10-Q

SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

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

For the quarterly period ended June 30, 2003

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 No.
001-11155

WESTMORELAND COAL COMPANY
(Exact name of registrant as specified in its charter)

Delaware	23-1128670
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

2 North Cascade Avenue, 14th Floor, Colorado Springs, CO 80903
(Address of principal executive offices)                               (Zip Code)

Registrant’s telephone number, including area code: (719) 442-2600

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 an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).
    Yes   X      No  ___

Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of August 1, 2003: Common stock, $2.50 par value: 7,785,574

1

PART I - FINANCIAL INFORMATION

ITEM 1
FINANCIAL STATEMENTS

Westmoreland Coal Company and Subsidiaries
Consolidated Balance Sheets

		(Unaudited)
		June 30,		December 31,
		2003		2002
		(in thousands)
Assets
Current assets:
Cash and cash equivalents	$	5,660	$	9,845
Receivables:
Trade		22,730		20,962
Other		11,589		1,221
		34,319		22,183
Inventories		15,495		14,018
Restricted cash		8,314		8,497
Deferred income taxes		10,938		15,831
Other current assets		4,911		6,765
Total current assets		79,637		77,139
Property, plant and equipment:
Land and mineral rights		18,178		53,314
Capitalized asset retirement cost		97,384		-
Plant and equipment		88,624		197,759
		204,186		251,073
Less accumulated depreciation and depletion		61,164		61,541
Net property, plant and equipment		143,022		189,532
Deferred income taxes		57,758		49,253
Investment in independent power projects		36,534		33,407
Excess of trust assets over pneumoconiosis benefit
obligation		6,549		7,665
Restricted cash and bond collateral		12,548		8,790
Advanced coal royalties		4,050		4,639
Deferred overburden removal costs		11,350		10,348
Reclamation deposits		51,051		49,484
Contractual third party reclamation obligations		24,124		29,263
Other assets		12,191		12,437
Total Assets	$	438,814	$	471,957

See accompanying Notes to Consolidated Financial Statements.

(Continued)

2

Westmoreland Coal Company and Subsidiaries
Consolidated Balance Sheets (Continued)

		(Unaudited)
		June 30,		December 31,
		2003		2002
		(in thousands)
Liabilities and Shareholders' Equity
Current liabilities:
Current installments of long-term debt	$	11,269	$	8,852
Accounts payable and accrued expenses:
Trade		25,941		27,070
Income taxes		404		594
Production taxes		13,941		14,273
Workers’ compensation		2,094		2,335
Postretirement medical costs		12,787		12,787
1974 UMWA Pension Plan obligations		1,527		1,473
Asset retirement obligation		8,372		11,381
Total current liabilities		76,335		78,765
Long-term debt, less current installments		86,311		91,305
Accrual for workers’ compensation, less current portion		7,599		8,405
Accrual for postretirement medical costs, less current
portion		108,443		104,336
Accrual for pension and SERP costs		5,710		4,341
1974 UMWA Pension Plan obligations, less current
portion		5,783		6,562
Asset retirement obligation, less current portion		109,657		148,410
Other liabilities		12,581		6,732
Minority interest		4,423		4,533
Commitments and contingent liabilities
Shareholders' equity:
Preferred stock of $1.00 par value
Authorized 5,000,000 shares;
Issued and outstanding 205,083 shares at June 30,
2003 and 206,833 shares at December 31, 2002		205		207
Common stock of $2.50 par value
Authorized 20,000,000 shares;
Issued and outstanding 7,779,838 shares at
June 30, 2003 and 7,711,379 shares
at December 31, 2002		19,449		19,278
Other paid-in capital		71,328		70,908
Accumulated other comprehensive loss		(4,355)		(5,101)
Accumulated deficit		(64,655)		(66,724)
Total shareholders' equity		21,972		18,568
Total Liabilities and Shareholders' Equity	$	438,814	$	471,957

See accompanying Notes to Consolidated Financial Statements.

3

Westmoreland Coal Company and Subsidiaries
Consolidated Statements of Operations

		(Unaudited)
	Three months ended June 30,					Six months ended June 30,
		2003		2002		2003		2002
		(in thousands except per share data)
Revenues:
Coal	$	66,262	$	81,888	$	140,775	$	160,304
Independent power projects – equity in earnings		4,193		1,795		7,964		6,592
		70,455		83,683		148,739		166,896
Costs and expenses:
Cost of sales – coal		52,777		62,617		110,967		121,482
Depreciation, depletion and amortization		2,964		3,039		5,920		6,188
Selling and administrative		10,727		6,930		17,839		15,597
Heritage health benefit costs		7,568		6,286		15,085		13,012
Doubtful account recoveries		-		(271)		-		(317)
Gain on sales of assets		(451)		-		(451)		(40)
		73,585		78,601		149,360		155,922
Operating income (loss) from continuing operations		(3,130)		5,082		(621)		10,974
Other income (expense):
Interest expense		(2,485)		(2,729)		(5,024)		(5,534)
Interest income		481		582		1,020		1,105
Minority interest		(229)		(44)		(340)		(226)
Other income		422		297		629		331
Income (loss) from continuing operations before   income taxes and cumulative effect   of change in accounting principle		(4,941)		3,188		(4,336)		6,650
Income tax benefit (expense) from continuing     operations		3,459		(512)		4,369		(1,309)
Net income (loss) from continuing operations before   cumulative effect of change in accounting principle		(1,482)		2,676		33		5,341
Discontinued operations:
Loss from operations of discontinued terminal      segment		(667)		(627)		(973)		(1,175)
Gain on sale of discontinued terminal segment		4,509		-		4,509		-
Income tax benefit (expense)		(1,536)		251		(1,414)		470
Income (loss) from discontinued operations		2,306		(376)		2,122		(705)
Net income before cumulative effect of change   in accounting principle		824		2,300		2,155		4,636
Cumulative effect of change in accounting principle,   net of income tax expense of $108		-		-		161		-
Net income		824		2,300		2,316		4,636
Less preferred stock dividend requirements		(440)		(444)		(880)		(888)
Net income applicable to common shareholders	$	384	$	1,856	$	1,436	$	3,748

See accompanying Notes to Consolidated Financial Statements.

(Continued)

4

Westmoreland Coal Company and Subsidiaries
Consolidated Statements of Operations (Continued)

		(Unaudited)
	Three months ended June 30,					Six months ended June 30,
		2003		2002		2003		2002
		(in thousands except per share data)
Net income per share applicable to common
shareholders before cumulative effect of change   in accounting principle:
Basic	$	.05	$	.24	$	.16	$	.50
Diluted	$	.05	$	.23	$	.15	$	.46
Net income per share applicable to common   shareholders from cumulative effect of change   in accounting principle:
Basic and diluted	$	-	$	-	$	.02	$	-
Net income per share applicable to common   shareholders:
Basic	$	.05	$	.24	$	.19	$	.50
Diluted	$	.05	$	.23	$	.17	$	.46
Pro forma amounts assuming the change in   accounting principle is applied   retroactively:
Net income applicable to common shareholders	$	384	$	1,942	$	1,275	$	3,920
Net income per share applicable to common      shareholders:
Basic	$	.05	$	.26	$	.16	$	.52
Diluted	$	.05	$	.24	$	.15	$	.48
Weighted average number of common shares   outstanding:
Basic		7,762		7,584		7,746		7,558
Diluted		8,331		8,159		8,277		8,134

See accompanying Notes to Consolidated Financial Statements.

5

Westmoreland Coal Company and Subsidiaries
Consolidated Statement of Shareholders’ Equity
and Comprehensive Income
Six Months Ended June 30, 2003
(Unaudited)

		Class A Convertible Exchangeable Preferred Stock	Common Stock	Other Paid-In Capital	Accumulated Other Comprehensive Loss	Accumulated Deficit	Total Shareholders’ Equity
	(in thousands except share data)
Balance at December 31, 2002 (206,833 preferred shares and 7,711,379 common shares outstanding)		$ 207	$ 19,278	$ 70,908	$ (5,101)	$ (66,724)	$ 18,568
Common stock issued as
compensation (63,459 shares)		-	158	600	-	-	758
Common stock options exercised
(5,000 shares)		-	13	2	-	-	15
Repurchase and retirement of
preferred shares (1,750 shares)		(2)	-	(211)	-	-	(213)
Dividends declared		-	-	-	-	(247)	(247)
Tax benefit of stock option     exercises		-	-	29	-	-	29
Net income		-	-	-	-	2,316	2,316
Net unrealized change in interest
rate swap agreement, net of
tax expense of $497,000		-	-	-	746	-	746
Comprehensive income							3,062
Balance at June 30, 2003
(205,083 preferred shares and
7,779,838 common shares
outstanding)		$ 205	$ 19,449	$ 71,328	$ (4,355)	$ (64,655)	$ 21,972

See accompanying Notes to Consolidated Financial Statements.

6

Westmoreland Coal Company and Subsidiaries
Consolidated Statements of Cash Flows

		(Unaudited)
Six Months Ended June 30,		2003		2002
		(in thousands)
Cash flows from operating activities:
Net income (loss)	$	2,316	$	4,636
Adjustments to reconcile net income to net cash   provided by operating activities:
Equity in earnings from independent power projects		(7,964)		(6,592)
Cash distributions from independent power projects		5,582		5,046
Share of losses from DTA		785		1,064
Cash generated by DTA		64		65
Cash contributions to DTA		(849)		(864)
Deferred income tax (benefit) expense		(3,583)		421
Depreciation, depletion and amortization		5,920		6,188
Stock compensation expense		758		725
Gain on sales of assets		(4,960)		(40)
Minority interest		340		226
Cumulative effect of change in accounting principle		(269)		-
Net change in operating assets and liabilities		10,536		15,029
Net cash provided by operating activities		8,676		25,904
Cash flows from investing activities:
Additions to property, plant and equipment		(4,300)		(3,551)
Change in restricted cash and bond collateral		(3,575)		2,322
Change in other long-term assets		(2,979)		(1,155)
Net proceeds from sales of assets		1,465		504
Net cash used in investing activities		(9,389)		(1,880)
Cash flows from financing activities:
Net borrowings (repayments) under revolving lines of credit		500		(5,500)
Borrowings of long-term debt		850		-
Repayment of long-term debt		(3,927)		(9,000)
Dividends paid to minority interest		(450)		(400)
Dividends on preferred shares		(247)		-
Repurchase of preferred shares		(213)		-
Proceeds from exercise of stock options		15		174
Net cash used in financing activities		(3,472)		(14,726)
Net increase (decrease) in cash and cash equivalents		(4,185)		9,298
Cash and cash equivalents, beginning of period		9,845		5,233
Cash and cash equivalents, end of period	$	5,660	$	14,531
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest	$	4,898	$	5,420
Income taxes	$	927	$	890

See accompanying Notes to Consolidated Financial Statements.

7

WESTMORELAND COAL COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

These quarterly consolidated financial statements should be read in conjunction with the consolidated financial statements and notes included in the Annual Report on Form 10-K for the year ended December 31, 2002 of Westmoreland Coal Company and its subsidiaries (collectively, “the Company”). Westmoreland Coal Company individually may be referred to as “Westmoreland”. The accounting principles followed by the Company are set forth in the Notes to the Company’s consolidated financial statements in that Annual Report. These accounting principles and other footnote disclosures previously made have been omitted in this report so long as the interim information presented is not misleading.

The consolidated financial statements of the Company have been prepared in accordance with generally accepted accounting principles and require use of management’s estimates. The financial information contained in this Form 10-Q is unaudited but reflects all adjustments which are, in the opinion of management, necessary for a fair presentation of the financial information for the periods shown. Such adjustments are of a normal recurring nature. Certain prior year amounts have been reclassified to conform to the current year presentation. The results of operations for such interim periods are not necessarily indicative of results to be expected for the full year.

1.         NATURE OF OPERATIONS

The Company’s current principal activities, all conducted within the United States, are: (i) the production and sale of coal from Montana, North Dakota and Texas; and (ii) the development, ownership and management of interests in cogeneration and other non-regulated independent power plants. Prior to the sale of the Company’s interest in Dominion Terminal Associates (“DTA”), which was effective as of June 30, 2003, the Company was also engaged in the leasing of capacity at that coal storage and vessel loading facility. As described in Note 2, the Company’s share of DTA’s activities have been classified as discontinued operations in the Consolidated Statements of Operations.

2.         INVESTMENT IN DOMINION TERMINAL ASSOCIATES

Prior to June 30, 2003, the Company had a 20% interest in DTA, a partnership formed for the construction and operation of a coal-storage and vessel-loading facility in Newport News, Virginia. The Company made its initial investment in DTA in the mid-1980‘s to support coal production and brokering operations it was then conducting in the eastern United States. Each partner was responsible for its share of throughput and expenses at the terminal. After the Company’s eastern coal production and sales activities were discontinued in the 1990‘s, it leased the terminal’s ground storage space and vessel-loading facilities and provided related support services to certain unaffiliated parties engaged in the export business. Due to declining export business, the Company’s original investment in DTA was written down from $17.6 million to $5.5 million in 1998. The Company’s loss from operations at DTA in more recent years has represented the revenue received from the lease of its facilities and throughput net of its share of the expenses incurred attributable to the terminal’s operations.

The Company recognized a further non-cash impairment charge equal to the remaining book value of its investment in DTA during the third quarter of 2002 as a result of the terminal’s continuing operating losses and the terms of an agreement by one of the terminal’s other owners to dispose of its interest in DTA, but the Company continued to share in cash operating expenses and recognize losses until the sale of its own interest was completed.

8

On January 29, 2003, a subsidiary of Dominion Resources, Inc. executed a letter of intent to purchase for $10.5 million the Company’s 20% partnership interest in DTA and its industrial revenue bonds. A definitive Purchase and Sale Agreement was executed on March 14, 2003 and the transaction closed on June 30, 2003. At closing, the purchaser assumed all of the Company’s DTA partnership obligations. Under the terms of the Purchase and Sale Agreement, the Company guaranteed throughput at the terminal for a period of three years from the effective date of the sale. To secure the throughput commitment, the purchaser deposited $6.0 million of the purchase price into an escrow account as collateral for a stand-by letter of credit for the benefit of the purchaser. The Company also provided customary representations and warranties about the status of its partnership interest, the industrial revenue bonds being purchased and the general condition of DTA and has indemnified the purchaser for any loss incurred as a result of a breach of these representations and warranties. The Company has guaranteed its obligations under the Purchase and Sale Agreement for a period of five years.

With the closing of this transaction the Company will cease to incur DTA-related operating losses, which were $667,000 and $973,000 for the six-month periods ended June 30, 2003 and 2002, respectively. The Company also recognized a $4.5 million pretax gain in the second quarter of 2003. Because those proceeds were not received until July 2, 2003, they are included in other accounts receivable at June 30, 2003.

As a result of the sale of the Company’s investment, the financial results relating to DTA have been presented as Discontinued Operations in the accompanying Consolidated Statements of Operations. The basic and diluted income per share from these discontinued operations, including the gain on sale, were $.30 and $.27 for the three and six-month periods ended June 30, 2003, respectively. The basic and diluted loss per share from these discontinued operations were $.05 and $.09 for the three and six-month periods ended June 30, 2002, respectively.

3.         LINES OF CREDIT AND LONG-TERM DEBT

The amounts outstanding at June 30, 2003 and December 31, 2002 under the Company’s lines of credit and long-term debt were:

	June 30, 2003		December 31, 2002
	(in thousands)
WML revolving line of credit	$	1,000	$	1,500
WML term debt		92,400		96,300
Corporate revolving line of credit		1,500		500
Other term debt		2,680		1,857
Total debt outstanding		97,580		100,157
Less current portion		(11,269)		(8,852)
Total long-term debt outstanding	$	86,311	$	91,305

Westmoreland Mining LLC (“WML”) is a wholly-owned subsidiary of Westmoreland. Pursuant to WML’s term debt agreements, WML is required to maintain a debt service reserve account and a long-term prepayment account. As of June 30, 2003, there were a total of $8.3 million in the debt service reserve account, which the lenders could use for principal and interest payments in the event WML does not make scheduled payments, and $7.3 million in the long-term prepayment account. Those funds have been classified as restricted cash on the Consolidated Balance Sheets.

9

The maturities of all long-term debt and the revolving credit facilities outstanding at June 30, 2003 are:

	In thousands
July – December 2003	$	5,050
2004		11,666
2005		12,137
2006		11,638
2007		12,267
Thereafter		44,822
	$	97,580

4.         CAPITAL STOCK

Westmoreland issued Series A Convertible Exchangeable Preferred Stock (“Series A Preferred Stock”) in July 1992. Preferred stock dividends at a rate of 8.5% per annum were paid quarterly from the third quarter of 1992 through the first quarter of 1994. The declaration and payment of preferred stock dividends was suspended in the second quarter of 1994 in connection with extension agreements with Westmoreland’s principal lenders. Upon the expiration of these extension agreements, Westmoreland paid a quarterly dividend on April 1, 1995 and July 1, 1995. Pursuant to the requirements of Delaware law, described below, the preferred stock dividend was suspended in the third quarter of 1995 as a result of recognition of losses and a subsequent shareholders’ deficit until the third quarter of 2002. Dividends of $0.60 per preferred share, or $0.15 per depositary share, were paid quarterly from October 1, 2002, to July 1, 2003. A dividend of $0.20 per depositary share was declared on August 5, 2003, payable October 1, 2003. The quarterly dividends which are accumulated but unpaid through and including July 1, 2003 amount to $14.8 million in the aggregate ($71.97 per preferred share or $17.99 per depositary share). Common stock dividends may not be declared until the preferred stock dividends that are accumulated but unpaid are made current.

On August 9, 2002, Westmoreland’s Board of Directors authorized the purchase of up to 10% of the Series A Preferred Stock on the open market or in privately negotiated transactions with institutional and accredited investors between then and the end of 2004. The timing and amount of purchases will be determined by Westmoreland’s management based on its evaluation of the Company’s capital resources, the price of the shares offered to the Company and other factors. In March, 2003, Westmoreland purchased 7,000 shares of Series A Preferred Stock for $213,000. During the second quarter of 2003, the Company did not purchase any shares of Series A Preferred Stock. Westmoreland retired the shares of Series A Preferred Stock that it purchased. The effect of these purchases and retirements is to reduce the number of shares of Series A Preferred Stock outstanding to 205,083 and the amount of the quarterly dividend that must be paid or accumulated on such shares to $436,000.

There are statutory restrictions limiting the payment of preferred stock dividends under Delaware law, the state in which Westmoreland is incorporated. Under Delaware law, Westmoreland is permitted to pay preferred stock dividends only: (1) out of surplus, surplus being the amount of shareholders’ equity in excess of the par value of Westmoreland’s two classes of stock; or (2) in the event there is no surplus, out of net profits for the fiscal year in which a preferred stock dividend is declared (and/or out of net profits from the preceding fiscal year), but only to the extent that shareholders’ equity exceeds the par value of the preferred stock (which par value was $205,000 at June 30, 2003). The Company had shareholders’ equity at June 30, 2003 of $22.0 million and the par value of all outstanding shares of preferred stock and shares of common stock aggregated $19.7 million at June 30, 2003.

10

Incentive Stock Options

The Company applies the intrinsic-value-based method of accounting prescribed by Accounting Principles Board (“APB”) Opinion No. 25, Accounting for Stock Issued to Employees, and related interpretations, to account for its fixed-plan stock options. Under this method, compensation expense is recorded on the date of grant only if the current market price of the underlying stock exceeded the exercise price. Statement of Financial Accounting Standards No. 123 (“SFAS No. 123”), Accounting for Stock-Based Compensation, established accounting and disclosure requirements using a fair-value-based method of accounting for stock-based employee compensation plans. As allowed under SFAS No. 123, the Company has elected to continue to apply the intrinsic-value-based method of accounting described above. The following table illustrates the pro forma effect on net income and net income per share if the compensation cost for the Company’s fixed-plan stock options had been determined based on the fair value at the grant dates consistent with SFAS No. 123:

		Three Months Ended June 30,				Six Months Ended June 30,
		2003		2002		2002		2002
		(in thousands, except per share data)
Net income applicable to common shareholders:
As reported	$	384	$	1,856	$	1,436	$	3,748
Pro forma	$	240	$	1,540	$	1,149	$	3,115
Net income per share applicable to common   shareholders:
As reported, basic	$	.05	$	.24	$	.19	$	.50
Pro forma, basic	$	.03	$	.20	$	.15	$	.46
As reported, diluted	$	.05	$	.23	$	.17	$	.46
Pro forma, diluted	$	.03	$	.19	$	.14	$	.38

11

Earnings per Share

The following table provides a reconciliation of the number of shares used to calculate basic and diluted earnings per share (EPS).

	Three Months Ended June 30,		Six Months Ended June 30,
	2003	2002	2003	2002
	(in thousands)
Number of shares of common stock:
Basic	7,762	7,584	7,746	7,558
Effect of dilutive option shares	569	575	531	576
Diluted	8,331	8,159	8,277	8,134
Number of shares not included in
diluted EPS that would have been
antidilutive because exercise price
of options was greater than the   average market price of the   common shares	204	125	284	308

5.         INCOME TAXES

Income taxes on the Consolidated Statements of Operations consist of the following:

	Three Months Ended				Six Months Ended
		June 30,				June 30,
		2003		2002		2003		2002
		(in thousands)
Current:
Federal	$	115	$	-	$	230	$	-
State		243		(181)		506		(418)
		358		(181)		736		(418)
Deferred:
Federal		(1,961)		(69)		(3,081)		(362)
State		(320)		(11)		(502)		(59)
		(2,281)		(80)		(3,583)		(421)
Income tax (benefit) expense	$	(1,923)	$	(261)	$	(2,847)	$	(839)

The deferred income tax expense recorded for the three months and six months ended June 30, 2003 was reduced by $2.3 million and $2.9 million, respectively, due to a reduction in the deferred income tax asset valuation allowance as a result of an increase in the amount of Federal net operating loss carryforwards the Company expects to use prior to their expiration through 2019. The increase in the expected amount of Federal net operating losses to be used in the future is primarily a result of a new coal sales contract entered into during the second quarter of 2003. The terms of the contract call for deliveries of 1.5 to 2.5 million tons per year from 2004 through 2008. The deferred income tax expense recorded for the three months and six months ended June 30, 2002 was reduced by $600,000 and $1,100,000, respectively, primarily as a result of increased use of future net operating loss carryforwards anticipated in 2002.

