UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q/A

(Amendment No. 1)

(Mark One)

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

For the Quarterly Period Ended June 30, 2005

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

For the Transition Period From to

Commission File Number 333-120979-49

Foundation Coal Corporation

(Exact Name of Registrant as Specified in Its Charter)

Delaware	26-0085077
(State or Other Jurisdiction of Incorporation or Organization)	(I.R.S. Employer Identification No.)
999 Corporate Boulevard, Suite 300 Linthicum Heights, Maryland	21090
(Address of Principal Executive Offices)	(Zip Code)
(Registrant’s telephone number, including area code) (410) 689-7500

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o

Indicate by check mark whether the Registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes o 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 44,630,047 shares of Foundation Coal Holdings, Inc. common stock outstanding on August 5, 2005. There were 100 shares of Foundation Coal Corporation common stock outstanding on August 5, 2005, all held by it’s parent FC2 Corp. which are not publicly traded.

Explanatory Note

This Amendment No. 1 on Form 10-Q/A (this “Amendment”) amends the Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2005 filed on August 15, 2005. Foundation Coal Corporation has filed this amendment to make certain corrections to Note 15, Segment Information in the Consolidated Financial Statements and to the Segment Analysis tables and related disclosures in Management’s Discussion and Analysis of Financial Condition and Results of Operations. Other information contained herein has not been updated. Therefore, you should read this Amendment in conjunction with other documents previously filed with the Securities and Exchange Commission.

TABLE OF CONTENTS

		Page
	PART I—FINANCIAL INFORMATION
ITEM 1.	FINANCIAL STATEMENTS
	Statements of Consolidated Operations and Comprehensive Income for the Three Months Ended June 2005 and 2004		3
	Statements of Consolidated Operations and Comprehensive Income for the Six Months Ended June 2005 and 2004		4
	Consolidated Balance Sheets		5
	Statements of Consolidated Cash Flows		6
	Notes to Consolidated Financial Statements		7
ITEM 2.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF CONSOLIDATED FINANCIAL CONDITION AND RESULTS OF OPERATIONS		25
ITEM 3.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK		48
ITEM 4.	CONTROLS AND PROCEDURES		49
	PART II—OTHER INFORMATION
ITEM 1.	LEGAL PROCEEDINGS		51
ITEM 2.	UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS		51
ITEM 3.	DEFAULTS UPON SENIOR SECURITIES		51
ITEM 4.	SUBMISSION OF MATTERS OF VOTE OF SECURITY HOLDERS		51
ITEM 5.	OTHER INFORMATION		51
ITEM 6.	EXHIBITS		51

Part I—FINANCIAL INFORMATION

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

ITEM 1. FINANCIAL STATEMENTS

Foundation Coal Corporation and Subsidiaries
(An Indirect Wholly Owned Subsidiary of Foundation Coal Holdings, Inc.)
Statements of Consolidated Operations and Comprehensive Income
(Dollars in thousands)
(Unaudited)

	Three Months Ended June 30,
	2005				2004
	Successor				Predecessor
Revenues:
Coal sales		$	324,537			$	252,054
Other revenue		4,941				101
Total revenues		329,478				252,155
Costs and expenses:
Cost of coal sales (excludes depreciation, depletion and amortization)		241,268				216,308
Selling, general and administrative expense (excludes depreciation, depletion and amortization)		8,958				10,477
Accretion on asset retirement obligations		2,044				1,723
Depreciation, depletion and amortization		52,694				27,469
Amortization of coal supply agreements		(23,137		)		3,829
Income (loss) from operations		47,651				(7,651		)
Other income (expense):
Interest expense		(14,424		)		(6,293		)
Loss on termination of hedge accounting for interest rate swaps		—				(82		)
Mark-to-market gain on interest rate swaps		—				8,970
Interest income		180				429
Income (loss) before income tax (expense) benefit		33,407				(4,627		)
Income tax (expense) benefit		(13,024		)		2,432
Income (loss) from continuing operations		20,383				(2,195		)
Loss from discontinued operations, net of income tax benefit of $1,090 in 2004		—				(477		)
Gain on disposal of discontinued operations, net of income tax expense of $4,913		—				20,783
Net income		20,383				18,111
Components of comprehensive income:
Unrealized loss on interest rate swaps, net of tax benefit of $293 in 2005		(413		)		—
Comprehensive income		$	19,970			$	18,111

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

	Six Months Ended June 30,
	2005				2004
	Successor				Predecessor
Revenues:
Coal sales		$	624,558			$	474,033
Other revenue		10,426				4,429
Total revenues		634,984				478,462
Costs and expenses:
Cost of coal sales (excludes depreciation, depletion and amortization)		456,498				413,468
Selling, general and administrative expense (excludes depreciation, depletion and amortization)		20,389				20,888
Accretion on asset retirement obligations		4,084				3,446
Depreciation, depletion and amortization		107,494				52,486
Amortization of coal supply agreements		(46,516		)		7,795
Income (loss) from operations		93,035				(19,621		)
Other income (expense):
Interest expense		(28,677		)		(16,264		)
Loss on termination of hedge accounting for interest rate swaps		—				(48,854		)
Mark-to-market gain on interest rate swaps		—				5,804
Interest income		302				1,202
Income (loss) before income tax (expense) benefit		64,660				(77,733		)
Income tax (expense) benefit		(25,235		)		29,444
Income (loss) from continuing operations		39,425				(48,289		)
Income from discontinued operations, net of income tax expense of $546 in 2004		—				2,315
Gain on disposal of discontinued operations, net of income tax expense of $4,913		—				20,783
Net income (loss)		39,425				(25,191		)
Components of comprehensive income:
Unrealized gain on interest rate swaps, net of tax expense of $260 in 2005 and $16,890 in 2004		416				28,820
Comprehensive income		$	39,841			$	3,629

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

Foundation Coal Corporation and Subsidiaries
(An Indirect Wholly Owned Subsidiary of Foundation Coal Holdings, Inc.)
Consolidated Balance Sheets
(Dollars in thousands, except share data)

	June 30, 2005			December 31, 2004
	(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	27,206			$	25,043
Trade accounts receivable, net of allowance ($217 in 2005 and 2004, respectively)	102,238				66,484
Inventories, net	67,784				39,718
Deferred income taxes	15,145				15,145
Other current assets	22,365				27,821
Total current assets	234,738				174,211
Owned surface lands	28,501				29,171
Plant, equipment and mine development costs, net	514,981				487,495
Owned and leased mineral rights, net	1,219,410				1,282,989
Coal supply agreements, net	69,323				84,508
Other noncurrent assets	36,770				41,586
Total assets	$	2,103,723			$	2,099,960
LIABILITIES
Current liabilities:
Trade accounts payable	$	29,897			$	30,512
Accrued expenses and other current liabilities	163,345				155,541
Total current liabilities	193,242				186,053
Long-term debt	685,000				685,000
Deferred income taxes	140,664				133,828
Coal supply agreements, net	119,824				178,210
Postretirement benefits	457,442				449,683
Other noncurrent liabilities	212,517				211,455
Total liabilities	1,808,689				1,844,229
Commitments and contingencies (Note 17)
STOCKHOLDER EQUITY
Common stock, $0.01 par value; 100 shares authorized, issued and outstanding at June 30, 2005 and at December 31, 2004	—				—
Additional paid-in capital	241,572				241,993
Retained earnings	53,489				14,064
Unearned restricted stock compensation	(117		)		—
Accumulated other comprehensive income (loss)	90				(326		)
Total stockholder equity	295,034				255,731
Total liabilities and stockholder equity	$	2,103,723			$	2,099,960

