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NERCO REPORTS THIRD-QUARTER RESULTS; UPDATE ON MINERALS SUBSIDIARY

NERCO REPORTS THIRD-QUARTER RESULTS; UPDATE ON MINERALS SUBSIDIARY
 PORTLAND, Ore., Nov. 4 /PRNewswire/ -- NERCO Inc. (NYSE: NER; Toronto) today reported a net loss of $25.7 million, or 66 cents per share, for the quarter ended Sept. 30, 1992. The quarterly results included after-tax charges totaling $25.0 million from asset sales losses during the quarter and losses expected on future oil and gas and coal asset sales. Without these charges, the company would have reported a net loss of $700,000, or 2 cents per share. The company reported net income of $400,000, or 1 cent per share, in the comparable period of 1991.
 The company's consolidated revenues were $170.4 million for the quarter compared to $215.9 million in the prior year. The operating loss for the period was $27.7 million, including pre-tax losses of $14.5 million on the sale of several oil and gas properties and additional pre-tax charges of $25.0 million for losses expected on future sales of oil and gas and coal assets. Exclusive of these charges, operating income would have been $11.8 million compared to operating income of $20.7 million in the 1991 period. Assets sold or transferred in late 1991 and early 1992 contributed $53.5 million in revenues and $12.4 million in operating income in the third quarter of 1991.
 Operating cash flow totaled $39.9 million in the third quarter of 1992, compared to $53.0 million in the third quarter of 1991, which included the benefit of cash flow from assets sold or transferred in late 1991 and early 1992.
 According to NERCO Inc. President and Chief Executive Officer Lawrence E. Heiner, "While our asset sales program resulted in losses during the quarter, we are making progress in our efforts to raise cash for debt reduction and focus our future strategy on our core Gulf Coast oil and gas operations and Powder River Basin coal operations. The sale in 1992 of oil and gas and coal properties, which are considered to be non-strategic, should not limit the future opportunities we see for these clean-fuels businesses."
 NINE-MONTH RESULTS
 For the first nine months of 1992, the company reported a net loss of $201.8 million, or $5.15 per share, compared to net income of $28.6 million, or 73 cents per share for the same period last year. For the nine-month period, consolidated revenues were $493.9 million, compared to $629.0 million for the same period a year ago. The operating loss for the nine-month period was $280.7 million, including pre-tax asset sale losses and write-downs totaling $321.2 million. This compares to operating income of $91.1 million in the same period last year. Assets sold or transferred in late 1991 and early 1992 contributed $140.6 million in revenues and $34.6 million in operating income in the first nine months of 1991.
 Operating cash flow in the first nine months of 1992 was $160.1 million compared to $177.1 million in the first nine months of 1991, which included the benefit of cash flow from assets sold or transferred in late 1991 and early 1992.
 QUARTERLY DIVIDEND
 The company's debt agreements contain restrictive covenants that, among other things, limit the payment of dividends. Due to the losses recorded in the third quarter, at Sept. 30, 1992, only $4.3 million was available for payment of future dividends. The company is currently attempting to obtain a waiver of the covenant in its principal debt agreement that restricts the payment of future dividends to allow the company's board of directors to consider declaration of a quarterly dividend of up to 16 cents per share, or an aggregate of $6.3 million. If a waiver is obtained prior to its next regularly scheduled meeting on Nov. 16, 1992, the board will be able to declare its regular dividend, if it elects to do so. If a waiver is not obtained, the board will be unable to declare its regular dividend at that meeting. The company is unable to predict whether it will be successful in obtaining the requested waiver.
 MINERALS SUBSIDIARY UPDATE
 NERCO continues to consider the possible sale of its minerals subsidiary. J.P. Morgan was retained early in 1992 to assist with the evaluation of strategic alternatives for the company's minerals business.
 Based on the results of the evaluation process to date and current depressed market conditions in the precious metals industry, the company estimates that a sale of the minerals subsidiary, if completed, could result in a pre-tax loss in excess of $150 million. No decision to sell this business has yet been made.
 According to Heiner, "Depressed market conditions in the precious metals industry are reflected in our estimate of the potential loss that could be incurred on the sale of this segment and will be considered in our ongoing review of its carrying value. However, if a sale is completed, it should result in significant progress in our efforts to generate cash to reduce debt."
