Credit Facilities will enable us to meet our working capital, capital expenditure, debt service and other funding
requirements for at least the next twelve months.

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, 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 to us on terms acceptable to us, if
at all.

Covenant Compliance

We
believe that our Senior Credit Facilities and the indenture governing our outstanding 7.25% Senior Notes are material agreements, that the covenants are material terms of these agreements and that information about the covenants is material to an
investors understanding of our financial condition and liquidity. The breach of covenants in the Senior Credit Facilities that are tied to ratios based on Adjusted EBITDA, as defined below, could result in a default under the Senior Credit
Facilities 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 Credit Facilities and indenture, our ability to engage
in activities such as incurring additional indebtedness, making investments and paying dividends is also tied to ratios based on Adjusted EBITDA.

Covenant levels and Adjusted EBITDA ratios for the twelve months ended March 31, 2006 are as follows:



|                                                                                                             |  |               |  |                                    
|------------------------------------------------------------------------------------------------------------ |  | ------------- |  | -----------------------------------
|                                                                                                             |  | CovenantLevel |  | Adjusted EBITDAMarch 31,2006 Ratios
|Senior Credit Facilities(1)                                                                                  |  |               |  |                                    
|Minimum Adjusted EBITDA to cash interest ratio                                                               |  | 2.0x          |  | 6.8x                               
|Maximum total debt to Adjusted EBITDA ratio                                                                  |  | 5.5x          |  | 1.9x                               
|Indenture(2)                                                                                                 |  |               |  |                                    
|Minimum Adjusted EBITDA to fixed charge ratio required to incur additional debt pursuant to ratio provisions |  | 2.0x          |  | 6.8x                               

---

|(1) | The Senior Credit Facilities require us to maintain an Adjusted EBITDA to cash interest ratio starting at a minimum of 1.75x and a total debt to Adjusted EBITDA
ratio starting at a maximum of 6.0x in each case for the most recent twelve month period. Failure to satisfy these ratio requirements would constitute a
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



31



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##### Table of Contents

| | default under the Senior Credit Facilities. If lenders under the Senior Credit Facilities failed to waive any such default, repayment obligations under the
Senior Credit Facilities could be accelerated, which would also constitute a default under the indenture.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(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 Credit Facilities, as shown in the table below. We believe that the inclusion of supplementary adjustments to EBITDA applied in
presenting Adjusted EBITDA is appropriate to provide additional information to investors to demonstrate compliance with financing covenants.



|                                  |  |                                       |       |   |                                   |   |      |                                   |  |                                  |      |  |   |       |  
|--------------------------------- |  | ------------------------------------- | ----- | - | --------------------------------- | - | ---- | --------------------------------- |  | -------------------------------- | ---- |  | - | ----- | -
|                                  |  |                                       |       |   | Deduct:                           |   |      | Add:                              |  |                                  |     
|                                  |  | Twelve Months Ended December 31, 2005 |       |   | Three Months Ended March 31,
2005 |   |      | Three Months Ended March 31,
2006 |  | Twelve MonthsEndedMarch 31,
2006 |     
|                                  |  | (Unaudited, in millions)              |      
|EBITDA(1)                         |  | $                                     | 322.2 |   |                                   | $ | 76.8 |                                   |  | $                                | 91.6 |  | $ | 337.0 |  
|Non-cash charges (income)(2)      |  |                                       | (10.9 | ) |                                   |   | (5.3 | )                                 |  |                                  | 2.7  |  |   | (2.9  | )
|Unusual or non-recurring items(3) |  |                                       |      |   |                                   |   |     |                                   |  |                                  |     |  |   |      |  
|Other adjustments(4)              |  |                                       | 0.7   |   |                                   |   | 0.2  |                                   |  |                                  | 0.3  |  |   | 0.8   |  
|                                  |  |                                       |       |   |                                   |   |      |                                   |  |                                  |      |  |   |       |  
|Adjusted EBITDA                   |  | $                                     | 312.0 |   |                                   | $ | 71.7 |                                   |  | $                                | 94.6 |  | $ | 334.9 |  
|                                  |  |                                       |       |   |                                   |   |      |                                   |  |                                  |      |  |   |       |  

