Exhibit 99.1
INTRODUCTION TO UNAUDITED PRO FORMA CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
On July 21, 2004, CenterPoint Energy, Inc. (the Company or CenterPoint
Energy) and Texas Genco Holdings, Inc. (Texas Genco) entered into a definitive
transaction agreement pursuant to which Texas Genco has agreed to be acquired in
a multi-step transaction by GC Power Acquisition LLC (GC Power Acquisition), a
newly formed entity owned in equal parts by investment funds affiliated with The
Blackstone Group, Hellman & Friedman LLC, Kohlberg, Kravis Roberts & Co. L.P.
and Texas Pacific Group, for approximately $3.65 billion in cash.
The Company intends to use the anticipated net after-tax proceeds it
will receive from the transaction of approximately $2.5 billion primarily to pay
down outstanding debt, including senior debt under its bank credit facility that
is secured in part by the Company's 81% ownership interest in Texas Genco, and
for other general corporate purposes, including additional pension
contributions.
The following unaudited pro forma condensed consolidated balance sheet
has been prepared to reflect the effect of the sale of Texas Genco as described
above on the CenterPoint Energy financial statements as if the sale had occurred
on June 30, 2004. The following unaudited pro forma condensed consolidated
financial statements of income for each of the three years in the period ended
December 31, 2003 and the six months ended June 30, 2004 have been prepared to
reflect the transaction as of the beginning of the earliest period presented.
The unaudited pro forma condensed consolidated financial statements do
not purport to present CenterPoint Energy's actual results of operations as if
the transaction described above had occurred at the beginning of each period, as
applicable, nor are they necessarily indicative of CenterPoint Energy's
financial position or results of operations that may be achieved in the future.
The unaudited pro forma condensed consolidated financial statements
should be read in conjunction with CenterPoint Energy's consolidated financial
statements and related notes and "Management's Discussion and Analysis of
Financial Condition and Results of Operations" included in the Annual Report on
Form 10-K of CenterPoint Energy for the year ended December 31, 2003, and the
Quarterly Reports on Form 10-Q of CenterPoint Energy for the quarterly periods
ended March 31, 2004 and June 30, 2004.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
JUNE 30, 2004
CENTERPOINT
ENERGY, INC.
HISTORICAL TEXAS GENCO PRO FORMA PRO FORMA
BALANCE HOLDINGS, INC. ADJUSTMENTS BALANCE
--------------- -------------- -------------- --------------
(IN MILLIONS)
Cash and cash equivalents............................... $ 281 $ 185 $ 1,543(b) $ 1,639
Investment in Time Warner common stock.................. 380 -- -- 380
Accounts and notes receivable, net...................... 701 107 14(a) 608
Inventories............................................. 378 168 -- 210
Prepaid expenses and other current assets............... 290 3 37(a) 324
-------------- -------------- -------------- --------------
Total current assets.................................. 2,030 463 1,594 3,161
-------------- -------------- -------------- --------------
Property, plant and equipment, net...................... 11,795 4,094 399(b) 8,100
-------------- -------------- -------------- --------------
Goodwill, net........................................... 1,741 -- -- 1,741
Regulatory assets....................................... 4,959 -- -- 4,959
Other assets............................................ 627 222 -- 405
-------------- -------------- -------------- --------------
Total other assets.................................... 7,327 222 -- 7,105
-------------- -------------- -------------- --------------
Total Assets...................................... $ 21,152 $ 4,779 $ 1,993 $ 18,366
============== ============== ============== ==============
Current portion of long-term debt....................... $ 208 $ -- $ -- $ 208
Indexed debt securities derivative...................... 312 -- -- 312
Accounts payable........................................ 606 157 14(a) 463
