UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

__________________________________________

FORM 10-Q

__________________________________________

(Mark One)

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

For the quarterly period ended September 30, ~~2016~~2017

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

For the transition period from to

Commission File No. 001-11155

___________________________________________

(Exact name of registrant as specified in its charter)

__________________________________________



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

9540 South Maroon Circle, Suite ~~200~~ 300 Englewood, CO	80112
(Address of principal executive offices)	(Zip Code)

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

__________________________________________

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

Yes x No o

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

Yes x No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated ~~filer”~~filer,” “smaller reporting company,” and ~~“smaller reporting~~“emerging growth company” in Rule 12b-2 of the Exchange Act.



Large accelerated filer	o		Accelerated filer	x
Non-accelerated filer	o	(Do not check if a smaller reporting company.)	Smaller reporting company	o
			Emerging growth company	o

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes o No x

Indicate the number of shares outstanding of each of the issuer’s classes of common stock as of October ~~28, 2016: 18,570,642~~27, 2017: 18,744,151 shares of common stock, $0.01 par value.

TABLE OF CONTENTS

PART I - FINANCIAL INFORMATION

~~ITEM 1~~

~~FINANCIAL STATEMENTS~~

ITEM 1 - CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

WESTMORELAND COAL COMPANY AND SUBSIDIARIES

Consolidated Balance Sheets

(Unaudited)


	September 30, 2016		December 31, 2015
	(In thousands)
Assets					September 30, 2017			December 31, 2016
Current assets:					(In thousands)
Cash and cash equivalents	$	28,914	$	22,936	$	44,143		$	60,082
Receivables:
Trade	140,063		134,141		146,412			140,731
Loan and lease receivables	5,394		6,157		—			5,867
Contractual third-party reclamation receivables	12,985		8,020
Other	20,018		11,598		12,522			13,261
	178,460		159,916
Total receivables					158,934			159,859
Inventories	128,685		121,858		110,176			125,515
Other current assets	24,711		16,103		29,788			32,258
Total current assets	360,770		320,813		343,041			377,714
Property, plant and equipment:
Land and mineral rights	600,160		476,447
Plant and equipment	879,718		790,677
	1,479,878		1,267,124
Land, mineral rights, property, plant and equipment					1,670,632			1,617,938
Less accumulated depreciation, depletion and amortization	642,791		554,008		904,246			782,417
Net property, plant and equipment	837,087		713,116
Net land, mineral rights, property, plant and equipment					766,386			835,521
Loan and lease receivables, less current portion	49,389		49,313		—			44,474
Advanced coal royalties	17,470		19,781		18,665			18,722
Reclamation deposits	74,043		77,364
Restricted investments and bond collateral	144,454		140,807		224,349			219,275
Contractual third-party reclamation receivables, less current portion	155,249		86,915
Investment in joint venture	27,815		27,374		28,244			26,951
Intangible assets, net of accumulated amortization of $4.0 million and $15.9 million at September 30, 2016 and December 31, 2015, respectively	27,492		29,190
Other assets	25,883		11,904		53,827			62,252
Total Assets	$	1,719,652	$	1,476,577	$	1,434,512		$	1,584,909
Liabilities and Shareholders’ Deficit
Current liabilities:
Current installments of long-term debt					$	49,712		$	86,272
Accounts payable and accrued expenses:
Trade and other accrued liabilities					113,970			142,233
Interest payable					15,205			22,458
Production taxes					48,936			44,995
Postretirement medical benefits					14,892			14,892
Deferred revenue					16,248			15,253
Asset retirement obligations					44,841			32,207
Other current liabilities					26,354			20,964
Total current liabilities					330,158			379,274
Long-term debt, less current installments					1,021,436			1,022,794
Postretirement medical benefits, less current portion					310,183			308,709
Pension and SERP obligations, less current portion					42,624			43,982
Deferred revenue, less current portion					7,791			16,251
Asset retirement obligations, less current portion					451,862			451,834
Other liabilities					44,605			52,182
Total liabilities					2,208,659			2,275,026
Shareholders’ deficit:
Common stock of $.01 par value: Authorized 30,000,000 shares; Issued and outstanding 18,742,143 at September 30, 2017 and 18,570,642 at December 31, 2016					187			186
Other paid-in capital					250,729			248,143
Accumulated other comprehensive loss					(157,799		)	(179,072		)
Accumulated deficit					(864,012		)	(757,367		)
Total shareholders’ deficit					(770,895		)	(688,110		)
Noncontrolling interests in consolidated subsidiaries					(3,252		)	(2,007		)
Total deficit					(774,147		)	(690,117		)
Total Liabilities and Shareholders’ Deficit					$	1,434,512		$	1,584,909

See accompanying Notes to Consolidated Financial ~~Statements.~~

~~WESTMORELAND COAL COMPANY AND SUBSIDIARIES~~

~~Consolidated Balance Sheets (Continued)~~

Statements (Unaudited)

September 30,
2016 December 31,
2015
(In thousands)
Liabilities and Shareholders’ Deficit
Current liabilities:
Current installments of long-term debt $ 90,736
$ 38,852
Revolving lines of credit —
1,970
Accounts payable and accrued expenses:
Trade and other accrued liabilities 121,266
109,850
Interest payable 13,611
15,527
Production taxes 55,589
46,895
Postretirement medical benefits 13,855
13,855
SERP 368
368
Deferred revenue 23,203
10,715
Asset retirement obligations 51,088
43,950
Other current liabilities 34,578
30,688
Total current liabilities 404,294
312,670
Long-term debt, less current installments 1,035,013
979,073
Workers’ compensation, less current portion 4,908
5,068
Excess of black lung benefit obligation over trust assets 17,865
17,220
Postretirement medical benefits, less current portion 286,952
285,518
Pension and SERP obligations, less current portion 42,790
44,808
Deferred revenue, less current portion 18,740
24,613
Asset retirement obligations, less current portion 450,869
375,813
Intangible liabilities, net of accumulated amortization of $10.6 million and $9.8 million at September 30, 2016 and December 31, 2015, respectively 2,669
3,470
Other liabilities 36,760
30,208
Total liabilities 2,300,860
2,078,461
Shareholders’ deficit:
Common stock of $0.01 par value
Authorized 30,000,000 shares; issued and outstanding 18,570,642 shares at September 30, 2016 and 18,162,148 shares at December 31, 2015 186
182
Other paid-in capital 246,450
240,721
Accumulated other comprehensive loss (150,726 ) (171,300 )
Accumulated deficit (675,523 ) (672,219 )
Total Westmoreland Coal Company shareholders’ deficit (579,613 ) (602,616 )
Noncontrolling interest (1,595 ) 732
Total deficit (581,208 ) (601,884 )
Total Liabilities and Deficit $ 1,719,652
$ 1,476,577

~~See accompanying Notes to Consolidated Financial Statements.~~.

WESTMORELAND COAL COMPANY AND SUBSIDIARIES

Consolidated Statements of Operations

(Unaudited)


	Three Months Ended September 30,						Nine Months Ended September 30,						Three Months Ended September 30,						Nine Months Ended September 30,
	2016			2015			2016			2015			2017			2016			2017			2016
	(In thousands, except per share data)												(In thousands, except per share data)
Revenues	$	370,683		$	349,796		$	1,081,651		$	1,070,240		$	358,011		$	371,772		$	1,020,772		$	1,085,223
Cost, expenses and other:
Cost of sales	278,765			292,973			842,680			880,162			280,012			285,428			836,525			864,735
Depreciation, depletion and amortization	33,112			34,459			101,788			106,781			38,066			40,860			114,131			113,097
Selling and administrative	30,518			29,383			94,209			84,611			28,115			25,655			88,706			80,667
Heritage health benefit expenses	3,265			2,801			9,502			8,022			3,349			3,265			9,953			9,502
Loss (gain) on sale/disposal of assets	548			1,135			(1,369		)	2,148			236			548			202			(1,369		)
Restructuring charges	—			—			—			656
Derivative loss	5,442			5,815			2,164			6,717
Derivative (gain) loss													(4,667		)	5,442			(6,571		)	2,164
Income from equity affiliates	(1,547		)	(463		)	(4,127		)	(4,141		)	(1,355		)	(1,547		)	(4,274		)	(4,127		)
Other operating loss (gain)	3,368			(1,000		)	5,065			(1,000		)
Other operating loss													—			3,368			—			5,065
	353,471			365,103			1,049,912			1,083,956			343,756			363,019			1,038,672			1,069,734
Operating income (loss)	17,212			(15,307		)	31,739			(13,716		)	14,255			8,753			(17,900		)	15,489
Other income (expense):
Other (expense) income:
Interest expense	(29,494		)	(26,831		)	(90,673		)	(76,870		)	(30,017		)	(30,882		)	(89,388		)	(90,669		)
Loss on extinguishment of debt	—			(5,385		)	—			(5,385		)
Interest income	1,374			1,555			5,521			6,262			1,012			1,374			2,942			5,521
Gain (loss) on foreign exchange	220			1,679			(1,531		)	2,474
Other income	303			356			435			1,082
(Loss) gain on foreign exchange													(1,739		)	220			(3,391		)	(1,531		)
Other (loss) income													(3,251		)	303			(793		)	435
	(27,597		)	(28,626		)	(86,248		)	(72,437		)	(33,995		)	(28,985		)	(90,630		)	(86,244		)
Loss before income taxes	(10,385		)	(43,933		)	(54,509		)	(86,153		)	(19,740		)	(20,232		)	(108,530		)	(70,755		)
Income tax expense (benefit)	(1,625		)	4,087			(49,660		)	13,596
Income tax benefit													(440		)	(1,625		)	(1,406		)	(49,660		)
Net loss	(8,760		)	(48,020		)	(4,849		)	(99,749		)	(19,300		)	(18,607		)	(107,124		)	(21,095		)
Less net income (loss) attributable to noncontrolling interest	(239		)	(1,458		)	(1,545		)	(4,850		)
Less net loss attributable to noncontrolling interest													(78		)	(239		)	(715		)	(1,545		)
Net loss applicable to common shareholders	$	(8,521	)	$	(46,562	)	$	(3,304	)	$	(94,899	)	$	(19,222	)	$	(18,368	)	$	(106,409	)	$	(19,550	)

Net loss per share applicable to common shareholders:
Basic and diluted	$	(0.46	)	$	(2.59	)	$	(0.18	)	$	(5.32	)	$	(1.03	)	$	(0.99	)	$	(5.70	)	$	(1.06	)
Weighted average number of common shares outstanding:
Basic and diluted	18,570			17,986			18,458			17,846			18,742			18,570			18,672			18,458

See accompanying Notes to Consolidated Financial ~~Statements.~~Statements (Unaudited).

WESTMORELAND COAL COMPANY AND SUBSIDIARIES

Consolidated Statements of Comprehensive (Loss) Income ~~(Loss)~~

(Unaudited)

Three Months Ended September 30, Nine Months Ended September 30,
2016 2015 2016 2015
(In thousands)
Net loss $ (8,760 ) $ (48,020 ) $ (4,849 ) $ (99,749 )
Other comprehensive income (loss)
Pension and other postretirement plans:
Amortization of accumulated actuarial gains or losses, pension 1,294
996
3,884
3,263
Adjustments to accumulated actuarial losses and transition obligations, pension 813
(253 ) 786
(538 )
Amortization of accumulated actuarial gains or losses, transition obligations, and prior service costs, postretirement medical benefit 368
327
891
981
Adjustments of accumulated actuarial losses and transition obligations, postretirement medical benefit —
—
984
—
Tax effect of other comprehensive income gains and losses (1,039 ) (558 ) (2,410 ) (908 )
Change in foreign currency translation adjustment (2,438 ) (20,802 ) 16,184
(43,018 )
Unrealized and realized gains and losses on available-for-sale securities 535
165
255
(1,295 )
Other comprehensive income (loss), net of income taxes (467 ) (20,125 ) 20,574
(41,515 )
Comprehensive income (loss) (9,227 ) (68,145 ) 15,725
(141,264 )
Less: Comprehensive income (loss) attributable to noncontrolling interest (240 ) (1,458 ) (1,532 ) (4,850 )
Comprehensive income (loss) attributable to common shareholders $ (8,987 ) $ (66,687 ) $ 17,257
$ (136,414 )



	Three Months Ended September 30,						Nine Months Ended September 30,
	2017			2016			2017			2016
	(In thousands)
Net loss	$	(19,300	)	$	(18,607	)	$	(107,124	)	$	(21,095	)
Other comprehensive income (loss)
Pension and other postretirement plans:
Amortization of accumulated actuarial losses, pension	588			1,294			1,765			3,639
Adjustments to accumulated actuarial gains (losses) and transition obligations, pension	(112		)	813			189			786
Amortization of accumulated actuarial losses, transition obligations, and prior service costs, postretirement medical benefit	964			368			2,893			891
Adjustments to accumulated actuarial gains and transition obligations, postretirement medical benefit	—			—			—			984
Tax effect of other comprehensive income losses	(684		)	(1,039		)	(2,503		)	(2,410		)
Change in foreign currency translation adjustment	9,426			(2,432		)	17,455			16,128
Unrealized and realized gains and losses on available-for-sale securities	278			535			1,474			255
Other comprehensive income (loss), net of income taxes	10,460			(461		)	21,273			20,273
Comprehensive loss	(8,840		)	(19,068		)	(85,851		)	(822		)
Less: Comprehensive loss attributable to noncontrolling interest	(78		)	(240		)	(715		)	(1,532		)
Comprehensive (loss) income attributable to common shareholders	$	(8,762	)	$	(18,828	)	$	(85,136	)	$	710

See accompanying Notes to Consolidated Financial ~~Statements.~~Statements (Unaudited).

WESTMORELAND COAL COMPANY AND SUBSIDIARIES

~~Consolidated Statements of Deficit~~

~~Nine Months EndedSeptember 30, 2016~~

~~(Unaudited)~~

Common Stock
Other
Paid-In
Capital

Accumulated
Other
Comprehensive Loss

Accumulated
Deficit
Non-controlling
Interest
Total
Deficit
Shares Amount
(In thousands, except shares data)
Balance at December 31, 2015 18,162,148
$ 182
$ 240,721
$ (171,300 ) $ (672,219 ) $ 732
$ (601,884 )
WMLP distributions —
—
—
—
—
(795 ) (795 )
Common stock issued as compensation 342,353
3
5,922
—
—
—
5,925
Issuance of restricted stock 66,141
1
(193 ) —
—
—
(192 )
Net loss —
—
—
—
(3,304 ) (1,545 ) (4,849 )
Other comprehensive income —
—
—
20,574
—
13
20,587
Balance at September 30, 2016 18,570,642
$ 186
$ 246,450
$ (150,726 ) $ (675,523 ) $ (1,595 ) $ (581,208 )

~~See accompanying Notes to Consolidated Financial Statements.~~

~~WESTMORELAND COAL COMPANY AND SUBSIDIARIES~~

Consolidated Statements of Cash Flows

(Unaudited)


	Nine Months Ended September 30,						Nine Months Ended September 30,
	2016			2015			2017			2016
	(In thousands)						(In thousands)
Cash flows from operating activities:
Net loss	$	(4,849	)	$	(99,749	)	$	(107,124	)	$	(21,095	)
Adjustments to reconcile net loss to net cash provided by operating activities:
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Depreciation, depletion and amortization	101,788			106,781			114,131			113,097
Accretion of asset retirement obligation and receivable	21,534			21,251
Accretion of asset retirement obligation							33,796			30,229
Share-based compensation	5,925			5,588			3,846			5,925
Non-cash interest expense	6,879			4,617			6,981			6,879
Amortization of deferred financing costs	8,324			7,849			8,183			8,324
Loss on derivative instruments	2,164			6,717
Loss (gain) on foreign exchange	1,531			(2,474		)
(Gain) loss on derivative instruments							(6,571		)	2,164
Loss on foreign exchange							3,391			1,531
Income from equity affiliates	(4,127		)	(4,141		)	(4,274		)	(4,127		)
Distributions from equity affiliates	5,177			4,328			4,970			5,177
Deferred income tax expense (benefit)	(48,490		)	14,887
Deferred income tax benefit							(1,374		)	(48,490		)
Other	(4,359		)	3,968			3,341			(9,217		)
Changes in operating assets and liabilities:
Receivables	(238		)	(14,327		)	(1,223		)	9,770
Inventories	9,460			494			19,713			8,238
Accounts payable and accrued expenses	(2,327		)	(2,572		)	(26,965		)	1,679
Interest payable	(3,720		)	7,398			(7,165		)	(6,731		)
Deferred revenue	4,314			(8,297		)	(7,475		)	4,314
Other assets and liabilities	7,375			(21,528		)	17,977			23,396
Asset retirement obligations	(22,120		)	(9,908		)	(33,004		)	(45,960		)
Net cash provided by operating activities	84,241			20,882			21,154			85,103
Cash flows from investing activities:
Additions to property, plant and equipment	(30,619		)	(57,971		)	(25,365		)	(30,619		)
Change in restricted investments	270			(7,988		)
Cash received from restricted deposits	—			34,000
Cash payments related to acquisitions and other	(125,315		)	(35,887		)
Cash acquired related to acquisition, net	—			2,780
Proceeds from sales of restricted investments							33,686			31,903
Purchases of and change in restricted investments							(37,945		)	(31,633		)
Cash payments related to acquisitions							(3,580		)	(125,315		)
Proceeds from sales of assets	6,176			1,691			774			6,176
Receipts from loan and lease receivables	4,852			20,192			50,488			4,852
Payments related to loan and lease receivables	(2,141		)	(3,981		)	—			(2,141		)
Other	(587		)	(287		)	(1,384		)	(587		)
Net cash used in investing activities	(147,364		)	(47,451		)
Net cash provided by (used in) investing activities							16,674			(147,364		)
Cash flows from financing activities:
Borrowings from long-term debt, net of debt discount	122,250			199,363			—			122,250
Repayments of long-term debt	(43,876		)	(138,185		)	(64,078		)	(43,876		)
Borrowings on revolving lines of credit	313,900			142,823			236,100			313,900
Repayments on revolving lines of credit	(315,900		)	(152,412		)	(225,560		)	(315,900		)
Debt issuance costs and other refinancing costs	(7,246		)	(7,431		)	—			(7,246		)
Other	(798		)	90			(550		)	(798		)
Net cash provided by financing activities	68,330			44,248
Net cash (used in) provided by financing activities							(54,088		)	68,330
Effect of exchange rate changes on cash	771			(2,601		)	321			(91		)
Net increase in cash and cash equivalents	5,978			15,078
Net (decrease) increase in cash and cash equivalents							(15,939		)	5,978
Cash and cash equivalents, beginning of period	22,936			14,258			60,082			22,936
Cash and cash equivalents, end of period	$	28,914		$	29,336		$	44,143		$	28,914
Supplemental disclosures of cash flow information:
Cash paid for interest	$	79,099		$	61,399		$	81,478		$	79,099
Non-cash transactions:
Accrued purchases of property and equipment	$	4,166		$	2,718		$	3,508		$	4,166
Capital leases and other financing sources	19,830			14,967			503			19,830

See accompanying Notes to Consolidated Financial ~~Statements.~~Statements (Unaudited).

WESTMORELAND COAL COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

1. BASIS OF PRESENTATION

The accompanying unaudited consolidated financial statements include accounts of Westmoreland Coal Company (the “Company” or ~~the Company, or Parent,~~"WCC"), and its subsidiaries and controlled entities including those of Westmoreland Resource Partners, LP (“WMLP”). All intercompany transactions and accounts have been eliminated in consolidation. The consolidated financial statements of the Company have been prepared in accordance with United States ~~generally accepted accounting principles~~Generally Accepted Accounting Principles (“GAAP”) and require the use of management’s estimates. The financial information contained in this Quarterly Report on Form 10-Q (“Quarterly Report”) is unaudited, but reflects all adjustments which, in the opinion of management, are necessary for a fair presentation of the financial information for the periods shown. Such adjustments are of a normal recurring nature. Certain prior period amounts have been reclassified to conform to current period presentation. The results of operations for the nine months ended September 30, ~~2016~~2017 are not necessarily indicative of results to be expected for the year ending December 31, ~~2016.~~2017.

These unaudited quarterly consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes to the consolidated financial statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2015~~2016 (“~~2015~~2016 Form 10-K”). There were no changes to our significant accounting policies from those disclosed in the audited consolidated financial statements and notes to the consolidated financial statements thereto contained in our 2016 Form 10-K, except as described below.

Recently ~~Adopted~~Issued Accounting Pronouncements

In ~~August~~February 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) ~~2016-15 - Statement of Cash Flows (Accounting~~2016-02, Leases (Topic 842) which requires companies leasing assets to recognize on their balance sheet a liability to make lease payments (the lease liability) and a right-of-use asset representing its right to use the underlying asset for the lease term on contracts longer than one year. The lessee is permitted to make an accounting policy election to not recognize lease assets and lease liabilities for short-term leases. How leases are recorded on the balance sheet represents a significant change from previous GAAP guidance as described in Accounting Standards Codification ~~or “ASC,”~~(“ASC”) Topic ~~230): Classification~~840, Leases. ASU 2016-02 maintains a distinction between finance leases and operating leases similar to the distinction under previous lease guidance for capital leases and operating leases. The impact of ~~Certain Cash Receipts~~leases reported in the Company’s operating results and Cash Payments, which requires an entity to elect either the cumulative earnings approach or the nature of the distribution approach when determining the classification of cash inflows from equity method investments on the statement of cash ~~flows. For our Activated Carbon 50/50 joint venture accounted~~flows are expected to be similar to previous GAAP.

ASU 2016-02 is effective for fiscal years beginning after December 15, 2018, and early adoption is permitted. Adoption of the new lease accounting standard will require the Company to apply the new standard to the earliest period using a modified retrospective approach. The Company is currently in the process of evaluating the impact of the new standard, including the evaluation of the impact, if any, on changes to business processes, systems and controls to support recognition and disclosure under the ~~equity method of accounting, we have elected~~new guidance, however, at this time is unable to ~~use~~determine the nature of the distribution approach. Under this approach, distributions are reported under operating cash flow unless the facts and circumstances of a specific distribution clearly indicate that it is a return of capital (e.g., a liquidating dividend or distribution of the proceeds from the joint venture’s sale of assets) in which case it is reported as an investing activity. The Company adoptedimpact this standard will have on ~~September 30, 2016.~~the financial statements and related disclosures.

In ~~April 2015,~~January 2016, the FASB issued ASU ~~2015-03, Interest~~2016-01, Financial Instruments - ~~Imputation~~Overall (Subtopic 825-10): Recognition and Measurement of ~~Interest (Subtopic 835-30): Simplifying the Presentation~~Financial Assets and Financial Liabilities which updates certain aspects of ~~Debt Issuance Costs, which requires that debt issuance costs related to a recognized liability be presented in the balance sheet as a direct deduction from the carrying amount~~recognition, measurement, presentation and disclosure of ~~that debt liability, consistent with debt discounts. The Company adopted~~financial instruments. This standard is effective for interim and annual periods beginning after December 15, 2017. We anticipate adopting this ~~standard~~ASU on January 1, ~~2016~~2018 will have an immaterial impact to the financial statements including reclassification of accumulated other comprehensive income for available-for-sale securities into equity at January 1, 2018, and ~~retrospectively applied~~future changes to the ~~guidance to prior periods.~~

~~Recently Issued Accounting Pronouncements~~fair value of available-for-sale securities will be recognized in the income statement.