 Although a loss of the magnitude described above would result in violation of the $525-million minimum net worth covenant of the company's principal debt agreement, the company is optimistic that it will be able to obtain appropriate waivers of the net worth requirement as of Dec. 31, 1992. However, the company may need to obtain additional waivers or an amendment of the requirement for subsequent periods.
 SEGMENT FINANCIAL RESULTS
 COAL
 NERCO Coal Corp. reported revenues of $85.1 million in the third quarter of 1992, compared to $133.4 million in the same period of 1991. Operating income from the coal segment totaled $4.8 million in the quarter versus $33.1 million last year. The current quarter operating income was reduced by a $20-million charge for estimated losses on expected future sales of eastern coal assets. Coal operations sold or transferred in late 1991 and early 1992 contributed $43.9 million in revenues and $11.0 million in operating income in the third quarter of 1991.
 Coal segment operating cash flow totaled $30.4 million in the period versus $42.0 million last year, while capital expenditures for the period were $1.5 million compared to $5.6 million last year.
 OIL & GAS
 NERCO Oil & Gas Inc. reported revenues of $59.3 million in the third quarter of 1992 compared to $59.0 million in the 1991 period. Third-quarter volumes were negatively impacted by several factors, including elective curtailments associated with construction projects, the unexpected loss of three wells, reduced resale volumes associated with prior asset sales, and temporary shut-ins as a result of Hurricane Andrew. The negative volume impacts were offset by improved performance primarily at the company's Black Lake field and higher gas prices in the third quarter.
 The company's average effective sales price for natural gas was $1.70 per thousand cubic feet (MCF) in the third quarter of 1992 versus $1.28 per MCF in the third quarter of 1991. Heiner noted, "The company took advantage of the significant upswing in price by hedging a significant portion of its expected volumes to protect a portion of the company's future revenues and cash flow."
 The company has hedged approximately 80 percent of expected fourth-quarter natural gas production at an average price of $1.95 per MCF and 60 percent of 1993 gas production at an average price of $1.73 per MCF. The company has also hedged approximately 80 percent of expected fourth-quarter oil production at an average price of $20.85 per barrel and 45 percent of 1993 oil production at an average price of $20.21 per barrel.
 The oil and gas segment reported an operating loss of $26.1 million for the quarter that included $19.5 million in charges for actual and anticipated losses on asset sales. Exclusive of these charges, the operating loss for the quarter would have been $6.6 million, compared to an operating loss of $7.3 million in the third quarter of 1991. Dry hole, impairment and abandonment charges in the quarter totaled $6.8 million compared to $3.6 million of similar charges in the 1991 period. The average depreciation, depletion and amortization rate per thousand cubic feet of natural gas equivalents (MCFE) in the quarter was $1.02 per MCFE compared to $1.08 per MCFE in the third quarter of 1991.
 Oil and gas operating cash flow was $22.4 million for the quarter compared to $28.4 million in the third quarter of 1991. Capital expenditures for the period were $38.5 million compared to $42.1 million in 1991.
 MINERALS
 NERCO Minerals Co. reported revenues of $26.0 million during the third quarter of 1992 compared with $23.5 million in the same period last year. The minerals segment reported an operating loss of $4.3 million during the quarter compared to an operating loss of $1.2 million in the 1991 period. The loss in the current period included a $3.7 million write-down of the inventory carrying value of the company's precious metals work-in-process inventory in excess of current market prices. The write-down was caused by increased residual production costs per ounce at the Candelaria Mine in Nevada and lower silver prices.
 Minerals operating cash flow was $1.9 million for the quarter, compared to $4.6 million for the third quarter of 1991. Capital expenditures for the period were $11.5 million compared to $13.5 million in 1991.
 OUTLOOK
 "Gas price volatility in 1992 has impacted our financial performance and our ability to carry out our asset sales program. As we expect commodity prices to remain volatile in the future, the company is committed to completing its asset sales program to raise cash for debt reduction and to provide the company more financial flexibility in managing such volatility. The company also expects to continue to use hedging as a means of managing commodity price volatility," said Heiner.