12

6.         BUSINESS SEGMENT INFORMATION

The Company’s operations have been classified into two segments: coal and independent power. The coal segment includes the production and sale of coal from Montana, North Dakota and Texas. The independent power segment includes the ownership of interests in cogeneration and other non-regulated independent power plants. The “Corporate” classification noted in the tables represents all costs not otherwise classified, including corporate office charges, heritage health benefit costs and business development expenses. Summarized financial information by segment for the quarters and six months ended June 30, 2003 and 2002 is as follows:

13

Quarter ended June 30, 2003

		Coal		Independent Power		Corporate		Total
		(in thousands)
Revenues:
Coal	$	66,262	$	-	$	-	$	66,262
Equity in earnings		-		4,193		-		4,193
		66,262		4,193		-		70,455
Costs and expenses:
Cost of sales – coal		52,777		-		-		52,777
Depreciation, depletion
and amortization		2,928		6		30		2,964
Selling and administrative		4,819		300		5,608		10,727
Heritage health benefit
costs		-		-		7,568		7,568
Gain on sales of asset		-		-		(451)		(451)
Operating income (loss)       from continuing operations	$	5,738	$	3,887	$	(12,755)	$	(3,130)
Capital expenditures	$	1,938	$	1	$	4	$	1,943
Property, plant and
equipment, net	$	142,609	$	58	$	355	$	143,022

Quarter ended June 30, 2002

		Coal		Independent Power		Corporate		Total
		(in thousands)
Revenues:
Coal	$	81,888	$	-	$	-	$	81,888
Equity in earnings		-		1,795		-		1,795
		81,888		1,795		-		83,683
Costs and expenses:
Cost of sales – coal		62,617		-		-		62,617
Depreciation, depletion
and amortization		3,012		3		24		3,039
Selling and administrative		5,301		214		1,415		6,930
Heritage health benefit
costs		-		-		6,286		6,286
Doubtful account recoveries		(271)		-		-		(271)
Operating income (loss)       from continuing operations	$	11,229	$	1,578	$	(7,725)	$	5,082
Capital expenditures	$	1,375	$	37	$	2	$	1,414
Property, plant and
equipment, net	$	193,006	$	79	$	1,263	$	194,348

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Six months ended June 30, 2003

		Coal		Independent Power		Corporate		Total
		(in thousands)
Revenues:
Coal	$	140,775	$	-	$	-	$	140,775
Equity in earnings		-		7,964		-		7,964
		140,775		7,964		-		148,739
Costs and expenses:
Cost of sales – coal		110,967		-		-		110,967
Depreciation, depletion
and amortization		5,849		12		59		5,920
Selling and administrative		8,852		498		8,489		17,839
Heritage health benefit
costs		-		-		15,085		15,085
Gain on sales of assets		-		-		(451)		(451)
Operating income (loss)       from continuing operations	$	15,107	$	7,454	$	(23,182)	$	(621)
Capital expenditures	$	4,239	$	1	$	60	$	4,300
Property, plant and
equipment, net	$	142,609	$	58	$	355	$	143,022

Six months ended June 30, 2002

		Coal		Independent Power		Corporate		Total
		(in thousands)
Revenues:
Coal	$	160,304	$	-	$	-	$	160,304
Equity in earnings		-		6,592		-		6,592
		160,304		6,592		-		166,896
Costs and expenses:
Cost of sales – coal		121,482		-		-		121,482
Depreciation, depletion
and amortization		6,135		5		48		6,188
Selling and administrative		10,692		446		4,459		15,597
Heritage health benefit
costs		-		-		13,012		13,012
Doubtful account recoveries		(317)		-		-		(317)
Gain on sales of assets		(40)		-		-		(40)
Operating income (loss)       from continuing operations	$	22,352	$	6,141	$	(17,519)	$	10,974
Capital expenditures	$	3,487	$	43	$	21	$	3,551
Property, plant and
equipment, net	$	193,006	$	79	$	1,263	$	194,348

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7.         CONTINGENCIES

Protection of the Environment

As of June 30, 2003 the Company has reclamation bonds in place for its active mines in Montana, North Dakota and Texas and for inactive mining sites in Virginia which are now awaiting final bond release. These government required bonds assure that coal mining operations comply with applicable Federal and State regulations relating to the performance and completion of final reclamation activities. The Company estimates that the cost of final reclamation for its mines will total approximately $235.3 million and that the Company will be responsible for paying approximately $185.5 million of this amount while certain customers and a contract miner are responsible for paying the balance. The amount of the Company’s bonds of $209.0 million exceeds the amount of its share of estimated final reclamation obligations as of June 30, 2003.

At the Rosebud Mine, certain customers are contractually obligated under a coal supply agreement to pay the final reclamation costs for a specific area of the mine. Several of those customers satisfied that obligation by pre-funding their respective portions of those costs. The funds are invested in cash equivalents and government-backed interest-bearing securities. As of June 30, 2003, the value of those funds, classified as reclamation deposits on the Consolidated Balance Sheets, was $50.3 million. One customer under the same coal supply agreement has not pre-funded its obligation. The present value of that customer’s obligation was $5.6 million as of June 30, 2003, and is classified as contractual third party reclamation obligations on the Consolidated Balance Sheets. Discussions between the Company and the customer to secure the unfunded obligation are in progress.

Also at the Rosebud Mine, all of the owners of the Colstrip Station are contractually required to reimburse the Company for contemporaneous reclamation costs as they are incurred. As of June 30, 2003, the total amount of such costs outstanding was $6.0 million, which amount is included in other receivables and contractual third party reclamation obligations on the Consolidated Balance Sheets as of June 30, 2003 and December 31, 2002, respectively.

At the Jewett Mine, the customer is contractually responsible for all post-production reclamation obligations and has posted a $50.0 million corporate guarantee with the Railroad Commission of Texas to assure performance of such final reclamation. The present value of the customer’s obligation was $12.5 million as of June 30, 2003, which is classified as contractual third party reclamation obligations on the Consolidated Balance Sheets.

At the Absaloka Mine, 80% owned by a subsidiary of Westmoreland, Westmoreland Resources, Inc. (“WRI”), the contract miner is obligated to perform the vast majority of all reclamation activities, including all final backfilling, regrading and seeding. WRI’s maximum financial responsibility for these activities is limited to $1.7 million, which amount is being pre-funded through annual installment payments of $113,000 through 2005. Once the contract miner has performed its final reclamation obligations, WRI will be responsible for site maintenance and monitoring until final bond release. To assure compliance, and as part of a settlement of several outstanding issues in 2002, the contract miner has established an escrow account into which 6.5% of every contract mining invoice payment is being deposited. The balance as of June 30, 2003 was $835,000 which includes WRI’s 2003 annual installment of $113,000. The present value of the contract miner’s reclamation obligation was $6.0 million as of June 30, 2003, and is classified as contractual third party reclamation obligations on the Consolidated Balance Sheets.

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On January 1, 2003, the Company adopted Statement of Financial Accounting Standards No. 143, Accounting for Asset Retirement Obligations (“SFAS No. 143”), a required new method of accounting for mine reclamation costs. Prior to the adoption of SFAS No. 143, reclamation costs were accrued on an undiscounted, units-of-production basis. SFAS No. 143 requires entities to record the fair value of asset retirement obligations using the present value of projected future cash flows, with an equivalent amount recorded as basis in the related long-lived asset. An accretion cost, representing the increase over time in the present value of the liability, is recorded each period and the capitalized cost is depreciated over the useful life of the related asset. As reclamation work is performed or liabilities are otherwise settled, the recorded amount of the liability is reduced.

Changes in the Company’s asset retirement obligations under the new method from January 1, 2003 to June 30, 2003 (in thousands) were:

Asset retirement obligation - January 1, 2003	$	115,364
Accretion		3,922
Settlements		(1,257)
Asset retirement obligation - June 30, 2003	$	118,029

As a result of the adoption of SFAS No. 143, in the first quarter of 2003 the Company recorded a gain of $161,000, net of tax expense of $108,000, for the cumulative effect of the change in accounting principle. The Company also reduced its recorded liability for mine reclamation from $159 million to $115 million as of January 1, 2003 and reduced the net book value of its property, plant and equipment from $189 million to $145 million on its Consolidated Balance Sheets as a result of the change from undiscounted to present values.

The Company believes its mining operations are in compliance with applicable federal, state and local environmental laws and regulations, including those relating to surface mining and reclamation, and it is the policy of the Company to operate in compliance with such standards. The Company maintains compliance primarily through the performance of contemporaneous reclamation and maintenance and monitoring activities.

Contract Contingencies

On August 2, 1999, a subsidiary of the Company, Northwestern Resources Co. (“NWR”) entered into an Amended Lignite Supply Agreement (“ALSA”) with Reliant Energy, Inc., now CenterPoint Energy, Inc. (“CNP”), for its Limestone Electric Generating Station (“LEGS”) as part of a settlement of pending litigation. The ALSA provided for a transition from cost-plus-fees pricing to a market-based pricing mechanism effective July 1, 2002. The market-based pricing mechanism is a determination of the equivalent cost of purchasing, delivering, and consuming Powder River Basin (“PRB”) coal from Wyoming at LEGS, subject to minimum and maximum prices. CNP subsequently assigned the ALSA to Texas Genco (“TGN”), a majority owned subsidiary.

In accordance with the ALSA, the parties agreed in June 2000 to lignite volumes for the period July 2002 through December 2003. However, a dispute arose over the calculation of that period’s volume commitment and price. When the parties were unable to reach agreement by December, 2001, NWR filed for a declaratory judgment in Limestone County, Texas. Subsequently, NWR and TGN agreed to stay this litigation and resolved these issues for 2002 and 2003 by entering into an interim agreement.

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TGN then failed to take delivery of the full lignite volumes agreed upon in the interim agreement. NWR demanded compensation for the difference between the tonnage that TGN had committed to purchase and the tonnage that TGN had actually purchased. After receiving this demand, TGN asserted that NWR should pay royalties on lignite produced since July 1, 2002 under certain mineral leases with TGN.

The parties exchanged numerous proposals in an attempt to resolve these issues but were unable to reach agreement prior to expiration of the stay of litigation. On May 6, 2003, NWR filed an amended petition in the District Court of Limestone County, Texas. On May 6, 2003, TGN also filed a claim against NWR in the District Court of Harris County, Texas seeking payment of disputed royalties and requesting a declaratory judgment regarding the application of certain other disputed contract provisions. Preliminary motions that will determine venue of the litigation have been filed in both jurisdictions and will be argued in the third quarter of 2003. The parties continue to explore and discuss various proposals in an effort to reach a negotiated resolution.

As with any dispute, the outcome of the litigation and negotiations is uncertain and the Company will vigorously defend its position.

Royalty Claims

WECO has received several demand letters from the Montana Department of Revenue (“DOR”), as agent for the Mineral Management Service (“MMS”) of the U.S. Department of the Interior, asserting underpayment of certain royalties allegedly due. The claims relate to the fees WECO receives to transport coal from the contract delivery point to the customer, certain “take or pay” payments WECO received when its customers did not require coal, and adjustments for Montana severance taxes, coal resources indemnity trust tax and coal gross proceeds tax. The total amount of the claims is approximately $12.9 million, including penalties and interest. WECO believes that DOR/MMS is improperly asserting claims for royalties on transportation and the take or pay payments and has appealed the DOR/MMS determinations and is vigorously contesting these claims. The appeal process will take several years.

UMWA Master Agreement

The Company is subject to certain financial ratio tests specified in a Contingent Promissory Note (the “Note”) executed in conjunction with an agreement with the UMWA Health and Retirement Funds (the “Master Agreement”) and others, which facilitated the Company’s discharge from Chapter 11 Bankruptcy in 1998. The Note terminates on January 1, 2005. The Company is in compliance as of June 30, 2003.

On August 11, 2003, the Company reached an agreement with the Funds, whereby, in exchange for a one-time payment of $225,000, the financial ratio tests, the Note, and security agreement were eliminated. The Company will continue to be obligated to meet its Coal Act obligations and certain other non-financial covenants to the Funds and other parties through the expiration of the Master Agreement on January 1, 2005.

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Entech Inc. Bankruptcy

On June 18, 2003, Touch America Holdings, Inc. (formerly Montana Power Company) and Entech LLC (formerly Entech Inc., and together with Touch America Holdings, Inc., “the Debtors,”) filed bankruptcy petitions in the United States Bankruptcy Court in Delaware. As a result, the automatic stay provisions of the Bankruptcy Code prevent any pending action from proceeding or any new actions from being filed against the Debtors. Westmoreland’s pending litigation involving Entech, the Purchase Price Adjustment and the McGreevey litigation, discussed below, are now stayed.

Purchase Price Adjustment

The final purchase price for the 2001 acquisition of Montana Power Company’s coal business from Entech is subject to a final adjustment. Pursuant to the terms of the Stock Purchase Agreement, certain adjustments to the purchase price were to be made as of the date the transaction closed to reflect the net assets of the acquired operations on the closing date and the net revenues that those operations had earned between January 1, 2001 and the closing date. In June 2001, Entech submitted proposed adjustments that would have increased the purchase price by approximately $9.0 million. In July 2001, the Company objected to Entech’s adjustments and submitted its own adjustments which would result in a substantial decrease in the original purchase price. The Stock Purchase Agreement requires that the parties’ disagreements be submitted to an independent accountant for resolution. Westmoreland also submitted a timely claim for indemnification to Entech. Entech objected to using the purchase price adjustment mechanism and contended that many of Westmoreland’s objections should be resolved in an action at law for any breach of representations and warranties. On November 20, 2001 Westmoreland initiated suit in New York alleging that all of its objections should be resolved under the purchase price adjustment mechanism. The trial court and intermediate appellate court ruled in Westmoreland’s favor and Entech appealed to the New York Court of Appeals.

19

On July 1, 2003, New York’s highest court, the Court of Appeals, reversed the decision of the intermediate appellate court. The Court of Appeals held that many of the Company’s objections relating to the accounting treatment for asset values should be treated as claims for a breach of a representation or warranty for which the exclusive remedy was an action at law. The Court of Appeals remitted the case to the trial court for evaluation of the Company’s individual objections to Entech’s proposed adjustments.

As a result of the Debtors’ bankruptcy filings, all litigation against them outside of the bankruptcy court was automatically stayed. The Company is currently evaluating its options for proceeding, which include (1) seeking relief from the stay, so that it can continue to pursue its purchase price adjustment claims through the independent accountant and in an action at law in the New York courts, and (2) seeking to resolve its claims as part of the bankruptcy proceeding. The Company anticipates that it will file a protective proof of claim for the purchase price adjustment in the bankruptcy proceeding when the time is proper.

Tax Assessments

The Company’s ROVA projects are located in Halifax County, North Carolina and are the County’s largest taxpayer. In 2002, the County hired an independent consultant to review and audit the property tax returns for the previous five years. In May 2002, ROVA was advised that its returns were being scrutinized for potential underpayment due to undervaluation of property subject to tax. ROVA advised the County that ROVA’s valuation of its property was consistent with an agreement it made with the County before the project was constructed. In late October 2002, the ROVA projects received notice of an assessment of $4.6 million for the years 1994 to 2002. If upheld, the project’s future taxes would increase approximately $800,000 per year of which half would be the Company’s share. ROVA has filed a protest and believes the assessment is improper.

In 1997, the New York Public Service Commission, in an attempt to substantially reduce the economic burden of existing contracts between Niagra Mohawk Power Corporation (“NIMO”) and various independent power producers, including the Company’s Rensselaer project, approved a NIMO plan to terminate or restructure 29 independent power project contracts. The Company reached a negotiated settlement for termination of the Rensselaer power purchase and supply agreement in 1998 after NIMO threatened to forcibly take the project under eminent domain powers. The Montana Department of Revenue reviewed the Company’s income tax returns for 1998 and 1999 and notified the Company in 2002 that it had disallowed the exclusion of a gain on the 1998 settlement agreement with NIMO. An assessment was issued on June 18, 2003, and the Company has filed an objection in response. If the State’s assessment is upheld, the Company would owe interest of $57,000 to the State of Montana and fully utilize its Montana net operating loss carryforwards in 2002.

20

A similar inquiry on the same issue was made by the State of North Carolina. On February 11, 2003, the North Carolina Department of Revenue notified the Company that it also had disallowed the exclusion of gain on the compelled sale of the Rensselaer project partnership’s Power Purchase and Supply Agreement. The Company could owe a current tax of $3.5 million plus interest of $1.0 million and a penalty of $0.9 million to the State of North Carolina if the assessment is upheld. The Company has filed a protest, and a hearing before the North Carolina Department of Revenue was held on May 28, 2003. The Company’s protest is still under review. The Company believes its position is meritorious and has not recorded any potential impact of that assessment.

Other Contingencies

McGreevey Litigation

In mid-November, 2002, the Company was served with a complaint (Plaintiff’s Fourth Amended Complaint) filed on October 4, 2002 in a case styled McGreevey et al. v. Montana Power Company et al. in a Montana State court. Plaintiffs filed their first complaint on August 16, 2001. The Fourth Amended Complaint added Westmoreland as a defendant to a shareholder suit against Montana Power Company, various officers of Montana Power Company, the Board of Directors of Montana Power Company, financial advisors and lawyers representing Montana Power Company and the purchasers of some of the businesses formerly owned by Montana Power Company and Entech, Inc., a subsidiary of Montana Power Company. The plaintiffs were granted certification as a class before Westmoreland was added as a party to the litigation. Plaintiffs seek to rescind the sale by Montana Power of its generating, oil and gas, and transmission businesses, and the sale by Entech of its coal business or to compel the purchasers to hold these businesses in trust for the shareholders. Westmoreland has filed an answer, various affirmative defenses and a counterclaim against the plaintiffs. On June 20, 2003, defendants filed a motion with the Montana Supreme Court seeking to have the current trial judge disqualified for bias. The Montana Supreme Court has appointed a judge from another jurisdiction to investigate the defendant’s petition seeking disqualification. A hearing had been set for July 31, 2003. However, on July 18, 2003, both Touch America Holdings, Inc., the successor to Montana Power, and Entech sought bankruptcy protection in the United States Bankruptcy Court in Delaware.

Among other issues being evaluated is the impact of the Touch America and Entech bankruptcies on the litigation. Plaintiff’s cause of action, if one exists, may belong to the corporations (a “derivative” action) and since the corporations are in bankruptcy either the pending state action is stayed or it should be transferred to the bankruptcy court in Delaware.

21

One defendant has unsuccessfully sought removal of the case to Federal Court. On July 17th, another removal petition by all defendants was filed with the U.S. District Court in Montana asserting that resolution of these cases is critical to the estates of Touch America and Entech. It is anticipated that the plaintiffs will object to the removal and seek to have the case remanded to the state court. No decision on removal is expected until late in the third quarter. In addition to the defendant’s motion to remove the case, Touch America and Entech have filed notices of the pending bankruptcies with the Montana State Court which will prevent any further action until the stay has been lifted by the Bankruptcy Court.

Although there can be no assurance as to the ultimate outcome, the Company believes its defenses are meritorious and will vigorously defend this litigation.

The Company is a party to other claims and lawsuits with respect to various matters in the normal course of business. The ultimate outcome of these matters is not expected to have a material adverse effect on the Company’s financial condition, results of operations or liquidity.

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

Material Changes in Financial Condition from December 31, 2002 to June 30, 2003

Forward-Looking Disclaimer

Certain statements in this report which are not historical facts or information are “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, including, but not limited to, the information set forth in Management’s Discussion and Analysis of Financial Condition and Results of Operations. Any statements contained herein that are not statements of historical fact may be deemed to be forward-looking statements. For example, words such as “may,” “will,” “should,” “estimates,” “predicts,” “potential,” “continue,” “strategy,” “believes,” “anticipates,” “plans,” “expects,” “intends,” and similar expressions are intended to identify forward-looking statements. Such forward-looking statements involve known and unknown risks, uncertainties and other factors, which may cause the actual results, levels of activity, performance or achievements of the Company, or industry results, to be materially different from any future results, levels of activity, performance or achievements expressed or implied by such forward-looking statements. Such factors include, among others, the following: general economic and business conditions; healthcare cost trends; the cost and capacity of the surety bond market; the Company’s ability to manage growth and significantly expanded operations; the ability of the Company to implement its business strategy; the Company’s ability to pay the preferred stock dividends that are accumulated but unpaid; the Company’s ability to retain key senior management; the Company’s access to financing; the Company’s ability to maintain compliance with debt covenant requirements; the Company’s ability to successfully identify new business opportunities; the Company’s ability to achieve anticipated cost savings and profitability targets; the Company’s ability to negotiate profitable coal contracts, price reopeners and extensions; the Company’s ability to maintain satisfactory labor relations; changes in the industry; competition; the Company’s ability to utilize its tax net operating losses; the ability to reinvest excess cash at an acceptable rate of return; weather conditions; the availability of transportation; price of alternative fuels; costs of coal produced by other countries; demand for electricity; the effect of regulatory and legal proceedings, including the bankruptcy filing by Touch America Holdings Inc. and Entech Inc.; the claims between the Company and Montana Power; and the other factors discussed in Items 1, 3 and 7 of the Company’s Annual Report on Form 10-K for the year ended December 31, 2002, filed with the Securities and Exchange Commission. As a result of the foregoing and other factors, no assurance can be given as to the future results and achievement of the Company’s goals. The Company disclaims any duty to update these statements, even if subsequent events cause its views to change.

23

Critical Accounting Policies

The discussion and analysis of the Company’s financial condition and results of operations are based upon the Consolidated Financial Statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Areas where significant judgments are made include, but are not limited to, the critical accounting policies discussed below. Actual results could differ materially from these estimates. The Company’s senior management has discussed the development, selection and disclosure of the accounting estimates in the critical accounting policies with the Audit Committee of the Board of Directors. The most significant principles that impact the Company relate to post-retirement benefits and pension obligations, reclamation costs and reserve estimates, depletion of mineral rights and development costs included in property, plant and equipment and deferred income taxes. The following discussion highlights those impacts.

The most significant long-term obligations of the Company are post-retirement medical and life insurance benefits and pneumoconiosis (black lung) benefits. The Company describes these obligations for retired workers as heritage health benefit costs and the estimated amount of future payments for such obligations are determined actuarially and are included in the corporate segment. The estimated cost to provide post-retirement medical and life insurance benefits to employees at active mining operations are included in the coal segment. The discount rate used to calculate the present value of these future obligations was reduced from 7.25% in 2001 to 6.75% in 2002 and will be adjusted annually based upon interest rate fluctuations. The discount rate used can vary from company to company based on the expected life of the obligations. In addition, the estimated amount of future claims is affected by the assumed health care cost trend rate. During 2001, the Company increased the initial medical cost trend rate assumption to 10.0% from 5.5% decreasing to an ultimate trend of 5.0% in 2009 and beyond. These factors, among others, significantly increased expense which totaled $7.6 million and $15.1 million for the second quarter 2003 and six months of 2003, respectively, and accrued liability which totaled $121.2 million at June 30, 2003 (compared to $117.1 million at December 31, 2002) for post-retirement medical and life insurance costs. The expense for second quarter of 2002 and the six months of 2002 were $6.3 million and $13.0 million, respectively. The excess of trust assets over the pneumoconiosis benefit obligation decreased to $6.5 million as of June 30, 2003 from $7.7 million as of December 31, 2002 as a result of a change in the discount rate for the actuarially determined obligation.