In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers, which was issued as a new Topic, ASC Topic 606. The new revenue recognition standard ~~provides a five-step analysis of transactions to determine when and how~~supersedes all existing revenue ~~is recognized. The core principle of the guidance is that a company~~recognition guidance. Under this ASU, an entity should recognize revenue ~~to depict the transfer of~~when it transfers promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. ASU 2015-14, issued in August 2015, deferred the effective date of ASU 2014-09 to ~~fiscal years beginning after December 15,~~the first quarter of 2018, with early adoption permitted in the first quarter of 2017. The Company ~~can either~~intends to adopt ~~these standards retrospectively or as a cumulative-effect adjustment~~the amended guidance as of ~~the date of adoption. The Company is currently evaluating the effect that adopting this new accounting guidance will have on its consolidated results of operations, cash flows~~January 1, 2018.

In March, April, May, and ~~financial position.~~

~~In February~~December 2016, the FASB issued the following updates, respectively, to provide supplemental adoption guidance and clarification to ASU ~~2016-02,~~ ~~Leases~~ (“2014-09. These standards must be adopted concurrently upon the adoption of ASU 2016-02”). The amendments in ASU 2016-02 require companies that lease assets to recognize on their balance sheets the assets and liabilities for the rights and obligations generated by contracts longer than one year. ASU 2016-02 is effective for fiscal years beginning after December 15, 2018 with early adoption permitted. The guidance is required to be applied by the modified retrospective transition approach. The Company is2014-09. We are currently evaluating the ~~effect that~~potential effects of adopting ~~this~~the provisions of these updates.

ASU 2016-08, Revenue from Contracts with Customers: Principal versus Agent Considerations (Reporting Revenue Gross versus Net).

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ASU 2016-10, Revenue from Contracts with Customers: Identifying Performance Obligations and Licensing.

ASU 2016-12, Revenue from Contracts with Customers: Narrow-Scope Improvements and Practical Expedients.

ASU 2016-19, Technical Corrections and Improvements.

We have established an implementation team to execute a multi-phase plan to adopt the requirements of the new ~~accounting~~standard. The team is in the process of finalizing its conclusions on how the guidance will be applied to all coal sales contracts comprising greater than half of our consolidated revenues. The team is also evaluating the expanded disclosures required by the new standard and reviewing our processes and internal controls over financial reporting to ensure the appropriate information will be available for these disclosures. No changes will be required to our system capabilities to obtain the appropriate information.

Under the new standard, companies may use either of the following transition methods: (i) a full retrospective approach reflecting the application of the standard in each prior reporting period with the option to elect certain practical expedients; or (ii) a modified retrospective approach with the cumulative effect of initially adopting ASU 2014-09 recognized at the date of adoption (which includes additional footnote disclosures). We will be adopting the standard under the full retrospective approach.

Based on our implementation team’s analyses, we believe the implementation of the new standard will have a material impact on ~~its~~our consolidated ~~results~~financial statements for sales contracts in which we are entitled to payments from customers to reimburse our costs incurred during final reclamation. Under current GAAP, as these amounts are not fixed and determinable until they are incurred, we have been precluded from recognizing revenue until the costs have been incurred during final reclamation. However, under ASC Topic 606, these payments from customers constitute variable consideration and therefore must be estimated at contract inception and recognized as revenue as we satisfy our performance obligations of ~~operations, cash flows~~delivering coal to the customer. This will ultimately result in a significant acceleration of revenue, most of which will be recognized as a transition adjustment as of January 1, 2016. The implementation team is currently reviewing the models to quantify the exact amount of the transition adjustment and ~~financial position.~~related impact to revenues for the years ended December 31, 2017 and 2016.

2. ACQUISITION

Acquisition of San Juan

On January 31, 2016, Westmoreland San Juan, LLC (“WSJ”), a variable interest entity of the Company, acquired San Juan Coal Company (“SJCC”), which operates the San Juan mine in Farmington, New Mexico, and San Juan Transportation Company (“SJTC” and such transaction, the “San Juan Acquisition”) for a total cash purchase price of ~~approximately $125.3~~

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

~~million, subject to post-closing adjustments.~~$121.0 million. The San Juan mine is the exclusive supplier of coal to the adjacent San Juan Generating Station (“SJGS”) under a coal supply agreement through 2022. The San Juan operations are included in the Company’s Coal - U.S. segment.

WSJ financed the San Juan Acquisition principally with a $125.0 million loan from NM Capital Utility Corporation (the “San Juan Loan”), an affiliate of Public Service Company of New Mexico (one of the owners of SJGS).

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

~~The allocation of the purchase~~ Purchase price is preliminary pending the completion of various estimates. During the measurement period (which is not to exceed one year from the acquisition date), additional assets or liabilities may be recognized if new information is obtained about facts and circumstances that existedaccounting was considered final as of ~~the acquisition date that, if known, would have resulted in the recognition of those assets or liabilities as of that date.~~December 31, 2016. The preliminary allocation may be adjusted after obtaining additional information regarding, among other things, asset valuations, liabilities assumed and revisions of previous estimates, and these adjustments may be significant. Certain estimates in the San Juan purchase price allocation are classified as Level 3 fair value estimates.

~~A preliminary~~ allocation of the purchase consideration follows (in millions):

Provisional
as of
September 30, 2016
Purchase price:
Cash paid $ 125.3

Preliminary allocation of purchase price:
Assets:
     Inventories - coal and supplies $ 8.8
     Other receivables 10.0
Contractual third-party reclamation receivable 4.6
Total current assets 23.4
     Land and mineral rights 108.3
     Plant and equipment 73.5
Contractual third-party reclamation receivable 66.8
Other assets 10.4
Total assets 282.4
Liabilities:
     Trade payables and other accrued liabilities 14.1
Production taxes 2.0
     Other liabilities 9.9
Asset retirement obligations 4.6
Total current liabilities 30.6
     Asset retirement obligations, less current portion 66.8
Postretirement medical 1.9
Deferred income taxes 48.5
     Other liabilities 9.3
Total liabilities 157.1
Net fair value $ 125.3

~~Pro Forma Information~~

The following pro forma information has been prepared for illustrative purposes only and assumes the San Juan Acquisition occurred on January 1, 2015. The unaudited pro forma results have been prepared based on estimates and

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Purchase price:
Cash paid	$	121.0

Allocation of purchase price:
Assets:
Inventories	$	8.8
Total current assets	8.8
Land and mineral rights	143.9
Plant and equipment	74.6
Other assets	1.3
Total assets	228.6
Liabilities:
Trade payables and other accrued liabilities	13.4
Production taxes	2.0
Asset retirement obligations	0.7
Total current liabilities	16.1
Asset retirement obligations, less current portion	43.5
Postretirement medical benefits	1.9
Deferred income taxes	46.1
Total liabilities	107.6
Net fair value	$	121.0

Unaudited Pro Forma Information

The following unaudited pro forma information has been prepared for illustrative purposes only and assumes the San Juan Acquisition occurred on January 1, 2016. The unaudited pro forma results have been prepared based on estimates and assumptions, which the Company believes are reasonable, however, they are not necessarily indicative of the consolidated results of operations had the acquisitions occurred on the dates indicated above, or of future results of operations.


	Three Months Ended September 30,			Nine Months Ended September 30,						Nine Months Ended September 30, 2016
	2015			2016			2015			(In thousands, except per share data)
Revenues
As reported										$	1,085,223
Pro forma (unaudited)										1,111,498
	(In thousands, except per share data)
Total revenues
Operating income
As reported	$	349,796		$	1,081,651		$	1,070,240		$	15,489
Pro forma	$	423,350		$	1,107,926		$	1,296,561

Operating income (loss)
As reported	$	(15,307	)	$	31,739		$	(13,716	)
Pro forma	$	(5,179	)	$	32,834		$	17,784
Pro forma (unaudited)										16,584

Net loss applicable to common shareholders
As reported	$	(46,562	)	$	(3,304	)	$	(94,899	)	$	(19,550	)
Pro forma	$	(39,429	)	$	(2,879	)	$	(73,542	)
Pro forma (unaudited)										(19,125		)

Net loss per share applicable to common shareholders (basic and diluted)
As reported	$	(2.59	)	$	(0.18	)	$	(5.32	)	$	(1.06	)
Pro forma	$	(2.19	)	$	(0.16	)	$	(4.12	)
Pro forma (unaudited)										(1.04		)

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3. VARIABLE INTEREST ENTITY

~~As of September 30, 2016, the~~The Company ~~consolidated~~consolidates its 100% owned WSJ subsidiary which isqualifies as a variable interest entity (“VIE”). under GAAP. WSJ’s classification as a VIE is due to ~~another~~a third party lender having the potential right to receive WSJ’s residual returns. The Company is the primary beneficiary because it has the power to direct the activities that most significantly impact WSJ’s economic performance. Accordingly, the Company consolidated the operating results, assets and liabilities of WSJ. See Note 2 - Acquisition to the consolidated financial statements (unaudited) for details surrounding the VIE’s acquisition and Note 6 - Debt ~~and~~And Lines ofOf Credit.

to the consolidated financial statements (unaudited) for the VIE’s debt structure. The following table presents the carrying amounts, after eliminating the effect of intercompany transactions, included in the Consolidated Balance ~~Sheet~~Sheets that are for the use of or are the obligation of ~~WSJ (in thousands):~~WSJ:


			September 30, 2017		December 31, 2016
	September 30, 2016		(In thousands)
Assets	$	311,287	$	215,230	$	268,910
Liabilities	287,485		180,559		243,884
Net carrying amount	$	23,802	$	34,671	$	25,026

4. INVENTORIES

Inventories consisted of the following:


	September 30, 2016			December 31, 2015			September 30, 2017			December 31, 2016
	(In thousands)						(In thousands)
Coal stockpiles	$	42,439		$	38,636		$	36,013		$	44,692
Coal fuel inventories	7,103			7,194			1,338			6,816
Materials and supplies	81,998			78,784			76,669			77,628
Reserve for obsolete inventory	(2,855		)	(2,756		)	(3,844		)	(3,621		)
Total	$	128,685		$	121,858		$	110,176		$	125,515

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~~WESTMORELAND COAL COMPANY AND SUBSIDIARIES~~

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

5. RESTRICTED INVESTMENTS AND BOND COLLATERAL

The Company invests certain bond collateral, reclamation deposits, and other restricted investments in a limited selection of fixed-income investment options and receives the corresponding investment returns. These investments are not available to meet the Company’s general cash needs. These accounts include available-for-sale securities. Available-for-sale securities are reported at fair value with unrealized gains and losses excluded from earnings and reported in Accumulated other comprehensive loss.

The Company’s carrying value and estimated fair value of its restricted investments at September 30, ~~2016~~2017 were as follows:


	Restricted Investments and Bond Collateral		Reclamation Deposits		Total Restricted Investments		Restricted Investments and Bond Collateral		Reclamation Deposits		Total Restricted Investments
	(In thousands)						(In thousands)
Cash and cash equivalents	$	64,307	$	2,309	$	66,616	$	65,441	$	3,443	$	68,884
Time deposits	2,470		—		2,470		2,467		—		2,467
Available-for-sale	77,677		71,734		149,411		79,505		73,493		152,998
	$	144,454	$	74,043	$	218,497	$	147,413	$	76,936	$	224,349

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The Company’s carrying value and estimated fair value of its restricted investments at December 31, ~~2015~~2016 were as follows:


	Restricted Investments and Bond Collateral		Reclamation Deposits		Total Restricted Investments		Restricted Investments and Bond Collateral		Reclamation Deposits		Total Restricted Investments
	(In thousands)						(In thousands)
Cash and cash equivalents	$	102,539	$	45,819	$	148,358	$	66,860	$	2,673	$	69,533
Time deposits	2,455		—		2,455		2,473		—		2,473
Available-for-sale	35,813		31,545		67,358		75,580		71,689		147,269
	$	140,807	$	77,364	$	218,171	$	144,913	$	74,362	$	219,275

Available-for-Sale Restricted Investments

The cost basis, gross unrealized holding gains and losses, and fair value of available-for-sale securities at September 30, ~~2016~~2017 were as follows:


	Restricted Investments and Bond Collateral			Reclamation Deposits			Total Restricted Investments			Restricted Investments and Bond Collateral			Reclamation Deposits			Total Restricted Investments
	(In thousands)									(In thousands)
Cost basis	$	78,410		$	72,068		$	150,478		$	79,724		$	73,470		$	153,194
Gross unrealized holding gains	273			551			824			520			624			1,144
Gross unrealized holding losses	(1,006		)	(885		)	(1,891		)	(739		)	(601		)	(1,340		)
Fair value	$	77,677		$	71,734		$	149,411		$	79,505		$	73,493		$	152,998

The cost basis, gross unrealized holding gains and losses, and fair value of available-for-sale securities at December 31, ~~2015~~2016 were as follows:


	Restricted Investments and Bond Collateral			Reclamation Deposits			Total Restricted Investments			Restricted Investments and Bond Collateral			Reclamation Deposits			Total Restricted Investments
	(In thousands)									(In thousands)
Cost basis	$	36,715		$	31,977		$	68,692		$	76,558		$	72,381		$	148,939
Gross unrealized holding gains	167			521			688			251			453			704
Gross unrealized holding losses	(1,069		)	(953		)	(2,022		)	(1,229		)	(1,145		)	(2,374		)
Fair value	$	35,813		$	31,545		$	67,358		$	75,580		$	71,689		$	147,269

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6. DEBT AND LINES OF CREDIT

The Company and its subsidiaries are subject to the following debt arrangements:

Total Debt Outstanding
September 30, 2016 December 31, 2015
(In thousands)
8.75% Notes $ 350,000
$ 350,000
WCC Term Loan Facility 324,705
327,172
San Juan Loan 110,000
—
WMLP Term Loan Facility 304,757
299,248
Capital lease obligations 61,579
71,168
Revolving Credit Facility —
1,970
Other 14,930
7,251
Total debt 1,165,971

1,056,809
Less debt discount and debt issuance costs (40,222 ) (36,914 )
Less current installments (90,736 ) (40,822 )
Total debt outstanding, less current installments $ 1,035,013
$ 979,073



	Total Debt Outstanding
	September 30, 2017			December 31, 2016
	(In thousands)
8.75% Notes	$	350,000		$	350,000
Term Loan	321,417			323,883
San Juan Loan	66,230			95,000
WMLP Term Loan	311,628			306,189
Revolver	10,540			—
WMLP Revolver	—			—
Capital lease obligations	36,736			55,061
Other debt	4,512			16,464
Total debt	1,101,063			1,146,597
Less debt discount and issuance costs, net	(29,915		)	(37,531		)
Less current installments	(49,712		)	(86,272		)
Long-term debt, less current installments	$	1,021,436		$	1,022,794

The following table presents remaining aggregate contractual debt maturities of all ~~debt:~~long-term debt as of September 30, 2017 (in thousands):


	September 30, 2016		Debt Held by WMLP		All Other Debt		Total Debt Outstanding
	(In thousands)
2016	$	29,880
2017	81,178		$	1,660	$	30,572	$	32,232
2018	321,636		315,804		18,852		334,656
2019	19,090		4,105		15,439		19,544
2020	340,332		1,694		338,571		340,265
2021			1,586		21,164		22,750
Thereafter	373,855		1,616		350,000		351,616
Total debt	$	1,165,971	$	326,465	$	774,598	$	1,101,063

Covenant Compliance

Our lending arrangements contain, among other terms, events of default and various affirmative and negative covenants, financial covenants and cross-default provisions. Certain affirmative covenants in our WMLP Term Loan provide that an explanatory paragraph expressing substantial doubt about WMLP's ability to continue as a going concern constitutes an event of default. We are in compliance with our covenants for the quarter ending September 30, 2017. Our continuing ability to meet our obligations and comply with our covenants depends on our ability to generate adequate cash flows and refinance debt obligations as they become due. Should we be unable to comply with any future debt-related covenant, we will be required to seek a waiver of such covenant to avoid an event of default. Covenant waivers and modifications may be expensive to obtain or potentially unavailable.

As of September 30, 2017, we are in compliance with the fixed charge ratio under our revolver agreements. Based on current projections, absent management plans, there is substantial doubt as to our ability to comply with this covenant during the next twelve months from this filing. If we were to breach this covenant and were unable to obtain a waiver from the lenders, we could lose access to the Revolver. An uncured breach of the covenants in our Revolver would trigger certain customary cross-default provisions in our $350.0 million 8.75% Notes and our $321.4 million Term Loan which would become immediately due. Our belief, based on historical patterns, is that it is probable we would be able to alleviate or cure any such Revolver covenant default with an amendment or waiver.

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

8.75% Notes

~~The 8.75%~~

Pursuant to our senior note indenture, dated as of December 16, 2014, by and among the Company, the guarantors named therein, and U.S. Bank National Association, as trustee and notes collateral agent (the “Indenture”), our senior secured ~~notes~~8.75% Notes mature on January 1, 2022 ~~(“8.75% Notes”)~~ and pay interest semiannually on January 1 and July 1 of each year at a fixed 8.75% interest ~~rate.~~rate (“8.75% Notes”). The 8.75% Notes are a primary obligation of the ~~Parent~~Company and are guaranteed by Westmoreland Energy LLC, Westmoreland Mining LLC and Westmoreland Resources, Inc. and their respective subsidiaries (other than Absaloka Coal, LLC, Westmoreland Risk Management, Inc. and certain other immaterial subsidiaries), referred to as the “Guarantors.” The 8.75% Notes are not guaranteed by Westmoreland Canada LLC or any of its subsidiaries, ~~Westmoreland San Juan, LLC~~WSJ or any of its subsidiaries, or Westmoreland Resources GP, LLC or WMLP, referred to as the “Non-guarantors.” As

Term Loan

Pursuant to our credit agreement, dated as of ~~September 30, 2016, we were in compliance with all covenants for~~December 22, 2014, by and among the ~~8.75% Notes.~~

~~WCC Term Loan Facility~~

~~The~~Company, the lenders from time to time party thereto, and Bank of Montreal, as administrative agent, as amended, our term loan (“Term Loan”) matures on December 16, 2020 ~~(“WCC Term Loan Facility”)~~ and ~~pays~~accrues interest on a quarterly basis at a variable interest rate which is set at our election ofat (i) the one-, two-, three- or six-month London Interbank Offered Rate (“LIBOR”) plus 6.50% or (ii) a base rate (determined with reference to the highest of the prime rate, the Federal Funds Rate plus 0.05%, or ~~one-month~~three-month LIBOR plus 1.00%) plus 5.50%. As of September 30, ~~2016,~~2017, the interest rate was ~~7.50%~~7.80%. The ~~WCC~~ Term Loan ~~Facility~~ is a primary obligation of ~~the Parent~~WCC and is guaranteed by the Guarantors. ~~As of September 30, 2016, we were in compliance with all covenants of the WCC Term Loan Facility.~~

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

San Juan Loan

Pursuant to the loan agreement, dated as of February 1, 2016, by and among WSJ and the remaining Westmoreland San Juan Entities as guarantors, and NM Capital Utility Corporation (an affiliate of Public Service Company of New Mexico, part owner of SJGS) as lender, we financed the San Juan Acquisition in part with ~~the San Juan Loan,~~ a senior secured $125.0 million term loan ~~from NM Capital Utility Corporation, an affiliate of Public Service Company of New Mexico (one of the owners of SJGS)~~(“San Juan Loan”). The San Juan Loan matures on February 1, 2021 and pays interest and principal on a quarterly basis at an interest rate of (i) 7.25% (the “Margin Rate”) plus (ii) (A) the LIBOR for a three month period plus (B) a statutory reserve rate, which such Margin Rate ~~increases~~increasing incrementally during each year of the San Juan Loan term. As of September 30, ~~2016,~~2017, the cash interest rate is ~~8.01%~~10.57%. It is a primary obligation of ~~Westmoreland San Juan, LLC,~~WSJ, is guaranteed by SJCC, and is secured by substantially all of SJCC’s assets. The San Juan Loan has no prepayment penalties. The agreements governing the San Juan Loan include representations and warranties and covenants regarding the ownership and operation of SJCC and the properties acquired in the San Juan Acquisition and standard special purpose bankruptcy remote entity covenants designed to preserve the separateness from ~~Westmoreland~~the Company of each of (i) WSJ, (ii) ~~its~~WSJ’s direct parent company, Westmoreland San Juan Holdings, Inc., (iii) SJCC and (iv) SJTC (collectively, the “Westmoreland San Juan Entities”). Obligations under the San Juan Loan are recourse only to the Westmoreland San Juan Entities and their ~~assets Westmoreland~~assets. Neither the Company nor its subsidiaries (other than the Westmoreland San Juan Entities) is an obligor under the San Juan Loan in any respect. The agreement governing the San Juan Loan requires that all revenues of the Westmoreland San Juan Entities, aside from payments on certain leases, are deposited into a cash management collection account swept monthly for operating expenses, capital expenditures, and loan payment and prepayment. The assets and credit of SJCC are not available to satisfy the debts and other obligations of the Company other than those of the Westmoreland San Juan Entities.

WMLP Term Loan ~~Facility~~

~~The~~

Pursuant to the financing agreement, dated as of December 31, 2014, by and among Oxford Mining Company, LLC, WMLP and each of its subsidiaries, lenders from time to time party thereto, and U.S. Bank National Association, as administrative agent, the term loan of WMLP ~~matures in December 2018~~ (“WMLP Term ~~Loan Facility”~~Loan”) matures on December 31, 2018 and pays interest on a quarterly basis at a variable rate ~~per annum~~ equal to the 3-month LIBOR rate at each period end (1.30% at September 30, 2017), subject to a floor of ~~(0.75%)~~0.75%, plus ~~8.5%~~8.50% or the reference rate, as defined in the financing agreement. As of September 30, ~~2016,~~2017, the cash interest rate ~~is 9.25%~~was 9.80%. The WMLP Term Loan ~~Facility~~ is a primary obligation of Oxford Mining Company, LLC, a wholly owned subsidiary of WMLP, is guaranteed by WMLP and its subsidiaries, and is secured by substantially all of WMLP’s and its subsidiaries’ assets. ~~At September 30, 2016, we were in compliance with all covenants of the WMLP Term Loan Facility.~~

The WMLP Term Loan ~~Facility~~ also provides for ~~Paid In Kind~~Paid-In-Kind Interest (“PIK Interest”) at a variable rate ~~per annum~~ between 1.00% and 3.00% based on ~~our~~its consolidated total net leverage ratio as defined in the financing agreement. The rate of PIK Interest is ~~recalculated~~determined on a quarterly basis with the PIK Interest added quarterly to the then-outstanding principal amount of the ~~term loan~~WMLP Term Loan under the financing agreement. PIK Interest under the financing agreement was ~~$6.9 million for the nine months ended September 30, 2016. The outstanding term loan amount represents the principal balance of $291.0 million, plus PIK Interest of $13.7 million.~~

~~WMLP Revolving Credit Facility~~

~~The WMLP revolving line of credit (“WMLP Revolving Credit Facility”) permits WMLP to borrow up to the aggregate principal amount of $15.0~~$2.3 million and ~~also allows letters of credit in an aggregate outstanding amount of up to $10.0~~$7.0 million which reduces availability under the WMLP revolving credit facility on a dollar-for-dollar basis. At September 30, 2016, availability under the WMLP revolving credit facility was $15.0 million. The WMLP Revolving Credit Facility has a maturity date of December 31, 2017. We were in compliance with all covenant requirements of the WMLP Revolving Credit Facility as of September 30, 2016.