---

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



|                                         |  |                                       |       |   |                                   |   |       |                                   |  |   |                                  |   |  |   |       |  
|---------------------------------------- |  | ------------------------------------- | ----- | - | --------------------------------- | - | ----- | --------------------------------- |  | - | -------------------------------- | - |  | - | ----- | -
|                                         |  |                                       |       |   | Deduct:                           |   |       | Add:                              |  |   |                                  |  
|                                         |  | Twelve Months Ended December 31, 2005 |       |   | Three Months Ended March 31,
2005 |   |       | Three Months Ended March 31,
2006 |  |   | Twelve MonthsEndedMarch 31,
2006 |  
|                                         |  | (Unaudited, in millions)              |      
|Net income                               |  | $                                     | 91.1  |   |                                   | $ | 19.0  |                                   |  | $ | 32.3                             |   |  | $ | 104.4 |  
|Interest expense                         |  |                                       | 59.5  |   |                                   |   | 14.3  |                                   |  |   | 13.7                             |   |  |   | 58.9  |  
|Interest income                          |  |                                       | (1.1  | ) |                                   |   | (0.1  | )                                 |  |   | (0.4                             | ) |  |   | (1.4  | )
|Income tax expense                       |  |                                       | 46.4  |   |                                   |   | 12.2  |                                   |  |   | 7.9                              |   |  |   | 42.1  |  
|Depreciation, depletion and amortization |  |                                       | 211.2 |   |                                   |   | 54.8  |                                   |  |   | 44.3                             |   |  |   | 200.7 |  
|Amortization of coal supply agreements   |  |                                       | (84.9 | ) |                                   |   | (23.4 | )                                 |  |   | (6.2                             | ) |  |   | (67.7 | )
|                                         |  |                                       |       |   |                                   |   |       |                                   |  |   |                                  |   |  |   |       |  
|EBITDA                                   |  | $                                     | 322.2 |   |                                   | $ | 76.8  |                                   |  | $ | 91.6                             |   |  | $ | 337.0 |  
|                                         |  |                                       |       |   |                                   |   |       |                                   |  |   |                                  |   |  |   |       |  



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



|                                                                           |  |                                       |       |   |                                   |   |      |                                   |  |                                  |     |  |   |       |  
|-------------------------------------------------------------------------- |  | ------------------------------------- | ----- | - | --------------------------------- | - | ---- | --------------------------------- |  | -------------------------------- | --- |  | - | ----- | -
|                                                                           |  |                                       |       |   | Deduct:                           |   |      | Add:                              |  |                                  |    
|                                                                           |  | Twelve Months Ended December 31, 2005 |       |   | Three Months Ended March 31,
2005 |   |      | Three Months Ended March 31,
2006 |  | Twelve MonthsEndedMarch 31,
2006 |    
|                                                                           |  | (Unaudited, in millions)              |      
|Interest rate swaps                                                        |  | $                                     |      |   |                                   | $ |     |                                   |  | $                                |    |  | $ |      |  
|Overburden removal included in depreciation, depletion and amortization(a) |  |                                       | (22.6 | ) |                                   |   | (7.6 | )                                 |  |                                  |    |  |   | (15.0 | )
|Accretion on asset retirement obligations/reclamation expense              |  |                                       | 8.5   |   |                                   |   | 2.0  |                                   |  |                                  | 1.9 |  |   | 8.4   |  
|Stock-based compensation expense(b)                                        |  |                                       | 1.6   |   |                                   |   | 0.3  |                                   |  |                                  | 0.8 |  |   | 2.1   |  
|Write-down of long-lived asset                                             |  |                                       | 1.6   |   |                                   |   |     |                                   |  |                                  |    |  |   | 1.6   |  
|                                                                           |  |                                       |       |   |                                   |   |      |                                   |  |                                  |     |  |   |       |  
|Total                                                                      |  | $                                     | (10.9 | ) |                                   | $ | (5.3 | )                                 |  | $                                | 2.7 |  | $ | (2.9  | )
|                                                                           |  |                                       |       |   |                                   |   |      |                                   |  |                                  |     |  |   |       |  