The Company’s share of reclamation costs, along with other costs related to mine closure, are now accrued and charged against income in the coal business segment in accordance with Statement of Financial Accounting Standards No. 143 – Asset Retirement Obligations (“SFAS No. 143”). See the discussion in Note 7 to the Company’s Consolidated Financial Statements. SFAS No. 143 requires entities to record a liability for asset retirement obligations in the period in which it is incurred and a corresponding amount in the carrying amount of the related long-lived asset. Future costs of reclamation are estimated based upon the standards for mine reclamation that have been established by various government agencies that regulate the Company’s mining operations. Estimated costs and timing of expenditures can change and the liability included in the financial statements of $118.0 million as of June 30, 2003 must be viewed as an estimate which is subject to revision.

In the coal business segment the Company amortizes its mineral acquisition, development costs, capitalized asset retirement costs and some plant and equipment using the units-of-production method based upon estimated recoverable proven and probable reserves. These estimates are reviewed on a regular basis and are adjusted to reflect current mining plans. As a result, changes in estimates of recoverable proven and probable reserves could change amounts recorded in the future for depletion of these costs.

24

The Company accounts for deferred income taxes using the asset and liability method. One of the Company’s largest assets is the Federal net operating loss carryforwards (or NOLs) remaining to be utilized, which were approximately $174.2 million as of December 31, 2002. The Company’s ability to utilize these NOLs, which are available to the Company to reduce future income taxes until the NOLs expire at various dates through 2019, is dependent upon many factors which determine taxable income. These factors include the timing of tax deductions for certain obligations, such as post-retirement medical benefits and reclamation; percentage depletion of coal production; and any potential limitation on using losses due to a “change of ownership” in the Company. The Company estimates future utilization of the NOLs and its impact on the recognition of deferred tax assets each period. In connection with the 2001 acquisitions, the Company recognized a $55.6 million deferred income tax asset to recognize a portion of the previously unrecognized net operating loss carryforwards that it believes would be utilized through the generation of future taxable income by these new operations. A valuation allowance of $31.3 million was concurrently created to cover those NOLs not yet assumed to be utilized. Any increases or decreases to the estimated future utilization of the NOLs will impact the valuation allowance and affect deferred income tax expense. An increase in the estimated utilization of NOLs will decrease deferred income tax expense; a decrease in the estimated utilization of NOLs will increase deferred income tax expense. These changes can materially affect net earnings resulting in an effective book income tax rate different than the 34% Federal statutory rate. For example, the agreement to sell DTA in 2003 produced the expectation of a gain and elimination of future operating losses from those operations. Both anticipated benefits of the sale significantly increased the expected utilization of NOLs and reduced the valuation allowance which, in turn, increased the tax benefit and net earnings recognized for the year ended December 31, 2002. The valuation allowance was $32.6 million as of December 31, 2002 including the benefit of DTA and changes in other deferred tax assets and liabilities. As of June 30, 2003, the valuation allowance has been decreased by $2.9 million related to additional increased expected use of NOLs due to expected higher taxable income from a new coal sales contract at the Rosebud Mine. The valuation allowance includes loss carryforwards accumulating in North Dakota that are not expected to be utilized.

Liquidity and Capital Resources

Working capital was a positive $3.3 million at June 30, 2003 compared to a deficit of $1.6 million at December 31, 2002. This increase primarily resulted from a reduction of $3.0 million in the current portion of asset retirement obligation and an increase of $10.4 million in other accounts receivable, offset by an increase of $2.4 million in current installments of long-term debt (which included $1.0 million of WML revolving line of credit debt classified as current because it is scheduled to mature in April 2004). Cash provided by operating activities was $8.7 million and $25.9 million for the six months ended June 30, 2003 and 2002, respectively. Cash from operations in 2003 and 2002 benefited from the acquisitions completed in the second quarter of 2001 which contributed $15.6 million and $32.9 million to operating cash flow during the six months ended June 30, 2003 and 2002, respectively. The net change in assets and liabilities was an increase of $10.5 million in 2003 compared to an increase of $15.0 million in 2002. The most significant components of the change are accounts receivable and accounts payable. Accounts receivable and accounts payable can vary widely at the end of any reporting period. The Company has a few large customers and therefore the timing of receipt of accounts receivables can have a significant effect on cash from operations. Likewise, the Company has large payments of accounts payable due to a few vendors or suppliers. The actual timing of these payments can have a significant impact on cash from operations from period to period. Accounts receivable used cash of $1.8 million in 2003 due to higher outstanding amounts owed by customers at June 30, 2003. The increase in accounts payable between quarters is due to normal activity. Other components of cash flow from operating activities are discussed in the results of operations.

25

Cash used in investing activities was $9.4 million for the six months ended June 30, 2003, compared to cash used of $1.9 million for the six months ended June 30, 2002. Additions to property and equipment using cash totaled $4.3 million in 2003. Also, during 2003, WML deposited $2.7 million into required restricted cash accounts for debt service and security deposits. These deposits earned interest income of approximately $55,000. Bond collateral increased by $1.5 million, including $750,000 at WRI. Changes in all other long-term assets used cash of $3.0 million during 2003. The primary use of cash in 2002 was $3.6 million for additions to mining operation property and equipment offset by $504,000 from the proceeds from the sale of used equipment. Also, during the first six months of 2002, WML deposited $3.0 million into a required restricted cash account for debt service and security deposits and earned interest income of $138,000. The $6 million refund of collateral under the UMWA Master Agreement which was received during the second quarter of 2002 provided cash and reduced restricted cash. Bond collateral increased by approximately $500,000. Changes in all other long-term assets used cash of $1.2 million during 2003.

Cash used in financing activities was $3.5 million for the six months ended June 30, 2003 compared to cash used of $14.7 million for the six months ended June 30, 2002. Cash used in financing activities in 2003 represented payment of $3.9 million on WML’s long-term bank debt, repurchases of preferred shares totaling $213,000 and dividends paid on preferred shares of $247,000. Cash provided by financing activities included net borrowing of revolving debt of $0.5 million and long-term debt borrowings of $850,000 for the purchase of mining equipment. As of June 30, 2003, the Company had available to borrow $9.0 million of the $10.0 million general corporate revolving line of credit and $19.0 million of the $20.0 million WML facility. Cash used in financing activities for the six months ended June 30, 2002 included payment of $9.0 million of long-term debt, the net repayment of $5.5 million revolving debt and dividends paid to WRI’s minority shareholder of $400,000. Cash of $174,000 was provided from the exercise of stock options during the first six months of 2002.

Consolidated cash and cash equivalents at June 30, 2003 totaled $5.7 million (including $0.6 million at WML, $4.3 million at WRI and $1.1 million at Westmoreland’s captive insurance subsidiary). At December 31, 2002, cash and cash equivalents totaled $9.8 million (including $5.1 million at WML, $4.7 million at WRI, and $0.6 million at the insurance subsidiary). The cash at WML is available to the Company through quarterly distributions as described below in the Liquidity Outlook section. The cash at WRI is available to the Company through dividends. In addition, the Company had restricted cash and bond collateral, which were not classified as cash or cash equivalents, of $20.9 million at June 30, 2003 and $17.3 million at December 31, 2002. The restricted cash at June 30, 2003 included $15.6 million in the WML debt service reserve accounts described above. The Company’s workers’ compensation and post-retirement medical cost obligation bonds were collateralized by interest-bearing cash deposits of $5.3 million, which amount was classified as a non-current asset. The bond surety company is requiring the Company to provide additional cash collateral for reclamation activities of which $750,000 remains to be paid subsequent to June 30, 2003. In addition, the Company has reclamation deposits of $50.3 million, which were funded by certain customers to be used for payment of reclamation activities at the Rosebud Mine. The Company also has $5.0 million in interest-bearing debt reserve accounts for certain of the Company’s independent power projects. This cash is restricted as to its use and is classified as part of the investment in independent power projects.

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Liquidity Outlook

The major factors impacting the Company’s liquidity outlook are its significant heritage health benefit costs, its acquisition debt repayment obligations, and its ongoing business requirements. The Company’s principal sources of cash flow are dividends from WRI, distributions from independent power projects and distributions from WML. The demand for electricity will affect coal demand and pricing and therefore impacts the Company’s production and cash flow. These items are discussed in detail in the Company’s Annual Report on Form 10-K for the year ended December 31, 2002 (the “2002 Annual Report on Form 10-K”) along with the Company’s contractual obligations and commitments.

A detailed discussion of health benefit and retirement obligations is contained in the 2002 Annual Report on Form 10-K and will not be repeated here. It is important to note that retiree health benefit costs are affected by nationwide increases in medical service and prescription drug costs. Due to the impact of increasing healthcare cost trends on the actuarial valuations of future obligations, the Company’s total estimated liability has increased in 2003. The actuarially determined liability for post-retirement medical costs increased approximately $4.1 million between December 31, 2002 and June 30, 2003 due to an increase in the expense recognized. Actuarial valuations of the Company’s future obligations indicate that the Company’s retiree health benefit costs will continue to increase in the near term and then decline to zero over the next approximately thirty-five years as the number of eligible beneficiaries declines. The Company incurred cash costs of $9.5 million and $8.8 million for heritage health benefit costs during the six months ended June 30, 2003 and 2002, respectively, and expects to incur $21 million for these costs during the full year of 2003 compared to $20.5 million in 2002. The Company incurred cash costs of approximately $1.0 million and $1.6 million for workers’ compensation benefits during the six months ended June 30, 2003 and 2002, respectively. The Company expects to incur cash costs of less than $2.2 million for workers’ compensation benefits in 2003 and expects that amount to steadily decline to zero over the next approximately eighteen years. There were no workers’ compensation obligations assumed in conjunction with the 2001 acquisitions.

One element of heritage health benefit costs is pensions under the 1974 UMWA Retirement Plan (“1974 Plan”). Since this is a multiemployer plan under ERISA, a contributing company is liable for its share of unfunded vested liabilities upon termination or withdrawal from the Plan. The Company believes the Plan was fully funded when the Company terminated its last covered employees and withdrew from the Plan. However, the Plan claims that the Company withdrew from the Plan on an earlier date and that the Plan was not fully funded. The Company recognized $13.8 million asserted liability in 1998 but has vigorously contested the Plan’s claim as provided for under ERISA. On June 16, 2003, an arbitrator issued a decision that the Company’s withdrawal date was earlier than the date on which the Company terminated its last covered UMWA employee. The Company believes this finding is erroneous. However, before an appeal can be considered, the arbitrator must determine the amount, if any, that the 1974 Plan was unfunded at the date of withdrawal. Westmoreland believes that its obligation regarding unfunded liability is substantially less than the $13.8 million the 1974 Plan claims is due. In accordance with the Multiemployer Pension Plan Amendments Act of 1980, the Company has made monthly principal and interest payments to the Plan while it pursues its rights and will continue to make such monthly payments until the arbitration is completed. At the conclusion of arbitration, the Company may be entitled to a refund or could be required to pay a reduced amount in installments through 2008. It is expected that the second part of the arbitration will commence in the second quarter of 2004.

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The Company makes monthly premium payments to the UMWA Combined Benefit Fund (“CBF”), a multiemployer health plan neither controlled nor administered by the Company. The current amount of the monthly premiums is less than $400,000 and is recalculated annually each October. An action by the Social Security Administration in June 2003 could increase the Company’s premium by an estimated 10%. There is also a possibility that the CBF could seek to impose the increase retroactively to all premiums paid since 1995. The Company has joined other coal companies with CBF obligations in a complaint filed in the U.S. District Court for the Northern District of Alabama seeking injunctive and declaratory relief regarding the potential increase in CBF premiums.

The Coal Industry Retiree Health Benefit Act of 1992 (“Coal Act”) authorized the Trustees of the 1992 UMWA Benefit Plan to implement security provisions for the payment of future benefits. The Trustees set the level of security for each company at an amount equal to three years’ benefits. The bond amount and the amount to be secured are reviewed and adjusted on an annual basis. The amount of the cash collateral required by the Company’s bonding agent is periodically reviewed and subject to change. The Company has been notified that an additional $1.9 million bond is required with total additional cash collateral of $1.9 million. On April 23, 2003, the Company posted the bond and the cash collateral will be fully paid by the third quarter of 2003.

The Company is subject to certain financial ratio tests specified in a Contingent Promissory Note (the “Note”) executed in conjunction with the Master Agreement with the UMWA Health and Retirement Funds and others, which facilitated the Company’s discharge from Chapter 11 Bankruptcy in 1998. The Note terminates on January 1, 2005. The Company is in compliance as of June 30, 2003.

On August 11, 2003, the Company reached an agreement with the Funds, whereby, in exchange for a one-time payment of $225,000, the financial ratio tests, the Note, and security agreement were eliminated. The Company will continue to be obligated to meet its Coal Act obligations and certain other non-financial covenants to the Funds and other parties through the expiration of the Master Agreement on January 1, 2005.

A Medicare prescription drug benefit that covers Medicare-eligible beneficiaries covered by the Coal Act could reduce one of the Company’s largest costs. Of the over $20.0 million per year the Company paid for retirees’ health care costs in 2002, more than 50% was for prescription drugs. Creation of a prescription drug benefit continues to be debated on the national level, and both the House and Senate have passed a version of a prescription drug bill that provides an incentive for employers to maintain medical coverage that contain prescription drug benefits. A conference committee will attempt to resolve the differences in the two bills. At this time the exact form of final legislation is uncertain, however, there is momentum to put a Bill on the President’s desk for signature sometime in the fall and assuming that the employer incentive remains in any final bill, the Company may experience a 10-20% overall savings in medical costs beginning in 2006 compared to its potential costs in the absence of such litigation. There is no assurance at this time what, if any, new proposal will be enacted into law.

The Company’s acquisitions in 2001 greatly increased revenues and operating cash flow and returned the Company to general profitability, but the cash used and financing arranged to make those acquisitions could also create short-term liquidity issues during the term of the financing which must be managed. The acquisition financing facility restricts distributions to the Company to 75% of WML’s “excess cash flow”, as defined in the financing agreements, until the debt is paid off.

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The final purchase price for the acquisition of Montana Power Company’s coal business is subject to adjustment. As discussed in Item 3 - Legal Proceedings of the Company’s 2002 Annual Report on Form 10-K, the Company and Montana Power Company were not able to agree on either the amount of the purchase price adjustment or the methodology to calculate the adjustment within the time frame provided for under the Stock Purchase Agreement. Due to the ongoing litigation surrounding this issue and the bankruptcy filing on June 18, 2003 by Touch America Holdings, Inc., Montana Power Company’s successor, and its subsidiary Entech, the ultimate outcome can not be predicted. If the purchase price is reduced, the Company and WML may be required to use the proceeds received from Entech and Montana Power Company to pay down the acquisition financing facility. In the unlikely event an additional purchase price payment is required it would likely be funded by the use of WML’s revolving credit facility.

The Company does not anticipate that its coal and power production will diminish materially as a result of the continued economic downturn because the independent power projects in which the Company owns interests and the power plants that purchase coal mined by the Company produce relatively low-cost, baseload power. (A baseload plant is used first to meet demand because of its location and lower cost of producing electricity.) In addition, most of the Company’s production is sold under long-term contracts, which help insulate the Company from reductions in tons sold. However, contract price reopeners, contract extensions, expirations and terminations, and market competition could affect future price and production levels. During the second quarter of 2003, the Company entered into an amended coal supply agreement to provide an additional 1.5 to 2.5 million tons annually for five years to an existing customer at the Rosebud Mine.

The Company’s largest customers also include companies, or their subsidiaries, who have suffered downgraded credit ratings which could affect the customers’ credit worthiness. The Company invoices its customers for coal sales either semi-monthly or monthly and limits its credit exposure by closely monitoring its accounts receivable. In certain cases, common customers of a generating plant are jointly liable for payment to the Company.

The Company has certain coal sales contract contingencies which may impact future income, sales, prices received and cost of operations. These include, but are not limited to:

• NWR’s dispute with TGN, the owner/operator of the Limestone Electric Generating Station discussed in Note 7 to the Company’s Consolidated Financial Statements.

• Arbitration of a price adjustment which the Company believes it is due under the Company’s Coal Supply Agreement with the Colstrip Units 1 and 2 owners which calls for the price to be reopened on the contract’s thirtieth anniversary, which was July 30, 2001.

• The Company’s claim under the Coyote Station Coal Agreement to recover an annual minimum net income specified in the contract.

In addition, there are other issues regarding royalty payments, state income tax audits, property taxes and reclamation obligations and related bonding requirements, which may affect the Company, but their impact is not known at this time.

As discussed in Note 2 to the Consolidated Financial Statements, the Company sold its interest in DTA for $10.5 million and recorded a gain of $4.5 million effective June 30, 2003. At closing, the purchaser assumed all of the Company’s DTA partnership obligations. As a result, the Company will no longer incur DTA-related operating losses, which were $1.0 million during the first six months of 2003 and $2.1 million, excluding an impairment expense of $3.7 million, in the year ended December 31, 2002.

The Company is mindful of the need to manage costs with respect to the timing of receipts, and variations in distributions or expected performance. For instance, outages at customer’s power plants reduce the Company’s coal revenues during those periods. And the Jewett Mine’s transition to market-based pricing can be expected to produce more variability in revenues than compared to the cost-plus-fees mechanism previously in place. Therefore, the Company continues to take steps to conserve cash wherever possible. The Company has also taken steps to increase the availability of working capital. In January 2003, the Company amended its revolving line of credit for general corporate purposes, increasing it from $7.0 million to $10.0 million. The Company had borrowed $1.5 million as of June 30, 2003, all of which was repaid in early July 2003.

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The Company also aims to increase its sources of profitability and cash flow. Given possible future demand for new power generating capacity, stronger energy pricing, the need for stabilizing fuel and electricity costs, and pressure to reduce harmful emissions into the environment, the Company believes that its strategic plan positions it well for potential further growth, profitability, and improved liquidity.

The Company’s ongoing and future business needs may also affect its liquidity. The Company’s growth plan is focused on acquiring profitable businesses and developing projects in the energy sector which complement the Company’s existing core operations and where America’s dual goals of low cost power and a clean environment can be effectively addressed. The Company has sought to do this in niche markets that minimize exposure to competition, maximize stability of long-term cash flows and provide opportunities for synergistic operation of existing assets and new opportunities. The Company seeks opportunities on an ongoing basis to make additional strategic acquisitions, to expand existing businesses and to enter related businesses. The Company considers potential acquisition opportunities as they are identified, but cannot be assured that it will be able to consummate any such acquisition. The Company anticipates that it would finance acquisitions by using its existing capital resources, by borrowing under existing bank credit facilities, by issuing equity securities or by incurring additional indebtedness. The Company may not have sufficient available capital resources or access to additional capital to execute potential acquisitions, and the Company may not find suitable acquisition candidates at acceptable prices. There is no assurance that the Company’s current or future acquisition efforts will be successful or that any such acquisition will be completed on terms that are favorable to the Company. Acquisitions involve risks, including difficulties in integrating acquired operations, diversions of management resources, debt incurred in financing such acquisitions and unanticipated problems and liabilities. Any of these risks could have a material adverse effect upon the Company’s business, financial condition and results of operations.

A key to the Company’s strategy is the availability of approximately $174.2 million in NOLs at the end of 2002. The availability of these NOLs can shield the Company’s future taxable income from payment of regular Federal income tax and thereby increase the return the Company receives from profitable investments (as compared to the return a tax-paying entity would receive that cannot shield its income from federal income taxation). However, the availability of these tax benefits could be severely restricted if a 50% change of ownership by value would occur over any three-year period.

Sources of potential additional future liquidity may also include resolution of the NWR dispute with TGN and the price reopener with the owners of Colstrip Units 1 and 2 discussed above, the sale of non-strategic assets, and increased cash flow from existing operations.

The Company has three separate defined benefit pension plans for full-time employees after combining three of five prior plans effective for the 2002 plan year. The future funding of these plans could have a long-term impact on liquidity determined primarily by investment returns on the plans’ assets. During 2002, one of the plans required a contribution of $78,000 and increasing contributions could be required in future years unless investment returns materially improve. Based upon updated actuarial projections, contributions of $1.5 million are expected to be payable in 2004. The required minimum annual cash contributions are expected to grow unless investment returns improve or funding requirements change.

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In July 2000, the Company adopted a long-term incentive compensation plan to promote the successful implementation of its strategic plan for growth and link the compensation of its key managers to the appreciation in the price of the Company’s common stock. Because the Company had a limited number of qualified stock options available at that time, the Board of Directors adopted a performance unit plan and awarded the Company’s key executives approximately equal numbers of performance units and options to purchase shares of common stock. The value of the performance units awarded in 2000 is based on the absolute increase in market value of the Company’s common stock over the period July 1, 2000 to June 30, 2003. Under the 2000 Performance Unit Plan, the Company may pay the holders of the performance units in cash or stock at the Company’s option. The value of the performance units awarded in July 2000 was finally determinable on June 30, 2003. Because the value of the Company’s common stock appreciated considerably between June 30, 2000 and June 30, 2003, the value of the performance units granted in July 2000 was $6.4 million. The Company has elected to pay the amounts earned over time, beginning with an initial payment of approximately 20% of the amount due, or $750,000 cash and $375,000 in common stock. The Company has deferred the remainder of the obligation and expects to pay it over the next five years. The Company’s Board of Directors and Compensation & Benefits Committee will review that intention on an on-going basis and determine whether to pay the remainder of the obligation in cash or stock, based on the Company’s liquidity position, among other factors. In 2001 and 2002, the Compensation & Benefits Committee provided annual long-term incentives to the Company’s key managers by again awarding them stock options and performance units. Unlike the 2000 award, which was based on the actual appreciation in the stock price without limit, the 2001 and 2002 awards are based on the appreciation of the Company’s stock compared to that of its peer group and is capped. Like the performance units awarded in 2000, the performance units awarded in 2001 and 2002 vest over three-year periods and any value earned may be paid in cash or stock at the option of the Company. Based on the stock prices of the Company and its peer group as of June 30, 2003, the value of the performance units awarded in 2001 is currently $1.2 million and the value of the performance units awarded in 2002 is $2.6 million. The potential maximum value after three years of the performance units awarded in 2001 and 2002 is $2.9 million and $2.6 million, respectively. The final value of these performance units cannot be determined until June 30, 2004 and June 30, 2005 respectively, and could differ from the value of these units at June 30, 2003. Because stockholders had approved a Long-Term Stock Incentive Plan at the Company’s 2002 Annual Meeting, the Company was able to use stock options as the sole vehicle for the 2003 long-term incentive program.

