Kenetech, however, stresses the settlement was for wind power sales to a utility and so is justifiably included as revenues. Speaking for Kenetech, Bud Grebey says, "Well, I guess we'll take it any way we can." A company is judged by the financial community on its earnings -- revenues or sales minus costs. But the quality of earnings -- how they were generated -- is considered more crucial. A one-off lawsuit, which in Wall Street parlance is categorised as a non-recurring stream of earnings, is viewed differently from profits the company can expect to generate again in the future.
According to Kenetech's Form 10-Q, submitted to the Securities and Exchange Commission for the quarter ending October 1, third quarter revenues more than doubled to $90.7 million, up from $39.2 million a year ago. Third quarter profits also rose to $5.4 million or $0.09 per common share after preferred dividends, compared with a loss of $705,000 a year earlier. But the document says that net income was substantially increased by the lawsuit settlement. Reported sales include the settlement with PG&E, which the 10-Q states is between 50% and 70% of $17.6 million -- or about $10.6 million. A court had originally awarded $17.6 million to Kenetech last summer. Although the lawsuit was settled in the third quarter, it was for disputed sales dating back to the 1980s, long before Kenetech was publicly traded. Since the company's income before taxes for the quarter was only $9 million, and the 10-Q states that costs associated with the lawsuit were offset in prior periods, it appears the company would most likely have made a loss of about $1 million for the quarter without the settlement.
Inventories for the company, based in San Francisco, are increasing substantially. Listed under the company's current assets, inventories for the third quarter of 1994 were $53 million, compared with $22 million for the fourth quarter of 1993 (the 10-Q makes no comparison with the third quarter of 1993). The 1994 third quarter inventory mostly consisted of finished goods -- $29 million in total -- $6.7 million in work-in-progress and $17.4 million in unassembled parts. The 1993 fourth quarter saw a substantially higher proportion of unassembled parts -- $11.2 million -- and $8.9 million in finished goods and $2.1 million in work-in-progress. Power plants under development for the third quarter were $35.7 million, compared with $12.6 million for the fourth quarter of 1993.
For the first three quarters of the year, inventories are listed as a $25.5 million loss for 1994 compared with a $9 million loss for the same period of 1993. Power plants under construction, consisting of expenditures, represented a loss of $21.4 million for the first three quarters of the year. In the first thirty-nine weeks of 1993, Kenetech reported a loss of $9.9 million in construction and development and a $3.4 million decrease in funds in escrow restricted for construction.
Contracts ongoing and cancelled
The document also lists the company's executed power purchase agreements, agreements or contracts that are pending and those that have fallen through. A total of 400 MW is listed as executed, and 1200 MW is listed as pending contracts with expected installation ranging from 1995 to 1998.
Oddly enough, no mention is made of Kenetech's latest 30 MW Spain project ongoing in Tarifa. Grebey says the omission is merely an oversight; there was also no category in the 10-Q for under-construction projects, he adds. Kenetech is currently negotiating with the Spanish energy ministry for a power contract for the project and Grebey confirms the company is also negotiating financing for both the debt and equity with investors, including some based in Spain. Neither the terms of the negotiations nor negotiating partners have been revealed, but Tarifa's local utility, Sevillana, and Spain's national public utility, Endesa, are thought to be involved. According to Kenetech, the project will be completed in June. Another project, in Costa Rica with Wing-Merrill, is also not listed in the 10-Q as it is actually a direct equipment sale, says Grebey.
Negotiations with three contracts totalling 185 MW have ceased, says the document. These were 150 MW under negotiation with the European Utility Consortium, 20 MW with Central Maine Power, and 15 MW with Clark Public Utilities District. Central Maine Power, after internal financial restructuring, is not dropping more projects, says Grebey. The European utility consortium has simply stopped negotiations. And Clark PUD, in the Pacific Northwest, wanted a smaller project than Kenetech's proposal and did not ultimately choose wind.