~~Capital Lease Obligations~~

~~During the nine months ended September 30, 2016, the Company entered into $10.0 million of new capital leases.~~

~~WCC Revolving Credit Facility~~

The Company amended the terms of its revolving line of credit (“WCC Revolving Credit Facility”) on September 30, 2016 and October 12, 2016, respectively. The September 30 amendment clarified the terms “Canadian Fixed Charges” and “US Fixed Charges” to allocate scheduled cash interest payments and to remove the allocation schedule of cash interest payments under the term “Interest Expense.” The October 12 amendment (1) replaced the previous lender, Bank of the West, with a new lender, East West Bank, (2) amended Interest Expense to remove certain dividend payments, (3) revised the term “Required Lenders” to constitute all lenders when only two unaffiliated lenders are party to the revolving credit facility, (4) removed the requirement of the delivery of a social responsibility questionnaire in connection with a Permitted Acquisition, (5) allowed for any Lender to provide the Swing Line Lender one day’s prior written notice prohibiting a US Swing Line Loan or Canadian Swing Line Loan, (6) removed Administrative Agent discretion on application of proceeds from the sale of Collateral, (7)

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

~~adjusted Annual Projections reporting requirements~~the three and nine months ended September 30, 2017, respectively. The outstanding WMLP Term Loan amount represents the principal balance of $288.6 million, plus PIK Interest of $23.1 million.

The WMLP Term Loan limits cash distributions to ~~no longer require delivery~~an aggregate amount not to exceed $15.0 million (“Restricted Distributions”), if WMLP has: (i) a consolidated total net leverage ratio of greater than 3.75, or fixed charge coverage ratio of less than 1.00 (as such ratios are defined in the WMLP Term Loan financing agreement), or (ii) liquidity of less than $7.5 million, after giving effect to such cash distribution and applying WMLP's availability under the WMLP Revolver. As of September 30, 2017, WMLP’s consolidated total net leverage ratio is in excess of 3.75.

As of September 30, 2017, WMLP has distributed $14.8 million in cash that counts toward the $15.0 million in aggregate Restricted Distribution payments. On October 27, 2017, WMLP announced a quarterly cash distribution for the quarter ended September 30, 2017, of $0.1155 per limited partner common unit, general partner unit and warrant with distribution rights and a distribution of Series A PIK Units in lieu of a ~~balance sheet~~cash distribution for holders of Series A Convertible Units (“Third Quarter Distribution”), which is a per-unit reduction of $0.0178 from the prior quarter distribution of $0.1333 per limited partner common unit, general partner unit, warrant with distribution rights, as well as Series A PIK Unit distribution. The Third Quarter Distribution, totaling cash of approximately $0.2 million, will be paid on November 14, 2017 to all holders of record as of November 7, 2017. Subsequent to payment of this Third Quarter Distribution, WMLP will have utilized the full $15.0 million limit on Restricted Distributions, and ~~(8) adjusted~~WMLP will be restricted from making any further distributions under the ~~waterfall treatment with respect~~terms of the WMLP Term Loan financing agreement.

Revolver

Pursuant to ~~Proceeds~~the second amended and restated loan and security agreement, dated as of ~~Collateral.~~

~~Under~~December 16, 2014, by and among the ~~WCC Revolving Credit Facility~~Company and certain of its subsidiaries, lenders party thereto, and Canadian Imperial Bank of Commerce (formerly known as The PrivateBank and Trust Company), as administrative agent (the “Revolver”), the ~~Company~~Company’s Revolver has a total aggregate borrowing capacity of $60.0 million between June 15th and August 31st of each year, with an aggregate borrowing capacity of $50.0 million outside of these ~~periods.~~periods subject to borrowing base calculations as defined in the agreement. The availability of the ~~WCC Revolving Credit Facility~~Revolver consists of a $30.0 million sub-facility ($35.0 million with the seasonal increase) available to our U.S. borrowers and a $20.0 million sub-facility ($25.0 million with the seasonal increase) available to our Canadian borrowers. The ~~facility~~Revolver may support an equal amount of letters of credit, with outstanding letter of credit balances reducing availability under the ~~facility.~~Revolver. At September 30, ~~2016,~~2017, availability on the ~~WCC Revolving Credit Facility~~Revolver was ~~$36.3~~$16.7 million ~~with an~~which reflects $9.9 million in outstanding ~~balance of $13.7 million supporting~~ letters of credit and ~~nothing drawn~~$12.8 million in borrowing base restrictions. We had $10.5 million borrowings on the ~~WCC Revolving Credit Facility.~~Revolver. The ~~WCC Revolving Credit Facility~~Revolver has a maturity date of December 31, 2018. ~~We were in compliance with all covenant requirements~~

On May 9, 2017, the Company executed a tenth amendment to our Revolver (“Tenth Amendment”). The Tenth Amendment adjusted the fixed charge coverage ratio calculation by further modifying the treatment of the ~~WCC Revolving Credit Facility~~accelerated repayment of the loan and lease receivable arrangement at our Genesee mine from March 24, 2017, and removing certain testing periods from the U.S. and Canadian fixed charge coverage ratio calculation so long as the Company meets certain liquidity requirements.

WMLP Revolver

Pursuant to the loan and security agreement, dated as of October 23, 2015, by and among WMLP and its subsidiaries, lenders party thereto, and Canadian Imperial Bank of Commerce (formerly known as The PrivateBank and Trust Company), as administrative agent (the “WMLP Revolver”), the WMLP Revolver permits WMLP to borrow up to the aggregate principal amount of $15.0 million subject to borrowing base restrictions as defined in the agreement. The WMLP Revolver also allows letters of credit in an aggregate outstanding amount of up to $10.0 million, which reduces availability under the WMLP Revolver on a dollar-for-dollar basis. At September 30, ~~2016.~~

~~Deferred Financing Costs~~

~~Due to~~2017, availability under the adoption of ASU 2015-03, Interest - Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs, debt issuance costs related to the Company’s debt liabilities are now reported in the balance sheet asWMLP Revolver was $14.8 million. The WMLP Revolver has a direct deduction from the face amount of the notes. The adoption of this standard resulted in the reclassification of $25.8 million of unamortized debt issuance costs from the non-current asset, Other assets, to a reduction of Long-term debt, less current portion on the consolidated balance sheet asmaturity date of December 31, ~~2015.~~2017.

Capital lease obligations

The Company engages in leasing transactions for equipment utilized in its mining operations. During the nine months ended September 30, 2017, the Company entered into $0.7 million of new capital leases.

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WESTMORELAND COAL COMPANY AND SUBSIDIARIES

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

7. POSTRETIREMENT MEDICAL BENEFITS AND PENSION

Postretirement Medical Benefits

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

The components of net periodic postretirement medical benefit cost are as follows:


	Three Months Ended September 30,				Nine Months Ended September 30,				Three Months Ended September 30,				Nine Months Ended September 30,
	2016		2015		2016		2015		2017		2016		2017		2016
	(In thousands)								(In thousands)
Components of net periodic benefit cost:
Service cost	$	763	$	1,054	$	2,507	$	3,163	$	793	$	763	$	2,380	$	2,507
Interest cost	3,075		2,907		9,278		8,722		3,197		3,075		9,590		9,278
Amortization of deferred items	368		327		891		981		964		368		2,893		891
Total net periodic benefit cost	$	4,206	$	4,288	$	12,676	$	12,866	$	4,954	$	4,206	$	14,863	$	12,676

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


	Three Months Ended September 30,				Nine Months Ended September 30,				Three Months Ended September 30,				Nine Months Ended September 30,
	2016		2015		2016		2015		2017		2016		2017		2016
	(In thousands)								(In thousands)
Former mining operations	$	2,135	$	2,034	$	6,405	$	6,103	$	2,305	$	2,135	$	6,916	$	6,405
Current operations	2,071		2,254		6,271		6,763		2,649		2,071		7,947		6,271
Total net periodic benefit cost	$	4,206	$	4,288	$	12,676	$	12,866	$	4,954	$	4,206	$	14,863	$	12,676

The costs for the former mining operations are included in Heritage health benefit expenses and costs for current operations are included in Cost of sales and Selling and administrative expenses.

Pension

The Company provides pension benefits to qualified full-time employees pursuant to collective bargaining agreements.

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~~WESTMORELAND COAL COMPANY AND SUBSIDIARIES~~

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

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


	Three Months Ended September 30,						Nine Months Ended September 30,						Three Months Ended September 30,						Nine Months Ended September 30,
	2016			2015			2016			2015			2017			2016			2017			2016
	(In thousands)												(In thousands)
Components of net periodic benefit cost:
Service cost	$	373		$	436		$	1,242		$	1,318		$	348		$	373		$	1,133		$	1,242
Interest cost	2,564			1,831			7,926			5,780			2,596			2,564			7,855			7,926
Expected return on plan assets	(3,349		)	(2,435		)	(10,390		)	(7,744		)	(3,643		)	(3,349		)	(10,918		)	(10,390		)
Settlements	247			(1,529		)	247			(1,874		)	—			247			269			247
Amortization of deferred items	1,294			1,059			3,884			3,301			588			1,294			1,765			3,639
Total net periodic pension cost	$	1,129		$	(638	)	$	2,909		$	781		$	(111	)	$	1,129		$	104		$	2,664

These costs are included in Cost of sales and Selling and administrative expenses. The Company made ~~$0.6~~$1.1 million and ~~$3.5~~$0.6 million of contributions to its pension plans in the nine months ended September 30, ~~2016~~2017 and ~~2015,~~2016, respectively. The Company expects to make $0.1 million of contributions to its pension plans during the remainder of ~~2016.~~2017.

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

8. DERIVATIVE INSTRUMENTS

Derivative Assets and Liabilities

The Company evaluates all of its financial instruments to determine if such instruments are derivatives, derivatives that qualify for the normal purchase normal sale exception, or contain features that qualify as embedded derivatives. All derivative financial instruments, except for derivatives that qualify for the normal purchase normal sale exception, are recognized on the balance sheet at fair value. Changes in fair value are recognized in earnings if they are not eligible for hedge accounting or in other comprehensive income if they qualify for cash flow hedge accounting.

The Company has power purchase contracts at its Roanoke Valley Power Facility (“ROVA”) to manage exposure to power price fluctuations. These contracts cover the period from April 2014 to March 2019 and contracted power prices range from $41.05 to $55.20 per megawatt hour, with a weighted average contract price of ~~$44.00~~$44.67 over the remaining contract lives. The contracts are not designated as hedging instruments, and accordingly their fair value is recognized on the Consolidated Balance Sheets, with changes in fair value recognized in the Consolidated ~~Statement~~Statements of Operations. Fair value is based on a comparison of contracted prices to projected future market prices which are Level 2 inputs based on the hierarchy defined below, please see Note 9 - Fair Value Measurements to the consolidated financial statements (unaudited).

During the fourth quarter of 2016, the Company entered into a Substitute Energy Purchase Agreement (the “SEP Agreement”) which amends our previous power purchase and operating agreement with our customer. The SEP Agreement, which covers the period from March 1, 2017 to March 31, 2019, enables us to fulfill our obligations under the contract without physically operating the facility. The SEP Agreement calls for fixed payments ranging from $21.33 to $24.32 (representing a weighted average price of $23.79 per megawatt hour) while optional power deliveries are $15.26 per megawatt hour. The SEP Agreement meets the definition of a derivative and it does not qualify for the normal purchases and normal sales scope exception. This contract is not designated as a hedging instrument, therefore, its fair value is recognized on the Consolidated Balance Sheets and changes in fair value recognized in the Consolidated Statements of Operations. As the underlying power deliveries option is significantly in the money, the fair value ~~footnote.~~of this derivative is based on comparing expected contracted cash inflows per the SEP Agreement to expected future outflows based on projected market prices.

During the fourth quarter of 2017, the Company exited our derivative positions as described in Note 16 - Subsequent Events to the consolidated financial statements (unaudited).

The fair value of outstanding derivative instruments not designated as hedging instruments on the accompanying unaudited Consolidated Balance Sheets was as follows (in thousands):


Derivative Instruments	Balance Sheet Location	September 30, 2016		December 31, 2015		Balance Sheet Location	September 30, 2017		December 31, 2016
Contracts to purchase power	Other current liabilities	$	15,121	$	13,679	Other current liabilities	$	18,097	$	13,382
Contracts to purchase power	Other liabilities	24,043		23,656		Other liabilities	10,100		18,384
Contract to sell power						Other current assets	15,879		10,240
Contract to sell power						Other assets	6,829		9,528

The effect of derivative instruments not designated as hedging instruments on the accompanying unaudited Consolidated Statements of Operations was as follows (in thousands):


		Three Months Ended September 30,						Nine Months Ended September 30,							Three Months Ended September 30,					Nine Months Ended September 30,
Derivative Instruments	Statement of Operations Location	2016			2015			2016			2015			Statements of Operations Location	2017			2016		2017			2016
Contracts to purchase power	Derivative loss	$	(5,442	)	$	(5,815	)	$	(2,164	)	$	(6,717	)	Derivative (gain) loss	$	(6,812	)	$	5,442	$	(3,570	)	$	2,164
Contract to sell power														Derivative (gain) loss	2,145			—		(3,001		)	—
															$	(4,667	)	$	5,442	$	(6,571	)	$	2,164

9. FAIR VALUE MEASUREMENTS

Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The fair value hierarchy prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy, as defined below, gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities and the lowest priority to unobservable inputs. For other fair value disclosures, see also Note 5 - Restricted Investments And Bond Collateral and Note 8 - Derivative Instruments to the consolidated financial statements (unaudited).

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

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

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

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~~WESTMORELAND COAL COMPANY AND SUBSIDIARIES~~

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

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

The table below sets forth, by level, the Company’s financial assets and liabilities that are accounted for at fair value at September 30, ~~2016:~~2017:


			Quoted Prices in Active Markets for Identical Assets or Liabilities		Significant Other Observable Inputs				Quoted Prices in Active Markets for Identical Assets or Liabilities		Significant Other Observable Inputs
	Fair Value		Level 1		Level 2		Fair Value		Level 1		Level 2
	(In thousands)
Assets:
Available-for-sale investments included in Restricted investments	$	77,677	$	77,677	$	—
Contract to sell power included in Other current assets and Other assets							$	22,708	$	—	$	22,708
Available-for-sale investments included in Restricted investments and bond collateral							79,505		79,505		—
Available-for-sale investments included in Reclamation deposits	71,734		71,734		—		73,493		73,493		—
Total assets	$	149,411	$	149,411	$	—
							$	175,706	$	152,998	$	22,708
Liabilities:
Contracts to purchase power included in Other current liabilities and Other liabilities	$	39,164	$	—	$	39,164	$	28,197	$	—	$	28,197
Warrants issued by WMLP included in Other liabilities	610		610		—		316		316		—
Total liabilities	$	39,774	$	610	$	39,164
							$	28,513	$	316	$	28,197

Long-term debt fair value estimates are based on observed prices for securities with an active trading market when available (Level 2) and otherwise using discount rate estimates based on interest rates (Level 3). As of September 30, ~~2016,~~2017, the Company valued the WMLP Term Loan ~~Facility~~ and the San Juan Loan with Level 3 fair values. The estimated fair values of the Company’s debt with fixed and variable interest rates are as follows:

Fixed Interest Rate Variable Interest Rate
Carrying Value Fair Value Carrying Value Fair Value
(In thousands) (In thousands)
September 30, 2016 $ 337,368
$ 276,500
$ 726,802
$ 595,591
December 31, 2015 $ 336,000
$ 213,500
$ 612,727
$ 397,601



	Fixed Interest Rate				Variable Interest Rate
	Carrying Value		Fair Value		Carrying Value		Fair Value
	(In thousands)				(In thousands)
September 30, 2017	$	380,583	$	277,497	$	690,565	$	482,551
December 31, 2016	409,362		395,274		699,704		658,557

10. INCOME TAX

For interim income tax reporting the Company estimates its annual effective tax rate and applies this effective tax rate to its year-to-date pre-tax (loss) income. For the nine months ended September 30, ~~2015,~~2016, the effective tax rate differed from the statutory rate primarily as a result of the U.S. and Canadian valuation allowances and due to the ~~impact~~recognition of changes in the ~~statutory rate change in Alberta, Canada.~~Company's net deferred tax assets due to the San Juan Acquisition. For the nine months ended September 30, ~~2016,~~2017 the effective tax rate differed from the statutory rate primarily due to the U.S. and Canadian valuation ~~allowances and for~~allowances.

In connection with the ~~recognition of changes in the Company’s net deferred tax assets due to the San Juan Acquisition.~~

~~As part of the~~January 31, 2016 San Juan Acquisition during the nine months ended September 30, 2016, the Company ~~acquired $48.5~~recognized $47.6 million in deferred tax liabilities. ~~Changes in the acquiring company’s deferred tax assets or liabilities subsequent to a business combination are required to be recorded in income during the quarter in which the transaction occurs.~~ Accordingly, the ~~$48.5~~$47.6 million decrease in the Company’s net deferred tax assets resulted in the release of a corresponding ~~$48.5~~$47.6 million valuation allowance and recognition of a tax benefit in the nine months ended September 30, 2016.

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WESTMORELAND COAL COMPANY AND SUBSIDIARIES

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

Tax Benefits Preservation Plan

As of December 31, 2016, WCC had a U.S. federal net operating loss carryforward of $581.4 million, together with certain other tax attributes. WCC's ability to utilize these tax assets to offset future taxable income may be significantly limited if WCC experiences an "ownership change", as defined in Section 382 of the Internal Revenue Code of 1986, as amended (the "Code"). In general, an ownership change will occur if the percentage of the stock owned cumulatively by one or more “5 % shareholders” has increased by more than 50 percentage points over the lowest percentage of stock owned by such shareholders at any time over a rolling three-year period.

On September 2, 2017, the board of directors of WCC adopted a tax benefits preservation plan or stockholder rights plan (the "Plan"). The purpose of the Plan is to minimize the likelihood of an ownership change occurring for Section 382 purposes and thus protect WCC's ability to utilize certain net operating loss carryovers and other tax benefits of the Company and its subsidiaries (the “Tax Benefits”) to offset future income. The Plan is intended to act as a deterrent to any person or group acquiring “beneficial ownership” (within the meaning of applicable SEC rules) of 4.75% or more of the outstanding shares of WCC's common stock, par value $0.01 per share without the approval of the board of directors. The description and terms of the Rights (as defined below) applicable to the Plan are set forth in the 382 Rights Agreement, dated as of September 5, 2017 (the “Rights Agreement”), by and between WCC and Broadridge Corporate Issuer Solutions, Inc., as Rights Agent.

As part of the Rights Agreement, the board of directors authorized and declared a dividend distribution of one right (a “Right”) for each outstanding share of common stock to stockholders of record at the close of business on September 18, 2017. Each Right entitles the holder to purchase from WCC a unit consisting of one ten thousandth of a share (a “Unit”) of Series A Participating Preferred Stock, par value $0.01 per share, of WCC at a purchase price of $10.00 per Unit, subject to adjustment. Until a Right is exercised, the holder thereof, as such, will have no separate rights as a stockholder of WCC, including the right to vote or to receive dividends in respect of Rights.

11. STOCKHOLDERS’ DEFICIT AND ACCUMULATED OTHER COMPREHENSIVE LOSS

Changes in Accumulated Other Comprehensive Loss

The following table reflects the changes in accumulated other comprehensive loss by component:


	Pension			Postretirement medical benefits			Unrealized gains and losses on available-for-sale securities, net			Foreign currency translation adjustment			Tax effect of other comprehensive income gains			Accumulated other comprehensive income (loss)			Pension			Postretirement medical benefits			Unrealized gains and losses on available-for-sale securities, net			Foreign currency translation adjustment			Tax effect of other comprehensive income gains			Accumulated other comprehensive income (loss)
	(In thousands)																		(In thousands)
Balance at December 31, 2015	$	(34,558	)	$	(31,086	)	$	(1,325	)	$	(69,901	)	$	(34,430	)	$	(171,300	)
Balance at December 31, 2016																			$	(26,123	)	$	(51,893	)	$	(1,674	)	$	(61,073	)	$	(38,309	)	$	(179,072	)
Other comprehensive income (loss) before reclassifications	786			984			(139		)	16,184			(2,410		)	15,405			189			—			1,184			17,455			(2,503		)	16,325
Amounts reclassified from accumulated other comprehensive income (loss)	3,884			891			394			—			—			5,169			1,765			2,893			290			—			—			4,948
Balance at September 30, 2016	$	(29,888	)	$	(29,211	)	$	(1,070	)	$	(53,717	)	$	(36,840	)	$	(150,726	)
Balance at September 30, 2017																			$	(24,169	)	$	(49,000	)	$	(200	)	$	(43,618	)	$	(40,812	)	$	(157,799	)

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WESTMORELAND COAL COMPANY AND SUBSIDIARIES

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

The following table reflects the reclassifications out of accumulated other comprehensive loss for the three and nine months ended September 30, ~~2016~~2017 (in thousands):


Details about accumulated other comprehensive loss components	Amount reclassified from accumulated other comprehensive loss						Affected line item in the statement where net income (loss) is presented	Amount reclassified from accumulated other comprehensive loss						Affected line items in the statements where presented
	Three Months Ended September 30, 2016			Nine Months Ended September 30, 2016				Three Months Ended September 30, 2017			Nine Months Ended September 30, 2017			Affected line items in the statements where presented
Available-for-sale securities
Realized gains and losses on available-for-sale securities	$	116		$	394		Other income (loss)
Realized (gains) and losses on available-for-sale securities								$	(4	)	$	290		Other (loss) income

Amortization of defined benefit pension items
Prior service costs	$	2		$	6		Cost of sales and Selling and administrative	$	2		$	6		Cost of sales and Selling and administrative
Actuarial losses	1,292			3,878			Cost of sales and Selling and administrative	581			1,759			Cost of sales and Selling and administrative
Total	$	1,294		$	3,884			$	583		$	1,765
Amortization of postretirement medical items
Prior service costs	$	(159	)	$	(477	)	Cost of sales and Selling and administrative	$	(159	)	$	(477	)	Cost of sales and Selling and administrative
Actuarial losses	527			1,368			Cost of sales and Selling and administrative	1,123			3,370			Cost of sales and Selling and administrative
Total	$	368		$	891			$	964		$	2,893

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~~WESTMORELAND COAL COMPANY AND SUBSIDIARIES~~

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

12. SHARE-BASED COMPENSATION

The Company grants employees and non-employee directors restricted stock units. The Company recognized compensation expense from share-based arrangements shown in the following table:


	Three Months Ended September 30,				Nine Months Ended September 30,				Three Months Ended September 30,				Nine Months Ended September 30,
	2016		2015		2016		2015		2017		2016		2017		2016
	(In thousands)								(In thousands)
Recognition of fair value of restricted stock units, stock options and SARs over vesting period; and issuance of stock	$	1,391	$	1,100	$	3,733	$	2,924
Recognition of value of restricted stock units and cash units over vesting period; and issuance of stock									$	1,366	$	1,391	$	3,846	$	3,733
Contributions of stock to the Company’s 401(k) plan	—		842		2,192		2,664		—		—		—		2,192
Total share-based compensation expense	$	1,391	$	1,942	$	5,925	$	5,588	$	1,366	$	1,391	$	3,846	$	5,925

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WESTMORELAND COAL COMPANY AND SUBSIDIARIES

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

2017 Grant

During the nine months ended September 30, 2017, the Company granted the following stock-based awards under the Amended and Restated 2014 Equity Incentive Plan:

713,238 restricted stock units, of which 338,968 vest based on a service condition, 187,135 vest based on a service and market condition, and 187,135 vest based on a service and performance condition.

