WESTMORELAND COAL CO
10-Q, 1999-08-16
BITUMINOUS COAL & LIGNITE MINING
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                                    FORM 10-Q

                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION

                             Washington, D.C. 20549

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

                  For the quarterly period ended June 30, 1999

                                       OR

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

            for the transition period from __________ to ___________

                             Commission File Number
                                      0-752

                            WESTMORELAND COAL COMPANY
                            -------------------------
             (Exact name of registrant as specified in its charter)

          DELAWARE                                               23-1128670
          --------                                               ----------
(State or other jurisdiction                                  (I.R.S. Employer
of incorporation or organization)                            Identification No.)

2 North Cascade Avenue 14th Floor Colorado Springs, Colorado               80903
- --------------------------------------------------------------------------------
(Address of principal executive offices)                              (Zip Code)

Registrant's telephone number, area code                            719-442-2600
                                                                    ------------

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

             Yes  [X]    No  [ ]

Indicate the number of shares  outstanding  of each of the  issuer's  classes of
common stock, as of August 1, 1999: 7,059,663

<PAGE>
                         PART I - FINANCIAL INFORMATION

                                     Item 1
                              Financial Statements
<TABLE>
Westmoreland Coal Company and Subsidiaries
Condensed Consolidated Balance Sheets
- -----------------------------------------------------------------------------------------------------------------------------
                                                                                                (Unaudited)
                                                                                   June 30, 1999           December 31, 1998
- ----------------------------------------------------------------------------- -------------------- -- -----------------------
                                                                                               (in thousands)
<CAPTION>
<S>                                                                                    <C>                        <C>
Assets
Current assets:
   Cash and cash equivalents                                                           $   32,641                 $  84,073
   Receivables:
       Trade                                                                                2,390                     2,566
       Terminated pension plan, net                                                           500                       500
       Other                                                                                  919                     2,730
- ----------------------------------------------------------------------------- -------------------- -- ----------------------
                                                                                            3,809                     5,796
   Other current assets                                                                     2,473                       691
- ----------------------------------------------------------------------------- -------------------- -- ----------------------
       Total current assets                                                                38,923                    90,560
- ----------------------------------------------------------------------------- -------------------- -- ----------------------

Property, plant and equipment:
       Land and mineral rights                                                             10,990                    10,990
       Plant and equipment                                                                 96,647                    94,989
- ----------------------------------------------------------------------------- -------------------- -- ----------------------
                                                                                          107,637                   105,979
       Less accumulated depreciation and depletion                                         69,775                    69,029
- ----------------------------------------------------------------------------- -------------------- -- ----------------------
                                                                                           37,862                    36,950

Investment in independent power projects                                                   44,947                    62,386
Investment in Dominion Terminal Associates (DTA)                                            4,930                     5,475
Workers' compensation bond                                                                  3,776                     4,140
Prepaid pension cost                                                                        3,858                     3,748
Excess of trust assets over pneumoconiosis benefit obligation                               9,137                    10,891
Security deposits                                                                          10,148                         -
Other assets                                                                                1,514                     1,456
- ----------------------------------------------------------------------------- -------------------- -- ----------------------

       Total Assets                                                                    $  155,095                 $ 215,606
============================================================================= ==================== == ======================
                                                                                                                  (Continued)
See accompanying Notes to Condensed Consolidated Financial Statements.

<PAGE>
Westmoreland Coal Company and Subsidiaries
Condensed Consolidated Balance Sheets (Continued)
- -----------------------------------------------------------------------------------------------------------------------------

                                                                                               (Unaudited)
                                                                                  June 30, 1999            December 31, 1998
 --------------------------------------------------------------------------- -------------------- -- ------------------------
                                                                                             (in thousands)
 Liabilities and Shareholders' Equity
 Current liabilities:
    Current installments of long-term debt                                             $     217                  $     200
    Accounts payable and accrued expenses                                                  7,927                     11,249
    Workers compensation                                                                   3,200                      3,800
    Postretirement medical costs                                                          11,066                     11,066
    Reorganization expenses                                                                1,257                      7,900
    Consent judgment payment obligation                                                        -                     39,006
    Reclamation costs                                                                        100                        100
    Income taxes                                                                              75                      2,185
 --------------------------------------------------------------------------- -------------------- -- -----------------------
    Total current liabilities                                                             23,842                     75,506
 --------------------------------------------------------------------------- -------------------- -- -----------------------

 Long-term debt, less current installments                                                 1,323                      1,562
 Accrual for workers compensation                                                         16,161                     17,338
 Accrual for postretirement medical costs                                                 78,358                     73,143
 1974 UMWA Pension Plan obligations                                                       12,463                     13,776
 Accrual for reclamation costs, less current portion                                       3,220                      3,046
 Other liabilities                                                                         1,797                      2,370

 Minority interest                                                                         7,395                      7,020

 Commitments and contingent liabilities

 Shareholders' equity
    Preferred stock of $1.00 par value
      Authorized 5,000,000 shares;
      Issued 311,843 shares at June 30, 1999,                                                312                        575
             575,000 shares at December 31, 1998
    Common stock of $2.50 par value
      Authorized 20,000,000 shares;
      Issued 7,059,663 shares at June 30, 1999,                                           17,649                     17,413
             6,965,328 shares at December 31, 1998
    Other paid-in capital                                                                 75,046                     94,630
    Accumulated deficit                                                                  (82,471)                   (90,773)
 --------------------------------------------------------------------------- -------------------- -- -----------------------
    Total shareholders' equity                                                            10,536                     21,845
 --------------------------------------------------------------------------- -------------------- -- -----------------------

    Total Liabilities and Shareholders' Equity                                         $ 155,095                  $ 215,606
 =========================================================================== ==================== == =======================
</TABLE>

See accompanying Notes to Condensed Consolidated Financial Statements.


<PAGE>
<TABLE>
Westmoreland Coal Company and Subsidiaries
Consolidated Statements of Income
- ----------------------------------------------------------------------------------------------------------------------------
                                                                                        (Unaudited)
                                                                    Three Months Ended                   Six Months Ended
                                                                         June 30,                           June 30,
                                                                   1999             1998              1999             1998
- ------------------------------------------------------ ----------------- ---------------- ----------------- ----------------
                                                                            (in thousands except per share data)
<CAPTION>
<S>                                                            <C>              <C>               <C>              <C>
Revenues:
   Coal                                                        $  8,675         $ 10,891          $ 17,234         $ 23,143
   Independent power - equity in earnings                         4,116           50,626            26,707           55,419
   DTA - equity in earnings (share of losses)                      (397)             328              (718)             245
- ------------------------------------------------------ ----------------- ---------------- ----------------- ----------------
                                                                 12,394           61,845            43,223           78,807
- ------------------------------------------------------ ----------------- ---------------- ----------------- ----------------
Costs and expenses:
   Cost of sales - coal                                           7,670            9,298            14,963           19,494
   Depreciation, depletion and amortization                         378              631               744            1,237
   Selling and administrative                                     2,102            1,627             6,777            3,038
   Heritage costs                                                 6,882            3,953            12,477            8,104
   Pension benefit                                                  (55)             (52)             (110)            (105)
   Doubtful account recoveries                                      (83)            (115)              (91)            (228)
- ------------------------------------------------------ ----------------- ---------------- ----------------- ----------------
                                                                 16,894           15,342            34,760           31,540

Operating income (loss)                                          (4,500)          46,503             8,463           47,267

Other income (expense):
   Gains on sales of assets                                          50               51                69              187
   Interest expense                                                (297)             (40)             (598)             (95)
   Interest income                                                  441                -               965                -
   Minority interest                                               (149)            (193)             (375)            (510)
   Other income (expense)                                           247             (100)             (177)           1,456
- ------------------------------------------------------ ----------------- ---------------- ----------------- ----------------
Income (loss) from operations before
  reorganization items and income taxes                          (4,208)          46,221             8,347           48,305

