SEC IS INVESTIGATING ACCOUNTING ERRORS

0 Comments | Gazette, The (Colorado Springs), Apr 1, 2008 | by WAYNE HEILMAN

Federal securities regulators are investigating Westmoreland Coal Co. for accounting errors that have forced the company to revise its earnings twice in the past 16 months.

The Colorado Springs-based company revealed the probe Monday in a filing with the Securities and Exchange Commission that also disclosed that Westmoreland's losses increased last year by more than 50 percent to $23.2 million, or $2.53 a share.

Westmoreland said it was told Thursday that the SEC's Denver office had begun an "informal inquiry" into the accounting errors that forced the company to add more than $20 million to its losses for 2002-06 and inflate its negative net worth by 50 percent.

The company attributed the revisions, which were announced March 17, to failure to include 231 former employees in its calculation for future retirement benefits and errors in calculating stock options, state income taxes and coal reserve lease royalty payments.

A November 2006 restatement triggered by errors in calculating tax benefits widened losses by $40 million and wiped $62.9 million in stockholder equity. As a result of the two restatements, Westmoreland's liabilities now exceed its assets by $177.3 million.

Westmoreland said it could face fines, court orders or civil lawsuits from the agency if the SEC finds that it violated federal securities laws.

The company said in the filing Monday that it believes any sanctions levied by the agency would be minor because its management believes "after due inquiry, there was no fraud, financial manipulation or other intentional misconduct relating to the restatement."

Westmoreland said its losses worsened in part because its 2006 losses were reduced by a $5.1 million profit from selling mineral interests in Colorado and its 2007 losses were inflated by one-time charges that exceeded one-time gains by nearly $1 million.

The charges included $4.5 million for a restructuring that will reduce salaries and lease costs by $2.8 million, a $4 million increase in depreciation and other accounting adjustments, $1.7 million from an unscheduled outage at its North Carolina power plant and $1.6 million for a stock offering it has since canceled.

Those charges offset $6.4 million in gains from settling a lawsuit with retirees and a $5.6 million profit from selling a coal royalty interest.

Westmoreland also told stockholders it expects that a recent $15 million note sale to its largest stockholder will meet "all of its currently projected cash requirements through August" until it can complete two refinancings to lower its debt burden.

The company refinanced debt on the North Carolina power plant March 17 with $107 million in notes through Prudential Capital with interest rates from 6 percent to 11.42 percent. The deal lowers the company's debt payments and generated $5 million in cash.

Westmoreland has also hired a major bank to help it refinance $93.7 million in debt on its five coal mines to better match payments with its cash flow, provide funds for capital investment in the mines and provide the company with more liquidity and flexibility.

A conference call about Westmoreland's 2007 financial results is scheduled for 8 a.m. Thursday. Instructions for the call will be posted on the company's Web site, www.westmoreland.com.

The company made the announcements after the nation's stock markets closed. Westmoreland shares gained 1 cent to $13.60 in trading Monday on the American Stock Exchange.

Westmoreland owns mines in Montana, North Dakota and Texas and a power plant in North Carolina.

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