##### Table of Contents





UNITED STATES SECURITIES AND
    EXCHANGE COMMISSIONWashington, D.C.
    20549
  Form 10-K
  (Mark One)þ

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)  OF THE
    SECURITIES EXCHANGE ACT OF 1934For the fiscal year ended
    December 31, 2008ORo

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)  OF THE
    SECURITIES EXCHANGE ACT OF 1934For the transition period
    from          to   Commission File
    No. 001-11155
  WESTMORELAND COAL
    COMPANY
 (Exact name of registrant as
    specified in its charter)
  Delaware

23-1128670(State or other jurisdiction
    of
    incorporation or organization)

(I.R.S. Employer
    Identification No.)2 North Cascade Avenue, 2nd Floor Colorado Springs, CO

80903(Zip Code)(Address of principal executive
    offices)   Registrants telephone number, including area code:
 (719) 442-2600
 Securities registered pursuant to Section 12(b) of the
    Act:
  Title of Each Class

Name of Exchange on Which RegisteredCommon Stock, par value $2.50 per share


NYSE Alternext USDepositary Shares, each representing
    one-quarter of a share of Series A Convertible 
    Exchangeable Preferred Stock
    Preferred Stock Purchase Rights   Securities registered pursuant to Section 12(g) of the
    Act:
 Series A Convertible Exchangeable Preferred Stock, par
    value $1.00 per share
  o þ
  o þ
  þ o
  Regulation S-K 10-K Form 10-K. o
  12b-2
  Large
    accelerated
    filer o     Accelerated
    filer þ
    Non-accelerated
    filer o
    Smaller
    reporting
    company o   Rule 12b-2 o þ
      DOCUMENTS
    INCORPORATED BY REFERENCE




---



##### 





WESTMORELAND
    COAL COMPANY
  FORM 10-K
 ANNUAL
    REPORT
 TABLE OF
    CONTENTS
   
  
 Item



PagePART I1


Business


31A


Risk Factors


121B


Unresolved Staff Comments


202


Properties


203


Legal Proceedings


234


Submission of Matters to a Vote of Security
    Holders


25PART II5


Market for Registrants Common Equity,
    Related Stockholder Matters and Issuer Purchases of Equity
    Securities


266


Selected Financial Data


287


Managements Discussion and Analysis of
    Financial Condition and Results of Operations


297A


Quantitative and Qualitative Disclosures about Market Risk


468


Financial Statements and Supplementary Data


479


Changes in and Disagreements with Accountants on
    Accounting and Financial Disclosure


969A


Controls and Procedures


969B


Other Information


99PART III10


Directors, Executive Officers and Corporate
    Governance


10011


Executive Compensation


10012


Security Ownership of Certain Beneficial Owners
    and Management and Related Stockholder Matters


10013


Certain Relationships and Related Transactions,
    and Director Independence


10014


Principal Accountant Fees and Services


100PART IV15


Exhibits and Financial Statement Schedules


100Signatures


101EX-10.5EX-10.7EX-10.11EX-10.12EX-10.13EX-10.14EX-10.16EX-10.17EX-10.51EX-21.1EX-23.1EX-23.2EX-31.1EX-31.2EX-32   1




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##### Table of Contents



Forward-Looking
    Disclaimer
  Form 10-K, Risk Factors
  
    worldwide economic conditions;
    our ability to produce coal at existing and planned future
    operations;
    changes in postretirement benefit and pension obligations;
    availability and costs of credit, surety bonds and letters of
    credit;
    inability to expand coal operations due to limitations in
    obtaining bonding capacity to back new mining permits;
    our ability to maintain compliance with debt covenant
    requirements or obtain waivers from our lenders in cases of
    non-compliance;
    the ability of our subsidiaries to pay dividends to us due to
    restrictions in our debt arrangements;
    our ability to negotiate profitable coal contracts, price
    reopeners and extensions;
    our ability to maintain satisfactory labor relations and our
    ability to successfully negotiate labor contracts, particularly
    at our Rosebud Mine;
    financial stability of our customers, and their ability to
    continue to comply with their contractual commitments in a
    timely manner;
    disruptions in delivery or changes in pricing from third party
    vendors of goods and services which are necessary for our
    operations, such as fuel, steel products, explosives and tires;
    impact of weather on demand, production and transportation;
    the performance of our Roanoke Valley power plants, or ROVA, and
    the structure of its contracts with its lenders and Dominion
    Virginia Power;
    coals market share of electricity generation;
    future legislation and changes in regulations, governmental
    policies and taxes, including those aimed at reducing emissions
    of elements such as mercury, sulfur dioxides, nitrogen oxides,
    particular matter or greenhouse gases; and
    our ability to raise additional capital, our access to financing
    and our ability to sell assets as discussed under
    Managements Discussion and Analysis of Financial
    Condition and Results of Operations  Liquidity and
    Capital Resources.   2




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##### Table of Contents



PART I    ITEM 1 
    BUSINESS.  Overview
          Mining
    Operations
      Absaloka.
  Beulah.
  Jewett.
  Rosebud.
 3




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##### Table of Contents



Savage.
    Year

Absaloka


Rosebud


Jewett


Beulah


Savage


Total2008


6,418



13,026



6,494



3,046



359



29,3432007


7,347



12,583



6,781



2,946



354



30,0112006


7,079



12,430



6,798



2,702



376



29,385   Power
    Operations
      Megawatt


AverageYear

Hours


Capacity Factor2008


1,641,000



91
%2007


1,590,000



91
%2006


1,639,000



92
%     Information
    about Segments
    Sales,
    Markets and Customers
   4




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##### Table of Contents



Competition
      
    all of our mines are the most economic suppliers to each of
    their respective principal customers;
    nearly all of the power plants we supply were specifically
    designed to use our coal; and
    the plants we supply are among the lowest cost producers of
    electric power in their respective regions and are among the
    cleaner producers of power from solid fossil fuels.        300-mile
  Long-Term
    Coal Supply Agreements
   5




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##### Table of Contents



Projected Sales Tonnage UnderExisting Long-Term ContractsAs of December 31, 2008(In millions of tons)2009


28.02010


26.42011


22.02012


19.42013


19.3Thereafter


86.9Total


202.0              6




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##### Table of Contents



Suppliers
    Insurance
    Subsidiary
      Seasonality
    Government
    Regulations
    Environmental
    Regulations
    Mining Permits and Necessary
    Approvals.
 7




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##### Table of Contents



Surface Mining Control and Reclamation
    Act.
  Surety Bonds. and/or
  Clean Air Act.
  
    Acid Rain.  Title IV of the Clean Air Act
    imposes a
    cap-and-trade
    system to reduce sulfur dioxide emissions from utility
    coal-fueled power plants. Plants can comply by reducing
    emissions and banking or selling unused sulfur dioxide emission
    allowances as issued annually by the EPA or by purchasing
    allowances. Title IV also requires, generally, the
    installation and optimization of so-called Low NOx Burners to
    control nitrogen oxide emissions.
    NAAQS.  National Ambient Air Quality Standards,
    or NAAQS, are a core component of the Clean Air Act. Areas that
    are not in compliance with NAAQS, referred to as non-attainment
    areas, must take steps to reduce emissions levels. The EPA
    designated 211 counties in 25 states as being
    non-attainment areas relating to Particulate Matter 2.5, or
    PM2.5,
    of which sulfur dioxide is a primary precursor. In 2008, EPA
    significantly strengthened the NAAQS for ground-level ozone, for
    which nitrogen oxide is a primary precursor, revising the level
    of the primary and secondary
    8-hour ozone
    standards to 0.075 parts per million. The EPA is required to
    issue final ozone nonattainment designations by March 2010. Any
    designated non-attainment areas must create and submit plans
    that detail how the designated area will attain the required
    ozone or fine particulate levels through lowered emissions.
    Clean Air Interstate Rule and Mercury.  The EPA
    promulgated the Clean Air Interstate Rule, or CAIR, and the
    Clean Air Mercury Rule, or CAMR, in March 2005. CAIR requires
    reduction of sulfur dioxide and nitrogen oxide emissions from
    electricity generating plants in 28 states and the District
    of Columbia. CAMR sought to permanently cap and reduce
    nationwide mercury emissions from coal-fired power plants. On
    February 8, 2008, the D.C. Circuit Court of Appeals
    rendered a decision effectively vacating CAMR. In addition, on
    July 11, 2008, the D.C. Circuit Court of Appeals rendered a
    separate decision effectively vacating CAIR. However, on
    December 23, 2008, the D.C. Circuit Court of 8




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##### Table of Contents



Appeals issued an order that leaves CAIR in effect while the EPA
    develops a new clean air program for power plants.  
    New Source Review.  The New Source Review
    program, or NSR, requires that when large industrial facilities,
    such as power plants, are rehabilitated or refurbished, they
    also modernize air pollution controls. In April 2007, the
    Supreme Court ruled against a generator in an enforcement
    proceeding. This decision could potentially expose numerous
    electricity generators to government or citizen actions based on
    failure to obtain NSR permits for changes to emissions sources.
    Section 126 Rule. On December 17, 1999, the EPA
    issued regulations under Section 126 of the Clean Air Act.
    The Section 126 rule requires combined nitrogen oxide
    reductions of 510,000 tons during each annual ozone season from
    specified power stations in the Eastern United States, including
    ROVA. Each power plant is assigned a nitrogen oxide emissions
    allocation, and power plants can reduce emissions to meet the
    allocation or purchase allowances.
    North Carolina Nitrogen Oxide Limits.  North
    Carolina adopted new nitrogen oxide limits in June 2004 to
    comply with CAIR. ROVA is in compliance with these regulations
    through the installation of a neural network in its boilers,
    which increases efficiency and reduces nitrogen oxide emissions,
    and through the purchase of NOx credits.  Clean Water Act.
  Resource Conservation and Recovery Act.
  CERCLA (Superfund).
  Material
    Effects of Environmental Regulation
    Power Operations. and/or
 9




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Coal Operations.
  Coal Markets.
        Health
    and Benefits
  Mine Health and Safety Laws.
  Black Lung.
  Coal Act.
 10




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##### Table of Contents



Managements Discussion and Analysis
    of Financial Condition and Results of Operations 
    Liquidity and Capital Resources
  Employees
    and Labor Relations
        Available
    Information
  1-800-SEC-0330
  (719) 442-2600 Form 10-K.
 11




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##### Table of Contents



ITEM 1A 
    RISK
    FACTORS.    We may
    not generate sufficient cash flow to pay our operating expenses,
    meet our debt service costs and pay heritage and corporate
    costs, and we may not be able to obtain additional sources of
    liquidity to meet these needs.
          We
    have a significant amount of debt, which imposes restrictions on
    us and may limit our flexibility, and a decline in our operating
    performance may materially affect our ability to meet our future
    financial commitments and liquidity needs.
   12




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##### Table of Contents




    increasing our vulnerability to general adverse economic and
    industry conditions;
    limiting our ability to obtain additional financing to fund
    future working capital, capital expenditures or equipment leases
    or other general corporate requirements; and
    limiting our flexibility in planning for, or reacting to,
    changes in our business and in the industry.    Continuing
    unfavorable economic conditions could have a material adverse
    effect on our results of operations.
    Volatility
    in the capital markets could negatively impact our pension
    expense and cash contributions.
    Our
    coal mining operations are subject to external conditions that
    could disrupt operations and negatively affect our
    profitability.
    
    unplanned equipment failures, which could interrupt production
    and require us to expend significant sums to repair our
    equipment, which is integral to the mining of coal;
    geological conditions, such as variations in the quality of the
    coal produced from a particular seam, variations in the
    thickness of coal seams and variations in the amounts of rock
    and other natural materials that overlie the coal that we are
    mining; and
    weather conditions.   13




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##### Table of Contents



If
    transportation for the coal produced by our Absaloka and Beulah
    Mines becomes unavailable, or if transportation becomes
    uneconomical for Absaloka coal, our revenues could
    suffer.
    74-mile
  Our
    revenues could suffer if our customers reduce or suspend their
    coal purchases.
    Disputes
    relating to our coal supply agreements could harm our financial
    results.
    Our
    expenditures for heritage costs and postretirement medical
    benefits could be materially higher than we have predicted if
    our underlying assumptions prove to be incorrect.
  Managements Discussion and Analysis of Financial
    Condition and Results of Operations-Critical Accounting
    Estimates and Related Matters and/or
 14




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##### Table of Contents



If the
    cost of obtaining new reclamation bonds and renewing existing
    reclamation bonds continues to increase or if we are unable to
    obtain additional bonding capacity, our operating results could
    be negatively affected.
    We
    face competition for sales to new and existing customers, and
    the loss of sales or a reduction in the prices we receive under
    new or renewed contracts would lower our revenues.
      Our
    mining operations are extensively regulated, which imposes
    significant costs on us, and delays in receiving permits or
    future regulations and developments could increase those costs
    or limit our ability to produce and sell coal.
   15




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##### Table of Contents



and/or and/or
  Concerns
    about the environmental impacts of coal combustion, including
    perceived impacts on global climate change, are resulting in
    increased regulation of coal combustion in many jurisdictions,
    and interest in further regulation, which could significantly
    affect demand for our products.
      cap-and-trade
    We
    have significant reclamation and mine closure obligations. If
    the assumptions underlying our accruals are materially
    inaccurate, or if we are required to cover reclamation
    obligations that have been assumed by our customers, we could be
    required to expend greater amounts than we currently anticipate,
    which could negatively affect our operating results in future
    periods.
   16




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Our
    revenues could be affected by unscheduled outages at the power
    plants we supply or own or if the scheduled maintenance outages
    at the power plants we supply or own last longer than
    anticipated.
    A
    decrease in the availability or increase in costs of key
    supplies, capital equipment or commodities such as diesel fuel,
    steel, explosives and tires could affect our financial
    results.
    If we
    experience unanticipated increases in the capital expenditures
    we expect to make over the next several years, our liquidity
    could suffer.
  return-on-investment.
  Provisions
    of our certificate of incorporation, bylaws, Delaware law and
    our stockholder rights plan may have anti-takeover effects that
    could prevent a change of control of our company that
    stockholders may consider favorable, and the market price of our
    common stock may be lower as a result.
   17




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##### Table of Contents



Future
    sales of our common stock by our major stockholder may depress
    our share price and influence our management
    policies.
    Our
    ability to operate effectively and achieve our strategic goals
    depends on maintaining satisfactory labor
    relations.
    Our
    financial results may be impacted by the different
    interpretations and application of accounting literature in the
    mining industry.
    We
    have formed a limited liability company to utilize potential
    Indian Coal Production Tax Credits, or ICTCs. Under
    certain circumstances, the transaction may be cancelled and we
    may be required to return payments received from the third
    party.
   18




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##### Table of Contents



19




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##### Table of Contents



ITEM 1B 
    UNRESOLVED
    STAFF COMMENTS.    ITEM 2 
    PROPERTIES.               20




---



##### Table of Contents



Absaloka

Rosebud

Jewett

Beulah

SavageMine

Mine

Mine

Mine

MineOwned by

Westmoreland 
    Resources, Inc.

