Westmoreland Coal said it will restate its 2006 results to correct an error in its calculation of post-retirement medical benefit liabilities.
The company said it found that a group of 131 retirees eligible for medical benefits had been omitted from census data used to calculate the liability. The error was discovered by the company’s actuaries and management during a routine review of one of the company’s post-retirement plans.
As a result, Westmoreland said, it understated its post-retirement medical liability and shareholders’ deficit at the end of 2006 by about $31.4 million. The company also understated expenses by about $1.5 million in 2006, $1.3 million in 2005 and $1.4 million in 2002. The company said its financial statements for the years ended 2004 through 2006 are no longer reliable.
Westmoreland said it will file an amendment to its 2006 annual report and first two quarters of 2007, and file its September quarterly report “as promptly as possible.” The restatement also caused the company to delay its proposed rights offering, which was approved by shareholders in August.
In connection with the rights offering, the Company entered into an amended standby purchase agreement with hedge fund Tontine Capital Partners, L.P. and buyout firm Silverhawk Capital Partners GP, LLC as standby purchasers, as part of their agreement to provide the company with a “backstop” commitment to purchase any shares offered in the rights offering that are not purchased by other shareholders. Under the deal, if the rights offering does not close by November 15, the company and the standby purchasers may terminate the arrangement — an outcome the company said now appears possible.
“Given the delay in completing the rights offering caused by the restatement, as well as the financial impact of the restatement on the company, the company has entered into discussions with the standby purchasers concerning amending the terms of the standby purchase agreement,” the company said.