WESTMORELAND COAL (WLBAQ) 10-Q 2012 Q3 Quarterly report

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended September 30, 2012

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

For the transition period from             to             

Commission File No. 001-11155

WESTMORELAND COAL COMPANY

(Exact name of registrant as specified in its charter)

Delaware	23-1128670
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)
9540 South Maroon Circle, Suite 200 Englewood, CO	80112
(Address of principal executive offices)	(Zip Code)

Registrant’s telephone number, including area code: (855) 922-6463

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes  x    No  ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes  x    No  ¨

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.

Large accelerated filer	¨	Accelerated filer	x
Non-accelerated filer	¨  (Do not check if a smaller reporting company.)	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  ¨    No  x

Indicate the number of shares outstanding of each of the issuer’s classes of common stock as of November 1, 2012:

14,162,461 shares of common stock, $2.50 par value.

TABLE OF CONTENTS

			PAGE
PART I – FINANCIAL INFORMATION				3
	ITEM 1 -	FINANCIAL STATEMENTS		3
	ITEM 1 -	NOTES TO CONSOLIDATED FINANCIAL STATEMENTS		9
	ITEM 2 -	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS		38
	ITEM 3 -	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK		51
	ITEM 4 -	CONTROLS AND PROCEDURES		51
PART II – OTHER INFORMATION				52
	ITEM 1 -	LEGAL PROCEEDINGS		52
	ITEM 1A -	RISK FACTORS		52
	ITEM 4 -	MINE SAFETY DISCLOSURES		52
	ITEM 6 -	EXHIBITS		52
SIGNATURES				53
EXHIBIT INDEX				54

2

PART I - FINANCIAL INFORMATION

ITEM 1

FINANCIAL STATEMENTS

Westmoreland Coal Company and Subsidiaries

Consolidated Balance Sheets

	(Unaudited) September 30, 2012		December 31, 2011
	(In thousands)
Assets
Current assets:
Cash and cash equivalents	$	53,685	$	30,783
Receivables:
Trade		67,897		46,235
Contractual third-party reclamation receivables		9,142		11,259
Other		2,351		3,493
		79,390		60,987
Inventories		36,058		25,696
Other current assets		10,944		4,987
Total current assets		180,077		122,453
Property, plant and equipment:
Land and mineral rights		150,176		84,338
Capitalized asset retirement cost		109,107		113,863
Plant and equipment		631,918		527,127
		891,201		725,328
Less accumulated depreciation, depletion and amortization		370,803		328,596
Net property, plant and equipment		520,398		396,732
Advanced coal royalties		3,898		2,552
Reclamation deposits		72,940		71,939
Restricted investments and bond collateral		85,219		58,305
Contractual third-party reclamation receivables, less current portion		90,634		87,674
Intangible assets, net of accumulated amortization of $12.0 million and $10.7 million at September 30, 2012 and December 31, 2011, respectively		3,623		4,879
Other assets		14,364		14,638
Total Assets	$	971,153	$	759,172

See accompanying Notes to Consolidated Financial Statements.

3

Westmoreland Coal Company and Subsidiaries

Consolidated Balance Sheets (Continued)

	(Unaudited) September 30, 2012			December 31, 2011
	(In thousands)
Liabilities and Shareholders’ Deficit
Current liabilities:
Current installments of long-term debt	$	22,956		$	20,795
Accounts payable and accrued expenses:
Trade		58,140			45,326
Production taxes		36,005			25,605
Workers’ compensation		897			911
Postretirement medical benefits		13,179			13,179
SERP		391			391
Deferred revenue		13,256			9,852
Asset retirement obligations		18,469			19,765
Other current liabilities		6,664			8,298
Total current liabilities		169,957			144,122
Long-term debt, less current installments		365,140			261,474
Workers’ compensation, less current portion		10,517			10,715
Excess of pneumoconiosis benefit obligation over trust assets		8,191			6,565
Postretirement medical benefits, less current portion		297,316			245,462
Pension and SERP obligations, less current portion		44,357			28,991
Deferred revenue, less current portion		59,303			65,834
Asset retirement obligations, less current portion		246,175			227,713
Intangible liabilities, net of accumulated amortization $11.2 million at September 30, 2012 and $10.4 million at December 31, 2011, respectively		6,880			7,644
Other liabilities		16,064			10,510
Total liabilities		1,223,900			1,009,030
Shareholders’ deficit:
Preferred stock of $1.00 par value
Authorized 5,000,000 shares; Issued and outstanding 159,960 shares at September 30, 2012, and 159,960 shares at December 31, 2011, respectively		160			160
Common stock of $2.50 par value
Authorized 30,000,000 shares; Issued and outstanding 14,142,528 shares at September 30, 2012, and 13,811,379 shares at December 31, 2011, respectively		35,355			34,527
Other paid-in capital		129,735			126,288
Accumulated other comprehensive loss		(119,083	)		(121,455	)
Accumulated deficit		(285,763	)		(281,141	)
Total Westmoreland Coal Company shareholders’ deficit		(239,596	)		(241,621	)
Noncontrolling interest		(13,151	)		(8,237	)
Total deficit		(252,747	)		(249,858	)
Total Liabilities and Shareholders’ Deficit	$	971,153		$	759,172

See accompanying Notes to Consolidated Financial Statements.

4

Westmoreland Coal Company and Subsidiaries

Consolidated Statements of Operations

(Unaudited)

	Three Months Ended September 30,						Nine Months Ended September 30,
	2012			2011			2012			2011
	(In thousands, except per share data)
Revenues	$	161,332		$	132,449		$	441,410		$	372,353
Costs, expenses and other:
Cost of sales		117,088			100,164			339,906			288,964
Depreciation, depletion and amortization		15,534			11,612			42,542			33,861
Selling and administrative		11,665			9,884			37,157			28,224
Heritage health benefit expenses		3,881			3,896			11,743			11,115
Loss on sales of assets		14			91			291			415
Other operating income		(2,301	)		(1,769	)		(10,503	)		(5,236	)
		145,881			123,878			421,136			357,343
Operating income (loss)		15,451			8,571			20,274			15,010
Other income (expense):
Interest expense		(11,096	)		(7,650	)		(32,011	)		(22,262	)
Loss on extinguishment of debt		—			—			—			(17,030	)
Interest income		475			423			1,371			1,134
Other income (loss)		196			147			611			(2,630	)
		(10,425	)		(7,080	)		(30,029	)		(40,788	)
Income (loss) before income taxes		5,026			1,491			(9,755	)		(25,778	)
Income tax expense (benefit)		(325	)		(84	)		(1,239	)		(706	)
Net income (loss)		5,351			1,575			(8,516	)		(25,072	)
Less net loss attributable to noncontrolling interest		(2,271	)		(1,154	)		(4,914	)		(2,783	)
Net income (loss) loss attributable to the Parent company		7,622			2,729			(3,602	)		(22,289	)
Less preferred stock dividend requirements		340			340			1,020			1,020
Net income (loss) applicable to common shareholders	$	7,282		$	2,389		$	(4,622	)	$	(23,309	)
Net income (loss) per share applicable to common shareholders:
Basic	$	0.52		$	0.18		$	(0.33	)	$	(1.79	)
Diluted	$	0.50		$	0.18		$	(0.33	)	$	(1.79	)
Weighted average number of common shares outstanding:
Basic		14,104			13,384			13,986			12,990
Diluted		15,326			13,442			13,986			12,990

See accompanying Notes to Consolidated Financial Statements.

5

Westmoreland Coal Company and Subsidiaries

Consolidated Statements of Comprehensive Income (Loss)

(Unaudited)

	Three Months Ended September 30,						Nine Months Ended September 30,
	2012			2011			2012			2011
	(In thousands, except per share data)
Net income (loss)	$	5,351		$	1,575		$	(8,516	)	$	(25,072	)
Other comprehensive income (loss):
Amortization of accumulated actuarial gains or losses, pension		729			442			2,187			1,212
Amortization of accumulated actuarial gains or losses, transition obligations, and prior service costs, postretirement medical benefit		643			(72	)		1,929			(216	)
Tax effect of other comprehensive income gains		(521	)		(141	)		(1,496	)		(308	)
Unrealized and realized gains and losses on available-for-sale securities		(25	)		(12	)		(248	)		(203	)
Other comprehensive income		826			217			2,372			485
Comprehensive income (loss) attributable to Westmoreland Coal Company	$	6,177		$	1,792		$	(6,144	)	$	(24,587	)

See accompanying Notes to Consolidated Financial Statements.

6

Westmoreland Coal Company and Subsidiaries

Consolidated Statement of Shareholders’ Deficit

Nine Months Ended September 30, 2012

(Unaudited)

	Preferred Stock				Common Stock				Other Paid-In Capital			Accumulated Other Comprehensive Loss			Accumulated Deficit			Non- controlling Interest			Total Shareholders’ Equity (Deficit)
	Shares		Amount		Shares		Amount
	(In thousands, except shares data)
Balance at December 31, 2011		159,960	$	160		13,811,379	$	34,527	$	126,288		$	(121,455	)	$	(281,141	)	$	(8,237	)	$	(249,858	)
Preferred dividends declared																(1,020	)					(1,020	)
Common stock issued as compensation				—		264,549		661		4,115			—			—			—			4,776
Issuance of restricted stock						66,600		167		(668	)											(501	)
Net loss				—				—		—			—			(3,602	)		(4,914	)		(8,516	)
Other comprehensive income													2,372									2,372
Balance at September 30, 2012		159,960	$	160		14,142,528	$	35,355	$	129,735		$	(119,083	)	$	(285,763	)	$	(13,151	)	$	(252,747	)

See accompanying Notes to Consolidated Financial Statements.

7

Westmoreland Coal Company and Subsidiaries

Consolidated Statements of Cash Flows

(Unaudited)

	Nine Months Ended September 30,
	2012			2011
	(In thousands)
Cash flows from operating activities:
Net loss	$	(8,516	)	$	(25,072	)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation, depletion and amortization		42,542			33,861
Accretion of asset retirement obligation and receivable		9,037			8,100
Amortization of intangible assets and liabilities, net		492			494
Non-cash tax benefits		(1,496	)		(308	)
Share-based compensation		4,776			3,808
Loss on sales of assets		291			415
Amortization of deferred financing costs		2,904			1,886
Loss on extinguishment of debt		—			17,030
Gain on sales of investment securities		(183	)		(150	)
Loss on derivative instruments		—			3,079
Changes in operating assets and liabilities:
Receivables, net		(20,054	)		4,773
Inventories		(488	)		(2,270	)
Excess of pneumoconiosis benefit obligation over trust assets		1,626			1,365
Accounts payable and accrued expenses		19,979			1,361
Deferred revenue		(5,352	)		(5,270	)
Accrual for workers’ compensation		(212	)		(153	)
Asset retirement obligation		(6,144	)		(4,657	)
Accrual for postretirement medical benefits		4,542			(1,265	)
Pension and SERP obligations		1,949			(1,967	)
Other assets and liabilities		(3,344	)		(1,032	)
Net cash provided by operating activities		42,349			34,028
Cash flows from investing activities:
Additions to property, plant and equipment		(16,066	)		(15,103	)
Change in restricted investments and bond collateral and reclamation deposits		(29,808	)		(3,479	)
Cash payments related to Kemmerer acquisition		(72,522	)		—
Net proceeds from sales of assets		385			87
Proceeds from sale of restricted investments		1,828			3,350
Receivable from customer for property and equipment purchases		(466	)		(350	)
Net cash used in investing activities		(116,649	)		(15,495	)
Cash flows from financing activities:
Change in book overdrafts		853			(635	)
Borrowings from long-term debt, net of debt discount		119,364			142,500
Repayments of long-term debt		(16,431	)		(69,186	)
Borrowings on revolving lines of credit		16,500			87,200
Repayments of revolving lines of credit		(16,500	)		(105,600	)
Debt issuance and other refinancing costs		(5,564	)		(14,819	)
Preferred dividends paid		(1,020	)		(20,961	)
Exercise of stock options		—			422
Net cash provided by financing activities		97,202			18,921
Net increase in cash and cash equivalents		22,902			37,454
Cash and cash equivalents, beginning of period		30,783			5,775
Cash and cash equivalents, end of period	$	53,685		$	43,229

See accompanying Notes to Consolidated Financial Statements.

8

WESTMORELAND COAL COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

1. BASIS OF PRESENTATION

The accompanying unaudited consolidated financial statements include accounts of Westmoreland Coal Company, or the Company, or Parent, and its subsidiaries and controlled entities. The Company’s current principal activities, all conducted within the United States, are the production and sale of coal from its mines in Montana, Wyoming, North Dakota and Texas, and the ownership of the Roanoke Valley power plants, or ROVA, in North Carolina. The Company’s activities are primarily conducted through wholly owned subsidiaries. All intercompany transactions and accounts have been eliminated in consolidation.

The Company’s Kemmerer Mine is owned by its subsidiary Westmoreland Kemmerer, Inc., or Kemmerer. The Company’s Absaloka Mine is owned by its subsidiary Westmoreland Resources, Inc., or WRI. The right to mine coal at the Absaloka Mine has been subleased to an affiliated entity whose operations the Company controls. The Beulah, Jewett, Rosebud, and Savage Mines are owned through the Company’s subsidiary Westmoreland Mining LLC, or WML.

The Company is subject to two major debt arrangements: (1) $107.0 million senior secured notes at WML that are collateralized by all assets of WML, Westmoreland Savage Corporation, or WSC, Western Energy Company, or WECO, and Dakota Westmoreland Corporation, or DWC, and (2) $275.0 million senior secured notes ($150.0 million issued February 4, 2011 and $125.0 million issued January 31, 2012) at the Parent level that are largely collateralized by the assets of the Parent, WRI, Kemmerer and ROVA.

The Company received business interruption insurance proceeds for the nine months ended September 30, 2012 due to an explosion and subsequent fire at a customer’s facility. The Company recognizes income as business interruption losses are incurred and reimbursement is virtually assured. The Company reports this income inOther operating income and has recognized $3.3 million and $11.9 million of income for the three and nine months ended September 30, 2012, respectively.

The Company’s coal supply contract with Coyote Station, located adjacent to its Beulah Mine, expires in May 2016. On May 3, 2012, Coyote Station informed the Company they were entering into a mine development agreement with another provider and on October 15, 2012, Coyote Station entered into a coal supply agreement with that provider. As a result, Coyote Station will likely not purchase coal from the Beulah Mine after the expiration of its current contract. Based on the uncertainty of securing a new contract, the Company revised various accounting estimates beginning in the fourth quarter of 2011 to reflect the impact on mining operations of the current contract’s expiration in 2016. These changes resulted in revised depreciable asset and coal reserve lives and asset retirement obligations. For the past several years, the Beulah Mine has averaged 2.4 million tons of coal sold per year to Coyote Station. The Company is currently considering strategic alternatives for its Beulah Mine, which also provides approximately 0.5 million tons of coal to the Heskett Station power plant on an annual basis. The Company will continue to evaluate the effect of this development and potential strategic alternatives on various employment-related liabilities, which could result in revised accounting estimates related to those liabilities in future periods.