Western
    Energy 
    Company

Texas 
    Westmoreland
    Coal Co.

Dakota 
    Westmoreland
    Corporation

Westmoreland
    Savage
    CorporationLocation

Big Horn 
    County, MT

Rosebud
    and Treasure
    Counties, MT

Leon, Freestone
    and Limestone
    Counties, TX

Mercer and Oliver
    Counties, ND

Richland
    County, MTCoal reserves (thousands of tons)(1)Proven

80,873

205,000

55,256

47,268

7,282Probable







26,939

Permitted reserves (thousands of tons)

9,758

131,000

55,256

16,243

1,4732008 production (thousands of tons)

6,391

12,827

6,494

3,046

359Estimated life of permitted reserves(2)

2010

2019

2018

2010

2013Lessor

Crow Tribe

Federal
    Govt; State
    of MT; Great
    Northern
    Properties

Private
    parties;
    State
    of Texas

Private parties;
    State of ND;
    Federal Govt

Federal Govt;
    Private partiesLease term

Through
    exhaustion

Varies

Varies

2009-2019

VariesCurrent production capacity (thousands of tons)

7,500

13,300

7,000

3,400

400Coal type

Sub-bituminous

Sub-bituminous

Lignite

Lignite

LigniteAcres disturbed by mining

4,513

16,800

16,118

5,125

556Acres for which reclamation is complete

2,760

7,583

11,921

3,605

209Major customers

Xcel Energy, 
    Western Fuels
    Assoc., Midwest
    Energy, Rocky
    Mountain Power

Colstrip 1&2
    owners, Colstrip 
    3&4 owners, 
    Minnesota
    Power

NRG Texas
    Power LLC

Otter Tail,
    MDU, Minnkota,
    Northwestern
    Public
    Service

MDU, Sidney
    SugarsDelivery method

Rail/Truck

Truck/Rail/
    Conveyor

Conveyor

Conveyor / Rail

TruckApprox. heat content (BTU/lb.)(3)

8,687

8,529

6,587

7,002

6,553Approx. sulfur content(%)(4)

0.68

0.74

0.79

0.76

0.55Year current complex opened

1974

1968

1985

1963

1958Total tons mined since inception (thousands of tons)

162,122

409,572

174,000

96,769

13,798     (1)
    
    Reserves are defined by SEC
    Industry Guide 7 as that part of a mineral deposit which could
    be economically and legally extracted or produced at the time of
    the reserve determination. Proven and probable coal reserves are
    defined by SEC Industry Guide 7 as follows:  Proven (Measured) Reserves Reserves for
    which (a) quantity is computed from dimensions revealed in
    outcrops, trenches, workings or drill holes; grade and/or
    quality are computed from the results of detailed sampling and
    (b) the sites for inspection, sampling and measurement are
    spaced so close and the geographic character is so well defined
    that size, shape, depth and mineral content of reserves are
    well-established. 21




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##### Table of Contents



Probable (Indicated) Reserves Reserves for
    which quantity and grade and/or quality are computed from
    information similar to that used for proven (measured) reserves,
    but the sites for inspection, sampling and measurement are
    farther apart or are otherwise less adequately spaced. The
    degree of assurance, although lower than that for proven
    (measured) reserves, is high enough to assume continuity between
    points of observation.  (2)
    
    Approximate year in which permitted
    reserves would be exhausted, based on current mine plan and
    production rates. Our Jewett Mines permit is expected to
    be renewed in 2009, but effectively covers all of the
    Mines reserves for the entire life of the mine. The
    Absaloka Mine permit expires in 2013.(3)
    
    Approximate heat content applies to
    the coal mined in 2008.(4)
    
    Approximate sulfur content applies
    to the tons mined in 2008.            Other
   22




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##### Table of Contents



ITEM 3 
    LEGAL
    PROCEEDINGS.    Severance
    Benefits Payable to Former CEO
    Royalty
    Claims by Minerals Management Service and Related Tax Claims by
    Montana Department of Revenue
    Transportation
    Claims
        Gross
    Inequity Claim
   23




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##### Table of Contents



McGreevey
    Litigation
  McGreevey et al. v. Montana Power Company et al.
    Customer
    Reclamation Claims
     24




---



##### Table of Contents



ITEM 4 
    SUBMISSION
    OF MATTERS TO A VOTE OF SECURITY HOLDERS.   25




---



##### Table of Contents



PART II  ITEM 5 
    MARKET
    FOR REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER MATTERS
    AND ISSUER PURCHASES OF EQUITY SECURITIES.  Market
    Information
      Sales PricesCommon Stock2007

High


LowFirst Quarter

$
23.40


$
17.83Second Quarter


28.75



18.90Third Quarter


28.65



16.30Fourth Quarter


21.00



12.142008First Quarter


16.47



9.81Second Quarter


21.51



13.31Third Quarter


24.50



13.62Fourth Quarter


15.73



5.30   Dividend
    Policy
     26




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##### Table of Contents



Stock
    Performance Graph
    
  December 31,


2003



2004



2005



2006



2007



2008Westmoreland Coal Co.



100




174




131




112




79




63Peer Group Index



100




167




280




252




441




177Amex Market Index



100




115




126




141




159




95   Stock Performance
    Graph Form 10-K
  Equity
    Compensation Plans
   27




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##### Table of Contents



ITEM 6 
    SELECTED
    FINANCIAL DATA.  Westmoreland
    Coal Company and Subsidiaries
  Five-Year
    Review
  Consolidated Statements of Operations Information

2008


2007


2006(1)


2005


2004(In thousands; except per share data)Revenues

$
509,696


$
504,217


$
444,407


$
373,744


$
332,389Income (loss) from operations


(16,035
)


(5,882
)


4,617



(3,630
)


(2,900
)Loss from continuing operations


(48,567
)


(23,518
)


(13,104
)


(12,945
)


(11,108
)Income from discontinued operations, net






1,725



406







Net loss before cumulative effect of accounting change


(48,567
)


(21,793
)


(12,698
)


(12,945
)


(11,108
)Cumulative effect of accounting change, net














2,662



Net loss


(48,567
)


(21,793
)


(12,698
)


(10,283
)


(11,108
)Less preferred stock dividend requirements


1,360



1,360



1,585



1,744



1,744Less premium on exchange of preferred stock for common stock










791







Net loss applicable to common shareholders

$
(49,927
)

$
(23,153
)

$
(15,074
)

$
(12,027
)

$
(12,852
)Per common share (basic and diluted):Loss from continuing operations

$
(5.25
)

$
(2.71
)

$
(1.77
)

$
(1.77
)

$
(1.59
)Net loss applicable to common shareholders

$
(5.25
)

$
(2.53
)

$
(1.72
)

$
(1.45
)

$
(1.59
)Balance Sheet InformationWorking capital deficit

$
(24,152
)

$
(94,674
)

$
(66,773
)

$
(20,138
)

$
(6,608
)Net property, plant and equipment


443,400



442,426



431,452



211,157



204,557Total assets


812,967



782,528



761,382



495,871



462,730Total debt


269,153



271,448



306,007



112,243



117,259Shareholders
    deficit(2)


(217,598
)


(177,257
)


(185,933
)


(30,208
)


(19,038
)     (1)
    
    Effective June 29, 2006, we acquired a 50% interest in a
    partnership, which owns the 230-megawatt ROVA power plants from
    a subsidiary of E.ON U.S. LLC. The acquisition increased our
    ownership interest in the partnership to 100%.(2)
    
    Effective December 31, 2006, we adopted the provisions of
    Statement of Financial Accounting Standards 158, or
    SFAS 158. Upon adoption of the Standard, we recorded an
    increase in stockholders deficit of $129.8 million to
    reflect on our balance sheet the underfunded status of our
    pension and postretirement benefit plans.   28




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##### Table of Contents



ITEM 7 
    MANAGEMENTS
    DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
  Overview
          Results
    of Operations
  Items
    that Affect Comparability of Results
    Year Ended December 31,

2008


2007


2006Interest expense attributable to beneficial conversion feature

$
(8,146
)






Loss on extinguishment of WML debt


(3,834
)






Loss on extinguishment of ROVA debt


(1,344
)






Settlement of coal royalty dispute


(2,635
)






Gain on sale of interest in Ft. Lupton power project


876







Combined benefit fund settlement and interest






6,389



Gain on sale of mineral interests






5,641



5,060Gain on the sale of power operations and maintenance business






483



Absaloka Mine operating contract termination fee






(813
)


Inventory impairment






(1,128
)


Restructuring charges


(2,009
)


(4,523
)


Total impact of restructuring charges and special items

$
(17,092
)


6,049



5,060   Items
    recorded in 2008
  
    We recorded $8.1 million of expense related to the
    beneficial conversion feature in the convertible notes we issued
    in March 2008, as the conversion price was lower than the fair
    market value of our common stock at the time of issuance (see
    Note 7 for a more detailed discussion).
    We refinanced both our WML and ROVA debt during 2008 and as a
    result recorded losses of $3.8 million and
    $1.3 million, respectively, for the extinguishment of debt
    (see Note 7).
    We recorded $2.6 million in net expense related to two coal
    royalty claims as we reached an agreement with the
    U.S. Minerals Management Service and the Montana Department
    of Revenue to settle two long-standing disputes (see
    Note 19). 29




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##### Table of Contents




    On July 2, 2008, we received $0.9 million for our
    royalty interest in the gas-fired Ft. Lupton project and
    recognized a gain of $0.9 million on the sale (see
    Note 14).
    In 2007, we initiated a restructuring plan in order to reduce
    the overall cost structure of the Company. As a result, in 2008
    and 2007 we recorded restructuring charges of $2.0 million
    and $4.5 million, respectively. Most of the restructuring
    charges related to termination benefits, outplacement costs, and
    lease costs related to the consolidation of corporate office
    space (see Note 2).  Items
    recorded in 2007
  
    During 2007, we reached a settlement with the Combined Benefit
    Fund, or CBF, for the reimbursement of $5.8 million, plus
    interest, in past overpayments to the CBF for retiree medical
    benefits. We recorded the settlement as a $5.8 million
    reduction in heritage health benefit expenses and
    $0.6 million in interest income.
    In 2007, we sold a royalty interest in a Wyoming mine for
    $12.7 million. The sale of the royalty interest resulted in
    a gain of approximately $5.6 million.
    In 2007, we sold our power operation and maintenance business to
    North American Energy Services, or NAES, for $0.8 million.
    The sale of the power operation and maintenance business
    resulted in a gain of $0.5 million during 2007.
    In 2007, WRI reached an agreement to settle its contract
    disputes with Washington Group International, Inc., or WGI, who
    had been the contract operator and 20% owner of the mine. As
    part of the settlement agreement, WRI assumed operation of the
    Absaloka Mine and recorded a contract termination fee of
    $0.8 million related to the buyout of the WGI operating
    contract. Later in 2007, we purchased WGIs 20% interest to
    become the sole owner of WRI.
    Pursuant to our Jewett Mines new coal sale agreement with
    its customer entered into in 2007, we developed a new mine plan.
    As a result of the new mine plan, we wrote off $1.1 million
    of inventory associated with equipment which will not be
    utilized under the new mine plan.  Items
    recorded in 2006
  
    In 2006, we sold our interests in two coal bed methane leases in
    southern Colorado and recognized a $5.1 million gain on the
    sale.  2008
    Compared to 2007
  Summary
     30




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##### Table of Contents



Items that Affect Comparability of Our Results
  
    A $3.4 million decrease in our coal segment operating
    income driven by:  
    A $3.1 million increase in 2008 depreciation, depletion,
    and amortization expenses resulting from increased depletion
    expenses from asset retirement cost assets, which increased at
    the end of 2007 due to updated engineering studies, and capital
    expenditures at the mines;
    reduced tonnages sold; and
    increases in fuel and other commodity costs in 2008.  
    A $1.7 million increase in power segment operating income
    resulting primarily from the execution of our restructuring plan
    and resulting cost savings.
    A $1.1 million increase in our 2008 heritage costs largely
    driven by a $3.2 million increase in our 2008 workers
    compensation expenses due to a decrease in the discount rate
    used and unfavorable claims experience.
    A $1.8 million decrease in our corporate expenses related
    to the execution of our restructuring plan and our cost control
    efforts.
    A $0.7 million increase in income tax expense resulting
    from increases in state income taxes and a provision for a state
    income tax claim.
    A $1.7 million decrease in income from discontinued power
    operations and maintenance businesses sold in 2007.  Coal
    Segment
    Year Ended December 31,Increase/(Decrease)2008


2007


$


%(In thousands)Revenues

$
419,806


$
418,870


$
936



0.2
%Operating income


15,211



18,723



(3,512
)


(18.8
)%Tons sold  millions of equivalent tons


29.3



30.0



(0.7
)


(2.3
)%     Items that Affect Comparability of Our Results
  
    A $3.1 million increase in 2008 depreciation, depletion,
    and amortization expenses resulting from increased depletion
    expenses from asset retirement cost assets, which increased at
    the end of 2007 due to updated engineering studies, and capital
    expenditures at the mines;
    reduced tonnages sold; and
    increases in fuel and other commodity costs in 2008. 31




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##### Table of Contents



Power
    Segment
    Year Ended December 31,Increase/(Decrease)2008


2007


$


%(In thousands)Revenues

$
89,640


$
84,953


$
4,687



5.5
%Operating income


16,920



14,150



2,770



19.6
%Megawatts hours  thousands


1,641



1,590



51



3.2
%     Items that
    Affect Comparability of Our Results
  Heritage
    Year Ended December 31,Increase/(Decrease)2008


2007


$


%(In thousands)Health care benefits

$
25,588


$
28,252


$
(2,664
)


