##### Table of Contents



UNITED STATES SECURITIES AND
    EXCHANGE COMMISSION
 Washington, 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, 2006ORo

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
    14th Floor
    Colorado Springs, CO(Address of principal
    executive offices)

80903(Zip Code)   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 Stock Exchange on Which RegisteredCommon Stock, par value
    $2.50 per share


American Stock ExchangeDepositary Shares, each
    representing
    one-quarter of a share of Series A Convertible
    Exchangeable Preferred StockPreferred 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 Form 10-K Form 10-K. þ
  Rule 12b-2
 o þ o
  Rule 12b-2 o þ
      Form 10-K




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##### 



WESTMORELAND
    COAL COMPANYFORM 10-K
    ANNUAL REPORT
    TABLE OF CONTENTS
  
  Item



PagePART I1


Business


41A


Risk
    Factors


161B


Unresolved Staff
    Comments


252


Properties


253


Legal
    Proceedings


314


Submission of
    Matters to a Vote of Security Holders


37PART II5


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


416


Selected Financial
    Data


447


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


457A


Quantitative and
    Qualitative Disclosures About Market Risk


618


Financial
    Statements and Supplementary Data


639


Changes in and
    Disagreements with Accountants on Accounting and Financial
    Disclosure


1119A


Controls and
    Procedures


1119B


Other
    Information


115PART III10


Directors,
    Executive Officers and Corporate Governance


11611


Executive
    Compensation


11612


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


11613


Certain
    Relationships and Related Transactions, and Director
    Independence


11614


Principal
    Accountant Fees and Services


116PART IV15


Exhibits and
    Financial Statement Schedules


117Signatures


118Severance PolicySubsidiaries of the RegistrantConsent of KPMG LLPConsent of KPMG LLPConsent of Deloitte & Touche LLPCertification of CEO Pursuant to Rule 13a-14(a)Certification of CFO Pursuant to Rule 13a-14(a)Certifications of CEO and CFO Pursuant to Section 1350   2




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Forward-Looking
    Disclaimer
  Form 10-K, Form 10-K Form 10-K), Form 10-K.
   3




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##### Table of Contents



PART I   ITEM 1 
    BUSINESS  Overview
          Coal
    Operations
    Mines
    
    the Absaloka Mine,
    the Rosebud Mine,
    the Jewett Mine,
    the Beulah Mine, and
    the Savage Mine.     4




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sub-bituminous
          Year

Absaloka


Rosebud


Jewett


Beulah


Savage


Total2006


7,079



12,430



6,798



2,702



376



29,3852005


6,463



13,377



6,951



2,873



326



29,9902004


6,488



12,655



6,453



3,053



375



29,024   Coal and
    the Production of Electricity
    Electricity


Electricity


Coal-GeneratedGenerated by All


Generated by Coal


Electricity as aSources (Billions of


(Billions of


Percentage of allYear

Kilowatt Hours)(1)


Kilowatt Hours)


Electricity1950


334



154



46
%1960


759



403



53
%1970


1,535



704



46
%1980


2,290



1,162



51
%1990


3,027



1,594



53
%2000


3,789



1,966



52
%2004


3,941



1,976



50
%2005


4,055



2,015



50
%  5




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(1)
    
    All sources include all fossil fuels, nuclear electric power,
    hydroelectric pumped storage, renewable energy (including
    conventional hydroelectric power), and other.    Customers,
    Competition, and Coal Supply Agreements
      
    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 lower cost producers of
    electric power in their respective regions and are among the
    cleaner producers of power from fossil fuels.        
    The Absaloka Mine supplies coal to Xcel Energy under two primary
    contracts, one covering 3.0 to 3.4 million tons per year
    that expires at the end of 2007 and one covering
    1.3 million tons per year that was renewed effective
    January 1, 2007 and expires at the end of 2010. We receive
    prices under these contracts that are adjusted throughout their
    terms by specified inflation indices. 6




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
    The Absaloka Mine also supplies coal to Western Fuels
    Association, the fuel buyer for Southern Minnesota Municipal
    Power Agency or SMMPA, covering almost all of SMMPAs fuel
    requirements for Unit 3 at the Sherburne County Station, or
    approximately 1.5 million tons per year. This contract
    expires at the end of 2009. The price we receive under this
    contract is adjusted throughout its term by specified inflation
    indices.    four-unit
  two-unit
 7




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Weighted AveragePercentage of


Price per TonCoal Revenues


Coal Sales in


Coal Sales Under


Received Underin Dollars


Equivalent Tons


Long-Term


Long-TermYear

(In 000s)


(In 000s)


Contracts


Contracts2006

$
393,482



29,385



98
%

$
13.362005


361,017



29,990



99
%


11.442004


319,648(1
)


29,024



98
%


11.38
(1)2003


294,892



27,762



99
%


10.452002


301,235



26,062



100
%


11.29
(2)    (1)
    
    In 2004, we concluded arbitration with the owners of Colstrip
    Units 1&2. The arbitration determined the price we received
    for coal that we delivered to Colstrip Units 1&2 from July
    2001. Our coal revenues for 2004, and the weighted average price
    per ton received under long-term contracts in 2004, include the
    entire amount we received pursuant to this arbitration.
    Excluding the portion of the arbitration award that covered coal
    that we had delivered to Colstrip Units 1&2 in previous
    years, we earned coal revenues of $302,753,000 and received a
    weighted average price of $10.78 per ton under long-term
    contracts in 2004.(2)
    
    The weighted average price per ton that we received declined
    from 2002 to 2003 principally because the Jewett Mine
    transitioned from cost-plus-fees pricing to a market-based
    pricing mechanism, effective July 1, 2002. That mechanism
    was, in turn, replaced by a fixed price agreement in January
    2004 and then a modified cost and index-based agreement in
    September 2005.   8




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and/or
  and/or
  Projected Sales Tonnage UnderExisting Long-Term ContractsAs of Dec 31, 2006(In millions of tons)2007


30.02008


27.32009


26.62010


21.92011


17.6     Protecting
    the Environment
    sub-soils
    Safety
     9




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Independent
    Power Operations
    
    100% of the interests in the 180 MW and 50 MW ROVA I
    and ROVA II coal-fired plants located in Weldon, North
    Carolina;
    a 4.49% interest in the Ft. Lupton Project, a 290 MW
    natural gas-fired plant located in Ft. Lupton, Colorado.      Roanoke

RoanokeProject

Valley I

Valley II

Ft. LuptonLocation

Weldon,
    North Carolina

Weldon,
    North Carolina

Ft. Lupton,
    ColoradoGross Megawatt
    Capacity

180 MW

50 MW

290 MWOur Equity Ownership

100.0%

100.0%

4.49%Electricity Purchaser

Dominion
    Virginia Power

Dominion
    Virginia Power

Xcel EnergySteam Host

Patch Rubber
    Company

Patch Rubber
    Company

Rocky Mtn.
    Produce, Ltd.Fuel Type

Coal

Coal

Natural GasFuel Supplier

TECO Coal

TECO Coal

Xcel EnergyContracts with fuel supplier
    expire in

2014

2015

Unit 1  2019
    Unit 2  2009Commercial Operation
    Commencement Date

1994

1995

1994Contracts with electricity
    purchaser expire in

2019(1)

2020(1)

Unit 1  2019
    Unit 2  2009Contracts with steam host
    expire in

2010(2)

2010(2)

N/A     (1)
    
    ROVA and Dominion Virginia Power can extend these contracts by
    mutual consent for five-year terms at mutually agreeable pricing.(2)
    
    ROVA and Patch Rubber Company can extend these contracts for
    three successive five-year terms.   10




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Other
    Activities
      Insurance
    Subsidiary
      Seasonality
    
    The owners of the power plants to which we supply coal typically
    schedule maintenance for those plants in the spring and fall,
    when demand for electric power is typically less than it is
    during other seasons. For this reason, our coal revenues are
    usually higher in the winter and summer.
    ROVA also typically undergoes scheduled maintenance in the
    spring and fall, so our earnings from independent power are also
    lower in those seasons.  Government
    Regulation
   11




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Environmental
    Laws
    Surface Mining Control and Reclamation
    Act.
      Clean Air Act. and/or
  2
 12




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2
    Clean Water Act. and/or
  Resource Conservation and Recovery Act.
  New
    Environmental Rules
    Clean Air Interstate Rule. 2
  
    A state may require power plants to participate in an
    EPA-administered interstate cap and trade system that caps
    emissions in two stages, or
    A state may meet an air emission budget specific to it through
    measures of the states choosing.   13




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Mercury Rule. 2010-2017,
  Health
    and Benefits
  Mine Safety and Health.
  Black Lung.
  Coal Act.
  
    First, the statute merged the UMWA 1950 and 1974 Plans into the
    Combined Benefit Fund, or CBF. The CBF provides benefits to a
    closed pool of beneficiaries, retirees who were actually
    receiving benefits from either the 1950 or the 1974 Plan as of
    July 20, 1992. The Coal Act requires that the benefits
    provided to this group remain substantially the same as provided
    by the 1950 and 1974 Plans as of January 1, 1992.
    Second, the Coal Act requires companies, like our company, that
    had established individual employer plans, or IEPs, pursuant to
    prior collective bargaining agreements to maintain those IEPs
    and provide the beneficiaries a level of benefits substantially
    the same as they received as of January 1, 1992.
    Third, the Coal Act established the 1992 UMWA Benefit Plan which
    serves three distinct populations: miners who were eligible to
    retire as of February 1, 1993 and actually retired before
    September 30, 1992 and whose employers are no longer in
    business; miners receiving benefits under an IEP but whose
    former employer went out of business; and new spouses or new
    dependants of retirees in the CBF.  Workers Compensation.
  Independent
    Power
   14




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and/or
  Employees
      Information
    about Segments
    Available
    Information
  Form 10-K, Form 10-Q, Form 8-K,
 15




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ITEM 1A 
    RISK FACTORS    Our
    coal mining operations are inherently subject to conditions that
    could affect levels of production and production costs at
    particular mines for varying lengths of time and could reduce
    our profitability.
    
    unplanned equipment failures, which could interrupt production
    and require us to expend significant sums to repair our capital
    equipment, including our draglines, the large machines we use to
    remove the soil that overlies coal deposits;
    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.    
    During the first quarter of 2006, the dragline at the Absaloka
    Mine was unable to operate for almost six weeks, while we were
    repairing a broken walking shoe and its electrical systems.
    In the second quarter of 2005, our Beulah Mine experienced
    unusually heavy rainfall including record rainfall in June that
    adversely impacted overburden stability and resulted in highwall
    and spoil sloughage, a condition in which the side of the pit
    partially collapses and must be stabilized before mining can
    continue. Unstable conditions in the pits impacted dragline
    operations at that mine for a period of time. This resulted in a
    reduction in coal production during the quarter which negatively
    affected our financial results for the third and fourth quarter
    of 2005.  Our
    revenues and profitability could suffer if our customers reduce
    or suspend their coal purchases.
    Disputes
    relating to our coal supply agreements could harm our financial
    results.
   16




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We are
    a party to numerous legal proceedings, some of which, if
    determined unfavorably to us, could result in significant
    monetary damages.
    We may
    not be able to manage our expanding operations effectively,
    which could impair our profitability.
    The
    implementation of a new company-wide computer system could
    disrupt our internal operations.
    Our
    growth and development strategy could require significant
    resources and may not be successful.
    Our
    expenditures for postretirement medical benefits could be
    materially higher than we have predicted if our underlying
    assumptions prove to be incorrect.
   17




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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.
            
    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 other general
    corporate requirements; and
    limiting our flexibility in planning for, or reacting to,
    changes in our business and in the industry.     18




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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 profitability could be
    reduced.
    Our
    financial position could be adversely affected if we fail to
    maintain our Coal Act bonds.
        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 and could
    reduce our profitability.
   19




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Stricter
    environmental regulations, including regulations recently
    adopted by the EPA, could reduce the demand for coal as a fuel
    source and cause the volume of our sales to
    decline.
       20




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
    Different types of coal vary in their chemical composition and
    combustion characteristics. For example, the lignite from our
    Jewett and Beulah mines is inherently higher in mercury than
    bituminous and
    sub-bituminous
    coal, and
    sub-bituminous
    coal from different seams can differ significantly.
    Different EGUs have different levels of emissions control
    technology. For example, ROVA has state of the art
    emissions control technology that reduces its emissions of
    sulfur dioxide, nitrogen oxide and, collaterally, mercury.
    The CAIR is likely to affect the existing national market for
    sulfur dioxide emissions allowances, thereby indirectly
    affecting coal producers and consumers that are not directly
    subject to the CAIR.    and/or
  New
    legislation or regulations in the United States aimed at
    limiting emissions of greenhouse gases could increase the cost
    of using coal or restrict the use of coal, which could reduce
    demand for our coal, cause our profitability to suffer and
    reduce the value of our assets.
    Demand
    for our coal could also be reduced by environmental regulations
    at the state level.
   21




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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 or
    contractors, we could be required to expend greater amounts than
    we currently anticipate, which could affect our profitability in
    future periods.
      Our
    profitability 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.
      Increases
    in the cost of the fuel, electricity and materials and the
    availability of tires we use in the operation of our mines could
    affect our profitability.
    If we
    experience unanticipated increases in the capital expenditures
    we expect to make over the next several years, our liquidity
    and/or
    profitability could suffer.
  return-on-investment.
 22




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Our
    ability to operate effectively and achieve our strategic goals
    could be impaired if we lose key personnel.
    Provisions
    of our certificate of incorporation, bylaws and 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.
    Our
    ability to operate effectively and achieve our strategic goals
    depends on maintaining satisfactory labor
    relations.
    We
    have had material weaknesses in internal control over financial
    reporting in the past and cannot assure that additional material
    weaknesses will not be identified in the future. Our failure to
    maintain effective internal control over financial reporting
    could result in material misstatements in our financial
    statements which could require us to restate financial
    statements, cause investors to lose confidence in our reported
    financial information and have a negative effect on our stock
    price.
  Form 10-K Form 10-K
   23




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We may
    face risks related to an SEC investigation and securities
    litigation in connection with the restatement of our financial
    statements.
   24




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ITEM 1B 
    UNRESOLVED STAFF COMMENTS   ITEM 2 
    PROPERTIES       25




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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)Proven(1)(4)

95,076(2)

230,086(2)

68,681(2)

41,411(2)

8,000(2)Probable(3)

0

0

0

81,218

0Permitted Reserves (thousands of
    tons)

20,445

155,766

68,621

19,500

2,1912006 Production (thousands of
    tons)

6,778

12,732

6,799

2,679

379Lessor

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)

7,000

13,300

7,000

3,200

400Coal Type

Sub-
    bituminous

Sub-
    bituminous

Lignite

Lignite

LigniteAcres disturbed by
    Mining

3,858

15,819

14,973

4,521

534Acres for which reclamation is
    complete

2,637

7,374

11,140

3,237

209Major Customers

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

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

NRGT

Otter Tail,
    MDU,
    Minnkota,
    Northwestern
    Public Service

MDU, Sidney
    SugarsDelivery Method

Rail/Truck

Truck/ Rail/
    Conveyor

Conveyor

Conveyor/
    Rail

TruckApprox. Heat Content (BTU/lb.)
    (5)

8,700

8,529

6,642

7,016

6,371Approx. Sulfur Content (%)
    (6)

0.65

0.74

0.90

0.91

0.45Year Opened

1974

1968(7)

1985

1963

1958Total Tons Mined Since Inception
    (thousands of tons)

148,381

384,910

161,000

90,770

13,080     (1)
    
    Proven coal reserves are 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 closely and the geologic character is so well defined
    that size, shape, depth and mineral content of reserves are
    well-established. In addition, all coal reserves are
    assigned coal reserves: coal that we have committed
    to operating mining equipment and plant facilities.(2)
    
    Includes tons for each mine as described below that are not
    fully permitted but otherwise meet the definition of
    proven coal reserves.(3)
    
    Probable reserves are reserves for which quantity and grade
    and/or
    quality are computed from information similar to that used for
    proven reserves, but the sites for inspection, sampling, and
    measurement are farther 26




