Citing “bad market psychology” and a restructuring charge as the chief culprits, energy trading leader Mirant reported last week a net loss of $151 million, or minus 38 cents per diluted share, for the second quarter against a profit of $145 million, or 36 cents a share, for the comparable period a year ago.

The stock market read the results as positive, boosting the company’s common stock 62 cents for the week to close at $3.67 on Friday. The stock price had already been discounted for most of the issues, and operating earnings beat expectations by a few cents a share.

Once adjusted to exclude one-time charges, Mirant’s second-quarter earnings were $145 million, or 36 cents per diluted share, compared to $181 million, or 53 cents a share, for same period in 2001. The non-recurring charges included an after-tax write-down of $284 million to reflect the fair market value of Mirant’s 49% share in WPD, a UK asset it plans to sell this year; a $6 million net gain from asset sales; and an after-tax restructuring charge of $18 million. Mirant also said it has a previously announced $55 million after-tax restructuring charge that it expects to complete by year-end.

For the six-month period, Mirant posted a net loss of $197 million, or a loss of 48 cents a share, compared to a gain of $292 million, or 90 cents a share, for the half in 2001. Operating revenues for the quarter ended June 30 were $6.36 billion, down from $7.91 billion for the same period in 2001, while six-month revenues finished at $13.4 billion, down from $16.08 billion a year ago.

Despite the lackluster results, Mirant CEO and President Marce Fuller resolved that the Altanta-based company would survive. “We are building a smaller but stronger company focused on our core strengths. We believe that Mirant will be one of the winners,” she told industry analysts during a conference call Tuesday. And while the energy industry currently is being “painted with broad unflattering strokes,” it also will recover. “The business is not going away,” Fuller said, adding that the current challenges will be resolved because “gas and power must be delivered.”

Toward this aim, Mirant plans in the second phase of its restructuring effort to make additional asset sales in the range of $700 million to $1 billion, including selling its interest in WPD “fairly quickly;” significantly cut its capital expenditures for 2003 to approximately $840 million; and to re-evaluate its business activities in both Europe and Korea, Fuller noted. In addition, she said Mirant has negotiated with BP to eliminate $250 million in contingent collateral obligations, and plans to spend up to $500 million to repurchase debt securities through 2003.

Mirant already has announced asset sales of $1.6 billion; repaid $1.2 billion in debt; raised proceeds of $1.12 billion through the sale of securities; enacted a plan to cut operating expenses by $75 million this year and $150 million in 2003; pared its worldwide workforce by 700 positions; and reduced its capital budget for this year and next.

Mirant estimated its current liquidity was at a high level of $1.55 billion, and would remain that way until the existing uncertainty in the market subsides. It projected its liquidity position at year-end would be $1.7 billion.

Fuller said the company’s earnings guidance for 2002 would remain unchanged at $1.60-1.70. “For now, I don’t see any reason to change our guidance” for the year, she noted, although she conceded it will be under pressure over the next two quarters. So far, Mirant has exceeded its guidance for adjusted earnings by 9 cents this year. But the company is not as optimistic about 2003, admitting that earnings will “likely” be below 2002.

As for its review of 2001 accounting issues, Mirant said it was examining 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. The figures represent a fraction of the company’s $22.8 billion balance sheet, according to Mirant.

“I won’t settle for anything less” than accurate financial reporting, said Fuller. “In another time and calmer environment,” she noted the accounting issues probably would not have merited much attention. Fuller signaled that Mirant hopes to “certainly certify” its financial statements by August. If it is unable to do so, she said it would file a report with the Securities and Exchange Commission.

“Given the justifiable concerns that all investors share about accounting issues and disclosure…we have retained the King & Spalding law firm to conduct an independent review, and provide advice to the company’s Audit Committee,” Fuller noted. “We do not believe that these issues adversely impact our financial results for the first and second quarter 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.”

In reviewing second quarter results of its operations, the company reported that Mirant’s North American business contributed $121 million to adjusted earnings, or 29 cents a diluted share, compared to $160 million, or 45 cents a share, for the same period in 2001. The adjusted earnings were due primarily to lower power production in the West, and reduced power and natural gas margins across Mirant’s integrated U.S. and Canadian operations.

For the quarter, Mirant said it sold approximately 91.8 million MWh of electricity in North America, up 32% over the comparable period a year ago. It also marketed 22.3 Bcf/d of gas, up 89% over the second quarter in 2001.

Since the start of the year, Mirant reported it has added about 600 MW of generation capacity in North America, and remains on track to add another 900 MW in the U.S. during 2002. It estimated it will own about 14,000 MW and control more than 3,000 MW in the U.S. by the end of the year.

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