1
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1999MARCH 31, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ______________ to -------------- ---------------_______________
------------------------------
Commission file number 1-3187
RELIANT ENERGY, INCORPORATED
(Exact name of registrant as specified in its charter)
Texas 74-0694415
(State or other jurisdiction of (I.R.S. Employer incorporation or organization) (I.R.S. Employer Identification No.)
1111 Louisiana
Houston, Texas 77002
(Address of principal executive offices) (Zip Code)
(713) 207-3000
(Registrant's telephone number, including area code)
Commission file number 1-13265
RELIANT ENERGY RESOURCES CORP.
(Exact name of registrant as specified in its charter)
Delaware 76-0511406
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1111 Louisiana
Houston, Texas 77002
Address
Delaware 76-0511406
(State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.)
1111 Louisiana
Houston, Texas 77002
(Address of principal executive offices) (Zip Code)
(713) 207-3000
(Registrant's telephone number, including area code)
-----------------------------
RELIANT ENERGY RESOURCES CORP. MEETS THE CONDITIONS SET FORTH IN GENERAL
INSTRUCTION H(1)(a) AND (b) OF FORM 10-Q AND IS THEREFORE FILING THIS FORM 10-Q
WITH THE REDUCED DISCLOSURE FORMAT.
Indicate by check mark whether the registrants: (1) have filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrants were required to file such reports), and (2) have been subject to
such filing requirements for the past 90 days. Yes X No
--- ---
As of NovemberMay 5, 1999,2000, Reliant Energy, Incorporated had 295,671,579293,420,705 shares of common
stock outstanding, including 10,719,4899,249,489 ESOP shares not deemed outstanding for
financial statement purposes and excluding 1,610,9184,802,426 shares held as treasury
stock. As of NovemberMay 5, 1999,2000, all 1,000 shares of Reliant Energy Resources Corp.
common stock were held by Reliant Energy, Incorporated.
2
THIS COMBINED QUARTERLY REPORT ON FORM 10-Q IS SEPARATELY FILED BY RELIANT
ENERGY, INCORPORATED (COMPANY)(RELIANT ENERGY) AND RELIANT ENERGY RESOURCES CORP.
(RESOURCES)(RESOURCES CORP.). INFORMATION CONTAINED HEREIN RELATING TO RESOURCES CORP. IS
FILED BY THE COMPANYRELIANT ENERGY AND SEPARATELY BY RESOURCES CORP. ON ITS OWN BEHALF.
RESOURCES CORP. MAKES NO REPRESENTATION AS TO INFORMATION RELATING TO THE COMPANYRELIANT
ENERGY (EXCEPT AS IT MAY RELATE TO RESOURCES CORP. AND ITS SUBSIDIARIES) OR TO ANY
OTHER AFFILIATE OR SUBSIDIARY OF THE COMPANY.RELIANT ENERGY.
RELIANT ENERGY, INCORPORATED
AND RELIANT ENERGY RESOURCES CORP.
QUARTERLY REPORT ON FORM 10-Q
FOR THE QUARTER ENDED SEPTEMBER 30, 1999MARCH 31, 2000
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION
COMPANY:
Reliant Energy:
Financial Statements...............................................................................1Statements.........................................................................1
Statements of Consolidated OperationsIncome
Three and Nine Months Ended September 30, 1999March 31, 2000 and 1998 (Unaudited)............................11999..........................................1
Consolidated Balance Sheets
September 30, 1999 (Unaudited)March 31, 2000 and December 31, 1998...........................................21999................................................2
Statements of Consolidated Cash Flows
NineThree Months Ended September 30, 1999March 31, 2000 and 1998 (Unaudited)......................................4
Statements of Consolidated Retained Earnings and Comprehensive Income (Loss)
Three and Nine Months Ended September 30, 1999 and 1998 (Unaudited)............................61999..........................................4
Notes to Unaudited Consolidated Financial Statements...........................................7Statements................................5
Management's Discussion and Analysis of Financial Condition and Results of Operations
of the Company.....................................................................19Company.....................................................................13
Quantitative and Qualitative Disclosures Aboutabout Market Risk of the Company.........................34
RESOURCES:Company...................21
Resources Corp.:
Financial Statements..............................................................................36Statements........................................................................22
Statements of Consolidated OperationsIncome
Three and Nine Months Ended September 30, 1999March 31, 2000 and 1998 (Unaudited)...........................361999.........................................22
Consolidated Balance Sheets
September 30, 1999 (Unaudited)March 31, 2000 and December 31, 1998..........................................371999...............................................23
Statements of Consolidated Cash Flows
NineThree Months Ended September 30, 1999March 31, 2000 and 1998 (Unaudited).....................................39
Consolidated Statements of Retained Earnings and Comprehensive Income (Loss)
Three and Nine Months Ended September 30, 1999 and 1998 (Unaudited)...........................401999.........................................25
Notes to Unaudited Consolidated Financial Statements..........................................41Statements...............................26
Management's Narrative Analysis of the Results of Operations of Resources.......................................................................43Resources...................30
PART II. OTHER INFORMATION
Item 1. Legal Proceedings......................................................................45
Item 5.Proceedings...........................................................................32
Other Information......................................................................45
Item 6.Information...........................................................................32
Exhibits and Reports on Form 8-K.......................................................468-K............................................................33
3
PART I. FINANCIAL INFORMATION
RELIANT ENERGY, INCORPORATED AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED OPERATIONSINCOME
(THOUSANDS OF DOLLARS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------------------ ------------------------------MARCH 31,
----------------------------
2000 1999 1998 1999 1998
------------ ------------
------------ ------------
REVENUES:
Electric Operations ......................................REVENUES $ 1,496,5964,234,103 $ 1,415,832 $ 3,513,144 $ 3,443,694
Natural Gas Distribution ................................. 302,698 266,177 1,310,153 1,327,562
Interstate Pipelines ..................................... 70,024 70,394 202,246 217,891
Wholesale Energy ......................................... 2,908,119 1,610,653 5,854,052 3,416,048
International ............................................ 34,126 31,813 26,273 228,494
Corporate ................................................ 250,036 157,351 673,209 502,593
Eliminations ............................................. (114,407) (86,733) (331,153) (302,847)
------------ ------------ ------------ ------------
Total ................................................ 4,947,192 3,465,487 11,247,924 8,833,435
------------ ------------ ------------ ------------2,642,904
EXPENSES:
Fuel and cost of gas sold ................................ 1,563,552 1,143,149 4,631,147 3,487,332................................... 2,340,191 1,432,376
Purchased power .......................................... 2,062,679 970,041 3,315,667 1,872,557............................................. 784,934 328,507
Operation and maintenance ................................ 455,687 430,060 1,281,898 1,184,545................................... 469,877 395,787
Taxes other than income taxes ............................ 113,643 148,039 340,800 368,226............................... 111,505 107,984
Depreciation and amortization ............................ 288,833 267,204 705,337 677,838
------------ ------------ ------------ ------------............................... 181,501 190,585
----------- -----------
Total ................................................ 4,484,394 2,958,493 10,274,849 7,590,498
------------ ------------ ------------ ------------................................................... 3,888,008 2,455,239
----------- -----------
OPERATING INCOME ........................................... 462,798 506,994 973,075 1,242,937
------------ ------------ ------------ ------------.............................................. 346,095 187,665
----------- -----------
OTHER INCOME (EXPENSE):
Unrealized gain onin Time Warner investment ................ 1,816,105 1,816,105................... 1,523,683 --
Unrealized gain (loss)loss on indexed debt securities ........ 406,717 (40,231) 6,778 (484,009)
Time Warner dividend income .............................. 2,622 10,313 23,247 30,938.................. (1,523,625) (331,311)
Other, - net .............................................. 10,045 8,652 15,448 24,919
------------ ------------ ------------ ------------.................................................. 19,813 13,465
----------- -----------
Total ................................................ 2,235,489 (21,266) 1,861,578 (428,152)
------------ ------------ ------------ ------------................................................... 19,871 (317,846)
----------- -----------
INTEREST AND OTHER CHARGES:
Interest on long-term debt ............................... 98,245 101,229 307,965 310,584
Other interest ........................................... 17,931 18,829 60,794 64,653
Distributions.................................................... 162,985 126,263
Distribution on trust preferred securities ........................ 14,652 7,248 38,433 21,960
------------ ------------ ------------ ------------.................. 13,892 9,791
----------- -----------
Total ................................................ 130,828 127,306 407,192 397,197
------------ ------------ ------------ ------------................................................... 176,877 136,054
----------- -----------
INCOME (LOSS) BEFORE INCOME TAXES AND PREFERRED DIVIDENDS ................................................ 2,567,459 358,422 2,427,461 417,588..... 189,089 (266,235)
Income Tax Expense (Benefit) .................................. 55,936 (56,543)
----------- -----------
INCOME TAX EXPENSE ......................................... 877,372 106,616 872,304 154,218
------------ ------------ ------------ ------------(LOSS) BEFORE PREFERRED DIVIDENDS ...................... 133,153 (209,692)
Preferred Dividends ........................................... 97 97
----------- -----------
NET INCOME ................................................. 1,690,087 251,806 1,555,157 263,370
PREFERRED DIVIDENDS ........................................ 97 97 292 292
------------ ------------ ------------ ------------
NET INCOME(LOSS) ATTRIBUTABLE TO COMMON STOCKHOLDERS ....................................................... $ 1,689,990133,056 $ 251,709(209,789)
=========== ===========
BASIC AND DILUTED EARNINGS (LOSS) PER SHARE ................... $ 1,554,8650.47 $ 263,078
============ ============ ============ ============
BASIC INCOME PER COMMON SHARE .............................. $ 5.92 $ .89 $ 5.45 $ .93
DILUTED INCOME PER COMMON SHARE ............................ $ 5.90 $ .88 $ 5.43 $ .92(0.74)
=========== ===========
See Notes to the Company's ConsolidatedInterim Financial Statements.Statements
1
4
RELIANT ENERGY, INCORPORATED AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(THOUSANDS OF DOLLARS)
(UNAUDITED)
ASSETS
ASSETS
SEPTEMBER 30,MARCH 31, DECEMBER 31,
2000 1999
1998
------------------------ ------------
CURRENT ASSETS:
Cash and cash equivalents ..................................................................................... $ 489,87895,032 $ 29,67389,078
Investment in Time Warner securities ............................... 3,343,160common stock .............................. 5,503,144 3,979,461
Accounts receivable - net .......................................... 880,236 726,377........................................... 1,115,305 1,104,640
Accrued unbilled revenues .......................................... 113,004 175,515........................................... 150,927 172,629
Fuel gasstock and petroleum products ................................... 209,300 211,75096,557 152,292
Materials and supplies, at average cost ............................ 186,474 171,998............................. 206,746 188,167
Price risk management assets ....................................... 481,147 265,203
Restricted deposit for bond redemption ............................. 70,315........................................ 530,645 435,336
Prepayments and other current assets ............................... 89,244 88,655................................ 70,862 131,666
----------- -----------
Total current assets ............................................. 5,862,758 1,669,171.............................................. 7,769,218 6,253,269
----------- -----------
PROPERTY, PLANT AND EQUIPMENT -- AT COST:
Electric ........................................................... 14,423,741 13,969,302
Natural gas distributionEQUIPMENT:
Property, plant and gathering systems ..................... 1,870,869 1,686,159
Interstate pipelines ............................................... 1,316,329 1,302,829
Other property ..................................................... 119,878 72,299
----------- -----------
Total ............................................................ 17,730,817 17,030,589equipment ....................................... 20,392,526 20,133,720
Less accumulated depreciation and amortization ..................... 6,772,020 5,499,448...................... 6,961,431 6,866,325
----------- -----------
Property, plant and equipment - net .............................. 10,958,797 11,531,141............................... 13,431,095 13,267,395
----------- -----------
OTHER ASSETS:
Goodwill and other intangibles - net ..................................................... 2,061,682 2,098,890................................ 2,982,695 3,034,361
Equity investments and advances to unconsolidated affiliates ....... 936,338 1,051,600
Investment in Time Warner securities ............................... 990,000
Recoverable impaired plant costs ................................... 664,106subsidiaries ...... 1,023,658 1,022,210
Regulatory assets ................................................... 1,702,551 1,739,507
Price risk management assets ....................................... 100,593 21,414........................................ 331,681 148,722
Other .............................................................. 2,019,843 1,800,681............................................................... 819,671 755,472
----------- -----------
Total other assets ............................................... 5,782,562 5,962,585................................................ 6,860,256 6,700,272
----------- -----------
TOTAL ASSETS ................................................... $22,604,117 $19,162,897Total Assets .................................................... $28,060,569 $26,220,936
=========== ===========
See Notes to the Company's ConsolidatedInterim Financial Statements.Statements
2
5
RELIANT ENERGY, INCORPORATED AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS - (CONTINUED)
(THOUSANDS OF DOLLARS)
(UNAUDITED)
LIABILITIES AND STOCKHOLDERS' EQUITY
SEPTEMBER 30,
MARCH 31, DECEMBER 31,
2000 1999
1998
------------------------- ------------
CURRENT LIABILITIES:
Notes payable ...........................................................Short-term borrowings ............................................ $ 1,883,1633,409,603 $ 1,812,739
Accounts payable ........................................................ 899,419 807,977
Price risk management liabilities ....................................... 457,420 227,6522,879,211
Current portion of long-term debt ....................................... 3,791,562 397,454
Other ................................................................... 1,032,239 825,120
-------------- --------------
Total current................................ 5,788,228 4,382,136
Accounts payable ................................................. 1,033,915 1,036,839
Taxes accrued .................................................... 247,589 227,058
Interest accrued ................................................. 137,677 116,274
Dividends declared ............................................... 110,132 110,811
Price risk management liabilities ........................................... 8,063,803 4,070,942
-------------- --------------
DEFERRED CREDITS:................................ 500,371 431,135
Accumulated deferred income taxes ....................................... 2,868,652 2,364,036................................ 424,094 415,591
Business purchase obligation ..................................... -- 431,570
Other ............................................................ 352,117 360,109
------------ ------------
Total current liabilities ...................................... 12,003,726 10,390,734
------------ ------------
DEFERRED CREDITS AND OTHER LIABILITIES:
Accumulated deferred income taxes ................................ 2,469,778 2,451,619
Unamortized investment tax credit ....................................... 274,397 328,949credits ............................... 269,480 270,243
Price risk management liabilities ....................................... 95,494 29,108................................ 308,045 117,437
Benefit obligations .............................................. 372,282 400,849
Business purchase obligation ..................................... -- 596,303
Other ................................................................... 1,034,289 905,014
-------------- --------------............................................................ 1,066,793 1,020,837
------------ ------------
Total deferred credits .............................................. 4,272,832 3,627,107
-------------- --------------and other liabilities ................... 4,486,378 4,857,288
------------ ------------
LONG-TERM DEBT ............................................................ 4,063,041 6,800,748
-------------- --------------...................................................... 5,514,748 4,961,310
------------ ------------
COMMITMENTS AND CONTINGENCIES (NOTE 1)
TOTAL LIABILITIES ................................................. 16,399,676 14,498,797
-------------- --------------
COMPANY/RESOURCES(NOTES 1 AND 10)
COMPANY OBLIGATED MANDATORILY REDEEMABLE TRUST PREFERRED SECURITIES OF
SUBSIDIARY TRUSTS HOLDING SOLELY JUNIOR SUBORDINATED DEBENTURES
OF COMPANY/RESOURCES - NET .................... 705,261 342,232
-------------- --------------
PREFERENCE STOCK, NONE OUTSTANDING
CUMULATIVE PREFERRED STOCK, NOT SUBJECT TO MANDATORY REDEMPTION ...........THE COMPANY ................................................... 705,373 705,272
------------ ------------
STOCKHOLDERS' EQUITY:
Cumulative preferred stock ....................................... 9,740 9,740
-------------- --------------
STOCKHOLDERS' EQUITY:
Common stock no par value ............................................ 3,170,989 3,136,826..................................................... 3,198,006 3,182,751
Treasury stock at cost ............................................... (41,198) (2,384)................................................... (120,602) (93,296)
Unearned ESOP shares .................................................. (203,053) (217,780)stock .............................................. (176,169) (199,226)
Retained earnings ..................................................... 2,679,024 1,445,081................................................ 2,527,758 2,500,181
Accumulated other comprehensive loss .................................. (116,322) (49,615)
-------------- --------------............................. (88,389) (93,818)
------------ ------------
Total stockholders' equity .......................................... 5,489,440 4,312,128
-------------- --------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY ............................................................. 5,350,344 5,306,332
------------ ------------
Total Liabilities and Stockholders' Equity ................... $ 22,604,11728,060,569 $ 19,162,897
============== ==============26,220,936
============ ============
See Notes to the Company's ConsolidatedInterim Financial Statements.Statements
3
6
RELIANT ENERGY, INCORPORATED AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED CASH FLOWS
(THOUSANDS OF DOLLARS)
(UNAUDITED)
NINETHREE MONTHS ENDED SEPTEMBER 30,
----------------------------MARCH 31,
---------------------------
2000 1999
1998
----------- -----------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) attributable to common stockholders ........................................... $ 1,554,865133,056 $ 263,078(209,789)
Adjustments to reconcile net income (loss) to net cash provided by
operating activities:
Depreciation and amortization .............................................. 705,337 677,838.................................. 181,501 190,585
Deferred income taxes ...................................................... 606,786 (154,092).......................................... 6,334 (123,153)
Investment tax credit ...................................................... (54,552) (15,092)credits ......................................... (763) (5,022)
Unrealized gain on investment in Time Warner securities .................... (1,816,105)investment ...................... (1,523,683) --
Unrealized (gain) loss on indexed debt securities .......................... (6,778) 484,009..................... 1,523,625 331,311
Undistributed net loss (earnings) of unconsolidated subsidiaries .......... 1,318 74,362
Impairment of marketable equity investments in unconsolidated
affiliates ............................................................... 65,401 (26,496)securities ..................... 22,185 --
Changes in other assets and liabilities:
Accounts receivable, - net ................................................ (91,348) (591,241)
Accounts receivable - IRS ................................................ 140,532
Inventory ................................................................ (12,026) (129,444)
Other current assets ..................................................... (589) (37,801)..................................... 8,838 25,001
Inventories .................................................. 54,581 117,537
Accounts payable ......................................................... 91,442 528,582
Interest and taxes accrued ............................................... (44,821) 58,810............................................. (951) (92,532)
Federal tax refund ........................................... 52,817 --
Other, current liabilities ................................................ 122,936 (17,200)
Net price risk management assets ......................................... 1,031 (4,638)
Other - net .............................................................. 4,810 (2,766)................................................... (8,906) (94,068)
----------- -----------
Net cash provided by operating activities .............................. 1,126,389 1,174,079.................. 449,952 214,232
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures ......................................................... (708,542) (447,152)............................................. (403,608) (179,039)
Business acquisition ............................................. (986,539) --
Investment in Time Warner securities ......................................... (537,055)
Acquisitions of non-rate regulated electric power plants ..................... (275,056)
Sale of equity investments in foreign electric system projects ............... 242,744
Equity investment in foreign electric system projects ........................ (240,377)
Equity investment and advances to unconsolidated affiliates .................. (97,080) (42,439)............. (2,800) 19,361
Other, - net ................................................................. 35,422 (40,339)....................................................... 32,351 (1,716)
----------- -----------
Net cash used in investing activities .................................. $(1,307,255) $ (802,619)...................... (1,360,596) (161,394)
----------- -----------
(Continued on next page)
4
7
RELIANT ENERGY, INCORPORATED AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED CASH FLOWS - (CONTINUED)
(THOUSANDS OF DOLLARS)
(UNAUDITED)
NINE MONTHS ENDED
SEPTEMBER 30,
----------------------------
1999 1998
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payment of matured bonds ...................................... $ (76,000)
Proceeds from issuance of indexed debt securities ............. $ 980,000
Proceeds from issuancesale of trust preferred securities, ..........net ............ -- 362,994
Proceeds from issuancelong-term debt, net ................................ 41,967 --
Increase (decrease) in short-term borrowing, net ................. 1,147,552 (74,736)
Payments of pollution control revenue bonds ..... 284,102 454,258
Restricted deposit for bond redemption ........................ (70,315) (68,700)
Proceeds from issuance of debentures .......................... 298,514
Payment of debentures ......................................... (12,042)long-term debt ....................................... (157,537) (176,542)
Payment of common stock dividends ............................. (320,461) (316,968)
Repurchase................................ (105,890) (106,767)
Purchase of commontreasury stock .................................... (38,757)
Decrease in notes payable -....................................... (27,306) --
Other, net ............................... (153,835) (226,836)
Extinguishment of long-term debt .............................. (395,636) (402,587)
Redemption of convertible securities .......................... (57) (10,399)
Other - net ................................................... 5,078 (18,151)....................................................... 15,565 (3,665)
----------- -----------
Net cash provided by (used in) financing activities ....... 641,071 (366,869).................... 914,351 1,284
----------- -----------
EFFECT OF EXCHANGE RATE CHANGES ON CASH ............................ 2,247 --
----------- -----------
NET INCREASE IN CASH AND CASH EQUIVALENTS ....................... 460,205 4,591.......................... 5,954 54,122
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD ................................... 89,078 29,673 51,712
----------- -----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD ............................................... $ 489,87895,032 $ 56,30383,795
=========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash payments:Payments:
Interest (net of amounts capitalized) ..................................................... $ 365,052111,309 $ 376,194113,116
Income taxes .................................................. 277,725 302,474..................................................... 94 28,308
See Notes to the Company's ConsolidatedInterim Financial Statements.
5Statements
4
8
RELIANT ENERGY, INCORPORATED AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED RETAINED EARNINGS
AND COMPREHENSIVE INCOME (LOSS)
(THOUSANDS OF DOLLARS)
(UNAUDITED)
THREE MONTHS ENDED SEPTEMBER 30,
---------------------------------------------------------------------
1999 1998
-------------------------------- --------------------------------
RETAINED EARNINGS:
Balance at beginning of period ...................... $ 1,096,058 $ 1,813,934
Net income .......................................... 1,689,990 $ 1,689,990 251,709 $ 251,709
------------- -------------
Total ........................................... 2,786,048 2,065,643
Common stock dividends .............................. (107,024) (106,647)
------------- -------------
Balance at end of period ............................ $ 2,679,024 $ 1,958,996
============= =============
ACCUMULATED OTHER COMPREHENSIVE INCOME
(LOSS), NET OF TAX:
Balance at beginning of period ...................... $ (91,225) $ (16,535)
Foreign currency translation adjustments, net of
tax of $12,127 and $84 ........................... (22,521) (22,521) (156) (156)
Unrealized loss on available for sale
securities, net of tax of $1,449 and $3,304 ....... (2,576) (2,576) (5,874) (5,874)
------------- -------------
Balance at end of period ............................ $ (116,322) $ (22,565)
============= =============
------------- -------------
COMPREHENSIVE INCOME .................................. $ 1,664,893 $ 245,679
============= =============
NINE MONTHS ENDED SEPTEMBER 30,
------------------------------------------------------------------------
1999 1998
--------------------------------- ---------------------------------
RETAINED EARNINGS:
Balance at beginning of period ................. $ 1,445,081 $ 2,013,055
Net income ..................................... 1,554,865 $ 1,554,865 263,078 $ 263,078
-------------- --------------
Total ...................................... 2,999,946 2,276,133
Common stock dividends ......................... (320,922) (317,137)
-------------- --------------
Balance at end of period ....................... $ 2,679,024 $ 1,958,996
============== ==============
ACCUMULATED OTHER COMPREHENSIVE INCOME
(LOSS), NET OF TAX:
Balance at beginning of period ................. $ (49,615) $ (6,455)
Foreign currency translation adjustments, net of
tax of $35,242 and $2,801 .................... (65,450) (65,450) (5,201) (5,201)
Unrealized loss on available for sale
securities, net of tax of $707 and $6,136 .... (1,257) (1,257) (10,909) (10,909)
-------------- --------------
Balance at end of period ....................... $ (116,322) $ (22,565)
============== ==============
-------------- --------------
COMPREHENSIVE INCOME ............................. $ 1,488,158 $ 246,968
============== ==============
See Notes to the Company's Consolidated Financial Statements.
6
97
RELIANT ENERGY, INCORPORATED AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(1) BASIS OF PRESENTATION
Included in this combined Quarterly Report on Form 10-Q (Form 10-Q) for
Reliant Energy, Incorporated (Company)(Reliant Energy), together with its subsidiaries
(the Company), and for Reliant Energy Resources Corp. (Resources)(Resources Corp.) and its
subsidiaries (collectively, Resources) are the Company'sReliant Energy's and Resources'Resources
Corp.'s consolidated interim financial statements and notes (Interim Financial
Statements) including such companies' wholly owned and majority owned
subsidiaries. The Interim Financial Statements are unaudited, omit certain
financial statement disclosures and should be read with the combined Annual
Report on Form 10-K of the Company (CompanyReliant Energy (Reliant Energy Form 10-K) and Resources
Corp. (Resources Corp. Form 10-K) for the year ended December 31, 1998 and the
combined Quarterly Reports on Form 10-Q1999.
