Summary of WESTMORELAND COAL CO

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Forward-Looking Information
Throughout this Form 10-Q, we make statements, including estimates, projections, statements relating to our business plans, objectives and expected operating results that are "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. These forward-looking statements generally are identified by the words "believe," "project," "expect," "anticipate," "estimate," "intend," "strategy," "future," "opportunity," "plan," "may," "should," "will," "would," "will be," "will continue," "will likely result," and similar expressions. Forward-looking statements are based on current expectations and assumptions that are subject to risks and uncertainties, which may cause actual results to differ materially from the forward-looking statements. A detailed discussion of these and other risks and uncertainties that could cause actual results and events to differ materially from such forward-looking statements is included in the section entitled Risk Factors (refer to Part I, Item 1A in our 2008 Form 10-K and see Part II, Item 1A below). Specific factors that could cause actual results to differ materially from such forward-looking statements include, among others, the following:
• worldwide economic conditions;

• our ability to produce coal at existing and planned future operations;

• changes in postretirement medical benefit and pension obligations;

• availability and costs of credit, surety bonds and letters of credit;

• inability to expand coal operations due to limitations in obtaining bonding capacity to back new mining permits;

• our ability to maintain compliance with debt covenant requirements or obtain waivers from our lenders in cases of non-compliance;

• the ability of our subsidiaries to pay dividends to the Parent due to restrictions in our debt arrangements;

• our ability to negotiate profitable coal contracts, price reopeners and extensions;

• our ability to maintain satisfactory labor relations;

• financial stability of our customers, and their ability to continue to comply with their contractual commitments in a timely manner;

• disruptions in delivery or changes in pricing from third party vendors of goods and services which are necessary for our operations, such as fuel, steel products, explosives and tires;

• impact of weather on demand, production and transportation;

• the performance of our Roanoke Valley power plants and the structure of its contracts with its lenders and Dominion Virginia Power;

• coal's market share of electricity generation;

• the effect of prolonged maintenance or unplanned outages at our major power generating customers;

• our ability to successfully negotiate a waiver and amendments with our WML lenders due to the breach of the leverage ratio covenant;

• our ability to successfully increase our revolving lines of credit to cover anticipated cash shortfalls in the fourth quarter of 2009;

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WESTMORELAND COAL COMPANY AND SUBSIDIARIES

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONT.) • future legislation and changes in regulations, governmental policies and taxes, including those aimed at reducing emissions of elements such as mercury, sulfur dioxides, nitrogen oxides, particular matter or greenhouse gases; and

• our ability to raise additional capital, our access to financing and our ability to sell assets as discussed under Management's Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital Resources.

As a result of the foregoing and other factors, no assurance can be given as to the future results and achievement of our goals. We undertake no obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future events or otherwise. Overview
We are an energy company organized as a Delaware corporation in 1910. We mine coal, which is used to produce electric power, and we own power-generating plants.
We own five surface mines located in the United States, which supply coal to power plants. Several of these power plants are located adjacent to our mines, and we sell virtually all our coal under multi-year contracts. Due to the generally longer duration and terms of our contracts, we enjoy relatively stable demand compared to competitors who sell more of their production on the spot market and under short-term contracts.
Our Absaloka Mine is owned by our subsidiary, Westmoreland Resources, Inc., or WRI. The right to mine coal at our Absaloka Mine has been subleased to an affiliated entity whose operations we control. The Beulah, Jewett, Rosebud, and Savage Mines are owned through our subsidiary, Westmoreland Mining LLC, or WML. We sold 29.3 million tons of coal in 2008, less than 3% of all the coal produced in the United States. We were the tenth largest coal producer in the United States, ranked by tons of coal mined in 2008.
In addition to our mining operations, we own the Roanoke Valley power plants, or ROVA. ROVA consists of two coal-fired generating units with a total capacity of 230 megawatts. ROVA supplies power pursuant to long-term contracts. We are a holding company and conduct our operations through subsidiaries, which generally have obtained separate financing. As a holding company, we have significant cash requirements to fund our ongoing heritage health benefit costs, pension contributions, and corporate overhead expenses. The principal sources of cash flow to us are from distributions from our principal operating subsidiaries. Each of WML, ROVA and WRI has a credit agreement that contains covenants applicable to that subsidiary. Only the WRI agreement permits dividends to be paid by WRI to us without restriction.
In the second quarter 2009, we defaulted on a loan covenant in our WML debt agreement. See Note 7 for additional details on this default.