In conclusion, there are many factors which can both positively or negatively affect the Company’s liquidity and cash flow. Management believes that cash flows from operations, including the possible sale of non-strategic assets if necessary, along with available borrowings, should be sufficient to pay the Company’s heritage health benefit costs, meet repayment requirements of the debt facilities, meet pension plan funding requirements, pay long-term performance plan obligations and fund ongoing business activities as long as currently anticipated surplus cash distributions from WML are received until the acquisition financing facility is paid off. At the same time, the Company continues to explore contingent sources of additional liquidity on an ongoing basis and to evaluate opportunities to expand and/or restructure its debt obligations and improve its capital structure.

Partner’s Proposed Sale of Its Interest in ROVA

Westmoreland Energy, LLC (“WELLC”) has been notified by its 50% partner, LG&E Power Inc. (“LPI”) of LPI’s possible interest in selling all of its independent power operations, including its 50% interest in the Westmoreland LG&E Partnership which owns the Roanoke Valley independent power plant (“ROVA”). LPI has initiated a process. WELLC has a right of first purchase for ROVA if the transaction proceeds as a sale of the LPI partnership interest. The bid process initiated by LPI is still underway, and it is uncertain if or how it will continue.

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Preferred Dividends and Stock Repurchase Plan

The depositary shares were issued on July 19, 1992. Each depositary share represents one-quarter of a share of Westmoreland’s Series A Convertible Exchangeable Preferred Stock. Dividends at a rate of 8.5% per annum were previously paid quarterly but were last suspended in the third quarter of 1995 pursuant to the requirements of Delaware law, described below, as a result of recognition of net losses, the violation of certain bank covenants, and a subsequent shareholders’ deficit. Westmoreland commenced payment of dividends to preferred shareholders on October 1, 2002 as described below. The quarterly dividends which are accumulated but unpaid through and including July 1, 2003 amount to $14.8 million in the aggregate ($71.97 per preferred share or $17.99 per depositary share). Common stock dividends may not be declared until the preferred stock dividends that are accumulated but unpaid are made current.

There are statutory restrictions limiting the payment of preferred stock dividends under Delaware law, the state in which Westmoreland is incorporated. Under Delaware law, Westmoreland is permitted to pay preferred stock dividends only: (1) out of surplus, surplus being the amount of shareholders’ equity in excess of the par value of Westmoreland’s two classes of stock; or (2) in the event there is no surplus, out of net profits for the fiscal year in which a preferred stock dividend is declared (and/or out of net profits from the preceding fiscal year), but only to the extent that shareholders’ equity exceeds the par value of the preferred stock (which par value was $205,000 at June 30, 2003). The Company had shareholders’ equity at June 30, 2003 of $22.0 million and the par value of all outstanding shares of preferred stock and shares of common stock aggregated $19.7 million at June 30, 2003.

The Board of Directors regularly reviews the subjects of current preferred stock dividends and the accumulated unpaid preferred stock dividends, and is committed to meeting its obligations to the preferred shareholders in a manner consistent with the best interests of all shareholders. As described in Note 4 to the Consolidated Financial Statements, quarterly dividends of $0.15 per depositary share have been paid for each of the four quarters beginning October 1, 2002 and increased to $0.20 per depositary share payable on October 1, 2003.

On August 9, 2002 Westmoreland’s Board of Directors authorized the repurchase of up to 10% of the outstanding depositary shares on the open market or in privately negotiated transactions with institutional and accredited investors between then and the end of 2004. The timing and amount of depositary shares repurchased will be determined by the Company’s management based on its evaluation of the Company’s capital resources, the price of the depositary shares offered to the Company and other factors. Any acquired shares will be converted into shares of Series A Convertible Exchangeable Preferred Stock and retired. The repurchase program will be funded from working capital which may be currently available, or become available to the Company. During the first quarter of 2003, 7,000 depositary shares were repurchased by the Company at a total cost of $212,800. From August 2002 through June 30, 2003, 14,500 depositary shares have been repurchased.

Resumption of a dividend payment and the repurchase plan reflect the reestablishment of profitability as a result of the Company’s successful initial implementation of its strategic plan for growth and the Company’s continuing commitment to preferred shareholders.

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RESULTS OF OPERATIONS

Quarter Ended June 30, 2003 Compared to Quarter Ended June 30, 2002

Coal Operations.

The decrease in coal revenues to $66.3 million in the second quarter of 2003 from $81.9 million in 2002’s second quarter is primarily the result of the new market-based price effective July 1, 2002 at the Jewett Mine which was, as expected, less than the previous cost-plus-fees price and reduced tons sold as a result of expected, significant scheduled maintenance outages at certain customers’ power plants. Specifically, fewer tons were sold at the Rosebud Mine due to an unplanned outage at the customer’s plant and at the Beulah Mine in North Dakota because of a longer than expected scheduled outage at the Coyote Station plant. The reduction in coal revenues at the Jewett Mine was partially offset by increased tons sold at the Jewett, Absaloka and Savage Mines. Increase in tons sold at these mines, including some lower margin tons, partially mitigated the loss of sales of higher margin tons due to customers’ power plant outages in the second quarter of 2003, which were greater than anticipated due to forced outages on top of expected scheduled major maintenance outages. The Jewett Mine sold more tons during second quarter 2003 than the comparable quarter in 2002 which had suffered from reduced demand due to mild weather and the economic slowdown. Almost all of the tons sold in both quarters were under long-term contracts to owners of power plants located adjacent to or near the mines, other than at the Absaloka Mine. Equivalent tons sold include petroleum coke sales.

Costs as a percentage of revenues for all mines increased to 80% in the second quarter of 2003 compared to 76% during the second quarter of 2002. Cost of sales decreased 16% in the second quarter of 2003 compared to second quarter of 2002, but revenues decreased even more as a result of the new market-based contract at the Jewett Mine and the mix of tons shipped from the Company’s other mines. Specific costs increased in 2003 for equipment maintenance and repairs at certain other mines and non-cash accretion costs at all mines for future reclamation activities required by SFAS No. 143, “Accounting for Asset Retirement Obligations,” the new accounting standard for recording reclamation liabilities.

The following table shows comparative coal revenues, sales volumes, cost of sales and percentage changes between the periods:

		Quarter Ended
		June 30,
		2003		2002	Change
Revenues – thousands	$	66,262	$	81,888	(19)%
Volumes – millions of equivalent coal tons		6.062		6.283	(4)%
Cost of sales – thousands	$	52,777	$	62,617	(16)%

The Company’s business is subject to weather and some seasonality. The Company supplies coal to electric generation units and if winter is unseasonably warm or summer is unseasonably cool, the customer’s need for coal may be less than anticipated.

Depreciation, depletion and amortization were $3.0 million in both the second quarter 2003 and 2002.

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Independent Power. Equity in earnings from independent power operations was $4.2 million in the second quarter 2003 compared to $1.8 million in the quarter ended June 30, 2002. For the quarter ended June 30, 2003 and 2002, the ROVA projects produced 420,000 and 360,000 megawatt hours, respectively, and achieved average capacity factors of 92% and 79%, respectively. The increase in 2003 earnings, production, and capacity factors reflect a scheduled outage at the smaller ROVA II plant in 2003 compared to a scheduled outage which occurred in second quarter 2002 at the larger ROVA I plant.

Costs and Expenses. Selling and administrative expenses were $10.7 million in the quarter ended June 30, 2003 compared to $7.0 million in the quarter ended June 30, 2002 including non-cash compensation expense of $2.9 million for the long-term employee performance incentives in the second quarter of 2003 compared to a credit of $650,000 in the second quarter of 2002. Long-term incentive expense increases when the Company’s common stock price increases, which it did materially in the second quarter of 2003. The overall increase in selling and administrative expenses in the second quarter of 2003 is net of a benefit from the elimination of expenses in 2003 at the Jewett Mine and net of reduced medical claims under the Company’s self-insured plan for active employees which was redesigned for 2003. Costs of $720,000 for severance benefits increased selling and administrative expenses during the second quarter of 2003.

Heritage health benefit costs increased 20% or $1.3 million in the second quarter 2003 compared to second quarter 2002 as a result of higher costs for postretirement medical plans and an unfavorable actuarial valuation adjustment to the pneumoconiosis benefit obligation, caused primarily by a reduction in the discount rate used to value the benefit obligations.

During 2003‘s second quarter, there was a gain of $451,000 from sales of non-strategic property rights in Colorado that were acquired as part of the coal operations acquisitions in 2001. For the quarter ended June 30, 2002 there were no gains or losses from sales of assets.

Interest expense was $2.5 million and $2.7 million for the quarters ended June 30, 2003 and 2002, respectively. The decrease was mainly due to the smaller term debt balance on the acquisition financing as a result of continuing installment repayments. Interest income decreased in 2003 due to lower rates despite the larger amounts the Company holds in interest-bearing accounts.

As a result of the acquisitions made in 2001, the Company recognized a $55.6 million deferred income tax asset in April 2001 which assumes that a portion of previously unrecognized net operating loss carryforwards will be utilized because of the projected generation of future taxable income. The deferred tax asset increased to $68.1 million as of June 30, 2003 from $65.1 million at December 31, 2002 because of temporary differences (such as accruals for pension and reclamation expense, which are not deductible for tax purposes until paid) arising during the intervening period and due to a reduction of the deferred income tax valuation allowance discussed above. Deferred tax assets are comprised of both a current and long-term portion. When taxable income is generated, the deferred tax asset relating to the Company’s net operating loss carryforwards is reduced and a deferred tax expense (non-cash) is recognized although no regular Federal income taxes are paid. Income tax benefit for 2003 represents a current income tax obligation for State income taxes, and the utilization of a portion of the Company’s net operating loss carryforwards, net of the impact of changes in deferred tax assets and liabilities. The sale of DTA in 2003 increases the expected utilization of federal NOLs due both to the gain on sale and a reduction in future losses. This contributed to a reduction in the valuation allowance related to Federal NOLs and increased the tax benefit and net earnings. Likewise, an amended coal contract which increased future annual sales, benefited earnings in the second quarter of 2003. A tax loss in North Dakota that increased state NOLs and deferred tax assets was offset for the same amount by an increase in the valuation allowance since those losses are not expected to be utilized. The Federal Alternative Minimum Tax regulations were changed to allow 100% utilization of net operating loss carryforwards in 2001 and 2002 thereby eliminating all of the Company’s current Federal income tax expense.

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Terminal Operations. Losses continued until June 30, 2003, due to low throughput volume at DTA as a result of continued weakness in the export market and partnership cost-sharing obligations. The Company’s share of operating losses from DTA was $515,000 in the second quarter of 2003 compared to $534,000 in the 2002 quarter. No further operating losses should be incurred from DTA. As discussed in Note 2 to the consolidated financial statements, effective June 30, 2003 the Company sold its interest in DTA and recognized a pre-tax gain of approximately $4.5 million. The Company’s consolidated financial statements for 2003 and earlier periods reflect DTA as discontinued operations.

Cumulative Effect of Change in Accounting Principle. The Company adopted SFAS No. 143 during first quarter 2003 as described in the section on “Critical Accounting Policies” above. The cumulative effect of change was a gain of $161,000, net of tax expense of $108,000. SFAS No. 143 requires that the present value of retirement costs for which the Company has a legal obligation be recorded as liabilities, called asset retirement obligation. Also, capitalized asset retirement costs of $97,384,000 were recorded with changes to land and mineral rights, plant and equipment, accumulated depreciation and depletion and contractual reclamation obligations of third parties. The liability is accreted to its present value each period and the capitalized cost is depreciated over the useful life of the related asset. When reclamation activities occur, the obligation is decreased and a gain or loss recognized for any difference between the previously recorded liability and the actual costs incurred.

Other Comprehensive Income. The other comprehensive income of $615,000 (net of income taxes of $410,000) recognized during the quarter ended June 30, 2003 represents the change in the unrealized loss on an interest rate swap agreement on the ROVA debt caused by changes in market interest rates during the period. This compares to other comprehensive loss of $218,000 (net of income taxes of $145,000) recognized during the quarter ended June 30, 2002. If market interest rates continue to decrease prior to repayment of the debt, additional comprehensive losses will be recognized. Conversely, increases in market interest rates would reverse previously recorded losses.

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Six Months Ended June 30, 2003 Compared to Six Months Ended June 30, 2002

Coal Operations. Coal revenues decreased to $140.1 million for the six months ended June 30, 2003 from $160.3 million for the six months ended June 30, 2002. Although tons sold increased in 2003 compared to 2002 decreased revenue is primarily the result of the previously mentioned new market-based price at the Jewett Mine. Tons sold increased in 2003 compared to 2002 at all mines except the Beulah Mine. Costs, as a percentage of revenues, were 79% in 2003 compared to 76% in 2002. Costs during the six months of 2003 were affected for the same reasons discussed above in the quarterly comparisons.

The results of coal operations for the first six months of 2003 were negatively affected by the outages at the power generating stations discussed above: (1) at the Colstrip Station, which affected shipments from the Rosebud Mine, and (2) at the Coyote Station, which affected shipments from the Beulah Mine. These decreases were partially offset by an increase in tons sold from the Jewett Mine.

The following table shows comparative coal revenues, sales volumes, cost of sales and percentage changes between the periods:

		Six Months Ended
		June 30,
		2003		2002	Change
Revenues – thousands	$	140,775	$	160,304	(12)%
Volumes – millions of equivalent coal tons		13.060		12.859	2%
Cost of sales – thousands	$	110,967	$	121,482	(9)%

Independent Power. Equity in earnings from the independent power projects was $8.0 million and $6.6 million for the six months ended June 30, 2003 and 2002, respectively. For the six months ended June 30, 2003 and 2002, the ROVA projects produced 843,000 and 803,000 megawatt hours, respectively, and achieved capacity factors of 92% in 2003 and 88% in 2002. The increase in 2003 was due to the scheduled outage at the ROVA I plant during 2003 lasting fewer days than in 2002. The ROVA II plant operated at the same capacity during both periods.

Costs and Expenses. Selling and administrative expenses were $17.8 million for the six months ended June 30, 2003 compared to $15.6 million for the six months ended June 30, 2002. The increase in 2003 includes non–cash compensation expense for the Company’s Performance Unit Plan which was $4.2 million in the first six months of 2003 compared to $2.4 million in 2002. The characteristics of this plan are discussed in the quarter-to-quarter comparison above.

Heritage health benefit costs increased 16% or $2.1 million in the 2003 six-month period compared to 2002 as a result of increased actuarially determined costs for postretirement medical plans.

During 2003 there was a gain of $451,000 from sales of non-strategic property rights in Colorado that were acquired as part of the coal operations acquisitions in 2001. During the first six months of 2002, there was a $40,000 gain from the sale of used mine equipment.

Interest expense was $5.0 million and $5.5 million for the six months ended June 30, 2003 and 2002, respectively. The decrease was mainly due to partial repayment of the acquisition financing obtained during the second quarter of 2001. Interest income decreased in 2003 due to lower rates earned and despite the larger deposits acquired in the acquisitions.

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When taxable income is generated, the deferred tax asset relating to the Company’s net operating loss carryforwards is reduced and a deferred tax expense (non-cash) is recognized although no regular Federal income taxes are paid. Current income tax expense in both 2003 and 2002 relate to state income tax obligations. During the first six months of 2003, the deferred tax benefit of $2.8 million includes a $2.9 million benefit recognized for the reduction of the valuation allowance associated with unused Federal net operating loss carryforwards which are expected to be utilized.

Terminal Operations. The Company’s share of operating losses from DTA was $785,000 in the six months ended June 30, 2003 compared to $1,064,000 in the 2002 six-month period. No further operating losses should be incurred from DTA as discussed above in the second quarter comparisons.

Other Comprehensive Income. The other comprehensive income of $746,000 (net of income taxes of $497,000) recognized during the six months ended June 30, 2003 represents the change in the unrealized loss on an interest rate swap agreement on the ROVA debt caused by changes in market interest rates during the period. This compares the other comprehensive income of $58,000 (net of income taxes of $39,000) for the six months ended June 30, 2002.

ITEM 3
QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

The Company is exposed to market risk, including the effects of changes in commodity prices and interest rates as discussed below.

Commodity Price Risk

Westmoreland, through its subsidiaries Westmoreland Resources, Inc. and Westmoreland Mining LLC, produces and sells coal to third parties from coal mining operations in Montana, Texas and North Dakota, and through its subsidiary, Westmoreland Energy, LLC, produces and sells electricity and steam to third parties from its independent power projects located in North Carolina and Colorado. Nearly all of the Company’s coal production and all of its electricity and steam production is sold through long-term contracts with customers. These long-term contracts serve to minimize the Company’s exposure to changes in commodity prices although some of the Company’s contracts are adjusted periodically based upon market prices. The Company has not entered into derivative contracts to manage its exposure to changes in commodity prices, and was not a party to any such contracts at June 30, 2003.

Interest Rate Risk

The Company is subject to interest rate risk on its debt obligations. Long-term debt obligations have only fixed interest rates, and the Company’s revolving lines of credit have a variable rate of interest indexed to either the prime rate or LIBOR. Based on the balances outstanding on these instruments as of June 30, 2003, a one percent increase in the prime interest rate or LIBOR would increase interest expense by $25,000 on an annual basis. The Company’s heritage health benefit costs are also impacted by interest rate changes because its pension, pneumoconiosis and post-retirement medical benefit obligations are recorded on a discounted basis.

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ITEM 4
CONTROLS AND PROCEDURES

The Company’s management, with the participation of the Company’s chief executive officer and chief financial officer, evaluated the effectiveness of the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 (the “Exchange Act”)) as of June 30, 2003. Based on this evaluation, the Company’s chief executive officer and chief financial officer concluded that, as of June 30, 2003, the Company’s disclosure controls and procedures were (1) designed to ensure that material information relating to the Company, including its consolidated subsidiaries, is made known to the Company’s chief executive officer and chief financial officer by others within those entities, particularly during the period in which this report was being prepared, and (2) effective, in that they provide reasonable assurance that information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms.

No change in the Company’s internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) occurred during the fiscal quarter ended June 30, 2003 that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

PART II - OTHER INFORMATION

ITEM 1
LEGAL PROCEEDINGS

As described in the Company’s Annual Report on Form 10-K for the year ended December 31, 2002, “Item 3 - Legal Proceedings,” and in the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2003, “Part II, Item 1 – Legal Proceedings,” the Company has litigation which is still pending.

NWR – TGN Contract Dispute Issues

On May 6, 2003, NWR filed an amended petition in the District Court of Limestone County, Texas, which seeks damages for TGN’s failure to take agreed volumes of lignite in 2002 and for TGN’s purchases of PRB coal without providing NWR its contractual rights of first refusal. In addition, the petition claims failure to comply with test burn procedures that TGN had agreed to on June 18, 2002, seeks clarification of certain provisions of the ALSA, and seeks a declaratory judgment regarding the interpretation of certain contract provisions. Also on May 6, 2003, TGN filed a complaint against NWR in the District Court of Harris County, Texas, seeking payment of disputed royalties, alleging that it was owed a management fee under the old Lignite Supply Agreement, and requesting a declaratory judgment regarding the application of certain disputed contract provisions.

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1974 Pension Plan Arbitration

One element of heritage health benefit costs is pensions under the 1974 UMWA Retirement Plan (“1974 Plan”). Since this is a multiemployer plan under ERISA, a contributing company is liable for its share of unfunded vested liabilities upon termination or withdrawal from the Plan. The Company believes the Plan was fully funded when the Company terminated its last covered employees and withdrew from the Plan. However, the Plan claims that the Company withdrew from the Plan on an earlier date and that the Plan was not fully funded. The Company recognized $13.8 million asserted liability in 1998 but has vigorously contested the Plan’s claim as provided for under ERISA. On June 16, 2003, an arbitrator issued a decision that the Company’s withdrawal date was earlier than the date on which the Company terminated its last covered UMWA employee. The Company believes this finding is erroneous. However, before an appeal can be considered, the arbitrator must determine the amount, if any, that the 1974 Plan was unfunded at the date of withdrawal. Westmoreland believes that its obligation regarding unfunded liability is substantially less than the $13.8 million the 1974 Plan claims is due. In accordance with the Multiemployer Pension Plan Amendments Act of 1980, the Company has made monthly principal and interest payments to the Plan while it pursues its rights and will continue to make such monthly payments until the arbitration is completed. At the conclusion of arbitration, the Company may be entitled to a refund or could be required to pay a reduced amount in installments through 2008. It is expected that the second part of the arbitration will commence in the second quarter of 2004.

Entech, Inc.

On July 1, 2003, the New York Court of Appeals reversed the decision of the trial and intermediate courts which had ordered Entech to proceed with the Purchase Price Adjustment as required by the Stock Purchase Agreement, and determined that many of Westmoreland’s objections to the Entech closing certificate were in reality allegations of a breach of the representations and warranties that Entech made in the Stock Purchase Agreement. The case was remanded to the trial court to evaluate Westmoreland’s objections and determine which should be treated as breach of representation or warranty claims and which should be resolved through the contractually mandated Purchase Price Adjustment process. With the recent Entech Chapter 11 filing in Delaware it is unclear what the next steps in the New York litigation will be. The bankruptcy automatic stay provisions prevent the Company from prosecuting any claim, without relief from the stay. The Entech bankruptcy was filed in Delaware on June 18, 2003, and has been consolidated with Touch America’s bankruptcy, also filed on June 18, 2003. It is anticipated that the Company will file a protective proof of claim for the purchase price adjustment when the time is proper. Although there can be no assurance as to the ultimate outcome of this dispute, the Company believes its claims are meritorious.

McGreevey Litigation

In mid-November, 2002, the Company was served with a complaint (Plaintiff’s Fourth Amended Complaint) filed on October 4, 2002 in a case styled McGreevey et al. v. Montana Power Company et al. in a Montana State court. Plaintiffs filed their first complaint on August 16, 2001. The Fourth Amended Complaint added Westmoreland as a defendant to a shareholder suit against Montana Power Company, various officers of Montana Power Company, the Board of Directors of Montana Power Company, financial advisors and lawyers representing Montana Power Company and the purchasers of some of the businesses formerly owned by Montana Power Company and Entech, Inc., a subsidiary of Montana Power Company. The plaintiffs were granted certification as a class before Westmoreland was added as a party to the litigation. Plaintiffs seek to rescind the sale by Montana Power of its generating, oil and gas, and transmission businesses, and the sale by Entech of its coal business or to compel the purchasers to hold these businesses in trust for the shareholders. Westmoreland has filed an answer, various affirmative defenses and a counterclaim against the plaintiffs. On June 20, 2003, defendants filed a motion with the Montana Supreme Court seeking to have the current trial judge disqualified for bias. The Montana Supreme Court has appointed a judge from another jurisdiction to investigate the defendant’s petition seeking disqualification. A hearing had been set for July 31, 2003. However, on July 18, 2003, both Touch America Holdings, Inc., the successor to Montana Power, and Entech sought bankruptcy protection in the United States Bankruptcy Court in Delaware.

