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NERCO REPORTS PROPOSED MERGER; 1992 FINANCIAL RESULTS; DISCONTINUED OPERATIONS FOR MINERALS SUBSIDIARY; GOING CONCERN AUDITORS' REPORT

 PORTLAND, Ore., Feb. 18 /PRNewswire/ -- NERCO, Inc. (NYSE: NER) announced today that its board of directors has approved a merger agreement which would result in NERCO merging with a subsidiary of Kennecott Corporation. The merger proposal calls for cash consideration of $12.00 per NERCO share. The proposed merger will be submitted to the NERCO shareholders for approval at a special meeting expected to be held sometime in April 1993. NERCO also announced that the board of directors of PacifiCorp, which holds 82 percent of NERCO's shares through a subsidiary, approved the terms of the merger.
 The merger is also subject to the completion of Hart-Scott-Rodino Act and Exon-Florio Act filings, expiration of the applicable waiting periods and other conditions of closing. Closing is expected immediately after shareholder approval. Kennecott, headquartered in Salt Lake City, is a subsidiary of RTZ Corporation PLC, headquartered in London. RTZ is one of the largest mining corporations in the world.
 In connection with the transaction, a wholly owned subsidiary of PacifiCorp will, if requested by Kennecott, fund a $225 million loan to a subsidiary of Kennecott, which loan will be repaid by the borrower as it receives certain future contract revenues. A subsidiary of PacifiCorp has agreed to provide certain financial and other accommodations in order to facilitate the transaction.
 Gerard K. Drummond, chairman and chief executive officer of NERCO, said, "Over the last several months the NERCO senior management team has been looking at the various strategic options available to NERCO in light of depressed commodity prices and its high debt level. We have concluded that the merger represents the best way for our shareholders to receive fair value for their investment in NERCO."
 1992 Results
 The company also reported a net loss of $551.2 million, or $14.06 per share, for the year ended Dec. 31, 1992, compared to net income of $83.1 million, or $2.12 per share, in 1991. The 1992 net loss included a loss from continuing operations of $252.3 million, or $6.44 per share, compared to net income from continuing operations of $83.3 million, or $2.13 per share, for 1991. The company reported a net loss from discontinued operations of $298.9 million, or $7.62 per share, related to its decision to sell its minerals business.
 For the fourth quarter of 1992, the company reported a net loss of $349.4 million, or $8.91 per share, compared to net income of $54.5 million, or $ 1.39 per share, in the fourth quarter of 1991. The fourth quarter net loss included a loss from continuing operations of $56.2 million, or $1.43 per share, compared to net income from continuing operations of $55.0 million, or $1.40 per share, for the fourth quarter of 1991. The fourth quarter loss from discontinued operations was $293.2 million, or $7.48 per share.
 Commenting on the company's decision to discontinue its involvement in the minerals business, Drummond said, "Given low gold and silver prices and the risk of further price declines, the considerable capital requirements of the minerals business, and the company's need to reduce debt, we have decided to sell our minerals business. Unfortunately, it appears that our minerals properties will not bring proceeds anywhere near our expectations when we began the process of evaluating strategic alternatives for this business last year. We therefore wrote the minerals properties down to their estimated fair market value at year end 1992. The company is currently in active negotiations with several parties interested in acquiring our minerals properties."
 The company obtained waivers of the required minimum net worth and maximum debt to total capitalization ratio covenants of its principal debt agreements as of Dec. 31, 1992. The company is currently negotiating with its bank group to obtain more permanent amendments of these covenants. In addition, consummation of the proposed merger is expected to result in the repayment of the amounts outstanding under these debt agreements.
 Without such amendments or waivers, the company anticipates that it will be in default of the covenants of its principal debt agreements as of March 31, 1993, in turn triggering a default of its medium-term notes and capital lease obligations. The lenders, among other remedies, would then have the right to require immediate repayment of all outstanding loans, to refuse further borrowings, or to waive the defaults. If the company's debt and capital leases are accelerated, the company would not have sufficient funds to repay the related $691.6 million of total debt. The company's independent auditors stated in their 1992 audit report that the company's need to obtain these waivers or amendments raises substantial doubt about the company's ability to continue as a going concern.
 "We expect that the lenders will view favorably the proposed merger. While there is no guarantee that the lenders will agree to an amendment or restructuring of the debt agreements, I am confident that all parties involved support the process of restoring the company's financial viability," Drummond said.
