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<head>
<title>Form S-1
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<body>

<p align=center><FONT FACE="Times New Roman, Times, Serif" SIZE=3>As filed with the Securities and Exchange Commission on July 28, 2004</font></p>

<p align=right><FONT FACE="Times New Roman, Times, Serif" SIZE=3>Registration No. 333-</font></p>
<hr noshade size=4>

<H1 ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=3>SECURITIES
AND EXCHANGE COMMISSION<br>Washington,
D.C. 20549</FONT></H1>
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<H1 ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=4>FORM S-1<br>REGISTRATION
STATEMENT UNDER<br>THE
SECURITIES ACT OF 1933</FONT></H1>
<hr noshade size=1 width=35%>

<H1 ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=5>WESTMORELAND
COAL COMPANY</FONT><br><FONT FACE="Times New Roman, Times, Serif" SIZE=2><u>(Exact name of registrant as specified in its charter)</u></font></h1>

<br>
<TABLE WIDTH=650 BORDER=0 CELLPADDING=0 CELLSPACING=0 ALIGN=center>
<TR>
<TD WIDTH="33%" ALIGN=center><B><FONT FACE="Times New Roman, Times, Serif" SIZE=3>Delaware</font></B></TD>
<TD WIDTH="34%" ALIGN=center><B><FONT FACE="Times New Roman, Times, Serif" SIZE=3>1311</font></B></TD>
<TD WIDTH="33%" ALIGN=center>
<B><FONT FACE="Times New Roman, Times, Serif" SIZE=3>23-1128670</font></B></TD></tr>
<TR>
<TD ALIGN=center><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(State or other jurisdiction of<BR>incorporation or
organization)</font></TD>
<TD ALIGN=center><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(Primary Standard Industrial<BR>Classification Code Number)</font></TD>
<TD ALIGN=center><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(I.R.S.
Employer<BR>Identification Number)</font></TD>
</TR></TABLE>


<p ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=3><b>2 N. Cascade Avenue,
14th Floor<br>Colorado
Springs, CO 80903<br>(719)
442-2600</b></FONT><br><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(Address, Including Zip Code, and Telephone Number, Including Area Code, of Registrant's Principal Executive Offices)</font></p>


<hr noshade size=1 width=35%>

<p ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=3><b>Christopher
K. Seglem<br>Chairman and
Chief Executive Officer<br>WESTMORELAND COAL
COMPANY<br>2 N. Cascade
Avenue, 14th Floor<br>Colorado
Springs, CO 80903<br>(719)
442-2600</b></FONT><br><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(Name, Address, Including Zip Code, and Telephone Number, Including Area Code, of Agent for Service)</font></p>

<hr noshade size=1 width=35%>
<table width=100% align=center cellpadding=0 cellspacing=0 border=0>
<tr>
<td align=center width=45%>&nbsp;</td>
<td align=center width=10%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Copies to:</font></td>
<td align=center width=45%>&nbsp;</td>
</tr>
<tr>
<td align=center><FONT FACE="Times New Roman, Times, Serif" SIZE=3><b>W. Michael Lepchitz<br>
Vice President, General Counsel and Secretary<br>WESTMORELAND COAL COMPANY<br>2 N. Cascade Avenue, 14th Floor<br>Colorado Springs, CO 80903<br>
Telephone: (719) 442-2600<br>Telecopy: (719) 448-5824</b></font></td>
<td align=center>&nbsp;</td>
<td align=center><FONT FACE="Times New Roman, Times, Serif" SIZE=3><b>Michael J. Levitin<br>
WILMER CUTLER PICKERING<br>HALE AND DORR LLP<br>1455 Pennsylvania Avenue, N.W.<br>Washington, DC 20004<br>Telephone: (202) 942-8400<br>
Telecopy: (202) 942-8484</b></font></td>
</tr>
</table>
<br>
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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B><I>Approximate
date of commencement of proposed sale to the public:</I></B> As soon as
practicable after the effective date hereof.<br>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415
under the Securities Act, check the following box. &#129;<br>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check
the following box and list the Securities Act registration statement number of the earlier effective registration statement for
the same offering. &#129; ___________<br>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and
list the Securities Act registration number of the earlier effective registration statement for the same offering. &#129; ___________<br>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and
list the Securities Act registration number of the earlier effective registration statement for the same offering. &#129; ___________<br>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;If delivery of the Prospectus is expected to be made pursuant to Rule 434, check the following box. &#129;</font></p>

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<H1 ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=3>CALCULATION
OF REGISTRATION FEE</FONT></H1>
<table width=650 align=center border=1 cellpadding=0 cellspacing=0>
<tr>
<td width=20% align=center valign=bottom><b><FONT FACE="Times New Roman, Times, Serif" SIZE=3>Title of<br>Each Class of<br>Securities
      to be<br>Registered</font></B></td>
<td width=20% align=center valign=bottom><FONT FACE="Times New Roman, Times, Serif" SIZE=3><b>Amount to be
              <br>Registered</b></font></td>
<td width=20% align=center valign=bottom><FONT FACE="Times New Roman, Times, Serif" SIZE=3><b>Proposed<br>Maximum<br>Offering Price<br>Per
                        Unit</b></font></td>
<td width=20% align=center valign=bottom><FONT FACE="Times New Roman, Times, Serif" SIZE=3><b>Proposed<br>Maximum<br>Aggregate<br>Offering
         Price</b></font></td>
<td width=20% align=center valign=bottom><FONT FACE="Times New Roman, Times, Serif" SIZE=3><b>Amount of<br>
Registration Fee</b></font></td>
</tr>

<tr>
<td width=20% align=center valign=bottom>
<FONT FACE="Times New Roman, Times, Serif" SIZE=3>Common Stock,<br>$2.50
par value<br>per
share (1)</font></td>

<td width=20% align=center valign=bottom><FONT FACE="Times New Roman, Times, Serif" SIZE=3>1,626,986 (2)</font></td>

<td width=20% align=center valign=bottom><FONT FACE="Times New Roman, Times, Serif" SIZE=3>$20.40 (3)</font></td>

<td width=20% align=center valign=bottom><FONT FACE="Times New Roman, Times, Serif" SIZE=3>$33,190,515 (3)</font></td>

<td width=20% align=center valign=bottom><FONT FACE="Times New Roman, Times, Serif" SIZE=3>$4,206</font></td>
</tr>
<tr>
<td width=20% align=center valign=bottom>
<FONT FACE="Times New Roman, Times, Serif" SIZE=3>Subscription Rights</font></td>

<td width=20% align=center valign=bottom><FONT FACE="Times New Roman, Times, Serif" SIZE=3>(4)</font></td>

<td width=20% align=center valign=bottom><FONT FACE="Times New Roman, Times, Serif" SIZE=3>N/A</font></td>

<td width=20% align=center valign=bottom><FONT FACE="Times New Roman, Times, Serif" SIZE=3>N/A</font></td>

<td width=20% align=center valign=bottom><FONT FACE="Times New Roman, Times, Serif" SIZE=3>$ -0- (5)</font></td>
</tr>
</table>
<br>
<table>
<tr>
<td width=5% valign=top><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(1)</font></td>
<td width=95%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>This Registration Statement also relates to rights to purchase shares of the Registrant's Series B Junior Participating Preferred
Stock (the "Preferred Stock Rights"), which are attached to all shares of Common Stock. Until the occurrence of certain prescribed
events, the Preferred Stock Rights are not exercisable, are evidenced by the certificates for the Common Stock and will be
transferable along with and only with the Common Stock. The value attributable to the Preferred Stock Rights, if any, is reflected
in the value of the Common Stock.</font></td>
</tr>
<tr>
<td valign=top><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(2)</font></td>
<td><FONT FACE="Times New Roman, Times, Serif" SIZE=2>This figure represents the maximum number of shares of Common Stock issuable upon the exercise of the Subscription Rights based on
the assumption that each holder of Common Stock outstanding as of July 23, 2004 will be granted 1/5 of a Subscription Right for
each share of Common Stock held by such holder.</font></td>
</tr>
<tr>
<td valign=top><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(3)</font></td>
<td> <FONT FACE="Times New Roman, Times, Serif" SIZE=2>Estimated  solely for the purpose of calculating the amount of the  registration  fee pursuant to  Rule 457(c) under  the Securities
         Act of 1933,  as amended,  and based on the average of the high and low sales prices of the Common Stock as reported on the
         American Stock Exchange on July 23, 2004.
</font></td>
</tr>
<tr>
<td valign=top><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(4)</font></td>
<td> <FONT FACE="Times New Roman, Times, Serif" SIZE=2>Evidencing the rights to subscribe for 1,626,986 shares of Common Stock (the &#147;Subscription Rights&#148;).  This figure represents the
maximum number of shares of Common Stock issuable upon the exercise of the Subscription Rights based on the assumption that each
holder of Common Stock as of July  23, 2004 will be granted 1/5 of a Subscription Right for each share of Common Stock held by
such holder.</font></td>
</tr>
<tr>
<td valign=top><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(5)</font></td>
<td> <FONT FACE="Times New Roman, Times, Serif" SIZE=2>The Subscription Rights are being issued without consideration.</font></td>
</tr>
</table>


<p><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<b>The Registrant hereby
amends this Registration Statement on such date or dates as may be necessary to
delay its effective date until the Registrant shall file a further amendment
which specifically states that this Registration Statement shall thereafter
become effective in accordance with Section&#160;8(a) of the Securities Act of
1933 or until the Registration Statement shall become effective on such date as
the Commission, acting pursuant to said Section 8(a), may determine.</b></font></p>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The information in this preliminary prospectus is not complete and may be changed.  We may not sell these securities until the
registration statement filed with the Securities and Exchange Commission is effective.  This prospectus is not an offer to sell
and it is not soliciting an offer to buy these securities in any state where an offer to sell is not permitted. </FONT></P>
<br>

<p align=center><FONT FACE="Times New Roman, Times, Serif" SIZE=2>SUBJECT TO COMPLETION, DATED JULY 28, 2004</font></p>

<p align=right><FONT FACE="Times New Roman, Times, Serif" SIZE=2>[WESTMORELAND LOGO]</font></p>
<p><FONT FACE="Times New Roman, Times, Serif" SIZE=3>PROSPECTUS</font></p>

<br>
<p align=center><FONT FACE="Times New Roman, Times, Serif" SIZE=3>WESTMORELAND COAL COMPANY<br><br>

                                                    __________ SUBSCRIPTION RIGHTS<br><br>
                                                              TO PURCHASE<br><br>
                                                   __________ SHARES OF COMMON STOCK</font></p>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=3>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;If you held our common
stock on ___________, 2004, Westmoreland Coal Company has granted you rights to
purchase additional shares of our common stock for a subscription price of $___
per share. You have been granted ____ rights for every share of common stock you
held of record on that date. Each whole right entitles you to purchase one share
of our common stock for $___. This is your &#147;basic subscription
privilege.&#148; If you fully exercise your rights and other stockholders do not
fully exercise their rights, you may elect to purchase additional shares on a
pro rata basis. This is your &#147;oversubscription privilege.&#148; </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=3>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We will not issue
fractional rights or fractional shares. If the number of shares of common stock
you held of record on that date would result in your receipt of fractional
rights, the number of rights issued to you is being rounded down to the nearest
whole right. </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=3>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We are offering the rights
in order to obtain funds to support our growth and development strategy and for
general corporate purposes. </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=3>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The rights will expire if
they are not exercised by 5:00 p.m. New York City time, on ____________, 2004,
the expiration date of the rights offering. We may extend the time period for
exercising the rights. Rights that are not exercised by the expiration date of
the rights offering will expire and will have no value. Rights may not be
transferred or sold. You should carefully consider whether to exercise your
rights before the expiration date. Our Board of Directors is making no
recommendations regarding your exercise of rights. </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=3>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our common stock is traded
on the American Stock Exchange under the symbol &#147;WLB.&#148; On
____________, 2004, the last reported sales price for our common stock was
__________ per share. </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=3>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;AN INVESTMENT IN OUR COMMON
STOCK IS RISKY. YOU SHOULD CAREFULLY CONSIDER THE RISK FACTORS BEGINNING ON PAGE
____ OF THIS PROSPECTUS BEFORE EXERCISING YOUR RIGHTS. </FONT></P>

<p><FONT FACE="Times New Roman, Times, Serif" SIZE=3>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We are offering the shares directly without the services of an underwriter or selling agent.</font></p>

<table width=650 cellpadding=0 cellspacing=0 border=0>
<tr>
<td width=65%>&nbsp;</td>
<td width=15%><FONT FACE="Times New Roman, Times, Serif" SIZE=3>Per Share</font></td>
<td width=5%>&nbsp;</td>
<td width=15%><FONT FACE="Times New Roman, Times, Serif" SIZE=3>Total</font></td>
</tr>
<tr>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr>
<td><FONT FACE="Times New Roman, Times, Serif" SIZE=3>Subscription price</font></td>
<td><FONT FACE="Times New Roman, Times, Serif" SIZE=3>$ ______</font></td>
<td>&nbsp;</td>
<td><FONT FACE="Times New Roman, Times, Serif" SIZE=3>$ ______</font></td>
</tr>
<tr>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr>
<td><FONT FACE="Times New Roman, Times, Serif" SIZE=3>Underwriter's discounts and commissions</font></td>
<td><FONT FACE="Times New Roman, Times, Serif" SIZE=3>None</font></td>
<td>&nbsp;</td>
<td><FONT FACE="Times New Roman, Times, Serif" SIZE=3>None</font></td>
</tr>
<tr>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr>
<td><FONT FACE="Times New Roman, Times, Serif" SIZE=3>Net proceeds to Westmoreland</font></td>
<td><FONT FACE="Times New Roman, Times, Serif" SIZE=3>$ ______</font></td>
<td>&nbsp;</td>
<td><FONT FACE="Times New Roman, Times, Serif" SIZE=3>$ ______</font></td>
</tr>
</table>


<P><FONT FACE="Times New Roman, Times, Serif" SIZE=3>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;NEITHER THE SECURITIES AND
EXCHANGE COMMISSION NOR ANY STATE SECURITIES COMMISSION HAS APPROVED OR
DISAPPROVED OF THESE SECURITIES OR DETERMINED IF THIS PROSPECTUS IS TRUTHFUL OR
COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. </FONT></P>

<p align=center><FONT FACE="Times New Roman, Times, Serif" SIZE=3>The date of this prospectus is ___________, 2004.</font></p>

<br><br>
<H1 ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" size=3>TABLE OF
CONTENTS</FONT></H1>

<table width=650 align=center>
<tr>
<td width=80%><FONT FACE="Times New Roman, Times, Serif" size=3>Forward-Looking Statements</FONT></td>
<td width=10%><FONT FACE="Times New Roman, Times, Serif" size=3></font></td>
<td width=10% align=right><FONT FACE="Times New Roman, Times, Serif" size=3>ii</FONT></td>
</tr>
<tr>
<td width=80%><FONT FACE="Times New Roman, Times, Serif" size=3>Questions and Answers about the Rights Offering</FONT></td>
<td width=10%><FONT FACE="Times New Roman, Times, Serif" size=3></font></td>
<td width=10% align=right><FONT FACE="Times New Roman, Times, Serif" size=3>ii</FONT></td>
</tr>
<tr>
<td width=80%><FONT FACE="Times New Roman, Times, Serif" size=3>Summary</FONT></td>
<td width=10%><FONT FACE="Times New Roman, Times, Serif" size=3></font></td>
<td width=10% align=right><FONT FACE="Times New Roman, Times, Serif" size=3>1</FONT></td>
</tr>
<tr>
<td width=80%><FONT FACE="Times New Roman, Times, Serif" size=3>Risk Factors</FONT></td>
<td width=10%><FONT FACE="Times New Roman, Times, Serif" size=3></font></td>
<td width=10% align=right><FONT FACE="Times New Roman, Times, Serif" size=3>4</FONT></td>
</tr>

<tr>
<td width=80%><FONT FACE="Times New Roman, Times, Serif" size=3>Use of Proceeds</FONT></td>
<td width=10%><FONT FACE="Times New Roman, Times, Serif" size=3></font></td>
<td width=10% align=right><FONT FACE="Times New Roman, Times, Serif" size=3>15</FONT></td>
</tr>
<tr>
<td width=80%><FONT FACE="Times New Roman, Times, Serif" size=3>Price Range of Common Stock, Dividends and<br>&nbsp;&nbsp;&nbsp;
    Related Stockholder Matters</FONT></td>
<td width=10%><FONT FACE="Times New Roman, Times, Serif" size=3></font></td>
<td width=10% align=right valign=bottom><FONT FACE="Times New Roman, Times, Serif" size=3>16</FONT></td>
</tr>
<tr>
<td width=80%><FONT FACE="Times New Roman, Times, Serif" size=3>Capitalization</FONT></td>
<td width=10%><FONT FACE="Times New Roman, Times, Serif" size=3></font></td>
<td width=10% align=right><FONT FACE="Times New Roman, Times, Serif" size=3>17</FONT></td>
</tr>
<tr>
<td width=80%><FONT FACE="Times New Roman, Times, Serif" size=3>Selected Consolidated Financial Data</FONT></td>
<td width=10%><FONT FACE="Times New Roman, Times, Serif" size=3></font></td>
<td width=10% align=right><FONT FACE="Times New Roman, Times, Serif" size=3>18</FONT></td>
</tr>

<tr>
<td width=80%><FONT FACE="Times New Roman, Times, Serif" size=3>Management's Discussion and Analysis of Financial
    <br>&nbsp;&nbsp;&nbsp;Condition and Results of Operations</FONT></td>
<td width=10%><FONT FACE="Times New Roman, Times, Serif" size=3></font></td>
<td width=10% align=right valign=bottom><FONT FACE="Times New Roman, Times, Serif" size=3>20</FONT></td>
</tr>
<tr>
<td width=80%><FONT FACE="Times New Roman, Times, Serif" size=3>Business</FONT></td>
<td width=10%><FONT FACE="Times New Roman, Times, Serif" size=3></font></td>
<td width=10% align=right><FONT FACE="Times New Roman, Times, Serif" size=3>43</FONT></td>
</tr>
<tr>
<td width=80%><FONT FACE="Times New Roman, Times, Serif" size=3>Properties</FONT></td>
<td width=10%><FONT FACE="Times New Roman, Times, Serif" size=3></font></td>
<td width=10% align=right><FONT FACE="Times New Roman, Times, Serif" size=3>59</FONT></td>
</tr>
<tr>
<td width=80%><FONT FACE="Times New Roman, Times, Serif" size=3>Legal Proceedings</FONT></td>
<td width=10%><FONT FACE="Times New Roman, Times, Serif" size=3></font></td>
<td width=10% align=right><FONT FACE="Times New Roman, Times, Serif" size=3>66</FONT></td>
</tr>


<tr>
<td width=80%><FONT FACE="Times New Roman, Times, Serif" size=3>Management</FONT></td>
<td width=10%><FONT FACE="Times New Roman, Times, Serif" size=3></font></td>
<td width=10% align=right><FONT FACE="Times New Roman, Times, Serif" size=3>71</FONT></td>
</tr>
<tr>
<td width=80%><FONT FACE="Times New Roman, Times, Serif" size=3>Certain Relationships and Related Transactions </FONT></td>
<td width=10%><FONT FACE="Times New Roman, Times, Serif" size=3></font></td>
<td width=10% align=right><FONT FACE="Times New Roman, Times, Serif" size=3>85</FONT></td>
</tr>
<tr>
<td width=80%><FONT FACE="Times New Roman, Times, Serif" size=3>Beneficial Ownership of Securities</FONT></td>
<td width=10%><FONT FACE="Times New Roman, Times, Serif" size=3></font></td>
<td width=10% align=right><FONT FACE="Times New Roman, Times, Serif" size=3>86</FONT></td>
</tr>
<tr>
<td width=80%><FONT FACE="Times New Roman, Times, Serif" size=3>The Rights Offering</FONT></td>
<td width=10%><FONT FACE="Times New Roman, Times, Serif" size=3></font></td>
<td width=10% align=right><FONT FACE="Times New Roman, Times, Serif" size=3>90</FONT></td>
</tr>

<tr>
<td width=80%><FONT FACE="Times New Roman, Times, Serif" size=3>Description of Capital Stock</FONT></td>
<td width=10%><FONT FACE="Times New Roman, Times, Serif" size=3></font></td>
<td width=10% align=right><FONT FACE="Times New Roman, Times, Serif" size=3>101</FONT></td>
</tr>
<tr>
<td width=80%><FONT FACE="Times New Roman, Times, Serif" size=3>United States Federal Income Tax Consequence</FONT></td>
<td width=10%><FONT FACE="Times New Roman, Times, Serif" size=3></font></td>
<td width=10% align=right><FONT FACE="Times New Roman, Times, Serif" size=3>107</FONT></td>
</tr>
<tr>
<td width=80%><FONT FACE="Times New Roman, Times, Serif" size=3>Plan of Distribution</FONT></td>
<td width=10%><FONT FACE="Times New Roman, Times, Serif" size=3></font></td>
<td width=10% align=right><FONT FACE="Times New Roman, Times, Serif" size=3>109</FONT></td>
</tr>
<tr>
<td width=80%><FONT FACE="Times New Roman, Times, Serif" size=3>Legal Matters</FONT></td>
<td width=10%><FONT FACE="Times New Roman, Times, Serif" size=3></font></td>
<td width=10% align=right><FONT FACE="Times New Roman, Times, Serif" size=3>109</FONT></td>
</tr>

<tr>
<td width=80%><FONT FACE="Times New Roman, Times, Serif" size=3>Experts</FONT></td>
<td width=10%><FONT FACE="Times New Roman, Times, Serif" size=3></font></td>
<td width=10% align=right><FONT FACE="Times New Roman, Times, Serif" size=3>109</FONT></td>
</tr>
<tr>
<td width=80%><FONT FACE="Times New Roman, Times, Serif" size=3>Where You Can Find More Information</FONT></td>
<td width=10%><FONT FACE="Times New Roman, Times, Serif" size=3></font></td>
<td width=10% align=right><FONT FACE="Times New Roman, Times, Serif" size=3>110</FONT></td>
</tr>
<tr>
<td width=80%><FONT FACE="Times New Roman, Times, Serif" size=3>Index to Financial Statements</FONT></td>
<td width=10%><FONT FACE="Times New Roman, Times, Serif" size=3></font></td>
<td width=10% align=right><FONT FACE="Times New Roman, Times, Serif" size=3>F-1</FONT></td>
</tr>

</table>

<br>
<p align=center><FONT FACE="Times New Roman, Times, Serif" SIZE=3>i</font></p>
<page>
<br>



<H1 ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" size=3>FORWARD-LOOKING
STATEMENTS</FONT></H1>

<P><FONT FACE="Times New Roman, Times, Serif" size=3>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Throughout this Prospectus,
we make statements that are not historical facts or information and that may be
deemed &#147;forward-looking statements&#148; within the meaning of Section 27A
of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of
1934. These forward-looking statements include, but are not limited to, the
information set forth in Management&#146;s Discussion and Analysis of Financial
Condition and Results of Operations. For example, words such as &#147;may,&#148;
&#147;will,&#148; &#147;should,&#148; &#147;estimates,&#148;
&#147;predicts,&#148; &#147;potential,&#148; &#147;continue,&#148;
&#147;strategy,&#148; &#147;believes,&#148; &#147;anticipates,&#148;
&#147;plans,&#148; &#147;expects,&#148; &#147;intends&#148; and similar
expressions are intended to identify forward-looking statements. Such
forward-looking statements involve known and unknown risks, uncertainties and
other factors, which may cause our actual results, levels of activity,
performance or achievements, or industry results, to be materially different
from any future results, levels of activity, performance or achievements
expressed or implied by such forward-looking statements. Such factors include,
among others, the following: general economic and business conditions; health
care cost trends; the cost and capacity of the surety bond market; our ability
to manage growth and significantly expanded operations; our ability to implement
our growth and development strategy; our ability to pay the preferred stock
dividends that are accumulated but unpaid; our ability to retain key senior
management; our access to financing; our ability to maintain compliance with
debt covenant requirements; our ability to successfully identify new business
opportunities; our ability to negotiate profitable coal contracts, price
reopeners and extensions; our ability to maintain satisfactory labor relations;
changes in the industry; competition; our ability to utilize our income tax net
operating losses; our ability to invest cash, including cash that has been
deposited in reclamation accounts, at an acceptable rate of return; weather
conditions; the availability of transportation; price of alternative fuels;
costs of coal produced by other countries; the demand for electricity; the
effect of regulatory and legal proceedings, including the bankruptcy filing by
Touch America Holdings Inc. and Entech Inc.; environmental issues, including the
cost of compliance with existing and future environmental requirements; the
claims between Westmoreland and Montana Power; and the other factors discussed
in the &#147;Risk Factors,&#148; &#147;Management&#146;s Discussion and Analysis
of Financial Condition and Results of Operations,&#148; &#147;Business&#148; and
&#147;Properties&#148; sections of this prospectus. As a result of the foregoing
and other factors, we cannot provide any assurance about our future results or
achievements. We disclaim any duty to update these statements, even if
subsequent events cause our views to change. </FONT></P>
<br><br>

<H1 ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" size=3>QUESTIONS
AND ANSWERS ABOUT THE RIGHTS OFFERING</FONT></H1>

<table width=650 cellspacing=0 cellpadding=0 border=0>
<tr>
<td valign=top width=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=3><b>Q.</b></font></td>
<td valign=top width=95%><FONT FACE="Times New Roman, Times, Serif" SIZE=3><b>What is the rights offering?</b></font></td>
</tr>
<tr>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr>
<td valign=top><FONT FACE="Times New Roman, Times, Serif" SIZE=3>A.</font></td>
<td valign=top><FONT FACE="Times New Roman, Times, Serif" SIZE=3>The rights offering is a distribution to holders of our common stock, at no charge, of subscription rights.  We are distributing
     one right for each _____ shares of common stock owned as of ___________, 2004, the record date.  We will not distribute
     fractional rights or issue fractional shares.  If the number of shares of common stock you held of record on the record date
     would result in your receipt of fractional rights, the number of rights issued to you is being rounded down to the nearest whole
     right.  Each right is evidenced by a rights certificate.</font></td>
</tr>
</table>

<br>
<p align=center><FONT FACE="Times New Roman, Times, Serif" SIZE=3>ii</font></p>
<page>
<br>

<table width=650 cellspacing=0 cellpadding=0 border=0>
<tr>
<td valign=top width=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=3><b>Q.</b></font></td>
<td valign=top width=95%><FONT FACE="Times New Roman, Times, Serif" SIZE=3><b>What is a subscription right?</b></font></td>
</tr>
<tr>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr>
<td valign=top><FONT FACE="Times New Roman, Times, Serif" SIZE=3>A.</font></td>
<td valign=top><FONT FACE="Times New Roman, Times, Serif" SIZE=3>Each subscription right is a right to purchase one share of our common stock and carries with it a basic subscription privilege
     and an over-subscription privilege.</font></td>
</tr>
<tr>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>

<tr>
<td valign=top width=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=3><b>Q.</b></font></td>
<td valign=top width=95%><FONT FACE="Times New Roman, Times, Serif" SIZE=3><b>What is the basic subscription privilege?</b></font></td>
</tr>
<tr>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr>
<td valign=top><FONT FACE="Times New Roman, Times, Serif" SIZE=3>A.</font></td>
<td valign=top><FONT FACE="Times New Roman, Times, Serif" SIZE=3>The basic subscription privilege of each right entitles you to purchase one share of our common stock at the subscription price
     of $__________ per each share purchased.</font></td>
</tr>
<tr>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>


<tr>
<td valign=top width=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=3><b>Q.</b></font></td>
<td valign=top width=95%><FONT FACE="Times New Roman, Times, Serif" SIZE=3><b>What is the over-subscription privilege?</b></font></td>
</tr>
<tr>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr>
<td valign=top><FONT FACE="Times New Roman, Times, Serif" SIZE=3>A.</font></td>
<td valign=top><FONT FACE="Times New Roman, Times, Serif" SIZE=3>We do not expect that all of our stockholders will exercise all of their basic subscription privileges.  By extending
     over-subscription privileges to our stockholders, we are providing stockholders that exercise all of their basic subscription
     privileges with the opportunity to purchase those shares that are not purchased by other stockholders through the exercise of
     their basic subscription privileges.  If you fully exercise your basic subscription privilege, the over-subscription privilege
     entitles you to subscribe for additional shares of our common stock at the same subscription price of $___ per share that applies
     to your basic subscription privilege.  If the number of shares requested by all holders exercising the over-subscription
     privilege is less than the total number of shares available, then each person exercising the over-subscription privilege will
     receive the total number of shares requested.  If there are not enough shares of our common stock to satisfy all subscriptions
     made under the over-subscription privilege, we will allocate the available shares of our common stock pro rata, after eliminating
     all fractional shares, among the over-subscribing rights holders.  "Pro rata" means in proportion to the number of shares of our
     common stock that you and the other holders of subscription rights have purchased by exercising your basic subscription
     privileges.  If there is a pro rata allocation and you receive an allocation of a greater number of shares than you subscribed
     for under your over-subscription privilege, then we will allocate to you only the number of shares for which you subscribed.  We
     will allocate the remaining shares among all other holders exercising their over-subscription privileges.  The subscription agent
     will return any excess payments by mail without interest or deduction promptly after the expiration of the rights offering.</font></td>
</tr>
<tr>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>

<tr>
<td valign=top width=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=3><b>Q.</b></font></td>
<td valign=top width=95%><FONT FACE="Times New Roman, Times, Serif" SIZE=3><b>How long will the rights offering last?</b></font></td>
</tr>
<tr>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr>
<td valign=top><FONT FACE="Times New Roman, Times, Serif" SIZE=3>A.</font></td>
<td valign=top><FONT FACE="Times New Roman, Times, Serif" SIZE=3>You will be able to exercise your subscription rights only during a limited period.  If you do not exercise your subscription
     rights before 5:00 p.m., New York City time, on ________________, 2004, your subscription rights will expire.  We may, in our
     discretion, extend the rights offering until some later time but not later than 5:00 p.m., New York City time, on
     _______________, 2004.</font></td>
</tr>
<tr>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>

<tr>
<td valign=top width=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=3><b>Q.</b></font></td>
<td valign=top width=95%><FONT FACE="Times New Roman, Times, Serif" SIZE=3><b>Why is Westmoreland engaging in a rights offering?</b></font></td>
</tr>
<tr>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr>
<td valign=top><FONT FACE="Times New Roman, Times, Serif" SIZE=3>A.</font></td>
<td valign=top><FONT FACE="Times New Roman, Times, Serif" SIZE=3>Our Board of Directors has determined to seek additional equity capital to support our growth and development strategy and for
     general corporate purposes.  We do not currently have any agreement to acquire any business or assets (other than the capital
     expenditures we anticipate making in the ordinary course of our business) or any letter of intent with respect to any such
     acquisition; however, we have received a notice from LG&amp;E Power Inc., which owns 50% of the Roanoke Valley power plant, or ROVA
     Project, containing the terms and conditions on which LG&amp;E proposes to sell us its interest in the project pursuant to our right
     of first purchase, and we are evaluating those terms and conditions.  We describe the status of this offer below under "Summary -
     Recent Developments."  We have determined to seek equity capital through a rights offering because we would like to give all of
     our common stockholders the first opportunity to purchase additional shares of our common stock.</font></td>
</tr>
</table>

<br>
<p align=center><FONT FACE="Times New Roman, Times, Serif" SIZE=3>iii</font></p>
<page>
<br>

<table width=650 cellspacing=0 cellpadding=0 border=0>
<tr>
<td valign=top width=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=3><b>Q.</b></font></td>
<td valign=top width=95%><FONT FACE="Times New Roman, Times, Serif" SIZE=3><b>How was the subscription price established?</b></font></td>
</tr>
<tr>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr>
<td valign=top><FONT FACE="Times New Roman, Times, Serif" SIZE=3>A.</font></td>
<td valign=top><FONT FACE="Times New Roman, Times, Serif" SIZE=3>Our Board of Directors will determine the exercise price for the rights.  The Board is expected to consider a number of factors,
     including the historic and then current market price of the common stock, our business prospects, our recent and anticipated
     operating results, general conditions in the securities markets and the coal industry, our need for capital, alternatives
     available to us for raising capital, the amount of proceeds desired, the pricing of similar transactions, the liquidity of our
     common stock and the level of risk to our investors.</font></td>
</tr>
<tr>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>

<tr>
<td valign=top width=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=3><b>Q.</b></font></td>
<td valign=top width=95%><FONT FACE="Times New Roman, Times, Serif" SIZE=3><b>How do I exercise my subscription rights?</b></font></td>
</tr>
<tr>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr>
<td valign=top><FONT FACE="Times New Roman, Times, Serif" SIZE=3>A.</font></td>
<td valign=top><FONT FACE="Times New Roman, Times, Serif" SIZE=3>You may exercise your rights by properly completing and signing your rights certificate.  You must deliver your rights
     certificate with full payment of the subscription price (including any amounts in respect of the over-subscription privilege) to
     the subscription agent on or prior to the expiration date.  If you use the mail, we recommend that you use insured, registered
     mail, return receipt requested.  If you cannot deliver your rights certificate to the subscription agent on time, you may follow
     the guaranteed delivery procedures described under "The Rights Offering - Guaranteed Delivery Procedures."</font></td>
</tr>
<tr>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr>
<td valign=top><FONT FACE="Times New Roman, Times, Serif" SIZE=3></font></td>
<td valign=top><FONT FACE="Times New Roman, Times, Serif" SIZE=3>If
you wish to exercise your over-subscription privilege, you must pay in full for
(1) the number of shares you purchase with your basic subscription privilege and
(2) the number of shares you wish to purchase with your over-subscription
privilege. You may pay the subscription price in a number of different ways. See
&#147;The Rights Offering &#150; Method of Payment.&#148; In order for you to
timely exercise your rights, the subscription agent must actually receive good
funds, in payment of the subscription price, before the expiration date. An
uncertified personal check may take five business days or more to clear.
Accordingly, if you pay the subscription price by uncertified personal check,
you should make payment sufficiently in advance of the expiration date to ensure
that your check actually clears and the payment is received before the
expiration date.</font></td>
</tr>
<tr>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>

<tr>
<td valign=top width=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=3><b>Q.</b></font></td>
<td valign=top width=95%><FONT FACE="Times New Roman, Times, Serif" SIZE=3><b>What should I do if I want to participate in the rights offering but my shares are held in the name of my broker, custodian bank
     or other nominee?</b></font></td>
</tr>
<tr>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr>
<td valign=top><FONT FACE="Times New Roman, Times, Serif" SIZE=3>A.</font></td>
<td valign=top><FONT FACE="Times New Roman, Times, Serif" SIZE=3>If you hold shares of our common stock through a broker, custodian bank or other nominee, we will ask your broker, custodian bank
     or other nominee to notify you of the rights offering.  If you wish to exercise your rights, you will need to have your broker,
     custodian bank or other nominee act for you.</font></td>
</tr>
<tr>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr>
<td valign=top><FONT FACE="Times New Roman, Times, Serif" SIZE=3></font></td>
<td><FONT FACE="Times New Roman, Times, Serif" SIZE=3>To
indicate your decisions, you should complete and return to your broker,
custodian bank or other nominee the form entitled &#147;Beneficial Owner
Election Form.&#148; You should receive this form from your broker, custodian
bank or other nominee with the other rights offering materials. You should
contact your broker, custodian bank or other nominee if you believe you are
entitled to participate in the rights offering but you have not received this
form.</font></td>
</tr>
</table>

<br>
<p align=center><FONT FACE="Times New Roman, Times, Serif" SIZE=3>iv</font></p>
<page>
<br>

<table width=650 cellspacing=0 cellpadding=0 border=0>
<tr>
<td valign=top width=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=3><b>Q.</b></font></td>
<td valign=top width=95%><FONT FACE="Times New Roman, Times, Serif" SIZE=3><b>What if the market price per share of our common stock is less than the subscription price per share when I am deciding to
     exercise my subscription rights?</b></font></td>
</tr>
<tr>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr>
<td valign=top><FONT FACE="Times New Roman, Times, Serif" SIZE=3>A.</font></td>
<td valign=top><FONT FACE="Times New Roman, Times, Serif" SIZE=3>Consult your broker.  Depending on the market price of our common stock, it may be more cost effective for you to purchase shares
     of our common stock on the American Stock Exchange rather than exercise your subscription rights.</font></td>
</tr>
<tr>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>


<tr>
<td valign=top width=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=3><b>Q.</b></font></td>
<td valign=top width=95%><FONT FACE="Times New Roman, Times, Serif" SIZE=3><b>Will I be charged a sales commission or a fee by Westmoreland if I exercise my subscription rights?</b></font></td>
</tr>
<tr>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr>
<td valign=top><FONT FACE="Times New Roman, Times, Serif" SIZE=3>A.</font></td>
<td valign=top><FONT FACE="Times New Roman, Times, Serif" SIZE=3>No.  We will not charge a brokerage commission or a fee to rights holders for exercising their rights.  However, if you exercise
     your rights through a broker or nominee, you will be responsible for any fees charged by your broker or nominee.</font></td>
</tr>
<tr>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>

<tr>
<td valign=top width=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=3><b>Q.</b></font></td>
<td valign=top width=95%><FONT FACE="Times New Roman, Times, Serif" SIZE=3><b>What is the Board of Directors' recommendation regarding the rights offering?</b></font></td>
</tr>
<tr>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr>
<td valign=top><FONT FACE="Times New Roman, Times, Serif" SIZE=3>A.</font></td>
<td valign=top><FONT FACE="Times New Roman, Times, Serif" SIZE=3>Our Board of Directors is not making any recommendation as to whether you should exercise your subscription rights.  You are
     urged to make your decision based on your own assessment of the rights offering and Westmoreland.</font></td>
</tr>
<tr>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>

<tr>
<td valign=top width=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=3><b>Q.</b></font></td>
<td valign=top width=95%><FONT FACE="Times New Roman, Times, Serif" SIZE=3><b>Is exercising my subscription rights risky?</b></font></td>
</tr>
<tr>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr>
<td valign=top><FONT FACE="Times New Roman, Times, Serif" SIZE=3>A.</font></td>
<td valign=top><FONT FACE="Times New Roman, Times, Serif" SIZE=3>Yes.  The exercise of your rights involves risks.  Exercising your rights means buying additional shares of our common stock and
     should be considered as carefully as you would consider any other equity investment.  Among other things, you should carefully
     consider the risks described under the heading "Risk Factors," beginning on page ___.</font></td>
</tr>
<tr>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>

<tr>
<td valign=top width=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=3><b>Q.</b></font></td>
<td valign=top width=95%><FONT FACE="Times New Roman, Times, Serif" SIZE=3><b>May I transfer my rights if I do not want to purchase any shares?</b></font></td>
</tr>
<tr>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr>
<td valign=top><FONT FACE="Times New Roman, Times, Serif" SIZE=3>A.</font></td>
<td valign=top><FONT FACE="Times New Roman, Times, Serif" SIZE=3>No.  If you choose not to exercise your rights, you may not sell, give away or otherwise transfer your rights.</font></td>
</tr>
<tr>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>

<tr>
<td valign=top width=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=3><b>Q.</b></font></td>
<td valign=top width=95%><FONT FACE="Times New Roman, Times, Serif" SIZE=3><b>Am I required to subscribe in the rights offering?</b></font></td>
</tr>
<tr>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr>
<td valign=top><FONT FACE="Times New Roman, Times, Serif" SIZE=3>A.</font></td>
<td valign=top><FONT FACE="Times New Roman, Times, Serif" SIZE=3>No.</font></td>
</tr>
<tr>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>

<tr>
<td valign=top width=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=3><b>Q.</b></font></td>
<td valign=top width=95%><FONT FACE="Times New Roman, Times, Serif" SIZE=3><b>What happens if I choose not to exercise my subscription rights?</b></font></td>
</tr>
<tr>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr>
<td valign=top><FONT FACE="Times New Roman, Times, Serif" SIZE=3>A.</font></td>
<td valign=top><FONT FACE="Times New Roman, Times, Serif" SIZE=3>If you do not exercise your subscription rights, the rights offering will not affect the number of shares of common stock you now
     own.  However, if you choose not to exercise your subscription rights and other stockholders do, the percentage of our common
     stock that you own after the offering will decrease.  Rights not exercised prior to the expiration of the rights offering will
     expire.</font></td>
</tr>
</table>

<br>
<p align=center><FONT FACE="Times New Roman, Times, Serif" SIZE=3>v</font></p>
<page>
<br>

<table width=650 cellspacing=0 cellpadding=0 border=0>
<tr>
<td valign=top width=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=3><b>Q.</b></font></td>
<td valign=top width=95%><FONT FACE="Times New Roman, Times, Serif" SIZE=3><b>Is there any limitation on the number of shares that I can purchase in the rights offering?</b></font></td>
</tr>
<tr>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr>
<td valign=top><FONT FACE="Times New Roman, Times, Serif" SIZE=3>A.</font></td>
<td valign=top><FONT FACE="Times New Roman, Times, Serif" SIZE=3>Yes.  In no event may any subscriber purchase shares of our common stock in the offering that, when aggregated with all of the
     shares of our common stock otherwise owned by the subscriber and his, her or its affiliates, would represent, immediately
     following the closing of the rights offering, 20% or more of our issued and outstanding common stock.</font></td>
</tr>
<tr>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>

<tr>
<td valign=top width=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=3><b>Q.</b></font></td>
<td valign=top width=95%><FONT FACE="Times New Roman, Times, Serif" SIZE=3><b>How many shares will be outstanding after the rights offering?</b></font></td>
</tr>
<tr>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr>
<td valign=top><FONT FACE="Times New Roman, Times, Serif" SIZE=3>A.</font></td>
<td valign=top><FONT FACE="Times New Roman, Times, Serif" SIZE=3>Assuming the rights offering is fully subscribed, approximately __________ shares of our common stock will be outstanding
     immediately after the rights offering.  This number is subject to any increases that may occur after the date of this prospectus
     as a result of the exercise, conversion or exchange of outstanding stock options or convertible securities.</font></td>
</tr>
<tr>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>

<tr>
<td valign=top width=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=3><b>Q.</b></font></td>
<td valign=top width=95%><FONT FACE="Times New Roman, Times, Serif" SIZE=3><b>What happens if the rights offering is not fully subscribed after giving effect to the over-subscription privilege?</b></font></td>
</tr>
<tr>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr>
<td valign=top><FONT FACE="Times New Roman, Times, Serif" SIZE=3>A.</font></td>
<td valign=top><FONT FACE="Times New Roman, Times, Serif" SIZE=3>Any rights not exercised after giving effect to the over-subscription privilege will expire.</font></td>
</tr>
<tr>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>

<tr>
<td valign=top width=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=3><b>Q.</b></font></td>
<td valign=top width=95%><FONT FACE="Times New Roman, Times, Serif" SIZE=3><b>After I exercise my rights, can I change my mind and cancel my purchase?</b></font></td>
</tr>
<tr>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr>
<td valign=top><FONT FACE="Times New Roman, Times, Serif" SIZE=3>A.</font></td>
<td valign=top><FONT FACE="Times New Roman, Times, Serif" SIZE=3>No.  Once you send in your rights certificate and payment you cannot revoke the exercise of your rights, even if you later learn
     information about us that you consider to be unfavorable and even if the market price of our common stock is below the $________
     per share subscription price.  You should not exercise your subscription rights unless you are certain that you wish to purchase
     additional shares of our common stock at a price of $________ per share.  See "The Rights Offering - No Revocation."</font></td>
</tr>
<tr>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>

<tr>
<td valign=top width=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=3><b>Q.</b></font></td>
<td valign=top width=95%><FONT FACE="Times New Roman, Times, Serif" SIZE=3><b>What are the federal income tax consequences of exercising my subscription rights as a holder of common stock?</b></font></td>
</tr>
<tr>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr>
<td valign=top><FONT FACE="Times New Roman, Times, Serif" SIZE=3>A.</font></td>
<td valign=top><FONT FACE="Times New Roman, Times, Serif" SIZE=3>A holder of common stock will not recognize income or loss for federal income tax purposes in connection with the receipt or
     exercise of subscription rights in the rights offering.  See "United States Federal Income Tax Consequences," beginning on page
     ___.</font></td>
</tr>
<tr>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>

<tr>
<td valign=top width=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=3><b>Q.</b></font></td>
<td valign=top width=95%><FONT FACE="Times New Roman, Times, Serif" SIZE=3><b>When will I receive my new shares?</b></font></td>
</tr>
<tr>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr>
<td valign=top><FONT FACE="Times New Roman, Times, Serif" SIZE=3>A.</font></td>
<td valign=top><FONT FACE="Times New Roman, Times, Serif" SIZE=3>If you purchase shares of common stock through this rights offering, you will receive certificates representing those shares as
     soon as practicable after the expiration of the rights offering.  Subject to state securities laws and regulations, we have the
     discretion to delay allocation and distribution of any shares you may elect to purchase by exercise of your basic or
     over-subscription privilege in order to comply with state securities laws.
</font></td>
</tr>
</table>

<br>
<p align=center><FONT FACE="Times New Roman, Times, Serif" SIZE=3>vi</font></p>
<page>
<br>

<table width=650 cellspacing=0 cellpadding=0 border=0>
<tr>
<td valign=top width=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=3><b>Q.</b></font></td>
<td valign=top width=95%><FONT FACE="Times New Roman, Times, Serif" SIZE=3><b>Will the new shares be initially listed on the American Stock Exchange and treated like other shares?</b></font></td>
</tr>
<tr>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr>
<td valign=top><FONT FACE="Times New Roman, Times, Serif" SIZE=3>A.</font></td>
<td valign=top><FONT FACE="Times New Roman, Times, Serif" SIZE=3>Yes.  Our common stock is traded on the American Stock Exchange under the symbol "WLB."  On __________________, 2004, the last
     reported sales price of our common stock on the AMEX was $_____ per share.</font></td>
</tr>
<tr>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>

<tr>
<td valign=top width=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=3><b>Q.</b></font></td>
<td valign=top width=95%><FONT FACE="Times New Roman, Times, Serif" SIZE=3><b>Will Westmoreland consummate the rights offering if stockholders do not subscribe for a minimum number of shares of common
     stock?</b></font></td>
</tr>
<tr>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr>
<td valign=top><FONT FACE="Times New Roman, Times, Serif" SIZE=3>A.</font></td>
<td valign=top><FONT FACE="Times New Roman, Times, Serif" SIZE=3>We may consummate this offering even if we do not receive subscriptions for any specific number of shares.  We are not obligated,
     prior to the completion of the rights offering, to inform you how many shares have been subscribed for, and we do not expect to
     announce publicly the results of the rights offering until after its completion.</font></td>
</tr>
<tr>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>

<tr>
<td valign=top width=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=3><b>Q.</b></font></td>
<td valign=top width=95%><FONT FACE="Times New Roman, Times, Serif" SIZE=3><b>Are there any conditions to the rights offering?</b></font></td>
</tr>
<tr>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr>
<td valign=top><FONT FACE="Times New Roman, Times, Serif" SIZE=3>A.</font></td>
<td valign=top><FONT FACE="Times New Roman, Times, Serif" SIZE=3>We may terminate this rights offering, in whole or in part, if at any time before completion of this rights offering there is any
     judgment, order, decree, injunction, statute, law or regulation entered, enacted, amended or held to be applicable to this rights
     offering that in the sole judgment of our Board of Directors would or might make this rights offering or its completion, whether
     in whole or in part, illegal or otherwise restrict or prohibit completion of this rights offering.  We may waive any of these
     conditions and choose to proceed with this rights offering even if one or more of these events occur.  If we terminate this
     rights offering, in whole or in part, all affected subscription rights will expire without value and all subscription payments
     received by the subscription agent will be returned promptly, without interest or deduction.</font></td>
</tr>
<tr>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>


<tr>
<td valign=top width=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=3><b>Q.</b></font></td>
<td valign=top width=95%><FONT FACE="Times New Roman, Times, Serif" SIZE=3><b>Can Westmoreland cancel this rights offering?</b></font></td>
</tr>
<tr>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr>
<td valign=top><FONT FACE="Times New Roman, Times, Serif" SIZE=3>A.</font></td>
<td valign=top><FONT FACE="Times New Roman, Times, Serif" SIZE=3>Yes.  We may cancel this rights offering, in whole or in part, in our sole discretion at any time prior to the time this rights
     offering expires for any reason (including a change in the market price of our common stock).</font></td>
</tr>
<tr>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>


<tr>
<td valign=top width=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=3><b>Q.</b></font></td>
<td valign=top width=95%><FONT FACE="Times New Roman, Times, Serif" SIZE=3><b>If the rights offering is not completed, will my subscription payment be refunded to me?</b></font></td>
</tr>
<tr>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr>
<td valign=top><FONT FACE="Times New Roman, Times, Serif" SIZE=3>A.</font></td>
<td valign=top><FONT FACE="Times New Roman, Times, Serif" SIZE=3>Yes.  The subscription agent will hold all funds it receives in escrow until completion of the rights offering.  If the rights
     offering is not completed, the subscription agent will return promptly, without interest, all subscription payments.</font></td>
</tr>
<tr>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>


<tr>
<td valign=top width=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=3><b>Q.</b></font></td>
<td valign=top width=95%><FONT FACE="Times New Roman, Times, Serif" SIZE=3><b>What should I do if I have other questions?</b></font></td>
</tr>
<tr>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr>
<td valign=top><FONT FACE="Times New Roman, Times, Serif" SIZE=3>A.</font></td>
<td valign=top><FONT FACE="Times New Roman, Times, Serif" SIZE=3>If you have questions or need assistance, please contact _________________, the subscription agent, at (   ) ___-____.  Banks and
     brokerage firms please call (   ) ___-____.  For a more complete description of the rights offering, see "The Rights Offering,"
     beginning on page ___.</font></td>
</tr>
</table>

<br>
<p align=center><FONT FACE="Times New Roman, Times, Serif" SIZE=3>vii</font></p>
<page>
<br>


<H1 ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" size=3>SUMMARY</FONT></H1>

<P><FONT FACE="Times New Roman, Times, Serif" size=3>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;This summary highlights
information contained elsewhere in this prospectus. This summary may not contain
all of the information that is important to you. This prospectus includes
information about our business and our financial and operating data. Before
making an investment decision, we encourage you to read the entire prospectus
carefully, including the risks discussed in the &#147;Risk Factors&#148;
section. We also encourage you to review our financial statements and the other
information we provide in the reports and other documents that we file with the
Securities and Exchange Commission, or SEC, as described under &#147;Where You
Can Find More Information.&#148; </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" size=3>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We use the terms
&#147;we,&#148; &#147;us,&#148; &#147;our,&#148; &#147;the Company&#148; and
&#147;Westmoreland&#148; in this prospectus to refer to Westmoreland Coal
Company and our consolidated subsidiaries. We use the terms &#147;Westmoreland
Energy&#148; to refer to our subsidiary Westmoreland Energy, LLC, and
&#147;Westmoreland Mining&#148; to refer to our separate subsidiary,
Westmoreland Mining LLC. We use the term &#147;Westmoreland Resources&#148; to
refer to Westmoreland Resources, Inc., which owns the Absaloka Mine. We own 80%
of Westmoreland Resources, and Washington Group International Inc. owns the
remaining 20%. We own 100% of our other subsidiaries. </FONT></P>

<H2 ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" size=3>Our Company</FONT></H2>

<P><FONT FACE="Times New Roman, Times, Serif" size=3>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We are an energy company.
We mine coal, which is used to produce electric power, and we own interests in
power-generating plants. Beginning in 2004, we also will receive royalties from
the production of coalbed methane gas. </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" size=3>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We own five mines in
Montana, North Dakota and Texas. Our mining operations are all surface mines
that provide coal to power-generating stations. Our mines produced 27.7 million
tons of coal in 2003, about 2.6% of all coal produced in the United States, and
we were the 10th largest coal producer in the United States. </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" size=3>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We own interests in three
power-generating plants. We own 50% of the Roanoke Valley power plant, or ROVA
Project, which includes two units, ROVA I and ROVA II, that collectively
produced 1.65 million megawatt hours, or MWH, in 2003. The ROVA Project is
located in Weldon, North Carolina. We also own a 4.49% interest in a project in
Fort Lupton, Colorado, that produced 899,000 MWH in 2003. </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" size=3>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The power-generating plants
that we supply and the ROVA Project are all baseloaded plants. The baseload is
the minimum amount of electric power delivered or required over a given period
of time at a steady rate, and a baseload or baseloaded power plant is a plant
that is normally operated to take all or part of the minimum load of a system
and which consequently produces electricity whenever it is available and
typically runs continuously when available. Although baseloaded plants typically
run continuously when available, they do not run when they are unavailable
because of unscheduled operating problems or when they are being maintained, and
they require regular maintenance, which is usually scheduled for the spring and
fall. </FONT></P>

<br>
<p align=center><FONT FACE="Times New Roman, Times, Serif" SIZE=3>1</font></p>
<page>
<br>

<P><FONT FACE="Times New Roman, Times, Serif" size=3>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;For a power-generating
plant, three of the principal costs of using coal are the cost of the coal, the
cost of transporting the coal from the mine to the plant and the cost of
complying with environmental standards. The principal customers of three of our
mines are located adjacent to the mines, the principal customers for one of our
mines are located 25 to 30 miles from the mine, and one of our mines is 300 rail
miles closer to its principal customers than are this mine&#146;s chief
competitors. We have long-term contracts with the principal customers of each of
our mines. The principal customers of each of our mines have already installed
flue gas desulfurization systems, which are known as &#147;scrubbers.&#148; </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" size=3>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We terminated our coal
operations in the eastern United States in the 1990s. We are obligated to
provide postretirement medical benefits for our former employees, and
individuals for whom responsibility has been assigned to us, under the Coal
Industry Retiree Health Benefits Act, or Coal Act. Our Coal Act obligations are
the predominant portion of a set of obligations that we call our heritage health
benefit costs. They are our most significant long-term obligation. </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" size=3>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We trace our origin to a
corporation organized in 1854. We are the oldest independent coal company in the
United States. We are organized under the laws of the State of Delaware. Our
principal executive office is located at 2 North Cascade Avenue, 14th Floor,
Colorado Springs, Colorado 80903, and our office telephone number is (719)
442-2600. </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" size=3>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our web site address is
www.westmoreland.com. Information on our web site is not a part of this
prospectus, and we have included our web site address in this document as an
inactive textual link only. </FONT></P>

<H2 ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" size=3>Recent
Developments</FONT></H2>

<P><FONT FACE="Times New Roman, Times, Serif" size=3>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We supply coal to Units
1&amp;2 of the Colstrip Station under a contract that expires December 31, 2009.
Under our contract, the price for our coal has two components, a cost component
and a profit component, and is periodically redetermined or
&#147;reopened.&#148; The final reopener under the contract occurred in July
2001. We agreed upon the cost component in December 2003, and we arbitrated the
profit component with the owners of Colstrip Units 1&amp;2. On May 25, 2004, we
announced that we had received the arbitrators&#146; decision. The new profit
component, when added to the new cost component, results in a significant price
increase under our coal supply agreement for Colstrip Units 1&amp;2. This
increased price will remain in effect through expiration of the contract, but is
subject to adjustment to reflect changes in some of our costs and in specified
indices. Because the new price is effective as of July 30, 2001, we expect that,
after payment of taxes and royalties, we will receive a payment of approximately
$11 million for coal that we supplied to Colstrip Units 1&amp;2 from the end of
July 2001 through May 2004. </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" size=3>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On June 12, 2004, we
received a notice from LG&amp;E Power Inc., which owns the 50% of the ROVA
Project that we do not own, containing the terms and conditions on which
LG&amp;E proposes to sell us its interest in the project. Westmoreland Energy
has rights under its partnership agreement with LG&amp;E to acquire
LG&amp;E&#146;s interest in the ROVA Project pursuant to a right of first
purchase. We are discussing the terms and conditions of such an acquisition with
LG&amp;E. </FONT></P>

<br>
<p align=center><FONT FACE="Times New Roman, Times, Serif" SIZE=3>2</font></p>
<page>
<br>


<p align=center><FONT FACE="Times New Roman, Times, Serif" SIZE=3><b>The Rights
Offering</b></font></p>


<table width=650 cellpadding=0 cellspacing=0 border=0>
<tr>
<td width=35% valign=top><FONT FACE="Times New Roman, Times, Serif" size=3>The rights offering</font></td>
<td width=65%><FONT FACE="Times New Roman, Times, Serif" SIZE=3>We are distributing subscription rights to holders of our common
stock, at no charge, at the rate of one right for each _____ shares of common stock
owned as of ___________, 2004. We are not distributing fractional rights.</font></TD>
</TR>
<tr>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>

<tr>
<td width=35% valign=top><FONT FACE="Times New Roman, Times, Serif" size=3>Basic subscription privilege</font></td>
<td width=65%><FONT FACE="Times New Roman, Times, Serif" SIZE=3>Each right entitles you to purchase one share of our common stock
                                                  at the subscription price of $__________ per each share purchased.</font></TD>
</TR>
<tr>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>

<tr>
<td width=35% valign=top><FONT FACE="Times New Roman, Times, Serif" size=3>Over-subscription privilege</font></td>
<td width=65%><FONT FACE="Times New Roman, Times, Serif" SIZE=3>If you fully exercise your basic subscription privilege, the
                                                  over-subscription privilege entitles you to subscribe for
                                                  additional shares of our common stock at $___ per share.  If there
                                                  are not enough shares of our common stock to satisfy all
                                                  subscriptions made under the over-subscription privilege, we will
                                                  allocate the available shares of our common stock pro rata, after
                                                  eliminating all fractional shares, among the over-subscribing
                                                  rights holders.</font></TD>
</TR>
<tr>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>

<tr>
<td width=35% valign=top><FONT FACE="Times New Roman, Times, Serif" size=3>Expiration date</font></td>
<td width=65%><FONT FACE="Times New Roman, Times, Serif" SIZE=3>5:00 p.m. New York City time, ________, 2004, unless otherwise
                                                  extended by us to a later date.</font></TD>
</TR>
<tr>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>

<tr>
<td width=35% valign=top><FONT FACE="Times New Roman, Times, Serif" size=3>Procedure for exercising rights</font></td>
<td width=65%><FONT FACE="Times New Roman, Times, Serif" SIZE=3>You may exercise your basic subscription privilege and your
                                                  over-subscription privilege by properly completing the rights
                                                  certificate and forwarding it to the subscription agent with
                                                  payment of the subscription price, including payment for all the
                                                  shares you wish to purchase with both the basic subscription
                                                  privilege and the over-subscription privilege.  The subscription
                                                  agent must actually receive the rights certificate and payment at
                                                  or prior to the expiration time.  If you send rights certificates
                                                  by mail, you are urged to use insured, registered mail.</font></TD>
</TR>
<tr>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>

<tr>
<td width=35% valign=top><FONT FACE="Times New Roman, Times, Serif" size=3>Subscription agent</font></td>
<td width=65%><FONT FACE="Times New Roman, Times, Serif" SIZE=3>_____________, _______________, telephone number
                                                  ___________________.</font></TD>
</TR>
<tr>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>

<tr>
<td width=35% valign=top><FONT FACE="Times New Roman, Times, Serif" size=3>Use of proceeds</font></td>
<td width=65%><FONT FACE="Times New Roman, Times, Serif" SIZE=3>To support our growth and development strategy and for general
                                                  corporate purposes.</font></TD>
</TR>
<tr>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>

<tr>
<td width=35% valign=top><FONT FACE="Times New Roman, Times, Serif" size=3>Risk factors</font></td>
<td width=65%><FONT FACE="Times New Roman, Times, Serif" SIZE=3>You should read "Risk Factors" before you exercise your rights.</font></TD>
</TR>
<tr>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
</table>

<br>
<p align=center><FONT FACE="Times New Roman, Times, Serif" SIZE=3>3</font></p>
<page>
<br>



<H1 ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" size=3>RISK FACTORS</FONT></H1>

<P><FONT FACE="Times New Roman, Times, Serif" size=3>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;An investment in our common
stock involves risk. You should consider carefully, in addition to the other
information contained in this prospectus, the following risk factors before
making any decision. </FONT></P>

<H2 ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" size=3>Risks Related
to our Company</FONT></H2>

<p><FONT FACE="Times New Roman, Times, Serif" SIZE=3><b><i>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.</i></b></font></p>

<P><FONT FACE="Times New Roman, Times, Serif" size=3>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our coal mining operations
are all surface mines. These mines are subject to conditions or events beyond
our control that could disrupt operations, affect production and increase the
cost of mining at particular mines for varying lengths of time and negatively
affect our profitability. These conditions or events include: </FONT></P>

<table width=650 cellpadding=0 cellspacing=0 border=0>
<tr>
<td width=10%>&nbsp;</td>
<td width=4% valign=top>&#149;</td>
<td width=86%>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;</td>
</tr>
</table>
<br>
<table width=650 cellpadding=0 cellspacing=0 border=0>
<tr>
<td width=10%>&nbsp;</td>
<td width=4% valign=top>&#149;</td>
<td width=86%>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</td>
</tr>
</table>
<BR>
<table width=650 cellpadding=0 cellspacing=0 border=0>
<tr>
<td width=10%>&nbsp;</td>
<td width=4% valign=top>&#149;</td>
<td width=86%>weather conditions.</td>
</tr>
</table>

<P><FONT FACE="Times New Roman, Times, Serif" size=3>Examples of recent
conditions or events of these types include the following: </FONT></P>

<table width=650 cellpadding=0 cellspacing=0 border=0>
<tr>
<td width=10%>&nbsp;</td>
<td width=4% valign=top>&#149;</td>
<td width=86%>In the first quarter of 2004, electrical components on the dragline at our
Savage Mine failed. This reduced overburden removal and increased costs at that
mine for a period of 10&#189; days while the dragline was being repaired.</td>
</tr>
</table>
<br>
<table width=650 cellpadding=0 cellspacing=0 border=0>
<tr>
<td width=10%>&nbsp;</td>
<td width=4% valign=top>&#149;</td>
<td width=86%>In the first quarter of 2004, our Beulah Mine experienced sloughage, a condition
in which the side of the pit partially collapses and must be stabilized before
mining can continue. This limited use of the dragline at that mine for a period
of 4 days while the walls of the pit were being stabilized.</td>
</tr>
</table>
<BR>
<table width=650 cellpadding=0 cellspacing=0 border=0>
<tr>
<td width=10%>&nbsp;</td>
<td width=4% valign=top>&#149;</td>
<td width=86%>In the second quarter of
2004, our Jewett Mine received approximately 93% more rain than normal, impeding
production.</td>
</tr>
</table>

<br>
<p align=center><FONT FACE="Times New Roman, Times, Serif" SIZE=3>4</font></p>
<page>
<br>

<p><FONT FACE="Times New Roman, Times, Serif" SIZE=3><b><i>Our revenues and profitability could suffer if our customers reduce or suspend their coal purchases.</i></b></font></p>

<P><FONT FACE="Times New Roman, Times, Serif" size=3>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In 2003, we sold
approximately 99% of our coal under long-term contracts and about two-thirds of
our coal under contracts that obligate our customers to purchase all or almost
all of their coal requirements from us, or which give us the right to supply all
of the plant&#146;s coal, lignite or fuel requirements. Two of our contracts,
with the owners of Colstrip Units 3&amp;4 and with Texas Genco, L.P. for its
Limestone Electric Generating Station, accounted for 34% and 24%, respectively,
of our coal revenues in 2003. Interruption in the purchases by or operations of
our principal customers could significantly affect our revenues and
profitability. Unscheduled maintenance outages at our customers&#146; power
plants and unseasonably moderate weather are examples of conditions that might
cause our customers to reduce their purchases. Four of our five mines are
dedicated to supplying customers located adjacent to or near the mines, and
these mines may have difficulty identifying alternative purchasers of their coal
if their existing customers suspend or terminate their purchases. </FONT></P>

<p><FONT FACE="Times New Roman, Times, Serif" SIZE=3><b><i>Disputes relating to our coal supply agreements could harm our financial results.</i></b></font></p>

<P><FONT FACE="Times New Roman, Times, Serif" size=3>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;From time to time, we may
have disputes with customers under our coal supply agreements. These disputes
could be associated with claims by our customers that may affect our revenue and
profitability. Any dispute that resulted in litigation could cause us to pay
significant legal fees, which could also affect our profitability. By way of
example, we have entered into a settlement agreement with Texas Genco that
addresses contract disputes through 2007, but differences may occur as to the
interpretation of various contract provisions after 2007. </FONT></P>

<p><FONT FACE="Times New Roman, Times, Serif" SIZE=3><b><i>We are a party to numerous legal proceedings, some of which, if determined unfavorably to us, could result in significant monetary
damages.</i></b></font></p>

<P><FONT FACE="Times New Roman, Times, Serif" size=3>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We are a party to several
legal proceedings, which are described more fully in this prospectus under
&#147;Legal Proceedings.&#148; Adverse outcomes in some or all of the pending
cases could result in substantial damages against us or harm our business. </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" size=3>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We own a 50% interest in
the ROVA Project, which is located in Halifax County, North Carolina. Halifax
County asserts that the ROVA Project owes $8.3 million in back taxes, penalties
and interest. If the assessment is upheld, in addition to the amounts assessed,
the ROVA Project&#146;s future taxes would increase approximately $600,000 per
year. </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" size=3>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We acquired the Rosebud and
Jewett Mines and other assets from Entech, Inc., a subsidiary of the Montana
Power Company, in April 2001. Under our agreement with Entech, the final
purchase price is subject to adjustment. In June 2001, Entech proposed
adjustments that would increase the purchase price by approximately $9 million.
In July 2001, we objected to Entech&#146;s adjustments and proposed our own
adjustments, which would result in a substantial decrease in the purchase price.
In June 2003, Entech and Touch America Holdings, Inc., the successor to the
Montana Power Company, filed bankruptcy petitions. In March 2004, we received
notice that Entech and Touch America have commenced an adversary proceeding
against us in the bankruptcy court, seeking payment of approximately $9 million.
We have filed an answer, a motion to dismiss and a claim for indemnification.
The parties are briefing the issues, and we anticipate that our motion to dismiss
will be heard in the third quarter of 2004. At that time, the bankruptcy court will decide how to proceed with
the purchase price adjustment and indemnification claims.
</FONT></P>

<p><FONT FACE="Times New Roman, Times, Serif" SIZE=3><b><i>We may not be able to manage our expanding operations effectively, which could impair our profitability.</i></b></font></p>

<P><FONT FACE="Times New Roman, Times, Serif" size=3>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;At the end of 2000, we
owned one mine and employed 31 people. In the spring of 2001, we acquired the
Rosebud, Jewett, Beulah and Savage Mines from Entech and Knife River
Corporation, and at the end of 2003, we employed 918 people. This growth has
placed significant demands on our management as well as our resources and
systems. One of the principal challenges associated with our growth has been,
and we believe will continue to be, our need to attract and retain highly
skilled employees and managers. If we are unable to attract and retain the
personnel we need to manage our increasingly large and complex operations, our
ability to manage our operations effectively and to pursue our business strategy
could be compromised. </FONT></P>

<br>
<p align=center><FONT FACE="Times New Roman, Times, Serif" SIZE=3>5</font></p>
<page>
<br>

<p><FONT FACE="Times New Roman, Times, Serif" SIZE=3><b><i>Our growth and development strategy could require significant resources and may not be successful.</i></b></font></p>

<P><FONT FACE="Times New Roman, Times, Serif" size=3>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We regularly seek
opportunities to make additional strategic acquisitions, to expand existing
businesses, to develop new operations and to enter related businesses. We may
not be able to identify suitable acquisition candidates or development
opportunities, or complete any acquisition or project, on terms that are
favorable to us. Acquisitions, investments and other growth projects involve
risks that could harm our operating results, including difficulties in
integrating acquired and new operations, diversions of management resources,
debt incurred in financing such activities and unanticipated problems and
liabilities. We anticipate that we would finance acquisitions and development
activities by using our existing capital resources, borrowing under existing
bank credit facilities, issuing equity securities or incurring additional
indebtedness. We may not have sufficient available capital resources or access
to additional capital to execute potential acquisitions or take advantage of
development opportunities. </FONT></P>

<p><FONT FACE="Times New Roman, Times, Serif" SIZE=3><b><i>Our expenditures for postretirement medical and life insurance benefits could be materially higher than we have predicted if our
underlying assumptions prove to be incorrect.</i></b></font></p>

<P><FONT FACE="Times New Roman, Times, Serif" size=3>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We provide various
postretirement medical and life insurance benefits to current and former
employees and their dependents. We estimate the amounts of these obligations
based on assumptions described in &#147;Management&#146;s Discussion and
Analysis of Financial Condition and Results of Operations &#150; Critical
Accounting Policies &#150; Postretirement Benefits and Pension
Obligations.&#148; We accrue amounts for these obligations, which are unfunded,
and we pay as costs are incurred. If our assumptions change, the amount of our
obligations could increase, and if our assumptions are inaccurate, we could be
required to expend greater amounts than we anticipate. We estimate that our
gross obligation for postretirement medical and life insurance benefits was
$237.6 million at December 31, 2003. We had an accrued liability for
postretirement medical and life insurance benefits of $127.2 million at December
31, 2003, and we will accrue an additional $110.4 million over the next ten
years, as permitted by Statement of Financial Accounting Standards No. 106. We
regularly revise our estimates, and the amount of our accrued obligations is
subject to change. </FONT></P>

<p><FONT FACE="Times New Roman, Times, Serif" SIZE=3><b><i>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.</i></b></font></p>

<P><FONT FACE="Times New Roman, Times, Serif" size=3>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As of March 31, 2004, our
total indebtedness was approximately $110.6 million, which included Westmoreland
Mining&#146;s obligations under its term loan agreement, including the
&#147;add-on&#148; facility described in &#147;Management&#146;s Discussion and
Analysis of Financial Condition and Results of Operations &#150; Overview &#150;
Revenues and expenses; sources and uses of cash.&#148; Westmoreland Mining will
borrow an additional $14.6 million under the add-on facility in the fourth
quarter of 2004, and we may incur additional indebtedness in the future,
including indebtedness under our two existing revolving credit facilities. </FONT></P>

<br>
<p align=center><FONT FACE="Times New Roman, Times, Serif" SIZE=3>6</font></p>
<page>
<br>

<P><FONT FACE="Times New Roman, Times, Serif" size=3>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Westmoreland Mining&#146;s
term loan agreement restricts its ability to distribute cash to Westmoreland
Coal Company through 2008 and limits the types of transactions that Westmoreland
Mining and its subsidiaries can engage in with Westmoreland Coal Company and our
other subsidiaries. Westmoreland Mining executed the term loan agreement in 2001
and used the proceeds to finance its acquisition of the Rosebud, Jewett, Beulah
and Savage Mines. The final payment on this indebtedness, which we call
Westmoreland Mining&#146;s acquisition debt, is in the amount of $30 million and
is due on December 31, 2008. After payment of principal and interest, 25% of
Westmoreland Mining&#146;s surplus cash flow is dedicated to an account that is
expected to fund this final payment. Westmoreland Mining has pledged or
mortgaged substantially all of its assets and the assets of the Rosebud, Jewett,
Beulah and Savage Mines, and we have pledged all of our member interests in
Westmoreland Mining, as security for Westmoreland Mining&#146;s indebtedness. In
addition, Westmoreland Mining must comply with financial ratios and other
covenants specified in the agreements with its lenders. Failure to comply with
these ratios and covenants or to make regular payments of principal and interest
could result in an event of default. </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" size=3>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;A substantial portion of
our cash flow must be used to pay principal of and interest on our indebtedness
and is not available to fund working capital, capital expenditures or other
general corporate uses. In addition, the degree to which we are leveraged could
have other important consequences, including: </FONT></P>

<table width=650 cellpadding=0 cellspacing=0 border=0>
<tr>
<td width=10%>&nbsp;</td>
<td width=4% valign=top>&#149;</td>
<td width=86%>increasing our vulnerability to general adverse economic and industry conditions;</td>
</tr>
</table>
<br>
<table width=650 cellpadding=0 cellspacing=0 border=0>
<tr>
<td width=10%>&nbsp;</td>
<td width=4% valign=top>&#149;</td>
<td width=86%>limiting our ability to obtain additional financing to fund future working capital, capital expenditures or other general
              corporate requirements; and</td>
</tr>
</table>
<BR>
<table width=650 cellpadding=0 cellspacing=0 border=0>
<tr>
<td width=10%>&nbsp;</td>
<td width=4% valign=top>&#149;</td>
<td width=86%>limiting our flexibility in planning for, or reacting to, changes in our business and in the industry.</td>
</tr>
</table>


<P><FONT FACE="Times New Roman, Times, Serif" size=3>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;If our or Westmoreland
Mining&#146;s operating performance declines, or if we or Westmoreland Mining do
not have sufficient cash flows and capital resources to meet our debt service
obligations, we or Westmoreland Mining may be forced to sell assets, seek
additional capital or seek to restructure or refinance our indebtedness. If
Westmoreland Mining were to default on its debt service obligations, a note
holder may be able to foreclose on assets that are important to our business. </FONT></P>

<p><FONT FACE="Times New Roman, Times, Serif" SIZE=3><b><i>If the cost of obtaining new reclamation bonds and renewing existing reclamation bonds continues to increase, our profitability could
be reduced.</i></b></font></p>

<P><FONT FACE="Times New Roman, Times, Serif" size=3>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Federal and state laws
require that we provide bonds to secure our obligations to reclaim lands used
for mining. We must post a bond before we obtain a permit to mine any new area.
These bonds are typically renewable on a yearly basis and have become
increasingly expensive. Bonding companies are requiring that applicants
collateralize a portion of their obligations to the bonding company. In 2003, we
paid approximately $2.2 million in premiums for reclamation bonds and posted
approximately $1.5 million in collateral, in addition to the collateral that we
had previously posted, for those bonds. Any capital that we provide to
collateralize our obligations to our bonding companies is not available to
support our other business activities. If the cost of our reclamation bonds
continues to increase, our profitability could be reduced. </FONT></P>

<br>
<p align=center><FONT FACE="Times New Roman, Times, Serif" SIZE=3>7</font></p>
<page>
<br>

<p><FONT FACE="Times New Roman, Times, Serif" SIZE=3><b><I>Our financial position could be adversely affected if we fail to maintain our Coal Act bonds.</I></b></font></p>

<P><FONT FACE="Times New Roman, Times, Serif" size=3>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Coal Act established
the 1992 UMWA Benefit Plan, or 1992 Plan. We are required to secure three years
of our obligations to that plan by posting a surety bond or a letter of credit
or collateralizing our obligations with cash. We presently secure these
obligations with two bonds, one in an amount of approximately $21.3 million and
one in an amount of approximately $5.0 million. In December 2003, the issuer of
our $21.3 million bond indicated a desire to exit the business of bonding Coal
Act obligations. In February 2004, this company renewed our Coal Act bond.
Although we believe that the issuer of this bond must continue to renew the bond
so long as we do not default on our obligations to the 1992 Plan, there can be
no assurance that the issuer of this bond will not attempt to cancel the bond.
If either of the companies that issue our Coal Act bonds were to cancel or fail
to renew our bonds, we may be required to post another bond or secure our
obligations with a letter of credit or cash. At this time, we are not aware of
any other company that would provide a surety bond to secure obligations under
the Coal Act. We do not believe that we could now obtain a letter of credit
without collateralizing that letter of credit in full with cash. Any capital
that we might provide to collateralize such a letter of credit or secure our
obligations under the Coal Act would not be available to support our other
business activities. </FONT></P>

<p><FONT FACE="Times New Roman, Times, Serif" SIZE=3><b><i>Our insurance costs may increase, which could increase our expenses and reduce our profitability.</i></b></font></p>

<P><FONT FACE="Times New Roman, Times, Serif" size=3>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our insurance costs
increased from July 2002 through June 2004, and we believe that insurance costs
have generally increased throughout the mining industry. We have been able to
address a portion of these costs by organizing Westmoreland Risk Management
Ltd., our insurance subsidiary, and retaining a portion of the risk associated
with our operations. However, Westmoreland Risk Management has limited capacity.
Our insurance costs may increase in the future, and any such increase would
increase our expenses and thereby reduce our profitability. </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" size=3><B><I>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.</I></B> </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" size=3>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Approximately one-third of
the coal tonnage that we will produce in 2004 will be sold under long-term
contracts to power plants that take delivery of our coal from common carrier
railroads. All of the Absaloka Mine&#146;s sales are delivered by rail and about
20% of the Rosebud Mine&#146;s and Beulah Mine&#146;s sales are delivered by
rail. Contracts covering 90% of those rail tons are scheduled to expire between
December 2006 and December 2008. As a general matter, plants that take coal by
rail can buy their coal from many different suppliers. We will face significant
competition, primarily from mines in the Southern Powder River Basin of Wyoming,
to renew our long-term contracts with our rail-served customers, and for
contracts with new rail-served customers. Many of our competitors are larger and
better capitalized than we are and have coal with a lower sulfur and ash content
than our coal. As a result, our competitors may be able to adopt more aggressive
pricing policies for their coal supply contracts than we can. If our existing
customers fail to renew their existing contracts with us on terms that are at
least equivalent to those in effect today, or if we are unable to replace our
existing contracts with contracts of equal size and profitability from new
customers, our revenues and profitability would be reduced. </FONT></P>

<br>
<p align=center><FONT FACE="Times New Roman, Times, Serif" SIZE=3>8</font></p>
<page>
<br>

<P><FONT FACE="Times New Roman, Times, Serif" size=3>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Approximately two-thirds of
the coal tonnage that we will sell in 2004 will be delivered under long-term
contracts to power plants located adjacent to our mines. We will face somewhat
less competition to renew these contracts upon their expiration, both because of
the transportation advantage we enjoy by being located adjacent to these
customers and because most of these customers would be required to invest
additional capital to obtain rail access to alternative sources of coal. Our
Jewett Mine is an exception because our customer has already built rail
unloading and associated facilities that are being used to take coal from the
Southern Powder River Basin as permitted under our contract with that customer. </FONT></P>

<p><FONT FACE="Times New Roman, Times, Serif" SIZE=3><b><i>Stricter environmental regulations, including the EPA's proposed rule relating to mercury, could reduce the demand for coal as a fuel
source and cause the volume of our sales to decline.</i></b></font></p>

<P><FONT FACE="Times New Roman, Times, Serif" size=3>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Coal contains impurities,
including sulfur, mercury, nitrogen and other elements or compounds, many of
which are released into the air when coal is burned. Stricter environmental
regulation of emissions from coal-fired electric generating plants could
increase the costs of using coal, thereby reducing demand for coal as a fuel
source generally, and could make coal a less attractive fuel alternative in the
planning and building of utility power plants in the future. The U.S.
Environmental Protection Agency, or EPA, has proposed regulations that could
increase the costs of operating coal-fired power plants, including the ROVA
Project. Because different types of coal vary in their chemical composition and
combustion characteristics, the proposed regulations could also alter the
relative competitiveness among coal suppliers and coal types. Depending on the
final forms of these rules, any or all of our mines could be disadvantaged, and
notwithstanding our coal supply contracts we could lose all or a portion of our
sales volumes and face increased pressure to reduce the price for our coal,
thereby reducing our revenues, our profitability and the value of our coal
reserves. </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" size=3>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On January 30, 2004, the
EPA issued the Proposed National Emission Standards for Hazardous Air
Pollutants, or Mercury Rule, which proposes to regulate emissions of mercury by
electric generating units, or EGUs. The EPA issued a Supplemental Proposal Rule on March 16, 2004. These proposals contain three alternative
methods for regulating emissions of mercury, including two alternatives that
would establish standards of performance and cap-and-trade programs, and one
alternative that would require EGUs to meet an emissions limit that is based on
the installation of controls known as &#147;maximum achievable control
technologies,&#148; or MACT. The MACT alternative would limit the amount of
mercury that could be emitted from lignite-burning EGUs to 9.2 pounds of mercury
for every trillion Btu those units produce, commencing as early as 2007. Mercury
emissions from the Limestone Station, which burns lignite produced by our Jewett
Mine, are higher than this level, and mercury emissions from the Coyote Station,
which burns lignite produced by our Beulah Mine, may be higher than this level.
According to the EPA, there are neither precombustion techniques nor proven
technologies that are currently commercially available for reducing mercury
emissions from lignite-burning EGUs to 9.2 pounds of mercury per trillion Btu
produced, and there is also currently no proven technology for accurately
measuring the mercury content in emissions. If the EPA were to adopt a version
of the Mercury Rule that limits emissions of mercury to 9.2 pounds for every
trillion Btu produced from lignite-burning plants, then sales from the Jewett
Mine or Beulah Mine could be significantly reduced, and if the EPA were to adopt
any version of the Mercury Rule, we could face increased pressure to reduce the
price for our lignite to help defray the cost of complying with the regulations.
 The EPA has announced that it expects to adopt some version of the Mercury Rule by March 15, 2005. </FONT></P>

<br>
<p align=center><FONT FACE="Times New Roman, Times, Serif" SIZE=3>9</font></p>
<page>
<br>

<P><FONT FACE="Times New Roman, Times, Serif" size=3>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We provide more information
about the technical aspects of the proposed Mercury Rule elsewhere in this
prospectus under the heading &#147;Business &#150; Governmental Regulation
&#150; Proposed Environmental Rules.&#148; </FONT></P>

<p><FONT FACE="Times New Roman, Times, Serif" SIZE=3><b><I>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.</i></b></font></p>

<P><FONT FACE="Times New Roman, Times, Serif" size=3>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;A variety of international
and domestic environmental initiatives are currently aimed at reducing emissions
of greenhouse gases, such as carbon dioxide, which is emitted when coal is
burned. If these initiatives were to be successful, the cost to our customers of
using coal could increase, or the use of coal could be restricted. This could
cause the demand for our coal to decrease or the price we receive for our coal
to fall, and the demand for coal generally might diminish. Restrictions on the
use of coal or increases in the cost of burning coal could cause us to lose
sales and revenues, cause our profitability to decline or reduce the value of
our coal reserves. </FONT></P>

<p><FONT FACE="Times New Roman, Times, Serif" SIZE=3><b><i>Demand for our coal could also be reduced by environmental regulations at the state level.</i></b></font></p>

<P><FONT FACE="Times New Roman, Times, Serif" size=3>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Environmental regulations
by the states in which our mines are located, or in which the generating plants
they supply operate, may negatively affect demand for coal in general or for our
coal in particular. For example, Texas has passed regulations requiring all
fossil fuel-fired generating facilities in the state to reduce nitrogen oxide
emissions beginning in May 2003. In January 2004, we entered into a supplemental
settlement agreement with Texas Genco pursuant to which the Limestone Station
must purchase a specified volume of lignite from the Jewett Mine. In order to
burn this lignite without violating the Texas nitrogen oxide regulations, the
Limestone Station is blending our lignite with coal, produced by others in the
Southern Powder River Basin, and using emissions credits. Considerations
involving the Texas nitrogen oxide regulations might affect the demand for
lignite from the Jewett Mine in the period after 2007, which is the last year
covered by the supplemental settlement agreement. Texas Genco might claim that
it is less expensive for the Limestone Station to comply with the Texas nitrogen
oxide regulations by switching to a blend that contains relatively more coal
from the Southern Powder River Basin and relatively less of our lignite. Other
states are evaluating various legislative and regulatory strategies for
improving air quality and reducing emissions from electric generating units.
Passage of other state-specific environmental laws could reduce the demand for
our coal. </FONT></P>

<br>
<p align=center><FONT FACE="Times New Roman, Times, Serif" SIZE=3>10</font></p>
<page>
<br>

<P><FONT FACE="Times New Roman, Times, Serif" size=3><B><I>We have significant
reclamation and mine closure obligations. If the assumptions underlying our
accruals are materially inaccurate, or if we are required to honor reclamation
obligations that have been assumed by our customers, we could be required to
expend greater amounts than we currently anticipate, which could affect our
profitability in future periods.</I></B> </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" size=3>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We are responsible under
federal and state regulations for the ultimate reclamation of the mines we
operate. In some cases, our customers have assumed these liabilities by contract
and have posted bonds or have funded escrows to secure their obligations. We
estimate our future liabilities for reclamation and other mine-closing costs
from time to time based on a variety of assumptions. If our assumptions are
incorrect, we could be required in future periods to spend more on reclamation
and mine-closing activities than we currently estimate, which could harm our
profitability. Likewise, if our customers default on the unfunded portion of
their contractual obligations to pay for reclamation, we could be forced to make
these expenditures ourselves and the cost of reclamation could exceed any amount
we might recover in litigation, which would also increase our costs and reduce
our profitability. </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" size=3>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We estimate that our gross
reclamation and mine-closing liabilities, which are based upon permit
requirements and our experience, were $307 million (with a present value of $123
million) at December 31, 2003. Of these liabilities, our customers have assumed
a gross aggregate of $184 million and have secured a portion of these
obligations by posting bonds in the amount of $50 million and funding
reclamation escrow accounts that currently hold approximately $54 million, in
each case at December&#160;31, 2003. We estimate that our gross obligation for
final reclamation that is not the contractual responsibility of others was $123
million at December 31, 2003, and that the present value of our net obligation
for final reclamation that is not the contractual responsibility of others was
$45.2 million at December 31, 2003. </FONT></P>

<p><FONT FACE="Times New Roman, Times, Serif" SIZE=3><b><i>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.</i></b></font></p>

<P><FONT FACE="Times New Roman, Times, Serif" size=3>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Scheduled and unscheduled
outages at the power plants that we supply could reduce our coal sales and
revenues, because any such plant would not use coal while it was undergoing
maintenance. We cannot anticipate if or when unscheduled outages may occur. </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" size=3>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our profitability could be
affected by unscheduled outages at the ROVA Project or if scheduled outages at
the ROVA Project last longer than we anticipate. For example, the ROVA I unit is
currently scheduled to be out of service for 30 days for major maintenance in
the fourth quarter of 2004. The ROVA Project&#146;s contract with Dominion
Virginia Power is structured so that our revenues will not be adversely affected
by a 30-day outage for major maintenance at ROVA I this year. However, if that
maintenance uncovers matters beyond those anticipated, the outage may be
prolonged beyond the 30-day period, which would reduce the ROVA Project&#146;s
profitability and our revenues. In addition, if the maintenance uncovers a
matter that must be remedied or repaired, the cost of those repairs would also
adversely affect the ROVA Project&#146;s profitability. </FONT></P>

<p><FONT FACE="Times New Roman, Times, Serif" SIZE=3><b><i>Increases in the cost of the fuel, electricity and materials we use to operate our mines could affect our profitability.</i></b></font></p>

<P><FONT FACE="Times New Roman, Times, Serif" size=3>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Under several of our
existing coal supply agreements, our mines bear the cost of the diesel fuel,
lubricants and other petroleum products, electricity, and other materials and
supplies necessary to operate their draglines and other mobile equipment. The
prices of many of these commodities have increased in the last year, and
continued escalation of these costs would hurt our profitability. </FONT></P>

<br>
<p align=center><FONT FACE="Times New Roman, Times, Serif" SIZE=3>11</font></p>
<page>
<br>

<p><FONT FACE="Times New Roman, Times, Serif" SIZE=3><b><i>If we experience unanticipated increases in the capital expenditures we expect to make over the next several years, our profitability
could suffer.</i></b></font></p>

<P><FONT FACE="Times New Roman, Times, Serif" size=3>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Over the next several
years, we anticipate making significant capital expenditures, principally at the
Rosebud and Jewett Mines, in order to add to and refurbish our machinery and
equipment and prepare new areas for mining. We also expect to begin implementing
a new enterprise resource planning system in late 2004, with full deployment
scheduled for 2005. The costs of any of these expenditures could exceed our
expectations, which could reduce our profitability and divert our capital
resources from other uses. </FONT></P>

<p><FONT FACE="Times New Roman, Times, Serif" SIZE=3><b><i>Our ability to operate effectively and achieve our strategic goals could be impaired if we lose key personnel.</i></b></font></p>

<P><FONT FACE="Times New Roman, Times, Serif" size=3>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our future success is
substantially dependent upon the continued service of our key senior management
personnel, particularly Christopher K. Seglem, our Chairman of the Board,
President and Chief Executive Officer. We do not have key-person life insurance
policies on Mr. Seglem or any other employees. The loss of the services any of
our executive officers or other key employees could make it more difficult for
us to pursue our business goals. </FONT></P>

<p><FONT FACE="Times New Roman, Times, Serif" SIZE=3><b><i>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 you may consider favorable, and the market price of our common
stock may be lower as a result.</i></b></font></p>

<P><FONT FACE="Times New Roman, Times, Serif" size=3>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Provisions in our
certificate of incorporation and bylaws and Delaware law could make it more
difficult for a third party to acquire us, even if doing so might be beneficial
to our stockholders. Provisions of our bylaws impose various procedural and
other requirements that could make it more difficult for stockholders to effect
some types of corporate actions. In addition, a change of control of our Company
may be delayed or deterred as a result of our stockholder rights plan, which was
initially adopted by our Board of Directors in early 1993 and amended and
restated in February 2003. Our ability to issue preferred stock in the future
may influence the willingness of an investor to seek to acquire our company.
These provisions could limit the price that some investors might be willing to
pay in the future for shares of our common stock and may have the effect of
delaying or preventing a change in control of Westmoreland. </FONT></P>

<H2 ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" size=3>Risks Relating
to the Rights Offering</FONT></H2>

<p><FONT FACE="Times New Roman, Times, Serif" SIZE=3><b><i>The subscription price determined for this offering is not an indication of our value or the value of our common stock.</i></b></font></p>

<P><FONT FACE="Times New Roman, Times, Serif" size=3>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The subscription price is
$___. The subscription price does not necessarily bear any relationship to the
results of our past operations, cash flows, net income, or financial condition;
the book value of our assets; or any other established criteria for value, nor
does the trading history of our common stock accurately predict its future
market performance. Because of the manner in which we have established the
subscription price, the trading price of the common stock may be below the
subscription price even at the closing of the rights offering. On ________,
2004, the last reported sales price for our common stock on the American Stock
Exchange was __________ per share. You should not consider the subscription
price an indication of our value or any assurance of future value. After the
date of this prospectus, our common stock may trade at prices above or below the
subscription price. </FONT></P>

<br>
<p align=center><FONT FACE="Times New Roman, Times, Serif" SIZE=3>12</font></p>
<page>
<br>

<P><FONT FACE="Times New Roman, Times, Serif" size=3><B><I>Once you exercise
your subscription rights, you may not revoke the exercise even if you no longer
desire to invest in us, and even if we decide to extend the expiration date of
the subscription period.</I></B> </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" size=3>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Once you exercise your
subscription rights, you may not revoke the exercise. Therefore, even if
circumstances arise after you have subscribed in the offering that eliminate
your interest in investing in our common stock, you will be required to purchase
the common stock for which you subscribed. </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" size=3>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We may, in our discretion,
extend the expiration date of the subscription period for up to an additional 30
days. During any potential extension of time, our common stock price may decline
below the subscription price and result in a loss on your investment upon the
exercise of rights to acquire shares of our common stock. If we extend the
expiration date after you send in your subscription forms and payment, you still
may not revoke or change your exercise of rights. </FONT></P>

<p><FONT FACE="Times New Roman, Times, Serif" SIZE=3><b><i>Because our management will have broad discretion over the use of the net proceeds from this offering, you may not agree with how we
use them, and we may not invest those proceeds successfully.</I></b></font></p>

<P><FONT FACE="Times New Roman, Times, Serif" size=3>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The net proceeds from this
offering have not been allocated for any particular purpose and our management
will have broad discretion as to the use of these proceeds. While we currently
anticipate that we will use the net proceeds of this offering to support our
growth and development strategy and for general corporate purposes, our
management may allocate the proceeds among these purposes as it determines is
necessary. In addition, market factors may require our management to allocate
portions of the proceeds for other purposes. Accordingly, you will be relying on
the judgment of our management with regard to the use of the proceeds from this
offering, and you will not have the opportunity, as part of your investment
decision, to assess whether the proceeds are being used appropriately. It is
possible that the proceeds will be invested in a way that does not yield a
favorable, or any, return for our Company. </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" size=3><B><I>If you exercise your
rights, you may lose money if there is a decline in the trading price of our
shares of common stock.</I></B> </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" size=3>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The trading price of our
common stock may be below the subscription price at the closing of this offering
or may in the future decline below the subscription price. In that event, you
will suffer a loss on your investment. </FONT></P>

<p><FONT FACE="Times New Roman, Times, Serif" SIZE=3><b><i>You may have to wait to resell the shares you purchase in the rights offering.</i></b></font></p>

<P><FONT FACE="Times New Roman, Times, Serif" size=3>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Until certificates are
delivered, you may not be able to sell the shares of common stock that you have
purchased in the rights offering. This means that you may have to wait until you
(or your broker or other nominee) have received a stock certificate. We will
endeavor to prepare and issue the appropriate certificates as soon as
practicable after the expiration of the offering. However, we cannot assure you
that the market price of the common stock purchased pursuant to the exercise of
rights will not decline below the subscription price before we are able to
deliver your certificates. For shares purchased pursuant to the
over-subscription privilege, delivery of certificates will occur as soon as
practicable after all prorations and adjustments contemplated by the terms of
the offering have been effected. </FONT></P>

<br>
<p align=center><FONT FACE="Times New Roman, Times, Serif" SIZE=3>13</font></p>
<page>
<br>

<p><FONT FACE="Times New Roman, Times, Serif" SIZE=3><b><i>You will not receive interest on subscription funds, including any funds ultimately returned to you.</i></b></font></p>

<P><FONT FACE="Times New Roman, Times, Serif" size=3>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;You will not earn any
interest on your subscription funds while they are being held by the
subscription agent pending the closing of this offering. In addition, if we
cancel the rights offering, or if you exercise your oversubscription privilege
and are not allocated all the shares for which you over-subscribed, neither we
nor the subscription agent will have any obligation with respect to the
subscription rights except to return, without interest, any subscription
payments to you. </FONT></P>

<br>
<p align=center><FONT FACE="Times New Roman, Times, Serif" SIZE=3>14</font></p>
<page>
<br>


<H1 ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" size=3>USE OF
PROCEEDS</FONT></H1>

<P><FONT FACE="Times New Roman, Times, Serif" size=3>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Assuming that stockholders
exercise subscription rights for all of the common stock that we are offering,
we will receive gross proceeds of approximately $________ million, and after
related offering expenses that we estimate will approximate $_____ million, the
net proceeds would be approximately $______ million. We intend to use the net
proceeds from this offering initially to support our growth and development
strategy and for general corporate purposes. We do not currently have any
agreement to acquire any business or assets (other than the capital expenditures
we anticipate making in the ordinary course of our business) or any letter of
intent with respect to any such acquisition. However, we have received a notice
from LG&amp;E containing the terms and conditions on which LG&amp;E proposes to
sell us its interest in the ROVA Project pursuant to our right of first
purchase, and we are discussing the terms and conditions of such an acquisition
with LG&amp;E. </FONT></P>

<br>
<p align=center><FONT FACE="Times New Roman, Times, Serif" SIZE=3>15</font></p>
<page>
<br>


<H1 ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" size=3>PRICE RANGE
OF COMMON STOCK,<br>DIVIDENDS
AND RELATED STOCKHOLDER MATTERS</FONT></H1>

<P><FONT FACE="Times New Roman, Times, Serif" size=3>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our common stock is listed
on the American Stock Exchange under the symbol &#147;WLB.&#148; The following
table sets forth the high and low closing sales prices per share of our common
stock for the periods indicated. </FONT></P>

<table align=center width=650 cellspacing=0 cellpadding=0 border=0>
<tr>
<td width=10%>&nbsp;</td>
<td width=60%>&nbsp;</td>
<td width=5%>&nbsp;</td>
<td width=6% align=right><FONT FACE="Times New Roman, Times, Serif" SIZE=3>HIGH</font></td>
<td width=8%>&nbsp;</td>
<td width=5%>&nbsp;</td>
<td width=6% align=right><FONT FACE="Times New Roman, Times, Serif" SIZE=3>LOW</font></td>
</tr>
<tr>
<td colspan=2><FONT FACE="Times New Roman, Times, Serif" SIZE=3>Year Ended December 31, 2002</font></td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr>
<td>&nbsp;</td>
<td><FONT FACE="Times New Roman, Times, Serif" SIZE=3>First Quarter</font></td>
<td><FONT FACE="Times New Roman, Times, Serif" SIZE=3>$</font></td>
<td align=right><FONT FACE="Times New Roman, Times, Serif" SIZE=3>15.49</font></td>
<td>&nbsp;</td>
<td><FONT FACE="Times New Roman, Times, Serif" SIZE=3>$</font></td>
<td align=right><FONT FACE="Times New Roman, Times, Serif" SIZE=3>10.80</font></td>
</tr>
<tr>
<td>&nbsp;</td>
<td><FONT FACE="Times New Roman, Times, Serif" SIZE=3>Second Quarter</font></td>
<td><FONT FACE="Times New Roman, Times, Serif" SIZE=3></font></td>
<td align=right><FONT FACE="Times New Roman, Times, Serif" SIZE=3>16.44</font></td>
<td>&nbsp;</td>
<td><FONT FACE="Times New Roman, Times, Serif" SIZE=3></font></td>
<td align=right><FONT FACE="Times New Roman, Times, Serif" SIZE=3>12.25</font></td>
</tr>
<tr>
<td>&nbsp;</td>
<td><FONT FACE="Times New Roman, Times, Serif" SIZE=3>Third Quarter</font></td>
<td><FONT FACE="Times New Roman, Times, Serif" SIZE=3></font></td>
<td align=right><FONT FACE="Times New Roman, Times, Serif" SIZE=3>13.55</font></td>
<td>&nbsp;</td>
<td><FONT FACE="Times New Roman, Times, Serif" SIZE=3></font></td>
<td align=right><FONT FACE="Times New Roman, Times, Serif" SIZE=3>8.30</font></td>
</tr>
<tr>
<td>&nbsp;</td>
<td><FONT FACE="Times New Roman, Times, Serif" SIZE=3>Fourth Quarter</font></td>
<td><FONT FACE="Times New Roman, Times, Serif" SIZE=3></font></td>
<td align=right><FONT FACE="Times New Roman, Times, Serif" SIZE=3>12.85</font></td>
<td>&nbsp;</td>
<td><FONT FACE="Times New Roman, Times, Serif" SIZE=3></font></td>
<td align=right><FONT FACE="Times New Roman, Times, Serif" SIZE=3>10.00</font></td>
</tr>

<tr>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr>
<td colspan=2><FONT FACE="Times New Roman, Times, Serif" SIZE=3>Year Ended December 31, 2003</font></td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr>
<td>&nbsp;</td>
<td><FONT FACE="Times New Roman, Times, Serif" SIZE=3>First Quarter</font></td>
<td><FONT FACE="Times New Roman, Times, Serif" SIZE=3>$</font></td>
<td align=right><FONT FACE="Times New Roman, Times, Serif" SIZE=3>13.70</font></td>
<td>&nbsp;</td>
<td><FONT FACE="Times New Roman, Times, Serif" SIZE=3>$</font></td>
<td align=right><FONT FACE="Times New Roman, Times, Serif" SIZE=3>10.00</font></td>
</tr>
<tr>
<td>&nbsp;</td>
<td><FONT FACE="Times New Roman, Times, Serif" SIZE=3>Second Quarter</font></td>
<td><FONT FACE="Times New Roman, Times, Serif" SIZE=3></font></td>
<td align=right><FONT FACE="Times New Roman, Times, Serif" SIZE=3>19.53</font></td>
<td>&nbsp;</td>
<td><FONT FACE="Times New Roman, Times, Serif" SIZE=3></font></td>
<td align=right><FONT FACE="Times New Roman, Times, Serif" SIZE=3>13.41</font></td>
</tr>
<tr>
<td>&nbsp;</td>
<td><FONT FACE="Times New Roman, Times, Serif" SIZE=3>Third Quarter</font></td>
<td><FONT FACE="Times New Roman, Times, Serif" SIZE=3></font></td>
<td align=right><FONT FACE="Times New Roman, Times, Serif" SIZE=3>18.19</font></td>
<td>&nbsp;</td>
<td><FONT FACE="Times New Roman, Times, Serif" SIZE=3></font></td>
<td align=right><FONT FACE="Times New Roman, Times, Serif" SIZE=3>13.81</font></td>
</tr>
<tr>
<td>&nbsp;</td>
<td><FONT FACE="Times New Roman, Times, Serif" SIZE=3>Fourth Quarter</font></td>
<td><FONT FACE="Times New Roman, Times, Serif" SIZE=3></font></td>
<td align=right><FONT FACE="Times New Roman, Times, Serif" SIZE=3>18.25</font></td>
<td>&nbsp;</td>
<td><FONT FACE="Times New Roman, Times, Serif" SIZE=3></font></td>
<td align=right><FONT FACE="Times New Roman, Times, Serif" SIZE=3>13.29</font></td>
</tr>

<tr>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr>
<td colspan=2><FONT FACE="Times New Roman, Times, Serif" SIZE=3>Year Ending December 31, 2004</font></td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr>
<td>&nbsp;</td>
<td><FONT FACE="Times New Roman, Times, Serif" SIZE=3>First Quarter</font></td>
<td><FONT FACE="Times New Roman, Times, Serif" SIZE=3>$</font></td>
<td align=right><FONT FACE="Times New Roman, Times, Serif" SIZE=3>19.01</font></td>
<td>&nbsp;</td>
<td><FONT FACE="Times New Roman, Times, Serif" SIZE=3>$</font></td>
<td align=right><FONT FACE="Times New Roman, Times, Serif" SIZE=3>16.04</font></td>
</tr>
<tr>
<td>&nbsp;</td>
<td><FONT FACE="Times New Roman, Times, Serif" SIZE=3>Second Quarter</font></td>
<td><FONT FACE="Times New Roman, Times, Serif" SIZE=3></font></td>
<td align=right><FONT FACE="Times New Roman, Times, Serif" SIZE=3>21.61</font></td>
<td>&nbsp;</td>
<td><FONT FACE="Times New Roman, Times, Serif" SIZE=3></font></td>
<td align=right><FONT FACE="Times New Roman, Times, Serif" SIZE=3>16.70</font></td>
</tr>
<tr>
<td>&nbsp;</td>
<td><FONT FACE="Times New Roman, Times, Serif" SIZE=3>Third Quarter (through ________, 2004)</font></td>
<td><FONT FACE="Times New Roman, Times, Serif" SIZE=3></font></td>
<td align=right><FONT FACE="Times New Roman, Times, Serif" SIZE=3>_______</font></td>
<td>&nbsp;</td>
<td><FONT FACE="Times New Roman, Times, Serif" SIZE=3></font></td>
<td align=right><FONT FACE="Times New Roman, Times, Serif" SIZE=3>_______</font></td>
</tr>
</table>


<p><FONT FACE="Times New Roman, Times, Serif" SIZE=3>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As of July 20, 2004, there were approximately 1,500 holders of record of our common stock.</font></p>

<P><FONT FACE="Times New Roman, Times, Serif" size=3>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We issued our Series A
Preferred Stock in July 1992. Each depositary share represents one-quarter of a
share of Series A Preferred Stock. We paid quarterly dividends on the depositary
shares until the third quarter of 1995, when we suspended dividend payments
pursuant to the requirements of Delaware law described below. We resumed
dividends to preferred stockholders on October 1, 2002. The quarterly dividends
that are accumulated through and including April 1, 2004 amount to $15.6 million
in the aggregate ($75.94 per preferred share or $18.99 per depositary share). We
cannot pay dividends on our common stock until we pay the accumulated preferred
dividends in full. </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" size=3>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;There are statutory
restrictions limiting the payment of preferred stock dividends under Delaware
law, the state in which we are incorporated. Under Delaware law, we are
permitted to pay preferred stock dividends only: (1) out of surplus, surplus
being the amount of stockholders&#146; equity in excess of the par value of our
two classes of stock; or (2) in the event there is no surplus, out of net
profits for the fiscal year in which a preferred stock dividend is declared
(and/or out of net profits from the preceding fiscal year), but only to the
extent that stockholders&#146; equity exceeds the par value of the preferred
stock (which par value was $205,000 at December 31, 2003). We had
stockholders&#146; equity of $33.3 million and the par value of all outstanding
shares of preferred stock and shares of common stock aggregated $20.1 million at
December 31, 2003. </FONT></P>

<br>
<p align=center><FONT FACE="Times New Roman, Times, Serif" SIZE=3>16</font></p>
<page>
<br>

<H1 ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" size=3>CAPITALIZATION</FONT></H1>

<P><FONT FACE="Times New Roman, Times, Serif" size=3>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The following table sets
forth our summary capitalization as of March 31, 2004, and our summary
capitalization as of March 31, 2004 as adjusted to reflect the sale of ______
shares of our common stock (the maximum number of shares offered) in this rights
offering at an offering price of $_________ per share and the receipt of the
estimated net proceeds therefrom, after deducting estimated offering expenses of
$___________. There is no minimum number of shares that we must sell in the
offering in order to close, and our net proceeds from this offering could be
less than $ ___ million. </FONT></P>

<table width=650 cellspacing=0 cellpadding=0 border=0>
<tr>
<td><FONT FACE="Times New Roman, Times, Serif" SIZE=3>&nbsp;</font></td>
<td colspan=5 align=center><FONT FACE="Times New Roman, Times, Serif" SIZE=3><b>March 31, 2004</b><br>(in thousands)</font></td>
</tr>
<tr>
<td width=62%></td>
<td width=5%></td>
<td width=10% align=right></td>
<td width=8%></td>
<td width=5%></td>
<td width=10% align=right></td>
</tr>
<tr>
<td>&nbsp;</td>
<td> &nbsp;</td>
<td align=right>Actual</td>
<td> &nbsp;</td>
<td align=right colspan=2>As Adjusted</td>
</tr>
<tr>
<td>&nbsp;</td>
<td><hr noshade></td>
<td><hr noshade></td>
<td><hr noshade></td>
<td><hr noshade></td>
<td><hr noshade></td>
</tr>
<tr>
<td><FONT FACE="Times New Roman, Times, Serif" SIZE=3>Long-term debt, less current maturities</font></td>
<td><FONT FACE="Times New Roman, Times, Serif" SIZE=3>$</font></td>
<td align=right><FONT FACE="Times New Roman, Times, Serif" SIZE=3>99,043</font></td>
<td>&nbsp;</td>
<td><FONT FACE="Times New Roman, Times, Serif" SIZE=3>$</font></td>
<td align=right><FONT FACE="Times New Roman, Times, Serif" SIZE=3>99,043</font></td>
</tr>
<tr>
<td>&nbsp;</td>
<td><hr noshade></td>
<td><hr noshade></td>
<td><hr noshade></td>
<td><hr noshade></td>
<td><hr noshade></td>
</tr>
<tr>
<td><FONT FACE="Times New Roman, Times, Serif" SIZE=3>Stockholders' Equity:</font></td>
<td><FONT FACE="Times New Roman, Times, Serif" SIZE=3></font></td>
<td><FONT FACE="Times New Roman, Times, Serif" SIZE=3></font></td>
<td>&nbsp;</td>
<td><FONT FACE="Times New Roman, Times, Serif" SIZE=3></font></td>
<td><FONT FACE="Times New Roman, Times, Serif" SIZE=3></font></td>
</tr>
<tr>
<td><FONT FACE="Times New Roman, Times, Serif" SIZE=3>&nbsp;&nbsp;&nbsp;Preferred Stock of $1.00 par value, authorized<br>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;5,000,000 shares, issued and outstanding 205,083 shares</font></td>
<td><FONT FACE="Times New Roman, Times, Serif" SIZE=3></font></td>
<td align=right valign=bottom><FONT FACE="Times New Roman, Times, Serif" SIZE=3>205</font></td>
<td>&nbsp;</td>
<td><FONT FACE="Times New Roman, Times, Serif" SIZE=3></font></td>
<td align=right valign=bottom><FONT FACE="Times New Roman, Times, Serif" SIZE=3>205</font></td>
</tr>
<tr>
<td><FONT FACE="Times New Roman, Times, Serif" SIZE=3>&nbsp;&nbsp;&nbsp;Common Stock, $2.50 par value, authorized<br>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;20,000,000 shares, issued and outstanding<br>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;8,023,384 shares (actual) and ______ shares<br>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(as adjusted)</font></td>
<td><FONT FACE="Times New Roman, Times, Serif" SIZE=3></font></td>
<td align=right valign=bottom><FONT FACE="Times New Roman, Times, Serif" SIZE=3>20,059</font></td>
<td>&nbsp;</td>
<td><FONT FACE="Times New Roman, Times, Serif" SIZE=3></font></td>
<td align=right valign=bottom><FONT FACE="Times New Roman, Times, Serif" SIZE=3>_______</font></td>
</tr>


<tr>
<td><FONT FACE="Times New Roman, Times, Serif" SIZE=3>&nbsp;&nbsp;&nbsp;Other paid-in capital</font></td>
<td><FONT FACE="Times New Roman, Times, Serif" SIZE=3></font></td>
<td align=right><FONT FACE="Times New Roman, Times, Serif" SIZE=3>73,420</font></td>
<td>&nbsp;</td>
<td><FONT FACE="Times New Roman, Times, Serif" SIZE=3></font></td>
<td align=right><FONT FACE="Times New Roman, Times, Serif" SIZE=3>_______</font></td>
</tr>

<tr>
<td><FONT FACE="Times New Roman, Times, Serif" SIZE=3>&nbsp;&nbsp;&nbsp;Accumulated other comprehensive loss</font></td>
<td><FONT FACE="Times New Roman, Times, Serif" SIZE=3></font></td>
<td align=right><FONT FACE="Times New Roman, Times, Serif" SIZE=3>(4,946)</font></td>
<td>&nbsp;</td>
<td><FONT FACE="Times New Roman, Times, Serif" SIZE=3></font></td>
<td align=right><FONT FACE="Times New Roman, Times, Serif" SIZE=3>(4,946)</font></td>
</tr>

<tr>
<td><FONT FACE="Times New Roman, Times, Serif" SIZE=3>&nbsp;&nbsp;&nbsp;Accumulated deficit</font></td>
<td><FONT FACE="Times New Roman, Times, Serif" SIZE=3></font></td>
<td align=right><FONT FACE="Times New Roman, Times, Serif" SIZE=3>(52,333)</font></td>
<td>&nbsp;</td>
<td><FONT FACE="Times New Roman, Times, Serif" SIZE=3></font></td>
<td align=right><FONT FACE="Times New Roman, Times, Serif" SIZE=3>(52,333)</font></td>
</tr>
<tr>
<td>&nbsp;</td>
<td><hr noshade></td>
<td><hr noshade></td>
<td><hr noshade></td>
<td><hr noshade></td>
<td><hr noshade></td>
</tr>
<tr>
<td><FONT FACE="Times New Roman, Times, Serif" SIZE=3>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Total stockholders' equity</font></td>
<td><FONT FACE="Times New Roman, Times, Serif" SIZE=3></font></td>
<td align=right><FONT FACE="Times New Roman, Times, Serif" SIZE=3>36,405</font></td>
<td>&nbsp;</td>
<td><FONT FACE="Times New Roman, Times, Serif" SIZE=3></font></td>
<td align=right><FONT FACE="Times New Roman, Times, Serif" SIZE=3>_______</font></td>
</tr>

<tr>
<td>&nbsp;</td>
<td><hr noshade></td>
<td><hr noshade></td>
<td><hr noshade></td>
<td><hr noshade></td>
<td><hr noshade></td>
</tr>

<tr>
<td><FONT FACE="Times New Roman, Times, Serif" SIZE=3>Total capitalization</font></td>
<td><FONT FACE="Times New Roman, Times, Serif" SIZE=3>$</font></td>
<td align=right><FONT FACE="Times New Roman, Times, Serif" SIZE=3>135,448</font></td>
<td>&nbsp;</td>
<td><FONT FACE="Times New Roman, Times, Serif" SIZE=3>$</font></td>
<td align=right><FONT FACE="Times New Roman, Times, Serif" SIZE=3>_______</font></td>
</tr>


<tr>
<td>&nbsp;</td>
<td><hr noshade size=4></td>
<td><hr noshade size=4></td>
<td><hr noshade size=4></td>
<td><hr noshade size=4></td>
<td><hr noshade size=4></td>
</tr>
</table>


<br>
<p align=center><FONT FACE="Times New Roman, Times, Serif" SIZE=3>17</font></p>
<page>
<br>



<H1 ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" size=3>SELECTED
CONSOLIDATED FINANCIAL DATA</FONT></H1>

<P><FONT FACE="Times New Roman, Times, Serif" size=3>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The following selected consolidated
financial data should be read together with &#147;Management&#146;s Discussion
and Analysis of Financial Condition and Results of Operations,&#148; the
consolidated financial statements and notes thereto, and other financial
information included elsewhere in this prospectus. Our consolidated statements
of operations information set forth below for the years ended December 31, 2003,
2002 and 2001 and the consolidated balance sheet information as of December 31,
2003 and 2002 have been derived from our audited consolidated financial
statements which are included elsewhere in this prospectus. The consolidated
balance sheet information as of March 31, 2004 and the consolidated statements
of operations information set forth below for the three months ended March 31,
2004 and 2003 have been derived from our unaudited financial statements included
elsewhere in this prospectus, which we believe have been prepared on the same
basis as the audited financial statements and include all adjustments,
consisting of normal recurring adjustments, which we consider necessary for a
fair presentation of the selected financial data shown. </FONT></P>

<H2 ALIGN=LEFT></H2>

<table border=0 cellPadding=0 cellSpacing=0 width=650>
         <tr>
                  <td align=left valign=bottom><b><FONT FACE="Times New Roman, Times, Serif" size=1>Westmoreland
Coal Company and Subsidiaries<br>Five-Year Review</FONT></b></td>
                  <td valign=bottom align=center colspan=10><b><FONT FACE="Times New Roman, Times, Serif" size=1>Year ended December 31,</font></b></td>
                  <td align=left><b></b></td>
                  <td align=center colspan=4 valign=bottom><b><FONT FACE="Times New Roman, Times, Serif" size=1>Three Months Ended<br>March 31,</font></b></td>
         </tr>
         <tr>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
         </tr>
         <tr>
                  <td width=34% align=left></td>
                  <td width=2% align=right><b></b></td>
                  <td width=7% align=center valign=bottom><b><FONT FACE="Times New Roman, Times, Serif" size=1>2003</font></b></td>
                  <td width=2% align=right></td>
                  <td width=7% align=center valign=bottom><b><FONT FACE="Times New Roman, Times, Serif" size=1>2002</font></b></td>
                  <td width=2% align=right><b></b></td>
                  <td width=7% align=center valign=bottom><b><FONT FACE="Times New Roman, Times, Serif" size=1>2001</font></b><SUP><FONT FACE="Times New Roman, Times, Serif" size=1>(1)</font></SUP></td>
                  <td width=2% align=right><b></b></td>
                  <td width=7% align=center valign=bottom><b><FONT FACE="Times New Roman, Times, Serif" size=1>2000</font></b></td>
                  <td width=2% align=right><b></b></td>
                  <td width=7% align=center valign=bottom><b><FONT FACE="Times New Roman, Times, Serif" size=1>1999</font></b></td>
                  <td width=3% align=right><b></b></td>
                  <td width=2% align=right><b></b></td>
                  <td width=7% align=center valign=bottom><b><FONT FACE="Times New Roman, Times, Serif" size=1>2004</font></b></td>
                  <td width=2% align=right><b></b></td>
                  <td width=7% align=center valign=bottom><b><FONT FACE="Times New Roman, Times, Serif" size=1>2003</font></b></td>
         </tr>
         <tr>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
         </tr>
         <tr>
                  <td align=left><b></b></td>
                  <td align=center colspan=10><b><FONT FACE="Times New Roman, Times, Serif" size=1>(in thousands, except per share data)</font></b></td>
                  <td align=left><b></b></td>
                  <td align=center colspan=4><b><FONT FACE="Times New Roman, Times, Serif" size=1>(unaudited)</font></b></td>
         </tr>
         <tr>
                  <td align=left><b><FONT FACE="Times New Roman, Times, Serif" size=1>Consolidated Statements of</font></b></td>
                  <td align=center><b></b></td>
                  <td align=right></td>
                  <td align=center></td>
                  <td align=right></td>
                  <td align=center></td>
                  <td align=right></td>
                  <td align=center></td>
                  <td align=right></td>
                  <td align=center></td>
                  <td align=center></td>
                  <td align=right></td>
                  <td align=center></td>
                  <td align=right></td>
                  <td align=center></td>
                  <td align=right></td>
         </tr>
         <tr>
                  <td align=left><b><FONT FACE="Times New Roman, Times, Serif" size=1>&nbsp;&nbsp;Operations Information</font></b></td>
                  <td align=center><b></b></td>
                  <td align=right></td>
                  <td align=center></td>
                  <td align=right></td>
                  <td align=center></td>
                  <td align=right></td>
                  <td align=center></td>
                  <td align=right></td>
                  <td align=center></td>
                  <td align=center></td>
                  <td align=right></td>
                  <td align=center></td>
                  <td align=right></td>
                  <td align=center></td>
                  <td align=right></td>
         </tr>
         <tr>
                  <td align=left><FONT FACE="Times New Roman, Times, Serif" size=1>Revenue &#150; Coal</font></td>
                  <td align=right> <FONT FACE="Times New Roman, Times, Serif" size=1>$</font> </td>
                  <td align=right>         <FONT FACE="Times New Roman, Times, Serif" size=1>294,986</font></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=1>$</font></td>
                  <td align=right>       <FONT FACE="Times New Roman, Times, Serif" size=1>301,235</font> </td>
                  <td align=right> <FONT FACE="Times New Roman, Times, Serif" size=1>$</font> </td>
                  <td align=right>       <FONT FACE="Times New Roman, Times, Serif" size=1>231,048</font> </td>
                  <td align=right> <FONT FACE="Times New Roman, Times, Serif" size=1>$</font> </td>
                  <td align=right>       <FONT FACE="Times New Roman, Times, Serif" size=1>35,137</font> </td>
                  <td align=right> <FONT FACE="Times New Roman, Times, Serif" size=1>$</font> </td>
                  <td align=right>         <FONT FACE="Times New Roman, Times, Serif" size=1>38,539</font> </td>
                  <td align=right>       <FONT FACE="Times New Roman, Times, Serif" size=1></font> </td>
                  <td align=right> <FONT FACE="Times New Roman, Times, Serif" size=1>$</font> </td>
                  <td align=right>       <FONT FACE="Times New Roman, Times, Serif" size=1>77,132</font> </td>
                  <td align=right> <FONT FACE="Times New Roman, Times, Serif" size=1>$</font> </td>
                  <td align=right>         <FONT FACE="Times New Roman, Times, Serif" size=1>74,513</font> </td>
         </tr>
         <tr>
                  <td align=left>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
&nbsp;&#150;<FONT FACE="Times New Roman, Times, Serif" size=1> Independent power and other</font></td>
                  <td align=center></td>
                  <td align=right>         <FONT FACE="Times New Roman, Times, Serif" size=1>15,824</font> </td>
                  <td align=center></td>
                  <td align=right>         <FONT FACE="Times New Roman, Times, Serif" size=1>14,506</font> </td>
                  <td align=center></td>
                  <td align=right>       <FONT FACE="Times New Roman, Times, Serif" size=1>15,871</font> </td>
                  <td align=center></td>
                  <td align=right>       <FONT FACE="Times New Roman, Times, Serif" size=1>32,260</font> </td>
                  <td align=center></td>
                  <td align=right>         <FONT FACE="Times New Roman, Times, Serif" size=1>34,492</font> </td>
                  <td align=center></td>
                  <td align=center></td>
                  <td align=right>       <FONT FACE="Times New Roman, Times, Serif" size=1>5,405</font> </td>
                  <td align=center></td>
                  <td align=right>         <FONT FACE="Times New Roman, Times, Serif" size=1>3,771</font> </td>
         </tr>
         <tr>
                  <td align=left><FONT FACE="Times New Roman, Times, Serif" size=1>Total revenues</font></td>
                  <td align=center></td>
                  <td align=right>         <FONT FACE="Times New Roman, Times, Serif" size=1>310,810</font> </td>
                  <td align=center></td>
                  <td align=right>       <FONT FACE="Times New Roman, Times, Serif" size=1>315,741</font> </td>
                  <td align=center></td>
                  <td align=right>       <FONT FACE="Times New Roman, Times, Serif" size=1>246,919</font> </td>
                  <td align=center></td>
                  <td align=right>       <FONT FACE="Times New Roman, Times, Serif" size=1>67,397</font> </td>
                  <td align=center></td>
                  <td align=right>       <FONT FACE="Times New Roman, Times, Serif" size=1>73,031</font> </td>
                  <td align=center></td>
                  <td align=center></td>
                  <td align=right>       <FONT FACE="Times New Roman, Times, Serif" size=1>82,537</font> </td>
                  <td align=center></td>
                  <td align=right>       <FONT FACE="Times New Roman, Times, Serif" size=1>78,284</font> </td>
         </tr>
         <tr>
                  <td align=left>&nbsp;</td>
                  <td align=center>&nbsp;</td>
                  <td align=right>&nbsp;</td>
                  <td align=center>&nbsp;</td>
                  <td align=right>&nbsp;</td>
                  <td align=center>&nbsp;</td>
                  <td align=right>&nbsp;</td>
                  <td align=center>&nbsp;</td>
                  <td align=right>&nbsp;</td>
                  <td align=center>&nbsp;</td>
                  <td align=right>&nbsp;</td>
         </tr>
         <tr>
                  <td align=left><FONT FACE="Times New Roman, Times, Serif" size=1>Cost and expenses</font> </td>
                  <td align=center></td>
                  <td align=right>         <FONT FACE="Times New Roman, Times, Serif" size=1>303,695</font> </td>
                  <td align=center></td>
                  <td align=right>       <FONT FACE="Times New Roman, Times, Serif" size=1>296,908</font> </td>
                  <td align=center></td>
                  <td align=right>       <FONT FACE="Times New Roman, Times, Serif" size=1>233,307</font> </td>
                  <td align=center></td>
                  <td align=right>       <FONT FACE="Times New Roman, Times, Serif" size=1>60,170</font> </td>
                  <td align=center></td>
                  <td align=right>         <FONT FACE="Times New Roman, Times, Serif" size=1>62,849</font> </td>
                  <td align=right>       <FONT FACE="Times New Roman, Times, Serif" size=1></font> </td>
                  <td align=center></td>
                  <td align=right>       <FONT FACE="Times New Roman, Times, Serif" size=1>78,933</font> </td>
                  <td align=center></td>
                  <td align=right>         <FONT FACE="Times New Roman, Times, Serif" size=1>75,775</font> </td>
         </tr>
         <tr>
                  <td align=left><FONT FACE="Times New Roman, Times, Serif" size=1>Impairment charges</font></td>
                  <td align=center></td>
                  <td align=right> <FONT FACE="Times New Roman, Times, Serif" size=1>-</font> </td>
                  <td align=center></td>
                  <td align=right> <FONT FACE="Times New Roman, Times, Serif" size=1>-</font> </td>
                  <td align=center></td>
                  <td align=right> <FONT FACE="Times New Roman, Times, Serif" size=1>-</font> </td>
                  <td align=center></td>
                  <td align=right> <FONT FACE="Times New Roman, Times, Serif" size=1>4,632</font> </td>
                  <td align=center></td>
                  <td align=right>            <FONT FACE="Times New Roman, Times, Serif" size=1>-</font> </td>
                  <td align=right> <FONT FACE="Times New Roman, Times, Serif" size=1></font> </td>
                  <td align=center></td>
                  <td align=right> <FONT FACE="Times New Roman, Times, Serif" size=1>-</font> </td>
                  <td align=center></td>
                  <td align=right>            <FONT FACE="Times New Roman, Times, Serif" size=1>-</font> </td>
         </tr>
          <tr>
                  <td align=left><FONT FACE="Times New Roman, Times, Serif" size=1>Operating income from continuing operations</font></td>
                  <td align=center></td>
                  <td align=right valign=bottom>         <FONT FACE="Times New Roman, Times, Serif" size=1>7,115</font> </td>
                  <td align=center></td>
                  <td align=right valign=bottom>         <FONT FACE="Times New Roman, Times, Serif" size=1>18,833</font> </td>
                  <td align=center></td>
                  <td align=right valign=bottom>           <FONT FACE="Times New Roman, Times, Serif" size=1>13,612</font> </td>
                  <td align=center></td>
                  <td align=right valign=bottom>         <FONT FACE="Times New Roman, Times, Serif" size=1>2,595</font></td>
                  <td align=center></td>
                  <td align=right valign=bottom>         <FONT FACE="Times New Roman, Times, Serif" size=1>10,182</font> </td>
                  <td align=right valign=bottom>           <FONT FACE="Times New Roman, Times, Serif" size=1></font> </td>
                  <td align=center></td>
                  <td align=right valign=bottom>         <FONT FACE="Times New Roman, Times, Serif" size=1>3,604</font></td>
                  <td align=center></td>
                  <td align=right valign=bottom>         <FONT FACE="Times New Roman, Times, Serif" size=1>2,509</font> </td>
         </tr>
         <tr>
                  <td align=left>&nbsp;</td>
                  <td align=center>&nbsp;</td>
                  <td align=right>&nbsp;</td>
                  <td align=center>&nbsp;</td>
                  <td align=right>&nbsp;</td>
                  <td align=center>&nbsp;</td>
                  <td align=right>&nbsp;</td>
                  <td align=center>&nbsp;</td>
                  <td align=right>&nbsp;</td>
                  <td align=center>&nbsp;</td>
                  <td align=right>&nbsp;</td>
                  <td align=right>&nbsp;</td>
                  <td align=center>&nbsp;</td>
                  <td align=right>&nbsp;</td>
                  <td align=center>&nbsp;</td>
                  <td align=right>&nbsp;</td>
         </tr>
         <tr>
                  <td align=left><FONT FACE="Times New Roman, Times, Serif" size=1>Interest expense</font></td>
                  <td align=center></td>
                  <td align=right>             <FONT FACE="Times New Roman, Times, Serif" size=1>(10,114)</font></td>
                  <td align=center></td>
                  <td align=right>          <FONT FACE="Times New Roman, Times, Serif" size=1>(10,821)</font></td>
                  <td align=center></td>
                  <td align=right>           <FONT FACE="Times New Roman, Times, Serif" size=1>(8,418)</font></td>
                  <td align=center></td>
                  <td align=right>        <FONT FACE="Times New Roman, Times, Serif" size=1>(911)</font></td>
                  <td align=center></td>
                  <td align=right>             <FONT FACE="Times New Roman, Times, Serif" size=1>(1,135)</font></td>
                  <td align=right>           <FONT FACE="Times New Roman, Times, Serif" size=1></font></td>
                  <td align=center></td>
                  <td align=right>        <FONT FACE="Times New Roman, Times, Serif" size=1>(2,486)</font></td>
                  <td align=center></td>
                  <td align=right>             <FONT FACE="Times New Roman, Times, Serif" size=1>(2,539)</font></td>
         </tr>
         <tr>
                  <td align=left><FONT FACE="Times New Roman, Times, Serif" size=1>Minority interest </font></td>
                  <td align=center></td>
                  <td align=right>         <FONT FACE="Times New Roman, Times, Serif" size=1>(773)</font></td>
                  <td align=center></td>
                  <td align=right>             <FONT FACE="Times New Roman, Times, Serif" size=1>(800)</font></td>
                  <td align=center></td>
                  <td align=right>           <FONT FACE="Times New Roman, Times, Serif" size=1>(780)</font></td>
                  <td align=center></td>
                  <td align=right>           <FONT FACE="Times New Roman, Times, Serif" size=1>(518)</font></td>
                  <td align=center></td>
                  <td align=right>             <FONT FACE="Times New Roman, Times, Serif" size=1>(854)</font></td>
                  <td align=right>           <FONT FACE="Times New Roman, Times, Serif" size=1></font></td>
                  <td align=center></td>
                  <td align=right>           <FONT FACE="Times New Roman, Times, Serif" size=1>(282)</font></td>
                  <td align=center></td>
                  <td align=right>             <FONT FACE="Times New Roman, Times, Serif" size=1>(111)</font></td>
         </tr>
         <tr>
                  <td align=left><FONT FACE="Times New Roman, Times, Serif" size=1>Interest and other income</font></td>
                  <td align=center></td>
                  <td align=right>              <FONT FACE="Times New Roman, Times, Serif" size=1>3,121</font> </td>
                  <td align=center></td>
                  <td align=right>            <FONT FACE="Times New Roman, Times, Serif" size=1>4,128</font> </td>
                  <td align=center></td>
                  <td align=right>             <FONT FACE="Times New Roman, Times, Serif" size=1>3,229</font> </td>
                  <td align=center></td>
                  <td align=right>         <FONT FACE="Times New Roman, Times, Serif" size=1>867</font> </td>
                  <td align=center></td>
                  <td align=right>            <FONT FACE="Times New Roman, Times, Serif" size=1>1,826</font> </td>
                  <td align=right>             <FONT FACE="Times New Roman, Times, Serif" size=1></font> </td>
                  <td align=center></td>
                  <td align=right>         <FONT FACE="Times New Roman, Times, Serif" size=1>825</font> </td>
                  <td align=center></td>
                  <td align=right>            <FONT FACE="Times New Roman, Times, Serif" size=1>746</font> </td>
         </tr>
        <tr>


                  <td align=left><FONT FACE="Times New Roman, Times, Serif" size=1>Income (loss) from continuing operations before</font></td>
                  <td align=center></td>
                  <td align=right></td>
                  <td align=center></td>
                  <td align=right></td>
                  <td align=center></td>
                  <td align=right></td>
                  <td align=center></td>
                  <td align=right></td>
                  <td align=center></td>
                  <td align=right></td>
         </tr>
         <tr>
                  <td align=left><FONT FACE="Times New Roman, Times, Serif" size=1>&nbsp;&nbsp;&nbsp;income taxes and cumulative effect of<br>&nbsp;&nbsp;&nbsp;change in accounting principle</font></td>
                  <td align=center></td>
                  <td align=right valign=bottom>         <FONT FACE="Times New Roman, Times, Serif" size=1>(651)</font> </td>
                  <td align=center></td>
                  <td align=right valign=bottom>            <FONT FACE="Times New Roman, Times, Serif" size=1>11,340</font> </td>
                  <td align=center></td>
                  <td align=right valign=bottom>           <FONT FACE="Times New Roman, Times, Serif" size=1>7,643</font></td>
                  <td align=center></td>
                  <td align=right valign=bottom>         <FONT FACE="Times New Roman, Times, Serif" size=1>2,033</font></td>
                  <td align=center></td>
                  <td align=right valign=bottom>         <FONT FACE="Times New Roman, Times, Serif" size=1>10,019</font> </td>
                 <td align=right valign=bottom>           <FONT FACE="Times New Roman, Times, Serif" size=1></font></td>
                  <td align=center></td>
                  <td align=right valign=bottom>         <FONT FACE="Times New Roman, Times, Serif" size=1>1,661</font></td>
                  <td align=center></td>
                  <td align=right valign=bottom>         <FONT FACE="Times New Roman, Times, Serif" size=1>605</font> </td>
         </tr>
         <tr>
                  <td align=left>&nbsp;</td>
                  <td align=center>&nbsp;</td>
                  <td align=right>&nbsp;</td>
                  <td align=center>&nbsp;</td>
                  <td align=right>&nbsp;</td>
                  <td align=center>&nbsp;</td>
                  <td align=right>&nbsp;</td>
                  <td align=center>&nbsp;</td>
                  <td align=right>&nbsp;</td>
                  <td align=center>&nbsp;</td>
                  <td align=right>&nbsp;</td>
         </tr>
         <tr>
                  <td align=left><FONT FACE="Times New Roman, Times, Serif" size=1>Income tax benefit (expense) from continuing<br>&nbsp;&nbsp;&nbsp;operations</font></td>
                  <td align=center></td>
                  <td align=right valign=bottom>         <FONT FACE="Times New Roman, Times, Serif" size=1>10,971</font></td>
                  <td align=center></td>
                  <td align=right valign=bottom> <FONT FACE="Times New Roman, Times, Serif" size=1>2,368</font> </td>
                  <td align=center></td>
                  <td align=right valign=bottom> <FONT FACE="Times New Roman, Times, Serif" size=1>(1,228)</font> </td>
                  <td align=center></td>
                  <td align=right valign=bottom> <FONT FACE="Times New Roman, Times, Serif" size=1>(428)</font> </td>
                  <td align=center></td>
                  <td align=right valign=bottom>          <FONT FACE="Times New Roman, Times, Serif" size=1>82</font></td>
                 <td align=right valign=bottom> <FONT FACE="Times New Roman, Times, Serif" size=1></font> </td>
                  <td align=center></td>
                  <td align=right valign=bottom> <FONT FACE="Times New Roman, Times, Serif" size=1>875</font> </td>
                  <td align=center></td>
                  <td align=right valign=bottom>          <FONT FACE="Times New Roman, Times, Serif" size=1>910</font></td>
         </tr>
         <tr>
                  <td align=left><FONT FACE="Times New Roman, Times, Serif" size=1>Net income from continuing operations before<br>
&nbsp;&nbsp;&nbsp;cumulative effect of change in accounting<br>&nbsp;&nbsp;&nbsp;principle</font></td>
                  <td align=center></td>
                  <td align=right valign=bottom>         <FONT FACE="Times New Roman, Times, Serif" size=1>10,320</font> </td>
                  <td align=center></td>
                  <td align=right valign=bottom>            <FONT FACE="Times New Roman, Times, Serif" size=1>13,708</font> </td>
                  <td align=center ></td>
                  <td align=right valign=bottom>             <FONT FACE="Times New Roman, Times, Serif" size=1>6,415</font> </td>
                  <td align=center></td>
                  <td align=right valign=bottom>         <FONT FACE="Times New Roman, Times, Serif" size=1>1,605</font> </td>
                  <td align=center></td>
                  <td align=right valign=bottom>            <FONT FACE="Times New Roman, Times, Serif" size=1>10,101</font> </td>
                  <td align=right valign=bottom>             <FONT FACE="Times New Roman, Times, Serif" size=1></font> </td>
                  <td align=center></td>
                  <td align=right valign=bottom>         <FONT FACE="Times New Roman, Times, Serif" size=1>2,536</font> </td>
                  <td align=center></td>
                  <td align=right valign=bottom>            <FONT FACE="Times New Roman, Times, Serif" size=1>1,515</font> </td>
         </tr>
         <tr>
                  <td align=left>&nbsp;</td>
                  <td align=center>&nbsp;</td>
                  <td align=right>&nbsp;</td>
                  <td align=center>&nbsp;</td>
                  <td align=right>&nbsp;</td>
                  <td align=center>&nbsp;</td>
                  <td align=right>&nbsp;</td>
                  <td align=center>&nbsp;</td>
                  <td align=right>&nbsp;</td>
                  <td align=center>&nbsp;</td>
                  <td align=right>&nbsp;</td>
         </tr>
         <tr>

                  <td align=left><FONT FACE="Times New Roman, Times, Serif" size=1>Income (loss) from discontinued operations</font></td>
                  <td align=center></td>
                  <td align=right> <FONT FACE="Times New Roman, Times, Serif" size=1>2,113</font> </td>
                  <td align=center></td>
                  <td align=right> <FONT FACE="Times New Roman, Times, Serif" size=1>(3,583)</font> </td>
                  <td align=center></td>
                  <td align=right> <FONT FACE="Times New Roman, Times, Serif" size=1>(1,188)</font> </td>
                  <td align=center></td>
                  <td align=right> <FONT FACE="Times New Roman, Times, Serif" size=1>(1,297)</font> </td>
                  <td align=center></td>
                  <td align=right>         <FONT FACE="Times New Roman, Times, Serif" size=1>(1,464)</font></td>
                  <td align=right> <FONT FACE="Times New Roman, Times, Serif" size=1></font> </td>
                  <td align=center></td>
                  <td align=right> <FONT FACE="Times New Roman, Times, Serif" size=1>-</font> </td>
                  <td align=center></td>
                  <td align=right>         <FONT FACE="Times New Roman, Times, Serif" size=1>(184)</font></td>
         </tr>
         <tr>

                  <td align=left><FONT FACE="Times New Roman, Times, Serif" size=1>Net income before cumulative effect of change</font></td>
                  <td align=center></td>
                  <td align=right>  </td>
                  <td align=center></td>
                  <td align=right></td>
                  <td align=center></td>
                  <td align=right></td>
                  <td align=center></td>
                  <td align=right></td>
                  <td align=center></td>
                  <td align=right></td>
         </tr>
         <tr>
                  <td align=left><FONT FACE="Times New Roman, Times, Serif" size=1>&nbsp;&nbsp;&nbsp;in accounting principle</font></td>
                  <td align=center></td>
                  <td align=right> <FONT FACE="Times New Roman, Times, Serif" size=1>12,433</font> </td>
                  <td align=center></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=1>10,125</font></td>
                  <td align=center></td>
                  <td align=right> <FONT FACE="Times New Roman, Times, Serif" size=1>5,227</font> </td>
                  <td align=center></td>
                  <td align=right> <FONT FACE="Times New Roman, Times, Serif" size=1>308</font> </td>
                  <td align=center></td>
                  <td align=right>          <FONT FACE="Times New Roman, Times, Serif" size=1>8,637</font></td>
                  <td align=right> <FONT FACE="Times New Roman, Times, Serif" size=1></font> </td>
                  <td align=center></td>
                  <td align=right> <FONT FACE="Times New Roman, Times, Serif" size=1>2,536</font> </td>
                  <td align=center></td>
                  <td align=right>          <FONT FACE="Times New Roman, Times, Serif" size=1>1,331</font></td>
         </tr>

         <tr>
                  <td align=left><FONT FACE="Times New Roman, Times, Serif" size=1>Cumulative effect of change in accounting</font></td>
                  <td align=center></td>
                  <td align=right>  </td>
                  <td align=center></td>
                  <td align=right></td>
                  <td align=center></td>
                  <td align=right></td>
                  <td align=center></td>
                  <td align=right></td>
                  <td align=center></td>
                  <td align=right></td>
         </tr>
         <tr>
                  <td align=left><FONT FACE="Times New Roman, Times, Serif" size=1>&nbsp;&nbsp;&nbsp;principle</font></td>
                  <td align=center></td>
                  <td align=right> <FONT FACE="Times New Roman, Times, Serif" size=1>161</font> </td>
                  <td align=center></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=1>-</font></td>
                  <td align=center></td>
                  <td align=right> <FONT FACE="Times New Roman, Times, Serif" size=1>-</font> </td>
                  <td align=center></td>
                  <td align=right> <FONT FACE="Times New Roman, Times, Serif" size=1>-</font> </td>
                  <td align=center></td>
                  <td align=right>          <FONT FACE="Times New Roman, Times, Serif" size=1>-</font></td>
                  <td align=right> <FONT FACE="Times New Roman, Times, Serif" size=1></font> </td>
                  <td align=center></td>
                  <td align=right> <FONT FACE="Times New Roman, Times, Serif" size=1>-</font> </td>
                  <td align=center></td>
                  <td align=right>          <FONT FACE="Times New Roman, Times, Serif" size=1>161</font></td>
         </tr>
         <tr>

                  <td align=left><FONT FACE="Times New Roman, Times, Serif" size=1>Net income</font></td>
                  <td align=center></td>
                  <td align=right>         <FONT FACE="Times New Roman, Times, Serif" size=1>12,594</font> </td>
                  <td align=center></td>
                  <td align=right>            <FONT FACE="Times New Roman, Times, Serif" size=1>10,125</font> </td>
                  <td align=center></td>
                  <td align=right>             <FONT FACE="Times New Roman, Times, Serif" size=1>5,227</font> </td>
                  <td align=center></td>
                  <td align=right>         <FONT FACE="Times New Roman, Times, Serif" size=1>308</font> </td>
                  <td align=center></td>
                  <td align=right>          <FONT FACE="Times New Roman, Times, Serif" size=1>8,637</font></td>
                  <td align=right>             <FONT FACE="Times New Roman, Times, Serif" size=1></font> </td>
                  <td align=center></td>
                  <td align=right>         <FONT FACE="Times New Roman, Times, Serif" size=1>2,536</font> </td>
                  <td align=center></td>
                  <td align=right>          <FONT FACE="Times New Roman, Times, Serif" size=1>1,492</font></td>
         </tr>
         <tr>
                  <td align=left>&nbsp;</td>
                  <td align=center>&nbsp;</td>
                  <td align=right>&nbsp;</td>
                  <td align=center>&nbsp;</td>
                  <td align=right>&nbsp;</td>
                  <td align=center>&nbsp;</td>
                  <td align=right>&nbsp;</td>
                  <td align=center>&nbsp;</td>
                  <td align=right>&nbsp;</td>
                  <td align=center>&nbsp;</td>
                  <td align=right>&nbsp;</td>
         </tr>
         <tr>
                  <td align=left><FONT FACE="Times New Roman, Times, Serif" size=1>Less preferred stock dividend requirements</font></td>
                  <td align=center></td>
                  <td align=right>           <FONT FACE="Times New Roman, Times, Serif" size=1>1,752</font> </td>
                  <td align=center></td>
                  <td align=right>            <FONT FACE="Times New Roman, Times, Serif" size=1>1,772</font> </td>
                  <td align=center></td>
                  <td align=right>         <FONT FACE="Times New Roman, Times, Serif" size=1>1,776</font> </td>
                  <td align=center></td>
                  <td align=right>         <FONT FACE="Times New Roman, Times, Serif" size=1>1,776</font> </td>
                  <td align=center></td>
                  <td align=right>            <FONT FACE="Times New Roman, Times, Serif" size=1>2,992</font> </td>
                 <td align=right>         <FONT FACE="Times New Roman, Times, Serif" size=1></font> </td>
                  <td align=center></td>
                  <td align=right>         <FONT FACE="Times New Roman, Times, Serif" size=1>436</font> </td>
                  <td align=center></td>
                  <td align=right>            <FONT FACE="Times New Roman, Times, Serif" size=1>440</font> </td>
         </tr>
         <tr>
                   <td align=left><FONT FACE="Times New Roman, Times, Serif" size=1>Net income (loss) applicable to common</font> </td>
                  <td align=center></td>
                  <td align=right></td>
                  <td align=center></td>
                  <td align=right></td>
                  <td align=center></td>
                  <td align=right></td>
                  <td align=center></td>
                  <td align=right></td>
                  <td align=center></td>
                  <td align=right></td>
         </tr>
         <tr>
                  <td align=left><FONT FACE="Times New Roman, Times, Serif" size=1>&nbsp;&nbsp;&nbsp;shareholders</font></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=1>$</font></td>
                  <td align=right>         <FONT FACE="Times New Roman, Times, Serif" size=1>10,842</font> </td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=1>$</font></td>
                  <td align=right>            <FONT FACE="Times New Roman, Times, Serif" size=1>8,353</font> </td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=1>$</font></td>
                  <td align=right>        <FONT FACE="Times New Roman, Times, Serif" size=1>3,451</font></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=1>$</font></td>
                  <td align=right>         <FONT FACE="Times New Roman, Times, Serif" size=1>(1,468)</font> </td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=1>$</font></td>
                  <td align=right>        <FONT FACE="Times New Roman, Times, Serif" size=1>5,645</font></td>
                  <td align=right>        <FONT FACE="Times New Roman, Times, Serif" size=1></font></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=1>$</font></td>
                  <td align=right>         <FONT FACE="Times New Roman, Times, Serif" size=1>2,100</font> </td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=1>$</font></td>
                  <td align=right>        <FONT FACE="Times New Roman, Times, Serif" size=1>1,052</font></td>
         </tr>
         <tr>
                  <td align=left><FONT FACE="Times New Roman, Times, Serif" size=1>Net income (loss) per share applicable to</font></td>
                  <td align=center></td>
                  <td align=right></td>
                  <td align=center></td>
                  <td align=right></td>
                  <td align=center></td>
                  <td align=right></td>
                  <td align=center></td>
                  <td align=right></td>
                  <td align=center></td>
                  <td align=right></td>
         </tr>
         <tr>
                  <td align=left><FONT FACE="Times New Roman, Times, Serif" size=1>&nbsp;&nbsp;&nbsp;common shareholders:</font>  </td>
                  <td align=center></td>
                  <td align=right></td>
                  <td align=center></td>
                  <td align=right></td>
                  <td align=center></td>
                  <td align=right></td>
                  <td align=center></td>
                  <td align=right></td>
                  <td align=center></td>
                  <td align=right></td>
         </tr>
         <tr>
                  <td align=left><FONT FACE="Times New Roman, Times, Serif" size=1>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Basic</font></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=1>$</font></td>
                  <td align=right>             <FONT FACE="Times New Roman, Times, Serif" size=1>1.39</font> </td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=1>$</font></td>
                  <td align=right>              <FONT FACE="Times New Roman, Times, Serif" size=1>1.10</font> </td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=1>$</font></td>
                  <td align=right>          <FONT FACE="Times New Roman, Times, Serif" size=1>0.48</font></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=1>$</font></td>
                  <td align=right>            <FONT FACE="Times New Roman, Times, Serif" size=1>(0.21)</font> </td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=1>$</font></td>
                  <td align=right>            <FONT FACE="Times New Roman, Times, Serif" size=1>0.80</font></td>
                  <td align=right>          <FONT FACE="Times New Roman, Times, Serif" size=1></font></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=1>$</font></td>
                  <td align=right>            <FONT FACE="Times New Roman, Times, Serif" size=1>0.26</font> </td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=1>$</font></td>
                  <td align=right>            <FONT FACE="Times New Roman, Times, Serif" size=1>0.14</font></td>
         </tr>
         <tr>
                  <td align=left><FONT FACE="Times New Roman, Times, Serif" size=1>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Diluted</font></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=1>$</font></td>
                  <td align=right>             <FONT FACE="Times New Roman, Times, Serif" size=1>1.30</font> </td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=1>$</font></td>
                  <td align=right>              <FONT FACE="Times New Roman, Times, Serif" size=1>1.03</font> </td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=1>$</font></td>
                  <td align=right>          <FONT FACE="Times New Roman, Times, Serif" size=1>0.43</font></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=1>$</font></td>
                  <td align=right>            <FONT FACE="Times New Roman, Times, Serif" size=1>(0.21)</font> </td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=1>$</font></td>
                  <td align=right>            <FONT FACE="Times New Roman, Times, Serif" size=1>0.79</font></td>
                  <td align=right>          <FONT FACE="Times New Roman, Times, Serif" size=1></font></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=1>$</font></td>
                  <td align=right>            <FONT FACE="Times New Roman, Times, Serif" size=1>0.25</font> </td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=1>$</font></td>
                  <td align=right>            <FONT FACE="Times New Roman, Times, Serif" size=1>0.13</font></td>
         </tr>
         <tr>
                  <td align=left><FONT FACE="Times New Roman, Times, Serif" size=1>Weighted average number of common shares</font> </td>
                  <td align=center></td>
                  <td align=right></td>
                  <td align=center></td>
                  <td align=right></td>
                  <td align=center></td>
                  <td align=right></td>
                  <td align=center></td>
                  <td align=right></td>
                  <td align=center></td>
                  <td align=right></td>
         </tr>
         <tr>
                  <td align=left><FONT FACE="Times New Roman, Times, Serif" size=1>&nbsp;&nbsp;&nbsp;outstanding:</font> </td>
                  <td align=center></td>
                  <td align=right></td>
                  <td align=center></td>
                  <td align=right></td>
                  <td align=center></td>
                  <td align=right></td>
                  <td align=center></td>
                  <td align=right></td>
                  <td align=center></td>
                  <td align=right></td>
         </tr>
         <tr>
                  <td align=left><FONT FACE="Times New Roman, Times, Serif" size=1>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Basic</font></td>
                  <td align=center></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=1>7,799</font></td>
                  <td align=center></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=1>7,608</font></td>
                  <td align=center></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=1>7,239</font></td>
                  <td align=center></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=1>7,070</font></td>
                  <td align=center></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=1>7,040</font></td>
                 <td align=right><FONT FACE="Times New Roman, Times, Serif" size=1></font></td>
                  <td align=center></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=1>8,009</font></td>
                  <td align=center></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=1>7,728</font></td>
         </tr>
         <tr>
                  <td align=left><FONT FACE="Times New Roman, Times, Serif" size=1>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Diluted</font></td>
                  <td align=center></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=1>8,338</font></td>
                  <td align=center></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=1>8,147</font></td>
                  <td align=center></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=1>8,000</font></td>
                  <td align=center></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=1>7,070</font></td>
                  <td align=center></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=1>7,146</font></td>
                 <td align=right><FONT FACE="Times New Roman, Times, Serif" size=1></font></td>
                  <td align=center></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=1>8,503</font></td>
                  <td align=center></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=1>8,223</font></td>
         </tr>
</table>

<br>
<p align=center><FONT FACE="Times New Roman, Times, Serif" SIZE=3>18</font></p>
<page>
<br>

<table border=0 cellPadding=0 cellSpacing=0 width=650>
         <tr>
                  <td align=left valign=bottom><b><FONT FACE="Times New Roman, Times, Serif" size=1>Westmoreland
Coal Company and Subsidiaries<br>Five-Year Review</FONT></b></td>
                  <td valign=bottom align=center colspan=10><b><FONT FACE="Times New Roman, Times, Serif" size=1>December 31,</font></b></td>
                  <td align=left><b></b></td>
                  <td align=left><b></b></td>
                  <td align=left><b></b></td>
                  <td align=center colspan=2><b><FONT FACE="Times New Roman, Times, Serif" size=1>March 31,</font></b></td>
         </tr>
         <tr>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
         </tr>
         <tr>
                  <td width=34% align=left></td>
                  <td width=2% align=right><b></b></td>
                  <td width=7% align=center valign=bottom><b><FONT FACE="Times New Roman, Times, Serif" size=1>2003</font></b></td>
                  <td width=2% align=right></td>
                  <td width=7% align=center valign=bottom><b><FONT FACE="Times New Roman, Times, Serif" size=1>2002</font></b></td>
                  <td width=2% align=right><b></b></td>
                  <td width=7% align=center valign=bottom><b><FONT FACE="Times New Roman, Times, Serif" size=1>2001</font></b><SUP><FONT FACE="Times New Roman, Times, Serif" size=1>(1)</font></SUP></td>
                  <td width=2% align=right><b></b></td>
                  <td width=7% align=center valign=bottom><b><FONT FACE="Times New Roman, Times, Serif" size=1>2000</font></b></td>
                  <td width=2% align=right><b></b></td>
                  <td width=7% align=center valign=bottom><b><FONT FACE="Times New Roman, Times, Serif" size=1>1999</font></b></td>
                  <td width=3% align=right><b></b></td>
                  <td width=2% align=right><b></b></td>
                  <td width=7% align=center valign=bottom><b><FONT FACE="Times New Roman, Times, Serif" size=1>&nbsp;</font></b></td>
                  <td width=2% align=right><b></b></td>
                  <td width=7% align=center valign=bottom><b><FONT FACE="Times New Roman, Times, Serif" size=1>2004</font></b></td>
         </tr>
         <tr>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
         </tr>
         <tr>
                  <td align=left><b></b></td>
                  <td align=center colspan=10><b><FONT FACE="Times New Roman, Times, Serif" size=1>(in thousands)</font></b></td>
                  <td align=left><b></b></td>
                  <td align=left><b></b></td>
                  <td align=left><b></b></td>
                  <td align=center colspan=2><b><FONT FACE="Times New Roman, Times, Serif" size=1>(unaudited)</font></b></td>
         </tr>

         <tr>
                  <td align=left><b><FONT FACE="Times New Roman, Times, Serif" size=1>Balance Sheet Information</font></b></td>
                  <td align=center><b></b></td>
                  <td align=right></td>
                  <td align=center></td>
                  <td align=right></td>
                  <td align=center></td>
                  <td align=right></td>
                  <td align=center></td>
                  <td align=right></td>
                  <td align=center></td>
                  <td align=right></td>
         </tr>
         <tr>
                  <td align=left><FONT FACE="Times New Roman, Times, Serif" size=1>Working capital (deficit)</font> </td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=1>$</font></td>
                  <td align=right>        <FONT FACE="Times New Roman, Times, Serif" size=1>5,555</font> </td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=1>$</font></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=1>10,143</font></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=1>$</font></td>
                  <td align=right>        <FONT FACE="Times New Roman, Times, Serif" size=1>11,346</font></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=1>$</font></td>
                  <td align=right>         <FONT FACE="Times New Roman, Times, Serif" size=1>(1,557)</font> </td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=1>$</font></td>
                  <td align=right>         <FONT FACE="Times New Roman, Times, Serif" size=1>8,886</font> </td>
                  <td align=left><b></b></td>
                  <td align=left><b></b></td>
                  <td align=right>         <FONT FACE="Times New Roman, Times, Serif" size=1></font> </td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=1>$</font></td>
                  <td align=right>         <FONT FACE="Times New Roman, Times, Serif" size=1>24,859</font> </td>
         </tr>
         <tr>
                  <td align=left><FONT FACE="Times New Roman, Times, Serif" size=1>Net property, plant and equipment </font></td>
                  <td align=center></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=1>151,349</font></td>
                  <td align=center></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=1>189,532</font></td>
                  <td align=center></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=1>197,271</font></td>
                  <td align=center></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=1>34,693</font></td>
                  <td align=center></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=1>36,558</font></td>
                  <td align=left><b></b></td>
                  <td align=left><b></b></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=1></font></td>
                  <td align=center></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=1>149,674</font></td>
         </tr>
         <tr>
                  <td align=left><FONT FACE="Times New Roman, Times, Serif" size=1>Total assets</font></td>
                  <td align=center></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=1>457,837</font></td>
                  <td align=center></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=1>471,957</font></td>
                  <td align=center></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=1>466,532</font></td>
                  <td align=center></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=1>139,096</font></td>
                  <td align=center></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=1>142,297</font></td>
                  <td align=left><b></b></td>
                  <td align=left><b></b></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=1></font></td>
                  <td align=center></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=1>482,188</font></td>
         </tr>
         <tr>
                  <td align=left><FONT FACE="Times New Roman, Times, Serif" size=1>Total debt</font> </td>
                  <td align=center></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=1>93,469</font></td>
                  <td align=center></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=1>100,157</font></td>
                  <td align=center></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=1>122,910</font></td>
                  <td align=center></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=1>-</font></td>
                  <td align=center></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=1>1,563</font></td>
                  <td align=left><b></b></td>
                  <td align=left><b></b></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=1></font></td>
                  <td align=center></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=1>110,638</font></td>
          </tr>
         <tr>
                  <td align=left><FONT FACE="Times New Roman, Times, Serif" size=1>Shareholders&#146; equity</font></td>
                  <td align=center></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=1>33,270</font></td>
                  <td align=center></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=1>18,568</font></td>
                  <td align=center></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=1>10,415</font></td>
                  <td align=center></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=1>3,373</font></td>
                  <td align=center></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=1>3,057</font></td>
                  <td align=left><b></b></td>
                  <td align=left><b></b></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=1></font></td>
                  <td align=center></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=1>36,405</font></td>
         </tr>
</table>
<br>

<table width=650>
<tr>
<td width=5% valign=top><FONT FACE="Times New Roman, Times, Serif" size=1>(1)</font></td>
<td width=95%><FONT FACE="Times New Roman, Times, Serif" size=1>
Effective April 30, 2001, the Company acquired the operating coal business of Montana Power and the coal assets of Knife River
Corporation.  Refer to Note 2 to our consolidated financial statements for further information</FONT></td>
</tr>
</table>

<br>
<p align=center><FONT FACE="Times New Roman, Times, Serif" SIZE=3>19</font></p>
<page>
<br>


<H1 ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" size=3>MANAGEMENT&#146;S
DISCUSSION AND ANALYSIS OF<br>FINANCIAL
CONDITION AND RESULTS OF OPERATIONS</FONT></H1>

<H2 ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" size=3>Overview</FONT></H2>

         <p><FONT FACE="Times New Roman, Times, Serif" SIZE=3>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<b>Competitive, economic and industry factors</b></font></p>

<P><FONT FACE="Times New Roman, Times, Serif" size=3>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We are an energy company.
We mine coal, which is used to produce electric power, and we own interests in
power-generating plants. We will also begin to earn royalties from the
production of coalbed methane gas in 2004. All of our five mines supply
baseloaded power plants, several of these power plants are located adjacent to
our mines, and we sell virtually all our coal under long-term contracts.
Consequently, our mines enjoy relatively stable demand and pricing compared to
competitors who sell more of their production on the spot market. </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" size=3>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In partnership with others,
we have developed eight independent power projects totaling 866 megawatts, or
MW, of generating capacity. We have sold our interests in five of those
projects. We currently own a 50% interest in the ROVA I and II coal-fired
plants, which have a total generating capacity of 230 MW. We also retain a 4.49%
interest in the gas-fired Fort Lupton Project, which has a generating capacity
of 290 MW and provides peaking power to the local utility. The ROVA Project,
which accounted for 96% of our equity in earnings from independent power in
2003, is baseloaded and supplies power pursuant to a long-term contract. </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" size=3>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;According to the most
recent Annual Energy Review prepared by the Energy Information Administration,
or EIA, an agency of the U.S. Department of Energy, approximately 50% of all
electricity generated in the United States in 2002 was produced by coal-fired
units. The EIA projects that the demand for coal will increase 1.7% per year
from 2002 through 2025. The EIA also estimates that the demand for coal used to
generate electricity will increase 1.8% per year from 2002 through 2025.
Consequently, we believe that the demand for coal will grow, in part because
coal is the lowest cost fossil-fuel used for generating baseload electric power. </FONT></P>

<p><FONT FACE="Times New Roman, Times, Serif" SIZE=3><b>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Revenues and expenses; sources and uses of cash</b></font></p>

<P><FONT FACE="Times New Roman, Times, Serif" size=3>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In 2003, approximately
two-thirds of our operating income came from coal operations, and one-third came
from independent power projects. Our principal expenses were the cost of coal
sales, heritage health benefit costs and selling, general and administrative
expenses. </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" size=3>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In 2001, in order to
finance the purchase of the Rosebud, Jewett, Beulah and Savage Mines,
Westmoreland Mining borrowed $120 million from institutional lenders under a
term loan agreement. By the end of 2003, Westmoreland Mining had repaid $31.5
million of that $120 million and deposited an additional $17.4 million into two
restricted accounts for the benefit of its lenders. In early March 2004,
Westmoreland Mining made arrangements to borrow an additional $35 million from
its lenders pursuant to what we call the add-on facility. Westmoreland Mining
borrowed $20.4 million in early March 2004 and will borrow the additional $14.6
million before the end of 2004. The add-on facility will permit Westmoreland
Mining to undertake significant capital projects in the near term without
adversely affecting cash available to us. </FONT></P>


<br>
<p align=center><FONT FACE="Times New Roman, Times, Serif" SIZE=3>20</font></p>
<page>
<br>

<H2 ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" size=3>Challenges</FONT></H2>

<p><FONT FACE="Times New Roman, Times, Serif" SIZE=3>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We believe that our principal challenges today include the following:</font></p>

<table width=650 cellpadding=0 cellspacing=0 border=0>
<tr>
<td width=5%>&nbsp;</td>
<td width=4% valign=top>&#149;</td>
<td width=91%>inflation in medical costs, which can increase our expense for active employees and our heritage health benefit costs;</td>
</tr>
</table>
<br>
<table width=650 cellpadding=0 cellspacing=0 border=0>
<tr>
<td width=5%>&nbsp;</td>
<td width=4% valign=top>&#149;</td>
<td width=91%>maintaining our Coal Act bonds;</td>
</tr>
</table>
<br>
<table width=650 cellpadding=0 cellspacing=0 border=0>
<tr>
<td width=5%>&nbsp;</td>
<td width=4% valign=top>&#149;</td>
<td width=91%>transitioning from an approach towards growth and development that seeks to
maximize the use of our net operating loss carryforwards to one that considers
the impact of the alternative minimum tax;</td>
</tr>
</table>
<br>


<table width=650 cellpadding=0 cellspacing=0 border=0>
<tr>
<td width=5%>&nbsp;</td>
<td width=4% valign=top>&#149;</td>
<td width=91%>managing the production from and costs of our operations;</td>
</tr>
</table>
<br>

<table width=650 cellpadding=0 cellspacing=0 border=0>
<tr>
<td width=5%>&nbsp;</td>
<td width=4% valign=top>&#149;</td>
<td width=91%>proposed new environmental regulations, which have the potential to significantly reduce sales from our Jewett and Beulah
              Mines; and</td>
</tr>
</table>
<br>

<table width=650 cellpadding=0 cellspacing=0 border=0>
<tr>
<td width=5%>&nbsp;</td>
<td width=4% valign=top>&#149;</td>
<td width=91%>addressing the claims for potential taxes asserted by various governmental entities.</td>
</tr>
</table>
<br>

<P><FONT FACE="Times New Roman, Times, Serif" size=3>We discuss these issues, as
well as the other challenges we face, elsewhere in this Management&#146;s
Discussion and Analysis of Financial Condition and Results of Operations, and
under &#147;Risk Factors.&#148; </FONT></P>

<H2 ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" size=3>Critical
Accounting Estimates and Related Matters</FONT></H2>

<P><FONT FACE="Times New Roman, Times, Serif" size=3>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our discussion and analysis
of financial condition, results of operations, liquidity and capital resources
is based on our financial statements, which have been prepared in accordance
with accounting principles generally accepted in the United States. Generally
accepted accounting principles require that we make estimates and judgments. We
base our estimates on historical experience and on various other assumptions
that we believe are reasonable under the circumstances. Actual results may
differ materially from these estimates. </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" size=3>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We have made significant
judgments and estimates in connection with the following accounting matters. Our
senior management has discussed the development, selection and disclosure of
these accounting estimates with the Audit Committee of our Board of Directors. </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" size=3>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In connection with our
discussion of these critical accounting matters, and in order to reduce
repetition, we also use this section to present information related to these
judgments and estimates. </FONT></P>

         <p><FONT FACE="Times New Roman, Times, Serif" SIZE=3><b>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Postretirement Benefits and Pension Obligations</b></font></p>

<P><FONT FACE="Times New Roman, Times, Serif" size=3>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our most significant
long-term obligation is the obligation to provide postretirement medical
benefits, pension benefits, workers&#146; compensation and pneumoconiosis (black
lung) benefits. We provide these benefits to our current and former employees
and their dependents. </FONT></P>


<br>
<p align=center><FONT FACE="Times New Roman, Times, Serif" SIZE=3>21</font></p>
<page>
<br>

<p><FONT FACE="Times New Roman, Times, Serif" SIZE=3><b>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Estimates and Judgments</b></font></p>

<P><FONT FACE="Times New Roman, Times, Serif" size=3>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We estimate the total
amount of these obligations with the help of third party professionals using
actuarial assumptions and information. Our estimate is sensitive to judgments we
make about the discount rate, about the rate of inflation in medical care, about
mortality rates and about the Medicare Prescription Drug Improvement and
Modernization Act of 2003, or Medicare Reform Act. We review these estimates and
obligations at least annually. </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" size=3>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We pay these obligations
currently and will have continuing obligations for future periods. Under
generally accepted accounting principles, we are required to estimate the
present value of these obligations. In order to do this, we make a judgment
about the discount rate, which is an estimate about the current interest rate at
which these obligations could be effectively settled on the date we estimate
them. The discount rate we used to calculate the present value of these future
obligations was 7.25% in 2001, 6.75% in 2002 and 6.25% in 2003. Significant
changes to interest rates result in substantial volatility to our consolidated
financial statements by influencing our estimate of these amounts. </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" size=3>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In order to estimate the
total cost of our obligation to provide medical benefits, we must make a
judgment about the rate of inflation in medical costs. As our estimate of the
rate of inflation of medical costs increases, our calculation of the total cost
of providing these benefits increases. During 2001, we increased our assumption
about this rate to 10%, and we also assumed that the rate would ultimately
decline to 5% in 2009 and beyond. If we were to increase our assumption of the
ultimate medical inflation rate from 5% to 6%, then all other things being
equal, the present value of our postretirement medical cost obligation would
increase by approximately $25 million. </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" size=3>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our accrual for
postretirement medical benefits is also affected by the mortality rate of the
population for which we provide benefits. As people live longer, our cost to
provide postretirement medical care increases. However, the number of former
Westmoreland employees for whom we provide benefits under the Coal Act is fixed,
since we discontinued our eastern underground operations, and the primary
beneficiaries are elderly. </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" size=3>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Medicare Reform Act
provides prescription drug benefits. We have estimated that the Medicare Reform
Act reduced the present value of our future health care obligations by $16.5
million as of December 31, 2003. There is no authoritative guidance on
accounting for the Medicare Reform Act, and we may be required to revise our
estimate when guidance becomes available. </FONT></P>

<p><FONT FACE="Times New Roman, Times, Serif" SIZE=3><b>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Related Information</b></font></p>

<P><FONT FACE="Times New Roman, Times, Serif" size=3>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The present value of our
actuarially determined liability for postretirement medical costs increased
approximately $13.2 million between December 31, 2002 and 2003, and
approximately $1.2 million between December 31, 2003 and March 31, 2004,
principally because of an increase in actual costs over prior estimates and for
the reasons described above. Actuarial valuations project that our retiree
health benefit costs will continue to increase in the near term and then decline
to zero over the next approximately sixty years as the number of eligible
beneficiaries declines. We incurred cash costs of $20.7 million for
postretirement medical costs during 2003 compared to $20.5 million in 2002. We
incurred cash costs of $7.3 million for postretirement medical costs during the
first quarter of 2004 compared to $4.9 million in the first quarter of 2003, and
we expect to incur approximately $26 million of these costs in all of 2004. In
September 2003, the UMWA Combined Benefit Fund, or Combined Fund, assessed us
$4.7 million for the period from 1996. We are challenging this assessment in
court but must pay pending a resolution. We paid $1.2 million of this assessment
in 2003 and $1.1 million in the first quarter of 2004, and we expect to pay the
remaining $2.4 million in the second and third quarters of 2004. Our estimate of
our total cash costs for postretirement medical care in 2004 includes the
amounts we have and will pay in respect of this assessment. </FONT></P>


<br>
<p align=center><FONT FACE="Times New Roman, Times, Serif" SIZE=3>22</font></p>
<page>
<br>

<P><FONT FACE="Times New Roman, Times, Serif" size=3>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We incurred cash costs of
$2.1 million for workers&#146; compensation benefits during 2003 compared to
$2.8 million in 2002 and cash costs of $500,000 for these benefits during the
first quarter of 2004 compared to $600,000 in the first quarter of 2003. We
expect to incur lower cash costs for workers&#146; compensation benefits in 2004
than we did in 2003 and expect that amount to decline steadily to zero over the
next approximately eighteen years. We anticipate that these costs will decline
because we are no longer self-insured for workers&#146; compensation benefits
and have had no new claimants since 1995. </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" size=3>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We do not pay pension or
black lung benefits directly. These benefits are paid from trusts that we
established and funded. As of March 31, 2004, our pension trusts are
underfunded, and we will contribute approximately $1.3 million to these trusts
and may elect to contribute up to an additional $0.9 million to these trusts in
2004. As of March 31, 2004, our black lung trust is overfunded by $6.3 million,
and we do not expect to be required to make additional contributions to this
trust. </FONT></P>

<p><FONT FACE="Times New Roman, Times, Serif" SIZE=3>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Coal Act, passed in 1992, established three benefit plans.</font></p>

<table width=650 cellpadding=0 cellspacing=0 border=0>
<tr>
<td width=5%>&nbsp;</td>
<td width=4% valign=top>&#149;</td>
<td width=91%>First, the statute merged the UMWA 1950 and 1974 Plans into the Combined Fund.
The Combined Fund provides benefits to a completely closed pool of
beneficiaries, retirees who were actually receiving benefits from either the
1950 or 1974 Plan as of July&#160;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&#160;1, 1992. This group is essentially
Medicare-eligible, and the Combined Fund supplements the benefits this group
receives under Medicare.</td>
</tr>
</table>
<br>

<table width=650 cellpadding=0 cellspacing=0 border=0>
<tr>
<td width=5%>&nbsp;</td>
<td width=4% valign=top>&#149;</td>
<td width=91%>Second, the Coal Act requires companies 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&#160;1, 1992. The beneficiaries of these
statutorily-required IEPs are retirees meeting age and service requirements as
of February&#160;1, 1993 and who actually retired before September&#160;30,
1994.</td>
</tr>
</table>
<br>

<table width=650 cellpadding=0 cellspacing=0 border=0>
<tr>
<td width=5%>&nbsp;</td>
<td width=4% valign=top>&#149;</td>
<td width=91%>Third, the Coal Act established the 1992 UMWA Benefit Plan, which serves three
distinct populations: miners who were eligible to retire as of February&#160;1,
1993 and actually retired before September&#160;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 Combined Fund.</td>
</tr>
</table>


<br>
<p align=center><FONT FACE="Times New Roman, Times, Serif" SIZE=3>23</font></p>
<page>
<br>

<P><FONT FACE="Times New Roman, Times, Serif" size=3>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As required by the Coal
Act, we maintain an IEP for our own retirees, and we pay premiums that cover a
portion of the retired miners whose previous employers have gone out of
business. </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" size=3>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In addition, and separate
from the Coal Act, we continue to provide benefits under another IEP to a
smaller group of former UMWA employees who retired under our last collective
bargaining agreement, which ended in 1998. We call this IEP our 1993 Plan. </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" size=3>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As noted above, we expect
that the Medicare Reform Act will reduce our prescription drug costs. The
Medicare Reform Act provides a prescription drug benefit under Medicare as well
as a Federal subsidy, starting in 2006, so long as an employer maintains
qualifying health plans that provide prescription drug benefits. We currently
estimate that the Medicare Reform Act will reduce our retiree medical costs by
approximately $2.5 million in 2006 and annually thereafter until total drug
costs otherwise begin to decline. </FONT></P>

<p><FONT FACE="Times New Roman, Times, Serif" SIZE=3>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<b>Asset Retirement Obligations, Reclamation Costs and Reserve Estimates</b></font></p>

<P><FONT FACE="Times New Roman, Times, Serif" size=3>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Asset retirement
obligations primarily relate to the closure of mines and the reclamation of land
upon cessation of mining. We account for reclamation costs, along with other
costs related to mine closure, in accordance with Statement of Financial
Accounting Standards No. 143 &#150; Asset Retirement Obligations, or SFAS
No.&#160;143, which we adopted on January 1, 2003. This statement requires us to
recognize the fair value of an asset retirement obligation in the period in
which we incur that obligation. We capitalize the present value of our estimated
asset retirement costs as part of the carrying amount of our long-lived assets. </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" size=3>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The liability, &#147;Asset
retirement obligations,&#148; on our consolidated balance sheet represents our
estimate of the present value of the cost of closing our mines and reclaiming
land that has been disturbed by mining. This liability increases as land is
mined and decreases as reclamation work is performed and cash expended. The
asset, &#147;Property, plant and equipment &#150; capitalized asset retirement
costs,&#148; remains constant until new liabilities are incurred or old
liabilities are re-estimated. We estimate the future costs of reclamation using
standards for mine reclamation that have been established by the government
agencies that regulate our operations as well as our own experience in
performing reclamation activities. These estimates may change. Developments in
our mining program also affect this estimate by influencing the timing of
reclamation expenditures. </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" size=3>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Adopting SFAS No. 143
significantly affected our financial statements. See the Summary of Significant
Accounting Policies to our consolidated financial statements, which includes a
discussion of the effect on our financial statements of adopting SFAS No. 143.
However, the adoption of SFAS No. 143 did not affect our cash costs, because the
annual cash requirements for reclamation activities are the same using SFAS No.
143 and the units-of-production accrual method, the accounting method we used
prior to adopting SFAS No. 143. </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" size=3>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We amortize our acquisition
costs, development costs, capitalized asset retirement costs and some plant and
equipment using the units-of-production method and estimates of recoverable
proven and probable reserves. We review these estimates on a regular basis and
adjust them to reflect our current mining plans. The rate at which we record
depletion also depends on the estimates of our reserves. If the estimates of
recoverable proven and probable reserves decline, the rate at which we record
depletion increases. Such a decline in reserves may result from geological
conditions, coal quality, effects of governmental, environmental and tax
regulations and assumptions about future prices and future operating costs. </FONT></P>

<br>
<p align=center><FONT FACE="Times New Roman, Times, Serif" SIZE=3>24</font></p>
<page>
<br>

<p><FONT FACE="Times New Roman, Times, Serif" SIZE=3>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<b>Deferred Income Taxes</b></font></p>

<p><FONT FACE="Times New Roman, Times, Serif" SIZE=3>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<b>Estimates and Judgments</b></font></p>

<P><FONT FACE="Times New Roman, Times, Serif" size=3>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our net income is sensitive
to estimates we make about our ability to use our Federal net operating loss
carryforwards, or NOLs. </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" size=3>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As of December 31, 2003, we
had approximately $180 million of NOLs. These NOLs expire at various dates
through 2023. When we have taxable income, we can use our NOLs to shield that
income from regular U.S. Federal income tax. Our ability to use our NOLs thus
depends on all the factors that determine taxable income, including operational
factors, such as new coal sales, and non-operational factors, such as increases
in heritage health benefit costs. Under Federal tax law, our ability to use our
NOLs would be limited if we had a &#147;change of ownership&#148; within the
meaning of the Federal tax code. </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" size=3>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our NOLs are one of our
deferred income tax assets. We have reduced our deferred income tax assets by a
valuation allowance. The valuation allowance is primarily an estimate of the
deferred tax assets that may not be realized in future periods. On a quarterly
and annual basis, we estimate how much of our NOLs we expect that we will be
able to use to shield future taxable income and make corresponding adjustments
in the valuation allowance. </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" size=3>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;If we increase our
estimated utilization of NOLs, we decrease the valuation allowance, increase our
net deferred income tax assets and recognize an income tax benefit in earnings.
If we decrease our estimated utilization of NOLs, we increase the valuation
allowance, decrease our net deferred income tax assets and increase income tax
expense. These changes can materially affect our net income and our assets. In
2003, for example, we reduced the valuation allowance by $7.8 million, in part
because we signed a new coal supply agreement and because we negotiated improved
terms of an existing coal supply agreement. In the quarter ended March 31, 2004,
we reduced the valuation allowance by $0.9 million. In both 2003 and the quarter
ended March 31, 2004, we also made other adjustments in our net deferred tax
assets. As a result of these estimates and adjustments and changes in temporary
differences between book and tax accounting, our net deferred income tax assets
increased from $65.1 million at December&#160;31, 2002 to $75.8 million at
December 31, 2003, and from $75.8 million at December&#160;31, 2003 to $77.0
million at March 31, 2004, and we recognized income tax benefit from continuing
operations of $11.0 million for 2003 and $0.9 million for the first quarter of
2004. </FONT></P>

<p><FONT FACE="Times New Roman, Times, Serif" SIZE=3>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<b>Related Information</b></font></p>

<p><FONT FACE="Times New Roman, Times, Serif" SIZE=3>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Under the federal tax laws, there are two types of taxable income and two types of net operating loss carryforwards.</font></p>

<table width=650 cellpadding=0 cellspacing=0 border=0>
<tr>
<td width=5%>&nbsp;</td>
<td width=4% valign=top>&#149;</td>
<td width=91%>The two types of taxable income are regular taxable income and Alternative
Minimum Taxable Income, or AMTI. AMTI differs from regular taxable income in
that AMTI includes items such as percentage depletion. We have significant
percentage depletion because of our mining activities.</td>
</tr>
</table>

<br>
<p align=center><FONT FACE="Times New Roman, Times, Serif" SIZE=3>25</font></p>
<page>
<br>

<table width=650 cellpadding=0 cellspacing=0 border=0>
<tr>
<td width=5%>&nbsp;</td>
<td width=4% valign=top>&#149;</td>
<td width=91%>The two types of NOLs are
regular NOLs and alternative minimum tax, or AMT, NOLs.</td>
</tr>
</table>


<P><FONT FACE="Times New Roman, Times, Serif" size=3>Our NOLs are important to
our strategy. Regular NOLs can offset our future regular taxable income, permit
us to avoid payment of regular Federal income tax and thereby increase our cash
flow and return from profitable investments (as compared to the return that
would be received by a tax-paying entity that cannot shield its income from
federal income taxation). However, regular NOLs will not shield our income from
AMT. </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" size=3>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We are subject to AMT at a
20% rate. As of December 31, 2003, we had AMT net operating loss carryforwards
of approximately $35 million. Only 90% of our AMTI can be shielded each year by
our AMT NOLs. Based upon our estimates of our future taxable income, we expect
to fully utilize our remaining AMT NOLs in 2005 and begin paying the full 20%
AMT in 2006. We may owe more than $5 million per year in AMT until we fully
utilize our regular NOLs. Any AMT we pay is available as a credit against future
regular Federal income tax. These credits do not expire. </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" size=3>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As a strategic matter, we
may face choices between business strategies intended to maximize the use of our
regular NOLs and strategies that take account of AMT and seek to increase our
after-tax profits, including the effects of AMT. Some of these strategies may
involve decisions about business activities that generate AMTI, and many of
these choices will require us to make judgments about matters that will arise in
the future and that are therefore inherently uncertain. </FONT></P>

<br>
<p align=center><FONT FACE="Times New Roman, Times, Serif" SIZE=3>26</font></p>
<page>
<br>



<H2 ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" size=3>Contractual
Obligations and Commitments</FONT></H2>

<P><FONT FACE="Times New Roman, Times, Serif" size=3>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The following table
presents information about our contractual obligations and commitments as of
December 31, 2003. Some of the figures below are estimates. We discuss these
obligations and commitments elsewhere in this prospectus. </FONT></P>

