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;

• 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.

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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONT.) 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 statement 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 by 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.

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        MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
                         RESULTS OF OPERATIONS (CONT.)
RESULTS OF OPERATIONS
Items that Affect Comparability of Results
For the quarters ended March 31, 2009 and 2008, our results have included
restructuring charges and special items that significantly affected net loss.
The pretax income (expense) components of restructuring charges and special
items were as follows (in thousands):

                                                            Quarter Ended March 31,
                                                           2009               2008
Fair value adjustment on derivatives and related
amortization of debt discount                           $     3,823                   -
Interest expense attributable to beneficial
conversion feature                                                -              (7,731 )
Loss on extinguishment of power debt                              -              (1,345 )
Restructuring charges                                             -                (627 )

Total impact of restructuring charges and special
items                                                   $     3,823              (9,703 )

Items recorded in the first quarter of 2009
• We recorded a net positive impact of $3.8 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 $4.0 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 $0.2 million of interest expense related to amortization of the debt discount recorded as a result of the valuation of the conversion feature.

Items recorded in the first quarter of 2008
• We recorded $7.7 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 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 quarter of 2008 we recorded restructuring charges of $0.6 million. The restructuring charges related to termination benefits and outplacement costs.

Quarter Ended March 31, 2009 Compared to Quarter Ended March 31, 2008 Summary
Our first quarter 2009 sales decreased to $121.8 million compared with $131.6 million in the first quarter of 2008. This decrease was primarily driven by an $8.4 million decrease in our coal segment revenues due to a decrease in tons sold. In addition, our power segment revenues decreased by $1.4 million related to a decrease in megawatt hours sold.

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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONT.) Our first quarter 2009 net loss applicable to common shareholders decreased to $6.2 million compared with a net loss in the first quarter of 2008 of $11.5 million. Excluding the $3.8 million of first quarter 2009 income and the $9.7 million of first quarter 2008 expenses from restructuring and special items (discussed in Items that Affect Comparability of Our Results), our net loss increased by $8.2 million. The primary factors, in aggregate, driving this increase in net loss were:
• A $5.8 million decrease in our coal segment operating income was primarily from our reduced tonnages sold, which was partially offset by reduced production costs. In addition, our pension benefit expenses increased by $0.7 million due to declines in the value of our pension plan assets.

• A $2.5 million decrease in our power segment operating income resulting primarily from reduced megawatt hours sold as a result of planned and unplanned outages and increased maintenance costs during the outages.

• A $1.8 million decrease in our corporate expenses related to the execution of our restructuring plan and other cost control efforts, as well as reductions in stock compensation expenses.

• A $0.8 million increase in heritage costs largely driven by administrative costs related to future cost containment efforts.

• A $0.7 million decrease in interest income offset with a $0.3 million decrease in interest expense as a result of debt refinancing.

• A $0.5 million increase in other expenses related to other-than-temporary impairment charges taken on our investments.

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

                                                            Quarter Ended March 31,
                                                                            Increase / (Decrease)
                                             2009           2008              $                 %
                                                         (In thousands)
Revenues                                   $  99,953      $ 108,342      $     (8,389 )          (7.7 )%
Operating income                               2,321          7,992            (5,671 )         (71.0 )%
Tons sold - millions of equivalent tons          6.7            7.7              (1.0 )         (13.0 )%

Our first quarter 2009 coal revenues decreased to $100.0 million compared with $108.3 million in the first quarter 2008. This decrease occurred primarily from a decrease of 1.0 million in reduced tonnages sold as a result of customer outages, transportation delays, and reduced customer requirements due to decreases in the overall market demand for electricity.
Our coal segment's operating income decreased to $2.3 million in the first quarter of 2009, down from $8.0 million in the first quarter of 2008. Excluding special items consisting of $0.1 million of restructuring charges (discussed in Items that Affect Comparability of Our Results), our coal segment's operating income decreased by $5.8 million. The decrease in operating income was driven primarily from our reduced tonnages sold and was partially offset by reduced production costs. In addition, expenses related to pension benefits increased by $0.7 million due to declines in the value of our pension plan assets.

