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 MARCH 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 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 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 May 5, 2000, Reliant Energy, Incorporated had 293,420,705 shares of common
stock outstanding, including 9,249,489 ESOP shares not deemed outstanding for
financial statement purposes and excluding 4,802,426 shares held as treasury
stock. As of May 5, 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 (RELIANT ENERGY) AND RELIANT ENERGY RESOURCES CORP.
(RESOURCES CORP.). INFORMATION CONTAINED HEREIN RELATING TO RESOURCES CORP. IS
FILED BY RELIANT ENERGY AND SEPARATELY BY RESOURCES CORP. ON ITS OWN BEHALF.
RESOURCES CORP. MAKES NO REPRESENTATION AS TO INFORMATION RELATING TO RELIANT
ENERGY (EXCEPT AS IT MAY RELATE TO RESOURCES CORP. AND ITS SUBSIDIARIES) OR ANY
OTHER AFFILIATE OR SUBSIDIARY OF RELIANT ENERGY.
RELIANT ENERGY, INCORPORATED
AND RELIANT ENERGY RESOURCES CORP.
QUARTERLY REPORT ON FORM 10-Q
FOR THE QUARTER ENDED MARCH 31, 2000
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION
Reliant Energy:
Financial Statements.........................................................................1
Statements of Consolidated Income
Three Months Ended March 31, 2000 and 1999..........................................1
Consolidated Balance Sheets
March 31, 2000 and December 31, 1999................................................2
Statements of Consolidated Cash Flows
Three Months Ended March 31, 2000 and 1999..........................................4
Notes to Unaudited Consolidated Financial Statements................................5
Management's Discussion and Analysis of Financial Condition and Results of Operations
of the Company.....................................................................13
Quantitative and Qualitative Disclosures about Market Risk of the Company...................21
Resources Corp.:
Financial Statements........................................................................22
Statements of Consolidated Income
Three Months Ended March 31, 2000 and 1999.........................................22
Consolidated Balance Sheets
March 31, 2000 and December 31, 1999...............................................23
Statements of Consolidated Cash Flows
Three Months Ended March 31, 2000 and 1999.........................................25
Notes to Unaudited Consolidated Financial Statements...............................26
Management's Narrative Analysis of the Results of Operations of Resources...................30
PART II. OTHER INFORMATION
Legal Proceedings...........................................................................32
Other Information...........................................................................32
Exhibits and Reports on Form 8-K............................................................33
3
PART I. FINANCIAL INFORMATION
RELIANT ENERGY, INCORPORATED AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED INCOME
(THOUSANDS OF DOLLARS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
THREE MONTHS ENDED MARCH 31,
----------------------------
2000 1999
------------ ------------
REVENUES $ 4,234,103 $ 2,642,904
EXPENSES:
Fuel and cost of gas sold ................................... 2,340,191 1,432,376
Purchased power ............................................. 784,934 328,507
Operation and maintenance ................................... 469,877 395,787
Taxes other than income taxes ............................... 111,505 107,984
Depreciation and amortization ............................... 181,501 190,585
----------- -----------
Total ................................................... 3,888,008 2,455,239
----------- -----------
OPERATING INCOME .............................................. 346,095 187,665
----------- -----------
OTHER INCOME (EXPENSE):
Unrealized gain in Time Warner investment ................... 1,523,683 --
Unrealized loss on indexed debt securities .................. (1,523,625) (331,311)
Other, net .................................................. 19,813 13,465
----------- -----------
Total ................................................... 19,871 (317,846)
----------- -----------
INTEREST AND OTHER CHARGES:
Interest .................................................... 162,985 126,263
Distribution on trust preferred securities .................. 13,892 9,791
----------- -----------
Total ................................................... 176,877 136,054
----------- -----------
INCOME (LOSS) BEFORE INCOME TAXES AND PREFERRED DIVIDENDS ..... 189,089 (266,235)
Income Tax Expense (Benefit) .................................. 55,936 (56,543)
----------- -----------
INCOME (LOSS) BEFORE PREFERRED DIVIDENDS ...................... 133,153 (209,692)
Preferred Dividends ........................................... 97 97
----------- -----------
NET INCOME (LOSS) ATTRIBUTABLE TO COMMON STOCKHOLDERS ......... $ 133,056 $ (209,789)
=========== ===========
BASIC AND DILUTED EARNINGS (LOSS) PER SHARE ................... $ 0.47 $ (0.74)
=========== ===========
See Notes to the Company's Interim Financial Statements
1
4
RELIANT ENERGY, INCORPORATED AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(THOUSANDS OF DOLLARS)
(UNAUDITED)
ASSETS
MARCH 31, DECEMBER 31,
2000 1999
----------- ------------
CURRENT ASSETS:
Cash and cash equivalents ........................................... $ 95,032 $ 89,078
Investment in Time Warner common stock .............................. 5,503,144 3,979,461
Accounts receivable - net ........................................... 1,115,305 1,104,640
Accrued unbilled revenues ........................................... 150,927 172,629
Fuel stock and petroleum products ................................... 96,557 152,292
Materials and supplies, at average cost ............................. 206,746 188,167
Price risk management assets ........................................ 530,645 435,336
Prepayments and other current assets ................................ 70,862 131,666
----------- -----------
Total current assets .............................................. 7,769,218 6,253,269
----------- -----------
PROPERTY, PLANT AND EQUIPMENT:
Property, plant and equipment ....................................... 20,392,526 20,133,720
Less accumulated depreciation and amortization ...................... 6,961,431 6,866,325
----------- -----------
Property, plant and equipment - net ............................... 13,431,095 13,267,395
----------- -----------
OTHER ASSETS:
Goodwill and other intangibles - net ................................ 2,982,695 3,034,361
Equity investments and advances to unconsolidated subsidiaries ...... 1,023,658 1,022,210
