By the OGJ Online Staff
HOUSTON, Oct. 24 -- After reevaluating its strategy, Keyspan Corp. Wednesday said it is exiting the general contracting business to focus on core energy businesses of gas distribution, power facilities, and other energy services.
The big gas company, which also owns a majority interest in an exploration and production company, took an after-tax third quarter charge of $56.6 million related to its contracting business. Keyspan reported a net loss of $35.2 million, or 26¢/share, on revenue of $1.2 billion, compared to income of $14.6 million, or 10¢/share, on revenue of $947.1 million.
This was the second quarter in which Keyspan took a charge related to the Roy Kay contracting business purchased as part of a diversification scheme in February 2000. In the second quarter 2001, Keyspan charged off $30.1 million for Roy Kay.
"According to our best estimates, this is all the expenses we expect from Roy Kay," said Bob Mahony, spokesman for Keyspan. The Brooklyn company has charged $87.7 million to earnings so far in expenses related to work in progress, he said. The Roy Kay businesses also reported an after-tax operating loss of $5.5 million.
"This decision is based on our view that the business is not a core competency. It no longer fits our energy focus and has an unacceptable level of risk," said CEO Robert Catell on a conference call.
Keyspan also has filed suit against the prior owners of Roy Kay Inc., Freehold, NJ, according to company filings at the Securities and Exchange Commission. The litigation relates to allegations of "inaccuracies with the books relating to finances and operations" under previous management.
Seasonal losses on gas distribution were $31 million in the third quarter, compared to $20.4 million in last year's third quarter. Even with the third quarter loss, Keyspan reported a 44% increase to $318 million in year to date income for the gas distribution segment, compared to the first 9 months of 2000. Keyspan attributed the increase to contributions from the recently acquired Eastern Enterprises and the growth of sales in all markets of conversions from heating oil to natural gas.
The electric services segment reported operating income of $78.7 million for the quarter, compared to $78.9 million for the year ago period. Income was flat mostly because of lower electricity prices. Energy Services reported a third quarter loss of $51.7 million mostly due to the charges and lower electric commodity prices.