<table border=1 cellPadding=3 cellSpacing=0 width=650>
         <tr>
                  <td align=left valign=bottom><b>&nbsp;</b></td>
                  <td align=center colspan=6><b>Payments Due by Period<br>(in thousands of dollars)</b></td>
         </tr>
         <tr>
                  <td width=38% valign=bottom><b>Contractual Obligations<br>and Commitments</b></td>
                  <td width=12% align=right valign=bottom><b>Total</b></td>
                  <td width=10% align=right valign=bottom><b>2004</b></td>
                  <td width=10% align=right valign=bottom><b>2005</b></td>
                  <td width=10% align=right valign=bottom><b>2006</b></td>
                  <td width=10% align=right valign=bottom><b>2007</b></td>
                  <td width=10% align=right valign=bottom><b>After</b></td>
         </tr>
         <tr>
                  <td align=left>Westmoreland Mining term debt&nbsp;<sup>(1)</sup></td>
                  <td align=right>88,500</td>
                  <td align=right>10,300</td>
                  <td align=right>10,300</td>
                  <td align=right>11,300</td>
                  <td align=right>12,000</td>
                  <td align=right>44,600</td>
         </tr>
         <tr>
                  <td align=left>Westmoreland Coal Company<br>revolving debt</td>
                  <td align=right valign=bottom>500</td>
                  <td align=right valign=bottom>-</td>
                  <td align=right valign=bottom>500</td>
                  <td align=right valign=bottom>-</td>
                  <td align=right valign=bottom>-</td>
                  <td align=right valign=bottom>-</td>
         </tr>
         <tr>
                  <td align=left>Other debt</td>
                  <td align=right>4,469</td>
                  <td align=right>1,295</td>
                  <td align=right>1,374</td>
                  <td align=right>695</td>
                  <td align=right>625</td>
                  <td align=right>480</td>
         </tr>
         <tr>
                  <td align=left>Operating leases</td>
                  <td align=right>5,594</td>
                  <td align=right>2,753</td>
                  <td align=right>1,356</td>
                  <td align=right>867</td>
                  <td align=right>618</td>
                  <td align=right>-</td>
         </tr>
         <tr>
                  <td align=left>Heritage Health Benefit/<br>Pension:</td>
                  <td align=right>&nbsp;</td>
                  <td align=right>&nbsp;</td>
                  <td align=right>&nbsp;</td>
                  <td align=right>&nbsp;</td>
                  <td align=right>&nbsp;</td>
                  <td align=right>&nbsp;</td>
         </tr>
         <tr>
                  <td align=left>&nbsp;&nbsp;&nbsp;Undiscounted obligations:</td>
                  <td align=right>&nbsp;</td>
                  <td align=right>&nbsp;</td>
                  <td align=right>&nbsp;</td>
                  <td align=right>&nbsp;</td>
                  <td align=right>&nbsp;</td>
                  <td align=right>&nbsp;</td>
         </tr>

         <tr>
                  <td align=left>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Workers&#146; compensation</td>
                  <td align=right>9,478</td>
                  <td align=right>2,016</td>
                  <td align=right>2,000</td>
                  <td align=right>1,800</td>
                  <td align=right>1,600</td>
                  <td align=right>2,062</td>
         </tr>
         <tr>
                  <td align=left>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;1974 UMWA pension</td>
                  <td align=right>250&nbsp;<SUP>(2)</SUP></td>
                  <td align=right>250</td>
                  <td align=right>-</td>
                  <td align=right>-</td>
                  <td align=right>-</td>
                  <td align=right>-</td>
         </tr>
        <tr>
                  <td align=left>&nbsp;&nbsp;&nbsp;Discounted obligations:</td>
                  <td align=right>&nbsp;</td>
                  <td align=right>&nbsp;</td>
                  <td align=right>&nbsp;</td>
                  <td align=right>&nbsp;</td>
                  <td align=right>&nbsp;</td>
                  <td align=right>&nbsp;</td>
         </tr>
          <tr>
                  <td align=left>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Combined Benefit Fund<br>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(Multiemployer)</td>
                  <td align=right>39,780&nbsp;<sup>(3)</sup></td>
                  <td align=right>8,311</td>
                  <td align=right>4,783</td>
                  <td align=right>4,516</td>
                  <td align=right>4,254</td>
                  <td align=right>17,916</td>
         </tr>
         <tr>
                  <td align=left>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Postretirement medical</td>
                  <td align=right>237,554&nbsp;<SUP>(4)</SUP></td>
                  <td align=right>17,367</td>
                  <td align=right>18,206</td>
                  <td align=right>17,446</td>
                  <td align=right>18,005</td>
                  <td align=right>166,530</td>
         </tr>
         <tr>
                  <td align=left>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Qualified pension benefits</td>
                  <td align=right>47,777&nbsp;<SUP>(5)</SUP></td>
                  <td align=right>456</td>
                  <td align=right>597</td>
                  <td align=right>832</td>
                  <td align=right>1,118</td>
                  <td align=right>44,774</td>
         </tr>
         <tr>
                  <td align=left>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;SERP benefits</td>
                  <td align=right>1,963&nbsp;<SUP>(6)</SUP></td>
                  <td align=right>76</td>
                  <td align=right>74</td>
                  <td align=right>71</td>
                  <td align=right>69</td>
                  <td align=right>1,673</td>
         </tr>
         <tr>
                  <td align=left>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Pneumoconiosis</td>
                  <td align=right>21,961&nbsp;<SUP>(7)</SUP></td>
                  <td align=right>2,500</td>
                  <td align=right>2,500</td>
                  <td align=right>2,500</td>
                  <td align=right>2,500</td>
                  <td align=right>11,961</td>
         </tr>
         <tr>
                  <td align=left>Reclamation costs</td>
                  <td align=right>306,668&nbsp;<SUP>(8)</SUP></td>
                  <td align=right>5,757</td>
                  <td align=right>4,902</td>
                  <td align=right>4,296</td>
                  <td align=right>4,024</td>
                  <td align=right>287,689</td>
         </tr>
         <tr>
                  <td align=left valign=middle>Preferred dividends</td>
                  <td align=right valign=top>15,303&nbsp;<sup>(9)</sup></td>
                  <td align=right valign=top>1,744&nbsp;<sup>(10)</sup></td>
                  <td align=right valign=top>1,744&nbsp;<sup>(10)</sup></td>
                  <td align=right valign=top>1,744&nbsp;<sup>(10)</sup></td>
                  <td align=right valign=top>1,744&nbsp;<sup>(10)</sup></td>
                  <td align=right valign=top>1,744&nbsp;<sup>(10)</sup><br>per year</td>
         </tr>
</table>

<table width=650>
<tr>
<td width=10% align=right valign=top><FONT FACE="Times New Roman, Times, Serif" size=2>(1)</font></td>
<td width=90%><FONT FACE="Times New Roman, Times, Serif" size=2>At December 31, 2003, Westmoreland Mining had deposited $17.4 million in two restricted accounts as collateral against these
              obligations.</font></td>
</tr>
<tr>
<td width=10% align=right valign=top><FONT FACE="Times New Roman, Times, Serif" size=2>(2)</font></td>
<td width=90%><FONT FACE="Times New Roman, Times, Serif" size=2>This amount is the amount payable as of December 31, 2003, after giving effect to our settlement with the 1974 UMWA
              Retirement Plan.</font></td>
</tr>
<tr>
<td width=10% align=right valign=top><FONT FACE="Times New Roman, Times, Serif" size=2>(3)</font></td>
<td width=90%><FONT FACE="Times New Roman, Times, Serif" size=2>Except for retroactive premium assessments of approximately $3.5 million that we are contesting, we have not accrued the
              present value of this obligation, because this plan is a multiemployer plan.  We expense our premium payments when due.</font></td>
</tr>
<tr>
<td width=10% align=right valign=top><FONT FACE="Times New Roman, Times, Serif" size=2>(4)</font></td>
<td width=90%><FONT FACE="Times New Roman, Times, Serif" size=2>The table presents our estimate of our gross benefit obligation.  The accrued liability, net of the unrecognized net
              actuarial loss and the unrecognized net transition obligation, was $127.2 million as of December 31, 2003.</font></td>
</tr>
<tr>
<td width=10% align=right valign=top><FONT FACE="Times New Roman, Times, Serif" size=2>(5)</font></td>
<td width=90%><FONT FACE="Times New Roman, Times, Serif" size=2>The fair value of plan assets at December 31, 2003 was $32.8 million.  Pension benefits will be paid from these assets.</font></td>
</tr>

<tr>
<td width=10% align=right valign=top><FONT FACE="Times New Roman, Times, Serif" size=2>(6)</font></td>
<td width=90%><FONT FACE="Times New Roman, Times, Serif" size=2>The table presents our estimate of our gross benefit obligation.  The accrued liability, net of the unrecognized net
              actuarial gain and an unrecognized prior service cost, was $2.2 million as of December 31, 2003.  The plan was unfunded
              at December 31, 2003.</font></td>
</tr>
</table>

<br>
<p align=center><FONT FACE="Times New Roman, Times, Serif" SIZE=3>27</font></p>
<page>
<br>

<table width=650>

<tr>
<td width=10% align=right valign=top><FONT FACE="Times New Roman, Times, Serif" size=2>(7)</font></td>
<td width=90%><FONT FACE="Times New Roman, Times, Serif" size=2> The fair value of plan assets at December 31, 2003 was $28.2 million.  Pneumoconiosis benefits will be paid from these
              assets.</font></td>
</tr>

<tr>
<td width=10% align=right valign=top><FONT FACE="Times New Roman, Times, Serif" size=2>(8)</font></td>
<td width=90%><FONT FACE="Times New Roman, Times, Serif" size=2>The table presents our estimate of our gross cost of final reclamation.  The accrued liability of $123.3 million as of
              December 31, 2003 will increase in present value as acres are disturbed in mining operations and as mine closures draw
              nearer.  The accrued liability reflects the present value of contractual obligations of our customers and Washington
              Group, the contract miner at the Absaloka Mine, to perform reclamation; we estimate that the gross amount of their
              obligations is $25.4 million.  The table also does not reflect $52.8 million, the amount held in escrow as of December
              31, 2003 from contributions by customers for reclamation of the Rosebud Mine.  We estimate that the present value of our
              net expense for final reclamation - that is, the costs of final reclamation that are not the contractual
              responsibilities of others - is $45.2 million.</font></td>
</tr>

<tr>
<td width=10% align=right valign=top><FONT FACE="Times New Roman, Times, Serif" size=2>(9)</font></td>
<td width=90%><FONT FACE="Times New Roman, Times, Serif" size=2>Represents quarterly dividends that are accumulated through and including January 1, 2004.</font></td>
</tr>
<tr>
<td width=10% align=right valign=top><FONT FACE="Times New Roman, Times, Serif" size=2>(10)</font></td>
<td width=90%><FONT FACE="Times New Roman, Times, Serif" size=2>As provided in the Certificate of Designation establishing the Series A Preferred Stock, the holders of the Series A
              Preferred Stock are entitled to receive dividends "when, as and if declared by the Board of Directors out of funds of
              the Corporation legally available therefore."  In general, dividends that are not paid cumulate, as provided in the
              Certificate of Designation.</font></td>
</tr>
</TABLE>


<P><FONT FACE="Times New Roman, Times, Serif" size=3>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Since December 31, 2003,
the most significant change to the preceding table relates to the add-on
facility described above. Principal of this facility is payable from 2009
through 2011. After giving effect to Westmoreland Mining&#146;s borrowings under
this facility and payments of its existing indebtedness, Westmoreland
Mining&#146;s term debt increased from $88.5 million at December 31, 2003 to
$106.3 million at March 31, 2004. </FONT></P>

<br>
<p align=center><FONT FACE="Times New Roman, Times, Serif" SIZE=3>28</font></p>
<page>
<br>


<p><FONT FACE="Times New Roman, Times, Serif" SIZE=3><b>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Growth and Development Strategy</b></font></p>

<P><FONT FACE="Times New Roman, Times, Serif" size=3>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our growth and development
strategy is founded on the ownership and operation of physical assets that
generate profits. We strive to identify assets that are low-cost producers and
environmental leaders and that supply customers who share our orientation for
low-cost production and our environmental concern. We believe that we will be
more likely to achieve success in niche markets. Our goal is to acquire stable,
long-term earnings. We will use our NOLs to shield that income from regular U.S.
Federal income tax. </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" size=3>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The acquisitions we
completed in 2001 exemplify this strategy. Among other things, the Rosebud,
Jewett, Beulah and Savage Mines are essentially adjacent to their principal
customers, to which they deliver coal by conveyor belt or truck, and are the
lowest-cost producers for their respective customers. These mines&#146;
principal customers all employ emissions control technology. These mines are
party to long-term contracts with their principal customers that generate stable
earnings. </FONT></P>

<p><FONT FACE="Times New Roman, Times, Serif" SIZE=3>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Examples of our current development efforts include the following:</font></p>

<table width=650 cellpadding=0 cellspacing=0 border=0>
<tr>
<td width=5%>&nbsp;</td>
<td width=4% valign=top>&#149;</td>
<td width=91%>In 2003, we leased the rights to explore, drill and produce coalbed methane gas
on property that we own in Southern Colorado to Petrogulf Corporation for
$300,000 and a royalty interest on production from that property. Petrogulf
drilled twelve wells by the end of 2003, and we began earning production
royalties in February 2004.</td>
</tr>
</table>
<br>

<table width=650 cellpadding=0 cellspacing=0 border=0>
<tr>
<td width=5%>&nbsp;</td>
<td width=4% valign=top>&#149;</td>
<td width=91%>In 2001, as part of our transaction with Knife River, we acquired rights to
develop the lignite deposits at Gascoyne, North Dakota. Our subsidiary,
Westmoreland Power, Inc., has joined with MDU Resources Group, Inc. to pursue
development of a baseloaded lignite-fired power plant near Gascoyne as part of
the State of North Dakota&#146;s Lignite Vision 21, or LV-21, program. LV-21 is
a partnership between North Dakota and the Lignite Energy Council, or LEC, that
is administered by the North Dakota Industrial Commission, or NDIC. Westmoreland
Power and MDU executed a joint development agreement in 2001, and we each own
half of the venture that is seeking to develop the power plant. In September
2001, NDIC awarded the Westmoreland/MDU joint venture up to $10 million in
matching funds to finance feasibility and technical studies. In January 2003, as
a result of these studies, we and MDU sought additional support from NDIC to
study the feasibility of substituting a 250 MW or 175 MW power plant for the 500
MW plant that had originally been proposed. NDIC awarded the funds we sought,
and we and MDU completed studies of generation technology and lignite mining
issues in 2003. Air quality evaluation was completed in early 2004, and in May
2004, we and MDU applied to the North Dakota Department of Health for an air
quality permit for a proposed 175 MW plant.</td>
</tr>
</table>

<P><FONT FACE="Times New Roman, Times, Serif" size=3>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;An existing source of
future income and cash flow relates to the Caballo Mine in Campbell County,
Wyoming. In connection with the 2001 acquisitions, we acquired the stock of
Horizon Coal Services, Inc. Horizon&#146;s only asset is a royalty interest in
coal reserves located at the Caballo Mine, which is owned by a company that is
not affiliated with us. The royalty of $.10 per ton covers the mining of 225
million tons of coal, making the potential gross royalty amount $22.5 million.
The latest mine plan projects that mining of coal subject to the royalty will
begin in 2007. </FONT></P>

<br>
<p align=center><FONT FACE="Times New Roman, Times, Serif" SIZE=3>29</font></p>
<page>
<br>

<P><FONT FACE="Times New Roman, Times, Serif" size=3>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Another source of potential
future income may involve ROVA. LG&amp;E has offered to sell us its 50% interest
in the ROVA Project pursuant to our right of first purchase and has provided the
terms and conditions of its proposed sale. We are discussing the terms and
conditions of such an acquisition with LG&amp;E. </FONT></P>

<H2 ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" size=3>Liquidity and
Capital Resources</FONT></H2>

<P><FONT FACE="Times New Roman, Times, Serif" size=3>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As discussed in the
Overview section above, we believe that Westmoreland Mining&#146;s add-on
facility substantially improves our near-term liquidity. In addition, even
though the requirements of Westmoreland Mining&#146;s basic term loan agreement,
including debt service requirements, restrict our access to some of Westmoreland
Mining&#146;s cash, Westmoreland Mining itself generates significant liquidity.
As discussed in more detail in the Liquidity Outlook section below, we expect to
achieve increasing cash from operations in 2004, offset by higher capital
expenditures at our mines that will reduce free cash flow. </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" size=3>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Cash provided by operating
activities was $24.8 million in 2003, $32.4 million in 2002 and $28.4 million in
2001. Cash from operations in 2003 compared to 2002 declined primarily because
we had less operating income because of the change in the pricing structure at
the Jewett Mine. In July 2002, the pricing structure changed from a
cost-plus-fees approach to one that uses a market-based pricing mechanism. The
decline in our cash from operations was partially offset by an increase in our
deferred tax assets, gains from the sale of our interest in Dominion Terminal
Associates, or DTA, a coal storage and vessel-loading facility in southeastern
Virginia, and a net increase in our other assets. The net change in assets and
liabilities was $16.3 million in 2003 compared to $15.0 million in 2002,
resulting from higher non-cash expenses for pension and postretirement medical
obligations. Cash from operations in 2002 also benefited by approximately $1.1
million from a favorable judgment in a dispute with the U.S. Army concerning a
power project in Fort Drum, New York, in which we owned an interest. Working
capital was $5.6 million at December&#160;31, 2003 compared to $10.1 million at
December 31, 2002. The change resulted primarily from a $2.9 million reduction
in the current portion of our deferred income tax assets and an increase in the
current portion of our postretirement medical costs, mostly attributable to the
accrual of the retroactive premium assessed by the Combined Fund, which we are
challenging. </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" size=3>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Cash provided by operating
activities was $3.9 million in the quarter ended March 31, 2004, and $7.7
million in the quarter ended March 31, 2003. Cash from operations in the first
quarter of 2004 compared to the first quarter of 2003 decreased primarily due to
a lower semi-annual distribution from the ROVA Project and higher cash costs for
post-retirement medical benefits, specifically the disputed retroactive premiums
being paid to the Combined Benefit Fund. The net change in assets and
liabilities was $0.3 million in the first quarter of 2004 compared to $2.6
million in the first quarter of 2003, resulting from increase in accounts
receivable due to normal timing differences in collecting receivables and an
increase in sales tons and revenues. Working capital was $24.9 million at March
31, 2004 compared to $5.6 million at December 31, 2003. The change resulted
primarily from the $18.7 million in net proceeds from borrowings of long-term
debt. </FONT></P>

<br>
<p align=center><FONT FACE="Times New Roman, Times, Serif" SIZE=3>30</font></p>
<page>
<br>

<P><FONT FACE="Times New Roman, Times, Serif" size=3>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We used $17.3 million of
cash in investing activities in 2003, $3.7 million in 2002 and $151.3 million in
2001. Cash used in investing activities in 2003 included $13.2 million of
additions to property, plant and equipment for mine equipment and leases for
coal reserves. Cash used in investing activities in 2003 also included $11.0
million that we deposited in restricted accounts, pursuant to Westmoreland
Mining&#146;s term loan agreement and as collateral for our bonds. During 2003,
net proceeds from sales of assets of $7.0 million included $4.5 million cash
received from the sale of DTA and $1.4 million received from the sale of land
and mineral rights in Colorado. In 2002, additions to property and equipment
used cash totaling $7.3&#160;million, and we received $3.6 million from the
Absaloka Mine&#146;s mining contractor to settle a dispute regarding repair of
the dragline at that mine. Also during 2002, we deposited $6.4 million into
restricted cash accounts for debt service, security deposits and reclamation
deposit accounts. Those deposits were offset by the $6.0 million refund of
collateral we received from the UMWA. In 2001, we used $162.7 million of cash in
investing activities to purchase the Rosebud, Jewett, Beulah and Savage mines.
Other additions to our property, plant and equipment totaled $5.4 million in
2001. Cash provided by investing activities in 2001 included $16.0 million in
proceeds from the sale of our interests in three independent power projects. </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" size=3>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We used $4.6 million of
cash in investing activities in the quarter ended March 31, 2004, and $4.1
million in the quarter ended March 31, 2003. Cash used in investing activities
in the first quarter of 2004 included $2.1 million of additions to property,
plant and equipment for mine equipment and leases for coal reserves. Cash used
in investing activities in the first quarter of 2004 also included an increase
of $2.6 million in restricted accounts, pursuant to our term loan agreement and
as collateral for our surety bonds. In the first quarter of 2003, additions to
property and equipment using cash totaled $2.4 million. Also during the first
quarter of 2003, we deposited $1.8 million into restricted cash accounts for
debt service, security deposits and reclamation deposit accounts. </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" size=3>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We used $8.1 million of
cash in financing activities in 2003, including $5.2 million for the net
repayment of long-term debt and $1.5 million for the net repayment of revolving
debt. Cash used in financing activities in 2002 primarily represented repayment
of long-term debt of $13.8 million and the net repayment of revolving debt of
$9.0 million. Cash provided by financing activities for 2001 totaled $113.9
million, mainly from the proceeds of long-term and revolving debt used in the
2001 acquisitions. Dividends paid to Westmoreland Resources&#146; 20%
stockholder in 2003, 2002 and 2001 were $1.0 million, $1.2 million and $1.1
million, respectively. </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" size=3>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We generated $15.6 million
of cash in financing activities in the quarter ended March 31, 2004, including
$18.7 million from new borrowings of long-term debt, net of debt issuance costs.
We used cash of $3.2 million for the repayment of long-term and revolving debt.
Cash used in financing activities in the first quarter of 2003 primarily
represented repayment of long-term and revolving debt of $4.0 million. </FONT></P>

<br>
<p align=center><FONT FACE="Times New Roman, Times, Serif" SIZE=3>31</font></p>
<page>
<br>

<P><FONT FACE="Times New Roman, Times, Serif" size=3>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Consolidated cash and cash
equivalents at March 31, 2004 totaled $24.3 million, including $4.3 million at
Westmoreland Mining, $5.2 million at Westmoreland Resources, and $1.8 million at
Westmoreland Risk Management Ltd., our captive insurance subsidiary.
Consolidated cash and cash equivalents at December 31, 2003 totaled $9.3
million, including $4.1&#160;million at Westmoreland Mining, $4.2 million at
Westmoreland Resources, and $1.5&#160;million at Westmoreland Risk Management.
At December 31, 2002, consolidated cash and cash equivalents totaled $9.8
million, including $5.1 million at Westmoreland Mining, $4.7 million at
Westmoreland Resources, and $0.6 million at Westmoreland Risk Management. The
cash at Westmoreland Mining is available to us through quarterly distributions,
as described below. The cash at Westmoreland Resources is available to us
through dividends. In addition, we had restricted cash and bond collateral,
which were not classified as cash or cash equivalents, of $26.9 million at March
31, 2004, $25.0 million at December 31, 2003 and $17.3&#160;million at December
31, 2002. The restricted cash at March 31, 2004 included $18.8 million in
Westmoreland Mining&#146;s debt service reserve and long-term prepayment
accounts. The restricted cash at December 31, 2003 included $17.4&#160;million
in Westmoreland Mining&#146;s debt service reserve and long-term prepayment
accounts. Our reclamation, workers&#146; compensation and postretirement medical
cost obligation bonds were collateralized by interest-bearing cash deposits of
$9.5&#160;million at March 31, 2004 and $7.6 million at December 31, 2003, which
amounts we have classified as non-current assets. In addition, we had
reclamation deposits of $53.5&#160;million at March&#160;31, 2004 and $52.8
million at December 31, 2003, which we received from customers of the Rosebud
Mine to pay for reclamation. We also have $5.0 million in interest-bearing debt
reserve accounts for the ROVA Project. This cash is restricted as to its use and
is classified as part of our investment in independent power projects. </FONT></P>


<P><FONT FACE="Times New Roman, Times, Serif" size=3>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In early March 2004,
Westmoreland Mining entered into the add-on facility. This facility made $20.4
million available to us immediately, and Westmoreland Mining will borrow the
remaining $14.6 million in the fourth quarter of 2004. The add-on facility will
permit Westmoreland Mining to undertake significant capital projects,
principally at the Rosebud and Jewett Mines, in the near term without adversely
affecting cash available to Westmoreland Coal Company. Although the terms of the
add-on facility permit Westmoreland Mining to distribute this $35 million to
Westmoreland Coal Company, the original term loan agreement, which financed our
acquisition of the Rosebud, Jewett, Beulah and Savage Mines, continues to
restrict Westmoreland Mining&#146;s ability to make distributions to
Westmoreland Coal Company from ongoing operations. Until Westmoreland Mining has
fully paid the original acquisition debt, which is scheduled for December 31,
2008, Westmoreland Mining may only pay Westmoreland Coal Company a management
fee and distribute to Westmoreland Coal Company 75% of Westmoreland
Mining&#146;s surplus cash flow. Westmoreland Mining is depositing the remaining
25% into an account that will fund the $30 million balloon payment due December
31, 2008. At the same time that Westmoreland Mining entered into the add-on
facility, it also extended its revolving credit facility to 2007 and reduced the
amount of the facility to $12 million. Westmoreland Mining reduced the amount of
the revolving facility to better align its borrowing capacity to its expected
usage and borrowing base. </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" size=3>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As of December 31, 2003,
Westmoreland Coal Company had $9.5 million of its $10.0 million revolving line
of credit available to borrow, and as of March 31, 2004, Westmoreland Coal
Company had its entire $10.0 million revolving line of credit available to
borrow. Effective June 24, 2004, Westmoreland Coal Company amended its revolving
credit facility to increase the amount available to be borrowed from $10 to $14
million and extend that facility from January 2005 to June 30, 2006. </FONT></P>

<H2 ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" size=3>Liquidity
Outlook</FONT></H2>

<p><FONT FACE="Times New Roman, Times, Serif" SIZE=3>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<b>Significant Anticipated Variances between 2003 and 2004</b></font></p>

<P><FONT FACE="Times New Roman, Times, Serif" size=3>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We anticipate that the
following events and developments, which have occurred or that we expect will
occur in 2004 but which did not occur in 2003, and the following events and
developments, which we expect will not occur in 2004 but which did occur in
2003, will affect our liquidity and our net income. </FONT></P>

<br>
<p align=center><FONT FACE="Times New Roman, Times, Serif" SIZE=3>32</font></p>
<page>
<br>

<table width=650 cellpadding=0 cellspacing=0 border=0>
<tr>
<td width=5%>&nbsp;</td>
<td width=4% valign=top>&#149;</td>
<td width=91% valign=top>We anticipate that our coal revenues will be higher, principally because of
increased sales from the Absaloka and Rosebud Mines and the new, higher price
for coal supplied to Colstrip Units 1&amp;2, partially offset by decreased sales
from the Jewett Mine. We anticipate that our cost of coal sales will increase
commensurate with the increase in production, and because of higher near term
costs at the Jewett Mine. In the fourth quarter of 2003, operations at the
Jewett Mine encountered an area where the stripping ratio &#150; the ratio
between the volume of overburden to the volume of the coal &#150; was higher.</td>
</tr>
</table>
<br>


<table width=650 cellpadding=0 cellspacing=0 border=0>
<tr>
<td width=5%>&nbsp;</td>
<td width=4% valign=top>&#149;</td>
<td width=91% valign=top>The price for the coal that we supply to Colstrip Units 1&amp;2 was finally
determined in May 2004. The arbitrators&#146; decision resulted in a price
increase. Because the new price is effective as of July 30, 2001, we expect
that, after payment of taxes and royalties, we will receive a payment of
approximately $11 million for coal that we supplied to Colstrip Units 1&amp;2
from the end of July 2001 through May 2004. There was no comparable event in
2003.</td>
</tr>
</table>
<br>

<table width=650 cellpadding=0 cellspacing=0 border=0>
<tr>
<td width=5%>&nbsp;</td>
<td width=4% valign=top>&#149;</td>
<td width=91% valign=top>We anticipate that capital expenditures related to our mining activities will be
higher in 2004 than in 2003. We expect that most of the increase in 2004 will be
associated with mine development at the Jewett Mine, which is necessary to
improve mining conditions.</td>
</tr>
</table>
<br>

<table width=650 cellpadding=0 cellspacing=0 border=0>
<tr>
<td width=5%>&nbsp;</td>
<td width=4% valign=top>&#149;</td>
<td width=91% valign=top>In March 2004, we settled a claim brought by the 1974 UMWA Retirement Plan. This
settlement permitted us to reverse an accrued liability and recognize $6.3
million of income in 2003. This is a non-recurring item, but we will also avoid
payments of approximately $2.1 million per year in each of the next three and
one-half years.</td>
</tr>
</table>
<br>

<table width=650 cellpadding=0 cellspacing=0 border=0>
<tr>
<td width=5%>&nbsp;</td>
<td width=4% valign=top>&#149;</td>
<td width=91% valign=top>In 2003, we received $4.5 million upon the sale of our interest in DTA, $1.4
million from North Central&#146;s sale of surface and mineral rights, and
$300,000 in bonus payments from North Central&#146;s lease of coalbed methane
rights. We do not anticipate having significant asset sales in 2004.</td>
</tr>
</table>
<br>

<table width=650 cellpadding=0 cellspacing=0 border=0>
<tr>
<td width=5%>&nbsp;</td>
<td width=4% valign=top>&#149;</td>
<td width=91% valign=top>In 2003, we did not receive royalties from sales of coalbed methane. We
anticipate that we will receive royalties from sales of coalbed methane in 2004.
We do not anticipate that our revenues from coalbed methane will exceed $300,000
in 2004.</td>
</tr>
</table>
<br>

<table width=650 cellpadding=0 cellspacing=0 border=0>
<tr>
<td width=5%>&nbsp;</td>
<td width=4% valign=top>&#149;</td>
<td width=91% valign=top>In 2003, we received a $582,000 distribution from the Fort Lupton Project. We
call this a &#147;catch-up&#148; distribution because most of it related to
periods prior to 2003. We may receive a relatively small quarterly distribution
from Ft. Lupton in 2004.</td>
</tr>
</table>
<br>

<table width=650 cellpadding=0 cellspacing=0 border=0>
<tr>
<td width=5%>&nbsp;</td>
<td width=4% valign=top>&#149;</td>
<td width=91% valign=top>We sold our interest in DTA effective June 30, 2003. We were incurring losses
from DTA at an annual rate of about $2 million, and our share of those losses in
2003 was about $1 million. We will not have losses from DTA in 2004.</td>
</tr>
</table>
<br>

<br>
<p align=center><FONT FACE="Times New Roman, Times, Serif" SIZE=3>33</font></p>
<page>
<br>

<table width=650 cellpadding=0 cellspacing=0 border=0>
<tr>
<td width=5%>&nbsp;</td>
<td width=4% valign=top>&#149;</td>
<td width=91% valign=top>We anticipate that our interest income will be higher in 2004 than it was in
2003 because of continued deposits to Westmoreland Mining&#146;s restricted
accounts. We anticipate higher interest costs in 2004 because of the additional
$20.4 million Westmoreland Mining borrowed in March 2004.</td>
</tr>
</table>
<br>

<table width=650 cellpadding=0 cellspacing=0 border=0>
<tr>
<td width=5%>&nbsp;</td>
<td width=4% valign=top>&#149;</td>
<td width=91% valign=top>Our results for 2004 may be affected by the potential negative impact of
increased prospective and retroactive personal property taxes at the ROVA
Project. The lender to the Project may retain funds in an amount equal to the
amount claimed by Halifax County, which are normally available for distribution
to us and LG&amp;E, until Halifax County&#146;s tax claim has been resolved.</td>
</tr>
</table>
<br>

<table width=650 cellpadding=0 cellspacing=0 border=0>
<tr>
<td width=5%>&nbsp;</td>
<td width=4% valign=top>&#149;</td>
<td width=91% valign=top>In the first quarter of 2004, we accrued an expense of approximately $1.0
million in response to the decision of the U.S. Court of Appeals for the Tenth
Circuit in the Basin Resources litigation. We describe this case under
&#147;Legal Proceedings.&#148; We had no comparable accrual in 2003.</td>
</tr>
</table>
<br>

<table width=650 cellpadding=0 cellspacing=0 border=0>
<tr>
<td width=5%>&nbsp;</td>
<td width=4% valign=top>&#149;</td>
<td width=91% valign=top>We expect to incur approximately $26 million for postretirement medical costs in
all of 2004 compared to $20.7 million paid in 2003. These amounts include
payments in respect of the Combined Fund&#146;s retroactive assessment, which we
must pay pending the outcome of ongoing litigation. We accrued the entire $4.7
million of this assessment in 2003, paid $1.2 million in 2003 and $1.1 million
in the first quarter of 2004, and expect to pay the remaining $2.4 million in
the second and third quarters of 2004.</td>
</tr>
</table>
<br>

<table width=650 cellpadding=0 cellspacing=0 border=0>
<tr>
<td width=5%>&nbsp;</td>
<td width=4% valign=top>&#149;</td>
<td width=91% valign=top>During the next fifteen months, we plan to implement a common, corporate-wide
enterprise resource planning, or information technology, system to enhance our
reporting and analysis capability. The initial investment is expected to be
approximately $3 million.</td>
</tr>
</table>
<br>

<table width=650 cellpadding=0 cellspacing=0 border=0>
<tr>
<td width=5%>&nbsp;</td>
<td width=4% valign=top>&#149;</td>
<td width=91% valign=top>We anticipate that the expense associated with our 2000 Performance Unit Plan
will be lower in 2004 than it was in 2003. In 2000, we adopted a long-term
incentive plan to promote the successful implementation of our strategic plan
and link the compensation of our key managers to the appreciation in the price
of our common stock. The value of the performance units awarded in 2000 was
based on the absolute increase in market value of our common stock over the
period July 1, 2000 to June 30, 2003. Because the value of our common stock
appreciated $14.72 per share over that period, the value of the performance
units at the end of the performance period was $6.4 million. This obligation is
being paid out over time and may be paid in cash or stock at our election. The
Board&#146;s Compensation &amp; Benefits Committee also awarded performance
units in 2001 and 2002. The value of the 2001 and 2002 awards is based on the
appreciation of our common stock compared to that of our peers, and the value of
these awards is capped. The potential maximum value of the performance units
awarded in 2001 and 2002 is $2.9 million and $2.5 million, respectively. Because
stockholders had approved a Long-Term Stock Incentive Plan at our 2002 Annual
Meeting, we were able to use stock options as the sole vehicle for the 2003
long-term incentive program.</td>
</tr>
</table>
<br>

<br>
<p align=center><FONT FACE="Times New Roman, Times, Serif" SIZE=3>34</font></p>
<page>
<br>

<table width=650 cellpadding=0 cellspacing=0 border=0>
<tr>
<td width=5%>&nbsp;</td>
<td width=4% valign=top>&#149;</td>
<td width=91% valign=top>We have three defined benefit pension plans for full-time employees. We were not
required to make any contributions to those plans in 2003 and we did not make
any contributions in the first quarter of 2004. We will contribute approximately
$1.3 million to these plans and may elect to contribute up to an additional $0.9
million to these plans in 2004. We may also be required to make additional
contributions in future years unless the return on the plans&#146; investments
materially improves or the plans&#146; funding requirements change.</td>
</tr>
</table>


<p><FONT FACE="Times New Roman, Times, Serif" SIZE=3>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<b>Significant Factors Affecting Our Liquidity</b></font></p>

<P><FONT FACE="Times New Roman, Times, Serif" size=3>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The matters discussed above
focus on anticipated differences between 2003 and 2004. It will be readily
apparent that a number of non-recurring events significantly influenced our 2003
results. Our operational performance, our financial results and our liquidity
may also be affected by all of the other matters discussed in this prospectus,
including the matters discussed under &#147;Risk Factors&#148; and &#147;Legal
Proceedings,&#148; as well as in this Management&#146;s Discussion and Analysis
of Financial Condition and Results of Operations. Primarily because of our size
and the multitude of issues related to our transition from an eastern
underground producer of coal, to a western niche surface producer with
significant reliance on independent power operations, we have been subject to
the impact of many matters beyond our control. For all of the foregoing reasons,
and while we anticipate that we will be profitable in 2004, we cannot project
our overall level of profitability. </FONT></P>

<H2 ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" size=3>Off-Balance
Sheet Arrangements</FONT></H2>

<p><FONT FACE="Times New Roman, Times, Serif" SIZE=3>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We do not have any off-balance sheet arrangements within the meaning of the rules of the Securities and Exchange Commission.</font></p>


<H2 ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" size=3>Results of Operations<br>Quarter ended
March 31, 2004 Compared to Quarter ended March 31, 2003</FONT></H2>

<hr noshade>

<P><FONT FACE="Times New Roman, Times, Serif" size=3><I>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Coal Operations. </I>The
increase in coal revenues to $77.1 million in the first quarter of 2004 from
$74.5 million in 2003&#145;s first quarter was primarily the result of an
increase in sales tons from 7.0 million to 7.4 million. The increase in 2004 was
expected as a result of new or extended sales contracts at the Rosebud and
Absaloka Mines. Almost all of the tons sold in both quarters were sold under
long-term contracts to owners of power plants located adjacent to or near the
mines, other than at the Absaloka Mine. There was a commensurate increase in
cost of sales. Costs increased at the Jewett Mine due to unexpected repairs to a
primary dragline, a customer outage that extended beyond its planned duration
and unusually heavy rainfall during the first quarter of 2004. Gross margin
increased $0.6 million in the first quarter of 2004 compared to the first
quarter of 2003. </FONT></P>

<p><FONT FACE="Times New Roman, Times, Serif" SIZE=3>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The following table shows comparative coal revenues, sales volumes, cost of sales and percentage changes between the periods:</font></p>

<table align=center border=0 cellPadding=0 cellSpacing=0 width=650>
         <tr>
                  <td width=34% align=left></td>
                  <td width=3% align=right></td>
                  <td width=43% align=center colspan=3><b>Quarter Ended<br>March 31,</b></td>
                  <td width=20% align=right></td>
         </tr>
         <tr>
                  <td align=left></td>
                  <td align=right></td>
                  <td align=center><b>2004</b></td>
                  <td align=right><b></b></td>
                  <td align=center><b>2003</b></td>
                  <td align=center><b>Change</b></td>
         </tr>
         <tr>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
         </tr>
         <tr>
                  <td align=left></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
         </tr>
         <tr>
                  <td width=44% align=left>Revenues &#150; thousands</td>
                  <td width=5%  align=right>$</td>
                  <td width=13% align=right>      77,132 </td>
                  <td width=5%  align=right>$</td>
                  <td width=13% align=right>      74,513 </td>
                  <td width=20% align=center>4%</td>
         </tr>
         <tr>
                  <td align=left>&nbsp;</td>
                  <td align=right>&nbsp;</td>
                  <td align=right>&nbsp;</td>
                  <td align=right>&nbsp;</td>
                  <td align=right>&nbsp;</td>
                  <td align=right>&nbsp;</td>
         </tr>
         <tr>
                  <td align=left>Volumes &#150; millions of equivalent coal tons</td>
                  <td align=right></td>
                  <td align=right>7.446</td>
                  <td align=right></td>
                  <td align=right>6.997</td>
                  <td align=center>6%</td>
         </tr>
         <tr>
                  <td align=left>&nbsp;</td>
                  <td align=right>&nbsp;</td>
                  <td align=right>&nbsp;</td>
                  <td align=right>&nbsp;</td>
                  <td align=right>&nbsp;</td>
                  <td align=right>&nbsp;</td>
         </tr>
         <tr>
                  <td align=left>Cost of sales &#150; thousands</td>
                  <td align=right>$</td>
                  <td align=right>      60,203 </td>
                  <td align=right>$</td>
                  <td align=right>      58,190 </td>
                  <td align=center>3%</td>
         </tr>
</table>
<br>
<p align=center><FONT FACE="Times New Roman, Times, Serif" SIZE=3>35</font></p>
<page>
<br>


<P><FONT FACE="Times New Roman, Times, Serif" size=3>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our business is subject to
weather and some seasonality. We supply coal to electric generation units and if
winter is unseasonably warm or summer is unseasonably cool, the customers&#146;
need for coal may be less than anticipated. </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" size=3>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Depreciation, depletion and
amortization of $3.8 million in the first quarter of 2004 were comparable to
$3.0 million in 2003&#145;s first quarter. The increase was due to continued
capital expenditures at the mines and the increase in production during the
quarter. </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" size=3><I>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Independent Power.</I>
Equity in earnings from independent power operations increased to $5.4 million
in the first quarter of 2004 from $3.8 million in the first quarter of 2003 due
to the timing of the normal spring maintenance outage at the ROVA Project, which
occurred in March 2003 and will occur in the second quarter of 2004. This timing
is expected to reduce equity in earnings in the second quarter of 2004 as
compared to the comparable quarter of 2003. For the quarters ended March 31,
2004 and 2003, the ROVA Project produced 456,000 and 423,000 megawatt hours,
respectively, and achieved average capacity factors of 98% and 92%,
respectively. This means that for the quarters ended March 31, 2004 and 2003,
the ROVA Project was available to be dispatched 98% and 92% of the time,
respectively. </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" size=3><I>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Costs and Expenses.</I>
Selling and administrative expenses were $7.7 million in the quarter ended March
31, 2004 compared to $7.1 million in the quarter ended March 31, 2003. The
increase was primarily a result of higher pension costs for our active employees
caused by a decrease in the discount rate used to calculate the present value of
that obligation. Also, we incurred higher costs associated with certain legal
matters including the contract dispute between Northwestern Resources and Texas
Genco, the withdrawal date dispute with the 1974 UMWA Pension Plan, and the
arbitration with the owners of Colstrip Units 1&amp;2. The Texas Genco and 1974
Plan disputes were settled, and the arbitration took place, during the quarter
ended March&#160;31, 2004. We expect the arbitration decision to be issued
during the quarter ended June 30, 2004. Expenses also include a one-time charge
of approximately $1.0 million related to a March 2004 appellate court decision
involving our subsidiary, Basin Resources. The dispute arose prior to our
purchase of the subsidiary in 2001 and the charge represents reimbursement for
benefits paid by the UMWA during the period prior to our acquisition of Basin
Resources. In the first quarter of 2004, expenses for our performance unit plan,
a long-term incentive plan for management, were $0.2 million compared to $1.3
million in the first quarter of 2003. </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" size=3>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Heritage health benefit
costs decreased to $7.2 million in the first quarter of 2004 from $7.5 million
in the first quarter 2003. The decrease was due to the expected future benefit
of the Medicare Prescription Drug Improvement and Modernization Act of 2003,
offset by a decrease in the discount rate assumption. The UMWA Combined Benefit
Fund assessed a premium increase in October 2003 using a new methodology that we
are challenging. That increase includes $4.7 million for periods through
September 2003 as well as a prospective increase of $41,000 per month. The $4.7
million retroactive premium is being paid over 12 months but was fully accrued
as of September 30, 2003. We are obligated to pay the newly calculated, higher
premiums until the matter is resolved. </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" size=3>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Interest expense was $2.5
million for the three months ended March 31, 2004 and 2003, respectively.
Interest income increased in 2004 because we have higher balances in our
restricted cash and surety bond collateral accounts. </FONT></P>

<br>
<p align=center><FONT FACE="Times New Roman, Times, Serif" SIZE=3>36</font></p>
<page>
<br>

<P><FONT FACE="Times New Roman, Times, Serif" size=3>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As a result of the
acquisitions we completed in the spring of 2001, we recognized a $55.6 million
deferred income tax asset in April 2001 which assumes that a portion of
previously unrecognized net operating loss carryforwards will be utilized
because of the projected generation of future taxable income. The deferred tax
asset increased to $77.0 million as of March 31, 2004 from $75.8 million at
December 31, 2003 because of temporary differences (such as accruals for pension
and reclamation expense, which are not deductible for tax purposes until paid)
arising during the intervening period and due to a reduction of the deferred
income tax valuation allowance discussed above. Deferred tax assets are
comprised of both a current and long-term portion. When taxable income is
generated, the deferred tax asset relating to our net operating loss
carryforwards is reduced and a deferred tax expense (non-cash) is recognized
although no regular Federal income taxes are paid. The income tax benefit for
2004 represents current income tax obligations for state income taxes and for
Federal alternative minimum tax, and the utilization of a portion of our
operating loss carryforwards, net of the impact of changes in deferred tax
assets and liabilities. The deferred tax benefit of $1.0 million recognized in
2004 includes a $0.9 million reduction in the valuation allowance resulting from
an increase in the amount of Federal net operating loss carryforwards we expect
to utilize before their expiration. </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" size=3><I>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Terminal Operations.</I>
Since we sold DTA effective June 30, 2003, we no longer incur losses relating to
our investment in DTA, which was $306,000 in the first quarter of 2003. Our
consolidated financial statements reflect DTA as discontinued operations. </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" size=3><I>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Cumulative Effect of
Change in Accounting Principle. </I>We adopted SFAS No. 143 during first quarter
2003 as described in the section on &#147;Critical Accounting Policies&#148;
above. The cumulative effect of change was a gain of $161,000, net of tax
expense of $108,000. </FONT></P>

<H2 ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" size=3>Results of
Operations<BR>2003 Compared to 2002</FONT></H2>

<hr noshade>

<P><FONT FACE="Times New Roman, Times, Serif" size=3><I>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Coal Operations. </I>We
sold about 1.7 million more tons of coal in 2003 than we did in 2002, but our
coal revenues decreased $6.3 million. Revenues declined because, for part of
2002, the Jewett Mine benefited from a cost-plus-fees pricing structure in its
contract with Texas Genco. We sold more tons at all of our mines in 2003 than we
did in 2002, with the exception of the Beulah Mine, which was adversely affected
by a longer than expected major maintenance outage at the Coyote Station, that
mine&#146;s principal customer. In addition, the Rosebud Mine was adversely
affected by an unscheduled outage at the Colstrip Station, its principal
customer. Costs, as a percentage of revenues, increased to 77% in 2003 compared
to 75% in 2002, again largely as a result of the lower average sales price in
2003 at the Jewett Mine. Also, the implementation of SFAS No. 143 increased
non-cash accretion costs at all mines for future reclamation activities and
reduced margins in 2003. </FONT></P>

<br>
<p align=center><FONT FACE="Times New Roman, Times, Serif" SIZE=3>37</font></p>
<page>
<br>

<p><FONT FACE="Times New Roman, Times, Serif" SIZE=3>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The following table shows comparative coal revenues, sales volumes, cost of sales and percentage changes between the periods:
</font></p>


<table align=center border=0 cellPadding=0 cellSpacing=0 width=650>
         <tr>
                  <td width=34% align=left></td>
                  <td width=3% align=right></td>
                  <td width=43% align=center colspan=3><b>Year Ended December 31,</b></td>
                  <td width=20% align=right></td>
         </tr>
         <tr>
                  <td align=left></td>
                  <td align=right></td>
                  <td align=center><b>2003</b></td>
                  <td align=right><b></b></td>
                  <td align=center><b>2002</b></td>
                  <td align=center><b>Change</b></td>
         </tr>
         <tr>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
         </tr>
         <tr>
                  <td align=left></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
         </tr>
         <tr>
                  <td width=44% align=left>Revenues &#150; thousands</td>
                  <td width=5%  align=right>$</td>
                  <td width=13% align=right>      294,986 </td>
                  <td width=5%  align=right>$</td>
                  <td width=13% align=right>      301,235 </td>
                  <td width=20% align=center>(2)%</td>
         </tr>
         <tr>
                  <td align=left>&nbsp;</td>
                  <td align=right>&nbsp;</td>
                  <td align=right>&nbsp;</td>
                  <td align=right>&nbsp;</td>
                  <td align=right>&nbsp;</td>
                  <td align=right>&nbsp;</td>
         </tr>
         <tr>
                  <td align=left>Volumes &#150; millions of equivalent coal tons</td>
                  <td align=right></td>
                  <td align=right>27.8</td>
                  <td align=right></td>
                  <td align=right>26.1</td>
                  <td align=center>7%</td>
         </tr>
         <tr>
                  <td align=left>&nbsp;</td>
                  <td align=right>&nbsp;</td>
                  <td align=right>&nbsp;</td>
                  <td align=right>&nbsp;</td>
                  <td align=right>&nbsp;</td>
                  <td align=right>&nbsp;</td>
         </tr>
         <tr>
                  <td align=left>Cost of sales &#150; thousands</td>
                  <td align=right>$</td>
                  <td align=right>      228,433 </td>
                  <td align=right>$</td>
                  <td align=right>      226,707 </td>
                  <td align=center>1%</td>
         </tr>
</table>


<P><FONT FACE="Times New Roman, Times, Serif" size=3>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Depreciation, depletion and
amortization increased to $12.6 million in 2003 compared to $11.5 million in
2002 due to increased capital expenditures and increased depreciation resulting
from the increase in production of coal. </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" size=3><I>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Independent Power.</I>
Our equity in earnings from independent power operations increased from $14.5
million in 2002 to $15.8 million in 2003. During 2003 and 2002, the ROVA Project
produced 1,653,000 and 1,639,000 megawatt hours, respectively, and achieved
average capacity factors of 90% and 89%, respectively. Also, we recognized
$582,000 in equity in earnings in 2003 from our 4.49% interest in the Ft. Lupton
project, most of which related to periods prior to 2003. </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" size=3><I>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Costs and Expenses.
</I>Selling and administrative expenses increased from $31.7 million in 2002 to
$33.4 million in 2003. Contributing to the increase were higher heritage health
benefit costs and a higher compensation expense for long-term employee
performance incentives. Heritage health benefit costs were $29.9 million in 2003
compared to $26.9 million in 2002. Five factors contributed to the increase in
selling and administrative expenses: </FONT></P>


<table width=650 cellpadding=0 cellspacing=0 border=0>
<tr>
<td width=5%>&nbsp;</td>
<td width=4% valign=top>&#149;</td>
<td width=91%>The Combined Fund
assessed the $4.7 million retroactive premium discussed above.</td>
</tr>
</table>
<br>

<table width=650 cellpadding=0 cellspacing=0 border=0>
<tr>
<td width=5%>&nbsp;</td>
<td width=4% valign=top>&#149;</td>
<td width=91%>We incurred an additional $2.3 million expense for postretirement medical
obligations, principally because of a change in the discount rate and inflation
in medical costs.</td>
</tr>
</table>
<br>


<table width=650 cellpadding=0 cellspacing=0 border=0>
<tr>
<td width=5%>&nbsp;</td>
<td width=4% valign=top>&#149;</td>
<td width=91%>We incurred an additional $2.5 million expense resulting from negative actuarial
valuation adjustments for our workers&#146; compensation and black lung
obligations.</td>
</tr>
</table>
<br>

<table width=650 cellpadding=0 cellspacing=0 border=0>
<tr>
<td width=5%>&nbsp;</td>
<td width=4% valign=top>&#149;</td>
<td width=91%>We eliminated $6.3
million in previously recognized obligations to the UMWA 1974 Pension Plan.</td>
</tr>
</table>
<br>

<table width=650 cellpadding=0 cellspacing=0 border=0>
<tr>
<td width=5%>&nbsp;</td>
<td width=4% valign=top>&#149;</td>
<td width=91%>We incurred increased
legal fees associated with coal contract negotiations and litigation.</td>
</tr>
</table>


<P><FONT FACE="Times New Roman, Times, Serif" size=3>A redesign of our health
care plans for active employees, including an increase in employees&#146;
premium payments and aggressive management of medical expenses, reduced our
health care costs for active employees in 2003 as compared to 2002. </FONT></P>

<br>
<p align=center><FONT FACE="Times New Roman, Times, Serif" SIZE=3>38</font></p>
<page>
<br>

<P><FONT FACE="Times New Roman, Times, Serif" size=3>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Long-term incentive
compensation increased from $1.0 million in 2002 to $2.5 million in 2003. This
expense was entirely attributable to the 2000 Performance Unit Plan, described
above. This expense is a non-cash expense until it is paid. As permitted by the
plan, we paid about 20% of the expense, $750,000 in cash and $375,000 in shares
of common stock in 2003, leaving an obligation of $5.3 million as of December
31, 2003. Absent the impact of heritage health benefit costs and long-term
compensation expense, selling, and administrative expenses in 2003 were
consistent with those in 2002. </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" size=3>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Interest expense was $10.1
million and $10.8 million for 2003 and 2002, respectively. The decrease was
mainly due to the continued repayment of Westmoreland Mining&#146;s debt.
Interest income decreased in 2003 because of lower rates. </FONT></P>

         <p><FONT FACE="Times New Roman, Times, Serif" SIZE=3>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Other income in 2002 includes a $1.1 million gain in connection with the favorable judgment in the dispute with the U.S.
Army.</font></p>

<P><FONT FACE="Times New Roman, Times, Serif" size=3><I>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Terminal Operations.</I>
As discussed in Note 4 to our consolidated financial statements, effective June
30, 2003, we sold our interest in DTA and recognized a pre-tax gain of
approximately $4.5 million. Our consolidated financial statements for 2003 and
earlier periods reflect DTA as discontinued operations. Our share of operating
losses from DTA was approximately $1.0 million for the six months we owned it in
2003 compared to $2.1 million related to a full year&#146;s ownership in 2002.
During 2002, we expensed as a non-cash impairment charge our remaining
investment of $3.7 million in DTA as a result of continuing losses and an
agreement by one of the terminal&#146;s other owners to sell its interest for a
loss. </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" size=3><I>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Cumulative Effect of
Change in Accounting Principle. </I>We adopted SFAS No. 143 during the first
quarter of 2003, as described in the section on &#147;Critical Accounting
Policies&#148; above. The cumulative effect of the change was a gain of
$161,000, net of tax expense of $108,000. We also reduced our recorded liability
for mine reclamation from $159 million to $115 million as of January 1, 2003 and
reduced the net book value of our property, plant and equipment from $189
million to $145 million as a result of adopting this standard. </FONT></P>

<br>
<p align=center><FONT FACE="Times New Roman, Times, Serif" SIZE=3>39</font></p>
<page>
<br>

<H2 ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" size=3>Results of
Operations<BR>2002 Compared to 2001</FONT></H2>

<hr noshade>

<p><FONT FACE="Times New Roman, Times, Serif" SIZE=3>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<i>Coal Operations.</i>  The following table shows comparative coal revenues, sales volumes, cost of sales and percentage changes
between the periods:</font></p>


<table align=center border=0 cellPadding=0 cellSpacing=0 width=650>
         <tr>
                  <td width=34% align=left></td>
                  <td width=3% align=right></td>
                  <td width=43% align=center colspan=3><b>Year Ended December 31,</b></td>
                  <td width=20% align=right></td>
         </tr>
         <tr>
                  <td align=left></td>
                  <td align=right></td>
                  <td align=center><b>2002</b></td>
                  <td align=right><b></b></td>
                  <td align=center><b>2001</b></td>
                  <td align=center><b>Change</b></td>
         </tr>
         <tr>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
         </tr>
         <tr>
                  <td align=left></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
         </tr>
         <tr>
                  <td width=44% align=left>Revenues &#150; thousands</td>
                  <td width=5%  align=right>$</td>
                  <td width=13% align=right>      301,235 </td>
                  <td width=5%  align=right>$</td>
                  <td width=13% align=right>      231,048 </td>
                  <td width=20% align=center>30%</td>
         </tr>
         <tr>
                  <td align=left>&nbsp;</td>
                  <td align=right>&nbsp;</td>
                  <td align=right>&nbsp;</td>
                  <td align=right>&nbsp;</td>
                  <td align=right>&nbsp;</td>
                  <td align=right>&nbsp;</td>
         </tr>
         <tr>
                  <td align=left>Volumes &#150; millions of equivalent coal tons</td>
                  <td align=right></td>
                  <td align=right>26.1</td>
                  <td align=right></td>
                  <td align=right>20.5</td>
                  <td align=center>27%</td>
         </tr>
         <tr>
                  <td align=left>&nbsp;</td>
                  <td align=right>&nbsp;</td>
                  <td align=right>&nbsp;</td>
                  <td align=right>&nbsp;</td>
                  <td align=right>&nbsp;</td>
                  <td align=right>&nbsp;</td>
         </tr>
         <tr>
                  <td align=left>Cost of sales &#150; thousands</td>
                  <td align=right>$</td>
                  <td align=right>      226,707 </td>
                  <td align=right>$</td>
                  <td align=right>      177,304 </td>
                  <td align=center>28%</td>
         </tr>
</table>


<P><FONT FACE="Times New Roman, Times, Serif" size=3>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Depreciation, depletion and
amortization increased to $11.5 million in 2002 compared to $9.2 million in 2001
due to capital expenditures and a full year of coal production from the Rosebud,
Jewett, Beulah, and Savage Mines, which we acquired in April and May of 2001. </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" size=3><I>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Independent Power.</I>
Equity in earnings from the independent power operations was $14.5 million in
2002 compared to $15.9 million in 2001. Three projects contributed $1.3 million
in earnings in 2001 before we sold them in March 2001. During 2002 and 2001, the
ROVA Project produced 1,639,000 and 1,668,000 megawatt hours, respectively, and
achieved average capacity factors of 89% and 90%, respectively. The decrease in
2002 was attributable to a small increase in the number of forced outage days
for repairs. </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" size=3><I>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Terminal Operations.
</I>Our share of losses from DTA was $2.1 million in 2002 compared to $1.9
million in 2001, principally because of reduced demand in foreign countries for
U.S. coal and our obligation to pay our share of DTA&#146;s expenses. We took an
impairment charge during the third quarter of 2002 in an amount equal to the
book value of our remaining investment in DTA: $3.7 million. This was a non-cash
charge. We took this charge in part because of the terms pursuant to which one
of our partners had agreed to sell its interest in DTA. This charge did not
reduce our obligation to pay our share of DTA&#146;s operating expenses. We sold
our interest in DTA effective June 30, 2003. </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" size=3><I>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Costs and Expenses.
</I>Selling and administrative expenses were $31.7 million for 2002 compared to
$22.6 million in 2001. The amounts for 2002 and 2001 include $18.4 million and
$11.6 million, respectively, in expenses incurred by the four mines acquired in
2001. Partially offsetting the 2002 increase was lower non-cash compensation
expense for long-term employee performance incentives, with an expense of $1.0
million in 2002 compared to an expense of $3.2 million during 2001. The overall
increase in selling and administrative expenses in 2002 is also due to higher
legal costs related primarily to Westmoreland Resources&#146; dispute with
Washington Group International Inc. and an adverse judgment, with associated
legal costs totaling $1.4 million, in the Basin landowner case described in
&#147;Legal Proceedings,&#148; to annual salary increases, and to the addition
of employees associated with our growth. Medical claims under our self-insured
plan for active employees were also higher in 2002. 2001 benefited from a
reduction of approximately $500,000 in the estimated liability for reclamation
of a site we previously operated in Virginia while 2002 had a $300,000
additional benefit when we transferred that site to another operator. </FONT></P>

<br>
<p align=center><FONT FACE="Times New Roman, Times, Serif" SIZE=3>40</font></p>
<page>
<br>

<P><FONT FACE="Times New Roman, Times, Serif" size=3>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Heritage health benefit
costs increased to $26.9 million in 2002 compared to $23.8 million in 2001,
reflecting increased costs for the postretirement medical plans as actuarially
determined, despite a decrease in our payments to the Combined Fund. </FONT></P>

<p><FONT FACE="Times New Roman, Times, Serif" SIZE=3>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;During 2002, we recognized a $1.1 million gain in connection with a dispute with the U.S. Army.
</font></p>
<P><FONT FACE="Times New Roman, Times, Serif" size=3>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Interest expense was $10.8
million and $8.4 million for 2002 and 2001, respectively. The increase was
mainly due to the acquisition financing obtained during the second quarter of
2001, despite repayment of $22.8 million term debt of the acquisition financing
during 2002. Interest income decreased in 2002 because of lower rates. </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" size=3>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As a result of our
acquisitions, we recognized a $55.6 million deferred income tax asset in April
2001. This assumes that a portion of previously unrecognized NOLs will be
utilized because we projected that we would generate taxable income in the
future. The deferred asset increased to $65.1 million as of December 31, 2002
from $57.1 million at December 31, 2001 because of temporary differences (such
as accruals for pension and reclamation expense, which are not deductible for
tax purposes until paid) arising during the intervening period and because of a
reduction of the deferred income tax valuation allowance discussed above.
Deferred tax assets are comprised of both a current and long-term portion. When
taxable income is generated, the deferred tax asset relating to our NOLs is
reduced and a deferred tax expense (non-cash) is recognized, although no regular
Federal income taxes are paid. Income tax benefit for 2002 represents a current
income tax obligation for State income taxes and the utilization of a portion of
our NOLs, net of the impact of changes in deferred tax assets and liabilities. </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" size=3><I>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Other Comprehensive
Income.</I> Total other comprehensive loss in 2002 was $3.4 million (net of
income taxes of $2.3 million), primarily due to the recognition of an additional
minimum pension liability of $3.3 million. This additional minimum liability was
required to be recorded due to the underfunded status of our pension
obligations. The remaining other comprehensive loss of $88,000 (net of income
taxes of $59,000) recognized during 2002 represents the change in the unrealized
loss on an interest rate swap agreement on the ROVA Project&#146;s debt caused
by changes in market interest rates during the period. This compares to other
comprehensive loss relating to this arrangement of $1.7 million (net of income
taxes of $1.1 million) for 2001. </FONT></P>

<H2 ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" size=3>Quantitative
and Qualitative Disclosures about Market Risk</FONT></H2>

<p><FONT FACE="Times New Roman, Times, Serif" SIZE=3>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We are exposed to market risk, including the effects of changes in commodity prices, as discussed below.
</font></p>

<br>
<p align=center><FONT FACE="Times New Roman, Times, Serif" SIZE=3>41</font></p>
<page>
<br>

<p><FONT FACE="Times New Roman, Times, Serif" SIZE=3>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<b>Commodity Price Risk</b>
</font></p>
<P><FONT FACE="Times New Roman, Times, Serif" size=3>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Through our subsidiaries Westmoreland
Resources and Westmoreland Mining, we produce and sell coal to third parties
from coal mining operations in Montana, Texas and North Dakota. Through
Westmoreland Energy, we produce and sell electricity and steam to third parties
from independent power projects located in North Carolina and Colorado. Nearly
all of our coal production and all of this electricity and steam production are
sold through long-term contracts with customers. These long-term contracts serve
to minimize our exposure to changes in commodity prices, even though some of our
contracts are adjusted periodically based upon market prices. We have not
entered into derivative contracts to manage our exposure to changes in commodity
prices, and we were not a party to any such contracts at December 31, 2003. </FONT></P>

<p><FONT FACE="Times New Roman, Times, Serif" SIZE=3>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<b>Interest Rate Risk</b>
</font></p>

<P><FONT FACE="Times New Roman, Times, Serif" size=3>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We are subject to interest
rate risk on our debt obligations. Our long-term debt obligations have both
fixed and variable interest rates, and our revolving line of credit has a
variable rate of interest indexed to either the prime rate or LIBOR. Interest
rates on these instruments approximate current market rates as of December 31,
2003. Based on the balances outstanding as of December 31, 2003, a one percent
change in the prime interest rate or LIBOR would increase our interest expense
by $10,000 on an annual basis. Our heritage health benefit costs are also
impacted by interest rate changes because our pension, pneumoconiosis and
post-retirement medical benefit obligations are recorded on a discounted basis. </FONT></P>

<br>
<p align=center><FONT FACE="Times New Roman, Times, Serif" SIZE=3>42</font></p>
<page>
<br>


<H1 ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" size=3>BUSINESS</FONT></H1>

<P><FONT FACE="Times New Roman, Times, Serif" size=3>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We are an energy company.
We mine coal that is used to produce electric power, and we own interests in
power-generating plants. Beginning in 2004, we also will receive royalties from
the production of coalbed methane gas. </FONT></P>

<H2 ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" size=3>Coal Operations</FONT></H2>

<P><FONT FACE="Times New Roman, Times, Serif" size=3>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We were the 10th largest
coal producer in the Unites States, ranked by tons of coal mined in 2003. In
2003, we produced 27.7 million tons, about 2.6% of all the coal produced in the
United States. </FONT></P>

<p><FONT FACE="Times New Roman, Times, Serif" size=3>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<b>Mines</b></font></p>

<P><FONT FACE="Times New Roman, Times, Serif" size=3>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We own five mines; all
except the Jewett Mine are located in the northern tier, a niche coal market
extending from Montana through Minnesota and other upper Midwestern states. Our
mines are: </FONT></P>

<table width=650 cellpadding=0 cellspacing=0 border=0>
<tr>
<td width=5%>&nbsp;</td>
<td width=4% valign=top>&#149;</td>
<td width=91%>the Absaloka Mine,</td>
</tr>
</table>
<br>

<table width=650 cellpadding=0 cellspacing=0 border=0>
<tr>
<td width=5%>&nbsp;</td>
<td width=4% valign=top>&#149;</td>
<td width=91%>the Rosebud Mine,</td>
</tr>
</table>
<br>

<table width=650 cellpadding=0 cellspacing=0 border=0>
<tr>
<td width=5%>&nbsp;</td>
<td width=4% valign=top>&#149;</td>
<td width=91%>the Jewett Mine,</td>
</tr>
</table>
<br>

<table width=650 cellpadding=0 cellspacing=0 border=0>
<tr>
<td width=5%>&nbsp;</td>
<td width=4% valign=top>&#149;</td>
<td width=91%>the Beulah Mine and</td>
</tr>
</table>
<br>

<table width=650 cellpadding=0 cellspacing=0 border=0>
<tr>
<td width=5%>&nbsp;</td>
<td width=4% valign=top>&#149;</td>
<td width=91%>the Savage Mine.</td>
</tr>
</table>
<br>

<P><FONT FACE="Times New Roman, Times, Serif" size=3>The Absaloka Mine is owned
by our subsidiary, Westmoreland Resources, Inc. The Rosebud, Jewett, Beulah and
Savage Mines are owned by our separate subsidiary, Westmoreland Mining LLC. </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" size=3>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;All of these mines are
surface mines. Surface mining involves extracting coal that lies close to the
surface. Where the surface layer contains rock, electric drills are used to
drill holes in the rock, explosives are inserted, and the blast loosens the
layer of rock. Earth-moving equipment removes the overburden &#150; the layer of
dirt and rock that lies between the surface and the coal. A machine called a
dragline is typically used to remove a substantial portion of the overburden.
Draglines are very large &#150; our largest dragline weighs approximately 7,000
tons and has a bucket capacity of 128 cubic yards. Smaller pieces of equipment,
including bulldozers, front end loaders, scrapers and dump trucks move the
remainder of the overburden. Once the coal has been exposed, bulldozers,
front-end loaders, backhoes or electric shovels load the coal in dump trucks.
After the coal has been extracted, it is processed, typically by crushing,
sampled or assayed, and then shipped to customers. </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" size=3>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Absaloka Mine is
located on approximately 15,000 acres in Big Horn County, Montana, near the town
of Hardin. Coal was first extracted from the Absaloka Mine in 1974. Westmoreland
Resources owns the Absaloka Mine. We own 80% of the stock of Westmoreland
Resources. Washington Group International, Inc. owns the remaining 20% and
operates the mine. Unless otherwise indicated, we own 100% of each of our other
subsidiaries. </FONT></P>

<br>
<p align=center><FONT FACE="Times New Roman, Times, Serif" SIZE=3>43</font></p>
<page>
<br>

<P><FONT FACE="Times New Roman, Times, Serif" size=3>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Rosebud Mine is located
on approximately 25,000 acres in Rosebud and Treasure Counties, Montana, near
the town of Colstrip, about 130 miles east of Billings. Coal was first mined
near Colstrip in 1924. Coal production from the existing mine complex began in
1968. Westmoreland Mining&#146;s subsidiary, Western Energy Company, owns and
operates the Rosebud Mine. Westmoreland Mining acquired the stock of Western
Energy from Entech, a subsidiary of the Montana Power Company, in April 2001. </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" size=3>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Jewett Mine is located
on approximately 35,000 acres in Freestone, Leon and Limestone Counties, Texas,
near the town of Jewett, about half way between Dallas and Houston. The Jewett
Mine produces lignite, a type of coal with a lower Btu value per ton than
sub-bituminous or bituminous coal. A Btu is a measure of heat energy. The higher
the Btu value, the more energy is produced when the coal is burned. Lignite was
first extracted from the Jewett Mine in 1985. Westmoreland Mining&#146;s
subsidiary, Northwestern Resources Co., owns and operates the Jewett Mine.
Westmoreland Mining acquired the stock of Northwestern Resources from Entech in
April 2001. </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" size=3>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Beulah Mine is located
on approximately 9,300 acres in Mercer and Oliver Counties, North Dakota, near
the town of Beulah. The Beulah Mine also produces lignite. Lignite was first
extracted from the Beulah Mine in 1963. Westmoreland Mining&#146;s subsidiary,
Dakota Westmoreland Corporation, owns and operates the Beulah Mine. Westmoreland
Mining acquired the Beulah Mine in May 2001 from Knife River Corporation, a
subsidiary of MDU Resources Group, Inc. </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" size=3>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Savage Mine is located
on approximately 1,600 acres in Richland County, Montana, near the town of
Sidney. Production began at the Savage Mine in 1958. Westmoreland Mining&#146;s
subsidiary, Westmoreland Savage Corporation, owns and operates the Savage Mine.
Westmoreland Mining acquired the Savage Mine in May 2001 from Knife River
Corporation. </FONT></P>

<p><FONT FACE="Times New Roman, Times, Serif" size=3>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The following table presents the sales from our mines in the last three years:</font></p>

<table width=650 cellspacing=0 cellpadding=10 border=1>
<TR>
     <TD ALIGN=center colspan=6><FONT FACE="Times New Roman, Times, Serif" size=3><b>Coal Sales by Mine<br>
                                                 (in tons)</b></font></TD>
</TR>
<tr>
<td width=10%><FONT FACE="Times New Roman, Times, Serif" size=3><b>Year</b></font></td>
<td width=18%><FONT FACE="Times New Roman, Times, Serif" size=3><b>Absaloka</b></font></td>
<td width=18%><FONT FACE="Times New Roman, Times, Serif" size=3><b>Rosebud</b></font></td>
<td width=18%><FONT FACE="Times New Roman, Times, Serif" size=3><b>Jewett</b></font></td>
<td width=18%><FONT FACE="Times New Roman, Times, Serif" size=3><b>Beulah</b></font></td>
<td width=18%><FONT FACE="Times New Roman, Times, Serif" size=3><b>Savage</b></font></td>
</tr>
<tr>
<td><FONT FACE="Times New Roman, Times, Serif" size=3><b>2003</b></font></td>
<td><FONT FACE="Times New Roman, Times, Serif" size=3>6,016,000</font></td>
<td><FONT FACE="Times New Roman, Times, Serif" size=3>11,003,000</font></td>
<td><FONT FACE="Times New Roman, Times, Serif" size=3>7,462,000</font></td>
<td><FONT FACE="Times New Roman, Times, Serif" size=3>2,816,000</font></td>
<td><FONT FACE="Times New Roman, Times, Serif" size=3>379,000</font></td>
</tr>
<tr>
<td><FONT FACE="Times New Roman, Times, Serif" size=3><b>2002</b></font></td>
<td><FONT FACE="Times New Roman, Times, Serif" size=3>5,160,000</font></td>
<td><FONT FACE="Times New Roman, Times, Serif" size=3>10,061,000</font></td>
<td><FONT FACE="Times New Roman, Times, Serif" size=3>7,105,000</font></td>
<td><FONT FACE="Times New Roman, Times, Serif" size=3>3,006,000</font></td>
<td><FONT FACE="Times New Roman, Times, Serif" size=3>337,000</font></td>
</tr>
<tr>
<td><FONT FACE="Times New Roman, Times, Serif" size=3><b>2001</b></font></td>
<td><FONT FACE="Times New Roman, Times, Serif" size=3>5,904,000</font></td>
<td><FONT FACE="Times New Roman, Times, Serif" size=3>11,284,000<sup>(1)</sup></font></td>
<td><FONT FACE="Times New Roman, Times, Serif" size=3>7,138,000<sup>(2)</sup></font></td>
<td><FONT FACE="Times New Roman, Times, Serif" size=3>3,087,000<sup>(3)</sup></font></td>
<td><FONT FACE="Times New Roman, Times, Serif" size=3>346,000<sup>(4)</sup></font></td>
</tr>
</table>

<p><FONT FACE="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(1) Of this amount, 7,610,000 tons were sold in 2001 after we acquired the mine.<BR>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(2) Of this amount, 4,463,000 tons were sold in 2001 after we acquired the mine.<BR>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(3) Of this amount, 2,014,000 tons were sold in 2001 after we acquired the mine.<BR>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(4) Of this amount, 236,000 tons were sold in 2001 after we acquired the mine.</font></p>

<br>
<p align=center><FONT FACE="Times New Roman, Times, Serif" SIZE=3>44</font></p>
<page>
<br>

<p><FONT FACE="Times New Roman, Times, Serif" size=3>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<b>Coal and the Production of Electricity</b></font></p>

<P><FONT FACE="Times New Roman, Times, Serif" size=3>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Over the last fifty years,
coal has played a significant role in generating the United States&#146;
electricity. The following table, derived from the Energy Information
Administration&#146;s data, shows coal&#146;s share in the production of all
electricity in the United States: </FONT></P>

<table align=center width=650 cellpadding=0 cellspacing=0 border=0>
<tr>
<td width=10% valign=bottom><FONT FACE="Times New Roman, Times, Serif" size=3><b><u>Year</u></b></font></TD>
<td width=30% valign=bottom align=right><FONT FACE="Times New Roman, Times, Serif" size=3><b>Electricity generated<BR>by all sources (billions<BR><u>of kilowatt hours)(1)</u></b></font></TD>
<td width=30% valign=bottom align=right><FONT FACE="Times New Roman, Times, Serif" size=3><b>Electricity generated<BR>by coal (billions of<BR><u>kilowatt hours)</u></b></font></TD>
<td width=30% valign=bottom align=right><FONT FACE="Times New Roman, Times, Serif" size=3><b>Coal-generated elec-<BR>tricity as a percent<BR><u>-tage of all electricity</u></b></font></TD>
</tr>
<tr>
<td><FONT FACE="Times New Roman, Times, Serif" size=3>1950</font></td>
<td align=right><FONT FACE="Times New Roman, Times, Serif" size=3>334</font></td>
<td align=right><FONT FACE="Times New Roman, Times, Serif" size=3>154</font></td>
<td align=right><FONT FACE="Times New Roman, Times, Serif" size=3>46%</font></td>
</tr>
<tr>
<td><FONT FACE="Times New Roman, Times, Serif" size=3>1960</font></td>
<td align=right><FONT FACE="Times New Roman, Times, Serif" size=3>759</font></td>
<td align=right><FONT FACE="Times New Roman, Times, Serif" size=3>403</font></td>
<td align=right><FONT FACE="Times New Roman, Times, Serif" size=3>53%</font></td>
</tr>
<tr>
<td><FONT FACE="Times New Roman, Times, Serif" size=3>1970</font></td>
<td align=right><FONT FACE="Times New Roman, Times, Serif" size=3>1,535</font></td>
<td align=right><FONT FACE="Times New Roman, Times, Serif" size=3>704</font></td>
<td align=right><FONT FACE="Times New Roman, Times, Serif" size=3>46%</font></td>
</tr>

<tr>
<td><FONT FACE="Times New Roman, Times, Serif" size=3>1980</font></td>
<td align=right><FONT FACE="Times New Roman, Times, Serif" size=3>2,290</font></td>
<td align=right><FONT FACE="Times New Roman, Times, Serif" size=3>1,162</font></td>
<td align=right><FONT FACE="Times New Roman, Times, Serif" size=3>51%</font></td>
</tr>

<tr>
<td><FONT FACE="Times New Roman, Times, Serif" size=3>1990</font></td>
<td align=right><FONT FACE="Times New Roman, Times, Serif" size=3>3,038</font></td>
<td align=right><FONT FACE="Times New Roman, Times, Serif" size=3>1,594</font></td>
<td align=right><FONT FACE="Times New Roman, Times, Serif" size=3>52%</font></td>
</tr>

<tr>
<td><FONT FACE="Times New Roman, Times, Serif" size=3>2000</font></td>
<td align=right><FONT FACE="Times New Roman, Times, Serif" size=3>3,802</font></td>
<td align=right><FONT FACE="Times New Roman, Times, Serif" size=3>1,966</font></td>
<td align=right><FONT FACE="Times New Roman, Times, Serif" size=3>52%</font></td>
</tr>

<tr>
<td><FONT FACE="Times New Roman, Times, Serif" size=3>2002(2)</font></td>
<td align=right><FONT FACE="Times New Roman, Times, Serif" size=3>3,839</font></td>
<td align=right><FONT FACE="Times New Roman, Times, Serif" size=3>1,926</font></td>
<td align=right><FONT FACE="Times New Roman, Times, Serif" size=3>50%</font></td>
</tr>
<tr>
<td><FONT FACE="Times New Roman, Times, Serif" size=3>&nbsp;</font></td>
<td align=right><FONT FACE="Times New Roman, Times, Serif" size=3></font></td>
<td align=right><FONT FACE="Times New Roman, Times, Serif" size=3></font></td>
<td align=right><FONT FACE="Times New Roman, Times, Serif" size=3></font></td>
</tr>

<tr>
<td align=center valign=top><FONT FACE="Times New Roman, Times, Serif" size=2>(1)</font></td>
<td colspan=3><FONT FACE="Times New Roman, Times, Serif" size=2>All sources include all fossil fuels other than coal, nuclear electric power, hydroelectric pumped storage,
              renewable energy (including conventional hydroelectric power), and other.</font></td>
</tr>
<tr>
<td align=center valign=top><FONT FACE="Times New Roman, Times, Serif" size=2>(2)</font></td>
<td colspan=3><FONT FACE="Times New Roman, Times, Serif" size=2>Preliminary.</font></td>
</tr>
</table>



<P><FONT FACE="Times New Roman, Times, Serif" size=3>The EIA estimates that the
demand for coal used to generate electricity will increase 1.8% per year from
2002 through 2025. </FONT></P>

<p><FONT FACE="Times New Roman, Times, Serif" size=3>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<b>Customers, Competition and Coal Supply Agreements</b></font></p>

<P><FONT FACE="Times New Roman, Times, Serif" size=3>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We supply coal to plants
that generate electricity. These plants compete with all other producers of
electricity to be dispatched, or called upon to generate power. We compete with
many other suppliers of coal to provide fuel to these plants. </FONT></P>

<p><FONT FACE="Times New Roman, Times, Serif" size=3>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We believe that the competitive advantage of our mines derives from two factors:</font></p>

<table width=650 cellpadding=0 cellspacing=0 border=0>
<tr>
<td width=5%>&nbsp;</td>
<td width=4% valign=top>&#149;</td>
<td width=91%>all of our mines are the lowest cost-suppliers to each of their respective principal customers; and</td>
</tr>
</table>
<br>

<table width=650 cellpadding=0 cellspacing=0 border=0>
<tr>
<td width=5%>&nbsp;</td>
<td width=4% valign=top>&#149;</td>
<td width=91%>nearly all of the power plants we supply were specifically designed to use our coal.</td>
</tr>
</table>

<P><FONT FACE="Times New Roman, Times, Serif" size=3>The plants we supply are
among the lower cost producers of electric power in their respective regions and
employ emissions control technology. As a result, we believe that the
power-generating plants that we supply are more likely to be dispatched, and
that our mines will be supplying the coal that powers these generating units.
The baseload is the part of the total demand for energy that does not vary over
a given period of time, and a baseload or baseloaded power plant is a plant that
supplies this relatively constant demand. The power-generating plants we supply
are all baseloaded. </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" size=3>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;From the standpoint of a
purchaser of coal, two of the principal costs of burning coal are the cost of
the coal and the cost of transporting the coal from the point of extraction to
the purchaser. The principal customers of the Rosebud, Jewett and Beulah Mines
are located adjacent to the mines, so that the coal for these customers can be
delivered by conveyor belt or in-pit truck rather than by more expensive means
such as on-road truck or rail. The customers of the Savage Mine are located
25-30 miles from the mine, so that coal can be transported economically by
on-road truck. The Absaloka Mine enjoys about a 300 rail mile advantage over its
principal competitors from the Southern Powder River Basin, or SPRB. We believe
that all of our mines are the lowest cost-suppliers to each of their respective
principal customers, and that some of our mines are also in a position to be the
next lowest cost-suppliers to these customers. </FONT></P>

<br>
<p align=center><FONT FACE="Times New Roman, Times, Serif" SIZE=3>45</font></p>
<page>
<br>

<P><FONT FACE="Times New Roman, Times, Serif" size=3>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Rosebud Mine&#146;s
primary customers are the owners of the four-unit Colstrip Station, which has a
generating capacity of approximately 2,200 MW and is located adjacent to the
mine. The Rosebud Mine has supplied the Colstrip Station since 1975, when
Colstrip Units 1&amp;2 commenced commercial operations. Western Energy sells
this coal under long-term contracts expiring in 2009 for Colstrip Units 1&amp;2
and in 2019 for Colstrip Units 3&amp;4. The contract with Colstrip Units 1&amp;2
specifies a base price per ton that is subject to adjustment for specified
indices and changes in our costs. Under this contract, we are also entitled to
receive our costs plus a reasonable profit, which is redetermined or reopened at
5 year intervals. We describe the results of the final reopener under that
contract above, under &#147;Summary &#150; Recent Developments.&#148; Western
Energy&#146;s coal supply agreement with the owners of Colstrip Units 3&amp;4 is
a cost-plus arrangement that provides a return on our investment on mine assets
plus the payment of specified types of fees. The owners of Colstrip Units
3&amp;4 also compensate Western Energy under a separate contract for
transporting the coal to them on a conveyor belt that Western Energy owns. With
some exceptions, the contracts with the owners of the Colstrip Station are full
requirements contracts; that is, the Colstrip Units are required to purchase all
their coal requirements from or through the Rosebud Mine. The Rosebud Mine also
supplies coal to Minnesota Power under a coal supply agreement that expires in
2008. Under this contract, Minnesota Power pays a base price per ton, which will
increase in the future by fixed percentages. </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" size=3>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Jewett Mine&#146;s sole
customer is Texas Genco, L.P., the owner of the two-unit Limestone Electric
Generating Station, which has a generating capacity of approximately 1,710 MW
and is located adjacent to the mine. The Jewett Mine has supplied the Limestone
Station since 1985, when it commenced commercial operations. The Jewett Mine
sells lignite to Texas Genco pursuant to an Amended Lignite Supply Agreement, or
ALSA, that expires in 2015. The ALSA provides for the annual determination of
volumes and pricing, with pricing based on an equivalent value of coal from
Wyoming&#146;s Southern Powder River Basin, as delivered to and used at the
Limestone Station. Northwestern Resources and Texas Genco have disputed the
proper interpretation of some elements of the ALSA from time to time. In January
2004, Northwestern Resources and Texas Genco settled some of the disputes
between them. Among other things, Texas Genco committed to purchase
approximately 7 million tons of lignite from the Jewett Mine per year during the
years 2004 through 2007, and, for that same period, the parties agreed to the
price for that lignite. </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" size=3>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Beulah Mine supplies
the Coyote Station, which has a generating capacity of approximately 420 MW and
is located adjacent to the mine, and the Heskett Station, which has a generating
capacity of 100 MW and is located in Mandan, North Dakota, approximately 74
miles from the mine. Coal is shipped to the Heskett Station on the Burlington
Northern Santa Fe Railway. The Beulah Mine has supplied the Coyote Station since
1981, when it commenced commercial operations, and the Heskett Station since
1963. The contract with the Coyote Station expires in 2016. The contract with
the Heskett Station expires in 2005, but we have the option to renew it for an
additional five years. The price of the coal under these contracts is based on
some of the Beulah Mine&#146;s costs, is adjusted for specified indices and mine
costs, and for the Coyote Station is supplemented by a provision setting forth
guaranteed minimum and maximum net income levels. The Beulah Mine&#146;s
contracts with the Coyote Station and, with a minor exception, the Heskett
Station, are each full requirements contracts. </FONT></P>

<br>
<p align=center><FONT FACE="Times New Roman, Times, Serif" SIZE=3>46</font></p>
<page>
<br>

<P><FONT FACE="Times New Roman, Times, Serif" size=3>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Savage Mine supplies
coal to the Lewis &amp; Clark Station, which has a generating capacity of
approximately 49 MW, and the Sidney Sugars plant, which uses coal from the
Savage Mine to heat its boilers and process sugar beets. These facilities are
located approximately 25 and 30 miles from the mine, respectively, so that coal
can be transported to them economically by on-road truck. The Savage Mine has
supplied the Lewis &amp; Clark Station since 1958, when it commenced commercial
operations. The Savage Mine&#146;s contracts with the Lewis &amp; Clark Station
and the Sidney Sugars plant run until 2007 and 2008, respectively. These
contracts, which involve smaller volumes than our other coal supply contracts,
are, with minor exceptions, each full requirements contracts. </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" size=3>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Absaloka Mine faces a
different competitive situation than our other mines. The Absaloka Mine sells
its coal in the rail market, to utilities located in the northern tier of the
United States that are served by the Burlington Northern Santa Fe Railway. These
utilities may purchase coal from us or from other producers, and we compete with
other producers on the basis of price and quality, with the purchasers also
taking into account the cost of transporting the coal to their plants. The
Absaloka Mine was developed to supply the Sherburne County Station, a three unit
power plant near Minneapolis, Minnesota, with a generating capacity of 2,292 MW.
The Absaloka Mine has a transportation advantage to the Sherburne County Station
because it is located about 300 rail miles closer to that power plant than other
mines competing for that business. The Absaloka Mine has supplied the Sherburne
County Station since 1976, when it commenced commercial operations. The Absaloka
Mine has three separate coal sales contracts to supply the Sherburne County
Station. </FONT></P>

<table width=650 cellpadding=0 cellspacing=0 border=0>
<tr>
<td width=5%>&nbsp;</td>
<td width=4% valign=top>&#149;</td>
<td width=91%>The Absaloka Mine supplies coal to Xcel Energy under two contracts, one covering
3.4 million tons per year that expires in 2007 and one covering 1.0 million tons
per year that expires in 2006. We receive prices under these contracts that are
adjusted by specified indices.</td>
</tr>
</table>
<br>

<table width=650 cellpadding=0 cellspacing=0 border=0>
<tr>
<td width=5%>&nbsp;</td>
<td width=4% valign=top>&#149;</td>
<td width=91%>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&#146;s fuel requirements for Unit 3 at the Sherburne County
Station, or approximately 1.5 million tons per year. This contract expires in
2007. The price we receive under this contract is also adjusted by specified
indices.</td>
</tr>
</table>

<P><FONT FACE="Times New Roman, Times, Serif" size=3>The Absaloka Mine also
sells coal to the Xcel Energy&#146;s A.S. King Station, which is located in
Bayport, Minnesota, and to Consumers Energy Company through Midwest Energy
Resources Company for Consumers&#146; Cobb and Weadock stations, which are
located in Muskegon and Essexville, Michigan, under contracts expiring in 2007
and 2004, respectively. In February 2004, we reached agreement with the Crow
Tribe for exploration of new coal reserves in order to continue serving
customers beyond exhaustion of the reserves in our existing lease. </FONT></P>

<br>
<p align=center><FONT FACE="Times New Roman, Times, Serif" SIZE=3>47</font></p>
<page>
<br>

<P><FONT FACE="Times New Roman, Times, Serif" size=3>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The following table shows,
for each of the past five years, our coal revenues, the tons sold from mines
that we owned at the time of production, the percentage of our coal sales made
under long-term contracts and the weighted average price per ton that we
received under these long-term contracts. </FONT></P>

<table align=center border=1 cellPadding=0 cellSpacing=0 width=650>
         <tr>
                  <td width=12% align=center valign=bottom>Year</td>
                  <td width=22% align=center valign=bottom>Coal Revenues<br>(in 000&#146;s)</td>
                  <td width=22% align=center valign=bottom>Coal Sales in<br>Equivalent Tons<br>(in 000&#146;s)</td>
                  <td width=22% align=center valign=bottom>Percentage of<br>Coal Sales Under<br>Long-Term<br>Contracts</td>
                  <td width=22% align=center valign=bottom>Weighted Average<br>Price Per Ton<br>Received under<br>Long-Term<br>Contracts</td>
         </tr>
         <tr>
                  <td align=center>              2003</td>
                  <td align=center>&nbsp;&nbsp;$&nbsp;&nbsp;294,986</td>
                  <td align=center>&nbsp;&nbsp;27,762</td>
                  <td align=center>&nbsp;&nbsp;99%</td>
                  <td align=center>&nbsp;&nbsp;$&nbsp;&nbsp;10.45</td>
         </tr>
         <tr>
                  <td align=center>              2002</td>
                  <td align=center>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;301,235</td>
                  <td align=center>&nbsp;&nbsp;26,062</td>
                  <td align=center>&nbsp;&nbsp;100%</td>
                  <td align=center>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;11.29</td>
         </tr>
         <tr>
                  <td align=center>              2001</td>
                  <td align=center>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;231,048</td>
                  <td align=center>&nbsp;&nbsp;20,503</td>
                  <td align=center>&nbsp;&nbsp;99%</td>
                  <td align=center>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;11.05</td>
         </tr>
         <tr>
                  <td align=center>              2000</td>
                  <td align=center>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;35,137</td>
                  <td align=center>&nbsp;&nbsp;&nbsp;&nbsp;4,910</td>
                  <td align=center>&nbsp;&nbsp;100%</td>
                  <td align=center>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;7.16</td>
         </tr>
         <tr>
                  <td align=center>              1999</td>
                  <td align=center>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;38,539</td>
                  <td align=center>&nbsp;&nbsp;&nbsp;&nbsp;5,466</td>
                  <td align=center>&nbsp;&nbsp;100%</td>
                  <td align=center>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;7.05</td>
         </tr>
</table>

<P><FONT FACE="Times New Roman, Times, Serif" size=3>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The weighted average price
per ton that we received declined from 2002 to 2003 principally because, as we
anticipated, effective July 1, 2002, the Jewett Mine transitioned from
cost-plus-fees pricing to pricing based on an equivalent value of coal from
Wyoming&#146;s Southern Powder River Basin, as delivered to and used at the
Limestone Station. Our coal revenues include amounts earned by our coal sales
company from sales of coal produced by mines other than ours. In 2003 and 2002,
these amounts were $5.5 million and $6.8 million, respectively. </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" size=3>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We consider a contract that
calls for deliveries to be made over a period longer than one year a long-term
contract. In 2003, our two largest contract customers, the owners of Colstrip
Units 3&amp;4 and Texas Genco, accounted for 34% and 24%, respectively, of our
coal revenues. No other customer or contract accounted for as much as 10% of our
coal revenues in 2003. The owners of Colstrip Units 3&amp;4 are Avista
Corporation, NorthWestern Corporation, PacifiCorp, Portland General Electric
Company, PPL Montana LLC and Puget Sound Energy, Inc. </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" size=3>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The following table
presents our estimate of the sales under our existing long-term contracts for
the next five years. The prices for these tons are subject to revision and
adjustments based upon market prices, certain indices and/or cost recovery. We
also expect to continue to supply customers whose contracts expire before the
end of 2008, but we have not included those tonnages in this projection. </FONT></P>

<table align=center border=0 cellPadding=0 cellSpacing=0 width=325>
         <tr>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
         </tr>
         <tr>
                  <td align=center colspan=2><b>Projected Sales Tonnage Under</b></td>
         </tr>
         <tr>
                  <td align=center colspan=2><b>Existing Long-Term Contracts<br>
(in millions of tons)</b></td>
         </tr>
         <tr>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
         </tr>
         <tr>
                  <td align=center>2004</td>
                  <td align=center>29.6</td>
         </tr>
         <tr>
                  <td align=center>2005</td>
                  <td align=center>28.8</td>
         </tr>
         <tr>
                  <td align=center>2006</td>
                  <td align=center>28.3</td>
         </tr>
         <tr>
                  <td align=center>2007</td>
                  <td align=center>27.8</td>
         </tr>
         <tr>
                  <td align=center width=50%>2008</td>
                  <td align=center width=50%>22.3</td>
         </tr>

</table>

<br>
<p align=center><FONT FACE="Times New Roman, Times, Serif" SIZE=3>48</font></p>
<page>
<br>

<P><FONT FACE="Times New Roman, Times, Serif" size=3>This table reflects
existing contracts only and takes into account existing terms and volume
provisions, as well as scheduled outages at our customers&#146; plants, where
known. We anticipate replacing sales as contracts expire with extensions, new
contracts or spot sales over the life of our coal reserves. </FONT></P>

<p><FONT FACE="Times New Roman, Times, Serif" size=3>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<b>Protecting the Environment</b></font></p>

<P><FONT FACE="Times New Roman, Times, Serif" size=3>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We consider ourselves
stewards of the environment. We reclaim the areas that we mine, and we believe
that our activities are in compliance with all material federal, state and local
laws and regulations. </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" size=3>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our reclamation activities
consist of filling the voids created during coal removal, replacing sub-soils
and top-soils and then re-establishing the vegetative cover. At the conclusion
of our reclamation activities, the area disturbed by our mining will look
similar to what it did before we mined. Before we are released from all
liability under our permits, we are required to restore the area where we
removed coal to a productive state that meets or exceeds the use of the land
before we mined. </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" size=3>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We address the impacts our
mining operations have on wildlife habitat and on sites with cultural
significance. At the Jewett Mine, we preserve the nesting area of the Interior
Least Tern, a bird threatened in the region. The Rosebud Mine has altered its
mining plan to preserve Native American petroglyphs on rock formations. Similar
culturally significant sites have been excavated by trained archeologists.
Historic buildings on mine property have been moved to preserve them. </FONT></P>

<p><FONT FACE="Times New Roman, Times, Serif" size=3>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<b>Safety</b></font></p>

<P><FONT FACE="Times New Roman, Times, Serif" size=3>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Safety is important to us.
We maintain active safety programs at all of our mines. Our mines strive to
achieve 100% compliance with safe practices, safety rules, and regulations.
Based on data from the Mine Safety and Health Administration or MSHA, an agency
of the U.S. Department of the Interior, our mines and maintenance shops had a
lost-time incident rate of 1.48 in 2003, compared to the national average of
2.21. The lost-time incident rate is an industry standard measure of safety
performance for surface mines that measures frequency of events that result in
an employee&#146;s missing time from work. </FONT></P>

<H2 ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" size=3>Independent
Power Operations</FONT></H2>

<P><FONT FACE="Times New Roman, Times, Serif" size=3>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Through Westmoreland Energy
LLC and its direct and indirect subsidiaries, we own interests in three
power-generating plants: </FONT></P>

<table width=650 cellpadding=0 cellspacing=0 border=0>
<tr>
<td width=5%>&nbsp;</td>
<td width=4% valign=top>&#149;</td>
<td width=91%>a 50% interest in the Roanoke Valley I Project, a 180 MW coal-fired plant located in Weldon, North Carolina;</td>
</tr>
</table>
<br>

<table width=650 cellpadding=0 cellspacing=0 border=0>
<tr>
<td width=5%>&nbsp;</td>
<td width=4% valign=top>&#149;</td>
<td width=91%>a 50% interest in the Roanoke Valley II Project, a 50 MW coal-fired plant also located in Weldon, North Carolina; and</td>
</tr>
</table>
<br>

<table width=650 cellpadding=0 cellspacing=0 border=0>
<tr>
<td width=5%>&nbsp;</td>
<td width=4% valign=top>&#149;</td>
<td width=91%>a 4.49% interest in the
Fort Lupton Project, a 290 MW natural-gas fired plant located in Fort Lupton,
Colorado.</td>
</tr>
</table>

<P><FONT FACE="Times New Roman, Times, Serif" size=3>We call the Roanoke Valley
units ROVA I and ROVA II and both units the ROVA Project. </FONT></P>

<br>
<p align=center><FONT FACE="Times New Roman, Times, Serif" SIZE=3>49</font></p>
<page>
<br>

<P><FONT FACE="Times New Roman, Times, Serif" size=3>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The ROVA Project and the
Fort Lupton Project are each independent power projects. Independent power
projects are power-generating plants that were not built by the regulated
utility that purchases the plant&#146;s output.<B><U></U></B> </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" size=3>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Each of these projects has
a long-term contract with a fuel supplier and a long-term contract with a steam
host, a business that uses the steam that is generated in the production of
power. These projects also have long-term contracts with electric utilities,
which purchase the power that the projects generate. The table below presents
information about each of our projects. </FONT></P>

<table align=center border=1 cellPadding=3 cellSpacing=0 width=650>
         <tr>
                  <td width=36% align=left valign=bottom><b>Project</b></td>
                  <td width=22% align=center valign=bottom><b>Roanoke<br>Valley I</b></td>
                  <td width=22% align=center valign=bottom><b>Roanoke<br>Valley II</b></td>
                  <td width=20% align=center valign=bottom><b>Ft. Lupton</b></td>
         </tr>
         <tr>
                  <td align=left valign=top><b>Location</b></td>
                  <td align=center>Weldon,<br>North  Carolina</td>
                  <td align=center>Weldon,<br>North  Carolina</td>
                  <td align=center>Ft. Lupton,<br>Colorado</td>
         </tr>
         <tr>
                  <td align=left><b>Gross capacity (MW)</b></td>
                  <td align=center>180 MW</td>
                  <td align=center>50 MW</td>
                  <td align=center>290 MW</td>
         </tr>
         <tr>
                  <td align=left><b>Our equity ownership</b></td>
                  <td align=center>50.0%</td>
                  <td align=center>50.0%</td>
                  <td align=center>4.49%</td>
         </tr>
         <tr>
                  <td align=left valign=top><b>Electricity purchaser</b></td>
                  <td align=center valign=bottom>Dominion Virginia Power</td>
                  <td align=center valign=bottom>Dominion Virginia Power</td>
                  <td align=center>Public Service of Colorado</td>
         </tr>
         <tr>
                  <td align=left valign=top><b>Steam host</b></td>
                  <td align=center>Patch Rubber Company</td>
                  <td align=center>Patch Rubber Company</td>
                  <td align=center>Rocky Mtn. Produce, Ltd</td>
         </tr>
         <tr>
                  <td align=left><b>Fuel type</b></td>
                  <td align=center>Coal</td>
                  <td align=center>Coal</td>
                  <td align=center>Natural Gas</td>
         </tr>
         <tr>
                  <td align=left valign=top><b>Fuel supplier</b></td>
                  <td align=center>TECO Coal/ CONSOL</td>
                  <td align=center>TECO Coal/ CONSOL</td>
                  <td align=center valign=bottom>Thermo Fuels,  Inc.</td>
         </tr>
         <tr>
                  <td align=left><b>Commercial operation commencement date</b></td>
                  <td align=center>1994</td>
                  <td align=center>1995</td>
                  <td align=center>1994</td>
         </tr>
         <tr>
                  <td align=left><b>Contracts with steam host &amp; electricy purchaser expire in</b></td>
                  <td align=center>2019</td>
                  <td align=center>2020</td>
                  <td align=center>Unit 1 - 2019<br>Unit 2 - 2009</td>
         </tr>
</table>

<P><FONT FACE="Times New Roman, Times, Serif" size=3>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Like the power plants to
which we sell coal, these projects compete with all other producers of
electricity, principally on the basis of price. The ROVA Project is baseloaded
and sells power pursuant to a long-term contract to Dominion Virginia Power
under rates established in power purchase agreements and approved by regulatory
agencies. In 2003, ROVA I had a capacity factor of 89% and ROVA II had a
capacity factor of 90%. ROVA I produced 1,301,000 MWH in 2003; ROVA II produced
352,000 MWH during the year. </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" size=3>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Fort Lupton Project is
a peaking plant. It provides power only when the demand for electricity exceeds
the output of baseloaded units. The Fort Lupton Project produced approximately
899,000 MWH during 2003. </FONT></P>

<br>
<p align=center><FONT FACE="Times New Roman, Times, Serif" SIZE=3>50</font></p>
<page>
<br>

<H2 ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" size=3>Other
Activities</FONT></H2>

<P><FONT FACE="Times New Roman, Times, Serif" size=3>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As part of our 2001
acquisitions, we obtained the stock of North Central Energy Company. North
Central owns property and mineral rights in southern Colorado. In 2003, North
Central leased the rights to explore, drill and produce coalbed methane gas to
Petrogulf Corporation for $300,000 and a royalty interest on production from
wells drilled on North Central&#146;s properties. Coalbed methane gas is natural
gas that occurs in coal beds. Coalbed methane gas typically has a heating value,
or Btu content, similar to that of other forms of natural gas and has uses
identical to and competes with other forms of natural gas. As of December 31,
2003, twelve wells had been drilled. Commercial production began in early 2004.
In 2003, North Central also sold surface and mineral property to local land
owners for $1.4 million. </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" size=3>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We have elected to retain
some of the risks associated with operating our company. We have established a
wholly-owned, consolidated insurance subsidiary, Westmoreland Risk Management
Ltd., which provides our primary layer of property and casualty insurance,
thereby reducing the effect of escalating insurance premiums in those lines. We
reduce our exposure by insuring for losses in excess of our retained limits with
third party insurance companies. Westmoreland Risk Management is a Bermuda
corporation. We have elected to report Westmoreland Risk Management as a taxable
entity in the United States. </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" size=3>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We previously owned a 20%
partnership interest in Dominion Terminal Associates, the owner of a coal
storage and vessel-loading facility in Newport News, Virginia. We sold our
interest in DTA effective June 30, 2003. </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" size=3>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Except for the assets of
Westmoreland Risk Management, all of our assets are located in the United
States. We had no export sales and derived no revenues from outside the United
States during the five-year period ended December 31, 2003. </FONT></P>

<H2 ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" size=3>Seasonality</FONT></H2>

<p><FONT FACE="Times New Roman, Times, Serif" size=3>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our business is somewhat seasonal:</font></p>

<table width=650 cellpadding=0 cellspacing=0 border=0>
<tr>
<td width=5%>&nbsp;</td>
<td width=4% valign=top>&#149;</td>
<td width=91%>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. Because the power
plants to which we supply coal are typically dispatched less in the spring and
fall, our coal revenues are usually higher in the winter and summer.</td>
</tr>
</table>
<br>

<table width=650 cellpadding=0 cellspacing=0 border=0>
<tr>
<td width=5%>&nbsp;</td>
<td width=4% valign=top>&#149;</td>
<td width=91%>The ROVA Project also typically undergoes scheduled maintenance in the spring
and fall, so our equity in earnings from independent power is also lower in
those seasons.</td>
</tr>
</table>

<br>
<p align=center><FONT FACE="Times New Roman, Times, Serif" SIZE=3>51</font></p>
<page>
<br>

<H2 ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" size=3>Government
Regulation</FONT></H2>

<P><FONT FACE="Times New Roman, Times, Serif" size=3>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Numerous federal, state and
local governmental permits and approvals are required for mining and independent
power operations. Both our coal mining business and our independent power
operations are subject to extensive governmental regulation, particularly with
regard to matters such as employee health and safety and permitting and
licensing requirements that cover all phases of environmental protection. The
permitting process encompasses both federal and state laws, addressing
reclamation and restoration of mined land and protection of hydrologic
resources. Federal regulations also protect the benefits for current and retired
coal miners. </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" size=3>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We believe that our
operations comply with all applicable laws and regulations, and it is our policy
to operate in compliance with all applicable laws and regulations, including
those involving environmental matters. However, because of extensive and
comprehensive regulatory requirements, violations occur from time to time in the
mining and independent power industries. None of the violations to date or the
monetary penalties assessed upon us has been material. </FONT></P>

<p><FONT FACE="Times New Roman, Times, Serif" size=3>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<b>Environmental Laws</b></font></p>

<P><FONT FACE="Times New Roman, Times, Serif" size=3>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We are subject to various
federal, state and local environmental laws. Some of these laws, discussed
below, place many requirements on our mines and the independent power plants in
which we own interests. </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" size=3><B><I>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Surface Mining
Control and Reclamation Act. </I></B><I></I>The Surface Mining Control and
Reclamation Act of 1977, or SMCRA, which is administered by the Office of
Surface Mining Reclamation and Enforcement, or OSM, establishes mining,
environmental protection and reclamation standards for all aspects of surface
mining. OSM may delegate authority to state regulatory programs if they meet OSM
standards. OSM has approved reclamation programs in Montana, North Dakota and
Texas, and these states&#146; regulatory agencies have assumed primacy in mine
environmental protection and compliance. Mine operators must obtain permits
issued by the state regulatory authority. OSM maintains oversight authority on
the permitting and reclamation process. We endeavor to comply with approved
state regulations and those of OSM through contemporaneous reclamation,
maintenance and monitoring activities. Contemporaneous reclamation is
reclamation conducted on a reasonably current basis following the mining of an
area. </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" size=3>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Each of our mining
operations must obtain all required permits before any activity can occur. Under
the states&#146; approved program, an applicant for a permit must address
requirements for coal prospecting; mine plan development; topsoil removal,
storage and replacement; selective handling of overburden materials; mine pit
backfilling and grading; protection of the hydrologic balance; subsidence
control for underground mines; surface drainage control; mine drainage and mine
discharge control and treatment; and re-vegetation. While there may be some
general differences between the states&#146; SMCRA-approved programs, they are
all similar. A permit applicant must supply detailed information regarding its
proposed operation including detailed studies of site-conditions before active
mining begins, extensive mine plans that describe mining methods and impacts and
reclamation plans that provide for restoration of all disturbed areas. The state
regulatory authority reviews the submission for compliance with SMCRA and
generally engages in a process that involves critical comments designed to
ensure regulatory compliance and successful reclamation. When the state is
satisfied that the permit application satisfies the requirements of SMCRA, it
will issue a permit. To ensure that the required final reclamation will be
performed, the state requires the permit-applicant to post a bond that secures
the reclamation obligation. The bond will remain in place until all reclamation
has been completed. </FONT></P>

<br>
<p align=center><FONT FACE="Times New Roman, Times, Serif" SIZE=3>52</font></p>
<page>
<br>

<P><FONT FACE="Times New Roman, Times, Serif" size=3>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;SMCRA requires compliance
with many other major environmental programs. These programs include the Clean
Air Act; Clean Water Act; Resource Conservation and Recovery Act or RCRA; and
Comprehensive Environmental Response, Compensation, and Liability Acts or
CERCLA. Besides OSM, other Federal regulatory agencies are involved in
monitoring or permitting specific aspects of mining operations. The EPA is the
lead agency for states or Indian Tribes with no authorized programs under the
Clean Water Act, RCRA and CERCLA. The U.S. Bureau of Alcohol, Tobacco and
Firearms, or ATF, regulates the storage, handling and use of explosives. </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" size=3><B><I>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Clean Air Act.
</I></B><I></I>The Clean Air Act, the 1990 amendments to the Clean Air Act,
which we call the Clean Air Act Amendments, and the corresponding state laws
that regulate air emissions affect our independent power interests and our mines
both directly and indirectly. Direct impacts on coal mining and processing
operations may occur through the Clean Air Act&#146;s permitting requirements
and/or emission control requirements. The Clean Air Act directly affects the
ROVA Project and indirectly affects our mines by extensively regulating the
emissions from our customers&#146; plants into the air of particulates, fugitive
dust, sulfur dioxide, nitrogen oxides and other compounds emitted by coal-fired
generating plants. </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" size=3>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Title IV of the Clean Air
Act Amendments places limits on sulfur dioxide emissions from power-generating
plants and sets baseline emission standards for these facilities. The affected
electricity generators have been able to meet these requirements by, among other
ways, switching to lower sulfur fuels, installing pollution control devices,
such as flue gas desulfurization systems, which are known as
&#147;scrubbers,&#148; reducing electricity generating levels or purchasing
sulfur dioxide emission allowances. Emission sources receive sulfur dioxide
emission allowances, which can be traded or sold. </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" size=3>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Clean Air Act
Amendments also require power plants that are major sources of nitrogen oxides
in moderate or higher ozone non-attainment areas to install reasonably available
control technology for nitrogen oxides, which are precursors of ozone. In
addition, the EPA promulgated final rules that would require coal-burning power
plants in 19 eastern states and Washington, D.C. to make substantial reductions
in nitrogen oxide emissions beginning in May 2004. Installation of additional
control measures required under the final rules will make it more costly to
operate coal-fired generating plants. We discuss these rules below in more
detail in the context of the ROVA Project. </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" size=3><B><I>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Clean Water Act.
</I></B><I></I>The Clean Water Act of 1972 affects coal mining operations by
establishing the National Pollutant Discharge Elimination System, or NPDES,
which sets standards for in-stream water quality and treatment for effluent
and/or waste water discharges. Regular monitoring, reporting requirements and
performance standards are requirements of NPDES permits that govern the
discharge of pollutants into water. States are also adopting anti-degradation
regulations in which a state designates certain water bodies or streams as
&#147;high quality.&#148; These regulations would prohibit the diminution of
water quality in these streams. Waters discharged from coal mines to high
quality streams will be required to meet or exceed new high quality standards.
The designation of high quality streams at our coal mines could require more
costly water treatment and could aversely affect our coal production. We believe
that all of our mines are in compliance with current discharge requirements. </FONT></P>

<br>
<p align=center><FONT FACE="Times New Roman, Times, Serif" SIZE=3>53</font></p>
<page>
<br>

<P><FONT FACE="Times New Roman, Times, Serif" size=3><B><I>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Resource Conservation
and Recovery Act. </I></B><I></I>The Resource Conservation and Recovery Act,
which was enacted in 1976, affects coal mining operations by establishing
requirements for the treatment, storage and disposal of hazardous wastes. Coal
mine wastes, such as overburden and coal cleaning wastes, are exempted from
hazardous waste management. The EPA has also exempted coal combustion wastes
from hazardous waste management under RCRA. Although coal combustion wastes
disposed in surface impoundments and landfills or used as mine-fill are subject
to regulation as non-hazardous wastes under RCRA, we do not anticipate that the
regulation of coal combustion wastes will have any material effect on the amount
of coal used by electricity generators so long as the EPA continues to exempt
coal combustion wastes from hazardous waste management. </FONT></P>

<p><FONT FACE="Times New Roman, Times, Serif" size=3>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<b>Proposed Environmental Rules</b></font></p>

<p><FONT FACE="Times New Roman, Times, Serif" size=3>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On January 30, 2004, the EPA proposed two rules:</font></p>

<table width=650 cellpadding=0 cellspacing=0 border=0>
<tr>
<td width=5%>&nbsp;</td>
<td width=4% valign=top>&#149;</td>
<td width=91%>Rule to Reduce Interstate Transport of Fine Particulate Matter and Ozone, now known as the Clean Air Interstate Rule, or CAIR</td>
</tr>
</table>
<br>

<table width=650 cellpadding=0 cellspacing=0 border=0>
<tr>
<td width=5%>&nbsp;</td>
<td width=4% valign=top>&#149;</td>
<td width=91%>Proposed National Emission Standards for Hazardous Air Pollutants, now known as the Utility Mercury Reductions Rule, or
              Mercury Rule</td>
</tr>
</table>

<P><FONT FACE="Times New Roman, Times, Serif" size=3>Because different types of
coal vary in their chemical composition and combustion characteristics, the
proposed regulations could also alter the relative competitiveness among coal
suppliers and coal types. </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" size=3><B><I>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Clean Air Interstate
Rule</I></B><I></I>. In the CAIR, the EPA proposed to require that 29 states and
the District of Columbia reduce emissions of sulfur dioxide and nitrogen oxide
in two phases, beginning in 2010. The states covered by this rule include the
states in which the ROVA Project and the principal customers of the Jewett and
Absaloka Mines are located. One version of the proposal would also cover North
Dakota, where the principal customers of the Beulah Mine are located. </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" size=3>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The EPA proposed that
states meet their reduction obligations, or budgets, by capping sulfur dioxide
and nitrogen oxide emissions from electric generating units, or EGUs, including
those that burn coal. The EPA proposed two alternatives for regulating
emissions, a cap-and-trade program and programs adopted by individual states. </FONT></P>

<table width=650 cellpadding=0 cellspacing=0 border=0>
<tr>
<td width=5%>&nbsp;</td>
<td width=4% valign=top>&#149;</td>
<td width=91%>The first alternative would establish a cap-and-trade program under the CAIR; it
would essentially utilize the existing cap-and-trade program for sulfur dioxide
emissions under Title IV of the Clean Air Act and create a new cap-and-trade
program for nitrogen oxide modeled largely on the existing sulfur dioxide
program. Under this alternative, the EPA would establish budgets, or caps, on
the total emissions of sulfur dioxide and nitrogen oxide from EGUs in the states
covered by the rule. For sulfur dioxide, EGUs would be required to hold existing
Title IV allowances to cover actual emissions. Beginning in 2010, EGUs would be
required to hold 2 allowances per ton emitted, and that ratio would increase to
3 allowances per ton emitted in 2015. For nitrogen oxide, each EGU would receive
a set amount of allowances to emit nitrogen oxide beginning in 2010. In 2015 the
number of allowances would be reduced. An EGU whose emissions of either
pollutant would exceed the level of allowances allocated to it could bring
itself into compliance by installing pollution control equipment, switching
fuels or buying allowances. In 2002, EGUs in the relevant states emitted 9.3
million tons of sulfur dioxide and 3.7 million tons of nitrogen oxide. The
cap-and-trade alternative proposes to reduce annual emissions of sulfur dioxide
to 3.9 million tons by 2010 and 2.7 million tons by 2015 and annual emissions of
nitrogen oxide to 1.6 million tons by 2010 and 1.3 million tons by 2015.</td>
</tr>
</table>
<br>
<p align=center><FONT FACE="Times New Roman, Times, Serif" SIZE=3>54</font></p>
<page>
<br>

<table width=650 cellpadding=0 cellspacing=0 border=0>
<tr>
<td width=5%>&nbsp;</td>
<td width=4% valign=top>&#149;</td>
<td width=91%>The second alternative would allow the relevant states to determine their own
methods for reducing emissions of sulfur dioxide and nitrogen oxide to meet the
proposed budgets in the CAIR.</td>
</tr>
</table>

<P><FONT FACE="Times New Roman, Times, Serif" size=3>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The EPA has announced that
it expects to adopt some form of the CAIR by the end of 2004. How the rule would
affect us will depend on, among other things, the final form of the rule,
including whether North Dakota is covered by the final rule, and the allocation
of available emissions allowances. </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" size=3><B><I>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Mercury
Rule</I></B><I></I>. In the Mercury Rule, the EPA proposed three alternative
methods for regulating emissions of mercury. One alternative would require EGUs
to meet an emissions limit that is based on the installation of controls known
as &#147;maximum achievable control technologies,&#148; or MACT. The second and
third alternatives would establish standards of performance and a cap-and-trade
program, one under Section 111 of the Clean Air Act and one under Section 112 of
the Clean Air Act. The Mercury Rule would apply to all EGUs. According to the
EPA, there are neither precombustion techniques nor proven technologies that are
currently commercially available for reducing mercury emissions from
lignite-burning units to the level contemplated by the version of the MACT
standard contained in the proposed rule, and there is also currently no proven
technology for accurately measuring the mercury content in emissions. </FONT></P>

<table width=650 cellpadding=0 cellspacing=0 border=0>
<tr>
<td width=5%>&nbsp;</td>
<td width=4% valign=top>&#149;</td>
<td width=91%>Under the MACT alternative, the EPA would limit mercury emissions that could be
emitted from EGUs for every trillion Btu those units produce. As currently
proposed, this alternative would limit mercury emissions from lignite-burning
EGUs to 9.2 pounds of mercury for every trillion Btu produced, commencing as
early as 2007. Mercury emissions from the Limestone Station, which burns lignite
produced by our Jewett Mine, exceed 9.2 pounds of mercury per trillion Btu, and
mercury emissions from the Coyote Station, which burns lignite produced by our
Beulah Mine, may exceed 9.2 pounds of mercury per trillion Btu.</td>
</tr>
</table>
<br>

<table width=650 cellpadding=0 cellspacing=0 border=0>
<tr>
<td width=5%>&nbsp;</td>
<td width=4% valign=top>&#149;</td>
<td width=91%>Under the two cap-and-trade alternatives, EGUs would be required to hold
sufficient allowances to cover their emissions of mercury each year. The two
alternative cap-and-trade programs would allocate emissions allowances for
mercury differently. One alternative would allocate allowances to individual
EGUs. Under the other alternative, the EPA would allocate to each state
specified amounts of emissions allowances, and the states would allocate
allowances to EGUs. Under both alternatives, EGUs would be able to trade their
allowances. In 2002, EGUs emitted approximately 48 tons of mercury. The
cap-and-trade alternatives propose to reduce EGUs&#146; annual emissions of
mercury to 34 tons by 2010 and 15 tons by 2018. An EGU with mercury emissions
higher than its allocated allowance level could bring itself into compliance by
installing pollution control equipment, switching fuels or buying allowances.</td>
</tr>
</table>

<br>
<p align=center><FONT FACE="Times New Roman, Times, Serif" SIZE=3>55</font></p>
<page>
<br>

<P><FONT FACE="Times New Roman, Times, Serif" size=3>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;How the rule would affect
us will depend on, among other things, the final regulatory scheme adopted by
the EPA. If the EPA were to adopt a version of the Mercury Rule that limits
emissions of mercury to 9.2 pounds for every trillion Btu produced from
lignite-burning plants, then sales from the Jewett Mine and the Beulah Mine
could be significantly reduced; if the EPA were to adopt a version of the rule
that contains a cap-and-trade approach, we could face increased pressure to
reduce the price for our lignite to offset in part the cost of purchasing
emissions allowances; and if the EPA were to adopt any form of the Mercury Rule,
we could face increased pressure to reduce the price for our lignite to offset
in part any costs for any technological solutions that might be developed. </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" size=3>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The EPA issued a
Supplemental Proposed Rule on March 16, 2004. Based on a preliminary review of
the docket for the proposed Mercury Rule, it appears that the EPA received over
500,000 comments on the proposed rule, many suggesting that the EPA should
fundamentally change the three alternatives contained in the proposal. The EPA
has announced that it expects to adopt some version of the Mercury Rule by March
15, 2005. </FONT></P>

<p><FONT FACE="Times New Roman, Times, Serif" size=3>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<b>Health and Benefits</b></font></p>

<P><FONT FACE="Times New Roman, Times, Serif" size=3><B><I>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Mine Safety and
Health. </I></B><I></I>Congress enacted the Coal Mine Health and Safety Act in
1969. The Federal Mine Safety and Health Act of 1977 significantly expanded the
enforcement of safety and health standards and imposed safety and health
standards on all aspects of mining operations. The states in which we operate
have programs for mine safety and health regulation and enforcement. Our safety
activities are discussed above. </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" size=3><B><I>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Black Lung.
</I></B><I></I>Under the Black Lung Benefits Revenue Act of 1977 and the Black
Lung Benefits Reform Act of 1977, as amended in 1981, each coal mine operator
must secure payment of federal black lung benefits to claimants who are current
and former employees and to a trust fund for the payment of benefits and medical
expenses to claimants who last worked in the coal industry prior to July 1,
1973. </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" size=3><B><I>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Coal Act.
</I></B><I></I>As discussed in more detail above, the Coal Industry Retiree
Health Benefit Act imposes substantial costs on us. See &#147;Management&#146;s
Discussion and Analysis of Financial Condition and Results of Operations &#150;
Critical Accounting Estimates and Related Matters &#150; Postretirement Benefits
and Pension Obligations.&#148; </FONT></P>

<p><FONT FACE="Times New Roman, Times, Serif" size=3>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<b>Independent Power</b></font></p>

<P><FONT FACE="Times New Roman, Times, Serif" size=3>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Many of the environmental
laws and regulations described above, including the Clean Air Act Amendments,
the Clean Water Act and RCRA, apply to our independent power plants as well as
to our coal mining operations. These laws and regulations require a lengthy and
complex process of obtaining licenses, permits and approvals from federal, state
and local agencies. Meeting the requirements of each jurisdiction with authority
over a project can delay or sometimes prevent the completion of a proposed
project, as well as require extensive modifications to existing projects. The
operators of the ROVA and Fort Lupton Projects are responsible for obtaining the
required permits and complying with the relevant environmental laws. </FONT></P>

<br>
<p align=center><FONT FACE="Times New Roman, Times, Serif" SIZE=3>56</font></p>
<page>
<br>

<P><FONT FACE="Times New Roman, Times, Serif" size=3>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On December 17, 1999, the
EPA issued regulations under Section 126 of the Clean Air Act, which we call the
Section 126 rule. The Section 126 rule requires combined nitrogen oxide
reductions of 510,000 tons during each annual ozone season (May 1 &#150;
September 30) from specified power stations in the eastern United States,
including the ROVA Project. The rule responds to petitions filed by several
northeastern states under Section 126 of the Clean Air Act and seeks to control
nitrogen oxide emissions that the petitioning states allege prevent them from
attaining the ambient air quality standards for ozone. Each source is assigned a
nitrogen oxide emissions allocation, and sources can reduce emissions to meet
the allocation or purchase allowances. </FONT></P>

<p><FONT FACE="Times New Roman, Times, Serif" size=3>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;North Carolina has adopted regulations that require compliance with the new nitrogen oxide limits beginning in June 2004.
</font></p>

<P><FONT FACE="Times New Roman, Times, Serif" size=3>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;At this time, the ROVA
Project is evaluating strategies for complying with the Section 126 rule. In
2000, the ROVA Project installed a neural network in its boilers. The neural
network increases boiler efficiency and reduces nitrogen oxide and carbon
monoxide emissions. While the neural network reduces the level of nitrogen oxide
and carbon monoxide emissions from the ROVA Project, the project&#146;s operator
is evaluating additional compliance strategies, including installation of
additional pollution control equipment and/or emissions trading. </FONT></P>

<H2 ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" size=3>Employees</FONT></H2>

<P><FONT FACE="Times New Roman, Times, Serif" size=3>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Including our subsidiaries,
we directly employed 919 people on December 31, 2003, compared with 882 people
on December 31, 2002. We hired more employees in 2003 in order to increase
production from the Rosebud Mine. Westmoreland Coal Company is not party to any
agreement with the United Mine Workers of America, or UMWA, and its last
agreement with the UMWA expired on August 1, 1998. However, our Western Energy
subsidiary is party to an agreement with Local 400 of the International Union of
Operating Engineers, or IUOE. In addition, our Dakota Westmoreland and
Westmoreland Savage subsidiaries assumed agreements with Local 1101 of the UMWA
and Local 400 of the IUOE, respectively, when we purchased Knife River&#146;s
assets. </FONT></P>

<H2 ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" size=3>Information
about Segments</FONT></H2>

<P><FONT FACE="Times New Roman, Times, Serif" size=3>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Coal revenues accounted for
93%, 95%, 95% and 94% of our consolidated revenues in the first quarter of 2004
and in 2003, 2002 and 2001, respectively. Equity in earnings from independent
power operations accounted for the balance of our consolidated revenues in the
first quarter of 2004 and in each such year. Please refer to Note 13 of our
consolidated financial statements for additional information about the segments
of our business. </FONT></P>

<br>
<p align=center><FONT FACE="Times New Roman, Times, Serif" SIZE=3>57</font></p>
<page>
<br>

<H2 ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" size=3>Available
Information</FONT></H2>

<P><FONT FACE="Times New Roman, Times, Serif" size=3>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our Internet address is
www.westmoreland.com. We do not intend for the information on our website to
constitute part of this report. We make available, free of charge on or through
our Internet website, our Annual Report on Form 10-K, quarterly reports on Form
10-Q, current reports on Form 8-K and amendments to those reports filed or
furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of
1934, as amended, as soon as reasonably practicable after we file those
materials electronically with, or furnish them to, the Securities and Exchange
Commission. </FONT></P>


<br>
<p align=center><FONT FACE="Times New Roman, Times, Serif" SIZE=3>58</font></p>
<page>
<br>


<H1 ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" size=3>PROPERTIES</FONT></H1>

<P><FONT FACE="Times New Roman, Times, Serif" size=3>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We operate mines in
Montana, Texas and North Dakota. All of these mines are surface or open-pit
mines. These properties contain coal reserves and coal deposits. A coal reserve
is that part of a mineral deposit that could be economically and legally
extracted or produced at the time of the reserve determination. A coal deposit
is a coal bearing body, which has been appropriately sampled and analyzed in
trenches, outcrops, and drilling to support sufficient tonnage and grade to
warrant further exploration work. This coal does not qualify as a coal reserve
until, among other things, we conduct a final comprehensive evaluation based
upon unit cost per ton, recoverability, and other material factors and conclude
that it is legally and economically feasible to mine the coal. </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" size=3>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We include in coal reserves
162 million tons that are not fully permitted but that otherwise meet the
definition of coal reserves. Montana, Texas and North Dakota each use a
permitting process approved by the Office of Surface Mining. We describe that
process in this prospectus under &#147;Business &#150; Governmental
Regulation,&#148; and we explain our assessment of that process as applied to
these 162 million tons below. </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" size=3>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;All of our final
reclamation obligations are secured by bonds as required by the respective state
agencies. Payment of the actual cost of the major portion of final reclamation
is the responsibility of third parties. Contemporaneous reclamation activities
are performed at each mine in the normal course of operations and coal
production. </FONT></P>

<br>
<p align=center><FONT FACE="Times New Roman, Times, Serif" SIZE=3>59</font></p>
<page>
<br>


<p><FONT FACE="Times New Roman, Times, Serif" size=3>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The following table provides information about our mines as of December 31, 2003.</font></p>

<table align=center border=1 cellPadding=4 cellSpacing=0 width=650>
         <tr>
                  <td width=20% align=left>&nbsp;</td>
                  <td width=16%><FONT FACE="Times New Roman, Times, Serif" size=2><b>Absaloka<br>Mine</b></font></td>
                  <td width=16%><FONT FACE="Times New Roman, Times, Serif" size=2><b>Rosebud<br>Mine</b></font></td>
                  <td width=16%><FONT FACE="Times New Roman, Times, Serif" size=2><b>Jewett<br>Mine</b></font></td>
                  <td width=16%><FONT FACE="Times New Roman, Times, Serif" size=2><b>Beulah<br>Mine</b></font></td>
                  <td width=16%><FONT FACE="Times New Roman, Times, Serif" size=2><b>Savage<br>Mine</b></font></td>
         </tr>
         <tr>
                  <td align=left valign=top><FONT FACE="Times New Roman, Times, Serif" size=2><b>Owned by</b></font></td>
                  <td valign=top><FONT FACE="Times New Roman, Times, Serif" size=2>Westmoreland Resources, Inc.</font></td>
                  <td valign=top><FONT FACE="Times New Roman, Times, Serif" size=2>Western Energy Company</font></td>
                  <td valign=top><FONT FACE="Times New Roman, Times, Serif" size=2>Northwestern Resources Co.</font></td>
                  <td valign=top><FONT FACE="Times New Roman, Times, Serif" size=2>Dakota Westmoreland Corporation</font></td>
                  <td valign=top><FONT FACE="Times New Roman, Times, Serif" size=2>Westmoreland Savage Corporation</font></td>
         </tr>
         <tr>
                  <td align=left valign=top><FONT FACE="Times New Roman, Times, Serif" size=2><b>Location</b></font></td>
                  <td valign=top><FONT FACE="Times New Roman, Times, Serif" size=2>Big Horn County, MT</font></td>
                  <td valign=top><FONT FACE="Times New Roman, Times, Serif" size=2>Rosebud and Treasure Counties, MT</font></td>
                  <td valign=top><FONT FACE="Times New Roman, Times, Serif" size=2>Leon, Freestone and Limestone Counties, TX</font></td>
                  <td valign=top><FONT FACE="Times New Roman, Times, Serif" size=2>Mercer and Oliver Counties, ND</font></td>
                  <td valign=top><FONT FACE="Times New Roman, Times, Serif" size=2>Richland County, MT</font></td>
         </tr>
         <tr>
                  <td align=left valign=top><FONT FACE="Times New Roman, Times, Serif" size=2><b>Coal Reserves<br>(thousands of tons)<br>&nbsp;&nbsp;Proven</b></font>
 <FONT FACE="Times New Roman, Times, Serif" size=2><b>(1)</b></font><br>&nbsp;&nbsp;<FONT FACE="Times New Roman, Times, Serif" size=2><b>Probable </b></font>
<FONT FACE="Times New Roman, Times, Serif" size=2><b>(3)</b></font></td>
                  <td valign=bottom><FONT FACE="Times New Roman, Times, Serif" size=2>53,586</font><FONT FACE="Times New Roman, Times, Serif" size=2>(2)</font><br><FONT FACE="Times New Roman, Times, Serif" size=2>0</font></td>
                  <td valign=bottom><FONT FACE="Times New Roman, Times, Serif" size=2>233,841</font><FONT FACE="Times New Roman, Times, Serif" size=2>(2)</font><br><FONT FACE="Times New Roman, Times, Serif" size=2>0</font></td>
                  <td valign=bottom><FONT FACE="Times New Roman, Times, Serif" size=2>99,859</font><br><FONT FACE="Times New Roman, Times, Serif" size=2>0</font></td>
                  <td valign=bottom><FONT FACE="Times New Roman, Times, Serif" size=2>40,471</font><FONT FACE="Times New Roman, Times, Serif" size=2>(2)</font><br><FONT FACE="Times New Roman, Times, Serif" size=2>3,815</font></td>
                  <td valign=bottom><FONT FACE="Times New Roman, Times, Serif" size=2>12,90</font><FONT FACE="Times New Roman, Times, Serif" size=2>0</font><FONT FACE="Times New Roman, Times, Serif" size=2>(2)</font><br><FONT FACE="Times New Roman, Times, Serif" size=2>4,008</font></td>
         </tr>
         <tr>
                  <td align=left><FONT FACE="Times New Roman, Times, Serif" size=2><b>Permitted Reserves<br>(thousands of tons)</b></font></td>
                  <td valign=top><FONT FACE="Times New Roman, Times, Serif" size=2>28,000</font></td>
                  <td valign=top><FONT FACE="Times New Roman, Times, Serif" size=2>154,941</font></td>
                  <td valign=top><FONT FACE="Times New Roman, Times, Serif" size=2>99,859</font></td>
                  <td valign=top><FONT FACE="Times New Roman, Times, Serif" size=2>6,000</font></td>
                  <td valign=top><FONT FACE="Times New Roman, Times, Serif" size=2>4,300</font></td>
         </tr>
         <tr>
                  <td align=left><FONT FACE="Times New Roman, Times, Serif" size=2><b>Coal Deposits <br>(thousands of tons)(4)</b></font></td>
                  <td valign=top><FONT FACE="Times New Roman, Times, Serif" size=2>576,584</font></td>
                  <td valign=top><FONT FACE="Times New Roman, Times, Serif" size=2>280,000</font></td>
                  <td valign=top><FONT FACE="Times New Roman, Times, Serif" size=2>0</font></td>
                  <td valign=top><FONT FACE="Times New Roman, Times, Serif" size=2>0</font></td>
                  <td valign=top><FONT FACE="Times New Roman, Times, Serif" size=2>0</font></td>
         </tr>
         <tr>
                  <td align=left><FONT FACE="Times New Roman, Times, Serif" size=2><b>2003 Production<br>(thousands of tons)</b></font></td>
                  <td valign=top><FONT FACE="Times New Roman, Times, Serif" size=2>6,016</font></td>
                  <td valign=top><FONT FACE="Times New Roman, Times, Serif" size=2>11,003</font></td>
                  <td valign=top><FONT FACE="Times New Roman, Times, Serif" size=2>7,462</font></td>
                  <td valign=top><FONT FACE="Times New Roman, Times, Serif" size=2>2,816</font></td>
                  <td valign=top><FONT FACE="Times New Roman, Times, Serif" size=2>379</font></td>
         </tr>
         <tr>
                  <td align=left valign=top><FONT FACE="Times New Roman, Times, Serif" size=2><b>Lessor</b></font></td>
                  <td valign=top><FONT FACE="Times New Roman, Times, Serif" size=2>Crow Tribe</font></td>
                  <td valign=top><FONT FACE="Times New Roman, Times, Serif" size=2>Federal Govt;<br>State of MT;<br>Great Northern<br>Properties</font></td>
                  <td valign=top><FONT FACE="Times New Roman, Times, Serif" size=2>Private parties</font></td>
                  <td valign=top><FONT FACE="Times New Roman, Times, Serif" size=2>Private parties;<br>State of ND;<br>Federal Govt</font></td>
                  <td valign=top><FONT FACE="Times New Roman, Times, Serif" size=2>Federal Govt;<br>Private parties</font></td>
         </tr>
         <tr>
                  <td align=left valign=top><FONT FACE="Times New Roman, Times, Serif" size=2><b>Lease Term</b></font></td>
                  <td valign=top><FONT FACE="Times New Roman, Times, Serif" size=2>Through exhaustion</font></td>
                  <td valign=top><FONT FACE="Times New Roman, Times, Serif" size=2>Varies</font></td>
                  <td valign=top><FONT FACE="Times New Roman, Times, Serif" size=2>Varies</font></td>
                  <td valign=top><FONT FACE="Times New Roman, Times, Serif" size=2>2009-2019</font></td>
                  <td valign=top><FONT FACE="Times New Roman, Times, Serif" size=2>Varies</font></td>
         </tr>
         <tr>
                  <td align=left valign=top><FONT FACE="Times New Roman, Times, Serif" size=2><b>Curent production capacity<br>(millions of tons)</b></font></td>
                  <td valign=top><FONT FACE="Times New Roman, Times, Serif" size=2>7</font></td>
                  <td valign=top><FONT FACE="Times New Roman, Times, Serif" size=2>12</font></td>
                  <td valign=top><FONT FACE="Times New Roman, Times, Serif" size=2>7</font></td>
                  <td valign=top><FONT FACE="Times New Roman, Times, Serif" size=2>4</font></td>
                  <td valign=top><FONT FACE="Times New Roman, Times, Serif" size=2>0.4</font></td>
         </tr>
         <tr>
                  <td align=left valign=top><FONT FACE="Times New Roman, Times, Serif" size=2><b>Coal type</b></font></td>
                  <td valign=top><FONT FACE="Times New Roman, Times, Serif" size=2>Sub-bituminous</font></td>
                  <td valign=top><FONT FACE="Times New Roman, Times, Serif" size=2>Sub-bituminous</font></td>
                  <td valign=top><FONT FACE="Times New Roman, Times, Serif" size=2>Lignite</font></td>
                  <td valign=top><FONT FACE="Times New Roman, Times, Serif" size=2>Lignite</font></td>
                  <td valign=top><FONT FACE="Times New Roman, Times, Serif" size=2>Lignite</font></td>
         </tr>
         <tr>
                  <td align=left valign=top><FONT FACE="Times New Roman, Times, Serif" size=2><b>Acres disturbed by mining</b></font></td>
                  <td valign=top><FONT FACE="Times New Roman, Times, Serif" size=2>3,520</font></td>
                  <td valign=top><FONT FACE="Times New Roman, Times, Serif" size=2>14,652</font></td>
                  <td valign=top><FONT FACE="Times New Roman, Times, Serif" size=2>13,250</font></td>
                  <td valign=top><FONT FACE="Times New Roman, Times, Serif" size=2>4,221</font></td>
                  <td valign=top><FONT FACE="Times New Roman, Times, Serif" size=2>503</font></td>
         </tr>
         <tr>
                  <td align=left valign=top><FONT FACE="Times New Roman, Times, Serif" size=2><b>Acres  for  which  reclamation is complete</b></font></td>
                  <td valign=top><FONT FACE="Times New Roman, Times, Serif" size=2>2,400</font></td>
                  <td valign=top><FONT FACE="Times New Roman, Times, Serif" size=2>6,782</font></td>
                  <td valign=top><FONT FACE="Times New Roman, Times, Serif" size=2>8,816</font></td>
                  <td valign=top><FONT FACE="Times New Roman, Times, Serif" size=2>2,849</font></td>
                  <td valign=top><FONT FACE="Times New Roman, Times, Serif" size=2>209</font></td>
         </tr>
         <tr>
                  <td align=left valign=top><FONT FACE="Times New Roman, Times, Serif" size=2><b>Major customers</b></font></td>
                  <td valign=top><FONT FACE="Times New Roman, Times, Serif" size=2>Xcel Energy, Western Fuels Assoc., Midwest Energy</font></td>
                  <td valign=top><FONT FACE="Times New Roman, Times, Serif" size=2>PPL Montana, Puget Sound, Portland General, Avista, Pacificorp, Minnesota Power</font></td>
                  <td valign=top><FONT FACE="Times New Roman, Times, Serif" size=2>Texas Genco</font></td>
                  <td valign=top><FONT FACE="Times New Roman, Times, Serif" size=2>Otter Tail, MDU, Minnkota, Northwestern Public Service</font></td>
                  <td valign=top><FONT FACE="Times New Roman, Times, Serif" size=2>MDU, Sidney Sugars</font></td>
         </tr>
         <tr>
                  <td align=left valign=top><FONT FACE="Times New Roman, Times, Serif" size=2><b>Delivery method</b></font></td>
                  <td valign=top><FONT FACE="Times New Roman, Times, Serif" size=2>Rail</font></td>
                  <td valign=top><FONT FACE="Times New Roman, Times, Serif" size=2>Truck / Rail /      Conveyor</font></td>
                  <td valign=top><FONT FACE="Times New Roman, Times, Serif" size=2>Conveyor</font></td>
                  <td valign=top><FONT FACE="Times New Roman, Times, Serif" size=2>Conveyor / Rail</font></td>
                  <td valign=top><FONT FACE="Times New Roman, Times, Serif" size=2>Truck</font></td>
         </tr>
         <tr>
                  <td align=left valign=top><FONT FACE="Times New Roman, Times, Serif" size=2><b>Approx.      heat      content<Br>(BTU/lb.) (5)</b></font></td>
                  <td valign=top><FONT FACE="Times New Roman, Times, Serif" size=2>8,700</font></td>
                  <td valign=top><FONT FACE="Times New Roman, Times, Serif" size=2>8,529</font></td>
                  <td valign=top><FONT FACE="Times New Roman, Times, Serif" size=2>6,670</font></td>
                  <td valign=top><FONT FACE="Times New Roman, Times, Serif" size=2>7,000</font></td>
                  <td valign=top><FONT FACE="Times New Roman, Times, Serif" size=2>6,371</font></td>
         </tr>
         <tr>
                  <td align=left valign=top><FONT FACE="Times New Roman, Times, Serif" size=2><b>Approx. sulfur content<Br>(%) (6)</b></font></td>
                  <td valign=top><FONT FACE="Times New Roman, Times, Serif" size=2>0.63</font></td>
                  <td valign=top><FONT FACE="Times New Roman, Times, Serif" size=2>0.74</font></td>
                  <td valign=top><FONT FACE="Times New Roman, Times, Serif" size=2>1.00</font></td>
                  <td valign=top><FONT FACE="Times New Roman, Times, Serif" size=2>1.00</font></td>
                  <td valign=top><FONT FACE="Times New Roman, Times, Serif" size=2>0.45</font></td>
         </tr>
         <tr>
                  <td align=left valign=top><FONT FACE="Times New Roman, Times, Serif" size=2><b>Year opened</b></font></td>
                  <td valign=top><FONT FACE="Times New Roman, Times, Serif" size=2>1974</font></td>
                  <td valign=top><FONT FACE="Times New Roman, Times, Serif" size=2>1975(7)</font></td>
                  <td valign=top><FONT FACE="Times New Roman, Times, Serif" size=2>1985</font></td>
                  <td valign=top><FONT FACE="Times New Roman, Times, Serif" size=2>1963</font></td>
                  <td valign=top><FONT FACE="Times New Roman, Times, Serif" size=2>1958</font></td>
         </tr>
         <tr>
                  <td align=left valign=top><FONT FACE="Times New Roman, Times, Serif" size=2><b>Total   tons    mined    since inception<br>(million of tons)</b></font></td>
                  <td valign=top><FONT FACE="Times New Roman, Times, Serif" size=2>127.8</font></td>
                  <td valign=top><FONT FACE="Times New Roman, Times, Serif" size=2>346</font></td>
                  <td valign=top><FONT FACE="Times New Roman, Times, Serif" size=2>141</font></td>
                  <td valign=top><FONT FACE="Times New Roman, Times, Serif" size=2>79</font></td>
                  <td valign=top><FONT FACE="Times New Roman, Times, Serif" size=2>12</font></td>
         </tr>

</table>

<br>
<p align=center><FONT FACE="Times New Roman, Times, Serif" SIZE=3>60</font></p>
<page>
<br>

<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0>
<TR VALIGN=TOP>
<TD WIDTH=10% align=center><FONT FACE="Times New Roman, Times, Serif" size=2>(1)</FONT></TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" size=2>
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.</FONT></TD>
</TR>
</table>

<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0>
<TR VALIGN=TOP>
<TD WIDTH=10% align=center><FONT FACE="Times New Roman, Times, Serif" size=2>(2)</FONT></TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" size=2>
Includes tons for each mine as described below that are not fully permitted but otherwise meet the definition of "proven" coal
     reserves.</FONT></TD>
</TR>
</table>

<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0>
<TR VALIGN=TOP>
<TD WIDTH=10% align=center><FONT FACE="Times New Roman, Times, Serif" size=2>(3)</FONT></TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" size=2>
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 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.</FONT></TD>
</TR>
</table>

<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0>
<TR VALIGN=TOP>
<TD WIDTH=10% align=center><FONT FACE="Times New Roman, Times, Serif" size=2>(4)</FONT></TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" size=2>
We have assigned all coal deposits to operating mining equipment and plant facilities.</FONT></TD>
</TR>
</table>

<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0>
<TR VALIGN=TOP>
<TD WIDTH=10% align=center><FONT FACE="Times New Roman, Times, Serif" size=2>(5)</FONT></TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" size=2>
Approximate heat content applies to the coal mined in 2003.</FONT></TD>
</TR>
</table>

<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0>
<TR VALIGN=TOP>
<TD WIDTH=10% align=center><FONT FACE="Times New Roman, Times, Serif" size=2>(6)</FONT></TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" size=2>
Approximate sulfur content applies to the tons mined in 2003.</FONT></TD>
</TR>
</table>

<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0>
<TR VALIGN=TOP>
<TD WIDTH=10% align=center><FONT FACE="Times New Roman, Times, Serif" size=2>(7)</FONT></TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" size=2>
Initial sales from the current mine complex began in 1975.  Mining first occurred at the site in 1924.</FONT></TD>
</TR>
</table>


<P><FONT FACE="Times New Roman, Times, Serif" size=3>We lease all our coal properties
except at the Jewett Mine, where some reserves are controlled through fee
ownership. We believe that we have satisfied all conditions that we must meet in
order to retain the properties and keep the leases in force. </FONT></P>

<H2 ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" size=3>Absaloka Mine</FONT></H2>

<P><FONT FACE="Times New Roman, Times, Serif" size=3>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our Westmoreland Resources
subsidiary began constructing the mine in late 1972. Construction was completed
in early 1974. Westmoreland Resources has been the mine&#146;s only owner. </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" size=3>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Absaloka Mine&#146;s
primary excavating machine (completed in 1979) is a dragline with a
bucket-capacity of 110 cubic yards. Westmoreland Resources owns the dragline.
The Absaloka Mine&#146;s facilities consist of a truck dump, primary and
secondary crushers, conveyors, coal storage barn, train loadout, rail loop,
shop, warehouse, boiler house, deep well and water treatment plant and other
support facilities. These facilities date from the construction of the mine.
Westmoreland Resources&#146; mining contractor and minority stockholder owns
most of the other equipment at the mine. </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" size=3>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We believe that all the
coal reserves and coal deposits shown in the table above for the Absaloka Mine
are recoverable through the Absaloka Mine&#146;s existing facilities with
current technology and the existing infrastructure. These reserves and deposits
were estimated to be 799.8 million tons as of January 1, 1980, based principally
upon a report by IntraSearch Inc., an independent firm of consulting geologists,
prepared in February 1980. </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" size=3>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Westmoreland Resources
leases all of its remaining coal reserves and coal deposits from the Crow Tribe
of Indians. The lease runs until exhaustion of the mineable and merchantable
coal in the acreage subject to the lease. In February 2004, Westmoreland
Resources reached an agreement with the Crow Tribe to explore and develop
additional acreage located on the Crow reservation immediately adjacent to the
Absaloka Mine. </FONT></P>

<br>
<p align=center><FONT FACE="Times New Roman, Times, Serif" SIZE=3>61</font></p>
<page>
<br>

<P><FONT FACE="Times New Roman, Times, Serif" size=3>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Washington Group, which
owns 20% of Westmoreland Resources and mines the coal at the Absaloka Mine under
a contract with Westmoreland Resources, is contractually responsible for
reclaiming the Absaloka Mine, whatever the cost, except for $1.7 million, which
is the responsibility of Westmoreland Resources and is being funded through
annual payments of $113,000 through 2005. Washington Group is also contractually
obligated to fund a reclamation escrow account or post security for its
reclamation obligation. After reclamation is complete, Westmoreland Resources is
responsible for maintaining and monitoring the reclaimed property until the
release of the reclamation bond. For the property mined through
December&#160;31, 2003, Westmoreland Resources&#146; estimated future cost of
maintaining and monitoring the property until bond release is $1.5 million. </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" size=3>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Of the 53.6 million tons
shown for the Absaloka Mine in the table above as proven coal reserves, 25.6
million tons are not fully permitted but otherwise meet the definition of coal
reserves. Westmoreland Resources has chosen not to obtain permits for all of the
coal reserves in its current mine plan because it already has sufficient
permitted coal to meet production, given the current rate of mining and demand,
through 2007. In Montana, the Department of Environmental
Quality<SUP>&#160;</SUP> regulates surface mining and issues mining permits
under its OSM-approved program. In Montana, it typically takes two to four years
from the time an initial application is filed to obtain a new permit.
Westmoreland Resources filed an application covering an estimated 25 million
tons of unpermitted reserves in June 2004. We do not believe additional
exploration or development of this area is necessary for Westmoreland Resources
to obtain the necessary permits. Based upon our current knowledge of the
permitting process in Montana and the nature of the Absaloka Mine&#146;s
reserves, we believe that there are no matters that would hinder Westmoreland
Resources&#146; ability to obtain this mining permit on a timely basis. </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" size=3>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The operator of the
Absaloka Mine purchases electric power under a long-term contract with
NorthWestern Energy,<SUP>&#160;</SUP> the local utility. The mine is accessed
from Route 384 via County Road 42. </FONT></P>

<H2 ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" size=3>Rosebud Mine</FONT></H2>

<P><FONT FACE="Times New Roman, Times, Serif" size=3>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Northern Pacific
Railroad began mining coal for its steam locomotives at Colstrip in 1924 and
continued to do so until 1958. In 1959, the Montana Power Company purchased the
property. Montana Power formed Western Energy Company in 1966 to operate the
Rosebud Mine and began selling coal to customers in 1968. Commercial operation
of Colstrip Station began in 1975.<SUP>&#160;</SUP> The long-term contracts
required for this plant provided the foundation for a major expansion of the
Rosebud Mine. We acquired the stock of Western Energy in 2001. </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" size=3>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Rosebud Mine&#146;s
primary excavating machines are four draglines, three with bucket-capacities of
60 cubic yards, purchased in 1975, 1976 and 1980, and one with a bucket-capacity
of 80 cubic yards, purchased in 1983. The Rosebud Mine&#146;s facilities consist
of truck dumps, crushing, storage, and conveying systems, a rail loadout, rail
loop, shops, warehouses and other support facilities. These facilities date from
1974. </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" size=3>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We estimate that the
Rosebud Mine had coal reserves of 233.8 million tons as of December 31,
2003.<SUP>&#160;</SUP> This estimate is based on a study of the Rosebud
Mine&#146;s reserves dated October 31, 2003 conducted by Western Energy and
adjusted for production since that date.<SUP>&#160;</SUP> We estimate that the
Rosebud Mine had coal deposits of approximately 280 million tons at the end of
2003. This estimate is based on a study of the reserves at the Rosebud Mine
dated September 28, 1994, prepared by the Environmental and Engineering
Department of Western Energy while it was owned by Montana Power. We updated
this study in 2003. Our estimate is also based in part on a lease with the U.S.
Department of the Interior that Western Energy obtained in 1999. We believe that
all of these reserves are recoverable through the Rosebud Mine&#146;s existing
facilities with current technology and the existing infrastructure. </FONT></P>

<br>
<p align=center><FONT FACE="Times New Roman, Times, Serif" SIZE=3>62</font></p>
<page>
<br>

<P><FONT FACE="Times New Roman, Times, Serif" size=3>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We are responsible for
reclaiming the Rosebud Mine. The owners of the Colstrip Station are responsible
for paying the costs of reclamation relating to mine areas where its coal supply
is produced, which is approximately 63% of the estimated total cost of final
reclamation for the Rosebud Mine. Several owners have satisfied these
obligations by prefunding their respective portions of those costs. </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" size=3>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Of the 233.8 million tons
shown for the Rosebud Mine in the table above as proven coal reserves, 78.9
million tons are not fully permitted but otherwise meet the definition of coal
reserves. Western Energy has chosen not to permit all of the coal reserves in
its mine plan because it already has sufficient coal in its current permitted
mine plan, given the current rate of mining and demand for its production,
through 2013. Based upon our current knowledge of the nature of the remaining
reserves and the permitting process in Montana, we believe that there are no
matters that would hinder Western Energy&#146;s ability to obtain additional
mining permits in the future. </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" size=3>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Rosebud Mine purchases
electric power from NorthWestern Energy under regulated default supply pricing.
Access to the mine is from Highway 39 via Castle Rock Road. </FONT></P>

<H2 ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" size=3>Jewett Mine</FONT></H2>

<P><FONT FACE="Times New Roman, Times, Serif" size=3>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Development of the Jewett
Mine began in 1979, when Northwestern Resources and Utility Fuels, Inc. signed
an agreement calling for production of &#147;the most economic 240 million
tons&#148; from the project area to supply the planned Limestone Station. The
coal deposit was evaluated through a series of exploration programs, including
physical and chemical analysis, according to predetermined criteria. The Jewett
Mine has been in continuous operation since 1985 and consists of five active
areas with as many as four lignite seams within each area. Since 1979, ownership
of the Limestone Station has been transferred several times, most recently to
Texas Genco. We acquired the stock of Northwestern Resources in 2001. </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" size=3>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Jewett Mine&#146;s
primary excavating machines consist of three walking draglines, each with a
bucket-capacity of 84 cubic yards, one walking dragline with a bucket-capacity
of 128 cubic yards, and one bucketwheel excavator. The Jewett Mine&#146;s
facilities consist of a truck dump, crusher, conveyors, coal storage,
shop/warehouse complex, administrative support buildings and water treatment
facilities. These facilities date from the construction of the mine. Texas Genco
owns the draglines, the bucketwheel and other mobile equipment used to extract
lignite and provides this equipment to Northwestern Resources without charge.
Northwestern Resources is obligated to maintain the draglines and all other
plant and equipment so that they continue to be serviceable and support
production comparable to the original specifications. </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" size=3>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Exploration work for the
mine commenced in the late 1970s, and Northwestern Resources&#146; geologists
and engineers prepared the initial estimates of the mine&#146;s reserves at a
time when Montana Power owned Northwestern Resources. To further define the coal
reserve, exploration drilling was utilized to delineate that part of the deposit
that could economically be mined. Additional drilling has been conducted from
time to time to further define the limits of the coal seams. As of December 31,
2003, all planned exploration is complete. We believe that all the Jewett
Mine&#146;s coal reserves are recoverable through its existing facilities with
current technology and the existing infrastructure. </FONT></P>

<br>
<p align=center><FONT FACE="Times New Roman, Times, Serif" SIZE=3>63</font></p>
<page>
<br>

<p><FONT FACE="Times New Roman, Times, Serif" size=3>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Final reclamation of the Jewett Mine, at the end of its useful life, is the financial responsibility of its customer.
</font></p>

<P><FONT FACE="Times New Roman, Times, Serif" size=3>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Railroad Commission of
Texas, or RCT, regulates surface mining in Texas and issues mining permits under
its OSM-approved program. In Texas, it typically takes eighteen months to two
years from the time an initial application is filed to obtain a new permit. A
permit term encompasses five years of mining. The Jewett Mine currently holds
two mining permits that cover 100% of the proven coal reserves in the table
above. Permit 32E is a renewal of the same general permit that has been in place
and actively mined since 1985. Permit 32E expired in July 2003; however, the RCT
allowed the Jewett Mine to continue to operate pending a decision on our
application to renew that permit.<SUP>&#160;</SUP> The RCT granted our
application to renew Permit 32E in April 2004. The term of the permit now
extends until July 2008. We also mine in an area covered by Permit 47, which
runs through December 2006. </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" size=3>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Jewett Mine purchases
electric power from the Brazos River Authority and Navasota Valley Electric
Cooperative. The mine may be accessed on Farm to Market Road 39. </FONT></P>

<H2 ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" size=3>Beulah Mine</FONT></H2>

<P><FONT FACE="Times New Roman, Times, Serif" size=3>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Knife River Corporation
began producing lignite at the Beulah Mine in 1963. The mine has two working
areas, the West Brush Creek area and the East Beulah area. We purchased the
assets of the Beulah Mine from Knife River in 2001. </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" size=3>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Beulah Mine&#146;s
primary excavating machines are a dragline with a bucket-capacity of 17 cubic
yards, constructed in 1963, which operates in the West Brush Creek area, and a
dragline with a bucket-capacity of 84 cubic yards, constructed in 1980, which
removes overburden at East Beulah. The Beulah Mine&#146;s facilities consist of
a truck dump hopper, primary and secondary crushers, conveyors, train loadout,
railroad spur, coal storage bin and coal stockpile. The support facilities
include several maintenance shops, equipment storage buildings, warehouse,
employee change houses, and mine office and trailers. These facilities date from
1963 and have been replaced consistent with normal industry practices. </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" size=3>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We estimate that the total
owned and leased coal reserves at the Beulah Mine were approximately 44.3
million tons at December&#160;31, 2003.<SUP>&#160;</SUP> We believe that all of
these reserves are recoverable through the Beulah Mine&#146;s existing
facilities with current technology and the existing infrastructure. </FONT></P>

<p><FONT FACE="Times New Roman, Times, Serif" size=3>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We are responsible for reclaiming the Beulah Mine and paying the cost of our reclamation obligations.
</font></p>

<P><FONT FACE="Times New Roman, Times, Serif" size=3>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Of the 44.3 million tons
shown for the Beulah Mine in the table above as proven and probable coal
reserves, 34.5 million tons are not fully permitted but otherwise meet the
definition of coal reserves. Of the total reserves shown, approximately 3.5
million tons in the West Brush Creek area and 2.5 million tons at East Beulah
are fully permitted at this time. Based on the current estimated annual
production rates of 500,000 and 2.5 million tons respectively, there are roughly
seven and one years, respectively, remaining under the current permitted mine
plans. The mine is currently awaiting approval of a permit extension that will
add six years and 700 acres of permitted reserves to the East Beulah permit.
North Dakota Public Service Commission regulates surface mining in North Dakota
and issues mining permits under its OSM-approved program. In North Dakota, it
typically takes one to two years from the time an initial application is filed
to obtain a new permit.<SUP>&#160;</SUP> Based on our current knowledge of the
permitting process in North Dakota and the environmental issues associated with
these reserves, we believe that there are no matters that would hinder our
ability to obtain any mining permits in the future. </FONT></P>

<br>
<p align=center><FONT FACE="Times New Roman, Times, Serif" SIZE=3>64</font></p>
<page>
<br>

<p><FONT FACE="Times New Roman, Times, Serif" size=3>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Beulah Mine purchases electric power from MDU.  The mine is accessed from North Dakota Highway 49.
</font></p>

<H2 ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" size=3>Savage Mine</FONT></H2>

<P><FONT FACE="Times New Roman, Times, Serif" size=3>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Knife River began producing
lignite at the Savage Mine in 1958. We purchased the assets of the Savage Mine
from Knife River in 2001. </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" size=3>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Savage Mine&#146;s
primary excavating machine is a walking dragline with a bucket-capacity of 12
cubic yards. The Savage Mine&#146;s facilities consist of a truck dump, near-pit
crushing unit, conveyors, and coal stockpile; support facilities include a shop,
warehouse, and mine office. These facilities date from 1958 and have been
replaced consistent with normal industry practices. The processing facilities
were constructed in 1996. The facilities were modified and upgraded in 2001. </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" size=3>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We estimate that the total
owned and leased coal reserves at the Savage Mine were approximately 16.9
million tons at December&#160;31, 2003. These reserves were estimated by our
engineering staff in 2003. We believe that all of these reserves are recoverable
through the Savage Mine&#146;s existing facilities with current technology and
the existing infrastructure. </FONT></P>

<p><FONT FACE="Times New Roman, Times, Serif" size=3>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We are responsible for reclaiming the Savage Mine and paying the cost of our reclamation obligations.
</font></p>

<P><FONT FACE="Times New Roman, Times, Serif" size=3>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Of the tons shown for the
Savage Mine in the table above as coal reserves, approximately 4.3 million tons
are fully permitted at this time and 12.6 million tons are not fully permitted
but otherwise meet the definition of coal reserves. We have chosen not to permit
all of the coal reserves in the Savage Mine&#146;s plan because the mine already
has sufficient coal in its current permitted mine plan given the current rate of
mining and demand for its production through 2017. Based upon our current
knowledge of the nature of the remaining reserves and the permitting process in
Montana, we believe that there are no matters that would hinder our ability to
obtain additional mining permits at the Savage Mine in the future. </FONT></P>

<p><FONT FACE="Times New Roman, Times, Serif" size=3>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Savage Mine purchases electric power from MDU.  The mine is accessed from Montana Highway 16 via County Road 107.
</font></p>

<H2 ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" size=3>Other</FONT></H2>

<p><FONT FACE="Times New Roman, Times, Serif" size=3>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Refer to Note 3 to our consolidated financial statements for a description of Westmoreland Energy's properties.
</font></p>

<br>
<p align=center><FONT FACE="Times New Roman, Times, Serif" SIZE=3>65</font></p>
<page>
<br>

<H1 ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" size=3>LEGAL
PROCEEDINGS</FONT></H1>

<p><FONT FACE="Times New Roman, Times, Serif" size=3>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We are party to legal proceedings.  We have presented the proceedings below based on the name of the Westmoreland entity
that is party to the proceeding.  We are vigorously contesting each of these proceedings.</font></p>


<p><FONT FACE="Times New Roman, Times, Serif" size=3><b>Legal proceedings involving Westmoreland Coal Company</b></font></p>

<p><FONT FACE="Times New Roman, Times, Serif" size=3>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<b>Combined Benefit Fund Litigation</b></font></p>

<P><FONT FACE="Times New Roman, Times, Serif" size=3>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Under the Coal Act, we are
required to provide postretirement medical benefits for some UMWA miners and
their dependents by making premium payments into benefit plans, including the
UMWA Combined Benefit Fund. The amount we pay is a function of the number of
individuals for which we must make payment &#150; assigned beneficiaries &#150;
and the assessment rate. We and many other coal companies are now litigating in
the U.S. District Court for the District of Maryland to determine the proper
assessment rate. </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" size=3>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In 1995, the U.S. District
Court for the Northern District of Alabama held that the assessment rate under
the Coal Act included the actual amount of money reimbursed to the UMWA Benefit
Plans by the Health Care Financing Administration, or HCFA. The court&#146;s
decision resulted in a lower premium obligation. In 1996, the U.S. Court of
Appeals for the 11th Circuit upheld the district court&#146;s decision. The
Social Security Administration, or SSA, which now makes these assessments,
proceeded to comply with the decision and applied the assessment that yielded a
lower premium to all coal companies. </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" size=3>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In 1996, the Trustees of
the Combined Fund filed suit in the U.S. District Court for the District of
Columbia seeking to have the Alabama decision set aside. In November 2002, the
U.S. District Court held that the provisions of the Coal Act that the Alabama
court had reviewed were ambiguous and directed the SSA to explain why it had
applied the Alabama decision to all coal companies, rather than just the
participants in the Alabama litigation. On June 10, 2003, the SSA notified the
court that it could not locate any record that would explain why it had decided
to apply the 1996 Alabama decision nationwide but assumed that its decision was
based on fairness and ease of administration for the SSA. After the June 10
letter, the SSA began to use the methodology that resulted in higher assessments
for all coal companies except those party to the Alabama litigation. The
Trustees of the Combined Fund notified us that we would be required to pay
higher premiums and assessed a retroactive premium that represented the amount
that we would have paid if the methodology that yields the higher premium had
been used since 1996. The amount of the retroactive premium was $4.7 million,
payable over the twelve months commencing October 2003. The net effect of these
assessments increased our monthly payments to the Combined Fund from less than
$400,000 to $859,000 for the twelve months ending October 2004. </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" size=3>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On July 16, 2003, we and
other companies with obligations to the Combined Fund filed a complaint in the
U.S. District Court for the Northern District of Alabama that sought to prevent
the increased assessment and retroactive assessment from taking effect. On
September 10, 2003, the Trustees of the Combined Fund filed suit in the U.S.
District Court for the District of Columbia. The Trustees sought to confirm that
all coal companies not party to the 1996 Alabama litigation are obligated to pay
the newly calculated, higher premium, as determined by the SSA on June 10, 2003. </FONT></P>

<br>
<p align=center><FONT FACE="Times New Roman, Times, Serif" SIZE=3>66</font></p>
<page>
<br>

<P><FONT FACE="Times New Roman, Times, Serif" size=3>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Trustees of the
Combined Fund sought to transfer the Alabama litigation to the District of
Columbia. In October 2003, the U.S. District Court for the Northern District of
Alabama held that venue was proper in Alabama but transferred the case to the
U.S. District Court in Baltimore, Maryland, where the SSA is headquartered. In
February 2004, the U.S. District Court for the District of Columbia transferred
the Trustees&#146; suit to Baltimore. </FONT></P>

<p><FONT FACE="Times New Roman, Times, Serif" size=3>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<b>Purchase Price Adjustment</b></font></p>

<P><FONT FACE="Times New Roman, Times, Serif" size=3>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We purchased Montana
Power&#146;s coal business from its subsidiary Entech in April 2001. The final
purchase price is subject to adjustment. Under our Stock Purchase Agreement with
Entech, the purchase price is to be adjusted as of the date the transaction
closed, to reflect the net assets of the business on the closing date and the
net revenues that the business earned between January 1, 2001 and the closing
date. In June 2001, Entech proposed adjustments that would increase the purchase
price by approximately $9 million. In July 2001, we objected to Entech&#146;s
adjustments and proposed our own adjustments. Our proposal would result in a
substantial decrease in the purchase price. The Stock Purchase Agreement
requires that the parties&#146; disagreements be submitted to an independent
accountant for resolution. Because some of our claims involved breaches of the
representations and warranties in the Stock Purchase Agreement, we also
submitted a timely claim for indemnification. </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" size=3>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Litigation in the New York
courts ensued. On June 18, 2003, Touch America Holdings, Inc. (formerly Montana
Power Company) and Entech LLC (formerly Entech Inc.) filed bankruptcy petitions
in the U.S. Bankruptcy Court for the District of Delaware. The bankruptcy code
automatically stays pending litigation against Montana Power and Entech and
prevents us and others from commencing new actions against them outside the
Bankruptcy Court. </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" size=3>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We have filed appropriate
proofs of claim with the Bankruptcy Court. We are also evaluating our options,
which include (1) seeking relief from the stay, so that we can continue to
pursue the purchase price adjustment claim through the independent accountant
and in an action at law in the New York courts, and (2) seeking to resolve our
claims as part of the bankruptcy proceeding. </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" size=3>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On March 16, 2004, we
received notice that Touch America and Entech have commenced an adversary
proceeding against us in the U.S. Bankruptcy Court in Delaware. The complaint
re-asserts Entech&#146;s proposed adjustments to the purchase price and alleges
that we are holding approximately $9 million that is the property of the estates
of Montana Power and Entech. We have filed an answer, a motion to dismiss and a
claim for indemnification. The parties are briefing the issues, and we anticipate that our motion to dismiss will
be heard in the third quarter of 2004. At that time, the bankruptcy court will decide how to proceed with the
purchase price adjustment and indemnification claims.
</FONT></P>

<br>
<p align=center><FONT FACE="Times New Roman, Times, Serif" SIZE=3>67</font></p>
<page>
<br>

<p><FONT FACE="Times New Roman, Times, Serif" size=3>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<b>McGreevey Litigation</b></font></p>

<P><FONT FACE="Times New Roman, Times, Serif" size=3>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In mid-November 2002, we
were served with a complaint &#150; the plaintiffs&#146; Fourth Amended
Complaint &#150; filed on October 4, 2002 in a Montana state court in a case
styled McGreevey et al. v. Montana Power Company et al. The plaintiffs filed
their first complaint on August 16, 2001. The Fourth Amended Complaint added us
as a defendant to a suit against Montana Power, various officers of Montana
Power, the Board of Directors of Montana Power, financial advisors and lawyers
representing Montana Power and the purchasers of some of the businesses formerly
owned by Montana Power and Entech. The plaintiffs are former stockholders of
Montana Power who seek to rescind Montana Power&#146;s sale of its electric
generating, oil and gas, and transmission businesses, and Entech&#146;s sale of
its coal business. The plaintiffs contend that they were entitled to vote to
approve the sale by Entech to us even though they were not stockholders of
Entech. Alternatively, they seek to compel the purchasers, including us, to hold
these businesses in trust for them. We have filed an answer, affirmative
defenses and a counterclaim against the plaintiffs. </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" size=3>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The litigation was
transferred to the U.S. District Court in Billings, Montana. On July 12, 2004,
the plaintiffs filed a status report with the U.S. District Court. In the status
report, the plaintiffs stated that the insurance companies that insure the
former officers and directors of Montana Power had agreed to pay $67 million
into escrow, pending approval of a settlement agreement. As part of the
resulting proposed settlement, the McGreevey plaintiffs would dismiss their
claims against the former officers and directors of Montana Power, Montana
Power, and us, among other defendants. The proposed settlement would terminate
this litigation as to us and our subsidiaries. </FONT></P>

<H2 ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" size=3>Legal
proceedings involving Westmoreland Coal Company and/or Westmoreland Energy</FONT></H2>

<P><FONT FACE="Times New Roman, Times, Serif" size=3>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The ROVA Project is located
in Halifax County, North Carolina and is the County&#146;s largest taxpayer. In
2002, the County hired an independent consultant to review and audit personal
property tax returns for the previous five years. In May 2002, the County
advised the ROVA Project that its returns were being scrutinized for potential
underpayment and undervaluation of the property subject to tax. The ROVA Project
responded that its valuation was consistent with an agreement reached with the
County in 1996. On November 5, 2002, the County assessed the ROVA Project $4.6
million for the years 1997 to 2001. The ROVA Project filed a protest with the
Property Tax Commission. On May 26, 2004, the Tax Commission denied the ROVA
Project&#146;s protest and issued an order consistent with the County&#146;s
assessment. The ROVA Project appealed the Tax Commission&#146;s decision to the
North Carolina Court of Appeals on June 24, 2004. Since November 2002, the
County has increased the amount of its claim to $8.3 million, which includes tax
years 1996, 2002 and 2003 and penalties and interest. If the County ultimately
prevails, then, in addition to the amounts assessed, the ROVA Project&#146;s
future personal property taxes would increase approximately $600,000 per year. </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" size=3>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Niagara Mohawk Power
Corporation or NIMO was party to power purchase agreements with independent
power producers, including the Rensselaer project, in which we owned an
interest. In 1997, the New York Public Service Commission approved NIMO&#146;s
plan to terminate or restructure 29 power purchase contracts. The Rensselaer
project agreed to terminate its Power Purchase and Supply Agreement after NIMO
threatened to seize the project under its power of eminent domain. NIMO and the
Rensselaer project executed a settlement agreement in 1998. On February 11,
2003, the North Carolina Department of Revenue notified us that it had
disallowed the exclusion of gain from the settlement agreement between NIMO and
the Rensselaer project. The State of North Carolina has assessed a current tax
of $3.5 million, interest of $1.0 million and a penalty of $0.9 million. We have
filed a protest. The North Carolina Department of Revenue held a hearing on May
28, 2003. In November 2003, we submitted further documentation to the State to
support our position and are awaiting their response. </FONT></P>

<br>
<p align=center><FONT FACE="Times New Roman, Times, Serif" SIZE=3>68</font></p>
<page>
<br>

<H2 ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" size=3>Legal
proceedings involving Basin Resources, Inc.</FONT></H2>

<p><FONT FACE="Times New Roman, Times, Serif" size=3>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<b>UMWA Benefits</b></font></p>

<P><FONT FACE="Times New Roman, Times, Serif" size=3>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Basin Resources, Inc. was a
subsidiary of Entech. Until 1995, Basin operated the Golden Eagle mine near
Trinidad, Colorado. Basin&#146;s workforce was represented by the UMWA. Basin
signed a Basin-specific labor contract with the UMWA in 1993 that expired on
January 1, 1998. At that time, Basin ceased providing health benefits to these
former employees. A group of the former employees filed suit against Basin in
the U.S. District Court for the District of Colorado on April 21, 1998. They
claimed that they were entitled to lifetime health benefits. Basin argued that,
when the contract expired, it was not obligated to continue to provide health
benefits. We acquired Basin&#146;s stock from Entech in April 2001, after the
preceding events had occurred, and we accrued an estimated obligation for
Basin&#146;s liabilities as part of our accounting for the 2001 acquisitions.
Since we have owned the stock of Basin, Basin has paid for health benefits for
the former employees. </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" size=3>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In September 2002, the
Court of Appeals reversed the trial court&#146;s award of summary judgment and
remanded the matter for trial. The trial took place on January 21, 2003 and on
January 23, 2003, a jury decided that the UMWA work force had bargained for and
Basin had agreed to provide lifetime health benefits. On March 28, 2004, the
U.S. Court of Appeals for the Tenth Circuit affirmed this verdict. As a result,
Basin is obligated to pay the UMWA 1993 Plan approximately $1.0 million for
benefits the plan provided to Basin&#146;s former employees during the initial
stages of the dispute, while Basin was owned by Montana Power and Entech. We
accrued this amount during the quarter ended March 31, 2004. </FONT></P>

<p><FONT FACE="Times New Roman, Times, Serif" size=3>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<b>Landowner Claim</b></font></p>

<P><FONT FACE="Times New Roman, Times, Serif" size=3>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In 1998, Basin paid a
landowner $48,000 to settle a claim that Basin&#146;s operations had caused
subsidence that damaged his home. On March 22, 2001, the landowner filed a
second claim, in Las Animas County Court, Colorado, again alleging that
Basin&#146;s operations had caused subsidence that damaged his home. Basin
contested this claim. In December 2002, a judge of that court determined that
subsidence had occurred and awarded the landowner damages of $622,000 plus
attorney&#146;s fees. We believe that this award is excessive, in part because
the landowner&#146;s own expert placed the cost of repair below $100,000. We
also believe that the settlement in the first case bars the second claim. We
have appealed the case to the Colorado Intermediate Court of Appeals. </FONT></P>

<br>
<p align=center><FONT FACE="Times New Roman, Times, Serif" SIZE=3>69</font></p>
<page>
<br>

<H2 ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" size=3>Legal
proceedings involving Westmoreland Coal Company, Westmoreland Resources<BR>and/or
Western Energy</FONT></H2>

<P><FONT FACE="Times New Roman, Times, Serif" size=3>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We have received demand
letters from the Montana Department of Revenue, or DOR, as agent for the
Minerals Management Service, or MMS, of the U.S. Department of the Interior,
asserting underpayment of royalties allegedly due at the Rosebud Mine. The
claims relate to the fees Western Energy receives to transport coal from the
contract delivery point to the customer. The DOR has also asserted claims
against us based on &#147;take or pay&#148; payments Western Energy<B>
</B>received when its customers did not require coal. Finally, the DOR has
asserted claims against us and our subsidiaries for adjustments for Montana
severance taxes, coal resources indemnity trust tax, and coal gross proceeds
tax. These assessments are dated September 23 and 24, 2002. The total amount of
the claims is approximately $15.5 million, including penalties and interest,
which continues to accrue. We continue to receive transportation fees. We expect
that the DOR will assert claims for additional underpayment and issue more
demand letters until we have completed the appeal process. The appeal process
will take several years. In the event of a negative outcome with the DOR and
MMS, we believe that some of our customers are contractually obligated to
reimburse us for any claims we pay, plus our legal expenses, and we have put
them on notice of their obligation. </FONT></P>


<H2 ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" size=3>Other</FONT></H2>

<P><FONT FACE="Times New Roman, Times, Serif" size=3>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We and our subsidiaries are
party to other legal proceedings that are either not material or not out of the
ordinary course of business. </FONT></P>

<br>
<p align=center><FONT FACE="Times New Roman, Times, Serif" SIZE=3>70</font></p>
<page>
<br>


<H1 ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" size=3>MANAGEMENT</FONT></H1>

<H2 ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" size=3>Executive
Officers and Directors</FONT></H2>

<P><FONT FACE="Times New Roman, Times, Serif" size=3>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The following sets forth
certain information with respect to our executive officers and directors,
including their ages as of December 31, 2003. </FONT></P>


<table border=0 cellPadding=0 cellSpacing=0 width=650>
         <tr>
                  <td width=35% align=left><b><u>Name</u></b></td>
                  <td width=10% align=center><b><u>Age</u></b></td>
                  <td width=5% align=center></td>
                  <td width=50% align=left><b><u>Position</u></b></td>
         </tr>
         <tr>
                  <td align=left>&nbsp;</td>
                  <td align=center></td>
                  <td align=center></td>
                  <td align=left></td>
         </tr>
         <tr>
                  <td align=left valign=top>Christopher K. Seglem (1)</td>
                  <td align=center valign=top>57</td>
                  <td align=center></td>
                  <td align=left valign=top>Chairman of the Board, President and Chief Executive Officer</td>
         </tr>
         <tr>
                  <td align=left>&nbsp;</td>
                  <td align=center>&nbsp;</td>
                  <td align=center>&nbsp;</td>
                  <td align=left>&nbsp;</td>
         </tr>
         <tr>
                  <td align=left valign=top>W. Michael Lepchitz </td>
                  <td align=center valign=top>50</td>
                  <td align=center></td>
                  <td align=left valign=top>Vice President, General Counsel and Secretary</td>
         </tr>
         <tr>
                  <td align=left>&nbsp;</td>
                  <td align=center>&nbsp;</td>
                  <td align=center>&nbsp;</td>
                  <td align=left>&nbsp;</td>
         </tr>
         <tr>
                  <td align=left valign=top>Ronald H. Beck</td>
                  <td align=center valign=top>59</td>
                  <td align=center></td>
                  <td align=left valign=top>Vice President - Finance and Treasurer, Acting Chief Financial Officer</td>
         </tr>
         <tr>
                  <td align=left>&nbsp;</td>
                  <td align=center>&nbsp;</td>
                  <td align=center>&nbsp;</td>
                  <td align=left>&nbsp;</td>
         </tr>
         <tr>
                  <td align=left valign=top>Douglas P. Kathol </td>
                  <td align=center valign=top>51</td>
                  <td align=center></td>
                  <td align=left valign=top>Vice President, Development</td>
         </tr>
         <tr>
                  <td align=left>&nbsp;</td>
                  <td align=center>&nbsp;</td>
                  <td align=center>&nbsp;</td>
                  <td align=left>&nbsp;</td>
         </tr>
         <tr>
                  <td align=left valign=top>Thomas G. Durham</td>
                  <td align=center valign=top>55</td>
                  <td align=center></td>
                  <td align=left valign=top>Vice President, Coal Operations</td>
         </tr>
         <tr>
                  <td align=left>&nbsp;</td>
                  <td align=center>&nbsp;</td>
                  <td align=center>&nbsp;</td>
                  <td align=left>&nbsp;</td>
         </tr>
         <tr>
                  <td align=left valign=top>Todd A. Myers</td>
                  <td align=center valign=top>40</td>
                  <td align=center></td>
                  <td align=left valign=top>Vice President, Sales and Marketing</td>
          </tr>
         <tr>
                  <td align=left>&nbsp;</td>
                  <td align=center>&nbsp;</td>
                  <td align=center>&nbsp;</td>
                  <td align=left>&nbsp;</td>
         </tr>
         <tr>
                  <td align=left valign=top>Diane S. Jones</td>
                  <td align=center valign=top>46</td>
                  <td align=center></td>
                  <td align=left valign=top>Vice President, Corporate Relations</td>
          </tr>
         <tr>
                  <td align=left>&nbsp;</td>
                  <td align=center>&nbsp;</td>
                  <td align=center>&nbsp;</td>
                  <td align=left>&nbsp;</td>
         </tr>
         <tr>
                  <td align=left valign=top>Thomas M. Cirillo</td>
                  <td align=center valign=top>49</td>
                  <td align=center></td>
                  <td align=left valign=top>Vice President, Planning and Administration</td>
          </tr>
         <tr>
                  <td align=left>&nbsp;</td>
                  <td align=center>&nbsp;</td>
                  <td align=center>&nbsp;</td>
                  <td align=left>&nbsp;</td>
         </tr>
         <tr>
                  <td align=left valign=top>Thomas S. Barta</td>
                  <td align=center valign=top>31</td>
                  <td align=center></td>
                  <td align=left valign=top>Controller and Assistant Treasurer</td>
          </tr>
         <tr>
                  <td align=left>&nbsp;</td>
                  <td align=center>&nbsp;</td>
                  <td align=center>&nbsp;</td>
                  <td align=left>&nbsp;</td>
         </tr>
         <tr>
                  <td align=left valign=top>Michael Armstrong (2)</td>
                  <td align=center valign=top>53</td>
                  <td align=center></td>
                  <td align=left valign=top>Director</td>
          </tr>
         <tr>
                  <td align=left>&nbsp;</td>
                  <td align=center>&nbsp;</td>
                  <td align=center>&nbsp;</td>
                  <td align=left>&nbsp;</td>
         </tr>
         <tr>
                  <td align=left valign=top>Thomas J. Coffey (3) </td>
                  <td align=center valign=top>51</td>
                  <td align=center></td>
                  <td align=left valign=top>Director</td>
          </tr>
         <tr>
                  <td align=left>&nbsp;</td>
                  <td align=center>&nbsp;</td>
                  <td align=center>&nbsp;</td>
                  <td align=left>&nbsp;</td>
         </tr>
         <tr>
                  <td align=left valign=top>Pemberton Hutchinson (4)</td>
                  <td align=center valign=top>73</td>
                  <td align=center></td>
                  <td align=left valign=top>Director</td>
          </tr>
         <tr>
                  <td align=left>&nbsp;</td>
                  <td align=center>&nbsp;</td>
                  <td align=center>&nbsp;</td>
                  <td align=left>&nbsp;</td>
         </tr>
         <tr>
                  <td align=left valign=top>Robert E. Killen (5)</td>
                  <td align=center valign=top>63</td>
                  <td align=center></td>
                  <td align=left valign=top>Director</td>
          </tr>
         <tr>
                  <td align=left>&nbsp;</td>
                  <td align=center>&nbsp;</td>
                  <td align=center>&nbsp;</td>
                  <td align=left>&nbsp;</td>
         </tr>
         <tr>
                  <td align=left valign=top>Thomas W. Ostrander (6)</td>
                  <td align=center valign=top>53</td>
                  <td align=center></td>
                  <td align=left valign=top>Director</td>
          </tr>
         <tr>
                  <td align=left>&nbsp;</td>
                  <td align=center>&nbsp;</td>
                  <td align=center>&nbsp;</td>
                  <td align=left>&nbsp;</td>
         </tr>
         <tr>
                  <td align=left valign=top>James W. Sight (7)</td>
                  <td align=center valign=top>48</td>
                  <td align=center></td>
                  <td align=left valign=top>Director</td>
          </tr>
         <tr>
                  <td align=left>&nbsp;</td>
                  <td align=center>&nbsp;</td>
                  <td align=center>&nbsp;</td>
                  <td align=left>&nbsp;</td>
         </tr>
         <tr>
                  <td align=left valign=top>William M. Stern (8)</td>
                  <td align=center valign=top>58</td>
                  <td align=center></td>
                  <td align=left valign=top>Director</td>
          </tr>
         <tr>
                  <td align=left>&nbsp;</td>
                  <td align=center>&nbsp;</td>
                  <td align=center>&nbsp;</td>
                  <td align=left>&nbsp;</td>
         </tr>
         <tr>
                  <td align=left valign=top>Donald A. Tortorice (9)</td>
                  <td align=center valign=top>61</td>
                  <td align=center></td>
                  <td align=left valign=top>Director</td>
          </tr>
         <tr>
                  <td align=left>&nbsp;</td>
                  <td align=center>&nbsp;</td>
                  <td align=center>&nbsp;</td>
                  <td align=left>&nbsp;</td>
         </tr>
</table>
<HR NOSHADE SIZE=1 width=15% align=left>