The preparation of the Company (Company First Quarter
10-Q and Second Quarter 10-Q) and Resources (Resources First Quarter 10-Q and
Second Quarter 10-Q) for the quarters ended March 31, 1999 and June 30, 1999,
respectively. For additional information regarding the presentation of interim
period results, see Note 13.
The financial statements for the three and nine months ended September
30, 1998 have been restated to reflect the Company's and Resources' adoption of
mark-to-market accounting in the fourth quarter of 1998, retroactive to January
1, 1998. See Note 1(r) of the Company 10-K Notes (as defined below).
The following notes to the financial statements in the Company Form
10-K and the Resources Form 10-K relate to material contingencies. These notes,
as updated herein, are incorporated herein by reference:
Notes to Consolidated Financial Statements of the Company (Company 10-K
Notes): Note 1(c) (Regulatory Assets and Other Long-Lived Assets), Note
1(n) (Investments in Time Warner Securities), Note 1(p) (Foreign
Currency Adjustments), Note 2 (Derivative Financial Instruments), Note
3 (Rate Matters), Note 4 (Jointly Owned Electric Utility Plant), Note 5
(Equity Investments and Advances to Unconsolidated Subsidiaries), Note
12 (Commitments and Contingencies) and Note 16(a) (Foreign Currency
Devaluation).
Notes to Consolidated Financial Statements of Resources (Resources 10-K
Notes): Note 1(c) (Regulatory Assets and Regulation), Note 2
(Derivative Financial Instruments) and Note 8 (Commitments and
Contingencies).
Historically, the Company has applied the accounting policies
established in Statement of Financial Accounting Standards (SFAS) No. 71,
"Accounting for the Effects of Certain Types of Regulation" (SFAS No. 71). For a
discussion of the Company's accounting policies under SFAS No. 71, see Note 1(c)
of the Company 10-K Notes. The Texas Electric Choice Plan, enacted in June 1999,
will ultimately deregulate the Company's electric generation operations. As a
result, effective June 30, 1999, the Company was required to discontinue the use
of SFAS No. 71 for such operations. For additional information on the
discontinuation of SFAS No. 71, see Note 2 of the Company Second Quarter 10-Q
and Note 2 below.
7
10
(2) TEXAS ELECTRIC CHOICE PLAN AND DISCONTINUANCE OF SFAS NO. 71 FOR
ELECTRIC GENERATION OPERATIONS
In June 1999, the State of Texas adopted the Texas Electric Choice Plan
(Legislation) that substantially amends the regulatory structure governing
electric utilities in order to allow retail competition beginning on January 1,
2002. In preparation for that competition, the Company will make significant
changes in the electric utility operations it conducts through Reliant Energy
HL&P. For additional information regarding the Legislation, see Note 2 of the
Company Second Quarter 10-Q.
At June 30, 1999, the Company performed an impairment test of its
previously regulated electric generation assets pursuant to SFAS No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
Be Disposed Of," on a plant specific basis. The Company determined that $797
million of its electric generation assets was impaired as of June 30, 1999. The
Legislation provides for recovery of this impairment through regulated cash
flows during the transition period and through non-bypassable charges to
transmission and distribution customers. As a result, a regulatory asset was
recorded for an amount equal to the impairment loss and is included on the
Company's Consolidated Balance Sheets as recoverable impaired plant costs. In
addition, the Company has recorded an additional $12 million of recoverable
impaired plant costs in the third quarter of 1999 related to previously incurred
costs that are now deemed to be recoverable pursuant to the Legislation. During
the third quarter of 1999, the Company recorded amortization expense related to
the recoverable impaired plant costs of $144 million in its Statements of
Consolidated Operations. The Company will continue to amortize this regulatory
asset as it is recovered.
The impairment test required estimates of possible future market
prices, load growth, competition and many other factors over the lives of the
plants. The resulting impairment loss is highly dependent on the assumptions
underlying these estimates. In addition, after January 10, 2004, Reliant Energy
HL&P must finalize and reconcile stranded costs (as defined by the Legislation)
in a filingconformity with the Public Utility Commission of Texas (Texas PUC). Any
difference between the fair market value and the regulatory net book value of
the generation related assets (as defined by the Legislation) will either be
refunded or collected through future transmission and distribution rates. This
final reconciliation allows alternative methods of third party valuation of the
fair market value of these assets, including outright sale, stock valuations and
asset exchanges. Because generally
accepted accounting principles requirerequires management to make estimates and
assumptions that affect the Company to estimate fair market values on a plant-by-plant basis in advancereported amounts of
the final reconciliation, the financial impacts of the Legislation with respect
to stranded costs are subject to material changes. Factors affecting such
changes may include estimation risk, uncertainty of future energy prices and the
economic lives of the plants. If events occur that make the recovery of all or a
portion of the regulatory asset associated with the generation plant impairment
loss and deferred debits created from discontinuance of SFAS No. 71 pursuant to
the Legislation no longer probable, the Company will write off the corresponding
balance of such assets as a non-cash charge against earnings.
Following are the classes of electric property, plant and equipment at
cost, with associated accumulated depreciation at September 30, 1999 (including
the impairment loss discussed above) and December 31, 1998.
TRANSMISSION CONSOLIDATED
AND GENERAL ELECTRIC PLANT
GENERATION DISTRIBUTION AND INTANGIBLE IN SERVICE
---------- -------------- -------------- ----------------
(IN MILLIONS)
September 30, 1999:
Original cost ............................. $ 9,002 $ 4,471 $ 951 $14,424
Accumulated depreciation .................. 4,878 1,265 251 6,394
Property, plant and equipment - net (1) ... 4,124 3,206 700 8,030
8
11
TRANSMISSION CONSOLIDATED
AND GENERAL ELECTRIC PLANT
GENERATION DISTRIBUTION AND INTANGIBLE IN SERVICE
---------- -------------- -------------- ----------------
(IN MILLIONS)
December 31, 1998:
Original cost ............................. $ 8,843 $ 4,196 $ 930 $13,969
Accumulated depreciation .................. 3,822 1,276 207 5,305
Property, plant and equipment - net (1) ... 5,021 2,920 723 8,664
- ---------------------
(1) Includes non-utility generation facilities of $387 million at September
30, 1999 and $338 million at December 31, 1998 and international
distribution facilities of $28 million at September 30, 1999 and $19
million at December 31, 1998.
In order to reduce potential exposure to stranded costs related to
generation assets, Reliant Energy HL&P redirected $102 million and $195 million
of depreciation in the six months ended June 30, 1999, and the year ended
December 31, 1998, respectively, from transmission and distribution related
plant assets to generation assets for regulatory and financial reporting
purposes. Such redirection was in accordance with the Company's transition to
competition plan, approved by the Texas PUC (Transition Plan). See Note 3(b) of
the Company 10-K Notes. The Legislation provides that depreciation expense for
transmission and distribution related assets may be redirected to generation
assets during the base rate freeze period from 1999 through 2001. For regulatory
purposes, the Company has continued to redirect transmission and distribution
depreciation to generation assets. Beginning June 30, 1999, redirected
depreciation expense cannot be recorded by the electric generation operations
portion of Reliant Energy HL&P for financial reporting purposes as this portion
of electric operations is no longer accounted for under SFAS No. 71. For the
third quarter of 1999, $51 million in depreciation expense has been redirected
from transmission and distribution for regulatory purposes and established as an
embedded asset included in transmission and distribution related plant and
equipment balances. As of September 30, 1999, the cumulative amount of
redirected depreciation is $348 million.
Reliant Energy HL&P plans to file an application with the Texas PUC
requesting a financing order authorizing the issuance by a special purpose
entity organized by the Company, pursuant to the Legislation, of approximately
$1 billion of transition bonds related to Reliant Energy HL&P's
generation-related regulatory assets. Payments on the transition bonds will be
made from non-bypassable transition charges to Reliant Energy HL&P's
transmission and distribution customers. The offering and sale of the transition
bonds will be registered under the Securities Act of 1933 and is expected to be
consummated in the first quarter of 2000.
(3) FOREIGN CURRENCY ADJUSTMENTS
For information about the Company's foreign currency adjustments, see
Note 1(p) of the Company 10-K Notes. The Company has an indirect 11.8% common
stock interest in Light Servicos de Eletricidade S.A. (Light) and, through its
investment in Light, has a 9.2% common stock interest in Metropolitana
Eletricidade de Sao Paulo S.A. (Metropolitana), both Brazilian operating
companies. The Company accounts for its investment in Light under the equity
method and records its proportionate share, based on stock ownership, in the net
income of Light and its affiliates (including Metropolitana) as part of the
Company's consolidated net income.
As of September 30, 1999, Light and Metropolitana had total borrowings
of $2.7 billion denominated in non-local currencies. During the first quarter of
1999, the Brazilian real was devalued and allowed to float against other major
currencies. The effects of devaluation on the non-local currency denominated
borrowings caused the Company to record an after-tax charge for the three months
and nine months ended September 30, 1999 of $19 million and $114 million,
respectively, as a result of foreign currency transaction losses recorded by
both Light and Metropolitana in such periods. At September 30, 1999, one U.S.
dollar could be exchanged for 1.9223 Brazilian reais. Because the Company uses
the Brazilian real as the functional currency to report Light's equity earnings,
any decrease
9
12
in the value of the Brazilian real below its September 30, 1999 level
will increase Light's liability represented by the non-local currency
denominated borrowings. This amount will also be reflected in the Company's
consolidated earnings, to the extent of the Company's ownership interest in
Light. Similarly, any increase in the value of the Brazilian real above its
September 30, 1999 level will decrease Light's liability represented by such
borrowings. In November 1999, Light issued 650 million Brazilian reais of
subordinated debentures. The proceeds of the debentures will be used to retire
approximately $325 million of non-local currency denominated borrowings. At
September 30, 1999, one U.S. dollar could be exchanged for 1.9223 Brazilian
reais.
(4) DEPRECIATION
(a) Company.
The Company calculates depreciation using the straight-line method. The
Company's depreciation expense for the third quarter and first nine months of
1999 was $123 million and $458 million, respectively, compared to $227 million
and $559 million for the corresponding 1998 periods.
Pursuant to the Transition Plan, the Company recorded $58 million of
additional depreciation for the six months ended June 30, 1999. Because the
electric generation operations portion of Reliant Energy HL&P discontinued
application of SFAS No. 71 effective June 30, 1999, such operations can no
longer record additional depreciation for financial reporting purposes. The
Company recorded $91 million and $171 million of additional depreciation
pursuant to the Transition Plan for the third quarter and the first nine months
of 1998, respectively. For information regarding the additional depreciation of
electric utility generating assets under the Transition Plan, see Note 3(b) of
the Company 10-K Notes. Pursuant to the Legislation, the Company is allowed to
recover generation related regulatory assets and liabilities reported inand
disclosure of contingent assets and liabilities at the Company 10-K as of December 31, 1998. Therefore, the Company discontinued
amortizing certain generation related regulatory assets effective as of January
1, 1999, reversed the related amortization expense of $46 million incurred prior
to June 30, 1999 and recorded additional depreciation expense of a like amount.
(b) Resources.
Resources calculates depreciation using the straight-line method.
Resources' depreciation expense was $35 million and $106 million for the third
quarter and first nine months of 1999, respectively, compared to $40 million and
$103 million for the corresponding 1998 periods.
(5) COMBINED FINANCIAL STATEMENT DATA OF EQUITY INVESTMENTS AND ADVANCES TO
UNCONSOLIDATED AFFILIATES
The following table shows certain summary financial information for the
Company's unconsolidated affiliates:
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
-------------------- -----------------------
1999 1998 1999 1998
------- -------- -------- ---------
(IN MILLIONS)
Revenues ................ $ 986 $ 606 $ 3,369 $ 3,286
Operating expenses ...... 808 382 2,552 2,368
Net income (loss) ....... 47 81 (519) 357
Dividends received from these affiliates were $11 million and $6
million for the three months ended September 30, 1999 and 1998, respectively.
For the nine months ended September 30, 1999 and 1998, dividends received from
these affiliates were $22 million and $33 million, respectively.
10
13
(6) CHANGE IN ACCOUNTING PRINCIPLE
The Company and Resources adopted Emerging Issues Task Force 98-10,
"Accounting for Contracts Involved in Energy Trading and Risk Management
Activities" (EITF 98-10) on January 1, 1999 for the energy trading activities of
Reliant Energy Services, Inc. The adoption of EITF 98-10 had no material impact
on the Company's or Resources' consolidated financial statements.
(7) ZENS AND TIME WARNER SECURITIES INVESTMENT
On September 21, 1999, the Company issued 17.2 million of its 2.0%
Zero-Premium Exchangeable Subordinated Notes due 2029 (ZENS) having an original
principal amount of $1.0 billion. At maturity the holdersdate of the ZENS will
receive in cash the higher of the principal amount of the ZENS or an amount
based on the then-current market value of Time Warner Inc. (TW) common stock (TW
Common), or other securities distributed in connection with such stock (one
share of TW Common and such other securities are referred to as reference
shares). Each ZENS having a principal amount of $58.25 (the closing market price
of the TW Common on September 15, 1999) is exchangeable at any time at the
option of the holder for cash equal to 95% (and in certain cases 100%) of the
market value of a reference share. In addition to paying interest at an accrued
rate of 2.0%, the amount of any cash dividend on the reference shares will be
paid to the ZENS holders.
Of the $980 million net proceeds from the offering, the Company used
$443 million for general corporate purposes, including repayment of Company
indebtedness. The Company used $537 million of the net proceeds to purchase 9.2
million shares of TW Common, which are classified as trading securities under
SFAS No. 115, "Accounting for Certain Investments in Debt and Equity
Securities." Therefore, unrealized gains and losses resulting from changes in
the market value of the TW Common are recorded in the Statements of Consolidated
Operations.
An increase above $58.25 (subject to certain adjustments) in the market
value per share of TW Common results in an increase in the liability for the
ZENS and is recorded by the Company as a non-cash expense. If the market value
per share of TW Common declines below $58.25(subject to certain adjustments),
the liability for the ZENS would not decline below the original principal
amount. However, the decline in market value of the Company's investment in the
TW Common would be recorded as an unrealized loss as discussed above.
On July 6, 1999, the Company converted its 11 million shares of Time
Warner convertible preferred stock into 45.8 million shares of TW Common. Prior
to the conversion, the Company's investment in the Time Warner preferred stock
was accounted for under the cost method. Effective on the conversion date, the
shares of TW Common were classified as trading securities under SFAS No. 115 and
an unrealized gain was recorded in the amount of $2.38 billion ($1.53 billion
after tax) to reflect the cumulative appreciation in the fair value of the
Company's investment in Time Warner securities. In the future, changes in the
market value of the Company's TW Common investmentfinancial
statements and the related offsetting
changes inreported amounts of revenues and expenses during the
liability related to the Company's unsecured 7% Automatic Common
Exchange Securities (ACES) will be recorded in the Company's Statement of
Consolidated Operations. For the periodreporting period. Actual results could differ from July 1, 1999 to the conversion date
of July 6, 1999, non-cash, unrealized accounting losses on the ACES were $35
million ($23 million after tax).
Prior to the purchase of additional shares of TW Common on September
21, 1999, the Company owned 8.0 million shares of TW Common that were in excess
of the 38 million shares needed to economically hedge its ACES obligation. For
more information about the ACES obligations, see Note 7 to the Company Second
Quarter 10-Q. For the period from July 6, 1999 to the ZENS issuance date, losses
(due to the decline in the market value of the TW Common during such period) on
these 8.0 million shares were $122 million ($79 million after tax). The 8.0
million shares of TW Common combined with the additional 9.2
11
14
million shares purchased are expected to be held to provide an economic hedge
against increases in the ZENS obligation.
(8) CAPITAL STOCK
(a) Common Stock.
The Company has 700,000,000 authorized shares of common stock. At
September 30, 1999, the Company had 297,224,668 shares of common stock issued
(284,994,244 outstanding). At December 31, 1998, the Company had 296,271,063
shares of common stock issued (284,494,195 outstanding). Outstanding common
shares exclude (i) shares pledged to secure a loan to the Company's Employee
Stock Ownership Plan (10,719,489 and 11,674,063 at September 30, 1999 and
December 31, 1998, respectively) and (ii) treasury shares (1,510,935 and 102,805
at September 30, 1999 and December 31, 1998, respectively).
The Company has a registration statement under which 15,000,000 shares
of its common stock are available for issuance. The issuance of all securities
registered by the Company is subject to market and other conditions.
During the third quarter of 1999, the Company purchased 1,419,200
shares of its common stock for $38.8 million at an average price of $27.34 per
share. As of September 30, 1999, the Company was authorized to purchase an
additional $49.9 million of its common stock. Purchases depend on market
conditions, might not be announced in advance and may be made in open market or
privately negotiated transactions. For information on the Company's purchases
since September 30, 1999, see Note 12.
(b) Earnings Per Share.
The following table presents the Company's basic and diluted earnings
per share (EPS) calculation:
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------------- -------------------------
1999(1) 1998 1999(2) 1998
---------- ---------- ---------- ----------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Basic EPS Calculation:
Income before preferred dividends ......... $1,690,087 $ 251,806 $1,555,157 $ 263,370
Preferred dividends ....................... 97 97 292 292
---------- ---------- ---------- ----------
Net income attributable to common stock ... $1,689,990 $ 251,709 $1,554,865 $ 263,078
========== ========== ========== ==========
Weighted average shares outstanding ....... 285,287 284,344 285,247 283,965
Basic EPS ................................. $ 5.92 $ 0.89 $ 5.45 $ 0.93
========== ========== ========== ==========
12
15
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------------- -------------------------
1999(1) 1998 1999(2) 1998
---------- ---------- ---------- ----------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Diluted EPS Calculation:
Income before preferred dividends ........... $1,690,087 $ 251,806 $1,555,157 $ 263,370
Interest on 6 1/4% convertible debentures ... 8 14 25 43
---------- ---------- ---------- ----------
Income before preferred dividends assuming
dilution .................................. 1,690,095 251,820 1,555,182 263,413
Preferred dividends ......................... 97 97 292 292
---------- ---------- ---------- ----------
Net income attributable to common stock ..... $1,689,998 $ 251,723 $1,554,890 $ 263,121
========== ========== ========== ==========
Weighted average shares outstanding ......... 285,287 284,344 285,247 283,965
Stock options ........................... 362 432 525 368
Restricted stock ........................ 740 492 740 492
6 1/4% convertible debentures ........... 25 44 25 44
---------- ---------- ---------- ----------
Weighted average shares assuming dilution ... 286,414 285,312 286,537 284,869
Diluted EPS ................................. $ 5.90 $ 0.88 $ 5.43 $ 0.92
========== ========== ========== ==========
- ------------------
(1) For the three months ended September 30, 1999, the computation of
diluted EPS excludes purchase options for 51,631 shares of common stock
that have exercise prices (ranging from $28.71 to $35.18 per share)
greater than the $27.41 per share average market price for the period
and would thus be anti-dilutive if exercised.
(2) For the nine months ended September 30, 1999, the computation of
diluted EPS excludes purchase options for 29,316 shares of common stock
that have exercise prices (ranging from $28.71 to $35.18 per share)
greater than the $28.26 per share average market price for the period
and would thus be anti-dilutive if exercised.
(c) Preferred Stock.
At September 30, 1999 and December 31, 1998, the Company had 10,000,000
authorized shares of preferred stock, of which 97,397 shares of $4.00 Preferred
Stock were outstanding. The Preferred Stock pays an annual dividend of $4.00 per
share, is redeemable at $105 per share and has a liquidation price of $100 per
share.
(d) Preference Stock.
At September 30, 1999 and December 31, 1998, the Company had 10,000,000
authorized shares of preference stock, which were designated and outstanding,
as shown below.
----------------------------- ------------------------------
SEPTEMBER 30, 1999 DECEMBER 31, 1998
----------------------------- ------------------------------
LIQUIDATION SHARES SHARES SHARES SHARES
VALUE PER SHARE DESIGNATED OUTSTANDING DESIGNATED OUTSTANDING
--------------- ---------- ----------- ---------- -----------
Series A $ 1,000 700,000 -- 700,000 --
Series B $ 100,000 27,000 17,000 27,000 17,000
Series C $ 100,000 1,575 -- 1,575 1,575
Series D Euro 100,000(1) 5,880 3,660 -- --
- ----------
(1) As of September 30, 1999, one U.S. dollar could be exchanged for 1.0651
Euros.
The Series A Preference Stock is issuable in accordance with the
Company's Shareholder Rights Agreement upon the occurrence of certain events.
The Series C Preference Stock was redeemed in March 1999. The Series B
Preference Stock and the Series D Preference Stock are not deemed outstanding
for financial reporting purposes because the sole holders of each series are
separate wholly owned financing
13
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subsidiaries of the Company. For information regarding the Company's Series E
Preference Stock issued in the fourth quarter of 1999, see Note 12.
(9) COMPANY/RESOURCES OBLIGATED MANDATORILY REDEEMABLE TRUST PREFERRED
SECURITIES OF SUBSIDIARY TRUSTS HOLDING SOLELY JUNIOR SUBORDINATED
DEBENTURES OF THE COMPANY/ RESOURCES
(a) Company.
For information regarding $375 million of preferred securities issued
by a statutory business trust formed by the Company, see Note 8(a) of the
Company First Quarter 10-Q. For information regarding $250 million of preferred
securities and $100 million of capital securities previously issued by statutory
business trusts formed by the Company, see Note 9(a) of the Company 10-K Notes.
The sole asset of each trust consists of junior subordinated debentures of the
Company having interest rates and maturity dates corresponding to each issue of
preferred or capital securities, and the principal amounts corresponding to the
common and preferred or capital securities issued by such trust.
The Company has a registration statement under which $125 million of
trust preferred securities and related junior subordinated debt securities is
available for issuance. The issuance of all securities registered by the Company
and its affiliates is subject to market and other conditions.
(b) Resources.
For information regarding $177.8 million of convertible preferred
securities previously issued by a statutory business trust formed by Resources,
of which approximately $1 million was outstanding at September 30, 1999, see
Note 5 of Resources 10-K Notes. The sole asset of the trust consists of junior
subordinated debentures of Resources having an interest rate and maturity date
corresponding to the preferred securities, and a principal amount corresponding
to the common and preferred securities issued by the trust.
(10) LONG-TERM DEBT AND SHORT-TERM FINANCING
(a) Company.
(i) Consolidated Debt.those estimates.
The Company's consolidated long-term and short-term debt outstanding is
summarized in the following table:
SEPTEMBER 30, 1999 DECEMBER 31, 1998
-------------------------- --------------------------
LONG-TERM CURRENT LONG-TERM CURRENT
--------- ---------- --------- -------
(IN MILLIONS)
Short-Term Borrowings (1):
Commercial Paper ...................... $ 1,170 $ 1,360
Lines of Credit ....................... 360 150
Resources Receivables Facility ........ 350 300
Notes Payable ......................... 3 3
--------- -------- --------- -------
Total Short-Term Borrowings ............. 1,883 1,813
--------- -------- --------- -------
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17
SEPTEMBER 30, 1999 DECEMBER 31, 1998
-------------------------- --------------------------
LONG-TERM CURRENT LONG-TERM CURRENT
--------- ---------- --------- -------
(IN MILLIONS)
Long-Term Debt - net:
ACES ...................................... 2,300 $2,350
ZENS (4) .................................. 1,043
Debentures (2)(3) ......................... $1,468 1,482
First Mortgage Bonds (2) .................. 1,427 221 1,866 170
Pollution Control Bonds ................... 871 581
Resources Medium-Term Notes (3) ........... 174 178
Notes Payable (3) ......................... 110 227 330 226
Capital Leases ............................ 13 1 14 1
------ ------ ------ ------
Total Long-Term Debt ........................ 4,063 3,792 6,801 397
------ ------ ------ ------
Total Long-Term and Short-Term Debt ....... $4,063 $5,675 $6,801 $2,210
====== ====== ====== ======
- ---------------------
(1) Includes amounts due within one year of the date noted.
(2) Includes unamortized discount related to debentures of approximately
$0.4 million at September 30, 1999 and $1 million at December 31, 1998
and unamortized premium related to debentures of approximately $16
million at September 30, 1999 and $17 million at December 31, 1998. The
unamortized discount related to first mortgage bonds was approximately
$9 million at September 30, 1999 and $10 million at December 31, 1998.
(3) Includes unamortized premium related to fair value adjustments of
approximately $17 million and $18 million for debentures at September
30, 1999 and December 31, 1998, respectively. The unamortized premium
for Resources long-term notes was approximately $8 million and $12
million at September 30, 1999 and December 31, 1998, respectively. The
unamortized premium for notes payable was approximately $2 million and
$6 million at September 30, 1999 and December 31, 1998, respectively.
(4) As ZENS are exchangeable at any time at the option of the holder, these
notes are classified as a current portion of long-term debt.
Consolidated maturities of long-term debt and sinking fund requirements
for the Company (including Resources) are approximately $11 million for the
remainder of 1999.
(ii) Financing Developments.
At September 30, 1999, a financing subsidiary of the Company had $1.136
billion in commercial paper borrowings supported by a $1.644 billion revolving
credit facility. At September 30, 1999, the weighted average interest rate of
these commercial paper borrowings was 5.98%. On September 24, 1999, another
financing subsidiary of the Company established a 364-day Euro 560 million
(approximately $596 million) revolving credit facility (FinanceCo III Facility).