These quarterly consolidated financial statements should be read in conjunction with the consolidated financial statements and notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2011, or the 2011 Form 10-K. The accounting principles followed by the Company are set forth in the Notes to the Company’s consolidated financial statements in its 2011 Form 10-K. 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 United States generally accepted accounting principles and require use of management’s estimates. The financial information contained in this Form 10-Q is unaudited, but reflects all adjustments, which are, in the opinion of management, necessary for a fair presentation of the financial information for the periods shown. Such adjustments are of a normal recurring nature. The results of operations for the nine months ended September 30, 2012 are not necessarily indicative of results to be expected for the year ending December 31, 2012. Certain prior quarter amounts have been reclassified to conform to the current quarter presentation.

2. ACQUISITION

On December 23, 2011, the Company, through Westmoreland Kemmerer, Inc., entered into a purchase and sale agreement with Chevron Mining Inc., a Missouri corporation (the “Seller”), pursuant to which the Company agreed to purchase from Seller the Kemmerer surface coal mine, associated processing facilities and other related real and personal property assets located in Kemmerer, Wyoming. The Company did not acquire working capital in the acquisition, other than inventory.

9

WESTMORELAND COAL COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONT.)

On January 31, 2012, the Company closed on the acquisition of the Kemmerer Mine from the Seller. In addition, on January 31, 2012, the Company completed the issuance and sale of $125.0 million aggregate principal amount of 10.75% senior secured notes due 2018 (the “Add-On Notes”) at a price equal to approximately 95.5% of their face value.

The purchase consideration for the Kemmerer Mine is $164.5 million, which includes $76.5 million paid in cash, plus the assumption of approximately $88.0 million of liabilities. The net proceeds of the Add-On Notes financed the $76.5 million cash portion of the purchase consideration, $24.7 million to satisfy the cash bonding obligations for the Kemmerer Mine and cash transaction costs for the Kemmerer acquisition and the Add-On Notes. Acquisition-related costs of $1.6 million have been expensed and are included inSelling and administrative costs. Issuance costs related to the Add-On Notes of $5.1 million have been capitalized. The balance of the net proceeds was used to fund working capital requirements necessary to integrate the Kemmerer operations with the Company’s operations.

The Kemmerer acquisition has been accounted for under the acquisition method of accounting that requires the total purchase consideration to be allocated to the assets acquired and liabilities assumed based on estimates of fair value.

During the second quarter of 2012, the Company revised its preliminary allocation of the purchase price for $2.2 million of deferred revenue. Adjustments to preliminary fair values are assumed to have been made as of the acquisition date. As a result,Revenues andOperating income for the first quarter of 2012 would have been higher andNet loss would have been lower by approximately $1.3 million. The results in the consolidated statements of operations for the nine months ended September 30, 2012 reflect this adjustment in the first quarter of 2012. The remaining $0.9 of deferred revenue was recognized as revenue in the second quarter of 2012.

During the third quarter of 2012, the Company substantially completed the purchase price allocation for the Kemmerer acquisition and has not recorded any additional adjustments to the statements of operations. However, if additional information is obtained about the assets and liabilities within the measurement period (not to exceed one year from the date of acquisition), including through asset appraisals and learning more about the newly acquired business, the Company will refine its estimates of fair value to allocate the purchase price more accurately; however, any such revisions are not expected to be significant. No significant goodwill or other intangible assets were evident in the acquisition.

A summary of the purchase consideration and allocation of the purchase consideration follow (in millions):

	Provisional as of March  31, 2012		Adjustments			Final as of September 30, 2012
Purchase consideration:
Cash paid	$	76.5	$	—		$	76.5
Fair value of liabilities assumed:
Postretirement medical cost obligations		49.0		—			49.0
Asset retirement obligations		15.1		4.3			19.4
Pension obligations		11.8		3.8			15.6
Deferred revenue		—		2.2			2.2
Accrued liabilities		0.9		0.9			1.8
Total fair value of liabilities assumed		76.8		11.2			88.0
Total purchase consideration	$	153.3		11.2			164.5
Allocation of purchase consideration:
Inventories	$	9.5		0.1			9.6
Land and mineral rights		25.4		40.1			65.5
Capitalized asset retirement costs		15.1		(15.1	)		—
Plant and equipment		103.3		(13.9	)		89.4
Total	$	153.3	$	11.2		$	164.5

10

WESTMORELAND COAL COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONT.)

The Kemmerer Mine has generated $113.3 million of revenue and $24.7 million of operating income since the January 31, 2012 acquisition date, and these amounts are included in the Company’s consolidated statement of operations for the nine months ended September 30, 2012.

The following unaudited pro forma information has been prepared for illustrative purposes only and assumes the acquisition occurred on January 1, 2011. The unaudited pro forma results have been prepared based on estimates and assumptions, which the Company believes are reasonable, however, they are not necessarily indicative of the consolidated results of operations had the acquisition occurred on January 1, 2011, or of future results of operations.

	Three Months Ended September 30, 2011		Nine Months Ended September 30, 2012			Nine Months Ended September 30, 2011
	(In thousands, except per share data)
Total Revenues
As reported	$	132,449	$	441,410		$	372,353
Pro forma	$	168,877	$	455,523		$	477,440
Operating Income
As reported	$	8,571	$	20,274		$	15,010
Pro forma	$	10,608	$	22,548		$	19,440
Net income (loss) applicable to common shareholders
As reported	$	2,389	$	(4,622	)	$	(23,309	)
Pro forma	$	700	$	(3,560	)	$	(29,709	)
Net income (loss) per share applicable to common shareholders
As reported	$	0.18	$	(0.33	)	$	(1.79	)
Pro forma	$	0.05	$	(0.25	)	$	(2.29	)

3. ACCOUNTING POLICIES

Effective January 1, 2012, the Company adopted an accounting standards update which generally aligns the principles for fair value measurements and the related disclosure requirements under Generally Accepted Accounting Principles and International Financial Reporting Standards. This guidance requires additional disclosures regarding details about Level 3 fair value measurements, including quantitative information about the significant unobservable inputs used in estimating fair value, a discussion of the sensitivity of the measurement to these inputs and a description of the entity’s valuation processes. Disclosures will also be needed concerning any transfers between Level 1 and 2 of the fair value hierarchy (not just significant transfers as previous guidance required) and the hierarchy classification for items whose fair value is not recorded on the balance sheet but is disclosed in the notes. The adoption of this standard did not have a material impact on the Company’s consolidated financial statements.

Effective January 1, 2012, the Company adopted accounting standards updates with guidance on the presentation of other comprehensive income. These standards require an entity to either present components of net income and other comprehensive income in one continuous statement or in two separate but consecutive statements. Accordingly, the Company has presented net income and other comprehensive income in two consecutive statements.

11

WESTMORELAND COAL COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONT.)

4. INVENTORIES

Inventories consisted of the following:

	September 30, 2012			December 31, 2011
	(In thousands)
Coal stockpiles	$	622		$	309
Coal fuel inventories		3,186			3,755
Materials and supplies		33,202			22,508
Reserve for obsolete inventory		(952	)		(876	)
Total	$	36,058		$	25,696

5. RESTRICTED INVESTMENTS AND BOND COLLATERAL

The Company’s restricted investments and bond collateral consists of the following:

	September 30, 2012		December 31, 2011
	(In thousands)
Coal Segment:
Westmoreland Mining—debt reserve account	$	12,221	$	11,664
Reclamation bond collateral:
Kemmerer Mine		24,701		—
Absaloka Mine		13,764		13,593
Rosebud Mine		12,495		12,264
Beulah Mine		1,270		1,270
Power Segment:
Letter of credit account		5,988		5,983
Corporate Segment:
Postretirement medical benefit bonds		8,210		7,039
Workers’ compensation bonds		6,570		6,492
Total restricted investments and bond collateral	$	85,219	$	58,305

For all of its restricted investments and bond collateral accounts, the Company can select from limited fixed-income investment options for the funds and receive the investment returns on these investments. Funds in the restricted investments and bond collateral accounts are not available to meet the Company’s cash needs.

These accounts include held-to-maturity and available-for-sale securities. Held-to-maturity securities are recorded at amortized cost, adjusted for the amortization or accretion of premiums or discounts calculated on the effective interest method. Interest income is recognized when earned. Available-for-sale securities are reported at fair value with unrealized gains and losses excluded from earnings and reported inAccumulated other comprehensive loss.

The Company’s carrying value and estimated fair value of its restricted investments and bond collateral at September 30, 2012 are as follows:

	Carrying Value		Fair Value		Fair Value Hierarchy
	(In thousands)
Cash and cash equivalents	$	72,861	$	72,861		Level 1
Time deposits		7,725		7,725		Level 1
Held-to-maturity securities		4,442		4,831		Level 2
Available-for-sale securities		191		191		Level 1
	$	85,219	$	85,608

The Company recorded a gain of $0.2 million on the sale of available-for-sale securities held as restricted investments and bond collateral in the nine months ended September 30, 2012.

12

WESTMORELAND COAL COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONT.)

Held-to-Maturity and Available-for-Sale Restricted Investments and Bond Collateral

The amortized cost, gross unrealized holding gains and fair value of held-to-maturity securities at September 30, 2012 is as follows (in thousands):

Amortized cost	$	4,442
Gross unrealized holding gains		389
Gross unrealized holding losses		—
Fair value	$	4,831

Maturities of held-to-maturity securities are as follows at September 30, 2012:

	Amortized Cost		Fair Value
	(In thousands)
Within one year	$	634	$	637
Due in five years or less		2,287		2,410
Due after five years to ten years		834		1,017
Due in more than ten years		687		767
	$	4,442	$	4,831

The Company does not intend to sell its held-to-maturity securities and it is not more likely than not that the Company will be required to sell the securities before recovery of amortized cost basis, which may be maturity.

The cost basis, gross unrealized holding gains and fair value of available-for-sale securities at September 30, 2012 is as follows (in thousands):

Cost basis	$	175
Gross unrealized holding gains		16
Fair value	$	191

6. LINES OF CREDIT AND LONG-TERM DEBT

The amounts outstanding under the Company’s lines of credit and long-term debt consist of the following:

	Total Debt Outstanding
	September 30, 2012			December 31, 2011
	(In thousands)
Corporate:
Senior secured notes	$	275,000		$	150,000
Debt discount		(11,399	)		(6,831	)
Revolving line of credit		—			—
Westmoreland Mining, LLC:
Term debt		107,000			117,500
Capital lease obligations		10,726			13,967
Other term debt		1,761			2,071
Revolving line of credit		—			—
Westmoreland Resources, Inc.:
Capital lease obligations		5,008			5,562
Total debt outstanding		388,096			282,269
Less current portion		(22,956	)		(20,795	)
Total debt outstanding, less current portion	$	365,140		$	261,474

13

WESTMORELAND COAL COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONT.)

The following table presents aggregate contractual debt maturities of all long-term debt and the lines of credit at September 30, 2012 (in thousands):

Remainder of 2012	$	5,525
2013		25,276
2014		23,751
2015		21,755
2016		20,688
2017		22,000
Thereafter		280,500
Total		399,495
Less: debt discount		(11,399	)
Total debt	$	388,096

Corporate

10.75% Senior Notes

On January 31, 2012, the Company completed the private placement of $125.0 million of senior secured notes due in 2018 (the “Add-On Notes”), which notes were additional notes issued pursuant to the existing Parent Notes indenture (the “Parent Notes”), collectively referred to as the “10.75% Senior Notes”. The Add-On Notes were issued at a 4.5% original issue discount. On June 22, 2012, the Company commenced an exchange offer for the Add-On Notes for an equal principal amount of notes that have been registered under the Securities Act of 1933, which exchange was completed in July. At this time, all $275.0 million of outstanding notes are traded under one CUSIP. In 2011, the Company capitalized $0.2 million of debt issuance costs related to the Add-On Notes offering and has capitalized debt issuance costs of $4.9 million in 2012. The Company funded the Kemmerer Mine acquisition through the net proceeds from the Add-On Notes.

At September 30, 2012, the Company has $275.0 million of the 10.75% Senior Notes outstanding. The 10.75% Senior Notes mature February 18, 2018, and bear an annual fixed interest rate of 10.75%, payable semi-annually, in arrears, on February 1 and August 1 of each year. Substantially all of the assets of the Parent, WRI, Kemmerer and ROVA constitute collateral for the 10.75% Senior Notes as to which the holders of these notes have a first priority lien. Under the indenture governing the 10.75% Senior Notes, the Company is required to offer a portion of its Excess Cash Flow (as defined by the indenture) for each fiscal year to purchase some of these notes at 100% of the principal amount. The Company did not have Excess Cash Flow for the year ended December 31, 2011. Based on operations through September 30, 2012, the Company believes there is likely to be Excess Cash Flow for the year ended December 31, 2012.

The indenture governing the 10.75% Senior Notes contains, among other provisions, events of default and various affirmative and negative covenants. As of September 30, 2012, the Company was in compliance with all covenants for these notes.

Revolving Line of Credit

On June 29, 2012, the Company and certain of its subsidiaries entered into a five-year, $20.0 million revolving line of credit carved out by the indenture governing the 10.75% Senior Notes with an expiration date of June 30, 2017. The revolver may support up to $2.0 million of letters of credit, which would reduce the balance available under the revolver. At September 30, 2012, availability on the revolver was $20.0 million with no outstanding balance and no supported letters of credit. All extensions of credit under the revolver are collateralized by a first priority security interest in and lien upon the inventory and accounts receivable of the Parent, WRI, Kemmerer, and ROVA. Pursuant to the Intercreditor Agreement, the holders of the 10.75% Senior Notes now have a second lien position on these assets. The Company has capitalized debt issuance costs of $0.7 million in 2012 related to the revolver.

Two interest rate options exist under the revolver. The Base Rate option bears interest at the greater of the Federal Funds Rate plus 0.5% or the Prime Rate, as defined in the loan agreement and is payable monthly. The LIBOR Rate option bears interest at the London Interbank Offering Rate, or LIBOR, rate plus 2.25% and is payable monthly. In addition, a commitment fee of 0.75% of the average unused portion of the available revolver is payable monthly.

