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UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q/A

Amendment No. 1 to Form 10-Q


þ		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
		For the quarterly period ended June 30, 2007
OR
o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
		For the transition period from to

Commission File Number 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, 2nd Floor Colorado Springs, Colorado (Address of principal executive offices)		80903 (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 o No þ

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer o Accelerated filer þ Non-accelerated filer o Smaller reporting company o

(Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No þ

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of March 1, 2008: Common stock, $2.50 par value: 9,445,936 shares.

Explanatory Note

Overview

Westmoreland Coal Company is filing this amendment to its Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2007. The consolidated balance sheets and statements of operations have been restated to correct errors in the amounts recorded for the Company’s postretirement medical benefit obligations and related expenses, its stock based compensation expense, its coal reserve lease royalty expense and its state income tax expense. The restatement adjustments had no effect on the cash flows of the Company for any of the periods presented.

For the three and six months ended June 30, 2007 and 2006, the restatement had the following effects on the Company’s statements of operations:


	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2007			2006			2007			2006
	(In thousands)

Net income (loss) applicable to common shareholders, as previously reported	$	(12,432	)	$	(3,827	)	$	(3,558	)	$	1,526
Increase in heritage health benefit expenses related to the 2001 court decision		(1,474	)		(927	)		(2,888	)		(1,854	)
Increase in heritage health benefit expenses related to an error in 2006 census data		—			(303	)		—			(606	)
Increase in selling and administrative expenses related to other census data errors		(30	)		(31	)		(60	)		(61	)
Decrease (increase) in stock compensation expense related to stock based incentive plan		926			(87	)		860			(129	)
Decrease in cost of sales due to an error in the calculation of coal reserve lease royalties		1,580			—			1,580			—
Decrease in income tax expense related to an error in the state income tax calculation		149			—			149			—

Total adjustments		1,151			(1,348	)		(359	)		(2,650	)

Net loss applicable to common shareholders, as restated	$	(11,281	)	$	(5,175	)	$	(3,917	)	$	(1,124	)

Postretirement Medical Benefit Obligations

The Company identified two groups of individuals that were omitted from the census data used by its actuaries to calculate the Company’s liability for one of its postretirement medical benefit plans. These omissions principally resulted from two errors:

1) The Company was signatory to the 1993 Wage Agreement with the United Mine Workers of America (UMWA), which covered employees who worked for the Company in the period 1993 through 1998. During this period, the Company sold or discontinued all of its mining operations covered by the 1993 Wage Agreement. The Company believed at the time that it was only responsible to provide life-time medical benefits to employees who met all retirement eligibility criteria during the term of the 1993 Wage Agreement, including attaining retirement age while working for the Company. In 1997, the Company removed from the census information used by its actuaries to calculate the Company’s postretirement medical benefits obligations those former employees who would not meet all eligibility criteria prior to the expiration of the 1993 Wage Agreement in 1998 and recorded a curtailment gain.

benefits to these employees for a five year period and thereafter until a court of competent jurisdiction ruled that the Company could terminate these benefits. The Company therefore included in its 1998 financial statements the estimated cost of providing benefits to these former employees for a period of five years ending in 2003.

However, in 2001, in a United States District Court case involving an employer other than Westmoreland, the court ruled that the employer was obligated to provide lifetime health benefits to employees who had not reached age 55 but were otherwise entitled to lifetime health benefits under the 1993 Wage Agreement. The court decision obligated the employer in that case to provide lifetime health benefits to the individuals who worked under the 1993 Wage Agreement when those individuals met all eligibility criteria to receive benefits (including attaining age 55). While the Company was not party to that case, the court in that case was interpreting the same contract to which the Company was party. The Company failed to take into account the possible precedential effect of this 2001 decision, or the possibility that a court considering a claim by the Company would be persuaded by the reasoning of this 2001 decision, and failed to adjust the postretirement actuarial calculations of its medical benefit obligations accordingly. The Company also failed to take into account the effect of this court decision on another plan that the Company had assumed in connection with an acquisition. The Company had previously been contesting the eligibility of certain former employees covered by a similar plan.

As a result of this error, 172 former employees were omitted from the census data used by the actuaries to calculate the Company’s liability for postretirement medical benefit costs at December 31, 2006.

2) In 2006, the census data used in the actuarial calculations for the Company’s postretirement medical benefit liability also failed to include 26 individuals who are eligible for lifetime medical benefits under the Company’s 1993 Plan. The census information for these individuals was inadvertently omitted from the actuarial calculations of the accumulated benefit obligation and related postretirement benefit obligation recorded at December 31, 2006 and the amount of expense recorded for the year ended December 31, 2006. These 26 individuals have met all retirement eligibility criteria and have qualified for postretirement medical benefits. These beneficiaries were previously included in the census data used to make the actuarial calculations for the Company’s postretirement medical benefit obligations at December 31, 2005, and in prior years.

3) In connection with the Company’s review of the census data for all of its postretirement benefit plans, the Company determined that it had omitted 33 additional participants in its postretirement medical benefit plans.

With this restatement, the Company has now included in its postretirement medical benefit liability at December 31, 2006 an actuarially determined obligation for these 231 current or former employees.

The first error was discovered by the Company’s actuaries and management during a review of one of the Company’s postretirement plans. The remaining errors were discovered after the Company undertook a comprehensive review of its census data for all of its plans. The errors resulted in an understatement of heritage health benefit expenses for the three months ended June 30, 2007 and 2006 of $1.5 million and $1.2 million, respectively, an understatement of selling and administrative expenses of less than $0.1 million for both the three months ended June 30, 2007 and 2006 and an understatement of net loss of $1.5 million and $1.3 million, respectively for the three months ended June 30, 2007 and 2006. As a result of these errors, heritage health benefits were understated by $2.9 million and $2.5 million, respectively for the six months ended June 30, 2007 and 2006, an understatement of selling and administrative expenses of less than $0.1 million for both the six months ended June 30, 2007 and 2006 and an understatement of net loss of $2.9 million for the six months ended June 30, 2007. The errors resulted in a $2.5 million overstatement of net income for the six months ended June 30, 2006.

Coal Reserve Lease Obligation

The Company also identified an error in the calculation of the royalties due under a coal reserve lease at Westmoreland Resources, Inc. For the three and six months ending June 30, 2007, the error resulted in an overstatement of the Company’s coal cost of sales of $1.9 million, and understatements of minority interest of $0.3 million. These errors resulted in a net overstatement of the net loss for the three and six months ended June 30, 2007 of $1.6 million.

Stock based Compensation Expense

The Company also identified an error in the calculation of its stock based compensation expense. The Company failed to account for an incentive plan based in part on the price of the Company’s shares under SFAS 123(R) (“Share-Based Payment”). The errors resulted in an overstatement of the Company’s stock compensation expense and net loss of $0.9 million for the three and six months ended June 30, 2007.

Income Tax Expense

In connection with its review of its income tax accounting, the Company also identified errors in the calculation of its state income taxes. The errors resulted in an overstatement of the Company’s income tax expense and net loss of $0.1 million for the three and six months ended June 30, 2007.

Amendment to this Form 10-Q

After discussion with our Audit Committee and our independent registered public accounting firm, management recommended to the Audit Committee that previously reported financial results be restated. The Audit Committee agreed with this recommendation. Our Amendment No. 2 to our Form 10-K for the year ended December 31, 2006 (the “2006 Form 10-K/A”) restates our previously issued consolidated balance sheets as of December 31, 2006 and 2005, our consolidated statements of operations and stockholders’ equity and comprehensive income for each of the years ended December 31, 2006, 2005 and 2004. This Amendment No. 1 to this Form 10-Q restates our balance sheet at June 30, 2007 and our statements of operations for the three and six months ended June 30, 2007 and 2006.

The following sections of this Amendment No. 1 to Form 10-Q have been revised to reflect the restatement: Part I — Item 1 — Financial Statements, Item 2 — Management’s Discussion and Analysis of Results of Financial Condition and Operations, and Item 4 — Controls and Procedures. Except to the extent relating to the restatement of our financial statements, the financial statements and other disclosures in this Amendment No. 1 to Form 10-Q do not reflect any events that have occurred after this Form 10-Q was initially filed on August 9, 2007, except as disclosed in Note 21, “Subsequent Events”.

Internal Controls

In connection with the restatement of the Company’s consolidated financial statements, management has determined that the description of the previously disclosed material weakness existing as of December 31, 2006 should be modified and that two additional material weaknesses existed and should be disclosed. The material weaknesses relate to the lack of adequate controls for the testing, verification and review of electronic spreadsheets that impact the Company’s financial reporting, the lack of controls to ensure the completeness and accuracy of the census data used to calculate the Company’s postretirement medical benefit liabilities, and the lack of adequate controls over the accounting for the Company’s Performance Unit Plan under generally accepted accounting principles for stock based compensation plans.

Effects of Restatement

The following sets forth the effects of the restatement on affected line items within the previously reported Statements of Operations for the three months ended June 30, 2007 and 2006:


	For the Three Months Ended June 30,
	2007			2006
	(In thousands; except per share data)

Cost of goods sold — coal:
As previously reported	$	86,284		$	72,351
As restated		84,389			72,351
Selling and administrative expenses:
As previously reported		13,444			9,854
As restated		12,548			9,972
Heritage health benefit expenses:
As previously reported		6,244			7,076
As restated		7,718			8,306
Minority interest (expense):
As previously reported		183			(726	)
As restated		(142	)		(726	)
Income tax expense (benefit):
As previously reported		70			243
As restated		(79	)		243
Change in net earnings (loss):
As previously reported		(12,092	)		(2,890	)
As restated		(10,941	)		(4,238	)
Effect on per share amounts :
Basic, as reported	$	(1.37	)	$	(0.44	)
Basic, as restated	$	(1.24	)	$	(0.60	)
Diluted, as reported	$	(1.37	)	$	(0.44	)
Diluted, as restated	$	(1.24	)	$	(0.60	)

The following table sets forth the effects of the restatement on affected line items within the previously reported Statements of Operations for the six months ended June 30, 2007 and 2006:


	For the Six Months Ended June 30,
	2007			2006
	(In thousands; except per share data)

Cost of goods sold — coal:
As previously reported	$	169,344		$	146,216
As restated		167,439			146,216
Selling and administrative expenses:
As previously reported		26,424			19,280
As restated		25,624			19,470
Heritage health benefit expenses:
As previously reported		6,709			14,100
As restated		9,597			16,560
Minority interest (expense):
As previously reported		(405	)		(1,209	)
As restated		(730	)		(1,209	)
Income tax expense (benefit):
As previously reported		252			520
As restated		103			520
Change in net earnings (loss):
As previously reported		(2,878	)		2,899
As restated		(3,237	)		249
Effect on per share amounts :
Basic, as reported	$	(0.39	)	$	0.18
Basic, as restated	$	(0.43	)	$	(0.13	)
Diluted, as reported	$	(0.39	)	$	0.17
Diluted, as restated	$	(0.43	)	$	(0.13	)

In light of the restatement, readers should not rely on our previously filed financial statements and other financial information for the three and six months ended June 30, 2007 and 2006.

PART I — FINANCIAL INFORMATION

ITEM 1
FINANCIAL STATEMENTS

Westmoreland Coal Company and Subsidiaries

Consolidated Balance Sheets


	June 30,		December 31,
	2007		2006
	(As Restated, note 2)
	(In thousands)
	(Unaudited)

ASSETS
Current assets:
Cash and cash equivalents	$	39,840	$	26,738
Receivables:
Trade		56,168		56,923
Other		6,044		6,017

		62,212		62,940
Inventories		27,024		24,484
Restricted cash		—		3,300
Excess of trust assets over pneumoconiosis benefit obligation		—		5,566
Other current assets		6,786		4,992

Total current assets		135,862		128,020

Property, plant and equipment:
Land and mineral rights		80,076		79,442
Capitalized asset retirement cost		141,588		143,655
Plant and equipment		375,450		350,414

		597,114		573,511
Less accumulated depreciation, depletion and amortization		159,426		142,059

Net property, plant and equipment		437,688		431,452

Excess of trust assets over pneumoconiosis benefit obligation, less current portion		2,383		2,266
Advanced coal royalties		3,777		3,982
Reclamation deposits		64,733		62,486
Restricted cash and bond collateral		71,953		66,353
Contractual third party reclamation receivables		30,978		41,938
Intangible assets, net		12,260		13,263
Other assets		4,409		11,622

Total Assets	$	764,043	$	761,382

See accompanying Notes to Consolidated Financial Statements.

Westmoreland Coal Company and Subsidiaries

Consolidated Balance Sheets — (Continued)


	June 30,			December 31,
	2007			2006
	(As Restated, note 2)
	(In thousands)
	(Unaudited)

LIABILITIES AND SHAREHOLDERS’ DEFICIT
Current liabilities:
Current installments of long-term debt	$	54,781		$	76,803
Revolving lines of credit		16,000			—
Accounts payable and accrued expenses:
Trade		45,511			54,603
Deferred revenue		1,344			886
Income taxes		3,540			4,180
Interest		2,550			2,907
Production taxes		25,850			23,589
Workers’ compensation		922			949
Pension and SERP obligations		76			76
Postretirement medical benefits		17,350			16,968
Asset retirement obligations		14,199			13,832
Other current liabilities		2,278			—

Total current liabilities		184,401			194,793

Long-term debt, less current installments		217,028			216,204
Revolving lines of credit, less current portion		—			13,000
Workers’ compensation, less current portion		8,388			8,589
Postretirement medical costs, less current portion		281,538			283,098
Pension and SERP obligations, less current portion		25,261			22,815
Deferred revenue, less current portion		39,415			15,328
Asset retirement obligations, less current portion		166,209			170,230
Other liabilities		16,361			17,756
Minority interest		6,188			5,502
Commitments and contingent liabilities		—			—
Shareholders’ deficit:
Preferred stock of $1.00 par value
Authorized 5,000,000 shares;
Issued and outstanding 160,130 shares at
June 30, 2007 and December 31, 2006		160			160
Common stock of $2.50 par value
Authorized 20,000,000 shares;
Issued and outstanding 9,119,705 shares at
June 30, 2007 and 9,014,078 shares at
December 31, 2006		22,799			22,535
Other paid-in capital		82,021			79,246
Accumulated other comprehensive loss		(134,039	)		(139,424	)
Accumulated deficit		(151,687	)		(148,450	)

Total shareholders’ deficit		(180,746	)		(185,933	)

Total Liabilities and Shareholders’ Deficit	$	764,043		$	761,382

See accompanying Notes to Consolidated Financial Statements.

Westmoreland Coal Company and Subsidiaries

Consolidated Statements of Operations


	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2007			2006			2007			2006
	(As Restated, note 2)
	(In thousands)
	(Unaudited)

Revenues:
Coal	$	101,758		$	91,618		$	204,838		$	186,252
Energy		24,581			—			49,189			—
Independent power projects — equity in earnings		47			3,003			183			7,461

		126,386			94,621			254,210			193,713

Cost and expenses:
Cost of sales — coal		84,389			72,351			167,439			146,216
Cost of sales — energy		16,520			—			30,828			—
Depreciation, depletion and amortization		9,622			5,913			18,507			11,833
Selling and administrative		12,548			9,972			25,624			19,470
Restructuring charges		2,278			—			2,278			—
Heritage health benefit expenses		7,718			8,306			9,597			16,560
Loss (gain) on sales of assets		29			70			(5,837	)		(4,946	)

		133,104			96,612			248,436			189,133

Operating income (loss)		(6,718	)		(1,991	)		5,774			4,580
Other income (expense):
Interest expense		(6,273	)		(2,810	)		(12,818	)		(5,464	)
Interest income		2,090			1,080			4,493			2,213
Minority interest		(142	)		(726	)		(730	)		(1,209	)
Other income		23			452			147			649

		(4,302	)		(2,004	)		(8,908	)		(3,811	)

Income (loss) before income taxes		(11,020	)		(3,995	)		(3,134	)		769
Income tax expense (benefit)		(79	)		243			103			520

Net income (loss)		(10,941	)		(4,238	)		(3,237	)		249
Less preferred stock dividend requirements		340			388			680			824
Less premium on exchange of preferred stock for common stock		—			549			—			549

Net loss applicable to common shareholders	$	(11,281	)	$	(5,175	)	$	(3,917	)	$	(1,124	)

Net loss per share applicable to common shareholders:
Basic	$	(1.24	)	$	(0.60	)	$	(0.43	)	$	(0.13	)
Diluted		(1.24	)		(0.60	)		(0.43	)		(0.13	)
Weighted average number of common shares outstanding:
Basic		9,092			8,629			9,066			8,530
Diluted		9,341			9,145			9,310			9,041

See accompanying Notes to Consolidated Financial Statements

Westmoreland Coal Company and Subsidiaries

Consolidated Statement of Shareholders’ Deficit and Comprehensive Income (Loss)

Six months ended June 30, 2007


	Class A
	Convertible								Accumulated
	Exchangeable					Other			Other						Total
	Preferred			Common		Paid-In			Comprehensive			Accumulated			Shareholders’
	Stock			Stock		Capital			Loss			Deficit			Equity (Deficit)
	(In thousands)
	(Unaudited)

Balance at December 31, 2005 (205,083
preferred shares and 8,413,312 common
shares outstanding) (As Restated, note 2)	$	205		$	21,033	$	75,344		$	(11,409	)	$	(115,381	)	$	(30,208	)
Common stock issued as compensation (89,939 shares)		—			225		2,339			—			—			2,564
Common stock options exercised (174,732 shares)		—			437		561			—			—			998
Dividends declared		—			—		—			—			(387	)		(387	)
Exchange of preferred shares for common stock (336,095 shares)		(45	)		840		(4	)		—			(791	)		—
Cumulative effect of change in accounting for deferred overburden removal costs		—			—		—			—			(16,805	)		(16,805	)
Adjustment for funded status of pension and postretirement medical benefit plans upon adoption of SFAS 158 (As Restated, note 2)		—			—		—			(129,821	)		—			(129,821	)
Cumulative effect of adjustment upon adoption of SAB 108		—			—		—			—			(2,388	)		(2,388	)
Adjustment for stock appreciation rights previously classified as a liability upon adoption of SFAS 123(R)		—			—		1,006			—			—			1,006
Net loss (As Restated, note 2)		—			—		—			—			(12,698	)		(12,698	)
Minimum pension liability		—			—		—			1,744			—			1,744
Settlement of interest rate swap agreement		—			—		—			62			—			62

Comprehensive loss (As Restated, note 2)		—			—		—			—			—			(10,892	)

Balance at December 31, 2006 (160,130 preferred shares and 9,014,078 common shares outstanding) (As Restated, note 2)	$	160		$	22,535	$	79,246		$	(139,424	)	$	(148,450	)	$	(185,933	)

Common stock issued as compensation (64,211 shares)		—			160		1,334			—			—			1,494
Common stock options exercised (41,416 shares)		—			104		319			—			—			423
Issuance of warrant		—			—		1,122			—			—			1,122
Net loss (As Restated, note 2)		—			—		—			—			(3,237	)		(3,237	)
Adjustments to accumulated actuarial losses of pension and postretirement medical benefit plans		—			—		—			727			—			727
Amortization of accumulated actuarial loss and transition obligations (As Restated, note 2)		—			—		—			4,658			—			4,658

Comprehensive income (As Restated, note 2)		—			—		—			—			—			2,148

Balance at June 30, 2007 (160,130 preferred shares and 9,119,705 common shares outstanding) (As Restated, note 2)	$	160		$	22,799	$	82,021		$	(134,039	)	$	(151,687	)	$	(180,746	)

See accompanying Notes to Consolidated Financial Statements.