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WESTMORELAND COAL COMPANY AND SUBSIDIARIES

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONT.) During the second quarter of 2009, unscheduled customer outages occurred after planned maintenance outages, which affected our Rosebud and Beulah Mines. The Beulah Mine customer ended its unscheduled outage and resumed coal deliveries in July. However, deliveries to our Rosebud Mine's customer are anticipated to be significantly reduced through the fourth quarter of 2009 when operations are projected to resume. During Rosebud's customer-scheduled maintenance outage, it found unanticipated mechanical problems that required immediate replacement. The replacement parts were not successful in fixing the mechanical issues, further prolonging the maintenance outage far beyond the initial estimates. The power plant outages at Beulah and Rosebud are referred to herein as "the customer outages." Additionally, due to unfavorable current economic and energy market conditions, our Absaloka and Jewett Mine's remaining 2009 deliveries are also projected to decrease. These reductions in planned 2009 deliveries will reduce dividends and cash flows available to us.

RESULTS OF OPERATIONS
Items that Affect Comparability of Results
For the three and six months ended June 30, 2009 and 2008, our results have
included items that significantly affected net loss. The pretax income
(expense) components of these items were as follows (in thousands):

                                           Three Months Ended              Six Months Ended
                                                June 30,                       June 30,
                                          2009            2008           2009           2008
Fair value adjustment on
derivatives and related
amortization of debt discount          $      152               -          3,975              -
Heritage settlement                           756               -            756              -
Interest expense attributable to
beneficial conversion feature                   -            (377 )            -         (8,108 )
Loss on extinguishment of WML debt              -          (3,834 )            -         (3,834 )
Loss on extinguishment of power
debt                                            -               -              -         (1,344 )
Restructuring charges                           -               -              -           (628 )

Total impact                           $      908          (4,211 )        4,731        (13,914 )

Items recorded in the six months ended June 30, 2009
• We recorded income of $4.0 million following the adoption of EITF 07-5, Determining Whether an Instrument (or Embedded Feature) is Indexed to an Entity's Own Stock. This impact included $4.5 million of other income resulting from the mark-to-market accounting of the decrease in the value of the conversion feature in our convertible notes and a decrease in the value of our warrant, which was offset with $0.5 million of interest expense related to amortization of the debt discount recorded as a result of the valuation of the conversion feature.

• We recorded a gain of $0.8 million related to a settlement of past heritage claims, as a result of efforts to reduce our heritage costs.

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WESTMORELAND COAL COMPANY AND SUBSIDIARIES

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONT.) Items recorded in the six months ended June 30, 2008
• We recorded $8.1 million of interest expense related to the beneficial conversion feature in the convertible notes we issued in March 2008, as the conversion price was lower than the fair market value of our common stock at the time of issuance. We recorded an adjustment to our 2009 opening Accumulated deficit as part of our adoption of EITF 07-5, which reversed the impact of this expense through Accumulated deficit.

• We refinanced our WML debt and as a result recorded losses of $3.8 million for the extinguishment of debt.

• We refinanced our power debt and as a result recorded losses of $1.3 million for the extinguishment of debt.

• In 2007, we initiated a restructuring plan in order to reduce the overall cost structure of the Company. As a result, in the first six months of 2008 we recorded restructuring charges of $0.6 million. The restructuring charges related to termination benefits and outplacement costs.

Quarter Ended June 30, 2009 Compared to Quarter Ended June 30, 2008 Summary
Our second quarter 2009 sales decreased to $104.8 million compared with $113.4 million in the second quarter of 2008. This decrease was primarily driven by an $11.2 million decrease in our coal segment revenues due to the customer outages. This decrease was partially offset with a $2.6 million increase in our power segment revenues related to an increase in megawatt hours sold. Our second quarter 2009 net loss applicable to common shareholders decreased to $7.9 million compared with a $18.3 million loss in the second quarter of 2008. Excluding the $0.9 million of second quarter 2009 income and the $4.2 million of second quarter 2008 expenses (discussed in Items that Affect Comparability of Our Results), our net loss decreased by $5.3 million. The primary factors, in aggregate, driving this decrease in net loss were:
• Recording $3.0 million in net loss attributable to noncontrolling interest related to a partially owned consolidated subsidiary, which reduced our loss;

• A $2.4 million increase in our power segment operating income resulting primarily from increased megawatt hours sold as a result of planned and unplanned outages occurring in the second quarter of 2008;

• A $1.0 million decrease in our coal segment operating income. This decrease was primarily driven by reduced tonnages sold due to the customer outages, and was partially offset by income from our Indian Coal Production Tax Credit monetization transaction;

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WESTMORELAND COAL COMPANY AND SUBSIDIARIES

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONT.) • A $0.9 million decrease in our corporate expenses related to cost control efforts and reduction in our stock compensation expenses;

• A $0.2 million increase in heritage costs primarily driven by costs related to future cost containment efforts; and

• A $0.2 million decrease in income taxes related to lower state taxable income primarily driven by the customer outages.