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apart or are otherwise less adequately spaced. The degree of
    assurance, although lower than that for proven reserves, is high
    enough to assume continuity between points of observation.(4)
    
    We have assigned all proven reserves to operating mining
    equipment and plant facilities.(5)
    
    Approximate heat content applies to the coal mined in 2006.(6)
    
    Approximate sulfur content applies to the tons mined in 2006.(7)
    
    Initial sales from the current mine complex began in 1968.
    Mining first occurred at the site in 1924.    Absaloka
    Mine
             27




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Rosebud
    Mine
              Jewett
    Mine
     28




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Beulah
    Mine
         29




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Savage
    Mine
              Other
   30




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ITEM 3 
    LEGAL PROCEEDINGS    Legal
    proceedings involving Westmoreland Coal Company
  Combined
    Benefit Fund Litigation
          i.e.
     31




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1992 UMWA
    Benefit Plan Surety Bond
          Legal
    Proceedings involving Westmoreland Coal Company
    and/or
    Westmoreland Energy
  Rensselaer
    Tax Assessment
     32




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Legal
    Proceedings involving Westmoreland Coal Company, Westmoreland
    Resources,
    and/or
    Western Energy
  Royalty
    Claims by Minerals Management Service and Related Tax Claims by
    Montana Department of Revenue
            No. M18-080697-0.
   33




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1998-2001.
        2004-and
      Litigation
    with Washington Group International, Inc.
   34




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McGreevey
    Litigation
       35




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Texas
    Westmoreland Price Arbitration
    Other
   36




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ITEM 4 
    SUBMISSION OF MATTERS TO A VOTE OF SECURITY
    HOLDERS   37




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Executive
    Officers of the Company
    Name

Age

Position

Held SinceChristopher K. Seglem(1)


60


Chairman of the Board, President
    and Chief Executive Officer


1996, 1992, 1993David J. Blair(2)


53


Chief Financial Officer


2005Roger D. Wiegley(3)


58


General Counsel and Secretary


2005Robert W. Holzwarth(4)


59


Senior Vice President, Power


2004John V. OLaughlin(5)


55


Vice President, Coal Operations


2005Todd A. Myers(6)


43


Vice President, Coal Sales


2002Ronald H. Beck(7)


62


Vice President, Finance and
    Treasurer


2001Mark K. Seglem(8)


49


Vice President, Strategic Planning
    and Administration


2006Thomas G. Durham(9)


58


Vice President, Planning and
    Engineering


2005Douglas P. Kathol(10)


54


Vice President, Development


2003Mary S. Dymond(11)


54


Vice President, Human Resources
    and Risk Management


2006Gregory S. Woods(12)


53


Vice President, Eastern Operations


2000Diane S. Jones(13)


48


Vice President, Corporate
    Relations and Assistant Secretary


2000Bronwen J. Turner(14)


52


Vice President, Government and
    Community Relations


2006Kevin A. Paprzycki(15)


36


Controller and Principal
    Accounting Officer


2006Morris W. Kegley(16)


59


Assistant General Counsel and
    Assistant Secretary


2005     (1)
    
    Mr. Christopher Seglem was elected President and Chief
    Operating Officer in June 1992, and a Director of the Company in
    December 1992. In June 1993, he was elected Chief Executive
    Officer, at which time he relinquished the position of Chief
    Operating Officer. In June 1996, he was elected Chairman of the
    Board. He is a member of the bar of Pennsylvania.(2)
    
    Mr. Blair joined Westmoreland in April 2005. He joined
    Westmoreland after seventeen years with Nalco Chemical Company
    where he was most recently acting Chief Financial Officer for
    Ondeo Nalco Company, a global specialty chemical company.(3)
    
    Mr. Wiegley joined Westmoreland in May 2005. Prior to
    joining Westmoreland he held legal positions with Credit Suisse
    Group from 1999 to 2005 and served as General Counsel for one of
    its affiliates. Mr. Wiegley served as outside counsel for
    Westmoreland from 1992 to 1994 while a partner with Sidley
    Austin LLP and from 1994 to 1997 with Pillsbury Winthrop Shaw
    Pittman LLP.(4)
    
    Mr. Holzwarth joined Westmoreland in November 2004. Prior
    to joining Westmoreland, he was Chief Executive Officer of
    United Energy, a publicly-traded utility in Australia. From 1993
    to 2003 he was employed by Aquila, Inc. in various management
    positions, including from 1997 to 2000 as Vice President and
    General Manager of Power Services and Generation, in which
    capacity he managed power 38




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##### Table of Contents



plants capable of generating over 2,000 MW of electricity,
    and from 2002 to 2003 as Chief Executive Officer of United
    Energy, Australia, an electric distribution utility serving
    600,000 customers.(5)
    
    Mr. OLaughlin joined Westmoreland in February 2001 as
    Vice President, Mining, and was named President and General
    Manager of Dakota Westmoreland Corporation in March 2001. He
    later became President and General Manager of Western Energy
    Company and President of Texas Westmoreland Coal Company and was
    promoted to Vice President of Coal Operations for Westmoreland
    Coal Company in May 2005. Prior to joining Westmoreland,
    Mr. OLaughlin was with Morrison Knudsen
    Corporations mining group for twenty-eight years, most
    recently as Vice President of Mine Operations which included
    responsibility for the contract mining services at the Absaloka
    Mine.(6)
    
    Mr. Myers rejoined Westmoreland in January 2000 as Vice
    President, Marketing and Business Development and in 2002 became
    Vice President, Sales and Marketing. He originally joined
    Westmoreland in 1989 as a Market Analyst and was promoted in
    1991 to Manager of the Contract Administration Department. He
    left Westmoreland in 1994. Between 1994 and 2000, he was Senior
    Consultant and Manager of the environmental consulting group of
    a nationally recognized energy consulting firm, specializing in
    coal markets, independent power development, and environmental
    regulation.(7)
    
    Mr. Beck joined Westmoreland in July 2001 as Vice
    President, Finance and Treasurer. From September 2003 to April
    2005, he also served as Acting Chief Financial Officer. He was
    appointed Assistant Secretary in April 2005. Prior to joining
    Westmoreland he was a financial officer at Columbus Energy Corp.
    from 1985 to 2000, lastly as Vice President and Chief Financial
    Officer.(8)
    
    Mr. Mark Seglem joined Westmoreland in July 2003 as Vice
    President, Business Operations of Texas Westmoreland Coal
    Company. In May 2006 he was promoted to President of Texas
    Westmoreland and elected Vice President, Strategic Planning and
    Administration of Westmoreland Coal Company. Mr. Seglem
    came to Westmoreland from the Secretary of Defenses office
    where he had served as a division director since August of 2001.
    Prior to that he worked for two years as a manager of the
    defense consulting firm, Whitney, Bradley, and Brown of Vienna,
    Virginia. Mr. Seglem served in the United States Navy
    as a Surface Warfare Officer from 1979 to 1999 retiring at the
    grade of Captain (select).(9)
    
    Mr. Durham joined Westmoreland as Vice President, Coal
    Operations in April 2000 and was named Vice President,
    Planning and Engineering in May 2005. For the four years prior
    to joining Westmoreland, he was a Vice President of NorWest Mine
    Services, Inc. which provides worldwide mining consulting
    services on surface mining and other projects. Mr. Durham
    has over 30 years of surface mine management and operations
    experience. He became a registered professional engineer in 1976.(10)
    
    Mr. Kathol joined Westmorland in August 2003. Prior to
    joining Westmoreland, Mr. Kathol was Vice President
    and Controller of NorWest Mine Services, Inc. which provides
    worldwide mining consulting services. Mr. Kathol has over
    27 years experience evaluating and developing energy
    related projects.(11)
    
    Ms. Dymond joined Westmoreland in June 2006, as Vice
    President, Human Resources and became Vice President, Human
    Resources and Risk Management in November 2006. From 2000 to
    June 2006, she was with Cenveo, Inc., a publicly-held printing
    and paper conversion company, where she served as Vice President
    of Human Resources. Ms. Dymond has held senior human
    resources and risk management positions with publicly-held
    companies in the energy and manufacturing sectors since 1987
    including serving as Vice President of Human Resources of ACX
    Technologies, the publicly-held spin-off of the Adolph Coors
    Brewing Co. Ms. Dymond is a Certified Compensation
    Professional.(12)
    
    Mr. Woods joined Westmoreland in May 1973 and held various
    corporate accounting and management information systems
    positions while at Westmorelands Virginia and West
    Virginia coal mining operations. Mr. Woods has been with
    Westmoreland Energy LLC since 1990 and has held the positions of
    Controller, Asset Manager, and Vice President, Finance and Asset
    Management. Mr. Woods was elected to his current positions
    as Vice President, Eastern Operations of Westmoreland Coal
    Company in June 2000, as Executive Vice President of
    Westmoreland Energy LLC in February 1997, and as President of
    Westmoreland Technical Services, Inc. in April 2001.(13)
    
    Ms. Jones joined Westmoreland in March 1993 as Manager,
    Business Development of Westmoreland Energy LLC and became
    Manager of Business Development and Corporate Relations for
    Westmoreland Coal Company in 1995. She was named Vice President
    Corporate Business Development and Corporate 39




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##### Table of Contents



Relations in 2000 and then named Vice President Corporate
    Relations in August 2003. Prior to joining Westmoreland,
    Ms. Jones held engineering and business development
    positions in the utility industry. She became a registered
    professional engineer in 1985.(14)
    
    Ms. Turner joined Westmoreland in August 2003 as Director,
    Government and Community Relations and was named Vice President,
    Corporate Government and Community Relations in January 2006.
    Prior to joining Westmoreland she was a policy analyst for the
    Education Commission of the States and director of marketing and
    communications for Quark Inc. She has over 25 years
    experience in various positions in marketing, communications and
    public policy, including representing communities impacted by
    energy development.(15)
    
    Mr. Paprzycki joined Westmoreland as Controller and
    Principal Accounting Officer in June 2006. Prior to joining
    Westmoreland he held positions at Applied Films Corporation as
    Corporate Controller from November 2005 to June 2006. From June
    2004 to November 2005 he was Chief Financial Officer at Evans
    and Sutherland Computer Corporation, and the companys
    Director of Finance from June 2001 to June 2004.
    Mr. Paprzycki became a certified public accountant in 1994
    and a certified financial manager and certified management
    accountant in 2004.(16)
    
    Mr. Kegley joined Westmoreland in October 2005. Prior to
    joining Westmoreland he held legal positions with Peabody Energy
    Company from February 2004 to October 2005, AngloGold North
    America from June 2001 to February 2004, Kennecott Energy
    Company from August 1998 to June 2001, and Amax Coal Company and
    Cyprus Amax Minerals Company from February 1981 to July 1998. He
    is a member of the bar of Indiana, Illinois, Wyoming and
    Colorado. 40




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##### 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 Stock


Depositary SharesHigh


Low


High


Low2005First Quarter

$
33.65


$
24.26


$
59.00


$
48.50Second Quarter


25.80



16.92



49.25



38.00Third Quarter


28.70



20.54



52.00



42.00Fourth Quarter


29.42



20.48



51.50



41.752006First Quarter


26.25



22.40



50.00



43.00Second Quarter


33.55



23.05



59.50



44.50Third Quarter


25.61



18.65



49.00



44.00Fourth Quarter


23.85



18.76



48.25



41.05   Approximate
    Number of Equity Security Holders of Record:
  Number of Holders of RecordTitle of Class

(As of March 1, 2007)Common Stock ($2.50 par value)


1,361Depositary Shares, each
    representing one-quarter of a share of Series A Convertible
    Exchangeable Preferred Stock


13  41




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##### Table of Contents



Stock
    Performance Graph
    
  December 31,


2001


2002


2003


2004


2005


2006Westmoreland Coal Co.



100




86




129




224




168




145Peer Group Index



100




80




127




213




357




321Amex Market Index



100




96




131




150




165




185   Form 10-K
  Dividends
     42




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##### Table of Contents



43




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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

2006(1)


2005


2004


2003


2002(In thousands, except per share data)Revenues:Coal

$
393,482


$
361,017


$
319,648


$
294,892


$
301,235Energy


47,904















Independent power and other


7,681



12,727



12,741



15,824



14,506Total revenues


449,067



373,744



332,389



310,716



315,741Cost and expenses


438,322



373,025



331,428



306,504



299,925Operating income


10,745



719



961



4,212



15,816Interest expense


(19,234
)


(10,948
)


(10,966
)


(10,804
)


(11,511
)Minority interest


(2,244
)


(950
)


(1,154
)


(773
)


(800
)Interest and other income


6,162



5,250



4,808



3,121



4,128Income (loss) from continuing
    operations before income taxes


(4,571
)


(5,929
)


(6,351
)


(4,244
)


7,633Income tax benefit (expense)


(3,022
)


(2,667
)


(896
)


1,132



(3,288
)Income (loss) from continuing
    operations


(7,593
)


(8,596
)


(7,247
)


( 3,112
)


4,345Income (loss) from discontinued
    operations














2,113



(3,583
)Net income (loss) before
    cumulative effect of changes in accounting principles


(7,593
)


(8,596
)


(7,247
)


(999
)


762Cumulative effect of changes in
    accounting principles, net






2,662







(22
)


Net income (loss)


(7,593
)


(5,934
)


(7,247
)


(1,021
)


762Less preferred stock dividend
    requirements


1,585



1,744



1,744



1,752



1,772Less premium on exchange of
    preferred stock for common stock


791















Net loss applicable to common
    shareholders

$
(9,969
)

$
(7,678
)

$
(8,991
)

$
(2,773
)

$
(1,010
)Net loss per share applicable to
    common shareholders:Basic

$
(1.14
)

$
(0.93
)

$
(1.11
)

$
(0.36
)

$
(0.13
)Diluted

$
(1.14
)

$
(0.93
)

$
(1.11
)

$
(0.36
)

$
(0.13
)Weighted average number of common
    shares outstanding:Basic


8,748



8,280



8,099



7,799



7,608Diluted


9,105



8,868



8,662



8,338



8,147Balance Sheet
    InformationWorking capital (deficit)

$
(67,362
)

$
(20,138
)

$
(6,608
)

$
(16,485
)

$
(25,954
)Net property, plant and equipment


431,452



211,157



204,557



194,357



238,954Total assets


761,382



495,871



462,730



424,086



434,208Total debt


306,007



112,243



117,259



93,469



100,157Shareholders equity
    (deficit)(2)


(126,185
)


(10,192
)


(3,371
)


2,417



1,712     (1)
    
    Effective June 29, 2006, the Company acquired a 50%
    interest in a partnership which owns the 230 MW Roanoke
    Valley power plants from a subsidiary of E.ON U.S. LLC. The
    acquisition increased the Companys ownership interest in
    the partnership to 100%.(2)
    
    Effective December 31, 2006, the Company adopted the
    provisions of Statement of Financial Accounting Standards
    No. 158 (SFAS NO. 158). Upon adoption
    of the Standard, the Company recorded an increase in
    stockholders deficit of $95.2 million to reflect on
    its balance sheet the underfunded status of its pension and
    postretirement benefit plans. 44




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##### Table of Contents



ITEM 7 
    MANAGEMENTS
    DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
    OPERATIONS  Forward-Looking
    Disclaimer
    Overview
  Competitive,
    economic and industry factors
        Revenues
    and expenses
    Meeting
    Our Commitment to Preferred Stockholders
     45




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##### Table of Contents



Challenges
    
    obtaining adequate capital for our on-going operations and our
    growth initiatives;
    continuing to fund high heritage health benefit expenses which
    continue to be adversely affected by inflation in medical costs,
    longer life expectancies for retirees and the failure of the
    UMWA retirement fund trustees to manage medical costs;
    maintaining and collateralizing, where necessary, our Coal Act
    and reclamation bonds;
    funding required contributions to pension plans that are
    underfunded;
    complying with new environmental regulations, which have the
    potential to significantly reduce sales from our mines; and
    defending against claims for potential taxes and royalties
    assessed by various governmental entities, some of which we
    believe are subject to reimbursement by our customers.    Internal
    Control over Financial Reporting
    Form 10-K Form 10-K.
  Critical
    Accounting Estimates and Related Matters
        Postretirement
    Benefits and Pension Obligations
   46