Westmoreland Coal Company and Subsidiaries

Consolidated Statements of Cash Flows


	Six Months Ended June 30,
	2007			2006
	(As Restated, note 2)
	(In thousands)
	(Unaudited)

Cash flows from operating activities:
Net income (loss)	$	(3,237	)	$	249
Adjustments to reconcile net loss to net cash provided by operating activities:
Deferred power sales revenue		14,357			—
Equity in earnings of independent power projects		183			(7,461	)
Cash distributions from independent power projects		(183	)		1,086
Depreciation, depletion and amortization		18,507			11,833
Amortization of intangible assets and liabilities, net		493			—
Stock compensation expense		2,142			1,727
Gain on sales of assets		(5,837	)		(4,946	)
Minority interest		730			1,209
Amortization of deferred financing costs		1,212			471
Changes in operating assets and liabilities:
Receivables, net		728			(871	)
Inventories		(297	)		(2,415	)
Excess of trust assets over pneumoconiosis benefit obligation		5,449			(170	)
Accounts payable and accrued expenses		2,190			993
Income tax payable		342			544
Accrual for workers’ compensation		(228	)		(242	)
Accrual for postretirement medical costs		5,817			6,103
Pension and SERP obligations		836			2,103
Other assets and liabilities		1,336			(3,950	)

Net cash provided by operating activities		44,540			6,263

Cash flows from investing activities:
Additions to property, plant and equipment		(8,854	)		(7,484	)
Change in restricted cash and bond collateral and reclamation deposits		(4,547	)		(9,685	)
ROVA acquisition, net of cash resulting from the ROVA consolidation of $21.9 million		—			(7,714	)
Net proceeds from sales of assets		13,200			5,064
Acquisition of Absaloka Mining operations, net		(3,405	)		—

Net cash used in investing activities		(3,606	)		(19,819	)

Cash flows from financing activities:
Repayment of long-term debt		(30,519	)		(6,147	)
Net borrowings on revolving lines of credit		3,000			41,615
Deferred offering costs		(696	)		—
Exercise of stock options		423			922
Dividend paid to minority interest		(40	)		(480	)
Dividends paid on preferred shares		—			(387	)

Net cash provided by (used in) financing activities		(27,832	)		35,523

Net increase in cash and cash equivalents		13,102			21,967
Cash and cash equivalents, beginning of year		26,738			11,216

Cash and cash equivalents, end of period	$	39,840		$	33,183

Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest	$	5,131		$	4,878
Income taxes		783			46

During the first six months of 2007 and 2006, the Company entered into capital leases for equipment totaling approximately $10.4 million and $0.9 million, respectively.

See accompanying Notes to Consolidated Financial Statements.

ITEM 1
WESTMORELAND COAL COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

These quarterly consolidated financial statements should be read in conjunction with the consolidated financial statements and notes included in the Company’s Amendment No. 2 to its Annual Report on Form 10-K for the year ended December 31, 2006. The accounting principles followed by the Company are set forth in the Notes to the Company’s consolidated financial statements in that Amendment No. 2 to its 2006 Annual Report. Most of the descriptions of the 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 Amendment No. 1 to 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. The results of operations for such interim periods are not necessarily indicative of results to be expected for the full year. Certain prior year amounts have been reclassified to conform to the current year presentation.


1.	NATURE OF OPERATIONS AND LIQUIDITY

Westmoreland Coal Company (“the Company”) is an energy company. The Company’s current principal activities, all conducted within the United States, are the production and sale of coal from Montana, North Dakota and Texas; and the development, ownership and management of interests in cogeneration and other non-regulated independent power plants. The Company’s activities are primarily conducted through wholly-owned or majority owned subsidiaries which generally have obtained separate financing.

The major factors impacting the Company’s liquidity are: payments due on the term loan it entered into to acquire various operations and assets from Montana Power and Knife River in May 2001 (see Note 9); payments due on the acquisition debt associated with its purchase of the 50% interest in a partnership which owns the 230 MW Roanoke Valley power plant (“ROVA”) (see Note 9); additional capital expenditures the Company plans to make since it has taken over responsibility to operate the Absaloka Mine; cash collateral requirements for additional reclamation bonds in new mining areas; and payments for its heritage health benefit costs. Unforeseen changes in the Company’s ongoing business requirements could also impact its liquidity. The principal sources of cash flow to Westmoreland Coal Company are dividends from Westmoreland Resources, Inc. (“WRI”), distributions from ROVA and from Westmoreland Mining LLC subject to the provisions in their respective debt agreements and dividends from the Company’s subsidiaries that operate power plants.

On May 2, 2007, the Company entered into a Standby Purchase Agreement with an investor that would backstop a rights offering of common stock by the Company to its shareholders and purchase additional shares of common stock. Effective as of July 3, 2007, the Standby Purchase Agreement was amended to add an additional standby purchaser. The Company expects to seek gross proceeds of $85 million, plus an amount required to retire any remaining outstanding preferred shares, before expenses. The closing of such transactions is subject to several conditions including shareholder approval (which the Company plans to seek at a meeting of stockholders later in 2007), there being no material adverse effect on the Company’s financial condition and there not being trading suspensions in its common stock or other adverse developments in the financial markets.

We intend to use the net proceeds from the rights offering to provide additional liquidity for working capital, to support our growth and development strategy, to redeem our Series A Preferred Stock, and for general corporate purposes. Following the rights offering, the Company intends to use a portion of the proceeds from the rights offering to retire its outstanding Series A Convertible Exchangeable Preferred Stock, each share of which is represented by four depositary shares. The Company is evaluating options to achieve

ITEM 1
WESTMORELAND COAL COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) — (Continued)

this objective, including using a portion of the proceeds from the rights offering to redeem the depository shares that are outstanding at the conclusion of the rights offering.


2.	RESTATEMENT

For the three and six months ended June 30, 2007 and 2006, the restatement had the following effects on the Company’s statements of operations:


	Three Months Ended June 30,						Six Months Ended June 30,
	2007			2006			2007			2006
	(In thousands)

Net income (loss) applicable to common shareholders, as previously reported	$	(12,432	)	$	(3,827	)	$	(3,558	)	$	1,526
Increase in heritage health benefit expenses related to the 2001 court decision		(1,474	)		(927	)		(2,888	)		(1,854	)
Increase in heritage health benefit expenses related to an error in 2006 census data		—			(303	)		—			(606	)
Increase in selling and administrative expenses related to other census data errors		(30	)		(31	)		(60	)		(61	)
Decrease (increase) in stock compensation expense related to stock based incentive plan		926			(87	)		860			(129	)
Decrease in cost of sales due to an error in the calculation of coal reserve lease royalties		1,580			—			1,580			—
Decrease in income tax expense related to an error in the state income tax calculation		149			—			149			—

Total adjustments		1,151			(1,348	)		(349	)		(2,650	)

Net loss applicable to common shareholders, as restated	$	(11,281	)	$	(5,175	)	$	(3,917	)	$	(1,124	)

Postretirement Medical Benefit Obligations

ITEM 1
WESTMORELAND COAL COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) — (Continued)

those former employees who would not meet all eligibility criteria prior to the expiration of the 1993 Wage Agreement in 1998 and recorded a curtailment gain.

In 1998, during negotiations with the UMWA related to the dismissal of the Company’s bankruptcy case, the Company agreed to continue providing benefits to former employees who were covered by the individual employer plan established under the 1993 Wage Agreement. The Company agreed to provide benefits to these employees for a five year period and thereafter until a court of competent jurisdiction ruled that the Company could terminate these benefits. The Company therefore included in its 1998 financial statements the estimated cost of providing benefits to these former employees for a period of five years ending in 2003.

ITEM 1
WESTMORELAND COAL COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) — (Continued)

$2.9 million for the six months ended June 30, 2007. The errors resulted in a $2.5 million overstatement of net income for the six months ended June 30, 2006.

Coal Reserve Lease Obligation

Stock based Compensation Expense

The Company also identified an error in the calculation of its stock based compensation expense. The Company failed to account for an incentive plan based in part on the price of the Company’s shares under SFAS 123R (“Share-Based Payment”). The errors resulted in an overstatement of the Company’s stock compensation expense and net loss of $0.9 million for the three and six months ended June 30, 2007.

Income Tax Expense

In connection with its review of its income tax accounting, the Company also identified errors in the calculation of its state income taxes. The errors resulted in an overstatement of the Company’s income tax expense and an understatement of the net loss of $0.1 million for the three and six months ended June 30, 2007.

Effects of Restatement

The following table shows the impact of the restatement adjustments on the previously reported consolidated statements of operations for the three months ended June 30, 2007 and 2006:


	Three Months Ended June 30,
	2007						2006
	As						As
	Previously			As			Previously			As
	Reported			Restated			Reported			Restated
	(In thousands; except per share data)

Consolidated Statement of Operations
Cost of goods sold — coal	$	86,294		$	84,389		$	72,351		$	72,351
Selling and administrative expenses		13,444			12,548			9,854			9,972
Heritage health benefit expenses		6,244			7,718			7,076			8,306
Operating loss		(8,045	)		(6,718	)		(643	)		(1,991	)
Minority interest (expense)		183			(142	)		(726	)		(726	)
Loss before income taxes		(12,022	)		(11,020	)		(2,647	)		(3,995	)
Income tax expense (benefit)		70			(79	)		243			243
Net loss		(12,092	)		(10,941	)		(2,890	)		(4,238	)
Net loss applicable to common shareholders		(12,432	)		(11,281	)		(3,827	)		(5,175	)
Net loss per share applicable to common shareholders:
Basic earnings per share	$	(1.37	)	$	(1.24	)	$	(0.44	)	$	(0.60	)
Diluted earnings per share		(1.37	)		(1.24	)		(0.44	)		(0.60	)

ITEM 1
WESTMORELAND COAL COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) — (Continued)

The following table shows the impact of the restatement adjustments on the previously reported consolidated statements of operations for the six months ended June 30, 2007 and 2006:


	Six Months Ended June 30,
	2007						2006
	As						As
	Previously			As			Previously			As
	Reported			Restated			Reported			Restated
	(In thousands; except per share data)

Consolidated Statement of Operations
Cost of goods sold — coal	$	169,344		$	167,439		$	146,216		$	146,216
Selling and administrative expenses		26,424			25,624			19,280			19,470
Heritage health benefit expenses		6,709			9,597			14,100			16,560
Operating income		5,957			5,774			7,230			4,580
Minority interest (expense)		(405	)		(730	)		(1,209	)		(1,209	)
Net income (loss) before income tax		(2,626	)		(3,134	)		3,419			769
Income tax expense		252			103			520			520
Net income (loss)		(2,878	)		(3,237	)		2,899			249
Net income (loss) applicable to common
shareholders		(3,558	)		(3,917	)		1,526			(1,124	)
Net income (loss) per share applicable to common shareholders:
Basic earnings per share	$	(0.39	)	$	(0.43	)	$	0.18		$	(0.13	)
Diluted earnings per share		(0.39	)		(0.43	)		0.17			(0.13	)

The following table shows the impact of the restatement adjustments on the previously reported consolidated balance sheet as of June 30, 2007:


	June 30, 2007
	As
	Previously			As
	Reported			Restated
	(In thousands)

Consolidated Balance Sheet
Income taxes payable	$	4,278		$	3,540
Production taxes payable		27,755			25,850
Postretirement medical benefits, current portion		17,350			17,350
Total current liabilities		187,044			184,401
Postretirement medical costs, less current portion		219,505			281,538
Other liabilities		16,568			16,361
Minority interest		5,863			6,188
Total liabilities		885,281			944,789
Accumulated other comprehensive loss		(100,011	)		(134,039	)
Accumulated deficit		(126,207	)		(151,687	)
Total shareholders’ deficit		(121,238	)		(180,746	)

ITEM 1
WESTMORELAND COAL COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) — (Continued)


3.	ABSALOKA MINING CONTRACT

On March 6, 2007, the Company’s 80% owned subsidiary WRI reached an agreement to settle all contract disputes with Washington Group International, Inc. (“WGI”), including the lawsuit WRI had filed seeking termination of the Absaloka mining contract. As a result, WRI assumed operation of the Absaloka Mine on March 30, 2007. The agreement also includes settlement of other on-going demands by WRI and disputes between its affiliate Westmoreland Coal Sales Company and WGI.

WRI purchased from WGI mining and office equipment for $7.9 million and tools, spare parts and supplies, and coal inventory for $2.3 million. As part of the transaction, WGI released the $7.0 million reclamation escrow account to WRI, and WRI released WGI from its financial obligation to complete final reclamation of the mine.

WRI also hired 131 employees previously employed by WGI and assumed their accrued benefits.

The assets purchased, liabilities assumed, termination fee paid to WGI, as well as the adjustments for the release of WGI from its reclamation obligation included in the Company’s financial statements were as follows (in thousands):


Assets:
Inventory	$	2,301
Property, plant, and equipment		7,924
Asset retirement cost		4,473
Third party reclamation receivable		(11,107	)

Total assets		3,591

Liabilities:
Accounts payable and accrued expenses		186

		3,405
Income Statement:
Termination fee included in Cost of sales — coal		813

Total cash payment	$	4,218


4.	RESTRUCTURING

In 2007, the Company initiated a restructuring plan in order to reduce the overall cost structure of the Company. This decision was based on our analysis of our internal operations, our future customer commitments, our current and potential markets, and our financial projections for profitability. During the second quarter of 2007, we recorded a restructuring charge of $2.3 million which included $2.2 million of termination benefits and outplacement costs and $0.1 million of lease costs related to the consolidation of corporate office space. We expect these charges to be paid out over the next year. We also expect additional restructuring charges during the remainder of 2007 as the Company continues the execution of its restructuring plan. The restructuring liability is reflected in “Other current liabilities” in the Consolidated Balance Sheets.

The table below represents the restructuring provision activity during our fiscal year (in thousands):


			Restructuring		Restructuring
Fiscal Year	Beginning Balance		Charges		Payments		Ending Balance

2007	$	—	$	2,278	$	—	$	2,278

ITEM 1
WESTMORELAND COAL COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) — (Continued)


5.	CHANGES IN ACCOUNTING PRINCIPLES

Recognition of Revenue Under Power Sales Agreements

In connection with the acquisition of the remaining 50% interest in ROVA, the Company has applied the provisions of EITF 01-08, “Determining Whether an Arrangement Contains a Lease” to two power sales agreements. A portion of the capacity payments under ROVA’s two power sales agreements are considered to be operating leases under EITF 01-08. Under both agreements, ROVA invoices and collects the capacity payments based on kilowatt hours produced if the units are dispatched or for the kilowatt hours of available capacity if the units are not fully dispatched. Under the power sales agreement for ROVA II, ROVA also collects capacity payments during periods of scheduled outages based on the kilowatt hours of dependable capacity of the unit. The capacity payments that ROVA invoices and collects are higher in the first 15 years of the power sales agreements (through 2009 for ROVA I and 2010 for ROVA II), but decrease for the remaining 10 years of the agreements due to a reduction in the rate paid per MW hour of capacity. Since the power sales agreements were entered into prior to the effective date of EITF 01-08, the Company had been grandfathered relative to the accounting method it had been utilizing. As a result of the acquisition, the Company was required to apply the accounting proscribed under EITF 01-08. Effective July 1, 2006, the Company began recognizing amounts invoiced under the power sales agreements as revenue on a pro rata basis, based on the weighted average per kilowatt hour capacity payments estimated to be received over the remaining term of the power sales agreements. Under this method of recognizing revenue, $7.0 million and $14.4 million of amounts invoiced during the three and six months ending June 30, 2007 have been deferred from recognition until 2010 and beyond.