   Reorganization legal and consulting fees                           -             (776)                -           (1,435)
   Reorganization interest income                                     -              691                 -            1,328
   Income taxes                                                       -                -               (45)               -
- ------------------------------------------------------ ----------------- ---------------- ----------------- ----------------
Income (loss) before cumulative effect of change
  in accounting principle                                        (4,208)          46,136             8,302           48,198

Cumulative effect of change in accounting
  principle                                                           -           (9,876)                -           (9,876)
- ------------------------------------------------------ ----------------- ---------------- ----------------- ----------------

Net income (loss)                                                (4,208)          36,260             8,302           38,322

Less preferred stock dividends (in arrears)                        (663)          (1,222)           (1,326)          (2,444)
- ------------------------------------------------------ ----------------- ---------------- ----------------- ----------------

Net income (loss) applicable to common
  shareholders                                                 $ (4,871)        $ 35,038          $  6,976         $ 35,878
====================================================== ================= ================ ================= ================

Net income (loss) per share applicable to common shareholders:
Before cumulative effect of change in accounting
  principle                                                    $   (.69)        $   6.45          $    .99         $   6.57
Cumulative effect of change in accounting
  principle                                                           -            (1.42)                -            (1.42)
====================================================== ================= ================ ================= ================
                                                               $   (.69)        $   5.03          $    .99         $   5.15
====================================================== ================= ================ ================= ================
Weighted average number of common shares outstanding              7,020            6,965             7,020            6,965
====================================================== ================= ================ ================= ================
</TABLE>

See accompanying Notes to Condensed Consolidated Financial Statements.

<PAGE>
<TABLE>
Westmoreland Coal Company and Subsidiaries
Consolidated Statements of Cash Flows
- ----------------------------------------------------------------------------------------------------------------------------
                                                                                                     (Unaudited)
 Six Months Ended June 30,                                                                         1999                1998
 ---------------------------------------------------------------------------------- -------------------- -------------------
                                                                                                    (in thousands)
<CAPTION>
<S>                                                                                           <C>                 <C>
 Cash flows provided by (used in) operating activities:
 Net income                                                                                   $   8,302           $  38,322
 Adjustments to reconcile net income to net cash
   provided by (used in) operating activities:
       Equity earnings from independent power projects                                          (26,707)            (55,419)
       Cash received from independent power projects                                             44,106              33,136
       Equity in losses from DTA                                                                    718                (245)
       Cash generated by DTA                                                                        665               1,298
       Cash contributions to DTA                                                                   (838)             (1,066)
       Depreciation, depletion and amortization                                                     744               1,237
       Combined Benefit Fund prepayments                                                         (1,492)                  -
       Gain on disposition of assets                                                                (69)               (187)
       Minority interest                                                                            375                 510
       Cumulative effect of change in accounting principle                                            -               9,876
       Other                                                                                       (308)               (490)

 Changes in assets and liabilities:
       Accounts receivable, net of allowance for doubtful accounts                                1,987              14,411
       Workers' compensation bond                                                                   364               1,428
       Prepaid pension asset                                                                       (110)               (105)
       Excess of trust assets over pneumoconiosis benefit obligation                              1,754                  50
       Security deposits                                                                        (10,148)                  -
       Accounts payable and accrued expenses                                                     (3,322)             (1,300)
       Income tax payable                                                                        (2,110)                  -
       Accrual for workers compensation                                                          (1,777)                  -
       Accrual for postretirement medical costs                                                   5,215                   -
       Accrual for reorganization expenses                                                       (6,643)                  -
       Consent judgment payment obligation                                                      (39,006)                  -
       Other liabilities                                                                           (399)                  -
       1974 UMWA Pension Plan obligations                                                        (1,313)                  -
 ---------------------------------------------------------------------------------- -------------------- -------------------
 Net cash provided by (used in) operating activities before reorganization items                (30,012)             41,456
 ---------------------------------------------------------------------------------- -------------------- -------------------
 Changes in reorganization items                                                                      -               5,856
 ---------------------------------------------------------------------------------- -------------------- -------------------
 Net cash provided by (used in) operating activities                                            (30,012)             47,312
 ---------------------------------------------------------------------------------- -------------------- -------------------

 Cash flows provided by (used in) investing activities:
    Fixed asset  additions                                                                       (1,656)               (125)
    Net proceeds from sales of assets                                                                69                 196
 ---------------------------------------------------------------------------------- -------------------- -------------------
 Net cash provided by (used in) investing activities                                             (1,587)                 71
 ---------------------------------------------------------------------------------- -------------------- -------------------

 Cash flows provided by (used in) financing activities:
    Repayment of long-term debt                                                                    (222)                (47)
    Issuance of common stock                                                                        389                   -
    Purchase of preferred stock                                                                 (20,000)                  -
 ---------------------------------------------------------------------------------- -------------------- -------------------
 Net cash used in financing activities                                                          (19,833)                (47)
 ---------------------------------------------------------------------------------- -------------------- -------------------

 Net increase (decrease) in cash and cash equivalents                                           (51,432)             47,336
 Cash and cash equivalents, beginning of period                                                  84,073              30,664
 ================================================================================== ==================== ===================
 Cash and cash equivalents, end of period                                                     $  32,641           $  78,000
 ================================================================================== ==================== ===================

 Supplemental disclosures of cash flow information:

 Cash paid during the period for:
    Interest                                                                                   $  5,446             $    27
    Taxes                                                                                      $  2,110             $     -
</TABLE>

See accompanying Notes to Condensed Consolidated Financial Statements.


<PAGE>
              Notes to Condensed Consolidated Financial Statements
- --------------------------------------------------------------------------------

The Notes contained  herein should be read in conjunction  with the Notes to the
Company's  Consolidated  Financial  Statements filed on Form 10-K/A for the year
ended December 31, 1998. The financial  information  contained in this Form 10-Q
is  unaudited  but  reflects  all  adjustments  which  are,  in the  opinion  of
management,  necessary for a fair presentation of the financial  information for
the periods shown.  Such adjustments are of a normal recurring  nature.  Certain
prior  year  amounts  have been  reclassified  to conform  to the  current  year
presentation.

1.  Nature of Operations

The Company's principal activities,  conducted within the United States are: (i)
the  production  and sale of coal from a contractor  operated mine in the Powder
River Basin in Eastern Montana;  (ii) the ownership of interests in cogeneration
and other  non-regulated  independent  power  plants;  and (iii) the  leasing of
capacity at Dominion  Terminal  Associates,  a coal  storage and vessel  loading
facility.

Chapter 11 Reorganization Proceedings

On December  23, 1996  ("Petition  Date"),  Westmoreland  Coal  Company and four
subsidiaries,  Westmoreland  Resources,  Inc.,  Westmoreland Coal Sales Company,
Westmoreland  Energy,  Inc.,  and  Westmoreland  Terminal  Company  (the "Debtor
Corporations"), filed voluntary petitions for reorganization under Chapter 11 of
the United States  Bankruptcy Code in the United States Bankruptcy Court for the
District of Colorado (the "Chapter 11 Cases").  By order of the Bankruptcy Court
entered  on  December  23,   1998,   pursuant  to  the  request  of  the  Debtor
Corporations,  the  Chapter 11 Cases were  dismissed.  There were no  objections
during the ten day stay  period  that  expired  on  January  4,  1999.  Upon the
dismissal,  the  Debtor  Corporations  were  and are no  longer  subject  to the
protections afforded or restrictions imposed by the Bankruptcy Code.

