EXHIBIT 99.1
INTRODUCTION TO UNAUDITED PRO FORMA CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
In June 1999, the Texas legislature enacted an electric restructuring law
which substantially amended the regulatory structure governing electric
utilities in Texas in order to encourage retail electric competition. In
response to the Texas electric restructuring law, Reliant Energy, Incorporated
(Reliant Energy) submitted a business separation plan to the Public Utility
Commission of Texas (Texas Utility Commission) which, as amended, provided that
Reliant Energy would restructure its businesses into two separate publicly
traded companies that would be independent of each other; CenterPoint Energy,
Inc. (CenterPoint Energy) and Reliant Resources, Inc. (Reliant Resources). The
Texas Utility Commission issued a final order approving Reliant Energy's
business separation plan in April 2001.
As an initial step in implementing its business separation plan,
Reliant Energy transferred substantially all of its unregulated businesses to a
newly organized, wholly owned subsidiary, Reliant Resources, Inc., in order to
separate its regulated and unregulated operations. Reliant Resources completed
an initial public offering of approximately 20% of its common stock in May 2001.
In further response to the Texas electric restructuring law and with
the approval of its shareholders received in December 2001, Reliant Energy
consummated a restructuring transaction, effective August 31, 2002, as a result
of which it became an indirect wholly owned subsidiary of CenterPoint Energy and
each share of its common stock was converted into one share of common stock of
CenterPoint Energy. Also, as part of the restructuring, (i) Reliant Energy
conveyed its Texas electric generation assets and certain buildings and related
assets to wholly owned subsidiaries, (ii) Reliant Energy was converted into a
Texas limited liability company named CenterPoint Energy Houston Electric, LLC,
(iii) the capital stock of all of Reliant Energy's former subsidiaries (other
than certain financing subsidiaries), including the subsidiaries that acquired
the Texas electric generation assets and buildings and the approximately 83%
ownership interest in Reliant Resources, was distributed to CenterPoint Energy.
Upon completion of the restructuring, CenterPoint Energy, with its subsidiaries,
became subject to regulation as a registered holding company under the Public
Utility Holding Company Act of 1935, which directs the SEC to regulate, among
other things, financings, sales or acquisitions of assets, and intra-corporate
transactions.
Under the Texas electric restructuring law, since January 1, 2002, all
retail electric customers previously served by Reliant Energy became entitled to
purchase their electricity from any of a number of "retail electric providers"
which have been certified by the Texas Utility Commission. Beginning January 1,
2002, Reliant Resources' unregulated retail electric operations began to provide
retail electric service to all of the approximately 1.7 million customers of
Reliant Energy who did not take action to select another retail electric
provider. Also since January 1, 2002, electric power generators have ceased to
be subject to traditional cost-based regulation in Texas and now sell their
generation capacity to wholesale purchasers at prices determined by the market.
Reliant Energy's former electric transmission and distribution business, which
is now conducted by CenterPoint Energy Houston Electric, LLC (CenterPoint
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Houston), continues to be subject to cost-of-service rate regulation and is
responsible for the delivery of electricity sold to retail customers through
retail electric providers.
The following unaudited pro forma condensed consolidated financial
statements have been prepared to reflect the effect of the restructuring as
described above as it relates to CenterPoint Houston. The following unaudited
pro forma condensed consolidated financial statements of CenterPoint Houston for
each of the three years in the period ended December 31, 2001 and the six months
ended June 30, 2002, have been prepared based upon Reliant Energy's historical
consolidated financial statements.
The unaudited pro forma condensed consolidated financial statements present
the former subsidiaries of Reliant Energy that were distributed to CenterPoint
Energy in the restructuring and unallocated corporate costs as discontinued
operations, in accordance with Statement of Financial Accounting Standards No.
144, "Accounting for the Impairment or Disposal of Long-Lived Assets" (SFAS No.
144). Accordingly, the following unaudited pro forma condensed consolidated
financial statements of CenterPoint Houston reflect these operations as
discontinued operations for each of the three years in the period ended December
31, 2001 and as of and for the six months ended June 30, 2002. Additionally, the
conveyance of Reliant Energy's Texas generation assets to Texas Genco Holdings,
Inc. (Texas Genco), a newly established subsidiary of Reliant Energy
(subsequently acquired in the restructuring by CenterPoint Energy), has been
reflected as discontinued operations in accordance with SFAS No. 144 for each of
the three years in the period ended December 31, 2001 and as of and for the six
months ended June 30, 2002.
