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, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ______________ to _______________
------------------------------
Commission file number 1-3187
RELIANT ENERGY, INCORPORATED
(Exact name of registrant as specified in its charter)
Texas 74-0694415
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1111 Louisiana
Houston, Texas 77002
(Address of principal executive offices) (Zip Code)
(713) 207-3000
(Registrant's telephone number, including area code)
HOUSTON INDUSTRIES INCORPORATED
(Former name, if changed since last report)
Commission file number 1-13265
RELIANT ENERGY RESOURCES CORP.
(Exact name of registrant as specified in its charter)
Delaware 76-0511406
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1111 Louisiana
Houston, Texas 77002
(Address 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 7, 1999, Reliant Energy, Incorporated had 296,330,151 shares of common
stock outstanding, including 11,027,326 ESOP shares not deemed outstanding for
financial statement purposes and excluding 91,521 shares held as treasury stock.
As of May 7, 1999, all 1,000 shares of Reliant Energy Resources Corp. common
stock were held by Reliant Energy, Incorporated.
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THIS COMBINED QUARTERLY REPORT ON FORM 10-Q IS SEPARATELY FILED BY RELIANT
ENERGY, INCORPORATED (COMPANY) AND RELIANT ENERGY RESOURCES CORP. (RESOURCES).
INFORMATION CONTAINED HEREIN RELATING TO RESOURCES IS FILED BY THE COMPANY AND
SEPARATELY BY RESOURCES ON ITS OWN BEHALF. RESOURCES MAKES NO REPRESENTATION AS
TO INFORMATION RELATING TO THE COMPANY (EXCEPT AS IT MAY RELATE TO RESOURCES AND
ITS SUBSIDIARIES) OR ANY OTHER AFFILIATE OR SUBSIDIARY OF THE COMPANY.
RELIANT ENERGY, INCORPORATED
AND RELIANT ENERGY RESOURCES CORP.
QUARTERLY REPORT ON FORM 10-Q
FOR THE QUARTER ENDED MARCH 31, 1999
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION
Company:
Financial Statements............................................................................1
Statements of Consolidated Operations
Three Months Ended March 31, 1999 and 1998 (Unaudited) .....................................1
Consolidated Balance Sheets
March 31, 1999 (Unaudited) and December 31, 1998............................................2
Statements of Consolidated Cash Flows
Three Months Ended March 31, 1999 and 1998 (Unaudited)......................................4
Statements of Consolidated Retained Earnings and Comprehensive Loss
Three Months Ended March 31, 1999 and 1998 (Unaudited) .....................................6
Notes to Unaudited Consolidated Financial Statements........................................7
Management's Discussion and Analysis of Financial Condition and Results of
Operations of the Company......................................................................16
Quantitative and Qualitative Disclosures about Market Risk of the Company......................25
Resources:
Financial Statements...........................................................................27
Statements of Consolidated Income
Three Months Ended March 31, 1999 and 1998 (Unaudited).....................................27
Consolidated Balance Sheets
March 31, 1999 (Unaudited) and December 31, 1998...........................................28
Statements of Consolidated Cash Flows
Three Months Ended March 31, 1999 and 1998 (Unaudited).....................................30
Consolidated Statements of Stockholder's Equity and Comprehensive Income
Three Months Ended March 31, 1999 and 1998 (Unaudited).....................................31
Notes to Unaudited Consolidated Financial Statements.......................................32
Management's Narrative Analysis of the Results of Operations of Resources......................34
PART II. OTHER INFORMATION
Legal Proceeding...............................................................................36
Other Information .............................................................................36
Exhibits and Reports on Form 8-K...............................................................37
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PART I. FINANCIAL INFORMATION
RELIANT ENERGY, INCORPORATED AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED OPERATIONS
(THOUSANDS OF DOLLARS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
THREE MONTHS ENDED
MARCH 31,
--------------------------
1999 1998
----------- -----------
REVENUES:
Electric Operations ................................. $ 849,906 $ 846,562
Natural Gas Distribution ............................ 663,164 716,896
Interstate Pipelines ................................ 66,105 70,981
Wholesale Energy .................................... 1,008,103 891,373
International ....................................... (51,484) 27,246
Corporate ........................................... 235,385 202,833
Eliminations ........................................ (128,275) (124,569)
----------- -----------
Total ............................................. 2,642,904 2,631,322
----------- -----------
EXPENSES:
Fuel and cost of gas sold ........................... 1,417,364 1,278,394
Purchased power ..................................... 328,507 413,037
Operation and maintenance ........................... 399,012 371,640
Taxes other than income taxes ....................... 117,321 109,760
Depreciation and amortization ....................... 190,585 175,599
----------- -----------
Total ............................................. 2,452,789 2,348,430
----------- -----------
OPERATING INCOME ...................................... 190,115 282,892
----------- -----------
OTHER INCOME (EXPENSE):
Unrealized loss on ACES ............................. (331,311) (189,320)
Time Warner dividend income ......................... 10,313 10,313
Other - net ......................................... 702 7,214
----------- -----------
Total ............................................. (320,296) (171,793)
----------- -----------
INTEREST AND OTHER CHARGES:
Interest on long-term debt .......................... 103,854 106,029
Other interest ...................................... 23,339 24,359
Distributions on trust securities ................... 9,791 7,410
Allowance for borrowed funds used during construction (930) (957)
----------- -----------
Total ............................................. 136,054 136,841
----------- -----------
LOSS BEFORE INCOME TAXES AND PREFERRED DIVIDENDS ...... (266,235) (25,742)
INCOME TAX EXPENSE (BENEFIT) .......................... (56,543) 4,276
----------- -----------
NET LOSS .............................................. (209,692) (30,018)
PREFERRED DIVIDENDS ................................... 97 97
----------- -----------
NET LOSS ATTRIBUTABLE TO COMMON SHAREHOLDERS .......... $ (209,789) $ (30,115)
=========== ===========
BASIC AND DILUTED LOSS PER COMMON SHARE ............... $ (0.74) $ (0.11)
=========== ===========
See Notes to the Company's Consolidated Financial Statements.
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RELIANT ENERGY, INCORPORATED AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(THOUSANDS OF DOLLARS)
(UNAUDITED)
ASSETS
MARCH 31, DECEMBER 31,
1999 1998
-------------- --------------
CURRENT ASSETS:
Cash and cash equivalents .................................... $ 83,795 $ 29,673
Accounts receivable - net .................................... 768,109 726,377
Accrued unbilled revenues .................................... 104,286 175,515
Time Warner dividends receivable ............................. 10,313 10,313
Fuel stock and petroleum products ............................ 94,737 211,750
Materials and supplies, at average cost ...................... 172,174 171,998
Price risk management assets ................................. 274,390 265,203
Prepayments and other current assets ......................... 50,806 78,342
-------------- --------------
Total current assets ....................................... 1,558,610 1,669,171
-------------- --------------
PROPERTY, PLANT AND EQUIPMENT - AT COST:
Electric ..................................................... 14,088,627 13,969,302
Natural gas distribution and gathering systems ............... 1,732,598 1,686,159
Interstate pipelines ......................................... 1,303,180 1,302,829
Other property ............................................... 85,911 72,299
-------------- --------------
Total ...................................................... 17,210,316 17,030,589
Less accumulated depreciation and amortization ............... 5,661,537 5,499,448
-------------- --------------
Property, plant and equipment - net ........................ 11,548,779 11,531,141
-------------- --------------
OTHER ASSETS:
Goodwill - net ............................................... 2,105,349 2,098,890
Equity investments and advances to unconsolidated affiliates . 906,874 1,051,600
Investment in Time Warner securities ......................... 990,000 990,000
Deferred plant costs - net ................................... 529,341 535,787
Deferred debits .............................................. 426,193 391,495
Unamortized debt expense and premium on reacquired debt ...... 214,420 208,350
Regulatory tax asset - net ................................... 333,130 418,339
Prepaid pension asset ........................................ 104,184 102,021
Price risk management assets ................................. 69,624 21,414
Fuel-related debits .......................................... 53,585 65,278
Recoverable project costs - net .............................. 46,436 55,036
-------------- --------------
Total other assets ......................................... 5,779,136 5,938,210
-------------- --------------
Total .................................................... $ 18,886,525 $ 19,138,522
============== ==============
See Notes to the Company's Consolidated Financial Statements.
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RELIANT ENERGY, INCORPORATED AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(THOUSANDS OF DOLLARS)
(UNAUDITED)
CAPITALIZATION AND LIABILITIES
MARCH 31, DECEMBER 31,
1999 1998
------------ ------------
CURRENT LIABILITIES:
Notes payable ........................................................ $ 1,738,003 $ 1,812,739
Accounts payable ..................................................... 715,445 807,977
Taxes accrued ........................................................ 205,402 252,581
Interest accrued ..................................................... 117,953 115,201
Dividends declared ................................................... 111,124 111,058
Customer deposits .................................................... 77,847 77,937
Price risk management liabilities .................................... 231,003 227,652
Current portion of long-term debt .................................... 375,497 397,454
Other ................................................................ 218,871 268,343
------------ ------------
Total current liabilities ...................................... 3,791,145 4,070,942
------------ ------------
DEFERRED CREDITS:
Accumulated deferred income taxes .................................... 2,149,360 2,364,036
Benefit obligations .................................................. 340,913 378,747
Unamortized investment tax credit .................................... 323,927 328,949
Price risk management liabilities .................................... 64,892 29,108
Fuel-related credits ................................................. 131,978 88,639
Other ................................................................ 422,575 413,253
------------ ------------
Total deferred credits ......................................... 3,433,645 3,602,732
------------ ------------
CAPITALIZATION:
Long-term debt:
Automatic common exchange securities (ACES) ........................ 2,681,307 2,349,997
Debentures ......................................................... 1,475,492 1,482,050
First mortgage bonds ............................................... 1,715,928 1,865,784
Notes payable ...................................................... 506,083 507,789
Pollution control revenue bonds .................................... 581,385 581,385
Other .............................................................. 13,502 13,743
------------ ------------
Total long-term debt ............................................. 6,973,697 6,800,748
------------ ------------
Company/Resources obligated mandatorily redeemable trust preferred
securities of subsidiary trusts holding solely junior subordinated
debentures of Company/Resources .................................... 717,268 342,232
------------ ------------
Preference stock, none outstanding
Cumulative preferred stock, not subject to mandatory redemption ...... 9,740 9,740
------------ ------------
Common Stock Equity:
Common stock, no par value ......................................... 3,146,137 3,136,826
Treasury stock, at cost ............................................ (2,384) (2,384)
Unearned ESOP shares ............................................... (212,615) (217,780)
Retained earnings .................................................. 1,128,387 1,445,081
Accumulated other comprehensive loss ............................... (98,495) (49,615)
------------ ------------
Total common stock equity ........................................ 3,961,030 4,312,128
------------ ------------
Total capitalization ........................................... 11,661,735 11,464,848
------------ ------------
COMMITMENTS AND CONTINGENCIES (NOTE 1)
Total .......................................................... $ 18,886,525 $ 19,138,522
============ ============
See Notes to the Company's Consolidated Financial Statements.