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

Foundation Coal Corporation and Subsidiaries
(An Indirect Wholly Owned Subsidiary of Foundation Coal Holdings, Inc.)
Statements of Consolidated Cash Flows
(Dollars in thousands)
(Unaudited)

	Six Months Ended June 30,
	2005				2004
	Successor				Predecessor
Operating activities:
Net income (loss)		$	39,425			$	(25,191	)
Loss from discontinued operations		—				(23,098		)
Income (loss) from continuing operations		39,425				(48,289		)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Accretion on asset retirement obligations		4,084				3,446
Depreciation, depletion and amortization		60,978				60,281
Amortization of deferred financing costs		1,547				—
Gain on sale of assets		—				(683		)
Non-cash restricted stock compensation		394				—
Non-cash mark-to-market adjustment for interest rate swap		—				(5,804		)
Non-cash expense from termination of hedge accounting for interest rate swap		—				48,854
Deferred income taxes		6,577				(27,402		)
Other		265				—
Changes in operating assets and liabilities:
Trade accounts receivable		(35,754		)		(20,634		)
Inventories, net		(28,066		)		(4,471		)
Other current assets		4,524				5,472
Other noncurrent assets		3,944				1,982
Trade accounts payable		(615		)		1,601
Accrued expenses and other current liabilities		2,113				19,025
Noncurrent liabilities		3,066				(8,306		)
Net cash provided by continuing operations		62,482				25,072
Net cash provided by discontinued operations		—				6,973
Net cash provided by operating activities		62,482				32,045
Investing activities:
Purchases of property, plant and equipment		(65,093		)		(50,452		)
Proceeds from disposition of property, plant and equipment		4,774				2,029
Net cash used in continuing operations		(60,319		)		(48,423		)
Net cash provided by discontinued operations		—				184,988
Net cash (used in) provided by investing activities		(60,319		)		136,565
Financing activities:
Proceeds from revolving credit facility		60,000				—
Repayment of revolving credit facility		(60,000		)		—
Repayment of long-term debt		—				(358,024		)
Repayment of capital lease obligations		—				(821		)
Net decrease in cash pledged on debt		—				20,000
Early extinguishment of debt and interest rate swap termination		—				(48,854		)
Net decrease in cash on deposit with the Predecessor		—				233,023
Net cash used in financing activities		—				(154,676		)
Net (decrease) increase in cash and cash equivalents		2,163				13,934
Cash and cash equivalents at beginning of period		25,043				7,649
Cash and cash equivalents at end of period		$	27,206			$	21,583
Supplemental cash flow information:
Cash paid for interest		$	23,812			$	22,372
Cash paid for income taxes		$	—			$	—

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

Foundation Coal Corporation, Inc. and Subsidiaries
(An Indirect Wholly Owned Subsidiary of Foundation Coal Holdings, Inc.)
Notes to Consolidated Financial Statements
(Unaudited, dollars in thousands)

(1) Basis of Presentation of Financial Statements

The following interim consolidated financial statements of Foundation Coal Corporation and Subsidiaries (“FCC” or 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 United States generally accepted accounting principles as long as the statements are not misleading. In the opinion of management, these 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 year ended December 31, 2004, filed March 31, 2005.

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 and six months ended June 30, 2005 may not necessarily be indicative of the results to be expected in future quarters for the year ended December 31, 2005.

Foundation Coal Holdings, Inc. and its indirect wholly owned subsidiary FCC were formed to acquire the North American coal mining assets of RAG American Coal Holding, Inc., a wholly owned subsidiary of RAG Coal International AG (“RAG”), which acquisition closed on July 30, 2004 (the “acquisition”). The acquisition was accounted for using the purchase method of accounting whereby identifiable assets acquired and liabilities assumed were recorded at their fair market values as of the date of acquisition. The Company has performed the preliminary purchase price allocation based on the results of an independent appraisal performed by a reputable consulting firm well known in the industry. Certain judgments and estimates by the Company regarding future cash flows from individual mine sites and other plans are integral to the valuations performed by the valuation specialists. The appraisal was completed during the first quarter of 2005 and the results of are being evaluated by management. The final purchase price allocation, which management anticipates will be competed in the third quarter of 2005, is not expected to vary significantly from the preliminary allocation.

RAG American Coal Holding, Inc. had two primary operating units: Riverton Coal Production, Inc. and subsidiaries (“RCP”) and RAG American Coal Company, LLC and subsidiaries (“RACC”). On February 29, 2004, RACC signed a definitive Stock Purchase Agreement to sell RAG Coal AG’s Colorado

Foundation Coal Corporation, Inc. and Subsidiaries
(An Indirect Wholly Owned Subsidiary of Foundation Coal Holdings, Inc.)
Notes to Consolidated Financial Statements (Continued)
(Unaudited, dollars in thousands)

operations which included Twentymile Coal Company, RAG Empire Corporation, RAG Shoshone Coal Corporation and Colorado Yampa Coal Company (collectively referred to as the RAG Colorado Business Unit) to a subsidiary of Peabody Energy Corporation. This transaction closed on April 15, 2004. Accordingly, all references to Foundation Coal Corporation, exclude the RAG Colorado Business Unit which is accounted for and presented in the accompanying financial statements as discontinued operations. Prior period financial statements have also been restated to reflect the RAG Colorado Business Unit as a discontinued operation.

The following provides a description of the basis of presentation during all periods presented:

“Successor”—represents the consolidated financial position of Foundation Coal Corporation and consolidated subsidiaries as of June 30, 2005 and December 31, 2004, and the consolidated results of operations and cash flows for the three and six month period ended June 30, 2005. Foundation Coal Corporation had no significant activities until the acquisition on July 30, 2004.

“Predecessor”—represents the consolidated results of operations and cash flows of RAG American Coal Holding, Inc. and subsidiaries for all periods prior to the acquisition. This presentation reflects the historical basis of accounting.

The consolidated financial statements as of and for the period ended June 30, 2005 and December 31, 2004 reflect the acquisition under the purchase method of accounting, in accordance with the Financial Accounting Standards Board (“FASB”) Statement of Financial Accounting Standards (“SFAS”) No. 141, Business Combinations.