The unaudited pro forma condensed consolidated financial statements do not
purport to present the Company's actual results of operations as if the
transactions described above had occurred at the beginning of each period, as
applicable, nor are they indicative of the Company's financial position or
results of operations that may be achieved in the future.
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UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
JUNE 30, 2002
<Table>
<Caption>
CENTERPOINT
RELIANT ENERGY
ENERGY, HOUSTON
INCORPORATED ELECTRIC LLC
HISTORICAL DISCONTINUED PRO FORMA
BALANCE OPERATIONS BALANCE
------------ ------------ ------------
(IN MILLIONS)
Cash and cash equivalents .................................. $ 721 $ 703 $ 18
Restricted cash ............................................ 376 376 --
Investment in AOL Time Warner common stock ................. 379 379 --
Accounts and notes receivable, net ......................... 3,087 2,064 1,023
Inventories ................................................ 657 582 75
Trading and marketing assets ............................... 1,368 1,368 --
Non-trading derivative assets .............................. 478 478 --
Other current assets ...................................... 432 428 4
------------ ------------ ------------
Total current assets ..................................... 7,498 6,378 1,120
------------ ------------ ------------
Property, Plant and Equipment, net ......................... 20,201 16,378 3,823
------------ ------------ ------------
Goodwill, net .............................................. 4,124 4,124 --
Other intangibles, net ..................................... 469 430 39
Regulatory assets .......................................... 3,372 28 3,344
Trading and marketing assets ............................... 656 656 --
Non-trading derivative assets .............................. 350 350 --
Equity investments in unconsolidated subsidiaries .......... 290 290 --
Stranded costs indemnification receivable .................. 227 227 --
Other assets ............................................... 1,017 932 85
------------ ------------ ------------
Total other assets ....................................... 10,505 7,037 3,468
------------ ------------ ------------
Total Assets ......................................... $ 38,204 $ 29,793 $ 8,411
============ ============ ============
Short-term borrowings and current portion of long-term
debt ..................................................... $ 10,962 $ 10,243 $ 719
Indexed debt securities derivative ......................... 308 308 --
Accounts payable ........................................... 2,032 1,870 162
Taxes and interest accrued ................................. 398 245 153
Trading and marketing liabilities .......................... 1,207 1,207 --
Non-trading derivative liabilities ......................... 463 463 --
Regulatory liabilities ..................................... 236 -- 236
Other current liabilities .................................. 1,037 973 64
------------ ------------ ------------
Total current liabilities ................................ 16,643 15,309 1,334
------------ ------------ ------------
Accumulated deferred income taxes .......................... 2,650 1,504 1,146
Trading and marketing liabilities .......................... 592 592 --
Non-trading derivative liabilities ......................... 396 396 --
Regulatory liabilities ..................................... 866 73 793
Non-derivative stranded costs liability .................... 227 227 --
Other liabilities .......................................... 1,899 1,773 126
------------ ------------ ------------
Total other liabilities .................................. 6,630 4,565 2,065
------------ ------------ ------------
Long-term Debt ............................................. 5,843 3,086 2,757
------------ ------------ ------------
Minority Interest in Consolidated Subsidiaries ............. 1,112 1,112 --
------------ ------------ ------------
Company Obligated Mandatorily Redeemable Preferred
Securities of Subsidiary Trusts Holding Solely Junior
Subordinated Debentures of the Company ................... 706 706 --
------------ ------------ ------------
Stockholders' Equity ....................................... 7,270 5,015 2,255
------------ ------------ ------------
Total Liabilities and Stockholders' Equity ............... $ 38,204 $ 29,793 $ 8,411
============ ============ ============
</Table>
See Notes to Unaudited Pro Forma Condensed Consolidated Financial Statements
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UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME
FOR THE SIX MONTHS ENDED JUNE 30, 2002