Regulatory assets ................................................... 1,702,551 1,739,507
Price risk management assets ........................................ 331,681 148,722
Other ............................................................... 819,671 755,472
----------- -----------
Total other assets ................................................ 6,860,256 6,700,272
----------- -----------
Total Assets .................................................... $28,060,569 $26,220,936
=========== ===========
See Notes to the Company's Interim Financial Statements
2
5
RELIANT ENERGY, INCORPORATED AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS - (CONTINUED)
(THOUSANDS OF DOLLARS)
(UNAUDITED)
LIABILITIES AND STOCKHOLDERS' EQUITY
MARCH 31, DECEMBER 31,
2000 1999
----------- ------------
CURRENT LIABILITIES:
Short-term borrowings ............................................ $ 3,409,603 $ 2,879,211
Current portion of long-term debt ................................ 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 ................................ 500,371 431,135
Accumulated deferred income taxes ................................ 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 credits ............................... 269,480 270,243
Price risk management liabilities ................................ 308,045 117,437
Benefit obligations .............................................. 372,282 400,849
Business purchase obligation ..................................... -- 596,303
Other ............................................................ 1,066,793 1,020,837
------------ ------------
Total deferred credits and other liabilities ................... 4,486,378 4,857,288
------------ ------------
LONG-TERM DEBT ...................................................... 5,514,748 4,961,310
------------ ------------
COMMITMENTS AND CONTINGENCIES (NOTES 1 AND 10)
COMPANY OBLIGATED MANDATORILY REDEEMABLE PREFERRED SECURITIES OF
SUBSIDIARY TRUSTS HOLDING SOLELY JUNIOR SUBORDINATED DEBENTURES
OF THE COMPANY ................................................... 705,373 705,272
------------ ------------
STOCKHOLDERS' EQUITY:
Cumulative preferred stock ....................................... 9,740 9,740
Common stock ..................................................... 3,198,006 3,182,751
Treasury stock ................................................... (120,602) (93,296)
Unearned ESOP stock .............................................. (176,169) (199,226)
Retained earnings ................................................ 2,527,758 2,500,181
Accumulated other comprehensive loss ............................. (88,389) (93,818)
------------ ------------
Total stockholders' equity ..................................... 5,350,344 5,306,332
------------ ------------
Total Liabilities and Stockholders' Equity ................... $ 28,060,569 $ 26,220,936
============ ============
See Notes to the Company's Interim Financial Statements
3
6
RELIANT ENERGY, INCORPORATED AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED CASH FLOWS
(THOUSANDS OF DOLLARS)
(UNAUDITED)
THREE MONTHS ENDED MARCH 31,
---------------------------
2000 1999
----------- ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) attributable to common stockholders ............ $ 133,056 $ (209,789)
Adjustments to reconcile net income (loss) to net cash provided by
operating activities:
Depreciation and amortization .................................. 181,501 190,585
Deferred income taxes .......................................... 6,334 (123,153)
Investment tax credits ......................................... (763) (5,022)
Unrealized gain on Time Warner investment ...................... (1,523,683) --
Unrealized loss on indexed debt securities ..................... 1,523,625 331,311
Undistributed net loss of unconsolidated subsidiaries .......... 1,318 74,362
Impairment of marketable equity securities ..................... 22,185 --
Changes in other assets and liabilities:
Accounts receivable, net ..................................... 8,838 25,001
Inventories .................................................. 54,581 117,537
Accounts payable ............................................. (951) (92,532)
Federal tax refund ........................................... 52,817 --
Other, net ................................................... (8,906) (94,068)
----------- -----------
Net cash provided by operating activities .................. 449,952 214,232
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures ............................................. (403,608) (179,039)
Business acquisition ............................................. (986,539) --
Investment and advances to unconsolidated affiliates ............. (2,800) 19,361
Other, net ....................................................... 32,351 (1,716)
----------- -----------
Net cash used in investing activities ...................... (1,360,596) (161,394)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from sale of trust preferred securities, net ............ -- 362,994
Proceeds from long-term debt, net ................................ 41,967 --
Increase (decrease) in short-term borrowing, net ................. 1,147,552 (74,736)
Payments of long-term debt ....................................... (157,537) (176,542)
Payment of common stock dividends ................................ (105,890) (106,767)
Purchase of treasury stock ....................................... (27,306) --
Other, net ....................................................... 15,565 (3,665)
----------- -----------
Net cash provided by financing activities .................... 914,351 1,284
----------- -----------
EFFECT OF EXCHANGE RATE CHANGES ON CASH ............................ 2,247 --
----------- -----------
NET INCREASE IN CASH AND CASH EQUIVALENTS .......................... 5,954 54,122
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD ................... 89,078 29,673
----------- -----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD ......................... $ 95,032 $ 83,795
=========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash Payments:
Interest (net of amounts capitalized) ............................ $ 111,309 $ 113,116
Income taxes ..................................................... 94 28,308
See Notes to the Company's Interim Financial Statements
4
7
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 (Reliant Energy), together with its subsidiaries
(the Company), and for Reliant Energy Resources Corp. (Resources Corp.) and its
subsidiaries (collectively, Resources) are Reliant Energy's and 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 Reliant Energy (Reliant Energy Form 10-K) and Resources
Corp. (Resources Corp. Form 10-K) for the year ended December 31, 1999.