Unless otherwise indicated, “the Company” as used throughout the remainder of these notes to the consolidated financial statements refers to both the Successor and the Predecessor.

Reclassifications

Certain amounts in the prior period have been reclassified to conform to the 2005 presentation.

(2) Recent Accounting Pronouncements

In December 2004, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 123 (revised 2004), Share-Based Payment (“SFAS No. 123R”), which replaces SFAS No. 123, and supersedes APB No. 25. SFAS No. 123R requires all share-based payments to employees, including grants of employee stock options, to be recognized in the financial statements based on their fair value at the grant date. SFAS No. 123R 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). FAS 123R 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 required under current literature. This requirement will reduce net operating cash flows and increase net financing cash flows in periods after adoption. The pro forma disclosures previously permitted under SFAS No. 123 no longer will be an alternative to financial statement recognition. On April 14, 2005, the Securities and Exchange Commission (“SEC”) delayed the

implementation of SFAS No. 123R from its original implementation date by six months for most registrants, requiring all public companies to adopt FAS 123R no later than the beginning of the first fiscal year beginning after June 15, 2005. The impact of adopting SFAS No. 123R cannot be predicted at this time because it will depend on levels of share-based payments granted in the future. However, had the Company adopted SFAS No. 123R during the prior period, the results are expected to be consistent with the pro forma disclosure under SFAS No. 123, except that forfeitures will be considered in the calculation of compensation expense under SFAS No. 123R. When adopted, the Company may elect to change the valuation method or assumptions and such changes could have a material impact on the amount of stock-based compensation the Company records.

In March 2005, the Emerging Issues Task Force reached consensus on Issue No. 04-6, Accounting for Stripping Costs in the Mining Industry (“EITF No. 04-6”) concluding that post-production stripping costs are a component of mineral inventory costs subject to the provisions of the American Institute of Certified Public Accountants Accounting Research Bulletin No. 43, Restatement and Revision of Accounting Research Bulletins, Chapter 4, Inventory Pricing, (“ARB No. 43”). The FASB ratified the EITF consensus. Based upon this consensus, post production stripping costs are considered costs of the extracted minerals under a full absorption costing system and are recognized as a component of inventory to be recognized in costs of sales in the same period as the revenue from the sale of the inventory. In addition, capitalization of such costs would be appropriate only to the extent inventory exists at the end of a reporting period. The guidance in this consensus will be effective for financial statements issued for fiscal years beginning after December 15, 2005, with early adoption permitted. The Company is currently evaluating this consensus and has not determined its impact to the consolidated financial statements.

The FASB issued FASB Interpretation (“FIN”) No. 47, “Accounting for Conditional Asset Retirement Obligations” in March of 2005. FIN 47 clarifies that an entity must record a liability for a conditional asset retirement obligation if the fair value of the obligation can be reasonably estimated. This interpretation also clarifies the circumstances under which an entity would have sufficient information to reasonably estimate the fair value of an asset retirement obligation. This Interpretation is effective no later than the end of fiscal years ending after December 15, 2005. The Company does not expect this guidance to have a material impact on its financial statements.

(3) Inventories

Inventories consisted of the following:

	At June 30, 2005				At December 31, 2004
	(Unaudited)
Saleable coal		$	15,035			$	11,609
Raw coal		838				2,893
Work-in-process (deferred overburden)		38,893				13,889
Materials and supplies		20,756				18,983
		75,522				47,374
Less materials and supplies reserve for obsolescence		(7,738		)		(7,656		)
		$	67,784			$	39,718

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

	At June 30, 2005			At December 31, 2004
	(Unaudited)
Prepaid royalties		$	3,391		$	3,142
Prepaid longwall move expense		5,863			7,497
Prepaid SO₂ emission allowances		1,030			780
Prepaid expenses		7,117			12,886
Other		4,964			3,516
		$	22,365		$	27,821

(5) Property, Plant, Equipment and Owned and Leased Mineral Rights

Property, plant, equipment and owned and leased mineral rights consisted of the following:

	At June 30, 2005			At December 31, 2004
	(Unaudited)
Owned surface and coal lands
Owned surface lands	$	28,501			$	29,171
Owned and leased mineral rights	$	1,337,272			$	1,336,557
Less accumulated depletion	(117,862		)		(53,568		)
	$	1,219,410			$	1,282,989
Plant, equipment and mine development costs
Plant, equipment and asset retirement costs	$	583,378			$	518,525
Mine development costs	12,453				6,196
Coal bed methane equipment and development costs	3,409				3,959
	599,240				528,680
Less accumulated depreciation and amortization:
Plant, equipment and asset retirement costs	(83,517		)		(40,898		)
Mine development costs	(397		)		(108		)
Coal bed methane equipment and development costs	(345		)		(179		)
	(84,259		)		(41,185		)
	$	514,981			$	487,495

(6) Other Noncurrent Assets

Other noncurrent assets consisted of the following:

	At June 30, 2005			At December 31, 2004
	(Unaudited)
Receivables from asset dispositions		$	4,746		$	5,863
Prepaid major repairs		2,417			737
Unamortized debt issuance costs, net		22,426			24,162
Advance mining royalties		2,764			2,620
Work-in-process coal inventory (deferred overburden)		—			3,576
Prepaid longwall development		1,633			1,633
Fair value of interest rate swaps		1,206			530
Other		1,578			2,465
		$	36,770		$	41,586

(7) Accrued Expenses and Other Current Liabilities

Accrued expenses and other current liabilities consisted of the following:

	At June 30, 2005			At December 31, 2004
	(Unaudited)
Accrued federal and state income taxes		$	6,044		$	3,815
Accrued sales contract settlements		—			7,431
Wages and employee benefits		30,818			27,977
Pension benefits		6,903			5,970
Postretirement benefits other than pension		23,000			21,350
Interest		9,092			9,065
Royalties		7,414			8,657
Taxes other than income taxes		28,523			28,328
Asset retirement obligations		4,555			4,398
Workers’ compensation		9,728			9,717
Other		37,268			28,833
		$	163,345		$	155,541

(8) Other Noncurrent Liabilities

Other noncurrent liabilities consisted of the following:

	At June 30, 2005			At December 31, 2004
	(Unaudited)
Postemployment benefits		$	5,785		$	6,365
Pension benefits		44,377			43,987
Workers’ compensation		19,614			18,938
Minimum royalty obligations		95			876
Black lung reserves		5,392			4,972
Contract settlement accrual		24,022			26,672
Asset retirement obligations		104,051			100,202
Deferred production tax		6,884			7,144
Deferred credits and other		2,297			2,299
		$	212,517		$	211,455

(9 Comprehensive Income (Loss)

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

	At June 30, 2005				At December 31, 2004
	(Unaudited)
Changes in fair value of hedge instruments, net of tax of $260		$	416			$	—
Minimum pension liability adjustments, net of tax of $192		(326		)		(326		)
		$	90			$	(326	)

