Allegheny Energy cuts losses for quarter, year

`Quarters are nearly break-even' as utility owner reduces debt

March 12, 2004|By Lorraine Mirabella | Lorraine Mirabella,SUN STAFF

Hagerstown-based utility owner Allegheny Energy Inc. said yesterday that its fourth-quarter and annual losses narrowed substantially as the financially struggling company attempted to regain its financial footing and slash debt.

Allegheny reported a fourth-quarter loss of $13.7 million, or 11 cents per share, on revenue of $760 million compared with a net loss of $281.8 million, or $2.23 per share, on revenue of $661 million in the 2002 quarter.

For the year that ended Dec. 31, the company's loss was nearly halved, to $355 million, or $2.80 per share, compared with a loss in 2002 of $632.7 million, or $5.04 per share. Annual revenue was $2.5 billion, down from $3 billion in 2002.

Consolidated income before income taxes and minority interest was $3.3 million for the fourth quarter, compared with a consolidated loss, before income taxes and minority interest, of $483.6 million for the fourth quarter of 2002, the company reported.

"They've gotten things down to the point where the quarters are nearly break-even," said Chris Ellinghaus, an analyst at Williams Capital Group who rates Allegheny "hold" and doesn't own the stock. "That's a pretty good improvement."

Allegheny has scheduled a conference call with analysts and investors today.

Yesterday's filing was the first time since July 2002 that the company has met financial reporting deadlines. In November 2002, Allegheny discovered accounting errors and has been working since then to correct them. In the annual report, Allegheny said its auditor, PricewaterhouseCoopers LLP, advised it this month that "material weaknesses" remain in its internal financial controls. "Allegheny continues to address its internal control issues and expects to resolve these issues by the end of 2004," the company said.

By filing its annual report on time and by refinancing its debt this week, "Allegheny has achieved two significant milestones on the road to financial recovery," Paul J. Evanson, Allegheny chairman and chief executive, said in a statement. "For the balance of 2004, we can concentrate on further reducing leverage and building a high-performance organization."

On Tuesday, the company said it completed a refinancing of its outstanding bank debt through a credit facility and term loan totaling $300 million and two term loans totaling $1.25 billion at its subsidiary, Allegheny Energy Supply Co. LLC, which owns and operates electric generating facilities. Allegheny used cash to reduce debt by about $175 million. The new loans and credit line and the debt reduction are expected to reduce interest payments by more than $60 million annually and improve financial flexibility.

Allegheny's failure to meet financial reporting deadlines had put the company in noncompliance with terms of $3.7 billion in long-term debt, forcing the company to reclassify the debt as due within one year.

The improved performance was attributed in part to the decrease in net losses on energy trading.

The company said it cut its energy trading losses by $277.4 million from the fourth quarter of 2002 as it pulled out of trading in Western U.S. markets. Allegheny recorded a net trading loss of $900,000 for the fourth quarter, compared with a loss of $278.3 million for the corresponding period in 2002.

In addition, the fourth quarter of 2002 included $248.6 million in nonrecurring charges for a suspended generation project, relocation of its energy trading headquarters from New York to Pennsylvania and sale of Fellon-McCord & Associates Inc., a natural gas and electricity consulting and management services firm, and Alliance Energy Services LLC, a provider of natural gas supply and transportation services.

Through its utility, Allegheny Power, the company serves more than 1.7 million customers, mostly in small- to medium-size cities, from southern West Virginia to the New York border and from beyond the Ohio River to Western Maryland and Washington.

Allegheny's stock closed yesterday at $12.35 per share, up 32 cents.

Bloomberg News contributed to this article.

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