Adoption of SFAS No. 158

In September 2006, the FASB issued SFAS No. 158 (“SFAS 158”) “Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans”. This statement requires balance sheet recognition of the overfunded or underfunded status of pension and postretirement benefit plans. Under SFAS 158, actuarial gains and losses, prior service costs or credits, and any remaining transition assets or obligations that have not been recognized under previous accounting standards must be recognized as assets or liabilities with a corresponding adjustment to accumulated other comprehensive loss, net of tax effects, until they are amortized as a component of net periodic benefit cost. The Company adopted SFAS 158 effective December 31, 2006. Upon adoption of SFAS 158, the Company’s assets decreased by approximately $4.5 million, and liabilities for pension and other postretirement benefit plans increased by approximately $125.3 million, resulting in an increase in shareholders’ deficit of approximately $129.8 million. The adoption of SFAS 158 will not affect the Company’s future pension and postretirement medical benefit expenses, as determined under the provisions of SFAS 106 and SFAS 87.

Share-Based Payments

In December 2004, the FASB issued SFAS No. 123 (revised 2004), “Share-Based Payment,” (“SFAS 123(R)”).SFAS 123(R) requires all share-based payments to employees and directors, including grants of stock options, be recognized in the financial statements based on their fair values.

The Company adopted SFAS 123(R) on January 1, 2006 using the modified prospective method. Accordingly, compensation expense for all newly granted awards and awards modified, repurchased, or cancelled after January 1, 2006 is being recognized ratably over the vesting period based on the fair value of the awards at the date of grant.

Compensation expense for the unvested portion of stock option awards that were outstanding as of January 1, 2006 is being recognized ratably over the remaining vesting period, based on the fair value of the

ITEM 1
WESTMORELAND COAL COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) — (Continued)

awards at date of grant as calculated for the pro forma disclosure under SFAS No. 123. See Note 15 “Incentive Stock Options and Stock Appreciation Rights, and Warrants”.

There was no cumulative effect adjustment recorded in the Company’s Statement of Operations for the change in accounting related to the adoption of SFAS 123(R). The adoption of SFAS 123(R) had the effect of increasing net loss for the three months ended June 30, 2007 and 2006 by $0.7 million and $0.5 million, respectively, and increasing net loss for the six months ended June 30, 2007 by approximately $0.9 million and decreasing net income for the six months ended June 30, 2006 by approximately $1.0 million.

Accounting For Uncertainty in Income Taxes

On July 13, 2006, the FASB issued FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes-an Interpretation of FASB Statement No. 109” (“FIN No. 48”). FIN No. 48 clarifies what criteria must be met prior to recognition of the financial statement benefit of a position taken in a tax return. FIN No. 48 requires companies to include additional qualitative and quantitative disclosures within their financial statements. The disclosures include potential tax benefits from positions taken for tax return purposes that have not been recognized for financial reporting purposes and a tabular presentation of significant changes during each annual period. The disclosures also include a discussion of the nature of uncertainties, factors which could cause a change, and an estimated range of reasonably possible changes in tax uncertainties. FIN No. 48 requires a company to recognize a financial statement benefit for a position taken for tax return purposes when it is more likely than not that the position will be sustained. We adopted FIN No. 48 on January 1, 2007 and the adoption did not have an impact on our Consolidated Financial Statements.


6.	RECENT ACCOUNTING PRONOUNCEMENTS

In September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements” (“SFAS 157”), which clarifies the definition of fair value, establishes guidelines for measuring fair value, and expands disclosures regarding fair value measurements. SFAS 157 does not require any new fair value measurements and eliminates inconsistencies in guidance found in various prior accounting pronouncements. SFAS 157 will be effective for the Company on January 1, 2008. We are currently evaluating the impact of adopting SFAS 157 but do not believe the adoption of SFAS 157 will have a material impact on our Consolidated Financial Statements.

In February 2007, the FASB issued SFAS No. 159, “Fair Value Option for Financial Assets and Financial Liabilities” (“SFAS No. 159”). Under SFAS No. 159, entities may choose to measure at fair value many financial instruments and certain other items that are not currently required to be measured at fair value. SFAS No. 159 also establishes recognition, presentation, and disclosure requirements designed to facilitate comparisons between entities that choose different measurement attributes for similar types of assets and liabilities. SFAS No. 159 does not affect any existing accounting literature that requires certain assets and liabilities to be carried at fair value. SFAS No. 159 is effective for us beginning January 1, 2008. At this time, we do not expect the adoption of this standard to have any impact on our financial position or results of operations.


7.	SIGNIFICANT EVENTS

Sale of Coal Royalty Interest

On February 27, 2007, the Company sold its royalty interest in a property at Peabody Energy Corporation’s Caballo Mine in Wyoming to Natural Resource Partners L.P. for $12.7 million. The sale of the royalty interest resulted in a gain of approximately $5.6 million during the first quarter of 2007.

ITEM 1
WESTMORELAND COAL COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) — (Continued)

Reserve Dedication Fee

In the first quarter of 2007, the Company recorded $10.0 million of deferred revenue for a receivable relating to a reserve dedication fee payable by a customer upon entering into an extension of a coal supply agreement. The receivable was collected in the second quarter of 2007.

Combined Benefit Fund

During the first quarter of 2007, the Company reached a settlement with the UMWA Combined Benefit Fund (“CBF”) for the reimbursement of $5.8 million, plus interest, in past overpayments to the CBF for retiree medical benefits. The Company received $2.9 million of the reimbursement and $0.6 million in interest during the first quarter, and received the remaining $2.9 million reimbursement plus interest of less than $0.1 million during the second quarter of 2007. The Company recorded the settlement as a $5.8 million reduction in heritage health benefit expenses and $0.6 million in interest income.


8.	RESTRICTED CASH AND BOND COLLATERAL

The Company’s restricted cash and bond collateral consist of the following:


	Restricted Cash and
	Bond Collateral
	June 30,		December 31,
	2007		2006
	(In thousands)

Corporate:
Worker’s compensation bonds	$	5,592	$	5,512
Postretirement health benefit bonds		1,183		4,436
Coal Segment:
Westmoreland Mining — debt reserve account		9,900		10,312
Westmoreland Mining — prepayment account		18,565		15,123
Reclamation bond collateral:
Absaloka Mine		5,305		3,702
Jewett Mine		1,089		1,057
Rosebud Mine		106		89
Beulah Mine		71		71
ROVA:
Debt protection account		28,619		28,141
Ash reserve account		612		627
Repairs and maintenance account		911		583

Total restricted cash and bond collateral		71,953		69,653
Less current portion		—		(3,300	)

Total restricted cash and bond collateral, less current portion	$	71,953	$	66,353

For all of its restricted cash and bond collateral accounts, the Company can select from several investment options for the funds and receives the investment returns on these investments.

ITEM 1
WESTMORELAND COAL COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) — (Continued)

Corporate

The Company is required to obtain surety bonds in connection with its self-insured workers’ compensation plan and certain health care plans. The Company’s surety bond underwriters require collateral to issue these bonds. As of June 30, 2007 and December 31, 2006, the amount held in collateral accounts was $5.6 million and $5.5 million, respectively, for the workers’ compensation plan and $1.2 million and $4.4 million, respectively, for health care plans. During the six months ended June 30, 2007, approximately $3.3 million was released from the health care bond collateral accounts as a result of reduced bonding requirements under an amendment to the Coal Industry Retiree Health Benefit Act of 1992 (“Coal Act”).

Coal Segment

Pursuant to the Westmoreland Mining LLC (“WML”) term loan agreement, WML is required to maintain a debt service reserve account and a long-term prepayment account. As of June 30, 2007 and December 31, 2006, there was a total of $9.9 million and $10.3 million, respectively in the debt service reserve account. There was $18.6 million and $15.1 million in the prepayment account at June 30, 2007 and December 31, 2006, respectively. The prepayment account is to be used to fund a $30.0 million payment due December 31, 2008 for the Series B Notes.

As of June 30, 2007, the Company had reclamation bond collateral in place for its Absaloka, Rosebud, Jewett and Beulah Mines. These government-required bonds secure an operator’s obligation to comply with applicable federal and state regulations relating to the performance and completion of final reclamation activities. The amounts deposited in the bond collateral account secure the bonds issued by the bonding company.

ROVA

Pursuant to the terms of its Credit Agreement, ROVA must maintain a debt protection account (“DPA”). At June 30, 2007 and December 31, 2006, the DPA was funded with $28.6 million and $28.1 million, respectively. Additional funding of the DPA of $1.1 million per year is required through 2008. The required funding level is reduced by $6.7 million in 2009 and by $3.0 million in 2010.

The Credit Agreement also requires ROVA to fund a repairs and maintenance account and an ash reserve account totaling $3.2 million from January 31, 2004 through January 31, 2010, after which date the funding requirement reduces to $2.8 million. The funds for the repairs and maintenance account are required to be deposited every six months based on a formula contained in the agreement. The ash reserve account was fully funded at June 30, 2007. As of June 30, 2007 and December 31, 2006, these accounts had combined balances of $1.5 million and $1.2 million, respectively.

ITEM 1
WESTMORELAND COAL COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) — (Continued)


9.	LINES OF CREDIT AND LONG-TERM DEBT

The amounts outstanding at June 30, 2007 and December 31, 2006 under the Company’s lines of credit and long-term debt consist of the following:


	Current Portion of Debt				Total Debt Outstanding
	June 30,		December 31,		June 30,		December 31,
	2007		2006		2007		2006
	(In thousands)

Corporate debt:
Revolving line of credit	$	4,500	$	—	$	4,500	$	8,500
Westmoreland Mining debt:
Revolving line of credit		11,500		—		11,500		4,500
Westmoreland Mining term debt:
Series B Notes		13,300		12,000		50,600		56,600
Series C Notes		—		—		20,375		20,375
Series D Notes		—		—		14,625		14,625
Other term debt and capital lease obligations		2,163		1,311		7,198		3,474
Westmoreland Resources, Inc. capital lease obligation		534		—		5,747		—
ROVA debt:
ROVA acquisition bridge loan		8,600		30,000		24,578		30,000
ROVA acquisition term loan		—		5,000		—		5,000
ROVA term debt		30,184		28,492		148,686		162,933

Total debt outstanding	$	70,781	$	76,803	$	287,809	$	306,007

The ROVA current and total term debt includes debt premiums of $0.8 million and $4.5 million, respectively. The ROVA acquisition bridge loan includes a debt discount of $1.1 million.

The maturities of all long-term debt and the revolving credit facilities outstanding at June 30, 2007 are (in thousands):


2007	$	25,643
2008		104,041
2009		53,691
2010		33,053
2011		21,899
Thereafter		46,074

	$	284,401

Corporate Revolving Line of Credit

The Company has a $14.0 million revolving credit facility with First Interstate Bank, which expires on June 30, 2008. Interest is payable monthly at the bank’s prime rate (8.25% per annum at June 30, 2007). The Company is required to maintain financial ratios relating to its liquidity, indebtedness, and net worth. As of June 30, 2007, the Company was in compliance with such covenants. The revolving credit facility is collateralized by the Company’s stock in WRI, which owns the Absaloka Mine, and the dragline located at WRI’s Absaloka Mine. In June 2006, the term of this facility was extended to June 30, 2008.

ITEM 1
WESTMORELAND COAL COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) — (Continued)

Westmoreland Mining LLC

WML has a $20.0 million revolving credit facility (the “Facility”) with PNC Bank, National Association (“PNC”) which expires on April 27, 2008. The interest rate is either PNC’s Base Rate plus 1%, or a Euro-Rate plus 3%, at WML’s option (9.25% per annum at June 30, 2007). In addition, a commitment fee of 1/2 of 1% of the average unused portion of the available credit is payable quarterly. The amount available under the Facility is based upon, and any outstanding amounts are secured by, eligible accounts receivable.

WML has a term loan agreement under which $50.6 million in Series B Notes, $20.4 million in Series C Notes and $14.6 million in Series D Notes are outstanding as of June 30, 2007. The Series B Notes require quarterly principal and interest payments to December 2008. The Series C and D Notes require quarterly interest payments with principal payments beginning March 31, 2009 and final payments on December 31, 2011. The Series B Notes bear interest at a fixed interest rate of 9.39% per annum; the Series C Notes bear interest at a fixed rate of 6.85% per annum; and the Series D Notes bear interest at a variable rate based upon LIBOR plus 2.90% (8.25% per annum at June 30, 2007). All of the notes are secured by the assets of WML and the term loan agreement requires the Company to comply with certain covenants and minimum financial ratio requirements related to liquidity, indebtedness, and capital investments. As of June 30, 2007, WML was in compliance with such covenants.

The Company engages in leasing transactions for equipment utilized in operations. Certain leases at the Rosebud, Jewett and Beulah Mines qualify as capital leases and were recorded as an asset and liability at the net present value of the minimum lease payments at the inception of the leases. The present value of these lease payments at June 30, 2007 and December 31, 2006 was $6.9 million and $3.2 million, respectively, at a weighted average interest rate of 6.17% and 6.12%, respectively. The Jewett Mine also has a note payable outstanding from the purchase of a parcel of land at June 30, 2007 in the amount of $0.3 million with interest payable at 6.0% annually.

Westmoreland Resources, Inc. Capital Lease Obligation

The Company entered into a lease transaction for equipment utilized in operations at the Absaloka Mine. The present value of these lease payments at June 30, 2007 was $5.7 million, at an effective interest rate of 6.85%.

ROVA

The Company funded the ROVA acquisition and debt protection account deposit in part with a $30.0 million bridge loan facility from SOF Investments, L.P. (“SOF”) and a $5.0 million term loan with First Interstate Bank. The Company also paid SOF a 1% closing fee. On May 7, 2007, the term loan was paid off prior to maturity. At June 30, 2007, the SOF bridge loan had an outstanding balance of $24.6 million and bears interest at the London Interbank Offering Rate (“LIBOR”) plus 4% (9.40% per annum at June 30, 2007). The loan is secured by a pledge of the semi-annual cash distributions from ROVA which commenced in January 2007 as well as pledges of the distributions, if any, from the Company’s subsidiaries that directly or indirectly acquired the operating agreements for the third party power plants.

In June 2007, the Company exercised its option to extend the term on the SOF bridge loan to four years. In conjunction with the extension of the SOF bridge loan, the Company issued a warrant to purchase 150,000 shares of the Company’s common stock to SOF at a premium of 15% to the then current stock price, or $31.45 per share. The warrant is exercisable through June 2010. The fair value of the warrant has been recorded as a discount to the principal amount of the bridge loan and is being accreted to interest expense over the remaining four year term of the debt.

ITEM 1
WESTMORELAND COAL COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) — (Continued)

ROVA has Credit Agreements under which $39.0 million in Bank Borrowings, $68.4 million in borrowings from an institutional lender and $36.8 million in Bond Borrowings are outstanding as of June 30, 2007.

The principal payments for the Bank Borrowings are semiannual and mature in July 2008. The interest rates are set at various margins in excess of the Banks’ base rate. The weighted average interest rate on the Bank Borrowings at June 30, 2007 was 6.84% per annum.

The borrowings from an institutional lender include Tranche A which has a fixed interest rate of 10.42% and semiannual payments scheduled to be completed in July 2014 and Tranche B which has a fixed interest rate of 8.33% and semiannual payments scheduled to be completed in July 2015.

The Bond Borrowings (one from 1991 and one from 1993) are secured by irrevocable letters of credit in the amounts of $30.1 million and $7.4 million, respectively. The weighted average interest rate for the bonds at June 30, 2007 was 3.95%. The first of the four semiannual installments due on the 1991 Bond Borrowings is in January 2008. The first of the three semiannual installments for the 1993 Bond Borrowings is due in July 2009.

The debt agreements contain various restrictive covenants related to maintenance, insurance, liquidity, cash distributions, and commitments. At June 30, 2007, ROVA was in compliance with the various covenants.

Irrevocable letters of credit in the amounts of $4.5 million for ROVA I and $1.5 million for ROVA II were issued to ROVA’s customer by the banks on behalf of ROVA to ensure performance under their respective power sales agreements.


10.	DERIVATIVE INSTRUMENTS

As of June 30, 2007, the Company was party to two derivative contracts to manage a portion of its exposure to the price volatility of diesel fuel used in its operations. In a typical commodity swap agreement, the Company receives the difference between a fixed price per gallon of diesel fuel and a price based on an agreed upon published, third-party index if the index price is greater than the fixed price. If the index price is lower, the Company pays the difference. By entering into swap agreements, the Company effectively fixes the price it will pay in the future for the quantity of diesel fuel subject to the swap agreement.

In October 2006, the Company entered into a derivative contract to manage a portion of its exposure to the price volatility of diesel fuel to be used in its operations in 2007. The swap contract covered 2.4 million gallons of diesel fuel at a weighted average fixed price of $2.02 per gallon to be settled monthly during 2007. At June 30, 2007, 1.2 million gallons of fuel remained outstanding under this swap contract.

In January 2007, the Company entered into an additional derivative contract to be used in its operations in 2007. The swap contract covered 1.1 million gallons of diesel fuel at a weighted average fixed price of $1.75 per gallon to be settled monthly during 2007. At June 30, 2007, 0.6 million gallons of fuel remained outstanding under this swap contract.