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.
The Company's 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 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 the Company's 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 damages 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
13
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 Company's Interim Financial Statements contained in this Form 10-Q.
The Company is a diversified international energy services company,
providing energy and energy services in North America, Western Europe and Latin
America. It operates one of the United States' largest electric utilities in
terms of kilowatt-hour (KWH) sales, and its three natural gas distribution
divisions together form the United States' third largest natural gas
distribution operation in terms of customers served. The Company 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 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
reporting information, see Note 11 to the Company's Interim Financial
Statements.
CONSOLIDATED RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31,
---------------------------------
2000 1999
------------- ----------
(IN MILLIONS, EXCEPT PER SHARE DATA)
Revenues ............................................................... $ 4,234 $ 2,643
Operating Expenses ..................................................... (3,888) (2,455)
------- -------
Operating Income ....................................................... 346 188
Other Income ........................................................... 20 13
Interest Expense and Other Charges ..................................... (177) (136)
Net Unrealized Loss on Indexed Debt Securities and Time Warner .........
Investment .......................................................... -- (331)
Income Tax (Expense) Benefit ........................................... (56) 56
------- -------
Net Income (Loss) Attributable to Common Stockholders .................. $ 133 $ (210)
======= =======
Basic and Diluted Earnings (Loss) Per Share ............................ $ 0.47 $ (0.74)
First Quarter of 2000 Compared to First Quarter of 1999. The Company
reported consolidated net income of $133 million ($0.47 per share) for the first
quarter of 2000 compared to a consolidated net loss of $210 million ($0.74 per
share) in the first quarter of 1999. The 1999 results reflect a $215 million
after-tax, non-cash, unrealized accounting loss on indexed debt 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 charges described above, the Company would have
had consolidated net income of $96 million ($0.34 per 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, other acquisitions and capital expenditures.
The effective tax rate for the first quarter of 2000 and 1999 was 30%
and 21%, respectively. After adjusting for the unrealized accounting loss on
indexed debt securities and the loss due to the devaluation of the Brazilian
real (discussed above), the adjusted effective tax rate for the first quarter of
1999 was 38%. The decrease in the effective tax rate for the first quarter of
2000 compared to the adjusted effective tax rate for the same period in 1999 was
primarily due to the discontinuance of SFAS No. 71 for the 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 "--Reliant Energy Europe" below.
The table below shows operating income (loss) by segment.
THREE MONTHS ENDED MARCH 31,
----------------------------
2000 1999
--------- --------
(IN MILLIONS)
Electric Operations ................. $ 202 $ 142
Natural Gas Distribution ............ 97 98
Interstate Pipelines ................ 28 28
Wholesale Energy .................... (16) 1
Reliant Energy Europe (1) ........... 33 --
Reliant Energy Latin America ........ 3 (78)
Corporate ........................... (1) (3)
----- -----
Total Consolidated ............ $ 346 $ 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 Reliant Energy HL&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, the nation's fourth largest city.
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
17
THREE MONTHS ENDED MARCH 31,
-----------------------------
2000 1999
-------- -------
(IN MILLIONS)
Operating Revenues:
Base Revenues ......................... $ 602 $ 568
Reconcilable Fuel Revenues ............ 345 282
------- -------
Total Operating Revenues ............ 947 850
------- -------
Operating Expenses:
Fuel and Purchased Power .............. 358 292
Operation and Maintenance ............. 210 203
Depreciation and Amortization ......... 99 136
Other Operating Expenses .............. 78 77
------- -------
Total Operating Expenses ............ 745 708
------- -------
Operating Income ........................ $ 202 $ 142
======= =======
Electric Sales Including Unbilled (MMWH):
Residential ........................... 3,677 3,518
Commercial ............................ 3,722 3,551
Industrial ............................ 8,133 7,405
Other ................................. 694 819
------- -------
Total Sales Including Unbilled ........ 16,226 15,293
------- -------
Average Cost of Fuel (Cents/MMBtu) ...... 192.1 175.4
In the first quarter of 2000, Electric Operations' operating income
increased $60 million compared to the same period of 1999. Revenue growth and a
decrease in depreciation expense primarily accounted for this increase.
Primarily as a result of strong customer growth and increased 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 fuel and purchased power expenses
increased 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 ($26.40 and $19.27 per MWH in the first quarter of 2000
and 1999, respectively) 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 first quarter of 1999.