375,658 cash units (“the Cash Units”), which represent the right to cash equal to the closing price of WCC common stock as of the vesting date, of which 157,880 vest based on a service condition, 108,889 vest based on a service and market condition, and 108,889 vest based on a service and performance condition.

Restricted Stock Units

Unamortized compensation expense is expected to be recognized over the next three years. A summary of outstanding restricted stock units as of September 30, ~~2016~~2017 is as follows:


	Units		Weighted Average Grant-Date Fair Value		Unamortized Compensation Expense (In thousands)		Units		Weighted Average Grant-Date Fair Value		Unamortized Compensation Expense (In thousands)
Non-vested at December 31, 2015	354,311		$	28.44
Non-vested at December 31, 2016							700,500		$	15.91
Granted	484,121		7.78				713,238		3.94
Vested	(92,719	)	26.46				(246,724	)	18.34
Forfeited	(2,400	)	7.86				(44,870	)	8.31
Non-vested at September 30, 2016	743,313		$	15.30	$	6,767
Non-vested at September 30, 2017							1,122,144		$	8.80	$	4,568

~~Stock Options~~

~~No stock options were granted, vested, or forfeited during~~Cash Units

The compensation expense related to the ~~nine months ended September 30, 2016. A summary of stock options outstanding as of September 30, 2016 is as follows:~~

Stock Options
Weighted
Average
Exercise Price

Weighted
Average
Remaining
Contractual
Life
(In years)

Aggregate Intrinsic
Value
(In thousands)

Unamortized
Compensation
Expense
(In thousands)
Outstanding at September 30, 2016 109,306
$ 22.16
1.4
$ —
$ —

~~SARs~~

~~There were no SARs granted during the nine months ended September 30, 2016. A summary of SARs activity~~Cash Units was $0.3 million and $0.2 million for the nine months ended September 30, 2017 and 2016, isrespectively. Because the cash units are settled in cash they are accounted for as ~~follows:~~a liability award. The accrued liability related to the Cash Units was $0.1 million and $0.4 million as of September 30, 2017 and December 31, 2016, respectively.

SARs
Weighted
Average Exercise Price

Weighted
Average
Remaining
Contractual
Life
(In years)

Aggregate Intrinsic
Value
(In thousands)

Unamortized
Compensation
Expense
(In thousands)
Outstanding at December 31, 2015 16,943
$ 25.44

Expired (16,943 ) 25.44

Outstanding at September 30, 2016 —
$ —
0.0 $ —
$ —
Other Plans

During 2015, the Company contributed 269,567 common shares to match employees’ contributions to their 401k plans. For the nine months ended September 30, 2016, the Company contributed 342,353 common shares. In May 2016, the Company discontinued matching employees’ 401k contributions with common shares and elected instead to match with cash contributions. During 2016, the Company contributed 342,353 common shares to match employees’ contributions to their 401k plans. 342,353

~~Table of Contents~~

~~WESTMORELAND COAL COMPANY AND SUBSIDIARIES~~

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

13. EARNINGS PER SHARE

Basic earnings (loss) per share has been computed by dividing the net income (loss) applicable to common ~~shareholders~~stockholders by the weighted average number of shares of common stock outstanding during each period. Net income (loss) applicable to common ~~shareholders~~stockholders includes the adjustment for net income or loss attributable to noncontrolling interest. Diluted earnings (loss) per share is computed by including the dilutive effect of common stock that would be issued assuming conversion or exercise of outstanding stock options ~~stock appreciation rights~~and and restricted stock units. No such items were included in the computations of diluted loss per share in the three and nine months ended September 30, ~~2016~~2017 and ~~2015~~in the three and nine months ended September 30, 2016 because the Company incurred a net loss applicable to common ~~shareholders~~stockholders in ~~those~~these periods and the effect of inclusion would have been anti-dilutive.

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

Three Months Ended September 30, Nine Months Ended September 30,
2016 2015 2016
2015
(In thousands)
Restricted stock units, stock options and SARs 853
490
853
490



	Three Months Ended September 30,		Nine Months Ended September 30,
	2017	2016	2017	2016
	(In thousands)
Restricted stock units and stock options	1,201	853	1,201	853

Table of Contents

WESTMORELAND COAL COMPANY AND SUBSIDIARIES

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

14. SEGMENT INFORMATION

Segment information is based on a management approach which requires segmentation based upon the Company’s internal organization, reporting of ~~revenue,~~revenues and operating ~~income.~~income (loss). The Company’s operations are classified into six reporting segments: Coal - U.S., Coal - Canada, Coal - WMLP, Power, Heritage, and Corporate. ~~On August 1, 2015, the Company contributed 100%~~For a detailed description of the outstanding equity interests in Westmoreland Kemmerer, LLC (“Kemmerer”) to WMLP (the “Kemmerer Drop”), and, accordingly, to enable comparability, all segment disclosures have been adjusted to remove financial information for Kemmerer from the Coal - U.S. segment and present it in the Coal - WMLP segment for each of the three and nine months ended September 30,Company’s operations segmentation please see our 2016 ~~and 2015.~~

~~Table of Contents~~

~~WESTMORELAND COAL COMPANY AND SUBSIDIARIES~~

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

Form 10-K. Summarized financial information by segment is as follows:



	Coal - U.S.⁽¹⁾		Coal - Canada			Coal - WMLP⁽¹⁾			Power			Heritage			Corporate			Consolidated
	(In thousands)
Three Months Ended September 30, 2017
Revenues	$	142,040	$	115,688		$	85,607		$	20,070		$	—		$	(5,394	)	$	358,011
Depreciation, depletion, and amortization	19,826		8,590			9,691			—			—			(41		)	38,066
Operating income (loss)	7,212		1,206			9,451			5,344			(3,599		)	(5,359		)	14,255
Total assets	547,053		444,058			367,348			58,788			16,726			539			1,434,512
Cash paid for capital expenditures	5,348		3,386			3,527			—			—			—			12,261
Three Months Ended September 30, 2016
Revenues	$	170,177	$	96,252		$	90,320		$	21,554		$	—		$	(6,531	)	$	371,772
Depreciation, depletion, and amortization	22,221		7,133			11,555			—			—			(49		)	40,860
Operating income (loss)	9,220		5,226			5,970			(4,696		)	(3,326		)	(3,641		)	8,753
Total assets	657,276		503,460			382,098			40,760			16,288			6,172			1,606,054
Cash paid for capital expenditures	4,824		11,313			2,251			—			—			—			18,388
Nine Months Ended September 30, 2017
Revenues	$	420,445	$	314,051		$	241,464	��	$	61,177		$	—		$	(16,365	)	$	1,020,772
Depreciation, depletion, and amortization	58,469		25,627			30,152			—			—			(117		)	114,131
Operating income (loss)	4,926		(17,632		)	18,321			4,208			(11,055		)	(16,668		)	(17,900		)
Total assets	547,053		444,058			367,348			58,788			16,726			539			1,434,512
Cash paid for capital expenditures	9,204		7,436			8,725			—			—			—			25,365
Nine Months Ended September 30, 2016
Revenues	$	478,684	$	299,336		$	263,269		$	65,494		$	—		$	(21,560	)	$	1,085,223
Depreciation, depletion, and amortization	51,913		19,932			41,367			—			—			(115		)	113,097
Operating income (loss)	17,474		20,919			2,497			(3,766		)	(10,325		)	(11,310		)	15,489
Total assets	657,276		503,460			382,098			40,760			16,288			6,172			1,606,054
Cash paid for capital expenditures	12,038		13,801			4,780			—			—			—			30,619

Coal - U.S.⁽¹⁾
Coal - Canada
Coal - WMLP⁽²⁾

Power⁽³⁾
Heritage
Corporate⁽²⁾

Consolidated⁽⁴⁾⁽⁵⁾
(In thousands)
Three Months Ended September 30, 2016
Revenues $ 168,860
$ 96,480
$ 90,320
$ 21,554
$ —
$ (6,531 ) $ 370,683
Restructuring charges —
—
—
—
—
—
—
Depreciation, depletion, and amortization 14,820
6,786
11,555
—
—
(49 ) 33,112
Operating income (loss) 18,346
4,559
5,970
(4,696 ) (3,326 ) (3,641 ) 17,212
Total assets 770,300
504,034
382,098
40,760
16,288
6,172
1,719,652
Capital expenditures 4,824
11,313
2,251
—
—
—
18,388
Three Months Ended September 30, 2015
Revenues $ 132,018
$ 107,752
$ 94,785
$ 22,017
$ —
$ (6,776 ) $ 349,796
Restructuring charges —
—
—
—
—
—
—
Depreciation, depletion, and amortization 9,524
7,023
15,471
2,470
—
(29 ) 34,459
Operating income (loss) 482
4,009
(4,845 ) (7,976 ) (2,950 ) (4,027 ) (15,307 )
Total assets 539,497
537,465
431,338
172,182
16,152
(9,675 ) 1,686,959
Capital expenditures 7,047
7,485
4,691
198
—
(4 ) 19,417
Nine Months Ended September 30, 2016

Revenues $ 475,470
$ 298,978
$ 263,269
$ 65,494
$ —
$ (21,560 )
$ 1,081,651
Restructuring charges —
—
—
—
—
—
—
Depreciation, depletion, and amortization 41,393
19,142
41,367
—
—
(114 )
101,788
Operating income (loss) 33,475
21,168
2,497
(3,766 ) (10,325 ) (11,310 )
31,739
Total assets 770,300
504,034
382,098
40,760
16,288
6,172

1,719,652
Capital expenditures 12,038
13,801
4,780
—
—
—

30,619
Nine Months Ended September 30, 2015

Revenues $ 419,505

$ 317,157
$ 300,908
$ 64,001

$ —

$ (31,331 )
$ 1,070,240
Restructuring charges —
—
656
—
—
—
656
Depreciation, depletion, and amortization 28,199

26,899
44,282
7,430

—

(29 )
106,781
Operating income (loss) 8,403

23,397
(6,151 ) (16,594 )
(8,699 )
(14,072 )
(13,716 )
Total assets 539,497

537,465
431,338
172,182

16,152

(9,675 )
1,686,959
Capital expenditures 18,908
21,413
19,918
1,305
—
(3,573 ) 57,971

____________________


(1)	~~The San Juan Acquisition was completed on January 31, 2016. For the three and nine months ended~~ ~~September 30, 2016, revenues for the Westmoreland San Juan Entities were $51.7 million and $128.3 million, respectively, and operating income was $14.0 million and $22.2 million, respectively.~~

~~(2)~~

The Coal - WMLP segment recorded revenues of ~~$6.2~~$5.4 million and ~~$20.5~~$16.4 million for intersegment revenues to the Coal - U.S. segment for the three and nine months ended September 30, ~~2016,~~2017, respectively, and ~~$5.9~~$6.5 million and ~~$24.6~~$21.6 million for the three and nine months ended September 30, ~~2015,~~2016, respectively. Eliminations for intersegment revenues and cost of sales are presented within the Corporate segment.


~~(3)~~	Total assets as of September 30, 2016 reflect a $133.1 million asset impairment in the Power segment that was recorded during the fourth quarter of 2015. No such impairment had been recorded as of September 30, 2015.


~~(4)~~	~~Deferred tax assets of $14.5 million as of September 30, 2015 were reclassified into liabilities on adoption of ASU 2015-17 - Income Taxes: Balance Sheet Classification of Deferred Taxes.~~


~~(5)~~	Unamortized debt issuance costs of $26.8 million as of September 30, 2015 were reclassified from other non-current assets into long-term debt on adoption of ASU 2015-03, Interest - Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs.

15. CONTINGENCIES

Litigation

There have been no material changes in our litigation since December 31, 2016. For additional information, refer to Note 20. Commitments and Contingencies to the consolidated financial statements of our 2016 Form 10-K.

A loss contingency for the 2013 breach of a water containment pond at our Obed mine in Canada remains probable and reasonably estimable. The previous owner, Sherritt International Corporation, continues to fully indemnify us for the actual cost of the remediation as well as the costs of compliance with any regulatory orders, including any fees, fines, or judgments resulting from the water release. As of September 30, 2017, the Company has recorded $2.4 million in Other current liabilities for the estimated costs of remediation work and a corresponding amount in Receivables - Other to reflect the indemnification by the prior owner.

Table of Contents

WESTMORELAND COAL COMPANY AND SUBSIDIARIES

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

~~15. CONTINGENCIES~~16. SUBSEQUENT EVENTS

~~The Company is~~We executed an Assignment and Assumption Agreement with an effective date of October 1, 2017 with the counterparties to our ROVA power purchase and sale contracts, in which, for a settlement payment of approximately $10.1 million, we were released from our power purchase and sales contracts and the counterparty to the purchase contracts has assumed our position in the power sales contract. As a result of this transaction, we are no longer a party to ~~or receives notification~~either of ~~routine claims, lawsuits~~these derivative arrangements. In the fourth quarter of 2017, this transaction will result in a charge of $4.6 million and ~~regulatory proceedings with respect~~we will recognize $14.4 million of previously deferred revenue related to ~~various matters.~~ the straight line recognition of capacity payments from the power sales agreement. Also, in the fourth quarter of 2017 we have received proceeds net of settlement payments from our posted collateral of $6.2 million and also released $7.5 million in outstanding letters of credit on our Revolver.

On August 2, 2017 we executed a sales agreement to sell all of the assets that comprise ROVA for $5.0 million in cash which closed on October 20, 2017. Pursuant to the transaction, we retained the related $2.7 million reclamation liability. No additional asset impairment was taken as a result of prior year impairments.

On October 30, 2017, we executed a twelfth amendment to our Revolver as described in Item 5. Other Information.

The Company ~~provides for costs related~~has evaluated subsequent events in accordance with ASC 855, Subsequent Events, through the filing date of this Quarterly Report, and determined that no events have occurred that have not been disclosed elsewhere in the notes to contingencies when a loss is probable and the amount is reasonably estimable. After conferring with counsel, it is the opinion of management that the ultimate resolution of pending claims will not have a material adverse effect on the consolidated financial ~~condition, results of operations, or liquidity of~~statements (unaudited) that would require adjustments to disclosures in the ~~Company.~~

~~16. SUBSEQUENT EVENTS~~

~~Eighth Amendment to Second Amended and Restated Loan and Security Agreement~~

~~On October 12, 2016, the Company executed an amendment to its revolving credit facility. The terms of the amendment are described above in Note 6 -~~ ~~Debt and Lines of Credit~~consolidated financial statements (unaudited).

~~WMLP Series B Convertible Unit Exchange~~

Table of Contents

WESTMORELAND COAL COMPANY AND SUBSIDIARIES

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS

On October 28, 2016, the Company exchanged its 4,512,500 common units representing limited partner interests in WMLP (“Common Units”) for 4,512,500 Series B Convertible Units representing limited partner interests in WMLP (the “Series B Units”). The Series B Units do not share in distributions with the Common Units and are convertible on a one-for-one basis into Common Units on the day after the record date for a cash distribution on the Common Units in which WMLP is unable to make such a distribution without exceeding its restricted payment basket under the WMLP Term Loan Facility and the WMLP Revolving Credit Facility. The Series B Units will also convert automatically upon a change of control or a dissolution or liquidation of WMLP. The Series B Units have the same voting rights as if they were outstanding Common Units and will vote together with the Common Units as a single class. In addition, the Series B Units are entitled to vote as a separate class on any matters that materially adversely affect the rights or preferences of the Series B Units in relation to other classes of partnership interests or as required by law.


~~ITEM 2~~	—~~MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.~~ITEM 2—MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Cautionary Note Regarding Forward-Looking Statements

This Quarterly Report and materials we have filed or will file with the Securities and Exchange Commission (as well as information included in our other written or oral statements) contain or will contain certain statements that are forward-looking within the meaning of the Private Securities Litigation Reform Act of 1995. These statements are based on ~~Form 10-Q contains “forward-looking~~our expectations and assumptions at the time they are made and are not guarantees of future performance. Because forward looking statements relate to the future, they involve certain risks, uncertainties and assumptions that are difficult to predict. Actual outcomes and results may differ materially from those expressed in, or implied by, our forward-looking statements.~~” Forward-looking statements can be identified by words~~ Words such as ~~“anticipates,~~“expects,” “intends,” ~~“plans,” “seeks,~~“anticipates,” “believes,” “estimates,” ~~“expects”~~“guides,” “provides guidance,” “provides outlook” and other similar ~~references~~expressions or future or conditional verbs such as “may,” “will,” “should,” “would,” “could,” and “might” are intended to ~~future periods. Examples~~identify such forward-looking statements. Readers of this Quarterly Report should not rely solely on the forward-looking statements and should consider all uncertainties and risks discussed in the “Risk Factors” section and throughout the Quarterly Report. The statements are only as of the date they are made, and the Company undertakes no obligation to update any forward-looking statement. Possible events or factors that could cause results or performance to differ materially from those expressed in our forward-looking statements include but are not limited to statements we make about recent acquisitions and their anticipated effects on us, and our expectation that our cash from operations, cash on hand and available borrowing capacity will be sufficient to meet our investing, financing, and working capital requirements for the foreseeable future.

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

Our ability to consummate the sale of the Coal Valley facilities on reasonable terms or at all;

The effect of legal and administrative proceedings, settlements, investigations and claims, including any related to citations and orders issued by regulatory authorities, and the availability of related insurance coverage;

Existing and future legislation and regulation affecting both our coal mining operations and our customers’ coal usage, governmental policies and taxes, including those aimed at reducing emissions of elements such as mercury, sulfur dioxides, nitrogen oxides, particulate matter or greenhouse gases;

The effect of the Environmental Protection Agency’s and Canadian and provincial governments’ inquiries and regulations on the operations of the power plants to which we provide coal;

~~Our ability~~Alberta’s Climate Leadership Plan to ~~manage the San Juan Entities following the San Juan Acquisition;~~phase out coal-fired electricity generation by 2030;

Our substantial level of indebtedness and our ability to adhere to financial covenants related to our borrowing arrangements;

Our ability to successfully manage the upcoming maturities of the WMLP Revolver and the WMLP Term Loan;

Changes in our post-retirement medical benefit and pension obligations and the impact of the recently enacted healthcare legislation on our employee health benefit costs;

Inaccuracies in our estimates of our coal reserves;

Our potential inability to expand or continue current coal operations due to limitations in obtaining bonding capacity for new mining permits, and/or increases in our mining costs as a result of increased bonding expenses;

The effect of prolonged maintenance or unplanned outages at our operations or those of our major power generating customers;

The inability to control costs, recognize favorable tax credits and/or receive adequate train traffic at our open market mine operations;

~~Our ability to realize growth opportunities and cost synergies as a result of the acquisition of our Canadian mines;~~

The ability or inability of our power hedging ~~arrangement with respect to our ROVA facility~~arrangements to generate ~~cash flow due to the fully hedged position through March 2019;~~cash.

Competition within our industry and with producers of competing energy sources;

Our relationships with, and other conditions affecting, our ~~customers;~~customers, including how power prices affect our customers’ decision to run their plants;

Seasonal variations and inclement weather, which may cause fluctuations in our operating results, profitability, cash flow and working capital needs related to our operating segments;

The availability and costs of key supplies or commodities, such as diesel fuel, steel and explosives;

Potential title defects or loss of leasehold interests in our properties, which could result in unanticipated costs or an inability to mine the properties; ~~and~~

Table of Contents

WESTMORELAND COAL COMPANY AND SUBSIDIARIES

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS (CONT.)

Other factors that are described under the heading “Risk Factors” found in our reports filed with the Securities and Exchange Commission, including our ~~2015~~Annual Reports on Form ~~10-K.~~

~~Unless otherwise specified, the forward-looking statements in this report speak as of the filing date of this report. Factors or events that could cause~~10-K and our actual results to differ may emerge from time-to-time, and it is not possible for us to predict all of them. We undertake no obligation to publicly update any forward-looking statements, whether because of new information, future developments or otherwise, except as may be required by law.

~~Table of Contents~~

~~WESTMORELAND COAL COMPANY AND SUBSIDIARIES~~

~~MANAGEMENT~~’~~S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION~~

~~AND RESULTS OF OPERATIONS (CONT.)~~

Quarterly Reports on Form 10-Q.

Overview

Westmoreland Coal Company produces and sells thermal coal primarily to investment grade utility customers under long-term, margin-protected contracts. Our focus is ~~the oldest independent coal company in the United States.~~primarily on mine locations which allow us to employ dragline surface mining methods and take advantage of close customer proximity through mine-mouth power plants and strategically located rail transportation. Our coal operations include surface coal mines in the United States and Canada, underground coal mines in Ohio and New Mexico, a char production facility, and a 50% interest in an activated carbon plant. We also own the general partner of, and a majority of the equity interests in, WMLP, a publicly-traded coal master limited partnership. Our power operations include two coal-fired power generation units in North Carolina. We classify our business into four operating segments (Coal - U.S., Coal - Canada, Coal - WMLP and Power) and two non-operating segments (Heritage and Corporate). Our Heritage segment primarily includes the costs of benefits we provide to former mining operation employees and our Corporate segment consists primarily of corporate administrative and business development expenses.

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

~~San Juan Acquisition~~Recent Trends and ~~Related Financing~~Activities

~~On January 31, 2016, WSJ, a special purpose subsidiary~~One of the ~~Company, acquired SJCC,~~major factors affecting the volume of coal that we sell in any given period is the demand for coal-generated

electric power, as well as the specific demand for coal by our customers. Numerous factors affect the demand for electric power

and the specific demands of customers including weather patterns, the presence of hydro- or wind-generated energy in our

particular energy grids, environmental and legal challenges, political influences, energy policies, international and domestic

economic conditions, power plant outages and other factors discussed herein. More specifically, during the three and nine month periods ended September 30, 2017, our financial results were impacted by several trends and activities, which ~~operates~~are described below.