<Table>
<Caption>
CENTERPOINT
RELIANT ENERGY, ENERGY HOUSTON
INCORPORATED ELECTRIC LLC
HISTORICAL DISCONTINUED PRO FORMA
BALANCE OPERATIONS BALANCE
--------------- --------------- ---------------
(IN MILLIONS)
Revenues ......................................... $ 18,434 $ 17,313 $ 1,121
Expenses:
Fuel and cost of gas sold ...................... 8,448 8,439 9
Purchased power ................................ 6,694 6,618 76
Operation and maintenance ...................... 1,387 1,120 267
Taxes other than income taxes .................. 290 178 112
Depreciation and amortization .................. 476 347 129
Other .......................................... 1 1 --
--------------- --------------- ---------------
Total ........................................ 17,296 16,703 593
--------------- --------------- ---------------
Operating Income ................................. 1,138 610 528
--------------- --------------- ---------------
Other (Expense) Income:
Unrealized loss on AOL Time Warner common
stock ........................................ (448) (448) --
Unrealized gain on indexed debt securities ..... 422 422 --
Income from equity investments in
unconsolidated subsidiaries .................. 9 9 --
Interest expense ............................... (359) (249) (110)
Distribution on trust preferred securities ..... (28) (28) --
Minority interest .............................. (47) (47) --
Other, net ..................................... 36 28 8
--------------- --------------- ---------------
Total ........................................ (415) (313) (102)
--------------- --------------- ---------------
Income from Continuing Operations before
Income Taxes ................................... 723 297 426
Income tax expense ............................. 262 117 145
--------------- --------------- ---------------
Income from Continuing Operations ................ $ 461 $ 180 $ 281
=============== =============== ===============
</Table>
See Notes to Unaudited Pro Forma Condensed Consolidated Financial Statements
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UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 2001
<Table>
<Caption>
CENTERPOINT
RELIANT CENTERPOINT ENERGY
ENERGY, ENERGY HOUSTON
INCORPORATED HOUSTON ELECTRIC LLC
HISTORICAL DISCONTINUED ELECTRIC LLC OTHER PRO FORMA
BALANCE(a) OPERATIONS CARVE-OUT ADJUSTMENTS(b) BALANCE
------------ ------------ ------------ -------------- ------------
(IN MILLIONS)
Revenues ................................. $ 40,902 $ 38,808 $ 2,094 $ -- $ 2,094
Expenses:
Fuel and cost of gas sold .............. 19,562 19,562 -- -- --
Purchased power ........................ 15,127 15,110 17 -- 17
Operation and maintenance .............. 2,680 2,040 640 -- 640
Taxes other than income taxes .......... 545 233 312 -- 312
Depreciation and amortization .......... 918 619 299 -- 299
Impairment on Latin America assets ..... 75 75 -- -- --
------------ ------------ ------------ ------------ ------------
Total ................................ 38,907 37,639 1,268 -- 1,268
------------ ------------ ------------ ------------ ------------
Operating Income ......................... 1,995 1,169 826 -- 826
------------ ------------ ------------ ------------ ------------
Other (Expense) Income:
Unrealized loss on AOL Time Warner
common stock ......................... (70) (70) -- -- --
Unrealized gain on indexed debt
securities ........................... 58 58 -- -- --
Income from equity investments
in unconsolidated subsidiaries ....... 57 57 -- -- --
Interest expense ....................... (602) (453) (149) (19) (168)
Distribution on trust preferred
securities ........................... (56) (38) (18) -- (18)
Minority interest ...................... (81) (81) -- -- --
Other, net ............................. 118 64 54 -- 54
------------ ------------ ------------ ------------ ------------
Total ................................ (576) (463) (113) (19) (132)
------------ ------------ ------------ ------------ ------------
Income from Continuing Operations
before Income Taxes .................. 1,419 706 713 (19) 694
Income tax expense ..................... 500 275 225 (7) 218
------------ ------------ ------------ ------------ ------------
Income from Continuing Operations ........ $ 919 $ 431 $ 488 $ (12) $ 476
============ ============ ============ ============ ============
</Table>
See Notes to Unaudited Pro Forma Condensed Consolidated Financial Statements
5
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 2000
<Table>
<Caption>
CENTERPOINT
RELIANT ENERGY
ENERGY, HOUSTON
INCORPORATED ELECTRIC LLC
HISTORICAL DISCONTINUED PRO FORMA
BALANCE(a) OPERATIONS BALANCE
------------ ------------ ------------
(IN MILLIONS)