(9.4
)%Combined benefit fund payments (credits)


3,470



(2,156
)


(5,626
)


260.9
%Workers compensation benefits


4,417



1,175



3,242



275.9
%Black lung benefits (credits)


(23
)


318



(341
)


(107.2
)%Selling and administrative costs


2,045



1,034



1,011



97.8
%Gain on sale of assets


(25
)






(25
)


Heritage segment operating loss

$
(35,472
)

$
(28,623
)

$
(6,849
)


23.9
%   Items that Affect Comparability of Our Results
  Corporate
   32




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##### Table of Contents



Items that Affect Comparability of Our
    Results
  Other
    income (expense), income tax expense, discontinued operations
    and preferred dividends
  Items that Affect
    Comparability of Our Results
      2007
    Compared to 2006
  Summary
    Items that Affect Comparability of Our
    Results
  
    a $12.0 million decrease in our coal segment operating
    profit driven by increases in our coal segment depletion
    expenses, lease costs, administrative costs, and operating and
    maintenance costs;
    $2.5 million increase in power segment operating income
    following the ROVA acquisition;
    $0.7 million increase in our black lung expenses due to the
    benefit recorded in 2006;
    decrease in income tax expense resulting from a
    $2.1 million North Carolina state tax assessment recorded
    in 2006;
    $1.3 million increase in our 2007 income from our
    discontinued power operations and maintenance business as we
    owned this business for a longer duration in 2007 than in
    2006; and
    $1.4 million charge in 2006 for the exchange of preferred
    stock for common stock, net of the corresponding decrease in our
    2007 preferred stock dividends resulting from the exchange. 33




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##### Table of Contents



Coal
    Segment
    Year Ended December 31,Increase/(Decrease)2007


2006


$


%(In thousands)Revenues

$
418,870


$
393,482


$
25,388



6.5
%Operating income


18,723



33,370



(14,647
)


(43.9
)%Tons sold  millions of equivalent tons


30.0



29.4



0.6



2.0
%     Items that Affect
    Comparability of Our Results
  
    A $4.0 million increase in 2007 depreciation, depletion,
    and amortization expenses resulting from increased depletion
    expenses for asset retirement cost assets, which increased at
    the end of 2006 due to updated engineering studies, and capital
    expenditures at the mines;
    $2.0 million of costs resulting from an amendment to our
    Crow Tribe lease agreement;
    $1.3 million increase in administrative costs as a result
    of increases in legal and professional fees and information
    technology costs; and
    significant increases in the various mines operating and
    maintenance costs.  Power
    Segment
    Year Ended December 31,Increase/(Decrease)2007


2006


$


%(In thousands)Revenues

$
84,953


$
43,244


$
41,709



96.5
%Operating income


14,150



11,906



2,244



18.8
%Megawatt hours  thousands


1,590



1,639



(49
)


(3.0
)%     Items that Affect
    Comparability of Our Results
 34




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##### Table of Contents



Heritage
    Year Ended December 31,Increase/(Decrease)2007


2006


$


%(In thousands)Health care benefits

$
28,252


$
28,295


$
(43
)


(0.2
)%Combined benefit fund payments (credits)


(2,156
)


3,611



(5,767
)


(159.7
)%Workers compensation benefits


1,175



1,336



(161
)


(12.1
)%Black lung benefits (credit)


318



(421
)


739



175.5
%Selling and administrative costs


1,034



186



848



455.9
%Heritage segment operating loss

$
(28,623
)

$
(33,007
)

$
(4,384
)


13.3
%   Items that Affect Comparability of Our
    Results
  Corporate
  Items that Affect Comparability of Our Results
  Other
    income (expense), income tax expense, discontinued operations,
    and preferred dividends
          Significant
    Anticipated Variances between 2008 and 2009
   35




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##### Table of Contents



Items that Affect Comparability of Results
  
    We expect our overall tons delivered to decrease from 2008 sales
    tonnages due to anticipated reductions in customer demand and
    overall economic conditions. We expect this decrease in tons
    sold to be offset with cost savings generated by productivity
    and efficiency improvements;
    We expect a decrease in our power segment revenues and increased
    maintenance expenses resulting from a planned maintenance
    shutdown at one of our ROVA plants that is required every five
    years;
    In May 2009, the fixed capacity payment that we receive for each
    megawatt-hour
    of electricity that ROVA produces will step down to a lower rate
    which continues through the end of the power sales agreement in
    2019. This decrease will result in a reduction in cash receipts,
    but will have no impact on our revenues as we begin recognition
    of previously deferred revenues;
    We expect our Indian Coal Production Tax Credit transactions to
    generate approximately $7.0 to $8.0 million of additional
    earnings and cash flows upon the approval of the private letter
    ruling by the Investor and one of our lenders;
    We expect an increase in our depreciation expense as a result of
    increased capital investments made during 2008 at our mining
    operations. We expect to make additional capital investments
    during 2009 in the range of $40.0 to $50.0 million to
    improve our mining operations and increase productivity. We
    expect these capital investments to be funded through our
    mines operating cash flows or, if necessary, the
    mines existing credit facilities;
    We expect a decrease in corporate professional fees as we
    incurred significant expenses in 2008 related to our financial
    statement restatement;
    We expect a reduction in our repayments of long-term debt
    resulting from the refinancing in 2008 of our coal and power
    debt. We are not required to make principal payments on our WML
    debt until 2011;
    We expect an increase in our restricted investments and bond
    collateral as we enter new mining areas during 2009 and expect
    to use approximately $5.0 to $10.0 million in cash
    collateral to secure our reclamation bonds; and
    We expect to have an increase in our required pension plan
    contributions resulting from the decline in the value of our
    pension investments and our loan covenants, which require us to
    maintain a 90% funding status. We expect to contribute
    approximately $11.3 million to our funded pension plans in
    2009.  Financial
    Implications of the Indian Coal Production Tax Credit
    Transactions
       36




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##### Table of Contents



Liquidity
    and Capital Resources
        
    Our significant level of debt and limitations under our
    current debt agreements on the ability of WML and ROVA to pay
    dividends to us.   37




---



##### Table of Contents




    Our heritage health benefit and pension obligations, which
    must be funded by distributions from our operating
    subsidiaries.          2008


2009Actual


ExpectedPayments


Payments(In millions)Postretirement medical benefits (net of subsidy)

$
17.0


$
19.1Pension contributions


4.9



11.3CBF premiums


3.5



3.2Workers compensation benefits


1.0



1.0   
    Cash collateral requirements for additional reclamation
    bonds in new mining areas.   38




---



##### Table of Contents



Liquidity
    Improvements and Strategic Alternatives
    
    On March 4, 2008, we completed the sale of
    $15.0 million in senior secured convertible notes to an
    existing shareholder;
    On March 17, 2008, Westmoreland Partners, our wholly owned
    subsidiary, completed a refinancing of ROVAs debt. The
    refinancing paid off all outstanding bank borrowings, bond
    borrowings, and the ROVA acquisition loan, and eliminated the
    need for the irrevocable letters of credit, which supported the
    bond borrowings;
    On June 26, 2008, WML completed a refinancing of its term
    debt. On that date, WML entered into a note purchase agreement
    with institutional investors under which it sold
    $125.0 million of secured notes with principal payments
    beginning in 2011. Also on June 26, 2008, WML amended its
    Revolving Credit Agreement with its lenders and increased the
    facility to $25.0 million through 2013. We are not required
    to make principal payments on our WML debt until 2011;
    On October 16, 2008, WRI entered into a series of
    transactions in order to monetize the Indian Coal Production Tax
    Credits available to it. If the private letter ruling received
    from the IRS on the transactions is approved by the Investor and
    one of our lenders, we could realize net cash flows of up to
    $37.1 million before taxes through 2012. See Note 16
    Indian Coal Production Tax Credits; and
    On November 20, 2008, WRIs $20.0 million
    revolving credit facility was extended through November 19,
    2009.        
    We are in initial discussions with a potential buyer regarding
    the sale of certain assets, but it is not certain such a sale
    could be completed in the time required to meet our cash needs;
    We are pursuing and evaluating potential sale-leaseback
    transactions for certain facilities and equipment at our
    Absaloka Mine;
    We are pursuing alternatives to meet future reclamation bond
    requirements as we enter new mining areas with reduced amounts
    of cash collateral;
    We are attempting to improve our liquidity by improving the
    operating performance of our mines. We believe that increases in
    tons produced and sold, improvements in productivity, and our
    continued focus on cost control at our mining operations during
    2009 should improve our liquidity; and 39




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##### Table of Contents




    We are looking at various alternatives to reduce our required
    2009 pension contributions, including modifying elections
    available to us in determining the required contribution,
    contributing shares of our common stock to the plan in lieu of
    cash, amending our pension plans, and negotiating revised
    covenants with our lenders.      
    The private letter ruling received from the IRS is approved by
    the Investor and one of our lenders and the ICTC monetization
    transactions proceed in accordance with their terms;
    Our operating cash flow at WRI significantly increases over 2008
    levels as a result of actions taken to improve the operating
    performance of the mine;
    WRIs revolving line of credit is renewed or refinanced
    when it matures in November 2009;
    We are able to defer or reduce our bonding requirements in
    2009; and
    We are able to reduce the cash contributions we are required to
    make to our pension plans in 2009.    Historical
    Sources and Uses of Cash
    Years Ended December 31,2008


2007(In thousands)Cash provided by (used in):Operating activities

$
55,245


$
82,516Investing activities


(6,588
)


(43,259
)Financing activities


(28,452
)


(46,259
)        40




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##### Table of Contents



Cash
    Balances and Available Credit
    WML

$
31,117ROVA


5.664Westmoreland Risk Management


1,864Westmoreland Coal Company (Parent)


956Westmoreland Resources, Inc.


340Total consolidated cash and cash equivalents

$
39,941   Lines
    of Credit
    Total Line


Amounts


Letters ofof Credit


Outstanding


Credit


AvailabilityWML

$
25.0


$



$
1.9


$
23.1WRI


20.0



10.3







9.7ROVA


6.0











6.0$
51.0


$
10.3


$
1.9


$
38.8      41




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##### Table of Contents



Contractual
    Obligations and Commitments
    Payments Due by PeriodAfterTotal


2009


2010


2011


2012


2013


2013(In thousands of dollars)Long-term debt obligations (principal and interest)

$
329,989



57,199



28,431



33,429



36,634



53,382



120,914Capital lease obligations (principal and interest)


34,301



7,368



6,607



5,808



5,254



4,867



4,397Operating lease obligations


17,250



5,385



4,557



4,389



1,988



630



301Purchase obligations


173,074



27,929



27,929



27,929



27,929



27,929



33,429Other long-term
    liabilities(1)


1,262,211



53,013



52,342



60,858



48,813



51,169



996,016Totals

$
1,816,825



150,894



119,866



132,413



120,618



137,977



1,155,057     (1)
    
    Represents long-term liabilities relating to our postretirement
    health benefit plans, defined benefit pension plans, workers
    compensation liabilities, and mine reclamation costs.  Critical
    Accounting Policies and Estimates
    Postretirement
    Medical Benefits and Pension Obligations
       42




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##### Table of Contents



Postretirement BenefitsHealth Care Cost Trend Rate

1% Increase


1% Decrease(In thousands)Effect on service and interest cost components

$
1,930


$
(1,636
)Effect on postretirement benefit obligation

$
28,938


$
(24,682
)   Asset
    Retirement Obligations, Reclamation Costs and Reserve
    Estimates
      Income
    Taxes and Deferred Income Taxes
       43




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##### Table of Contents



Recent
    Accounting Pronouncements
  Noncontrolling Interests in Consolidated Financial
    Statements  an amendment of ARB No. 51
  Business
    Combinations
  Employers Disclosures about Postretirement Benefit Plan
    Assets
  14-1, Accounting for Convertible Debt Instruments That May Be
    Settled in Cash upon Conversion (Including Partial Cash
    Settlement) 14-1, EITF 07-5, Determining Whether an Instrument (or Embedded Feature) is
    Indexed to an Entitys Own Stock EITF 07-5 14-1 EITF 07-5
 44




---



##### Table of Contents



Off-Balance
    Sheet Arrangements
      PostWorkers


RetirementReclamation


Compensation


Health BenefitObligations


Obligations


Obligations


Other


TotalSurety bonds

$
213,493


$
10,303


$
9,032


$
12,915


$
245,743Letters of credit














8,556



8,556$
213,493


$
10,303


$
9,032


$
21,471


$
254,299  45




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##### Table of Contents



ITEM 7A 
    QUANTITATIVE
    AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.    Commodity
    Price Risk
    and/or
    Interest
    Rate Risk
    Effect of 1% increaseor 1% decreaseRevolving lines of credit

$
100WRIs term debt


75ROVAs term debt


50     Carrying Value


Fair ValuePracticable to estimate fair value

$
204,231


$
180,601Not practicable to estimate fair value


15,789



      46




---



##### 



ITEM 8 
    FINANCIAL
    STATEMENTS AND SUPPLEMENTARY DATA.   
 Index to Financial Statements

PageConsolidated Balance Sheets


48Consolidated Statements of Operations


49Consolidated Statements of Shareholders
    Deficit and Comprehensive Loss


50Consolidated Statements of Cash Flows


51Notes to Consolidated Financial Statements


52Report of Independent Registered Public
    Accounting Firm


95   47




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##### Table of Contents



WESTMORELAND
    COAL COMPANY AND SUBSIDIARIES
  Consolidated
    Balance Sheets
  December 31,2008


2007(In thousands)ASSETSCurrent assets:Cash and cash equivalents

$
39,941


$
19,736Receivables:Trade


58,141



52,732Contractual third party reclamation receivables


14,256



Other


17,815



2,63090,212



55,362Inventories


24,654



28,798Restricted investments and bond collateral


2,001



20,118Other current assets


5,062



3,829Total current assets


161,870



127,843Property, plant and equipment:Land and mineral rights


83,874



83,048Capitalized asset retirement cost


121,741



126,532Plant and equipment


446,714



410,379652,329



619,959Less accumulated depreciation, depletion and amortization


208,929



177,533Net property, plant and equipment


443,400



442,426Excess of trust assets over pneumoconiosis benefit obligation


2,239



2,216Advanced coal royalties


3,311



3,881Reclamation deposits


69,707



65,613Restricted investments and bond collateral, less current portion


45,302



56,386Contractual third party reclamation receivables, less current
    portion


66,918



68,811Deferred income taxes


1,420



Intangible assets, net of accumulated amortization
    $4.8 million at December 31, 2008 and
    $2.6 million at December 31, 2007, respectively