Weather. During the first half of 2017, we experienced unfavorable weather patterns in the markets in which we operate. In particular, the first half of 2017 was generally marked by mild weather, which depressed demand. In addition, during the first quarter, our Kemmerer mine experienced unusually high amounts of precipitation, which increased our mining costs and restricted our ability to supply coal. These factors lowered our coal tons sold and our revenues during the first nine months of 2017. Some of this decline in revenues, particularly at the Kemmerer mine, have been offset in the second and third quarters by customers seeking to replenish stockpiles, a trend that we believe will continue throughout the year. Weather conditions are inherently unpredictable and could have positive or negative impacts on operating conditions and demand in future periods.

Coal Pricing. Our operations in Ohio and at Coal Valley are exposed to changes in the price of coal on the open market. In recent quarters, the price of coal has been volatile and has generally been pressured by reduced demand, political pressures, and the price of competing products, such as natural gas, that are used in energy production. Recent pricing pressure has resulted in depressed revenues, net income and Adjusted EBITDA in recent quarters for those facilities affected by open market pricing. Whether pricing and volume softness persist in future periods is dependent upon fluctuations in market demand in the region.

Cost Reduction Initiatives. While we always seek to run our business operations as lean and efficiently as possible, since 2016, we have undertaken specific initiatives aimed at centralizing and streamlining certain administrative functions and reducing costs throughout our organization. Cost reduction activities during 2016 resulted in disciplined capital expenditure decisions, lower inventory costs and reduced headcount, among other things. These factors, in turn, have generally lowered operating costs in the 2017 periods as compared to 2016 periods, although we did incur additional costs, including severance-related costs and additional costs resulting from redundancies created during these changes. Cost reduction activities are ongoing.

Early Repayment of Loan and Lease Receivables. During the first quarter of 2017, we received $52.5 million from our customer at the Genesee mine, representing an accelerated repayment of all outstanding loan and lease receivables. These loan and lease receivables represented the financed portion of amounts owed to Westmoreland for capital expenditures we had made on behalf of our customer. This payment fully satisfied amounts owed to Westmoreland for loan and lease receivables and Westmoreland is no longer entitled to further payments from these agreements, which generally averaged approximately $3 to $4 million per quarter. We have no further obligation to make capital expenditures at the mine, though we anticipate continuing to provide contract mining services at the Genesee mine through 2030.

Significant contract renewals and expirations.In June and December 2016, coal supply agreements at our Beulah and Jewett mines, respectively, terminated, resulting in lower coal tons sold in the subsequent periods. In addition, during the first nine months of 2017, we amended certain contracts with customers, including a U.S. merchant customer and a customer at the Kemmerer mine. The amended contract with the U.S. merchant customer provides for lower pricing, but includes a profit-sharing clause should power prices increase beyond a threshold. In the third quarter, this amendment negatively impacted revenues in the Coal - U.S. segment. The amended contract at Kemmerer provides for the sale of 1 million additional tons through 2018; however, such amendment lowers the expected amount of revenue recognized under the contract in 2017 and, similarly, increases the amount of revenue expected to be recognized in 2018.

Also, during the first nine months of 2017, our customer at the San Juan mine announced their intent to transition away from coal-generated power in ~~Farmington, New Mexico,~~2022. While their plan still requires official approval, we have adjusted, on a prospective basis, the estimated useful lives of certain property, plant, and ~~SJTC for a total cash purchase price~~equipment at the mine as well as the mine’s mineral reserve depletion rates to reflect the shorter useful lives of ~~approximately $125.3 million, subject to post-closing adjustments. The San Juan mine is~~these assets. This change in estimate resulted in additional depreciation, depletion, and amortization expense in the ~~exclusive supplier~~second and third quarters of ~~coal~~2017 compared to the ~~adjacent SJGS under~~same quarters in 2016, and will continue to result in increased depreciation, depletion, and amortization expense in future periods.

Coal Valley Operating Challenges. During the first nine months of 2017, we were mining in a ~~coal supply agreement through 2022. For details~~more challenging area at the Coal Valley mine. This was in part because we have been operating Coal Valley anticipating either a sale or shutdown of the ~~financing structure, see~~ mine during 2017, which drove us to minimize the number of mining pits and delay maintenance on our equipment. During the second quarter, in part as a result of delays in the negotiations for the sale of the mine, we made additional investments to extend the life of the mine, which inflated costs for equipment maintenance and development of the pit. This resulted in lower yields, lower revenues, and increased costs during the second and third quarters and first half of 2017.

Equipment Outage.~~Note 6 - Debt~~ We experienced an unexpected dragline repair at one of our large mines in Canada in the first quarter of 2017, which temporarily lowered our production and ~~Lines~~increased our costs early in 2017.

Capital Structure Review. Although we anticipate that our cash from operations, cash on hand and available borrowing capacity will be sufficient to meet our business obligations, we have proactively engaged financial advisors to assess our capital structure. Management and our board of ~~Credit.~~directors, with the assistance of our advisors, are evaluating options to address the upcoming maturities described in “Liquidity and Capital Resources.” Costs associated with this process were $1.8 million in the third quarter and $2.8 million for the nine months ended September 30, 2017. These costs are estimated to be $19.8 million for the full year 2017.

Seasonality. Our financial results are impacted by seasonality caused by weather and customer buying patterns. Customer buying patterns are influenced by many factors, including annual maintenance outages at our customers’ plants, which often occur in the spring, when the demand for power is low. Combined, these factors have historically led to lower Adjusted EBITDA for our mine operations in the second quarter and first half of the year.

Table of Contents

WESTMORELAND COAL COMPANY AND SUBSIDIARIES

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS (CONT.)

Results of Operations

Three Months Ended September 30, ~~2016~~2017 Compared to Three Months Ended September 30, ~~2015~~2016

Consolidated Results of Operations

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


	Three Months Ended September 30,
							Increase / (Decrease)				Three Months Ended September 30,						Increase / (Decrease)
	2016			2015			$		%		2017			2016			$			%
	(In thousands)										(In thousands, except tons data)
Revenues	$	370,683		$	349,796		$	20,887	6.0	%	$	358,011		$	371,772		$	(13,761	)	(3.7	)%
Operating income											14,255			8,753			5,502			62.9	%
Net loss applicable to common shareholders	(8,521		)	(46,562		)	38,041		81.7	%	(19,222		)	(18,368		)	(854		)	(4.6	)%
Adjusted EBITDA⁽¹⁾	71,201			47,966			23,235		48.4	%	62,583			73,534			(10,951		)	(14.9	)%

Tons sold—millions of equivalent tons											13.6			13.9			(0.3		)	(2.2	)%

____________________


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

Consolidated revenues decreased $13.8 million and tons sold declined 2.2% during the third quarter of 2017 compared with the third quarter of 2016. This decline was driven in part by the Jewett contract termination in 2016, the impact on revenue from certain customer contract amendments, and ongoing demand and pricing softness in Ohio, as described above.

During the third quarter, our operating income increased ~~due to $51.7~~$5.5 million. Offsetting the revenue decline of $13.8 million were lower costs resulting from fewer tons sold, higher margin reclamation work at Jewett, and the impact of cost reduction initiatives, particularly within the Coal - WMLP segment. We also generated a gain on our power derivatives of $4.7 million in ~~revenue generated by our January 2016 San Juan acquisition, offset by softness at other locations. Our net~~the three months ended September 30, 2017 compared to a loss ~~improved by $38.0~~of $5.4 million ~~as a result of $32.5 million~~for the same period in ~~improved operating income.~~ 2016.

Consolidated Adjusted EBITDA for the third quarter declined $11.0 million from the same period in 2016, driven by changes in operating income discussed above, offset by the change in the gain/loss on our derivative, which increased ~~as a result of strong~~our operating ~~results~~income but which does not impact Adjusted EBITDA. Adjusted EBITDA also included $2.6 million in ~~our Coal-US and Coal-WMLP offset slightly by lower~~ loan and lease receivable ~~payments~~collections in ~~our Coal-Canada segment.~~

~~Table~~the third quarter of ~~Contents~~

~~WESTMORELAND COAL COMPANY AND SUBSIDIARIES~~

~~MANAGEMENT~~’~~S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION~~

~~AND RESULTS OF OPERATIONS (CONT.)~~

2016, with no such collections in 2017.

Coal - U.S. Segment Operating Results

~~As a result of the Kemmerer Drop, results for all periods presented reflect Kemmerer as part of the Coal - WMLP segment and not part of the Coal - U.S. segment:~~


	Three Months Ended September 30,
					Increase / (Decrease)				Three Months Ended September 30,				Increase / (Decrease)
	2016		2015		$		%		2017		2016		$			%
	(In thousands, except ton data)								(In thousands, except tons data)
Revenues	$	168,860	$	132,018	$	36,842	27.9	%	$	142,040	$	170,177	$	(28,137	)	(16.5	)%
Operating income	18,346		482		17,864		3,706.2	%	7,212		9,220		(2,008		)	(21.8	)%
Adjusted EBITDA⁽¹⁾	36,701		14,758		21,943		148.7	%	34,294		38,020		(3,726		)	(9.8	)%
Tons sold—millions of equivalent tons	6.9		6.0		0.9		15.0	%	5.6		6.9		(1.3		)	(18.8	)%

____________________


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

~~Revenue increased as a result~~

Revenues for the Coal - U.S. segment declined by 16.5% during the third quarter of ~~$51.7 million~~2017 compared to the same quarter in revenue generated by our San Juan acquisition. This increase was offset by decreases from the expected expiration of certain contracts as well as cost reduction initiatives at cost plus mines leading to corresponding decreases in revenue. Operating income grew2016 primarily as a result of ~~$14.0~~the expiration of coal supply agreements at the Jewett mines and amended contract terms with one of our merchant customers, which resulted in lower pricing.

The segment generated $7.2 million ~~contributed~~in operating income in the quarter compared to operating income of $9.2 million in the same period in 2016. The decrease in operating income was driven by lower revenues and additional depreciation, depletion, and amortization expense arising from the change in depreciable lives and depletion rates at our San Juan ~~acquisition. The increase~~mine. These declines were mostly offset by segment-wide impact of the cost reduction initiatives discussed in ~~Adjusted EBITDA was driven by $18.5 million contributed by our San Juan acquisition~~the “Recent Trends and Activities” section as well as ~~strong demand arising from favorable weather. Weather conditions are inherently unpredictable and could have positive or negative impacts on demand~~higher operating income at our Jewett mine due to the high margin nature of the reclamation work performed subsequent to the December 31, 2016 termination of the coal supply agreement.

Adjusted EBITDA declined $3.7 million during the third quarter compared with the same quarter in ~~future periods.~~2016, driven largely by operating income pressure discussed above.

Table of Contents

WESTMORELAND COAL COMPANY AND SUBSIDIARIES

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS (CONT.)

Coal - Canada Segment Operating Results


	Three Months Ended September 30,
					Increase / (Decrease)					Three Months Ended September 30,				Increase / (Decrease)
	2016		2015		$			%		2017		2016		$			%
	(In thousands, except ton data)									(In thousands, except tons data)
Revenues	$	96,480	$	107,752	$	(11,272	)	(10.5	)%	$	115,688	$	96,252	$	19,436		20.2	%
Operating income	4,559		4,009		550			13.7	%	1,206		5,226		(4,020		)	(76.9	)%
Adjusted EBITDA⁽¹⁾	17,549		23,659		(6,110		)	(25.8	)%	13,537		18,562		(5,025		)	(27.1	)%
Tons sold—millions of equivalent tons	5.1		6.2		(1.1		)	(17.7	)%	6.1		5.1		1.0			19.6	%

____________________


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

~~Revenue decreased primarily as~~

Revenues for the Coal - Canada segment increased by $19.4 million compared with the same period in 2016. The increase was driven by a ~~result of lower~~19.6% increase in tons sold ~~and lower realized export market~~as well as improved pricing at our Coal Valley mine. ~~Future price changes are inherently unpredictable and such changes may or may not continue in the future.~~

The ~~decrease in Adjusted EBITDA was driven by an accelerated loan and lease receivable payment received~~segment generated operating income of $1.2 million compared to operating income of $5.2 million in the prior year, ~~that~~which was ~~not expected~~driven by increased costs related to ~~recur~~equipment maintenance and operational challenges described above at Coal Valley.

Adjusted EBITDA declined $5.0 million during the third quarter of 2017 compared to the same ~~level~~period in 2016, driven by greater operating losses as well as $2.6 million in customer payments received from loan and lease receivables in 2016 which did not recur in 2017 as a result of the ~~current year.~~early repayment discussed in “Recent Trends and Activities.”

Coal - WMLP Segment Operating Results

~~As a result of the Kemmerer Drop, results~~



	Three Months Ended September 30,				Increase / (Decrease)
	2017		2016		$			%
	(In thousands, except tons data)
Revenues	$	85,607	$	90,320	$	(4,713	)	(5.2	)%
Operating income	9,451		5,970		3,481			58.3	%
Adjusted EBITDA⁽¹⁾	21,173		22,686		(1,513		)	(6.7	)%
Tons sold—millions of equivalent tons	2.0		2.0		—			—	%

____________________


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

Revenues for ~~all periods presented reflect Kemmerer as part of~~ the Coal - WMLP segment decreased 5.2% driven by ongoing pressure on volumes and ~~not part~~pricing in our Ohio market offset by increased sales volume from the Kemmerer mine as customers sought to replenish stockpiles after weather-related delays in coal deliveries during the first quarter of 2017.

Operating income increased to $9.5 million in the third quarter of 2017 compared to operating income of $6.0 million in the third quarter of 2016. This improvement was driven by the impact of cost reduction activities and lower depreciation, depletion and amortization expense resulting from a smaller and aging fleet at our Ohio operations. In addition, during the third quarter of 2016, the Coal - ~~U.S. segment:~~WMLP segment incurred a $3.4 million impairment charge related to the write-down of excess equipment, where no such charge was incurred in the 2017 period.

Adjusted EBITDA decreased to $21.2 million compared to $22.7 million in the three months ended September 30, 2017 and 2016, respectively. This decrease was largely driven by factors impacting operating income described above, however Adjusted EBITDA declined because the figure excludes the positive operating income impact of lower depreciation, depletion and amortization expense and the impairment charges discussed above.

Table of Contents

WESTMORELAND COAL COMPANY AND SUBSIDIARIES

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS (CONT.)

Power Segment Operating Results


	Three Months Ended September 30,
						Increase / (Decrease)					Three Months Ended September 30,					Increase / (Decrease)
	2016		2015			$			%		2017		2016			$			%
	(In thousands, except ton data)										(In thousands)
Revenues	$	90,320	$	94,785		$	(4,465	)	(4.7	)%	$	20,070	$	21,554		$	(1,484	)	(6.9	)%
Operating income (loss)	5,970		(4,845		)	10,815			*		5,344		(4,696		)	10,040			*
Adjusted EBITDA⁽¹⁾	22,686		15,648			7,038			45.0	%	438		507			(69		)	(13.6	)%
Tons sold—millions of equivalent tons	1.9		1.6			0.3			18.8	%

____________________


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

* Not meaningful

Third quarter revenues for the Power segment declined $1.5 million in 2017 compared with the same period in 2016 due to the amendment to the pricing terms in our Substitute Energy Purchase Agreement, which became effective on March 1, 2017.

During the third quarter of 2017, the Power segment generated operating income of $5.3 million, compared with an operating loss of $4.7 million in the third quarter of 2016. The operating income in 2017 was driven by a $4.7 million gain on our power derivative contracts, compared to a $5.4 million loss in the prior period.

Adjusted EBITDA decreased by $0.1 million due to lower revenues. The gain/loss on our power derivatives described above increased operating income but did not impact Adjusted EBITDA as these gains and losses are excluded from Adjusted EBITDA.

Nine Months Ended September 30, 2017 Compared to Nine Months Ended September 30, 2016

Consolidated Results of Operations

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



	Nine Months Ended September 30,						Increase / (Decrease)
	2017			2016			$			%
	(In thousands, except tons data)
Revenues	$	1,020,772		$	1,085,223		$	(64,451	)	(5.9	)%
Operating (loss) income	(17,900		)	15,489			(33,389		)	*
Net loss applicable to common shareholders	(106,409		)	(19,550		)	(86,859		)	(444.3	)%
Adjusted EBITDA⁽¹⁾	183,369			182,740			629			0.3	%

Tons sold—millions of equivalent tons	36.9			39.7			(2.8		)	(7.1	)%

____________________


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

* Not meaningful

Consolidated revenues declined 5.9% during the first three quarters of 2017 compared with the first three quarters of 2016, driven by a decline in tons sold of 7.1%. The decline in revenue and coal tons sold was driven by contract expirations at Jewett and Beulah, ongoing softness in Ohio, the impact of contract amendments and lower weather-related demand. These declines were partially offset by an increase of 21.8% in coal tons sold from our San Juan mine due to an extra month of ownership in 2017 as well as stronger demand.

We incurred an operating loss of $17.9 million during the first nine months of 2017, representing a decline of $33.4 million from the $15.5 million in operating income generated in the first nine months of 2016. This decline was the result of the $64.5 million year-over-year decline in consolidated revenues, partially offset by the corresponding decrease in costs of sales, a $8.7 million change in derivative gain/loss and company-wide cost reductions, particularly in the Coal - WMLP segment. During the nine months ended September 30, 2017, our Canada segment also incurred higher costs related to mining in a more challenging area at Coal Valley and the unexpected dragline outage.

Net loss applicable to common shareholders declined $86.9 million in the first nine months of 2017 compared to the same period in 2016 partly as a result of $33.4 million in increased operating losses year over year. Net loss applicable to

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WESTMORELAND COAL COMPANY AND SUBSIDIARIES

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS (CONT.)

~~Revenue decreased~~common shareholders also reflected a $49.7 million income tax benefit for the nine months ended September 30, 2016 primarily as a result of ~~continued pricing softness in Ohio. Whether this decrease persists in future years is dependent upon fluctuations in market demand~~the release of valuation allowances on deferred tax assets as part of the San Juan acquisition, a benefit that did not recur in the ~~region. Operating income and~~ current year.

Adjusted EBITDA increased $0.6 million year over year for the nine months ended September 30, 2017 and 2016. Adjusted EBITDA includes the impact of the $52.5 million early repayment of loan and lease receivables discussed in "Recent Trends and Activities." Excluding the impact of loan and lease receivable payments in both periods, Adjusted EBITDA declined primarily ~~due to lower fuel and labor costs at our Ohio mines.~~as a result of the larger operating loss in 2017.

~~Power~~Coal - U.S. Segment Operating Results

Three Months Ended September 30,
Increase / (Decrease)
2016 2015 $ %
(In thousands)
Revenues $ 21,554
$ 22,017
$ (463 ) (2.1 )%
Operating loss (4,696 ) (7,976 ) 3,280
41.1 %
Adjusted EBITDA⁽¹⁾
507
75
432
576.0 %

~~____________________~~


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

~~Operating loss improved due to $2.5 million less depreciation expense in 2016 as a result of the fourth quarter 2015 impairment charge.~~

~~Nine Months Ended September 30, 2016 Compared to Nine Months Ended September 30, 2015~~

~~Consolidated Results of Operations~~

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


	Nine Months Ended September 30,
							Increase / (Decrease)				Nine Months Ended September 30,				Increase / (Decrease)
	2016			2015			$		%		2017		2016		$			%
	(In thousands)										(In thousands, except tons data)
Revenues	$	1,081,651		$	1,070,240		$	11,411	1.1	%	$	420,445	$	478,684	$	(58,239	)	(12.2	)%
Net loss applicable to common shareholders	(3,304		)	(94,899		)	91,595		96.5	%
Operating income											4,926		17,474		(12,548		)	(71.8	)%
Adjusted EBITDA⁽¹⁾	178,994			159,275			19,719		12.4	%	85,421		89,218		(3,797		)	(4.3	)%
Tons sold—millions of equivalent tons											14.4		17.6		(3.2		)	(18.2	)%

____________________


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

~~Consolidated revenue increased~~Revenues for the Coal - U.S. segment declined $58.2 million, or 12.2%, and coal tons sold declined 18.2% during the first nine months of 2017 compared with the same period in 2016. These declines were driven by contract expirations at Jewett and Beulah as well as lower revenues at one of our mines due to ~~$128.3~~the amendment of a merchant customer contract. Offsetting these declines was a 21.8% improvement in coal tons sold from the San Juan mine in the first nine months of 2017 compared with the same period in 2016 due to the additional month of ownership in 2017 as well as stronger demand at San Juan throughout 2017.

During the first nine months of 2017, operating income declined $12.5 million from $17.5 million in ~~revenue generated~~the first nine months of 2016 to $4.9 million in the first nine months of 2017. The decrease in operating income was impacted by the previously described Jewett and Beulah contract cancellations, offset somewhat by higher operating income at our ~~San Juan acquisition, offset by softness at other locations. Our net loss improved by $91.6 million~~Jewett mine due to the high margin nature of the reclamation work performed subsequent to the December 31, 2016 termination of the coal supply agreement. In addition, during the first nine months of 2017, we recorded additional depreciation, depletion, and amortization expense as a result of ~~a $45.5~~the change in depreciable lives and depletion rates at our San Juan mine as described earlier.

Adjusted EBITDA for the first nine months of 2017 was $85.4 million ~~increase~~compared to $89.2 million during the same period in 2016, decreasing primarily due to the pressures in operating income described above. The decline in Adjusted EBITDA was less pronounced than the decline in operating income as ~~well as a $63.3 million increase in income tax benefit. The income tax benefit was primarily~~ a result of the ~~first quarter release of our valuation allowance on our net operating loss deferred tax asset arising from the~~increase in San Juan ~~acquisition. These increases in net income were offset by a $13.8 million increase in interest~~depreciation, depletion and amortization expense, ~~due to our higher debt levels arising from the San Juan acquisition. Consolidated~~which does not impact Adjusted ~~EBITDA increased as a result of strong operating results in our Coal - U.S. and Coal - WMLP segments slightly offset by lower loan and lease receivable payments in our Coal - Canada segment.~~

~~Coal - U.S. Segment Operating Results~~

~~As a result of the Kemmerer Drop, results for all periods presented reflect Kemmerer as part of the Coal - WMLP segment and not part of the Coal - U.S. segment:~~

Nine Months Ended September 30,
Increase / (Decrease)
2016 2015 $ %
(In thousands, except ton data)
Revenues $ 475,470
$ 419,505
$ 55,965
13.3 %
Operating income 33,475
8,403
25,072
298.4 %
Adjusted EBITDA⁽¹⁾
85,999
49,209
36,790
74.8 %
Tons sold—millions of equivalent tons 17.6
17.2
0.4
2.3 %

~~____________________~~

~~Table of Contents~~

~~WESTMORELAND COAL COMPANY AND SUBSIDIARIES~~

~~MANAGEMENT~~’~~S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION~~

~~AND RESULTS OF OPERATIONS (CONT.)~~


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

Revenue increased as a result of $128.3 million in revenue generated by our San Juan acquisition. This increase was offset by decreases from the expected expiration of certain contracts as well as cost reduction initiatives at cost plus mines leading to corresponding decreases in revenue. Operating income grew primarily as a result of $22.2 million contributed by our San Juan acquisition. The increase in Adjusted EBITDA was driven by $35.6 million contributed by our San Juan acquisition. Adjusted EBITDA also benefited from the absence of a prior-year customer outage.EBITDA.