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##### Table of Contents



Postretirement Benefits1% Increase


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

$
1,596



(1,347
)Effect in postretirement benefit
    obligation

$
24,935



(21,125
)     $1,330/participant)
      Asset
    Retirement Obligations, Reclamation Costs and Reserve
    Estimates
   47




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##### Table of Contents



units-of-production
    Deferred
    Income Taxes
           48




---



##### Table of Contents



Contractual
    Obligations and Commitments
    Payments Due by PeriodAfterTotal


2007


2008


2009


2010


2011


2011(In thousands of dollars)Westmoreland Mining term debt(1)


91,600



12,000



44,600



11,500



11,500



12,000



ROVA term debt(2)


158,003



27,696



32,269



31,232



15,306



8,500



43,000ROVA acquisition debt


35,000



35,000



















Other debt


16,474



1,311



14,011



770



382







Interest on debt(3)


69,851



22,016



16,135



9,552



7,340



5,337



9,471Operating leases


7,498



4,613



1,855



1,014



16







Workers compensation


9,538



949



895



837



785



736



5,336Combined Benefit Fund
    (Multiemployer plan)(4)


33,229



3,613



3,383



3,158



2,936



2,733



17,406Postretirement medical benefits(5)


240,382



16,968



17,696



18,262



18,717



18,845



149,894Qualified pension benefits(6)


67,411



4,140



2,626



6,270



4,435



3,369



46,571SERP benefits(7)


2,506



76



74



71



68



255



1,962Black lung benefits


14,902



1,987



1,488



1,440



1,387



1,330



7,270Reclamation costs(8)


488,437



10,543



11,110



16,640



14,077



15,380



420,687ROVA coal supply agreement(9)


217,160



26,488



26,488



26,488



26,488



26,488



84,720     (1)
    
    At December 31, 2006, Westmoreland Mining had deposited
    $25.4 million in two restricted accounts as collateral
    against these obligations.(2)
    
    At December 31, 2006, ROVA had deposited $28.1 million
    in a restricted debt account as collateral against these
    obligations.(3)
    
    In calculating the amount of interest on debt, we have assumed
    that the interest rates applicable to our floating rate debt
    would not increase or decrease from the rates in effect at
    December 31, 2006.(4)
    
    We have not accrued the present value of this obligation,
    because this plan is a multiemployer plan. We expense our
    premium payments when due.(5)
    
    The table presents our estimate of our discounted benefit
    obligation.(6)
    
    The fair value of plan assets at December 31, 2006 was
    $47 million. The obligations shown above are our expected
    contributions to the plan assets.(7)
    
    The table presents our estimate of our discounted benefit
    obligations.(8)
    
    The table presents our estimate of the undiscounted cost for
    final reclamation. The accrued liability of $184.1 million
    as of December 31, 2006 will increase in present value as
    mine closures draw nearer. The accrued liability does not
    consider the contractual obligations at December 31, 2006,
    of our customers and of Washington Group, the contract miner at
    the Absaloka Mine to perform reclamation. Effective
    March 30, 2007, WRI acquired the contract to mine the
    Absaloka Mine, and assumed the final reclamation obligation. We
    estimate that the present value of Washington Groups
    receivable that we assumed is 49




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##### Table of Contents



$11.6 million, and the receivables of our other customers
    total $30.4 million. The accrued liability also does not
    reflect $62.5 million held in escrow as of
    December 31, 2006 from contributions by customers for
    reclamation of the Rosebud Mine, or $1.2 million in
    restricted cash for reclamation of other mines. In addition, the
    Absaloka contract mine operator is funding a separate
    reclamation escrow account which has a balance of approximately
    $6.5 million as of December 31, 2006. We estimate that
    the present value of our net obligation for final reclamation of
    our mines that is, the costs of final reclamation
    that are not the contractual responsibilities of
    others  is $142.1 million at December 31,
    2006. Responsibility for these amounts may change in certain
    circumstances. For example, at the Jewett Mine, if there is a
    cessation of mining the customer assumes responsibility for all
    reclamation. At December 31, 2006, if there had been a
    cessation of mining, the customer would have assumed
    responsibility for approximately $37.1 million (on a
    present value basis) of the reclamation obligation that is
    currently the responsibility of the Company.(9)
    
    ROVA has two coal supply agreements with TECO Coal Corporation.
    The amounts shown in this row assume that ROVA continues to
    purchase coal under these contracts at the current volume and
    does not extend these contracts and that the price per ton
    payable under these contracts does not increase.  Financial
    Implications of the ROVA Acquisition
    MW-hour MW-hour
    91-06, 01-08, 01-08. 01-08,
  Form 8-K/A
 50




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##### Table of Contents



8-K/A Form 8-K/A.
        Liquidity
    and Capital Resources
         51




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##### Table of Contents



Factors
    Affecting our Liquidity
           52




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##### Table of Contents



Cash
    Balances And Line of Credit
      Restricted
    Cash
    Preferred
    Stock
    Westmoreland
    Mining Debt Facilities
   53




---



##### Table of Contents



Historical
    Sources and Uses of Cash
             54




---



##### Table of Contents



Operational
    and Capital Expenditure Outlook
    
    Tons sold in 2007 are expected to increase by approximately 2%
    compared to tons sold in 2006. Coal margins are expected to
    increase reflecting higher prices from customer contract
    renewals offset in part by increases in the costs of operating
    the mines.
    We will receive a reserve dedication payment of $10 million
    from a customer in early 2007.
    We anticipate that capital expenditures and new investments
    related to our mining activities will increase in 2007 from 2006
    as a result of the replacement of operational equipment at our
    mines. As a result, we expect higher depreciation, depletion and
    amortization expense.
    In February 2007, the Company sold its interest in a coal
    royalty for $12.7 million and will recognize a
    $5.6 million gain on the sale in the first quarter.
    We anticipate a reduction in our 2007 heritage health benefit
    expenses as a result of lower health care costs, combined
    benefit fund premiums, workers compensation costs as well
    as the $5.8 million and additional interest refund expected
    from the CBF.
    2007 results will reflect the consolidation of the operating
    results of ROVA for a full year compared to only six months in
    2006.  Pricing
    Outlook
       55




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##### Table of Contents



time-to-time,
  Off-Balance
    Sheet Arrangements
    Results
    of Operations
  2006
    Compared to 2005
  Coal
    Operations
    Year Ended2006


2005


ChangeRevenues  thousands

$
393,482


$
361,017



9
%Volumes  millions of
    equivalent coal tons


29.4



30.0



(2
)%Cost of sales  thousands

$
311,629


$
288,728



8
%          56




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##### Table of Contents



Independent
    Power
      2006


2005(In thousands)50% share of ROVA earnings shown
    as equity in earnings

$
7,315


$
12,272Ft. Lupton equity earnings


366



455Total equity earnings


7,681



12,727Energy revenues(1)


47,904



Costs and expenses:Cost of sales  energy


(31,381
)


Depreciation, depletion, and
    amortization


(4,795
)


(24
)Selling and administrative


(6,946
)


(3,076
)Gain on sales of assets


(123
)


Energy revenues less costs and
    expenses


4,659



(3,100
)Independent power segment
    operating income

$
12,340


$
9,627     (1)
    
    The Company recorded $14.5 million in deferred revenue in
    2006 related to capacity payments at ROVA.        Heritage
    Corporate
   57




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##### Table of Contents



Interest
    Income
    Tax
    Results
    of Operations
  2005
    Compared to 2004
  Coal
    Operations
    Year Ended2005


2004


ChangeRevenues  thousands

$
361,017


$
319,648



13
%Volumes  millions of
    equivalent coal tons


30.0



29.0



3
%Cost of sales  thousands

$
288,728


$
249,131



16
%   catch-up
       58




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##### Table of Contents



Independent
    Power
  start-up
  Heritage
    
    Costs for pneumoconiosis (black lung) benefits were
    $1.6 million in 2004, compared to a benefit of
    $3.1 million recorded in 2005 as a result of updated
    actuarial projections.
    Workers compensation expense was $0.9 million less
    than in 2004 with the conclusion of the case audits discussed
    below.
    Costs for the Combined Benefit Fund were $0.8 million less
    than in 2004 as a result of a court ruling which reduced our
    2005 CBF premiums.      Corporate
    Interest
    Income
    Tax
   59




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##### Table of Contents



New
    Accounting Pronouncements
     60




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##### Table of Contents



ITEM 7A 
    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
    RISK    Commodity
    Price Risk
    and/or
      mark-to-market
   61




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##### Table of Contents



Interest
    Rate Risk
       62




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##### Table of Contents



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

PageConsolidated
    Balance Sheets


64Consolidated
    Statements of Operations


65Consolidated
    Statements of Shareholders Deficit and Comprehensive
    Loss


66Consolidated
    Statements of Cash Flows


67Notes to
    Consolidated Financial Statements


68Report of
    Independent Registered Public Accounting Firm


110  63




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##### Table of Contents



WESTMORELAND
    COAL COMPANY AND SUBSIDIARIES
  Consolidated
    Balance Sheets
  December 31,


December 31,2006


2005(In thousands)ASSETSCurrent assets:Cash and cash equivalents

$
26,738


$
11,216ReceivablesTrade


56,923



29,138Other


6,017



7,33062,940



36,468Inventories


24,484



17,576Deferred overburden removal costs






14,090Restricted cash


3,300



Excess of trust assets over
    pneumoconiosis benefit obligation


5,566



Other current assets


4,992



4,816Total current assets


128,020



84,166Property, plant and equipment:Land and mineral rights


79,442



77,591Capitalized asset retirement cost


143,655



122,561Plant and equipment


350,414



127,063573,511



327,215Less accumulated depreciation,
    depletion and amortization


142,059



116,058Net property, plant and equipment


431,452



211,157Investment in independent power
    projects






50,869Excess of trust assets over
    pneumoconiosis benefit obligation, less current portion


2,266



7,463Advanced coal royalties


3,982



3,874Deferred overburden removal costs






2,717Reclamation deposits


62,486



58,823Restricted cash and bond
    collateral, less current portion


66,353



34,563Contractual third party reclamation
    receivables


41,938



31,615Intangible assets


13,263



Other assets


11,622



10,624Total Assets

$
761,382


$
495,871LIABILITIES AND
    SHAREHOLDERS DEFICITCurrent liabilities:Current installments of long-term
    debt

$
76,803


$
12,437Accounts payable and accrued
    expenses:Trade


54,603



33,307Deferred revenue


886



583Income taxes


4,769



2,293Interest


2,907



Production taxes


23,589



19,609Workers compensation


949



949Pension and SERP obligations


76



76Postretirement medical benefits


16,968



17,160Asset retirement obligations


13,832



17,890Total current liabilities


195,382



104,304Long-term debt, less current
    installments


216,204



94,306Revolving lines of credit


13,000



5,500Workers compensation, less
    current portion


8,589



8,394Postretirement medical costs, less
    current portion


223,414



124,746Pension and SERP obligations, less
    current portions


22,815



16,095Deferred revenue, less current
    portion


15,328



1,251Asset retirement obligations, less
    current portion


170,230



140,517Other liabilities


17,103



6,810Minority interest


5,502



4,140Commitments and contingent
    liabilities






Shareholders deficit:Preferred stock of $1.00 par
    valueAuthorized 5,000,000 shares;Issued and outstanding
    160,130 shares at  December 31, 2006 and
    205,083 shares at December 31, 2005


160



205Common stock of $2.50 par valueAuthorized 20,000,000 shares;Issued and outstanding
    9,014,078 shares at December 31, 2006 and
    8,413,312 shares at December 31, 2005


22,535



21,033Other paid-in capital


79,246



75,344Accumulated other comprehensive loss


(104,797
)


(11,409
)Accumulated deficit


(123,329
)


(95,365
)Total shareholders deficit


(126,185
)


(10,192
)Total Liabilities and
    Shareholders Deficit

$
761,382


$
495,871    64




---



##### Table of Contents



WESTMORELAND
    COAL COMPANY AND SUBSIDIARIES
  Consolidated
    Statements of Operations
  Year Ended December 31,2006


2005


2004(In thousands)Revenues:Coal

$
393,482


$
361,017


$
319,648Energy


47,904







Independent power
    projects  equity in earnings


7,681



12,727



12,741449,067



373,744



332,389Cost and expenses:Cost of sales  coal


311,629



288,728



249,131Cost of sales  energy


31,381







Depreciation, depletion and
    amortization


29,342



21,603



18,409Selling and administrative


42,853



35,156



30,762Heritage health benefit expenses


27,902



27,471



33,203Loss (gain) on sales of assets


(4,785
)


67



(77
)438,322



373,025



331,428Operating income


10,745



719



961Other income (expense):Interest expense


(19,234
)


(10,948
)


(10,966
)Interest income


6,089



3,523



3,811Minority interest


(2,244
)


(950
)


(1,154
)Other income


73



1,727



997(15,316
)


(6,648
)


(7,312
)Loss before income taxes and
    cumulative effect of change in accounting principle


(4,571
)


(5,929
)


(6,351
)Income tax expense


(3,022
)


(2,667
)


(896
)Loss before cumulative effect of
    change in accounting principle


(7,593
)


(8,596
)


(7,247
)Cumulative effect of change in
    accounting principle






2,662



Net loss


(7,593
)


(5,934
)


(7,247
)Less preferred stock dividend
    requirements


1,585



1,744



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


791







Net loss applicable to common
    shareholders

$
(9,969
)

$
(7,678
)

$
(8,991
)Net loss per share applicable to
    common shareholders before cumulative effect of change in
    accounting principle:Basic

$
(1.14
)

$
(1.25
)

$
(1.11
)Diluted

$
(1.14
)

$
(1.25
)

$
(1.11
)Net income per share applicable to
    common shareholders from cumulative effect of change in
    accounting principle:Basic






0.32



Diluted






0.30



Net loss per share applicable to
    common shareholders:Basic

$
(1.14
)

$
(0.93
)

$
(1.11
)Diluted

$
(1.14
)

$
(0.93
)

$
(1.11
)Weighted average number of common
    shares outstandingBasic


8,748



8,280



8,099Diluted


9,105



8,868



8,662Pro forma amounts assuming the
    change in accounting for workers compensation was applied
    retroactively:Net loss applicable to common
    shareholders









$
(8,167
)Net loss per share applicable to
    common shareholders:Basic









$
(1.01
)Diluted









$
(1.01
)    65




---



##### Table of Contents



WESTMORELAND
    COAL COMPANY AND SUBSIDIARIES
  Consolidated
    Statement of Shareholders Deficit and Comprehensive Loss
 Years
    Ended December 31, 2004, 2005 and 2006
  Class A Convertible








Accumulated OtherExchangeable


Common


Other Paid-In


Comprehensive


Accumulated


Total ShareholdersPreferred Stock


Stock


Capital


Loss


Deficit


Equity (Deficit)(In thousands)Balance at December 31, 2003
    (205,083 preferred and 7,957,166 common shares outstanding)

$
205


$
19,893


$
71,192


$
(8,247
)

$
(80,626
)

$
2,417Common stock issued as compensation
    (80,135 shares)






200



1,417











1,617Common stock options exercised
    (131,300 shares)






328



534











862Dividends declared


















(738
)


(738
)Net loss


















(7,247
)


(7,247
)Minimum pension liability














(1,222
)






(1,222
)Net unrealized gain on interest
    rate swap agreement














940







940Comprehensive loss






















(7,529
)Balance at December 31, 2004
    (205,083 preferred and 8,168,601 common shares outstanding)


205



20,421



73,143



(8,529
)


(88,611
)


(3,371
)Common stock issued as compensation
    (72,863 shares)






183



1,536











1,719Common stock options exercised
    (171,848 shares)






429



665











1,094Dividends declared


















(820
)


(820
)Net loss


















(5,934
)


(5,934
)Minimum pension liability














(3,388
)






(3,388
)Net unrealized gain on interest
    rate swap agreement














508







508Comprehensive loss






















(8,814
)Balance at December 31, 2005
    (205,083 preferred and 8,413,312, common shares outstanding)


205



21,033



75,344



(11,409
)


(95,365
)