10,823



12,519Other assets


7,977



2,833Total Assets

$
812,967


$
782,528LIABILITIES AND SHAREHOLDERS DEFICITCurrent liabilities:Current installments of long-term debt

$
34,186


$
86,719Revolving lines of credit


10,300



14,200Accounts payable and accrued expenses


141,536



121,598Total current liabilities


186,022



222,517Long-term debt, less current installments


224,667



170,529Workers compensation, less current portion


11,801



8,566Postretirement medical costs, less current portion


266,675



270,569Pension and SERP obligations, less current portion


38,862



23,748Deferred revenue, less current portion


80,907



52,345Asset retirement obligations, less current portion


205,572



193,027Other liabilities


16,059



18,484Total liabilities


1,030,565



959,785Shareholders deficit:Preferred stock of $1.00 par valueAuthorized 5,000,000 shares; issued and outstanding
    160,130 shares at December 31, 2008 and 2007


160



160Common stock of $2.50 par valueAuthorized 20,000,000 shares; issued and outstanding
    9,690,018 shares at December 31, 2008 and
    9,427,203 shares at December 31, 2007


24,223



23,567Other paid-in capital


96,196



85,352Accumulated other comprehensive loss


(119,367
)


(116,093
)Accumulated deficit


(218,810
)


(170,243
)Total shareholders deficit


(217,598
)


(177,257
)Commitments and contingent liabilitiesTotal Liabilities and Shareholders Deficit

$
812,967


$
782,528    48




---



##### Table of Contents



WESTMORELAND
    COAL COMPANY AND SUBSIDIARIES
  Consolidated
    Statements of Operations
  Years Ended December 31,2008


2007


2006(In thousands)Revenues:Coal

$
419,806


$
418,870


$
393,482Energy


89,640



84,953



43,244Independent power projects  equity in earnings


250



394



7,681509,696



504,217



444,407Cost and expenses:Cost of sales  coal


350,038



345,395



311,629Cost of sales  energy


59,757



54,951



28,376Depreciation, depletion and amortization


41,387



38,123



29,340Selling and administrative


40,513



44,813



42,409Restructuring charges


2,009



4,523



Heritage health benefit expenses


33,452



27,589



32,821Gain on sales of assets


(1,425
)


(5,295
)


(4,785
)525,731



510,099



439,790Operating income (loss)


(16,035
)


(5,882
)


4,617Other income (expense):Interest expense


(23,130
)


(24,638
)


(19,234
)Interest expense attributable to beneficial conversion feature


(8,146
)






Loss on extinguishment of debt


(5,178
)






Interest income


5,125



8,152



6,089Minority interest






(1,194
)


(2,244
)Other income (loss)


(284
)


243



73(31,613
)


(17,437
)


(15,316
)Loss from continuing operations before income taxes


(47,648
)


(23,319
)


(10,699
)Income tax expense from continuing operations


919



199



2,405Loss from continuing operations


(48,567
)


(23,518
)


(13,104
)Discontinued operations:Income from discontinued operations, net of income tax expense
    of less than $0.1 million in 2007 and 2006






1,725



406Net loss


(48,567
)


(21,793
)


(12,698
)Less preferred stock dividend requirements


1,360



1,360



1,585Less premium on exchange of preferred stock for common stock










791Net loss applicable to common shareholders

$
(49,927
)

$
(23,153
)

$
(15,074
)Loss per share from continuing operations:Basic and diluted

$
(5.25
)

$
(2.71
)

$
(1.77
)Income per share from discontinued operations:Basic and diluted

$



$
0.19


$
0.05Net loss per share applicable to common shareholders:Basic and diluted

$
(5.25
)

$
(2.53
)

$
(1.72
)Weighted average number of common shares outstandingBasic and diluted


9,512



9,166



8,748    49




---



##### Table of Contents



WESTMORELAND
    COAL COMPANY AND SUBSIDIARIES
  Consolidated
    Statement of Shareholders Deficit and Comprehensive
    Loss
 Years
    Ended December 31, 2006, 2007 and 2008
  Class A Convertible








Accumulated





TotalExchangeable








Other





ShareholdersPreferred


Common


Other Paid-In


Comprehensive


Accumulated


EquityStock


Stock


Capital


Loss


Deficit


(Deficit)(In thousands)Balance at December 31, 2005 (205,083 preferred shares and
    8,413,312 common shares outstanding)

$
205


$
21,033


$
75,344


$
(11,409
)

$
(115,381
)

$
(30,208
)Common stock issued as compensation (89,939 shares)






225



2,339











2,564Common stock options exercised (174,732 shares)






437



561











998Dividends declared


















(387
)


(387
)Exchange of preferred shares for common stock
    (336,095 shares)


(45
)


840



(4
)






(791
)


Cumulative effect of change in accounting for deferred
    overburden removal costs


















(16,805
)


(16,805
)Adjustment for funded status of pension and postretirement
    medical benefit plans upon adoption of SFAS 158














(129,821
)






(129,821
)Cumulative effect of adjustment upon adoption of SAB 108


















(2,388
)


(2,388
)Adjustment for stock appreciation rights previously classified
    as a liability upon adoption of SFAS 123(R)










1,006











1,006Net loss


















(12,698
)


(12,698
)Minimum pension liability














1,744







1,744Settlement of interest rate swap agreement














62







62Comprehensive loss






















(10,892
)Balance at December 31, 2006 (160,130 preferred shares and
    9,014,078 common shares outstanding)


160



22,535



79,246



(139,424
)


(148,450
)


(185,933
)Common stock issued as compensation (118,209 shares)






295



2,742











3,037Common stock options exercised (294,916 shares)






737



2,019











2,756Warrant issued in connection with loan extension










1,122











1,122Warrant repriced in lieu of consent fee










223











223Net loss


















(21,793
)


(21,793
)Adjustments to accumulated actuarial losses of pension and
    postretirement medical benefit plans














12,878







12,878Amortization of accumulated actuarial losses and transition
    obligations














10,453







10,453Comprehensive income






















1,538Balance at December 31, 2007 (160,130 preferred shares and
    9,427,203 common shares outstanding)


160



23,567



85,352



(116,093
)


(170,243
)


(177,257
)Common stock issued as compensation (221,933 shares)






554



2,242











2,796Common stock options exercised (40,882 shares)






102



101











203Warrant repriced in lieu of registration requirement










355











355Beneficial conversion feature on convertible debt










8,146











8,146Net loss


















(48,567
)


(48,567
)Adjustments to accumulated actuarial losses of pension plans














(17,589
)






(17,589
)Amortization of accumulated actuarial losses of pension plans














351







351Adjustments to accumulated actuarial losses, prior service costs
    and transition obligations of postretirement medical benefit
    plans














5,533







5,533Amortization of accumulated actuarial losses, prior service
    costs and transition obligations of postretirement medical
    benefit plans














8,319







8,319Unrealized loss on available-for-sale securities














(788
)






(788
)Other than temporary impairment of available-for-sale securities
    recognized in earnings














900







900Comprehensive loss






















(51,841
)Balance at December 31, 2008 (160,130 preferred shares and
    9,690,018 common shares outstanding)

$
160


$
24,223


$
96,196


$
(119,367
)

$
(218,810
)

$
(217,598
)    50




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##### Table of Contents



WESTMORELAND
    COAL COMPANY AND SUBSIDIARIES
  Consolidated
    Statements of Cash Flows
  Years Ended December 31,2008


2007


2006(In thousands)Cash flows from operating activities:Net loss

$
(48,567
)

$
(21,793
)

$
(12,698
)Adjustments to reconcile net loss to net cash provided by
    operating activities:Deferred power sales revenue


28,774



27,587



14,545Equity in earnings of independent power projects


(250
)


(394
)


(7,681
)Cash distributions from independent power projects


250



394



1,307Provision for obsolete inventory


184



1,128



Depreciation, depletion and amortization


41,387



38,123



29,340Accretion


9,528



9,844



7,854Amortization of intangible assets and liabilities, net


598



(2,043
)


493Restructuring charges


2,009



4,523



Share-based compensation


2,733



2,467



2,963Loss (gain) on sales of assets from continuing operations


(1,425
)


(5,295
)


(4,785
)Non-cash interest expense


8,934







Amortization of deferred financing costs


839



1,362



1,626Warrant repriced in lieu of consent fee






223



Warrant repriced in lieu of registration requirement


355







Loss on extinguishment of debt


2,292







Other than temporary impairments of investments


900







Minority interest






1,194



2,244Gain on sales of assets of discontinued operations






(483
)


Changes in operating assets and liabilities:Receivables, net


(6,240
)


7,635



(15,244
)Inventories


3,960



(3,140
)


(5,751
)Excess of trust assets over pneumoconiosis benefit obligation


(23
)


5,616



(369
)Deferred income taxes


(1,420
)






Accounts payable and accrued expenses


2,001



(1,231
)


12,119Deferred coal revenue


403



9,539



(165
)Income tax payable


2,186



(567
)


1,887Accrual for workers compensation


3,316



(16
)


195Asset retirement obligations


(889
)


(3,584
)


(14,751
)Accrual for postretirement medical costs


10,021



12,460



12,377Pension and SERP obligations


(2,116
)


581



3,598Other assets and liabilities


(4,495
)


(1,549
)


(708
)Cash provided by continuing operations


55,245



82,581



28,396Cash provided by (used in) discontinued operations






(65
)


1,038Net cash provided by operating activities


55,245



82,516



29,434Cash flows from investing activities:Additions to property, plant and equipment


(31,320
)


(30,412
)


(20,852
)Decrease (increase) in restricted investments and bond
    collateral and reclamation deposits


24,319



(9,978
)


(10,527
)ROVA acquisition, net of cash resulting from the ROVA
    consolidation of $21.9 million










(7,714
)Net proceeds from sales of assets


2,641



13,332



5,171Receivable from customer for property and equipment purchases


(2,228
)






Acquisition of Absaloka Mining operations, net






(16,905
)


Cash used in continuing investing activities


(6,588
)


(43,963
)


(33,922
)Proceeds from the sale of discontinued operations






704



Net cash used in investing activities


(6,588
)


(43,259
)


(33,922
)Cash flows from financing activities:Bank overdrafts


(5,043
)


2,292



3,734Borrowings from long-term debt


205,377



9,145



31,453Repayments of long-term debt


(219,785
)


(61,164
)


(25,955
)Borrowings on revolving lines of credit


169,600



219,900



196,900Repayments on revolving lines of credit


(173,500
)


(218,700
)


(184,400
)Debt issuance costs


(5,304
)


(148
)


(1,453
)Exercise of stock options


203



2,756



998Dividends paid to shareholder of subsidiary






(340
)


(880
)Dividends paid on preferred shares










(387
)Net cash provided by (used in) financing activities


(28,452
)


(46,259
)


20,010Net increase (decrease) in cash and cash equivalents


20,205



(7,002
)


15,522Cash and cash equivalents, beginning of year


19,736



26,738



11,216Cash and cash equivalents, end of year

$
39,941


$
19,736


$
26,738Supplemental disclosures of cash flow information:Cash paid during the year for:Interest

$
22,226


$
23,215


$
16,649Income taxes


2,227



853



713Non-cash transactions:Accrued purchases of property and equipment


2,715



946



Capital leases


14,859



17,942



1,567    51




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##### Table of Contents



Westmoreland
    Coal Company and Subsidiaries
  Notes
    to Consolidated Financial Statements
  1.  SUMMARY
    OF SIGNIFICANT ACCOUNTING POLICIES
  Nature
    of Operations
    Liquidity
        
    The Companys significant level of debt and
    limitations under its current debt agreements on the ability of
    WML and ROVA to pay dividends to the Company.      
    The Companys heritage health and pension
    obligations, which must be funded by distributions from the
    Companys operating subsidiaries.   52




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##### Table of Contents



Westmoreland
    Coal Company and Subsidiaries
  Notes to
    Consolidated Financial
    Statements  (Continued)
  
    Cash collateral requirements for additional reclamation
    bonds in new mining areas.      
    On March 4, 2008, the Company completed the sale of
    $15.0 million in senior secured convertible notes to an
    existing shareholder;
    On March 17, 2008, Westmoreland Partners, its wholly owned
    subsidiary, completed a refinancing of ROVAs debt. The
    refinancing paid off all outstanding bank borrowings, bond
    borrowings, and the ROVA acquisition loan, and eliminated the
    need for the irrevocable letters of credit, which supported the
    bond borrowings;
    On June 26, 2008, WML completed a refinancing of its term
    debt. On that date, WML entered into a note purchase agreement
    with institutional investors under which it sold
    $125.0 million of secured notes with principal payments
    beginning in 2011. Also on June 26, 2008, WML amended its
    Revolving Credit Agreement with its lenders and increased the
    facility to $25.0 million through 2013. The Company is not
    required to make principal payments on its WML debt until 2011;
    On October 16, 2008, WRI entered into a series of
    transactions in order to monetize the Indian Coal Production Tax
    Credits available to it. If the private letter ruling received
    from the IRS on the transactions is approved by the Investor and
    one of its lenders, the Company could realize net cash flows of
    up to $37.1 million before taxes through 2012. See
    Note 16 Indian Coal Production Tax Credits; and
    On November 20, 2008, WRIs $20.0 million
    revolving credit facility was extended through November 19,
    2009.        
    The Company is in initial discussions with a potential buyer
    regarding the sale of certain assets, but it is not certain such
    a sale could be completed in the time required to meet its cash
    needs;
    The Company is pursuing and evaluating potential sale-leaseback
    transactions for certain facilities and equipment at its
    Absaloka Mine;
    The Company is pursuing alternatives to meet future reclamation
    bond requirements as it enters new mining areas with reduced
    amounts of cash collateral; 53




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##### Table of Contents



Westmoreland
    Coal Company and Subsidiaries
  Notes to
    Consolidated Financial
    Statements  (Continued)
   
