Aquila Reports Second Quarter Operating Earnings of $.34 Per Diluted Share, Records Non-Recurring Charges of $966 Million.Business Editors KANSAS CITY Kansas City, two adjacent cities of the same name, one (1990 pop. 149,767), seat of Wyandotte co., NE Kansas (inc. 1859), the other (1990 pop. 435,146), Clay, Jackson, and Platte counties, NW Mo. (inc. 1850). , Mo.--(BUSINESS WIRE)--Aug. 8, 2002 Conference Call and Webcast Set for 9:00 a.m. Eastern Time Today Aquila Aquila, in the Bible Aquila (ăk`wĭlə, əkwĭl`ə), in the New Testament, Christian of Jewish origin from Pontus who lived at Rome. He and his wife, Prisca or Priscilla, were friendly to Paul. , Inc. (NYSE NYSE See: New York Stock Exchange :ILA ILA abbr. insulinlike activity ) today reported a fully diluted di·lute tr.v. di·lut·ed, di·lut·ing, di·lutes 1. To make thinner or less concentrated by adding a liquid such as water. 2. To lessen the force, strength, purity, or brilliance of, especially by admixture. loss of $5.69 per share for the second quarter, compared to earnings per share of $1.21 in the second quarter of 2001. Excluding non-recurring charges of $966.4 million or $858.5 million after tax, second quarter operating earnings Operating Earnings Profits after subtracting expenses such as marketing, cost of goods sold, administration and general operating costs from revenue. Notes: Tax and interest expenses are not subtracted - operating earnings are synonymous with EBIT (earnings before were $.34 per fully diluted common share. For the first half of 2002, the company reported a fully diluted loss of $5.49 per share, compared to earnings per share of $1.93 for the first half of 2001. "This year's second quarter was a very difficult one," said Robert Robert, Henry Martyn 1837-1923. American army engineer and parliamentary authority. He designed the defenses for Washington, D.C., during the Civil War and later wrote Robert's Rules of Order (1876). Noun 1. K. Green, Aquila's president and chief executive officer. "The actions we have taken recently -- such as exiting the wholesale energy trading business, reducing the dividend and writing down certain asset values -- were painful but necessary steps as we transition back to our roots as an operator of network and generation assets." Green said that based on lower than expected power prices, higher interest costs and lower Quanta quan·ta n. Plural of quantum. Services (NYSE:PWR PWR pressurized-water reactor Noun 1. PWR - a nuclear reactor that uses water as a coolant and moderator; the steam produced can drive a steam turbine pressurized water reactor ) earnings, Aquila is reducing its full-year earnings guidance to $1.00 per share, down from previous guidance of $1.30 - $1.40. He said the largest factor is the lower than expected power prices reflecting reduced demand during the economic downturn Downturn The transition point between a rising, expanding economy to a falling, contracting one. downturn A decline in security prices or economic activity following a period of rising or stable prices or activity. , reduced liquidity in the energy market as players have exited, and the current over-supply of electric generation capacity. Merchant Services Merchant services is the name given in the United States to a broad category of financial services intended for use by businesses. In its most specific use, it usually refers to the service that enables a business to accept a transaction payment by use of the customer's credit or Merchant Services' second quarter loss before interest and taxes was down $440.5 million compared to the same period of 2001. Approximately $341.3 million of this variance The discrepancy between what a party to a lawsuit alleges will be proved in pleadings and what the party actually proves at trial. In Zoning law, an official permit to use property in a manner that departs from the way in which other property in the same locality relates to non-recurring items that are discussed separately. The remaining decrease in 2002 of $99.2 million for the quarter resulted mainly from less volatile and lower commodity prices in 2002, a change in the method of accounting for gas storage inventory, and the shorter period of full-scale full-scale adj. 1. Of actual or full size; not reduced: a full-scale model. 2. Employing all resources; not limited or partial: operations resulting from the June June: see month. 