2.  Contingencies

Westmoreland Energy, Inc. ("WEI") - WEI Project Contingencies

Southampton Project - In October, 1998, the Southampton Partnership and Virginia
Power  Company   ("VEPCO")   entered  into  a  settlement   agreement  of  their
administrative  proceeding  before  the  Federal  Energy  Regulatory  Commission
concerning the project's compliance with Qualifying Facility ("QF") criteria and
payments arising out of plant performance in 1992. The settlement  provided for,
among other items, payments by the Southampton  Partnership to Virginia Power of
$1,000,000 annually for the years 1999-2001, followed by a reduction in capacity
payments from Virginia Power to the Southampton  Partnership of $500,000 for the
years 2002-2008. Following 2008, Virginia Power may elect to terminate its power
purchases from the  Southampton  Partnership or continue to receive the $500,000
annual  reduction in capacity  payments for the remainder of the power  purchase
agreement. The settlement was approved by the FERC.

Resolution of the FERC QF issue provides the  Southampton  Partnership an answer
about QF status  in 1992,  regulatory  certainty  regarding  application  of the
Federal Power Act to both the Southampton  project and the upstream partners and
owners, including WEI and Westmoreland,  and, assuming continued compliance with
loan covenants and appropriate  project  financial  performance,  the ability to
distribute earnings to the project partners.

A limited partner of LG&E-Southampton, L.P. has made a demand on the Southampton
Partnership and related LG&E and Westmoreland  entities for reimbursement in the
amount  of  $1,979,000  in  connection  with its  share of the  settlement.  The
Westmoreland entities have made a similar demand against the LG&E entities.  The
parties  have  agreed to attempt  to resolve  the  dispute  through  non-binding
mediation and a mediator has been appointed.

<PAGE>
ROVA I  Project  - WEI  owns a 50%  partnership  interest  in  Westmoreland-LG&E
Partners (the "ROVA  Partnership").  The ROVA Partnership's  principal customer,
Virginia Power,  contracted to purchase the electricity generated by ROVA I, one
of two units included in the ROVA partnership,  under a long-term  contract.  In
the second  quarter  of 1994,  that  customer  disputed  the ROVA  Partnership's
interpretation  of  provisions  of the contract  dealing with the payment of the
capacity  purchase price when the facility  experiences a "forced outage" day. A
forced outage day is a day when ROVA I is not able to generate a specified level
of  electrical  output.  The ROVA  Partnership  believes  that the  customer  is
required to pay the ROVA  Partnership  the full capacity  purchase  price unless
forced outage days exceed a  contractually  stated allowed  annual  number.  The
customer asserts that it is not required to do so.

From May,  1994,  through June,  1999,  Virginia  Power  withheld  approximately
$16,700,000 of these capacity  payments  during  periods of forced  outages.  To
date,  the  Company  has not  recognized  any  revenue on its 50% portion of the
capacity  payments being withheld by Virginia  Power.  In October 1994, the ROVA
Partnership   commenced  litigation  against  Virginia  Power  seeking  damages,
contending  that  Virginia  Power  breached  the  Power  Purchase  Agreement  in
withholding  such payments.  The case was tried beginning on October 26, 1998 in
the Circuit Court of the City of Richmond,  Virginia.  On December 2, 1998,  the
Court  entered  judgment  in the ROVA  Partnership's  favor  for the  amount  of
$14,800,000 (the amount that Virginia Power had withheld at the trial date) plus
interest for a total of $19,336,214. On December 21, 1998, Virginia Power posted
its appeal  bond and on  December  29,  1998,  noted its  appeal of the  Court's
decision  to the  Virginia  Supreme  Court.  The  Supreme  Court  agreed to hear
Virginia Power's appeal. Briefs are being prepared.  The Court will likely set a
date for Oral  Argument  before the end of 1999 and a decision  is  expected  to
follow in early  2000.  Due to the  uncertainty  of the  appeal,  the  financial
statements do not reflect any portion of this judgment.

Rensselaer - On March 15, 1999,  LG&E-Westmoreland  Rensselaer ("LWR") completed
the sale of the  Rensselaer  Project  to Fulton  Cogeneration  Associates,  L.P.
("Fulton").  LWR received approximately $68,000,000 in cash as consideration for
the sale of the  Rensselaer  plant and  operating  contracts.  After  payment of
expenses and remaining debts,  Westmoreland  Energy Inc.'s share of the proceeds
was approximately $33,000,000.

Other

In accordance with a Master Agreement  entered into among the Company,  the UMWA
Health and Benefit Funds, the Official Committee of Equity Security Holders, and
the United  Mine  Workers of America  ("UMWA"),  pursuant  to which the  parties
supported  Westmoreland's  dismissal from bankruptcy,  the Company agreed to pay
"the  reasonable  and  necessary  professional  fees and  expenses of the Equity
Committee  professionals,  Andrews  and  Kurth,  L.L.P.  and  Putnam  Hayes  and
Bartlett,  for services  rendered in connection with the Chapter 11 cases".  The
Company  paid a large  portion  of  those  fees  but has  disputed  and not paid
remaining amounts which total approximately $488,000.

On April 7, 1999,  Andrews & Kurth,  L.L.P.  and Putnam Hayes and Bartlett filed
suit in District court in the State of Colorado  seeking  payment of the amounts
allegedly  owed.  The Company  believes  the  charges  were not  reasonable  and
necessary in accordance  with the Bankruptcy  Code and the Master  Agreement and
will vigorously  contest the case. The parties have agreed to attempt to resolve
the dispute through mediation. If that is not successful,  the case is scheduled
for trial  commencing May 15, 2000. The likely outcome of the dispute is unknown
at this time. The Company has accrued the entire amount demanded.

<PAGE>
3.  Capital Stock

Preferred  stock  dividends at a rate of 8.5% per annum were paid quarterly from
the third quarter of 1992 through the first quarter of 1994. The declaration and
payment of preferred stock dividends was suspended in the second quarter of 1994
in connection with extension  agreements with the Company's  principal  lenders.
Upon the expiration of these extension agreements,  the Company paid a quarterly
dividend  on April 1, 1995 and July 1, 1995.  Pursuant  to the  requirements  of
Delaware law, described below, the preferred stock dividend was suspended in the
third quarter of 1995 as a result of  recognition  of losses and the  subsequent
shareholders'  deficit.  The nineteen quarterly  dividends which are accumulated
but unpaid  (dividend  payment dates July 1, 1994,  October 1, 1994,  January 1,
1995,  October 1, 1995, January 1, 1996, April 1, 1996, July 1, 1996, October 1,
1996,  January 1, 1997, April 1, 1997, July 1, 1997, October 1, 1997, January 1,
1998,  April 1, 1998, July 1, 1998,  October 1, 1998,  January 1, 1999, April 1,
1999,  and July 1, 1999)  amount to  $12,591,000  in the  aggregate  ($40.38 per
preferred share or $10.09 per depositary share).  Common stock dividends may not
be declared until the preferred  stock dividends that are accumulated but unpaid
are made current.

On March 10, 1999,  the Company  offered to purchase up to 1,052,631  depositary
shares,  each  representing  one quarter of a share of its Series A  Convertible
Exchangeable  Preferred Stock ("Series A Preferred  Stock").  The offer price of
$19 per share was in full  satisfaction  of claims  to  accumulated  but  unpaid
dividends on the depositary shares tendered. On April 7, 1999, the offer expired
and 1,683,903  depositary shares were tendered in response to the offer. Because
the number of shares tendered  exceeded the maximum number of shares the Company
had offered to purchase,  a proration factor of approximately  62.5% was applied
to all shares tendered.  A total of 1,052,631  depositary  shares were purchased
for $20,000,000. The balance sheet effect of this transaction was to reduce cash
and  shareholders'  equity by  $20,000,000.  Following  completion of the tender
offer,  the depositary  shares purchased in the offer were converted into shares
of  Series A  Preferred  Stock,  the  shares of Series A  Preferred  Stock  were
retired,  and the  capital of the  Company  was  reduced by the par value of the
shares of Series A Preferred Stock retired. This reduced the number of shares of
Series A Preferred Stock  outstanding  from 575,000 to 311,843,  accumulated but
unpaid dividends to $11,928,000,  and the ongoing quarterly  preferred  dividend
from $1,222,000 to $663,000.