<table width=650>
<tr>
<td width=5% valign=top><FONT FACE="Times New Roman, Times, Serif" size=3>(1)</font></td>
<td width=95%><FONT FACE="Times New Roman, Times, Serif" size=3>Chairman of the Executive Committee.</FONT></td>
</tr>


<tr>
<td width=5% valign=top><FONT FACE="Times New Roman, Times, Serif" size=3>(2)</font></td>
<td width=95%><FONT FACE="Times New Roman, Times, Serif" size=3>Member of the Compensation and Benefits, Corporate Governance, Executive and Nominating Committees.</FONT></td>
</tr>

<tr>
<td width=5% valign=top><FONT FACE="Times New Roman, Times, Serif" size=3>(3)</font></td>
<td width=95%><FONT FACE="Times New Roman, Times, Serif" size=3>Chairman of the Audit Committee; Member of the Corporate Governance and Finance Committees.</FONT></td>
</tr>

<tr>
<td width=5% valign=top><FONT FACE="Times New Roman, Times, Serif" size=3>(4)</font></td>
<td width=95%><FONT FACE="Times New Roman, Times, Serif" size=3>Member of the Executive Committee.</FONT></td>
</tr>

<tr>
<td width=5% valign=top><FONT FACE="Times New Roman, Times, Serif" size=3>(5)</font></td>
<td width=95%><FONT FACE="Times New Roman, Times, Serif" size=3>Chairman of the Compensation and Benefits Committee and the Nominating Committee; Member of the Executive Committee.</FONT></td>
</tr>

<tr>
<td width=5% valign=top><FONT FACE="Times New Roman, Times, Serif" size=3>(6)</font></td>
<td width=95%><FONT FACE="Times New Roman, Times, Serif" size=3>Chairman of the Corporate Governance Committee; Member of the Audit and Finance Committees.</FONT></td>
</tr>
</table>

<br>
<p align=center><FONT FACE="Times New Roman, Times, Serif" SIZE=3>71</font></p>
<page>
<br>

<table width=650>
<tr>
<td width=5% valign=top><FONT FACE="Times New Roman, Times, Serif" size=3>(7)</font></td>
<td width=95%><FONT FACE="Times New Roman, Times, Serif" size=3>Chairman of the Finance Committee; Member of the Executive and Nominating Committees.</FONT></td>
</tr>

<tr>
<td width=5% valign=top><FONT FACE="Times New Roman, Times, Serif" size=3>(8)</font></td>
<td width=95%><FONT FACE="Times New Roman, Times, Serif" size=3>Member of the Audit, Compensation and Benefits and Finance Committees.</FONT></td>
</tr>

<tr>
<td width=5% valign=top><FONT FACE="Times New Roman, Times, Serif" size=3>(9)</font></td>
<td width=95%><FONT FACE="Times New Roman, Times, Serif" size=3>Member of the Audit, Compensation and Benefits and Corporate Governance Committees.</FONT></td>
</tr>
</table>


<P><FONT FACE="Times New Roman, Times, Serif" size=3><I>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Christopher K.
Seglem</I> 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. </FONT></P>

<p><FONT FACE="Times New Roman, Times, Serif" size=3>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<i>W. Michael Lepchitz</i> joined Westmoreland in 1991 as Assistant General Counsel.  In June 2000, Mr. Lepchitz was elected Vice
President and General Counsel of Westmoreland Coal Company and, in May 2001, he became Corporate Secretary of Westmoreland.  He is a
member of the bar of Virginia.</font></p>

<P><FONT FACE="Times New Roman, Times, Serif" size=3><I>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Ronald H. Beck</I>
joined Westmoreland in July 2001 as Vice President &#150; Finance and Treasurer.
In September 2003 Mr. Beck also began serving as Acting Chief Financial Officer.
Before joining Westmoreland, he was a financial officer at Columbus Energy Corp.
from 1985 to 2000, most recently as Vice President and Chief Financial Officer. </FONT></P>

<p><FONT FACE="Times New Roman, Times, Serif" size=3>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<i>Douglas P. Kathol</i> joined Westmoreland in August 2003 as Vice President, Development.  From 1985 until he joined
Westmoreland, Mr. Kathol was employed by NorWest Mine Services, Inc., lastly as Vice President and Controller.  Mr. Kathol has over
27 years experience evaluating and developing energy-related projects.</font></p>

<p><FONT FACE="Times New Roman, Times, Serif" size=3>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<i>Thomas G. Durham</i> joined Westmoreland as Vice President, Coal Operations in April 2000.  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.</font></p>

<P><FONT FACE="Times New Roman, Times, Serif" size=3><I>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Todd A. Myers</I>
re-joined 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 Resource Data International, Inc., a
nationally recognized energy consulting firm, specializing in coal markets,
independent power development and environmental regulation. </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" size=3><I>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Diane S. Jones</I>
joined Westmoreland in 1993 as Manager &#150; Business Development of
Westmoreland Energy. In 1995, she joined the corporate headquarters as Manager
&#150; Business Development and Corporate Relations, with primary responsibility
for investor relations and communications, and she now serves as Vice President,
Corporate Relations. Ms. Jones is a Registered Professional Engineer and a
member of the American Society of Civil Engineers, the Public Relations Society
of America and the National Investor Relations Institute. </FONT></P>

<br>
<p align=center><FONT FACE="Times New Roman, Times, Serif" SIZE=3>72</font></p>
<page>
<br>

<P><FONT FACE="Times New Roman, Times, Serif" size=3><I>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Thomas M. Cirillo</I>
joined Westmoreland in June 2002 as Director, Planning &amp; Administration and
in January 2003 became Vice President, Planning &amp; Administration. Before
joining Westmoreland, Mr. Cirillo held various senior positions with defense
contractors and served for 20 years as an officer and pilot in the U.S. Navy. </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" size=3><I>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Thomas S. Barta</I>
joined Westmoreland in March 2001 as Controller. From January 1995 until he
joined Westmoreland, he was employed by KPMG LLP, lastly as an audit manager. </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" size=3><I>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Michael Armstrong
</I>has been a director since 2000. Mr. Armstrong has been a private investor
since 1995. From 1983 until 1995, he was a stockbroker at Southwest Securities,
a stock brokerage company. </FONT></P>

<p><FONT FACE="Times New Roman, Times, Serif" size=3>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<i>Thomas J. Coffey</i> has been a director since 2000.  From April 1998 until July 1999, Mr. Coffey was the Vice
President-Operations Analysis of Unisys Corporation, a technology services company, and since July 1999, Mr. Coffey has served as
Vice President-Finance of Global Infrastructure Services for Unisys Corporation.  He served as Vice President, Chief Financial
Officer and Treasurer of Intelligent Electronics, Inc., a technology distribution company, from 1995 until September 1997.  Mr.
Coffey was a Partner of KPMG LLP from 1985 until 1995.</font></p>

<P><FONT FACE="Times New Roman, Times, Serif" size=3><I>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Pemberton Hutchinson
</I>has been a director since 1977. Mr. Hutchinson has held various offices and
positions at Westmoreland, including Chairman of the Board from January 1992
until June 1996, Chief Executive Officer from June 1986 until June 1993, and
President from 1980 until June 1992. Mr. Hutchinson was also a director of
Mellon Financial Corporation, a banking and money management company, from
December 1989 until April 2001, and Teleflex Incorporated, an engineering and
manufacturing company, from 1977 until April 2001. </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" size=3><I>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Robert E. Killen</I> has
been a director since 1996. Since April 1996, Mr. Killen has served as Chairman
of the Board and Chief Executive Officer of The Killen Group, Inc., an
investment advisory firm. Mr. Killen has also served as Chairman of the Board of
Berwyn Financial Services, an institutional and retail brokerage company, since
1991. </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" size=3><I>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Thomas W. Ostrander</I>
has been a director since 1995. Since 1989, Mr. Ostrander has served as Managing
Director of Citigroup Global Markets Inc., an investment banking firm (and
predecessor firms). </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" size=3><I>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;James W. Sight</I> has
been a director since 1995. Mr. Sight is a private investor. Since April 2001,
Mr. Sight has also served as a Director of Programmers Paradise, Inc., a
software marketing company. He was a director of Mining Services International
Corp., an explosives company, from April 2000 until 2001, a director of United
Recycling Industries from 1995 until September 2000, and a director of U.S. Home
Corp. from 1993 until May 2000. </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" size=3><I>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;William M. Stern</I> has
been a director since 2000. Since 1999, Mr. Stern has served as Executive Vice
President and Director of Stern Brothers &amp; Company, a broker-dealer. From
1998 until 1999, he was Vice President of Mercantile Bank Capital Markets Group,
a banking company, and from 1983 until 1998, he served as Senior Vice President
of Mark Twain Capital Markets Group, a banking company. </FONT></P>

<br>
<p align=center><FONT FACE="Times New Roman, Times, Serif" SIZE=3>73</font></p>
<page>
<br>

<P><FONT FACE="Times New Roman, Times, Serif" size=3><I>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Donald A. Tortorice
</I>has been a director since 2003. Since January 1999, Mr. Tortorice has been
St. George Tucker Adjunct Professor of Law at the College of William &amp; Mary
School of Law. From September 2002 until May 2003, Mr. Tortorice was an
Affiliate Professor of Law and Medicine at the Medical College of Virginia. Mr.
Tortorice was a partner in the law firm of Duane, Morris &amp; Heckscher from
1979 until 1998 and served as managing partner of the Harrisburg, Pennsylvania
office of that firm from 1979 until 1998. Mr. Tortorice also served as a
director of Gear CGI, Ltd. from 1998 until 1999; Eastern Holding Co. Ltd. from
1985 until 1999; Eastern Alliance Insurance Co., Ltd. from 1985 until 1999; and
Educators Alliance Insurance Co. from 1997 until 1999. </FONT></P>

<H2 ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" size=3>The Board of
Directors</FONT></H2>

<P><FONT FACE="Times New Roman, Times, Serif" size=3>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our Board of Directors
currently consists of nine individuals, seven elected by the holders of our
common stock and two elected by the holders of our Series A Preferred Stock.
(The voting rights of the holders of our Series A Preferred Stock are summarized
in &#147;Capital Stock &#150; Series A Preferred Stock &#150; Voting
Rights.&#148;) As provided in our bylaws, directors are elected annually and
serve until their successors are elected and qualified, or until their death,
resignation or removal. </FONT></P>

<H2 ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" size=3>Board
Committees</FONT></H2>

<P><FONT FACE="Times New Roman, Times, Serif" size=3><I>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Audit Committee</I>. The
members of our Audit Committee are Messrs. Coffey (Chairman), Ostrander, Stern
and Tortorice. This Committee, which reports to the Board of Directors, retains
the independent auditor, reviews and monitors the independence and performance
of the independent auditor, reviews the adequacy of our internal accounting
controls and oversees the implementation of management recommendations. It also
reviews with our independent auditors the audit plan for the Company, the
internal accounting controls, the financial statements and the independent
auditors&#146; letter to management. The Board of Directors has determined that
Thomas J. Coffey is an &#147;audit committee financial expert&#148; as defined
in Item 401(h) of Regulation S-K. The Board has also determined that each member
of the Audit Committee, including Mr. Coffey, is &#147;independent&#148; under
the American Stock Exchange&#146;s listing standards, Section 10A of the
Securities Exchange Act of 1934 and Rule 10A-3 thereunder. </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" size=3><I>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Compensation and
Benefits Committee. </I>The members of our Compensation and Benefits Committee
are Messrs. Killen (Chairman), Armstrong, Stern and Tortorice. This Committee is
responsible for assuring that the Board of Directors, various committee
chairpersons and committee members, the chief executive officer, other officers,
and key management of the Company are compensated appropriately and in a manner
consistent with the Board&#146;s approved compensation strategy, internal equity
considerations, competitive practice and any relevant laws or regulations. </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" size=3><I>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Corporate Governance
Committee. </I>The members of our Corporate Governance Committee are Messrs.
Ostrander (Chairman), Armstrong, Coffey and Tortorice. This Committee is
authorized to provide oversight on matters related to corporate governance and
structure and to make recommendations to the Board of Directors. </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" size=3><I>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Executive Committee.
</I>The members of our Executive Committee are Messrs. Seglem (Chairman),
Armstrong, Hutchinson, Killen and Sight. To the extent permitted by law, this
Committee is authorized to exercise the power of the Board of Directors with
respect to the management of the business and affairs of the Company. </FONT></P>

<br>
<p align=center><FONT FACE="Times New Roman, Times, Serif" SIZE=3>74</font></p>
<page>
<br>

<P><FONT FACE="Times New Roman, Times, Serif" size=3><I>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Finance Committee.
</I>The members of our Finance Committee are Messrs. Sight (Chairman), Coffey,
Ostrander and Stern. This Committee is authorized to provide oversight on
matters related to the Company&#146;s liquidity and capital needs and to make
recommendations to the Board of Directors. </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" size=3><I>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Nominating Committee.
</I>The members of our Nominating Committee are Messrs. Killen (Chairman),
Armstrong and Sight. Each member of the Nominating Committee is
&#147;independent&#148; under the American Stock Exchange&#146;s listing
standards. This Committee, which reports to the Board of Directors, identifies
and recommends individuals qualified to be nominated as members of the Board of
Directors. </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" size=3>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;There are no family
relationships between any director, executive officer or person nominated or
chosen by us to become a director or executive officer of the Company. </FONT></P>

<H2 ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" size=3>Compensation
Committee Interlocks and Insider Participation</FONT></H2>

<p><FONT FACE="Times New Roman, Times, Serif" size=3>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Messrs. Killen (Chairman), Tortorice, Sight, Ostrander and Armstrong served on the Compensation and Benefits Committee
during 2003.</font></p>

<P><FONT FACE="Times New Roman, Times, Serif" size=3>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;No member of this Committee
was an officer or employee of Westmoreland in 2003 or any prior year.
Mr.&#160;Ostrander is a Managing Director of Citigroup Global Markets Inc.,
which is a subsidiary of Citigroup. A portion of our reclamation bonds are
secured by the pledge of certain cash accounts held by Salomon Smith Barney,
Inc., a subsidiary of Citigroup. Salomon Smith Barney also provides other
incidental and non-material services relating to the exercise of stock options
held by various employees. A subsidiary of Citigroup, Travelers Corporate Loan
Fund Inc., is among a group of lenders to Westmoreland Mining. Mr. Ostrander
does not have any involvement with any of these services and exercises no
authority or control over Citigroup, Travelers Corporate Loan Fund Inc. or
Salomon Smith Barney or the representatives from those entities that provide
oversight and management for these services. No executive officer of our company
served either as a member of the compensation committee or as a director of
another company, one of whose executive officers served on our Compensation and
Benefits Committee, or as a member of the compensation committee of another
company, one of whose executive officers served as a director of our company. </FONT></P>

<br>
<p align=center><FONT FACE="Times New Roman, Times, Serif" SIZE=3>75</font></p>
<page>
<br>

<H2 ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" size=3>Director
Compensation</FONT></H2>

<P><FONT FACE="Times New Roman, Times, Serif" size=3>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We use the term
non-employee directors to describe the members of our Board of Directors who are
not employees of the Company. We compensate our non-employee directors by paying
them an annual retainer and a fee for each meeting of the Board or committee
that they attend and by granting them options to purchase common stock. These
payments and option grants are the sole compensation the non-employee directors
receive from us, and we do not grant them loans or credits. In 2003, each
non-employee director received an annual retainer of $30,000, $18,000 of which
was paid in cash and the remaining $12,000 of which directors could elect to
receive in cash or in common stock. Each non-employee director also received
$1,000 for each meeting of the Board he attended and for each meeting he
attended of the committees of which he was a member, and the Chairman of the
Audit Committee received an additional $750 per meeting, the Chairman of the
Compensation and Benefits Committee an additional $650 per meeting and all other
Committee Chairmen $500 per meeting attended and chaired. In addition, each
non-employee director is entitled to receive, as an initial grant upon his first
joining the Board, options to purchase a number of shares of common stock equal
to $30,000 in value; each non-employee director is entitled to receive options
to purchase shares of common stock equal to $30,000 in value annually thereafter
upon his re-election to the Board or, at the option of the Compensation and
Benefits Committee, a grant of restricted stock equal in value to $30,000. In
2003, Mr. Tortorice received options to purchase 20,000 shares of common stock
following his appointment to the Board of Directors pursuant to the 2000
Directors&#146; Plan and each of the non-employee directors other than Mr.
Tortorice received a grant of restricted stock equal to $30,000 pursuant to the
2000 Directors&#146; Plan, as amended. In 2000, we altered our policy on the
payment of directors&#146; fees to directors who are also employees of the
Company, and Mr. Seglem has not received directors&#146; fees in respect of
meetings of the Board of Directors or committees thereof that have taken place
after March 2000. </FONT></P>


<p><FONT FACE="Times New Roman, Times, Serif" size=3>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Mr. Hutchinson retired as an employee of the Company as of December 31, 1993.  Mr. Hutchinson is entitled to receive benefit
payments from our Supplemental Executive Retirement Plan, or SERP, of $3,708 per month.</font></p>


<H2 ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" size=3>Executive
Compensation</FONT></H2>

<P><FONT FACE="Times New Roman, Times, Serif" size=3>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The following table sets
forth the compensation paid or accrued for the years ended December 31, 2003,
2002 and 2001 to our Chief Executive Officer during 2003 and our five other most
highly compensated executive officers at the end of 2003, whose total salary and
bonus for 2003 exceeded $100,000. We refer to these officers collectively as our
named executive officers. None of the named executive officers received any
loans or credits from the Company. </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" size=3>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The table below contains a
column captioned &#147;LTIP Payout.&#148; This column shows the total value of
the awards made in 2000 under the Performance Unit Plan, which became
determinable in June 2003. However, the named executive officers did not receive
the full value of these awards in 2003 and will instead receive this value over
5 years. Of the amounts shown in this column, the amounts actually paid in 2003
to the named executive officers were: $431,375 to Mr. Seglem, $112,010 to Mr.
Lepchitz, $60,743 to Mr. Durham, $57,169 to Mr. Myers and $171,973 to Mr.
Jaeger, of which the Company paid one-third in common stock and two-thirds in
cash. The Performance Unit Plan is described in more detail below under
&#147;&#151;Long-Term Incentive Plans and Benefit Plans &#150; 2000 Performance
Unit Plan.&#148; </FONT></P>

<br>
<p align=center><FONT FACE="Times New Roman, Times, Serif" SIZE=3>76</font></p>
<page>
<br>

<H1 ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" size=3>Summary
Compensation Table</FONT></H1>

 <table align=center border=0 cellPadding=0 cellSpacing=0 width=650>
         <tr>
                  <td  align=left></td>
                  <td align=right></td>
                  <td  align=center colspan=3><FONT FACE="Times New Roman, Times, Serif" size=2><b>Annual Compensation</b></font></td>
                  <td  align=center colspan=2><FONT FACE="Times New Roman, Times, Serif" size=2><b>Long-Term Compensation</b></font></td>
                  <td  align=right><b></b></td>
         </tr>
         <tr>
                  <td  align=left></td>
                  <td align=right></td>
                  <td  align=center colspan=3><hr noshade width=95% align=center></td>
                  <td  align=center colspan=2><hr noshade width=95% align=center></td>
                  <td  align=right><b></b></td>
         </tr>
         <tr>
                  <td  align=left></td>
                  <td align=right></td>
                  <td  align=center colspan=3><FONT FACE="Times New Roman, Times, Serif" size=2><b></b></font></td>
                  <td  align=center><FONT FACE="Times New Roman, Times, Serif" size=2><b>Awards</b></font></td>
                  <td  align=center><FONT FACE="Times New Roman, Times, Serif" size=2><b>Payouts</b></font></td>
                  <td  align=right><b></b></td>
         </tr>
         <tr>
                  <td  align=left></td>
                  <td align=right></td>
                  <td  align=center colspan=3></td>
                  <td  align=center colspan=2><hr noshade width=95% align=center></td>
                  <td  align=right><b></b></td>
         </tr>

         <tr>
                  <td width=22% align=center valign=bottom><FONT FACE="Times New Roman, Times, Serif" size=2><b>Name and Principal Positions</b></font></td>
                  <td width=6% align=right valign=bottom><FONT FACE="Times New Roman, Times, Serif" size=2><b>Year</b></font></td>
                  <td width=12% align=center valign=bottom><FONT FACE="Times New Roman, Times, Serif" size=2><b>Salary<br>($)</b></font></td>
                  <td width=12% align=center valign=bottom><FONT FACE="Times New Roman, Times, Serif" size=2><b>Bonus<sup>(1)</sup><br>($)</b></font></td>
                  <td width=12% align=center valign=bottom><FONT FACE="Times New Roman, Times, Serif" size=2><b>Other Annual Compen-<br>sation<br>($)</b></font></td>
                  <td width=12% align=center valign=bottom><FONT FACE="Times New Roman, Times, Serif" size=2><b>Securities Underlying Options<br>(#)</b></font></td>
                  <td width=12% align=center valign=bottom><FONT FACE="Times New Roman, Times, Serif" size=2><b>LTIP<BR>Payout<sup>(2)</sup><br>($)</b></font></td>
                  <td width=12% align=center valign=bottom><FONT FACE="Times New Roman, Times, Serif" size=2><b>All Other<br>Compen-<br>sation<sup>(3)</sup><br>($)</b></font></td>
         </tr>
         <tr>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
         </tr>
         <tr>
                  <td align=left><FONT FACE="Times New Roman, Times, Serif" size=2>Christopher K. Seglem, </font></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=2>2003</font></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=2>475,000</font></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=2>321,663</font></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=2>-</font></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=2>64,200</font></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=2>2,450,753</font></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=2>14,540</font></td>
         </tr>
         <tr>
                  <td align=left><FONT FACE="Times New Roman, Times, Serif" size=2>Chief Executive Officer </font></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=2>2002</font></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=2>424,825</font></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=2>220,254</font></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=2>517</font></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=2>31,900</font></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=2>-</font></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=2>10,823</font></td>
         </tr>
         <tr>
                  <td align=left><FONT FACE="Times New Roman, Times, Serif" size=2>and President</font></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=2>2001</font></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=2>395,220</font></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=2>196,820</font></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=2>-</font></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=2>15,700</font></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=2>-</font></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=2>-</font></td>
         </tr>
         <tr>
                  <td align=left>&nbsp;</td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
         </tr>
         <tr>
                  <td align=left><FONT FACE="Times New Roman, Times, Serif" size=2>W. Michael Lepchitz,</font></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=2>2003</font></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=2>197,184</font></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=2>61,847</font></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=2>-</font></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=2>16,400</font></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=2>681,813</font></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=2>7,438</font></td>
         </tr>
         <tr>
                  <td align=left><FONT FACE="Times New Roman, Times, Serif" size=2>Vice President,  General </font></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=2>2002</font></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=2>189,625</font></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=2>65,705</font></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=2>-</font></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=2>10,200</font></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=2>-</font></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=2>33,276</font></td>
         </tr>
         <tr>
                  <td align=left><FONT FACE="Times New Roman, Times, Serif" size=2>Counsel and Secretary</font></td>
                 <td align=right><FONT FACE="Times New Roman, Times, Serif" size=2>2001</font></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=2>180,942</font></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=2>67,582</font></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=2>12,619</font></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=2>5,000</font></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=2>-</font></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=2>-</font></td>
         </tr>
         <tr>
                  <td align=left>&nbsp;</td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
         </tr>
         <tr>
                  <td align=left><FONT FACE="Times New Roman, Times, Serif" size=2>Ronald H. Beck,</font> </td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=2>2003</font></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=2>141,145</font></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=2>69,839</font></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=2>-</font></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=2>4,500</font></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=2>-</font></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=2>-</font></td>
         </tr>
         <tr>
                  <td align=left><FONT FACE="Times New Roman, Times, Serif" size=2>Vice President - Finance</font></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=2>2002</font></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=2>125,001</font></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=2>40,425</font></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=2>-</font></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=2>4,200</font></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=2>-</font></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=2>-</font></td>
         </tr>
         <tr>
                  <td align=left><FONT FACE="Times New Roman, Times, Serif" size=2>and Treasurer,
Acting Chief Financial
Officer
</font></td>
                  <td align=right valign=top><FONT FACE="Times New Roman, Times, Serif" size=2>2001</font></td>
                  <td align=right valign=top><FONT FACE="Times New Roman, Times, Serif" size=2>72,917</font></td>
                  <td align=right valign=top><FONT FACE="Times New Roman, Times, Serif" size=2>24,208</font></td>
                  <td align=right valign=top><FONT FACE="Times New Roman, Times, Serif" size=2>-</font></td>
                  <td align=right valign=top><FONT FACE="Times New Roman, Times, Serif" size=2>1,100</font></td>
                  <td align=right valign=top><FONT FACE="Times New Roman, Times, Serif" size=2>-</font></td>
                  <td align=right valign=top><FONT FACE="Times New Roman, Times, Serif" size=2> -</font></td>
         </tr>
         <tr>
                  <td align=left>&nbsp;</td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
         </tr>
         <tr>
                  <td align=left><FONT FACE="Times New Roman, Times, Serif" size=2>Thomas G. Durham,</font> </td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=2>2003</font></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=2>184,697</font></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=2>58,143</font></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=2>-</font></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=2>15,300</font></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=2>345,095</font></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=2>7,183</font></td>
         </tr>
         <tr>
                  <td align=left><FONT FACE="Times New Roman, Times, Serif" size=2>Vice President, Coal</font></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=2>2002</font></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=2>173,250</font></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=2>53,361</font></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=2>-</font></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=2>7,600</font></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=2>-</font></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=2>14,205</font></td>
         </tr>
         <tr>
                  <td align=left><FONT FACE="Times New Roman, Times, Serif" size=2>Operations</font></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=2>2001</font></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=2>149,144</font></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=2>45,339</font></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=2>8,408</font></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=2>3,600</font></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=2>-</font></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=2> -</font></td>
         </tr>
         <tr>
                  <td align=left>&nbsp;</td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
         </tr>
         <tr>
                  <td align=left><FONT FACE="Times New Roman, Times, Serif" size=2>Todd A. Myers,</font></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=2>2003</font></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=2>166,195                    </font></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=2>72,261</font></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=2>-</font></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=2>13,400</font></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=2>324,791</font></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=2>6,988</font></td>
         </tr>
         <tr>
                  <td align=left><FONT FACE="Times New Roman, Times, Serif" size=2>Vice President, Sales </font></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=2>2002</font></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=2>154,875                    </font></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=2>47,702</font></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=2>-</font></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=2>6,700</font></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=2>-</font></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=2>3,737</font></td>
         </tr>
         <tr>
                  <td align=left><FONT FACE="Times New Roman, Times, Serif" size=2> and Marketing</font></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=2>2001</font></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=2>136,799</font></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=2>41,587</font></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=2>-</font></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=2>3,200</font></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=2>-</font></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=2>-</font></td>
         </tr>
         <tr>
                  <td align=left>&nbsp;</td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
         </tr>

         <tr>
                   <td align=left><FONT FACE="Times New Roman, Times, Serif" size=2>Robert J. Jaeger,</font> </td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=2>2003</font></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=2>150,820</font></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=2>-</font></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=2>-</font></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=2>-</font></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=2>977,024</font></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=2>728,541</font></td>
         </tr>
         <tr>
                  <td align=left><FONT FACE="Times New Roman, Times, Serif" size=2>Senior Vice President,</font></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=2>2002</font></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=2>218,670</font></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=2>55,054</font></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=2>582</font></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=2>11,700</font></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=2>-</font></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=2>7,109</font></td>
         </tr>
         <tr>
                  <td align=left><FONT FACE="Times New Roman, Times, Serif" size=2>Finance and<br>Development<sup>(4)</sup></font></td>
                  <td align=right valign=top><FONT FACE="Times New Roman, Times, Serif" size=2>2001</font></td>
                  <td align=right valign=top><FONT FACE="Times New Roman, Times, Serif" size=2>209,383</font></td>
                  <td align=right valign=top><FONT FACE="Times New Roman, Times, Serif" size=2>78,205</font></td>
                  <td align=right valign=top><FONT FACE="Times New Roman, Times, Serif" size=2>330</font></td>
                  <td align=right valign=top><FONT FACE="Times New Roman, Times, Serif" size=2>5,800</font></td>
                  <td align=right valign=top><FONT FACE="Times New Roman, Times, Serif" size=2>-</font></td>
                  <td align=right valign=top><FONT FACE="Times New Roman, Times, Serif" size=2> -</font></td>
         </tr>
</table>
<BR>

<table width=100%>
<tr>
<td width=5% valign=top><FONT FACE="Times New Roman, Times, Serif" size=2>(1)</font></td>
<td width=95% valign=top><FONT FACE="Times New Roman, Times, Serif" size=2>Bonuses were awarded in the reported years for performance during the respective immediately preceding year.</font></td></tr>
<tr>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr>
<td width=5% valign=top><FONT FACE="Times New Roman, Times, Serif" size=2>(2)</font></td>
<td width=95% valign=top><FONT FACE="Times New Roman, Times, Serif" size=2>In 2000, Messrs. Seglem, Jaeger, Lepchitz, Durham and Myers were awarded 196,499, 66,357, 46,307, 23,438 and 22,059 performance
     units, respectively, under the 2000 Performance Unit Plan.  The 2000 Performance Unit Plan is described in more detail below
     under "--Long-Term Incentive Plans and Benefit Plans - 2000 Performance Unit Plan."  Each performance unit entitled the recipient
     to receive a payment in cash or stock, at the election of the Compensation and Benefits Committee, equal to the difference
     between the average price of our common stock for the 20 trading days ending June 30, 2000, which was $2.9097, and the average
     price of our common stock for the 20 trading days ending June 30, 2003, which turned out to be $17.6335.  As permitted by the
     2000 Performance Unit Plan, the Compensation and Benefits Committee elected to pay a portion of the 2000 award and defer payment
     of the balance over a period of up to five years.  Of the portion paid in 2003, approximately two-thirds was paid in stock drawn
     from the stockholder-approved 2002 Long-Term Incentive Stock Plan and approximately one-third was paid in cash.  The total value
     of the 2000 award under the 2000 Performance Unit Plan is reflected in the column entitled "LTIP Payout."  Of the amounts shown
     in this column, the amounts actually paid in 2003 to the named executive officers were:  $431,375 to Mr. Seglem, $112,010 to Mr.
     Lepchitz, $60,743 to Mr. Durham, $57,169 to Mr. Myers and $171,973 to Mr. Jaeger, of which one-third was paid in common stock and
     two-thirds was paid in cash.</font></td></tr>
<tr>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr>
<td width=5% valign=top><FONT FACE="Times New Roman, Times, Serif" size=2>(3)</font></td>
<td width=95% valign=top><FONT FACE="Times New Roman, Times, Serif" size=2>The category entitled "All Other Compensation" includes reimbursements and payments for relocation and related expenses, Company
     contributions to the 401(k) Plan, insurance premiums, financial planning fees paid by the Company and termination payments.  The
     Company contributed $6,000 to the 401(k) Plan during 2003 on behalf of each of Messrs. Seglem, Lepchitz, Durham and Myers, $4,395
     on behalf of Mr. Jaeger and $5,447 on behalf of Mr. Beck.  In 2003, the Company paid life insurance premiums of $8,868, $1,756,
     $2,139, $1,343, $1,971, and $1,679 for Messrs. Seglem, Jaeger, Lepchitz, Beck, Durham, and Myers, respectively.  In 2003, the
     Company paid financial planning fees of $640 and $720 for Messrs. Seglem and Jaeger, respectively.  Payments made pursuant to Mr.
     Jaeger's Termination Agreement, totaling $720,000, payable over a ten-year period are reflected in the table.</font></td></tr>
</table>

<br>
<p align=center><FONT FACE="Times New Roman, Times, Serif" SIZE=3>77</font></p>
<page>
<br>

<table width=100%>
<tr><td width=5% valign=top><FONT FACE="Times New Roman, Times, Serif" size=2>(4)</font></td>
<td width=95% valign=top><FONT FACE="Times New Roman, Times, Serif" size=2>Mr. Jaeger ceased to be an executive officer of the Company in August 2003.</font></td>
</tr>
</table>


<H2 ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" size=3>Stock Options</FONT></H2>

<P><FONT FACE="Times New Roman, Times, Serif" size=3>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The following table sets
forth information regarding options to purchase shares of our common stock
granted to the named executive officers during the year ended December 31, 2003.
The option grants reflected in the table consist of 2003 grants made to the
listed executives under the 2002 Long-Term Incentive Stock Plan or 2002 Plan. </FONT></P>

<H1 ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" size=3>Option/SAR
Grants in Last Fiscal Year</FONT></H1>

<table align=center border=0 cellPadding=0 cellSpacing=0 width=650>
         <tr>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
         </tr>
         <tr>
                  <td align=center colspan=5 valign=middle><FONT FACE="Times New Roman, Times, Serif" size=2><b>Individual Grants</b></font></td>
                  <td align=center colspan=2 valign=bottom><FONT FACE="Times New Roman, Times, Serif" size=2><b>Potential Realizable Value at Assumed Annual Rate of Stock Price
                                  Appreciation for Option Term</b></font></td>
         </tr>
         <tr>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE width=95% align=left></td>
                  <td><HR NOSHADE width=95% align=right></td>
                  <td><HR NOSHADE></td>
         </tr>
         <tr>
                  <td width=22% align=center valign=bottom><FONT FACE="Times New Roman, Times, Serif" size=2><b>Name</b></font></td>
                  <td width=15% align=right valign=bottom><FONT FACE="Times New Roman, Times, Serif" size=2><b>Number of Securities Underlying Options<br>Granted (#)</b></font></td>
                  <td width=15% align=right valign=bottom><FONT FACE="Times New Roman, Times, Serif" size=2><b>Percent of<br>total options<br>granted to<br>employees in<br>fiscal year</b></font></td>
                  <td width=13% align=right valign=bottom><FONT FACE="Times New Roman, Times, Serif" size=2><b>Exercise<br>or base<br>price<br>per share ($/sh)</b></font></td>
                  <td width=15% align=right valign=bottom><FONT FACE="Times New Roman, Times, Serif" size=2><b>Expiration<br>date</b></font></td>
                  <td width=10% align=right valign=bottom><FONT FACE="Times New Roman, Times, Serif" size=2><b>5% ($)</b></font></td>
                  <td width=10% align=right valign=bottom><FONT FACE="Times New Roman, Times, Serif" size=2><b>10% ($)</b></font></td>
         </tr>
         <tr>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE width=98% align=left></td>
                  <td><HR NOSHADE width=95% align=right></td>
                  <td><HR NOSHADE></td>
         </tr>
         <tr>
                  <td align=left><FONT FACE="Times New Roman, Times, Serif" size=2>Christopher K. Seglem</font></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=2>32,100</font></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=2>21.35%</font></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=2>$18.08</font> </td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=2>6/29/13</font></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=2>364,993</font></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=2>924,933</font></td>
         </tr>
         <tr>
                  <td align=left><FONT FACE="Times New Roman, Times, Serif" size=2></font></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=2>32,100</font></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=2>21.35%</font></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=2>$17.80</font> </td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=2>12/30/13</font></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=2>359,340</font></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=2>910,610</font></td>
         </tr>
         <tr>
                  <td align=left></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=2>&nbsp;</font></td>
                  <td align=right></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=2></font> </td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=2></font></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=2></font></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=2></font></td>
         </tr>
         <tr>
                  <td align=left><FONT FACE="Times New Roman, Times, Serif" size=2>Robert J. Jaeger</font></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=2>-</font></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=2>0%</font></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=2>-</font> </td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=2>-</font></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=2>-</font></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=2>-</font></td>
         </tr>
         <tr>
                  <td align=left></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=2>&nbsp;</font></td>
                  <td align=right></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=2></font> </td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=2></font></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=2></font></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=2></font></td>
         </tr>
         <tr>
                  <td align=left><FONT FACE="Times New Roman, Times, Serif" size=2>W. Michael Lepchitz</font></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=2>8,200</font></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=2>5.45%</font></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=2>$18.08</font> </td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=2>6/29/13</font></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=2>93,238</font></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=2>236,276</font></td>
         </tr>
         <tr>
                  <td align=left><FONT FACE="Times New Roman, Times, Serif" size=2></font></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=2>8,200</font></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=2>5.45%</font></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=2>$17.80</font> </td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=2>12/30/13</font></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=2>91,794</font></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=2>232,617</font></td>
         </tr>
         <tr>
                  <td align=left></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=2>&nbsp;</font></td>
                  <td align=right></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=2></font> </td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=2></font></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=2></font></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=2></font></td>
         </tr>
         <tr>
                  <td align=left><FONT FACE="Times New Roman, Times, Serif" size=2>Ronald H. Beck</font></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=2>2,250</font></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=2>1.5%</font></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=2>$18.08</font> </td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=2>6/29/13</font></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=2>25,584</font></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=2>64,832</font></td>
         </tr>
         <tr>
                  <td align=left><FONT FACE="Times New Roman, Times, Serif" size=2></font></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=2>2,250</font></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=2>1.5%</font></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=2>$17.80</font> </td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=2>12/30/13</font></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=2>25,187</font></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=2>63,228</font></td>
         </tr>
         <tr>
                  <td align=left></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=2>&nbsp;</font></td>
                  <td align=right></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=2></font> </td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=2></font></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=2></font></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=2></font></td>
         </tr>
         <tr>
                  <td align=left><FONT FACE="Times New Roman, Times, Serif" size=2>Thomas G. Durham</font></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=2>7,650</font></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=2>5.1%</font></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=2>$18.08</font> </td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=2>6/29/13</font></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=2>86,992</font></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=2>220,428</font></td>
         </tr>
         <tr>
                  <td align=left><FONT FACE="Times New Roman, Times, Serif" size=2></font></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=2>7,650</font></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=2>5.1%</font></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=2>$17.80</font> </td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=2>12/30/13</font></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=2>85,637</font></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=2>217,014</font></td>
         </tr>
         <tr>
                  <td align=left></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=2>&nbsp;</font></td>
                  <td align=right></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=2></font> </td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=2></font></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=2></font></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=2></font></td>
         </tr>
         <tr>
                  <td align=left><FONT FACE="Times New Roman, Times, Serif" size=2>Todd A. Myers</font></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=2>6,700</font></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=2>4.5%</font></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=2>$18.08</font> </td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=2>6/29/13</font></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=2>76,182</font></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=2>193,054</font></td>
         </tr>
         <tr>
                  <td align=left><FONT FACE="Times New Roman, Times, Serif" size=2></font></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=2>6,700</font></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=2>4.5%</font></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=2>$17.80</font> </td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=2>12/30/13</font></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=2>75,002</font></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=2>190,065</font></td>
         </tr>
         <tr>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
         </tr>
</table>

<br>
<p align=center><FONT FACE="Times New Roman, Times, Serif" SIZE=3>78</font></p>
<page>
<br>


<p><FONT FACE="Times New Roman, Times, Serif" size=3>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<b>Option Exercises and Year-End Option Values</b></font></p>

<P><FONT FACE="Times New Roman, Times, Serif" size=3>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The following table
presents information regarding stock option exercises by the named executive
officers in 2003 and the number of unexercised options to purchase common stock
held by them at December 31, 2003. </FONT></P>

<H1 ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" size=3>Aggregated
Option Exercises in Last Fiscal Year and Fiscal Year-End Option Values</FONT></H1>





<table align=center border=0 cellPadding=0 cellSpacing=0 width=650>
         <tr>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
         </tr>
         <tr>
                  <td width=20% align=left><b></b></td>
                  <td width=12% align=right valign=bottom><FONT FACE="Times New Roman, Times, Serif" size=2><b>Number of Shares Acquired on Exercise<br>(#)</b></font></td>
                  <td width=12% align=right valign=bottom><FONT FACE="Times New Roman, Times, Serif" size=2><b>Value Realized<br>($)</b></font></td>
                  <td width=28% align=center valign=bottom colspan=2><FONT FACE="Times New Roman, Times, Serif" size=2><b>Number of Securities<br>Underlying Unexercised<br>Options at<br>December 31, 2003<br>(#) </b></font></td>
                  <td width=28% align=center valign=bottom colspan=2><FONT FACE="Times New Roman, Times, Serif" size=2><b>Value of Unexercised<br>In-the-Money<br>Options at<br>December 31, 2003<br>($) </b></font></td>
         </tr>
         <tr>
                  <td  align=left><FONT FACE="Times New Roman, Times, Serif" size=2><b>Name</b></font></td>
                  <td  align=right><FONT FACE="Times New Roman, Times, Serif" size=2>&nbsp;</font></td>
                  <td  align=right><FONT FACE="Times New Roman, Times, Serif" size=2>&nbsp;</font></td>
                  <td  align=right><FONT FACE="Times New Roman, Times, Serif" size=2>Exercisable</font></td>
                  <td  align=right><FONT FACE="Times New Roman, Times, Serif" size=2>Unexercisable</font></td>
                  <td  align=right><FONT FACE="Times New Roman, Times, Serif" size=2>Exercisable</font></td>
                  <td  align=right><FONT FACE="Times New Roman, Times, Serif" size=2>Unexercisable</font></td>
</tr>
         <tr>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
         </tr>
         <tr>
                  <td align=left><FONT FACE="Times New Roman, Times, Serif" size=2>Christopher K. Seglem</font></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=2>-</font></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=2>-</font></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=2>268,850</font></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=2>80,150</font></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=2>3,561,713</font> </td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=2>42,188</font> </td>
         </tr>
         <tr>
                  <td align=left><FONT FACE="Times New Roman, Times, Serif" size=2>Robert J. Jaeger</font></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=2>36,700</font></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=2>330,732</font></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=2>-</font></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=2>-</font></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=2>-</font></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=2>-</font> </td>
         </tr>
         <tr>
                  <td align=left><FONT FACE="Times New Roman, Times, Serif" size=2>W. Michael Lepchitz</font></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=2>-</font></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=2>-</font></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=2>52,700</font></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=2>21,500</font></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=2>643,752</font> </td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=2>23,690</font> </td>
         </tr>
         <tr>
                  <td align=left><FONT FACE="Times New Roman, Times, Serif" size=2>Thomas G. Durham</font></td>
                  <td align=right>              <FONT FACE="Times New Roman, Times, Serif" size=2>5,000</font></td>
                  <td align=right>            <FONT FACE="Times New Roman, Times, Serif" size=2>51,875</font></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=2>15,650</font></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=2>19,100</font></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=2>138,823 </font></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=2>17,651</font> </td>
         </tr>
         <tr>
                  <td align=left><FONT FACE="Times New Roman, Times, Serif" size=2>Todd A. Myers</font></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=2>-</font></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=2>-</font></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=2>13,300</font></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=2>16,750</font></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=2>6,328</font></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=2>15,561</font> </td>
         </tr>
         <tr>
                  <td align=left><FONT FACE="Times New Roman, Times, Serif" size=2>Ronald H. Beck</font></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=2>-</font></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=2>-</font></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=2>3,200</font></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=2>6,600</font></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=2>11,729</font></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=2>9,755</font> </td>
         </tr>
         <tr>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
         </tr>
</table>

<H2 ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" size=3>Long-Term
Incentive Plans and Benefit Plans</FONT></H2>

<p><FONT FACE="Times New Roman, Times, Serif" size=3>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<b>2000 Performance Unit Plan</b></font></p>

<P><FONT FACE="Times New Roman, Times, Serif" size=3>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In 2000, our Board of Directors
adopted a Performance Unit Plan as part of our long-term incentive program
because an insufficient number of stock options were available to provide a
competitive long-term incentive to our key executives. The 2000 Performance Unit
Plan is designed to link recipients&#146; long-term economic interest with those
of our stockholders. In June 2000, Mr. Seglem was awarded 196,449 units; Mr.
Jaeger, 66,357 units; and Mr. Lepchitz, 46,307 units. Performance units awarded
in 2000 under the 2000 Plan matured June 30, 2003. Each performance unit awarded
in 2000 entitled the recipient to receive a payment in cash or stock, at the
election of the Company, having a value equal to the difference between the base
price of $2.9097, which was the average price of our common stock for the 20
trading days ending June&#160;30, 2000, and the average of the trading prices
for our common stock for the 20 trading days ending June&#160;30, 2003, which
turned out to be $17.6335. The daily average trading price for a given day is
the average of the high and low trading prices for such day. The total value of
the awards in 2000 under this plan is reflected in the Summary Compensation
Table above. As indicated in note 2 to the Summary Compensation Table, we did
not pay the full value of those awards in 2003. Rather, we elected to pay a
portion in 2003 and defer the payment of the balance over a period of up to five
years. The amount we actually paid in 2003 to each of the named executive
officers is reflected in note 2 to the Summary Compensation Table. </FONT></P>

<br>
<p align=center><FONT FACE="Times New Roman, Times, Serif" SIZE=3>79</font></p>
<page>
<br>

<P><FONT FACE="Times New Roman, Times, Serif" size=3>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Each performance unit
awarded in 2001 under the 2000 Performance Unit Plan entitles the recipient to
receive a payment in cash or stock, at our election, having a value equal to an
amount based upon the total stockholder return percentage on our common stock
over a three year period from the date of the grant, May 31, 2001, compared to
the total stockholder return over that period on the common stock of a peer
group comprised of AES Corp., Alliance Resources Partners L.P., Arch Coal, Inc.,
BHP Billiton Limited, Beard Company, Calpine Corp., CONSOL Energy, Inc.,
Headwaters, Inc., Massey Energy Company, Peabody Energy Corp., RWE AG, SGI
International, and Yanzhou Coal Mining Company. Total stockholder return is
expressed as a percentage and then compared with the total stockholder return
(expressed as a percentage) of the companies comprising the peer group. For
example, if during this period, six companies in the peer group had a total
stockholder return better than ours and seven companies had a total stockholder
return during this period worse than ours, our total stockholder return would
rank in the 54th percentile. Each performance unit has a value of $75 at the
threshold performance level, which is our total stockholder return percentage at
the 40th percentile of the peer group; $100 at the target level, which is the
60th percentile; and $200 at or above the maximum level, which is the 80th
percentile. Our maximum payment obligation for all performance units awarded in
2001 to the named executive officers was $1,849,000 and to all recipients was
$2,898,747. The value of the performance units awarded in 2001 became
determinable on May 31, 2004, and the value of all performance units awarded in
2001 to all recipients is approximately $1.3 million. </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" size=3>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Total stockholder return
measures the cumulative appreciation in the relevant entities&#146; stock price
and assumes the reinvestment of dividends. For the purpose of calculating the
total stockholder return percentage, the base price of our common stock and each
of the peer group&#146;s common stock is the average of the trading prices for
the 20 trading days ending the day before the third anniversary of the date of
the grant. The daily average trading price for a given day is the average of the
high and low trading prices for such day. The ending price is calculated on the
same basis, using the 20 trading days ending the day before the third
anniversary of the date of the grant. The performance units vest in one-third
annual increments beginning on the first anniversary of the date of grant. </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" size=3>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Each performance unit
awarded in 2002 under the 2000 Performance Unit Plan entitles the recipient to
receive a payment in cash or stock at our election, having a value equal to an
amount based on total stockholder return percentage on our common stock over a
three year period from the date of the grant, May 31, 2002, compared to the
total stockholder return over that period on the common stock of a peer group
comprised of AES Corp., Alliance Resources Partners L.P., Arch Coal Inc., Massey
Energy Company, Peabody Energy Corp., RWE AG, AGI International, and Yanzhou
Coal Mining Company. Total stockholder return is expressed as a percentage and
then compared with the total stockholder return (expressed as a percentage) of
the companies comprising the peer group. We provide above an example of the
method by which we calculate total stockholder return and express that as a
percentage and percentile of the peer group. If the total stockholder return
percentage on our common stock fails to achieve the threshold level, the
performance units will have no value. The threshold value for each performance
unit is $75.00. The maximum value of each performance unit is $200.00 if the
total stockholder return percentage on our common stock is at or above the 80th
percentile. Our maximum payment obligation for all performance units awarded in
2002 to the named executive officers is $1,737,000 and to all recipients is
$2,525,333. </FONT></P>

<p><FONT FACE="Times New Roman, Times, Serif" size=3>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;No performance units were granted in 2003.</font></p>

<br>
<p align=center><FONT FACE="Times New Roman, Times, Serif" SIZE=3>80</font></p>
<page>
<br>

<p><FONT FACE="Times New Roman, Times, Serif" size=3>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<b>Deferred Compensation Plan</b></font></p>

<P><FONT FACE="Times New Roman, Times, Serif" size=3>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On March 7, 2003 the Board
adopted a deferred compensation plan. This plan permits recipients of awards
under the 2000 Performance Unit Plan and subsequent long-term incentive plan
awards to defer receipt of all or some percentage of any cash payments they are
otherwise entitled to receive. This deferral is in addition to any amount
deferred by the Compensation and Benefits Committee. The deferred compensation
plan is intended to be an unfunded &#147;top hat&#148; arrangement under Title I
of ERISA as well as for income tax purposes. </FONT></P>

<p><FONT FACE="Times New Roman, Times, Serif" size=3>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<b>Pension Plan</b></font></p>

<P><FONT FACE="Times New Roman, Times, Serif" size=3>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We sponsor a pension plan
for our eligible employees to which employees make no contributions. All
employees whose terms and conditions of employment are not subject to collective
bargaining and who work 1,000 or more hours per year are eligible for
participation in the pension plan. Eligible employees become fully vested after
five years of service, or, in any event, upon attaining age 65. </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" size=3>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The following table shows
estimated annual retirement benefits, which are representative of an employee
currently age 65 whose salary remained unchanged during his or her last five
years of employment and whose benefit will be paid for the life of the employee: </FONT></P>

<table align=center border=0 cellPadding=0 cellSpacing=0 width=650>
         <tr>
                  <td  align=left></td>
                  <td align=center></td>
                  <td  align=center colspan=9><b><FONT FACE="Times New Roman, Times, Serif" size=3>Years of Service</font></b></td>
         </tr>
         <tr>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
         </tr>
         <tr>
                  <td width=15% align=left><FONT FACE="Times New Roman, Times, Serif" size=3>Remuneration</font></td>
                  <td width=3% align=center></td>
                  <td width=14% align=center><FONT FACE="Times New Roman, Times, Serif" size=3>15</font></td>
                  <td width=3% align=center></td>
                  <td width=14% align=center><FONT FACE="Times New Roman, Times, Serif" size=3>20</font></td>
                  <td width=3% align=center></td>
                  <td width=14% align=center><FONT FACE="Times New Roman, Times, Serif" size=3>25</font></td>
                  <td width=3% align=center></td>
                  <td width=14% align=center><FONT FACE="Times New Roman, Times, Serif" size=3>30</font></td>
                  <td width=3% align=center></td>
                  <td width=14% align=center><FONT FACE="Times New Roman, Times, Serif" size=3>35</font></td>
         </tr>
         <tr>
                  <td><HR NOSHADE></td>
                  <td></td>
                  <td><HR NOSHADE></td>
                  <td></td>
                  <td><HR NOSHADE></td>
                  <td></td>
                  <td><HR NOSHADE></td>
                  <td></td>
                  <td><HR NOSHADE></td>
                  <td></td>
                  <td><HR NOSHADE></td>
         </tr>
         <tr>
                  <td align=left></td>
                  <td align=center></td>
                  <td align=right></td>
                  <td align=center></td>
                  <td align=right></td>
                  <td align=center></td>
                  <td align=right></td>
                  <td align=center></td>
                  <td align=right></td>
                  <td align=center></td>
                  <td align=right></td>
         </tr>
         <tr>
                  <td align=left><FONT FACE="Times New Roman, Times, Serif" size=3>$&nbsp;125,000</font> </td>
                  <td align=center></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=3>$&nbsp;&nbsp;28,576 </font></td>
                  <td align=center></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=3>$&nbsp;&nbsp;38,101 </font></td>
                  <td align=center></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=3>$&nbsp;&nbsp;47,626</font> </td>
                  <td align=center></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=3>$&nbsp;&nbsp;57,151</font> </td>
                  <td align=center></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=3>$&nbsp;&nbsp;57,151 </font></td>
         </tr>
         <tr>
                  <td align=left><FONT FACE="Times New Roman, Times, Serif" size=3>&nbsp;&nbsp;&nbsp;150,000</font></td>
                  <td align=center></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=3>34,951</font></td>
                  <td align=center></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=3>46,601</font></td>
                  <td align=center></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=3>58,251</font></td>
                  <td align=center></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=3>69,901</font></td>
                  <td align=center></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=3>69,901</font></td>
         </tr>
         <tr>
                  <td align=left><FONT FACE="Times New Roman, Times, Serif" size=3>&nbsp;&nbsp;&nbsp;175,000</font></td>
                  <td align=center></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=3>41,326</font></td>
                  <td align=center></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=3>55,101</font></td>
                  <td align=center></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=3>68,876</font></td>
                  <td align=center></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=3>82,651</font></td>
                  <td align=center></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=3>82,651</font></td>
         </tr>
         <tr>
                  <td align=left><FONT FACE="Times New Roman, Times, Serif" size=3>&nbsp;&nbsp;&nbsp;200,000</font></td>
                  <td align=center></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=3>47,701</font></td>
                  <td align=center></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=3>63,601</font></td>
                  <td align=center></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=3>79,501</font></td>
                  <td align=center></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=3>95,401</font></td>
                  <td align=center></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=3>95,401</font></td>
         </tr>
         <tr>
                  <td align=left><FONT FACE="Times New Roman, Times, Serif" size=3>&nbsp;&nbsp;&nbsp;225,000</font></td>
                  <td align=center></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=3>54,076</font></td>
                  <td align=center></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=3>72,101</font></td>
                  <td align=center></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=3>90,126</font></td>
                  <td align=center></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=3>108,151</font></td>
                  <td align=center></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=3>108,151</font></td>
         </tr>
         <tr>
                  <td align=left><FONT FACE="Times New Roman, Times, Serif" size=3>&nbsp;&nbsp;&nbsp;250,000</font></td>
                  <td align=center></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=3>60,451</font></td>
                  <td align=center></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=3>80,601</font></td>
                  <td align=center></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=3>100,751</font></td>
                  <td align=center></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=3>120,901</font></td>
                  <td align=center></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=3>120,901</font></td>
         </tr>
         <tr>
                  <td align=left><FONT FACE="Times New Roman, Times, Serif" size=3>&nbsp;&nbsp;&nbsp;300,000</font></td>
                  <td align=center></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=3>73,201</font></td>
                  <td align=center></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=3>97,601</font></td>
                  <td align=center></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=3>122,001</font></td>
                  <td align=center></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=3>146,401</font></td>
                  <td align=center></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=3>146,401</font></td>
         </tr>
         <tr>
                  <td align=left><FONT FACE="Times New Roman, Times, Serif" size=3>&nbsp;&nbsp;&nbsp;350,000</font></td>
                  <td align=center></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=3>85,951</font></td>
                  <td align=center></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=3>114,601</font></td>
                  <td align=center></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=3>143,251</font></td>
                  <td align=center></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=3>171,901</font></td>
                  <td align=center></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=3>171,901</font></td>
         </tr>
         <tr>
                  <td align=left><FONT FACE="Times New Roman, Times, Serif" size=3>&nbsp;&nbsp;&nbsp;400,000</font></td>
                  <td align=center></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=3>98,701</font></td>
                  <td align=center></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=3>131,601</font></td>
                  <td align=center></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=3>164,501</font></td>
                  <td align=center></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=3>197,401</font></td>
                  <td align=center></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=3>197,401</font></td>
         </tr>
         <tr>
                  <td align=left><FONT FACE="Times New Roman, Times, Serif" size=3>&nbsp;&nbsp;&nbsp;450,000</font></td>
                  <td align=center></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=3>111,451</font></td>
                  <td align=center></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=3>148,601</font></td>
                  <td align=center></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=3>185,751</font></td>
                  <td align=center></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=3>222,901</font></td>
                  <td align=center></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=3>222,901</font></td>
         </tr>
         <tr>
                  <td align=left><FONT FACE="Times New Roman, Times, Serif" size=3>&nbsp;&nbsp;&nbsp;500,000</font></td>
                  <td align=center></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=3>124,201</font></td>
                  <td align=center></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=3>165,601</font></td>
                  <td align=center></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=3>207,001</font></td>
                  <td align=center></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=3>248,401</font></td>
                  <td align=center></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=3>248,401</font></td>
         </tr>
</table>


<P><FONT FACE="Times New Roman, Times, Serif" size=3>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We adopted this pension
plan effective December 1, 1997 as a qualified replacement plan for a previous
plan that terminated effective November 30, 1996. In general, our pension plan
provides for payment of annual retirement benefits to eligible employees equal
to 1.2% of any employee&#146;s average annual salaried compensation over the
sixty most highly compensated consecutive months of employment plus 0.5% of the
average annual compensation in excess of the employee&#146;s pay used to
determine Social Security retirement benefits for each year of service, to a
maximum of 30 years, less the benefit, if any, provided to the participants
under our previous plan. Our pension plan also provides for disability benefits
and for reduced benefits upon retirement prior to the normal retirement age of
65. For the purpose of benefit calculation under our pension plan, credited
service under the previous plan is included with credited service under our
pension plan and a benefit amount is calculated using the formula described
above. The amount of the accrued benefit under the previous plan, calculated as
of the date the previous plan terminated, is then subtracted to arrive at the
benefit amount payable under our pension plan. </FONT></P>

<br>
<p align=center><FONT FACE="Times New Roman, Times, Serif" SIZE=3>81</font></p>
<page>
<br>

<P><FONT FACE="Times New Roman, Times, Serif" size=3>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;No amounts are included in
the Salary column of the Summary Compensation Table above in respect of
contributions to the pension plan by the Company and its subsidiaries because
the pension plan is a qualified defined benefit plan. The basis upon which
benefits are computed is a straight-life annuity; payments are available in
other forms on an actuarially adjusted basis equivalent to a straight-life
annuity. Benefit amounts set forth in the table above are not subject to any
deduction for Social Security benefits or other offset amounts, except as noted
below for the amount of the accrued benefit under the previous plan. </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" size=3>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The amounts shown in the
table above would be reduced by the amount of accrued benefit under the previous
plan. The amount of reduction from the annual benefit for the following
individuals are: Mr.&#160;Seglem&#151;$38,162; and Mr. Lepchitz&#151;$3,594.
Since Messrs. Beck, Durham and Myers were not employees of the Company at the
time the previous plan was terminated, they have no accrued benefit under the
previous plan but participate in our current pension plan. </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" size=3>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As of December 31, 2003,
the named executive officers had the following estimated credit years of service
under our pension plan: Mr. Seglem, 23 years, 4 months; Mr. Jaeger, 8 years, 8
months; Mr. Lepchitz, 12 years, 1 month; Mr. Beck, 2 years, 5 months; Mr.
Durham, 3 years, 8 months and Mr. Myers, 3 years, 11 months. </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" size=3>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The current compensation
covered by the Plan for any executive officer in the Summary Compensation Table
is that amount reported in the &#147;Salary&#148; column, subject to limitations
imposed by the Internal Revenue Code of 1986. </FONT></P>

<p><FONT FACE="Times New Roman, Times, Serif" size=3>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<b>Supplemental Executive Retirement Plan</b></font></p>

<P><FONT FACE="Times New Roman, Times, Serif" size=3>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Internal Revenue Code
limits the amount of compensation that may be taken into account for the purpose
of determining the retirement benefit payable under retirement plans (such as
our pension plan) that are qualified under ERISA. The limitation for 2002 and
2003 was $200,000 for each year. So that we may provide retirement income to our
senior executives and other key individuals that is commensurate as a percentage
of preretirement income with that paid to our other employees, we established a
nonqualified Supplemental Executive Retirement Plan, effective January 1, 1992.
Mr. Seglem is our only current employee who is covered by the SERP. The annual
benefit presented in the table above includes the portion of retirement benefits
payable through the SERP. </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" size=3>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;To become vested in the
SERP, a participant must attain age 55 and generally complete 10 years of
service. Both an employee&#146;s salary and his bonus are taken into account for
purposes of determining the retirement benefit payable under the SERP. Benefits
are payable out of our general assets and shall commence and be payable at the
same time and in the same form as benefits are payable under the pension plan. </FONT></P>

<p><FONT FACE="Times New Roman, Times, Serif" size=3>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Mr. Hutchinson retired as an employee of the Company as of December 31, 1993 and is entitled to receive $3,708 per month
under the SERP.</font></p>

<br>
<p align=center><FONT FACE="Times New Roman, Times, Serif" SIZE=3>82</font></p>
<page>
<br>

<H2 ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" size=3>Severance
Arrangements</FONT></H2>

<P><FONT FACE="Times New Roman, Times, Serif" size=3>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We have two severance policies,
an Executive Severance Policy that covers only Mr. Seglem and a Severance Policy
for executives, including Messrs.&#160;Lepchitz, Beck, Durham and Myers. </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" size=3>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Executive Severance
Policy provides that Mr. Seglem is entitled to a severance benefit in the event
of certain terminations of his employment with the Company. We adopted this
policy in 1993 as we entered a restructuring phase, and this policy originally
covered other senior executives who have since retired or left the Company. For
purposes of the Executive Severance Policy, a termination is deemed to have
occurred and severance will be paid at any and all times for the following
reasons: (i) discharge for unacceptable job performance (other than that
resulting from gross or willful misconduct, which is defined as an act or acts
constituting larceny, fraud, gross negligence, crime or crimes, moral turpitude
in the course of employment, or willful and material misrepresentation to the
Company&#146;s directors or officers); (ii) discharge due to recognition of a
mistake in the recruiting process, as determined by management; (iii) a
significant reduction, or increase without adequate compensation, in the nature
or scope of such executive&#146;s authority or duties; (iv) a relocation of such
executive from Colorado Springs, Colorado, to any location, or a reduction in
such executive&#146;s base compensation, a material reduction of the value of
the aggregate of employee benefits as described in the Executive Severance
Policy, or cessation of eligibility for incentive bonus payments; or (v) in the
event of a change in control of the Company, as defined in the Executive
Severance Policy. The severance benefit under this policy is an amount equal to
twice the executive officer&#146;s annual average cash compensation, defined as
the greater of the annualized base salary at the time of severance plus the
amount of bonus awarded (including any amount deferred) in that year or the
annual average of the executive officer&#146;s most recent five calendar years
of base salary and bonus awarded (including amounts deferred), including the
year of termination. The severance benefit will be paid in approximately equal
monthly installments over a period of 24 months following the date of
termination, unless the executive officer elects to receive the present value of
his total severance payment discounted at the two-year treasury bill rate,
including the present value of executive benefits (such as life and health
insurance, stock options, and financial planning and outplacement services) in a
lump sum distribution in cash at the time of termination. </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" size=3>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;A change in control of the
Company is defined in the Executive Severance Policy as: (i) a transaction,
acquisition, merger, other event or series of events which results in any
individual, person, entity or group acting in concert having beneficial
ownership of 20% or more of our common stock or voting preferred stock or any
combination thereof, that will give that person ownership or control of 20% or
more of the combined voting power of all stock generally entitled to vote for
the election of directors; or where such person prior to a transaction,
acquisition, merger, other event or series of events holds a 20% or more voting
power, as defined therein, an event which increases that person&#146;s interest
by 5% or more; unless a majority of those members of the Board of Directors who
were in office prior to the occurrence of the event determines at the next
regularly scheduled Board meeting that the event was not hostile or adverse; or
(ii) a change in the membership of the Board of Directors when, in less than two
years, the directors prior to the change cease to constitute a majority, unless
the new directors were designated as nominees or were elected to fill a vacancy
on the Board by two-thirds of the incumbent directors at the time; or (iii) a
consolidation or merger as a result of which the Company is not the surviving or
continuing corporation or where the Company&#146;s stock is converted into cash,
securities or other property; or any sale, lease, exchange or other transfer of
all or substantially all of the assets of the Company; or an adoption of any
plan or proposal for the liquidation or dissolution of the Company. </FONT></P>

<br>
<p align=center><FONT FACE="Times New Roman, Times, Serif" SIZE=3>83</font></p>
<page>
<br>

<P><FONT FACE="Times New Roman, Times, Serif" size=3>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Severance Policy that
currently covers our executives, including Messrs. Lepchitz, Durham, Beck and
Myers, provides that these executives are entitled to a severance benefit in the
event their employment with the Company is terminated for at least one of the
following reasons: (i) involuntary termination that is not for cause; (ii) a
reduction in work force; and (iii)&#160;liquidation of the Company. The
severance benefit under this policy is an amount equal to two weeks of base
salary for every year of continuous service to the Company, with a minimum of 8
weeks and a maximum of 52 weeks of base salary, plus the continuation of
medical, vision and dental benefits for the balance of the month in which
discharge occurred, plus three months. </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" size=3>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;At the time of his
departure from the Company in August 2003, Mr. Jaeger was covered by our
Executive Severance Policy. Mr. Jaeger&#146;s termination agreement provided for
a lump sum severance payable over a period of 10 years and the vesting of awards
under the 2000 Performance Unit Plan, in lieu of payments under the Executive
Severance Policy. </FONT></P>

<br>
<p align=center><FONT FACE="Times New Roman, Times, Serif" SIZE=3>84</font></p>
<page>
<br>


<H1 ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" size=3>CERTAIN
RELATIONSHIPS AND RELATED PARTY TRANSACTIONS</FONT></H1>

<H2 ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" size=3>Preferred Stock
Repurchase Program</FONT></H2>

<P><FONT FACE="Times New Roman, Times, Serif" size=3>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In August 2002, our Board
of Directors approved a program pursuant to which we may purchase outstanding
shares of our Series A Preferred Stock. In 2003, we purchased a total of 7,000
depositary shares (equivalent to 1,750 shares of Series A Preferred Stock) from
Wynnefield Partners Small Cap Value, L.P. I and Wynnefield Small Cap Offshore
Fund, Ltd. for a total amount of $212,800. The Wynnefield funds previously owned
more than 5% of our Series A Preferred Stock. </FONT></P>

<H2 ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" size=3>Compensation
and Options Issuance</FONT></H2>

<P><FONT FACE="Times New Roman, Times, Serif" size=3>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Mark Seglem, the brother of
Christopher K. Seglem, the Company&#146;s Chairman of the Board, President, and
Chief Executive Officer, is the Vice President of Northwestern Resources Co., an
indirect subsidiary of Westmoreland Coal Company. In 2003, Mr. Mark Seglem was
paid $91,150 in total compensation and granted options to purchase 7,500 shares
of our common stock at an exercise price of $17.82 per share. The options are
exercisable over a three-year period. </FONT></P>

<H2 ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" size=3>Termination
Agreement of Robert J. Jaeger</FONT></H2>

<p><FONT FACE="Times New Roman, Times, Serif" size=3>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Mr. Jaeger, who was one of the two named persons covered under the Executive Severance Policy adopted in 1993, ceased to be
an executive officer of the Company in August 2003.  His termination agreement entitles him to receive three years credit in the 2000
award under the 2000 Performance Unit Plan, two years credit in the 2001 award and one year of credit in the 2002 award.  The value,
if any, of these awards and the time, manner and method of payment will be determined by our Compensation and Benefits Committee, in
its sole discretion, but the terms and conditions of Mr. Jaeger's awards shall be the same as for the other participants receiving
awards for those periods.  The termination agreement also provides for the payment of $720,000 over the next ten years in lieu of the
benefits Mr. Jaeger would be entitled to as a covered participant under our Executive Severance Policy.</font></p>

<br>
<p align=center><FONT FACE="Times New Roman, Times, Serif" SIZE=3>85</font></p>
<page>
<br>


<H1 ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" size=3>BENEFICIAL
OWNERSHIP OF SECURITIES</FONT></H1>

<P><FONT FACE="Times New Roman, Times, Serif" size=3>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The following table sets forth
information as of March 31, 2004, concerning beneficial ownership of our common
stock and our depositary shares, each of which represents one-quarter of a share
of our Series A Preferred Stock, by (a) each director, (b) each executive
officer named in our summary compensation table above, (c) all directors and
executive officers as a group, and (d) each person, or group of affiliated
persons, who is known by us to own beneficially more than five percent of our
common stock. </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" size=3>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Beneficial ownership is
determined in accordance with the rules of the Securities and Exchange
Commission. The number of shares beneficially owned by a person includes shares
of common stock subject to options held by that person that are currently
exercisable or exercisable within 60 days of March 31, 2004. The shares issuable
pursuant to these options are not deemed outstanding for the purposes of
computing the percentage ownership of any other person. Unless otherwise
indicated, each of the persons named below has sole voting power and sole
investment power with respect to the shares set forth opposite his or her name.
Except as otherwise set forth below, the address of the beneficial owner is c/o
Westmoreland Coal Company, 2 North Cascade Avenue, 14th Floor, Colorado Springs,
Colorado 80903. </FONT></P>

<table border=1 cellPadding=0 cellSpacing=0 width=650>
         <tr>
                  <td width=37% align=left valign=bottom><b><FONT FACE="Times New Roman, Times, Serif" size=3>Name and Address of Beneficial Owner</font></b></td>
                  <td width=14% align=center valign=bottom><b><FONT FACE="Times New Roman, Times, Serif" size=3>Number of Shares of Common  Stock Benefically Owned</font></b><sup><FONT FACE="Times New Roman, Times, Serif" size=3>(1)</font></sup></td>
                  <td width=18% align=center valign=bottom><b><FONT FACE="Times New Roman, Times, Serif" size=3>Percentage of Common Stock Benefically Owned</font></b></td>
                  <td width=15% align=center valign=bottom><b><FONT FACE="Times New Roman, Times, Serif" size=3>Number of Depositary Shares Benefically Owned</font></b></td>
                  <td width=16% align=center valign=bottom><b><FONT FACE="Times New Roman, Times, Serif" size=3>Percentage of Depositary Shares Benefically Owned</font></b></td>
         </tr>
         <tr>
                  <td align=left><FONT FACE="Times New Roman, Times, Serif" size=3><b>5% Stockholders</b></font></td>
                  <td align=right valign=top><FONT FACE="Times New Roman, Times, Serif" size=3>&nbsp;</font></td>
                  <td align=right valign=top><FONT FACE="Times New Roman, Times, Serif" size=3>&nbsp;</font></td>
                  <td align=right valign=top><FONT FACE="Times New Roman, Times, Serif" size=3>&nbsp;</font></td>
                  <td align=right valign=top><FONT FACE="Times New Roman, Times, Serif" size=3>&nbsp;</font></td>
</tr>
         <tr>
                  <td align=left><FONT FACE="Times New Roman, Times, Serif" size=3>Alan A. Blase <br>&nbsp;&nbsp;&nbsp;2230 SW 70th Ave., #5<br>&nbsp;&nbsp;&nbsp;Davie, FL  33317</font></td>
                  <td align=right valign=top><FONT FACE="Times New Roman, Times, Serif" size=3>-&nbsp;&nbsp;&nbsp;</font></td>
                  <td align=right valign=top><FONT FACE="Times New Roman, Times, Serif" size=3>-&nbsp;&nbsp;&nbsp;</font></td>
                  <td align=right valign=top><FONT FACE="Times New Roman, Times, Serif" size=3>61,114</font><sup><FONT FACE="Times New Roman, Times, Serif" size=3>(2)</font></sup></td>
                  <td align=right valign=top><FONT FACE="Times New Roman, Times, Serif" size=3>7.5%</font></td>
</tr>
         <tr>
                  <td align=left valign=top><FONT FACE="Times New Roman, Times, Serif" size=3>Jeffrey L. Gendell<br>&nbsp;&nbsp;&nbsp;55 Railroad Ave.<BR>&nbsp;&nbsp;&nbsp;3rd Floor<br>&nbsp;&nbsp;&nbsp;Greenwich, CT  06830</font></td>
                  <td align=right valign=top><FONT FACE="Times New Roman, Times, Serif" size=3>1,480,400</font><sup><FONT FACE="Times New Roman, Times, Serif" size=3>(3)</font></sup></td>
                  <td align=right valign=top><FONT FACE="Times New Roman, Times, Serif" size=3>18.5%</font></td>
                  <td align=right valign=top><FONT FACE="Times New Roman, Times, Serif" size=3>4,300</font><sup><FONT FACE="Times New Roman, Times, Serif" size=3>(4)</font></sup></td>
                  <td align=right valign=top><FONT FACE="Times New Roman, Times, Serif" size=3>*&nbsp;&nbsp;&nbsp;</font></td>
</tr>
         <tr>
                  <td align=left><FONT FACE="Times New Roman, Times, Serif" size=3>The Killen Group, Inc.<br>&nbsp;&nbsp;&nbsp;1189 Lancaster Ave.<br>&nbsp;&nbsp;&nbsp;Berwyn, PA  19312</font></td>
                  <td align=right valign=top><FONT FACE="Times New Roman, Times, Serif" size=3>416,245</font><sup><FONT FACE="Times New Roman, Times, Serif" size=3>(5)</font></sup></td>
                  <td align=right valign=top><FONT FACE="Times New Roman, Times, Serif" size=3>5.2%</font></td>
                  <td align=right valign=top><FONT FACE="Times New Roman, Times, Serif" size=3>750</font><sup><FONT FACE="Times New Roman, Times, Serif" size=3>(6)</font></sup></td>
                  <td align=right valign=top><FONT FACE="Times New Roman, Times, Serif" size=3>*&nbsp;&nbsp;&nbsp;</font></td>
</tr>
         <tr>
                  <td align=left><FONT FACE="Times New Roman, Times, Serif" size=3>Redwood Asset<br>Management, L.P.<br>&nbsp;&nbsp;&nbsp;1038 Lake Avenue<br>&nbsp;&nbsp;&nbsp;Greenwich, CT  06831</font></td>
                  <td align=right valign=top><FONT FACE="Times New Roman, Times, Serif" size=3>425,300&nbsp;&nbsp;&nbsp;&nbsp;</font></td>
                  <td align=right valign=top><FONT FACE="Times New Roman, Times, Serif" size=3>5.3%</font></td>
                  <td align=right valign=top><FONT FACE="Times New Roman, Times, Serif" size=3>-&nbsp;&nbsp;&nbsp;</font></td>
                  <td align=right valign=top><FONT FACE="Times New Roman, Times, Serif" size=3>-&nbsp;&nbsp;&nbsp;</font></td>
</tr>
         <tr>
                  <td align=left valign=top><FONT FACE="Times New Roman, Times, Serif" size=3>Stephen D. Rosenbaum <br>&nbsp;&nbsp;&nbsp;817 N. Calvert Street<br>&nbsp;&nbsp;&nbsp;Baltimore, MD  21202</font></td>
                  <td align=right valign=top><FONT FACE="Times New Roman, Times, Serif" size=3>-&nbsp;&nbsp;&nbsp;</font></td>
                  <td align=right valign=top><FONT FACE="Times New Roman, Times, Serif" size=3>-&nbsp;&nbsp;&nbsp;</font></td>
                  <td align=right valign=top><FONT FACE="Times New Roman, Times, Serif" size=3>80,000</font><sup><FONT FACE="Times New Roman, Times, Serif" size=3>(7)</font></sup></td>
                  <td align=right valign=top><FONT FACE="Times New Roman, Times, Serif" size=3>9.8%</font></td>
</tr>
         <tr>
                  <td align=left><FONT FACE="Times New Roman, Times, Serif" size=3><b>Directors and Executive Officers</b></font></td>
                  <td align=right valign=top><FONT FACE="Times New Roman, Times, Serif" size=3>&nbsp;</font></td>
                  <td align=right valign=top><FONT FACE="Times New Roman, Times, Serif" size=3>&nbsp;</font></td>
                  <td align=right valign=top><FONT FACE="Times New Roman, Times, Serif" size=3>&nbsp;</font></td>
                  <td align=right valign=top><FONT FACE="Times New Roman, Times, Serif" size=3>&nbsp;</font></td>
</tr>
         <tr>
                  <td align=left valign=top><FONT FACE="Times New Roman, Times, Serif" size=3>Michael Armstrong</font></td>
                  <td align=right valign=top><FONT FACE="Times New Roman, Times, Serif" size=3>37,332&nbsp;&nbsp;&nbsp;&nbsp;</font><sup><FONT FACE="Times New Roman, Times, Serif" size=3>(8)</font></sup></td>
                  <td align=right valign=top><FONT FACE="Times New Roman, Times, Serif" size=3>*&nbsp;&nbsp;&nbsp;</font></td>
                  <td align=right valign=top><FONT FACE="Times New Roman, Times, Serif" size=3>11,334</font><sup><FONT FACE="Times New Roman, Times, Serif" size=3>(9)</font></sup></td>
                  <td align=right valign=top><FONT FACE="Times New Roman, Times, Serif" size=3>1.4%</font></td>
</tr>
         <tr>
                  <td align=left valign=top><FONT FACE="Times New Roman, Times, Serif" size=3>Ronald H. Beck</font></td>
                  <td align=right valign=top><FONT FACE="Times New Roman, Times, Serif" size=3>4,650</font><sup><FONT FACE="Times New Roman, Times, Serif" size=3>(10)</font></sup></td>
                  <td align=right valign=top><FONT FACE="Times New Roman, Times, Serif" size=3>*&nbsp;&nbsp;&nbsp;</font></td>
                  <td align=right valign=top><FONT FACE="Times New Roman, Times, Serif" size=3>-&nbsp;&nbsp;&nbsp;</font><sup><FONT FACE="Times New Roman, Times, Serif" size=3></font></sup></td>
                  <td align=right valign=top><FONT FACE="Times New Roman, Times, Serif" size=3>-&nbsp;&nbsp;&nbsp;</font></td>
</tr>
         <tr>
                  <td align=left valign=top><FONT FACE="Times New Roman, Times, Serif" size=3>Thomas J. Coffey</font></td>
                  <td align=right valign=top><FONT FACE="Times New Roman, Times, Serif" size=3>34,146</font><sup><FONT FACE="Times New Roman, Times, Serif" size=3>(11)</font></sup></td>
                  <td align=right valign=top><FONT FACE="Times New Roman, Times, Serif" size=3>*&nbsp;&nbsp;&nbsp;</font></td>
                  <td align=right valign=top><FONT FACE="Times New Roman, Times, Serif" size=3>-&nbsp;&nbsp;&nbsp;</font><sup><FONT FACE="Times New Roman, Times, Serif" size=3></font></sup></td>
                  <td align=right valign=top><FONT FACE="Times New Roman, Times, Serif" size=3>-&nbsp;&nbsp;&nbsp;</font></td>
</tr>
         <tr>
                  <td align=left valign=top><FONT FACE="Times New Roman, Times, Serif" size=3>Thomas G. Durham</font></td>
                  <td align=right valign=top><FONT FACE="Times New Roman, Times, Serif" size=3>36,667</font><sup><FONT FACE="Times New Roman, Times, Serif" size=3>(12)</font></sup></td>
                  <td align=right valign=top><FONT FACE="Times New Roman, Times, Serif" size=3>*&nbsp;&nbsp;&nbsp;</font></td>
                  <td align=right valign=top><FONT FACE="Times New Roman, Times, Serif" size=3>-&nbsp;&nbsp;&nbsp;</font><sup><FONT FACE="Times New Roman, Times, Serif" size=3></font></sup></td>
                  <td align=right valign=top><FONT FACE="Times New Roman, Times, Serif" size=3>-&nbsp;&nbsp;&nbsp;</font></td>
</tr>
         <tr>
                  <td align=left valign=top><FONT FACE="Times New Roman, Times, Serif" size=3>Pemberton Hutchinson</font></td>
                  <td align=right valign=top><FONT FACE="Times New Roman, Times, Serif" size=3>91,496</font><sup><FONT FACE="Times New Roman, Times, Serif" size=3>(13)</font></sup></td>
                  <td align=right valign=top><FONT FACE="Times New Roman, Times, Serif" size=3>1.1%</font></td>
                  <td align=right valign=top><FONT FACE="Times New Roman, Times, Serif" size=3>-&nbsp;&nbsp;&nbsp;</font><sup><FONT FACE="Times New Roman, Times, Serif" size=3></font></sup></td>
                  <td align=right valign=top><FONT FACE="Times New Roman, Times, Serif" size=3>-&nbsp;&nbsp;&nbsp;</font></td>
</tr>
</table>

<br>
<p align=center><FONT FACE="Times New Roman, Times, Serif" SIZE=3>86</font></p>
<page>
<br>
<table border=1 cellPadding=0 cellSpacing=0 width=650>
         <tr>
                  <td width=37% align=left valign=bottom><b><FONT FACE="Times New Roman, Times, Serif" size=3>&nbsp;</font></b></td>
                  <td width=14% align=center valign=bottom><b><FONT FACE="Times New Roman, Times, Serif" size=3>&nbsp;</font></b></td>
                  <td width=18% align=center valign=bottom><b><FONT FACE="Times New Roman, Times, Serif" size=3>&nbsp;</font></b></td>
                  <td width=15% align=center valign=bottom><b><FONT FACE="Times New Roman, Times, Serif" size=3>&nbsp;</font></b></td>
                  <td width=16% align=center valign=bottom><b><FONT FACE="Times New Roman, Times, Serif" size=3>&nbsp;</font></b></td>
         </tr>

         <tr>
                  <td align=left valign=top><FONT FACE="Times New Roman, Times, Serif" size=3>Robert E. Killen</font></td>
                  <td align=right valign=top><FONT FACE="Times New Roman, Times, Serif" size=3>416,245</font><sup><FONT FACE="Times New Roman, Times, Serif" size=3>(14)</font></sup></td>
                  <td align=right valign=top><FONT FACE="Times New Roman, Times, Serif" size=3>5.2%</font></td>
                  <td align=right valign=top><FONT FACE="Times New Roman, Times, Serif" size=3>750</font><sup><FONT FACE="Times New Roman, Times, Serif" size=3>(15)</font></sup></td>
                  <td align=right valign=top><FONT FACE="Times New Roman, Times, Serif" size=3>*&nbsp;&nbsp;&nbsp;</font></td>
</tr>
         <tr>
                  <td align=left valign=top><FONT FACE="Times New Roman, Times, Serif" size=3>W. Michael Lepchitz</font></td>
                  <td align=right valign=top><FONT FACE="Times New Roman, Times, Serif" size=3>77,756</font><sup><FONT FACE="Times New Roman, Times, Serif" size=3>(16)</font></sup></td>
                  <td align=right valign=top><FONT FACE="Times New Roman, Times, Serif" size=3>*&nbsp;&nbsp;&nbsp;</font></td>
                  <td align=right valign=top><FONT FACE="Times New Roman, Times, Serif" size=3>26</font><sup><FONT FACE="Times New Roman, Times, Serif" size=3>(17)</font></sup></td>
                  <td align=right valign=top><FONT FACE="Times New Roman, Times, Serif" size=3>*&nbsp;&nbsp;&nbsp;</font></td>
</tr>
         <tr>
                  <td align=left valign=top><FONT FACE="Times New Roman, Times, Serif" size=3>Todd A. Myers</font></td>
                  <td align=right valign=top><FONT FACE="Times New Roman, Times, Serif" size=3>24,568</font><sup><FONT FACE="Times New Roman, Times, Serif" size=3>(18)</font></sup></td>
                  <td align=right valign=top><FONT FACE="Times New Roman, Times, Serif" size=3>*&nbsp;&nbsp;&nbsp;</font></td>
                  <td align=right valign=top><FONT FACE="Times New Roman, Times, Serif" size=3>-&nbsp;&nbsp;&nbsp;</font><sup><FONT FACE="Times New Roman, Times, Serif" size=3></font></sup></td>
                  <td align=right valign=top><FONT FACE="Times New Roman, Times, Serif" size=3>-&nbsp;&nbsp;&nbsp;</font></td>
</tr>
          <tr>
                  <td align=left valign=top><FONT FACE="Times New Roman, Times, Serif" size=3>Thomas W. Ostrander</font></td>
                  <td align=right valign=top><FONT FACE="Times New Roman, Times, Serif" size=3>93,661</font><sup><FONT FACE="Times New Roman, Times, Serif" size=3>(19)</font></sup></td>
                  <td align=right valign=top><FONT FACE="Times New Roman, Times, Serif" size=3>1.2%</font></td>
                  <td align=right valign=top><FONT FACE="Times New Roman, Times, Serif" size=3>-&nbsp;&nbsp;&nbsp;</font><sup><FONT FACE="Times New Roman, Times, Serif" size=3></font></sup></td>
                  <td align=right valign=top><FONT FACE="Times New Roman, Times, Serif" size=3>-&nbsp;&nbsp;&nbsp;</font></td>
</tr>
         <tr>
                  <td align=left valign=top><FONT FACE="Times New Roman, Times, Serif" size=3>Christopher K. Seglem</font></td>
                  <td align=right valign=top><FONT FACE="Times New Roman, Times, Serif" size=3>358,237</font><sup><FONT FACE="Times New Roman, Times, Serif" size=3>(20)</font></sup></td>
                  <td align=right valign=top><FONT FACE="Times New Roman, Times, Serif" size=3>4.3%</font></td>
                  <td align=right valign=top><FONT FACE="Times New Roman, Times, Serif" size=3>1,184</font><sup><FONT FACE="Times New Roman, Times, Serif" size=3>(21)</font></sup></td>
                  <td align=right valign=top><FONT FACE="Times New Roman, Times, Serif" size=3>*&nbsp;&nbsp;&nbsp;</font></td>
</tr>
         <tr>
                  <td align=left valign=top><FONT FACE="Times New Roman, Times, Serif" size=3>James W. Sight</font></td>
                  <td align=right valign=top><FONT FACE="Times New Roman, Times, Serif" size=3>358,896</font><sup><FONT FACE="Times New Roman, Times, Serif" size=3>(22)</font></sup></td>
                  <td align=right valign=top><FONT FACE="Times New Roman, Times, Serif" size=3>4.5%</font></td>
                  <td align=right valign=top><FONT FACE="Times New Roman, Times, Serif" size=3>-&nbsp;&nbsp;&nbsp;</font><sup><FONT FACE="Times New Roman, Times, Serif" size=3></font></sup></td>
                  <td align=right valign=top><FONT FACE="Times New Roman, Times, Serif" size=3>-&nbsp;&nbsp;&nbsp;</font></td>
</tr>
         <tr>
                  <td align=left valign=top><FONT FACE="Times New Roman, Times, Serif" size=3>William M. Stern</font></td>
                  <td align=right valign=top><FONT FACE="Times New Roman, Times, Serif" size=3>31,396</font><sup><FONT FACE="Times New Roman, Times, Serif" size=3>(23)</font></sup></td>
                  <td align=right valign=top><FONT FACE="Times New Roman, Times, Serif" size=3>*&nbsp;&nbsp;&nbsp;</font></td>
                  <td align=right valign=top><FONT FACE="Times New Roman, Times, Serif" size=3>8,100</font><sup><FONT FACE="Times New Roman, Times, Serif" size=3>(24)</font></sup></td>
                  <td align=right valign=top><FONT FACE="Times New Roman, Times, Serif" size=3>1.0%</font></td>
</tr>
         <tr>
                  <td align=left valign=top><FONT FACE="Times New Roman, Times, Serif" size=3>Donald A. Tortorice</font></td>
                  <td align=right valign=top><FONT FACE="Times New Roman, Times, Serif" size=3>11,896</font><sup><FONT FACE="Times New Roman, Times, Serif" size=3>(25)</font></sup></td>
                  <td align=right valign=top><FONT FACE="Times New Roman, Times, Serif" size=3>*&nbsp;&nbsp;&nbsp;</font></td>
                  <td align=right valign=top><FONT FACE="Times New Roman, Times, Serif" size=3>-&nbsp;&nbsp;&nbsp;</font><sup><FONT FACE="Times New Roman, Times, Serif" size=3></font></sup></td>
                  <td align=right valign=top><FONT FACE="Times New Roman, Times, Serif" size=3>-&nbsp;&nbsp;&nbsp;</font></td>
</tr>
         <tr>
                  <td align=left valign=top><FONT FACE="Times New Roman, Times, Serif" size=3>Directors and Executive Officers of the
Company as a Group (22 persons)</font></td>
                  <td align=right valign=bottom><FONT FACE="Times New Roman, Times, Serif" size=3>1,619,560</font><sup><FONT FACE="Times New Roman, Times, Serif" size=3>(26)</font></sup></td>
                  <td align=right valign=bottom><FONT FACE="Times New Roman, Times, Serif" size=3>18.3%</font></td>
                  <td align=right valign=bottom><FONT FACE="Times New Roman, Times, Serif" size=3>21,394</font><sup><FONT FACE="Times New Roman, Times, Serif" size=3>(27)</font></sup></td>
                  <td align=right valign=bottom><FONT FACE="Times New Roman, Times, Serif" size=3>2.6%</font></td>
</tr>
</table>
<BR>
<HR SIZE=1 NOSHADE width=15% align=left>

<p><FONT FACE="Times New Roman, Times, Serif" size=2>*  Indicates less than 1%.</font></p>
<table width=100%>
<tr>
<td width=5% valign=top><FONT FACE="Times New Roman, Times, Serif" size=2>(1)</font></td>
<td width=95%>
<FONT FACE="Times New Roman, Times, Serif" size=2>For ease of analysis, the common stock information in the table and the related footnotes does not include the number of
     shares of common stock into which the depositary shares may be converted.  A holder of depositary shares may convert the holder's
     depositary shares into shares of common stock at any time at a conversion ratio of 1.708 shares of common stock for each
     depositary share.  Consequently, a holder of depositary shares is deemed to beneficially own all of the shares of common stock
     into which the holder's depositary shares may be converted.  The Westmoreland Coal Company and Affiliated Companies Employees'
     Savings/Retirement Plan (the "401(k) Plan") provides investment alternatives that include a Common Stock Fund and a Depositary
     Share Fund.  All amounts included herein held through the 401(k) Plan are as of December 31, 2003.</font></td>
</tr>
<tr>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr>
<td width=5% valign=top><FONT FACE="Times New Roman, Times, Serif" size=2>(2)</font></td>
<td width=95%>
<FONT FACE="Times New Roman, Times, Serif" size=2>According to a Schedule 13G filed on February 16, 2003, a Schedule 13G filed on February 17, 2003, a Schedule 13G filed on
     February 16, 2003, a Schedule 13G filed on February 17, 2003 and a Schedule 13G filed on March 27, 2003, Mr. Alan Blase
     beneficially owns 61,114 depositary shares.  Of the 61,114 depositary shares, Mr. Blase has sole voting power and sole
     dispositive power over 2,895 depositary shares and shared dispositive power over 58,219 depositary shares; Mr. Frank Vicino, Sr.
     owns 23,085 depositary shares and has sole voting power over 23,085 depositary shares and shared dispositive power over 23,085
     depositary shares; Deborah Vicino Klamarus owns 3,890 depositary shares and has sole voting power over 3,890 depositary shares
     and shared dispositive power over 3,890 depositary shares; Rosemary Vicino owns 1,539 depositary shares and has sole voting power
     over 1,539 depositary shares and shared dispositive power over 1,539 depositary shares; Frank Vicino, Jr. owns 29,285 depositary
     shares and has sole voting power over 17,790 depositary shares, shared voting power over 11,495 depositary shares and shared
     dispositive power over 29,285 depositary shares and Deborah Dee Vicino owns 11,915 depositary shares and has sole voting power
     over 420 depositary shares, shared voting power over 11,495 depositary shares and shared dispositive power over 11,915 depositary
     shares.  These depositary shares are convertible into 104,382 shares of common stock, which shares of common stock would
     represent 1.3% of the total shares of common stock outstanding.  See Note (1).</font></td>
</tr>
<tr>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>




<tr>
<td width=5% valign=top><FONT FACE="Times New Roman, Times, Serif" size=2>(3)</font></td>
<td width=95%>
<FONT FACE="Times New Roman, Times, Serif" size=2>According to a Form 3 and Form 4 filed March 3, 2004 with the SEC, Mr. Gendell has sole voting power and sole dispositive
     power over 549,000 shares of common stock and shared voting and shared dispositive power over 931,400 shares of common stock held
     by limited partnerships and limited liability companies of which Mr. Gendell is either a managing member or general partner.  See
     Note (1).</font></td>
</tr>
<tr>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>


<tr>
<td width=5% valign=top><FONT FACE="Times New Roman, Times, Serif" size=2>(4)</font></td>
<td width=95%>
<FONT FACE="Times New Roman, Times, Serif" size=2>According to information supplied to us on March 5, 2004, Mr. Gendell has shared voting and dispositive power over 4,300
     depositary shares held by a limited partnership through a limited liability company of which Mr. Gendell is either a managing
     member or general partner.  These depositary shares are convertible into 7,343 shares of common stock, which shares of common
     stock together with the 1,480,400 shares of common stock reported in the table would represent 18.5% of the total shares of
     common stock outstanding.  See Notes (1) and (3).</font></td>
</tr>
<tr>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>


<tr>
<td width=5% valign=top><FONT FACE="Times New Roman, Times, Serif" size=2>(5)</font></td>
<td width=95%><FONT FACE="Times New Roman, Times, Serif" size=2>Includes 61,942 shares of common stock owned by Robert E. Killen as a personal investment, 59,184 shares of common stock
     held jointly by Mr. Killen and his spouse, 61,500 shares of common stock held by a limited partnership of which Mr. Killen and
     his spouse are general partners and 211,723 shares of common stock owned by The Killen Group, Inc., of which Mr. Killen is the
     Chairman and Chief Executive Officer.  Of the 211,723 shares of common stock, The Killen Group has voting power over 186,650
     shares and dispositive power over all shares.  Also includes 20,000 shares of common stock that Mr. Killen may purchase upon
     exercise of options under the 1996 Directors' Stock Incentive Plan ("1996 Plan") and the 2000 Non-Employee Directors' Stock
     Incentive Plan, as amended ("2000 Directors' Plan").  See Notes (1) and (6).</font></td>
</tr>
</table>

<br>
<p align=center><FONT FACE="Times New Roman, Times, Serif" size=3>87</font></p>
<page>
<br>

<table width=100%>
<tr>
<td width=5% valign=top><FONT FACE="Times New Roman, Times, Serif" size=2>(6)</font></td>
<td width=95%>
<FONT FACE="Times New Roman, Times, Serif" size=2>Includes 750 depositary shares jointly held by Mr. Killen and his spouse.  These depositary shares are convertible into
     1,281 shares of common stock, which shares of common stock, together with the 416,245 shares of common stock reported in the
     table, would represent 5.2% of the total shares of common stock outstanding.  See Notes (1) and (5).</font></td>
</tr>
<tr>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>



<tr>
<td width=5% valign=top><FONT FACE="Times New Roman, Times, Serif" size=2>(7)</font></td>
<td width=95%>
<FONT FACE="Times New Roman, Times, Serif" size=2>The depositary shares are convertible into 136,640 shares of common stock, which would represent 1.7% of the total shares of
     common stock outstanding.  See Note (1).</font></td>
</tr>
<tr>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>


<tr>
<td width=5% valign=top><FONT FACE="Times New Roman, Times, Serif" size=2>(8)</font></td>
<td width=95%>
<FONT FACE="Times New Roman, Times, Serif" size=2>Includes 12,500 shares of common stock that may be purchased upon exercise of options under the 2000 Directors' Plan.</font></td>
</tr>
<tr>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>


<tr>
<td width=5% valign=top><FONT FACE="Times New Roman, Times, Serif" size=2>(9)</font></td>
<td width=95%>
<FONT FACE="Times New Roman, Times, Serif" size=2>Includes 4,000 depositary shares held by two trusts of which Mr. Armstrong is trustee, 3,500 shares held by a trust for
     which Mr. Armstrong exercises voting and dispositive power on behalf of the trustee, and 3,834 shares held by Mr. Armstrong as a
     personal investment.  These depositary shares are convertible into 19,358 shares of common stock, which shares of common stock
     together with the 37,332 shares of common stock reported in the table would represent less than 1% of the total shares of common
     stock outstanding.  See Notes (1) and (8).</font></td>
</tr>
<tr>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>


<tr>
<td width=5% valign=top><FONT FACE="Times New Roman, Times, Serif" size=2>(10)</font></td>
<td width=95%>
<FONT FACE="Times New Roman, Times, Serif" size=2>Includes 950 shares of common stock held by Prudential Retirement, as trustee of the 401(k) Plan.  Also includes 3,200
     shares of common stock that may be purchased upon exercise of options under the 1995 Long-Term Incentive Stock Plan (the "1995
     Plan"), the 2000 Long-Term Incentive Stock Plan (the "2000 Plan") and the 2002 Long-Term Incentive Stock Plan (the "2002 Plan").</font></td>
</tr>
<tr>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>


<tr>
<td width=5% valign=top><FONT FACE="Times New Roman, Times, Serif" size=2>(11)</font></td>
<td width=95%>
<FONT FACE="Times New Roman, Times, Serif" size=2>Includes 17,500 shares of common stock that may be purchased upon exercise of options under the 2000 Directors' Plan.</font></td>
</tr>
<tr>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>


<tr>
<td width=5% valign=top><FONT FACE="Times New Roman, Times, Serif" size=2>(12)</font></td>
<td width=95%>
<FONT FACE="Times New Roman, Times, Serif" size=2>Includes 1,647 shares of common stock held by Prudential Retirement, as trustee of the 401(k) Plan, and 15,650 shares of
     common stock that may be purchased upon exercise of options under the 1995 Plan, the 2000 Plan and the 2002 Plan.</font></td>
</tr>
<tr>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>


<tr>
<td width=5% valign=top><FONT FACE="Times New Roman, Times, Serif" size=2>(13)</font></td>
<td width=95%>
<FONT FACE="Times New Roman, Times, Serif" size=2>Includes 52,500 shares of common stock that may be purchased upon exercise of options under the 1996 Plan and the 2000
     Directors' Plan.</font></td>
</tr>
<tr>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>


<tr>
<td width=5% valign=top><FONT FACE="Times New Roman, Times, Serif" size=2>(14)</font></td>
<td width=95%>
<FONT FACE="Times New Roman, Times, Serif" size=2>Includes all of the shares of common stock described in Note (5).</font></td>
</tr>
<tr>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>


<tr>
<td width=5% valign=top><FONT FACE="Times New Roman, Times, Serif" size=2>(15)</font></td>
<td width=95%>
<FONT FACE="Times New Roman, Times, Serif" size=2>Includes all of the depositary shares described in Note (6).</font></td>
</tr>
<tr>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>


<tr>
<td width=5% valign=top><FONT FACE="Times New Roman, Times, Serif" size=2>(16)</font></td>
<td width=95%>
<FONT FACE="Times New Roman, Times, Serif" size=2>Includes 1,443 shares of common stock held by Prudential Retirement, as trustee of the 401(k) Plan.  Also includes 52,700
     shares of common stock that may be purchased upon exercise of options under the 1995 Plan, the 2000 Plan and the 2002 Plan.</font></td>
</tr>
<tr>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>


<tr>
<td width=5% valign=top><FONT FACE="Times New Roman, Times, Serif" size=2>(17)</font></td>
<td width=95%>
<FONT FACE="Times New Roman, Times, Serif" size=2>Held by Prudential Retirement, as trustee of the 401(k) Plan.  These depositary shares are convertible into 44 shares of
     common stock, which shares of common stock, together with the 77,756 shares of common stock reported in the table, would
     represent less than 1% of the total shares of common stock outstanding.  See Notes (1) and (16).</font></td>
</tr>
<tr>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>


<tr>
<td width=5% valign=top><FONT FACE="Times New Roman, Times, Serif" size=2>(18)</font></td>
<td width=95%>
<FONT FACE="Times New Roman, Times, Serif" size=2>Includes 1,214 shares of common stock held by Prudential Retirement, as trustee of the 401(k) Plan.  Also includes 13,300
     shares of common stock that may be purchased upon exercise of options under the 1995 Plan, the 2000 Plan and the 2002 Plan.</font></td>
</tr>
<tr>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>


<tr>
<td width=5% valign=top><FONT FACE="Times New Roman, Times, Serif" size=2>(19)</font></td>
<td width=95%>
<FONT FACE="Times New Roman, Times, Serif" size=2>Includes 80,000 shares of common stock that may be purchased upon exercise of options under the 1991 Plan, the 1996 Plan and
     the 2000 Directors' Plan.</font></td>
</tr>
<tr>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>


<tr>
<td width=5% valign=top><FONT FACE="Times New Roman, Times, Serif" size=2>(20)</font></td>
<td width=95%>
<FONT FACE="Times New Roman, Times, Serif" size=2>Includes 3,833 shares of common stock held by Prudential Retirement, as trustee of the 401(k) Plan, and 268,850 shares of
     common stock that may be purchased upon exercise of options under the 1995 Plan, the 1996 Plan, the 2000 Plan, and the 2002 Plan.</font></td>
</tr>
<tr>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>


<tr>
<td width=5% valign=top><FONT FACE="Times New Roman, Times, Serif" size=2>(21)</font></td>
<td width=95%>
<FONT FACE="Times New Roman, Times, Serif" size=2>Includes 84 depositary shares held by Prudential Retirement, as trustee of the 401(k) Plan.  These depositary shares are
     convertible into 2,022 shares of common stock, which shares of common stock, together with the 358,237 shares of common stock
     reported in the table, would represent 4.5% of the total shares of common stock outstanding.  See Notes (1) and (20).</font></td>
</tr>
<tr>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>


<tr>
<td width=5% valign=top><FONT FACE="Times New Roman, Times, Serif" size=2>(22)</font></td>
<td width=95%>
<FONT FACE="Times New Roman, Times, Serif" size=2>Includes 15,000 shares of common stock that may be purchased upon exercise of options under the 2000 Directors' Plan.</font></td>
</tr>
<tr>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>


<tr>
<td width=5% valign=top><FONT FACE="Times New Roman, Times, Serif" size=2>(23)</font></td>
<td width=95%>
<FONT FACE="Times New Roman, Times, Serif" size=2>Includes 12,500 shares of common stock that may be purchased upon exercise of options under the 2000 Directors' Plan.</font></td>
</tr>
</table>

<br>
<p align=center><FONT FACE="Times New Roman, Times, Serif" SIZE=3>88</font></p>
<page>
<br>

<table width=100%>
<tr>
<td width=5% valign=top><FONT FACE="Times New Roman, Times, Serif" size=2>(24)</font></td>
<td width=95%>
<FONT FACE="Times New Roman, Times, Serif" size=2>Includes 4,100 depositary shares held by two trusts of which Mr. Stern is a trustee and beneficiary, 3,000 shares held by a
     trust for which Mr. Stern is sole trustee, and 1,000 shares held in trust for which Mr. Stern is sole trustee and beneficiary.
     These depositary shares are convertible into 13,834 shares of common stock, which shares of common stock, together with the
     31,396 shares of common stock reported in the table, would represent less than 1% of the total shares of common stock
     outstanding.  See Notes (1) and (23).</font></td>
</tr>
<tr>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>



<tr>
<td width=5% valign=top><FONT FACE="Times New Roman, Times, Serif" size=2>(25)</font></td>
<td width=95%>
<FONT FACE="Times New Roman, Times, Serif" size=2>Includes 5,000 shares of common stock that may be purchased upon exercise of options under the 2000 Directors' Plan and
     5,000 shares held by Mr. Tortorice's spouse.</font></td>
</tr>
<tr>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>


<tr>
<td width=5% valign=top><FONT FACE="Times New Roman, Times, Serif" size=2>(26)</font></td>
<td width=95%>
<FONT FACE="Times New Roman, Times, Serif" size=2>See Notes (8), (10)-(14), (16), (18)-(20), (22)-(23) and (25).  Also includes 42,614 shares of common stock owned by Douglas
     P. Kathol, Diane S. Jones, Thomas M. Cirillo and Thomas S. Barta, including 13,043 shares of common stock held by Prudential
     Retirement, as trustee of the 401(k) Plan, for the benefit of Mr. Kathol, Ms. Jones, Mr. Cirillo and Mr. Barta and 16,750 shares
     of common stock that may be purchased upon exercise of options under the 1995 Plan, the 2000 Plan and the 2002 Plan by Mr.
     Kathol, Ms. Jones, Mr. Cirillo and Mr. Barta.</font></td>
</tr>
<tr>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>


<tr>
<td width=5% valign=top><FONT FACE="Times New Roman, Times, Serif" size=2>(27)</font></td>
<td width=95%>
<FONT FACE="Times New Roman, Times, Serif" size=2>See Notes (9), (15), (17), (21) and (24).</font></td>
</tr>
</table>

<P><FONT FACE="Times New Roman, Times, Serif" size=3>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We are distributing rights
to all of our stockholders, including those who own 5% or more of our common
stock, our officers and our directors. Each such person will have the option to
exercise his, her or its subscription privilege and over-subscription privilege.
The actual ownership of each such person following this offering may vary
depending on (1) whether he, she, or it exercises the subscription privilege and
over-subscription privilege and (2) the number of shares for which all other
stockholders subscribe and over-subscribe. </FONT></P>

<br>
<p align=center><FONT FACE="Times New Roman, Times, Serif" SIZE=3>89</font></p>
<page>
<br>


<H1 ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" size=3>THE RIGHTS
OFFERING</FONT></H1>

<H2 ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" size=3>Background of
the Rights Offering</FONT></H2>

<P><FONT FACE="Times New Roman, Times, Serif" size=3>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our Board of Directors has
determined to seek additional equity capital for general corporate purposes and
to support our growth and development strategy. We do not currently have any
agreement to acquire any business or assets (other than the capital expenditures
we anticipate making in the ordinary course of our business) or any letter of
intent with respect to any such acquisition. </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" size=3>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In deciding how to raise
that equity capital, the Board determined that it would like to give all of our
common stockholders the first opportunity to purchase additional shares of our
common stock. This rights offering permits all of our common stockholders to
purchase additional shares of our common stock and maintain their proportionate
interest in Westmoreland. </FONT></P>

<H2 ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" size=3>The Rights</FONT></H2>

<P><FONT FACE="Times New Roman, Times, Serif" size=3>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We will distribute to each
holder of record of our common stock on the record date for this rights
offering, at no charge, one subscription right for each ______ shares of our
common stock owned. The record date for this rights offering is 5:00 p.m., New
York City time, on ______________, 2004. We will distribute approximately
_____________ subscription rights. The subscription rights will be evidenced by
rights certificates. Each subscription right will allow you to purchase one
share of our common stock at a subscription price of $_____. If you elect to
exercise your basic subscription privilege in full, you may also subscribe, at
the subscription price, for additional shares of our common stock under your
over-subscription privilege to the extent that other rights holders do not
exercise their basic subscription privileges in full. If a sufficient number of
shares of our common stock is unavailable to fully satisfy the over-subscription
privilege requests, the available shares of common stock will be sold pro rata
among holders of subscription rights who exercised their over-subscription
privilege based on the number of shares each subscription rights holder
subscribed for under the basic subscription privilege. </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" size=3>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;If you hold your shares in
a brokerage account or through a dealer or other nominee, please see the
information included below the heading &#147;&#151; Beneficial Owners.&#148; </FONT></P>

<H2 ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" size=3>No Fractional
Rights</FONT></H2>

<P><FONT FACE="Times New Roman, Times, Serif" size=3>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We will not issue
fractional subscription rights or cash in lieu of fractional subscription
rights. If the number of shares of common stock you held of record on the record
date would result in your receipt of fractional rights, the number of rights
issued to you is being rounded down to the nearest whole right. </FONT></P>

<H2 ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" size=3>Expiration of
the Rights Offering, Extensions and Amendments</FONT></H2>

<p><FONT FACE="Times New Roman, Times, Serif" size=3>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;You may exercise your subscription rights at any time before 5:00 p.m., New York City time, on ________________, 2004, the
expiration date for this rights offering.  We may, in our sole discretion, extend the time for exercising the subscription rights,
but not later than 5:00 p.m., New York City time, on _____________, 2004.</font></p>

<br>
<p align=center><FONT FACE="Times New Roman, Times, Serif" SIZE=3>90</font></p>
<page>
<br>

<P><FONT FACE="Times New Roman, Times, Serif" size=3>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We will extend the duration
of the rights offering as required by applicable law, and we may choose to
extend it if we decide to give investors more time to exercise their
subscription rights in this rights offering. We may extend the expiration date
of this rights offering by giving oral or written notice to the subscription
agent on or before the scheduled expiration date. If we elect to extend the
expiration of this rights offering, we will issue a press release announcing
such extension no later than 9:00 a.m., New York City time, on the next business
day after the most recently announced expiration date. </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" size=3>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We reserve the right, in
our sole discretion, to amend or modify the terms of this rights offering. If we
make an amendment that we consider significant, we will mail notice of the
amendment to all stockholders of record as of the record date and extend the
expiration date by at least ten days. The extension of the expiration date will
not, in and of itself, be treated as a significant amendment for these purposes. </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" size=3>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;If you do not exercise your
subscription rights before the expiration date of this rights offering, your
unexercised subscription rights will be null and void and will have no value. We
will not be obligated to honor your exercise of subscription rights if the
subscription agent receives the documents relating to your exercise after this
rights offering expires, regardless of when you transmitted the documents,
except if you have timely transmitted the documents under the guaranteed
delivery procedures described below. </FONT></P>

<H2 ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" size=3>Subscription
Privileges</FONT></H2>

<p><FONT FACE="Times New Roman, Times, Serif" size=3>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Your subscription rights entitle you to a basic subscription privilege and an over-subscription privilege.</font></p>

<p><FONT FACE="Times New Roman, Times, Serif" size=3>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<b>Basic Subscription Privilege</b></font></p>

<P><FONT FACE="Times New Roman, Times, Serif" size=3>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;With your basic
subscription privilege, you may purchase one share of our common stock per
subscription right, upon delivery of the required documents and payment of the
subscription price of $________ per share, before the expiration of the rights
offering. You are not required to exercise all of your subscription rights
unless you wish to purchase shares under your over-subscription privilege. We
will deliver certificates representing shares of common stock purchased with the
basic subscription privilege as soon as practicable after this rights offering
has expired. </FONT></P>

<p><FONT FACE="Times New Roman, Times, Serif" size=3>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<b>Over-Subscription Privilege</b></font></p>

<P><FONT FACE="Times New Roman, Times, Serif" size=3>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In addition to your basic
subscription privilege, you may also subscribe for additional shares of our
common stock, upon delivery of the required documents and payment of the
subscription price of $_______ per share, before the expiration of this rights
offering. You may only exercise your over-subscription privilege if you
exercised your basic subscription privilege in full. If you wish to exercise
your over-subscription privilege, you must pay in full for (1) the number of
shares you purchase with your basic subscription privilege and (2) the number of
shares you wish to purchase with your over-subscription privilege. </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" size=3>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The number of shares of
common stock that will be available for sale pursuant to the over-subscription
privilege will be equal to the number of shares for which holders have not
exercised their basic subscription privileges. </FONT></P>

<br>
<p align=center><FONT FACE="Times New Roman, Times, Serif" SIZE=3>91</font></p>
<page>
<br>

<table width=650 cellpadding=0 cellspacing=0 border=0>
<tr>
<td width=5%>&nbsp;</td>
<td width=4% valign=top>&#149;</td>
<td width=91%>If the number of shares requested by all holders exercising the
over-subscription privilege is less than the total number of shares available,
then each person exercising the over-subscription privilege will receive the
total number of shares requested.</td>
</tr>
</table>
<br>

<table width=650 cellpadding=0 cellspacing=0 border=0>
<tr>
<td width=5%>&nbsp;</td>
<td width=4% valign=top>&#149;</td>
<td width=91%>If there are not enough shares of our common stock to satisfy all subscriptions
made under the over-subscription privilege, we will allocate the available
shares of our common stock pro rata, after eliminating all fractional shares,
among the over-subscribing rights holders. &#147;Pro rata&#148; means in
proportion to the number of shares of our common stock that you and the other
holders of subscription rights have purchased by exercising your basic
subscription privileges. If there is a pro rata allocation and you receive an
allocation of a greater number of shares than you subscribed for under your
over-subscription privilege, then we will allocate to you only the number of
shares for which you subscribed. We will allocate the remaining shares among all
other holders exercising their over-subscription privileges.</td>
</tr>
</table>

<P><FONT FACE="Times New Roman, Times, Serif" size=3>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;You may exercise your
over-subscription privilege only if you exercise your basic subscription
privilege in full. To determine if you have fully exercised your basic
subscription privilege, we will consider only the basic subscription privileges
held by you in the same capacity. For example, suppose that you were granted
subscription rights for shares of our common stock that you own individually and
shares of our common stock that you own collectively with your spouse. If you
wish to exercise your over-subscription privilege with respect to the
subscription rights you own individually, but not with respect to the
subscription rights you own collectively with your spouse, you only need to
exercise fully your basic subscription privilege with respect to the
subscription rights you own individually, and you do not have to subscribe for
any shares under the basic subscription privilege owned collectively with your
spouse to exercise your individual over-subscription privilege. When you
complete the portion of your subscription rights certificate to exercise your
over-subscription privilege, you will be representing and certifying that you
have fully exercised your subscription privileges as to shares of our common
stock that you hold in that capacity. You must exercise your over-subscription
privilege at the same time you exercise your basic subscription privilege in
full. </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" size=3>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;If you exercise your
over-subscription privilege and are allocated less than all of the shares of our
common stock for which you wish to subscribe, your excess payment for shares
that are not allocated to you will be returned to you by mail, without interest
or deduction, as soon as practicable after the expiration date of this rights
offering. We will deliver certificates representing shares of common stock
purchased with the over-subscription privilege as soon as practicable after this
rights offering has expired and after all pro rata allocations and adjustments
have been completed. </FONT></P>

<H2 ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" size=3>Conditions to
this Rights Offering</FONT></H2>

<P><FONT FACE="Times New Roman, Times, Serif" size=3>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We may terminate this
rights offering, in whole or in part, if at any time before completion of this
rights offering there is any judgment, order, decree, injunction, statute, law
or regulation entered, enacted, amended or held to be applicable to this rights
offering that in the sole judgment of our Board of Directors would or might make
this rights offering or its completion, whether in whole or in part, illegal or
otherwise restrict or prohibit completion of this rights offering. We may waive
any of these conditions and choose to proceed with this rights offering even if
one or more of these events occur. If we terminate this rights offering, in
whole or in part, all affected subscription rights will expire without value and
all subscription payments received by the subscription agent will be returned
promptly, without interest or deduction. See also &#147;&#151; Cancellation
Rights.&#148; </FONT></P>

<br>
<p align=center><FONT FACE="Times New Roman, Times, Serif" SIZE=3>92</font></p>
<page>
<br>

<H2 ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" size=3>Method of
Subscription &#151; Exercise Of Rights</FONT></H2>

<p><FONT FACE="Times New Roman, Times, Serif" size=3>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;You may exercise your subscription rights by delivering the following to the subscription agent, at or prior to 5:00 p.m.,
New York City time, on ____________, 2004, the expiration date of this rights offering:</font></p>

<table width=650 cellpadding=0 cellspacing=0 border=0>
<tr>
<td width=5%>&nbsp;</td>
<td width=4% valign=top>&#149;</td>
<td width=91%>your properly completed and executed subscription rights certificate with any required signature guarantees or other
              supplemental documentation; and</td>
</tr>
</table>
<br>

<table width=650 cellpadding=0 cellspacing=0 border=0>
<tr>
<td width=5%>&nbsp;</td>
<td width=4% valign=top>&#149;</td>
<td width=91%>your full subscription price payment for each share subscribed for under your
subscription privileges, including each share subscribed for under both your
basic subscription privilege and your over-subscription privilege.</td>
</tr>
</table>

<P><FONT FACE="Times New Roman, Times, Serif" size=3>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;If you are a beneficial
owner of shares of our common stock whose shares are registered in the name of a
broker, custodian bank or other nominee, you should instruct your broker,
custodian bank or other nominee to exercise your rights and deliver all
documents and payment on your behalf prior to 5:00 p.m. New York City time on
____________, 2004, the expiration date of this rights offering. </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" size=3>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Your subscription rights
will not be considered exercised unless the subscription agent receives from
you, your broker, custodian or nominee, as the case may be, all of the required
documents and your full subscription price payment prior to 5:00 p.m., New York
City time, on ____________, 2004, the expiration date of this rights offering. </FONT></P>

<H2 ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" size=3>Method of
Payment</FONT></H2>

<P><FONT FACE="Times New Roman, Times, Serif" size=3>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Your payment of the
subscription price must be made in U.S. dollars for the full number of shares of
our common stock for which you are subscribing by either: </FONT></P>

<table width=650 cellpadding=0 cellspacing=0 border=0>
<tr>
<td width=5%>&nbsp;</td>
<td width=4% valign=top>&#149;</td>
<td width=91%>check or bank draft drawn upon a U.S. bank or postal, telegraphic or express money order payable to the subscription agent;
              or</td>
</tr>
</table>
<BR>
<table width=650 cellpadding=0 cellspacing=0 border=0>
<tr>
<td width=5%>&nbsp;</td>
<td width=4% valign=top>&#149;</td>
<td width=91%>wire transfer of immediately available funds, to the subscription account maintained by the subscription agent at
              ________________, ABA No. ___________, Account No. ___________.</td>
</tr>
</table>

<H2 ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" size=3>Receipt of
Payment</FONT></H2>

<p><FONT FACE="Times New Roman, Times, Serif" size=3>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Your payment will be considered received by the subscription agent only upon:</font></p>

<table width=650 cellpadding=0 cellspacing=0 border=0>
<tr>
<td width=5%>&nbsp;</td>
<td width=4% valign=top>&#149;</td>
<td width=91%>clearance of any uncertified check;</td>
</tr>
</table>
<BR>
<table width=650 cellpadding=0 cellspacing=0 border=0>
<tr>
<td width=5%>&nbsp;</td>
<td width=4% valign=top>&#149;</td>
<td width=91%>receipt by the subscription agent of any certified check or bank draft drawn upon a U.S. bank or of any postal, telegraphic
              or express money order; or</td>
</tr>
</table>

<br>
<p align=center><FONT FACE="Times New Roman, Times, Serif" SIZE=3>93</font></p>
<page>
<br>

<table width=650 cellpadding=0 cellspacing=0 border=0>
<tr>
<td width=5%>&nbsp;</td>
<td width=4% valign=top>&#149;</td>
<td width=91%>receipt of collected funds in the subscription account designated above.</td>
</tr>
</table>

<H2 ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" size=3>Clearance of
Uncertified Checks</FONT></H2>

<P><FONT FACE="Times New Roman, Times, Serif" size=3>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;If you are paying by
uncertified personal check, please note that uncertified checks may take at
least five business days to clear. If you wish to pay the subscription price by
uncertified personal check, we urge you to make payment sufficiently in advance
of the time this rights offering expires to ensure that your payment is received
by the subscription agent and clears by the expiration date of the rights
offering. If you elect to exercise your subscription rights, we urge you to
consider using a certified or cashier&#146;s check, money order or wire transfer
of funds to ensure that the subscription agent receives your funds prior to the
expiration date. </FONT></P>

<H2 ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" size=3>Delivery of
Subscription Materials and Payment</FONT></H2>

<P><FONT FACE="Times New Roman, Times, Serif" size=3>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;You should deliver your subscription
rights certificate and payment of the subscription price or, if applicable,
notices of guaranteed delivery, to the subscription agent by one of the methods
described below: </FONT></P>

<p><FONT FACE="Times New Roman, Times, Serif" size=3>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;By mail, hand delivery or overnight courier to:</font></p>

<p><FONT FACE="Times New Roman, Times, Serif" size=3>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;__________________________</font></p>

<p><FONT FACE="Times New Roman, Times, Serif" size=3>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;__________________________</font></p>


<p><FONT FACE="Times New Roman, Times, Serif" size=3>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;You may call the subscription agent at (___) ___-____.</font></p>

<p><FONT FACE="Times New Roman, Times, Serif" size=3>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Your delivery to an address or by any method other than as set forth above will not constitute valid delivery.</font></p>

<H2 ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" size=3>Calculation of
Subscription Rights Exercised</FONT></H2>

<P><FONT FACE="Times New Roman, Times, Serif" size=3>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;If you do not indicate the number
of subscription rights being exercised, or do not forward full payment of the
total subscription price payment for the number of rights that you indicate are
being exercised, then you will be deemed to have exercised your basic
subscription privilege with respect to the maximum number of subscription rights
that may be exercised with the aggregate subscription price payment you
delivered to the subscription agent. If your aggregate subscription price
payment is greater than the amount you owe for your subscription, you will be
deemed to have exercised your over-subscription privilege to purchase the
maximum number of shares of our common stock with your over-payment. If we do
not apply your full subscription price payment to your purchase of shares of our
common stock, the subscription agent will return the excess amount to you by
mail, without interest or deduction, as soon as practicable after the expiration
date of this rights offering. </FONT></P>

<H2 ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" size=3>Your Funds will be Held by the Subscription Agent until Shares of Common Stock are Issued</FONT></H2>

<P><FONT FACE="Times New Roman, Times, Serif" size=3>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The subscription agent will
hold your payment of the subscription price in a segregated account with other
payments received from other holders of subscription rights until we issue your
shares of our common stock to you upon consummation of the rights offering. </FONT></P>

<br>
<p align=center><FONT FACE="Times New Roman, Times, Serif" SIZE=3>94</font></p>
<page>
<br>

<H2 ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" size=3>Medallion
Guarantee may be Required</FONT></H2>

<P><FONT FACE="Times New Roman, Times, Serif" size=3>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Your signature on each
subscription rights certificate must be guaranteed by an eligible institution,
such as a member firm of a registered national securities exchange or a member
of the National Association of Securities Dealers, Inc., or a commercial bank or
trust company having an office or correspondent in the U.S., subject to
standards and procedures adopted by the subscription agent, unless: </FONT></P>

<table width=650 cellpadding=0 cellspacing=0 border=0>
<tr>
<td width=5%>&nbsp;</td>
<td width=4% valign=top>&#149;</td>
<td width=91%>your subscription rights certificate provides that shares are to be delivered to you as record holder of those subscription
              rights; or</td>
</tr>
</table>
<BR>
<table width=650 cellpadding=0 cellspacing=0 border=0>
<tr>
<td width=5%>&nbsp;</td>
<td width=4% valign=top>&#149;</td>
<td width=91%>you are an eligible institution.</td>
</tr>
</table>

<H2 ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" size=3>Instructions
to Nominee Holders</FONT></H2>

<P><FONT FACE="Times New Roman, Times, Serif" size=3>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;If you are a broker, a
trustee or a depositary for securities who holds shares of our common stock for
the account of others on ____________, 2004, the record date for this rights
offering, you should notify the respective beneficial owners of such shares of
this rights offering as soon as possible to find out their intentions with
respect to their subscription rights. You should obtain instructions from the
beneficial owner with respect to their subscription rights, as set forth in the
instructions we have provided to you for your distribution to beneficial owners.
If the beneficial owner so instructs, you should complete the appropriate
subscription rights certificates and submit them to the subscription agent with
the proper payment. If you hold shares of our common stock for the account(s) of
more than one beneficial owner, you may exercise the number of subscription
rights to which all such beneficial owners in the aggregate otherwise would have
been entitled had they been direct record holders of our common stock on the
rights offering record date, provided that you, as a nominee record holder, make
a proper showing to the subscription agent by submitting the form entitled
&#147;Nominee Holder Certification&#148; that we are providing to you with your
rights offering materials. If you did not receive this form, you should contact
the subscription agent to request a copy. </FONT></P>

<H2 ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" size=3>Beneficial
Owners</FONT></H2>

<P><FONT FACE="Times New Roman, Times, Serif" size=3>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;If you are a beneficial
owner of shares of our common stock or will receive your subscription rights
through a broker, custodian bank or other nominee, we are asking your broker,
custodian bank or other nominee to notify you of this rights offering. If you
wish to exercise or sell your subscription rights, you will need to have your
broker, custodian bank or other nominee act for you. If you hold certificates of
our common stock directly and would prefer to have your broker, custodian bank
or other nominee act for you, you should contact your nominee and request it to
effect the transactions for you. To indicate your decision with respect to your
subscription rights, you should complete and return to your broker, custodian
bank or other nominee the form entitled &#147;Beneficial Owners Election
Form.&#148; You should receive this form from your broker, custodian bank or
other nominee with the other rights offering materials. If you wish to obtain a
separate subscription rights certificate, you should contact the nominee as soon
as possible and request that a separate subscription rights certificate be
issued to you. You should contact your broker, custodian bank or other nominee
if you do not receive this form but you believe you are entitled to participate
in this rights offering. We are not responsible if you do not receive the form
from your broker, custodian bank or nominee or if you receive it without
sufficient time to respond. </FONT></P>

<br>
<p align=center><FONT FACE="Times New Roman, Times, Serif" SIZE=3>95</font></p>
<page>
<br>

<H2 ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" size=3>Instructions
for Completing your Subscription Rights Certificate</FONT></H2>

<p><FONT FACE="Times New Roman, Times, Serif" size=3>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;You should read and follow the instructions accompanying the subscription rights certificates carefully.</font></p>

<P><FONT FACE="Times New Roman, Times, Serif" size=3>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;You are responsible for the
method of delivery of your subscription rights certificate(s) with your
subscription price payment to the subscription agent. If you send your
subscription rights certificate(s) and subscription price payment by mail, we
recommend that you send them by registered mail, properly insured, with return
receipt requested. You should allow a sufficient number of days to ensure
delivery to the subscription agent prior to the time this rights offering
expires. Because uncertified personal checks may take at least five business
days to clear, you are strongly urged to pay, or arrange for payment, by means
of a certified or cashier&#146;s check, money order or wire transfer of funds. </FONT></P>

<H2 ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" size=3>Determinations
Regarding the Exercise of your Subscription Rights</FONT></H2>

<P><FONT FACE="Times New Roman, Times, Serif" size=3>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We will decide all
questions concerning the timeliness, validity, form and eligibility of the
exercise of your subscription rights and any such determinations by us will be
final and binding. We, in our sole discretion, may waive, in any particular
instance, any defect or irregularity, or permit, in any particular instance, a
defect or irregularity to be corrected within such time as we may determine. We
will not be required to make uniform determinations in all cases. We may reject
the exercise of any of your subscription rights because of any defect or
irregularity. We will not accept any exercise of subscription rights until all
irregularities have been waived by us or cured by you within such time as we
decide, in our sole discretion. </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" size=3>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Neither we nor the
subscription agent will be under any duty to notify you of any defect or
irregularity in connection with your submission of subscription rights
certificates and we will not be liable for failure to notify you of any defect
or irregularity. We reserve the right to reject your exercise of subscription
rights if your exercise is not in accordance with the terms of this rights
offering or in proper form. We will also not accept the exercise of your
subscription rights if our issuance of shares of our common stock to you could
be deemed unlawful under applicable law. </FONT></P>

<H2 ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" size=3>Regulatory
Limitation</FONT></H2>

<P><FONT FACE="Times New Roman, Times, Serif" size=3>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We will not be required to
issue to you shares of our common stock pursuant to this rights offering if, in
our opinion, you would be required to obtain prior clearance or approval from
any state or federal regulatory authorities to own or control such shares if, at
the time this rights offering expires, you have not obtained such clearance or
approval. </FONT></P>

<H2 ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" size=3>Guaranteed
Delivery Procedures</FONT></H2>

<P><FONT FACE="Times New Roman, Times, Serif" size=3>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;If you wish to exercise
your subscription rights, but you do not have sufficient time to deliver the
subscription rights certificate evidencing your subscription rights to the
subscription agent on or before the time this rights offering expires, you may
exercise your subscription rights by the following guaranteed delivery
procedures: </FONT></P>

<table width=650 cellpadding=0 cellspacing=0 border=0>
<tr>
<td width=5%>&nbsp;</td>
<td width=4% valign=top>&#149;</td>
<td width=91%>deliver to the subscription agent on or prior to the expiration date for this
rights offering your subscription price payment in full for each share you
subscribed for under your subscription privileges in the manner set forth above
in &#147;&#151; Method of Payment&#148;;</td>
</tr>
</table>

<br>
<p align=center><FONT FACE="Times New Roman, Times, Serif" SIZE=3>96</font></p>
<page>
<br>


<table width=650 cellpadding=0 cellspacing=0 border=0>
<tr>
<td width=5%>&nbsp;</td>
<td width=4% valign=top>&#149;</td>
<td width=91%>deliver to the subscription agent on or prior to the expiration date the form
entitled &#147;Notice of Guaranteed Delivery,&#148; substantially in the form
provided with the &#147;Instructions as to Use of Westmoreland Coal Company
Rights Certificates&#148; distributed with your subscription rights
certificates; and</td>
</tr>
</table>
<BR>
<table width=650 cellpadding=0 cellspacing=0 border=0>
<tr>
<td width=5%>&nbsp;</td>
<td width=4% valign=top>&#149;</td>
<td width=91%>deliver the properly completed subscription rights certificate evidencing your
subscription rights being exercised and the related nominee holder
certification, if applicable, with any required signature guarantee, to the
subscription agent within three New York Stock Exchange trading days following
the date of your Notice of Guaranteed Delivery.</td>
</tr>
</table>


<P><FONT FACE="Times New Roman, Times, Serif" size=3>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Your Notice of Guaranteed
Delivery must be delivered in substantially the same form provided with the
Instructions as to the Use of Westmoreland Coal Company Subscription Rights
Certificates, which will be distributed to you with your subscription rights
certificate. Your Notice of Guaranteed Delivery must come from an eligible
institution, or other eligible guarantee institutions that are members of, or
participants in, a signature guarantee program acceptable to the subscription
agent. </FONT></P>

<p><FONT FACE="Times New Roman, Times, Serif" size=3>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In your Notice of Guaranteed Delivery, you must state:</font></p>

<table width=650 cellpadding=0 cellspacing=0 border=0>
<tr>
<td width=5%>&nbsp;</td>
<td width=4% valign=top>&#149;</td>
<td width=91%>your name;</td>
</tr>
</table>
<BR>
<table width=650 cellpadding=0 cellspacing=0 border=0>
<tr>
<td width=5%>&nbsp;</td>
<td width=4% valign=top>&#149;</td>
<td width=91%>the number of subscription rights represented by your subscription rights
certificates, the number of shares of our common stock for which you are
subscribing under your basic subscription privilege and the number of shares of
our common stock for which you are subscribing under your over-subscription
privilege, if any; and</td>
</tr>
</table>
<BR>
<table width=650 cellpadding=0 cellspacing=0 border=0>
<tr>
<td width=5%>&nbsp;</td>
<td width=4% valign=top>&#149;</td>
<td width=91%>your guarantee that you will deliver to the subscription agent any subscription
rights certificates evidencing the subscription rights you are exercising within
three business days following the date the subscription agent receives your
Notice of Guaranteed Delivery.</td>
</tr>
</table>

<P><FONT FACE="Times New Roman, Times, Serif" size=3>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;You may deliver your Notice
of Guaranteed Delivery to the subscription agent in the same manner as your
subscription rights certificates at the address set forth above under
&#147;&#151; Delivery of Subscription Materials and Payment.&#148;
Alternatively, you may transmit your Notice of Guaranteed Delivery to the
subscription agent by facsimile transmission (telecopy no.: (___) ___-_____). To
confirm facsimile deliveries, you may call (____) ____-_____. </FONT></P>

<p><FONT FACE="Times New Roman, Times, Serif" size=3>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The information agent will send you additional copies of the form of Notice of Guaranteed Delivery if you request them.
Please call (____) ____-_____ to request any copies of the form of Notice of Guaranteed Delivery.  Banks and brokerage firms please
call collect at (____) ____-_____ to request any copies of the form of Notice of Guaranteed Delivery.</font></p>

<br>
<p align=center><FONT FACE="Times New Roman, Times, Serif" SIZE=3>97</font></p>
<page>
<br>

<H2 ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" size=3>Questions
about Exercising Subscription Rights</FONT></H2>

<P><FONT FACE="Times New Roman, Times, Serif" size=3>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;If you have any questions
or require assistance regarding the method of exercising your subscription
rights or requests for additional copies of this prospectus, the Instructions as
to the Use of Westmoreland Coal Company Subscription Rights Certificates or the
Notice of Guaranteed Delivery, you should contact the subscription agent at the
address and telephone number set forth above. </FONT></P>

<H2 ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" size=3>Subscription
Agent; No Underwriter</FONT></H2>

<P><FONT FACE="Times New Roman, Times, Serif" size=3>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We have appointed
__________________________ to act as subscription agent for this rights
offering. We will pay all fees and expenses of the subscription agent related to
this rights offering and have also agreed to indemnify the subscription agent
from liabilities that they may incur in connection with this rights offering. </FONT></P>

<p><FONT FACE="Times New Roman, Times, Serif" size=3>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We have not engaged an underwriter in connection with this rights offering.</font></p>

<H2 ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" size=3>No Revocation</FONT></H2>

<P><FONT FACE="Times New Roman, Times, Serif" size=3>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Once you have exercised
your subscription privileges, you may not revoke your exercise. Subscription
rights not exercised prior to the expiration date of this rights offering will
expire and will have no value. </FONT></P>

<H2 ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" size=3>Procedures for
DTC Participants</FONT></H2>

<P><FONT FACE="Times New Roman, Times, Serif" size=3>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We expect that the exercise
of your basic subscription privilege and your over-subscription privilege may be
made through the facilities of the Depository Trust Company. If your
subscription rights are held of record through DTC, you may exercise your basic
subscription privilege and your over-subscription privilege by instructing DTC
to transfer your subscription rights from your account to the account of the
subscription agent, together with certification as to the aggregate number of
subscription rights you are exercising and the number of shares of our common
stock you are subscribing for under your basic subscription privilege and your
over-subscription privilege, if any, and your subscription price payment for
each share of our common stock that you subscribed for pursuant to your basic
subscription privilege and your over-subscription privilege. </FONT></P>

<H2 ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" size=3>Subscription
Price</FONT></H2>

<P><FONT FACE="Times New Roman, Times, Serif" size=3>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The subscription price is
$____ per share. For more information with respect to how the subscription price
was determined, see &#147;Questions and Answers About the Rights Offering&#148;
included elsewhere in this prospectus. </FONT></P>

<H2 ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" size=3>Foreign and
Other Stockholders</FONT></H2>

<P><FONT FACE="Times New Roman, Times, Serif" size=3>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The subscription agent will
mail rights certificates to you if you are a rights holder whose address is
outside the United States or if you have an Army Post Office or a Fleet Post
Office address. To exercise your rights, you must notify the subscription agent
on or prior to the expiration date for the rights offering, and take all other
steps which are necessary to exercise your rights, on or prior to that time. If
you do not follow these procedures prior to the expiration of the rights
offering, your rights will expire. </FONT></P>

<br>
<p align=center><FONT FACE="Times New Roman, Times, Serif" SIZE=3>98</font></p>
<page>
<br>

<H2 ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" size=3>Non-Transferability
of the Rights</FONT></H2>

<P><FONT FACE="Times New Roman, Times, Serif" size=3>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The rights are not
transferable and may be exercised only by the persons to whom they are issued.
You may not sell, give away or otherwise transfer your rights. Any attempt to
transfer your rights will render them null and void. </FONT></P>

<H2 ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" size=3>Cancellation
Rights</FONT></H2>

<P><FONT FACE="Times New Roman, Times, Serif" size=3>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our Board of Directors may
cancel this rights offering, in whole or in part, in its sole discretion at any
time prior to the time this rights offering expires for any reason (including a
change in the market price of our common stock). If we cancel this rights
offering, any funds you paid to the subscription agent will be promptly
refunded, without interest or deduction. </FONT></P>

<H2 ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" size=3>No Board
Recommendation</FONT></H2>

<P><FONT FACE="Times New Roman, Times, Serif" size=3>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;An investment in shares of
our common stock must be made according to each investor&#146;s evaluation of
its own best interests and after considering all of the information in this
prospectus, including the &#147;Risk Factors&#148; section of this prospectus.
Neither we nor our Board of Directors makes any recommendation to subscription
rights holders regarding whether they should exercise or sell their rights. </FONT></P>

<H2 ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" size=3>Limitation on
Exercise of the Rights</FONT></H2>

<P><FONT FACE="Times New Roman, Times, Serif" size=3>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In no event may any
subscriber purchase shares of our common stock in the offering that, when
aggregated with all of the shares of our common stock otherwise owned by the
subscriber and his, her or its affiliates, would represent, immediately
following the closing of the rights offering, 20% or more of our issued and
outstanding common stock. </FONT></P>

<H2 ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" size=3>Shares of
Common Stock Outstanding after the Rights Offering</FONT></H2>

<P><FONT FACE="Times New Roman, Times, Serif" size=3>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As of ___________, 2004,
there were ______________ shares of our common stock outstanding. If all of the
rights being issued are exercised, we will issue a total of ______________
additional shares of common stock. Accordingly, assuming all of the offered
shares of common stock are issued, there will be _______________ shares of
common stock outstanding after the rights offering. This number is subject to
any increases that may occur after the date of this prospectus as a result of
the exercise, conversion or exchange of outstanding stock options or convertible
securities. </FONT></P>

<br>
<p align=center><FONT FACE="Times New Roman, Times, Serif" SIZE=3>99</font></p>
<page>
<br>

<H2 ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" size=3>Effects of
Rights Offering on Series A Preferred Stock</FONT></H2>

<P><FONT FACE="Times New Roman, Times, Serif" size=3>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Certificate of
Designation for the Series A Preferred Stock provides that, if we distribute
rights like the subscription rights and those rights permit our common
stockholders to purchase shares of our common stock at less than the
&#147;current market price,&#148; as defined in the Certificate of Designation,
then the conversion ratio for the Series A Preferred Stock shall be adjusted.
Under the Certificate of Designation, the &#147;current market price&#148; of
our common stock on any date is the average of the daily closing prices for
thirty consecutive trading days commencing forty-five trading days before the
day in question. On the date of this prospectus, the &#147;current market
price&#148; of our common stock, as defined in the Certificate of Designation,
is $___, and the subscription price for the shares of common stock offered
hereby is $_____. Under the Certificate of Designation, if the subscription
price for the rights is greater than or equal to the current market price, there
is no adjustment to the conversion ratio for the Series A Preferred Stock, and
if the subscription price for the rights is less than the current market price,
the conversion ratio is adjusted according to the formula specified in the
Certificate. Immediately following this offering, each share of Series A
Preferred Stock will be convertible into ___ shares of common stock, which is
equivalent to a conversion ratio of ___ shares of common stock for each
depositary share. </FONT></P>

<H2 ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" size=3>Other Matters</FONT></H2>

<P><FONT FACE="Times New Roman, Times, Serif" size=3>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We are not making this
rights offering in any state or other jurisdiction in which it is unlawful to do
so, nor are we distributing or accepting any offers to purchase any shares of
our common stock from subscription rights holders who are residents of those
states or other jurisdictions or who are otherwise prohibited by federal or
state laws or regulations to accept or exercise the subscription rights. We may
delay the commencement of this rights offering in those states or other
jurisdictions, or change the terms of this rights offering, in whole or in part,
in order to comply with the securities law or other legal requirements of those
states or other jurisdictions. We may decline to make modifications to the terms
of this rights offering requested by those states or other jurisdictions, in
which case, if you are a resident in those states or jurisdictions or if you are
otherwise prohibited by federal or state laws or regulations from accepting or
exercising the subscription rights you will not be eligible to participate in
this rights offering. </FONT></P>

<br>
<p align=center><FONT FACE="Times New Roman, Times, Serif" SIZE=3>100</font></p>
<page>
<br>

<H1 ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" size=3>DESCRIPTION
OF CAPITAL STOCK</FONT></H1>

<P><FONT FACE="Times New Roman, Times, Serif" size=3>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The following description of
our capital stock and provisions of our certificate of incorporation and bylaws
are summaries and are qualified by reference to the certificate of incorporation
and the bylaws. Copies of these documents have been filed with the Securities
and Exchange Commission as exhibits to our registration statement, of which this
prospectus forms a part. </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" size=3>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our authorized capital
stock consists of 25,000,000 shares of common stock, par value $2.50 per share,
and 5,000,000 shares of preferred stock, par value $1.00 per share. As of
____________, 2004, we had _________ shares of common stock outstanding and
___________ shares of preferred stock outstanding. As of that date, we also had
outstanding options to purchase __________ shares of our common stock. Our
common stock is listed on the American Stock Exchange under the symbol
&#147;WLB.&#148; The depositary shares representing our Series A Preferred Stock
are also listed on the American Stock Exchange. </FONT></P>

<H2 ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" size=3>Common Stock</FONT></H2>

<P><FONT FACE="Times New Roman, Times, Serif" size=3>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Holders of common stock are
entitled to one vote for each share held on all matters submitted to a vote of
stockholders and do not have cumulative voting rights. Accordingly, holders of a
majority of the shares of common stock entitled to vote in any election of
directors may elect all of the directors standing for election by the holders of
our common shares. Holders of common stock are entitled to receive
proportionately any dividends as may be declared by our Board of Directors,
subject to any preferential dividend rights of outstanding preferred stock. As
described above under &#147;Price Range of the Common Stock, Dividends and
Related Stockholder Matters,&#148; we are currently prohibited from paying
dividends on our common stock. </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" size=3>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In the event of our
liquidation, dissolution or winding up, the holders of common stock are entitled
to receive proportionately our net assets available after the payment of all
debts and other liabilities and subject to the prior rights of any outstanding
preferred stock. Holders of common stock have no preemptive, subscription,
redemption or conversion rights. Our outstanding shares of common stock are and
the shares offered by us in this offering will be, when issued and paid for,
validly issued, fully paid and nonassessable. The rights, preferences and
privileges of holders of common stock are subject to and may be adversely
affected by, the rights of the holders of the Series A Preferred Stock and the
shares of any series of preferred stock that we may designate and issue in the
future. </FONT></P>

<H2 ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" size=3>Preferred Stock</FONT></H2>

<p><FONT FACE="Times New Roman, Times, Serif" size=3>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<b>Series A Preferred Stock</b></font></p>

<P><FONT FACE="Times New Roman, Times, Serif" size=3><I>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Ranking</I>.  The Series A Preferred Stock ranks prior to our common stock.  Without the requisite vote of the holders of the
Series A Preferred Stock, no class or series of capital stock can be created that ranks equally with or senior to the Series A
Preferred Stock as to dividend rights or liquidation preference.</font></p>

<br>
<p align=center><FONT FACE="Times New Roman, Times, Serif" SIZE=3>101</font></p>
<page>
<br>

<P><FONT FACE="Times New Roman, Times, Serif" size=3><I>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Dividend rights</I>. The
holders of the Series A Preferred Stock are entitled to receive, when, as and if
declared by our Board of Directors out of funds of the Company legally available
therefor, cumulative cash dividends at the rate of 8&#189;% per annum per share
(equivalent to $2.125 per annum per depositary share), payable quarterly on
April 1, July 1, October 1 and January 1 in each year. In general, and subject
to the Certificate of Designation, dividends not so paid accumulate. At April 1,
2004, the accumulated dividends on our Series A Preferred Stock aggregated $15.6
million ($18.99 per depositary share). Unless full cumulative dividends on the
Series A Preferred Stock have been paid or declared in full and sums set aside
for the payment thereof, no dividends (other than dividends in common stock or
other shares of our capital stock ranking junior to the Series A Preferred Stock
as to dividends) may be paid or declared and set aside for the payment or other
distribution made upon our common stock, nor may we redeem, purchase, or
otherwise acquire for value any shares of our common stock. </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" size=3><I>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Conversion rights.
</I>Holders of the Series A Preferred Stock have the right, exercisable at any
time and from time to time, except in the case of Series A Preferred Stock
called for redemption or to be exchanged for exchange debentures, to convert all
or any such preferred stock into shares of our common stock at the conversion
ratio of 1.708 shares of common stock for each depositary share, subject to
adjustment as described below. No fractional shares of common stock will be
issued upon conversion and, if the conversion results in a fractional interest,
we will pay an amount in cash equal to the value of such fractional interest
based on the market price of our common stock on the last trading day prior to
the date of conversion. The conversion price is subject to adjustment upon the
occurrence of certain events, including (i) the issuance of shares of our common
stock as a dividend or distribution on our common stock; (ii) the subdivision or
combination of our outstanding common stock; and (iii) the issuance to
substantially all holders of our common stock of rights or warrants to subscribe
for or purchase common stock at a price per share less than the then current
market price per share, as defined in the Certificate of Designation. </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" size=3><I>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Liquidation preference.
</I>In the event of any liquidation, dissolution or winding up of our affairs,
whether voluntary or otherwise, after payment or provision for payment of our
debts and other liabilities, the holders of the Series A Preferred Stock will be
entitled to receive, out of our remaining net assets, $100.00 in cash for each
share of the Series A Preferred Stock (equivalent to $25.00 per depositary
share), plus an amount in cash equal to all dividends accumulated on each such
share up to the date fixed for distribution, before any distribution is made to
the holders of our common stock or any other shares of our capital stock ranking
(as to any such distribution) junior to the Series A Preferred Stock. </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" size=3><I>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Optional redemption</I>.
We may redeem the Series A Preferred Stock, in whole or in part, at any time, at
the redemption price of $25.00 per depositary share plus accumulated dividends. </FONT></P>

<p><FONT FACE="Times New Roman, Times, Serif" size=3>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<i>Exchange</i>.  On any dividend payment date, we may exchange the Series A Preferred Stock, in whole, for our exchange
debentures, at an exchange rate of $25.00 principal amount of exchange debentures for each depositary share.  We may only make such
exchange if there are no accumulated dividends on the depositary shares at that time.</font></p>

<P><FONT FACE="Times New Roman, Times, Serif" size=3><I>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Voting rights.</I> In
general, and subject to the Certificate of Designation, the holders of the
Series A Preferred Stock may vote on any matter submitted to our stockholders,
and on such matters, each share of Series A Preferred Stock is entitled to four
votes (equivalent to one vote for each depositary share). However, if we have
failed to declare and pay, or set apart for payment, in full the preferential
dividends accumulated on the outstanding Series A Preferred Stock for any six
quarterly dividend payment periods, whether or not consecutive, then the holders
of the Series A Preferred Stock have the rights with respect to the election of
directors described below. In addition, the holders of Series A Preferred Stock
have the following voting rights: </FONT></P>

<br>
<p align=center><FONT FACE="Times New Roman, Times, Serif" SIZE=3>102</font></p>
<page>
<br>

<table width=650 cellpadding=0 cellspacing=0 border=0>
<tr>
<td width=5%>&nbsp;</td>
<td width=4% valign=top>&#149;</td>
<td width=91%>as provided under "Limitations" below,</td>
</tr>
</table>
<BR>
<table width=650 cellpadding=0 cellspacing=0 border=0>
<tr>
<td width=5%>&nbsp;</td>
<td width=4% valign=top>&#149;</td>
<td width=91%>if we have failed to declare and pay, or set apart for payment, in full the
preferential dividends accumulated on the outstanding Series A Preferred Stock
for any six quarterly dividend payment periods, whether or not consecutive, and</td>
</tr>
</table>
<BR>
<table width=650 cellpadding=0 cellspacing=0 border=0>
<tr>
<td width=5%>&nbsp;</td>
<td width=4% valign=top>&#149;</td>
<td width=91%>as required by law.</td>
</tr>
</table>


<P><FONT FACE="Times New Roman, Times, Serif" size=3>There are currently six or
more accumulated dividends on the Series A Preferred Stock, and the holders
thereof, voting separately as a class, are entitled to elect two members of the
Board of Directors until all accumulated dividends have been declared and paid
or set apart for payment. Until such time, the holders of Series A Preferred
Stock have no other rights with respect to the election of directors. </FONT></P>

<p><FONT FACE="Times New Roman, Times, Serif" size=3>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<i>Limitations</i>.  In addition to any other rights provided by applicable law, so long as any shares of the Series A Preferred
Stock are outstanding, we will not, without the affirmative vote, or the written consent as provided by law, of the holders of at
least two-thirds of the outstanding shares of the Series A Preferred Stock, voting as a class:</font></p>

<table width=650 cellpadding=0 cellspacing=0 border=0>
<tr>
<td width=5%>&nbsp;</td>
<td width=4% valign=top>&#149;</td>
<td width=91%>authorize or issue any class or series of, or rights to subscribe to or any
security convertible into, capital stock ranking equally with or senior to the
Series A Preferred Stock as to payment of dividends, in distribution of assets
upon liquidation or voting rights; or </td>
</tr>
</table>
<BR>
<table width=650 cellpadding=0 cellspacing=0 border=0>
<tr>
<td width=5%>&nbsp;</td>
<td width=4% valign=top>&#149;</td>
<td width=91%>change the preferences, rights or powers with respect to the Series A Preferred
Stock so as to affect the Series A Preferred Stock adversely.</td>
</tr>
</table>

<P><FONT FACE="Times New Roman, Times, Serif" size=3>Except as may otherwise be
required by applicable law, a class vote or consent is not required (i) in
connection with any increase in the total number of authorized shares of our
common stock, or (ii) in connection with the authorization or increase of any
class or series of shares ranking, as to dividends and distribution of assets
upon liquidation, junior to the Series A Preferred Stock. No such vote or
written consent of the holders of the Series A Preferred Stock is required if,
at or prior to the time when the issuance of any such stock ranking prior to the
Series A Preferred Stock is to be made or any such change is to take effect, as
the case may be, provision is made for the redemption of all of the Series A
Preferred Stock at the time outstanding. </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" size=3><I>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Preemptive rights</I>.
No holder of the Series A Preferred Stock has preemptive rights to subscribe for
or acquire any of our unissued shares or securities convertible into or carrying
a right to subscribe to or acquire our shares. </FONT></P>

<br>
<p align=center><FONT FACE="Times New Roman, Times, Serif" SIZE=3>103</font></p>
<page>
<br>

<p><FONT FACE="Times New Roman, Times, Serif" size=3>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<b>Series B Junior Participating Preferred Stock</b></font></p>

<P><FONT FACE="Times New Roman, Times, Serif" size=3>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We have designated 200,000
shares of our preferred stock as Series B Junior Participating Preferred Stock.
These shares are issuable under certain circumstances under our stockholder
rights plan, which is described in more detail below. No shares of our Series B
Junior Participating Preferred Stock are currently issued or outstanding. </FONT></P>

<p><FONT FACE="Times New Roman, Times, Serif" size=3>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<b>Other Series of Preferred Stock</b></font></p>

<P><FONT FACE="Times New Roman, Times, Serif" size=3>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Subject to the limitations
described above, under the terms of our certificate of incorporation, our Board
of Directors is authorized to issue shares of preferred stock, in addition to
the Series A Preferred Stock, in one or more series without stockholder
approval. Our Board of Directors has the discretion to determine the rights,
preferences, privileges and restrictions, including voting rights, dividend
rights, conversion rights, redemption privileges and liquidation preferences of
each series of preferred stock. </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" size=3>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The purpose of authorizing
our board of directors to issue preferred stock and determine its rights and
preferences is to eliminate delays associated with a stockholder vote on
specific issuances. The issuance of preferred stock, while providing flexibility
in connection with possible acquisitions, future financings and other corporate
purposes, could have the effect of making it more difficult for a third party to
acquire, or could discourage a third party from seeking to acquire, a majority
of our outstanding voting stock. </FONT></P>

<H2 ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" size=3>Options</FONT></H2>

<P><FONT FACE="Times New Roman, Times, Serif" size=3>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;At June 22, 2004, options
to purchase 950,600 shares of our common stock at a weighted average exercise
price of $9.61 were outstanding. </FONT></P>

<H2 ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" size=3>Antitakeover
Provisions</FONT></H2>

<P><FONT FACE="Times New Roman, Times, Serif" size=3>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We are subject to
Section&#160;203 of the General Corporation Law of the State of Delaware.
Subject to certain exceptions, Section&#160;203 prevents a publicly held
Delaware corporation from engaging in a &#147;business combination&#148; with
any &#147;interested stockholder&#148; for three years following the date that
the person became an interested stockholder, unless the interested stockholder
attained such status with the approval of our board of directors or unless the
business combination is approved in a prescribed manner. A business combination
includes mergers, consolidations, asset sales and other transactions involving
Westmoreland and an interested stockholder. In general, an &#147;interested
stockholder&#148; is any entity or person beneficially owning 15% or more of our
outstanding voting stock and any entity or person affiliated with or controlling
or controlled by such entity or person. The restrictions contained in
Section&#160;203 are currently applicable to Jeffrey L. Gendell and his
affiliates, because Mr. Gendell and his affiliates collectively own more than
15% of our outstanding voting stock. </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" size=3>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Under our bylaws, any
vacancy in a directorship elected by the holders of the Series A Preferred
Stock, which we call a Preferred Stock Directorship, shall be filled in the
manner specified in the Certificate of Designation. If any vacancy (other than a
vacancy in a Preferred Stock Directorship) or any new directorship is created by
an increase in the authorized number of directors, that vacancy or newly created
directorship may be filled only by a majority vote of the directors (other than
the directors elected by the holders of the Series A Preferred Stock) then in
office, even if less than a quorum. This provision could make it more difficult
for a third party to acquire, or discourage a third party from seeking to
acquire, control of our company. </FONT></P>

<br>
<p align=center><FONT FACE="Times New Roman, Times, Serif" SIZE=3>104</font></p>
<page>
<br>

<P><FONT FACE="Times New Roman, Times, Serif" size=3>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our bylaws provide that any
action required or permitted to be taken by our stockholders at an annual
meeting or special meeting of stockholders may only be taken if it is properly
brought before such meeting. Our certificate of incorporation and our bylaws
also provide that, except as otherwise required by law, special meetings of the
stockholders can only be called by our chief executive officer or a majority of
our board of directors. In addition, our bylaws establish an advance notice
procedure for stockholder proposals to be brought before an annual meeting of
stockholders (or a special meeting in lieu of an annual meeting), including
proposed nominations of candidates for election to our board of directors.
Stockholders at an annual meeting (or a special meeting in lieu of an annual
meeting) may only consider proposals or nominations specified in the notice of
meeting or brought before the meeting by or at the direction of our board of
directors or by a stockholder who has delivered timely written notice in proper
form to our secretary of the stockholder&#146;s intention to bring such business
before the meeting and provided the information required by our bylaws. These
provisions could have the effect of delaying until the next stockholder meeting
stockholder actions that are favored by the holders of a majority of our
outstanding voting securities. </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" size=3>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The General Corporation Law
of the State of Delaware provides generally that the affirmative vote of a
majority of the shares entitled to vote on any matter is required to amend a
corporation&#146;s certificate of incorporation or bylaws, unless a
corporation&#146;s certificate of incorporation or bylaws, as the case may be,
requires a greater percentage. Our bylaws may be amended or repealed by a
majority vote of our board of directors or by the affirmative vote of the
holders of a majority of the votes which all our stockholders would be entitled
to cast in any annual election of directors. </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" size=3>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We currently have in effect
a stockholder rights plan, which is governed by the terms and conditions
contained in the Amended and Restated Rights Agreement, dated as of February 7,
2003, between Westmoreland and EquiServe Trust Company, N.A., as rights agent.
The following summary description of the rights agreement does not purport to be
complete and is qualified in its entirety by reference to the rights agreement,
a copy of which is filed as an exhibit to the registration statement of which
this prospectus is a part and is incorporated herein by reference. </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" size=3>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Each share of common stock
you purchase pursuant to this offering will have associated with it one
preferred stock purchase right. Each preferred stock purchase right entitles the
holder to purchase one one-hundredth of a share of our Series B Junior
Participating Preferred Stock at an exercise price of $50.00, subject to
adjustment by our Board of Directors. Preferred stock purchase rights will only
be exercisable under limited circumstances specified in the Amended and Restated
Rights Agreement when there has been a distribution of the preferred stock
purchase rights and such rights are no longer redeemable by us. </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" size=3>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;If any person or group
acquires beneficial ownership of 20% or more of the outstanding shares of our
common stock, or 20% or more of the shares of our voting stock, or 20% or more
of all of our equity securities, the &#147;flip-in&#148; provision of the
Amended and Restated Rights Agreement will be triggered and the preferred stock
purchase rights will entitle a holder, other than such person, any member of
such group or any related person (as to whom such preferred stock purchase
rights will be null and void) to acquire a number of additional shares of our
common stock having a market value of twice the exercise price of each preferred
stock purchase right. If we are involved in a merger or other business
combination transaction, each preferred stock purchase right will entitle its
holder to purchase, at the right&#146;s then-current exercise price, a number of
shares of the acquiring or surviving company&#146;s common stock having a market
value at that time of twice the preferred stock purchase right&#146;s exercise
price. </FONT></P>

<br>
<p align=center><FONT FACE="Times New Roman, Times, Serif" SIZE=3>105</font></p>
<page>
<br>

<P><FONT FACE="Times New Roman, Times, Serif" size=3>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The preferred stock
purchase rights will expire upon the tenth anniversary of the date of the
Amended and Restated Rights Agreement unless such date is extended or the
preferred stock purchase rights are earlier redeemed or exchanged by us. Until a
preferred stock purchase right is exercised, the holder of a right will have no
rights as a stockholder with respect to the shares purchasable upon exercise of
the preferred stock purchase right, including without limitation the right to
vote or to receive dividends. The provisions of the Amended and Restated Rights
Agreement, including the exercise price of the preferred stock purchase rights,
may be amended by our Board of Directors. </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" size=3>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The preferred stock
purchase rights have certain anti-takeover effects. The preferred stock purchase
rights will cause substantial dilution to a person or group that attempts to
acquire the Company in certain circumstances. Accordingly, the existence of the
preferred stock purchase rights may deter certain acquirors from making takeover
proposals or tender offers. However, the preferred stock purchase rights are not
intended to prevent a takeover, but rather are designed to enhance the ability
of our Board of Directors to negotiate with a potential acquiror on behalf of
all of our stockholders. </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" size=3>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;One of our stockholders,
Jeffrey L. Gendell, and his affiliates collectively own approximately 18.5% of
our outstanding common stock. Because of the limitation on the exercise of the
subscription rights described above, we do not believe that Mr. Gendell and his
affiliates will collectively own 20% or more of our common stock immediately
following the sale of common stock in this offering. See &#147;The Rights
Offering &#150; Limitation on Exercise of the Rights.&#148; </FONT></P>

<br>
<p align=center><FONT FACE="Times New Roman, Times, Serif" SIZE=3>106</font></p>
<page>
<br>


<H1 ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" size=3>UNITED
STATES FEDERAL INCOME TAX CONSEQUENCES</FONT></H1>

<P><FONT FACE="Times New Roman, Times, Serif" size=3>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The following discussion is
a summary of the material United States federal income tax consequences of the
rights offering to holders of common stock. This discussion addresses only the
United States federal income tax consequences to holders of common stock that
hold their shares as capital assets and does not address all of the United
States federal income tax consequences that may be relevant to particular
holders of shares of common stock in light of their individual circumstances.
This discussion does not address the tax consequences to holders of common stock
who are subject to special rules, including, without limitation, financial
institutions, tax-exempt organizations, insurance companies, broker-dealers,
dealers in securities or foreign currencies, foreign holders, persons who hold
their shares as or in a hedge against currency risk, persons who hold their
shares as a result of a constructive sale or as part of a conversion transaction
or holders who acquired their shares of common stock pursuant to the exercise of
employee stock options or otherwise as compensation. In addition, this
discussion does not address the tax consequences to holders of common stock
under any state, local or foreign tax laws or the alternative minimum tax
provisions of the Internal Revenue Code. </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" size=3>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;This discussion is not
binding on the Internal Revenue Service or a court. It is based on the Internal
Revenue Code of 1986, as amended, laws, regulations, rulings and decisions in
effect on the date hereof, all of which are subject to change, possibly with
retroactive effect, and to varying interpretations, which could result in United
States federal income tax consequences different from those described below. As
a result, we cannot assure you that the tax consequences described in this
discussion will not be challenged by the IRS or will be sustained by a court if
challenged by the IRS. No ruling has been or will be sought from the IRS, and no
opinion of counsel has been or will be rendered, as to the United States federal
income tax consequences of the rights offering to holders of common stock. </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" size=3><B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;HOLDERS OF COMMON STOCK
ARE URGED TO CONSULT THEIR OWN TAX ADVISORS AS TO THE SPECIFIC TAX CONSEQUENCES
OF THE RIGHTS OFFERING TO THEM, INCLUDING THE APPLICABLE FEDERAL, STATE, LOCAL
AND FOREIGN TAX CONSEQUENCES OF THE RIGHTS OFFERING TO THEM AND THE EFFECT OF
POSSIBLE CHANGES IN TAX LAWS.</B> </FONT></P>

<H2 ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" size=3>Receipt of
Subscription Rights</FONT></H2>

<P><FONT FACE="Times New Roman, Times, Serif" size=3>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;A holder of common stock
will not recognize taxable income for United States federal income tax purposes
upon the receipt of subscription rights in the rights offering. </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" size=3>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Except as provided in the
following sentence, the tax basis in the subscription rights received by a
holder of common stock in the rights offering will be zero. If either (i) the
fair market value of the subscription rights on the date the subscription rights
are distributed is equal to at least 15% of the fair market value of our common
stock on such date or (ii) the holder elects, by attaching a statement to its
federal income tax return for the taxable year in which the subscription rights
are received, to allocate part of the tax basis of the holder&#146;s common
stock to the subscription rights, then upon exercise or transfer of the
subscription rights, the holder&#146;s tax basis in the common stock will be
allocated between the common stock and the subscription rights in proportion to
their respective fair market values on the date the subscriptions rights are
distributed. The holding period for the subscriptions rights received by a
holder of common stock in the rights offering will include the holder&#146;s
holding period for the common stock with respect to which the subscriptions
rights were received. </FONT></P>

<br>
<p align=center><FONT FACE="Times New Roman, Times, Serif" SIZE=3>107</font></p>
<page>
<br>

<H2 ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" size=3>Exercise of
Subscription Rights</FONT></H2>

<P><FONT FACE="Times New Roman, Times, Serif" size=3>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;A holder of common stock
will not recognize any gain or loss upon the exercise of subscription rights
received in the rights offering. The tax basis of the common stock acquired
through exercise of the subscription rights will equal the sum of the
subscription price for the common stock and the holder&#146;s tax basis, if any,
in the subscription rights as described above. The holding period for the common
stock acquired through exercise of the subscription rights will begin on the
date the subscriptions rights are exercised. </FONT></P>

<H2 ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" size=3>Expiration of
Subscription Rights</FONT></H2>

<P><FONT FACE="Times New Roman, Times, Serif" size=3>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;A holder that allows the
subscription rights received in the rights offering to expire will not recognize
any gain or loss, and no portion of the tax basis of the common stock owned by
such holder with respect to which such subscription rights were received will be
allocated to the unexercised subscription rights. </FONT></P>

<br>
<p align=center><FONT FACE="Times New Roman, Times, Serif" SIZE=3>108</font></p>
<page>
<br>


<H1 ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" size=3>PLAN OF
DISTRIBUTION</FONT></H1>

<P><FONT FACE="Times New Roman, Times, Serif" size=3>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We intend to distribute
rights certificates and copies of this prospectus to those persons who were
holders of our common stock on ______________, 2004, the record date for this
offering, promptly following the effective date of the registration statement of
which this prospectus forms a part. </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" size=3>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Certain of our employees,
officers or directors may solicit responses from you to the rights offering, but
such individuals will not receive any commissions or compensation for such
services other than their normal employment compensation. </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" size=3>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We have not engaged any
financial advisor for solicitation of the exercise of rights or to provide
advice to our Board of Directors regarding terms, structure or timing of the
rights offering. We have not agreed to enter into any standby or other
arrangements to purchase any rights or any shares of common stock except as
otherwise disclosed in this prospectus. In addition, we have not entered into
any agreements regarding stabilization activities with respect to our
securities. </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" size=3>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We have agreed to pay the
subscription agent a fee plus certain expenses, which we estimate will total
approximately $_____________. We estimate that our total expenses in connection
with the rights offering will be approximately $_____________. </FONT></P>

<H1 ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" size=3>LEGAL MATTERS</FONT></H1>

<p><FONT FACE="Times New Roman, Times, Serif" size=3>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Certain  legal  matters with respect to the validity of the issuance of the shares of common stock offered by this
prospectus will be passed upon for us by W. Michael Lepchitz, Esq., Vice President, General Counsel and Secretary of Westmoreland.
As of April 30, 2004, Mr. Lepchitz held 25,083 shares of our common stock and options to acquire 52,637 shares of our common stock.
Mr. Lepchitz also has an interest in 1,470 shares of our common stock held by our 401(k) plan.</font></p>

<H1 ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" size=3>EXPERTS</FONT></H1>

<P><FONT FACE="Times New Roman, Times, Serif" size=3>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our consolidated financial
statements as of December 31, 2003 and 2002 and for each of the years in the
three year period ended December 31, 2003 have been included herein and in the
Registration Statement on Form S-1 in reliance upon the report of KPMG LLP,
independent accountants, appearing elsewhere herein and upon the authority of
said firm as experts in accounting and auditing. </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" size=3>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The information appearing
in this prospectus concerning estimates of the Absaloka Mine&#146;s coal
reserves made by IntraSearch Inc., independent consulting geologists, has been
included herein upon the authority of that firm as experts. </FONT></P>

<br>
<p align=center><FONT FACE="Times New Roman, Times, Serif" SIZE=3>109</font></p>
<page>
<br>


<H1 ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" size=3>WHERE YOU
CAN FIND MORE INFORMATION</FONT></H1>

<P><FONT FACE="Times New Roman, Times, Serif" size=3>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We are subject to the
informational requirements of the Securities Exchange Act of 1934. Accordingly,
we file reports, proxy statements and other information with the SEC. You may
read and copy any materials that we file with the SEC at the SEC&#146;s Public
Reference Room at 450 Fifth Street, N.W., Washington, D.C. 20549 upon payment of
the prescribed fees. You may obtain information on the operation of the Public
Reference Room by calling the SEC at 1-800-SEC-0330. The SEC also maintains an
Internet site that contains reports, proxy information statements and other
materials that are filed through the SEC&#146;s Electronic Data Gathering,
Analysis, and Retrieval, or EDGAR, system. You can access this web site at
http://www.sec.gov. </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" size=3>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We have filed a
registration statement on Form S-1 with the SEC with respect to this rights
offering. This prospectus is a part of the registration statement, but does not
contain all of the information included in the registration statement. You may
wish to inspect the registration statement and the exhibit to that registration
statement for further information with respect to us and the securities offered
in this prospectus. Copies of the registration statement and the exhibit to such
registration statement are on file at the offices of the SEC and may be obtained
upon payment of the prescribed fee or may be examined without charge at the
public reference facilities of the SEC described above. Statements contained in
this prospectus concerning the provisions of documents are necessarily summaries
of the material provisions of such documents, and each statement is qualified in
our entirety by reference to the copy of the applicable document filed with the
SEC. </FONT></P>

<br>
<p align=center><FONT FACE="Times New Roman, Times, Serif" SIZE=3>110</font></p>
<page>
<br>
<hr noshade>

<H2 ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" size=3>ITEM 8 -
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA</FONT></H2>

<br>
<table border=0 cellPadding=0 cellSpacing=0 width=650>
<tr>
<td width=80%><FONT FACE="Times New Roman, Times, Serif" SIZE=3><b>Index to Financial
Statements</b></font></td>
<td width=20% align=right><FONT FACE="Times New Roman, Times, Serif" SIZE=3><b>Page</b></font></td>
</tr>
<tr>
<td><hr noshade size=1></td>
<td><hr noshade size=1></td>
</tr>
<tr>
<td><FONT FACE="Times New Roman, Times, Serif" SIZE=3>Report of Independent
Auditor</font></td>
<td align=right><FONT FACE="Times New Roman, Times, Serif" SIZE=3>F-2</font></td>
</tr>
<tr>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr>
<td><FONT FACE="Times New Roman, Times, Serif" SIZE=3>Consolidated Balance
Sheets</font></td>
<td align=right><FONT FACE="Times New Roman, Times, Serif" SIZE=3>F-3</font></td>
</tr>
<tr>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr>
<td><FONT FACE="Times New Roman, Times, Serif" SIZE=3>Consolidated Statements of
Operations</font></td>
<td align=right><FONT FACE="Times New Roman, Times, Serif" SIZE=3>F-5</font></td>
</tr>
<tr>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr>
<td><FONT FACE="Times New Roman, Times, Serif" SIZE=3>Consolidated Statements of Shareholders&#146; Equity and Comprehensive Income</font></td>
<td align=right valign=bottom><FONT FACE="Times New Roman, Times, Serif" SIZE=3>F-7</font></td>
</tr>
<tr>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr>
<td><FONT FACE="Times New Roman, Times, Serif" SIZE=3>Consolidated Statements of Cash
Flows</font></td>
<td align=right><FONT FACE="Times New Roman, Times, Serif" SIZE=3>F-9</font></td>
</tr>
<tr>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr>
<td><FONT FACE="Times New Roman, Times, Serif" SIZE=3>Summary of Significant Accounting
Policies</font></td>
<td align=right><FONT FACE="Times New Roman, Times, Serif" SIZE=3>F-11</font></td>
</tr>
<tr>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr>
<td><FONT FACE="Times New Roman, Times, Serif" SIZE=3>Notes to Consolidated Financial
Statements</font></td>
<td align=right><FONT FACE="Times New Roman, Times, Serif" SIZE=3>F-17</font></td>
</tr>
</table>
<br>
<br>
<br>
<p align=center><FONT FACE="Times New Roman, Times, Serif" SIZE=3>F-1</font></p>
<page>
<br>





<H2 ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" size=3>Independent
Auditor&#146;s Report</FONT></H2>

<P><FONT FACE="Times New Roman, Times, Serif" size=3>The Board of Directors and Shareholders<br>
Westmoreland Coal Company:</font></p>

<P><FONT FACE="Times New Roman, Times, Serif" size=3>We have audited the
accompanying consolidated balance sheets of Westmoreland Coal Company and
subsidiaries as of December 31, 2003 and 2002, and the related consolidated
statements of operations, shareholders&#146; equity and comprehensive income and
cash flows for each of the years in the three-year period ended December 31,
2003. These consolidated financial statements are the responsibility of the
Company&#146;s management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits. </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" size=3>We conducted our audits in
accordance with auditing standards generally accepted in the United States of
America. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion. </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" size=3>In our opinion, the
consolidated financial statements referred to above present fairly, in all
material respects, the financial position of Westmoreland Coal Company and
subsidiaries at December 31, 2003 and 2002, and the results of their operations
and their cash flows for each of the years in the three-year period ended
December 31, 2003, in conformity with accounting principles generally accepted
in the United States of America. </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" size=3>As discussed in the Summary
of Significant Accounting Policies to the Consolidated Financial Statements, the
Company adopted Statement of Financial Accounting Standards No. 143,
<I>Accounting for Asset Retirement Obligations</I>, as of January 1, 2003. </FONT></P>

<br><br>
<table width=650>
<tr>
<td width=85%>&nbsp;</td>
<td width=15%>KPMG LLP</td>
</tr>
</table>
<br>

<P><FONT FACE="Times New Roman, Times, Serif" size=3>Denver, Colorado<br>
February 20, 2004, except as to Notes 5 and 9,<br>
which are as of March 8, 2004</font></p>

<br>
<p align=center><FONT FACE="Times New Roman, Times, Serif" SIZE=3>F-2</font></p>
<page>
<br>

<H2 ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" size=3>Westmoreland
Coal Company and Subsidiaries<br>Consolidated Balance
Sheets</FONT></H2>