Taxes and interest accrued.............................. 305 62 37(a) 280
Regulatory liabilities.................................. 192 -- -- 192
Accumulated deferred income taxes....................... 347 -- -- 347
Deferred revenues....................................... 114 110 -- 4
Other current liabilities............................... 291 14 -- 277
-------------- -------------- -------------- --------------
Total current liabilities............................. 2,375 343 51 2,083
-------------- -------------- -------------- --------------
Accumulated deferred income taxes and investment tax
credit................................................ 3,272 981 174(b) 2,465
Benefit obligations..................................... 876 21 -- 855
Regulatory liabilities.................................. 1,254 -- -- 1,254
Other liabilities....................................... 709 300 -- 409
-------------- -------------- -------------- --------------
Total other liabilities............................... 6,111 1,302 174 4,983
-------------- -------------- -------------- --------------
Long-term Debt.......................................... 10,601 -- (915)(b) 9,686
-------------- -------------- -------------- --------------
Minority Interest in Consolidated Subsidiaries.......... 198 -- (198)(b) --
-------------- -------------- -------------- --------------
Shareholders' Equity.................................... 1,867 3,134 2,881(b) 1,614
-------------- -------------- -------------- --------------
Total Liabilities and Shareholders' Equity........ $ 21,152 $ 4,779 $ 1,993 $ 18,366
============== ============== ============== ==============
See Notes to Unaudited Pro Forma Condensed Consolidated Financial Statements
UNAUDITED PRO FORMA CONDENSED STATEMENT OF CONSOLIDATED INCOME
FOR THE SIX MONTHS ENDED JUNE 30, 2004
CENTERPOINT
ENERGY, INC.
HISTORICAL TEXAS GENCO PRO FORMA PRO FORMA
BALANCE HOLDINGS, INC. ADJUSTMENTS BALANCE
----------- -------------- ----------- ----------
(IN MILLIONS, EXCEPT SHARE AND PER SHARE AMOUNTS)
Revenues....................................... $ 5,200 $ 992 $ 17(a) $ 4,225
------------- ------------- -------------- -------------
Expenses:
Fuel and cost of gas sold.................... 3,207 450 16(a) 2,773
Purchased power.............................. 26 26 -- --
Operation and maintenance.................... 802 200 11(a)(d) 613
Depreciation and amortization................ 317 81 -- 236
Taxes other than income taxes................ 205 25 -- 180
------------- ------------- -------------- -------------
Total ..................................... 4,557 782 27 3,802
------------- ------------- -------------- -------------
Operating Income............................... 643 210 (10) 423
------------- ------------- -------------- -------------
Other (Expense) Income:
Interest and other finance charges........... (415) -- 23(c) (392)
Other, net................................... 18 2 -- 16
------------- ------------- -------------- -------------
Total ..................................... (397) 2 23 (376)
------------- ------------- -------------- -------------
Income from Continuing Operations before
Income Taxes and Minority Interest........... 246 212 13 47
Income tax expense .......................... (88) (71) (5)(c)(d) (22)
Minority interest ........................... (27) -- 27(b) --
------------- ------------- -------------- -------------
Income from Continuing Operations.............. $ 131 $ 141 $ 35 $ 25
============= ============= ============== =============
Basic Earnings Per Share....................... $ 0.43 $ 0.08
============= =============
Weighted Average Common Shares Outstanding..... 306,631,000 306,631,000
============= =============
Diluted Earnings Per Share..................... $ 0.42 $ 0.08
============= =============
Diluted Weighted Average Common Shares
Outstanding.................................. 308,977,000 308,977,000
============= =============
See Notes to Unaudited Pro Forma Condensed Consolidated Financial Statements
UNAUDITED PRO FORMA CONDENSED STATEMENT OF CONSOLIDATED INCOME
FOR THE YEAR ENDED DECEMBER 31, 2003
CENTERPOINT
ENERGY, INC.