The Company accounts for these derivative instruments on a mark-to-market basis through earnings. The Consolidated Financial Statements as of June 30, 2007 reflect cumulative unrealized gains on these contracts of $0.3 million. Unrealized gains recorded during the six months ended June 30, 2007 were $0.6 million. These unrealized gains are recorded as a reduction to Cost of sales — coal and as an increase to accounts receivable. During the six months ended June 30, 2007, the Company settled a portion of these contracts covering approximately 1.7 million gallons of fuel which resulted in a gain of less than $0.1 million.

ITEM 1
WESTMORELAND COAL COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) — (Continued)

Information regarding derivative instruments for the six months ended June 30, 2007 is as follows (in thousands):


	Six Months Ended June 30,
	2007

Unrealized loss on derivatives at beginning of the year	$	(336	)
Change in fair value		584
Realized gain on settlements		79

Unrealized gains on derivatives at June 30, 2007	$	327


11.	HERITAGE HEALTH BENEFIT EXPENSES

The caption “Heritage health benefit expenses” used in the Consolidated Statements of Operations refers to costs of benefits the Company provides to our former Eastern mining operation employees as well as other administrative costs associated with providing those benefits.

The components of these expenses are (in thousands):


	Three Months Ended					Six Months Ended
	June 30,					June 30,
	2007		2006			2007			2006
	(As Restated, note 2)
	(In thousands)

Health care benefits	$	6,530	$	7,243		$	13,258		$	14,421
Combined benefit fund charges (credit)		919		995			(3,954	)		1,990
Workers’ compensation benefits		192		73			379			370
Black lung benefits (credit)		77		(5	)		(86	)		(221	)

Total	$	7,718	$	8,306		$	9,597		$	16,560


12.	PENSION AND POSTRETIREMENT MEDICAL BENEFITS

The Company provides pension and postretirement medical benefits, the majority of which are mandated by the Coal Act, to retired employees, qualified full-time employees and their dependents.

ITEM 1
WESTMORELAND COAL COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) — (Continued)

The Company incurred costs of providing these benefits during the three and six months ended June 30, 2007 and 2006 as follows (in thousands):


							Postretirement
	Pension Benefits						Medical Benefits
	Three Months Ended June 30,						Three Months Ended June 30,
	2007			2006			2007		2006
	(As Restated, note 2)

Components of net periodic benefit cost:
Service cost	$	792		$	800		$	231	$	188
Interest cost		1,139			1,053			4,479		4,589
Expected return on plan assets		(1,025	)		(931	)		—		—
Amortization of deferred items		260			351			2,104		2,759

Total net periodic benefit cost	$	1,166		$	1,273		$	6,814	$	7,536


							Postretirement
	Pension Benefits						Medical Benefits
	Six Months Ended June 30,						Six Months Ended June 30,
	2007			2006			2007		2006
	(As Restated, note 2)

Components of net periodic benefit cost:
Service cost	$	1,536		$	1,600		$	462	$	374
Interest cost		2,212			2,106			8,958		9,128
Expected return on plan assets		(2,052	)		(1,862	)		—		—
Amortization of deferred items		449			705			4,208		5,625

Total net periodic benefit cost	$	2,145		$	2,549		$	13,628	$	15,127

The Company expects to pay approximately $17.0 million for postretirement medical benefits during 2007, net of Medicare Part D reimbursements. A total of $3.8 million and $7.8 million was paid during the three and six months ended June 30, 2007, respectively.

The Company expects to contribute approximately $4.0 million to its pension plans during 2007. A total of $0.7 million and $1.3 million was paid in the three and six months ended June 30, 2007, respectively.

ITEM 1
WESTMORELAND COAL COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) — (Continued)


13.	ASSET RETIREMENT OBLIGATIONS, RECLAMATION DEPOSITS AND CONTRACTUAL THIRD PARTY RECLAMATION RECEIVABLES

Asset Retirement Obligations

Changes in the Company’s asset retirement obligations for the six months ended June 30, 2007 and 2006 are summarized below (in thousands):


Six Months Ended June 30,	2007			2006

Asset retirement obligations — beginning of year	$	184,062		$	158,407
Accretion		6,437			5,064
ROVA asset retirement obligation acquired		—			414
Settlements (final reclamation performed)		(3,483	)		(6,702	)
Changes due to amount and timing of reclamation		(6,608	)		—

Asset retirement obligations — end of period	$	180,408		$	157,183

The asset retirement obligation, contractual third party reclamation receivable, and reclamation deposits at June 30, 2007 for each of the Company’s mines and ROVA are summarized below (in thousands):


			Contractual
	Asset		Third Party
	Retirement		Reclamation		Reclamation
	Obligation		Receivable		Deposits

Rosebud	$	95,363	$	3,442	$	64,733
Jewett		64,201		27,536		—
Beulah		6,053		—		—
Savage		1,751		—		—
Absaloka		12,597		—		—
ROVA		443		—		—

Total	$	180,408	$	30,978	$	64,733

As of June 30, 2007 the Company or its subsidiaries have reclamation bonds in place for its active mines in Montana, North Dakota and Texas and for inactive mining sites in Virginia and Colorado which are now awaiting final bond release. These government-required bonds secure an operator’s obligation to comply with the 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 when they are closed in the future will total approximately $485.8 million, with a present value of $180.4 million. As permittee, the Company or its subsidiaries are responsible for the total amount. The financial responsibility for a portion of final reclamation of the mines when they are closed has been transferred by contract to certain customers, while other customers have provided guarantees or funded escrow accounts to cover final reclamation costs. Costs of reclamation of mining pits prior to mine closure are recovered in the price of coal shipped.

On March 6, 2007, the Company, WRI and WGI signed a comprehensive settlement agreement pursuant to which the mining contract between WRI and WGI for the Absaloka Mine was terminated on March 30, 2007 and all claims among the parties were settled, including the dispute relating to the coal sales agency agreement and the litigation relating to WGI’s performance under the mining contract. As part of this settlement, WGI released the $7.0 million reclamation escrow account to WRI, and WRI released WGI from its financial obligation to complete final reclamation of the mine.

ITEM 1
WESTMORELAND COAL COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) — (Continued)


14.	STOCKHOLDERS’ EQUITY

Preferred and Common Stock

The Company has two classes of capital stock outstanding, common stock, par value $2.50 per share, and Series A Convertible Exchangeable Preferred Stock, par value $1.00 per share (“Series A Preferred Stock”). Each share of Series A Preferred Stock is represented by four Depositary Shares. The full amount of the quarterly dividend on the Series A Preferred Stock is $2.125 per preferred share or $0.53 per Depositary Share. The Company paid quarterly dividends of $0.25 per Depositary Share from October 1, 2004 through July 1, 2006. The Company suspended the payment of preferred stock dividends following the recognition of the deficit in shareholders’ equity described below. The quarterly dividends which are accumulated through and including July 1, 2007 amount to $15.2 million in the aggregate ($94.78 per preferred share or $23.69 per Depositary Share).

The Company is currently reporting a deficit in shareholders’ equity. As a result, the Company is prohibited from paying preferred stock dividends because of the statutory restrictions limiting the payment of preferred stock dividends under Delaware law, the state in which the Company is incorporated. Under Delaware law, the Company is permitted to pay preferred stock dividends only to the extent that shareholders’ equity exceeds the par value of the preferred stock ($160,000 at June 30, 2007).

Warrants

In June 2007, the Company extended the term on the SOF bridge loan used to fund its ROVA acquisition from one year to four years. In conjunction with the extension of the SOF bridge loan, the Company issued a warrant to purchase 150,000 shares of the Company’s common stock to SOF at a premium of 15% to the then current stock price, or $31.45 per share. The warrant is exercisable through June 2010.

The fair value of the warrant issued is estimated on the date of issue using the Black-Scholes pricing model with the following assumptions for the six months ended June 30, 2007:


		Number of Shares
Warrant Issued		Included in Warrant		Dividend Yield		Volatility			Risk-Free Rate			Expected Life

	2007		150,000		None		40	%		4.98	%		3.0 years

Restricted Net Assets

At June 30, 2007, Westmoreland Coal Company had approximately $117.2 million of net assets at its subsidiaries that were not available to be transferred to it in the form of dividends, loans, or advances due to restrictions contained in the credit facilities of these subsidiaries. Approximately $20.2 million of net assets of the subsidiaries are unrestricted.


15.	INCENTIVE STOCK OPTIONS, STOCK APPRECIATION RIGHTS, AND PERFORMANCE UNITS

As of June 30, 2007, the Company had stock options and SARs outstanding from three stock incentive plans for employees and three stock incentive plans for directors.

The employee plans provide for the grant of incentive stock options (“ISOs”), non-qualified options under certain circumstances, SARs and restricted stock. ISOs and SARs generally vest over three years, expire ten years from the date of grant, and may not have an option or base price that is less than the market value of the stock on the date of grant. The maximum number of shares that could be issued or granted under the employee plans is 1,150,000, and as of June 30, 2007, a total of 103,283 shares are available for future grants.

ITEM 1
WESTMORELAND COAL COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) — (Continued)

The non-employee director plans generally provide for the grant of stock options or SARs with a value of $60,000 when elected or appointed, and stock options or SARs with a value of $30,000 after each annual meeting. In 2006, directors were granted SARs as a form of award. The maximum number of shares that could be issued or granted under the director plans is 900,000, and as of June 30, 2007, 19,176 shares were available for future grants.

Compensation cost arising from share-based payment arrangements was $1.3 million and $0.9 million, for the three months ended June 30, 2007 and 2006, respectively, including $0.7 million and $0.4 million for stock issued as matching contributions to the Company’s 401(k) Savings Plan. Compensation cost arising from share-based payment arrangements was $2.1 million and $1.8 million, for the six months ended June 30, 2007 and 2006, respectively, including $1.2 million and $0.8 million, respectively, for stock issued as matching contributions to the Company’s 401(k) Savings Plan.

SARs

No SARs were granted during the first six months of 2007. The Company granted 12,334 and 16,067 SARs under a non-employee director plan in the three and six months ended June 30, 2006, respectively. These SARs will vest over a four year period. During the first six months of 2006, the Company granted 5,500 SARs under an employee plan which will vest over three years.

As of June 30, 2007, the intrinsic value of vested SARs and all SARs outstanding was approximately $1.0 million. Upon vesting, the holders may exercise the SARs and receive an amount equal to the increase in the value of the common stock between the grant date and the exercise date in shares of common stock.

Information with respect to both the employee and director SARs is as follows:


			Stock Appreciation			Weighted Average
	Base Price Range		Rights			Base Price

Outstanding at December 31, 2006	$	18.04 - 29.48		560,747		$	21.66
Exercised		18.04 - 20.98		(32,713	)		19.51
Expired or forfeited		24.41		(52,700	)		24.41

Outstanding at June 30, 2007	$	18.04 - 29.48		475,334		$	21.50

Information about SARs outstanding as of June 30, 2007 is as follows:

Weighted Average

Remaining

Weighted Average

Range of

Number

Contractual Life

Base Price

SARs

Base Price

Outstanding

(Years)

(All SARs)

Vested

(vested SARs)

18.04-29.48

475,334

8.0

21.50

360,413

20.53

The fair value of SARs granted is estimated on the date of grant using the Black-Scholes pricing model with the following weighted average assumptions for 2006:


		Number of SARs
SARS Granted		Granted		Dividend Yield	Volatility			Risk-Free Rate			Expected Life

	2006		21,567	None		52	%		5.20	%		7.0 years

The weighted-average fair value of each SAR granted in 2006 was $14.62. The amount of unamortized compensation expense for SARs outstanding at June 30, 2007 was $1.2 million, which is expected to be recognized over approximately two years. The intrinsic value of options and SARs exercised during the three and six months ended June 30, 2007 was $0.7 million and $0.8 million, respectively.

ITEM 1
WESTMORELAND COAL COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) — (Continued)

Stock Options

The Company granted 100,000 options under an employee plan in the first six months of 2007, which vest over a three-year period. No options were granted in the first six months of 2006.

As of June 30, 2007, the intrinsic value of vested options was $5.8 million and the intrinsic value of all options outstanding was $5.8 million.

Information with respect to employee and director stock options is as follows:


	Issue Price					Weighted Average
	Range		Stock Option Shares			Exercise Price

Outstanding at December 31, 2006	$	2.81 - 22.86		541,616		$	11.62
Granted		23.48		100,000			23.48
Exercised		2.81 - 18.08		(41,416	)		10.22

Outstanding at June 30, 2007	$	2.81 - 23.48		600,200		$	13.70

Information about stock options outstanding as of June 30, 2007 is as follows:


				Weighted
				Average		Weighted				Weighted
				Remaining		Average				Average
Range of		Number		Contractual		Exercise Price		Number		Exercise Price
Exercise Price		Outstanding		Life (Years)		(All Options)		Exercisable		(Vested Options)

$	2.81 - 5.00		170,700		2.6	$	2.92		170,700	$	2.92
	5.01 - 10.00		—		—		—		—		—
	10.01 - 15.00		92,035		4.8		12.36		92,035		12.36
	15.01 - 23.48		337,465		6.8		19.51		236,908		17.84

$	2.81 - 23.48		600,200		5.3	$	13.70		499,643	$	11.73

The fair value of options granted is estimated on the date of grant using the Black-Scholes pricing model with the following weighted average assumptions for the six months ended June 30, 2007:


Options Granted		Number of Options Granted		Dividend Yield		Volatility			Risk-Free Rate			Expected Life

	2007		100,000		None		52	%		5.20	%		7.0 years

The weighted-average fair value of each option granted in 2007 was $13.80.

The amount of unamortized compensation expense for options outstanding at June 30, 2007 was $1.3 million.

Performance Units

As of June 30, 2007, the Company had performance units outstanding under its Performance Unit Plan. The value of the performance units is payable to the participants upon vesting in cash, or at the option of the Company, in shares of common stock. The value is based in part on the appreciation of the Company’s common stock and its performance relative to the average of two stock market indices. The performance units vest over a three-year period. The units granted are accounted for a liability-based award, since the Company has historically settled the awards in cash and intends to settle the outstanding awards in cash. During the three months ended June 30, 2007 and 2006, the Company recognized $0.6 million and $0.1 million of stock compensation expense for this plan, respectively. During the first six months of 2007 and 2006, the Company

ITEM 1
WESTMORELAND COAL COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) — (Continued)

recognized $0.6 million and $0.6 million of stock compensation expense for this plan, respectively. The amount of unamortized compensation expense for this plan was $0.4 million at June 30, 2007.


16.	EARNINGS PER SHARE

Basic earnings per share is computed by dividing net income (loss) available to common shareholders by the weighted average number of common shares outstanding during the period. Diluted earnings per share is determined on the same basis except that the weighted average shares outstanding are increased to include additional shares for the assumed exercise of stock options, stock appreciation rights (SARs) and warrants, if dilutive, and the impact of restricted stock outstanding. The number of additional shares from options, SARs, and warrants is calculated by assuming that outstanding stock instruments were exercised and that the proceeds from such exercises were used to acquire shares of common stock at the average market price during the reporting period. The number of additional shares from restricted stock is calculated by assuming that an amount equal to the unamortized compensation costs attributable to the restricted shares outstanding is used to acquire shares of common stock at the average market price during the reporting period.

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,
	2007			2006			2007			2006
	(As Restated, note 2)
	(In thousands, except per share data)

Net loss applicable to common shareholders:	$	(11,281	)	$	(5,175	)	$	(3,917	)	$	(1,124	)
Number of shares of common stock outstanding:
Basic		9,092			8,629			9,066			8,530
Effect of dilutive stock options		229			384			244			401
Effect of dilutive SARs		20			119			—			97
Effect of dilutive restricted stock		—			13			—			13
Effect of dilutive warrant		—			—			—			—

Diluted		9,341			9,145			9,310			9,041

Net loss per share applicable to common shares outstanding:
Basic	$	(1.24	)	$	(0.60	)	$	(0.43	)	$	(0.13	)
Diluted	$	(1.24	)	$	(0.60	)	$	(0.43	)	$	(0.13	)
Number of shares excluded from calculation of diluted EPS because the exercise prices of the options, SARs and warrant were greater than the average market price of the common shares		153			—			371			—

ITEM 1
WESTMORELAND COAL COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) — (Continued)


17.	INCOME TAXES

Income tax expense (benefit) attributable to income before income taxes consists of:


	Three Months Ended June 30,					Six Months Ended June 30,
	2007			2006		2007		2006
	(As Restated, note 2)
	(In thousands)

Current:
Federal	$	—		$	—	$	—	$	25
State		(79	)		243		103		495

		(79	)		243		103		520

Deferred:
Federal		—			—		—		—
State		—			—		—		—

Income tax expense	$	(79	)	$	243	$	103	$	520


18.	BUSINESS SEGMENT INFORMATION

Segment information is presented in accordance with SFAS 131, “Disclosures about Segments of an Enterprise and Related Information”. This standard is based on a management approach, which requires segmentation based upon our internal organization and reporting of revenue and income before income taxes based upon internal accounting methods.

The Company’s operations are classified into four segments: coal, independent power, heritage and corporate. The coal segment includes the production and sale of coal from Montana, North Dakota and Texas. The independent power operations include the ownership of interests in cogeneration and other non-regulated independent power plants and related business development expenses. The heritage segment includes costs of benefits the Company provides to former employees of its previously owned Eastern U.S. coal mining operations which have been disposed of. The corporate segment represents all costs not otherwise classified and primarily consists of corporate office expenses. Assets attributed to the heritage segment consist primarily of cash, bonds and deposits restricted to pay heritage health benefits. Prior year segment information has been reclassified to conform to the new segment presentation.