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RELIANT ENERGY, INCORPORATED AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED CASH FLOWS
(THOUSANDS OF DOLLARS)
(UNAUDITED)
THREE MONTHS ENDED
MARCH 31,
--------------------------------
1999 1998
-------------- --------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss attributable to common shareholders ............................. $ (209,789) $ (30,115)
Adjustments to reconcile net loss to net cash provided by operating
activities:
Depreciation and amortization .......................................... 190,585 175,599
Amortization of nuclear fuel ........................................... 5,811 6,714
Deferred income taxes .................................................. (123,153) (54,104)
Investment tax credit .................................................. (5,022) (5,031)
Unrealized loss on ACES ................................................ 331,311 189,320
Undistributed loss (earnings) of equity investments in unconsolidated
affiliates ........................................................... 74,362 (13,103)
Fuel cost over (under) recovery ........................................ 23,632 (28,381)
Changes in other assets and liabilities:
Accounts receivable - net ............................................ 25,001 193,598
Accounts receivable - IRS ............................................ 140,532
Fuel surcharge ....................................................... 18,837 21,966
Inventory ............................................................ 117,537 31,389
Other current assets ................................................. 27,536 35,222
Accounts payable ..................................................... (92,532) (154,132)
Interest and taxes accrued ........................................... (44,427) (75,694)
Other current liabilities ............................................ (53,415) (51,188)
Net price risk management assets ..................................... (18,262) (6,670)
Other - net .......................................................... (65,786) 48,147
-------------- --------------
Net cash provided by operating activities .......................... 202,226 424,069
-------------- --------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (including allowance for borrowed funds used
during construction) ................................................... (179,039) (108,497)
Equity investment and advances to unconsolidated affiliates .............. 19,361 (4,926)
Other - net .............................................................. (1,716) (9,225)
-------------- --------------
Net cash used in investing activities .............................. $ (161,394) $ (122,648)
-------------- --------------
(Continued on next page)
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RELIANT ENERGY, INCORPORATED AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED CASH FLOWS - (CONTINUED)
(THOUSANDS OF DOLLARS)
(UNAUDITED)
THREE MONTHS ENDED
MARCH 31,
--------------------------------
1999 1998
-------------- --------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payment of matured bonds ............................................. $ (1,000)
Proceeds from issuance of trust preferred securities ................. $ 375,000
Proceeds from issuance of debentures ................................. 300,000
Payment of debentures ................................................ (6,042)
Restricted deposit for bond redemption ............................... (290,000)
Proceeds from issuance of pollution control revenue refunding bonds .. 386,757
Payment of common stock dividends .................................... (106,767) (106,448)
Decrease in notes payable - net ...................................... (74,736) (390,307)
Extinguishment of long-term debt ..................................... (170,500) (107,263)
Conversion of convertible securities ................................. (7) (3,255)
Other - net .......................................................... (3,658) (2,551)
-------------- --------------
Net cash provided by (used in) financing activities ............. 13,290 (214,067)
-------------- --------------
NET INCREASE IN CASH AND CASH EQUIVALENTS .............................. 54,122 87,354
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD ....................... 29,673 51,712
-------------- --------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD ............................. $ 83,795 $ 139,066
============== ==============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash Payments:
Interest (net of amounts capitalized) ................................ $ 122,517 $ 145,348
Income taxes ......................................................... 28,308 15,158
See Notes to the Company's Consolidated Financial Statements.
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RELIANT ENERGY, INCORPORATED AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED RETAINED EARNINGS
AND COMPREHENSIVE LOSS
(THOUSANDS OF DOLLARS)
(UNAUDITED)
THREE MONTHS ENDED MARCH 31,
------------------------------------------------------------------
1999 1998
------------------------------ -------------------------------
RETAINED EARNINGS:
Balance at beginning of period............. $ 1,445,081 $ 2,013,055
Net loss................................... (209,789) $ (209,789) (30,115) $ (30,115)
------------- -------------
Total.................................. 1,235,292 1,982,940
Common stock dividends..................... (106,905) (106,505)
------------- -------------
Balance at end of period................... $ 1,128,387 $ 1,876,435
============= =============
ACCUMULATED OTHER COMPREHENSIVE INCOME
(LOSS), NET OF TAX:
Balance at beginning of period............. $ (49,615) $ (6,455)
Foreign currency translation adjustments... (50,978) (50,978) 119 119
Unrealized gain on available for sale
securities.............................. 2,098 2,098 1,379 1,379
------------- -------------
Balance at end of period................... $ (98,495) $ (4,957)
============= =============
------------- -------------
COMPREHENSIVE LOSS........................... $ (258,669) $ (28,617)
============= =============
See Notes to the Company's Consolidated Financial Statements.
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RELIANT ENERGY, INCORPORATED AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(1) BASIS OF PRESENTATION
Included in this combined Form 10-Q (Form 10-Q) for Reliant Energy,
Incorporated (Company) and for Reliant Energy Resources Corp. (Resources) are
the Company's and Resources' 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 Form 10-K of the Company (Company Form 10-K) and Resources (Resources
Form 10-K) for the year ended December 31, 1998. For additional information
regarding the presentation of interim period results, see Note 14 below.
The financial statements for the three months ended March 31, 1998 have
been restated to reflect the Company's and Resources' adoption of mark-to-market
accounting in the fourth quarter of 1998, retroactively to January 1, 1998. See
Note 1(r) of the Company 10-K Notes (as defined below).
The following notes to the financial statements in the Form 10-K relate
to material contingencies. These notes, as updated herein, are incorporated
herein by reference:
Notes to Consolidated Financial Statements of the Company (Company 10-K
Notes): Note 1(c) (Regulatory Assets and Other Long-Lived Assets), Note
1(n) (Investments in Time Warner Securities), Note 1(p) (Foreign
Currency Adjustments), Note 2 (Derivative Financial Instruments), Note
3 (Rate Matters), Note 4 (Jointly Owned Electric Utility Plant), Note 5
(Equity Investments and Advances to Unconsolidated Subsidiaries), Note
12 (Commitments and Contingencies) and Note 16(a) (Foreign Currency
Devaluation).
Notes to Consolidated Financial Statements of Resources (Resources
10-K Notes): Note 1(c) (Regulatory Assets and Regulation), Note 2
(Derivative Financial Instruments) and Note 8 (Commitments and
Contingencies).
(2) FOREIGN CURRENCY ADJUSTMENTS
For information about the Company's foreign currency adjustments, see
Note 1(p) of the Company 10-K Notes. The Company has an indirect 11.69% common
stock interest in Light Servicos de Eletricidade S.A. (Light) and through its
investment in Light, has an 8.753% common stock interest in Metropolitana
Eletricidade de Sao Paulo S.A. (Metropolitana), both in Brazil. The Company
accounts for its investment in Light under the equity method of accounting and
records its proportionate share, based on stock ownership, in the net income of
Light and its affiliates (including Metropolitana) as part of the Company's
consolidated net income.
As of March 31, 1999, Light and Metropolitana had total borrowings of
$2.9 billion in non-local currencies. During the first quarter of 1999, the
Brazilian real was devalued and allowed to float against other major currencies.
The effects of this devaluation on the non-local currency denominated borrowings
caused the Company to record a non-cash, after-tax charge of $91 million in the
first quarter of 1999 as a result of foreign currency transaction losses
recorded by both Light and Metropolitana during the quarter. At March 31, 1999,
one U.S. dollar could be exchanged for 1.72 Brazilian reais. Because the Company
uses the Brazilian real as the functional currency in which it reports Light's
equity earnings, any further decrease in the value of the Brazilian real below
its March 31, 1999 level will increase the liability represented by the
non-local currency denominated borrowings which will also be reflected in the
Company's consolidated earnings, to the extent of the Company's 11.69% ownership
interest in Light. Similarly, any increase in the value of the Brazilian real
above its March 31, 1999 level will decrease the liability represented by such
borrowings.
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As of March 31, 1999, the charge to other comprehensive income was $51 million,
net of tax of $34 million; this $51 million amount reflects the translation
effect of the devaluation on the local currency denominated net assets
underlying the Company's investment in Light.
(3) DEPRECIATION
(a) Company.
The Company calculates depreciation using the straight-line method. The
Company's depreciation expense for the first quarter of 1999 was $139 million,
compared to $127 million for the same period in 1998. For information regarding
the additional depreciation of electric utility generating assets under a
transition to competition plan, see Note 3(b) of the Company 10-K Notes.
(b) Resources.
Resources calculates depreciation using the straight-line method.
Resources' depreciation expense for the first quarter of 1999 and 1998 was $36
million and $34 million, respectively.
(4) COMBINED FINANCIAL STATEMENT DATA OF EQUITY INVESTMENTS AND ADVANCES TO
UNCONSOLIDATED AFFILIATES
The following table sets forth summarized financial information for the
Company's unconsolidated affiliates for the three months ended March 31, 1999
and 1998.
THREE MONTHS ENDED MARCH 31,
---------------- --- ----------------
1999 1998
---------------- ----------------
(IN MILLIONS)
Revenues.................................................................. $ 1,143 $ $635
Operating Expenses........................................................ 831 442
Net Income (Loss)......................................................... (673) 131
Dividends received from these affiliates equaled $2.1 million and $3.6
million for the first quarter of 1999 and 1998, respectively.
(5) CHANGE IN ACCOUNTING PRINCIPLE
The Company and Resources adopted Emerging Issues Task Force 98-10,
"Accounting for Contracts Involved in Energy Trading and Risk Management
Activities" (EITF 98-10) on January 1, 1999 for the energy trading activities of
Reliant Energy Services, Inc. The adoption of EITF 98-10 had no material impact
on the Company's or Resources' consolidated financial statements.
(6) TIME WARNER SECURITIES INVESTMENT
The Company owns 11 million shares of Time Warner Inc. (Time Warner)
convertible preferred stock (TW Preferred). The Company has the right to convert
the TW Preferred at any time into 45.8 million shares of Time Warner common
stock (TW Common).
The TW Preferred historically has paid the Company a quarterly pre-tax
dividend of $10.3 million. On July 6, 1999, the TW Preferred will cease to pay a
preferred dividend. After that date, the Company expects to convert the TW
Preferred into TW Common.