 Fourth Quarter Results
 The company reported fourth quarter 1992 consolidated revenues of $156.0 million, an operating loss of $67.2 million, and operating cash flow of $49.8 million, compared to revenues of $268.5 million, operating income of $95.5 million, and operating cash flow of $115.7 million in the fourth quarter of 1991. Assets sold or transferred in late 1991 and early 1992 contributed $50.4 million in revenue and $5.6 million in operating income in the fourth quarter of 1991. The fourth quarter of 1991 also included an asset sale gain of $57.5 million.
 The company's 1992 fourth quarter results from continuing operations included pre-tax charges totaling $86.9 million ($60.3 million after- tax, or $1.54 per share), from asset write-downs, losses expected on future asset sales, and costs associated with a reduction in the company's work force. The charges result from the company's decision to exit its eastern coal operations, sell certain of its oil and gas properties considered non-strategic, and reduce the carrying value of certain of its oil and gas assets. The work force reduction affected approximately 135 positions located primarily in the company's Portland and Houston offices.
 Full Year 1992 Results
 For the full year, the company reported 1992 consolidated revenues of $577.6 million, an operating loss of $344.0 million, and operating cash flow of $196.4 million, compared to revenues of $828.2 million, operating income of $184.0 million, and operating cash flow of $275.6 million in 1991. 1991 results included the benefit of $191.0 million in revenue and $40.2 million in operating income from assets sold or transferred in late 1991 and early 1992. Coal contract settlements, net of related write-downs, also contributed $13.4 million in operating income in 1991.
 1992 results from continuing operations included pre-tax charges totaling $408.1 million ($261.4 million after-tax, or $6.67 per share) from asset write-downs, losses on assets sold or expected to be sold, and costs associated with reduction of the company's work force.
 All reported revenue, operating income and loss, and operating cash flow amounts exclude the results of the company's minerals subsidiary.
 Continuing Segment Financial Results
 Coal
 NERCO Coal Corp. reported revenues of $93.7 million, operating income of $3.3 million, and operating cash flow of $29.8 million in the fourth quarter of 1992, compared to $142.1 million in revenues, $37.7 million in operating income, and $51.1 million in operating cash flow in the fourth quarter of 1991. For the full year, the coal segment reported revenues of $351.2 million, operating income of $36.6 million, and operating cash flow of $119.2 million, compared to revenues of $530.5 million, operating income of $135.9 million, and operating cash flow of $186.2 million in 1991.
 The coal segment's operating income was reduced by $20.9 million in the fourth quarter and $60.9 million for the full year by charges associated with the company's decision to exit its eastern coal operations. The charges include the loss on the sale of the company's Vandalia Mine in February, 1993. Also, coal operations sold or transferred in late 1991 and early 1992 contributed $40.2 million in revenues and $5.8 million in operating income in the fourth quarter of 1991 and $158.9 million in revenues and $33.8 million in operating income in the full year 1991.
 Oil & Gas
 NERCO Oil & Gas, Inc. reported revenues of $62.3 million, an operating loss of $63.1 million, and operating cash flow of $33.0 million in the fourth quarter of 1992, compared to revenue of $126.4 million, operating income of $62.0 million, and operating cash flow of $99.2 million in the fourth quarter of 1991. For the full year, the oil and gas segment reported revenues of $226.4 million, an operating loss of $365.8 million, and operating cash flow of $109.8 million, compared to revenues of $297.7 million, operating income of $62.4 million, and operating cash flow of $198.5 million in 1991.
 Asset write-downs, losses on asset sales, and charges associated with the work force reduction in the oil and gas segment totaled $61.6 million in the fourth quarter and $342.8 million for the full year 1992. In addition, operating income in the fourth quarter of 1991 included an asset sale gain of $57.5 million.
 The company's average effective sales price for natural gas was $2.10 per thousand cubic feet (MCF) in the fourth quarter of 1992 versus $1.89 per MCF in the fourth quarter of 1991. For the year, the company's average effective sales price for natural gas was $1.64 per MCF compared to $1.53 per MCF in 1991.
 The average depreciation, depletion and amortization (DD&A) rate per thousand cubic feet of natural gas equivalents (MCFE) in the fourth quarter was $1.40 per MCFE compared to $1.19 per MCFE in the fourth quarter of 1991, reflecting proved property abandonments of $4.1 million and the effect of negative reserve revisions in the quarter. For the year, the average DD&A rate was $1.17 per MCFE compared to $1.12 per MCFE in 1991.
 The company reported oil and gas net reserve additions for the year of 41.2 billion cubic feet equivalent (BCFE). The company's reserves at year-end declined to 503.2 BCFE, reflecting both production of 116.6 BCFE and reserve sales of 136.4 BCFE in 1992.
 The company's 1993 capital budget for oil and gas activities is approximately $68 million, compared to capital expenditures of $128.3 million for oil and gas activities in 1992.