(10) Pension and Postretirement Benefit Plans

Components of Net Periodic Pension Costs

Net periodic pension costs included the following:

	Three Months Ended June 30,								Six Months Ended June 30,
	2005				2004				2005				2004
	Successor				Predecessor				Successor				Predecessor
Service cost		$	1,607			$	1,417			$	2,888			$	2,709
Interest cost		3,343				2,805				5,903				5,513
Expected return on plan assets		(3,418		)		(2,631		)		(5,667		)		(4,764		)
Amortization of:
Prior service cost		—				10				—				20
Actuarial losses		186				842				207				1,950
		1,718				2,443				3,331				5,428
Less: amounts allocated to discontinued operations		—				(81		)		—				(569		)
Total from continuing operations		$	1,718			$	2,362			$	3,331			$	4,859

Components of Net Periodic Postretirement Benefit Costs

Net periodic postretirement medical and life insurance are as follows:

	Three Months Ended June 30,							Six Months Ended June 30,
	2005			2004				2005			2004
	Successor			Predecessor				Successor			Predecessor
Service cost		$	1,921		$	1,793			$	3,956		$	3,450
Interest cost		7,866			7,774				16,331			15,000
Amortization of:
Prior service cost		—			118				—			300
Actuarial losses		—			3,845				—			6,614
		9,787			13,530				20,287			25,364
Less: amounts allocated to discontinued operations		—			(46		)		—			(324		)
Total from continuing operations		$	9,787		$	13,484			$	20,287		$	25,040

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

(11) Pneumoconiosis (Black Lung) Expense and Trust

The components of net periodic benefit cost are as follows:

	Three Months Ended June 30,								Six Months Ended June 30,
	2005				2004				2005				2004
	Successor				Predecessor				Successor				Predecessor
Service cost		$	84			$	132			$	168			$	265
Interest cost		211				322				422				644
Expected return on plan assets		(145		)		(243		)		(290		)		(487		)
Amortization of:
Transition asset		—				(69		)		—				(138		)
Prior service cost		—				34				—				68
Actuarial losses		60				148				120				296
		210				324				420				648
Less: amounts allocated to discontinued operations		—				(2		)		—				(14		)
Total from continuing operations		$	210			$	322			$	420			$	634

(12) Stock-Based Compensation

The Company records compensation expense for all employee stock-based compensation plans using the intrinsic value method prescribed by Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees (“APB No. 25”) and related interpretations. Under APB No. 25, compensation expense is recorded over the vesting period to the extent that the fair value of the underlying stock on the date of grant exceeds the exercise or acquisition price of the stock or stock-based award. We have adopted the disclosure-only provisions of SFAS No. 123, Accounting for Stock-Based Compensation, (“SFAS No. 123”), as amended by SFAS No. 148 Accounting for Stock-Based Compensation—Transition and Disclosure—an amendment of FASB Statement No. 123 (“SFAS No. 148”).

Had compensation expense for stock option grants been determined based on the fair value at the grant dates consistent with the method required by SFAS No. 123, the Company’s net income would have been changed to the pro forma amounts as indicated in the following table. The Predecessor had no stock option plans; therefore, no Predecessor information is presented.

	Three Months Ended June 30, 2005				Six Months Ended June 30, 2005
Net income as reported		$	20,167			$	39,102
Add:
Stock-based employee compensation included in reported net income, net of related tax effects		47				235
Deduct:
Total stock-based employee compensation expense determined under fair value based method for all awards, net of related tax effects		(227		)		(603		)
Pro forma net income		$	19,987			$	38,734

The Company granted restricted stock performance unit awards (“performance units”) to certain key employees in March 2005. All of the performance units granted are subject to continued employment and vest on each December 31, beginning December 31, 2005 and ending on December 31, 2007 contingent upon the achievement of certain annual performance targets. Shares of common stock are then awarded in March of the year following the final vesting period. Compensation expense of approximately $80 and $370 (pretax) were recorded for the three and six months ended June 30, 2005 for the initial year’s performance units that management expects will vest on December 31, 2005.

(13) Derivative Instruments and Hedging Activities

The Predecessor entered into an interest rate swap agreement effective June 20, 1999 to manage its exposure to fluctuations in interest rates relating to its outstanding variable rate debt. The interest rate swap agreement was designated as a cash flow hedge, and was designed to be entirely effective by matching the terms of the swap agreement with the debt. The base rate for both the debt and the swap is LIBOR and the instruments have the same renewal dates over the lives of the instruments. The contract’s notional amount was $434,000 at inception, and declined semi-annually over the life of the contract in proportion to the Predecessor’s outstanding balance on its related debt. The Predecessor paid a fixed rate of 6.55% and received six-month LIBOR which reset every 180 days. The maturity date of the contract was July 30, 2009. However, in connection with the definitive Stock Purchase Agreement for the sale of the RAG Colorado Business Unit entered into on February 29, 2004, the Predecessor notified the holders of the variable rate notes of their intention to repay the notes. Accordingly, the interest rate swaps no longer qualified for hedge accounting treatment and in the quarter ended March 31, 2004, the full amount of unrealized loss included in accumulated other comprehensive income was recognized in net income. The Predecessor settled the interest rate swaps in April 2004. Between February 29, 2004 and April 27, 2004, mark-to-market gains on the interest rate swaps were $5,804 and were included in other income.

On September 30, 2004, the Successor 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. Effective January 1, 2005, the Company designated these interest rate swaps 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 upon completion of the effectiveness testing and related documentation. As of June 30, 2005, the fair value of this cash flow hedge was $1,206 which was recorded as a noncurrent asset and the offsetting unrealized gain of $416, net of tax expense was recorded in accumulated other comprehensive income. At December 31, 2004, the fair value of these swaps was $530 which was recorded as a noncurrent asset.

(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 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 January 1, 2005 through June 30, 2005:

Asset retirement obligation, January 1, 2005	$	104,600
Accretion expense	4,084
Revisions in estimated cash flows	903
Payments	(981		)
Asset retirement obligation, June 30, 2005	$	108,606

The current portions of the asset retirement obligation liabilities of $4,555 and $4,398 at June 30, 2005 and December 31, 2004, respectively, are included in accrued expenses and other current liabilities as illustrated in Note 7. There were no assets that were legally restricted for purposes of settling asset retirement obligations at June 30, 2005 or December 31, 2004, respectively.

(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 operating income.

In this Amendment, the Company has made corrections for classification errors that existed in the Successor disclosure for the Central Appalachia segment and the Other segment for the three and six months ended June 30, 2005. The corrections resulted in a decrease of $11,045 in the Central Appalachia segment for both Income (loss) from operations and Total assets and an increase of $11,045 in the Other segment category for both Income (loss) from operations and Total assets.