<table border=0 cellPadding=0 cellSpacing=0 width=650>
         <tr>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
         </tr>
         <tr>
                  <td width=44% align=left><FONT FACE="Times New Roman, Times, Serif" SIZE=3><b>&nbsp;</b></font></td>
                  <td width=2% align=right></td>
                  <td width=12% align=center valign=top><FONT FACE="Times New Roman, Times, Serif" SIZE=2><b>March 31,<br>2004</b><br>(unaudited)</font></td>
                  <td width=10%>&nbsp;</td>
                  <td width=2% align=right></td>
                  <td width=12% align=center valign=top><FONT FACE="Times New Roman, Times, Serif" SIZE=2><b>December 31,<br>2003</b></font></td>
                  <td width=4%>&nbsp;</td>
                  <td width=2% align=right><b></b></td>
                  <td width=12% align=center valign=top><FONT FACE="Times New Roman, Times, Serif" SIZE=2><b>December 31,<br>2002</b></font></td>
         </tr>
         <tr>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
         </tr>
         <tr>
                  <td align=left></td>
                  <td align=right></td>
                  <td align=center colspan=7><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(in thousands)</font></td>
         </tr>
         <tr>
                  <td align=left><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Assets</font></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
         </tr>
         <tr>
                  <td align=left><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Current assets:</font></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
         </tr>
         <tr>
                  <td align=left><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;Cash and cash equivalents</font></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</font></td>
                  <td align=right>               <FONT FACE="Times New Roman, Times, Serif" SIZE=2>24,272</font></td>
                  <td align=right></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</font></td>
                  <td align=right>               <FONT FACE="Times New Roman, Times, Serif" SIZE=2>9,267</font></td>
                  <td align=right></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</font></td>
                  <td align=right>                         <FONT FACE="Times New Roman, Times, Serif" SIZE=2>9,845</font> </td>
         </tr>
         <tr>
                  <td align=left><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;Receivables:</font></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
         </tr>
         <tr>
                  <td align=left><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Trade</font></td>
                  <td align=right></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" SIZE=2>27,324</font></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" SIZE=2>24,414</font></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" SIZE=2>20,962</font></td>
         </tr>
         <tr>
                  <td align=left><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Other</font></td>
                  <td align=right></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" SIZE=2>3,511</font></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" SIZE=2>4,465</font></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right> <FONT FACE="Times New Roman, Times, Serif" SIZE=2>7,249</font></td>
         </tr>
         <tr>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
         </tr>
         <tr>
                  <td align=left></td>
                  <td align=right></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" SIZE=2>30,835</font></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" SIZE=2>28,879</font></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" SIZE=2>28,211</font></td>
         </tr>
         <tr>
                  <td align=left><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;Inventories</font></td>
                  <td align=right></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" SIZE=2>14,125</font></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" SIZE=2>14,289</font></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" SIZE=2>14,018</font></td>
         </tr>
         <tr>
                  <td align=left><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;Deferred overburden removal costs</font></td>
                  <td align=right></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" SIZE=2>10,625</font></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" SIZE=2>9,559</font></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" SIZE=2>5,741</font></td>
         </tr>
         <tr>
                  <td align=left><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;Restricted cash</font></td>
                  <td align=right></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" SIZE=2>9,274</font></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" SIZE=2>8,751</font></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" SIZE=2>8,497</font></td>
         </tr>
         <tr>
                  <td align=left><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;Deferred income taxes</font></td>
                  <td align=right></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" SIZE=2>13,274</font></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" SIZE=2>12,921</font></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" SIZE=2>15,831</font></td>
         </tr>
         <tr>
                  <td align=left><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;Other current assets</font></td>
                  <td align=right></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" SIZE=2>4,887</font></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" SIZE=2>4,468</font></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" SIZE=2>6,765</font></td>
         </tr>
         <tr>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
         </tr>
         <tr>
                  <td align=left><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Total current assets</font></td>
                  <td align=right></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" SIZE=2>107,292</font></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" SIZE=2>88,134</font></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" SIZE=2>88,908</font></td>
         </tr>
         <tr>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
         </tr>
         <tr>
                  <td align=left>&nbsp;</td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
         </tr>
         <tr>
                  <td align=left><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Property, plant and equipment:</font></td>
                  <td align=right></td>
                   <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                 <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
         </tr>
         <tr>
                  <td align=left><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Land and mineral rights</font></td>
                  <td align=right></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" SIZE=2>20,805</font></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" SIZE=2>20,740</font></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" SIZE=2>53,314</font></td>
         </tr>
         <tr>
                  <td align=left><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Capitalized asset retirement costs</font></td>
                  <td align=right></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" SIZE=2>104,036</font></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" SIZE=2>104,036</font></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" SIZE=2>-</font></td>
         </tr>
         <tr>
                  <td align=left><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Plant and equipment</font></td>
                  <td align=right></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" SIZE=2>95,734</font></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" SIZE=2>93,880</font></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" SIZE=2>197,759</font></td>
         </tr>
         <tr>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                 <td><HR NOSHADE></td>
                 <td><HR NOSHADE></td>
                 <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
         </tr>
         <tr>
                  <td align=left></td>
                  <td align=right></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" SIZE=2>220,575</font></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" SIZE=2>218,656</font></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" SIZE=2>251,073</font></td>
         </tr>
         <tr>
                  <td align=left><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Less accumulated depreciation and depletion</font></td>
                  <td align=right></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" SIZE=2>70,901</font></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" SIZE=2>67,307</font></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" SIZE=2>61,541</font></td>
         </tr>
         <tr>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
         </tr>
         <tr>
                  <td align=left><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;Net property, plant and equipment</font></td>
                  <td align=right></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" SIZE=2>149,674</font></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" SIZE=2>151,349</font></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" SIZE=2>189,532</font></td>
         </tr>
         <tr>
                  <td align=left>&nbsp;</td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
         </tr>
         <tr>
                  <td align=left><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Deferred income taxes</font></td>
                  <td align=right></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" SIZE=2>63,679</font></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" SIZE=2>62,866</font></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" SIZE=2>49,253</font></td>
         </tr>
         <tr>
                  <td align=left><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Investment in independent power projects</font></td>
                  <td align=right></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" SIZE=2>40,820</font></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" SIZE=2>38,487</font></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" SIZE=2>33,407</font></td>
         </tr>
         <tr>
                  <td align=left><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Excess of trust assets over pneumoconiosis benefit</font></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
         </tr>
         <tr>
                  <td align=left><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;obligation </font></td>
                  <td align=right></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" SIZE=2>6,267</font></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" SIZE=2>6,234</font></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" SIZE=2>7,665</font></td>
         </tr>
         <tr>
                  <td align=left><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Restricted cash and bond collateral </font></td>
                  <td align=right></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" SIZE=2>17,598</font></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" SIZE=2>16,218</font></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" SIZE=2>8,790</font></td>
         </tr>
         <tr>
                  <td align=left><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Advance coal royalties</font></td>
                  <td align=right></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" SIZE=2>3,820</font></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" SIZE=2>4,013</font></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" SIZE=2>4,639</font></td>
         </tr>
         <tr>
                  <td align=left><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Deferred overburden removal costs</font></td>
                  <td align=right></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" SIZE=2>3,274</font></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" SIZE=2>3,095</font></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" SIZE=2>4,607</font></td>
         </tr>
         <tr>
                  <td align=left><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Reclamation deposits</font></td>
                  <td align=right></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" SIZE=2>53,495</font></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" SIZE=2>52,786</font></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" SIZE=2>49,484</font></td>
         </tr>
         <tr>
                  <td align=left><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Contractual third party reclamation obligations</font></td>
                  <td align=right></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" SIZE=2>23,500</font></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" SIZE=2>23,065</font></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" SIZE=2>23,235</font></td>
         </tr>
         <tr>
                  <td align=left><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Other assets</font></td>
                  <td align=right></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" SIZE=2>12,769</font></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" SIZE=2>11,590</font></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" SIZE=2>12,437</font></td>
         </tr>
         <tr>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                 <td><HR NOSHADE></td>
                 <td><HR NOSHADE></td>
                 <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
         </tr>
         <tr>
                  <td align=left><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Total Assets</font></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</font></td>
                  <td align=right>           <FONT FACE="Times New Roman, Times, Serif" SIZE=2>482,188</font></td>
                  <td align=right></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</font></td>
                  <td align=right>           <FONT FACE="Times New Roman, Times, Serif" SIZE=2>457,837</font></td>
                  <td align=right></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</font></td>
                  <td align=right>                     <FONT FACE="Times New Roman, Times, Serif" SIZE=2>471,957</font> </td>
         </tr>
         <tr>
                  <td><HR NOSHADE size=4></td>
                  <td><HR NOSHADE size=4></td>
                  <td><HR NOSHADE size=4></td>
                  <td><HR NOSHADE size=4></td>
                  <td><HR NOSHADE size=4></td>
                  <td><HR NOSHADE size=4></td>
                  <td><HR NOSHADE size=4></td>
                  <td><HR NOSHADE size=4></td>
                  <td><HR NOSHADE size=4></td>
         </tr>
</table>
<P><FONT FACE="Times New Roman, Times, Serif" size=2>See accompanying Summary of Significant Accounting Policies and Notes to Consolidated Financial Statements.</font></p>

<P align=right><FONT FACE="Times New Roman, Times, Serif" size=2>(Continued)</font></p>

<br>
<p align=center><FONT FACE="Times New Roman, Times, Serif" SIZE=3>F-3</font></p>
<page>
<br>

<H1 ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" size=3>Westmoreland
Coal Company and Subsidiaries<br>Consolidated Balance
Sheets (Continued)</FONT></H1>


<table border=0 cellPadding=0 cellSpacing=0 width=650>
         <tr>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
         </tr>
         <tr>
                  <td width=44% align=left><FONT FACE="Times New Roman, Times, Serif" SIZE=3><b>&nbsp;</b></font></td>
                  <td width=2% align=right></td>
                  <td width=12% align=center valign=top><FONT FACE="Times New Roman, Times, Serif" SIZE=2><b>March 31,<br>2004</b><br>(unaudited)</font></td>
                  <td width=10%>&nbsp;</td>
                  <td width=2% align=right></td>
                  <td width=12% align=center valign=top><FONT FACE="Times New Roman, Times, Serif" SIZE=2><b>December 31,<br>2003</b></font></td>
                  <td width=4%>&nbsp;</td>
                  <td width=2% align=right><b></b></td>
                  <td width=12% align=center valign=top><FONT FACE="Times New Roman, Times, Serif" SIZE=2><b>December 31,<br>2002</b></font></td>
         </tr>
         <tr>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
         </tr>
         <tr>
                  <td align=left></td>
                  <td align=right></td>
                  <td align=center colspan=7><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(in thousands)</font></td>
         </tr>
         <tr>
                  <td align=left><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Liabilities and Shareholders' Equity</font></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
         </tr>
         <tr>
                  <td align=left><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Current liabilities:</font></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
         </tr>
         <tr>
                  <td align=left><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;Current installments of long-term debt</font></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</font></td>
                  <td align=right>            <FONT FACE="Times New Roman, Times, Serif" SIZE=2>11,595</font> </td>
                  <td align=right></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</font></td>
                  <td align=right>            <FONT FACE="Times New Roman, Times, Serif" SIZE=2>11,595</font> </td>
                  <td align=right></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</font></td>
                  <td align=right>        <FONT FACE="Times New Roman, Times, Serif" SIZE=2>8,852</font> </td>
         </tr>
         <tr>
                  <td align=left><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;Accounts payable and accrued expenses:</font></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
         </tr>
         <tr>
                  <td align=left><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Trade</font></td>
                  <td align=right></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" SIZE=2>26,161</font></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" SIZE=2>26,559</font></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" SIZE=2>27,070</font></td>
         </tr>
         <tr>
                  <td align=left><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Income taxes</font></td>
                  <td align=right></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" SIZE=2>146</font></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" SIZE=2>-</font></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" SIZE=2>594</font></td>
         </tr>
         <tr>
                  <td align=left><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Production taxes</font></td>
                  <td align=right></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" SIZE=2>17,855</font></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" SIZE=2>16,127</font></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" SIZE=2>14,273</font></td>
         </tr>
         <tr>
                  <td align=left><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Workers' compensation</font></td>
                  <td align=right></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" SIZE=2>2,052</font></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" SIZE=2>2,016</font></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" SIZE=2>2,335</font></td>
         </tr>
         <tr>
                  <td align=left><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Postretirement medical costs</font></td>
                  <td align=right></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" SIZE=2>19,080</font></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" SIZE=2>20,275</font></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" SIZE=2>12,787</font></td>
         </tr>
         <tr>
                  <td align=left><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;1974 UMWA Pension Plan obligations</font></td>
                  <td align=right></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" SIZE=2>-</font></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" SIZE=2>250</font></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" SIZE=2>1,473</font></td>
         </tr>
         <tr>
                  <td align=left><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Reclamation costs</font></td>
                  <td align=right></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" SIZE=2>5,544</font></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" SIZE=2>5,757</font></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" SIZE=2>11,381</font></td>
         </tr>
         <tr>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
         </tr>
         <tr>
                  <td align=left><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;Total current liabilities</font></td>
                  <td align=right></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" SIZE=2>82,433</font></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" SIZE=2>82,579</font></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" SIZE=2>78,765</font></td>
         </tr>
         <tr>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
         </tr>
         <tr>
                  <td align=left>&nbsp;</td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
         </tr>
         <tr>
                  <td align=left><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Long-term debt, less current installments</font></td>
                  <td align=right></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" SIZE=2>99,043</font></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" SIZE=2>81,874</font></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" SIZE=2>91,305</font></td>
         </tr>
         <tr>
                  <td align=left><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Workers' compensation, less current portion</font></td>
                  <td align=right></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" SIZE=2>6,933</font></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" SIZE=2>7,462</font></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" SIZE=2>8,405</font></td>
         </tr>
         <tr>
                  <td align=left><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Postretirement medical costs, less current</font></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
         </tr>
         <tr>
                  <td align=left><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;portion</font></td>
                  <td align=right></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" SIZE=2>111,699</font></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" SIZE=2>110,493</font></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" SIZE=2>104,336</font></td>
         </tr>
         <tr>
                  <td align=left><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Pension and SERP costs</font></td>
                  <td align=right></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" SIZE=2>10,167</font></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" SIZE=2>9,008</font></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" SIZE=2>4,341</font></td>
         </tr>
         <tr>
                  <td align=left><FONT FACE="Times New Roman, Times, Serif" SIZE=2>1974 UMWA Pension Plan obligations, less current</font>
     </td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
         </tr>
         <tr>
                  <td align=left><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;portion</font></td>
                  <td align=right></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" SIZE=2>-</font></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" SIZE=2>-</font></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" SIZE=2>6,562</font></td>
         </tr>
         <tr>
                  <td align=left><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Asset retirement obligations, less current portion</font></td>
                  <td align=right></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" SIZE=2>119,632</font></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" SIZE=2>117,586</font></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" SIZE=2>148,410</font></td>
         </tr>
         <tr>
                  <td align=left><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Other liabilities</font></td>
                  <td align=right></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" SIZE=2>11,298</font></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" SIZE=2>11,269</font></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" SIZE=2>6,732</font></td>
         </tr>
         <tr>
                  <td align=left><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Minority interest</font></td>
                  <td align=right></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" SIZE=2>4,578</font></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" SIZE=2>4,296</font></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" SIZE=2>4,533</font></td>
         </tr>
         <tr>
                  <td align=left>&nbsp;</td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
         </tr>
         <tr>
                  <td align=left><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Commitments and contingent liabilities</font></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
         </tr>
         <tr>
                  <td align=left>&nbsp;</td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
         </tr>
         <tr>
                  <td align=left><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Shareholders' equity</font></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
         </tr>
         <tr>
                  <td align=left><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;Preferred stock of $1.00 par value</font></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
         </tr>
         <tr>
                  <td align=left><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Authorized 5,000,000 shares;</font></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
         </tr>
         <tr>
                  <td align=left><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Issued and outstanding 205,083 shares at</font> </td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
         </tr>
<tr>
                  <td align=left><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;December 31, 2003 and 206,833 shares at <br>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;December 31, 2002</font></td>
                  <td align=right></td>
                  <td align=right valign=bottom><FONT FACE="Times New Roman, Times, Serif" SIZE=2>205</font></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right valign=bottom><FONT FACE="Times New Roman, Times, Serif" SIZE=2>205</font></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right valign=bottom><FONT FACE="Times New Roman, Times, Serif" SIZE=2>207</font></td>
         </tr>
         <tr>
                  <td align=left><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;Common stock of $2.50 par value</font></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
         </tr>
         <tr>
                  <td align=left><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Authorized 20,000,000 shares;</font></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
         </tr>
         <tr>
                  <td align=left><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Issued and outstanding 8,023,384 at  </font> </td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
         </tr>
         <tr>
                  <td align=left><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;March 31, 2004, 7,957,166 shares at<br>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;December 31, 2003 and 7,711,379 shares</font> </td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
         </tr>
         <tr>
                  <td align=left><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;at December 31, 2002</font></td>
                  <td align=right></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" SIZE=2>20,059</font></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" SIZE=2>19,893</font></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" SIZE=2>19,278</font></td>
         </tr>
         <tr>
                  <td align=left><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;Other paid-in capital</font></td>
                  <td align=right></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" SIZE=2>73,420</font></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" SIZE=2>72,825</font></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" SIZE=2>70,908</font></td>
         </tr>
         <tr>
                  <td align=left><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;Accumulated other comprehensive loss</font></td>
                  <td align=right></td>
                  <td align=right>            <FONT FACE="Times New Roman, Times, Serif" SIZE=2>(4,946)</font></td>
                  <td align=right></td>
                   <td align=right></td>
                  <td align=right>            <FONT FACE="Times New Roman, Times, Serif" SIZE=2>(4,948)</font></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right>         <FONT FACE="Times New Roman, Times, Serif" SIZE=2>(5,101)</font></td>
         </tr>
         <tr>
                  <td align=left><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;Accumulated deficit</font> </td>
                  <td align=right></td>
                  <td align=right>          <FONT FACE="Times New Roman, Times, Serif" SIZE=2>(52,333)</font></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right>          <FONT FACE="Times New Roman, Times, Serif" SIZE=2>(54,705)</font></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right>       <FONT FACE="Times New Roman, Times, Serif" SIZE=2>(66,724)</font></td>
         </tr>
         <tr>
                  <td><HR NOSHADE></td>
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         <tr>
                  <td align=left><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;Total shareholders' equity</font></td>
                  <td align=right></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" SIZE=2>36,405</font></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" SIZE=2>33,270</font></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" SIZE=2>18,568</font></td>
         </tr>
         <tr>
                  <td><HR NOSHADE></td>
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                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
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                  <td><HR NOSHADE></td>
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                  <td><HR NOSHADE></td>
         </tr>
         <tr>
                  <td align=left><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;Total Liabilities and Shareholders' Equity</font></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</font></td>
                  <td align=right>          <FONT FACE="Times New Roman, Times, Serif" SIZE=2>482,188</font> </td>
                  <td align=right></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</font></td>
                  <td align=right>          <FONT FACE="Times New Roman, Times, Serif" SIZE=2>457,837</font> </td>
                  <td align=right></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</font></td>
                  <td align=right>      <FONT FACE="Times New Roman, Times, Serif" SIZE=2>471,957</font> </td>
         </tr>
         <tr>
                  <td><HR NOSHADE size=4></td>
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                  <td><HR NOSHADE size=4></td>
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                  <td><HR NOSHADE size=4></td>
         </tr>
</table>


<P><FONT FACE="Times New Roman, Times, Serif" size=2>See accompanying Summary of Significant Accounting Policies and Notes to Consolidated Financial Statements.</font></p>

<br>
<p align=center><FONT FACE="Times New Roman, Times, Serif" SIZE=3>F-4</font></p>
<page>
<br>


<H2 ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" size=3>Westmoreland
Coal Company and Subsidiaries<BR>Consolidated Statements
of Operations</FONT></H2>

<table border=0 cellPadding=0 cellSpacing=0 width=700>
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         <tr>
                  <td align=right colspan=6><FONT FACE="Times New Roman, Times, Serif" SIZE=2><b>Three Months ended March 31,</b></font></td>
                  <td align=right></td>
                  <td align=center colspan=8><FONT FACE="Times New Roman, Times, Serif" SIZE=2><b>Year ended December 31,</b></font></td>
         </tr>
         <tr>
                  <td width=36% align=left><FONT FACE="Times New Roman, Times, Serif" SIZE=2><b></b></font></td>
                  <td width=2% align=right></td>
                  <td width=8% align=center><FONT FACE="Times New Roman, Times, Serif" SIZE=2><b>2004</b></font></td>
                  <td width=3%>&nbsp;</td>
                  <td width=2% align=right></td>
                  <td width=8% align=center><FONT FACE="Times New Roman, Times, Serif" SIZE=2><b>2003</b></font></td>
                  <td width=5%>&nbsp;</td>
                  <td width=2% align=right></td>
                  <td width=8% align=center><FONT FACE="Times New Roman, Times, Serif" SIZE=2><b>2003</b></font></td>
                  <td width=3%>&nbsp;</td>
                  <td width=2% align=right></td>
                  <td width=8% align=center><FONT FACE="Times New Roman, Times, Serif" SIZE=2><b>2002</b></font></td>
                  <td width=3%>&nbsp;</td>
                  <td width=2% align=right><b></b></td>
                  <td width=8% align=center><FONT FACE="Times New Roman, Times, Serif" SIZE=2><b>2001</b></font></td>
         </tr>
         <tr>
                  <td align=right></td>
                  <td align=right></td>
                  <td colspan=4 align=center><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(unaudited)</font></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=center colspan=8><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</font></td>
         </tr>
         <tr>
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         <tr>
                  <td align=left></td>
                  <td align=right></td>
                  <td align=center colspan=13><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(in thousands except per share data)</font></td>
         </tr>
<tr>
<td><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Revenues:</font></td>
<td align=right><FONT FACE="Times New Roman, Times, Serif" size=2></font></td>
<td align=right><FONT FACE="Times New Roman, Times, Serif" size=2></font></td>
<td><FONT FACE="Times New Roman, Times, Serif" size=2>&nbsp;</font></td>
<td align=right><FONT FACE="Times New Roman, Times, Serif" size=2></font></td>
<td align=right><FONT FACE="Times New Roman, Times, Serif" size=2></font></td>
<td><FONT FACE="Times New Roman, Times, Serif" size=2>&nbsp;</font></td>
<td align=right><FONT FACE="Times New Roman, Times, Serif" size=2></font></td>
<td align=right><FONT FACE="Times New Roman, Times, Serif" size=2></font></td>
<td><FONT FACE="Times New Roman, Times, Serif" size=2>&nbsp;</font></td>
<td align=right><FONT FACE="Times New Roman, Times, Serif" size=2></font></td>
<td align=right><FONT FACE="Times New Roman, Times, Serif" size=2></font></td>
<td><FONT FACE="Times New Roman, Times, Serif" size=2>&nbsp;</font></td>
<td align=right><FONT FACE="Times New Roman, Times, Serif" size=2></font></td>
<td align=right><FONT FACE="Times New Roman, Times, Serif" size=2></font></td>
</tr>
<tr>
<td><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;Coal</font></td>
<td align=right><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</font></td>
<td align=right><FONT FACE="Times New Roman, Times, Serif" SIZE=2>77,132</font></td>
<td><FONT FACE="Times New Roman, Times, Serif" size=2>&nbsp;</font></td>
<td align=right><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</font></td>
<td align=right><FONT FACE="Times New Roman, Times, Serif" SIZE=2>74,513</font></td>
<td><FONT FACE="Times New Roman, Times, Serif" size=2>&nbsp;</font></td>
<td align=right><FONT FACE="Times New Roman, Times, Serif" size=2>$</font></td>
<td align=right><FONT FACE="Times New Roman, Times, Serif" size=2>294,986</font></td>
<td><FONT FACE="Times New Roman, Times, Serif" size=2>&nbsp;</font></td>
<td align=right><FONT FACE="Times New Roman, Times, Serif" size=2>$</font></td>
<td align=right><FONT FACE="Times New Roman, Times, Serif" size=2>301,235</font></td>
<td><FONT FACE="Times New Roman, Times, Serif" size=2>&nbsp;</font></td>
<td align=right><FONT FACE="Times New Roman, Times, Serif" size=2>$</font></td>
<td align=right><FONT FACE="Times New Roman, Times, Serif" size=2>231,048</font></td>
</tr>
<tr>
<td><FONT FACE="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;Independent power projects - equity in<br>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;earnings</font></td>
<td align=right><FONT FACE="Times New Roman, Times, Serif" size=2></font></td>
<td align=right valign=bottom><FONT FACE="Times New Roman, Times, Serif" size=2>5,405</font></td>
<td><FONT FACE="Times New Roman, Times, Serif" size=2>&nbsp;</font></td>
<td align=right><FONT FACE="Times New Roman, Times, Serif" size=2></font></td>
<td align=right valign=bottom><FONT FACE="Times New Roman, Times, Serif" size=2>3,771</font></td>
<td><FONT FACE="Times New Roman, Times, Serif" size=2>&nbsp;</font></td>
<td align=right><FONT FACE="Times New Roman, Times, Serif" size=2></font></td>
<td align=right valign=bottom><FONT FACE="Times New Roman, Times, Serif" size=2>15,824</font></td>
<td><FONT FACE="Times New Roman, Times, Serif" size=2>&nbsp;</font></td>
<td align=right><FONT FACE="Times New Roman, Times, Serif" size=2></font></td>
<td align=right valign=bottom><FONT FACE="Times New Roman, Times, Serif" size=2>14,506</font></td>
<td><FONT FACE="Times New Roman, Times, Serif" size=2>&nbsp;</font></td>
<td align=right><FONT FACE="Times New Roman, Times, Serif" size=2></font></td>
<td align=right valign=bottom><FONT FACE="Times New Roman, Times, Serif" size=2>15,871</font></td>
</tr>
         <tr>
                  <td><HR NOSHADE></td>
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<tr>
<td><FONT FACE="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;</font></td>
<td align=right><FONT FACE="Times New Roman, Times, Serif" size=2></font></td>
<td align=right><FONT FACE="Times New Roman, Times, Serif" size=2>82,537</font></td>
<td><FONT FACE="Times New Roman, Times, Serif" size=2>&nbsp;</font></td>
<td align=right><FONT FACE="Times New Roman, Times, Serif" size=2></font></td>
<td align=right><FONT FACE="Times New Roman, Times, Serif" size=2>78,284</font></td>
<td><FONT FACE="Times New Roman, Times, Serif" size=2>&nbsp;</font></td>
<td align=right><FONT FACE="Times New Roman, Times, Serif" size=2></font></td>
<td align=right><FONT FACE="Times New Roman, Times, Serif" size=2>310,810</font></td>
<td><FONT FACE="Times New Roman, Times, Serif" size=2>&nbsp;</font></td>
<td align=right><FONT FACE="Times New Roman, Times, Serif" size=2></font></td>
<td align=right><FONT FACE="Times New Roman, Times, Serif" size=2>315,741</font></td>
<td><FONT FACE="Times New Roman, Times, Serif" size=2>&nbsp;</font></td>
<td align=right><FONT FACE="Times New Roman, Times, Serif" size=2></font></td>
<td align=right><FONT FACE="Times New Roman, Times, Serif" size=2>246,919</font></td>
</tr>
         <tr>
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                  <td><HR NOSHADE></td>
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         </tr>
<tr>
<td><FONT FACE="Times New Roman, Times, Serif" size=2>Cost and expenses:</font></td>
<td align=right><FONT FACE="Times New Roman, Times, Serif" size=2></font></td>
<td align=right><FONT FACE="Times New Roman, Times, Serif" size=2></font></td>
<td><FONT FACE="Times New Roman, Times, Serif" size=2>&nbsp;</font></td>
<td align=right><FONT FACE="Times New Roman, Times, Serif" size=2></font></td>
<td align=right><FONT FACE="Times New Roman, Times, Serif" size=2></font></td>
<td><FONT FACE="Times New Roman, Times, Serif" size=2>&nbsp;</font></td>
<td align=right><FONT FACE="Times New Roman, Times, Serif" size=2></font></td>
<td align=right><FONT FACE="Times New Roman, Times, Serif" size=2></font></td>
<td><FONT FACE="Times New Roman, Times, Serif" size=2>&nbsp;</font></td>
<td align=right><FONT FACE="Times New Roman, Times, Serif" size=2></font></td>
<td align=right><FONT FACE="Times New Roman, Times, Serif" size=2></font></td>
<td><FONT FACE="Times New Roman, Times, Serif" size=2>&nbsp;</font></td>
<td align=right><FONT FACE="Times New Roman, Times, Serif" size=2></font></td>
<td align=right><FONT FACE="Times New Roman, Times, Serif" size=2></font></td>
</tr>
<tr>
<td><FONT FACE="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;Cost of sales - coal</font></td>
<td align=right><FONT FACE="Times New Roman, Times, Serif" size=2></font></td>
<td align=right><FONT FACE="Times New Roman, Times, Serif" size=2>60,203</font></td>
<td><FONT FACE="Times New Roman, Times, Serif" size=2>&nbsp;</font></td>
<td align=right><FONT FACE="Times New Roman, Times, Serif" size=2></font></td>
<td align=right><FONT FACE="Times New Roman, Times, Serif" size=2>58,190</font></td>
<td><FONT FACE="Times New Roman, Times, Serif" size=2>&nbsp;</font></td>
<td align=right><FONT FACE="Times New Roman, Times, Serif" size=2></font></td>
<td align=right><FONT FACE="Times New Roman, Times, Serif" size=2>228,433</font></td>
<td><FONT FACE="Times New Roman, Times, Serif" size=2>&nbsp;</font></td>
<td align=right><FONT FACE="Times New Roman, Times, Serif" size=2></font></td>
<td align=right><FONT FACE="Times New Roman, Times, Serif" size=2>226,707</font></td>
<td><FONT FACE="Times New Roman, Times, Serif" size=2>&nbsp;</font></td>
<td align=right><FONT FACE="Times New Roman, Times, Serif" size=2></font></td>
<td align=right><FONT FACE="Times New Roman, Times, Serif" size=2>177,304</font></td>
</tr>
<tr>
<td><FONT FACE="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;Depreciation, depletion and amortization</font></td>
<td align=right><FONT FACE="Times New Roman, Times, Serif" size=2></font></td>
<td align=right><FONT FACE="Times New Roman, Times, Serif" size=2>3,820</font></td>
<td><FONT FACE="Times New Roman, Times, Serif" size=2>&nbsp;</font></td>
<td align=right><FONT FACE="Times New Roman, Times, Serif" size=2></font></td>
<td align=right><FONT FACE="Times New Roman, Times, Serif" size=2>2,956</font></td>
<td><FONT FACE="Times New Roman, Times, Serif" size=2>&nbsp;</font></td>
<td align=right><FONT FACE="Times New Roman, Times, Serif" size=2></font></td>
<td align=right><FONT FACE="Times New Roman, Times, Serif" size=2>12,599</font></td>
<td><FONT FACE="Times New Roman, Times, Serif" size=2>&nbsp;</font></td>
<td align=right><FONT FACE="Times New Roman, Times, Serif" size=2></font></td>
<td align=right><FONT FACE="Times New Roman, Times, Serif" size=2>11,539</font></td>
<td><FONT FACE="Times New Roman, Times, Serif" size=2>&nbsp;</font></td>
<td align=right><FONT FACE="Times New Roman, Times, Serif" size=2></font></td>
<td align=right><FONT FACE="Times New Roman, Times, Serif" size=2>9,165</font></td>
</tr>
<tr>
<td><FONT FACE="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;Selling and administrative</font></td>
<td align=right><FONT FACE="Times New Roman, Times, Serif" size=2></font></td>
<td align=right><FONT FACE="Times New Roman, Times, Serif" size=2>7,723</font></td>
<td><FONT FACE="Times New Roman, Times, Serif" size=2>&nbsp;</font></td>
<td align=right><FONT FACE="Times New Roman, Times, Serif" size=2></font></td>
<td align=right><FONT FACE="Times New Roman, Times, Serif" size=2>7,112</font></td>
<td><FONT FACE="Times New Roman, Times, Serif" size=2>&nbsp;</font></td>
<td align=right><FONT FACE="Times New Roman, Times, Serif" size=2></font></td>
<td align=right><FONT FACE="Times New Roman, Times, Serif" size=2>33,386</font></td>
<td><FONT FACE="Times New Roman, Times, Serif" size=2>&nbsp;</font></td>
<td align=right><FONT FACE="Times New Roman, Times, Serif" size=2></font></td>
<td align=right><FONT FACE="Times New Roman, Times, Serif" size=2>31,732</font></td>
<td><FONT FACE="Times New Roman, Times, Serif" size=2>&nbsp;</font></td>
<td align=right><FONT FACE="Times New Roman, Times, Serif" size=2></font></td>
<td align=right><FONT FACE="Times New Roman, Times, Serif" size=2>22,625</font></td>
</tr>
<tr>
<td><FONT FACE="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;Heritage health benefit costs  </font></td>
<td align=right><FONT FACE="Times New Roman, Times, Serif" size=2></font></td>
<td align=right><FONT FACE="Times New Roman, Times, Serif" size=2>7,206</font></td>
<td><FONT FACE="Times New Roman, Times, Serif" size=2>&nbsp;</font></td>
<td align=right><FONT FACE="Times New Roman, Times, Serif" size=2></font></td>
<td align=right><FONT FACE="Times New Roman, Times, Serif" size=2>7,517</font></td>
<td><FONT FACE="Times New Roman, Times, Serif" size=2>&nbsp;</font></td>
<td align=right><FONT FACE="Times New Roman, Times, Serif" size=2></font></td>
<td align=right><FONT FACE="Times New Roman, Times, Serif" size=2>29,922</font></td>
<td><FONT FACE="Times New Roman, Times, Serif" size=2>&nbsp;</font></td>
<td align=right><FONT FACE="Times New Roman, Times, Serif" size=2></font></td>
<td align=right><FONT FACE="Times New Roman, Times, Serif" size=2>26,921</font></td>
<td><FONT FACE="Times New Roman, Times, Serif" size=2>&nbsp;</font></td>
<td align=right><FONT FACE="Times New Roman, Times, Serif" size=2></font></td>
<td align=right><FONT FACE="Times New Roman, Times, Serif" size=2>23,773</font></td>
</tr>
<tr>
<td><FONT FACE="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;Loss on sales of assets</font></td>
<td align=right><FONT FACE="Times New Roman, Times, Serif" size=2></font></td>
<td align=right><FONT FACE="Times New Roman, Times, Serif" size=2>(19)</font></td>
<td><FONT FACE="Times New Roman, Times, Serif" size=2>&nbsp;</font></td>
<td align=right><FONT FACE="Times New Roman, Times, Serif" size=2></font></td>
<td align=right><FONT FACE="Times New Roman, Times, Serif" size=2>-</font></td>
<td><FONT FACE="Times New Roman, Times, Serif" size=2>&nbsp;</font></td>
<td align=right><FONT FACE="Times New Roman, Times, Serif" size=2></font></td>
<td align=right><FONT FACE="Times New Roman, Times, Serif" size=2>(645)</font></td>
<td><FONT FACE="Times New Roman, Times, Serif" size=2>&nbsp;</font></td>
<td align=right><FONT FACE="Times New Roman, Times, Serif" size=2></font></td>
<td align=right><FONT FACE="Times New Roman, Times, Serif" size=2>9</font></td>
<td><FONT FACE="Times New Roman, Times, Serif" size=2>&nbsp;</font></td>
<td align=right><FONT FACE="Times New Roman, Times, Serif" size=2></font></td>
<td align=right><FONT FACE="Times New Roman, Times, Serif" size=2>440</font></td>
</tr>
         <tr>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
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                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
         </tr>
<tr>
<td><FONT FACE="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;</font></td>
<td align=right><FONT FACE="Times New Roman, Times, Serif" size=2></font></td>
<td align=right><FONT FACE="Times New Roman, Times, Serif" size=2>78,933</font></td>
<td><FONT FACE="Times New Roman, Times, Serif" size=2>&nbsp;</font></td>
<td align=right><FONT FACE="Times New Roman, Times, Serif" size=2></font></td>
<td align=right><FONT FACE="Times New Roman, Times, Serif" size=2>75,775</font></td>
<td><FONT FACE="Times New Roman, Times, Serif" size=2>&nbsp;</font></td>
<td align=right><FONT FACE="Times New Roman, Times, Serif" size=2></font></td>
<td align=right><FONT FACE="Times New Roman, Times, Serif" size=2>303,695</font></td>
<td><FONT FACE="Times New Roman, Times, Serif" size=2>&nbsp;</font></td>
<td align=right><FONT FACE="Times New Roman, Times, Serif" size=2></font></td>
<td align=right><FONT FACE="Times New Roman, Times, Serif" size=2>296,908</font></td>
<td><FONT FACE="Times New Roman, Times, Serif" size=2>&nbsp;</font></td>
<td align=right><FONT FACE="Times New Roman, Times, Serif" size=2></font></td>
<td align=right><FONT FACE="Times New Roman, Times, Serif" size=2>233,307</font></td>
</tr>
         <tr>
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                  <td><HR NOSHADE></td>
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                  <td><HR NOSHADE></td>
         </tr>

<tr>
<td><FONT FACE="Times New Roman, Times, Serif" size=2>Operating income from continuing operations</font></td>
<td align=right><FONT FACE="Times New Roman, Times, Serif" size=2></font></td>
<td align=right><FONT FACE="Times New Roman, Times, Serif" size=2>3,604</font></td>
<td><FONT FACE="Times New Roman, Times, Serif" size=2>&nbsp;</font></td>
<td align=right><FONT FACE="Times New Roman, Times, Serif" size=2></font></td>
<td align=right><FONT FACE="Times New Roman, Times, Serif" size=2>2,509</font></td>
<td><FONT FACE="Times New Roman, Times, Serif" size=2>&nbsp;</font></td>
<td align=right><FONT FACE="Times New Roman, Times, Serif" size=2></font></td>
<td align=right><FONT FACE="Times New Roman, Times, Serif" size=2>7,115</font></td>
<td><FONT FACE="Times New Roman, Times, Serif" size=2>&nbsp;</font></td>
<td align=right><FONT FACE="Times New Roman, Times, Serif" size=2></font></td>
<td align=right><FONT FACE="Times New Roman, Times, Serif" size=2>18,833</font></td>
<td><FONT FACE="Times New Roman, Times, Serif" size=2>&nbsp;</font></td>
<td align=right><FONT FACE="Times New Roman, Times, Serif" size=2></font></td>
<td align=right><FONT FACE="Times New Roman, Times, Serif" size=2>13,612</font></td>
</tr>
<tr>
<td><FONT FACE="Times New Roman, Times, Serif" size=2>&nbsp;</font></td>
<td align=right><FONT FACE="Times New Roman, Times, Serif" size=2></font></td>
<td align=right><FONT FACE="Times New Roman, Times, Serif" size=2></font></td>
<td><FONT FACE="Times New Roman, Times, Serif" size=2>&nbsp;</font></td>
<td align=right><FONT FACE="Times New Roman, Times, Serif" size=2></font></td>
<td align=right><FONT FACE="Times New Roman, Times, Serif" size=2></font></td>
<td><FONT FACE="Times New Roman, Times, Serif" size=2>&nbsp;</font></td>
<td align=right><FONT FACE="Times New Roman, Times, Serif" size=2></font></td>
<td align=right><FONT FACE="Times New Roman, Times, Serif" size=2></font></td>
<td><FONT FACE="Times New Roman, Times, Serif" size=2>&nbsp;</font></td>
<td align=right><FONT FACE="Times New Roman, Times, Serif" size=2></font></td>
<td align=right><FONT FACE="Times New Roman, Times, Serif" size=2></font></td>
<td><FONT FACE="Times New Roman, Times, Serif" size=2>&nbsp;</font></td>
<td align=right><FONT FACE="Times New Roman, Times, Serif" size=2></font></td>
<td align=right><FONT FACE="Times New Roman, Times, Serif" size=2></font></td>
</tr>
<tr>
<td><FONT FACE="Times New Roman, Times, Serif" size=2>Other income (expense):</font></td>
<td align=right><FONT FACE="Times New Roman, Times, Serif" size=2></font></td>
<td align=right><FONT FACE="Times New Roman, Times, Serif" size=2></font></td>
<td><FONT FACE="Times New Roman, Times, Serif" size=2>&nbsp;</font></td>
<td align=right><FONT FACE="Times New Roman, Times, Serif" size=2></font></td>
<td align=right><FONT FACE="Times New Roman, Times, Serif" size=2></font></td>
<td><FONT FACE="Times New Roman, Times, Serif" size=2>&nbsp;</font></td>
<td align=right><FONT FACE="Times New Roman, Times, Serif" size=2></font></td>
<td align=right><FONT FACE="Times New Roman, Times, Serif" size=2></font></td>
<td><FONT FACE="Times New Roman, Times, Serif" size=2>&nbsp;</font></td>
<td align=right><FONT FACE="Times New Roman, Times, Serif" size=2></font></td>
<td align=right><FONT FACE="Times New Roman, Times, Serif" size=2></font></td>
<td><FONT FACE="Times New Roman, Times, Serif" size=2>&nbsp;</font></td>
<td align=right><FONT FACE="Times New Roman, Times, Serif" size=2></font></td>
<td align=right><FONT FACE="Times New Roman, Times, Serif" size=2></font></td>
</tr>
<tr>
<td><FONT FACE="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;Interest expense</font></td>
<td align=right><FONT FACE="Times New Roman, Times, Serif" size=2></font></td>
<td align=right><FONT FACE="Times New Roman, Times, Serif" size=2>(2,486)</font></td>
<td><FONT FACE="Times New Roman, Times, Serif" size=2>&nbsp;</font></td>
<td align=right><FONT FACE="Times New Roman, Times, Serif" size=2></font></td>
<td align=right><FONT FACE="Times New Roman, Times, Serif" size=2>(2,539)</font></td>
<td><FONT FACE="Times New Roman, Times, Serif" size=2>&nbsp;</font></td>
<td align=right><FONT FACE="Times New Roman, Times, Serif" size=2></font></td>
<td align=right><FONT FACE="Times New Roman, Times, Serif" size=2>(10,114)</font></td>
<td><FONT FACE="Times New Roman, Times, Serif" size=2>&nbsp;</font></td>
<td align=right><FONT FACE="Times New Roman, Times, Serif" size=2></font></td>
<td align=right><FONT FACE="Times New Roman, Times, Serif" size=2>(10,821)</font></td>
<td><FONT FACE="Times New Roman, Times, Serif" size=2>&nbsp;</font></td>
<td align=right><FONT FACE="Times New Roman, Times, Serif" size=2></font></td>
<td align=right><FONT FACE="Times New Roman, Times, Serif" size=2>(8,418)</font></td>
</tr>
<tr>
<td><FONT FACE="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;Interest income</font></td>
<td align=right><FONT FACE="Times New Roman, Times, Serif" size=2></font></td>
<td align=right><FONT FACE="Times New Roman, Times, Serif" size=2>944</font></td>
<td><FONT FACE="Times New Roman, Times, Serif" size=2>&nbsp;</font></td>
<td align=right><FONT FACE="Times New Roman, Times, Serif" size=2></font></td>
<td align=right><FONT FACE="Times New Roman, Times, Serif" size=2>539</font></td>
<td><FONT FACE="Times New Roman, Times, Serif" size=2>&nbsp;</font></td>
<td align=right><FONT FACE="Times New Roman, Times, Serif" size=2></font></td>
<td align=right><FONT FACE="Times New Roman, Times, Serif" size=2>1,952</font></td>
<td><FONT FACE="Times New Roman, Times, Serif" size=2>&nbsp;</font></td>
<td align=right><FONT FACE="Times New Roman, Times, Serif" size=2></font></td>
<td align=right><FONT FACE="Times New Roman, Times, Serif" size=2>2,117</font></td>
<td><FONT FACE="Times New Roman, Times, Serif" size=2>&nbsp;</font></td>
<td align=right><FONT FACE="Times New Roman, Times, Serif" size=2></font></td>
<td align=right><FONT FACE="Times New Roman, Times, Serif" size=2>2,657</font></td>
</tr>
<tr>
<td><FONT FACE="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;Minority interest</font></td>
<td align=right><FONT FACE="Times New Roman, Times, Serif" size=2></font></td>
<td align=right><FONT FACE="Times New Roman, Times, Serif" size=2>(282)</font></td>
<td><FONT FACE="Times New Roman, Times, Serif" size=2>&nbsp;</font></td>
<td align=right><FONT FACE="Times New Roman, Times, Serif" size=2></font></td>
<td align=right><FONT FACE="Times New Roman, Times, Serif" size=2>(111)</font></td>
<td><FONT FACE="Times New Roman, Times, Serif" size=2>&nbsp;</font></td>
<td align=right><FONT FACE="Times New Roman, Times, Serif" size=2></font></td>
<td align=right><FONT FACE="Times New Roman, Times, Serif" size=2>(773)</font></td>
<td><FONT FACE="Times New Roman, Times, Serif" size=2>&nbsp;</font></td>
<td align=right><FONT FACE="Times New Roman, Times, Serif" size=2></font></td>
<td align=right><FONT FACE="Times New Roman, Times, Serif" size=2>(800)</font></td>
<td><FONT FACE="Times New Roman, Times, Serif" size=2>&nbsp;</font></td>
<td align=right><FONT FACE="Times New Roman, Times, Serif" size=2></font></td>
<td align=right><FONT FACE="Times New Roman, Times, Serif" size=2>(780)</font></td>
</tr>
<tr>
<td><FONT FACE="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;Other income (expense)</font></td>
<td align=right><FONT FACE="Times New Roman, Times, Serif" size=2></font></td>
<td align=right><FONT FACE="Times New Roman, Times, Serif" size=2>(119)</font></td>
<td><FONT FACE="Times New Roman, Times, Serif" size=2>&nbsp;</font></td>
<td align=right><FONT FACE="Times New Roman, Times, Serif" size=2></font></td>
<td align=right><FONT FACE="Times New Roman, Times, Serif" size=2>207</font></td>
<td><FONT FACE="Times New Roman, Times, Serif" size=2>&nbsp;</font></td>
<td align=right><FONT FACE="Times New Roman, Times, Serif" size=2></font></td>
<td align=right><FONT FACE="Times New Roman, Times, Serif" size=2>1,169</font></td>
<td><FONT FACE="Times New Roman, Times, Serif" size=2>&nbsp;</font></td>
<td align=right><FONT FACE="Times New Roman, Times, Serif" size=2></font></td>
<td align=right><FONT FACE="Times New Roman, Times, Serif" size=2>2,011</font></td>
<td><FONT FACE="Times New Roman, Times, Serif" size=2>&nbsp;</font></td>
<td align=right><FONT FACE="Times New Roman, Times, Serif" size=2></font></td>
<td align=right><FONT FACE="Times New Roman, Times, Serif" size=2>572</font></td>
</tr>
         <tr>
                  <td><HR NOSHADE></td>
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                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
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                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
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                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
         </tr>
<tr>
<td><FONT FACE="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;</font></td>
<td align=right><FONT FACE="Times New Roman, Times, Serif" size=2></font></td>
<td align=right><FONT FACE="Times New Roman, Times, Serif" size=2>(1,943)</font></td>
<td><FONT FACE="Times New Roman, Times, Serif" size=2>&nbsp;</font></td>
<td align=right><FONT FACE="Times New Roman, Times, Serif" size=2></font></td>
<td align=right><FONT FACE="Times New Roman, Times, Serif" size=2>(1,904)</font></td>
<td><FONT FACE="Times New Roman, Times, Serif" size=2>&nbsp;</font></td>
<td align=right><FONT FACE="Times New Roman, Times, Serif" size=2></font></td>
<td align=right><FONT FACE="Times New Roman, Times, Serif" size=2>(7,766)</font></td>
<td><FONT FACE="Times New Roman, Times, Serif" size=2>&nbsp;</font></td>
<td align=right><FONT FACE="Times New Roman, Times, Serif" size=2></font></td>
<td align=right><FONT FACE="Times New Roman, Times, Serif" size=2>(7,493)</font></td>
<td><FONT FACE="Times New Roman, Times, Serif" size=2>&nbsp;</font></td>
<td align=right><FONT FACE="Times New Roman, Times, Serif" size=2></font></td>
<td align=right><FONT FACE="Times New Roman, Times, Serif" size=2>(5,969)</font></td>
</tr>
         <tr>
                  <td><HR NOSHADE></td>
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                  <td><HR NOSHADE></td>
                   <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
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                  <td><HR NOSHADE></td>
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                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
         </tr>

<tr>
<td><FONT FACE="Times New Roman, Times, Serif" size=2>Income
(loss) from continuing operations<br>&nbsp;&nbsp;before income taxes and cumulative<br>&nbsp;&nbsp;effect of
change in accounting principle</font></td>
<td align=right valign=bottom><FONT FACE="Times New Roman, Times, Serif" size=2></font></td>
<td align=right valign=bottom><FONT FACE="Times New Roman, Times, Serif" size=2>1,661</font></td>
<td><FONT FACE="Times New Roman, Times, Serif" size=2>&nbsp;</font></td>
<td align=right valign=bottom><FONT FACE="Times New Roman, Times, Serif" size=2></font></td>
<td align=right valign=bottom><FONT FACE="Times New Roman, Times, Serif" size=2>605</font></td>
<td><FONT FACE="Times New Roman, Times, Serif" size=2>&nbsp;</font></td>
<td align=right valign=bottom><FONT FACE="Times New Roman, Times, Serif" size=2></font></td>
<td align=right valign=bottom><FONT FACE="Times New Roman, Times, Serif" size=2>(651)</font></td>
<td><FONT FACE="Times New Roman, Times, Serif" size=2>&nbsp;</font></td>
<td align=right valign=bottom><FONT FACE="Times New Roman, Times, Serif" size=2></font></td>
<td align=right valign=bottom><FONT FACE="Times New Roman, Times, Serif" size=2>11,340</font></td>
<td><FONT FACE="Times New Roman, Times, Serif" size=2>&nbsp;</font></td>
<td align=right valign=bottom><FONT FACE="Times New Roman, Times, Serif" size=2></font></td>
<td align=right valign=bottom><FONT FACE="Times New Roman, Times, Serif" size=2>7,643</font></td>
</tr>
<tr>
<td><FONT FACE="Times New Roman, Times, Serif" size=2>&nbsp;</font></td>
<td align=right><FONT FACE="Times New Roman, Times, Serif" size=2></font></td>
<td align=right><FONT FACE="Times New Roman, Times, Serif" size=2></font></td>
<td><FONT FACE="Times New Roman, Times, Serif" size=2>&nbsp;</font></td>
<td align=right><FONT FACE="Times New Roman, Times, Serif" size=2></font></td>
<td align=right><FONT FACE="Times New Roman, Times, Serif" size=2></font></td>
<td><FONT FACE="Times New Roman, Times, Serif" size=2>&nbsp;</font></td>
<td align=right><FONT FACE="Times New Roman, Times, Serif" size=2></font></td>
<td align=right><FONT FACE="Times New Roman, Times, Serif" size=2></font></td>
<td><FONT FACE="Times New Roman, Times, Serif" size=2>&nbsp;</font></td>
<td align=right><FONT FACE="Times New Roman, Times, Serif" size=2></font></td>
<td align=right><FONT FACE="Times New Roman, Times, Serif" size=2></font></td>
<td><FONT FACE="Times New Roman, Times, Serif" size=2>&nbsp;</font></td>
<td align=right><FONT FACE="Times New Roman, Times, Serif" size=2></font></td>
<td align=right><FONT FACE="Times New Roman, Times, Serif" size=2></font></td>
</tr>
<tr>
<td><FONT FACE="Times New Roman, Times, Serif" size=2>Income tax benefit (expense) from<br>&nbsp;&nbsp; continuing operations</font></td>
<td align=right valign=bottom><FONT FACE="Times New Roman, Times, Serif" size=2></font></td>
<td align=right valign=bottom><FONT FACE="Times New Roman, Times, Serif" size=2>875</font></td>
<td><FONT FACE="Times New Roman, Times, Serif" size=2>&nbsp;</font></td>
<td align=right valign=bottom><FONT FACE="Times New Roman, Times, Serif" size=2></font></td>
<td align=right valign=bottom><FONT FACE="Times New Roman, Times, Serif" size=2>910</font></td>
<td><FONT FACE="Times New Roman, Times, Serif" size=2>&nbsp;</font></td>
<td align=right valign=bottom><FONT FACE="Times New Roman, Times, Serif" size=2></font></td>
<td align=right valign=bottom><FONT FACE="Times New Roman, Times, Serif" size=2>10,971</font></td>
<td><FONT FACE="Times New Roman, Times, Serif" size=2>&nbsp;</font></td>
<td align=right valign=bottom><FONT FACE="Times New Roman, Times, Serif" size=2></font></td>
<td align=right valign=bottom><FONT FACE="Times New Roman, Times, Serif" size=2>2,368</font></td>
<td><FONT FACE="Times New Roman, Times, Serif" size=2>&nbsp;</font></td>
<td align=right valign=bottom><FONT FACE="Times New Roman, Times, Serif" size=2></font></td>
<td align=right valign=bottom><FONT FACE="Times New Roman, Times, Serif" size=2>(1,228)</font></td>
</tr>
         <tr>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
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         </tr>
<tr>
<td><FONT FACE="Times New Roman, Times, Serif" size=2>Net income from continuing operations<br>&nbsp;&nbsp; before cumulative effect of change in<br>&nbsp;&nbsp; accounting
 principle</font></td>
<td align=right valign=bottom><FONT FACE="Times New Roman, Times, Serif" size=2></font></td>
<td align=right valign=bottom><FONT FACE="Times New Roman, Times, Serif" size=2>2,536</font></td>
<td><FONT FACE="Times New Roman, Times, Serif" size=2>&nbsp;</font></td>
<td align=right valign=bottom><FONT FACE="Times New Roman, Times, Serif" size=2></font></td>
<td align=right valign=bottom><FONT FACE="Times New Roman, Times, Serif" size=2>1,515</font></td>
<td><FONT FACE="Times New Roman, Times, Serif" size=2>&nbsp;</font></td>
<td align=right valign=bottom><FONT FACE="Times New Roman, Times, Serif" size=2></font></td>
<td align=right valign=bottom><FONT FACE="Times New Roman, Times, Serif" size=2>10,320</font></td>
<td><FONT FACE="Times New Roman, Times, Serif" size=2>&nbsp;</font></td>
<td align=right valign=bottom><FONT FACE="Times New Roman, Times, Serif" size=2></font></td>
<td align=right valign=bottom><FONT FACE="Times New Roman, Times, Serif" size=2>13,708</font></td>
<td><FONT FACE="Times New Roman, Times, Serif" size=2>&nbsp;</font></td>
<td align=right valign=bottom><FONT FACE="Times New Roman, Times, Serif" size=2></font></td>
<td align=right valign=bottom><FONT FACE="Times New Roman, Times, Serif" size=2>6,415</font></td>
</tr>
<tr>
<td><FONT FACE="Times New Roman, Times, Serif" size=2>&nbsp;</font></td>
<td align=right><FONT FACE="Times New Roman, Times, Serif" size=2></font></td>
<td align=right><FONT FACE="Times New Roman, Times, Serif" size=2></font></td>
<td><FONT FACE="Times New Roman, Times, Serif" size=2>&nbsp;</font></td>
<td align=right><FONT FACE="Times New Roman, Times, Serif" size=2></font></td>
<td align=right><FONT FACE="Times New Roman, Times, Serif" size=2></font></td>
<td><FONT FACE="Times New Roman, Times, Serif" size=2>&nbsp;</font></td>
<td align=right><FONT FACE="Times New Roman, Times, Serif" size=2></font></td>
<td align=right><FONT FACE="Times New Roman, Times, Serif" size=2></font></td>
<td><FONT FACE="Times New Roman, Times, Serif" size=2>&nbsp;</font></td>
<td align=right><FONT FACE="Times New Roman, Times, Serif" size=2></font></td>
<td align=right><FONT FACE="Times New Roman, Times, Serif" size=2></font></td>
<td><FONT FACE="Times New Roman, Times, Serif" size=2>&nbsp;</font></td>
<td align=right><FONT FACE="Times New Roman, Times, Serif" size=2></font></td>
<td align=right><FONT FACE="Times New Roman, Times, Serif" size=2></font></td>
</tr>

<tr>
<td><FONT FACE="Times New Roman, Times, Serif" size=2>Discontinued operations:</font></td>
<td align=right><FONT FACE="Times New Roman, Times, Serif" size=2></font></td>
<td align=right><FONT FACE="Times New Roman, Times, Serif" size=2></font></td>
<td><FONT FACE="Times New Roman, Times, Serif" size=2>&nbsp;</font></td>
<td align=right><FONT FACE="Times New Roman, Times, Serif" size=2></font></td>
<td align=right><FONT FACE="Times New Roman, Times, Serif" size=2></font></td>
<td><FONT FACE="Times New Roman, Times, Serif" size=2>&nbsp;</font></td>
<td align=right><FONT FACE="Times New Roman, Times, Serif" size=2></font></td>
<td align=right><FONT FACE="Times New Roman, Times, Serif" size=2></font></td>
<td><FONT FACE="Times New Roman, Times, Serif" size=2>&nbsp;</font></td>
<td align=right><FONT FACE="Times New Roman, Times, Serif" size=2></font></td>
<td align=right><FONT FACE="Times New Roman, Times, Serif" size=2></font></td>
<td><FONT FACE="Times New Roman, Times, Serif" size=2>&nbsp;</font></td>
<td align=right><FONT FACE="Times New Roman, Times, Serif" size=2></font></td>
<td align=right><FONT FACE="Times New Roman, Times, Serif" size=2></font></td>
</tr>

<tr>
<td><FONT FACE="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Loss from operations of discontinued<br>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;terminal segment (including <br>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;impairment charge in 2002<br>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;of
      $3,712)</font></td>
<td align=right valign=bottom><FONT FACE="Times New Roman, Times, Serif" size=2></font></td>
<td align=right valign=bottom><FONT FACE="Times New Roman, Times, Serif" size=2>-</font></td>
<td><FONT FACE="Times New Roman, Times, Serif" size=2>&nbsp;</font></td>
<td align=right valign=bottom><FONT FACE="Times New Roman, Times, Serif" size=2></font></td>
<td align=right valign=bottom><FONT FACE="Times New Roman, Times, Serif" size=2>(306)</font></td>
<td><FONT FACE="Times New Roman, Times, Serif" size=2>&nbsp;</font></td>
<td align=right valign=bottom><FONT FACE="Times New Roman, Times, Serif" size=2></font></td>
<td align=right valign=bottom><FONT FACE="Times New Roman, Times, Serif" size=2>(988)</font></td>
<td><FONT FACE="Times New Roman, Times, Serif" size=2>&nbsp;</font></td>
<td align=right valign=bottom><FONT FACE="Times New Roman, Times, Serif" size=2></font></td>
<td align=right valign=bottom><FONT FACE="Times New Roman, Times, Serif" size=2>(5,971)</font></td>
<td><FONT FACE="Times New Roman, Times, Serif" size=2>&nbsp;</font></td>
<td align=right valign=bottom><FONT FACE="Times New Roman, Times, Serif" size=2></font></td>
<td align=right valign=bottom><FONT FACE="Times New Roman, Times, Serif" size=2>(1,980)</font></td>
</tr>
<tr>
<td><FONT FACE="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Gain on sale of discontinued terminal<br>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;segment</font></td>
<td align=right><FONT FACE="Times New Roman, Times, Serif" size=2></font></td>
<td align=right valign=bottom><FONT FACE="Times New Roman, Times, Serif" size=2>-</font></td>
<td><FONT FACE="Times New Roman, Times, Serif" size=2>&nbsp;</font></td>
<td align=right><FONT FACE="Times New Roman, Times, Serif" size=2></font></td>
<td align=right valign=bottom><FONT FACE="Times New Roman, Times, Serif" size=2>-</font></td>
<td><FONT FACE="Times New Roman, Times, Serif" size=2>&nbsp;</font></td>
<td align=right><FONT FACE="Times New Roman, Times, Serif" size=2></font></td>
<td align=right valign=bottom><FONT FACE="Times New Roman, Times, Serif" size=2>4,509</font></td>
<td><FONT FACE="Times New Roman, Times, Serif" size=2>&nbsp;</font></td>
<td align=right><FONT FACE="Times New Roman, Times, Serif" size=2></font></td>
<td align=right valign=bottom><FONT FACE="Times New Roman, Times, Serif" size=2>-</font></td>
<td><FONT FACE="Times New Roman, Times, Serif" size=2>&nbsp;</font></td>
<td align=right><FONT FACE="Times New Roman, Times, Serif" size=2></font></td>
<td align=right valign=bottom><FONT FACE="Times New Roman, Times, Serif" size=2>-</font></td>
</tr>
<tr>
<td><FONT FACE="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Income tax benefit (expense)</font></td>
<td align=right><FONT FACE="Times New Roman, Times, Serif" size=2></font></td>
<td align=right><FONT FACE="Times New Roman, Times, Serif" size=2>-</font></td>
<td><FONT FACE="Times New Roman, Times, Serif" size=2>&nbsp;</font></td>
<td align=right><FONT FACE="Times New Roman, Times, Serif" size=2></font></td>
<td align=right><FONT FACE="Times New Roman, Times, Serif" size=2>122</font></td>
<td><FONT FACE="Times New Roman, Times, Serif" size=2>&nbsp;</font></td>
<td align=right><FONT FACE="Times New Roman, Times, Serif" size=2></font></td>
<td align=right><FONT FACE="Times New Roman, Times, Serif" size=2>(1,408)</font></td>
<td><FONT FACE="Times New Roman, Times, Serif" size=2>&nbsp;</font></td>
<td align=right><FONT FACE="Times New Roman, Times, Serif" size=2></font></td>
<td align=right><FONT FACE="Times New Roman, Times, Serif" size=2>2,388</font></td>
<td><FONT FACE="Times New Roman, Times, Serif" size=2>&nbsp;</font></td>
<td align=right><FONT FACE="Times New Roman, Times, Serif" size=2></font></td>
<td align=right><FONT FACE="Times New Roman, Times, Serif" size=2>792</font></td>
</tr>

<tr>
<td><FONT FACE="Times New Roman, Times, Serif" size=2>&nbsp;</font></td>
<td align=right><FONT FACE="Times New Roman, Times, Serif" size=2></font></td>
<td align=right><FONT FACE="Times New Roman, Times, Serif" size=2></font></td>
<td><FONT FACE="Times New Roman, Times, Serif" size=2>&nbsp;</font></td>
<td align=right><FONT FACE="Times New Roman, Times, Serif" size=2></font></td>
<td align=right><FONT FACE="Times New Roman, Times, Serif" size=2></font></td>
<td><FONT FACE="Times New Roman, Times, Serif" size=2>&nbsp;</font></td>
<td align=right><FONT FACE="Times New Roman, Times, Serif" size=2></font></td>
<td align=right><FONT FACE="Times New Roman, Times, Serif" size=2></font></td>
<td><FONT FACE="Times New Roman, Times, Serif" size=2>&nbsp;</font></td>
<td align=right><FONT FACE="Times New Roman, Times, Serif" size=2></font></td>
<td align=right><FONT FACE="Times New Roman, Times, Serif" size=2></font></td>
<td><FONT FACE="Times New Roman, Times, Serif" size=2>&nbsp;</font></td>
<td align=right><FONT FACE="Times New Roman, Times, Serif" size=2></font></td>
<td align=right><FONT FACE="Times New Roman, Times, Serif" size=2></font></td>
</tr>

<tr>
<td><FONT FACE="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Income (loss) from discontinued
<br>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;operations</font></td>
<td align=right><FONT FACE="Times New Roman, Times, Serif" size=2></font></td>
<td align=right valign=bottom><FONT FACE="Times New Roman, Times, Serif" size=2>-</font></td>
<td><FONT FACE="Times New Roman, Times, Serif" size=2>&nbsp;</font></td>
<td align=right><FONT FACE="Times New Roman, Times, Serif" size=2></font></td>
<td align=right valign=bottom><FONT FACE="Times New Roman, Times, Serif" size=2>(184)</font></td>
<td><FONT FACE="Times New Roman, Times, Serif" size=2>&nbsp;</font></td>
<td align=right><FONT FACE="Times New Roman, Times, Serif" size=2></font></td>
<td align=right valign=bottom><FONT FACE="Times New Roman, Times, Serif" size=2>2,113</font></td>
<td><FONT FACE="Times New Roman, Times, Serif" size=2>&nbsp;</font></td>
<td align=right><FONT FACE="Times New Roman, Times, Serif" size=2></font></td>
<td align=right valign=bottom><FONT FACE="Times New Roman, Times, Serif" size=2>(3,583)</font></td>
<td><FONT FACE="Times New Roman, Times, Serif" size=2>&nbsp;</font></td>
<td align=right><FONT FACE="Times New Roman, Times, Serif" size=2></font></td>
<td align=right valign=bottom><FONT FACE="Times New Roman, Times, Serif" size=2>(1,188)</font></td>
</tr>
         <tr>
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                  <td><HR NOSHADE></td>
         </tr>
<tr>
<td><FONT FACE="Times New Roman, Times, Serif" size=2>Net income before cumulative effect of <br>
&nbsp;&nbsp;change in accounting principle</font></td>
<td align=right valign=bottom><FONT FACE="Times New Roman, Times, Serif" size=2></font></td>
<td align=right valign=bottom><FONT FACE="Times New Roman, Times, Serif" size=2>2,536</font></td>
<td><FONT FACE="Times New Roman, Times, Serif" size=2>&nbsp;</font></td>
<td align=right valign=bottom><FONT FACE="Times New Roman, Times, Serif" size=2></font></td>
<td align=right valign=bottom><FONT FACE="Times New Roman, Times, Serif" size=2>1,331</font></td>
<td><FONT FACE="Times New Roman, Times, Serif" size=2>&nbsp;</font></td>
<td align=right valign=bottom><FONT FACE="Times New Roman, Times, Serif" size=2></font></td>
<td align=right valign=bottom><FONT FACE="Times New Roman, Times, Serif" size=2>12,433</font></td>
<td><FONT FACE="Times New Roman, Times, Serif" size=2>&nbsp;</font></td>
<td align=right valign=bottom><FONT FACE="Times New Roman, Times, Serif" size=2></font></td>
<td align=right valign=bottom><FONT FACE="Times New Roman, Times, Serif" size=2>10,125</font></td>
<td><FONT FACE="Times New Roman, Times, Serif" size=2>&nbsp;</font></td>
<td align=right valign=bottom><FONT FACE="Times New Roman, Times, Serif" size=2></font></td>
<td align=right valign=bottom><FONT FACE="Times New Roman, Times, Serif" size=2>5,227</font></td>
</tr>


<tr>
<td><FONT FACE="Times New Roman, Times, Serif" size=2>Cumulative effect of change in accounting <br>
&nbsp;&nbsp;principle, net of income tax expense<br>&nbsp;&nbsp;of $108 </font></td>
<td align=right valign=bottom><FONT FACE="Times New Roman, Times, Serif" size=2></font></td>
<td align=right valign=bottom><FONT FACE="Times New Roman, Times, Serif" size=2>-</font></td>
<td><FONT FACE="Times New Roman, Times, Serif" size=2>&nbsp;</font></td>
<td align=right valign=bottom><FONT FACE="Times New Roman, Times, Serif" size=2></font></td>
<td align=right valign=bottom><FONT FACE="Times New Roman, Times, Serif" size=2>161</font></td>
<td><FONT FACE="Times New Roman, Times, Serif" size=2>&nbsp;</font></td>
<td align=right valign=bottom><FONT FACE="Times New Roman, Times, Serif" size=2></font></td>
<td align=right valign=bottom><FONT FACE="Times New Roman, Times, Serif" size=2>161</font></td>
<td><FONT FACE="Times New Roman, Times, Serif" size=2>&nbsp;</font></td>
<td align=right valign=bottom><FONT FACE="Times New Roman, Times, Serif" size=2></font></td>
<td align=right valign=bottom><FONT FACE="Times New Roman, Times, Serif" size=2>-</font></td>
<td><FONT FACE="Times New Roman, Times, Serif" size=2>&nbsp;</font></td>
<td align=right valign=bottom><FONT FACE="Times New Roman, Times, Serif" size=2></font></td>
<td align=right valign=bottom><FONT FACE="Times New Roman, Times, Serif" size=2>-</font></td>
</tr>
         <tr>
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                  <td><HR NOSHADE></td>
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                  <td><HR NOSHADE></td>
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                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
         </tr>
<tr>
<td><FONT FACE="Times New Roman, Times, Serif" size=2>Net income</font></td>
<td align=right><FONT FACE="Times New Roman, Times, Serif" size=2></font></td>
<td align=right><FONT FACE="Times New Roman, Times, Serif" size=2>2,536</font></td>
<td><FONT FACE="Times New Roman, Times, Serif" size=2>&nbsp;</font></td>
<td align=right><FONT FACE="Times New Roman, Times, Serif" size=2></font></td>
<td align=right><FONT FACE="Times New Roman, Times, Serif" size=2>1,492</font></td>
<td><FONT FACE="Times New Roman, Times, Serif" size=2>&nbsp;</font></td>
<td align=right><FONT FACE="Times New Roman, Times, Serif" size=2></font></td>
<td align=right><FONT FACE="Times New Roman, Times, Serif" size=2>12,594</font></td>
<td><FONT FACE="Times New Roman, Times, Serif" size=2>&nbsp;</font></td>
<td align=right><FONT FACE="Times New Roman, Times, Serif" size=2></font></td>
<td align=right><FONT FACE="Times New Roman, Times, Serif" size=2>10,125</font></td>
<td><FONT FACE="Times New Roman, Times, Serif" size=2>&nbsp;</font></td>
<td align=right><FONT FACE="Times New Roman, Times, Serif" size=2></font></td>
<td align=right><FONT FACE="Times New Roman, Times, Serif" size=2>5,227</font></td>
</tr>
</table>

<P align=right><FONT FACE="Times New Roman, Times, Serif" size=2>(Continued)</font></p>

<br>
<p align=center><FONT FACE="Times New Roman, Times, Serif" SIZE=3>F-5</font></p>
<page>
<br>

<H2 ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" size=3>Westmoreland
Coal Company and Subsidiaries<BR>Consolidated Statements
of Operations (Continued)</FONT></H2>

<table border=0 cellPadding=0 cellSpacing=0 width=700>
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                  <td><HR NOSHADE></td>
</tr>
         <tr>
                  <td align=right colspan=6><FONT FACE="Times New Roman, Times, Serif" SIZE=2><b>Three Months ended March 31,</b></font></td>
                  <td align=right></td>
                  <td align=center colspan=8><FONT FACE="Times New Roman, Times, Serif" SIZE=2><b>Year ended December 31,</b></font></td>
         </tr>
         <tr>
                  <td width=36% align=left><FONT FACE="Times New Roman, Times, Serif" SIZE=2><b></b></font></td>
                  <td width=2% align=right></td>
                  <td width=8% align=center><FONT FACE="Times New Roman, Times, Serif" SIZE=2><b>2004</b></font></td>
                  <td width=3%>&nbsp;</td>
                  <td width=2% align=right></td>
                  <td width=8% align=center><FONT FACE="Times New Roman, Times, Serif" SIZE=2><b>2003</b></font></td>
                  <td width=5%>&nbsp;</td>
                  <td width=2% align=right></td>
                  <td width=8% align=center><FONT FACE="Times New Roman, Times, Serif" SIZE=2><b>2003</b></font></td>
                  <td width=3%>&nbsp;</td>
                  <td width=2% align=right></td>
                  <td width=8% align=center><FONT FACE="Times New Roman, Times, Serif" SIZE=2><b>2002</b></font></td>
                  <td width=3%>&nbsp;</td>
                  <td width=2% align=right><b></b></td>
                  <td width=8% align=center><FONT FACE="Times New Roman, Times, Serif" SIZE=2><b>2001</b></font></td>
         </tr>
         <tr>
                  <td align=right></td>
                  <td align=right></td>
                  <td colspan=4 align=center><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(unaudited)</font></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=center colspan=8><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</font></td>
         </tr>
         <tr>
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         </tr>
         <tr>
                  <td align=left></td>
                  <td align=right></td>
                  <td align=center colspan=13><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(in thousands except per share data)</font></td>
         </tr>

<tr>
<td><FONT FACE="Times New Roman, Times, Serif" size=2>&nbsp;</font></td>
<td align=right><FONT FACE="Times New Roman, Times, Serif" size=2></font></td>
<td align=right><FONT FACE="Times New Roman, Times, Serif" size=2></font></td>
<td><FONT FACE="Times New Roman, Times, Serif" size=2>&nbsp;</font></td>
<td align=right><FONT FACE="Times New Roman, Times, Serif" size=2></font></td>
<td align=right><FONT FACE="Times New Roman, Times, Serif" size=2></font></td>
<td><FONT FACE="Times New Roman, Times, Serif" size=2>&nbsp;</font></td>
<td align=right><FONT FACE="Times New Roman, Times, Serif" size=2></font></td>
<td align=right><FONT FACE="Times New Roman, Times, Serif" size=2></font></td>
<td><FONT FACE="Times New Roman, Times, Serif" size=2>&nbsp;</font></td>
<td align=right><FONT FACE="Times New Roman, Times, Serif" size=2></font></td>
<td align=right><FONT FACE="Times New Roman, Times, Serif" size=2></font></td>
<td><FONT FACE="Times New Roman, Times, Serif" size=2>&nbsp;</font></td>
<td align=right><FONT FACE="Times New Roman, Times, Serif" size=2></font></td>
<td align=right><FONT FACE="Times New Roman, Times, Serif" size=2></font></td>
</tr>
<tr>
<td><FONT FACE="Times New Roman, Times, Serif" size=2>Less preferred stock dividend requirements</font></td>
<td align=right><FONT FACE="Times New Roman, Times, Serif" size=2></font></td>
<td align=right><FONT FACE="Times New Roman, Times, Serif" size=2>436</font></td>
<td><FONT FACE="Times New Roman, Times, Serif" size=2>&nbsp;</font></td>
<td align=right><FONT FACE="Times New Roman, Times, Serif" size=2></font></td>
<td align=right><FONT FACE="Times New Roman, Times, Serif" size=2>440</font></td>
<td><FONT FACE="Times New Roman, Times, Serif" size=2>&nbsp;</font></td>
<td align=right><FONT FACE="Times New Roman, Times, Serif" size=2></font></td>
<td align=right><FONT FACE="Times New Roman, Times, Serif" size=2>1,752</font></td>
<td><FONT FACE="Times New Roman, Times, Serif" size=2>&nbsp;</font></td>
<td align=right><FONT FACE="Times New Roman, Times, Serif" size=2></font></td>
<td align=right><FONT FACE="Times New Roman, Times, Serif" size=2>1,772</font></td>
<td><FONT FACE="Times New Roman, Times, Serif" size=2>&nbsp;</font></td>
<td align=right><FONT FACE="Times New Roman, Times, Serif" size=2></font></td>
<td align=right><FONT FACE="Times New Roman, Times, Serif" size=2>1,776</font></td>
</tr>

         <tr>
                  <td><HR NOSHADE></td>
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         </tr>
<tr>
<td><FONT FACE="Times New Roman, Times, Serif" size=2>Net income applicable to common<br>&nbsp;&nbsp;shareholders</font></td>
<td align=right valign=bottom><FONT FACE="Times New Roman, Times, Serif" size=2>$</font></td>
<td align=right valign=bottom><FONT FACE="Times New Roman, Times, Serif" size=2>2,100</font></td>
<td><FONT FACE="Times New Roman, Times, Serif" size=2>&nbsp;</font></td>
<td align=right valign=bottom><FONT FACE="Times New Roman, Times, Serif" size=2>$</font></td>
<td align=right valign=bottom><FONT FACE="Times New Roman, Times, Serif" size=2>1,052</font></td>
<td><FONT FACE="Times New Roman, Times, Serif" size=2>&nbsp;</font></td>
<td align=right valign=bottom><FONT FACE="Times New Roman, Times, Serif" size=2>$</font></td>
<td align=right valign=bottom><FONT FACE="Times New Roman, Times, Serif" size=2>10,842</font></td>
<td><FONT FACE="Times New Roman, Times, Serif" size=2>&nbsp;</font></td>
<td align=right valign=bottom><FONT FACE="Times New Roman, Times, Serif" size=2>$</font></td>
<td align=right valign=bottom><FONT FACE="Times New Roman, Times, Serif" size=2>8,353</font></td>
<td><FONT FACE="Times New Roman, Times, Serif" size=2>&nbsp;</font></td>
<td align=right valign=bottom><FONT FACE="Times New Roman, Times, Serif" size=2>$</font></td>
<td align=right valign=bottom><FONT FACE="Times New Roman, Times, Serif" size=2>3,451</font></td>
</tr>
         <tr>
                  <td><HR NOSHADE size=4></td>
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         </tr>
<tr>
<td><FONT FACE="Times New Roman, Times, Serif" size=2>Net income per share applicable to<br>&nbsp;&nbsp;common shareholders:</font></td>
<td align=right valign=bottom><FONT FACE="Times New Roman, Times, Serif" size=2></font></td>
<td align=right valign=bottom><FONT FACE="Times New Roman, Times, Serif" size=2></font></td>
<td><FONT FACE="Times New Roman, Times, Serif" size=2>&nbsp;</font></td>
<td align=right valign=bottom><FONT FACE="Times New Roman, Times, Serif" size=2></font></td>
<td align=right valign=bottom><FONT FACE="Times New Roman, Times, Serif" size=2></font></td>
<td><FONT FACE="Times New Roman, Times, Serif" size=2>&nbsp;</font></td>
<td align=right valign=bottom><FONT FACE="Times New Roman, Times, Serif" size=2></font></td>
<td align=right valign=bottom><FONT FACE="Times New Roman, Times, Serif" size=2></font></td>
<td><FONT FACE="Times New Roman, Times, Serif" size=2>&nbsp;</font></td>
<td align=right valign=bottom><FONT FACE="Times New Roman, Times, Serif" size=2></font></td>
<td align=right valign=bottom><FONT FACE="Times New Roman, Times, Serif" size=2></font></td>
<td><FONT FACE="Times New Roman, Times, Serif" size=2>&nbsp;</font></td>
<td align=right valign=bottom><FONT FACE="Times New Roman, Times, Serif" size=2></font></td>
<td align=right valign=bottom><FONT FACE="Times New Roman, Times, Serif" size=2></font></td>
</tr>
<tr>
<td><FONT FACE="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;Basic </font></td>
<td align=right valign=bottom><FONT FACE="Times New Roman, Times, Serif" size=2>$</font></td>
<td align=right valign=bottom><FONT FACE="Times New Roman, Times, Serif" size=2>.26</font></td>
<td><FONT FACE="Times New Roman, Times, Serif" size=2>&nbsp;</font></td>
<td align=right valign=bottom><FONT FACE="Times New Roman, Times, Serif" size=2>$</font></td>
<td align=right valign=bottom><FONT FACE="Times New Roman, Times, Serif" size=2>.12</font></td>
<td><FONT FACE="Times New Roman, Times, Serif" size=2>&nbsp;</font></td>
<td align=right valign=bottom><FONT FACE="Times New Roman, Times, Serif" size=2>$</font></td>
<td align=right valign=bottom><FONT FACE="Times New Roman, Times, Serif" size=2>1.37</font></td>
<td><FONT FACE="Times New Roman, Times, Serif" size=2>&nbsp;</font></td>
<td align=right valign=bottom><FONT FACE="Times New Roman, Times, Serif" size=2>$</font></td>
<td align=right valign=bottom><FONT FACE="Times New Roman, Times, Serif" size=2>1.10</font></td>
<td><FONT FACE="Times New Roman, Times, Serif" size=2>&nbsp;</font></td>
<td align=right valign=bottom><FONT FACE="Times New Roman, Times, Serif" size=2>$</font></td>
<td align=right valign=bottom><FONT FACE="Times New Roman, Times, Serif" size=2>0.48</font></td>
</tr>
<tr>
<td><FONT FACE="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;Diluted</font></td>
<td align=right valign=bottom><FONT FACE="Times New Roman, Times, Serif" size=2>$</font></td>
<td align=right valign=bottom><FONT FACE="Times New Roman, Times, Serif" size=2>.25</font></td>
<td><FONT FACE="Times New Roman, Times, Serif" size=2>&nbsp;</font></td>
<td align=right valign=bottom><FONT FACE="Times New Roman, Times, Serif" size=2>$</font></td>
<td align=right valign=bottom><FONT FACE="Times New Roman, Times, Serif" size=2>.11</font></td>
<td><FONT FACE="Times New Roman, Times, Serif" size=2>&nbsp;</font></td>
<td align=right valign=bottom><FONT FACE="Times New Roman, Times, Serif" size=2>$</font></td>
<td align=right valign=bottom><FONT FACE="Times New Roman, Times, Serif" size=2>1.28</font></td>
<td><FONT FACE="Times New Roman, Times, Serif" size=2>&nbsp;</font></td>
<td align=right valign=bottom><FONT FACE="Times New Roman, Times, Serif" size=2>$</font></td>
<td align=right valign=bottom><FONT FACE="Times New Roman, Times, Serif" size=2>1.03</font></td>
<td><FONT FACE="Times New Roman, Times, Serif" size=2>&nbsp;</font></td>
<td align=right valign=bottom><FONT FACE="Times New Roman, Times, Serif" size=2>$</font></td>
<td align=right valign=bottom><FONT FACE="Times New Roman, Times, Serif" size=2>0.43</font></td>
</tr>
<tr>
<td><FONT FACE="Times New Roman, Times, Serif" size=2>Net income per share applicable to common<br>&nbsp;&nbsp;shareholders from cumulative effect of<br>&nbsp;&nbsp;change in accounting principle:</font></td>
<td align=right valign=bottom><FONT FACE="Times New Roman, Times, Serif" size=2></font></td>
<td align=right valign=bottom><FONT FACE="Times New Roman, Times, Serif" size=2></font></td>
<td><FONT FACE="Times New Roman, Times, Serif" size=2>&nbsp;</font></td>
<td align=right valign=bottom><FONT FACE="Times New Roman, Times, Serif" size=2></font></td>
<td align=right valign=bottom><FONT FACE="Times New Roman, Times, Serif" size=2></font></td>
<td><FONT FACE="Times New Roman, Times, Serif" size=2>&nbsp;</font></td>
<td align=right valign=bottom><FONT FACE="Times New Roman, Times, Serif" size=2></font></td>
<td align=right valign=bottom><FONT FACE="Times New Roman, Times, Serif" size=2></font></td>
<td><FONT FACE="Times New Roman, Times, Serif" size=2>&nbsp;</font></td>
<td align=right valign=bottom><FONT FACE="Times New Roman, Times, Serif" size=2></font></td>
<td align=right valign=bottom><FONT FACE="Times New Roman, Times, Serif" size=2></font></td>
<td><FONT FACE="Times New Roman, Times, Serif" size=2>&nbsp;</font></td>
<td align=right valign=bottom><FONT FACE="Times New Roman, Times, Serif" size=2></font></td>
<td align=right valign=bottom><FONT FACE="Times New Roman, Times, Serif" size=2></font></td>
</tr>
<tr>
<td><FONT FACE="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;Basic and diluted</font></td>
<td align=right valign=bottom><FONT FACE="Times New Roman, Times, Serif" size=2>$</font></td>
<td align=right valign=bottom><FONT FACE="Times New Roman, Times, Serif" size=2>-</font></td>
<td><FONT FACE="Times New Roman, Times, Serif" size=2>&nbsp;</font></td>
<td align=right valign=bottom><FONT FACE="Times New Roman, Times, Serif" size=2>$</font></td>
<td align=right valign=bottom><FONT FACE="Times New Roman, Times, Serif" size=2>.02</font></td>
<td><FONT FACE="Times New Roman, Times, Serif" size=2>&nbsp;</font></td>
<td align=right valign=bottom><FONT FACE="Times New Roman, Times, Serif" size=2>$</font></td>
<td align=right valign=bottom><FONT FACE="Times New Roman, Times, Serif" size=2>.02</font></td>
<td><FONT FACE="Times New Roman, Times, Serif" size=2>&nbsp;</font></td>
<td align=right valign=bottom><FONT FACE="Times New Roman, Times, Serif" size=2>$</font></td>
<td align=right valign=bottom><FONT FACE="Times New Roman, Times, Serif" size=2>-</font></td>
<td><FONT FACE="Times New Roman, Times, Serif" size=2>&nbsp;</font></td>
<td align=right valign=bottom><FONT FACE="Times New Roman, Times, Serif" size=2>$</font></td>
<td align=right valign=bottom><FONT FACE="Times New Roman, Times, Serif" size=2>-</font></td>
</tr>
<tr>
<td><FONT FACE="Times New Roman, Times, Serif" size=2>&nbsp;</font></td>
<td align=right><FONT FACE="Times New Roman, Times, Serif" size=2></font></td>
<td align=right><FONT FACE="Times New Roman, Times, Serif" size=2></font></td>
<td><FONT FACE="Times New Roman, Times, Serif" size=2>&nbsp;</font></td>
<td align=right><FONT FACE="Times New Roman, Times, Serif" size=2></font></td>
<td align=right><FONT FACE="Times New Roman, Times, Serif" size=2></font></td>
<td><FONT FACE="Times New Roman, Times, Serif" size=2>&nbsp;</font></td>
<td align=right><FONT FACE="Times New Roman, Times, Serif" size=2></font></td>
<td align=right><FONT FACE="Times New Roman, Times, Serif" size=2></font></td>
<td><FONT FACE="Times New Roman, Times, Serif" size=2>&nbsp;</font></td>
<td align=right><FONT FACE="Times New Roman, Times, Serif" size=2></font></td>
<td align=right><FONT FACE="Times New Roman, Times, Serif" size=2></font></td>
<td><FONT FACE="Times New Roman, Times, Serif" size=2>&nbsp;</font></td>
<td align=right><FONT FACE="Times New Roman, Times, Serif" size=2></font></td>
<td align=right><FONT FACE="Times New Roman, Times, Serif" size=2></font></td>
</tr>

<tr>
<td><FONT FACE="Times New Roman, Times, Serif" size=2>Net
income per share applicable to<br>&nbsp;&nbsp;common shareholders:</font></td>
<td align=right valign=bottom><FONT FACE="Times New Roman, Times, Serif" size=2></font></td>
<td align=right valign=bottom><FONT FACE="Times New Roman, Times, Serif" size=2></font></td>
<td><FONT FACE="Times New Roman, Times, Serif" size=2>&nbsp;</font></td>
<td align=right valign=bottom><FONT FACE="Times New Roman, Times, Serif" size=2></font></td>
<td align=right valign=bottom><FONT FACE="Times New Roman, Times, Serif" size=2></font></td>
<td><FONT FACE="Times New Roman, Times, Serif" size=2>&nbsp;</font></td>
<td align=right valign=bottom><FONT FACE="Times New Roman, Times, Serif" size=2></font></td>
<td align=right valign=bottom><FONT FACE="Times New Roman, Times, Serif" size=2></font></td>
<td><FONT FACE="Times New Roman, Times, Serif" size=2>&nbsp;</font></td>
<td align=right valign=bottom><FONT FACE="Times New Roman, Times, Serif" size=2></font></td>
<td align=right valign=bottom><FONT FACE="Times New Roman, Times, Serif" size=2></font></td>
<td><FONT FACE="Times New Roman, Times, Serif" size=2>&nbsp;</font></td>
<td align=right valign=bottom><FONT FACE="Times New Roman, Times, Serif" size=2></font></td>
<td align=right valign=bottom><FONT FACE="Times New Roman, Times, Serif" size=2></font></td>
</tr>
<tr>
<td><FONT FACE="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;Basic</font></td>
<td align=right valign=bottom><FONT FACE="Times New Roman, Times, Serif" size=2>$</font></td>
<td align=right valign=bottom><FONT FACE="Times New Roman, Times, Serif" size=2>.26</font></td>
<td><FONT FACE="Times New Roman, Times, Serif" size=2>&nbsp;</font></td>
<td align=right valign=bottom><FONT FACE="Times New Roman, Times, Serif" size=2>$</font></td>
<td align=right valign=bottom><FONT FACE="Times New Roman, Times, Serif" size=2>.14</font></td>
<td><FONT FACE="Times New Roman, Times, Serif" size=2>&nbsp;</font></td>
<td align=right valign=bottom><FONT FACE="Times New Roman, Times, Serif" size=2>$</font></td>
<td align=right valign=bottom><FONT FACE="Times New Roman, Times, Serif" size=2>1.39</font></td>
<td><FONT FACE="Times New Roman, Times, Serif" size=2>&nbsp;</font></td>
<td align=right valign=bottom><FONT FACE="Times New Roman, Times, Serif" size=2>$</font></td>
<td align=right valign=bottom><FONT FACE="Times New Roman, Times, Serif" size=2>1.10</font></td>
<td><FONT FACE="Times New Roman, Times, Serif" size=2>&nbsp;</font></td>
<td align=right valign=bottom><FONT FACE="Times New Roman, Times, Serif" size=2>$</font></td>
<td align=right valign=bottom><FONT FACE="Times New Roman, Times, Serif" size=2>0.48</font></td>
</tr>
<tr>
<td><FONT FACE="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;Diluted</font></td>
<td align=right valign=bottom><FONT FACE="Times New Roman, Times, Serif" size=2>$</font></td>
<td align=right valign=bottom><FONT FACE="Times New Roman, Times, Serif" size=2>.25</font></td>
<td><FONT FACE="Times New Roman, Times, Serif" size=2>&nbsp;</font></td>
<td align=right valign=bottom><FONT FACE="Times New Roman, Times, Serif" size=2>$</font></td>
<td align=right valign=bottom><FONT FACE="Times New Roman, Times, Serif" size=2>.13</font></td>
<td><FONT FACE="Times New Roman, Times, Serif" size=2>&nbsp;</font></td>
<td align=right valign=bottom><FONT FACE="Times New Roman, Times, Serif" size=2>$</font></td>
<td align=right valign=bottom><FONT FACE="Times New Roman, Times, Serif" size=2>1.30</font></td>
<td><FONT FACE="Times New Roman, Times, Serif" size=2>&nbsp;</font></td>
<td align=right valign=bottom><FONT FACE="Times New Roman, Times, Serif" size=2>$</font></td>
<td align=right valign=bottom><FONT FACE="Times New Roman, Times, Serif" size=2>1.03</font></td>
<td><FONT FACE="Times New Roman, Times, Serif" size=2>&nbsp;</font></td>
<td align=right valign=bottom><FONT FACE="Times New Roman, Times, Serif" size=2>$</font></td>
<td align=right valign=bottom><FONT FACE="Times New Roman, Times, Serif" size=2>0.43</font></td>
</tr>
         <tr>
                  <td><HR NOSHADE size=4></td>
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         </tr>

<tr>
<td><FONT FACE="Times New Roman, Times, Serif" size=2>Pro forma
amounts assuming the change in<br>&nbsp;&nbsp;accounting principle is applied retroactively:</font></td>
<td align=right valign=bottom><FONT FACE="Times New Roman, Times, Serif" size=2></font></td>
<td align=right valign=bottom><FONT FACE="Times New Roman, Times, Serif" size=2></font></td>
<td><FONT FACE="Times New Roman, Times, Serif" size=2>&nbsp;</font></td>
<td align=right valign=bottom><FONT FACE="Times New Roman, Times, Serif" size=2></font></td>
<td align=right valign=bottom><FONT FACE="Times New Roman, Times, Serif" size=2></font></td>
<td><FONT FACE="Times New Roman, Times, Serif" size=2>&nbsp;</font></td>
<td align=right valign=bottom><FONT FACE="Times New Roman, Times, Serif" size=2></font></td>
<td align=right valign=bottom><FONT FACE="Times New Roman, Times, Serif" size=2></font></td>
<td><FONT FACE="Times New Roman, Times, Serif" size=2>&nbsp;</font></td>
<td align=right valign=bottom><FONT FACE="Times New Roman, Times, Serif" size=2></font></td>
<td align=right valign=bottom><FONT FACE="Times New Roman, Times, Serif" size=2></font></td>
<td><FONT FACE="Times New Roman, Times, Serif" size=2>&nbsp;</font></td>
<td align=right valign=bottom><FONT FACE="Times New Roman, Times, Serif" size=2></font></td>
<td align=right valign=bottom><FONT FACE="Times New Roman, Times, Serif" size=2></font></td>
</tr>
<tr>
<td><FONT FACE="Times New Roman, Times, Serif" size=2>Net income applicable to common<br>&nbsp;&nbsp;shareholders</font></td>
<td align=right valign=bottom><FONT FACE="Times New Roman, Times, Serif" size=2></font></td>
<td align=right valign=bottom><FONT FACE="Times New Roman, Times, Serif" size=2></font></td>
<td><FONT FACE="Times New Roman, Times, Serif" size=2>&nbsp;</font></td>
<td align=right valign=bottom><FONT FACE="Times New Roman, Times, Serif" size=2>$</font></td>
<td align=right valign=bottom><FONT FACE="Times New Roman, Times, Serif" size=2>891</font></td>
<td><FONT FACE="Times New Roman, Times, Serif" size=2>&nbsp;</font></td>
<td align=right valign=bottom><FONT FACE="Times New Roman, Times, Serif" size=2>$</font></td>
<td align=right valign=bottom><FONT FACE="Times New Roman, Times, Serif" size=2>10,681</font></td>
<td><FONT FACE="Times New Roman, Times, Serif" size=2>&nbsp;</font></td>
<td align=right valign=bottom><FONT FACE="Times New Roman, Times, Serif" size=2>$</font></td>
<td align=right valign=bottom><FONT FACE="Times New Roman, Times, Serif" size=2>8,200</font></td>
<td><FONT FACE="Times New Roman, Times, Serif" size=2>&nbsp;</font></td>
<td align=right valign=bottom><FONT FACE="Times New Roman, Times, Serif" size=2>$</font></td>
<td align=right valign=bottom><FONT FACE="Times New Roman, Times, Serif" size=2>3,367</font></td>
</tr>
<tr>
<td><FONT FACE="Times New Roman, Times, Serif" size=2>Net income per share applicable to
      <br>&nbsp;&nbsp;common shareholders:</font></td>
<td align=right valign=bottom><FONT FACE="Times New Roman, Times, Serif" size=2></font></td>
<td align=right valign=bottom><FONT FACE="Times New Roman, Times, Serif" size=2></font></td>
<td><FONT FACE="Times New Roman, Times, Serif" size=2>&nbsp;</font></td>
<td align=right valign=bottom><FONT FACE="Times New Roman, Times, Serif" size=2></font></td>
<td align=right valign=bottom><FONT FACE="Times New Roman, Times, Serif" size=2></font></td>
<td><FONT FACE="Times New Roman, Times, Serif" size=2>&nbsp;</font></td>
<td align=right valign=bottom><FONT FACE="Times New Roman, Times, Serif" size=2></font></td>
<td align=right valign=bottom><FONT FACE="Times New Roman, Times, Serif" size=2></font></td>
<td><FONT FACE="Times New Roman, Times, Serif" size=2>&nbsp;</font></td>
<td align=right valign=bottom><FONT FACE="Times New Roman, Times, Serif" size=2></font></td>
<td align=right valign=bottom><FONT FACE="Times New Roman, Times, Serif" size=2></font></td>
<td><FONT FACE="Times New Roman, Times, Serif" size=2>&nbsp;</font></td>
<td align=right valign=bottom><FONT FACE="Times New Roman, Times, Serif" size=2></font></td>
<td align=right valign=bottom><FONT FACE="Times New Roman, Times, Serif" size=2></font></td>
</tr>

<tr>
<td><FONT FACE="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;Basic</font></td>
<td align=right valign=bottom><FONT FACE="Times New Roman, Times, Serif" size=2></font></td>
<td align=right valign=bottom><FONT FACE="Times New Roman, Times, Serif" size=2></font></td>
<td><FONT FACE="Times New Roman, Times, Serif" size=2>&nbsp;</font></td>
<td align=right valign=bottom><FONT FACE="Times New Roman, Times, Serif" size=2>$</font></td>
<td align=right valign=bottom><FONT FACE="Times New Roman, Times, Serif" size=2>.12</font></td>
<td><FONT FACE="Times New Roman, Times, Serif" size=2>&nbsp;</font></td>
<td align=right valign=bottom><FONT FACE="Times New Roman, Times, Serif" size=2>$</font></td>
<td align=right valign=bottom><FONT FACE="Times New Roman, Times, Serif" size=2>1.37</font></td>
<td><FONT FACE="Times New Roman, Times, Serif" size=2>&nbsp;</font></td>
<td align=right valign=bottom><FONT FACE="Times New Roman, Times, Serif" size=2>$</font></td>
<td align=right valign=bottom><FONT FACE="Times New Roman, Times, Serif" size=2>1.08</font></td>
<td><FONT FACE="Times New Roman, Times, Serif" size=2>&nbsp;</font></td>
<td align=right valign=bottom><FONT FACE="Times New Roman, Times, Serif" size=2>$</font></td>
<td align=right valign=bottom><FONT FACE="Times New Roman, Times, Serif" size=2>0.47</font></td>
</tr>
<tr>
<td><FONT FACE="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;Diluted</font></td>
<td align=right valign=bottom><FONT FACE="Times New Roman, Times, Serif" size=2></font></td>
<td align=right valign=bottom><FONT FACE="Times New Roman, Times, Serif" size=2></font></td>
<td><FONT FACE="Times New Roman, Times, Serif" size=2>&nbsp;</font></td>
<td align=right valign=bottom><FONT FACE="Times New Roman, Times, Serif" size=2>$</font></td>
<td align=right valign=bottom><FONT FACE="Times New Roman, Times, Serif" size=2>.11</font></td>
<td><FONT FACE="Times New Roman, Times, Serif" size=2>&nbsp;</font></td>
<td align=right valign=bottom><FONT FACE="Times New Roman, Times, Serif" size=2>$</font></td>
<td align=right valign=bottom><FONT FACE="Times New Roman, Times, Serif" size=2>1.28</font></td>
<td><FONT FACE="Times New Roman, Times, Serif" size=2>&nbsp;</font></td>
<td align=right valign=bottom><FONT FACE="Times New Roman, Times, Serif" size=2>$</font></td>
<td align=right valign=bottom><FONT FACE="Times New Roman, Times, Serif" size=2>1.01</font></td>
<td><FONT FACE="Times New Roman, Times, Serif" size=2>&nbsp;</font></td>
<td align=right valign=bottom><FONT FACE="Times New Roman, Times, Serif" size=2>$</font></td>
<td align=right valign=bottom><FONT FACE="Times New Roman, Times, Serif" size=2>0.42</font></td>
</tr>
         <tr>
                  <td><HR NOSHADE size=4></td>
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         </tr>
<tr>
<td><FONT FACE="Times New Roman, Times, Serif" size=2>Weighted average number of common
   <br>&nbsp;&nbsp;shares outstanding - basic</font></td>
<td align=right valign=bottom><FONT FACE="Times New Roman, Times, Serif" size=2></font></td>
<td align=right valign=bottom><FONT FACE="Times New Roman, Times, Serif" size=2>8,009</font></td>
<td><FONT FACE="Times New Roman, Times, Serif" size=2>&nbsp;</font></td>
<td align=right valign=bottom><FONT FACE="Times New Roman, Times, Serif" size=2></font></td>
<td align=right valign=bottom><FONT FACE="Times New Roman, Times, Serif" size=2>7,728</font></td>
<td><FONT FACE="Times New Roman, Times, Serif" size=2>&nbsp;</font></td>
<td align=right valign=bottom><FONT FACE="Times New Roman, Times, Serif" size=2></font></td>
<td align=right valign=bottom><FONT FACE="Times New Roman, Times, Serif" size=2>7,799</font></td>
<td><FONT FACE="Times New Roman, Times, Serif" size=2>&nbsp;</font></td>
<td align=right valign=bottom><FONT FACE="Times New Roman, Times, Serif" size=2></font></td>
<td align=right valign=bottom><FONT FACE="Times New Roman, Times, Serif" size=2>7,608</font></td>
<td><FONT FACE="Times New Roman, Times, Serif" size=2>&nbsp;</font></td>
<td align=right valign=bottom><FONT FACE="Times New Roman, Times, Serif" size=2></font></td>
<td align=right valign=bottom><FONT FACE="Times New Roman, Times, Serif" size=2>7,239</font></td>
</tr>

<tr>
<td><FONT FACE="Times New Roman, Times, Serif" size=2>Weighted average number of common
   <br>&nbsp;&nbsp;shares outstanding - diluted</font></td>
<td align=right valign=bottom><FONT FACE="Times New Roman, Times, Serif" size=2></font></td>
<td align=right valign=bottom><FONT FACE="Times New Roman, Times, Serif" size=2>8,503</font></td>
<td><FONT FACE="Times New Roman, Times, Serif" size=2>&nbsp;</font></td>
<td align=right valign=bottom><FONT FACE="Times New Roman, Times, Serif" size=2></font></td>
<td align=right valign=bottom><FONT FACE="Times New Roman, Times, Serif" size=2>8,223</font></td>
<td><FONT FACE="Times New Roman, Times, Serif" size=2>&nbsp;</font></td>
<td align=right valign=bottom><FONT FACE="Times New Roman, Times, Serif" size=2></font></td>
<td align=right valign=bottom><FONT FACE="Times New Roman, Times, Serif" size=2>8,338</font></td>
<td><FONT FACE="Times New Roman, Times, Serif" size=2>&nbsp;</font></td>
<td align=right valign=bottom><FONT FACE="Times New Roman, Times, Serif" size=2></font></td>
<td align=right valign=bottom><FONT FACE="Times New Roman, Times, Serif" size=2>8,147</font></td>
<td><FONT FACE="Times New Roman, Times, Serif" size=2>&nbsp;</font></td>
<td align=right valign=bottom><FONT FACE="Times New Roman, Times, Serif" size=2></font></td>
<td align=right valign=bottom><FONT FACE="Times New Roman, Times, Serif" size=2>8,000</font></td>
</tr>
</table>

<P><FONT FACE="Times New Roman, Times, Serif" size=2>See accompanying Summary of Significant Accounting Policies and Notes to Consolidated Financial Statements.</font></p>

<br>
<p align=center><FONT FACE="Times New Roman, Times, Serif" SIZE=3>F-6</font></p>
<page>
<br>



<H1 ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" size=3>Westmoreland
Coal Company and Subsidiaries<br>Consolidated Statements
of Shareholders&#146; Equity<br> and
Comprehensive Income<br>Years Ended
December 31, 2001, 2002, 2003 and<br>
Three Months Ended March 31, 2004
</FONT></H1>

<table border=0 cellPadding=0 cellSpacing=0 width=700>
         <tr>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
<td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
         </tr>
         <tr>
                  <td width=28% align=left></td>
                  <td width=3% align=right></td>
                  <td width=9% align=right valign=bottom><FONT FACE="Times New Roman, Times, Serif" size=2><b>Class A Convertible Exchangeable Preferred Stock</b></font></td>
                  <td width=3% align=right></td>
                  <td width=9% align=right valign=bottom><FONT FACE="Times New Roman, Times, Serif" size=2><b>Common Stock</b></font></td>
                  <td width=3% align=right></td>
                  <td width=9% align=right valign=bottom><FONT FACE="Times New Roman, Times, Serif" size=2><b>Other Paid-In Capital</b></font></td>
                  <td width=3% align=right></td>
                  <td width=9% align=right valign=bottom><FONT FACE="Times New Roman, Times, Serif" size=2><b>Accumulated Other Comprehensive Loss</b></font></td>
                  <td width=3% align=right></td>
                  <td width=9% align=right valign=bottom><FONT FACE="Times New Roman, Times, Serif" size=2><b>Accumulated Deficit</b></font></td>
                  <td width=3% align=right></td>
                  <td width=9% align=right valign=bottom><FONT FACE="Times New Roman, Times, Serif" size=2><b>Total Shareholders&#146; Equity</b></font></td>
         </tr>
         <tr>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
<td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
         </tr>
         <tr>
                  <td align=left></td>
                  <td align=center colspan=12><FONT FACE="Times New Roman, Times, Serif" size=2>(in thousands)</font></td>
         </tr>
         <tr>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
<td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
         </tr>
         <tr>
                  <td align=left><FONT FACE="Times New Roman, Times, Serif" size=2>Balance at December 31, 2000<br>(208,708 preferred shares and<br>7,069,663 common shares<br>outstanding)</font></td>
                  <td align=right valign=bottom><FONT FACE="Times New Roman, Times, Serif" size=2></font></td>
                  <td align=right valign=bottom><FONT FACE="Times New Roman, Times, Serif" size=2>$ 209</font> </td>
                  <td align=right valign=bottom> <FONT FACE="Times New Roman, Times, Serif" size=2></font> </td>
                  <td align=right valign=bottom> <FONT FACE="Times New Roman, Times, Serif" size=2>$ 17,674 </font></td>
                  <td align=right valign=bottom> <FONT FACE="Times New Roman, Times, Serif" size=2></font></td>
                  <td align=right valign=bottom> <FONT FACE="Times New Roman, Times, Serif" size=2>$ 67,318</font> </td>
                  <td align=right valign=bottom> <FONT FACE="Times New Roman, Times, Serif" size=2></font> </td>
                  <td align=right valign=bottom><FONT FACE="Times New Roman, Times, Serif" size=2>$ &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;-</font></td>
                  <td align=right valign=bottom><FONT FACE="Times New Roman, Times, Serif" size=2></font></td>
                  <td align=right valign=bottom><FONT FACE="Times New Roman, Times, Serif" size=2>$ (81,828)</font></td>
                  <td align=right valign=bottom><FONT FACE="Times New Roman, Times, Serif" size=2></font></td>
                  <td align=right valign=bottom> <FONT FACE="Times New Roman, Times, Serif" size=2>$ 3,373</font> </td>
         </tr>
         <tr>
                  <td align=left>   <FONT FACE="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;Common stock issued as</font></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
         </tr>
         <tr>
                  <td align=left>      <FONT FACE="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;compensation (74,108 shares)</font></td>
                  <td align=right></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=2> - </font></td>
                  <td align=right></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=2>             185 </font></td>
                  <td align=right></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=2>             865 </font></td>
                  <td align=right></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=2> - </font></td>
                  <td align=right></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=2> - </font></td>
                  <td align=right></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=2>             1,050</font> </td>
         </tr>
         <tr>
                  <td align=left>      <FONT FACE="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;Common stock options exercised</font></td>
                  <td align=right></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=2>  </font></td>
                  <td align=right></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=2>              </font></td>
                  <td align=right></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=2>              </font></td>
                  <td align=right></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=2>  </font></td>
                  <td align=right></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=2>  </font></td>
                  <td align=right></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=2>             </font> </td>
         </tr>
         <tr>
                  <td align=left>      <FONT FACE="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;(371,450 shares)</font></td>
                  <td align=right></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=2> - </font></td>
                  <td align=right></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=2>             928 </font></td>
                  <td align=right></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=2>             551 </font></td>
                  <td align=right></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=2> - </font></td>
                  <td align=right></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=2> - </font></td>
                  <td align=right></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=2>             1,479</font> </td>
         </tr>
         <tr>
                  <td align=left> <FONT FACE="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;Tax benefit of stock option<br>&nbsp;&nbsp;&nbsp;&nbsp;exercises</font></td>
                  <td align=right></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=2> -</font> </td>
                  <td align=right></td>
                  <td align=right> <FONT FACE="Times New Roman, Times, Serif" size=2>            - </font></td>
                  <td align=right></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=2>               989</font> </td>
                  <td align=right></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=2> -</font> </td>
                  <td align=right></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=2> - </font></td>
                  <td align=right></td>
                  <td align=right> <FONT FACE="Times New Roman, Times, Serif" size=2>            989</font> </td>
         </tr>
         <tr>
                  <td align=left><FONT FACE="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;</font></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
         </tr>
         <tr>
                  <td align=left><FONT FACE="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;Net income</font></td>
                  <td align=right></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=2> - </font></td>
                  <td align=right></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=2> - </font></td>
                  <td align=right></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=2> - </font></td>
                  <td align=right></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=2> - </font></td>
                  <td align=right></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=2>          5,227</font> </td>
                  <td align=right></td>
                  <td align=right> <FONT FACE="Times New Roman, Times, Serif" size=2>         5,227 </font></td>
         </tr>
         <tr>
                  <td align=left> <FONT FACE="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;Net unrealized change in interest</font></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
         </tr>
         <tr>
                  <td align=left> <FONT FACE="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;rate swap agreement, net of</font></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
         </tr>
         <tr>
                  <td align=left><FONT FACE="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;tax benefit of $1,135</font> </td>
                  <td align=right></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=2> -</font> </td>
                  <td align=right></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=2> - </font></td>
                  <td align=right></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=2> - </font></td>
                  <td align=right></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=2>               (1,703) </font></td>
                  <td align=right></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=2> - </font></td>
                  <td align=right></td>
                  <td align=right> <FONT FACE="Times New Roman, Times, Serif" size=2><u>&nbsp;&nbsp;&nbsp;&nbsp;(1,703)</u> </font></td>
         </tr>
          <tr>
                  <td align=left><FONT FACE="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;Comprehensive income</font></td>
                  <td align=right></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=2> </font> </td>
                  <td align=right></td>
                  <td align=right> <FONT FACE="Times New Roman, Times, Serif" size=2> </font></td>
                  <td align=right></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=2> </font> </td>
                  <td align=right></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=2> </font> </td>
                  <td align=right></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=2>  </font></td>
                  <td align=right></td>
                  <td align=right> <FONT FACE="Times New Roman, Times, Serif" size=2>         3,524</font> </td>
         </tr>
         <tr>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
         </tr>



         <tr>
                  <td align=left><FONT FACE="Times New Roman, Times, Serif" size=2>Balance at December 31, 2001<br>(208,708 preferred shares and<br>7,515,221 common shares<br>outstanding)</font></td>
                  <td align=right valign=bottom><FONT FACE="Times New Roman, Times, Serif" size=2></font></td>
                  <td align=right valign=bottom><FONT FACE="Times New Roman, Times, Serif" size=2> 209</font> </td>
                  <td align=right valign=bottom> <FONT FACE="Times New Roman, Times, Serif" size=2></font> </td>
                  <td align=right valign=bottom> <FONT FACE="Times New Roman, Times, Serif" size=2> 18,787 </font></td>
                  <td align=right valign=bottom> <FONT FACE="Times New Roman, Times, Serif" size=2></font></td>
                  <td align=right valign=bottom> <FONT FACE="Times New Roman, Times, Serif" size=2> 69,723</font> </td>
                  <td align=right valign=bottom> <FONT FACE="Times New Roman, Times, Serif" size=2></font> </td>
                  <td align=right valign=bottom><FONT FACE="Times New Roman, Times, Serif" size=2> (1,703)</font></td>
                  <td align=right valign=bottom><FONT FACE="Times New Roman, Times, Serif" size=2></font></td>
                  <td align=right valign=bottom><FONT FACE="Times New Roman, Times, Serif" size=2> (76,601)</font></td>
                  <td align=right valign=bottom><FONT FACE="Times New Roman, Times, Serif" size=2></font></td>
                  <td align=right valign=bottom> <FONT FACE="Times New Roman, Times, Serif" size=2> 10,415</font> </td>
         </tr>
         <tr>
                  <td align=left>   <FONT FACE="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;Common stock issued as</font></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
         </tr>
         <tr>
                  <td align=left>      <FONT FACE="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;compensation (118,258 shares)</font></td>
                  <td align=right></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=2> - </font></td>
                  <td align=right></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=2>             296 </font></td>
                  <td align=right></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=2>             1,128 </font></td>
                  <td align=right></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=2> - </font></td>
                  <td align=right></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=2> - </font></td>
                  <td align=right></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=2>             1,424</font> </td>
         </tr>
         <tr>
                  <td align=left>      <FONT FACE="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;Common stock options exercised</font></td>
                  <td align=right></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=2>  </font></td>
                  <td align=right></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=2>              </font></td>
                  <td align=right></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=2>              </font></td>
                  <td align=right></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=2>  </font></td>
                  <td align=right></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=2>  </font></td>
                  <td align=right></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=2>             </font> </td>
         </tr>
         <tr>
                  <td align=left>      <FONT FACE="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;(77,900 shares)</font></td>
                  <td align=right></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=2> - </font></td>
                  <td align=right></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=2>             195 </font></td>
                  <td align=right></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=2>             139 </font></td>
                  <td align=right></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=2> - </font></td>
                  <td align=right></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=2> - </font></td>
                  <td align=right></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=2>             334</font> </td>
         </tr>
         <tr>
                  <td align=left><FONT FACE="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;Repurchase and retirement of </font></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
         </tr>
         <tr>
                  <td align=left> <FONT FACE="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;preferred shares (1,875 shares)</font></td>
                  <td align=right></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=2> (2)</font> </td>
                  <td align=right></td>
                  <td align=right> <FONT FACE="Times New Roman, Times, Serif" size=2>            - </font></td>
                  <td align=right></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=2>               (242)</font> </td>
                  <td align=right></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=2> -</font> </td>
                  <td align=right></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=2> - </font></td>
                  <td align=right></td>
                  <td align=right> <FONT FACE="Times New Roman, Times, Serif" size=2>            (244)</font> </td>
         </tr>         <tr>
                  <td align=left> <FONT FACE="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;Dividends declared </font></td>
                  <td align=right></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=2> -</font> </td>
                  <td align=right></td>
                  <td align=right> <FONT FACE="Times New Roman, Times, Serif" size=2>            - </font></td>
                  <td align=right></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=2>               -</font> </td>
                  <td align=right></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=2> -</font> </td>
                  <td align=right></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=2> (248) </font></td>
                  <td align=right></td>
                  <td align=right> <FONT FACE="Times New Roman, Times, Serif" size=2>            (248)</font> </td>
         </tr>
         <tr>
                  <td align=left> <FONT FACE="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;Tax benefit of stock option<br>&nbsp;&nbsp;&nbsp;&nbsp;exercises</font></td>
                  <td align=right></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=2> -</font> </td>
                  <td align=right></td>
                  <td align=right> <FONT FACE="Times New Roman, Times, Serif" size=2>            - </font></td>
                  <td align=right></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=2>               160</font> </td>
                  <td align=right></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=2> -</font> </td>
                  <td align=right></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=2> - </font></td>
                  <td align=right></td>
                  <td align=right> <FONT FACE="Times New Roman, Times, Serif" size=2>            160</font> </td>
         </tr>
         <tr>
                  <td align=left><FONT FACE="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;</font></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
         </tr>
         <tr>
                  <td align=left><FONT FACE="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;Net income</font></td>
                  <td align=right></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=2> - </font></td>
                  <td align=right></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=2> - </font></td>
                  <td align=right></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=2> - </font></td>
                  <td align=right></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=2> - </font></td>
                  <td align=right></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=2>          10,125</font> </td>
                  <td align=right></td>
                  <td align=right> <FONT FACE="Times New Roman, Times, Serif" size=2>         10,125 </font></td>
         </tr>
         <tr>
                  <td align=left> <FONT FACE="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;Minimum pension liability, net of</font></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
         </tr>
         <tr>
                  <td align=left><FONT FACE="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;tax benefit of $2,207</font> </td>
                  <td align=right></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=2> -</font> </td>
                  <td align=right></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=2> - </font></td>
                  <td align=right></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=2> - </font></td>
                  <td align=right></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=2>               (3,310) </font></td>
                  <td align=right></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=2> - </font></td>
                  <td align=right></td>
                  <td align=right> <FONT FACE="Times New Roman, Times, Serif" size=2>(3,310) </font></td>
         </tr>
         <tr>
                  <td align=left> <FONT FACE="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;Net unrealized change in interest</font></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
         </tr>
         <tr>
                  <td align=left> <FONT FACE="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;rate swap agreement, net of</font></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
         </tr>
         <tr>
                  <td align=left><FONT FACE="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;tax benefit of $59</font> </td>
                  <td align=right></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=2> -</font> </td>
                  <td align=right></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=2> - </font></td>
                  <td align=right></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=2> - </font></td>
                  <td align=right></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=2>               (88) </font></td>
                  <td align=right></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=2> - </font></td>
                  <td align=right></td>
                  <td align=right> <FONT FACE="Times New Roman, Times, Serif" size=2><u>&nbsp;&nbsp;&nbsp;&nbsp;(88)</u> </font></td>
         </tr>
          <tr>
                  <td align=left><FONT FACE="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;Comprehensive income</font></td>
                  <td align=right></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=2> </font> </td>
                  <td align=right></td>
                  <td align=right> <FONT FACE="Times New Roman, Times, Serif" size=2> </font></td>
                  <td align=right></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=2> </font> </td>
                  <td align=right></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=2> </font> </td>
                  <td align=right></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=2>  </font></td>
                  <td align=right></td>
                  <td align=right> <FONT FACE="Times New Roman, Times, Serif" size=2>         6,727</font> </td>
         </tr>
         <tr>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
         </tr>
         <tr>
                  <td align=left><FONT FACE="Times New Roman, Times, Serif" size=2>Balance at December 31, 2002<br>(206,833 preferred shares and<br>7,711,379 common shares<br>outstanding)</font></td>
                  <td align=right valign=bottom><FONT FACE="Times New Roman, Times, Serif" size=2></font></td>
                  <td align=right valign=bottom><FONT FACE="Times New Roman, Times, Serif" size=2> 207</font> </td>
                  <td align=right valign=bottom> <FONT FACE="Times New Roman, Times, Serif" size=2></font> </td>
                  <td align=right valign=bottom> <FONT FACE="Times New Roman, Times, Serif" size=2> 19,278 </font></td>
                  <td align=right valign=bottom> <FONT FACE="Times New Roman, Times, Serif" size=2></font></td>
                  <td align=right valign=bottom> <FONT FACE="Times New Roman, Times, Serif" size=2> 70,908</font> </td>
                  <td align=right valign=bottom> <FONT FACE="Times New Roman, Times, Serif" size=2></font> </td>
                  <td align=right valign=bottom><FONT FACE="Times New Roman, Times, Serif" size=2> (5,101)</font></td>
                  <td align=right valign=bottom><FONT FACE="Times New Roman, Times, Serif" size=2></font></td>
                  <td align=right valign=bottom><FONT FACE="Times New Roman, Times, Serif" size=2> (66,724)</font></td>
                  <td align=right valign=bottom><FONT FACE="Times New Roman, Times, Serif" size=2></font></td>
                  <td align=right valign=bottom> <FONT FACE="Times New Roman, Times, Serif" size=2> 18,568</font> </td>
         </tr>
         <tr>
                  <td align=left>   <FONT FACE="Times New Roman, Times, Serif" size=2>&nbsp;</font></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
         </tr>
         <tr>
                  <td align=left>   <FONT FACE="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;</font></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td><FONT FACE="Times New Roman, Times, Serif" size=2>(Continued)</font></td>
         </tr>
</table>


<br>
<p align=center><FONT FACE="Times New Roman, Times, Serif" SIZE=3>F-7</font></p>
<page>
<br>

<H1 ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" size=3>Westmoreland
Coal Company and Subsidiaries<br>Consolidated Statements
of Shareholders&#146; Equity<br>and
Comprehensive Income<br>Years Ended
December 31, 2001, 2002, 2003 and<br>
Three Months Ended March 31, 2004 (Continued)
</FONT></H1>

<table border=0 cellPadding=0 cellSpacing=0 width=700>
         <tr>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
<td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
         </tr>
         <tr>
                  <td width=28% align=left></td>
                  <td width=3% align=right></td>
                  <td width=9% align=right valign=bottom><FONT FACE="Times New Roman, Times, Serif" size=2><b>Class A Convertible Exchangeable Preferred Stock</b></font></td>
                  <td width=3% align=right></td>
                  <td width=9% align=right valign=bottom><FONT FACE="Times New Roman, Times, Serif" size=2><b>Common Stock</b></font></td>
                  <td width=3% align=right></td>
                  <td width=9% align=right valign=bottom><FONT FACE="Times New Roman, Times, Serif" size=2><b>Other Paid-In Capital</b></font></td>
                  <td width=3% align=right></td>
                  <td width=9% align=right valign=bottom><FONT FACE="Times New Roman, Times, Serif" size=2><b>Accumulated Other Comprehensive Loss</b></font></td>
                  <td width=3% align=right></td>
                  <td width=9% align=right valign=bottom><FONT FACE="Times New Roman, Times, Serif" size=2><b>Accumulated Deficit</b></font></td>
                  <td width=3% align=right></td>
                  <td width=9% align=right valign=bottom><FONT FACE="Times New Roman, Times, Serif" size=2><b>Total Shareholders&#146; Equity</b></font></td>
         </tr>
         <tr>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
<td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
         </tr>
         <tr>
                  <td align=left></td>
                  <td align=center colspan=12><FONT FACE="Times New Roman, Times, Serif" size=2>(in thousands)</font></td>
         </tr>
         <tr>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
<td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
         </tr>
         <tr>
                  <td align=left>   <FONT FACE="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;Common stock issued as</font></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
         </tr>
         <tr>
                  <td align=left>      <FONT FACE="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;compensation (131,087 shares)</font></td>
                  <td align=right></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=2> - </font></td>
                  <td align=right></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=2>             327 </font></td>
                  <td align=right></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=2>             1,524 </font></td>
                  <td align=right></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=2> - </font></td>
                  <td align=right></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=2> - </font></td>
                  <td align=right></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=2>             1,851</font> </td>
         </tr>
         <tr>
                  <td align=left>      <FONT FACE="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;Common stock options exercised</font></td>
                  <td align=right></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=2>  </font></td>
                  <td align=right></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=2>              </font></td>
                  <td align=right></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=2>              </font></td>
                  <td align=right></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=2>  </font></td>
                  <td align=right></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=2>  </font></td>
                  <td align=right></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=2>             </font> </td>
         </tr>
         <tr>
                  <td align=left>      <FONT FACE="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;(114,700 shares)</font></td>
                  <td align=right></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=2> - </font></td>
                  <td align=right></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=2>             288 </font></td>
                  <td align=right></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=2>             120 </font></td>
                  <td align=right></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=2> - </font></td>
                  <td align=right></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=2> - </font></td>
                  <td align=right></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=2>             408</font> </td>
         </tr>
         <tr>
                  <td align=left><FONT FACE="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;Repurchase and retirement of </font></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
         </tr>
         <tr>
                  <td align=left> <FONT FACE="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;preferred shares  (1,750 shares)</font></td>
                  <td align=right></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=2> (2)</font> </td>
                  <td align=right></td>
                  <td align=right> <FONT FACE="Times New Roman, Times, Serif" size=2>            - </font></td>
                  <td align=right></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=2>               (211)</font> </td>
                  <td align=right></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=2> -</font> </td>
                  <td align=right></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=2> - </font></td>
                  <td align=right></td>
                  <td align=right> <FONT FACE="Times New Roman, Times, Serif" size=2>            (213)</font> </td>
         </tr>
         <tr>
                  <td align=left> <FONT FACE="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;Dividends declared </font></td>
                  <td align=right></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=2> -</font> </td>
                  <td align=right></td>
                  <td align=right> <FONT FACE="Times New Roman, Times, Serif" size=2>            - </font></td>
                  <td align=right></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=2>               -</font> </td>
                  <td align=right></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=2> -</font> </td>
                  <td align=right></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=2> (575) </font></td>
                  <td align=right></td>
                  <td align=right> <FONT FACE="Times New Roman, Times, Serif" size=2>            (575)</font> </td>
         </tr>
         <tr>
                  <td align=left> <FONT FACE="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;Tax benefit of stock option<br>&nbsp;&nbsp;&nbsp;&nbsp;exercises</font></td>
                  <td align=right></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=2> -</font> </td>
                  <td align=right></td>
                  <td align=right> <FONT FACE="Times New Roman, Times, Serif" size=2>            - </font></td>
                  <td align=right></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=2>               484</font> </td>
                  <td align=right></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=2> -</font> </td>
                  <td align=right></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=2> - </font></td>
                  <td align=right></td>
                  <td align=right> <FONT FACE="Times New Roman, Times, Serif" size=2>            484</font> </td>
         </tr>
         <tr>
                  <td align=left><FONT FACE="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;Net income</font></td>
                  <td align=right></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=2> - </font></td>
                  <td align=right></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=2> - </font></td>
                  <td align=right></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=2> - </font></td>
                  <td align=right></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=2> - </font></td>
                  <td align=right></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=2>          12,594</font> </td>
                  <td align=right></td>
                  <td align=right> <FONT FACE="Times New Roman, Times, Serif" size=2>         12,594 </font></td>
         </tr>
         <tr>
                  <td align=left> <FONT FACE="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;Minimum pension liability, net of</font></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
         </tr>
         <tr>
                  <td align=left><FONT FACE="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;taxes of $488</font> </td>
                  <td align=right></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=2> -</font> </td>
                  <td align=right></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=2> - </font></td>
                  <td align=right></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=2> - </font></td>
                  <td align=right></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=2>               (732) </font></td>
                  <td align=right></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=2> - </font></td>
                  <td align=right></td>
                  <td align=right> <FONT FACE="Times New Roman, Times, Serif" size=2>(732) </font></td>
         </tr>
         <tr>
                  <td align=left> <FONT FACE="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;Net unrealized change in interest</font></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
         </tr>
         <tr>
                  <td align=left> <FONT FACE="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;rate swap agreement, net of</font></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
         </tr>
         <tr>
                  <td align=left><FONT FACE="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;taxes of $590 </font> </td>
                  <td align=right></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=2> -</font> </td>
                  <td align=right></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=2> - </font></td>
                  <td align=right></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=2> - </font></td>
                  <td align=right></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=2>               885 </font></td>
                  <td align=right></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=2> - </font></td>
                  <td align=right></td>
                  <td align=right> <FONT FACE="Times New Roman, Times, Serif" size=2><u>&nbsp;&nbsp;&nbsp;&nbsp;885</u> </font></td>
         </tr>
          <tr>
                  <td align=left><FONT FACE="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;Comprehensive income</font></td>
                  <td align=right></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=2> </font> </td>
                  <td align=right></td>
                  <td align=right> <FONT FACE="Times New Roman, Times, Serif" size=2> </font></td>
                  <td align=right></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=2> </font> </td>
                  <td align=right></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=2> </font> </td>
                  <td align=right></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=2>  </font></td>
                  <td align=right></td>
                  <td align=right> <FONT FACE="Times New Roman, Times, Serif" size=2>         12,747</font> </td>
         </tr>
         <tr>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
         </tr>
         <tr>
                  <td align=left><FONT FACE="Times New Roman, Times, Serif" size=2>Balance at December 31, 2003</font></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
         </tr>
         <tr>
                  <td align=left><FONT FACE="Times New Roman, Times, Serif" size=2>(205,083 preferred shares and</font></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
         </tr>
         <tr>
                  <td align=left><FONT FACE="Times New Roman, Times, Serif" size=2>7,957,166 common shares</font></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
         </tr>
         <tr>
                  <td align=left><FONT FACE="Times New Roman, Times, Serif" size=2>outstanding)</font></td>
                  <td align=right> <FONT FACE="Times New Roman, Times, Serif" size=2></font> </td>
                  <td align=right> <FONT FACE="Times New Roman, Times, Serif" size=2>$ 205 </font></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=2></font> </td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=2>$ 19,893 </font></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=2></font> </td>
                  <td align=right> <FONT FACE="Times New Roman, Times, Serif" size=2>$ 72,825</font> </td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=2></font></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=2>$ (4,948)</font></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=2></font></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=2>$ (54,705)</font></td>
                  <td align=right> <FONT FACE="Times New Roman, Times, Serif" size=2></font></td>
                  <td align=right> <FONT FACE="Times New Roman, Times, Serif" size=2>$ 33,270</font> </td>
         </tr>
         <tr>
                  <td align=left>   <FONT FACE="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;Common stock issued as</font></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
         </tr>
         <tr>
                  <td align=left>      <FONT FACE="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;compensation (19,518 shares)<br>&nbsp;&nbsp;&nbsp;&nbsp;(unaudited)</font></td>
                  <td align=right></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=2> - </font></td>
                  <td align=right></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=2>             49 </font></td>
                  <td align=right></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=2>             288 </font></td>
                  <td align=right></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=2> - </font></td>
                  <td align=right></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=2> - </font></td>
                  <td align=right></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=2>             337</font> </td>
         </tr>
         <tr>
                  <td align=left>      <FONT FACE="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;Common stock options exercised</font></td>
                  <td align=right></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=2>  </font></td>
                  <td align=right></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=2>              </font></td>
                  <td align=right></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=2>              </font></td>
                  <td align=right></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=2>  </font></td>
                  <td align=right></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=2>  </font></td>
                  <td align=right></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=2>             </font> </td>
         </tr>
         <tr>
                  <td align=left>      <FONT FACE="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;(46,700 shares) (unaudited)</font></td>
                  <td align=right></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=2> - </font></td>
                  <td align=right></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=2>             117 </font></td>
                  <td align=right></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=2>             176 </font></td>
                  <td align=right></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=2> - </font></td>
                  <td align=right></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=2> - </font></td>
                  <td align=right></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=2>             293</font> </td>
         </tr>
         <tr>
                  <td align=left> <FONT FACE="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;Dividends declared (unaudited)</font></td>
                  <td align=right></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=2> -</font> </td>
                  <td align=right></td>
                  <td align=right> <FONT FACE="Times New Roman, Times, Serif" size=2>            - </font></td>
                  <td align=right></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=2>               -</font> </td>
                  <td align=right></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=2> -</font> </td>
                  <td align=right></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=2> (164) </font></td>
                  <td align=right></td>
                  <td align=right> <FONT FACE="Times New Roman, Times, Serif" size=2>            (164)</font> </td>
         </tr>
         <tr>
                  <td align=left> <FONT FACE="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;Tax benefit of stock option<br>&nbsp;&nbsp;&nbsp;&nbsp;exercises (unaudited)</font></td>
                  <td align=right></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=2> -</font> </td>
                  <td align=right></td>
                  <td align=right> <FONT FACE="Times New Roman, Times, Serif" size=2>            - </font></td>
                  <td align=right></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=2>               131</font> </td>
                  <td align=right></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=2> -</font> </td>
                  <td align=right></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=2> - </font></td>
                  <td align=right></td>
                  <td align=right> <FONT FACE="Times New Roman, Times, Serif" size=2>            131</font> </td>
         </tr>
         <tr>
                  <td align=left><FONT FACE="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;Net income (unaudited)</font></td>
                  <td align=right></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=2> - </font></td>
                  <td align=right></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=2> - </font></td>
                  <td align=right></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=2> - </font></td>
                  <td align=right></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=2> - </font></td>
                  <td align=right></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=2>          2,536</font> </td>
                  <td align=right></td>
                  <td align=right> <FONT FACE="Times New Roman, Times, Serif" size=2>         2,536 </font></td>
         </tr>
         <tr>
                  <td align=left> <FONT FACE="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;Net unrealized change in interest</font></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
         </tr>
         <tr>
                  <td align=left> <FONT FACE="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;rate swap agreement, net of</font></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
         </tr>
         <tr>
                  <td align=left><FONT FACE="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;tax expense of $1 (unaudited)</font> </td>
                  <td align=right></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=2> -</font> </td>
                  <td align=right></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=2> - </font></td>
                  <td align=right></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=2> - </font></td>
                  <td align=right></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=2>               2 </font></td>
                  <td align=right></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=2> - </font></td>
                  <td align=right></td>
                  <td align=right> <FONT FACE="Times New Roman, Times, Serif" size=2><u>&nbsp;&nbsp;&nbsp;&nbsp;2</u> </font></td>
         </tr>
          <tr>
                  <td align=left><FONT FACE="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;Comprehensive income<br>&nbsp;&nbsp;&nbsp;&nbsp;(unaudited)</font></td>
                  <td align=right></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=2> </font> </td>
                  <td align=right></td>
                  <td align=right> <FONT FACE="Times New Roman, Times, Serif" size=2> </font></td>
                  <td align=right></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=2> </font> </td>
                  <td align=right></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=2> </font> </td>
                  <td align=right></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=2>  </font></td>
                  <td align=right></td>
                  <td align=right> <FONT FACE="Times New Roman, Times, Serif" size=2>         2,538</font> </td>
         </tr>
         <tr>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
         </tr>
         <tr>
                  <td align=left><FONT FACE="Times New Roman, Times, Serif" size=2>Balance at March 31, 2004</font></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
         </tr>
         <tr>
                  <td align=left><FONT FACE="Times New Roman, Times, Serif" size=2>(205,083 preferred shares and</font></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
         </tr>
         <tr>
                  <td align=left><FONT FACE="Times New Roman, Times, Serif" size=2>8,023,384 common shares</font></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
         </tr>
         <tr>
                  <td align=left><FONT FACE="Times New Roman, Times, Serif" size=2>outstanding)(unaudited)</font></td>
                  <td align=right> <FONT FACE="Times New Roman, Times, Serif" size=2></font> </td>
                  <td align=right> <FONT FACE="Times New Roman, Times, Serif" size=2>$ 205 </font></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=2></font> </td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=2>$ 20,059 </font></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=2></font> </td>
                  <td align=right> <FONT FACE="Times New Roman, Times, Serif" size=2>$ 73,420</font> </td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=2></font></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=2>$ (4,946)</font></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=2></font></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" size=2>$ (52,333)</font></td>
                  <td align=right> <FONT FACE="Times New Roman, Times, Serif" size=2></font></td>
                  <td align=right> <FONT FACE="Times New Roman, Times, Serif" size=2>$ 36,405</font> </td>
         </tr>
         <tr>
                  <td><HR NOSHADE size=4></td>
                  <td><HR NOSHADE size=4></td>
                  <td><HR NOSHADE size=4></td>
                  <td><HR NOSHADE size=4></td>
                  <td><HR NOSHADE size=4></td>
                  <td><HR NOSHADE size=4></td>
                  <td><HR NOSHADE size=4></td>
                  <td><HR NOSHADE size=4></td>
<td><HR NOSHADE size=4></td>
                  <td><HR NOSHADE size=4></td>
                  <td><HR NOSHADE size=4></td>
                  <td><HR NOSHADE size=4></td>
                  <td><HR NOSHADE size=4></td>
         </tr>
</table>

<P><FONT FACE="Times New Roman, Times, Serif" size=2>See accompanying Summary of Significant Accounting Policies and Notes to Consolidated Financial Statements.</font></p>

<br>
<p align=center><FONT FACE="Times New Roman, Times, Serif" SIZE=3>F-8</font></p>
<page>
<br>


<H1 ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" size=3>Westmoreland Coal
Company and Subsidiaries<br>Consolidated Statements
of Cash Flows
</FONT></H1>

<table border=0 cellPadding=0 cellSpacing=0 width=700>
         <tr>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
         </tr>
         <tr>
                  <td align=right colspan=5><b><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Three Months Ended March 31,</font></b></td>
                  <td align=center>&nbsp;</td>
                  <td align=center colspan=6><b><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Year Ended December 31,</font></b></td>
         </tr>
         <tr>
                  <td width=45% align=left><b>&nbsp;</b></td>
                  <td width=3% align=right><b></b></td>
                  <td width=7% align=right><b><FONT FACE="Times New Roman, Times, Serif" SIZE=2>2004</font></b></td>
                  <td width=3% align=right><b></b></td>
                  <td width=7% align=right><b><FONT FACE="Times New Roman, Times, Serif" SIZE=2>2003</font></b></td>
                  <td width=5% align=right><b>&nbsp;</b></td>
                  <td width=3% align=right><b>&nbsp;</b></td>
                  <td width=7% align=right><b><FONT FACE="Times New Roman, Times, Serif" SIZE=2>2003</font></b></td>
                  <td width=3% align=right><b></b></td>
                  <td width=7% align=right><b><FONT FACE="Times New Roman, Times, Serif" SIZE=2>2002</font></b></td>
                  <td width=3% align=right><b></b></td>
                  <td width=7% align=right><b><FONT FACE="Times New Roman, Times, Serif" SIZE=2>2001</font></b></td>
         </tr>
         <tr>
                  <td align=center>&nbsp;</td>
                  <td align=center colspan=4><b><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(unaudited)</font></b></td>
                  <td align=center>&nbsp;</td>
                  <td align=center colspan=6><b><FONT FACE="Times New Roman, Times, Serif" SIZE=2></font></b></td>
         </tr>
         <tr>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
         </tr>
         <tr>
                  <td align=left></td>
                  <td align=center colspan=11> <FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;          (in thousands)</font></td>
         </tr>
         <tr>
                  <td align=left><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Cash
flows from operating activities:</font></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
         </tr>
         <tr>
                  <td align=left><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Net income</font></td>
                  <td align=right> <FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</font> </td>
                  <td align=right>           <FONT FACE="Times New Roman, Times, Serif" SIZE=2>2,536</font> </td>
                  <td align=right> <FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</font> </td>
                  <td align=right>           <FONT FACE="Times New Roman, Times, Serif" SIZE=2>1,492</font> </td>
                  <td align=right> <FONT FACE="Times New Roman, Times, Serif" SIZE=2></font> </td>
                  <td align=right> <FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</font> </td>
                  <td align=right>           <FONT FACE="Times New Roman, Times, Serif" SIZE=2>12,594</font> </td>
                  <td align=right> <FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</font> </td>
                  <td align=right>            <FONT FACE="Times New Roman, Times, Serif" SIZE=2>10,125</font></td>
                  <td align=right> <FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</font> </td>
                  <td align=right>            <FONT FACE="Times New Roman, Times, Serif" SIZE=2>5,227</font></td>
         </tr>



         <tr>
                  <td align=left><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;Adjustments to reconcile net income to net cash<br>&nbsp;&nbsp;&nbsp;&nbsp;provided by operating activities:</font>   </td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
         </tr>
         <tr>
                  <td align=left><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Equity in earnings of independent power projects</font></td>
                  <td align=right></td>
                  <td align=right>         <FONT FACE="Times New Roman, Times, Serif" SIZE=2>(5,405)</font></td>
                  <td align=right></td>
                  <td align=right>            <FONT FACE="Times New Roman, Times, Serif" SIZE=2>(3,771)</font></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right>         <FONT FACE="Times New Roman, Times, Serif" SIZE=2>(15,824)</font></td>
                  <td align=right></td>
                  <td align=right>            <FONT FACE="Times New Roman, Times, Serif" SIZE=2>(14,506)</font></td>
                  <td align=right></td>
                  <td align=right>            <FONT FACE="Times New Roman, Times, Serif" SIZE=2>(15,871)</font></td>
         </tr>
         <tr>
                  <td align=left><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Cash distributions from independent power projects</font></td>
                  <td align=right></td>
                  <td align=right>           <FONT FACE="Times New Roman, Times, Serif" SIZE=2>3,074</font> </td>
                  <td align=right></td>
                  <td align=right>           <FONT FACE="Times New Roman, Times, Serif" SIZE=2>5,582</font> </td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right>           <FONT FACE="Times New Roman, Times, Serif" SIZE=2>11,629</font> </td>
                  <td align=right></td>
                  <td align=right>           <FONT FACE="Times New Roman, Times, Serif" SIZE=2>9,718</font> </td>
                  <td align=right></td>
                  <td align=right>           <FONT FACE="Times New Roman, Times, Serif" SIZE=2>18,426</font> </td>
         </tr>
         <tr>
                  <td align=left><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Deferred income tax benefit</font></td>
                 <td align=right></td>
                  <td align=right>              <FONT FACE="Times New Roman, Times, Serif" SIZE=2>(1,035)</font> </td>
                  <td align=right></td>
                  <td align=right>               <FONT FACE="Times New Roman, Times, Serif" SIZE=2>(1,304)</font></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right>              <FONT FACE="Times New Roman, Times, Serif" SIZE=2>(9,731)</font> </td>
                  <td align=right></td>
                  <td align=right>               <FONT FACE="Times New Roman, Times, Serif" SIZE=2>(5,656)</font></td>
                  <td align=right></td>
                  <td align=right>               <FONT FACE="Times New Roman, Times, Serif" SIZE=2>(472)</font></td>
         </tr>
         <tr>
                  <td align=left><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Depreciation, depletion and amortization</font></td>
                  <td align=right></td>
                  <td align=right>           <FONT FACE="Times New Roman, Times, Serif" SIZE=2>3,820</font> </td>
                  <td align=right></td>
                  <td align=right>             <FONT FACE="Times New Roman, Times, Serif" SIZE=2>2,956</font> </td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right>           <FONT FACE="Times New Roman, Times, Serif" SIZE=2>12,599</font> </td>
                  <td align=right></td>
                  <td align=right>             <FONT FACE="Times New Roman, Times, Serif" SIZE=2>11,539</font> </td>
                  <td align=right></td>
                  <td align=right>             <FONT FACE="Times New Roman, Times, Serif" SIZE=2>9,165</font> </td>
         </tr>
         <tr>
                  <td align=left><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Stock compensation expense</font></td>
                  <td align=right></td>
                  <td align=right>              <FONT FACE="Times New Roman, Times, Serif" SIZE=2>337</font> </td>
                  <td align=right></td>
                  <td align=right>                 <FONT FACE="Times New Roman, Times, Serif" SIZE=2>329</font> </td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right>              <FONT FACE="Times New Roman, Times, Serif" SIZE=2>1,851</font> </td>
                  <td align=right></td>
                  <td align=right>                 <FONT FACE="Times New Roman, Times, Serif" SIZE=2>1,424</font> </td>
                  <td align=right></td>
                  <td align=right>                 <FONT FACE="Times New Roman, Times, Serif" SIZE=2>1,050</font> </td>
         </tr>
         <tr>
                  <td align=left><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Impairment charges</font></td>
                  <td align=right></td>
                  <td align=right>              <FONT FACE="Times New Roman, Times, Serif" SIZE=2>-</font> </td>
                  <td align=right></td>
                  <td align=right>                 <FONT FACE="Times New Roman, Times, Serif" SIZE=2>-</font> </td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right>              <FONT FACE="Times New Roman, Times, Serif" SIZE=2>-</font> </td>
                  <td align=right></td>
                  <td align=right>                 <FONT FACE="Times New Roman, Times, Serif" SIZE=2>3,712</font> </td>
                  <td align=right></td>
                  <td align=right>                 <FONT FACE="Times New Roman, Times, Serif" SIZE=2>-</font> </td>
         </tr>


         <tr>
                  <td align=left><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Losses (gain) on sales of assets</font></td>
                  <td align=right></td>
                  <td align=right>               <FONT FACE="Times New Roman, Times, Serif" SIZE=2>(19)</font></td>
                  <td align=right></td>
                  <td align=right>                 <FONT FACE="Times New Roman, Times, Serif" SIZE=2>-</font> </td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right>               <FONT FACE="Times New Roman, Times, Serif" SIZE=2>(5,154)</font></td>
                  <td align=right></td>
                  <td align=right>                 <FONT FACE="Times New Roman, Times, Serif" SIZE=2>9</font> </td>
                  <td align=right></td>
                  <td align=right>                 <FONT FACE="Times New Roman, Times, Serif" SIZE=2>440</font> </td>
         </tr>
         <tr>
                  <td align=left><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Minority interest</font></td>
                  <td align=right></td>
                  <td align=right>              <FONT FACE="Times New Roman, Times, Serif" SIZE=2>282</font> </td>
                  <td align=right></td>
                  <td align=right>                 <FONT FACE="Times New Roman, Times, Serif" SIZE=2>111</font> </td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right>              <FONT FACE="Times New Roman, Times, Serif" SIZE=2>773</font> </td>
                  <td align=right></td>
                  <td align=right>                 <FONT FACE="Times New Roman, Times, Serif" SIZE=2>800</font> </td>
                  <td align=right></td>
                  <td align=right>                 <FONT FACE="Times New Roman, Times, Serif" SIZE=2>780</font> </td>
         </tr>
         <tr>
                  <td align=left><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Cumulative effect of change in accounting principle</font></td>
                  <td align=right></td>
                  <td align=right>              <FONT FACE="Times New Roman, Times, Serif" SIZE=2>-</font> </td>
                  <td align=right></td>
                  <td align=right>                 <FONT FACE="Times New Roman, Times, Serif" SIZE=2>(269)</font> </td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right>              <FONT FACE="Times New Roman, Times, Serif" SIZE=2>(269)</font> </td>
                  <td align=right></td>
                  <td align=right>                 <FONT FACE="Times New Roman, Times, Serif" SIZE=2>-</font> </td>
                  <td align=right></td>
                  <td align=right>                 <FONT FACE="Times New Roman, Times, Serif" SIZE=2>-</font> </td>
         </tr>
         <tr>
                  <td align=left><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Other</font></td>
                  <td align=right></td>
                  <td align=right>              <FONT FACE="Times New Roman, Times, Serif" SIZE=2>-</font> </td>
                  <td align=right></td>
                  <td align=right>                 <FONT FACE="Times New Roman, Times, Serif" SIZE=2>-</font> </td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right>              <FONT FACE="Times New Roman, Times, Serif" SIZE=2>-</font> </td>
                  <td align=right></td>
                  <td align=right>                 <FONT FACE="Times New Roman, Times, Serif" SIZE=2>263</font> </td>
                  <td align=right></td>
                  <td align=right>                 <FONT FACE="Times New Roman, Times, Serif" SIZE=2>352</font> </td>
         </tr>
         <tr>
                  <td align=left><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Changes in assets and liabilities:</font></td>
                  <td align=right></td>
                  <td align=right>               </td>
                  <td align=right></td>
                  <td align=right>                  </td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right>               </td>
                  <td align=right></td>
                  <td align=right>                  </td>
                  <td align=right></td>
                  <td align=right>                  </td>
         </tr>
         <tr>
                  <td align=left><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Receivables, net</font> </td>
                  <td align=right></td>
                  <td align=right>              <FONT FACE="Times New Roman, Times, Serif" SIZE=2>(1,956)</font> </td>
                  <td align=right></td>
                  <td align=right>                 <FONT FACE="Times New Roman, Times, Serif" SIZE=2>(350)</font> </td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right>              <FONT FACE="Times New Roman, Times, Serif" SIZE=2>(668)</font> </td>
                  <td align=right></td>
                  <td align=right>                 <FONT FACE="Times New Roman, Times, Serif" SIZE=2>15,273</font> </td>
                  <td align=right></td>
                  <td align=right>                 <FONT FACE="Times New Roman, Times, Serif" SIZE=2>(5,429)</font> </td>
         </tr>
         <tr>
                  <td align=left><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Inventories</font>
                                                                      </td>
                  <td align=right></td>
                  <td align=right>              <FONT FACE="Times New Roman, Times, Serif" SIZE=2>164</font> </td>
                  <td align=right></td>
                  <td align=right>                 <FONT FACE="Times New Roman, Times, Serif" SIZE=2>(676)</font> </td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right>              <FONT FACE="Times New Roman, Times, Serif" SIZE=2>(271)</font> </td>
                  <td align=right></td>
                  <td align=right>                 <FONT FACE="Times New Roman, Times, Serif" SIZE=2>(270)</font> </td>
                  <td align=right></td>
                  <td align=right>                 <FONT FACE="Times New Roman, Times, Serif" SIZE=2>(456)</font> </td>
         </tr>
         <tr>
                  <td align=left><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Excess of trust assets over pneumoconiosis
                     <br>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;benefit obligation</font></td>
                 <td align=right></td>
                  <td align=right>              <FONT FACE="Times New Roman, Times, Serif" SIZE=2>(33)</font> </td>
                  <td align=right></td>
                  <td align=right>                 <FONT FACE="Times New Roman, Times, Serif" SIZE=2>854</font> </td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right>              <FONT FACE="Times New Roman, Times, Serif" SIZE=2>1,431</font> </td>
                  <td align=right></td>
                  <td align=right>                 <FONT FACE="Times New Roman, Times, Serif" SIZE=2>(680)</font> </td>
                  <td align=right></td>
                  <td align=right>                 <FONT FACE="Times New Roman, Times, Serif" SIZE=2>(178)</font> </td>
         </tr>
         <tr>
                  <td align=left><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Accounts payable and accrued expenses</font></td>
                  <td align=right></td>
                  <td align=right>              <FONT FACE="Times New Roman, Times, Serif" SIZE=2>1,330</font> </td>
                  <td align=right></td>
                  <td align=right>                 <FONT FACE="Times New Roman, Times, Serif" SIZE=2>1,417</font> </td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right>              <FONT FACE="Times New Roman, Times, Serif" SIZE=2>1,343</font> </td>
                  <td align=right></td>
                  <td align=right>                 <FONT FACE="Times New Roman, Times, Serif" SIZE=2>(369)</font> </td>
                  <td align=right></td>
                  <td align=right>                 <FONT FACE="Times New Roman, Times, Serif" SIZE=2>13,049</font> </td>
         </tr>
         <tr>
                  <td align=left><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Income taxes payable</font></td>
                  <td align=right></td>
                  <td align=right>              <FONT FACE="Times New Roman, Times, Serif" SIZE=2>146</font> </td>
                  <td align=right></td>
                  <td align=right>                 <FONT FACE="Times New Roman, Times, Serif" SIZE=2>632</font> </td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right>              <FONT FACE="Times New Roman, Times, Serif" SIZE=2>(594)</font> </td>
                  <td align=right></td>
                  <td align=right>                 <FONT FACE="Times New Roman, Times, Serif" SIZE=2>537</font> </td>
                  <td align=right></td>
                  <td align=right>                 <FONT FACE="Times New Roman, Times, Serif" SIZE=2>57</font> </td>
         </tr>
         <tr>
                  <td align=left><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Accrual for workers&#146; compensation</font></td>
                  <td align=right></td>
                  <td align=right>              <FONT FACE="Times New Roman, Times, Serif" SIZE=2>(493)</font> </td>
                  <td align=right></td>
                  <td align=right>                 <FONT FACE="Times New Roman, Times, Serif" SIZE=2>(556)</font> </td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right>              <FONT FACE="Times New Roman, Times, Serif" SIZE=2>(1,262)</font> </td>
                  <td align=right></td>
                  <td align=right>                 <FONT FACE="Times New Roman, Times, Serif" SIZE=2>(2,301)</font> </td>
                  <td align=right></td>
                  <td align=right>                 <FONT FACE="Times New Roman, Times, Serif" SIZE=2>(2,295)</font> </td>
         </tr>
         <tr>
                  <td align=left><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Accrual for postretirement medical costs</font></td>
                  <td align=right></td>
                  <td align=right>              <FONT FACE="Times New Roman, Times, Serif" SIZE=2>11</font> </td>
                  <td align=right></td>
                  <td align=right>                 <FONT FACE="Times New Roman, Times, Serif" SIZE=2>1,815</font> </td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right>              <FONT FACE="Times New Roman, Times, Serif" SIZE=2>13,645</font> </td>
                  <td align=right></td>
                  <td align=right>                 <FONT FACE="Times New Roman, Times, Serif" SIZE=2>6,030</font> </td>
                  <td align=right></td>
                  <td align=right>                 <FONT FACE="Times New Roman, Times, Serif" SIZE=2>4,728</font> </td>
         </tr>
         <tr>
                  <td align=left><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;1974 UMWA Pension Plan</font></td>
                  <td align=right></td>
                  <td align=right>              <FONT FACE="Times New Roman, Times, Serif" SIZE=2>(250)</font> </td>
                  <td align=right></td>
                  <td align=right>                 <FONT FACE="Times New Roman, Times, Serif" SIZE=2>(349)</font> </td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right>              <FONT FACE="Times New Roman, Times, Serif" SIZE=2>(7,785)</font> </td>
                  <td align=right></td>
                  <td align=right>                 <FONT FACE="Times New Roman, Times, Serif" SIZE=2>(1,374)</font> </td>
                  <td align=right></td>
                  <td align=right>                 <FONT FACE="Times New Roman, Times, Serif" SIZE=2>(1,279)</font> </td>
         </tr>

         <tr>
                  <td align=left><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Other assets and liabilities</font></td>
                  <td align=right></td>
                  <td align=right>              <FONT FACE="Times New Roman, Times, Serif" SIZE=2>1,430</font> </td>
                  <td align=right></td>
                  <td align=right>                 <FONT FACE="Times New Roman, Times, Serif" SIZE=2>(217)</font> </td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right>              <FONT FACE="Times New Roman, Times, Serif" SIZE=2>10,447</font> </td>
                  <td align=right></td>
                  <td align=right>                 <FONT FACE="Times New Roman, Times, Serif" SIZE=2>(1,840)</font> </td>
                  <td align=right></td>
                  <td align=right>                 <FONT FACE="Times New Roman, Times, Serif" SIZE=2>1,141</font> </td>
         </tr>

         <tr>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
         </tr>


         <tr>
                  <td align=left><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;Net cash provided by operating activities</font></td>
                  <td align=right></td>
                  <td align=right>         <FONT FACE="Times New Roman, Times, Serif" SIZE=2>3,939</font> </td>
                  <td align=right></td>
                  <td align=right>           <FONT FACE="Times New Roman, Times, Serif" SIZE=2>7,696</font> </td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right>         <FONT FACE="Times New Roman, Times, Serif" SIZE=2>24,754</font> </td>
                  <td align=right></td>
                  <td align=right>           <FONT FACE="Times New Roman, Times, Serif" SIZE=2>32,434</font> </td>
                  <td align=right></td>
                  <td align=right>           <FONT FACE="Times New Roman, Times, Serif" SIZE=2>28,435</font> </td>
         </tr>
         <tr>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
         </tr>
         <tr>
                  <td align=left>&nbsp;</td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
         </tr>
         <tr>
                  <td align=left><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Cash flows from investing activities:</font></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
         </tr>


         <tr>
                  <td align=left><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;Additions to property, plant and equipment</font></td>
                  <td align=right></td>
                  <td align=right>         <FONT FACE="Times New Roman, Times, Serif" SIZE=2>(2,094)</font></td>
                  <td align=right></td>
                  <td align=right>               <FONT FACE="Times New Roman, Times, Serif" SIZE=2>(2,357)</font></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right>         <FONT FACE="Times New Roman, Times, Serif" SIZE=2>(13,240)</font></td>
                  <td align=right></td>
                  <td align=right>               <FONT FACE="Times New Roman, Times, Serif" SIZE=2>(7,323)</font></td>
                  <td align=right></td>
                  <td align=right>               <FONT FACE="Times New Roman, Times, Serif" SIZE=2>(5,433)</font></td>
         </tr>
         <tr>
                  <td align=left><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;Cash paid for acquisitions</font></td>
                  <td align=right></td>
                  <td align=right>         <FONT FACE="Times New Roman, Times, Serif" SIZE=2>-</font></td>
                  <td align=right></td>
                  <td align=right>               <FONT FACE="Times New Roman, Times, Serif" SIZE=2>-</font></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right>         <FONT FACE="Times New Roman, Times, Serif" SIZE=2>-</font></td>
                  <td align=right></td>
                  <td align=right>               <FONT FACE="Times New Roman, Times, Serif" SIZE=2>-</font></td>
                  <td align=right></td>
                  <td align=right>               <FONT FACE="Times New Roman, Times, Serif" SIZE=2>(162,700)</font></td>
         </tr>


         <tr>
                  <td align=left><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;Reimbursement from mine operator</font></td>
                  <td align=right></td>
                  <td align=right>         <FONT FACE="Times New Roman, Times, Serif" SIZE=2>-</font></td>
                  <td align=right></td>
                  <td align=right>               <FONT FACE="Times New Roman, Times, Serif" SIZE=2>-</font></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right>         <FONT FACE="Times New Roman, Times, Serif" SIZE=2>-</font></td>
                  <td align=right></td>
                  <td align=right>               <FONT FACE="Times New Roman, Times, Serif" SIZE=2>3,600</font></td>
                  <td align=right></td>
                  <td align=right>               <FONT FACE="Times New Roman, Times, Serif" SIZE=2>-</font></td>
         </tr>


         <tr>
                  <td align=left><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;Change in restricted cash and bond collateral</font></td>
                  <td align=right></td>
                  <td align=right>          <FONT FACE="Times New Roman, Times, Serif" SIZE=2>(2,612)</font> </td>
                  <td align=right></td>
                  <td align=right>             <FONT FACE="Times New Roman, Times, Serif" SIZE=2>(1,754)</font> </td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right>          <FONT FACE="Times New Roman, Times, Serif" SIZE=2>(10,984)</font> </td>
                  <td align=right></td>
                  <td align=right>             <FONT FACE="Times New Roman, Times, Serif" SIZE=2>(424)</font> </td>
                  <td align=right></td>
                  <td align=right>             <FONT FACE="Times New Roman, Times, Serif" SIZE=2>794</font> </td>
         </tr>
         <tr>
                  <td align=left><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;Net proceeds from sales of investments<br>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;and assets</font></td>
                  <td align=right></td>
                  <td align=right valign=bottom>              <FONT FACE="Times New Roman, Times, Serif" SIZE=2>126</font> </td>
                  <td align=right></td>
                  <td align=right valign=bottom>           <FONT FACE="Times New Roman, Times, Serif" SIZE=2>-</font> </td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right valign=bottom>              <FONT FACE="Times New Roman, Times, Serif" SIZE=2>6,970</font> </td>
                  <td align=right></td>
                  <td align=right valign=bottom>           <FONT FACE="Times New Roman, Times, Serif" SIZE=2>476</font> </td>
                  <td align=right></td>
                  <td align=right valign=bottom>           <FONT FACE="Times New Roman, Times, Serif" SIZE=2>16,014</font> </td>
         </tr>
         <tr>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
         </tr>
         <tr>
                  <td align=left><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;Net cash used in investing activities</font></td>
                  <td align=right></td>
                  <td align=right>         <FONT FACE="Times New Roman, Times, Serif" SIZE=2>(4,580)</font></td>
                  <td align=right></td>
                  <td align=right>       <FONT FACE="Times New Roman, Times, Serif" SIZE=2>(4,111)</font></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right>         <FONT FACE="Times New Roman, Times, Serif" SIZE=2>(17,254)</font></td>
                  <td align=right></td>
                  <td align=right>       <FONT FACE="Times New Roman, Times, Serif" SIZE=2>(3,671)</font></td>
                  <td align=right></td>
                  <td align=right>       <FONT FACE="Times New Roman, Times, Serif" SIZE=2>(151,325)</font></td>
         </tr>
         <tr>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
         </tr>
         <tr>
                  <td align=left>&nbsp;</td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
         </tr>
         <tr>
                  <td align=left><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Cash flows from financing activities:</font></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
         </tr>

         <tr>
                  <td align=left><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;Proceeds from long-term debt, net of debt<br>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;issuance costs</font></td>
                  <td align=right></td>
                  <td align=right valign=bottom> <FONT FACE="Times New Roman, Times, Serif" SIZE=2>18,723</font> </td>
                  <td align=right></td>
                  <td align=right valign=bottom>         <FONT FACE="Times New Roman, Times, Serif" SIZE=2>850</font> </td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right valign=bottom> <FONT FACE="Times New Roman, Times, Serif" SIZE=2>9,373</font> </td>
                  <td align=right></td>
                  <td align=right valign=bottom>         <FONT FACE="Times New Roman, Times, Serif" SIZE=2>-</font> </td>
                  <td align=right></td>
                  <td align=right valign=bottom>         <FONT FACE="Times New Roman, Times, Serif" SIZE=2>114,604</font> </td>
         </tr>


         <tr>
                  <td align=left><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;Repayment of long-term debt</font></td>
                  <td align=right></td>
                  <td align=right> <FONT FACE="Times New Roman, Times, Serif" SIZE=2>(2,706)</font> </td>
                  <td align=right></td>
                  <td align=right>         <FONT FACE="Times New Roman, Times, Serif" SIZE=2>(1,950)</font> </td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right> <FONT FACE="Times New Roman, Times, Serif" SIZE=2>(14,561)</font> </td>
                  <td align=right></td>
                  <td align=right>         <FONT FACE="Times New Roman, Times, Serif" SIZE=2>(13,753)</font> </td>
                  <td align=right></td>
                  <td align=right>         <FONT FACE="Times New Roman, Times, Serif" SIZE=2>(12,053)</font> </td>
         </tr>
         <tr>
                  <td align=left><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;Net borrowings (repayments) of revolving lines of<br>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;credit, net</font></td>
                 <td align=right></td>
                  <td align=right valign=bottom> <FONT FACE="Times New Roman, Times, Serif" SIZE=2>(500)</font> </td>
                  <td align=right></td>
                  <td align=right valign=bottom>         <FONT FACE="Times New Roman, Times, Serif" SIZE=2>(2,000)</font> </td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right valign=bottom> <FONT FACE="Times New Roman, Times, Serif" SIZE=2>(1,500)</font> </td>
                  <td align=right></td>
                  <td align=right valign=bottom>         <FONT FACE="Times New Roman, Times, Serif" SIZE=2>(9,000)</font> </td>
                  <td align=right></td>
                  <td align=right valign=bottom>         <FONT FACE="Times New Roman, Times, Serif" SIZE=2>11,000</font> </td>
         </tr>


         <tr>
                  <td align=left><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;Repurchase of preferred shares</font></td>
                  <td align=right></td>
                  <td align=right> <FONT FACE="Times New Roman, Times, Serif" SIZE=2>-</font> </td>
                  <td align=right></td>
                  <td align=right>         <FONT FACE="Times New Roman, Times, Serif" SIZE=2>(213)</font> </td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right> <FONT FACE="Times New Roman, Times, Serif" SIZE=2>(213)</font> </td>
                  <td align=right></td>
                  <td align=right>         <FONT FACE="Times New Roman, Times, Serif" SIZE=2>(244)</font> </td>
                  <td align=right></td>
                  <td align=right>         <FONT FACE="Times New Roman, Times, Serif" SIZE=2>-</font> </td>
         </tr>

         <tr>
                  <td align=left><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;Dividends paid to minority shareholders of subsidiary</font></td>
                  <td align=right></td>
                  <td align=right>         <FONT FACE="Times New Roman, Times, Serif" SIZE=2>-</font></td>
                  <td align=right></td>
                  <td align=right>           <FONT FACE="Times New Roman, Times, Serif" SIZE=2>-</font> </td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right>         <FONT FACE="Times New Roman, Times, Serif" SIZE=2>(1,010)</font></td>
                  <td align=right></td>
                  <td align=right>           <FONT FACE="Times New Roman, Times, Serif" SIZE=2>(1,240)</font> </td>
                  <td align=right></td>
                  <td align=right>           <FONT FACE="Times New Roman, Times, Serif" SIZE=2>(1,100)</font> </td>
         </tr>


         <tr>
                  <td align=left><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;Exercise of stock options</font> </td>
                  <td align=right></td>
                  <td align=right>         <FONT FACE="Times New Roman, Times, Serif" SIZE=2>293</font></td>
                  <td align=right></td>
                  <td align=right>           <FONT FACE="Times New Roman, Times, Serif" SIZE=2>-</font> </td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right>         <FONT FACE="Times New Roman, Times, Serif" SIZE=2>408</font></td>
                  <td align=right></td>
                  <td align=right>           <FONT FACE="Times New Roman, Times, Serif" SIZE=2>334</font> </td>
                  <td align=right></td>
                  <td align=right>           <FONT FACE="Times New Roman, Times, Serif" SIZE=2>1,479</font> </td>
         </tr>


         <tr>
                  <td align=left><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;Dividends on preferred shares</font></td>
                  <td align=right></td>
                  <td align=right>         <FONT FACE="Times New Roman, Times, Serif" SIZE=2>(164)</font></td>
                  <td align=right></td>
                  <td align=right>           <FONT FACE="Times New Roman, Times, Serif" SIZE=2>(124)</font> </td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right>         <FONT FACE="Times New Roman, Times, Serif" SIZE=2>(575)</font></td>
                  <td align=right></td>
                  <td align=right>           <FONT FACE="Times New Roman, Times, Serif" SIZE=2>(248)</font> </td>
                  <td align=right></td>
                  <td align=right>           <FONT FACE="Times New Roman, Times, Serif" SIZE=2>-</font> </td>
         </tr>
         <tr>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
         </tr>

         <tr>
                  <td align=left><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;Net cash provided by (used in) financing activities</font></td>
                  <td align=right></td>
                  <td align=right>       <FONT FACE="Times New Roman, Times, Serif" SIZE=2>15,646</font></td>
                  <td align=right></td>
                  <td align=right>         <FONT FACE="Times New Roman, Times, Serif" SIZE=2>(3,437)</font> </td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right>       <FONT FACE="Times New Roman, Times, Serif" SIZE=2>(8,078)</font></td>
                  <td align=right></td>
                  <td align=right>         <FONT FACE="Times New Roman, Times, Serif" SIZE=2>(24,151)</font> </td>
                  <td align=right></td>
                  <td align=right>         <FONT FACE="Times New Roman, Times, Serif" SIZE=2>113,930</font> </td>
         </tr>
         <tr>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
         </tr>
         <tr>
                  <td align=left>&nbsp;</td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
         </tr>


         <tr>
                  <td align=left><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Net increase (decrease) in cash and cash equivalents</font></td>
                  <td align=right></td>
                  <td align=right>           <FONT FACE="Times New Roman, Times, Serif" SIZE=2>15,005</font> </td>
                  <td align=right></td>
                  <td align=right>             <FONT FACE="Times New Roman, Times, Serif" SIZE=2>148</font> </td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right>           <FONT FACE="Times New Roman, Times, Serif" SIZE=2>(578)</font> </td>
                  <td align=right></td>
                  <td align=right>             <FONT FACE="Times New Roman, Times, Serif" SIZE=2>4,612</font> </td>
                  <td align=right></td>
                  <td align=right>             <FONT FACE="Times New Roman, Times, Serif" SIZE=2>(8,960)</font> </td>
         </tr>


         <tr>
                  <td align=left><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Cash and cash equivalents, beginning of period</font></td>
                  <td align=right></td>
                  <td align=right>           <FONT FACE="Times New Roman, Times, Serif" SIZE=2>9,267</font> </td>
                  <td align=right></td>
                  <td align=right>           <FONT FACE="Times New Roman, Times, Serif" SIZE=2>9,845</font> </td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right>           <FONT FACE="Times New Roman, Times, Serif" SIZE=2>9,845</font> </td>
                  <td align=right></td>
                  <td align=right>           <FONT FACE="Times New Roman, Times, Serif" SIZE=2>5,233</font> </td>
                  <td align=right></td>
                  <td align=right>           <FONT FACE="Times New Roman, Times, Serif" SIZE=2>14,193</font> </td>
         </tr>
         <tr>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
         </tr>
         <tr>
                  <td align=left><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Cash and cash equivalents, end of period</font></td>
                  <td align=right> <FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</font> </td>
                  <td align=right>         <FONT FACE="Times New Roman, Times, Serif" SIZE=2>24,272</font> </td>
                  <td align=right> <FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</font> </td>
                  <td align=right>           <FONT FACE="Times New Roman, Times, Serif" SIZE=2>9,993</font> </td>
                  <td align=right> <FONT FACE="Times New Roman, Times, Serif" SIZE=2></font> </td>
                  <td align=right> <FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</font> </td>
                  <td align=right>         <FONT FACE="Times New Roman, Times, Serif" SIZE=2>9,267</font> </td>
                  <td align=right> <FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</font> </td>
                  <td align=right>           <FONT FACE="Times New Roman, Times, Serif" SIZE=2>9,845</font> </td>
                  <td align=right> <FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</font> </td>
                  <td align=right>           <FONT FACE="Times New Roman, Times, Serif" SIZE=2>5,233</font> </td>
         </tr>
         <tr>
                  <td><HR NOSHADE size=4></td>
                  <td><HR NOSHADE size=4></td>
                  <td><HR NOSHADE size=4></td>
                  <td><HR NOSHADE size=4></td>
                  <td><HR NOSHADE size=4></td>
                  <td><HR NOSHADE size=4></td>
                  <td><HR NOSHADE size=4></td>
                  <td><HR NOSHADE size=4></td>
                  <td><HR NOSHADE size=4></td>
                  <td><HR NOSHADE size=4></td>
                  <td><HR NOSHADE size=4></td>
                  <td><HR NOSHADE size=4></td>
         </tr>
         <tr>
                  <td align=left>&nbsp;</td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right colspan=2><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(Continued)</font></td>
         </tr>
</table>

<br>
<p align=center><FONT FACE="Times New Roman, Times, Serif" SIZE=3>F-9</font></p>
<page>
<br>

<H1 ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" size=3>Westmoreland Coal
Company and Subsidiaries<br>Consolidated Statements
of Cash Flows (Continued)
</FONT></H1>

<table border=0 cellPadding=0 cellSpacing=0 width=700>
         <tr>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
         </tr>
         <tr>
                  <td align=right colspan=5><b><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Three Months Ended March 31,</font></b></td>
                  <td align=center>&nbsp;</td>
                  <td align=center colspan=6><b><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Year Ended December 31,</font></b></td>
         </tr>
         <tr>
                  <td width=45% align=left><b>&nbsp;</b></td>
                  <td width=3% align=right><b></b></td>
                  <td width=7% align=right><b><FONT FACE="Times New Roman, Times, Serif" SIZE=2>2004</font></b></td>
                  <td width=3% align=right><b></b></td>
                  <td width=7% align=right><b><FONT FACE="Times New Roman, Times, Serif" SIZE=2>2003</font></b></td>
                  <td width=5% align=right><b>&nbsp;</b></td>
                  <td width=3% align=right><b>&nbsp;</b></td>
                  <td width=7% align=right><b><FONT FACE="Times New Roman, Times, Serif" SIZE=2>2003</font></b></td>
                  <td width=3% align=right><b></b></td>
                  <td width=7% align=right><b><FONT FACE="Times New Roman, Times, Serif" SIZE=2>2002</font></b></td>
                  <td width=3% align=right><b></b></td>
                  <td width=7% align=right><b><FONT FACE="Times New Roman, Times, Serif" SIZE=2>2001</font></b></td>
         </tr>
         <tr>
                  <td align=center>&nbsp;</td>
                  <td align=center colspan=4><b><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(unaudited)</font></b></td>
                  <td align=center>&nbsp;</td>
                  <td align=center colspan=6><b><FONT FACE="Times New Roman, Times, Serif" SIZE=2></font></b></td>
         </tr>
         <tr>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
         </tr>
         <tr>
                  <td align=left></td>
                  <td align=center colspan=11> <FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;          (in thousands)</font></td>
         </tr>
         <tr>
                  <td align=left><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Supplemental disclosures of cash flow information</font>:</td>
                 <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
         </tr>
         <tr>
                  <td align=left><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Cash paid during the year for:</font></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
         </tr>
         <tr>
                  <td align=left><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;Interest</font></td>
                  <td align=right> <FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</font> </td>
                  <td align=right>           <FONT FACE="Times New Roman, Times, Serif" SIZE=2>2,321</font> </td>
                  <td align=right> <FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</font> </td>
                  <td align=right>             <FONT FACE="Times New Roman, Times, Serif" SIZE=2>2,309</font> </td>
                  <td align=right> <FONT FACE="Times New Roman, Times, Serif" SIZE=2></font> </td>
                  <td align=right> <FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</font> </td>
                  <td align=right>           <FONT FACE="Times New Roman, Times, Serif" SIZE=2>9,814</font> </td>
                  <td align=right> <FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</font> </td>
                  <td align=right>             <FONT FACE="Times New Roman, Times, Serif" SIZE=2>10,176</font> </td>
                  <td align=right> <FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</font> </td>
                  <td align=right>             <FONT FACE="Times New Roman, Times, Serif" SIZE=2>8,340</font> </td>
         </tr>
         <tr>
                  <td align=left><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;Income taxes</font></td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</font>  </td>
                  <td align=right>              <FONT FACE="Times New Roman, Times, Serif" SIZE=2>13</font> </td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</font>  </td>
                  <td align=right>                 <FONT FACE="Times New Roman, Times, Serif" SIZE=2>(254)</font> </td>
                 <td align=right>  </td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</font>  </td>
                  <td align=right>              <FONT FACE="Times New Roman, Times, Serif" SIZE=2>737</font> </td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</font>  </td>
                  <td align=right>                 <FONT FACE="Times New Roman, Times, Serif" SIZE=2>886</font> </td>
                  <td align=right><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</font>  </td>
                  <td align=right>                 <FONT FACE="Times New Roman, Times, Serif" SIZE=2>1,209</font> </td>
         </tr>
</table>

<P><FONT FACE="Times New Roman, Times, Serif" size=2>See accompanying Summary of Significant Accounting Policies and Notes to Consolidated Financial Statements.</font></p>

<br>
<p align=center><FONT FACE="Times New Roman, Times, Serif" SIZE=3>F-10</font></p>
<page>
<br>



<H2 ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" size=3>Westmoreland
Coal Company and Subsidiaries<BR>Summary of Significant Accounting Policies<br>(Amounts presented
relating to March 31, 2004 and the three months ended March 31, 2004 and 2003
are unaudited)</FONT></H2>
<hr noshade size=3>


<H2 ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" size=3><u>Consolidation
Policy</u></FONT></H2>

<P><FONT FACE="Times New Roman, Times, Serif" size=3>The consolidated financial
statements of Westmoreland Coal Company (the &#147;Company&#148;) include the
accounts of the Company and its majority-owned subsidiaries, after elimination
of intercompany balances and transactions. The Company uses the equity method of
accounting for companies where its ownership is between 20% and 50% and for
partnerships and joint ventures in which less than a controlling interest is
held. </FONT></P>

<H2 ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" size=3><u>Use of
Estimates</u></FONT></H2>

<P><FONT FACE="Times New Roman, Times, Serif" size=3>The preparation of financial
statements in conformity with accounting principles generally accepted in the
United States of America requires management to make estimates and assumptions
that affect the reported amounts of assets, liabilities, revenues and expenses
and the disclosure of contingent assets and liabilities. Actual results could
differ from those estimates. </FONT></P>

<H2 ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" size=3><u>Cash
Equivalents</u></FONT></H2>

<P><FONT FACE="Times New Roman, Times, Serif" size=3>The Company considers all
highly liquid debt instruments purchased with original maturities of three
months or less to be cash equivalents. All such instruments are carried at cost,
which approximates market. Cash equivalents consist of Eurodollar time deposits,
money market funds and bank repurchase agreements. </FONT></P>

<H2 ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" size=3><u>Inventories</u></FONT></H2>

<P><FONT FACE="Times New Roman, Times, Serif" size=3>Inventories, which include
materials and supplies as well as raw coal, are stated at the lower of cost or
market. Cost is determined using the average cost method. </FONT></P>

<H2 ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" size=3><u>Property,
Plant and Equipment</u></FONT></H2>

<P><FONT FACE="Times New Roman, Times, Serif" size=3>Property, plant and
equipment are carried at cost and include expenditures for new facilities and
those expenditures that substantially increase the productive lives of existing
plant and equipment. Maintenance and repair costs are expensed as incurred.
Mineral rights and development costs are depleted based upon estimated
recoverable proven and probable reserves. Plant and equipment are depreciated on
a units-of-production or straight-line basis over the assets&#146; estimated
useful lives, ranging from 3 to 40 years. The Company assesses the carrying
value of its property, plant and equipment for impairment whenever events or
changes in circumstances indicate that the carrying amount of an asset may not
be recoverable. Recoverability is measured by comparing estimated undiscounted
cash flows expected to be generated from such assets with their net book value.
If net book value exceeds estimated cash flows, the asset is written down to
fair value. When an asset is retired or sold, its cost and related accumulated
depreciation and depletion are removed from the accounts. The difference between
the net book value of the asset and proceeds on disposition is recorded as a
gain or loss. Fully depreciated plant and equipment still in use are not
eliminated from the accounts. </FONT></P>


<br>
<p align=center><FONT FACE="Times New Roman, Times, Serif" SIZE=3>F-11</font></p>
<page>
<br>


<H2 ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" size=3><u>Advanced Coal
Royalties</u></FONT></H2>

<P><FONT FACE="Times New Roman, Times, Serif" size=3>Royalty payments made to
lessors under terms of mineral lease agreements that are recoupable against
future production are deferred. They are charged to expense as the leased coal
reserves are mined. </FONT></P>

<H2 ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" size=3><u>Deferred
Overburden Removal Costs</u></FONT></H2>

<P><FONT FACE="Times New Roman, Times, Serif" size=3>The cost of removing overburden
in advance of coal extraction, net of amounts reimbursed by customers, is
deferred and charged to expense when the coal is produced. </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" size=3>Until June 30, 2002, the
Company was reimbursed for all operating expenses at the Jewett Mine on a
current basis under the cost-plus-fees contract with its customer. Beginning
July 1, 2002, the contract changed to a market-based, fixed price per ton
arrangement. At that date, in compliance with its accounting policy, the Company
began deferring the cost of overburden removal in advance of coal extraction
until such time that the underlying coal is produced and sold. The amount to be
deferred was originally based on the number of tons of exposed coal in the
active pits at each period end. In order to better estimate deferred stripping
expenses and achieve a proper matching of expenses with the revenues from tons
sold, a change in the engineering estimates was made in 2003 to measure
overburden removed above all in-pit tons, not just exposed tons. The impact of
this change was an increase of $2.4 million in deferred overburden removal
costs. Prior to 2003, the measurement of overburden removed above in-pit tons
was not available. Therefore, the potential impact, if any, on prior periods is
not determinable. The change has been reflected as a change in estimate during
2003. </FONT></P>

<H2 ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" size=3><u>Workers&#146;
Compensation and Pneumoconiosis Benefit Obligations</u></FONT></H2>

<P><FONT FACE="Times New Roman, Times, Serif" size=3>The Company is self-insured
for workers&#146; compensation claims incurred prior to 1996 and federal and
state pneumoconiosis benefits for current and former employees. Workers&#146;
compensation claims incurred after January 1, 1996 are covered by a third party
insurance provider. </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" size=3>The liability for
workers&#146; compensation claims is an actuarially determined estimate of the
ultimate losses incurred on such claims based on the Company&#146;s experience,
and includes a provision for incurred but not reported losses. Adjustments to
the probable ultimate liability are made continually based on subsequent
developments and experience and are included in operations as incurred. </FONT></P>

<H2 ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" size=3><u>Reclamation
Deposits and Receivables</u></FONT></H2>

<P><FONT FACE="Times New Roman, Times, Serif" size=3>Certain of the
Company&#146;s customers have either agreed to reimburse the Company for
reclamation expenditures as they are incurred or have pre-funded a portion of
the expected reclamation costs. These funds will serve as sources for use in
final reclamation activities. The total reclamation deposit of $52.8 million at
December 31, 2003 consists of $11.7 million of cash and cash equivalents and
$41.1 million of Federal agency bonds. The Company has the intent and ability to
hold these securities to maturity, and, therefore, accounts for them as
held-to-maturity securities. Held-to-maturity securities are recorded at
amortized cost, adjusted for the amortization or accretion of premiums or
discounts calculated on the effective interest method. Interest income is
recognized when earned. In addition, the Company has recognized $23.1 million as
contractual third party reclamation obligations, representing the present value
of obligations of certain customers and a contract miner. </FONT></P>


<br>
<p align=center><FONT FACE="Times New Roman, Times, Serif" SIZE=3>F-12</font></p>
<page>
<br>


<P><FONT FACE="Times New Roman, Times, Serif" size=3>The amortized cost, gross
unrealized holding losses and fair value of held-to-maturity securities at
December 31, 2003 are as follows (in thousands): </FONT></P>
<table align=center border=0 cellPadding=0 cellSpacing=0 width=400>
         <tr>
                  <td width=75% align=left>Amortized cost</td>
                  <td width=5% align=right>$</td>
                  <td width=20% align=right>                     41,091 </td>
         </tr>

         <tr>
                  <td align=left>Gross unrealized holding gains</td>
                  <td align=right></td>
                  <td align=right>                        64</td>
         </tr>

         <tr>
                  <td align=left>Gross unrealized holding losses</td>
                  <td align=right></td>
                  <td align=right>                        (854)</td>
         </tr>
         <tr>
                  <td></td>
                  <td></td>
                  <td><HR NOSHADE></td>
         </tr>
         <tr>
                  <td align=left>Fair value</td>
                  <td align=right>$</td>
                  <td align=right>                     40,301 </td>
         </tr>
         <tr>
                  <td></td>
                  <td></td>
                  <td><HR NOSHADE size=4></td>
         </tr>
</table>


<P><FONT FACE="Times New Roman, Times, Serif" size=3>Maturities of
held-to-maturity securities are as follows at December 31, 2003 (in thousands): </FONT></P>

<table align=center border=0 cellPadding=0 cellSpacing=0 width=550>
         <tr>
                  <td width=50% align=left></td>
                  <td width=5% align=right></td>
                  <td width=20% align=center>Amortized Cost</td>
                  <td width=5% align=right></td>
                  <td width=20% align=center valign=bottom>Fair Value</td>
         </tr>
         <tr>
                  <td></td>
                  <td></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
         </tr>
         <tr>
                  <td align=left>Due in five years or less</td>
                  <td align=right>$</td>
                  <td align=right>           17,580 </td>
                  <td align=right> $ </td>
                  <td align=right>           17,482 </td>
         </tr>

         <tr>
                  <td align=left>Due after five years to ten years</td>
                  <td align=right></td>
                  <td align=right>            15,847 </td>
                  <td align=right></td>
                  <td align=right>             15,369 </td>
         </tr>

         <tr>
                  <td align=left>Due in more than ten years</td>
                  <td align=right></td>
                  <td align=right>            7,664 </td>
                  <td align=right></td>
                  <td align=right>             7,450 </td>
         </tr>

         <tr>
                  <td></td>
                  <td></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
         </tr>
         <tr>
                  <td align=left></td>
                  <td align=right>$</td>
                  <td align=right>           41,091 </td>
                  <td align=right> $ </td>
                  <td align=right>           40,301 </td>
         </tr>
         <tr>
                  <td></td>
                  <td></td>
                  <td><HR NOSHADE size=4></td>
                  <td><HR NOSHADE size=4></td>
                  <td><HR NOSHADE size=4></td>
         </tr>
</table>

<H2 ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" size=3><u>Post
Retirement Benefits Other than Pensions</u></FONT></H2>

<P><FONT FACE="Times New Roman, Times, Serif" size=3>The Company accounts for
health care and life insurance benefits provided for current and certain retired
employees and their dependents by accruing the cost of such benefits over the
service lives of employees. The Company is amortizing its transition obligation,
for past service costs relating to these benefits, over twenty years.
Unrecognized actuarial gains and losses are amortized over the estimated average
remaining service period for active employee plans and over the estimated
average remaining life for retiree plans. For UMWA represented union employees
who retired prior to 1976, the Company provides similar medical and life
insurance benefits by making payments to a multiemployer union trust fund. The
Company expenses such payments when they become due. </FONT></P>