At September 30, 1999, borrowings under the FinanceCo III Facility were Euro 338
million (approximately $360 million) at an interest rate of 3.127%. Borrowings
under the facility are determined based on competitive bids or by adding a
margin to the rate at which Euro deposits are offered in the interbank Euro
market. For additional information regarding the Company's and its subsidiaries'
bank facilities and commercial paper programs, see Note 8(c) and (d) of the
Company 10-K Notes.
For information regarding the redemption of $200 million revenue
refunding bonds in July 1999, see Note 10(a) to the Company Second Quarter 10-Q.
In July 1999, the Matagorda County Navigation District Number One
(MCND) issued on behalf of the Company $70.315 million of revenue refunding
bonds having an interest rate of 5.95%. The MCND bonds will mature in 2030, and
proceeds from the issuance were used on October 1, 1999 to redeem all
outstanding 7.60% MCND Series 1989D collateralized pollution control revenue
bonds
15
18
($70.315 million) at a redemption price of 102% of their aggregate principal
amount. For financial reporting purposes, both the MCND bonds issued in July
1999 and the MCND bonds redeemed in October 1999 were deemed to be outstanding
at September 30, 1999.
On September 21, 1999, the Company issued 17.2 million of its ZENS
having an original principal amount of $1.0 billion. For information on the
ZENS, see Note 7.
(b) Resources.
As of September 30, 1999, Resources had outstanding $1.9 billion of
long-term and short-term debt. For information regarding Resources' financing
arrangements and lease commitments, see Notes 4 and 8(a) of the Resources 10-K
Notes.
In July 1999, Resources repaid at maturity $200 million of its 8.875%
Notes.
In August 1999, Resources increased its receivables facility by $50
million and received $50 million of additional proceeds from its sale of
receivables. For information regarding Resources' $350 million receivables
facility, see Note 4(a) of the Resources 10-K Notes. At September 30, 1999,
Resources had sold $350 million of receivables under the facility at a weighted
average interest rate of 5.53%.
For information regarding Resources' $350 million revolving credit
facility, see Note 4(a) of the Resources 10-K Notes. This facility includes a
$65 million sub-facility under which letters of credit may be obtained. At
September 30, 1999, commercial paper borrowings supported by the facility
aggregated $34.2 million and had a weighted average interest rate of 6.05%. As
of September 30, 1999, letters of credit issued under the facility aggregated
$22.8 million.
(11) REPORTABLE SEGMENTS
In accordance with SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information," the Company has identified the following
reportable segments: Electric Operations, Natural Gas Distribution, Interstate
Pipelines, Wholesale Energy, International and Corporate. Electric Operations
provides electric utility generation, transmission, distribution and sales to
customers. Natural Gas Distribution operations consist of natural gas utility
sales to, and natural gas utility transportation for, residential, commercial
and industrial customers. Interstate Pipelines operates two interstate natural
gas pipelines. Wholesale Energy is engaged in the acquisition, development and
operation of, and sale of capacity, energy and ancilliary services from,
domestic and certain international non-utility power generation facilities and
in the wholesale energy trading and marketing and natural gas gathering
businesses. International invests in foreign electric and gas utility retail
operations, primarily in Latin America. Corporate includes a non-rate regulated
retail service business, certain real estate holdings and corporate expenses.
Financial data for the business segments are as follows (in thousands):
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19
ELECTRIC NATURAL GAS INTERSTATE WHOLESALE INTER-
OPERATIONS DISTRIBUTION PIPELINES ENERGY NATIONAL
----------- ------------ ---------- ---------- ----------
For the Three Months Ended
September 30, 1999:
Revenues ..................... $1,496,596 $ 302,387 $ 37,303 $2,847,388 $ 34,126
Intersegment revenues ........ 311 32,721 60,731
Operating income (loss) ...... 410,234 (12,349) 28,767 43,584 9,809
For the Three Months Ended
September 30, 1998:
Revenues ..................... 1,415,832 265,911 34,110 1,584,472 31,813
Intersegment revenues ........ 266 36,284 26,181
Operating income (loss) ...... 412,669 (17,212) 27,421 94,511 14,419
RECONCILING
CORPORATE ELIMINATIONS CONSOLIDATED
---------- ------------ ------------
For the Three Months Ended
September 30, 1999:
Revenues ..................... $ 229,392 $4,947,192
Intersegment revenues ........ 20,644 $ (114,407)
Operating income (loss) ...... (17,247) 462,798
For the Three Months Ended
September 30, 1998:
Revenues ..................... 133,349 3,465,487
Intersegment revenues ........ 24,002 (86,733)
Operating income (loss) ...... (24,814) 506,994
ELECTRIC NATURAL GAS INTERSTATE WHOLESALE INTER-
OPERATIONS DISTRIBUTION PIPELINES ENERGY NATIONAL
----------- ------------ ----------- ----------- -----------
As of and for the Nine
Months Ended
September 30, 1999:
Revenues ..................... $ 3,513,144 $ 1,309,241 $ 90,608 $ 5,692,028 $ 26,273
Intersegment revenues ........ 912 111,638 162,024
Operating income (loss) ...... 836,413 80,141 83,866 53,378 (52,894)
Total Assets ................. 10,427,643 2,960,971 2,025,244 2,725,752 1,100,138
As of and for the Nine
Months Ended
September 30, 1998:
Revenues ..................... 3,443,694 1,326,672 103,919 3,298,008 228,494
Intersegment revenues ........ 890 113,972 118,040
Operating income (loss) ...... 846,275 80,403 92,343 68,551 176,430
Total Assets ................. 10,604,590 2,830,260 2,116,927 2,108,629 1,086,407
RECONCILING
CORPORATE ELIMINATIONS CONSOLIDATED
----------- ------------ ------------
As of and for the Nine
Months Ended
September 30, 1999:
Revenues ..................... $ 616,630 $11,247,924
Intersegment revenues ........ 56,579 $ (331,153)
Operating income (loss) ...... (27,829) 973,075
Total Assets ................. 4,010,246 (645,877) 22,604,117
As of and for the Nine
Months Ended
September 30, 1998:
Revenues ..................... 432,648 8,833,435
Intersegment revenues ........ 69,945 (302,847)
Operating income (loss) ...... (21,065) 1,242,937
Total Assets ................. 1,762,848 (851,829) 19,657,832
Reconciliation of operating income to net income (in thousands) is as follows:
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
--------------------------- ---------------------------
1999 1998 1999 1998
----------- ----------- ----------- -----------
Operating income ........................... $ 462,798 $ 506,994 $ 973,075 $ 1,242,937
Dividend income ............................ 2,622 10,313 23,247 30,938
Interest expense ........................... 116,176 120,058 368,759 375,237
Unrealized gain on Time Warner
investment ............................. 1,816,105 1,816,105
Unrealized gain (loss) on indexed debt
securities ............................. 406,717 (40,231) 6,778 (484,009)
Distribution on trust securities ........... 14,652 7,248 38,433 21,960
Income tax expense ......................... 877,372 106,616 872,304 154,218
Other income - net ......................... 9,948 8,555 15,156 24,627
----------- ----------- ----------- -----------
Net income attributable to common
shareholders ........................... $ 1,689,990 $ 251,709 $ 1,554,865 $ 263,078
=========== =========== =========== ===========
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(12) SUBSEQUENT EVENTS
On October 7, 1999, the Company completed the first phase of its
acquisition of the Dutch power generation company N.V. UNA (UNA). On that date,
a subsidiary of the Company purchased 40 percent of the capital stock of UNA for
$780 million, which included $354 million in cash and a $426 million five-year
promissory note. The promissory note must be prepaid in certain circumstances.
In accordance with the stock purchase agreement, the Company's subsidiary has
irrevocable fixed commitments to increase its ownership interest in UNA to 52
percent by December 1, 1999 and purchase the remaining shares of UNA on March 1,
2000. The total purchase price of the acquisition is approximately $2.4 billion.
All purchase price obligations are denominated in Dutch guilders (NLG). The
amounts shown above assume an exchange rate of 2.0565 NLG per U.S. dollar (the
exchange rate on October 7, 1999).
In connection with obtaining the necessary Dutch regulatory approvals,
the Company, UNA and the other shareholders of UNA agreed to revise the terms of
their original agreement that provided that if UNA's stranded costs exceeded NLG
500 million, the purchase price would be reduced. Any downward adjustment would
have been limited to approximately NLG 1.4 billion. Under the amended agreement,
the other UNA shareholders are responsible for up to NLG 1.9 billion of UNA's
stranded costs. Accordingly, the purchase price was increased by NLG 500
million. This payment will be made in December 1999.
During the period from October 1, 1999 through November 12, 1999, the
Company purchased 90,800 shares of its common stock for $2.4 million at an
average price of $26.45 per share. See Note 8 for more information.
In October 1999, Resources called for redemption the remaining $42.76
million principal amount of its 10% Debentures due 2019. The debentures will be
redeemed on November 15, 1999 at 105% of their principal amount plus accrued
interest.
On November 10, 1999, the Brazos River Authority (BRA) issued on behalf
of the Company $100 million of revenue refunding bonds having an annual interest
rate of 5.20% and a maturity date of December 1, 2018. The BRA bonds will be
subject to mandatory tender or optional redemption on December 1, 2002 at a
price equal to 100% of the principal amount. The proceeds from the issuance will
be used on December 13, 1999 to redeem all outstanding BRA Series 1989B
collateralized revenue refunding bonds ($100 million) at a redemption price of
102% of the aggregate principal amount.
On November 10, 1999, the MCND issued on behalf of the Company $75
million of revenue refunding bonds having an annual interest rate of 5.20% and a
maturity date of May 1, 2029. The MCND bonds will be subject to mandatory tender
or optional redemption on November 1, 2002 at a price equal to 100% of the
principal amount. The proceeds from the issuance will be used on December 13,
1999 to redeem all outstanding MCND Series 1989E collateralized revenue
refunding bonds ($75 million) at a redemption price of 102% of the aggregate
principal amount.
On November 12, 1999, a financing subsidiary issued $300 million of
Senior Notes due 2002 having an annual interest rate of 7.4%. The proceeds from
the issuance were used by the financing subsidiary to purchase Series E
Preference Stock of the Company. As a result of the transaction, the financing
subsidiary owns 3,160 shares of the Series E Preference Stock. These shares are
not deemed outstanding for financial reporting purposes because they are held by
a wholly owned financing subsidiary of the Company. The Company anticipates that
the proceeds from the sale of such preference stock will be used for general
corporate purposes, including the repayment of indebtedness.
The devaluation of the Brazilian real has resulted in the inability of
Light and Metropolitana to distribute adequate dividends to meet debt
requirements of a subsidiary of the Company. In July 1999, the subsidiary
executed a guarantee of up to $45 million. In November 1999, it is anticipated
that the Company will make a capital contribution of approximately $20 million
to fund a portion of this obligation.
18
21
(13) COMPANY/RESOURCES INTERIM PERIOD RESULTS; RECLASSIFICATIONS
The Company's and Resources' Interim Financial Statements reflect all normal recurring
adjustments that are, in the opinion of management, necessary to present fairly
the financial position and results of operations for the respective periods.
Amounts reported in the Company's Statements of Consolidated Operations and Resources' Statements of Consolidated OperationsIncome are not
necessarily indicative of amounts expected for a full-yearfull year period due to the
effects of, among other things, (i)(a) seasonal variations in energy consumption,
(ii)(b) timing of maintenance and other expenditures and (iii)(c) acquisitions and
dispositions of assets and other interests. In addition, certain amounts from
the prior year have been reclassified to conform to the Company's and Resources'
presentation
of financial statements in the current year. These reclassifications do not
affect the earnings of the Company.
The following notes to the consolidated financial statements in the
Reliant Energy Form 10-K relate to certain contingencies. These notes, as
updated herein, are incorporated herein by reference:
Notes to Consolidated Financial Statements of Reliant Energy (Reliant
Energy 10-K Notes): Note 1(d) (Regulatory Assets), Note 1(m) (Foreign
Currency Adjustments), Note 2 (Business Acquisitions), Note 3 (Texas
Electric Choice Plan and Discontinuance of SFAS No. 71 for Electric
Generation Operations), Note 4 (Transition Plan), Note 5 (Derivative
Financial Instruments), Note 6 (Jointly Owned Electric Utility Plant),
Note 7 (Equity Investments and Advances to Unconsolidated
Subsidiaries), Note 8 (Indexed Debt Securities (ACES and ZENS) and Time
Warner Securities) and Note 14 (Commitments and Contingencies).
For information regarding certain legal, tax and regulatory proceedings
and environmental matters, see Note 10.
The Company recognizes repair and maintenance costs incurred in
connection with planned major maintenance under the "accrual in advance" method
for its non-rate regulated power generation operations. Under the accrual in
advance method, the Company estimates the costs of planned major maintenance and
accrues the related expense over the maintenance cycle. As of March 31, 2000 and
December 31, 1999, the Company's maintenance reserve included in other deferred
credits and in other liabilities in its Consolidated Balance Sheets was $63
million and $61 million, respectively.
(2) TEXAS ELECTRIC CHOICE PLAN AND DISCONTINUANCE OF SFAS NO. 71 FOR
ELECTRIC GENERATION OPERATIONS
In June 1999, the Texas legislature adopted the Texas Electric Choice
Plan (Legislation). The Legislation substantially amends the regulatory
structure governing electric utilities in Texas in order to allow retail
competition. In June 2001, pilot projects for 5% of each utility's combined load
of all customer classes will begin
5
8
under the Legislation. Retail competition for all other customers will begin on
January 1, 2002. In preparation for that competition, the Company expects to
make significant changes in the electric utility operations conducted through
Reliant Energy HL&P, an unincorporated division of Reliant Energy. In addition,
the Legislation requires the Public Utility Commission of Texas (Texas Utility
Commission) to issue a number of new rules and determinations in implementing
the Legislation. For additional information on the Legislation, see Note 3 of
the Reliant Energy 10-K Notes.
Historically, Reliant Energy HL&P has applied the accounting policies
established in Statement of Financial Accounting Standards (SFAS) No. 71,
"Accounting for the Effects of Certain Types of Regulation" (SFAS No. 71). The
Company believes that the Legislation provides sufficient detail regarding the
deregulation of the Company's electric generation operations to require it to
discontinue the use of SFAS No. 71 for those operations. Effective June 30,
1999, the Company discontinued SFAS No. 71 for its electric generation
operations. For additional information on the effect on the Company's
consolidated financial statements due to the discontinuance of SFAS No. 71 for
electric generation operations, see Notes 1(d), 1(g) and 3 of the Reliant Energy
10-K Notes.
The transmission and distribution business of Reliant Energy HL&P will
continue to be subject to cost-of-service rate regulation and will be
responsible for the delivery of electricity to retail customers. Pursuant to the
Legislation, on March 31, 2000, Reliant Energy HL&P filed proposed tariffs with
the Texas Utility Commission, which are to be effective on January 1, 2002 for
its transmission and distribution operations.
(3) ACQUISITION
On March 1, 2000, the Company purchased the remaining 48% of the shares
of N.V. UNA (UNA), a Dutch power generation company, for $987 million. At
December 31, 1999, the Company recorded the commitment for this purchase as a
business purchase obligation in the Company's Consolidated Balance Sheet based
on an exchange rate of 2.19 Dutch guilders (NLG) per U.S. dollar (the exchange
rate on December 31, 1999). Effective October 1, 1999, the Company recorded 100%
of the operating results of UNA. On a preliminary basis, the Company's fair
value adjustments related to the acquisition of UNA primarily included increases
in property, plant and equipment, long-term debt and related deferred taxes. The
Company expects to finalize these fair value adjustments during 2000; however,
the Company does not anticipate that any additional adjustments will be
material. For additional information regarding the acquisition of UNA, see Note
2 of the Reliant Energy 10-K Notes.
(4) DEPRECIATION AND AMORTIZATION
The Company's depreciation expense for the first quarter of 2000 was
$91 million, compared to $139 million for the same period in 1999. Goodwill
amortization relating to acquisitions was $21 million for the first quarter of
2000 compared to $14 million for the same period in 1999. Other amortization
expense, including amortization of regulatory assets, was $70 million and $38
million in the first quarter of 2000 and 1999, respectively.
In June 1998, the Texas Utility Commission issued an order approving a
transition to competition plan (Transition Plan) filed by Reliant Energy HL&P in
December 1997. Pursuant to the Transition Plan, the Company recorded $13 million
of additional depreciation and redirected $51 million of transmission and
distribution depreciation to generation assets for the three months ended March
31, 1999. For information regarding the additional depreciation of electric
utility generating assets and the redirection of transmission and distribution
depreciation to generation assets under the Transition Plan, see Note 1(g) of
the Reliant Energy 10-K Notes. The Legislation provides that depreciation
expense for transmission and distribution related assets may be redirected to
generation assets from 1999 through 2001 for regulatory purposes. Because the
electric generation operations portion of Reliant Energy HL&P discontinued
application of SFAS No. 71 effective June 30, 1999, such operations can no
longer record additional or redirected depreciation for financial reporting
purposes. However, for regulatory purposes, the Company continues to redirect
transmission and distribution depreciation to generation assets. As of March 31,
2000 and December 31, 1999, the cumulative amount of redirected depreciation for
regulatory purposes was $447 million and $393 million, respectively.
The Company reassessed the economic lives of Reliant Energy HL&P's
generation plant and equipment in 1999 and certain prospective depreciation
rates were revised due to changing economic circumstances as a result of the
Legislation. This change in depreciation rates reduced depreciation expense for
Reliant Energy HL&P's generation plant and equipment by $18 million for the
first quarter of 2000.
6
9
In 1999, the Company determined that approximately $800 million of
Reliant Energy HL&P's electric generation assets was impaired. The Legislation
provides for recovery of this impairment through regulated cash flows;
therefore, a regulatory asset was recorded for an amount equal to the impairment
in the Company's Consolidated Balance Sheets. The Company is amortizing this
regulatory asset as it is recovered from regulated cash flows. During the three
months ended March 31, 2000, the Company recorded $52 million of amortization
expense related to the recoverable impaired plant costs and other deferred
debits created from discontinuing SFAS No. 71.
Pursuant to the Legislation, the Company is allowed to recover
generation related regulatory assets and liabilities reported in the Reliant
Energy Form 10-K as of December 31, 1998. Therefore, the Company has
discontinued amortizing certain generation related regulatory assets upon
discontinuance of SFAS No. 71. For additional information regarding the
discontinuance of SFAS No. 71 for electric generation operations, see Notes 1(d)
and 3 of the Reliant Energy 10-K Notes.
(5) COMPREHENSIVE INCOME
The Company had total comprehensive income of $138 million in the first
quarter of 2000 and a total comprehensive loss of $259 million in the first
quarter of 1999. In the first quarter of 2000, the Company recorded a $14
million after-tax impairment loss in the Company's Statement of Consolidated
Income on marketable equity securities classified as "available for sale." The
following table summarizes the components of total comprehensive income.
FOR THE THREE MONTHS ENDED MARCH 31,
---------------------------------------
2000 1999
------------------- ----------------
(IN MILLIONS)
Net income (loss) ......................................................... $ 133 $(210)
Other comprehensive income (loss):
Foreign currency translation adjustments ................................ (10) (51)
Unrealized gain on available for sale securities ........................ 1 2
Plus: Reclassification adjustment for impairment loss on available ......
for sale securities realized in net income ............................ 14 --
----- -----
Comprehensive income (loss) ............................................... $ 138 $(259)
===== =====
(6) LONG-TERM DEBT AND SHORT-TERM BORROWINGS
The following table summarizes the Company's consolidated long-term
debt and short-term borrowings outstanding:
MARCH 31, 2000 DECEMBER 31, 1999
------------------------ -------------------------
LONG-TERM CURRENT (1) LONG-TERM CURRENT (1)
----------- ------------ ----------- ------------
(IN MILLIONS)
Short-term borrowings .................... $ -- $3,410 $ -- $2,879
Long-term debt - net:
Indexed debt securities (2) ............ -- 5,503 -- 3,980
Debentures ............................. 1,761 -- 1,795 --
First mortgage bonds ................... 1,261 -- 1,261 150
Pollution control bonds ................ 1,046 -- 1,046 --
Notes payable .......................... 1,427 284 839 251
Capital leases ......................... 12 1 12 1
Unamortized discount and premium ....... 8 -- 8 --
------ ------ ------ ------
Total long-term debt ..................... 5,515 5,788 4,961 4,382
------ ------ ------ ------
Total .................................. $5,515 $9,198 $4,961 $7,261
====== ====== ====== ======
- ----------------
(1) Includes amounts due within one year.
(2) As these securities are indexed to Time Warner common stock, any
increase in the value of Time Warner common stock results in a
corresponding increase in Reliant Energy's obligation under the indexed
debt securities. For additional information, see Note 8 of the Reliant
Energy 10-K Notes.
7
10
(a) Short-term Borrowings.
As of March 31, 2000, the Company had credit facilities, which included
the facilities of several financing subsidiaries, UNA and Resources Corp., that
provided for an aggregate of $5.2 billion in committed credit (including the
Euro 600 million facility discussed below) of which $1.2 billion was unused. In
addition, one of the credit facilities included a $65 million sub-facility under
which letters of credit may be obtained. Letters of credit under the
sub-facility aggregated $40 million as of March 31, 2000.
In February 2000, the Company established a $650 million revolving
credit facility that terminates on May 31, 2000. At March 31, 2000, borrowings
under this facility were $650 million at an interest rate of 6.65%. In February
2000, the Company established a $200 million revolving credit facility that will
terminate on May 31, 2000. At March 31, 2000, borrowings under this facility
were $150 million at an interest rate of 6.52%.
(b) Long-term Debt.
In February 2000, the Company established a Euro 600 million three-year
term loan facility of which $573 million (based on the exchange rate on March
31, 2000 of 0.9553 Euro per U.S. dollar) was outstanding at March 31, 2000 at an
interest rate of 4.43%. Borrowings under this facility have been classified as
long-term debt based upon the expiration date of the committed credit facility
and the Company's intent and ability to borrow under such facility for more than
one year.
In March 2000, the Company repaid $150 million of its 6.1% first
mortgage bonds at maturity.
(7) EARNINGS PER SHARE
The following table presents Reliant Energy's basic and diluted
earnings per share (EPS) calculation:
FOR THE THREE MONTHS ENDED MARCH 31,
--------------------------------------
2000 1999
----------------- -----------------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Basic EPS Calculation:
Income (loss) before preferred dividends ...................... $ 133,153 $(209,692)
Less: Preferred dividends ..................................... 97 97
--------- ---------
Net income (loss) attributable to common stockholders ......... $ 133,056 $(209,789)
========= =========
Weighted average shares outstanding ............................. 283,078 284,967
Basic EPS ....................................................... $ 0.47 $ (0.74)
========= =========
Diluted EPS Calculation:
Net income (loss) attributable to common stockholders ......... $ 133,056 $(209,789)
Plus: Income impact of assumed conversions
Interest on 6 1/4% trust preferred securities ............... 7 --
--------- ---------
Total effect assuming dilution ................................ $ 133,063 $(209,789)
========= =========
Weighted average shares outstanding ............................. 283,078 284,967
Plus: Incremental shares from assumed conversions (1)(2)
Stock options ............................................... 466 --
Restricted stock ............................................ 684 --
6 1/4% trust preferred securities ........................... 23 --
--------- ---------
Weighted average shares assuming dilution ..................... 284,251 284,967
========= =========
Diluted EPS ..................................................... $ 0.47 $ (0.74)
========= =========
8
11
- ---------
(1) For the three months ended March 31, 2000, the computation of diluted
EPS excludes purchase options for 1,153,000 shares of common stock that
have exercise prices (ranging from $22.28 to $32.22 per share) greater
than the $22.27 per share average market price.
(2) No assumed conversions were included in the computation of diluted EPS
for the 1999 period because additional shares outstanding would result
in an anti-dilutive per share amount. The computation of diluted EPS
for the 1999 period excludes 730,000 shares of restricted stock, 27,000
shares for assumed conversion of trust preferred securities and
purchase options for 661,000 shares of common stock, which would be
anti-dilutive if exercised.
(8) CAPITAL STOCK
(a) Common Stock.
Reliant Energy has 700,000,000 authorized shares of common stock. At
March 31, 2000, 298,185,768 shares of Reliant Energy common stock were issued
and 283,997,861 shares of Reliant Energy common stock were outstanding. At
December 31, 1999, 297,612,478 shares of Reliant Energy common stock were issued
and 283,308,371 shares of Reliant Energy common stock were outstanding.
Outstanding common shares exclude (a) shares pledged to secure a loan to Reliant
Energy's Employee Stock Ownership Plan (9,379,489 and 10,679,489 at March 31,
2000 and December 31, 1999, respectively) and (b) treasury shares (4,808,418 and
3,624,618 at March 31, 2000 and December 31, 1999, respectively). Reliant Energy
declared dividends of $0.375 per share in the first quarters of 2000 and 1999.