(10,192
)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














(95,194
)






(95,194
)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


















(7,593
)


(7,593
)Minimum pension liability














1,744







1,744Settlement of interest rate swap
    agreement














62







62Comprehensive loss






















(5,787
)Balance at December 31, 2006
    (160,130 preferred shares and 9,014,078 common shares
    outstanding)

$
160


$
22,535


$
79,246


$
(104,797
)

$
(123,329
)

$
(126,185
)    66




---



##### Table of Contents



WESTMORELAND
    COAL COMPANY AND SUBSIDIARIES
  Consolidated
    Statements of Cash Flows
  Year Ended December 31,2006


2005


2004(In thousands)Cash flows from operating
    activities:Net loss

$
(7,593
)

$
(5,934
)

$
(7,247
)Adjustments to reconcile net loss
    to net cash provided by operating activities:Deferred power sales revenue


14,545







Cash distributions from
    independent power projects


1,307



10,702



3,227Equity in earnings of independent
    power projects


(7,681
)


(12,727
)


(12,741
)Depreciation, depletion and
    amortization


29,342



21,603



18,409Stock compensation expense


2,564



1,719



1,617Amortization of intangible assets
    and liabilities, net


493







Amortization deferred financing
    costs


1,626



941



882Loss (gain) on sales of assets


(4,785
)


67



(77
)Minority interest


2,244



950



1,154Cumulative effect of change in
    accounting principle






(2,662
)


Changes in operating assets and
    liabilities:Receivables, net


(15,679
)


(7,891
)


(66
)Inventories


(5,751
)


(2,624
)


(663
)Excess of trust assets over
    pneumoconiosis benefit obligation


(369
)


(3,000
)


1,771Accounts payable and accrued
    expenses


16,204



11,748



561Income tax payable


2,476



2,222



71Accrual for workers
    compensation


195



1,071



1,456Accrual for postretirement medical
    costs


8,064



5,877



3,461Pension and SERP obligations


3,682



1,689



(250
)Other assets and liabilities


(7,716
)


5,008



(2,075
)Net cash provided by operating
    activities


33,168



28,759



9,490Cash flows from investing
    activities:Additions to property, plant and
    equipment


(20,852
)


(18,344
)


(18,324
)Change in restricted cash and bond
    collateral and reclamation deposits


(10,527
)


(5,143
)


(10,488
)ROVA acquisition, net of cash
    resulting from the ROVA consolidation of $21.9 million


(7,714
)






Net proceeds from sales of assets


5,171



641



311Net cash used in investing
    activities


(33,922
)


(22,846
)


(28,501
)Cash flows from financing
    activities:Proceeds from long-term debt, net
    of debt issuance costs






1,712



34,104Repayment of long-term debt


(25,570
)


(12,228
)


(11,679
)Net borrowings (repayments) on
    revolving lines of credit


42,115



5,500



(500
)Exercise of stock options


998



1,094



862Dividends paid to minority
    shareholder of subsidiary


(880
)


(1,080
)


(1,180
)Dividends paid on preferred shares


(387
)


(820
)


(738
)Net cash provided by (used in)
    financing activities


16,276



(5,822
)


20,869Net increase in cash and cash
    equivalents


15,522



91



1,858Cash and cash equivalents,
    beginning of year


11,216



11,125



9,267Cash and cash equivalents, end of
    year

$
26,738


$
11,216


$
11,125Supplemental disclosures of cash
    flow information:Cash paid during the year for:Interest

$
16,649


$
10,056


$
9,629Income taxes


713



446



552    67




---



##### Table of Contents



Westmoreland
    Coal Company and Subsidiaries
  Notes
    to Consolidated Financial Statements
  1.
    SUMMARY
    OF SIGNIFICANT ACCOUNTING POLICIES  Nature
    of Operations and Liquidity
               68




---



##### Table of Contents



Westmoreland
    Coal Company and Subsidiaries
  Notes to
    Consolidated Financial
    Statements  (Continued)
   Consolidation
    Policy
    Use
    of Estimates
      Coal
    Revenues
    Cash
    Equivalents
    Inventories
    Property,
    Plant and Equipment
  units-of-production
 69




---



##### Table of Contents



Westmoreland
    Coal Company and Subsidiaries
  Notes to
    Consolidated Financial
    Statements  (Continued)
    Deferred
    Overburden Removal Costs
  No. 04-6, No. 04-6). No. 04-6,
    Income
    Taxes
    Postretirement
    Health Care Benefits and Pension Plans
       70




---



##### Table of Contents



Westmoreland
    Coal Company and Subsidiaries
  Notes to
    Consolidated Financial
    Statements  (Continued)
          Workers
    Compensation Benefits
        Asset
    Retirement Obligations
   71




---



##### Table of Contents



Westmoreland
    Coal Company and Subsidiaries
  Notes to
    Consolidated Financial
    Statements  (Continued)
     Reclamation
    Deposits and Contractual Third Party Reclamation
    Receivables
    Financial
    Instruments
    Comprehensive
    Income
       72




---



##### Table of Contents



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


Unrealized


AccumulatedUnfunded


Postretirement


Gain (Loss) on


OtherPension


Benefit


Interest Rate


ComprehensiveLiability


Obligation


Swap


Income (Loss)(In thousands)Balance at January 1, 2004

$
(6,737
)

$



$
(1,510
)

$
(8,247
)Increase in minimum pension
    liability


(1,222
)










(1,222
)Unrealized gain (loss) on interest
    rate swap










940



940Balance at December 31, 2004


(7,959
)






(570
)


(8,529
)Increase in minimum pension
    liability


(3,388
)










(3,388
)Unrealized gain (loss) on interest
    rate swap










508



508Balance at December 31, 2005


(11,347
)






(62
)


(11,409
)Decrease in minimum pension
    liability


1,744











1,744Adjustment for funded status of
    pension and postretirement medical benefit plans upon adoption
    of SFAS 158


(4,782
)


(90,412
)






(95,194
)Unrealized gain (loss) on interest
    rate swap










62



62Balance at December 31, 2006

$
(14,385
)

$
(90,412
)

$



$
(104,797
)   Earnings
    Per Share
      Years Ended December 31,2006


2005


2004(Shares in thousands)Outstanding SARs and options to
    purchase common stock excluded because the strike prices of the
    options exceeded the average price of common stock during the
    period


170







10Other outstanding SARS and options
    to purchase common stock, and restricted stock excluded because
    the impact would have been antidilutive


946



1,166



1,062  73




---



##### Table of Contents



Westmoreland
    Coal Company and Subsidiaries
  Notes to
    Consolidated Financial
    Statements  (Continued)
  Reclassifications
    Recent
    Accounting Pronouncements
      2.
    ROVA
    ACQUISITION         74




---



##### Table of Contents



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

$
10,951Accounts receivable


9,113Inventory


570Property, plant, and equipment


91,441Restricted assets


11,613Intangible assets


14,266Other assets


276Total assets


138,230   Liabilities:Accounts payable


2,298Accrued interest


896Debt


90,660Other liabilities


14,054Total liabilities


107,908Total purchase price

$
30,322       Assets:Cash

$
21,901Accounts receivable


10,794Inventory


1,157Property, plant, and equipment


205,720Restricted assets


28,226Intangible assets


14,266Other assets


3,261Total assets


285,325   Liabilities:Account payable


5,368Accrued interest


1,793Debt


205,986Other liabilities


14,856Total liabilities

$
228,003Elimination of equity method
    investment in ROVA

$
57,322  75




---



##### Table of Contents



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


Year EndedDecember 31,


December 31,2006


2005Revenues

$
483,205


$
443,148Income (loss) from operations


9,751



(3,126
)Net loss applicable to common
    shareholders


(18,404
)


(26,662
)Earnings (loss) per shareBasic:

$
(2.10
)

$
(3.22
)Diluted:

$
(2.10
)

$
(3.22
)   EITF 91-06, 01-08, 01-08),
  01-08. 01-08
    3.
    CHANGES
    IN ACCOUNTING PRINCIPLES   76




---



##### Table of Contents



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





AfterAdopting


Adjustments to


AdoptingSFAS 158


Adopt SFAS 158


SFAS 158Increase/(Decrease)ASSETSPension assets 
    noncurrent

$
4,469


$
(4,469
)

$
LIABILITIESPostretirement medical
    costs  current


16,968







16,968Pension and SERP
    obligations  current


76







76Postretirement medical
    costs  noncurrent


133,002



90,412



223,414Pension and SERP
    obligations  noncurrent


22,502



313



22,815SHAREHOLDERS
    DEFICITAccumulated other comprehensive
    loss


9,603



95,194



104,797   Recognition
    of Revenue Under Power Sales Agreements
  01-08, 01-08.
  Deferred
    Overburden Removal Costs
  04-06. 04-6
 77




---



##### Table of Contents



Westmoreland
    Coal Company and Subsidiaries
  Notes to
    Consolidated Financial
    Statements  (Continued)
    Share-Based
    Payments
          Staff
    Accounting Bulletin No. 108
    (SAB 108)
    4.
    INVESTMENT
    IN INDEPENDENT POWER PLANTS     78




---



##### Table of Contents



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

2005(In thousands)AssetsCurrent assets

$
46,458Property, plant and equipment, net


228,323Other assets


25,872Total assets

$
300,653Liabilities and equityCurrent liabilities

$
45,482Long-term debt and other
    liabilities


158,002Other liabilities


526Equity


96,643Total liabilities and equity

$
300,653WELLCs share of equity

$
50,869   Income StatementsSix months ended June 30, 2006 andYears Ended December 31,

2006


2005


2004(In thousands)Revenues

$
55,104


$
109,991


$
112,669Operating income


20,136



36,899



38,665Net income


14,512



24,396



25,063WELLCs share of earnings

$
7,315


$
12,272


$
12,559    79




---



##### Table of Contents



Westmoreland
    Coal Company and Subsidiaries
  Notes to
    Consolidated Financial
    Statements  (Continued)
  5.
    RESTRICTED
    CASH AND BOND COLLATERAL    Restricted Cash and Bond CollateralDecember 31,


December 31,2006


2005(In thousands)Corporate:Workers compensation bonds

$
5,512


$
5,349Postretirement health benefit bonds


4,436



4,225Coal Segment:Westmoreland Mining 
    debt reserve account


10,312



10,018Westmoreland Mining 
    prepayment account


15,123



12,217Reclamation bond collateral:Absaloka Mine


3,702



1,613Jewett Mine


1,057



1,000Rosebud Mine


89



71Beulah Mine


71



70ROVA:Debt protection account


28,141



Ash reserve account


627



Repairs and maintenance account


583



Total restricted cash &
    bond collateral


69,653



34,563Less current portion


(3,300
)


Total restricted cash and bond
    collateral, less current portion

$
66,353


$
34,563     Corporate
    Coal
    Segment
     80




---



##### Table of Contents



Westmoreland
    Coal Company and Subsidiaries
  Notes to
    Consolidated Financial
    Statements  (Continued)
    ROVA
      6.
    LINES
    OF CREDIT AND LONG-TERM DEBT    Current Portion of Debt


Total Debt OutstandingDecember 31,


December 31,


December 31,


December 31,2006


2005


2006


2005(In thousands)Corporate debt:Revolving line of credit

$



$



$
8,500


$
5,500Westmoreland Mining
    debt:Revolving line of credit










4,500



Westmoreland Mining term
    debt:Series B Notes


12,000



11,300



56,600



67,900Series C Notes










20,375



20,375Series D Notes










14,625



14,625Other term debt


1,311



1,137



3,474



3,843ROVA debt:ROVA acquisition bridge loan


30,000







30,000



ROVA acquisition term loan


5,000







5,000



ROVA term debt


28,492







162,933



Total debt
    outstanding

$
76,803


$
12,437


$
306,007


$
112,243    81




---



##### Table of Contents



Westmoreland
    Coal Company and Subsidiaries
  Notes to
    Consolidated Financial
    Statements  (Continued)
     2007

$
76,0082008


90,8802009


43,5022010


27,1872011


20,500Thereafter


43,000$
301,077   Corporate
    Revolving Line of Credit
    Westmoreland
    Mining LLC
  1 2
      ROVA
   82




---



##### Table of Contents



Westmoreland
    Coal Company and Subsidiaries
  Notes to
    Consolidated Financial
    Statements  (Continued)
               83




---



##### Table of Contents



Westmoreland
    Coal Company and Subsidiaries
  Notes to
    Consolidated Financial
    Statements  (Continued)
     7.
    POSTRETIREMENT
    MEDICAL BENEFITS  Single-Employer
    Plans
  20-year
 84




---



##### Table of Contents



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

2006


2005(In thousands)Change in benefit
    obligations:Net benefit obligation at
    beginning of year

$
274,047


$
259,776Service cost


829



534Interest cost


13,670



14,612Plan amendments


2,214



Plan participant contributions


129



113Actuarial (gain) loss


(34,879
)


16,000Gross benefits paid


(17,012
)


(16,988
)Federal subsidy on benefits paid


1,384



Net benefit obligation at end of
    year


240,382



274,047Change in plan
    assets:Employer contributions


15,500



16,875Plan participant contributions


129



113Benefits paid, net of federal
    subsidy


(15,629
)


(16,988
)Fair value of plan assets at end
    of year






Funded status at end of year

$
(240,382
)

$
(274,047
)Amounts recognized in the
    balance sheet consist of:Current liabilities

$
(16,968
)

$
(17,160
)Noncurrent liabilities


(223,415
)


(124,746
)Accumulated other comprehensive
    loss


90,412



Net amount recognized

$
(149,971
)

$
(141,906
)Amounts recognized in
    accumulated other Comprehensive loss consists of:Net actuarial loss

$
69,784Prior service cost


336Transition obligation


20,292$
90,412Assumptions:Discount rate


5.80
%


5.55
%    85




---



##### Table of Contents



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

2006


2005


2004(In thousands)Components of net periodic
    benefit cost:Service cost

$
829


$
534


$
482Interest cost


13,670



14,612



14,837Amortization of:Transition obligation


3,381



3,381



4,100Prior service cost


(18
)


(106
)


Actuarial loss


5,702



6,124



4,278Total net periodic benefit cost

$
23,564


$
24,545


$
23,697Assumptions:Discount rate


5.55
%


5.75
%


6.25
%         Postretirement Benefits1% Increase


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

$
1,596



(1,347
)Effect in postretirement benefit
    obligation

$
24,935



(21,125
)     Multiemployer
    Plan (Combined Benefit Fund)
   86




---



##### Table of Contents



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

2006


2005(In thousands)Actuarial present value of benefit
    obligation:Expected claims from terminated
    employees

$
948


$
1,556Claimants


13,954



15,323Total present value of benefit
    obligation


14,902



16,879Plan assets at fair value,
    primarily government-backed securities


22,734



24,342Excess of trust assets over
    pneumoconiosis benefit obligation


7,832



7,463Less current portion


(5,566
)


Excess of trust assets over
    pneumoconiosis benefit obligation, less current portion

$
2,266


$
7,463       8.
    PENSION
    PLANS  Defined
    Benefit Pension Plans
    Supplemental
    Executive Retirement Plan
   87




---



##### Table of Contents



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


SERP BenefitsDecember 31,

2006


2005


2006


2005(In thousands)Change in benefit
    obligation:Net benefit obligation at beginning
    of year

$
65,916


$
55,955


$
2,409


$
2,199Service cost


3,062



2,622



70



66Interest cost


3,979



3,468



141



138Actuarial (gain) loss


(4,511
)


4,571



(38
)


82Benefits paid


(1,035
)


(700
)


(76
)


(76
)Net benefit obligation at end of
    year


67,411



65,916



2,506



2,409Change in plan assets:Fair value of plan assets at the
    beginning of year


42,543



39,103







Actual return on plan assets


4,135



2,527







Employer contributions


1,383



1,613



76



76Benefits paid


(1,035
)


(700
)


(76
)


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


47,026



42,543







Funded status at end of year

$
(20,385
)

$
(23,373
)

$
(2,506
)

$
(2,409
)Amounts recognized in the
    accompanying balance sheet consist of:Current liability

$



$



$
(76
)

$
(76
)Noncurrent liability


(20,385
)