There are  statutory  restrictions  limiting  the  payment  of  preferred  stock
dividends  under  Delaware law, the state in which the Company is  incorporated.
Under  Delaware law, the Company 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 the  Company'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  ($312,000 at June 30, 1999).  The Company
had  shareholders'  equity at June 30, 1999 of $10,536,000  and the par value of
all  outstanding  depositary  shares  and  shares  of  common  stock  aggregated
$17,961,000 at June 30, 1999.

The Company is also subject to certain  financial ratio tests under the terms of
the Master  Agreement.  The Company agreed to secure its  obligations  under the
Master  Agreement  by  providing a  Contingent  Promissory  Note  ("Note").  The
original  principal  amount of the Note is $12 million;  the principal amount of
the Note  decreases to $6 million in 2002. The Note is payable only in the event
the  Company  does not meet its  Coal  Act  obligations,  fails to meet  certain
ongoing  financial tests  specified in the Note,  fails to maintain the required
balance in the escrow account  established under an escrow agreement or fails to
comply with certain covenants set forth in a security agreement.

4.  DISPOSITION

On July 27, 1999,  the Company sold all remaining  recorded  assets of its idled
Virginia  Division.  The assets consisted of the Bullitt  Preparation  Plant and
Transloader Complex. The Company received approximately $650,000 in cash and the
purchaser  assumed  reclamation   liabilities  of  approximately  $600,000.  The
transaction  resulted  in a net  gain of  approximately  $360,000.  The  Company
continues in its efforts to sell the Virginia  Division  refuse site as a source
of coal fines. The site has no recorded asset value.

<PAGE>
5.  BUSINESS SEGMENT INFORMATION

The  Company's  operations  have been  classified  into  three  segments:  coal,
independent power operations and terminal operations.  The coal segment includes
the production and sale of coal from the Powder River Basin in eastern  Montana.
The independent power operations  segment includes the ownership of interests in
cogeneration  and other  non-regulated  independent  power plants.  The terminal
operation  segment  consists of the  leasing of  capacity  at Dominion  Terminal
Associates,  a coal storage and vessel loading  facility.  Summarized  financial
information  by segment for the  quarter and six months  ended June 30, 1999 and
1998, is as follows:

<TABLE>
  ------------------------------------ -- -------------- ----------------- ---------------- --------------- ----------------
                                                              Independent
                                                                    Power         Terminal
                                                   Coal        Operations       Operations       Corporate            Total
  ------------------------------------ -- -------------- ----------------- ---------------- --------------- ----------------
                                                                             (in thousands)
<CAPTION>
<S>                                            <C>               <C>              <C>             <C>             <C>
  Three months ended June 30, 1999:

  Total assets                                 $ 58,257          $ 51,832         $  5,843        $ 39,163        $ 155,095
  Revenues                                        8,675             4,116             (397)              -           12,394
  Operating income (loss)                           297             3,615              201          (8,633)          (4,500)

  Reconciliation of operating income to income from operations before income taxes:

  Operating income (loss)                           297             3,615              201          (8,633)          (4,500)

  Gains on sale of assets                             -                 -                -              50               50
  Interest expense                                  (36)                -                -            (261)            (297)
  Interest income                                   158                53               21             209              441
  Minority interest                                (149)                -                -               -             (149)
  Other income (expense)                             28               (17)              86             150              247
  ==================================== == ============== ================= ================ =============== ================
  Income (loss) from operations
    before income taxes                        $    298          $  3,651         $    328        $ (8,485)       $  (4,208)
  ==================================== == ============== ================= ================ =============== ================


  Three months ended June  30, 1998:

  Total assets                                 $ 56,658          $115,703         $ 20,343        $ 32,538        $ 225,242
  Revenues                                       10,891            50,626              328               -           61,845
  Operating income (loss)                           618            49,886             (223)         (3,778)          46,503

  Reconciliation of operating income to income from operations before income taxes:

  Operating income (loss)                           618            49,886             (223)         (3,778)          46,503

  Gains on sale of assets                             -                 -                -              51               51
  Interest expense                                  (41)                7                -              (6)             (40)
  Interest income                                   169               255               44             223              691
  Minority interest                                (193)                -                -               -             (193)
  Other income (expense)                             14                57                -            (171)            (100)
  Reorganization costs                                -                 -                -            (776)            (776)
  ------------------------------------ -- -------------- ----------------- ---------------- --------------- ----------------
  Income (loss) from operations
    before income taxes                        $    567          $ 50,205         $   (179)       $ (4,457)       $  46,136
  ==================================== == ============== ================= ================ =============== ================

<PAGE>
  ------------------------------------ -- -------------- ----------------- ---------------- --------------- ----------------
                                                              Independent
                                                                    Power         Terminal
                                                   Coal        Operations       Operations       Corporate            Total
  ------------------------------------ -- -------------- ----------------- ---------------- --------------- ----------------
                                                                             (in thousands)
  Six months ended June 30, 1999:

  Total assets                                 $ 58,257          $ 51,832         $  5,843        $ 39,163        $ 155,095
  Revenues                                       17,234            26,707             (718)              -           43,223
  Operating income (loss)                         1,308            25,366             (503)        (17,708)           8,463

  Reconciliation of operating income to income from operations before income taxes:

  Operating income (loss)                         1,308            25,366             (503)        (17,708)           8,463

  Gains on sale of assets                             -                 -                -              69               69
  Interest expense                                  (72)                -                -            (526)            (598)
  Interest income                                   292               290               24             359              965
  Minority interest                                (375)                -                -               -             (375)
  Other income (expense)                             21              (502)             114             190             (177)
  ==================================== == ============== ================= ================ =============== ================
  Income (loss) from operations
    before income taxes                        $  1,174          $ 25,154         $   (365)       $(17,616)       $   8,347
  ==================================== == ============== ================= ================ =============== ================


  Six months ended June  30, 1998:

  Total assets                                 $ 56,658          $115,703         $ 20,343        $ 32,538        $ 225,242
  Revenues                                       23,143            55,419              245               -           78,807
  Operating income (loss)                         1,899            54,186             (727)         (8,091)          47,267

  Reconciliation of operating income to income from operations before income taxes:

  Operating income (loss)                         1,899            54,186             (727)         (8,091)          47,267

  Gains on sale of assets                             -                 -                -             187              187
  Interest expense                                  (82)                -                -             (13)             (95)
  Interest income                                   319               494               49             466            1,328
  Minority interest                                (510)                -                -               -             (510)
  Other income                                       20                 -               24           1,412            1,456
  Reorganization costs                                -                 -                -          (1,435)          (1,435)
  ==================================== == ============== ================= ================ =============== ================
  Income (loss) from operations
    before income taxes                        $  1,646          $ 54,680         $   (654)       $ (7,474)       $  48,198
  ==================================== == ============== ================= ================ =============== ================
</TABLE>


<PAGE>
                                     Item 2
           Management's Discussion and Analysis of Financial Condition
                            and Results of Operations
- --------------------------------------------------------------------------------

Material Changes in Financial Condition From December 31, 1998 to June 30, 1999

Forward-Looking Disclaimer

This Quarterly Report on Form 10-Q contains "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.  Among such statements are comments  regarding
the Company's  projected cash balance,  the Company's  projected  earnings,  the
magnitude of future  claims on the  Company,  the  Company's  ability to use its
NOLs, and the Company's future prospects, condition, and value. In addition, the
terms "anticipate,"  "believe," "estimate," "maintain," "intend," "may," "will,"
and  "expect"  and  similar  expressions,  as they  relate to the  Company,  are
intended to identify forward-looking statements.  These statements are qualified
by important  factors that could cause actual results to differ  materially from
those in the forward-looking statements,  including without limitation,  general
economic and  competitive  conditions and the ability to reinvest excess cash at
an acceptable rate of return. Additional factors that could cause actual results
to differ materially from those in the forward-looking statements, or that could
contribute to such a  difference,  are  identified  in the  Company's  1998 Form
10-K/A.