17, 2002 decision to cut back the wholesale energy marketing and trading business. Capacity Services Capacity Services had operating earnings before interest and taxes (EBIT EBIT See: Earnings Before Interest and Taxes EBIT See earnings before interest and taxes (EBIT). ) of $25.6 million for the quarter compared to $41.1 million a year earlier. The main factors impacting the quarter were lower "spark spreads Spark Spread The difference between the market price of electricity and its cost of production. Notes: This measure is important because it helps utility companies determine their bottom line (profit). " (the difference between the price of power and the fuel cost for its generation) when compared to levels experienced in 2001, lower power prices, and lower volumes and prices of natural gas liquids in the gas gathering and processing business. Global Networks Group Second quarter EBIT for Global Networks was a loss of $673.7 million, down $725.7 million compared to the second quarter of 2001. One-time one-time adj. 1. or one·time a. Occurring or undertaken only once: a one-time winner in 1995. b. charges (discussed later) accounted for $735.9 million of the variance. Excluding those non-recurring items, operating EBIT was up $10.2 million compared to a year earlier. The majority of this increase relates to the suspension of Aquila's long-term Long-term Three or more years. In the context of accounting, more than 1 year. long-term 1. Of or relating to a gain or loss in the value of a security that has been held over a specific length of time. Compare short-term. incentive plan until Aquila's credit ratings are improved. Domestic Networks Second quarter operating EBIT from Domestic Networks was $17.6 million, compared to $9.8 million in the 2001 quarter. The improved results primarily reflect lower expenses resulting from the suspension of Aquila's long-term incentive plan, the reduction in bad-debt expense and the non-amortization of goodwill effective January January: see month. 1, 2002. These were partially offset by Quanta Services' lower earnings guidance during the quarter and reduced power sales to Western markets. International Networks International Networks provided operating EBIT of $44.6 million for the second quarter compared to $42.2 million for the same period in 2001. The increase in earnings mainly reflects the acquisition of Midlands Electricity The Midlands Electricity Board was formed in 1947, under the Electricity Act of that year. The counterpart of the East Midlands board, it served southern, and western parts of Warwickshire, as well as the counties of Worcestershire, Herefordshire, Shropshire, and Staffordshire, as in the United Kingdom in early May 2002, which contributed $6.7 million during the second quarter, a strengthening of foreign currencies against the dollar, and the non-amortization of goodwill effective January 1, 2002. These positive factors were offset by a reduced level of carrying cost Noun 1. carrying cost - the opportunity cost of unproductive assets; the expense incurred by ownership carrying charge opportunity cost - cost in terms of foregoing alternatives recovery on deferred purchased power balances in Canada Canada (kăn`ədə), independent nation (2001 pop. 30,007,094), 3,851,787 sq mi (9,976,128 sq km), N North America. Canada occupies all of North America N of the United States (and E of Alaska) except for Greenland and the French islands of . Non-Recurring Charges Non-recurring charges in the second quarter are primarily related to Aquila's investment in Quanta, goodwill of the Wholesale Services segment, and restructuring restructuring - The transformation from one representation form to another at the same relative abstraction level, while preserving the subject system's external behaviour (functionality and semantics). of the domestic utility and wholesale energy trading businesses. The non-recurring items affecting the comparison of the 2002 and 2001 periods and their impact on EBIT are as follows:
Non-Recurring Items 2002 2001
------------------------------------------------------ ---------------
(In millions)
Quanta Services investment impairment (non-cash) $(692.9) $ --
Wholesale Services goodwill impairment (non-cash) (178.6) --
Restructuring charges (71.8) --
Communications investment impairment (non-cash) (23.1) --
Gain on sale of subsidiary stock -- 110.8
---------------
Total $(966.4) $110.8
===============
Quanta Investment Impairment Impairment 1. A reduction in a company's stated capital. 2. The total capital that is less than the par value of the company's capital stock. Notes: 1. This is usually reduced because of poorly estimated losses or gains. 2. Charge This non-cash impairment charge reflects Aquila's assessment of the fair value of its investment in Quanta Services following Aquila's decision in the second quarter to terminate its proxy contest Proxy contest A battle for the control of a firm in which a dissident group seeks, from the firm's other shareholders, the right to vote those shareholders' shares in favor of the dissident group's slate of directors. Also called proxy fights. for control of Quanta and the significant decline in the value of Quanta's common stock, which reflected Quanta's adjusted 2002 earnings outlook and the market's concerns about the health of the overall industry. Goodwill Impairment Charge On June 17, 2002, Aquila began to scale back its wholesale energy trading business resulting in the impairment of the goodwill associated with that business. Accordingly, the company wrote off the goodwill balance