The loan agreement contains various affirmative, negative and financial covenants. Financial covenants in the agreement include a fixed charge coverage ratio and an EBITDA measure. The fixed charge coverage ratio must meet or exceed a specified minimum. The EBITDA covenant requires a minimum amount of EBITDA to be achieved. We met these covenant requirements as of September 30, 2012.

14

WESTMORELAND COAL COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONT.)

Westmoreland Mining LLC

Term Debt

WML has outstanding $107.0 million in term debt as of September 30, 2012. This term debt matures March 31, 2018, and bears an annual fixed interest rate of 8.02%, payable quarterly. In the nine months ended September 30, 2012, WML repaid $10.5 million on its term debt and $4.0 million of its capital lease obligations and other term debt. WML entered into capital lease agreements in the amount of $0.5 million during the nine months ended September 30, 2012. The weighted average interest rate for WML’s capital leases and other term debt was 7.99% and 6.16%, respectively, at September 30, 2012.

Revolving Line of Credit

WML is party to a revolving credit facility with a maximum availability of $25.0 million. The available balance on this revolving line of credit at September 30, 2012 was $23.1 million. The revolving line of credit supports a $1.9 million letter of credit, which reduces the balance available under the revolver. The interest rate on the revolving line of credit was 3.75% at September 30, 2012.

Debt Covenants

WML’s lending arrangements contain, among other provisions, events of default and various affirmative and negative covenants. On June 28, 2012, WML amended its term debt and revolving line of credit debt agreements as follows:

• The Company must maintain its pension plans at a minimum of 80% funded, as opposed to the prior covenant of 90% funded;

• The debt service coverage ratio requirement has been amended so that it may not be less than 1.20 to 1.00 for the quarters ending June 30, 2012 and September 30, 2012, as opposed to the prior covenant of 1.30 to 1.00; and

• The leverage ratio requirement has been amended so as not to permit the ratio to exceed 2.25 to 1.00 at March 31, 2013; 2.00 to 1.00 at June 30, 2013 and 1.75 to 1.00 at September 30, 2013. The prior covenant ratio for these periods was 1.50 to 1.00.

As of September 30, 2012, WML was in compliance with all covenants.

Westmoreland Resources, Inc.

In the nine months ended September 30, 2012, WRI repaid $1.9 million of its capital lease obligations. WRI entered into capital lease agreements in the amount of $1.4 million during the nine months ended September 30, 2012. The weighted average interest rate for WRI’s capital leases was 6.61% at September 30, 2012.

7. PENSION AND POSTRETIREMENT MEDICAL BENEFITS

Pension

The Company provides pension benefits to qualified full-time employees pursuant to collective bargaining agreements. The Company froze its pension plan for non-union employees in 2009.

15

WESTMORELAND COAL COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONT.)

The Company incurred net periodic benefit costs of providing these pension benefits as follows:

	Three Months Ended September 30,						Nine Months Ended September 30,
	2012			2011			2012			2011
	(In thousands)
Components of net periodic benefit cost:
Service cost	$	576		$	195		$	1,606		$	585
Interest cost		1,669			1,186			4,816			3,554
Expected return on plan assets		(2,164	)		(1,343	)		(6,243	)		(3,913	)
Amortization of deferred items		729			442			2,187			1,212
Total net periodic benefit cost	$	810		$	480		$	2,366		$	1,438

Previously, the Company was required by a WML loan covenant to ensure that by 8.5 months after the end of the plan year, the value of its pension assets were at least 90% of the plan’s year end actuarially determined pension liability. On June 28, 2012, the loan covenant was amended to lower the requirement to 80%.

The Company contributed $0.1 million in cash to its pension plans in the nine months ended September 30, 2012 and expects to make less than $0.1 million of pension plan contributions during the remainder of 2012.

16

WESTMORELAND COAL COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONT.)

Postretirement Medical Benefits

The Company provides postretirement medical benefits to retired employees and their dependents as mandated by the Coal Industry Retiree Health Benefit Act of 1992 and pursuant to collective bargaining agreements. The Company also provides these benefits to qualified full-time employees pursuant to collective bargaining agreements.

The Company incurred net periodic benefit costs of providing postretirement medical benefits as follows:

	Three Months Ended September 30,					Nine Months Ended September 30,
	2012		2011			2012		2011
	(In thousands)
Components of net periodic benefit cost:
Service cost	$	1,061	$	123		$	2,602	$	369
Interest cost		3,057		2,628			9,226		7,883
Amortization of deferred items		643		(72	)		1,929		(216	)
Total net periodic benefit cost	$	4,761	$	2,679		$	13,757	$	8,036

The following table shows the net periodic medical benefit costs that relate to current operations and former mining operations:

	Three Months Ended September 30,				Nine Months Ended September 30,
	2012		2011		2012		2011
	(In thousands)
Former mining operations	$	2,828	$	2,316	$	8,485	$	6,944
Current operations		1,933		363		5,272		1,092
Total net periodic benefit cost	$	4,761	$	2,679	$	13,757	$	8,036

The costs for the former mining operations are included inHeritage health benefit expenses and the costs for current operations are included as operating expenses.

8. HERITAGE HEALTH BENEFIT EXPENSES

The captionHeritage health benefit expenses used in the Consolidated Statements of Operations refers to costs of benefits the Company provides to its former mining operation employees. The components of these expenses are as follows:

	Three Months Ended September 30,				Nine Months Ended September 30,
	2012		2011		2012		2011
	(In thousands)
Health care benefits	$	2,850	$	2,445	$	8,526	$	7,208
Combined benefit fund payments		561		686		1,682		2,057
Workers’ compensation benefits		121		162		382		485
Black lung benefits		349		603		1,153		1,365
Total	$	3,881	$	3,896	$	11,743	$	11,115

17

WESTMORELAND COAL COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONT.)

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

The asset retirement obligations, contractual third-party reclamation receivables, and reclamation deposits for each of the Company’s mines and ROVA at September 30, 2012 are summarized below:

	Asset Retirement Obligations		Contractual Third- Party Reclamation Receivables		Reclamation Deposits
	(In thousands)
Rosebud	$	113,534	$	16,680	$	72,940
Jewett		82,853		82,853		—
Absaloka		26,501		243		—
Beulah		16,463		—		—
Kemmerer		19,398		—		—
Savage		5,081		—		—
ROVA		814		—		—
Total	$	264,644	$	99,776	$	72,940

Asset Retirement Obligations

Changes in the Company’s asset retirement obligations are as follows:

	Nine Months Ended September 30,
	2012			2011
	(In thousands)
Asset retirement obligations, beginning of period	$	247,478		$	241,643
Accretion		16,360			15,058
Liabilities settled		(13,814	)		(10,014	)
Asset retirement obligation acquired		19,377			—
Changes due to amount and timing of reclamation		(4,757	)		—
Asset retirement obligations, end of period		264,644			246,687
Less current portion		(18,469	)		(16,677	)
Asset retirement obligations, less current portion	$	246,175		$	230,010

Contractual Third-Party Reclamation Receivables

The Company has recognized an asset of $99.8 million as contractual third-party reclamation receivables, representing the present value of customer obligations to reimburse the Company for reclamation expenditures at the Company’s Rosebud, Jewett and Absaloka Mines.

Reclamation Deposits

The Company’s reclamation deposits will be used to fund final reclamation activities. The Company’s carrying value and estimated fair value of its reclamation deposits at September 30, 2012 are as follows:

	Carrying Value		Fair Value		Fair Value Hierarchy
	(In thousands)
Cash and cash equivalents	$	36,815	$	36,815		Level 1
Held-to-maturity securities		20,776		21,849		Level 2
Time deposits		14,289		14,289		Level 1
Available-for-sale securities		1,060		1,060		Level 1
	$	72,940	$	74,013

18

WESTMORELAND COAL COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONT.)

Held-to-maturity and Available-for-sale Reclamation Deposits

The amortized cost, gross unrealized holding gains and losses and fair value of held-to-maturity securities at September 30, 2012 are as follows (in thousands):

Amortized cost	$	20,776
Gross unrealized holding gains		1,121
Gross unrealized holding losses		(48	)
Fair value	$	21,849

Maturities of held-to-maturity securities at September 30, 2012 are as follows:

	Amortized Cost		Fair Value
	(In thousands)
Within one year	$	1,999	$	2,045
Due in five years or less		9,984		10,456
Due after five years to ten years		4,383		4,652
Due in more than ten years		4,410		4,696
	$	20,776	$	21,849

The Company does not intend to sell its held-to-maturity securities and it is not more likely than not that the Company will be required to sell the securities before recovery of amortized cost basis, which may be maturity.

The cost basis, gross unrealized holding gains and fair value of available-for-sale securities at September 30, 2012 are as follows (in thousands):

Cost basis	$	1,000
Gross unrealized holding gains		60
Fair value	$	1,060

10. FAIR VALUE MEASUREMENTS

Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. See Notes 5 and 9 for additional disclosures related to fair value measurements.

Fair value hierarchy prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy, as defined below, gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities and the lowest priority to unobservable inputs.

• Level 1, defined as observable inputs such as quoted prices in active markets for identical assets.

• Level 2, defined as observable inputs other than Level 1 prices. These include quoted prices for similar assets or liabilities in an active market, quoted prices for identical assets and liabilities in markets that are not active, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

• Level 3, defined as unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions.

The table below sets forth, by level, the Company’s financial assets that are accounted for at fair value:

	Fair Value at September  30, 2012
	Level 1
	(In thousands)
Assets:
Available-for-sale investments included in Restricted investments and bond collateral	$	191
Available-for-sale investments included in Reclamation deposits		1,060
Total assets	$	1,251

19

WESTMORELAND COAL COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONT.)

Long-term debt fair value estimates are based on observed prices for securities with an active trading market when available (Level 2) and otherwise using discount rate estimates based on interest rates as of September 30, 2012 (Level 3). The estimated fair values of the Company’s debt with fixed interest rates are as follows:

	Carrying Value		Fair Value
	(In thousands)
December 31, 2011	$	260,669	$	262,535
September 30, 2012	$	370,559	$	375,721

The Company’s non-recurring fair value measurements include asset retirement obligations, please refer to Note 9, and the purchase price allocations for the fair value of assets and liabilities acquired through business combinations, please refer to Note 2.

The Company determines the estimated fair value of its asset retirement obligations by calculating the present value of estimated cash flows related to reclamation liabilities using level 3 inputs. The significant inputs used to calculate such liabilities includes estimates of costs to be incurred, the Company’s credit adjusted discount rate, inflation rates and estimated dates of reclamation. The asset retirement liability is accreted to its present value each period and the capitalized asset retirement cost is depleted using the units-of-production method.

The fair value of assets and liabilities acquired through business combinations is calculated using a discounted-cash flow approach using level 3 inputs. Cash flow estimates require forecasts and assumptions for many years into the future for a variety of factors.

11. SHAREHOLDERS’ EQUITY

Preferred Stock

The Company has outstanding Series A Convertible Exchangeable Preferred Stock on which cumulative dividends of $2.125 per share are payable quarterly. The Company has paid $1.0 million of preferred stock dividends during the first nine months of 2012.

12. RESTRICTED STOCK UNITS, STOCK OPTIONS, AND STOCK APPRECIATION RIGHTS (SARs)

The Company recognized compensation expense from share-based arrangements shown in the following table:

	Three Months Ended September 30,				Nine Months Ended September 30,
	2012		2011		2012		2011
	(In thousands)
Recognition of fair value of restricted stock units, stock options, and stock appreciation rights over vesting period; and issuance of common stock	$	650	$	438	$	2,378	$	1,540
Contributions of stock to the Company’s 401(k) plan		665		578		2,398		2,268
Total share-based compensation expense	$	1,315	$	1,016	$	4,776	$	3,808

Restricted Stock Units

A summary of restricted stock unit activity for the nine months ended September 30, 2012 is as follows:

	Units			Weighted Average Grant-Date Fair Value		Unamortized Compensation  Expense (In thousands)
Non-vested at December 31, 2011		302,033		$	12.46
Granted		506,121			7.57
Vested		(117,159	)		11.31
Expired or forfeited		(10,822	)		12.88
Non-vested at September 30, 2012		680,173		$	8.88	$	4,835	(1)

(1) Expected to be recognized over the next three years.

20

WESTMORELAND COAL COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONT.)

Stock Options

Information with respect to stock option activity for the nine months ended September 30, 2012 is as follows:

	Stock Options			Weighted Average Exercise  Price		Weighted Average Remaining Contractual Life (in years)		Aggregate Intrinsic Value (In thousands)		Unamortized Compensation Expense (In thousands)
Outstanding at December 31, 2011		220,423		$	20.53		5.0
Expired or forfeited		(27,300	)	$	15.92
Outstanding and exercisable at September 30, 2012		193,123		$	21.18		4.31	$	—	$	—

Stock Appreciation Rights

Information with respect to stock appreciation rights, or SARs, activity for the nine months ended September 30, 2012 is as follows:

	SARs			Weighted Average Base Price		Weighted Average Remaining Contractual Life (in years)		Aggregate Intrinsic Value (In thousands)		Unamortized Compensation Expense (In thousands)
Outstanding at December 31, 2011		111,734		$	22.20		3.7
Expired or forfeited		(6,700	)		21.49
Outstanding and exercisable at September 30, 2012		105,034		$	22.24		2.1	$	—	$	—

13. EARNINGS PER SHARE

Basic earnings (loss) per share has been computed by dividing the net income (loss) applicable to common shareholders by the weighted average number of shares of common stock outstanding during each period. Net income (loss) applicable to common shareholders includes the adjustment for net income or loss attributable to noncontrolling interest. Diluted earnings (loss) per share is computed by including the dilutive effect of common stock that would be issued assuming conversion or exercise of outstanding convertible notes and securities, stock options, stock appreciation rights, and restricted stock units. No such items were included in the computation of diluted loss per share in the nine months ended September 30, 2012 or 2011 because the Company incurred a loss from operations in those periods and the effect of inclusion would have been anti-dilutive.

	Three Months Ended September 30,				Nine Months Ended September 30,
	2012		2011		2012			2011
	(In thousands)
Income (loss) for basic earnings per share calculation:
Net income (loss) allocated to common shareholders	$	7,282	$	2,389	$	(4,622	)	$	(23,309	)
Weighted average shares outstanding:
Basic weighted average shares outstanding		14,104		13,384		13,986			12,990
Effect of restricted stock units, stock options and SARs		129		58		—			—
Effect of convertible notes and securities		1,093		—		—			—
Diluted weighted average shares outstanding		15,326		13,442		13,986			12,990

21

WESTMORELAND COAL COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONT.)

