UniSource Energy Reports Earnings for 2002
TUCSON, Ariz.--(BUSINESS WIRE)--Jan. 30, 2003--UniSource Energy Corporation (NYSE:UNS) today reported earnings for 2002 of $33.3 million, or $0.99 per share of common stock.
Reduced wholesale power prices, mild weather and lower demand from TEP's mining customers impacted earnings in 2002. The resulting decline in kilowatt-hour sales, as well as the expense of a coal contract buyout and operating costs at some of UniSource Energy's unregulated subsidiaries, were primary reasons why earnings fell below those recorded in 2001. That year, UniSource Energy reported earnings of $61.3 million, or $1.84 per share of common stock.
"Despite lower earnings, I'm pleased with everything we accomplished over the last 12 months," said James S. Pignatelli, Chairman, President and Chief Executive Officer of UniSource Energy. "We've had a challenging year, but we've put ourselves in a good position for the future."
UniSource Energy capitalized on the strong performance of Tucson Electric Power Company (TEP), its primary subsidiary, to strengthen its balance sheet and increase its dividend. In 2002, TEP produced operating cash flows exceeding $200 million from its expanding customer base.
"Our track record in 2002 proves UniSource Energy's commitment to long-term prosperity," Pignatelli said. "TEP's strong cash flow has allowed us to reward our current shareholders while making several key investments in the company's future."
In 2002, TEP purchased more than $130 million of lease debt, bought out of an unfavorably priced coal contract and successfully negotiated a new $400 million credit agreement in a difficult capital market environment. TEP also earned regulatory approval to expand its coal-fired Springerville Generating Station. UniSource Energy, meanwhile, increased its quarterly dividend by 25 percent. It also reached an agreement to acquire gas and electric distribution systems in Arizona from Citizens' Communications.
"Our plans to expand the Springerville plant will help maximize the value of that facility, while our acquisition of Citizens' utility assets will expand our customer base by more than 40 percent without leaving our home state. Both moves fit in well with our strategy of controlled growth as an integrated utility," Pignatelli said.
Tucson Electric Power Company
In 2002, TEP reported earnings of $53.7 million or $1.59 per UniSource Energy share. TEP's earnings include a pre-tax charge of $11.3 million related to the cost of terminating a coal contract at its Irvington Generation Facility. The termination fee relieves TEP of annual $3.5 million pre-tax take-or-pay payments in future years. In 2001, TEP reported earnings of $75.3 million or $2.25 per UniSource Energy share.
TEP's retail kilowatt-hour (kWh) sales were down 3 percent in 2002, due primarily to a 33 percent decline in sales to mining customers and a 3 percent decline in cooling degree-days. Total retail revenues of $666 million were down less than 1 percent compared with 2001. Excluding TEP's mining customers, 2002 retail sales of 7.3 billion kWh and revenues of $638 million were up over 1 percent compared with 2001.
"Retail sales and revenues continue to be affected by our mining customers. The nationwide economic slowdown has caused many of our mining customers to curtail their production and energy usage. However, our core retail customer base continues to grow," Pignatelli said.
The number of retail customers served by TEP grew by 2.4 percent to nearly 360,000 in 2002. The University of Arizona Economic and Business Research Program projects Tucson's population growth will average 2.3 percent per year through 2007, above the national average of less than 1 percent.
In 2002, wholesale revenues of $178 million were down 76 percent from the prior year due to lower wholesale power prices and softening demand. Wholesale kWh sales were down 33 percent compared with 2001. Around-the-clock power prices on the Dow Jones Palo Verde Index returned to more normal levels in 2002, averaging $27 per megawatt hour (MWh), down from $94 per MWh in 2001.
TEP generated operating cash flows of $204 million in 2002, due primarily to continued retail customer growth and strong operating performance. TEP's generating units operated at a 95 percent equivalent availability factor during the summer months, without any unplanned customer outages. In 2002, TEP once again scored among the national leaders in J.D. Power and Associates' Electric Utility Residential Customer Satisfaction Study.
Millennium Energy Holdings
Millennium Energy Holdings (MEH), parent of UniSource Energy's unregulated energy businesses, reported an annual net loss of $15.5 million in 2002 or $0.46 per UniSource Energy share. In 2001, MEH reported a loss of $9.2 million or $0.27 per UniSource Energy share. MEH's 2002 results reflect operating costs as well as research and development expenses at its unregulated subsidiaries. Losses in 2001 were partially offset by an $11 million pre-tax gain from the sale of an independent power project.
In 2002, MEH and Dow Corning made equal $2.5 million equity investments in Infinite Power Solutions (IPS), an MEH subsidiary that has developed tiny, self-charging batteries for use in ID tags, medical implants and other portable electronic devices.