Bankruptcy Proceeding

Westmoreland Coal Company and four subsidiaries,  Westmoreland Resources,  Inc.,
Westmoreland  Coal Sales Company,  Westmoreland  Energy,  Inc., and Westmoreland
Terminal  Company ("the Debtor  Corporations"),  filed  voluntary  petitions for
protection  under  Chapter 11 of the  Bankruptcy  Code on December 23, 1996.  On
December 23, 1998, the Bankruptcy  Court granted the Debtors'  Motion to Dismiss
the cases. The automatic stay period pursuant to the Federal Rules of Bankruptcy
Procedure expired on January 4, 1999.

Continued  financial  improvement of the Debtors during the bankruptcy  provided
the basis for  dismissal and  settlement  with the UMWA Health and Benefit Funds
("Funds"),  the Company's principal creditors. On October 15, 1998, the Company,
the  Funds,  the  United  Mine  Workers of  America  ("UMWA")  and the  Official
Committee of Equity Security Holders ("Equity Committee") reached agreement on a
settlement term sheet, which contained the principal terms of an agreement among
them and provided  for,  among other  things,  the  resolution of the Chapter 11
cases. The agreement, which facilitated a consensual dismissal of the bankruptcy
cases,  was announced  during  scheduled  hearings on  Westmoreland's  Motion to
Dismiss  and the  Equity  Committee's  Motion to  Convert  to Chapter 7, and the
hearings were subsequently recessed.  The agreement was subsequently  documented
in certain stipulated judgments and in a Master Agreement among the Company, the
Funds,  the UMWA,  and the Equity  Committee.  On October 30,  1998,  the Debtor
Corporations, the Funds, the UMWA, and the Equity Committee filed a joint motion
with the  Bankruptcy  Court,  setting  forth  the  outline  of a  procedure  for
dismissal of the Chapter 11 Cases combined with the entry of "consent judgments"
in connection with certain of the pending  litigation.  The Debtor  Corporations
filed motions requesting approval of the consent judgments on or around November
18,  1998.  Notices of the filing of these  motions  were mailed to creditors as
directed  by the  Bankruptcy  Court.  There  were no  allowable  objections  and
dismissal  of the Chapter 11 Cases  occurred on December  23,  1998.  The Master
Agreement was executed on January 29, 1999.

<PAGE>
Liquidity and Capital Resources

Cash used in operating  activities was $30,012,000 for the six months ended June
30, 1999.  Cash provided by operating  activities  was  $47,312,000  for the six
months  ended  June 30,  1998.  The  decrease  in cash from  operations  in 1999
compared  to  1998  is  mainly  due  to  cash  received   from  the   Rensselaer
restructuring  at WEI and the termination of the salaried  pension plan in 1998,
as well as the payment of pre-petition  liabilities and reorganization costs and
the funding of security  deposits in 1999. Equity in the earnings of Rensselaer,
net of restructuring revenues, was approximately $2,700,000 in 1998.

Cash used in investing  activities  was $1,587,000 for the six months ended June
30, 1999.  Cash provided by investing  activities  for the six months ended June
30, 1998 was $71,000.  Cash used in investing  activities in 1999 included fixed
asset  additions of $1,633,000 at WRI offset by proceeds from sales of assets of
$69,000.  Cash provided by operations  in 1998 of $71,000  included  $196,000 of
proceeds  from  sales of  assets  offset  by  fixed  asset  additions  at WRI of
$125,000.

Cash used in  financing  activities  for the six months  ended June 30, 1999 and
1998  totaled  $19,833,000  and  $47,000,  respectively.  Cash used in financing
activities in 1999 related primarily to the purchase of preferred stock.

Consolidated  cash and cash  equivalents  at June 30, 1999  totaled  $32,641,000
(including  $14,362,000 at WRI). At December 31, 1998, cash and cash equivalents
totaled  $84,073,000  (including  $14,712,000  at  WRI).  The  cash at  WRI,  an
80%-owned  subsidiary,  is available to the Company only through  dividends.  In
addition,  the Company had restricted  cash, which was not classified as cash or
cash equivalents, of $13,924,000 at June 30, 1999 and $4,140,000 at December 31,
1998. The restricted  cash  represents  interest-bearing  cash deposit  accounts
which collateralize the Company's  Contingent Note ($6,000,000)  required by the
Master Agreement and the surety bond for the security  required by the 1992 UMWA
Benefit  Plan  ($4,148,000),  as  well as  $3,776,000  that  collateralizes  the
outstanding surety bonds for its workers compensation  self-insurance  programs.
The restricted  cash in 1998 represents  collateral for the  outstanding  surety
bonds for its workers compensation self-insurance programs. The Company also has
$8,000,000  in  interest-bearing  debt  reserve  accounts  for  certain  of  the
Company's independent power projects.  This cash is restricted as to its use and
is  classified as part of the  investment  in  independent  power  projects.  In
addition,   there  is  a  surplus  in  the  Company's  pneumoconiosis  trust  of
approximately  $9,137,000,  that may be available to pay  postretirement  health
benefits  dependent upon future actuarial  calculations as well as $3,900,000 in
salaried pension plan overfunding.

Preferred  stock  dividends at a rate of 8.5% per annum were paid quarterly from
the third quarter of 1992 through the first quarter of 1994. The declaration and
payment of preferred stock dividends was suspended in the second quarter of 1994
in  connection  with  extension  agreements  entered  into  with  the  Company's
principal  lenders.  Upon the  expiration  of these  extension  agreements,  the
Company paid a quarterly dividend on April 1, 1995 and July 1, 1995. Pursuant to
Delaware law, the preferred stock dividend was suspended in the third quarter of
1995 as a result of the  recognition  of  losses  related  to the  idling of the
Virginia  division  and  the  resulting   shareholders'  deficit.  The  nineteen
quarterly  dividends  which are in arrears (those  dividends whose payment dates
would have been July 1, 1994, October 1, 1994, January 1, 1995, October 1, 1995,
January 1, 1996, April 1, 1996, July 1, 1996,  October 1, 1996, January 1, 1997,
April 1, 1997, July 1, 1997, October 1, 1997, January 1, 1998, April 1, 1998 and
July 1, 1998,  October  1998,  January 1, 1999,  April 1, 1999 and July 1, 1999)
amount to $12,591,000 in the aggregate ($40.38 per preferred share or $10.09 per
depositary share).

There are  statutory  restrictions  limiting  the  payment  of  preferred  stock
dividends  under  Delaware law, the state in which the Company is  incorporated.
Under  Delaware law, the Company 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 the  Company'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  for  the
preceding fiscal year), but only to the extent that shareholders' equity exceeds
the par value of the preferred  stock  ($312,000 at June 30, 1999).  The Company
had  shareholders'  equity at June 30, 1999 of $10,536,000  and the par value of
all  outstanding  depositary  shares  and  shares  of  common  stock  aggregated
$17,961,000 at June 30, 1999.