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---

|(a) | In purchase accounting, the fair value of partially and fully uncovered coal included consideration of the effort spent prior to the purchase date to remove overburden and get the
coal to its partially or fully uncovered state. Therefore, the fair value assigned to partially or fully uncovered coal reserves was higher than that assigned to other coal reserves. Depletion of coal reserves, including the incremental fair value
related to pre-Acquisition overburden removal efforts, is included in depreciation, depletion and amortization. Subsequent to the Acquisition date, but prior to the adoption of EITF Issue 04-6, effective January 1, 2006, the costs associated
with removal of overburden to uncover coal reserves was inventoried as work-in-process until the related coal was mined and the inventoried cost charged to cost of coal sales when the coal was sold. Until coal valued as partially or fully uncovered
at the Acquisition date is fully depleted, depreciation, depletion and amortization will include the value of overburden removal performed prior to the Acquisition date which if incurred subsequent to the Acquisition date would have been included in
cost of coal sales.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(b) | The amount of the three months ended March 31, 2005 represents an accrual for compensation expense attributable to restricted stock performance units and restricted stock
awarded to certain directors. The amount for the three months ended March 31, 2006 represents an accrual for the fair value of nonqualified stock options and for compensation expense attributable to restricted stock performance units and
restricted stock awarded to certain directors. The amounts for the three months ended March 31, 2006 are calculated in accordance with SFAS No. 123 (revised 2004), Share-Based Payment (SFAS No. 123(R)).
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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



|                                                    |  |                                       |   |                                   |   |                                   |  |                                  |   |  |   |  
|--------------------------------------------------- |  | ------------------------------------- | - | --------------------------------- | - | --------------------------------- |  | -------------------------------- | - |  | - | -
|                                                    |  |                                       |   | Deduct:                           |   | Add:                              |  |                                 
|                                                    |  | Twelve Months Ended December 31, 2005 |   | Three Months Ended March 31,
2005 |   | Three Months Ended March 31,
2006 |  | Twelve MonthsEndedMarch 31,
2006
|                                                    |  | (Unaudited, in millions)             
|Litigation/arbitration/contract settlements, net(a) |  | $                                     |  |                                   | $ |                                  |  | $                                |  |  | $ | 
|Gain on asset sales (b)                             |  |                                       |  |                                   |   |                                  |  |                                  |  |  |   | 
|Other                                               |  |                                       |  |                                   |   |                                  |  |                                  |  |  |   | 
|                                                    |  |                                       |   |                                   |   |                                   |  |                                  |   |  |   |  
|Total                                               |  | $                                     |  |                                   | $ |                                  |  | $                                |  |  | $ | 
|                                                    |  |                                       |   |                                   |   |                                   |  |                                  |   |  |   |  

| | 
| | 

| | (a) | Represents arbitration awards, litigation and contract settlements, net of related legal and tax fees.
| | --- | ------------------------------------------------------------------------------------------------------

| | (b) | Represents gains on asset sales other than in the ordinary course of business.
| | --- | ------------------------------------------------------------------------------



|(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, 2006 is calculated as follows (unaudited, in millions):



|                                                                                   |  |   |       |  
|---------------------------------------------------------------------------------- |  | - | ----- | -
|Pro forma cash interest expense for the twelve months ended December 31, 2005(1)   |  | $ | 49.4  |  
|Interest expense for three months ended March 31, 2006                             |  |   | 13.7  |  
|Amortization of deferred debt issuance costs for three months ended March 31, 2006 |  |   | (0.7  | )
|Cash interest income for the three months ended March 31, 2006                     |  |   | (0.4  | )
|Other non cash interest expense for three months ended March 31, 2006              |  |   | (0.6  | )
|Pro forma cash interest expense for three months ended March 31, 2005(1)           |  |   | (12.4 | )
|                                                                                   |  |   |       |  
|                                                                                   |  | $ | 49.0  |  
|                                                                                   |  |   |       |  

| | 
| | 

| | (1) | As defined by the bank credit agreement.
| | --- | ----------------------------------------



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##### Table of Contents

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.