ITEM 1
WESTMORELAND COAL COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) — (Continued)

Summarized financial information by segment for the three and six months ended June 2007 and 2006 is as follows:


	Three Months Ended June 30, 2007
				Independent
	Coal			Power			Heritage			Corporate			Total
	(Unaudited)
	(As Restated, note 2)
	(In thousands)

Revenues:
Coal	$	101,758		$	—		$	—		$	—		$	101,758
Energy		—			24,581			—			—			24,581
Equity in earnings		—			47			—			—			47

		101,758			24,628			—			—			126,386

Costs and expenses:
Cost of sales — coal		84,389			—			—			—			84,389
Cost of sales — energy		—			16,520			—			—			16,520
Depreciation, depletion and amortization		7,114			2,424			—			84			9,622
Selling and administrative		7,885			2,498			360			1,805			12,548
Restructuring charges		227			82			—			1,969			2,278
Heritage health benefit expenses		—			—			7,718			—			7,718
Loss (gain) on sales of assets		31			(2	)		—			—			29

Operating income (loss)		2,112			3,106			(8,078	)		(3,858	)		(6,718	)
Other income (expense):
Interest expense		(2,533	)		(3,646	)		—			(94	)		(6,273	)
Interest income		1,304			705			5			76			2,090
Minority interest		(142	)		—			—			—			(142	)
Other income		12			—			—			11			23

Income (loss) before income taxes	$	753		$	165		$	(8,073	)	$	(3,865	)	$	(11,020	)

Capital expenditures	$	5,110		$	63		$	—		$	3		$	5,176

Total assets	$	459,077		$	290,600		$	4,756		$	9,610		$	764,043

ITEM 1
WESTMORELAND COAL COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) — (Continued)


	Three Months Ended June 30, 2006
				Independent
	Coal			Power		Heritage			Corporate			Total
	(Unaudited)
	(As Restated, note 2)
	(In thousands)

Revenues:
Coal	$	91,618		$	—	$	—		$	—		$	91,618
Equity in earnings					3,003		—			—			3,003

		91,618			3,003		—			—			94,621

Costs and expenses:
Cost of sales — coal		72,351			—		—			—			72,351
Depreciation, depletion and amortization		5,774			57		—			82			5,913
Selling and administrative		5,439			1,176		233			3,124			9,972
Heritage health benefit expenses		—			—		8,306			—			8,306
Loss on sales of assets		70			—		—			—			70

Operating income (loss)		7,984			1,770		(8,539	)		(3,206	)		(1,991	)
Other income (expense):
Interest expense		(2,647	)		—		—			(163	)		(2,810	)
Interest income		962			—		24			94			1,080
Minority interest		(726	)		—		—			—			(726	)
Other income (loss)		(90	)		547		—			(5	)		452

Income (loss) before income taxes	$	5,483		$	2,317	$	(8,515	)	$	(3,280	)	$	(3,995	)

Capital expenditures	$	5,411		$	14	$	—		$	124		$	5,549

Total assets	$	416,159		$	291,756	$	5,914		$	10,682		$	724,511

ITEM 1
WESTMORELAND COAL COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) — (Continued)


	Six Months Ended June 30, 2007
				Independent
	Coal			Power			Heritage			Corporate			Total
	(Unaudited)
	(As Restated, note 2)
	(In thousands)

Revenues:
Coal	$	204,838		$	—		$	—		$	—		$	204,838
Energy		—			49,189			—			—			49,189
Equity in earnings		—			183			—			—			183

		204,838			49,372			—			—			254,210

Costs and expenses:
Cost of sales — coal		167,439			—			—			—			167,439
Cost of sales — energy		—			30,828			—			—			30,828
Depreciation, depletion and amortization		13,491			4,847			—			169			18,507
Selling and administrative		13,341			5,717			830			5,736			25,624
Restructuring charges		227			82			—			1,969			2,278
Heritage health benefit expenses		—			—			9,597			—			9,597
Gain on sales of assets		(190	)		(6	)		—			(5,641	)		(5,837	)

Operating income (loss)		10,530			7,904			(10,427	)		(2,233	)		5,774
Other income (expense):
Interest expense		(5,003	)		(7,394	)		—			(421	)		(12,818	)
Interest income		2,470			1,222			652			149			4,493
Minority interest		(730	)		—			—			—			(730	)
Other income (loss)		120			(3	)		—			30			147

Income (loss) before
income taxes	$	7,387		$	1,729		$	(9,775	)	$	(2,475	)	$	(3,134	)

Capital expenditures	$	8,708		$	135		$	—		$	11		$	8,854

Total assets	$	459,077		$	290,600		$	4,756		$	9,610		$	764,043

ITEM 1
WESTMORELAND COAL COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) — (Continued)


	Six Months Ended June 30, 2006
				Independent
	Coal			Power		Heritage			Corporate			Total
	(Unaudited)
	(As Restated, note 2)
	(In thousands)

Revenues:
Coal	$	186,252		$	—	$	—		$	—		$	186,252
Equity in earnings		—			7,461		—			—			7,461

		186,252			7,461		—			—			193,713

Costs and expenses:
Cost of sales — coal		146,216			—		—			—			146,216
Depreciation, depletion and amortization		11,605			65		—			163			11,833
Selling and administrative		10,892			2,030		422			6,126			19,470
Heritage health benefit expenses		—			—		16,560			—			16,560
Loss (gain) on sales of assets		114								(5,060	)		(4,946	)

Operating income (loss)		17,425			5,366		(16,982	)		(1,229	)		4,580
Other income (expense):
Interest expense		(5,169	)		—					(295	)		(5,464	)
Interest income		1,926			—		48			239			2,213
Minority interest		(1,209	)		—		—			—			(1,209	)
Other income (loss)		(19	)		673		—			(5	)		649

Income (loss) before income
taxes	$	12,954		$	6,039	$	(16,934	)	$	(1,290	)	$	769

Capital expenditures	$	6,965		$	14	$	—		$	505		$	7,484

Total assets	$	416,159		$	291,756	$	5,914		$	10,682		$	724,511


19.	COMMITMENTS

Coal Reserve Lease Obligations

The Company leases certain of its coal reserves from third parties and pays royalties based on either a per ton rate or as a percentage of revenues received. Royalties charged to expense under all such lease agreements amounted to $8.8 million and $7.3 million in the three months ended June 30, 2007 and 2006, respectively and $18.8 million and $16.0 million in the six months ended June 30, 2007 and 2006, respectively.

In August 2005 the Energy Policy Act of 2005 was enacted. Among other provisions, it contains a tax credit for the production of coal owned by Indian tribes. The credit is $1.50 per ton beginning 2006 through 2009 and $2.00 per ton from 2010 through 2012, with both amounts escalating for inflation. The credit may be used against regular corporate income tax for all years and against alternative minimum taxes for the initial period. WRI produces coal that qualifies for this credit.

In the second quarter of 2007, WRI agreed to amend its lease agreement with the Crow Tribe to share the economic benefit of the credit with the Tribe. The Company recorded $1.1 million (as restated) as cost of sales in the second quarter of 2007 to reflect the anticipated amount payable to the Crow Tribe under the amendment. The final amount payable is dependent on the final outcome of the negotiations with the Crow Tribe.

ITEM 1
WESTMORELAND COAL COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) — (Continued)

Real Property and Equipment Lease Obligations

The Company has operating lease commitments expiring at various dates, primarily for real property and equipment. Rental expense under operating leases during the three months ended June 30, 2007 and 2006 totaled $1.5 million and $1.7 million, respectively, and for the six months ended June 30, 2007 and 2006 totaled $3.1 million and $3.2 million, respectively.

Minimum future rental obligations existing under these operating leases with remaining terms of one year or more at June 30, 2007 are as follows (in thousands):


Lease Obligations

2007	$	4,544
2008		3,814
2009		1,653
2010		748
2011 and thereafter		459

Coal Supply Agreements

Westmoreland Partners, which owns ROVA, has two coal supply agreements with TECO Coal Corporation (“TECO”). If Westmoreland Partners continues to purchase coal under these contracts at the current volume and pricing and does not extend these coal supply agreements, then Westmoreland Partners would be obligated to pay TECO $13.3 million for the remainder of 2007 and $26.6 million in each of the years of 2008, 2009, 2010, 2011, 2012 and an aggregate of $58.5 million after 2012.

Long-Term Sales Commitments

The following table presents estimated total sales tonnage under existing long-term contracts for the next five years from the Company’s existing mining operations. The prices for all future tonnage are subject to revision and adjustments based upon market prices, certain indices and/or cost recovery.


Projected Sales Tonnage Under
Existing Long-Term Contracts
(In millions of tons)

2007			30.0
2008			20.3
2009			19.8
2010			17.9
2011			13.7

The tonnages in the table above represent estimated sales tonnage under existing, executed contracts and generally exclude pending or anticipated contract renewals or new contracts. These projections reflect customers’ scheduled major plant outages, if known. These projections exclude all tonnages from the Jewett Mine after December 31, 2007.


20.	CONTINGENCIES

Royalty Claims

The Company acquired Western Energy Company (“WECO”) from Montana Power Company in 2001. WECO produces coal from the Rosebud Mine, which includes federal leases, a state lease and some privately owned leases near Colstrip, Montana. The Rosebud Mine supplies coal to the four units of the adjacent

ITEM 1
WESTMORELAND COAL COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) — (Continued)

Colstrip Power Plant. In the late 1970’s, a consortium of six utilities, including Montana Power, entered into negotiations with WECO for the long-term supply of coal to Units 3&4 of the Colstrip Power Plant, which would not be operational until 1984 and 1985, respectively. The parties could not reach agreement on all the relevant terms of the coal price and arbitration was commenced. The arbitration panel issued its opinion in 1980. As a result of the arbitration order, WECO and the Colstrip owners entered into a Coal Supply Agreement and a separate Coal Transportation Agreement. Under the Coal Supply Agreement, the Colstrip Units 3&4 owners pay a price for the coal F.O.B. mine. Under the Coal Transportation Agreement, the Colstrip Units 3&4 owners pay a separate fee for the transportation of the coal from the mine to Colstrip Units 3&4 on a conveyor belt that was designed and constructed by WECO and has been continuously operated and maintained by WECO.

In 2002 and 2006, the State of Montana, as agent for the Minerals Management Service (“MMS”) of the U.S. Department of the Interior, conducted audits of the royalty payments made by WECO on the production of coal from the federal leases. The audits covered three periods: October 1991 through December 1995, January 1996 through December 2001, and January 2002 through December 2004. Based on these audits, the Office of Minerals Revenue Management (“MRM”) of the Department of the Interior issued orders directing WECO to pay royalties in the amount of $8.6 million on the proceeds received from the Colstrip owners under the Coal Transportation Agreement during the three audit periods. The orders held that the payments for transportation were payments for the production of coal. The Company believes that only the costs paid for coal production are subject to the federal royalty, not payments for transportation.

WECO appealed the orders of the MRM to the Director of the MMS. On March 28, 2005, the MMS issued a decision stating that payments to WECO for transportation across the conveyor belt were part of the purchase price of the coal and therefore subject to the royalty charged by the federal government under the federal leases. However, the MMS dismissed the royalty claims for periods more than seven years before the date of the order on the basis that the statute of limitations had expired, which reduced the total demand from $8.6 million to $5.0 million.

On June 17, 2005, WECO appealed the decision of the MMS on the transportation charges to the United States Department of the Interior, Office of Hearings and Appeals, Interior Board of Land Appeals (“IBLA”). On September 6, 2005, the MMS filed its answer to WECO’s appeal. This matter is still pending before the IBLA.

The total amount of the MMS royalty claims including interest through the end of 2003 was approximately $5.0 million. This amount, if payable, is subject to interest through the date of payment, and as discussed above, the audit covered the periods through 2004.

By decision dated September 26, 2006, the MMS issued a demand to WECO assessing a royalty underpayment charge of $1.6 million, which the MMS asserts is attributable to coal production from Federal Coal Lease No. M18-080697-0. This assessment is based on the same MMS analysis as the assessments previously asserted by the MMS pursuant to its decisions dated September 23, 2002 but applies to a later period. The amount of the potential liability is $1.6 million, plus interest.

In 2003, the State of Montana Department of Revenue (“DOR”) assessed state taxes for years 1997 and 1998 on the transportation charges collected by WECO from the Colstrip Units 3&4 owners. The taxes are payable only if the transportation charges are considered payments for the production of coal. The DOR is relying upon the same arguments used by the MMS in its royalty claims. WECO has disputed the state tax claims.

In 2006, DOR issued additional assessments for certain of these taxes for years 1998-2001. WECO appealed and DOR elected to proceed to hearing on these objections using its internal administrative hearing process. This is the first stage of the eventual adjudication which could ultimately conclude with the Montana

ITEM 1
WESTMORELAND COAL COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) — (Continued)

Supreme Court. It is likely that the IBLA will rule on the MMS issue before this DOR process reaches the Montana state court system, and it is likely that the federal court will have ruled on any appeal from the IBLA before the DOR issue reaches the Montana Supreme Court. The total of the state tax claims through the end of 2001, including interest through the end of 2006, was approximately $20.4 million. If this amount is payable it is subject to interest from the time the tax payment was due until it is paid.

The MMS has asserted two other royalty claims against WECO. In 2002, the MMS held that “take or pay” payments received by WECO during the period from October 1, 1991 to December 31, 1995 from two Colstrip Units 3&4 owners were subject to the federal royalty. The MMS is claiming that these “take or pay” payments are payments for the production of coal, notwithstanding that no coal was produced. WECO filed a notice of appeal with MMS on October 22, 2002, disputing this royalty demand. No ruling has yet been issued by MMS. The total amount of the royalty demand, including interest through August 2003, is approximately $2.7 million.

In 2004, the MMS issued a demand for a royalty payment in connection with a settlement agreement dated February 21, 1997 between WECO and one of the Colstrip owners, Puget Sound Energy. This settlement agreement reduced the coal price payable by Puget Sound as a result of certain “inequities” caused by the fact that the mine owner at the time, Montana Power, was also one of the Colstrip customers. The MMS has claimed that the coal price reduction is subject to the federal royalty. WECO has appealed this demand to the MMS, which has not yet ruled on the appeal. The amount of the royalty demand, with interest through mid-2003, is approximately $1.3 million.

Finally, in May 2005 the State of Montana asserted a demand for unpaid royalties on the state lease for the period from January 1, 1996 through December 31, 2001. This demand, which was for $0.8 million, is based on the same arguments as those used by the MMS in its claim for payment of royalties on transportation charges and the 1997 retroactive “inequities” adjustment of the coal price payable by Puget Sound.

Neither the MMS nor the DOR has made royalty or tax demands for all periods during which WECO has received payments for transportation of coal. Presumably, the royalty and tax demands for periods after the years in dispute, generally, 1997 to 2004, and future years will be determined by the outcome of the pending proceedings. However, if the MMS and DOR were to make demands for all periods through the present, including interest, the total amount claimed against WECO, including the pending claims and interest thereon through December 31, 2006, could exceed $33.0 million.

The Company believes that WECO has meritorious defenses against the royalty and tax demands made by the MMS and the DOR. The Company expects a favorable ruling from the IBLA, although it could be a year or more before the IBLA issues its decision. If the outcome is not favorable to WECO, the Company plans to seek relief in Federal district court.

Moreover, in the event of a final adverse outcome with DOR and MMS, the Company believes that certain of the Company’s customers are contractually obligated to reimburse the Company for any royalties and taxes imposed on the Company for the production of coal sold to the Colstrip owners, plus the Company’s legal expenses. Consequently, the Company has not recorded any provisions for these matters. It is possible that the customers may dispute the Company’s interpretation of the contracts. Legal expenses associated with these matters are expensed as incurred.

Rensselaer Tax Assessment

During 2006 the Company recorded a provision for an assessment by the North Carolina Department of Revenue (“DOR”) relating to a gain which the Company excluded from business income in preparing its tax returns for 1998 through 2001. In March, 2007, the DOR provided the Company with a revised assessment in the amount of $4.2 million. In a settlement signed by the Company and the DOR in the second quarter of

ITEM 1
WESTMORELAND COAL COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) — (Continued)

2007, the Company agreed to pay the income tax assessment and related accrued interest and the DOR waived all penalties. The Company recorded an additional provision of less than $0.1 million in the second quarter of 2007 as a result of this final settlement. As of June 30, 2007, the liability for the settlement was $4.3 million.

Combined Benefit Fund

Under the Coal Act, the Company is required to provide postretirement medical benefits for certain UMWA miners and their dependents by making payments into certain benefit plans, one of which is the Combined Benefit Fund (“CBF”).

On December 21, 2006, the United States Court of Appeals for the Fourth Circuit affirmed the 2005 decision of the Maryland District Court that “reimbursements” in the Coal Act premium calculation refers to actual reimbursements received by the CBF.

Subsequent to this ruling, during the first quarter of 2007, the Company reached a settlement with the UMWA Combined Benefit Fund (“CBF”) for the reimbursement of $5.8 million, plus interest, in past overpayments to the CBF for retiree medical benefits. The Company received $2.9 million of the reimbursement and $0.6 million in interest during the first quarter, and received the remaining $2.9 million reimbursement plus interest of less than $0.1 million during the second quarter of 2007. The Company recorded the settlement as a $5.8 million reduction in heritage health benefit expenses and $0.6 million in interest income.

McGreevey Litigation

In late 2002, the Company was served with a complaint in a case styled McGreevey et al. v. Montana Power Company et al. in a Montana State court. The plaintiffs are former stockholders of Montana Power who filed their first complaint on August 16, 2001. This was the Plaintiffs’ Fourth Amended Complaint; it added Westmoreland as a defendant to a 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 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. The Plaintiffs contend that they were entitled to vote to approve the sale by Entech to the Company even though they were not shareholders of Entech. Westmoreland has filed an answer, various affirmative defenses and a counterclaim against the plaintiffs. Shortly after the Company was named as a defendant, the litigation was transferred from Montana State Court to the U.S. District Court in Billings, Montana.