(13,798
)


(2,430
)


(2,373
)Accumulated other comprehensive loss


14,473



11,347



(88
)


Net amount recognized at end of year

$
(5,912
)

$
(2,451
)

$
(2,594
)

$
(2,449
)Amounts recognized in
    accumulated other comprehensive loss consists of:Minimum pension liability

$



$
11,347


$



$
Net actuarial loss


14,473







(133
)


Prior service costs










45



$
14,473


$
11,347


$
(88
)

$
Assumptions:Discount rate


5.85% - 5.95%



5.70%



5.95%



5.70%Expected return on plan assets


8.50%



8.50%



N/A



N/ARate of compensation increase


4.00% - 7.50%



4.20%



4.00% - 7.50%



4.20%    88




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##### Table of Contents



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


SERP BenefitsYear Ended December 31,

2006


2005


2004


2006


2005


2004(In thousands)Components of net periodic
    benefit costService cost

$
3,062


$
2,622


$
2,407


$
70


$
66


$
58Interest cost


3,979



3,468



3,174



141



138



128Expected return on plan assets


(3,638
)


(3,400
)


(2,774
)










Amortization of:Transition asset










(4
)










Prior service cost


4



50



50



10



10



10Actuarial (gain) loss


1,387



930



851











(6
)Total net periodic pension cost

$
4,794


$
3,670


$
3,704


$
221


$
214


$
190Assumptions:Discount rate


5.70
%


6.00
%


6.25
%


5.70
%


6.00
%


6.25
%Expected return on plan assets


8.50
%


8.50
%


8.50
%


N/A



N/A



N/ARate of compensation increase


4.20
%


4.50
%


4.50
%


4.20
%


5.00
%


5.00
%       Allocation of Plan Assets atDecember 31,2006


2005


Target AllocationAsset categoryCash and equivalents


1
%


1
%

0% - 25%Equity securities


71
%


70
%

40% - 75%Debt securities


26
%


27
%

0% - 50%Other


2
%


2
%

0% - 10%Total


100
%


100
%

100%        89




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##### Table of Contents



Westmoreland
    Coal Company and Subsidiaries
  Notes to
    Consolidated Financial
    Statements  (Continued)
    9.
    HERITAGE
    HEALTH BENEFIT EXPENSES    Year End December 31,2006


2005


2004Health care benefits

$
23,376


$
23,489


$
22,909Combined benefit fund payments


3,611



4,560



5,390Workers compensation benefits


1,336



2,472



3,354Black lung benefits (credit)


(421
)


(3,050
)


1,550Total

$
27,902


$
27,471


$
33,203   10.
    ASSET
    RETIREMENT OBLIGATIONS, RECLAMATION DEPOSITS AND CONTRACTUAL
    THIRD PARTY RECLAMATION RECEIVABLES  Asset
    Retirement Obligations
    2006


2005Asset retirement
    obligations  beginning of year

$
158,407


$
134,348Accretion


10,327



8,945ROVA asset retirement obligation
    assumed


414



Settlements (final reclamation
    performed)


(13,937
)


(2,944
)Losses on settlements


213



732Changes due to amount and timing
    of reclamation


28,638



17,326Asset retirement
    obligations  end of year

$
184,062


$
158,407     Reclamation
    Deposits
  held-to-maturity
 90




---



##### Table of Contents



Westmoreland
    Coal Company and Subsidiaries
  Notes to
    Consolidated Financial
    Statements  (Continued)
  Held-to-maturity
  held-to-maturity
  Amortized cost

$
45,183Gross unrealized holding gains


Gross unrealized holding losses


(1,249
)Fair value

$
43,934   held-to-maturity
  Amortized Cost


Fair ValueDue in five years or less

$
22,294


$
21,765Due after five years to ten years


9,640



9,321Due in more than ten years


13,249



12,848$
45,183


$
43,934   Contractual
    Third Party Reclamation Receivables
         91




---



##### Table of Contents



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


Party Reclamation


ReclamationObligation


Receivables


DepositsRosebud

$
98,249


$
3,825


$
62,486Jewett


63,671



26,537



Beulah


5,894







Savage


1,687







Absaloka


14,133



11,576



ROVA


428







Total

$
184,062


$
41,938


$
62,486   11.
    STOCKHOLDERS
    EQUITY  Preferred
    and Common Stock
       92




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##### Table of Contents



Westmoreland
    Coal Company and Subsidiaries
  Notes to
    Consolidated Financial
    Statements  (Continued)
    Restricted
    Net Assets
    12.
    INCENTIVE
    STOCK OPTIONS AND STOCK APPRECIATION RIGHTS             93




---



##### Table of Contents



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


WeightedBase Price


Appreciation


AverageRange


Rights


Base PriceOutstanding at December 31,
    2005

$
18.04-24.73



401,194


$
20.37Granted


23.99-29.48



177,567



24.53Exercised


19.37-24.73



(13,914
)


20.61Expired or forfeited


24.41



(4,100
)


24.41Outstanding at December 31,
    2006

$
18.04-29.48



560,747


$
21.66     Weighted AverageRemaining


Weighted Average





Weighted AverageRange of

Number


Contractual Life


Base Price





Base PriceBase Price

Outstanding


(Years)


(All SARs)


SARs Vested


(Vested SARs)$18.04-29.48


560,747



8.5


$
21.66



387,280


$
20.37       Number ofSARsSARs Granted

Granted


Dividend Yield


Volatility


Risk-Free Rate


Expected Life2006


177,567



None



52
%


5.20
%


7.0 years2005


246,100



None



48
%


3.85
%


5.2 years     WeightedIssue Price


Stock Option


AverageRange


Shares


Exercise PriceOutstanding at December 31,
    2005

$
2.81 - 22.86



717,950


$
10.20Granted










Exercised


2.81 - 18.19



(174,732
)


5.71Expired or forfeited


17.80 - 18.08



(1,602
)


17.89Outstanding at December 31,
    2006

$
2.81 - 22.86



541,616


$
11.62  94




---



##### Table of Contents



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


Weighted Average





Weighted AverageNumber


Contractual Life


Exercise Price


Number


Exercise PriceRange of Exercise Price

Outstanding


(Years)


(All Options)


Exercisable


(Vested Options)$ 2.81 - 5.00


188,150



3.0


$
2.92



188,150


$
2.925.01 - 10.00


















10.01 - 15.00


95,835



5.3



12.38



90,835



12.4815.01 - 22.86


257,631



5.9



17.70



233,678



17.61$ 2.81 - 22.86


541,616



4.8


$
11.62



512,663


$
11.31         Year Ended December 31,2005


2004(In thousands except per share data)Net loss applicable to common
    shareholders, as reported:

$
(7,678
)

$
(8,991
)Add: Stock-based employee
    compensation included in reported net loss


835



731Less: Total stock-based employee
    compensation expense determined under fair value based on method
    for all awards


(2,291
)


(2,044
)Net loss applicable to common
    shareholders

$
(9,134
)

$
(10,304
)Net loss per share applicable to
    common shareholders:Basic  as reported

$
(0.93
)

$
(1.11
)Basic  pro forma

$
(1.07
)

$
(1.24
)Diluted  as reported

$
(0.93
)

$
(1.11
)Diluted  pro forma

$
(1.07
)

$
(1.24
)   13.
    TRANSACTIONS
    WITH AFFILIATED COMPANIES   95




---



##### Table of Contents



Westmoreland
    Coal Company and Subsidiaries
  Notes to
    Consolidated Financial
    Statements  (Continued)
   14.
    SALE
    OF MINERAL LEASES    15.
    DERIVATIVE
    INSTRUMENTS      mark-to-market
      2006Realized loss

$
(194
)Unrealized loss


(336
)   2006Unrealized derivative loss
    beginning of the year

$
Change in fair value


(530
)Realized loss on settlements


194Unrealized loss on derivatives at
    the end of the year

$
(336
)  96




---



##### Table of Contents



Westmoreland
    Coal Company and Subsidiaries
  Notes to
    Consolidated Financial
    Statements  (Continued)
  16.
    INCOME
    TAXES    2006


2005


2004(In thousands)Current:Federal

$



$
144


$
295State


3,022



2,523



6013,022



2,667



896Deferred:Federal










State


















Income tax expense

$
3,022


$
2,667


$
896       2006


2005


2004(In thousands)Computed tax benefit at statutory
    rate

$
(1,554
)

$
(1,111
)

$
(2,159
)Increase (decrease) in tax expense
    resulting from:Tax depletion in excess of book


(6,114
)


(2,816
)


(1,923
)Minority interest adjustment


875



323



406State income taxes, net


(806
)


1,672



245Non-taxable earnings of offshore
    insurance subsidiary


(267
)






Adjustments to deferred tax assets
    attributable to prior years


1,043







Change in valuation allowance for
    net deferred tax assets


19,887



5,363



4,333Change in effective tax rate






(823
)


Indian coal production tax credits


(10,167
)






Other, net


125



59



(6
)Income tax expense

$
3,022


$
2,667


$
896  97




---



##### Table of Contents



Westmoreland
    Coal Company and Subsidiaries
  Notes to
    Consolidated Financial
    Statements  (Continued)
    2006


2005(In thousands)Deferred tax assets:Federal net operating loss
    carryforwards

$
59,305


$
63,334State net operating loss
    carryforwards


12,268



10,559Alternative minimum tax credit
    carryforwards


6,235



3,026Indian coal production tax credits


6,812



Accruals for the following:Workers compensation


3,720



3,643Postretirement benefit and pension
    obligations


99,178



57,027Incentive plans


2,325



Deferred stripping


5,111



Asset retirement obligations


27,307



21,138Deferred revenues


5,673



Other accruals


3,900



6,280Total gross deferred assets


231,834



165,007Less valuation allowance


(181,366
)


(115,362
)Net deferred tax assets


50,468



49,645Deferred tax liabilities:Investment in independent power
    projects






(15,123
)Property, plant and equipment


(45,729
)


(31,611
)Excess of trust assets over
    pneumoconiosis benefit obligation


(3,055
)


(2,911
)Other


(1,684
)


Total gross deferred tax
    liabilities


(50,468
)


(49,645
)Net deferred tax asset

$



$
     04-06
 98




---



##### Table of Contents



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

Regular Tax(In thousands)2010

$
28,2092011


36,4792012


4492018


282019


88,429after 2019


14,345Total

$
167,939     17.
    COMMITMENTS  Lease
    Obligations
      LeaseObligations2007

$
4,6132008


1,8552009


1,0142010


162011 and thereafter


   Coal
    Supply Agreements
   99




---



##### Table of Contents



Westmoreland
    Coal Company and Subsidiaries
  Notes to
    Consolidated Financial
    Statements  (Continued)
   Long-Term
    Sales Commitments
  and/or
  Projected SalesTonnage UnderExisting Long-Term Contracts(In millions of tons)2007


30.02008


27.32009


26.62010


21.92011


17.6     18.
    CONTINGENCIES  Royalty
    Claims
       100




---



##### Table of Contents



Westmoreland
    Coal Company and Subsidiaries
  Notes to
    Consolidated Financial
    Statements  (Continued)
        No. M18-080697-0.
    1998-2001.
       101




---



##### Table of Contents



Westmoreland
    Coal Company and Subsidiaries
  Notes to
    Consolidated Financial
    Statements  (Continued)
    2004-and
      Rensselaer
    Tax Assessment
      Combined
    Benefit Fund
     102




---



##### Table of Contents



Westmoreland
    Coal Company and Subsidiaries
  Notes to
    Consolidated Financial
    Statements  (Continued)
        i.e.
         103




---



##### Table of Contents



Westmoreland
    Coal Company and Subsidiaries
  Notes to
    Consolidated Financial
    Statements  (Continued)
   1992 UMWA Benefit Plan Surety Bond
          Derivative
    Action Brought by Washington Group International, Inc. in
    Connection With Sales Agency Agreement
      McGreevey
    Litigation
   104




---



##### Table of Contents



Westmoreland
    Coal Company and Subsidiaries
  Notes to
    Consolidated Financial
    Statements  (Continued)
          19.
    BUSINESS
    SEGMENT INFORMATION     105




---



##### Table of Contents



Westmoreland
    Coal Company and Subsidiaries
  Notes to
    Consolidated Financial
    Statements  (Continued)
      IndependentYear Ended December 31, 2006

Coal


Power


Heritage


Corporate


Total(In thousands)Revenues:Coal

$
393,482


$



$



$



$
393,482Energy






47,904











47,904Equity in earnings






7,681











7,681393,482



55,585











449,067Costs and expenses:Cost of sales  Coal


311,629















311,629Cost of sales  Energy






31,381











31,381Depreciation, depletion and
    amortization


24,070



4,795







477



29,342Selling and administrative


24,163



6,946



127



11,617



42,853Heritage health benefit expenses










27,902







27,902Loss (gain) on sales of assets


127



123







(5,035
)


(4,785
)Operating income (loss)

$
33,493


$
12,340


$
(28,029
)

$
(7,059
)

$
10,745Capital expenditures

$
17,189


$
2,855


$



$
808


$
20,852Total assets

$
449,569


$
290,723


$
9,794


$
11,296


$
761,382   IndependentYear Ended December 31, 2005

Coal


Power


Heritage


Corporate


Total(In thousands)Revenues:Coal

$
361,017


$



$



$



$
361,017Equity in earnings






12,727











12,727361,017



12,727











373,744Costs and expenses:Cost of sales


288,728















288,728Depreciation, depletion and
    amortization


21,316



24







263



21,603Selling and administrative


24,843



3,076



34



7,203



35,156Heritage health benefit expenses










27,471







27,741Loss (gain) on sales of assets


177











(110
)


67Operating income (loss)

$
25,953


$
9,627


$
(27,505
)

$
(7,356
)

$
719Capital expenditures

$
18,214


$
52


$



$
78


$
18,344Total assets

$
417,325


$
38,508


$
9,320


$
30,718


$
495,871   106




---



##### Table of Contents



Westmoreland
    Coal Company and Subsidiaries
  Notes to
    Consolidated Financial
    Statements  (Continued)
  IndependentYear Ended December 31, 2004

Coal


Power


Heritage


Corporate


Total(In thousands)Revenues:Coal

$
319,648


$



$



$



$
319,648Equity in earnings






12,741











12,741319,648



12,741











332,389Costs and expenses:Cost of sales


249,131















249,131Depreciation, depletion and
    amortization


18,244



19







146



18,409Selling and administrative


19,021



1,685



157



9,899



30,762Heritage health benefit expenses










33,203







33,203Loss (gain) on sales of assets


(77
)














(77
)Operating income (loss)

$
33,329


$
11,037


$
(33,360
)

$
(10,045
)

$
961Capital expenditures

$
17,710


$
47


$



$
567


$
18,324Total assets

$
383,280


$
35,303


$
6,174


$
37,973


$
462,730     2006


2005


2004(In thousands)Customer A

$
112,470


$
111,224


$
83,196Customer B


88,510



75,750



70,909Customer C


43,205



39,146



50,951Percentage of total revenue


54
%


61
%


62
%    107




---



##### Table of Contents



Westmoreland
    Coal Company and Subsidiaries
  Notes to
    Consolidated Financial
    Statements  (Continued)
   20.
    QUARTERLY
    FINANCIAL DATA (UNAUDITED)    Three Months EndedMarch 31


June 30


Sept 30


Dec 31(In thousands except per share)2006Revenues

$
99,092


$
94,621


$
131,748


$
123,606Costs and expenses


91,219



95,264



126,596



125,243Operating income (loss)


7,873



(643
)


5,152



(1,637
)Income (loss) before income taxes


6,066



(2,647
)


(166
)


(7,824
)Income tax expense


(277
)


(243
)


(213
)


(2,289
)Net income (loss)


5,789



(2,890
)


(379
)


(10,113
)Less preferred stock dividend
    requirements


436



388



340



421Less premium on exchange of
    preferred stock for common stock






549



242



Net income (loss) applicable to
    common shareholders

$
5,353


$
(3,827
)

$
(961
)

$
(10,534
)Net income (loss) per share
    applicable to common shareholders:Basic

$
0.63


$
(0.44
)

$
(0.11
)