In 1997, in order to monetize a portion of the cash value of its investment
in TW Preferred, the Company sold 22.9 million of its unsecured 7% Automatic
Common Exchange Securities (ACES). The
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market value of ACES is linked to the market value of TW Common. In July 2000,
the ACES will be mandatorily exchangeable for, at the Company's option, either
shares of TW Common or an equivalent amount in cash. The exchange rates are
determined as follows:
TW WARNER COMMON PRICE ACES PAYMENT AMOUNT
- -------------------------------------- --------------------------------------
Below $ 22.96875.......................... 1.0 share of TW Common
$22.96875 - $27.7922......................$ 22.96875, or the fractional
share equivalent
Above $27.7922............................ 1.6528 shares of TW Common
By issuing the ACES, the Company effectively eliminated its economic
exposure to decreases in the price of TW Common below $22.96875. In addition,
the Company retained 100% of any increase in TW Common price up to $27.7922 per
share and 17% of any increase in market price above $27.7922. The closing price
per share of TW Common on March 31, 1999, was $70.81.
Prior to the conversion of the TW Preferred, any increase in the market
value of TW Common above $27.7922 is treated for accounting purposes as an
increase in the payment amount of the ACES equal to 83% of the increase in the
market price per share and is recorded by the Company as a non-cash expense.
This expense is not offset, however, by the change in the economic value of the
TW Common underlying the TW Preferred. As a result, the Company recorded in the
first quarter of 1999 a non-cash, unrealized accounting loss of $331 million
(which resulted in an after-tax earnings reduction of $215 million, or $0.76 per
share); this correlates to the $401 million increase in the market value of TW
Common during the quarter. The Company believes the combined unrealized loss for
the ACES of $1.6 billion is more than economically hedged by the approximately
$2.3 billion unrecorded unrealized gain at March 31, 1999 relating to the
increase in market value of the TW Common since the acquisition of the TW
Preferred.
Following the conversion of TW Preferred into TW Common, the current
accounting treatment of the ACES and the Company's investment in the TW Common
will change. After conversion, the Company will begin to record changes in the
market price of the TW Common and the related changes in the market value of the
ACES as a component of common stock equity and other comprehensive income. Upon
the sale or other disposition of the TW Common, the Company is expected to
record a gain equal to the amount realized on the sale less the book value of
the TW Preferred recorded on its balance sheet. The book value is $990 million
or approximately $21 per share of TW Common.
(7) CAPITAL STOCK
(a) Common Stock.
The Company has 700,000,000 authorized shares of common stock. At March
31, 1999, the Company had 296,421,672, shares of common stock issued
(285,302,825 outstanding). At December 31, 1998, the Company had 296,271,063
shares of common stock issued (284,494,195 outstanding). Outstanding common
shares exclude (i) shares pledged to secure a loan to the Company's Employee
Stock Ownership Plan (11,027,326 and 11,674,063 at March 31, 1999 and December
31, 1998, respectively) and (ii) treasury shares (91,521 and 102,805 at March
31, 1999 and December 31, 1998, respectively), which are shares received by the
Company in partial payment of exercised options.
Subject to market and other conditions, the Company has the authority
to repurchase up to $89 million of its common stock under a repurchase program
approved in 1996. Any repurchase depends on market conditions, might not be
announced in advance and may be made in open market or privately negotiated
transactions.
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(b) Earnings Per Share.
The following table presents the Company's basic and diluted earnings
per share (EPS) calculation:
FOR THE THREE MONTHS ENDED MARCH 31,
------------------------------------
1999 1998
------------- -------------
(IN THOUSANDS, EXCEPT
PER SHARE AMOUNTS)
Basic and Diluted EPS Calculation:
Loss before preferred dividends....................................... $ (209,692) $ (30,018)
Less: preferred dividends............................................. 97 97
------------- -------------
Net loss attributable to common shareholders......................... $ (209,789) $ (30,115)
============= =============
Weighted average shares outstanding (1)............................... 284,967 283,528
Loss per share before preferred dividends............................. $ (0.74) $ (0.11)
------------- -------------
Net loss per share attributable to common shareholders................ $ (0.74) $ (0.11)
============= =============
- ----------
(1) Assumed conversions were not included in the computation of diluted
earnings per share because additional shares outstanding would result
in an anti-dilutive per share amount. The computation for the 1999
period excludes 730,000 shares of restricted stock, 27,000 shares for
assumed conversion of debentures and purchase options for 661,000
shares of common stock, which would be anti-dilutive if exercised. The
computation for the 1998 period excludes 492,000 shares of restricted
stock, 359,000 shares for assumed conversion of debentures and purchase
options for 235,000 shares of common stock, which would be
anti-dilutive if exercised.
(c) Preferred Stock.
At March 31, 1999 and December 31, 1998, the Company had 10,000,000
authorized shares of preferred stock, of which 97,397 shares of $4.00 Preferred
Stock were outstanding. The Preferred Stock pays an annual dividend of $4.00 per
share, is redeemable at $105 per share and has a liquidation price of $100 per
share.
(d) Preference Stock.
At March 31, 1999 and December 31, 1998, the Company had 10,000,000
authorized shares of preference stock, of which 700,000 shares are classified as
Series A Preference Stock, 27,000 shares are classified as Series B Preference
Stock and 1,575 are classified as Series C Preference Stock. At March 31, 1999
and December 31, 1998, there were no shares of Series A Preference Stock issued
and outstanding (such shares being issuable in accordance with the Company's
Shareholder Rights Agreement upon the occurrence of certain events) and 17,000
shares of Series B Preference Stock issued and outstanding. At March 31, 1999,
there were no shares of Series C Preference Stock issued and outstanding (due to
a redemption of 1,575 shares in March 1999). The Series B Preference Stock is
not deemed outstanding for financial reporting purposes, because the sole holder
of such series is a wholly owned financing subsidiary of the Company.
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13
(8) COMPANY/RESOURCES OBLIGATED MANDATORILY REDEEMABLE TRUST PREFERRED
SECURITIES OF SUBSIDIARY TRUSTS HOLDING SOLELY JUNIOR SUBORDINATED
DEBENTURES OF THE COMPANY/RESOURCES
(a) Company.
In the first quarter of 1999, the Company, through the use of a
Delaware statutory business trust (REI Trust I), registered $500 million of
trust preferred securities and related junior subordinated debt securities. In
February 1999, REI Trust I issued $375 million of preferred securities to the
public and $11.6 million of common securities to the Company. The preferred
securities have a distribution rate of 7.20% payable quarterly in arrears, a
stated liquidation amount of $25 per preferred security and must be redeemed by
March 2048. REI Trust I used the proceeds to purchase $386.6 million aggregate
principal amount of subordinated debentures (REI Debentures) from the Company
having an interest rate and maturity date that correspond to the distribution
rate and mandatory redemption date of the preferred securities. The Company used
the proceeds from the sale of the REI Debentures for general corporate purposes,
including the repayment of short-term debt. The Company accounts for REI Trust I
as a wholly owned consolidated subsidiary. The REI Debentures are the trust's
sole asset and its entire operations. The Company has fully and unconditionally
guaranteed, on a subordinated basis, all of REI Trust I's obligations with
respect to the preferred securities. The preferred securities are mandatorily
redeemable upon the repayment of the REI Debentures at their stated maturity or
earlier redemption. Subject to certain limitations, the Company has the option
of deferring payments of interest on the REI Debentures. During any period of
deferral or event of default, the Company may not pay dividends on its capital
stock. Under the registration statement, $125 million of these securities remain
available for issuance. The issuance of all securities registered by the Company
and its affiliates is subject to market and other conditions.
For information regarding $250 million of preferred securities and $100
million of capital securities previously issued by statutory business trusts
formed by the Company, see Note 9(a) of the Company 10-K Notes. The sole asset
of each trust consists of junior subordinated debentures of the Company having
interest rates and maturity dates corresponding to each issue of preferred or
capital securities, and the principal amounts corresponding to the common and
preferred or capital securities issued by such trust.
(b) Resources.
For information regarding $177.8 million of convertible preferred
securities previously issued by a statutory business trust formed by Resources,
of which $1.0 million was outstanding at March 31, 1999, see Note 5 of Resources
10-K Notes. The sole asset of the trust consists of junior subordinated
debentures of Resources having an interest rate and maturity date corresponding
to the preferred securities, and the principal amount corresponding to the
common and preferred securities issued by the trust.
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14
(9) LONG-TERM DEBT AND SHORT-TERM FINANCING
(a) Company.
(i) Consolidated Debt.
The Company's consolidated long-term and short-term debt outstanding is
summarized in the following table.
MARCH 31, 1999 DECEMBER 31, 1998
------------------------------- -------------------------------
LONG-TERM CURRENT LONG-TERM CURRENT
------------- ------------- ------------- -------------
(IN MILLIONS)
Short-Term Borrowings (1):
Commercial Paper............................ $ 1,436 $ 1,360
Lines of Credit............................. 150
Resources Receivables Facility.............. 300 300
Notes Payable............................... 2 3
------------- ------------- ------------- -------------
Total Short-Term Borrowings................... 1,738 1,813
------------- ------------- ------------- -------------
Long-Term Debt - net:
ACES $ 2,681 $ 2,350
Debentures (2)(3)........................... 1,476 1,482
First Mortgage Bonds (2).................... 1,716 150 1,866 170
Pollution Control Bonds..................... 581 581
Resources Medium-Term Notes (3)............. 176 178
Notes Payable (3)........................... 330 224 330 226
Capital Leases.............................. 14 1 14 1
------------- ------------- ------------- -------------
Total Long-Term Debt.......................... 6,974 375 6,801 397
------------- ------------- ------------- -------------
Total Long-Term and Short-Term Debt......... $ 6,974 $ 2,113 $ 6,801 $ 2,210
============= ============= ============= =============
- ----------
(1) Includes amounts due within one year of the date noted.
(2) Includes unamortized discount related to debentures of approximately
$0.5 million at March 31, 1999 and $1 million at December 31, 1998 and
unamortized premium related to debentures of approximately $17 million
at March 31, 1999 and December 31, 1998, respectively. The unamortized
discount related to first mortgage bonds was approximately $10 million
at March 31, 1999 and $10 million at December 31, 1998.
(3) Includes unamortized premium related to fair value adjustments of
approximately $17.6 million and $18.1 million for debentures at March
31, 1999 and December 31, 1998, respectively. The unamortized premium
for Resources long-term notes was approximately $11 million and $12
million at March 31, 1999 and December 31, 1998, respectively. The
unamortized premium for long-term and current notes payable was
approximately $3 million and $2 million at March 31, 1999 and $3
million each at December 31, 1998, respectively.
Consolidated maturities of long-term debt and sinking fund requirements
for the Company (including Resources) are approximately $222 million for the
remainder of 1999.
(ii) Financing Developments.
At March 31, 1999, a financing subsidiary of the Company had $1.293
billion in commercial paper borrowings supported by a $1.644 billion revolving
credit facility. At March 31, 1999, the weighted average interest rate of these
commercial paper borrowings was 5.12%. On March 2, 1999, another financing
subsidiary of the Company terminated a credit agreement under which it had
borrowed $150 million. Funds for the repayment of the loan were indirectly
obtained from the issuance of commercial
12
15
paper by a separate financing subsidiary. For additional information regarding
the Company's and its subsidiaries' financings, see Note 8(c) and (d) of the
Company 10-K Notes.