 NERCO, Inc. is a natural resource company with interests in low- sulfur coal, oil and natural gas. Approximately 82 percent of NERCO's common stock is beneficially owned by PacifiCorp (NYSE: PPW).
 NERCO, Inc.
 Financial Summary
 (Amounts in thousands, except per share)
 Periods ended: Quarter Year
 Dec. 31 1992 1991 1992 1991
 Revenues:
 Coal $ 93,700 $142,100 $351,200 $530,500
 Oil & Gas 62,300 126,400 226,400 297,700
 Total Revenues $156,000 $268,500 $577,600 $828,200
 Operating Income/(Loss):
 Coal $ 3,300 $ 37,700 $ 36,600 $ 135,900
 Oil & Gas (63,100) 62,000 (365,800) 62,400
 Corporate Expense
 & Other (7,400) (4,200) (14,800) (14,300)
 Total Operating
 Income/(Loss) (67,200) 95,500 (344,000) 184,000
 Interest Expense, Net (13,800) (13,800) (49,900) (58,500)
 Minority Interest -- (1,700) -- (7,900)
 Income/(Loss) Before
 Income Taxes (81,000) 80,000 (393,900) 117,600
 Income Tax Provision
 (Benefit) (24,800) 25,000 (141,600) 34,300
 Net Income/(Loss) from
 Continuing Operations $ (56,200) $ 55,000 $(252,300) $ 83,300
 Income/(Loss) from
 Discontinued Minerals
 Segment (net of tax) (293,200) (500) (298,900) (200)
 Net Income (Loss) $(349,400) $ 54,500 $(551,200) $ 83,100
 Earnings/(Loss) per Share:
 Continuing Operations $(1.43) $1.40 $ (6.44) $2.13
 Discontinued Operations (7.48) (.01) (7.62) (.01)
 Total $(8.91) $1.39 $(14.06) $2.12
 Dividends paid per share $.16 $.16 $.64 $.64
 Average shares outstanding 39,200 39,200 39,200 39,200
 Total Debt -- -- $691,600 $726,800
 Total Shareholders' Equity $246,500 $815,700
 Operating Cash Flow
 Consolidated (A) $49,800 $115,700 $196,400 $275,600
 Coal (B) 29,800 51,100 119,200 186,200
 Oil & Gas (B) 33,000 99,200 109,800 198,500
 (A) -- Defined as net income (loss) plus depreciation, depletion and amortization, deferred taxes and certain non-cash charges.
 (B) -- Defined as operating income (loss) plus depreciation, depletion and amortization and certain non-cash charges.
 NERCO, Inc.
 Financial and Statistical Data Summary
 (Amounts in thousands, except gas volumes and sales prices)
 Periods ended Quarter Year
 Dec. 31 1992 1991 1992 1991
 Depreciation, Depletion
 and Amortization
 Coal $ 5,700 $ 8,900 $ 21,700 $ 35,500
 Oil & Gas 37,700 37,300 136,000 136,100
 Corporate & Other 800 300 1,700 1,100
 Total $44,200 $46,500 $159,400 $172,700
 Capital Expenditures:
 Coal $ 1,500 $ 6,200 $ 14,100 $ 21,100
 Oil & Gas 23,800 35,400 128,300 626,000
 Corporate & Other 200 100 2,100 2,500
 Total $25,500 $41,700 $144,500 $649,600
 Sales Volume:
 Coal (tons):
 Operations 5,223 6,914 19,576 28,142
 Purchased for Resale 2,147 2,242 7,815 7,850
 Total Tons Sold 7,370 9,156 27,391 35,992
 Gas and Oil:
 Gas (bcf) 21.4 26.4 95.6 103.7
 Gas Purchased for
 Resale (bcf) .7 4.6 5.3 15.2
 Oil (barrels) 531 414 1,941 1,655
 Natural Gas Liquids
 (barrels) 379 386 1,572 1,300
 Average Effective
 Sales Prices:
 Coal/ton $11.97 $14.75 $11.87 $14.31
 Gas/mcf 2.10 1.89 1.64 1.53
 Oil/bbl 19.83 20.49 19.68 19.91
 NGL/bbl 12.21 12.19 12.44 12.35
 -0- 2/18/93
 /CONTACT: John C. Cummings, 503-731-6649, or Scott A. Hibbs, 503-731-6723, both of NERCO, Inc./
 (NER)


CO: NERCO, Inc. ST: Oregon IN: MNG SU: ERN TNM

TS -- NY012 -- 7706 02/18/93 08:59 EST
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Date:Feb 18, 1993
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