There has been no significant activity in the case involving Westmoreland for the past four years. Settlement discussions between the plaintiffs and other defendants appear to have been unsuccessful. We have never participated in settlement discussions with the plaintiffs because we believe that the case against the Company is totally without merit. Even if the plaintiffs could establish that shareholder consent was required for the sale of Montana Power’s coal business in 2001, there is virtually no legal support for the argument that such a sale to a buyer acting in good faith, purchasing from a wholly owned subsidiary, and relying on the seller’s representations can be rescinded. Indeed, the practical issues relating to such rescission would present a significant obstacle to such a result, particularly when the business has been operated by the buyer for six years, significant amounts of capital have been invested, reserves have been depleted, and the original seller is in bankruptcy and has no means to complete a repurchase or operate the business following a repurchase.

The Company has considered seeking a dismissal of the claims against it but is waiting for the outcome of a matter under review in the bankruptcy proceedings in Delaware involving Touch America (formerly Montana Power Company). In those proceedings, the unsecured creditors have asserted that the claims

ITEM 1
WESTMORELAND COAL COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) — (Continued)

originally filed by McGreevey in Montana — the claims against the officers and directors which, if successful, would likely result in a payment by the insurance carrier that provided D&O insurance to Montana Power Company — belong to the creditors, not the shareholders who are the plaintiffs in the McGreevey action. If the Delaware Bankruptcy Court holds that those claims are “derivative” and thus belong to the corporation, then the unsecured creditors may have a right to those claims. Although the Delaware Bankruptcy Court will not directly decide that issue with respect to the claims against the various asset purchasers, including the Company, such a decision would likely affect the analysis of the Montana District Court where our case is pending.

No reserve has been accrued by the Company for this matter.

Severance Benefits Payable to Former CEO

In May 2007, Christopher K. Seglem was terminated as Chairman, CEO and President of the Company. Mr. Seglem is entitled to payment of severance benefits under an Executive Severance Policy dated December 8, 1993. The total amount of the severance benefits payable to Mr. Seglem has not been determined because the Executive Severance Policy is subject to different interpretations in regard to certain important terms. The Company and Mr. Seglem have been attempting to resolve the differences in interpretation in the Executive Severance Policy through discussions but no assurances can be given that the differences will be resolved. If Mr. Seglem were to bring litigation against the Company to enforce what he believes are his rights under the Executive Severance Policy, the Company would be required to pay his attorney’s fees under the terms of the policy, unless a court were to determine that under the circumstances, recovery of all or a part of any such fees would be unjust. If Mr. Seglem’s interpretation of the severance policy were to be upheld by a court, he would be entitled to severance payments of approximately $3.8 million plus reimbursement of his attorney’s fees. The Company has accrued severance benefits due to Mr. Seglem in the amount of $1.8 million based on its interpretation of the severance policy.


21.	SUBSEQUENT EVENTS

On March 4, 2008, the Company completed the sale of $15.0 million in senior secured convertible notes to that investor. The notes mature 5 years from date of issuance, carry a 9.0% interest rate and are convertible into the Company’s common stock at the investor’s option at an initial conversion price of $10.00 per share. As part of that transaction the Standby Purchase Agreement was terminated.

In June 2007, the Company extended the bridge loan used to acquire ROVA, and issued the lender a warrant to purchase 150,000 shares of common stock. Under the terms of the loan agreement, all cash distributions from ROVA are required to be applied to the principal and interest payments on the loan through its remaining four-year term.

In February 2008, the Company completed negotiations to refinance the ROVA project with an institutional lender. The refinancing will include the bridge loan used to acquire the additional interest in the ROVA project in 2006 and all of the term loans outstanding at ROVA. The refinancing will allow ROVA to make a distribution to the Company of $5.0 million when the refinancing closes in mid-March 2008.

As of March 17, 2008, the Company believes that it has capital resources or committed financing arrangements in place to provide adequate liquidity to meet all of its currently projected cash requirements

ITEM 1
WESTMORELAND COAL COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) — (Continued)

through August 2008 based on its most recent forecast. The Company is considering several alternatives for raising additional capital during 2008.

The Company has also engaged a large bank to assist the Company in refinancing its existing debt at Westmoreland Mining, with the goal of better matching debt amortization with cash flow from the mining operations. The refinancing would be designed to provide for additional availability to finance future capital requirements of the mines, and provide for an increase in the amounts allowed to be distributed to Westmoreland Coal Company. While the Company has had initial discussions with the bank and potential lenders about the refinancing, there can be no assurance that the Company will obtain the refinancing on terms acceptable to it, or at all.

Depending upon the size and terms of that potential refinancing, the Company will evaluate the need to raise additional capital.

The Company continues to believe that one of the other alternatives available to it is the sale of one or more of the Company’s assets. There can be no assurance that any sale could be completed on a timely basis or on terms acceptable to the Company.

The accompanying consolidated financial statements are prepared on a going concern basis and do not include any adjustments that might result from the outcome of the uncertainty regarding the Company’s ability to raise additional capital, refinance its debt obligations or sell some of its assets to meet its obligations.

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

Material Changes in Financial Condition from December 31, 2006 to June 30, 2007

2007 Restatement

We are filing this amendment to our Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2007. The consolidated balance sheets and statements of operations have been restated to correct errors in the amounts recorded for our postretirement medical benefit obligations and related expenses, our stock based compensation expense and our coal reserve lease royalty obligations. The restatement adjustments had no effect on our cash flows for any of the periods presented.

For the three and six months ended June 30, 2007 and 2006, the restatement had the following effects on our consolidated statements of operations:


	Three Months Ended June 30,						Six Months Ended June 30,
	2007			2006			2007			2006
	(In thousands)

Net income (loss) applicable to common shareholders, as previously reported	$	(12,432	)	$	(3,827	)	$	(3,558	)	$	1,526
Increase in heritage health benefit expenses related to the 2001 court decision		(1,474	)		(927	)		(2,888	)		(1,854	)
Increase in heritage health benefit expenses related to an error in 2006 census data		—			(303	)		—			(606	)
Increase in selling and administrative expenses related to other census data errors		(30	)		(31	)		(60	)		(61	)
Decrease (increase) in stock compensation expense related to stock based incentive plan		926			(87	)		860			(129	)
Decrease in cost of sales due to an error in the calculation of coal reserve lease royalties		1,580			—			1,580			—
Decrease in income tax expense related to an error in the state income tax calculation		149			—			149			—

Total adjustments		1,151			(1,348	)		(359	)		(2,650	)

Net loss applicable to common shareholders, as restated	$	(11,281	)	$	(5,175	)	$	(3,917	)	$	(1,124	)

Forward-Looking Disclaimer

Throughout this Amendment No. 1 to Form 10-Q, the Company makes statements which are not historical facts or information and that may be deemed “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. These forward-looking statements include, but are not limited to, the information set forth in Management’s Discussion and Analysis of Financial Condition and Results of Operations. 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, 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; the material weaknesses in the Company’s internal controls over financial reporting identified in Amendment No. 2 to our 2006 Form 10-K, the associated ineffectiveness of the Company’s disclosure controls; health care 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 growth and development 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 or obtain waivers from its lenders in cases of non-compliance; the Company’s ability to achieve anticipated cost savings and profitability targets; the Company’s ability to successfully identify new business opportunities; the Company’s ability to negotiate profitable coal contracts, price reopeners and extensions; the Company’s ability to predict or anticipate commodity price changes; the Company’s ability to maintain satisfactory labor relations; changes in the industry; competition; the Company’s ability to utilize its deferred income tax assets; the ability to reinvest cash, including cash that has been deposited in reclamation accounts, at an acceptable rate of return; weather conditions; the availability of transportation; price of alternative fuels; costs of coal produced by other countries; the demand for electricity; the performance of ROVA and the structure of ROVA’s contracts with its lenders and Dominion Virginia Power; the effect of regulatory and legal proceedings; environmental issues, including the cost of compliance with existing and future environmental requirements; the risk factors set forth below; the Company’s ability to raise additional capital, as discussed under Liquidity and Capital Resources; and the other factors discussed in Note 20 of this Amendment No. 1 to Form 10-Q. 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.

References in this document to www.westmoreland.com, any variations of the foregoing, or any other uniform resource locator, or URL, are inactive textual references only. The information on our Web site or any other Web site is not incorporated by reference into this document and should not be considered to be a part of this document.

Overview

We are an energy company. We mine coal, which is used to produce electric power, and we own power generating plants. All of our five mines supply baseloaded power plants. Several of these power plants are located adjacent to our mines, and we sell virtually all our coal under long-term contracts. Consequently, our mines enjoy relatively stable demand and pricing compared to competitors who sell more of their production on the spot market.

We now own 100% of ROVA, which supplies baseload power pursuant to long-term contracts. We operate and maintain ROVA and four power projects owned by others. We have a 4.49% interest in the gas-fired Ft. Lupton Project, which has a generating capacity of 290 MW and provides peaking power to the local utility.

According to the 2006 Annual Energy Outlook prepared by the U.S. Energy Information Administration, or EIA, approximately 50% of all electricity generated in the United States in 2005 was produced by coal-fired units. The EIA projects that the demand for coal used to generate electricity will increase approximately 2.6% per year from 2005 through 2030. Consequently, we believe that the demand for coal will grow, in part because coal is the lowest cost fossil-fuel used for generating baseload electric power.

Challenges

We believe that our principal challenges today include the following:


	•	negotiating a long-term contract between the Jewett Mine and its customers;

	•	obtaining adequate capital for our on-going operations and our growth initiatives;

	•	renegotiating sales prices to reflect higher market prices and fully recover increased commodity and production costs;

	•	continuing to fund high heritage health benefit expenses which continue to be adversely affected by inflation in medical costs, longer life expectancies for retirees, and the failure of the UMWA retirement fund trustees to manage medical costs;


	•	maintaining and collateralizing, where necessary, our Coal Act and reclamation bonds;

	•	funding required contributions to pension plans that are underfunded;

	•	complying with new environmental regulations, which have the potential to significantly reduce sales from our mines; and

	•	defending against claims for potential taxes and royalties assessed by various governmental entities, some of which we believe are subject to reimbursement by our customers.

We discuss these issues, as well as the other challenges we face, elsewhere in this Management’s Discussion and Analysis of Financial Condition and Results of Operations, and under “Risk Factors.”

Liquidity and Capital Resources

The major factors impacting our liquidity are: payments due on the term loan we entered into to acquire various operations and assets from Montana Power and Knife River in May, 2001; payments due on the acquisition debt associated with our purchase of the ROVA interest; additional capital expenditures we plan to make after taking over operations at our Absaloka Mine in March 2007; cash collateral requirements for additional reclamation bonds in new mining areas; and payments for our heritage health benefit costs. See “Factors Affecting our Liquidity”. Unforeseen changes in our ongoing business requirements could also impact our liquidity. Our principal sources of cash flow at Westmoreland Coal Company are dividends from Westmoreland Resources, Inc. (“WRI”), distributions from ROVA and Westmoreland Mining LLC subject to the provisions in their respective debt agreements and dividends from our subsidiaries that operate power plants.

We currently project that we have sufficient capital resources and committed financing arrangements to provide us with adequate liquidity through the fourth quarter of 2007. However, based on our most recent internal calculations, we do not believe that we have capital resources or committed financing arrangements in place to provide adequate liquidity to meet the cash requirements that we currently project beyond the end of 2007. The proceeds from the rights offering are intended to address this projected liquidity shortfall.

On May 2, 2007, the Company entered into a Standby Purchase Agreement with an investor that would backstop a rights offering of common stock by the Company to its shareholders and purchase additional shares of common stock. Effective as of July 3, 2007, the Company amended the Standby Purchase Agreement to add an additional standby purchaser. The Company expects to seek gross proceeds of $85 million, plus an amount required to retire any remaining outstanding preferred shares, before expenses. The closing of such transactions is subject to several conditions including shareholder approval (which the Company plans to seek at a meeting of stockholders later in 2007), there being no material adverse effect on the Company’s financial condition and there not being trading suspensions in its common stock or other adverse developments in the financial markets.

We intend to use the net proceeds from the rights offering to provide additional liquidity for working capital, to support our growth and development strategy, to redeem our Series A Preferred Stock, and for general corporate purposes. Following the rights offering, the Company intends to retire its outstanding Series A Convertible Exchangeable Preferred Stock, each share of which is represented by four depositary shares. The Company is evaluating options to achieve this objective, including using a portion of the proceeds from the rights offering to redeem the depositary shares that are outstanding at the conclusion of the rights offering.

NRGT Long-Term Contract

On June 8, 2007 our subsidiary Texas Westmoreland Coal Company, which operates the Jewett Mine and sells lignite to NRG Texas, LLC, or NRGT, which operates the Limestone Electric Generating Station, gave notice to NRGT that it would deliver no lignite in 2008 under the existing long-term contract. As a result of this notice, NRGT is no longer obligated to purchase lignite from the Jewett Mine for the remaining term of the contract as described below. The Limestone Station is adjacent to the Jewett Mine and NRGT is the only customer of Texas Westmoreland.

We believe that it is in the best interests of both Texas Westmoreland and NRGT to enter into a new long-term supply agreement for the Jewett Mine that would extend through the end of the useful life of the mine, which we currently project will be between 2015 and 2018, depending on annual lignite production. We base our belief on, among other things, the facts that, if Texas Westmoreland and NRGT do not reach a new long-term agreement, the Limestone Station will be exposed to changes in Powder River Basin coal prices and rail transportation costs, and the fuel for the Limestone Station will need to be delivered over approximately 1,350 miles from the Powder River Basin. Although we believe that it is in the best interests of both Texas Westmoreland and NRGT to enter into a new long-term supply agreement, there can be no assurance that we will be able to negotiate such an agreement with NRGT.

The Jewett Mine supplies lignite to the Limestone Station under a long-term agreement that has been amended and supplemented a number of times over the past eight years. The most recent supplement was an interim agreement signed in 2005, which we refer to as the interim agreement. The interim agreement set the price for the lignite produced at the Jewett Mine and the production levels for the period through the end of 2007, which was 89 trillion Btu per year (approximately 6.8 million tons). In addition, the interim agreement required NRGT to pay for the capital expenditures made by Texas Westmoreland at the Jewett Mine during the term of the interim agreement. The interim agreement expires at the end of 2007.

Upon expiration of the interim agreement, the terms of the long-term agreement in effect prior to the interim agreement again become effective. Under those terms, the price of the lignite delivered to NRGT is determined each year by a set of calculations designed to approximate the equivalent cost of using Powder River Basin coal at the Limestone Station. If the parties are unable to agree on the applications or results of those calculations, the price is determined through expedited arbitration. If Texas Westmoreland does not find the price determined through arbitration to be acceptable, it can require NRGT to obtain a price quote from an alternative supplier, which would be a mine in the Powder River Basin of Wyoming, and Texas Westmoreland then has the right but not the obligation to deliver lignite at the quoted price. However the price is determined, Texas Westmoreland has the right to designate the amount of lignite, if any, it will deliver at that price, up to 89 trillion Btu per year (approximately 6.8 million tons). If Texas Westmoreland designates zero tons, NRGT is no longer obligated to purchase lignite from the Jewett Mine for the remaining term of the contract. In determining whether a price is acceptable, Texas Westmoreland must consider the capital expenditures required to maintain the mine because capital expenditures are the responsibility of Texas Westmoreland under the contract terms that again become applicable following the expiration of the interim agreement.

During late 2006 and early 2007, Texas Westmoreland and NRGT were not able to determine a mutually acceptable lignite price for 2008 through negotiations. The parties then entered into arbitration and the price determined by the arbitrator was not acceptable to Texas Westmoreland. NRGT then went through a competitive bidding process to determine a market price, which Texas Westmoreland had the right to match. However, Texas Westmoreland found the market price obtained by NRGT to be unacceptable and it gave notice to NRGT that it would deliver no lignite in 2008. As a result of this notice, NRGT is no longer obligated to purchase lignite from the Jewett Mine for the remaining term of the contract. It is highly unlikely that Texas Westmoreland would be able to find a new customer on economically acceptable terms for the lignite produced at the Jewett Mine because the cost of transporting lignite over long distances would make it non-competitive as a fuel source for other power plants. If Texas Westmoreland and NRGT cannot now agree upon a new long-term agreement, it is most probable that Texas Westmoreland would close the Jewett Mine. Such closure would have three material consequences:


	•	First, it would eliminate Texas Westmoreland’s revenue and operating income from the Company’s consolidated financial statements. The Jewett Mine accounted for 29% of our consolidated coal segment revenues and 28% of our consolidated coal segment operating income in 2006. Closing the Jewett Mine would therefore have an adverse effect on our revenues, profitability, and cash flows.

	•	Second, closure of the Jewett Mine would accelerate final reclamation costs for the mine. We are responsible under federal and state regulations for the ultimate reclamation of the mines we operate. At the Jewett Mine, NRGT has assumed by contract the liability to fund reclamation after the termination of mining and has posted bonds to secure its obligations. Based on the assumption that we would operate the mine through 2015 under the long-term agreement, our consolidated financial statements at


		June 30, 2007 included a $64.2 million obligation for final reclamation at the Jewett Mine, $27.5 million of which was recorded as a receivable from NRGT. Based on an arbitration decision in July 2007, we believe that all of the final reclamation costs would become the responsibility of NRGT under the current long-term agreement if the mine is shut down.