 "I am confident that the actions we are taking this year will result in NERCO becoming a stronger and better focused natural resource company," Heiner continued.
 NERCO Inc. is a diversified natural resource company with interests in low-sulfur coal, oil and natural gas, and precious metals. Approximately 82 percent of NERCO's common stock is beneficially owned by PacifiCorp (NYSE: PPW).
 NERCO INC.
 FINANCIAL SUMMARY
 (In thousands, except per-share amounts)
 Three Months Nine Months
 Ended Sept. 30: 1992 1991 1992 1991
 Revenues:
 Coal $ 85,100 $ 133,400 $ 257,500 $ 388,400
 Oil & gas 59,300 59,000 164,100 171,300
 Precious metals 26,000 23,500 72,300 69,300
 Total revenues $170,400 $ 215,900 $ 493,900 $ 629,000
 Operating Income/(Loss):
 Coal $ 4,800 $ 33,100 $ 33,300 $ 98,200
 Oil & gas (26,100) (7,300) (302,700) 400
 Precious metals (4,300) (1,200) (3,900) 2,600
 Corporate expense
 & other (2,100) (3,900) (7,400) (10,100)
 Total operating
 income/(loss) (27,700) 20,700 (280,700) 91,100
 Interest expense (12,100) (17,900) (36,700) (46,300)
 Interest and other
 income/(expense) (800) 200 (800) 1,100
 Minority interest 200 (2,300) 200 (6,100)
 Income/(loss) before
 income taxes (40,400) 700 (318,000) 39,800
 Income tax
 provision (benefit) (14,700) 300 (116,200) 11,200
 Net income/(loss) $(25,700) $ 400 $(201,800) $ 28,600
 Earnings/(loss)
 per share $ (0.66) $ 0.01 $ (5.15) $ 0.73
 Dividends paid
 per share $ 0.16 $ 0.16 $ 0.48 $ 0.48
 Average shares
 outstanding 39,200 39,200 39,200 39,200
 Total debt $ 724,200 $1,034,400
 Total stockholders' equity $ 598,200 $ 608,800
 Operating Cash Flow:
 Consolidated (A) $ 39,900 $ 53,000 $ 160,100 $ 177,100
 Coal (B) $ 30,400 $ 42,000 $ 89,300 $ 124,800
 Oil & gas (B) 22,400 28,400 76,800 99,200
 Precious metals (B) 1,900 4,600 14,400 18,100
 (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.
 STATISTICAL DATA SUMMARY
 (Amounts in thousands, except gas volumes and sales prices)
 Three Months Nine Months
 Ended Sept. 30: 1992 1991 1992 1991
 Sales Volume:
 Coal (tons):
 Operations 5,432 7,816 14,353 21,228
 Purchased for resale 1,698 2,078 5,668 5,608
 Total tons sold 7,130 9,894 20,021 26,836
 Gas and Oil:
 Gas (bcf) 23.3 29.3 74.2 77.3
 Gas Purchased for
 resale (bcf) 2.4 6.3 4.6 10.6
 Oil (barrels) 473 382 1,409 1,241
 Natural gas
 liquids (barrels) 394 254 1,193 914
 Precious Metals (ounces):
 Sales:
 Gold 59 51 148 134
 Silver 660 803 2,580 2,658
 Production:
 Gold 60 55 146 127
 Silver 708 849 2,242 2,469
 Average Effective
 Sales Prices:
 Coal/ton $11.26 $13.91 $11.84 $14.16
 Gas/mcf 1.70 1.28 1.52 1.41
 Oil/bbl 20.73 20.08 19.63 19.71
 NGL/bbl 13.50 11.12 12.51 12.41
 Gold/oz. 395.36 387.28 404.19 421.13
 Silver/oz. 3.80 4.22 4.18 3.99
 -0- 11/4/92
 /CONTACT: John C. Cummings, 503-731-6649, or Scott A. Hibbs, 503-731-6723, both of NERCO Inc./
 (NER PPW) CO: NERCO Inc. ST: Oregon IN: MNG OIL SU: ERN


LM -- SE007 -- 2711 11/04/92 17:33 EST
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