Operation and maintenance expenses and other operating expenses for the
first quarter of 2000 increased by $7 million compared to the same period in
1999 largely due to increased transmission costs.
Depreciation and amortization expense decreased $37 million in the
first quarter of 2000 when compared to the same period in 1999. For information
regarding items that affect depreciation and amortization expense of Electric
Operations pursuant to the Legislation and the Transition Plan, see Note 4 of
the Company's Interim Financial Statements.
NATURAL GAS DISTRIBUTION
Natural Gas Distribution conducts operations through three divisions of
Resources Corp.: Reliant Energy Arkla, Reliant Energy Entex and Reliant Energy
Minnegasco. Natural Gas Distribution's operations consist of intrastate natural
gas sales to, and natural gas transportation for, residential, commercial and
certain industrial customers in 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 MARCH 31,
----------------------------
2000 1999
------- -------
(IN MILLIONS)
Operating Revenues:
Base Revenues ........................... $ 269 $ 267
Recovered Gas Costs Revenues ............ 469 411
-------- --------
Total Operating Revenues .............. 738 678
-------- --------
Operating Expenses:
Natural Gas ............................. 463 414
Operation and Maintenance ............... 117 108
Depreciation and Amortization ........... 35 33
Other Operating Expenses ................ 26 25
-------- --------
Total Operating Expenses .............. 641 580
-------- --------
Operating Income .......................... $ 97 $ 98
======== ========
Throughput Data (in Bcf):
Residential and Commercial Sales ........ 122 124
Industrial Sales ........................ 14 14
Transportation .......................... 15 13
-------- --------
Total Throughput ...................... 151 151
======== ========
Natural Gas Distribution's operating income decreased by $1 million in
the first quarter of 2000 compared to the same period in 1999. Recovered gas
costs revenues and natural gas expenses increased $58 million and $49 million,
respectively, primarily as a result of an increase in the 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
Interstate Pipelines, consisting of two wholly owned subsidiaries of
Resources Corp., provides interstate gas transportation and related services.
The Company has retained a financial advisor to assist it in evaluating
strategic alternatives for Interstate Pipelines, including divestiture.
THREE MONTHS ENDED MARCH 31,
----------------------------
2000 1999
------- -------
(IN MILLIONS)
Operating Revenues ................... $ 74 $ 66
Operating Expenses:
Natural Gas ........................ 11 6
Operation and Maintenance .......... 19 16
Depreciation and Amortization ...... 12 12
Other Operating Expenses ........... 4 4
----- -----
Total Operating Expenses ......... 46 38
----- -----
Operating Income ..................... $ 28 28
===== =====
Throughput Data (in MMBtu):
Natural Gas Sales .................. 4 4
Transportation ..................... 262 231
Elimination (1) .................. (3) (4)
----- -----
Total Throughput ..................... 263 231
===== =====
- ------------
(1) Elimination of volumes both transported and sold.
Interstate Pipelines' operating income remained flat at $28 million in
the first quarter of 2000 compared to the first quarter of 1999. Increases in
operating expenses offset slight increases in operating margins.
16
19
WHOLESALE ENERGY
Wholesale Energy's activities include the acquisition, development,
operation, and sales of capacity, energy and ancillary services from domestic
unregulated power generation facilities; wholesale energy trading, marketing and
risk management activities in North America; and domestic natural gas gathering
activities. Wholesale 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 approximately 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
expects to continue to make, significant investments in developing Reliant
Energy Services' infrastructure including software, trading and risk control
resources.
THREE MONTHS ENDED MARCH 31,
----------------------------
2000 1999
------- -------
(IN MILLIONS)
Operating Revenues .................... $ 2,175 $1,008
Operating Expenses:
Natural Gas ......................... 1,424 720
Purchased Power ..................... 688 241
Operation and Maintenance ........... 69 38
Depreciation and Amortization ....... 8 6
Other Operating Expenses ............ 2 2
------- ------
Total Operating Expenses .......... 2,191 1,007
------- ------
Operating Income ...................... $ (16) $ 1
======= ======
Operations Data:
Natural Gas (in Bcf):
Sales ............................... 573 363
Gathering ........................... 71 61
------- ------
Total ............................. 644 424
======= ======
Electricity (in million MWH):
Wholesale Power Sales ............... 28.4 10.3
======= ======
Wholesale Energy had an operating loss of $16 million for the first
quarter of 2000 compared to operating income of $1 million for the same period
in 1999. Improved trading margins and volumes for natural gas and power as well
as improved margins from generation plants in California, Florida and Texas were
partially offset by a decline in margins from trading activities in other
commodities. Higher operating expenses at Reliant Energy Services and increased
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
increased maintenance costs at Power Generation.
Wholesale Energy's operating revenues increased $1.2 billion in the
first quarter of 2000 compared to the same period in 1999 primarily due to an
increase in gas and power sales volumes. Wholesale Energy's purchased
17
20
natural gas costs increased $704 million in the first quarter of 2000 due to
increased gas sales volume and a higher average cost of gas in the first quarter
of 2000. Wholesale Energy's purchased power expense increased $447 million
primarily due to higher power sales volumes in the first quarter of 2000.