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One defendant has unsuccessfully sought removal of the case to Federal Court. On July 17th, another removal petition by all defendants was filed with the U.S. District Court in Montana asserting that resolution of these cases is critical to the estates of Touch America and Entech. It is anticipated that the plaintiffs will object to the removal and seek to have the case remanded to the state court. All defendants have also filed a motion with the Montana Supreme Court seeking to have the current trial judge disqualified. No decision on removal is expected until late in the third quarter. In addition to the defendant’s motion to remove the case, Touch America and Entech have filed notices of the pending bankruptcies with the Montana State Court which will prevent any further action until the stay has been lifted by the Bankruptcy Court.

Western Energy Company

Western Energy Company’s coal supply agreement with the Colstrip Units l and II owners contains a provision that calls for the price to be reopened on the contract’s thirtieth anniversary, which was July 30, 2001. The parties had six months to negotiate a new price for delivered coal. If the parties were unable to agree on a new price, the issue is to be submitted to an arbitrator for resolution. The parties attempted to negotiate through June 2002 a new contract price. After a year of unsuccessful negotiations, the Company demanded that the binding arbitration begin. A three judge panel has now been selected and discovery has begun. The case is scheduled to be heard in April 2004. While the Company believes it is due a price increase effective July 30, 2001, as with any arbitration the outcome is uncertain.

Combined Benefit Fund Litigation

On June 10, 2003, the Social Security Administration (“SSA”) notified the Trustees of the UMWA Combined Benefit Fund (“CBF”) of a premium increase for beneficiaries assigned to companies under the Coal Act. The Company makes monthly premium payments to the UMWA Combined Benefit Fund (“CBF”), a multiemployer health plan neither controlled nor administered by the Company. The current amount of the monthly premiums is less than $400,000 and is recalculated annually each October. The SSA’s action could increase the Company’s premium by an estimated 10%. There is also a possibility that the CBF could seek to impose the increase retroactively to all premiums paid since 1995. The Company has joined other coal companies with CBF obligations in a complaint filed in the U.S. District Court for the Northern District of Alabama seeking injunctive and declaratory relief regarding the potential increase in CBF premiums.

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ITEM 3
DEFAULTS UPON SENIOR SECURITIES

See Note 4 “Capital Stock” to the Consolidated Financial Statements, which is incorporated by reference herein.

ITEM 4
SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

An Annual Meeting of Shareholders was held on May 22, 2003. Proxies for the meeting were solicited pursuant to Section 14(a) of the Securities Exchange Act of 1934. Two proposals were voted upon at the meeting.

The first proposal was the election by the holders of Common Stock of seven members of the Board of Directors. The tabulation of the votes cast with respect to each of the nominees for election as a Director is set forth as follows:

Name	Votes For	Votes Withheld
Pemberton Hutchinson	7,326,003	99,831
Thomas W. Ostrander	7,315,297	110,537
Christopher K. Seglem	7,314,990	110,844
Thomas J. Coffey	7,288,009	137,825
Robert E. Killen	7,288,109	137,725
James W. Sight	7,288,409	137,425
Donald A. Tortorice	7,315,195	110,639

Messrs. Hutchinson, Ostrander, Seglem, Coffey, Killen, Sight and Tortorice were elected.

There were no abstentions or broker non-votes.

The second proposal was the election by the holders of Depositary Shares of two members of the Board of Directors. Each Depositary Share represents one-quarter of a share of the Company’s Series A Convertible Exchangeable Preferred Stock (“Series A Preferred Stock”), the terms of which entitle the holders to elect two directors if six or more Preferred Stock dividends have accumulated. The tabulation of the votes cast with respect to each of the nominees for election as a Director, expressed in terms of the number of Depositary Shares, is as follows:

Name	Votes For	Votes Withheld
Michael Armstrong	791,099	4,265
William M. Stern	791,299	4,065

Messrs. Armstrong and Stern were elected.

There were no abstentions or broker non-votes.

ITEM 5
OTHER INFORMATION

The Company decided to hire a new Chief Financial Officer. Rather than accept a different position within the Company, the current Senior Vice President - Finance and Development, Mr. Robert J. Jaeger, elected to take advantage of benefits under the Company’s Executive Severance Policy adopted prior to the restructuring program begun in the early 1990’s. Pursuant to a negotiated termination agreement, Mr. Jaeger will leave the Company on August 31, 2003 and receive severance benefits over a ten-year period. A search for his replacement as CFO is in process. If a replacement is not hired before Mr. Jaeger’s last day with the Company, Mr. Ronald H. Beck, Vice President, Finance and Treasurer will serve as Acting Chief Financial Officer. Mr. Douglas P. Kathol, formerly Senior Vice President of Finance and Strategy at NorWest Corp., will join the Company in August as Vice President-Development.

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ITEM 6
EXHIBITS AND REPORTS ON FORM 8-K

a) Exhibits

10.1	Approved Westmoreland Coal Company 2000 Performance Unit Plan, dated May 22, 2003.
10.2	First Amendment to Westmoreland Coal Company 2000 Non-employee Directors' Stock Incentive Plan dated May 22, 2003.
10.3	Termination Agreement for Robert J. Jaeger, Chief Financial Officer.
10.4	Westmoreland Coal Company Deferred Compensation Plan effective May 1, 2003.
31	Rule 13a-14(a)/15d-14(a) Certifications.
32	Certifications pursuant to 18 U.S.C. Section 1350.

b) Reports on Form 8-K

(1)	On May 9, 2003, the Company filed a report on Form 8-K announcing its Board of Directors authorized a dividend of $0.15 per depositary share payable on July 1, 2003 to holders of record as of June 10, 2003.
(2)	On July 2, 2003, the Company filed a report on Form 8-K announcing the sale of its interest in Dominion Terminal Associates and associated industrial revenue bonds to Dominion Energy Terminal Company, Inc.

(3)	On July 9, 2003, the Company filed a report on Form 8-K disclosing the pro forma effect to the change in accounting principle as if the Financial Accounting Standards Board "Statement of Financial Accounting Standards No. 143, Accounting for Asset Retirement Obligations" had been in effect during the Company's three most recent fiscal years.
(4)	On August 5, 2003, the Company filed a report on Form 8-K announcing its Board of Directors authorized a dividend of $0.20 per depositary share payable on October 1, 2003 to holders of record as of September 10, 2003.

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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.

	WESTMORELAND COAL COMPANY
Date:    August 13, 2003	/s/ Ronald H. Beck
	Ronald H. Beck
	Vice President - Finance and
	Treasurer
	(A Duly Authorized Officer)
	/s/ Thomas S. Barta
	Thomas S. Barta
	Controller
	(Principal Accounting Officer)

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Westmoreland Coal Company
Exhibit index

10.1	Approved Westmoreland Coal Company 2000 Performance Unit Plan, dated May 22, 2003.
10.2	First Amendment to Westmoreland Coal Company 2000 Non-employee Directors' Stock Incentive Plan dated May 22, 2003.
10.3	Termination Agreement for Robert J. Jaeger, Chief Financial Officer.
10.4	Westmoreland Coal Company Deferred Compensation Plan effective May 1, 2003.
31	Rule 13a-14(a)/15d-14(a) Certifications.
32	Certifications pursuant to 18 U.S.C. Section 1350.

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EX-10

Exhibit 10.1

2000 PERFORMANCE UNIT PLAN

Article I – Purpose

Section 1.1 The purpose of the Plan is to provide a financial incentive for key executives to encourage and reward desired performance that will further the growth, development and financial success of Westmoreland Coal Company (the “Company”), to align the interests of the Company’s key executives and shareholders and to enhance the Company’s ability to maintain a competitive position in attracting and retaining qualified personnel who contribute, and are expected to contribute, materially to the success of the Company.

Article II – Definitions

Section 2.1 Whenever the following terms are used in this Plan, they shall have the meaning specified below unless the context clearly indicates to the contrary. The masculine pronoun shall include the feminine and neuter and the singular shall include the plural, where the context so indicates.

“Affiliate” shall mean (i) any entity that, directly or indirectly, is controlled by the Company, (ii) any entity in which the Company has a significant equity interest, (iii) an affiliate of the Company, as defined in Rule 12b-2 promulgated under Section 12 of the Exchange Act, and (iv) any entity in which the Company has at least twenty percent (20%) of the combined voting power of the entity’s outstanding voting securities, in each case as designated by the Board as being a participating employer in the Plan.

“Assigned Value” shall mean the value assigned by the Committee, in its sole and absolute discretion, to a Performance Unit which is valued other than by reference to the Fair Market Value of the Common Stock, for the attainment of each of Threshold Performance, Target Performance and Maximum Performance in any Performance Period.

“Award” shall mean a Performance Unit granted under the Plan to a Participant by the Committee pursuant to such terms, conditions, restrictions and/or limitations, if any, as the Committee may establish that are not inconsistent with the provisions of this Plan.

“Award Certificate” shall mean any written acknowledgment or other instrument or document evidencing any Award and describing the anticipated time, manner and method of payment of fully vested Awards at the end of the Performance Period, which is signed by or acknowledged by the Company.

“Award Notification” shall mean any written acknowledgment or other instrument or document that provides notice of a Participant’s selection by the Committee to receive an Award, which is signed or acknowledged by the Company.

1

“Base Value” shall mean the average of the Daily Price of the Common Stock for the twenty (20) consecutive trading days on which one or more trades occurs immediately preceding the commencement of the Performance Period.

“Board” shall mean the Board of Directors of the Company.

“Cause” shall mean (i) the engaging by the Participant in willful conduct or misconduct that is injurious to the Company or its Subsidiaries or Affiliates, or (ii) the embezzlement or misappropriation of funds or property of the Company or its Subsidiaries or Affiliates by the Participant, or the final conviction of the Participant of a felony or the entrance of a plea of guilty or nolo contendere by the Participant to a felony, or (iii) any behavior that brings the employee into public disrepute, contempt, scandal or ridicule or that reflects unfavorably upon the reputation or high moral or ethical standards of the Company. For purposes of this paragraph, no act, or failure to act, on the Participant’s part shall be considered “willful” unless done, or omitted to be done, by the Participant without reasonable belief that the Participant’s action or omission was in the best interest of the Company. Any determination of Cause shall be made by the Committee, in its sole discretion, and shall be final and binding on a Participant.

“Code” shall mean the Internal Revenue Code of 1986, as amended from time to time.

“Committee” shall mean a committee of the Board composed of not less than two Non-Employee Directors, all of whom shall be “nonemployee directors” with respect to the Plan within the meaning of Section 16 and all of whom may be “outside directors” for purposes of Section 162(m) of the Code. The members of the Committee shall be appointed by and serve at the pleasure of the Board. In the absence of a resolution of the Board determining otherwise, “Committee” shall mean the Compensation and Benefits Committee of the Board.

“Common Stock” shall mean the common stock of the Company, par value $2.50 per share, and any equity security of the Company issued or authorized to be issued in the future, but excluding any preferred stock and any warrants, options or other rights to purchase common Stock.

“Common Stock Appreciation” shall mean the difference between the Fair Market Value of the Common Stock and the Base Value of a Performance Unit at the expiration of the Performance Period for that Performance Unit.

“Company” shall mean Westmoreland Coal Company or any successor thereto.

“Covered Officer” shall mean at any date (i) any individual who, with respect to the previous tax year of the Company, was a “covered employee” of the company within the meaning of Code Section 162(m), excluding any such individual whom the Committee, in its discretion, reasonably expects not to be a “covered employee” with respect to the current tax year of the Company and (ii) any individual who was not a “covered employee” under Code Section 162(m) for the previous tax year of the Company, but whom the Committee, in its discretion, reasonably expects to be a “covered employee” with respect to the current tax year of the Company or with respect to the tax year of the Company in which any applicable Award will be paid.

2

“Daily Price” shall mean the average of the highest and lowest sale price occurring during any given trading day on which the Common Stock of the Company is traded.

“Disability” shall mean the disability of a Participant under the terms of the then effective long term disability plan of the Company.

“Employee” shall mean any employee (as defined in accordance with Section 3401(c) of the Code) of the Company or an Affiliate or Subsidiary, whether such employee is so employed at the time this Plan is adopted or becomes so employed subsequent to the adoption of this Plan.

“Employer” shall mean the Company or an Affiliate or Subsidiary, whichever at the time employs the Employee.

“Fair Market Value” shall mean the average of the Daily Price of the Common Stock for the last twenty (20) consecutive trading days of a Performance Period on which one or more trades of Common Stock occurs.

“Maximum Award” shall mean the Award payable under the Plan for Maximum Performance in any Performance Period.

“Maximum Performance” shall mean the Performance Goals established for any Performance Period, the attainment of which is necessary for the payment of the Maximum Award of a Target Award with an Assigned Value for that Performance Period.

“Non-Employee Director” shall mean a member of the Board who is not an Employee or officer of the Company or any of its Subsidiaries or Affiliates.

“Participant” shall mean an Employee who is selected to participate in the Plan.

“Performance Goals” shall mean performance goals or objectives established by the Committee for each Performance Period pursuant to this Plan, the attainment of which is necessary for the payment of an Award to a Participant at the completion of the Performance Period. Performance Goals may be described in terms of Company-wide objectives or objectives that are related to the performance of the individual Participant or the Affiliate, Subsidiary, or division, department or function within the Company, Affiliate or Subsidiary in which the Participant is employed. Any Performance Goals applicable to the Awards intended to qualify as “performance-based compensation” under Section 162(m) of the Code shall be limited to specified levels of, or increases in, the Company’s, Affiliate’s or Subsidiary’s market share, sales, costs, return on equity, earnings per share, earnings before interest and taxes, earnings before interest, taxes, depreciation and amortization, earnings growth, return on capital, return on assets, total shareholder return and/or increase in the Fair Market Value of the Common Stock , measurements of safety performance or any combination thereof. Each Performance Goal may be expressed on an absolute and/or relative basis, may be based on or otherwise employ comparisons based on internal targets, the past performance of the Company and/or the past or current performance of other companies, and in the case of earnings-based measures, may use or employ comparisons relating to capital, shareholders’ equity and/or Shares outstanding, or to assets or net assets. Except in the case of Performance Goals related to an Award intended to qualify under Section 162(m) of the Code, if the Committee determines that a change in the business, operations, corporate structure or capital structure of the Company, or the manner in which it conducts its business, or other events or circumstances render the Performance Goals unsuitable, the Committee, after the commencement of a Performance Period, may modify such Performance Objectives, in whole or in part, as the Committee deems appropriate and equitable.

3

“Performance Period” shall mean the period of time specified in an Award Notification to be used in measuring the degree to which the Performance Goals relating to Performance Units granted under that Award Notification have been met; provided, however, that for purposes of the initial Performance Period of the Plan, Performance Period shall mean the period commencing on July 1, 2000 and ending June 30, 2003.

“Performance Unit” shall mean a right that is (i) denominated in cash or Common Stock, (ii) valued, as determined by the Committee, either in accordance with the achievement of such Performance Goals during such Performance Periods as the Committee shall establish or with reference to the Fair Market Value of the Common Stock, and (iii) payable at such time and in such form as the Committee shall determine in accordance with the terms and conditions of Article VI hereof.

“Plan” shall mean the 2000 Performance Unit Plan, as amended from time to time.

“Retirement” shall mean the Termination of Employment of a Participant from the employ or service of the Company or any of its Affiliates or Subsidiaries in accordance with the terms of the applicable Company retirement plan, or if a Participant is not covered by any such plan, the Termination of Employment of a Participant on or after the earliest to occur of the following:

        (a)         the attainment by the Participant of the age of 65 or the achievement of five years of employment or service with the Company, whichever occurs later; or

        (b)          the attainment by the Participant of the age of 62 and twenty years of employment or service with the Company.

“Section 16” shall mean Section 16 of the Exchange Act and the rules promulgated thereunder and any successor provision thereto as in effect from time to time.

“Section 162(m)” shall mean Section 162(m) of the Code and the rules promulgated thereunder or any successor provision thereto as in effect from time to time.

“Subsidiary” shall mean any corporation in an unbroken chain of corporations beginning with the Company if each of the corporations other than the last corporation in the unbroken chain then owns stock possessing 50% or more of the total combined voting power of all classes of stock in one of the other corporations in such chain.

“Target Award” shall mean the Award payable under the Plan for Target Performance in any Performance Period.

4

“Target Performance” shall mean the Performance Goals established for any Performance Period, the attainment of which is necessary for the payment of a Target Award with an Assigned Value for that Performance Period.

“Termination of Employment” shall mean the time when the employee-employer relationship between a Participant and the Employer is terminated for any reason, with or without Cause, including, but not by way of limitation, a termination by resignation or discharge, but excluding (i) terminations where there is a simultaneous reemployment or continuing employment of a Participant by the Employer; (ii) at the discretion of the Committee, terminations which result in a temporary severance of the employee-employer relationship; and (iii) at the discretion of the Committee, terminations which are followed by the simultaneous establishment of a consulting relationship by the Employer with the former Employee. Notwithstanding the foregoing, the Committee, in its absolute discretion, shall determine the effect of all matters and questions relating to Termination of Employment. However, notwithstanding any provision of this Plan, the Employer has an absolute and unrestricted right to terminate an Employee’s employment at any time for any reason whatsoever, with or without Cause.

“Threshold Performance” shall mean the level of attainment of a Performance Goal necessary for the payment of any Award with an Assigned Value upon the completion of any Performance Period for that Award.

Article III – Plan Administration

Section 3.1 Subject to the authority and powers of the Board in relation to the Plan as hereinafter provided, the Plan shall be administered by the Committee; provided, however, that the Committee may not exercise any authority otherwise granted to it hereunder if such action would have the effect of increasing the amount of any Award payable hereunder to any Covered Officer. All determinations by the Committee shall be made by the affirmative vote of a majority of its members, but any determination reduced to writing and signed by a majority of the members of the Committee shall be as fully effective as if it had been made by a majority vote at a meeting duly called and held. All decisions by the Committee pursuant to the provisions of the Plan and all orders or resolutions of the Board pursuant thereto shall be final, conclusive and binding on all persons, including but not limited to the Participants, the Company and its Affiliates and Subsidiaries and their respective equity holders, heirs, successors and personal representatives.

Section 3.2 The Committee, on behalf of the Participants, shall have full authority to interpret and enforce this Plan in accordance with its terms and shall have all powers necessary for the accomplishment of that purpose, including, but not by way of limitation, the following powers:

        (a)          To select the Participants;

        (b)          To make Awards to Participants with respect to each Performance Period, subject to the terms and conditions set forth in the Plan.;

5

        (c)          To establish the terms and conditions under which any Award granted hereunder may be earned and paid, subject to the terms and conditions set forth in the Plan, including, without limitation, the Performance Period, Assigned Value (if any) and vesting schedule of each Award;

         (d)          To establish the terms and conditions of any Award Certificate evidencing an Award granted hereunder, subject to the terms and conditions set forth in the Plan;

        (e)          To interpret, construe, approve and adjust all terms, provisions, conditions and limitations of this Plan;

        (f)          To decide any questions arising as to the interpretation or application of any provision of the Plan;

        (g)          To prescribe forms and procedures to be followed by Employees for participation in the Plan, or for other occurrences in the administration of the Plan;

        (h)          To adopt such rules and regulations for the administration of the Plan not inconsistent with the terms of the Plan as it may deem appropriate in its sole and absolute discretion; and

        (i)          To waive any conditions or rights under, amend any terms of, or alter, suspend, discontinue, cancel or terminate an Award theretofore granted, prospectively or retroactively; provided, however, that any such waiver, amendment, alteration, suspension, discontinuance or termination that would adversely affect the rights of any Participant or holder or beneficiary of any vested Award theretofore granted shall not to that extent be effective without the consent of the affected Participant, holder or beneficiary.

Section 3.3 No member of the Committee shall be liable for anything done or omitted to be done by him or by any member of the Committee in connection with the performance of any duties under this Plan, except for his own willful misconduct or as expressly provided by statute.

Section 3.4 All actions which may be taken by the Committee hereunder may also be taken by the Board except for actions with regard to any Award intended to qualify under Section 162(m) of the Code which would cause such Award not to qualify under said section.

Article IV-Participation

Section 4.1 Subject to the provisions of the Plan, the Committee may from time to time select any Employee who is a salaried employee of the Company or of an Affiliate or Subsidiary to be granted Awards under the Plan. Eligible Employees hired by the Company after the commencement of a Performance Period may be granted Performance Units hereunder for the Performance Period which commenced in the twelve (12) month period preceding the date on which the Employee became employed by the Company. No Employee shall at any time have the right (a) to receive an Award upon the expiration of a Performance Period which commenced prior to the twelve (12) month period preceding the date on which they became an employee (b) to be selected as a Participant in the Plan for any Performance Period, (c) if selected as a Participant in the Plan, to be entitled to an Award, or (d) if selected as a Participant in one Performance Period, to be selected as a Participant in any subsequent Performance Period.

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Article V – Awards

Section 5.1 For Performance Units measured by an Assigned Value, the Committee shall establish Performance Goals for such Performance Units, including the Threshold Performance, Target Performance and Maximum Performance, within 90 days of the commencement of a Performance Period, and an Award for that Performance Period shall subject to the provisions of Article VI be paid or otherwise deliverable upon the completion of the Performance Period solely on account of the attainment of such Performance Goals. The degree to which the Company achieves such Performance Goals and the business needs and circumstances of the Company at the time of payment of any Award shall serve as the basis for the Committee’s determination of the Award payable to a Participant upon the completion of a Performance Period. Awards will be prorated for Company performance results occurring between stated performance levels. For Performance Units measured by an Assigned Value, Company performance below the Threshold Performance in any Performance Period will result in the forfeiture of such Performance Units awarded for that Performance Period, without any Award payment.

Section 5.2 Awards payable at the expiration of a Performance Period shall be the product of (a) the number of Performance Units in the Award and (b) the Common Stock Appreciation, if the Performance Units are measured by the Fair Market Value of the Common Stock, or the appropriate Assigned Value based upon Company performance, if the Performance Units are measured by Assigned Value.