allocated to Wholesale Services that had been generated when Aquila Merchant Services was recombined with the parent company in January 2002. Restructuring Charges restructuring charge The expense of reorganizing a company's operations. A restructuring charge is an infrequent expense that generally results from asset writedowns or facility closings. In addition to the June 17 decision to scale back the wholesale energy trading business, Aquila recently restructured its domestic regulated utility business. Restructuring costs in the second quarter for these two actions totaled $71.8 million. Of that, $19.9 million related to Domestic Networks and $51.9 million related to Merchant Services. Most of the costs related to employee separation costs and the write-off Write-Off A reduction in the value of an asset or earnings by the amount of an expense or loss. Companies are able to write off certain expenses that are required to run the business, or have been incurred in the operation of the business and detract from retained revenues. of office space improvements. An additional restructuring charge related to future severance The act of dividing, or the state of being divided. The term severance has unique meanings in different branches of the law. Courts use the term in both civil and criminal litigation in two ways: first, when dividing a lawsuit into two or more parts, and second, when , retention and lease termination costs is expected for the third quarter as a result of the August 6 decision to exit the wholesale energy trading business. Communications Technology Noun 1. communications technology - the activity of designing and constructing and maintaining communication systems engineering, technology - the practical application of science to commerce or industry Investments Impairment Charge Aquila wrote down certain minority investments in communications technology businesses by $23.1 million as these businesses failed to achieve certain operating goals, had continued losses and depletion depletion n. when a natural resource (particularly oil) is being used up. The annual amount of depletion may, ironically, provide a tax deduction for the company exploiting the resource because if the resource they are exploiting runs out, they will no longer be able of capital, and are being impacted by overall industry pressures. Gain on Sale of Subsidiary Stock In April 2001, simultaneously with the initial public offering of Aquila Merchant Services, Aquila, Inc. sold 5,750,000 Aquila Merchant Services shares directly to the public and recorded a gain of $110.8 million. Asset Sales In an effort to strengthen its balance sheet and credit ratings, Aquila has targeted the sale of $1 billion in non-strategic assets. Last month the company announced the sale of its 16.58 percent interest in the Lockport Energy facility near Buffalo, New York New York, state, United States New York, Middle Atlantic state of the United States. It is bordered by Vermont, Massachusetts, Connecticut, and the Atlantic Ocean (E), New Jersey and Pennsylvania (S), Lakes Erie and Ontario and the Canadian province of for $37.5 million in cash. UnitedNetworks, 55.5 percent-owned by Aquila, announced on June 11, 2002 that it would seek expressions of interest from potential buyers. In July, UnitedNetworks received indicative bids from several interested buyers and named a short list of bidders that now are conducting due diligence Research; analysis; your homework. This term has caught on in all industries, because it sounds so "wired." Who would want to do analysis or research when they can do due diligence. See wired. . Bidders must make their final binding bids in August, and selection of the successful bidder is currently targeted for the end of the month. UnitedNetworks is the largest electric and natural gas distribution utility in New Zealand New Zealand (zē`lənd), island country (2005 est. pop. 4,035,000), 104,454 sq mi (270,534 sq km), in the S Pacific Ocean, over 1,000 mi (1,600 km) SE of Australia. The capital is Wellington; the largest city and leading port is Auckland. . Yesterday, Aquila announced it is also starting a formal bid process to sell its 79.9 percent interest in Midlands Electricity in the United Kingdom. Conference Call, Webcast and Additional Information Aquila will host a conference call and webcast today at 9:00 a.m. Eastern Time at which Chief Executive Officer Bob Green and Chief Financial Officer Dan Streek will review second quarter results. To access the webcast via the Internet Internet Publicly accessible computer network connecting many smaller networks from around the world. It grew out of a U.S. Defense Department program called ARPANET (Advanced Research Projects Agency Network), established in 1969 with connections between computers at the , go to Aquila's website at www.aquila.com and click on "Investors" near the top of the screen, then click on "Presentations & Webcasts" at left for the link to the live webcast. Listeners