$
(1.17
)Diluted


0.60



(0.44
)


(0.11
)


(1.17
)Weighted average number of common
    and common equivalent shares outstanding:Basic


8,430



8,629



8,948



8,978Diluted


8,928



9,145



9,222



9,248   108




---



##### Table of Contents



Westmoreland
    Coal Company and Subsidiaries
  Notes to
    Consolidated Financial
    Statements  (Continued)
  Three Months EndedMarch 31


June 30


Sept 30


Dec 31(In thousands except per share)2005Revenues

$
91,032


$
88,923


$
95,823


$
97,966Costs and expenses


87,308



93,364



100,205



92,148Operating income (loss)


3,724



(4,441
)


(4,382
)


5,818Income (loss) before income taxes
    and cumulative effect of change in accounting principle


1,522



(6,163
)


(6,056
)


4,768Income tax benefit (expense)


(1,492
)


(136
)


(1,368
)


329Cumulative effect of change in
    accounting principle


2,662











Net income (loss)


2,692



(6,299
)


(7,424
)


5,097Less preferred stock dividend
    requirements


436



436



436



436Net income (loss) applicable to
    common shareholders

$
2,256


$
(6,735
)

$
(7,860
)

$
4,661Net income (loss) per share
    applicable to common shareholders:Basic

$
0.28


$
(0.81
)

$
(0.95
)

$
0.56Diluted


0.25



(0.81
)


(0.95
)


0.52Weighted average number of common
    and common equivalent shares outstanding:Basic


8,192



8,269



8,302



8,357Diluted


8,874



8,269



8,302



8,909   21.
    SUBSEQUENT
    EVENT  Sale
    of Coal Royalties Rights at Wyoming Mine
    Agreement
    to Terminate WGIs Mining Contract at WRI
   109




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Report of
    Independent Registered Public Accounting Firm                     110




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##### 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.
   111




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##### Table of Contents



(b)
    Changes
    in Internal Control over Financial Reporting    (c)
    Remediation
    Efforts in Response to Material Weakness    
    The calculations for asset retirement obligations will be
    standardized at all of our mines and will be simplified.
    An additional layer of financial supervision and review has been
    added at each of our mines.
    Personnel in our Corporate office will perform a detailed review
    of all asset retirement obligation calculations.
    Additional training will be provided to those responsible for
    performing and reviewing asset retirement obligation
    calculations.  (d)
    Evaluation
    of Disclosure Controls and Procedures  Rules 13a-15(e) 15d-15(e)
   112




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##### Table of Contents



(e)
    Report of
    Independent Registered Public Accounting Firm     Internal Control 
    Integrated Framework
             113




---



##### Table of Contents



Internal Control  Integrated Framework Internal Control  Integrated Framework
      114




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##### Table of Contents



ITEM 9B 
    OTHER
    INFORMATION   115




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##### Table of Contents



PART III  ITEM 10 
    DIRECTORS,
    OFFICERS AND CORPORATE GOVERNANCE        Form 10-K.
    ITEM 11 
    EXECUTIVE
    COMPENSATION    ITEM 12 
    SECURITY
    OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
    RELATED STOCKHOLDER MATTERS    ITEM 13 
    CERTAIN
    RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
    INDEPENDENCE    ITEM 14 
    PRINCIPAL
    ACCOUNTANT FEES AND SERVICES   116




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##### Table of Contents



PART IV  ITEM 15 
    EXHIBITS AND
    FINANCIAL STATEMENT SCHEDULES                 117




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##### Table of Contents



SIGNATURES    WESTMORELAND COAL COMPANY
  By:
    /s/  David
    J. Blair          Signature

Title

Date/s/  Christopher
    K. SeglemChristopher
    K. Seglem

Chairman of the Board, President,
    and Chief Executive Officer

March 30, 2007/s/  David
    J. BlairDavid
    J. Blair

Chief Financial Officer

March 30, 2007/s/  Kevin
    A. PaprzyckiKevin
    A. Paprzycki

Principal Accounting Officer and
    Controller

March 30, 2007/s/  Michael
    ArmstrongMichael
    Armstrong

Director

March 30, 2007/s/  Thomas
    J. CoffeyThomas
    J. Coffey

Director

March 30, 2007/s/  Robert
    E. KillenRobert
    E. Killen

Director

March 30, 2007/s/  Richard
    M. KlingamanRichard
    M. Klingaman

Director

March 30, 2007/s/  Thomas
    W. OstranderThomas
    W. Ostrander

Director

March 30, 2007/s/  William
    M. SternWilliam
    M. Stern

Director

March 30, 2007/s/  Donald
    A. TortoriceDonald
    A. Tortorice

Director

March 30 2007  118




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##### Table of Contents



Report of
    Independent Registered Public Accounting Firm
     Form 10-K
            119




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##### Table of Contents



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


December 31,2006


2005(Amounts in thousands)ASSETSCurrent assets:Cash and cash equivalents

$
128


$
692Receivables:Trade






Other


293



92293



92Restricted cash


3,300



Excess of trust assets over
    pneumoconiosis benefit obligation


2,266



Other current assets


5,704



398Total current assets


11,691



1,182Property, plant and equipment:Plant and equipment


5,416



4,686Less accumulated depreciation,
    depletion and amortization


4,206



3,783Net property, plant and equipment


1,210



903Investment in subsidiaries and
    independent power projects,including intercompany balances


159,749



161,863Other assets


6,655



20,541Total Assets

$
179,305


$
184,489LIABILITIES AND
    SHAREHOLDERS DEFICITCurrent liabilities:Current installments of long-term
    debt

$
5,000


$
Accounts payable and accrued
    expenses


7,403



5,792Intercompany payable


52,551



50,610Income taxes


162



Workers compensation


949



Pension and SERP obligations


51



Postretirement medical benefits


15,771



Total current liabilities


81,887



56,402Revolving lines of credit


8,500



5,500Workers compensation, less
    current portion


8,589



8,396Postretirement medical costs, less
    current portion


200,161



124,990Pension and SERP obligations, less
    current portion


5,147



Other liabilities


1,206



7,424Shareholders deficit:Preferred stock


160



205Common stock


22,535



21,043Other paid-in capital


79,246



75,344Accumulated other comprehensive loss


(104,797
)


(37
)Accumulated deficit


(123,329
)


(114,778
)Total shareholders deficit


(126,185
)


(18,223
)Total Liabilities and
    Shareholders Deficit

$
179,305


$
184,489  120




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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)
  Year Ended December 31,2006


2005


2004(Amounts in thousands)Operating costs and expenses:Depreciation and amortization

$
477


$
263


$
146Selling and administrative


12,279



7,077



7,661Heritage health benefit expenses


27,902



27,471



33,203Loss on sale of assets


25







40,683



34,811



41,010Operating loss


(40,683
)


(34,811
)


(41,010
)Other income (expense):Interest expense


(877
)


(465
)


(421
)Interest income


457



334



722Minority interest










Other income


(78
)


2,662



1(498
)


2,531



302Loss before income taxes and
    income of consolidated subsidiaries


(41,181
)


(32,280
)


(40,708
)Equity in income of subsidiaries
    and earnings of independent power projects, net


33,597



23,761



29,456Loss from continuing operations
    before income taxes


(7,584
)


(8,519
)


(11,252
)Income tax expense


(9
)


(179
)


(146
)Net loss

$
(7,593
)

$
(8,698
)

$
(11,398
)  121




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##### Table of Contents



WESTMORELAND
    COAL COMPANY
  SCHEDULE I 
    CONDENSED STATEMENT OF CASH FLOWS
 (Parent
    Company Information  See Notes to Consolidated
    Financial Statements)
  Year Ended December 31,2006


2005


2004(Amounts in thousands)Cash flows from operating
    activities:Net loss

$
(7,593
)

$
(8,698
)

$
(11,398
)Adjustments to reconcile net loss
    to net cash provided by operating activities:Equity in income of subsidiaries
    and earnings of independent power projects


(33,597
)


(23,761
)


(29,456
)Depreciation, depletion and
    amortization


477



263



146Stock compensation expense


2,564



1,719



1,617Changes in operating assets and
    liabilities:Receivables, net


(20,099
)


400



(180
)Accounts payable and accrued
    expenses


1,483



3,912



(129
)Other assets and liabilities


6,874



(1,142
)


3,112Net cash used by operating
    activities


(49,891
)


(27,307
)


(36,288
)Cash flows from investing
    activities:Distributions received from
    subsidiaries


14,381



4,318



4,720Additions to property, plant and
    equipment


(784
)


(491
)


(637
)Net cash provided by investing
    activities


13,597



3,827



4,083Cash flows from financing
    activities:Net borrowings on revolving lines
    of credit


8,000



5,500



Loans from subsidiaries


27,119



18,383



32,600Exercise of stock options


998



1,094



862Dividends on preferred shares


(387
)


(820
)


(738
)Net cash provided by financing
    activities


35,730



24,157



32,724Net increase (decrease) in cash
    and cash equivalents


(564
)


677



519Cash and cash equivalents,
    beginning of year


692



15



(504
)Cash and cash equivalents, end of
    year

$
128


$
692


$
15  122




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##### Table of Contents



WESTMORELAND
    COAL COMPANY AND SUBSIDIARIES
  Valuation
    Accounts
 Years
    ended December 31, 2006, 2005 and 2004
  DeductionsCharged toBalance at


Costs and





Balance atBeginning of Year


Expenses


Deductions


End of Year(In thousands)Year Ended December 31,
    2006:Allowance for doubtful
    accounts

$
2,441


$



$
(2,441
)(A)

$
Year Ended December 31,
    2005:Allowance for doubtful
    accounts

$
2,441










$
2,441
(B)Year Ended December 31,
    2004:Allowance for doubtful
    accounts

$
2,441










$
2,441
(B)     Amounts above include current and non-current valuation accounts.(A)
    
    Uncollectible note charged to allowance(B)
    
    Consists of reserves related to the uncollectibility of notes
    receivable reported as a reduction of other assets in the
    Companys Consolidated Balance Sheets. 123




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##### Table of Contents



Westmoreland 
    LG&E Partners
  Financial
    Statements & Supplementary Data
  124




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##### Table of Contents



WESTMORELAND-LG&E
    PARTNERS
  Balance
    Sheets
 As of
    December 31, 2005 and 2004
  December 31,


December 31,2005


2004(In thousands)ASSETSCURRENT ASSETS:Cash and cash equivalents

$
21,430


$
23,547Accounts receivable


22,844



20,263Fuel inventories


1,689



2,740Prepaid expenses


495



559Total current assets


46,458



47,109PROPERTY, PLANT, AND
    EQUIPMENT  Net


228,323



237,343LOAN ORIGINATION FEES 
    Net


3,023



3,732RESTRICTED ASSETS


22,849



22,555OTHER ASSETS






10$
300,653


$
310,749LIABILITIES AND PARTNERS
    CAPITALCURRENT LIABILITIES:Accounts payable and accrued
    liabilities

$
17,591


$
9,347Accounts payable 
    affiliate


552



823Interest payable


1,745



1,693Current portion of long-term debt


25,594



22,156Total current liabilities


45,482



34,019LONG-TERM DEBT


158,002



183,596OTHER NONCURRENT LIABILITIES


526



1,513Total liabilities


204,010



219,128COMMITMENTS AND CONTINGENCIESPARTNERS CAPITAL:Westmoreland-Roanoke Valley
    L.P.


50,932



48,906LG&E-Roanoke Valley L.P.


45,837



43,854Unrealized loss on derivative
    instrument


(126
)


(1,139
)Total partners capital


96,643



91,621$
300,653


$
310,749    125




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##### Table of Contents



WESTMORELAND-LG&E
    PARTNERS
  Statements
    of Operations and Comprehensive Income
 For the
    six months ended June 30, 2006 and the years ended
    December 31, 2005 and 2004
  June 30,








December 31,2006


December 31, 2005


2004(In thousands)Revenues:Energy

$
55,104






$
109,991


$
112,66955,104







109,991



112,669Cost and expenses:Cost of sales


22,777







41,389



44,292Cost of sales  affiliate


4,005







9,446



8,637Depreciation, depletion and
    amortization


5,484







10,969



10,906Selling and administrative


2,303







10,436



9,352Selling and
    administrative  affiliate


399







852



81734,968







73,092



74,004Operating income


20,136







36,899



38,665Other income (expense):Interest expense


(6,619
)






(13,778
)


(14,001
)Interest income


995







1,275



393Other














6(5,624
)






(12,503
)


(13,602
)Net Income:


14,512







24,396



25,063Other comprehensive incomeUnrealized gain on derivative
    financial instrument


126







1,013



2,255Total comprehensive income

$
14,638






$
25,409


$
27,318    126




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##### Table of Contents



WESTMORELAND-LG&E
    PARTNERS
  Statements
    of Partners Capital
 For the
    six months ended June 30, 2006 and the years ended
    December 31, 2005 and 2004
  LG&E


Unrealized GainWestmoreland-


Roanoke


(Loss) onRoanoke


Valley


DerivativeValley L.P.


L.P.


Instrument


Total(In thousands)Balance as of December 31,
    2003

$
39,257


$
34,241


$
(3,394
)

$
70,104Net Income


12,559



12,504







25,063Partner distributions


(2,910
)


(2,891
)






(5,801
)Unrealized gain on derivative
    instrument










2,255



2,255Balance as of December 31,
    2004


48,906



43,854



(1,139
)


91,621Net Income


12,272



12,124







24,396Partner distributions


(10,246
)


(10,141
)






(20,387
)Unrealized gain on derivative
    instrument










1,013



1,013Balance 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    127




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##### Table of Contents



WESTMORELAND-LG&E
    PARTNERS
  Statements
    of Cash Flows
 For the
    six months ended June 30, 2006 and the years ended
    December 31, 2005 and 2004
  June 30,


December 31,


December 31,2006


2005


2004(In thousands)OPERATING ACTIVITIES:Net income

$
14,512


$
24,396


$
25,063Adjustments to reconcile net
    income to net cash provided by operating activities:Depreciation


5,115



10,250



10,173Amortization


369



719



733Ash monofill amortization










13Decrease (increase) in accounts
    receivable


6,302



(2,580
)


462Decrease (increase) in fuel
    inventories


517



1,051



(639
)Decrease (increase) in prepaid
    expenses


(57
)


63



(110
)Increase (decrease) in accounts
    payable and accrued liabilities


(11,027
)


7,973



1,393Increase (decrease) in interest
    payable


48



52



(74
)Net cash provided by operating
    activities


15,779



41,924



37,014INVESTING ACTIVITIES Purchases of property, plant, and
    equipment


(186
)


(1,204
)


(708
)Increase in restricted assets


(377
)


(294
)


(1,763
)Net cash used in investing
    activities


(563
)


(1,498
)


(2,471
)FINANCING ACTIVITIES:Repayment of notes payable


(12,944
)


(22,156
)


(20,199
)Partner distributions


(1,801
)


(20,387
)


(5,801
)Net cash used in financing
    activities


(14,745
)


(42,543
)


(26,000
)NET INCREASE IN CASH AND CASH
    EQUIVALENTS


471



(2,117
)


8,543CASH AND CASH
    EQUIVALENTS  Beginning of year


21,430



23,547



15,004CASH AND CASH
    EQUIVALENTS  End of year

$
21,901


$
21,430


$
23,547SUPPLEMENTAL DISCLOSURE OF CASH
    FLOW INFORMATIONCash paid for interest

$
6,670


$
13,726


$
14,074    128




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##### 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
 129




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##### 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
    Useful lives2005


2004


in YearsLand

$
1,010


$
1,010Land improvements


300



300



29Plant and related equipment,
    including capitalized interest of $34,486,000 in 2005 and 2004


335,073



332,950



5 - 35Office equipment


991



912



5Ash monofills


2,231



2,231Construction-in-progress


9



1,007Asset retirement obligation


203



203



24Transportation equipment


182



182



5Total cost


339,999



338,795Less accumulated depreciation


(111,676
)