In
future periods, cash interest is expected to be calculated by adding back amortization of deferred debt issuance costs and deducting cash interest income from the interest expense reported in the consolidated statement of operations.

Contractual Obligations

The following is a summary
of our significant future contractual obligations by year as of December 31, 2005. There have been no significant changes to our contractual obligations during the first three months of 2006.



|                                               |  |                          |       |           |   |           |  |            |      |       |   |       |  |   |        
|---------------------------------------------- |  | ------------------------ | ----- | --------- | - | --------- |  | ---------- | ---- | ----- | - | ----- |  | - | -------
|                                               |  | 2006                     |       | 2007-2008 |   | 2009-2010 |  | After 2010 |      | Total
|                                               |  | (Unaudited, in millions)
|Long-term debt and capital leases              |  | $                        |      |           | $ |          |  | $          |     |       | $ | 635.0 |  | $ | 635.0  
|Cash interest on long-term debt                |  |                          | 42.3  |           |   | 86.1      |  |            | 87.1 |       |   | 90.6  |  |   | 306.1  
|Cash payments for asset retirement obligations |  |                          | 3.2   |           |   | 1.1       |  |            | 7.0  |       |   | 214.6 |  |   | 225.9  
|Unconditional purchase commitments             |  |                          | 103.5 |           |   | 42.6      |  |            |     |       |   |      |  |   | 146.1  
|Operating leases                               |  |                          | 5.9   |           |   | 5.5       |  |            | 3.8  |       |   | 4.6   |  |   | 19.8   
|Minimum royalties                              |  |                          | 1.0   |           |   |          |  |            |     |       |   |      |  |   | 1.0    
|                                               |  |                          |       |           |   |           |  |            |      |       |   |       |  |   |        
|Total                                          |  | $                        | 155.9 |           | $ | 135.3     |  | $          | 97.9 |       | $ | 944.8 |  | $ | 1,333.9
|                                               |  |                          |       |           |   |           |  |            |      |       |   |       |  |   |        

We expect to use cash flows provided by operating activities to invest in the range of $150.0
million to $170.0 million in capital expenditures during calendar year 2006 of which $100.0 million to $110.0 million is to maintain production and replace mining equipment. The additional $50.0 million to $60.0 million is expected to
be directed toward selective expansions of production and improvements in productivity. Approximately $40.3 million of expected 2006 capital expenditures are included in unconditional purchase commitments shown above. The remaining 2006
unconditional purchase commitments consist of $28.4 million for purchased coal and $34.8 million pertaining to forward contracts to purchase diesel fuel and explosives in normal quantities for use at our surface mines. The remaining unconditional
purchase commitments, totaling $42.6 million in 2007-2008 consists of $20.6 million for purchased coal and a $22.0 million commitment to purchase underground mining equipment. We expect to contribute approximately $15.2 million to our
defined benefit retirement plans and to pay approximately $23.5 million of retiree health care benefits in calendar year 2006. We also expect to incur approximately $8.0 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 2006 obligations, plus fund requirements for working capital and capital expenditures without incurring additional borrowings.

Off-Balance Sheet Arrangements

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



34



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##### Table of Contents

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 the 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 $261.7 million as of March 31, 2006, of which $239.0 million secured reclamation
obligations, $10.7 million secured coal lease obligations and $9.6 million secured self-insured workers compensation obligations. In addition, we had $182.8 million of letters of credit in place for the following purposes: $34.1 million
for workers compensation, including collateral for workers compensation bonds; $23.4 million for UMWA retiree health care obligations; $121.6 million for collateral for reclamation surety bonds; and $3.7 million for other miscellaneous
obligations. Recently, surety bond costs have increased, while 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 outlook for the coal markets in the United States remains positive. The U. S. economy grew at an annual rate of 3.5% in 2005
and at a preliminary annual rate of 4.8% in the first three months 2006 as reported by the U.S. Commerce Department. U. S. electricity generation increased by 1.7% during 2005 as reported by the Energy Information Agency. Strong demand for coal
and coal-based electricity generation in the U. S. is being driven by the growing economy, low customer stockpiles compared to historical norms, weather conditions and high prices for alternative fuels for electricity generation. The high price
of natural gas during 2005 caused some coal-fired generating plants to operate at increased levels. U. S. coal inventories at year end 2005 were at levels below the five year averages.

