Struggling Allegheny Energy Inc. said yesterday that it will delay releasing third-quarter earnings after discovering accounting errors in previous financial statements.
Company officials, who said earnings will not be announced until it completes a comprehensive review of previous statements, emphasized that it is too early to tell whether the review will require Allegheny to restate revenue or income.
Industry analysts said the postponement and more bad news could further shake investor confidence.
Last month, the Hagerstown-based energy company defaulted on several key credit agreements after the it declined to post additional collateral with several trading companies.
The defaults followed two grueling months for Allegheny, which included credit downgrades by ratings agencies, a lawsuit over the energy-trading business it purchased from Merrill Lynch & Co. Inc. and the dismissal of the head of its trading business.
"I am concerned any time a company feels that they have to possibly restate prior results," said Craig Shere, equity analyst with Standard & Poor's Investment Advisory Services LLC. "That's the last thing they need after all the things that have happened already. Investors are already leery.
"But given the litigation they have with Merrill Lynch, they may have some incentive to look at the operations with a more critical eye to support their contention that what they acquired wasn't what they were presented to be."
Allegheny sued Merrill Lynch for $1 billion in September, claiming fraud and breach of contract over the trading business it bought last year. Allegheny charged that Merrill Lynch used sham trades to artificially inflate the trading unit's revenue and trading volume.
Yesterday, Allegheny officials said they were uncertain when earnings would be released.
In a statement, Allegheny said that "after identifying miscalculations in business segment information included in its second quarter Form 10-Q, the Company initiated a comprehensive review of prior period financial statements and identified additional errors. This comprehensive review has not been completed."
"Whether it's going to require anything like a restatement, I can't even speculate on that at this point," Allegheny spokeswoman Debbie Beck said yesterday.
PricewaterhouseCoopers LLP is conducting the review for Allegheny, which serves 1.5 million electricity customers and 230,000 natural gas customers in Maryland, Ohio, Pennsylvania, Virginia and West Virginia.
Regardless of the outcome, the wait will take its toll on nervous investors trying to gauge the size of a possible restatement.
"Investors just don't want to take chances when things like this happen," Shere said. "I doubt people are going to be eager to bottom fish with these shares until there's a sense of what the scope of this review is and how material it is. ... It's really worrisome to investors. You can't evaluate the worst when there's a big unknown."
Shares of Allegheny inched up 17 cents to close at $5.78 yesterday. They have plunged 86.8 percent from their 52-week high of $43.86 in April.
In a separate statement yesterday, Allegheny said two of its subsidiaries received waivers from bank lenders through Nov. 29, ending technical default for Allegheny Energy Supply Co. LLC and Allegheny Generating Co.
By temporarily waiving the default position on the syndicated credit agreements, the banks are giving both subsidiaries time to work out their financial issues, analysts said.
"It always hurts when companies don't announce earnings," said Joan T. Goodman, an energy analyst for the Pershing division of Donaldson, Lufkin & Jenrette Securities Corp. "But the waivers mean that they'll have more time to straighten out their financial affairs. And it means that lenders want to work with them. That's to both their benefit, I think.".
The parent company, Allegheny Energy Inc., remains in default over several other credit agreements.
"We didn't seek waivers from the others because the lenders didn't require waivers," Beck said. "The banks have been very supportive of us at this point. We're continuing talks with them."