During the first quarter of 2000, Reliant Energy purchased 1,183,800
shares of its common stock at an average price of $23.07 per share or an
aggregate purchase price of $27 million.
(b) Preference Stock.
In February 2000, Reliant Energy issued 6,825 shares of Series G
preference stock to one of its financing subsidiaries. The series G preference
stock is not deemed outstanding for financial reporting purposes because the
sole holder is a wholly owned subsidiary of Reliant Energy.
(9) TRUST PREFERRED SECURITIES
For information regarding $625 million of preferred securities and $100
million of capital securities previously issued by statutory business trusts
formed by Reliant Energy, see Note 11 of the Reliant Energy 10-K Notes. The sole
asset of each trust consists of junior subordinated debentures of Reliant Energy
having interest rates and maturity dates corresponding to each issue of
preferred or capital securities, and the principal amounts corresponding to the
common and preferred or capital securities issued by that trust.
For information regarding $173 million of convertible preferred
securities previously issued to the public by a statutory business trust formed
by Resources Corp., of which $1 million was outstanding at March 31, 2000 and
December 31, 1999, see Note 11 of the Reliant Energy 10-K Notes and Note 5 of
the Resources Corp. 10-K Notes. The sole asset of the trust consists of junior
subordinated debentures of Resources Corp. having an interest rate and maturity
date corresponding to the preferred securities, and the principal amount
corresponding to the common and preferred securities issued by the trust.
(10) COMMITMENTS AND CONTINGENCIES
(a) Legal, Tax and Regulatory Proceedings.
In February 1996, the cities of Wharton, Galveston and Pasadena
(original claimant cities) filed suit, for themselves and a class of all
similarly situated cities in Reliant Energy HL&P's service area, against Reliant
Energy
9
12
and Houston Industries Finance Inc. (formerly a wholly owned subsidiary of
Reliant Energy) alleging underpayment of municipal franchise fees. Plaintiffs
claim that they are entitled to 4% of all receipts of any kind for business
conducted within these cities over the previous four decades. Because the
franchise ordinances at issue affecting Reliant Energy HL&P expressly impose
fees only on its own receipts and only from sales of electricity for consumption
within a city, the Company regards all of plaintiffs' allegations as spurious
and is vigorously contesting the case. The plaintiffs' pleadings asserted that
their respective earnings.
19damages exceeded $250 million. The 269th Judicial District Court for
Harris County granted partial summary judgment in favor of Reliant Energy
dismissing all claims for franchise fees based on sales tax collections. Other
motions for partial summary judgment were denied. A six week jury trial of the
original claimant cities (but not the class of cities) ended on April 4, 2000
(three cities case). Although the jury found for Reliant Energy on many issues,
they found in favor of the original claimant cities on three issues, and
assessed a total of $4 million in actual and $30 million in punitive damages.
However, the jury also found in favor of Reliant Energy on the affirmative
defense of laches, a defense similar to a statute of limitations defense, due to
the original claimant cities having unreasonably delayed bringing their claims
during the 43 years since the alleged wrongs began. The trial court in the three
cities case has not entered a judgment on the jury's verdict. Reliant Energy has
asked the trial court to enter a judgment in its favor and against the original
claimant cities, including the laches defense and also numerous points of law
neither disposed of nor prejudiced by the jury verdict. The original claimant
cities have asked the trial court to proceed with trials of claims relating to
additional cities instead of entering a final judgment at the present time. On
May 12, 2000, the trial court ordered the parties to mediation and requested
additional briefing from the parties over the next 45 days concerning a possible
de-certification of the class and the various other motions.
The extent to which issues eventually incorporated in the judgment in
the three cities case may affect the claims of the other cities served by
Reliant Energy HL&P cannot be assessed until judgments are final and no longer
subject to appeal. However, the jury findings that support most of the actual
damages and all of the punitive damages in the three cities case depend on
theories of liability expressly disapproved by the Texas Supreme Court within
the past decade. Therefore, the Company estimates the range of possible outcomes
for the entire class to be between zero and $17 million inclusive of interest
and attorneys' fees. Regardless of the judgment entered by the trial court in
the three cities case, or as to the remaining cities, the case will be appealed
promptly following the entry of an appealable judgment or order. The Company
believes that the jury verdict in the three cities case resulted from serious
errors of law and that the entire verdict will be set aside either by the trial
court or by the appellate courts of Texas.
The Company is involved in other legal, tax and regulatory proceedings
before various courts, regulatory commissions and governmental agencies
regarding matters arising in the ordinary course of business. Some of these
proceedings involve substantial amounts. The Company's management regularly
analyzes current information and, as necessary, provides accruals for probable
liabilities on the eventual disposition of these matters. The Company's
management believes that the disposition of these matters will not have a
material adverse effect on the Company's financial condition, results of
operations or cash flows.
(b) Environmental Matters.
The Company is a defendant in litigation arising out of the
environmental remediation of a site in Corpus Christi, Texas. The litigation was
instituted in 1985 by adjacent landowners. The litigation is pending before the
United States District Court for the Southern District of Texas, Corpus Christi
Division. The site was operated by third parties as a metals reclaiming
operation. Although the Company neither operated nor owned the site, certain
transformers and other equipment originally sold by the Company may have been
delivered to the site by third parties. The Company and others have remediated
the site pursuant to a plan approved by appropriate state agencies and a federal
court. To date, the Company has recovered or has commitments to recover from
other responsible parties $2.2 million of the approximately $3 million it has
spent on remediation.
In 1992, the United States Environmental Protection Agency (EPA) (a)
identified the Company, along with several other parties, as "potentially
responsible parties" (PRP) under the Comprehensive Environmental Response,
Compensation and Liability Act (CERCLA) for the costs of cleaning up a site
located adjacent to one of the Company's transmission lines in La Marque, Texas
and (b) issued an administrative order for the remediation of the site. The
Company believes that the EPA took this action solely on the basis of
information indicating that the Company in the 1950s acquired record title to a
portion of the land on which the site is located. The Company does not believe
that it now or previously has held any ownership interest in the property
covered by the order and has obtained a judgment to that effect from a court in
Galveston County, Texas. Based on this judgment and other defenses that the
Company believes to be meritorious, the Company has elected not to adhere to the
EPA's administrative order, even though the Company understands that other PRPs
are proceeding with site remediation.
10
2213
To date, neither the EPA nor any other PRP has instituted an action against the
Company for any share of the remediation costs for the site. However, if the
Company was determined to be a responsible party, the Company could be jointly
and severally liable along with the other PRPs for the aggregate remediation
costs of the site (which the Company currently estimates to be approximately $80
million in the aggregate) and could be assessed substantial fines and damage
claims. Although the ultimate outcome of this matter cannot be predicted at this
time, the Company does not believe that this matter will have a material adverse
effect on the Company's financial condition, results of operations or cash
flows.
From time to time the Company has received notices from regulatory
authorities or others regarding its status as a PRP in connection with sites
found to require remediation due to the presence of environmental contaminants.
In addition, the Company has been named as defendant in litigation related to
such sites and in recent years has been named, along with numerous others, as a
defendant in several lawsuits filed by a large number of individuals who claim
injury due to exposure to asbestos while working at sites along the Texas Gulf
Coast. Most of these claimants have been workers who participated in
construction of various industrial facilities, including power plants, and some
of the claimants have worked at locations owned by the Company. The Company
anticipates that additional claims like those received may be asserted in the
future and intends to continue vigorously contesting claims that it does not
consider to have merit. Although their ultimate outcome cannot be predicted at
this time, the Company does not believe, based on its experience to date, that
these matters, either individually or in the aggregate, will have a material
adverse effect on the Company's financial position, results of operations or
cash flows.
(11) REPORTABLE SEGMENTS
The Company's determination of reportable segments considers the
strategic operating units under which the Company manages sales, allocates
resources and assesses performance of various products and services to wholesale
or retail customers in differing regulatory environments. Financial information
for UNA is included in the segment disclosures only for periods beginning after
its acquisition date. For additional information regarding the acquisition date
of UNA, see Note 2 of the Reliant Energy 10-K Notes. The Company has identified
the following reportable segments: Electric Operations, Natural Gas
Distribution, Interstate Pipelines, Wholesale Energy, Reliant Energy Europe,
Reliant Energy Latin America and Corporate. For descriptions of the financial
reporting segments, see Note 1(a) of the Reliant Energy 10-K Notes. Financial
data for business segments are as follows:
AS OF AND FOR THE THREE MONTHS ENDED MARCH 31, 2000
---------------------------------------------------------------------------
REVENUES FROM INTERSEGMENT OPERATING
NON-AFFILIATES REVENUES INCOME (LOSS) TOTAL ASSETS
----------------- -------------- --------------- ---------------
(IN MILLIONS)
Electric Operations ................. $ 947 $ -- $ 202 $ 9,999
Natural Gas Distribution ............ 738 -- 97 3,199
Interstate Pipelines ................ 34 40 28 2,002
Wholesale Energy .................... 2,038 137 (16) 3,223
Reliant Energy Europe ............... 150 -- 33 3,081
Reliant Energy Latin America ........ 21 -- 3 1,157
Corporate ........................... 306 14 (1) 6,189
Reconciling Elimination ............. -- (191) -- (789)
---------- ---------- ---------- ----------
Consolidated ........................ $ 4,234 $ -- $ 346 $ 28,061
========== ========== ========== ==========
11
14
FOR THE THREE MONTHS ENDED MARCH 31, 1999
-----------------------------------------------------
REVENUES FROM INTERSEGMENT OPERATING
NON-AFFILIATES REVENUES INCOME (LOSS)
--------------- ------------ --------------
(IN MILLIONS)
Electric Operations ................... $ 850 $ -- $ 142
Natural Gas Distribution .............. 678 -- 98
Interstate Pipelines .................. 26 40 28
Wholesale Energy ...................... 939 69 1
Reliant Energy Latin America .......... (51) -- (78)
Corporate ............................. 201 19 (3)
Reconciling Elimination ............... -- (128) --
---------- ---------- ----------
Consolidated .......................... $ 2,643 $ -- $ 188
========== ========== ==========
Reconciliation of Operating Income to Net Income:
THE THREE MONTHS ENDED MARCH 31,
--------------------------------------
2000 1999
------------------ ----------------
(IN MILLIONS)
Operating income ............................................................... $ 346 $ 188
Interest expense ............................................................... (163) (126)
Net unrealized loss on indexed debt securities and Time Warner investment ...... -- (331)
Distribution on trust securities ............................................... (14) (10)
Income tax benefit (expense) ................................................... (56) 57
Other income ................................................................... 20 12
----- -----
Net income (loss) attributable to common stockholders .......................... $ 133 $(210)
===== =====
(12) SUBSEQUENT EVENT
On May 12, 2000, the Company purchased from Sithe Energies, Inc. the
entities owning non-rate regulated power generating assets and development sites
located in Pennsylvania, New Jersey and Maryland having a net generating
capacity of approximately 4,300 megawatts (MW). The purchase price for these
entities was approximately $2.1 billion. The Company accounted for the
acquisition as a purchase. Funds for the acquisition were made available through
issuances of commercial paper supported by two committed bridge facilities, one
in the amount of $1 billion and one in the amount of $1.15 billion. The $1
billion bridge facility is a 364-day revolving facility that expires in May
2001. The revolving commitment period for the $1.15 billion facility terminates
in May 2001, and any outstanding borrowings at that time convert to a one-year
term facility.
12
15
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS OF THE COMPANY
The following discussion and analysis should be read in combination
with the unaudited
consolidated financial statements and notes thereto.
Reliant Energy, Incorporated (Company), together with various divisions
and subsidiaries, including Reliant Energy Resources Corp. (Resources),Company's Interim Financial Statements contained in this Form 10-Q.
The Company is a diversified international energy services company. The Company reports its
financial informationcompany,
providing energy and energy services in six segments. The Company's Electric Operations segmentNorth America, Western Europe and Latin
America. It operates one of the nation'sUnited States' largest utilityelectric utilities in
terms of kilowatt-hour (KWH) sales. The Natural Gas Distribution segment includessales, and its three natural gas distribution
divisions together form the gas utility operations
of Resources and is theUnited States' third largest suchnatural gas
distribution operation in the U.S. in terms of
number of customers served. The Interstate Pipelines segment operates twoCompany invests in
international and domestic electric utility privatizations and the development
of non-rate regulated power generation projects. The Company is also an
interstate natural gas pipelines.pipeline, providing gas transportation, supply, gathering
and storage. It also engages in wholesale energy marketing and trading.
The Company's financial reporting segments include: Electric
Operations, Natural Gas Distribution, Interstate Pipelines, Wholesale Energy,
Reliant Energy Europe, Reliant Energy Latin America and Corporate. For segment
is engaged inreporting information, see Note 11 to the acquisition, development and operation of, and sale of capacity, energy and
ancillary services from, domestic and certain international non-utility power
generation facilities, and in the wholesale energy trading and marketing and
natural gas gathering businesses. The International segment invests in foreign
electric and gas retail utility operations, primarily in Latin America. The
Corporate segment includes a non-rate regulated retail service business, certain
real estate holdings and corporate expenses.Company's Interim Financial
Statements.
CONSOLIDATED RESULTS OF OPERATIONS
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------------ PERCENT ----------------------- PERCENTMARCH 31,
---------------------------------
2000 1999
1998 CHANGE 1999 1998 CHANGE
---------------------- ---------- ------- ---------- --------- -------
(IN MILLIONS, EXCEPT PER
(IN MILLIONS, EXCEPT PER SHARE DATA)
SHARE DATA)
Revenues ......................................................................................... $ 4,9474,234 $ 3,465 43% $ 11,248 $ 8,833 27%2,643
Operating Expenses ................ 4,484 2,958 52% 10,275 7,590 35%..................................................... (3,888) (2,455)
------- -------
Operating Income .................. 463 507 (9%) 973 1,243 (22%)....................................................... 346 188
Other (Expenses) Income (1) ....... 2,235 (21) -- 1,861 (428) --........................................................... 20 13
Interest Expense and Other Charges ........ 131 127 3% 407 398 2%..................................... (177) (136)
Net Unrealized Loss on Indexed Debt Securities and Time Warner .........
Investment .......................................................... -- (331)
Income Tax Expense ................ 877 107 -- 872 154 --
--------- --------- --------- ---------(Expense) Benefit ........................................... (56) 56
------- -------
Net Income (1) ....................(Loss) Attributable to Common Stockholders .................. $ 1,690133 $ 252 -- $ 1,555 $ 263 --
========= ========= ========= =========(210)
======= =======
Basic Incomeand Diluted Earnings (Loss) Per Share (1) .................................... $ 5.920.47 $ 0.89 -- $ 5.45 $ 0.93 --
Diluted Income Per Share (1) ...... $ 5.90 $ 0.88 -- $ 5.43 $ 0.92 --(0.74)
- --------------
(1) Other (Expenses) Income and Net Income reflect the effect of a $1.816
billion non-cash, unrealized pre-tax ($1.161 billion after-tax)
accounting gain recorded in the three and nine months ended September
30, 1999 related to the unrealized gain on the Company's investment in
Time Warner. No such gain was recorded in 1998. The line items also
reflect unrealized gains and losses on the indexed debt securities
(ACES and ZENS). Such amounts were a pre-tax gain of $407 million and
$7 million for the three and nine month periods of 1999, respectively,
compared to a pre-tax loss of $40 million and $484 million for the same
periods in 1998, respectively. See Note 7 to the Company's Interim
Financial Statements regarding both of these items.
ThirdFirst Quarter of 19992000 Compared to ThirdFirst Quarter of 1998.1999. The Company
reported consolidated net income of $1.690 billion$133 million ($5.920.47 per basic share) for the thirdfirst
quarter of 19992000 compared to a consolidated net incomeloss of $252$210 million ($0.890.74 per
basic share) forin the thirdfirst quarter of 1998.1999. The 1999 results reflect a $1.161 billion after-tax, non-cash unrealized accounting gain on the Company's
investment in TW Common, a $264 million after-tax, non-cash unrealized gain on
indexed debt securities
20
23
and an after-tax loss of $19 million due to the devaluation of the Brazilian
real. The third quarter of 1998 results include a $26$215 million
after-tax, non-cash, unrealized accounting loss on indexed debt securities.securities and a
$91 million after-tax, non-cash loss resulting from the effect of the
devaluation of the Brazilian real on equity earnings of the Company's Brazilian
investments.
After adjusting for the gains and lossescharges described above, the Company would have
had consolidated net income of $283$96 million ($0.990.34 per basic share) in the first
quarter of 1999 compared to $133 million ($0.47 per share) in the first quarter
of 2000. The $37 million increase in consolidated net income was primarily due
to increased earnings from the Electric Operations segment and the addition of
earnings from the Reliant Energy Europe segment established in the fourth
quarter of 1999 with the acquisition of UNA, a Dutch power generation company.
For additional information on the acquisition of UNA, see Note 3 to the
Company's Interim Financial Statements and Note 2 to the Reliant Energy 10-K
Notes. These effects were partially offset by lower earnings for Wholesale
Energy and Reliant Energy Latin America.
For a discussion of changes in operating income, see the discussions of
operating income (loss) by segment below.
Other income increased by approximately $7 million in the first quarter
of 2000 compared to the same period in 1999 primarily due to interest income on
an IRS refund received in February 2000 of $26 million and distributions in the
first quarter of 2000 from corporate venture capital investments of $7 million.
An impairment loss of $22 million on marketable equity securities classified as
"available for sale" recorded in the first quarter of 2000 partially offset the
interest and investment income.
13
16
The Company incurred interest expense and other charges of $177 million
and $136 million for the first quarter of 2000 and 1999, respectively. The
increase resulted from higher levels of short-term borrowings and long-term debt
in the first quarter of 2000 compared to the same period in 1999 partially
offset by a decrease in the average interest rate for long-term debt in the
first quarter of 2000. These increases were associated in part with borrowings
for the acquisition of shares of UNA in the fourth quarter of 1999, the
Company's additional investment in Time Warner common stock in the third quarter
of 1999, compared to $278 million ($0.98 per basic share)
in the third quarter of 1998.
First Nine Months of 1999 Compared to First Nine Months of 1998.other acquisitions and capital expenditures.
The Company reported consolidated net income of $1.555 billion ($5.45 per basic
share)effective tax rate for the first nine monthsquarter of 2000 and 1999 compared to consolidated net income of
$263 million ($0.93 per basic share)was 30%
and 21%, respectively. After adjusting for the same period of 1998. The 1999
results reflect a $1.161 billion after-tax, non-cash unrealized accounting gain
on the Company's investment in TW Common, a $4 million after-tax, non-cash
unrealized accounting gainloss on
indexed debt securities and a $114 million
after-taxthe loss due to the devaluation of the Brazilian
real. Net income forreal (discussed above), the 1998 period reflects a $315 million after-tax, non-cash unrealized accounting
loss on indexed debt securities.
After adjusting for the gains and losses described above, the Company
would have had consolidated net income of $504 million ($1.77 per basic share)adjusted effective tax rate for the first nine monthsquarter of
1999 and $577 million ($2.03 per basic share)was 38%. The decrease in the effective tax rate for the first nine monthsquarter of
1998. The $73 million decrease2000 compared to the adjusted effective tax rate for the same period in 1999 was
primarily due to an
$80 million after-tax gain on the salediscontinuance of an Argentine electric distribution
company in 1998 and lower earnings in 1999 fromSFAS No. 71 for the Wholesale Energy,generation operations
of Electric Operations as well as the tax holiday relating to the Dutch
electricity industry which applies to income earned by UNA. For information
regarding the discontinuance of SFAS No. 71 for the generation operations of
Electric Operations, see Note 3 of the Reliant Energy 10-K Notes. For
information regarding the UNA tax holiday, see Note 13 of the Reliant Energy
10-K Notes and Interstate Pipelines segments, partially offset by improved
results from the International segment."--Reliant Energy Europe" below.
The table below shows operating income (loss) by segment:segment.
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
-------------------- --------------------MARCH 31,
----------------------------
2000 1999
1998 1999 1998
------- ------- ------- ---------------- --------
(IN MILLIONS)
Electric Operations ........................... $ 410202 $ 413 $ 837 $ 846142
Natural Gas Distribution ..... (12) (17) 80 80............ 97 98
Interstate Pipelines ......... 29 27 84 92................ 28 28
Wholesale Energy ............. 44 95 53 69
International ................ 10 14 (53) 176.................... (16) 1
Reliant Energy Europe (1) ........... 33 --
Reliant Energy Latin America ........ 3 (78)
Corporate .................... (18) (25) (28) (20)
------- ------- ------- -------........................... (1) (3)
----- -----
Total Consolidated ................. $ 463346 $ 507 $ 973 $ 1,243
======= ======= ======= =======188
===== =====
- ----------------
(1) Reliant Energy Europe does not have comparative 1999 results as it was
established in the fourth quarter of 1999.
ELECTRIC OPERATIONS
Electric Operations are conducted under the name "ReliantReliant Energy HL&P,"
an unincorporated division of the Company.&P.
Electric Operations provides electric generation, transmission, distribution and
sales to approximately 1.7 million customers in a 5,000 square mile area on the
Texas Gulf Coast, including Houston, (thethe nation's fourth largest city).
21city.
In June 1999, the Texas legislature adopted Legislation which
substantially amended the regulatory structure governing electric utilities in
Texas in order to allow retail competition beginning on January 1, 2002. Prior
to the adoption of the Legislation, Electric Operations' earnings were capped at
an agreed overall rate of return formula on a calendar year basis as part of the
Transition Plan approved by the Texas Utility Commission effective January 1,
1998. As a result of the Transition Plan, any earnings prior to the Legislation
above the maximum allowed return cap on invested capital were offset by
additional depreciation of Electric Operations' electric generation assets. For
more information regarding the Legislation, see Note 2 of the Company's Interim
Financial Statements and Note 3 of the Reliant Energy 10-K Notes.
14
2417
THREE MONTHS ENDED SEPTEMBER 30,
--------------------------- PERCENTMARCH 31,
-----------------------------
2000 1999
1998 CHANGE
----------- ----------- ------------------ -------
(IN MILLIONS)
Operating Revenues:
Base Revenues (1) ............................................. $ 975602 $ 986 (1%)568
Reconcilable Fuel Revenues (2) ....... 521 430 21%
----------- -----------............ 345 282
------- -------
Total Operating Revenues ....... 1,496 1,416 6%
----------- -----------............ 947 850
------- -------
Operating Expenses:
Fuel and Purchased Power ............. 536 447 20%.............. 358 292
Operation and Maintenance ............ 214 242 (12%)............. 210 203
Depreciation and Amortization ........ 233 209 11%......... 99 136
Other Operating Expenses ............. 103 105 (2%)
----------- -----------.............. 78 77
------- -------
Total Operating Expenses ........ 1,086 1,003 8%
----------- -----------............ 745 708
------- -------
Operating Income ............................................... $ 410202 $ 413 (1%)
=========== ===========142
======= =======
Electric Sales (MWH)Including Unbilled (MMWH):
Residential .......................... 7,732,696 7,971,198 (3%)........................... 3,677 3,518
Commercial ........................... 4,854,343 4,860,627 --............................ 3,722 3,551
Industrial - Firm .................... 6,836,545 7,018,296 (3%)
Municipal and Public Utilities ....... 101,231 95,204 6%
----------- -----------............................ 8,133 7,405
Other ................................. 694 819
------- -------
Total Firm Billed Sales ............ 19,524,815 19,945,325 (2%)
=========== ===========Including Unbilled ........ 16,226 15,293
------- -------
Average Cost of Fuel (Cents/MMBtu) ..... 198.8 173.4 15%...... 192.1 175.4
NINE MONTHS ENDED
SEPTEMBER 30,
--------------------------- PERCENT
1999 1998 CHANGE
----------- ----------- -------
(IN MILLIONS)
Operating Revenues:
Base Revenues (1) .................... $ 2,330 $ 2,344 (1%)
Reconcilable Fuel Revenues (2) ....... 1,183 1,100 8%
----------- -----------
Total Operating Revenues ......... 3,513 3,444 2%
----------- -----------
Operating Expenses:
Fuel and Purchased Power ............. 1,224 1,147 7%
Operation and Maintenance ............ 640 662 (3%)
Depreciation and Amortization ........ 541 524 3%
Other Operating Expenses ............. 271 265 2%
----------- -----------
Total Operating Expenses ......... 2,676 2,598 3%
----------- -----------
Operating Income ....................... $ 837 $ 846 (1%)
=========== ===========
Electric Sales (MWH):
Residential .......................... 16,285,847 16,043,238 2%
Commercial ........................... 12,507,322 12,182,317 3%
Industrial - Firm .................... 19,683,042 20,160,044 (2%)
Municipal and Public Utilities ....... 267,626 253,113 6%
=========== ===========
Total Firm Billed Sales .......... 48,743,837 48,638,712 --
=========== ===========
Average Cost of Fuel (Cents/MMBtu) .... 188.0 176.7 6%
- ----------------
(1) Includes miscellaneous revenues (including transmission revenues) and
certain purchased power-related revenues.