Revenues .................................... $ 28,327 $ 26,166 $ 2,161
Expenses:
Fuel and cost of gas sold ................. 15,093 15,093 --
Purchased power ........................... 7,580 7,565 15
Operation and maintenance ................. 2,389 1,818 571
Taxes other than income taxes ............. 501 183 318
Depreciation and amortization ............. 918 561 357
Loss on disposal/impairment of Latin
America assets .......................... 218 218 --
------------ ------------ ------------
Total ................................... 26,699 25,438 1,261
------------ ------------ ------------
Operating Income ............................ 1,628 728 900
------------ ------------ ------------
Other (Expense) Income:
Unrealized loss on AOL Time Warner
common stock ............................ (205) (205) --
Unrealized gain on indexed debt
securities .............................. 102 102 --
Income from equity investments
in unconsolidated subsidiaries .......... 43 43 --
Interest expense .......................... (725) (583) (142)
Distribution on trust preferred
securities .............................. (54) (25) (29)
Minority interest ......................... 1 1 --
Other, net ................................ (32) (51) 19
------------ ------------ ------------
Total ................................... (870) (718) (152)
------------ ------------ ------------
Income from Continuing Operations
before Income Taxes ..................... 758 10 748
Income tax expense (benefit) .............. 318 99 219
------------ ------------ ------------
Income from Continuing Operations ........... $ 440 $ (89) $ 529
============ ============ ============
</Table>
See Notes to Unaudited Pro Forma Condensed Consolidated Financial Statements
6
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1999
<Table>
<Caption>
CENTERPOINT
RELIANT ENERGY
ENERGY, HOUSTON
INCORPORATED ELECTRIC LLC
HISTORICAL DISCONTINUED PRO FORMA
BALANCE(a) OPERATIONS BALANCE
------------ ------------ ------------
(IN MILLIONS)
Revenues ............................... $ 13,874 $ 12,207 $ 1,667
Expenses:
Fuel and cost of gas sold ............ 6,379 6,379 --
Purchased power ...................... 3,095 3,090 5
Operation and maintenance ............ 1,804 1,265 539
Taxes other than income taxes ........ 444 179 265
Depreciation and amortization ........ 911 637 274
------------ ------------ ------------
Total .............................. 12,633 11,550 1,083
------------ ------------ ------------
Operating Income ....................... 1,241 657 584
------------ ------------ ------------
Other (Expense) Income:
Unrealized gain on AOL Time Warner
common stock ....................... 2,452 2,452 --
Unrealized loss on indexed debt
securities ......................... (630) (630) --
Loss from equity investments in
unconsolidated subsidiaries ........ (1) (1) --
Interest expense ..................... (513) (416) (97)
Distribution on trust preferred
securities ......................... (51) (23) (28)
Minority interest .................... 1 1 --
Other, net ........................... 65 51 14
------------ ------------ ------------
Total .............................. 1,323 1,434 (111)
------------ ------------ ------------
Income from Continuing Operations
before Income Taxes ................ 2,564 2,091 473
Income tax expense ................... 899 749 150
------------ ------------ ------------
Income from Continuing Operations ...... $ 1,665 $ 1,342 $ 323
============ ============ ============
</Table>
See Notes to Unaudited Pro Forma Condensed Consolidated Financial Statements
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NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(a) As a result of the adoption of Statement of Financial Accounting
Standards No. 144, "Accounting for the Impairment or Disposal of
Long-Lived Assets," Latin America operations have been presented on a
gross basis in the consolidated financial statements. Accordingly,
the results of operations have been restated for each of the three
years in the period ended December 31, 2001 to conform to this
presentation.
(b) In preparing carve-out financial statements for CenterPoint Houston,
interest expense incurred prior to January 1, 2002 that had been
historically recorded by Reliant Energy's electric utility was
allocated to CenterPoint Houston based on the net assets of Reliant
Energy's electric transmission and distribution utility. On January
1, 2002, specific debt obligations were allocated to Reliant Energy's
transmission and distribution utility. Carve-out interest expense for
2001 has been adjusted to reflect this allocation of debt as if it
had occurred January 1, 2001.
* * *
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