Coal Segment
The following table shows comparative coal revenues, operating income (loss) and
production, and percentage changes between periods:

                                                             Three Months Ended June 30,
                                                                                  Increase / (Decrease)
                                             2009              2008                 $                 %
                                                          (In thousands)
Revenues                                   $  81,229      $        92,471      $    (11,242 )         (12.2 )%
Operating income (loss)                         (569 )                446            (1,015 )        (227.6 )%
Tons sold - millions of equivalent tons          5.1                  6.3              (1.2 )         (19.0 )%

Our second quarter 2009 coal revenues decreased to $81.2 million, compared with $92.5 million in the second quarter of 2008. This decrease occurred primarily from a decrease of 1.2 million tons sold as a result of the customer outages. Additionally, due to unfavorable current economic and energy market conditions, our Absaloka and Jewett Mine's remaining 2009 deliveries are also projected to decrease.
Our coal segment's operating loss was $0.6 million in the second quarter of 2009, compared to operating income of $0.4 million in the second quarter of 2008. Of this decrease, approximately $7.8 million was due to reduced tonnages sold as a result of the customer outages. This decrease was partially offset with approximately $6.8 million of income recognized from our Indian Coal Production Tax Credit monetization transaction. Power Segment
The following table shows comparative power revenues, operating income and production and percentage changes between periods:

                                                Three Months Ended June 30,
                                                                   Increase / (Decrease)
                                  2009            2008                $                %
                                             (In thousands)
  Revenues                      $ 23,551     $        20,952     $      2,599          12.4 %
  Operating income                 5,190               2,781            2,409          86.6 %
  Megawatts hours - thousands        421                 375               46          12.3 %

Our second quarter 2009 power segment revenues increased to $23.6 million compared to $21.0 million in the second quarter 2008. This increase is primarily from increased megawatt hours sold as a result of planned and unplanned outages occurring in the second quarter of 2008.

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                   WESTMORELAND COAL COMPANY AND SUBSIDIARIES

        MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
                         RESULTS OF OPERATIONS (CONT.)
Our power segment's operating income increased to $5.2 million in the second
quarter of 2009 compared to $2.8 million in the second quarter of 2008. This
increase was primarily driven by increased megawatt hours sold as a result of
planned and unplanned outages occurring in the second quarter of 2008.
Heritage Segment
The following table shows comparative detail of the heritage segment's operating
expenses and percentage changes between periods:

                                                            Three Months Ended June 30,
                                                                                  Increase / (Decrease)
                                            2009               2008                 $                %
                                                          (In thousands)
Health care benefits                      $   4,893      $          6,638      $    (1,745 )         (26.3 )%
Combined benefit fund payments                  802                   880              (78 )          (8.9 )%
Workers' compensation benefits                  160                   146               14             9.6 %
Black lung benefits                           1,170                   579              591           102.1 %

Total heritage health benefit expenses        7,025                 8,243           (1,218 )         (14.8 )%

Selling and administrative costs              1,279                   613              666           108.6 %
Gain on sale of assets                            -                   (25 )             25          (100.0 )%

Heritage segment operating loss           $   8,304      $          8,831      $      (527 )          (6.0 )%

Our second quarter 2009 heritage operating expenses were $8.3 million compared to $8.8 million in the second quarter of 2008. Excluding the heritage settlement of $0.8 million in the second quarter of 2009 (discussed in Items that Affect Comparability of Our Results), our heritage segment operating expenses increased by $0.3 million. This increase was primarily driven by costs related to containment efforts and unfavorable changes in the valuation of our Black Lung benefit's trust assets and liabilities. These increases were partially offset with favorable health care benefit experience. We continue to explore and pursue efforts towards the reduction, as well as, elimination of portions of our heritage health benefit costs.
Corporate Segment
Our corporate segment's operating expenses totaled $2.6 million in the second quarter of 2009 compared to $3.4 million in the second quarter of 2008. This decrease related to cost control efforts and a reduction in our stock compensation expense.
Other income (expense)
Our second quarter 2009 other expense decreased to $4.4 million compared with $8.8 million of expense in the second quarter of 2008. Excluding the $0.2 million impact of the fair value adjustment on derivative and related amortization of debt discount, $0.4 million of interest on the beneficial conversion feature associated with our convertible debt issued in 2008 and the $3.8 million loss in 2008 on the extinguishment of our WML debt (discussed in Items that Affect Comparability of Our Results), our other expense remained virtually unchanged.