Operation and maintenance expense for Wholesale Energy increased $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 quarter of 1999, and development costs and staffing increases
to support increased trading and other new business activities.
RELIANT ENERGY EUROPE
The Company established its Reliant Energy Europe business segment in
the fourth quarter of 1999 with the acquisition of UNA. For additional
information, see Note 3 of the Company's Interim Financial Statements and Note 2
of the Reliant Energy 10-K Notes. Reliant Energy Europe owns, operates and 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.
RELIANT ENERGY LATIN AMERICA
Reliant Energy Latin America includes the results of operations of
Reliant Energy International, Inc. (Reliant Energy International) and the
international operations of Resources. Reliant Energy Latin America participates
in the privatization of generation 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 MARCH 31,
----------------------------
2000 1999
------- -------
(IN MILLIONS)
Operating Revenues ...................... $21 $(51)
Operating Expenses:
Fuel .................................. 8 12
Operation and Maintenance ............. 7 14
Depreciation and Amortization ......... 3 1
--- ----
Total Operating Expenses ............ 18 27
--- ----
Operating Income (Loss) ................. $ 3 $(78)
=== ====
Reliant Energy Latin America had operating income of $3 million in the
first quarter of 2000 compared to an operating loss of $78 million for the same
period in 1999. The 1999 loss reflects a $91 million after-tax, non-cash charge
relating to the Company's share of foreign exchange losses incurred by its
Brazilian affiliates, with respect to their non-local currency denominated
borrowings. 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 losses related to the devaluation, operating income
decreased $10 million from the first quarter of 1999 primarily due to lower
earnings from equity investments.
CORPORATE
Corporate includes the operations of certain non-rate regulated retail
services businesses, a communications business offering enhanced data, voice and
other services to customers in Texas, certain real estate holdings and
unallocated corporate costs.
In the first quarter of 2000, Corporate had an operating loss of $1
million compared to an operating loss of $3 million for the same period in 1999.
The decrease in operating loss occurred primarily from decreased corporate
expenses due to the timing of corporate allocations to the other segments.
Decreased earnings from the unregulated retail business partially offset the
decrease in corporate expenses.
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" in the Reliant Energy
Form 10-K, which is incorporated herein by reference. For information regarding
proposed tariffs filed by Reliant Energy HL&P relating to its transmission and
distribution operations, see Note 2 of the Company's Interim Financial
Statements.
FINANCIAL CONDITION
The following table summarizes the net cash provided by/used in
operating, investing and financing activities for the three months ended March
31, 2000 and 1999:
THREE MONTHS ENDED MARCH 31,
----------------------------
2000 1999
------- -------
(IN MILLIONS)
Cash provided by (used in):
Operating activities ............... $ 450 $ 214
Investing activities ............... (1,361) (161)
Financing activities ............... 914 1
Net cash provided by operations in the three months ended March 31,
2000 increased $236 million compared to the same period in 1999 primarily due to
(a) a $78 million federal tax refund received in the first 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 $1.2 billion in the
three months ended March 31, 2000 compared to the same period in 1999 primarily
due to the purchase of 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 provided by financing activities increased $913 million in
the three months ended March 31, 2000 compared to the same period in 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 part from a Euro 600 million (approximately $584 million) three-year term
loan facility established in February 2000 and through short-term borrowings and
excess operating cash flows. In the first quarter of 2000, a financing
subsidiary of the 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 borrowed $150 million
under a $200 million revolving credit facility established in the first quarter
of 2000 that terminates on May 31, 2000. The Company used the proceeds from
these borrowings for general corporate purposes, including the repayment of
indebtedness. Borrowings under the revolving credit facilities terminating on
May 31, 2000 are expected to be refinanced with debt or repaid with internally
generated funds.
FUTURE SOURCES AND USES OF CASH FLOWS
Credit Facilities. As of March 31, 2000, the Company had credit
facilities, including the facilities of several financing subsidiaries,
Resources Corp. and UNA, which provided for an aggregate of $5.2 billion in
committed credit (including the Euro 600 million facility discussed above). As
of 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 had shelf
registration statements providing for the issuance of $230 million aggregate
liquidation value of its preferred stock, $580 million aggregate principal
amount of its debt securities and $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 such date.
Securitization. Reliant Energy HL&P filed an application with the Texas
Utility Commission 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. The Company estimates that approximately $750 million of transition
bonds will be authorized by the Texas Utility Commission. The offering and sale
of the transition bonds will be registered under the Securities Act of 1933 and
are expected to be consummated in 2001, or if conditions permit, late 2000.
Acquisition of Sithe Assets. 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 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 made in April 2000. The Company expects that
part of these capital contributions will be paid from a return of capital from
one of its investments, dividends from certain of its operating companies,
proceeds from the sale of certain of its investments and from additional capital
contributions from Reliant Energy.
Other Sources/Uses of Cash. The liquidity and capital requirements of
the Company 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 nature and extent of future project commitments, some of which may be
substantial. Although the Company believes that its current level of cash and
borrowing capability along with future cash flows from operations are sufficient
to meet the existing operational needs of its 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
Effective January 1, 2001, the Company is required to adopt SFAS No.