The table below shows the number of shares that were excluded from the calculation of diluted income (loss) per share because their inclusion would be anti-dilutive to the calculation:

	Three Months Ended September 30,				Nine Months Ended September 30,
	2012		2011		2012		2011
	(In thousands)
Convertible securities		—		1,093		1,093		1,093
Restricted stock units, stock options and SARs		849		582		978		640
Total shares excluded from diluted shares calculation		849		1,675		2,071		1,733

14. BUSINESS SEGMENT INFORMATION

Segment information is based on a management approach, which requires segmentation based upon the Company’s internal organization and reporting of revenue and operating income.

The Company’s operations are classified into four segments: coal, power, heritage and corporate.

Summarized financial information by segment is as follows:

	Coal		Power		Heritage			Corporate			Consolidated
	(In thousands)
Three Months Ended September 30, 2012
Revenues	$	138,798	$	22,534	$	—		$	—		$	161,332
Depreciation, depletion, and amortization		12,896		2,534		—			104			15,534
Operating income (loss)		18,025		4,023		(4,149	)		(2,448	)		15,451
Total assets		719,129		192,093		15,077			44,854			971,153
Capital expenditures		3,872		121		—			92			4,085
Three Months Ended September 30, 2011
Revenues	$	108,823	$	23,626	$	—		$	—		$	132,449
Depreciation, depletion, and amortization		8,966		2,570		—			76			11,612
Operating income (loss)		9,679		4,694		(4,076	)		(1,726	)		8,571
Total assets		514,169		200,280		13,356			41,162			768,967
Capital expenditures		2,354		482		—			297			3,133
Nine Months Ended September 30, 2012
Revenues	$	382,272	$	59,138	$	—		$	—		$	441,410
Depreciation, depletion, and amortization		34,671		7,554		—			317			42,542
Operating income (loss)		37,478		5,066		(12,687	)		(9,583	)		20,274
Total assets		719,129		192,093		15,077			44,854			971,153
Capital expenditures		13,910		2,033		—			123			16,066
Nine Months Ended September 30, 2011
Revenues	$	303,734	$	68,619	$	—		$	—		$	372,353
Depreciation, depletion, and amortization		25,971		7,666		—			224			33,861
Operating income (loss)		20,576		11,764		(12,062	)		(5,268	)		15,010
Total assets		514,169		200,280		13,356			41,162			768,967
Capital expenditures		13,541		1,178		—			384			15,103

22

WESTMORELAND COAL COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONT.)

A reconciliation of segment operating income to income (loss) before income taxes follows:

	Three Months Ended September 30,						Nine Months Ended September 30,
	2012			2011			2012			2011
	(In thousands)
Income (loss) from operations	$	15,451		$	8,571		$	20,274		$	15,010
Interest expense		(11,096	)		(7,650	)		(32,011	)		(22,262	)
Loss on extinguishment of debt		—			—			—			(17,030	)
Interest income		475			423			1,371			1,134
Other income (loss)		196			147			611			(2,630	)
Income (loss) before income taxes	$	5,026		$	1,491		$	(9,755	)	$	(25,778	)

15. CONTINGENCIES

The Company is a party to claims and lawsuits with respect to various matters. The Company provides for costs related to contingencies when a loss is probable and the amount is reasonably estimable. After conferring with counsel, it is the opinion of management that the ultimate resolution of pending claims will not have a material adverse effect on the consolidated financial condition, results of operations or liquidity of the Company.

16. SUPPLEMENTAL CONSOLIDATING FINANCIAL INFORMATION

Pursuant to the indenture governing the 10.75% Senior Notes, certain wholly owned subsidiaries of the Company have fully and unconditionally guaranteed the notes on a joint and several basis. The following tables present unaudited consolidating financial information for (i) the issuer of the notes (Westmoreland Coal Company), (ii) the co-issuer of the notes (Westmoreland Partners), (iii) the guarantors under the notes, and (iv) the entities which are not guarantors under the notes:

23

WESTMORELAND COAL COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONT.)

CONSOLIDATING BALANCE SHEETS

September 30, 2012

(In thousands)

Assets	Parent/ Issuer			Co-Issuer		Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Consolidating Adjustments			Total
Current assets:
Cash and cash equivalents	$	28,816		$	3,799	$	5,248		$	15,822		$	—		$	53,685
Receivables:
Trade		—			13,246		15,789			38,862			—			67,897
Contractual third-party reclamation receivables		—			—		42			9,100			—			9,142
Intercompany receivable/payable		(12,537	)		—		7,648			(28,530	)		33,419			—
Other		253			—		14,721			407			(13,030	)		2,351
		(12,284	)		13,246		38,200			19,839			20,389			79,390
Inventories		—			3,185		14,787			18,086			—			36,058
Other current assets		813			258		4,440			5,433			—			10,944
Total current assets		17,345			20,488		62,675			59,180			20,389			180,077
Property, plant and equipment:
Land and mineral rights		—			1,156		84,060			64,960			—			150,176
Capitalized asset retirement cost		—			239		11,088			97,780			—			109,107
Plant and equipment		3,372			219,887		213,663			194,996			—			631,918
		3,372			221,282		308,811			357,736			—			891,201
Less accumulated depreciation, depletion and amortization		2,457			58,998		103,121			206,227			—			370,803
Net property, plant and equipment		915			162,284		205,690			151,509			—			520,398
Advanced coal royalties		—			—		—			3,898			—			3,898
Reclamation deposits		—			—		—			72,940			—			72,940
Restricted investments and bond collateral		14,779			5,988		38,466			25,986			—			85,219
Contractual third-party reclamation receivables, less current portion		—			—		200			90,434			—			90,634
Intangible assets		—			3,333		—			290			—			3,623
Investment in subsidiaries		259,217			—		(792	)		3,770			(262,195	)		—
Other assets		11,588			—		774			2,002			—			14,364
Total Assets	$	303,844		$	192,093	$	307,013		$	410,009		$	(241,806	)	$	971,153

24

WESTMORELAND COAL COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONT.)

CONSOLIDATING BALANCE SHEETS

September 30, 2012

(In thousands)

Liabilities and Shareholders’ Deficit	Parent/ Issuer			Co-Issuer			Guarantor Subsidiaries			Non- Guarantor Subsidiaries			Consolidating Adjustments			Total
Current liabilities
Current installments of long-term debt	$	(1,643	)	$	—		$	2,176		$	22,423		$	—		$	22,956
Accounts payable and accrued expenses:
Trade		3,474			8,862			14,276			44,560			(13,032	)		58,140
Production taxes		—			4			8,925			27,076			—			36,005
Workers’ compensation		897			—			—			—			—			897
Postretirement medical benefits		11,796			—			—			1,383			—			13,179
SERP		391			—			—			—			—			391
Deferred revenue		—			8,651			1,439			3,166			—			13,256
Asset retirement obligations		—			—			4,653			13,816			—			18,469
Bank overdrafts		—			—			1			1,112			—			1,113
Interest payable		4,940			—			3			42			—			4,985
Other current liabilities		159			—			407			—			—			566
Total current liabilities		20,014			17,517			31,880			113,578			(13,032	)		169,957
Long-term debt, less current installments		265,242			—			2,827			97,071			—			365,140
Workers’ compensation, less current portion		10,517			—			—			—			—			10,517
Excess of pneumoconiosis benefit obligation over trust assets		8,191			—			—			—			—			8,191
Postretirement medical benefits, less current portion		206,306			—			52,777			38,233			—			297,316
Pension and SERP obligations, less current portion		24,775			238			16,119			3,225			—			44,357
Deferred revenue, less current portion		—			52,381			—			6,922			—			59,303
Asset retirement obligations, less current portion		—			814			41,245			204,116			—			246,175
Intangible liabilities		—			6,880			—			—			—			6,880
Other liabilities		772			—			13,733			1,559			—			16,064
Intercompany receivable/payable		20,762			—			(4,543	)		34,043			(50,262	)		—
Total liabilities		556,579			77,830			154,038			498,747			(63,294	)		1,223,900
Shareholders’ deficit:
Preferred stock		160			—			—			—			���			160
Common stock		35,355			5			110			132			(247	)		35,355
Other paid-in capital		129,735			52,798			87,524			59,646			(199,968	)		129,735
Accumulated other comprehensive loss		(119,083	)		(328	)		16			(21,927	)		22,239			(119,083	)
Accumulated earnings (deficit)		(285,751	)		61,788			65,325			(126,589	)		(536	)		(285,763	)
Total Westmoreland Coal Company shareholders’ deficit		(239,584	)		114,263			152,975			(88,738	)		(178,512	)		(239,596	)
Noncontrolling interest		(13,151	)		—			—			—			—			(13,151	)
Total equity (deficit)		(252,735	)		114,263			152,975			(88,738	)		(178,512	)		(252,747	)
Total Liabilities and Shareholders’ Deficit	$	303,844		$	192,093		$	307,013		$	410,009		$	(241,806	)	$	971,153

25

WESTMORELAND COAL COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONT.)

CONSOLIDATING BALANCE SHEETS

December 31, 2011

(In thousands)

Assets	Parent/ Issuer			Co-Issuer		Guarantor Subsidiaries			Non- Guarantor Subsidiaries			Consolidating Adjustments			Total
Current assets:
Cash and cash equivalents	$	26,141		$	6	$	143		$	4,493		$	—		$	30,783
Receivables:
Trade		—			12,651		68			33,516			—			46,235
Contractual third-party reclamation receivables		—			—		56			11,203			—			11,259
Intercompany receivable/payable		(20,756	)		—		9,657			(22,308	)		33,407			—
Other		224			216		9,256			2,212			(8,415	)		3,493
		(20,532	)		12,867		19,037			24,623			24,992			60,987
Inventories		—			3,756		4,490			17,450			—			25,696
Other current assets		668			179		1,000			3,140			—			4,987
Total current assets		6,277			16,808		24,670			49,706			24,992			122,453
Property, plant and equipment:
Land and mineral rights		—			1,156		18,306			64,876			—			84,338
Capitalized asset retirement cost		—			239		11,088			102,536			—			113,863
Plant and equipment		3,249			217,846		117,836			188,196			—			527,127
		3,249			219,241		147,230			355,608			—			725,328
Less accumulated depreciation, depletion and amortization		2,140			51,864		88,762			185,830			—			328,596
Net property, plant and equipment		1,109			167,377		58,468			169,778			—			396,732
Advanced coal royalties		—			—		—			2,552			—			2,552
Reclamation deposits		—			—		—			71,939			—			71,939
Restricted investments and bond collateral		13,532			5,983		13,592			25,198			—			58,305
Contractual third-party reclamation receivables, less current portion		—			—		169			87,505			—			87,674
Intangible assets		—			4,563		—			316			—			4,879
Investment in subsidiaries		161,371			—		(792	)		3,770			(164,349	)		—
Other assets		11,085			—		1,078			2,475			—			14,638
Total Assets	$	193,374		$	194,731	$	97,185		$	413,239		$	(139,357	)	$	759,172

26

WESTMORELAND COAL COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONT.)

CONSOLIDATING BALANCE SHEETS

December 31, 2011

(In thousands)

Liabilities and Shareholders’ Deficit	Parent/ Issuer			Co-Issuer			Guarantor Subsidiaries			Non- Guarantor Subsidiaries			Consolidating Adjustments			Total
Current liabilities
Current installments of long-term debt	$	1,125		$	—		$	2,409		$	19,208		$	(1,947	)	$	20,795
Accounts payable and accrued expenses:
Trade		4,286			8,183			4,069			35,377			(6,589	)		45,326
Production taxes		—			3			980			24,622			—			25,605
Workers’ compensation		911			—			—			—			—			911
Postretirement medical benefits		11,796			—			—			1,383			—			13,179
SERP		391			—			—			—			—			391
Deferred revenue		—			8,800			—			1,052			—			9,852
Asset retirement obligations		—			—			1,384			18,381			—			19,765
Other current liabilities		6,752			259			1,276			44			(33	)		8,298
Total current liabilities		25,261			17,245			10,118			100,067			(8,569	)		144,122
Long-term debt, less current installments		143,991			—			3,152			114,331			—			261,474
Workers’ compensation, less current portion		10,715			—			—			—			—			10,715
Excess of pneumoconiosis benefit obligation over trust assets		6,565			—			—			—			—			6,565
Postretirement medical benefits, less current portion		207,650			—			—			37,812			—			245,462
Pension and SERP obligations, less current portion		25,555			245			—			3,191			—			28,991
Deferred revenue, less current portion		—			58,539			—			7,295			—			65,834
Asset retirement obligations, less current portion		—			770			23,373			203,570			—			227,713
Intangible liabilities		—			7,644			—			—			—			7,644
Other liabilities		976			—			7,901			1,633			—			10,510
Intercompany receivable/payable		22,519			—			(10	)		29,202			(51,711	)		—
Total liabilities		443,232			84,443			44,534			497,101			(60,280	)		1,009,030
Shareholders’ deficit:
Preferred stock		160			—			—			—			—			160
Common stock		34,527			5			110			132			(247	)		34,527
Other paid-in capital		126,288			52,775			16,373			59,893			(129,041	)		126,288
Accumulated other comprehensive loss		(121,455	)		(343	)		15			(23,168	)		23,496			(121,455	)
Accumulated earnings (deficit)		(281,141	)		57,851			36,153			(120,719	)		26,715			(281,141	)
Total Westmoreland Coal Company shareholders’ deficit		(241,621	)		110,288			52,651			(83,862	)		(79,077	)		(241,621	)
Noncontrolling interest		(8,237	)		—			—			—			—			(8,237	)
Total equity (deficit)		(249,858	)		110,288			52,651			(83,862	)		(79,077	)		(249,858	)
Total Liabilities and Shareholders’ Deficit	$	193,374		$	194,731		$	97,185		$	413,239		$	(139,357	)	$	759,172

27

WESTMORELAND COAL COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONT.)

CONSOLIDATING STATEMENTS OF OPERATIONS

Three Months Ended September 30, 2012

(In thousands)

	Parent/ Issuer			Co-Issuer			Guarantor Subsidiaries			Non- Guarantor Subsidiaries			Consolidating Adjustments			Total
Revenues	$	—		$	22,534		$	53,091		$	94,103		$	(8,396	)	$	161,332
Costs, expenses and other:
Cost of sales		—			14,982			34,658			75,844			(8,396	)		117,088
Depreciation, depletion and amortization		104			2,533			5,732			7,165			—			15,534
Selling and administrative		3,001			995			2,381			5,288			—			11,665
Heritage health benefit expenses		3,638			—			—			243			—			3,881
Gain (loss) on sales of assets		—			—			18			(4	)		—			14
Other operating income		—			—			(2,301	)		—			—			(2,301	)
		6,743			18,510			40,488			88,536			(8,396	)		145,881
Operating income (loss)		(6,743	)		4,024			12,603			5,567			—			15,451
Other income (expense):
Interest expense		(8,292	)		(10	)		(93	)		(2,723	)		22			(11,096	)
Interest income		44			2			107			344			(22	)		475
Other income (loss)		(3	)		—			193			6			—			196
		(8,251	)		(8	)		207			(2,373	)		—			(10,425	)
Income (loss) before income taxes		(14,994	)		4,016			12,810			3,194			—			5,026
Equity in income of subsidiaries		19,982			—			—			—			(19,982	)		—
		4,988			4,016			12,810			3,194			(19,982	)		5,026
Income tax expense (benefit)		(363	)		—			605			1,625			(2,192	)		(325	)
Net income (loss)		5,351			4,016			12,205			1,569			(17,790	)		5,351
Less net loss attributable to noncontrolling interest		(2,271	)		—			—			—			—			(2,271	)
Net income (loss) attributable to the Parent company	$	7,622		$	4,016		$	12,205		$	1,569		$	(17,790	)	$	7,622

28

WESTMORELAND COAL COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONT.)