22
25
(2) Includes revenues collected through a fixed fuel factor and surcharge,
netIn the first quarter of over/under recovery of fuel. Pursuant to the Legislation,
Reliant Energy HL&P can recover fuel costs during the base rate freeze
period from 1999 through 2001.2000, Electric Operations' operating income
for the third quarter and first
nine months of 1999 decreased $3increased $60 million and $9 million, respectively, compared to the corresponding 1998 periods. For both periods, thesame period of 1999. Revenue growth and a
decrease isin depreciation expense primarily attributable to milder weather, additional base rate reductions and higher
depreciation and amortization expenses, which were partially offset byaccounted for this increase.
Primarily as a result of strong customer growth and reduced operationincreased customer
usage, Electric Operations increased base revenues $34 million for the three
months ended March 31, 2000, compared to the same period of 1999.
Reconcilable fuel revenues and maintenance expenses.
Fuelfuel and purchased power expenses
for the third quarter of 1999
increased by $89 million compared to the 1998 period as a result of the higher cost of natural gas ($2.65 and $1.95 per
MMBtu in the first quarters of 2000 and 1999, respectively), higher costs per
unit for purchased power ($0.037326.40 and $19.27 per KWHMWH in the first quarter of 2000
and 1999, period compared to
$0.0270 per KWHrespectively) and increased customer growth and usage, which increased
production. This was partially offset by higher lignite mine reclamation costs
of $17 million incurred in the 1998 period)first quarter of 1999.
Operation and higher reconcilable cost of natural gas
($2.65 per MMBtu in the 1999 period compared to $2.08 per MMBtu in the 1998
period).
Fuelmaintenance expenses and purchased powerother operating expenses for the
first nine monthsquarter of 19992000 increased by $77 million compared to the 1998 period as a result of higher
reconcilable cost of natural gas ($2.41 per MMBtu for 1999 compared to $2.21 for
1998), lignite ($1.48 per MMBtu for 1999 compared to $1.24 for 1998) and
purchased power ($0.0271 per KWH for 1999 compared to $0.0249 for 1998).
Operations and maintenance expense for the third quarter of 1999
decreased $28$7 million compared to the same period in
1998, primarily1999 largely due to lower insurance, advertisingincreased transmission costs.
Depreciation and nuclear operation and maintenance expenses.
Operations and maintenanceamortization expense decreased $22$37 million forin the
first nine
monthsquarter of 19992000 when compared to the same period in 1998. This decrease is
attributable to lower costs mentioned above partially offset by higher materials
and supplies expense.
Depreciation1999. For information
regarding items that affect depreciation and amortization expense increased $24 million and $17
million for the third quarter and first nine months of 1999, respectively,
compared to the same periods in 1998 due to the net increase in amortizationElectric
Operations pursuant to the Legislation.
Other operating expenses increased forLegislation and the first nine monthsTransition Plan, see Note 4 of
1999
compared to 1998 largely due to higher state franchise and gross receipts taxes.the Company's Interim Financial Statements.
NATURAL GAS DISTRIBUTION
Natural Gas Distribution conducts operations are conducted through three divisions of
Resources:Resources Corp.: Reliant Energy Arkla, Reliant Energy Entex and Reliant Energy
Minnegasco. TheseNatural Gas Distribution's operations consist of intrastate natural
gas sales to, and natural gas transportation for, residential, commercial and
certain industrial customers in six states: Arkansas, Louisiana, Minnesota, Mississippi,
Oklahoma and Texas.
The Company has retained a financial advisor to assist it in evaluating
strategic alternatives for Reliant Energy Arkla and Reliant Energy Minnegasco,
including divestiture.
15
18
THREE MONTHS ENDED SEPTEMBER 30,
--------------------- PERCENTMARCH 31,
----------------------------
2000 1999
1998 CHANGE
-------- --------------- -------
(IN MILLIONS)
Operating Revenues:
Base Revenues .............................................. $ 156269 $ 136 15%267
Recovered Gas Costs Revenues .......... 146 130 12%............ 469 411
-------- --------
Total Operating Revenues ...... 302 266 14%.............. 738 678
-------- --------
23
26
THREE MONTHS ENDED
SEPTEMBER 30,
--------------------- PERCENT
1999 1998 CHANGE
-------- -------- -------
(IN MILLIONS)
Operating Expenses:
Natural Gas .......................... 156 126 24%............................. 463 414
Operation and Maintenance ........................... 117 108 105 3%
Depreciation and Amortization ................... 35 33 33 --
Other Operating Expenses ............. 17 19 (11%)................ 26 25
-------- --------
Total Operating Expenses ........... 314 283 11%.............. 641 580
-------- --------
Operating Loss .........................Income .......................... $ (12)97 $ (17) 29%98
======== ========
Throughput Data (in Bcf):
Residential and Commercial Sales ..... 33 31 6%........ 122 124
Industrial Sales ............................................. 14 14
Transportation .......................... 15 13 14 (7%)
Transportation ....................... 11 9 22%
-------- --------
Total Throughput ................... 57 54 6%
======== ========
NINE MONTHS ENDED
SEPTEMBER 30,
-------------------- PERCENT
1999 1998 CHANGE
-------- -------- ----------
(IN MILLIONS)
Operating Revenues:
Base Revenues ........................ $ 578 $ 565 2%
Recovered Gas Cost Revenues .......... 732 762 (4%)
-------- --------
Total Operating Revenues ........... 1,310 1,327 (1%)
-------- --------
Operating Expenses:
Natural Gas .......................... 742 758 (2%)
Operation and Maintenance ............ 326 322 1%
Depreciation and Amortization ........ 98 97 1%
Other Operating Expenses ............. 64 70 (9%)
-------- --------
Total Operating Expenses ........... 1,230 1,247 (1%)
-------- --------
Operating Income ....................... $ 80 $ 80 --
======== ========
Throughput Data (in Bcf):
Residential and Commercial Sales ..... 199 200 (1%)
Industrial Sales ..................... 39 42 (7%)
Transportation ....................... 34 32 6%
-------- --------
Total Throughput ................... 272 274 (1%)...................... 151 151
======== ========
Natural Gas DistributionDistribution's operating loss forincome decreased by $1 million in
the thirdfirst quarter of 1999
decreased $5 million2000 compared to the 1998same period primarily due to increased
revenue from customer growth, weather related usagein 1999. Recovered gas
costs revenues and increased appliance
services and sales. Operating expenses, other than natural gas expense, were
consistent betweenexpenses increased $58 million and $49 million,
respectively, primarily as a result of an increase in the two periods.price of purchased
gas. Operating revenues for the first quarter of 2000 include a $12 million
effect of financial instruments entered into to protect natural gas distribution
earnings against unseasonably warm weather during peak gas heating months.
INTERSTATE PIPELINES
The Interstate Pipelines, segmentconsisting of two wholly owned subsidiaries of
Resources Corp., provides interstate gas transportation and related servicesservices.
The Company has retained a financial advisor to customers. These operations are conducted by Reliant
Energy Gas Transmission Company and Mississippi River Transmission Corporation,
two wholly owned subsidiaries of Resources.
24
27assist it in evaluating
strategic alternatives for Interstate Pipelines, including divestiture.
THREE MONTHS ENDED SEPTEMBER 30,
-------------------- PERCENTMARCH 31,
----------------------------
2000 1999
1998 CHANGE
-------- --------------- -------
(IN MILLIONS)
Operating Revenues ........................................ $ 7074 $ 70 --66
Operating Expenses:
Natural Gas .......................... 10........................ 11 6 67%
Operation and Maintenance ............ 15 20 (25%).......... 19 16
Depreciation and Amortization .............. 12 13 (8%)12
Other Operating Expenses ........................ 4 4
--
-------- ------------- -----
Total Operating Expenses ........... 41 43 (5%)
-------- --------......... 46 38
----- -----
Operating Income ............................................ $ 29 $ 27 7%
======== ========28 28
===== =====
Throughput Data (in MMBtu):
Natural Gas Sales .................... 3.................. 4 (25%)4
Transportation ....................... 202 186 9%..................... 262 231
Elimination (1) ...................................... (3) (4)
25%
-------- ------------- -----
Total Throughput ....................... 202 186 9%
======== ========
NINE MONTHS ENDED
SEPTEMBER 30,
-------------------- PERCENT
1999 1998 CHANGE
------- ------- --------
(IN MILLIONS)
Operating Revenues .................... $ 202 $ 218 (7%)
Operating Expenses:
Natural Gas ......................... 18 22 (18%)
Operation and Maintenance ........... 51 60 (15%)
Depreciation and Amortization ....... 37 32 16%
Other Operating Expenses ............ 12 12 --
------- -------
Total Operating Expenses .......... 118 126 (6%)
------- -------
Operating Income ...................... $ 84 $ 92 (9%)
======= =======
Throughput Data (in MMBtu):
Natural Gas Sales ................... 11 12 (8%)
Transportation ...................... 637 610 4%
Elimination (1) ................... (11) (11) --
------- -------
Total Throughput ...................... 637 611 4%
======= =======..................... 263 231
===== =====
- ------------------------------
(1) Elimination of volumes both transported and sold.
Interstate PipelinesPipelines' operating income increased by $2remained flat at $28 million and
decreased by $8 million in the third quarter and first nine months of 1999,
respectively, compared to the same periods in 1998. The increase for the
three-month period was primarily due to the reduction of operation and
maintenance expenses related to continued cost control initiatives. The decrease
for the nine-month period is primarily due to the settlement of a dispute
related to certain gas purchase contracts that resulted in $6 million of
revenues in the second quarter of 1998 and a rate settlement reflected in
the first quarter of 1998 as a $5 million reduction2000 compared to the first quarter of depreciation rates
retroactive to July 1996. This decrease was partially1999. Increases in
operating expenses offset by lower operation
and maintenance expenses related to continued cost control initiatives.
25slight increases in operating margins.
16
2819
WHOLESALE ENERGY
Wholesale Energy includesEnergy's activities include the acquisition, development,
and operation,
of, and sales of capacity, energy and ancillary services from domestic
and
certain international non-utilityunregulated power generation facilities; wholesale energy trading, marketing and
marketing;risk management activities in North America; and domestic natural gas gathering
activities. This segment
includesWholesale Energy conducts its operations through (a) Reliant Energy
Power Generation, Inc. (collectively with its subsidiaries, Power Generation),
(b) Reliant Energy Services, Inc. (Reliant Energy Services) and (c) Reliant
Energy Field Services, Inc.
The Company has retained a financial advisor to assist it in evaluating
strategic alternatives for Reliant Energy Field Services, Inc., including
divestiture.
Power Generation acquires and develops non-rate regulated power
generation facilities. On May 12, 2000, Power Generation purchased from Sithe
Energies, Inc. the entities owning non-rate regulated power generating assets
and development sites located in Pennsylvania, New Jersey and Maryland having a
net generating capacity of subsidiaries ownedapproximately 4,300 MW. The purchase price for these
entities was approximately $2.1 billion. The Company expects that Power
Generation will actively pursue the acquisition of additional generation assets
as well as the development of additional non-rate regulated generation projects.
The Company believes that the timing and success of Power Generation's future
efforts could result in substantial expenditures in the future.
The Company believes its energy trading, marketing and risk management
activities complement its strategy of developing and acquiring non-rate
regulated generation assets in key markets. Reliant Energy Services purchases
fuel to supply Power Generation's existing generation assets and also sells the
electricity produced by these assets. As a result, the Company has made, and
Resources.expects to continue to make, significant investments in developing Reliant
Energy Services' infrastructure including software, trading and risk control
resources.
THREE MONTHS ENDED SEPTEMBER 30,
------------------------- PERCENTMARCH 31,
----------------------------
2000 1999
1998 CHANGE
---------- ---------- ---------------- -------
(IN MILLIONS)
Operating Revenues ......................................... $ 2,908 $ 1,611 81%2,175 $1,008
Operating Expenses:
Natural Gas ......................... 945 566 67%1,424 720
Purchased Power ...................... 1,861 907 105%..................... 688 241
Operation and Maintenance ............ 51 35 (46%)........... 69 38
Depreciation and Amortization ............... 8 6 6 --
Other Operating Expenses ............. 1............ 2 (50%)
---------- ----------2
------- ------
Total Operating Expenses ........... 2,864 1,516 89%
---------- ----------.......... 2,191 1,007
------- ------
Operating Income ............................................. $ 44(16) $ 95 (54%)
========== ==========1
======= ======
Operations Data:
Natural Gas (in Bcf):
Sales ................................ 432 294 47%............................... 573 363
Gathering ............................ 70 60 17%
---------- ----------........................... 71 61
------- ------
Total .............................. 502 354 42%
========== ==========............................. 644 424
======= ======
Electricity (in thousandmillion MWH):
Wholesale Power Sales ................ 43,856 22,353 96%
========== ==========............... 28.4 10.3
======= ======
NINE MONTHS ENDED
SEPTEMBER 30,
---------------------- PERCENT
1999 1998 CHANGE
--------- --------- ---------
(IN MILLIONS)
Operating Revenues ..................... $ 5,854 $ 3,416 71%
Operating Expenses:
Natural Gas .......................... 2,703 1,647 64%
Purchased Power ...................... 2,936 1,604 83%
Operation and Maintenance ............ 139 80 74%
Depreciation and Amortization ........ 18 12 50%
Other Operating Expenses ............. 5 4 25%
--------- ---------
Total Operating Expenses ........... 5,801 3,347 73%
--------- ---------
Operating Income ....................... $ 53 $ 69 (23%)
========= =========
Operations Data:
Natural Gas (in Bcf):
Sales ................................ 1,317 800 65%
Gathering ............................ 198 175 13%
--------- ---------
Total .............................. 1,515 975 55%
========= =========
Electricity (in thousand MWH):
Wholesale Power Sales ................ 77,624 52,471 48%
========= =========
26
29
Wholesale Energy had an operating loss of $16 million for the first
quarter of 2000 compared to operating income of $1 million for the third quartersame period
in 1999. Improved trading margins and first nine
months of 1999 decreased by $51 millionvolumes for natural gas and $16 million, respectively, over the
1998 periods. The decreases are primarily due to milder weather, competitionpower as well
as improved margins from higher levels of hydro-electric generation importsplants in the California, marketFlorida and higher operating expense due to staffing increases for trading and marketing
activities. The decreasesTexas were
partially offset by improveda decline in margins from trading activities in other
commodities. Higher operating expenses at Reliant Energy Services and volumesincreased
maintenance costs, development costs and administrative and general expenses at
Power Generation also contributed to the decline in operating income. Timing
differences from planned outages in California primarily accounted for the
trading and marketing activities largely due to higher power marketing
and petroleum margins offset by lower natural gas margins.increased maintenance costs at Power Generation.
Wholesale EnergyEnergy's operating revenues increased $1.3 billion and $2.4$1.2 billion in the
thirdfirst quarter and first nine months of 2000 compared to the same period in 1999 respectively, primarily due to an
increase in gas and power marketing sales volumes, partially
offset by a decrease in the average sales price of gas.volumes. Wholesale EnergyEnergy's purchased
17
20
natural gas costs increased $379$704 million and $1.1
billion in the thirdfirst quarter and first nine months of 1999, respectively,2000 due to
an increase inincreased gas sales volume partially offset byand a decreasehigher average cost of gas in the average
pricefirst quarter
of gas.2000. Wholesale EnergyEnergy's purchased power expense increased $954$447 million
and $1.3 billion in the third quarter and first nine months of 1999,
respectively,
primarily due to increasedhigher power sales volume.
Wholesale Energy operating and maintenance expense increased $16
millionvolumes in the thirdfirst quarter of 1999 compared to the same period of 1998
primarily due to staffing increases for trading and marketing activities.2000.
Operation and maintenance expense for Wholesale Energy increased $59$31 million due
to the timing differences from planned outages of Power Generation's California
plants, the operation of generation plants in Florida and Texas, which did not
exist in the first nine monthsquarter of 1999, primarily due to operating expenses of the
California plants for the full nine monthsand development costs and staffing increases.
Depreciationincreases
to support increased trading and amortization expense for Wholesaleother new business activities.
RELIANT ENERGY EUROPE
The Company established its Reliant Energy remained
steadyEurope business segment in
the thirdfourth quarter and increased $6 million in the first nine months of 1999 largely due towith the depreciationacquisition of the California plants for the full
period.
To minimize the Company's risks associated with fluctuations in the
price of natural gas and transportation, the Company, primarily through Reliant
Energy Services, Inc. (a subsidiary of Resources), enters into futures
transactions, swaps and options relating to (i) certain commitments to buy, sell
and transport natural gas, (ii) existing natural gas and heating oil inventory,
(iii) future power sales and natural gas purchases by generation facilities,
(iv) crude oil and refined products and (v) certain anticipated transactions,
some of which carry off-balance sheet risk. Reliant Energy Services also enters
into commodity derivatives in its trading and price risk management activities.UNA. For a discussionadditional
information, see Note 3 of the Company's accounting treatment of derivative
instruments, seeInterim Financial Statements and Note 2
of the CompanyReliant Energy 10-K NotesNotes. Reliant Energy Europe owns, operates and Item 7A (Quantitative and
Qualitative Disclosure About Market Risk)sells
power from generation facilities in the Netherlands and plans to participate in
the emerging wholesale energy trading and marketing industry in the Netherlands
and in Western Europe.
THREE MONTHS ENDED
MARCH 31,
------------------
2000
------------------
(IN MILLIONS)
Operating Revenues ....................... $150
Operating Expenses:
Fuel and Purchased Power .............. 69
Operation and Maintenance ............. 28
Depreciation and Amortization ......... 20
----
Total Operating Expenses ............ 117
----
Operating Income ......................... $ 33
====
UNA, the other large unaffiliated Dutch generating companies and the
Dutch distribution companies currently operate under various agreements which
regulate, among other things, the rates UNA may charge for its generation
output. Under the Cooperative Agreement (OvS Agreement), UNA and the other
generators agree to sell their generating output to a national production pool
(SEP) in exchange for a standardized remuneration. The remuneration includes
fuel cost, capital cost and the cost of operations and maintenance expenses. UNA
operates under the protocol (Protocol), an agreement under which the generators
agree to provide capacity and energy to distributors for a total payment of NLG
3.4 billion (approximately $1.6 billion U.S. dollars) over the period 1997
through 2000, plus compensation of actual fuel costs. The OvS Agreement will
substantially expire by the beginning of 2001. The Protocol, which was entered
into in order to facilitate the transition from a regulated energy market into
an unregulated energy market, will also substantially expire by the beginning of
2001.
Beginning 2001, UNA will begin operating in a deregulated market. The
Company anticipates that UNA will undergo a significant decline in revenues in
2001 attributable to the deregulation of the market. In addition, the imposition
of Dutch corporate tax rates on UNA in 2002 will affect operating results at
Reliant Energy Europe. In 2000 and prior years, UNA was not subject to a
corporate income tax.
For additional information on these and certain other factors that may
affect the future results of operations of Reliant Energy Europe, see
"Management's Discussion and Analysis of Financial Condition and Results of
Operations of the Company -- Certain Factors Affecting Future Earnings of the
Company -- Competition -- Reliant Energy Europe Operations and -- Entry into the
European Market" in the Reliant Energy Form 10-K.
INTERNATIONAL
The International segmentRELIANT ENERGY LATIN AMERICA
Reliant Energy Latin America includes the results of operations of
Reliant Energy International, Inc. (a wholly owned subsidiary of the Company)(Reliant Energy International) and the
international operations of Resources. Substantially allReliant Energy Latin America participates
in the privatization of International's operations aregeneration and distribution facilities and independent
power projects primarily in Latin America.
Reliant Energy is evaluating selling the Company's Latin American
assets in order to pursue business opportunities that are more in line with its
strategies for the U.S. and Western Europe.
18
21
THREE MONTHS ENDED SEPTEMBER 30,
------------------- PERCENTMARCH 31,
----------------------------
2000 1999
1998 CHANGE
------- ------- ---------
(IN MILLIONS)
Operating Revenues ..................... $ 34 $ 32 6%
Operating Expenses:
Fuel ................................. 11 5 120%
Operation and Maintenance ............ 12 12 --
Depreciation and Amortization ........ 1 1 --
------- -------
Total Operating Expenses ........... 24 18 33%
------- -------
Operating Income ....................... $ 10 $ 14 (29%)
======= =======
27
30
NINE MONTHS ENDED
SEPTEMBER 30,
--------------------- PERCENT
1999 1998 CHANGE
-------- -------- -------
(IN MILLIONS)
Operating Revenues ..................... $ 26 $ 228 (89%)...................... $21 $(51)
Operating Expenses:
Fuel ................................. 36 15 140%.................................. 8 12
Operation and Maintenance ............ 40 34 18%............. 7 14
Depreciation and Amortization ................. 3 3 --
-------- ---------1
--- ----
Total Operating Expenses ........... 79 52 52%
-------- ---------............ 18 27
--- ----
Operating Income (Loss) ................................. $ (53) $ 176 --
======== =========3 $(78)
=== ====
InternationalReliant Energy Latin America had operating income of $10 million in the third quarter
of 1999 and operating loss of $53$3 million in the
first nine monthsquarter of 19992000 compared to an operating incomeloss of $14 and $176$78 million infor the same
periodsperiod in 1999. The 1999 loss reflects a $91 million after-tax, non-cash charge
relating to the Company's share of 1998, respectively.
The third quarter of 1999 operating income includes a $19 million after
tax loss resulting from the devaluation of theforeign exchange losses incurred by its
Brazilian real on Light and
Metropolitana'saffiliates, with respect to their non-local currency denominated
debt. Suchborrowings. These devaluation losses stem from the Brazilian government's
January 1999 decision to allow the Brazilian real to float against other foreign
currencies. Excluding the loss
fromlosses related to the currency devaluation, operating income
fordecreased $10 million from the thirdfirst quarter of 1999 was $29 million. The increase from the prior year, after consideration of the
currency devaluation, is primarily attributed to increases in equity earnings.
For more information regarding risks of the Company's international operations,
see "Certain Factors Affecting Future Earnings - Risks of International
Operations" below.
The operating loss for the nine-month period of 1999 includes a $114
million after tax loss resulting from the devaluation of the Brazilian real as
discussed above. Excluding the loss from the currency devaluation, operating
income for the first nine months of 1999 was $61 million. The decrease from the
prior year is primarily attributed to a $138 million pre-tax gain on the sale of
International's 63% interest in an Argentine electric distribution company in
1998. This was partially offset by increased equity earnings and earnings from a
cogeneration facility that became operational in November 1998.
Fuel expenses increased in the third quarter and first nine months of
1999 compared to the same periods in 1998 primarily due to lower
earnings from equity investments.
CORPORATE
Corporate includes the cogeneration
facility that became operationaloperations of certain non-rate regulated retail
services businesses, a communications business offering enhanced data, voice and
other services to customers in November 1998.
CORPORATETexas, certain real estate holdings and
unallocated corporate costs.
In the thirdfirst quarter of 1999,2000, Corporate had an operating loss of $18$1
million compared to an operating loss of $25 million in 1998. The operating loss
for the first nine months of 1999 was $28 million compared to an operating loss
of $20$3 million for the 1998 period.same period in 1999.
The improved resultsdecrease in the third quarter of
1999 compared to 1998 wereoperating loss occurred primarily from decreased corporate
expenses due to reduced benefit liabilities. The increased
operating loss in the nine month period comparedtiming of corporate allocations to the 1998 period is due to
increased information system, general insurance liability andother segments.
Decreased earnings from the unregulated retail business developmentpartially offset the
decrease in corporate expenses.
28
31
CERTAIN FACTORS AFFECTING FUTURE EARNINGS
For information on developments, factors and trends that may have an
impact on the Company's future earnings, please read "Management's Discussion
and Analysis of Financial Condition and Results of Operations of the Company -
Certain Factors Affecting Future Earnings of the Company and its Subsidiaries"Company" in the CompanyReliant Energy
Form 10-K, which is incorporated herein by reference. Among the
factors discussed are: "Competition and Restructuring of the Electric Utility
Industry," "Competition - Other Operations," "Fluctuation In Commodity Prices
and Derivative Instruments," "Accounting Treatment of ACES," "Impact of the Year
2000 Issue and Other System Implementation Issues," "Risks of International
Operations," "Environmental Expenditures" and "Other Contingencies." Certain
updated information contained in the Notes to the Company's Interim Financial
Statements is referenced below.
ACCOUNTING TREATMENT OF ACES AND ZENS
For information on the accounting treatment of the ACES, the Company's
investment in Time Warner common stock (TW Common)regarding
proposed tariffs filed by Reliant Energy HL&P relating to its transmission and
the ZENS issued in
September 1999,distribution operations, see Note 7 to2 of the Company's Interim Financial
Statements.
TEXAS ELECTRIC CHOICE PLAN
In June 1999, the State of Texas adopted legislation that substantially
amends the regulatory structure governing electric utilities in order to allow
retail competition beginning on January 1, 2002. In preparation for that
competition, the Company will make significant changes in the electric utility
operations it conducts through Reliant Energy HL&P. For additional information
regarding the Legislation, see Note 2 to the Company's Interim Financial
Statements. The Legislation is further described in Note 2 to the Company Second
Quarter 10-Q, which description is incorporated herein by reference.