Section 5.3 In the case of all Awards measured by Assigned Value, no Participant may receive in any one fiscal year an Award under the Plan of an amount greater than $2.5 million. In the case of all Awards measured by Common Stock Appreciation, no Participant may receive in any one fiscal year an Award under the Plan of a number of Performance Units greater than 500,000.

Section 5.4 The Company shall maintain a bookkeeping account for each Participant recording the current value of Performance Units awarded hereunder. Each Participant shall receive an annual statement reflecting the number of Performance Units awarded to that Participant hereunder, the number of Performance Units which have vested as of the date of the statement, and the Base Value or Assigned Value, as appropriate, assigned to each Performance Unit.

Section 5.5 At the Committee’s discretion, the effect of one-time charges and extraordinary, nonrecurring events unrelated to the performance of a Participant such as asset write-downs, litigation judgments or settlements, changes in tax laws, accounting principles or other laws or provisions affecting reported results, accruals for reorganization or restructuring, and any other extraordinary non-recurring items, acquisitions or divestitures and any foreign exchange gains or losses may be disregarded for purposes of determining the attainment of Performance Goals.

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Article VI – Payment of Awards

Section 6.1 Upon completion of each Performance Period, the Committee shall review Company performance results as compared to the established Performance Goals for that Performance Period, and shall certify (either by written consent or as evidenced by the minutes of a meeting) the specified Performance Goals achieved for the Performance Period (if any) and direct which Award payments are payable under the Plan, if any.

Section 6.2 Vested Performance Units may be paid in a lump sum or in installments over any period of time not to exceed 10 years following the close of the Performance Period or, in accordance with terms established by the Committee, on a deferred basis. The Committee shall have sole and absolute authority and discretion to determine the time and manner in which Awards, if any, shall be paid under this Plan. The anticipated time and manner of payment will be as set forth in the Award Certificate; provided, however, that the Committee reserves the right, based on business needs and circumstances of the Company at any time prior to actual payment of any portion of an award, to modify or amend the terms and manner of payment. The following provisions may, at the discretion of the Committee, apply to any Award:

        (a)          Form of Payment: Payment of vested Awards may be made in cash, or at the option of the Committee, in whole or in part in Company Common Stock from any shareholder approved Stock Incentive Plan, and may be subject to such restrictions as the Committee shall determine.

        (b)          Vesting: Except as provided in subsection (d) below, Participants shall vest in Performance Units in equal one-third increments on the anniversary date of an Award.

        (c)          Voluntary or Involuntary Termination: In the event of a Participant's Involuntary Termination of Employment Without Cause by the Company, the Participant shall be entitled to payment for all vested Performance Unit Awards in accordance with the terms and conditions of the Award Certificate. Notwithstanding anything to the contrary set forth elsewhere in this Plan, in the event of the Participant's Termination of Employment for Cause prior to the close of a Performance Period by the Company, its Affiliate or Subsidiary, or by the Participant for reasons other than Retirement, death or Disability, then the Participant shall forfeit all Awards, whether vested or not, for which the Performance Period has not ended.

         (d)          Retirement, Death or Disability: In the event of the death, Retirement or Disability of a Participant prior to the close of a Performance Period, a pro rata portion of the Participant's outstanding Performance Units shall vest based on the number of full months which have elapsed in each Performance Period as of the date of the Participant's death, Retirement or Disability.

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Section 6.3 The Committee shall not have discretion or authority to increase the amount payable hereunder pursuant to an Award in a manner inconsistent with the requirements for qualified performance-based compensation under Code Section 162(m).

Article VII - Amendment, Modification, Suspension or Termination of the Plan

Section 7.1 The Board may at any time terminate or suspend the Plan, in whole or in part, and from time to time, amend or modify the Plan, provided that, except as otherwise provided in the Plan, no such amendment, modification, suspension or termination shall adversely affect the rights of any Participant under any vested Award previously earned but not yet paid to such Participant without the consent of such Participant. In the event of such termination, in whole or in part, of the Plan, the Committee may, subject to the foregoing, direct the payment to Participants of any amounts specified in Article V and theretofore not paid out, prior to the respective dates upon which payments would otherwise be made hereunder to such Participants, and in a lump sum or installments as the Committee shall prescribe with respect to each such Participant. Notwithstanding the foregoing, any such payment to a Covered Officer must be discounted to reflect the present value of such payment using a rate equal to the average yield of a 5-year treasury security for the month prior to the month in which the payment is made. The Board may at any time and from time to time delegate to the Committee any or all of its authority under this Article VII.

Article VIII – Adjustments

Section 8.1 The existence of outstanding Awards shall not affect in any manner the right or power of the Company or its shareholders to make or authorize any or all adjustments, recapitalizations, reorganizations or other changes in the capital stock of the Company or its business or any merger or consolidation of the Company, or any issue of bonds, debentures, preferred or prior preference stock (whether or not such issue is prior to, on a parity with or junior to the Common Stock of the Company) or the dissolution or liquidation of the Company, or any sale or transfer of all or any part of its assets or business, or any other corporate act or proceeding of any kind, whether or not of a character similar to that of the acts or proceedings enumerated above.

Section 8.2 In the event of any consolidation or merger of the Company with another corporation or entity or the adoption by the Company of a plan of exchange affecting the Common Stock of the Company or any distribution to holders of Company Common Stock of securities or property (other than normal cash dividends or dividends payable in Company Common Stock), or a capital reorganization or reclassification or other transaction involving a significant increase or decrease in the capitalization of the Company, the Committee shall make such adjustment or other provision as it may deem equitable, including adjustments to the Base Value assigned to outstanding Awards, to give proper effect to such event.

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Article IX - General Provisions

Section 9.1 Unless otherwise determined by the Committee and provided in the Award Certificate, no Award or any other benefit under this Plan shall be assigned, alienated, pledged, attached, sold or otherwise transferred or encumbered by a Participant, except by will or the laws of descent and distribution. Any attempted assignment of an Award or any other benefit under this Plan in violation of this Section 9.1 shall be null and void. A Participant may designate in writing a beneficiary (including the trustee or trustees of a trust) who shall upon the death of such Participant be entitled to receive all amounts payable under the provisions of Section 6.2 to such Participant. A Participant may rescind or change any such designation at any time. No transfer of an Award by will or by laws of descent and distribution shall be effective to bind the Company unless the Company shall be furnished with written notice thereof and an authenticated copy of the will and/or such other evidence as the Committee may deem necessary or appropriate to establish the validity of the transfer.

Section 9.2 The Company shall have the right to withhold applicable taxes from any Award payment and to take such other action as may be necessary in the opinion of the Company to satisfy all obligations for withholding of such taxes.

Section 9.3 No Employee or other person shall have any claim or right to be granted an Award under this Plan, and there is no obligation for uniformity of treatment of Participant or holders or beneficiaries of Awards. Neither the Plan nor any action taken thereunder shall be construed as giving an Employee any right to be retained in the employ of the Company or an Employer and the right of the Company or Employer to dismiss or discharge any such Participant is specifically reserved. The benefits provided for Participants under the Plan shall be in addition to, and shall in no way preclude, other forms of compensation to or in respect of such Participants. No Participant shall have any lien on any assets of the Company or an Employer by reason of any Award made under this Plan.

Section 9.4 At the discretion of the Committee, the Award payments under this Plan may be considered compensation under any deferred compensation plan adopted by the Company after the effective date of this Plan.

Section 9.5 Each Award hereunder shall be evidenced by an Award Certificate that shall be delivered to the Participant and may specify the terms and conditions of the Award and any rules applicable thereto. In the event of a conflict between the terms of the Plan and any Award Certificate, the terms of the Plan shall prevail.

Section 9.6 This Plan and all determinations made and actions taken pursuant thereto, shall be governed by and construed in accordance with, the laws of the State of Colorado, without giving effect to conflicts of laws principles.

Section 9.7 If any provision of the Plan or any Award is, or becomes, or is deemed to be invalid, illegal, or unenforceable in any jurisdiction or as to any Participant or Award, or would disqualify the Plan or any Award under any law deemed applicable by the Committee, such provision shall be construed or deemed amended to conform to the applicable laws, or if it cannot be construed or deemed amended without, in the determination of the Committee, materially altering the intent of the Plan or the Award, such provision shall be stricken as to such jurisdiction, Participant or Award and the remainder of the Plan and any such Award shall remain in full force and effect.

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Section 9.8 Neither the Plan nor any Award shall create or be construed to create a trust or separate fund of any kind or a fiduciary relationship between the Company or any subsidiary or affiliate of the Company and a Participant or any other person. To the extent that any person acquires a right to receive payments from the Company or any subsidiary or affiliate of the Company pursuant to an Award, such right shall be no greater than the right of any unsecured general creditor of the Company or any subsidiary or affiliate.

Section 9.9 This Plan shall be binding upon and inure to the benefit of the Company, its successor and assigns and each Participant and his legal representatives.

Article X – Term of the Plan

Section 10.1 The Plan shall be effective as of June 1, 2000 and shall remain effective until May 31, 2010.

Section 10.2 No new Awards shall be granted under the Plan after the termination of the Plan. Unless otherwise expressly provided in the Plan or in an applicable Award Certificate, any Award granted hereunder may, and the authority of the Board or Committee to amend, alter, adjust, suspend, discontinue, or terminate any such Award or to waive any conditions or rights under any such Award shall, continue after the termination of the Plan for so long as Awards remain outstanding under the Plan.

IN WITNESS WHEREOF, the Company has executed this Plan this 22nd day of May, 2003, but effective as of July 1, 2000.

	Westmoreland Coal Company
	By /s/ Christopher K. Seglem
	Title: President and Chief Executive Officer
ATTEST:
/s/ W. Michael Lepchitz
Vice President and Corporate Counsel

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EX-10

Exhibit 10.2

FIRST AMENDMENT TO
2000 NONEMPLOYEE DIRECTORS’ STOCK INCENTIVE PLAN

RECITALS:

1.          The Board of Directors at its May 22, 2003 meeting approved modifications to the 2000 Nonemployee Directors' Compensation ("Plan").

2.          After considering the Board of Directors' Compensation Analysis for Westmoreland Coal Company dated May 16, 2003 and prepared by Mercer Human Resource Consulting, the Board adjusted annual director stock incentive compensation downward and determined, due to the increase in the value of Westmoreland stock, that it was prudent to have the flexibility to pay stock incentive compensation using options, restricted shares or other fully valued shares.

3.          Paragraph 10 of the Plan permits the Board, in its discretion, to amend the Plan at any time.

        NOW, THEREFORE, effective as of May 22, 2003, the 2000 Nonemployee Directors Stock Incentive Plan is amended as follows:

1.          Capitalized terms used but not defined herein shall have the meaning ascribed to them in the Plan.

2.          Paragraph 2 is amended to include the following definitions:

“Award” means any Option, Restricted Stock Award or other right or interest relating to shares granted under the Plan.

“Award Certificate” means an award certificate signed by the Company acknowledging the Award in such form and including such terms and conditions not inconsistent with the Plan as the Administrator may in its discretion from time to time determine.

“Restricted Stock Award” means an Award, payable in Shares, that may be granted subject to a risk of forfeiture if the Eligible Participant ceases to serve as a Director during a specified period (the “Restriction Period”) or if any performance criteria specified by the Administrator are not met. A Restricted Stock Award may provide a vesting schedule under which vesting could occur at an earlier date than otherwise established if specified performance criteria are met before the end of the Restriction Period or in the event of death or permanent disability of an Eligible Participant. The Restriction Period, performance criteria, and vesting schedule, if any, shall be determined by the Board in its sole discretion and set forth in an Award Certificate.

In addition, the definition of Participant is amended to read as follows:

“Participant” means any Eligible Participant who receives an Award pursuant to Paragraph 6 hereof.

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3.          Paragraph 4(a), Administration of the Plan, is amended to read as follows:

(a)    The Plan shall, to the extent possible, be self-effectuating. The Board is authorized and empowered to administer the Plan, which administration shall include (but is not limited to) authority to (i) determine the form of the Award and the Award Certificate, which need not be identical for each Participant; (ii) correct any defect, supply any omission or reconcile any inconsistency in the Plan, and construe and interpret the Plan, any award, rules and regulations, Award Certificate or other instrument thereunder; (iii) prescribe, amend and rescind rules and regulations relating to the Plan; (iv) further define the terms used in the Plan; (v) determine the rights and obligations of Participants under the Plan; and (vi) make all other decisions and determinations required under the Plan or as it may deem necessary or advisable for the administration of the Plan. Each Award granted under the Plan shall be evidenced by an Award Certificate.

4.          Paragraph 6 is amended as follows:

(i)   Subparagraph (a) is amended to read as follows:

(a) Whenever any person shall first become an Eligible Participant, there shall be automatically (without any action by the Administrator) granted an Award which shall occur on the first business day after the date such person shall have become an Eligible Participant to such person in the form of a grant of Restricted Stock or Options, at the election of the Administrator, equal to two times the compensation limitation expressed in paragraph 6(d). No Eligible Participant shall receive more than one Award in any calendar year.

(ii)    A new subparagraph (d) is added which reads as follows:

(d) The Board may, in its sole discretion, grant fully valued Restricted Stock Awards to Participants in lieu of all or a portion of the Option granted pursuant to paragraphs (a) and (b) above. In no event will the value of the Option or Restricted Stock Award, exceed $30,000.00 on the date of the grant.

5.          Paragraph 7 is amended as follows:

(i)   Subparagraph (e) is amended by striking the term Option Agreement and substituting the term Award Certificate every place it appears in the subparagraph.

(ii)    Subparagraph (g) is amended by adding the following sentence immediately after the first complete sentence:

"The vesting of any Restricted Stock Award shall also automatically accelerate."

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6.          Paragraph 9 is amended by striking the term Option and substituting the term Award throughout the paragraph and in the second line of subparagraph (a) deleting the phrase "to the Option Award" in its entirety.

7.          Paragraph 10 is amended by striking the term Option and substituting the term Award in the second sentence.

        Except as modified by this First Amendment the 2000 Nonemployee Directors Stock Incentive Plan is hereby ratified, affirmed in all respects and remains in full force and effective.

        IN WITNESS WHEREOF, the Board of Directors, through its Chairman has executed this First Amendment to the Plan effective the 22^nd day of May, 2003.

	/s/ Christopher K. Seglem
	Christopher K. Seglem
	Chairman of the Board
ATTEST:
/s/ W. Michael Lepchitz

EX-10

Exhibit 10.3

TERMINATION AGREEMENT AND GENERAL RELEASE

This Termination Agreement and General Release (“Agreement”) is made and entered into by and among Robert J. Jaeger (hereinafter referred to as “Mr. Jaeger”) and Westmoreland Coal Company (hereinafter referred to as “Westmoreland”).

WITNESSETH:

        WHEREAS, Westmoreland has indicated to Mr. Jaeger that it wishes to employ a new Chief Financial Officer; and

        WHEREAS, Mr. Jaeger has indicated that he desires to leave the Company rather than accept another position within the Company; and

        WHEREAS, Mr. Jaeger is a covered participant in the Westmoreland Executive Severance Policy; and

        WHEREAS, Westmoreland wishes to deliver severance benefits in a mutually advantageous manner; and

        WHEREAS, Westmoreland wishes to assure a reasonable and orderly transition of Mr. Jaeger’s responsibilities and his continued support and assistance as needed.

        NOW THEREFORE, in consideration of these premises and mutual promises herein contained, it is agreed as follows:

        1.         Mr. Jaeger will separate from the Company on August 31, 2003, and will resign all positions and directorships at the various subsidiaries and affiliates of the Company, as well as seats on various Company related committees and trusts on which he serves on that date. Mr. Jaeger will continue to receive his current salary on regular pay dates, be eligible for health, dental, life and disability insurance, vacation benefits, and accrual of credited service for retirement purposes, through to and including August 31, 2003. He shall not be eligible for any other compensation or benefits except as set forth herein.

        2.         At the time of termination of employment, Mr. Jaeger may elect to continue receiving group medical insurance pursuant to federal COBRA laws. All premiums for continued medical coverage under COBRA will be paid monthly by Mr. Jaeger.

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        3.         Upon separation and so long as he abides by the terms of this Agreement, which determination by the Company shall not be arbitrary and capricious, Westmoreland agrees to pay Mr. Jaeger a severance in the sum of $720,000 at the rate of $50,000 per year for ten years plus an additional $110,000 per year for the first two years in equal monthly installments beginning on September 30, 2003. Westmoreland reserves the right to at any time prepay all or any portion of the $720,000. The first 24 monthly installments of principal shall be in the amount of $13,333.33 from September 30, 2003 through August 31, 2005. The remaining 96 monthly installments of principal shall be in the amount of $4,166.67 from September 30, 2005 through August 31, 2013, which amount shall be adjusted monthly, beginning September 1, 2003, based on the outstanding principal and the per annum rate (yield) of the 10 year Treasury Notes as of the last business day of the preceding month. The monthly principal payments shall be subject to standard withholding deductions. A separate check will be issued for any interest payment. It is understood and agreed that payments made pursuant to this paragraph 3, paragraphs 4 and 5, and Mr. Jaeger's eligibility for qualified pension benefits under the Company's Salaried Retirement Pension Plan earned through the date of his separation are the substitute for and in lieu of the payments Mr. Jaeger might otherwise be entitled to under the Westmoreland Executive Severance Policy or any other compensation or benefit program as of the effective date of his separation.

        4.          Mr. Jaeger shall also be entitled to receive three years credit in the 2000 Award, two years credit in the 2001 Award, and one year credit in the 2002 Award under the Company's approved 2000 Performance Unit Plan ("Plan"). The value, if any, of these awards and the time and manner of payment will be determined by the Compensation and Benefits Committee, in its sole discretion, as provided in the 2000 Performance Unit Plan and Award Certificates, which terms and conditions shall be the same as for the other participants receiving Awards for those periods.

        5.          All stock options under the 1995, 2000 and 2002 Long-Term Stock Incentive Plans that are vested as of the date of Mr. Jaeger's separation must be exercised within 90 days thereof. All unvested rights under the 1995, 2000 or 2002 Long-Term Incentive Stock Plans will lapse at the date of Mr. Jaeger's separation.

        6.          Westmoreland will pay Mr. Jaeger for any of the current year's vacation days that are not used prior to his separation.

        7.          Mr. Jaeger will remain a Company designee on the Westmoreland membership at the Broadmoor Golf Club through the date of separation.

        8.          In the event of Mr. Jaeger's death, all payments due hereunder by Westmoreland will be paid to Mary Jaeger, his wife, and in the event of her death, then equally to his surviving children according to the same terms and conditions of this Agreement.

        9.          Mr. Jaeger will diligently discharge all his duties, through the date of his separation.

        10.          Mr. Jaeger agrees to provide reasonable consultation and assistance to Westmoreland following his separation without additional compensation. For all matters other than issues associated with the financing of the acquisitions of the coal business of Entech, Inc. and Knife River by Westmoreland Mining LLC or the UMWA Health and Benefit Funds, Mr. Jaeger shall be available for consultation for a period of three years. For issues associated with the Westmoreland Mining LLC financing, Mr. Jaeger agrees to be available for consultation for the term of the financing and for issues associated with the UMWA Health and Benefit Funds for the term of the Master Agreement or, in the case of the 1974 Pension Plan, for the duration of any litigation related thereto. Any consultation shall be provided at times and in a manner that does not interfere with any other employment and Westmoreland agrees to pay reasonable expenses incurred by Mr. Jaeger in providing the consultation required by this paragraph.

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        11.          Non-Disparagement. Mr. Jaeger agrees to refrain from making any disparaging comments, including defamation, libel or slander concerning Westmoreland's business, products or services, officers, employees and directors of Westmoreland and its investors, shareholders, administrators, affiliates, divisions, subsidiaries, predecessor and successor corporations, and assigns or interfering with the contracts and relationships of Westmoreland and its officers, directors, employees, investors, shareholders, administrators, affiliates, divisions, subsidiaries, predecessor and successor corporations, and assigns, except to say that he was terminated from employment and received benefits under Westmoreland's Executive Severance Policy. Mr. Jaeger agrees that he will not support or participate in or with any action taken by any party, including any union, Union Health and Benefit Fund, shareholder action or activity or any potential buyers of the Company without the express written consent of the Company. Likewise, Westmoreland agrees to refrain from making any disparaging comments, including defamation, libel or slander concerning Mr. Jaeger or interfering with his contracts and relationships with any future employer. However, it is agreed that Westmoreland may disclose that Mr. Jaeger was terminated from employment and received benefits under Westmoreland's Executive Severance Policy after the Company determined to hire a new Chief Financial Officer and Mr. Jaeger elected not to accept another position within the Company. For the purpose of the foregoing, "Westmoreland" shall be deemed to include all Westmoreland's subsidiaries and affiliates.

         12.          Westmoreland understands that Mr. Jaeger may seek other employment, however, Mr. Jaeger agrees not to seek or accept employment with any company or entity that directly or indirectly competes with Westmoreland in the Western United States, including the upper Mid-West, for a period of two years from the effective date of his separation. Mr. Jaeger shall not be prohibited from accepting employment with any oil or gas firm or producer of power, so long as his position with said employer does not include matters relating directly to Westmoreland Coal Company and its interests or the production, purchase, sale or pricing of coal. Moreover, should matters relating to Westmoreland come to Mr. Jaeger's attention in his capacity as an employee of such entity, he shall promptly notify Westmoreland of such matters and recuse himself from any further involvement with them.