Successor:

Operating segment results for the three months ended June 30, 2005 are as follows:

	Powder River Basin			Northern Appalachia				Central Appalachia				Other			Consolidated
Revenues	$	72,131			$	124,167			$	113,800		$	19,380		$	329,478
Income (loss) from operations	(2,219		)		39,370				19,219			(8,719		)	47,651
Depreciation, depletion and amortization	17,466				17,778				15,568			1,882			52,694
Amortization of coal supply agreements	4,365				(14,399		)		(10,920		)	(2,183		)	(23,137		)
Capital expenditures	7,348				8,208				11,887			1,122			28,565
Total assets	$	588,156			$	971,775			$	486,559		$	57,233		$	2,103,723

Predecessor:

Operating segment results for the three months ended June 30, 2004 are as follows:

	Powder River Basin		Northern Appalachia			Central Appalachia				Other			Consolidated
Revenues	$	76,128		$	82,076		$	73,116		$	20,835		$	252,155
Income (loss) from operations	13,400			3,306			(3,250		)	(21,107		)	(7,651		)
Depreciation, depletion and amortization	4,759			12,877			8,241			1,592			27,469
Amortization of coal supply agreements	3,258			198			—			373			3,829
Capital expenditures	2,270			14,644			7,336			653			24,903
Total assets	$	423,969		$	649,374		$	246,931		$	115,945		$	1,436,219

Successor:

Operating segment results for the six months ended June 30, 2005 are as follows:

	Powder River Basin		Northern Appalachia				Central Appalachia				Other			Consolidated
Revenues	$	154,707		$	238,156			$	199,426		$	42,695			$	634,984
Income (loss) from operations	3,339			81,842				32,189			(24,335		)		93,035
Depreciation, depletion and amortization	37,022			37,363				29,405			3,704				107,494
Amortization of coal supply agreements	9,008			(30,900		)		(23,035		)	(1,589		)		(46,516		)
Capital expenditures	17,397			21,471				24,648			1,577				65,093
Total assets	$	588,156		$	971,775			$	486,559		$	57,233			$	2,103,723

Predecessor:

Operating segment results for the six months ended June 30, 2004 are as follows:

	Powder River Basin		Northern Appalachia				Central Appalachia				Other			Consolidated
Revenues	$	155,919		$	136,613			$	140,118		$	45,812			$	478,462
Income (loss) from operations	26,120			(8,110		)		(3,250		)	(34,381		)		(19,621		)
Depreciation, depletion and amortization	9,430			23,886				16,049			3,121				52,486
Amortization of coal supply agreements	6,647			331				—			817				7,795
Capital expenditures	10,539			25,693				11,483			2,738				50,453
Total assets	$	423,969		$	649,374			$	246,931		$	115,945			$	1,436,219

(16) Other Revenue

Other revenue consisted of the following:

	Three Months Ended June 30,								Six Month Ended June 30,
	2005				2004				2005				2004
	Successor				Predecessor				Successor				Predecessor
Royalty income		$	390			$	683			$	567			$	1,506
Synfuel fees		1,845				1,012				3,222				2,012
Coalbed methane		1,372				963				2,709				1,100
Transloading and plant processing fees		446				401				1,576				759
Gain (loss) on disposition of assets		(39		)		237				(39		)		683
Other		927				(3,195		)		2,391				(1,631		)
		$	4,941			$	101			$	10,426			$	4,429

(17) Commitments and Contingencies

Asset Retirement Obligations (formerly Reclamation and Mine Closure)

At June 30, 2005, the Company’s accruals for reclamation and mine closure totaled $108,606. The portion of the costs expected to be incurred within a year of $4,555 at June 30, 2005 is included in accrued expenses and other current liabilities. At June 30, 2005, these regulatory obligations are secured by surety bonds in the amount of $229,567. These surety bonds are partially collateralized by letters of credit issued by the Company.

Guarantees

One of our former parent companies, Cyprus Amax Minerals Company, remains a guarantor with regard to future minimum royalties 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 Minerals Company, the Predecessor 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 in the acquisition. The amount of this letter of credit is reduced as the Company makes the scheduled payments. At June 30, 2005 and December 31, 2004, the letter of credit amount was $3,000 and $6,000, respectively.

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, the Predecessor (now known as Foundation American Coal Holding, Inc.) 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 the Predecessor 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 in the quantities required under the Rocky Mount Contract for re-sale by Arch to Cogentrix thereunder. The MRSA also was executed by the Predecessor (now known as Foundation American Coal Holding, Inc.) As a signatory to the MRSA, Foundation American Coal Holding, Inc. and Neweagle agreed to indemnify, defend, and save harmless Arch 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.

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, the Predecessor (now known as Foundation American Coal Holding, Inc.) agreed to defend, indemnify, and hold harmless Arch and its subsidiaries from and against any claims arising out of any failure of Sellers to perform under the Birchwood Contract. By acknowledgement dated February 16, 2005, the Predecessor and Arch acknowledged the continuing validity and effect of the Agreement & Release dated September 30, 1997.

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 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 caused by flooding on or about July 8, 2001. Similar suits may be filed in the future based on this or subsequent 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 were filed by hundreds of plaintiffs against over 100 defendants, in a total of seven southern West Virginia counties. All such civil actions have been 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.

Pursuant to an existing order, no formal discovery has taken place in any of these cases, and the filing of cross-claims, counterclaims and third-party actions was stayed. 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 is currently scheduled to commence in March 2006. This will relate to flooding in the Upper Guyandotte River watershed in which our affiliates do have operations.

The claims against our entities are covered by insurance. Common defense counsel and experts are representing numerous defendants and costs are being shared. While the outcome of litigation is subject to uncertainties, based on our preliminary evaluation of the issues and the potential impact on us, we believe this matter will be resolved without a material adverse effect 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, by increasing our costs, or by causing coal to become a less attractive fuel source.

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.

(18) Supplemental Guarantor and Non-Guarantor Financial Information

On July 30, 2004, the Company’s indirect wholly owned subsidiary, Foundation PA Coal Company (the “Issuer”), issued $300,000 aggregate principal amount of 71¤4% Senior Notes (the “Notes”) that mature on August 1, 2014. In accordance with the indenture governing the Notes, each of the direct and indirect wholly owned subsidiaries of the Company, other than the Issuer, have fully and unconditionally guaranteed the Notes, jointly and severally, on a senior unsecured basis. Separate 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. The following condensed financial statement information is provided for the Guarantor/Non-Guarantor Subsidiaries.