CONSOLIDATING STATEMENTS OF OPERATIONS

Three Months Ended September 30, 2011

(In thousands)

	Parent/ Issuer			Co-Issuer			Guarantor Subsidiaries			Non- Guarantor Subsidiaries			Consolidating Adjustments			Total
Revenues	$	—		$	23,626		$	16,323		$	108,109		$	(15,609	)	$	132,449
Costs, expenses and other:
Cost of sales		—			15,055			12,748			87,970			(15,609	)		100,164
Depreciation, depletion and amortization		76			2,570			2,050			6,916			—			11,612
Selling and administrative		2,091			1,308			1,134			5,351			—			9,884
Heritage health benefit expenses		3,688			—			—			208			—			3,896
Loss on sales of assets		—			—			—			91			—			91
Other operating income		—			—			(1,769	)		—			—			(1,769	)
		5,855			18,933			14,163			100,536			(15,609	)		123,878
Operating income (loss)		(5,855	)		4,693			2,160			7,573			—			8,571
Other income (expense):
Interest expense		(4,471	)		(29	)		(115	)		(3,066	)		31			(7,650	)
Interest income		71			—			49			334			(31	)		423
Other income (loss)		34			—			26			87			—			147
		(4,366	)		(29	)		(40	)		(2,645	)		—			(7,080	)
Income (loss) before income taxes		(10,221	)		4,664			2,120			4,928			—			1,491
Equity in income of subsidiaries		11,437			—			—			—			(11,437	)		—
		1,216			4,664			2,120			4,928			(11,437	)		1,491
Income tax expense (benefit)		(358	)		—			620			1,897			(2,243	)		(84	)
Net income (loss)		1,574			4,664			1,500			3,031			(9,194	)		1,575
Less net loss attributable to noncontrolling interest		(1,154	)		—			—			—			—			(1,154	)
Net income (loss) attributable to the Parent company	$	2,728		$	4,664		$	1,500		$	3,031		$	(9,194	)	$	2,729

29

WESTMORELAND COAL COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONT.)

CONSOLIDATING STATEMENTS OF OPERATIONS

Nine Months Ended September 30, 2012

(In thousands)

	Parent/ Issuer			Co-Issuer			Guarantor Subsidiaries			Non- Guarantor Subsidiaries			Consolidating Adjustments			Total
Revenues	$	—		$	59,138		$	136,202		$	268,031		$	(21,961	)	$	441,410
Costs, expenses and other:
Cost of sales		—			43,644			94,909			223,314			(21,961	)		339,906
Depreciation, depletion and amortization		317			7,554			14,382			20,289			—			42,542
Selling and administrative		9,794			2,874			7,583			18,433			(1,527	)		37,157
Heritage health benefit expenses		11,006			—			—			737			—			11,743
Loss on sales of assets		—			—			18			273			—			291
Other operating income		—			—			(12,030	)		—			1,527			(10,503	)
		21,117			54,072			104,862			263,046			(21,961	)		421,136
Operating income (loss)		(21,117	)		5,066			31,340			4,985			—			20,274
Other income (expense):
Interest expense		(23,315	)		(30	)		(298	)		(8,438	)		70			(32,011	)
Interest income		192			6			224			1,019			(70	)		1,371
Other income (loss)		187			—			280			144			—			611
		(22,936	)		(24	)		206			(7,275	)		—			(30,029	)
Income (loss) before income taxes		(44,053	)		5,042			31,546			(2,290	)		—			(9,755	)
Equity in income of subsidiaries		34,200			—			—			—			(34,200	)		—
		(9,853	)		5,042			31,546			(2,290	)		(34,200	)		(9,755	)
Income tax expense (benefit)		(1,337	)		—			2,374			753			(3,029	)		(1,239	)
Net income (loss)		(8,516	)		5,042			29,172			(3,043	)		(31,171	)		(8,516	)
Less net loss attributable to noncontrolling interest		(4,914	)		—			—			—			—			(4,914	)
Net income (loss) attributable to the Parent company	$	(3,602	)	$	5,042		$	29,172		$	(3,043	)	$	(31,171	)	$	(3,602	)
		��

30

WESTMORELAND COAL COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONT.)

CONSOLIDATING STATEMENTS OF OPERATIONS

Nine Months Ended September 30, 2011

(In thousands)

	Parent/ Issuer			Co-Issuer			Guarantor Subsidiaries			Non- Guarantor Subsidiaries			Consolidating Adjustments			Total
Revenues	$	—		$	68,619		$	44,186		$	301,650		$	(42,102	)	$	372,353
Costs, expenses and other:
Cost of sales		—			45,959			35,703			249,405			(42,103	)		288,964
Depreciation, depletion and amortization		224			7,666			6,049			19,922			—			33,861
Selling and administrative		6,735			3,040			3,275			15,174			—			28,224
Heritage health benefit expenses		10,496			—			—			619			—			11,115
Loss on sales of assets		—			189			24			202			—			415
Other operating income		—			—			(5,236	)		—			—			(5,236	)
		17,455			56,854			39,815			285,322			(42,103	)		357,343
Operating income (loss)		(17,455	)		11,765			4,371			16,328			1			15,010
Other income (expense):
Interest expense		(11,929	)		(460	)		(553	)		(9,380	)		60			(22,262	)
Loss on extinguishment of debt		(7,873	)		(9,073	)		(84	)		—			—			(17,030	)
Interest income		195			10			152			837			(60	)		1,134
Other income (loss)		(3,013	)		—			159			224			—			(2,630	)
		(22,620	)		(9,523	)		(326	)		(8,319	)		—			(40,788	)
Income (loss) before income taxes		(40,075	)		2,242			4,045			8,009			1			(25,778	)
Equity in income of subsidiaries		14,483			—			—			—			(14,483	)		—
		(25,592	)		2,242			4,045			8,009			(14,482	)		(25,778	)
Income tax expense (benefit)		(520	)		—			1,065			3,618			(4,869	)		(706	)
Net income (loss)		(25,072	)		2,242			2,980			4,391			(9,613	)		(25,072	)
Less net loss attributable to noncontrolling interest		(2,783	)		—			—			—			—			(2,783	)
Net income (loss) attributable to the Parent company	$	(22,289	)	$	2,242		$	2,980		$	4,391		$	(9,613	)	$	(22,289	)

31

WESTMORELAND COAL COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONT.)

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

Three Months Ended September 30, 2012

(In thousands)

	Parent/ Issuer			Co-Issuer		Guarantor Subsidiaries		Non- Guarantor Subsidiaries			Consolidating Adjustments			Total
Net income (loss)	$	5,351		$	4,016	$	12,205	$	1,569		$	(17,790	)	$	5,351
Other comprehensive income (loss)
Amortization of accumulated actuarial gains or losses, pension		538			6		—		185			—			729
Amortization of accumulated actuarial gains or losses, transition obligations, and prior service costs, postretirement medical benefit		400			—		—		243			—			643
Tax effect of other comprehensive income gains		(521	)		—		—		—			—			(521	)
Unrealized and realized gains and losses on available-for-sale securities		—			—		—		(25	)		—			(25	)
Other comprehensive income		417			6		—		403			—			826
Comprehensive income (loss) attributable to Westmoreland Coal Company	$	5,768		$	4,022	$	12,205	$	1,972		$	(17,790	)	$	6,177

32

WESTMORELAND COAL COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONT.)

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

Three Months Ended September 30, 2011

(In thousands)

	Parent/ Issuer			Co-Issuer		Guarantor Subsidiaries			Non- Guarantor Subsidiaries			Consolidating Adjustments			Total
Net income (loss)	$	1,574		$	4,664	$	1,500		$	3,031		$	(9,194	)	$	1,575
Other comprehensive income (loss)
Amortization of accumulated actuarial gains or losses, pension		(331	)		3		—			770			—			442
Amortization of accumulated actuarial gains or losses, transition obligations, and prior service costs, postretirement medical benefit		(146	)		—		—			74			—			(72	)
Tax effect of other comprehensive income gains		—			—		—			—			(141	)		(141	)
Unrealized and realized gains and losses on available-for-sale securities		3			—		(1	)		(14	)		—			(12	)
Other comprehensive income		(474	)		3		(1	)		830			(141	)		217
Comprehensive income (loss) attributable to Westmoreland Coal Company	$	1,100		$	4,667	$	1,499		$	3,861		$	(9,335	)	$	1,792

33

WESTMORELAND COAL COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONT.)

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

Nine Months Ended September 30, 2012

(In thousands)

	Parent/ Issuer			Co-Issuer		Guarantor Subsidiaries		Non- Guarantor Subsidiaries			Consolidating Adjustments			Total
Net loss	$	(8,516	)	$	5,042	$	29,172	$	(3,043	)	$	(31,171	)	$	(8,516	)
Other comprehensive income (loss)
Amortization of accumulated actuarial gains or losses, pension		1,614			16		—		557			—			2,187
Amortization of accumulated actuarial gains or losses, transition obligations, and prior service costs, postretirement medical benefit		1,200			—		—		729			—			1,929
Tax effect of other comprehensive income gains		(1,496	)		—		—		—			—			(1,496	)
Unrealized and realized gains and losses on available-for-sale securities		(205	)		—		1		(44	)		—			(248	)
Other comprehensive income		1,113			16		1		1,242			—			2,372
Comprehensive income (loss) attributable to Westmoreland Coal Company	$	(7,403	)	$	5,058	$	29,173	$	(1,801	)	$	(31,171	)	$	(6,144	)

34

WESTMORELAND COAL COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONT.)

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

Nine Months Ended September 30, 2011

(In thousands)

	Parent/ Issuer			Co-Issuer		Guarantor Subsidiaries			Non- Guarantor Subsidiaries			Consolidating Adjustments			Total
Net loss	$	(25,072	)	$	2,242	$	2,980		$	4,391		$	(9,613	)	$	(25,072	)
Other comprehensive income (loss)
Amortization of accumulated actuarial gains or losses, pension		75			7		—			1,130			—			1,212
Amortization of accumulated actuarial gains or losses, transition obligations, and prior service costs, postretirement medical benefit		(436	)		—		—			220			—			(216	)
Tax effect of other comprehensive income gains		—			—		—			—			(308	)		(308	)
Unrealized and realized gains and losses on available-for-sale securities		3			—		(105	)		(101	)		—			(203	)
Other comprehensive income (loss)		(358	)		7		(105	)		1,249			(308	)		485
Comprehensive income (loss) attributable to Westmoreland Coal Company	$	(25,430	)	$	2,249	$	2,875		$	5,640		$	(9,921	)	$	(24,587	)

35

WESTMORELAND COAL COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONT.)

CONSOLIDATING STATEMENTS OF CASH FLOWS

Nine Months Ended September 30, 2012

(In thousands)

Statements of Cash Flows	Parent/ Issuer			Co-Issuer			Guarantor Subsidiaries			Non- Guarantor Subsidiaries			Consolidating Adjustments			Total
Cash flows from operating activities:
Net income (loss)	$	(8,516	)	$	5,042		$	29,172		$	(3,043	)	$	(31,171	)	$	(8,516	)
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Equity in income of subsidiaries		34,200			—			—			—			(34,200	)		—
Depreciation, depletion, and amortization		317			7,554			14,382			20,289			—			42,542
Accretion of asset retirement obligation and receivable		—			44			2,990			6,003			—			9,037
Amortization of intangible assets and liabilities, net		—			466			—			26			—			492
Non-cash tax benefits		(1,496	)		—			—			—			—			(1,496	)
Share-based compensation		2,118			34			428			2,196			—			4,776
Loss on sale of assets		—			—			18			273			—			291
Amortization of deferred financing costs		2,127			—			304			473			—			2,904
Gain on sales of investment securities		(183	)		—			—			—			—			(183	)
Changes in operating assets and liabilities:
Receivables, net		(29	)		(379	)		(21,186	)		(4,602	)		6,142			(20,054	)
Inventories		—			571			(638	)		(421	)		—			(488	)
Excess of pneumoconiosis benefit obligation over trust assets		1,626			—			—			—			—			1,626
Accounts payable and accrued expenses		(2,624	)		642			16,698			11,673			(6,410	)		19,979
Deferred revenue		—			(6,307	)		(786	)		1,741			—			(5,352	)
Accrual for workers’ compensation		(212	)		—			—			—			—			(212	)
Asset retirement obligations		—			—			(1,089	)		(5,055	)		—			(6,144	)
Accrual for postretirement medical benefits		(143	)		—			3,536			1,149			—			4,542
Pension and SERP obligations		835			9			516			589			—			1,949
Other assets and liabilities		(190	)		(470	)		1,526			(4,210	)		—			(3,344	)
Net cash provided by (used in) operating activities		27,830			7,206			45,871			27,081			(65,639	)		42,349
Cash flows from investing activities:
Distributions received by subsidiaries		8,550			—			—			—			(8,550	)		—
Additions to property, plant and equipment		(123	)		(2,033	)		(6,195	)		(7,715	)		—			(16,066	)
Change in restricted investments and bond collateral and reclamation deposits		(3,098	)		(5	)		(24,873	)		(1,832	)		—			(29,808	)
Cash payments related to acquisitions		4,000			—			(76,522	)		—			—			(72,522	)
Net proceeds from sales of assets		—			—			240			145			—			385
Proceeds from sale of restricted investments		1,828			—			—			—			—			1,828
Receivable from customer for property and equipment purchases		—			—			—			(466	)		—			(466	)
Net cash provided by (used in) investing activities		11,157			(2,038	)		(107,350	)		(9,868	)		(8,550	)		(116,649	)
Cash flows from financing activities:
Change in book overdrafts		—			(259	)		—			1,112			—			853
Borrowings of long-term debt, net of debt discount		119,364			—			—			—			—			119,364
Repayments of long-term debt		—			—			(1,912	)		(14,519	)		—			(16,431	)
Borrowings on revolving lines of credit		—			—			—			16,500			—			16,500
Repayments on revolving lines of credit		—			—			—			(16,500	)		—			(16,500	)
Debt issuance and other refinancing costs		(5,563	)		—			—			(1	)		—			(5,564	)
Dividends/distributions		(1,020	)		(1,050	)		—			(7,500	)		8,550			(1,020	)
Transactions with Parent/affiliates		(149,093	)		(66	)		68,496			15,024			65,639			—
Net cash provided by (used in) financing activities		(36,312	)		(1,375	)		66,584			(5,884	)		74,189			97,202
Net increase (decrease) in cash and cash equivalents		2,675			3,793			5,105			11,329			—			22,902
Cash and cash equivalents, beginning of period		26,141			6			143			4,493			—			30,783
Cash and cash equivalents, end of period	$	28,816		$	3,799		$	5,248		$	15,822		$	—			53,685

36

WESTMORELAND COAL COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONT.)