Coal - Canada Segment Operating Results

Nine Months Ended September 30,
Increase / (Decrease)
2016 2015 $ %
(In thousands, except ton data)
Revenues $ 298,978
$ 317,157
$ (18,179 ) (5.7 )%
Operating income 21,168
23,397
(2,229 ) (9.5 )%
Adjusted EBITDA⁽¹⁾
55,701
81,497
(25,796 ) (31.7 )%
Tons sold—millions of equivalent tons 16.5
17.5
(1.0 ) (5.7 )%

~~____________________~~


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

Revenue decreased primarily as a result of a weaker Canadian Dollar compared to the prior year. Whether this decrease persists in future periods is dependent upon fluctuations in the Canadian and U.S. Dollar exchange rate. The decrease in Adjusted EBITDA was driven by an accelerated loan and lease receivable payment received in the second and third quarters of last year that returned to normal levels in the current year. In addition, the segment encountered record rainfall creating less efficient operating conditions at some facilities.

~~Coal - WMLP Segment Operating Results~~

~~As a result of the Kemmerer Drop, results for all periods presented reflect Kemmerer as part of the Coal - WMLP segment and not part of the Coal - U.S. segment:~~


	Nine Months Ended September 30,
						Increase / (Decrease)					Nine Months Ended September 30,					Increase / (Decrease)
	2016		2015			$			%		2017			2016		$			%
	(In thousands, except ton data)										(In thousands, except tons data)
Revenues	$	263,269	$	300,908		$	(37,639	)	(12.5	)%	$	314,051		$	299,336	$	14,715		4.9	%
Operating income (loss)	2,497		(6,151		)	8,648			*
Operating (loss) income											(17,632		)	20,919		(38,551		)	*
Adjusted EBITDA⁽¹⁾	58,268		49,826			8,442			16.9	%	71,176			56,229		14,947			26.6	%
Tons sold—millions of equivalent tons	5.6		6.0			(0.4		)	(6.7	)%	17.2			16.5		0.7			4.2	%

____________________


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

* Not meaningful

~~Revenue decreased~~

Revenues for the Coal - Canada segment increased 4.9% during the first nine months of 2017 compared with the same period in the prior year primarily as a result of ~~continued~~an increase in tons sold of 4.2% as well as improved pricing ~~softness in Ohio. Whether this decrease persists in future years is dependent upon fluctuations in market demand~~at our Coal Valley mine.

During the first nine months of 2017, the segment incurred an operating loss of $17.6 million compared to operating income of $20.9 million in the ~~region. Operating income and~~ same period of 2016, a $38.6 million decline year over year. The decline was driven by higher

Table of Contents

WESTMORELAND COAL COMPANY AND SUBSIDIARIES

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS (CONT.)

costs related to mining in more challenging areas at Coal Valley. In addition, we incurred additional expenses due to unexpected dragline maintenance in the first quarter of 2017 that did not occur in the prior year.

Adjusted EBITDA for the Coal - Canada segment increased ~~primarily~~during the first nine months of 2017 due to ~~lower fuel and labor costs at our Ohio mines and~~ the impact of ~~cost savings initiatives at our Kemmerer mine.~~the $52.5 million early payment of loan and lease receivables, offset by the change in operating income discussed previously.

~~Power~~Coal - WMLP Segment Operating Results


	Nine Months Ended September 30,
							Increase / (Decrease)				Nine Months Ended September 30,				Increase / (Decrease)
	2016			2015			$		%		2017		2016		$			%
	(In thousands)										(In thousands, except tons data)
Revenues	$	65,494		$	64,001		$	1,493	2.3	%	$	241,464	$	263,269	$	(21,805	)	(8.3	)%
Operating loss	(3,766		)	(16,594		)	12,828		77.3	%
Operating income											18,321		2,497		15,824			633.7	%
Adjusted EBITDA⁽¹⁾	(2,227		)	(3,152		)	925		29.3	%	52,896		58,269		(5,373		)	(9.2	)%
Tons sold—millions of equivalent tons											5.6		5.9		(0.3		)	(5.1	)%

____________________


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

Coal - WMLP segment revenues declined 8.3% during the nine months ended September 30, 2017 compared with the same period in 2016. The revenue decline was driven by ongoing price and volume pressures in our Ohio market offset slightly by increased revenue at Kemmerer driven by higher volumes.

27Operating income for the segment increased $15.8 million in the first three quarters of 2017 compared with the first three quarters of 2016. This increase was driven by cost savings measures and lower depreciation expenses resulting from a smaller and aging fleet at our Ohio operations. In addition, during the first nine months of 2016, the Coal - WMLP segment incurred $8.1 million in restructuring and impairment charge related to downsizing and the write-down of excess equipment, where no such charge was incurred in the 2017 period.

Adjusted EBITDA for the Coal - WMLP segment declined $5.4 million in the first three quarters of 2017 compared to the same period in 2016. Adjusted EBITDA excludes the impact of depreciation, depletion and amortization expense and the impairment charges discussed above. As such, the decline in Adjusted EBITDA was driven primarily by the decline in revenues, offset by the impacts of cost savings initiatives described above.

Power Segment Operating Results



	Nine Months Ended September 30,						Increase / (Decrease)
	2017			2016			$			%
	(In thousands)
Revenues	$	61,177		$	65,494		$	(4,317	)	(6.6	)%
Operating income (loss)	4,208			(3,766		)	7,974			*
Adjusted EBITDA⁽¹⁾	(3,076		)	(2,227		)	(849		)	(38.1	)%

____________________


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

* Not meaningful

Power segment revenues for the nine months ended September 30, 2017 declined $4.3 million compared with the same period in 2016 due to the amendment to the pricing terms in our Substitute Energy Purchase Agreement, which became effective on March 1, 2017.

For the nine months ended September 30, 2017, the Power segment incurred an operating income of $4.2 million, compared with an operating loss of $3.8 million for the nine months ended September 30, 2016. The operating loss in 2016 was driven by a $2.2 million loss on our power derivative contracts, compared to a gain of $6.6 million in the current period. The remaining decrease in operating income arose as a result of the revenue decrease described above.

Adjusted EBITDA decreased by $0.8 million due to lower revenues. The change in the gain/loss on our power derivatives described above impacts operating income but does not impact Adjusted EBITDA.

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WESTMORELAND COAL COMPANY AND SUBSIDIARIES

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS (CONT.)

Operating loss decreased due to a loss on our power derivative of $2.2 million during the first nine months of 2016 compared to a loss of $6.7 million during the first nine months of 2015, as well as $7.4 million lower depreciation expense in 2016 as a result of the fourth quarter 2015 impairment charge.

Non-GAAP Financial Measures

Reconciliation of Net ~~Loss~~(Loss) Income to Adjusted EBITDA

~~The discussion in “Results of Operations” includes references to our Adjusted EBITDA results.~~ EBITDA is defined as earnings before interest expense, interest income, income taxes, depreciation, depletion, amortization and accretion expense. Adjusted EBITDA is defined as EBITDA before certain charges to income such as restructuring, impairment, debt extinguishment, foreign exchange and derivative losses and/or gains which are not considered part of earnings from operations for comparison purposes to other companies’ normalized income. EBITDA and Adjusted EBITDA are supplemental measures of financial performance that are not required by, or presented in accordance with ~~generally accepted accounting principles (“GAAP”).~~GAAP. EBITDA and Adjusted EBITDA are key metrics used by us to assess our operating performance and as a basis for strategic planning and forecasting and we believe that EBITDA and Adjusted EBITDA are useful to an investor in evaluating our operating performance because these measures:

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

• are used by rating agencies, lenders and other parties to evaluate our creditworthiness; and

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

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

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

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

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

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

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

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The tables below show how we calculated EBITDA and Adjusted EBITDA, including a breakdown by segment, and reconcile Adjusted EBITDA to net loss, the most directly comparable GAAP financial measure.


	Three Months Ended September 30,						Nine Months Ended September 30,						Three Months Ended September 30,						Nine Months Ended September 30,
	2016			2015			2016			2015			2017			2016			2017			2016
	(In thousands)												(In thousands)
Reconciliation of Net Loss to Adjusted EBITDA
Reconciliation of Net (Loss) Income to Adjusted EBITDA
Net loss	$	(8,760	)	$	(48,020	)	$	(4,849	)	$	(99,749	)	$	(19,300	)	$	(18,607	)	$	(107,124	)	$	(21,095	)

Income tax expense (benefit)	(1,625		)	4,087			(49,660		)	13,596
Income tax benefit													(440		)	(1,625		)	(1,406		)	(49,660		)
Interest income	(1,374		)	(1,555		)	(5,521		)	(6,262		)	(1,012		)	(1,374		)	(2,942		)	(5,521		)
Interest expense	29,494			26,831			90,673			76,870			30,017			30,882			89,388			90,669
Depreciation, depletion and amortization	33,112			34,459			101,788			106,781			38,066			40,860			114,131			113,097
Accretion of ARO and receivable	7,237			7,142			21,534			21,250
Accretion of asset retirement obligation													11,358			10,280			33,795			30,230
Amortization of intangible assets and liabilities	(226		)	(250		)	(653		)	(756		)	(267		)	(225		)	(801		)	(652		)
EBITDA	57,858			22,694			153,312			111,730			58,422			60,191			125,041			157,068

Restructuring charges	—			—			—			656
Advisory fees ⁽¹⁾													1,849			—			2,774			—
Loss (gain) on foreign exchange	(220		)	(1,679		)	1,531			(2,474		)	1,739			(220		)	3,391			1,531
Loss on extinguishment of debt	—			5,385			—			5,385
Acquisition related costs⁽¹⁾	—			3,070			568			4,470
Acquisition-related costs													—			—			—			568
Customer payments received under loan and lease receivables ⁽²⁾	2,582			8,731			7,969			24,252			—			2,582			50,489			7,969
Derivative loss	5,442			5,815			2,164			6,717
Derivative (gain) loss													(4,667		)	5,442			(6,571		)	2,164
Loss on sale/disposal of assets and other adjustments	4,148			2,008			7,525			2,951			3,874			4,148			4,399			7,515
Share-based compensation	1,391			1,942			5,925			5,588			1,366			1,391			3,846			5,925
Adjusted EBITDA	$	71,201		$	47,966		$	178,994		$	159,275		$	62,583		$	73,534		$	183,369		$	182,740

____________________

(1)

~~Includes the impact of cost of sales~~Amount represents fees paid to financial and legal advisors related to the ~~sale~~assessment of ~~inventory written up~~Westmoreland’s capital structure. These advisors, together with Westmoreland's management and board of directors, are developing and evaluating options to ~~fair value in the acquisition of Westmoreland Resources GP, LLC, the general partner of WMLP.~~optimize Westmoreland’s overall capital structure.

(2)

Represents a return of and on capital. These amounts are not included in operating income or operating cash flows as the capital outlays are treated as loan and lease receivables, but are included within Adjusted EBITDA so that the cash received by the Company is treated consistently with all other contracts within the Company that do not result in loan and lease receivable accounting. During the first quarter of 2017, the Company received $52.5 million from its customer at the Genesee mine, representing an accelerated repayment of all outstanding loan and lease receivables. We will continue to provide contract mining services at the Genesee mine. We have no further obligation to make any capital expenditures. All future capital expenditures at the Genesee mine will be funded by the customer pursuant to the Company’s contractual arrangement with the customer. Accordingly, there will be no additional payments from the customer at the Genesee mine in the form of loan and lease repayments, however, the Company will continue to manage the Genesee mine and earn a management fee pursuant the contract mining arrangement.


	Three Months Ended September 30,						Nine Months Ended September 30,						Three Months Ended September 30,						Nine Months Ended September 30,
	2016			2015			2016			2015			2017			2016			2017			2016
	(In thousands)												(In thousands)
Adjusted EBITDA by Segment
Coal - U.S.	$	36,701		$	14,758		$	85,999		$	49,209		$	34,294		$	38,020		$	85,421		$	89,218
Coal - Canada	17,549			23,659			55,701			81,497			13,537			18,562			71,176			56,229
Coal - WMLP	22,686			15,648			58,268			49,826			21,173			22,686			52,896			58,269
Power	507			75			(2,227		)	(3,152		)	438			507			(3,076		)	(2,227		)
Heritage	(3,326		)	(2,950		)	(10,325		)	(8,699		)	(3,599		)	(3,326		)	(11,055		)	(10,325		)
Corporate	(2,916		)	(3,224		)	(8,422		)	(9,406		)	(3,260		)	(2,915		)	(11,993		)	(8,424		)
Total	$	71,201		$	47,966		$	178,994		$	159,275		$	62,583		$	73,534		$	183,369		$	182,740

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Liquidity and Capital Resources

Liquidity

We had the following liquidity at September 30, ~~2016~~2017 and December 31, ~~2015:~~2016:

September 30, 2016 December 31, 2015
(In millions)
Cash and cash equivalents $ 28.9
$ 22.9
Availability under our Revolving Credit Facility 36.3
28.2
Availability under WMLP Revolving Credit Facility 15.0
15.0
Total $ 80.2

$ 66.1

We anticipate that our cash from operations, cash on hand and available borrowing capacity will be sufficient to meet our investing, financing, and working capital requirements for the foreseeable future. During the third quarter of 2016 we announced that NRG Texas Power provided notice that it will terminate the lignite supply agreement at the Jewett mine two years early on December 31, 2016. This contract termination is not expected to have a material impact on our cash flows in the foreseeable future.



	September 30, 2017		December 31, 2016
	(In millions)
Cash and cash equivalents	$	44.1	$	60.1
Availability under Revolver	16.7		36.3
Availability under WMLP Revolver	14.8		15.0
Total	$	75.6	$	111.4

We conduct our operations through subsidiaries. We have significant cash requirements to fund our debt obligations, ongoing heritage health benefit costs, pension contributions, and corporate overhead expenses. The principal sources of cash flow to ~~the parent company~~WCC are distributions from our operating subsidiaries. The cash at all of our subsidiaries is immediately available, except Westmoreland Risk Management, Inc. (“WRMI”), the Westmoreland San Juan Entities, and WMLP. The cash at our captive insurance entity, WRMI, is available to us through dividends and is subject to maintaining a statutory minimum level of capital, which is $0.25 million. The cash at the Westmoreland San Juan Entities is governed as described in Note 6 - Debt ~~and~~And Lines ofOf Credit. to the consolidated financial statements (unaudited), and the cash at WMLP is unlikely to be available for distribution to us subsequent to the Third Quarter Distribution.

~~In October 2016,~~Availability under the ~~Company exchanged its 4,512,500 Common Units~~Revolver and WMLP Revolver is subject to their respective borrowing base calculations as defined in the underlying debts agreement for ~~4,512,500 Series B Units. The Series B Units do not share~~each. At September 30, 2017, availability on the Revolver was $16.7 million which reflects $9.9 million in ~~distributions~~outstanding letters of credit and $12.8 million in borrowing base restrictions. We had $10.5 million borrowings on the Revolver. We anticipate that our cash from operations, cash on hand and available borrowing capacity will be sufficient to meet our investing, financing, and working capital requirements for the foreseeable future.

As of September 30, 2017, we are in compliance with the ~~Common Units~~fixed charge ratio under our revolver agreement. Based on current projections, absent management plans, there is substantial doubt as to our ability to comply with this covenant during the next twelve months from this filing. If we were to breach this covenant and ~~are convertible on a one-for-one basis into Common Units on the day after the record date for a cash distribution on the Common Units in which WMLP is~~were unable to ~~make~~obtain a waiver from the lenders, we could lose access to the Revolver. An uncured breach of the covenants in our Revolver would trigger certain customary cross-default provisions in our $350.0 million 8.75% Notes and our $321.4 million Term Loan which would become immediately due. Our belief, based on historical patterns, is that it is probable we would be able to alleviate or cure any such Revolver covenant default with an amendment or waiver.

Certain affirmative covenants in our WMLP Term Loan provide that, among other things, an audit opinion on WMLP's consolidated financial statements that includes an explanatory paragraph expressing substantial doubt about WMLP's ability to continue as a ~~distribution without exceeding its restricted payment basket under~~going concern constitutes an event of default, which would cause the WMLP Term Loan ~~Facility~~to become immediately due and payable. If the pending December 31, 2018 maturity of the WMLP Term Loan is not addressed by the time WMLP’s Annual Report on Form 10-K for the year ended December 31, 2017 ("WMLP's 2017 Form 10-K") is filed, management is likely to conclude in WMLP's 2017 Form 10-K that absent successfully executing management's plans to refinance its debt, WMLP would be unable to meet its obligations as they become due. WMLP may be unable to conclude it is probable that management's plans will be successful. Such a conclusion would likely lead to an explanatory paragraph expressing substantial doubt about WMLP's ability to continue as a going concern in the auditor's opinion.

Although we anticipate that our cash from operations, cash on hand and available borrowing capacity will be sufficient to meet our business obligations, we have proactively engaged financial advisors to assess our capital structure. Management and our board of directors, with the assistance of our advisors, are evaluating options to address the upcoming maturities of the WMLP Revolver (December 31, 2017) and the WMLP Revolving Credit Facility. The Series B Units will also convert automatically upon a change of control or a dissolution or liquidation of WMLP. The Series B Units have the same voting rights as if they were outstanding Common Units and will vote together with the Common Units as a single class. In addition, the Series B Units are entitled to vote as a separate class on any matters that materially adversely affect the rights or preferences of the Series B Units in relation to other classes of partnership interests or as required by law. As the Series B Units do not share in distributions with the Common Units we will not receive quarterly cash distributions from WMLP unless and until the Series B Units are converted to Common Units.

~~Debt Obligations~~

~~See~~ ~~Note 6 - Debt and Lines of Credit~~ ~~for a description of our different debt facilities. From time to time depending on market conditions and available cash, we intend to strategically repurchase our outstanding debt.~~

~~Restricted Group and Unrestricted Group Results~~

~~Under the indenture governing the 8.75% Notes (the “Indenture”), the WCC~~ Term Loan ~~Facility and~~(December 31, 2018). There can be no assurances that we can reach a resolution to these upcoming maturities to the ~~Revolving Credit Facility, WSJ, Westmoreland Resources GP, LLC, WMLP and~~satisfaction of all ~~of WMLP’s subsidiaries are designated as “unrestricted subsidiaries” (the “Unrestricted Group”). All of our other subsidiaries are restricted subsidiaries (the “Restricted Group”).~~parties, if at all.

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Debt Obligations

See Note 6 - Debt And Lines Of Credit to the consolidated financial statements (unaudited) for a description of our different debt facilities.

Restricted Group and Unrestricted Group Results

Under each of the Indenture, the Term Loan and the Revolver, the following entities are designated as unrestricted subsidiaries: the Westmoreland San Juan Entities, Westmoreland Resources GP, LLC, WMLP and all of WMLP’s subsidiaries (collectively, the “Unrestricted Group”). Each of our other subsidiaries are restricted by the Indenture, the Term Loan and the Revolver (the “Restricted Group”). Within the Restricted Group, pursuant to the Indenture and the Term Loan, each of Absaloka Coal, LLC, WRMI, Westmoreland Canada LLC, the Canadian subsidiaries and our Netherlands subsidiary, are considered non-guarantors (collectively, the “Non-Guarantor Restricted Subsidiaries”), and accordingly, our remaining subsidiaries that are in neither the Unrestricted Group, nor are Non-Guarantor Restricted Subsidiaries, are both restricted subsidiaries and guarantors under the Indenture and Term Loan (the “Guarantor Restricted Subsidiaries”). For financial statements pertaining to the Guarantor Restricted Subsidiaries only, see Schedule I to this Quarterly Report.

The Indenture requires summary information for the Restricted Group and Unrestricted Group provided as follows:


	Restricted Group			Unrestricted Group			Total			Restricted Group			Unrestricted Group			Total
	(In thousands)									(In thousands)
Balance sheet information as of September 30, 2016:
Balance sheet as of September 30, 2017:
Cash and cash equivalents	$	4,058		$	24,856		$	28,914		$	5,297		$	38,846		$	44,143
Total current assets	229,576			131,194			360,770			217,648			125,393			343,041
Total assets	1,018,282			701,370			1,719,652			851,934			582,578			1,434,512
Total current liabilities	247,653			156,641			404,294			242,701			87,457			330,158
Total debt	700,894			424,855			1,125,749			686,156			384,992			1,071,148
Total liabilities	1,612,924			687,936			2,300,860			1,618,518			590,141			2,208,659

Statement of operations information for the nine months ended September 30, 2016:
Statement of operations for the nine months ended September 30, 2017:
Revenues	$	690,076		$	391,575		$	1,081,651		$	627,524		$	393,248		$	1,020,772
Operating costs and expenses	683,034			366,878			1,049,912			671,827			366,845			1,038,672
Operating income	7,042			24,697			31,739
Operating income (loss)										(44,303		)	26,403			(17,900		)
Other income and expenses	(44,610		)	(41,638		)	(86,248		)	(50,293		)	(40,337		)	(90,630		)
Loss before income taxes	(37,568		)	(16,941		)	(54,509		)	(94,596		)	(13,934		)	(108,530		)
Income tax benefit	(49,660		)	—			(49,660		)	(1,406		)	—			(1,406		)
Net income (loss)	12,092			(16,941		)	(4,849		)
Net loss										(93,190		)	(13,934		)	(107,124		)
Less net loss attributable to noncontrolling interest	—			(1,545		)	(1,545		)	(715		)	—			(715		)
Net income (loss) attributable to the Parent company	$	12,092		$	(15,396	)	$	(3,304	)
Net loss attributable to the Company										$	(92,475	)	$	(13,934	)	$	(106,409	)

For the nine months ended September 30, ~~2016,~~2017, Adjusted EBITDA associated with the Restricted Group and Unrestricted Group was ~~$85.2~~$81.9 million and ~~$93.8~~$101.4 million, respectively.

Non-guarantor Restricted Subsidiaries Results

The Indenture requires summary information for Absaloka Coal, LLC, WRMI, Westmoreland Canada LLC, the Canadian Subsidiaries and our Netherlands subsidiary (collectively, the “Non-Guarantor Restricted Subsidiaries”) which is ~~provided as follows:~~

September 30, 2016 Percent of Consolidated Total
Total assets 754,612
43.9 %
Total debt 36,988
3.3 %
Total liabilities 223,815
9.7 %

Nine Months Ended September 30, 2016 Percent of Consolidated Total
Revenue 298,978
27.6 %
Adjusted EBITDA 56,015
31.3 %

~~Our non-guarantor Canadian Subsidiaries had availability of up to $20.0 million under the Canadian tranche of the WCC Revolving Credit Facility as of September 30, 2016.~~

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provided as follows (in thousands):



	September 30, 2017		Percent of Consolidated Total
Total assets	$	671,893	46.8	%
Total debt	21,675		2.0	%
Total liabilities	223,613		10.1	%

	Nine Months Ended September 30, 2017		Percent of Consolidated Total
Revenues	$	469,039	45.9	%
Adjusted EBITDA	71,210		38.8	%

Our non-guarantor Canadian Subsidiaries had availability of up to $9.5 million under the Canadian tranche of the Revolver as of September 30, 2017.