Successor
Unaudited Supplemental Condensed Consolidated Statements of Operations
For the Three Months Ended June 30, 2005

	FCC			Non-Guarantor Subsidiary (Issuer)				Guarantor Subsidiaries				Eliminations				Consolidated
Total revenues	$	3			$	—			$	329,475			$	—			$	329,478
Costs and expenses:
Cost of sales (excludes depreciation depletion and amortization)	150				38				241,080				—				241,268
Selling, general and administrative expenses (excludes depreciation, depletion and amortization)	4,602				—				4,356				—				8,958
Accretion on asset retirement obligations	—				—				2,044				—				2,044
Depreciation, depletion and amortization	—				—				52,694				—				52,694
Amortization of coal supply agreements	—				—				(23,137		)		—				(23,137		)
Income (loss) from operations	(4,749		)		(38		)		52,438				—				47,651
Other income (expense):
Interest expense:
Debt and other	(140		)		(11,499		)		(2,785		)		—				(14,424		)
Intercompany	(1,249		)		5,108				(3,859		)		—				—
Interest income	112				—				68				—				180
Income (loss) from operations before income taxes	(6,026		)		(6,429		)		45,862				—				33,407
Income tax expense	(10,586		)		(2,348		)		(90		)		—				(13,024		)
Income (loss) from continuing operations	(16,612		)		(8,777		)		45,772				—				20,383
Equity in earnings of investments in issuer and guarantor subsidiaries	36,995				34,907				—				(71,902		)		—
Net income (loss)	$	20,383			$	26,130			$	45,772			$	(71,902	)		$	20,383

Successor
Unaudited Supplemental Condensed Consolidated Statements of Operations
For the Six Months Ended June 30, 2005

	FCC			Non-Guarantor Subsidiary (Issuer)				Guarantor Subsidiaries				Eliminations				Consolidated
Total revenues	$	3			$	—			$	634,981			$	—			$	634,984
Costs and expenses:
Cost of sales (excludes depreciation depletion and amortization)	150				76				456,272				—				456,498
Selling, general and administrative expenses (excludes depreciation, depletion and amortization)	11,969				—				8,420				—				20,389
Accretion on asset retirement obligations	—				—				4,084				—				4,084
Depreciation, depletion and amortization	—				—				107,494				—				107,494
Amortization of coal supply agreements	—				—				(46,516		)		—				(46,516		)
Income (loss) from operations	(12,116		)		(76		)		105,227				—				93,035
Other income (expense):
Interest expense:
Debt and other	(281		)		(22,847		)		(5,549		)		—				(28,677		)
Intercompany	(2,617		)		10,234				(7,617		)		—				—
Interest income	164				—				138				—				302
Income (loss) from operations before income taxes	(14,850		)		(12,689		)		92,199				—				64,660
Income tax expense	(21,774		)		(3,368		)		(93		)		—				(25,235		)
Income (loss) from continuing operations	(36,624		)		(16,057		)		92,106				—				39,425
Equity in earnings of investments in issuer and guarantor subsidiaries	76,049				72,715				—				(148,764		)		—
Net income (loss)	$	39,425			$	56,658			$	92,106			$	(148,764	)		$	39,425

Successor
Unaudited Supplemental Condensed Consolidated Balance Sheets

June 30, 2005

	FCC			Non-Guarantor Subsidiary (Issuer)				Guarantor Subsidiaries		Eliminations			Consolidated
Assets
Current assets:
Cash and cash equivalents	$	27,184			$	—		$	22	$	—		$	27,206
Trade accounts receivable, net	(146		)		—			102,384		—			102,238
Inventories, net	—				—			67,784		—			67,784
Deferred income taxes	—				5,569			9,576		—			15,145
Other current assets	(41,334		)		(686		)	64,385		—			22,365
Total current assets	(14,296		)		4,883			244,151		—			234,738
Owned surface lands	—				—			28,501		—			28,501
Plant, equipment and mine development costs, net	—				—			514,981		—			514,981
Owned and leased mineral rights, net	1,035				—			1,218,375		—			1,219,410
Coal supply agreements, net	—				—			69,323		—			69,323
Other noncurrent assets	435,887				475,628			542,224		(1,416,969		)	36,770
Total assets	$	422,626			$	480,511		$	2,617,555	$	(1,416,969	)	$	2,103,723
Current liabilities:
Trade accounts payable	$	1,706			$	9		$	28,182	$	—		$	29,897
Accrued expenses and other current liabilities	15,413				11,947			135,985		—			163,345
Total current liabilities	17,119				11,956			164,167		—			193,242
Long-term debt	—				685,000			—		—			685,000
Deferred income taxes	6,577				126,139			7,948		—			140,664
Coal supply agreements, net	—				—			119,824		—			119,824
Other noncurrent liabilities	103,896				(438,097		)	1,625,338		(621,178		)	669,959
Total liabilities	127,592				384,998			1,917,277		(621,178		)	1,808,689
Stockholder equity	295,034				95,513			700,278		(795,791		)	295,034
Total liabilities and stockholder equity	$	422,626			$	480,511		$	2,617,555	$	(1,416,969	)	$	2,103,723

Successor
Unaudited Supplemental Condensed Consolidated Statements of Cash Flows
For the Six Months Ended June 30, 2005

	FCC			Non-Guarantor Subsidiary (Issuer)				Guarantor Subsidiaries				Consolidated
Net cash provided by operating activities	$	29,474			$	—			$	33,008			$	62,482
Investing activities
Purchases of property, plant and equipment	—				—				(65,093		)		(65,093		)
Proceeds from disposition of property, plant and equipment	—				—				4,774				4,774
Net cash used in investing activities	—				—				(60,319		)		(60,319		)
Financing activities:
Proceeds from revolving credit line	—				60,000				—				60,000
Repayment of revolving credit line	—				(60,000		)		—				(60,000		)
Net cash provided by (used in) financing activities	—				—				—				—
Net increase (decrease) in cash and cash equivalents	29,474				—				(27,311		)		2,163
Cash and cash equivalents at beginning of period	(2,290		)		—				27,333				25,043
Cash and cash equivalents at end of period	$	27,184			$	—			$	22			$	27,206

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

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

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

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 9% of our coal sales revenue for the six months ended June 30, 2005 and 8% of our pro-forma 2004 sales revenue 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.

From July 1, 1999 through July 29, 2004, we were a stand-alone wholly owned subsidiary of RAG Coal International AG (“RAG”) headquartered in Essen, Germany. In October 2003, RAG announced its intention to divest its international mining subsidiaries. In addition to RAG American Coal Holding, Inc., these international mining subsidiaries consisted of operations in Australia and Venezuela. On February 29, 2004, RAG announced the sale of four of our subsidiaries, collectively known as the RAG Colorado Business Unit, to a third party. The subsidiaries comprising the RAG Colorado Business Unit owned an underground longwall mine located in Routt County, Colorado, an idled underground longwall mine located in Moffat County, Colorado and surface lands located in northwest Colorado and southern Wyoming. The transaction closed on April 15, 2004. In the financial statements of the Predecessor for the first quarter of 2004, the RAG Colorado Business Unit was classified as a discontinued operation.