CONSOLIDATING STATEMENTS OF CASH FLOWS

Nine Months Ended September 30, 2011

(In thousands)

Statements of Cash Flows	Parent/ Issuer			Co-Issuer			Guarantor Subsidiaries			Non- Guarantor Subsidiaries			Consolidating Adjustments			Total
Cash flows from operating activities:
Net income (loss)	$	(25,072	)	$	2,242		$	2,980		$	4,391		$	(9,613	)	$	(25,072	)
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Equity in income of subsidiaries		14,484			—			—			—			(14,484	)		—
Loss on derivative instruments		3,079			—			—			—			—			3,079
Depreciation, depletion, and amortization		224			7,666			6,049			19,922			—			33,861
Accretion of asset retirement obligation and receivable		—			41			2,275			5,784			—			8,100
Amortization of intangible assets and liabilities, net		—			467			—			27			—			494
Non-cash tax benefits		(308	)		—			—			—			—			(308	)
Share-based compensation		3,808			—			—			—			—			3,808
Loss on sale of assets		—			189			24			202			—			415
Amortization of deferred financing costs		1,107			(21	)		297			503			—			1,886
Loss on extinguishment of debt		7,873			9,073			84			—			—			17,030
Gain on the sale of investments		—			—			(75	)		(75	)		—			(150	)
Loss on derivative		—			—			—			—			—			—
Changes in operating assets and liabilities:
Receivables, net		(199	)		(28	)		(6,115	)		3,310			7,805			4,773
Inventories		—			(89	)		107			(2,288	)		—			(2,270	)
Excess of pneumoconiosis benefit obligation over trust assets		1,365			—			—			—			—			1,365
Accounts payable and accrued expenses		(371	)		(385	)		498			6,842			(5,223	)		1,361
Deferred revenue		—			(6,886	)		676			1,490			(550	)		(5,270	)
Accrual for workers’ compensation		(153	)		—			—			—			—			(153	)
Asset retirement obligations		—			—			(766	)		(3,891	)		—			(4,657	)
Accrual for postretirement medical benefits		(2,156	)		—			—			891			—			(1,265	)
Pension and SERP obligations		(4,742	)		(52	)		—			2,827			—			(1,967	)
Other assets and liabilities		(145	)		(992	)		2,915			(2,494	)		(316	)		(1,032	)
Net cash provided by (used in) operating activities		(1,206	)		11,225			8,949			37,441			(22,381	)		34,028
Cash flows from investing activities:
Distributions received by subsidiaries		20,200			—			—			—			(20,200	)		—
Additions to property, plant and equipment		(383	)		(1,179	)		(1,341	)		(12,200	)		—			(15,103	)
Change in restricted investments and bond collateral and reclamation deposits		(1,283	)		2,585			(3,705	)		(1,076	)		—			(3,479	)
Net proceeds from sales of assets		—			—			—			87			—			87
Proceeds from sale of restricted investments		—			—			1,075			2,275			—			3,350
Receivable from customer for property and equipment purchases		—			—			—			(350	)		—			(350	)
Net cash provided by (used in) investing activities		18,534			1,406			(3,971	)		(11,264	)		(20,200	)		(15,495	)
Cash flows from financing activities:
Change in book overdrafts		(140	)		—			(352	)		(143	)		—			(635	)
Borrowings of long-term debt, net of debt discount		142,500			—			—			—			—			142,500
Repayments of long-term debt		(2,532	)		(46,220	)		(11,396	)		(9,038	)		—			(69,186	)
Borrowings on revolving lines of credit		—			1,500			12,200			73,500			—			87,200
Repayments on revolving lines of credit		—			(1,500	)		(29,100	)		(75,000	)		—			(105,600	)
Debt issuance and other refinancing costs		(5,842	)		(9,077	)		100			—			—			(14,819	)
Exercise of stock options		422			—			—			—			—			422
Dividends/distributions		(20,961	)		(7,500	)		—			(12,700	)		20,200			(20,961	)
Transactions with Parent/affiliates		(99,020	)		52,571			23,573			495			22,381			—
Net cash provided by (used in) financing activities		14,427			(10,226	)		(4,975	)		(22,886	)		42,581			18,921
Net increase in cash and cash equivalents		31,755			2,405			3			3,291			—			37,454
Cash and cash equivalents, beginning of period		271			880			—			4,624			—			5,775
Cash and cash equivalents, end of period	$	32,026		$	3,285		$	3		$	7,915		$	—		$	43,229

37

ITEM 2

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS

Cautionary Note Regarding Forward-Looking Statements

This Quarterly Report on Form 10-Q contains “forward-looking statements.” Forward-looking statements can be identified by words such as “anticipates,” “intends,” “plans,” “seeks,” “believes,” “estimates,” “expects” and similar references to future periods. Examples of forward-looking statements include, but are not limited to, statements we make about our expectation that our cash from operations, cash on hand and available borrowing capacity will be sufficient to meet our investing, financing, and working capital requirements for the foreseeable future, our anticipated cash spend on heritage health and pension obligations, the timing of when our customer’s plant will be back online, the likelihood we will have Excess Cash Flow, and the possibility we may from time to time use available cash to repurchase our 10.75% Senior Notes on the open market.

Forward-looking statements are based on our current expectations and assumptions regarding our business, the economy and other future conditions. Because forward-looking statements relate to the future, they are subject to inherent uncertainties, risks and changes in circumstances that are difficult to predict. Our actual results may differ materially from those contemplated by the forward-looking statements. We caution you therefore against relying on any of these forward-looking statements. They are neither statements of historical fact nor guarantees or assurances of future performance. Important factors that could cause actual results to differ materially from those in the forward-looking statements include political, economic, business, competitive, market, weather and regulatory conditions and the following:

• unforeseen liabilities associated with the Kemmerer acquisition or the risk that liabilities assumed in the Kemmerer acquisition will exceed our current estimates;

• effective management of the Company’s expanded operations following the Kemmerer acquisition;

• risks associated with our estimated postretirement medical benefit and pension obligations, including those we are assuming in the Kemmerer acquisition, and the impact of regulatory changes on those obligations;

• changes in our black lung obligations, including those we are assuming in the Kemmerer acquisition, changes in our experience related to black lung claims, and the impact of the Patient Protection and Affordable Care Act;

• our potential inability to maintain compliance with debt covenant requirements;

• competition with natural gas and other non-coal energy resources, which may be increased as a result of energy policies, regulations and subsidies or other government incentives that encourage or mandate use of alternative energy sources;

• coal-fired power plant capacity, including the impact of environmental regulations, energy policies and other factors that may cause utilities to phase out or close existing coal-fired power plants or reduce construction of any new coal-fired power plants;

• railroad and other transportation performance, costs and availability;

• the potential inability of our subsidiaries to pay dividends to us due to restrictions in our debt arrangements, reductions in planned coal deliveries or other business factors;

• our potential inability to enter into new coal supply agreements with existing customers due to the unfavorable result of competitive bid processes or the shutdown of a power facility due to new environmental legislation or regulations;

• risks associated with the structure of contracts with our coal suppliers and power purchaser at our North Carolina power facility, which could dramatically affect the overall profitability of the generating units;

• the effect of Environmental Protection Agency inquiries and regulations on the operations of our North Carolina power facility;

• the effect of prolonged maintenance or unplanned outages at our operations or those of our major power generating customers, including unplanned outages at our customers due to the impact of weather-related variances or catastrophic events;

38

WESTMORELAND COAL COMPANY AND SUBSIDIARIES

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS (CONT.)

• the potential that insurance proceeds from our business interruption claim relating to the unexpected shutdown of one of the Absaloka mine customers will not be sufficient to cover our losses associated with the business interruption;

• 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, particulate matter or greenhouse gases; and

• the other factors that are described in “Risk Factors” under Part I, Item 1A of the 2011 Form 10-K and in subsequent Quarterly Reports on Form 10-Q.

Any forward-looking statement made by us in this Quarterly Report on Form 10-Q speaks only as of the date on which it was made. Factors or events that could cause our actual results to differ may emerge from time-to-time, and it is not possible for us to predict all of them. We undertake no obligation to publicly update any forward-looking statements, whether as a result of new information, future developments or otherwise, except as may be required by law.

Overview

Westmoreland Coal Company is an energy company whose operations include six surface coal mines in Montana, Wyoming, North Dakota and Texas, and two coal-fired power-generating units in North Carolina. We sold 21.8 million tons of coal in 2011. Our two principal operating segments are our coal and power segments. Our two non-operating segments are our heritage and corporate segments. Our heritage segment primarily includes the costs of benefits we provide to former mining operation employees and our corporate segment consists primarily of corporate administrative expenses.

We are a holding company and conduct our operations through subsidiaries. We have significant cash requirements to fund our ongoing heritage health benefit costs and corporate overhead expenses. The principal sources of cash flow to us are distributions from our principal operating subsidiaries.

Beulah Mine Coal Supply Contract

Our coal supply contract with Coyote Station, located adjacent to our Beulah Mine, expires in May 2016.

On May 3, 2012, Coyote Station informed us they are entering into a mine development agreement with another provider and on October 15, 2012, Coyote Station entered into a coal supply agreement with that provider. As a result, Coyote Station will likely not purchase coal from our Beulah Mine after the expiration of our current contract. Based on the uncertainty of securing a new contract, we revised various accounting estimates beginning in the fourth quarter of 2011 to reflect the impact on mining operations of the current contract’s expiration in 2016. These changes resulted in revised depreciable asset and coal reserve lives and asset retirement obligations.

For the past several years, the Beulah Mine has averaged 2.4 million tons of coal sold per year to Coyote Station. We are currently considering strategic alternatives for our Beulah Mine, which also provides approximately 0.5 million tons of coal to the Heskett Station power plant on an annual basis.

We will continue to evaluate the effect of this development and potential strategic alternatives on various employment-related liabilities, which could result in revised accounting estimates related to those liabilities in future periods.

Kemmerer Mine Acquisition and Add-On Notes

On December 23, 2011, we entered into an agreement with Chevron Mining Inc. to acquire the Kemmerer surface coal mine located in Kemmerer, Wyoming. We closed this acquisition on January 31, 2012. This transaction included approximately 107 million tons of total proven or probable coal reserves as of December 31, 2011. The Kemmerer Mine has an estimated life at current production levels of approximately 22 years. The total consideration paid by us to acquire the Kemmerer Mine included $76.5 million in cash and our assumption of approximately $88.0 million in liabilities, including retiree medical benefits for current union employees, the underfunded portion of the pension and reclamation obligations.

39

WESTMORELAND COAL COMPANY AND SUBSIDIARIES

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS (CONT.)

In January 2012, we completed the private placement of $125.0 million of senior secured notes due in 2018 (“Add-On Notes”), which notes were additional notes issued pursuant to the existing Parent Notes indenture (the “Parent Notes”), collectively referred to as the “10.75% Senior Notes”. The net proceeds from the Add-On Notes financed the $76.5 million cash portion of the purchase price for the acquisition of the Kemmerer Mine and $24.7 million to satisfy the cash bonding obligations for the Kemmerer Mine. The net proceeds also covered the cash transaction costs associated with the Kemmerer acquisition and the Add-On Notes offering of approximately $6.7 million. The remaining net proceeds were partially used to fund the initial operating expenses associated with the Kemmerer Mine. The use of proceeds from the offering of Add-On Notes to finance the acquisition of the Kemmerer Mine is shown in the table below (in millions):

Proceeds received from the Add-On Notes	$	125.0
Cash consideration for the Kemmerer acquisition		(76.5	)
Reclamation bonding collateral		(24.7	)
Transaction fees and expenses		(6.7	)
Initial Purchaser’s discount		(5.6	)
Remaining proceeds	$	11.5

Xcel Fire

In November 2011, an explosion and subsequent fire occurred at Unit 3 of Xcel Energy’s Sherburne County Generating Station, or Unit 3, which is the largest customer of our Absaloka Mine. Xcel indicated that Unit 3 will be offline for an extended period while Xcel investigates the source of the explosion and the extent of the damage. The current estimate is that Unit 3 will be back online by the end of the first quarter of 2013. Westmoreland Resources, Inc., or WRI, our wholly owned subsidiary that operates the Absaloka Mine, maintains business interruption insurance coverage and submitted a notice of loss to its insurance carriers. Our insurance carriers have accepted liability under the policy for the business interruption claim and we have started to receive cash proceeds. We recognize income as business interruption losses are incurred and reimbursement is virtually assured and have recognized $3.3 million and $11.9 million of income for the three and nine months ended September 30, 2012, respectively.

Results of Operations

Three Months Ended September 30, 2012 Compared to Three Months Ended September 30, 2011

Summary

The following table shows the comparative consolidated results and changes between periods:

	Three Months Ended September 30,
	2012		2011		Increase (Decrease)
					$		%
	(In thousands)
Revenues	$	161,332	$	132,449	$	28,883		21.8	%
Net income applicable to common shareholders		7,282		2,389		4,893		204.8	%
Adjusted EBITDA(1)		35,520		24,157		11,363		47.0	%

(1) Adjusted EBITDA, a non-GAAP financial measure, is defined and reconciled to net income (loss) at the end of this “Results of Operations” section.

Our third quarter 2012 revenues increased primarily due to a $30.0 million increase in our coal segment revenues mostly due to the Kemmerer acquisition, which was partially offset by a customer shutdown at our Absaloka Mine as a result of an accident at the customer’s facility as explained above as well as reduced tonnage demand due to reduced demand for power and increased wind generation. The increase in our coal segment revenues was offset by a $1.1 million decrease in our power segment revenues due to unplanned outages.

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS (CONT.)