IMPACT OF THE YEAR 2000 AND OTHER SYSTEM IMPLEMENTATION ISSUES
For a description of the Company's Year 2000 and other system
implementation issues, see "Management's Discussion and Analysis of Financial
Condition and Results of Operations of the Company - Certain Factors Affecting
Future Earnings of the Company and its Subsidiaries - Impact of the Year 2000
and Other System Implementation Issues" in the Company Form 10-K.
All of the Company's and its subsidiaries' business units have
completed a Year 2000 Project analysis of critical systems and equipment that
control the production and delivery of energy, as well as corporate,
departmental and personnel systems and equipment. Remediation and testing of all
systems and equipment that could affect the production and delivery of energy
(Priority 1 items) were completed during the second quarter of 1999. The Company
also completed Year 2000 contingency planning during the second quarter of 1999.
Remediation and testing of substantially all systems and equipment that impact
financial operation processes such as billing, repairs and payroll (Priority 2
items) were completed during the third quarter of 1999. It is anticipated that
work will be completed by December 31, 1999 with respect to Priority 3 items
(activities that would cause inconvenience or productivity loss, such as air
conditioning systems and elevators).FINANCIAL CONDITION
The following table illustratessummarizes the Company's completion percentagesnet cash provided by/used in
operating, investing and financing activities for the Yearthree months ended March
31, 2000 activities as of October 31,and 1999:
PRIORITY 1 PRIORITY 2 PRIORITY 3
-------------- -------------- ---------------THREE MONTHS ENDED MARCH 31,
----------------------------
2000 1999
------- -------
(IN MILLIONS)
Assessment ......... 100% 100% 100%
Conversion ......... 100% 100% 99%
Testing ............ 100% 100% 98%
Implementation ..... 100% 100% 96%Cash provided by (used in):
Operating activities ............... $ 450 $ 214
Investing activities ............... (1,361) (161)
Financing activities ............... 914 1
29
32
Total direct costs of resolving the Year 2000 issue with respect to the
Company and its subsidiaries are expected to be between $30 and $35 million and
include approximately $26.3 million spent through September 30, 1999.
The Company is in the process of implementing SAP America, Inc.'s (SAP)
proprietary R/3 enterprise software. Although it is anticipated that the
implementation of the SAP system will have the incidental effect of negating the
need to modify many of the Company's computer systems to accommodate the Year
2000 problem, the Company does not deem the costs of the SAP system as directly
related to its Year 2000 compliance program. Portions of the SAP system were
implemented in December 1998, March 1999 and September 1999, and it is expected
that the final portion of the SAP system will be fully implemented by August
2000. The cost of implementing the SAP system is currently estimated to be
approximately $226 million, inclusive of internal costs. As of September 30,
1999, $173 million has been spent on the implementation.
RISKS OF INTERNATIONAL OPERATIONS
The Company's international operations are subject to various risks
incidental to investing or operating in emerging market countries. These risks
include political risks, such as government instability, and economic risks,
such as fluctuations in currency exchange rates, restrictions on the
repatriation of foreign earnings and/or restrictions on the conversion of local
currency earnings into U.S. dollars. The Company's international operations are
also highly capital intensive and significantly dependent on the availability of
bank financing and other sources of capital on commercially acceptable terms.
To offset the devaluation of the Brazilian real, and the resulting
increased operating costs and inflation, Light and Metropolitana received tariff
rate increases of 16% and 21%, respectively, which were phased in during June
and July 1999. Light also received its annual rate adjustment in November 1999
resulting in a tariff rate increase of 11%. The Company is pursuing additional
tariff increases to mitigate the impact of the devaluation; however, there can
be no assurance that such adjustments will be timely or that they will permit
substantial recovery of the impact of the devaluation.
For more information on the risks of international operations, see
"Qualitative and Quantitative Disclosures About Market Risk of the Company"
herein, Note 3 to the Company's Interim Financial Statements and "Management's
Discussion and Analysis of Financial Condition and Results of Operations of the
Company - Certain Factors Affecting Future Earnings of the Company and its
Subsidiaries - Risks of International Operations" in the Company Form 10-K.
LIQUIDITY AND CAPITAL RESOURCES
For the nine months ended September 30, 1999, the Company's netNet cash provided by operating activities decreased $48operations in the three months ended March 31,
2000 increased $236 million compared to the same period in 19981999 primarily due in part to
(a) a $141$78 million federal tax refund received in the 1998
periodfirst quarter of 2000, (b)
increased sales at Electric Operations due to strong customer growth and
increased customer usage, (c) incremental cash flows provided by UNA, which was
acquired in the fourth quarter of 1999, and (d) other changes in working
capital.
19
22
Net cash used in investing activities increased $505 million for$1.2 billion in the
ninethree months ended September 30, 1999March 31, 2000 compared to the 1998same period in 1999 primarily
due to the purchase of additional TW Common.the remaining 48% of the shares of UNA for $987 million
on March 1, 2000, as well as, increased capital expenditures related to the
construction of domestic non-rate regulated power generation projects by
Wholesale Energy.
Cash flows fromprovided by financing activities forincreased $913 million in
the ninethree months ended September 30, 1999 reflected a cash inflow of $641 million asMarch 31, 2000 compared to a cash
outflow of $367 million for the same period in 1998.1999
primarily due to cash received from short-term borrowings. Purchases by Reliant
Energy of its common stock during the first quarter of 2000 totaling $27 million
partially offset this increase. The Company utilized the net borrowings incurred
during the first quarter of 2000 to fund the remaining purchase obligation of
UNA, to support increased capital expenditures by Wholesale Energy and for
general corporate purposes, including the repayment of indebtedness. The Company
obtained the funds for the remaining UNA purchase obligation on March 1, 2000,
in 1999 included
proceedspart from the issuance of indexed debt securities, trust preferred
securities, commercial paper, pollution control revenue bonds and borrowings
under a Euro revolving credit600 million (approximately $584 million) three-year term
loan facility partially offset byestablished in February 2000 and through short-term borrowings and
excess operating cash flows. In the extinguishmentfirst quarter of long-term debt, the payment of common stock dividends and the payment of
notes payable.
30
33
On October 7, 1999, a subsidiary of the Company purchased the
619-megawatt Indian River Steam Generation Plant in Florida for $205 million.
External funding for the acquisition was obtained through the issuance of
commercial paper at2000, a financing
subsidiary of the Company.
On October 7, 1999,Company borrowed $650 million under a $650 million revolving
credit facility established in February 2000 that terminates on May 31, 2000.
This financing subsidiary used the proceeds to purchase Series G Preference
Stock of Reliant Energy. Reliant Energy used the proceeds from the sale of
Preference Stock for general corporate purposes, including the repayment of
indebtedness. In addition, in March 2000, the Company purchased 40%borrowed $150 million
under a $200 million revolving credit facility established in the first quarter
of the
capital stock of UNA for $780 million, which included $354 million in cash and a
$426 million five-year promissory note. The promissory note must be prepaid
under certain circumstances. In accordance with the stock purchase agreement,
the Company's subsidiary has irrevocable fixed commitments to increase its
ownership interest of UNA to 52% by December 1, 1999 and will purchase the
remaining shares of UNA2000 that terminates on March 1,May 31, 2000. The total purchase priceCompany used the proceeds from
these borrowings for general corporate purposes, including the repayment of
indebtedness. Borrowings under the acquisition is approximately $2.4 billion. All purchase price obligationsrevolving credit facilities terminating on
May 31, 2000 are denominated in NLG. The dollar amounts shown above assume an exchange rateexpected to be refinanced with debt or repaid with internally
generated funds.
FUTURE SOURCES AND USES OF CASH FLOWS
Credit Facilities. As of 2.0565 NLG per U.S. dollar (the exchange rate on October 7, 1999). The Company
is evaluating financing alternatives in connection with the funding of increases
in its UNA ownership interest and promissory note payments.
During the three months ended September 30, 1999 and the period from
October 1, 1999 through November 8, 1999,March 31, 2000, the Company purchased 1,419,200had credit
facilities, including the facilities of several financing subsidiaries,
Resources Corp. and 90,800 shares, respectively,UNA, which provided for an aggregate of its common stock for $38.8$5.2 billion in
committed credit (including the Euro 600 million and $2.4
million.facility discussed above). As
of September 30, 1999,March 31, 2000, $4 billion was outstanding under these facilities, including
commercial paper of $1.6 billion. Unused credit facilities totaled $1.2 billion
as of March 31, 2000.
Shelf Registrations. As of March 31, 2000, the Company was authorized to purchase an
additional $47.5 million of its common stock.
The following tables provide information about the Company's and
Resources' unused sources of capital at September 30, 1999 and financing
transactions that occurred in the third quarter of 1999.
UNUSED SOURCES OF CAPITAL AT SEPTEMBER 30, 1999
SOURCE AVAILABILITY
------ ------------
(IN MILLIONS)
COMPANY:
$200 million revolving credit facility (1)......................... $ 200
Shelf registration statements (2).................................. $ 230 preferred stock
580 debt securities
125 trust preferred securities and
related junior subordinated debt
securities
406 common stock (3)
RESOURCES:(4)
$350 million revolving credit facility (5)......................... $ 293
FINANCING SUBSIDIARIES:
$1.6 billion revolving credit facility (6)......................... $ 508
Euro 560 million revolving credit facility (7)..................... Euro 222 (approximately $236)
- ----------------
(1) Supports up to $200 million of commercial paper borrowings.
(2) Issuance of securities under thehad shelf
registration statements is
subject to marketproviding for the issuance of $230 million aggregate
liquidation value of its preferred stock, $580 million aggregate principal
amount of its debt securities and other conditions.
(3) Amount is$125 million of trust preferred securities and
related junior subordinated debt securities. In addition, the Company has a
shelf registration for 15 million shares of common stock, which would have been
worth approximately $353 million as of March 31, 2000 based on the closing price
of the common stock as of September 30, 1999. The registration statement covers the sale of 15
million shares.
(4) Resources also has a $350 million receivables facility that was fully
utilized at September 30, 1999.
(5) Supports commercial paper borrowings and has a $65 million subfacility
which may be used for letters of credit. At September 30, 1999, there
were outstanding letters of credit totaling $22.8 million and
outstanding commercial paper of $34.2 million.
(6) Supports up to $1.6 billion of commercial paper borrowings.
(7) Borrowings under this facility are denominated in Euros.
31
34
On September 30, 1999, Reliant Energy Power Generation, Inc. (REPG), a
wholly owned subsidiary of the Company, had Euro 338 million (approximately $360
million) invested at an overnight rate of 2.25% in anticipation of funding the
cash portion (approximately $354 million) of the acquisition of a 40% interest
in UNA which occurred on October 7, 1999.such date.
Securitization. Reliant Energy HL&P plans to filefiled an application with the PublicTexas
Utility Commission of Texas requesting a financing order authorizing the issuance of
transition bonds relating to Reliant Energy HL&P's generation related regulatory
assets by a special purpose entity organized by the Company, pursuant to the
Legislation,Legislation. The Company estimates that approximately $750 million of approximately $1 billion of transition bonds related to Reliant
Energy HL&P's generation related regulatory assets. Payments on the transition
bonds will be made from non-bypassable transition charges to Reliant Energy
HL&P's transmission and distribution customers.authorized by the Texas Utility Commission. The offering and sale
of the transition bonds will be registered under the Securities Act of 1933 and
isare expected to be consummated in 2001, or if conditions permit, late 2000.
Acquisition of Sithe Assets. On May 12, 2000, the first quarterCompany purchased
from Sithe Energies, Inc. the entities owning non-rate regulated power
generating assets and development sites located in Pennsylvania, New Jersey and
Maryland having a net generating capacity of 2000.
THIRD QUARTER 1999 REPAYMENTS AND REDEMPTIONS
TYPE OF DEBT AMOUNT
- ------------ -------------
(IN MILLIONS)
COMPANY OR ON BEHALF OF COMPANY:
Brazos River Authority (BRA) 7.625% Collateralized Revenue Refunding Bonds,
Series 1989A ................................................................... $ 100
Matagorda County Navigation District Number One (MCND) 7.125% Collateralized
Revenue Refunding Bonds, Series 1989C ....................................... 100
Reduction in outstanding commercial paper ...................................... 47
RESOURCES:
8.875% Notes due 1999 .......................................................... 200
FINANCING SUBSIDIARIES:
Reduction in outstanding commercial paper ...................................... 328
On October 1, 1999, MCND Series 1989D 7.60% Collateralized Pollution
Control Revenue Bonds aggregating $70.315approximately 4,300 MW. The
purchase price for these entities was approximately $2.1 billion. The Company
accounted for the acquisition as a purchase. Funds for the acquisition were made
available through issuances of commercial paper supported by two committed
bridge facilities, one in the amount of $1 billion and one in the amount of
$1.15 billion. The $1 billion bridge facility is a 364-day revolving facility
that expires in May 2001. The revolving commitment period for the $1.15 billion
facility terminates in May 2001, and any outstanding borrowings at that time
convert to a one-year term facility.
Reliant Energy Latin America Capital Contributions and Advances. As of
March 31, 2000, Reliant Energy Latin America expects to make capital
contributions or advances during the last three quarters of 2000 totaling
20
23
approximately $133 million as a result of debt service payments and operating
cash flow short falls at certain of its affiliates. Of this amount, capital
contributions of $30 million were redeemed at 102% of their
principal amount plus accrued interest.
In October 1999, Resources called for redemption the remaining $42.76
million principal amount of its 10% Debentures due 2019.made in April 2000. The debentures will be
redeemed on November 15, 1999 at 105% of their principal amount plus accrued
interest.
32
35
THIRD QUARTER 1999 FINANCINGS
TYPE OF DEBT AMOUNT INTEREST RATE MATURITY DATE
- ------------ ------------- ------------- --------------
(IN MILLIONS)
COMPANY:
MCND 5.95% Revenue Refunding Bonds (1) $ 70.315 5.95% 2030
ZENS (2) $ 1,000 2.0% 2029
RESOURCES:
Receivables Facility (3) $ 50 5.53% 2000
FINANCING SUBSIDIARIES:
Bank Borrowings (4) Euro 338 (approximately $360) 3.127% 2000
- ------------------
(1) On behalf of the Company. Proceeds from the sale were used October 1,
1999 to redeem $70.315 million 7.6% MCND Series 1989D collateralized
revenue refunding bonds at a price of 102%.
(2) See Notes 7 and 10(a) to the Interim Financial Statements for a
description of the ZENS.
(3) In August 1999, Resources increased the size of its receivables
facility from $300 million to $350 million and received an additional
$50 million from its sale of receivables. The receivables facility
expires in August 2000.
(4) In September 1999, a finance subsidiary of the Company established a
Euro 560 million (approximately $596 million) revolving credit facility
expiring in September 2000 and borrowed Euro 338 million under such
facility.
On April 8, 1999, in anticipation of the UNA transaction, REPG entered
into call option agreements with several banks to hedge the impact of foreign
exchange movements in NLG. These call options provided the right, but not the
obligation, to purchase 695 million NLG at strike prices ranging from 1.99 to
2.01 NLG per US dollar. The total premium paid for the options, which expired on
October 26, 1999, was $7.7 million. The premium was being amortized on a
straight line basis. On October 12, 1999, REPG sold the remaining value in the
call options for $0.6 million which will be reflected in the fourth quarter
results of operations.
Due to the worsening economic and political conditions in Colombia,
S.A., the Company expects that
1999 operating cash flow forpart of these capital contributions will be paid from a return of capital from
one of its investments, dividends from certain of its Colombian operations will not meet their working capital and capital expenditure
needs. Consequently, a short-term loan was entered into by the Colombian
operating companies. In September 1999, the Company made a contribution of
approximately $33 million and expects to make an additional contribution of
approximately $12 million during the fourth quarter of 1999. These funds will be
used in large part to repay the short-term loan.
In November 1999, Light issued 650 million Brazilian reais of
subordinated debentures. The proceeds of the debentures will be used to retire
approximately $325 million of non-local currency denominated borrowings. At
September 30, 1999, one U.S. dollar could be exchanged for 1.9223 Brazilian
reais.
33
36
On November 10, 1999, the BRA issued on behalf of the Company $100
million of revenue refunding bonds having an annual interest rate of 5.20% and a
maturity date of December 1, 2018. The BRA bonds will be subject to mandatory
tender or optional redemption on December 1, 2002 at a price equal to 100% of
the principal amount. The proceeds from the issuance will be used on December
13, 1999 to redeem all outstanding BRA Series 1989B collateralized revenue
refunding bonds ($100 million) at a redemption price of 102% of their aggregate
principal amount.
On November 10, 1999, the MCND issued on behalf of the Company $75
million of revenue refunding bonds having an annual interest rate of 5.20% and a
maturity date of May 1, 2029. The MCND bonds will be subject to mandatory tender
or optional redemption on November 1, 2002 at a price equal to 100% of the
principal amount. The proceeds from the issuance will be used on December 13,
1999 to redeem all outstanding MCND Series 1989E collateralized revenue
refunding bonds ($75 million) at a redemption price of 102% of their aggregate
principal amount.
On November 12, 1999, a financing subsidiary issued $300 million of
Senior Notes due 2002 having an annual interest rate of 7.4%. The proceeds from
the issuance were used by the financing subsidiary to purchase Series E
Preference stock of the Company. As a result of the transaction, the financing
subsidiary owns 3,160 shares of the Series E Preference Stock. The Company
anticipates that thecompanies,
proceeds from the sale of such preference stock will be
used for general corporate purposes, including the repaymentcertain of indebtedness.its investments and from additional capital
contributions from Reliant Energy.
Other Sources/Uses of Cash. The devaluation of the Brazilian real has resulted in the inability of
Lightliquidity and Metropolitana to distribute adequate dividends to meet debt
requirements of a subsidiary of the Company. In July 1999, the subsidiary
executed a guarantee of up to $45 million. In November 1999, it is anticipated
that the Company will make a capital contribution of approximately $20 million
to fund a portion of this obligation. If Light and Metropolitana are not able
to distribute adequate dividends to meet debt requirements of
the subsidiary,
it is anticipated thatCompany are affected primarily by capital programs and debt service
requirements. The Company expects to continue to participate as a bidder in
future acquisitions of independent power projects and privatizations of
generation facilities. Any resulting capital requirements are expected to be met
with excess cash flows from operations, proceeds from project financings and
proceeds from Company borrowings. Additional capital expenditures depend upon
the Company will make a capital contribution in May 2000
to fundnature and extent of future project commitments, some of which may be
substantial. Although the remainder of this obligation.
The Company believes that its current level of cash and
borrowing capability along with future cash flows from operations isare sufficient
to meet the existing operational needs of its existing businesses. However, to achieve its objectives,businesses, the Company may, when
it deems necessary, or when it develops or acquires new businesses and assets,
supplement its available cash resources by seeking funds in the equity or debt
markets.
NEW ACCOUNTING ISSUES
InEffective January 1, 2001, the Company and Resources expectis required to adopt Statement of
Financial Accounting Standards (SFAS)SFAS No.
133, "Accounting Forfor Derivative Instruments and Hedging Activities," as amended
(SFAS No. 133), which. SFAS No. 133 establishes accounting and reporting standards for
derivative instruments, including certain hedging instruments embedded in other
contracts (collectively referred to as derivatives) and for hedging activities.
The Company and
Resources areis in the process of determining the effect of the adoption of SFAS No.
133 on theirits consolidated financial statements.
QUANTITATIVE AND QUALITATIVE
DISCLOSURES ABOUT MARKET RISK OF THE COMPANY
The Company and its subsidiaries havehas financial instruments that involve various market risks
and uncertainties. For information regarding the Company's exposure to risks
associated with interest rates, equity market prices, foreign currency exchange
rate risk and energy commodity prices, see Item 7A of the CompanyReliant Energy Form
10-K.10-K which is incorporated herein by reference. These risks have not materially
changed from the market risks disclosed in the CompanyReliant Energy Form 10-K, except as discussed below.
As described in "Management's Discussion and Analysis of Financial Conditions
and Results of Operations of the Company," for the nine months period ended on
September 30, 1999, the Company reported a $114 million charge to net income and
a $65 million charge to other comprehensive income, due to the devaluation of
the Brazilian real. The charge to net income reflects increases in the
liabilities at Light and Metropolitana for their non-local currency denominated
borrowings using the exchange rate in effect at September 30, 1999 and a monthly
weighted average exchange rate for the nine-month period then ended. The charge
to other comprehensive income
3410-K.
21
37
reflects the translation effect on the local currency denominated net assets
underlying the Company's investment in Light. As of September 30, 1999, the
Brazilian real exchange rate was 1.9223 per U.S. dollar. An increase of 10% from
the September 30, 1999 exchange rate would result in the Company recording an
additional charge of $18 million and $14 million to net income and other
comprehensive income, respectively.
As discussed in Notes 7 and 10 to the Company's Interim Financial
Statements, the Company owns approximately 55 million shares of TW Common, of
which approximately 38 million and 17 million shares are expected to
economically hedge the ACES and ZENS, respectively. Unrealized gains and losses
resulting from changes in the market value of the Company's TW Common are
recorded in the Consolidated Statement of Operations. Increases in the market
value of TW Common result in an increase in the liability for the ZENS and ACES
and are recorded as a non-cash expense. Such non-cash expense will be offset by
an unrealized gain on the Company's TW Common investment. However, if the market
value of TW Common declines below $58.25, the ZENS payment obligation will not
decline below its original principal amount. Therefore, a decrease of 10% from
the September 30, 1999 market value of TW Common of $60.75 per share would
result in a $40 million after-tax unrealized loss on the TW Common investment
that would not be offset by the decrease in the liability for the ZENS.
35
3824
RELIANT ENERGY RESOURCES CORP. AND SUBSIDIARIES
(A WHOLLY OWNED SUBSIDIARY OF RELIANT ENERGY, INCORPORATED)
STATEMENTS OF CONSOLIDATED OPERATIONSINCOME
(THOUSANDS OF DOLLARS)
(UNAUDITED)
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------------------- -------------------------------MARCH 31,
----------------------------
2000 1999
1998 1999 1998
--------------- --------------- --------------- -------------------------- -----------
REVENUES.............................................REVENUES .......................................... $ 3,446,9253,099,337 $ 1,927,156 $7,705,879 $ 5,062,167
--------------- --------------- --------------- ---------------1,828,064
----------- -----------
EXPENSES:
Natural gas and purchased power.................... 3,171,485 1,685,067 6,793,915 4,221,741power ................. 2,704,950 1,458,695
Operation and maintenance.......................... 176,522 140,331 461,897 426,506maintenance ....................... 160,104 138,902
Depreciation and amortization...................... 50,045 53,240 148,159 144,305amortization ................... 52,122 50,018
Taxes other than income taxes...................... 21,145 24,865 79,054 86,734
--------------- --------------- --------------- ---------------
3,419,197 1,903,503 7,483,025 4,879,286
--------------- --------------- --------------- ---------------taxes ................... 31,352 30,272
----------- -----------
2,948,528 1,677,887
----------- -----------
OPERATING INCOME..................................... 27,728 23,653 222,854 182,881
--------------- --------------- --------------- ---------------INCOME .................................. 150,809 150,177
----------- -----------
OTHER INCOME (EXPENSE):
Interest expense................................... (30,378) (25,736) (90,231) (78,115)
Distributionsexpense, net ........................... (31,687) (29,662)
Distribution on trust securities.................. (64) (106) (261) (533)preferred securities ...... (95) (99)
Other, - net........................................ 1,846 1,049 8,604 5,585
--------------- --------------- --------------- ---------------
(28,596) (24,793) (81,888) (73,063)
--------------- --------------- --------------- ---------------net ...................................... (17,105) 3,031
----------- -----------
(48,887) (26,730)
----------- -----------
INCOME (LOSS) BEFORE INCOME TAXES.................... (868) (1,140) 140,966 109,818
INCOME TAX EXPENSE................................... 5,664 1,446 70,569 55,449
--------------- --------------- --------------- ---------------TAXES ........................ 101,922 123,447
Income Tax Expense ................................ 46,786 52,474
----------- -----------
NET INCOME (LOSS)............................................................................ $ (6,532)55,136 $ (2,586) $ 70,397 $ 54,369
=============== =============== =============== ===============70,973
=========== ===========
See Notes to Resources' ConsolidatedInterim Financial Statements.
