Allegheny Energy Inc. shares fell yesterday after the U.S. utility owner reported $632.7 million in losses for 2002 and said its auditor had "substantial doubt" the company can stay in business.
The Hagerstown utility fell 17 cents, or 1.9 percent, to $8.76 in New York Stock Exchange composite trading after plunging as much as 14 percent in the opening minutes of trading. The shares have fallen by one-third in the past year.
The disclosures, made after the end of trading Thursday, were contained in the company's annual report to the U.S. Securities and Exchange Commission. The filing had been delayed by the discovery of accounting errors last year.
The auditor's statement sent the stock plummeting because "a stock's always going to have the chance to react negatively when news comes out that raises concerns," said Barry Abramson, an analyst at Rye, New York-based Gabelli Asset Management, which owned 1.9 million Allegheny shares as of June 30.
The rest of the annual report "didn't seem to give anything that would significantly change the forward outlook for Allegheny," he said.
Chief Executive Officer Paul Evanson, who was appointed in June, said in a conference call with analysts and investors that while the company has enough cash to meet debt payments this year, it will have to refinance about $350 million in debt due in 2004.
He declined to give a projection for earnings this year or next.
The reporting delay put Allegheny Energy in noncompliance with terms of $3.7 billion in long-term debt.
As a result, auditors PricewaterhouseCoopers LLP expressed "substantial doubt" that Allegheny and its units can continue as a going concern, the company said in the filing.
Allegheny will replace about two-thirds of its accounting staff of 125 because of the "meltdown" in its financial recordkeeping, Evanson said in the conference call.
"The extent of the weakness in the accounting area was really surprising," he said. "There was really a failing of training, a failing of performance in that area."
Allegheny Chief Financial Officer Bruce E. Walenczyk took early retirement in June after the early retirement of Chief Executive Officer Alan J. Noia the month before.
Evanson said the bulk of the company's losses stemmed from its failed foray into energy-trading. Most of last year's losses came as the company reversed profits it had recorded on energy trades made in California during the state's energy crisis of 2000 and 2001.
Power prices fell, reducing the value of the company's Western trading portfolio, including an 11-year contract signed in early 2001 to provide as much as 800 megawatts to the state.
Allegheny agreed to sell that contract in July to Goldman Sachs for $405 million.
"We now have only minor exposures in the West," Evanson said.
J.P. Morgan Chase & Co. analyst Jim von Riesemann cut his rating on the shares to "underweight" from "neutral."
"Earnings projections, cash-flow concerns and financial flexibility remain unanswered questions which make it too difficult to predict valuation" for Allegheny's stock, von Riesemann said in a research report.