EX-99.2 4 sc0067c.txt PROJECTIONS: ALLEGHENY ENERGY, ETC. PROJECTIONS OF ALLEGHENY ENERGY, INC., AND ALLEGHENY ENERGY SUPPLY COMPANY, LLC (UNAUDITED) Although Allegheny Energy, Inc. ("Allegheny Energy") and Allegheny Energy Supply Company, LLC ("Allegheny Energy Supply") have from time to time issued "guidance" on earnings per share, neither Allegheny Energy nor Allegheny Energy Supply, as a matter of course, publicly discloses detailed forecasts or projections as to future financial results. However, in connection with Allegheny Energy's and Allegheny Energy Supply's efforts to arrange a consensual comprehensive restructuring of their and their affiliates' obligations, certain projections of Allegheny Energy's and Allegheny Energy Supply's future operating performance (the "Projections") were furnished to and for the limited use of credit providers. The Projections consist of summary projected balance sheets, income statements and cash flows for the first four quarters of and the year-ends 2003 and 2004, prepared as of February 12, 2003. The Projections present, to the best of their respective management's knowledge and belief, Allegheny Energy Inc.'s and Allegheny Energy Supply's expected financial position, results of operations and changes in financial position for the projection period. The Projections, while presented with numerical specificity, are based upon a variety of estimates and assumptions and are subject to significant uncertainties and contingencies, many of which are beyond Allegheny Energy's and Allegheny Energy Supply's control. Consequently, there can be no assurance that the Projections will be realized. There will likely be differences between Allegheny Energy's and Allegheny Energy Supply's projected and actual results, because events and circumstances frequently do not occur as expected, and those differences may be material. The Projections are based on estimates and assumptions, some of which are described below, that involve judgments with respect to, among other things, changes in the price of electricity and natural gas; the weather and other natural phenomena; political, economic and business conditions; growth in industry capacity; regulatory developments; the loss of significant customers or suppliers; changes in technology; changes in financial and capital market conditions; changes in business strategy or business plans; and litigation, which, though considered reasonable by Allegheny Energy and Allegheny Energy Supply, may not be realized and are inherently subject to significant business, economic, geopolitical and competitive uncertainties, many of which are beyond the control of Allegheny Energy and Allegheny Energy Supply. THERE CAN BE NO ASSURANCE THAT THE PROJECTIONS WILL BE REALIZED, AND ACTUAL RESULTS MAY VARY MATERIALLY FROM THOSE SHOWN. THE PROJECTIONS HAVE BEEN PRESENTED IN A SUMMARY FORMAT. IF FULL PROJECTED FINANCIAL STATEMENTS, INCLUDING ALL REQUIRED DISCLOSURES THERETO WERE PRESENTED, YOU MIGHT REACH A DIFFERENT CONCLUSION ABOUT ALLEGHENY ENERGY'S AND ALLEGHENY ENERGY SUPPLY'S PROJECTED FINANCIAL POSITIONS AND PROJECTED OPERATIONS. IN LIGHT OF THE UNCERTAINTIES INHERENT IN PROJECTIONS OF ANY KIND AND THE MATTERS DISCUSSED HEREIN, THE INCLUSION OF THE PROJECTIONS HEREIN SHOULD NOT BE REGARDED AS A REPRESENTATION BY ALLEGHENY ENERGY, ALLEGHENY ENERGY SUPPLY OR ANY OTHER PERSON THAT THE PROJECTIONS WILL BE ACHIEVED. YOU ARE CAUTIONED NOT TO PLACE UNDUE RELIANCE ON THE PROJECTIONS. Allegheny Energy and Allegheny Energy Supply disclosed the Projections to credit providers in connection with their consideration of a specific financing plan, and Allegheny Energy and Allegheny Energy Supply do not intend, and are under no obligation, to issue updates or supplements or otherwise revise the Projections. The Projections should be read together with Allegheny Energy's press release of December 19, 2002 (attached hereto as Exhibit A) and in light of the fact, noted in the press release, that Allegheny Energy and Allegheny Energy Supply are late in filing their periodic reports and will, when able, restate their financial results for the first and second quarters of 2002. The Projections should also be read together with Allegheny Energy's and Allegheny Energy Supply's periodic filings made pursuant to the Securities Exchange Act of 1934, as amended, particularly as regards the risks and uncertainties of their businesses described in "Risk Factors". You should note, however, when referring to reports filed in prior periods, that industry conditions and Allegheny Energy's and Allegheny Energy Supply's results of operations have deteriorated substantially since 2001 and earlier periods. -2- ALLEGHENY ENERGY SUPPLY COMPANY, LLC PROJECTED CONDENSED BALANCE SHEET PROJECTIONS AS OF FEBRUARY 12, 2003 (MILLIONS OF DOLLARS)