In February 1999, the Company repaid at maturity $25.4 million and
$145.1 million of its Series A medium-term notes with interest rates of 9.85%
and 9.80%, respectively.
(b) Resources.
As of March 31, 1999, Resources had outstanding $2.0 billion of
long-term and short-term debt. Consolidated maturities of long-term debt and
sinking fund requirements for Resources are approximately $200 million for the
remainder of 1999.
In the first quarter of 1999, Resources purchased $6.04 million of its
6% convertible subordinated debentures due 2012 at an average purchase price of
98.3% of the aggregate principal amount, plus accrued interest. Resources plans
to use the purchased debentures to satisfy March 2000 and 2001 sinking fund
requirements of the 6% convertible subordinated debentures. For more information
regarding Resources' financing arrangements, lease commitments and letters of
credit, see Notes 4 and 8 (a) and (b) of the Resources 10-K Notes.
For information regarding Resources' $300 million receivables facility,
see Note 4(a) of the Resources 10-K Notes. At March 31, 1999, Resources had sold
$300 million of receivables under the facility. The weighted average interest
rate was 4.88%.
For information regarding Resources' $350 million revolving credit
facility, see Note 4(a) of the Resources 10-K Notes. In March 1999, this
facility was amended to include a $65 million sub-facility under which letters
of credit may be obtained. At March 31, 1999, there were no commercial paper
borrowings or loans outstanding under the facility and letters of credit issued
under the facility aggregated $14.6 million.
(10) RATE MATTERS
For information about regulatory matters affecting the Company's
electric utility operations, including information about the Company's current
rate caps and depreciation schedules (Transition Plan) and a pending appeal
regarding part of the Transition Plan, see Note 3 of the Company 10-K Notes.
Under the terms of the Transition Plan, if in the current session of the Texas
legislature no legislation is adopted setting electric utility rates for the
year 2000, the Company will be required to file a rate case no later than May 1,
2000, with rates to be effective as of June 1, 2000, unless prior to that date a
rate settlement is negotiated. For information regarding legislative proposals
before the Texas legislature, see "Management's Discussion and Analysis of
Financial Condition and Results of Operations of the Company - Certain Factors
Affecting Future Earnings - Legislative Proposals."
(11) ACQUISITIONS
On March 29, 1999, the Company and one of its subsidiaries, N.V.
Energieproduktiebedrijf UNA, a Dutch electric generating company (UNA), and the
shareholders of UNA entered into an agreement providing for the initial
acquisition of 40% of the capital stock of UNA by a subsidiary of the Company.
The purchase price for the initial 40% interest is Dutch guilders (NLG) 1.6
billion (U.S. $840 million). The purchase price for the remaining 60% of UNA is
approximately NLG 2.7 billion (U.S. $1.4 billion) and is expected to be paid no
later than December 31, 2006. Depending on the timing of regulatory approvals
and other conditions, the acquisition of the remaining interest could occur
significantly earlier than 2006.
All purchase price obligations are denominated in Dutch guilders. The
amounts shown above are subject to adjustment and assume a conversion rate of
NLG 1.88 per U.S. Dollar. It is
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16
anticipated that the closing of the initial 40% interest will occur in June
1999, subject to receipt of various Dutch regulatory approvals and the
satisfaction of other closing conditions.
UNA is one of four large Dutch generators with approximately 3,400
megawatts of generating capacity, representing nearly 20% of the Dutch market.
It operates a mix of gas, coal and cogeneration plants in the Amsterdam and
Utrecht areas.
(12) REPORTABLE SEGMENTS
In accordance with SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information," the Company has identified the following
reportable segments: Electric Operations, Natural Gas Distribution, Interstate
Pipelines, Wholesale Energy, International and Corporate. Electric Operations
provides electric utility generation, transmission, distribution and sales to
customers. Natural Gas Distribution operations consist of natural gas utility
sales to, and natural gas utility transportation for, residential, commercial
and industrial customers. Interstate Pipelines operates two interstate natural
gas pipelines. Wholesale Energy is engaged in the acquisition, development and
operation of, and sale of capacity and energy from, non-utility power generation
facilities and in the wholesale energy trading and marketing and natural gas
gathering businesses. International invests in foreign electric and gas utility
operations, to date primarily in Latin America. Corporate includes a non-rate
regulated retail service business, certain real estate holdings and corporate
expenses.
Financial data for business segments, products and services and
geographic areas are as follows:
ELECTRIC NATURAL GAS INTERSTATE WHOLESALE INTER- RECONCILING
OPERATIONS DISTRIBUTION PIPELINES ENERGY NATIONAL CORPORATE ELIMINATIONS CONSOLIDATED
---------- ------------ --------- ------ -------- --------- ------------ ------------
(IN THOUSANDS)
For the Three Months Ended
March 31, 1999:
Revenues from non-affiliates... $ 849,906 $ 662,876 $ 26,481 $ 938,882 $ (51,484)$ 216,243 $ 2,642,904
Intersegment revenues.......... 288 39,624 69,221 19,142 $ (128,275)
Operating income (loss)........ 144,480 98,100 27,893 1,178 (77,900) (3,636) 190,115
For the Three Months Ended
March 31, 1998:
Revenues from non-affiliates... 846,562 716,575 33,232 828,165 27,246 179,542 2,631,322
Intersegment revenues.......... 321 37,748 63,209 23,291 (124,569)
Operating income (loss)........ 142,611 101,604 32,073 513 10,980 (4,889) 282,892
Reconciliation of Operating Income to Net Income (in thousands):
THREE MONTHS ENDED MARCH 31,
-------------------------------------
1999 1998
---------------- ----------------
Operating income.......................................................... $ 190,115 $ 282,892
Dividend income........................................................... 10,313 10,313
Interest expense.......................................................... (127,193) (130,388)
Unrealized loss on ACES................................................... (331,311) (189,320)
Distribution on trust securities.......................................... (9,791) (7,410)
Income tax benefit (expense).............................................. 56,543 (4,276)
Other income ............................................................. 1,535 8,074
--------------- ---------------
Net loss attributable to common shareholders.............................. $ (209,789) $ (30,115)
=============== ===============
(13) SUBSEQUENT EVENTS
In April 1999, the Gulf Coast Waste Disposal Authority (GCWDA) issued
on behalf of the Company $19.2 million of revenue refunding bonds having an
annual interest rate of 4.70%. The
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17
GCWDA bonds will mature in 2011, and proceeds from the issuance will be used on
June 1, 1999 to redeem all outstanding 7.0% GCWDA Series 1989A collateralized
revenue refunding bonds ($19.2 million) at a redemption price of 102% of their
aggregate principal amount.
In April 1999, the Matagorda County Navigation District Number One
(MCND) issued on behalf of the Company $100 million of revenue refunding bonds
having an annual interest rate of 5.25%. The MCND bonds will mature in 2026, and
proceeds from the issuance will be used on July 1, 1999 to redeem all
outstanding 7.125% MCND Series 1989C collateralized revenue refunding bonds
($100 million) at a redemption price of 102% of their aggregate principal
amount.
In April 1999, the Brazos River Authority (BRA) issued on behalf of the
Company $100 million of revenue refunding bonds having an annual interest rate
of 5.375%. The BRA bonds will mature in 2019, and proceeds from the issuance
will be used on July 1, 1999 to redeem all outstanding 7.625% BRA Series 1989A
collateralized revenue refunding bonds ($100 million) at a redemption price of
102% of their aggregate principal amount.
(14) COMPANY/RESOURCES INTERIM PERIOD RESULTS; RECLASSIFICATIONS
The Company's and Resources' Interim Financial Statements reflect all
normal recurring adjustments that are, in the opinion of management, necessary
to present fairly the financial position and results of operations for the
respective periods. Amounts reported in the Company Consolidated Statements of
Operations and Resources Consolidated Statements of Income are not necessarily
indicative of amounts expected for a full year period due to the effects of,
among other things, (i) seasonal variations in energy consumption, (ii) timing
of maintenance and other expenditures and (iii) acquisitions and dispositions of
assets and other interests. In addition, certain amounts from the prior year
have been reclassified to conform to the Company's and Resources' presentation
of financial statements in the current year. These reclassifications do not
affect their respective earnings.
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18
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS OF THE COMPANY
The following should be read in combination with the unaudited
consolidated financial statements and notes thereto.
Reliant Energy, Incorporated (Company), together with various divisions
and subsidiaries, including Reliant Energy Resources Corp. (Resources), is a
diversified international energy services company. The Company reports its
financial information in six segments. The Company's Electric Operations segment
operates the nation's tenth largest utility in terms of kilowatt-hour (KWH)
sales. The Natural Gas Distribution segment includes the gas utility operations
of Resources and is the third largest such operation in the U.S. in terms of
number of customers served. The Interstate Pipelines segment operates two
interstate natural gas pipelines. The Wholesale Energy segment is engaged in the
acquisition, development and operation of, and sale of capacity and energy from,
non-utility power generation facilities, and in the wholesale energy trading and
marketing and natural gas gathering businesses. The International segment
invests in foreign electric and gas utility operations, to date primarily in
Latin America. The Corporate segment includes a non-rate regulated retail
service business, certain real estate holdings and corporate expenses.
CONSOLIDATED RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31,
------------------------------------- PERCENT
1999 1998 CHANGE
---------------- ---------------- ----------------
(in millions, except per share data)
Revenues............................................. $ 2,643 $ 2,631 --
Operating Expenses................................... 2,453 2,348 4%
Operating Income..................................... 190 283 (33%)
Other Expenses (1)................................... 320 172 86%
Interest and Other Charges........................... 136 137 (1%)
Income Tax Expense (Benefit)......................... (57) 4 --
Net Loss (1)......................................... (210) (30) --
Basic and Diluted Loss Per Share (1) ................ (.74) (.11) --
- ----------------
(1) Other Expenses and Net Loss reflect the after-tax effect of a $331 million
non-cash, unrealized accounting loss recorded in the three months ended
March 31, 1999 compared to a $189 million non-cash, unrealized accounting
loss in the three months ended March 31, 1998 relating to the Company's 7%
Automatic Common Exchange Securities (ACES). See Note 6 to the Company's
Interim Financial Statements.
First Quarter of 1999 Compared to First Quarter of 1998. The Company
reported a consolidated net loss of $210 million ($0.74 per share) for the first
quarter of 1999 compared to a consolidated net loss of $30 million ($0.11 per
share) in the first quarter of 1998. The 1999 results reflect a $215 million
after-tax, non-cash, unrealized accounting loss on the ACES and a $91 million
after-tax, non-cash loss due to the devaluation of the Brazilian real. The 1998
results reflect a $123 million, after-tax, non-cash unrealized accounting loss
on the ACES.
