United States

United States

LOSS APPRARS AFTER AUDITORS DEMAND STATEMENT REVISION

Unexpectedly, Kenetech Corp is reporting a revision of its revenue statements for both the fourth quarter of 1994 and the year end that are significantly different from those initially reported on February 16 (Windpower Monthly, March 1995).

On April 3 the San Francisco based company reported 1994 revenues of $338.2 million and for the quarter ended December 31, 1994, $84.7 million. These yielded a 1994 net income of $4.3 million, or a loss of three cents per share after deducting preferred dividends. The net loss for the fourth quarter was $1.2 million, or nine cents per share, after preferred dividends. The company had previously reported preliminary annual revenues of $378.8 million and net income of $12 million, or 18 cents per share after preferred dividends, and preliminary fourth quarter revenues of $125 million and net income of $6.5 million, or 12 cents per share after preferred dividends.

The revisions resulted from a change in the accounting treatment for agreements with ABAN Loyd Chiles Offshore Ltd, of India. The agreements call for the delivery of about 700 variable speed wind turbines over a two year period starting in December 1994. On March 30, Kenetech says it was informed by its auditors that the ABAN transaction could not be accounted for under the company's usual so-called percentage-of-completion recognition policy. Instead, revenues and related costs will now be recognised as turbines shipped.

The change in accounting policy applies only to sales made under the agreements with ABAN and does not affect the accounting for any other transaction, says Kenetech. The change will also affect only the timing of revenue and income recognition under the ABAN contracts and not the total revenue and income ultimately reported by the company, it continues. Of the $40.6 million reduction in revenue in 1994 resulting from the change in accounting treatment, the company expects to recognise about $16 million of revenue under the agreements with ABAN in the quarter ended March 31 and all of the remainder prior to the end of the third quarter of 1995.

Financial analysts expressed surprise about the revised earnings -- they say it is highly unusual. What is not clear is why the "percentage of accounting" method was not disallowed previously by the accountants. Such a method is considered "aggressive" accounting and is more usually used by large companies such as Bechtel or Flour Corp that may take five to ten years to complete a project, but which also have predictable profit margins.

One financial analyst even said the move might expose Kenetech to a class-action lawsuit open to people who bought shares in the company based on an erroneous statement. Kenetech shares were at a low of 14 and a high of 14 3/16 on February 17, after earnings were initially announced. After the revised figures were issued, the stock was at a low of 10 1/8.

Kenetech's Bud Grebey had no comment on the possibility of a class action lawsuit, except to say that as of April 10 no legal action had been filed.

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