2003 MAR- DEC- 2004 MAR-03 JUN-03 SEP-03 DEC-03 ANNUAL 04 JUN-04 SEP-04 04 ANNUAL -------------------------------------------------------------------------------------------------------------------- Total Property, Plant and Equipment $3,936 $3,989 3,990 3,993 3,993 3,986 3,980 3,974 3,968 3,968 Total Investments and Other Assets 409 409 409 409 409 409 409 409 409 409 Total Current Assets 1,827 1,748 $1,758 1,709 1,709 1,755 1,698 1,738 1,695 1,695 Total Deferred Charges 106 100 95 89 89 83 78 72 66 66 -------------------------------------------------------------------------------------------------------------------- TOTAL ASSETS $6,278 $6,246 $6,252 $6,200 $6,200 $6,233 $6,165 $6,193 $6,138 $6,138 ==================================================================================================================== Equity 1,324 1,318 1,594 1,592 1,592 1,612 1,596 1,804 1,953 1,953 Preferred Stock not subject to Mandatory Redemption 0 0 0 0 0 0 0 0 0 0 Long Term Debt Including due in 1 Year 1,854 1,855 1,805 1,805 1,805 1,805 1,806 1,806 1,799 1,799 Total Capitalization 3,178 3,173 3,399 3,397 3,397 3,417 3,402 3,610 3,752 3,752 Restructured Debt 1,585 1,585 1,335 1,335 1,335 1,335 1,335 1,135 991 991 Short Term Debt 4 3 8 6 6 3 3 1 0 0 Other Current Liabilities 754 720 752 708 708 724 685 722 673 673 Total Current Liabilities 2,343 2,308 2,095 2,049 2,049 2,062 2,023 1,858 1,664 1,664 Total Deferred Credits and Other Liabilities 757 765 758 754 754 754 740 725 722 722 TOTAL CAPITALIZATION AND LIABILITIES $6,278 $6,246 $6,252 $6,200 $6,200 $6,233 $6,165 $6,193 $6,138 $6,138 ====================================================================================================================
-3- ALLEGHENY ENERGY SUPPLY COMPANY, LLC PROJECTED CONDENSED INCOME (LOSS) STATEMENT PROJECTIONS AS OF FEBRUARY 12, 2003 (DOLLARS IN MILLIONS)
2003 2004 QTR 1 QTR 2 QTR 3 QTR 4 ANNUAL QTR 1 QTR 2 QTR 3 QTR 4 ANNUAL ---------------------------------------------------------------------------------------------------------------------------- Total Revenue $ 346 $ 344 $ 411 $ 343 $1,444 $ 375 $ 353 $ 413 $ 358 $1,499 Total Operating Expense 286 288 298 280 1,152 274 312 293 297 1,176 Total Operating Income 60 56 113 63 292 101 41 120 61 323 Other Deductions 1 (5) 16 (2) 10 12 (11) 20 (1) 20 Income Before Interest Charges 59 61 97 65 282 89 52 100 62 303 Total Interest Expense 56 66 69 67 258 67 67 67 62 263 Income before Minority Interest 3 (5) 28 (2) 24 22 (15) 33 0 40 Minority Interest 1 1 1 1 4 1 1 1 1 4 Preferred Dividends BALANCE FOR COMMON $ 2 $ (6) $ 27 $ (3) $ 20 $ 21 $ (16) $ 32 $ (1) $ 36 ============================================================================================================================
-4- ALLEGHENY ENERGY SUPPLY COMPANY, LLC PROJECTED CONDENSED STATEMENT OF CASH FLOWS PROJECTIONS AS OF FEBRUARY 12, 2003 (DOLLARS IN MILLIONS)
2003 2004 QTR 1 QTR 2 QTR 3 QTR 4 ANNUAL QTR 1 QTR 2 QTR 3 QTR 4 ANNUAL ------------------------------------------------------------------------------------------------------------------ CASH FLOWS FROM OPERATIONS Net Income $ 2 $(6) $ 26 $(2) $ 20 $ 20 $(16) $ 33 (1) $ 36 Depreciation and Amortization 31 31 34 34 130 36 36 36 36 144 Change in Unrealized Gains Gains on Commodity Contracts, Net (23) 2 20 11 10 16 23 40 11 90 Collateral Requirement (79) 55 1 0 (23) 0 0 0 0 0 Other Change in Certain Assets and Liabilities (59) (49) 46 (35) (97) 20 (71) 42 (43) (52) ------------------------------------------------------------------------------------------------------------------ NET CASH FLOW FROM OPERATIONS (128) 33 127 8 40 92 (28) 151 3 218 ================================================================================================================== CASH FLOWS FROM INVESTING Capital Expenditures (39) (40) (27) (23) (129) (27) (30) (30) (30) (117) Acquisition of Businesses and New Investments (348) 0 0 0 (348) 0 0 0 0 0 Other Investments (34) (50) (6) (14) (104) 0 0 0 0 0 NET CASH FROM INVESTING (421) (90) (33) (37) (581) (27) (30) (30) (30) (117) NET CASH FROM FINANCING Change in Long Term Debt 1,585 0 (250) 0 1,335 0 0 (200) (143) (343) Change in Long Term ) Debt Retirement (64) 0 (50 0 (114) 0 0 0 (7) (7) Equity Contribution 0 0 250 0 250 0 0 175 150 325 Increase in Short Term Debt (793) (1) 5 (2) (791) (4) 0 (1) (1) (6) Common Dividends (10) 0 0 0 (10) 0 0 0 0 0 ------------------------------------------------------------------------------------------------------------------ NET CASH FROM FINANCING $718 $(1) $(45) $(2) $670 $(4) $0 $(26) $(1) (31) ------------------------------------------------------------------------------------------------------------------ NET CHANGE IN CASH $169 $(58) $49 $(31) $ 129 $61 $(58) $95 $(28) $70 ==================================================================================================================
-5- ALLEGHENY ENERGY, INC. CONSOLIDATED PROJECTED CONDENSED BALANCE SHEET PROJECTIONS AS OF FEBRUARY 12, 2003 (MILLIONS OF DOLLARS)
2003 2004 MAR-03 JUN-03 SEP-03 DEC-03 ANNUAL MAR-04 JUN-04 SEP-04 DEC-04 ANNUAL ------------------------------------------------------------------------------------------------------------------- Total Property, Plant, and Equipment $ 7,455 $ 7,513 $ 7,510 $ 7,513 $ 7,513 $ 7,517 $ 7,523 $ 7,520 $ 7,531 $ 7,531 Total Investments and Other Assets 648 648 648 647 647 647 647 647 647 647 Total Current Assets 2,386 2,238 2,371 2,353 2,353 2,406 2,264 2,339 2,332 2,332 Total Deferred Charges 791 776 761 747 747 732 717 702 687 687 ------------------------------------------------------------------------------------------------------------------- TOTAL ASSETS $11,280 $11,175 $11,290 $11,260 $ 11,260 $11,302 $11,151 $11,208 $11,197 $11,197 =================================================================================================================== Equity $ 2,245 $ 2,261 $ 2,307 $ 2,318 $ 2,318 $ 2,382 $ 2,381 $ 2,427 $ 2,439 $ 2,439 Preferred Stock NOT Subject to Mandatory Redemp 74 74 74 74 74 74 74 74 74 74 Long Term Debt and QUIDS 3,901 3,882 4,144 4,122 4,122 4,102 4,084 4,267 4,414 4,414 Total Capitalization 6,220 6,217 6,525 6,514 6,514 6,558 6,539 6,768 6,927 6,927 Restructured Debt 1,902 1,895 1,626 1,619 1,619 1,611 1,604 1,371 1,195 1,195 Short Term Debt 37 30 42 61 61 45 44 44 76 76 Other Current Liabilities 1,214 1,123 1,195 1,173 1,173 1,200 1,096 1,173 1,152 1,152 Total Current Liabilities 3,153 3,048 2,863 2,853 2,853 2,856 2,744 2,588 2,423 2,423 Total Deferred Credits and Other Liabilities 1,907 1,910 1,902 1,893 1,893 1,888 1,868 1,852 1,847 1,847 ------------------------------------------------------------------------------------------------------------------- TOTAL CAPITALIZATION AND LIABILITIES $11,280 $11,175 $11,290 $11,260 $ 11,260 $11,302 $11,151 $11,208 $11,197 $11,197 ===================================================================================================================