After adjusting for the charges described above, the Company would have
had consolidated net income of $97 million ($0.34 per share) in the first
quarter of 1999 and $92 million ($0.33 per share) in the first quarter of 1998.
The $5 million increase was primarily due to improved results from trading
activities at Wholesale Energy and increased revenues from customer growth and
higher energy usage at the Electric Operations segment. These effects were
partially offset by milder weather at the Natural Gas Distribution segment and
base rate credits at Electric Operations.
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The Company's income tax benefit for the first quarter of 1999 was $57
million. In addition, an income tax benefit of $49 million is reflected in
International's revenues relating to the Company's interest in its Brazilian
subsidiaries' foreign currency transaction losses resulting from the devaluation
described above.
The table below shows operating income (loss) by segment.
THREE MONTHS ENDED MARCH 31,
-------------------------------------
1999 1998
---------------- ----------------
(IN MILLIONS)
Electric Operations....................................................... $ 144 $ 143
Natural Gas Distribution.................................................. 98 102
Interstate Pipelines...................................................... 28 32
Wholesale Energy.......................................................... 1 1
International............................................................. (78) 11
Corporate................................................................. (3) (6)
--------------- ---------------
Total Consolidated.................................................. $ 190 $ 283
=============== ===============
ELECTRIC OPERATIONS
Electric Operations are conducted under the name Reliant Energy HL&P,
an unincorporated division of the Company. Electric Operations provides electric
generation, transmission, distribution and sales to approximately 1.6 million
customers in a 5,000 square mile area on the Texas Gulf Coast, including
Houston, the nation's fourth largest city.
THREE MONTHS ENDED MARCH 31,
------------------------------------- PERCENT
1999 1998 CHANGE
---------------- ---------------- ----------------
(IN MILLIONS)
Operating Revenues:
Base Revenues (1)................................. $ 568 $ 555 2%
Reconcilable Fuel Revenues (2).................... 282 292 (3%)
--------------- ---------------
Total Operating Revenues........................ 850 847 --
--------------- ---------------
Operating Expenses:
Fuel and Purchased Power Expense.................. 292 305 (4%)
Operation and Maintenance Expense................. 220 214 3%
Depreciation and Amortization Expense............. 136 130 5%
Other Operating Expenses.......................... 58 55 5%
--------------- ---------------
Total Operating Expenses........................ 706 704 --
--------------- ---------------
Operating Income.................................... $ 144 $ 143 1%
=============== ===============
Electric Sales (MWH):
Residential....................................... 3,825,764 3,597,021 6%
Commercial ....................................... 3,616,675 3,424,350 6%
Industrial - Firm................................. 6,167,900 6,367,979 (3%)
Municipal and Public Utilities.................... 75,295 81,389 (7%)
--------------- ---------------
Total Firm Billed Sales........................... 13,685,634 13,470,739 2%
--------------- ---------------
Average Cost of Fuel (Cents/MMBtu) ................. 171.5 172.6 (1%)
- ----------
(1) Includes miscellaneous revenues (including transmission revenues) and
certain purchased power-related revenues.
(2) Includes revenues collected through a fixed fuel factor and surcharge, net
of over/under recovery.
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20
In the first quarter of 1999, Electric Operations' operating income
increased $1 million over the same period of 1998. This increase was primarily
due to higher revenues from customer growth, offset by additional base rate
credits under Reliant Energy HL&P's transition to competition plan. Reliant
Energy HL&P's earnings are capped at an overall rate of return on a calendar
year basis as part of its transition plan approved by the Public Utility
Commission of Texas in June 1998. As a result of this plan, any earnings above
the maximum allowed return cap of 9.844 percent on invested capital will be
offset by additional depreciation of Reliant Energy HL&P's generation assets.
Electric Operations recorded additional depreciation expense of $12.5 million
for each of the first quarters of 1999 and 1998, as provided by the plan.
Electric Operations' increase in base revenues of $13 million for the
three months ended March 31, 1999, compared to the same period of 1998, is
primarily the result of customer growth. The increase in revenues was partially
offset by $6 million of additional base rate credits compared to the first
quarter of 1998. For information regarding the transition plan, see Note 3(b) of
the Company 10-K Notes.
As approved by the Texas Public Utility Commission, effective July 1,
1998, the Company implemented a fixed fuel factor and a temporary fuel surcharge
in the amount of $125 million to be collected over 12 to 18 months. As of March
31, 1999, Electric Operations' cumulative under-recovery of fuel costs was $1
million, including interest.
Fuel and purchased power expenses for the three months ended March 31,
1999 decreased by $13 million over the 1998 period primarily due to a decline in
the average unit cost of natural gas (from $2.43 to $1.95 per MMBtu), coal (from
$1.94 to $1.89 per MMBtu), and nuclear fuel (from $.49 to $.46 per MMBtu).
Operation and maintenance, and other operating expenses for the first
quarter of 1999 increased by $9 million compared to the 1998 period. The
increase is largely due to the timing of employee benefit expense and increased
material and supply expense.
NATURAL GAS DISTRIBUTION
Natural Gas Distribution operations are conducted through three
divisions of Resources: Reliant Energy Arkla, Reliant Energy Entex and Reliant
Energy Minnegasco. These operations consist of intrastate natural gas sales to,
and natural gas transportation for, residential, commercial and certain
industrial customers in six states: Arkansas, Louisiana, Minnesota, Mississippi,
Oklahoma and Texas.
QUARTER ENDED MARCH 31,
------------------------------------- PERCENT
1999 1998 CHANGE
---------------- ---------------- ----------------
(IN MILLIONS)
Operating Revenues:
Base Revenues..................................... $ 252 $ 262 (4%)
Recovered Gas Revenues............................ 411 455 (10%)
--------------- ---------------
Total Operating Revenues........................ 663 717 (8%)
--------------- ---------------
Operating Expenses:
Natural Gas....................................... 414 458 (10%)
Operation and Maintenance......................... 93 98 (5%)
Depreciation and Amortization..................... 33 32 3%
Other Operating Expenses.......................... 25 27 (7%)
--------------- ---------------
Total Operating Expenses........................ 565 615 (8%)
--------------- ---------------
Operating Income.................................... $ 98 $ 102 (4%)
=============== ===============
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21
QUARTER ENDED MARCH 31,
------------------------------------- PERCENT
1999 1998 CHANGE
---------------- ---------------- ----------------
Throughput Data (in Bcf):
Residential and Commercial Sales.................. 124 126 (2%)
Industrial Sales.................................. 14 15 (7%)
Transportation.................................... 13 13 --
--------------- ---------------
Total Throughput................................ 151 154 (2%)
=============== ===============
Natural Gas Distribution operating income decreased by $4 million in
the first quarter of 1999 compared to the 1998 period due primarily to milder
weather partially offset by reduced operation and maintenance expenses.
The decreases in recovered gas revenues and purchased gas costs reflect
a lower average cost of gas and decreased sales volume due to milder weather in
1999. The decrease in operation and maintenance expense is primarily the result
of cost control initiatives at Natural Gas Distribution.
INTERSTATE PIPELINES
The Interstate Pipelines segment provides interstate gas transportation
and related services to customers. These operations are conducted by Reliant
Energy Gas Transmission Company and Mississippi River Transmission Corporation,
two wholly owned subsidiaries of Resources.
QUARTER ENDED MARCH 31,
------------------------------------- PERCENT
1999 1998 CHANGE
---------------- ---------------- ----------------
(IN MILLIONS)
Operating Revenues.................................. $ 66 $ 71 (7%)
Operating Expenses:
Natural Gas....................................... 5 8 (38%)
Operation and Maintenance......................... 17 17 --
Depreciation and Amortization..................... 12 9 33%
Other Operating Expenses.......................... 4 5 (20%)
--------------- ---------------
Total Operating Expenses........................ 38 39 (3%)
--------------- ---------------
Operating Income.................................... 28 32 (13%)
=============== ===============
Throughput Data (in MMBtu):
Natural Gas Sales................................. 4 4 --
Transportation.................................... 231 237 (3%)
Elimination (1)................................. (4) (4) --
--------------- ---------------
Total Throughput.................................... 231 237 (3%)
=============== ===============
- ------------------
(1) Elimination of volumes both transported and sold.
Interstate Pipelines operating income decreased by $4 million in the
first quarter of 1999 compared to the 1998 period due to a rate settlement,
reflected in the 1998 quarter as a $5 million reduction of depreciation rates
retroactive to July 1996. Operating income declined $4 million over the 1998
period primarily due to decreased volumes due to mild weather and reduced
transportation margins. Expenses, other than purchased gas, were $2 million
higher in the 1999 period as a result of the net effect of the rate settlement
described above.
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22
WHOLESALE ENERGY
Wholesale Energy includes the acquisition, development and operation
of, and sales of capacity and energy from, non-utility power generation
facilities; wholesale energy trading and marketing; and natural gas gathering
activities. This segment includes operations owned by the Company and Resources.
QUARTER ENDED MARCH 31,
------------------------------------- PERCENT
1999 1998 CHANGE
---------------- ---------------- ----------------
(IN MILLIONS)
Operating Revenues.................................. $ 1,008 $ 891 13%
Operating Expenses:
Natural Gas....................................... 706 565 25%
Purchased Power................................... 241 301 (20%)
Operation and Maintenance......................... 52 21 148%
Depreciation and Amortization..................... 6 2 200%
Other Operating Expenses.......................... 2 1 100%
--------------- ---------------
Total Operating Expenses........................ 1,007 890 13%
--------------- ---------------
Operating Income.................................... $ 1 $ 1 --
=============== ===============
Operations Data:
Natural Gas (in Bcf):
Sales 363 264 38%
Gathering......................................... 61 58 5%
--------------- ---------------
Total........................................... 424 322 32%
=============== ===============
Electricity (in thousand MWH):
Wholesale Power Sales............................. 10,268 13,770 (25%)
=============== ===============
Wholesale Energy experienced significantly higher operating income from
its trading and marketing activities, offset by increased operating and
maintenance expenses of the California power plants, which began operations
after the first quarter of 1998. The operations of the California plants are
seasonal with the plants running primarily in the third quarter of the year.
Wholesale Energy operating revenues increased $117 million primarily
due to an increase in gas sales volume partially offset by a decrease in the
average sales price of gas and lower power sales volumes.
Wholesale Energy purchased natural gas costs increased $141 million in
the first quarter of 1999 due to an increase in gas sales volume in 1999,
partially offset by a lower average sales price of gas. Wholesale Energy's
purchased power expense decreased $60 million primarily due to lower power sales
volume.
Operation and maintenance expense for Wholesale Energy increased $31
million due to operating expenses of the California plants and staffing
increases.