<H2 ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" size=3><u>Coal Revenues</u></FONT></H2>

<P><FONT FACE="Times New Roman, Times, Serif" size=3>The Company recognizes coal
sales revenue at the time title passes to the customer in accordance with the
terms of the underlying sales agreements. </FONT></P>

<H2 ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" size=3><u>Reclamation</u></FONT></H2>

<P><FONT FACE="Times New Roman, Times, Serif" size=3>On
January 1, 2003, the Company adopted Statement of Financial Accounting Standards
No. 143, <I>Accounting for Asset Retirement Obligations</I> (&#147;SFAS No.
143&#148;), a required new method of accounting for mine reclamation costs.
Prior to the adoption of SFAS No. 143, reclamation costs were accrued on an
undiscounted, units-of-production basis. SFAS No. 143 requires entities to
record the fair value of asset retirement obligations using the present value of
projected future cash flows, with an equivalent amount recorded as basis in the
related long-lived asset. An accretion cost, representing the increase over time
in the present value of the liability, is recorded each period and the
capitalized cost is depreciated over the useful life of the related asset. As
reclamation work is performed or liabilities are otherwise settled, the recorded
amount of the liability is reduced. </FONT></P>


<br>
<p align=center><FONT FACE="Times New Roman, Times, Serif" SIZE=3>F-13</font></p>
<page>
<br>


<P><FONT FACE="Times New Roman, Times, Serif" size=3>Changes in the
Company&#146;s asset retirement obligations from January 1, 2003 to March 31,
2004 (in thousands) were: </FONT></P>

<table align=center border=0 cellPadding=0 cellSpacing=0 width=550>
         <tr>
                  <td width=75% align=left>Asset retirement obligation - January 1, 2003</td>
                  <td width=5% align=right>$</td>
                  <td width=20% align=right>                     115,033 </td>
         </tr>

         <tr>
                  <td align=left>Accretion </td>
                  <td align=right></td>
                  <td align=right>                        7,815</td>
         </tr>

         <tr>
                  <td align=left>Settlements (final reclamation performed)</td>
                  <td align=right></td>
                  <td align=right>                        (3,109)</td>
         </tr>
         <tr>
                  <td align=left>Gains on settlements</td>
                  <td align=right></td>
                  <td align=right>                        (265)</td>
         </tr>
         <tr>
                  <td align=left>Changes due to amount and timing of reclamation<br>&nbsp;&nbsp;activities</td>
                  <td align=right></td>
                  <td align=right valign=bottom>                        3,869</td>
         </tr>
         <tr>
                  <td></td>
                  <td></td>
                  <td><HR NOSHADE></td>
         </tr>
         <tr>
                  <td align=left>Asset retirement obligation - December 31, 2003</td>
                  <td align=right>$</td>
                  <td align=right>                     123,343 </td>
         </tr>
         <tr>
                  <td align=left>Accretion (unaudited) </td>
                  <td align=right></td>
                  <td align=right>                        2,088</td>
         </tr>

         <tr>
                  <td align=left>Settlements (unaudited)</td>
                  <td align=right></td>
                  <td align=right>                        (255)</td>
         </tr>
         <tr>
                  <td></td>
                  <td></td>
                  <td><HR NOSHADE></td>
         </tr>
         <tr>
                  <td align=left>Asset retirement obligation - March 31, 2004 (unaudited)</td>
                  <td align=right>$</td>
                  <td align=right>                     125,176 </td>
         </tr>
         <tr>
                  <td></td>
                  <td></td>
                  <td><HR NOSHADE size=4></td>
         </tr>
</table>

<P><FONT FACE="Times New Roman, Times, Serif" size=3>As a result of the adoption
of SFAS No. 143, in the first quarter of 2003 the Company recorded a gain of
$161,000, net of tax expense of $108,000, for the cumulative effect of the
change in accounting principle. The Company also reduced its recorded liability
for mine reclamation from $159 million to $115 million as of January 1, 2003 and
reduced the net book value of its property, plant and equipment from $189
million to $145 million on its Consolidated Balance Sheets as a result of the
change from undiscounted to present values. </FONT></P>

<H2 ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" size=3><u>Income Taxes</u></FONT></H2>

<P><FONT FACE="Times New Roman, Times, Serif" size=3>The Company accounts for
deferred income taxes using the asset and liability method. Deferred tax
liabilities and assets are recognized for the expected future tax consequences
of events that have been reflected in the Company&#146;s financial statements
based on the difference between the financial statement carrying amounts and tax
bases of assets and liabilities, as well as operating loss and tax credit
carryforwards, using enacted tax rates in effect in the years in which the
differences are expected to reverse. </FONT></P>

<H2 ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" size=3><u>Comprehensive
Income</u></FONT></H2>

<P><FONT FACE="Times New Roman, Times, Serif" size=3>The Company is party to an
interest rate swap agreement on the long-term debt at the Roanoke Valley I
independent power project through a subsidiary which is accounted for under the
equity method of accounting. In accordance with generally accepted accounting
principles, the Company has reflected the difference between its 50% share of
the fair value of this interest rate swap agreement and its carrying value as a
separate component of shareholders&#146; equity. The swap agreement exchanged
variable interest rates on debt for a fixed rate. Because market interest rates
have declined below those provided for in the swap agreement, the fair value of
the swap agreement has decreased. The change in current interest rates, net of
income tax impacts, is a component of the Company&#146;s total comprehensive
income. If interest rates remain at their current levels, the Company will
recognize its share of the loss in future periods as a reduction in equity in
earnings of independent power projects. </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" size=3>During 2003 and 2002, the
Company recognized an additional minimum pension liability as a result of the
accumulated pension benefit obligation exceeding the fair value of pension plan
assets at these dates. This additional minimum liability, net of income tax
effect, is shown as a separate component of shareholders&#146; equity. </FONT></P>

<br>
<p align=center><FONT FACE="Times New Roman, Times, Serif" SIZE=3>F-14</font></p>
<page>
<br>


<H2 ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" size=3><u>Incentive
Stock Options</u></FONT></H2>

<P><FONT FACE="Times New Roman, Times, Serif" size=3>The Company applies the
intrinsic-value-based method of accounting prescribed by Accounting Principles
Board (&#147;APB&#148;) Opinion No. 25, <I>Accounting for Stock Issued to
Employees,</I> and related interpretations, to account for its stock options.
Under this method, compensation expense is recorded on the date of grant only if
the current market price of the underlying stock exceeded the exercise price.
SFAS No. 123, <I>Accounting for Stock-Based Compensation,</I> established
accounting and disclosure requirements using a fair-value-based method of
accounting for stock-based employee compensation plans. As allowed under SFAS
No. 123, the Company has elected to continue to apply the intrinsic-value-based
method of accounting described above, and has adopted only the disclosure
requirements of SFAS No. 123. The following table illustrates the effect on net
income and net income per share as if the compensation cost for the
Company&#146;s stock options had been determined based on the fair value at the
grant dates consistent with SFAS No. 123: </FONT></P>

<table align=center border=0 cellPadding=0 cellSpacing=0 width=650>
          <tr>
                  <td align=left></td>
                  <td align=center colspan=4><b>Three Months Ended<br>March 31,</b></td>
                  <td align=right></td>
                  <td align=center colspan=6 valign=bottom><b>Year Ended<br>December 31,</b></td>
         </tr>
         <tr>
                  <td width=40% align=left></td>
                  <td width=3% align=right></td>
                  <td width=8% align=center><b>2004</b></td>
                  <td width=3% align=right></td>
                  <td width=8% align=center><b>2003</b></td>
                  <td width=5% align=right></td>
                  <td width=3% align=right></td>
                  <td width=8% align=center><b>2003</b></td>
                  <td width=3% align=right></td>
                  <td width=8% align=center><b>2002</b></td>
                  <td width=3% align=right></td>
                  <td width=8% align=center><b>2001</b></td>
         </tr>
          <tr>
                  <td align=left></td>
                  <td align=center colspan=4><b>(unaudited)</b></td>
                  <td align=right></td>
                  <td align=center colspan=6>&nbsp;</td>
         </tr>
         <tr>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
         </tr>
         <tr>
                  <td align=left></td>
                  <td align=center colspan=11 valign=top><b>(in thousands, except per share data)</b></td>
         </tr>
          <tr>
                  <td align=left>Net income (loss) applicable to<br>&nbsp;&nbsp;common shareholders:</td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
         </tr>
         <tr>
                  <td align=left>&nbsp;&nbsp;&nbsp;&nbsp;As reported</td>
                  <td align=right>$</td>
                  <td align=right>2,100</td>
                   <td align=right>$</td>
                 <td align=right>1,052</td>
                  <td align=right></td>
                  <td align=right>$</td>
                  <td align=right>10,842</td>
                   <td align=right>$</td>
                 <td align=right>8,353</td>
                  <td align=right>$</td>
                  <td align=right>3,451</td>
         </tr>
         <tr>
                  <td align=left>&nbsp;&nbsp;&nbsp;&nbsp;Pro forma</td>
                  <td align=right>$</td>
                  <td align=right>1,880</td>
                   <td align=right>$</td>
                 <td align=right>883</td>
                  <td align=right></td>
                  <td align=right>$</td>
                  <td align=right>10,067</td>
                   <td align=right>$</td>
                 <td align=right>6,698</td>
                  <td align=right>$</td>
                  <td align=right>1,986</td>
         </tr>
         <tr>
                  <td align=left>&nbsp;</td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
         </tr>

         <tr>
                  <td align=left>Income (loss) per share applicable to<br>&nbsp;&nbsp;common shareholders:</td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
         </tr>
  <tr>
                  <td align=left>&nbsp;&nbsp;&nbsp;&nbsp;As reported, basic</td>
                  <td align=right>$</td>
                  <td align=right>.26</td>
                   <td align=right>$</td>
                 <td align=right>.14</td>
                  <td align=right></td>
                  <td align=right>$</td>
                  <td align=right>1.39</td>
                   <td align=right>$</td>
                 <td align=right>1.10</td>
                  <td align=right>$</td>
                  <td align=right>.48</td>
         </tr>
         <tr>
                  <td align=left>&nbsp;&nbsp;&nbsp;&nbsp;Pro forma, basic</td>
                  <td align=right>$</td>
                  <td align=right>.23</td>
                   <td align=right>$</td>
                 <td align=right>.11</td>
                  <td align=right></td>
                  <td align=right>$</td>
                  <td align=right>1.29</td>
                   <td align=right>$</td>
                 <td align=right>.88</td>
                  <td align=right>$</td>
                  <td align=right>.27</td>
         </tr>
 <tr>
                  <td align=left>&nbsp;&nbsp;&nbsp;&nbsp;As reported, diluted</td>
                 <td align=right>$</td>
                  <td align=right>.25</td>
                   <td align=right>$</td>
                 <td align=right>.13</td>
                  <td align=right></td>
                  <td align=right>$</td>
                  <td align=right>1.30</td>
                   <td align=right>$</td>
                 <td align=right>1.03</td>
                  <td align=right>$</td>
                  <td align=right>.43</td>
         </tr>
         <tr>
                  <td align=left>&nbsp;&nbsp;&nbsp;&nbsp;Pro forma, diluted</td>
                  <td align=right>$</td>
                  <td align=right>.22</td>
                   <td align=right>$</td>
                 <td align=right>.11</td>
                  <td align=right></td>
                  <td align=right>$</td>
                  <td align=right>1.21</td>
                   <td align=right>$</td>
                 <td align=right>.82</td>
                  <td align=right>$</td>
                  <td align=right>.25</td>
         </tr>
         <tr>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
         </tr>
</table>

<P><FONT FACE="Times New Roman, Times, Serif" size=3>The fair value of each
option grant was estimated on the date of grant using the Black-Scholes
option-pricing model with the following weighted average assumptions used for
options granted in 2003, 2002 and 2001. The weighted average fair value of
options granted in 2003, 2002 and 2001 was $11.88, $13.92 and $17.58,
respectively. </FONT></P>

<table width=650 align=center cellspacing=0 cellpadding=0>
<tr>
<td width=20% valign=bottom><b>Options Granted</b></td>
<td width=20% valign=bottom align=center><b>Dividend Yield</b></td>
<td width=20% valign=bottom align=center><b>Volatility</b></td>
<td width=20% valign=bottom align=center><b>Risk-Free Rate</b></td>
<td width=20% valign=bottom align=center><b>Expected Life</b></td>
</tr>
<tr>
<td><hr noshade></td>
<td><hr noshade></td>
<td><hr noshade></td>
<td><hr noshade></td>
<td><hr noshade></td>
</tr>
<tr>
<td>2003</td>
<td align=center>None</td>
<td align=center>100%</td>
<td align=center>4.17%</td>
<td align=center>10 years</td>
</tr>
<tr>
<td>2002</td>
<td align=center>None</td>
<td align=center>229%</td>
<td align=center>5.04%</td>
<td align=center>10 years</td>
</tr>
<tr>
<td>2001</td>
<td align=center>None</td>
<td align=center>272%</td>
<td align=center>5.14%</td>
<td align=center>10 years</td>
</tr>
</table>

<H2 ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" size=3><u>Earnings Per
Share</u></FONT></H2>

<P><FONT FACE="Times New Roman, Times, Serif" size=3>Basic earnings per share is
computed by dividing net income available to common shareholders by the weighted
average number of common shares outstanding during the period. Diluted earnings
per share are determined on the same basis except that the weighted average
shares outstanding are increased to include additional shares for the assumed
exercise of stock options, if dilutive. The number of additional shares is
calculated by assuming that outstanding stock options were exercised and that
the proceeds from such exercises were used to acquire shares of common stock at
the average market price during the reporting period. </FONT></P>

<br>
<p align=center><FONT FACE="Times New Roman, Times, Serif" SIZE=3>F-15</font></p>
<page>
<br>


<P><FONT FACE="Times New Roman, Times, Serif" size=3>The following table
provides a reconciliation of the number of shares used to calculate basic and
diluted earnings per share (EPS): </FONT></P>

<table align=center border=0 cellPadding=0 cellSpacing=0 width=650>
         <tr>
                  <td align=left></td>
                  <td align=center colspan=2><b>Three Months Ended<br>March 31,</b></td>
                  <td align=right></td>
                  <td align=center colspan=3><b>Year Ended<br>December 31,</b></td>
         </tr>
         <tr>

                  <td width=42% align=left></td>
                  <td width=10% align=center><b>2004</b></td>
                  <td width=10% align=center><b>2003</b></td>
                  <td width=8% align=right><b></b></td>
                  <td width=10% align=center><b>2003</b></td>
                  <td width=10% align=center><b>2002</b></td>
                  <td width=10% align=center><b>2001</b></td>
         </tr>
         <tr>
                  <td align=left></td>
                  <td align=center colspan=2><b>(unaudited)</b></td>
                  <td align=left></td>
                  <td align=center colspan=3></td>
         </tr>
         <tr>
                  <td></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
         </tr>
          <tr>
                  <td align=left></td>
                  <td align=center colspan=6 valign=top>(in thousands of shares)</td>
         </tr>

         <tr>
                  <td align=left>Weighted average number of common shares outstanding:</td>
                  <td align=center colspan=6 valign=top>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
         </tr>

         <tr>
                  <td align=left>&nbsp;&nbsp;&nbsp;Basic</td>
                  <td align=right>8,009</td>
                  <td align=right>7,728</td>
                  <td align=right></td>
                  <td align=right>7,799</td>
                  <td align=right>7,608</td>
                  <td align=right>7,239</td>
         </tr>

         <tr>
                  <td align=left>&nbsp;&nbsp;&nbsp;Effect of dilutive instruments</td>
                  <td align=right>494</td>
                  <td align=right>495</td>
                  <td align=right></td>
                  <td align=right>539</td>
                  <td align=right>539</td>
                  <td align=right>761</td>
         </tr>
         <tr>
                  <td></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
         </tr>

         <tr>
                  <td align=left>&nbsp;&nbsp;&nbsp;Diluted</td>
                 <td align=right>8,503</td>
                  <td align=right>8,223</td>
                  <td align=right></td>
                 <td align=right>8,338</td>
                  <td align=right>8,147</td>
                  <td align=right>8,000</td>
          </tr>
         <tr>
                  <td></td>
                  <td><HR NOSHADE size=4></td>
                  <td><HR NOSHADE size=4></td>
                  <td><HR NOSHADE size=4></td>
                  <td><HR NOSHADE size=4></td>
                  <td><HR NOSHADE size=4></td>
                  <td><HR NOSHADE size=4></td>
         </tr>
         <tr>
                  <td align=left>&nbsp;</td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
         </tr>
         <tr>
                  <td align=left>Number of shares not
included in dilutive EPS that would have been antidilutive because the exercise
or conversion price was greater than the average market price of the common
shares.</td>
                  <td align=right valign=bottom>275</td>
                  <td align=right valign=bottom>319</td>
                  <td align=right valign=bottom></td>
                  <td align=right valign=bottom>374</td>
                  <td align=right valign=bottom>309</td>
                  <td align=right valign=bottom>113</td>
         </tr>
         <tr>
                  <td></td>
                  <td><HR NOSHADE size=4></td>
                  <td><HR NOSHADE size=4></td>
                  <td><HR NOSHADE size=4></td>
                  <td><HR NOSHADE size=4></td>
                  <td><HR NOSHADE size=4></td>
                  <td><HR NOSHADE size=4></td>
         </tr>
</table>

<H2 ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" size=3>NEW ACCOUNTING
PRONOUNCEMENTS</FONT></H2>

<P><FONT FACE="Times New Roman, Times, Serif" size=3>In December 2003, the FASB issued
FASB Interpretation No. 46 (revised December 2003), <I>Consolidated of Variable
Interest Entities (&#147;FIN 46R&#148;), </I>which addresses how a business
enterprise should evaluate whether it has a controlling financial interest in an
entity through means other than voting rights and accordingly should consolidate
the entity. FIN 46R replaces FASB Interpretation No. 46, <I>Consolidation of
Variable Interest Entities, </I>which was issued in January 2003, The Company
does not have interests in any variable interest entities and, therefore, will
not be impacted by FIN 46R. </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" size=3>FASB Statement No. 150,
<I>Accounting for Certain Financial Instruments with Characteristics of both
Liabilities and Equity, </I>was issued in May 2003. This statement establishes
standards for the classification and measurement of certain financial
instruments with characteristics of both liabilities and equity. The statement
also includes required disclosures for financial instruments within its scope.
For the Company, the statement was effective for instruments entered into or
modified after May 31, 2003 and otherwise will be effective as of January 1,
2004, except for mandatorily redeemable financial instruments. For certain
mandatorily redeemable financial instruments, the statement will be effective
for the Company of January 1, 2005. The effective date has been deferred
indefinitely for certain other types of mandatorily redeemable financial
instruments. The Company currently does not have any financial instruments that
are within the scope of this statement. </FONT></P>


<br>
<p align=center><FONT FACE="Times New Roman, Times, Serif" SIZE=3>F-16</font></p>
<page>
<br>


<H2 ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" size=3>Westmoreland
Coal Company and Subsidiaries<BR>Notes to Consolidated Financial Statements<br>



December 31, 2003,
2002 and 2001<br>(Amounts presented
relating to March 31, 2004 and the three months ended March 31, 2004 and 2003
are unaudited)</FONT></H2>

<hr noshade size=3>


<H2 ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" size=3>1.&nbsp;&nbsp;&nbsp;&nbsp;NATURE OF
OPERATIONS</FONT></H2>

<P><FONT FACE="Times New Roman, Times, Serif" size=3>The Company&#146;s current
principal activities, all conducted within the United States, are: (i) the
production and sale of coal from surface mines in Montana, North Dakota and
Texas; and (ii) the development, ownership and management of interests in
cogeneration and other non-regulated independent power plants. Prior to the sale
of the Company&#146;s interest in Dominion Terminal Associates
(&#147;DTA&#148;), which was effective as of June 30, 2003, the Company was also
engaged in the leasing of capacity at that coal storage and vessel loading
facility. As described in Note 4, the Company&#146;s share of DTA&#146;s
activities has been classified as discontinued operations in the Consolidated
Statements of Operations. </FONT></P>

<H2 ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" size=3>2.&nbsp;&nbsp;&nbsp;&nbsp;ACQUISITIONS</FONT></H2>

<P><FONT FACE="Times New Roman, Times, Serif" size=3>On April 30, 2001 and May
11, 2001, respectively, the Company, through its wholly owned subsidiary
Westmoreland Mining LLC (&#147;WML&#148;), completed the acquisitions of the
coal business of Entech, Inc. (&#147;Entech&#148;), a wholly-owned subsidiary of
the Montana Power Company (&#147;Montana Power&#148;) for approximately
$136&#160;million, and the coal operations of Knife River Corporation
(&#147;Knife River&#148;) for approximately $27 million. The acquisitions were
effective April&#160;30, 2001. WML is a special purpose Delaware limited
liability company formed on December 4, 2000 for the purpose of facilitating the
financing of these acquisitions and operating the Rosebud, Jewett, Beulah and
Savage mines. The results of operations relating to the acquisitions have been
included in the Company&#146;s consolidated financial statements beginning on
May 1, 2001. </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" size=3>In the Entech, transaction,
WML acquired the stock of Western Energy Company (&#147;WECO&#148;), which owns
and operates the Rosebud Mine located in the Northern Powder River Basin, and
Northwestern Resources Co. (&#147;NWR&#148;), which owns and operates the Jewett
Mine in central Texas. In addition, the Company acquired the stock of three
entities that were not engaged in active operations: Basin Resources, Inc.;
Horizon Coal Services, Inc. (&#147;Horizon&#148;); and North Central Energy
Company. </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" size=3>The final purchase price
for the acquisition of Entech&#146;s coal business is subject to adjustment
pursuant to the terms of the Stock Purchase Agreement dated as of September 15,
2000 (the &#147;Purchase Agreement&#148;) between the Company and Entech. See
further discussion of the status of the purchase price adjustment in Note 14. </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" size=3>The acquisitions were
funded with $39 million in cash and borrowings of $125 million ($120 million
term debt and $5 million revolving line of credit) by WML as described in Note
5. </FONT></P>

<H2 ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" size=3>3.&nbsp;&nbsp;&nbsp;&nbsp;WESTMORELAND ENERGY, LLC</FONT></H2>

<P><FONT FACE="Times New Roman, Times, Serif" size=3>Westmoreland Energy, LLC
(&#147;WELLC&#148;), a wholly owned subsidiary of the Company, holds general and
limited partner interests in partnerships which were formed to develop and own
cogeneration and other non-regulated independent power plants. Equity interests
in these partnerships range from 4.49 percent to 50 percent. As of December 31,
2003, WELLC held interests in three operating projects as listed and described
in the summary below. The lenders to these projects have recourse only against
these projects and the income and revenues therefrom. The debt agreements
contain various restrictive covenants including restrictions on making cash
distributions to the partners, with which the partnerships are in compliance.
The type of restrictions on making cash distributions to the partners vary from
one project lender to another. </FONT></P>

<br>
<p align=center><FONT FACE="Times New Roman, Times, Serif" SIZE=3>F-17</font></p>
<page>
<br>

<table align=center border=1 cellPadding=3 cellSpacing=0 width=650>
         <tr>
                  <td width=36% align=left valign=bottom><b>Project</b></td>
                  <td width=20% align=center valign=bottom><b>Ft. Lupton</b></td>
                  <td width=22% align=center valign=bottom><b>Roanoke<br>Valley I</b></td>
                  <td width=22% align=center valign=bottom><b>Roanoke<br>Valley II</b></td>
         </tr>
         <tr>
                  <td align=left valign=bottom><b>Location:</b></td>
                  <td align=center>Ft. Lupton, Colorado</td>
                  <td align=center>Weldon,<br>North  Carolina</td>
                  <td align=center>Weldon,<br>North  Carolina</td>
         </tr>
         <tr>
                  <td align=left><b>Gross Megawatt Capacity:</b></td>
                  <td align=center>290 MW</td>
                  <td align=center>180 MW</td>
                  <td align=center>50 MW</td>
         </tr>
         <tr>
                  <td align=left><b>WELLC Equity Ownership:</b></td>
                  <td align=center>4.49%</td>
                  <td align=center>50.0%</td>
                  <td align=center>50.0%</td>
         </tr>
         <tr>
                  <td align=left valign=bottom><b>Electricity Purchaser:</b></td>
                  <td align=center>Public Service of Colorado</td>
                  <td align=center valign=bottom>Dominion Virginia Power</td>
                  <td align=center valign=bottom>Dominion Virginia Power</td>
         </tr>
         <tr>
                  <td align=left valign=bottom><b>Steam Host:</b></td>
                  <td align=center>Rocky Mtn. Produce, Ltd</td>
                  <td align=center>Patch Rubber Company</td>
                  <td align=center>Patch Rubber Company</td>
         </tr>
         <tr>
                  <td align=left><b>Fuel Type:</b></td>
                  <td align=center>Natural Gas</td>
                  <td align=center>Coal</td>
                  <td align=center>Coal</td>
         </tr>
         <tr>
                  <td align=left valign=bottom><b>Fuel Supplier:</b></td>
                  <td align=center valign=bottom>Thermo Fuels,  Inc.</td>
                  <td align=center>TECO Coal/ CONSOL</td>
                  <td align=center>TECO Coal/ CONSOL</td>
         </tr>
         <tr>
                  <td align=left><b>Commercial Operation Date:</b></td>
                  <td align=center>1994</td>
                  <td align=center>1994</td>
                  <td align=center>1995</td>
         </tr>
</table>

<P><FONT FACE="Times New Roman, Times, Serif" size=3>The following is a summary
of aggregated financial information for all investments owned by WELLC which are
accounted for under the equity method: </FONT></P>

<table align=center border=0 cellPadding=0 cellSpacing=0 width=650>
         <tr>
                  <td width=60% align=left><b>Balance Sheets</b></td>
                  <td width=5% align=right><b></b></td>
                  <td width=15% align=right></td>
                  <td width=5% align=right></td>
                  <td width=15% align=right></td>
         </tr>
         <tr>
                  <td align=left>December 31,</td>
                  <td align=right></td>
                  <td align=right>2003</td>
                  <td align=right></td>
                  <td align=right>2002</td>
         </tr>
         <tr>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
         </tr>
         <tr>
                  <td align=left></td>
                  <td align=right></td>
                  <td align=center colspan=3>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(in thousands)</td>
         </tr>
         <tr>
                  <td align=left>Assets</td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
         </tr>
         <tr>
                  <td align=left>&nbsp;&nbsp;&nbsp;Current assets</td>
                  <td align=right>$</td>
                  <td align=right>                           38,549 </td>
                  <td align=right>$</td>
                  <td align=right>                    40,282 </td>
         </tr>

         <tr>
                  <td align=left>&nbsp;&nbsp;&nbsp;Property, plant and equipment, net</td>
                  <td align=right></td>
                  <td align=right>                           246,796 </td>
                  <td align=right></td>
                  <td align=right>                  255,364 </td>
         </tr>
         <tr>
                  <td align=left>&nbsp;&nbsp;&nbsp;Other assets</td>
                  <td align=right></td>
                  <td align=right>                             25,267 </td>
                  <td align=right></td>
                  <td align=right>                    25,171 </td>
         </tr>
         <tr>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
         </tr>
         <tr>
                  <td align=left>&nbsp;&nbsp;&nbsp;Total assets</td>
                  <td align=right>$</td>
                  <td align=right>                           310,612 </td>
                  <td align=right>$</td>
                  <td align=right>                  320,817 </td>
         </tr>
         <tr>
                  <td><HR NOSHADE size=4></td>
                  <td><HR NOSHADE size=4></td>
                  <td><HR NOSHADE size=4></td>
                  <td><HR NOSHADE size=4></td>
                  <td><HR NOSHADE size=4></td>
         </tr>
         <tr>
                  <td align=left>&nbsp;</td>
                  <td align=right>&nbsp;</td>
                  <td align=right>&nbsp;</td>
                  <td align=right>&nbsp;</td>
                  <td align=right>&nbsp;</td>
         </tr>
         <tr>
                  <td align=left>Liabilities and equity</td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
         </tr>
         <tr>
                  <td align=left>&nbsp;&nbsp;&nbsp;Current liabilities</td>
                  <td align=right>$</td>
                  <td align=right>                             29,884 </td>
                  <td align=right>$</td>
                  <td align=right>                    29,500 </td>
         </tr>
         <tr>

                  <td align=left>&nbsp;&nbsp;&nbsp;Long-term debt and other liabilities</td>
                  <td align=right></td>
                  <td align=right>                           209,979 </td>
                  <td align=right></td>
                  <td align=right>                  231,922 </td>
         </tr>
         <tr>
                  <td align=left>&nbsp;&nbsp;&nbsp;Equity</td>
                  <td align=right></td>
                  <td align=right>                           70,749 </td>
                  <td align=right></td>
                  <td align=right>                    59,395 </td>
         </tr>
         <tr>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
         </tr>
         <tr>
                  <td align=left>&nbsp;&nbsp;&nbsp;Total liabilities and equity</td>
                  <td align=right>$</td>
                  <td align=right>                           310,612 </td>
                  <td align=right>$</td>
                  <td align=right>                  320,817 </td>
         </tr>
         <tr>
                  <td><HR NOSHADE size=4></td>
                  <td><HR NOSHADE size=4></td>
                  <td><HR NOSHADE size=4></td>
                  <td><HR NOSHADE size=4></td>
                  <td><HR NOSHADE size=4></td>
         </tr>
         <tr>
                  <td align=left>&nbsp;</td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
         </tr>
         <tr>
                  <td align=left>WELLC&#146;s share of equity</td>
                  <td align=right>$</td>
                  <td align=right>                             38,487 </td>
                  <td align=right>$</td>
                  <td align=right>                    33,407 </td>
         </tr>
         <tr>
                  <td><HR NOSHADE size=4></td>
                  <td><HR NOSHADE size=4></td>
                  <td><HR NOSHADE size=4></td>
                  <td><HR NOSHADE size=4></td>
                  <td><HR NOSHADE size=4></td>
         </tr>
</table>
<br>

<table align=center border=0 cellPadding=0 cellSpacing=0 width=550>
         <tr>
                  <td width=55% align=left><b>Income Statements</b></td>
                  <td width=3% align=right><b></b></td>
                  <td width=12% align=right></td>
                  <td width=3% align=right></td>
                  <td width=12% align=right></td>
                  <td width=3% align=right></td>
                  <td width=12% align=right></td>
         </tr>
         <tr>
                  <td align=left>For years ended December 31,</td>
                  <td align=right></td>
                  <td align=right>2003</td>
                  <td align=right></td>
                  <td align=right>2002</td>
                  <td align=right></td>
                  <td align=right>2001</td>
         </tr>
         <tr>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
         </tr>
         <tr>
                  <td align=left></td>
                  <td align=right></td>
                  <td align=center colspan=5>(in thousands)</td>
         </tr>
         <tr>
                  <td align=left>&nbsp;</td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
         </tr>
         <tr>
                  <td align=left>Revenues</td>
                  <td align=right> $ </td>
                  <td align=right>                                110,673 </td>
                  <td align=right>$</td>
                  <td align=right>                110,075 </td>
                  <td align=right> $ </td>
                  <td align=right>         124,946 </td>
         </tr>
         <tr>
                  <td align=left>Operating income</td>
                  <td align=right></td>
                  <td align=right>                                45,918 </td>
                  <td align=right></td>
                  <td align=right>                  46,731 </td>
                  <td align=right></td>
                  <td align=right>           72,209 </td>
         </tr>
         <tr>

                  <td align=left>Net income</td>
                  <td align=right></td>
                  <td align=right>                                  30,446 </td>
                  <td align=right></td>
                  <td align=right>                  28,935 </td>
                  <td align=right></td>
                  <td align=right>           33,003 </td>
         </tr>
         <tr>
                  <td><HR NOSHADE size=4></td>
                  <td><HR NOSHADE size=4></td>
                  <td><HR NOSHADE size=4></td>
                  <td><HR NOSHADE size=4></td>
                  <td><HR NOSHADE size=4></td>
                  <td><HR NOSHADE size=4></td>
                  <td><HR NOSHADE size=4></td>
         </tr>
         <tr>
                  <td align=left>WELLC&#146;s share of earnings</td>
                  <td align=right> $ </td>
                  <td align=right>                                  15,242 </td>
                  <td align=right>$</td>
                  <td align=right>                  14,506 </td>
                  <td align=right> $ </td>
                  <td align=right>           15,871 </td>
         </tr>
         <tr>
                  <td><HR NOSHADE size=4></td>
                  <td><HR NOSHADE size=4></td>
                  <td><HR NOSHADE size=4></td>
                  <td><HR NOSHADE size=4></td>
                  <td><HR NOSHADE size=4></td>
                  <td><HR NOSHADE size=4></td>
                  <td><HR NOSHADE size=4></td>
         </tr>
</table>

<br>
<p align=center><FONT FACE="Times New Roman, Times, Serif" SIZE=3>F-18</font></p>
<page>
<br>

<P><FONT FACE="Times New Roman, Times, Serif" size=3>WELLC performs asset
management services for the partnerships and has recognized related revenues of
$258,000, $258,000 and $267,000 for the years ended December 31, 2003, 2002 and
2001, respectively. Management fees, net of related costs, are recorded as other
income when the service is performed. </FONT></P>

<H2 ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" size=3>4.&nbsp;&nbsp;&nbsp;&nbsp;INVESTMENT
IN DOMINION TERMINAL ASSOCIATES (DTA)</FONT></H2>

<P><FONT FACE="Times New Roman, Times, Serif" size=3>Prior to June 30, 2003, the
Company had a 20% interest in DTA, a partnership which operates a coal-storage
and vessel-loading facility in Newport News, Virginia. Due to declining export
business, the Company&#146;s original investment in DTA was written down from
$17.6 million to $5.5 million in 1998. The Company&#146;s loss from operations
at DTA in more recent years was the revenue received from the lease of its
facilities and throughput, net of its share of the expenses incurred
attributable to the terminal&#146;s operations. The Company recognized a further
non-cash impairment charge equal to the remaining book value of its investment
in DTA during the third quarter of 2002 as a result of the terminal&#146;s
continuing operating losses and the terms of an agreement by one of the
terminal&#146;s other owners to dispose of its interest in DTA, but the Company
continued to share in cash operating expenses and recognize losses until the
sale of its own interest was completed. </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" size=3>Effective June 30, 2003, a
subsidiary of Dominion Resources, Inc. purchased for $10.5 million the
Company&#146;s 20% partnership interest in DTA and its industrial revenue bonds.
Under the terms of the Purchase and Sale Agreement, the Company guaranteed
throughput at the terminal for a period of three years from the effective date
of the sale. To secure the throughput commitment, $6.0 million of the purchase
price was deposited into an escrow account as collateral for a stand-by letter
of credit for the benefit of the purchaser. The Company does not expect to be
able to deliver the minimum throughput. The Company also provided customary
representations and warranties. The Company has guaranteed its obligations under
the Purchase and Sale Agreement for a period of five years. </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" size=3>With the closing of this
transaction the Company no longer incurs DTA-related operating losses, which
were $1.0 million, $2.1 million and $1.9 million in 2003, 2002 and 2001,
respectively. The Company also recognized a $4.5 million pretax gain in the
second quarter of 2003. </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" size=3>As a result of the sale of
the Company&#146;s investment, the financial results relating to DTA have been
presented as Discontinued Operations in the accompanying Consolidated Statements
of Operations. The basic income (loss) per share from these discontinued
operations, including the gain on sale, were $.27, ($.47) and ($.16) for the
years ended December 31, 2003, 2002 and 2001, respectively. The diluted income
(loss) per share from these discontinued operations was $.25, ($.47) and ($.16)
per share for 2003, 2002 and 2001, respectively. </FONT></P>

<H2 ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" size=3>5.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;LINES OF
CREDIT AND LONG-TERM DEBT</FONT></H2>

<P><FONT FACE="Times New Roman, Times, Serif" size=3>The amounts outstanding under
the Company&#146;s lines of credit and long-term debt consist of the following: </FONT></P>

<table align=center border=0 cellPadding=0 cellSpacing=0 width=550>
         <tr>
                  <td align=left></td>
                  <td align=center colspan=2><b>March 31,</b></td>
                  <td>&nbsp;</td>
                  <td align=center colspan=4><b>December 31,</b></td>
         </tr>
         <tr>
                  <td width=44% align=left></td>
                  <td width=5% align=right></td>
                  <td width=12%><b>2004</b></td>
                  <td width=5% align=right></td>
                  <td width=5% align=right></td>
                  <td width=12% align=center><b>2003</b></td>
                  <td width=5% align=right></td>
                  <td width=12% align=center><b>2002</b></td>
         </tr>
         <tr>
                  <td align=left></td>
                  <td align=center colspan=2><b>(unaudited)</b></td>
                  <td>&nbsp;</td>
                  <td align=center colspan=3>&nbsp;</td>
         </tr>
         <tr>
                  <td align=left></td>
                 <td align=right><hr noshade></td>
                  <td align=right><hr noshade></td>
                  <td align=right><hr noshade></td>
                  <td align=right><hr noshade></td>
                  <td align=right><hr noshade></td>
                  <td align=right><hr noshade></td>
                  <td align=right><hr noshade></td>
         </tr>
         <tr>
                  <td align=left></td>
                  <td align=center colspan=7><b>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(in thousands)</b></td>
         </tr>
         <tr>
                  <td align=left> WML revolving line of credit</td>
                  <td align=right>$</td>
                  <td align=right>                        - </td>
                  <td align=right></td>
                  <td align=right>$</td>
                  <td align=right>                        - </td>
                  <td align=right>$</td>
                  <td align=right>                        1,500 </td>
         </tr>
         <tr>
                  <td align=left>WML term debt</td>
                  <td align=right></td>
                  <td  align=right>                        106,300 </td>
                  <td align=right></td>
                  <td align=right></td>
                  <td  align=right>                        88,500 </td>
                  <td align=right></td>
                  <td  align=right>                        96,300 </td>
         </tr>
         <tr>
                  <td align=left>Corporate revolving line of credit</td>
                  <td align=right></td>
                  <td  align=right>                        - </td>
                  <td align=right></td>
                  <td align=right></td>
                  <td  align=right>                        500 </td>
                  <td align=right></td>
                  <td  align=right>                        500 </td>
         </tr>
         <tr>
                  <td align=left>Other term debt</td>
                  <td align=right></td>
                  <td  align=right>                        4,338 </td>
                  <td align=right></td>
                  <td align=right></td>
                  <td  align=right>                        4,469 </td>
                  <td align=right></td>
                  <td  align=right>                        1,857 </td>
         </tr>
         <tr>
                  <td align=left></td>
                  <td align=right><hr noshade></td>
                  <td align=right><hr noshade></td>
                  <td align=right><hr noshade></td>
                  <td align=right><hr noshade></td>
                  <td align=right><hr noshade></td>
                  <td align=right><hr noshade></td>
                  <td align=right><hr noshade></td>
         </tr>
         <tr>
                  <td align=left>&nbsp;&nbsp;&nbsp;&nbsp;Total debt outstanding</td>
                  <td align=right></td>
                  <td  align=right>                        110,638 </td>
                  <td align=right></td>
                  <td align=right></td>
                  <td  align=right>                        93,469 </td>
                  <td align=right></td>
                  <td  align=right>                        100,157 </td>
         </tr>
         <tr>
                  <td align=left>Less current portion</td>
                  <td align=right></td>
                  <td  align=right>                        (11,595) </td>
                  <td align=right></td>
                  <td align=right></td>
                  <td  align=right>                        (11,595) </td>
                  <td align=right></td>
                  <td  align=right>                        (8,852) </td>
         </tr>
         <tr>
                  <td align=left></td>
                  <td align=right><hr noshade></td>
                  <td align=right><hr noshade></td>
                  <td align=right><hr noshade></td>
                  <td align=right><hr noshade></td>
                  <td align=right><hr noshade></td>
                  <td align=right><hr noshade></td>
                  <td align=right><hr noshade></td>
         </tr>
         <tr>
                  <td align=left>&nbsp;&nbsp;&nbsp;&nbsp;Total long-term debt outstanding</td>
                  <td align=right>$</td>
                  <td  align=right>                        99,043</td>
                  <td align=right></td>
                  <td align=right>$</td>
                  <td  align=right>                        81,874</td>
                  <td align=right>$</td>
                  <td  align=right>                        91,305 </td>
         </tr>
         <tr>
                  <td align=left></td>
                  <td align=right><hr noshade size=4></td>
                  <td align=right><hr noshade size=4></td>
                  <td align=right><hr noshade size=4></td>
                  <td align=right><hr noshade size=4></td>
                  <td align=right><hr noshade size=4></td>
                  <td align=right><hr noshade size=4></td>
                  <td align=right><hr noshade size=4></td>
         </tr>

</table>

<br>
<p align=center><FONT FACE="Times New Roman, Times, Serif" SIZE=3>F-19</font></p>
<page>
<br>

<P><FONT FACE="Times New Roman, Times, Serif" size=3>As of December 31, 2003,
WML had a $20 million revolving credit facility with PNC Bank, National
Association (&#147;PNC&#148;), as Agent, and three participating banks which has
been replaced by a new facility described below. The interest rate was either
PNC&#146;s Base Rate plus 1.60% or Euro-Rate plus 3.10%, at WML&#146;s option. </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" size=3>On March 8, 2004, WML
entered into an amended $12 million revolving facility (the
&#147;Facility&#148;) solely with PNC which expires on April 27, 2007. The
interest rate is either PNC&#146;s Base Rate plus 1.50% or Euro-Rate plus 3.00%,
at WML&#146;s option. In addition, a commitment fee of &#189; of 1% of the
average unused portion of the available credit is payable quarterly. The amount
available under the Facility is based upon, and any outstanding amounts are
secured by, eligible accounts receivable. </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" size=3>In 2001, WML borrowed $120
million from a group of institutions using PNC Capital Markets, Inc. as lead
arranger to fund the acquisitions described in Note 2. The borrowings consisted
of $20 million in variable-rate Series A Notes and $100 million in fixed-rate
Series B Notes. The Series A Notes were repaid in full on June 30, 2002. The
Series B Notes bear interest at a rate of 9.39% and require quarterly principal
and interest payments from September 2002 to December 2008, when the remaining
outstanding balance of $30.0 million is due. The Series B Notes are secured by
assets of WML. </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" size=3>Both the revolving line of
credit and the term notes contain various covenants which limit WML or its
subsidiaries&#146; ability to merge or consolidate with another entity, dispose
of assets, pay dividends, or change the nature of business operations. WML is
also required to maintain certain financial ratios as defined in the agreements.
Further, pursuant to these agreements any purchase price adjustment from the
Montana Power transaction which is paid to WML must be used to repay any amounts
outstanding under the Facility and in certain circumstances fund a debt service
reserve account. As of December 31, 2003 and March 31, 2004, WML was in
compliance with such covenants. </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" size=3>Under the terms of the
Series B Notes, WML is required to maintain a debt service reserve account equal
to the principal and interest payments and certain fees scheduled to become due
within the next six months. In addition, 25% of any &#147;Surplus Cash
Flow&#148; (as such term is defined in the agreement) is applied to a prepayment
account for repayment of the final $30 million of indebtedness and 75% of any
Surplus Cash Flow is available to WML. WML may distribute such Surplus Cash Flow
to the Company so long as no Event of Default or Potential Event of Default
under the term loan agreement exists or is likely to result from the
distribution. The quarterly distribution is in addition to a quarterly $500,000
management fee that WML pays the Company. At December 31, 2003, WML had funded
$8.8 million in the debt service reserve account, which could be used for
principal and interest payments, and $8.7 million in the long-term prepayment
account. At March 31, 2004, these accounts were funded $9.3 million and $9.5
million, respectively. Those funds have been classified as restricted cash in
the consolidated balance sheet. </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" size=3>On March 8, 2004, WML
amended its term debt to borrow an additional $35 million in $20.4 million
Series C Notes and $14.6 million Series D Notes. The Series C Notes were drawn
immediately and the Series D Notes will be borrowed after seven months but no
later than December 31, 2004. Both notes require quarterly interest payments
with principal payments beginning March 31, 2009 and final payment on December
31, 2011. The Series C Notes bear interest at a fixed rate of 6.85%, and the
Series D Notes have a variable rate based upon LIBOR plus 2.90%. The new notes
are secured by assets of WML and require the same covenants and financial
ratios, as amended, as the Series A and B Notes. </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" size=3>The Company has a $10.0
million revolving credit agreement with First Interstate Bank. Interest is
payable monthly at the Bank&#146;s prime rate plus 1% (5.00% at December 31,
2003 and at March 31, 2004). The Company is required to maintain certain
financial ratios. The revolving credit agreement is collateralized by the
Company&#146;s stock in WRI, 100% of the common stock of Horizon, and the
dragline located at WRI&#146;s Absaloka Mine in Big Horn County, Montana. The
expiration date is January 24, 2005. </FONT></P>

<br>
<p align=center><FONT FACE="Times New Roman, Times, Serif" SIZE=3>F-20</font></p>
<page>
<br>

<P><FONT FACE="Times New Roman, Times, Serif" size=3>Other term debt consists of
notes payable assumed in the 2001 acquisitions, certain notes payable related to
the purchase of real property, and capital lease obligations for mining
equipment. These obligations expire at various dates through 2009 and bear
interest at a weighted-average rate of 5.65%. </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" size=3>The maturities of all
long-term debt and the revolving credit facilities outstanding at December 31,
2003 are (in thousands): </FONT></P>

<table align=center border=0 cellPadding=0 cellSpacing=0 width=450>
         <tr>
                  <td width=70% align=left>2004</td>
                  <td width=5% align=right>$</td>
                  <td width=25% align=right>                     11,595 </td>
         </tr>
         <tr>
                  <td align=left>2005</td>
                  <td align=right></td>
                  <td align=right>                     12,174 </td>
         </tr>
         <tr>
                  <td align=left>2006</td>
                  <td align=right></td>
                  <td align=right>                     11,995 </td>
         </tr>
         <tr>
                  <td align=left>2007</td>
                  <td align=right></td>
                  <td align=right>                     12,625 </td>
         </tr>
         <tr>
                  <td align=left>2008</td>
                  <td align=right></td>
                  <td align=right>                     44,980 </td>
         </tr>
         <tr>
                  <td align=left>Thereafter</td>
                  <td align=right></td>
                  <td align=right>                     100 </td>
         </tr>
         <tr>
                  <td align=left></td>
                  <td align=right></td>
                  <td align=right><hr noshade></td>
         </tr>
         <tr>
                  <td align=left></td>
                  <td align=right>$</td>
                  <td align=right>                   93,469 </td>
         </tr>
         <tr>
                  <td align=left></td>
                  <td align=right></td>
                  <td align=right><hr noshade size=4></td>
         </tr>
</table>

<H2 ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" size=3>6.&nbsp;&nbsp;&nbsp;&nbsp;WORKERS&#146; COMPENSATION BENEFITS</FONT></H2>

<P><FONT FACE="Times New Roman, Times, Serif" size=3>The Company was
self-insured for workers&#146; compensation benefits prior to and through
December 31, 1995. Beginning in 1996, the Company purchased third party
insurance for new workers&#146; compensation claims. Based on updated actuarial
and claims data, $834,000, $449,000, and $642,000 were charged to operations in
2003, 2002 and 2001, respectively. The cash payments for workers&#146;
compensation benefits were $2.1 million, $2.8 million and $2.9 million in 2003,
2002 and 2001, respectively. </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" size=3>The Company was required to
obtain surety bonds in connection with its self-insured workers&#146;
compensation plan. The Company&#146;s surety bond underwriters required
collateral for such bonding. As of December 31, 2003 and 2002, $4.4 million and
$4.0 million respectively, were held in the collateral accounts. </FONT></P>

<H2 ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" size=3>7.&nbsp;&nbsp;&nbsp;&nbsp;PNEUMOCONIOSIS (BLACK LUNG) BENEFITS</FONT></H2>

<P><FONT FACE="Times New Roman, Times, Serif" size=3>The Company is self-insured
for federal and state pneumoconiosis benefits for former employees and has
established an independent trust to pay these benefits. </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" size=3>The following table sets
forth the funded status of the Company&#146;s obligation: </FONT></P>

<table align=center border=0 cellPadding=0 cellSpacing=0 width=600>
         <tr>
                  <td width=60% align=left><b>December 31,</b></td>
                  <td width=5% align=right><b></b></td>
                  <td width=15% align=right><b>2003</b></td>
                  <td width=5% align=right><b></b></td>
                  <td width=15% align=right><b>2002</b></td>
         </tr>
         <tr>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
         </tr>
         <tr>
                  <td align=left></td>
                  <td align=right></td>
                  <td align=center colspan=3>                &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<b>(in thousands)</b></td>
         </tr>
         <tr>
                  <td align=left>Actuarial present value of benefit obligation:</td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
         </tr>
         <tr>
                  <td align=left>&nbsp;&nbsp;&nbsp;Expected claims from terminated employees</td>
                  <td align=right>$</td>
                  <td align=right>                           1,593 </td>
                  <td align=right> $ </td>
                  <td align=right>                2,330 </td>
         </tr>
         <tr>
                  <td align=left>&nbsp;&nbsp;&nbsp;Claimants</td>
                  <td align=right></td>
                  <td align=right>                         20,368 </td>
                  <td align=right></td>
                  <td align=right>               20,454 </td>
         </tr>
         <tr>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
         </tr>
         <tr>
                  <td align=left>Total present value of benefit obligation</td>
                  <td align=right></td>
                  <td align=right>                         21,961 </td>
                  <td align=right></td>
                  <td align=right>               22,784 </td>
         </tr>
         <tr>
                  <td align=left>Plan assets at fair value, primarily government-backed</td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
         </tr>
         <tr>
                  <td align=left>&nbsp;&nbsp;&nbsp;securities</td>
                  <td align=right></td>
                  <td align=right>                         28,195 </td>
                  <td align=right></td>
                  <td align=right>               30,449 </td>
         </tr>
         <tr>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
         </tr>
         <tr>
                  <td align=left>Excess of trust assets over pneumoconiosis benefit</td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
         </tr>
         <tr>
                  <td align=left>&nbsp;&nbsp;&nbsp;obligation</td>
                  <td align=right>$</td>
                  <td align=right>                           6,234 </td>
                  <td align=right> $ </td>
                  <td align=right>                7,665 </td>
         </tr>
         <tr>
                  <td><HR NOSHADE size=4></td>
                  <td><HR NOSHADE size=4></td>
                  <td><HR NOSHADE size=4></td>
                  <td><HR NOSHADE size=4></td>
                  <td><HR NOSHADE size=4></td>
         </tr>
</table>

<P><FONT FACE="Times New Roman, Times, Serif" size=3>The discount rates used in
determining the accumulated pneumoconiosis benefit as of December 31, 2003 and
2002 were 6.25% and 6.75%, respectively. </FONT></P>


<br>
<p align=center><FONT FACE="Times New Roman, Times, Serif" SIZE=3>F-21</font></p>
<page>
<br>


<H2 ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" size=3>8.&nbsp;&nbsp;&nbsp;&nbsp;POSTRETIREMENT MEDICAL AND LIFE INSURANCE BENEFITS</FONT></H2>

<H2 ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" size=3><u>Single-Employer
Plans</u></FONT></H2>

<P><FONT FACE="Times New Roman, Times, Serif" size=3>The Company and its
subsidiaries provide certain health care and life insurance benefits for retired
employees and their dependents either voluntarily or as a result of the Coal
Act. Substantially all of the Company&#146;s current employees may also become
eligible for these benefits if certain age and service requirements are met at
the time of termination or retirement as specified in the plan document. The
majority of these benefits are provided through self-insured programs. The
Company adopted Statement of Financial Accounting Standards No. 106 &#150;
<I>Employers&#146; Accounting for Postretirement Benefits Other than
Pensions</I> (SFAS 106) effective January 1, 1993 and elected to amortize its
unrecognized, unfunded accumulated postretirement benefit obligation over a
20-year period. </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" size=3>The following table sets
forth the actuarial present value of postretirement medical and life insurance
benefit obligations and amounts recognized in the Company&#146;s financial
statements: </FONT></P>

<table align=center border=0 cellPadding=0 cellSpacing=0 width=600>
         <tr>

                  <td width=60% align=left><b>December 31,</b></td>
                  <td width=5% align=right><b></b></td>
                  <td width=15% align=right><b>2003</b></td>
                  <td width=5% align=right><b></b></td>
                  <td width=15% align=right><b>2002</b></td>
         </tr>
         <tr>
                  <td align=left><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
         </tr>
         <tr>
                  <td align=left></td>
                  <td align=right></td>
                  <td align=center colspan=3><b>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
(in thousands)</b></td>
         </tr>
         <tr>
                  <td align=left><b>Assumptions:</b></td>
                  <td align=right><b></b></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
         </tr>
         <tr>
                  <td align=left>Discount rate</td>
                  <td align=right></td>
                  <td align=right>6.25%</td>
                  <td align=right></td>
                  <td align=right>6.75%</td>
         </tr>
         <tr>
                  <td align=left>&nbsp;</td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
         </tr>
         <tr>
                  <td align=left><b>Change in benefit obligation:</b></td>
                  <td align=right><b></b></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
         </tr>
         <tr>
                  <td align=left>Net benefit obligation at beginning of year</td>
                  <td align=right> $ </td>
                  <td align=right>                       223,478 </td>
                  <td align=right>$</td>
                  <td align=right>           205,564 </td>
         </tr>
         <tr>
                  <td align=left>Service cost</td>
                  <td align=right></td>
                  <td align=right>                               446 </td>
                  <td align=right></td>
                  <td align=right>                  400 </td>
         </tr>
         <tr>

                  <td align=left>Interest cost</td>
                  <td align=right></td>
                  <td align=right>                         15,693 </td>
                  <td align=right></td>
                  <td align=right>             14,989 </td>
         </tr>
         <tr>
                  <td align=left>Plan participant contributions </td>
                  <td align=right></td>
                  <td align=right>                         (667) </td>
                  <td align=right></td>
                  <td align=right>             - </td>
         </tr>
         <tr>
                  <td align=left>Actuarial loss</td>
                  <td align=right></td>
                  <td align=right>                               81 </td>
                  <td align=right></td>
                  <td align=right>                   67 </td>
         </tr>
         <tr>
                  <td align=left>Benefit obligation assumed in acquisitions</td>
                  <td align=right></td>
                  <td align=right>                          13,253 </td>
                  <td align=right></td>
                  <td align=right>             18,882 </td>
         </tr>
         <tr>
                  <td align=left>Gross benefits paid</td>
                  <td align=right></td>
                  <td align=right>                        (14,730)</td>
                  <td align=right></td>
                  <td align=right>            (16,424)</td>
         </tr>
         <tr>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
         </tr>
         <tr>
                  <td align=left>Net benefit obligation at end of year</td>
                  <td align=right></td>
                  <td align=right>                       237,554 </td>
                  <td align=right></td>
                  <td align=right>           223,478 </td>
         </tr>
         <tr>
                  <td align=left>&nbsp;</td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
         </tr>
         <tr>
                  <td align=left><b>Change in plan assets:</b></td>
                  <td align=right><b></b></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
         </tr>
         <tr>
                  <td align=left>Employer contributions</td>
                  <td align=right></td>
                  <td align=right>                         14,649 </td>
                  <td align=right></td>
                  <td align=right>             16,357 </td>
         </tr>
         <tr>
                  <td align=left>Plan participant contributions</td>
                  <td align=right></td>
                  <td align=right>                               81 </td>
                  <td align=right></td>
                  <td align=right>                   67 </td>
         </tr>
         <tr>
                  <td align=left>Gross benefits paid</td>
                  <td align=right></td>
                  <td align=right>                        (14,730)</td>
                  <td align=right></td>
                  <td align=right>            (16,424)</td>
         </tr>
         <tr>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
         </tr>
         <tr>
                  <td align=left>Fair value of plan assets at end of year</td>
                  <td align=right></td>
                  <td align=right> - </td>
                  <td align=right></td>
                  <td align=right> - </td>
         </tr>
         <tr>
                  <td align=left>&nbsp;</td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
         </tr>
          <tr>
                  <td align=left>Funded status at end of year</td>
                  <td align=right></td>
                  <td align=right>                      (237,554)</td>
                  <td align=right></td>
                  <td align=right>          (223,478)</td>
         </tr>
         <tr>
                  <td align=left>Unrecognized net actuarial loss</td>
                  <td align=right></td>
                  <td align=right>                         73,407 </td>
                  <td align=right></td>
                  <td align=right>             65,353 </td>
         </tr>
          <tr>
                  <td align=left>Unrecognized net transition obligation</td>
                  <td align=right></td>
                  <td align=right>                         36,902 </td>
                  <td align=right></td>
                  <td align=right>             41,002 </td>
         </tr>
         <tr>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
         </tr>
         <tr>
                  <td align=left>Net amount recognized at end of year (recorded<br>&nbsp;&nbsp;as accrued benefit cost in the
<br>&nbsp;&nbsp;accompanying balance sheet)</td>
                  <td align=right valign=bottom> $ </td>
                  <td align=right valign=bottom>                        (127,245)</td>
                  <td align=right valign=bottom>$</td>
                  <td align=right valign=bottom>          (117,123)</td>
         </tr>
         <tr>
                  <td><HR NOSHADE size=4></td>
                  <td><HR NOSHADE size=4></td>
                  <td><HR NOSHADE size=4></td>
                  <td><HR NOSHADE size=4></td>
                  <td><HR NOSHADE size=4></td>
         </tr>
</table>


<br>
<p align=center><FONT FACE="Times New Roman, Times, Serif" SIZE=3>F-22</font></p>
<page>
<br>

<P><FONT FACE="Times New Roman, Times, Serif" size=3>The components of net
periodic postretirement benefit cost are as follows: </FONT></P>

<table align=center border=0 cellPadding=0 cellSpacing=0 width=650>
         <tr>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
         </tr>

         <tr>
                  <td width=49% align=left><b>Year ended December 31,</b></td>
                  <td width=5% align=right><b></b></td>
                  <td width=12% align=right><b>2003</b></td>
                  <td width=5% align=right><b></b></td>
                  <td width=12% align=right><b>2002</b></td>
                  <td width=5% align=right><b></b></td>
                  <td width=12% align=right><b>2001</b></td>
         </tr>
         <tr>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
         </tr>
         <tr>
                  <td align=left></td>
                  <td align=right></td>
                  <td align=center colspan=5><b>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
&nbsp;&nbsp;&nbsp;&nbsp;
(in thousands)</b></td>
         </tr>
         <tr>
                  <td align=left><b>Assumptions:</b></td>
                  <td align=right><b></b></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
         </tr>
         <tr>
                  <td align=left>Discount rate</td>
                  <td align=right></td>
                  <td align=right>6.75%</td>
                  <td align=right></td>
                  <td align=right>7.25%</td>
                  <td align=right></td>
                  <td align=right>7.50%</td>
         </tr>
         <tr>
                  <td align=left>&nbsp;</td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
         </tr>
         <tr>
                  <td align=left><b>Components of net periodic benefit cost:</b></td>
                  <td align=right><b></b></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
         </tr>
         <tr>
                  <td align=left>Service cost</td>
                  <td align=right> $ </td>
                  <td align=right>                  446 </td>
                  <td align=right>$</td>
                  <td align=right>                400 </td>
                  <td align=right> $ </td>
                  <td align=right>                 227 </td>
         </tr>
         <tr>
                  <td align=left>Interest cost</td>
                  <td align=right></td>
                  <td align=right>           15,693 </td>
                  <td align=right></td>
                  <td align=right>           14,989 </td>
                  <td align=right></td>
                  <td align=right>           12,327 </td>
         </tr>
         <tr>
                  <td align=left>Amortization of:</td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
         </tr>
         <tr>
                  <td align=left>&nbsp;&nbsp;Transition obligation</td>
                  <td align=right></td>
                  <td align=right>             4,100 </td>
                  <td align=right></td>
                  <td align=right>             4,100 </td>
                  <td align=right></td>
                  <td align=right>             4,100 </td>
         </tr>

         <tr>
                  <td align=left>&nbsp;&nbsp;Actuarial loss</td>
                  <td align=right></td>
                  <td align=right>                4,532 </td>
                  <td align=right></td>
                  <td align=right>                2,899 </td>
                  <td align=right></td>
                  <td align=right>               861 </td>
         </tr>
         <tr>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
         </tr>
         <tr>
                  <td align=left>Total net periodic benefit  cost</td>
                  <td align=right> $ </td>
                  <td align=right>           24,771 </td>
                  <td align=right>$</td>
                  <td align=right>           22,388 </td>
                  <td align=right> $ </td>
                  <td align=right>           17,515 </td>
         </tr>
         <tr>
                  <td><HR NOSHADE size=4></td>
                  <td><HR NOSHADE size=4></td>
                  <td><HR NOSHADE size=4></td>
                  <td><HR NOSHADE size=4></td>
                  <td><HR NOSHADE size=4></td>
                  <td><HR NOSHADE size=4></td>
                  <td><HR NOSHADE size=4></td>
         </tr>
</table>

<P><FONT FACE="Times New Roman, Times, Serif" size=3>Of the total net periodic
benefit cost, $23.4 million, $21.1 million and $16.7 million, relates to the
Company&#146;s former eastern mining operations and is included in heritage
health benefit costs in 2003, 2002 and 2001, respectively. The remainder of $1.4
million, $1.3 million and $0.8 million, respectively, relates to current
operations. </FONT></P>

<table align=center border=0 cellPadding=0 cellSpacing=0 width=500>
         <tr>
                  <td width=80% align=left><b>Sensitivity of retiree
                   <br>&nbsp;&nbsp;welfare results (in thousands):</b></td>
                  <td align=left width=5%>&nbsp;</td>
                  <td width=15% align=right><b>&nbsp;</b></td>
         </tr>
         <tr>
                  <td align=left>&nbsp;</td>
                  <td align=left>&nbsp;</td>
                  <td align=right></td>
         </tr>
         <tr>
                  <td align=left>Effect of a one percentage point increase in<br>&nbsp;&nbsp;assumed ultimate health care cost trend</td>
                  <td align=left>&nbsp;</td>
                  <td align=right></td>
         </tr>
         <tr>
                  <td align=left>&nbsp;</td>
                  <td align=left>&nbsp;</td>
                  <td align=right></td>
         </tr>
         <tr>
                  <td align=left> - - on total service and interest cost components</td>
                  <td align=left>$</td>
                  <td align=right>                                                    1,658 </td>
         </tr>
         <tr>
                  <td align=left> - - on postretirement benefit obligation     </td>
                  <td align=left>$</td>
                  <td align=right>                                                  25,318 </td>
         </tr>
         <tr>
                  <td align=left>&nbsp;</td>
                  <td align=left>&nbsp;</td>
                  <td align=right></td>
         </tr>
         <tr>
                  <td align=left>Effect of a one percentage point decrease in</td>
                  <td align=left>&nbsp;</td>
                  <td align=right></td>
         </tr>
         <tr>
                  <td align=left>&nbsp;&nbsp;assumed ultimate health care cost trend</td>
                  <td align=left>&nbsp;</td>
                  <td align=right></td>
         </tr>
         <tr>
                  <td align=left>&nbsp;</td>
                  <td align=left>&nbsp;</td>
                  <td align=right></td>
         </tr>
         <tr>
                  <td align=left>- - on total service and interest cost components</td>
                  <td align=left>$</td>
                  <td align=right>                                                      (1,401)</td>
         </tr>
         <tr>
                  <td align=left>- - on postretirement benefit obligation</td>
                  <td align=left>$</td>
                  <td align=right>                                                 (21,514)</td>
         </tr>
</table>


<P><FONT FACE="Times New Roman, Times, Serif" size=3>The health care cost trend
assumed on covered charges was 8.50%, 9.25% and 10.0% for 2003, 2002 and 2001,
respectively, decreasing to an ultimate trend of 5.0% in 2009 and beyond. </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" size=3>In December 2003, the
Medicare Prescription Drug Improvement and Modernization Act of 2003 (the
&#147;Act&#148;) became law in the United States. The Act introduces a
prescription drug benefit under Medicare as well as a federal subsidy to
sponsors of retiree health care benefit plans that provide a benefit that is at
least actuarially equivalent to the Medicare benefit. Currently, the Company
does not believe it will need to amend its plan to benefit from Medicare benefit
provided under the Act. The Company has reflected the estimated impact of the
Act as a $16.5 million reduction in the present value of the accumulated
post-retirement benefit obligation as of December 31, 2003. However, the impact
of the Act is not reflected in the net periodic benefit cost for 2003. Specific
authoritative guidance on the accounting for the federal subsidy is pending and
that guidance, when issued, could require the Company to change previously
reported information. </FONT></P>

<br>
<p align=center><FONT FACE="Times New Roman, Times, Serif" SIZE=3>F-23</font></p>
<page>
<br>


<P><FONT FACE="Times New Roman, Times, Serif" size=3>Based on the same
assumptions used in measuring the Company&#146;s benefit obligation at December
31, 2003, the Company expects to pay benefits in each year 2004-2008 of $17.4
million, $18.2 million, $17.4 million, $18.0 million and $18.2 million,
respectively. The aggregate benefits expected to be paid in the five-years from
2009-2013 are $92.5 million. </FONT></P>

<H2 ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" size=3><u>Multiemployer
Plan</u></FONT></H2>

<P><FONT FACE="Times New Roman, Times, Serif" size=3>The Company makes payments
to the Combined Benefit Fund (&#147;CBF&#148;), which is a multiemployer health
plan neither controlled nor administered by the Company. The CBF is designed to
pay benefits to UMWA workers (and dependents) who retired prior to 1976. The
Company is required by the Coal Act to make monthly premium payments into the
CBF. These payments are based on the number of beneficiaries assigned to the
Company, the Company&#146;s UMWA employees who retired prior to 1976 and the
Company&#146;s pro-rata assigned share of UMWA retirees whose companies are no
longer in business. The net present value of the Company&#146;s future cash
payments is estimated to be approximately $39.8 million at December 31, 2003.
The Company expenses payments to the CBF when they are due. Payments are
generally made on the due date. Payments in 2003, 2002 and 2001 were $5.3
million, $5.2 million and $5.7 million, respectively. See Note 14 to the
Consolidated Financial Statements for additional information. </FONT></P>

<H2 ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" size=3><u>Postretirement
Medical Benefits (unaudited)</u></FONT></H2>

<P><FONT FACE="Times New Roman, Times, Serif" size=3>The Company provides
postretirement medical and life insurance benefits to nearly all of its
full-time employees as well as to retired employees and their dependents either
voluntarily or as a result of union contracts and the Coal Act. The Company
incurred costs of providing these benefits during the quarters ended March 31,
2004 and 2003 as follows: </FONT></P>

<table align=center border=0 cellPadding=0 cellSpacing=0 width=550>
         <tr>
<td>&nbsp;</td>
<td colspan=4 align=center valign=bottom><b>Postretirement Medical and<br>Life Insurance Benefits</b></td>
</tr>
         <tr>
                  <td>&nbsp;</td>
                  <td colspan=2 align=center><b>2004</b></td>
                  <td colspan=2 align=center><b>2003</b></td>
         </tr>
         <tr>
<td>&nbsp;</td>
<td colspan=4 align=center><b>(unaudited)</b></td>
</tr>
<tr>
<td><hr noshade></td>
<td><hr noshade></td>
<td><hr noshade></td>
<td><hr noshade></td>
<td><hr noshade></td>
</tr>
         <tr>
<td>&nbsp;</td>
<td colspan=4 align=center>(in thousands)</td>
</tr>
<tr>
<td>&nbsp;</td>
<td></td>
<td align=right></td>
<td></td>
<td align=right></td>
</tr>
<tr>
<td width=60%>Service cost</td>
<td align=right width=5%>$</td>
<td align=right width=15%>126</td>
<td align=right width=5%>$</td>
<td align=right width=15%>100</td>
</tr>
<tr>
<td>Interest cost</td>
<td></td>
<td align=right>3,697</td>
<td></td>
<td align=right>3,747</td>
</tr>
<tr>
<td>Expected return on plan assets</td>
<td></td>
<td align=right>-</td>
<td></td>
<td align=right>-</td>
</tr>
<tr>
<td>Amortzation of deferred items</td>
<td></td>
<td align=right>2,084</td>
<td></td>
<td align=right>1,750</td>
</tr>
<tr>
<td><hr noshade></td>
<td><hr noshade></td>
<td><hr noshade></td>
<td><hr noshade></td>
<td><hr noshade></td>
</tr>
<tr>
<td>Net periodic pension cost</td>
<td align=right>$</td>
<td align=right>5,907</td>
<td align=right>$</td>
<td align=right>5,597</td>
</tr>
<tr>
<td><hr noshade size=4></td>
<td><hr noshade size=4></td>
<td><hr noshade size=4></td>
<td><hr noshade size=4></td>
<td><hr noshade size=4></td>
</tr>
</table>

<H2 ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" size=3>9.&nbsp;&nbsp;&nbsp;&nbsp;RETIREMENT
PLANS</FONT></H2>

<H2 ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" size=3><u>Defined
Benefit Pension Plans</u></FONT></H2>

<P><FONT FACE="Times New Roman, Times, Serif" size=3>The Company provides
defined benefit pension plans for its full-time employees. Benefits are
generally based on years of service and the employee&#146;s average annual
compensation for the highest five continuous years of employment as specified in
the plan agreement. The Company&#146;s funding policy is to contribute annually
the minimum amount prescribed, as specified by applicable regulations. Prior
service costs and actuarial gains and losses are amortized over plan
participants&#146; expected future period of service using the straight-line
method. </FONT></P>

<br>
<p align=center><FONT FACE="Times New Roman, Times, Serif" SIZE=3>F-24</font></p>
<page>
<br>

<H2 ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" size=3><u>Supplemental
Executive Retirement Plan</u></FONT></H2>

<P><FONT FACE="Times New Roman, Times, Serif" size=3>Effective January 1, 1992,
the Company adopted the Westmoreland Coal Company Supplemental Executive
Retirement Plan (&#147;SERP&#148;). The SERP is an unfunded non-qualified
deferred compensation plan which provides benefits to certain employees that are
not eligible under the Company&#146;s defined benefit pension plan beyond the
maximum limits imposed by the Employee Retirement Income Security Act
(&#147;ERISA&#148;) and the Internal Revenue Code. </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" size=3>The following table
provides a reconciliation of the changes in the plans&#146; benefit obligations
and fair value of assets for the periods ended December 31, 2003 and 2002 and
the amounts recognized in the Company&#146;s financial statements for both the
defined benefit pension and SERP Plans: </FONT></P>

<table align=center border=0 cellPadding=0 cellSpacing=0 width=650>
         <tr>
                  <td  align=left></td>
                  <td align=right><b></b></td>
                  <td  align=center colspan=3><b>Qualified Pension Benefits</b></td>
                  <td align=right><b></b></td>
                  <td  align=center colspan=3 valign=bottom><b>SERP Benefits</b></td>
         </tr>
         <tr>
                  <td width=52%><HR NOSHADE></td>
                  <td width=4%><HR NOSHADE></td>
                  <td width=8%><HR NOSHADE></td>
                  <td width=4%><HR NOSHADE></td>
                  <td width=8%><HR NOSHADE></td>
                  <td width=4%><HR NOSHADE></td>
                  <td width=8%><HR NOSHADE></td>
                  <td width=4%><HR NOSHADE></td>
                  <td width=8%><HR NOSHADE></td>
         </tr>
         <tr>
                  <td align=left><b>December 31,</b></td>
                  <td align=right><b></b></td>
                  <td align=right><b>2003</b></td>
                  <td align=right><b></b></td>
                  <td align=right><b>2002</b></td>
                  <td align=right><b></b></td>
                  <td align=right><b>2003</b></td>
                  <td align=right><b></b></td>
                  <td align=right><b>2002</b></td>
         </tr>
         <tr>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
         </tr>
         <tr>
                  <td align=left></td>
                  <td align=right></td>
                  <td align=center colspan=7><b>&nbsp;&nbsp;&nbsp;&nbsp;(in thousands)</b></td>
         </tr>
         <tr>
                  <td align=left><b>Assumptions:</b></td>
                  <td align=right><b></b></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
         </tr>
         <tr>
                  <td align=left>&nbsp;</td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
         </tr>
         <tr>
                  <td align=left>Discount rate</td>
                  <td align=right></td>
                  <td align=right>6.25%</td>
                  <td align=right></td>
                  <td align=right>6.75%</td>
                  <td align=right></td>
                  <td align=right>6.25%</td>
                  <td align=right></td>
                  <td align=right>6.75%</td>
         </tr>
         <tr>
                  <td align=left>Expected return on plan assets </td>
                  <td align=right></td>
                  <td align=right>8.50%</td>
                  <td align=right></td>
                  <td align=right>9.00%</td>
                  <td align=right></td>
                  <td align=right>8.50%</td>
                  <td align=right></td>
                  <td align=right>9.00%</td>
         </tr>

         <tr>
                  <td align=left>Rate of compensation increase</td>
                  <td align=right></td>
                  <td align=right>4.50%</td>
                  <td align=right></td>
                  <td align=right>4.50%</td>
                  <td align=right></td>
                  <td align=right>5.00%</td>
                  <td align=right></td>
                  <td align=right>5.00%</td>
         </tr>
         <tr>
                  <td align=left>&nbsp;</td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
         </tr>
         <tr>
                  <td align=left><b>Change in benefit obligation:</b></td>
                  <td align=right><b></b></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
         </tr>
         <tr>
                  <td align=left>&nbsp;</td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
         </tr>
         <tr>
                  <td align=left>Net benefit obligation at beginning of year</td>
                  <td align=right>$</td>
                  <td align=right>         41,366 </td>
                  <td align=right> $ </td>
                  <td align=right>        33,544 </td>
                  <td align=right> $ </td>
                  <td align=right>         2,626 </td>
                  <td align=right> $ </td>
                  <td align=right>         1,503 </td>
         </tr>
         <tr>
                  <td align=left>Service cost</td>
                  <td align=right></td>
                  <td align=right>         2,138 </td>
                  <td align=right></td>
                  <td align=right>            1,943 </td>
                  <td align=right></td>
                  <td align=right>              59 </td>
                  <td align=right></td>
                  <td align=right>              76 </td>
         </tr>
         <tr>
                  <td align=left>Interest cost</td>
                  <td align=right></td>
                  <td align=right>         2,839 </td>
                  <td align=right></td>
                  <td align=right>              2,556 </td>
                  <td align=right></td>
                  <td align=right>            127 </td>
                  <td align=right></td>
                  <td align=right>              170 </td>
         </tr>
         <tr>
                  <td align=left>Actuarial (gain) loss</td>
                  <td align=right></td>
                  <td align=right>         2,638 </td>
                  <td align=right></td>
                  <td align=right>          3,513</td>
                  <td align=right></td>
                  <td align=right>              (773) </td>
                  <td align=right></td>
                  <td align=right>             953</td>
         </tr>
         <tr>
                   <td align=left>Gross benefits paid</td>
                  <td align=right></td>
                  <td align=right>           (1,204)</td>
                  <td align=right></td>
                  <td align=right>               (190)</td>
                  <td align=right></td>
                  <td align=right>             (76)</td>
                  <td align=right></td>
                  <td align=right>             (76)</td>
         </tr>
         <tr>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
         </tr>
         <tr>
                  <td align=left>Net benefit obligation at end of year</td>
                  <td align=right></td>
                  <td align=right>       47,777  </td>
                  <td align=right></td>
                  <td align=right>        41,366 </td>
                  <td align=right></td>
                  <td align=right>         1,963 </td>
                  <td align=right></td>
                  <td align=right>         2,626 </td>
         </tr>
         <tr>
                  <td align=left>&nbsp;</td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
         </tr>
         <tr>
                  <td align=left><b>Change in plan assets:</b></td>
                  <td align=right><b></b></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
         </tr>
         <tr>
                  <td align=left>&nbsp;</td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
         </tr>
         <tr>
                   <td align=left>Fair value of plan assets at beginning of year</td>
                  <td align=right></td>
                  <td align=right>         30,147 </td>
                  <td align=right></td>
                  <td align=right>        33,593 </td>
                  <td align=right></td>
                  <td align=right> - </td>
                  <td align=right></td>
                  <td align=right> - </td>
         </tr>
         <tr>
                  <td align=left>Actual return on plan assets</td>
                  <td align=right></td>
                  <td align=right>        3,905</td>
                  <td align=right></td>
                  <td align=right>            (3,334) </td>
                  <td align=right></td>
                  <td align=right> - </td>
                  <td align=right></td>
                  <td align=right> - </td>
         </tr>
         <tr>
                  <td align=left>Employer contributions</td>
                  <td align=right></td>
                  <td align=right> - </td>
                  <td align=right></td>
                  <td align=right> 78 </td>
                  <td align=right></td>
                  <td align=right>              76 </td>
                  <td align=right></td>
                  <td align=right>              76 </td>
         </tr>
         <tr>
                  <td align=left>Gross benefits paid</td>
                  <td align=right></td>
                  <td align=right>           (1,204)</td>
                  <td align=right></td>
                  <td align=right>               (190)</td>
                  <td align=right></td>
                  <td align=right>             (76)</td>
                  <td align=right></td>
                  <td align=right>             (76)</td>
         </tr>
         <tr>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
         </tr>
         <tr>
                  <td align=left>Fair value of plan assets at end of year</td>
                  <td align=right></td>
                  <td align=right>       32,848 </td>
                  <td align=right></td>
                  <td align=right>        30,147 </td>
                  <td align=right></td>
                  <td align=right> - </td>
                  <td align=right></td>
                  <td align=right> - </td>
         </tr>
         <tr>
                  <td align=left>&nbsp;</td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
         </tr>
         <tr>
                  <td align=left>Funded status at end of year</td>
                  <td align=right></td>
                  <td align=right>               (14,929) </td>
                  <td align=right></td>
                  <td align=right>        (11,219) </td>
                  <td align=right></td>
                  <td align=right>       (1,963)</td>
                  <td align=right></td>
                  <td align=right>       (2,626)</td>
         </tr>
         <tr>
                  <td align=left>Unrecognized net actuarial (gain) loss</td>
                  <td align=right></td>
                  <td align=right>         14,659 </td>
                  <td align=right></td>
                  <td align=right>          14,271</td>
                  <td align=right></td>
                  <td align=right>          (310)</td>
                  <td align=right></td>
                  <td align=right>          532</td>
         </tr>
         <tr>
                  <td align=left>Unrecognized prior service cost</td>
                  <td align=right></td>
                  <td align=right>               105 </td>
                  <td align=right></td>
                  <td align=right>            154 </td>
                  <td align=right></td>
                  <td align=right>            75 </td>
                  <td align=right></td>
                  <td align=right>            74 </td>
         </tr>
         <tr>
                  <td align=left>Unrecognized net transition asset</td>
                  <td align=right></td>
                  <td align=right>             (4)</td>
                  <td align=right></td>
                  <td align=right>            (10)</td>
                  <td align=right></td>
                  <td align=right> - </td>
                  <td align=right></td>
                  <td align=right> - </td>
         </tr>
         <tr>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
         </tr>
         <tr>

                  <td align=left>Net amount recognized at end of year</td>
                  <td align=right></td>
                  <td align=right>         (169) </td>
                  <td align=right></td>
                  <td align=right>        3,196 </td>
                  <td align=right></td>
                  <td align=right>       (2,198)</td>
                  <td align=right></td>
                  <td align=right>       (2,020)</td>
         </tr>
         <tr>
                  <td align=left>&nbsp;</td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
         </tr>
         <tr>
                  <td align=left><b>Amounts recognized in the accompanying balance sheet consist of:</b></td>
                  <td align=right><b></b></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
         </tr>
         <tr>
                  <td align=left>&nbsp;</td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
         </tr>
         <tr>
                  <td align=left>&nbsp;&nbsp;&nbsp;Accrued benefit cost</td>
                  <td align=right></td>
                  <td align=right>         (169) </td>
                  <td align=right></td>
                  <td align=right>        3,196 </td>
                  <td align=right></td>
                  <td align=right> (2,198) </td>
                  <td align=right></td>
                  <td align=right> (2,020) </td>
         </tr>
         <tr>
                  <td align=left>&nbsp;&nbsp;&nbsp;Minimum pension liability</td>
                  <td align=right></td>
                  <td align=right>         (6,717) </td>
                  <td align=right></td>
                  <td align=right>        (5,517) </td>
                  <td align=right></td>
                  <td align=right> - </td>
                  <td align=right></td>
                  <td align=right> - </td>
         </tr>
         <tr>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
         </tr>
         <tr>
                  <td align=left>&nbsp;&nbsp;&nbsp;Net amount recognized at end of year</td>
                  <td align=right>$</td>
                  <td align=right>         (6,886) </td>
                  <td align=right> $ </td>
                  <td align=right>        (2,321) </td>
                  <td align=right> $ </td>
                  <td align=right>       (2,198)</td>
                  <td align=right> $ </td>
                  <td align=right>       (2,020)</td>
         </tr>
         <tr>
                  <td><HR NOSHADE size=4></td>
                  <td><HR NOSHADE size=4></td>
                  <td><HR NOSHADE size=4></td>
                  <td><HR NOSHADE size=4></td>
                  <td><HR NOSHADE size=4></td>
                  <td><HR NOSHADE size=4></td>
                  <td><HR NOSHADE size=4></td>
                  <td><HR NOSHADE size=4></td>
                  <td><HR NOSHADE size=4></td>
         </tr>
</table>

<br>
<p align=center><FONT FACE="Times New Roman, Times, Serif" SIZE=3>F-25</font></p>
<page>
<br>


<P><FONT FACE="Times New Roman, Times, Serif" size=3>The components of net
periodic pension cost (benefit) are as follows: </FONT></P>



<table align=center border=0 cellPadding=0 cellSpacing=0 width=650>
         <tr>
                  <td align=left></td>
                  <td align=right></td>
                  <td align=center colspan=5><b>Qualified Pension Benefits</b></td>
                  <td align=right><b></b></td>
                  <td align=center colspan=5 valign=bottom><b>SERP Benefits</b></td>
         </tr>
         <tr>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
         </tr>
         <tr>
                  <td align=left><b>Year ended December 31,</b></td>
                  <td align=right><b></b></td>
                  <td align=right><b>2003</b></td>
                  <td align=right><b></b></td>
                  <td align=right><b>2002</b></td>
                  <td align=right><b></b></td>
                  <td align=right><b>2001</b></td>
                  <td align=right><b></b></td>
                  <td align=right><b>2003</b></td>
                  <td align=right><b></b></td>
                  <td align=right><b>2002</b></td>
                  <td align=right><b></b></td>
                  <td align=right><b>2001</b></td>
         </tr>
         <tr>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
         </tr>
         <tr>
                  <td align=left></td>
                  <td align=right></td>
                  <td align=center colspan=11><b>(in thousands)</b></td>
         </tr>
         <tr>
                  <td width=40% align=left><b>Assumptions:</b></td>
                  <td width=3% align=right><b></b></td>
                  <td width=7% align=right></td>
                  <td width=3% align=right></td>
                  <td width=7% align=right></td>
                  <td width=3% align=right></td>
                  <td width=7% align=right></td>
                  <td width=3% align=right></td>
                  <td width=7% align=right></td>
                  <td width=3% align=right></td>
                  <td width=7% align=right></td>
                  <td width=3% align=right></td>
                  <td width=7% align=right></td>
         </tr>
         <tr>
                  <td align=left>&nbsp;</td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
         </tr>
         <tr>
                  <td align=left>Discount rate</td>
                  <td align=right></td>
                  <td align=right>6.75%</td>
                  <td align=right></td>
                  <td align=right>7.25%</td>
                  <td align=right></td>
                  <td align=right>7.50%</td>
                  <td align=right></td>
                  <td align=right>6.75%</td>
                  <td align=right></td>
                  <td align=right>7.25%</td>
                  <td align=right></td>
                  <td align=right>7.50%</td>
         </tr>
         <tr>
                  <td align=left>Expected return on plan assets</td>
                  <td align=right></td>
                  <td align=right>8.50%</td>
                  <td align=right></td>
                  <td align=right>9.00%</td>
                  <td align=right></td>
                  <td align=right>9.00%</td>
                  <td align=right></td>
                  <td align=right>N/A</td>
                  <td align=right></td>
                  <td align=right>N/A</td>
                  <td align=right></td>
                  <td align=right>N/A</td>
         </tr>
         <tr>
                  <td align=left>Rate of compensation increase</td>
                  <td align=right></td>
                  <td align=right>4.50%</td>
                  <td align=right></td>
                  <td align=right>4.50%</td>
                  <td align=right></td>
                  <td align=right>4.50%</td>
                  <td align=right></td>
                  <td align=right>5.00%</td>
                  <td align=right></td>
                  <td align=right>5.00%</td>
                  <td align=right></td>
                  <td align=right>5.00%</td>
         </tr>
         <tr>
                  <td align=left>&nbsp;</td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
         </tr>
         <tr>
                  <td align=left colspan=2><b>Components of net periodic benefit cost</b></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
         </tr>
         <tr>
                  <td align=left>&nbsp;</td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
         </tr>
         <tr>
                  <td align=left>Service cost</td>
                  <td align=right>$</td>
                  <td align=right>         2,139 </td>
                  <td align=right> $ </td>
                  <td align=right>            1,943 </td>
                  <td align=right> $ </td>
                  <td align=right>            1,238 </td>
                  <td align=right> $ </td>
                  <td align=right>              59 </td>
                  <td align=right> $ </td>
                  <td align=right>              76 </td>
                  <td align=right> $ </td>
                  <td align=right>              52 </td>
         </tr>
         <tr>
                  <td align=left>Interest cost</td>
                  <td align=right></td>
                  <td align=right>         2,839 </td>
                  <td align=right></td>
                  <td align=right>              2,556 </td>
                  <td align=right></td>
                  <td align=right>            1,551 </td>
                  <td align=right></td>
                  <td align=right>            127 </td>
                  <td align=right></td>
                  <td align=right>              170 </td>
                  <td align=right></td>
                  <td align=right>              105 </td>
         </tr>
         <tr>
                  <td align=left>Expected return on assets</td>
                  <td align=right></td>
                  <td align=right>       (2,393)</td>
                  <td align=right></td>
                  <td align=right>          (2,975)</td>
                  <td align=right></td>
                  <td align=right>          (2,275)</td>
                  <td align=right></td>
                  <td align=right> - </td>
                  <td align=right></td>
                  <td align=right> - </td>
                  <td align=right></td>
                  <td align=right> - </td>
         </tr>
         <tr>
                  <td align=left>Amortization of:</td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
         </tr>
         <tr>
                  <td align=left>&nbsp;&nbsp;&nbsp;Transition asset</td>
                  <td align=right></td>
                  <td align=right>               (6)</td>
                  <td align=right></td>
                  <td align=right>               (6)</td>
                  <td align=right></td>
                  <td align=right>               (6)</td>
                  <td align=right></td>
                  <td align=right> - </td>
                  <td align=right></td>
                  <td align=right> - </td>
                  <td align=right></td>
                  <td align=right> - </td>
         </tr>
         <tr>
                   <td align=left>&nbsp;&nbsp;&nbsp;Prior service cost</td>
                  <td align=right></td>
                  <td align=right>              50 </td>
                  <td align=right></td>
                  <td align=right>              50 </td>
                  <td align=right></td>
                  <td align=right>              42 </td>
                  <td align=right></td>
                  <td align=right>            84 </td>
                  <td align=right></td>
                  <td align=right>            76 </td>
                  <td align=right></td>
                  <td align=right>            116 </td>
         </tr>
         <tr>
                  <td align=left>&nbsp;&nbsp;&nbsp;Actuarial (gain) loss</td>
                  <td align=right></td>
                  <td align=right> 803 </td>
                  <td align=right></td>
                  <td align=right>               97</td>
                  <td align=right></td>
                  <td align=right>               -</td>
                  <td align=right></td>
                  <td align=right>            (16)</td>
                  <td align=right></td>
                  <td align=right>            22</td>
                  <td align=right></td>
                  <td align=right>            (40)</td>
         </tr>
         <tr>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
         </tr>
         <tr>
                  <td align=left>Total net periodic pension cost</td>
                  <td align=right>$</td>
                  <td align=right>            3,432 </td>
                  <td align=right> $ </td>
                  <td align=right>          1,665</td>
                  <td align=right> $ </td>
                  <td align=right>          550</td>
                  <td align=right> $ </td>
                  <td align=right>            254 </td>
                  <td align=right> $ </td>
                  <td align=right>            344 </td>
                  <td align=right> $ </td>
                  <td align=right>            233 </td>
         </tr>
         <tr>
                  <td><HR NOSHADE size=4></td>
                  <td><HR NOSHADE size=4></td>
                  <td><HR NOSHADE size=4></td>
                  <td><HR NOSHADE size=4></td>
                  <td><HR NOSHADE size=4></td>
                  <td><HR NOSHADE size=4></td>
                  <td><HR NOSHADE size=4></td>
                  <td><HR NOSHADE size=4></td>
                  <td><HR NOSHADE size=4></td>
                  <td><HR NOSHADE size=4></td>
                  <td><HR NOSHADE size=4></td>
                  <td><HR NOSHADE size=4></td>
                  <td><HR NOSHADE size=4></td>
         </tr>
</table>

<P><FONT FACE="Times New Roman, Times, Serif" size=3>The weighted-average asset
allocation of the Company&#146;s qualified pension trusts at December 31, 2003
and 2002 was as follows: </FONT></P>

<table align=center border=0 cellPadding=0 cellSpacing=0 width=650>
         <tr>
                  <td align=left>&nbsp;</td>
                  <td align=center colspan=2><b>Allocation of Plan Assets at<br>December 31,</b></td>
                  <td align=right><b>&nbsp;</b></td>
                  <td align=center valign=bottom>&nbsp;</td>
         </tr>
<tr>
<td></td>
<td align=center><b>2003</b></td>
<td align=center><b>2002</b></td>
<td>&nbsp;</td>
<td align=center><b>Target Allocation</b></td>
</tr>
<tr>
<td><hr noshade></td>
<td align=center><hr noshade></td>
<td align=center><hr noshade></td>
<td align=center>&nbsp;</td>
<td><hr noshade></td>
</tr>
<tr>
<td>Asset Category</td>
<td align=center><b></b></td>
<td align=center><b></b></td>
<td>&nbsp;</td>
<td align=center><b></b></td>
</tr><tr>
<td>&nbsp;&nbsp;&nbsp;&nbsp;Cash and equivalents</td>
<td align=center>-%</td>
<td align=center>11%</td>
<td>&nbsp;</td>
<td align=center>0%-25%</td>
</tr>
<tr>
<td>&nbsp;&nbsp;&nbsp;&nbsp;Equity securities</td>
<td align=center>70%</td>
<td align=center>51%</td>
<td>&nbsp;</td>
<td align=center>40%-75%</td>
</tr>
<tr>
<td>&nbsp;&nbsp;&nbsp;&nbsp;Debt securities</td>
<td align=center>29%</td>
<td align=center>38%</td>
<td>&nbsp;</td>
<td align=center>0%-50%</td>
</tr>
<tr>
<td>&nbsp;&nbsp;&nbsp;&nbsp;Other</td>
<td align=center>1%</td>
<td align=center>-%</td>
<td>&nbsp;</td>
<td align=center>0%-10%</td>
</tr>
<tr>
<td></td>
<td align=center><hr noshade></td>
<td align=center><hr noshade></td>
<td align=center>&nbsp;</td>
<td></td>
</tr>
<tr>
<td>&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td align=center>&nbsp;</td>
<td align=center>&nbsp;</td>
<td align=center>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr>
<td>Total</td>
<td align=center>100%</td>
<td align=center>100%</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr>
<td></td>
<td align=center><hr noshade size=4></td>
<td align=center><hr noshade size=4></td>
<td align=center>&nbsp;</td>
<td></td>
</tr>

</table>

<P><FONT FACE="Times New Roman, Times, Serif" size=3>The Company&#146;s
investment goals are to maximize returns subject to specific risk management
policies. Its risk management policies permit investments in mutual funds, and
prohibit direct investments in debt and equity securities and derivative
financial instruments. The Company addresses diversification by the use of
mutual fund investments whose underlying investments are in domestic and
international fixed income securities and domestic and international equity
securities. These mutual funds are readily marketable and can be sold to fund
benefit payment obligations as they become payable. </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" size=3>The Company expects to
contribute $1.7 million to its qualified pension plans and $76,000 to its SERP
in 2004. </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" size=3>The benefits expected to be
paid in each year 2004-2008 are $532,000, $670,000, $903,000, $1.2 million and
$1.6 million, respectively. The aggregate benefits expected to be paid in the
five years from 2009-2013 are $14.0 million. The expected benefits are based on
the same assumptions used to measure the company&#146;s benefit obligation at
December 31 and include estimated future employee service. </FONT></P>

<br>
<p align=center><FONT FACE="Times New Roman, Times, Serif" SIZE=3>F-26</font></p>
<page>
<br>


<H2 ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" size=3><u>1974 UMWA
Pension Plan</u></FONT></H2>

<P><FONT FACE="Times New Roman, Times, Serif" size=3>The Company was required
under the 1993 Wage Agreement to pay amounts based on hours worked or tons
processed (depending on the source of the coal) in the form of contributions to
the 1974 UMWA Pension Plan with respect to UMWA represented employees. The 1974
UMWA Pension Plan is a multiemployer plan under ERISA. </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" size=3>Under the Multiemployer
Pension Plan Act (&#147;MPPA&#148;), a company contributing to a multiemployer
plan is liable for its share of unfunded vested liabilities upon withdrawal from
the plan. That withdrawal occurred for the Company with the cessation of eastern
mining operations, its only operations at that time which utilized UMWA
employees. In 1996, the Company recorded its withdrawal liability, which was
estimated by the 1974 UMWA Pension Plan at $13.8 million. The Company disputed
the amount of this obligation through arbitration. In accordance with MPPA, the
Company amortized this withdrawal liability, with interest, during the
arbitration process by making payments of approximately $172,500 per month. The
final phase of the arbitration was scheduled for April 2004. On March 8, 2004,
the Company reached a settlement agreement with the 1974 UMWA Pension Plan
whereby its obligation was considered fully repaid after making the monthly
payment in February 2004. As a result, the Company reduced the recorded amount
of its obligation and reduced the amount of its heritage health benefit costs
for 2003 by $6.3 million. No further contributions will be required. </FONT></P>

<H2 ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" size=3><u>Pension
Benefits (unaudited)</u></FONT></H2>

<P><FONT FACE="Times New Roman, Times, Serif" size=3>The Company provides
pension benefits to nearly all of its full-time employees as well as to retired
employees and their dependents. The Company incurred costs of providing these
benefits during the quarters ended March 31, 2004 and 2003 as follows: </FONT></P>

<table align=center border=0 cellPadding=0 cellSpacing=0 width=550>
         <tr>
<td>&nbsp;</td>
<td colspan=4 align=center valign=bottom><b>Pension Benefits</b></td>
</tr>
         <tr>
                  <td>&nbsp;</td>
                  <td colspan=2 align=center><b>2004</b></td>
                  <td colspan=2 align=center><b>2003</b></td>
         </tr>
         <tr>
<td>&nbsp;</td>
<td colspan=4 align=center><b>(unaudited)</b></td>
</tr>
<tr>
<td><hr noshade></td>
<td><hr noshade></td>
<td><hr noshade></td>
<td><hr noshade></td>
<td><hr noshade></td>
</tr>
         <tr>
<td>&nbsp;</td>
<td colspan=4 align=center>(in thousands)</td>
</tr>
<tr>
<td width=60%>Service cost</td>
<td align=right width=5%>$</td>
<td align=right width=15%>616</td>
<td align=right width=5%>$</td>
<td align=right width=15%>505</td>
</tr>
<tr>
<td>Interest cost</td>
<td></td>
<td align=right>826</td>
<td></td>
<td align=right>682</td>
</tr>
<tr>
<td>Expected return on plan assets</td>
<td></td>
<td align=right>(693)</td>
<td></td>
<td align=right>(744)</td>
</tr>
<tr>
<td>Amortzation of deferred items</td>
<td></td>
<td align=right>225</td>
<td></td>
<td align=right>60</td>
</tr>
<tr>
<td><hr noshade></td>
<td><hr noshade></td>
<td><hr noshade></td>
<td><hr noshade></td>
<td><hr noshade></td>
</tr>
<tr>
<td>Net periodic pension cost</td>
<td align=right>$</td>
<td align=right>974</td>
<td align=right>$</td>
<td align=right>503</td>
</tr>
<tr>
<td><hr noshade size=4></td>
<td><hr noshade size=4></td>
<td><hr noshade size=4></td>
<td><hr noshade size=4></td>
<td><hr noshade size=4></td>
</tr>
</table>


<P><FONT FACE="Times New Roman, Times, Serif" size=3>The Company previously
disclosed in its consolidated financial statements for the year ended December
31, 2003 that it expected to contribute $1.8 million for its pension benefits
during 2004. As of March 31, 2004, no contributions have been made. The Company
currently anticipates that it may contribute as little as $1.3 million or as
much as $2.2 million during the remainder of 2004 to fund its pension plan
obligations. </FONT></P>

<br>
<p align=center><FONT FACE="Times New Roman, Times, Serif" SIZE=3>F-27</font></p>
<page>
<br>


<H2 ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" size=3>10. INCOME
TAXES (BENEFIT)</FONT></H2>

<P><FONT FACE="Times New Roman, Times, Serif" size=3>Income tax expense
(benefit) attributable to income (loss) before income taxes consists of: </FONT></P>

<table align=center border=0 cellPadding=0 cellSpacing=0 width=650>
        <tr>
                <td align=left></td>
                <td align=center colspan=4><b>Three Months Ended<br>March 31,</b></td>
                <td align=right></td>
                <td align=center colspan=6><b>Year Ended<br>December 31,</b></td>
        </tr>
        <tr>
                <td width=20% align=left><b></b></td>
                <td width=5% align=right><b></b></td>
                <td width=10% align=right><b>2004</b></td>
                <td width=5% align=right><b></b></td>
                <td width=10% align=right><b>2003</b></td>
                <td width=5% align=right><b></b></td>
                <td width=5% align=right><b></b></td>
                <td width=10% align=right><b>2003</b></td>
                <td width=5% align=right><b></b></td>
                <td width=10% align=right><b>2002</b></td>
                <td width=5% align=right><b></b></td>
                <td width=10% align=right><b>2001</b></td>
        </tr>
        <tr>
                <td align=left></td>
                <td align=center colspan=4><b>(unaudited)</b></td>
                <td align=right></td>
                <td align=center colspan=6>&nbsp;</td>
        </tr>
        <tr>
                <td><HR NOSHADE></td>
                <td><HR NOSHADE></td>
                <td><HR NOSHADE></td>
                <td><HR NOSHADE></td>
                <td><HR NOSHADE></td>
                <td><HR NOSHADE></td>
                <td><HR NOSHADE></td>
                <td><HR NOSHADE></td>
                <td><HR NOSHADE></td>
                <td><HR NOSHADE></td>
                <td><HR NOSHADE></td>
                <td><HR NOSHADE></td>
        </tr>
        <tr>
                <td align=left></td>
                <td align=right></td>
                <td align=center colspan=10> (in thousands)</td>
        </tr>
        <tr>
                <td align=left>Current:</td>
                <td align=right></td>
                <td align=right></td>
                <td align=right></td>
                <td align=right></td>
                <td align=right></td>
                <td align=right></td>
                <td align=right></td>
                <td align=right></td>
                <td align=right></td>
                <td align=right></td>
                <td align=right></td>
        </tr>
        <tr>
                <td align=left>&nbsp;&nbsp;&nbsp;Federal</td>
                <td align=right>$</td>
                <td align=right>                  71</td>
                <td align=right> $ </td>
                <td align=right>                 115</td>
                <td align=right>  </td>
                <td align=right>$</td>
                <td align=right>                  25</td>
                <td align=right> $ </td>
                <td align=right>                 -</td>
                <td align=right> $ </td>
                <td align=right>           - </td>
        </tr>
        <tr>
                <td align=left>&nbsp;&nbsp;&nbsp;State</td>
                <td align=right></td>
                <td align=right>               89 </td>
                <td align=right></td>
                <td align=right>                  263 </td>
                <td align=right></td>
                <td align=right></td>
                <td align=right>               251 </td>
                <td align=right></td>
                <td align=right>                  900 </td>
                <td align=right></td>
                <td align=right>         908</td>
        </tr>
        <tr>
                <td><HR NOSHADE></td>
                <td><HR NOSHADE></td>
                <td><HR NOSHADE></td>
                <td><HR NOSHADE></td>
                <td><HR NOSHADE></td>
                <td><HR NOSHADE></td>
                <td><HR NOSHADE></td>
                <td><HR NOSHADE></td>
                <td><HR NOSHADE></td>
                <td><HR NOSHADE></td>
                <td><HR NOSHADE></td>
                <td><HR NOSHADE></td>
        </tr>
        <tr>
                <td align=left></td>
                <td align=right></td>
                <td align=right>               160 </td>
                <td align=right></td>
                <td align=right>                 378</td>
                <td align=right></td>
                <td align=right></td>
                <td align=right>               276 </td>
                <td align=right></td>
                <td align=right>                 900</td>
                <td align=right></td>
                <td align=right>         908</td>
        </tr>
        <tr>
                <td><HR NOSHADE></td>
                <td><HR NOSHADE></td>
                <td><HR NOSHADE></td>
                <td><HR NOSHADE></td>
                <td><HR NOSHADE></td>
                <td><HR NOSHADE></td>
                <td><HR NOSHADE></td>
                <td><HR NOSHADE></td>
                <td><HR NOSHADE></td>
                <td><HR NOSHADE></td>
                <td><HR NOSHADE></td>
                <td><HR NOSHADE></td>
        </tr>
        <tr>
                <td align=left>Deferred:</td>
                <td align=right></td>
                <td align=right></td>
                <td align=right></td>
                <td align=right></td>
                <td align=right></td>
                <td align=right></td>
                <td align=right></td>
                <td align=right></td>
                <td align=right></td>
                <td align=right></td>
                <td align=right></td>
        </tr>
        <tr>
                <td align=left>&nbsp;&nbsp;&nbsp;Federal</td>
                <td align=right></td>
                <td align=right>                 (1,015)</td>
                <td align=right></td>
                <td align=right> (1,121) </td>
                <td align=right></td>
                <td align=right></td>
                <td align=right>                 (9,599)</td>
                <td align=right></td>
                <td align=right> (5,605) </td>
                <td align=right></td>
                <td align=right> (120) </td>
        </tr>
        <tr>
                <td align=left>&nbsp;&nbsp;&nbsp;State</td>
                <td align=right></td>
                <td align=right>                  (20)</td>
                <td align=right></td>
                <td align=right> (181) </td>
                <td align=right></td>
                <td align=right></td>
                <td align=right>                  (132)</td>
                <td align=right></td>
                <td align=right> (51) </td>
                <td align=right></td>
                <td align=right> (352) </td>
        </tr>
        <tr>
                <td><HR NOSHADE></td>
                <td><HR NOSHADE></td>
                <td><HR NOSHADE></td>
                <td><HR NOSHADE></td>
                <td><HR NOSHADE></td>
                <td><HR NOSHADE></td>
                <td><HR NOSHADE></td>
                <td><HR NOSHADE></td>
                <td><HR NOSHADE></td>
                <td><HR NOSHADE></td>
                <td><HR NOSHADE></td>
                <td><HR NOSHADE></td>
        </tr>
        <tr>

                <td align=left></td>
                <td align=right></td>
                <td align=right>                 (1,035)</td>
                <td align=right></td>
                <td align=right> (1,302) </td>
                <td align=right></td>
                <td align=right></td>
                <td align=right>                 (9,731)</td>
                <td align=right></td>
                <td align=right> (5,656) </td>
                <td align=right></td>
                <td align=right> (472) </td>
        </tr>
        <tr>
                <td><HR NOSHADE></td>
                <td><HR NOSHADE></td>
                <td><HR NOSHADE></td>
                <td><HR NOSHADE></td>
                <td><HR NOSHADE></td>
                <td><HR NOSHADE></td>
                <td><HR NOSHADE></td>
                <td><HR NOSHADE></td>
                <td><HR NOSHADE></td>
                <td><HR NOSHADE></td>
                <td><HR NOSHADE></td>
                <td><HR NOSHADE></td>
        </tr>
        <tr>
                <td align=left>&nbsp;</td>
                <td align=right></td>
                <td align=right></td>
                <td align=right></td>
                <td align=right></td>
                <td align=right></td>
                <td align=right></td>
                <td align=right></td>
                <td align=right></td>
                <td align=right></td>
                <td align=right></td>
                <td align=right></td>
        </tr>
        <tr>
                <td align=left>Income tax expense (benefit)</td>
                <td align=right>$</td>
                <td align=right>                  (875) </td>
                <td align=right> $ </td>
                <td align=right>                 (924)</td>
                <td align=right>  </td>
                <td align=right>$</td>
                <td align=right>                  (9,455) </td>
                <td align=right> $ </td>
                <td align=right>                 (4,756)</td>
                <td align=right> $ </td>
                <td align=right>         436</td>
        </tr>
        <tr>
                <td><HR NOSHADE size=4></td>
                <td><HR NOSHADE size=4></td>
                <td><HR NOSHADE size=4></td>
                <td><HR NOSHADE size=4></td>
                <td><HR NOSHADE size=4></td>
                <td><HR NOSHADE size=4></td>
                <td><HR NOSHADE size=4></td>
                <td><HR NOSHADE size=4></td>
                <td><HR NOSHADE size=4></td>
                <td><HR NOSHADE size=4></td>
                <td><HR NOSHADE size=4></td>
                <td><HR NOSHADE size=4></td>
        </tr>
</table>

<P><FONT FACE="Times New Roman, Times, Serif" size=3>Income tax expense (benefit)
attributable to income (loss) before income taxes differed from the amounts
computed by applying the statutory Federal income tax rate of 34% to pretax
income as a result of the following: </FONT></P>

<table align=center border=0 cellPadding=0 cellSpacing=0 width=650>
        <tr>

                <td width=55% align=left><b></b></td>
                <td width=5% align=right><b></b></td>
                <td width=10% align=right><b>2003</b></td>
                <td width=5% align=right><b></b></td>
                <td width=10% align=right><b>2002</b></td>
                <td width=5% align=right><b></b></td>
                <td width=10% align=right><b>2001</b></td>
        </tr>
        <tr>
                <td><HR NOSHADE></td>
                <td><HR NOSHADE></td>
                <td><HR NOSHADE></td>
                <td><HR NOSHADE></td>
                <td><HR NOSHADE></td>
                <td><HR NOSHADE></td>
                <td><HR NOSHADE></td>
        </tr>
        <tr>
                <td align=left></td>
                <td align=right></td>
                <td align=center colspan=5>(in thousands)</td>
        </tr>
        <tr>
                <td align=left>&nbsp;</td>
                <td align=right></td>
                <td align=right></td>
                <td align=right></td>
                <td align=right></td>
                <td align=right></td>
                <td align=right></td>
        </tr>
        <tr>
                <td align=left>Computed tax expense (benefit) at statutory rate</td>
                <td align=right>$</td>
                <td align=right>                        1,067 </td>
                <td align=right> $ </td>
                <td align=right>                        1,825</td>
                <td align=right> $ </td>
                <td align=right>         1,925 </td>
        </tr>
        <tr>
                <td align=left>Increase (decrease) in tax expense resulting from:</td>
                <td align=right></td>
                <td align=right></td>
                <td align=right></td>
                <td align=right></td>
                <td align=right></td>
                <td align=right></td>
        </tr>
        <tr>
                 <td align=left>&nbsp;&nbsp;&nbsp;Tax depletion in excess of book</td>
                <td align=right></td>
                <td align=right>                       (2,865)</td>
                <td align=right></td>
                <td align=right>                      (3,399)</td>
                <td align=right></td>
                <td align=right>          (2,412)</td>
        </tr>
        <tr>

                <td align=left>&nbsp;&nbsp;&nbsp;Minority interest adjustment</td>
                <td align=right></td>
                <td align=right>                       263</td>
                <td align=right></td>
                <td align=right>                      272</td>
                <td align=right></td>
                <td align=right>          265</td>
        </tr>
        <tr>
                <td align=left>&nbsp;&nbsp;&nbsp;State income taxes, net of increase in<br>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;valuation allowance of $5,453</td>
                <td align=right></td>
                <td align=right valign=bottom>                            78 </td>
                <td align=right></td>
                <td align=right valign=bottom>                        720 </td>
                <td align=right></td>
                <td align=right valign=bottom> 842 </td>
        </tr>
        <tr>
                <td align=left>&nbsp;&nbsp;&nbsp;Change in valuation allowance</td>
                <td align=right></td>
                <td align=right></td>
                <td align=right></td>
                <td align=right></td>
                <td align=right></td>
                <td align=right></td>
        </tr>
        <tr>
                <td align=left>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;relating to Federal income taxes</td>
                <td align=right></td>
                <td align=right> (7,768) </td>
                <td align=right></td>
                <td align=right>                          (4,149) </td>
                <td align=right></td>
                <td align=right>       -</td>
        </tr>
        <tr>

                <td align=left>&nbsp;&nbsp;&nbsp;Other, net</td>
                <td align=right></td>
                <td align=right>                            (230) </td>
                <td align=right></td>
                <td align=right>                          (25) </td>
                <td align=right></td>
                <td align=right>            (184) </td>
        </tr>
        <tr>
                <td><HR NOSHADE></td>
                <td><HR NOSHADE></td>
                <td><HR NOSHADE></td>
                <td><HR NOSHADE></td>
                <td><HR NOSHADE></td>
                <td><HR NOSHADE></td>
                <td><HR NOSHADE></td>
        </tr>
        <tr>
                <td align=left>&nbsp;&nbsp;&nbsp;Income tax expense (benefit)</td>
                <td align=right>$</td>
                <td align=right>                            (9,455) </td>
                <td align=right> $ </td>
                <td align=right>                      (4,756)</td>
                <td align=right> $ </td>
                <td align=right>             436</td>
        </tr>
        <tr>
                <td><HR NOSHADE size=4></td>
                <td><HR NOSHADE size=4></td>
                <td><HR NOSHADE size=4></td>
                <td><HR NOSHADE size=4></td>
                <td><HR NOSHADE size=4></td>
                <td><HR NOSHADE size=4></td>
                <td><HR NOSHADE size=4></td>
        </tr>
</table>

<br>
<p align=center><FONT FACE="Times New Roman, Times, Serif" SIZE=3>F-28</font></p>
<page>
<br>


<P><FONT FACE="Times New Roman, Times, Serif" size=3>The tax effects of
temporary differences that give rise to significant portions of the deferred tax
assets and deferred tax liabilities at December 31, 2003 and 2002 are presented
below: </FONT></P>

<table align=center border=0 cellPadding=0 cellSpacing=0 width=600>
        <tr>
                <td width=70% align=left><b></b></td>
                <td width=5% align=right><b></b></td>
                <td width=10% align=right><b>2003</b></td>
                <td width=5% align=right><b></b></td>
                <td width=10% align=right><b>2002</b></td>
        </tr>
        <tr>
                <td><HR NOSHADE></td>
                <td><HR NOSHADE></td>
                <td><HR NOSHADE></td>
                <td><HR NOSHADE></td>
                <td><HR NOSHADE></td>
        </tr>
        <tr>
                <td align=left>Deferred tax assets:</td>
                <td align=right></td>
                <td align=center colspan=3>         (in thousands)</td>
        </tr>
        <tr>
                <td align=left>&nbsp;</td>
                <td align=right></td>
                <td align=right></td>
                <td align=right></td>
                <td align=right></td>
        </tr>
        <tr>
                <td align=left>Federal net operating loss carryforwards</td>
                <td align=right>$</td>
                <td align=right>                  61,326 </td>
                <td align=right> $ </td>
                <td align=right>                    58,874 </td>
        </tr>
        <tr>
                <td align=left>State net operating loss carryforwards</td>
                <td align=right></td>
                <td align=right>                  6,160 </td>
                <td align=right> </td>
                <td align=right>                    6,035 </td>
        </tr>
        <tr>

                <td align=left>Alternative minimum tax credit carryforwards</td>
                <td align=right></td>
                <td align=right>                    2,632 </td>
                <td align=right></td>
                <td align=right>                      2,608 </td>
        </tr>
        <tr>
                <td align=left>Accruals for the following:</td>
                <td align=right></td>
                <td align=right></td>
                <td align=right></td>
                <td align=right></td>
        </tr>
        <tr>
                <td align=left>&nbsp;&nbsp;&nbsp;Workers' compensation</td>
                <td align=right></td>
                <td align=right>                    3,791 </td>
                <td align=right></td>
                <td align=right>                      4,296 </td>
        </tr>
        <tr>

                <td align=left>&nbsp;&nbsp;&nbsp;Postretirement benefit and pension obligations</td>
                <td align=right></td>
                <td align=right>                  49,601 </td>
                <td align=right></td>
                <td align=right>                    43,336 </td>
        </tr>
        <tr>
                <td align=left>&nbsp;&nbsp;&nbsp;Asset retirement obligations</td>
                <td align=right></td>
                <td align=right>                    13,397 </td>
                <td align=right></td>
                <td align=right>                         7,532 </td>
        </tr>
        <tr>
                <td align=left>&nbsp;&nbsp;&nbsp;1974 UMWA pension plan obligation</td>
                <td align=right></td>
                <td align=right>                    100 </td>
                <td align=right></td>
                <td align=right>                      3,214 </td>
        </tr>
        <tr>

                <td align=left>&nbsp;&nbsp;&nbsp;Other accruals</td>
                <td align=right></td>
                <td align=right>                    5,273 </td>
                <td align=right></td>
                <td align=right>                      4,722 </td>
        </tr>
        <tr>
                <td><HR NOSHADE></td>
                <td><HR NOSHADE></td>
                <td><HR NOSHADE></td>
                <td><HR NOSHADE></td>
                <td><HR NOSHADE></td>
        </tr>
        <tr>
                <td align=left>Total gross deferred assets</td>
                <td align=right></td>
                <td align=right>                142,280 </td>
                <td align=right></td>
                <td align=right>                   130,617 </td>
        </tr>
        <tr>
                <td align=left>Less valuation allowance</td>
                <td align=right></td>
                <td align=right>                 (25,058)</td>
                <td align=right></td>
                <td align=right>                   (32,574)</td>
        </tr>
        <tr>
                <td><HR NOSHADE></td>
                <td><HR NOSHADE></td>
                <td><HR NOSHADE></td>
                <td><HR NOSHADE></td>
                <td><HR NOSHADE></td>
        </tr>
        <tr>

                <td align=left>Net deferred tax assets</td>
                <td align=right></td>
                <td align=right>                  117,222 </td>
                <td align=right></td>
                <td align=right>                    98,043 </td>
        </tr>
        <tr>
                <td><HR NOSHADE></td>
                <td><HR NOSHADE></td>
                <td><HR NOSHADE></td>
                <td><HR NOSHADE></td>
                <td><HR NOSHADE></td>
        </tr>
        <tr>
                <td align=left><b>&nbsp;</b></td>
                <td align=right><b></b></td>
                <td align=right></td>
                <td align=right></td>
                <td align=right></td>
        </tr>
        <tr>
                <td align=left>Deferred tax liabilities:</td>
                <td align=right></td>
                <td align=right></td>
                <td align=right></td>
                <td align=right></td>
        </tr>
        <tr>
                <td align=left>Investment in independent power projects</td>
                <td align=right>$</td>
                <td align=right>                 (12,273)</td>
                <td align=right> $ </td>
                <td align=right>                   (14,964)</td>
        </tr>
        <tr>
                 <td align=left>Plant and equipment, differences due to depreciation and<br>&nbsp;&nbsp;amortization</td>
                <td align=right></td>
                <td align=right valign=bottom>                 (26,668)</td>
                <td align=right></td>
                <td align=right valign=bottom>                   (14,929)</td>
        </tr>
        <tr>
                <td align=left>Excess of trust assets over pneumoconiosis benefit obligation</td>
                <td align=right></td>
                <td align=right>                   (2,494)</td>
                <td align=right></td>
                <td align=right>                     (3,066)</td>
        </tr>
        <tr>
                <td><HR NOSHADE></td>
                <td><HR NOSHADE></td>
                <td><HR NOSHADE></td>
                <td><HR NOSHADE></td>
                <td><HR NOSHADE></td>
        </tr>
        <tr>
                <td align=left>Total gross deferred tax liabilities</td>
                <td align=right></td>
                <td align=right>                 (41,435)</td>
                <td align=right></td>
                <td align=right>                   (32,959)</td>
        </tr>
        <tr>
                <td><HR NOSHADE></td>
                <td><HR NOSHADE></td>
                <td><HR NOSHADE></td>
                <td><HR NOSHADE></td>
                <td><HR NOSHADE></td>
        </tr>
        <tr>
                <td align=left>Net deferred tax asset</td>
                <td align=right>$</td>
                <td align=right>                  75,787 </td>
                <td align=right> $ </td>
                <td align=right>                           65,084   </td>
        </tr>
        <tr>
                <td><HR NOSHADE size=4></td>
                <td><HR NOSHADE size=4></td>
                <td><HR NOSHADE size=4></td>
                <td><HR NOSHADE size=4></td>
                <td><HR NOSHADE size=4></td>
        </tr>
</table>

<P><FONT FACE="Times New Roman, Times, Serif" size=3>The net deferred tax asset
is presented on the consolidated balance sheets at December 31, as follows: </FONT></P>

<table align=center border=0 cellPadding=0 cellSpacing=0 width=650>
         <tr>
                  <td width=70% align=left></td>
                  <td width=5% align=right></td>
                  <td width=10% align=center><b>2003</b></td>
                  <td width=5% align=right><b></b></td>
                  <td width=10% align=center><b>2002</b></td>
         </tr>
         <tr>
                  <td></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
         </tr>
         <tr>
                  <td align=left></td>
                  <td align=center colspan=4><b>(in thousands)</b></td>
         </tr>
         <tr>
                  <td align=left>Deferred income tax assets - current</td>
                  <td align=right>$</td>
                  <td align=right>                            12,921 </td>
                  <td align=right> $ </td>
                  <td align=right>          15,831   </td>
         </tr>
         <tr>
                  <td align=left>Deferred income tax assets - long-term</td>
                  <td align=right></td>
                  <td align=right>                            62,866 </td>
                  <td align=right> </td>
                  <td align=right>          49,253   </td>
         </tr>
         <tr>
                  <td></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
         </tr>
         <tr>
                  <td align=left></td>
                  <td align=right>$</td>
                  <td align=right>                            75,787 </td>
                  <td align=right> $ </td>
                  <td align=right>          65,084   </td>
         </tr>
         <tr>
                  <td></td>
                  <td><HR NOSHADE size=4></td>
                  <td><HR NOSHADE size=4></td>
                  <td><HR NOSHADE size=4></td>
                  <td><HR NOSHADE size=4></td>
         </tr>
</table>

<P><FONT FACE="Times New Roman, Times, Serif" size=3>An income tax benefit of
$484,000, $160,000 and $989,000 related to the exercise of stock options during
2003, 2002 and 2001, respectively, was added to other paid-in capital. </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" size=3>As of December 31, 2003, a
minimum of $180.4 million of future taxable income will be necessary to enable
the Company to fully utilize the net operating loss carryforwards and realize
gross deferred tax assets of $142.3 million. As of December 31, 2003, the
Company has available Federal net operating loss carryforwards to reduce future
taxable income which expires as follows: </FONT></P>

<table align=center border=0 cellPadding=0 cellSpacing=0 width=450>
        <tr>
                <td><HR NOSHADE></td>
                <td><HR NOSHADE></td>
                <td><HR NOSHADE></td>
        </tr>
        <tr>

                <td width=30% align=center><b>Expiration Date</b></td>
                <td width=5% align=right><b></b></td>
                <td width=10% align=right><b>Regular Tax</b></td>
        </tr>
<tr>
                <td><HR NOSHADE></td>
                <td><HR NOSHADE></td>
                <td><HR NOSHADE></td>
        </tr>
        <tr>
                <td align=center colspan=3>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(in thousands)</td>
        </tr>
        <tr>
                <td align=center>2010</td>
                <td align=right>$</td>
                <td align=right>         45,809 </td>
        </tr>
        <tr>
                <td align=center>2011</td>
                <td align=right></td>
                <td align=right>       36,479 </td>
        </tr>
        <tr>
                <td align=center>2012</td>
                <td align=right></td>
                <td align=right>       449 </td>
        </tr>
        <tr>
                <td align=center>2018</td>
                <td align=right></td>
                <td align=right>            531 </td>
        </tr>
        <tr>
                <td align=center>2019</td>
                <td align=right></td>
                <td align=right>            88,429 </td>
        </tr>
         <tr>
                <td align=center>after 2019</td>
                <td align=right></td>
                <td align=right>       8,673 </td>
        </tr>
        <tr>
                <td><HR NOSHADE></td>
                <td><HR NOSHADE></td>
                <td><HR NOSHADE></td>
        </tr>
        <tr>
                <td align=center>Total</td>
                <td align=right>$</td>
                <td align=right>      180,370 </td>
        </tr>
        <tr>
                <td><HR NOSHADE size=4></td>
                <td><HR NOSHADE size=4></td>
                <td><HR NOSHADE size=4></td>
        </tr>
</table>

<br>
<p align=center><FONT FACE="Times New Roman, Times, Serif" SIZE=3>F-29</font></p>
<page>
<br>

<P><FONT FACE="Times New Roman, Times, Serif" size=3>Current tax expense results
from Federal Alternative Minimum Tax and estimated state income taxes. The
deferred income tax benefit recorded for 2003 included a benefit of $7.8 million
due to a reduction in the deferred income tax asset valuation allowance as a
result of an increase in the amount of Federal net operating loss carryforwards
the Company expects to use prior to their expiration through 2019. The increase
in the expected amount of Federal net operating losses to be used in future
years is primarily a result of an extension of an existing coal sales contract
entered into during 2003, the agreement reached with the customer of the
Company&#146;s Jewett Mine providing certainty of volumes and pricing through
2007 and the settlement of the withdrawal liability issue with the 1974 UMWA
Retirement Plan. The terms of the extended contract call for deliveries of 1.5
to 2.5 million tons per year from 2004 through 2008. In addition, the deferred
income tax benefit for 2003 reflects the generation of additional deferred tax
assets during the period due to temporary differences related to the timing of
book expenses versus tax deductions. The deferred income tax benefit recorded
for 2002 included a benefit of $4.1 million for a reduction in the valuation
allowance as a result of anticipated increased use of future net operating loss
carryforwards. </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" size=3>The Company has alternative
minimum tax credit carryforwards of $2.6 million which are available
indefinitely to offset future Federal taxes payable. For Alternative Minimum Tax
purposes, the Company has net operating loss carryforwards of approximately
$34.8 million as of December 31, 2003. As of December 31, 2003, the Company also
has available an estimated $14.1 million in net operating loss carryforwards in
Colorado to reduce future taxable income. </FONT></P>

<H2 ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" size=3>11.&nbsp;&nbsp;&nbsp;&nbsp;CAPITAL
STOCK</FONT></H2>

<P><FONT FACE="Times New Roman, Times, Serif" size=3>Each depositary share
represents one-quarter of a share of Westmoreland&#146;s Series A Convertible
Exchangeable Preferred Stock. Dividends at a rate of 8.5% per annum were
previously paid quarterly but were last suspended in the third quarter of 1995
pursuant to the requirements of Delaware law, described below, as a result of
recognition of net losses, the violation of certain bank covenants, and a
subsequent shareholders&#146; deficit. The full amount of the quarterly dividend
is $2.125 per preferred share or $0.53 per depositary share. Westmoreland
commenced a partial payment of dividends to preferred shareholders on October 1,
2002 as described below. The quarterly dividends which are accumulated but
unpaid through and including January 1, 2004 amount to $15.3 million in the
aggregate ($74.62 per preferred share or $18.65 per depositary share). Common
stock dividends may not be declared until the preferred stock dividends that are
accumulated but unpaid are made current. </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" size=3>There are statutory
restrictions limiting the payment of preferred stock dividends under Delaware
law, the state in which Westmoreland is incorporated. Under Delaware law,
Westmoreland is permitted to pay preferred stock dividends only: (1) out of
surplus, surplus being the amount of shareholders&#146; equity in excess of the
par value of Westmoreland&#146;s two classes of stock; or (2) in the event there
is no surplus, out of net profits for the fiscal year in which a preferred stock
dividend is declared (and/or out of net profits from the preceding fiscal year),
but only to the extent that shareholders&#146; equity exceeds the par value of
the preferred stock (which par value was $205,000 at December 31, 2003). The
Company had shareholders&#146; equity of $33.3 million and the par value of all
outstanding shares of preferred stock and shares of common stock aggregated
$20.1 million at December 31, 2003. </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" size=3>The Board of Directors
regularly reviews the subjects of current preferred stock dividends and the
accumulated unpaid preferred stock dividends, and is committed to meeting its
obligations to the preferred shareholders in a manner consistent with the best
interests of all shareholders. Quarterly dividends of $0.15 per depositary share
were commenced beginning October 1, 2002 and increased to $0.20 per depositary
share beginning October 1, 2003. </FONT></P>

<br>
<p align=center><FONT FACE="Times New Roman, Times, Serif" SIZE=3>F-30</font></p>
<page>
<br>

<P><FONT FACE="Times New Roman, Times, Serif" size=3>On August 9, 2002
Westmoreland&#146;s Board of Directors authorized the repurchase of up to 10% of
the outstanding depositary shares on the open market or in privately negotiated
transactions with institutional and accredited investors between then and the
end of 2004. The timing and amount of depositary shares repurchased will be
determined by the Company&#146;s management based on its evaluation of the
Company&#146;s capital resources, the price of the depositary shares offered to
the Company and other factors. Any acquired shares will be converted into shares
of Series A Convertible Exchangeable Preferred Stock and retired. The repurchase
program will be funded from working capital which may be currently available, or
become available to the Company. Since the commencement of the depositary share
purchase program, Westmoreland has purchased a total of 14,500 depositary shares
for aggregate consideration of $457,000, including 7,000 shares purchased in
2003 for $213,000. </FONT></P>

<H2 ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" size=3>12. INCENTIVE
STOCK OPTION AND STOCK APPRECIATION RIGHTS PLANS</FONT></H2>

<P><FONT FACE="Times New Roman, Times, Serif" size=3>As of December 31, 2003,
the Company had options outstanding from four shareholder-approved Incentive
Stock Option (&#147;ISOs&#148;) Plans for employees and three Incentive Stock
Option Plans for directors. </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" size=3>The employee plans provide
for the granting of ISO&#146;s, non-qualified options under certain
circumstances, stock appreciation rights and restricted stock. ISO&#146;s
generally vest over two years, expire ten years from the date of grant, and may
not have an option price that is less than the market value of the stock on the
date of grant. The maximum number of shares that could be issued or granted
under these plans is 1,550,000, and as of December 31, 2003, 193,806 shares are
available for future issue or grant. </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" size=3>The non-employee director
plans generally allow the grant of options for 20,000 shares when elected or
appointed, and options for 10,000 shares after each annual meeting. Beginning in
2003, rather than the grant of 10,000 options, each non-employee director was
granted $30,000 worth of common shares which are restricted for one year from
the date of grant. The maximum number of shares that could be issued or granted
under these plans is 900,000, and as of December 31, 2003, 44,832 shares are
available for future issue or grant. </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" size=3>Information for 2003, 2002
and 2001 with respect to both the employee and director Plans is as follows: </FONT></P>

<table align=center border=0 cellPadding=0 cellSpacing=0 width=650>
       <tr>
                <td width=35% align=left></td>
                <td width=20% align=right valign=bottom><b>Issue Price Range</b></td>
                <td width=20% align=right valign=bottom><b>Stock Option Shares</b></td>
                <td width=25% align=right valign=bottom><b>Weighted Average Exercise Price</b></td>
        </tr>
        <tr>
                <td><HR NOSHADE></td>
                <td><HR NOSHADE></td>
                <td><HR NOSHADE></td>
                <td><HR NOSHADE></td>
        </tr>
        <tr>
                <td align=left>Outstanding at December 31, 2000</td>
                <td align=right>$&nbsp;&nbsp;2.63-20.00</td>
                <td align=right>1,174,800</td>
                <td align=right>$&nbsp;&nbsp;3.64</td>
        </tr>
        <tr>
                <td align=left>Granted in 2001</td>
                <td align=right>12.04-8.19</td>
                <td align=right>145,500</td>
                <td align=right>17.58</td>
        </tr>
        <tr>
                <td align=left>Exercised in 2001</td>
                <td align=right>2.81-8.75</td>
                <td align=right>(371,450)</td>
                <td align=right>3.99</td>
        </tr>
        <tr>
                <td align=left>Expired or forfeited in 2001</td>
                <td align=right>2.63-20.00</td>
                <td align=right>(56,500)</td>
                <td align=right>5.53</td>
        </tr>
        <tr>
                <td><HR NOSHADE></td>
                <td><HR NOSHADE></td>
                <td><HR NOSHADE></td>
                <td><HR NOSHADE></td>
        </tr>
        <tr>
                <td align=left>Outstanding at December 31, 2001</td>
                <td align=right>2.63-18.19</td>
                <td align=right>892,350</td>
                <td align=right>5.51</td>
        </tr>
        <tr>
                <td align=left>Granted in 2002</td>
                <td align=right>12.86-15.31</td>
                <td align=right>183,600</td>
                <td align=right>13.93</td>
        </tr>
        <tr>
                <td align=left>Exercised in 2002</td>
                <td align=right>2.63-12.38</td>
                <td align=right>(77,900)</td>
                <td align=right>4.28</td>
        </tr>
        <tr>
                <td><HR NOSHADE></td>
                <td><HR NOSHADE></td>
                <td><HR NOSHADE></td>
                <td><HR NOSHADE></td>
        </tr>
        <tr>
                <td align=left>Outstanding at December 31, 2002</td>
                <td align=right>2.63-18.19</td>
                <td align=right>998,050</td>
                <td align=right>7.17</td>
        </tr>
        <tr>
                <td align=left>Granted in 2003</td>
                <td align=right>10.48-18.08</td>
                <td align=right>189,350</td>
                <td align=right>17.08</td>
        </tr>
        <tr>
                <td align=left>Exercised in 2003</td>
                <td align=right>2.81-12.86</td>
                <td align=right>(114,700)</td>
                <td align=right>3.56</td>
        </tr>
        <tr>
                <td align=left>Expired or forfeited in 2003</td>
                <td align=right>12.86-18.19</td>
                <td align=right>(23,300)</td>
                <td align=right>15.11</td>
        </tr>
        <tr>
                <td><HR NOSHADE></td>
                <td><HR NOSHADE></td>
                <td><HR NOSHADE></td>
                <td><HR NOSHADE></td>
        </tr>
        <tr>
                <td align=left>Outstanding at December 31, 2003</td>
                <td align=right>$&nbsp;&nbsp;2.63-18.19</td>
                <td align=right>1,049,400</td>
                <td align=right>$&nbsp;&nbsp;9.22</td>
        </tr>

        <tr>
                <td><HR NOSHADE size=4></td>
                <td><HR NOSHADE size=4></td>
                <td><HR NOSHADE size=4></td>
                <td><HR NOSHADE size=4></td>
        </tr>
</table>

<br>
<p align=center><FONT FACE="Times New Roman, Times, Serif" SIZE=3>F-31</font></p>
<page>
<br>



<P><FONT FACE="Times New Roman, Times, Serif" size=3>Information about stock
options outstanding as of December 31, 2003 is as follows: </FONT></P>

<table align=center border=0 cellPadding=0 cellSpacing=0 width=650>
        <tr>
                <td width=18% align=center valign=bottom><b>Range of Exercise Price</b></td>
                <td width=12% align=center valign=bottom><b>Number Outstanding</b></td>
                <td width=20% align=center valign=bottom><b>Weighted- Average Remaining Contractual Life (Years)</b></td>
                <td width=20% align=center valign=bottom><b>Weighted- Average<br>Exercise Price </b></td>
                <td width=15% align=center valign=bottom><b>Number Exercisable</b></td>
                <td width=15% align=center valign=bottom><b>Weighted- Average Exercise Price</b></td>
        </tr>
        <tr>
                <td><HR NOSHADE></td>
                <td><HR NOSHADE></td>
                <td><HR NOSHADE></td>
                <td><HR NOSHADE></td>
                <td><HR NOSHADE></td>
                <td><HR NOSHADE></td>
        </tr>
                <tr>
                <td align=center>$2.63 - 5.00</td>
                <td align=center>&nbsp;&nbsp;520,100</td>
                <td align=center>4.9</td>
                <td align=center>$&nbsp;2.92 </td>
                <td align=center>502,600</td>
                <td align=center>$&nbsp;2.91</td>
        </tr>
        <tr>
                <td align=center>&nbsp;&nbsp;5.01-10.00</td>
                <td align=center>&nbsp;&nbsp;&nbsp;&nbsp;40,000</td>
                <td align=center>6.9</td>
                <td align=center>&nbsp;&nbsp;7.41</td>
                <td align=center>&nbsp;&nbsp;30,000</td>
                <td align=center>&nbsp;&nbsp;7.41</td>
        </tr>
        <tr>
                <td align=center>10.01-15.00</td>
                <td align=center>&nbsp;&nbsp;125,635</td>
                <td align=center>8.4</td>
                <td align=center>12.35</td>
                <td align=center>&nbsp;&nbsp;63,435</td>
                <td align=center>12.56</td>
        </tr>
        <tr>
                <td align=center>15.01-18.19</td>
                <td align=center>&nbsp;&nbsp;363,665</td>
                <td align=center>8.7</td>
                <td align=center>17.36</td>
                <td align=center>&nbsp;&nbsp;98,465</td>
                <td align=center>17.50</td>
        </tr>
        <tr>
                <td><HR NOSHADE></td>
                <td><HR NOSHADE></td>
                <td><HR NOSHADE></td>
                <td><HR NOSHADE></td>
                <td><HR NOSHADE></td>
                <td><HR NOSHADE></td>
        </tr>
        <tr>
                <td align=center>$2.63-18.19</td>
                <td align=center>1,049,400</td>
                <td align=center>6.7</td>
                <td align=center>$9.22</td>
                <td align=center>694,500</td>
                <td align=center>$&nbsp;6.06</td>
        </tr>
        <tr>
                <td><HR NOSHADE size=4></td>
                <td><HR NOSHADE size=4></td>
                <td><HR NOSHADE size=4></td>
                <td><HR NOSHADE size=4></td>
                <td><HR NOSHADE size=4></td>
                <td><HR NOSHADE size=4></td>
        </tr>
</table>

<H2 ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" size=3>13.&nbsp;&nbsp;&nbsp;&nbsp;BUSINESS
SEGMENT INFORMATION</FONT></H2>

<P><FONT FACE="Times New Roman, Times, Serif" size=3>The Company&#146;s
operations have been classified into two segments: coal and independent power
operations. The coal segment includes the production and sale of coal from
Montana, North Dakota and Texas. The independent power operations include the
ownership of interests in cogeneration and other non-regulated independent power
plants. The &#147;Corporate&#148; classification noted in the tables represents
all costs not otherwise classified, including corporate office charges, heritage
health benefit costs and business development expenses. Summarized financial
information by segment for 2003, 2002 and 2001 and for March 31, 2004 and 2003
is as follows: </FONT></P>

<br>
<p align=center><FONT FACE="Times New Roman, Times, Serif" SIZE=3>F-32</font></p>
<page>
<br>


<H2 ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" size=3><u>Quarter ended March 31, 2004 (unaudited)</u></FONT></H2>

<table align=center border=0 cellPadding=0 cellSpacing=0 width=650>
         <tr>
                  <td width=48% align=left></td>
                  <td width=4% align=right></td>
                  <td width=9% align=center valign=bottom>Coal</td>
                  <td width=4% align=right></td>
                  <td width=9% align=center valign=bottom>Independent Power</td>
                  <td width=4% align=right></td>
                  <td width=9% align=center valign=bottom>Corporate</td>
                  <td width=4% align=right></td>
                  <td width=9% align=center valign=bottom>Total
</td>
         </tr>
         <tr>
                  <td></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
         </tr>
         <tr>
                  <td align=left></td>
                  <td align=right></td>
                  <td align=center colspan=7>(in thousands)</td>
         </tr>
         <tr>
                  <td align=left>&nbsp;</td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                 <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
         </tr>
         <tr>

  <td align=left><i>Revenues:</i></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
         </tr>
         <tr>
                  <td align=left>&nbsp;&nbsp;Coal</td>
                  <td align=right>$</td>
                  <td align=right>       77,132 </td>
                  <td align=right> $ </td>
                  <td align=right>                      - </td>
                  <td align=right> $ </td>
                  <td align=right>                 - </td>
                  <td align=right> $ </td>
                  <td align=right>       77,132 </td>
         </tr>
         <tr>
                  <td align=left></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
         </tr>
         <tr>
                  <td align=left>&nbsp;&nbsp;Equity in earnings</td>
                  <td align=right></td>
                  <td align=right valign=bottom> - </td>
                  <td align=right></td>
                  <td align=right valign=bottom>      5,405 </td>
                  <td align=right></td>
                  <td align=right valign=bottom>       -</td>
                  <td align=right></td>
                  <td align=right valign=bottom>         5,405</td>
         </tr>
         <tr>
                  <td></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
         </tr>
         <tr>
                  <td align=left></td>
                  <td align=right></td>
                  <td align=right>       77,132 </td>
                  <td align=right></td>
                  <td align=right>      5,405</td>
                  <td align=right></td>
                  <td align=right> - </td>
                  <td align=right></td>
                  <td align=right>       82,537 </td>
         </tr>
         <tr>
                  <td align=left>&nbsp;</td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
         </tr>
         <tr>
                  <td align=left><i>Costs and expenses:</i></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
         </tr>
         <tr>
                  <td align=left>&nbsp;&nbsp;Cost of sales &#150; coal</td>
                  <td align=right></td>
                  <td align=right>       60,203 </td>
                  <td align=right></td>
                  <td align=right> - </td>
                  <td align=right></td>
                  <td align=right> - </td>
                  <td align=right></td>
                  <td align=right>       60,203 </td>
         </tr>
         <tr>
                  <td align=left>&nbsp;&nbsp;Depreciation, depletion  </td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
         </tr>
         <tr>
                  <td align=left>&nbsp;&nbsp;&nbsp;&nbsp;and amortization</td>
                  <td align=right></td>
                  <td align=right>         3,786 </td>
                  <td align=right></td>
                  <td align=right>            5 </td>
                  <td align=right></td>
                  <td align=right>           29 </td>
                  <td align=right></td>
                  <td align=right>         3,820 </td>
         </tr>
         <tr>
                  <td align=left>&nbsp;&nbsp;Selling and administrative</td>
                  <td align=right></td>
                  <td align=right>         5,266 </td>
                  <td align=right></td>
                  <td align=right>          208 </td>
                  <td align=right></td>
                  <td align=right>       2,249 </td>
                  <td align=right></td>
                  <td align=right>         7,723 </td>
         </tr>
         <tr>
                  <td align=left>&nbsp;&nbsp;Heritage health benefit</td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
         </tr>
         <tr>
                  <td align=left>&nbsp;&nbsp;&nbsp;&nbsp;costs</td>
                  <td align=right></td>
                  <td align=right> - </td>
                  <td align=right></td>
                  <td align=right> - </td>
                  <td align=right></td>
                  <td align=right>       7,206 </td>
                  <td align=right></td>
                  <td align=right>         7,206 </td>
         </tr>
         <tr>
                  <td align=left>&nbsp;&nbsp;Gain on sales of assets</td>
                  <td align=right></td>
                  <td align=right>         (19) </td>
                  <td align=right></td>
                  <td align=right>          - </td>
                  <td align=right></td>
                  <td align=right>       - </td>
                  <td align=right></td>
                  <td align=right>         (19) </td>
         </tr>
         <tr>
                  <td></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
         </tr>
         <tr>
                  <td align=left>Operating income (loss)<br>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;from continuing operations</td>
                  <td align=right valign=bottom>$</td>
                  <td align=right valign=bottom>       7,896 </td>
                  <td align=right valign=bottom> $ </td>
                  <td align=right valign=bottom>      5,192 </td>
                  <td align=right valign=bottom> $ </td>
                  <td align=right valign=bottom>       (9,484)</td>
                  <td align=right valign=bottom> $ </td>
                  <td align=right valign=bottom>         3,604 </td>
         </tr>
         <tr>
                  <td></td>
                  <td><HR NOSHADE size=4></td>
                  <td><HR NOSHADE size=4></td>
                  <td><HR NOSHADE size=4></td>
                  <td><HR NOSHADE size=4></td>
                  <td><HR NOSHADE size=4></td>
                  <td><HR NOSHADE size=4></td>
                  <td><HR NOSHADE size=4></td>
                  <td><HR NOSHADE size=4></td>
         </tr>
         <tr>
                  <td align=left></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
         </tr>
         <tr>
                  <td align=left>Capital expenditures</td>
                  <td align=right>$</td>
                  <td align=right>         2,029 </td>
                  <td align=right> $ </td>
                  <td align=right>            - </td>
                  <td align=right> $ </td>
                  <td align=right>           65   </td>
                   <td align=right> $ </td>
                  <td align=right>         2,094 </td>
         </tr>
         <tr>
                  <td></td>
                  <td><HR NOSHADE size=4></td>
                  <td><HR NOSHADE size=4></td>
                  <td><HR NOSHADE size=4></td>
                  <td><HR NOSHADE size=4></td>
                  <td><HR NOSHADE size=4></td>
                  <td><HR NOSHADE size=4></td>
                  <td><HR NOSHADE size=4></td>
                  <td><HR NOSHADE size=4></td>
         </tr>
         <tr>
                  <td align=left>Property, plant and </td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
         </tr>
         <tr>
                  <td align=left>&nbsp;&nbsp;&nbsp;equipment, net</td>
                  <td align=right>$</td>
                  <td align=right>      149,168 </td>
                  <td align=right> $ </td>
                  <td align=right>          43 </td>
                  <td align=right> $ </td>
                  <td align=right>       463 </td>
                  <td align=right> $ </td>
                  <td align=right>      149,674 </td>
         </tr>
         <tr>
                  <td></td>
                  <td><HR NOSHADE size=4></td>
                  <td><HR NOSHADE size=4></td>
                  <td><HR NOSHADE size=4></td>
                  <td><HR NOSHADE size=4></td>
                  <td><HR NOSHADE size=4></td>
                  <td><HR NOSHADE size=4></td>
                  <td><HR NOSHADE size=4></td>
                  <td><HR NOSHADE size=4></td>
         </tr>
</table>

<br>
<H2 ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" size=3><u>Quarter ended March 31, 2003 (unaudited)</u></FONT></H2>

<table align=center border=0 cellPadding=0 cellSpacing=0 width=650>
         <tr>
                  <td width=48% align=left></td>
                  <td width=4% align=right></td>
                  <td width=9% align=center valign=bottom>Coal</td>
                  <td width=4% align=right></td>
                  <td width=9% align=center valign=bottom>Independent Power</td>
                  <td width=4% align=right></td>
                  <td width=9% align=center valign=bottom>Corporate</td>
                  <td width=4% align=right></td>
                  <td width=9% align=center valign=bottom>Total</td>
         </tr>
         <tr>
                  <td></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
         </tr>
         <tr>
                  <td align=left></td>
                  <td align=right></td>
                  <td align=center colspan=7>(in thousands)</td>
         </tr>
         <tr>
                  <td align=left>&nbsp;</td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                 <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
         </tr>
         <tr>
                  <td align=left><i>Revenues:</i></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
         </tr>
         <tr>
                  <td align=left>&nbsp;&nbsp;Coal</td>
                  <td align=right>$</td>
                  <td align=right>       74,513 </td>
                  <td align=right> $ </td>
                  <td align=right>                      - </td>
                  <td align=right> $ </td>
                  <td align=right>                 - </td>
                  <td align=right> $ </td>
                  <td align=right>       74,513 </td>
         </tr>
         <tr>
                  <td align=left></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
         </tr>
         <tr>
                  <td align=left>&nbsp;&nbsp;Equity in earnings</td>
                  <td align=right></td>
                  <td align=right valign=bottom> - </td>
                  <td align=right></td>
                  <td align=right valign=bottom>      3,771 </td>
                  <td align=right></td>
                  <td align=right valign=bottom>       -</td>
                  <td align=right></td>
                  <td align=right valign=bottom>         3,771</td>
         </tr>
         <tr>
                  <td></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
         </tr>
         <tr>
                  <td align=left></td>
                  <td align=right></td>
                  <td align=right>       74,513 </td>
                  <td align=right></td>
                  <td align=right>      3,771</td>
                  <td align=right></td>
                  <td align=right> - </td>
                  <td align=right></td>
                  <td align=right>       78,284 </td>
         </tr>
         <tr>
                  <td align=left>&nbsp;</td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
         </tr>
         <tr>
                  <td align=left><i>Costs and expenses:</i></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
         </tr>
         <tr>
                  <td align=left>&nbsp;&nbsp;Cost of sales &#150; coal</td>
                  <td align=right></td>
                  <td align=right>       58,190 </td>
                  <td align=right></td>
                  <td align=right> - </td>
                  <td align=right></td>
                  <td align=right> - </td>
                  <td align=right></td>
                  <td align=right>       58,190 </td>
         </tr>
         <tr>
                  <td align=left>&nbsp;&nbsp;Depreciation, depletion  </td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
         </tr>
         <tr>
                  <td align=left>&nbsp;&nbsp;&nbsp;&nbsp;and amortization</td>
                  <td align=right></td>
                  <td align=right>         2,921 </td>
                  <td align=right></td>
                  <td align=right>            6 </td>
                  <td align=right></td>
                  <td align=right>           29 </td>
                  <td align=right></td>
                  <td align=right>         2,956 </td>
         </tr>
         <tr>
                  <td align=left>&nbsp;&nbsp;Selling and administrative</td>
                  <td align=right></td>
                  <td align=right>         4,533 </td>
                  <td align=right></td>
                  <td align=right>          198 </td>
                  <td align=right></td>
                  <td align=right>       2,381 </td>
                  <td align=right></td>
                  <td align=right>         7,112 </td>
         </tr>
         <tr>
                  <td align=left>&nbsp;&nbsp;Heritage health benefit</td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
         </tr>
         <tr>
                  <td align=left>&nbsp;&nbsp;&nbsp;&nbsp;costs</td>
                  <td align=right></td>
                  <td align=right> - </td>
                  <td align=right></td>
                  <td align=right> - </td>
                  <td align=right></td>
                  <td align=right>       7,517 </td>
                  <td align=right></td>
                  <td align=right>         7,517 </td>
         </tr>
         <tr>
                  <td></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
         </tr>
         <tr>
                  <td align=left>Operating income (loss)<br>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;from continuing operations</td>
                  <td align=right valign=bottom>$</td>
                  <td align=right valign=bottom>       8,869 </td>
                  <td align=right valign=bottom> $</td>
                  <td align=right valign=bottom>      3,567 </td>
                  <td align=right valign=bottom> $ </td>
                  <td align=right valign=bottom>       (9,927)</td>
                  <td align=right valign=bottom> $ </td>
                  <td align=right valign=bottom>         2,509 </td>
         </tr>
         <tr>
                  <td></td>
                  <td><HR NOSHADE size=4></td>
                  <td><HR NOSHADE size=4></td>
                  <td><HR NOSHADE size=4></td>
                  <td><HR NOSHADE size=4></td>
                  <td><HR NOSHADE size=4></td>
                  <td><HR NOSHADE size=4></td>
                  <td><HR NOSHADE size=4></td>
                  <td><HR NOSHADE size=4></td>
         </tr>
         <tr>
                  <td align=left></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
         </tr>
         <tr>
                  <td align=left>Capital expenditures</td>
                  <td align=right>$</td>
                  <td align=right>         2,301 </td>
                  <td align=right> $ </td>
                  <td align=right>            - </td>
                  <td align=right> $ </td>
                  <td align=right>           56   </td>
                   <td align=right> $ </td>
                  <td align=right>         2,357 </td>
         </tr>
         <tr>
                  <td></td>
                  <td><HR NOSHADE size=4></td>
                  <td><HR NOSHADE size=4></td>
                  <td><HR NOSHADE size=4></td>
                  <td><HR NOSHADE size=4></td>
                  <td><HR NOSHADE size=4></td>
                  <td><HR NOSHADE size=4></td>
                  <td><HR NOSHADE size=4></td>
                  <td><HR NOSHADE size=4></td>
         </tr>
         <tr>
                  <td align=left>Property, plant and </td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
         </tr>
         <tr>
                  <td align=left>&nbsp;&nbsp;&nbsp;equipment, net</td>
                  <td align=right>$</td>
                  <td align=right>      143,506 </td>
                  <td align=right> $ </td>
                  <td align=right>          63 </td>
                  <td align=right> $ </td>
                  <td align=right>       1,324 </td>
                  <td align=right> $ </td>
                  <td align=right>      144,893 </td>
         </tr>
         <tr>
                  <td></td>
                  <td><HR NOSHADE size=4></td>
                  <td><HR NOSHADE size=4></td>
                  <td><HR NOSHADE size=4></td>
                  <td><HR NOSHADE size=4></td>
                  <td><HR NOSHADE size=4></td>
                  <td><HR NOSHADE size=4></td>
                  <td><HR NOSHADE size=4></td>
                  <td><HR NOSHADE size=4></td>
         </tr>
</table>

<br>
<p align=center><FONT FACE="Times New Roman, Times, Serif" SIZE=3>F-33</font></p>
<page>
<br>


<H2 ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" size=3><u>Year ended
December 31, 2003</u></FONT></H2>

<table align=center border=0 cellPadding=0 cellSpacing=0 width=650>
         <tr>
                  <td width=48% align=left></td>
                  <td width=4% align=right></td>
                  <td width=9% align=center valign=bottom>Coal</td>
                  <td width=4% align=right></td>
                  <td width=9% align=center valign=bottom>Independent Power</td>
                  <td width=4% align=right></td>
                  <td width=9% align=center valign=bottom>Corporate</td>
                  <td width=4% align=right></td>
                  <td width=9% align=center valign=bottom>Total</td>
         </tr>
         <tr>
                  <td></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
         </tr>
         <tr>
                  <td align=left></td>
                  <td align=right></td>
                  <td align=center colspan=7>(in thousands)</td>
         </tr>
         <tr>
                  <td align=left>&nbsp;</td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                 <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
         </tr>
         <tr>
                  <td align=left><i>Revenues:</i></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
         </tr>
         <tr>
                  <td align=left>Coal</td>
                  <td align=right>$</td>
                  <td align=right>       294,986 </td>
                  <td align=right> $ </td>
                  <td align=right>                      - </td>
                  <td align=right> $ </td>
                  <td align=right>                 - </td>
                  <td align=right> $ </td>
                  <td align=right>       294,986 </td>
         </tr>
         <tr>
                  <td align=left></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
         </tr>
         <tr>
                  <td align=left>Equity in earnings</td>
                  <td align=right></td>
                  <td align=right valign=bottom> - </td>
                  <td align=right></td>
                  <td align=right valign=bottom>      15,824 </td>
                  <td align=right></td>
                  <td align=right valign=bottom>       -</td>
                  <td align=right></td>
                  <td align=right valign=bottom>         15,824</td>
         </tr>
         <tr>
                  <td></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
         </tr>
         <tr>
                  <td align=left></td>
                  <td align=right></td>
                  <td align=right>       294,986 </td>
                  <td align=right></td>
                  <td align=right>      15,824</td>
                  <td align=right></td>
                  <td align=right> - </td>
                  <td align=right></td>
                  <td align=right>       310,810 </td>
         </tr>
         <tr>
                  <td align=left>&nbsp;</td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
         </tr>
         <tr>
                  <td align=left><i>Costs and expenses:</i></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
         </tr>
         <tr>
                  <td align=left>Cost of sales &#150; coal</td>
                  <td align=right></td>
                  <td align=right>       228,433 </td>
                  <td align=right></td>
                  <td align=right> - </td>
                  <td align=right></td>
                  <td align=right> - </td>
                  <td align=right></td>
                  <td align=right>       228,433 </td>
         </tr>
         <tr>
                  <td align=left>Depreciation, depletion  </td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
         </tr>
         <tr>
                  <td align=left>&nbsp;&nbsp;and amortization</td>
                  <td align=right></td>
                  <td align=right>         12,451 </td>
                  <td align=right></td>
                  <td align=right>            22 </td>
                  <td align=right></td>
                  <td align=right>           126 </td>
                  <td align=right></td>
                  <td align=right>         12,599 </td>
         </tr>
         <tr>
                  <td align=left>Selling and administrative</td>
                  <td align=right></td>
                  <td align=right>         23,626 </td>
                  <td align=right></td>
                  <td align=right>          1,013 </td>
                  <td align=right></td>
                  <td align=right>       8,747 </td>
                  <td align=right></td>
                  <td align=right>         33,386 </td>
         </tr>
         <tr>
                  <td align=left>Heritage health benefit</td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
         </tr>
         <tr>
                  <td align=left>&nbsp;&nbsp;costs</td>
                  <td align=right></td>
                  <td align=right> - </td>
                  <td align=right></td>
                  <td align=right> - </td>
                  <td align=right></td>
                  <td align=right>       29,922 </td>
                  <td align=right></td>
                  <td align=right>         29,922 </td>
         </tr>
         <tr>
                  <td align=left>Gain on sales of assets</td>
                  <td align=right></td>
                  <td align=right>         (194) </td>
                  <td align=right></td>
                  <td align=right>          - </td>
                  <td align=right></td>
                  <td align=right>       (451) </td>
                  <td align=right></td>
                  <td align=right>         (645) </td>
         </tr>
         <tr>
                  <td></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
         </tr>
         <tr>
                  <td align=left>Operating income (loss)<br>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;from continuing operations</td>
                  <td align=right valign=bottom>$</td>
                  <td align=right valign=bottom>       30,670 </td>
                  <td align=right valign=bottom> $ </td>
                  <td align=right valign=bottom>      14,789 </td>
                  <td align=right valign=bottom> $ </td>
                  <td align=right valign=bottom>       (38,344)</td>
                  <td align=right valign=bottom> $ </td>
                  <td align=right valign=bottom>         7,115 </td>
         </tr>
         <tr>
                  <td></td>
                  <td><HR NOSHADE size=4></td>
                  <td><HR NOSHADE size=4></td>
                  <td><HR NOSHADE size=4></td>
                  <td><HR NOSHADE size=4></td>
                  <td><HR NOSHADE size=4></td>
                  <td><HR NOSHADE size=4></td>
                  <td><HR NOSHADE size=4></td>
                  <td><HR NOSHADE size=4></td>
         </tr>
         <tr>
                  <td align=left></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
         </tr>
         <tr>
                  <td align=left>Capital expenditures</td>
                  <td align=right>$</td>
                  <td align=right>         13,110 </td>
                  <td align=right> $ </td>
                  <td align=right>            1 </td>
                  <td align=right> $ </td>
                  <td align=right>           129   </td>
                   <td align=right> $ </td>
                  <td align=right>         13,240 </td>
         </tr>
         <tr>
                  <td></td>
                  <td><HR NOSHADE size=4></td>
                  <td><HR NOSHADE size=4></td>
                  <td><HR NOSHADE size=4></td>
                  <td><HR NOSHADE size=4></td>
                  <td><HR NOSHADE size=4></td>
                  <td><HR NOSHADE size=4></td>
                  <td><HR NOSHADE size=4></td>
                  <td><HR NOSHADE size=4></td>
         </tr>
         <tr>
                  <td align=left>Property, plant and </td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
         </tr>
         <tr>
                  <td align=left>&nbsp;&nbsp;&nbsp;equipment (net)</td>
                  <td align=right>$</td>
                  <td align=right>      150,887 </td>
                  <td align=right> $ </td>
                  <td align=right>          48 </td>
                  <td align=right> $ </td>
                  <td align=right>       414 </td>
                  <td align=right> $ </td>
                  <td align=right>      151,349 </td>
         </tr>
         <tr>
                  <td></td>
                  <td><HR NOSHADE size=4></td>
                  <td><HR NOSHADE size=4></td>
                  <td><HR NOSHADE size=4></td>
                  <td><HR NOSHADE size=4></td>
                  <td><HR NOSHADE size=4></td>
                  <td><HR NOSHADE size=4></td>
                  <td><HR NOSHADE size=4></td>
                  <td><HR NOSHADE size=4></td>
         </tr>
</table>


<H2 ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" size=3><u>Year ended December
31, 2002</u></FONT></H2>

<table align=center border=0 cellPadding=0 cellSpacing=0 width=650>
         <tr>
                  <td width=48% align=left></td>
                  <td width=4% align=right></td>
                  <td width=9% align=center valign=bottom>Coal</td>
                  <td width=4% align=right></td>
                  <td width=9% align=center valign=bottom>Independent Power</td>
                  <td width=4% align=right></td>
                  <td width=9% align=center valign=bottom>Corporate</td>
                  <td width=4% align=right></td>
                  <td width=9% align=center valign=bottom>Total</td>
         </tr>
         <tr>
                  <td></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
         </tr>
         <tr>
                  <td align=left></td>
                  <td align=right></td>
                  <td align=center colspan=7>(in thousands)</td>
         </tr>
         <tr>
                  <td align=left>&nbsp;</td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                 <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
         </tr>
         <tr>
                  <td align=left><i>Revenues:</i></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
         </tr>
         <tr>
                  <td align=left>Coal</td>
                  <td align=right>$</td>
                  <td align=right>       301,235 </td>
                  <td align=right> $ </td>
                  <td align=right>                      - </td>
                  <td align=right> $ </td>
                  <td align=right>                 - </td>
                  <td align=right> $ </td>
                  <td align=right>       301,235 </td>
         </tr>
         <tr>
                  <td align=left></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
         </tr>
         <tr>
                  <td align=left>Equity in earnings</td>
                  <td align=right></td>
                  <td align=right valign=bottom> - </td>
                  <td align=right></td>
                  <td align=right valign=bottom>      14,506 </td>
                  <td align=right></td>
                  <td align=right valign=bottom>       -</td>
                  <td align=right></td>
                  <td align=right valign=bottom>         14,506</td>
         </tr>
         <tr>
                  <td></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
         </tr>
         <tr>
                  <td align=left></td>
                  <td align=right></td>
                  <td align=right>       301,235 </td>
                  <td align=right></td>
                  <td align=right>      14,506</td>
                  <td align=right></td>
                  <td align=right> - </td>
                  <td align=right></td>
                  <td align=right>       315,741 </td>
         </tr>
         <tr>
                  <td align=left>&nbsp;</td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
         </tr>
         <tr>
                  <td align=left><i>Costs and expenses:</i></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
         </tr>
         <tr>
                  <td align=left>Cost of sales &#150; coal</td>
                  <td align=right></td>
                  <td align=right>       226,707 </td>
                  <td align=right></td>
                  <td align=right> - </td>
                  <td align=right></td>
                  <td align=right> - </td>
                  <td align=right></td>
                  <td align=right>       226,707 </td>
         </tr>
         <tr>
                  <td align=left>Depreciation, depletion  </td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
         </tr>
         <tr>
                  <td align=left>&nbsp;&nbsp;and amortization</td>
                  <td align=right></td>
                  <td align=right>         11,430 </td>
                  <td align=right></td>
                  <td align=right>            13 </td>
                  <td align=right></td>
                  <td align=right>           96 </td>
                  <td align=right></td>
                  <td align=right>         11,539 </td>
         </tr>
         <tr>

                  <td align=left>Selling and administrative</td>
                  <td align=right></td>
                  <td align=right>         23,058 </td>
                  <td align=right></td>
                  <td align=right>          939 </td>
                  <td align=right></td>
                  <td align=right>       8,251 </td>
                  <td align=right></td>
                  <td align=right>         32,248 </td>
         </tr>
         <tr>
                  <td align=left>Heritage health benefit</td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
         </tr>
         <tr>
                  <td align=left>&nbsp;&nbsp;costs</td>
                  <td align=right></td>
                  <td align=right> - </td>
                  <td align=right></td>
                  <td align=right> - </td>
                  <td align=right></td>
                  <td align=right>       26,921 </td>
                  <td align=right></td>
                  <td align=right>         26,921 </td>
         </tr>
         <tr>
                  <td align=left>Doubtful account recoveries</td>
                  <td align=right></td>
                  <td align=right> (516) </td>
                  <td align=right></td>
                  <td align=right> - </td>
                  <td align=right></td>
                  <td align=right>       - </td>
                  <td align=right></td>
                  <td align=right>         (516) </td>
         </tr>
         <tr>
                  <td align=left>Loss on sales of assets</td>
                  <td align=right></td>
                  <td align=right>         9 </td>
                  <td align=right></td>
                  <td align=right>          - </td>
                  <td align=right></td>
                  <td align=right>       - </td>
                  <td align=right></td>
                  <td align=right>         9 </td>
         </tr>
         <tr>
                  <td></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
         </tr>
         <tr>
                  <td align=left>Operating income (loss)<br>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;from continuing operations</td>
                  <td align=right valign=bottom>$</td>
                  <td align=right valign=bottom>       40,547 </td>
                  <td align=right valign=bottom> $ </td>
                  <td align=right valign=bottom>      13,554 </td>
                  <td align=right valign=bottom> $ </td>
                  <td align=right valign=bottom>       (35,268)</td>
                  <td align=right valign=bottom> $ </td>
                  <td align=right valign=bottom>         18,833 </td>
         </tr>
         <tr>
                  <td></td>
                  <td><HR NOSHADE size=4></td>
                  <td><HR NOSHADE size=4></td>
                  <td><HR NOSHADE size=4></td>
                  <td><HR NOSHADE size=4></td>
                  <td><HR NOSHADE size=4></td>
                  <td><HR NOSHADE size=4></td>
                  <td><HR NOSHADE size=4></td>
                  <td><HR NOSHADE size=4></td>
         </tr>
         <tr>
                  <td align=left></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
         </tr>
         <tr>
                  <td align=left>Capital expenditures</td>
                  <td align=right>$</td>
                  <td align=right>         7,196 </td>
                  <td align=right> $ </td>
                  <td align=right>            45 </td>
                  <td align=right> $ </td>
                  <td align=right>           82   </td>
                   <td align=right> $ </td>
                  <td align=right>         7,323 </td>
         </tr>
         <tr>
                  <td></td>
                  <td><HR NOSHADE size=4></td>
                  <td><HR NOSHADE size=4></td>
                  <td><HR NOSHADE size=4></td>
                  <td><HR NOSHADE size=4></td>
                  <td><HR NOSHADE size=4></td>
                  <td><HR NOSHADE size=4></td>
                  <td><HR NOSHADE size=4></td>
                  <td><HR NOSHADE size=4></td>
         </tr>
         <tr>
                  <td align=left>Property, plant and </td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
         </tr>
         <tr>
                  <td align=left>&nbsp;&nbsp;&nbsp;equipment (net)</td>
                  <td align=right>$</td>
                  <td align=right>      188,154 </td>
                  <td align=right> $ </td>
                  <td align=right>          69 </td>
                  <td align=right> $ </td>
                  <td align=right>       1,309 </td>
                  <td align=right> $ </td>
                  <td align=right>      189,532 </td>
         </tr>
         <tr>
                  <td></td>
                  <td><HR NOSHADE size=4></td>
                  <td><HR NOSHADE size=4></td>
                  <td><HR NOSHADE size=4></td>
                  <td><HR NOSHADE size=4></td>
                  <td><HR NOSHADE size=4></td>
                  <td><HR NOSHADE size=4></td>
                  <td><HR NOSHADE size=4></td>
                  <td><HR NOSHADE size=4></td>
         </tr>
</table>

<br>
<p align=center><FONT FACE="Times New Roman, Times, Serif" SIZE=3>F-34</font></p>
<page>
<br>

<H2 ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" size=3><u>Year ended
December 31, 2001</u></FONT></H2>

<table align=center border=0 cellPadding=0 cellSpacing=0 width=650>
         <tr>
                  <td width=48% align=left></td>
                  <td width=4% align=right></td>
                  <td width=9% align=center valign=bottom>Coal</td>
                  <td width=4% align=right></td>
                  <td width=9% align=center valign=bottom>Independent Power</td>
                  <td width=4% align=right></td>
                  <td width=9% align=center valign=bottom>Corporate</td>
                  <td width=4% align=right></td>
                  <td width=9% align=center valign=bottom>Total</td>
         </tr>
         <tr>
                  <td></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
         </tr>
         <tr>
                  <td align=left></td>
                  <td align=right></td>
                  <td align=center colspan=7>(in thousands)</td>
         </tr>
         <tr>
                  <td align=left>&nbsp;</td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                 <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
         </tr>
         <tr>
                  <td align=left><i>Revenues:</i></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
         </tr>
         <tr>
                  <td align=left>Coal</td>
                  <td align=right>$</td>
                  <td align=right>       231,048 </td>
                  <td align=right> $ </td>
                  <td align=right>                      - </td>
                  <td align=right> $ </td>
                  <td align=right>                 - </td>
                  <td align=right> $ </td>
                  <td align=right>       231,048 </td>
         </tr>
         <tr>
                  <td align=left></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
         </tr>
         <tr>
                  <td align=left>Equity in earnings</td>
                  <td align=right></td>
                  <td align=right valign=bottom> - </td>
                  <td align=right></td>
                  <td align=right valign=bottom>      15,871 </td>
                  <td align=right></td>
                  <td align=right valign=bottom>       -</td>
                  <td align=right></td>
                  <td align=right valign=bottom>         15,871</td>
         </tr>
         <tr>
                  <td></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
         </tr>
         <tr>
                  <td align=left></td>
                  <td align=right></td>
                  <td align=right>       231,048 </td>
                  <td align=right></td>
                  <td align=right>      15,871</td>
                  <td align=right></td>
                  <td align=right> - </td>
                  <td align=right></td>
                  <td align=right>       246,919 </td>
         </tr>
         <tr>
                  <td align=left>&nbsp;</td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
         </tr>
         <tr>
                  <td align=left><i>Costs and expenses:</i></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
         </tr>
         <tr>
                  <td align=left>Cost of sales &#150; coal</td>
                  <td align=right></td>
                  <td align=right>       177,304 </td>
                  <td align=right></td>
                  <td align=right> - </td>
                  <td align=right></td>
                  <td align=right> - </td>
                  <td align=right></td>
                  <td align=right>       177,304 </td>
         </tr>
         <tr>
                  <td align=left>Depreciation, depletion  </td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
         </tr>
         <tr>
                  <td align=left>&nbsp;&nbsp;and amortization</td>
                  <td align=right></td>
                  <td align=right>         9,124 </td>
                  <td align=right></td>
                  <td align=right>            11 </td>
                  <td align=right></td>
                  <td align=right>           30 </td>
                  <td align=right></td>
                  <td align=right>         9,165 </td>
         </tr>
         <tr>
                  <td align=left>Selling and administrative</td>
                  <td align=right></td>
                  <td align=right>         13,184 </td>
                  <td align=right></td>
                  <td align=right>          376 </td>
                  <td align=right></td>
                  <td align=right>       9,511 </td>
                  <td align=right></td>
                  <td align=right>         23,071 </td>
         </tr>
         <tr>
                  <td align=left>Heritage health benefit</td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
         </tr>
         <tr>
                  <td align=left>&nbsp;&nbsp;costs</td>
                  <td align=right></td>
                  <td align=right> - </td>
                  <td align=right></td>
                  <td align=right> - </td>
                  <td align=right></td>
                  <td align=right>       23,773 </td>
                  <td align=right></td>
                  <td align=right>         23,773 </td>
         </tr>
         <tr>
                  <td align=left>Doubtful account recoveries</td>
                  <td align=right></td>
                  <td align=right> (428) </td>
                  <td align=right></td>
                  <td align=right> - </td>
                  <td align=right></td>
                  <td align=right>       (18) </td>
                  <td align=right></td>
                  <td align=right>         (446) </td>
         </tr>
         <tr>
                  <td align=left>Loss on sales of assets</td>
                  <td align=right></td>
                  <td align=right>         - </td>
                  <td align=right></td>
                  <td align=right>          440 </td>
                  <td align=right></td>
                  <td align=right>       - </td>
                  <td align=right></td>
                  <td align=right>         440 </td>
         </tr>
         <tr>
                  <td></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
         </tr>
         <tr>
                  <td align=left>Operating income (loss)<br>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;from continuing operations</td>
                  <td align=right valign=bottom>$</td>
                  <td align=right valign=bottom>       31,864 </td>
                  <td align=right valign=bottom> $ </td>
                  <td align=right valign=bottom>      15,044 </td>
                  <td align=right valign=bottom> $ </td>
                  <td align=right valign=bottom>       (33,296)</td>
                  <td align=right valign=bottom> $ </td>
                  <td align=right valign=bottom>         13,612 </td>
         </tr>
         <tr>
                  <td></td>
                  <td><HR NOSHADE size=4></td>
                  <td><HR NOSHADE size=4></td>
                  <td><HR NOSHADE size=4></td>
                  <td><HR NOSHADE size=4></td>
                  <td><HR NOSHADE size=4></td>
                  <td><HR NOSHADE size=4></td>
                  <td><HR NOSHADE size=4></td>
                  <td><HR NOSHADE size=4></td>
         </tr>
         <tr>
                  <td align=left></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
         </tr>
         <tr>
                  <td align=left>Capital expenditures</td>
                  <td align=right>$</td>
                  <td align=right>         5,388 </td>
                  <td align=right> $ </td>
                  <td align=right>            4 </td>
                  <td align=right> $ </td>
                  <td align=right>           41   </td>
                   <td align=right> $ </td>
                  <td align=right>         5,433 </td>
         </tr>
         <tr>
                  <td></td>
                  <td><HR NOSHADE size=4></td>
                  <td><HR NOSHADE size=4></td>
                  <td><HR NOSHADE size=4></td>
                  <td><HR NOSHADE size=4></td>
                  <td><HR NOSHADE size=4></td>
                  <td><HR NOSHADE size=4></td>
                  <td><HR NOSHADE size=4></td>
                  <td><HR NOSHADE size=4></td>
         </tr>
         <tr>
                  <td align=left>Property, plant and </td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
         </tr>
         <tr>
                  <td align=left>&nbsp;&nbsp;&nbsp;equipment (net)</td>
                  <td align=right>$</td>
                  <td align=right>      195,968 </td>
                  <td align=right> $ </td>
                  <td align=right>          45 </td>
                  <td align=right> $ </td>
                  <td align=right>       1,258 </td>
                  <td align=right> $ </td>
                  <td align=right>      197,271 </td>
         </tr>
         <tr>
                  <td></td>
                  <td><HR NOSHADE size=4></td>
                  <td><HR NOSHADE size=4></td>
                  <td><HR NOSHADE size=4></td>
                  <td><HR NOSHADE size=4></td>
                  <td><HR NOSHADE size=4></td>
                  <td><HR NOSHADE size=4></td>
                  <td><HR NOSHADE size=4></td>
                  <td><HR NOSHADE size=4></td>
         </tr>
</table>


<P><FONT FACE="Times New Roman, Times, Serif" size=3>The Company derives its
coal revenues from a few key customers. The customers from which more than 10%
of total revenue has been derived and the percentage of total revenue is
summarized as follows: </FONT></P>

<table align=center border=0 cellPadding=0 cellSpacing=0 width=550>
        <tr>
                <td width=40% align=left></td>
                <td width=20% align=right>2003</td>
                <td width=20% align=right>2002</td>
                <td width=20% align=right>2001</td>
        </tr>
        <tr>
                <td align=left></td>
                <td align=right><hr noshade> </td>
                <td align=right><hr noshade> </td>
                <td align=right><hr noshade> </td>
        </tr>
        <tr>
                <td align=left>&nbsp;</td>
                <td align=left>&nbsp;</td>
                <td align=center colspan=2>(in thousands)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
        </tr>
        <tr>
                <td align=left>&nbsp;</td>
                <td align=right></td>
                <td align=right></td>
                <td align=right></td>
        </tr>
        <tr>
                <td align=left>Customer A</td>
                <td align=right>$&nbsp;99,688</td>
                <td align=right>$&nbsp;119,658</td>
                <td align=right>$&nbsp;92,626</td>
        </tr>
        <tr>
                <td align=left>Customer B</td>
                <td align=right>70,431</td>
                <td align=right>64,007</td>
                <td align=right>46,104</td>
        </tr>
        <tr>
                <td align=left></td>
                <td align=right><hr noshade> </td>
                <td align=right><hr noshade> </td>
                <td align=right><hr noshade> </td>
        </tr>
        <tr>
                <td align=left>Percentage of total revenue</td>
                <td align=right>55%</td>
                <td align=right>58%</td>
                <td align=right>56%</td>
        </tr>
        <tr>
                <td align=left></td>
                <td align=right><hr noshade> </td>
                <td align=right><hr noshade> </td>
                <td align=right><hr noshade> </td>
        </tr>
</table>

<H2 ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" size=3>14.&nbsp;&nbsp;&nbsp;&nbsp;COMMITMENTS AND CONTINGENCIES</FONT></H2>

<H2 ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" size=3><u>Protection of
the Environment</u></FONT></H2>

<P><FONT FACE="Times New Roman, Times, Serif" size=3>As of December 31, 2003 the
Company has reclamation bonds in place for its active mines in Montana, North
Dakota and Texas and for inactive mining sites in Virginia which are now
awaiting final bond release. These government-required bonds assure that coal
mining operations comply with applicable Federal and State regulations relating
to the performance and completion of final reclamation activities. The Company
estimates that the cost of final reclamation for its mines when they are closed
in the future will total approximately $306.7 million with a present value of
$123.3 million ($125.2 million as of March 31, 2004, unaudited), and that the
Company is financially responsible for reclamation obligations with a present
value of $45.2 million ($48.1 million as of March 31, 2004, unaudited). The
contractual third party reclamation obligations of certain customers and a
contract mine operator are discussed below. The amount of the Company&#146;s
bonds exceeds the amount of its share of estimated final reclamation obligations
as of December 31, 2003 and as of March 31, 2004, unaudited. </FONT></P>

<br>
<p align=center><FONT FACE="Times New Roman, Times, Serif" SIZE=3>F-35</font></p>
<page>
<br>


<P><FONT FACE="Times New Roman, Times, Serif" size=3>At the Rosebud Mine,
certain customers were contractually obligated under a coal supply agreement to
pay the final reclamation costs for a specific area of the mine. They satisfied
that obligation by pre-funding their respective portions of those costs. The
funds are invested in cash equivalents and government-backed interest-bearing
securities. As of December 31, 2003, the value of those funds, classified as
reclamation deposits on the Consolidated Balance Sheets, was $51.1 million. One
customer under the same coal supply agreement elected not to pre-fund its
obligation but in 2003 began to fund a separate reclamation account to satisfy
the contract provisions. The balance in that account was $1.7 million and the
present value of that customer&#146;s obligation was $6.3 million as of December
31, 2003 and is classified as contractual third party reclamation obligations on
the Consolidated Balance Sheets. </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" size=3>Also at the Rosebud Mine,
all of the owners of the Colstrip Station are contractually required to
reimburse the Company for contemporaneous reclamation costs as they are
incurred. As of December 31, 2003, the total amount of such costs outstanding
was $7.3 million, which amount is included in other receivables on the
Consolidated Balance Sheets. </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" size=3>At the Jewett Mine, the
customer is contractually responsible for all post-production reclamation
obligations and has provided a $50.0 million corporate guarantee to the Railroad
Commission of Texas to assure performance of such final reclamation. The present
value of the customer&#146;s obligation was $12.8 million as of December 31,
2003, which is classified as contractual third party reclamation obligations on
the Consolidated Balance Sheets. </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" size=3>At the Absaloka Mine, the
contract miner, Washington Group International (&#147;WGI&#148;), is obligated
to perform the vast majority of all reclamation activities, including all final
backfilling, regrading and seeding. Westmoreland Resources Inc.
(&#147;WRI&#148;) owns the Absaloka Mine, and Westmoreland owns 80% of WRI. WRI
has a maximum financial responsibility for these activities of $1.7 million,
which amount is being pre-funded through annual installment payments of $113,000
through 2005. Once the contract miner has performed its final reclamation
obligations, WRI will be responsible for site maintenance and monitoring until
final bond release. To assure compliance, and as part of a settlement of several
outstanding issues in 2002, the contract miner has established an escrow account
into which 6.5% of every contract mining invoice payment is being deposited. The
balance as of December 31, 2003 was $1.5 million which includes WRI&#146;s 2003
annual installment of $113,000. The present value of the contract miner&#146;s
reclamation obligation was $6.3 million as of December 31, 2003, and is
classified as contractual third party reclamation obligations on the
Consolidated Balance Sheets. </FONT></P>

<H2 ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" size=3><u>Royalty Claims</u></FONT></H2>

<P><FONT FACE="Times New Roman, Times, Serif" size=3>The Company has received
demand letters from the Montana Department of Revenue (&#147;DOR&#148;), as
agent for the Minerals Management Service (&#147;MMS&#148;) of the U.S.
Department of the Interior, asserting underpayment of certain royalties
allegedly due at the Rosebud Mine. The claims relate to the fees the Company
receives to transport coal from the contract delivery point to the customer,
certain &#147;take or pay&#148; payments the Company received when its customers
did not require coal, and adjustments for certain taxes. The total amount of the
claims is approximately $15.5 million, including penalties and interest, which
continues to accrue. The Company continues to receive transportation fees and
expects DOR to assert claims for additional underpayment and to issue more
demand letters until the appeal process is completed. The Company believes that
the DOR/MMS claims are improper and is vigorously contesting them. The appeal
process will take several years. In the event of a negative outcome with DOR and
MMS, the Company believes that certain of the Company&#146;s customers are
contractually obligated to reimburse the Company for any claims paid plus legal
expenses. </FONT></P>