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WESTMORELAND COAL COMPANY AND SUBSIDIARIES

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONT.) Six Months Ended June 30, 2009 Compared to Six Months Ended June 30, 2008 Summary
Our sales for the first six months of 2009 decreased to $226.6 million compared with $245.0 million in the first six months of 2008. This decrease was primarily driven by a $19.6 million decrease in our coal segment revenues due to the customer outages. This decrease was partially offset with a $1.2 million increase in our power segment revenues related to an increase in megawatt hours sold.
Our net loss applicable to common shareholders for the first six months of 2009 decreased to $14.0 million compared with a $29.7 million loss in the first six months of 2008. Excluding $4.7 million of income in the first six months of 2009 and the $13.9 million of expenses from items in the first six months of 2008 (discussed in Items that Affect Comparability of Our Results), our net loss increased by $2.9 million. The primary factors, in aggregate, driving this increase in net loss were:
• A $6.8 million decrease in our coal segment operating income. This decrease was primarily driven by reduced tonnages sold due to the customer outages, and was partially offset by income from our Indian Coal Production Tax Credit monetization transaction;

• Recording $3.0 million in net loss attributable to noncontrolling interest related to a partially owned consolidated subsidiary, which reduced our loss;

• A $2.5 million decrease in our corporate expenses related to cost control efforts and a reduction in our stock compensation expense;

• A $0.9 million increase in heritage costs primarily driven by administrative costs related to future cost containment efforts;

• A $0.9 million decrease in interest income, which was partially offset with a $0.5 million decrease in interest expense as a result of debt refinancing;

• A $0.5 million increase in other expense related to other-than-temporary impairment charges taken on our investments; and

• A $0.2 million decrease in income taxes related to lower state taxable income primarily driven by the customer outages.

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                   WESTMORELAND COAL COMPANY AND SUBSIDIARIES

        MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
                         RESULTS OF OPERATIONS (CONT.)
Coal Segment
The following table shows comparative coal revenues, operating income and
production, and percentage changes between periods:

                                                               Six Months Ended June 30,
                                                                                    Increase / (Decrease)
                                             2009               2008                  $                 %
                                                           (In thousands)
Revenues                                   $ 181,182      $        200,813      $     (19,631 )          (9.8 )%

Operating income 1,751 8,440 (6,689 ) (79.3 )% Tons sold - millions of equivalent tons 11.8 14.0 (2.2 ) (15.7 )%

Our coal revenues for the first six months of 2009 decreased to $181.2 million, compared with $200.8 million in the first six months of 2008. This decrease occurred primarily from a decrease of 2.2 million tons sold as a result of the customer outages. Additionally, due to unfavorable current economic and energy market conditions, our Absaloka and Jewett Mine's remaining 2009 deliveries are also projected to decrease.
Our coal segment's operating income decreased to $1.8 million in the first six months of 2009, compared to $8.4 million in the first six months of 2008. Of this decrease, approximately $13.4 million was due to reduced tonnages sold as a result of the customer outages. This decrease was partially offset with approximately $6.8 million of income recognized from our Indian Coal Production Tax Credit monetization transaction.
Power Segment
The following table shows comparative power revenues, operating income and production and percentage changes between periods:

                                                 Six Months Ended June 30,
                                                                   Increase / (Decrease)
                                  2009            2008                $                %
                                             (In thousands)
  Revenues                      $ 45,395     $        44,203     $      1,192           2.7 %

Operating income 8,170 8,253 (83 ) (1.0 )% Megawatts hours - thousands 838 811 27 3.3 %

Our power segment revenues for the first six months of 2009 increased to $45.4 million compared to $44.2 million in the first six months of 2008. This increase occurred primarily driven by increased megawatt hours sold as a result of planned and unplanned outages occurring in the second quarter of 2008. Our power segment's operating income remained virtually unchanged from the first six months of 2009 compared to the first six months of 2008 as maintenance costs offset the increase in revenues.

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                   WESTMORELAND COAL COMPANY AND SUBSIDIARIES

        MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
                         RESULTS OF OPERATIONS (CONT.)
Heritage Segment
The following table shows comparative detail of the heritage segment's operating
expenses and percentage changes between periods:

                                                             Six Months Ended June 30,
                                                                                 Increase / (Decrease)
                                            2009              2008                 $                %
                                                         (In thousands)
Health care benefits                      $  10,948      $        13,283      $    (2,335 )         (17.6 )%
Combined benefit fund payments                1,604                1,762             (158 )          (9.0 )%
Workers' compensation benefits                  301                  292                9             3.1 %
Black lung benefits (credits)                 1,155                 (129 )          1,284          (995.3 )%

Total heritage health benefit expenses       14,008               15,208           (1,200 )          (7.9 )%

Selling and administrative costs              2,121                  762            1,359           178.3 %
Gain on sale of assets                            -                  (25 )             25          (100.0 )%

Heritage segment operating loss           $  16,129      $        15,945      $       184             1.2 %

Our heritage operating expenses for the first six months of 2009 were $16.1 million compared to $15.9 million in the first six months of 2008. Excluding the heritage settlement of $0.8 million in the second quarter of 2009 (discussed in Items that Affect Comparability of Our Results), our heritage segment operating expenses increased by $1.0 million. This increase was . . .