EXHIBIT 99.1
FOR IMMEDIATE RELEASE: February 5, 2002
FOR FURTHER INFORMATION: Sandy Fruhman (Media) - (713) 207-3123
Dennis Barber (Investors) - (713) 207-3042
RELIANT RESOURCES DELAYS RELEASE OF EARNINGS
Reliant Resources, Inc. (NYSE: RRI) announced today that it will not
release earnings today as originally anticipated. The company also announced
that it plans to retain its European operations and updated its 2002 earnings
guidance.
DELAY OF EARNINGS RELEASE
The company said it will restate its earnings for the second and third
quarters of 2001 and that it expects earnings for those periods to increase by
an amount between $100 million and $130 million. The restatement, due to a
reclassification of several specific transactions, will change the timing of
earnings recognition, with the effect that the company will recognize earnings
in 2001 that it previously expected to recognize in 2002 and 2003. The
restatement will not affect cash flow for any period. The company will not be
able to announce its fourth-quarter 2001 earnings until the restatement is
finalized.
The transactions under review, which were entered into in the second
and third quarters of 2001, were purchases and sales of gas and power intended
to be cash flow hedges. The counterparties to all of the transactions were
independent third parties that are regularly engaged in the trading business.
Under GAAP, these transactions may be accounted for as cash flow hedges if they
meet certain criteria or must be marked to market if they do not meet those
criteria. GAAP requires that the change in fair value of derivative transactions
that do not qualify for hedge accounting treatment be recorded in the company's
income statement. The company originally accounted for the transactions as cash
flow hedges in its conventional accrual accounts but now believes that the
transactions being reviewed did not meet all of the criteria for hedge
accounting set out in Statement of Financial Accounting Standard No. 133
"Accounting for Derivative Instruments and Hedging Activities."
Reliant Resources' accounting department discovered the errors in the
course of preparing year-end financial information. The company called the
matters to the attention of its outside auditors, its outside counsel and the
audit committees of its board of directors and the board of its parent company,
Reliant Energy, Incorporated (NYSE:REI). The audit committees are directing the
review of the matter and have
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instructed the company to review the accounting, substance and purpose of these
transactions.
The company will issue a press release announcing 2001 earnings as soon
as the review is completed. In addition, as soon as possible, the company will
restate its interim financial statements included in its quarterly reports on
Form 10-Q for the quarterly periods ended June 30, 2001, and September 30, 2001.
As a result, these interim financial statements should not be relied upon until
they have been restated. The company will file amendments to these quarterly
reports that will restate the interim financial statements.
EUROPEAN OPERATIONS
Reliant Resources also announced that it has decided to retain its
European business following a review of strategic alternatives concluded
recently. The company initiated the evaluation in September 2001 in response to
expressions of interest by a number of parties. However, the company did not
receive an acceptable offer for its European business. Industry conditions have
changed dramatically in Europe since the process began, including the
implications and uncertainties created by the collapse of Enron and the slowed
pace of privatization of the Dutch power distribution companies. Consequently,
the company has decided to retain its Dutch generation assets and continue to
expand its trading and origination activities in Northwest Europe.
OUTLOOK FOR 2002
Reliant Resources also updated its guidance for 2002 earnings to $1.80
to $2.00 per share. This guidance compares to the company's previously announced
guidance of $2.05 to $2.15, which was provided at the time of the release of
third quarter 2001 earnings. The revised earnings estimates for 2002 reflect
consideration of the current outlook for the company's business activities and
steps taken or planned by the company to strengthen its balance sheet in
response to evolving rating agency standards for liquidity and credit criteria
for merchant energy companies, as well as the matters discussed above.
Reliant Resources, Inc. (NYSE: RRI) based in Houston, Texas, provides
electricity and energy services to wholesale and retail customers in the U.S.
and Europe, marketing those services under the Reliant Energy brand name. The
company has nearly 18,000 megawatts of power generation capacity in operation,
under construction or advanced development, or under contract in the U.S. It is
one of only five companies to rank among both the ten largest power marketers
and the ten largest natural gas marketers in North America. The company also has
wholesale trading and marketing operations and nearly 3,500 megawatts of power
generation in operation in Western Europe. At the retail level, Reliant
Resources provides a complete suite of energy products and services to 1.7
million electricity customers in Texas ranging from residences and small
businesses to large commercial, institutional and industrial customers. Reliant
Resources currently is a majority-owned subsidiary of Reliant Energy,
Incorporated (NYSE: REI).
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This press release includes forward-looking statements. Forward-looking
statements are based on current expectations and projections about future events
and the underlying assumptions reflected in the statements. Actual results or
outcomes could differ materially as a result of legislative and regulatory
developments, the impact of competition, weather, risks associated with
international operations, changes in Reliant Resources' business plans and other
factors discussed from time to time in Reliant Resources' SEC reports.
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