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         13.          In consideration of the payments by Westmoreland to Mr. Jaeger described in paragraphs 3, 4 and 5 above, Mr. Jaeger, individually and on behalf of his successors, heirs, and assigns, hereby forever releases, remises, waives, acquits, and discharges Westmoreland, together with any and all parent corporations of Westmoreland and their respective affiliates, subsidiaries, successors, predecessors, assigns, directors, officers, shareholders, supervisors, employees, attorneys, agents, and representatives, from any and all actions, causes of action, claims, demands, losses, damages, costs, attorneys' fees, judgments, liens, indebtedness, and liabilities whatsoever, known or unknown, suspected or unsuspected, past or present, contingent or existing, arising from or relating or attributable to Mr. Jaeger's employment by Westmoreland, the termination of said employment, and, without limiting the generality of the foregoing, from any and all matters asserted, or which could have been asserted against any of the foregoing, in any lawsuit, or in any other state or federal judicial or administrative forum, up to and including the date of this Agreement, specifically, but not by way of limitation, including claims under the Federal Mine Safety and Health Act of 1977, as amended, the Fair Labor Standards Act, as amended, the National Labor Relations Act, as amended, the Family and Medical Leave Act, as amended, Title VII of the Civil Rights Act of 1964, as amended, the Post-Civil War Reconstruction Acts, as amended, the Age Discrimination in Employment Act, as amended, the Americans with Disabilities Act, the Rehabilitation Act of 1973, as amended, the Civil Rights Act of 1991, the Employee Retirement Income Security Act of 1974, as amended, any state civil rights act, any claim of wrongful discharge whether based upon tort or contract arising out of the common law of Colorado or any other state, and any other claim of any type whatsoever. Except for claims that allege gross negligence or willful misconduct, Westmoreland, likewise, on its behalf, and on behalf of any and all subsidiaries and affiliates, hereby forever releases, remises, waives, acquits, and discharges Mr. Jaeger, his family, heirs, successors, assigns, or agents from any and all actions, causes of action, claims, demands, losses, damages, costs, attorneys' fees, judgments, liens, indebtedness, and liabilities whatsoever, known or unknown, suspected or unsuspected, past or present, arising from or relating or attributable to Mr. Jaeger's employment by Westmoreland, the termination of said employment, Mr. Jaeger's subsequent search for other employment, and, without limiting the generality of the foregoing, specifically from any and all matters asserted or which could have been asserted in any lawsuit, up to the date of this Agreement. Mr. Jaeger and Westmoreland desire to resolve all matters between them through the effective date of his separation from Westmoreland. To that end, the parties hereby agree and acknowledge that, subject to their mutual agreement at that time, they in good faith intend, by letter agreement, to agree to apply the language of this paragraph 13, and all other provisions of this Agreement, through to and including August 31, 2003, with a signed letter by them on August 31, 2003.

        14.          Mr. Jaeger and Westmoreland each forever waive all rights to assert that this Agreement was the result of a mistake in law or in fact. Further, they forever waive all rights to assert that any or all of the legal theories or factual assumptions used for negotiating purposes are for any reason inaccurate or inappropriate.

        15.          Payment of the compensation set forth in paragraphs 3, 4 and 5 above, constitutes reimbursement for and settlement of any and all claims, other than for breach of this Agreement, asserted or unasserted for unpaid compensation, including any entitlement to compensation pursuant to Westmoreland's Executive Severance Policy or incentive compensation programs, claims relating to benefits, claims under any federal, state or local law or cause of action concerning employment, all common law claims, including but not limited to, actions in tort, defamation and breach of contract, any claims relating to performance units, stock, or stock options, contractual or otherwise, and any claim or damage arising out of his employment with or separation from Westmoreland under any common law theory or any state or federal ordinance not expressly referenced above which have arisen as of the effective date of this Agreement and Mr. Jaeger, his heirs, agents, assigns, executors, administrators, personal representatives and any future estates irrevocably and unconditionally release these claims. Notwithstanding anything to the contrary in this Agreement, Mr. Jaeger shall remain eligible for qualified pension benefits under the Company's Salaried Retirement Pension Plan earned through the date of his separation and shall remain covered pursuant to the terms of the Company's Officer & Director existing professional liability insurance.

        16.          Mr. Jaeger hereby covenants and warrants that he has not assigned or transferred to any person any portion of any claims which are released and waived in this Agreement.

         17.          Mr. Jaeger agrees to waive reinstatement to employment with Westmoreland. Mr. Jaeger further promises not to apply in the future for employment with Westmoreland or any parent corporation of Westmoreland, or their respective affiliates, subsidiaries, successors, or assigns. Mr. Jaeger further agrees that should he make any application for employment in violation of this paragraph, the application may be rejected, with no liability to Westmoreland or any parent corporation of Westmoreland, or their respective affiliates, subsidiaries, successors, or assigns, and should he be employed contrary to this paragraph, without his disclosing the provisions of this paragraph, his employment may be terminated with no liability to Westmoreland or any parent corporation of Westmoreland, or their respective affiliates, subsidiaries, successors, or assigns.

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        18.          Mr. Jaeger agrees to take all reasonable steps to protect and keep confidential all material non-public information concerning Westmoreland. It is expressly agreed that this confidentiality provision is an essential provision of this Agreement.

        19.          If the confidentiality provision in paragraph 18 is breached by Mr. Jaeger, Westmoreland shall be entitled to take any and all actions to enforce the confidentiality provisions of paragraph 18 and shall be entitled to damages for any breach. The parties agree that equitable relief, in addition to damages for a breach, are appropriate remedies. Attorney's fees incurred in any action shall be the responsibility of the losing party.

        20.          Mr. Jaeger agrees to promptly return upon his separation any remaining Westmoreland property in his possession, including keys, security cards, and any other property belonging to Westmoreland.

        21.          This Agreement sets forth the complete Agreement between the parties. No other covenants or representations have been made or relied on by the parties, and no other consideration, other than that set forth herein, is due or owing between the parties. Specifically, but without limiting the scope of the foregoing, no payment of money between the parties is due or owing in any way, in any amount, or on account of any charge, including attorneys' fees, other than the sum described in paragraphs 3, 4 and 5 above.

         22.          Mr. Jaeger acknowledges that he has been advised by Westmoreland to consult with an attorney prior to executing this Agreement, that he has been given at least twenty-one (21) days within which to consider this Agreement, and has been advised that for a period of seven (7) days following execution of this Agreement, he may revoke this Agreement and that it shall not become effective or enforceable until the expiration of said seven (7) day period. Mr. Jaeger further acknowledges that he will receive the payments described in paragraphs 3, 4 and 5 above only upon expiration of the seven (7) day time period described above.

        23.          Mr. Jaeger represents that he has read this Agreement and understands each of its terms. Mr. Jaeger further represents that no representations, promises, agreements, stipulations, or statements have been made by Westmoreland, or its parent corporation or their respective affiliates, subsidiaries, successors, predecessors, assigns, directors, officers, employees, shareholders, supervisors, agents, attorneys, or representatives to induce this settlement, beyond those contained herein. Mr. Jaeger further represents that he voluntarily signs this Agreement as his own free act, and that Mr. Jaeger is not acting under any coercion or duress.

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        24.          If any provision of this Agreement should be declared to be unenforceable by any administrative agency or court of law, the remainder of the Agreement shall remain in full force and effect, and shall be binding upon the parties hereto as if the invalidated provision were not part of this Agreement.

        25.          Should Mr. Jaeger seek to take, or take, any legal, equitable or administrative action based upon any claim waived or released in Paragraph 13 above, or to claim that this Agreement is, in any respect, invalid, incomplete, or otherwise unenforceable, a condition precedent to any such action or claim shall be the tender in full of all payments made pursuant to Paragraphs 3, 4 and 5 above, which monies shall be held in escrow pending resolution of said action or claim. In any such dispute the prevailing party shall be entitled to his/its attorneys' fees, costs and expenses.

        26.          Colorado law shall govern the interpretation of this Agreement.

PLEASE READ CAREFULLY. THIS TERMINATION AGREEMENT AND GENERAL RELEASE INCLUDES A RELEASE OF ALL KNOWN OR UNKNOWN CLAIMS. THE UNDERSIGNED STATES THAT HE/SHE HAS CAREFULLY READ THE FOREGOING TERMINATION AGREEMENT AND KNOWS AND UNDERSTANDS THE CONTENTS THEREOF, AND THAT HE/SHE EXECUTES THE SAME AS HIS/HER OWN ACT AND DEED.

        I, Robert J. Jaeger, acknowledge that I have been provided sufficient opportunity to review this Termination Agreement and General Release and to consult with an attorney with respect to its terms and conditions, including the general release contained herein. I further acknowledge that I have not relied upon any representation or statement not set forth in the Agreement. I have carefully read this document, understand all of its terms, accept and agree to its terms, and execute it voluntarily with full knowledge of its significance on this 2nd day of July, 2003.

/s/ Robert J. Jaeger
Robert J. Jaeger

        Robert J. Jaeger appeared before me this 2nd day of July, 2003, and subscribed and swore to this Termination Agreement and General Release after having initialed each page thereof.

My commission expires: 7/22/2004 /s/ Colette Sayka
Notary Public

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        I, Christopher K. Seglem, on behalf of Westmoreland Coal Company, acknowledge that I have been provided sufficient opportunity to review this Termination Agreement and General Release and to consult with an attorney with respect to its terms and conditions, including the general release contained herein. I have read this document, understand all of its terms, accept and agree to its terms, and execute it voluntarily with full knowledge of its significance on this 2nd day of July, 2003.

WESTMORELAND COAL COMPANY

By: /s/ Christopher K. Seglem
Title: Chairman, President and Chief Executive Officer

        Christopher K. Seglem appeared before me this 2nd day of July, 2003, and subscribed and swore to this Termination Agreement and General Release after having initialed each page thereof.

My commission expires: 7/22/2004 /s/ Colette Sayka
Notary Public

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EX-10

Exhibit 10.4

        WESTMORELAND COAL COMPANY

        Deferred Compensation Plan

WESTMORELAND COAL COMPANY

         TABLE OF CONTENTS

ARTICLE	SECTION		PAGE
I	Purpose and Effective Date		1
	1.01	Title	1
	1.02	Purpose	1
	1.03	Effective Date	1
II	Definitions and Construction of the Plan Document		1
	2.01	Beneficiary	1
	2.02	Board	1
	2.03	Bonus Compensation	1
	2.04	Change in Control	1
	2.05	Committee	2
	2.06	Company	2
	2.07	Compensation	2
	2.08	Crediting Rate	2
	2.09	Deferral	3
	2.10	Deferral Account	3
	2.11	Deferral Account Balance	3
	2.12	Deferred Compensation	3
	2.13	Disability	3
	2.14	Election Date	3
	2.15	Election Form	3
	2.16	Employee	3
	2.17	ERISA	3
	2.18	Exchange Act	4
	2.19	Participant	4
	2.20	Plan	4
	2.21	Plan Year	4

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ARTICLE	SECTION		PAGE
	2.22	Retirement	4
	2.23	Supplemental Contribution	4
	2.24	Termination of Service	4
	2.25	Unforeseeable Financial Emergency	4
	2.26	Valuation Date	4
	2.27	Year Certain	5
	2.28	Gender and Number	5
	2.29	Titles	5
III	Eligibility and Participation		5
	3.01	Eligibility	5
	3.02	Participation	5
IV	Participant Deferrals of Compensation		5
	4.01	Deferred Compensation	5
	4.02	Duration of Election Form	6
	4.03	Election to Modify or Terminate Future Contributions	6
	4.04	Vesting	6
	4.05	Supplemental Contribution	6

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ARTICLE	SECTION		PAGE
V	Deferral Accounts		6
	5.01	Maintenance of Accounts	6
	5.02	Deferral Account	7
	5.03	Interest	7
	5.04	Statement of Accounts	7
VI	Distribution		7
	6.01	Distributions	7
	6.02	Form of Distribution	7
	6.03	Payments Upon Termination	7
	6.04	Death or Disability Prior to Commencement of Benefit Payments	8
	6.05	Death of a Participant Subsequent to Commencement of Benefit Payments	8
	6.06	Redeferral Election	8
	6.07	Taxes	8
VII	Withdrawals		8
	7.01	Withdrawals for Unforeseeable Financial Emergency	8
	7.02	Other Premature Withdrawals	9
	7.03	Withdrawal Processing	9
VIII	Beneficiary		9
	8.01	Beneficiary Designation	9
	8.02	Proper Beneficiary	10
	8.03	Minor or Incompetent Beneficiary	10
	8.04	No Beneficiary Designation	10
IX	Administration of the Plan		10
	9.01	Majority Vote	10
	9.02	Finality of Determination	10
	9.03	Certificates and Reports	10
	9.04	Indemnification and Exculpation	11
	9.05	Expenses	11
X	Claims Procedure		11
	10.01	Written Claim	11
	10.02	Denied Claim	11
	10.03	Review Procedure	11
	10.04	Committee Review	12

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ARTICLE	SECTION		PAGE
XI	Nature of Company's Obligation		12
	11.01	Company's Obligation	12
	11.02	Creditor Status	12
	11.03	Grantor Trust	12
XII	Amendment and Termination of Plann		12
	12.01	Amendment	12
	12.02	Termination	13
XIII	Miscellaneous		13
	13.01	Written Notice	13
	13.02	Change of Address	13
	13.03	Merger, Consolidation or Acquisition	13
	13.04	Employment	13
	13.05	Non-transferability	13
	13.06	Legal Fees	13
	13.07	Tax Withholding	13
	13.08	Applicable Law	14
	13.09	Invalidity of Certain Provisions	14

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ARTICLE I

PURPOSE AND EFFECTIVE DATE

        1.01      Title.       This Plan shall be known as Westmoreland Coal Company Deferred Compensation Plan (hereinafter referred to as the "Plan").

        1.02      Purpose.      The purpose of the Plan is to permit certain members of senior management, to defer sums that may become payable pursuant to the 2000 Performance Unit Plan or any other Long-Term Incentive Plan. The Plan constitutes an unfunded “top hat” arrangement under Title I of ERISA as well as for income tax purposes.

        1.03      Effective Date.      The effective date of this Plan shall be May 1, 2003.

ARTICLE II

DEFINITIONS AND CONSTRUCTION OF THE PLAN DOCUMENT

        2.01      Beneficiary.      “Beneficiary” shall mean the person or persons designated, pursuant to Article VIII, by the Participant to receive such payments as may become payable hereunder after the death of said Participant.

        2.02      Board.      "Board" shall mean the Board of Directors of the Company.

        2.03      Bonus Compensation.      “Bonus Compensation” shall mean any payment in cash to an Employee under the terms of the 2000 Performance Unit Plan or any other long-term performance compensation plan, program or arrangement in effect as of the Effective Date of this Plan or adopted thereafter under which the Company pays an amount of cash remuneration to an Employee above such Participant’s base salary and annual incentive compensation.

        2.04      Change in Control.      "Change in Control" shall mean:

             (a)      The acquisition by an individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Exchange Act) of beneficial ownership (within the meaning of Rule 13d-3) promulgated under the Exchange Act) of 20 percent or more of either (i) the then outstanding shares of Common Stock of the Company (the "Outstanding Company Common Stock") or (ii) combined voting power of the then outstanding voting securities of the Company entitled to vote generally in the election of directors (the "Outstanding Company Voting Securities"); provided, however that the following acquisitions shall not constitute a Change of Control: (i) any acquisition by the Company or any of its subsidiaries, (ii) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by the Company or any of its subsidiaries or (iii) any acquisition by any corporation with respect to which, following such acquisition, more than 75 percent of, respectively, the then outstanding shares of common stock of such corporation and the combined voting power of the then outstanding voting securities of such corporation entitled to vote generally in the election of directors is then beneficially owned, directly or indirectly, by all or substantially all of the individuals and entities who were the beneficial owners, respectively, of the Outstanding Company Common Stock and Outstanding Company Voting Securities immediately prior to such acquisition in substantially the same proportions as their ownership, immediately prior to such acquisition, of the Outstanding Company Common Stock and Outstanding Company Voting Securities, as the case may be; or

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              (b)      Individuals who, as of the effective date of the Plan, constitute the Board (the "Incumbent Board") cease for any reason to constitute at least a majority of the Board; provided, however, that any individual becoming a director subsequent to the date hereof whose election, or nomination for election by the Company's shareholders, was approved by a vote of at least a majority of the directors then comprising the Incumbent Board shall be considered as though such individual were a member of the Incumbent Board, but excluding, for this purpose, any such individual whose initial assumption of office occurs as a result of either an actual or threatened solicitation to which Rule 14a-11 of Regulation 14A promulgated under the Exchange Act applies or other actual threatened solicitation of proxies or consents; or

             (c)      Approval by the shareholders of the Company of a reorganization, merger or consolidation, in each case, with respect to which all or substantially all of the individuals and entities who were the beneficial owners, respectively, of the Outstanding Company Common Stock and Outstanding Company Voting Securities immediately prior to such reorganization, merger or consolidation do not, following such reorganization, merger or consolidation, beneficially own, directly or indirectly, more than 75 percent of, respectively, the then outstanding shares of Common Stock and the combined voting power of the then outstanding voting securities entitled to cote generally in the election of directors, as the case may be, of the corporation resulting from such reorganization, merger or consolidation in substantially the same proportions as their ownership, immediately prior to such reorganization, merger or consolidation of the Outstanding Company Common Stock and Outstanding Company Voting Securities, as the case may be.

        2.05     Committee.       "Committee" shall mean the Compensation and Benefits Committee of the Board.

        2.06      Company.      “Company” shall mean Westmoreland Coal Company and any subsidiary or affiliated companies that adopt the Plan, with the Company’s approval, for their employees, or any successor or entity by operation of law or any successor or entity which affirmatively adopts the Plan, the related trust, if any, and the obligations of Westmoreland Coal Company with respect to the Plan.

        2.07      Compensation.      “Compensation” shall mean, in the case of an Employee, Performance Unit Plan or other Long-Term Incentive Compensation earned, or to be earned, during a Plan year.

        2.08      Crediting Rate.      “Crediting Rate” shall mean an interest rate equal to the prime rate as reported by the Wall Street Journal or other similar publication plus 1% on the balance for any amounts deferred for the first 3 years and on amounts deferred for each full year after 3 years the interest shall increase by ¼ % for each additional year up to a maximum of prime interest rate plus 2%.

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        2.09      Deferral.      “Deferral” shall mean that portion of a Participant’s Compensation to be paid during a Plan year which a Participant elects to have and is deferred during any one Plan Year. In the event of a Participant’s Termination of Service prior to the end of a Plan Year, such year’s Deferral shall be the actual amount deferred and withheld prior to such Termination of Service.

        2.10      Deferral Account.      “Deferral Account” shall mean the record of a Participant’s interest in this Plan represented by the Deferrals and Supplemental Contributions, with all earnings thereon credited to such Account on behalf of the Participant under this Plan, and all withdrawals and distributions thereon debited from such Account.

        2.11      Deferral Account Balance.      “Deferral Account Balance” shall mean with respect to a Participant the sum of (i) his or her Deferred Compensation, plus (ii) interest credited in accordance with Article V of this Plan, less (iii) all withdrawals and distributions. This account shall be a bookkeeping entry only and shall be utilized solely as a device for the measurement and determination of the amounts to be paid to a Participant pursuant to this Plan.

        2.12      Deferred Compensation.       "Deferred Compensation" shall mean the sum of all of a Participant's Deferrals under the Deferral Account.

        2.13      Disability.      “Disability” shall mean the total and permanent disability of a Participant, as determined under the terms of the long-term disability plan of the Company, or, in the absence of a long-term disability plan, as determined by the Board, in its sole and absolute discretion.

        2.14      Election Date.      “Election Date” shall mean the date established by the Committee as the date before which an Employee must submit a valid Election Form to the Committee to effect a Deferral hereunder. The applicable Election Dates can be no later than the following: (a) 30 days after the Effective Date of the Plan for Employees who are eligible to participate at the time the Plan is adopted, (b) 30 days after a newly eligible Employee is notified of the right to participate in the Plan, or (c) December 15 prior to any following Plan Year if (a) or (b) above do not apply.

        2.15      Election Form.       “Election Form” shall mean the form established from time to time by the Committee that an Employee completes, signs and returns to the Committee to make a Deferral under the Plan.

        2.16      Employee.      “Employee” shall mean any person who renders services as a common law employee to the Company, or any of its subsidiaries or affiliates, and is a member of a select group of management as determined by the Committee.

        2.17      ERISA.       "ERISA" shall mean the Employee Retirement Income Security Act of 1974, as amended from time to time.

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        2.18      Exchange Act.       "Exchange Act" shall mean the Securities Exchange Act of 1934, as amended, and all rules and regulations promulgated thereunder.

        2.19      Participant.      “Participant” shall mean an Employee who has Deferred Compensation pursuant to the terms of this Plan, and whose Deferral Account Balance has not yet been fully distributed.

        2.20      Plan.      “Plan” shall mean the Westmoreland Coal Company Deferred Compensation Plan as described in this instrument and as amended from time to time.

        2.21      Plan Year.       "Plan Year" shall mean a calendar year.

        2.22      Retirement.      “Retirement” shall mean the Termination of Service of a Participant from the employ or service of the Company, or any of its subsidiaries or affiliates, in accordance with the terms of the applicable Company retirement plan, or if a Participant is not covered by any such plan, the Termination of Service of the Participant on or after the earliest to occur of the following:

             a.       the attainment by the Participant of the age of 62, or

             b.       the attainment by the Participant of the age of 55 and 10 years of employment or service with the Company or any of its subsidiaries or affiliates.

        2.23      Supplemental Contribution.       "Supplemental Contribution" shall mean that supplemental amount credited by the Company to a Participant's Deferral Account pursuant to Section 4.05 hereof.

        2.24      Termination of Service.      “Termination of Service” or similar expression shall mean the termination of the Participant’s employment as an Employee of the Company and any division, subsidiary or affiliate thereof, for any reason other than Retirement. Transfer of employment or service from the Company, or from an affiliate or subsidiary of the Company to another affiliate or subsidiary of the Company or to the Company, will not constitute a Termination of Service for purposes of this Plan. A Disabled Participant shall be deemed to have terminated service for purposes of this Plan.

        2.25      Unforeseeable Financial Emergency.      “Unforeseeable Financial Emergency” shall mean an unanticipated emergency that is caused by an event beyond the control of the Participant that would result in severe financial hardship to the Participant resulting from (i) a sudden and unexpected illness or accident of the Participant or a dependent of the Participant, (ii) a loss of the Participant’s property due to casualty, or (iii) such other extraordinary and unforeseeable circumstances arising as a result of events beyond the control of the Participant, all as determined in the sole discretion of the Committee.

        2.26      Valuation Date.       "Valuation Date" shall mean, for purposes of Deferral Accounts, the last day of each calendar year.

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        2.27      Year Certain.      “Year Certain” shall mean a specific year in which distribution of a Deferral is made or commences, as elected by a Participant pursuant to Section 4.01 hereof, which year shall be at least three but not more than ten years from the Election Date applicable thereto.

        2.28      Gender and Number.      Wherever the context so requires, masculine pronouns include the feminine and singular words shall include the plural.

        2.29      Titles.      Titles of the Articles of this Plan are included for ease of reference only and are not to be used for the purpose of construing any portion or provision of this Plan document.

ARTICLE III

ELIGIBILITY AND PARTICIPATION

        3.01      Eligibility.      Eligibility for Employee participation in the Plan shall be determined by the Committee, in its sole discretion, but each Employee must be a member of a select group of management or a highly compensated Employee of the Company. An eligible Employee will remain eligible to participate in the Plan with respect to each Plan Year following such eligible Employee’s initial selection by the Committee, unless removed as an eligible Employee with respect to a Plan Year (or Plan Years) by action of the Committee in its sole discretion. If the Committee determines that participation in the Plan by a Participant will cause the Plan to be subject to Parts 2, 3, or 4 of Title I of ERISA, the Committee may, in its sole discretion, immediately pay to the Participant the value of his or her Deferral Account.