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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONT.) In March 2009, during negotiation over a collective bargaining agreement, our employees at the Rosebud Mine imposed a sixteen-day work stoppage. On April 6, 2009, we entered into a new four-year agreement with the union, and the Rosebud Mine resumed full operation. The impact on our operations was minimal as we continued to make most of our scheduled coal deliveries. Power Segment
The following table shows comparative power revenues, operating income and production and percentage changes between periods:

                                                 Quarter Ended March 31,
                                                               Increase / (Decrease)
                                     2009         2008            $                %
                                               (In thousands)
     Revenues                      $ 21,845     $ 23,252     $     (1,407 )        (6.1 )%
     Operating income                 2,981        5,473           (2,492 )       (45.5 )%
     Megawatts hours - thousands        397          436              (39 )        (8.9 )%

Our first quarter 2009 power segment revenues decreased to $21.8 million compared to $23.3 million in the first quarter 2008. This decrease occurred primarily from reduced megawatt hours sold as a result of planned and unplanned outages.
Our power segment's operating income was $3.0 million in the first quarter of 2009, down from $5.5 million in the first quarter of 2008. This $2.5 million decrease was also primarily from reduced megawatt hours sold as a result of planned and unplanned outages and increased maintenance costs during the outages.
Heritage Segment
The following table shows comparative detail of the heritage segment's operating expenses and percentage changes between periods:

                                                    Quarter Ended March 31,
                                                                  (Increase) / Decrease
                                        2009         2008           $               %
                                                (In thousands)
   Health care benefits               $  6,055     $  6,645     $     590              8.9 %
   Combined benefit fund payments          802          882            80              9.1 %
   Workers' compensation benefits          141          146             5              3.4 %
   Black lung benefits (credits)           (15 )       (708 )        (693 )          (97.9 )%
   Selling and administrative costs        842           53          (789 )       (1,488.7 )%

   Heritage segment operating loss    $ (7,825 )   $ (7,018 )   $    (807 )          (11.5 )%

Our first quarter 2009 heritage costs were $7.8 million compared to $7.0 million in the first quarter of 2008. This $0.8 million increase was largely driven by administrative costs related to future cost containment efforts. In addition, we experienced favorable health care benefit expenses in the first quarter of 2009, which were offset with a favorable Black Lung benefits recorded in the first quarter of 2008.

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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONT.) Corporate Segment
Our corporate segment's operating expenses totaled $1.9 million in the first quarter of 2009 compared to $4.2 million in the first quarter of 2008. Excluding the restructuring charge of $0.5 million in the first quarter of 2008 (discussed in Items that Affect Comparability of Our Results), our corporate segment operating expenses decreased by $1.8 million. This decrease was related to the execution of our restructuring plan and other cost control efforts, as well as reductions in stock compensation expenses. Other Income (Expense)
Our first quarter 2009 other expense decreased to $1.3 million compared with $13.3 million of expense in the first quarter of 2008. Excluding the $3.8 million impact of the fair value adjustment on derivative and related amortization of debt discount, $7.7 million of interest on the beneficial conversion feature associated with our convertible debt issued in 2008 and the $1.3 million loss in 2008 on the extinguishment of our power debt (discussed in Items that Affect Comparability of Our Results), our other expense increased by $0.9 million. This increase was driven by a $0.7 million decrease in interest income, which was partially offset with a $0.3 million decrease in interest expense as a result of our debt refinancing. Our other income also decreased due to $0.5 million of other-than-temporary impairment charges taken on our investments.
Liquidity and Capital Resources
We have suffered recurring losses from operations, have a working capital deficit and a net capital deficiency that raise substantial doubt about the ability of us to continue as a going concern. The accompanying consolidated financial statements are prepared on a going concern basis and do not include any adjustments that might result from the uncertainty about our ability to continue as a going concern. The report from our independent registered certified public accounting firm on our consolidated financial statements for the year ended December 31, 2008, includes an explanatory paragraph reciting these factors that raise substantial doubt about our ability to continue as a going concern.
We are a holding company and conduct our operations through our 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 the Parent 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. The major factors impacting our liquidity are as follows.
• Our significant level of debt and limitations under our current debt agreements on the ability of WML and ROVA to pay dividends to us.

As of March 31, 2009, our total gross indebtedness was approximately $260.3 million, the principal components of which are: $147.7 million of WML term and other debt; $72.7 million of ROVA term debt; $30.6 million under WRI's revolving line of credit, term and other debt; and $9.3 million of convertible notes.

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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONT.) The WML and ROVA debt agreements require the maintenance of reserve accounts and limit the ability of those subsidiaries to distribute funds to us based on changes in reserve account balances and the subsidiaries' operating results. Accordingly, these subsidiaries may not be able to pay dividends to us in the amounts and in the time periods required for us to pay our heritage health benefit costs, pension contributions and corporate expenses.

Ultimately, if our subsidiaries' operating cash flows are insufficient to support their operations and provide dividends to us in the amounts and time periods required to pay our expenses, and we are unable to obtain external financing at sufficient levels to pay such obligations, the Parent will be unable to meet its obligations as they come due.

• Our heritage health benefit and pension obligations, which must be funded by distributions from our operating subsidiaries.

Our heritage health benefit costs consist primarily of payments for postretirement medical and workers' compensation benefits. The most recent actuarial valuations of our postretirement medical benefit 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 postretirement medical benefit payments would increase annually through 2016 and then decline to zero over the next approximately sixty years as the number of eligible beneficiaries declines.

