UtiliCorp takes fourth quarter loss; expects 10% growth in 2002

By the OGJ Online Staff

HOUSTON, Feb. 7, 2002 — UtiliCorp United Inc. Thursday reported 2001 earnings increased to $279.4 million, or $2.42/share, compared to $206.8 million, or $2.21/share in 2000.

For the 2001 fourth quarter the Kansas City, Mo., energy and communications company reported a loss of $6.2 million, or 5-/share, including a number of extraordinary charges. The fourth quarter loss reflects a one-time $40 million, or 34-,charge related to its exposure to Enron Corp.

UtiliCorp also wrote down international assets by $11.5 million, or 10-/share and took another charge of $9.9 million, or 9-/share, for broadband expenses.

The company said it expects earnings to increase 10% this year and be up 10-15% over the longer term.

Addressing some of the financial concerns gnawing at the energy merchant sector over the last several months, CEO Robert Green said the company’s merchant business contributed 56% of total operating income but only 11% of that income resulted from pure trading.

“This is not a pure trading business,” he said. “For 2001, two-thirds of the merchant unit’s earnings came from accrual accounting and one-third from mark-to-market.”

Under mark-to-market accounting, long-term contracts are valued at current prices and recognized but not realized in current earnings. Executives sought to reassure investors that mark-to-market accounting is handled carefully, price estimates are verified by third parties, and results closely correlate with cash flow.

Accrual accounting is used to account for profits when they are realized. Large mark-to-market contributions to earnings can lead to problems with timing of cash flow. “At UtiliCorp there is a strong correlation between earnings recognition and cash,” Green said.

In 2001, $600 million of the company’s margin came from the trading organization and 101% (sic) was realized in cash in 2001, he said. Executives said 75% of 2002 earnings would come from straight accrual accounting and 21% from mark-to-market, down from one-third in 2001.

Company executives also pointed to the company’s strong balance sheet with its 58% equity and 42% debt ratio. Responding to questions, UtiliCorp executives said the company has two off-balance sheet entities called “Accounts Receivable Sales Program.” About $705 million of debt is included in these programs, but Green said the amount would be reduced to $211 million. He didn’t say when.

“I don’t think there will be anything that will hit us that is not already fully disclosed,” Green said.

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