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KENETECH AUDITORS RESIGN

After disputes over its accounting procedures, Kenetech Corp fired its independent auditors Deloitte & Touche on the same day that it received a letter of resignation from the firm. Kenetech stock went into heavier trading and a day after the dramatic turn of events on May 18 closed slightly down. Deloitte is the third largest of America's so-called "Big Six" accounting firms.

Several large blocks of Kenetech stock changed hands the first business day after the news broke, according to the Dow Jones financial news service on May 23. Kenetech fell 1/2, or 4.5%, to 10 1/2 dollars on a volume of 5 million shares, compared with average daily volume of 144,600. Dow Jones also quoted unidentified market sources as saying that JP Morgan Securities Inc downgraded Kenetech as a stock option.

Kenetech's decision, filed with the Securities and Exchange Commission, comes after Deloitte required the San Francisco based wind company to re-state its fourth quarter earnings, an uncommon move and one that changed a $6.5 million profit into a $1.2 million loss just two months later. The company's revenues were also revised downwards from $125.2 million to $84.6 million.

So unusual was the parting of ways, it made the front page of the San Francisco Chronicle newspaper's business section the next day. "Dispute apparently tied to questions over booking sales in fourth quarter," ran the sub headline in Herb Greenberg's business column on May 19. "When a company restates its profits, it's time to pay attention. When the auditors quit, it's time to sweat," it begins. "When both happen, watch out."

At issue between Kenetech and Deloitte was the sale of 700 turbines to India, which Kenetech wanted to account for as sales using its usual "percentage of completion" method (a recognition policy usually used by larger firms that install long term projects over a period of years). That means Kenetech claimed all the turbines had been shipped but not formally sold. Deloitte informed them, however, that the shipment could not be accounted for until formal sales were completed.

According to Kenetech, in documents filed with the SEC, reports prepared by Deloitte did not contain an adverse, or ''qualified,'' opinion as to the ''uncertainty, audit scope or accounting principles'' for 1993 or 1994. (Kenetech and Deloitte apparently disagreed over accounting methods more broadly during the company's two most recent fiscal years, and through May 11, 1995).

Mentioned in the SEC filing was revenue recognition for the sale of a limited partnership in the first quarter of 1993; initially, Kenetech recorded 100% of the revenue and retained an option to purchase 49%, to which Deloitte advised that the option would result in deferred revenue and related income, according to a Dow Jones report. Kenetech agreed to Deloitte's treatment of the sale. Another disagreement in the first quarter of this year arose when Kenetech proposed that revenue from an acquired business be recognised during the quarter because the deal was based on the year-end balance sheet and management had participated in day-to-day operations. But Deloitte advised a purchase method of accounting that required revenue and expenses only be recorded from the actual closing date of the acquisition. The company adopted Deloitte's suggestion.

Shortly before Deloitte and Kenetech parted company, Kenetech Corporation reported revenues of $74.8 million for the latest quarter ended April 1, yielding a net loss of $3.05 million, or 14 cents per common share, after preferred dividends. Revenues for the comparable period in 1994 totalled $65.2 million, for a net loss of $4.2 million or 12 cents per share, fully diluted.

Kenetech's stock performance was described as "sorely disappointing" in a review issued on May 8 by Dow Jones. It added that trading at $11 was down some 40% since last July. Dow Jones blamed the cheaper price of natural gas and the recent opinion by the Federal Energy Regulatory Commission that California's Biennial Resource Plan Update is illegal, which it says dimmed the company's domestic prospects for business. The BRPU mandated purchase of several hundred megawatts of wind power.

It also noted Kenetech's problems with its accounting methods that led to the company being forced to restate its year-end and fourth quarter results. Earnings estimates on Kenetech for this year have dropped to a mean of 88 cents a share, down from the more optimistic $1.26 some forecasters projected last year, stated the review. For next year, the consensus is $1.46 a share.

Despite the disappointment, Dow Jones says overseas markets look promising and noted that the Federal Energy Regulatory Commission rejected in April a New York utility's attempt to break long term contracts with independents.

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