133, "Accounting for Derivative Instruments and Hedging Activities," as amended
(SFAS No. 133). 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 is in the process of determining the effect of adoption of SFAS No.
133 on its consolidated financial statements.
QUANTITATIVE AND QUALITATIVE
DISCLOSURES ABOUT MARKET RISK OF THE COMPANY
The Company has 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 Reliant Energy Form
10-K which is incorporated herein by reference. These risks have not materially
changed from the market risks disclosed in the Reliant Energy Form 10-K.
21
24
RELIANT ENERGY RESOURCES CORP. AND SUBSIDIARIES
(A WHOLLY OWNED SUBSIDIARY OF RELIANT ENERGY, INCORPORATED)
STATEMENTS OF CONSOLIDATED INCOME
(THOUSANDS OF DOLLARS)
(UNAUDITED)
THREE MONTHS ENDED MARCH 31,
----------------------------
2000 1999
----------- -----------
REVENUES .......................................... $ 3,099,337 $ 1,828,064
----------- -----------
EXPENSES:
Natural gas and purchased power ................. 2,704,950 1,458,695
Operation and maintenance ....................... 160,104 138,902
Depreciation and amortization ................... 52,122 50,018
Taxes other than income taxes ................... 31,352 30,272
----------- -----------
2,948,528 1,677,887
----------- -----------
OPERATING INCOME .................................. 150,809 150,177
----------- -----------
OTHER INCOME (EXPENSE):
Interest expense, net ........................... (31,687) (29,662)
Distribution on trust preferred securities ...... (95) (99)
Other, net ...................................... (17,105) 3,031
----------- -----------
(48,887) (26,730)
----------- -----------
INCOME BEFORE INCOME TAXES ........................ 101,922 123,447
Income Tax Expense ................................ 46,786 52,474
----------- -----------
NET INCOME ........................................ $ 55,136 $ 70,973
=========== ===========
See Notes to Resources' Interim Financial Statements
22
25
RELIANT ENERGY RESOURCES CORP. AND SUBSIDIARIES
(A WHOLLY OWNED SUBSIDIARY OF RELIANT ENERGY, INCORPORATED)
CONSOLIDATED BALANCE SHEETS
(THOUSANDS OF DOLLARS)
(UNAUDITED)
ASSETS
MARCH 31, DECEMBER 31,
2000 1999
---------- -----------
CURRENT ASSETS:
Cash and cash equivalents ............................ $ 71,189 $ 81,347
Accounts and notes receivable, principally customer... 948,059 980,560
Unbilled revenue ..................................... 122,244 150,961
Materials and supplies, at average cost .............. 34,383 35,121
Fuel, gas and petroleum products ..................... 31,376 80,135
Price risk management assets ......................... 530,645 435,336
Prepayments and other current assets ................. 37,519 46,666
---------- ----------
Total current assets ............................... 1,775,415 1,810,126
---------- ----------
PROPERTY, PLANT AND EQUIPMENT:
Property, plant and equipment ........................ 3,351,586 3,298,478
Less accumulated depreciation and amortization ....... 367,953 324,596
---------- ----------
Property, plant and equipment, net ................... 2,983,633 2,973,882
---------- ----------
OTHER ASSETS:
Goodwill, net ........................................ 1,969,779 1,983,004
Prepaid pension asset ................................ 105,746 110,626
Price risk management assets ......................... 331,681 148,722
Other ................................................ 196,769 186,437
---------- ----------
Total other assets ................................. 2,603,975 2,428,789
---------- ----------
TOTAL ASSETS ........................................... $7,363,023 $7,212,797
========== ==========
See Notes to Resources' Interim Financial Statements
23
26
RELIANT ENERGY RESOURCES CORP. AND SUBSIDIARIES
(A WHOLLY OWNED SUBSIDIARY OF RELIANT ENERGY, INCORPORATED)
CONSOLIDATED BALANCE SHEETS
(THOUSANDS OF DOLLARS) -- (CONTINUED)
(UNAUDITED)
LIABILITIES AND STOCKHOLDER'S EQUITY
MARCH 31, DECEMBER 31,
2000 1999
----------- -------------
CURRENT LIABILITIES:
Current portion of long-term debt ................................ $ 248,416 $ 223,451
Short-term borrowings ............................................ 368,200 534,584
Accounts payable, principally trade .............................. 803,548 776,546
Accounts and notes payable - affiliated companies, net ........... 19,910 95,601
Interest accrued ................................................. 28,000 27,965
Taxes accrued .................................................... 106,350 48,266
Customer deposits ................................................ 32,714 33,255
Price risk management liabilities ................................ 500,371 431,135
Other ............................................................ 99,940 119,111
----------- -----------
Total current liabilities .................................. 2,207,449 2,289,914
----------- -----------
DEFERRED CREDITS AND OTHER LIABILITIES:
Accumulated deferred income taxes ................................ 558,316 532,725
Payable under capacity lease agreement ........................... 41,000 41,000
Benefit obligations .............................................. 140,631 161,144
Price risk management liabilities ................................ 308,045 117,437
Other ............................................................ 181,829 187,473
----------- -----------
Total deferred credits and other liabilities ................. 1,229,821 1,039,779
----------- -----------
LONG-TERM DEBT ..................................................... 1,193,111 1,220,631
----------- -----------
COMMITMENTS AND CONTINGENCIES (NOTES 1 AND 7)
RESOURCES OBLIGATED MANDATORILY REDEEMABLE CONVERTIBLE PREFERRED
SECURITIES OF SUBSIDIARY TRUST HOLDING SOLELY JUNIOR
SUBORDINATED DEBENTURES OF RESOURCES ............................ 957 967
----------- -----------
STOCKHOLDER'S EQUITY:
Common stock ..................................................... 1 1
Paid-in capital .................................................. 2,463,831 2,463,831
Retained earnings ................................................ 270,008 214,872
Accumulated other comprehensive loss ............................. (2,155) (17,198)