    The Company is attempting to improve its liquidity by improving
    the operating performance of its mines. The Company believes
    that increases in tons produced and sold, improvements in
    productivity, and its continued focus on cost control at its
    mining operations during 2009 should improve its
    liquidity; and
    The Company is looking at various alternatives to reduce its
    required 2009 pension contributions, including modifying
    elections available to it in determining the required
    contribution, contributing shares of its common stock to the
    plan in lieu of cash, amending its pension plans, and
    negotiating revised covenants with its lenders.      
    The private letter ruling received from the IRS is approved by
    the Investor and one of its lenders and the ICTC monetization
    transactions proceed in accordance with their terms;
    The Companys operating cash flow at WRI significantly
    increases over 2008 levels as a result of actions taken to
    improve the operating performance of the mine;
    WRIs revolving line of credit is renewed or refinanced
    when it matures in November 2009;
    The Company is able to defer or reduce its bonding requirements
    in 2009; and
    The Company is able to reduce the cash contributions it is
    required to make to its pension plans in 2009.    Consolidation
    Policy
    Consolidation of Variable Interest Entities  an
    Interpretation of ARB No. 51
    Use
    of Estimates
   54




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##### Table of Contents



Westmoreland
    Coal Company and Subsidiaries
  Notes to
    Consolidated Financial
    Statements  (Continued)
    Coal
    Revenues
    Power
    Revenues
  kilowatt-hours kilowatt-hours
  EITF 01-08, Determining Whether an Arrangement Contains a Lease EITF 01-08.
  Discontinued
    Operations
    Cash
    and Cash Equivalents
    Inventories
    Property,
    Plant and Equipment
   55




---



##### Table of Contents



Westmoreland
    Coal Company and Subsidiaries
  Notes to
    Consolidated Financial
    Statements  (Continued)
      Deferred
    Financing Costs
  Other assets
  Income
    Taxes
    Accounting for Uncertainty in Income
    Taxes  an interpretation of FASB Statement
    No. 109
  Postretirement
    Health Care Benefits
   56




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##### Table of Contents



Westmoreland
    Coal Company and Subsidiaries
  Notes to
    Consolidated Financial
    Statements  (Continued)
  Pension
    Plans
    Workers
    Compensation Benefits
    Black
    Lung Benefits
  Employers Accounting for Postemployment
    Benefits Excess of trust assets over pneumoconiosis benefit
    obligation
  Asset
    Retirement Obligations
  Accounting for Asset Retirement
    Obligations
    Reclamation
    Deposits and Contractual Third Party Reclamation
    Receivables
   57




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##### Table of Contents



Westmoreland
    Coal Company and Subsidiaries
  Notes to
    Consolidated Financial
    Statements  (Continued)
  Financial
    Instruments
  Disclosures about Fair Value of
    Financial Instruments
    Other income (expense)
  Accumulated
    Other Comprehensive Income (Loss)
    Minimum








AccumulatedLiability


Pension and


Available for


OtherFinancial


Pension


Postretirement


Sale


ComprehensiveDerivatives


Adjustments


Benefits


Securities


Loss(In thousands)Balance at January 1, 2006

$
(62
)

$
(11,347
)

$



$



$
(11,409
)2006 activity


62



1,744











1,806Statement No. 158 adoption






9,603



(139,424
)






(129,821
)Balance at December 31, 2006










(139,424
)






(139,424
)2007 activity










23,331







23,331Balance at December 31, 2007










(116,093
)






(116,093
)2008 activity










(3,386
)


112



(3,274
)Balance at December 31, 2008

$



$



$
(119,479
)

$
112


$
(119,367
)   Intangible
    Assets and Liabilities
  Business Combinations Goodwill and other Intangible Assets
 58




---



##### Table of Contents



Westmoreland
    Coal Company and Subsidiaries
  Notes to
    Consolidated Financial
    Statements  (Continued)
  Share-Based
    Compensation
  Share-Based Payment
  Earnings
    (Loss) per Share
      Reclassifications
    Accounting
    Pronouncements Adopted
  Fair Value Measurements SFAS 157-1, Application of FASB Statement No. 157 to FASB Statement
    No. 13 and Other Accounting Pronouncements That Address
    Fair Value Measurements for Purposes of Lease Classification or
    Measurement under Statement 13 SFAS 157-2, Effective Date of FASB Statement No. 157 SFAS 157-3, Determining the Fair Value of a Financial Asset When the
    Market for That Asset Is Not Active
 59




---



##### Table of Contents



Westmoreland
    Coal Company and Subsidiaries
  Notes to
    Consolidated Financial
    Statements  (Continued)
    The Fair
    Value Option for Financial Assets and Financial Liabilities,
    including an amendment of FASB Statement 115
  Accounting
    Pronouncements Issued and Not Yet Adopted
  Noncontrolling Interests in Consolidated Financial
    Statements  an amendment of ARB 51
  Business
    Combinations
  Employers Disclosures about Postretirement Benefit Plan
    Assets
 60




---



##### Table of Contents



Westmoreland
    Coal Company and Subsidiaries
  Notes to
    Consolidated Financial
    Statements  (Continued)
  14-1, Accounting for Convertible Debt Instruments That May Be
    Settled in Cash upon Conversion (Including Partial Cash
    Settlement) 14-1, EITF 07-5, Determining Whether an Instrument (or Embedded Feature) is
    Indexed to an Entitys Own Stock EITF 07-5 14-1 EITF 07-5
  2.  RESTRUCTURING
      Beginning


Restructuring


Restructuring


EndingYear

Balance


Charges


Payments


Balance2008

$
3,600


$
2,009


$
3,520


$
2,089   3.  INVESTMENT
    IN POWER PLANTS
    Six Months EndedJune 30, 2006(In thousands)Revenues

$
55,104Operating Income


20,136Net Income


14,512WELLCs share of earnings


7,315  61




---



##### Table of Contents



Westmoreland
    Coal Company and Subsidiaries
  Notes to
    Consolidated Financial
    Statements  (Continued)
  4.  INVENTORIES
    December 31,2008


2007Coal

$
1,697


$
1,889Materials and supplies


22,957



26,909Total

$
24,654


$
28,798     5.  RESTRICTED
    INVESTMENTS AND BOND COLLATERAL
    December 31,2008


2007(In thousands)Corporate:Workers compensation bonds

$
5,759


$
5,677Postretirement health benefit bonds


2,193



1,247Coal Segment:Westmoreland Mining  debt reserve account


5,065



10,229Westmoreland Mining  prepayment account






20,118WRI Indian Coal Production Tax escrow


2,001



Reclamation bond collateral:Rosebud Mine


13,489



1,728Absaloka Mine


5,781



5,469Beulah Mine


1,070



70Jewett Mine


973



1,126ROVA:Debt protection account


8,391



28,981Repairs and maintenance account


1,977



1,251Ash reserve account


604



608Total restricted investments and bond collateral


47,303



76,504Less current portion


(2,001
)


(20,118
)Total restricted investments and bond collateral, less
    current portion

$
45,302


$
56,386      62




---



##### Table of Contents



Westmoreland
    Coal Company and Subsidiaries
  Notes to
    Consolidated Financial
    Statements  (Continued)
        Corporate
    Coal
    Segment
      Indian Coal Production Tax
    Credits
  ROVA
       63




---



##### Table of Contents



Westmoreland
    Coal Company and Subsidiaries
  Notes to
    Consolidated Financial
    Statements  (Continued)
  Held-to-Maturity
    and Available-for-Sale Restricted Investments and Bond
    Collateral
    2008


2007Amortized cost

$
6,638


$
21,515Gross unrealized holding gains


389



147Gross unrealized holding losses






(304
)Fair value

$
7,027


$
21,358     AmortizedCost


Fair ValueDue within one year

$
2,533


$
2,556Due after five years to ten years


1,267



1,499Due in more than ten years


2,838



2,972$
6,638


$
7,027       2008Cost basis

$
3,540Gross unrealized holding gains


123Gross unrealized holding losses


(86
)Fair value

$
3,577  64




---



##### Table of Contents



Westmoreland
    Coal Company and Subsidiaries
  Notes to
    Consolidated Financial
    Statements  (Continued)
  6.
    ACCOUNTS
    PAYABLE AND ACCRUED EXPENSES    December 31,2008


2007Trade

$
64,962


$
47,770Production taxes


26,056



26,112Postretirement medical benefits


18,176



18,114Asset retirement obligations


17,136



13,470Accrued severance and other liabilities


7,947



3,669Income taxes


2,009



1,571Deferred revenue


1,610



995Interest


1,314



2,616Workers compensation


1,037



956Bank overdrafts


983



6,026Pension and SERP obligations


306



299Total accounts payable and accrued expenses

$
141,536


$
121,598  65




---



##### Table of Contents



Westmoreland
    Coal Company and Subsidiaries
  Notes to
    Consolidated Financial
    Statements  (Continued)
  7.
    LINES
    OF CREDIT AND LONG-TERM DEBT    Total Debt OutstandingDecember 31,2008


2007(In thousands)Corporate debt:Convertible notes

$
15,789


$
Westmoreland Mining debt:Revolving line of credit






2,500Term debt


125,000



Series B Notes






44,600Series C Notes






20,375Series D Notes






14,625Capital lease obligations


22,091



13,256Other term debt


964



794Westmoreland Resources, Inc. debt:Revolving line of credit


10,300



11,700Term debt


6,375



8,500Capital lease obligations


5,842



5,484ROVA debt:Revolving line of credit






Term debt


82,792



134,441Acquisition bridge loan






15,173Total debt outstanding

$
269,153


$
271,448       2009

$
43,9942010


16,7372011


22,4702012


27,3132013


47,877Thereafter


109,390$
267,781  66




---



##### Table of Contents



Westmoreland
    Coal Company and Subsidiaries
  Notes to
    Consolidated Financial
    Statements  (Continued)
    Carrying Value


Fair ValuePracticable to estimate fair value

$
204,231


$
180,601Not practicable to estimate fair value


15,789



     Corporate
    Revolving Line of Credit
    Convertible
    Debt
        EITF 98-5, Accounting for Convertible Securities with Beneficial
    Conversion Features or Contingently Adjustable Conversion
    Ratios, EITF 98-5
   67




---



##### Table of Contents



Westmoreland
    Coal Company and Subsidiaries
  Notes to
    Consolidated Financial
    Statements  (Continued)
  Other assets
  Westmoreland
    Mining LLC
          Other assets
      Westmoreland
    Resources, Inc.
   68




---



##### Table of Contents



Westmoreland
    Coal Company and Subsidiaries
  Notes to
    Consolidated Financial
    Statements  (Continued)
      ROVA
               69




---



##### Table of Contents



Westmoreland
    Coal Company and Subsidiaries
  Notes to
    Consolidated Financial
    Statements  (Continued)
  8.
    POSTRETIREMENT
    MEDICAL BENEFITS  Single-Employer
    Plans
  20-year
 70




---



##### Table of Contents



Westmoreland
    Coal Company and Subsidiaries
  Notes to
    Consolidated Financial
    Statements  (Continued)
    December 31,2008


2007(In thousands)Change in benefit obligations:Net benefit obligation at beginning of year

$
288,683


$
300,066Service cost


677



807Interest cost


17,107



16,890Plan participant contributions


79



129Actuarial gain


(5,418
)


(14,375
)Gross benefits paid


(17,554
)


(16,217
)Federal subsidy on benefits paid


1,277



1,383Net benefit obligation at end of year


284,851



288,683Change in plan assets:Employer contributions


16,197



14,704Plan participant contributions


79



129Benefits paid, net of federal subsidy


(16,276
)


(14,833
)Fair value of plan assets at end of year






Funded status at end of year

$
(284,851
)

$
(288,683
)Amounts recognized in the balance sheet consist of:Current liabilities

$
(18,176
)

$
(18,114
)Noncurrent liabilities


(266,675
)


(270,569
)Accumulated other comprehensive loss


87,256



101,109Net amount recognized

$
(197,595
)

$
(187,574
)Amounts recognized in accumulated other comprehensive loss
    consists of:Net actuarial loss

$
55,853


$
64,999Prior service cost


17,875



19,200Transition obligation


13,528



16,910$
87,256


$
101,109     December 31,2008

2007Discount rate

6.05%

6.10%Measurement date

December 31, 2008

December 31, 2007    71




---



##### Table of Contents



Westmoreland
    Coal Company and Subsidiaries
  Notes to
    Consolidated Financial
    Statements  (Continued)
        Years Ended December 31,2008


2007


2006(In thousands)Components of net periodic benefit cost:Service cost

$
677


$
807


$
951Interest cost


17,107



16,890



16,907Amortization of:Transition obligation


3,613



4,849



3,381Prior service cost


1,325



1,325



1,239Actuarial loss


3,381



3,381



6,127Total net periodic benefit cost

$
26,103


$
27,252


$
28,605     December 31,2008

2007

2006Discount rate

6.10%

5.55%

5.75%Measurement date

December 31, 2007

December 31, 2006

December 31, 2005     Years Ended December 31,2008


2007


2006Former Eastern mining operations

$
24,553


$
25,478


$
26,914Current operations


1,550



1,774



1,691Total net periodic benefit cost

$
26,103


$
27,252


$
28,605   Heritage health benefit expenses Selling and administrative
    expenses
   72




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##### Table of Contents



Westmoreland
    Coal Company and Subsidiaries
  Notes to
    Consolidated Financial
    Statements  (Continued)
    Postretirement Benefits1% Increase


1% Decrease(In thousands)Effect on service and interest cost components

$
1,930


$
(1,636
)Effect on postretirement benefit obligation

$
28,938


$
(24,682
)     Postretirement


Medicare DBenefits


Reimbursements(In thousands)2009

$
19,777


$
1,6012010


20,914



1,6952011


21,877



1,7722012


22,595



1,8642013


23,212



1,945Years 2014  2018


120,567



10,486   Multiemployer
    Plan (Combined Benefit Fund)
      Workers
    Compensation Benefits
     73




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##### Table of Contents



Westmoreland
    Coal Company and Subsidiaries
  Notes to
    Consolidated Financial
    Statements  (Continued)
  Pneumoconiosis
    (Black Lung) Benefits
      December 31,2008


2007(In thousands)Actuarial present value of benefit obligation:Expected claims from terminated employees

$
785


$
760Amounts owed to existing claimants


13,300



13,697Total present value of benefit obligation


14,085



14,457Plan assets at fair value, primarily government-backed securities


16,324



16,673Excess of trust assets over pneumoconiosis benefit obligation

$
2,239


$
2,216   Excess of trust assets over pneumoconiosis
    benefit obligation
    9.
    PENSION
    PLANS  Defined
    Benefit Pension Plans
    Supplemental
    Executive Retirement Plan
   74