Our third quarter 2012 net income applicable to common shareholders increased by $4.9 million. The primary factors, in aggregate, driving this increase in net income were:

	Three Months Ended September 30, 2012
	(In millions)
Increase in our coal segment operating income primarily due to the Kemmerer acquisition	$	8.3
Increased losses attributable to noncontrolling interest related to increased losses from a partially owned consolidated coal segment subsidiary		1.1
Increase due to other factors		0.3
Increase in interest expense primarily due to the offering of the Add-On Notes		(3.4	)
Decrease in our power segment operating income primarily due to unplanned outages		(0.7	)
Decrease in our corporate segment operating income primarily due to higher long-term compensation expenses		(0.7	)
	$	4.9

Coal Segment Operating Results

The following table shows comparative coal revenues, operating income, Adjusted EBITDA and sales volume and percentage changes between periods:

	Three Months Ended September 30,
	2012		2011		Increase (Decrease)
					$		%
Revenues (in thousands)	$	138,798	$	108,823	$	29,975		27.5	%
Operating income (in thousands)		18,025		9,679		8,346		86.2	%
Adjusted EBITDA (in thousands)(1)		34,584		22,070		12,514		56.7	%
Tons sold—millions of equivalent tons		6.0		6.0		—		—	%

(1) Adjusted EBITDA, a non-GAAP financial measure, is defined and reconciled to net income (loss) at the end of this “Results of Operations” section.

Our third quarter 2012 coal segment revenues and operating income increased primarily due to the Kemmerer acquisition, which was partially offset by a customer shutdown at our Absaloka Mine as a result of an accident at the customer’s facility as explained above as well as reduced tonnage demand due to reduced demand for power and increased wind generation. Business interruption insurance proceeds have partially offset the decrease in operating income that was due to the accident and have been reported inOther operating income. Overall tons sold remained comparable to the prior year’s quarter; however tons sold decreased at our Absaloka Mine which was offset with tons sold at our Kemmerer Mine.

Power Segment Operating Results

The following table shows comparative power revenues, operating income, Adjusted EBITDA, production and percentage changes between periods:

	Three Months Ended September 30,
	2012		2011		Increase (Decrease)
					$			%
	(In thousands)
Revenues	$	22,534	$	23,626	$	(1,092	)		(4.6	)%
Operating income		4,023		4,694		(671	)		(14.3	)%
Adjusted EBITDA(1)		6,742		7,441		(699	)		(9.4	)%
Megawatts hours		417		445		(28	)		(6.3	)%

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS (CONT.)

(1) Adjusted EBITDA, a non-GAAP financial measure, is defined and reconciled to net income (loss) at the end of this “Results of Operations” section.

Our third quarter 2012 power segment revenues, operating income and megawatt hours decreased due to unplanned outages.

Heritage Segment Operating Results

The following table shows comparative detail of the heritage segment’s operating expenses and percentage changes between periods:

	Three Months Ended September 30,
	2012		2011		Increase (Decrease)
					$			%
	(In thousands)
Health care benefits	$	2,850	$	2,445	$	405			16.6	%
Combined benefit fund payments		561		686		(125	)		(18.2	)%
Workers’ compensation benefits		121		162		(41	)		(25.3	)%
Black lung benefits		349		603		(254	)		(42.1	)%
Total heritage health benefit expenses		3,881		3,896		(15	)		(0.4	)%
Selling and administrative costs		268		180		88			48.9	%
Heritage segment operating loss	$	4,149	$	4,076	$	73			1.8	%

Our third quarter 2012 heritage operating expenses were comparable to the third quarter of 2011.

Corporate Segment Operating Results

Our corporate segment operating expenses for the third quarter of 2012 increased $0.7 million primarily due to higher long-term compensation expenses.

Nonoperating Results (including interest expense, interest income, other income (loss), income tax benefit, and net loss attributable to noncontrolling interest)

Our interest expense for the third quarter of 2012 increased to $11.1 million compared with $7.7 million for the third quarter of 2011 primarily due to the higher overall debt levels resulting from the offering of the Add-On Notes.

Our interest income, other income (loss), and income tax benefit for the third quarter of 2012 were comparable to the third quarter of 2011.

Our net loss attributable to noncontrolling interest for the third quarter of 2012 increased to $2.3 million compared with $1.2 million for the third quarter of 2011 related to increased losses from a partially owned consolidated coal segment subsidiary.

Nine Months Ended September 30, 2012 Compared to Nine Months Ended September 30, 2011

Items that Affect Comparability of Our Results

For the nine months ended September 30, 2011, our results included items that did not relate directly to ongoing operations, affecting the comparability of our results. The expense components of these items were as follows:

	Nine Months Ended September 30,
	2012		2011
	(In thousands)
Loss on extinguishment of debt	$	—	$	(17,030	)
Fair value adjustment on derivatives and related amortization of debt discount		—		(3,215	)
Impact (pre-tax)	$	—	$	(20,245	)

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS (CONT.)

Items recorded in the nine months ended September 30, 2011

• As a result of the Parent Notes offering in February 2011, we recorded $17.0 million of loss on extinguishment of debt. The loss included a $9.1 million make-whole payment and $7.9 million of non-cash write-offs of unamortized discount on debt and related capitalized debt costs and convertible debt conversion expense.

• Upon the Parent Notes offering and subsequent retirement of our convertible debt, we recorded an expense of $3.1 million resulting from the mark-to-market accounting for the conversion feature in the notes with $0.1 million of interest expense of a related debt discount.

Summary

The following table shows the comparative consolidated results and changes between periods:

	Nine Months Ended September 30,
	2012			2011			Increase (Decrease)
							$		%
	(In thousands)
Revenues	$	441,410		$	372,353		$	69,057		18.5	%
Net loss applicable to common shareholders		(4,622	)		(23,309	)		18,687		(80.2	)%
Adjusted EBITDA(1)		77,412			61,689			15,723		25.5	%

(1) Adjusted EBITDA, a non-GAAP financial measure, is defined and reconciled to net income (loss) at the end of this “Results of Operations” section.

Our revenues for the first nine months of 2012 increased primarily due to a $78.5 million increase in our coal segment revenues mostly due to the Kemmerer acquisition, which was partially offset by a customer shutdown at our Absaloka Mine as a result of an accident at the customer’s facility as explained above as well as reduced tonnage demand due to natural gas, hydro and wind generation. The increase in our coal segment revenues was offset by a $9.5 million decrease in our power segment revenues due to a large planned maintenance outage during the second quarter and unplanned outages.

Our net loss applicable to common shareholders for the first nine months of 2012 increased by $1.6 million, excluding $20.2 million of expense during the first nine months of 2011 discussed inItems that Affect Comparability of Our Results. The primary factors, in aggregate, driving this increase in net loss were:

	Nine Months Ended September 30, 2012
	(In millions)
Increase in interest expense primarily due to the offering of the Add-On Notes	$	(9.9	)
Decrease in our power segment operating income primarily due to a large planned maintenance outage and unplanned outages		(6.7	)
Decrease in our corporate segment operating income primarily due to one-time recruiting and compensation expenses related to a new executive position and higher long-term compensation expenses		(2.8	)
Increase in our coal segment operating income primarily due to the Kemmerer acquisition		15.4
Increased losses attributable to noncontrolling interest related to increased losses from a partially owned consolidated coal segment subsidiary		2.1
Increase due to other factors		0.3
	$	(1.6	)

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WESTMORELAND COAL COMPANY AND SUBSIDIARIES

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS (CONT.)

Coal Segment Operating Results

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

	Nine Months Ended September 30,
					Increase (Decrease)
	2012		2011		$			%
Revenues (in thousands)	$	382,272	$	303,734	$	78,538			25.9	%
Operating income (in thousands)		37,478		20,576		16,902			82.1	%
Adjusted EBITDA (in thousands)1		84,080		57,262		26,818			46.8	%
Tons sold—millions of equivalent tons		15.5		16.0		(0.5	)		(3.1	)%

(1) Adjusted EBITDA, a non-GAAP financial measure, is defined and reconciled to net income (loss) at the end of this “Results of Operations” section.

Our coal segment revenues and operating income for the first nine months of 2012 increased primarily due to the Kemmerer acquisition, which was partially offset by a customer shutdown at our Absaloka Mine as a result of an accident at the customer’s facility as explained above as well as reduced tonnage demand due to natural gas, hydro and wind generation. Business interruption insurance proceeds have partially offset the decrease in operating income that was due to the accident and have been reported inOther operating income. Overall tons sold decreased primarily due to lower sales at our Absaloka Mine, which was partially offset with tons sold at our Kemmerer Mine.

Power Segment Operating Results

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

	Nine Months Ended September 30,
					Increase (Decrease)
	2012		2011		$			%
	(In thousands)
Revenues	$	59,138	$	68,619	$	(9,481	)		(13.8	)%
Operating income		5,066		11,764		(6,698	)		(56.9	)%
Adjusted EBITDA1		13,168		20,152		(6,984	)		(34.7	)%
Megawatts hours		1,077		1,282		(205	)		(16.0	)%

(1) Adjusted EBITDA, a non-GAAP financial measure, is defined and reconciled to net income (loss) at the end of this “Results of Operations” section.

Our power segment revenues, operating income and megawatt hours for the first nine months of 2012 decreased due to a large planned maintenance outage during the second quarter and unplanned outages.

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS (CONT.)

Heritage Segment Operating Results

The following table shows comparative detail of the heritage segment’s operating expenses and percentage changes between periods:

	Nine Months Ended September 30,
					Increase (Decrease)
	2012		2011		$			%
	(In thousands)
Health care benefits	$	8,526	$	7,208	$	1,318			18.3	%
Combined benefit fund payments		1,682		2,057		(375	)		(18.2	)%
Workers’ compensation benefits		382		485		(103	)		(21.2	)%
Black lung benefits		1,153		1,365		(212	)		(15.5	)%
Total heritage health benefit expenses		11,743		11,115		628			5.7	%
Selling and administrative costs		944		947		(3	)		(0.3	)%
Heritage segment operating loss	$	12,687	$	12,062	$	625			5.2	%

Our heritage operating expenses for the first nine months of 2012 increased due to unfavorable interest rates.

Corporate Segment Operating Results

Our corporate segment operating expenses for the first nine months of 2012 increased $4.3 million primarily due to a claim paid by our captive insurance entity related to a business interruption claim at our Absaloka Mine; however this expense was offset by proceeds recorded in the coal segment and thus had no impact on a consolidated basis. Additionally, corporate segment operating expenses increased due to one-time recruiting and compensation expenses related to a new executive position and higher long-term compensation expenses.

Nonoperating Results (including interest expense, interest income, other income (loss), income tax benefit, and net loss attributable to noncontrolling interest)

Our interest expense for the first nine months of 2012 increased to $32.0 million compared with $22.3 million for the first nine months of 2011 primarily due to the higher overall debt levels resulting from the offering of the Add-On Notes.

Our interest income for the first nine months of 2012 was comparable to the first nine months of 2011.

Our other income (loss) for the first nine months of 2012 was comparable to the first nine months of 2011, excluding the $3.1 million impact of the mark-to-market accounting discussed inItems that Affect Comparability of Our Results.

Our income tax benefit for the first nine months of 2012 was $1.2 million compared with $0.7 million for the first nine months of 2011 due to lower taxable income.

Our net loss attributable to noncontrolling interest for the first nine months of 2012 increased to $4.9 million compared with $2.8 million for the first nine months of 2011 related to increased losses from a partially owned consolidated coal segment subsidiary.

Reconciliation of Adjusted EBITDA to Net Income (Loss)

The discussion in “Results of Operations” includes references to our Adjusted EBITDA results. EBITDA and Adjusted EBITDA are supplemental measures of financial performance that are not required by, or presented in accordance with, GAAP. EBITDA and Adjusted EBITDA are key metrics used by us to assess our operating performance and we believe that EBITDA and Adjusted EBITDA are useful to an investor in evaluating our operating performance because these measures:

• are used widely by investors to measure a company’s operating performance without regard to items excluded from the calculation of such terms, which can vary substantially from company to company depending upon accounting methods and book value of assets, capital structure and the method by which assets were acquired, among other factors; and

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WESTMORELAND COAL COMPANY AND SUBSIDIARIES

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS (CONT.)

• help investors to more meaningfully evaluate and compare the results of our operations from period to period by removing the effect of our capital structure and asset base from our operating results.

Neither EBITDA nor Adjusted EBITDA is a measure calculated in accordance with GAAP. The items excluded from EBITDA and Adjusted EBITDA are significant in assessing our operating results. EBITDA and Adjusted EBITDA have limitations as analytical tools, and should not be considered in isolation from, or as a substitute for, analysis of our results as reported under GAAP. For example, EBITDA and Adjusted EBITDA:

• do not reflect our cash expenditures, or future requirements for capital and major maintenance expenditures or contractual commitments;

• do not reflect income tax expenses or the cash requirements necessary to pay income taxes;

• do not reflect changes in, or cash requirements for, our working capital needs; and

• do not reflect the significant interest expense, or the cash requirements necessary to service interest or principal payments, on certain of our debt obligations.

In addition, although depreciation and amortization are non-cash charges, the assets being depreciated and amortized will often have to be replaced in the future, and EBITDA and Adjusted EBITDA do not reflect any cash requirements for such replacements. Other companies in our industry and in other industries may calculate EBITDA and Adjusted EBITDA differently from the way that we do, limiting their usefulness as comparative measures. Because of these limitations, EBITDA and Adjusted EBITDA should not be considered as measures of discretionary cash available to us to invest in the growth of our business. We compensate for these limitations by relying primarily on our GAAP results and using EBITDA and Adjusted EBITDA only as supplemental data.

The tables below show how we calculate EBITDA and Adjusted EBITDA, including a breakdown by segment for Adjusted EBITDA.

	Three Months Ended September 30,						Nine Months Ended September 30,
	2012			2011			2012			2011
				(In thousands)
Reconciliation of Adjusted EBITDA to net income (loss)
Net income (loss)	$	5,351		$	1,575		$	(8,516	)	$	(25,072	)
Income tax benefit from continuing operations		(325	)		(84	)		(1,239	)		(705	)
Other loss (income)		(196	)		(147	)		(611	)		2,630
Interest income		(475	)		(423	)		(1,371	)		(1,134	)
Loss on extinguishment of debt		—			—			—			17,030
Interest expense		11,096			7,650			32,011			22,262
Depreciation, depletion and amortization		15,534			11,612			42,542			33,861
Accretion of ARO and receivable		3,041			2,700			9,037			8,100
Amortization of intangible assets and liabilities		165			167			492			494
EBITDA		34,191			23,050			72,345			57,466
Loss on sale of assets		14			91			291			415
Share-based compensation		1,315			1,016			4,776			3,808
Adjusted EBITDA	$	35,520		$	24,157		$	77,412		$	61,689

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS (CONT.)

