July 30, 2002 — Mirant Tuesday reported a net loss of $151 million for the second quarter or a loss of 38 cents per diluted share. The company’s second quarter adjusted earnings were $145 million or 36 cents per diluted share.
Adjusted earnings exclude three non-recurring items: an after-tax write-down of $284 million reflecting the fair market value of Mirant’s 49 percent interest in WPD, a U.K. asset it intends to sell this year; a $6 million net gain from asset sales; and an after-tax restructuring charge of $18 million. Mirant has remaining a previously-announced $55 million after-tax restructuring charge that it expects to be completed by the end of the year.
For the first six months of 2002, Mirant recorded a net loss of $193 million or a loss of 48 cents per diluted share. Year-to-date, adjusted earnings per diluted share were 69 cents compared to guidance of 60 cents. Total adjusted earnings were $279 million through June, 2002.
Mirant reported approximately $66 million in operating cash flow during the second quarter. Operating cash flow for the first six months of the year was approximately $341 million.
“With $1.55 billion in liquidity that is nearly all cash, Mirant’s liquidity remains strong. We expect to end the year with liquidity of approximately $1.7 billion,” said Marce Fuller, president and chief executive officer, Mirant.
“We’re absolutely focused on ensuring that the company will overcome current market conditions. That’s why we’ve worked hard to increase liquidity, decrease debt and preserve the strategic parts of our business to capitalize on opportunities that will emerge.”
Mirant also reported recently that it is reviewing several accounting issues pertaining to its 2001 financial statements. The principal issues are an $85 million overstatement of a gas inventory asset, a $100 million overstatement of an accounts payable liability, and a potential $68 million overstatement of an accounts receivable asset. These figures represent a fraction of Mirant’s $22.8 billion balance sheet reported as of year-end 2001.
“These issues were uncovered during consolidation of our Corporate and Americas accounting groups and their effort to reconcile differences in asset accounts and liability accounts,” said Fuller. “Our internal review has tentatively concluded that any mistakes were made honestly. Given the justifiable concerns that all investors share about accounting issues and disclosure in corporate America, we have retained the King & Spalding law firm to conduct an independent review, and provide advice to the company’s Audit Committee. Mirant will continue to work to reconcile these accounts.”
Added Fuller, “We do not believe that these issues adversely impact our financial results for the first or second quarters of 2002, and we will move aggressively to determine the effects they could have on our 2001 financials. I will ask our auditors to conduct a re-audit of our financials if we can’t satisfactorily reconcile the differences. Integrity is, and always will be, a hallmark of Mirant’s code of conduct. My goal is for our investors to have absolute confidence that our reporting is accurate. I won’t settle for anything less.”
Review of operations
For the quarter, Mirant’s North American business contributed $121 million to adjusted earnings, or 29 cents per diluted share, compared to $160 million, or 45 cents per share for the same period last year. The income reduction is primarily due to lower power production in the West, and lower power and gas margins across Mirant’s integrated U.S. and Canadian operations.
Mirant sold approximately 91.8 million megawatt hours of electricity in North America, a 32 percent increase over the same quarter last year. The company also marketed 22.3 billion cubic feet per day of natural gas — an increase of 89 percent from the same period last year.
Mirant continues to reposition its asset base while maintaining its rank among the top 15 electricity producers in the U.S. More than 80 percent of its profitability for the quarter was attributable to its assets in North America. Since the beginning of the year, Mirant added approximately 600 megawatts of generation in North America. The company remains on track to add another 900 megawatts in the U.S. during 2002, and will own approximately 14,000 megawatts and control more than 3,000 megawatts in the U.S. by the end of the year.
“We’re an asset-based company. We produce and deliver real power and natural gas to real customers with real demands,” said Fuller. “The vast majority of our generating capacity, 92 percent, is located in major metropolitan areas where the demand for electricity is the greatest.”
Mirant’s International group contributed adjusted earnings of $68 million, or 16 cents per diluted share in the second quarter, compared to $66 million, or 18 cents per diluted share for the second quarter 2001.
Mirant added 250 megawatts of generating capacity in the Philippines with the completion of the gas-fired Ilijan project. This additional generating capacity brings Mirant’s total equity ownership in International generation to approximately 3,400 megawatts.
The company continues to work on the potential credit enhancement of its marketing and risk management operation. Due to current uncertainty over market liquidity, Mirant cannot predict the timing of an outcome. Mirant further notes that aggressive restructuring efforts should allow it to execute its integrated business model this year without this credit enhancement in place.
Mirant also recently exercised the term-out option on a $1.125 billion corporate bank revolver, converting it to a one-year loan due July 2003. The company continues to pursue a new, unsecured one-year revolver with a one-year term-out option.
While the company exceeded guidance for adjusted earnings during the first two quarters by nine cents, it acknowledges that factors could force adjusted earnings to fall below its previous guidance of $1.60 to $1.70. These factors consist of:
— Recently issued convertible securities dilutive to earnings
— Write down of WPD to fair value results in no further earnings booked from this operation
— Continued low power and gas pricing, and reduced market liquidity
Due to the possible impact of asset sales on earnings, and the unpredictable nature of the current market, Mirant anticipates adjusted earnings for 2003 to be below those for 2002. The company will provide a more definitive view to these earnings once it has more fully developed its 2003 budget and has details on asset sales.
Commenting on the future of the competitive energy industry, Fuller said, “Thirty-six percent of the generating capacity in the U.S. is owned, operated and maintained by competitive generating companies. In the last five years, 90 percent of the generating capacity in this country has been built by companies like Mirant. The bottom line is that our industry is real and here to stay.”
Fuller added, “This industry is evolving, not dying. The challenges we face will get resolved because they absolutely must get resolved. Not fixing them is not an option. I firmly believe in the value we bring, and I’m confident that we’ll see markets designed with fair rules that benefit everyone from generators to consumers.”