Calling it one of the most important annual meetings that the company has had in its history, Aquila CEO Richard Green Jr. started out by offering an apology to shareholders for the company’s poor performance. Over the past few years, Aquila shareholders have seen the stock price plummet over 90% and their dividends cut to the point of elimination.

“As we look out there and see the turmoil in the industry, we see some things that maybe we should have done better,” he said. “When the market started to collapse in the merchant business, we probably should have seen some things that signaled that we should’ve gotten out a lot sooner.” Green added that the Kansas City, MO-based company also should have exited its Quanta investment a lot sooner.

If he were in shareholders’ shoes right now, Green said he “would demand an apology. So to each and every one of you, I apologize.” In talking to shareholders on a one-to-one basis over the last year, Green said he had heard many “painful” and “downright gut-wrenching” stories. “That motivates me all the more to turn this company around.”

The embattled energy company has experienced a freefall in stock price since the Enron Corp. fallout took investor confidence out of energy trading. As a result, the company last year announced and followed through with its promise to officially exit the wholesale energy marketing and trading business operated by its Aquila Merchant Services (see NGI, June 24, 2002).

Green told shareholders that the company, which lost $51.9 million or 27 cents per share for the first quarter of 2003 (see NGI, May 19), would likely continue to lose money for the remainder of 2003 and all of 2004.

When asked by a shareholder why the company does not return to the structure the company had under the UtiliCorp name, Green responded that “things were good back when we were UtiliCorp.”

Green also addressed the concern of some shareholders that Aquila might be a ripe target for a hostile takeover. “Quite frankly right now, we still have a mess to clean up and I don’t think anybody else wants to get in this mess,” Green said. As the company’s problems get cleaned up, he noted that then it might be something that management will have to deal with.

Updating the progress of its ongoing restructuring plan, Green said the company continues to focus on the sale of non-core assets while bringing itself closer to its roots as a regulated utility network in the United States.

“We are making progress on our recovery,” said Green. “We’ve identified the steps needed to restore stability and continue to execute on that plan. Our actions are focused first on improving liquidity, and then restoring earnings. Ultimately, we are determined to again be a financially healthy, customer-focused utility that delivers real value to all of our shareholders.”

Green also went over the company’s “significant steps” taken since the start of the year to strengthen the company’s balance sheet and improve liquidity. They include:

He added that during 2002 the company shed $1 billion in liabilities and completed $1.3 billion in asset sales. Green reminded shareholders that restructuring efforts will continue throughout 2003 and 2004. Going forward, he said the company will work to sell additional non-core assets, restructure the Elwood tolling agreement, improve liquidity, strengthen its ongoing utility operations and pursue appropriate rate relief.

During the course of the meeting, shareholders elected a new independent director and re-elected two other directors. They approved:

Late last month (see NGI, June 2), Aquila shares slipped lower after UBS Warburg analyst Ronald J. Barone lowered his rating on the company to “Reduce 1” from “Neutral 2.” Barone warned investors that the company has sacrificed its future earnings potential despite its efforts to avoid a liquidity crisis so far this year through asset sales, debt refinancings and exiting the energy trading business.

“Put simply, Aquila ‘s significant debt burden and obligation under its gas prepay contract, will in our opinion, be too great for its core domestic utility operations to support once it has disposed of all of its other assets,” Barone said. By the end of 2004, Barone expects Aquila to have sold off nearly all of its assets except its core utility operations in the United States, which are expected to post about $185 million in EBIT this year.

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