To minimize the Company's risks associated with fluctuations in the
price of natural gas and transportation, the Company, primarily through Reliant
Energy Services, Inc. (a subsidiary of Resources), enters into futures
transactions, swaps and options relating to (i) certain commitments to buy, sell
and transport natural gas, (ii) existing natural gas and heating oil inventory,
(iii) future power sales and natural gas purchases by generation facilities,
(iv) crude oil and refined products and (v) certain anticipated transactions,
some of which carry off-balance sheet risk. Reliant Energy Services also enters
into commodity derivatives in its trading and price risk management activities.
For a discussion of the Company's accounting treatment of derivative
instruments, see Note 2 of the Company 10-K Notes and Item 7A (Quantitative and
Qualitative Disclosure About Market Risk) in the Company's Form 10-K.
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23
INTERNATIONAL
The International segment includes Reliant Energy International, Inc. (a
wholly owned subsidiary of the Company) and the international operations of
Resources. Substantially all of International's operations to date have been
in Latin America.
QUARTER ENDED MARCH 31,
------------------------------------- PERCENT
1999 1998 CHANGE
---------------- ---------------- ----------------
(IN MILLIONS)
Operating Revenues.................................. (51) 27 -
Operating Expenses:
Fuel.............................................. 12 5 140%
Operation and Maintenance......................... 14 10 40%
Depreciation and Amortization..................... 1 1 -
--------------- ---------------
Total Operating Expenses........................ 27 16 69%
--------------- ---------------
Operating Income (Loss)............................. $ (78) $ 11 -
=============== ===============
International had an operating loss of $78 million in the first quarter
of 1999 compared to operating income of $11 million in the same period of 1998.
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,
Light and Metropolitana, with respect to their non-local currency denominated
borrowings. Such devaluation losses stem from the Brazilian government's January
1999 decision to allow the Brazilian real to float against other foreign
currencies. Excluding the devaluation loss, operating income for the first
quarter of 1999 would have been $13 million. This increase in operating income
was primarily due to increased earnings from equity investments and the
completion of a 160-megawatt cogeneration facility in Argentina which commenced
operation in November 1998. For more information regarding risks of the
Company's international operations, see "Certain Factors Affecting Future
Earnings - Risks of International Operations" below.
Fuel expenses and operation and maintenance expenses were higher in the
first quarter of 1999 compared to the 1998 period primarily due to the
completion of the facility in Argentina described above.
CORPORATE
In the first quarter of 1999, Corporate had an operating loss of $3 million
compared to a loss of $6 million in 1998, reflecting improved results from
non-rate regulated retail and consumer services.
CERTAIN FACTORS AFFECTING FUTURE EARNINGS
For information on developments, factors and trends that may have an
impact on the Company's future earnings, please read "Management's Discussion
and Analysis of Financial Condition and Results of Operations of the Company -
Certain Factors Affecting Future Earnings of the Company and its Subsidiaries"
in the Company's Form 10-K, which is incorporated herein by reference. Among the
factors discussed are: "Competition and Restructuring of the Electric Utility
Industry," "Competition - Other Operations," "Fluctuation In Commodity Prices
and Derivative Instruments," "Accounting Treatment of ACES," "Impact of the Year
2000 Issue and Other System Implementation Issues," "Risks of International
Operations," "Environmental Expenditures" and "Other Contingencies." Certain
updated information contained in the Notes to the Company's Interim Financial
Statements is referenced below.
ACCOUNTING TREATMENT OF ACES
The Company accounts for its investment in TW Preferred under the cost
method. As a result of the Company's issuance of the ACES, a portion of the
increase in the market value above $27.7922 per
21
24
share of Time Warner common stock (the security into which the TW Preferred is
convertible) results in unrealized accounting losses to the Company, pending the
conversion of the Company's TW Preferred into Time Warner common stock.
Excluding the unrealized, non-cash accounting loss for ACES, the Company's
retained earnings and total common stock equity would have been $2.2 billion and
$5.0 billion, respectively, at March 31, 1999. For additional information
regarding the accounting treatment of the ACES and the TW Preferred, see Note 6
to the Company's Interim Financial Statements.
LEGISLATIVE PROPOSALS
A number of proposals to restructure the electric utility industry have
been introduced in the 1999 session of the Texas legislature. Many of these
proposals would result in, among other things, the legislature freezing rates
through 2001 and requiring a reduction in rates in 2002. For more information,
see Note 10 to the Company's Interim Financial Statements and "Management's
Discussion and Analysis of Financial Condition and Results of Operations -
Certain Factors Affecting Future Earnings of the Company and its Subsidiaries -
Competition and Restructuring of the Electric Utility Industry" in the Company
Form 10-K. To date, no legislation has been passed and the Company cannot
predict what, if any, action the Texas legislature may take or the ultimate form
in which such proposals may be adopted, if at all. The Texas legislative session
is scheduled to end in May 1999. Because the proposed legislation is intended
to fundamentally restructure electric utility operations, it is likely that
enactment of any of the proposed legislation would have a material impact on
Electric Operations and the Company.
IMPACT OF THE YEAR 2000 AND OTHER SYSTEM IMPLEMENTATION ISSUES
For a description of the Company's Year 2000 and other system
implementation issues, see "Management's Discussion and Analysis of Financial
Condition and Results of Operations of the Company - Certain Factors Affecting
Future Earnings of the Company and its Subsidiaries - Impact of the Year 2000
and Other System Implementation Issues" in the Company Form 10-K.
All of the Company's and its subsidiaries' business units have
completed a Year 2000 Project analysis of critical systems and equipment that
control the production and delivery of energy, as well as corporate,
departmental and personnel systems and equipment. The remediation and
replacement work on the majority of IT systems, non-IT systems and
infrastructure began in the first quarter of 1998 and is expected to be
completed by the second quarter of 1999. Testing of these systems began in the
second quarter of 1998 and is scheduled to be completed in third quarter of
1999. The following table illustrates the Company's completion percentages for
the Year 2000 activities as of April 30, 1999:
PRIORITY 1 PRIORITY 2 PRIORITY 3
---------- ---------- ----------
Assessment............................... 99% 96% 96%
Conversion............................... 99% 76% 91%
Testing.................................. 91% 69% 87%
Implementation........................... 90% 59% 75%
Total direct costs of resolving the Year 2000 issue with respect to the Company
and its subsidiaries are expected to be between $35 and $40 million and include
approximately $16 million spent through the first quarter of 1999.
The Company is in the process of implementing SAP America, Inc.'s (SAP)
proprietary R/3 enterprise software. Although it is anticipated that the
implementation of the SAP system will have the incidental effect of negating the
need to modify many of the Company's computer systems to accommodate the Year
2000 problem, the Company does not deem the costs of the SAP system as directly
related to its Year 2000 compliance program. Portions of the SAP system were
implemented in December 1998 and March 1999, and it is expected that the final
portion of the SAP system will be fully implemented by August 2000. The cost of
implementing the SAP system is currently estimated to be approximately $182
million, inclusive of internal costs, but that estimate could be revised upward
by 10% to 25%. As of March 31, 1999, $136 million has been spent on the
implementation.
RISKS OF INTERNATIONAL OPERATIONS
The Company's international operations are subject to various risks
incidental to investing or operating in emerging market countries. These risks
include political risks, such as government instability, and economic risks,
such as fluctuations in currency exchange rates, restrictions on the
repatriation of foreign earnings and/or restrictions on the conversion of local
currency earnings into U.S. dollars. The Company's international operations are
also highly capital intensive and significantly dependent on the availability of
bank financing and other sources of capital on commercially acceptable terms.
For more information on the risks of international operations, see "Qualitative
and Quantitative Disclosures About Market Risk of the Company" herein and Note 2
to the Company's Interim Financial Statements and "Management's Discussion and
Analysis of Financial Condition and Results of Operations of the Company-Certain
Factors Affecting Future Earnings of the Company and its Subsidiaries-Risks of
International Operations" in the Company form 10-K.
LIQUIDITY AND CAPITAL RESOURCES
For the first quarter of 1999, the Company's net cash provided by
operating activities decreased $222 million over the same period in 1998
primarily due to a $141 million tax refund received in the 1998 period.
22
25
Net cash used in investing activities increased $39 million in the
first quarter of 1999 compared to the same period of 1998, primarily due to
increased capital expenditures in Electric Operations related to an acceleration
of capital projects performed during maintenance outages.
Net cash used in financing activities for the first quarter of 1999
reflected a $13 million inflow compared to a $214 million outflow for the same
period of 1998. The cash inflow in 1999 included the proceeds from the issuance
of trust preferred securities offset by the payment of long-term debt, notes
payable and common stock dividends.
The following tables provide information about the Company's and
Resources' unused sources of capital at March 31, 1999 and repayments and
financings that occurred in the first quarter of 1999.
UNUSED SOURCES OF CAPITAL AT MARCH 31, 1999
SOURCE AVAILABILITY
------ ------------
(IN MILLIONS)
COMPANY:
Revolving Credit Facility (1)...................................... $ 200
Shelf registration statements (2).................................. 230 preferred stock
580 debt securities
125 trust preferred securities and
related junior subordinated debt
securities
FINANCECO LP:
$1.6 billion revolving credit facility (3)......................... 351
RESOURCES:
Revolving credit facility (4)...................................... 335
- ----------------
(1) Supports up to $200 million of commercial paper borrowings.
(2) Issuance of securities under the shelf registration statements is subject
to market and other conditions.
(3) Supports up to $1.6 billion of commercial paper borrowings.
(4) Supports commercial paper borrowings and has a $65 million subfacility,
which may be used for letters of credit. At March 31, 1999, there were
$14.6 million of letters of credit issued.
23
26
FIRST QUARTER 1999 REPAYMENTS AND REPURCHASES
TYPE OF DEBT AMOUNT
----------------
(IN MILLIONS)
COMPANY:
9.85% Series A medium term notes............................................................... $ 25.4
9.80% Series A medium term notes............................................................... 145.1
FINANCECO LP:
Credit agreement (1)........................................................................... 150.0
RESOURCES:
6.0% Convertible subordinated debentures due 2012 (2).......................................... 6.0
- ------------------
(1) This credit facility was repaid and terminated on March 2, 1999.
(2) The average purchase price was 98.3%. These debentures will be used to
partially fund the sinking fund for the 6% convertible subordinated
debentures in March 2000 and March 2001. In the first quarter of 1999,
Resources satisfied the $6.5 million sinking fund requirement using
debentures purchased in 1998.
FIRST QUARTER 1999 FINANCINGS
DISTRIBUTION/
ENTITY AMOUNT INTEREST RATE
- ------ ------------- -------------
(IN MILLIONS)
COMPANY:
REI Trust I(1) $375 preferred securities 7.2%
$11.6 common securities
RESOURCES:
Receivables facility $300 receivables sold 4.88% (2)
- ------------------
(1) This trust is a Delaware statutory business trust established by the
Company. Proceeds from the sale were used to purchase $386.6 million of
7.2% subordinated debentures due March 2048 from the Company. Proceeds
from the sale of the debentures were used for general corporate
purposes, including repayment of short-term debt.