HISTORICAL TEXAS GENCO PRO FORMA PRO FORMA
BALANCE HOLDINGS, INC. ADJUSTMENTS BALANCE
------------- -------------- -------------- -------------
(IN MILLIONS, EXCEPT SHARE AND PER SHARE AMOUNTS)
Revenues............................... $ 9,760 $ 2,002 $ 32(a) $ 7,790
------------- ------------- -------------- -------------
Expenses:
Fuel and cost of gas sold............ 5,367 1,098 29(a) 4,298
Purchased power...................... 73 73 -- --
Operation and maintenance............ 1,716 412 30(a)(d) 1,334
Depreciation and amortization........ 625 159 -- 466
Taxes other than income.............. 375 38 -- 337
------------- ------------- -------------- -------------
Total ............................. 8,156 1,780 59 6,435
------------- ------------- -------------- -------------
Operating Income....................... 1,604 222 (27) 1,355
------------- ------------- -------------- -------------
Other (Expense) Income:
Interest and other finance charges... (934) (2) 191(a)(c) (741)
Other, net........................... (5) 2 7(a) --
------------- ------------- -------------- -------------
Total ............................. (939) -- 198 (741)
------------- ------------- -------------- -------------
Income from Continuing Operations
before Income Taxes and Minority
Interest............................. 665 222 171 614
Income tax expense................... (216) (71) (60)(c)(d) (205)
Minority interest.................... (29) -- 29(b) --
------------- ------------- -------------- -------------
Income from Continuing Operations...... $ 420 $ 151 $ 140 $ 409
============= ============= ============== =============
Basic Earnings Per Share............... $ 1.38 $ 1.35
============= =============
Weighted Average Common Shares
Outstanding.......................... 303,867,000 303,867,000
============= =============
Diluted Earnings Per Share............. $ 1.37 $ 1.34
============= =============
Diluted Weighted Average Common Shares
Outstanding.......................... 306,220,000 306,220,000
============= =============
See Notes to Unaudited Pro Forma Condensed Consolidated Financial Statements
UNAUDITED PRO FORMA CONDENSED STATEMENT OF CONSOLIDATED INCOME
FOR THE YEAR ENDED DECEMBER 31, 2002
CENTERPOINT
ENERGY, INC.
HISTORICAL TEXAS GENCO PRO FORMA PRO FORMA
BALANCE HOLDINGS, INC. ADJUSTMENTS BALANCE
------------- -------------- -------------- -------------
(IN MILLIONS, EXCEPT SHARE AND PER SHARE AMOUNTS)
Revenues............................... $ 7,898 $ 1,541 $ 81(a) $ 6,438
------------- ------------- -------------- -------------
Expenses:
Fuel and cost of gas sold............ 3,865 990 79(a) 2,954
Purchased power...................... 94 94 -- --
Operation and maintenance............ 1,605 391 28(a)(d) 1,242
Depreciation and amortization........ 614 156 -- 458
Taxes other than income.............. 387 43 -- 344
------------- ------------- -------------- -------------
Total ............................. 6,565 1,674 107 4,998
------------- ------------- -------------- -------------
Operating Income (Loss)................ 1,333 (133) (26) 1,440
------------- ------------- -------------- -------------
Other (Expense) Income:
Interest and other finance charges... (764) (26) 26(a)(c) (712)
Other, net........................... (2) 3 31(a) 26
------------- ------------- -------------- -------------
Total ............................. (766) (23) 57 (686)
------------- ------------- -------------- -------------
Income (Loss) from Continuing
Operations before Income Taxes....... 567 (156) 31 754
Income tax benefit (expense)......... (198) 63 (11)(c)(d) (272)
------------- ------------- -------------- -------------
Income (Loss) from Continuing
Operations........................... $ 369 $ (93) $ 20 $ 482
============= ============= ============== =============
Basic Earnings Per Share............... $ 1.24 $ 1.62
============= =============
Weighted Average Common Shares
Outstanding.......................... 297,997,000 297,997,000
============= =============
Diluted Earnings Per Share............. $ 1.23 $ 1.61
============= =============
Diluted Weighted Average Common Shares
Outstanding.......................... 299,644,000 299,644,000
============= =============
See Notes to Unaudited Pro Forma Condensed Consolidated Financial Statements
UNAUDITED PRO FORMA CONDENSED STATEMENT OF CONSOLIDATED INCOME
FOR THE YEAR ENDED DECEMBER 31, 2001
CENTERPOINT
ENERGY, INC.