(101,452
)Property, plant, and
    equipment  net

$
228,323


$
237,343  130




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##### Table of Contents



WESTMORELAND-LG&E
    PARTNERS
  NOTES TO
    FINANCIAL STATEMENTS  (Continued)
  Loan Origination Fees
  Restricted Assets Long-Term Debt.
  Intangible Asset
  Major Maintenance
  Income Taxes
  Derivatives Accounting for
    Derivative Instruments and Hedging Activities Accounting for Certain Derivative
    Instruments and Certain Hedging Activities Amendment of Statement 133 on
    Derivative Instruments and Hedging Activities
    Asset Retirement Obligation Accounting for Asset
    Retirement Obligations
 131




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##### Table of Contents



WESTMORELAND-LG&E
    PARTNERS
  NOTES TO
    FINANCIAL STATEMENTS  (Continued)
     2005


2004Asset retirement
    obligation  beginning of period

$
374


$
350Accretion


26



24Asset retirement
    obligation  end of period

$
400


$
374   Use of Estimates
  Reclassification
  2.
    FINANCIAL
    INSTRUMENTS  Disclosures
    about Fair Value of Financial Instruments
    2005Carrying


FairValue


Value(In thousands)Long-term debt

$
(183,596
)

$
(192,946
)Interest rate swaps


(126
)


(126
)   2004Carrying


FairValue


Value(In thousands)Long-term debt

$
(205,752
)

$
(218,837
)Interest rate swaps


(1,139
)


(1,139
)  132




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##### Table of Contents



WESTMORELAND-LG&E
    PARTNERS
  NOTES TO
    FINANCIAL STATEMENTS  (Continued)
  3.
    LONG-TERM
    DEBT    2005


2004(In thousands)Notes payable to banks:Tranche A

$
57,468


$
71,588Tranche B


15,604



19,204Notes payable to institutional
    lenders:Tranche A


51,000



54,400Tranche B


22,764



23,800Bonds payable:Tranche A


29,515



29,515Tranche B


7,245



7,245Total


183,596



205,752Less current portion


25,594



22,156Total long-term debt

$
158,002


$
183,596        133




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##### Table of Contents



WESTMORELAND-LG&E
    PARTNERS
  NOTES TO
    FINANCIAL STATEMENTS  (Continued)
              2000-2008 Restricted Assets
   134




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##### Table of Contents



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

Total(In thousands)2006

$
12,6502007


27,6952008


32,2682009


31,2332010


15,306Thereafter


51,500$
170,652   4.
    COMMITMENTS
    AND CONTINGENCIES  Coal Supply Agreement
  Lime Supply Agreement
 135




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##### Table of Contents



WESTMORELAND-LG&E
    PARTNERS
  NOTES TO
    FINANCIAL STATEMENTS  (Continued)
   Rail
    Transportation Agreement
  Rail Transportation Agreement
  Lime Supply
    Agreement
  Property Tax Audit
  5.
    RELATED-PARTY
    TRANSACTIONS  day-to-day
 136




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##### Table of Contents



WESTMORELAND-LG&E
    PARTNERS
  NOTES TO
    FINANCIAL STATEMENTS  (Continued)
         137




---



##### Table of Contents



Report of
    Independent Registered Public Accounting Firm
             
    138




---



##### Table of Contents



INDEPENDENT
    AUDITORS REPORT
              
    139




---



##### Table of Contents



EXHIBIT INDEX
  ExhibitNumber

Description3
.1

Restated Certificate of
    Incorporation of Westmoreland Coal Company is incorporated
    herein by reference to Exhibit 3.1 to Westmorelands
    Registration Statement on
    Form S-1
    (Registration
    No. 333-117709)
    filed July 28, 2004.3
.2

Certificate of Correction to the
    Restated Certificate of Incorporation of Westmoreland Coal
    Company is incorporated herein by reference to Exhibit 3.1
    to Westmorelands Current Report on
    Form 8-K
    filed October 21, 2004 (SEC File
    No. 001-11155).3
.3

Bylaws, as amended and restated on
    May 18, 2006, are incorporated herein by reference to
    Exhibit 3.1 to Westmorelands Current Report on
    Form 8-K
    filed May 19, 2006 (SEC File
    No. 001-11155).4
.1

Certificate of Designation of
    Series A Convertible Exchangeable Preferred Stock of the
    Company, defining the rights of holders of such stock, filed
    July 8, 1992 as an amendment to the Companys
    Certificate of Incorporation, is incorporated herein by
    reference to Exhibit 3(a) to Westmorelands Annual
    Report on
    Form 10-K
    for the year ended December 31, 1992 (SEC File
    No. 001-11155).4
.2

Indenture between Westmoreland and
    Fidelity Bank, National Association, as Trustee, relating to the
    Exchange Debentures, is incorporated herein by reference to
    Exhibit 4.2 to Westmorelands Registration Statement
    on
    Form S-1
    (Registration
    No. 333-117709)
    filed July 28, 2004.4
.3

Form of Exchange Debenture is
    incorporated herein by reference to Exhibit 4.3 to
    Westmorelands Registration Statement on
    Form S-1
    (Registration
    No. 333-117709)
    filed July 28, 2004.4
.4

Deposit Agreement among
    Westmoreland, First Chicago Trust Company of New York, as
    Depository, and the holders from time to time of the Depository
    Receipts is incorporated herein by reference to Exhibit 4.4
    to Westmorelands Registration Statement on
    Form S-1
    (Registration
    No. 333-117709)
    filed July 28, 2004.4
.5

Specimen certificate representing
    the Common Stock is incorporated by reference to
    Exhibit 4(c) to Westmorelands Registration Statement
    on
    Form S-2
    (Registration
    No. 33-1950)
    filed December 4, 1985.4
.6

Specimen certificate representing
    the Preferred Stock is incorporated by reference to
    Exhibit 4.6 to Westmorelands registration statement
    on
    Form S-2
    (Registration
    No. 33-47872)
    filed May 13, 1992, and Amendments 1 through 4 thereto.4
.7

Form of Depository Receipt is
    incorporated by reference to Exhibit 4.5 to
    Westmorelands Registration Statement on
    Form S-1
    (Registration
    No. 333-117709)
    filed July 28, 2004.4
.8

Amended and Restated Rights
    Agreement, dated as of February 7, 2003, between
    Westmoreland Coal Company and EquiServe Trust Company, N.A. is
    incorporated by reference to Exhibit 4.1 to
    Westmorelands Current Report on
    Form 8-K
    filed February 7, 2003 (SEC File
    No. 001-11155).4
.9

In accordance with
    paragraph(b)(4)(iii) of Item 601 of
    Regulation S-K,
    Westmoreland hereby agrees to furnish to the Commission, upon
    request, copies of all other long-term debt instruments.10
.1*

In 1990, the Board of Directors of
    Westmoreland established an Executive Severance Policy for
    certain executive officers, which provides a severance award in
    the event of termination of employment. The Executive Severance
    Policy is incorporated by reference to Exhibit 10.2 to
    Westmorelands Registration Statement on
    Form S-1
    (Registration
    No. 333-117709)
    filed July 28, 2004.10
.2*

Westmoreland Coal Company 1991
    Non-Qualified Stock Option Plan for Non-Employee Directors is
    incorporated herein by reference to Exhibit 10(i) to
    Westmorelands Annual Report on
    Form 10-K
    for the year ended December 31, 1990 (SEC File
    No. 0-752).10
.3*

Supplemental Executive Retirement
    Plan, effective January 1, 1992, for certain executive
    officers and other key individuals, to supplement
    Westmorelands Retirement Plan is incorporated herein by
    reference to Exhibit 10(d) to Westmorelands Annual
    Report on
    Form 10-K
    for the year ended December 31, 2000 (SEC File
    No. 001-11155). 140




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##### Table of Contents



ExhibitNumber

Description10
.4

Amended Coal Lease Agreement
    between Westmoreland Resources, Inc. and Crow Tribe of Indians,
    dated November 26, 1974, as further amended in 1982, is
    incorporated herein by reference to Exhibit 10(a) to
    Westmorelands Quarterly Report on
    Form 10-Q
    for the quarter ended March 31, 1992 (SEC File
    No. 0-752).10
.5*

Westmoreland Coal Company 1995
    Long-Term Incentive Stock Plan is incorporated herein by
    reference to Appendix 3 to Westmorelands Definitive
    Schedule 14A filed April 28, 1995 (SEC File
    No. 0-752).10
.6

Master Agreement dated as of
    January 4, 1999 between Westmoreland Coal Company,
    Westmoreland Resources, Inc., 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 in the
    chapter 11 case of Westmoreland Coal and its official
    members is incorporated herein by reference to
    Exhibit No. 99.2 to Westmorelands Current Report
    on
    Form 8-K
    filed February 4, 1999 (SEC File
    No. 001-11155).10
.7*

Westmoreland Coal Company
    1996 Directors Stock Incentive Plan is incorporated
    herein by reference to Exhibit 10(i) to Westmorelands
    Annual Report on
    Form 10-K
    for the year ended December 31, 2000 (SEC File
    No. 001-11155).10
.8*

Westmoreland Coal Company 2000
    Nonemployee Directors Stock Incentive Plan is incorporated
    herein by reference to Exhibit 10(j) to Westmorelands
    Annual Report on
    Form 10-K
    for the year ended December 31, 2000 (SEC File
    No. 001-11155).10
.9*

Westmoreland Coal Company 2000
    Long-Term Incentive Stock Plan is incorporated herein by
    reference to Annex A to Westmorelands Definitive
    Schedule 14A filed April 20, 2000 (SEC File
    No. 001-11155).10
.10*

Westmoreland Coal Company
    2001 Directors Compensation Policy is incorporated herein
    by reference to Exhibit 10.11 to Westmorelands
    Registration Statement on
    Form S-1
    (Registration
    No. 333-117709)
    filed July 28, 2004.10
.11

Amended and Restated Coal Supply
    Agreement dated August 24, 1998 by and among The Montana
    Power Company, Puget Sound Energy, Inc., The Washington Water
    Power Company, Portland General Electric Company, PacifiCorp and
    Western Energy Company is incorporated herein by reference to
    Exhibit 10.1 to Westmorelands Quarterly Report on
    Form 10-Q
    for the quarter ended June 30, 2001 (SEC File
    No. 001-11155).10
.12

Coal Transportation Agreement
    dated July 10, 1981 by and among the Montana Power Company,
    Puget Sound Power & Light Company, Puget Colstrip
    Construction Company, The Washington Water Power Company,
    Portland General Electric Company, Pacific Power &
    Light Company, Basin Electric Power Cooperative, and Western
    Energy Company is incorporated herein by reference to
    Exhibit 10.2 to Westmorelands Quarterly Report on
    Form 10-Q
    for the quarter ended June 30, 2001 (SEC File
    No. 001-11155).10
.13

Amendment No. 1 to the Coal
    Transportation Agreement dated September 14, 1987 by and
    among The Montana Power Company, Puget Sound Power &
    Light Company, Puget Colstrip Construction Company, The
    Washington Water Power Company, Portland General Electric
    Company, Pacific Power & Light Company and Western
    Energy Company is incorporated herein by reference to
    Exhibit 10.3 to Westmorelands Quarterly Report on
    Form 10-Q
    for the quarter ended June 30, 2001 (SEC File #001-11155).10
.14

Amendment No. 2 to the Coal
    Transportation Agreement dated August 24, 1998 by and among
    The Montana Power Company, Puget Sound Power & Light
    Company, Puget Colstrip Construction Company, The Washington
    Water Power Company, Portland General Electric Company, Pacific
    Power & Light Company, Basin Electric Power
    Cooperative, and Western Energy Company is incorporated herein
    by reference to Exhibit 10.4 to Westmorelands
    Quarterly Report on
    Form 10-Q
    for the quarter ended June 30, 2001 (SEC File
    No. 001-11155).10
.15

Lignite Supply Agreement dated
    August 29, 1979 between Northwestern Resources Co. and
    Utility Fuels Inc. is incorporated herein by reference to
    Exhibit 10.5 to Westmorelands Quarterly Report on
    Form 10-Q
    for the quarter ended June 30, 2001 (SEC File
    No. 001-11155). 141




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##### Table of Contents



ExhibitNumber

Description10
.16

Settlement Agreement and Amendment
    of Existing Contracts dated August 2, 1999 between
    Northwestern Resources Co. and Reliant Energy, Incorporated is
    incorporated herein by reference to Exhibit 10.6 to
    Westmorelands Quarterly Report on
    Form 10-Q
    for the quarter ended June 30, 2001 (SEC File
    No. 001-11155).10
.17

Term Loan Agreement dated as of
    April 27, 2001 by and among Westmoreland Mining LLC,
    WCCO-KRC Acquisition Corp., Dakota Westmoreland Corporation,
    Western Energy Company, Northwestern Resources Co., the other
    entities from time to time party thereto as guarantors, and the
    purchasers named in Schedule A thereto is incorporated
    herein by reference to Exhibit 99.2 to Westmorelands
    Current Report on
    Form 8-K
    filed May 15, 2001 (SEC File
    No. 001-11155).10
.18

Credit Agreement dated as of
    April 27, 2001 by and among Westmoreland Mining LLC,
    WCCO-KRC Acquisition Corp., Dakota Westmoreland Corporation,
    Western Energy Company, Northwestern Resources Co., the other
    entities from time to time party thereto as guarantors, the
    banks party thereto, and PNC Bank, National Association, in its
    capacity as agent for the banks, is incorporated herein by
    reference to Exhibit 99.3 to Westmorelands Current
    Report on
    Form 8-K
    filed May 15, 2001 (SEC File
    No. 001-11155).10
.19

First Amendment to Credit
    Agreement dated as of August 15, 2001 among Westmoreland
    Mining LLC, the Loan Parties under the Credit Agreement, the
    Banks under the Credit Agreement, and PNC Bank, National
    Association, as Agent, is incorporated herein by reference to
    Exhibit 10.7 to Westmorelands Quarterly Report on
    Form 10-Q
    for the quarter ended June 30, 2001 (SEC File
    No. 001-11155).10
.20

First Amendment to
    Note Purchase Agreement dated as of August 15, 2001
    among Westmoreland Mining LLC, the other Obligors under the
    Agreement, the Purchasers under the Agreement, and PNC Capital
    Markets, Inc., as lead arranger, is incorporated herein by
    reference to Exhibit 10.8 to Westmorelands Quarterly
    Report on
    Form 10-Q
    for the quarter ended June 30, 2001 (SEC File
    No. 001-11155).10
.21

Amendment No. 2 to Credit
    Agreement dated February 27, 2002 among Westmoreland Mining
    LLC, the Loan Parties under the Credit Agreement, the Banks
    under the Credit Agreement, and PNC Bank, National Association,
    as Agent, is incorporated herein by reference to
    Exhibit 10(w) to Westmorelands Annual Report on
    Form 10-K
    for the year ended December 31, 2001 (SEC File
    No. 001-11155).10
.22

Second Amendment to Term Loan
    Agreement dated February 27, 2002 among Westmoreland Mining
    LLC, the other Obligors under the Agreement, the Purchasers
    under the Agreement, and PNC Capital Markets, Inc., as lead
    arranger, is incorporated herein by reference to
    Exhibit 10(x) to Westmorelands Annual Report on
    Form 10-K
    for the year ended December 31, 2001 (SEC File
    No. 001-11155).10
.23

Third Amendment to Term Loan
    Agreement dated March 8, 2004 among Westmoreland Mining
    LLC, the other Obligors under the Agreement, the Purchasers
    under the Agreement, and PNC Capital Markets, Inc., as lead
    arranger, is incorporated herein by reference to
    Exhibit 10.1 to Westmorelands Current Report on
    Form 8-K
    filed March 10, 2004 (SEC File
    No. 001-11155).10
.24

Third Amendment to Credit
    Agreement dated March 8, 2004 among Westmoreland Mining
    LLC, the Loan Parties under the Credit Agreement, the Banks
    under the Credit Agreement, and PNC Bank, National Association,
    as Agent, is incorporated herein by reference to
    Exhibit 10.2 to Westmorelands Current Report on
    Form 8-K
    filed March 10, 2004 (SEC File
    No. 001-11155).10
.25