---



##### Table of Contents



Westmoreland
    Coal Company and Subsidiaries
  Notes to
    Consolidated Financial
    Statements  (Continued)
    Qualified Pension Benefits


SERP BenefitsDecember 31,


December 31,2008


2007


2008


2007(In thousands)Change in benefit obligation:Net benefit obligation at beginning of year

$
71,828


$
67,411


$
3,234


$
2,506Service cost


2,597



2,995







78Interest cost


4,390



4,270



198



162Actuarial (gain) loss


(805
)


(1,435
)


172



564Benefits paid


(1,338
)


(1,413
)


(325
)


(76
)Net benefit obligation at end of year


76,672



71,828



3,279



3,234Change in plan assets:Fair value of plan assets at the beginning of year


51,015



47,026







Actual return on plan assets


(13,817
)


1,737







Employer contributions


4,923



3,665



325



76Benefits paid


(1,338
)


(1,413
)


(325
)


(76
)Fair value of plan assets at end of year


40,783



51,015







Funded status at end of year

$
(35,889
)

$
(20,813
)

$
(3,279
)

$
(3,234
)Amounts recognized in the accompanying balance sheet consist
    of:Current liability

$



$



$
(306
)

$
(299
)Noncurrent liability


(35,889
)


(20,813
)


(2,974
)


(2,935
)Accumulated other comprehensive loss


31,605



14,517



617



467Net amount recognized at end of year

$
(4,284
)

$
(6,296
)

$
(2,663
)

$
(2,767
)Amounts recognized in accumulated other comprehensive loss
    consist of:Net actuarial loss

$
31,605


$
14,517


$
592


$
432Prior service costs










25



35$
31,605


$
14,517


$
617


$
467    75




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##### Table of Contents



Westmoreland
    Coal Company and Subsidiaries
  Notes to
    Consolidated Financial
    Statements  (Continued)
    Qualified Pension Benefits

SERP BenefitsDecember 31,

December 31,2008

2007

2008

2007Discount rate

6.10%

6.20% - 6.30%

6.10%

6.30%Expected return on plan assets

7.70%

8.50%

N/A

N/ARate of compensation increase

4.00% - 7.50%

4.00% - 7.50%

4.00% - 7.50%

4.00% - 7.50%Measurement date

December 31, 2008

December 31, 2007

December 31, 2008

December 31, 2007         Qualified Pension Benefits


SERP BenefitsDecember 31,


December 31,2008


2007


2006


2008


2007


2006(In thousands)Components of net periodic benefit cost:Service cost

$
2,597


$
2,995


$
3,062


$



$
78


$
70Interest cost


4,390



4,270



3,979



198



162



141Expected return on plan assets


(4,416
)


(4,104
)


(3,638
)










Amortization of:Prior service cost










4



10



10



10Actuarial loss


340



888



1,387



11







Total net periodic pension cost

$
2,911


$
4,049


$
4,794


$
219


$
250


$
221     Qualified Pension Benefits

SERP BenefitsDecember 31,

December 31,2008

2007

2006

2008

2007

2006Discount rate

6.20% - 6.30%

5.85% - 5.95%

5.70%

6.30%

5.95%

5.70%Expected return on plan assets

8.50%

8.50%

8.50%

N/A

N/A

N/ARate of compensation increase

4.00% - 7.50%

4.20%

4.20%

4.00% - 7.50%

4.00% - 7.50%

4.20%Measurement date

December 31, 2007

December 31, 2006

December 31, 2005

December 31, 2007

December 31, 2006

December 31, 2005   Selling and administrative expenses
 76




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##### Table of Contents



Westmoreland
    Coal Company and Subsidiaries
  Notes to
    Consolidated Financial
    Statements  (Continued)
    Allocation of Plan Assets atDecember 31,


Target2008


2007


AllocationAsset category Cash and equivalents


2
%





0% - 25%Equity securities


64
%


70
%

40% - 75%Debt securities


33
%


28
%

0% - 50%Other


1
%


2
%

0% - 10%Total


100
%


100
%         PensionBenefits(In thousands)2009

$
1,6242010


2,0032011


2,3972012


2,8642013


3,388Years 2014  2018


25,545     10.
    HERITAGE
    HEALTH BENEFIT EXPENSES  Heritage health benefit expenses
 77




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##### Table of Contents



Westmoreland
    Coal Company and Subsidiaries
  Notes to
    Consolidated Financial
    Statements  (Continued)
    Years Ended December 31,2008


2007


2006Health care benefits

$
25,588


$
28,252


$
28,295Combined benefit fund payments (credit)


3,470



(2,156
)


3,611Workers compensation benefits


4,417



1,175



1,336Black lung benefits (credit)


(23
)


318



(421
)Total

$
33,452


$
27,589


$
32,821   11.
    ASSET
    RETIREMENT OBLIGATIONS, RECLAMATION DEPOSITS
    ANDCONTRACTUAL THIRD PARTY RECLAMATION RECEIVABLE  Asset
    Retirement Obligation
    Years Ended December 31,2008


2007Asset retirement obligations  beginning of year
    (including current portion)

$
206,497


$
184,062Accretion


15,278



13,408Settlements (final reclamation performed)


(7,403
)


(6,772
)Losses on settlements






209Changes due to amount and timing of reclamation


8,336



15,590Asset retirement obligations  end of year

$
222,708


$
206,497Less current portion


(17,136
)


(13,470
)Asset retirement obligations  less current portion

$
205,572


$
193,027       Contractual
    Third Party Reclamation Receivables
   78




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##### Table of Contents



Westmoreland
    Coal Company and Subsidiaries
  Notes to
    Consolidated Financial
    Statements  (Continued)
    ContractualAsset


Third-PartyRetirement


Reclamation


ReclamationObligation


Receivable


DepositsRosebud

$
125,625


$
16,162


$
69,707Jewett


64,415



64,415



Absaloka


15,487



597



Beulah


14,463







Savage


2,227







ROVA


491







Total

$
222,708


$
81,174


$
69,707   Reclamation
    Deposits
        Held-to-Maturity
    and Available-for-Sale Reclamation Deposits
    2008


2007Amortized cost

$
27,178


$
59,052Gross unrealized holding gains


1,132



482Gross unrealized holding losses


(21
)


(307
)Fair value

$
28,289


$
59,227     Amortized Cost


Fair ValueDue in five years or less

$
3,119


$
3,201Due after five years to ten years


4,574



4,924Due in more than ten years


19,485



20,164$
27,178


$
28,289    79




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##### Table of Contents



Westmoreland
    Coal Company and Subsidiaries
  Notes to
    Consolidated Financial
    Statements  (Continued)
    2008Cost basis

$
2,695Gross unrealized holding gains


75Gross unrealized holding losses


Fair value

$
2,770   12.
    STOCKHOLDERS
    EQUITY  Preferred
    and Common Stock
        Warrants
     80




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##### Table of Contents



Westmoreland
    Coal Company and Subsidiaries
  Notes to
    Consolidated Financial
    Statements  (Continued)
      Value of EachWarrants

Number of Shares








Risk-Free


Expected Life


Share Covered byIssued

included in Warrant


Dividend Yield


Volatility


Rate


(in years)


Warrant2008


172,234



None



41
%


2.82
%


3.0


$
4.76   Restricted
    Net Assets
      13.
    INCENTIVE
    STOCK OPTIONS, STOCK APPRECIATION RIGHTS, ANDPERFORMANCE UNITS        Year Ended December 31,2008


2007


2006Recognition of fair value of SARs, stock options and restricted
    stock over vesting period

$
1,227


$
766


$
814Matching contributions to the Companys 401(k) plan


1,569



2,271



1,750Compensation expense (credit) for performance units based on
    performance of the Companys stock price


(63
)


(570
)


399Total share-based compensation expense

$
2,733


$
2,467


$
2,963  81




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##### Table of Contents



Westmoreland
    Coal Company and Subsidiaries
  Notes to
    Consolidated Financial
    Statements  (Continued)
    December 31,2008

2007

2006Assumptions (weighted average):Risk-free interest rate

3.62%

4.56%

5.20%Expected dividend yield

None

None

NoneExpected volatility

50%

51%

52%Expected life (in years)

7.0

7.0

7.0   Restricted
    Stock
      Weighted AverageGrant-DateCommon Shares


Fair ValueNon-vested at December 31, 2007


6,220


$
19.29Granted


108,184



15.99Vested


(11,488
)


18.28Non-vested at December 31, 2008


102,916



15.94       SARs
   82




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##### Table of Contents



Westmoreland
    Coal Company and Subsidiaries
  Notes to
    Consolidated Financial
    Statements  (Continued)
    WeightedAverageRemainingContractualWeighted Average


Life


AggregateSARs


Base Price


(in years)


Intrinsic ValueOutstanding at January 1, 2008


310,266


$
21.98Exercised


(8,700
)


19.37Expired or forfeited


(94,499
)


22.12Outstanding at December 31, 2008


207,067


$
22.03



6.6


$
SARs exercisable at December 31, 2008


184,921


$
21.70



6.5


$
         Stock
    Options
      WeightedAverageRemainingContractualStock


Weighted Average


Life


AggregateOptions


Exercise Price


(in years)


Intrinsic ValueOutstanding at January 1, 2008


343,366


$
16.92Granted


181,750



21.40Exercised


(40,882
)


4.94Expired or forfeited


(96,510
)


22.52Outstanding at December 31, 2008


387,724


$
18.89



6.6


$
27,125Options exercisable at December 31, 2008


212,974


$
16.83



4.2


$
27,125        83




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##### Table of Contents



Westmoreland
    Coal Company and Subsidiaries
  Notes to
    Consolidated Financial
    Statements  (Continued)
  Performance
    Units
    14.
    OTHER
    EVENTS  Sale
    of Coal Royalty Interest
    Reserve
    Dedication Fee
    Sale
    of Ft. Lupton Project
    15.
    DERIVATIVE
    INSTRUMENTS    Cost of
    sales
 84




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##### Table of Contents



Westmoreland
    Coal Company and Subsidiaries
  Notes to
    Consolidated Financial
    Statements  (Continued)
    Years Ended December 31,2007


2006Unrealized derivative loss beginning of the year

$
(336
)

$
Change in fair value


1,092



(530
)Realized gain (loss) on settlements


(756
)


194Unrealized loss on derivatives at end of year

$



$
(336
)   16.
    INDIAN
    COAL PRODUCTION TAX CREDITS (ICTCs)               85




---



##### Table of Contents



Westmoreland
    Coal Company and Subsidiaries
  Notes to
    Consolidated Financial
    Statements  (Continued)
        17.
    INCOME
    TAX    Years Ended December 31,2008


2007


2006(In thousands)Current:Federal

$



$



$
State


919



199



2,405Income tax expense

$
919


$
199


$
2,405     2008


2007


2006(In thousands)Computed tax benefit at statutory rate

$
(16,200
)

$
(7,292
)

$
(3,490
)Increase (decrease) in tax expense resulting from:Tax depletion in excess of book


(2,643
)


(4,079
)


(2,677
)Non-deductible interest expense


3,156







Minority interest adjustment


288



465



875State income taxes, net


(3,214
)


(857
)


1,920Non-taxable earnings of offshore insurance subsidiary


(293
)


(309
)


(273
)Adjustments to deferred tax assets and liabilities attributable
    to prior years


684







1,043Change in valuation allowance for net deferred tax assets


24,628



18,855



15,089Indian Coal Production Tax Credits


(5,893
)


(6,593
)


(10,167
)Other, net


406



9



85Income tax expense

$
919


$
199


$
2,405  86




---



##### Table of Contents



Westmoreland
    Coal Company and Subsidiaries
  Notes to
    Consolidated Financial
    Statements  (Continued)
    2008


2007(In thousands)Deferred tax assets:Federal net operating loss carryforwards

$
59,360


$
58,230State net operating loss carryforwards


12,154



16,578Alternative minimum tax credit carryforwards


8,750



2,607Charitable contribution carryforwards


52



Indian Coal Production Tax Credit carryforwards


23,471



16,749Accruals for the following:Workers compensation


5,007



3,714Postretirement benefit and pension obligations


126,385



122,138Incentive plans


4



378Asset retirement obligations


64,277



60,495Deferred revenues


27,654



16,432Other accruals


8,039



7,007Total gross deferred assets


335,153



304,328Less valuation allowance


(257,932
)


(231,794
)Net deferred tax assets


77,221



72,534Deferred tax liabilities:Property, plant and equipment, differences due to depreciation
    and amortization


(70,792
)


(67,330
)Excess of trust assets over pneumoconiosis benefit obligation


(873
)


(864
)Change in accounting method


(3,228
)


(3,872
)Other


(908
)


(468
)Total gross deferred tax liabilities


(75,801
)


(72,534
)Net deferred tax asset

$
1,420


$
        87




---



##### Table of Contents



Westmoreland
    Coal Company and Subsidiaries
  Notes to
    Consolidated Financial
    Statements  (Continued)
      Expiration Date

Regular Tax(In thousands)2010

$
19,5402011


36,4792012


4492018


282019


88,429after 2019


29,668Total

$
174,593     Accounting for
    Uncertainty in Income Taxes  an interpretation of
    FASB Statement No. 109
    Year EndedDecember 31, 2008(In thousands)Balance of unrecognized tax benefits at January 1, 2008

$
Additions for tax positions related to current year


1,748Balance of unrecognized tax benefits at December 31, 2008

$
1,748      88




---



##### Table of Contents



Westmoreland
    Coal Company and Subsidiaries
  Notes to
    Consolidated Financial
    Statements  (Continued)
    18.
    COMMITMENTS  Coal
    Reserve Lease Obligations
    Real
    Property and Equipment Lease Obligations
      LeaseObligations2009

$
5,3852010


4,5572011


4,3892012


1,9882013 and thereafter


931   Coal Supply Agreements
    Long-Term
    Sales Contracts
   89




---



##### Table of Contents



Westmoreland
    Coal Company and Subsidiaries
  Notes to
    Consolidated Financial
    Statements  (Continued)
    Projected SalesTonnage UnderExisting Long-Term Contractsas of December 31,2008(In millions of tons)2009


28.02010


26.42011


22.02012


19.42013


19.3Thereafter


86.9Total


202.0   19.
    CONTINGENCIES  Severance
    Benefits Payable to Former CEO
      Royalty
    Claims by Minerals Management Service and Related Tax Claims by
    Montana Department of Revenue
    Transportation
    Claims
     90