<PAGE>
In July 1999,  the Company  announced  that it expected to conduct an additional
tender offer at $19 per depositary share for approximately  600,000 shares,  the
amount  by which  its  tender  offer  earlier  in 1999 was  oversubscribed.  The
schedule and details of the tender offer have not been finalized,  but it is the
Company's  intention to commence the tender offer as soon as practicable  taking
into  effect  various  factors  such  as  income  tax  consequences.   If  fully
subscribed,  the  impact  of the  tender  offer  would  be to  reduce  cash  and
shareholders  equity  by  approximately  $11,400,000.   In  addition,  if  fully
subscribed at July 1, 1999,  accumulated  but unpaid  dividends  would have been
reduced  to  $6,534,000  and the annual  ongoing  dividend  obligation  would be
reduced to $1,376,000.

Liquidity Outlook

The major factors impacting the Company's  liquidity outlook are its significant
"heritage costs" and its ongoing and future business needs. These heritage costs
consist primarily of cash payments for postretirement medical benefits, workers'
compensation costs and UMWA pension benefits.  The Company also is obligated for
pension and pneumoconiosis  benefits;  however, both of these future obligations
have a funding surplus at present.  The Company has ongoing cash expenditures of
approximately  $16,000,000 per year for  postretirement  medical  benefits which
will remain  fairly  constant  over the next five years and then decline to zero
over the next  approximately  thirty-seven  years. In addition,  the Company has
cash expenditures of approximately $3,000,000 per year for workers' compensation
benefits which will steadily decline to zero over the next approximately  twenty
years.  Since the UMWA  pension  plan is a  multiemployer  plan under  ERISA,  a
contributing company is liable for its share of unfunded vested liabilities upon
termination or withdrawal from the plan. The Company believes the plan was fully
funded at the time of the Company's  withdrawal in 1998.  However,  the plan has
asserted a claim of  $13,800,000,  which the Company  vigorously  contests.  The
Company is contesting this amount through arbitration,  as provided under ERISA.
In accordance  with the  Multiemployer  Pension Plan Amendments Act of 1980, the
Company has made monthly  principal  and interest  payments to the plan while it
pursues  its  rights  and will  continue  to make such  monthly  payments  until
arbitration is completed. Depending upon the results of arbitration, the Company
may be  entitled  to a  refund  or it  could be  required  to pay any  remaining
obligation over no more than nine and one-half years.

Under the Coal Act,  the Company is required to provide  postretirement  medical
benefits  for UMWA  miners by making  payments  into three  benefit  plans:  (i)
premiums  to  the  UMWA  Combined   Benefit  Fund  (the  "Combined   Fund"),   a
multiemployer  plan which benefits  miners who retired before January 1, 1976 or
who retired thereafter but whose last employer did not provide benefits pursuant
to an  operator-specific  Individual  Employer  Plan  ("IEP"),  (ii) payments to
maintain an IEP for miners who retired after January 1, 1976 and (iii)  premiums
to the 1992 UMWA Benefit Plan, a  multiemployer  plan which  benefits (A) miners
who were  eligible to retire on  February  1, 1993,  who did retire on or before
September  30, 1994 and whose former  employers  are no longer in business,  (B)
miners  receiving  benefits  under an IEP whose former  employer has gone out of
business and ceased to maintain  the IEP, and (C) new spouses or new  dependents
of retirees in the Combined  Fund who would be eligible for coverage  thereunder
but for the fact that the Combined Fund closed to new  beneficiaries  as of July
20,  1992.  The  premiums  paid by the Company  cover its own  retirees  and its
allocated  portion of the pool of retired miners whose  previous  employers have
gone out of  business.

<PAGE>
The Company,  on January 4, 1999, as a result of its improved financial position
and  subsequent  dismissal  from  bankruptcy,   satisfied  all  of  its  premium
obligations  to the  Combined  Fund  through  the  end of  1998,  and  has  made
prepayments  to the Combined Fund for its premiums for the first three  quarters
of 1999.  Normal monthly  payments will resume on October 1, 1999.  Beginning on
October 25, 1999, the Company will begin receiving premium  differential credits
of  approximately  $1,400,000.  The credits will be offset against Combined Fund
premiums at a rate of approximately $200,000 per month through April, 2000.

In addition,  the Coal Act authorized the Trustees of the 1992 UMWA Benefit Plan
to  implement  security  provisions  pursuant to the Act. In 1995,  the Trustees
issued security  provisions which give  contributors to the Plan several options
for  satisfying  the Coal  Act's  security  requirements,  and set the  level of
security to be provided by the Company at  approximately  $21,000,000.  In 1999,
the Company  secured its obligation to provide retiree health benefits under the
1992 Plan by  posting a bond in the  amount of three  years  benefits  (or $22.7
million). The bond is collateralized by U.S.  Government-backed  securities. The
amount to be secured and the bond amount  will be  reviewed  and  adjusted on an
annual basis.

The Company's current principal sources of cash flow include cash  distributions
from its independent power projects, dividends from WRI, cash from operations of
DTA and interest  earned on its cash  reserves.  In  addition,  the Company will
receive its share of the judgment in the ROVA  litigation  if VEPCO's  appeal to
the Virginia  Supreme Court is unsuccessful.  Distributions  from the overfunded
pneumoconiosis  trust to pay post  retirement  health benefits are also possible
depending  on  future  actuarial  calculations.  Management  believes  that cash
generated  from these sources and cash reserves  should be sufficient to pay the
Company's  heritage  costs and fund its  ongoing  operations  and other  capital
requirements for the foreseeable future.

Capital   commitments   include  $4,200,000  to  repair  the  dragline  at  WRI.
Approximately $2,000,000 was expended in 1998 with the majority of the remainder
expended by June 30, 1999.  The Company has  undertaken to pay for the repair to
assure continued,  uninterrupted production at WRI, but the Company believes the
obligation to repair the dragline is solely  Morrison-Knudsen's  and, therefore,
is in discussion with them on this and other matters,  including  enforcement of
the Company's right to require Morrison-Knudsen to pay for the repair.

The Company  hopes to further  improve its  long-term  liquidity  in a number of
ways,  including the  development of additional  cash flow from existing and new
business  operations and  monetizing  assets where proceeds on sale would exceed
the expected  return from  continued  operation.  The Company also plans to seek
further cost  reductions  wherever  feasible  and  prudent,  and will attempt to
reduce  certain  postretirement  medical,   workers'  compensation  and  related
payments. The Company is also monitoring certain legislative developments,  such
as the proposed  inclusion of prescription  drug costs under Medicare  coverage,
which could  significantly  reduce the Company's  retiree  health care expenses.
Although  management  expects to improve the Company's  profitability,  the time
required to realize  such  increases  cannot be  estimated  at this time nor can
assurances be given that the Company can achieve any such improvements.

Year 2000

The Year  2000  ("Y2K")  problem  concerns  the  inability  of  information  and
technology-based   operating   systems  to   properly   recognize   and  process
date-sensitive  information  beyond  December  31,  1999.  This could  result in
systems  failures and  miscalculations  which could cause business  disruptions.
Equipment that uses a date, such as computers and operating control systems, may
be affected.  This includes  equipment used by our customers and  suppliers,  as
well as the Company's independent power projects.

<PAGE>
Most of the Company's  systems and related  software are already Y2K  compliant.
The Company has actively reviewed all hardware and software  associated with its
computers,   personal  computers  and  client/servers,   telecommunications  and
embedded  systems found in equipment  throughout  its  operations.  This program
consists of identifying and inventorying all software  applications and systems,
making required replacements, modifications, and testing.

All of the independent  power projects have completed Y2K testing.  The projects
operated normally with only minor errors in the reporting process.

Computer  systems  at WRI  and its  mining  contractor  have  been  replaced  or
appropriately  modified.  WRI's rail  supplier  has  embarked  on an  aggressive
campaign to bring its systems into  compliance by the end of the third  quarter.
The Company is monitoring those activities.