On May 24, 2004, RAG, entered into a definitive agreement with Foundation Coal Corporation, which was owned by affiliates of First Reserve, Blackstone and AMCI, to sell all of its operations except the RAG Colorado Business Unit which was sold on April 15, 2004. The transaction closed on July 30, 2004.

Results of Continuing Operations

Basis of Presentation:

RAG American Coal Holding, Inc. and its subsidiaries, excluding the subsidiaries comprising the RAG Colorado Business Unit which were sold on April 15, 2004, were acquired by Foundation Coal Corporation on July 30, 2004. Due to the change in ownership, and the resultant application of purchase accounting, the historical financial statements of the Predecessor and the Successor included in this Form 10-Q have been prepared on different bases for the periods presented and are not comparable.

The following provides a description of the basis of presentation during all periods presented:

Successor—represents the consolidated financial position of Foundation Coal Corporation as of December 31, 2004 and June 30, 2005, our consolidated results of operations for the quarter ended June 30, 2005 and our consolidated results of operations and cash flows for the six months ended June 30, 2005. Our consolidated financial position at December 31, 2004 and June 30, 2005, and our consolidated results of operations for the quarter and six months ended June 30, 2005 reflect our preliminary estimates of purchase price allocation based on preliminary appraisals prepared by independent valuation specialists and preliminary employee benefit valuations prepared by independent actuaries. Deferred income taxes have been provided in the consolidated balance sheet based on our best estimates of the tax versus book basis of the assets acquired and liabilities assumed, as adjusted to estimated fair values. The amounts that we may record based on the final assessment and determination of fair values may differ from the information presented in the consolidated balance sheets as of December 31, 2004 and June 30, 2005, and the consolidated statements of operations for the quarter and six months ended June 30, 2005. The application of purchase accounting to the acquired assets of RAG American Coal Holding, Inc. resulted in increases to owned and leased mineral rights, surface lands, coal inventories, and the asset arising from recognition of asset retirement obligations. It resulted in decreases to plant and equipment and current deferred taxes. In addition, the historical cost assigned to deferred overburden in the acquired asset balance sheet was eliminated. The values assigned to uncovered and partially covered coal lands considered the stage of the mining process in which these two groups of coal lands were at the acquisition date. The application of purchase accounting to the acquired liabilities of RAG American Coal Holding, Inc. resulted in increases to postretirement health care obligations, pension obligations, black lung obligations, asset retirement obligations and noncurrent deferred taxes. Separate assets or liabilities were established to reflect the valuation of above or below market coal supply agreements in relation to market price curves. With regard to consolidated results of operations for the quarter and six months ended June 30, 2005, the principal effects of the application of purchase accounting, in comparison to reporting for historical periods, were to decrease the cost of coal sold due to lower expenses for postretirement health care and pensions, to decrease the cost of coal sold for net deferrals of deferred overburden costs, to decrease net amortization expense for coal supply agreements which is now a credit because our contracts at acquisition represented a net liability, and to increase the cost of depletion expense for owned and leased mineral rights.

Predecessor—represents the results of operations and cash flows for RAG American Coal Holding, Inc. for the three months ended March 31, 2004. These consolidated financial statements are based on the historical assets, liabilities, sales and expenses of the Predecessor for these periods. During the three months ended March 31, 2004, RAG American Coal Holding, Inc. reported a loss from continuing operations before income tax expense of $73.1 million. This result included: (a) $48.8 million in pre-tax charges related to termination of hedge accounting for interest rate swaps since it became probable during the three month period that the underlying variable rate bank debt would be repaid early rather than held to maturity; and (b) $3.1 million in pre-tax mark-to-market losses for the one month portion of the three months that the interest swaps did not qualify for hedge accounting.

Pro forma—To facilitate second quarter to second quarter ans six months to six months comparisons throughout management’s discussion and analysis, we discuss “pro forma” results for the quarter and six months ended June 30, 2004. The pro forma results present the second quarter and first six months of 2004 as if Foundation Coal Corporation: (a) acquired RAG American Coal Holding, Inc. on January 1, 2004; (b) completed the Initial Public Offering on January 1, 2004; and transacted the sale of the RAG Colorado Business Unit and associated repayment of Predecessor bank debt and settlement of Predecessor interest rate swaps on December 31, 2003. Pro-forma amounts are not recognized measures under GAAP and do not purport to be alternatives to GAAP operating measures. Management believes that the discussion of pro forma operating results is important to the readers of the financial statements to understand key

operating trends in comparing the second quarter of 2005 to the second quarter of 2004 and the six months ended June 30, 2005 to the six months ended June 30, 2004. In the following sections tables present unaudited results of operations for the Successor for the quarter ended June 30, 2005, unaudited results of operations for the Predecessor on a pro forma basis as described above for the quarter ended June 30, 2004, unaudited results of operations for the Successor for the six months ended June 30, 2005, and unaudited results of operations for the Predecessor on a pro forma basis as described above for the six months ended June 30, 2004

Quarter ended June 30, 2005—Successor compared to quarter ended June 30, 2004—Predecessor

As previously described there are significant differences in the basis of financial reporting between the Successor and Predecessor periods as a result of the purchase of RAG American Coal Holding, Inc. by Foundation Coal Corporation on July 30, 2004, and the resultant application of purchase accounting to the assets and liabilities acquired. The Successor reported income from continuing operations of $20.2 million for the quarter ended June 30, 2005 whereas the Predecessor reported a loss from continuing operations of $2.2 million for the quarter ended June 30, 2004.

During the prior year second quarter the Predecessor experienced below normal coal production from our Northern Appalachia mines which was the primary reason for the loss from continuing operations. The impact of below normal production was partly offset by a mark-to-market gain from interest rate swaps of approximately $4.2 million after income tax.

During the second quarter of 2005, the Successor achieved stronger production and tons sold, enjoyed significantly higher per ton sales realizations and received the benefit of a net credit from amortization of coal supply agreements, reflecting amortization of a net liability established for below market contracts in purchase accounting. Year-to-year increases in cost of coal sales and depreciation, depletion and amortization were more than absorbed by higher coal sales revenues. The operating trends discussed in the following section, Historical quarter ended June 30, 2005 compared to pro forma quarter ended June 30, 2004, also apply to comparisons of the Successor and Predecessor periods for the quarters ended June 30, 2005 and 2004, respectively.