should allow at least five minutes to register and access the presentation. For those unable to listen to the live broadcast, replays will be available for two weeks, beginning approximately two hours after the presentation. Web users can use the same access method outlined above. Replay will also be available by telephone through August 15 at 800-405-2235 in the United States United States, officially United States of America, republic (2005 est. pop. 295,734,000), 3,539,227 sq mi (9,166,598 sq km), North America. The United States is the world's third largest country in population and the fourth largest country in area. , and at 303-590-3000 for international callers. Callers must enter the access code 466647 when prompted. Additional supplemental information including income statements by business segment, consolidated cash flow statement, consolidated balance sheet consolidated balance sheet A balance sheet in which assets and liabilities of a parent company and its controlled subsidiaries are combined, thereby presenting balance sheet items for the parent and its subsidiaries as if they were a single firm. and statistical information is available at www.aquila.com. Click on "Investors" near the top of the screen, then "Investor Guide" in the middle of the page. Based in Kansas City, Missouri Kansas City is the largest city in the state of Missouri. It encompasses parts of Jackson, Clay, Cass, and Platte counties and is the anchor city of the Kansas City Metropolitan Area, the second largest in Missouri, which includes counties in both Missouri and Kansas. , Aquila operates electricity and natural gas distribution networks serving more than six million customers in seven states and in Canada, the United Kingdom, New Zealand and Australia. The company also owns and operates power generation and mid-stream natural gas assets. At June 30, 2002, Aquila had total assets of $11.9 billion. More information is available at www.aquila.com. "Operating" Results Aquila uses the terms "operating EBIT" and "operating EPS (Encapsulated PostScript) A PostScript file format used to transfer a graphic image between applications and platforms. EPS files contain PostScript code as well as an optional preview image in TIFF, WMF, PICT or EPSI, the latter being an ASCII-only format. " to describe its recurring re·cur intr.v. re·curred, re·cur·ring, re·curs 1. To happen, come up, or show up again or repeatedly. 2. To return to one's attention or memory. 3. To return in thought or discourse. earnings before interest and taxes In financial and business accounting, earnings before interest and taxes (EBIT) is a measure of a firm's profitability that excludes interest and income tax expenses.[1] EBIT = Operating Revenue – Operating Expenses + Non-operating Income or earnings per share excluding items deemed to be non-recurring. These terms can help investors determine what to expect regarding the company's earnings on a normal recurring basis. The terms are not meant to replace actual EBIT or EPS, or be considered as an alternative to net income or cash flows from operating activities, which are determined in accordance Accordance is Bible Study Software for Macintosh developed by OakTree Software, Inc.[] As well as a standalone program, it is the base software packaged by Zondervan in their Bible Study suites for Macintosh. with generally accepted accounting principles The standard accounting rules, regulations, and procedures used by companies in maintaining their financial records. Generally accepted accounting principles (GAAP) provide companies and accountants with a consistent set of guidelines that cover both broad accounting , as an indicator of operating performance or as a measure of liquidity, or other performance measures used under generally accepted accounting principles. In addition, the terms may not be comparable to similarly titled measures used by other companies. Forward-Looking Information This press release contains forward-looking statements forward-looking statement A projected financial statement based on management expectations. A forward-looking statement involves risks with regard to the accuracy of assumptions underlying the projections. including statements about our future financial performance and our projected business results. The term "expect" and similar statements identify such forward-looking statements. All projections are based on assumptions as to future events that are inherently uncertain and subjective. Our actual results could differ materially from the forward-looking statements and the projections as a result of (a) the failure to realize anticipated synergies or of adverse regulatory treatment that does not permit Aquila to receive the expected benefits of its restructuring efforts, (b) the failure to enter into definitive agreements on commercially reasonable terms for assets sales and (c) power prices that do not make it economical to operate our merchant power plants.
AQUILA, INC.