<br>
<p align=center><FONT FACE="Times New Roman, Times, Serif" SIZE=3>F-36</font></p>
<page>
<br>

<H2 ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" size=3><u>UMWA Master
Agreement</u></FONT></H2>

<P><FONT FACE="Times New Roman, Times, Serif" size=3>The Company was subject to
certain financial ratio tests specified in a Contingent Promissory Note (the
&#147;Note&#148;) executed in conjunction with an agreement with the UMWA Health
and Retirement Funds (the &#147;Master Agreement&#148;) and others, which
facilitated the Company&#146;s discharge from Chapter 11 Bankruptcy in 1998. The
Note was originally scheduled to terminate on January 1, 2005. On August 11,
2003, the Company reached an agreement with the above Funds, whereby, in
exchange for a one-time payment of $225,000, the financial ratio tests, the
Note, and a related security agreement were terminated. The Company will
continue to be obligated to meet certain other covenants through the expiration
of the Master Agreement on January 1, 2005. </FONT></P>

<H2 ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" size=3><u>Purchase Price
Adjustment</u></FONT></H2>

<P><FONT FACE="Times New Roman, Times, Serif" size=3>The final purchase price
for the Company&#146;s 2001 acquisition of the coal business of Entech LLC is
subject to a final adjustment. Pursuant to the terms of the Stock Purchase
Agreement, certain adjustments to the purchase price were to be made as of the
date the transaction closed to reflect the net assets of the acquired operations
on the closing date and the net revenues that those operations had earned
between January 1, 2001 and the closing date. In June 2001, Entech submitted
proposed adjustments that would have increased the purchase price by
approximately $9.0 million. In July 2001, the Company objected to Entech&#146;s
adjustments and submitted its own adjustments which would result in a
substantial decrease in the original purchase price. The Stock Purchase
Agreement requires that the parties&#146; disagreements be submitted to an
independent accountant for resolution. The Company also submitted a timely claim
for indemnification by Entech. </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" size=3>Litigation in the New York
courts ensued. On June 18, 2003, Touch America Holdings, Inc. (formerly Montana
Power Company) and Entech LLC (formerly Entech Inc., and together with Touch
America Holdings, Inc., &#147;the Debtors,&#148;) filed bankruptcy petitions in
the United States Bankruptcy Court in Delaware. As a result, the automatic stay
provisions of the Bankruptcy Code prevent any pending action from proceeding or
any new actions from being filed against the Debtors. The Company&#146;s pending
litigation involving the purchase price adjustment is now stayed. The Company
filed appropriate proofs of claim. </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" size=3>The Company is currently
evaluating its options for proceeding, which include (1) seeking relief from the
stay, so that it can continue to pursue its purchase price adjustment claims
through the independent accountant and in an action at law in the New York
courts, and (2) seeking to resolve its claims as part of the bankruptcy
proceeding. </FONT></P>

<H2 ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" size=3><u>Tax Assessments</u></FONT></H2>

<P><FONT FACE="Times New Roman, Times, Serif" size=3>The ROVA project is located
in Halifax County, North Carolina and is the County&#146;s largest taxpayer. In
2002, the County hired an independent consultant to review and audit the
property tax returns for the previous five years. In May 2002, the County
advised the ROVA project that its returns were being scrutinized for potential
underpayment due to undervaluation of property subject to tax. ROVA responded to
the County that its valuation was consistent with a preconstruction agreement
reached with the County in 1996. In late 2002, the ROVA projects received notice
of an assessment of $4.6 million for the years 1997 to 2001. The ROVA Project
filed a protest. Since that date the County has increased the amount of its
claim to $5.3 million, which includes tax years 1996, 2002 and 2003. With
penalty and interest, the total amount claimed due by the County is $8.3
million. The ROVA Project Partnership believes its position is meritorious;
however, it is impossible to predict the outcome. If the assessment is upheld,
in addition to the amounts assessed, the ROVA Project&#146;s future taxes would
increase by approximately $600,000 per year, of which we would be responsible
for half. </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" size=3>Niagara Mohawk Power
Corporation (&#147;NIMO&#148;) was party to power purchase agreements with
independent power producers, including the Rensselaer project, in which the
Company owned an interest. In 1997, the New York Public Service Commission
approved NIMO&#146;s plan to terminate or restructure 29 power purchase
contracts. The Rensselaer project agreed to terminate its Power Purchase and
Supply Agreement after NIMO threatened to seize the project under its power of
eminent domain. NIMO and the Rensselaer project executed a settlement agreement
in 1998. On February 11, 2003, the North Carolina Department of Revenue notified
us that it had disallowed the exclusion of gain from the settlement agreement
between NIMO and the Rensselaer project. The State of North Carolina has
assessed a current tax of $3.5 million, interest of $1.0 million, and a penalty
of $0.9 million. We have filed a protest. The North Carolina Department of
Revenue held a hearing on May 28, 2003. In November 2003, the Company submitted
further documentation to the State to support its position and is awaiting their
response. </FONT></P>

<br>
<p align=center><FONT FACE="Times New Roman, Times, Serif" SIZE=3>F-37</font></p>
<page>
<br>

<H2 ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" size=3><u>Other
Contingencies</u></FONT></H2>

<H2 ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" size=3><u>McGreevey
Litigation</u></FONT></H2>

<P><FONT FACE="Times New Roman, Times, Serif" size=3>In late 2002, the Company
was served with a complaint in a case styled McGreevey et al. v. Montana Power
Company et al. in a Montana State court. Plaintiffs filed their first complaint
on August 16, 2001. This was the Plaintiffs&#146; Fourth Amendment Complaint
which added Westmoreland as a defendant to a shareholder suit against Montana
Power Company, various officers of Montana Power Company, the Board of Directors
of Montana Power Company, financial advisors and lawyers representing Montana
Power Company and the purchasers of some of the businesses formerly owned by
Montana Power Company and Entech, Inc., a subsidiary of Montana Power Company.
The plaintiffs seek to rescind the sale by Montana Power of its generating, oil
and gas, and transmission businesses, and the sale by Entech of its coal
business or to compel the purchasers to hold these businesses in trust for the
shareholders. The Plaintiffs contend that the shareholders were entitled to vote
to approve the sale by Entech to the Company even though they were not
shareholders of Entech. Westmoreland has filed an answer, various affirmative
defenses and a counterclaim against the plaintiffs. </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" size=3>The litigation has been
transferred to the U.S. District Court in Billings, Montana. In December 2003,
Montana Power and Entech sought to enforce the bankruptcy code&#146;s automatic
stay against the McGreevey plaintiffs. The plaintiffs have consented to a stay
of the McGreevey litigation for approximately four months. </FONT></P>

<H2 ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" size=3><u>Combined
Benefit Fund</u></FONT></H2>

<P><FONT FACE="Times New Roman, Times, Serif" size=3>The Company makes monthly
premium payments to the UMWA Combined Benefit Fund (&#147;CBF&#148;), a
multiemployer health plan neither controlled nor administered by the Company.
The previous amount of the monthly premiums was less than $400,000 and is
recalculated each October. In 1996, a Federal Court ordered a decrease in the
premiums charged by the CBF as a result of a finding that the formula being used
by the government to determine reimbursement for health benefits under the Coal
Act had been discontinued and that the actual amounts received by the CBF should
be used instead. In connection with a separate case brought by the CBF, the
Trustees of the CBF obtained notice of a premium increase on June 10, 2003 for
beneficiaries assigned to companies under the Coal Act from the Social Security
Administration (&#147;SSA&#148;). The CBF seeks to impose the increase
retroactively to 1995 and has imposed a retroactive &#147;catch-up&#148; premium
equal to the entire amount alleged to be due for the period from 1995 through
October 2003, payable over the twelve months commencing October 2003. The net
effect of these assessments increased the Company&#146;s monthly payments to the
CBF to $859,000 for the twelve months ending September 2004. The Company has
commenced paying the higher monthly invoices while it vigorously pursues its
legal remedies. As of December 31, 2003, the Company has accrued the remaining
retroactive portion of the CBF premiums totaling $3.5 million. </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" size=3>The Company is a party to
other claims and lawsuits with respect to various matters in the normal course
of business. The ultimate outcome of these matters is not expected to have a
material adverse effect on the Company&#146;s financial condition, results of
operations or liquidity. </FONT></P>

<br>
<p align=center><FONT FACE="Times New Roman, Times, Serif" SIZE=3>F-38</font></p>
<page>
<br>



<H2 ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" size=3><u>Lease
Obligations</u></FONT></H2>

<P><FONT FACE="Times New Roman, Times, Serif" size=3>The Company leases certain
of its coal reserves from third parties and pays royalties based on either a per
ton rate or as a percentage of revenues received. Royalties charged to expense
under all such lease agreements amounted to $24.2 million, $25.5 million and
$21.7 million in 2003, 2002 and 2001, respectively. </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" size=3>The Company has operating
lease commitments expiring at various dates, primarily for real property and
equipment. Rental expense under operating leases during 2003, 2002 and 2001
totaled $2.9 million, $4.3 million and $3.2 million, respectively. Minimum
future rental obligations existing under these leases at December 31, 2003 are
as follows (in thousands): </FONT></P>

<table align=center border=0 cellPadding=0 cellSpacing=0 width=400>
         <tr>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
         </tr>
         <tr>
                  <td width=50% align=center colspan=2><b>Lease Obligations</b></td>
         </tr>
         <tr>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
         </tr>
         <tr>
                  <td align=left>2004</td>
                  <td align=right>$&nbsp;&nbsp;2,753</td>
         </tr>
         <tr>
                  <td align=left>2005</td>
                  <td align=right>1,356</td>
         </tr>
         <tr>
                  <td align=left>2006</td>
                  <td align=right>867</td>
         </tr>
         <tr>

                  <td align=left>2007</td>
                  <td align=right>618</td>
         </tr>
         <tr>
                  <td align=left>2008 and thereafter</td>
                  <td align=right>-</td>
         </tr>
</table>

<H2 ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" size=3><u>Long-Term
Sales Commitments</u></FONT></H2>

<P><FONT FACE="Times New Roman, Times, Serif" size=3>The following table
presents estimated total sales tonnage under existing long-term contracts for
the next five years from the Company&#146;s existing mining operations. The
prices for all future tonnage are subject to revision and adjustments based upon
market prices, certain indices and/or cost recovery. </FONT></P>

<table align=center border=0 cellPadding=0 cellSpacing=0 width=400>
         <tr>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
         </tr>
         <tr>
                  <td align=center colspan=2><b>Projected Sales Tonnage Under</b></td>
         </tr>
         <tr>
                  <td align=center colspan=2><b>Existing Long-Term Contracts</b></td>
         </tr>
         <tr>
                  <td align=center colspan=2><b>(in millions of tons)</b></td>
         </tr>
         <tr>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
         </tr>
         <tr>
                  <td width=50% align=center>2004</td>
                  <td width=50% align=center>29.6</td>
         </tr>
         <tr>
                  <td align=center>2005</td>
                  <td align=center>28.8</td>
         </tr>
         <tr>
                  <td align=center>2006</td>
                  <td align=center>28.3</td>
         </tr>
         <tr>
                  <td align=center>2007</td>
                  <td align=center>27.8</td>
         </tr>
         <tr>
                  <td align=center>2008</td>
                  <td align=center>22.3</td>
         </tr>
</table>

<P><FONT FACE="Times New Roman, Times, Serif" size=3>The tonnages in the table
above represent estimated sales tonnage under existing, signed contracts and
generally exclude pending or anticipated contract renewals or new contracts.
These projections reflect customers&#146; scheduled major plant outages, if
known. </FONT></P>

<H2 ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" size=3>15.&nbsp;&nbsp;&nbsp;&nbsp;RESTRICTED
NET ASSETS OF WESTMORELAND MINING LLC</FONT></H2>

<P><FONT FACE="Times New Roman, Times, Serif" size=3>As discussed in Note 2, WML
was formed for the purpose of facilitating the financing of the acquisitions
completed effective April 30, 2001. The line of credit and existing term notes
entered into by WML for that purpose restrict the cash and other assets
available for distribution or dividend to the parent company or other entities
in the consolidated group. See Note 5 for a more detailed discussion of the
restrictions and the amount of cash that is available for general use. Due to
the recognition of a $55.6 million deferred tax asset in purchase accounting
relating primarily to Westmoreland Coal Company&#146;s net operating loss
carryforwards, WML&#146;s basis in property, plant and equipment is higher than
that recognized in Westmoreland&#146;s consolidated financial statements. </FONT></P>

<br>
<p align=center><FONT FACE="Times New Roman, Times, Serif" SIZE=3>F-39</font></p>
<page>
<br>

<P><FONT FACE="Times New Roman, Times, Serif" size=3>During the years ended
December 31, 2003, 2002 and 2001, WML paid dividends and management fees to
Westmoreland of $14.7 million, $14.9 million and $5.3 million, respectively. </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" size=3>The following are the
condensed consolidated financial statements of WML and its subsidiaries as of
and for the years ended December 31, 2003 and 2002 (in thousands): </FONT></P>

<table align=center border=0 cellPadding=0 cellSpacing=0 width=550>
         <tr>
                  <td  align=center colspan=3><u>Condensed Consolidated Balance Sheets</u></td>
         </tr>
         <tr>
                  <td align=right></td>
                  <td align=center colspan=4>&nbsp;&nbsp;&nbsp;<u>December 31,</u></td>
         </tr>
         <tr>
                  <td width=60% align=left></td>
                  <td width=5% align=right></td>
                  <td width=15% align=center><u>2003</u> </td>
                  <td width=5% align=right></td>
                  <td width=15% align=center><u>2002</u> </td>
         </tr>
         <tr>
                  <td width=60% align=left>Cash and cash equivalents</td>
                  <td width=5% align=right>$</td>
                  <td width=15% align=right>                                    4,053 </td>
                  <td width=5% align=right>$</td>
                  <td width=15% align=right>                                    5,113 </td>
         </tr>
         <tr>
                  <td align=left>Accounts receivable, net</td>
                  <td align=right></td>
                  <td align=right>19,452</td>
                  <td align=right></td>
                  <td align=right>18,090</td>
         </tr>
         <tr>

                  <td align=left>Restricted cash</td>
                  <td align=right></td>
                  <td align=right>17,427</td>
                  <td align=right></td>
                  <td align=right>12,883</td>
         </tr>
         <tr>

                  <td align=left>Deferred overburden removal costs</td>
                  <td align=right></td>
                  <td align=right>12,654</td>
                  <td align=right></td>
                  <td align=right>10,348</td>
         </tr>
         <tr>

                  <td align=left>Other current assets</td>
                  <td align=right></td>
                  <td align=right>17,868</td>
                  <td align=right></td>
                  <td align=right>19,580</td>
         </tr>
         <tr>
                  <td align=left>Property, plant and equipment, net</td>
                  <td align=right></td>
                  <td align=right>168,788</td>
                  <td align=right></td>
                  <td align=right>208,639</td>
         </tr>
         <tr>

                  <td align=left>Deferred tax assets</td>
                  <td align=right></td>
                  <td align=right>-</td>
                  <td align=right></td>
                  <td align=right>1,571</td>
         </tr>
         <tr>
                  <td align=left>Reclamation deposits</td>
                  <td align=right></td>
                  <td align=right>52,786</td>
                  <td align=right></td>
                  <td align=right>49,484</td>
         </tr>
         <tr>
                  <td align=left>Contractual third party reclamation obligations</td>
                  <td align=right></td>
                  <td align=right>19,843</td>
                  <td align=right></td>
                  <td align=right>23,448</td>
         </tr>
         <tr>

                  <td align=left>Other assets</td>
                  <td align=right></td>
                  <td align=right>8,128</td>
                  <td align=right></td>
                  <td align=right>9,800</td>
         </tr>
         <tr>
                  <td></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
         </tr>
         <tr>
                  <td align=left>&nbsp;&nbsp;&nbsp;Total Assets</td>
                  <td align=right>$</td>
                  <td align=right>                             320,999 </td>
                  <td align=right>$</td>
                  <td align=right>                             358,956 </td>
         </tr>
         <tr>
                  <td></td>
                  <td><HR NOSHADE size=4></td>
                  <td><HR NOSHADE size=4></td>
                  <td><HR NOSHADE size=4></td>
                  <td><HR NOSHADE size=4></td>
         </tr>
         <tr>
                  <td align=left>&nbsp;</td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
         </tr>
         <tr>
                  <td align=left>&nbsp;</td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
         </tr>
         <tr>
                  <td align=left>Current portion of long-term debt</td>
                  <td align=right>$</td>
                  <td align=right>                               11,595 </td>
                  <td align=right>$</td>
                  <td align=right>                               8,852 </td>
         </tr>
         <tr>
                  <td align=left>Accounts payable and accrued expenses</td>
                  <td align=right></td>
                  <td align=right>31,187</td>
                  <td align=right></td>
                  <td align=right>30,715</td>
         </tr>
         <tr>

                  <td align=left>Payable to parent</td>
                  <td align=right></td>
                  <td align=right>23,018</td>
                  <td align=right></td>
                  <td align=right>19,164</td>
         </tr>

         <tr>
                  <td align=left>Line of credit</td>
                  <td align=right></td>
                  <td align=right>-</td>
                  <td align=right></td>
                  <td align=right>1,500</td>
         </tr>
         <tr>

                  <td align=left>Long-term debt, less current portion</td>
                  <td align=right></td>
                  <td align=right>81,374</td>
                  <td align=right></td>
                  <td align=right>89,305</td>
         </tr>
         <tr>
                  <td align=left>Deferred tax liabilities</td>
                  <td align=right></td>
                  <td align=right>114</td>
                  <td align=right></td>
                  <td align=right>-</td>
         </tr>
         <tr>
                  <td align=left>Asset retirement obligations</td>
                  <td align=right></td>
                  <td align=right>115,852</td>
                  <td align=right></td>
                  <td align=right>152,967</td>
         </tr>
         <tr>
                  <td align=left>Other liabilities</td>
                  <td align=right></td>
                  <td align=right>11,874</td>
                 <td align=right></td>
                  <td align=right>7,691</td>
         </tr>
         <tr>
                  <td align=left>Member&#146;s equity</td>
                  <td align=right></td>
                  <td align=right>45,985</td>
                  <td align=right></td>
                  <td align=right>48,762</td>
         </tr>
         <tr>
                  <td></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
         </tr>
         <tr>
                  <td align=left>&nbsp;&nbsp;&nbsp;Total Liabilities and Member&#146;s Equity</td>
                  <td align=right>$</td>
                  <td align=right>                             320,999 </td>
                  <td align=right>$</td>
                  <td align=right>                             358,956 </td>
         </tr>
         <tr>
                  <td></td>
                  <td><HR NOSHADE size=4></td>
                  <td><HR NOSHADE size=4></td>
                  <td><HR NOSHADE size=4></td>
                  <td><HR NOSHADE size=4></td>
         </tr>
</table>

<br>
<p align=center><FONT FACE="Times New Roman, Times, Serif" SIZE=3>F-40</font></p>
<page>
<br>

<table align=center border=0 cellPadding=0 cellSpacing=0 width=550>
         <tr>
                  <td  align=center colspan=3><u>Condensed Consolidated Statement of Operations</u></td>
          </tr>
         <tr>
                  <td align=left>&nbsp;</td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
         </tr>
         <tr>
                  <td  align=left></td>
                  <td align=center colspan=4 valign=bottom>&nbsp;&nbsp;&nbsp;Year Ended December 31,</td>
         </tr>
         <tr>
                  <td align=left></td>
                  <td align=right></td>
                  <td align=center>2003</td>
                  <td align=right></td>
                  <td align=center>2002</td>
         </tr>
         <tr>
                  <td align=left>&nbsp;</td>
                  <td align=right><hr noshade></td>
                  <td align=right><hr noshade></td>
                  <td align=right><hr noshade></td>
                  <td align=right><hr noshade></td>
         </tr>
         <tr>
                  <td width=54% align=left>Coal revenues</td>
                  <td width=5% align=right>$</td>
                  <td width=18% align=right>                           245,871 </td>
                  <td width=5% align=right>$</td>
                  <td width=18% align=right>                           256,363 </td>
         </tr>
         <tr>
                  <td align=left>Cost of sales &#150; coal</td>
                  <td align=right></td>
                  <td align=right>                          (186,855)</td>
                  <td align=right></td>
                  <td align=right>                          (189,274)</td>
         </tr>
         <tr>
                  <td align=left>Depreciation and amortization expense</td>
                  <td align=right></td>
                  <td align=right>                              (14,478)</td>
                  <td align=right></td>
                  <td align=right>                              (14,516)</td>
         </tr>
         <tr>
                  <td align=left>Selling and administrative expense</td>
                  <td align=right></td>
                  <td align=right>                            (20,627)</td>
                  <td align=right></td>
                  <td align=right>                            (18,440)</td>
         </tr>
         <tr>
                  <td align=left>Management fees to parent</td>
                  <td align=right></td>
                  <td align=right>                              (2,000)</td>
                  <td align=right></td>
                  <td align=right>                              (2,000)</td>
         </tr>
         <tr>
                  <td></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
         </tr>
         <tr>
                  <td align=left></td>
                  <td align=right></td>
                  <td align=right></td>
         </tr>
         <tr>
                  <td align=left>&nbsp;&nbsp;&nbsp;Operating income</td>
                  <td align=right></td>
                  <td align=right>                             21,911 </td>
                  <td align=right></td>
                  <td align=right>                             32,133 </td>
         </tr>
         <tr>
                  <td align=left>&nbsp;</td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
         </tr>
         <tr>
                  <td align=left>Interest expense</td>
                  <td align=right></td>
                  <td align=right>                              (9,371)</td>
                  <td align=right></td>
                  <td align=right>                              (10,012)</td>
         </tr>
         <tr>
                  <td align=left>Interest and other income</td>
                  <td align=right></td>
                  <td align=right>                               1,995 </td>
                  <td align=right></td>
                  <td align=right>                               2,154 </td>
         </tr>
         <tr>
                  <td></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
         </tr>
         <tr>
                  <td align=left></td>
                  <td align=right></td>
                  <td align=right></td>
         </tr>
         <tr>
                  <td align=left>&nbsp;&nbsp;&nbsp;Income before income taxes and<br>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;cumulative effect of change in<br>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;accounting principle</td>
                  <td align=right></td>
                  <td align=right  valign=bottom>                             14,535 </td>
                  <td align=right></td>
                  <td align=right  valign=bottom>                             24,275 </td>
         </tr>
         <tr>
                  <td align=left>&nbsp;</td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
         </tr>
         <tr>
                  <td align=left>Income tax expense</td>
                  <td align=right></td>
                  <td align=right>                              (5,020)</td>
                  <td align=right></td>
                  <td align=right>                              (9,239)</td>
         </tr>
         <tr>
                  <td></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
         </tr>
         <tr>
                  <td align=left></td>
                  <td align=right></td>
                  <td align=right></td>
         </tr>
         <tr>


                  <td align=left>Net income before cumulative effect of<br>&nbsp;&nbsp;change in accounting principle</td>
                  <td align=right valign=bottom>$</td>
                  <td align=right  valign=bottom>                             9,515 </td>
                  <td align=right valign=bottom>$</td>
                  <td align=right  valign=bottom>                             15,036 </td>
         </tr>
         <tr>
                  <td align=left>Cumulative effect of change in<br>&nbsp;&nbsp;accounting principle</td>
                  <td align=right></td>
                  <td align=right>                             358 </td>
                  <td align=right></td>
                  <td align=right>                             - </td>
         </tr>
         <tr>
                  <td></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
         </tr>
         <tr>
                  <td align=left>Net income</td>
                  <td align=right>$</td>
                  <td align=right>                             9,873 </td>
                  <td align=right>$</td>
                  <td align=right>                             15,036 </td>
         </tr>
         <tr>
                  <td></td>
                  <td><HR NOSHADE size=4></td>
                  <td><HR NOSHADE size=4></td>
                  <td><HR NOSHADE size=4></td>
                  <td><HR NOSHADE size=4></td>
         </tr>
</table>

<br><br>
<table align=center border=0 cellPadding=0 cellSpacing=0 width=650>
         <tr>
                  <td  align=center colspan=5><u>Condensed Consolidated Statements of Cash Flows</u></td>
         </tr>
         <tr>
                  <td align=left>&nbsp;</td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
         </tr>
         <tr>
                  <td align=left></td>
                  <td align=center colspan=4 valign=bottom>&nbsp;&nbsp;&nbsp;Year Ended December 31,</td>
         </tr>
         <tr>
                  <td align=left></td>
                  <td align=right></td>
                  <td align=center>            2003 </td>
                  <td align=right></td>
                  <td align=center>            2002 </td>
         </tr>

         <tr>
                  <td align=left>&nbsp;</td>
                  <td align=right><hr noshade></td>
                  <td align=right><hr noshade></td>
                  <td align=right><hr noshade></td>
                  <td align=right><hr noshade></td>
         </tr>
         <tr>
                  <td width=54% align=left>Net income</td>
                  <td width=5% align=right>$</td>
                  <td width=18% align=right>          9,873 </td>
                  <td width=5% align=right>$</td>
                  <td width=18% align=right>          15,036 </td>
         </tr>
         <tr>
                  <td align=left>Depreciation and amortization expense</td>
                  <td align=right></td>
                  <td align=right>            14,478 </td>
                  <td align=right></td>
                  <td align=right>            14,516 </td>
         </tr>
         <tr>
                  <td align=left>Deferred income tax expense (benefit)</td>
                  <td align=right></td>
                  <td align=right>             1,685</td>
                  <td align=right></td>
                  <td align=right>             (1,169)</td>
         </tr>
         <tr>
                  <td align=left>Cumulative effect of change in accounting principle</td>
                  <td align=right></td>
                  <td align=right>             (358)</td>
                  <td align=right></td>
                  <td align=right>             -</td>
         </tr>
         <tr>
                  <td align=left>Changes in operating assets and liabilities</td>
                  <td align=right></td>
                  <td align=right>        12,233 </td>
                  <td align=right></td>
                  <td align=right>          20,456 </td>
         </tr>
         <tr>
                  <td></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
         </tr>
         <tr>
                  <td align=left>&nbsp;&nbsp;&nbsp;Cash provided by operating activities</td>
                  <td align=right></td>
                  <td align=right>          37,911 </td>
                  <td align=right></td>
                  <td align=right>          48,839 </td>
         </tr>
         <tr>
                  <td align=left>&nbsp;</td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
          </tr>
         <tr>
                  <td align=left>Fixed asset additions</td>
                  <td align=right></td>
                  <td align=right>          (12,760)</td>
                  <td align=right></td>
                  <td align=right>          (7,286)</td>
         </tr>
         <tr>
                  <td align=left>Increase in restricted cash</td>
                  <td align=right></td>
                  <td align=right>          (7,846)</td>
                  <td align=right></td>
                  <td align=right>          (4,512)</td>
         </tr>
         <tr>
                  <td align=left>Proceeds from asset sales</td>
                  <td align=right></td>
                  <td align=right>          973</td>
                  <td align=right></td>
                  <td align=right>          610</td>
         </tr>
         <tr>
                  <td></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
         </tr>

         <tr>
                  <td align=left>&nbsp;&nbsp;&nbsp;Cash used in investing activities</td>
                  <td align=right></td>
                  <td align=right>      (19,633)</td>
                  <td align=right></td>
                  <td align=right>      (11,188)</td>
         </tr>
         <tr>
                  <td align=left>&nbsp;</td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
         </tr>
         <tr>
                  <td align=left>Proceeds from borrowings of long-term debt, net</td>
                  <td align=right></td>
                  <td align=right>        4,590 </td>
                  <td align=right></td>
                  <td align=right>        - </td>
         </tr>
         <tr>

                  <td align=left>Repayment of long-term debt</td>
                  <td align=right></td>
                  <td align=right>        (9,778)</td>
                  <td align=right></td>
                  <td align=right>        (13,753)</td>
         </tr>
         <tr>
                  <td align=left>Borrowings (repayments) under line of credit, net</td>
                  <td align=right></td>
                  <td align=right>            (1,500) </td>
                  <td align=right></td>
                  <td align=right>            (6,500) </td>
         </tr>
         <tr>
                  <td align=left>Dividends to parent</td>
                  <td align=right></td>
                  <td align=right>          (12,650)</td>
                  <td align=right></td>
                  <td align=right>          (12,909)</td>
         </tr>
         <tr>
                  <td></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
         </tr>
         <tr>
                  <td align=left>&nbsp;&nbsp;&nbsp;Cash used in financing activities</td>
                  <td align=right></td>
                  <td align=right>        (19,338) </td>
                  <td align=right></td>
                  <td align=right>        (33,162) </td>
         </tr>
         <tr>
                  <td></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
         </tr>
         <tr>
                  <td align=left></td>
                  <td align=right></td>
                  <td align=right></td>
         </tr>
         <tr>
                  <td align=left>Net increase in cash and cash equivalents</td>
                  <td align=right></td>
                  <td align=right>               (1,060) </td>
                  <td align=right></td>
                  <td align=right>               4,489 </td>
         </tr>
         <tr>

                  <td align=left>Cash and cash equivalents, beginning of year</td>
                  <td align=right></td>
                  <td align=right> 5,113 </td>
                  <td align=right></td>
                  <td align=right> 624 </td>
         </tr>
         <tr>
                  <td></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
         </tr>
         <tr>
                  <td align=left>Cash and cash equivalents, end of year</td>
                  <td align=right>$</td>
                  <td align=right>               4,053 </td>
                  <td align=right>$</td>
                  <td align=right>               5,113 </td>
         </tr>
         <tr>
                  <td></td>
                  <td><HR NOSHADE size=4></td>
                  <td><HR NOSHADE size=4></td>
                  <td><HR NOSHADE size=4></td>
                  <td><HR NOSHADE size=4></td>
         </tr>
</table>

<H2 ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" size=3>16.&nbsp;&nbsp;&nbsp;&nbsp;TRANSACTIONS WITH AFFILIATED COMPANIES</FONT></H2>

<P><FONT FACE="Times New Roman, Times, Serif" size=3>WRI has a coal mining
contract with WGI, its 20% stockholder. Mining costs incurred under the contract
were $20.5 million, $18.0 million and $21.5 million in 2003, 2002 and 2001,
respectively. </FONT></P>

<br>
<p align=center><FONT FACE="Times New Roman, Times, Serif" SIZE=3>F-41</font></p>
<page>
<br>


<H2 ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" size=3>17.&nbsp;&nbsp;&nbsp;&nbsp;QUARTERLY
FINANCIAL DATA (UNAUDITED)</FONT></H2>

<P><FONT FACE="Times New Roman, Times, Serif" size=3>The quarterly data
presented below reflect the reclassification of discontinued operations
identified during the fourth quarter of 2003 and as a result differ from those
previously filed. Summarized quarterly financial data for 2003 and 2002 are as
follows: </FONT></P>

<table align=center border=0 cellPadding=0 cellSpacing=0 width=650>
         <tr>
                  <td  align=left></td>
                  <td align=right></td>
                  <td  align=center colspan=7><b>Three Months Ended</b></td>
         </tr>
         <tr>
                  <td width=38% align=left></td>
                  <td width=5% align=right></td>
                  <td width=12% align=right><b>March 31</b></td>
                  <td width=5% align=right><b></b></td>
                  <td width=10% align=right><b>June 30</b></td>
                  <td width=5% align=right><b></b></td>
                  <td width=10% align=right><b>Sept. 30</b></td>
                  <td width=5% align=right><b></b></td>
                  <td width=10% align=right><b>Dec. 31</b></td>
         </tr>
         <tr>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
         </tr>
         <tr>
                  <td align=left></td>
                  <td align=right></td>
                  <td align=center colspan=7><b>(in thousands except per share data)</b></td>
          </tr>
         <tr>
                  <td align=left><b><u>2003</u></b></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
         </tr>
         <tr>
                  <td align=left>Revenues</td>
                  <td align=right>$</td>
                  <td align=right>      78,284 </td>
                  <td align=right> $ </td>
                  <td align=right>      70,455 </td>
                  <td align=right> $ </td>
                  <td align=right>      83,291 </td>
                  <td align=right> $ </td>
                  <td align=right>      78,780 </td>
         </tr>
         <tr>

                  <td align=left>Costs and expenses</td>
                  <td align=right></td>
                  <td align=right>      75,775 </td>
                  <td align=right></td>
                  <td align=right>      73,585 </td>
                  <td align=right></td>
                  <td align=right>      84,025 </td>
                  <td align=right></td>
                  <td align=right>      70,310 </td>
         </tr>
         <tr>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
         </tr>
                 <tr>
                  <td align=left>Operating income</td>
                  <td align=right></td>
                  <td align=right>      2,509</td>
                  <td align=right></td>
                  <td align=right>      (3,130)</td>
                  <td align=right></td>
                  <td align=right>       (734) </td>
                  <td align=right></td>
                  <td align=right>          8,470 </td>
         </tr>
         <tr>
                  <td align=left>Income (loss) from continuing </td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
         </tr>
         <tr>
                  <td align=left>&nbsp;&nbsp;operations before income taxes</td>
                  <td align=right></td>
                  <td align=right>      605</td>
                  <td align=right></td>
                  <td align=right>      (4,941)</td>
                  <td align=right></td>
                  <td align=right>       (2,948) </td>
                  <td align=right></td>
                  <td align=right>          6,633 </td>
         </tr>
         <tr>
                  <td align=left>Income tax (expense) benefit</td>
                  <td align=right></td>
                  <td align=right>  910    </td>
                  <td align=right></td>
                  <td align=right>   3,459   </td>
                  <td align=right></td>
                  <td align=right>    4,229    </td>
                  <td align=right></td>
                  <td align=right>   2,373        </td>
         </tr>
         <tr>
                  <td align=left>Loss from discontinued operations</td>
                  <td align=right></td>
                  <td align=right valign=bottom>      (184)</td>
                  <td align=right></td>
                  <td align=right valign=bottom>      2,306</td>
                  <td align=right></td>
                  <td align=right valign=bottom>       (9) </td>
                  <td align=right></td>
                  <td align=right valign=bottom>          - </td>
         </tr>

         <tr>
                  <td align=left>Cumulative effect of change in <br>&nbsp;&nbsp;accounting principle</td>
                  <td align=right></td>
                  <td align=right valign=bottom>      161</td>
                  <td align=right></td>
                  <td align=right valign=bottom>      -</td>
                  <td align=right></td>
                  <td align=right valign=bottom>       - </td>
                  <td align=right></td>
                  <td align=right valign=bottom>          - </td>
         </tr>
         <tr>
                  <td align=left>Net income</td>
                  <td align=right></td>
                  <td align=right>      1,492</td>
                  <td align=right></td>
                  <td align=right>         824</td>
                  <td align=right></td>
                  <td align=right>       1,272 </td>
                  <td align=right></td>
                  <td align=right>       9,006 </td>
         </tr>
         <tr>
                  <td align=left>Less preferred stock dividend</td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
         </tr>
         <tr>
                  <td align=left>&nbsp;&nbsp;requirements</td>
                  <td align=right></td>
                  <td align=right>         (440)</td>
                  <td align=right></td>
                  <td align=right>         (440)</td>
                  <td align=right></td>
                  <td align=right>         (436)</td>
                  <td align=right></td>
                  <td align=right>         (436)</td>
         </tr>
         <tr>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
         </tr>
         <tr>
                  <td align=left>Net income applicable to common</td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
         </tr>
         <tr>
                  <td align=left>&nbsp;&nbsp;shareholders</td>
                  <td align=right>$</td>
                  <td align=right>      1,052</td>
                  <td align=right> $ </td>
                  <td align=right>      384</td>
                  <td align=right> $ </td>
                  <td align=right>       836 </td>
                  <td align=right> $ </td>
                  <td align=right>       8,570 </td>
         </tr>
         <tr>
                  <td><HR NOSHADE size=4></td>
                  <td><HR NOSHADE size=4></td>
                  <td><HR NOSHADE size=4></td>
                  <td><HR NOSHADE size=4></td>
                  <td><HR NOSHADE size=4></td>
                  <td><HR NOSHADE size=4></td>
                  <td><HR NOSHADE size=4></td>
                  <td><HR NOSHADE size=4></td>
                  <td><HR NOSHADE size=4></td>
         </tr>
         <tr>
                  <td align=left>Income per share applicable to <br>&nbsp;&nbsp;common shareholders:</td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
         </tr>
         <tr>
                  <td align=left>&nbsp;&nbsp;&nbsp;&nbsp;Basic</td>
                  <td align=right>$</td>
                  <td align=right>        0.14</td>
                  <td align=right> $ </td>
                  <td align=right>        0.05</td>
                  <td align=right> $ </td>
                  <td align=right>         0.11 </td>
                  <td align=right> $ </td>
                  <td align=right>         1.08 </td>
         </tr>
         <tr>
                  <td align=left>&nbsp;&nbsp;&nbsp;&nbsp;Diluted</td>
                  <td align=right>$</td>
                  <td align=right>        0.13</td>
                  <td align=right> $ </td>
                  <td align=right>        0.05</td>
                  <td align=right> $ </td>
                  <td align=right>         0.10 </td>
                  <td align=right> $ </td>
                  <td align=right>         1.02 </td>
         </tr>
         <tr>
                  <td><HR NOSHADE size=4></td>
                  <td><HR NOSHADE size=4></td>
                  <td><HR NOSHADE size=4></td>
                  <td><HR NOSHADE size=4></td>
                  <td><HR NOSHADE size=4></td>
                  <td><HR NOSHADE size=4></td>
                  <td><HR NOSHADE size=4></td>
                  <td><HR NOSHADE size=4></td>
                  <td><HR NOSHADE size=4></td>
         </tr>
         <tr>
                  <td align=left>Weighted average number of<br>&nbsp;&nbsp;common and common equivalent<br>&nbsp;&nbsp;shares outstanding:</td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
         </tr>
         <tr>
                  <td align=left>&nbsp;&nbsp;&nbsp;&nbsp;Basic</td>
                  <td align=right></td>
                  <td align=right>       7,728 </td>
                  <td align=right></td>
                  <td align=right>       7,762 </td>
                  <td align=right></td>
                  <td align=right>       7,805 </td>
                  <td align=right></td>
                  <td align=right>       7,899 </td>
         </tr>
         <tr>
                  <td align=left>&nbsp;&nbsp;&nbsp;&nbsp;Diluted</td>
                  <td align=right></td>
                  <td align=right>       8,223 </td>
                  <td align=right></td>
                  <td align=right>       8,331 </td>
                  <td align=right></td>
                  <td align=right>       8,378 </td>
                  <td align=right></td>
                  <td align=right>       8,426 </td>
         </tr>
         <tr>
                  <td><HR NOSHADE size=4></td>
                  <td><HR NOSHADE size=4></td>
                  <td><HR NOSHADE size=4></td>
                  <td><HR NOSHADE size=4></td>
                  <td><HR NOSHADE size=4></td>
                  <td><HR NOSHADE size=4></td>
                  <td><HR NOSHADE size=4></td>
                  <td><HR NOSHADE size=4></td>
                  <td><HR NOSHADE size=4></td>
         </tr>
</table>
<br>

<table align=center border=0 cellPadding=0 cellSpacing=0 width=650>
         <tr>
                  <td  align=left></td>
                  <td align=right></td>
                  <td  align=center colspan=7><b>Three Months Ended</b></td>
         </tr>
         <tr>
                  <td width=38% align=left></td>
                  <td width=5% align=right></td>
                  <td width=12% align=right><b>March 31</b></td>
                  <td width=5% align=right><b></b></td>
                  <td width=10% align=right><b>June 30</b></td>
                  <td width=5% align=right><b></b></td>
                  <td width=10% align=right><b>Sept. 30</b></td>
                  <td width=5% align=right><b></b></td>
                  <td width=10% align=right><b>Dec. 31</b></td>
         </tr>
         <tr>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
         </tr>
         <tr>
                  <td align=left></td>
                  <td align=right></td>
                  <td align=center colspan=7><b>(in thousands except per share data)</b></td>
          </tr>
         <tr>
                  <td align=left><b><u>2002</u></b></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
         </tr>
         <tr>
                  <td align=left>Revenues</td>
                  <td align=right>$</td>
                  <td align=right>      83,213 </td>
                  <td align=right> $ </td>
                  <td align=right>      83,683 </td>
                  <td align=right> $ </td>
                  <td align=right>      75,280 </td>
                  <td align=right> $ </td>
                  <td align=right>      73,565 </td>
         </tr>
         <tr>
                  <td align=left>Costs and expenses</td>
                  <td align=right></td>
                  <td align=right>      77,367 </td>
                  <td align=right></td>
                  <td align=right>      78,601 </td>
                  <td align=right></td>
                  <td align=right>      70,865 </td>
                  <td align=right></td>
                  <td align=right>      70,075 </td>
         </tr>
         <tr>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
         </tr>
         <tr>
                  <td align=left>Operating income</td>
                  <td align=right></td>
                  <td align=right>      5,846</td>
                  <td align=right></td>
                  <td align=right>         5,082</td>
                  <td align=right></td>
                  <td align=right>      4,415 </td>
                  <td align=right></td>
                  <td align=right>       3,490 </td>
         </tr>
         <tr>
                  <td align=left>Income (loss) from continuing</td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
         </tr>
         <tr>
                  <td align=left>&nbsp;&nbsp;operations before income taxes</td>
                  <td align=right></td>
                  <td align=right>      3,462</td>
                  <td align=right></td>
                  <td align=right>      3,188</td>
                  <td align=right></td>
                  <td align=right>       3,619 </td>
                  <td align=right></td>
                  <td align=right>          1,071 </td>
         </tr>
         <tr>
                  <td align=left>Income tax (expense) benefit</td>
                  <td align=right></td>
                  <td align=right>           (802)</td>
                  <td align=right></td>
                  <td align=right>          (512) </td>
                  <td align=right></td>
                  <td align=right>      1,212</td>
                  <td align=right></td>
                  <td align=right>       2,470 </td>
         </tr>
         <tr>
                  <td align=left>Loss from discontinued operations</td>
                  <td align=right></td>
                  <td align=right>           (329)</td>
                  <td align=right></td>
                  <td align=right>          (376) </td>
                  <td align=right></td>
                  <td align=right>      (2,572)</td>
                  <td align=right></td>
                  <td align=right>       (306) </td>
         </tr>
         <tr>
                  <td align=left>Net income</td>
                  <td align=right></td>
                  <td align=right>      2,331</td>
                  <td align=right></td>
                  <td align=right>         2,300</td>
                  <td align=right></td>
                  <td align=right>       2,259 </td>
                  <td align=right></td>
                  <td align=right>       3,235 </td>
         </tr>
         <tr>
                  <td align=left>Less preferred stock dividend</td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
         </tr>
         <tr>
                  <td align=left>&nbsp;&nbsp;requirements</td>
                  <td align=right></td>
                  <td align=right>         (444)</td>
                  <td align=right></td>
                  <td align=right>         (444)</td>
                  <td align=right></td>
                  <td align=right>         (444)</td>
                  <td align=right></td>
                  <td align=right>         (440)</td>
         </tr>
         <tr>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
                  <td><HR NOSHADE></td>
         </tr>
         <tr>
                  <td align=left>Income applicable to common</td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
         </tr>
         <tr>
                  <td align=left>&nbsp;&nbsp;shareholders</td>
                  <td align=right>$</td>
                  <td align=right>      1,887</td>
                  <td align=right> $ </td>
                  <td align=right>      1,856</td>
                  <td align=right> $ </td>
                  <td align=right>       1,815 </td>
                  <td align=right> $ </td>
                  <td align=right>       2,795 </td>
         </tr>
         <tr>
                  <td><HR NOSHADE size=4></td>
                  <td><HR NOSHADE size=4></td>
                  <td><HR NOSHADE size=4></td>
                  <td><HR NOSHADE size=4></td>
                  <td><HR NOSHADE size=4></td>
                  <td><HR NOSHADE size=4></td>
                  <td><HR NOSHADE size=4></td>
                  <td><HR NOSHADE size=4></td>
                  <td><HR NOSHADE size=4></td>
         </tr>
         <tr>
                  <td align=left>Income per share applicable to<br>&nbsp;&nbsp;common shareholders:</td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
         </tr>
         <tr>
                  <td align=left>&nbsp;&nbsp;&nbsp;&nbsp;Basic</td>
                  <td align=right>$</td>
                  <td align=right>        0.25</td>
                  <td align=right> $ </td>
                  <td align=right>        0.24</td>
                  <td align=right> $ </td>
                  <td align=right>         0.24 </td>
                  <td align=right> $ </td>
                  <td align=right>         0.36 </td>
         </tr>
         <tr>
                  <td align=left>&nbsp;&nbsp;&nbsp;&nbsp;Diluted</td>
                  <td align=right>$</td>
                  <td align=right>        0.23</td>
                  <td align=right> $ </td>
                  <td align=right>        0.23</td>
                  <td align=right> $ </td>
                  <td align=right>         0.22 </td>
                  <td align=right> $ </td>
                  <td align=right>         0.34 </td>
         </tr>
         <tr>
                  <td><HR NOSHADE size=4></td>
                  <td><HR NOSHADE size=4></td>
                  <td><HR NOSHADE size=4></td>
                  <td><HR NOSHADE size=4></td>
                  <td><HR NOSHADE size=4></td>
                  <td><HR NOSHADE size=4></td>
                  <td><HR NOSHADE size=4></td>
                  <td><HR NOSHADE size=4></td>
                  <td><HR NOSHADE size=4></td>
         </tr>
         <tr>
                  <td align=left>Weighted average number of<br>&nbsp;&nbsp;common and common equivalent<br>&nbsp;&nbsp;shares outstanding:</td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
         </tr>
         <tr>
                  <td align=left>&nbsp;&nbsp;&nbsp;&nbsp;Basic</td>
                  <td align=right></td>
                  <td align=right>       7,531 </td>
                  <td align=right></td>
                  <td align=right>       7,584 </td>
                  <td align=right></td>
                  <td align=right>       7,638 </td>
                  <td align=right></td>
                  <td align=right>       7,677 </td>
         </tr>
         <tr>
                  <td align=left>&nbsp;&nbsp;&nbsp;&nbsp;Diluted</td>
                  <td align=right></td>
                  <td align=right>       8,103 </td>
                  <td align=right></td>
                  <td align=right>       8,159 </td>
                  <td align=right></td>
                  <td align=right>       8,146 </td>
                  <td align=right></td>
                  <td align=right>       8,172 </td>
         </tr>
         <tr>
                  <td><HR NOSHADE size=4></td>
                  <td><HR NOSHADE size=4></td>
                  <td><HR NOSHADE size=4></td>
                  <td><HR NOSHADE size=4></td>
                  <td><HR NOSHADE size=4></td>
                  <td><HR NOSHADE size=4></td>
                  <td><HR NOSHADE size=4></td>
                  <td><HR NOSHADE size=4></td>
                  <td><HR NOSHADE size=4></td>
         </tr>
</table>

<br>
<p align=center><FONT FACE="Times New Roman, Times, Serif" SIZE=3>F-42</font></p>
<page>
<br>




<H1 ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" size=3>INDEPENDENT
AUDITORS&#146; REPORT</FONT></H1>

<hr noshade size=3>
<br>

<P><FONT FACE="Times New Roman, Times, Serif" size=3>The Board of Directors and Shareholders<br>
Westmoreland Coal Company:</font></p>

<br>

<P><FONT FACE="Times New Roman, Times, Serif" size=3>Under date of February 20,
2004, except as to Notes 5 and 9 which are as of March 8, 2004, we reported on
the consolidated balance sheets of Westmoreland Coal Company and subsidiaries as
of December 31, 2003 and 2002, and the related statements of operations,
shareholders&#146; equity and comprehensive income, and cash flows for each of
the years in the three-year period ended December 31, 2003, which report appears
in the December 31, 2003, Annual Report on Form 10-K of Westmoreland Coal
Company. In connection with our audits of the aforementioned consolidated
financial statements, we also audited the related financial statement schedule
II. This financial statement schedule is the responsibility of the
Company&#146;s management. Our responsibility is to express an opinion on this
financial statement schedule based on our audits. </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" size=3>In our opinion, such
financial statement schedule, when considered in relation to the basic
consolidated financial statements taken as a whole, presents fairly, in all
material respects, the information set forth therein. </FONT></P>

<br>
<br>

<p align=right><FONT FACE="Times New Roman, Times, Serif" SIZE=3>KPMG LLP&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</font></p>
<br>

<br>


<P><FONT FACE="Times New Roman, Times, Serif" size=3>Denver, Colorado<br>
February 20, 2004
</font></p>


<br>
<p align=center><FONT FACE="Times New Roman, Times, Serif" SIZE=3>F-43</font></p>
<page>
<br>

<P align=right><FONT FACE="Times New Roman, Times, Serif" size=3><b>Schedule II</b></font></p>

<H1 ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" size=3>WESTMORELAND
COAL COMPANY AND SUBSIDIARIES</FONT></H1>

<P align=center><FONT FACE="Times New Roman, Times, Serif" size=3>Valuation Accounts<br>
Years Ended December 31, 2002, 2001 and 2000</font></p>

<hr noshade>
<p align=center><FONT FACE="Times New Roman, Times, Serif" size=3>(in thousands)</font></p>

<table align=center border=0 cellPadding=0 cellSpacing=0 width=650>
         <tr>
                  <td width=37% align=left></td>
                  <td width=5% align=right></td>
                  <td width=13% align=right valign=bottom>Balance at beginning of year</td>
                  <td width=13% align=right valign=bottom>Deductions credited to earnings</td>
                  <td width=12% align=right valign=bottom>Other Additions</td>
                  <td width=4% align=right></td>
                  <td width=13% align=right valign=bottom>Balance at end of year</td>
                  <td width=3% align=right></td>
         </tr>
          <tr>
                  <td><HR NOSHADE size=4></td>
                  <td><HR NOSHADE size=4></td>
                  <td><HR NOSHADE size=4></td>
                  <td><HR NOSHADE size=4></td>
                  <td><HR NOSHADE size=4></td>
                  <td><HR NOSHADE size=4></td>
                  <td><HR NOSHADE size=4></td>
                  <td><HR NOSHADE size=4></td>
         </tr>
         <tr>
                  <td align=left>Year ended December 31, 2003:</td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
         </tr>
         <tr>
                  <td align=left>&nbsp;</td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
         </tr>
         <tr>
                  <td align=left>&nbsp;&nbsp;Allowance for doubtful accounts</td>
                  <td align=right>$</td>
                  <td align=right>                         2,441 </td>
                  <td align=right>           -</td>
                  <td align=right>       - </td>
                  <td align=right>$</td>
                  <td align=right>      2,441 </td>
                  <td align=right>(A)</td>
         </tr>
         <tr>
                  <td><HR NOSHADE size=4></td>
                  <td><HR NOSHADE size=4></td>
                  <td><HR NOSHADE size=4></td>
                  <td><HR NOSHADE size=4></td>
                  <td><HR NOSHADE size=4></td>
                  <td><HR NOSHADE size=4></td>
                  <td><HR NOSHADE size=4></td>
                  <td><HR NOSHADE size=4></td>
         </tr>
         <tr>
                  <td align=left>Year ended December 31, 2002:</td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
         </tr>
         <tr>
                  <td align=left>&nbsp;</td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
         </tr>
         <tr>
                  <td align=left>&nbsp;&nbsp;Allowance for doubtful accounts</td>
                  <td align=right>$</td>
                  <td align=right>                         2,957 </td>
                  <td align=right>           (516)</td>
                  <td align=right>       - </td>
                  <td align=right>$</td>
                  <td align=right>      2,441 </td>
                  <td align=right>(A)</td>
         </tr>
         <tr>
                  <td><HR NOSHADE size=4></td>
                  <td><HR NOSHADE size=4></td>
                  <td><HR NOSHADE size=4></td>
                  <td><HR NOSHADE size=4></td>
                  <td><HR NOSHADE size=4></td>
                  <td><HR NOSHADE size=4></td>
                  <td><HR NOSHADE size=4></td>
                  <td><HR NOSHADE size=4></td>
         </tr>

         <tr>
                  <td align=left>Year ended December 31, 2001:</td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
         </tr>
         <tr>
                  <td align=left>&nbsp;</td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
                  <td align=right></td>
         </tr>
         <tr>
                  <td align=left>&nbsp;&nbsp;Allowance for doubtful accounts</td>
                  <td align=right>$</td>
                  <td align=right>                         3,301 </td>
                  <td align=right>           (446)</td>
                  <td align=right>       102 </td>
                  <td align=right>$</td>
                  <td align=right>      2,957 </td>
                  <td align=right>(A)</td>
         </tr>
         <tr>
                  <td><HR NOSHADE size=4></td>
                  <td><HR NOSHADE size=4></td>
                  <td><HR NOSHADE size=4></td>
                  <td><HR NOSHADE size=4></td>
                  <td><HR NOSHADE size=4></td>
                  <td><HR NOSHADE size=4></td>
                  <td><HR NOSHADE size=4></td>
                  <td><HR NOSHADE size=4></td>
         </tr>
</table>
<br>

<table width=650>
<tr valign=top>
<td width=5%>&nbsp;</td>
<td width=95%>Amounts above include
current and non-current valuation accounts.</td>
</tr>
</table>
<br>
<table width=650>
<tr valign=top>
<td width=10% align=right>(A)</td>
<td width=90%>Includes reserves related to the uncollectibility of notes receivable reported as a reduction of other assets in the
Company's Consolidated Balance Sheets. </td>
</tr>
</table>

<br>
<p align=center><FONT FACE="Times New Roman, Times, Serif" SIZE=3>F-44</font></p>
<page>
<br>

<hr noshade>

<H1 ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" size=3>PART II</FONT></H1>

<H1 ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" size=3>INFORMATION
NOT REQUIRED IN PROSPECTUS</FONT></H1>

<H2 ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" size=3>Item 13. Other
Expenses of Issuance and Distribution.</FONT></H2>

<P><FONT FACE="Times New Roman, Times, Serif" size=3>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The following table sets
forth the various fees and expenses payable in connection with the issuance and
distribution of the securities being registered, all of which we will pay. All
amounts shown are estimates except the Securities and Exchange Commission
registration fee. </FONT></P>

<table align=center width=650 cellpadding=0 cellspacing=0 border=0>
<tr>
<td width=85%><FONT FACE="Times New Roman, Times, Serif" size=3>Registration fee - Securities and Exchange Commission</font></td>
<td width=5%><FONT FACE="Times New Roman, Times, Serif" size=3>$</font></td>
<td width=10% align=right><FONT FACE="Times New Roman, Times, Serif" size=3>4,026</font></td>
</tr>
<tr>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr>
<td><FONT FACE="Times New Roman, Times, Serif" size=3>American Stock Exchange listing fee</font></td>
<td>&nbsp;</td>
<td align=right><FONT FACE="Times New Roman, Times, Serif" size=3>*</font></td>
</tr>
<tr>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr>
<td><FONT FACE="Times New Roman, Times, Serif" size=3>Legal fees and expenses</font></td>
<td>&nbsp;</td>
<td align=right><FONT FACE="Times New Roman, Times, Serif" size=3>*</font></td>
</tr>
<tr>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr>
<td><FONT FACE="Times New Roman, Times, Serif" size=3>Accounting fees and expenses</font></td>
<td>&nbsp;</td>
<td align=right><FONT FACE="Times New Roman, Times, Serif" size=3>*</font></td>
</tr>
<tr>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr>
<td><FONT FACE="Times New Roman, Times, Serif" size=3>Printing fees and expenses</font></td>
<td>&nbsp;</td>
<td align=right><FONT FACE="Times New Roman, Times, Serif" size=3>*</font></td>
</tr>
<tr>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr>
<td><FONT FACE="Times New Roman, Times, Serif" size=3>Subscription Agent fees and expenses</font></td>
<td>&nbsp;</td>
<td align=right><FONT FACE="Times New Roman, Times, Serif" size=3>*</font></td>
</tr>
<tr>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr>
<td><FONT FACE="Times New Roman, Times, Serif" size=3>Miscellaneous expenses</font></td>
<td>&nbsp;</td>
<td align=right><FONT FACE="Times New Roman, Times, Serif" size=3>*</font></td>
</tr>
<tr>
<td>&nbsp;</td>
<td><hr noshade></td>
<td><hr noshade></td>
</tr>
<tr>
<td><FONT FACE="Times New Roman, Times, Serif" size=3>Total Expenses</font></td>
<td><FONT FACE="Times New Roman, Times, Serif" size=3>$</font></td>
<td align=right><FONT FACE="Times New Roman, Times, Serif" size=3>*</font></td>
</tr>
<tr>
<td>&nbsp;</td>
<td><hr noshade size=4></td>
<td><hr noshade size=4></td>
</tr>
<tr>
<td><FONT FACE="Times New Roman, Times, Serif" size=3>* To be completed by amendment</font></td>
<td>&nbsp;</td>
<td align=right><FONT FACE="Times New Roman, Times, Serif" size=3></font></td>
</tr>
</table>


<H2 ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" size=3>Item 14.
Indemnification of Directors and Officers.</FONT></H2>

<P><FONT FACE="Times New Roman, Times, Serif" size=3>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Section 102 of the Delaware
General Corporation Law allows a corporation to eliminate the personal liability
of directors of a corporation to the corporation or its stockholders for
monetary damages for a breach of fiduciary duty as a director, except where the
director breached his duty of loyalty, failed to act in good faith, engaged in
intentional misconduct or knowingly violated a law, authorized the payment of a
dividend or approved a stock repurchase in violation of Delaware corporate law
or obtained an improper personal benefit. Our Restated Certificate of
Incorporation limits the liability of directors to the extent permitted by
Delaware law. </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" size=3>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Section 145 of the Delaware
General Corporation Law provides that a corporation has the power to indemnify a
director, officer, employee or agent of the corporation and certain other
persons serving at the request of the corporation in related capacities against
amounts paid and expenses incurred in connection with an action or proceeding to
which he is or is threatened to be made a party by reason of such position, if
such person shall have acted in good faith and in a manner he reasonably
believed to be in or not opposed to the best interests of the corporation, and,
in any criminal proceeding, if such person had no reasonable cause to believe
his conduct was unlawful; provided that, in the case of actions brought by or in
the right of the corporation, no indemnification shall be made with respect to
any matter as to which such person shall have been adjudged to be liable to the
corporation unless and only to the extent that the adjudicating court determines
that such indemnification is proper under the circumstances. Section 145 also
permits us to purchase and maintain insurance on behalf of any person who is or
was a director, officer, employee or agent of Westmoreland, or is or was serving
at our request as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, against any liability
asserted against such person and incurred by such person in any such capacity,
or arising out of such person&#146;s status as such, whether or not we would
have the power to indemnify such person against such liability. </FONT></P>

<br>
<p align=center><FONT FACE="Times New Roman, Times, Serif" SIZE=3>II-1</font></p>
<page>
<br>

<P><FONT FACE="Times New Roman, Times, Serif" size=3>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our bylaws obligate us to
indemnify any person who was or is a party or is threatened to be made a party
to any threatened, pending or completed action, suit or proceeding, either
civil, criminal, administrative or investigative, by reason of the fact that he
is or was a director, officer or supervisor or manager of Westmoreland or a
constituent corporation absorbed in a consolidation or merger, or while a
director, officer or supervisor or manager of Westmoreland is or was serving at
the request of Westmoreland or a constituent corporation absorbed in a
consolidation or merger, as a director, officer or supervisor or manager of
another corporation, partnership, joint venture, trust or other enterprise,
against expenses (including attorneys&#146; fees), judgments, fines and amounts
paid in settlement actually and reasonably incurred by him in connection with
such action, suit or proceeding, whether or not the indemnified liability arises
or arose from any threatened, pending or completed action by or in the right of
the corporation to the extent that such person is not otherwise indemnified and
to the extent such indemnification is not prohibited by applicable law. Our
bylaws also obligate us to pay any such person&#146;s expenses in advance of the
final disposition of any such proceeding, if such person undertakes to repay any
amount so advanced if it shall ultimately be determined that he is not entitled
to be indemnified by us. </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" size=3>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Under our bylaws, our
obligation to indemnify, including the duty to advance expenses, is a contract
between our company and each person entitled to indemnification, and no
modification of our bylaws may affect, to the detriment of any such person, our
obligations in connection with a claim based on any act or failure to act
occurring before such modification. </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" size=3>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our bylaws also permit us
to purchase and maintain insurance, and we have purchased insurance on behalf of
our directors and officers. </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" size=3>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Under our bylaws, the
rights to indemnification and advance of expenses are not exclusive of any other
right to which an indemnified person may be entitled, and all such rights shall
inure to the benefit of the indemnified person and his or her heirs, executors
and administrators. </FONT></P>

<H2 ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" size=3>Item 15.
Recent Sales of Unregistered Securities.</FONT></H2>

<P><FONT FACE="Times New Roman, Times, Serif" size=3>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In the three years
preceding the filing of this registration statement, we have not sold any
securities that were not registered under the Securities Act. </FONT></P>

<br>
<p align=center><FONT FACE="Times New Roman, Times, Serif" SIZE=3>II-2</font></p>
<page>
<br>

<H2 ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" size=3>Item 16.
Exhibits and Financial Statement Schedules.</FONT></H2>

<p><FONT FACE="Times New Roman, Times, Serif" size=3>(a)&nbsp;&nbsp;&nbsp;<i>Exhibits.</i></font></p>


<table width=650 cellpadding=0 cellspacing=0 border=0>
<tr>
<td width=20% align=center><FONT FACE="Times New Roman, Times, Serif" size=3>EXHIBIT<BR><u>NUMBER</u></font></td>
<td width=80% valign=bottom><FONT FACE="Times New Roman, Times, Serif" size=3><u>DESCRIPTION</u></font></td>
</tr>
<tr>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr>
<td align=center valign=top><FONT FACE="Times New Roman, Times, Serif" size=3>3.1</font></td>
<td valign=top><FONT FACE="Times New Roman, Times, Serif" size=3>Restated Certificate of Incorporation of Westmoreland Coal Company (originally
filed as Exhibit 3(a) to the registrant&#146;s Annual Report on Form 10-K (File
No. 001-11155) for the year ended December 31, 1994, superseded by copy filed
herewith).</font></td>
</tr>
<tr>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr>
<td align=center valign=top><FONT FACE="Times New Roman, Times, Serif" size=3>3.2</font></td>
<td valign=top><FONT FACE="Times New Roman, Times, Serif" size=3>Bylaws, as amended, of Westmoreland Coal Company (filed as Exhibit 3(b) to the
registrant&#146;s Current Report on Form 8-K (File No. 001-11155) filed June 21,
1999 and incorporated herein by reference).</font></td>
</tr>
<tr>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr>
<td align=center valign=top><FONT FACE="Times New Roman, Times, Serif" size=3>4.1</font></td>
<td valign=top><FONT FACE="Times New Roman, Times, Serif" size=3>Specimen certificate representing the Common Stock of Westmoreland Coal Company
(filed as Exhibit 4(c) to the registrant&#146;s Registration Statement on Form
S-2 (Registration No. 33-1950) filed December 4, 1985 and incorporated herein by
reference).</font></td>
</tr>
<tr>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr>
<td align=center valign=top><FONT FACE="Times New Roman, Times, Serif" size=3>4.2</font></td>
<td valign=top><FONT FACE="Times New Roman, Times, Serif" size=3>Indenture between Westmoreland and Fidelity Bank, National Association, as
Trustee relating to the Exchange Debentures (originally filed as Exhibit 4.1 to
the registrant&#146;s Registration Statement on Form S-2 (Registration No.
33-47872) filed May 13, 1992, as subsequently amended, superseded by copy filed
herewith).</font></td>
</tr>
<tr>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr>
<td align=center valign=top><FONT FACE="Times New Roman, Times, Serif" size=3>4.3</font></td>
<td valign=top><FONT FACE="Times New Roman, Times, Serif" size=3>Form of Exchange Debenture (originally filed as Exhibit 4.2 to the
registrant&#146;s Registration Statement on Form S-2 (Registration No. 33-47872)
filed May&#160;13,&#160;1992, as subsequently amended, included as part of the
indenture between Westmoreland and Fidelity Bank, National Association,
superseded by copy filed herewith).</font></td>
</tr>
<tr>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr>
<td align=center valign=top><FONT FACE="Times New Roman, Times, Serif" size=3>4.4</font></td>
<td valign=top><FONT FACE="Times New Roman, Times, Serif" size=3>Deposit Agreement among Westmoreland, First Chicago Trust Company of New York,
as Depository and the holders from time to time of the Depositary Receipts
(originally filed as Exhibit 4.3 to the registrant&#146;s Registration Statement
on Form S-2 (Registration No. 33-47872) filed May 13, 1992, as subsequently
amended, superseded by copy filed herewith).</font></td>
</tr>
<tr>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>

<tr>
<td align=center valign=top><FONT FACE="Times New Roman, Times, Serif" size=3>4.5</font></td>
<td valign=top><FONT FACE="Times New Roman, Times, Serif" size=3>Form of Depositary Receipt (originally filed as Exhibit 4.7 to the
registrant&#146;s Registration Statement on Form S-2 (Registration No. 33-47872)
filed May 13, 1992, as subsequently amended, included as part of the Deposit
Agreement among Westmoreland, First Chicago Trust Company of New York, as
Depository and the holders from time to time of the Depositary Receipts filed
herewith).</font></td>
</tr>
</TABLE>

<br>
<p align=center><FONT FACE="Times New Roman, Times, Serif" SIZE=3>II-3</font></p>
<page>
<br>

<table width=650 cellpadding=0 cellspacing=0 border=0>
<tr>
<td width=20% align=center valign=top><FONT FACE="Times New Roman, Times, Serif" size=3>4.6</font></td>
<td width=80% valign=top><FONT FACE="Times New Roman, Times, Serif" size=3>Specimen certificate representing the Preferred Stock of Westmoreland Coal
Company (filed as Exhibit 4.6 to the registrant&#146;s Registration Statement on
Form S-2 (Registration No. 33-47872) filed May 13, 1992, as subsequently
amended, and incorporated herein by reference).</font></td>
</tr>
<tr>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr>
<td width=20% align=center valign=top><FONT FACE="Times New Roman, Times, Serif" size=3>4.7</font></td>
<td width=80% valign=top><FONT FACE="Times New Roman, Times, Serif" size=3>Amended and Restated Rights Agreement, dated as of February 7, 2003, between
Westmoreland Coal Company and EquiServe Trust Company, N.A. (filed as Exhibit
4.1 to the registrant&#146;s Current Report on Form 8-K (File No. 001-11155)
filed February 7, 2003 and incorporated herein by reference).</font></td>
</tr>
<tr>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>



<tr>
<td width=20% align=center valign=top><FONT FACE="Times New Roman, Times, Serif" size=3>4.8</font></td>
<td width=80% valign=top><FONT FACE="Times New Roman, Times, Serif" size=3>Form of Subscription Rights Certificate (to be filed by amendment).</font></td>
</tr>
<tr>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>

<tr>
<td width=20% align=center valign=top><FONT FACE="Times New Roman, Times, Serif" size=3>5.1</font></td>
<td width=80% valign=top><FONT FACE="Times New Roman, Times, Serif" size=3>Opinion of W. Michael Lepchitz, Esq.</font></td>
</tr>
<tr>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>

<tr>
<td width=20% align=center valign=top><FONT FACE="Times New Roman, Times, Serif" size=3>10.1</font></td>
<td width=80% valign=top><FONT FACE="Times New Roman, Times, Serif" size=3>Westmoreland Coal Company 1985 Incentive Stock Option and Stock Appreciation
Rights Plan (filed as Exhibit 10(c) to the registrant&#146;s Registration
Statement on Form S-2 (Registration No. 33-1950) filed December 4, 1985 and
incorporated herein by reference).</font></td>
</tr>
<tr>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>

<tr>
<td width=20% align=center valign=top><FONT FACE="Times New Roman, Times, Serif" size=3>10.2</font></td>
<td width=80% valign=top><FONT FACE="Times New Roman, Times, Serif" size=3>Executive Severance Policy, established in 1990 for certain executive officers
of Westmoreland Coal Company (the description of the Executive Severance Policy
was originally included in the registrant&#146;s Definitive Proxy Statement
(File No. 001-11155) filed April&#160;20, 2000, superseded by copy filed
herewith).</font></td>
</tr>
<tr>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>

<tr>
<td width=20% align=center valign=top><FONT FACE="Times New Roman, Times, Serif" size=3>10.3</font></td>
<td width=80% valign=top><FONT FACE="Times New Roman, Times, Serif" size=3>Westmoreland Coal Company 1991 Non-Qualified Stock Option Plan for Non-Employee
Directors (filed as Exhibit 10(i) to the registrant&#146;s Annual Report on Form
10-K (File No. 0-752) for the year ended December 31, 1990 and incorporated
herein by reference).</font></td>
</tr>
<tr>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>

<tr>
<td width=20% align=center valign=top><FONT FACE="Times New Roman, Times, Serif" size=3>10.4</font></td>
<td width=80% valign=top><FONT FACE="Times New Roman, Times, Serif" size=3>Supplemental Executive Retirement Plan, effective January 1, 1992, for certain
executive officers and other key individuals, to supplement Westmoreland&#146;s
Retirement Plan (filed as Exhibit 10(d) to the registrant&#146;s Annual Report
on Form 10-K (File No. 001-11155) for the year ended December 31, 2000 and
incorporated herein by reference).</font></td>
</tr>
<tr>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>

<tr>
<td width=20% align=center valign=top><FONT FACE="Times New Roman, Times, Serif" size=3>10.5</font></td>
<td width=80% valign=top><FONT FACE="Times New Roman, Times, Serif" size=3>Amended Coal Lease Agreement between Westmoreland Resources, Inc. and Crow Tribe
of Indians, dated November 26, 1974, as further amended in 1982 (filed as
Exhibit 10(a) to the registrant&#146;s Quarterly Report on Form 10-Q (File No.
0-752) for the quarter ended March 31, 1992 and incorporated herein by
reference).</font></td>
</tr>
<tr>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>

<tr>
<td width=20% align=center valign=top><FONT FACE="Times New Roman, Times, Serif" size=3>10.6</font></td>
<td width=80% valign=top><FONT FACE="Times New Roman, Times, Serif" size=3>Westmoreland Coal Company 1995 Long-Term Incentive Stock Plan (filed as Appendix
3 to the registrant&#146;s Definitive Proxy Statement (File No. 0-752) filed
April 28, 1995 and incorporated herein by reference).</font></td>
</tr>
</table>

<br>
<p align=center><FONT FACE="Times New Roman, Times, Serif" SIZE=3>II-4</font></p>
<page>
<br>


<table width=650 cellpadding=0 cellspacing=0 border=0>
<tr>
<td width=20% align=center valign=top><FONT FACE="Times New Roman, Times, Serif" size=3>10.7</font></td>
<td width=80% valign=top><FONT FACE="Times New Roman, Times, Serif" size=3>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 (filed as Exhibit 99.2 to the registrant&#146;s Current
Report on Form 8-K (File No. 001-11155) filed February 4, 1999 and incorporated
herein by reference).</font></td>
</tr>
<tr>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>

<tr>
<td width=20% align=center valign=top><FONT FACE="Times New Roman, Times, Serif" size=3>10.8</font></td>
<td width=80% valign=top><FONT FACE="Times New Roman, Times, Serif" size=3>Westmoreland Coal Company 1996 Directors&#146; Stock Incentive Plan (filed as
Exhibit 10(i) to the registrant&#146;s Annual Report on Form 10-K (File No.
001-11155) for the year ended December 31, 2000 and incorporated herein by
reference).</font></td>
</tr>
<tr>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>

<tr>
<td width=20% align=center valign=top><FONT FACE="Times New Roman, Times, Serif" size=3>10.9</font></td>
<td width=80% valign=top><FONT FACE="Times New Roman, Times, Serif" size=3>Westmoreland Coal Company 2000 Nonemployee Directors&#146; Stock Incentive Plan
(filed as Exhibit 10(j) to the registrant&#146;s Annual Report on Form 10-K
(File No. 001-11155) for the year ended December 31, 2000 and incorporated
herein by reference).</font></td>
</tr>
<tr>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>

<tr>
<td width=20% align=center valign=top><FONT FACE="Times New Roman, Times, Serif" size=3>10.10</font></td>
<td width=80% valign=top><FONT FACE="Times New Roman, Times, Serif" size=3>Westmoreland Coal Company 2000 Long-Term Incentive Stock Plan (filed as Annex A to
                     the registrant's Definitive Proxy Statement (File No. 001-11155) filed April 20, 2000
                     and incorporated herein by reference).</font></td>
</tr>
<tr>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>

 <tr>
<td width=20% align=center valign=top><FONT FACE="Times New Roman, Times, Serif" size=3>10.11</font></td>
<td width=80% valign=top><FONT FACE="Times New Roman, Times, Serif" size=3>Westmoreland Coal Company 2001 Directors Compensation Policy.</font></td>
</tr>
<tr>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>

<tr>
<td width=20% align=center valign=top><FONT FACE="Times New Roman, Times, Serif" size=3>10.12</font></td>
<td width=80% valign=top><FONT FACE="Times New Roman, Times, Serif" size=3>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 (filed as Exhibit 10.1 to the registrant&#146;s Quarterly Report on Form
10-Q (File No. 001-11155) for the quarter ended June 30, 2001 and incorporated
herein by reference).</font></td>
</tr>
<tr>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>

<tr>
<td width=20% align=center valign=top><FONT FACE="Times New Roman, Times, Serif" size=3>10.13</font></td>
<td width=80% valign=top><FONT FACE="Times New Roman, Times, Serif" size=3>Coal Transportation Agreement dated July 10, 1981, by and among the Montana
Power Company, Puget Sound Power &amp; Light Company, Puget Colstrip
Construction Company, The Washington Water Power Company, Portland General
Electric Company, Pacific Power &amp; Light Company, Basin Electric Power
Cooperative, and Western Energy Company (filed as Exhibit 10.2 to the
registrant&#146;s Quarterly Report on Form 10-Q (File No. 001-11155) for the
quarter ended June 30, 2001 and incorporated herein by reference).</font></td>
</tr>
<tr>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
</table>

<br>
<p align=center><FONT FACE="Times New Roman, Times, Serif" SIZE=3>II-5</font></p>
<page>
<br>

<table width=650 cellpadding=0 cellspacing=0 border=0>
<tr>
<td width=20% align=center valign=top><FONT FACE="Times New Roman, Times, Serif" size=3>10.14</font></td>
<td width=80% valign=top><FONT FACE="Times New Roman, Times, Serif" size=3>Amendment No. 1 to the Coal Transportation Agreement dated September 14, 1987,
by and among The Montana Power Company, Puget Sound Power &amp; Light Company,
Puget Colstrip Construction Company, The Washington Water Power Company,
Portland General Electric Company, Pacific Power &amp; Light Company and Western
Energy Company (filed as Exhibit 10.3 to the registrant&#146;s Quarterly Report
on Form 10-Q (File No. 001-11155) for the quarter ended June 30, 2001 and
incorporated herein by reference).</font></td>
</tr>
<tr>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>

<tr>
<td width=20% align=center valign=top><FONT FACE="Times New Roman, Times, Serif" size=3>10.15</font></td>
<td width=80% valign=top><FONT FACE="Times New Roman, Times, Serif" size=3>Amendment No. 2 to the Coal Transportation Agreement dated August 24, 1998, by
and among The Montana Power Company, Puget Sound Power &amp; Light Company,
Puget Colstrip Construction Company, The Washington Water Power Company,
Portland General Electric Company, Pacific Power &amp; Light Company, Basin
Electric Power Cooperative, and Western Energy Company (filed as Exhibit 10.4 to
the registrant&#146;s Quarterly Report on Form 10-Q (File No. 001-11155) for the
quarter ended June 30, 2001 and incorporated herein by reference).</font></td>
</tr>
<tr>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>

<tr>
<td width=20% align=center valign=top><FONT FACE="Times New Roman, Times, Serif" size=3>10.16</font></td>
<td width=80% valign=top><FONT FACE="Times New Roman, Times, Serif" size=3>Lignite Supply Agreement dated August 29, 1979, between Northwestern Resources Co.
                     and Utility Fuels Inc. (filed as Exhibit 10.5 to the registrant's Quarterly Report on
                     Form 10-Q (File No. 001-11155) for the quarter ended June 30, 2001 and incorporated
                     herein by reference).</font></td>
</tr>
<tr>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>

<tr>
<td width=20% align=center valign=top><FONT FACE="Times New Roman, Times, Serif" size=3>10.17</font></td>
<td width=80% valign=top><FONT FACE="Times New Roman, Times, Serif" size=3>Settlement Agreement and Amendment of Existing Contracts dated August 2, 1999,
                     between Northwestern Resources Co. and Reliant Energy, Incorporated (filed as Exhibit
                     10.6 to the registrant's Quarterly Report on Form 10-Q (File No. 001-11155) for the
                     quarter ended June 30, 2001 and incorporated herein by reference).</font></td>
</tr>
<tr>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>

<tr>
<td width=20% align=center valign=top><FONT FACE="Times New Roman, Times, Serif" size=3>10.18</font></td>
<td width=80% valign=top><FONT FACE="Times New Roman, Times, Serif" size=3>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 (filed as
Exhibit 99.2 to the registrant&#146;s Current Report on Form 8-K (File No.
001-11155) filed May 15, 2001 and incorporated herein by reference).</font></td>
</tr>
<tr>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>

<tr>
<td width=20% align=center valign=top><FONT FACE="Times New Roman, Times, Serif" size=3>10.19</font></td>
<td width=80% valign=top><FONT FACE="Times New Roman, Times, Serif" size=3>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 (filed as Exhibit 99.3 to
the registrant&#146;s Current Report on Form 8-K (File No. 001-11155) filed May
15, 2001 and incorporated herein by reference).</font></td>
</tr>
</table>

<br>
<p align=center><FONT FACE="Times New Roman, Times, Serif" SIZE=3>II-6</font></p>
<page>
<br>

<table width=650 cellpadding=0 cellspacing=0 border=0>
<tr>
<td width=20% align=center valign=top><FONT FACE="Times New Roman, Times, Serif" size=3>10.20</font></td>
<td width=80% valign=top><FONT FACE="Times New Roman, Times, Serif" size=3>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 (filed
as Exhibit 10.7 to the registrant&#146;s Quarterly Report on Form 10-Q (File No.
001-11155) for the quarter ended June 30, 2001 and incorporated herein by
reference).</font></td>
</tr>
<tr>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>

<tr>
<td width=20% align=center valign=top><FONT FACE="Times New Roman, Times, Serif" size=3>10.21</font></td>
<td width=80% valign=top><FONT FACE="Times New Roman, Times, Serif" size=3>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 (filed as
Exhibit 10.8 to the registrant&#146;s Quarterly Report on Form 10-Q (File No.
001-11155) for the quarter ended June 30, 2001 and incorporated herein by
reference).</font></td>
</tr>
<tr>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>

<tr>
<td width=20% align=center valign=top><FONT FACE="Times New Roman, Times, Serif" size=3>10.22</font></td>
<td width=80% valign=top><FONT FACE="Times New Roman, Times, Serif" size=3>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 (filed as Exhibit
10(w) to the registrant&#146;s Annual Report on Form 10-K (File No. 001-11155)
for the year ended December 31, 2001 and incorporated herein by reference). </font></td>
</tr>
<tr>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>

<tr>
<td width=20% align=center valign=top><FONT FACE="Times New Roman, Times, Serif" size=3>10.23</font></td>
<td width=80% valign=top><FONT FACE="Times New Roman, Times, Serif" size=3>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 (filed as
Exhibit 10(x) to the registrant&#146;s Annual Report on Form 10-K (File No.
001-11155) for the year ended December 31, 2001 and incorporated herein by
reference).</font></td>
</tr>
<tr>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>

<tr>
<td width=20% align=center valign=top><FONT FACE="Times New Roman, Times, Serif" size=3>10.24</font></td>
<td width=80% valign=top><FONT FACE="Times New Roman, Times, Serif" size=3>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 (filed as Exhibit 10.1
to the registrant&#146;s Current Report on Form 8-K (File No. 001-11155) filed
March 10, 2004 and incorporated herein by reference).</font></td>
</tr>
<tr>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>

<tr>
<td width=20% align=center valign=top><FONT FACE="Times New Roman, Times, Serif" size=3>10.25</font></td>
<td width=80% valign=top><FONT FACE="Times New Roman, Times, Serif" size=3>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 (filed as Exhibit
10.2 to the registrant&#146;s Current Report on Form 8-K (File No. 001-11155)
filed March 10, 2004 and incorporated herein by reference).</font></td>
</tr>
<tr>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>

<tr>
<td width=20% align=center valign=top><FONT FACE="Times New Roman, Times, Serif" size=3>10.26</font></td>
<td width=80% valign=top><FONT FACE="Times New Roman, Times, Serif" size=3>Loan Agreement dated as of December 14, 2001 between Westmoreland Coal Company,
a Delaware corporation, and First Interstate Bank, a Montana corporation (filed
as Exhibit 10.1 to the registrant&#146;s Current Report on Form 8-K (File No.
001-11155) filed December 19, 2001 and incorporated herein by reference).</font></td>
</tr>
</table>

<br>
<p align=center><FONT FACE="Times New Roman, Times, Serif" SIZE=3>II-7</font></p>
<page>
<br>

<table width=650 cellpadding=0 cellspacing=0 border=0>
<tr>
<td width=20% align=center valign=top><FONT FACE="Times New Roman, Times, Serif" size=3>10.27</font></td>
<td width=80% valign=top><FONT FACE="Times New Roman, Times, Serif" size=3>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 (filed as Exhibit 10.1 to the
registrant&#146;s Current Report on Form 8-K (File No. 001-11155) filed January
28, 2003 and incorporated herein by reference).</font></td>
</tr>
<tr>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>

<tr>
<td width=20% align=center valign=top><FONT FACE="Times New Roman, Times, Serif" size=3>10.28</font></td>
<td width=80% valign=top><FONT FACE="Times New Roman, Times, Serif" size=3>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 (filed as Exhibit 10.2 to the
registrant&#146;s Current Report on Form 8-K (File No. 001-11155) filed January
28, 2003 and incorporated herein by reference).</font></td>
</tr>
<tr>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>

<tr>
<td width=20% align=center valign=top><FONT FACE="Times New Roman, Times, Serif" size=3>10.29</font></td>
<td width=80% valign=top><FONT FACE="Times New Roman, Times, Serif" size=3>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 (filed as Exhibit 10.1 to the
registrant&#146;s Current Report on Form 8-K (File No. 001-11155) filed June 30,
2004 and incorporated herein by reference).</font></td>
</tr>
<tr>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>

<tr>
<td width=20% align=center valign=top><FONT FACE="Times New Roman, Times, Serif" size=3>10.30</font></td>
<td width=80% valign=top><FONT FACE="Times New Roman, Times, Serif" size=3>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 (filed as Exhibit 99.4 to
the registrant&#146;s Current Report on Form 8-K (File No. 001-11155) filed May
15, 2001 and incorporated herein by reference).</font></td>
</tr>
<tr>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>

<tr>
<td width=20% align=center valign=top><FONT FACE="Times New Roman, Times, Serif" size=3>10.31</font></td>
<td width=80% valign=top><FONT FACE="Times New Roman, Times, Serif" size=3>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 (filed as Exhibit 99.5 to the
registrant&#146;s Current Report on Form 8-K (File No. 001-11155) filed May 15,
2001 and incorporated herein by reference).</font></td>
</tr>
<tr>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>

<tr>
<td width=20% align=center valign=top><FONT FACE="Times New Roman, Times, Serif" size=3>10.32</font></td>
<td width=80% valign=top><FONT FACE="Times New Roman, Times, Serif" size=3>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 (filed as Exhibit 99.6 to the registrant&#146;s Current Report on Form
8-K (File No. 001-11155) filed May 15, 2001 and incorporated herein by
reference).</font></td>
</tr>
</table>

<br>
<p align=center><FONT FACE="Times New Roman, Times, Serif" SIZE=3>II-8</font></p>
<page>
<br>

<table width=650 cellpadding=0 cellspacing=0 border=0>
<tr>
<td width=20% align=center valign=top><FONT FACE="Times New Roman, Times, Serif" size=3>10.33</font></td>
<td width=80% valign=top><FONT FACE="Times New Roman, Times, Serif" size=3>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 (filed as Exhibit
99.7 to the registrant&#146;s Current Report on Form 8-K (File No. 001-11155)
filed May 15, 2001 and incorporated herein by reference).</font></td>
</tr>
<tr>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>

<tr>
<td width=20% align=center valign=top><FONT FACE="Times New Roman, Times, Serif" size=3>10.34</font></td>
<td width=80% valign=top><FONT FACE="Times New Roman, Times, Serif" size=3>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 (filed as Exhibit 99.8 to
the registrant&#146;s Current Report on Form 8-K (File No. 001-11155) filed May
15, 2001 and incorporated herein by reference).</font></td>
</tr>
<tr>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>

<tr>
<td width=20% align=center valign=top><FONT FACE="Times New Roman, Times, Serif" size=3>10.35</font></td>
<td width=80% valign=top><FONT FACE="Times New Roman, Times, Serif" size=3>Stock Purchase Agreement dated as of September 15, 2000, by and between
Westmoreland Coal Company and Entech, Inc. (filed as Exhibit 99.1 to the
registrant&#146;s Current Report on Form 8-K (File No. 001-11155) filed February
5, 2001 and incorporated herein by reference).</font></td>
</tr>
<tr>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>

<tr>
<td width=20% align=center valign=top><FONT FACE="Times New Roman, Times, Serif" size=3>10.36</font></td>
<td width=80% valign=top><FONT FACE="Times New Roman, Times, Serif" size=3>Westmoreland Coal Company 2002 Long-Term Incentive Stock Plan (filed as Annex A
to the registrant&#146;s Definitive Proxy Statement (File No. 001-11155) filed
April 23, 2002 and incorporated herein by reference).</font></td>
</tr>
<tr>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>

<tr>
<td width=20% align=center valign=top><FONT FACE="Times New Roman, Times, Serif" size=3>10.37</font></td>
<td width=80% valign=top><FONT FACE="Times New Roman, Times, Serif" size=3>Letter Agreement dated June 18, 2002, between Reliant-HL&amp;P and Northwestern
Resources Co. (filed as Exhibit 10.1 to the registrant&#146;s Quarterly Report
on Form 10-Q (File No. 001-11155) for the quarter ended June 30, 2002 and
incorporated herein by reference).</font></td>
</tr>
<tr>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>

<tr>
<td width=20% align=center valign=top><FONT FACE="Times New Roman, Times, Serif" size=3>10.38</font></td>
<td width=80% valign=top><FONT FACE="Times New Roman, Times, Serif" size=3>Approved Westmoreland Coal Company 2000 Performance Unit Plan, dated May 22,
2003 (filed as Exhibit 10.1 to the registrant&#146;s Quarterly Report on Form
10-Q (File No. 001-11155) for the quarter ended June 30, 2003 and incorporated
herein by reference).</font></td>
</tr>
<tr>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>

<tr>
<td width=20% align=center valign=top><FONT FACE="Times New Roman, Times, Serif" size=3>10.39</font></td>
<td width=80% valign=top><FONT FACE="Times New Roman, Times, Serif" size=3>First Amendment to Westmoreland Coal Company 2000 Non-employee Directors&#146;
Stock Incentive Plan, dated May 22, 2003 (filed as Exhibit 10.2 to the
registrant&#146;s Quarterly Report on Form 10-Q (File No. 001-11155) for the
quarter ended June 30, 2003 and incorporated herein by reference).</font></td>
</tr>
<tr>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>

<tr>
<td width=20% align=center valign=top><FONT FACE="Times New Roman, Times, Serif" size=3>10.40</font></td>
<td width=80% valign=top><FONT FACE="Times New Roman, Times, Serif" size=3>Termination Agreement for Robert J. Jaeger, Chief Financial Officer (filed as
Exhibit 10.3 to the registrant&#146;s Quarterly Report on Form 10-Q (File No.
001-11155) for the quarter ended June 30, 2003 and incorporated herein by
reference).</font></td>
</tr>
</table>

<br>
<p align=center><FONT FACE="Times New Roman, Times, Serif" SIZE=3>II-9</font></p>
<page>
<br>

<table width=650 cellpadding=0 cellspacing=0 border=0>
<tr>
<td width=20% align=center valign=top><FONT FACE="Times New Roman, Times, Serif" size=3>10.41</font></td>
<td width=80% valign=top><FONT FACE="Times New Roman, Times, Serif" size=3>Supplemental Settlement Agreement and Amendment of Existing Contracts Between
Northwestern Resources Company and Texas Genco, L.P. dated January 30, 2004
(filed as Exhibit 10(nn) to the registrant&#146;s Annual Report on Form 10-K
(File No. 001-11155) for the year ended December 31, 2003 and incorporated
herein by reference).</font></td>
</tr>
<tr>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>

<tr>
<td width=20% align=center valign=top><FONT FACE="Times New Roman, Times, Serif" size=3>21.1</font></td>
<td width=80% valign=top><FONT FACE="Times New Roman, Times, Serif" size=3>Subsidiaries of Westmoreland Coal Company.</font></td>
</tr>
<tr>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>

<tr>
<td width=20% align=center valign=top><FONT FACE="Times New Roman, Times, Serif" size=3>23.1</font></td>
<td width=80% valign=top><FONT FACE="Times New Roman, Times, Serif" size=3>Consent of KPMG LLP.</font></td>
</tr>
<tr>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>

<tr>
<td width=20% align=center valign=top><FONT FACE="Times New Roman, Times, Serif" size=3>23.2</font></td>
<td width=80% valign=top><FONT FACE="Times New Roman, Times, Serif" size=3>Consent of W. Michael Lepchitz (included in Exhibit 5.1 filed herewith).</font></td>
</tr>
<tr>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>

<tr>
<td width=20% align=center valign=top><FONT FACE="Times New Roman, Times, Serif" size=3>23.3</font></td>
<td width=80% valign=top><FONT FACE="Times New Roman, Times, Serif" size=3>Consent of IntraSearch Inc.</font></td>
</tr>
<tr>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>

<tr>
<td width=20% align=center valign=top><FONT FACE="Times New Roman, Times, Serif" size=3>24.1</font></td>
<td width=80% valign=top><FONT FACE="Times New Roman, Times, Serif" size=3>Power of Attorney (included on the signature pages of this Registration Statement).</font></td>
</tr>
<tr>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>

<tr>
<td width=20% align=center valign=top><FONT FACE="Times New Roman, Times, Serif" size=3>99.1</font></td>
<td width=80% valign=top><FONT FACE="Times New Roman, Times, Serif" size=3>Form of Instructions for Use of Westmoreland Coal Company Subscription Rights
                     Certificates (to be filed by amendment).</font></td>
</tr>
<tr>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>

<tr>
<td width=20% align=center valign=top><FONT FACE="Times New Roman, Times, Serif" size=3>99.2</font></td>
<td width=80% valign=top><FONT FACE="Times New Roman, Times, Serif" size=3>Form of Notice of Guaranteed Delivery for Subscription Rights Certificates (to be
                     filed by amendment).</font></td>
</tr>
<tr>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>

<tr>
<td width=20% align=center valign=top><FONT FACE="Times New Roman, Times, Serif" size=3>99.3</font></td>
<td width=80% valign=top><FONT FACE="Times New Roman, Times, Serif" size=3>Form of Letter from Westmoreland Coal Company to Stockholders who are Record Holders
                     (to be filed by amendment).</font></td>
</tr>
<tr>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>

<tr>
<td width=20% align=center valign=top><FONT FACE="Times New Roman, Times, Serif" size=3>99.4</font></td>
<td width=80% valign=top><FONT FACE="Times New Roman, Times, Serif" size=3>Form of Letter from Westmoreland Coal Company to Securities Dealers, Commercial
                     Banks, Trust Companies and other Nominees (to be filed by amendment).</font></td>
</tr>
<tr>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>

<tr>
<td width=20% align=center valign=top><FONT FACE="Times New Roman, Times, Serif" size=3>99.5</font></td>
<td width=80% valign=top><FONT FACE="Times New Roman, Times, Serif" size=3>Form of Letter from Nominees to Stockholders who are Beneficial Owners (to be filed
                     by amendment).</font></td>
</tr>
<tr>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>

<tr>
<td width=20% align=center valign=top><FONT FACE="Times New Roman, Times, Serif" size=3>99.6</font></td>
<td width=80% valign=top><FONT FACE="Times New Roman, Times, Serif" size=3>Form of Nominee Holder Certification (to be filed by amendment).</font></td>
</tr>
<tr>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>

 <tr>
<td width=20% align=center valign=top><FONT FACE="Times New Roman, Times, Serif" size=3>99.7</font></td>
<td width=80% valign=top><FONT FACE="Times New Roman, Times, Serif" size=3>Form of Beneficial Owner Election Form (to be filed by amendment).</font></td>
</tr>
</table>



<p><FONT FACE="Times New Roman, Times, Serif" size=3>(b)&nbsp;&nbsp;&nbsp;<i>Financial Statement Schedules.</i></font></p>

<p><FONT FACE="Times New Roman, Times, Serif" size=3>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Schedule II - Valuation and Qualifying Accounts.</font></p>

<P><FONT FACE="Times New Roman, Times, Serif" size=3>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;All other schedules for
which provision is made in the applicable accounting regulation of the
Securities and Exchange Commission are not required under the related
instructions or are inapplicable, and therefore have been omitted. </FONT></P>

<br>
<p align=center><FONT FACE="Times New Roman, Times, Serif" SIZE=3>II-10</font></p>
<page>
<br>

<H2 ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" size=3>Item 17.
Undertakings.</FONT></H2>

<P><FONT FACE="Times New Roman, Times, Serif" size=3>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Insofar as indemnification
for liabilities arising under the Securities Act may be permitted to directors,
officers and controlling persons of the registrant pursuant to the
indemnification provisions described herein, or otherwise, the registrant has
been advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Securities Act and
is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer or controlling person of the registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue. </FONT></P>

<p><FONT FACE="Times New Roman, Times, Serif" size=3>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The undersigned registrant hereby undertakes that:</font></p>

<p><FONT FACE="Times New Roman, Times, Serif" size=3>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(1) For the purpose of determining any liability under the Securities Act of 1933, the information omitted from the form of
prospectus filed as part of this registration statement in reliance upon Rule 430A and contained in a form of prospectus filed by the
registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be part of this registration
statement as of the time it was declared effective.</font></p>

<p><FONT FACE="Times New Roman, Times, Serif" size=3>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(2) For the purpose of determining any liability under the Securities Act of 1933, each post-effective amendment that
contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.</font></p>

<br>
<p align=center><FONT FACE="Times New Roman, Times, Serif" SIZE=3>II-11</font></p>
<page>
<br>


<H1 ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" size=3>SIGNATURES</FONT></H1>

<P><FONT FACE="Times New Roman, Times, Serif" size=3>Pursuant to the
requirements of the Securities Act of 1933, as amended, the registrant certifies
that it has duly caused this registration statement to be signed on its behalf
by the undersigned, thereunto duly authorized, in the city of Colorado Springs,
State of Colorado, on July 28, 2004. </FONT></P>

<TABLE align=center border=0 cellPadding=0 cellSpacing=0 width=650>
  <TR>
    <TD></TD>
    <TD colspan=2>WESTMORELAND COAL COMPANY</TD></TR>
  <TR>
    <TD width=45%>&nbsp;</TD>
    <TD width=5%>&nbsp;</TD>
    <TD width=50%>&nbsp;</TD></TR>
  <TR>
    <TD width=45%>&nbsp;</TD>
    <TD width=5%>&nbsp;</TD>
    <TD width=50%>&nbsp;</TD></TR>
  <TR>
    <TD>&nbsp;</TD>
    <TD>By:</TD>
    <TD><U>/s/ Christopher K. Seglem</U></TD></TR>
  <TR>
    <TD></TD>
    <TD></TD>
    <TD>Christopher K. Seglem</TD></TR>
  <TR>
    <TD></TD>
    <TD></TD>
    <TD>Chairman of the Board, President, and Chief Executive Officer</TD></TR>
</table>


<H1 ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" size=3>SIGNATURES
AND POWER OF ATTORNEY</FONT></H1>

<P><FONT FACE="Times New Roman, Times, Serif" size=3>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We, the undersigned
officers and directors of Westmoreland Coal Company, hereby severally constitute
and appoint W. Michael Lepchitz, Ronald H. Beck and Thomas S. Barta, and each of
them singly, our true and lawful attorneys with full power to them, and to each
of them singly, to sign for us and in our names in the capacities indicated
below the Registration Statement on Form S-1 filed herewith and any and all
pre-effective and post-effective amendments to said Registration Statement and
generally to do all such things in our name and behalf in our capacities as
officers and directors to enable Westmoreland Coal Company to comply with the
provisions of the Securities Act of 1933, as amended, and all requirements of
the Securities and Exchange Commission, hereby ratifying and confirming our
signatures as they may be signed by our said attorneys, or any of them, to said
Registration Statement and any and all amendments thereto. </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" size=3>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Pursuant to the
requirements of the Securities Act of 1933, as amended, this Registration
Statement has been signed by the following persons in the capacities and on the
dates indicated. </FONT></P>

<TABLE align=center border=0 cellPadding=0 cellSpacing=0 width=650>
  <TR>
    <TD width=40% align=center><b><u>
      Signature</u></B>
    </TD>
    <TD width=40% align=center><b><u>Title</u></B>
    </TD>
    <TD width=20% align=center><b><u>Date</u></B>
    </TD></TR>
  <TR>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD></TR>
  <TR>
    <TD valign=top><FONT FACE="Times New Roman, Times, Serif" size=3><u>/s/ Christopher K.
      Seglem</u><BR>Christopher K. Seglem</font></TD>
    <TD valign=top><FONT FACE="Times New Roman, Times, Serif" size=3>Chairman of the Board of Directors,<BR>President, and Chief Executive Officer<BR>(Principal executive
                                          officer)</font></TD>
    <TD align=center valign=top><FONT FACE="Times New Roman, Times, Serif" size=3>July 28, 2004</font></TD></TR>
  <TR>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD></TR>
  <TR>
    <TD valign=top><FONT FACE="Times New Roman, Times, Serif" size=3><u>/s/ Ronald H. Beck</u><BR>Ronald H. Beck</font></TD>
    <TD valign=top><FONT FACE="Times New Roman, Times, Serif" size=3>Vice President of Finance and Treasurer<BR>(Principal
                            financial officer)</font></TD>
    <TD align=center valign=top><FONT FACE="Times New Roman, Times, Serif" size=3>July 28, 2004</font></TD></TR>

  <TR>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD></TR>
  <TR>
    <TD valign=top><FONT FACE="Times New Roman, Times, Serif" size=3><u>/s/ Thomas S. Barta</u><BR>Thomas S. Barta</font></TD>
    <TD valign=top><FONT FACE="Times New Roman, Times, Serif" size=3>Controller<BR>(Principal accounting officer)</font></TD>
    <TD align=center valign=top><FONT FACE="Times New Roman, Times, Serif" size=3>July 28, 2004</font></TD></TR>
</table>

<br>
<p align=center><FONT FACE="Times New Roman, Times, Serif" SIZE=3>II-12</font></p>
<page>
<br>


<TABLE align=center border=0 cellPadding=0 cellSpacing=0 width=650>
  <TR>
    <TD width=40% valign=top><FONT FACE="Times New Roman, Times, Serif" size=3><u>/s/ Michael Armstrong</u><BR>Michael Armstrong</font></TD>
    <TD width=40% valign=top><FONT FACE="Times New Roman, Times, Serif" size=3>Director</font></TD>
    <TD width=20% align=center valign=top><FONT FACE="Times New Roman, Times, Serif" size=3>July 28, 2004</font></TD></TR>

  <TR>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD></TR>
  <TR>
    <TD valign=top><FONT FACE="Times New Roman, Times, Serif" size=3><u>/s/ Thomas J. Coffey</u><BR>Thomas J. Coffey</font></TD>
    <TD valign=top><FONT FACE="Times New Roman, Times, Serif" size=3>Director</font></TD>
    <TD align=center valign=top><FONT FACE="Times New Roman, Times, Serif" size=3>July 28, 2004</font></TD></TR>

  <TR>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD></TR>
  <TR>
    <TD valign=top><FONT FACE="Times New Roman, Times, Serif" size=3><u>/s/ Pemberton Hutchinson</u><BR>Pemberton Hutchinson</font></TD>
    <TD valign=top><FONT FACE="Times New Roman, Times, Serif" size=3>Director</font></TD>
    <TD align=center valign=top><FONT FACE="Times New Roman, Times, Serif" size=3>July 28, 2004</font></TD></TR>

  <TR>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD></TR>
  <TR>
    <TD valign=top><FONT FACE="Times New Roman, Times, Serif" size=3><u>/s/ Robert E. Killen</u><BR>Robert E. Killen</font></TD>
    <TD valign=top><FONT FACE="Times New Roman, Times, Serif" size=3>Director</font></TD>
    <TD align=center valign=top><FONT FACE="Times New Roman, Times, Serif" size=3>July 28, 2004</font></TD></TR>

  <TR>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD></TR>
  <TR>
    <TD valign=top><FONT FACE="Times New Roman, Times, Serif" size=3><u>/s/ Thomas W. Ostrander</u><BR>Thomas W. Ostrander</font></TD>
    <TD valign=top><FONT FACE="Times New Roman, Times, Serif" size=3>Director</font></TD>
    <TD align=center valign=top><FONT FACE="Times New Roman, Times, Serif" size=3>July 28, 2004</font></TD></TR>

  <TR>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD></TR>
  <TR>
    <TD valign=top><FONT FACE="Times New Roman, Times, Serif" size=3><u>/s/ James W. Sight</u><BR>James W. Sight</font></TD>
    <TD valign=top><FONT FACE="Times New Roman, Times, Serif" size=3>Director</font></TD>
    <TD align=center valign=top><FONT FACE="Times New Roman, Times, Serif" size=3>July 28, 2004</font></TD></TR>

  <TR>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD></TR>
  <TR>
    <TD valign=top><FONT FACE="Times New Roman, Times, Serif" size=3><u>/s/ William M. Stern</u><BR>William M. Stern</font></TD>
    <TD valign=top><FONT FACE="Times New Roman, Times, Serif" size=3>Director</font></TD>
    <TD align=center valign=top><FONT FACE="Times New Roman, Times, Serif" size=3>July 28, 2004</font></TD></TR>

  <TR>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD></TR>
  <TR>
    <TD valign=top><FONT FACE="Times New Roman, Times, Serif" size=3><u>/s/ Donald A. Tortorice</u><BR>Donald A. Tortorice</font></TD>
    <TD valign=top><FONT FACE="Times New Roman, Times, Serif" size=3>Director</font></TD>
    <TD align=center valign=top><FONT FACE="Times New Roman, Times, Serif" size=3>July 28, 2004</font></TD></TR>
</table>

<br>
<p align=center><FONT FACE="Times New Roman, Times, Serif" SIZE=3>II-13</font></p>
<page>
<br>


<H1 ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" size=3>EXHIBIT INDEX</FONT></H1>

<table width=650 cellpadding=0 cellspacing=0 border=0>
<tr>
<td width=20% align=center><FONT FACE="Times New Roman, Times, Serif" size=3>EXHIBIT<BR><u>NUMBER</u></font></td>
<td width=80% valign=bottom><FONT FACE="Times New Roman, Times, Serif" size=3><u>DESCRIPTION</u></font></td>
</tr>
<tr>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr>
<td align=center valign=top><FONT FACE="Times New Roman, Times, Serif" size=3>3.1</font></td>
<td valign=top><FONT FACE="Times New Roman, Times, Serif" size=3>Restated Certificate of Incorporation of Westmoreland Coal Company (originally
filed as Exhibit 3(a) to the registrant&#146;s Annual Report on Form 10-K (File
No. 001-11155) for the year ended December 31, 1994, superseded by copy filed
herewith).</font></td>
</tr>
<tr>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>

<tr>
<td align=center valign=top><FONT FACE="Times New Roman, Times, Serif" size=3>3.2</font></td>
<td valign=top><FONT FACE="Times New Roman, Times, Serif" size=3>Bylaws, as amended, of Westmoreland Coal Company (filed as Exhibit 3(b) to the
registrant&#146;s Current Report on Form 8-K (File No. 001-11155) filed June 21,
1999 and incorporated herein by reference).</font></td>
</tr>
<tr>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>

<tr>
<td align=center valign=top><FONT FACE="Times New Roman, Times, Serif" size=3>4.1</font></td>
<td valign=top><FONT FACE="Times New Roman, Times, Serif" size=3>Specimen certificate representing the Common Stock of Westmoreland Coal Company
(filed as Exhibit 4(c) to the registrant&#146;s Registration Statement on Form
S-2 (Registration No. 33-1950) filed December 4, 1985 and incorporated herein by
reference).</font></td>
</tr>
<tr>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>


<tr>
<td align=center valign=top><FONT FACE="Times New Roman, Times, Serif" size=3>4.2</font></td>
<td valign=top><FONT FACE="Times New Roman, Times, Serif" size=3>Indenture between Westmoreland and Fidelity Bank, National Association, as
Trustee relating to the Exchange Debentures (originally filed as Exhibit 4.1 to
the registrant&#146;s Registration Statement on Form S-2 (Registration No.
33-47872) filed May 13, 1992, as subsequently amended, superseded by copy filed
herewith).</font></td>
</tr>
<tr>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>

<tr>
<td align=center valign=top><FONT FACE="Times New Roman, Times, Serif" size=3>4.3</font></td>
<td valign=top><FONT FACE="Times New Roman, Times, Serif" size=3>Form of Exchange Debenture (originally filed as Exhibit 4.2 to the
registrant&#146;s Registration Statement on Form S-2 (Registration No. 33-47872)
filed May&#160;13,&#160;1992, as subsequently amended, included as part of the
indenture between Westmoreland and Fidelity Bank, National Association,
superseded by copy filed herewith).</font></td>
</tr>
<tr>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>

<tr>
<td align=center valign=top><FONT FACE="Times New Roman, Times, Serif" size=3>4.4</font></td>
<td valign=top><FONT FACE="Times New Roman, Times, Serif" size=3>Deposit Agreement among Westmoreland, First Chicago Trust Company of New York,
as Depository and the holders from time to time of the Depositary Receipts
(originally filed as Exhibit 4.3 to the registrant&#146;s Registration Statement
on Form S-2 (Registration No. 33-47872) filed May 13, 1992, as subsequently
amended, superseded by copy filed herewith).</font></td>
</tr>
<tr>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>

<tr>
<td align=center valign=top><FONT FACE="Times New Roman, Times, Serif" size=3>4.5</font></td>
<td valign=top><FONT FACE="Times New Roman, Times, Serif" size=3>Form of Depository Receipt (originally filed as Exhibit 4.7 to the
registrant&#146;s Registration Statement on Form S-2 (Registration No. 33-47872)
filed May 13, 1992, as subsequently amended, included as part of the Deposit
Agreement among Westmoreland, First Chicago Trust Company of New York, as
Depository and the holders from time to time of the Depositary Receipts filed
herewith).</font></td>
</tr>
<tr>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>

<tr>
<td align=center valign=top><FONT FACE="Times New Roman, Times, Serif" size=3>4.6</font></td>
<td valign=top><FONT FACE="Times New Roman, Times, Serif" size=3>Specimen certificate representing the Preferred Stock of Westmoreland Coal
Company (filed as Exhibit 4.6 to the registrant&#146;s Registration Statement on
Form S-2 (Registration No. 33-47872) filed May 13, 1992, as subsequently
amended, and incorporated herein by reference).</font></td>
</tr>
</TABLE>

<br>
<p align=center><FONT FACE="Times New Roman, Times, Serif" SIZE=3>II-14</font></p>
<page>
<br>

<table width=650 cellpadding=0 cellspacing=0 border=0>
<tr>
<td width=20% align=center valign=top><FONT FACE="Times New Roman, Times, Serif" size=3>4.7</font></td>
<td width=80% valign=top><FONT FACE="Times New Roman, Times, Serif" size=3>Amended and Restated Rights Agreement, dated as of February 7, 2003, between
Westmoreland Coal Company and EquiServe Trust Company, N.A. (filed as Exhibit
4.1 to the registrant&#146;s Current Report on Form 8-K (File No. 001-11155)
filed February 7, 2003 and incorporated herein by reference).</font></td>
</tr>
<tr>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>

<tr>
<td align=center valign=top><FONT FACE="Times New Roman, Times, Serif" size=3>4.8</font></td>
<td valign=top><FONT FACE="Times New Roman, Times, Serif" size=3>Form of Subscription Rights Certificate (to be filed by amendment).</font></td>
</tr>
<tr>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>

<tr>
<td align=center valign=top><FONT FACE="Times New Roman, Times, Serif" size=3>5.1</font></td>
<td valign=top><FONT FACE="Times New Roman, Times, Serif" size=3>Opinion of W. Michael Lepchitz, Esq.</font></td>
</tr>
<tr>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr>
<td align=center valign=top><FONT FACE="Times New Roman, Times, Serif" size=3>10.1</font></td>
<td valign=top><FONT FACE="Times New Roman, Times, Serif" size=3>Westmoreland Coal Company 1985 Incentive Stock Option and Stock Appreciation
Rights Plan (filed as Exhibit 10(c) to the registrant&#146;s Registration
Statement on Form S-2 (Registration No. 33-1950) filed December 4, 1985 and
incorporated herein by reference).</font></td>
</tr>
<tr>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>

<tr>
<td align=center valign=top><FONT FACE="Times New Roman, Times, Serif" size=3>10.2</font></td>
<td valign=top><FONT FACE="Times New Roman, Times, Serif" size=3>Executive Severance Policy, established in 1990 for certain executive officers
of Westmoreland Coal Company (the description of the Executive Severance Policy
was originally included in the registrant&#146;s Definitive Proxy Statement
(File No. 001-11155) filed April&#160;20, 2000, superseded by copy filed
herewith).</font></td>
</tr>
<tr>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>

<tr>
<td align=center valign=top><FONT FACE="Times New Roman, Times, Serif" size=3>10.3</font></td>
<td valign=top><FONT FACE="Times New Roman, Times, Serif" size=3>Westmoreland Coal Company 1991 Non-Qualified Stock Option Plan for Non-Employee
Directors (filed as Exhibit 10(i) to the registrant&#146;s Annual Report on Form
10-K (File No. 0-752) for the year ended December 31, 1990 and incorporated
herein by reference).</font></td>
</tr>
<tr>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>

<tr>
<td align=center valign=top><FONT FACE="Times New Roman, Times, Serif" size=3>10.4</font></td>
<td valign=top><FONT FACE="Times New Roman, Times, Serif" size=3>Supplemental Executive Retirement Plan, effective January 1, 1992, for certain
executive officers and other key individuals, to supplement Westmoreland&#146;s
Retirement Plan (filed as Exhibit 10(d) to the registrant&#146;s Annual Report
on Form 10-K (File No. 001-11155) for the year ended December 31, 2000 and
incorporated herein by reference).</font></td>
</tr>
<tr>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>

<tr>
<td align=center valign=top><FONT FACE="Times New Roman, Times, Serif" size=3>10.5</font></td>
<td valign=top><FONT FACE="Times New Roman, Times, Serif" size=3>Amended Coal Lease Agreement between Westmoreland Resources, Inc. and Crow Tribe
of Indians, dated November 26, 1974, as further amended in 1982 (filed as
Exhibit 10(a) to the registrant&#146;s Quarterly Report on Form 10-Q (File No.
0-752) for the quarter ended March 31, 1992 and incorporated herein by
reference).</font></td>
</tr>
<tr>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>

<tr>
<td align=center valign=top><FONT FACE="Times New Roman, Times, Serif" size=3>10.6</font></td>
<td valign=top><FONT FACE="Times New Roman, Times, Serif" size=3>Westmoreland Coal Company 1995 Long-Term Incentive Stock Plan (filed as Appendix
3 to the registrant&#146;s Definitive Proxy Statement (File No. 0-752) filed
April 28, 1995 and incorporated herein by reference).</font></td>
</tr>
</table>

<br>
<p align=center><FONT FACE="Times New Roman, Times, Serif" SIZE=3>II-15</font></p>
<page>
<br>

<table width=650 cellpadding=0 cellspacing=0 border=0>
<tr>
<td width=20% align=center valign=top><FONT FACE="Times New Roman, Times, Serif" size=3>10.7</font></td>
<td width=80% valign=top><FONT FACE="Times New Roman, Times, Serif" size=3>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 (filed as Exhibit 99.2 to the registrant&#146;s Current
Report on Form 8-K (File No. 001-11155) filed February 4, 1999 and incorporated
herein by reference).</font></td>
</tr>
<tr>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>


<tr>
<td align=center valign=top><FONT FACE="Times New Roman, Times, Serif" size=3>10.8</font></td>
<td valign=top><FONT FACE="Times New Roman, Times, Serif" size=3>Westmoreland Coal Company 1996 Directors&#146; Stock Incentive Plan (filed as
Exhibit 10(i) to the registrant&#146;s Annual Report on Form 10-K (File No.
001-11155) for the year ended December 31, 2000 and incorporated herein by
reference).</font></td>
</tr>
<tr>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>

<tr>
<td align=center valign=top><FONT FACE="Times New Roman, Times, Serif" size=3>10.9</font></td>
<td valign=top><FONT FACE="Times New Roman, Times, Serif" size=3>Westmoreland Coal Company 2000 Nonemployee Directors&#146; Stock Incentive Plan
(filed as Exhibit 10(j) to the registrant&#146;s Annual Report on Form 10-K
(File No. 001-11155) for the year ended December 31, 2000 and incorporated
herein by reference).</font></td>
</tr>
<tr>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>

<tr>
<td align=center valign=top><FONT FACE="Times New Roman, Times, Serif" size=3>10.10</font></td>
<td valign=top><FONT FACE="Times New Roman, Times, Serif" size=3>Westmoreland Coal Company 2000 Long-Term Incentive Stock Plan (filed as Annex A to
                     the registrant's Definitive Proxy Statement (File No. 001-11155) filed April 20, 2000
                     and incorporated herein by reference).</font></td>
</tr>
<tr>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>

<tr>
<td align=center valign=top><FONT FACE="Times New Roman, Times, Serif" size=3>10.11</font></td>
<td valign=top><FONT FACE="Times New Roman, Times, Serif" size=3>Westmoreland Coal Company 2001 Directors Compensation Policy.</font></td>
</tr>
<tr>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr>
<td align=center valign=top><FONT FACE="Times New Roman, Times, Serif" size=3>10.12</font></td>
<td valign=top><FONT FACE="Times New Roman, Times, Serif" size=3>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 (filed as Exhibit 10.1 to the registrant&#146;s Quarterly Report on Form
10-Q (File No. 001-11155) for the quarter ended June 30, 2001 and incorporated
herein by reference).</font></td>
</tr>
<tr>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>

<tr>
<td align=center valign=top><FONT FACE="Times New Roman, Times, Serif" size=3>10.13</font></td>
<td valign=top><FONT FACE="Times New Roman, Times, Serif" size=3>Coal Transportation Agreement dated July 10, 1981, by and among the Montana
Power Company, Puget Sound Power &amp; Light Company, Puget Colstrip
Construction Company, The Washington Water Power Company, Portland General
Electric Company, Pacific Power &amp; Light Company, Basin Electric Power
Cooperative, and Western Energy Company (filed as Exhibit 10.2 to the
registrant&#146;s Quarterly Report on Form 10-Q (File No. 001-11155) for the
quarter ended June 30, 2001 and incorporated herein by reference).</font></td>
</tr>
</table>

<br>
<p align=center><FONT FACE="Times New Roman, Times, Serif" SIZE=3>II-16</font></p>
<page>
<br>

<table width=650 cellpadding=0 cellspacing=0 border=0>
<tr>
<td width=20% align=center valign=top><FONT FACE="Times New Roman, Times, Serif" size=3>10.14</font></td>
<td width=80% valign=top><FONT FACE="Times New Roman, Times, Serif" size=3>Amendment No. 1 to the Coal Transportation Agreement dated September 14, 1987,
by and among The Montana Power Company, Puget Sound Power &amp; Light Company,
Puget Colstrip Construction Company, The Washington Water Power Company,
Portland General Electric Company, Pacific Power &amp; Light Company and Western
Energy Company (filed as Exhibit 10.3 to the registrant&#146;s Quarterly Report
on Form 10-Q (File No. 001-11155) for the quarter ended June 30, 2001 and
incorporated herein by reference).</font></td>
</tr>
<tr>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>

<tr>
<td align=center valign=top><FONT FACE="Times New Roman, Times, Serif" size=3>10.15</font></td>
<td valign=top><FONT FACE="Times New Roman, Times, Serif" size=3>Amendment No. 2 to the Coal Transportation Agreement dated August 24, 1998, by
and among The Montana Power Company, Puget Sound Power &amp; Light Company,
Puget Colstrip Construction Company, The Washington Water Power Company,
Portland General Electric Company, Pacific Power &amp; Light Company, Basin
Electric Power Cooperative, and Western Energy Company (filed as Exhibit 10.4 to
the registrant&#146;s Quarterly Report on Form 10-Q (File No. 001-11155) for the
quarter ended June 30, 2001 and incorporated herein by reference).</font></td>
</tr>
<tr>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>

<tr>
<td align=center valign=top><FONT FACE="Times New Roman, Times, Serif" size=3>10.16</font></td>
<td valign=top><FONT FACE="Times New Roman, Times, Serif" size=3>Lignite Supply Agreement dated August 29, 1979, between Northwestern Resources Co.
                     and Utility Fuels Inc. (filed as Exhibit 10.5 to the registrant's Quarterly Report on
                     Form 10-Q (File No. 001-11155) for the quarter ended June 30, 2001 and incorporated
                     herein by reference).</font></td>
</tr>
<tr>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>

 <tr>
<td align=center valign=top><FONT FACE="Times New Roman, Times, Serif" size=3>10.17</font></td>
<td valign=top><FONT FACE="Times New Roman, Times, Serif" size=3>Settlement Agreement and Amendment of Existing Contracts dated August 2, 1999,
                     between Northwestern Resources Co. and Reliant Energy, Incorporated (filed as Exhibit
                     10.6 to the registrant's Quarterly Report on Form 10-Q (File No. 001-11155) for the
                     quarter ended June 30, 2001 and incorporated herein by reference).</font></td>
</tr>
<tr>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>

<tr>
<td align=center valign=top><FONT FACE="Times New Roman, Times, Serif" size=3>10.18</font></td>
<td valign=top><FONT FACE="Times New Roman, Times, Serif" size=3>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 (filed as
Exhibit 99.2 to the registrant&#146;s Current Report on Form 8-K (File No.
001-11155) filed May 15, 2001 and incorporated herein by reference).</font></td>
</tr>
<tr>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>

<tr>
<td align=center valign=top><FONT FACE="Times New Roman, Times, Serif" size=3>10.19</font></td>
<td valign=top><FONT FACE="Times New Roman, Times, Serif" size=3>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 (filed as Exhibit 99.3 to
the registrant&#146;s Current Report on Form 8-K (File No. 001-11155) filed May
15, 2001 and incorporated herein by reference).</font></td>
</tr>
</table>

<br>
<p align=center><FONT FACE="Times New Roman, Times, Serif" SIZE=3>II-17</font></p>
<page>
<br>

<table width=650 cellpadding=0 cellspacing=0 border=0>
<tr>
<td width=20% align=center valign=top><FONT FACE="Times New Roman, Times, Serif" size=3>10.20</font></td>
<td width=80% valign=top><FONT FACE="Times New Roman, Times, Serif" size=3>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 (filed
as Exhibit 10.7 to the registrant&#146;s Quarterly Report on Form 10-Q (File No.
001-11155) for the quarter ended June 30, 2001 and incorporated herein by
reference).</font></td>
</tr>
<tr>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>

<tr>
<td align=center valign=top><FONT FACE="Times New Roman, Times, Serif" size=3>10.21</font></td>
<td valign=top><FONT FACE="Times New Roman, Times, Serif" size=3>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 (filed as
Exhibit 10.8 to the registrant&#146;s Quarterly Report on Form 10-Q (File No.
001-11155) for the quarter ended June 30, 2001 and incorporated herein by
reference).</font></td>
</tr>
<tr>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>

<tr>
<td align=center valign=top><FONT FACE="Times New Roman, Times, Serif" size=3>10.22</font></td>
<td valign=top><FONT FACE="Times New Roman, Times, Serif" size=3>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 (filed as Exhibit
10(w) to the registrant&#146;s Annual Report on Form 10-K (File No. 001-11155)
for the year ended December 31, 2001 and incorporated herein by reference).</font></td>
</tr>
<tr>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>

<tr>
<td align=center valign=top><FONT FACE="Times New Roman, Times, Serif" size=3>10.23</font></td>
<td valign=top><FONT FACE="Times New Roman, Times, Serif" size=3>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 (filed as
Exhibit 10(x) to the registrant&#146;s Annual Report on Form 10-K (File No.
001-11155) for the year ended December 31, 2001 and incorporated herein by
reference).</font></td>
</tr>
<tr>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>

<tr>
<td align=center valign=top><FONT FACE="Times New Roman, Times, Serif" size=3>10.24</font></td>
<td valign=top><FONT FACE="Times New Roman, Times, Serif" size=3>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 (filed as Exhibit 10.1
to the registrant&#146;s Current Report on Form 8-K (File No. 001-11155) filed
March 10, 2004 and incorporated herein by reference).</font></td>
</tr>
<tr>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>

<tr>
<td align=center valign=top><FONT FACE="Times New Roman, Times, Serif" size=3>10.25</font></td>
<td valign=top><FONT FACE="Times New Roman, Times, Serif" size=3>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 (filed as Exhibit
10.2 to the registrant&#146;s Current Report on Form 8-K (File No. 001-11155)
filed March 10, 2004 and incorporated herein by reference).</font></td>
</tr>
<tr>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>

<tr>
<td align=center valign=top><FONT FACE="Times New Roman, Times, Serif" size=3>10.26</font></td>
<td valign=top><FONT FACE="Times New Roman, Times, Serif" size=3>Loan Agreement dated as of December 14, 2001 between Westmoreland Coal Company,
a Delaware corporation, and First Interstate Bank, a Montana corporation (filed
as Exhibit 10.1 to the registrant&#146;s Current Report on Form 8-K (File No.
001-11155) filed December 19, 2001 and incorporated herein by reference).</font></td>
</tr>
</table>

<br>
<p align=center><FONT FACE="Times New Roman, Times, Serif" SIZE=3>II-18</font></p>
<page>
<br>

<table width=650 cellpadding=0 cellspacing=0 border=0>
<tr>
<td width=20% align=center valign=top><FONT FACE="Times New Roman, Times, Serif" size=3>10.27</font></td>
<td width=80% valign=top><FONT FACE="Times New Roman, Times, Serif" size=3>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 (filed as Exhibit 10.1 to the
registrant&#146;s Current Report on Form 8-K (File No. 001-11155) filed January
28, 2003 and incorporated herein by reference).</font></td>
</tr>
<tr>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>

<tr>
<td align=center valign=top><FONT FACE="Times New Roman, Times, Serif" size=3>10.28</font></td>
<td valign=top><FONT FACE="Times New Roman, Times, Serif" size=3>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 (filed as Exhibit 10.2 to the
registrant&#146;s Current Report on Form 8-K (File No. 001-11155) filed January
28, 2003 and incorporated herein by reference).</font></td>
</tr>
<tr>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>

<tr>
<td align=center valign=top><FONT FACE="Times New Roman, Times, Serif" size=3>10.29</font></td>
<td valign=top><FONT FACE="Times New Roman, Times, Serif" size=3>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 (filed as Exhibit 10.1 to the
registrant&#146;s Current Report on Form 8-K (File No. 001-11155) filed June 30,
2004 and incorporated herein by reference).</font></td>
</tr>
<tr>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>

<tr>
<td align=center valign=top><FONT FACE="Times New Roman, Times, Serif" size=3>10.30</font></td>
<td valign=top><FONT FACE="Times New Roman, Times, Serif" size=3>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 (filed as Exhibit 99.4 to
the registrant&#146;s Current Report on Form 8-K (File No. 001-11155) filed May
15, 2001 and incorporated herein by reference).</font></td>
</tr>
<tr>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>

<tr>
<td align=center valign=top><FONT FACE="Times New Roman, Times, Serif" size=3>10.31</font></td>
<td valign=top><FONT FACE="Times New Roman, Times, Serif" size=3>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 (filed as Exhibit 99.5 to the
registrant&#146;s Current Report on Form 8-K (File No. 001-11155) filed May 15,
2001 and incorporated herein by reference).</font></td>
</tr>
<tr>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>

<tr>
<td align=center valign=top><FONT FACE="Times New Roman, Times, Serif" size=3>10.32</font></td>
<td valign=top><FONT FACE="Times New Roman, Times, Serif" size=3>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 (filed as Exhibit 99.6 to the registrant&#146;s Current Report on Form
8-K (File No. 001-11155) filed May 15, 2001 and incorporated herein by
reference).</font></td>
</tr>
</table>

<br>
<p align=center><FONT FACE="Times New Roman, Times, Serif" SIZE=3>II-19</font></p>
<page>
<br>


<table width=650 cellpadding=0 cellspacing=0 border=0>
<tr>
<td width=20% align=center valign=top><FONT FACE="Times New Roman, Times, Serif" size=3>10.33</font></td>
<td width=80% valign=top><FONT FACE="Times New Roman, Times, Serif" size=3>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 (filed as Exhibit
99.7 to the registrant&#146;s Current Report on Form 8-K (File No. 001-11155)
filed May 15, 2001 and incorporated herein by reference).</font></td>
</tr>
<tr>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>

<tr>
<td align=center valign=top><FONT FACE="Times New Roman, Times, Serif" size=3>10.34</font></td>
<td valign=top><FONT FACE="Times New Roman, Times, Serif" size=3>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 (filed as Exhibit 99.8 to
the registrant&#146;s Current Report on Form 8-K (File No. 001-11155) filed May
15, 2001 and incorporated herein by reference).</font></td>
</tr>
<tr>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>

<tr>
<td align=center valign=top><FONT FACE="Times New Roman, Times, Serif" size=3>10.35</font></td>
<td valign=top><FONT FACE="Times New Roman, Times, Serif" size=3>Stock Purchase Agreement dated as of September 15, 2000, by and between
Westmoreland Coal Company and Entech, Inc. (filed as Exhibit 99.1 to the
registrant&#146;s Current Report on Form 8-K (File No. 001-11155) filed February
5, 2001 and incorporated herein by reference).</font></td>
</tr>
<tr>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>

<tr>
<td align=center valign=top><FONT FACE="Times New Roman, Times, Serif" size=3>10.36</font></td>
<td valign=top><FONT FACE="Times New Roman, Times, Serif" size=3>Westmoreland Coal Company 2002 Long-Term Incentive Stock Plan (filed as Annex A
to the registrant&#146;s Definitive Proxy Statement (File No. 001-11155) filed
April 23, 2002 and incorporated herein by reference).</font></td>
</tr>
<tr>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>

<tr>
<td align=center valign=top><FONT FACE="Times New Roman, Times, Serif" size=3>10.37</font></td>
<td valign=top><FONT FACE="Times New Roman, Times, Serif" size=3>Letter Agreement dated June 18, 2002, between Reliant-HL&amp;P and Northwestern
Resources Co. (filed as Exhibit 10.1 to the registrant&#146;s Quarterly Report
on Form 10-Q (File No. 001-11155) for the quarter ended June 30, 2002 and
incorporated herein by reference).</font></td>
</tr>
<tr>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>

<tr>
<td align=center valign=top><FONT FACE="Times New Roman, Times, Serif" size=3>10.38</font></td>
<td valign=top><FONT FACE="Times New Roman, Times, Serif" size=3>Approved Westmoreland Coal Company 2000 Performance Unit Plan, dated May 22,
2003 (filed as Exhibit 10.1 to the registrant&#146;s Quarterly Report on Form
10-Q (File No. 001-11155) for the quarter ended June 30, 2003 and incorporated
herein by reference).</font></td>
</tr>
<tr>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>

<tr>
<td align=center valign=top><FONT FACE="Times New Roman, Times, Serif" size=3>10.39</font></td>
<td valign=top><FONT FACE="Times New Roman, Times, Serif" size=3>First Amendment to Westmoreland Coal Company 2000 Non-employee Directors&#146;
Stock Incentive Plan, dated May 22, 2003 (filed as Exhibit 10.2 to the
registrant&#146;s Quarterly Report on Form 10-Q (File No. 001-11155) for the
quarter ended June 30, 2003 and incorporated herein by reference).</font></td>
</tr>
<tr>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>

<tr>
<td align=center valign=top><FONT FACE="Times New Roman, Times, Serif" size=3>10.40</font></td>
<td valign=top><FONT FACE="Times New Roman, Times, Serif" size=3>Termination Agreement for Robert J. Jaeger, Chief Financial Officer (filed as
Exhibit 10.3 to the registrant&#146;s Quarterly Report on Form 10-Q (File No.
001-11155) for the quarter ended June 30, 2003 and incorporated herein by
reference).</font></td>
</tr>
</table>

<br>
<p align=center><FONT FACE="Times New Roman, Times, Serif" SIZE=3>II-20</font></p>
<page>
<br>

<table width=650 cellpadding=0 cellspacing=0 border=0>
<tr>
<td width=20% align=center valign=top><FONT FACE="Times New Roman, Times, Serif" size=3>10.41</font></td>
<td width=80% valign=top><FONT FACE="Times New Roman, Times, Serif" size=3>Supplemental Settlement Agreement and Amendment of Existing Contracts Between
Northwestern Resources Company and Texas Genco, L.P. dated January 30, 2004
(filed as Exhibit 10(nn) to the registrant&#146;s Annual Report on Form 10-K
(File No. 001-11155) for the year ended December 31, 2003 and incorporated
herein by reference).</font></td>
</tr>
<tr>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>

<tr>
<td align=center valign=top><FONT FACE="Times New Roman, Times, Serif" size=3>21.1</font></td>
<td valign=top><FONT FACE="Times New Roman, Times, Serif" size=3>Subsidiaries of Westmoreland Coal Company.</font></td>
</tr>
<tr>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>

<tr>
<td align=center valign=top><FONT FACE="Times New Roman, Times, Serif" size=3>23.1</font></td>
<td valign=top><FONT FACE="Times New Roman, Times, Serif" size=3>Consent of KPMG LLP.</font></td>
</tr>
<tr>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>

<tr>
<td align=center valign=top><FONT FACE="Times New Roman, Times, Serif" size=3>23.2</font></td>
<td valign=top><FONT FACE="Times New Roman, Times, Serif" size=3>Consent of W. Michael Lepchitz (included in Exhibit 5.1 filed herewith).</font></td>
</tr>
<tr>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>

<tr>
<td align=center valign=top><FONT FACE="Times New Roman, Times, Serif" size=3>23.3</font></td>
<td valign=top><FONT FACE="Times New Roman, Times, Serif" size=3>Consent of IntraSearch Inc.</font></td>
</tr>
<tr>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>

<tr>
<td align=center valign=top><FONT FACE="Times New Roman, Times, Serif" size=3>24.1</font></td>
<td valign=top><FONT FACE="Times New Roman, Times, Serif" size=3>Power of Attorney (included on the signature pages of this Registration Statement).</font></td>
</tr>
<tr>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>

<tr>
<td align=center valign=top><FONT FACE="Times New Roman, Times, Serif" size=3>99.1</font></td>
<td valign=top><FONT FACE="Times New Roman, Times, Serif" size=3>Form of Instructions for Use of Westmoreland Coal Company Subscription Rights
                     Certificates (to be filed by amendment).</font></td>
</tr>
<tr>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>

<tr>
<td align=center valign=top><FONT FACE="Times New Roman, Times, Serif" size=3>99.2</font></td>
<td valign=top><FONT FACE="Times New Roman, Times, Serif" size=3>Form of Notice of Guaranteed Delivery for Subscription Rights Certificates (to be
                     filed by amendment).</font></td>
</tr>
<tr>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>

<tr>
<td align=center valign=top><FONT FACE="Times New Roman, Times, Serif" size=3>99.3</font></td>
<td valign=top><FONT FACE="Times New Roman, Times, Serif" size=3>Form of Letter from Westmoreland Coal Company to Stockholders who are Record Holders
                     (to be filed by amendment).</font></td>
</tr>
<tr>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>

<tr>
<td align=center valign=top><FONT FACE="Times New Roman, Times, Serif" size=3>99.4</font></td>
<td valign=top><FONT FACE="Times New Roman, Times, Serif" size=3>Form of Letter from Westmoreland Coal Company to Securities Dealers, Commercial
                     Banks, Trust Companies and other Nominees (to be filed by amendment).</font></td>
</tr>
<tr>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>

<tr>
<td align=center valign=top><FONT FACE="Times New Roman, Times, Serif" size=3>99.5</font></td>
<td valign=top><FONT FACE="Times New Roman, Times, Serif" size=3>Form of Letter from Nominees to Stockholders who are Beneficial Owners (to be filed
                     by amendment).</font></td>
</tr>
<tr>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>

<tr>
<td align=center valign=top><FONT FACE="Times New Roman, Times, Serif" size=3>99.6</font></td>
<td valign=top><FONT FACE="Times New Roman, Times, Serif" size=3>Form of Nominee Holder Certification (to be filed by amendment).</font></td>
</tr>
<tr>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>

<tr>
<td align=center valign=top><FONT FACE="Times New Roman, Times, Serif" size=3>99.7</font></td>
<td valign=top><FONT FACE="Times New Roman, Times, Serif" size=3>Form of Beneficial Owner Election Form (to be filed by amendment).</font></td>
</tr>
</table>

<br>
<p align=center><FONT FACE="Times New Roman, Times, Serif" SIZE=3>II-21</font></p>
<page>
<br>