	Three Months Ended September 30,						Nine Months Ended September 30,
	2012			2011			2012			2011
	(In thousands)
Adjusted EBITDA by Segment
Coal	$	34,584		$	22,070		$	84,080		$	57,262
Power		6,742			7,441			13,168			20,152
Heritage		(4,149	)		(4,076	)		(12,686	)		(12,062	)
Corporate		(1,657	)		(1,278	)		(7,150	)		(3,663	)
Total	$	35,520		$	24,157		$	77,412		$	61,689
	Three Months Ended September 30,						Nine Months Ended September 30,
	2012			2011			2012			2011
	(In thousands)
Adjusted EBITDA
Guarantor and Issuer	$	20,323		$	7,059		$	43,640		$	17,224
Non-Guarantor		15,197			17,098			33,772			44,465
Total	$	35,520		$	24,157		$	77,412		$	61,689

Liquidity and Capital Resources

At September 30, 2012, we had $53.7 million of cash and cash equivalents, $23.1 million of available borrowing capacity under our WML revolving line of credit and $20.0 million of available borrowing under our new revolving line of credit. We anticipate that our cash from operations, cash on hand and available borrowing capacity will be sufficient to meet our investing, financing, and working capital requirements for the foreseeable future.

We are a holding company and conduct our operations through subsidiaries, some of which have obtained separate financing. As a holding company, we have significant cash requirements to fund our debt obligations, ongoing heritage health benefit costs and pension contributions, and corporate overhead expenses. The principal sources of cash flow to us are distributions from our principal operating subsidiaries. The cash at WML is available to us through quarterly distributions. The WML credit agreement requires a debt service account and imposes timing and other restrictions on the ability of WML to distribute funds to us. As we begin to repay large portions of the principal on the WML Notes, cash available for dividend from WML is also affected. The cash at our captive insurance entity is available to us through dividends and is subject to maintaining a statutory minimum level of capital, which is two hundred and fifty thousand dollars.

Under the indenture governing the 10.75% Senior Notes, we are required to offer a portion of our Excess Cash Flow (as defined by the indenture) for each fiscal year to purchase some of these notes at 100% of the principal amount. We did not have Excess Cash Flow for the year ended December 31, 2011. Based on operations through September 30, 2012, we believe there is likely to be Excess Cash Flow for the year ended December 31, 2012. In addition to offering Excess Cash Flow to purchase some of these notes as required under the indenture, from time to time the Company may use available cash to repurchase these notes on the open market, as permitted by the indenture.

Debt Obligations

On February 4, 2011, we issued the Parent Notes, which are $150.0 million of 10.75% senior secured notes, and on January 31, 2012, we issued the Add-On Notes, which are $125.0 million of 10.75% senior secured notes. On June 22, 2012, we commenced an exchange offer for the Add-On Notes for an equal principal amount of notes that have been registered under the Securities Act of 1933, which exchange was completed in July. At this time, all $275.0 million of outstanding notes are traded under one CUSIP. Our subsidiary, Westmoreland Partners (“ROVA”), is a co-issuer of the notes. Interest is due at an annual fixed rate of 10.75% and paid in cash semi-annually, in arrears, on February 1 and August 1 of each year. The 10.75% Senior Notes mature February 1, 2018 and are fully and unconditionally guaranteed by ROVA, Westmoreland Kemmerer, Inc. (“Kemmerer”), WRI and their respective subsidiaries (other than Absaloka Coal, LLC) and by certain other subsidiaries. The 10.75% Senior Notes indenture contains provisions that affect our sources of liquidity, such as limitations on our ability to enter into new capital leases and other forms of credit.

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WESTMORELAND COAL COMPANY AND SUBSIDIARIES

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS (CONT.)

On June 29, 2012, we and certain of our subsidiaries entered into a five-year, $20.0 million revolving line of credit carved out by the indenture governing the 10.75% Senior Notes with an expiration date of June 30, 2017. The revolver may support up to $2.0 million of letters of credit, which would reduce balance available under the revolver. At September 30, 2012 availability on the revolver was $20.0 million with no outstanding balance and no supported letters of credit. All extensions of credit under the revolver are collateralized by a first priority security interest in and lien upon the inventory and accounts receivable of the Parent, WRI, Kemmerer, and ROVA.

Two interest rate options exist under the revolver. The Base Rate option bears interest at the greater of a Federal Funds Rate plus 0.5% or the Prime Rate, as defined in the loan agreement and is payable monthly. The LIBOR Rate option bears interest at the London Interbank Offering Rate, or LIBOR, rate plus 2.25% and is payable monthly. In addition, a commitment fee of 0.75% of the average unused portion of the available revolver is payable monthly.

The loan agreement contains various affirmative, negative and financial covenants. Financial covenants in the agreement include a fixed charge coverage ratio and an EBITDA measure. The fixed charge coverage ratio must meet or exceed a specified minimum. The EBITDA covenant requires a minimum amount of EBITDA to be achieved. We met these covenant requirements as of September 30, 2012.

WML has $107.0 million of fixed rate term debt outstanding at September 30, 2012. This term debt matures March 31, 2018, and bears an annual fixed interest rate of 8.02%, payable quarterly. The principal on the WML Notes is scheduled to be paid as follows (in millions):

Remainder of 2012	$	3.5
2013		18.0
2014		18.0
2015		20.0
2016		20.0
2017		22.0
2018		5.5

WML’s revolving credit facility has a borrowing limit of $25.0 million and matures in June 2013. The interest rate under the revolving credit facility at September 30, 2012 was 3.75% per annum. At September 30, 2012, WML had no outstanding balance under the revolving credit facility and the revolving credit facility supports a letter of credit of $1.9 million, leaving it with $23.1 million of borrowing availability. WML’s revolving line of credit is only available to fund the operations of its respective subsidiaries.

WML’s credit agreement contains various affirmative and negative covenants. Operational covenants in the agreements prohibit, among other things, WML from incurring or guaranteeing additional indebtedness, creating liens on its assets, making investments or engaging in asset sales or transactions with affiliates, in each case subject to specified exceptions. Financial covenants in the agreements impose requirements relating to specified debt service coverage and leverage ratios.

On June 28, 2012, we amended Westmoreland Mining, LLC’s (“WML”) term debt and revolving line of credit debt agreements as follows:

• We must maintain our pension plans at a minimum of 80% funded, as opposed to the prior covenant of 90% funded;

• The debt service coverage ratio requirement has been amended so that it may not be less than 1.20 to 1.00 for the quarters ending June 30, 2012 and September 30, 2012, as opposed to the prior covenant of 1.30 to 1.00; and

• The leverage ratio requirement has been amended so as not to permit the ratio to exceed 2.25 to 1.00 at March 31, 2013; 2.00 to 1.00 at June 30, 2013 and 1.75 to 1.00 at September 30, 2013. The prior covenant ratio for these periods was 1.50 to 1.00.

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS (CONT.)

The debt service coverage ratio covenant requires that at the end of each quarter WML’s ratio of EBITDA less unfinanced capital expenditures to debt service (all defined) for the four quarters then ended meets or exceeds a specified minimum. The coverage ratio as of September 30, 2012 was 1.38 and the specified minimum was 1.20. The leverage ratio covenant requires that WML not permit the ratio of total debt at the end of each quarter to EBITDA (both as defined) for the four quarters then ended to be greater than a specified amount. The leverage ratio as of September 30, 2012 was 1.84, which did not exceed the maximum amount of 2.25. WML met all of its covenant requirements as of September 30, 2012.

WML’s term debt and revolving credit facility are secured by substantially all of the assets of WML and its subsidiaries (other than Texas Westmoreland Coal Co., or TWCC), our membership interests in WML, including certain dividends and other proceeds from such interests, and substantially all of the stock of WML’s subsidiaries other than TWCC.

Heritage health cash expenditures and pension contributions

Our liquidity continues to be affected by our heritage health and pension payments as follows:

	Nine Months Ended September 30,				2012  Remaining Expected Amounts
	2012		2011
			(In millions)
Postretirement medical benefits	$	9.2	$	9.3	$	2.7
Pension contributions (1)		0.1		7.4		0.1
CBF premiums		1.7		2.1		0.6
Workers’ compensation benefits		0.4		0.4		0.1

(1) Of the 2011 pension contribution, $4.2 million was made through the contribution of Company stock.

Historical Sources and Uses of Cash

The following is a summary of cash provided by or used in each of the indicated types of activities:

	Nine Months Ended September 30,
	2012			2011
	(In thousands)
Cash provided by (used in):
Operating activities	$	42,349		$	34,028
Investing activities		(116,649	)		(15,495	)
Financing activities		97,202			18,921

Cash Flow from Operations

Cash provided by operating activities increased $8.3 million in the nine months ended September 30, 2012 compared to the nine months ended September 30, 2011, primarily due to Kemmerer operational cash flows which were partially offset with the increase in interest payments in 2012 related to the Add-On Notes.

Cash used in investing activities increased $101.2 million in the nine months ended September 30, 2012 compared to the nine months ended September 30, 2011 primarily due to the Kemmerer acquisition.

Cash provided by financing activities increased $78.3 million for the nine months ended September 30, 2012 compared to the nine months ended September 30, 2011, primarily as a result of the Add-On Notes.

Our working capital at September 30, 2012 increased by $31.8 million to $10.1 million compared to a $21.7 million deficit at December 31, 2011 primarily as a result of a $22.9 million increase in cash and cash equivalents mostly due to the Add-On Notes. In addition, Kemmerer’s inventory, trade receivables, accounts payable and other working capital accounts are now included in our financial statements.

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS (CONT.)

Off-Balance Sheet Arrangements

In the normal course of business, we are a party to certain off-balance sheet arrangements. These arrangements include financial instruments with off-balance sheet risk, such as bank letters of credit and performance or surety bonds. Surety bonds and letters of credit are issued by financial institutions to third parties to assure the performance of our obligations relating to reclamation, workers’ compensation obligations, postretirement medical benefit obligations, and other obligations. Liabilities related to these arrangements are not reflected in our consolidated balance sheets, and we do not expect any material adverse effects on our financial condition, results of operations or cash flows to result from these off-balance sheet arrangements.

During the nine months ended September 30, 2012, we added approximately $76.1 million of surety bonds related to the Kemmerer Mine’s reclamation obligations. Our off-balance sheet arrangements are discussed inManagement’s Discussion and Analysis of Financial Condition and Results of Operations in our 2011 Form 10-K.

Newly Adopted Accounting Pronouncements

See Note 3 of Notes to Consolidated Financial Statements included in “Part I — Item 1 — Financial Statements.”

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ITEM 3

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

There has been no material changes in our market risk during the nine months ended September 30, 2012. For additional information, refer to the “Quantitative and Qualitative Disclosures about Market Risk” in Item  7A of our 2011 Form 10-K.

ITEM 4

CONTROLS AND PROCEDURES

As required by Rules 13a-15(e) and 15d-15(e) 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 September 30, 2012. Disclosure controls and procedures are designed to provide reasonable assurance that material 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 also 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. Based on that evaluation, our management, including our chief executive officer and chief financial officer, concluded that the disclosure controls and procedures were effective as of such date.

On January 31, 2012, we acquired the Kemmerer Mine. As a result of the acquisition, we are in the process of reviewing the internal control structure of the Kemmerer Mine and, if necessary, will make appropriate changes as we incorporate our controls and procedures into the acquired business. Except for the acquisition, there have been no changes in internal control over financial reporting that occurred during the nine months ended September 30, 2012, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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PART II

OTHER INFORMATION

ITEM 1

LEGAL PROCEEDINGS

Please refer to the information contained in Note 15 to the Consolidated Financial Statements in this Quarterly Report on Form 10-Q, which is responsive to this Item 1 and is incorporated herein by reference. We are subject, from time-to-time, to various proceedings, lawsuits, disputes, and claims (“Actions”) arising in the ordinary course of our business. Many of these Actions raise complex factual and legal issues and are subject to uncertainties. We cannot predict with assurance the outcome of Actions brought against us. Accordingly, adverse developments, settlements, or resolutions may occur and may result in a negative impact on income in the quarter of such development, settlement, or resolution. However, we do not believe that the outcome of any current Action would have a material adverse effect on our financial results.

ITEM 1A

RISK FACTORS

We have disclosed under the heading “Risk Factors” in our 2011 Form 10-K and subsequent Quarterly Reports on Form 10-Q, the risk factors that we believe materially affect our business, financial condition or results of operations. There have been no material changes from the risk factors previously disclosed. You should carefully consider the risk factors set forth in the 2011 Form 10-K, subsequent Quarterly Reports on Form 10-Q, and the other information set forth elsewhere in this Quarterly Report on Form 10-Q. You should be aware that these risk factors and other information may not describe every risk facing our Company. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition and or operating results.

ITEM 4

MINE SAFETY DISCLOSURES

On July 21, 2010, Congress enacted the Dodd-Frank Wall Street Reform and Consumer Protection Act, or the Act. Section 1503(a) of the Act contains reporting requirements regarding mine safety. Mine safety violations and other regulatory matters, as required by Section 1503(a) of the Act and Item 104 of Regulation S-K, are included as Exhibit 95.1 to this report on Form 10-Q.

ITEM 6

EXHIBITS

See Exhibit Index at page 54 of this report.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	WESTMORELAND COAL COMPANY
Date: November 8, 2012	/s/ Kevin A. Paprzycki
	Kevin A. Paprzycki
	Chief Financial Officer and Treasurer
	(Principal Financial Officer and A Duly Authorized Officer)
Date: November 8, 2012	/s/ Russell H. Werner
	Russell H. Werner
	Controller
	(Principal Accounting Officer and A Duly Authorized Officer)

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EXHIBIT INDEX

		Incorporated by Reference
Exhibit Number	Exhibit Description	Form	File Number	Exhibit	Filing Date	Filed Herewith	Submitted Herewith
10.1	Executive Transition Agreement					X
31.1	Certification of Chief Executive Officer pursuant to Rule 13a-14(a)					X
31.2	Certification of Chief Financial Officer pursuant to Rule 13a-14(a)					X
32	Certifications of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350					X
95.1	Mine Safety Disclosure					X
101	Interactive Data File (Form 10-Q for the quarterly period ended September 30, 2012 furnished in XBRL). Users of this data are advised in accordance with Rule 406T of Regulation S-T promulgated by the Securities and Exchange Commission that this Interactive Data File is deemed not filed or part of a registration statement or prospectus for purposes of sections 11 or 12 of the Securities Act of 1933, is deemed not filed for purposes of section 18 of the Securities Exchange Act of 1934, and otherwise is not subject to liability under these sections. The financial information contained in the XBRL-related documents is “unaudited” and “unreviewed.”						X

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