Consolidated Condensed Statements of Income
As Reported
3 Months Ended 6 Months Ended
June 30, June 30,
----------------------------------------
In millions, except per share 2002 2001 2002 2001
---------------------------------------------------------------------
Sales $9,654.3 $10,441.4 $18,515.6 $22,421.4
Cost of sales 9,318.2 9,882.0 17,831.6 21,355.8
---------------------------------------------------------------------
Gross profit 336.1 559.4 684.0 1,065.6
---------------------------------------------------------------------
Operating expenses 255.4 371.7 553.2 727.2
Restructuring charges 71.8 -- 71.8 --
Impairment charges 894.6 -- 894.6 --
---------------------------------------------------------------------
Total operating expenses 1,221.8 371.7 1,519.6 727.2
Gain on sale of subsidiary
stock -- 110.8 -- 110.8
Other income 58.6 35.5 103.1 76.2
---------------------------------------------------------------------
Earnings (loss) before
interest and taxes (827.1) 334.0 (732.5) 525.4
---------------------------------------------------------------------
Interest expense and
dividends on company
obligated preferred
securities 58.2 59.0 108.2 122.9
Income taxes (75.3) 131.8 (75.1) 185.9
---------------------------------------------------------------------
Earnings (loss) available for
common shares $ (810.0) $ 143.2 $ (765.6) $ 216.6
---------------------------------------------------------------------
Weighted average shares
outstanding - diluted 142.3 118.2 139.5 112.2
---------------------------------------------------------------------
Earnings (loss) per share -
diluted $(5.69) $1.21 $(5.49) $1.93
---------------------------------------------------------------------
AQUILA, INC.
Reconciliation of Operating and Reported
Earnings Before Interest and Taxes (EBIT)
Quarter Ended June 30, 2002
---------------------------
Non-
recurring
In millions, except per share Reported Items Operating
----------------------------------------------------------------------
Merchant:
Wholesale Services $(181.6) $229.9 $48.3
Capacity Services 25.0 .6 25.6
----------------------------------------------------------------------
Total Merchant (156.6) 230.5 73.9
Global Networks:
International Networks 44.6 -- 44.6
Domestic Networks:
Utilities 9.2 19.9 29.1
Quanta Services (698.5) 692.9 (5.6)
Communications (29.0) 23.1 (5.9)
----------------------------------------------------------------------
Total Domestic Networks (718.3) 735.9 17.6
----------------------------------------------------------------------
Total Global Networks (673.7) 735.9 62.2
Corporate and Other 3.2 -- 3.2
----------------------------------------------------------------------
Total EBIT $(827.1) $966.4 $139.3
----------------------------------------------------------------------
Quarter Ended June 30, 2001
---------------------------
Non-
recurring
Reported Items Operating
----------------------------------------------------------------------
Merchant:
Wholesale Services $148.5 $ -- $148.5
Capacity Services 41.1 -- 41.1
Minority Interest (16.5) -- (16.5)
Gain on IPO 110.8 (110.8) --
----------------------------------------------------------------------
Total Merchant 283.9 (110.8) 173.1
Global Networks:
International Networks 42.2 -- 42.2
Domestic Networks:
Utilities 17.6 -- 17.6
Quanta Services 1.3 -- 1.3
Communications (9.1) -- (9.1)
----------------------------------------------------------------------
Total Domestic Networks 9.8 -- 9.8
----------------------------------------------------------------------
Total Global Networks 52.0 -- 52.0
Corporate and Other (1.9) -- (1.9)
----------------------------------------------------------------------
Total EBIT $334.0 $(110.8) $223.2
----------------------------------------------------------------------
AQUILA, INC.
Operating Earnings Before Interest and Taxes (EBIT)
Quarter Ended
June 30,
--------------- Favorable
In millions, except per share 2002 2001 (Unfavorable)
----------------------------------------------------------------------
Merchant:
Wholesale Services $48.3 $148.5 $(100.2)
Capacity Services 25.6 41.1 (15.5)
Minority Interest -- (16.5) 16.5
----------------------------------------------------------------------
Total Merchant 73.9 173.1 (99.2)
Global Networks:
International Networks 44.6 42.2 2.4
Domestic Networks:
Utilities 29.1 17.6 11.5
Quanta Services (5.6) 1.3 (6.9)
Communications (5.9) (9.1) 3.2
----------------------------------------------------------------------
Total Domestic Networks 17.6 9.8 7.8
----------------------------------------------------------------------
Total Global Networks 62.2 52.0 10.2
Corporate and Other 3.2 (1.9) 5.1
----------------------------------------------------------------------
Total Operating EBIT 139.3 223.2 (83.9)
Non-recurring items, net (966.4) 110.8 (1,077.2)
----------------------------------------------------------------------
Total Reported EBIT $(827.1) $334.0 $(1,161.1)
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Diluted Operating EPS $.34 $.71 $(.37)
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