----------- -----------
Total stockholder's equity ................................... 2,731,685 2,661,506
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY ...................... $ 7,363,023 $ 7,212,797
=========== ===========
See Notes to Resources' Interim Financial Statements
24
27
RELIANT ENERGY RESOURCES CORP. AND SUBSIDIARIES
(A WHOLLY OWNED SUBSIDIARY OF RELIANT ENERGY, INCORPORATED)
STATEMENTS OF CONSOLIDATED CASH FLOWS
(THOUSANDS OF DOLLARS)
(UNAUDITED)
THREE MONTHS ENDED MARCH 31,
----------------------------
2000 1999
--------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income ........................................................ $ 55,136 $ 70,973
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization ................................... 52,122 50,018
Deferred income taxes ........................................... 9,673 4,500
Impairment of marketable equity securities ...................... 22,185 --
Changes in other assets and liabilities:
Accounts and notes receivable ................................. 61,218 12,052
Accounts receivable/payable, affiliates ....................... 31,747 (38,293)
Inventories ................................................... 49,497 141,926
Other current assets .......................................... 9,147 (18,501)
Accounts payable .............................................. 27,002 (73,233)
Interest and taxes accrued .................................... 58,119 55,116
Other current liabilities ..................................... (19,712) (25,822)
Net price risk management assets .............................. (18,424) (18,262)
Restricted deposits ........................................... (9,770) (31,042)
Other, net .................................................... (14,719) (15,093)
--------- ---------
Net cash provided by operating activities ................... 313,221 114,339
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures .............................................. (58,119) (45,540)
Other, net ........................................................ 11,127 (1,769)
--------- ---------
Net cash used in investing activities ....................... (46,992) (47,309)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments of long-term debt ........................................ -- (6,042)
Decrease in short-term borrowings, net ............................ (166,384) --
Increase (decrease) in notes with affiliates, net ................. (107,438) (33,400)
Other, net ........................................................ (2,565) (3,757)
--------- ---------
Net cash used in financing activities ....................... (276,387) (43,199)
--------- ---------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS ................. (10,158) 23,831
CASH AND CASH EQUIVALENTS AT BEGINNING OF THE PERIOD ................. 81,347 26,576
--------- ---------
CASH AND CASH EQUIVALENTS AT END OF THE PERIOD ....................... $ 71,189 $ 50,407
========= =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash Payments:
Interest (net of amounts capitalized) ............................. $ 33,922 $ 30,939
Income taxes ...................................................... 93 (2,549)
See Notes to Resources' Interim Financial Statements
25
28
RELIANT ENERGY RESOURCES CORP. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(1) BASIS OF 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 AND AMORTIZATION
Resources' depreciation expense for the first quarter of 2000 was $37
million, compared to $36 million for the 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) RESOURCES OBLIGATED MANDATORILY REDEEMABLE TRUST PREFERRED SECURITIES OF
SUBSIDIARY TRUSTS HOLDING SOLELY JUNIOR SUBORDINATED DEBENTURES OF
RESOURCES -- see Note 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) 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 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
Because Resources Corp. is a wholly owned subsidiary of Reliant Energy,
Resources' determination of reportable segments considers the strategic
operating units under which Reliant Energy manages sales, allocates resources
and assesses performance of various products and services to wholesale or retail
customers in differing regulatory environments. Subsequent to the acquisition
date, segment financial data includes information for Reliant Energy and
Resources on a combined basis, except for Electric Operations which has no
Resources operations and 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 Reliant 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.
Reliant Energy has identified the following reportable segments in which
Resources has operations: Natural Gas Distribution, Interstate Pipelines,
Wholesale Energy, Reliant Energy Europe and Corporate. For descriptions of the
financial reporting segments, see Note 9 of the Resources Corp. 10-K Notes. The
following table summarizes financial data for the business segments:
AS OF AND FOR THE THREE MONTHS ENDED MARCH 31, 2000
----------------------------------------------------------------
REVENUES FROM INTERSEGMENT OPERATING
NON-AFFILIATES REVENUES INCOME TOTAL ASSETS
----------------- ------------ ---------- ----------
(IN MILLIONS)
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
Corporate .................. 306 14 (1) 6,189
Reconciling Elimination .... -- (191) -- (789)
Elimination of Non-Resources
Operations .............. (167) -- 10 (9,542)
---------- ---------- ---------- ----------
Consolidated ............... $ 3,099 $ -- $ 151 $ 7,363
========== ========== ========== ==========
FOR THE THREE MONTHS ENDED MARCH 31, 1999
------------------------------------------------
REVENUES FROM INTERSEGMENT OPERATING
NON-AFFILIATES REVENUES INCOME
----------------- ------------- ----------
(IN MILLIONS)
Natural Gas Distribution ... $ 678 $ -- $ 98
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 ............... $ 1,828 $ -- $ 150
========== ========== ==========
27
30
(7) ENVIRONMENTAL 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 financial condition, results of
operations or cash flows.