-6- ALLEGHENY ENERGY, INC. CONSOLIDATED PROJECTED CONDENSED INCOME STATEMENT PROJECTIONS AS OF FEBRUARY 12, 2003 (MILLIONS OF DOLLARS)
2003 2004 QTR 1 QTR 2 QTR 3 QTR 4 ANNUAL QTR 1 QTR 2 QTR 3 QTR 4 ANNUAL ----------------------------------------------------------------------------------------------------------------------------- Total Revenue $ 857 $ 741 $ 802 $ 773 $ 3,173 $ 906 $ 755 $ 807 $ 794 $3,262 Total Operating Expense 711 619 647 651 2,628 731 645 651 675 2,702 Total Operating Income 146 122 155 122 545 175 110 156 119 560 Other Deductions 3 2 2 3 10 3 3 3 3 12 Income before Interest Charges 149 124 157 125 555 178 113 159 122 572 Total Interest Expense 95 107 109 113 424 114 112 111 110 447 Income before Minority Interest 54 17 48 12 131 64 1 48 12 125 Minority Interest 0 0 1 0 1 0 0 1 0 1 Preferred Dividends 1 1 1 1 4 1 1 1 1 4 BALANCE FOR COMMON $ 53 $ 16 $ 46 $ 11 $ 126 $ 63 $ 0 $ 46 $ 11 $ 120 =============================================================================================================================
-7- ALLEGHENY ENERGY, INC. CONSOLIDATED PROJECTED CONDENSED STATEMENT OF CASH FLOWS PROJECTIONS AS OF FEBRUARY 12, 2003 (MILLIONS OF DOLLARS)
2003 2004 QTR 1 QTR 2 QTR 3 QTR 4 ANNUAL QTR 1 QTR 2 QTR 3 QTR 4 ANNUAL -------------------------------------------------------------------------------------------------------------------------- CASH FLOWS FROM OPERATIONS Net Income $ 54 $ 17 $ 48 $ 12 $ 131 $ 64 $ 1 $ 48 $ 12 $ 125 Depreciation and Amortization 80 80 82 82 324 86 86 86 86 344 Net Deferred Investment Credits and Income Taxes 0 0 0 0 0 0 0 0 0 0 Change in Unrealized Gains on Commodity Contracts, Net (23) 2 20 11 10 16 23 40 11 90 Collateral Requirement (79) 55 1 0 (23) 0 0 0 0 0 Change in Certain Assets and Liabilities (120) (55) 86 (53) (142) 14 (78) 81 (68) (51) -------------------------------------------------------------------------------------------------------------------------- NET CASH FROM OPERATIONS (88) 99 237 52 300 180 32 255 41 508 ========================================================================================================================== CASH FLOWS USED IN INVESTING Utilitiy Construction Expenditures less AFUDC (88) (91) (69) (65) (313) (80) (88) (81) (78) (327) Acquisition of Businesses and New Investment (348) 0 0 0 (348) 0 0 0 0 0 Dividends from Subsidiaries 0 0 0 0 0 0 0 0 0 0 Other Investments (34) (50) (6) (14) (104) 0 0 0 0 0 -------------------------------------------------------------------------------------------------------------------------- NET CASH FROM INVESTING (470) (141) (75) (79) (765) (80) (88) (81) (78) (327) ========================================================================================================================== CASH FLOWS FROM (USED IN) FINANCING Increase in Common Stock 0 0 0 0 0 0 0 0 0 0 Change in Long Term Debt 1,902 (8) 105 (8) 1,991 (7) 77 (33) (1) 36 Change in Long Term Debt Retirement (100) (20) (112) (22) (254) (20) (103) (17) (28) (168) Increase in Short Term Debt (1,100) (6) 12 19 (1,075) (16) (1) 0 32 15 Preferred Dividends (1) (1) (1) (1) (4) (1) (1) (1) (1) (4) Common Dividends 0 0 0 0 0 0 0 0 0 0 Other 0 0 0 0 0 0 0 0 0 0 -------------------------------------------------------------------------------------------------------------------------- NET CASH FROM FINANCING 701 (35) 4 (12) 658 (44) (28) (51) 2 (121) -------------------------------------------------------------------------------------------------------------------------- -------------------------------------------------------------------------------------------------------------------------- NET CHANGE IN CASH $ 143 $ (77) $ 166 $ (39) $ 193 $ 56 $ (84) $ 123 $ (35) $ 60 ==========================================================================================================================
-8- SUMMARY OF SIGNIFICANT PROJECTION ASSUMPTIONS AND ACCOUNTING POLICIES FOR THE FISCAL YEARS ENDING 2003 AND 2004 The Projections were derived from a financial forecast which presents, to the best of management's knowledge and belief, Allegheny Energy's and Allegheny Energy Supply's expected financial positions, results of operations, and changes in financial positions for the forecast period. Accordingly, the Projections reflect Allegheny Energy's and Allegheny Energy Supply's judgment, as of February 12, 2003, the date of the Projections, concerning expected conditions and Allegheny Energy's and Allegheny Energy Supply's courses of action. The assumptions disclosed herein are those which management believes are significant to the forecast. There will usually be differences between forecast and actual results because events and circumstances frequently do not occur as expected and those differences may be material. The Projections are based on the following assumptions, among others: ALLEGHENY ENERGY SUPPLY REVENUES: o Revenues are assumed primarily to be derived from provider of last resort contracts (81% in 2003 and 76% in 2004). The average contract price is assumed to increase approximately 4.3% from 2003 to 