Annual Reported Earnings Per Share Summary Per UniSource Energy Share 2002 2001 --------------------------------------------- ------------ ----------- Tucson Electric Power $1.59 $2.25 Millennium Energy Holdings ($0.46) ($0.27) Other (1) ($0.14) ($0.14) --------------------------------------------- ------------ ----------- Consolidated Earnings Per Share $0.99 $1.84 Shares Outstanding (in millions) 33,665 33,398 (1) Includes inter-company and other transactions
Quarterly Results
UniSource Energy's consolidated fourth quarter 2002 earnings were $4.9 million or $0.14 per share of common stock, compared with $13.3 million or $0.40 per share of common stock in the same period of last year. Fourth quarter 2002 earnings were down due primarily to lower retail sales volumes resulting from milder weather, an unscheduled plant outage, and higher debt costs at TEP. TEP reported earnings of $11.6 million, or $0.34 per UniSource Energy share in the fourth quarter of 2002, compared with $18.4 million or $0.55 per UniSource Energy share, in the same period last year. MEH reported a loss of $4.9 million, or $0.15 per UniSource Energy share, in the fourth quarter of 2002, compared with a loss of $3.9 million, or $0.12 per UniSource Energy share, in the same period last year.
Quarterly and annual condensed consolidated statements of income for UniSource Energy are attached.
Earnings Outlook
UniSource Energy management currently estimates that its 2003 full-year earnings will be $1.30 to $1.50 per share.
Numerous factors can affect UniSource Energy's ability to reach the 2003 estimate. The factors include, but are not limited to: uncertainties prevailing in the wholesale power market; regulatory decisions; performance of TEP's generating plants; the weather; the pace and strength of the economic recovery in the region; fuel and purchased power expense; changes to long-term contracts; ability of the company to develop the Springerville generation expansion project; changes in accounting standards; impacts from the Citizens' utility transaction; and the amount of research and development expenses incurred by UniSource Energy's unregulated energy technology investments.
UniSource Energy's earnings are subject to TEP's seasonal energy sales. Generally, TEP records a significant portion of its earnings during the third quarter as a result of peak energy usage during the summer. Conversely, TEP generally records a loss during the first quarter due to moderate temperatures and lower customer demand.
Fourth Quarter 2002 and Annual Earnings Discussion
UniSource Energy will hold its 2002 year-end conference call and Webcast at 11 a.m. (ET) on Monday, February 3, 2003. UNS Chairman, President and Chief Executive Officer James S. Pignatelli and UNS Chief Financial Officer Kevin Larson will discuss UniSource Energy's 2002 performance and its plans for 2003.
To participate in the conference call, dial 877/582-0446 at least 5 minutes prior to the event and reference confirmation code 7651121. A replay of the call will be available for seven days following the event by dialing 800/642-1687 and using confirmation code 7651121.
A live Internet Webcast of the conference call can be accessed from a link at www.unisourceenergy.com. Listeners are encouraged to access the Web site at least 30 minutes before the event to register, download and install any necessary audio software.
UniSource Energy's primary subsidiaries include Tucson Electric Power Company, Arizona's second-largest investor-owned electric utility, and Millennium Energy Holdings, parent company of UniSource Energy's unregulated energy businesses. For more information about UniSource Energy and its subsidiaries, visit www.unisourceenergy.com.
This news release contains forward-looking information that involves risks and uncertainties, that include, but are not limited to, the outcome of regulatory proceedings; the ongoing restructuring of the electric industry; regional economic and market conditions which could affect customer growth and the cost of power supplies; the Citizens' utility acquisition; the cost of debt and equity capital; changes in accounting standards; weather variations affecting customer usage; and other factors. The preceding factors may cause future results to differ materially from outcomes currently expected by UniSource Energy.
UNISOURCE ENERGY 2002 RESULTS
UniSource Energy Corporation
Condensed Consolidated Statements of Income
(in thousands of dollars, except per share amounts)
(UNAUDITED)
Three Months
Ended
December 31, Increase/(Decrease)
2002 2001 Amount Percent
Operating Revenues
Electric Retail Revenues $144,985 $151,665 $(6,680) (4.4)
Electric Wholesale Revenues 51,997 165,902 (113,905) (68.7)
Net Gain (Loss) on TEP
Forward Contracts and MEG
Trading Activities (292) (5,600) 5,308 94.8
Other Revenues 2,588 3,525 (937) (26.6)
Total Operating Revenues 199,278 315,492 (116,214) (36.8)
Operating Expenses
Fuel 44,775 54,861 (10,086) (18.4)
Purchased Power 17,595 123,336 (105,741) (85.7)
Other Operations and
Maintenance 48,020 31,586 16,434 52.0
Depreciation and Amortization 31,848 31,895 (47) (0.1)
Amortization of Transition
Recovery Asset 4,243 4,145 98 2.4
Taxes Other Than Income Taxes 10,804 10,343 461 4.5
Total Operating Expenses 157,285 256,166 (98,881) (38.6)
Operating Income 41,993 59,326 (17,333) (29.2)
Other Income (Deductions)
Interest Income 5,741 3,307 2,434 73.6
Other Income (Deductions) 106 (1,540) 1,646 N/M
Total Other Income
(Deductions) 5,847 1,767 4,080 N/M
Interest Expense
Long-Term Debt 17,505 16,467 1,038 6.3
Interest on Capital Leases 21,905 22,133 (228) (1.0)
Other Interest Expense 331 5 326 N/M
Total Interest Expense 39,741 38,605 1,136 2.9
Income Before Income Taxes 8,099 22,488 (14,389) (64.0)
Income Tax Expense 3,217 9,210 (5,993) (65.1)
Net Income $4,882 $13,278 $(8,396) (63.2)
Average Shares of Common Stock
Outstanding (000) 33,699 33,511 188 0.6
Basic Earnings per Share $0.14 $0.40 $(0.26) (65.0)
Diluted Earnings per Share $0.14 $0.39 $(0.25) (64.1)
Dividends Paid Per Share $0.125 $0.10 $0.025 25.0
Three Months
Ended
December 31, Increase/(Decrease)
Electric kWh Sales (000): 2002 2001 Amount Percent
Retail Sales 1,758,540 1,887,808 (129,268) (6.8)
Wholesales Sales 1,320,289 1,894,633 (574,344) (30.3)
Total 3,078,829 3,782,441 (703,612) (18.6)
Reclassifications have been made to prior year financial
statements presented to conform to the current year's presentation.