---



##### Table of Contents



Westmoreland
    Coal Company and Subsidiaries
  Notes to
    Consolidated Financial
    Statements  (Continued)
        Gross
    Inequity Claim
        McGreevey
    Litigation
  McGreevey et al. v. Montana Power Company et al.
 91




---



##### Table of Contents



Westmoreland
    Coal Company and Subsidiaries
  Notes to
    Consolidated Financial
    Statements  (Continued)
      Customer
    Reclamation Claims
        20.
    BUSINESS
    SEGMENT INFORMATION  Disclosures about Segments of an Enterprise
    and Related Information
   92




---



##### Table of Contents



Westmoreland
    Coal Company and Subsidiaries
  Notes to
    Consolidated Financial
    Statements  (Continued)
    Coal


Power


Heritage


Corporate


Consolidated(In thousands)December 31, 2008Revenues

$
419,806


$
89,890


$



$



$
509,696Restructuring charges


155











1,854



2,009Operating income (loss)


15,211



16,920



(35,472
)


(12,694
)


(16,035
)Total assets


557,245



239,083



5,301



11,338



812,967Capital expenditures


29,534



1,711







75



31,320December 31, 2007Revenues


418,870



85,347











504,217Restructuring charges


729



698







3,096



4,523Operating income (loss)


18,723



14,150



(28,623
)


(10,132
)


(5,882
)Total assets


493,414



276,399



4,068



8,647



782,528Capital expenditures


28,677



1,645







90



30,412December 31, 2006Revenues


393,482



50,925











444,407Operating income (loss)


33,370



11,906



(33,007
)


(7,652
)


4,617Total assets


449,569



290,723



9,794



11,296



761,382Capital expenditures


17,189



2,855







808



20,852     2008


2007


2006(In thousands)Customer A  coal

$
131,859


$
109,390


$
112,470Customer B  coal


80,581



102,417



88,510Customer C  power


88,651



84,841



43,205Customer D 
    coal(1)






52,041



Percentage of total revenue


60
%


69
%


54
%     (1)
    
    The revenue from Customer D did not exceed 10% in 2008 or 2006. 93




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##### Table of Contents



Westmoreland
    Coal Company and Subsidiaries
  Notes to
    Consolidated Financial
    Statements  (Continued)
   21.
    QUARTERLY
    FINANCIAL DATA (UNAUDITED)    Three Months EndedMarch 31


June 30


September 30


December 31(In thousands; except per share data)2008:Revenues

$
131,594


$
113,423


$
141,305


$
123,374Operating income (loss)


2,280



(9,027
)


2,326



(11,614
)Net loss applicable to common shareholders


(11,464
)


(18,281
)


(3,493
)


(16,689
)Basic and diluted loss per common share

$
(1.21
)

$
(1.92
)

$
(0.37
)

$
(1.75
)2007:Revenues

$
125,075


$
123,253


$
130,232


$
125,657Operating income (loss)


12,063



(7,333
)


(3,441
)


(7,171
)Net income (loss) applicable to common shareholders


7,365



(11,278
)


(7,370
)


(11,870
)Basic earnings (loss) per common share

$
0.81


$
(1.23
)

$
(0.81
)

$
(1.27
)Diluted earnings (loss) per common share

$
0.79


$
(1.23
)

$
(0.81
)

$
(1.27
)  94




---



##### Table of Contents



Report of
    Independent Registered Public Accounting Firm                   95




---



##### Table of Contents



ITEM 9 
    CHANGES
    IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
    FINANCIAL DISCLOSURE.    ITEM 9A 
    CONTROLS
    AND PROCEDURES.  (a)
    Managements
    Report on Internal Control over Financial Reporting  Rules 13a-15(f) 15d-15(f)
  
    pertain to the maintenance of records that in reasonable detail
    accurately and fairly reflect the transactions and dispositions
    of our assets;
    provide reasonable assurance that transactions are recorded as
    necessary to permit preparation of financial statements in
    accordance with generally accepted accounting principles, and
    that our receipts and expenditures are being made only in
    accordance with authorizations of our management and our board
    of directors; and
    provide reasonable assurance regarding prevention or timely
    detection of unauthorized acquisition, use, or disposition of
    our assets that could have a material effect on our financial
    statements.  Internal Control  Integrated Framework
  Rule 13a-15
  (b)
    Changes
    in Internal Control over Financial Reporting   96




---



##### Table of Contents



(c)
    Report of
    Independent Registered Public Accounting Firm     Internal Control 
    Integrated Framework
        Internal
    Control  Integrated Framework
        97




---



##### Table of Contents



(d)
    Evaluation
    of Disclosure Controls and Procedures  Rules 13a-15(e) 15d-15(e)
 98




---



##### Table of Contents



ITEM 9B 
    OTHER
    INFORMATION.   99




---



##### Table of Contents



PART III  ITEM 10 
    DIRECTORS,
    EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE.  Proposal 1  Election of
    Directors by the Holders of Common Stock Proposal 2  Election of Directors by the
    Holders of Series A Preferred Stock Executive
    Officers Corporate Governance Section 16(a) Beneficial Ownership Reporting Compliance
  ITEM 11 
    EXECUTIVE
    COMPENSATION.  Corporate Governance Compensation
    Discussion and Analysis Executive Compensation Compensation and Benefits Committee Report
  ITEM 12 
    SECURITY
    OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
    RELATED STOCKHOLDER MATTERS.  Beneficial Ownership of Securities Equity Compensation Plan Information
  ITEM 13 
    CERTAIN
    RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
    INDEPENDENCE.  Certain Transactions Corporate
    Governance
  ITEM 14 
    PRINCIPAL
    ACCOUNTANT FEES AND SERVICES.  Auditors
 PART IV  ITEM 15 
    EXHIBITS AND
    FINANCIAL STATEMENT SCHEDULES.              Form 10-K.
 100




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##### Table of Contents



SIGNATURES    WESTMORELAND COAL COMPANY
  /s/  Keith
    E. Alessi   Title:
    Chief Executive Officer and President       Signature

Title

Date/s/  Keith
    E. AlessiKeith
    E. Alessi

Chief Executive Officer, President, and Director

March 13, 2009/s/  Kevin
    A. PaprzyckiKevin
    A. Paprzycki

Chief Financial Officer and Principal Accounting Officer

March 13, 2009/s/  Michael
    R. DAppoloniaMichael
    R. DAppolonia

Director

March 13, 2009/s/  Thomas
    J. CoffeyThomas
    J. Coffey

Director

March 13, 2009/s/  Richard
    M. KlingamanRichard
    M. Klingaman

Director

March 13, 2009/s/  William
    M. SternWilliam
    M. Stern

Director

March 13, 2009  101




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##### Table of Contents



Report of
    Independent Registered Public Accounting Firm
     Form 10-K
          102




---



##### Table of Contents



WESTMORELAND
    COAL COMPANY
  SCHEDULE I 
    CONDENSED BALANCE SHEET
 (Parent
    Company Information  See Notes to Consolidated
    Financial Statements)
  December 31,2008


2007(Amounts in thousands)ASSETSCurrent assets:Cash and cash equivalents

$
956


$
306Receivables:Other


526



526



Other current assets


449



366Total current assets


1,931



672Property, plant and equipment:Plant and equipment


2,077



5,507Less accumulated depreciation, depletion and amortization


1,412



4,537Net property, plant and equipment


665



970Restricted investments


7,952



6,926Investment in subsidiaries and power projects, including
    intercompany balances


122,295



150,086Other assets


3,137



3,973Total Assets

$
135,980


$
162,627LIABILITIES AND SHAREHOLDERS DEFICITCurrent liabilities:Accounts payable and accrued expenses

$
2,996


$
4,557Bank overdrafts


548



Workers compensation


1,037



956Pension and SERP obligations


306



299Postretirement medical benefits


16,809



17,151Other current liabilities


2,083



2,473Total current liabilities


23,779



25,436Long-term debt


15,789



Workers compensation, less current portion


11,800



8,566Related party payable


23,200



26,887Postretirement medical costs, less current portion


245,897



256,232Pension and SERP obligations, less current portion


32,379



21,849Other liabilities


734



914Shareholders deficit:Preferred stock


160



160Common stock


24,223



23,567Other paid-in capital


96,196



85,352Accumulated other comprehensive loss


(119,367
)


(116,093
)Accumulated deficit


(218,810
)


(170,243
)Total shareholders deficit


(217,598
)


(177,257
)Total Liabilities and Shareholders Deficit

$
135,980


$
162,627  103




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##### Table of Contents



WESTMORELAND
    COAL COMPANY
  SCHEDULE I 
    CONDENSED STATEMENT OF OPERATIONS
 (Parent
    Company Information  See Notes to Consolidated
    Financial Statements)
  Years Ended December 31,2008


2007


2006(Amounts in thousands)Operating costs and expenses:Depreciation and amortization

$
381


$
330


$
477Selling and administrative


12,585



11,629



12,932Restructuring charges


1,854



2,655



Heritage health benefit expenses


32,104



25,788



32,821Loss (gain) on sales of assets


1



(5,641
)


2546,925



34,761



46,255Operating loss


(46,925
)


(34,761
)


(46,255
)Other income (expense):Interest expense


(9,385
)


(615
)


(877
)Interest income


532



1,255



457Other income (loss)


66



1,086



(78
)(8,787
)


1,726



(498
)Loss before income taxes and income of consolidated subsidiaries


(55,712
)


(33,035
)


(46,753
)Equity in income of subsidiaries and earnings of power projects,
    net


7,172



11,054



34,064Loss from continuing operations before income taxes


(48,540
)


(21,981
)


(12,689
)Income tax benefit (expense)


(27
)


188



(9
)Net loss

$
(48,567
)

$
(21,793
)

$
(12,698
)  104




---



##### Table of Contents



WESTMORELAND
    COAL COMPANY
    SCHEDULE I  CONDENSED STATEMENT OF CASH FLOWS
    (Parent Company Information  See Notes to
    Consolidated Financial Statements)
  Years Ended December 312008


2007


2006(Amounts in thousands)Cash flows from operating activities:Net loss

$
(48,567
)

$
(21,793
)

$
(12,698
)Adjustments to reconcile net loss to net cash provided by
    operating activities:Equity in income of subsidiaries and earnings of independent
    power projects


(7,172
)


(11,054
)


(34,064
)Depreciation and amortization


381



330



477Gain on sales of assets


1



(5,641
)


25Share-based payment expense or compensation


2,733



2,467



2,564Non-cash interest expense


8,934







Amortization of deferred financing costs


78







Warrant repriced


355







Changes in operating assets and liabilities:Receivables, net


(526
)


293



(20,099
)Accounts payable and accrued expenses


(1,499
)


(2,846
)


1,483Other assets and liabilities


516



37,723



12,421Net cash used by operating activities


(44,766
)


(521
)


(49,891
)Cash flows from investing activities:Distributions received from subsidiaries


35,525



11,745



14,381Additions to property, plant and equipment


(75
)


(91
)


Change in restricted investments and bond collateral


(914
)


3,300



Net proceeds from sales of assets






12,700



(784
)Net cash provided by investing activities


34,536



27,654



13,597Cash flows from financing activities:Change in book overdrafts


548







Net borrowings (repayments) on revolving lines of credit






(8,500
)


8,000Borrowings of long-term debt


15,000







Debt issuance costs


(623
)






Repayments of long-term debt






(5,000
)


Loans from (to) subsidiaries


(4,248
)


(16,211
)


27,119Exercise of stock options


203



2,756



998Dividends on preferred shares










(387
)Net cash provided by (used in) financing activities


10,880



(26,955
)


35,730Net increase (decrease) in cash and cash equivalents


650



178



(564
)Cash and cash equivalents, beginning of year


306



128



692Cash and cash equivalents, end of year

$
956


$
306


$
128  105




---



##### Table of Contents



Westmoreland 
    LG&E Partners
  Financial
    Statements & Supplementary Data
  106




---



##### Table of Contents



WESTMORELAND-LG&E
    PARTNERS
  Statement
    of Operations and Comprehensive Income
 For the
    six months ended June 30, 2006
  June 30,2006(In thousands)Revenues:Energy

$
55,10455,104Cost and expenses:Cost of sales


22,777Cost of sales  affiliate


4,005Depreciation, depletion and amortization


5,484Selling and administrative


2,303Selling and administrative  affiliate


39934,968Operating income


20,136Other income (expense):Interest expense


(6,619
)Interest income


995Other


(5,624
)Revenues:


14,512Other comprehensive incomeUnrealized gain on derivative financial instrument


126Total comprehensive income

$
14,638  107




---



##### Table of Contents



WESTMORELAND-LG&E
    PARTNERS
  Statement
    of Partners Capital
 For the
    six months ended June 30, 2006
  UnrealizedLG&E


GainWestmoreland-


Roanoke


(Loss) onRoanoke


Valley


DerivativeValley L.P.


L.P.