2004. These combined assumptions result in a decrease of 1.7% from 2003 to 2004 in Provider of Last Resort contract revenues. o Revenues from the sale of excess generation are projected to increase approximately 33% from 2003 to 2004 primarily as the result of an assumed increase in MWh sales of 34% over the same period. ALLEGHENY ENERGY SUPPLY COST OF REVENUES: o The average fuel cost is assumed to be flat from 2003 to 2004 based on current contracts. o Fuel cost is assumed to continue to be primarily coal related (85% in 2003 and 82% in 2004). ALLEGHENY ENERGY SUPPLY CAPITAL EXPENDITURES: o The Projections assume compliance with Clean Air Act SO2 requirements will be achieved with capital expenditures of approximately $50 million in 2003 and 2004. o Maintenance expenses required to be capitalized are assumed to increase approximately 46% based on the major outage schedule for all operating equipment and expansion and upgrading of landfills at the generating stations. o The Projections assume that Allegheny Energy Supply's 540 MW combined cycle facility under construction in Springdale, PA is completed by its forecasted completion date of August 2003. o Construction of a 540 MW gas-fired combined cycle facility in St. Joseph County, Indiana is assumed to be suspended until January 2005. ALLEGHENY ENERGY, INC. AND ALLEGHENY ENERGY SUPPLY FINANCING: o Investment income is based on an assumed interest income rate of 2%. -9- o It is assumed that $420 million of new money is advanced to Allegheny Energy Supply upon the closing of the consensual comprehensive restructuring but that the additional available $50 million is not advanced because it cannot be secured in compliance with applicable lien covenants. o The interest rate on all new debt is assumed to be LIBOR + 600 bps, and LIBOR is assumed to be 1.5% in 2003 to 2004 and 2.0% in 2005. It is assumed that as of July 2003 the Company will be required to treat $156 million of new debt as being 12.5% from its advance in February 2003 to its assumed repayment in September 2003. o The interest rate on $650 million of debt at Allegheny Energy Supply is assumed to increase by 50 basis points until July 2003, as a result of the notes representing the debt not having been registered. o Allegheny Energy, Inc. is projected to issue a $330 million 8% coupon mandatory convertible debt issue in September 2003, $200 million 8% coupon mandatory convertible debt issue in September 2004, and $175 million 8% coupon mandatory convertible debt issue in December 2004. Proceeds of $250 million in September 2003 and $175 million and $150 million in September and December 2004, respectively, are assumed to be contributed to Allegheny Energy Supply for required amortizations. o Required amortizations of $30 million annually in 2003 and 2004 for Allegheny Energy, Inc. and $250 million in 2003 and $350 million in 2004 for Supply are assumed. o The Projections do not take into account prepayments that the financing arrangements would require be made out of excess cashflows, which amounts are projected not to be material. ALLEGHENY ENERGY, INC. BASIC EARNINGS PER SHARE o Basic earnings per share on a consolidated basis based on 126 million shares outstanding are $1.00 and $.96 in 2003 and 2004 respectively. -10- EXHIBIT A --------- [LOGO OF ALLEGHENY ENERGY, INC.] FOR IMMEDIATE RELEASE --------------------- ALLEGHENY ENERGY REPORTS UNAUDITED CONSOLIDATED FINANCIAL DATA FOR NINE MONTHS ENDED SEPTEMBER 30, 2002 HAGERSTOWN, MD., DECEMBER 19, 2002 - Allegheny Energy, Inc. (NYSE: AYE) today released unaudited consolidated financial data for the nine months ended September 30, 2002. This information was prepared for delivery to its lenders in the course of the Company's ongoing comprehensive financial review disclosed on November 4, 2002, when the Company announced it was delaying the release of third quarter results. The Company reported a consolidated net loss of $334.4 million (or a $2.67 loss per share) for the nine-month period, which includes a reduction in the market value of its energy trading portfolio to reflect changes in valuation model assumptions and market conditions; the cumulative effect of an accounting change related to the adoption of the Statement of Financial Accounting Standards (SFAS) No. 142, "Goodwill and Other Intangible Assets"; workforce reduction expenses; and other items. In the course of the comprehensive review of its financial records, Allegheny Energy has identified a number of required adjustments with respect to its 2002 financial statements that resulted from accounting errors. These adjustments are fully reflected in the unaudited financial data released today. Based on the results of this comprehensive review, the Company has determined that it and certain of its subsidiaries will have to restate their first and second quarter financial statements for 2002. The Company will release third quarter 2002 earnings data when the comprehensive review has been completed and will issue restated financial statements for the first and second quarters of 2002 as soon as possible thereafter. The Company completed an analysis of the potential impairment of goodwill related to the acquisition of its energy trading business in accordance with SFAS No. 142, as well as the potential impairment of its investment in its Midwest generating assets in accordance with SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets." The Company concluded that these assets are not impaired. -11- Allegheny Energy's unaudited consolidated financial data for the nine months ended September 30, 2002, includes the following items that contributed to the Company's reported net loss:
Pre-tax After-Tax Earnings per (In millions) Share AMOUNT AMOUNT ---------------------------------------------------------------------------------------------------------------------- o Reduction in the market value of the energy trading portfolio $(356.3) $(217.6) $(1.73) ---------------------------------------------------------------------------------------------------------------------- o Cumulative effect of accounting change related to the adoption of SFAS No. 142 (210.1) (130.5) (1.04) ---------------------------------------------------------------------------------------------------------------------- o Workforce reduction expenses (104.2) (62.6) (.50) ---------------------------------------------------------------------------------------------------------------------- o Charges related to generating plant cancellations (51.8) (31.4) (.25) ---------------------------------------------------------------------------------------------------------------------- o Impairment of unregulated investments (38.8) (22.9) (.18) ---------------------------------------------------------------------------------------------------------------------- o Gain on Canaan Valley land sale 14.3 11.9 .09 ----------------------------------------------------------------------------------------------------------------------
The comparative prior period ended September 30, 2001, included the following item that reduced net income:
Pre-tax After-Tax Earnings per (In millions) Share AMOUNT AMOUNT ---------------------------------------------------------------------------------------------------------------------- o Cumulative effect of accounting change related to the adoption of SFAS No. 133 $(52.3) $(31.1) $(.26) ----------------------------------------------------------------------------------------------------------------------
Allegheny Energy is continuing discussions with banks, other lenders, and trading counterparties regarding outstanding defaults, needed amendments to existing agreements, and obtaining additional secured financing. As announced on October 21, 2002, the Company has received authority from the U.S. Securities and Exchange Commission (SEC) to borrow up to $2 billion on a secured basis, related to the refinancing. Additional approvals needed to implement this refinancing are still pending. In addition, the Company's subsidiaries, Allegheny Energy Supply Company, LLC (Allegheny Energy Supply), and Allegheny Generating Company, have received extensions through December 31, 2002, on waivers from bank lenders under their credit agreements. The Company continues to negotiate with these and other lenders and is also working with the St. Joseph County generating facility lenders concerning financial obligations related to this facility. If the Company is unable to successfully complete negotiations with these lenders, including arrangements with respect to inter-creditor issues, it would likely be obliged to seek bankruptcy protection. As previously announced, Allegheny Energy has already taken steps to reduce its cost structure, preserve cash, and strengthen its balance sheet, including reducing the Company's reliance on its wholesale energy trading business; significantly reducing pre-tax operating expenses in 2002; cancelling -12- the development of several generating facilities, saving $700 million in capital expenditures over the next several years; reducing the workforce by approximately 10 percent through a voluntary early retirement option, normal attrition, and selected staff reductions; and suspending the dividend on its common stock. The Company actively continues its work to resolve the following issues which are critical to its financial stability and long-term performance: o satisfactory completion of asset sales and/or the issuance of equity; o satisfactory outcome of Federal Energy Regulatory Commission proceedings in which the validity of the Company's contracts with the California Department of Water Resources is challenged; o satisfactory resolution of litigation with Merrill Lynch regarding the Allegheny Energy Global Markets acquisition (in which Merrill Lynch is claiming $115 million plus interest and the Company has filed counter claims against Merrill Lynch); o satisfactory resolution of trading counterparties' current and future demands in settlement of terminated trades and collateral in respect of ongoing positions; and o continued transition of the Company to refocus on its core businesses. Information regarding results for Allegheny Energy Supply for the first nine months of 2002 is included in the Company's Form 8-K filed today with the SEC. With headquarters in Hagerstown, Md., Allegheny Energy is an integrated energy company with a balanced portfolio of businesses, including Allegheny Energy Supply, which owns and operates electric generating facilities and supplies energy and energy-related commodities in selected domestic retail and wholesale markets; Allegheny Power, which delivers low-cost, reliable electric and natural gas service to about three million people in Maryland, Ohio, Pennsylvania, Virginia, and West Virginia; and a business offering fiber-optic and data services, energy procurement and management, and energy services. More information about the Company is available at www.alleghenyenergy.com. Certain statements contained herein constitute forward-looking statements with respect to Allegheny Energy, Inc. Such forward-looking statements involve known and unknown risks, uncertainties, and other