Aquila Reports Third Quarter Loss, Suspends Dividend to Support Ongoing Transition Plan and Receives Interest Coverage Waiver From Lenders; CEO Green Says Liquidity is Sufficient

Business Wire, Nov 13, 2002

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KANSAS CITY, Mo.--(BUSINESS WIRE)--Nov. 13, 2002

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Aquila, Inc. (NYSE: ILA) today reported a fully diluted loss of $1.85 per share for the 2002 third quarter, compared to diluted earnings per share of $.58 in the third quarter of 2001. Excluding non-recurring charges of $155.8 million after tax, and a loss from discontinued operations of $151.0 million after tax, the third quarter operating loss was $.14 per fully diluted common share. For the nine months ended September 30, 2002, the company reported a fully diluted loss of $7.17 per share, compared to earnings per share of $2.50 for the same period in 2001.

As part of its ongoing transition plan, the company also announced today that its board of directors has suspended the quarterly cash dividend on Aquila common stock for an undetermined period. The board reached this decision after the new management team completed a detailed analysis of the company's current financial condition. Suspension of the dividend is part of Aquila's strategy to achieve its goal of strengthening the credit profile of the company.

"We plan to do more than simply survive," said Richard C. Green, Jr., chairman, president and chief executive officer. "Aquila's liquidity is sufficient to ensure that Aquila can continue to operate safe and reliable utility networks and maintain quality customer service. This remains a healthy core business."

Green summarized third quarter results by saying Aquila's core domestic and international networks contributed more than they did a year earlier, while the company continued to bear the costs of exiting the troubled energy trading sector.

"The third quarter and the year as a whole have been a disaster for Aquila as well as for our industry," said Green. "Exiting the wholesale energy trading business, writing down assets, reducing the workforce by approximately 1,600 employees, cutting and then suspending the dividend all have caused our shareholders and employees a great deal of pain.

"The aggressive restructuring we began six months ago is designed to position Aquila for the future. With the exit from the trading business largely behind us," he said, "we can now focus on the next critical phase of our transition -- the restructuring or termination of our tolling contracts on terms mutually acceptable to us and our counterparties."

As Aquila works to complete its transition to being an integrated utility, it expects to record significant charges during this year's fourth quarter related to renegotiation of contracts, the continued exit from wholesale commodity positions, additional severance costs and possible additional asset impairments.

"The largest factor affecting operating earnings going forward is low power prices resulting from lower demand during the economic downturn and the current over-supply of generating capacity," Green said.

Global Networks

Third quarter EBIT for Global Networks was $92.8 million, compared to $93.9 million in the same period of 2001. Results for the 2002 quarter included a one-time charge of $5.2 million for a loss on the sale of shares in Quanta Services, Inc. (NYSE: PWR) and a $3.0 million gain on the sale of Aquila's interest in the Pulse energy marketing joint venture in Australia. Excluding those non-recurring items, operating EBIT was up $1.1 million compared to a year earlier. The majority of this increase reflects the May 2002 acquisition of Midlands Electricity in the United Kingdom and suspension of Aquila's incentive plans in 2002.

Domestic Networks

Third quarter EBIT from Domestic Networks was $32.0 million, compared to $45.0 million in the 2001 quarter. The operations benefited from lower expenses resulting from staff reductions, the suspension of Aquila's incentive plans and the non-amortization of goodwill effective January 1, 2002. These were more than offset by the loss on the sale of Quanta shares, Quanta's lower earnings during the quarter and reduced power sales to Western markets.

International Networks

International Networks provided EBIT of $60.8 million for the third quarter compared to $48.9 million for the same period in 2001. The increase primarily reflects $16.7 million contributed by Midlands Electricity in the United Kingdom, which Aquila acquired in May 2002, and the non-amortization of goodwill effective January 1, 2002. These positive factors were offset by a reduced level of carrying cost recovery on deferred purchased power balances in Canada.

Merchant Services

Merchant Services had a third quarter loss before interest and taxes of $282.1 million, compared to earnings before interest and taxes of $36.6 million in the 2001 quarter. Approximately $215.8 million of this variance relates to non-recurring items. The rest of the decrease, approximately $102.9 million, was due primarily to the company's exit from wholesale energy trading operations.

Capacity Services

Capacity Services had a loss before interest and taxes of $40.8 million for the quarter compared to EBIT of $13.3 million a year earlier. One-time charges accounted for $34.9 million of the variance. The other main factors impacting the quarter were lower power prices and "spark spreads" (the difference between the price of power and the fuel cost for its generation) compared to levels experienced in 2001 and higher capacity payments for tolls and synthetic leases that allow Aquila to generate power at plants owned by others.