	•	Third, the cash flow from the Jewett Mine contributes to the service of Westmoreland Mining’s term debt. Any cessation of operations at the Jewett Mine would affect Westmoreland Mining’s ability to repay its term debt and maintain compliance with its financial covenants. A default under Westmoreland Mining’s agreements with its lenders could adversely affect our financial condition.

If Texas Westmoreland were to close the mine we would be required to record an impairment at the carrying value of the mine. At June 30, 2007, our consolidated financial statements reflected approximately $69.7 million of long-lived assets related to Texas Westmoreland’s operations.

Based on Texas Westmoreland’s notification to NRGT that it would not deliver any lignite in 2008 and the fact that we do not yet have a new long-term agreement with NRGT, we performed an impairment test on these long-lived assets. Based on our assessment that there is a high probability that we will agree with NRGT on a long-term agreement, we concluded that the expected cash flows from the mine exceed the carrying amount of Texas Westmoreland’s assets at June 30, 2007.

The development of Texas Westmoreland’s projected future cash flows were based on our belief that it is likely we will agree with a new long-term agreement with NRGT. As discussed above, we believe that it is in the best interests of both Texas Westmoreland and NRGT to enter into a new long-term supply agreement for the Jewett Mine that would extend through the end of the useful life of the mine, which we currently project will be between 2015 and 2018, depending on annual lignite production. The projected cash flows also involved highly sensitive assumptions specific to our operations, including estimates of future coal prices, the contract price agreed to with NRGT, ground conditions we may encounter, productivity, and costs of fuel and other commodities, among others. Any changes in these assumptions could materially alter the projected cash flows used in the impairment test.

Factors Affecting our Liquidity

Our heritage health benefit costs consist primarily of payments for post- retirement medical and workers’ compensation benefits. We are also obligated for employee pension and pneumoconiosis benefits. It is important to note that retiree health benefit costs are directly affected by increases in medical service costs, prescription drug costs and mortality rates. The most recent actuarial valuations of our heritage health benefits obligations, which pertain primarily to former employees who worked in our Eastern mines and are guaranteed life-time benefits under the federal Coal Act, indicated that our heritage health benefit payments would increase annually through 2011 and then decline to zero over the next approximately sixty years as the number of eligible beneficiaries declines. In the second quarter of 2007, we paid $3.8 million for postretirement benefit expenses, $0.9 million for CBF premiums and $0.5 million for workers’ compensation benefits and received $0.2 million in offsetting Medicare D subsidies. During 2007, we expect to pay $18.8 million in cash costs for postretirement medical benefits and receive $1.8 million of offsetting federal subsidies. In 2007, we further expect to make payments for Combined Benefit Fund premiums in the amount of $3.7 million and $1.0 million of payments for workers’ compensation benefits.

The Westmoreland Mining acquisitions in 2001 greatly increased revenues and operating cash flow. The financing obtained to make those acquisitions requires quarterly interest and principal payments of approximately $4.2 million. This debt financing also requires that 25% of excess cash flow, as defined, be set aside to fund the $30.0 million debt payment due in December 2008. Therefore, only 75% of Westmoreland Mining’s excess cash flow is available to the Company until this debt is paid off in 2008. Westmoreland Mining also entered into the add-on debt facility in 2004 which requires the use of approximately $0.5 million of cash each quarter for debt service. The add-on facility permitted Westmoreland Mining to undertake significant capital projects, principally at the Rosebud and Jewett Mines, without adversely affecting cash available to Westmoreland Coal Company. The terms of the add-on facility permitted Westmoreland Mining to distribute this $35.0 million to Westmoreland Coal Company. Westmoreland Mining’s 2006 distributions of $3.5 million represented the remainder available from the $35.0 million add-on facility.

In June 2006, we acquired the 50% interest in ROVA that we did not previously own, which increased revenues and operating cash flow. This acquisition was funded with $35.0 million in acquisition debt as described in Note 9 to our consolidated financial statements. ROVA also has project-level debt which funded the original development of the power plants. The project-level debt requires semi-annual principal payments as also described in Note 9 to the financial statements as well as ongoing interest payments. At June 30, 2007, the outstanding balance of the ROVA acquisition debt was $24.6 million (net of $1.1 million of debt discount). In June 2007, we extended the term of the acquisition debt to four years. Until that debt is paid in full, all cash distributions generated by ROVA will be applied to the acquisition debt, with the minimum semi-annual principal payment being approximately $4.3 million. An additional $8.8 million was paid on the debt on August 6, 2007, leaving a balance of $16.9 million outstanding. The acquisition debt will also require interest payments of approximately $0.4 million per quarter for the next four quarters, and decrease thereafter.

On March 6, 2007, we entered into an agreement to acquire WGI’s contract to operate our Absaloka Mine and completed this transaction on March 30, 2007. WRI purchased from WGI mining and office equipment for $7.9 million and tools, spare parts and supplies, and coal inventory for $2.3 million. As part of the transaction, WGI released the $7.0 million reclamation escrow account to WRI, and WRI released WGI from its financial obligation to complete final reclamation of the mine. While certain equipment was included in our purchase, we made significant additional capital expenditures during the second quarter and expect we will need to make further investments in mine development projects, mining equipment and to support bonding requirements in the future.

Our ongoing and future business needs may also affect liquidity. We do not anticipate that either our coal or our power production revenues will diminish materially as a result of any future downturn in economic conditions because ROVA and the power plants that purchase our coal produce relatively low-cost, baseload power. In addition, most of our coal and power production are sold under long-term contracts, which help insulate us from unfavorable market developments. However, contract price reopeners, contract expirations or terminations, a failure to negotiate a long-term agreement between the Jewett Mine and its customer and market competition could affect future coal revenues and our liquidity. We may also need additional capital to support our ongoing efforts to develop new projects such as the Gascoyne Mine and power facility.

Cash Balances and Available Credit

Consolidated cash and cash equivalents at June 30, 2007 totaled $39.8 million including $24.2 million at ROVA, $2.0 million at Westmoreland Power Inc., $1.5 million at Westmoreland Mining, $10.3 million at WRI and $1.8 million at our captive insurance subsidiary. The cash at Westmoreland Mining is available to the Company through quarterly distributions, as described below. The cash at our captive insurance subsidiary and WRI is available to the Company through dividends. Under the provisions of the ROVA acquisition bridge loan, all cash distributions from ROVA subsequent to December 31, 2006, are to be applied to the principal balance of the loan and related interest.

As of June 30, 2007, Westmoreland Coal Company had $9.5 million of its $14.0 million revolving line of credit available to borrow.

Restricted Cash

We had restricted cash and bond collateral, which were not classified as cash or cash equivalents, of $72.0 million at June 30, 2007 compared to $69.7 million at December 31, 2006. The restricted cash at June 30, 2007 included $30.1 million in ROVA’s debt service accounts and prepayment accounts, $29.7 million in Westmoreland Mining’s debt service reserve, long-term prepayment, and reclamation escrow accounts, and $5.3 million in the Absaloka Mine’s escrow accounts. At June 30, 2007 our reclamation, workers’ compensation and postretirement medical cost obligation bonds were collateralized by interest-bearing cash deposits of $6.8 million, which we have classified as non-current assets in the consolidated balance sheet. In addition, we had accumulated reclamation deposits of $64.7 million at June 30, 2007, representing cash received from customers of the Rosebud Mine to pay for reclamation, plus interest earned on the investments.

Westmoreland Mining Debt Facilities

The original term loan agreement, which financed our acquisition of the Rosebud, Jewett, Beulah, and Savage Mines, continues to restrict Westmoreland Mining’s ability to make distributions to Westmoreland Coal Company. Until Westmoreland Mining has fully paid the original acquisition debt, which is scheduled for December 31, 2008, Westmoreland Mining may only pay Westmoreland Coal Company a management fee and distribute to Westmoreland Coal Company 75% of Westmoreland Mining’s surplus cash flow. Westmoreland Mining is depositing the remaining 25% into an account that will be applied to the $30.0 million balloon payment due December 31, 2008. In December 2005, Westmoreland Mining amended its revolving credit facility to increase the borrowing base to $20.0 million and to extend its maturity to April 2008 to better align with its operating needs. The increase includes the ability to issue letters of credit up to $10.0 million. As of June 30, 2007, a letter of credit for $1.9 million was supported by Westmoreland Mining’s revolving credit facility, Westmoreland Mining had borrowed $11.5 million under this facility, and Westmoreland Mining has the remaining $6.6 million of the credit facility’s borrowing base available.

Historical Sources and Uses of Cash

Cash provided by operating activities was $44.5 million for the first six months of 2007 compared with $6.3 million for the first six months of 2006. The increase in non-cash charges to income, which includes depreciation, amortization, stock compensation, gain on sale of assets and minority interest, in the first six months of 2007 increased cash provided by operating activities by $7.0 million. The majority of this increase related to depreciation resulting from the consolidation of ROVA. Cash provided by operating activities in the first six months of 2007 also reflects $14.4 million of revenue deferred under ROVA’s long-term sales agreements. There was only $0.2 million of cash distributions from independent power projects for the first six months of 2007 because ROVA distributions received were consolidated after the acquisition of the remaining interest in ROVA in June 2006. Cash distributions from ROVA of $1.1 million were recorded for the first six months of 2006. Changes in working capital increased cash provided by operating activities in the first six months of 2007 by $16.2 million compared to an increase in cash from changes in working capital of $2.1 million in the first six months of 2006. The increase related primarily to $5.6 million of cash received from the black lung trust fund in 2007, the $3.0 million of lease costs accrued for the Crow Tribe royalty agreement and favorable changes in accounts receivable and other assets and liabilities.

Our working capital deficit was $48.5 million at June 30, 2007 compared to $66.8 million at December 31, 2006. The decrease in our working capital deficit resulted primarily from a $13.1 million increase in cash and cash equivalents, a $9.1 million decrease in trade accounts payable, and a $6.0 million net reduction in our current installment of long term debt and our revolving lines of credit.

Cash used in investing activities during the first six months of 2007 was $3.6 million compared to $19.8 million in the first six months of 2006. The decrease in cash used in investing cash activities in 2007 was driven primarily by the $12.7 million of proceeds from sale of our royalty interest at the Caballo Mine in Wyoming in February. Also contributing to the decrease in cash used in investing activities was a decrease in our restricted cash due to a refund of collateral as a result of a reduction in our postretirement health benefit bonds in the first quarter of 2007. These increases were offset by $8.9 million of additions to property, plant and equipment for mine equipment and $3.4 million paid in connection with the assumption of the Absaloka mining operations from WGI. Cash used in investing activities in 2006 included $7.5 million of additions to property, plant and equipment for mine equipment, $7.7 million for our ROVA acquisition (net of cash acquired) and $9.7 million related to an increase in our restricted cash account. Cash used in investing activities in 2006 was partially offset by the $5.1 million received from the sale of mineral interests in Colorado.

We used $27.8 million of cash for our financing activities in the first six months of 2007 compared to receiving $35.5 million from financing activities in the first six months of 2006. In the first six months of 2007 we made $30.5 million of payments on our long-term debt. This use of cash was partially offset by an increase of $3.0 million in our revolving lines of credit. In the first six months of 2006 we received $35.0 million to finance the ROVA acquisition and $7.0 million from our revolving lines and repaid $6.1 million of our long-term debt.

Severance Benefits Payable to Former CEO

RESULTS OF OPERATIONS

Quarter Ended June 30, 2007 Compared to Quarter Ended June 30, 2006.

Coal Operations

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


	Quarter Ended June 30,
	2007		2006		Change
	(As Restated, note 2)

Revenues — thousands	$	101,758	$	91,618		11	%
Volumes — millions of equivalent coal tons		7.0		6.6		6	%
Cost of sales — thousands	$	84,389	$	72,351		17	%

Tons of coal sold increased by approximately 0.4 million tons in the second quarter of 2007 from the second quarter of 2006. Our tons sold increased primarily as a result of improved performance at our Absaloka and Rosebud Mines during the second quarter of 2007. Tons sold by our Beulah Mine also increased primarily as a result of a large customer maintenance shutdown during the second quarter of 2006. These increases were offset by decreases at our Jewett and Savage Mines, primarily caused by difficulties due to wet weather conditions and unscheduled customer plant outages, respectively.

Our coal revenues increased by approximately $10.1 million from the second quarter of 2006 to the second quarter of 2007. This overall increase was due to a combination of the increase in tonnage with a 5% overall increase in pricing. At the Rosebud and Beulah Mines, we increased revenues through increases in tons sold and increases in our revenues per ton of approximately 9% and 13%, respectively. These price increases were the result of our coal sales contracts providing for pass-through adjustments for higher costs and the renewal of a contract in January 2007 at current market prices. At the Absaloka Mine, we achieved increases in tons sold and also a 9% revenue per ton increase due to market price and renewals. Lastly, at our Jewett Mine, our revenues decreased as a result of our decrease in tons sold combined with an approximate 5% decrease in price resulting from our current interim price agreement.

Our coal segment’s cost of sales in the second quarter of 2007 increased by approximately $12.0 million from the second quarter of 2006. This increase was driven by a $5.0 million increase in operating costs at our Rosebud Mine. Our Absaloka Mine’s cost of sales also increased by $4.3 million due to $1.1 million of lease costs accrued as a result of the amendment to the Crow Tribe lease agreement, the increase in tons sold and revenues driving increases in royalties, production taxes, and costs associated with our assumption of the mine’s operations. Our Beulah Mine’s cost of sales increased by $2.2 million as a result of the increase in tonnage driving cost increases in stripping, production taxes and royalties, and other operational costs.

Our coal segment’s depreciation, depletion, and amortization expense in the second quarter of 2007 increased by approximately $1.3 million from the second quarter of 2006. This increase resulted from increased depletion expenses from asset retirement cost assets, which increased at the end of 2006 as a result of updated engineering studies, as well as from increases in capital expenditures and new capital leases for equipment at the mines.

Our coal segment’s selling and administrative expenses in the second quarter of 2007 increased by $2.4 million from the second quarter of 2006. This increase was primarily the result of increases in professional fees, legal fees associated with our Jewett price arbitration, and information technology costs.

Independent Power

The power segment includes the ownership of interests in cogeneration and other non-regulated independent power plants, our power operations and maintenance business and business development expenses. Power segment operating income was $3.1 million in the second quarter 2007 compared to $1.8 million in the second quarter 2006. This increase was primarily a result of our acquisition of the remaining 50% of ROVA and our acquisition of contracts to operate and provide maintenance services to four power plants in Virginia owned by Dominion Virginia Power. Our energy revenues and costs of sales were $24.6 million and $16.5 million, respectively, during the second quarter 2007.

In connection with the ROVA acquisition, we changed our method of recognizing revenue under ROVA’s long-term power sales agreements effective July 1, 2006. For the second quarter 2007, revenue billed under these agreements totaling $7.0 million was deferred to future periods. We also began consolidation of ROVA’s results of operations effective July 1, 2006. Previously the ROVA results were reported using the equity method. The equity method reported only earnings (calculated net of interest expense, interest income, depreciation, depletion and amortization).

The power segment’s financial performance is presented in the following table (in thousands):


	Three Months Ended June 30,
	2007			2006

50% share of ROVA earnings shown as equity in earnings	$	—		$	2,980
Ft. Lupton equity earnings		47			23

Total equity earnings		47			3,003

Energy revenue(1)		24,581			—
Costs and expenses:
Cost of sales — energy		(16,520	)		—
Depreciation, depletion, & amortization		(2,424	)		(57	)
Selling and administrative		(2,498	)		(1,176	)
Restructuring charges		(82	)		—
Gain on sales of assets		2			—

Power segment revenue less costs & expenses		3,059			(1,233	)

Independent power segment operating income		3,106			1,770
Other income (expense):
Interest expense		(3,646	)		—
Interest income		705			—
Other income		—			547

Income before income taxes	$	165		$	2,317


(1)		The Company recorded $7.0 million in deferred revenue in the second quarter of 2007 related to capacity payments billed at ROVA.

For the second quarter of 2007 and 2006, ROVA produced 399,000 and 380,000 MW hours, respectively, and achieved average capacity factors of 90.7% and 87.5%, respectively.

We also recognized $47,000 in equity earnings in the second quarter of 2007, compared to $23,000 in the second quarter of 2006, from our 4.49% interest in the Ft. Lupton project.

Heritage

During the second quarter of 2007 heritage costs decreased by $0.5 million from the second quarter of 2006 due primarily to a decrease in our retiree health costs. These costs decreased as a result of an increase in the discount rate used and favorable trends in our postretirement medical benefit projections.

Corporate

Our corporate segment selling and administrative expenses decreased by $1.3 million in the second quarter of 2007 compared to the second quarter of 2006. This decrease primarily resulted from decreases in our corporate segment’s professional fees and IT costs.

Restructuring

In 2007, the Company initiated a restructuring plan in order to reduce the overall cost structure of the Company. This decision was based on our analysis of our internal operations, our future customer commitments, our current and potential markets, and our financial projections for profitability. During the second quarter of 2007, we recorded a restructuring charge of $2.3 million which included $2.2 million of termination benefits and outplacement costs and $0.1 million of lease costs related to the consolidation of corporate office space. We expect these charges to be paid out over the next year and result in approximately $0.8 million of annual cost reductions in our cost of sales and general and administrative expenses. We also expect additional restructuring charges during the remainder of 2007 as the Company continues execution of its restructuring plan. The restructuring liability is reflected in “Other current liabilities” in the Consolidated Balance Sheets.