HISTORICAL TEXAS GENCO PRO FORMA PRO FORMA
BALANCE HOLDINGS, INC. ADJUSTMENTS BALANCE
------------- -------------- -------------- -------------
(IN MILLIONS, EXCEPT SHARE AND PER SHARE AMOUNTS)
Revenues............................... $ 10,559 $ 3,411 $ -- $ 7,148
------------- ------------- -------------- -------------
Expenses:
Fuel and cost of gas sold............ 5,085 1,304 -- 3,781
Purchased power...................... 1,223 1,223 -- --
Operation and maintenance............ 1,754 402 22(d) 1,374
Depreciation and amortization........ 663 154 -- 509
Taxes other than income.............. 510 63 -- 447
------------- ------------- -------------- -------------
Total ............................. 9,235 3,146 22 6,111
------------- ------------- -------------- -------------
Operating Income....................... 1,324 265 (22) 1,037
------------- ------------- -------------- -------------
Other (Expense) Income:
Interest and other finance charges... (607) (65) (1)(a) (543)
Other, net........................... 40 2 1(a) 39
------------- ------------- -------------- -------------
Total ............................. (567) (63) -- (504)
------------- ------------- -------------- -------------
Income from Continuing Operations
before Income Taxes.................. 757 202 (22) 533
Income tax expense................... (258) (74) 8(d) (176)
------------- ------------- -------------- -------------
Income from Continuing Operations...... $ 499 $ 128 $ (14) $ 357
============= ============= ============== =============
Basic Earnings Per Share............... $ 1.72 $ 1.23
============= =============
Weighted Average Common Shares
Outstanding.......................... 289,776,000 289,776,000
============= =============
Diluted Earnings Per Share............. $ 1.71 $ 1.22
============= =============
Diluted Weighted Average Common Shares
Outstanding.......................... 292,193,000 292,193,000
============= =============
See Notes to Unaudited Pro Forma Condensed Consolidated Financial Statements
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(a) Represents previously eliminated intercompany transactions.
(b) Reflects net proceeds of $2.5 billion from the sale of Texas Genco
and the corresponding paydown of $915 million of term loan debt. Also
reflects the elimination of the minority interest in Texas Genco as a
result of the sale of Texas Genco. In accordance with Statement of
Financial Accounting Standards No. 144, "Accounting for the Impairment or
Disposal of Long-Lived Assets," CenterPoint Energy recorded an impairment
loss of $253 million in connection with the sale transaction,
representing the excess of the carrying amount of its investment in Texas
Genco over the net proceeds to be received. The Company had previously
recorded an impairment of its investment in Texas Genco of $399 million
in connection with the distribution of 19% of Texas Genco's outstanding
shares of common stock to its shareholders in January 2003.
(c) In accordance with Emerging Issues Task Force Issue No. 87-24
"Allocation of Interest to Discontinued Operations", the Company has
reclassified interest to discontinued operations of Texas Genco based on
net proceeds to be received from the sale of Texas Genco of $2.5 billion,
and has applied the proceeds to the amount of debt assumed to be paid
down in each respective period according to the terms of the respective
credit facilities in effect for those periods. In periods where only the
term loan was assumed to be repaid, the actual interest paid was
reclassified. In periods where a portion of the revolver was assumed to
be repaid, the percentage of that portion of the revolver to the total
outstanding balance was calculated, and that percentage was applied to
the actual interest paid in those periods. Interest expense of $58
million, $198 million and $23 million was reclassified to discontinued
operations of Texas Genco in 2002, 2003 and the six months ended June 30,
2004, respectively. The Company intends to use the remainder of the
proceeds for other general corporate purposes, including further pension
contributions, and is currently evaluating its alternatives.
(d) General corporate overhead previously allocated to Texas Genco from
the Company, which will not be eliminated by the sale of Texas Genco,
has been reflected as general corporate overhead of CenterPoint Energy
in income from continuing operations. The amounts reclassified were
$22 million, $27 million and $27 million for 2001, 2002 and 2003,
respectively and $10 million for the six months ended June 30, 2004.