Compliance at Dominion  Terminal  Associates  ("DTA") has been nearly  completed
through replacement of non-compliant  systems.  The Company expects that efforts
to upgrade the few  remaining  systems will be completed by September  30, 1999.
The  terminal is  dependent  on  efficient  and timely  rail  service and DTA is
closely  monitoring  the  compliance  efforts  of the  terminal's  rail  service
providers.

The  nature of the  Company's  operations  make  substantive  contingency  plans
extremely difficult.  No reasonable  alternatives exist for the inability of the
railroads to provide timely  service to WRI and the DTA terminal.  As previously
mentioned,  the  Company  is closely  following  the  compliance  efforts of the
railroads and other major suppliers.

Based on  information  currently  available,  it is estimated  that the costs to
replace and modify  Company  systems to achieve Y2K  compliance  will not exceed
$125,000,  of which  approximately  $27,000 has been  incurred  through June 30,
1999.

The goal is to have all critical  Company systems Y2K compliant by September 30,
1999.  This should allow time before  December 31, 1999,  to validate the system
modifications and complete contingency plans for customers, suppliers and others
who may not be Y2K  compliant.  While  there can be no  assurance  that all such
modifications and plans will be successful, the Company does not expect that any
disruptions  will  have a  material  adverse  effect  on its  overall  financial
position, results of operations, or liquidity.

The foregoing  constitutes a  "forward-looking  statement" within the meaning of
Section 27A of the  Securities  Act of 1933 and  Section  21E of the  Securities
Exchange  Act  of  1934.  It is  based  on  management's  current  expectations,
estimates  and  projections,  which  could  ultimately  prove to be  inaccurate.
Factors which could affect the Company's  ability to be Y2K compliant by the end
of 1999 include the failure of customers,  suppliers,  governmental entities and
others to achieve compliance and the inaccuracy of certifications  received from
them.

RESULTS OF OPERATIONS
- --------------------------------------------------------------------------------

Quarter Ended June 30, 1999 Compared to Quarter Ended June 30, 1998.

Revenues  for the  quarter  ending June 30,  1999 were  $12,394,000  compared to
$61,845,000  for the quarter  ending June 30,  1998.  The decrease is due to the
significant  earnings  in 1998 at WEI's  Rensselaer  project  as a result of the
restructuring  of its power  purchase  contract  with Niagara  Mohawk,  slightly
decreased  sales volumes at WRI due to scheduled  plant  maintenance  at a major
customer's  facility and decreased  earnings from terminal  operations  due to a
decline in the export market.

<PAGE>
Costs and  expenses  for the  quarter  ending  June 30,  1999  were  $16,894,000
compared to  $15,342,000  for the quarter  ending June 30, 1998. The majority of
the increase is due to an increase in the accrual for heritage  costs.  Upon the
termination  of the  bankruptcy  the  Company  was  required  to resume  monthly
payments of  approximately  $500,000 to the Combined  Benefit Fund. In addition,
there was approximately  $1,300,000 in Workers  Compensation  expense and market
related adjustments to the Black Lung Trust. Sales volumes at WRI have decreased
slightly, decreasing costs and expenses accordingly.  Selling and administrative
costs in 1999  increased  as a  result  of  approximately  $500,000  of  charges
relating to the proxy contest and tender offer.

Gains on the sales of assets were  $50,000  during the  quarter  ending June 30,
1999, compared to $51,000 for the quarter ending June 30, 1998. The gains relate
primarily to sales of various assets from the Company's idled Virginia Division.

Interest  expense was  $297,000  and $40,000 for the three months ended June 30,
1999 and 1998,  respectively.  The increase is due to installment payments being
made  monthly  to the 1974  UMWA  Pension  Plan as  provided  for in the  Master
Agreement.

Interest  income was  $441,000  for the three  months  ended June 30,  1999.  No
interest  income was  recorded  for  operations  in 1998 as all such  income was
considered a reorganization item.

Other  income was  $247,000  for the three  months  ended June 30,  1999.  Other
expense was $100,000  for the three months ended June 30, 1998.  The increase is
due to dividends received from the Company's Fort Lupton project and receipts of
a court ordered payment from a former coal customer of $114,000 in 1999.

Six Months Ended June 30, 1999 Compared to Six Months Ended June 30, 1998.
- --------------------------------------------------------------------------
Revenues for the six months  ending June 30, 1999 were  $43,223,000  compared to
$78,807,000  for the six months ending June 30, 1998. The decrease is mainly due
to  elevated  1998  earnings  at WEI's  Renssalaer  project  as a result  of the
restructuring  of its power  purchase  contract with Niagara Mohawk and slightly
decreased  sales  volumes at WRI as well as  decreased  earnings at the terminal
operations.

Costs and  expenses  for the six months  ending June 30,  1999 were  $34,760,000
compared to $31,540,000 for the six months ending June 30, 1998. The majority of
the increase is due to an increase in the accrual for heritage  costs.  Upon the
termination  of the  bankruptcy  the  Company  was  required  to resume  monthly
payments of  approximately  $500,000 to the Combined  Benefit  Fund. In addition
there was approximately  $1,300,000 in Workers  Compensation  expense and market
related adjustments to the Black Lung Trust. Sales volumes at WRI have decreased
slightly, decreasing costs and expenses accordingly.  Selling and administrative
costs increased in 1999 as a result of approximately  $2,700,000 of bonuses paid
to  employees  as well as  approximately  $600,000  in final  bankruptcy,  proxy
contest and tender  offer  expenses.  The Company  also  incurred  approximately
$270,000 in  expenses  related to the  exercise of stock  options and payment of
stock bonuses.

Gains on the sale of assets were  $69,000 and  $187,000 for the six months ended
June 30,  1999 and  1998,  respectively,  all of which  related  to the sales of
various equipment from the idled Virginia Division.

Interest expense was $598,000 and $95,000 for the six months ended June 30, 1999
and 1998,  respectively.  The increase is due to installment payments being made
monthly to the 1974 UMWA Pension Plan as provided for in the Master Agreement.

<PAGE>
Interest income was $965,000 for the six months ended June 30, 1999. No interest
income was recorded for  operations in 1998 as all such income was  considered a
reorganization item.

Other expense was $177,000 for the six months ended June 30, 1999.  Other income
was $1,456,000 for the six months ended June 30, 1998. The 1998 period  included
income  relating to a production tax holdback of $650,000 and $750,000  received
for the buyout of a royalty agreement from a former contract miner.

<PAGE>
                          PART II - OTHER INFORMATION

                                     ITEM 1
                                LEGAL PROCEEDINGS
- --------------------------------------------------------------------------------

See Note 1 "Chapter 11 Reorganization Proceedings" and Note 2 "Contingencies" of
Notes to Condensed Consolidated Financial Statements,  which are incorporated by
reference herein.

                                     ITEM 2
                    CHANGES IN SECURITIES AND USE OF PROCEEDS
- --------------------------------------------------------------------------------

(C)      Recent Sales of Unregistered Securities

The Company issued shares of its Common Stock, $2.50 par value, in the following
transactions exempt from registration pursuant to Section 4(2) of the Securities
Act of 1933:

o   On March 12, 1999,  the Company issued 22,182 shares to directors in lieu of
    directors'  fees in the total amount of $47,993 and issued 2,153 shares to a
    former director pursuant to a directors' deferred compensation plan.

o   On  March 19,  1999,  the  Company  issued  27,000  shares to  executives as
    compensation pursuant to an incentive stock plan.

o   On March 22,  1999,  the Company  issued  25,000 shares to  executives  upon
    exercise of incentive  stock options for which the aggregate  exercise price
    was $65,625 and issued 18,000 shares to executives as compensation  pursuant
    to an incentive stock plan.

                                     ITEM 4
               SUBMISION OF MATTERS TO A VOTE OF SECURITY HOLDERS
- --------------------------------------------------------------------------------

A Special  Meeting of  Stockholders in lieu of an Annual Meeting was held on May
12, 1999.  Proxies for the meeting were solicited pursuant to Section 14A of the
Securities  Exchange Act of 1934, and there was a solicitation  in opposition to
management's solicitation. Two proposals were voted upon at the meeting.