Historical Sources and Uses of Cash

The following table summarizes net cash provided by (used in) operating activities, investing activities and financing activities for the nine months ended September 30, ~~2016~~2017 and ~~2015:~~2016:


	Nine Months Ended September 30,
	2016			2015			Nine Months Ended September 30,
	(In thousands)						2017			2016
Cash provided by (used in):							(In thousands)
Operating activities	$	84,241		$	20,882		$	21,154		$	85,103
Investing activities	(147,364		)	(47,451		)	16,674			(147,364		)
Financing activities	68,330			44,248			(54,088		)	68,330

For the first nine months of ~~2016,~~2017, our operating activities ~~generated $84.2~~provided $21.2 million in cash, ~~flows~~down from $85.1 million in the prior year primarily as a result of ~~our continued execution on our mine mouth strategy.~~lower operating income, described further in "Results of Operations." Investing activities ~~used $147.4~~brought in $16.7 million in cash ~~including $125.3~~due to the $52.5 million ~~used~~cash receipt from our customer at our Genesee mine to pay off the loan and lease receivable in its entirety. This compares to a use of cash of $147.4 million primarily comprised of $125 million in use of cash to acquire ~~the~~our San Juan mine. Financing activities ~~provided $68.3~~consumed $54.1 million in cash ~~most notably $122.3~~as we continued to pay down debt. This compares to $68.3 million provided by financing activities in the prior year, primarily comprised of $122 million in borrowings to ~~finance the~~acquire our San Juan Acquisition. This was offset by $43.9 million in repayments of long-term debt including a $15.0 million payment on San Juan debt and the remainder primarily being comprised of capital lease repayments.mine.

Asset Retirement Obligations ~~Contractual Third-party Reclamation Receivables, Reclamation Deposits~~ and ~~Reclamation Bond Collateral~~Related Assets Available to Fund Obligations

The asset retirement obligations and related ~~contractual third-party reclamation receivables,~~ reclamation deposits and reclamation bond collateral for each of the Company’s operating segments at September 30, ~~2016~~2017 are summarized below:


	Asset Retirement Obligations		Contractual Third-Party Reclamation Receivables		Reclamation Deposits		Restricted Investments and Bond Collateral		Asset Retirement Obligations		Reclamation Deposits		Restricted Investments and Bond Collateral
	(In thousands)								(In thousands)
Coal - U.S.	$	323,362	$	162,870	$	74,043	$	16,309	$	315,775	$	76,936	$	16,857
Coal - Canada	120,057		5,364		—		52,237		134,856		—		52,729
Coal - WMLP	57,443		—		—		37,765		44,892		—		39,208
Power	1,095		—		—		—		1,180		—		22,200
Other restricted investments:
Power derivative collateral (ROVA)	—		—		—		22,200		—		—		16,419
Other	—		—		—		15,943		—		—		—
Total	$	501,957	$	168,234	$	74,043	$	144,454	$	496,703	$	76,936	$	147,413

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Other restricted investments include various investments not associated with reclamation obligations. Reclamation spend, net of customer receipts for reclamation, was ~~$23.9~~$26.1 million for the nine months ended September 30, ~~2016.~~2017. As of September 30, 2017, we estimate approximately $173.7 million will be reimbursed to us by our customers for performance of final reclamation.

Critical Accounting Policies and Estimates

Please refer to the corresponding section in Part II - Item 7 - Management's Discussion and Analysis of Financial Condition and Results of Operationsof our ~~2015~~2016 Form 10-K for a discussion of our accounting policies and estimates.

Recent Accounting Pronouncements

See Note 1 - Basis Of Presentation ~~of the Notes~~ to the ~~Unaudited Consolidated Financial Statements included in “Part I — Item 1 — Financial Statements.”~~consolidated financial statements (unaudited).

Off-Balance Sheet Arrangements

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

There have been no material changes to our off-balance sheet arrangements since December 31, 2016. Our off-balance sheet arrangements are discussed in ~~Management’s~~Part II - Item 7 - Management's Discussion and Analysis of Financial Condition and Results of Operations in of our ~~2015~~2016 Form 10-K.


ITEM 3	— QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET ~~RISK.~~RISK

~~Other than the changes below, there~~There have been no material changes in our market risk since December 31, ~~2015.~~2016. For additional information, refer to ~~the “Quantitative~~Part II - Item 7A - Quantitative and Qualitative Disclosures about Market ~~Risk”~~Risk in ~~Item 7A of~~ our ~~2015~~2016 Form 10-K.

~~Commodity Price Risk~~

We are exposed to commodity price risk on sales of power at our ROVA facility. We have entered into derivative contracts to purchase power in the future at fixed prices. Such derivative contracts are structured to manage our exposure to changing power prices and not for trading. For the nine months ended September 30, 2016 and 2015, we incurred a loss of $2.2 million and $6.7 million, respectively, from these derivative contracts. Since any resales which we may make in the open market under these derivative contracts would be made at prevailing market prices, we may be subject to further losses under these hedging arrangements in the event that the market price for power falls below the level of our hedged position. Based on current market pricing trends, we may experience further losses under these hedging arrangements before the market price for power regains a level which is commensurate with our hedged position. If these trends continue, these losses could continue to adversely impact our results of operations and cash flows, and anticipated future cash losses are likely to be material.


ITEM 4	— CONTROLS AND ~~PROCEDURES.~~PROCEDURES

As previously disclosed in our 2016 Form 10-K, we identified a material weakness related to accounting policy review for asset retirement obligations. The controls over the review of accounting policies were ineffective as they did not identify an inappropriate accounting policy for the treatment of asset retirement obligations that were subject to reimbursements by customers. The Company has assigned personnel with the appropriate level of asset retirement obligation and technical accounting experience to review the accounting for asset retirement obligations in accordance with GAAP.

We are in the process of remediating this material weakness by executing upon the above actions. The actions that we are taking are subject to ongoing senior management review, as well as Audit Committee oversight. Although we plan to complete this remediation process as quickly as possible, we cannot at this time estimate how long it will take and our initiatives may not prove to be successful in remediating this material weakness. Management believes the foregoing efforts will effectively remediate the material weakness. As we continue to evaluate and work to improve our internal control over financial reporting, management may execute additional measures to address potential control deficiencies or modify the remediation plan described above. Management will continue to review and make necessary changes to the overall design of our internal controls.

Disclosure Controls and Procedures

As required by Rules ~~13a-15(e)~~13a-15(b) and ~~15d-15(e)~~15d-15(b) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), management has evaluated, with the participation of our chief executive officer and chief financial officer, the effectiveness of our disclosure controls and procedures as of September 30, ~~2016~~.2017. Disclosure controls and procedures are designed to provide reasonable assurance that material information required to be disclosed in the reports we file or submit under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the rules and forms of the Securities and Exchange Commission. Disclosure controls and procedures also include, without limitation, controls and procedures designed to ensure that information required to be disclosed by us in our reports that we file or submit under the Exchange Act is accumulated and communicated to management, including our chief executive officer and chief

financial officer, as appropriate to allow timely decisions regarding our required disclosure. Based on that evaluation, which includes the material weakness identified at December 31, 2016 discussed above, our management, including our chief executive officer and chief financial officer, concluded that the disclosure controls and procedures were not effective as of ~~such date.~~September 30, 2017.

OnChanges in Internal Control over Financial Reporting

Beginning January ~~31, 2016, we closed on~~1, 2017, the ~~San Juan Acquisition. As~~Company integrated our enterprise resource planning (“ERP”) system to a ~~result~~single instance of ~~this acquisition, we are~~our ERP system across all locations and segments which will improve the timeliness and quality of information (including financial information) to all appropriate levels of Company personnel. The integration was not in response to any identified deficiency or material weakness in the process of reviewing the internal controls of the San Juan mine operations and, if necessary, will make appropriate changes as we incorporate our controls and procedures into the acquired operations. Except for the San Juan Acquisition, there have been no changes inCompany’s internal control over financial ~~reporting that occurred during~~reporting. The integration of the ~~nine months ended September 30, 2016, that have materially affected, or are reasonably~~ERP system will likely ~~to materially~~ affect the processes included in our internal ~~control~~controls over financial reporting and will require testing for operating effectiveness.

Also beginning January 1, 2017 and in connection with the integration discussed immediately above, the Company initiated the centralization of controls from our corporate offices in Edmonton, Canada and Coshocton, Ohio resulting in a centralized control environment. The centralization was not in response to any identified deficiency or material weakness in the Company’s internal controls over financial reporting. The centralization will be completed throughout 2017 and will affect the processes that constitute our internal controls over financial reporting. The centralized control framework will require testing for operating effectiveness.

PART II

- OTHER INFORMATION


ITEM 1	— LEGAL ~~PROCEEDINGS.~~PROCEEDINGS

We are subject, from time-to-time, to various proceedings, lawsuits, disputes, and claims (“Actions”) arising in the ordinary course of our business. Many of these Actions raise complex factual and legal issues and are subject to uncertainties. We cannot predict with assurance the outcome of Actions brought against us. Accordingly, adverse developments, settlements, or resolutions may occur and may result in a negative impact on income in the quarter of such development, settlement, or resolution. However, we do not believe that the outcome of any current Action would have a material adverse effect on our financial results. See Note 15 - Contingencies to the consolidated financial statements (unaudited) for a description of any pending legal proceedings, which information is incorporated herein by reference.


ITEM 1A	— RISK ~~FACTORS.~~FACTORS

We have disclosed under the heading “Risk Factors” in our ~~2015~~2016 Form 10-K, the risk factors that we believe materially affect our business, financial condition or results of operations. ~~Please see below~~There have been no material changes from the risk factors previously disclosed, except for ~~additions to our~~the additional risk factor ~~disclosure.~~identified below. You should carefully consider the risk factors set forth in the ~~2015~~2016 Form 10-K ~~the additional risk factors set forth below~~ and the other information set forth elsewhere in this ~~Form 10-Q.~~Quarterly Report. You should be aware that these risk factors and other information may not describe every risk facing our Company. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition ~~and~~ and/or operating results.

~~Risks Related~~If we fail to ~~the Exchange of~~comply with certain covenants in our ~~Common Units in WMLP for Series B Units of WMLP~~

~~The exchange of our Common Units in WMLP for Series B Units of WMLP will~~various debt arrangements, it could negatively affect our liquidity and ability to finance our operations.

Our lending arrangements contain, among other terms, events of default and various affirmative and negative covenants, financial covenants and cross-default provisions. Should we be unable to comply with any future debt-related covenant, we will be required to seek a waiver of such covenant to avoid an event of default. Covenant waivers and modifications may be expensive to obtain, or, potentially, unavailable. If we are in breach of any covenant and are unable to obtain covenant waivers and our lenders accelerate our debt, we could attempt to refinance the debt or repay the debt by selling assets and applying the proceeds from such sales to the debt. Sales of assets undertaken in response to such immediate needs may be prohibited under our lending arrangements without the consent of our lenders, may be made at potentially unfavorable prices, or asset sales may not be sufficient to refinance or repay the debt, and we may be unable to complete such transactions in a timely manner, on favorable terms, or at all.

Access to our Revolver is dependent upon our compliance with certain financial ratio covenants. This includes a minimum fixed charge coverage ratio of 0.90 in certain quarters for both the US and Canada components of the Restricted Group and 1.10 for the Restricted Group on a consolidated basis. The fixed charge coverage ratio is generally calculated based on Adjusted EBITDA (as defined in the debt agreement) divided by scheduled principal and interest payments for the most recently completed four quarters. Additionally, the San Juan Loan requires a minimum debt service coverage ratio of 1.05. The debt service coverage ratio is generally calculated as cash ~~flow.~~

~~Since acquiring~~generated by the GPborrower and its subsidiaries divided by required debt service payments, including scheduled principal and interest payments. Breaches of the Revolver financial covenants would cause a ~~significant limited partner interest~~cross-default of the Term Loan, and in ~~WMLP, we have received~~turn the 8.75% Notes. Based on our quarterly ~~cash distributions from WMLP. Unlike~~projections, including the ~~Common Units~~impact of lost or diminished coal sales at certain of our mines and ~~the Series A Units, the Series B Units~~management’s plans, which may include but are not ~~entitled~~limited to ~~receive such distributions. As a result, our exchanging 4,512,500 Common Units for~~seeking an amendment or waiver from lenders under any of the ~~same amount of Series B Units~~lending arrangements discussed herein as necessary, we anticipate that we will ~~cause us to forfeit cash distributions associated~~maintain compliance with the ~~Common Units, resulting in a decrease of approximately $601,516 in quarterly cash flow based on WMLP’s current quarterly distribution amount of $0.1333 per Common Unit. This negative impact~~financial covenants and have sufficient liquidity to meet our ~~cash flow could have a negative impact on our business and results of operations~~obligations as ~~a whole.~~

~~The conversion of Series B Units of WMLP back to Common Units in WMLP is anticipated to result in additional tax losses being allocated to us that may occur over multiple years.~~

~~The Series B Units are convertible on a one-for-one basis into Common Units on the day~~they become due within one year after the ~~record~~ date ~~for a cash distribution on~~of the Common Units in which WMLP is unable to make such a distribution without exceeding its restricted payment basket under the WMLP Term Loan Facility and the WMLP Revolving Credit Facility. The Series B Units will also convert automatically upon a changefiling of control or a dissolution or liquidation of WMLP. Upon the conversion of Series B Units to Common Units, allocations of income, gain, loss or deduction will be made to cause the Common Units received to be fungible with the Common Units held by others. It is anticipated that this will result in an allocation of losses or deductions to WMLP. While the conversion of a Series B Unit occurs at a particular time, the allocations may occur over multiple years. If the allocations do not occur in the same year as the conversion, we will have fewer losses or deductions in that year than otherwise might be the case.our Annual Report.


ITEM 2	— UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF ~~PROCEEDS.~~PROCEEDS

The Company’s purchases of its common stock during the three months ended September 30, ~~2016~~2017 were as follows:


Period	Total Number of Shares Purchased ⁽¹⁾	Average Price Paid per Share		Total Number of Shares Purchased⁽¹⁾	Average Price Paid per Share
August 1, 2016	467	$	9.36
September 22, 2017				670	$	2.34

____________________


(1)	Shares purchased as indicated in this table represent the withholding of a portion of restricted shares to cover taxes on vested restricted shares and were not made pursuant to a publicly announced share repurchase plan or program.

In July 2016, the Company learned that transactions in Westmoreland Common Stock in the San Juan Salaried Employee 401(k) Plan (the “Transitional 401(k) Plan”), a one year transitional plan governing a small group of San Juan Coal Company participants until it is merged into the Company’s existing 401(k) Plan, were executed without such transitional plan being explicitly referenced on the Company’s previously filed registration statement on Form S-8 covering 401(k) plan interests and so may be considered unregistered sales of Westmoreland Common Stock. The transactions in Westmoreland Common Stock in the Transitional 401(k) Plan may have included: (i) initial investment of salary reduction contributions from employees, (ii) fixed matching source funds from Westmoreland and (iii) intra-plan transfers of funds by participants out of other investments into Westmoreland Common Stock (collectively, the “Transactions”). The Transactions took place between February 24, 2016 and August 2, 2016, with a total of 29,479 shares at an average price paid per share of $6.91.


ITEM 4	— MINE SAFETY ~~DISCLOSURES.~~DISCLOSURES

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

ITEM 5 —OTHER INFORMATION

Twelfth Amendment to Second Amended and Restated Loan and Security Agreement

On October 30, 2017, Westmoreland Coal Company executed an amendment to our existing Revolver with Canadian Imperial Bank of Commerce (f/k/a The PrivateBank and Trust Company), as agent and as a lender, and East West Bank, as a lender ("Twelfth Amendment"). The Twelfth Amendment amended: (a) financial statement reporting to include monthly reconciliations of U.S., Canadian and Consolidated EBITDA to corresponding Net Income figures and a monthly forecast of financial covenants for the next occurring quarter; (b) the calculation under the term “US EBITDA” to remove certain fees paid to legal and financial advisors in connection with the assessment of Westmoreland’s consolidated debt structure; and (c) calculations under the terms “Canadian EBITDA” and “Canadian Fixed Charges” to remove certain financial results attributable to the Coal Valley Mine, as well as permitted netting of certain Returned Collateral against unfinanced Canadian Capital Expenditures, in connection with any sale or discontinuance of operations of the Coal Valley Mine; as such capitalized terms are defined in our Second Amended and Restated Loan and Security Agreement, as amended, governing the Revolver.

The foregoing description of the Twelfth Amendment is qualified in its entirety by reference to the terms of the Twelfth Amendment, which will be filed with the Securities and Exchange Commission as required.

Annual Incentive Plan Amendment and Restatement

On October 27, 2017, the board of directors of Westmoreland adopted an amendment and restatement to the Company’s Annual Incentive Program (the “AIP”) to replace language prohibiting the payment of any yearly bonus in the event of a fatality with the following language intended to incentivize correct behaviors and encourage mines to participate in activities that lead to safe production:

“In the event of a reportable fatality due to safety, the following rules shall apply:

No yearly safety bonus will be paid to the facility incurring the fatality;

Whether or not a safety bonus will be paid to a corporate employee will be at the discretion of the CEO for employees Grade Level 9 through 13, at the discretion of the Compensation & Benefits Committee for the Named Executive Officers and at the discretion of the Board of Directors for the CEO; and

All other locations will receive pay out based upon their facility’s leading and lagging indicators.”

The foregoing summary is qualified in its entirety by the full text of the AIP, which will be filed with the Securities and Exchange Commission as required.


ITEM 6	— ~~EXHIBITS.~~EXHIBITS

~~See~~EXHIBIT INDEX



		Incorporated by Reference
Exhibit Number	Exhibit Description	Form	File Number	Exhibit	Filing Date	Filed Herewith
2.1	Purchase and Sale Agreement dated August 2, 2017, by and between Westmoreland Partners and ROVA Venture, LLC					X
3.1	Amended and Restated Certificate of Incorporation					X
3.2	Certificate of Designations of Series A Participating Preferred Stock of Westmoreland Coal Company					X
4.1	Rights Agreement, dated as of September 5, 2017, by and between Westmoreland Coal Company and Broadridge Corporate Issuer Solutions, Inc., as Rights Agent	8-K	001-11155	4.1	9/05/2017
10.1	Amended and Restated Substitute Energy Purchase Agreement dated September 25, 2017, by and between Westmoreland Partners and Virginia Electric and Power Company					X
10.2	Assignment and Assumption Agreement dated September 29, 2017, by and among Westmoreland Partners, Westmoreland Energy, LLC, BP Energy Company and Virginia Electric and Power Company					X
31.1	Certification of Chief Executive Officer pursuant to Rule 13a-14(a)					X
31.2	Certification of Chief Financial Officer pursuant to Rule 13a-14(a)					X
32	Certifications of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350					X
95.1	Mine Safety Disclosure					X
101.INS	XBRL Instance Document					X
101.SCH	XBRL Taxonomy Extension Schema Document					X
101.CAL	XBRL Taxonomy Calculation Linkbase Document					X
101.LAB	XBRL Taxonomy Label Linkbase Document					X
101.PRE	XBRL Taxonomy Presentation Linkbase Document					X
101.DEF	XBRL Taxonomy Definition Document					X

Attached as Exhibit ~~Index at~~101 to this report are documents formatted in XBRL (Extensible Business Reporting Language). The financial information contained in the ~~end of this report.~~XBRL-related document is “unaudited” or “unreviewed.”