factors that may cause the actual results, performance, or achievements of Allegheny Energy to be materially different from any future results, performance, or achievements expressed or implied by such forward-looking statements. Such factors may affect Allegheny Energy's operations, markets, products, services, prices, capital expenditures, development activities, and future plans. Such factors include, among others, the following: changes in general, economic, and business conditions; changes in the price of electricity and natural gas; changes in industry capacity; changes in technology; changes in financial and capital market conditions; changes in political and social conditions, deregulation activities and the movement toward competition in the states served by our operations; the effect of regulatory and legislative decisions; regulatory approvals and conditions; the loss of any significant customers; litigation; and changes in business strategy or business plans. -13- ALLEGHENY ENERGY, INC. ADJUSTED FINANCIAL RESULTS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2002 AND SEPTEMBER 30, 2001 (IN THOUSANDS)
YEAR-TO-DATE 2002 2001 ----------------------------------------------------------------------------------- ------------------ -------------------- Consolidated net income (loss) $ (334,379) $ 353,208 LESS: ADJUSTMENTS TO CONSOLIDATED NET INCOME: Reduction in the market value of the energy trading portfolio (217,564) - Cumulative effect of accounting change related to the adoption of SFAS No. 142 (130,514) - Workforce reduction expenses (62,604) - Charges related to generating plant cancellations (31,377) - Impairment of unregulated investments (22,954) - Gain on Canaan Valley land sale 11,917 - Cumulative effect of accounting change related to the adoption of SFAS No. 133 - (31,147) ------------------ -------------------- Total of adjustments to consolidated net income (453,096) (31,147) ------------------ -------------------- Adjusted consolidated net income $ 118,717 $ 384,355 ================== ====================
-14- ALLEGHENY ENERGY, INC. COMPARISON OF EARNINGS (LOSS) PER SHARE FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2002 VS. SEPTEMBER 30, 2001 (IN DOLLARS PER SHARE)
UNAUDITED YEAR-TO-DATE --------------------------------------------- 2002 2001 VARIANCE ------------- ------------- ------------- EARNINGS PER SHARE Basic consolidated earnings (loss) per share $ (2.665) $ 2.982 $ (5.647) ============= ============= ============= EPS VARIANCE RECONCILIATION Net revenues (Note 1) $ (3.571) ------------- ------------- Operation expense (0.412) ------------- OTHER: Workforce reduction expenses (0.529) Depreciation and amortization (0.060) Taxes other than income taxes (0.004) Other income and expenses (0.138) Interest charges and preferred dividends (0.084) Minority interest 0.057 Issuance of shares 0.096 Change in effective income tax rate (0.255) All other 0.030 ------------- Other (0.887) ------------- ============= Income before accounting change (4.870) ------------- Cumulative effect of accounting change (0.777) ------------- Consolidated net income (loss) $ (5.647) ============= Note 1: Reflects revenues less the cost of fuel consumed for electric generation, purchased energy and transmission, natural gas purchases, deferred power costs, and cost of goods sold.
-15- ALLEGHENY ENERGY, INC. SALES VOLUME DATA FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2002 AND SEPTEMBER 30, 2001
YEAR-TO-DATE 2002 2001 VARIANCE -------------------------------------------------------------------------- -------------- --------------- ------------- DELIVERY AND SERVICES REGULATED ELECTRIC SALES (GIGAWATT-HOURS) (NOTE 1) Residential $ 11,216 $ 10,927 2.6% Commercial 7,525 7,262 3.6% Industrial 14,915 14,805 0.7% Municipals and street lighting 1,125 1,153 -2.4% -------------- --------------- Total 34,781 34,147 1.9% ============== =============== Delivery and services regulated gas sales (MMcfs) 43,596 46,132 5.5% Note 1: Excludes affiliated and bulk power transmission sales.
-16- ALLEGHENY ENERGY, INC. CONSOLIDATED STATEMENT OF OPERATIONS (IN THOUSANDS, EXCEPT PER SHARE DATA)
UNAUDITED NINE MONTHS ENDED SEPTEMBER 30, 2002 2001* ------------------ ---------------- TOTAL OPERATING REVENUES $ 2,324,726 $ 2,592,433 COST OF REVENUES: Fuel consumed for electric generation 436,885 438,062 Purchased energy and transmission 265,107 222,317 Natural gas purchases 431,977 99,084 Deferred energy costs, net 7,608 (5,450) Other 76,528 26,397 ------------------ ---------------- Total cost of revenues 1,218,105 780,410 ------------------ ---------------- NET REVENUES 1,106,621 1,812,023 ------------------ ---------------- OTHER OPERATING EXPENSES: Workforce reduction expenses 104,170 --- Operation expense 696,182 614,805 Depreciation and amortization 232,870 220,696 Taxes other than income taxes 163,646 162,871 ------------------ ---------------- Total other operating expenses 1,196,868 998,372 ------------------ ---------------- OPERATING INCOME (LOSS) (90,247) 813,651 ------------------ ---------------- OTHER INCOME AND EXPENSES (26,412) 7,061 INTEREST CHARGES AND PREFERRED DIVIDENDS: Interest on long-term debt and other interest 230,378 210,680 Allowance for borrowed funds used during construction and interest capitalized (9,599) (6,684) Dividends on preferred stock of subsidiaries 3,778 3,780 ------------------ ---------------- Total interest charges and preferred dividends 224,557 207,776 ------------------ ---------------- -------------------- * Certain amounts have been reclassified for comparative purposes.