UNISOURCE ENERGY 2002 RESULTS
UniSource Energy Corporation
Condensed Consolidated Statements of Income
(in thousands of dollars, except per share amounts)
(UNAUDITED)
Twelve Months
Ended
December 31, Increase/(Decrease)
2002 2001 Amount Percent
Operating Revenues
Electric Retail Revenues $666,049 $670,117 $(4,068) (0.6)
Electric Wholesale
Revenues 177,908 733,559 (555,651) (75.7)
Net Gain (Loss) on TEP
Forward Contracts and MEG
Trading Activities 644 (1,347) 1,991 N/M
Other Revenues 11,621 14,683 (3,062) (20.9)
Total Operating Revenues 856,222 1,417,012 (560,790) (39.6)
Operating Expenses
Fuel 209,712 258,761 (49,049) (19.0)
Purchased Power 64,504 542,587 (478,083) (88.1)
Coal Contract Termination
Fee 11,250 - 11,250 N/M
Other Operations and
Maintenance 188,910 179,036 9,874 5.5
Depreciation and
Amortization 127,923 120,346 7,577 6.3
Amortization of Transition
Recovery Asset 24,554 21,609 2,945 13.6
Taxes Other Than Income
Taxes 45,508 46,213 (705) (1.5)
Total Operating Expenses 672,361 1,168,552 (496,191) (42.5)
Operating Income 183,861 248,460 (64,599) (26.0)
Other Income (Deductions)
Interest Income 20,654 14,600 6,054 41.5
Other Income (Deductions) 189 3,868 (3,679) (95.1)
Total Other Income
(Deductions) 20,843 18,468 2,375 12.9
Interest Expense
Long-Term Debt 65,620 68,678 (3,058) (4.5)
Interest on Capital Leases 87,801 90,559 (2,758) (3.0)
Other Interest Expense 1,130 (658) 1,788 N/M
Total Interest Expense 154,551 158,579 (4,028) (2.5)
Income Before Income Taxes
and Cumulative Effect of
Accounting Change 50,153 108,349 (58,196) (53.7)
Income Tax Expense 16,878 47,474 (30,596) (64.4)
Income Before Cumulative
Effect of Accounting Change 33,275 60,875 (27,600) (45.3)
Cumulative Effect of
Accounting Change - Net of
Tax - 470 (470) N/M
Net Income $33,275 $61,345 $(28,070) (45.8)
Average Shares of Common
Stock Outstanding (000) 33,665 33,398 267 0.8
Basic Earnings per Share
Income Before Cumulative
Effect of Accounting
Change $0.99 $1.83 $(0.84) (45.9)
Cumulative Effect of
Accounting Change - Net
of Tax - $0.01 $(0.01) N/M
Net Income $0.99 $1.84 $(0.85) (46.2)
Diluted Earnings per Share
Income Before Cumulative
Effect of Accounting
Change $0.97 $1.79 $(0.82) (45.8)
Cumulative Effect of
Accounting Change - Net
of Tax - $0.01 $(0.01) N/M
Net Income $0.97 $1.80 $(0.83) (46.1)
Dividends Paid Per Share $0.50 $0.40 $0.10 25.0
Twelve Months
Ended
December 31, Increase/(Decrease)
Electric kWh Sales (000): 2002 2001 Amount Percent
Retail Sales 8,012,418 8,260,882 (248,464) (3.0)
Wholesales Sales 4,530,793 6,732,802 (2,202,009) (32.7)
Total 12,543,211 14,993,684 (2,450,473) (16.3)
Reclassifications have been made to prior year financial
statements presented to conform to the current year's presentation.