(2) Weighted average rate on sale proceeds as of March 31, 1999.
As of March 31, 1999, Light and Metropolitana had $2.9 billion in
non-local currency denominated borrowings. In April 1999, approximately $1.2
billion was refinanced in U.S. Dollar denominated loans, which expire within one
year to 14 months, and $300 million was funded through a 60-day local currency
loan. The short-term loan is guaranteed by a subsidiary of the Company and
certain other shareholders of Light and is expected to be repaid through capital
contributions. The Company expects that its portion of the capital contributions
will be approximately $30 million to $35 million and will be made in the second
quarter of 1999.
The Company has a "money fund" through which it and its subsidiaries
can borrow or invest on a short-term basis. Funding needs are aggregated and
borrowing or investing is based on the net cash position. The money fund's net
funding requirements are generally met with commercial paper issued by a
financing subsidiary. At March 31, 1999, Resources had $214.1 million in
investments in this fund.
In April 1999, the Company completed the following financings:
24
27
ENTITY AMOUNT INTEREST RATE MATURITY DATE
------ ------ ------------- -------------
(MILLIONS)
Gulf Coast Waste Disposal Authority
(GCWDA)(1) $19.2 revenue refunding bonds 4.70% 2011
Matagorda County Navigation District Number
One (MCND)(2) $100 revenue refunding bonds 5.25% 2026
Brazos River Authority (BRA)(3) $100 revenue refunding bonds 5.375% 2019
- ---------------
(1 On behalf of the Company. Proceeds will be used June 1, 1999 to redeem
$19.2 million 7% GCWDA Series 1989A collateralized revenue refunding bonds
at a price of 102%.
(2) On behalf of the Company. Proceeds will be used July 1, 1999 to redeem $100
million 7.125% MCND Series 1989C collateralized revenue refunding bonds at
a price of 102%.
(3) On behalf of the Company. Proceeds will be used July 1, 1999 to redeem $100
million 7.625% BRA Series 1989A collateralized revenue refunding bonds at a
price of 102%.
In July 1999, $200 million of Resources' 8.875% Notes will mature.
Resources will repay the notes with proceeds from the liquidation of
investments, cash generated by operations and/or newly issued commercial paper.
The Company believes that its current level of cash and borrowing
capability along with future cash flows from operations are sufficient to meet
the needs of its existing businesses. However, to achieve its objectives, the
Company may, when necessary, supplement its available cash resources by seeking
funds in the equity or debt markets.
NEW ACCOUNTING ISSUES
In the first quarter of 1999, the Company and Resources adopted the
Emerging Issues Task Force of the Financial Accounting Standards Board Issue No.
98-10, "Accounting for Contracts Involved in Energy Trading and Risk Management
Activities" (EITF Issue 98-10). EITF Issue 98-10 requires energy trading
contracts to be recorded at fair value on the balance sheet, with the changes in
fair value included in earnings. The implementation of EITF Issue 98-10 did not
have an effect on the Company's or Resources' consolidated financial statements
since Reliant Energy Services adopted mark-to-market accounting in 1998.
In 2000, the Company and Resources expect to adopt SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities" (SFAS No. 133),
which establishes accounting and reporting standards for derivative instruments,
including certain hedging instruments embedded in other contracts (collectively
referred to as derivatives) and for hedging activities. The Company and
Resources are 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 and its subsidiaries have 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 Company's Form 10-K. These risks have not materially changed from
the market risks disclosed in the Company's Form 10-K. As described in
"Management's Discussion and Analysis of Financial Conditions and Results of
Operations of the Company," the Company reported a $91 million charge to net
income and a $51 million charge to other comprehensive income, due to the
devaluation of the Brazilian real. The charge to net income reflects increases
in the liabilities at Light and Metropolitana for their non-local currency
denominated borrowings using the exchange rate in effect at March 31, 1999
25
28
and an average exchange rate for the quarter. The charge to other comprehensive
income reflects the translation effect on the local currency denominated net
assets underlying the Company's investment in Light. As of March 31, 1999, the
Brazilian real exchange rate was 1.72 per U.S. dollar. An increase of 10% from
the March 31, 1999 exchange rate would result in the Company recording an
additional charge of $21 million and $12 million to net income and other
comprehensive income, respectively.
In the first quarter of 1999, the Company recorded an additional $215
million unrealized loss (net of tax) related to the ACES. For further discussion
of this loss, see Note 6 to the Company's Interim Financial Statements. The
Company believes that this additional unrealized loss for the ACES is more than
economically hedged by the unrecorded unrealized gain relating to the increase
in the fair value of the Time Warner common stock underlying the investment in
TW Preferred since the date of its acquisition. An increase of 10% in the price
of the Time Warner common stock above its March 31, 1999 market value of $70.81
per share would result in the recognition of an additional unrealized accounting
loss (net of tax) of approximately $174 million.
26
29
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,
----------------------------------
1999 1998
------------- -------------
REVENUES.................................................................. $ 1,828,064 $ 1,754,541
------------- -------------
EXPENSES:
Natural gas and purchased power, net.................................... 1,443,683 1,381,036
Operation and maintenance............................................... 153,914 151,609
Depreciation and amortization........................................... 50,018 44,730
Taxes other than income taxes........................................... 30,272 33,672
------------- -------------
1,677,887 1,611,047
------------- -------------
OPERATING INCOME.......................................................... 150,177 143,494
------------- -------------
OTHER INCOME (EXPENSE):
Interest expense, net................................................... (29,662) (26,900)
Dividend requirement on preferred securities of subsidiary trust........ (99) (268)
Other -- net............................................................ 3,031 2,556
------------- -------------
(26,730) (24,612)
------------- -------------
INCOME BEFORE INCOME TAXES................................................ 123,447 118,882
INCOME TAX EXPENSE........................................................ 52,474 57,054
------------- -------------
NET INCOME................................................................ $ 70,973 $ 61,828
============= =============
See Notes to Resources' Consolidated Financial Statements.
27
30
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,
1999 1998
------------- -------------
CURRENT ASSETS:
Cash and cash equivalents............................................. $ 50,407 $ 26,576
Accounts and notes receivable, principally customer................... 738,326 682,552
Unbilled revenue...................................................... 73,505 145,131
Accounts and notes receivable - affiliated companies.................. 264,170 193,177
Gas in underground storage............................................ 20,267 79,855
Materials and supplies................................................ 33,245 33,947
Gas purchased in advance of delivery.................................. 6,200 6,200
Fuel stock and petroleum products..................................... 81,230
Price risk management assets.......................................... 274,390 265,203
Other current assets.................................................. 32,971 33,034
------------- -------------
Total current assets................................................ 1,493,481 1,546,905
------------- -------------
PROPERTY, PLANT AND EQUIPMENT:
Natural gas distribution and gathering systems........................ 1,732,598 1,686,159
Interstate pipelines.................................................. 1,303,180 1,302,829
Other 13,406 13,976
------------- -------------
Total............................................................... 3,049,184 3,002,964
Less accumulated depreciation and amortization........................ 220,854 187,936
------------- -------------
Property, plant and equipment -- net.................................. 2,828,330 2,815,028
------------- -------------
OTHER ASSETS:
Goodwill, net......................................................... 2,037,101 2,050,386
Prepaid pension asset................................................. 104,184 102,021
Investment in marketable equity securities............................ 14,086 10,800
Regulatory asset for environmental costs.............................. 20,529 20,695
Gas purchased in advance of delivery.................................. 20,791 22,207
Price risk management assets.......................................... 69,624 21,414
Deferred debits, net.................................................. 89,178 66,065
------------- -------------
Total other assets.................................................. 2,355,493 2,293,588
------------- -------------
TOTAL ASSETS............................................................ $ 6,677,304 $ 6,655,521
============= =============
See Notes to Resources' Consolidated Financial Statements.
28
31
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,
1999 1998
------------- -------------
CURRENT LIABILITIES:
Current maturities of long-term debt.................................. $ 201,965 $ 203,438
Receivables facility.................................................. 300,000 300,000
Accounts payable, principally trade................................... 501,743 622,262
Accounts payable - affiliated companies............................... 47,286
Interest payable...................................................... 29,673 36,197
Other taxes........................................................... 40,277 42,107
Customer deposits..................................................... 36,903 36,985
Price risk management liabilities..................................... 231,003 227,652
Other current liabilities............................................. 176,015 172,616
------------- -------------
Total current liabilities....................................... 1,564,865 1,641,257
------------- -------------
DEFERRED CREDITS AND OTHER LIABILITIES:
Accumulated deferred income taxes..................................... 518,622 511,070
Estimated environmental remediation costs............................. 20,529 20,695
Payable under capacity lease agreement................................ 41,000 41,000
Benefit obligations................................................... 154,224 158,762
Refundable excess deferred income taxes............................... 12,009 12,246
Price risk management liabilities..................................... 64,892 29,108
Other 159,472 164,438
------------- -------------
Total deferred credits and other liabilities...................... 970,748 937,319
------------- -------------
RESOURCES-OBLIGATED MANDATORILY REDEEMABLE CONVERTIBLE PREFERRED
SECURITIES OF SUBSIDIARY TRUST HOLDING SOLELY JUNIOR SUBORDINATED
DEBENTURES OF RESOURCES, NET......................................... 1,144 1,157
------------- -------------
LONG-TERM DEBT, LESS CURRENT MATURITIES................................. 1,504,977 1,513,289
------------- -------------
STOCKHOLDER'S EQUITY:
Common stock.......................................................... 1 1
Paid-in capital....................................................... 2,463,831 2,463,831
Retained earnings..................................................... 185,644 114,671
Accumulated other comprehensive income................................ (13,906) (16,004)
------------- -------------
Total stockholder's equity........................................ 2,635,570 2,562,499
------------- -------------
COMMITMENTS AND CONTINGENCIES (NOTE 1)
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY........................... $ 6,677,304 $ 6,655,521
============= =============
See Notes to Resources' Consolidated Financial Statements.