-17- ALLEGHENY ENERGY, INC. CONSOLIDATED STATEMENT OF OPERATIONS (IN THOUSANDS, EXCEPT PER SHARE DATA) (CONTINUED)
UNAUDITED NINE MONTHS ENDED SEPTEMBER 30, 2002 2001* ---------------- ------------- CONSOLIDATED INCOME (LOSS) BEFORE INCOME TAXES, MINORITY INTEREST, AND CUMULATIVE EFFECT OF ACCOUNTING CHANGE (341,216) 612,936 FEDERAL AND STATE INCOME TAX EXPENSE (BENEFIT) (132,871) 226,314 MINORITY INTEREST (4,480) 2,267 ---------------- ------------- CONSOLIDATED INCOME (LOSS) BEFORE CUMULATIVE EFFECT OF ACCOUNTING CHANGE (203,865) 384,355 CUMULATIVE EFFECT OF ACCOUNTING CHANGE, NET (130,514) (31,147) ---------------- ------------- CONSOLIDATED NET INCOME (LOSS) $ (334,379) $ 353,208 ================ ============= Average common shares outstanding 125,460,716 118,434,527 Average diluted common shares outstanding 125,790,364 118,920,222 BASIC EARNINGS PER SHARE: Consolidated income (loss) before cumulative effect of accounting change $ (1.63) $ 3.24 Cumulative effect of accounting change, net (1.04) (0.26) ---------------- ------------- Consolidated net income (loss) $ (2.67) $ 2.98 ================ ============= DILUTED EARNINGS PER SHARE: Consolidated income (loss) before cumulative effect of accounting change $ (1.63) $ 3.23 Cumulative effect of accounting change, net (1.04) (0.26) ---------------- ------------- Consolidated net income (loss) $ (2.67) $ 2.97 ================ ============= -------------------- * Certain amounts have been reclassified for comparative purposes.
-18- ALLEGHENY ENERGY, INC. CONSOLIDATED BALANCE SHEET (IN THOUSANDS)
UNAUDITED SEPTEMBER 30, DECEMBER 31, 2002 2001* ------------------ ----------------- ASSETS: CURRENT ASSETS: Cash and temporary cash investments $ 235,231 $ 37,980 Accounts receivable: Billed: Customer 356,902 350,349 Other 113,787 44,613 Unbilled 122,890 169,612 Allowance for uncollectible accounts (33,309) (32,796) Materials and supplies - at average cost: Operating and construction 111,856 104,965 Fuel 115,013 82,390 Commodity contracts 186,717 297,879 Taxes receivable 155,628 124,718 Other, including current portion of regulatory assets 140,685 133,200 ------------------ ----------------- 1,505,400 1,312,910 ------------------ ----------------- PROPERTY, PLANT, AND EQUIPMENT: In service, at cost 10,888,209 10,660,177 Construction work in progress 427,826 426,706 ------------------ ----------------- 11,316,035 11,086,883 Accumulated depreciation (4,422,817) (4,233,868) ------------------ ----------------- 6,893,218 6,853,015 ------------------ ----------------- INVESTMENTS AND OTHER ASSETS: Excess of cost over net assets acquired (Goodwill) 397,984 603,615 Benefit plans' investments 63,749 102,078 Unregulated investments 58,116 66,422 Intangible assets 11,509 43,045 Other 4,316 4,135 ------------------ ----------------- 535,674 819,295 ------------------ ----------------- DEFERRED CHARGES: Commodity contracts 1,252,725 1,457,504 Regulatory assets 570,882 594,182 Other 115,593 130,646 ------------------ ----------------- 1,939,200 2,182,332 ------------------ ----------------- TOTAL ASSETS $ 10,873,492 $ 11,167,552 ================== ================= * Certain amounts have been reclassified for comparative purposes.
-19- ALLEGHENY ENERGY, INC. CONSOLIDATED BALANCE SHEET (CONTINUED) (IN THOUSANDS)
UNAUDITED SEPTEMBER 30, DECEMBER 31, 2002 2001* ------------------ ------------------ STOCKHOLDERS' EQUITY AND LIABILITIES: CURRENT LIABILITIES: Short-term debt $ 1,138,131 $ 1,238,728 Long-term debt due within one year 425,643 353,054 Accounts payable 462,720 373,958 Taxes accrued: Federal and state income 91,138 21,613 Other 82,978 99,393 Adverse power purchase commitments 20,080 24,839 Deferred income taxes 44,948 186,933 Commodity contracts 341,941 512,788 Other, including current portion of regulatory liabilities 190,342 238,504 ------------------ ------------------ 2,797,921 3,049,810 ------------------ ------------------ LONG-TERM DEBT AND QUIDS 3,513,760 3,200,421 DEFERRED CREDITS AND OTHER LIABILITIES: Commodity contracts 498,481 482,225 Unamortized investment credit 97,785 102,589 Deferred income taxes 1,008,121 972,910 Obligations under capital leases 35,590 35,309 Regulatory liabilities 109,063 108,055 Adverse power purchase commitments 240,913 253,499 Other 204,163 148,774 ------------------ ------------------ 2,194,116 2,103,361 ------------------ ------------------ MINORITY INTEREST 33,343 29,991 PREFERRED STOCK 74,000 74,000 STOCKHOLDERS' EQUITY: Common stock 157,890 156,596 Other paid-in capital 1,440,513 1,421,117 Retained earnings 656,196 1,152,487 Treasury stock (244) --- Other comprehensive income 5,997 (20,231) ------------------ ------------------ 2,260,352 2,709,969 ------------------ ------------------ TOTAL STOCKHOLDERS' EQUITY AND LIABILITIES $ 10,873,492 $ 11,167,552 ================== ================== *Certain amounts have been reclassified for comparative purposes.