Interest

Interest expense was $6.3 million for the second quarter of 2007 compared to $2.8 million in the second quarter of 2006. The increase resulted from the $2.8 million in interest expense from ROVA’s project debt following its acquisition and approximately $0.8 million in interest expense primarily driven by our ROVA acquisition debt. Interest income increased by $1.0 million in the second quarter of 2007 as a result of $0.6 million in ROVA interest income, and increased interest income from our restricted cash and bond collateral accounts due to increases in those balances and interest rates.

Income Tax

Current income tax benefit for the second quarter of 2007 was less than $0.1 million and current income tax expense was $0.2 million for the second quarter of 2006. Income tax expense relates to obligations for state income taxes in North Carolina, Texas and Minnesota.

RESULTS OF OPERATIONS

Six Months Ended June 30, 2007 Compared to Six Months Ended June 30, 2006.

Coal Operations

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


	Six Months Ended June 30,
	2007		2006		Change
	(As Restated, note 2)

Revenues — thousands	$	204,838	$	186,252		10	%
Volumes — millions of equivalent coal tons		14.5		14.0		4	%
Cost of sales — thousands	$	167,439	$	146,216		15	%

Tons of coal sold increased by approximately 0.5 million tons in the first six months of 2007 from the first six months of 2006. Our tons sold increased primarily as a result of improved performance at our Absaloka Mine during the first six months of 2007. Our tons sold at our Beulah Mine also increased primarily as a result of a large customer maintenance shutdown during the first six months of 2006. These increases in tons sold were offset by decreases at our Rosebud, Jewett, and Savage Mines, primarily caused by unscheduled customer plant outages and unfavorable weather conditions.

Our coal revenues increased by approximately $18.6 million from the first six months of 2006 compared to the first six months of 2007. This was due both to the increase in tonnage and a 6% overall increase in pricing. At the Beulah Mine, we increased revenues through an increase in tons sold and an increase in our revenue per ton of approximately 12%, as our coal sales contracts provided for pass-through adjustments for higher costs and we renewed a contract in January 2007 at current market prices. Our Rosebud Mine increased revenues through an increase in our revenue per ton of approximately 13% as our coal sales contracts provided for pass-through adjustments for higher costs, offsetting the mine’s decrease in tons sold. At the Absaloka Mine, we also increased revenues through increases in tons sold as well as a 9% revenue per ton increase due to market price reopeners and renewals. Lastly, at our Jewett Mine, our revenues decreased as a result of the decrease in tons sold and a 4% decrease in price per ton resulting from our current interim price agreement.

Our coal segment’s cost of sales in the first six months of 2007 also increased by approximately $21.2 million from the first six months of 2006. This increase was driven by a $9.3 million increase in operating costs at our Rosebud Mine. Our Absaloka Mine’s cost of sales also increased by $8.2 million due to $1.1 million of lease costs accrued as a result of the amendment to the Crow Tribe lease agreement, the increase in tons sold driving increases in royalties, production taxes, and costs associated with our assumption of the mine’s operations, including a $0.8 million termination fee related to the prior operating contract. The remainder of our costs of sales increase was driven by increases in hauling costs, accretion of our reclamation obligations, and increases in commodity costs at our Jewett and Beulah Mines.

Our coal segment’s depreciation, depletion, and amortization expense in the first six months of 2007 increased by approximately $1.9 million from the first six months of 2006. This increase resulted from increased depletion expenses from asset retirement cost assets, which increased at the end of 2006 as a result of updated engineering studies, as well as from increases in capital expenditures and new capital leases for equipment at the mines.

Our coal segment’s selling and administrative expenses in the first six months of 2007 increased by $2.4 million from the first six months of 2006. This increase was primarily the result of increases in professional fees, legal fees associated with our Jewett price arbitration, and information technology costs.

Independent Power

The power segment’s financial performance is presented in the following table (in thousands):


	Six Months Ended June 30,
	2007			2006

50% share of ROVA earnings shown as equity in earnings	$	—		$	7,320
Ft. Lupton equity earnings		183			141

Total equity earnings		183			7,461

Energy revenue(1)		49,189			—
Costs and expenses:
Cost of sales — energy		(30,828	)		—
Depreciation, depletion, & amortization		(4,847	)		(65	)
Selling and administrative		(5,717	)		(2,030	)
Restructuring charges		(82	)		—
Gain on sales of assets		6			—

Power segment revenue less costs & expenses		7,721			(2,095	)

Independent power segment operating income		7,904			5,366
Other income (expense):
Interest expense		(7,394	)		—
Interest income		1,222			—
Other income (loss)		(3	)		673

Income before income taxes	$	1,729		$	6,039


(1)		The Company recorded $14.4 million in deferred revenue in the first six months of 2007 related to capacity payments billed at ROVA.

Power segment operating income was $7.9 million in the first six months of 2007 compared to $5.4 million in the first six months of 2006. This increase was primarily a result of our acquisition of the remaining 50% of ROVA and our acquisition of contracts to operate and provide maintenance services to four power plants in Virginia owned by Dominion Virginia Power. Our energy revenues and costs of sales were $49.2 million and $30.8 million, respectively, during the first six months of 2007.

In connection with the ROVA acquisition, we changed our method of recognizing revenue under ROVA’s long-term power sales agreements effective July 1, 2006. For the first six months of 2007, revenue billed under these agreements totaling $14.4 million was deferred to future periods. We also began consolidation of ROVA’s results of operations effective July 1, 2006. Previously the ROVA results were reported using the equity method. The equity method reported only earnings (calculated net of interest expense, interest income, depreciation, depletion and amortization).

For the first six months of 2007 and 2006, ROVA produced 826,000 and 806,000 MW hours, respectively, and achieved average capacity factors of 93% and 91%, respectively.

We also recognized $183,000 in equity earnings in the first six months of 2007, compared to $141,000 in the first six months of 2006, from our 4.49% interest in the Ft. Lupton project.

Heritage

During the first six months of 2007 heritage costs decreased by $6.6 million from the first six months of 2006. This decrease resulted primarily from a $5.8 million settlement reached with the Combined Benefit Fund which was recorded in the first quarter of 2007.

Our heritage costs also decreased during the first six months of 2007 as a result of decreases in retiree health care expenses. These costs decreased as a result of an increase in the discount rate used and favorable trends in our postretirement medical benefit projections.

Corporate

Our corporate segment selling and administrative expenses decreased by $0.3 million for the first six months of 2007 compared to 2006, primarily related to decreases in our corporate segment’s professional fees and IT costs. The first six months of 2007 includes a gain of $5.6 million on the sale of our royalty interest at the Caballo Mine in Wyoming, while the first six months of 2006 includes a gain of $5.1 million from the sale of mineral interests in Colorado.

Restructuring

In 2007, the Company initiated a restructuring plan in order to reduce the overall cost structure of the Company. This decision was based on our analysis of our internal operations, our future customer commitments, our current and potential markets, and our financial projections for profitability. During the second quarter of 2007, we recorded a restructuring charge of $2.3 million which included $2.2 million of termination benefits and outplacement costs and $0.1 million of lease costs related to the consolidation of corporate office space. We expect these charges to be paid out over the next year and result in approximately $0.8 million of annual cost reductions in our cost of sales and general and administrative expenses. We also expect additional restructuring charges during the remainder of 2007 as the Company continues execution of its restructuring plan. The restructuring liability is reflected in “Other current liabilities” in the Consolidated Balance Sheets.

Interest

Interest expense was $12.8 million and $5.5 million for the first six months of 2007 and 2006, respectively. The increase resulted from the $5.7 million in interest expense from ROVA’s project debt following its acquisition and approximately $1.7 million in increased interest expense primarily driven by our ROVA acquisition debt. Interest income increased by $2.3 million in the first six months of 2007 as a result of $1.2 million in ROVA interest income, $0.6 million in interest income received from our settlement with the Combined Benefit Fund, and increased interest income from our restricted cash and bond collateral accounts due to increases in those balances and interest rates.

Income Tax

Current income tax expense for the first six months of 2007 decreased by $0.4 million from the current income tax expense for the first six months of 2006. Income tax expense in both periods relates to obligations for state income taxes in North Carolina, Texas and Minnesota.

ITEM 3

QUANTITATIVE AND QUALITATIVE DISCLOSURES 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

The Company produces and sells commodities — principally coal and electric power — and also purchases commodities — principally diesel fuel, steel and electricity.

The Company produces and sells coal through its subsidiaries, WRI, Westmoreland Mining LLC, and Westmoreland Coal Sales Co., and the Company produces and sells electricity and steam through its subsidiary Westmoreland Energy LLC. Nearly all of the Company’s coal production and all of its electricity and steam production are sold through long-term contracts with customers. These long-term contracts reduce the Company’s exposure to changes in commodity prices. These contracts typically contain price escalation and adjustment provisions, pursuant to which the price for our coal may be periodically revised. The price may be adjusted in accordance with changes in broad economic indicators, such as the consumer price index, commodity-specific indices, such as the PPI-light fuel oils index, and/or changes in our actual costs. Contracts may also contain periodic price reopeners or renewal provisions, which give us the opportunity to adjust the price of our coal to reflect developments in the marketplace.

Interest Rate Risk

The Company and its subsidiaries are subject to interest rate risk on its debt obligations. The Company’s revolving lines of credit have a variable rate of interest indexed to either the prime rate or LIBOR. Based on balances outstanding on the lines of credit as of June 30, 2007, a one percent change in the prime interest rate or LIBOR would increase or decrease interest expense by $0.2 million on an annual basis. Westmoreland Mining’s Series D Notes under its term loan agreement have a variable interest rate based on LIBOR. A one percent change in LIBOR would increase or decrease interest expense on the Series D Notes by $0.1 million on an annual basis. A portion of ROVA’s project debt under its Credit Agreement also has a variable interest rate based on LIBOR. A one percent change in LIBOR would increase or decrease interest expense on ROVA’s debt by $0.8 million on an annual basis. The Company’s ROVA acquisition debt also has variable interest rates based on LIBOR. A one percent change in LIBOR would increase or decrease interest expense on the acquisition term loan by approximately $0.3 million on an annual basis. The Rosebud Mine has capital leases with variable interest rates. A one percent change in the interest rates for these leases would increase or decrease interest expenses by less than $0.1 million on an annual basis.

The carrying value and estimated fair value of the Company’s long-term debt with fixed interest rates at June 30, 2007 were $156.3 million and $162.7 million, respectively.

The Company’s heritage health benefit expenses are also impacted by interest rate changes because its workers compensation, pension, pneumoconiosis, and postretirement medical benefit obligations are recorded on a discounted basis.

ITEM 4
CONTROLS AND PROCEDURES

As required by Rules 13a-15 and 15d-15 under the Securities Exchange Act of 1934, management has evaluated, with the participation of our chief executive officer and chief financial officer, the effectiveness of our disclosure controls and procedures as of the end of the period covered by this report. Disclosure controls and procedures refer to controls and other procedures designed to ensure that information required to be disclosed in the reports we file or submit under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the rules and forms of the Securities and Exchange Commission. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by us in our reports that we file or submit under the Exchange Act is accumulated and communicated to management, including our chief executive officer and chief financial officer, as appropriate to allow timely decisions regarding our required disclosure. In designing and evaluating our disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management was required to apply its judgment in evaluating and implementing possible controls and procedures.

As part of our Amendment No. 2 to our 2006 Annual Report on Form 10-K and the Amendment No. 1 to our Form 10-Q, we determined that the description of the previously disclosed material weakness existing as of December 31, 2006 should be modified and we identified additional material weaknesses in our internal controls over financial reporting. The material weaknesses relate to the lack of adequate controls over the testing, verification and review of electronic spreadsheets that impact the Company’s financial reporting, the lack of controls to ensure the completeness and accuracy of the census data used to calculate the Company’s postretirement medical benefit liabilities, and the lack of controls over the accounting for the Company’s Performance Unit Plan under generally accepted accounting principles.

Our chief executive officer and chief financial officer have concluded, based on this evaluation, that as of June 30, 2007, the end of the period covered by this report, our disclosure controls and procedures were not effective.

No change in the Company’s internal control over financial reporting (as defined in Rules as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) occurred during the fiscal quarter ended June 30, 2007 that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting, except for the changes that were designed to remediate the material weaknesses regarding the Company’s controls identified in the Company’s Amendment No. 2 to its Annual Report on Form 10-K for the year ended December 31, 2006.

To remediate the material weaknesses referred to above and enhance our internal control over financial reporting, the following improvements to our internal controls have been or will be implemented during 2007 and 2008:


	•	The calculations for asset retirement obligations have been standardized at all of our mines and have been simplified.

	•	An additional layer of financial supervision and review has been added at each of our mines.

	•	Personnel in our Corporate office perform a detailed review of all asset retirement obligation calculations.

	•	Additional training will be provided to those responsible for performing and reviewing asset retirement obligation calculations.


	•	An additional level of review will be added over the calculation of our postretirement medical benefit liabilities and expense.


	•	An additional level of review will be added over our census data used to calculate our postretirement medical benefits.


	•	An additional level of review will be added over the preparation of our income tax accrual.

ITEM 1A

RISK FACTORS

In addition to the trends and uncertainties described in Management’s Discussion and Analysis of Financial Condition and Results of Operations, we are subject to the risks set forth below. Risk factors that are unchanged from those contained in Amendment No. 2 to our 2006 Annual Report on Form 10-K have not been repeated in this Amendment No. 1 to Form 10-Q.

Our revenues, profitability and cash flow could suffer if negotiations between our Jewett Mine and its customer do not produce an economic basis for the continued supply of lignite.

If Texas Westmoreland and NRGT cannot agree upon a new long-term agreement, it is most probable that Texas Westmoreland would close the Jewett Mine. Such closure would have three material consequences.


	•	First, it would eliminate Texas Westmoreland’s revenue and operating income from the Company’s consolidated financial statements. The Jewett Mine accounted for 29% of our consolidated coal segment revenues and 28% of our consolidated coal segment operating income in 2006. Closing the Jewett Mine would therefore have an adverse effect on our revenues, profitability, and cash flows.

	•	Second, closure of the Jewett Mine would accelerate final reclamation costs for the mine. We are responsible under federal and state regulations for the ultimate reclamation of the mines we operate. At the Jewett Mine, NRGT has assumed by contract the liability to fund reclamation after the termination of mining and has posted bonds to secure its obligations. Based on the assumption that we would operate the mine through 2015 under the long-term agreement, our consolidated financial statements at June 30, 2007 included a $64.2 million obligation for final reclamation at the Jewett Mine, $27.5 million of which was recorded as a receivable from NRGT. Based on an arbitration decision in July 2007, we believe that all of the final reclamation costs would become the responsibility of NRGT under the current long-term agreement if the mine is shut down.

	•	Third, the cash flow from the Jewett Mine contributes to the service of Westmoreland Mining’s term debt. Any cessation of operations at the Jewett Mine would affect Westmoreland Mining’s ability to repay its term debt and maintain compliance with its financial covenants. A default under Westmoreland Mining’s agreements with its lenders could adversely affect our financial condition.

Although we believe that it is in the best interests of both Texas Westmoreland and NRGT to enter into a new long-term supply agreement, there can be no assurance that we will be able to negotiate such an agreement with NRGT.

Our ability to operate effectively and achieve our strategic goals could be impaired if we lose key personnel.

Our future success is substantially dependent upon the continued service of our key senior management personnel. We do not have employment contracts with any of our key senior management. We do not have key-person life insurance policies for any of our employees. The loss of the services of any of our executive officers or other key employees could make it more difficult for us to pursue our business goals.

We may face risks related to an SEC investigation and securities litigation in connection with the restatement of our financial statements.

We are not aware that the Securities and Exchange Commission (“SEC”) has begun any formal or informal investigation in connection with the errors in accounting for our postretirement medical benefit plans, one of our stock based compensation plans and state income taxes, requiring restatement of 2006 and prior years’ financial statements including 2005 and 2006 quarterly financial statements, or that any laws have been violated. However, if the SEC makes a determination that the Company has violated Federal securities laws, the Company may face sanctions, including, but not limited to, monetary penalties and injunctive relief, which could adversely affect our business. In addition, the Company or its officers and directors could be named defendants in civil proceedings arising from the restatement. We are unable to estimate what our liability in either event might be.


EXPLANATORY NOTE			3
PART 1 — FINANCIAL INFORMATION			8
ITEM 1			8
ITEM 1			13
ITEM 2			44
ITEM 3			57
ITEM 4			58
PART II — OTHER INFORMATION			59
ITEM 1			59
ITEM 1A			60
ITEM 3			61
ITEM 5			62
ITEM 6			63
SIGNATURES			64
Exhibit Index			65
Rule 13a-14(a)/15d-14(a) Certifications
Certifications Pursuant to 18 U.S.C. Section 1350


Exhibits

(a)		Exhibits
(4.1)*		Warrant dated June 29, 2007 in favor of SOF Investments, L.P.
(31)		Rule 13a-14(a)/15d-14(a) Certifications.
(32)		Certifications pursuant to 18 U.S.C. Section 1350.


*	Filed as an exhibit to the Registrant’s Quarterly Report on form 10-Q filed August 9, 2007, and incorporated herein by reference.


Exhibit
Number		Description

(4.1)*		Warrant dated June 29, 2007 in favor of SOF Investments, L.P.
(31)		Rule 13a-14(a)/15d-14(a) Certifications.
(32)		Certifications pursuant to 18 U.S.C. Section 1350.


	1.	I have reviewed this Amendment No. 1 to the Quarterly Report on Form 10-Q/A 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)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) 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)	Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

	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


	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.