36Statements
22
3925
RELIANT ENERGY RESOURCES CORP. AND SUBSIDIARIES
(A WHOLLY OWNED SUBSIDIARY OF RELIANT ENERGY, INCORPORATED)
CONSOLIDATED BALANCE SHEETS
(THOUSANDS OF DOLLARS)
(UNAUDITED)
ASSETS
SEPTEMBER 30,MARCH 31, DECEMBER 31,
2000 1999
1998
------------------- ----------------------------- -----------
CURRENT ASSETS:
Cash and cash equivalents.............................................equivalents ............................ $ 69,50771,189 $ 26,57681,347
Accounts and notes receivable, principally customer................... 874,324 682,552customer... 948,059 980,560
Unbilled revenue...................................................... 44,851 145,131
Accounts and notes receivable - affiliated companies, net............. 193,177
Income tax receivable................................................. 44,270revenue ..................................... 122,244 150,961
Materials and supplies................................................ 35,100 33,947supplies, at average cost .............. 34,383 35,121
Fuel, gas and petroleum products...................................... 148,015 161,085products ..................... 31,376 80,135
Price risk management assets.......................................... 481,147 265,203
Otherassets ......................... 530,645 435,336
Prepayments and other current assets.................................................. 49,611 39,234
------------------- -------------------assets ................. 37,519 46,666
---------- ----------
Total current assets................................................ 1,746,825 1,546,905
------------------- -------------------assets ............................... 1,775,415 1,810,126
---------- ----------
PROPERTY, PLANT AND EQUIPMENT:
Natural gas distributionProperty, plant and gathering systems........................ 1,870,869 1,686,159
Interstate pipelines.................................................. 1,316,329 1,302,829
Other................................................................. 20,870 13,976
------------------- -------------------
Total............................................................... 3,208,068 3,002,964equipment ........................ 3,351,586 3,298,478
Less accumulated depreciation and amortization........................ 290,317 187,936
------------------- -------------------amortization ....... 367,953 324,596
---------- ----------
Property, plant and equipment, - net................................... 2,917,751 2,815,028
------------------- -------------------net ................... 2,983,633 2,973,882
---------- ----------
OTHER ASSETS:
Goodwill, - net........................................................ 1,994,608 2,050,386net ........................................ 1,969,779 1,983,004
Prepaid pension asset ................................ 105,746 110,626
Price risk management assets.......................................... 100,593 21,414
Deferred debits ...................................................... 259,522 221,788
------------------- -------------------assets ......................... 331,681 148,722
Other ................................................ 196,769 186,437
---------- ----------
Total other assets.................................................. 2,354,723 2,293,588
------------------- -------------------assets ................................. 2,603,975 2,428,789
---------- ----------
TOTAL ASSETS............................................................ $ 7,019,299 $ 6,655,521
=================== ===================ASSETS ........................................... $7,363,023 $7,212,797
========== ==========
See Notes to Resources' ConsolidatedInterim Financial Statements.
37Statements
23
4026
RELIANT ENERGY RESOURCES CORP. AND SUBSIDIARIES
(A WHOLLY OWNED SUBSIDIARY OF RELIANT ENERGY, INCORPORATED)
CONSOLIDATED BALANCE SHEETS
- (CONTINUED)
(THOUSANDS OF DOLLARS) -- (CONTINUED)
(UNAUDITED)
LIABILITIES AND STOCKHOLDER'S EQUITY
SEPTEMBER 30,MARCH 31, DECEMBER 31,
2000 1999
1998
------------------- ------------------------------ -------------
CURRENT LIABILITIES:
Current maturitiesportion of long-term debt..................................debt ................................ $ 201,671248,416 $ 203,438
Receivables facility.................................................. 350,000 300,000
Notes payable......................................................... 34,200223,451
Short-term borrowings ............................................ 368,200 534,584
Accounts payable, principally trade................................... 694,467 622,262trade .............................. 803,548 776,546
Accounts and notes payable - affiliated companies, net................ 55,938net ........... 19,910 95,601
Interest payable...................................................... 29,030 36,197
Other taxes........................................................... 42,971 42,107accrued ................................................. 28,000 27,965
Taxes accrued .................................................... 106,350 48,266
Customer deposits..................................................... 33,349 36,985deposits ................................................ 32,714 33,255
Price risk management liabilities..................................... 457,420 227,652liabilities ................................ 500,371 431,135
Other current liabilities............................................. 233,063 172,616
------------------- -------------------............................................................ 99,940 119,111
----------- -----------
Total current liabilities....................................... 2,132,109 1,641,257
------------------- -------------------liabilities .................................. 2,207,449 2,289,914
----------- -----------
DEFERRED CREDITS AND OTHER LIABILITIES:
Accumulated deferred income taxes..................................... 548,334 511,070taxes ................................ 558,316 532,725
Payable under capacity lease agreement ........................... 41,000 41,000
Benefit obligations .............................................. 140,631 161,144
Price risk management liabilities..................................... 95,494 29,108
Other................................................................. 318,178 397,141
------------------- -------------------liabilities ................................ 308,045 117,437
Other ............................................................ 181,829 187,473
----------- -----------
Total deferred credits and other liabilities...................... 962,006 937,319
------------------- -------------------liabilities ................. 1,229,821 1,039,779
----------- -----------
LONG-TERM DEBT LESS CURRENT MATURITIES................................. 1,292,479 1,513,289
------------------- -------------------
Total Liabilities................................................ 4,386,594 4,091,865
------------------- -------------------..................................................... 1,193,111 1,220,631
----------- -----------
COMMITMENTS AND CONTINGENCIES (NOTE 1)(NOTES 1 AND 7)
RESOURCES OBLIGATED MANDATORILY REDEEMABLE CONVERTIBLE PREFERRED
SECURITIES OF SUBSIDIARY TRUST HOLDING SOLELY JUNIOR
SUBORDINATED DEBENTURES OF RESOURCES - NET........................................ 1,066 1,157
------------------- -------------------............................ 957 967
----------- -----------
STOCKHOLDER'S EQUITY:
Common stock..........................................................stock ..................................................... 1 1
Paid-in capital.......................................................capital .................................................. 2,463,831 2,463,831
Retained earnings..................................................... 185,068 114,671earnings ................................................ 270,008 214,872
Accumulated other comprehensive income................................ (17,261) (16,004)
------------------- -------------------loss ............................. (2,155) (17,198)
----------- -----------
Total stockholder's equity...................................... 2,631,639 2,562,499
------------------- -------------------equity ................................... 2,731,685 2,661,506
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY...........................EQUITY ...................... $ 7,019,2997,363,023 $ 6,655,521
=================== ===================7,212,797
=========== ===========
See Notes to Resources' ConsolidatedInterim Financial Statements.
38Statements
24
4127
RELIANT ENERGY RESOURCES CORP. AND SUBSIDIARIES
(A WHOLLY OWNED SUBSIDIARY OF RELIANT ENERGY, INCORPORATED)
STATEMENTS OF CONSOLIDATED CASH FLOWS
(THOUSANDS OF DOLLARS)
(UNAUDITED)
NINETHREE MONTHS ENDED SEPTEMBER 30,
----------------------------------------MARCH 31,
----------------------------
2000 1999
1998
------------------- ---------------------------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income............................................................income ........................................................ $ 70,39755,136 $ 54,36970,973
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization....................................... 148,159 144,305amortization ................................... 52,122 50,018
Deferred income taxes............................................... 46,356 21,029taxes ........................................... 9,673 4,500
Impairment of marketable equity securities ...................... 22,185 --
Changes in other assets and liabilities:
Accounts and notes receivable - net................................. (91,492) (473,373)
Inventories......................................................... 11,917 (116,942)................................. 61,218 12,052
Accounts receivable/payable, affiliates ....................... 31,747 (38,293)
Inventories ................................................... 49,497 141,926
Other current assets................................................ (10,377) (18,056)assets .......................................... 9,147 (18,501)
Accounts payable.................................................... 86,240 511,261
Accounts and notes receivable/payable - affiliated companies........ 249,115 92,959.............................................. 27,002 (73,233)
Interest and taxes accrued.......................................... (59,665) (55,780)accrued .................................... 58,119 55,116
Other current liabilities........................................... 56,811 (34,844)liabilities ..................................... (19,712) (25,822)
Net price risk management activities................................ 1,031 (20,974)assets .............................. (18,424) (18,262)
Restricted deposits ........................................... (9,770) (31,042)
Other, - net......................................................... (118,286) 88,364
------------------- -------------------net .................................................... (14,719) (15,093)
--------- ---------
Net cash provided by operating activities....................... 390,206 192,318
------------------- -------------------activities ................... 313,221 114,339
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures.................................................. (200,858) (184,301)expenditures .............................................. (58,119) (45,540)
Other, - net.......................................................... (7,950) 4,032
------------------- -------------------net ........................................................ 11,127 (1,769)
--------- ---------
Net cash used in investing activities........................... (208,808) (180,269)
------------------- -------------------activities ....................... (46,992) (47,309)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Retirements and reacquisitionsPayments of long-term debt...................... (212,042) (76,000)
Proceeds from receivables facility.................................... 50,000debt ........................................ -- (6,042)
Decrease in short-term borrowings, net ............................ (166,384) --
Increase (decrease) in notes payable.................................. 34,200 (216,931)
Proceeds from issuance of debentures.................................. 298,514
Redemption of convertible securities.................................. (57) (10,399)with affiliates, net ................. (107,438) (33,400)
Other, - net........................................................... (10,568) (20,504)
------------------- -------------------net ........................................................ (2,565) (3,757)
--------- ---------
Net cash used in financing activities............................. (138,467) (25,320)
------------------- -------------------activities ....................... (276,387) (43,199)
--------- ---------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS.................... 42,931 (13,271)EQUIVALENTS ................. (10,158) 23,831
CASH AND CASH EQUIVALENTS AT BEGINNING OF THE PERIOD....................PERIOD ................. 81,347 26,576
35,682
------------------- ---------------------------- ---------
CASH AND CASH EQUIVALENTS AT END OF THE PERIOD..........................PERIOD ....................... $ 69,50771,189 $ 22,411
=================== ===================50,407
========= =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash payments:Payments:
Interest (net of amounts capitalized)................................. ............................. $ 93,49333,922 $ 97,82230,939
Income taxes - net.................................................... 66,095 (57,863)...................................................... 93 (2,549)
See Notes to Resources' ConsolidatedInterim Financial Statements.
39Statements
25
42
RELIANT ENERGY RESOURCES CORP. AND SUBSIDIARIES
(A WHOLLY OWNED SUBSIDIARY OF RELIANT ENERGY, INCORPORATED)
CONSOLIDATED STATEMENTS OF RETAINED EARNINGS
AND COMPREHENSIVE INCOME (LOSS)
(THOUSANDS OF DOLLARS)
(UNAUDITED)
THREE MONTHS ENDED SEPTEMBER 30,
--------------------------------------------------------------------
1999 1998
--------------------------------- ---------------------------------
RETAINED EARNINGS:
Balance at beginning of period............. $ 191,600 $ 77,802
Net loss................................... (6,532) $ (6,532) (2,586) $ (2,586)
---------------- ----------------
Balance at end of period................... $ 185,068 $ 75,216
================ ================
ACCUMULATED OTHER COMPREHENSIVE INCOME
(LOSS), NET OF TAX:
Balance at beginning of period............. $ (14,685) $ (10,669)
Unrealized loss on available for sale
securities, net of tax of $1,449 and
$3,304 (2,576) (2,576) (5,874) (5,874)
---------------- ----------------
Balance at end of period................... $ (17,261) $ (16,543)
================ ================
---------------- ----------------
COMPREHENSIVE LOSS........................... $ (9,108) $ (8,460)
================ ================
NINE MONTHS ENDED SEPTEMBER 30,
--------------------------------------------------------------------
1999 1998
--------------------------------- ---------------------------------
RETAINED EARNINGS:
Balance at beginning of period............. $ 114,671 $ 20,847
Net income................................. 70,397 $ 70,397 54,369 $ 54,369
---------------- ----------------
Balance at end of period................... $ 185,068 $ 75,216
================ ================
ACCUMULATED OTHER COMPREHENSIVE INCOME
(LOSS), NET OF TAX:
Balance at beginning of period............. $ (16,004) $ (5,634)
Unrealized loss on available for sale
securities, net of tax of $707 and $6,136 (1,257) (1,257) (10,909) (10,909)
---------------- ----------------
Balance at end of period................... $ (17,261) $ (16,543)
================ ================
---------------- ---------------
COMPREHENSIVE INCOME......................... $ 69,140 $ 43,460
================ ===============
See Notes to the Resources' Consolidated Financial Statements.
40
4328
RELIANT ENERGY RESOURCES CORP. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
The Notes to the unaudited consolidated financial statements of Reliant
Energy Resources Corp. (Resources) are included in the Notes to the unaudited
consolidated financial statements of Reliant Energy, Incorporated (Company) as
follows and are incorporated herein by reference:
(1) BASIS OF PRESENTATION --PRESENTATION-- see Note 1 to the Company's Interim Financial
Statements.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Resources' Interim Financial Statements reflect all normal recurring
adjustments that are, in the opinion of management, necessary to present fairly
the financial position and results of operations for the respective periods.
Amounts reported in Resources' Statements of Consolidated Income are not
necessarily indicative of amounts expected for a full year period due to the
effects of, among other things, (a) seasonal variations in energy consumption,
(b) timing of maintenance and other expenditures and (c) acquisitions and
dispositions of assets and other interests. In addition, certain amounts from
the prior year have been reclassified to conform to Resources' presentation of
financial statements in the current year. These reclassifications do not affect
earnings of Resources.
The following notes to the financial statements in the Resources Corp. Form
10-K relate to certain contingencies. These notes, as updated herein, are
incorporated herein by reference:
Notes to Consolidated Financial Statements (Resources Corp. 10-K Notes):
Note 1(c) (Regulatory Assets and Regulation), Note 2 (Derivative Financial
Instruments) and Note 8 (Commitments and Contingencies).
For information regarding environmental matters and legal proceedings, see
Note 7.
(2) DEPRECIATION -- see Note 4(b)AND AMORTIZATION
Resources' depreciation expense for the first quarter of 2000 was $37
million, compared to $36 million for the Company's Interim Financial
Statements.same period in 1999. Amortization
expense, primarily relating to goodwill amortization, was $15 million for the
first quarter of 2000 compared to $14 million for the same period in 1999.
(3) CHANGE IN ACCOUNTING PRINCIPLE -- see Note 6 to the Company's Interim
Financial Statements.
(4) COMPANY/RESOURCES OBLIGATED MANDATORILY REDEEMABLE TRUST PREFERRED SECURITIES OF
SUBSIDIARY TRUSTS HOLDING SOLELY JUNIOR SUBORDINATED DEBENTURES OF
THE COMPANY/RESOURCES -- see Note 9(b)9 to the Company's Interim Financial Statements.
(4) COMPREHENSIVE INCOME
Resources had total comprehensive income of $70 million and $73 million in
the first quarter of 2000 and 1999, respectively. In the first quarter of 2000,
Resources recorded a $14 million after-tax impairment loss in Resources'
Statement of Consolidated Income on marketable equity securities classified as
"available for sale." The following table summarizes the components of total
comprehensive income.
FOR THE THREE MONTHS ENDED MARCH 31,
------------------------------------
2000 1999
-------- --------
(IN MILLIONS)
Net income ......................................................... $ 55 $ 71
Other comprehensive income:
Unrealized gain on available for sale securities ................. 1 2
Plus: Reclassification adjustment for impairment loss on available
for sale securities realized in net income ..................... 14 --
-------- --------
Comprehensive income ............................................... $ 70 $ 73
======== ========
(5) LONG-TERM DEBT AND SHORT-TERM FINANCING -- see Note 10(b)RELATED PARTY TRANSACTIONS
Reliant Energy Services supplies natural gas to, purchases electricity for
resale from, and provides marketing and risk management services to unregulated
power plants in deregulated markets. These power plants were acquired and/or are
operated by Power Generation or its subsidiaries. For the Company's Interim Financial Statements.three months ended
March 31, 2000 and 1999, the sales and services to Reliant Energy and its
affiliates totaled $44 million and $11 million, respectively. Purchases of
electricity from Reliant Energy and its affiliates were $28 million and $3
million for the three months ended March 31, 2000 and 1999, respectively.
Reliant Energy provides certain corporate services to Resources, which are
allocated to Resources or direct billed to Resources, including management
support, financial and tax accounting, information system support, treasury
support, legal services, regulatory support and other general services.
26
29
Notes receivable to Reliant Energy and its subsidiaries, which are not
owned by Resources, included in accounts and notes payable-affiliated companies,
totaled $46 million at March 31, 2000. Net borrowings from Reliant Energy and
its subsidiaries, which are not owned by Resources, included in accounts and
notes payables-affiliated companies, totaled $62 million at December 31, 1999.
Interest income/expense on such receivables/ borrowings was immaterial for the
three months ended March 31, 2000 and 1999. As of March 31, 2000 and December
31, 1999, net accounts payable to Reliant Energy and its subsidiaries, which are
not owned by Resources, was $66 million and $34 million, respectively.
(6) REPORTABLE SEGMENTS
Effective January 1, 1998,Because Resources adopted SFAS No. 131, "Disclosures
about Segments of an Enterprise and Related Information" (SFAS No. 131). Because
ResourcesCorp. is a wholly owned subsidiary of the Company, Resources has determined
itsReliant Energy,
Resources' determination of reportable segments based in part onconsiders the strategic
operating units under which its
parentReliant Energy manages sales, allocates resources
and assesses performance of various products and services to wholesale or retail
customers in differing regulatory environments. TheSubsequent to the acquisition
date, segment financial data includeincludes information for the CompanyReliant Energy and
Resources on a combined basis, except for Electric Operations which has no
Resources operations and International,Reliant Energy Latin America, which has minimal
Resources operations. Reconciling items included under the caption "Elimination
of Non-Resources Operations" reduce the consolidated Reliant Energy amounts by
those operations not conducted within the Resources legal entity. Operations not
owned or operated by Resources, but included in segment information before
elimination include primarily the operations and assets of the Company'sReliant Energy's
non-rate regulated power generation business, Reliant Energy's Dutch power
generation operation, Reliant Energy's investment in Time Warner securities and
non-Resources corporate expenses.
In accordance with SFAS No. 131, the CompanyReliant Energy has identified the following reportable segments: Electric Operations,segments in which
Resources has operations: Natural Gas Distribution, Interstate Pipelines,
Wholesale Energy, InternationalReliant Energy Europe and Corporate. SeeFor descriptions of the
financial reporting segments, see Note 11 to9 of the Company's Interim Financial Statements for a description of these segments.
41
44
FinancialResources Corp. 10-K Notes. The
following table summarizes financial data for the business segments are as follows (in thousands):segments:
ELIMINATIONAS OF NON-
NATURAL GAS INTERSTATE WHOLESALE CORPORATE RECONCILING RESOURCE
DISTRIBUTION PIPELINES ENERGY AND OTHER ELIMINATIONS(1) OPERATIONS CONSOLIDATEDFOR THE THREE MONTHS ENDED MARCH 31, 2000
----------------------------------------------------------------
REVENUES FROM INTERSEGMENT OPERATING
NON-AFFILIATES REVENUES INCOME TOTAL ASSETS
----------------- ------------ ----------- ----------- ----------- --------------- ----------- ---------------------- ----------
(IN MILLIONS)
For the Three Months Ended
September 30, 1999:
Revenues ....................Natural Gas Distribution ... $ 302,387738 $ 37,303-- $ 2,847,38897 $ 229,3923,199
Interstate Pipelines ....... 34 40 28 2,002
Wholesale Energy ........... 2,038 137 (16) 3,223
Reliant Energy Europe ...... 150 -- 33 3,081
Corporate .................. 306 14 (1) 6,189
Reconciling Elimination .... -- (191) -- (789)
Elimination of Non-Resources
Operations .............. (167) -- 10 (9,542)
---------- ---------- ---------- ----------
Consolidated ............... $ 30,4553,099 $ 3,446,925
Intersegment revenues ....... 311 32,721 60,731 20,644-- $ (114,407)
Operating income (loss) ..... (12,349) 28,767 43,584 (17,247) (15,027) 27,728
For the Three Months Ended
September 30, 1998:
Revenues .................... 265,911 34,110 1,584,472 133,349 (90,686) 1,927,156
Intersegment revenues ....... 266 36,284 26,181 24,002 (86,733)
Operating income (loss) ..... (17,212) 27,421 94,511 (24,814) (56,253) 23,653
As of and for the Nine Months
Ended September 30, 1999:
Revenues ....................151 $ 1,309,241 $ 90,608 $ 5,692,028 $ 616,630 $ (2,628) $ 7,705,879
Intersegment revenues ....... 912 111,638 162,024 56,579 $ (331,153)
Operating income (loss) ..... 80,141 83,866 53,378 (27,829) 33,298 222,854
Total assets ................ 2,960,971 2,025,244 2,725,752 4,010,246 (645,877) (4,057,037) 7,019,299
As of and for the Nine Months
Ended September 30, 1998:
Revenues .................... 1,326,672 103,919 3,298,008 432,648 (99,080) 5,062,167
Intersegment revenues ....... 890 113,972 118,040 69,945 (302,847)
Operating income (loss) ..... 80,403 92,343 68,551 (21,065) (37,351) 182,881
Total assets ................ 2,830,260 2,116,927 2,108,629 1,762,848 (851,829) (1,019,779) 6,947,0567,363
========== ========== ========== ==========
- ----------
(1) Includes data for operations conducted at the parent level and for
subsidiaries of the Company that are not Resources entities. This data
is eliminated for purposes of the consolidated data at the Company
level.
Reconciliation of operating income to net income (loss) (in thousands) is
as follows:
FOR THE THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
--------------------------------- ---------------------------------MARCH 31, 1999
1998 1999 1998
---------------- ---------------- ---------------- ---------------------------------------------------------------
REVENUES FROM INTERSEGMENT OPERATING
NON-AFFILIATES REVENUES INCOME
----------------- ------------- ----------
(IN MILLIONS)
Operating income..............................Natural Gas Distribution ... $ 27,728678 $ 23,653-- $ 222,85498
Interstate Pipelines ....... 26 40 28
Wholesale Energy ........... 939 69 1
Corporate .................. 201 19 (3)
Reconciling Elimination .... -- (128) --
Elimination of Non-Resources
Operations .............. (16) -- 26
---------- ---------- ----------
Consolidated ............... $ 182,881
Interest expense.............................. 30,378 25,736 90,231 78,115
Distribution on trust securities.............. 64 106 261 533
Income tax expense............................ 5,664 1,446 70,569 55,449
Other income - net............................ 1,846 1,049 8,604 5,585
---------------- ---------------- ---------------- ---------------
Net income (loss).............................1,828 $ (6,532)-- $ (2,586) $ 70,397 $ 54,369
================ ================ ================ ===============150
========== ========== ==========
27
30
(7) COMPANY/RESOURCES INTERIM PERIOD RESULTS; RECLASSIFICATIONS -- see Note 13ENVIRONMENTAL MATTERS AND LEGAL PROCEEDINGS
To the extent that potential environmental remediation costs are quantified
within a range, Resources establishes reserves equal to the most likely level of
costs within the range and adjusts such accruals as better information becomes
available. In determining the amount of the liability, future costs are not
discounted to their present value and the liability is not offset by expected
insurance recoveries. If justified by circumstances within Resources' business
subject to SFAS No. 71, corresponding regulatory assets are recorded in
anticipation of recovery through the rate making process.
Manufactured Gas Plant Sites. Resources and its predecessors operated a
manufactured gas plant (MGP) adjacent to the Mississippi River in Minnesota
formerly known as Minneapolis Gas Works (FMGW) until 1960. Resources has
substantially completed remediation of the main site other than ongoing water
monitoring and treatment. The manufactured gas was stored in separate holders.
Resources is negotiating clean-up of one such holder. There are six other former
MGP sites in the Minnesota service territory. Remediation has been completed on
one site. Of the remaining five sites, Resources believes that two were neither
owned nor operated by Resources; two were owned by Resources at one time but
were operated by others and are currently owned by others; and one site was
previously owned and operated by Resources but is currently owned by others.
Resources believes it has no liability with respect to the sites it neither
owned nor operated.
At March 31, 2000 and December 31, 1999, Resources had accrued $18.6
million and $18.8 million, respectively, for remediation of the Minnesota sites.
At March 31, 2000, the estimated range of possible remediation costs was $10
million to $49 million. The low end of the range was determined based on only
those sites presently owned or known to have been operated by Resources,
assuming use of Resources' proposed remediation methods. The upper end of the
range was determined based on the sites once owned by Resources, whether or not
operated by Resources. The cost estimates of the FMGW site are based on studies
of that site. The remediation costs for the other sites are based on industry
average costs for remediation of sites of similar size. The actual remediation
costs will be dependent upon the number of sites remediated, the participation
of other potentially responsible parties, if any, and the remediation methods
used.
Other Minnesota Matters. At March 31, 2000 and December 31, 1999, Resources
had recorded accruals of approximately $1 million (with a maximum estimated
exposure of approximately $13 million), for other environmental matters for
which remediation may be required.
In its 1995 rate case, Reliant Energy Minnegasco was allowed to recover
approximately $7 million annually for remediation costs. In 1998, Reliant Energy
Minnegasco received approval to reduce its annual recovery rate to zero.
Remediation costs are subject to a true-up mechanism whereby any over or under
recovered amounts, net of certain insurance recoveries, plus carrying charges,
are deferred for recovery or refund in the next rate case. At March 31, 2000 and
December 31, 1999, Reliant Energy Minnegasco had over recovered $13 million,
including insurance recoveries. At March 31, 2000 and December 31, 1999, Reliant
Energy Minnegasco had recorded a liability of $19.8 million and $20.0 million,
respectively, to cover the cost of future remediation. Reliant Energy Minnegasco
expects that approximately 40% of its accrual as of March 31, 2000 will be
expended within the next five years. The remainder will be expended on an
ongoing basis for an estimated 40 years. In accordance with the provisions of
SFAS No. 71, a regulatory asset has been recorded equal to the liability
accrued. Resources believes the difference between any cash expenditures for
these costs and the amount recovered in rates during any year will not be
material to Resources' financial position, results of operations or cash flows.