-20- ALLEGHENY ENERGY SUPPLY COMPANY, LLC CONSOLIDATED STATEMENT OF OPERATIONS (IN THOUSANDS)
UNAUDITED NINE MONTHS ENDED SEPTEMBER 30, 2002 2001* -------------- -------------- OPERATING REVENUES: Retail $ 57,771 $ 113,238 Wholesale (233,648) 383,051 Affiliated 847,774 845,362 -------------- -------------- Total operating revenues 671,897 1,341,651 -------------- -------------- COST OF REVENUES: Fuel consumed for electric generation 342,623 327,213 Purchased energy and transmission 127,432 190,764 -------------- -------------- Cost of revenues 470,055 517,977 -------------- -------------- NET REVENUES 201,842 823,674 OTHER OPERATING EXPENSES: Workforce reduction expenses 40,880 -- Operation expense 306,624 259,245 Depreciation and amortization 91,083 80,737 Taxes other than income taxes 49,027 50,681 -------------- -------------- Total other operating expenses 487,614 390,663 -------------- -------------- OPERATING INCOME (LOSS) (285,772) 433,011 -------------- -------------- OTHER INCOME AND EXPENSES (3,667) 4,938 INTEREST CHARGES: Interest on long-term debt and other interest 116,806 78,593 Interest capitalized (6,920) (4,545) -------------- -------------- Total interest charges 109,886 74,048 -------------- -------------- CONSOLIDATED INCOME (LOSS) BEFORE INCOME TAXES, MINORITY INTEREST, AND CUMULATIVE EFFECT OF ACCOUNTING CHANGE (399,325) 363,901 FEDERAL AND STATE INCOME TAX EXPENSE (BENEFIT) (154,093) 129,044 MINORITY INTEREST 3,125 3,646 -------------- -------------- CONSOLIDATED INCOME (LOSS) BEFORE CUMULATIVE EFFECT OF ACCOUNTING CHANGE (248,357) 231,211 CUMULATIVE EFFECT OF ACCOUNTING CHANGE, NET -- (31,147) -------------- -------------- CONSOLIDATED NET INCOME (LOSS) $ (248,357) $ 200,064 ============== ============== * Certain amounts have been reclassified for comparative purposes.
-21- ALLEGHENY ENERGY SUPPLY COMPANY, LLC CONSOLIDATED BALANCE SHEET (IN THOUSANDS)
UNAUDITED SEPTEMBER30, DECEMBER 31, 2002 2001* --------------- -------------- ASSETS CURRENT ASSETS: Cash and temporary cash investments $ 143,834 $ 20,909 Accounts receivable: Nonaffiliated 183,899 121,771 Affiliates, net 28,421 53,239 Allowance for uncollectible accounts (1,935) (2,400) Materials and supplies - at average cost: Operating and construction 56,092 52,757 Fuel 57,604 41,240 Taxes receivable 127,733 95,247 Commodity contracts 186,717 297,879 Other 34,052 21,510 --------------- -------------- 816,417 702,152 --------------- -------------- PROPERTY, PLANT, AND EQUIPMENT: In service, at cost 5,200,027 5,010,818 Construction work in progress 271,520 340,772 --------------- -------------- 5,471,547 5,351,590 Accumulated depreciation (2,053,675) (1,958,613) --------------- -------------- 3,417,872 3,392,977 --------------- -------------- INVESTMENTS INCLUDING INTANGIBLES: Excess of cost over net assets acquired (Goodwill) 367,287 367,287 Unregulated investments 28,658 7,105 --------------- -------------- 395,945 374,392 --------------- -------------- DEFERRED CHARGES: Commodity contracts 1,252,725 1,457,504 Other deferred charges 73,505 49,117 --------------- -------------- 1,326,230 1,506,621 --------------- -------------- TOTAL ASSETS $5,956,464 $5,976,142 =============== ==============
-22- ALLEGHENY ENERGY SUPPLY COMPANY, LLC CONSOLIDATED BALANCE SHEET (CONTINUED) (IN THOUSANDS)
UNAUDITED SEPTEMBER30, DECEMBER 31, 2002 2001* ------------ ------------ MEMBERS' EQUITY AND LIABILITIES CURRENT LIABILITIES: Long-term debt due within one year $ 287,693 $ 219,108 Notes payable to parent and affiliates --- 387,850 Short-term debt 803,146 685,895 Accounts payable 276,074 184,108 Deferred income taxes 64,393 209,949 Taxes accrued: Federal and state income 2,534 1,465 Other 28,531 24,120 Commodity contracts 343,837 515,183 Other 49,896 62,632 ------------ ------------ 1,856,104 2,290,310 ------------ ------------ LONG-TERM DEBT 1,548,619 1,130,041 MINORITY INTEREST 31,190 30,476 DEFERRED CREDITS AND OTHER LIABILITIES: Commodity contracts 503,056 489,950 Deferred income taxes 536,802 412,707 Other 105,444 97,972 ------------ ------------ 1,145,302 1,000,629 ------------ ------------ MEMBERS' EQUITY 1,375,249 1,524,686 TOTAL MEMBERS' EQUITY AND LIABILITIES $5,956,464 $5,976,142 ============ ============ * Certain amounts have been reclassified for comparative purposes.
-23-