Historical and Pro Forma
Consolidated Condensed Statements of Operations
(Dollars in millions)
(Unaudited)

	Successor				Predecessor								Pro Forma
	Quarter Ended June 30, 2005				Quarter Ended June 30, 2004				Pro Forma Adjustments				Quarter Ended June 30, 2004
Revenues		$	329.5			$	252.1			$	(0.2	)(a)		$	251.9
Cost of coal sales		241.3				216.3				(13.9		)(b)		202.4
Selling, general & administrative expense		9.0				10.5				(1.3		)(c)		9.2
Accretion on asset retirement obligations		2.0				1.7				0.4		(d)		2.1
Depreciation, depletion & amortization		52.7				27.4				24.9		(e)		52.3
Amortization of coal supply agreements		(23.1		)		3.8				(45.4		)(f)		(41.6		)
Income (loss) from operations		47.6				(7.6		)		35.1				27.5
Interest expense		(14.4		)		(6.3		)		(6.7		)(g)		(13.0		)
Interest income		0.2				0.4				—				0.4
Loss on termination of hedge accounting for interest rate swaps		—				(0.1		)		0.1		(h)		—
Mark-to-market gain on interest rate swaps		—				9.0				(9.0		)(h)		—
Income (loss) before income taxes		33.4				(4.6		)		19.5				14.9
Income tax (expense) benefit		(13.0		)		2.4				(9.6		)(i)		(7.2		)
Income (loss) from continuing operations		20.4				(2.2		)		9.9				7.7
Income from discontinued operations, net of income tax expense		—				20.3				(20.3		)(h)		—
Net income (loss)		$	20.4			$	18.1			$	(10.4	)		$	7.7

(a) Reflects the elimination of royalty income as a result of purchase accounting

(b) Reflects an adjustment of $9.2 million of overburden removal costs reflected on depreciation, depletion and amortization as a result of purchase accounting, $4.7 million of elimination of actuarial losses on pension and other postretirement benefits as a result of purchase accounting.

(c) Reflects an adjustment of $1.1 million for expense arising from a management incentive plan eliminated when RAG American Coal holding, Inc. was acquired by Foundation Coal Corporation and $0.2 million of elimination of actuarial losses on pensions, other postretirement benefits and black lung benefits as a result of purchase accounting.

(d) Reflects accretion expense on the additional asset retirement obligation recognized in purchase accounting.

(e) Reflects increased depreciation, depletion and amortization, primarily cost depletion on mineral rights, as a result of purchase accounting.

(f) Reflects net credit to amortization of coal supply agreements as a result of purchase accounting.

(g) Reflects adjustment to interest expense based on capital structure put in place by the acquisition.

(h) Reflects adjustments to eliminate debt extinguishment charges and income from discontinued operations arising from sale of the Colorado Business Unit.

(i) Represents the tax effect of the pro forma adjustments computed such that the pro forma income tax benefit is recognized at the effective income tax rate recorded in the Successor period of 2004.

Historical quarter ended June 30, 2005 compared to pro forma quarter ended June 30, 2004

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

	Successor			Pro Forma
	Quarter			Quarter
	Ended			Ended				Increase (Decrease)
	June 30, 2005			June 30, 2004				Amount			Percent
	(Unaudited, in millions, except per ton data)
Coal sales		$	324.5		$	252.1			$	72.4	28.7	%
Other revenue		5.0			(0.2		)		5.2		260.0	%
Total revenues		$	329.5		$	251.9			$	77.6	30.8	%
Tons sold		16.1			15.9				0.2		1.3	%
Coal sales realization per ton sold		$	20.10		$	15.89			$	4.21	26.5	%

Coal sales revenues for the quarter ended June 30, 2005 increased by 28.7% compared to the pro forma coal sales revenues for the quarter ended June 30, 2004 as a result of a 1.3% increase in tons sold and a 26.5% increase in average coal sales realization per ton.

Coal sales volumes in Northern Appalachia increased by 0.5 million tons (17%) primarily as a result of increased production from the Cumberland Mine, partly offset by lower production from the Emerald Mine due to adverse mining conditions experienced while mining the last portion of the panel prior to the scheduled longwall move. Coal sale volumes in Northern Appalachia in the second quarter of 2004 were decreased by interruptions to operations caused by the idling of the Cumberland Mine longwall for approximately the first five weeks of the quarter. From February 17 through May 7, 2004, the longwall mining equipment at the Cumberland Mine was idled due to alleged violations resulting from a revised interpretation of regulations issued by MSHA regarding the ventilation system at the Mine. In response, we revised the ventilation system to minimize any future business disruption and on May 7, 2004 we resumed longwall operations at the Cumberland Mine. There was no interruption of production due to ventilation issues during the second quarter of 2005. Coal sales volumes in Central Appalachia increased by 0.3 million tons (15%) due to higher production at the Kingston, Pioneer/Pax and Rockspring mines plus increased sales of purchased coal partly offset by lower production from the Laurel Creek complex. Production capacity at Kingston was expanded in early 2005 by the addition of a continuous miner unit. 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 0.5 million tons during the second quarter of 2005. When fully developed in 2006, it is expected to produce approximately one million tons of coal per year. Coal sales volumes in the Powder River Basin decreased by 0.4 million tons (4%) primarily as a result of worse than expected levels of rail service brought on by unusually inclement weather during May and resultant repairs to the rail lines, particularly the UP/BNSF joint line south of Gillette. The repair program on the joint line is expected to impact rail service through November 2005. Coal sales volumes from the Illinois Basin increased by 0.1 million tons (13%) reflecting shipments made to fulfill new contract obligations. Purchased coal activities by our trading group decreased by approximately 0.3 million tons, compared to the comparable quarter of the prior year due to the timing of purchased coal transactions.

Coal sales realization per ton sold in Northern and Central Appalachia increased by 31% and 39%, respectively in 2005 due to substitution of higher priced contracts which took effect in late 2004 and early 2005 for lower priced contracts that expired. An additional factor in Northern Appalachia was higher coal quality premiums for sulfur content as a result of record prices for sulfur dioxide allowances and lower sulfur content of shipped coal. In the Powder River Basin, coal sales realizations per ton declined by 2%

due to expiration at the end of 2004 of higher priced contracts signed during the 2001 market increase, partly offset by higher sulfur premiums. The weighted average coal sales realization per ton sold of $20.10 for the second quarter of 2005 also benefited from a larger proportion of higher priced Northern Appalachia and Central Appalachia tons sold relative to the lower priced tons from the Powder River Basin.

Other revenues for the quarter ended June 30, 2005 increased by $5.2 million compared to the pro forma other revenues for the quarter ended June 30, 2004. The increase was partly due to charges totaling $3.7 million during the 2004 period for settlement of future coal sales commitments that did not recur in 2005 combined with higher revenues for synfuel fees and coal mine methane sales during the 2005 quarter.

Costs and Expenses

	Successor			Pro Forma
	Quarter			Quarter
	Ended			Ended			Increase (Decrease)
	June 30, 2005			June 30, 2004			Amount				Percent
	(Unaudited, in millions)
Cost of coal sales (excludes depreciation, depletion and amortization)		$	241.3		$	202.4		$	38.9			19.2	%
Selling, general and administrative expenses (excludes depreciation, depletion and amortization)		9.0			9.2			(0.2		)		(2.2	)%
Accretion on asset retirement obligations		2.0			2.0			—				—
Depreciation, depletion and amortization		52.7			52.3

Foundation Coal CORP 10-Q/A