During the first three months of 2006, growth in electrical generation was less than predicted due to warm winter weather across much of the United
States. In addition, U. S. coal production increased modestly from the prior year. This has allowed some rebuilding of coal stockpiles at electrical generation plants compared to the distressed levels of late 2005. However, coal stockpiles
remain below five year averages, and are still critically low at many western electric generating plants supplied from the Powder River Basin.

The ability of the railroads to ship the demanded quantities of coal was mixed during the first three months. Shipments from the Powder River Basin for the full year 2006 are forecast to increase modestly from 2005, but not to the levels
needed to satisfy demand for Powder River Basin coal. There is uncertainty as to whether we will be able to ship all of the approximately 50.5 million tons that we have sold from the Powder River Basin in 2006. The performance of the Eastern
railroads tends to be more mine specific. Our main transportation uncertainty in the East relates to our Pioneer location in West Virginia.

Our revenues depend on the price at which we are able to sell our coal. The current pricing environment for United States coal is strong relative to historical pricing levels, but has declined during the early part of 2006 in response to
increased production and reduced weather-related demand for electricity. As of April 10, 2006, we have committed and priced 96% of our planned 2006 production. In the longer term, decreases in coal prices due to, among other reasons, the supply
of domestic and foreign coal, the demand for electricity and the price and availability of alternative fuels for electricity generation could adversely affect our revenues and our ability to generate cash flows. In addition, our results of
operations depend on the cost of coal production. We continue to



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experience increased operating costs for fuel and explosives, steel products, tires, health care, wages, salaries, contract coal haulage services and
contract labor. In addition, historically low interest rates have had a negative impact on expenses related to our actuarially determined employee-related liabilities.

We may also experience difficult geologic conditions, 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 exceeds our ability to realize sales increases, or if we experience unanticipated operating or transportation difficulties, our operating margins would be negatively impacted. See the various factors listed at the
beginning of this Item 2 for additional considerations regarding our outlook.

Recent Accounting Pronouncements

The Company adopted EITF Issue 04-6 on January 1, 2006. EITF Issue 04-6 addresses the accounting for stripping costs incurred during the production
phase of a mine, concluding that these costs are considered variable production costs and under a full absorption costing system are considered a component of inventory to be recognized in cost of coal sales in the same period as the revenue from
the sale of the inventory. Capitalization of post-production stripping costs is appropriate only to the extent inventory exists at the end of a reporting period. The guidance requires application through recognition of a cumulative effect adjustment
to opening retained earnings in the period of adoption, with no charge to current earnings for prior periods. Accordingly, prior period results have not been restated. At December 31, 2005, stripping costs associated with coal that had not been
extracted was $60,406 which were classified on the consolidated balance sheet as a component of work-in-process inventory referred to as deferred overburden. The effect on the consolidated financial statements upon adoption of EITF Issue 04-6
resulted in a cumulative effect adjustment which reduced opening retained earnings, as of January 1, 2006, by $39,264, net of tax of $21,142, thereby removing the $60,406 current asset previously classified on the consolidated balance sheet as
a component of work-in-process (deferred overburden) inventory.