29
32
MANAGEMENT'S NARRATIVE ANALYSIS OF
THE RESULTS OF OPERATIONS OF RESOURCES
The following narrative analysis should be read in combination with
Resources Corp.'s Interim Financial Statements and notes contained in this Form
10-Q.
Resources Corp. 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 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 Corp.'s Interim Financial
Statements contained in this Form 10-Q.
CONSOLIDATED RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31,
----------------------------
2000 1999
----------- -----------
(IN THOUSANDS)
Operating Revenues ............................... $ 3,099,337 $ 1,828,064
Operating Expenses ............................... (2,948,528) (1,677,887)
----------- -----------
Operating Income - Net ........................... 150,809 150,177
Interest Expense ................................. (31,687) (29,662)
Distributions on Trust Preferred Securities ...... (95) (99)
Other Income (Expense) - Net .................... (17,105) 3,031
Income Tax Expense ............................... (46,786) (52,474)
----------- -----------
Net Income ..................................... $ 55,136 $ 70,973
=========== ===========
Resources' net income decreased $16 million in the first quarter of 2000
compared to the same period in 1999. This decrease was primarily due to an
increase in interest expense and an after-tax impairment loss of $14 million on
equity marketable securities classified as "available for sale" in the first
quarter of 2000.
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 higher average cost of natural gas. Similar increases in operating
expenses were due primarily to increased 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 and Natural
Gas Distribution segments were relatively flat between the two periods. General
and administrative expenses, included in operation and maintenance expense,
increased due to higher levels of trading and marketing staffing and increased
operating costs to support the higher sales and expanded marketing efforts of
the Wholesale Energy segment and start-up costs of the European trading and
marketing operations.
To minimize Resources' risks associated with fluctuations in the price of
natural gas and transportation, Resources, primarily through Reliant Energy
Services, enters into futures transactions, swaps and options in order to hedge
against market price changes affecting (a) certain commitments to buy, sell and
move electric power, natural gas, crude oil and refined products, (b) existing
natural gas storage and heating oil inventory, (c) future power sales and
natural gas purchases by generation facilities, (d) crude oil and refined
products and (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 Resources' accounting treatment of derivative instruments, see
Note 2 to the Resources Corp. 10-K Notes and "Quantitative and Qualitative
Disclosures About Market Risk" in Item 7A of the Reliant 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 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,
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 -- Competition -- Other Operations," "--Environmental
Expenditures" and "-- Other Contingencies " in the Reliant 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
Reliant Energy's Form 10-Q for a discussion of certain new accounting issues
affecting Resources.
31
34
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
Reliant Energy:
For a description of legal proceedings affecting the Company, please review
Note 10 to the Company's Interim Financial Statements, Item 3 of the Reliant
Energy Form 10-K and Notes 3, 4 and 14 of the Reliant Energy 10-K Notes, all of
which are incorporated herein by reference.
Resources Corp.:
For a description of legal proceedings affecting Resources, please review
Note 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
are incorporated herein by reference.
ITEM 5. OTHER INFORMATION.
Forward-Looking Statements. From time to time, Reliant Energy and Resources
Corp. make statements concerning their respective expectations, beliefs, plans,
objectives, goals, strategies, future events or performance and underlying
assumptions and other statements, which are not historical facts. These
statements are "forward-looking statements" within the meaning of the Private
Securities Litigation Reform Act of 1995. Although Reliant Energy and Resources
Corp. believe that the expectations and the underlying assumptions reflected in
their respective forward-looking statements are reasonable, they cannot assure
you that these expectations will prove to be correct. Forward-looking statements
involve a number of risks and uncertainties, and actual results may differ
materially from the results discussed 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:
o state and federal legislative or regulatory developments,
o national or regional economic conditions,
o industrial, commercial and residential growth in service territories
of the Company,
o the timing and extent of changes in commodity prices and interest
rates,
o weather variations and other natural phenomena,
o growth in opportunities for the Company's diversified operations,
o the results of financing efforts,
o the ability to consummate and the timing of the consummation of
pending acquisitions and 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, including the
effects of fluctuations in foreign currency exchange rates, and
o other factors discussed in this and other filings by Reliant Energy
and Resources Corp. with the Securities and Exchange Commission.
When used in Reliant Energy's or 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.
On 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
35
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits.
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 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 8 (Commitments
and Contingencies) of the Resources 10-K Notes.
(b) Reports on Form 8-K.
Reliant Energy:
None.
Resources Corp.:
None.
33
36
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 Chief Accounting Officer
Date: May 15, 2000
37
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 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 8 (Commitments
and Contingencies) of the Resources 10-K Notes.