Issues relating to the identification and remediation of MGPs are common in
the natural gas distribution industry. Resources has received notices from the
EPA and others regarding its status as a PRP for other sites. Based on current
information, Resources has not been able to quantify a range of environmental
expenditures for potential remediation expenditures with respect to other MGP
sites.
Mercury Contamination. Like other natural gas pipelines, Resources'
pipeline operations have in the past employed elemental mercury in meters used
on its pipelines. Although the mercury has now been removed from the meters, it
is possible that small amounts of mercury have been spilled at some of those
sites in the course of normal maintenance and replacement operations and that
such spills have contaminated the immediate area around the meters with
elemental mercury. Such contamination has been found by Resources at some sites
in the past, and Resources has conducted remediation at sites found to be
contaminated. Although Resources is not aware of
28
31
additional specific sites, it is possible that other contaminated sites exist
and that remediation costs will be incurred for such sites. Although the total
amount of such costs cannot be known at this time, based on the experience of
Resources and others in the natural gas industry to date and on the current
regulations regarding remediation of such sites, Resources believes that the
cost of any remediation of such sites will not be material to Resources'
financial position, results of operations or cash flows.
Potentially Responsible Party Notifications. From time to time Resources
has received notices from regulatory authorities or others regarding its status
as a PRP in connection with sites found to require remediation due to the
presence of environmental contaminants. Considering the information currently
known about such sites and the involvement of Resources in activities at these
sites, Resources does not believe that these matters will have a material
adverse effect on Resources' financial position, results of operations or cash
flows.
Resources is a party to litigation (other than that specifically noted)
that arises in the normal course of business. Management regularly analyzes
current information and, as necessary, provides accruals for probable
liabilities on the eventual disposition of these matters. Management believes
that the effect, if any, from the disposition of these matters will not have a
material adverse effect on the Company's Interim Financial Statements.
42financial condition, results of
operations or cash flows.
29
4532
MANAGEMENT'S NARRATIVE ANALYSIS OF
THE RESULTS OF OPERATIONS OF RESOURCES
The following narrative analysis should be read in combination with
Resources reports its financial informationCorp.'s Interim Financial Statements and notes contained in the following segments:
Natural Gas Distribution, Interstate Pipelines, Wholesale Energy (through whichthis Form
10-Q.
Resources conducts energy trading and marketing operations and natural gas
gathering operations, but does not conduct the operations of Reliant Energy
Power Generation, Inc.) and Corporate. Although Resources has international
operations, they are not significant.
ResourcesCorp. meets the conditions specified in General Instruction H to
Form 10-Q and is permitted to use the reduced disclosure format for wholly owned
subsidiaries of reporting companies. Accordingly, Resources has omitted from
this report the information called for by Item 3 (quantitative and qualitative
disclosure about market risk) of Part I and the following Part II items of Form
10-Q: Item 2 (changes in securities and use of proceeds), Item 3 (defaults upon
senior securities) and Item 4 (submission of matters to a vote of security
holders). The following discussion explains material changes in the amount of
revenue and expense items of Resources between the three months ended March 31,
2000 and nine month periods
ended September 30, 1999 and 1998.1999. Reference is made to Management's Narrative Analysis of the
Results of Operations in Item 7 of Resources Corp. Form 10-K, the Resources
Corp. 10-K Notes referred to herein and Resources'Resources Corp.'s Interim Financial
Statements contained in this Form 10-Q.
CONSOLIDATED RESULTS OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30,
------------------------------------- PERCENTMARCH 31,
----------------------------
2000 1999
1998 CHANGE
----------------- ------------------ ----------------------------- -----------
(IN THOUSANDS)
Operating Revenues...................................Revenues ............................... $ 3,446,9253,099,337 $ 1,927,156 79%1,828,064
Operating Expenses................................... 3,419,197 1,903,503 80%Expenses ............................... (2,948,528) (1,677,887)
----------- -----------
Operating Income - Net............................... 27,728 23,653 17%Net ........................... 150,809 150,177
Interest Expense .................................... 30,378 25,736 18%................................. (31,687) (29,662)
Distributions on Trust Securities.................... 64 106 (40%)Preferred Securities ...... (95) (99)
Other Income (Expense) - Net................................... 1,846 1,049 76%Net .................... (17,105) 3,031
Income Tax Expense................................... 5,664 1,446 --
----------------- ------------------Expense ............................... (46,786) (52,474)
----------- -----------
Net Income (Loss)....................................................................... $ (6,532)55,136 $ (2,586) --
================= ==================
NINE MONTHS ENDED
SEPTEMBER 30,
------------------------------------- PERCENT
1999 1998 CHANGE
----------------- ------------------ ------------------
(IN THOUSANDS)
Operating Revenues................................... $ 7,705,879 $ 5,062,167 52%
Operating Expenses................................... 7,483,025 4,879,286 53%
Operating Income - Net............................... 222,854 182,881 22%
Interest Expense..................................... 90,231 78,115 16%
Distributions on Trust Securities.................... 261 533 (51%)
Other Income - Net................................... 8,604 5,585 54%
Income Tax Expense................................... 70,569 55,449 27%
----------------- ------------------
Net Income......................................... $ 70,397 $ 54,369 29%
================= ==================70,973
=========== ===========
Resources' net loss increased $3.9income decreased $16 million in the thirdfirst quarter of 19992000
compared to the 1998same period in 1999. This decrease was primarily due to an
increase in the quarterly
effective tax rate, interest expense and general insurance liability expense,
partially offset by an increase in operating income from Wholesale Energy
trading and marketing activities and a decrease in operatingafter-tax impairment loss from the
Natural Gas Distribution segment. Wholesale Energy trading and marketing
activities increased due to improved margins and volumes partially offset by
higher operating expenses due to staffing increases. Improved margins from
43
46
trading and marketing activities were largely due to higher power marketing and
petroleum margins offset by lower natural gas margins. Natural Gas
Distribution's operating lossof $14 million on
equity marketable securities classified as "available for the third quarter of 1999 compared to the same
period in 1998 decreased primarily due to increased revenue from customer
growth, weather related usage and increased appliance services and sales.
Resources' net income increased $16 million in the nine months of 1999
compared to the 1998 period primarily due to increased operating income related
to improved trading and marketing results at Wholesale Energy, as discussed
above. This increase was partially offset by lower operating income at
Interstate Pipelines for the nine-month period and increased interest and
general insurance liability expenses. Interstate Pipelines' operating income
decreased primarily due to the settlement of a dispute related to certain gas
purchase contracts that resulted in $6 million of revenues in the second quarter
of 1998 and a rate settlement reflectedsale" in the first
quarter of 1998 as2000.
Resources' revenues increased $1.3 billion between the two periods
primarily due to an increase in sales volumes of natural gas and electric power
and a $5
million reductionhigher average cost of depreciation rates retroactivenatural gas. Similar increases in operating
expenses were due primarily to July 1996. This decrease
fromincreased natural gas and purchased power sales
volumes, a higher average cost of natural gas and increased general and
administrative expenses. Operating income for Resources was consistent between
the two periods. Improved trading margins in natural gas and electric power were
offset by decreased trading margins for other commodities for the Wholesale
Energy segment, while operating margins for the Interstate Pipelines was partially offset by lowerand Natural
Gas Distribution segments were relatively flat between the two periods. General
and administrative expenses, included in operation and maintenance expenses relatedexpense,
increased due to continued cost control initiatives in this
segment.
Resources' revenueshigher levels of trading and marketing staffing and increased
$1.5 billionoperating costs to support the higher sales and $2.6 billion inexpanded marketing efforts of
the third
quarterWholesale Energy segment and first nine monthsstart-up costs of 1999, respectively, compared to the same
periods of 1998. Resources' operating expenses increased $1.5 billionEuropean trading and
$2.6
billion in the third quarter and first nine months of 1999, respectively,
compared to the corresponding periods in 1998. The increases in revenues and
expenses in both periods primarily resulted from an increase in gas and power
marketing sales volumes, partially offset by a decrease in the average price of
gas.operations.
To minimize Resources' risks associated with fluctuations in the price of
natural gas and transportation, Resources, primarily through its subsidiary, Reliant Energy
Services,
Inc., enters into futures transactions, swaps and options relatingin order to (i)hedge
against market price changes affecting (a) certain commitments to buy, sell and
transportmove electric power, natural gas, (ii)crude oil and refined products, (b) existing
natural gas storage and heating oil inventory, (iii)(c) future power sales and
natural gas purchases by generation facilities, (d) crude oil and refined
products and (iv)(e) certain anticipated transactions, some of which carry
off-balance sheet risk. Reliant Energy Services also enters into commodity and
weather derivatives in its trading and price risk management activities. For a
discussion of theResources' accounting treatment of derivative instruments, see
Note 2 ofto the Resources Corp. 10-K Notes and "Quantitative and Qualitative
Disclosures About Market Risk" in Item 7A (Quantitative and Qualitative Disclosure About Market Risk) inof the CompanyReliant Energy Form 10-K.
Seasonality and Other Factors. Resources' results of operations are
affected by seasonal fluctuations in the demand for and, to a lesser extent, the
price of natural gas.gas and electric power. Resources' results of operations are
also affected by, among other things, the actions of various federal and state
governmental authorities having jurisdiction over rates charged by Resources,
and its
subsidiaries, competition in Resources' various business operations, debt service costs and
income tax expense.
Reliant Energy has retained a financial advisor to assist it in evaluating
strategic alternatives for Reliant Energy Arkla, Reliant Energy Minnegasco,
Reliant Energy Field Services, Inc. and Interstate Pipelines, including
divestiture.
For a discussion of certain other factors that may affect Resources' future
earnings see "Management's Discussion and Analysis of Financial Condition and
Results of Operations of the Company --- Certain Factors Affecting Future
Earnings of the Company and its Subsidiaries-- Competition --- Other Operations," "- Fluctuations in Commodity Prices and
Derivative Instruments," "Environmental"--Environmental
Expenditures" and "-"-- Other Contingencies"Contingencies " in the CompanyReliant Energy Form 10-K.
30
33
NEW ACCOUNTING ISSUES
Reference is made to "Management's Discussion and Analysis of Financial
Condition and Results of Operations of the Company -- New Accounting Issues" in
the CompanyReliant Energy's Form 10-Q for a discussion of certain new accounting issues
affecting Resources.
4431
4734
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
Company:Reliant Energy:
For a description of legal proceedings affecting the Company, and its subsidiaries, please review
Note 10 to the Company's Interim Financial Statements, Item 3 of the CompanyReliant
Energy Form 10-K and Notes 3(b), 12(h)3, 4 and 12(i)14 of the CompanyReliant Energy 10-K Notes, all of
which are incorporated herein by reference.
Resources:Resources Corp.:
For a description of legal proceedings affecting Resources, please review
Note 8(g)7 to Resources Corp.'s Interim Financial Statements, Item 3 of the
Resources Corp. Form 10-K and Note 8 of the Resources Corp. 10-K Notes, which
isare incorporated herein by reference.
ITEM 5. OTHER INFORMATION.
Forward-Looking Statements. From time to time, the CompanyReliant Energy and Resources
mayCorp. make statements regardingconcerning their assumptions, projections,respective expectations, intentionsbeliefs, plans,
objectives, goals, strategies, future events or beliefs about future events. These
statementsperformance and underlying
assumptions and other statements, thatwhich are not historical factsfacts. These
statements are
intended as "forward-looking statements" underwithin the meaning of the Private
Securities Litigation Reform Act of 1995. The CompanyAlthough Reliant Energy and Resources
cautionCorp. believe that assumptions, projections,the expectations intentions or beliefs about
future events may and often do vary materially from actual results, and the differences betweenunderlying assumptions projections,reflected in
their respective forward-looking statements are reasonable, they cannot assure
you that these expectations intentions or beliefswill prove to be correct. Forward-looking statements
involve a number of risks and uncertainties, and actual results can be material. Accordingly,
there can be no assurance that actualmay differ
materially from the results will reflect those
expressed or implied bydiscussed in the forward-looking statements.
The following are some of the factors that could cause actual results to
differ materially from those expressed or implied in forward-looking statements:
(i)o state and federal legislative andor regulatory initiatives that affect cost and investment recovery, have an impact on
rate structures and affect the speed and degree to which competition
enters the electric and natural gas industries; (ii)developments,
o national or regional economic conditions,
o industrial, commercial and residential growth in service territories
of the Company,
and Resources; (iii) the weather and other natural phenomena; (iv)o the timing and extent of changes in commodity prices and interest
rates;
(v) changes in environmentalrates,
o weather variations and other laws and regulations to which
the Company, Resources and their respective subsidiaries are subject or
other external factors over which the Company and Resources have no
control; (vi) the results of financing efforts; (vii)natural phenomena,
o growth in opportunities for the Company's diversified operations,
o the results of financing efforts,
o the ability to consummate and Resources' subsidiariesthe timing of the consummation of
pending acquisitions and diversified operations; (viii)dispositions,
o the speed, degree and effect of continued electric industry
restructuring in North America and Western Europe,
o risks incidental to the Company's overseas operations, (includingincluding the
effects of fluctuations in foreign currency exchange rates); (ix) the effect of the Company'srates, and
Resources' accounting policies; (x) the timing of the closing of the
Company's acquisition of an interest in UNA; (xi) the success of
integrating acquired operations; and (xii)o other factors discussed in this and other filings by the CompanyReliant Energy
and Resources Corp. with the Securities and Exchange Commission.
When used in the Company'sReliant Energy's or Resources'Resources Corp.'s documents or oral
presentations, the words "anticipate," "estimate," "expect," "objective,"
"projection," "forecast," "goal" and similar words are intended to identify
forward-looking statements.
45On May 3, 2000, the Reliant Energy Board of Directors adopted and approved
changes to the Reliant Energy, Bylaws and amended and restated the Bylaws
effective as of May 3, 2000. See Exhibit 3 to the Reliant Energy Form 10-Q.
Extension of Shareholder Rights Plan. On May 3, 2000, the Board of
Directors of Reliant Energy approved the extension of Reliant Energy's
shareholder rights plan for an additional ten-year period, through July 11,
2010. See Exhibit 99(b) to the Reliant Energy Form 10-Q for a description of
Reliant Energy's (a) common stock and associated rights to purchase preference
stock, (b) preferred stock and (c) preference stock, which description is
incorporated herein by reference.
32
4835
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits.
Company:
--------Reliant Energy:
Exhibit 3 Amended and Restated Bylaws of Reliant Energy
as adopted and amended by the Board of Directors on
May 3, 2000.
Exhibit 4 Amendment No. 1 to Rights Agreement, dated as of May 8,
2000, between Reliant Energy and Chase Bank of Texas,
National Association, as Rights Agent.
Exhibit 12 Ratio of Earnings to Fixed Charges and Preferred
Dividends.
Exhibit 27 Financial Data Schedule.
Exhibit 9999(a) Items incorporated by reference from the CompanyReliant Energy
Form 10-K: Item 3 "Legal Proceedings," Item 7
"Management's Discussion and Analysis of Financial
Condition and Results of Operations of the Company -
Certain Factors Affecting Future Earnings of the
Company, and its Subsidiaries" and "- New Accounting
Issues," and Item 7A "Quantitative and Qualitative
Disclosures About Market Risk" and Note 1(c)Notes 1(d)
(Regulatory Assets and Other Long-Lived Assets), Note 1(f) (Depreciation and Amortization Expense),
Note 1(n) (Investments in Time Warner Securities),
Note 1(p)1(m) (Foreign Currency
Adjustments), Note 1(r)
(Change in Accounting Principle)2 (Business Acquisitions), Note 2 (Derivative
Financial Instruments), Note 3 (Rate Matters), Note
4 (Jointly Owned Electric Utility Plant), Note 5
(Equity Investments and Advances to Unconsolidated
Subsidiaries), Note 8(c) (FinanceCo and FinanceCo II
Credit Facilities), Note 8(d) (Company Credit
Facility), Note 9(a) (Trust Securities - Company),
Note 12 (Commitments and Contingencies) and Note
16(a) (Foreign Currency Devaluation) of the Company
10-K Notes. Items incorporated by reference from the
Company First Quarter 10-Q: Note 8(a)
(Company/Resources Obligated Mandatorily Redeemable
Trust Preferred Securities of Subsidiary Trusts
Holding Solely Junior Subordinated Debentures of the
Company/Resources), Note 9(a) (Long-Term Debt and
Short-Term Financing) and Note 11 (Acquisitions).
Items incorporated by reference from the Company
Second Quarter 10-Q: Note 2 (Texas
Electric Choice Plan and Discontinuance of SFAS No. 71
for Electric Generation Operations), 4 (Transition
Plan), 5 (Derivative Financial Instruments), 6 (Jointly
Owned Electric Utility Plant), 7 (Equity Investments and
Note 7 (TimeAdvances to Unconsolidated Subsidiaries), 8 (Indexed
Debt Securities (ACES and ZENS) and Time Warner
Securities Investment).
Resources:
----------Securities) and 14 (Commitments and Contingencies) of
the Reliant Energy 10-K Notes.
Exhibit 99(b) Description of Reliant Energy's (a) common stock and
associated rights to purchase preference stock, (b)
preferred stock and (c) preference stock.
Resources Corp.:
Exhibit 12 Ratio of Earnings to Fixed Charges.
Exhibit 27 Financial Data Schedule.
Exhibit 99 Items incorporated by reference from the Reliant Energy
and Resources Form 10-K: Item 3 "Legal Proceedings,"
Item 7 "Management's Discussion and Analysis of
Financial Condition and Results of Operations of the
Company - Certain Factors Affecting Future Earnings of
the Company and its Subsidiaries" and "- New Accounting
Issues," Item 7A
"Quantitative and Qualitative Disclosures About Market
Risk,Risk." Items incorporated by reference from the
Resources Corp. 10-K: Item 7 "Management's Narrative
Analysis of the Results of Operations of Reliant Energy
Resources Corp. and its Consolidated Subsidiaries" and
NoteNotes 1(c) (Regulatory Assets and Regulation), Note 2
(Derivative Financial Instruments), Note 4 (Long-Term and Short-Term
Financing), Note 5 (Trust Securities), and Note 8 (Commitments
and Contingencies) of the Resources 10-K Notes. Item incorporated by reference from the
Resources First Quarter 10-Q: Note 9(b) (Long-Term
Debt and Short-Term Financing).
46
49
(b) Reports on Form 8-K.
Company:
--------
Form 8-K filed with the SEC on July 7, 1999 regarding the passage of
Texas Electric Choice Plan.
Form 8-K filed with the SEC on September 21, 1999 regarding the
execution of an Underwriting Agreement relating to the issuance and
sale of the ZENS.
Form 8-K filed with the SEC on October 18, 1999 regarding (i) the
closing of the first phase of the UNA acquisition, (ii) the closing of
the ZENS offering, (iii) the conversion of the TW Preferred into TW
Common and (iv) the filing of an application with the Texas PUC
requesting a financing order authorizing the issuance of transition
bonds.
Resources:
----------Reliant Energy:
None.
47Resources Corp.:
None.
33
5036
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
RELIANT ENERGY, INCORPORATED
(Registrant)
By: /s/ Mary P. Ricciardello
---------------------------------------------------------------------------------
Mary Ricciardello
Senior Vice President and Comptroller
(PrincipalChief Accounting Officer)Officer
Date: November 12, 1999
48May 15, 2000
51
EXHIBIT INDEX
Exhibits. Description
Company:
--------
Exhibit 12.A Ratio of Earnings37
SIGNATURE
Pursuant to Fixed Charges and Preferred
Dividends.
Exhibit 27.A Financial Data Schedule.
Exhibit 99.A Items incorporated by reference from the Company
Form 10-K: Item 3 "Legal Proceedings," Item 7
"Management's Discussion and Analysis of Financial
Condition and Results of Operationsrequirements of the Company -
Certain Factors Affecting Future EarningsSecurities Exchange Act of 1934, the
Companyregistrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
RELIANT ENERGY RESOURCES CORP.
(Registrant)
By: /s/ Mary P. Ricciardello
---------------------------------------------
Mary Ricciardello
Senior Vice President and Chief Accounting Officer
Date: May 15, 2000
38
INDEX TO EXHIBITS
EXHIBIT NUMBER DESCRIPTION
-------------- -----------
Reliant Energy:
Exhibit 3 Amended and Restated Bylaws of Reliant Energy,
Incorporated as adopted and amended by the Board of
Directors on May 3, 2000.
Exhibit 4 Amendment No. 1 to Rights Agreement, dated as of May 8,
2000, between Reliant Energy and Chase Bank of Texas,
National Association as Rights Agent.
Exhibit 12 Ratio of Earnings to Fixed Charges and Preferred
Dividends.
Exhibit 27 Financial Data Schedule.
Exhibit 99(a) Items incorporated by reference from the Reliant Energy
Form 10-K: Item 3 "Legal Proceedings," Item 7
"Management's Discussion and Analysis of Financial
Condition and Results of Operations of the Company -
Certain Factors Affecting Future Earnings of the
Company," Item 7A "Quantitative and Qualitative
Disclosures About Market Risk" and Notes 1(d)
(Regulatory Assets), 1(m) (Foreign Currency
Adjustments), 2 (Business Acquisitions), 3 (Texas
Electric Choice Plan and Discontinuance of SFAS No. 71
for Electric Generation Operations), 4 (Transition
Plan), 5 (Derivative Financial Instruments), 6 (Jointly
Owned Electric Utility Plant), 7 (Equity Investments and
Advances to Unconsolidated Subsidiaries), 8 (Indexed
Debt Securities (ACES and ZENS) and Time Warner
Securities) and 14 (Commitments and Contingencies) of
the Reliant Energy 10-K Notes.
Exhibit 99(b) Description of Reliant Energy's (a) common stock and
associated rights to purchase preference stock, (b)
preferred stock and (c) preference stock.
Resources Corp.:
Exhibit 12 Ratio of Earnings to Fixed Charges.
Exhibit 27 Financial Data Schedule.
Exhibit 99 Items incorporated by reference from the Reliant Energy
and Resources Form 10-K: Item 3 "Legal Proceedings,"
Item 7 "Management's Discussion and Analysis of
Financial Condition and Results of Operations of the
Company - Certain Factors Affecting Future Earnings of
the Company and its Subsidiaries" and Item 7A
"Quantitative and Qualitative Disclosures About Market
Risk." Items incorporated by reference from the
Resources Corp. 10-K: Item 7 "Management's Narrative
Analysis of the Results of Operations of Reliant Energy
Resources Corp. and its Consolidated Subsidiaries" and
Notes 1(c) (Regulatory Assets and Regulation), 2
(Derivative Financial Instruments) and "- New Accounting
Issues," and Item 7A "Quantitative and Qualitative
Disclosures About Market Risk" and Note 1(c)
(Regulatory Assets and Other Long-Lived Assets),
Note 1(f) (Depreciation and Amortization Expense),
Note 1(n) (Investments in Time Warner Securities),
Note 1(p) (Foreign Currency Adjustments), Note 1(r)
(Change in Accounting Principle), Note 2 (Derivative
Financial Instruments), Note 3 (Rate Matters), Note
4 (Jointly Owned Electric Utility Plant), Note 5
(Equity Investments and Advances to Unconsolidated
Subsidiaries), Note 8(c) (FinanceCo and FinanceCo II
Credit Facilities), Note 8(d) (Company Credit
Facility), Note 9(a) (Trust Securities - Company),
Note 12 (Commitments and Contingencies) and Note
16(a) (Foreign Currency Devaluation) of the Company
10-K Notes. Items incorporated by reference from the
Company First Quarter 10-Q: Note 8(a)
(Company/Resources Obligated Mandatorily Redeemable
Trust Preferred Securities of Subsidiary Trusts
Holding Solely Junior Subordinated Debentures of the
Company/Resources), Note 9(a) (Long-Term Debt and
Short-Term Financing) and Note 11 (Acquisitions).
Items incorporated by reference from the Company
Second Quarter 10-Q: Note 2 (Texas Electric Choice
Plan and Discontinuance of SFAS No. 71 for Electric
Generation Operations) and Note 7 (Time Warner
Securities Investment).
Resources:
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Exhibit 12.B Ratio of Earnings to Fixed Charges.
Exhibit 27.B Financial Data Schedule.
Exhibit 99.B Items incorporated by reference from Resources Form
10-K: Item 3 "Legal Proceedings," Item 7
"Management's Discussion and Analysis of Financial
Condition and Results of Operations of the Company -
Certain Factors Affecting Future Earnings of the
Company and its Subsidiaries" and "- New Accounting
Issues," Item 7A "Quantitative and Qualitative
Disclosures About Market Risk," Item 7 "Management's
Narrative Analysis of the Results of Operations of
Reliant Energy Resources Corp. and Consolidated
Subsidiaries" and Note 1(c) (Regulatory Assets and
Regulation), Note 2 (Derivative Financial
Instruments), Note 4 (Long-Term and Short-Term
Financing), Note 5 (Trust Securities), and Note 8 (Commitments
and Contingencies) of the Resources 10-K Notes.
Item incorporated by reference from the
Resources First Quarter 10-Q: Note 9(b) (Long-Term
Debt and Short-Term Financing).