We also sponsor defined benefit pension plans for our full-time employees. Both the Parent company and our subsidiaries will be required to make supplemental pension contributions due to the decrease in the value of our pension investments in 2008. Under the covenants of our WML term debt, we are required to ensure that by September 15th of each year, the value of our pension plan assets is at least 90% of our actuarially determined pension liability. In order to achieve the 90% funding status required by loan covenants, we have contributed $0.6 million in the first quarter of 2009 and estimate we will contribute approximately $10.7 million to our funded pension plans during the remainder of 2009, pending final actuarial calculations.

The following table shows the payments we made towards our heritage health benefits and pension obligations in the three months ended March 31, 2009, and the expected payments for the remainder of 2009:

                                                    First Quarter       Remainder of
                                                        2009                2009
                                                       Actual             Expected
                                                      Payments            Payments
                                                             (In millions)
Postretirement medical benefits (net of subsidy)   $           4.4     $         14.7
Pension contributions                                          0.6               10.7
CBF premiums                                                   0.8                2.4
Workers' compensation benefits                                 0.2                0.8

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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONT.) • Cash collateral requirements for additional reclamation bonds in new mining areas.

Federal and state laws require that we provide bonds to secure our obligations to reclaim lands used for mining. We must post a bond before we obtain a permit to mine any new area. These bonds are typically renewable on a yearly basis and have become increasingly expensive. Bonding companies are requiring that applicants collateralize increasing portions of their obligations to the bonding company. In 2008, we paid approximately $2.6 million in premiums for reclamation bonds and were required to use $10.3 million in cash to collateralize 92% of the face amount of the new bonds obtained in 2008. We anticipate that, as we permit additional areas for our mines in 2009 and 2010, our bonding requirements will increase significantly and our collateral requirements will increase as well. Any capital that we provide to collateralize our obligations to our bonding companies is not available to support our other business activities. If the cost of our reclamation bonds continues to increase, our results of operations could be negatively affected. Additionally, if we are unable to obtain additional bonding capacity due to cash flow constraints, we will be unable to begin mining operations in newly permitted areas. Our inability to begin operations in new areas will hamper our ability to efficiently meet our current customer contract deliveries, expand our operations, and maintain or increase our revenues.

Liquidity Improvements and Strategic Alternatives The maturities of long-term debt and the revolving credit facilities due over the next twelve months are $47.2 million, of which $18.4 million relates to the WRI revolving credit facilities, which we expect will be able to be renewed. The remaining $28.8 million due in 2009 is payable by our subsidiaries, and is expected to be funded by cash provided by the operations of those subsidiaries. We are pursuing the following alternatives in our efforts to continue to improve our liquidity during 2009:
• We are pursuing and evaluating potential sale-leaseback transactions for certain facilities and equipment at our Absaloka Mine;

• We are pursuing alternatives to meet future reclamation bond requirements as we enter new mining areas with reduced amounts of cash collateral;

• We are attempting to improve our liquidity by improving the operating performance of our mines. We believe that improvements in productivity and our continued focus on cost control at our mining operations during 2009 should improve our liquidity; and

• We are pursuing various alternatives to reduce our required 2009 pension contributions, including modifying elections available to us in determining the required contribution, contributing shares of our common stock to the plan in lieu of cash, and amending our pension plans.

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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONT.) There can be no assurance that we will be successful in completing any of the contemplated transactions on terms acceptable to us, or at all, or that the other actions we contemplate will be successful in improving our cash flows or our liquidity.
The significant assumptions that underlie the forecasts prepared by us for 2009 include the following:
• The Indian Coal Production Tax Credit, or ICTC, monetization transactions will continue to proceed in accordance with their terms. In April 2009, we received approximately $3.8 million, which was previously held in escrow after we satisfied the terms required under contract;

• WRI's operating cash flow significantly increases over 2008 levels as a result of actions taken to improve the operating performance of its mine;

• WRI's revolving line of credit is renewed or refinanced when it matures in November 2009 and WRI remains in compliance with the loan covenant requirements for its revolving line of credit;

• We are able to defer or reduce cash outlays for our bonding requirements in 2009; and

• We are able to reduce the cash contributions we are required to make to our pension plans in 2009.

If our assumptions prove to be accurate, we should have adequate liquidity to meet our currently projected cash requirements through 2009, although by a small margin. Our 2009 assumptions are subject to a number of uncertainties, many of which are beyond our control, and we may face economic issues that we have not been able to foresee. However, we anticipate that we may require additional capital resources to meet our projected cash requirements for 2010. Cash Balances and Available Credit
Consolidated cash and cash equivalents at March 31, 2009, totaled (in thousands):

. . .