        3.02      Participation.      An eligible Employee may elect to participate in the Plan by completing, signing and returning to the Committee a duly executed Election Form no later than the applicable Election Date. A Deferral Account will be established for each Participant at the time an Election Form is received by the Committee.

ARTICLE IV

PARTICIPANT DEFERRALS OF COMPENSATION

        4.01      Deferred Compensation.

                   (a)      An Employee may defer up to 100% of the cash portion of his or her Compensation under the 2000 Performance Unit Plan or any other Long-Term Incentive Plan that has been previously approved by the Committee in 1% increments, until the earliest to occur of Termination of Service, death, disability, January 1 of a Year Certain or January 1 of the year following Retirement. Each Participant shall elect such Deferral by completing, signing and returning to the Committee an Election Form by the applicable Election Date: (1) specifying the applicable amounts of Deferral and the date as of which the amounts so deferred will become payable unless otherwise provided in this Plan; (2) authorizing such Employee's 2000 Performance Unit Plan or any other Long-Term Incentive Plan Compensation payable for a Plan Year to be so reduced and deferred hereunder; and (3) indicating the form of payment of the amounts so deferred. The amounts deferred hereunder shall be added to the Participant's Deferral Account. Notwithstanding the foregoing, the Committee may, without amending this Plan, determine that the maximum permissible Deferral will be less than the percentage set forth herein.

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        4.02      Duration of Election Form.      If properly received by the Committee on or before the applicable Election Date, a Deferral hereunder will be effective only with respect to Compensation paid in the Plan Year to which the Deferral applies. A Participant’s Deferral may be modified or terminated as provided in Section 4.03. Future deferrals will be terminated automatically for any Participant who is deemed (by the Committee) to no longer be eligible for participation in the Plan.

        4.03      Election to Modify or Terminate Future Contributions.      Subject to the provisions of Section 7.01 and 7.02 hereof, all Deferrals hereunder are irrevocable. A Participant who desires to modify or terminate the amount of future Compensation being deferred under the Plan or to change the form of payment of Deferrals must notify the Committee in writing on an Election Form approved and provided by the Committee. Elections to decrease or terminate deferrals of future Compensation shall become effective as soon as administratively possible. Elections to increase deferrals of future Compensation shall become effective on January 1 of the next Plan Year. Elections to change the form of payment of Deferrals hereunder must be made at least twelve (12) months prior to the payment or commencement of payment of such Deferrals.

        4.04      Vesting.       A Participant shall be fully vested at all times in his or her Deferrals and any accretions to the Deferrals by application of the designated Crediting Rate.

        4.05      Supplemental Contribution.      The Company may make Supplemental Contributions to a Participant’s Deferral Account at the sole and absolute discretion of the Committee. Any Supplemental Contribution shall be credited with interest on each Valuation Date at the Crediting Rate, and shall be distributed to the Participant according to the elections made by the Participant governing his or her Deferral in the year such Supplemental Contributions are made, or, if the Participant has made no Deferral in such year, then in the year in which the Participant last made a Deferral. Supplemental Contributions shall vest according to the schedule determined by the Committee in its discretion at the time the Supplemental Contribution is made to a Participant’s Deferral Account.

ARTICLE V

DEFERRAL ACCOUNTS

        5.01      Maintenance of Accounts.      A separate Deferral Account shall be maintained for each Participant, and more than one Deferral Account may be maintained for a Participant, as deemed necessary by the Committee for administrative purposes. A Participant’s Deferral Account(s) shall be utilized solely as a device for the measurement and determination of the amounts to be paid to the Participant pursuant to this Plan, and shall not constitute or be treated as a trust fund of any kind. The Committee shall determine the balance of each Deferral Account as of each Valuation Date, by adjusting the balance of such Deferral Account to reflect interest credits pursuant to Article V, as of each Valuation Date and distributions and withdrawals to any of the accounts pursuant to Articles VI and VII hereof.

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        5.02      Deferral Account.      A Participant’s Deferrals hereunder will be credited to the Participant’s Deferral Account as of the date on which the Participant’s Compensation would otherwise have been paid to the Participant had it not been deferred. All amounts credited to a Participant’s Deferral Account shall be treated as a reduction of Compensation otherwise payable to such Participant and interest will be paid at the Crediting Rate. Distributions and withdrawals pursuant to Articles VI and VII shall be debited against a Participant’s Deferral Account.

        5.03      Interest.      Prior to any distribution of a Participant’s Deferral Account Balance under Article VI herein, the Company shall credit the Deferral Account with interest on each Valuation Date at the Crediting Rate. Interest credits to the Deferral Account Balance in accordance with this Article V shall continue until the Deferral Account Balance is paid in full to the Participant or the Participant’s Beneficiary.

        5.04      Statement of Accounts.      The Committee shall provide periodically but in no event less frequently than once a year to each Participant a statement setting forth the balance of such Participant’s Deferral Account(s) as of the end of the most recently completed accounting period, in such form as the Committee deems desirable.

ARTICLE VI

DISTRIBUTION

        6.01      Distributions.      Distribution of a Participant’s Deferred compensation shall be in a lump sum or in annual installments over a period of up to ten years, as specified on the Participant’s Election Form. If a payment form is not specified by the Participant for any particular Plan Year in which the Participant made a Deferral such Deferred Compensation shall be distributed as the Committee in its sole discretion may determine, including as a lump sum upon the Participant’s Termination of Service. If the Participant has elected to receive payments in installments, the Company shall make annual payments in cash from the Participant’s Deferral Account in an amount equal to (i) the balance of such Deferral as of the Valuation Date preceding the payment date, times (ii) a fraction, the numerator of which is one and the denominator of which is the number of remaining installments (including the installment being made). The first such installment shall be paid on the January 1 immediately following the Participant’s Retirement, or on January 1 of the Year Certain elected by the Participant, as the case may be, and each subsequent installment shall be paid on or about each January 1 thereafter for the number of years elected by the Participant.

        6.02      Form of Distribution.       All distributions from a Participant's Deferral Account shall be made in cash only.

        6.03      Payments Upon Termination.      A Participant’s Deferral Account Balance shall be paid in accordance with the Participant’s Election Form. The Committee reserves the right upon application of the Participant and in its sole discretion to commute the Participant’s election and pay the benefits in a lump sum immediately following a Participant’s Termination of Service if the Participant’s Termination of Service occurs prior to the elected period of deferral.

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        6.04      Death or Disability Prior to Commencement of Benefit Payments.      In the event of a Participant’s death or disability prior to the commencement of benefit payments hereunder, an amount equal to the Participant’s Deferral Account Balance shall be paid or commence to be paid to the Participant or the Participant’s Beneficiary, as the case may be, in a lump sum or in annual installments over a period of up to ten years, as specified on the Participant’s Election Form, on the first January 1 immediately following the Participant’s death or Disability. The Committee reserves the right upon application of the Participant or the Participant’s designated beneficiary to modify any election and permit payments to be made in annual installments or in a lump sum.

        6.05      Death of a Participant Subsequent to Commencement of Benefit Payments.      In the event of the death of a Participant subsequent to commencement of benefit installment payments hereunder but prior to completion of such payments, the installments shall continue and shall be paid to the designated Beneficiary as if the Participant had survived. The Company shall reserve the right to commute and pay the benefits in a lump sum.

        6.06      Redeferral Election.      Notwithstanding the foregoing, a Participant will be permitted to elect to change the form of payments for previous Deferrals, provided that the redeferral election must be made at least one full calendar year prior to the date on which such distribution would be made or commence to be made in the absence of such redeferral. A redeferral election may be made by submitting an amended Deferral Election Form, or in such other manner as is provided by the Committee.

        6.07      Taxes.      Each Participant shall be responsible for the payment of any and all income and employment taxes which are due and payable on amounts deferred and distributed hereunder. The Company may withhold from a payment or other compensation payable to the Participant any federal, state, or local taxes required to be withheld with respect to such payment and such sum as the Company may reasonably estimate as necessary to cover any taxes for which the Company may be liable and which may be assessed with regard to such payment.

ARTICLE VII

WITHDRAWALS

        7.01      Withdrawals for Unforeseeable Financial Emergency.      At the request of a Participant in the event of an Unforeseeable Financial Emergency or at the request of any of the Participant’s Beneficiaries after the Participant’s death, the Committee may, in its sole discretion, accelerate and pay all or part of the value of a Participant’s Deferral Account Balance. An accelerated distribution hereunder for an Unforeseeable Financial Emergency must be limited to only that amount necessary to relieve the Unforeseeable Financial Emergency (plus any appropriate taxes). Amounts to be distributed to a Participant hereunder will be subject to applicable tax withholding. A Participant that makes a withdrawal for an unforeseeable financial emergency will be precluded from further participation for a period of twelve (12) months following the month during which the Participant’s withdrawal request is received by the Committee.

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        7.02      Other Premature Withdrawals.      A Participant may request the withdrawal of all of such Participant’s Deferral Account, (not in excess of the balance of such Deferral Account) prior to date of distribution under this Plan, for reasons other than a financial need. The Participant will acknowledge and agree that in consideration for the current payment of the relevant portion of the Participant’s Deferral Account, the Participant will forfeit ten percent (10%) of the total pre-withdrawal value of such portion of the Participant’s Deferral Account. In addition, the Participant will be precluded from further participation in the Plan for a period of twelve (12) months following the month during which the Participant’s withdrawal request is received by the Committee.

        7.03      Withdrawal Processing.

              (a)       Minimum Amount.      There is no minimum payment for any type of withdrawal.

              (b)      Application by Participant.       To apply for any type of withdrawal, a Participant must submit to the Committee a withdrawal request, in accordance with such uniform and nondiscriminatory procedure as will be established by the Committee.

              (c)       Approval by Committee.       The Committee is responsible for determining that a withdrawal request conforms to the requirements described in this Article and notifying the Company of any payments to be made in a timely manner. With respect to any withdrawal request under Article 7.01 hereof, the Committee's decision to allow a Participant to withdraw all or part of such Participant's Deferral Account in connection with an Unforeseeable Financial Emergency will be based on the facts and circumstances of each case. However, in no event will the amount withdrawn exceed the lesser of the amount which the Committee deems necessary to satisfy such financial need (plus any appropriate taxes) or the balance of such Participant's Deferral Account. Any request to make a withdrawal by a member of the Committee may be approved only by disinterested members of the Committee, or if none, by the Board.

              (d)       Time of Processing.       The Company will make payment to the Participant as soon as is administratively feasible following approval of the withdrawal request.

              (e)       Medium and Form of Payment.      The medium of payment for withdrawals from Deferral Accounts is cash. The form of payment for all withdrawals will be a single-sum payment.

ARTICLE VIII

BENEFICIARY

        8.01      Beneficiary Designation.      A Participant shall designate a Beneficiary to receive benefits under the Plan on the beneficiary designation form provided by the Committee. If more than one Beneficiary is named, the share and/or precedence of each Beneficiary shall be indicated. A Participant shall have the right to change the Beneficiary by submitting to the Committee a new beneficiary designation form.

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        8.02      Proper Beneficiary.      If the Committee has any doubt as to the proper Beneficiary to receive payments hereunder, the Committee shall have the right to withhold such payments until the matter is finally adjudicated. However, any payment made by the Committee, in good faith and in accordance with this Plan, shall fully discharge the Company from all further obligations with respect to that payment.

        8.03      Minor or Incompetent Beneficiary.      In making any payments to or for the benefit of any minor or an incompetent Beneficiary, the Committee, in its sole and absolute discretion, may make a distribution to a legal or natural guardian or other relative of a minor or court appointed committee of such incompetent. Alternatively, it may make a payment to any adult with whom the minor or incompetent temporarily or permanently resides. The receipt by a guardian, committee, relative or other person shall be a complete discharge to the Company. Neither the Company nor the Committee shall have any responsibility to see to the proper application of any payments so made.

        8.04      No Beneficiary Designation.      If a Participant fails to designate a Beneficiary as provided in Article 8.01 above, or if all designated Beneficiaries predecease the Participant or die prior to complete distribution of the Participant’s benefits, then the Participant’s designated Beneficiary shall be deemed to be his or her surviving spouse. If the Participant has no surviving spouse, the benefits remaining under the Plan to be paid to a Beneficiary shall be payable to the executor, administrator or personal representative of the Participant’s estate.

ARTICLE IX

ADMINISTRATION OF THE PLAN

        9.01      Majority Vote.      All resolutions or other actions taken by the Committee shall be by vote of a majority of those present at a meeting at which a majority of the members are present, or in writing by all the members at the time in office if they act without a meeting. Such resolutions or actions shall be confirmed in writing by a Board resolution.

        9.02      Finality of Determination.      Subject to the Plan, the Committee shall, from time to time, establish rules, forms and procedures for the administration of the Plan. Except as herein otherwise expressly provided, the Committee shall have the exclusive right to interpret the Plan and to decide any and all matters arising thereunder or in connection with the administration of the Plan, and it shall endeavor to act, whether by general rules or by particular decisions, so as not to discriminate in favor of or against any person. The interpretations, decisions, actions and records of the Committee shall be conclusive and binding upon the Company and all persons having or claiming to have any right or interest in or under the Plan, and cannot be overruled by a court of law unless arbitrary or capricious.

        9.03      Certificates and Reports.      The members of the Committee and the officers and directors of the Company shall be entitled to rely on all certificates and reports made by any duly appointed accountants, and on all opinions given by any duly appointed legal counsel, which legal counsel may be counsel for the Company.

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        9.04      Indemnification and Exculpation.      The Company shall indemnify and hold harmless each current and former member of the Committee and each current and former member of the Board against any and all expenses and liabilities (to the extent not indemnified under any liability insurance contract or other indemnification agreement) which the person incurs on account of any act or failure to act in connection with the good faith administration of the Plan. Expenses against which a member of the Committee shall be indemnified hereunder shall include, without limitation, the amount of any settlement or judgment, costs, counsel fees, and related charges reasonably incurred in connection with a claim asserted, or a proceeding brought or settlement thereof. The foregoing right of indemnification shall be in addition to any other rights to which any such member of the Committee may be entitled as a matter of law, but shall be conditioned upon the person’s notifying the Company of the claim of liability within 60 days of the notice of that claim and offering the Company the right to participate in and control the settlement and defense of the claim. The foregoing provision will not be applicable to any person if the loss, cost, liability or expense is due to such person’s gross negligence or willful misconduct.

        9.05      Expenses.       The expenses of administering the Plan shall be borne by the Company.

ARTICLE X

CLAIMS PROCEDURE

        10.01      Written Claim.      Benefits shall be paid in accordance with the provisions of this Plan. The Participant, or a designated Beneficiary or any other person claiming through the Participant shall make a written request for benefits under this Plan. This written claim shall be mailed or delivered to the Committee. Such claim shall be reviewed by the Committee or a delegate.

        10.02      Denied Claim.      If the claim is denied, in full or in part, the Committee shall provide a written notice within ninety (90) days setting forth the specific reasons for denial, and any additional material or information necessary to perfect the claim, and an explanation of why such material or information is necessary, and appropriate information and explanation of the steps to be taken if a review of the denial is desired.

        10.03      Review Procedure.      If the claim is denied and a review is desired, the Participant (or Beneficiary) shall notify the Committee in writing within sixty (60) days after receipt of the written notice of denial. In requesting a review, the Participant or Beneficiary may request a review of pertinent documents with regard to the benefits created under this agreement, may submit any written issues and comments, may request an extension of time for such written submission of issues and comments, and may request that a hearing be held, but the decision to hold a hearing shall be within the sole discretion of the Committee.

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        10.04      Committee Review.      The decision on the review of the denied claim shall be rendered by the Committee within sixty (60) days after the receipt of the request for review (if no hearing is held) or within sixty (60) days after the hearing if one is held. The decision shall be written and shall state the specific reasons for the decision including reference to specific provisions of this Plan on which the decision is based.

ARTICLE XI

NATURE OF COMPANY’S OBLIGATION

        11.01     Company's Obligation.       The Company's obligations under this Plan shall be an unfunded and unsecured promise to pay. The Company shall not be obligated under any circumstances to fund its financial obligations under this Plan.

        11.02      Creditor Status.      Any assets which the Company may acquire or set aside to help cover its financial liabilities hereunder are and must remain general assets of the Company subject to the claims of its general unsecured creditors. Neither the Company nor this Plan gives a Participant or Beneficiary any beneficial ownership interest in any asset of the Company. In the event that the Company elects to invest funds to pay Deferral Account Balances under the terms of this Plan, title to and beneficial ownership of such assets shall at all times remain in the Company. All Plan Participants and Beneficiaries shall be unsecured general creditors of the Company.

        11.03      Grantor Trust.      In order to meet its contingent obligations hereunder, the Company may, at the sole and absolute discretion of the Committee, set aside or earmark funds in an amount determined by the Committee to be equal to the total amounts necessary to provide benefits under the Plan. The Company, at the sole and absolute discretion of the Committee, may (but shall not be obligated to) create one or more grantor trusts, the assets of which are subject to the claims of the Company’s creditors, to assist it in accumulating funds to pay its obligations hereunder. Upon a Change in Control, the Company shall contribute to such a grantor trust an amount equal to the value of accrued benefits for Participants, and shall as of the last day of each Plan Year thereafter contribute the amount of any incremental accrued benefits to the trust.

ARTICLE XII

AMENDMENT AND TERMINATION OF PLAN

        12.01      Amendment.      The Board reserves the right to amend this Plan from time to time in whole or in part; provided, however, that no such amendment may reduce, or relieve the Company of, any obligation with respect to the balance of any Deferral Account(s) maintained under this Plan as accrued at the time of such amendment, nor shall any amendment otherwise have a retroactive effect, without the written consent of the affected Participant or Beneficiary as the case may be.

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        12.02      Termination.      The Company, by action of the Board, reserves the right to prospectively terminate this Plan for any reason, with respect to future Deferrals. No such termination shall affect the Deferral Account balances which shall have accrued for Participants at the time of such termination. The Board reserves the right to accelerate the payment of any benefits payable under this Plan at any time without the consent of the Participant, the Participant’s estate, a Beneficiary or any other person claiming through the Participant.

ARTICLE XIII

MISCELLANEOUS

        13.01      Written Notice.      Any notice which shall be or may be given under the Plan shall be in writing and shall be mailed by United States mail, postage prepaid. If notice is to be given to the Company, such notice shall be addressed to the Committee at the Company. If notice is to be given to the Participant, such notice shall be sent to the Participant’s last known address.

        13.02      Change of Address.      Any party may, from time to time, change the address to which notices shall be mailed by giving written notice of such new address.

        13.03      Merger, Consolidation or Acquisition.      The Plan shall be binding upon the Company, its assigns, and any successor to the Company which shall succeed to substantially all of its assets and business through merger, acquisition or consolidation, and upon a Participant, a Beneficiary, assigns, heirs, executors and administrators.

        13.04      Employment.      Neither the creation of this Plan or anything contained herein shall be construed as giving any Participant hereunder any right to continuous service with the Company.

        13.05      Non-transferability.      Except insofar as prohibited by applicable law, no sale, transfer, alienation, assignment, pledge, collateralization or attachment of any benefits under this Plan shall be valid or recognized by the Company. Neither the Participant, spouse, or designated Beneficiary shall have any power to hypothecate, mortgage, commute, modify, or otherwise encumber in advance of any of the benefits payable hereunder, nor shall any of said benefits be subject to seizure for the payment of any debts, judgments, alimony maintenance, owed by the Participant or Beneficiary, or be transferable by operation of law in the event of bankruptcy, insolvency, or otherwise.

        13.06      Legal Fees.      All reasonable legal fees incurred by any Participant (or former Participant) to successfully enforce valid rights under this Plan shall be paid by the Company in addition to sums due under this Plan.

        13.07      Tax Withholding.      The Company may withhold from a payment any federal, state, or local taxes required by law to be withheld with respect to such payment and such sum as the Company may reasonably estimate as necessary to cover any taxes for which the Company may be liable and which may be assessed with regard to such payment.

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        13.08       Applicable Law.       This Plan shall be governed by the laws of the State of Colorado, without regard to the conflicts-of-law rules of such State, to the extent not preempted by the laws of the United States of America.

        13.09      Invalidity of Certain Provisions.      If any provision of this Plan is held invalid or unenforceable, such invalidity or unenforceability will not affect any other provisions hereof and this Plan will be construed and enforced as if such provisions, to the extent invalid or unenforceable, had not been included.

        IN WITNESS WHEREOF, the Company has caused this Plan to be executed by its duly authorized officer on this 23rd day of May, 2003, effective as of the 1st day of May, 2003.

WESTMORELAND COAL COMPANY

By /s/ Christopher K. Seglem
     President and Chief Executive Officer

ATTEST:

By /s/ W. Michael Lepchitz

            [SEAL]

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EX-31

Exhibit 31

CERTIFICATION

I, Christopher K. Seglem, certify that:

1.	I have reviewed this Quarterly Report on Form 10-Q of Westmoreland Coal Company;
2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.	The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:
	a.	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
	b.	[Paragraph omitted in accordance with SEC transition instructions contained in SEC Release 34-47986]
	c.	Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
	d.	Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
5.	The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
	a.	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
	b.	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Date:   August 13, 2003	/s/ Christopher K. Seglem
	Name:   Christopher K. Seglem
	Title:      Chairman of the Board, President and              Chief Executive Officer

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CERTIFICATION

I, Robert J. Jaeger, certify that:

1.	I have reviewed this Quarterly Report on Form 10-Q of Westmoreland Coal Company;
2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.	The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:
	a.	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
	b.	[Paragraph omitted in accordance with SEC transition instructions contained in SEC Release 34-47986]
	c.	Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
	c.	Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
5.	The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
	a.	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
	b.	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Date:    August 13, 2003	/s/ Robert J. Jaeger
	Name:   Robert J. Jaeger
	Title:      Senior Vice President and              Chief Financial Officer

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EX-32

Exhibit 32

STATEMENT PURSUANT TO 18 U.S.C.§1350

Pursuant to 18 U.S.C. § 1350, each of the undersigned certifies that this Quarterly Report on Form 10-Q for the period ended June 30, 2003 fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that the information contained in this report fairly presents, in all material respects, the financial condition and results of operations of Westmoreland Coal Company.

Dated:    August 13, 2003	/s/ Christopher K. Seglem
	Christopher K. Seglem
	Chief Executive Officer
Dated:    August 13, 2003	/s/ Robert J. Jaeger
	Robert J. Jaeger
	Chief Financial Officer

A signed original of this written statement required by Section 906 has been provided to Westmoreland Coal Company and will be retained by Westmoreland Coal Company and furnished to the Securities and Exchange Commission or its staff upon request.

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