The first  proposal  was to elect  five  members  to the Board of  Directors  to
represent common stockholders.  The tabulation of the votes cast with respect to
each of the nominees for election as a Director is set forth as follows:

 ---------------------------- ------------------------ -------------------------
 Name                                 Votes For             Votes Withheld
 ---------------------------- ------------------------ -------------------------
 Pemberton Hutchinson                 3,128,280                  33,247
 William R. Klaus                     3,133,729                  27,798
 Thomas W. Ostrander                  3,140,229                  21,298
 Christopher K. Seglem                3,138,638                  22,889
 Edwin E. Tuttle                      3,134,929                  26,598
 Robert A. Fowler                     2,634,923                   1,940
 Nelson Obus                          2,634,923                   1,940
 R. Bentley Offutt                    2,634,923                   1,940
 Matthew S. Sakurada                  2,634,923                   1,940
 William J. Sim                       2,634,923                   1,940
 ---------------------------- ------------------------ -------------------------

Messrs. Hutchinson, Klaus, Ostrander, Seglem, and Tuttle were elected.

<PAGE>
CT Corporation System, the independent inspector of election, did not report any
abstentions or broker non-votes.

The second  proposal  was to elect two  directors  to the Board of  Directors to
represent preferred  stockholders.  Each depositary share represents one-quarter
share  of the  Company's  Series  A  Convertible  Exchangeable  Preferred  Stock
("Series A Preferred  Stock"),  the terms of which  entitle the holders to elect
two  directors  if the  Company  is in arrears  on six or more  Preferred  Stock
dividends. The tabulation of the votes cast with respect to each of the nominees
for election as a Director, expressed in terms of the number of shares of Series
A Preferred Stock, is set forth as follows:

 ---------------------------- ------------------------ -------------------------
 Name                                 Votes For             Votes Withheld
 ---------------------------- ------------------------ -------------------------
 Robert E. Killen                      87,063                    35,961
 James W. Sight                        87,013                    36,011
 Guy O. Dove, III                      70,002                         0
 Frank E. Williams, Jr.                70,002                         0
 ---------------------------- ------------------------ -------------------------

Messrs. Killen and Sight were elected.

CT Corporation System, the independent inspector of election, did not report any
abstentions or broker non-votes.

                                     Item 5
                                OTHER INFORMATION
- --------------------------------------------------------------------------------

As  reported  in a Current  Report on Form 8-K filed June 21, 1999 (the "June 21
8-K"),  the  Board  of  Directors  of the  Company  approved  amendments  to the
Company's  bylaws on June 18, 1999.  The full text of the bylaws as amended (the
"Bylaws") was included as an exhibit to the Form 8-K.

Among  other  things,   the  Bylaws  provide  that,  at  an  annual  meeting  of
stockholders,  business may be conducted  only if it is properly  brought before
the meeting.  The Bylaws  specify how a stockholder  may properly bring business
before  an annual  meeting.  The  stockholder  must  give  timely  notice of the
stockholder's  proposal to the  Secretary  of the  Company.  In  general,  to be
timely,  a  stockholder's  notice must be delivered to or mailed and received at
the  principal  executive  offices of the Company not less than 90 days nor more
than 120 days in advance of the anniversary  date of the preceding year's annual
meeting of stockholders (or special meeting in lieu of an annual meeting). Thus,
for a  stockholder  to make a timely  proposal  to conduct  business at the 2000
Annual Meeting of  Stockholders of the Company,  the stockholder  must deliver a
notice to the Company, or the notice must be delivered to or mailed and received
at the principal executive offices of the Company,  not earlier than January 12,
2000 nor later than  February 11, 2000. A  stockholder's  notice  regarding  the
conduct of business at an annual meeting must contain the  information  required
by Section 2.5 of the Bylaws.  In addition,  a stockholder  proposing to conduct
business at an annual meeting must comply with the other requirements  specified
in the Bylaws,  including Section 2.5 thereof, and, if applicable,  Federal law.
Business not properly  brought  before an annual meeting shall not be transacted
at the meeting.

The Bylaws also provide that only persons who are nominated in  accordance  with
the  procedures  set forth in Section 2.6 thereof shall be eligible for election
as directors of the Company.  Among other  requirements,  for a nomination to be
properly  brought before a meeting by a stockholder,  the stockholder  must give
timely notice thereof to the Secretary of the Company.  In general, to be timely
with respect to an election to be held at an annual meeting of  stockholders,  a
stockholder's  notice  must  be  delivered  to or  mailed  and  received  at the
principal  executive  offices of the Company not less than 90 days nor more than
120 days in advance  of the  anniversary  date of the  preceding  year's  annual
meeting of stockholders (or special meeting in lieu of an annual meeting). Thus,
for a stockholder  to nominate a person for election to the  Company's  Board of
Directors  at the 2000 Annual  Meeting of  Stockholders,  the  stockholder  must
deliver a notice to the  Company,  or the notice must be  delivered to or mailed
and received at the principal executive offices of the Company, not earlier than
January  12, 2000 nor later than  February  11,  2000.  A  stockholder's  notice
regarding the nomination of a person for election to the Board of Directors must
contain the information  required by Section 2.6 of the Bylaws.  In addition,  a
stockholder  proposing  to  nominate  a  person  for  election  to the  Board of
Directors  must comply with the other  requirements  specified in Section 2.6 of
the Bylaws,  and, if  applicable,  Federal law. If a  nomination  is not made in
accordance  with the  provisions  of Section  2.6 of the Bylaws,  the  defective
nomination shall be disregarded.

<PAGE>
The  description  of the  Bylaws  set forth  above is a summary  only,  does not
purport to be complete,  and is  qualified in its entirety by the Bylaws,  which
were included as an exhibit to the Form 8-K.

                                     Item 6
                        Exhibits and Reports on Form 8-K
- --------------------------------------------------------------------------------

a)       Exhibit 27 - Financial Data Schedule

b)       Reports on Form 8-K - On June 4, 1999,  the  Company  filed a report on
         Form 8-K  announcing  that it had  received  certified  results  of the
         recent  proxy  contest in  connection  with the  election of common and
         preferred directors.

         On June 21, 1999,  the Company  filed a report on Form 8-K stating that
         the  Virginia  Supreme  Court had agreed to hear the appeal by Virginia
         Power of the  December 2, 1998,  decision  of the Circuit  Court of the
         City of Richmond  and filed an exhibit  that  included the full text of
         the Bylaws of the Company as amended on June 18, 1999.

         On July 1, 1999, the Company filed a report on Form 8-K announcing that
         it expects to conduct an additional  tender offer at $19 per depositary
         share for approximately 600,000 shares.

         On July 28, 1999, the Company filed a report on Form 8-K announcing the
         sale of its  Bullitt  preparation  plant  and  transloader  complex  to
         Mountain,  LLC for  approximately  $650,000 in cash and the  assumption
         $600,000 of associated reclamation liabilities.


<PAGE>
                                   Signatures
- --------------------------------------------------------------------------------

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


                                     WESTMORELAND COAL COMPANY


Date: 08/16/99                       /s/ Robert J. Jaeger
                                     ----------------------------------------
                                         Robert J. Jaeger
                                         Senior Vice President - Finance and
                                         Treasurer


                                     /s/ Larry W. Mikkola
                                     ----------------------------------------
                                         Larry W. Mikkola
                                         Controller




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<S>                             <C>
<PERIOD-TYPE>                   6-MOS
<FISCAL-YEAR-END>                              DEC-31-1999
<PERIOD-END>                                   JUN-30-1999
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                          0
                                    312
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