Instrument


Total(In thousands)Balance as of December 31, 2005


50,932



45,837



(126
)


96,643Net Income


7,320



7,192







14,512Partner distributions


(946
)


(855
)






(1,801
)Unrealized gain on derivative instrument










126



126Balance as of June 30, 2006

$
57,306


$
52,174


$



$
109,480    108




---



##### Table of Contents



WESTMORELAND-LG&E
    PARTNERS
  Statement
    of Cash Flows
 For the
    six months ended June 30, 2006
  June 30,2006(In thousands)OPERATING ACTIVITIES:Net income

$
14,512Adjustments to reconcile net income to net cash provided by
    operating activities:Depreciation


5,115Amortization


369Ash monofill amortization


Decrease (increase) in accounts receivable


6,302Decrease (increase) in fuel inventories


517Decrease (increase) in prepaid expenses


(57
)Increase (decrease) in accounts payable and accrued liabilities


(11,027
)Increase (decrease) in interest payable


48Net cash provided by operating activities


15,779INVESTING ACTIVITIES:Purchases of property, plant, and equipment


(186
)Increase in restricted assets


(377
)Net cash used in investing activities


(563
)FINANCING ACTIVITIES:Repayment of notes payable


(12,944
)Partner distributions


(1,801
)Net cash used in financing activities


(14,745
)NET INCREASE IN CASH AND CASH EQUIVALENTS


471CASH AND CASH EQUIVALENTS  Beginning of year


21,430CASH AND CASH EQUIVALENTS  End of year

$
21,901SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATIONCash paid for interest

$
6,670  109




---



##### Table of Contents



WESTMORELAND 
    LG&E PARTNERS
  NOTES TO
    FINANCIAL STATEMENTS
  110




---



##### Table of Contents



WESTMORELAND-LG&E
    PARTNERS
  NOTES TO
    FINANCIAL STATEMENTS
  1.
    SUMMARY
    OF SIGNIFICANT ACCOUNTING POLICIES  Organization
      Power Sales Agreement
  kilowatt-hour kilowatt-hour. kilowatt-hours
 111




---



##### Table of Contents



WESTMORELAND-LG&E
    PARTNERS
  NOTES TO
    FINANCIAL STATEMENTS  (Continued)
    kilowatt-hour kilowatt-hour kilowatt-hour,
  Energy Services Agreement
  Cash Equivalents
  Fuel Inventories
  Property, Plant and Equipment
  Loan Origination Fees
  Restricted Assets Long-Term Debt
  Intangible Asset
  Major Maintenance
  Income Taxes
  Derivatives
 112




---



##### Table of Contents



WESTMORELAND-LG&E
    PARTNERS
  NOTES TO
    FINANCIAL STATEMENTS  (Continued)
      Asset Retirement Obligation
  Use of Estimates
  Reclassification
  2.
    LONG-TERM
    DEBT     113




---



##### Table of Contents



WESTMORELAND-LG&E
    PARTNERS
  NOTES TO
    FINANCIAL STATEMENTS  (Continued)
              2000-2008
   114




---



##### Table of Contents



WESTMORELAND-LG&E
    PARTNERS
  NOTES TO
    FINANCIAL STATEMENTS  (Continued)
  Restricted Assets
  Restricted
    Assets
    Years

Total(In thousands)2006

$
12,6502007


27,6952008


32,2682009


31,2332010


15,306Thereafter


51,500$
170,652   3.
    COMMITMENTS
    AND CONTINGENCIES  Coal Supply Agreement
  Lime Supply Agreement
  Rail Transportation Agreement
 115




---



##### Table of Contents



WESTMORELAND-LG&E
    PARTNERS
  NOTES TO
    FINANCIAL STATEMENTS  (Continued)
   Rail Transportation Agreement
  Lime Supply
    Agreement
  Property Tax Audit
  4.
    RELATED-PARTY
    TRANSACTIONS         116




---



##### Table of Contents



Report of
    Independent Registered Public Accounting Firm
               117




---



##### Table of Contents



EXHIBIT INDEX
  Incorporated by ReferenceExhibit





File





FiledNumber

Exhibit Description

Form

Number

Exhibit

Filing Date

Herewith3
.1

Restated Certificate of Incorporation

S-1

333-117709

3.1

7/28/20043
.2

Certificate of Correction to the Restated Certificate of
    Incorporation

8-K

001-11155

3.1

10/21/20043
.3

Certificate of Amendment to the Restated Certificate of
    Incorporation

8-K

001-11155

3.1

9/07/20073
.4

Certificate of Amendment to the Restated Certificate of
    Incorporation

8-K

001-11155

3.2

9/07/20073
.5

Amended and Restated Bylaws

8-K

001-11155

3.1

4/11/20084
.1

Certificate of Designation of Series A Convertible
    Exchangeable Preferred Stock

10-K

001-11155

3(a)

3/15/19934
.2

Indenture between Westmoreland Coal Company (WCC)
    and Fidelity Bank National Association relating to the Exchange
    Debentures

S-1

333-117709

4.2

7/28/20044
.3

Form of Exchange Debenture

S-1

333-117709

4.3

7/28/20044
.4

Deposit Agreement among WCC, First Chicago Trust Company of
    New York and the Holders

S-1

333-117709

4.4

7/28/20044
.5

Common Stock certificate

S-2

33-1950

4(c)

12/04/19854
.6

Preferred Stock certificate

S-2

33-47872

4.6

5/13/19924
.7

Form of Depository Receipt

S-1

333-117709

4.5

7/28/20044
.8

Amended and Restated Rights Agreement, dated February 7,
    2003, between WCC and EquiServe Trust Company, N.A.

8-K

001-11155

4.1

02/07/20034
.9

First Amendment to Amended and Restated Rights Agreement dated
    May 2, 2007, between WCC and Computershare
    Trust Company

8-A

001-11155

(l)

05/04/20074
.10

Second Amendment to Amended and Restated Rights Agreement dated
    March 4, 2008, between WCC and Computershare
    Trust Company

8-A

001-11155

(l)

03/06/20084
.11

Warrant dated August 20, 2007, in favor of SOF Investments,
    L.P.

10-K

001-11155

4.11

03/31/2008Other debt instruments are omitted in accordance with
    Item 601(b)(4)(iii)(A) of
    Regulation S-K.
    Copies of such agreements will be furnished to the Securities
    and Exchange Commission upon request.10
.1*

1995 Long-Term Incentive Stock Plan

Sch. 14A

001-11155

App. 3

04/28/199510
.2*

2000 Nonemployee Directors Stock Incentive Plan

10-K

001-11155

10(j)

03/05/200110
.3*

First Amendment to 2000 Nonemployee Directors Stock
    Incentive Plan

10-Q

001-11155

10.2

08/14/200310
.4*

2000 Long-Term Incentive Stock Plan

Sch. 14A

001-11155

Annex A

04/20/200010
.5*

Amended and Restated 2000 Performance Unit Plan









X10
.6*

2002 Long-Term Incentive Stock Plan

Sch. 14A

001-11155

Annex A

04/23/2002 118




---



##### Table of Contents



Incorporated by ReferenceExhibit





File





FiledNumber

Exhibit Description

Form

Number

Exhibit

Filing Date

Herewith10
.7*

Amended and Restated 2007 Equity Incentive Plan for Employees
    and Non-Employee Directors (2007 EIP)









X10
.8*

Form of Incentive Stock Option Agreement under the 2007 EIP

10-Q

001-11155

10.1

05/09/200810
.9*

Form of Nonstatutory Stock Option Agreement for directors under
    the 2007 EIP

10-Q

001-11155

10.2

05/09/200810
.10*

Form of Nonstatutory Stock Option Agreement for persons other
    than directors under the 2007 EIP

10-Q

001-11155

10.3

05/09/200810
.11*

Form of Restricted Stock Agreement for directors with time-based
    vesting under the 2007 EIP









X10
.12*

Form of Restricted Stock Agreement for directors under the 2007
    EIP









X10
.13*

Form of Restricted Stock Agreement for employees under the 2007
    EIP









X10
.14*

Severance Policy dated January 1, 2009









X10
.15

Amended Coal Mining Lease between Westmoreland Resources, Inc.
    (WRI) and Crow Tribe dated November 26, 1974,
    as amended in 1982

10-Q

0-752

10(a)

05/15/199210
.16

Amendment to Amended Coal Mining Lease between the Crow Tribe
    and WRI dated December 2, 1994









X10
.17

Exploration and Option to Lease Agreement between the Crow Tribe
    and WRI dated February 13, 2004 (Confidential materials
    omitted and filed separately with the SEC. Confidential
    treatment requested.)









X10
.18

Master Agreement dated January 4, 1999, between WCC, WRI,
    Westmoreland Energy, Inc., Westmoreland Terminal Company, and
    Westmoreland Coal Sales Company, the UMWA 1992 Benefit Plan and
    its Trustees, the UMWA Combined Benefit Fund and its Trustees,
    the UMWA 1974 Pension Trust and its Trustees, the United Mine
    Workers of America, and the Official Committee of Equity
    Security Holders

8-K

001-11155

99.2

02/04/199910
.19

Amended and Restated Coal Supply Agreement dated August 24,
    1998, among The Montana Power Company, et al and Western
    Energy Company

10-Q/A

001-11155

10.1

07/25/200710
.20

Coal Transportation Agreement dated July 10, 1981, among
    the Montana Power Company, et al and Western Energy Company

10-Q/A

001-11155

10.2

07/25/2007 119




---



##### Table of Contents



Incorporated by ReferenceExhibit





File





FiledNumber

Exhibit Description

Form

Number

Exhibit

Filing Date

Herewith10
.21

Amendment No. 1 to the Coal Transportation Agreement dated
    September 14, 1987, among The Montana Power Company,
    et al and Western Energy Company

10-Q/A

001-11155

10.3

07/25/200710
.22

Amendment No. 2 to the Coal Transportation Agreement dated
    August 24, 1998, among The Montana Power Company,
    et al and Western Energy Company

10-Q/A

001-11155

10.4

07/25/200710
.23

Third Amendment and Restatement of the Power Purchase and
    Operating Agreement between Westmoreland-LG&E Partners and
    Virginia Electric and Power Company for ROVA I

10-Q

001-11155

10.2

11/06/200610
.24

Second Amendment and Restatement of the Power Purchase and
    Operating Agreement between Westmoreland-LG&E Partners and
    Virginia Electric and Power Company for ROVA II

10-Q

001-11155

10.3

11/06/200610
.25

Amended and Restated Lignite Supply Agreement dated
    September 28, 2007, between NRG Texas Power LLC and Texas
    Westmoreland Coal Co.

10-Q

001-11155

10.1

03/17/200810
.26

First Amendment to Amended and Restated Lignite Supply Agreement
    dated June 26, 2008, between Texas Westmoreland Coal Co.
    and NRG Texas Power LLC

8-K

001-11155

10.9

06/26/200810
.27

Guaranty Agreement dated September 28, 2007, by WCC for the
    benefit of NRG Texas Power LLC

10-K

001-11155

10.43

03/31/200810
.28

Business Loan Agreement dated October 29, 2007, between WRI
    and First Interstate Bank

8-K

001-11155

10.1

11/02/200710
.29

Amendment to Business Loan Agreement and Commercial Security
    Agreement dated October 16, 2008, between First Interstate
    Bank and WRI

8-K

001-11155

10.5

10/21/200810
.30

Amendment No. 2 to Business Loan Agreement dated
    November 20, 2008, between First Interstate Bank, WCC and
    WRI

8-K

001-11155

10.1

11/24/200810
.31

Change in Terms Agreement dated November 20, 2008, between
    WRI and First Interstate Bank

8-K

001-11155

10.2

11/24/200810
.32

Second Amended and Restated Loan Agreement, dated
    February 11, 2008, among Westmoreland Partners and
    Prudential

10-K

001-11155

10.45

03/31/200810
.33

Second Amended and Restated Assignment and Security Agreement,
    dated February 11, 2008, between Westmoreland Partners and
    Prudential

10-K

001-11155

10.46

03/31/2008 120




---



##### Table of Contents



Incorporated by ReferenceExhibit





File





FiledNumber

Exhibit Description

Form

Number

Exhibit

Filing Date

Herewith10
.34

Third Amended and Restated General Partner Security and Limited
    Guaranty Agreement, dated Feb. 11, 2008, among
    Westmoreland-Roanoke Valley, L.P., Westmoreland-North Carolina
    Power, LLC and Prudential

10-K

001-11155

10.47

03/31/200810
.35

Senior Secured Convertible Note Purchase Agreement dated
    March 4, 2008 among WCC and various Tontine entities

8-K

001-11155

10.1

03/06/200810
.36

Registration Rights Agreement dated March 4, 2008, among
    WCC and various Tontine entities

8-K

001-11155

10.2

03/06/200810
.37

Guaranty dated March 4, 2008, from WRI in favor of Tontine
    Partners, LP and Tontine Capital Partners, LP

8-K

001-11155

10.3

03/06/200810
.38

Security Agreement dated March 4, 2008, between WRI and
    Tontine Capital Associates, LP

8-K

001-11155

10.4

03/06/200810
.39

Pledge Agreement dated March 4, 2008, among WCC, WRI and
    Tontine Capital Associates, LP

8-K

001-11155

10.5

03/06/200810
.40

Note Purchase Agreement dated June 26, 2008 among
    Westmoreland Mining LLC (WML), various of its
    subsidiaries and institutional investors

8-K

001-11155

10.1

06/26/200810
.41

Continuing Agreement of Guaranty and Suretyship dated
    June 26, 2008 from various WML subsidiaries for the benefit
    of the noteholders

8-K

001-11155

10.2

06/26/200810
.42

Security Agreement dated June 26, 2008 among WML, various
    WML subsidiaries and U.S. Bank NA

8-K

001-11155

10.3

06/26/200810
.43

Pledge Agreement dated June 26, 2008 among WCC, WML and
    U.S. Bank NA, for the benefit of the noteholders

8-K

001-11155

10.4

06/26/200810
.44

Amended and Restated Credit Agreement dated June 26, 2008
    among WML, various WML subsidiaries and PNC Bank, NA

8-K

001-11155

10.5

06/26/200810
.45

Amended and Restated Continuing Agreement of Guaranty and
    Suretyship dated June 26, 2008 from various WML
    subsidiaries in favor of PNC Bank, NA

8-K

001-11155

10.6

06/26/200810
.46

Amended and Restated Security Agreement dated June 26, 2008
    among WML, various WML subsidiaries, and U.S. Bank NA

8-K

001-11155

10.7

06/26/200810
.47

Amended and Restated Pledge Agreement dated June 26, 2008
    among WCC, WML and U.S. Bank NA

8-K

001-11155

10.8

06/26/200810
.48

Membership Interest Purchase Agreement among WRI, WRI Partners,
    Inc., Absaloka Coal, LLC and Feedstock Investments IV, LLC dated
    October 16, 2008

8-K

001-11155

10.1

10/21/2008 121




---



##### Table of Contents



Incorporated by ReferenceExhibit





File





FiledNumber

Exhibit Description

Form

Number

Exhibit

Filing Date

Herewith10
.49

Form of Fixed Payment Note

8-K

001-11155

10.3

10/21/200810
.50

Form of Contingent Payment Note

8-K

001-11155

10.4

10/21/200810
.51

Crow Tribal Lands Coal Lease between the Crow Tribe and WRI
    dated February 13, 2004









X21
.1

Subsidiaries of WCC









X23
.1

Consent of KPMG LLP









X23
.2

Consent of KPMG LLP









X31
.1

Certification of Chief Executive Officer pursuant to
    Rule 13a-14(a)









X31
.2

Certification of Chief Financial Officer pursuant to
    Rule 13a-14(a)









X32


Certifications of Chief Executive Officer and Chief Financial
    Officer pursuant to 18 U.S.C. Section 1350









X    122