Prior to January 1, 2006, the Company accounted for its stock-based
compensation plans under the recognition and measurement provisions of Accounting Principles Board (APB) Opinion No. 25, Accounting for Stock Issued to Employees (APB No. 25), and related interpretations, as
permitted by SFAS No. 123, Accounting for Stock-Based Compensation (SFAS No. 123). Effective January 1, 2006, the Company adopted the fair value recognition provisions of SFAS No. 123(R), using the modified
prospective transition method. Under the modified prospective transition method, compensation cost recognized in 2006 includes: (a) compensation cost for all stock-based awards granted prior to but not yet vested as of January 1, 2006,
based on the grant date fair value estimated in accordance with the original provisions of SFAS No. 123; and (b) compensation cost for all stock-based awards granted subsequent to January 1, 2006, based on the grant date fair value
estimated in accordance with the provisions of SFAS No. 123(R). For all grants, the amount of compensation expense to be recognized is adjusted for an estimated forfeiture rate which is based on historical data. Results for prior periods have
not been restated. There were no modifications made to outstanding options prior to the adoption of the standard. There were no changes made by the Company to the terms, quantity or type of instruments used for stock-based compensation as a result
of the adoption of the new standard.

The Company recorded expense for two types of stock-based awards: restricted stock units and
nonqualified stock options. Total compensation expense related to the stock-based awards recognized in selling, general and administrative expense for the three months ended March 31, 2006 was $796, consisting of $408 and $388 for restricted
stock units and nonqualified stock options, respectively. For the three months ended March 31, 2005, compensation expense of $308 was recognized as a component of selling, general and administrative expense for restricted stock units.



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Pursuant to the adoption of this new accounting standard, the table below provides a summary of the
effect of applying the provisions of SFAS No. 123(R) on the Companys consolidated financial statements related to nonqualified stock options for the three months ended March 31, 2006.



|                               |  |   |      |  
|------------------------------ |  | - | ---- | -
|Net income (loss) before taxes |  | $ | (388 | )
|Income taxes                   |  | $ | 78   |  
|                               |  |   |      |  
|Net income(loss)               |  | $ | (310 | )
|                               |  |   |      |  

SFAS No. 123(R) also requires that the excess tax benefit from the exercise of options be
reflected in the consolidated statement of cash flows as a cash inflow from financing activities. Prior to the adoption of SFAS No. 123(R), this excess tax benefit would have been reflected as a cash inflow from operations. The excess tax
benefit from the exercise of options was $5,553 and $0 during the three months ended March 31, 2006 and March 31, 2005, respectively.

SFAS No. 123(R) also requires that forfeitures be estimated and included in the calculation of compensation cost. Upon adoption of SFAS No. 123(R), the Company quantified the effect related to the estimation of forfeitures for
stock-based awards that were not vested at December 31, 2005. The Companys estimate was based on previous forfeiture activity combined with the Companys reasonable expectations of forfeitures. The gross adjustment for forfeitures
was not material to the consolidated financial statements.

See Note 12 to the consolidated financial statements in ITEM 1 for
additional disclosures for: the compensation cost related to nonvested awards not yet recognized and the expected period of recognition; and valuation methodologies used in determining the fair value of options.



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

Commodity Price Risk

We manage our commodity 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 10, 2006, we had sales commitments for approximately 96% of our planned 2006 production. As of April 10, 2006, uncommitted and unpriced tonnage was 17%, 39% and 59% of
planned production in 2007, 2008 and 2009, respectively. Eastern coals account for the majority of uncommitted tonnage as 35%, 57% and 86% of the Companys planned eastern production remains uncommitted and unpriced in 2007, 2008 and 2009,
respectively.

Some of the products used in our mining activities, such as diesel fuel, explosives, steel products and electricity, are
subject to price volatility. Through our suppliers, we utilize forward purchase contracts to manage the exposure related to this volatility. As of March 31, 2006, the Company has entered into forward purchase commitments for approximately 80%
of the diesel fuel that it expects to consume during calendar year 2006 at prices ranging from $1.73 per gallon for our Powder River Basin mines to $2.04 per gallon for our Central Appalachian mines. The Company has designated these contracts as
normal purchase normal sale contracts, and, therefore, they are not deemed to be derivative financial instruments for financial reporting purposes. During the three months ended March 31, 2006, the cost of diesel fuel represents approximately
4% of the Companys consolidated cost of coal sales.

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.

Counterparty risk with respect to interest
rate swaps is not considered to be significant based upon the creditworthiness of the participating financial institutions.

Interest Rate Risk

We have exposure to changes in interest rates through our bank term loan and our revolving credit facility. As described below, we have
used interest rate swaps to manage this risk.