Fourth Amendment to Credit
    Agreement dated December 21, 2005 among Westmoreland Mining
    LLC, the Loan Parties under the Credit agreement, the Banks
    under the Credit Agreement, and PNC Bank, National Association,
    as Agent, is incorporated herein by reference to
    Exhibit 10.1 to Westmorelands Current Report on
    Form 8-K
    filed December 22, 2005 (SEC File
    No. 001-11155).10
.26

Loan Agreement dated as of
    December 14, 2001 between Westmoreland Coal Company, a
    Delaware corporation, and First Interstate Bank, a Montana
    corporation, is incorporated herein by reference to
    Exhibit 10.1 to Westmorelands Current Report on
    Form 8-K
    filed December 19, 2001 (SEC File
    No. 001-11155). 142




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##### Table of Contents



ExhibitNumber

Description10
.27

First Amendment dated as of
    December 24, 2002 to Loan Agreement dated December 14,
    2001 between Westmoreland Coal Company, a Delaware corporation,
    and First Interstate Bank, a Montana corporation, is
    incorporated herein by reference to Exhibit 10.1 to
    Westmorelands Current Report on
    Form 8-K
    filed January 28, 2003 (SEC File
    No. 001-11155).10
.28

Second Amendment dated as of
    January 24, 2003 to Loan Agreement dated December 14,
    2001 between Westmoreland Coal Company, a Delaware corporation,
    and First Interstate Bank, a Montana corporation, is
    incorporated herein by reference to Exhibit 10.2 to
    Westmorelands Current Report on
    Form 8-K
    filed January 28, 2003 (SEC File
    No. 001-11155).10
.29

Third Amendment effective as of
    June 24, 2004 to Loan Agreement dated December 14,
    2001 between Westmoreland Coal Company, a Delaware corporation,
    and First Interstate Bank, a Montana corporation, is
    incorporated herein by reference to Exhibit 10.1 to
    Westmorelands Current Report on
    Form 8-K
    filed June 30, 2004 (SEC File
    No. 011-11155).10
.30

Fourth Amendment dated
    June 9, 2006 to Loan Agreement dated December 14, 2001
    between Westmoreland Coal Company, a Delaware corporation, and
    First Interstate Bank, a Montana corporation, is incorporated
    herein by reference to Exhibit 10.1 to Westmorelands
    Current Report on
    Form 8-K
    filed June 14, 2006 (SEC File
    No. 001-11155).10
.31

Pledge Agreement dated as of
    April 27, 2001, by and among Westmoreland Coal Company,
    Westmoreland Mining LLC, the other entities from time to time
    party thereto as pledgors, and Firstar Bank, N.A., as collateral
    agent for the purchasers in connection with the Term Loan
    Agreement, is incorporated herein by reference to
    Exhibit 99.4 to Westmorelands Current Report on
    Form 8-K
    filed May 15, 2001 (SEC File
    No. 001-11155).10
.32

Pledge Agreement dated as of
    April 27, 2001, by and among Westmoreland Coal Company,
    Westmoreland Mining LLC, the other entities from time to time
    party thereto as pledgors, and Firstar Bank, N.A., as collateral
    agent for the banks in connection with the Revolving Credit
    Agreement, is incorporated herein by reference to
    Exhibit 99.5 to Westmorelands Current Report on
    Form 8-K
    filed May 15, 2001 (SEC File
    No. 001-11155).10
.33

Continuing Agreement of Guaranty
    and Suretyship dated as of April 27, 2001, by and among
    WCCO-KRC Acquisition Corp., Dakota Westmoreland Corporation,
    Western Energy Company, Northwestern Resources Co., and each of
    the other persons which becomes a guarantor thereunder, in favor
    of the purchasers under the Term Loan Agreement, is incorporated
    herein by reference to Exhibit 99.6 to Westmorelands
    Current Report on
    Form 8-K
    filed May 15, 2001 (SEC File
    No. 001-11155).10
.34

Continuing Agreement of Guaranty
    and Suretyship dated as of April 27, 2001, by and among
    WCCO-KRC Acquisition Corp., Dakota Westmoreland Corporation,
    Western Energy Company, Northwestern Resources Co., and each of
    the other persons which becomes a guarantor thereunder, in favor
    of PNC Bank, National Association, as agent for the banks in
    connection with that Credit Agreement, is incorporated herein by
    reference to Exhibit 99.7 to Westmorelands Current
    Report on
    Form 8-K
    filed May 15, 2001 (SEC File
    No. 001-11155).10
.35

Security Agreement dated as of
    April 27, 2001, by and among Westmoreland Mining LLC,
    WCCO-KRC
    Acquisition Corp., Dakota Westmoreland Corporation, Western
    Energy Company, Northwestern Resources Co., and each of the
    other persons which becomes a guarantor under the Term Loan
    Agreement and Firstar Bank, N.A., as collateral agent for the
    purchasers under the Term Loan Agreement, is incorporated herein
    by reference to Exhibit 99.8 to Westmorelands Current
    Report on
    Form 8-K
    filed May 15, 2001 (SEC File
    No. 001-11155).10
.36

Stock Purchase Agreement dated as
    of September 15, 2000 by and between Westmoreland Coal
    Company and Entech, Inc. is incorporated herein by reference to
    Exhibit 99.1 to Westmorelands Current Report on
    Form 8-K
    filed February 5, 2001 (SEC File
    No. 001-11155).10
.37*

Westmoreland Coal Company 2002
    Long-Term Incentive Stock Plan is incorporated herein by
    reference to Annex A to Westmorelands Definitive
    Proxy Statement filed April 23, 2002 (SEC File
    No. 001-11155). 143




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##### Table of Contents



ExhibitNumber

Description10
.38

Letter Agreement dated
    June 18, 2002, between Reliant-HL&P and Northwestern
    Resources Co. is incorporated herein by reference to
    Exhibit 10.1 to Westmorelands Quarterly Report on
    Form 10-Q
    for the quarter ended June 30, 2002 (SEC File
    No. 001-11155).10
.39*

Westmoreland Coal Company 2000
    Performance Unit Plan, dated May 22, 2003, is incorporated
    herein by reference to Exhibit 10.1 to Westmorelands
    Quarterly Report on
    Form 10-Q
    for the quarter ended June 30, 2003 (SEC File
    No. 001-11155).10
.40*

First Amendment to Westmoreland
    Coal Company 2000 Non-employee Directors Stock Incentive
    Plan, dated May 22, 2003, is incorporated herein by
    reference to Exhibit 10.2 to Westmorelands Quarterly
    Report on
    Form 10-Q
    for the quarter ended June 30, 2003 (SEC File
    No. 001-11155).10
.41*

Termination Agreement for Robert
    J. Jaeger, Chief Financial Officer, is incorporated herein by
    reference to Exhibit 10.3 to Westmorelands Quarterly
    Report on
    Form 10-Q
    for the quarter ended June 30, 2003 (SEC File
    No. 001-11155).10
.42

Supplemental Settlement Agreement
    and Amendment of Existing Contracts between Northwestern
    Resources Company and Texas Genco, L.P., dated January 30,
    2004, is incorporated herein by reference to Exhibit 10(nn)
    to Westmorelands Annual Report on
    Form 10-K
    for the year ended December 31, 2003 (SEC File
    No. 001-11155).10
.43

Letter Agreement Regarding Lignite
    Supply Agreement dated September 21, 2005 between Texas
    Genco II, L.P. and Texas Westmoreland Coal Company is
    incorporated herein by reference to Exhibit 10.1 to
    Westmorelands Quarterly Report
    Form 10-Q
    for the quarter ended September 30, 2005 (SEC File
    No. 001-11155).10
.44

Purchase Agreement dated
    June 23, 2006 by and between LG&E Roanoke Valley L.P.,
    LG&E Power Services LLC, and Westmoreland Coal Company is
    incorporated herein by reference to Exhibit 10.1 to
    Westmorelands Quarterly Report on
    Form 10-Q
    for the quarter ended June 30, 2006 (SEC File
    No. 001-11155).10
.45

Third Amendment and Restatement of
    the Power Purchase and Operating Agreement effective as of
    December 1, 2000 between Westmoreland-LG&E Partners and
    Virginia Electric and Power Company is incorporated herein by
    reference to Exhibit 10.2 to Westmorelands Quarterly
    Report on
    Form 10-Q
    for the quarter ended June 30, 2006 (SEC File
    No. 001-11155).10
.46

Second Amendment and Restatement
    of the Power Purchase and Operating Agreement dated
    November 21, 2000 between Westmoreland-LG&E Partners
    and Virginia Electric and Power Company for the Roanoke
    Valley II Project is incorporated herein by reference to
    Exhibit 10.3 to Westmorelands Quarterly Report on
    Form 10-Q
    for the quarter ended June 30, 2006 (SEC File
    No. 001-11155).10
.47

Amended and Restated Construction
    and Term Loan Agreement dated as of December 1, 1993 among
    Westmoreland-LG&E Partners, the Lenders named therein, the
    Institutional Lenders, the Issuing Bank, the Co-Agents and Agent
    (each as defined therein) is incorporated herein by reference to
    Exhibit 10.4 to Westmorelands Quarterly Report on
    Form 10-Q
    for the quarter ended June 30, 2006 (SEC File
    No. 001-11155).10
.48

Amendment No. 1 to Amended
    and Restated Construction and Term Loan Agreement dated as of
    November 4, 1994 among Westmoreland-LG&E Partners, the
    Lenders named therein, the Institutional Lenders, the Issuing
    Bank, the Co-Agents and Agent (each as defined therein) is
    incorporated herein by reference to Exhibit 10.5 to
    Westmorelands Quarterly Report on
    Form 10-Q
    for the quarter ended June 30, 2006 (SEC File
    No. 001-11155).10
.49

Amendment No. 2 to Amended
    and Restated Construction and Term Loan Agreement dated as of
    December 30, 1994 among Westmoreland-LG&E Partners, the
    Lenders named therein, the Institutional Lenders, the Issuing
    Bank, the Co-Agents and Agent (each as defined therein) is
    incorporated herein by reference to Exhibit 10.6 to
    Westmorelands Quarterly Report on
    Form 10-Q
    for the quarter ended June 30, 2006 (SEC File
    No. 001-11155). 144




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##### Table of Contents



ExhibitNumber

Description10
.50

Amendment No. 3 to Amended
    and Restated Construction and Term Loan Agreement dated as of
    January 31, 1995 among Westmoreland-LG&E Partners, the
    Lenders named therein, the Institutional Lenders, the Issuing
    Bank, the Co-Agents and Agent (each as defined therein) is
    incorporated herein by reference to Exhibit 10.7 to
    Westmorelands Quarterly Report on
    Form 10-Q
    for the quarter ended June 30, 2006 (SEC File
    No. 001-11155).10
.51

Amendment No. 4 to Amended
    and Restated Construction and Term Loan Agreement dated as of
    October 19, 1995 among Westmoreland-LG&E Partners, the
    Lenders named therein, the Institutional Lenders, the Issuing
    Bank, the Co-Agents and Agent (each as defined therein) is
    incorporated herein by reference to Exhibit 10.8 to
    Westmorelands Quarterly Report on
    Form 10-Q
    for the quarter ended June 30, 2006 (SEC File
    No. 001-11155).10
.52

Amendment No. 5 to Amended
    and Restated Construction and Term Loan Agreement dated as of
    December 15, 1996 among Westmoreland-LG&E Partners, the
    Lenders named therein, the Institutional Lenders, the Issuing
    Bank, the Co-Agents and Agent (each as defined therein) is
    incorporated herein by reference to Exhibit 10.9 to
    Westmorelands Quarterly Report on
    Form 10-Q
    for the quarter ended June 30, 2006 (SEC File
    No. 001-11155).10
.53

Amendment No. 5 to Amended
    and Restated Construction and Term Loan Agreement dated as of
    August 23, 2000 among Westmoreland-LG&E Partners, the
    Lenders named therein, the Institutional Lenders, the
    Institutional Agent, the Issuing Bank, the Co-Agents and Agent
    (each as defined therein) is incorporated herein by reference to
    Exhibit 10.10 to Westmorelands Quarterly Report on
    Form 10-Q
    for the quarter ended June 30, 2006 (SEC File
    No. 001-11155).10
.54

Amendment No. 6 to Amended
    and Restated Construction and Term Loan Agreement dated as of
    November 21, 2000 among Westmoreland-LG&E Partners, the
    Lenders named therein, the Institutional Lenders, the
    Institutional Agent, the Issuing Bank, the Co-Agents and Agent
    (each as defined therein) is incorporated herein by reference to
    Exhibit 10.11 to Westmorelands Quarterly Report on
    Form 10-Q
    for the quarter ended June 30, 2006 (SEC File
    No. 001-11155).10
.55

Amendment No. 7 to Amended
    and Restated Construction and Term Loan Agreement dated as of
    November 15, 2001 among Westmoreland-LG&E Partners, the
    Lenders named therein, the Institutional Lenders, the
    Institutional Agent, the Issuing Bank, the Co-Agents and Agent
    (each as defined therein) is incorporated herein by reference to
    Exhibit 10.12 to Westmorelands Quarterly Report on
    Form 10-Q
    for the quarter ended June 30, 2006 (SEC File
    No. 001-11155).10
.56

Amendment No. 8 to Amended
    and Restated Construction and Term Loan Agreement dated as of
    November 28, 2001 among Westmoreland-LG&E Partners, the
    Lenders named therein, the Institutional Lenders, the
    Institutional Agent, the Issuing Bank, the Co-Agents and Agent
    (each as defined therein) is incorporated herein by reference to
    Exhibit 10.13 to Westmorelands Quarterly Report on
    Form 10-Q
    for the quarter ended June 30, 2006 (SEC File
    No. 001-11155).10
.57

Amendment No. 9 to Amended
    and Restated Construction and Term Loan Agreement dated as of
    March 1, 2002 among Westmoreland-LG&E Partners, the
    Lenders named therein, the Institutional Lenders, the
    Institutional Agent, the Issuing Bank, the Co-Agents and Agent
    (each as defined therein) is incorporated herein by reference to
    Exhibit 10.14 to Westmorelands Quarterly Report on
    Form 10-Q
    for the quarter ended June 30, 2006 (SEC File
    No. 001-11155).10
.58

Amendment No. 10 to Amended
    and Restated Construction and Term Loan Agreement dated as of
    April 8, 2003 among Westmoreland-LG&E Partners, the
    Lenders named therein, the Institutional Lenders, the
    Institutional Agent, the Bond L/C Issuing Bank, the Co-Agents
    (each as defined therein), Credit Suisse First Boston in the
    capacities named therein and Dexia Credit Local, New York
    Agency, in the capacities named therein is incorporated herein
    by reference to Exhibit 10.15 to Westmorelands
    Quarterly Report on
    Form 10-Q
    for the quarter ended June 30, 2006 (SEC File
    No. 001-11155).10
.59

Note Purchase Agreement dated
    June 29, 2006 between Westmoreland Energy LLC and SOF
    Investments, L.P. is incorporated herein by reference to
    Exhibit 10.16 to Westmorelands Quarterly Report on
    Form 10-Q
    for the quarter ended June 30, 2006 (SEC File
    No. 001-11155).10
.60*

Description of Annual Bonus
    Opportunities for Fiscal 2006 for the Named Executive Officers
    of Westmoreland Coal Company is incorporated herein by reference
    to Exhibit 10.1 to Westmorelands Quarterly Report on
    Form 10-Q
    for the quarter ended March 31, 2006 (SEC File
    No. 001-11155). 145




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##### Table of Contents



ExhibitNumber

Description10
.61*

Westmoreland Coal Company
    Severance Policy for specified employees, including certain
    executive officers not covered by Westmorelands Executive
    Severance Policy, dated July 26, 2004.21


Subsidiaries of the Registrant23
.1

Consent of KPMG LLP23
.2

Consent of KPMG LLP23
.3

Consent of Deloitte &
    Touche LLP31
.1

Certification of Chief Executive
    Officer pursuant to
    Rule 13a-14(a)31
.2

Certification of Chief Financial
    Officer pursuant to
    Rule 13a-14(a)32


Certifications of Chief Executive
    Officer and Chief Financial Officer pursuant to 18 U.S.C.
    Section 1350     *
    
    Compensatory benefit plan or arrangement or management contract. 146