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Form S-1
As filed with the Securities and Exchange Commission on July 28, 2004
Registration No. 333-
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM S-1
REGISTRATION
STATEMENT UNDER
THE
SECURITIES ACT OF 1933
WESTMORELAND
COAL COMPANY
(Exact name of registrant as specified in its charter)
Delaware
1311
23-1128670
(State or other jurisdiction of
incorporation or
organization)
(Primary Standard Industrial
Classification Code Number)
(I.R.S.
Employer
Identification Number)
2 N. Cascade Avenue,
14th Floor
Colorado
Springs, CO 80903
(719)
442-2600
(Address, Including Zip Code, and Telephone Number, Including Area Code, of Registrant's Principal Executive Offices)
Christopher
K. Seglem
Chairman and
Chief Executive Officer
WESTMORELAND COAL
COMPANY
2 N. Cascade
Avenue, 14th Floor
Colorado
Springs, CO 80903
(719)
442-2600
(Name, Address, Including Zip Code, and Telephone Number, Including Area Code, of Agent for Service)
Copies to:
W. Michael Lepchitz
Vice President, General Counsel and Secretary
WESTMORELAND COAL COMPANY
2 N. Cascade Avenue, 14th Floor
Colorado Springs, CO 80903
Telephone: (719) 442-2600
Telecopy: (719) 448-5824
Michael J. Levitin
WILMER CUTLER PICKERING
HALE AND DORR LLP
1455 Pennsylvania Avenue, N.W.
Washington, DC 20004
Telephone: (202) 942-8400
Telecopy: (202) 942-8484
Approximate
date of commencement of proposed sale to the public:
As soon as
practicable after the effective date hereof.
If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415
under the Securities Act, check the following box. 
If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check
the following box and list the Securities Act registration statement number of the earlier effective registration statement for
the same offering.  ___________
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and
list the Securities Act registration number of the earlier effective registration statement for the same offering.  ___________
If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and
list the Securities Act registration number of the earlier effective registration statement for the same offering.  ___________
If delivery of the Prospectus is expected to be made pursuant to Rule 434, check the following box. 
CALCULATION
OF REGISTRATION FEE
Title of
Each Class of
Securities
      to be
Registered
Amount to be
Registered
Proposed
Maximum
Offering Price
Per
                        Unit
Proposed
Maximum
Aggregate
Offering
         Price
Amount of
Registration Fee
Common Stock,
$2.50
par value
per
share (1)
1,626,986 (2)
$20.40 (3)
$33,190,515 (3)
$4,206
Subscription Rights
(4)
N/A
N/A
$ -0- (5)
(1)
This Registration Statement also relates to rights to purchase shares of the Registrant's Series B Junior Participating Preferred
Stock (the "Preferred Stock Rights"), which are attached to all shares of Common Stock. Until the occurrence of certain prescribed
events, the Preferred Stock Rights are not exercisable, are evidenced by the certificates for the Common Stock and will be
transferable along with and only with the Common Stock. The value attributable to the Preferred Stock Rights, if any, is reflected
in the value of the Common Stock.
(2)
This figure represents the maximum number of shares of Common Stock issuable upon the exercise of the Subscription Rights based on
the assumption that each holder of Common Stock outstanding as of July 23, 2004 will be granted 1/5 of a Subscription Right for
each share of Common Stock held by such holder.
(3)
Estimated  solely for the purpose of calculating the amount of the  registration  fee pursuant to  Rule 457(c) under  the Securities
         Act of 1933,  as amended,  and based on the average of the high and low sales prices of the Common Stock as reported on the
         American Stock Exchange on July 23, 2004.
(4)
Evidencing the rights to subscribe for 1,626,986 shares of Common Stock (the "Subscription Rights").  This figure represents the
maximum number of shares of Common Stock issuable upon the exercise of the Subscription Rights based on the assumption that each
holder of Common Stock as of July  23, 2004 will be granted 1/5 of a Subscription Right for each share of Common Stock held by
such holder.
(5)
The Subscription Rights are being issued without consideration.
The Registrant hereby
amends this Registration Statement on such date or dates as may be necessary to
delay its effective date until the Registrant shall file a further amendment
which specifically states that this Registration Statement shall thereafter
become effective in accordance with Section 8(a) of the Securities Act of
1933 or until the Registration Statement shall become effective on such date as
the Commission, acting pursuant to said Section 8(a), may determine.
The information in this preliminary prospectus is not complete and may be changed.  We may not sell these securities until the
registration statement filed with the Securities and Exchange Commission is effective.  This prospectus is not an offer to sell
and it is not soliciting an offer to buy these securities in any state where an offer to sell is not permitted.
SUBJECT TO COMPLETION, DATED JULY 28, 2004
[WESTMORELAND LOGO]
PROSPECTUS
WESTMORELAND COAL COMPANY
__________ SUBSCRIPTION RIGHTS
TO PURCHASE
__________ SHARES OF COMMON STOCK
If you held our common
stock on ___________, 2004, Westmoreland Coal Company has granted you rights to
purchase additional shares of our common stock for a subscription price of $___
per share. You have been granted ____ rights for every share of common stock you
held of record on that date. Each whole right entitles you to purchase one share
of our common stock for $___. This is your "basic subscription
privilege." If you fully exercise your rights and other stockholders do not
fully exercise their rights, you may elect to purchase additional shares on a
pro rata basis. This is your "oversubscription privilege."
We will not issue
fractional rights or fractional shares. If the number of shares of common stock
you held of record on that date would result in your receipt of fractional
rights, the number of rights issued to you is being rounded down to the nearest
whole right.
We are offering the rights
in order to obtain funds to support our growth and development strategy and for
general corporate purposes.
The rights will expire if
they are not exercised by 5:00 p.m. New York City time, on ____________, 2004,
the expiration date of the rights offering. We may extend the time period for
exercising the rights. Rights that are not exercised by the expiration date of
the rights offering will expire and will have no value. Rights may not be
transferred or sold. You should carefully consider whether to exercise your
rights before the expiration date. Our Board of Directors is making no
recommendations regarding your exercise of rights.
Our common stock is traded
on the American Stock Exchange under the symbol "WLB." On
____________, 2004, the last reported sales price for our common stock was
__________ per share.
AN INVESTMENT IN OUR COMMON
STOCK IS RISKY. YOU SHOULD CAREFULLY CONSIDER THE RISK FACTORS BEGINNING ON PAGE
____ OF THIS PROSPECTUS BEFORE EXERCISING YOUR RIGHTS.
We are offering the shares directly without the services of an underwriter or selling agent.
Per Share
Total
Subscription price
$ ______
$ ______
Underwriter's discounts and commissions
None
None
Net proceeds to Westmoreland
$ ______
$ ______
NEITHER THE SECURITIES AND
EXCHANGE COMMISSION NOR ANY STATE SECURITIES COMMISSION HAS APPROVED OR
DISAPPROVED OF THESE SECURITIES OR DETERMINED IF THIS PROSPECTUS IS TRUTHFUL OR
COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
The date of this prospectus is ___________, 2004.
TABLE OF
CONTENTS
Forward-Looking Statements
ii
Questions and Answers about the Rights Offering
ii
Summary
1
Risk Factors
4
Use of Proceeds
15
Price Range of Common Stock, Dividends and
Related Stockholder Matters
16
Capitalization
17
Selected Consolidated Financial Data
18
Management's Discussion and Analysis of Financial
Condition and Results of Operations
20
Business
43
Properties
59
Legal Proceedings
66
Management
71
Certain Relationships and Related Transactions
85
Beneficial Ownership of Securities
86
The Rights Offering
90
Description of Capital Stock
101
United States Federal Income Tax Consequence
107
Plan of Distribution
109
Legal Matters
109
Experts
109
Where You Can Find More Information
110
Index to Financial Statements
F-1
i
FORWARD-LOOKING
STATEMENTS
Throughout this Prospectus,
we make statements that are not historical facts or information and that may be
deemed "forward-looking statements" within the meaning of Section 27A
of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of
1934. These forward-looking statements include, but are not limited to, the
information set forth in Management's Discussion and Analysis of Financial
Condition and Results of Operations. For example, words such as "may,"
"will," "should," "estimates,"
"predicts," "potential," "continue,"
"strategy," "believes," "anticipates,"
"plans," "expects," "intends" and similar
expressions are intended to identify forward-looking statements. Such
forward-looking statements involve known and unknown risks, uncertainties and
other factors, which may cause our actual results, levels of activity,
performance or achievements, or industry results, to be materially different
from any future results, levels of activity, performance or achievements
expressed or implied by such forward-looking statements. Such factors include,
among others, the following: general economic and business conditions; health
care cost trends; the cost and capacity of the surety bond market; our ability
to manage growth and significantly expanded operations; our ability to implement
our growth and development strategy; our ability to pay the preferred stock
dividends that are accumulated but unpaid; our ability to retain key senior
management; our access to financing; our ability to maintain compliance with
debt covenant requirements; our ability to successfully identify new business
opportunities; our ability to negotiate profitable coal contracts, price
reopeners and extensions; our ability to maintain satisfactory labor relations;
changes in the industry; competition; our ability to utilize our income tax net
operating losses; our ability to invest cash, including cash that has been
deposited in reclamation accounts, at an acceptable rate of return; weather
conditions; the availability of transportation; price of alternative fuels;
costs of coal produced by other countries; the demand for electricity; the
effect of regulatory and legal proceedings, including the bankruptcy filing by
Touch America Holdings Inc. and Entech Inc.; environmental issues, including the
cost of compliance with existing and future environmental requirements; the
claims between Westmoreland and Montana Power; and the other factors discussed
in the "Risk Factors," "Management's Discussion and Analysis
of Financial Condition and Results of Operations," "Business" and
"Properties" sections of this prospectus. As a result of the foregoing
and other factors, we cannot provide any assurance about our future results or
achievements. We disclaim any duty to update these statements, even if
subsequent events cause our views to change.
QUESTIONS
AND ANSWERS ABOUT THE RIGHTS OFFERING
Q.
What is the rights offering?
A.
The rights offering is a distribution to holders of our common stock, at no charge, of subscription rights.  We are distributing
     one right for each _____ shares of common stock owned as of ___________, 2004, the record date.  We will not distribute
     fractional rights or issue fractional shares.  If the number of shares of common stock you held of record on the record date
     would result in your receipt of fractional rights, the number of rights issued to you is being rounded down to the nearest whole
     right.  Each right is evidenced by a rights certificate.
ii
Q.
What is a subscription right?
A.
Each subscription right is a right to purchase one share of our common stock and carries with it a basic subscription privilege
     and an over-subscription privilege.
Q.
What is the basic subscription privilege?
A.
The basic subscription privilege of each right entitles you to purchase one share of our common stock at the subscription price
     of $__________ per each share purchased.
Q.
What is the over-subscription privilege?
A.
We do not expect that all of our stockholders will exercise all of their basic subscription privileges.  By extending
     over-subscription privileges to our stockholders, we are providing stockholders that exercise all of their basic subscription
     privileges with the opportunity to purchase those shares that are not purchased by other stockholders through the exercise of
     their basic subscription privileges.  If you fully exercise your basic subscription privilege, the over-subscription privilege
     entitles you to subscribe for additional shares of our common stock at the same subscription price of $___ per share that applies
     to your basic subscription privilege.  If the number of shares requested by all holders exercising the over-subscription
     privilege is less than the total number of shares available, then each person exercising the over-subscription privilege will
     receive the total number of shares requested.  If there are not enough shares of our common stock to satisfy all subscriptions
     made under the over-subscription privilege, we will allocate the available shares of our common stock pro rata, after eliminating
     all fractional shares, among the over-subscribing rights holders.  "Pro rata" means in proportion to the number of shares of our
     common stock that you and the other holders of subscription rights have purchased by exercising your basic subscription
     privileges.  If there is a pro rata allocation and you receive an allocation of a greater number of shares than you subscribed
     for under your over-subscription privilege, then we will allocate to you only the number of shares for which you subscribed.  We
     will allocate the remaining shares among all other holders exercising their over-subscription privileges.  The subscription agent
     will return any excess payments by mail without interest or deduction promptly after the expiration of the rights offering.
Q.
How long will the rights offering last?
A.
You will be able to exercise your subscription rights only during a limited period.  If you do not exercise your subscription
     rights before 5:00 p.m., New York City time, on ________________, 2004, your subscription rights will expire.  We may, in our
     discretion, extend the rights offering until some later time but not later than 5:00 p.m., New York City time, on
     _______________, 2004.
Q.
Why is Westmoreland engaging in a rights offering?
A.
Our Board of Directors has determined to seek additional equity capital to support our growth and development strategy and for
     general corporate purposes.  We do not currently have any agreement to acquire any business or assets (other than the capital
     expenditures we anticipate making in the ordinary course of our business) or any letter of intent with respect to any such
     acquisition; however, we have received a notice from LG&E Power Inc., which owns 50% of the Roanoke Valley power plant, or ROVA
     Project, containing the terms and conditions on which LG&E proposes to sell us its interest in the project pursuant to our right
     of first purchase, and we are evaluating those terms and conditions.  We describe the status of this offer below under "Summary -
     Recent Developments."  We have determined to seek equity capital through a rights offering because we would like to give all of
     our common stockholders the first opportunity to purchase additional shares of our common stock.
iii
Q.
How was the subscription price established?
A.
Our Board of Directors will determine the exercise price for the rights.  The Board is expected to consider a number of factors,
     including the historic and then current market price of the common stock, our business prospects, our recent and anticipated
     operating results, general conditions in the securities markets and the coal industry, our need for capital, alternatives
     available to us for raising capital, the amount of proceeds desired, the pricing of similar transactions, the liquidity of our
     common stock and the level of risk to our investors.
Q.
How do I exercise my subscription rights?
A.
You may exercise your rights by properly completing and signing your rights certificate.  You must deliver your rights
     certificate with full payment of the subscription price (including any amounts in respect of the over-subscription privilege) to
     the subscription agent on or prior to the expiration date.  If you use the mail, we recommend that you use insured, registered
     mail, return receipt requested.  If you cannot deliver your rights certificate to the subscription agent on time, you may follow
     the guaranteed delivery procedures described under "The Rights Offering - Guaranteed Delivery Procedures."
If
you wish to exercise your over-subscription privilege, you must pay in full for
(1) the number of shares you purchase with your basic subscription privilege and
(2) the number of shares you wish to purchase with your over-subscription
privilege. You may pay the subscription price in a number of different ways. See
"The Rights Offering – Method of Payment." In order for you to
timely exercise your rights, the subscription agent must actually receive good
funds, in payment of the subscription price, before the expiration date. An
uncertified personal check may take five business days or more to clear.
Accordingly, if you pay the subscription price by uncertified personal check,
you should make payment sufficiently in advance of the expiration date to ensure
that your check actually clears and the payment is received before the
expiration date.
Q.
What should I do if I want to participate in the rights offering but my shares are held in the name of my broker, custodian bank
     or other nominee?
A.
If you hold shares of our common stock through a broker, custodian bank or other nominee, we will ask your broker, custodian bank
     or other nominee to notify you of the rights offering.  If you wish to exercise your rights, you will need to have your broker,
     custodian bank or other nominee act for you.
To
indicate your decisions, you should complete and return to your broker,
custodian bank or other nominee the form entitled "Beneficial Owner
Election Form." You should receive this form from your broker, custodian
bank or other nominee with the other rights offering materials. You should
contact your broker, custodian bank or other nominee if you believe you are
entitled to participate in the rights offering but you have not received this
form.
iv
Q.
What if the market price per share of our common stock is less than the subscription price per share when I am deciding to
     exercise my subscription rights?
A.
Consult your broker.  Depending on the market price of our common stock, it may be more cost effective for you to purchase shares
     of our common stock on the American Stock Exchange rather than exercise your subscription rights.
Q.
Will I be charged a sales commission or a fee by Westmoreland if I exercise my subscription rights?
A.
No.  We will not charge a brokerage commission or a fee to rights holders for exercising their rights.  However, if you exercise
     your rights through a broker or nominee, you will be responsible for any fees charged by your broker or nominee.
Q.
What is the Board of Directors' recommendation regarding the rights offering?
A.
Our Board of Directors is not making any recommendation as to whether you should exercise your subscription rights.  You are
     urged to make your decision based on your own assessment of the rights offering and Westmoreland.
Q.
Is exercising my subscription rights risky?
A.
Yes.  The exercise of your rights involves risks.  Exercising your rights means buying additional shares of our common stock and
     should be considered as carefully as you would consider any other equity investment.  Among other things, you should carefully
     consider the risks described under the heading "Risk Factors," beginning on page ___.
Q.
May I transfer my rights if I do not want to purchase any shares?
A.
No.  If you choose not to exercise your rights, you may not sell, give away or otherwise transfer your rights.
Q.
Am I required to subscribe in the rights offering?
A.
No.
Q.
What happens if I choose not to exercise my subscription rights?
A.
If you do not exercise your subscription rights, the rights offering will not affect the number of shares of common stock you now
     own.  However, if you choose not to exercise your subscription rights and other stockholders do, the percentage of our common
     stock that you own after the offering will decrease.  Rights not exercised prior to the expiration of the rights offering will
     expire.
v
Q.
Is there any limitation on the number of shares that I can purchase in the rights offering?
A.
Yes.  In no event may any subscriber purchase shares of our common stock in the offering that, when aggregated with all of the
     shares of our common stock otherwise owned by the subscriber and his, her or its affiliates, would represent, immediately
     following the closing of the rights offering, 20% or more of our issued and outstanding common stock.
Q.
How many shares will be outstanding after the rights offering?
A.
Assuming the rights offering is fully subscribed, approximately __________ shares of our common stock will be outstanding
     immediately after the rights offering.  This number is subject to any increases that may occur after the date of this prospectus
     as a result of the exercise, conversion or exchange of outstanding stock options or convertible securities.
Q.
What happens if the rights offering is not fully subscribed after giving effect to the over-subscription privilege?
A.
Any rights not exercised after giving effect to the over-subscription privilege will expire.
Q.
After I exercise my rights, can I change my mind and cancel my purchase?
A.
No.  Once you send in your rights certificate and payment you cannot revoke the exercise of your rights, even if you later learn
     information about us that you consider to be unfavorable and even if the market price of our common stock is below the $________
     per share subscription price.  You should not exercise your subscription rights unless you are certain that you wish to purchase
     additional shares of our common stock at a price of $________ per share.  See "The Rights Offering - No Revocation."
Q.
What are the federal income tax consequences of exercising my subscription rights as a holder of common stock?
A.
A holder of common stock will not recognize income or loss for federal income tax purposes in connection with the receipt or
     exercise of subscription rights in the rights offering.  See "United States Federal Income Tax Consequences," beginning on page
     ___.
Q.
When will I receive my new shares?
A.
If you purchase shares of common stock through this rights offering, you will receive certificates representing those shares as
     soon as practicable after the expiration of the rights offering.  Subject to state securities laws and regulations, we have the
     discretion to delay allocation and distribution of any shares you may elect to purchase by exercise of your basic or
     over-subscription privilege in order to comply with state securities laws.
vi
Q.
Will the new shares be initially listed on the American Stock Exchange and treated like other shares?
A.
Yes.  Our common stock is traded on the American Stock Exchange under the symbol "WLB."  On __________________, 2004, the last
     reported sales price of our common stock on the AMEX was $_____ per share.
Q.
Will Westmoreland consummate the rights offering if stockholders do not subscribe for a minimum number of shares of common
     stock?
A.
We may consummate this offering even if we do not receive subscriptions for any specific number of shares.  We are not obligated,
     prior to the completion of the rights offering, to inform you how many shares have been subscribed for, and we do not expect to
     announce publicly the results of the rights offering until after its completion.
Q.
Are there any conditions to the rights offering?
A.
We may terminate this rights offering, in whole or in part, if at any time before completion of this rights offering there is any
     judgment, order, decree, injunction, statute, law or regulation entered, enacted, amended or held to be applicable to this rights
     offering that in the sole judgment of our Board of Directors would or might make this rights offering or its completion, whether
     in whole or in part, illegal or otherwise restrict or prohibit completion of this rights offering.  We may waive any of these
     conditions and choose to proceed with this rights offering even if one or more of these events occur.  If we terminate this
     rights offering, in whole or in part, all affected subscription rights will expire without value and all subscription payments
     received by the subscription agent will be returned promptly, without interest or deduction.
Q.
Can Westmoreland cancel this rights offering?
A.
Yes.  We may cancel this rights offering, in whole or in part, in our sole discretion at any time prior to the time this rights
     offering expires for any reason (including a change in the market price of our common stock).
Q.
If the rights offering is not completed, will my subscription payment be refunded to me?
A.
Yes.  The subscription agent will hold all funds it receives in escrow until completion of the rights offering.  If the rights
     offering is not completed, the subscription agent will return promptly, without interest, all subscription payments.
Q.
What should I do if I have other questions?
A.
If you have questions or need assistance, please contact _________________, the subscription agent, at (   ) ___-____.  Banks and
     brokerage firms please call (   ) ___-____.  For a more complete description of the rights offering, see "The Rights Offering,"
     beginning on page ___.
vii
SUMMARY
This summary highlights
information contained elsewhere in this prospectus. This summary may not contain
all of the information that is important to you. This prospectus includes
information about our business and our financial and operating data. Before
making an investment decision, we encourage you to read the entire prospectus
carefully, including the risks discussed in the "Risk Factors"
section. We also encourage you to review our financial statements and the other
information we provide in the reports and other documents that we file with the
Securities and Exchange Commission, or SEC, as described under "Where You
Can Find More Information."
We use the terms
"we," "us," "our," "the Company" and
"Westmoreland" in this prospectus to refer to Westmoreland Coal
Company and our consolidated subsidiaries. We use the terms "Westmoreland
Energy" to refer to our subsidiary Westmoreland Energy, LLC, and
"Westmoreland Mining" to refer to our separate subsidiary,
Westmoreland Mining LLC. We use the term "Westmoreland Resources" to
refer to Westmoreland Resources, Inc., which owns the Absaloka Mine. We own 80%
of Westmoreland Resources, and Washington Group International Inc. owns the
remaining 20%. We own 100% of our other subsidiaries.
Our Company
We are an energy company.
We mine coal, which is used to produce electric power, and we own interests in
power-generating plants. Beginning in 2004, we also will receive royalties from
the production of coalbed methane gas.
We own five mines in
Montana, North Dakota and Texas. Our mining operations are all surface mines
that provide coal to power-generating stations. Our mines produced 27.7 million
tons of coal in 2003, about 2.6% of all coal produced in the United States, and
we were the 10th largest coal producer in the United States.
We own interests in three
power-generating plants. We own 50% of the Roanoke Valley power plant, or ROVA
Project, which includes two units, ROVA I and ROVA II, that collectively
produced 1.65 million megawatt hours, or MWH, in 2003. The ROVA Project is
located in Weldon, North Carolina. We also own a 4.49% interest in a project in
Fort Lupton, Colorado, that produced 899,000 MWH in 2003.
The power-generating plants
that we supply and the ROVA Project are all baseloaded plants. The baseload is
the minimum amount of electric power delivered or required over a given period
of time at a steady rate, and a baseload or baseloaded power plant is a plant
that is normally operated to take all or part of the minimum load of a system
and which consequently produces electricity whenever it is available and
typically runs continuously when available. Although baseloaded plants typically
run continuously when available, they do not run when they are unavailable
because of unscheduled operating problems or when they are being maintained, and
they require regular maintenance, which is usually scheduled for the spring and
fall.
1
For a power-generating
plant, three of the principal costs of using coal are the cost of the coal, the
cost of transporting the coal from the mine to the plant and the cost of
complying with environmental standards. The principal customers of three of our
mines are located adjacent to the mines, the principal customers for one of our
mines are located 25 to 30 miles from the mine, and one of our mines is 300 rail
miles closer to its principal customers than are this mine's chief
competitors. We have long-term contracts with the principal customers of each of
our mines. The principal customers of each of our mines have already installed
flue gas desulfurization systems, which are known as "scrubbers."
We terminated our coal
operations in the eastern United States in the 1990s. We are obligated to
provide postretirement medical benefits for our former employees, and
individuals for whom responsibility has been assigned to us, under the Coal
Industry Retiree Health Benefits Act, or Coal Act. Our Coal Act obligations are
the predominant portion of a set of obligations that we call our heritage health
benefit costs. They are our most significant long-term obligation.
We trace our origin to a
corporation organized in 1854. We are the oldest independent coal company in the
United States. We are organized under the laws of the State of Delaware. Our
principal executive office is located at 2 North Cascade Avenue, 14th Floor,
Colorado Springs, Colorado 80903, and our office telephone number is (719)
442-2600.
Our web site address is
www.westmoreland.com. Information on our web site is not a part of this
prospectus, and we have included our web site address in this document as an
inactive textual link only.
Recent
Developments
We supply coal to Units
1&2 of the Colstrip Station under a contract that expires December 31, 2009.
Under our contract, the price for our coal has two components, a cost component
and a profit component, and is periodically redetermined or
"reopened." The final reopener under the contract occurred in July
2001. We agreed upon the cost component in December 2003, and we arbitrated the
profit component with the owners of Colstrip Units 1&2. On May 25, 2004, we
announced that we had received the arbitrators' decision. The new profit
component, when added to the new cost component, results in a significant price
increase under our coal supply agreement for Colstrip Units 1&2. This
increased price will remain in effect through expiration of the contract, but is
subject to adjustment to reflect changes in some of our costs and in specified
indices. Because the new price is effective as of July 30, 2001, we expect that,
after payment of taxes and royalties, we will receive a payment of approximately
$11 million for coal that we supplied to Colstrip Units 1&2 from the end of
July 2001 through May 2004.
On June 12, 2004, we
received a notice from LG&E Power Inc., which owns the 50% of the ROVA
Project that we do not own, containing the terms and conditions on which
LG&E proposes to sell us its interest in the project. Westmoreland Energy
has rights under its partnership agreement with LG&E to acquire
LG&E's interest in the ROVA Project pursuant to a right of first
purchase. We are discussing the terms and conditions of such an acquisition with
LG&E.
2
The Rights
Offering
The rights offering
We are distributing subscription rights to holders of our common
stock, at no charge, at the rate of one right for each _____ shares of common stock
owned as of ___________, 2004. We are not distributing fractional rights.
Basic subscription privilege
Each right entitles you to purchase one share of our common stock
                                                  at the subscription price of $__________ per each share purchased.
Over-subscription privilege
If you fully exercise your basic subscription privilege, the
                                                  over-subscription privilege entitles you to subscribe for
                                                  additional shares of our common stock at $___ per share.  If there
                                                  are not enough shares of our common stock to satisfy all
                                                  subscriptions made under the over-subscription privilege, we will
                                                  allocate the available shares of our common stock pro rata, after
                                                  eliminating all fractional shares, among the over-subscribing
                                                  rights holders.
Expiration date
5:00 p.m. New York City time, ________, 2004, unless otherwise
                                                  extended by us to a later date.
Procedure for exercising rights
You may exercise your basic subscription privilege and your
                                                  over-subscription privilege by properly completing the rights
                                                  certificate and forwarding it to the subscription agent with
                                                  payment of the subscription price, including payment for all the
                                                  shares you wish to purchase with both the basic subscription
                                                  privilege and the over-subscription privilege.  The subscription
                                                  agent must actually receive the rights certificate and payment at
                                                  or prior to the expiration time.  If you send rights certificates
                                                  by mail, you are urged to use insured, registered mail.
Subscription agent
_____________, _______________, telephone number
                                                  ___________________.
Use of proceeds
To support our growth and development strategy and for general
                                                  corporate purposes.
Risk factors
You should read "Risk Factors" before you exercise your rights.
3
RISK FACTORS
An investment in our common
stock involves risk. You should consider carefully, in addition to the other
information contained in this prospectus, the following risk factors before
making any decision.
Risks Related
to our Company
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.
Our coal mining operations
are all surface mines. These mines are subject to conditions or events beyond
our control that could disrupt operations, affect production and increase the
cost of mining at particular mines for varying lengths of time and negatively
affect our profitability. These conditions or events include:
•
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.
Examples of recent
conditions or events of these types include the following:
•
In the first quarter of 2004, electrical components on the dragline at our
Savage Mine failed. This reduced overburden removal and increased costs at that
mine for a period of 10½ days while the dragline was being repaired.
•
In the first quarter of 2004, our Beulah Mine experienced sloughage, a condition
in which the side of the pit partially collapses and must be stabilized before
mining can continue. This limited use of the dragline at that mine for a period
of 4 days while the walls of the pit were being stabilized.
•
In the second quarter of
2004, our Jewett Mine received approximately 93% more rain than normal, impeding
production.
4
Our revenues and profitability could suffer if our customers reduce or suspend their coal purchases.
In 2003, we sold
approximately 99% of our coal under long-term contracts and about two-thirds of
our coal under contracts that obligate our customers to purchase all or almost
all of their coal requirements from us, or which give us the right to supply all
of the plant's coal, lignite or fuel requirements. Two of our contracts,
with the owners of Colstrip Units 3&4 and with Texas Genco, L.P. for its
Limestone Electric Generating Station, accounted for 34% and 24%, respectively,
of our coal revenues in 2003. Interruption in the purchases by or operations of
our principal customers could significantly affect our revenues and
profitability. Unscheduled maintenance outages at our customers' power
plants and unseasonably moderate weather are examples of conditions that might
cause our customers to reduce their purchases. Four of our five mines are
dedicated to supplying customers located adjacent to or near the mines, and
these mines may have difficulty identifying alternative purchasers of their coal
if their existing customers suspend or terminate their purchases.
Disputes relating to our coal supply agreements could harm our financial results.
From time to time, we may
have disputes with customers under our coal supply agreements. These disputes
could be associated with claims by our customers that may affect our revenue and
profitability. Any dispute that resulted in litigation could cause us to pay
significant legal fees, which could also affect our profitability. By way of
example, we have entered into a settlement agreement with Texas Genco that
addresses contract disputes through 2007, but differences may occur as to the
interpretation of various contract provisions after 2007.
We are a party to numerous legal proceedings, some of which, if determined unfavorably to us, could result in significant monetary
damages.
We are a party to several
legal proceedings, which are described more fully in this prospectus under
"Legal Proceedings." Adverse outcomes in some or all of the pending
cases could result in substantial damages against us or harm our business.
We own a 50% interest in
the ROVA Project, which is located in Halifax County, North Carolina. Halifax
County asserts that the ROVA Project owes $8.3 million in back taxes, penalties
and interest. If the assessment is upheld, in addition to the amounts assessed,
the ROVA Project's future taxes would increase approximately $600,000 per
year.
We acquired the Rosebud and
Jewett Mines and other assets from Entech, Inc., a subsidiary of the Montana
Power Company, in April 2001. Under our agreement with Entech, the final
purchase price is subject to adjustment. In June 2001, Entech proposed
adjustments that would increase the purchase price by approximately $9 million.
In July 2001, we objected to Entech's adjustments and proposed our own
adjustments, which would result in a substantial decrease in the purchase price.
In June 2003, Entech and Touch America Holdings, Inc., the successor to the
Montana Power Company, filed bankruptcy petitions. In March 2004, we received
notice that Entech and Touch America have commenced an adversary proceeding
against us in the bankruptcy court, seeking payment of approximately $9 million.
We have filed an answer, a motion to dismiss and a claim for indemnification.
The parties are briefing the issues, and we anticipate that our motion to dismiss
will be heard in the third quarter of 2004. At that time, the bankruptcy court will decide how to proceed with
the purchase price adjustment and indemnification claims.
We may not be able to manage our expanding operations effectively, which could impair our profitability.
At the end of 2000, we
owned one mine and employed 31 people. In the spring of 2001, we acquired the
Rosebud, Jewett, Beulah and Savage Mines from Entech and Knife River
Corporation, and at the end of 2003, we employed 918 people. This growth has
placed significant demands on our management as well as our resources and
systems. One of the principal challenges associated with our growth has been,
and we believe will continue to be, our need to attract and retain highly
skilled employees and managers. If we are unable to attract and retain the
personnel we need to manage our increasingly large and complex operations, our
ability to manage our operations effectively and to pursue our business strategy
could be compromised.
5
Our growth and development strategy could require significant resources and may not be successful.
We regularly seek
opportunities to make additional strategic acquisitions, to expand existing
businesses, to develop new operations and to enter related businesses. We may
not be able to identify suitable acquisition candidates or development
opportunities, or complete any acquisition or project, on terms that are
favorable to us. Acquisitions, investments and other growth projects involve
risks that could harm our operating results, including difficulties in
integrating acquired and new operations, diversions of management resources,
debt incurred in financing such activities and unanticipated problems and
liabilities. We anticipate that we would finance acquisitions and development
activities by using our existing capital resources, borrowing under existing
bank credit facilities, issuing equity securities or incurring additional
indebtedness. We may not have sufficient available capital resources or access
to additional capital to execute potential acquisitions or take advantage of
development opportunities.
Our expenditures for postretirement medical and life insurance benefits could be materially higher than we have predicted if our
underlying assumptions prove to be incorrect.
We provide various
postretirement medical and life insurance benefits to current and former
employees and their dependents. We estimate the amounts of these obligations
based on assumptions described in "Management's Discussion and
Analysis of Financial Condition and Results of Operations – Critical
Accounting Policies – Postretirement Benefits and Pension
Obligations." We accrue amounts for these obligations, which are unfunded,
and we pay as costs are incurred. If our assumptions change, the amount of our
obligations could increase, and if our assumptions are inaccurate, we could be
required to expend greater amounts than we anticipate. We estimate that our
gross obligation for postretirement medical and life insurance benefits was
$237.6 million at December 31, 2003. We had an accrued liability for
postretirement medical and life insurance benefits of $127.2 million at December
31, 2003, and we will accrue an additional $110.4 million over the next ten
years, as permitted by Statement of Financial Accounting Standards No. 106. We
regularly revise our estimates, and the amount of our accrued obligations is
subject to change.
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.
As of March 31, 2004, our
total indebtedness was approximately $110.6 million, which included Westmoreland
Mining's obligations under its term loan agreement, including the
"add-on" facility described in "Management's Discussion and
Analysis of Financial Condition and Results of Operations – Overview –
Revenues and expenses; sources and uses of cash." Westmoreland Mining will
borrow an additional $14.6 million under the add-on facility in the fourth
quarter of 2004, and we may incur additional indebtedness in the future,
including indebtedness under our two existing revolving credit facilities.
6
Westmoreland Mining's
term loan agreement restricts its ability to distribute cash to Westmoreland
Coal Company through 2008 and limits the types of transactions that Westmoreland
Mining and its subsidiaries can engage in with Westmoreland Coal Company and our
other subsidiaries. Westmoreland Mining executed the term loan agreement in 2001
and used the proceeds to finance its acquisition of the Rosebud, Jewett, Beulah
and Savage Mines. The final payment on this indebtedness, which we call
Westmoreland Mining's acquisition debt, is in the amount of $30 million and
is due on December 31, 2008. After payment of principal and interest, 25% of
Westmoreland Mining's surplus cash flow is dedicated to an account that is
expected to fund this final payment. Westmoreland Mining has pledged or
mortgaged substantially all of its assets and the assets of the Rosebud, Jewett,
Beulah and Savage Mines, and we have pledged all of our member interests in
Westmoreland Mining, as security for Westmoreland Mining's indebtedness. In
addition, Westmoreland Mining must comply with financial ratios and other
covenants specified in the agreements with its lenders. Failure to comply with
these ratios and covenants or to make regular payments of principal and interest
could result in an event of default.
A substantial portion of
our cash flow must be used to pay principal of and interest on our indebtedness
and is not available to fund working capital, capital expenditures or other
general corporate uses. In addition, the degree to which we are leveraged could
have other important consequences, including:
•
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.
If our or Westmoreland
Mining's operating performance declines, or if we or Westmoreland Mining do
not have sufficient cash flows and capital resources to meet our debt service
obligations, we or Westmoreland Mining may be forced to sell assets, seek
additional capital or seek to restructure or refinance our indebtedness. If
Westmoreland Mining were to default on its debt service obligations, a note
holder may be able to foreclose on assets that are important to our business.
If the cost of obtaining new reclamation bonds and renewing existing reclamation bonds continues to increase, our profitability could
be reduced.
Federal and state laws
require that we provide bonds to secure our obligations to reclaim lands used
for mining. We must post a bond before we obtain a permit to mine any new area.
These bonds are typically renewable on a yearly basis and have become
increasingly expensive. Bonding companies are requiring that applicants
collateralize a portion of their obligations to the bonding company. In 2003, we
paid approximately $2.2 million in premiums for reclamation bonds and posted
approximately $1.5 million in collateral, in addition to the collateral that we
had previously posted, for those bonds. Any capital that we provide to
collateralize our obligations to our bonding companies is not available to
support our other business activities. If the cost of our reclamation bonds
continues to increase, our profitability could be reduced.
7
Our financial position could be adversely affected if we fail to maintain our Coal Act bonds.
The Coal Act established
the 1992 UMWA Benefit Plan, or 1992 Plan. We are required to secure three years
of our obligations to that plan by posting a surety bond or a letter of credit
or collateralizing our obligations with cash. We presently secure these
obligations with two bonds, one in an amount of approximately $21.3 million and
one in an amount of approximately $5.0 million. In December 2003, the issuer of
our $21.3 million bond indicated a desire to exit the business of bonding Coal
Act obligations. In February 2004, this company renewed our Coal Act bond.
Although we believe that the issuer of this bond must continue to renew the bond
so long as we do not default on our obligations to the 1992 Plan, there can be
no assurance that the issuer of this bond will not attempt to cancel the bond.
If either of the companies that issue our Coal Act bonds were to cancel or fail
to renew our bonds, we may be required to post another bond or secure our
obligations with a letter of credit or cash. At this time, we are not aware of
any other company that would provide a surety bond to secure obligations under
the Coal Act. We do not believe that we could now obtain a letter of credit
without collateralizing that letter of credit in full with cash. Any capital
that we might provide to collateralize such a letter of credit or secure our
obligations under the Coal Act would not be available to support our other
business activities.
Our insurance costs may increase, which could increase our expenses and reduce our profitability.
Our insurance costs
increased from July 2002 through June 2004, and we believe that insurance costs
have generally increased throughout the mining industry. We have been able to
address a portion of these costs by organizing Westmoreland Risk Management
Ltd., our insurance subsidiary, and retaining a portion of the risk associated
with our operations. However, Westmoreland Risk Management has limited capacity.
Our insurance costs may increase in the future, and any such increase would
increase our expenses and thereby reduce our profitability.
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.
Approximately one-third of
the coal tonnage that we will produce in 2004 will be sold under long-term
contracts to power plants that take delivery of our coal from common carrier
railroads. All of the Absaloka Mine's sales are delivered by rail and about
20% of the Rosebud Mine's and Beulah Mine's sales are delivered by
rail. Contracts covering 90% of those rail tons are scheduled to expire between
December 2006 and December 2008. As a general matter, plants that take coal by
rail can buy their coal from many different suppliers. We will face significant
competition, primarily from mines in the Southern Powder River Basin of Wyoming,
to renew our long-term contracts with our rail-served customers, and for
contracts with new rail-served customers. Many of our competitors are larger and
better capitalized than we are and have coal with a lower sulfur and ash content
than our coal. As a result, our competitors may be able to adopt more aggressive
pricing policies for their coal supply contracts than we can. If our existing
customers fail to renew their existing contracts with us on terms that are at
least equivalent to those in effect today, or if we are unable to replace our
existing contracts with contracts of equal size and profitability from new
customers, our revenues and profitability would be reduced.
8
Approximately two-thirds of
the coal tonnage that we will sell in 2004 will be delivered under long-term
contracts to power plants located adjacent to our mines. We will face somewhat
less competition to renew these contracts upon their expiration, both because of
the transportation advantage we enjoy by being located adjacent to these
customers and because most of these customers would be required to invest
additional capital to obtain rail access to alternative sources of coal. Our
Jewett Mine is an exception because our customer has already built rail
unloading and associated facilities that are being used to take coal from the
Southern Powder River Basin as permitted under our contract with that customer.
Stricter environmental regulations, including the EPA's proposed rule relating to mercury, could reduce the demand for coal as a fuel
source and cause the volume of our sales to decline.
Coal contains impurities,
including sulfur, mercury, nitrogen and other elements or compounds, many of
which are released into the air when coal is burned. Stricter environmental
regulation of emissions from coal-fired electric generating plants could
increase the costs of using coal, thereby reducing demand for coal as a fuel
source generally, and could make coal a less attractive fuel alternative in the
planning and building of utility power plants in the future. The U.S.
Environmental Protection Agency, or EPA, has proposed regulations that could
increase the costs of operating coal-fired power plants, including the ROVA
Project. Because different types of coal vary in their chemical composition and
combustion characteristics, the proposed regulations could also alter the
relative competitiveness among coal suppliers and coal types. Depending on the
final forms of these rules, any or all of our mines could be disadvantaged, and
notwithstanding our coal supply contracts we could lose all or a portion of our
sales volumes and face increased pressure to reduce the price for our coal,
thereby reducing our revenues, our profitability and the value of our coal
reserves.
On January 30, 2004, the
EPA issued the Proposed National Emission Standards for Hazardous Air
Pollutants, or Mercury Rule, which proposes to regulate emissions of mercury by
electric generating units, or EGUs. The EPA issued a Supplemental Proposal Rule on March 16, 2004. These proposals contain three alternative
methods for regulating emissions of mercury, including two alternatives that
would establish standards of performance and cap-and-trade programs, and one
alternative that would require EGUs to meet an emissions limit that is based on
the installation of controls known as "maximum achievable control
technologies," or MACT. The MACT alternative would limit the amount of
mercury that could be emitted from lignite-burning EGUs to 9.2 pounds of mercury
for every trillion Btu those units produce, commencing as early as 2007. Mercury
emissions from the Limestone Station, which burns lignite produced by our Jewett
Mine, are higher than this level, and mercury emissions from the Coyote Station,
which burns lignite produced by our Beulah Mine, may be higher than this level.
According to the EPA, there are neither precombustion techniques nor proven
technologies that are currently commercially available for reducing mercury
emissions from lignite-burning EGUs to 9.2 pounds of mercury per trillion Btu
produced, and there is also currently no proven technology for accurately
measuring the mercury content in emissions. If the EPA were to adopt a version
of the Mercury Rule that limits emissions of mercury to 9.2 pounds for every
trillion Btu produced from lignite-burning plants, then sales from the Jewett
Mine or Beulah Mine could be significantly reduced, and if the EPA were to adopt
any version of the Mercury Rule, we could face increased pressure to reduce the
price for our lignite to help defray the cost of complying with the regulations.
 The EPA has announced that it expects to adopt some version of the Mercury Rule by March 15, 2005.
9
We provide more information
about the technical aspects of the proposed Mercury Rule elsewhere in this
prospectus under the heading "Business – Governmental Regulation
– Proposed Environmental Rules."
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.
A variety of international
and domestic environmental initiatives are currently aimed at reducing emissions
of greenhouse gases, such as carbon dioxide, which is emitted when coal is
burned. If these initiatives were to be successful, the cost to our customers of
using coal could increase, or the use of coal could be restricted. This could
cause the demand for our coal to decrease or the price we receive for our coal
to fall, and the demand for coal generally might diminish. Restrictions on the
use of coal or increases in the cost of burning coal could cause us to lose
sales and revenues, cause our profitability to decline or reduce the value of
our coal reserves.
Demand for our coal could also be reduced by environmental regulations at the state level.
Environmental regulations
by the states in which our mines are located, or in which the generating plants
they supply operate, may negatively affect demand for coal in general or for our
coal in particular. For example, Texas has passed regulations requiring all
fossil fuel-fired generating facilities in the state to reduce nitrogen oxide
emissions beginning in May 2003. In January 2004, we entered into a supplemental
settlement agreement with Texas Genco pursuant to which the Limestone Station
must purchase a specified volume of lignite from the Jewett Mine. In order to
burn this lignite without violating the Texas nitrogen oxide regulations, the
Limestone Station is blending our lignite with coal, produced by others in the
Southern Powder River Basin, and using emissions credits. Considerations
involving the Texas nitrogen oxide regulations might affect the demand for
lignite from the Jewett Mine in the period after 2007, which is the last year
covered by the supplemental settlement agreement. Texas Genco might claim that
it is less expensive for the Limestone Station to comply with the Texas nitrogen
oxide regulations by switching to a blend that contains relatively more coal
from the Southern Powder River Basin and relatively less of our lignite. Other
states are evaluating various legislative and regulatory strategies for
improving air quality and reducing emissions from electric generating units.
Passage of other state-specific environmental laws could reduce the demand for
our coal.
10
We have significant
reclamation and mine closure obligations. If the assumptions underlying our
accruals are materially inaccurate, or if we are required to honor reclamation
obligations that have been assumed by our customers, we could be required to
expend greater amounts than we currently anticipate, which could affect our
profitability in future periods.
We are responsible under
federal and state regulations for the ultimate reclamation of the mines we
operate. In some cases, our customers have assumed these liabilities by contract
and have posted bonds or have funded escrows to secure their obligations. We
estimate our future liabilities for reclamation and other mine-closing costs
from time to time based on a variety of assumptions. If our assumptions are
incorrect, we could be required in future periods to spend more on reclamation
and mine-closing activities than we currently estimate, which could harm our
profitability. Likewise, if our customers default on the unfunded portion of
their contractual obligations to pay for reclamation, we could be forced to make
these expenditures ourselves and the cost of reclamation could exceed any amount
we might recover in litigation, which would also increase our costs and reduce
our profitability.
We estimate that our gross
reclamation and mine-closing liabilities, which are based upon permit
requirements and our experience, were $307 million (with a present value of $123
million) at December 31, 2003. Of these liabilities, our customers have assumed
a gross aggregate of $184 million and have secured a portion of these
obligations by posting bonds in the amount of $50 million and funding
reclamation escrow accounts that currently hold approximately $54 million, in
each case at December 31, 2003. We estimate that our gross obligation for
final reclamation that is not the contractual responsibility of others was $123
million at December 31, 2003, and that the present value of our net obligation
for final reclamation that is not the contractual responsibility of others was
$45.2 million at December 31, 2003.
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.
Scheduled and unscheduled
outages at the power plants that we supply could reduce our coal sales and
revenues, because any such plant would not use coal while it was undergoing
maintenance. We cannot anticipate if or when unscheduled outages may occur.
Our profitability could be
affected by unscheduled outages at the ROVA Project or if scheduled outages at
the ROVA Project last longer than we anticipate. For example, the ROVA I unit is
currently scheduled to be out of service for 30 days for major maintenance in
the fourth quarter of 2004. The ROVA Project's contract with Dominion
Virginia Power is structured so that our revenues will not be adversely affected
by a 30-day outage for major maintenance at ROVA I this year. However, if that
maintenance uncovers matters beyond those anticipated, the outage may be
prolonged beyond the 30-day period, which would reduce the ROVA Project's
profitability and our revenues. In addition, if the maintenance uncovers a
matter that must be remedied or repaired, the cost of those repairs would also
adversely affect the ROVA Project's profitability.
Increases in the cost of the fuel, electricity and materials we use to operate our mines could affect our profitability.
Under several of our
existing coal supply agreements, our mines bear the cost of the diesel fuel,
lubricants and other petroleum products, electricity, and other materials and
supplies necessary to operate their draglines and other mobile equipment. The
prices of many of these commodities have increased in the last year, and
continued escalation of these costs would hurt our profitability.
11
If we experience unanticipated increases in the capital expenditures we expect to make over the next several years, our profitability
could suffer.
Over the next several
years, we anticipate making significant capital expenditures, principally at the
Rosebud and Jewett Mines, in order to add to and refurbish our machinery and
equipment and prepare new areas for mining. We also expect to begin implementing
a new enterprise resource planning system in late 2004, with full deployment
scheduled for 2005. The costs of any of these expenditures could exceed our
expectations, which could reduce our profitability and divert our capital
resources from other uses.
Our ability to operate effectively and achieve our strategic goals could be impaired if we lose key personnel.
Our future success is
substantially dependent upon the continued service of our key senior management
personnel, particularly Christopher K. Seglem, our Chairman of the Board,
President and Chief Executive Officer. We do not have key-person life insurance
policies on Mr. Seglem or any other employees. The loss of the services any of
our executive officers or other key employees could make it more difficult for
us to pursue our business goals.
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 you may consider favorable, and the market price of our common
stock may be lower as a result.
Provisions in our
certificate of incorporation and bylaws and Delaware law could make it more
difficult for a third party to acquire us, even if doing so might be beneficial
to our stockholders. Provisions of our bylaws impose various procedural and
other requirements that could make it more difficult for stockholders to effect
some types of corporate actions. In addition, a change of control of our Company
may be delayed or deterred as a result of our stockholder rights plan, which was
initially adopted by our Board of Directors in early 1993 and amended and
restated in February 2003. Our ability to issue preferred stock in the future
may influence the willingness of an investor to seek to acquire our company.
These provisions could limit the price that some investors might be willing to
pay in the future for shares of our common stock and may have the effect of
delaying or preventing a change in control of Westmoreland.
Risks Relating
to the Rights Offering
The subscription price determined for this offering is not an indication of our value or the value of our common stock.
The subscription price is
$___. The subscription price does not necessarily bear any relationship to the
results of our past operations, cash flows, net income, or financial condition;
the book value of our assets; or any other established criteria for value, nor
does the trading history of our common stock accurately predict its future
market performance. Because of the manner in which we have established the
subscription price, the trading price of the common stock may be below the
subscription price even at the closing of the rights offering. On ________,
2004, the last reported sales price for our common stock on the American Stock
Exchange was __________ per share. You should not consider the subscription
price an indication of our value or any assurance of future value. After the
date of this prospectus, our common stock may trade at prices above or below the
subscription price.
12
Once you exercise
your subscription rights, you may not revoke the exercise even if you no longer
desire to invest in us, and even if we decide to extend the expiration date of
the subscription period.
Once you exercise your
subscription rights, you may not revoke the exercise. Therefore, even if
circumstances arise after you have subscribed in the offering that eliminate
your interest in investing in our common stock, you will be required to purchase
the common stock for which you subscribed.
We may, in our discretion,
extend the expiration date of the subscription period for up to an additional 30
days. During any potential extension of time, our common stock price may decline
below the subscription price and result in a loss on your investment upon the
exercise of rights to acquire shares of our common stock. If we extend the
expiration date after you send in your subscription forms and payment, you still
may not revoke or change your exercise of rights.
Because our management will have broad discretion over the use of the net proceeds from this offering, you may not agree with how we
use them, and we may not invest those proceeds successfully.
The net proceeds from this
offering have not been allocated for any particular purpose and our management
will have broad discretion as to the use of these proceeds. While we currently
anticipate that we will use the net proceeds of this offering to support our
growth and development strategy and for general corporate purposes, our
management may allocate the proceeds among these purposes as it determines is
necessary. In addition, market factors may require our management to allocate
portions of the proceeds for other purposes. Accordingly, you will be relying on
the judgment of our management with regard to the use of the proceeds from this
offering, and you will not have the opportunity, as part of your investment
decision, to assess whether the proceeds are being used appropriately. It is
possible that the proceeds will be invested in a way that does not yield a
favorable, or any, return for our Company.
If you exercise your
rights, you may lose money if there is a decline in the trading price of our
shares of common stock.
The trading price of our
common stock may be below the subscription price at the closing of this offering
or may in the future decline below the subscription price. In that event, you
will suffer a loss on your investment.
You may have to wait to resell the shares you purchase in the rights offering.
Until certificates are
delivered, you may not be able to sell the shares of common stock that you have
purchased in the rights offering. This means that you may have to wait until you
(or your broker or other nominee) have received a stock certificate. We will
endeavor to prepare and issue the appropriate certificates as soon as
practicable after the expiration of the offering. However, we cannot assure you
that the market price of the common stock purchased pursuant to the exercise of
rights will not decline below the subscription price before we are able to
deliver your certificates. For shares purchased pursuant to the
over-subscription privilege, delivery of certificates will occur as soon as
practicable after all prorations and adjustments contemplated by the terms of
the offering have been effected.
13
You will not receive interest on subscription funds, including any funds ultimately returned to you.
You will not earn any
interest on your subscription funds while they are being held by the
subscription agent pending the closing of this offering. In addition, if we
cancel the rights offering, or if you exercise your oversubscription privilege
and are not allocated all the shares for which you over-subscribed, neither we
nor the subscription agent will have any obligation with respect to the
subscription rights except to return, without interest, any subscription
payments to you.
14
USE OF
PROCEEDS
Assuming that stockholders
exercise subscription rights for all of the common stock that we are offering,
we will receive gross proceeds of approximately $________ million, and after
related offering expenses that we estimate will approximate $_____ million, the
net proceeds would be approximately $______ million. We intend to use the net
proceeds from this offering initially to support our growth and development
strategy and for general corporate purposes. We do not currently have any
agreement to acquire any business or assets (other than the capital expenditures
we anticipate making in the ordinary course of our business) or any letter of
intent with respect to any such acquisition. However, we have received a notice
from LG&E containing the terms and conditions on which LG&E proposes to
sell us its interest in the ROVA Project pursuant to our right of first
purchase, and we are discussing the terms and conditions of such an acquisition
with LG&E.
15
PRICE RANGE
OF COMMON STOCK,
DIVIDENDS
AND RELATED STOCKHOLDER MATTERS
Our common stock is listed
on the American Stock Exchange under the symbol "WLB." The following
table sets forth the high and low closing sales prices per share of our common
stock for the periods indicated.
HIGH
LOW
Year Ended December 31, 2002
First Quarter
$
15.49
$
10.80
Second Quarter
16.44
12.25
Third Quarter
13.55
8.30
Fourth Quarter
12.85
10.00
Year Ended December 31, 2003
First Quarter
$
13.70
$
10.00
Second Quarter
19.53
13.41
Third Quarter
18.19
13.81
Fourth Quarter
18.25
13.29
Year Ending December 31, 2004
First Quarter
$
19.01
$
16.04
Second Quarter
21.61
16.70
Third Quarter (through ________, 2004)
_______
_______
As of July 20, 2004, there were approximately 1,500 holders of record of our common stock.
We issued our Series A
Preferred Stock in July 1992. Each depositary share represents one-quarter of a
share of Series A Preferred Stock. We paid quarterly dividends on the depositary
shares until the third quarter of 1995, when we suspended dividend payments
pursuant to the requirements of Delaware law described below. We resumed
dividends to preferred stockholders on October 1, 2002. The quarterly dividends
that are accumulated through and including April 1, 2004 amount to $15.6 million
in the aggregate ($75.94 per preferred share or $18.99 per depositary share). We
cannot pay dividends on our common stock until we pay the accumulated preferred
dividends in full.
There are statutory
restrictions limiting the payment of preferred stock dividends under Delaware
law, the state in which we are incorporated. Under Delaware law, we are
permitted to pay preferred stock dividends only: (1) out of surplus, surplus
being the amount of stockholders' equity in excess of the par value of our
two classes of stock; or (2) in the event there is no surplus, out of net
profits for the fiscal year in which a preferred stock dividend is declared
(and/or out of net profits from the preceding fiscal year), but only to the
extent that stockholders' equity exceeds the par value of the preferred
stock (which par value was $205,000 at December 31, 2003). We had
stockholders' equity of $33.3 million and the par value of all outstanding
shares of preferred stock and shares of common stock aggregated $20.1 million at
December 31, 2003.
16
CAPITALIZATION
The following table sets
forth our summary capitalization as of March 31, 2004, and our summary
capitalization as of March 31, 2004 as adjusted to reflect the sale of ______
shares of our common stock (the maximum number of shares offered) in this rights
offering at an offering price of $_________ per share and the receipt of the
estimated net proceeds therefrom, after deducting estimated offering expenses of
$___________. There is no minimum number of shares that we must sell in the
offering in order to close, and our net proceeds from this offering could be
less than $ ___ million.
March 31, 2004
(in thousands)
Actual
As Adjusted
Long-term debt, less current maturities
$
99,043
$
99,043
Stockholders' Equity:
Preferred Stock of $1.00 par value, authorized
5,000,000 shares, issued and outstanding 205,083 shares
205
205
Common Stock, $2.50 par value, authorized
20,000,000 shares, issued and outstanding
8,023,384 shares (actual) and ______ shares
(as adjusted)
20,059
_______
Other paid-in capital
73,420
_______
Accumulated other comprehensive loss
(4,946)
(4,946)
Accumulated deficit
(52,333)
(52,333)
Total stockholders' equity
36,405
_______
Total capitalization
$
135,448
$
_______
17
SELECTED
CONSOLIDATED FINANCIAL DATA
The following selected consolidated
financial data should be read together with "Management's Discussion
and Analysis of Financial Condition and Results of Operations," the
consolidated financial statements and notes thereto, and other financial
information included elsewhere in this prospectus. Our consolidated statements
of operations information set forth below for the years ended December 31, 2003,
2002 and 2001 and the consolidated balance sheet information as of December 31,
2003 and 2002 have been derived from our audited consolidated financial
statements which are included elsewhere in this prospectus. The consolidated
balance sheet information as of March 31, 2004 and the consolidated statements
of operations information set forth below for the three months ended March 31,
2004 and 2003 have been derived from our unaudited financial statements included
elsewhere in this prospectus, which we believe have been prepared on the same
basis as the audited financial statements and include all adjustments,
consisting of normal recurring adjustments, which we consider necessary for a
fair presentation of the selected financial data shown.
Westmoreland
Coal Company and Subsidiaries
Five-Year Review
Year ended December 31,
Three Months Ended
March 31,
2003
2002
2001
(1)
2000
1999
2004
2003
(in thousands, except per share data)
(unaudited)
Consolidated Statements of
Operations Information
Revenue – Coal
$
294,986
$
301,235
$
231,048
$
35,137
$
38,539
$
77,132
$
74,513
–
Independent power and other
15,824
14,506
15,871
32,260
34,492
5,405
3,771
Total revenues
310,810
315,741
246,919
67,397
73,031
82,537
78,284
Cost and expenses
303,695
296,908
233,307
60,170
62,849
78,933
75,775
Impairment charges
-
-
-
4,632
-
-
-
Operating income from continuing operations
7,115
18,833
13,612
2,595
10,182
3,604
2,509
Interest expense
(10,114)
(10,821)
(8,418)
(911)
(1,135)
(2,486)
(2,539)
Minority interest
(773)
(800)
(780)
(518)
(854)
(282)
(111)
Interest and other income
3,121
4,128
3,229
867
1,826
825
746
Income (loss) from continuing operations before
income taxes and cumulative effect of
change in accounting principle
(651)
11,340
7,643
2,033
10,019
1,661
605
Income tax benefit (expense) from continuing
operations
10,971
2,368
(1,228)
(428)
82
875
910
Net income from continuing operations before
cumulative effect of change in accounting
principle
10,320
13,708
6,415
1,605
10,101
2,536
1,515
Income (loss) from discontinued operations
2,113
(3,583)
(1,188)
(1,297)
(1,464)
-
(184)
Net income before cumulative effect of change
in accounting principle
12,433
10,125
5,227
308
8,637
2,536
1,331
Cumulative effect of change in accounting
principle
161
-
-
-
-
-
161
Net income
12,594
10,125
5,227
308
8,637
2,536
1,492
Less preferred stock dividend requirements
1,752
1,772
1,776
1,776
2,992
436
440
Net income (loss) applicable to common
shareholders
$
10,842
$
8,353
$
3,451
$
(1,468)
$
5,645
$
2,100
$
1,052
Net income (loss) per share applicable to
common shareholders:
Basic
$
1.39
$
1.10
$
0.48
$
(0.21)
$
0.80
$
0.26
$
0.14
Diluted
$
1.30
$
1.03
$
0.43
$
(0.21)
$
0.79
$
0.25
$
0.13
Weighted average number of common shares
outstanding:
Basic
7,799
7,608
7,239
7,070
7,040
8,009
7,728
Diluted
8,338
8,147
8,000
7,070
7,146
8,503
8,223
18
Westmoreland
Coal Company and Subsidiaries
Five-Year Review
December 31,
March 31,
2003
2002
2001
(1)
2000
1999
2004
(in thousands)
(unaudited)
Balance Sheet Information
Working capital (deficit)
$
5,555
$
10,143
$
11,346
$
(1,557)
$
8,886
$
24,859
Net property, plant and equipment
151,349
189,532
197,271
34,693
36,558
149,674
Total assets
457,837
471,957
466,532
139,096
142,297
482,188
Total debt
93,469
100,157
122,910
-
1,563
110,638
Shareholders' equity
33,270
18,568
10,415
3,373
3,057
36,405
(1)
Effective April 30, 2001, the Company acquired the operating coal business of Montana Power and the coal assets of Knife River
Corporation.  Refer to Note 2 to our consolidated financial statements for further information
19
MANAGEMENT'S
DISCUSSION AND ANALYSIS OF
FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Overview
Competitive, economic and industry factors
We are an energy company.
We mine coal, which is used to produce electric power, and we own interests in
power-generating plants. We will also begin to earn royalties from the
production of coalbed methane gas in 2004. All of our five mines supply
baseloaded power plants, several of these power plants are located adjacent to
our mines, and we sell virtually all our coal under long-term contracts.
Consequently, our mines enjoy relatively stable demand and pricing compared to
competitors who sell more of their production on the spot market.
In partnership with others,
we have developed eight independent power projects totaling 866 megawatts, or
MW, of generating capacity. We have sold our interests in five of those
projects. We currently own a 50% interest in the ROVA I and II coal-fired
plants, which have a total generating capacity of 230 MW. We also retain a 4.49%
interest in the gas-fired Fort Lupton Project, which has a generating capacity
of 290 MW and provides peaking power to the local utility. The ROVA Project,
which accounted for 96% of our equity in earnings from independent power in
2003, is baseloaded and supplies power pursuant to a long-term contract.
According to the most
recent Annual Energy Review prepared by the Energy Information Administration,
or EIA, an agency of the U.S. Department of Energy, approximately 50% of all
electricity generated in the United States in 2002 was produced by coal-fired
units. The EIA projects that the demand for coal will increase 1.7% per year
from 2002 through 2025. The EIA also estimates that the demand for coal used to
generate electricity will increase 1.8% per year from 2002 through 2025.
Consequently, we believe that the demand for coal will grow, in part because
coal is the lowest cost fossil-fuel used for generating baseload electric power.
Revenues and expenses; sources and uses of cash
In 2003, approximately
two-thirds of our operating income came from coal operations, and one-third came
from independent power projects. Our principal expenses were the cost of coal
sales, heritage health benefit costs and selling, general and administrative
expenses.
In 2001, in order to
finance the purchase of the Rosebud, Jewett, Beulah and Savage Mines,
Westmoreland Mining borrowed $120 million from institutional lenders under a
term loan agreement. By the end of 2003, Westmoreland Mining had repaid $31.5
million of that $120 million and deposited an additional $17.4 million into two
restricted accounts for the benefit of its lenders. In early March 2004,
Westmoreland Mining made arrangements to borrow an additional $35 million from
its lenders pursuant to what we call the add-on facility. Westmoreland Mining
borrowed $20.4 million in early March 2004 and will borrow the additional $14.6
million before the end of 2004. The add-on facility will permit Westmoreland
Mining to undertake significant capital projects in the near term without
adversely affecting cash available to us.
20
Challenges
We believe that our principal challenges today include the following:
•
inflation in medical costs, which can increase our expense for active employees and our heritage health benefit costs;
•
maintaining our Coal Act bonds;
•
transitioning from an approach towards growth and development that seeks to
maximize the use of our net operating loss carryforwards to one that considers
the impact of the alternative minimum tax;
•
managing the production from and costs of our operations;
•
proposed new environmental regulations, which have the potential to significantly reduce sales from our Jewett and Beulah
              Mines; and
•
addressing the claims for potential taxes asserted by various governmental entities.
We discuss these issues, as
well as the other challenges we face, elsewhere in this Management's
Discussion and Analysis of Financial Condition and Results of Operations, and
under "Risk Factors."
Critical
Accounting Estimates and Related Matters
Our discussion and analysis
of financial condition, results of operations, liquidity and capital resources
is based on our financial statements, which have been prepared in accordance
with accounting principles generally accepted in the United States. Generally
accepted accounting principles require that we make estimates and judgments. We
base our estimates on historical experience and on various other assumptions
that we believe are reasonable under the circumstances. Actual results may
differ materially from these estimates.
We have made significant
judgments and estimates in connection with the following accounting matters. Our
senior management has discussed the development, selection and disclosure of
these accounting estimates with the Audit Committee of our Board of Directors.
In connection with our
discussion of these critical accounting matters, and in order to reduce
repetition, we also use this section to present information related to these
judgments and estimates.
Postretirement Benefits and Pension Obligations
Our most significant
long-term obligation is the obligation to provide postretirement medical
benefits, pension benefits, workers' compensation and pneumoconiosis (black
lung) benefits. We provide these benefits to our current and former employees
and their dependents.
21
Estimates and Judgments
We estimate the total
amount of these obligations with the help of third party professionals using
actuarial assumptions and information. Our estimate is sensitive to judgments we
make about the discount rate, about the rate of inflation in medical care, about
mortality rates and about the Medicare Prescription Drug Improvement and
Modernization Act of 2003, or Medicare Reform Act. We review these estimates and
obligations at least annually.
We pay these obligations
currently and will have continuing obligations for future periods. Under
generally accepted accounting principles, we are required to estimate the
present value of these obligations. In order to do this, we make a judgment
about the discount rate, which is an estimate about the current interest rate at
which these obligations could be effectively settled on the date we estimate
them. The discount rate we used to calculate the present value of these future
obligations was 7.25% in 2001, 6.75% in 2002 and 6.25% in 2003. Significant
changes to interest rates result in substantial volatility to our consolidated
financial statements by influencing our estimate of these amounts.
In order to estimate the
total cost of our obligation to provide medical benefits, we must make a
judgment about the rate of inflation in medical costs. As our estimate of the
rate of inflation of medical costs increases, our calculation of the total cost
of providing these benefits increases. During 2001, we increased our assumption
about this rate to 10%, and we also assumed that the rate would ultimately
decline to 5% in 2009 and beyond. If we were to increase our assumption of the
ultimate medical inflation rate from 5% to 6%, then all other things being
equal, the present value of our postretirement medical cost obligation would
increase by approximately $25 million.
Our accrual for
postretirement medical benefits is also affected by the mortality rate of the
population for which we provide benefits. As people live longer, our cost to
provide postretirement medical care increases. However, the number of former
Westmoreland employees for whom we provide benefits under the Coal Act is fixed,
since we discontinued our eastern underground operations, and the primary
beneficiaries are elderly.
The Medicare Reform Act
provides prescription drug benefits. We have estimated that the Medicare Reform
Act reduced the present value of our future health care obligations by $16.5
million as of December 31, 2003. There is no authoritative guidance on
accounting for the Medicare Reform Act, and we may be required to revise our
estimate when guidance becomes available.
Related Information
The present value of our
actuarially determined liability for postretirement medical costs increased
approximately $13.2 million between December 31, 2002 and 2003, and
approximately $1.2 million between December 31, 2003 and March 31, 2004,
principally because of an increase in actual costs over prior estimates and for
the reasons described above. Actuarial valuations project that our retiree
health benefit costs will continue to increase in the near term and then decline
to zero over the next approximately sixty years as the number of eligible
beneficiaries declines. We incurred cash costs of $20.7 million for
postretirement medical costs during 2003 compared to $20.5 million in 2002. We
incurred cash costs of $7.3 million for postretirement medical costs during the
first quarter of 2004 compared to $4.9 million in the first quarter of 2003, and
we expect to incur approximately $26 million of these costs in all of 2004. In
September 2003, the UMWA Combined Benefit Fund, or Combined Fund, assessed us
$4.7 million for the period from 1996. We are challenging this assessment in
court but must pay pending a resolution. We paid $1.2 million of this assessment
in 2003 and $1.1 million in the first quarter of 2004, and we expect to pay the
remaining $2.4 million in the second and third quarters of 2004. Our estimate of
our total cash costs for postretirement medical care in 2004 includes the
amounts we have and will pay in respect of this assessment.
22
We incurred cash costs of
$2.1 million for workers' compensation benefits during 2003 compared to
$2.8 million in 2002 and cash costs of $500,000 for these benefits during the
first quarter of 2004 compared to $600,000 in the first quarter of 2003. We
expect to incur lower cash costs for workers' compensation benefits in 2004
than we did in 2003 and expect that amount to decline steadily to zero over the
next approximately eighteen years. We anticipate that these costs will decline
because we are no longer self-insured for workers' compensation benefits
and have had no new claimants since 1995.
We do not pay pension or
black lung benefits directly. These benefits are paid from trusts that we
established and funded. As of March 31, 2004, our pension trusts are
underfunded, and we will contribute approximately $1.3 million to these trusts
and may elect to contribute up to an additional $0.9 million to these trusts in
2004. As of March 31, 2004, our black lung trust is overfunded by $6.3 million,
and we do not expect to be required to make additional contributions to this
trust.
The Coal Act, passed in 1992, established three benefit plans.
•
First, the statute merged the UMWA 1950 and 1974 Plans into the Combined Fund.
The Combined Fund provides benefits to a completely closed pool of
beneficiaries, retirees who were actually receiving benefits from either the
1950 or 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. This group is essentially
Medicare-eligible, and the Combined Fund supplements the benefits this group
receives under Medicare.
•
Second, the Coal Act requires companies 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. The beneficiaries of these
statutorily-required IEPs are retirees meeting age and service requirements as
of February 1, 1993 and who actually retired before September 30,
1994.
•
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 Combined Fund.
23
As required by the Coal
Act, we maintain an IEP for our own retirees, and we pay premiums that cover a
portion of the retired miners whose previous employers have gone out of
business.
In addition, and separate
from the Coal Act, we continue to provide benefits under another IEP to a
smaller group of former UMWA employees who retired under our last collective
bargaining agreement, which ended in 1998. We call this IEP our 1993 Plan.
As noted above, we expect
that the Medicare Reform Act will reduce our prescription drug costs. The
Medicare Reform Act provides a prescription drug benefit under Medicare as well
as a Federal subsidy, starting in 2006, so long as an employer maintains
qualifying health plans that provide prescription drug benefits. We currently
estimate that the Medicare Reform Act will reduce our retiree medical costs by
approximately $2.5 million in 2006 and annually thereafter until total drug
costs otherwise begin to decline.
Asset Retirement Obligations, Reclamation Costs and Reserve Estimates
Asset retirement
obligations primarily relate to the closure of mines and the reclamation of land
upon cessation of mining. We account for reclamation costs, along with other
costs related to mine closure, in accordance with Statement of Financial
Accounting Standards No. 143 – Asset Retirement Obligations, or SFAS
No. 143, which we adopted on January 1, 2003. This statement requires us to
recognize the fair value of an asset retirement obligation in the period in
which we incur that obligation. We capitalize the present value of our estimated
asset retirement costs as part of the carrying amount of our long-lived assets.
The liability, "Asset
retirement obligations," on our consolidated balance sheet represents our
estimate of the present value of the cost of closing our mines and reclaiming
land that has been disturbed by mining. This liability increases as land is
mined and decreases as reclamation work is performed and cash expended. The
asset, "Property, plant and equipment – capitalized asset retirement
costs," remains constant until new liabilities are incurred or old
liabilities are re-estimated. We estimate the future costs of reclamation using
standards for mine reclamation that have been established by the government
agencies that regulate our operations as well as our own experience in
performing reclamation activities. These estimates may change. Developments in
our mining program also affect this estimate by influencing the timing of
reclamation expenditures.
Adopting SFAS No. 143
significantly affected our financial statements. See the Summary of Significant
Accounting Policies to our consolidated financial statements, which includes a
discussion of the effect on our financial statements of adopting SFAS No. 143.
However, the adoption of SFAS No. 143 did not affect our cash costs, because the
annual cash requirements for reclamation activities are the same using SFAS No.
143 and the units-of-production accrual method, the accounting method we used
prior to adopting SFAS No. 143.
We amortize our acquisition
costs, development costs, capitalized asset retirement costs and some plant and
equipment using the units-of-production method and estimates of recoverable
proven and probable reserves. We review these estimates on a regular basis and
adjust them to reflect our current mining plans. The rate at which we record
depletion also depends on the estimates of our reserves. If the estimates of
recoverable proven and probable reserves decline, the rate at which we record
depletion increases. Such a decline in reserves may result from geological
conditions, coal quality, effects of governmental, environmental and tax
regulations and assumptions about future prices and future operating costs.
24
Deferred Income Taxes
Estimates and Judgments
Our net income is sensitive
to estimates we make about our ability to use our Federal net operating loss
carryforwards, or NOLs.
As of December 31, 2003, we
had approximately $180 million of NOLs. These NOLs expire at various dates
through 2023. When we have taxable income, we can use our NOLs to shield that
income from regular U.S. Federal income tax. Our ability to use our NOLs thus
depends on all the factors that determine taxable income, including operational
factors, such as new coal sales, and non-operational factors, such as increases
in heritage health benefit costs. Under Federal tax law, our ability to use our
NOLs would be limited if we had a "change of ownership" within the
meaning of the Federal tax code.
Our NOLs are one of our
deferred income tax assets. We have reduced our deferred income tax assets by a
valuation allowance. The valuation allowance is primarily an estimate of the
deferred tax assets that may not be realized in future periods. On a quarterly
and annual basis, we estimate how much of our NOLs we expect that we will be
able to use to shield future taxable income and make corresponding adjustments
in the valuation allowance.
If we increase our
estimated utilization of NOLs, we decrease the valuation allowance, increase our
net deferred income tax assets and recognize an income tax benefit in earnings.
If we decrease our estimated utilization of NOLs, we increase the valuation
allowance, decrease our net deferred income tax assets and increase income tax
expense. These changes can materially affect our net income and our assets. In
2003, for example, we reduced the valuation allowance by $7.8 million, in part
because we signed a new coal supply agreement and because we negotiated improved
terms of an existing coal supply agreement. In the quarter ended March 31, 2004,
we reduced the valuation allowance by $0.9 million. In both 2003 and the quarter
ended March 31, 2004, we also made other adjustments in our net deferred tax
assets. As a result of these estimates and adjustments and changes in temporary
differences between book and tax accounting, our net deferred income tax assets
increased from $65.1 million at December 31, 2002 to $75.8 million at
December 31, 2003, and from $75.8 million at December 31, 2003 to $77.0
million at March 31, 2004, and we recognized income tax benefit from continuing
operations of $11.0 million for 2003 and $0.9 million for the first quarter of
2004.
Related Information
Under the federal tax laws, there are two types of taxable income and two types of net operating loss carryforwards.
•
The two types of taxable income are regular taxable income and Alternative
Minimum Taxable Income, or AMTI. AMTI differs from regular taxable income in
that AMTI includes items such as percentage depletion. We have significant
percentage depletion because of our mining activities.
25
•
The two types of NOLs are
regular NOLs and alternative minimum tax, or AMT, NOLs.
Our NOLs are important to
our strategy. Regular NOLs can offset our future regular taxable income, permit
us to avoid payment of regular Federal income tax and thereby increase our cash
flow and return from profitable investments (as compared to the return that
would be received by a tax-paying entity that cannot shield its income from
federal income taxation). However, regular NOLs will not shield our income from
AMT.
We are subject to AMT at a
20% rate. As of December 31, 2003, we had AMT net operating loss carryforwards
of approximately $35 million. Only 90% of our AMTI can be shielded each year by
our AMT NOLs. Based upon our estimates of our future taxable income, we expect
to fully utilize our remaining AMT NOLs in 2005 and begin paying the full 20%
AMT in 2006. We may owe more than $5 million per year in AMT until we fully
utilize our regular NOLs. Any AMT we pay is available as a credit against future
regular Federal income tax. These credits do not expire.
As a strategic matter, we
may face choices between business strategies intended to maximize the use of our
regular NOLs and strategies that take account of AMT and seek to increase our
after-tax profits, including the effects of AMT. Some of these strategies may
involve decisions about business activities that generate AMTI, and many of
these choices will require us to make judgments about matters that will arise in
the future and that are therefore inherently uncertain.
26
Contractual
Obligations and Commitments
The following table
presents information about our contractual obligations and commitments as of
December 31, 2003. Some of the figures below are estimates. We discuss these
obligations and commitments elsewhere in this prospectus.
Payments Due by Period
(in thousands of dollars)
Contractual Obligations
and Commitments
Total
2004
2005
2006
2007
After
Westmoreland Mining term debt
(1)
88,500
10,300
10,300
11,300
12,000
44,600
Westmoreland Coal Company
revolving debt
500
-
500
-
-
-
Other debt
4,469
1,295
1,374
695
625
480
Operating leases
5,594
2,753
1,356
867
618
-
Heritage Health Benefit/
Pension:
Undiscounted obligations:
Workers' compensation
9,478
2,016
2,000
1,800
1,600
2,062
1974 UMWA pension
250
(2)
250
-
-
-
-
Discounted obligations:
Combined Benefit Fund
(Multiemployer)
39,780
(3)
8,311
4,783
4,516
4,254
17,916
Postretirement medical
237,554
(4)
17,367
18,206
17,446
18,005
166,530
Qualified pension benefits
47,777
(5)
456
597
832
1,118
44,774
SERP benefits
1,963
(6)
76
74
71
69
1,673
Pneumoconiosis
21,961
(7)
2,500
2,500
2,500
2,500
11,961
Reclamation costs
306,668
(8)
5,757
4,902
4,296
4,024
287,689
Preferred dividends
15,303
(9)
1,744
(10)
1,744
(10)
1,744
(10)
1,744
(10)
1,744
(10)
per year
(1)
At December 31, 2003, Westmoreland Mining had deposited $17.4 million in two restricted accounts as collateral against these
              obligations.
(2)
This amount is the amount payable as of December 31, 2003, after giving effect to our settlement with the 1974 UMWA
              Retirement Plan.
(3)
Except for retroactive premium assessments of approximately $3.5 million that we are contesting, we have not accrued the
              present value of this obligation, because this plan is a multiemployer plan.  We expense our premium payments when due.
(4)
The table presents our estimate of our gross benefit obligation.  The accrued liability, net of the unrecognized net
              actuarial loss and the unrecognized net transition obligation, was $127.2 million as of December 31, 2003.
(5)
The fair value of plan assets at December 31, 2003 was $32.8 million.  Pension benefits will be paid from these assets.
(6)
The table presents our estimate of our gross benefit obligation.  The accrued liability, net of the unrecognized net
              actuarial gain and an unrecognized prior service cost, was $2.2 million as of December 31, 2003.  The plan was unfunded
              at December 31, 2003.
27
(7)
The fair value of plan assets at December 31, 2003 was $28.2 million.  Pneumoconiosis benefits will be paid from these
              assets.
(8)
The table presents our estimate of our gross cost of final reclamation.  The accrued liability of $123.3 million as of
              December 31, 2003 will increase in present value as acres are disturbed in mining operations and as mine closures draw
              nearer.  The accrued liability reflects the present value of contractual obligations of our customers and Washington
              Group, the contract miner at the Absaloka Mine, to perform reclamation; we estimate that the gross amount of their
              obligations is $25.4 million.  The table also does not reflect $52.8 million, the amount held in escrow as of December
              31, 2003 from contributions by customers for reclamation of the Rosebud Mine.  We estimate that the present value of our
              net expense for final reclamation - that is, the costs of final reclamation that are not the contractual
              responsibilities of others - is $45.2 million.
(9)
Represents quarterly dividends that are accumulated through and including January 1, 2004.
(10)
As provided in the Certificate of Designation establishing the Series A Preferred Stock, the holders of the Series A
              Preferred Stock are entitled to receive dividends "when, as and if declared by the Board of Directors out of funds of
              the Corporation legally available therefore."  In general, dividends that are not paid cumulate, as provided in the
              Certificate of Designation.
Since December 31, 2003,
the most significant change to the preceding table relates to the add-on
facility described above. Principal of this facility is payable from 2009
through 2011. After giving effect to Westmoreland Mining's borrowings under
this facility and payments of its existing indebtedness, Westmoreland
Mining's term debt increased from $88.5 million at December 31, 2003 to
$106.3 million at March 31, 2004.
28
Growth and Development Strategy
Our growth and development
strategy is founded on the ownership and operation of physical assets that
generate profits. We strive to identify assets that are low-cost producers and
environmental leaders and that supply customers who share our orientation for
low-cost production and our environmental concern. We believe that we will be
more likely to achieve success in niche markets. Our goal is to acquire stable,
long-term earnings. We will use our NOLs to shield that income from regular U.S.
Federal income tax.
The acquisitions we
completed in 2001 exemplify this strategy. Among other things, the Rosebud,
Jewett, Beulah and Savage Mines are essentially adjacent to their principal
customers, to which they deliver coal by conveyor belt or truck, and are the
lowest-cost producers for their respective customers. These mines'
principal customers all employ emissions control technology. These mines are
party to long-term contracts with their principal customers that generate stable
earnings.
Examples of our current development efforts include the following:
•
In 2003, we leased the rights to explore, drill and produce coalbed methane gas
on property that we own in Southern Colorado to Petrogulf Corporation for
$300,000 and a royalty interest on production from that property. Petrogulf
drilled twelve wells by the end of 2003, and we began earning production
royalties in February 2004.
•
In 2001, as part of our transaction with Knife River, we acquired rights to
develop the lignite deposits at Gascoyne, North Dakota. Our subsidiary,
Westmoreland Power, Inc., has joined with MDU Resources Group, Inc. to pursue
development of a baseloaded lignite-fired power plant near Gascoyne as part of
the State of North Dakota's Lignite Vision 21, or LV-21, program. LV-21 is
a partnership between North Dakota and the Lignite Energy Council, or LEC, that
is administered by the North Dakota Industrial Commission, or NDIC. Westmoreland
Power and MDU executed a joint development agreement in 2001, and we each own
half of the venture that is seeking to develop the power plant. In September
2001, NDIC awarded the Westmoreland/MDU joint venture up to $10 million in
matching funds to finance feasibility and technical studies. In January 2003, as
a result of these studies, we and MDU sought additional support from NDIC to
study the feasibility of substituting a 250 MW or 175 MW power plant for the 500
MW plant that had originally been proposed. NDIC awarded the funds we sought,
and we and MDU completed studies of generation technology and lignite mining
issues in 2003. Air quality evaluation was completed in early 2004, and in May
2004, we and MDU applied to the North Dakota Department of Health for an air
quality permit for a proposed 175 MW plant.
An existing source of
future income and cash flow relates to the Caballo Mine in Campbell County,
Wyoming. In connection with the 2001 acquisitions, we acquired the stock of
Horizon Coal Services, Inc. Horizon's only asset is a royalty interest in
coal reserves located at the Caballo Mine, which is owned by a company that is
not affiliated with us. The royalty of $.10 per ton covers the mining of 225
million tons of coal, making the potential gross royalty amount $22.5 million.
The latest mine plan projects that mining of coal subject to the royalty will
begin in 2007.
29
Another source of potential
future income may involve ROVA. LG&E has offered to sell us its 50% interest
in the ROVA Project pursuant to our right of first purchase and has provided the
terms and conditions of its proposed sale. We are discussing the terms and
conditions of such an acquisition with LG&E.
Liquidity and
Capital Resources
As discussed in the
Overview section above, we believe that Westmoreland Mining's add-on
facility substantially improves our near-term liquidity. In addition, even
though the requirements of Westmoreland Mining's basic term loan agreement,
including debt service requirements, restrict our access to some of Westmoreland
Mining's cash, Westmoreland Mining itself generates significant liquidity.
As discussed in more detail in the Liquidity Outlook section below, we expect to
achieve increasing cash from operations in 2004, offset by higher capital
expenditures at our mines that will reduce free cash flow.
Cash provided by operating
activities was $24.8 million in 2003, $32.4 million in 2002 and $28.4 million in
2001. Cash from operations in 2003 compared to 2002 declined primarily because
we had less operating income because of the change in the pricing structure at
the Jewett Mine. In July 2002, the pricing structure changed from a
cost-plus-fees approach to one that uses a market-based pricing mechanism. The
decline in our cash from operations was partially offset by an increase in our
deferred tax assets, gains from the sale of our interest in Dominion Terminal
Associates, or DTA, a coal storage and vessel-loading facility in southeastern
Virginia, and a net increase in our other assets. The net change in assets and
liabilities was $16.3 million in 2003 compared to $15.0 million in 2002,
resulting from higher non-cash expenses for pension and postretirement medical
obligations. Cash from operations in 2002 also benefited by approximately $1.1
million from a favorable judgment in a dispute with the U.S. Army concerning a
power project in Fort Drum, New York, in which we owned an interest. Working
capital was $5.6 million at December 31, 2003 compared to $10.1 million at
December 31, 2002. The change resulted primarily from a $2.9 million reduction
in the current portion of our deferred income tax assets and an increase in the
current portion of our postretirement medical costs, mostly attributable to the
accrual of the retroactive premium assessed by the Combined Fund, which we are
challenging.
Cash provided by operating
activities was $3.9 million in the quarter ended March 31, 2004, and $7.7
million in the quarter ended March 31, 2003. Cash from operations in the first
quarter of 2004 compared to the first quarter of 2003 decreased primarily due to
a lower semi-annual distribution from the ROVA Project and higher cash costs for
post-retirement medical benefits, specifically the disputed retroactive premiums
being paid to the Combined Benefit Fund. The net change in assets and
liabilities was $0.3 million in the first quarter of 2004 compared to $2.6
million in the first quarter of 2003, resulting from increase in accounts
receivable due to normal timing differences in collecting receivables and an
increase in sales tons and revenues. Working capital was $24.9 million at March
31, 2004 compared to $5.6 million at December 31, 2003. The change resulted
primarily from the $18.7 million in net proceeds from borrowings of long-term
debt.
30
We used $17.3 million of
cash in investing activities in 2003, $3.7 million in 2002 and $151.3 million in
2001. Cash used in investing activities in 2003 included $13.2 million of
additions to property, plant and equipment for mine equipment and leases for
coal reserves. Cash used in investing activities in 2003 also included $11.0
million that we deposited in restricted accounts, pursuant to Westmoreland
Mining's term loan agreement and as collateral for our bonds. During 2003,
net proceeds from sales of assets of $7.0 million included $4.5 million cash
received from the sale of DTA and $1.4 million received from the sale of land
and mineral rights in Colorado. In 2002, additions to property and equipment
used cash totaling $7.3 million, and we received $3.6 million from the
Absaloka Mine's mining contractor to settle a dispute regarding repair of
the dragline at that mine. Also during 2002, we deposited $6.4 million into
restricted cash accounts for debt service, security deposits and reclamation
deposit accounts. Those deposits were offset by the $6.0 million refund of
collateral we received from the UMWA. In 2001, we used $162.7 million of cash in
investing activities to purchase the Rosebud, Jewett, Beulah and Savage mines.
Other additions to our property, plant and equipment totaled $5.4 million in
2001. Cash provided by investing activities in 2001 included $16.0 million in
proceeds from the sale of our interests in three independent power projects.
We used $4.6 million of
cash in investing activities in the quarter ended March 31, 2004, and $4.1
million in the quarter ended March 31, 2003. Cash used in investing activities
in the first quarter of 2004 included $2.1 million of additions to property,
plant and equipment for mine equipment and leases for coal reserves. Cash used
in investing activities in the first quarter of 2004 also included an increase
of $2.6 million in restricted accounts, pursuant to our term loan agreement and
as collateral for our surety bonds. In the first quarter of 2003, additions to
property and equipment using cash totaled $2.4 million. Also during the first
quarter of 2003, we deposited $1.8 million into restricted cash accounts for
debt service, security deposits and reclamation deposit accounts.
We used $8.1 million of
cash in financing activities in 2003, including $5.2 million for the net
repayment of long-term debt and $1.5 million for the net repayment of revolving
debt. Cash used in financing activities in 2002 primarily represented repayment
of long-term debt of $13.8 million and the net repayment of revolving debt of
$9.0 million. Cash provided by financing activities for 2001 totaled $113.9
million, mainly from the proceeds of long-term and revolving debt used in the
2001 acquisitions. Dividends paid to Westmoreland Resources' 20%
stockholder in 2003, 2002 and 2001 were $1.0 million, $1.2 million and $1.1
million, respectively.
We generated $15.6 million
of cash in financing activities in the quarter ended March 31, 2004, including
$18.7 million from new borrowings of long-term debt, net of debt issuance costs.
We used cash of $3.2 million for the repayment of long-term and revolving debt.
Cash used in financing activities in the first quarter of 2003 primarily
represented repayment of long-term and revolving debt of $4.0 million.
31
Consolidated cash and cash
equivalents at March 31, 2004 totaled $24.3 million, including $4.3 million at
Westmoreland Mining, $5.2 million at Westmoreland Resources, and $1.8 million at
Westmoreland Risk Management Ltd., our captive insurance subsidiary.
Consolidated cash and cash equivalents at December 31, 2003 totaled $9.3
million, including $4.1 million at Westmoreland Mining, $4.2 million at
Westmoreland Resources, and $1.5 million at Westmoreland Risk Management.
At December 31, 2002, consolidated cash and cash equivalents totaled $9.8
million, including $5.1 million at Westmoreland Mining, $4.7 million at
Westmoreland Resources, and $0.6 million at Westmoreland Risk Management. The
cash at Westmoreland Mining is available to us through quarterly distributions,
as described below. The cash at Westmoreland Resources is available to us
through dividends. In addition, we had restricted cash and bond collateral,
which were not classified as cash or cash equivalents, of $26.9 million at March
31, 2004, $25.0 million at December 31, 2003 and $17.3 million at December
31, 2002. The restricted cash at March 31, 2004 included $18.8 million in
Westmoreland Mining's debt service reserve and long-term prepayment
accounts. The restricted cash at December 31, 2003 included $17.4 million
in Westmoreland Mining's debt service reserve and long-term prepayment
accounts. Our reclamation, workers' compensation and postretirement medical
cost obligation bonds were collateralized by interest-bearing cash deposits of
$9.5 million at March 31, 2004 and $7.6 million at December 31, 2003, which
amounts we have classified as non-current assets. In addition, we had
reclamation deposits of $53.5 million at March 31, 2004 and $52.8
million at December 31, 2003, which we received from customers of the Rosebud
Mine to pay for reclamation. We also have $5.0 million in interest-bearing debt
reserve accounts for the ROVA Project. This cash is restricted as to its use and
is classified as part of our investment in independent power projects.
In early March 2004,
Westmoreland Mining entered into the add-on facility. This facility made $20.4
million available to us immediately, and Westmoreland Mining will borrow the
remaining $14.6 million in the fourth quarter of 2004. The add-on facility will
permit Westmoreland Mining to undertake significant capital projects,
principally at the Rosebud and Jewett Mines, in the near term without adversely
affecting cash available to Westmoreland Coal Company. Although the terms of the
add-on facility permit Westmoreland Mining to distribute this $35 million to
Westmoreland Coal Company, the original term loan agreement, which financed our
acquisition of the Rosebud, Jewett, Beulah and Savage Mines, continues to
restrict Westmoreland Mining's ability to make distributions to
Westmoreland Coal Company from ongoing operations. Until Westmoreland Mining has
fully paid the original acquisition debt, which is scheduled for December 31,
2008, Westmoreland Mining may only pay Westmoreland Coal Company a management
fee and distribute to Westmoreland Coal Company 75% of Westmoreland
Mining's surplus cash flow. Westmoreland Mining is depositing the remaining
25% into an account that will fund the $30 million balloon payment due December
31, 2008. At the same time that Westmoreland Mining entered into the add-on
facility, it also extended its revolving credit facility to 2007 and reduced the
amount of the facility to $12 million. Westmoreland Mining reduced the amount of
the revolving facility to better align its borrowing capacity to its expected
usage and borrowing base.
As of December 31, 2003,
Westmoreland Coal Company had $9.5 million of its $10.0 million revolving line
of credit available to borrow, and as of March 31, 2004, Westmoreland Coal
Company had its entire $10.0 million revolving line of credit available to
borrow. Effective June 24, 2004, Westmoreland Coal Company amended its revolving
credit facility to increase the amount available to be borrowed from $10 to $14
million and extend that facility from January 2005 to June 30, 2006.
Liquidity
Outlook
Significant Anticipated Variances between 2003 and 2004
We anticipate that the
following events and developments, which have occurred or that we expect will
occur in 2004 but which did not occur in 2003, and the following events and
developments, which we expect will not occur in 2004 but which did occur in
2003, will affect our liquidity and our net income.
32
•
We anticipate that our coal revenues will be higher, principally because of
increased sales from the Absaloka and Rosebud Mines and the new, higher price
for coal supplied to Colstrip Units 1&2, partially offset by decreased sales
from the Jewett Mine. We anticipate that our cost of coal sales will increase
commensurate with the increase in production, and because of higher near term
costs at the Jewett Mine. In the fourth quarter of 2003, operations at the
Jewett Mine encountered an area where the stripping ratio – the ratio
between the volume of overburden to the volume of the coal – was higher.
•
The price for the coal that we supply to Colstrip Units 1&2 was finally
determined in May 2004. The arbitrators' decision resulted in a price
increase. Because the new price is effective as of July 30, 2001, we expect
that, after payment of taxes and royalties, we will receive a payment of
approximately $11 million for coal that we supplied to Colstrip Units 1&2
from the end of July 2001 through May 2004. There was no comparable event in
2003.
•
We anticipate that capital expenditures related to our mining activities will be
higher in 2004 than in 2003. We expect that most of the increase in 2004 will be
associated with mine development at the Jewett Mine, which is necessary to
improve mining conditions.
•
In March 2004, we settled a claim brought by the 1974 UMWA Retirement Plan. This
settlement permitted us to reverse an accrued liability and recognize $6.3
million of income in 2003. This is a non-recurring item, but we will also avoid
payments of approximately $2.1 million per year in each of the next three and
one-half years.
•
In 2003, we received $4.5 million upon the sale of our interest in DTA, $1.4
million from North Central's sale of surface and mineral rights, and
$300,000 in bonus payments from North Central's lease of coalbed methane
rights. We do not anticipate having significant asset sales in 2004.
•
In 2003, we did not receive royalties from sales of coalbed methane. We
anticipate that we will receive royalties from sales of coalbed methane in 2004.
We do not anticipate that our revenues from coalbed methane will exceed $300,000
in 2004.
•
In 2003, we received a $582,000 distribution from the Fort Lupton Project. We
call this a "catch-up" distribution because most of it related to
periods prior to 2003. We may receive a relatively small quarterly distribution
from Ft. Lupton in 2004.
•
We sold our interest in DTA effective June 30, 2003. We were incurring losses
from DTA at an annual rate of about $2 million, and our share of those losses in
2003 was about $1 million. We will not have losses from DTA in 2004.
33
•
We anticipate that our interest income will be higher in 2004 than it was in
2003 because of continued deposits to Westmoreland Mining's restricted
accounts. We anticipate higher interest costs in 2004 because of the additional
$20.4 million Westmoreland Mining borrowed in March 2004.
•
Our results for 2004 may be affected by the potential negative impact of
increased prospective and retroactive personal property taxes at the ROVA
Project. The lender to the Project may retain funds in an amount equal to the
amount claimed by Halifax County, which are normally available for distribution
to us and LG&E, until Halifax County's tax claim has been resolved.
•
In the first quarter of 2004, we accrued an expense of approximately $1.0
million in response to the decision of the U.S. Court of Appeals for the Tenth
Circuit in the Basin Resources litigation. We describe this case under
"Legal Proceedings." We had no comparable accrual in 2003.
•
We expect to incur approximately $26 million for postretirement medical costs in
all of 2004 compared to $20.7 million paid in 2003. These amounts include
payments in respect of the Combined Fund's retroactive assessment, which we
must pay pending the outcome of ongoing litigation. We accrued the entire $4.7
million of this assessment in 2003, paid $1.2 million in 2003 and $1.1 million
in the first quarter of 2004, and expect to pay the remaining $2.4 million in
the second and third quarters of 2004.
•
During the next fifteen months, we plan to implement a common, corporate-wide
enterprise resource planning, or information technology, system to enhance our
reporting and analysis capability. The initial investment is expected to be
approximately $3 million.
•
We anticipate that the expense associated with our 2000 Performance Unit Plan
will be lower in 2004 than it was in 2003. In 2000, we adopted a long-term
incentive plan to promote the successful implementation of our strategic plan
and link the compensation of our key managers to the appreciation in the price
of our common stock. The value of the performance units awarded in 2000 was
based on the absolute increase in market value of our common stock over the
period July 1, 2000 to June 30, 2003. Because the value of our common stock
appreciated $14.72 per share over that period, the value of the performance
units at the end of the performance period was $6.4 million. This obligation is
being paid out over time and may be paid in cash or stock at our election. The
Board's Compensation & Benefits Committee also awarded performance
units in 2001 and 2002. The value of the 2001 and 2002 awards is based on the
appreciation of our common stock compared to that of our peers, and the value of
these awards is capped. The potential maximum value of the performance units
awarded in 2001 and 2002 is $2.9 million and $2.5 million, respectively. Because
stockholders had approved a Long-Term Stock Incentive Plan at our 2002 Annual
Meeting, we were able to use stock options as the sole vehicle for the 2003
long-term incentive program.
34
•
We have three defined benefit pension plans for full-time employees. We were not
required to make any contributions to those plans in 2003 and we did not make
any contributions in the first quarter of 2004. We will contribute approximately
$1.3 million to these plans and may elect to contribute up to an additional $0.9
million to these plans in 2004. We may also be required to make additional
contributions in future years unless the return on the plans' investments
materially improves or the plans' funding requirements change.
Significant Factors Affecting Our Liquidity
The matters discussed above
focus on anticipated differences between 2003 and 2004. It will be readily
apparent that a number of non-recurring events significantly influenced our 2003
results. Our operational performance, our financial results and our liquidity
may also be affected by all of the other matters discussed in this prospectus,
including the matters discussed under "Risk Factors" and "Legal
Proceedings," as well as in this Management's Discussion and Analysis
of Financial Condition and Results of Operations. Primarily because of our size
and the multitude of issues related to our transition from an eastern
underground producer of coal, to a western niche surface producer with
significant reliance on independent power operations, we have been subject to
the impact of many matters beyond our control. For all of the foregoing reasons,
and while we anticipate that we will be profitable in 2004, we cannot project
our overall level of profitability.
Off-Balance
Sheet Arrangements
We do not have any off-balance sheet arrangements within the meaning of the rules of the Securities and Exchange Commission.
Results of Operations
Quarter ended
March 31, 2004 Compared to Quarter ended March 31, 2003
Coal Operations.
The
increase in coal revenues to $77.1 million in the first quarter of 2004 from
$74.5 million in 2003's first quarter was primarily the result of an
increase in sales tons from 7.0 million to 7.4 million. The increase in 2004 was
expected as a result of new or extended sales contracts at the Rosebud and
Absaloka Mines. Almost all of the tons sold in both quarters were sold under
long-term contracts to owners of power plants located adjacent to or near the
mines, other than at the Absaloka Mine. There was a commensurate increase in
cost of sales. Costs increased at the Jewett Mine due to unexpected repairs to a
primary dragline, a customer outage that extended beyond its planned duration
and unusually heavy rainfall during the first quarter of 2004. Gross margin
increased $0.6 million in the first quarter of 2004 compared to the first
quarter of 2003.
The following table shows comparative coal revenues, sales volumes, cost of sales and percentage changes between the periods:
Quarter Ended
March 31,
2004
2003
Change
Revenues – thousands
$
77,132
$
74,513
4%
Volumes – millions of equivalent coal tons
7.446
6.997
6%
Cost of sales – thousands
$
60,203
$
58,190
3%
35
Our business is subject to
weather and some seasonality. We supply coal to electric generation units and if
winter is unseasonably warm or summer is unseasonably cool, the customers'
need for coal may be less than anticipated.
Depreciation, depletion and
amortization of $3.8 million in the first quarter of 2004 were comparable to
$3.0 million in 2003's first quarter. The increase was due to continued
capital expenditures at the mines and the increase in production during the
quarter.
Independent Power.
Equity in earnings from independent power operations increased to $5.4 million
in the first quarter of 2004 from $3.8 million in the first quarter of 2003 due
to the timing of the normal spring maintenance outage at the ROVA Project, which
occurred in March 2003 and will occur in the second quarter of 2004. This timing
is expected to reduce equity in earnings in the second quarter of 2004 as
compared to the comparable quarter of 2003. For the quarters ended March 31,
2004 and 2003, the ROVA Project produced 456,000 and 423,000 megawatt hours,
respectively, and achieved average capacity factors of 98% and 92%,
respectively. This means that for the quarters ended March 31, 2004 and 2003,
the ROVA Project was available to be dispatched 98% and 92% of the time,
respectively.
Costs and Expenses.
Selling and administrative expenses were $7.7 million in the quarter ended March
31, 2004 compared to $7.1 million in the quarter ended March 31, 2003. The
increase was primarily a result of higher pension costs for our active employees
caused by a decrease in the discount rate used to calculate the present value of
that obligation. Also, we incurred higher costs associated with certain legal
matters including the contract dispute between Northwestern Resources and Texas
Genco, the withdrawal date dispute with the 1974 UMWA Pension Plan, and the
arbitration with the owners of Colstrip Units 1&2. The Texas Genco and 1974
Plan disputes were settled, and the arbitration took place, during the quarter
ended March 31, 2004. We expect the arbitration decision to be issued
during the quarter ended June 30, 2004. Expenses also include a one-time charge
of approximately $1.0 million related to a March 2004 appellate court decision
involving our subsidiary, Basin Resources. The dispute arose prior to our
purchase of the subsidiary in 2001 and the charge represents reimbursement for
benefits paid by the UMWA during the period prior to our acquisition of Basin
Resources. In the first quarter of 2004, expenses for our performance unit plan,
a long-term incentive plan for management, were $0.2 million compared to $1.3
million in the first quarter of 2003.
Heritage health benefit
costs decreased to $7.2 million in the first quarter of 2004 from $7.5 million
in the first quarter 2003. The decrease was due to the expected future benefit
of the Medicare Prescription Drug Improvement and Modernization Act of 2003,
offset by a decrease in the discount rate assumption. The UMWA Combined Benefit
Fund assessed a premium increase in October 2003 using a new methodology that we
are challenging. That increase includes $4.7 million for periods through
September 2003 as well as a prospective increase of $41,000 per month. The $4.7
million retroactive premium is being paid over 12 months but was fully accrued
as of September 30, 2003. We are obligated to pay the newly calculated, higher
premiums until the matter is resolved.
Interest expense was $2.5
million for the three months ended March 31, 2004 and 2003, respectively.
Interest income increased in 2004 because we have higher balances in our
restricted cash and surety bond collateral accounts.
36
As a result of the
acquisitions we completed in the spring of 2001, we recognized a $55.6 million
deferred income tax asset in April 2001 which assumes that a portion of
previously unrecognized net operating loss carryforwards will be utilized
because of the projected generation of future taxable income. The deferred tax
asset increased to $77.0 million as of March 31, 2004 from $75.8 million at
December 31, 2003 because of temporary differences (such as accruals for pension
and reclamation expense, which are not deductible for tax purposes until paid)
arising during the intervening period and due to a reduction of the deferred
income tax valuation allowance discussed above. Deferred tax assets are
comprised of both a current and long-term portion. When taxable income is
generated, the deferred tax asset relating to our net operating loss
carryforwards is reduced and a deferred tax expense (non-cash) is recognized
although no regular Federal income taxes are paid. The income tax benefit for
2004 represents current income tax obligations for state income taxes and for
Federal alternative minimum tax, and the utilization of a portion of our
operating loss carryforwards, net of the impact of changes in deferred tax
assets and liabilities. The deferred tax benefit of $1.0 million recognized in
2004 includes a $0.9 million reduction in the valuation allowance resulting from
an increase in the amount of Federal net operating loss carryforwards we expect
to utilize before their expiration.
Terminal Operations.
Since we sold DTA effective June 30, 2003, we no longer incur losses relating to
our investment in DTA, which was $306,000 in the first quarter of 2003. Our
consolidated financial statements reflect DTA as discontinued operations.
Cumulative Effect of
Change in Accounting Principle.
We adopted SFAS No. 143 during first quarter
2003 as described in the section on "Critical Accounting Policies"
above. The cumulative effect of change was a gain of $161,000, net of tax
expense of $108,000.
Results of
Operations
2003 Compared to 2002
Coal Operations.
We
sold about 1.7 million more tons of coal in 2003 than we did in 2002, but our
coal revenues decreased $6.3 million. Revenues declined because, for part of
2002, the Jewett Mine benefited from a cost-plus-fees pricing structure in its
contract with Texas Genco. We sold more tons at all of our mines in 2003 than we
did in 2002, with the exception of the Beulah Mine, which was adversely affected
by a longer than expected major maintenance outage at the Coyote Station, that
mine's principal customer. In addition, the Rosebud Mine was adversely
affected by an unscheduled outage at the Colstrip Station, its principal
customer. Costs, as a percentage of revenues, increased to 77% in 2003 compared
to 75% in 2002, again largely as a result of the lower average sales price in
2003 at the Jewett Mine. Also, the implementation of SFAS No. 143 increased
non-cash accretion costs at all mines for future reclamation activities and
reduced margins in 2003.
37
The following table shows comparative coal revenues, sales volumes, cost of sales and percentage changes between the periods:
Year Ended December 31,
2003
2002
Change
Revenues – thousands
$
294,986
$
301,235
(2)%
Volumes – millions of equivalent coal tons
27.8
26.1
7%
Cost of sales – thousands
$
228,433
$
226,707
1%
Depreciation, depletion and
amortization increased to $12.6 million in 2003 compared to $11.5 million in
2002 due to increased capital expenditures and increased depreciation resulting
from the increase in production of coal.
Independent Power.
Our equity in earnings from independent power operations increased from $14.5
million in 2002 to $15.8 million in 2003. During 2003 and 2002, the ROVA Project
produced 1,653,000 and 1,639,000 megawatt hours, respectively, and achieved
average capacity factors of 90% and 89%, respectively. Also, we recognized
$582,000 in equity in earnings in 2003 from our 4.49% interest in the Ft. Lupton
project, most of which related to periods prior to 2003.
Costs and Expenses.
Selling and administrative expenses increased from $31.7 million in 2002 to
$33.4 million in 2003. Contributing to the increase were higher heritage health
benefit costs and a higher compensation expense for long-term employee
performance incentives. Heritage health benefit costs were $29.9 million in 2003
compared to $26.9 million in 2002. Five factors contributed to the increase in
selling and administrative expenses:
•
The Combined Fund
assessed the $4.7 million retroactive premium discussed above.
•
We incurred an additional $2.3 million expense for postretirement medical
obligations, principally because of a change in the discount rate and inflation
in medical costs.
•
We incurred an additional $2.5 million expense resulting from negative actuarial
valuation adjustments for our workers' compensation and black lung
obligations.
•
We eliminated $6.3
million in previously recognized obligations to the UMWA 1974 Pension Plan.
•
We incurred increased
legal fees associated with coal contract negotiations and litigation.
A redesign of our health
care plans for active employees, including an increase in employees'
premium payments and aggressive management of medical expenses, reduced our
health care costs for active employees in 2003 as compared to 2002.
38
Long-term incentive
compensation increased from $1.0 million in 2002 to $2.5 million in 2003. This
expense was entirely attributable to the 2000 Performance Unit Plan, described
above. This expense is a non-cash expense until it is paid. As permitted by the
plan, we paid about 20% of the expense, $750,000 in cash and $375,000 in shares
of common stock in 2003, leaving an obligation of $5.3 million as of December
31, 2003. Absent the impact of heritage health benefit costs and long-term
compensation expense, selling, and administrative expenses in 2003 were
consistent with those in 2002.
Interest expense was $10.1
million and $10.8 million for 2003 and 2002, respectively. The decrease was
mainly due to the continued repayment of Westmoreland Mining's debt.
Interest income decreased in 2003 because of lower rates.
Other income in 2002 includes a $1.1 million gain in connection with the favorable judgment in the dispute with the U.S.
Army.
Terminal Operations.
As discussed in Note 4 to our consolidated financial statements, effective June
30, 2003, we sold our interest in DTA and recognized a pre-tax gain of
approximately $4.5 million. Our consolidated financial statements for 2003 and
earlier periods reflect DTA as discontinued operations. Our share of operating
losses from DTA was approximately $1.0 million for the six months we owned it in
2003 compared to $2.1 million related to a full year's ownership in 2002.
During 2002, we expensed as a non-cash impairment charge our remaining
investment of $3.7 million in DTA as a result of continuing losses and an
agreement by one of the terminal's other owners to sell its interest for a
loss.
Cumulative Effect of
Change in Accounting Principle.
We adopted SFAS No. 143 during the first
quarter of 2003, as described in the section on "Critical Accounting
Policies" above. The cumulative effect of the change was a gain of
$161,000, net of tax expense of $108,000. We also reduced our recorded liability
for mine reclamation from $159 million to $115 million as of January 1, 2003 and
reduced the net book value of our property, plant and equipment from $189
million to $145 million as a result of adopting this standard.
39
Results of
Operations
2002 Compared to 2001
Coal Operations.
The following table shows comparative coal revenues, sales volumes, cost of sales and percentage changes
between the periods:
Year Ended December 31,
2002
2001
Change
Revenues – thousands
$
301,235
$
231,048
30%
Volumes – millions of equivalent coal tons
26.1
20.5
27%
Cost of sales – thousands
$
226,707
$
177,304
28%
Depreciation, depletion and
amortization increased to $11.5 million in 2002 compared to $9.2 million in 2001
due to capital expenditures and a full year of coal production from the Rosebud,
Jewett, Beulah, and Savage Mines, which we acquired in April and May of 2001.
Independent Power.
Equity in earnings from the independent power operations was $14.5 million in
2002 compared to $15.9 million in 2001. Three projects contributed $1.3 million
in earnings in 2001 before we sold them in March 2001. During 2002 and 2001, the
ROVA Project produced 1,639,000 and 1,668,000 megawatt hours, respectively, and
achieved average capacity factors of 89% and 90%, respectively. The decrease in
2002 was attributable to a small increase in the number of forced outage days
for repairs.
Terminal Operations.
Our share of losses from DTA was $2.1 million in 2002 compared to $1.9
million in 2001, principally because of reduced demand in foreign countries for
U.S. coal and our obligation to pay our share of DTA's expenses. We took an
impairment charge during the third quarter of 2002 in an amount equal to the
book value of our remaining investment in DTA: $3.7 million. This was a non-cash
charge. We took this charge in part because of the terms pursuant to which one
of our partners had agreed to sell its interest in DTA. This charge did not
reduce our obligation to pay our share of DTA's operating expenses. We sold
our interest in DTA effective June 30, 2003.
Costs and Expenses.
Selling and administrative expenses were $31.7 million for 2002 compared to
$22.6 million in 2001. The amounts for 2002 and 2001 include $18.4 million and
$11.6 million, respectively, in expenses incurred by the four mines acquired in
2001. Partially offsetting the 2002 increase was lower non-cash compensation
expense for long-term employee performance incentives, with an expense of $1.0
million in 2002 compared to an expense of $3.2 million during 2001. The overall
increase in selling and administrative expenses in 2002 is also due to higher
legal costs related primarily to Westmoreland Resources' dispute with
Washington Group International Inc. and an adverse judgment, with associated
legal costs totaling $1.4 million, in the Basin landowner case described in
"Legal Proceedings," to annual salary increases, and to the addition
of employees associated with our growth. Medical claims under our self-insured
plan for active employees were also higher in 2002. 2001 benefited from a
reduction of approximately $500,000 in the estimated liability for reclamation
of a site we previously operated in Virginia while 2002 had a $300,000
additional benefit when we transferred that site to another operator.
40
Heritage health benefit
costs increased to $26.9 million in 2002 compared to $23.8 million in 2001,
reflecting increased costs for the postretirement medical plans as actuarially
determined, despite a decrease in our payments to the Combined Fund.
During 2002, we recognized a $1.1 million gain in connection with a dispute with the U.S. Army.
Interest expense was $10.8
million and $8.4 million for 2002 and 2001, respectively. The increase was
mainly due to the acquisition financing obtained during the second quarter of
2001, despite repayment of $22.8 million term debt of the acquisition financing
during 2002. Interest income decreased in 2002 because of lower rates.
As a result of our
acquisitions, we recognized a $55.6 million deferred income tax asset in April
2001. This assumes that a portion of previously unrecognized NOLs will be
utilized because we projected that we would generate taxable income in the
future. The deferred asset increased to $65.1 million as of December 31, 2002
from $57.1 million at December 31, 2001 because of temporary differences (such
as accruals for pension and reclamation expense, which are not deductible for
tax purposes until paid) arising during the intervening period and because of a
reduction of the deferred income tax valuation allowance discussed above.
Deferred tax assets are comprised of both a current and long-term portion. When
taxable income is generated, the deferred tax asset relating to our NOLs is
reduced and a deferred tax expense (non-cash) is recognized, although no regular
Federal income taxes are paid. Income tax benefit for 2002 represents a current
income tax obligation for State income taxes and the utilization of a portion of
our NOLs, net of the impact of changes in deferred tax assets and liabilities.
Other Comprehensive
Income.
Total other comprehensive loss in 2002 was $3.4 million (net of
income taxes of $2.3 million), primarily due to the recognition of an additional
minimum pension liability of $3.3 million. This additional minimum liability was
required to be recorded due to the underfunded status of our pension
obligations. The remaining other comprehensive loss of $88,000 (net of income
taxes of $59,000) recognized during 2002 represents the change in the unrealized
loss on an interest rate swap agreement on the ROVA Project's debt caused
by changes in market interest rates during the period. This compares to other
comprehensive loss relating to this arrangement of $1.7 million (net of income
taxes of $1.1 million) for 2001.
Quantitative
and Qualitative Disclosures about Market Risk
We are exposed to market risk, including the effects of changes in commodity prices, as discussed below.
41
Commodity Price Risk
Through our subsidiaries Westmoreland
Resources and Westmoreland Mining, we produce and sell coal to third parties
from coal mining operations in Montana, Texas and North Dakota. Through
Westmoreland Energy, we produce and sell electricity and steam to third parties
from independent power projects located in North Carolina and Colorado. Nearly
all of our coal production and all of this electricity and steam production are
sold through long-term contracts with customers. These long-term contracts serve
to minimize our exposure to changes in commodity prices, even though some of our
contracts are adjusted periodically based upon market prices. We have not
entered into derivative contracts to manage our exposure to changes in commodity
prices, and we were not a party to any such contracts at December 31, 2003.
Interest Rate Risk
We are subject to interest
rate risk on our debt obligations. Our long-term debt obligations have both
fixed and variable interest rates, and our revolving line of credit has a
variable rate of interest indexed to either the prime rate or LIBOR. Interest
rates on these instruments approximate current market rates as of December 31,
2003. Based on the balances outstanding as of December 31, 2003, a one percent
change in the prime interest rate or LIBOR would increase our interest expense
by $10,000 on an annual basis. Our heritage health benefit costs are also
impacted by interest rate changes because our pension, pneumoconiosis and
post-retirement medical benefit obligations are recorded on a discounted basis.
42
BUSINESS
We are an energy company.
We mine coal that is used to produce electric power, and we own interests in
power-generating plants. Beginning in 2004, we also will receive royalties from
the production of coalbed methane gas.
Coal Operations
We were the 10th largest
coal producer in the Unites States, ranked by tons of coal mined in 2003. In
2003, we produced 27.7 million tons, about 2.6% of all the coal produced in the
United States.
Mines
We own five mines; all
except the Jewett Mine are located in the northern tier, a niche coal market
extending from Montana through Minnesota and other upper Midwestern states. Our
mines are:
•
the Absaloka Mine,
•
the Rosebud Mine,
•
the Jewett Mine,
•
the Beulah Mine and
•
the Savage Mine.
The Absaloka Mine is owned
by our subsidiary, Westmoreland Resources, Inc. The Rosebud, Jewett, Beulah and
Savage Mines are owned by our separate subsidiary, Westmoreland Mining LLC.
All of these mines are
surface mines. Surface mining involves extracting coal that lies close to the
surface. Where the surface layer contains rock, electric drills are used to
drill holes in the rock, explosives are inserted, and the blast loosens the
layer of rock. Earth-moving equipment removes the overburden – the layer of
dirt and rock that lies between the surface and the coal. A machine called a
dragline is typically used to remove a substantial portion of the overburden.
Draglines are very large – our largest dragline weighs approximately 7,000
tons and has a bucket capacity of 128 cubic yards. Smaller pieces of equipment,
including bulldozers, front end loaders, scrapers and dump trucks move the
remainder of the overburden. Once the coal has been exposed, bulldozers,
front-end loaders, backhoes or electric shovels load the coal in dump trucks.
After the coal has been extracted, it is processed, typically by crushing,
sampled or assayed, and then shipped to customers.
The Absaloka Mine is
located on approximately 15,000 acres in Big Horn County, Montana, near the town
of Hardin. Coal was first extracted from the Absaloka Mine in 1974. Westmoreland
Resources owns the Absaloka Mine. We own 80% of the stock of Westmoreland
Resources. Washington Group International, Inc. owns the remaining 20% and
operates the mine. Unless otherwise indicated, we own 100% of each of our other
subsidiaries.
43
The Rosebud Mine is located
on approximately 25,000 acres in Rosebud and Treasure Counties, Montana, near
the town of Colstrip, about 130 miles east of Billings. Coal was first mined
near Colstrip in 1924. Coal production from the existing mine complex began in
1968. Westmoreland Mining's subsidiary, Western Energy Company, owns and
operates the Rosebud Mine. Westmoreland Mining acquired the stock of Western
Energy from Entech, a subsidiary of the Montana Power Company, in April 2001.
The Jewett Mine is located
on approximately 35,000 acres in Freestone, Leon and Limestone Counties, Texas,
near the town of Jewett, about half way between Dallas and Houston. The Jewett
Mine produces lignite, a type of coal with a lower Btu value per ton than
sub-bituminous or bituminous coal. A Btu is a measure of heat energy. The higher
the Btu value, the more energy is produced when the coal is burned. Lignite was
first extracted from the Jewett Mine in 1985. Westmoreland Mining's
subsidiary, Northwestern Resources Co., owns and operates the Jewett Mine.
Westmoreland Mining acquired the stock of Northwestern Resources from Entech in
April 2001.
The Beulah Mine is located
on approximately 9,300 acres in Mercer and Oliver Counties, North Dakota, near
the town of Beulah. The Beulah Mine also produces lignite. Lignite was first
extracted from the Beulah Mine in 1963. Westmoreland Mining's subsidiary,
Dakota Westmoreland Corporation, owns and operates the Beulah Mine. Westmoreland
Mining acquired the Beulah Mine in May 2001 from Knife River Corporation, a
subsidiary of MDU Resources Group, Inc.
The Savage Mine is located
on approximately 1,600 acres in Richland County, Montana, near the town of
Sidney. Production began at the Savage Mine in 1958. Westmoreland Mining's
subsidiary, Westmoreland Savage Corporation, owns and operates the Savage Mine.
Westmoreland Mining acquired the Savage Mine in May 2001 from Knife River
Corporation.
The following table presents the sales from our mines in the last three years:
Coal Sales by Mine
(in tons)
Year
Absaloka
Rosebud
Jewett
Beulah
Savage
2003
6,016,000
11,003,000
7,462,000
2,816,000
379,000
2002
5,160,000
10,061,000
7,105,000
3,006,000
337,000
2001
5,904,000
11,284,000
(1)
7,138,000
(2)
3,087,000
(3)
346,000
(4)
(1) Of this amount, 7,610,000 tons were sold in 2001 after we acquired the mine.
(2) Of this amount, 4,463,000 tons were sold in 2001 after we acquired the mine.
(3) Of this amount, 2,014,000 tons were sold in 2001 after we acquired the mine.
(4) Of this amount, 236,000 tons were sold in 2001 after we acquired the mine.
44
Coal and the Production of Electricity
Over the last fifty years,
coal has played a significant role in generating the United States'
electricity. The following table, derived from the Energy Information
Administration's data, shows coal's share in the production of all
electricity in the United States:
Year
Electricity generated
by all sources (billions
of kilowatt hours)(1)
Electricity generated
by coal (billions of
kilowatt hours)
Coal-generated elec-
tricity as a percent
-tage of all electricity
1950
334
154
46%
1960
759
403
53%
1970
1,535
704
46%
1980
2,290
1,162
51%
1990
3,038
1,594
52%
2000
3,802
1,966
52%
2002(2)
3,839
1,926
50%
(1)
All sources include all fossil fuels other than coal, nuclear electric power, hydroelectric pumped storage,
              renewable energy (including conventional hydroelectric power), and other.
(2)
Preliminary.
The EIA estimates that the
demand for coal used to generate electricity will increase 1.8% per year from
2002 through 2025.
Customers, Competition and Coal Supply Agreements
We supply coal to plants
that generate electricity. These plants compete with all other producers of
electricity to be dispatched, or called upon to generate power. We compete with
many other suppliers of coal to provide fuel to these plants.
We believe that the competitive advantage of our mines derives from two factors:
•
all of our mines are the lowest cost-suppliers to each of their respective principal customers; and
•
nearly all of the power plants we supply were specifically designed to use our coal.
The plants we supply are
among the lower cost producers of electric power in their respective regions and
employ emissions control technology. As a result, we believe that the
power-generating plants that we supply are more likely to be dispatched, and
that our mines will be supplying the coal that powers these generating units.
The baseload is the part of the total demand for energy that does not vary over
a given period of time, and a baseload or baseloaded power plant is a plant that
supplies this relatively constant demand. The power-generating plants we supply
are all baseloaded.
From the standpoint of a
purchaser of coal, two of the principal costs of burning coal are the cost of
the coal and the cost of transporting the coal from the point of extraction to
the purchaser. The principal customers of the Rosebud, Jewett and Beulah Mines
are located adjacent to the mines, so that the coal for these customers can be
delivered by conveyor belt or in-pit truck rather than by more expensive means
such as on-road truck or rail. The customers of the Savage Mine are located
25-30 miles from the mine, so that coal can be transported economically by
on-road truck. The Absaloka Mine enjoys about a 300 rail mile advantage over its
principal competitors from the Southern Powder River Basin, or SPRB. We believe
that all of our mines are the lowest cost-suppliers to each of their respective
principal customers, and that some of our mines are also in a position to be the
next lowest cost-suppliers to these customers.
45
The Rosebud Mine's
primary customers are the owners of the four-unit Colstrip Station, which has a
generating capacity of approximately 2,200 MW and is located adjacent to the
mine. The Rosebud Mine has supplied the Colstrip Station since 1975, when
Colstrip Units 1&2 commenced commercial operations. Western Energy sells
this coal under long-term contracts expiring in 2009 for Colstrip Units 1&2
and in 2019 for Colstrip Units 3&4. The contract with Colstrip Units 1&2
specifies a base price per ton that is subject to adjustment for specified
indices and changes in our costs. Under this contract, we are also entitled to
receive our costs plus a reasonable profit, which is redetermined or reopened at
5 year intervals. We describe the results of the final reopener under that
contract above, under "Summary – Recent Developments." Western
Energy's coal supply agreement with the owners of Colstrip Units 3&4 is
a cost-plus arrangement that provides a return on our investment on mine assets
plus the payment of specified types of fees. The owners of Colstrip Units
3&4 also compensate Western Energy under a separate contract for
transporting the coal to them on a conveyor belt that Western Energy owns. With
some exceptions, the contracts with the owners of the Colstrip Station are full
requirements contracts; that is, the Colstrip Units are required to purchase all
their coal requirements from or through the Rosebud Mine. The Rosebud Mine also
supplies coal to Minnesota Power under a coal supply agreement that expires in
2008. Under this contract, Minnesota Power pays a base price per ton, which will
increase in the future by fixed percentages.
The Jewett Mine's sole
customer is Texas Genco, L.P., the owner of the two-unit Limestone Electric
Generating Station, which has a generating capacity of approximately 1,710 MW
and is located adjacent to the mine. The Jewett Mine has supplied the Limestone
Station since 1985, when it commenced commercial operations. The Jewett Mine
sells lignite to Texas Genco pursuant to an Amended Lignite Supply Agreement, or
ALSA, that expires in 2015. The ALSA provides for the annual determination of
volumes and pricing, with pricing based on an equivalent value of coal from
Wyoming's Southern Powder River Basin, as delivered to and used at the
Limestone Station. Northwestern Resources and Texas Genco have disputed the
proper interpretation of some elements of the ALSA from time to time. In January
2004, Northwestern Resources and Texas Genco settled some of the disputes
between them. Among other things, Texas Genco committed to purchase
approximately 7 million tons of lignite from the Jewett Mine per year during the
years 2004 through 2007, and, for that same period, the parties agreed to the
price for that lignite.
The Beulah Mine supplies
the Coyote Station, which has a generating capacity of approximately 420 MW and
is located adjacent to the mine, and the Heskett Station, which has a generating
capacity of 100 MW and is located in Mandan, North Dakota, approximately 74
miles from the mine. Coal is shipped to the Heskett Station on the Burlington
Northern Santa Fe Railway. The Beulah Mine has supplied the Coyote Station since
1981, when it commenced commercial operations, and the Heskett Station since
1963. The contract with the Coyote Station expires in 2016. The contract with
the Heskett Station expires in 2005, but we have the option to renew it for an
additional five years. The price of the coal under these contracts is based on
some of the Beulah Mine's costs, is adjusted for specified indices and mine
costs, and for the Coyote Station is supplemented by a provision setting forth
guaranteed minimum and maximum net income levels. The Beulah Mine's
contracts with the Coyote Station and, with a minor exception, the Heskett
Station, are each full requirements contracts.
46
The Savage Mine supplies
coal to the Lewis & Clark Station, which has a generating capacity of
approximately 49 MW, and the Sidney Sugars plant, which uses coal from the
Savage Mine to heat its boilers and process sugar beets. These facilities are
located approximately 25 and 30 miles from the mine, respectively, so that coal
can be transported to them economically by on-road truck. The Savage Mine has
supplied the Lewis & Clark Station since 1958, when it commenced commercial
operations. The Savage Mine's contracts with the Lewis & Clark Station
and the Sidney Sugars plant run until 2007 and 2008, respectively. These
contracts, which involve smaller volumes than our other coal supply contracts,
are, with minor exceptions, each full requirements contracts.
The Absaloka Mine faces a
different competitive situation than our other mines. The Absaloka Mine sells
its coal in the rail market, to utilities located in the northern tier of the
United States that are served by the Burlington Northern Santa Fe Railway. These
utilities may purchase coal from us or from other producers, and we compete with
other producers on the basis of price and quality, with the purchasers also
taking into account the cost of transporting the coal to their plants. The
Absaloka Mine was developed to supply the Sherburne County Station, a three unit
power plant near Minneapolis, Minnesota, with a generating capacity of 2,292 MW.
The Absaloka Mine has a transportation advantage to the Sherburne County Station
because it is located about 300 rail miles closer to that power plant than other
mines competing for that business. The Absaloka Mine has supplied the Sherburne
County Station since 1976, when it commenced commercial operations. The Absaloka
Mine has three separate coal sales contracts to supply the Sherburne County
Station.
•
The Absaloka Mine supplies coal to Xcel Energy under two contracts, one covering
3.4 million tons per year that expires in 2007 and one covering 1.0 million tons
per year that expires in 2006. We receive prices under these contracts that are
adjusted by specified indices.
•
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 in
2007. The price we receive under this contract is also adjusted by specified
indices.
The Absaloka Mine also
sells coal to the Xcel Energy's A.S. King Station, which is located in
Bayport, Minnesota, and to Consumers Energy Company through Midwest Energy
Resources Company for Consumers' Cobb and Weadock stations, which are
located in Muskegon and Essexville, Michigan, under contracts expiring in 2007
and 2004, respectively. In February 2004, we reached agreement with the Crow
Tribe for exploration of new coal reserves in order to continue serving
customers beyond exhaustion of the reserves in our existing lease.
47
The following table shows,
for each of the past five years, our coal revenues, the tons sold from mines
that we owned at the time of production, the percentage of our coal sales made
under long-term contracts and the weighted average price per ton that we
received under these long-term contracts.
Year
Coal Revenues
(in 000's)
Coal Sales in
Equivalent Tons
(in 000's)
Percentage of
Coal Sales Under
Long-Term
Contracts
Weighted Average
Price Per Ton
Received under
Long-Term
Contracts
2003
$  294,986
27,762
99%
$  10.45
2002
301,235
26,062
100%
11.29
2001
231,048
20,503
99%
11.05
2000
35,137
4,910
100%
7.16
1999
38,539
5,466
100%
7.05
The weighted average price
per ton that we received declined from 2002 to 2003 principally because, as we
anticipated, effective July 1, 2002, the Jewett Mine transitioned from
cost-plus-fees pricing to pricing based on an equivalent value of coal from
Wyoming's Southern Powder River Basin, as delivered to and used at the
Limestone Station. Our coal revenues include amounts earned by our coal sales
company from sales of coal produced by mines other than ours. In 2003 and 2002,
these amounts were $5.5 million and $6.8 million, respectively.
We consider a contract that
calls for deliveries to be made over a period longer than one year a long-term
contract. In 2003, our two largest contract customers, the owners of Colstrip
Units 3&4 and Texas Genco, accounted for 34% and 24%, respectively, of our
coal revenues. No other customer or contract accounted for as much as 10% of our
coal revenues in 2003. The owners of Colstrip Units 3&4 are Avista
Corporation, NorthWestern Corporation, PacifiCorp, Portland General Electric
Company, PPL Montana LLC and Puget Sound Energy, Inc.
The following table
presents our estimate of the sales under our existing long-term contracts for
the next five years. The prices for these tons are subject to revision and
adjustments based upon market prices, certain indices and/or cost recovery. We
also expect to continue to supply customers whose contracts expire before the
end of 2008, but we have not included those tonnages in this projection.
Projected Sales Tonnage Under
Existing Long-Term Contracts
(in millions of tons)
2004
29.6
2005
28.8
2006
28.3
2007
27.8
2008
22.3
48
This table reflects
existing contracts only and takes into account existing terms and volume
provisions, as well as scheduled outages at our customers' plants, where
known. We anticipate replacing sales as contracts expire with extensions, new
contracts or spot sales over the life of our coal reserves.
Protecting the Environment
We consider ourselves
stewards of the environment. We reclaim the areas that we mine, and we believe
that our activities are in compliance with all material federal, state and local
laws and regulations.
Our reclamation activities
consist of filling the voids created during coal removal, replacing sub-soils
and top-soils and then re-establishing the vegetative cover. At the conclusion
of our reclamation activities, the area disturbed by our mining will look
similar to what it did before we mined. Before we are released from all
liability under our permits, we are required to restore the area where we
removed coal to a productive state that meets or exceeds the use of the land
before we mined.
We address the impacts our
mining operations have on wildlife habitat and on sites with cultural
significance. At the Jewett Mine, we preserve the nesting area of the Interior
Least Tern, a bird threatened in the region. The Rosebud Mine has altered its
mining plan to preserve Native American petroglyphs on rock formations. Similar
culturally significant sites have been excavated by trained archeologists.
Historic buildings on mine property have been moved to preserve them.
Safety
Safety is important to us.
We maintain active safety programs at all of our mines. Our mines strive to
achieve 100% compliance with safe practices, safety rules, and regulations.
Based on data from the Mine Safety and Health Administration or MSHA, an agency
of the U.S. Department of the Interior, our mines and maintenance shops had a
lost-time incident rate of 1.48 in 2003, compared to the national average of
2.21. The lost-time incident rate is an industry standard measure of safety
performance for surface mines that measures frequency of events that result in
an employee's missing time from work.
Independent
Power Operations
Through Westmoreland Energy
LLC and its direct and indirect subsidiaries, we own interests in three
power-generating plants:
•
a 50% interest in the Roanoke Valley I Project, a 180 MW coal-fired plant located in Weldon, North Carolina;
•
a 50% interest in the Roanoke Valley II Project, a 50 MW coal-fired plant also located in Weldon, North Carolina; and
•
a 4.49% interest in the
Fort Lupton Project, a 290 MW natural-gas fired plant located in Fort Lupton,
Colorado.
We call the Roanoke Valley
units ROVA I and ROVA II and both units the ROVA Project.
49
The ROVA Project and the
Fort Lupton Project are each independent power projects. Independent power
projects are power-generating plants that were not built by the regulated
utility that purchases the plant's output.
Each of these projects has
a long-term contract with a fuel supplier and a long-term contract with a steam
host, a business that uses the steam that is generated in the production of
power. These projects also have long-term contracts with electric utilities,
which purchase the power that the projects generate. The table below presents
information about each of our projects.
Project
Roanoke
Valley I
Roanoke
Valley II
Ft. Lupton
Location
Weldon,
North  Carolina
Weldon,
North  Carolina
Ft. Lupton,
Colorado
Gross capacity (MW)
180 MW
50 MW
290 MW
Our equity ownership
50.0%
50.0%
4.49%
Electricity purchaser
Dominion Virginia Power
Dominion Virginia Power
Public Service of Colorado
Steam host
Patch Rubber Company
Patch Rubber Company
Rocky Mtn. Produce, Ltd
Fuel type
Coal
Coal
Natural Gas
Fuel supplier
TECO Coal/ CONSOL
TECO Coal/ CONSOL
Thermo Fuels,  Inc.
Commercial operation commencement date
1994
1995
1994
Contracts with steam host & electricy purchaser expire in
2019
2020
Unit 1 - 2019
Unit 2 - 2009
Like the power plants to
which we sell coal, these projects compete with all other producers of
electricity, principally on the basis of price. The ROVA Project is baseloaded
and sells power pursuant to a long-term contract to Dominion Virginia Power
under rates established in power purchase agreements and approved by regulatory
agencies. In 2003, ROVA I had a capacity factor of 89% and ROVA II had a
capacity factor of 90%. ROVA I produced 1,301,000 MWH in 2003; ROVA II produced
352,000 MWH during the year.
The Fort Lupton Project is
a peaking plant. It provides power only when the demand for electricity exceeds
the output of baseloaded units. The Fort Lupton Project produced approximately
899,000 MWH during 2003.
50
Other
Activities
As part of our 2001
acquisitions, we obtained the stock of North Central Energy Company. North
Central owns property and mineral rights in southern Colorado. In 2003, North
Central leased the rights to explore, drill and produce coalbed methane gas to
Petrogulf Corporation for $300,000 and a royalty interest on production from
wells drilled on North Central's properties. Coalbed methane gas is natural
gas that occurs in coal beds. Coalbed methane gas typically has a heating value,
or Btu content, similar to that of other forms of natural gas and has uses
identical to and competes with other forms of natural gas. As of December 31,
2003, twelve wells had been drilled. Commercial production began in early 2004.
In 2003, North Central also sold surface and mineral property to local land
owners for $1.4 million.
We have elected to retain
some of the risks associated with operating our company. We have established a
wholly-owned, consolidated insurance subsidiary, Westmoreland Risk Management
Ltd., which provides our primary layer of property and casualty insurance,
thereby reducing the effect of escalating insurance premiums in those lines. We
reduce our exposure by insuring for losses in excess of our retained limits with
third party insurance companies. Westmoreland Risk Management is a Bermuda
corporation. We have elected to report Westmoreland Risk Management as a taxable
entity in the United States.
We previously owned a 20%
partnership interest in Dominion Terminal Associates, the owner of a coal
storage and vessel-loading facility in Newport News, Virginia. We sold our
interest in DTA effective June 30, 2003.
Except for the assets of
Westmoreland Risk Management, all of our assets are located in the United
States. We had no export sales and derived no revenues from outside the United
States during the five-year period ended December 31, 2003.
Seasonality
Our business is somewhat seasonal:
•
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. Because the power
plants to which we supply coal are typically dispatched less in the spring and
fall, our coal revenues are usually higher in the winter and summer.
•
The ROVA Project also typically undergoes scheduled maintenance in the spring
and fall, so our equity in earnings from independent power is also lower in
those seasons.
51
Government
Regulation
Numerous federal, state and
local governmental permits and approvals are required for mining and independent
power operations. Both our coal mining business and our independent power
operations are subject to extensive governmental regulation, particularly with
regard to matters such as employee health and safety and permitting and
licensing requirements that cover all phases of environmental protection. The
permitting process encompasses both federal and state laws, addressing
reclamation and restoration of mined land and protection of hydrologic
resources. Federal regulations also protect the benefits for current and retired
coal miners.
We believe that our
operations comply with all applicable laws and regulations, and it is our policy
to operate in compliance with all applicable laws and regulations, including
those involving environmental matters. However, because of extensive and
comprehensive regulatory requirements, violations occur from time to time in the
mining and independent power industries. None of the violations to date or the
monetary penalties assessed upon us has been material.
Environmental Laws
We are subject to various
federal, state and local environmental laws. Some of these laws, discussed
below, place many requirements on our mines and the independent power plants in
which we own interests.
Surface Mining
Control and Reclamation Act.
The Surface Mining Control and
Reclamation Act of 1977, or SMCRA, which is administered by the Office of
Surface Mining Reclamation and Enforcement, or OSM, establishes mining,
environmental protection and reclamation standards for all aspects of surface
mining. OSM may delegate authority to state regulatory programs if they meet OSM
standards. OSM has approved reclamation programs in Montana, North Dakota and
Texas, and these states' regulatory agencies have assumed primacy in mine
environmental protection and compliance. Mine operators must obtain permits
issued by the state regulatory authority. OSM maintains oversight authority on
the permitting and reclamation process. We endeavor to comply with approved
state regulations and those of OSM through contemporaneous reclamation,
maintenance and monitoring activities. Contemporaneous reclamation is
reclamation conducted on a reasonably current basis following the mining of an
area.
Each of our mining
operations must obtain all required permits before any activity can occur. Under
the states' approved program, an applicant for a permit must address
requirements for coal prospecting; mine plan development; topsoil removal,
storage and replacement; selective handling of overburden materials; mine pit
backfilling and grading; protection of the hydrologic balance; subsidence
control for underground mines; surface drainage control; mine drainage and mine
discharge control and treatment; and re-vegetation. While there may be some
general differences between the states' SMCRA-approved programs, they are
all similar. A permit applicant must supply detailed information regarding its
proposed operation including detailed studies of site-conditions before active
mining begins, extensive mine plans that describe mining methods and impacts and
reclamation plans that provide for restoration of all disturbed areas. The state
regulatory authority reviews the submission for compliance with SMCRA and
generally engages in a process that involves critical comments designed to
ensure regulatory compliance and successful reclamation. When the state is
satisfied that the permit application satisfies the requirements of SMCRA, it
will issue a permit. To ensure that the required final reclamation will be
performed, the state requires the permit-applicant to post a bond that secures
the reclamation obligation. The bond will remain in place until all reclamation
has been completed.
52
SMCRA requires compliance
with many other major environmental programs. These programs include the Clean
Air Act; Clean Water Act; Resource Conservation and Recovery Act or RCRA; and
Comprehensive Environmental Response, Compensation, and Liability Acts or
CERCLA. Besides OSM, other Federal regulatory agencies are involved in
monitoring or permitting specific aspects of mining operations. The EPA is the
lead agency for states or Indian Tribes with no authorized programs under the
Clean Water Act, RCRA and CERCLA. The U.S. Bureau of Alcohol, Tobacco and
Firearms, or ATF, regulates the storage, handling and use of explosives.
Clean Air Act.
The Clean Air Act, the 1990 amendments to the Clean Air Act,
which we call the Clean Air Act Amendments, and the corresponding state laws
that regulate air emissions affect our independent power interests and our mines
both directly and indirectly. Direct impacts on coal mining and processing
operations may occur through the Clean Air Act's permitting requirements
and/or emission control requirements. The Clean Air Act directly affects the
ROVA Project and indirectly affects our mines by extensively regulating the
emissions from our customers' plants into the air of particulates, fugitive
dust, sulfur dioxide, nitrogen oxides and other compounds emitted by coal-fired
generating plants.
Title IV of the Clean Air
Act Amendments places limits on sulfur dioxide emissions from power-generating
plants and sets baseline emission standards for these facilities. The affected
electricity generators have been able to meet these requirements by, among other
ways, switching to lower sulfur fuels, installing pollution control devices,
such as flue gas desulfurization systems, which are known as
"scrubbers," reducing electricity generating levels or purchasing
sulfur dioxide emission allowances. Emission sources receive sulfur dioxide
emission allowances, which can be traded or sold.
The Clean Air Act
Amendments also require power plants that are major sources of nitrogen oxides
in moderate or higher ozone non-attainment areas to install reasonably available
control technology for nitrogen oxides, which are precursors of ozone. In
addition, the EPA promulgated final rules that would require coal-burning power
plants in 19 eastern states and Washington, D.C. to make substantial reductions
in nitrogen oxide emissions beginning in May 2004. Installation of additional
control measures required under the final rules will make it more costly to
operate coal-fired generating plants. We discuss these rules below in more
detail in the context of the ROVA Project.
Clean Water Act.
The Clean Water Act of 1972 affects coal mining operations by
establishing the National Pollutant Discharge Elimination System, or NPDES,
which sets standards for in-stream water quality and treatment for effluent
and/or waste water discharges. Regular monitoring, reporting requirements and
performance standards are requirements of NPDES permits that govern the
discharge of pollutants into water. States are also adopting anti-degradation
regulations in which a state designates certain water bodies or streams as
"high quality." These regulations would prohibit the diminution of
water quality in these streams. Waters discharged from coal mines to high
quality streams will be required to meet or exceed new high quality standards.
The designation of high quality streams at our coal mines could require more
costly water treatment and could aversely affect our coal production. We believe
that all of our mines are in compliance with current discharge requirements.
53
Resource Conservation
and Recovery Act.
The Resource Conservation and Recovery Act,
which was enacted in 1976, affects coal mining operations by establishing
requirements for the treatment, storage and disposal of hazardous wastes. Coal
mine wastes, such as overburden and coal cleaning wastes, are exempted from
hazardous waste management. The EPA has also exempted coal combustion wastes
from hazardous waste management under RCRA. Although coal combustion wastes
disposed in surface impoundments and landfills or used as mine-fill are subject
to regulation as non-hazardous wastes under RCRA, we do not anticipate that the
regulation of coal combustion wastes will have any material effect on the amount
of coal used by electricity generators so long as the EPA continues to exempt
coal combustion wastes from hazardous waste management.
Proposed Environmental Rules
On January 30, 2004, the EPA proposed two rules:
•
Rule to Reduce Interstate Transport of Fine Particulate Matter and Ozone, now known as the Clean Air Interstate Rule, or CAIR
•
Proposed National Emission Standards for Hazardous Air Pollutants, now known as the Utility Mercury Reductions Rule, or
              Mercury Rule
Because different types of
coal vary in their chemical composition and combustion characteristics, the
proposed regulations could also alter the relative competitiveness among coal
suppliers and coal types.
Clean Air Interstate
Rule
. In the CAIR, the EPA proposed to require that 29 states and
the District of Columbia reduce emissions of sulfur dioxide and nitrogen oxide
in two phases, beginning in 2010. The states covered by this rule include the
states in which the ROVA Project and the principal customers of the Jewett and
Absaloka Mines are located. One version of the proposal would also cover North
Dakota, where the principal customers of the Beulah Mine are located.
The EPA proposed that
states meet their reduction obligations, or budgets, by capping sulfur dioxide
and nitrogen oxide emissions from electric generating units, or EGUs, including
those that burn coal. The EPA proposed two alternatives for regulating
emissions, a cap-and-trade program and programs adopted by individual states.
•
The first alternative would establish a cap-and-trade program under the CAIR; it
would essentially utilize the existing cap-and-trade program for sulfur dioxide
emissions under Title IV of the Clean Air Act and create a new cap-and-trade
program for nitrogen oxide modeled largely on the existing sulfur dioxide
program. Under this alternative, the EPA would establish budgets, or caps, on
the total emissions of sulfur dioxide and nitrogen oxide from EGUs in the states
covered by the rule. For sulfur dioxide, EGUs would be required to hold existing
Title IV allowances to cover actual emissions. Beginning in 2010, EGUs would be
required to hold 2 allowances per ton emitted, and that ratio would increase to
3 allowances per ton emitted in 2015. For nitrogen oxide, each EGU would receive
a set amount of allowances to emit nitrogen oxide beginning in 2010. In 2015 the
number of allowances would be reduced. An EGU whose emissions of either
pollutant would exceed the level of allowances allocated to it could bring
itself into compliance by installing pollution control equipment, switching
fuels or buying allowances. In 2002, EGUs in the relevant states emitted 9.3
million tons of sulfur dioxide and 3.7 million tons of nitrogen oxide. The
cap-and-trade alternative proposes to reduce annual emissions of sulfur dioxide
to 3.9 million tons by 2010 and 2.7 million tons by 2015 and annual emissions of
nitrogen oxide to 1.6 million tons by 2010 and 1.3 million tons by 2015.
54
•
The second alternative would allow the relevant states to determine their own
methods for reducing emissions of sulfur dioxide and nitrogen oxide to meet the
proposed budgets in the CAIR.
The EPA has announced that
it expects to adopt some form of the CAIR by the end of 2004. How the rule would
affect us will depend on, among other things, the final form of the rule,
including whether North Dakota is covered by the final rule, and the allocation
of available emissions allowances.
Mercury
Rule
. In the Mercury Rule, the EPA proposed three alternative
methods for regulating emissions of mercury. One alternative would require EGUs
to meet an emissions limit that is based on the installation of controls known
as "maximum achievable control technologies," or MACT. The second and
third alternatives would establish standards of performance and a cap-and-trade
program, one under Section 111 of the Clean Air Act and one under Section 112 of
the Clean Air Act. The Mercury Rule would apply to all EGUs. According to the
EPA, there are neither precombustion techniques nor proven technologies that are
currently commercially available for reducing mercury emissions from
lignite-burning units to the level contemplated by the version of the MACT
standard contained in the proposed rule, and there is also currently no proven
technology for accurately measuring the mercury content in emissions.
•
Under the MACT alternative, the EPA would limit mercury emissions that could be
emitted from EGUs for every trillion Btu those units produce. As currently
proposed, this alternative would limit mercury emissions from lignite-burning
EGUs to 9.2 pounds of mercury for every trillion Btu produced, commencing as
early as 2007. Mercury emissions from the Limestone Station, which burns lignite
produced by our Jewett Mine, exceed 9.2 pounds of mercury per trillion Btu, and
mercury emissions from the Coyote Station, which burns lignite produced by our
Beulah Mine, may exceed 9.2 pounds of mercury per trillion Btu.
•
Under the two cap-and-trade alternatives, EGUs would be required to hold
sufficient allowances to cover their emissions of mercury each year. The two
alternative cap-and-trade programs would allocate emissions allowances for
mercury differently. One alternative would allocate allowances to individual
EGUs. Under the other alternative, the EPA would allocate to each state
specified amounts of emissions allowances, and the states would allocate
allowances to EGUs. Under both alternatives, EGUs would be able to trade their
allowances. In 2002, EGUs emitted approximately 48 tons of mercury. The
cap-and-trade alternatives propose to reduce EGUs' annual emissions of
mercury to 34 tons by 2010 and 15 tons by 2018. An EGU with mercury emissions
higher than its allocated allowance level could bring itself into compliance by
installing pollution control equipment, switching fuels or buying allowances.
55
How the rule would affect
us will depend on, among other things, the final regulatory scheme adopted by
the EPA. If the EPA were to adopt a version of the Mercury Rule that limits
emissions of mercury to 9.2 pounds for every trillion Btu produced from
lignite-burning plants, then sales from the Jewett Mine and the Beulah Mine
could be significantly reduced; if the EPA were to adopt a version of the rule
that contains a cap-and-trade approach, we could face increased pressure to
reduce the price for our lignite to offset in part the cost of purchasing
emissions allowances; and if the EPA were to adopt any form of the Mercury Rule,
we could face increased pressure to reduce the price for our lignite to offset
in part any costs for any technological solutions that might be developed.
The EPA issued a
Supplemental Proposed Rule on March 16, 2004. Based on a preliminary review of
the docket for the proposed Mercury Rule, it appears that the EPA received over
500,000 comments on the proposed rule, many suggesting that the EPA should
fundamentally change the three alternatives contained in the proposal. The EPA
has announced that it expects to adopt some version of the Mercury Rule by March
15, 2005.
Health and Benefits
Mine Safety and
Health.
Congress enacted the Coal Mine Health and Safety Act in
1969. The Federal Mine Safety and Health Act of 1977 significantly expanded the
enforcement of safety and health standards and imposed safety and health
standards on all aspects of mining operations. The states in which we operate
have programs for mine safety and health regulation and enforcement. Our safety
activities are discussed above.
Black Lung.
Under the Black Lung Benefits Revenue Act of 1977 and the Black
Lung Benefits Reform Act of 1977, as amended in 1981, each coal mine operator
must secure payment of federal black lung benefits to claimants who are current
and former employees and to a trust fund for the payment of benefits and medical
expenses to claimants who last worked in the coal industry prior to July 1,
1973.
Coal Act.
As discussed in more detail above, the Coal Industry Retiree
Health Benefit Act imposes substantial costs on us. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations –
Critical Accounting Estimates and Related Matters – Postretirement Benefits
and Pension Obligations."
Independent Power
Many of the environmental
laws and regulations described above, including the Clean Air Act Amendments,
the Clean Water Act and RCRA, apply to our independent power plants as well as
to our coal mining operations. These laws and regulations require a lengthy and
complex process of obtaining licenses, permits and approvals from federal, state
and local agencies. Meeting the requirements of each jurisdiction with authority
over a project can delay or sometimes prevent the completion of a proposed
project, as well as require extensive modifications to existing projects. The
operators of the ROVA and Fort Lupton Projects are responsible for obtaining the
required permits and complying with the relevant environmental laws.
56
On December 17, 1999, the
EPA issued regulations under Section 126 of the Clean Air Act, which we call the
Section 126 rule. The Section 126 rule requires combined nitrogen oxide
reductions of 510,000 tons during each annual ozone season (May 1 –
September 30) from specified power stations in the eastern United States,
including the ROVA Project. The rule responds to petitions filed by several
northeastern states under Section 126 of the Clean Air Act and seeks to control
nitrogen oxide emissions that the petitioning states allege prevent them from
attaining the ambient air quality standards for ozone. Each source is assigned a
nitrogen oxide emissions allocation, and sources can reduce emissions to meet
the allocation or purchase allowances.
North Carolina has adopted regulations that require compliance with the new nitrogen oxide limits beginning in June 2004.
At this time, the ROVA
Project is evaluating strategies for complying with the Section 126 rule. In
2000, the ROVA Project installed a neural network in its boilers. The neural
network increases boiler efficiency and reduces nitrogen oxide and carbon
monoxide emissions. While the neural network reduces the level of nitrogen oxide
and carbon monoxide emissions from the ROVA Project, the project's operator
is evaluating additional compliance strategies, including installation of
additional pollution control equipment and/or emissions trading.
Employees
Including our subsidiaries,
we directly employed 919 people on December 31, 2003, compared with 882 people
on December 31, 2002. We hired more employees in 2003 in order to increase
production from the Rosebud Mine. Westmoreland Coal Company is not party to any
agreement with the United Mine Workers of America, or UMWA, and its last
agreement with the UMWA expired on August 1, 1998. However, our Western Energy
subsidiary is party to an agreement with Local 400 of the International Union of
Operating Engineers, or IUOE. In addition, our Dakota Westmoreland and
Westmoreland Savage subsidiaries assumed agreements with Local 1101 of the UMWA
and Local 400 of the IUOE, respectively, when we purchased Knife River's
assets.
Information
about Segments
Coal revenues accounted for
93%, 95%, 95% and 94% of our consolidated revenues in the first quarter of 2004
and in 2003, 2002 and 2001, respectively. Equity in earnings from independent
power operations accounted for the balance of our consolidated revenues in the
first quarter of 2004 and in each such year. Please refer to Note 13 of our
consolidated financial statements for additional information about the segments
of our business.
57
Available
Information
Our Internet address is
www.westmoreland.com. We do not intend for the information on our website to
constitute part of this report. We make available, free of charge on or through
our Internet website, our Annual Report on Form 10-K, quarterly reports on Form
10-Q, current reports on Form 8-K and amendments to those reports filed or
furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of
1934, as amended, as soon as reasonably practicable after we file those
materials electronically with, or furnish them to, the Securities and Exchange
Commission.
58
PROPERTIES
We operate mines in
Montana, Texas and North Dakota. All of these mines are surface or open-pit
mines. These properties contain coal reserves and coal deposits. A coal reserve
is that part of a mineral deposit that could be economically and legally
extracted or produced at the time of the reserve determination. A coal deposit
is a coal bearing body, which has been appropriately sampled and analyzed in
trenches, outcrops, and drilling to support sufficient tonnage and grade to
warrant further exploration work. This coal does not qualify as a coal reserve
until, among other things, we conduct a final comprehensive evaluation based
upon unit cost per ton, recoverability, and other material factors and conclude
that it is legally and economically feasible to mine the coal.
We include in coal reserves
162 million tons that are not fully permitted but that otherwise meet the
definition of coal reserves. Montana, Texas and North Dakota each use a
permitting process approved by the Office of Surface Mining. We describe that
process in this prospectus under "Business – Governmental
Regulation," and we explain our assessment of that process as applied to
these 162 million tons below.
All of our final
reclamation obligations are secured by bonds as required by the respective state
agencies. Payment of the actual cost of the major portion of final reclamation
is the responsibility of third parties. Contemporaneous reclamation activities
are performed at each mine in the normal course of operations and coal
production.
59
The following table provides information about our mines as of December 31, 2003.
Absaloka
Mine
Rosebud
Mine
Jewett
Mine
Beulah
Mine
Savage
Mine
Owned by
Westmoreland Resources, Inc.
Western Energy Company
Northwestern Resources Co.
Dakota Westmoreland Corporation
Westmoreland Savage Corporation
Location
Big Horn County, MT
Rosebud and Treasure Counties, MT
Leon, Freestone and Limestone Counties, TX
Mercer and Oliver Counties, ND
Richland County, MT
Coal Reserves
(thousands of tons)
Proven
(1)
Probable
(3)
53,586
(2)
0
233,841
(2)
0
99,859
0
40,471
(2)
3,815
12,90
0
(2)
4,008
Permitted Reserves
(thousands of tons)
28,000
154,941
99,859
6,000
4,300
Coal Deposits
(thousands of tons)(4)
576,584
280,000
0
0
0
2003 Production
(thousands of tons)
6,016
11,003
7,462
2,816
379
Lessor
Crow Tribe
Federal Govt;
State of MT;
Great Northern
Properties
Private parties
Private parties;
State of ND;
Federal Govt
Federal Govt;
Private parties
Lease Term
Through exhaustion
Varies
Varies
2009-2019
Varies
Curent production capacity
(millions of tons)
7
12
7
4
0.4
Coal type
Sub-bituminous
Sub-bituminous
Lignite
Lignite
Lignite
Acres disturbed by mining
3,520
14,652
13,250
4,221
503
Acres  for  which  reclamation is complete
2,400
6,782
8,816
2,849
209
Major customers
Xcel Energy, Western Fuels Assoc., Midwest Energy
PPL Montana, Puget Sound, Portland General, Avista, Pacificorp, Minnesota Power
Texas Genco
Otter Tail, MDU, Minnkota, Northwestern Public Service
MDU, Sidney Sugars
Delivery method
Rail
Truck / Rail /      Conveyor
Conveyor
Conveyor / Rail
Truck
Approx.      heat      content
(BTU/lb.) (5)
8,700
8,529
6,670
7,000
6,371
Approx. sulfur content
(%) (6)
0.63
0.74
1.00
1.00
0.45
Year opened
1974
1975(7)
1985
1963
1958
Total   tons    mined    since inception
(million of tons)
127.8
346
141
79
12
60
(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 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 coal deposits to operating mining equipment and plant facilities.
(5)
Approximate heat content applies to the coal mined in 2003.
(6)
Approximate sulfur content applies to the tons mined in 2003.
(7)
Initial sales from the current mine complex began in 1975.  Mining first occurred at the site in 1924.
We lease all our coal properties
except at the Jewett Mine, where some reserves are controlled through fee
ownership. We believe that we have satisfied all conditions that we must meet in
order to retain the properties and keep the leases in force.
Absaloka Mine
Our Westmoreland Resources
subsidiary began constructing the mine in late 1972. Construction was completed
in early 1974. Westmoreland Resources has been the mine's only owner.
The Absaloka Mine's
primary excavating machine (completed in 1979) is a dragline with a
bucket-capacity of 110 cubic yards. Westmoreland Resources owns the dragline.
The Absaloka Mine's facilities consist of a truck dump, primary and
secondary crushers, conveyors, coal storage barn, train loadout, rail loop,
shop, warehouse, boiler house, deep well and water treatment plant and other
support facilities. These facilities date from the construction of the mine.
Westmoreland Resources' mining contractor and minority stockholder owns
most of the other equipment at the mine.
We believe that all the
coal reserves and coal deposits shown in the table above for the Absaloka Mine
are recoverable through the Absaloka Mine's existing facilities with
current technology and the existing infrastructure. These reserves and deposits
were estimated to be 799.8 million tons as of January 1, 1980, based principally
upon a report by IntraSearch Inc., an independent firm of consulting geologists,
prepared in February 1980.
Westmoreland Resources
leases all of its remaining coal reserves and coal deposits from the Crow Tribe
of Indians. The lease runs until exhaustion of the mineable and merchantable
coal in the acreage subject to the lease. In February 2004, Westmoreland
Resources reached an agreement with the Crow Tribe to explore and develop
additional acreage located on the Crow reservation immediately adjacent to the
Absaloka Mine.
61
Washington Group, which
owns 20% of Westmoreland Resources and mines the coal at the Absaloka Mine under
a contract with Westmoreland Resources, is contractually responsible for
reclaiming the Absaloka Mine, whatever the cost, except for $1.7 million, which
is the responsibility of Westmoreland Resources and is being funded through
annual payments of $113,000 through 2005. Washington Group is also contractually
obligated to fund a reclamation escrow account or post security for its
reclamation obligation. After reclamation is complete, Westmoreland Resources is
responsible for maintaining and monitoring the reclaimed property until the
release of the reclamation bond. For the property mined through
December 31, 2003, Westmoreland Resources' estimated future cost of
maintaining and monitoring the property until bond release is $1.5 million.
Of the 53.6 million tons
shown for the Absaloka Mine in the table above as proven coal reserves, 25.6
million tons are not fully permitted but otherwise meet the definition of coal
reserves. Westmoreland Resources has chosen not to obtain permits for all of the
coal reserves in its current mine plan because it already has sufficient
permitted coal to meet production, given the current rate of mining and demand,
through 2007. In Montana, the Department of Environmental
Quality
regulates surface mining and issues mining permits
under its OSM-approved program. In Montana, it typically takes two to four years
from the time an initial application is filed to obtain a new permit.
Westmoreland Resources filed an application covering an estimated 25 million
tons of unpermitted reserves in June 2004. We do not believe additional
exploration or development of this area is necessary for Westmoreland Resources
to obtain the necessary permits. Based upon our current knowledge of the
permitting process in Montana and the nature of the Absaloka Mine's
reserves, we believe that there are no matters that would hinder Westmoreland
Resources' ability to obtain this mining permit on a timely basis.
The operator of the
Absaloka Mine purchases electric power under a long-term contract with
NorthWestern Energy,
the local utility. The mine is accessed
from Route 384 via County Road 42.
Rosebud Mine
The Northern Pacific
Railroad began mining coal for its steam locomotives at Colstrip in 1924 and
continued to do so until 1958. In 1959, the Montana Power Company purchased the
property. Montana Power formed Western Energy Company in 1966 to operate the
Rosebud Mine and began selling coal to customers in 1968. Commercial operation
of Colstrip Station began in 1975.
The long-term contracts
required for this plant provided the foundation for a major expansion of the
Rosebud Mine. We acquired the stock of Western Energy in 2001.
The Rosebud Mine's
primary excavating machines are four draglines, three with bucket-capacities of
60 cubic yards, purchased in 1975, 1976 and 1980, and one with a bucket-capacity
of 80 cubic yards, purchased in 1983. The Rosebud Mine's facilities consist
of truck dumps, crushing, storage, and conveying systems, a rail loadout, rail
loop, shops, warehouses and other support facilities. These facilities date from
1974.
We estimate that the
Rosebud Mine had coal reserves of 233.8 million tons as of December 31,
2003.
This estimate is based on a study of the Rosebud
Mine's reserves dated October 31, 2003 conducted by Western Energy and
adjusted for production since that date.
We estimate that the
Rosebud Mine had coal deposits of approximately 280 million tons at the end of
2003. This estimate is based on a study of the reserves at the Rosebud Mine
dated September 28, 1994, prepared by the Environmental and Engineering
Department of Western Energy while it was owned by Montana Power. We updated
this study in 2003. Our estimate is also based in part on a lease with the U.S.
Department of the Interior that Western Energy obtained in 1999. We believe that
all of these reserves are recoverable through the Rosebud Mine's existing
facilities with current technology and the existing infrastructure.
62
We are responsible for
reclaiming the Rosebud Mine. The owners of the Colstrip Station are responsible
for paying the costs of reclamation relating to mine areas where its coal supply
is produced, which is approximately 63% of the estimated total cost of final
reclamation for the Rosebud Mine. Several owners have satisfied these
obligations by prefunding their respective portions of those costs.
Of the 233.8 million tons
shown for the Rosebud Mine in the table above as proven coal reserves, 78.9
million tons are not fully permitted but otherwise meet the definition of coal
reserves. Western Energy has chosen not to permit all of the coal reserves in
its mine plan because it already has sufficient coal in its current permitted
mine plan, given the current rate of mining and demand for its production,
through 2013. Based upon our current knowledge of the nature of the remaining
reserves and the permitting process in Montana, we believe that there are no
matters that would hinder Western Energy's ability to obtain additional
mining permits in the future.
The Rosebud Mine purchases
electric power from NorthWestern Energy under regulated default supply pricing.
Access to the mine is from Highway 39 via Castle Rock Road.
Jewett Mine
Development of the Jewett
Mine began in 1979, when Northwestern Resources and Utility Fuels, Inc. signed
an agreement calling for production of "the most economic 240 million
tons" from the project area to supply the planned Limestone Station. The
coal deposit was evaluated through a series of exploration programs, including
physical and chemical analysis, according to predetermined criteria. The Jewett
Mine has been in continuous operation since 1985 and consists of five active
areas with as many as four lignite seams within each area. Since 1979, ownership
of the Limestone Station has been transferred several times, most recently to
Texas Genco. We acquired the stock of Northwestern Resources in 2001.
The Jewett Mine's
primary excavating machines consist of three walking draglines, each with a
bucket-capacity of 84 cubic yards, one walking dragline with a bucket-capacity
of 128 cubic yards, and one bucketwheel excavator. The Jewett Mine's
facilities consist of a truck dump, crusher, conveyors, coal storage,
shop/warehouse complex, administrative support buildings and water treatment
facilities. These facilities date from the construction of the mine. Texas Genco
owns the draglines, the bucketwheel and other mobile equipment used to extract
lignite and provides this equipment to Northwestern Resources without charge.
Northwestern Resources is obligated to maintain the draglines and all other
plant and equipment so that they continue to be serviceable and support
production comparable to the original specifications.
Exploration work for the
mine commenced in the late 1970s, and Northwestern Resources' geologists
and engineers prepared the initial estimates of the mine's reserves at a
time when Montana Power owned Northwestern Resources. To further define the coal
reserve, exploration drilling was utilized to delineate that part of the deposit
that could economically be mined. Additional drilling has been conducted from
time to time to further define the limits of the coal seams. As of December 31,
2003, all planned exploration is complete. We believe that all the Jewett
Mine's coal reserves are recoverable through its existing facilities with
current technology and the existing infrastructure.
63
Final reclamation of the Jewett Mine, at the end of its useful life, is the financial responsibility of its customer.
The Railroad Commission of
Texas, or RCT, regulates surface mining in Texas and issues mining permits under
its OSM-approved program. In Texas, it typically takes eighteen months to two
years from the time an initial application is filed to obtain a new permit. A
permit term encompasses five years of mining. The Jewett Mine currently holds
two mining permits that cover 100% of the proven coal reserves in the table
above. Permit 32E is a renewal of the same general permit that has been in place
and actively mined since 1985. Permit 32E expired in July 2003; however, the RCT
allowed the Jewett Mine to continue to operate pending a decision on our
application to renew that permit.
The RCT granted our
application to renew Permit 32E in April 2004. The term of the permit now
extends until July 2008. We also mine in an area covered by Permit 47, which
runs through December 2006.
The Jewett Mine purchases
electric power from the Brazos River Authority and Navasota Valley Electric
Cooperative. The mine may be accessed on Farm to Market Road 39.
Beulah Mine
Knife River Corporation
began producing lignite at the Beulah Mine in 1963. The mine has two working
areas, the West Brush Creek area and the East Beulah area. We purchased the
assets of the Beulah Mine from Knife River in 2001.
The Beulah Mine's
primary excavating machines are a dragline with a bucket-capacity of 17 cubic
yards, constructed in 1963, which operates in the West Brush Creek area, and a
dragline with a bucket-capacity of 84 cubic yards, constructed in 1980, which
removes overburden at East Beulah. The Beulah Mine's facilities consist of
a truck dump hopper, primary and secondary crushers, conveyors, train loadout,
railroad spur, coal storage bin and coal stockpile. The support facilities
include several maintenance shops, equipment storage buildings, warehouse,
employee change houses, and mine office and trailers. These facilities date from
1963 and have been replaced consistent with normal industry practices.
We estimate that the total
owned and leased coal reserves at the Beulah Mine were approximately 44.3
million tons at December 31, 2003.
We believe that all of
these reserves are recoverable through the Beulah Mine's existing
facilities with current technology and the existing infrastructure.
We are responsible for reclaiming the Beulah Mine and paying the cost of our reclamation obligations.
Of the 44.3 million tons
shown for the Beulah Mine in the table above as proven and probable coal
reserves, 34.5 million tons are not fully permitted but otherwise meet the
definition of coal reserves. Of the total reserves shown, approximately 3.5
million tons in the West Brush Creek area and 2.5 million tons at East Beulah
are fully permitted at this time. Based on the current estimated annual
production rates of 500,000 and 2.5 million tons respectively, there are roughly
seven and one years, respectively, remaining under the current permitted mine
plans. The mine is currently awaiting approval of a permit extension that will
add six years and 700 acres of permitted reserves to the East Beulah permit.
North Dakota Public Service Commission regulates surface mining in North Dakota
and issues mining permits under its OSM-approved program. In North Dakota, it
typically takes one to two years from the time an initial application is filed
to obtain a new permit.
Based on our current knowledge of the
permitting process in North Dakota and the environmental issues associated with
these reserves, we believe that there are no matters that would hinder our
ability to obtain any mining permits in the future.
64
The Beulah Mine purchases electric power from MDU.  The mine is accessed from North Dakota Highway 49.
Savage Mine
Knife River began producing
lignite at the Savage Mine in 1958. We purchased the assets of the Savage Mine
from Knife River in 2001.
The Savage Mine's
primary excavating machine is a walking dragline with a bucket-capacity of 12
cubic yards. The Savage Mine's facilities consist of a truck dump, near-pit
crushing unit, conveyors, and coal stockpile; support facilities include a shop,
warehouse, and mine office. These facilities date from 1958 and have been
replaced consistent with normal industry practices. The processing facilities
were constructed in 1996. The facilities were modified and upgraded in 2001.
We estimate that the total
owned and leased coal reserves at the Savage Mine were approximately 16.9
million tons at December 31, 2003. These reserves were estimated by our
engineering staff in 2003. We believe that all of these reserves are recoverable
through the Savage Mine's existing facilities with current technology and
the existing infrastructure.
We are responsible for reclaiming the Savage Mine and paying the cost of our reclamation obligations.
Of the tons shown for the
Savage Mine in the table above as coal reserves, approximately 4.3 million tons
are fully permitted at this time and 12.6 million tons are not fully permitted
but otherwise meet the definition of coal reserves. We have chosen not to permit
all of the coal reserves in the Savage Mine's plan because the mine already
has sufficient coal in its current permitted mine plan given the current rate of
mining and demand for its production through 2017. Based upon our current
knowledge of the nature of the remaining reserves and the permitting process in
Montana, we believe that there are no matters that would hinder our ability to
obtain additional mining permits at the Savage Mine in the future.
The Savage Mine purchases electric power from MDU.  The mine is accessed from Montana Highway 16 via County Road 107.
Other
Refer to Note 3 to our consolidated financial statements for a description of Westmoreland Energy's properties.
65
LEGAL
PROCEEDINGS
We are party to legal proceedings.  We have presented the proceedings below based on the name of the Westmoreland entity
that is party to the proceeding.  We are vigorously contesting each of these proceedings.
Legal proceedings involving Westmoreland Coal Company
Combined Benefit Fund Litigation
Under the Coal Act, we are
required to provide postretirement medical benefits for some UMWA miners and
their dependents by making premium payments into benefit plans, including the
UMWA Combined Benefit Fund. The amount we pay is a function of the number of
individuals for which we must make payment – assigned beneficiaries –
and the assessment rate. We and many other coal companies are now litigating in
the U.S. District Court for the District of Maryland to determine the proper
assessment rate.
In 1995, the U.S. District
Court for the Northern District of Alabama held that the assessment rate under
the Coal Act included the actual amount of money reimbursed to the UMWA Benefit
Plans by the Health Care Financing Administration, or HCFA. The court's
decision resulted in a lower premium obligation. In 1996, the U.S. Court of
Appeals for the 11th Circuit upheld the district court's decision. The
Social Security Administration, or SSA, which now makes these assessments,
proceeded to comply with the decision and applied the assessment that yielded a
lower premium to all coal companies.
In 1996, the Trustees of
the Combined Fund filed suit in the U.S. District Court for the District of
Columbia seeking to have the Alabama decision set aside. In November 2002, the
U.S. District Court held that the provisions of the Coal Act that the Alabama
court had reviewed were ambiguous and directed the SSA to explain why it had
applied the Alabama decision to all coal companies, rather than just the
participants in the Alabama litigation. On June 10, 2003, the SSA notified the
court that it could not locate any record that would explain why it had decided
to apply the 1996 Alabama decision nationwide but assumed that its decision was
based on fairness and ease of administration for the SSA. After the June 10
letter, the SSA began to use the methodology that resulted in higher assessments
for all coal companies except those party to the Alabama litigation. The
Trustees of the Combined Fund notified us that we would be required to pay
higher premiums and assessed a retroactive premium that represented the amount
that we would have paid if the methodology that yields the higher premium had
been used since 1996. The amount of the retroactive premium was $4.7 million,
payable over the twelve months commencing October 2003. The net effect of these
assessments increased our monthly payments to the Combined Fund from less than
$400,000 to $859,000 for the twelve months ending October 2004.
On July 16, 2003, we and
other companies with obligations to the Combined Fund filed a complaint in the
U.S. District Court for the Northern District of Alabama that sought to prevent
the increased assessment and retroactive assessment from taking effect. On
September 10, 2003, the Trustees of the Combined Fund filed suit in the U.S.
District Court for the District of Columbia. The Trustees sought to confirm that
all coal companies not party to the 1996 Alabama litigation are obligated to pay
the newly calculated, higher premium, as determined by the SSA on June 10, 2003.
66
The Trustees of the
Combined Fund sought to transfer the Alabama litigation to the District of
Columbia. In October 2003, the U.S. District Court for the Northern District of
Alabama held that venue was proper in Alabama but transferred the case to the
U.S. District Court in Baltimore, Maryland, where the SSA is headquartered. In
February 2004, the U.S. District Court for the District of Columbia transferred
the Trustees' suit to Baltimore.
Purchase Price Adjustment
We purchased Montana
Power's coal business from its subsidiary Entech in April 2001. The final
purchase price is subject to adjustment. Under our Stock Purchase Agreement with
Entech, the purchase price is to be adjusted as of the date the transaction
closed, to reflect the net assets of the business on the closing date and the
net revenues that the business earned between January 1, 2001 and the closing
date. In June 2001, Entech proposed adjustments that would increase the purchase
price by approximately $9 million. In July 2001, we objected to Entech's
adjustments and proposed our own adjustments. Our proposal would result in a
substantial decrease in the purchase price. The Stock Purchase Agreement
requires that the parties' disagreements be submitted to an independent
accountant for resolution. Because some of our claims involved breaches of the
representations and warranties in the Stock Purchase Agreement, we also
submitted a timely claim for indemnification.
Litigation in the New York
courts ensued. On June 18, 2003, Touch America Holdings, Inc. (formerly Montana
Power Company) and Entech LLC (formerly Entech Inc.) filed bankruptcy petitions
in the U.S. Bankruptcy Court for the District of Delaware. The bankruptcy code
automatically stays pending litigation against Montana Power and Entech and
prevents us and others from commencing new actions against them outside the
Bankruptcy Court.
We have filed appropriate
proofs of claim with the Bankruptcy Court. We are also evaluating our options,
which include (1) seeking relief from the stay, so that we can continue to
pursue the purchase price adjustment claim through the independent accountant
and in an action at law in the New York courts, and (2) seeking to resolve our
claims as part of the bankruptcy proceeding.
On March 16, 2004, we
received notice that Touch America and Entech have commenced an adversary
proceeding against us in the U.S. Bankruptcy Court in Delaware. The complaint
re-asserts Entech's proposed adjustments to the purchase price and alleges
that we are holding approximately $9 million that is the property of the estates
of Montana Power and Entech. We have filed an answer, a motion to dismiss and a
claim for indemnification. The parties are briefing the issues, and we anticipate that our motion to dismiss will
be heard in the third quarter of 2004. At that time, the bankruptcy court will decide how to proceed with the
purchase price adjustment and indemnification claims.
67
McGreevey Litigation
In mid-November 2002, we
were served with a complaint – the plaintiffs' Fourth Amended
Complaint – filed on October 4, 2002 in a Montana state court in a case
styled McGreevey et al. v. Montana Power Company et al. The plaintiffs filed
their first complaint on August 16, 2001. The Fourth Amended Complaint added us
as a defendant to a suit against Montana Power, various officers of Montana
Power, the Board of Directors of Montana Power, financial advisors and lawyers
representing Montana Power and the purchasers of some of the businesses formerly
owned by Montana Power and Entech. The plaintiffs are former stockholders of
Montana Power who seek to rescind Montana Power's sale of its electric
generating, oil and gas, and transmission businesses, and Entech's sale of
its coal business. The plaintiffs contend that they were entitled to vote to
approve the sale by Entech to us even though they were not stockholders of
Entech. Alternatively, they seek to compel the purchasers, including us, to hold
these businesses in trust for them. We have filed an answer, affirmative
defenses and a counterclaim against the plaintiffs.
The litigation was
transferred to the U.S. District Court in Billings, Montana. On July 12, 2004,
the plaintiffs filed a status report with the U.S. District Court. In the status
report, the plaintiffs stated that the insurance companies that insure the
former officers and directors of Montana Power had agreed to pay $67 million
into escrow, pending approval of a settlement agreement. As part of the
resulting proposed settlement, the McGreevey plaintiffs would dismiss their
claims against the former officers and directors of Montana Power, Montana
Power, and us, among other defendants. The proposed settlement would terminate
this litigation as to us and our subsidiaries.
Legal
proceedings involving Westmoreland Coal Company and/or Westmoreland Energy
The ROVA Project is located
in Halifax County, North Carolina and is the County's largest taxpayer. In
2002, the County hired an independent consultant to review and audit personal
property tax returns for the previous five years. In May 2002, the County
advised the ROVA Project that its returns were being scrutinized for potential
underpayment and undervaluation of the property subject to tax. The ROVA Project
responded that its valuation was consistent with an agreement reached with the
County in 1996. On November 5, 2002, the County assessed the ROVA Project $4.6
million for the years 1997 to 2001. The ROVA Project filed a protest with the
Property Tax Commission. On May 26, 2004, the Tax Commission denied the ROVA
Project's protest and issued an order consistent with the County's
assessment. The ROVA Project appealed the Tax Commission's decision to the
North Carolina Court of Appeals on June 24, 2004. Since November 2002, the
County has increased the amount of its claim to $8.3 million, which includes tax
years 1996, 2002 and 2003 and penalties and interest. If the County ultimately
prevails, then, in addition to the amounts assessed, the ROVA Project's
future personal property taxes would increase approximately $600,000 per year.
Niagara Mohawk Power
Corporation or NIMO was party to power purchase agreements with independent
power producers, including the Rensselaer project, in which we owned an
interest. In 1997, the New York Public Service Commission approved NIMO's
plan to terminate or restructure 29 power purchase contracts. The Rensselaer
project agreed to terminate its Power Purchase and Supply Agreement after NIMO
threatened to seize the project under its power of eminent domain. NIMO and the
Rensselaer project executed a settlement agreement in 1998. On February 11,
2003, the North Carolina Department of Revenue notified us that it had
disallowed the exclusion of gain from the settlement agreement between NIMO and
the Rensselaer project. The State of North Carolina has assessed a current tax
of $3.5 million, interest of $1.0 million and a penalty of $0.9 million. We have
filed a protest. The North Carolina Department of Revenue held a hearing on May
28, 2003. In November 2003, we submitted further documentation to the State to
support our position and are awaiting their response.
68
Legal
proceedings involving Basin Resources, Inc.
UMWA Benefits
Basin Resources, Inc. was a
subsidiary of Entech. Until 1995, Basin operated the Golden Eagle mine near
Trinidad, Colorado. Basin's workforce was represented by the UMWA. Basin
signed a Basin-specific labor contract with the UMWA in 1993 that expired on
January 1, 1998. At that time, Basin ceased providing health benefits to these
former employees. A group of the former employees filed suit against Basin in
the U.S. District Court for the District of Colorado on April 21, 1998. They
claimed that they were entitled to lifetime health benefits. Basin argued that,
when the contract expired, it was not obligated to continue to provide health
benefits. We acquired Basin's stock from Entech in April 2001, after the
preceding events had occurred, and we accrued an estimated obligation for
Basin's liabilities as part of our accounting for the 2001 acquisitions.
Since we have owned the stock of Basin, Basin has paid for health benefits for
the former employees.
In September 2002, the
Court of Appeals reversed the trial court's award of summary judgment and
remanded the matter for trial. The trial took place on January 21, 2003 and on
January 23, 2003, a jury decided that the UMWA work force had bargained for and
Basin had agreed to provide lifetime health benefits. On March 28, 2004, the
U.S. Court of Appeals for the Tenth Circuit affirmed this verdict. As a result,
Basin is obligated to pay the UMWA 1993 Plan approximately $1.0 million for
benefits the plan provided to Basin's former employees during the initial
stages of the dispute, while Basin was owned by Montana Power and Entech. We
accrued this amount during the quarter ended March 31, 2004.
Landowner Claim
In 1998, Basin paid a
landowner $48,000 to settle a claim that Basin's operations had caused
subsidence that damaged his home. On March 22, 2001, the landowner filed a
second claim, in Las Animas County Court, Colorado, again alleging that
Basin's operations had caused subsidence that damaged his home. Basin
contested this claim. In December 2002, a judge of that court determined that
subsidence had occurred and awarded the landowner damages of $622,000 plus
attorney's fees. We believe that this award is excessive, in part because
the landowner's own expert placed the cost of repair below $100,000. We
also believe that the settlement in the first case bars the second claim. We
have appealed the case to the Colorado Intermediate Court of Appeals.
69
Legal
proceedings involving Westmoreland Coal Company, Westmoreland Resources
and/or
Western Energy
We have received demand
letters from the Montana Department of Revenue, or DOR, as agent for the
Minerals Management Service, or MMS, of the U.S. Department of the Interior,
asserting underpayment of royalties allegedly due at the Rosebud Mine. The
claims relate to the fees Western Energy receives to transport coal from the
contract delivery point to the customer. The DOR has also asserted claims
against us based on "take or pay" payments Western Energy
received when its customers did not require coal. Finally, the DOR has
asserted claims against us and our subsidiaries for adjustments for Montana
severance taxes, coal resources indemnity trust tax, and coal gross proceeds
tax. These assessments are dated September 23 and 24, 2002. The total amount of
the claims is approximately $15.5 million, including penalties and interest,
which continues to accrue. We continue to receive transportation fees. We expect
that the DOR will assert claims for additional underpayment and issue more
demand letters until we have completed the appeal process. The appeal process
will take several years. In the event of a negative outcome with the DOR and
MMS, we believe that some of our customers are contractually obligated to
reimburse us for any claims we pay, plus our legal expenses, and we have put
them on notice of their obligation.
Other
We and our subsidiaries are
party to other legal proceedings that are either not material or not out of the
ordinary course of business.
70
MANAGEMENT
Executive
Officers and Directors
The following sets forth
certain information with respect to our executive officers and directors,
including their ages as of December 31, 2003.
Name
Age
Position
Christopher K. Seglem (1)
57
Chairman of the Board, President and Chief Executive Officer
W. Michael Lepchitz
50
Vice President, General Counsel and Secretary
Ronald H. Beck
59
Vice President - Finance and Treasurer, Acting Chief Financial Officer
Douglas P. Kathol
51
Vice President, Development
Thomas G. Durham
55
Vice President, Coal Operations
Todd A. Myers
40
Vice President, Sales and Marketing
Diane S. Jones
46
Vice President, Corporate Relations
Thomas M. Cirillo
49
Vice President, Planning and Administration
Thomas S. Barta
31
Controller and Assistant Treasurer
Michael Armstrong (2)
53
Director
Thomas J. Coffey (3)
51
Director
Pemberton Hutchinson (4)
73
Director
Robert E. Killen (5)
63
Director
Thomas W. Ostrander (6)
53
Director
James W. Sight (7)
48
Director
William M. Stern (8)
58
Director
Donald A. Tortorice (9)
61
Director
(1)
Chairman of the Executive Committee.
(2)
Member of the Compensation and Benefits, Corporate Governance, Executive and Nominating Committees.
(3)
Chairman of the Audit Committee; Member of the Corporate Governance and Finance Committees.
(4)
Member of the Executive Committee.
(5)
Chairman of the Compensation and Benefits Committee and the Nominating Committee; Member of the Executive Committee.
(6)
Chairman of the Corporate Governance Committee; Member of the Audit and Finance Committees.
71
(7)
Chairman of the Finance Committee; Member of the Executive and Nominating Committees.
(8)
Member of the Audit, Compensation and Benefits and Finance Committees.
(9)
Member of the Audit, Compensation and Benefits and Corporate Governance Committees.
Christopher K.
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.
W. Michael Lepchitz
joined Westmoreland in 1991 as Assistant General Counsel.  In June 2000, Mr. Lepchitz was elected Vice
President and General Counsel of Westmoreland Coal Company and, in May 2001, he became Corporate Secretary of Westmoreland.  He is a
member of the bar of Virginia.
Ronald H. Beck
joined Westmoreland in July 2001 as Vice President – Finance and Treasurer.
In September 2003 Mr. Beck also began serving as Acting Chief Financial Officer.
Before joining Westmoreland, he was a financial officer at Columbus Energy Corp.
from 1985 to 2000, most recently as Vice President and Chief Financial Officer.
Douglas P. Kathol
joined Westmoreland in August 2003 as Vice President, Development.  From 1985 until he joined
Westmoreland, Mr. Kathol was employed by NorWest Mine Services, Inc., lastly as Vice President and Controller.  Mr. Kathol has over
27 years experience evaluating and developing energy-related projects.
Thomas G. Durham
joined Westmoreland as Vice President, Coal Operations in April 2000.  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.
Todd A. Myers
re-joined 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 Resource Data International, Inc., a
nationally recognized energy consulting firm, specializing in coal markets,
independent power development and environmental regulation.
Diane S. Jones
joined Westmoreland in 1993 as Manager – Business Development of
Westmoreland Energy. In 1995, she joined the corporate headquarters as Manager
– Business Development and Corporate Relations, with primary responsibility
for investor relations and communications, and she now serves as Vice President,
Corporate Relations. Ms. Jones is a Registered Professional Engineer and a
member of the American Society of Civil Engineers, the Public Relations Society
of America and the National Investor Relations Institute.
72
Thomas M. Cirillo
joined Westmoreland in June 2002 as Director, Planning & Administration and
in January 2003 became Vice President, Planning & Administration. Before
joining Westmoreland, Mr. Cirillo held various senior positions with defense
contractors and served for 20 years as an officer and pilot in the U.S. Navy.
Thomas S. Barta
joined Westmoreland in March 2001 as Controller. From January 1995 until he
joined Westmoreland, he was employed by KPMG LLP, lastly as an audit manager.
Michael Armstrong
has been a director since 2000. Mr. Armstrong has been a private investor
since 1995. From 1983 until 1995, he was a stockbroker at Southwest Securities,
a stock brokerage company.
Thomas J. Coffey
has been a director since 2000.  From April 1998 until July 1999, Mr. Coffey was the Vice
President-Operations Analysis of Unisys Corporation, a technology services company, and since July 1999, Mr. Coffey has served as
Vice President-Finance of Global Infrastructure Services for Unisys Corporation.  He served as Vice President, Chief Financial
Officer and Treasurer of Intelligent Electronics, Inc., a technology distribution company, from 1995 until September 1997.  Mr.
Coffey was a Partner of KPMG LLP from 1985 until 1995.
Pemberton Hutchinson
has been a director since 1977. Mr. Hutchinson has held various offices and
positions at Westmoreland, including Chairman of the Board from January 1992
until June 1996, Chief Executive Officer from June 1986 until June 1993, and
President from 1980 until June 1992. Mr. Hutchinson was also a director of
Mellon Financial Corporation, a banking and money management company, from
December 1989 until April 2001, and Teleflex Incorporated, an engineering and
manufacturing company, from 1977 until April 2001.
Robert E. Killen
has
been a director since 1996. Since April 1996, Mr. Killen has served as Chairman
of the Board and Chief Executive Officer of The Killen Group, Inc., an
investment advisory firm. Mr. Killen has also served as Chairman of the Board of
Berwyn Financial Services, an institutional and retail brokerage company, since
1991.
Thomas W. Ostrander
has been a director since 1995. Since 1989, Mr. Ostrander has served as Managing
Director of Citigroup Global Markets Inc., an investment banking firm (and
predecessor firms).
James W. Sight
has
been a director since 1995. Mr. Sight is a private investor. Since April 2001,
Mr. Sight has also served as a Director of Programmers Paradise, Inc., a
software marketing company. He was a director of Mining Services International
Corp., an explosives company, from April 2000 until 2001, a director of United
Recycling Industries from 1995 until September 2000, and a director of U.S. Home
Corp. from 1993 until May 2000.
William M. Stern
has
been a director since 2000. Since 1999, Mr. Stern has served as Executive Vice
President and Director of Stern Brothers & Company, a broker-dealer. From
1998 until 1999, he was Vice President of Mercantile Bank Capital Markets Group,
a banking company, and from 1983 until 1998, he served as Senior Vice President
of Mark Twain Capital Markets Group, a banking company.
73
Donald A. Tortorice
has been a director since 2003. Since January 1999, Mr. Tortorice has been
St. George Tucker Adjunct Professor of Law at the College of William & Mary
School of Law. From September 2002 until May 2003, Mr. Tortorice was an
Affiliate Professor of Law and Medicine at the Medical College of Virginia. Mr.
Tortorice was a partner in the law firm of Duane, Morris & Heckscher from
1979 until 1998 and served as managing partner of the Harrisburg, Pennsylvania
office of that firm from 1979 until 1998. Mr. Tortorice also served as a
director of Gear CGI, Ltd. from 1998 until 1999; Eastern Holding Co. Ltd. from
1985 until 1999; Eastern Alliance Insurance Co., Ltd. from 1985 until 1999; and
Educators Alliance Insurance Co. from 1997 until 1999.
The Board of
Directors
Our Board of Directors
currently consists of nine individuals, seven elected by the holders of our
common stock and two elected by the holders of our Series A Preferred Stock.
(The voting rights of the holders of our Series A Preferred Stock are summarized
in "Capital Stock – Series A Preferred Stock – Voting
Rights.") As provided in our bylaws, directors are elected annually and
serve until their successors are elected and qualified, or until their death,
resignation or removal.
Board
Committees
Audit Committee
. The
members of our Audit Committee are Messrs. Coffey (Chairman), Ostrander, Stern
and Tortorice. This Committee, which reports to the Board of Directors, retains
the independent auditor, reviews and monitors the independence and performance
of the independent auditor, reviews the adequacy of our internal accounting
controls and oversees the implementation of management recommendations. It also
reviews with our independent auditors the audit plan for the Company, the
internal accounting controls, the financial statements and the independent
auditors' letter to management. The Board of Directors has determined that
Thomas J. Coffey is an "audit committee financial expert" as defined
in Item 401(h) of Regulation S-K. The Board has also determined that each member
of the Audit Committee, including Mr. Coffey, is "independent" under
the American Stock Exchange's listing standards, Section 10A of the
Securities Exchange Act of 1934 and Rule 10A-3 thereunder.
Compensation and
Benefits Committee.
The members of our Compensation and Benefits Committee
are Messrs. Killen (Chairman), Armstrong, Stern and Tortorice. This Committee is
responsible for assuring that the Board of Directors, various committee
chairpersons and committee members, the chief executive officer, other officers,
and key management of the Company are compensated appropriately and in a manner
consistent with the Board's approved compensation strategy, internal equity
considerations, competitive practice and any relevant laws or regulations.
Corporate Governance
Committee.
The members of our Corporate Governance Committee are Messrs.
Ostrander (Chairman), Armstrong, Coffey and Tortorice. This Committee is
authorized to provide oversight on matters related to corporate governance and
structure and to make recommendations to the Board of Directors.
Executive Committee.
The members of our Executive Committee are Messrs. Seglem (Chairman),
Armstrong, Hutchinson, Killen and Sight. To the extent permitted by law, this
Committee is authorized to exercise the power of the Board of Directors with
respect to the management of the business and affairs of the Company.
74
Finance Committee.
The members of our Finance Committee are Messrs. Sight (Chairman), Coffey,
Ostrander and Stern. This Committee is authorized to provide oversight on
matters related to the Company's liquidity and capital needs and to make
recommendations to the Board of Directors.
Nominating Committee.
The members of our Nominating Committee are Messrs. Killen (Chairman),
Armstrong and Sight. Each member of the Nominating Committee is
"independent" under the American Stock Exchange's listing
standards. This Committee, which reports to the Board of Directors, identifies
and recommends individuals qualified to be nominated as members of the Board of
Directors.
There are no family
relationships between any director, executive officer or person nominated or
chosen by us to become a director or executive officer of the Company.
Compensation
Committee Interlocks and Insider Participation
Messrs. Killen (Chairman), Tortorice, Sight, Ostrander and Armstrong served on the Compensation and Benefits Committee
during 2003.
No member of this Committee
was an officer or employee of Westmoreland in 2003 or any prior year.
Mr. Ostrander is a Managing Director of Citigroup Global Markets Inc.,
which is a subsidiary of Citigroup. A portion of our reclamation bonds are
secured by the pledge of certain cash accounts held by Salomon Smith Barney,
Inc., a subsidiary of Citigroup. Salomon Smith Barney also provides other
incidental and non-material services relating to the exercise of stock options
held by various employees. A subsidiary of Citigroup, Travelers Corporate Loan
Fund Inc., is among a group of lenders to Westmoreland Mining. Mr. Ostrander
does not have any involvement with any of these services and exercises no
authority or control over Citigroup, Travelers Corporate Loan Fund Inc. or
Salomon Smith Barney or the representatives from those entities that provide
oversight and management for these services. No executive officer of our company
served either as a member of the compensation committee or as a director of
another company, one of whose executive officers served on our Compensation and
Benefits Committee, or as a member of the compensation committee of another
company, one of whose executive officers served as a director of our company.
75
Director
Compensation
We use the term
non-employee directors to describe the members of our Board of Directors who are
not employees of the Company. We compensate our non-employee directors by paying
them an annual retainer and a fee for each meeting of the Board or committee
that they attend and by granting them options to purchase common stock. These
payments and option grants are the sole compensation the non-employee directors
receive from us, and we do not grant them loans or credits. In 2003, each
non-employee director received an annual retainer of $30,000, $18,000 of which
was paid in cash and the remaining $12,000 of which directors could elect to
receive in cash or in common stock. Each non-employee director also received
$1,000 for each meeting of the Board he attended and for each meeting he
attended of the committees of which he was a member, and the Chairman of the
Audit Committee received an additional $750 per meeting, the Chairman of the
Compensation and Benefits Committee an additional $650 per meeting and all other
Committee Chairmen $500 per meeting attended and chaired. In addition, each
non-employee director is entitled to receive, as an initial grant upon his first
joining the Board, options to purchase a number of shares of common stock equal
to $30,000 in value; each non-employee director is entitled to receive options
to purchase shares of common stock equal to $30,000 in value annually thereafter
upon his re-election to the Board or, at the option of the Compensation and
Benefits Committee, a grant of restricted stock equal in value to $30,000. In
2003, Mr. Tortorice received options to purchase 20,000 shares of common stock
following his appointment to the Board of Directors pursuant to the 2000
Directors' Plan and each of the non-employee directors other than Mr.
Tortorice received a grant of restricted stock equal to $30,000 pursuant to the
2000 Directors' Plan, as amended. In 2000, we altered our policy on the
payment of directors' fees to directors who are also employees of the
Company, and Mr. Seglem has not received directors' fees in respect of
meetings of the Board of Directors or committees thereof that have taken place
after March 2000.
Mr. Hutchinson retired as an employee of the Company as of December 31, 1993.  Mr. Hutchinson is entitled to receive benefit
payments from our Supplemental Executive Retirement Plan, or SERP, of $3,708 per month.