We entered into swap contracts for the purpose of complying with certain financial covenants
in our senior secured credit facility that require fixing the interest rate for at least three years on a minimum of 50% of our total outstanding debt. The swap contracts cover $85 million through September 2007. The following table
summarizes our outstanding swap contracts at September 30, 2005.



|                |  |                                 |  |               |  |           
|--------------- |  | ------------------------------- |  | ------------- |  | ----------
|Notional Amount |  | Term                            |  | Floating Rate |  | Fixed Rate
|$20 million     |  | September 2004  September 2007 |  | 3-month LIBOR |  | 3.26%     
|$25 million     |  | September 2004  September 2007 |  | 3-month LIBOR |  | 3.26%     
|$20 million     |  | September 2004  September 2007 |  | 3-month LIBOR |  | 3.26%     
|$20 million     |  | September 2004  September 2007 |  | 3-month LIBOR |  | 3.26%     



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As of March 31, 2006, after giving effect to the $85 million of interest rate swaps that were
entered into, we had $250 million of variable rate indebtedness, representing approximately 39% of our outstanding indebtedness. A 1% change in interest rates would affect the interest expense on such indebtedness by $2.5 million per year.
At March 31, 2006, the fair value of these swap agreements was an unrealized gain of $2.3 million. The increase in the unrealized gain of $0.2 million pre-tax ($0.1 million, net of tax) for the three months ended March 31,
2006 was reported as a component of comprehensive income (loss).



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

Evaluation of Disclosure Controls and
Procedures

An evaluation of the effectiveness of the design and operation of our disclosure controls and procedures (as
defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended), as of the end of the period covered by this quarterly report on Form 10-Q was made under the supervision and with the participation of our management, including our
Chief Executive Officer and Chief Financial Officer. Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the Companys disclosure controls and procedures are effective in timely alerting them to
material information relating to the Company required to be included in the Companys periodic SEC filings.

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, 2006 that have materially affected, or are reasonable likely to materially affect, our internal control over financial reporting.



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PART IIOTHER INFORMATION



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

Information required by this
Item is contained in Note 18, Commitments and Contingencies, to the consolidated financial statements 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, 2005, as filed March 17, 2006.



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

None.



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

None.



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

None.



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

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 12, 2006 |  |                      |  | FOUNDATION COAL CORPORATION (Registrant)
|Name               |  |                      |  | Title                                   
|                   |  |                      |  |                                         
|                   |  | /S/ JAMES F. ROBERTS |  |                                          |  |  |  | President, Chief Executive Officer and Director (Principal Executive Officer)                 
|                   |  | James F. Roberts     |  |                                          |  |  | 
|                   |  |                      |  |                                         
|                   |  |                      |  |                                         
|                   |  | /S/ FRANK J. WOOD    |  |                                          |  |  |  | Senior Vice President and Chief Financial Officer (Principal Financial and Accounting Officer)
|                   |  | Frank J. Wood        |  |                                          |  |  | 



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EXHIBIT INDEX



|            |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|----------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit No. |  | Description of Exhibit                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|            | 
|3.1*        |  | Amended and Restated Certificate of Incorporation of Foundation Coal Holdings, Inc.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|            | 
|3.2*        |  | Amended and Restated By-laws of Foundation Coal Holdings, Inc.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|            | 
|4.1*        |  | Form of certificate of Foundation Coal Holdings, Inc. common stock                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|            | 
|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                                                                                                                                                                                                                                                                     
|            | 
|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.
|            | 
|31.1**      |  | Certification of periodic report by Foundation Coal Corporation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 Foundation Coal Corporation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 Foundation Coal Corporation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 Foundation Coal Corporations Chief Financial Officer pursuant to 18 U.S.C. Section 1350, adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.                                                                                                                                                                                                                                                                                                                                                                                            

---

|* | Incorporated by reference to the same numbered exhibit previously filed with Foundation Coal Holdings, Inc.s registration statement on Form S-1 (SEC File
No. 333-118427).
|- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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



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