SIGNATURES

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



		WESTMORELAND COAL COMPANY

Date:	~~November 1, 2016~~October 31, 2017	/s/ ~~Jason W. Veenstra~~Gary A. Kohn
		~~Jason W. Veenstra~~Gary A. Kohn
		Chief Financial Officer (Principal Financial ~~Officer and A Duly Authorized Officer)~~

~~Date:~~	~~November 1, 2016~~	~~/s/~~ ~~Nathan M. Troup~~
		~~Nathan M. Troup~~
		~~Chief Accounting Officer and Corporate Controller~~ ~~(Principal Accounting~~ Officer and A Duly Authorized Officer)

WESTMORELAND COAL COMPANY

SCHEDULE I — CONDENSED BALANCE SHEETS

~~(Parent Company~~Guarantor Restricted Subsidiary Information —

See Notes to Schedule I Condensed Financial ~~Statements)~~Statements


	September 30, 2016		December 31, 2015
	(In thousands)				September 30, 2017			December 31, 2016
Assets					(In thousands)
Current assets:
Cash and cash equivalents	$	1,331	$	14,245	$	—		$	10,256
Receivables:
Intercompany receivable	37,391		27,732		36,923			40,797
Other	1,756		3,053		4,090			5,422
	39,147		30,785
Total receivables					41,013			46,219
Other current assets	1,268		1,048		858			1,235
Total current assets	41,746		46,078		41,871			57,710
Property, plant and equipment:
Plant and equipment	4,254		4,096		3,590			1,949
Less accumulated depreciation, depletion and amortization	3,347		3,101
Less accumulated depreciation and amortization					1,388			1,135
Net property, plant and equipment	907		995		2,202			814
Restricted investments	15,944		15,753		16,419			16,004
Investment in subsidiaries	113,656		143,952		27,836			31,158
Intercompany receivable/payable	248,630		200,140
Intercompany receivable					156,204			226,225
Other assets	980		1,479		1,724			2,037
Total Assets	$	421,863	$	408,397	$	246,256		$	333,948
Liabilities and Shareholders’ Deficit
Current liabilities:
Current installments of long-term debt					$	7,828		$	3,288
Accounts payable and accrued expenses:
Trade and other accrued liabilities					16,395			16,714
Interest payable					7,838			15,469
Postretirement medical benefits					12,573			12,573
Other current liabilities					1,917			1,386
Total current liabilities					46,551			49,430
Long-term debt, less current installments					647,958			646,885
Postretirement medical benefits, less current portion					251,985			251,093
Pension and SERP obligations, less current portion					39,317			40,639
Intercompany payable					10,209			11,915
Other liabilities					24,383			24,103
Total liabilities					1,020,403			1,024,065
Shareholders’ deficit:
Common stock					187			186
Other paid-in capital					250,729			248,143
Accumulated other comprehensive loss					(157,799		)	(179,072		)
Accumulated deficit					(864,012		)	(757,367		)
Total shareholders’ deficit					(770,895		)	(688,110		)
Noncontrolling interests in consolidated subsidiaries					(3,252		)	(2,007		)
Total deficit					(774,147		)	(690,117		)
Total Liabilities and Deficit					$	246,256		$	333,948

~~WESTMORELAND COAL COMPANY~~

~~SCHEDULE I — CONDENSED BALANCE SHEETS~~

~~(Parent Company Information — See Notes to Condensed Financial Statements)~~

September 30,
2016 December 31,
2015
(In thousands)
Liabilities and Shareholders’ Deficit
Current liabilities:
Current installments of long-term debt $ 3,288
$ 3,288
Revolving lines of credit —
—
Accounts payable and accrued expenses:
Trade and other accrued liabilities 12,285
10,598
Interest payable 7,702
15,398
Workers’ compensation 575
590
Postretirement medical benefits 11,985
11,985
SERP 368
368
Intercompany payable —
2,150
Other current liabilities 807
131
Total current liabilities 37,010
44,508
Long-term debt, less current installments 650,579
649,766
Workers’ compensation, less current portion 4,908
5,068
Excess of black lung benefit obligation over trust assets 17,865
17,220
Postretirement medical benefits, less current portion 239,410
239,122
Pension and SERP obligations, less current portion 39,745
40,516
Other liabilities 466
466
Intercompany payable 13,088
13,615
Total liabilities 1,003,071
1,010,281
Shareholders’ deficit:
Common stock 186
182
Other paid-in capital 246,450
240,721
Accumulated other comprehensive loss (150,726 ) (171,300 )
Accumulated deficit (675,523 ) (672,219 )
Total shareholders’ deficit (579,613 ) (602,616 )
Noncontrolling interests in consolidated subsidiaries (1,595 ) 732
Total deficit (581,208 ) (601,884 )
Total Liabilities and Deficit $ 421,863
$ 408,397

WESTMORELAND COAL COMPANY

SCHEDULE I — CONDENSED STATEMENTS OF OPERATIONS

~~(Parent Company~~Guarantor Restricted Subsidiary Information —

See Notes to Schedule I Condensed Financial ~~Statements)~~Statements


	Three Months Ended September 30,						Nine Months Ended September 30,						Three Months Ended September 30,						Nine Months Ended September 30,
	2016			2015			2016			2015			2017			2016			2017			2016
	(In thousands, except per share data)												(In thousands)
Revenues	$	—		$	—		$	—		$	—		$	—		$	—		$	—		$	—
Cost, expenses and other:
Cost of sales	(498		)	(467		)	(1,473		)	(1,474		)	(255		)	(498		)	(994		)	(1,473		)
Depreciation, depletion and amortization	70			47			246			132			118			70			350			246
Selling and administrative	4,533			6,131			15,043			14,869			7,310			4,533			23,797			15,043
Heritage health benefit expenses	3,075			2,617			8,919			7,449			3,132			3,075			9,300			8,919
	7,180			8,328			22,735			20,976			10,305			7,180			32,453			22,735
Operating loss	(7,180		)	(8,328		)	(22,735		)	(20,976		)	(10,305		)	(7,180		)	(32,453		)	(22,735		)
Other income (expense):
Interest expense	(15,190		)	(15,945		)	(45,457		)	(49,643		)	(15,571		)	(15,190		)	(45,926		)	(45,457		)
Loss on extinguishment of debt	—			(5,385		)	—			(5,385		)
Interest income	4,258			4,216			12,960			13,080			3,402			4,258			10,260			12,960
Gain (loss) on foreign exchange	(1		)	(24		)	11			(26		)	(7		)	(1		)	1			11
Other income (expense)	5			—			29			(5		)	(9		)	5			(192		)	29
	(10,928		)	(17,138		)	(32,457		)	(41,979		)	(12,185		)	(10,928		)	(35,857		)	(32,457		)
Loss before income taxes and income (loss) of consolidated subsidiaries	(18,108		)	(25,466		)	(55,192		)	(62,955		)
Equity in income (loss) of consolidated subsidiaries	7,537			(20,436		)	250			(34,650		)
Loss before income taxes and loss of consolidated subsidiaries													(22,490		)	(18,108		)	(68,310		)	(55,192		)
Equity in loss of consolidated subsidiaries													2,716			(2,310		)	(40,411		)	(15,996		)
Loss before income taxes	(10,571		)	(45,902		)	(54,942		)	(97,605		)	(19,774		)	(20,418		)	(108,721		)	(71,188		)
Income tax expense (benefit)	(1,811		)	2,118			(50,093		)	2,144
Income tax benefit													(474		)	(1,811		)	(1,597		)	(50,093		)
Net loss	(8,760		)	(48,020		)	(4,849		)	(99,749		)	(19,300		)	(18,607		)	(107,124		)	(21,095		)
Less net loss attributable to noncontrolling interest	(239		)	(1,458		)	(1,545		)	(4,850		)	(78		)	(239		)	(715		)	(1,545		)
Net loss attributable to the Parent company	$	(8,521	)	$	(46,562	)	$	(3,304	)	$	(94,899	)
Net loss attributable to the Guarantor Restricted Subsidiaries													$	(19,222	)	$	(18,368	)	$	(106,409	)	$	(19,550	)

WESTMORELAND COAL COMPANY

SCHEDULE I — CONDENSED STATEMENTS OF COMPREHENSIVE LOSS

~~(Parent Company~~Guarantor Restricted Subsidiary Information —

See Notes to Schedule I Condensed Financial ~~Statements)~~Statements

Three Months Ended September 30, Nine Months Ended September 30,
2016 2015 2016 2015
(In thousands)
Net loss $ (8,760 ) $ (48,020 ) (4,849 ) $ (99,749 )
Other comprehensive income (loss)
Pension and other postretirement plans:
Amortization of accumulated actuarial gains or losses, pension 1,294
996
3,884
3,263
Adjustments to accumulated actuarial losses and transition obligations, pension 813
(253 ) 786
(538 )
Amortization of accumulated actuarial gains or losses, transition obligations, and prior service costs, postretirement medical benefit 368
327
891
981
Adjustments of accumulated actuarial losses and transition obligations, postretirement medical benefit —
—
984
—
Tax effect of other comprehensive income gains and losses (1,039 ) (558 ) (2,410 ) (908 )
Change in foreign currency translation adjustment (2,438 ) (20,802 ) 16,184
(43,018 )
Unrealized and realized gains and losses on available-for-sale securities 535
165
255
(1,295 )
Other comprehensive income (loss), net of income taxes (467 ) (20,125 ) 20,574
(41,515 )
Comprehensive income (loss) (9,227 ) (68,145 ) 15,725
(141,264 )
Less: Comprehensive income (loss) attributable to noncontrolling interest (240 ) (1,458 ) (1,532 ) (4,850 )
Comprehensive income (loss) attributable to parent company $ (8,987 ) $ (66,687 ) $ 17,257
$ (136,414 )



	Three Months Ended September 30,						Nine Months Ended September 30,
	2017			2016			2017			2016
	(In thousands)
Net loss	$	(19,300	)	$	(18,607	)	$	(107,124	)	$	(21,095	)
Other comprehensive income (loss)
Pension and other postretirement plans:
Amortization of accumulated actuarial losses, pension	588			1,294			1,765			3,639
Adjustments to accumulated actuarial gains (losses) and transition obligations, pension	(112		)	813			189			786
Amortization of accumulated actuarial losses, transition obligations, and prior service costs, postretirement medical benefit	964			368			2,893			891
Adjustments to accumulated actuarial gains and transition obligations, postretirement medical benefit	—			—			—			984
Tax effect of other comprehensive income losses	(684		)	(1,039		)	(2,503		)	(2,410		)
Change in foreign currency translation adjustment	9,426			(2,432		)	17,455			16,128
Unrealized and realized gains and losses on available-for-sale securities	278			535			1,474			255
Other comprehensive income (loss), net of income taxes	10,460			(461		)	21,273			20,273
Comprehensive loss	(8,840		)	(19,068		)	(85,851		)	(822		)
Less: Comprehensive loss attributable to noncontrolling interest	(78		)	(240		)	(715		)	(1,532		)
Comprehensive (loss) income attributable to Guarantor Restricted Subsidiaries	$	(8,762	)	$	(18,828	)	$	(85,136	)	$	710

WESTMORELAND COAL COMPANY

SCHEDULE I — CONDENSED STATEMENTS OF CASH FLOWS

~~(Parent Company~~Guarantor Restricted Subsidiary Information —

See Notes to Schedule I Condensed Financial ~~Statements)~~Statements


	Nine Months Ended September 30,						Nine Months Ended September 30,
	2016			2015			2017			2016
	(In thousands)						(In thousands)
Cash flows from operating activities:
Net loss	$	(4,849	)	$	(99,749	)	$	(107,124	)	$	(21,095	)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation, depletion and amortization	246			132
Adjustments to reconcile net (loss) income to net cash used in operating activities:
Depreciation and amortization							350			246
Share-based compensation	3,340			2,566			2,970			3,340
Amortization of deferred financing costs	3,588			3,713			3,944			3,588
Loss (gain) on foreign exchange	(11		)	30
Equity in income (loss) of subsidiaries	(250		)	34,650
Deferred income tax expense (benefit)	(48,490		)	3,492
Gain on foreign exchange							(1		)	(11		)
Equity in loss of subsidiaries							40,411			15,996
Deferred income tax benefit							—			(48,565		)
Distributions received from subsidiaries	9,025			1,828			36			9,025
Other	(2,442		)	3,537			192			(2,442		)
Changes in operating assets and liabilities:
Receivables	1,297			800			1,332			1,297
Accounts payable and accrued expenses	(6,005		)	(1,383		)	(8,552		)	(6,005		)
Other assets and liabilities	1,751			(7,516		)	(1,298		)	1,826
Net cash used in operating activities	(42,800		)	(57,900		)	(67,740		)	(42,800		)
Cash flows from investing activities:
Additions to property, plant and equipment	(162		)	(84		)	(1,156		)	(162		)
Change in restricted investments	(4,144		)	(178		)
Proceeds from Kemmerer Drop	—			115,000
Cash payments in escrow for future acquisitions	—			17,000
Proceeds from the sale of investments	3,859			—
Net cash provided by (used in) investing activities	(447		)	131,738
Proceeds from sales of restricted investments							4,154			3,859
Purchases of and change in restricted investments							(4,442		)	(4,144		)
Net cash used in investing activities							(1,444		)	(447		)
Cash flows from financing activities:
Borrowings from long-term debt, net of debt discount	—			75,000
Repayments of long-term debt	(2,466		)	(97,007		)	(2,466		)	(2,466		)
Borrowings on revolving lines of credit	248,900			121,434			217,100			248,900
Repayments on revolving lines of credit	(248,900		)	(131,010		)	(212,560		)	(248,900		)
Debt issuance costs and other refinancing costs	(93		)	(6,109		)
Transactions with Parent/affiliates	32,892			(33,995		)
Transactions with WCC/affiliates							56,854			32,892
Other	—			(322		)	—			(93		)
Net cash provided by (used in) financing activities	30,333			(72,009		)
Net increase (decrease) in cash and cash equivalents	(12,914		)	1,829
Net cash provided by financing activities							58,928			30,333
Net decrease in cash and cash equivalents							(10,256		)	(12,914		)
Cash and cash equivalents, beginning of period	14,245			697			10,256			14,245
Cash and cash equivalents, end of period	$	1,331		$	2,526		$	—		$	1,331

4145

WESTMORELAND COAL COMPANY

NOTES TO SCHEDULE I ~~— NOTES TO~~ CONDENSED FINANCIAL STATEMENTS

~~(Parent Company Information)~~Guarantor Restricted Subsidiaries Information


1.	~~LINES OF CREDIT AND LONG-TERM DEBT~~

1.LONG-TERM DEBT AND LINES OF CREDIT

The amounts outstanding under the ~~Parent~~ Company’s long-term debt, guaranteed by each of the Company and the Guarantor Restricted Subsidiaries, consisted of the following as of the dates indicated:

Total Debt Outstanding
September 30, 2016 December 31, 2015
(In thousands)
8.75% Notes due 2022 $ 350,000
$ 350,000
WCC Term Loan Facility due 2020 324,705
327,172
Revolving Credit Facility —
—
Other 4,500
4,500
Total debt 679,205
681,672
Less debt discount and debt issuance costs (25,338 ) (28,618 )
Less current installments (3,288 ) (3,288 )
Total debt outstanding, less current installments $ 650,579
$ 649,766



	Total Debt Outstanding
	September 30, 2017			December 31, 2016
	(In thousands)
8.75% Notes	$	350,000		$	350,000
Term Loan	321,417			323,883
Revolver	4,540			—
Other debt	500			500
Total debt	676,457			674,383
Less debt discount and issuance costs, net	(20,671		)	(24,210		)
Less current installments	(7,828		)	(3,288		)
Long-term debt, less current installments	$	647,958		$	646,885

The following table presents remaining aggregate contractual debt maturities of ~~all~~ long-term debt ~~for~~guaranteed by the ~~Parent Company:~~Company and the Guarantor Restricted Subsidiaries:


	September 30, 2016		September 30, 2017
	(In thousands)		(In thousands)
2016	$	822
2017	3,288		$	5,362
2018	7,788		3,788
2019	3,288		3,288
2020	314,019		314,019
2021			—
Thereafter	350,000		350,000
Total	$	679,205
Total debt			$	676,457

~~The Company amended~~For details on the ~~terms of its revolving line of credit (“WCC Revolving~~8.75% Notes, Term Loan and Revolver debt facilities, see Note 6 - Debt And Lines Of Credit Facility”) on September 30, 2016 and October 12, 2016, respectively. The September 30 amendment clarified the terms “Canadian Fixed Charges” and “US Fixed Charges” to allocate scheduled cash interest payments and to remove the allocation schedule of cash interest payments under the term “Interest Expense.” The October 12 amendment (1) replaced the previous lender, Bank of the West, with a new lender, East West Bank, (2) amended Interest Expense to remove certain dividend payments, (3) revised the term “Required Lenders” to constitute all lenders when only two unaffiliated lenders are party to the revolving credit facility, (4) removed the requirement of the delivery of a social responsibility questionnaire in connection with a Permitted Acquisition, (5) allowed for any Lender to provide the Swing Line Lender one day’s prior written notice prohibiting a US Swing Line Loan or Canadian Swing Line Loan, (6) removed Administrative Agent discretion on application of proceeds from the sale of Collateral, (7) adjusted Annual Projections reporting requirements to no longer require delivery of a balance sheet and (8) adjusted the waterfall treatment with respect to Proceeds of Collateral.

Under the Company’s WCC Revolving Credit Facility the Company has a total aggregate borrowing capacity of $60.0 million between June 15th and August 31st of each year, with an aggregate borrowing capacity of $50.0 million outside of these periods. The availability of the WCC Revolving Credit Facility consists of a $30.0 million sub-facility ($35.0 million with the seasonal increase) available to our U.S. borrowers and a $20.0 million sub-facility ($25.0 million with the seasonal increase) available to our Canadian borrowers. The facility may support an equal amount of letters of credit, with outstanding letter of credit balances reducing availability under the facility. At September 30, 2016, availability on the WCC Revolving Credit Facility was $36.3 million with an outstanding balance of $13.7 million supporting letters of credit and nothing drawn on the WCC Revolving Credit Facility. The WCC Revolving Credit Facility has a maturity date of December 31, 2018. We were in compliance with all covenant requirements of the WCC Revolving Credit Facility as of September 30, 2016.consolidated financial statements (unaudited).

4246

~~WESTMORELAND COAL COMPANY~~

~~SCHEDULE I — NOTES TO CONDENSED FINANCIAL STATEMENTS~~

~~(Parent Company Information)~~

~~Due to the adoption of ASU 2015-03,~~ ~~Interest - Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs~~, debt issuance costs related to the Company’s debt liabilities are now reported in the balance sheet as a direct deduction from the face amount of the notes. The adoption of this standard resulted in the reclassification of $17.5 million of unamortized debt issuance costs from the non-current asset, ~~Other assets,~~ ~~to a reduction of~~ ~~Long-term debt, less current portion~~ ~~on the consolidated balance sheet as of December 31, 2015.~~

~~EXHIBIT INDEX~~

Incorporated by Reference
Exhibit
Number
Exhibit Description Form
File
Number
Exhibit
Filing
Date
Filed
Herewith

10.1 Seventh Amendment to Second Amended and Restated Loan and Security Agreement, dated September 30, 2016 8-K 001-11155 10.1 10/6/2016
10.2 Eighth Amendment to Second Amended and Restated Loan and Security Agreement, dated October 12, 2016 8-K 001-11155 10.1 10/13/2016
10.3 Exchange Agreement, dated as of October 28, 2016, by and between Westmoreland Coal Company and Westmoreland Resource Partners, LP X
31.1 Certification of Chief Executive Officer pursuant to Rule 13a-14(a) X
31.2 Certification of Chief Financial Officer pursuant to Rule 13a-14(a) X
32 Certifications of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350 X
95.1 Mine Safety Disclosure X
101.INS XBRL Instance Document X
101.SCH XBRL Taxonomy Extension Schema Document X
101.CAL XBRL Taxonomy Calculation Linkbase Document X
101.LAB XBRL Taxonomy Label Linkbase Document X
101.PRE XBRL Taxonomy Presentation Linkbase Document X
101.DEF XBRL Taxonomy Definition Document X

Attached as Exhibit 101 to this report are documents formatted in XBRL (Extensible Business Reporting Language). The financial information contained in the XBRL-related document is “unaudited” or “unreviewed.”



		PAGE
PART I - FINANCIAL INFORMATION		3
Item 1	Consolidated Financial Statements (Unaudited)	3
	Notes to Consolidated Financial Statements (Unaudited)	97
Item 2	Management's Discussion and Analysis of Financial Condition and Results of Operations	23
Item 3	Quantitative and Qualitative Disclosures About Market Risk	3336
Item 4	Controls and Procedures	3336
PART II - OTHER INFORMATION		3438
Item 1	Legal Proceedings	3438
Item 1A	Risk Factors	3438
Item 2	Unregistered Sales of Equity Securities and Use of Proceeds	3438
Item 4	Mine Safety Disclosures	3539
Item 5	Other Information	39
Item 6	Exhibits	3540
SIGNATURES		3641
SCHEDULE 1		37
~~EXHIBIT INDEX~~		4442



	Common Stock			Other Paid-In Capital			Accumulated Other Comprehensive Loss			Accumulated Deficit			Non-controlling Interest			Total Deficit
	Shares	Amount		Other Paid-In Capital			Accumulated Other Comprehensive Loss			Accumulated Deficit			Non-controlling Interest			Total Deficit
	(In thousands, except shares data)
Balance at December 31, 2015	18,162,148	$	182	$	240,721		$	(171,300	)	$	(672,219	)	$	732		$	(601,884	)
WMLP distributions	—	—		—			—			—			(795		)	(795		)
Common stock issued as compensation	342,353	3		5,922			—			—			—			5,925
Issuance of restricted stock	66,141	1		(193		)	—			—			—			(192		)
Net loss	—	—		—			—			(3,304		)	(1,545		)	(4,849		)
Other comprehensive income	—	—		—			20,574			—			13			20,587
Balance at September 30, 2016	18,570,642	$	186	$	246,450		$	(150,726	)	$	(675,523	)	$	(1,595	)	$	(581,208	)



	Provisional as of September 30, 2016
Purchase price:
Cash paid	$	125.3

Preliminary allocation of purchase price:
Assets:
Inventories - coal and supplies	$	8.8
Other receivables	10.0
Contractual third-party reclamation receivable	4.6
Total current assets	23.4
Land and mineral rights	108.3
Plant and equipment	73.5
Contractual third-party reclamation receivable	66.8
Other assets	10.4
Total assets	282.4
Liabilities:
Trade payables and other accrued liabilities	14.1
Production taxes	2.0
Other liabilities	9.9
Asset retirement obligations	4.6
Total current liabilities	30.6
Asset retirement obligations, less current portion	66.8
Postretirement medical	1.9
Deferred income taxes	48.5
Other liabilities	9.3
Total liabilities	157.1
Net fair value	$	125.3



	Stock Options	Weighted Average Exercise Price		Weighted Average Remaining Contractual Life (In years)	Aggregate Intrinsic Value (In thousands)		Unamortized Compensation Expense (In thousands)
Outstanding at September 30, 2016	109,306	$	22.16	1.4	$	—	$	—



	SARs		Weighted Average Exercise Price		Weighted Average Remaining Contractual Life (In years)	Aggregate Intrinsic Value (In thousands)		Unamortized Compensation Expense (In thousands)
Outstanding at December 31, 2015	16,943		$	25.44
Expired	(16,943	)	25.44
Outstanding at September 30, 2016	—		$	—	0.0	$	—	$	—



	Coal - U.S.⁽¹⁾		Coal - Canada		Coal - WMLP⁽²⁾			Power⁽³⁾			Heritage			Corporate⁽²⁾			Consolidated⁽⁴⁾⁽⁵⁾
	(In thousands)
Three Months Ended September 30, 2016
Revenues	$	168,860	$	96,480	$	90,320		$	21,554		$	—		$	(6,531	)	$	370,683
Restructuring charges	—		—		—			—			—			—			—
Depreciation, depletion, and amortization	14,820		6,786		11,555			—			—			(49		)	33,112
Operating income (loss)	18,346		4,559		5,970			(4,696		)	(3,326		)	(3,641		)	17,212
Total assets	770,300		504,034		382,098			40,760			16,288			6,172			1,719,652
Capital expenditures	4,824		11,313		2,251			—			—			—			18,388
Three Months Ended September 30, 2015
Revenues	$	132,018	$	107,752	$	94,785		$	22,017		$	—		$	(6,776	)	$	349,796
Restructuring charges	—		—		—			—			—			—			—
Depreciation, depletion, and amortization	9,524		7,023		15,471			2,470			—			(29		)	34,459
Operating income (loss)	482		4,009		(4,845		)	(7,976		)	(2,950		)	(4,027		)	(15,307		)
Total assets	539,497		537,465		431,338			172,182			16,152			(9,675		)	1,686,959
Capital expenditures	7,047		7,485		4,691			198			—			(4		)	19,417
Nine Months Ended September 30, 2016
Revenues	$	475,470	$	298,978	$	263,269		$	65,494		$	—		$	(21,560	)	$	1,081,651
Restructuring charges	—		—		—			—			—			—			—
Depreciation, depletion, and amortization	41,393		19,142		41,367			—			—			(114		)	101,788
Operating income (loss)	33,475		21,168		2,497			(3,766		)	(10,325		)	(11,310		)	31,739
Total assets	770,300		504,034		382,098			40,760			16,288			6,172			1,719,652
Capital expenditures	12,038		13,801		4,780			—			—			—			30,619
Nine Months Ended September 30, 2015
Revenues	$	419,505	$	317,157	$	300,908		$	64,001		$	—		$	(31,331	)	$	1,070,240
Restructuring charges	—		—		656			—			—			—			656
Depreciation, depletion, and amortization	28,199		26,899		44,282			7,430			—			(29		)	106,781
Operating income (loss)	8,403		23,397		(6,151		)	(16,594		)	(8,699		)	(14,072		)	(13,716		)
Total assets	539,497		537,465		431,338			172,182			16,152			(9,675		)	1,686,959
Capital expenditures	18,908		21,413		19,918			1,305			—			(3,573		)	57,971