Executive
Compensation
The following table sets
forth the compensation paid or accrued for the years ended December 31, 2003,
2002 and 2001 to our Chief Executive Officer during 2003 and our five other most
highly compensated executive officers at the end of 2003, whose total salary and
bonus for 2003 exceeded $100,000. We refer to these officers collectively as our
named executive officers. None of the named executive officers received any
loans or credits from the Company.
The table below contains a
column captioned "LTIP Payout." This column shows the total value of
the awards made in 2000 under the Performance Unit Plan, which became
determinable in June 2003. However, the named executive officers did not receive
the full value of these awards in 2003 and will instead receive this value over
5 years. Of the amounts shown in this column, the amounts actually paid in 2003
to the named executive officers were: $431,375 to Mr. Seglem, $112,010 to Mr.
Lepchitz, $60,743 to Mr. Durham, $57,169 to Mr. Myers and $171,973 to Mr.
Jaeger, of which the Company paid one-third in common stock and two-thirds in
cash. The Performance Unit Plan is described in more detail below under
"—Long-Term Incentive Plans and Benefit Plans – 2000 Performance
Unit Plan."
76
Summary
Compensation Table
Annual Compensation
Long-Term Compensation
Awards
Payouts
Name and Principal Positions
Year
Salary
($)
Bonus
(1)
($)
Other Annual Compen-
sation
($)
Securities Underlying Options
(#)
LTIP
Payout
(2)
($)
All Other
Compen-
sation
(3)
($)
Christopher K. Seglem,
2003
475,000
321,663
-
64,200
2,450,753
14,540
Chief Executive Officer
2002
424,825
220,254
517
31,900
-
10,823
and President
2001
395,220
196,820
-
15,700
-
-
W. Michael Lepchitz,
2003
197,184
61,847
-
16,400
681,813
7,438
Vice President,  General
2002
189,625
65,705
-
10,200
-
33,276
Counsel and Secretary
2001
180,942
67,582
12,619
5,000
-
-
Ronald H. Beck,
2003
141,145
69,839
-
4,500
-
-
Vice President - Finance
2002
125,001
40,425
-
4,200
-
-
and Treasurer,
Acting Chief Financial
Officer
2001
72,917
24,208
-
1,100
-
-
Thomas G. Durham,
2003
184,697
58,143
-
15,300
345,095
7,183
Vice President, Coal
2002
173,250
53,361
-
7,600
-
14,205
Operations
2001
149,144
45,339
8,408
3,600
-
-
Todd A. Myers,
2003
166,195
72,261
-
13,400
324,791
6,988
Vice President, Sales
2002
154,875
47,702
-
6,700
-
3,737
and Marketing
2001
136,799
41,587
-
3,200
-
-
Robert J. Jaeger,
2003
150,820
-
-
-
977,024
728,541
Senior Vice President,
2002
218,670
55,054
582
11,700
-
7,109
Finance and
Development
(4)
2001
209,383
78,205
330
5,800
-
-
(1)
Bonuses were awarded in the reported years for performance during the respective immediately preceding year.
(2)
In 2000, Messrs. Seglem, Jaeger, Lepchitz, Durham and Myers were awarded 196,499, 66,357, 46,307, 23,438 and 22,059 performance
     units, respectively, under the 2000 Performance Unit Plan.  The 2000 Performance Unit Plan is described in more detail below
     under "--Long-Term Incentive Plans and Benefit Plans - 2000 Performance Unit Plan."  Each performance unit entitled the recipient
     to receive a payment in cash or stock, at the election of the Compensation and Benefits Committee, equal to the difference
     between the average price of our common stock for the 20 trading days ending June 30, 2000, which was $2.9097, and the average
     price of our common stock for the 20 trading days ending June 30, 2003, which turned out to be $17.6335.  As permitted by the
     2000 Performance Unit Plan, the Compensation and Benefits Committee elected to pay a portion of the 2000 award and defer payment
     of the balance over a period of up to five years.  Of the portion paid in 2003, approximately two-thirds was paid in stock drawn
     from the stockholder-approved 2002 Long-Term Incentive Stock Plan and approximately one-third was paid in cash.  The total value
     of the 2000 award under the 2000 Performance Unit Plan is reflected in the column entitled "LTIP Payout."  Of the amounts shown
     in this column, the amounts actually paid in 2003 to the named executive officers were:  $431,375 to Mr. Seglem, $112,010 to Mr.
     Lepchitz, $60,743 to Mr. Durham, $57,169 to Mr. Myers and $171,973 to Mr. Jaeger, of which one-third was paid in common stock and
     two-thirds was paid in cash.
(3)
The category entitled "All Other Compensation" includes reimbursements and payments for relocation and related expenses, Company
     contributions to the 401(k) Plan, insurance premiums, financial planning fees paid by the Company and termination payments.  The
     Company contributed $6,000 to the 401(k) Plan during 2003 on behalf of each of Messrs. Seglem, Lepchitz, Durham and Myers, $4,395
     on behalf of Mr. Jaeger and $5,447 on behalf of Mr. Beck.  In 2003, the Company paid life insurance premiums of $8,868, $1,756,
     $2,139, $1,343, $1,971, and $1,679 for Messrs. Seglem, Jaeger, Lepchitz, Beck, Durham, and Myers, respectively.  In 2003, the
     Company paid financial planning fees of $640 and $720 for Messrs. Seglem and Jaeger, respectively.  Payments made pursuant to Mr.
     Jaeger's Termination Agreement, totaling $720,000, payable over a ten-year period are reflected in the table.
77
(4)
Mr. Jaeger ceased to be an executive officer of the Company in August 2003.
Stock Options
The following table sets
forth information regarding options to purchase shares of our common stock
granted to the named executive officers during the year ended December 31, 2003.
The option grants reflected in the table consist of 2003 grants made to the
listed executives under the 2002 Long-Term Incentive Stock Plan or 2002 Plan.
Option/SAR
Grants in Last Fiscal Year
Individual Grants
Potential Realizable Value at Assumed Annual Rate of Stock Price
                                  Appreciation for Option Term
Name
Number of Securities Underlying Options
Granted (#)
Percent of
total options
granted to
employees in
fiscal year
Exercise
or base
price
per share ($/sh)
Expiration
date
5% ($)
10% ($)
Christopher K. Seglem
32,100
21.35%
$18.08
6/29/13
364,993
924,933
32,100
21.35%
$17.80
12/30/13
359,340
910,610
Robert J. Jaeger
-
0%
-
-
-
-
W. Michael Lepchitz
8,200
5.45%
$18.08
6/29/13
93,238
236,276
8,200
5.45%
$17.80
12/30/13
91,794
232,617
Ronald H. Beck
2,250
1.5%
$18.08
6/29/13
25,584
64,832
2,250
1.5%
$17.80
12/30/13
25,187
63,228
Thomas G. Durham
7,650
5.1%
$18.08
6/29/13
86,992
220,428
7,650
5.1%
$17.80
12/30/13
85,637
217,014
Todd A. Myers
6,700
4.5%
$18.08
6/29/13
76,182
193,054
6,700
4.5%
$17.80
12/30/13
75,002
190,065
78
Option Exercises and Year-End Option Values
The following table
presents information regarding stock option exercises by the named executive
officers in 2003 and the number of unexercised options to purchase common stock
held by them at December 31, 2003.
Aggregated
Option Exercises in Last Fiscal Year and Fiscal Year-End Option Values
Number of Shares Acquired on Exercise
(#)
Value Realized
($)
Number of Securities
Underlying Unexercised
Options at
December 31, 2003
(#)
Value of Unexercised
In-the-Money
Options at
December 31, 2003
($)
Name
Exercisable
Unexercisable
Exercisable
Unexercisable
Christopher K. Seglem
-
-
268,850
80,150
3,561,713
42,188
Robert J. Jaeger
36,700
330,732
-
-
-
-
W. Michael Lepchitz
-
-
52,700
21,500
643,752
23,690
Thomas G. Durham
5,000
51,875
15,650
19,100
138,823
17,651
Todd A. Myers
-
-
13,300
16,750
6,328
15,561
Ronald H. Beck
-
-
3,200
6,600
11,729
9,755
Long-Term
Incentive Plans and Benefit Plans
2000 Performance Unit Plan
In 2000, our Board of Directors
adopted a Performance Unit Plan as part of our long-term incentive program
because an insufficient number of stock options were available to provide a
competitive long-term incentive to our key executives. The 2000 Performance Unit
Plan is designed to link recipients' long-term economic interest with those
of our stockholders. In June 2000, Mr. Seglem was awarded 196,449 units; Mr.
Jaeger, 66,357 units; and Mr. Lepchitz, 46,307 units. Performance units awarded
in 2000 under the 2000 Plan matured June 30, 2003. Each performance unit awarded
in 2000 entitled the recipient to receive a payment in cash or stock, at the
election of the Company, having a value equal to the difference between the base
price of $2.9097, which was the average price of our common stock for the 20
trading days ending June 30, 2000, and the average of the trading prices
for our common stock for the 20 trading days ending June 30, 2003, which
turned out to be $17.6335. The daily average trading price for a given day is
the average of the high and low trading prices for such day. The total value of
the awards in 2000 under this plan is reflected in the Summary Compensation
Table above. As indicated in note 2 to the Summary Compensation Table, we did
not pay the full value of those awards in 2003. Rather, we elected to pay a
portion in 2003 and defer the payment of the balance over a period of up to five
years. The amount we actually paid in 2003 to each of the named executive
officers is reflected in note 2 to the Summary Compensation Table.
79
Each performance unit
awarded in 2001 under the 2000 Performance Unit Plan entitles the recipient to
receive a payment in cash or stock, at our election, having a value equal to an
amount based upon the total stockholder return percentage on our common stock
over a three year period from the date of the grant, May 31, 2001, compared to
the total stockholder return over that period on the common stock of a peer
group comprised of AES Corp., Alliance Resources Partners L.P., Arch Coal, Inc.,
BHP Billiton Limited, Beard Company, Calpine Corp., CONSOL Energy, Inc.,
Headwaters, Inc., Massey Energy Company, Peabody Energy Corp., RWE AG, SGI
International, and Yanzhou Coal Mining Company. Total stockholder return is
expressed as a percentage and then compared with the total stockholder return
(expressed as a percentage) of the companies comprising the peer group. For
example, if during this period, six companies in the peer group had a total
stockholder return better than ours and seven companies had a total stockholder
return during this period worse than ours, our total stockholder return would
rank in the 54th percentile. Each performance unit has a value of $75 at the
threshold performance level, which is our total stockholder return percentage at
the 40th percentile of the peer group; $100 at the target level, which is the
60th percentile; and $200 at or above the maximum level, which is the 80th
percentile. Our maximum payment obligation for all performance units awarded in
2001 to the named executive officers was $1,849,000 and to all recipients was
$2,898,747. The value of the performance units awarded in 2001 became
determinable on May 31, 2004, and the value of all performance units awarded in
2001 to all recipients is approximately $1.3 million.
Total stockholder return
measures the cumulative appreciation in the relevant entities' stock price
and assumes the reinvestment of dividends. For the purpose of calculating the
total stockholder return percentage, the base price of our common stock and each
of the peer group's common stock is the average of the trading prices for
the 20 trading days ending the day before the third anniversary of the date of
the grant. The daily average trading price for a given day is the average of the
high and low trading prices for such day. The ending price is calculated on the
same basis, using the 20 trading days ending the day before the third
anniversary of the date of the grant. The performance units vest in one-third
annual increments beginning on the first anniversary of the date of grant.
Each performance unit
awarded in 2002 under the 2000 Performance Unit Plan entitles the recipient to
receive a payment in cash or stock at our election, having a value equal to an
amount based on total stockholder return percentage on our common stock over a
three year period from the date of the grant, May 31, 2002, compared to the
total stockholder return over that period on the common stock of a peer group
comprised of AES Corp., Alliance Resources Partners L.P., Arch Coal Inc., Massey
Energy Company, Peabody Energy Corp., RWE AG, AGI International, and Yanzhou
Coal Mining Company. Total stockholder return is expressed as a percentage and
then compared with the total stockholder return (expressed as a percentage) of
the companies comprising the peer group. We provide above an example of the
method by which we calculate total stockholder return and express that as a
percentage and percentile of the peer group. If the total stockholder return
percentage on our common stock fails to achieve the threshold level, the
performance units will have no value. The threshold value for each performance
unit is $75.00. The maximum value of each performance unit is $200.00 if the
total stockholder return percentage on our common stock is at or above the 80th
percentile. Our maximum payment obligation for all performance units awarded in
2002 to the named executive officers is $1,737,000 and to all recipients is
$2,525,333.
No performance units were granted in 2003.
80
Deferred Compensation Plan
On March 7, 2003 the Board
adopted a deferred compensation plan. This plan permits recipients of awards
under the 2000 Performance Unit Plan and subsequent long-term incentive plan
awards to defer receipt of all or some percentage of any cash payments they are
otherwise entitled to receive. This deferral is in addition to any amount
deferred by the Compensation and Benefits Committee. The deferred compensation
plan is intended to be an unfunded "top hat" arrangement under Title I
of ERISA as well as for income tax purposes.
Pension Plan
We sponsor a pension plan
for our eligible employees to which employees make no contributions. All
employees whose terms and conditions of employment are not subject to collective
bargaining and who work 1,000 or more hours per year are eligible for
participation in the pension plan. Eligible employees become fully vested after
five years of service, or, in any event, upon attaining age 65.
The following table shows
estimated annual retirement benefits, which are representative of an employee
currently age 65 whose salary remained unchanged during his or her last five
years of employment and whose benefit will be paid for the life of the employee:
Years of Service
Remuneration
15
20
25
30
35
$ 125,000
$  28,576
$  38,101
$  47,626
$  57,151
$  57,151
150,000
34,951
46,601
58,251
69,901
69,901
175,000
41,326
55,101
68,876
82,651
82,651
200,000
47,701
63,601
79,501
95,401
95,401
225,000
54,076
72,101
90,126
108,151
108,151
250,000
60,451
80,601
100,751
120,901
120,901
300,000
73,201
97,601
122,001
146,401
146,401
350,000
85,951
114,601
143,251
171,901
171,901
400,000
98,701
131,601
164,501
197,401
197,401
450,000
111,451
148,601
185,751
222,901
222,901
500,000
124,201
165,601
207,001
248,401
248,401
We adopted this pension
plan effective December 1, 1997 as a qualified replacement plan for a previous
plan that terminated effective November 30, 1996. In general, our pension plan
provides for payment of annual retirement benefits to eligible employees equal
to 1.2% of any employee's average annual salaried compensation over the
sixty most highly compensated consecutive months of employment plus 0.5% of the
average annual compensation in excess of the employee's pay used to
determine Social Security retirement benefits for each year of service, to a
maximum of 30 years, less the benefit, if any, provided to the participants
under our previous plan. Our pension plan also provides for disability benefits
and for reduced benefits upon retirement prior to the normal retirement age of
65. For the purpose of benefit calculation under our pension plan, credited
service under the previous plan is included with credited service under our
pension plan and a benefit amount is calculated using the formula described
above. The amount of the accrued benefit under the previous plan, calculated as
of the date the previous plan terminated, is then subtracted to arrive at the
benefit amount payable under our pension plan.
81
No amounts are included in
the Salary column of the Summary Compensation Table above in respect of
contributions to the pension plan by the Company and its subsidiaries because
the pension plan is a qualified defined benefit plan. The basis upon which
benefits are computed is a straight-life annuity; payments are available in
other forms on an actuarially adjusted basis equivalent to a straight-life
annuity. Benefit amounts set forth in the table above are not subject to any
deduction for Social Security benefits or other offset amounts, except as noted
below for the amount of the accrued benefit under the previous plan.
The amounts shown in the
table above would be reduced by the amount of accrued benefit under the previous
plan. The amount of reduction from the annual benefit for the following
individuals are: Mr. Seglem—$38,162; and Mr. Lepchitz—$3,594.
Since Messrs. Beck, Durham and Myers were not employees of the Company at the
time the previous plan was terminated, they have no accrued benefit under the
previous plan but participate in our current pension plan.
As of December 31, 2003,
the named executive officers had the following estimated credit years of service
under our pension plan: Mr. Seglem, 23 years, 4 months; Mr. Jaeger, 8 years, 8
months; Mr. Lepchitz, 12 years, 1 month; Mr. Beck, 2 years, 5 months; Mr.
Durham, 3 years, 8 months and Mr. Myers, 3 years, 11 months.
The current compensation
covered by the Plan for any executive officer in the Summary Compensation Table
is that amount reported in the "Salary" column, subject to limitations
imposed by the Internal Revenue Code of 1986.
Supplemental Executive Retirement Plan
The Internal Revenue Code
limits the amount of compensation that may be taken into account for the purpose
of determining the retirement benefit payable under retirement plans (such as
our pension plan) that are qualified under ERISA. The limitation for 2002 and
2003 was $200,000 for each year. So that we may provide retirement income to our
senior executives and other key individuals that is commensurate as a percentage
of preretirement income with that paid to our other employees, we established a
nonqualified Supplemental Executive Retirement Plan, effective January 1, 1992.
Mr. Seglem is our only current employee who is covered by the SERP. The annual
benefit presented in the table above includes the portion of retirement benefits
payable through the SERP.
To become vested in the
SERP, a participant must attain age 55 and generally complete 10 years of
service. Both an employee's salary and his bonus are taken into account for
purposes of determining the retirement benefit payable under the SERP. Benefits
are payable out of our general assets and shall commence and be payable at the
same time and in the same form as benefits are payable under the pension plan.
Mr. Hutchinson retired as an employee of the Company as of December 31, 1993 and is entitled to receive $3,708 per month
under the SERP.
82
Severance
Arrangements
We have two severance policies,
an Executive Severance Policy that covers only Mr. Seglem and a Severance Policy
for executives, including Messrs. Lepchitz, Beck, Durham and Myers.
The Executive Severance
Policy provides that Mr. Seglem is entitled to a severance benefit in the event
of certain terminations of his employment with the Company. We adopted this
policy in 1993 as we entered a restructuring phase, and this policy originally
covered other senior executives who have since retired or left the Company. For
purposes of the Executive Severance Policy, a termination is deemed to have
occurred and severance will be paid at any and all times for the following
reasons: (i) discharge for unacceptable job performance (other than that
resulting from gross or willful misconduct, which is defined as an act or acts
constituting larceny, fraud, gross negligence, crime or crimes, moral turpitude
in the course of employment, or willful and material misrepresentation to the
Company's directors or officers); (ii) discharge due to recognition of a
mistake in the recruiting process, as determined by management; (iii) a
significant reduction, or increase without adequate compensation, in the nature
or scope of such executive's authority or duties; (iv) a relocation of such
executive from Colorado Springs, Colorado, to any location, or a reduction in
such executive's base compensation, a material reduction of the value of
the aggregate of employee benefits as described in the Executive Severance
Policy, or cessation of eligibility for incentive bonus payments; or (v) in the
event of a change in control of the Company, as defined in the Executive
Severance Policy. The severance benefit under this policy is an amount equal to
twice the executive officer's annual average cash compensation, defined as
the greater of the annualized base salary at the time of severance plus the
amount of bonus awarded (including any amount deferred) in that year or the
annual average of the executive officer's most recent five calendar years
of base salary and bonus awarded (including amounts deferred), including the
year of termination. The severance benefit will be paid in approximately equal
monthly installments over a period of 24 months following the date of
termination, unless the executive officer elects to receive the present value of
his total severance payment discounted at the two-year treasury bill rate,
including the present value of executive benefits (such as life and health
insurance, stock options, and financial planning and outplacement services) in a
lump sum distribution in cash at the time of termination.
A change in control of the
Company is defined in the Executive Severance Policy as: (i) a transaction,
acquisition, merger, other event or series of events which results in any
individual, person, entity or group acting in concert having beneficial
ownership of 20% or more of our common stock or voting preferred stock or any
combination thereof, that will give that person ownership or control of 20% or
more of the combined voting power of all stock generally entitled to vote for
the election of directors; or where such person prior to a transaction,
acquisition, merger, other event or series of events holds a 20% or more voting
power, as defined therein, an event which increases that person's interest
by 5% or more; unless a majority of those members of the Board of Directors who
were in office prior to the occurrence of the event determines at the next
regularly scheduled Board meeting that the event was not hostile or adverse; or
(ii) a change in the membership of the Board of Directors when, in less than two
years, the directors prior to the change cease to constitute a majority, unless
the new directors were designated as nominees or were elected to fill a vacancy
on the Board by two-thirds of the incumbent directors at the time; or (iii) a
consolidation or merger as a result of which the Company is not the surviving or
continuing corporation or where the Company's stock is converted into cash,
securities or other property; or any sale, lease, exchange or other transfer of
all or substantially all of the assets of the Company; or an adoption of any
plan or proposal for the liquidation or dissolution of the Company.
83
The Severance Policy that
currently covers our executives, including Messrs. Lepchitz, Durham, Beck and
Myers, provides that these executives are entitled to a severance benefit in the
event their employment with the Company is terminated for at least one of the
following reasons: (i) involuntary termination that is not for cause; (ii) a
reduction in work force; and (iii) liquidation of the Company. The
severance benefit under this policy is an amount equal to two weeks of base
salary for every year of continuous service to the Company, with a minimum of 8
weeks and a maximum of 52 weeks of base salary, plus the continuation of
medical, vision and dental benefits for the balance of the month in which
discharge occurred, plus three months.
At the time of his
departure from the Company in August 2003, Mr. Jaeger was covered by our
Executive Severance Policy. Mr. Jaeger's termination agreement provided for
a lump sum severance payable over a period of 10 years and the vesting of awards
under the 2000 Performance Unit Plan, in lieu of payments under the Executive
Severance Policy.
84
CERTAIN
RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
Preferred Stock
Repurchase Program
In August 2002, our Board
of Directors approved a program pursuant to which we may purchase outstanding
shares of our Series A Preferred Stock. In 2003, we purchased a total of 7,000
depositary shares (equivalent to 1,750 shares of Series A Preferred Stock) from
Wynnefield Partners Small Cap Value, L.P. I and Wynnefield Small Cap Offshore
Fund, Ltd. for a total amount of $212,800. The Wynnefield funds previously owned
more than 5% of our Series A Preferred Stock.
Compensation
and Options Issuance
Mark Seglem, the brother of
Christopher K. Seglem, the Company's Chairman of the Board, President, and
Chief Executive Officer, is the Vice President of Northwestern Resources Co., an
indirect subsidiary of Westmoreland Coal Company. In 2003, Mr. Mark Seglem was
paid $91,150 in total compensation and granted options to purchase 7,500 shares
of our common stock at an exercise price of $17.82 per share. The options are
exercisable over a three-year period.
Termination
Agreement of Robert J. Jaeger
Mr. Jaeger, who was one of the two named persons covered under the Executive Severance Policy adopted in 1993, ceased to be
an executive officer of the Company in August 2003.  His termination agreement entitles him to receive three years credit in the 2000
award under the 2000 Performance Unit Plan, two years credit in the 2001 award and one year of credit in the 2002 award.  The value,
if any, of these awards and the time, manner and method of payment will be determined by our Compensation and Benefits Committee, in
its sole discretion, but the terms and conditions of Mr. Jaeger's awards shall be the same as for the other participants receiving
awards for those periods.  The termination agreement also provides for the payment of $720,000 over the next ten years in lieu of the
benefits Mr. Jaeger would be entitled to as a covered participant under our Executive Severance Policy.
85
BENEFICIAL
OWNERSHIP OF SECURITIES
The following table sets forth
information as of March 31, 2004, concerning beneficial ownership of our common
stock and our depositary shares, each of which represents one-quarter of a share
of our Series A Preferred Stock, by (a) each director, (b) each executive
officer named in our summary compensation table above, (c) all directors and
executive officers as a group, and (d) each person, or group of affiliated
persons, who is known by us to own beneficially more than five percent of our
common stock.
Beneficial ownership is
determined in accordance with the rules of the Securities and Exchange
Commission. The number of shares beneficially owned by a person includes shares
of common stock subject to options held by that person that are currently
exercisable or exercisable within 60 days of March 31, 2004. The shares issuable
pursuant to these options are not deemed outstanding for the purposes of
computing the percentage ownership of any other person. Unless otherwise
indicated, each of the persons named below has sole voting power and sole
investment power with respect to the shares set forth opposite his or her name.
Except as otherwise set forth below, the address of the beneficial owner is c/o
Westmoreland Coal Company, 2 North Cascade Avenue, 14th Floor, Colorado Springs,
Colorado 80903.
Name and Address of Beneficial Owner
Number of Shares of Common  Stock Benefically Owned
(1)
Percentage of Common Stock Benefically Owned
Number of Depositary Shares Benefically Owned
Percentage of Depositary Shares Benefically Owned
5% Stockholders
Alan A. Blase
2230 SW 70th Ave., #5
Davie, FL  33317
-
-
61,114
(2)
7.5%
Jeffrey L. Gendell
55 Railroad Ave.
3rd Floor
Greenwich, CT  06830
1,480,400
(3)
18.5%
4,300
(4)
*
The Killen Group, Inc.
1189 Lancaster Ave.
Berwyn, PA  19312
416,245
(5)
5.2%
750
(6)
*
Redwood Asset
Management, L.P.
1038 Lake Avenue
Greenwich, CT  06831
425,300
5.3%
-
-
Stephen D. Rosenbaum
817 N. Calvert Street
Baltimore, MD  21202
-
-
80,000
(7)
9.8%
Directors and Executive Officers
Michael Armstrong
37,332
(8)
*
11,334
(9)
1.4%
Ronald H. Beck
4,650
(10)
*
-
-
Thomas J. Coffey
34,146
(11)
*
-
-
Thomas G. Durham
36,667
(12)
*
-
-
Pemberton Hutchinson
91,496
(13)
1.1%
-
-
86
Robert E. Killen
416,245
(14)
5.2%
750
(15)
*
W. Michael Lepchitz
77,756
(16)
*
26
(17)
*
Todd A. Myers
24,568
(18)
*
-
-
Thomas W. Ostrander
93,661
(19)
1.2%
-
-
Christopher K. Seglem
358,237
(20)
4.3%
1,184
(21)
*
James W. Sight
358,896
(22)
4.5%
-
-
William M. Stern
31,396
(23)
*
8,100
(24)
1.0%
Donald A. Tortorice
11,896
(25)
*
-
-
Directors and Executive Officers of the
Company as a Group (22 persons)
1,619,560
(26)
18.3%
21,394
(27)
2.6%
*  Indicates less than 1%.
(1)
For ease of analysis, the common stock information in the table and the related footnotes does not include the number of
     shares of common stock into which the depositary shares may be converted.  A holder of depositary shares may convert the holder's
     depositary shares into shares of common stock at any time at a conversion ratio of 1.708 shares of common stock for each
     depositary share.  Consequently, a holder of depositary shares is deemed to beneficially own all of the shares of common stock
     into which the holder's depositary shares may be converted.  The Westmoreland Coal Company and Affiliated Companies Employees'
     Savings/Retirement Plan (the "401(k) Plan") provides investment alternatives that include a Common Stock Fund and a Depositary
     Share Fund.  All amounts included herein held through the 401(k) Plan are as of December 31, 2003.
(2)
According to a Schedule 13G filed on February 16, 2003, a Schedule 13G filed on February 17, 2003, a Schedule 13G filed on
     February 16, 2003, a Schedule 13G filed on February 17, 2003 and a Schedule 13G filed on March 27, 2003, Mr. Alan Blase
     beneficially owns 61,114 depositary shares.  Of the 61,114 depositary shares, Mr. Blase has sole voting power and sole
     dispositive power over 2,895 depositary shares and shared dispositive power over 58,219 depositary shares; Mr. Frank Vicino, Sr.
     owns 23,085 depositary shares and has sole voting power over 23,085 depositary shares and shared dispositive power over 23,085
     depositary shares; Deborah Vicino Klamarus owns 3,890 depositary shares and has sole voting power over 3,890 depositary shares
     and shared dispositive power over 3,890 depositary shares; Rosemary Vicino owns 1,539 depositary shares and has sole voting power
     over 1,539 depositary shares and shared dispositive power over 1,539 depositary shares; Frank Vicino, Jr. owns 29,285 depositary
     shares and has sole voting power over 17,790 depositary shares, shared voting power over 11,495 depositary shares and shared
     dispositive power over 29,285 depositary shares and Deborah Dee Vicino owns 11,915 depositary shares and has sole voting power
     over 420 depositary shares, shared voting power over 11,495 depositary shares and shared dispositive power over 11,915 depositary
     shares.  These depositary shares are convertible into 104,382 shares of common stock, which shares of common stock would
     represent 1.3% of the total shares of common stock outstanding.  See Note (1).
(3)
According to a Form 3 and Form 4 filed March 3, 2004 with the SEC, Mr. Gendell has sole voting power and sole dispositive
     power over 549,000 shares of common stock and shared voting and shared dispositive power over 931,400 shares of common stock held
     by limited partnerships and limited liability companies of which Mr. Gendell is either a managing member or general partner.  See
     Note (1).
(4)
According to information supplied to us on March 5, 2004, Mr. Gendell has shared voting and dispositive power over 4,300
     depositary shares held by a limited partnership through a limited liability company of which Mr. Gendell is either a managing
     member or general partner.  These depositary shares are convertible into 7,343 shares of common stock, which shares of common
     stock together with the 1,480,400 shares of common stock reported in the table would represent 18.5% of the total shares of
     common stock outstanding.  See Notes (1) and (3).
(5)
Includes 61,942 shares of common stock owned by Robert E. Killen as a personal investment, 59,184 shares of common stock
     held jointly by Mr. Killen and his spouse, 61,500 shares of common stock held by a limited partnership of which Mr. Killen and
     his spouse are general partners and 211,723 shares of common stock owned by The Killen Group, Inc., of which Mr. Killen is the
     Chairman and Chief Executive Officer.  Of the 211,723 shares of common stock, The Killen Group has voting power over 186,650
     shares and dispositive power over all shares.  Also includes 20,000 shares of common stock that Mr. Killen may purchase upon
     exercise of options under the 1996 Directors' Stock Incentive Plan ("1996 Plan") and the 2000 Non-Employee Directors' Stock
     Incentive Plan, as amended ("2000 Directors' Plan").  See Notes (1) and (6).
87
(6)
Includes 750 depositary shares jointly held by Mr. Killen and his spouse.  These depositary shares are convertible into
     1,281 shares of common stock, which shares of common stock, together with the 416,245 shares of common stock reported in the
     table, would represent 5.2% of the total shares of common stock outstanding.  See Notes (1) and (5).
(7)
The depositary shares are convertible into 136,640 shares of common stock, which would represent 1.7% of the total shares of
     common stock outstanding.  See Note (1).
(8)
Includes 12,500 shares of common stock that may be purchased upon exercise of options under the 2000 Directors' Plan.
(9)
Includes 4,000 depositary shares held by two trusts of which Mr. Armstrong is trustee, 3,500 shares held by a trust for
     which Mr. Armstrong exercises voting and dispositive power on behalf of the trustee, and 3,834 shares held by Mr. Armstrong as a
     personal investment.  These depositary shares are convertible into 19,358 shares of common stock, which shares of common stock
     together with the 37,332 shares of common stock reported in the table would represent less than 1% of the total shares of common
     stock outstanding.  See Notes (1) and (8).
(10)
Includes 950 shares of common stock held by Prudential Retirement, as trustee of the 401(k) Plan.  Also includes 3,200
     shares of common stock that may be purchased upon exercise of options under the 1995 Long-Term Incentive Stock Plan (the "1995
     Plan"), the 2000 Long-Term Incentive Stock Plan (the "2000 Plan") and the 2002 Long-Term Incentive Stock Plan (the "2002 Plan").
(11)
Includes 17,500 shares of common stock that may be purchased upon exercise of options under the 2000 Directors' Plan.
(12)
Includes 1,647 shares of common stock held by Prudential Retirement, as trustee of the 401(k) Plan, and 15,650 shares of
     common stock that may be purchased upon exercise of options under the 1995 Plan, the 2000 Plan and the 2002 Plan.
(13)
Includes 52,500 shares of common stock that may be purchased upon exercise of options under the 1996 Plan and the 2000
     Directors' Plan.
(14)
Includes all of the shares of common stock described in Note (5).
(15)
Includes all of the depositary shares described in Note (6).
(16)
Includes 1,443 shares of common stock held by Prudential Retirement, as trustee of the 401(k) Plan.  Also includes 52,700
     shares of common stock that may be purchased upon exercise of options under the 1995 Plan, the 2000 Plan and the 2002 Plan.
(17)
Held by Prudential Retirement, as trustee of the 401(k) Plan.  These depositary shares are convertible into 44 shares of
     common stock, which shares of common stock, together with the 77,756 shares of common stock reported in the table, would
     represent less than 1% of the total shares of common stock outstanding.  See Notes (1) and (16).
(18)
Includes 1,214 shares of common stock held by Prudential Retirement, as trustee of the 401(k) Plan.  Also includes 13,300
     shares of common stock that may be purchased upon exercise of options under the 1995 Plan, the 2000 Plan and the 2002 Plan.
(19)
Includes 80,000 shares of common stock that may be purchased upon exercise of options under the 1991 Plan, the 1996 Plan and
     the 2000 Directors' Plan.
(20)
Includes 3,833 shares of common stock held by Prudential Retirement, as trustee of the 401(k) Plan, and 268,850 shares of
     common stock that may be purchased upon exercise of options under the 1995 Plan, the 1996 Plan, the 2000 Plan, and the 2002 Plan.
(21)
Includes 84 depositary shares held by Prudential Retirement, as trustee of the 401(k) Plan.  These depositary shares are
     convertible into 2,022 shares of common stock, which shares of common stock, together with the 358,237 shares of common stock
     reported in the table, would represent 4.5% of the total shares of common stock outstanding.  See Notes (1) and (20).
(22)
Includes 15,000 shares of common stock that may be purchased upon exercise of options under the 2000 Directors' Plan.
(23)
Includes 12,500 shares of common stock that may be purchased upon exercise of options under the 2000 Directors' Plan.
88
(24)
Includes 4,100 depositary shares held by two trusts of which Mr. Stern is a trustee and beneficiary, 3,000 shares held by a
     trust for which Mr. Stern is sole trustee, and 1,000 shares held in trust for which Mr. Stern is sole trustee and beneficiary.
     These depositary shares are convertible into 13,834 shares of common stock, which shares of common stock, together with the
     31,396 shares of common stock reported in the table, would represent less than 1% of the total shares of common stock
     outstanding.  See Notes (1) and (23).
(25)
Includes 5,000 shares of common stock that may be purchased upon exercise of options under the 2000 Directors' Plan and
     5,000 shares held by Mr. Tortorice's spouse.
(26)
See Notes (8), (10)-(14), (16), (18)-(20), (22)-(23) and (25).  Also includes 42,614 shares of common stock owned by Douglas
     P. Kathol, Diane S. Jones, Thomas M. Cirillo and Thomas S. Barta, including 13,043 shares of common stock held by Prudential
     Retirement, as trustee of the 401(k) Plan, for the benefit of Mr. Kathol, Ms. Jones, Mr. Cirillo and Mr. Barta and 16,750 shares
     of common stock that may be purchased upon exercise of options under the 1995 Plan, the 2000 Plan and the 2002 Plan by Mr.
     Kathol, Ms. Jones, Mr. Cirillo and Mr. Barta.
(27)
See Notes (9), (15), (17), (21) and (24).
We are distributing rights
to all of our stockholders, including those who own 5% or more of our common
stock, our officers and our directors. Each such person will have the option to
exercise his, her or its subscription privilege and over-subscription privilege.
The actual ownership of each such person following this offering may vary
depending on (1) whether he, she, or it exercises the subscription privilege and
over-subscription privilege and (2) the number of shares for which all other
stockholders subscribe and over-subscribe.
89
THE RIGHTS
OFFERING
Background of
the Rights Offering
Our Board of Directors has
determined to seek additional equity capital for general corporate purposes and
to support our growth and development strategy. We do not currently have any
agreement to acquire any business or assets (other than the capital expenditures
we anticipate making in the ordinary course of our business) or any letter of
intent with respect to any such acquisition.
In deciding how to raise
that equity capital, the Board determined that it would like to give all of our
common stockholders the first opportunity to purchase additional shares of our
common stock. This rights offering permits all of our common stockholders to
purchase additional shares of our common stock and maintain their proportionate
interest in Westmoreland.
The Rights
We will distribute to each
holder of record of our common stock on the record date for this rights
offering, at no charge, one subscription right for each ______ shares of our
common stock owned. The record date for this rights offering is 5:00 p.m., New
York City time, on ______________, 2004. We will distribute approximately
_____________ subscription rights. The subscription rights will be evidenced by
rights certificates. Each subscription right will allow you to purchase one
share of our common stock at a subscription price of $_____. If you elect to
exercise your basic subscription privilege in full, you may also subscribe, at
the subscription price, for additional shares of our common stock under your
over-subscription privilege to the extent that other rights holders do not
exercise their basic subscription privileges in full. If a sufficient number of
shares of our common stock is unavailable to fully satisfy the over-subscription
privilege requests, the available shares of common stock will be sold pro rata
among holders of subscription rights who exercised their over-subscription
privilege based on the number of shares each subscription rights holder
subscribed for under the basic subscription privilege.
If you hold your shares in
a brokerage account or through a dealer or other nominee, please see the
information included below the heading "— Beneficial Owners."
No Fractional
Rights
We will not issue
fractional subscription rights or cash in lieu of fractional subscription
rights. If the number of shares of common stock you held of record on the record
date would result in your receipt of fractional rights, the number of rights
issued to you is being rounded down to the nearest whole right.
Expiration of
the Rights Offering, Extensions and Amendments
You may exercise your subscription rights at any time before 5:00 p.m., New York City time, on ________________, 2004, the
expiration date for this rights offering.  We may, in our sole discretion, extend the time for exercising the subscription rights,
but not later than 5:00 p.m., New York City time, on _____________, 2004.
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We will extend the duration
of the rights offering as required by applicable law, and we may choose to
extend it if we decide to give investors more time to exercise their
subscription rights in this rights offering. We may extend the expiration date
of this rights offering by giving oral or written notice to the subscription
agent on or before the scheduled expiration date. If we elect to extend the
expiration of this rights offering, we will issue a press release announcing
such extension no later than 9:00 a.m., New York City time, on the next business
day after the most recently announced expiration date.
We reserve the right, in
our sole discretion, to amend or modify the terms of this rights offering. If we
make an amendment that we consider significant, we will mail notice of the
amendment to all stockholders of record as of the record date and extend the
expiration date by at least ten days. The extension of the expiration date will
not, in and of itself, be treated as a significant amendment for these purposes.
If you do not exercise your
subscription rights before the expiration date of this rights offering, your
unexercised subscription rights will be null and void and will have no value. We
will not be obligated to honor your exercise of subscription rights if the
subscription agent receives the documents relating to your exercise after this
rights offering expires, regardless of when you transmitted the documents,
except if you have timely transmitted the documents under the guaranteed
delivery procedures described below.
Subscription
Privileges
Your subscription rights entitle you to a basic subscription privilege and an over-subscription privilege.
Basic Subscription Privilege
With your basic
subscription privilege, you may purchase one share of our common stock per
subscription right, upon delivery of the required documents and payment of the
subscription price of $________ per share, before the expiration of the rights
offering. You are not required to exercise all of your subscription rights
unless you wish to purchase shares under your over-subscription privilege. We
will deliver certificates representing shares of common stock purchased with the
basic subscription privilege as soon as practicable after this rights offering
has expired.
Over-Subscription Privilege
In addition to your basic
subscription privilege, you may also subscribe for additional shares of our
common stock, upon delivery of the required documents and payment of the
subscription price of $_______ per share, before the expiration of this rights
offering. You may only exercise your over-subscription privilege if you
exercised your basic subscription privilege in full. If you wish to exercise
your over-subscription privilege, you must pay in full for (1) the number of
shares you purchase with your basic subscription privilege and (2) the number of
shares you wish to purchase with your over-subscription privilege.
The number of shares of
common stock that will be available for sale pursuant to the over-subscription
privilege will be equal to the number of shares for which holders have not
exercised their basic subscription privileges.
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•
If the number of shares requested by all holders exercising the
over-subscription privilege is less than the total number of shares available,
then each person exercising the over-subscription privilege will receive the
total number of shares requested.
•
If there are not enough shares of our common stock to satisfy all subscriptions
made under the over-subscription privilege, we will allocate the available
shares of our common stock pro rata, after eliminating all fractional shares,
among the over-subscribing rights holders. "Pro rata" means in
proportion to the number of shares of our common stock that you and the other
holders of subscription rights have purchased by exercising your basic
subscription privileges. If there is a pro rata allocation and you receive an
allocation of a greater number of shares than you subscribed for under your
over-subscription privilege, then we will allocate to you only the number of
shares for which you subscribed. We will allocate the remaining shares among all
other holders exercising their over-subscription privileges.
You may exercise your
over-subscription privilege only if you exercise your basic subscription
privilege in full. To determine if you have fully exercised your basic
subscription privilege, we will consider only the basic subscription privileges
held by you in the same capacity. For example, suppose that you were granted
subscription rights for shares of our common stock that you own individually and
shares of our common stock that you own collectively with your spouse. If you
wish to exercise your over-subscription privilege with respect to the
subscription rights you own individually, but not with respect to the
subscription rights you own collectively with your spouse, you only need to
exercise fully your basic subscription privilege with respect to the
subscription rights you own individually, and you do not have to subscribe for
any shares under the basic subscription privilege owned collectively with your
spouse to exercise your individual over-subscription privilege. When you
complete the portion of your subscription rights certificate to exercise your
over-subscription privilege, you will be representing and certifying that you
have fully exercised your subscription privileges as to shares of our common
stock that you hold in that capacity. You must exercise your over-subscription
privilege at the same time you exercise your basic subscription privilege in
full.
If you exercise your
over-subscription privilege and are allocated less than all of the shares of our
common stock for which you wish to subscribe, your excess payment for shares
that are not allocated to you will be returned to you by mail, without interest
or deduction, as soon as practicable after the expiration date of this rights
offering. We will deliver certificates representing shares of common stock
purchased with the over-subscription privilege as soon as practicable after this
rights offering has expired and after all pro rata allocations and adjustments
have been completed.
Conditions to
this Rights Offering
We may terminate this
rights offering, in whole or in part, if at any time before completion of this
rights offering there is any judgment, order, decree, injunction, statute, law
or regulation entered, enacted, amended or held to be applicable to this rights
offering that in the sole judgment of our Board of Directors would or might make
this rights offering or its completion, whether in whole or in part, illegal or
otherwise restrict or prohibit completion of this rights offering. We may waive
any of these conditions and choose to proceed with this rights offering even if
one or more of these events occur. If we terminate this rights offering, in
whole or in part, all affected subscription rights will expire without value and
all subscription payments received by the subscription agent will be returned
promptly, without interest or deduction. See also "— Cancellation
Rights."
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Method of
Subscription — Exercise Of Rights
You may exercise your subscription rights by delivering the following to the subscription agent, at or prior to 5:00 p.m.,
New York City time, on ____________, 2004, the expiration date of this rights offering:
•
your properly completed and executed subscription rights certificate with any required signature guarantees or other
              supplemental documentation; and
•
your full subscription price payment for each share subscribed for under your
subscription privileges, including each share subscribed for under both your
basic subscription privilege and your over-subscription privilege.
If you are a beneficial
owner of shares of our common stock whose shares are registered in the name of a
broker, custodian bank or other nominee, you should instruct your broker,
custodian bank or other nominee to exercise your rights and deliver all
documents and payment on your behalf prior to 5:00 p.m. New York City time on
____________, 2004, the expiration date of this rights offering.
Your subscription rights
will not be considered exercised unless the subscription agent receives from
you, your broker, custodian or nominee, as the case may be, all of the required
documents and your full subscription price payment prior to 5:00 p.m., New York
City time, on ____________, 2004, the expiration date of this rights offering.
Method of
Payment
Your payment of the
subscription price must be made in U.S. dollars for the full number of shares of
our common stock for which you are subscribing by either:
•
check or bank draft drawn upon a U.S. bank or postal, telegraphic or express money order payable to the subscription agent;
              or
•
wire transfer of immediately available funds, to the subscription account maintained by the subscription agent at
              ________________, ABA No. ___________, Account No. ___________.
Receipt of
Payment
Your payment will be considered received by the subscription agent only upon:
•
clearance of any uncertified check;
•
receipt by the subscription agent of any certified check or bank draft drawn upon a U.S. bank or of any postal, telegraphic
              or express money order; or
93
•
receipt of collected funds in the subscription account designated above.
Clearance of
Uncertified Checks
If you are paying by
uncertified personal check, please note that uncertified checks may take at
least five business days to clear. If you wish to pay the subscription price by
uncertified personal check, we urge you to make payment sufficiently in advance
of the time this rights offering expires to ensure that your payment is received
by the subscription agent and clears by the expiration date of the rights
offering. If you elect to exercise your subscription rights, we urge you to
consider using a certified or cashier's check, money order or wire transfer
of funds to ensure that the subscription agent receives your funds prior to the
expiration date.
Delivery of
Subscription Materials and Payment
You should deliver your subscription
rights certificate and payment of the subscription price or, if applicable,
notices of guaranteed delivery, to the subscription agent by one of the methods
described below:
By mail, hand delivery or overnight courier to:
__________________________
__________________________
You may call the subscription agent at (___) ___-____.
Your delivery to an address or by any method other than as set forth above will not constitute valid delivery.
Calculation of
Subscription Rights Exercised
If you do not indicate the number
of subscription rights being exercised, or do not forward full payment of the
total subscription price payment for the number of rights that you indicate are
being exercised, then you will be deemed to have exercised your basic
subscription privilege with respect to the maximum number of subscription rights
that may be exercised with the aggregate subscription price payment you
delivered to the subscription agent. If your aggregate subscription price
payment is greater than the amount you owe for your subscription, you will be
deemed to have exercised your over-subscription privilege to purchase the
maximum number of shares of our common stock with your over-payment. If we do
not apply your full subscription price payment to your purchase of shares of our
common stock, the subscription agent will return the excess amount to you by
mail, without interest or deduction, as soon as practicable after the expiration
date of this rights offering.
Your Funds will be Held by the Subscription Agent until Shares of Common Stock are Issued
The subscription agent will
hold your payment of the subscription price in a segregated account with other
payments received from other holders of subscription rights until we issue your
shares of our common stock to you upon consummation of the rights offering.
94
Medallion
Guarantee may be Required
Your signature on each
subscription rights certificate must be guaranteed by an eligible institution,
such as a member firm of a registered national securities exchange or a member
of the National Association of Securities Dealers, Inc., or a commercial bank or
trust company having an office or correspondent in the U.S., subject to
standards and procedures adopted by the subscription agent, unless:
•
your subscription rights certificate provides that shares are to be delivered to you as record holder of those subscription
              rights; or
•
you are an eligible institution.
Instructions
to Nominee Holders
If you are a broker, a
trustee or a depositary for securities who holds shares of our common stock for
the account of others on ____________, 2004, the record date for this rights
offering, you should notify the respective beneficial owners of such shares of
this rights offering as soon as possible to find out their intentions with
respect to their subscription rights. You should obtain instructions from the
beneficial owner with respect to their subscription rights, as set forth in the
instructions we have provided to you for your distribution to beneficial owners.
If the beneficial owner so instructs, you should complete the appropriate
subscription rights certificates and submit them to the subscription agent with
the proper payment. If you hold shares of our common stock for the account(s) of
more than one beneficial owner, you may exercise the number of subscription
rights to which all such beneficial owners in the aggregate otherwise would have
been entitled had they been direct record holders of our common stock on the
rights offering record date, provided that you, as a nominee record holder, make
a proper showing to the subscription agent by submitting the form entitled
"Nominee Holder Certification" that we are providing to you with your
rights offering materials. If you did not receive this form, you should contact
the subscription agent to request a copy.
Beneficial
Owners
If you are a beneficial
owner of shares of our common stock or will receive your subscription rights
through a broker, custodian bank or other nominee, we are asking your broker,
custodian bank or other nominee to notify you of this rights offering. If you
wish to exercise or sell your subscription rights, you will need to have your
broker, custodian bank or other nominee act for you. If you hold certificates of
our common stock directly and would prefer to have your broker, custodian bank
or other nominee act for you, you should contact your nominee and request it to
effect the transactions for you. To indicate your decision with respect to your
subscription rights, you should complete and return to your broker, custodian
bank or other nominee the form entitled "Beneficial Owners Election
Form." You should receive this form from your broker, custodian bank or
other nominee with the other rights offering materials. If you wish to obtain a
separate subscription rights certificate, you should contact the nominee as soon
as possible and request that a separate subscription rights certificate be
issued to you. You should contact your broker, custodian bank or other nominee
if you do not receive this form but you believe you are entitled to participate
in this rights offering. We are not responsible if you do not receive the form
from your broker, custodian bank or nominee or if you receive it without
sufficient time to respond.
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Instructions
for Completing your Subscription Rights Certificate
You should read and follow the instructions accompanying the subscription rights certificates carefully.
You are responsible for the
method of delivery of your subscription rights certificate(s) with your
subscription price payment to the subscription agent. If you send your
subscription rights certificate(s) and subscription price payment by mail, we
recommend that you send them by registered mail, properly insured, with return
receipt requested. You should allow a sufficient number of days to ensure
delivery to the subscription agent prior to the time this rights offering
expires. Because uncertified personal checks may take at least five business
days to clear, you are strongly urged to pay, or arrange for payment, by means
of a certified or cashier's check, money order or wire transfer of funds.
Determinations
Regarding the Exercise of your Subscription Rights
We will decide all
questions concerning the timeliness, validity, form and eligibility of the
exercise of your subscription rights and any such determinations by us will be
final and binding. We, in our sole discretion, may waive, in any particular
instance, any defect or irregularity, or permit, in any particular instance, a
defect or irregularity to be corrected within such time as we may determine. We
will not be required to make uniform determinations in all cases. We may reject
the exercise of any of your subscription rights because of any defect or
irregularity. We will not accept any exercise of subscription rights until all
irregularities have been waived by us or cured by you within such time as we
decide, in our sole discretion.
Neither we nor the
subscription agent will be under any duty to notify you of any defect or
irregularity in connection with your submission of subscription rights
certificates and we will not be liable for failure to notify you of any defect
or irregularity. We reserve the right to reject your exercise of subscription
rights if your exercise is not in accordance with the terms of this rights
offering or in proper form. We will also not accept the exercise of your
subscription rights if our issuance of shares of our common stock to you could
be deemed unlawful under applicable law.
Regulatory
Limitation
We will not be required to
issue to you shares of our common stock pursuant to this rights offering if, in
our opinion, you would be required to obtain prior clearance or approval from
any state or federal regulatory authorities to own or control such shares if, at
the time this rights offering expires, you have not obtained such clearance or
approval.
Guaranteed
Delivery Procedures
If you wish to exercise
your subscription rights, but you do not have sufficient time to deliver the
subscription rights certificate evidencing your subscription rights to the
subscription agent on or before the time this rights offering expires, you may
exercise your subscription rights by the following guaranteed delivery
procedures:
•
deliver to the subscription agent on or prior to the expiration date for this
rights offering your subscription price payment in full for each share you
subscribed for under your subscription privileges in the manner set forth above
in "— Method of Payment";
96
•
deliver to the subscription agent on or prior to the expiration date the form
entitled "Notice of Guaranteed Delivery," substantially in the form
provided with the "Instructions as to Use of Westmoreland Coal Company
Rights Certificates" distributed with your subscription rights
certificates; and
•
deliver the properly completed subscription rights certificate evidencing your
subscription rights being exercised and the related nominee holder
certification, if applicable, with any required signature guarantee, to the
subscription agent within three New York Stock Exchange trading days following
the date of your Notice of Guaranteed Delivery.
Your Notice of Guaranteed
Delivery must be delivered in substantially the same form provided with the
Instructions as to the Use of Westmoreland Coal Company Subscription Rights
Certificates, which will be distributed to you with your subscription rights
certificate. Your Notice of Guaranteed Delivery must come from an eligible
institution, or other eligible guarantee institutions that are members of, or
participants in, a signature guarantee program acceptable to the subscription
agent.
In your Notice of Guaranteed Delivery, you must state:
•
your name;
•
the number of subscription rights represented by your subscription rights
certificates, the number of shares of our common stock for which you are
subscribing under your basic subscription privilege and the number of shares of
our common stock for which you are subscribing under your over-subscription
privilege, if any; and
•
your guarantee that you will deliver to the subscription agent any subscription
rights certificates evidencing the subscription rights you are exercising within
three business days following the date the subscription agent receives your
Notice of Guaranteed Delivery.
You may deliver your Notice
of Guaranteed Delivery to the subscription agent in the same manner as your
subscription rights certificates at the address set forth above under
"— Delivery of Subscription Materials and Payment."
Alternatively, you may transmit your Notice of Guaranteed Delivery to the
subscription agent by facsimile transmission (telecopy no.: (___) ___-_____). To
confirm facsimile deliveries, you may call (____) ____-_____.
The information agent will send you additional copies of the form of Notice of Guaranteed Delivery if you request them.
Please call (____) ____-_____ to request any copies of the form of Notice of Guaranteed Delivery.  Banks and brokerage firms please
call collect at (____) ____-_____ to request any copies of the form of Notice of Guaranteed Delivery.
97
Questions
about Exercising Subscription Rights
If you have any questions
or require assistance regarding the method of exercising your subscription
rights or requests for additional copies of this prospectus, the Instructions as
to the Use of Westmoreland Coal Company Subscription Rights Certificates or the
Notice of Guaranteed Delivery, you should contact the subscription agent at the
address and telephone number set forth above.
Subscription
Agent; No Underwriter
We have appointed
__________________________ to act as subscription agent for this rights
offering. We will pay all fees and expenses of the subscription agent related to
this rights offering and have also agreed to indemnify the subscription agent
from liabilities that they may incur in connection with this rights offering.
We have not engaged an underwriter in connection with this rights offering.
No Revocation
Once you have exercised
your subscription privileges, you may not revoke your exercise. Subscription
rights not exercised prior to the expiration date of this rights offering will
expire and will have no value.
Procedures for
DTC Participants
We expect that the exercise
of your basic subscription privilege and your over-subscription privilege may be
made through the facilities of the Depository Trust Company. If your
subscription rights are held of record through DTC, you may exercise your basic
subscription privilege and your over-subscription privilege by instructing DTC
to transfer your subscription rights from your account to the account of the
subscription agent, together with certification as to the aggregate number of
subscription rights you are exercising and the number of shares of our common
stock you are subscribing for under your basic subscription privilege and your
over-subscription privilege, if any, and your subscription price payment for
each share of our common stock that you subscribed for pursuant to your basic
subscription privilege and your over-subscription privilege.
Subscription
Price
The subscription price is
$____ per share. For more information with respect to how the subscription price
was determined, see "Questions and Answers About the Rights Offering"
included elsewhere in this prospectus.
Foreign and
Other Stockholders
The subscription agent will
mail rights certificates to you if you are a rights holder whose address is
outside the United States or if you have an Army Post Office or a Fleet Post
Office address. To exercise your rights, you must notify the subscription agent
on or prior to the expiration date for the rights offering, and take all other
steps which are necessary to exercise your rights, on or prior to that time. If
you do not follow these procedures prior to the expiration of the rights
offering, your rights will expire.
98
Non-Transferability
of the Rights
The rights are not
transferable and may be exercised only by the persons to whom they are issued.
You may not sell, give away or otherwise transfer your rights. Any attempt to
transfer your rights will render them null and void.
Cancellation
Rights
Our Board of Directors may
cancel this rights offering, in whole or in part, in its sole discretion at any
time prior to the time this rights offering expires for any reason (including a
change in the market price of our common stock). If we cancel this rights
offering, any funds you paid to the subscription agent will be promptly
refunded, without interest or deduction.
No Board
Recommendation
An investment in shares of
our common stock must be made according to each investor's evaluation of
its own best interests and after considering all of the information in this
prospectus, including the "Risk Factors" section of this prospectus.
Neither we nor our Board of Directors makes any recommendation to subscription
rights holders regarding whether they should exercise or sell their rights.
Limitation on
Exercise of the Rights
In no event may any
subscriber purchase shares of our common stock in the offering that, when
aggregated with all of the shares of our common stock otherwise owned by the
subscriber and his, her or its affiliates, would represent, immediately
following the closing of the rights offering, 20% or more of our issued and
outstanding common stock.
Shares of
Common Stock Outstanding after the Rights Offering
As of ___________, 2004,
there were ______________ shares of our common stock outstanding. If all of the
rights being issued are exercised, we will issue a total of ______________
additional shares of common stock. Accordingly, assuming all of the offered
shares of common stock are issued, there will be _______________ shares of
common stock outstanding after the rights offering. This number is subject to
any increases that may occur after the date of this prospectus as a result of
the exercise, conversion or exchange of outstanding stock options or convertible
securities.
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Effects of
Rights Offering on Series A Preferred Stock
The Certificate of
Designation for the Series A Preferred Stock provides that, if we distribute
rights like the subscription rights and those rights permit our common
stockholders to purchase shares of our common stock at less than the
"current market price," as defined in the Certificate of Designation,
then the conversion ratio for the Series A Preferred Stock shall be adjusted.
Under the Certificate of Designation, the "current market price" of
our common stock on any date is the average of the daily closing prices for
thirty consecutive trading days commencing forty-five trading days before the
day in question. On the date of this prospectus, the "current market
price" of our common stock, as defined in the Certificate of Designation,
is $___, and the subscription price for the shares of common stock offered
hereby is $_____. Under the Certificate of Designation, if the subscription
price for the rights is greater than or equal to the current market price, there
is no adjustment to the conversion ratio for the Series A Preferred Stock, and
if the subscription price for the rights is less than the current market price,
the conversion ratio is adjusted according to the formula specified in the
Certificate. Immediately following this offering, each share of Series A
Preferred Stock will be convertible into ___ shares of common stock, which is
equivalent to a conversion ratio of ___ shares of common stock for each
depositary share.
Other Matters
We are not making this
rights offering in any state or other jurisdiction in which it is unlawful to do
so, nor are we distributing or accepting any offers to purchase any shares of
our common stock from subscription rights holders who are residents of those
states or other jurisdictions or who are otherwise prohibited by federal or
state laws or regulations to accept or exercise the subscription rights. We may
delay the commencement of this rights offering in those states or other
jurisdictions, or change the terms of this rights offering, in whole or in part,
in order to comply with the securities law or other legal requirements of those
states or other jurisdictions. We may decline to make modifications to the terms
of this rights offering requested by those states or other jurisdictions, in
which case, if you are a resident in those states or jurisdictions or if you are
otherwise prohibited by federal or state laws or regulations from accepting or
exercising the subscription rights you will not be eligible to participate in
this rights offering.
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DESCRIPTION
OF CAPITAL STOCK
The following description of
our capital stock and provisions of our certificate of incorporation and bylaws
are summaries and are qualified by reference to the certificate of incorporation
and the bylaws. Copies of these documents have been filed with the Securities
and Exchange Commission as exhibits to our registration statement, of which this
prospectus forms a part.
Our authorized capital
stock consists of 25,000,000 shares of common stock, par value $2.50 per share,
and 5,000,000 shares of preferred stock, par value $1.00 per share. As of
____________, 2004, we had _________ shares of common stock outstanding and
___________ shares of preferred stock outstanding. As of that date, we also had
outstanding options to purchase __________ shares of our common stock. Our
common stock is listed on the American Stock Exchange under the symbol
"WLB." The depositary shares representing our Series A Preferred Stock
are also listed on the American Stock Exchange.
Common Stock
Holders of common stock are
entitled to one vote for each share held on all matters submitted to a vote of
stockholders and do not have cumulative voting rights. Accordingly, holders of a
majority of the shares of common stock entitled to vote in any election of
directors may elect all of the directors standing for election by the holders of
our common shares. Holders of common stock are entitled to receive
proportionately any dividends as may be declared by our Board of Directors,
subject to any preferential dividend rights of outstanding preferred stock. As
described above under "Price Range of the Common Stock, Dividends and
Related Stockholder Matters," we are currently prohibited from paying
dividends on our common stock.
In the event of our
liquidation, dissolution or winding up, the holders of common stock are entitled
to receive proportionately our net assets available after the payment of all
debts and other liabilities and subject to the prior rights of any outstanding
preferred stock. Holders of common stock have no preemptive, subscription,
redemption or conversion rights. Our outstanding shares of common stock are and
the shares offered by us in this offering will be, when issued and paid for,
validly issued, fully paid and nonassessable. The rights, preferences and
privileges of holders of common stock are subject to and may be adversely
affected by, the rights of the holders of the Series A Preferred Stock and the
shares of any series of preferred stock that we may designate and issue in the
future.
Preferred Stock
Series A Preferred Stock
Ranking
.  The Series A Preferred Stock ranks prior to our common stock.  Without the requisite vote of the holders of the
Series A Preferred Stock, no class or series of capital stock can be created that ranks equally with or senior to the Series A
Preferred Stock as to dividend rights or liquidation preference.
101
Dividend rights
. The
holders of the Series A Preferred Stock are entitled to receive, when, as and if
declared by our Board of Directors out of funds of the Company legally available
therefor, cumulative cash dividends at the rate of 8½% per annum per share
(equivalent to $2.125 per annum per depositary share), payable quarterly on
April 1, July 1, October 1 and January 1 in each year. In general, and subject
to the Certificate of Designation, dividends not so paid accumulate. At April 1,
2004, the accumulated dividends on our Series A Preferred Stock aggregated $15.6
million ($18.99 per depositary share). Unless full cumulative dividends on the
Series A Preferred Stock have been paid or declared in full and sums set aside
for the payment thereof, no dividends (other than dividends in common stock or
other shares of our capital stock ranking junior to the Series A Preferred Stock
as to dividends) may be paid or declared and set aside for the payment or other
distribution made upon our common stock, nor may we redeem, purchase, or
otherwise acquire for value any shares of our common stock.
Conversion rights.
Holders of the Series A Preferred Stock have the right, exercisable at any
time and from time to time, except in the case of Series A Preferred Stock
called for redemption or to be exchanged for exchange debentures, to convert all
or any such preferred stock into shares of our common stock at the conversion
ratio of 1.708 shares of common stock for each depositary share, subject to
adjustment as described below. No fractional shares of common stock will be
issued upon conversion and, if the conversion results in a fractional interest,
we will pay an amount in cash equal to the value of such fractional interest
based on the market price of our common stock on the last trading day prior to
the date of conversion. The conversion price is subject to adjustment upon the
occurrence of certain events, including (i) the issuance of shares of our common
stock as a dividend or distribution on our common stock; (ii) the subdivision or
combination of our outstanding common stock; and (iii) the issuance to
substantially all holders of our common stock of rights or warrants to subscribe
for or purchase common stock at a price per share less than the then current
market price per share, as defined in the Certificate of Designation.
Liquidation preference.
In the event of any liquidation, dissolution or winding up of our affairs,
whether voluntary or otherwise, after payment or provision for payment of our
debts and other liabilities, the holders of the Series A Preferred Stock will be
entitled to receive, out of our remaining net assets, $100.00 in cash for each
share of the Series A Preferred Stock (equivalent to $25.00 per depositary
share), plus an amount in cash equal to all dividends accumulated on each such
share up to the date fixed for distribution, before any distribution is made to
the holders of our common stock or any other shares of our capital stock ranking
(as to any such distribution) junior to the Series A Preferred Stock.
Optional redemption
.
We may redeem the Series A Preferred Stock, in whole or in part, at any time, at
the redemption price of $25.00 per depositary share plus accumulated dividends.
Exchange
.  On any dividend payment date, we may exchange the Series A Preferred Stock, in whole, for our exchange
debentures, at an exchange rate of $25.00 principal amount of exchange debentures for each depositary share.  We may only make such
exchange if there are no accumulated dividends on the depositary shares at that time.
Voting rights.
In
general, and subject to the Certificate of Designation, the holders of the
Series A Preferred Stock may vote on any matter submitted to our stockholders,
and on such matters, each share of Series A Preferred Stock is entitled to four
votes (equivalent to one vote for each depositary share). However, if we have
failed to declare and pay, or set apart for payment, in full the preferential
dividends accumulated on the outstanding Series A Preferred Stock for any six
quarterly dividend payment periods, whether or not consecutive, then the holders
of the Series A Preferred Stock have the rights with respect to the election of
directors described below. In addition, the holders of Series A Preferred Stock
have the following voting rights:
102
•
as provided under "Limitations" below,
•
if we have failed to declare and pay, or set apart for payment, in full the
preferential dividends accumulated on the outstanding Series A Preferred Stock
for any six quarterly dividend payment periods, whether or not consecutive, and
•
as required by law.
There are currently six or
more accumulated dividends on the Series A Preferred Stock, and the holders
thereof, voting separately as a class, are entitled to elect two members of the
Board of Directors until all accumulated dividends have been declared and paid
or set apart for payment. Until such time, the holders of Series A Preferred
Stock have no other rights with respect to the election of directors.
Limitations
.  In addition to any other rights provided by applicable law, so long as any shares of the Series A Preferred
Stock are outstanding, we will not, without the affirmative vote, or the written consent as provided by law, of the holders of at
least two-thirds of the outstanding shares of the Series A Preferred Stock, voting as a class:
•
authorize or issue any class or series of, or rights to subscribe to or any
security convertible into, capital stock ranking equally with or senior to the
Series A Preferred Stock as to payment of dividends, in distribution of assets
upon liquidation or voting rights; or
•
change the preferences, rights or powers with respect to the Series A Preferred
Stock so as to affect the Series A Preferred Stock adversely.
Except as may otherwise be
required by applicable law, a class vote or consent is not required (i) in
connection with any increase in the total number of authorized shares of our
common stock, or (ii) in connection with the authorization or increase of any
class or series of shares ranking, as to dividends and distribution of assets
upon liquidation, junior to the Series A Preferred Stock. No such vote or
written consent of the holders of the Series A Preferred Stock is required if,
at or prior to the time when the issuance of any such stock ranking prior to the
Series A Preferred Stock is to be made or any such change is to take effect, as
the case may be, provision is made for the redemption of all of the Series A
Preferred Stock at the time outstanding.
Preemptive rights
.
No holder of the Series A Preferred Stock has preemptive rights to subscribe for
or acquire any of our unissued shares or securities convertible into or carrying
a right to subscribe to or acquire our shares.
103
Series B Junior Participating Preferred Stock
We have designated 200,000
shares of our preferred stock as Series B Junior Participating Preferred Stock.
These shares are issuable under certain circumstances under our stockholder
rights plan, which is described in more detail below. No shares of our Series B
Junior Participating Preferred Stock are currently issued or outstanding.
Other Series of Preferred Stock
Subject to the limitations
described above, under the terms of our certificate of incorporation, our Board
of Directors is authorized to issue shares of preferred stock, in addition to
the Series A Preferred Stock, in one or more series without stockholder
approval. Our Board of Directors has the discretion to determine the rights,
preferences, privileges and restrictions, including voting rights, dividend
rights, conversion rights, redemption privileges and liquidation preferences of
each series of preferred stock.
The purpose of authorizing
our board of directors to issue preferred stock and determine its rights and
preferences is to eliminate delays associated with a stockholder vote on
specific issuances. The issuance of preferred stock, while providing flexibility
in connection with possible acquisitions, future financings and other corporate
purposes, could have the effect of making it more difficult for a third party to
acquire, or could discourage a third party from seeking to acquire, a majority
of our outstanding voting stock.
Options
At June 22, 2004, options
to purchase 950,600 shares of our common stock at a weighted average exercise
price of $9.61 were outstanding.
Antitakeover
Provisions
We are subject to
Section 203 of the General Corporation Law of the State of Delaware.
Subject to certain exceptions, Section 203 prevents a publicly held
Delaware corporation from engaging in a "business combination" with
any "interested stockholder" for three years following the date that
the person became an interested stockholder, unless the interested stockholder
attained such status with the approval of our board of directors or unless the
business combination is approved in a prescribed manner. A business combination
includes mergers, consolidations, asset sales and other transactions involving
Westmoreland and an interested stockholder. In general, an "interested
stockholder" is any entity or person beneficially owning 15% or more of our
outstanding voting stock and any entity or person affiliated with or controlling
or controlled by such entity or person. The restrictions contained in
Section 203 are currently applicable to Jeffrey L. Gendell and his
affiliates, because Mr. Gendell and his affiliates collectively own more than
15% of our outstanding voting stock.
Under our bylaws, any
vacancy in a directorship elected by the holders of the Series A Preferred
Stock, which we call a Preferred Stock Directorship, shall be filled in the
manner specified in the Certificate of Designation. If any vacancy (other than a
vacancy in a Preferred Stock Directorship) or any new directorship is created by
an increase in the authorized number of directors, that vacancy or newly created
directorship may be filled only by a majority vote of the directors (other than
the directors elected by the holders of the Series A Preferred Stock) then in
office, even if less than a quorum. This provision could make it more difficult
for a third party to acquire, or discourage a third party from seeking to
acquire, control of our company.
104
Our bylaws provide that any
action required or permitted to be taken by our stockholders at an annual
meeting or special meeting of stockholders may only be taken if it is properly
brought before such meeting. Our certificate of incorporation and our bylaws
also provide that, except as otherwise required by law, special meetings of the
stockholders can only be called by our chief executive officer or a majority of
our board of directors. In addition, our bylaws establish an advance notice
procedure for stockholder proposals to be brought before an annual meeting of
stockholders (or a special meeting in lieu of an annual meeting), including
proposed nominations of candidates for election to our board of directors.
Stockholders at an annual meeting (or a special meeting in lieu of an annual
meeting) may only consider proposals or nominations specified in the notice of
meeting or brought before the meeting by or at the direction of our board of
directors or by a stockholder who has delivered timely written notice in proper
form to our secretary of the stockholder's intention to bring such business
before the meeting and provided the information required by our bylaws. These
provisions could have the effect of delaying until the next stockholder meeting
stockholder actions that are favored by the holders of a majority of our
outstanding voting securities.
The General Corporation Law
of the State of Delaware provides generally that the affirmative vote of a
majority of the shares entitled to vote on any matter is required to amend a
corporation's certificate of incorporation or bylaws, unless a
corporation's certificate of incorporation or bylaws, as the case may be,
requires a greater percentage. Our bylaws may be amended or repealed by a
majority vote of our board of directors or by the affirmative vote of the
holders of a majority of the votes which all our stockholders would be entitled
to cast in any annual election of directors.
We currently have in effect
a stockholder rights plan, which is governed by the terms and conditions
contained in the Amended and Restated Rights Agreement, dated as of February 7,
2003, between Westmoreland and EquiServe Trust Company, N.A., as rights agent.
The following summary description of the rights agreement does not purport to be
complete and is qualified in its entirety by reference to the rights agreement,
a copy of which is filed as an exhibit to the registration statement of which
this prospectus is a part and is incorporated herein by reference.
Each share of common stock
you purchase pursuant to this offering will have associated with it one
preferred stock purchase right. Each preferred stock purchase right entitles the
holder to purchase one one-hundredth of a share of our Series B Junior
Participating Preferred Stock at an exercise price of $50.00, subject to
adjustment by our Board of Directors. Preferred stock purchase rights will only
be exercisable under limited circumstances specified in the Amended and Restated
Rights Agreement when there has been a distribution of the preferred stock
purchase rights and such rights are no longer redeemable by us.
If any person or group
acquires beneficial ownership of 20% or more of the outstanding shares of our
common stock, or 20% or more of the shares of our voting stock, or 20% or more
of all of our equity securities, the "flip-in" provision of the
Amended and Restated Rights Agreement will be triggered and the preferred stock
purchase rights will entitle a holder, other than such person, any member of
such group or any related person (as to whom such preferred stock purchase
rights will be null and void) to acquire a number of additional shares of our
common stock having a market value of twice the exercise price of each preferred
stock purchase right. If we are involved in a merger or other business
combination transaction, each preferred stock purchase right will entitle its
holder to purchase, at the right's then-current exercise price, a number of
shares of the acquiring or surviving company's common stock having a market
value at that time of twice the preferred stock purchase right's exercise
price.
105
The preferred stock
purchase rights will expire upon the tenth anniversary of the date of the
Amended and Restated Rights Agreement unless such date is extended or the
preferred stock purchase rights are earlier redeemed or exchanged by us. Until a
preferred stock purchase right is exercised, the holder of a right will have no
rights as a stockholder with respect to the shares purchasable upon exercise of
the preferred stock purchase right, including without limitation the right to
vote or to receive dividends. The provisions of the Amended and Restated Rights
Agreement, including the exercise price of the preferred stock purchase rights,
may be amended by our Board of Directors.
The preferred stock
purchase rights have certain anti-takeover effects. The preferred stock purchase
rights will cause substantial dilution to a person or group that attempts to
acquire the Company in certain circumstances. Accordingly, the existence of the
preferred stock purchase rights may deter certain acquirors from making takeover
proposals or tender offers. However, the preferred stock purchase rights are not
intended to prevent a takeover, but rather are designed to enhance the ability
of our Board of Directors to negotiate with a potential acquiror on behalf of
all of our stockholders.
One of our stockholders,
Jeffrey L. Gendell, and his affiliates collectively own approximately 18.5% of
our outstanding common stock. Because of the limitation on the exercise of the
subscription rights described above, we do not believe that Mr. Gendell and his
affiliates will collectively own 20% or more of our common stock immediately
following the sale of common stock in this offering. See "The Rights
Offering – Limitation on Exercise of the Rights."
106
UNITED
STATES FEDERAL INCOME TAX CONSEQUENCES
The following discussion is
a summary of the material United States federal income tax consequences of the
rights offering to holders of common stock. This discussion addresses only the
United States federal income tax consequences to holders of common stock that
hold their shares as capital assets and does not address all of the United
States federal income tax consequences that may be relevant to particular
holders of shares of common stock in light of their individual circumstances.
This discussion does not address the tax consequences to holders of common stock
who are subject to special rules, including, without limitation, financial
institutions, tax-exempt organizations, insurance companies, broker-dealers,
dealers in securities or foreign currencies, foreign holders, persons who hold
their shares as or in a hedge against currency risk, persons who hold their
shares as a result of a constructive sale or as part of a conversion transaction
or holders who acquired their shares of common stock pursuant to the exercise of
employee stock options or otherwise as compensation. In addition, this
discussion does not address the tax consequences to holders of common stock
under any state, local or foreign tax laws or the alternative minimum tax
provisions of the Internal Revenue Code.
This discussion is not
binding on the Internal Revenue Service or a court. It is based on the Internal
Revenue Code of 1986, as amended, laws, regulations, rulings and decisions in
effect on the date hereof, all of which are subject to change, possibly with
retroactive effect, and to varying interpretations, which could result in United
States federal income tax consequences different from those described below. As
a result, we cannot assure you that the tax consequences described in this
discussion will not be challenged by the IRS or will be sustained by a court if
challenged by the IRS. No ruling has been or will be sought from the IRS, and no
opinion of counsel has been or will be rendered, as to the United States federal
income tax consequences of the rights offering to holders of common stock.
HOLDERS OF COMMON STOCK
ARE URGED TO CONSULT THEIR OWN TAX ADVISORS AS TO THE SPECIFIC TAX CONSEQUENCES
OF THE RIGHTS OFFERING TO THEM, INCLUDING THE APPLICABLE FEDERAL, STATE, LOCAL
AND FOREIGN TAX CONSEQUENCES OF THE RIGHTS OFFERING TO THEM AND THE EFFECT OF
POSSIBLE CHANGES IN TAX LAWS.
Receipt of
Subscription Rights
A holder of common stock
will not recognize taxable income for United States federal income tax purposes
upon the receipt of subscription rights in the rights offering.
Except as provided in the
following sentence, the tax basis in the subscription rights received by a
holder of common stock in the rights offering will be zero. If either (i) the
fair market value of the subscription rights on the date the subscription rights
are distributed is equal to at least 15% of the fair market value of our common
stock on such date or (ii) the holder elects, by attaching a statement to its
federal income tax return for the taxable year in which the subscription rights
are received, to allocate part of the tax basis of the holder's common
stock to the subscription rights, then upon exercise or transfer of the
subscription rights, the holder's tax basis in the common stock will be
allocated between the common stock and the subscription rights in proportion to
their respective fair market values on the date the subscriptions rights are
distributed. The holding period for the subscriptions rights received by a
holder of common stock in the rights offering will include the holder's
holding period for the common stock with respect to which the subscriptions
rights were received.
107
Exercise of
Subscription Rights
A holder of common stock
will not recognize any gain or loss upon the exercise of subscription rights
received in the rights offering. The tax basis of the common stock acquired
through exercise of the subscription rights will equal the sum of the
subscription price for the common stock and the holder's tax basis, if any,
in the subscription rights as described above. The holding period for the common
stock acquired through exercise of the subscription rights will begin on the
date the subscriptions rights are exercised.
Expiration of
Subscription Rights
A holder that allows the
subscription rights received in the rights offering to expire will not recognize
any gain or loss, and no portion of the tax basis of the common stock owned by
such holder with respect to which such subscription rights were received will be
allocated to the unexercised subscription rights.
108
PLAN OF
DISTRIBUTION
We intend to distribute
rights certificates and copies of this prospectus to those persons who were
holders of our common stock on ______________, 2004, the record date for this
offering, promptly following the effective date of the registration statement of
which this prospectus forms a part.
Certain of our employees,
officers or directors may solicit responses from you to the rights offering, but
such individuals will not receive any commissions or compensation for such
services other than their normal employment compensation.
We have not engaged any
financial advisor for solicitation of the exercise of rights or to provide
advice to our Board of Directors regarding terms, structure or timing of the
rights offering. We have not agreed to enter into any standby or other
arrangements to purchase any rights or any shares of common stock except as
otherwise disclosed in this prospectus. In addition, we have not entered into
any agreements regarding stabilization activities with respect to our
securities.
We have agreed to pay the
subscription agent a fee plus certain expenses, which we estimate will total
approximately $_____________. We estimate that our total expenses in connection
with the rights offering will be approximately $_____________.
LEGAL MATTERS
Certain  legal  matters with respect to the validity of the issuance of the shares of common stock offered by this
prospectus will be passed upon for us by W. Michael Lepchitz, Esq., Vice President, General Counsel and Secretary of Westmoreland.
As of April 30, 2004, Mr. Lepchitz held 25,083 shares of our common stock and options to acquire 52,637 shares of our common stock.
Mr. Lepchitz also has an interest in 1,470 shares of our common stock held by our 401(k) plan.
EXPERTS
Our consolidated financial
statements as of December 31, 2003 and 2002 and for each of the years in the
three year period ended December 31, 2003 have been included herein and in the
Registration Statement on Form S-1 in reliance upon the report of KPMG LLP,
independent accountants, appearing elsewhere herein and upon the authority of
said firm as experts in accounting and auditing.
The information appearing
in this prospectus concerning estimates of the Absaloka Mine's coal
reserves made by IntraSearch Inc., independent consulting geologists, has been
included herein upon the authority of that firm as experts.
109
WHERE YOU
CAN FIND MORE INFORMATION
We are subject to the
informational requirements of the Securities Exchange Act of 1934. Accordingly,
we file reports, proxy statements and other information with the SEC. You may
read and copy any materials that we file with the SEC at the SEC's Public
Reference Room at 450 Fifth Street, N.W., Washington, D.C. 20549 upon payment of
the prescribed fees. You may obtain information on the operation of the Public
Reference Room by calling the SEC at 1-800-SEC-0330. The SEC also maintains an
Internet site that contains reports, proxy information statements and other
materials that are filed through the SEC's Electronic Data Gathering,
Analysis, and Retrieval, or EDGAR, system. You can access this web site at
http://www.sec.gov.
We have filed a
registration statement on Form S-1 with the SEC with respect to this rights
offering. This prospectus is a part of the registration statement, but does not
contain all of the information included in the registration statement. You may
wish to inspect the registration statement and the exhibit to that registration
statement for further information with respect to us and the securities offered
in this prospectus. Copies of the registration statement and the exhibit to such
registration statement are on file at the offices of the SEC and may be obtained
upon payment of the prescribed fee or may be examined without charge at the
public reference facilities of the SEC described above. Statements contained in
this prospectus concerning the provisions of documents are necessarily summaries
of the material provisions of such documents, and each statement is qualified in
our entirety by reference to the copy of the applicable document filed with the
SEC.
110
ITEM 8 -
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Index to Financial
Statements
Page
Report of Independent
Auditor
F-2
Consolidated Balance
Sheets
F-3
Consolidated Statements of
Operations
F-5
Consolidated Statements of Shareholders' Equity and Comprehensive Income
F-7
Consolidated Statements of Cash
Flows
F-9
Summary of Significant Accounting
Policies
F-11
Notes to Consolidated Financial
Statements
F-17
F-1
Independent
Auditor's Report
The Board of Directors and Shareholders
Westmoreland Coal Company:
We have audited the
accompanying consolidated balance sheets of Westmoreland Coal Company and
subsidiaries as of December 31, 2003 and 2002, and the related consolidated
statements of operations, shareholders' equity and comprehensive income and
cash flows for each of the years in the three-year period ended December 31,
2003. These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in
accordance with auditing standards generally accepted in the United States of
America. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the
consolidated financial statements referred to above present fairly, in all
material respects, the financial position of Westmoreland Coal Company and
subsidiaries at December 31, 2003 and 2002, and the results of their operations
and their cash flows for each of the years in the three-year period ended
December 31, 2003, in conformity with accounting principles generally accepted
in the United States of America.
As discussed in the Summary
of Significant Accounting Policies to the Consolidated Financial Statements, the
Company adopted Statement of Financial Accounting Standards No. 143,
Accounting for Asset Retirement Obligations
, as of January 1, 2003.
KPMG LLP
Denver, Colorado
February 20, 2004, except as to Notes 5 and 9,
which are as of March 8, 2004
F-2
Westmoreland
Coal Company and Subsidiaries
Consolidated Balance
Sheets
March 31,
2004
(unaudited)
December 31,
2003
December 31,
2002
(in thousands)
Assets
Current assets:
Cash and cash equivalents
$
24,272
$
9,267
$
9,845
Receivables:
Trade
27,324
24,414
20,962
Other
3,511
4,465
7,249
30,835
28,879
28,211
Inventories
14,125
14,289
14,018
Deferred overburden removal costs
10,625
9,559
5,741
Restricted cash
9,274
8,751
8,497
Deferred income taxes
13,274
12,921
15,831
Other current assets
4,887
4,468
6,765
Total current assets
107,292
88,134
88,908
Property, plant and equipment:
Land and mineral rights
20,805
20,740
53,314
Capitalized asset retirement costs
104,036
104,036
-
Plant and equipment
95,734
93,880
197,759
220,575
218,656
251,073
Less accumulated depreciation and depletion
70,901
67,307
61,541
Net property, plant and equipment
149,674
151,349
189,532
Deferred income taxes
63,679
62,866
49,253
Investment in independent power projects
40,820
38,487
33,407
Excess of trust assets over pneumoconiosis benefit
obligation
6,267
6,234
7,665
Restricted cash and bond collateral
17,598
16,218
8,790
Advance coal royalties
3,820
4,013
4,639
Deferred overburden removal costs
3,274
3,095
4,607
Reclamation deposits
53,495
52,786
49,484
Contractual third party reclamation obligations
23,500
23,065
23,235
Other assets
12,769
11,590
12,437
Total Assets
$
482,188
$
457,837
$
471,957
See accompanying Summary of Significant Accounting Policies and Notes to Consolidated Financial Statements.
(Continued)
F-3
Westmoreland
Coal Company and Subsidiaries
Consolidated Balance
Sheets (Continued)
March 31,
2004
(unaudited)
December 31,
2003
December 31,
2002
(in thousands)
Liabilities and Shareholders' Equity
Current liabilities:
Current installments of long-term debt
$
11,595
$
11,595
$
8,852
Accounts payable and accrued expenses:
Trade
26,161
26,559
27,070
Income taxes
146
-
594
Production taxes
17,855
16,127
14,273
Workers' compensation
2,052
2,016
2,335
Postretirement medical costs
19,080
20,275
12,787
1974 UMWA Pension Plan obligations
-
250
1,473
Reclamation costs
5,544
5,757
11,381
Total current liabilities
82,433
82,579
78,765
Long-term debt, less current installments
99,043
81,874
91,305
Workers' compensation, less current portion
6,933
7,462
8,405
Postretirement medical costs, less current
portion
111,699
110,493
104,336
Pension and SERP costs
10,167
9,008
4,341
1974 UMWA Pension Plan obligations, less current
portion
-
-
6,562
Asset retirement obligations, less current portion
119,632
117,586
148,410
Other liabilities
11,298
11,269
6,732
Minority interest
4,578
4,296
4,533
Commitments and contingent liabilities
Shareholders' equity
Preferred stock of $1.00 par value
Authorized 5,000,000 shares;
Issued and outstanding 205,083 shares at
December 31, 2003 and 206,833 shares at
December 31, 2002
205
205
207
Common stock of $2.50 par value
Authorized 20,000,000 shares;
Issued and outstanding 8,023,384 at
March 31, 2004, 7,957,166 shares at
December 31, 2003 and 7,711,379 shares
at December 31, 2002
20,059
19,893
19,278
Other paid-in capital
73,420
72,825
70,908
Accumulated other comprehensive loss
(4,946)
(4,948)
(5,101)
Accumulated deficit
(52,333)
(54,705)
(66,724)
Total shareholders' equity
36,405
33,270
18,568
Total Liabilities and Shareholders' Equity
$
482,188
$
457,837
$
471,957
See accompanying Summary of Significant Accounting Policies and Notes to Consolidated Financial Statements.
F-4
Westmoreland
Coal Company and Subsidiaries
Consolidated Statements
of Operations
Three Months ended March 31,
Year ended December 31,
2004
2003
2003
2002
2001
(unaudited)
(in thousands except per share data)
Revenues:
Coal
$
77,132
$
74,513
$
294,986
$
301,235
$
231,048
Independent power projects - equity in
earnings
5,405
3,771
15,824
14,506
15,871
82,537
78,284
310,810
315,741
246,919
Cost and expenses:
Cost of sales - coal
60,203
58,190
228,433
226,707
177,304
Depreciation, depletion and amortization
3,820
2,956
12,599
11,539
9,165
Selling and administrative
7,723
7,112
33,386
31,732
22,625
Heritage health benefit costs
7,206
7,517
29,922
26,921
23,773
Loss on sales of assets
(19)
-
(645)
9
440
78,933
75,775
303,695
296,908
233,307
Operating income from continuing operations
3,604
2,509
7,115
18,833
13,612
Other income (expense):
Interest expense
(2,486)
(2,539)
(10,114)
(10,821)
(8,418)
Interest income
944
539
1,952
2,117
2,657
Minority interest
(282)
(111)
(773)
(800)
(780)
Other income (expense)
(119)
207
1,169
2,011
572
(1,943)
(1,904)
(7,766)
(7,493)
(5,969)
Income
(loss) from continuing operations
before income taxes and cumulative
effect of
change in accounting principle
1,661
605
(651)
11,340
7,643
Income tax benefit (expense) from
continuing operations
875
910
10,971
2,368
(1,228)
Net income from continuing operations
before cumulative effect of change in
accounting
 principle
2,536
1,515
10,320
13,708
6,415
Discontinued operations:
Loss from operations of discontinued
terminal segment (including
impairment charge in 2002
of
      $3,712)
-
(306)
(988)
(5,971)
(1,980)
Gain on sale of discontinued terminal
segment
-
-
4,509
-
-
Income tax benefit (expense)
-
122
(1,408)
2,388
792
Income (loss) from discontinued
operations
-
(184)
2,113
(3,583)
(1,188)
Net income before cumulative effect of
change in accounting principle
2,536
1,331
12,433
10,125
5,227
Cumulative effect of change in accounting
principle, net of income tax expense
of $108
-
161
161
-
-
Net income
2,536
1,492
12,594
10,125
5,227
(Continued)
F-5
Westmoreland
Coal Company and Subsidiaries
Consolidated Statements
of Operations (Continued)
Three Months ended March 31,
Year ended December 31,
2004
2003
2003
2002
2001
(unaudited)
(in thousands except per share data)
Less preferred stock dividend requirements
436
440
1,752
1,772
1,776
Net income applicable to common
shareholders
$
2,100
$
1,052
$
10,842
$
8,353
$
3,451
Net income per share applicable to
common shareholders:
Basic
$
.26
$
.12
$
1.37
$
1.10
$
0.48
Diluted
$
.25
$
.11
$
1.28
$
1.03
$
0.43
Net income per share applicable to common
shareholders from cumulative effect of
change in accounting principle:
Basic and diluted
$
-
$
.02
$
.02
$
-
$
-
Net
income per share applicable to
common shareholders:
Basic
$
.26
$
.14
$
1.39
$
1.10
$
0.48
Diluted
$
.25
$
.13
$
1.30
$
1.03
$
0.43
Pro forma
amounts assuming the change in
accounting principle is applied retroactively:
Net income applicable to common
shareholders
$
891
$
10,681
$
8,200
$
3,367
Net income per share applicable to
common shareholders:
Basic
$
.12
$
1.37
$
1.08
$
0.47
Diluted
$
.11
$
1.28
$
1.01
$
0.42
Weighted average number of common
shares outstanding - basic
8,009
7,728
7,799
7,608
7,239
Weighted average number of common
shares outstanding - diluted
8,503
8,223
8,338
8,147
8,000
See accompanying Summary of Significant Accounting Policies and Notes to Consolidated Financial Statements.
F-6
Westmoreland
Coal Company and Subsidiaries
Consolidated Statements
of Shareholders' Equity
and
Comprehensive Income
Years Ended
December 31, 2001, 2002, 2003 and
Three Months Ended March 31, 2004
Class A Convertible Exchangeable Preferred Stock
Common Stock
Other Paid-In Capital
Accumulated Other Comprehensive Loss
Accumulated Deficit
Total Shareholders' Equity
(in thousands)
Balance at December 31, 2000
(208,708 preferred shares and
7,069,663 common shares
outstanding)
$ 209
$ 17,674
$ 67,318
$           -
$ (81,828)
$ 3,373
Common stock issued as
compensation (74,108 shares)
-
185
865
-
-
1,050
Common stock options exercised
(371,450 shares)
-
928
551
-
-
1,479
Tax benefit of stock option
exercises
-
-
989
-
-
989
Net income
-
-
-
-
5,227
5,227
Net unrealized change in interest
rate swap agreement, net of
tax benefit of $1,135
-
-
-
(1,703)
-
(1,703)
Comprehensive income
3,524
Balance at December 31, 2001
(208,708 preferred shares and
7,515,221 common shares
outstanding)
209
18,787
69,723
(1,703)
(76,601)
10,415
Common stock issued as
compensation (118,258 shares)
-
296
1,128
-
-
1,424
Common stock options exercised
(77,900 shares)
-
195
139
-
-
334
Repurchase and retirement of
preferred shares (1,875 shares)
(2)
-
(242)
-
-
(244)
Dividends declared
-
-
-
-
(248)
(248)
Tax benefit of stock option
exercises
-
-
160
-
-
160
Net income
-
-
-
-
10,125
10,125
Minimum pension liability, net of
tax benefit of $2,207
-
-
-
(3,310)
-
(3,310)
Net unrealized change in interest
rate swap agreement, net of
tax benefit of $59
-
-
-
(88)
-
(88)
Comprehensive income
6,727
Balance at December 31, 2002
(206,833 preferred shares and
7,711,379 common shares
outstanding)
207
19,278
70,908
(5,101)
(66,724)
18,568
(Continued)
F-7
Westmoreland
Coal Company and Subsidiaries
Consolidated Statements
of Shareholders' Equity
and
Comprehensive Income
Years Ended
December 31, 2001, 2002, 2003 and
Three Months Ended March 31, 2004 (Continued)
Class A Convertible Exchangeable Preferred Stock
Common Stock
Other Paid-In Capital
Accumulated Other Comprehensive Loss
Accumulated Deficit
Total Shareholders' Equity
(in thousands)
Common stock issued as
compensation (131,087 shares)
-
327
1,524
-
-
1,851
Common stock options exercised
(114,700 shares)
-
288
120
-
-
408
Repurchase and retirement of
preferred shares  (1,750 shares)
(2)
-
(211)
-
-
(213)
Dividends declared
-
-
-
-
(575)
(575)
Tax benefit of stock option
exercises
-
-
484
-
-
484
Net income
-
-
-
-
12,594
12,594
Minimum pension liability, net of
taxes of $488
-
-
-
(732)
-
(732)
Net unrealized change in interest
rate swap agreement, net of
taxes of $590
-
-
-
885
-
885
Comprehensive income
12,747
Balance at December 31, 2003
(205,083 preferred shares and
7,957,166 common shares
outstanding)
$ 205
$ 19,893
$ 72,825
$ (4,948)
$ (54,705)
$ 33,270
Common stock issued as
compensation (19,518 shares)
(unaudited)
-
49
288
-
-
337
Common stock options exercised
(46,700 shares) (unaudited)
-
117
176
-
-
293
Dividends declared (unaudited)
-
-
-
-
(164)
(164)
Tax benefit of stock option
exercises (unaudited)
-
-
131
-
-
131
Net income (unaudited)
-
-
-
-
2,536
2,536
Net unrealized change in interest
rate swap agreement, net of
tax expense of $1 (unaudited)
-
-
-
2
-
2
Comprehensive income
(unaudited)
2,538
Balance at March 31, 2004
(205,083 preferred shares and
8,023,384 common shares
outstanding)(unaudited)
$ 205
$ 20,059
$ 73,420
$ (4,946)
$ (52,333)
$ 36,405
See accompanying Summary of Significant Accounting Policies and Notes to Consolidated Financial Statements.
F-8
Westmoreland Coal
Company and Subsidiaries
Consolidated Statements
of Cash Flows
Three Months Ended March 31,
Year Ended December 31,
2004
2003
2003
2002
2001
(unaudited)
(in thousands)
Cash
flows from operating activities:
Net income
$
2,536
$
1,492
$
12,594
$
10,125
$
5,227
Adjustments to reconcile net income to net cash
provided by operating activities:
Equity in earnings of independent power projects
(5,405)
(3,771)
(15,824)
(14,506)
(15,871)
Cash distributions from independent power projects
3,074
5,582
11,629
9,718
18,426
Deferred income tax benefit
(1,035)
(1,304)
(9,731)
(5,656)
(472)
Depreciation, depletion and amortization
3,820
2,956
12,599
11,539
9,165
Stock compensation expense
337
329
1,851
1,424
1,050
Impairment charges
-
-
-
3,712
-
Losses (gain) on sales of assets
(19)
-
(5,154)
9
440
Minority interest
282
111
773
800
780
Cumulative effect of change in accounting principle
-
(269)
(269)
-
-
Other
-
-
-
263
352
Changes in assets and liabilities:
Receivables, net
(1,956)
(350)
(668)
15,273
(5,429)
Inventories
164
(676)
(271)
(270)
(456)
Excess of trust assets over pneumoconiosis
benefit obligation
(33)
854
1,431
(680)
(178)
Accounts payable and accrued expenses
1,330
1,417
1,343
(369)
13,049
Income taxes payable
146
632
(594)
537
57
Accrual for workers' compensation
(493)
(556)
(1,262)
(2,301)
(2,295)
Accrual for postretirement medical costs
11
1,815
13,645
6,030
4,728
1974 UMWA Pension Plan
(250)
(349)
(7,785)
(1,374)
(1,279)
Other assets and liabilities
1,430
(217)
10,447
(1,840)
1,141
Net cash provided by operating activities
3,939
7,696
24,754
32,434
28,435
Cash flows from investing activities:
Additions to property, plant and equipment
(2,094)
(2,357)
(13,240)
(7,323)
(5,433)
Cash paid for acquisitions
-
-
-
-
(162,700)
Reimbursement from mine operator
-
-
-
3,600
-
Change in restricted cash and bond collateral
(2,612)
(1,754)
(10,984)
(424)
794
Net proceeds from sales of investments
and assets
126
-
6,970
476
16,014
Net cash used in investing activities
(4,580)
(4,111)
(17,254)
(3,671)
(151,325)
Cash flows from financing activities:
Proceeds from long-term debt, net of debt
issuance costs
18,723
850
9,373
-
114,604
Repayment of long-term debt
(2,706)
(1,950)
(14,561)
(13,753)
(12,053)
Net borrowings (repayments) of revolving lines of
credit, net
(500)
(2,000)
(1,500)
(9,000)
11,000
Repurchase of preferred shares
-
(213)
(213)
(244)
-
Dividends paid to minority shareholders of subsidiary
-
-
(1,010)
(1,240)
(1,100)
Exercise of stock options
293
-
408
334
1,479
Dividends on preferred shares
(164)
(124)
(575)
(248)
-
Net cash provided by (used in) financing activities
15,646
(3,437)
(8,078)
(24,151)
113,930
Net increase (decrease) in cash and cash equivalents
15,005
148
(578)
4,612
(8,960)
Cash and cash equivalents, beginning of period
9,267
9,845
9,845
5,233
14,193
Cash and cash equivalents, end of period
$
24,272
$
9,993
$
9,267
$
9,845
$
5,233
(Continued)
F-9
Westmoreland Coal
Company and Subsidiaries
Consolidated Statements
of Cash Flows (Continued)
Three Months Ended March 31,
Year Ended December 31,
2004
2003
2003
2002
2001
(unaudited)
(in thousands)
Supplemental disclosures of cash flow information
:
Cash paid during the year for:
Interest
$
2,321
$
2,309
$
9,814
$
10,176
$
8,340
Income taxes
$
13
$
(254)
$
737
$
886
$
1,209
See accompanying Summary of Significant Accounting Policies and Notes to Consolidated Financial Statements.
F-10
Westmoreland
Coal Company and Subsidiaries
Summary of Significant Accounting Policies
(Amounts presented
relating to March 31, 2004 and the three months ended March 31, 2004 and 2003
are unaudited)
Consolidation
Policy
The consolidated financial
statements of Westmoreland Coal Company (the "Company") include the
accounts of the Company and its majority-owned subsidiaries, after elimination
of intercompany balances and transactions. The Company uses the equity method of
accounting for companies where its ownership is between 20% and 50% and for
partnerships and joint ventures in which less than a controlling interest is
held.
Use of
Estimates
The preparation of financial
statements in conformity with accounting principles generally accepted in the
United States of America requires management to make estimates and assumptions
that affect the reported amounts of assets, liabilities, revenues and expenses
and the disclosure of contingent assets and liabilities. Actual results could
differ from those estimates.
Cash
Equivalents
The Company considers all
highly liquid debt instruments purchased with original maturities of three
months or less to be cash equivalents. All such instruments are carried at cost,
which approximates market. Cash equivalents consist of Eurodollar time deposits,
money market funds and bank repurchase agreements.
Inventories
Inventories, which include
materials and supplies as well as raw coal, are stated at the lower of cost or
market. Cost is determined using the average cost method.
Property,
Plant and Equipment
Property, plant and
equipment are carried at cost and include expenditures for new facilities and
those expenditures that substantially increase the productive lives of existing
plant and equipment. Maintenance and repair costs are expensed as incurred.
Mineral rights and development costs are depleted based upon estimated
recoverable proven and probable reserves. Plant and equipment are depreciated on
a units-of-production or straight-line basis over the assets' estimated
useful lives, ranging from 3 to 40 years. The Company assesses the carrying
value of its property, plant and equipment for impairment whenever events or
changes in circumstances indicate that the carrying amount of an asset may not
be recoverable. Recoverability is measured by comparing estimated undiscounted
cash flows expected to be generated from such assets with their net book value.
If net book value exceeds estimated cash flows, the asset is written down to
fair value. When an asset is retired or sold, its cost and related accumulated
depreciation and depletion are removed from the accounts. The difference between
the net book value of the asset and proceeds on disposition is recorded as a
gain or loss. Fully depreciated plant and equipment still in use are not
eliminated from the accounts.
F-11
Advanced Coal
Royalties
Royalty payments made to
lessors under terms of mineral lease agreements that are recoupable against
future production are deferred. They are charged to expense as the leased coal
reserves are mined.
Deferred
Overburden Removal Costs
The cost of removing overburden
in advance of coal extraction, net of amounts reimbursed by customers, is
deferred and charged to expense when the coal is produced.
Until June 30, 2002, the
Company was reimbursed for all operating expenses at the Jewett Mine on a
current basis under the cost-plus-fees contract with its customer. Beginning
July 1, 2002, the contract changed to a market-based, fixed price per ton
arrangement. At that date, in compliance with its accounting policy, the Company
began deferring the cost of overburden removal in advance of coal extraction
until such time that the underlying coal is produced and sold. The amount to be
deferred was originally based on the number of tons of exposed coal in the
active pits at each period end. In order to better estimate deferred stripping
expenses and achieve a proper matching of expenses with the revenues from tons
sold, a change in the engineering estimates was made in 2003 to measure
overburden removed above all in-pit tons, not just exposed tons. The impact of
this change was an increase of $2.4 million in deferred overburden removal
costs. Prior to 2003, the measurement of overburden removed above in-pit tons
was not available. Therefore, the potential impact, if any, on prior periods is
not determinable. The change has been reflected as a change in estimate during
2003.
Workers'
Compensation and Pneumoconiosis Benefit Obligations
The Company is self-insured
for workers' compensation claims incurred prior to 1996 and federal and
state pneumoconiosis benefits for current and former employees. Workers'
compensation claims incurred after January 1, 1996 are covered by a third party
insurance provider.
The liability for
workers' compensation claims is an actuarially determined estimate of the
ultimate losses incurred on such claims based on the Company's experience,
and includes a provision for incurred but not reported losses. Adjustments to
the probable ultimate liability are made continually based on subsequent
developments and experience and are included in operations as incurred.
Reclamation
Deposits and Receivables
Certain of the
Company's customers have either agreed to reimburse the Company for
reclamation expenditures as they are incurred or have pre-funded a portion of
the expected reclamation costs. These funds will serve as sources for use in
final reclamation activities. The total reclamation deposit of $52.8 million at
December 31, 2003 consists of $11.7 million of cash and cash equivalents and
$41.1 million of Federal agency bonds. The Company has the intent and ability to
hold these securities to maturity, and, therefore, accounts for them as
held-to-maturity securities. Held-to-maturity securities are recorded at
amortized cost, adjusted for the amortization or accretion of premiums or
discounts calculated on the effective interest method. Interest income is
recognized when earned. In addition, the Company has recognized $23.1 million as
contractual third party reclamation obligations, representing the present value
of obligations of certain customers and a contract miner.
F-12
The amortized cost, gross
unrealized holding losses and fair value of held-to-maturity securities at
December 31, 2003 are as follows (in thousands):
Amortized cost
$
41,091
Gross unrealized holding gains
64
Gross unrealized holding losses
(854)
Fair value
$
40,301
Maturities of
held-to-maturity securities are as follows at December 31, 2003 (in thousands):
Amortized Cost
Fair Value
Due in five years or less
$
17,580
$
17,482
Due after five years to ten years
15,847
15,369
Due in more than ten years
7,664
7,450
$
41,091
$
40,301
Post
Retirement Benefits Other than Pensions
The Company accounts for
health care and life insurance benefits provided for current and certain retired
employees and their dependents by accruing the cost of such benefits over the
service lives of employees. The Company is amortizing its transition obligation,
for past service costs relating to these benefits, over twenty years.
Unrecognized actuarial gains and losses are amortized over the estimated average
remaining service period for active employee plans and over the estimated
average remaining life for retiree plans. For UMWA represented union employees
who retired prior to 1976, the Company provides similar medical and life
insurance benefits by making payments to a multiemployer union trust fund. The
Company expenses such payments when they become due.
Coal Revenues
The Company recognizes coal
sales revenue at the time title passes to the customer in accordance with the
terms of the underlying sales agreements.
Reclamation
On
January 1, 2003, the Company adopted Statement of Financial Accounting Standards
No. 143,
Accounting for Asset Retirement Obligations
("SFAS No.
143"), a required new method of accounting for mine reclamation costs.
Prior to the adoption of SFAS No. 143, reclamation costs were accrued on an
undiscounted, units-of-production basis. SFAS No. 143 requires entities to
record the fair value of asset retirement obligations using the present value of
projected future cash flows, with an equivalent amount recorded as basis in the
related long-lived asset. An accretion cost, representing the increase over time
in the present value of the liability, is recorded each period and the
capitalized cost is depreciated over the useful life of the related asset. As
reclamation work is performed or liabilities are otherwise settled, the recorded
amount of the liability is reduced.
F-13
Changes in the
Company's asset retirement obligations from January 1, 2003 to March 31,
2004 (in thousands) were:
Asset retirement obligation - January 1, 2003
$
115,033
Accretion
7,815
Settlements (final reclamation performed)
(3,109)
Gains on settlements
(265)
Changes due to amount and timing of reclamation
activities
3,869
Asset retirement obligation - December 31, 2003
$
123,343
Accretion (unaudited)
2,088
Settlements (unaudited)
(255)
Asset retirement obligation - March 31, 2004 (unaudited)
$
125,176
As a result of the adoption
of SFAS No. 143, in the first quarter of 2003 the Company recorded a gain of
$161,000, net of tax expense of $108,000, for the cumulative effect of the
change in accounting principle. The Company also reduced its recorded liability
for mine reclamation from $159 million to $115 million as of January 1, 2003 and
reduced the net book value of its property, plant and equipment from $189
million to $145 million on its Consolidated Balance Sheets as a result of the
change from undiscounted to present values.
Income Taxes
The Company accounts for
deferred income taxes using the asset and liability method. Deferred tax
liabilities and assets are recognized for the expected future tax consequences
of events that have been reflected in the Company's financial statements
based on the difference between the financial statement carrying amounts and tax
bases of assets and liabilities, as well as operating loss and tax credit
carryforwards, using enacted tax rates in effect in the years in which the
differences are expected to reverse.
Comprehensive
Income
The Company is party to an
interest rate swap agreement on the long-term debt at the Roanoke Valley I
independent power project through a subsidiary which is accounted for under the
equity method of accounting. In accordance with generally accepted accounting
principles, the Company has reflected the difference between its 50% share of
the fair value of this interest rate swap agreement and its carrying value as a
separate component of shareholders' equity. The swap agreement exchanged
variable interest rates on debt for a fixed rate. Because market interest rates
have declined below those provided for in the swap agreement, the fair value of
the swap agreement has decreased. The change in current interest rates, net of
income tax impacts, is a component of the Company's total comprehensive
income. If interest rates remain at their current levels, the Company will
recognize its share of the loss in future periods as a reduction in equity in
earnings of independent power projects.
During 2003 and 2002, the
Company recognized an additional minimum pension liability as a result of the
accumulated pension benefit obligation exceeding the fair value of pension plan
assets at these dates. This additional minimum liability, net of income tax
effect, is shown as a separate component of shareholders' equity.
F-14
Incentive
Stock Options
The Company applies the
intrinsic-value-based method of accounting prescribed by Accounting Principles
Board ("APB") Opinion No. 25,
Accounting for Stock Issued to
Employees,
and related interpretations, to account for its stock options.
Under this method, compensation expense is recorded on the date of grant only if
the current market price of the underlying stock exceeded the exercise price.
SFAS No. 123,
Accounting for Stock-Based Compensation,
established
accounting and disclosure requirements using a fair-value-based method of
accounting for stock-based employee compensation plans. As allowed under SFAS
No. 123, the Company has elected to continue to apply the intrinsic-value-based
method of accounting described above, and has adopted only the disclosure
requirements of SFAS No. 123. The following table illustrates the effect on net
income and net income per share as if the compensation cost for the
Company's stock options had been determined based on the fair value at the
grant dates consistent with SFAS No. 123:
Three Months Ended
March 31,
Year Ended
December 31,
2004
2003
2003
2002
2001
(unaudited)
(in thousands, except per share data)
Net income (loss) applicable to
common shareholders:
As reported
$
2,100
$
1,052
$
10,842
$
8,353
$
3,451
Pro forma
$
1,880
$
883
$
10,067
$
6,698
$
1,986
Income (loss) per share applicable to
common shareholders:
As reported, basic
$
.26
$
.14
$
1.39
$
1.10
$
.48
Pro forma, basic
$
.23
$
.11
$
1.29
$
.88
$
.27
As reported, diluted
$
.25
$
.13
$
1.30
$
1.03
$
.43
Pro forma, diluted
$
.22
$
.11
$
1.21
$
.82
$
.25
The fair value of each
option grant was estimated on the date of grant using the Black-Scholes
option-pricing model with the following weighted average assumptions used for
options granted in 2003, 2002 and 2001. The weighted average fair value of
options granted in 2003, 2002 and 2001 was $11.88, $13.92 and $17.58,
respectively.
Options Granted
Dividend Yield
Volatility
Risk-Free Rate
Expected Life
2003
None
100%
4.17%
10 years
2002
None
229%
5.04%
10 years
2001
None
272%
5.14%
10 years
Earnings Per
Share
Basic earnings per share is
computed by dividing net income available to common shareholders by the weighted
average number of common shares outstanding during the period. Diluted earnings
per share are determined on the same basis except that the weighted average
shares outstanding are increased to include additional shares for the assumed
exercise of stock options, if dilutive. The number of additional shares is
calculated by assuming that outstanding stock options were exercised and that
the proceeds from such exercises were used to acquire shares of common stock at
the average market price during the reporting period.
F-15
The following table
provides a reconciliation of the number of shares used to calculate basic and
diluted earnings per share (EPS):
Three Months Ended
March 31,
Year Ended
December 31,
2004
2003
2003
2002
2001
(unaudited)
(in thousands of shares)
Weighted average number of common shares outstanding:
Basic
8,009
7,728
7,799
7,608
7,239
Effect of dilutive instruments
494
495
539
539
761
Diluted
8,503
8,223
8,338
8,147
8,000
Number of shares not
included in dilutive EPS that would have been antidilutive because the exercise
or conversion price was greater than the average market price of the common
shares.
275
319
374
309
113
NEW ACCOUNTING
PRONOUNCEMENTS
In December 2003, the FASB issued
FASB Interpretation No. 46 (revised December 2003),
Consolidated of Variable
Interest Entities ("FIN 46R"),
which addresses how a business
enterprise should evaluate whether it has a controlling financial interest in an
entity through means other than voting rights and accordingly should consolidate
the entity. FIN 46R replaces FASB Interpretation No. 46,
Consolidation of
Variable Interest Entities,
which was issued in January 2003, The Company
does not have interests in any variable interest entities and, therefore, will
not be impacted by FIN 46R.
FASB Statement No. 150,
Accounting for Certain Financial Instruments with Characteristics of both
Liabilities and Equity,
was issued in May 2003. This statement establishes
standards for the classification and measurement of certain financial
instruments with characteristics of both liabilities and equity. The statement
also includes required disclosures for financial instruments within its scope.
For the Company, the statement was effective for instruments entered into or
modified after May 31, 2003 and otherwise will be effective as of January 1,
2004, except for mandatorily redeemable financial instruments. For certain
mandatorily redeemable financial instruments, the statement will be effective
for the Company of January 1, 2005. The effective date has been deferred
indefinitely for certain other types of mandatorily redeemable financial
instruments. The Company currently does not have any financial instruments that
are within the scope of this statement.
F-16
Westmoreland
Coal Company and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2003,
2002 and 2001
(Amounts presented
relating to March 31, 2004 and the three months ended March 31, 2004 and 2003
are unaudited)
1.    NATURE OF
OPERATIONS
The Company's current
principal activities, all conducted within the United States, are: (i) the
production and sale of coal from surface mines in Montana, North Dakota and
Texas; and (ii) the development, ownership and management of interests in
cogeneration and other non-regulated independent power plants. Prior to the sale
of the Company's interest in Dominion Terminal Associates
("DTA"), which was effective as of June 30, 2003, the Company was also
engaged in the leasing of capacity at that coal storage and vessel loading
facility. As described in Note 4, the Company's share of DTA's
activities has been classified as discontinued operations in the Consolidated
Statements of Operations.
2.    ACQUISITIONS
On April 30, 2001 and May
11, 2001, respectively, the Company, through its wholly owned subsidiary
Westmoreland Mining LLC ("WML"), completed the acquisitions of the
coal business of Entech, Inc. ("Entech"), a wholly-owned subsidiary of
the Montana Power Company ("Montana Power") for approximately
$136 million, and the coal operations of Knife River Corporation
("Knife River") for approximately $27 million. The acquisitions were
effective April 30, 2001. WML is a special purpose Delaware limited
liability company formed on December 4, 2000 for the purpose of facilitating the
financing of these acquisitions and operating the Rosebud, Jewett, Beulah and
Savage mines. The results of operations relating to the acquisitions have been
included in the Company's consolidated financial statements beginning on
May 1, 2001.
In the Entech, transaction,
WML acquired the stock of Western Energy Company ("WECO"), which owns
and operates the Rosebud Mine located in the Northern Powder River Basin, and
Northwestern Resources Co. ("NWR"), which owns and operates the Jewett
Mine in central Texas. In addition, the Company acquired the stock of three
entities that were not engaged in active operations: Basin Resources, Inc.;
Horizon Coal Services, Inc. ("Horizon"); and North Central Energy
Company.
The final purchase price
for the acquisition of Entech's coal business is subject to adjustment
pursuant to the terms of the Stock Purchase Agreement dated as of September 15,
2000 (the "Purchase Agreement") between the Company and Entech. See
further discussion of the status of the purchase price adjustment in Note 14.
The acquisitions were
funded with $39 million in cash and borrowings of $125 million ($120 million
term debt and $5 million revolving line of credit) by WML as described in Note
5.
3.    WESTMORELAND ENERGY, LLC
Westmoreland Energy, LLC
("WELLC"), a wholly owned subsidiary of the Company, holds general and
limited partner interests in partnerships which were formed to develop and own
cogeneration and other non-regulated independent power plants. Equity interests
in these partnerships range from 4.49 percent to 50 percent. As of December 31,
2003, WELLC held interests in three operating projects as listed and described
in the summary below. The lenders to these projects have recourse only against
these projects and the income and revenues therefrom. The debt agreements
contain various restrictive covenants including restrictions on making cash
distributions to the partners, with which the partnerships are in compliance.
The type of restrictions on making cash distributions to the partners vary from
one project lender to another.
F-17
Project
Ft. Lupton
Roanoke
Valley I
Roanoke
Valley II
Location:
Ft. Lupton, Colorado
Weldon,
North  Carolina
Weldon,
North  Carolina
Gross Megawatt Capacity:
290 MW
180 MW
50 MW
WELLC Equity Ownership:
4.49%
50.0%
50.0%
Electricity Purchaser:
Public Service of Colorado
Dominion Virginia Power
Dominion Virginia Power
Steam Host:
Rocky Mtn. Produce, Ltd
Patch Rubber Company
Patch Rubber Company
Fuel Type:
Natural Gas
Coal
Coal
Fuel Supplier:
Thermo Fuels,  Inc.
TECO Coal/ CONSOL
TECO Coal/ CONSOL
Commercial Operation Date:
1994
1994
1995
The following is a summary
of aggregated financial information for all investments owned by WELLC which are
accounted for under the equity method:
Balance Sheets
December 31,
2003
2002
(in thousands)
Assets
Current assets
$
38,549
$
40,282
Property, plant and equipment, net
246,796
255,364
Other assets
25,267
25,171
Total assets
$
310,612
$
320,817
Liabilities and equity
Current liabilities
$
29,884
$
29,500
Long-term debt and other liabilities
209,979
231,922
Equity
70,749
59,395
Total liabilities and equity
$
310,612
$
320,817
WELLC's share of equity
$
38,487
$
33,407
Income Statements
For years ended December 31,
2003
2002
2001
(in thousands)
Revenues
$
110,673
$
110,075
$
124,946
Operating income
45,918
46,731
72,209
Net income
30,446
28,935
33,003
WELLC's share of earnings
$
15,242
$
14,506
$
15,871
F-18
WELLC performs asset
management services for the partnerships and has recognized related revenues of
$258,000, $258,000 and $267,000 for the years ended December 31, 2003, 2002 and
2001, respectively. Management fees, net of related costs, are recorded as other
income when the service is performed.
4.    INVESTMENT
IN DOMINION TERMINAL ASSOCIATES (DTA)
Prior to June 30, 2003, the
Company had a 20% interest in DTA, a partnership which operates a coal-storage
and vessel-loading facility in Newport News, Virginia. Due to declining export
business, the Company's original investment in DTA was written down from
$17.6 million to $5.5 million in 1998. The Company's loss from operations
at DTA in more recent years was the revenue received from the lease of its
facilities and throughput, net of its share of the expenses incurred
attributable to the terminal's operations. The Company recognized a further
non-cash impairment charge equal to the remaining book value of its investment
in DTA during the third quarter of 2002 as a result of the terminal's
continuing operating losses and the terms of an agreement by one of the
terminal's other owners to dispose of its interest in DTA, but the Company
continued to share in cash operating expenses and recognize losses until the
sale of its own interest was completed.
Effective June 30, 2003, a
subsidiary of Dominion Resources, Inc. purchased for $10.5 million the
Company's 20% partnership interest in DTA and its industrial revenue bonds.
Under the terms of the Purchase and Sale Agreement, the Company guaranteed
throughput at the terminal for a period of three years from the effective date
of the sale. To secure the throughput commitment, $6.0 million of the purchase
price was deposited into an escrow account as collateral for a stand-by letter
of credit for the benefit of the purchaser. The Company does not expect to be
able to deliver the minimum throughput. The Company also provided customary
representations and warranties. The Company has guaranteed its obligations under
the Purchase and Sale Agreement for a period of five years.
With the closing of this
transaction the Company no longer incurs DTA-related operating losses, which
were $1.0 million, $2.1 million and $1.9 million in 2003, 2002 and 2001,
respectively. The Company also recognized a $4.5 million pretax gain in the
second quarter of 2003.
As a result of the sale of
the Company's investment, the financial results relating to DTA have been
presented as Discontinued Operations in the accompanying Consolidated Statements
of Operations. The basic income (loss) per share from these discontinued
operations, including the gain on sale, were $.27, ($.47) and ($.16) for the
years ended December 31, 2003, 2002 and 2001, respectively. The diluted income
(loss) per share from these discontinued operations was $.25, ($.47) and ($.16)
per share for 2003, 2002 and 2001, respectively.
5.     LINES OF
CREDIT AND LONG-TERM DEBT
The amounts outstanding under
the Company's lines of credit and long-term debt consist of the following:
March 31,
December 31,
2004
2003
2002
(unaudited)
(in thousands)
WML revolving line of credit
$
-
$
-
$
1,500
WML term debt
106,300
88,500
96,300
Corporate revolving line of credit
-
500
500
Other term debt
4,338
4,469
1,857
Total debt outstanding
110,638
93,469
100,157
Less current portion
(11,595)
(11,595)
(8,852)
Total long-term debt outstanding
$
99,043
$
81,874
$
91,305
F-19
As of December 31, 2003,
WML had a $20 million revolving credit facility with PNC Bank, National
Association ("PNC"), as Agent, and three participating banks which has
been replaced by a new facility described below. The interest rate was either
PNC's Base Rate plus 1.60% or Euro-Rate plus 3.10%, at WML's option.
On March 8, 2004, WML
entered into an amended $12 million revolving facility (the
"Facility") solely with PNC which expires on April 27, 2007. The
interest rate is either PNC's Base Rate plus 1.50% or Euro-Rate plus 3.00%,
at WML's option. In addition, a commitment fee of ½ of 1% of the
average unused portion of the available credit is payable quarterly. The amount
available under the Facility is based upon, and any outstanding amounts are
secured by, eligible accounts receivable.
In 2001, WML borrowed $120
million from a group of institutions using PNC Capital Markets, Inc. as lead
arranger to fund the acquisitions described in Note 2. The borrowings consisted
of $20 million in variable-rate Series A Notes and $100 million in fixed-rate
Series B Notes. The Series A Notes were repaid in full on June 30, 2002. The
Series B Notes bear interest at a rate of 9.39% and require quarterly principal
and interest payments from September 2002 to December 2008, when the remaining
outstanding balance of $30.0 million is due. The Series B Notes are secured by
assets of WML.
Both the revolving line of
credit and the term notes contain various covenants which limit WML or its
subsidiaries' ability to merge or consolidate with another entity, dispose
of assets, pay dividends, or change the nature of business operations. WML is
also required to maintain certain financial ratios as defined in the agreements.
Further, pursuant to these agreements any purchase price adjustment from the
Montana Power transaction which is paid to WML must be used to repay any amounts
outstanding under the Facility and in certain circumstances fund a debt service
reserve account. As of December 31, 2003 and March 31, 2004, WML was in
compliance with such covenants.
Under the terms of the
Series B Notes, WML is required to maintain a debt service reserve account equal
to the principal and interest payments and certain fees scheduled to become due
within the next six months. In addition, 25% of any "Surplus Cash
Flow" (as such term is defined in the agreement) is applied to a prepayment
account for repayment of the final $30 million of indebtedness and 75% of any
Surplus Cash Flow is available to WML. WML may distribute such Surplus Cash Flow
to the Company so long as no Event of Default or Potential Event of Default
under the term loan agreement exists or is likely to result from the
distribution. The quarterly distribution is in addition to a quarterly $500,000
management fee that WML pays the Company. At December 31, 2003, WML had funded
$8.8 million in the debt service reserve account, which could be used for
principal and interest payments, and $8.7 million in the long-term prepayment
account. At March 31, 2004, these accounts were funded $9.3 million and $9.5
million, respectively. Those funds have been classified as restricted cash in
the consolidated balance sheet.
On March 8, 2004, WML
amended its term debt to borrow an additional $35 million in $20.4 million
Series C Notes and $14.6 million Series D Notes. The Series C Notes were drawn
immediately and the Series D Notes will be borrowed after seven months but no
later than December 31, 2004. Both notes require quarterly interest payments
with principal payments beginning March 31, 2009 and final payment on December
31, 2011. The Series C Notes bear interest at a fixed rate of 6.85%, and the
Series D Notes have a variable rate based upon LIBOR plus 2.90%. The new notes
are secured by assets of WML and require the same covenants and financial
ratios, as amended, as the Series A and B Notes.
The Company has a $10.0
million revolving credit agreement with First Interstate Bank. Interest is
payable monthly at the Bank's prime rate plus 1% (5.00% at December 31,
2003 and at March 31, 2004). The Company is required to maintain certain
financial ratios. The revolving credit agreement is collateralized by the
Company's stock in WRI, 100% of the common stock of Horizon, and the
dragline located at WRI's Absaloka Mine in Big Horn County, Montana. The
expiration date is January 24, 2005.
F-20
Other term debt consists of
notes payable assumed in the 2001 acquisitions, certain notes payable related to
the purchase of real property, and capital lease obligations for mining
equipment. These obligations expire at various dates through 2009 and bear
interest at a weighted-average rate of 5.65%.
The maturities of all
long-term debt and the revolving credit facilities outstanding at December 31,
2003 are (in thousands):
2004
$
11,595
2005
12,174
2006
11,995
2007
12,625
2008
44,980
Thereafter
100
$
93,469
6.    WORKERS' COMPENSATION BENEFITS
The Company was
self-insured for workers' compensation benefits prior to and through
December 31, 1995. Beginning in 1996, the Company purchased third party
insurance for new workers' compensation claims. Based on updated actuarial
and claims data, $834,000, $449,000, and $642,000 were charged to operations in
2003, 2002 and 2001, respectively. The cash payments for workers'
compensation benefits were $2.1 million, $2.8 million and $2.9 million in 2003,
2002 and 2001, respectively.
The Company was required to
obtain surety bonds in connection with its self-insured workers'
compensation plan. The Company's surety bond underwriters required
collateral for such bonding. As of December 31, 2003 and 2002, $4.4 million and
$4.0 million respectively, were held in the collateral accounts.
7.    PNEUMOCONIOSIS (BLACK LUNG) BENEFITS
The Company is self-insured
for federal and state pneumoconiosis benefits for former employees and has
established an independent trust to pay these benefits.
The following table sets
forth the funded status of the Company's obligation:
December 31,
2003
2002
(in thousands)
Actuarial present value of benefit obligation:
Expected claims from terminated employees
$
1,593
$
2,330
Claimants
20,368
20,454
Total present value of benefit obligation
21,961
22,784
Plan assets at fair value, primarily government-backed
securities
28,195
30,449
Excess of trust assets over pneumoconiosis benefit
obligation
$
6,234
$
7,665
The discount rates used in
determining the accumulated pneumoconiosis benefit as of December 31, 2003 and
2002 were 6.25% and 6.75%, respectively.
F-21
8.    POSTRETIREMENT MEDICAL AND LIFE INSURANCE BENEFITS
Single-Employer
Plans
The Company and its
subsidiaries provide certain health care and life insurance benefits for retired
employees and their dependents either voluntarily or as a result of the Coal
Act. Substantially all of the Company's current employees may also become
eligible for these benefits if certain age and service requirements are met at
the time of termination or retirement as specified in the plan document. The
majority of these benefits are provided through self-insured programs. The
Company adopted Statement of Financial Accounting Standards No. 106 –
Employers' Accounting for Postretirement Benefits Other than
Pensions
(SFAS 106) effective January 1, 1993 and elected to amortize its
unrecognized, unfunded accumulated postretirement benefit obligation over a
20-year period.
The following table sets
forth the actuarial present value of postretirement medical and life insurance
benefit obligations and amounts recognized in the Company's financial
statements:
December 31,
2003
2002
(in thousands)
Assumptions:
Discount rate
6.25%
6.75%
Change in benefit obligation:
Net benefit obligation at beginning of year
$
223,478
$
205,564
Service cost
446
400
Interest cost
15,693
14,989
Plan participant contributions
(667)
-
Actuarial loss
81
67
Benefit obligation assumed in acquisitions
13,253
18,882
Gross benefits paid
(14,730)
(16,424)
Net benefit obligation at end of year
237,554
223,478
Change in plan assets:
Employer contributions
14,649
16,357
Plan participant contributions
81
67
Gross benefits paid
(14,730)
(16,424)
Fair value of plan assets at end of year
-
-
Funded status at end of year
(237,554)
(223,478)
Unrecognized net actuarial loss
73,407
65,353
Unrecognized net transition obligation
36,902
41,002
Net amount recognized at end of year (recorded
as accrued benefit cost in the
accompanying balance sheet)
$
(127,245)
$
(117,123)
F-22
The components of net
periodic postretirement benefit cost are as follows:
Year ended December 31,
2003
2002
2001
(in thousands)
Assumptions:
Discount rate
6.75%
7.25%
7.50%
Components of net periodic benefit cost:
Service cost
$
446
$
400
$
227
Interest cost
15,693
14,989
12,327
Amortization of:
Transition obligation
4,100
4,100
4,100
Actuarial loss
4,532
2,899
861
Total net periodic benefit  cost
$
24,771
$
22,388
$
17,515
Of the total net periodic
benefit cost, $23.4 million, $21.1 million and $16.7 million, relates to the
Company's former eastern mining operations and is included in heritage
health benefit costs in 2003, 2002 and 2001, respectively. The remainder of $1.4
million, $1.3 million and $0.8 million, respectively, relates to current
operations.
Sensitivity of retiree
welfare results (in thousands):
Effect of a one percentage point increase in
assumed ultimate health care cost trend
- - on total service and interest cost components
$
1,658
- - on postretirement benefit obligation
$
25,318
Effect of a one percentage point decrease in
assumed ultimate health care cost trend
- - on total service and interest cost components
$
(1,401)
- - on postretirement benefit obligation
$
(21,514)
The health care cost trend
assumed on covered charges was 8.50%, 9.25% and 10.0% for 2003, 2002 and 2001,
respectively, decreasing to an ultimate trend of 5.0% in 2009 and beyond.
In December 2003, the
Medicare Prescription Drug Improvement and Modernization Act of 2003 (the
"Act") became law in the United States. The Act introduces a
prescription drug benefit under Medicare as well as a federal subsidy to
sponsors of retiree health care benefit plans that provide a benefit that is at
least actuarially equivalent to the Medicare benefit. Currently, the Company
does not believe it will need to amend its plan to benefit from Medicare benefit
provided under the Act. The Company has reflected the estimated impact of the
Act as a $16.5 million reduction in the present value of the accumulated
post-retirement benefit obligation as of December 31, 2003. However, the impact
of the Act is not reflected in the net periodic benefit cost for 2003. Specific
authoritative guidance on the accounting for the federal subsidy is pending and
that guidance, when issued, could require the Company to change previously
reported information.
F-23
Based on the same
assumptions used in measuring the Company's benefit obligation at December
31, 2003, the Company expects to pay benefits in each year 2004-2008 of $17.4
million, $18.2 million, $17.4 million, $18.0 million and $18.2 million,
respectively. The aggregate benefits expected to be paid in the five-years from
2009-2013 are $92.5 million.
Multiemployer
Plan
The Company makes payments
to the Combined Benefit Fund ("CBF"), which is a multiemployer health
plan neither controlled nor administered by the Company. The CBF is designed to
pay benefits to UMWA workers (and dependents) who retired prior to 1976. The
Company is required by the Coal Act to make monthly premium payments into the
CBF. These payments are based on the number of beneficiaries assigned to the
Company, the Company's UMWA employees who retired prior to 1976 and the
Company's pro-rata assigned share of UMWA retirees whose companies are no
longer in business. The net present value of the Company's future cash
payments is estimated to be approximately $39.8 million at December 31, 2003.
The Company expenses payments to the CBF when they are due. Payments are
generally made on the due date. Payments in 2003, 2002 and 2001 were $5.3
million, $5.2 million and $5.7 million, respectively. See Note 14 to the
Consolidated Financial Statements for additional information.
Postretirement
Medical Benefits (unaudited)
The Company provides
postretirement medical and life insurance benefits to nearly all of its
full-time employees as well as to retired employees and their dependents either
voluntarily or as a result of union contracts and the Coal Act. The Company
incurred costs of providing these benefits during the quarters ended March 31,
2004 and 2003 as follows:
Postretirement Medical and
Life Insurance Benefits
2004
2003
(unaudited)
(in thousands)
Service cost
$
126
$
100
Interest cost
3,697
3,747
Expected return on plan assets
-
-
Amortzation of deferred items
2,084
1,750
Net periodic pension cost
$
5,907
$
5,597
9.    RETIREMENT
PLANS
Defined
Benefit Pension Plans
The Company provides
defined benefit pension plans for its full-time employees. Benefits are
generally based on years of service and the employee's average annual
compensation for the highest five continuous years of employment as specified in
the plan agreement. The Company's funding policy is to contribute annually
the minimum amount prescribed, as specified by applicable regulations. Prior
service costs and actuarial gains and losses are amortized over plan
participants' expected future period of service using the straight-line
method.
F-24
Supplemental
Executive Retirement Plan
Effective January 1, 1992,
the Company adopted the Westmoreland Coal Company Supplemental Executive
Retirement Plan ("SERP"). The SERP is an unfunded non-qualified
deferred compensation plan which provides benefits to certain employees that are
not eligible under the Company's defined benefit pension plan beyond the
maximum limits imposed by the Employee Retirement Income Security Act
("ERISA") and the Internal Revenue Code.
The following table
provides a reconciliation of the changes in the plans' benefit obligations
and fair value of assets for the periods ended December 31, 2003 and 2002 and
the amounts recognized in the Company's financial statements for both the
defined benefit pension and SERP Plans:
Qualified Pension Benefits
SERP Benefits
December 31,
2003
2002
2003
2002
(in thousands)
Assumptions:
Discount rate
6.25%
6.75%
6.25%
6.75%
Expected return on plan assets
8.50%
9.00%
8.50%
9.00%
Rate of compensation increase
4.50%
4.50%
5.00%
5.00%
Change in benefit obligation:
Net benefit obligation at beginning of year
$
41,366
$
33,544
$
2,626
$
1,503
Service cost
2,138
1,943
59
76
Interest cost
2,839
2,556
127
170
Actuarial (gain) loss
2,638
3,513
(773)
953
Gross benefits paid
(1,204)
(190)
(76)
(76)
Net benefit obligation at end of year
47,777
41,366
1,963
2,626
Change in plan assets:
Fair value of plan assets at beginning of year
30,147
33,593
-
-
Actual return on plan assets
3,905
(3,334)
-
-
Employer contributions
-
78
76
76
Gross benefits paid
(1,204)
(190)
(76)
(76)
Fair value of plan assets at end of year
32,848
30,147
-
-
Funded status at end of year
(14,929)
(11,219)
(1,963)
(2,626)
Unrecognized net actuarial (gain) loss
14,659
14,271
(310)
532
Unrecognized prior service cost
105
154
75
74
Unrecognized net transition asset
(4)
(10)
-
-
Net amount recognized at end of year
(169)
3,196
(2,198)
(2,020)
Amounts recognized in the accompanying balance sheet consist of:
Accrued benefit cost
(169)
3,196
(2,198)
(2,020)
Minimum pension liability
(6,717)
(5,517)
-
-
Net amount recognized at end of year
$
(6,886)
$
(2,321)
$
(2,198)
$
(2,020)
F-25
The components of net
periodic pension cost (benefit) are as follows:
Qualified Pension Benefits
SERP Benefits
Year ended December 31,
2003
2002
2001
2003
2002
2001
(in thousands)
Assumptions:
Discount rate
6.75%
7.25%
7.50%
6.75%
7.25%
7.50%
Expected return on plan assets
8.50%
9.00%
9.00%
N/A
N/A
N/A
Rate of compensation increase
4.50%
4.50%
4.50%
5.00%
5.00%
5.00%
Components of net periodic benefit cost
Service cost
$
2,139
$
1,943
$
1,238
$
59
$
76
$
52
Interest cost
2,839
2,556
1,551
127
170
105
Expected return on assets
(2,393)
(2,975)
(2,275)
-
-
-
Amortization of:
Transition asset
(6)
(6)
(6)
-
-
-
Prior service cost
50
50
42
84
76
116
Actuarial (gain) loss
803
97
-
(16)
22
(40)
Total net periodic pension cost
$
3,432
$
1,665
$
550
$
254
$
344
$
233
The weighted-average asset
allocation of the Company's qualified pension trusts at December 31, 2003
and 2002 was as follows:
Allocation of Plan Assets at
December 31,
2003
2002
Target Allocation
Asset Category
Cash and equivalents
-%
11%
0%-25%
Equity securities
70%
51%
40%-75%
Debt securities
29%
38%
0%-50%
Other
1%
-%
0%-10%
Total
100%
100%
The Company's
investment goals are to maximize returns subject to specific risk management
policies. Its risk management policies permit investments in mutual funds, and
prohibit direct investments in debt and equity securities and derivative
financial instruments. The Company addresses diversification by the use of
mutual fund investments whose underlying investments are in domestic and
international fixed income securities and domestic and international equity
securities. These mutual funds are readily marketable and can be sold to fund
benefit payment obligations as they become payable.
The Company expects to
contribute $1.7 million to its qualified pension plans and $76,000 to its SERP
in 2004.
The benefits expected to be
paid in each year 2004-2008 are $532,000, $670,000, $903,000, $1.2 million and
$1.6 million, respectively. The aggregate benefits expected to be paid in the
five years from 2009-2013 are $14.0 million. The expected benefits are based on
the same assumptions used to measure the company's benefit obligation at
December 31 and include estimated future employee service.
F-26
1974 UMWA
Pension Plan
The Company was required
under the 1993 Wage Agreement to pay amounts based on hours worked or tons
processed (depending on the source of the coal) in the form of contributions to
the 1974 UMWA Pension Plan with respect to UMWA represented employees. The 1974
UMWA Pension Plan is a multiemployer plan under ERISA.
Under the Multiemployer
Pension Plan Act ("MPPA"), a company contributing to a multiemployer
plan is liable for its share of unfunded vested liabilities upon withdrawal from
the plan. That withdrawal occurred for the Company with the cessation of eastern
mining operations, its only operations at that time which utilized UMWA
employees. In 1996, the Company recorded its withdrawal liability, which was
estimated by the 1974 UMWA Pension Plan at $13.8 million. The Company disputed
the amount of this obligation through arbitration. In accordance with MPPA, the
Company amortized this withdrawal liability, with interest, during the
arbitration process by making payments of approximately $172,500 per month. The
final phase of the arbitration was scheduled for April 2004. On March 8, 2004,
the Company reached a settlement agreement with the 1974 UMWA Pension Plan
whereby its obligation was considered fully repaid after making the monthly
payment in February 2004. As a result, the Company reduced the recorded amount
of its obligation and reduced the amount of its heritage health benefit costs
for 2003 by $6.3 million. No further contributions will be required.
Pension
Benefits (unaudited)
The Company provides
pension benefits to nearly all of its full-time employees as well as to retired
employees and their dependents. The Company incurred costs of providing these
benefits during the quarters ended March 31, 2004 and 2003 as follows:
Pension Benefits
2004
2003
(unaudited)
(in thousands)
Service cost
$
616
$
505
Interest cost
826
682
Expected return on plan assets
(693)
(744)
Amortzation of deferred items
225
60
Net periodic pension cost
$
974
$
503
The Company previously
disclosed in its consolidated financial statements for the year ended December
31, 2003 that it expected to contribute $1.8 million for its pension benefits
during 2004. As of March 31, 2004, no contributions have been made. The Company
currently anticipates that it may contribute as little as $1.3 million or as
much as $2.2 million during the remainder of 2004 to fund its pension plan
obligations.
F-27
10. INCOME
TAXES (BENEFIT)
Income tax expense
(benefit) attributable to income (loss) before income taxes consists of:
Three Months Ended
March 31,
Year Ended
December 31,
2004
2003
2003
2002
2001
(unaudited)
(in thousands)
Current:
Federal
$
71
$
115
$
25
$
-
$
-
State
89
263
251
900
908
160
378
276
900
908
Deferred:
Federal
(1,015)
(1,121)
(9,599)
(5,605)
(120)
State
(20)
(181)
(132)
(51)
(352)
(1,035)
(1,302)
(9,731)
(5,656)
(472)
Income tax expense (benefit)
$
(875)
$
(924)
$
(9,455)
$
(4,756)
$
436
Income tax expense (benefit)
attributable to income (loss) before income taxes differed from the amounts
computed by applying the statutory Federal income tax rate of 34% to pretax
income as a result of the following:
2003
2002
2001
(in thousands)
Computed tax expense (benefit) at statutory rate
$
1,067
$
1,825
$
1,925
Increase (decrease) in tax expense resulting from:
Tax depletion in excess of book
(2,865)
(3,399)
(2,412)
Minority interest adjustment
263
272
265
State income taxes, net of increase in
valuation allowance of $5,453
78
720
842
Change in valuation allowance
relating to Federal income taxes
(7,768)
(4,149)
-
Other, net
(230)
(25)
(184)
Income tax expense (benefit)
$
(9,455)
$
(4,756)
$
436
F-28
The tax effects of
temporary differences that give rise to significant portions of the deferred tax
assets and deferred tax liabilities at December 31, 2003 and 2002 are presented
below:
2003
2002
Deferred tax assets:
(in thousands)
Federal net operating loss carryforwards
$
61,326
$
58,874
State net operating loss carryforwards
6,160
6,035
Alternative minimum tax credit carryforwards
2,632
2,608
Accruals for the following:
Workers' compensation
3,791
4,296
Postretirement benefit and pension obligations
49,601
43,336
Asset retirement obligations
13,397
7,532
1974 UMWA pension plan obligation
100
3,214
Other accruals
5,273
4,722
Total gross deferred assets
142,280
130,617
Less valuation allowance
(25,058)
(32,574)
Net deferred tax assets
117,222
98,043
Deferred tax liabilities:
Investment in independent power projects
$
(12,273)
$
(14,964)
Plant and equipment, differences due to depreciation and
amortization
(26,668)
(14,929)
Excess of trust assets over pneumoconiosis benefit obligation
(2,494)
(3,066)
Total gross deferred tax liabilities
(41,435)
(32,959)
Net deferred tax asset
$
75,787
$
65,084
The net deferred tax asset
is presented on the consolidated balance sheets at December 31, as follows:
2003
2002
(in thousands)
Deferred income tax assets - current
$
12,921
$
15,831
Deferred income tax assets - long-term
62,866
49,253
$
75,787
$
65,084
An income tax benefit of
$484,000, $160,000 and $989,000 related to the exercise of stock options during
2003, 2002 and 2001, respectively, was added to other paid-in capital.
As of December 31, 2003, a
minimum of $180.4 million of future taxable income will be necessary to enable
the Company to fully utilize the net operating loss carryforwards and realize
gross deferred tax assets of $142.3 million. As of December 31, 2003, the
Company has available Federal net operating loss carryforwards to reduce future
taxable income which expires as follows:
Expiration Date
Regular Tax
(in thousands)
2010
$
45,809
2011
36,479
2012
449
2018
531
2019
88,429
after 2019
8,673
Total
$
180,370
F-29
Current tax expense results
from Federal Alternative Minimum Tax and estimated state income taxes. The
deferred income tax benefit recorded for 2003 included a benefit of $7.8 million
due to a reduction in the deferred income tax asset valuation allowance as a
result of an increase in the amount of Federal net operating loss carryforwards
the Company expects to use prior to their expiration through 2019. The increase
in the expected amount of Federal net operating losses to be used in future
years is primarily a result of an extension of an existing coal sales contract
entered into during 2003, the agreement reached with the customer of the
Company's Jewett Mine providing certainty of volumes and pricing through
2007 and the settlement of the withdrawal liability issue with the 1974 UMWA
Retirement Plan. The terms of the extended contract call for deliveries of 1.5
to 2.5 million tons per year from 2004 through 2008. In addition, the deferred
income tax benefit for 2003 reflects the generation of additional deferred tax
assets during the period due to temporary differences related to the timing of
book expenses versus tax deductions. The deferred income tax benefit recorded
for 2002 included a benefit of $4.1 million for a reduction in the valuation
allowance as a result of anticipated increased use of future net operating loss
carryforwards.
The Company has alternative
minimum tax credit carryforwards of $2.6 million which are available
indefinitely to offset future Federal taxes payable. For Alternative Minimum Tax
purposes, the Company has net operating loss carryforwards of approximately
$34.8 million as of December 31, 2003. As of December 31, 2003, the Company also
has available an estimated $14.1 million in net operating loss carryforwards in
Colorado to reduce future taxable income.
11.    CAPITAL
STOCK
Each depositary share
represents one-quarter of a share of Westmoreland's Series A Convertible
Exchangeable Preferred Stock. Dividends at a rate of 8.5% per annum were
previously paid quarterly but were last suspended in the third quarter of 1995
pursuant to the requirements of Delaware law, described below, as a result of
recognition of net losses, the violation of certain bank covenants, and a
subsequent shareholders' deficit. The full amount of the quarterly dividend
is $2.125 per preferred share or $0.53 per depositary share. Westmoreland
commenced a partial payment of dividends to preferred shareholders on October 1,
2002 as described below. The quarterly dividends which are accumulated but
unpaid through and including January 1, 2004 amount to $15.3 million in the
aggregate ($74.62 per preferred share or $18.65 per depositary share). Common
stock dividends may not be declared until the preferred stock dividends that are
accumulated but unpaid are made current.
There are statutory
restrictions limiting the payment of preferred stock dividends under Delaware
law, the state in which Westmoreland is incorporated. Under Delaware law,
Westmoreland is permitted to pay preferred stock dividends only: (1) out of
surplus, surplus being the amount of shareholders' equity in excess of the
par value of Westmoreland's two classes of stock; or (2) in the event there
is no surplus, out of net profits for the fiscal year in which a preferred stock
dividend is declared (and/or out of net profits from the preceding fiscal year),
but only to the extent that shareholders' equity exceeds the par value of
the preferred stock (which par value was $205,000 at December 31, 2003). The
Company had shareholders' equity of $33.3 million and the par value of all
outstanding shares of preferred stock and shares of common stock aggregated
$20.1 million at December 31, 2003.
The Board of Directors
regularly reviews the subjects of current preferred stock dividends and the
accumulated unpaid preferred stock dividends, and is committed to meeting its
obligations to the preferred shareholders in a manner consistent with the best
interests of all shareholders. Quarterly dividends of $0.15 per depositary share
were commenced beginning October 1, 2002 and increased to $0.20 per depositary
share beginning October 1, 2003.
F-30
On August 9, 2002
Westmoreland's Board of Directors authorized the repurchase of up to 10% of
the outstanding depositary shares on the open market or in privately negotiated
transactions with institutional and accredited investors between then and the
end of 2004. The timing and amount of depositary shares repurchased will be
determined by the Company's management based on its evaluation of the
Company's capital resources, the price of the depositary shares offered to
the Company and other factors. Any acquired shares will be converted into shares
of Series A Convertible Exchangeable Preferred Stock and retired. The repurchase
program will be funded from working capital which may be currently available, or
become available to the Company. Since the commencement of the depositary share
purchase program, Westmoreland has purchased a total of 14,500 depositary shares
for aggregate consideration of $457,000, including 7,000 shares purchased in
2003 for $213,000.
12. INCENTIVE
STOCK OPTION AND STOCK APPRECIATION RIGHTS PLANS
As of December 31, 2003,
the Company had options outstanding from four shareholder-approved Incentive
Stock Option ("ISOs") Plans for employees and three Incentive Stock
Option Plans for directors.
The employee plans provide
for the granting of ISO's, non-qualified options under certain
circumstances, stock appreciation rights and restricted stock. ISO's
generally vest over two years, expire ten years from the date of grant, and may
not have an option price that is less than the market value of the stock on the
date of grant. The maximum number of shares that could be issued or granted
under these plans is 1,550,000, and as of December 31, 2003, 193,806 shares are
available for future issue or grant.
The non-employee director
plans generally allow the grant of options for 20,000 shares when elected or
appointed, and options for 10,000 shares after each annual meeting. Beginning in
2003, rather than the grant of 10,000 options, each non-employee director was
granted $30,000 worth of common shares which are restricted for one year from
the date of grant. The maximum number of shares that could be issued or granted
under these plans is 900,000, and as of December 31, 2003, 44,832 shares are
available for future issue or grant.
Information for 2003, 2002
and 2001 with respect to both the employee and director Plans is as follows:
Issue Price Range
Stock Option Shares
Weighted Average Exercise Price
Outstanding at December 31, 2000
$  2.63-20.00
1,174,800
$  3.64
Granted in 2001
12.04-8.19
145,500
17.58
Exercised in 2001
2.81-8.75
(371,450)
3.99
Expired or forfeited in 2001
2.63-20.00
(56,500)
5.53
Outstanding at December 31, 2001
2.63-18.19
892,350
5.51
Granted in 2002
12.86-15.31
183,600
13.93
Exercised in 2002
2.63-12.38
(77,900)
4.28
Outstanding at December 31, 2002
2.63-18.19
998,050
7.17
Granted in 2003
10.48-18.08
189,350
17.08
Exercised in 2003
2.81-12.86
(114,700)
3.56
Expired or forfeited in 2003
12.86-18.19
(23,300)
15.11
Outstanding at December 31, 2003
$  2.63-18.19
1,049,400
$  9.22
F-31
Information about stock
options outstanding as of December 31, 2003 is as follows:
Range of Exercise Price
Number Outstanding
Weighted- Average Remaining Contractual Life (Years)
Weighted- Average
Exercise Price
Number Exercisable
Weighted- Average Exercise Price
$2.63 - 5.00
520,100
4.9
$ 2.92
502,600
$ 2.91
5.01-10.00
40,000
6.9
7.41
30,000
7.41
10.01-15.00
125,635
8.4
12.35
63,435
12.56
15.01-18.19
363,665
8.7
17.36
98,465
17.50
$2.63-18.19
1,049,400
6.7
$9.22
694,500
$ 6.06
13.    BUSINESS
SEGMENT INFORMATION
The Company's
operations have been classified into two segments: coal and independent power
operations. The coal segment includes the production and sale of coal from
Montana, North Dakota and Texas. The independent power operations include the
ownership of interests in cogeneration and other non-regulated independent power
plants. The "Corporate" classification noted in the tables represents
all costs not otherwise classified, including corporate office charges, heritage
health benefit costs and business development expenses. Summarized financial
information by segment for 2003, 2002 and 2001 and for March 31, 2004 and 2003
is as follows:
F-32
Quarter ended March 31, 2004 (unaudited)
Coal
Independent Power
Corporate
Total
(in thousands)
Revenues:
Coal
$
77,132
$
-
$
-
$
77,132
Equity in earnings
-
5,405
-
5,405
77,132
5,405
-
82,537
Costs and expenses:
Cost of sales – coal
60,203
-
-
60,203
Depreciation, depletion
and amortization
3,786
5
29
3,820
Selling and administrative
5,266
208
2,249
7,723
Heritage health benefit
costs
-
-
7,206
7,206
Gain on sales of assets
(19)
-
-
(19)
Operating income (loss)
from continuing operations
$
7,896
$
5,192
$
(9,484)
$
3,604
Capital expenditures
$
2,029
$
-
$
65
$
2,094
Property, plant and
equipment, net
$
149,168
$
43
$
463
$
149,674
Quarter ended March 31, 2003 (unaudited)
Coal
Independent Power
Corporate
Total
(in thousands)
Revenues:
Coal
$
74,513
$
-
$
-
$
74,513
Equity in earnings
-
3,771
-
3,771
74,513
3,771
-
78,284
Costs and expenses:
Cost of sales – coal
58,190
-
-
58,190
Depreciation, depletion
and amortization
2,921
6
29
2,956
Selling and administrative
4,533
198
2,381
7,112
Heritage health benefit
costs
-
-
7,517
7,517
Operating income (loss)
from continuing operations
$
8,869
$
3,567
$
(9,927)
$
2,509
Capital expenditures
$
2,301
$
-
$
56
$
2,357
Property, plant and
equipment, net
$
143,506
$
63
$
1,324
$
144,893
F-33
Year ended
December 31, 2003
Coal
Independent Power
Corporate
Total
(in thousands)
Revenues:
Coal
$
294,986
$
-
$
-
$
294,986
Equity in earnings
-
15,824
-
15,824
294,986
15,824
-
310,810
Costs and expenses:
Cost of sales – coal
228,433
-
-
228,433
Depreciation, depletion
and amortization
12,451
22
126
12,599
Selling and administrative
23,626
1,013
8,747
33,386
Heritage health benefit
costs
-
-
29,922
29,922
Gain on sales of assets
(194)
-
(451)
(645)
Operating income (loss)
from continuing operations
$
30,670
$
14,789
$
(38,344)
$
7,115
Capital expenditures
$
13,110
$
1
$
129
$
13,240
Property, plant and
equipment (net)
$
150,887
$
48
$
414
$
151,349
Year ended December
31, 2002
Coal
Independent Power
Corporate
Total
(in thousands)
Revenues:
Coal
$
301,235
$
-
$
-
$
301,235
Equity in earnings
-
14,506
-
14,506
301,235
14,506
-
315,741
Costs and expenses:
Cost of sales – coal
226,707
-
-
226,707
Depreciation, depletion
and amortization
11,430
13
96
11,539
Selling and administrative
23,058
939
8,251
32,248
Heritage health benefit
costs
-
-
26,921
26,921
Doubtful account recoveries
(516)
-
-
(516)
Loss on sales of assets
9
-
-
9
Operating income (loss)
from continuing operations
$
40,547
$
13,554
$
(35,268)
$
18,833
Capital expenditures
$
7,196
$
45
$
82
$
7,323
Property, plant and
equipment (net)
$
188,154
$
69
$
1,309
$
189,532
F-34
Year ended
December 31, 2001
Coal
Independent Power
Corporate
Total
(in thousands)
Revenues:
Coal
$
231,048
$
-
$
-
$
231,048
Equity in earnings
-
15,871
-
15,871
231,048
15,871
-
246,919
Costs and expenses:
Cost of sales – coal
177,304
-
-
177,304
Depreciation, depletion
and amortization
9,124
11
30
9,165
Selling and administrative
13,184
376
9,511
23,071
Heritage health benefit
costs
-
-
23,773
23,773
Doubtful account recoveries
(428)
-
(18)
(446)
Loss on sales of assets
-
440
-
440
Operating income (loss)
from continuing operations
$
31,864
$
15,044
$
(33,296)
$
13,612
Capital expenditures
$
5,388
$
4
$
41
$
5,433
Property, plant and
equipment (net)
$
195,968
$
45
$
1,258
$
197,271
The Company derives its
coal revenues from a few key customers. The customers from which more than 10%
of total revenue has been derived and the percentage of total revenue is
summarized as follows:
2003
2002
2001
(in thousands)
Customer A
$ 99,688
$ 119,658
$ 92,626
Customer B
70,431
64,007
46,104
Percentage of total revenue
55%
58%
56%
14.    COMMITMENTS AND CONTINGENCIES
Protection of
the Environment
As of December 31, 2003 the
Company has reclamation bonds in place for its active mines in Montana, North
Dakota and Texas and for inactive mining sites in Virginia which are now
awaiting final bond release. These government-required bonds assure that coal
mining operations comply with applicable Federal and State regulations relating
to the performance and completion of final reclamation activities. The Company
estimates that the cost of final reclamation for its mines when they are closed
in the future will total approximately $306.7 million with a present value of
$123.3 million ($125.2 million as of March 31, 2004, unaudited), and that the
Company is financially responsible for reclamation obligations with a present
value of $45.2 million ($48.1 million as of March 31, 2004, unaudited). The
contractual third party reclamation obligations of certain customers and a
contract mine operator are discussed below. The amount of the Company's
bonds exceeds the amount of its share of estimated final reclamation obligations
as of December 31, 2003 and as of March 31, 2004, unaudited.
F-35
At the Rosebud Mine,
certain customers were contractually obligated under a coal supply agreement to
pay the final reclamation costs for a specific area of the mine. They satisfied
that obligation by pre-funding their respective portions of those costs. The
funds are invested in cash equivalents and government-backed interest-bearing
securities. As of December 31, 2003, the value of those funds, classified as
reclamation deposits on the Consolidated Balance Sheets, was $51.1 million. One
customer under the same coal supply agreement elected not to pre-fund its
obligation but in 2003 began to fund a separate reclamation account to satisfy
the contract provisions. The balance in that account was $1.7 million and the
present value of that customer's obligation was $6.3 million as of December
31, 2003 and is classified as contractual third party reclamation obligations on
the Consolidated Balance Sheets.
Also at the Rosebud Mine,
all of the owners of the Colstrip Station are contractually required to
reimburse the Company for contemporaneous reclamation costs as they are
incurred. As of December 31, 2003, the total amount of such costs outstanding
was $7.3 million, which amount is included in other receivables on the
Consolidated Balance Sheets.
At the Jewett Mine, the
customer is contractually responsible for all post-production reclamation
obligations and has provided a $50.0 million corporate guarantee to the Railroad
Commission of Texas to assure performance of such final reclamation. The present
value of the customer's obligation was $12.8 million as of December 31,
2003, which is classified as contractual third party reclamation obligations on
the Consolidated Balance Sheets.
At the Absaloka Mine, the
contract miner, Washington Group International ("WGI"), is obligated
to perform the vast majority of all reclamation activities, including all final
backfilling, regrading and seeding. Westmoreland Resources Inc.
("WRI") owns the Absaloka Mine, and Westmoreland owns 80% of WRI. WRI
has a maximum financial responsibility for these activities of $1.7 million,
which amount is being pre-funded through annual installment payments of $113,000
through 2005. Once the contract miner has performed its final reclamation
obligations, WRI will be responsible for site maintenance and monitoring until
final bond release. To assure compliance, and as part of a settlement of several
outstanding issues in 2002, the contract miner has established an escrow account
into which 6.5% of every contract mining invoice payment is being deposited. The
balance as of December 31, 2003 was $1.5 million which includes WRI's 2003
annual installment of $113,000. The present value of the contract miner's
reclamation obligation was $6.3 million as of December 31, 2003, and is
classified as contractual third party reclamation obligations on the
Consolidated Balance Sheets.
Royalty Claims
The Company has received
demand letters from the Montana Department of Revenue ("DOR"), as
agent for the Minerals Management Service ("MMS") of the U.S.
Department of the Interior, asserting underpayment of certain royalties
allegedly due at the Rosebud Mine. The claims relate to the fees the Company
receives to transport coal from the contract delivery point to the customer,
certain "take or pay" payments the Company received when its customers
did not require coal, and adjustments for certain taxes. The total amount of the
claims is approximately $15.5 million, including penalties and interest, which
continues to accrue. The Company continues to receive transportation fees and
expects DOR to assert claims for additional underpayment and to issue more
demand letters until the appeal process is completed. The Company believes that
the DOR/MMS claims are improper and is vigorously contesting them. The appeal
process will take several years. In the event of a negative outcome with DOR and
MMS, the Company believes that certain of the Company's customers are
contractually obligated to reimburse the Company for any claims paid plus legal
expenses.
F-36
UMWA Master
Agreement
The Company was subject to
certain financial ratio tests specified in a Contingent Promissory Note (the
"Note") executed in conjunction with an agreement with the UMWA Health
and Retirement Funds (the "Master Agreement") and others, which
facilitated the Company's discharge from Chapter 11 Bankruptcy in 1998. The
Note was originally scheduled to terminate on January 1, 2005. On August 11,
2003, the Company reached an agreement with the above Funds, whereby, in
exchange for a one-time payment of $225,000, the financial ratio tests, the
Note, and a related security agreement were terminated. The Company will
continue to be obligated to meet certain other covenants through the expiration
of the Master Agreement on January 1, 2005.
Purchase Price
Adjustment
The final purchase price
for the Company's 2001 acquisition of the coal business of Entech LLC is
subject to a final adjustment. Pursuant to the terms of the Stock Purchase
Agreement, certain adjustments to the purchase price were to be made as of the
date the transaction closed to reflect the net assets of the acquired operations
on the closing date and the net revenues that those operations had earned
between January 1, 2001 and the closing date. In June 2001, Entech submitted
proposed adjustments that would have increased the purchase price by
approximately $9.0 million. In July 2001, the Company objected to Entech's
adjustments and submitted its own adjustments which would result in a
substantial decrease in the original purchase price. The Stock Purchase
Agreement requires that the parties' disagreements be submitted to an
independent accountant for resolution. The Company also submitted a timely claim
for indemnification by Entech.
Litigation in the New York
courts ensued. On June 18, 2003, Touch America Holdings, Inc. (formerly Montana
Power Company) and Entech LLC (formerly Entech Inc., and together with Touch
America Holdings, Inc., "the Debtors,") filed bankruptcy petitions in
the United States Bankruptcy Court in Delaware. As a result, the automatic stay
provisions of the Bankruptcy Code prevent any pending action from proceeding or
any new actions from being filed against the Debtors. The Company's pending
litigation involving the purchase price adjustment is now stayed. The Company
filed appropriate proofs of claim.
The Company is currently
evaluating its options for proceeding, which include (1) seeking relief from the
stay, so that it can continue to pursue its purchase price adjustment claims
through the independent accountant and in an action at law in the New York
courts, and (2) seeking to resolve its claims as part of the bankruptcy
proceeding.
Tax Assessments
The ROVA project is located
in Halifax County, North Carolina and is the County's largest taxpayer. In
2002, the County hired an independent consultant to review and audit the
property tax returns for the previous five years. In May 2002, the County
advised the ROVA project that its returns were being scrutinized for potential
underpayment due to undervaluation of property subject to tax. ROVA responded to
the County that its valuation was consistent with a preconstruction agreement
reached with the County in 1996. In late 2002, the ROVA projects received notice
of an assessment of $4.6 million for the years 1997 to 2001. The ROVA Project
filed a protest. Since that date the County has increased the amount of its
claim to $5.3 million, which includes tax years 1996, 2002 and 2003. With
penalty and interest, the total amount claimed due by the County is $8.3
million. The ROVA Project Partnership believes its position is meritorious;
however, it is impossible to predict the outcome. If the assessment is upheld,
in addition to the amounts assessed, the ROVA Project's future taxes would
increase by approximately $600,000 per year, of which we would be responsible
for half.
Niagara Mohawk Power
Corporation ("NIMO") was party to power purchase agreements with
independent power producers, including the Rensselaer project, in which the
Company owned an interest. In 1997, the New York Public Service Commission
approved NIMO's plan to terminate or restructure 29 power purchase
contracts. The Rensselaer project agreed to terminate its Power Purchase and
Supply Agreement after NIMO threatened to seize the project under its power of
eminent domain. NIMO and the Rensselaer project executed a settlement agreement
in 1998. On February 11, 2003, the North Carolina Department of Revenue notified
us that it had disallowed the exclusion of gain from the settlement agreement
between NIMO and the Rensselaer project. The State of North Carolina has
assessed a current tax of $3.5 million, interest of $1.0 million, and a penalty
of $0.9 million. We have filed a protest. The North Carolina Department of
Revenue held a hearing on May 28, 2003. In November 2003, the Company submitted
further documentation to the State to support its position and is awaiting their
response.
F-37
Other
Contingencies
McGreevey
Litigation
In late 2002, the Company
was served with a complaint in a case styled McGreevey et al. v. Montana Power
Company et al. in a Montana State court. Plaintiffs filed their first complaint
on August 16, 2001. This was the Plaintiffs' Fourth Amendment Complaint
which added Westmoreland as a defendant to a shareholder suit against Montana
Power Company, various officers of Montana Power Company, the Board of Directors
of Montana Power Company, financial advisors and lawyers representing Montana
Power Company and the purchasers of some of the businesses formerly owned by
Montana Power Company and Entech, Inc., a subsidiary of Montana Power Company.
The plaintiffs seek to rescind the sale by Montana Power of its generating, oil
and gas, and transmission businesses, and the sale by Entech of its coal
business or to compel the purchasers to hold these businesses in trust for the
shareholders. The Plaintiffs contend that the shareholders were entitled to vote
to approve the sale by Entech to the Company even though they were not
shareholders of Entech. Westmoreland has filed an answer, various affirmative
defenses and a counterclaim against the plaintiffs.
The litigation has been
transferred to the U.S. District Court in Billings, Montana. In December 2003,
Montana Power and Entech sought to enforce the bankruptcy code's automatic
stay against the McGreevey plaintiffs. The plaintiffs have consented to a stay
of the McGreevey litigation for approximately four months.
Combined
Benefit Fund
The Company makes monthly
premium payments to the UMWA Combined Benefit Fund ("CBF"), a
multiemployer health plan neither controlled nor administered by the Company.
The previous amount of the monthly premiums was less than $400,000 and is
recalculated each October. In 1996, a Federal Court ordered a decrease in the
premiums charged by the CBF as a result of a finding that the formula being used
by the government to determine reimbursement for health benefits under the Coal
Act had been discontinued and that the actual amounts received by the CBF should
be used instead. In connection with a separate case brought by the CBF, the
Trustees of the CBF obtained notice of a premium increase on June 10, 2003 for
beneficiaries assigned to companies under the Coal Act from the Social Security
Administration ("SSA"). The CBF seeks to impose the increase
retroactively to 1995 and has imposed a retroactive "catch-up" premium
equal to the entire amount alleged to be due for the period from 1995 through
October 2003, payable over the twelve months commencing October 2003. The net
effect of these assessments increased the Company's monthly payments to the
CBF to $859,000 for the twelve months ending September 2004. The Company has
commenced paying the higher monthly invoices while it vigorously pursues its
legal remedies. As of December 31, 2003, the Company has accrued the remaining
retroactive portion of the CBF premiums totaling $3.5 million.
The Company is a party to
other claims and lawsuits with respect to various matters in the normal course
of business. The ultimate outcome of these matters is not expected to have a
material adverse effect on the Company's financial condition, results of
operations or liquidity.
F-38
Lease
Obligations
The Company leases certain
of its coal reserves from third parties and pays royalties based on either a per
ton rate or as a percentage of revenues received. Royalties charged to expense
under all such lease agreements amounted to $24.2 million, $25.5 million and
$21.7 million in 2003, 2002 and 2001, respectively.
The Company has operating
lease commitments expiring at various dates, primarily for real property and
equipment. Rental expense under operating leases during 2003, 2002 and 2001
totaled $2.9 million, $4.3 million and $3.2 million, respectively. Minimum
future rental obligations existing under these leases at December 31, 2003 are
as follows (in thousands):
Lease Obligations
2004
$  2,753
2005
1,356
2006
867
2007
618
2008 and thereafter
-
Long-Term
Sales Commitments
The following table
presents estimated total sales tonnage under existing long-term contracts for
the next five years from the Company's existing mining operations. The
prices for all future tonnage are subject to revision and adjustments based upon
market prices, certain indices and/or cost recovery.
Projected Sales Tonnage Under
Existing Long-Term Contracts
(in millions of tons)
2004
29.6
2005
28.8
2006
28.3
2007
27.8
2008
22.3
The tonnages in the table
above represent estimated sales tonnage under existing, signed contracts and
generally exclude pending or anticipated contract renewals or new contracts.
These projections reflect customers' scheduled major plant outages, if
known.
15.    RESTRICTED
NET ASSETS OF WESTMORELAND MINING LLC
As discussed in Note 2, WML
was formed for the purpose of facilitating the financing of the acquisitions
completed effective April 30, 2001. The line of credit and existing term notes
entered into by WML for that purpose restrict the cash and other assets
available for distribution or dividend to the parent company or other entities
in the consolidated group. See Note 5 for a more detailed discussion of the
restrictions and the amount of cash that is available for general use. Due to
the recognition of a $55.6 million deferred tax asset in purchase accounting
relating primarily to Westmoreland Coal Company's net operating loss
carryforwards, WML's basis in property, plant and equipment is higher than
that recognized in Westmoreland's consolidated financial statements.
F-39
During the years ended
December 31, 2003, 2002 and 2001, WML paid dividends and management fees to
Westmoreland of $14.7 million, $14.9 million and $5.3 million, respectively.
The following are the
condensed consolidated financial statements of WML and its subsidiaries as of
and for the years ended December 31, 2003 and 2002 (in thousands):
Condensed Consolidated Balance Sheets
December 31,
2003
2002
Cash and cash equivalents
$
4,053
$
5,113
Accounts receivable, net
19,452
18,090
Restricted cash
17,427
12,883
Deferred overburden removal costs
12,654
10,348
Other current assets
17,868
19,580
Property, plant and equipment, net
168,788
208,639
Deferred tax assets
-
1,571
Reclamation deposits
52,786
49,484
Contractual third party reclamation obligations
19,843
23,448
Other assets
8,128
9,800
Total Assets
$
320,999
$
358,956
Current portion of long-term debt
$
11,595
$
8,852
Accounts payable and accrued expenses
31,187
30,715
Payable to parent
23,018
19,164
Line of credit
-
1,500
Long-term debt, less current portion
81,374
89,305
Deferred tax liabilities
114
-
Asset retirement obligations
115,852
152,967
Other liabilities
11,874
7,691
Member's equity
45,985
48,762
Total Liabilities and Member's Equity
$
320,999
$
358,956
F-40
Condensed Consolidated Statement of Operations
Year Ended December 31,
2003
2002
Coal revenues
$
245,871
$
256,363
Cost of sales – coal
(186,855)
(189,274)
Depreciation and amortization expense
(14,478)
(14,516)
Selling and administrative expense
(20,627)
(18,440)
Management fees to parent
(2,000)
(2,000)
Operating income
21,911
32,133
Interest expense
(9,371)
(10,012)
Interest and other income
1,995
2,154
Income before income taxes and
cumulative effect of change in
accounting principle
14,535
24,275
Income tax expense
(5,020)
(9,239)
Net income before cumulative effect of
change in accounting principle
$
9,515
$
15,036
Cumulative effect of change in
accounting principle
358
-
Net income
$
9,873
$
15,036
Condensed Consolidated Statements of Cash Flows
Year Ended December 31,
2003
2002
Net income
$
9,873
$
15,036
Depreciation and amortization expense
14,478
14,516
Deferred income tax expense (benefit)
1,685
(1,169)
Cumulative effect of change in accounting principle
(358)
-
Changes in operating assets and liabilities
12,233
20,456
Cash provided by operating activities
37,911
48,839
Fixed asset additions
(12,760)
(7,286)
Increase in restricted cash
(7,846)
(4,512)
Proceeds from asset sales
973
610
Cash used in investing activities
(19,633)
(11,188)
Proceeds from borrowings of long-term debt, net
4,590
-
Repayment of long-term debt
(9,778)
(13,753)
Borrowings (repayments) under line of credit, net
(1,500)
(6,500)
Dividends to parent
(12,650)
(12,909)
Cash used in financing activities
(19,338)
(33,162)
Net increase in cash and cash equivalents
(1,060)
4,489
Cash and cash equivalents, beginning of year
5,113
624
Cash and cash equivalents, end of year
$
4,053
$
5,113
16.    TRANSACTIONS WITH AFFILIATED COMPANIES
WRI has a coal mining
contract with WGI, its 20% stockholder. Mining costs incurred under the contract
were $20.5 million, $18.0 million and $21.5 million in 2003, 2002 and 2001,
respectively.
F-41
17.    QUARTERLY
FINANCIAL DATA (UNAUDITED)
The quarterly data
presented below reflect the reclassification of discontinued operations
identified during the fourth quarter of 2003 and as a result differ from those
previously filed. Summarized quarterly financial data for 2003 and 2002 are as
follows:
Three Months Ended
March 31
June 30
Sept. 30
Dec. 31
(in thousands except per share data)
2003
Revenues
$
78,284
$
70,455
$
83,291
$
78,780
Costs and expenses
75,775
73,585
84,025
70,310
Operating income
2,509
(3,130)
(734)
8,470
Income (loss) from continuing
operations before income taxes
605
(4,941)
(2,948)
6,633
Income tax (expense) benefit
910
3,459
4,229
2,373
Loss from discontinued operations
(184)
2,306
(9)
-
Cumulative effect of change in
accounting principle
161
-
-
-
Net income
1,492
824
1,272
9,006
Less preferred stock dividend
requirements
(440)
(440)
(436)
(436)
Net income applicable to common
shareholders
$
1,052
$
384
$
836
$
8,570
Income per share applicable to
common shareholders:
Basic
$
0.14
$
0.05
$
0.11
$
1.08
Diluted
$
0.13
$
0.05
$
0.10
$
1.02
Weighted average number of
common and common equivalent
shares outstanding:
Basic
7,728
7,762
7,805
7,899
Diluted
8,223
8,331
8,378
8,426
Three Months Ended
March 31
June 30
Sept. 30
Dec. 31
(in thousands except per share data)
2002
Revenues
$
83,213
$
83,683
$
75,280
$
73,565
Costs and expenses
77,367
78,601
70,865
70,075
Operating income
5,846
5,082
4,415
3,490
Income (loss) from continuing
operations before income taxes
3,462
3,188
3,619
1,071
Income tax (expense) benefit
(802)
(512)
1,212
2,470
Loss from discontinued operations
(329)
(376)
(2,572)
(306)
Net income
2,331
2,300
2,259
3,235
Less preferred stock dividend
requirements
(444)
(444)
(444)
(440)
Income applicable to common
shareholders
$
1,887
$
1,856
$
1,815
$
2,795
Income per share applicable to
common shareholders:
Basic
$
0.25
$
0.24
$
0.24
$
0.36
Diluted
$
0.23
$
0.23
$
0.22
$
0.34
Weighted average number of
common and common equivalent
shares outstanding:
Basic
7,531
7,584
7,638
7,677
Diluted
8,103
8,159
8,146
8,172
F-42
INDEPENDENT
AUDITORS' REPORT
The Board of Directors and Shareholders
Westmoreland Coal Company:
Under date of February 20,
2004, except as to Notes 5 and 9 which are as of March 8, 2004, we reported on
the consolidated balance sheets of Westmoreland Coal Company and subsidiaries as
of December 31, 2003 and 2002, and the related statements of operations,
shareholders' equity and comprehensive income, and cash flows for each of
the years in the three-year period ended December 31, 2003, which report appears
in the December 31, 2003, Annual Report on Form 10-K of Westmoreland Coal
Company. In connection with our audits of the aforementioned consolidated
financial statements, we also audited the related financial statement schedule
II. This financial statement schedule is the responsibility of the
Company's management. Our responsibility is to express an opinion on this
financial statement schedule based on our audits.
In our opinion, such
financial statement schedule, when considered in relation to the basic
consolidated financial statements taken as a whole, presents fairly, in all
material respects, the information set forth therein.
KPMG LLP
Denver, Colorado
February 20, 2004
F-43
Schedule II
WESTMORELAND
COAL COMPANY AND SUBSIDIARIES
Valuation Accounts
Years Ended December 31, 2002, 2001 and 2000
(in thousands)
Balance at beginning of year
Deductions credited to earnings
Other Additions
Balance at end of year
Year ended December 31, 2003:
Allowance for doubtful accounts
$
2,441
-
-
$
2,441
(A)
Year ended December 31, 2002:
Allowance for doubtful accounts
$
2,957
(516)
-
$
2,441
(A)
Year ended December 31, 2001:
Allowance for doubtful accounts
$
3,301
(446)
102
$
2,957
(A)
Amounts above include
current and non-current valuation accounts.
(A)
Includes reserves related to the uncollectibility of notes receivable reported as a reduction of other assets in the
Company's Consolidated Balance Sheets.
F-44
PART II
INFORMATION
NOT REQUIRED IN PROSPECTUS
Item 13. Other
Expenses of Issuance and Distribution.
The following table sets
forth the various fees and expenses payable in connection with the issuance and
distribution of the securities being registered, all of which we will pay. All
amounts shown are estimates except the Securities and Exchange Commission
registration fee.
Registration fee - Securities and Exchange Commission
$
4,026
American Stock Exchange listing fee
*
Legal fees and expenses
*
Accounting fees and expenses
*
Printing fees and expenses
*
Subscription Agent fees and expenses
*
Miscellaneous expenses
*
Total Expenses
$
*
* To be completed by amendment
Item 14.
Indemnification of Directors and Officers.
Section 102 of the Delaware
General Corporation Law allows a corporation to eliminate the personal liability
of directors of a corporation to the corporation or its stockholders for
monetary damages for a breach of fiduciary duty as a director, except where the
director breached his duty of loyalty, failed to act in good faith, engaged in
intentional misconduct or knowingly violated a law, authorized the payment of a
dividend or approved a stock repurchase in violation of Delaware corporate law
or obtained an improper personal benefit. Our Restated Certificate of
Incorporation limits the liability of directors to the extent permitted by
Delaware law.
Section 145 of the Delaware
General Corporation Law provides that a corporation has the power to indemnify a
director, officer, employee or agent of the corporation and certain other
persons serving at the request of the corporation in related capacities against
amounts paid and expenses incurred in connection with an action or proceeding to
which he is or is threatened to be made a party by reason of such position, if
such person shall have acted in good faith and in a manner he reasonably
believed to be in or not opposed to the best interests of the corporation, and,
in any criminal proceeding, if such person had no reasonable cause to believe
his conduct was unlawful; provided that, in the case of actions brought by or in
the right of the corporation, no indemnification shall be made with respect to
any matter as to which such person shall have been adjudged to be liable to the
corporation unless and only to the extent that the adjudicating court determines
that such indemnification is proper under the circumstances. Section 145 also
permits us to purchase and maintain insurance on behalf of any person who is or
was a director, officer, employee or agent of Westmoreland, or is or was serving
at our request as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, against any liability
asserted against such person and incurred by such person in any such capacity,
or arising out of such person's status as such, whether or not we would
have the power to indemnify such person against such liability.
II-1
Our bylaws obligate us to
indemnify any person who was or is a party or is threatened to be made a party
to any threatened, pending or completed action, suit or proceeding, either
civil, criminal, administrative or investigative, by reason of the fact that he
is or was a director, officer or supervisor or manager of Westmoreland or a
constituent corporation absorbed in a consolidation or merger, or while a
director, officer or supervisor or manager of Westmoreland is or was serving at
the request of Westmoreland or a constituent corporation absorbed in a
consolidation or merger, as a director, officer or supervisor or manager of
another corporation, partnership, joint venture, trust or other enterprise,
against expenses (including attorneys' fees), judgments, fines and amounts
paid in settlement actually and reasonably incurred by him in connection with
such action, suit or proceeding, whether or not the indemnified liability arises
or arose from any threatened, pending or completed action by or in the right of
the corporation to the extent that such person is not otherwise indemnified and
to the extent such indemnification is not prohibited by applicable law. Our
bylaws also obligate us to pay any such person's expenses in advance of the
final disposition of any such proceeding, if such person undertakes to repay any
amount so advanced if it shall ultimately be determined that he is not entitled
to be indemnified by us.
Under our bylaws, our
obligation to indemnify, including the duty to advance expenses, is a contract
between our company and each person entitled to indemnification, and no
modification of our bylaws may affect, to the detriment of any such person, our
obligations in connection with a claim based on any act or failure to act
occurring before such modification.
Our bylaws also permit us
to purchase and maintain insurance, and we have purchased insurance on behalf of
our directors and officers.
Under our bylaws, the
rights to indemnification and advance of expenses are not exclusive of any other
right to which an indemnified person may be entitled, and all such rights shall
inure to the benefit of the indemnified person and his or her heirs, executors
and administrators.
Item 15.
Recent Sales of Unregistered Securities.
In the three years
preceding the filing of this registration statement, we have not sold any
securities that were not registered under the Securities Act.
II-2
Item 16.
Exhibits and Financial Statement Schedules.
(a)
Exhibits.
EXHIBIT
NUMBER
DESCRIPTION
3.1
Restated Certificate of Incorporation of Westmoreland Coal Company (originally
filed as Exhibit 3(a) to the registrant's Annual Report on Form 10-K (File
No. 001-11155) for the year ended December 31, 1994, superseded by copy filed
herewith).
3.2
Bylaws, as amended, of Westmoreland Coal Company (filed as Exhibit 3(b) to the
registrant's Current Report on Form 8-K (File No. 001-11155) filed June 21,
1999 and incorporated herein by reference).
4.1
Specimen certificate representing the Common Stock of Westmoreland Coal Company
(filed as Exhibit 4(c) to the registrant's Registration Statement on Form
S-2 (Registration No. 33-1950) filed December 4, 1985 and incorporated herein by
reference).
4.2
Indenture between Westmoreland and Fidelity Bank, National Association, as
Trustee relating to the Exchange Debentures (originally filed as Exhibit 4.1 to
the registrant's Registration Statement on Form S-2 (Registration No.
33-47872) filed May 13, 1992, as subsequently amended, superseded by copy filed
herewith).
4.3
Form of Exchange Debenture (originally filed as Exhibit 4.2 to the
registrant's Registration Statement on Form S-2 (Registration No. 33-47872)
filed May 13, 1992, as subsequently amended, included as part of the
indenture between Westmoreland and Fidelity Bank, National Association,
superseded by copy filed herewith).
4.4
Deposit Agreement among Westmoreland, First Chicago Trust Company of New York,
as Depository and the holders from time to time of the Depositary Receipts
(originally filed as Exhibit 4.3 to the registrant's Registration Statement
on Form S-2 (Registration No. 33-47872) filed May 13, 1992, as subsequently
amended, superseded by copy filed herewith).
4.5
Form of Depositary Receipt (originally filed as Exhibit 4.7 to the
registrant's Registration Statement on Form S-2 (Registration No. 33-47872)
filed May 13, 1992, as subsequently amended, included as part of the Deposit
Agreement among Westmoreland, First Chicago Trust Company of New York, as
Depository and the holders from time to time of the Depositary Receipts filed
herewith).
II-3
4.6
Specimen certificate representing the Preferred Stock of Westmoreland Coal
Company (filed as Exhibit 4.6 to the registrant's Registration Statement on
Form S-2 (Registration No. 33-47872) filed May 13, 1992, as subsequently
amended, and incorporated herein by reference).
4.7
Amended and Restated Rights Agreement, dated as of February 7, 2003, between
Westmoreland Coal Company and EquiServe Trust Company, N.A. (filed as Exhibit
4.1 to the registrant's Current Report on Form 8-K (File No. 001-11155)
filed February 7, 2003 and incorporated herein by reference).
4.8
Form of Subscription Rights Certificate (to be filed by amendment).
5.1
Opinion of W. Michael Lepchitz, Esq.
10.1
Westmoreland Coal Company 1985 Incentive Stock Option and Stock Appreciation
Rights Plan (filed as Exhibit 10(c) to the registrant's Registration
Statement on Form S-2 (Registration No. 33-1950) filed December 4, 1985 and
incorporated herein by reference).
10.2
Executive Severance Policy, established in 1990 for certain executive officers
of Westmoreland Coal Company (the description of the Executive Severance Policy
was originally included in the registrant's Definitive Proxy Statement
(File No. 001-11155) filed April 20, 2000, superseded by copy filed
herewith).
10.3
Westmoreland Coal Company 1991 Non-Qualified Stock Option Plan for Non-Employee
Directors (filed as Exhibit 10(i) to the registrant's Annual Report on Form
10-K (File No. 0-752) for the year ended December 31, 1990 and incorporated
herein by reference).
10.4
Supplemental Executive Retirement Plan, effective January 1, 1992, for certain
executive officers and other key individuals, to supplement Westmoreland's
Retirement Plan (filed as Exhibit 10(d) to the registrant's Annual Report
on Form 10-K (File No. 001-11155) for the year ended December 31, 2000 and
incorporated herein by reference).
10.5
Amended Coal Lease Agreement between Westmoreland Resources, Inc. and Crow Tribe
of Indians, dated November 26, 1974, as further amended in 1982 (filed as
Exhibit 10(a) to the registrant's Quarterly Report on Form 10-Q (File No.
0-752) for the quarter ended March 31, 1992 and incorporated herein by
reference).
10.6
Westmoreland Coal Company 1995 Long-Term Incentive Stock Plan (filed as Appendix
3 to the registrant's Definitive Proxy Statement (File No. 0-752) filed
April 28, 1995 and incorporated herein by reference).
II-4
10.7
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 (filed as Exhibit 99.2 to the registrant's Current
Report on Form 8-K (File No. 001-11155) filed February 4, 1999 and incorporated
herein by reference).
10.8
Westmoreland Coal Company 1996 Directors' Stock Incentive Plan (filed as
Exhibit 10(i) to the registrant's Annual Report on Form 10-K (File No.
001-11155) for the year ended December 31, 2000 and incorporated herein by
reference).
10.9
Westmoreland Coal Company 2000 Nonemployee Directors' Stock Incentive Plan
(filed as Exhibit 10(j) to the registrant's Annual Report on Form 10-K
(File No. 001-11155) for the year ended December 31, 2000 and incorporated
herein by reference).
10.10
Westmoreland Coal Company 2000 Long-Term Incentive Stock Plan (filed as Annex A to
                     the registrant's Definitive Proxy Statement (File No. 001-11155) filed April 20, 2000
                     and incorporated herein by reference).
10.11
Westmoreland Coal Company 2001 Directors Compensation Policy.
10.12
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 (filed as Exhibit 10.1 to the registrant's Quarterly Report on Form
10-Q (File No. 001-11155) for the quarter ended June 30, 2001 and incorporated
herein by reference).
10.13
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 (filed as Exhibit 10.2 to the
registrant's Quarterly Report on Form 10-Q (File No. 001-11155) for the
quarter ended June 30, 2001 and incorporated herein by reference).
II-5
10.14
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 (filed as Exhibit 10.3 to the registrant's Quarterly Report
on Form 10-Q (File No. 001-11155) for the quarter ended June 30, 2001 and
incorporated herein by reference).
10.15
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 (filed as Exhibit 10.4 to
the registrant's Quarterly Report on Form 10-Q (File No. 001-11155) for the
quarter ended June 30, 2001 and incorporated herein by reference).
10.16
Lignite Supply Agreement dated August 29, 1979, between Northwestern Resources Co.
                     and Utility Fuels Inc. (filed as Exhibit 10.5 to the registrant's Quarterly Report on
                     Form 10-Q (File No. 001-11155) for the quarter ended June 30, 2001 and incorporated
                     herein by reference).
10.17
Settlement Agreement and Amendment of Existing Contracts dated August 2, 1999,
                     between Northwestern Resources Co. and Reliant Energy, Incorporated (filed as Exhibit
                     10.6 to the registrant's Quarterly Report on Form 10-Q (File No. 001-11155) for the
                     quarter ended June 30, 2001 and incorporated herein by reference).
10.18
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 (filed as
Exhibit 99.2 to the registrant's Current Report on Form 8-K (File No.
001-11155) filed May 15, 2001 and incorporated herein by reference).
10.19
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 (filed as Exhibit 99.3 to
the registrant's Current Report on Form 8-K (File No. 001-11155) filed May
15, 2001 and incorporated herein by reference).
II-6
10.20
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 (filed
as Exhibit 10.7 to the registrant's Quarterly Report on Form 10-Q (File No.
001-11155) for the quarter ended June 30, 2001 and incorporated herein by
reference).
10.21
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 (filed as
Exhibit 10.8 to the registrant's Quarterly Report on Form 10-Q (File No.
001-11155) for the quarter ended June 30, 2001 and incorporated herein by
reference).
10.22
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 (filed as Exhibit
10(w) to the registrant's Annual Report on Form 10-K (File No. 001-11155)
for the year ended December 31, 2001 and incorporated herein by reference).
10.23
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 (filed as
Exhibit 10(x) to the registrant's Annual Report on Form 10-K (File No.
001-11155) for the year ended December 31, 2001 and incorporated herein by
reference).
10.24
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 (filed as Exhibit 10.1
to the registrant's Current Report on Form 8-K (File No. 001-11155) filed
March 10, 2004 and incorporated herein by reference).
10.25
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 (filed as Exhibit
10.2 to the registrant's Current Report on Form 8-K (File No. 001-11155)
filed March 10, 2004 and incorporated herein by reference).
10.26
Loan Agreement dated as of December 14, 2001 between Westmoreland Coal Company,
a Delaware corporation, and First Interstate Bank, a Montana corporation (filed
as Exhibit 10.1 to the registrant's Current Report on Form 8-K (File No.
001-11155) filed December 19, 2001 and incorporated herein by reference).
II-7
10.27
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 (filed as Exhibit 10.1 to the
registrant's Current Report on Form 8-K (File No. 001-11155) filed January
28, 2003 and incorporated herein by reference).
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 (filed as Exhibit 10.2 to the
registrant's Current Report on Form 8-K (File No. 001-11155) filed January
28, 2003 and incorporated herein by reference).
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 (filed as Exhibit 10.1 to the
registrant's Current Report on Form 8-K (File No. 001-11155) filed June 30,
2004 and incorporated herein by reference).
10.30
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 (filed as Exhibit 99.4 to
the registrant's Current Report on Form 8-K (File No. 001-11155) filed May
15, 2001 and incorporated herein by reference).
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 banks
in connection with the Revolving Credit Agreement (filed as Exhibit 99.5 to the
registrant's Current Report on Form 8-K (File No. 001-11155) filed May 15,
2001 and incorporated herein by reference).
10.32
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 (filed as Exhibit 99.6 to the registrant's Current Report on Form
8-K (File No. 001-11155) filed May 15, 2001 and incorporated herein by
reference).
II-8
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 PNC Bank, National Association, as
agent for the banks in connection with that Credit Agreement (filed as Exhibit
99.7 to the registrant's Current Report on Form 8-K (File No. 001-11155)
filed May 15, 2001 and incorporated herein by reference).
10.34
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 (filed as Exhibit 99.8 to
the registrant's Current Report on Form 8-K (File No. 001-11155) filed May
15, 2001 and incorporated herein by reference).
10.35
Stock Purchase Agreement dated as of September 15, 2000, by and between
Westmoreland Coal Company and Entech, Inc. (filed as Exhibit 99.1 to the
registrant's Current Report on Form 8-K (File No. 001-11155) filed February
5, 2001 and incorporated herein by reference).
10.36
Westmoreland Coal Company 2002 Long-Term Incentive Stock Plan (filed as Annex A
to the registrant's Definitive Proxy Statement (File No. 001-11155) filed
April 23, 2002 and incorporated herein by reference).
10.37
Letter Agreement dated June 18, 2002, between Reliant-HL&P and Northwestern
Resources Co. (filed as Exhibit 10.1 to the registrant's Quarterly Report
on Form 10-Q (File No. 001-11155) for the quarter ended June 30, 2002 and
incorporated herein by reference).
10.38
Approved Westmoreland Coal Company 2000 Performance Unit Plan, dated May 22,
2003 (filed as Exhibit 10.1 to the registrant's Quarterly Report on Form
10-Q (File No. 001-11155) for the quarter ended June 30, 2003 and incorporated
herein by reference).
10.39
First Amendment to Westmoreland Coal Company 2000 Non-employee Directors'
Stock Incentive Plan, dated May 22, 2003 (filed as Exhibit 10.2 to the
registrant's Quarterly Report on Form 10-Q (File No. 001-11155) for the
quarter ended June 30, 2003 and incorporated herein by reference).
10.40
Termination Agreement for Robert J. Jaeger, Chief Financial Officer (filed as
Exhibit 10.3 to the registrant's Quarterly Report on Form 10-Q (File No.
001-11155) for the quarter ended June 30, 2003 and incorporated herein by
reference).
II-9
10.41
Supplemental Settlement Agreement and Amendment of Existing Contracts Between
Northwestern Resources Company and Texas Genco, L.P. dated January 30, 2004
(filed as Exhibit 10(nn) to the registrant's Annual Report on Form 10-K
(File No. 001-11155) for the year ended December 31, 2003 and incorporated
herein by reference).
21.1
Subsidiaries of Westmoreland Coal Company.
23.1
Consent of KPMG LLP.
23.2
Consent of W. Michael Lepchitz (included in Exhibit 5.1 filed herewith).
23.3
Consent of IntraSearch Inc.
24.1
Power of Attorney (included on the signature pages of this Registration Statement).
99.1
Form of Instructions for Use of Westmoreland Coal Company Subscription Rights
                     Certificates (to be filed by amendment).
99.2
Form of Notice of Guaranteed Delivery for Subscription Rights Certificates (to be
                     filed by amendment).
99.3
Form of Letter from Westmoreland Coal Company to Stockholders who are Record Holders
                     (to be filed by amendment).
99.4
Form of Letter from Westmoreland Coal Company to Securities Dealers, Commercial
                     Banks, Trust Companies and other Nominees (to be filed by amendment).
99.5
Form of Letter from Nominees to Stockholders who are Beneficial Owners (to be filed
                     by amendment).
99.6
Form of Nominee Holder Certification (to be filed by amendment).
99.7
Form of Beneficial Owner Election Form (to be filed by amendment).
(b)
Financial Statement Schedules.
Schedule II - Valuation and Qualifying Accounts.
All other schedules for
which provision is made in the applicable accounting regulation of the
Securities and Exchange Commission are not required under the related
instructions or are inapplicable, and therefore have been omitted.
II-10
Item 17.
Undertakings.
Insofar as indemnification
for liabilities arising under the Securities Act may be permitted to directors,
officers and controlling persons of the registrant pursuant to the
indemnification provisions described herein, or otherwise, the registrant has
been advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Securities Act and
is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer or controlling person of the registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
The undersigned registrant hereby undertakes that:
(1) For the purpose of determining any liability under the Securities Act of 1933, the information omitted from the form of
prospectus filed as part of this registration statement in reliance upon Rule 430A and contained in a form of prospectus filed by the
registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be part of this registration
statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities Act of 1933, each post-effective amendment that
contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.
II-11
SIGNATURES
Pursuant to the
requirements of the Securities Act of 1933, as amended, the registrant certifies
that it has duly caused this registration statement to be signed on its behalf
by the undersigned, thereunto duly authorized, in the city of Colorado Springs,
State of Colorado, on July 28, 2004.
WESTMORELAND COAL COMPANY
By:
/s/ Christopher K. Seglem
Christopher K. Seglem
Chairman of the Board, President, and Chief Executive Officer
SIGNATURES
AND POWER OF ATTORNEY
We, the undersigned
officers and directors of Westmoreland Coal Company, hereby severally constitute
and appoint W. Michael Lepchitz, Ronald H. Beck and Thomas S. Barta, and each of
them singly, our true and lawful attorneys with full power to them, and to each
of them singly, to sign for us and in our names in the capacities indicated
below the Registration Statement on Form S-1 filed herewith and any and all
pre-effective and post-effective amendments to said Registration Statement and
generally to do all such things in our name and behalf in our capacities as
officers and directors to enable Westmoreland Coal Company to comply with the
provisions of the Securities Act of 1933, as amended, and all requirements of
the Securities and Exchange Commission, hereby ratifying and confirming our
signatures as they may be signed by our said attorneys, or any of them, to said
Registration Statement and any and all amendments thereto.
Pursuant to the
requirements of the Securities Act of 1933, as amended, this Registration
Statement has been signed by the following persons in the capacities and on the
dates indicated.
Signature
Title
Date
/s/ Christopher K.
      Seglem
Christopher K. Seglem
Chairman of the Board of Directors,
President, and Chief Executive Officer
(Principal executive
                                          officer)
July 28, 2004
/s/ Ronald H. Beck
Ronald H. Beck
Vice President of Finance and Treasurer
(Principal
                            financial officer)
July 28, 2004
/s/ Thomas S. Barta
Thomas S. Barta
Controller
(Principal accounting officer)
July 28, 2004
II-12
/s/ Michael Armstrong
Michael Armstrong
Director
July 28, 2004
/s/ Thomas J. Coffey
Thomas J. Coffey
Director
July 28, 2004
/s/ Pemberton Hutchinson
Pemberton Hutchinson
Director
July 28, 2004
/s/ Robert E. Killen
Robert E. Killen
Director
July 28, 2004
/s/ Thomas W. Ostrander
Thomas W. Ostrander
Director
July 28, 2004
/s/ James W. Sight
James W. Sight
Director
July 28, 2004
/s/ William M. Stern
William M. Stern
Director
July 28, 2004
/s/ Donald A. Tortorice
Donald A. Tortorice
Director
July 28, 2004
II-13
EXHIBIT INDEX
EXHIBIT
NUMBER
DESCRIPTION
3.1
Restated Certificate of Incorporation of Westmoreland Coal Company (originally
filed as Exhibit 3(a) to the registrant's Annual Report on Form 10-K (File
No. 001-11155) for the year ended December 31, 1994, superseded by copy filed
herewith).
3.2
Bylaws, as amended, of Westmoreland Coal Company (filed as Exhibit 3(b) to the
registrant's Current Report on Form 8-K (File No. 001-11155) filed June 21,
1999 and incorporated herein by reference).
4.1
Specimen certificate representing the Common Stock of Westmoreland Coal Company
(filed as Exhibit 4(c) to the registrant's Registration Statement on Form
S-2 (Registration No. 33-1950) filed December 4, 1985 and incorporated herein by
reference).
4.2
Indenture between Westmoreland and Fidelity Bank, National Association, as
Trustee relating to the Exchange Debentures (originally filed as Exhibit 4.1 to
the registrant's Registration Statement on Form S-2 (Registration No.
33-47872) filed May 13, 1992, as subsequently amended, superseded by copy filed
herewith).
4.3
Form of Exchange Debenture (originally filed as Exhibit 4.2 to the
registrant's Registration Statement on Form S-2 (Registration No. 33-47872)
filed May 13, 1992, as subsequently amended, included as part of the
indenture between Westmoreland and Fidelity Bank, National Association,
superseded by copy filed herewith).
4.4
Deposit Agreement among Westmoreland, First Chicago Trust Company of New York,
as Depository and the holders from time to time of the Depositary Receipts
(originally filed as Exhibit 4.3 to the registrant's Registration Statement
on Form S-2 (Registration No. 33-47872) filed May 13, 1992, as subsequently
amended, superseded by copy filed herewith).
4.5
Form of Depository Receipt (originally filed as Exhibit 4.7 to the
registrant's Registration Statement on Form S-2 (Registration No. 33-47872)
filed May 13, 1992, as subsequently amended, included as part of the Deposit
Agreement among Westmoreland, First Chicago Trust Company of New York, as
Depository and the holders from time to time of the Depositary Receipts filed
herewith).
4.6
Specimen certificate representing the Preferred Stock of Westmoreland Coal
Company (filed as Exhibit 4.6 to the registrant's Registration Statement on
Form S-2 (Registration No. 33-47872) filed May 13, 1992, as subsequently
amended, and incorporated herein by reference).
II-14
4.7
Amended and Restated Rights Agreement, dated as of February 7, 2003, between
Westmoreland Coal Company and EquiServe Trust Company, N.A. (filed as Exhibit
4.1 to the registrant's Current Report on Form 8-K (File No. 001-11155)
filed February 7, 2003 and incorporated herein by reference).
4.8
Form of Subscription Rights Certificate (to be filed by amendment).
5.1
Opinion of W. Michael Lepchitz, Esq.
10.1
Westmoreland Coal Company 1985 Incentive Stock Option and Stock Appreciation
Rights Plan (filed as Exhibit 10(c) to the registrant's Registration
Statement on Form S-2 (Registration No. 33-1950) filed December 4, 1985 and
incorporated herein by reference).
10.2
Executive Severance Policy, established in 1990 for certain executive officers
of Westmoreland Coal Company (the description of the Executive Severance Policy
was originally included in the registrant's Definitive Proxy Statement
(File No. 001-11155) filed April 20, 2000, superseded by copy filed
herewith).
10.3
Westmoreland Coal Company 1991 Non-Qualified Stock Option Plan for Non-Employee
Directors (filed as Exhibit 10(i) to the registrant's Annual Report on Form
10-K (File No. 0-752) for the year ended December 31, 1990 and incorporated
herein by reference).
10.4
Supplemental Executive Retirement Plan, effective January 1, 1992, for certain
executive officers and other key individuals, to supplement Westmoreland's
Retirement Plan (filed as Exhibit 10(d) to the registrant's Annual Report
on Form 10-K (File No. 001-11155) for the year ended December 31, 2000 and
incorporated herein by reference).
10.5
Amended Coal Lease Agreement between Westmoreland Resources, Inc. and Crow Tribe
of Indians, dated November 26, 1974, as further amended in 1982 (filed as
Exhibit 10(a) to the registrant's Quarterly Report on Form 10-Q (File No.
0-752) for the quarter ended March 31, 1992 and incorporated herein by
reference).
10.6
Westmoreland Coal Company 1995 Long-Term Incentive Stock Plan (filed as Appendix
3 to the registrant's Definitive Proxy Statement (File No. 0-752) filed
April 28, 1995 and incorporated herein by reference).
II-15
10.7
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 (filed as Exhibit 99.2 to the registrant's Current
Report on Form 8-K (File No. 001-11155) filed February 4, 1999 and incorporated
herein by reference).
10.8
Westmoreland Coal Company 1996 Directors' Stock Incentive Plan (filed as
Exhibit 10(i) to the registrant's Annual Report on Form 10-K (File No.
001-11155) for the year ended December 31, 2000 and incorporated herein by
reference).
10.9
Westmoreland Coal Company 2000 Nonemployee Directors' Stock Incentive Plan
(filed as Exhibit 10(j) to the registrant's Annual Report on Form 10-K
(File No. 001-11155) for the year ended December 31, 2000 and incorporated
herein by reference).
10.10
Westmoreland Coal Company 2000 Long-Term Incentive Stock Plan (filed as Annex A to
                     the registrant's Definitive Proxy Statement (File No. 001-11155) filed April 20, 2000
                     and incorporated herein by reference).
10.11
Westmoreland Coal Company 2001 Directors Compensation Policy.
10.12
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 (filed as Exhibit 10.1 to the registrant's Quarterly Report on Form
10-Q (File No. 001-11155) for the quarter ended June 30, 2001 and incorporated
herein by reference).
10.13
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 (filed as Exhibit 10.2 to the
registrant's Quarterly Report on Form 10-Q (File No. 001-11155) for the
quarter ended June 30, 2001 and incorporated herein by reference).
II-16
10.14
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 (filed as Exhibit 10.3 to the registrant's Quarterly Report
on Form 10-Q (File No. 001-11155) for the quarter ended June 30, 2001 and
incorporated herein by reference).
10.15
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 (filed as Exhibit 10.4 to
the registrant's Quarterly Report on Form 10-Q (File No. 001-11155) for the
quarter ended June 30, 2001 and incorporated herein by reference).
10.16
Lignite Supply Agreement dated August 29, 1979, between Northwestern Resources Co.
                     and Utility Fuels Inc. (filed as Exhibit 10.5 to the registrant's Quarterly Report on
                     Form 10-Q (File No. 001-11155) for the quarter ended June 30, 2001 and incorporated
                     herein by reference).
10.17
Settlement Agreement and Amendment of Existing Contracts dated August 2, 1999,
                     between Northwestern Resources Co. and Reliant Energy, Incorporated (filed as Exhibit
                     10.6 to the registrant's Quarterly Report on Form 10-Q (File No. 001-11155) for the
                     quarter ended June 30, 2001 and incorporated herein by reference).
10.18
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 (filed as
Exhibit 99.2 to the registrant's Current Report on Form 8-K (File No.
001-11155) filed May 15, 2001 and incorporated herein by reference).
10.19
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 (filed as Exhibit 99.3 to
the registrant's Current Report on Form 8-K (File No. 001-11155) filed May
15, 2001 and incorporated herein by reference).
II-17
10.20
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 (filed
as Exhibit 10.7 to the registrant's Quarterly Report on Form 10-Q (File No.
001-11155) for the quarter ended June 30, 2001 and incorporated herein by
reference).
10.21
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 (filed as
Exhibit 10.8 to the registrant's Quarterly Report on Form 10-Q (File No.
001-11155) for the quarter ended June 30, 2001 and incorporated herein by
reference).
10.22
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 (filed as Exhibit
10(w) to the registrant's Annual Report on Form 10-K (File No. 001-11155)
for the year ended December 31, 2001 and incorporated herein by reference).
10.23
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 (filed as
Exhibit 10(x) to the registrant's Annual Report on Form 10-K (File No.
001-11155) for the year ended December 31, 2001 and incorporated herein by
reference).
10.24
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 (filed as Exhibit 10.1
to the registrant's Current Report on Form 8-K (File No. 001-11155) filed
March 10, 2004 and incorporated herein by reference).
10.25
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 (filed as Exhibit
10.2 to the registrant's Current Report on Form 8-K (File No. 001-11155)
filed March 10, 2004 and incorporated herein by reference).
10.26
Loan Agreement dated as of December 14, 2001 between Westmoreland Coal Company,
a Delaware corporation, and First Interstate Bank, a Montana corporation (filed
as Exhibit 10.1 to the registrant's Current Report on Form 8-K (File No.
001-11155) filed December 19, 2001 and incorporated herein by reference).
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10.27
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 (filed as Exhibit 10.1 to the
registrant's Current Report on Form 8-K (File No. 001-11155) filed January
28, 2003 and incorporated herein by reference).
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 (filed as Exhibit 10.2 to the
registrant's Current Report on Form 8-K (File No. 001-11155) filed January
28, 2003 and incorporated herein by reference).
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 (filed as Exhibit 10.1 to the
registrant's Current Report on Form 8-K (File No. 001-11155) filed June 30,
2004 and incorporated herein by reference).
10.30
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 (filed as Exhibit 99.4 to
the registrant's Current Report on Form 8-K (File No. 001-11155) filed May
15, 2001 and incorporated herein by reference).
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 banks
in connection with the Revolving Credit Agreement (filed as Exhibit 99.5 to the
registrant's Current Report on Form 8-K (File No. 001-11155) filed May 15,
2001 and incorporated herein by reference).
10.32
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 (filed as Exhibit 99.6 to the registrant's Current Report on Form
8-K (File No. 001-11155) filed May 15, 2001 and incorporated herein by
reference).
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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 PNC Bank, National Association, as
agent for the banks in connection with that Credit Agreement (filed as Exhibit
99.7 to the registrant's Current Report on Form 8-K (File No. 001-11155)
filed May 15, 2001 and incorporated herein by reference).
10.34
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 (filed as Exhibit 99.8 to
the registrant's Current Report on Form 8-K (File No. 001-11155) filed May
15, 2001 and incorporated herein by reference).
10.35
Stock Purchase Agreement dated as of September 15, 2000, by and between
Westmoreland Coal Company and Entech, Inc. (filed as Exhibit 99.1 to the
registrant's Current Report on Form 8-K (File No. 001-11155) filed February
5, 2001 and incorporated herein by reference).
10.36
Westmoreland Coal Company 2002 Long-Term Incentive Stock Plan (filed as Annex A
to the registrant's Definitive Proxy Statement (File No. 001-11155) filed
April 23, 2002 and incorporated herein by reference).
10.37
Letter Agreement dated June 18, 2002, between Reliant-HL&P and Northwestern
Resources Co. (filed as Exhibit 10.1 to the registrant's Quarterly Report
on Form 10-Q (File No. 001-11155) for the quarter ended June 30, 2002 and
incorporated herein by reference).
10.38
Approved Westmoreland Coal Company 2000 Performance Unit Plan, dated May 22,
2003 (filed as Exhibit 10.1 to the registrant's Quarterly Report on Form
10-Q (File No. 001-11155) for the quarter ended June 30, 2003 and incorporated
herein by reference).
10.39
First Amendment to Westmoreland Coal Company 2000 Non-employee Directors'
Stock Incentive Plan, dated May 22, 2003 (filed as Exhibit 10.2 to the
registrant's Quarterly Report on Form 10-Q (File No. 001-11155) for the
quarter ended June 30, 2003 and incorporated herein by reference).
10.40
Termination Agreement for Robert J. Jaeger, Chief Financial Officer (filed as
Exhibit 10.3 to the registrant's Quarterly Report on Form 10-Q (File No.
001-11155) for the quarter ended June 30, 2003 and incorporated herein by
reference).
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10.41
Supplemental Settlement Agreement and Amendment of Existing Contracts Between
Northwestern Resources Company and Texas Genco, L.P. dated January 30, 2004
(filed as Exhibit 10(nn) to the registrant's Annual Report on Form 10-K
(File No. 001-11155) for the year ended December 31, 2003 and incorporated
herein by reference).
21.1
Subsidiaries of Westmoreland Coal Company.
23.1
Consent of KPMG LLP.
23.2
Consent of W. Michael Lepchitz (included in Exhibit 5.1 filed herewith).
23.3
Consent of IntraSearch Inc.
24.1
Power of Attorney (included on the signature pages of this Registration Statement).
99.1
Form of Instructions for Use of Westmoreland Coal Company Subscription Rights
                     Certificates (to be filed by amendment).
99.2
Form of Notice of Guaranteed Delivery for Subscription Rights Certificates (to be
                     filed by amendment).
99.3
Form of Letter from Westmoreland Coal Company to Stockholders who are Record Holders
                     (to be filed by amendment).
99.4
Form of Letter from Westmoreland Coal Company to Securities Dealers, Commercial
                     Banks, Trust Companies and other Nominees (to be filed by amendment).
99.5
Form of Letter from Nominees to Stockholders who are Beneficial Owners (to be filed
                     by amendment).
99.6
Form of Nominee Holder Certification (to be filed by amendment).
99.7
Form of Beneficial Owner Election Form (to be filed by amendment).
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