29
32
RELIANT ENERGY RESOURCES CORP. AND SUBSIDIARIES
(A WHOLLY OWNED SUBSIDIARY OF RELIANT ENERGY, INCORPORATED)
STATEMENTS OF CONSOLIDATED CASH FLOWS
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
(THOUSANDS OF DOLLARS)
(UNAUDITED)
THREE MONTHS ENDED MARCH 31,
----------------------------------
1999 1998
------------- -------------
Cash Flows from Operating Activities:
Net income............................................................ $ 70,973 $ 61,828
Adjustments to reconcile net income to net cash provided by (used in)
operating activities:
Depreciation and amortization....................................... 50,018 44,730
Deferred income taxes............................................... 4,500 14,785
Changes in other assets and liabilities:
Accounts and notes receivable - net................................. (59,641) 88,460
Inventories......................................................... 141,926 29,930
Other current assets................................................ (18,501) 16,238
Accounts payable.................................................... (73,233) (133,074)
Interest and taxes accrued.......................................... 55,116 41,956
Other current liabilities........................................... (47,769) (15,216)
Net price risk management activities................................ (18,262) (6,670)
Other - net......................................................... (24,188) 34,471
------------- -------------
Net cash provided by operating activities....................... 80,939 177,438
------------- -------------
Cash Flows from Investing Activities:
Capital expenditures.................................................. (45,540) (38,639)
Other - net.......................................................... (1,769) 2,371
------------- -------------
Net cash used in investing activities........................... (47,309) (36,268)
============= =============
Cash Flows from Financing Activities:
Retirements and reacquisitions of long-term debt...................... (6,042) (1,000)
Other debt repayments................................................. (417,027)
Proceeds from issuance of debentures.................................. 300,000
Redemption of convertible securities.................................. (7) (3,255)
Other - net........................................................... (3,750) (3,905)
------------- -------------
Net cash used in financing activities............................. (9,799) (125,187)
------------- -------------
Net Increase in Cash and Cash Equivalents............................... 23,831 15,983
Cash and Cash Equivalents at Beginning of the Period.................... 26,576 35,682
------------- -------------
Cash and Cash Equivalents at End of the Period.......................... $ 50,407 $ 51,665
============= =============
Supplemental Disclosure of Cash Flow Information:
Cash Payments:
Interest (net of amounts capitalized)................................. $ 30,939 $ 39,194
Income taxes - net.................................................... (2,549) (13,792)
See Notes to Resources' Consolidated Financial Statements.
30
33
RELIANT ENERGY RESOURCES CORP. AND SUBSIDIARIES
(A WHOLLY OWNED SUBSIDIARY OF RELIANT ENERGY, INCORPORATED)
CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY AND COMPREHENSIVE INCOME
(THOUSANDS OF DOLLARS)
(UNAUDITED)
ACCUMULATED
OTHER TOTAL TOTAL
COMMON STOCK RETAINED COMPRE- STOCK- COMPRE-
--------------------------- PAID IN EARNINGS HENSIVE HOLDER'S HENSIVE
SHARES AMOUNT CAPITAL (DEFICIT) INCOME EQUITY INCOME
----------- ---------- ---------- ---------- ---------- ---------- ----------
Balance at December 31, 1997.. 1,000 $ 1 $2,463,831 $ 20,847 $ (5,634) $2,479,045
Net Income.................... 61,828 61,828 $ 61,828
Change in Market Value of
Marketable Equity
Securities, net tax of
($781)...................... 1,379 1,379 1,379
----------
Comprehensive Income 63,207
----------- ---------- ---------- ---------- ---------- ---------- ----------
Balance at March 31, 1998..... 1,000 1 2,463,831 82,675 (4,255) 2,542,252
----------- ---------- ---------- ---------- ---------- ----------
Net Income.................... 31,996 31,996 31,996
Change in Market Value of
Marketable Equity
Securities, net tax of
$6,658...................... (11,749) (11,749) (11,749)
----------
Comprehensive Income.......... 20,247
----------- ---------- ---------- ---------- ---------- ---------- ----------
Balance at December 31, 1998.. 1,000 1 2,463,831 114,671 (16,004) 2,562,499
=========== ========== ========== ========== ========== ==========
Net Income.................... 70,973 70,973 70,973
Change in Market Value of
Marketable Equity
Securities, net tax of
($1,189) 2,098 2,098 2,098
----------
Comprehensive Income.......... $ 73,071
----------- ---------- ---------- ---------- ---------- ---------- ----------
Balance at March 31, 1999..... 1,000 $ 1 $2,463,831 $ 185,644 $ (13,906) $2,635,570
=========== ========== ========== ========== ========== ==========
See Notes to Resources' Consolidated Financial Statements.
31
34
RELIANT ENERGY RESOURCES CORP. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
The Notes to the unaudited consolidated financial statements of Reliant
Energy Resources Corp. are included in the Notes to the unaudited consolidated
financial statements of Reliant Energy, Incorporated (Company) as follows and
are incorporated herein by reference:
(1) BASIS OF PRESENTATION -- see Company Note 1.
(2) DEPRECIATION -- see Company Note 3 (b).
(3) CHANGE IN ACCOUNTING PRINCIPLE -- see Company Note 5.
(4) COMPANY/RESOURCES OBLIGATED MANDATORILY REDEEMABLE TRUST PREFERRED
SECURITIES OF SUBSIDIARY TRUSTS HOLDING SOLELY JUNIOR SUBORDINATED
DEBENTURES OF THE COMPANY/RESOURCES -- see Company Note 8(b).
(5) LONG-TERM DEBT AND SHORT-TERM FINANCING -- see Company Note 9(b).
(6) REPORTABLE SEGMENTS
Effective January 1, 1998, Resources adopted SFAS No. 131, "Disclosures
about Segments of an Enterprise and Related Information" (SFAS No. 131). Because
Resources is a wholly owned subsidiary of the Company, Resources has determined
its reportable segments based in part on the operating units under which its
parent manages sales to wholesale or retail customers in differing regulatory
environments. The segment financial data include information for the Company and
Resources on a combined basis, except for Electric Operations, which has no
Resources operations, and International, which has minimal Resources operations.
Reconciling items included under the caption "Elimination of Non-Resources
Operations" reduce the 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 of the Company's non-rate regulated power generation business, and
non-Resources corporate expenses.
In accordance with SFAS No. 131, the Company has identified the
following reportable segments: Electric Operations, Natural Gas Distribution,
Interstate Pipelines, Wholesale Energy, International and Corporate. See Note 12
to the Company's Interim Financial Statements for a description of these
segments.
ELIMINATION OF
NON-
NATURAL GAS INTERSTATE WHOLESALE CORPORATE RECONCILING RESOURCES
DISTRIBUTION PIPELINES ENERGY AND OTHER ELIMINATIONS(1) OPERATIONS CONSOLIDATED
------------ --------- ------ --------- --------------- ---------- ------------
(THOUSANDS OF DOLLARS)
For the Three Months Ended
March 31, 1999:
Revenues from non-affiliates....$ 662,876 $ 26,481 $ 938,882 $ 216,243 $ (16,418) $ 1,828,064
Intersegment revenues........... 288 39,624 69,221 19,142 $ (128,275)
Operating income................ 98,100 27,893 1,178 (3,636) 26,642 150,177
For the Three Months Ended
March 31, 1998:
Revenues from non-affiliates.... 716,575 33,232 828,165 179,542 (2,973) 1,754,541
Intersegment revenues........... 321 37,748 63,209 23,291 (124,569)
Operating income................ 101,604 32,073 513 (4,889) 14,193 143,494
- ----------
(1) Includes data for operations conducted at the parent level. This data is
eliminated for purposes of the consolidated data at the Resources level.
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Reconciliation of Operating Income to Net Income:
THREE MONTHS ENDED MARCH 31,
-------------------------------------
1999 1998
--------------- ---------------
(THOUSANDS OF DOLLARS)
Operating income.......................................................... $ 150,177 $ 143,494
Interest expense.......................................................... (29,662) (26,900)
Distribution on preferred trust securities................................ (99) (268)
Income tax expense........................................................ (52,474) (57,054)
Other income, net......................................................... 3,031 2,556
--------------- ---------------
Net income................................................................ $ 70,973 $ 61,828
=============== ===============
(7) COMPANY/RESOURCES INTERIM PERIOD RESULTS; RECLASSIFICATIONS -- see
Company Note 14.
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MANAGEMENT'S NARRATIVE ANALYSIS OF
THE RESULTS OF OPERATIONS OF RESOURCES
Resources reports its financial information in the following segments:
Natural Gas Distribution, Interstate Pipelines, Wholesale Energy (through which
Resources conducts the energy trading and marketing operations and natural gas
gathering operations, but does not conduct the operations of Reliant Energy
Power Generation, Inc.) and Corporate. Although Resources has international
operations, they are not significant.
Resources 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 first quarter of 1999 and the
first quarter of 1998. Reference is made to Management's Narrative Analysis of
the Results of Operations in Item 7 of Resources' Form 10-K, the Resources 10-K
Notes referred to herein and Resources' Interim Financial Statements contained
in this Form 10-Q.
CONSOLIDATED RESULTS OF OPERATIONS
QUARTER ENDED MARCH 31,
------------------------------------- PERCENT
1999 1998 CHANGE
---------------- ---------------- -------------
(THOUSANDS OF DOLLARS)
Operating Revenues................................... $ 1,828,064 $ 1,754,541 4%
Operating Expenses................................... 1,677,887 1,611,047 4%
Operating Income, Net................................ 150,177 143,494 5%
Interest Expense, Net................................ 29,662 26,900 10%
Distributions on Subsidiary Trust Securities......... 99 268 (63%)
Other Income, Net.................................... 3,031 2,556 19%
Income Tax Expense................................... 52,474 57,054 (8%)
---------------- ----------------
Net Income......................................... $ 70,973 $ 61,828 15%
================ ================
First Quarter of 1999 Compared to First Quarter of 1998. Resources' net
income increased $9 million in the first quarter of 1999 compared to the 1998
period primarily due to increased operating income of $7 million related to
improved trading and marketing results at Wholesale Energy. This increase was
partially offset by a decrease in operating income at Natural Gas Distribution
due to warmer weather and at Interstate Pipelines due to a rate settlement,
which resulted in $5 million of reduced depreciation expense recorded in the
first quarter of 1998.
Resources' revenues increased approximately $74 million due primarily
to increased trading activities at Wholesale Energy offset by decreases at
Natural Gas Distribution due to the effects of warmer weather. Resources'
operating expenses increased $67 million due largely to increases in gas sales
at Wholesale Energy.
The decrease in income taxes in the first quarter of 1999 is
attributable to decreases in non-deductible expenditures and state tax expenses.
To minimize risks associated with fluctuations in the price of natural
gas and transportation, Resources, through its subsidiary, Reliant Energy
Services, Inc., enters into futures transactions, swaps and options relating to
(i) certain commitments to buy, sell and transport natural gas, (ii) existing
natural gas and heating oil inventory, (iii)
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37
crude oil and refined products and (iv) certain anticipated transactions, some
of which carry off-balance sheet risk. Reliant Energy Services also enters into
commodity derivatives in its trading and price risk management activities. For a
discussion of the accounting treatment of derivative instruments, see Note 2 of
Resources 10-K Notes and Item 7A (Quantitative and Qualitative Disclosure About
Market Risk) in the Company's 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. Resources' results of operations are also affected by,
among other things, the actions of various federal and state governmental
authorities having jurisdiction over rates charged by Resources and its
subsidiaries, competition in Resources' various business operations, debt
service costs and income tax expense. For a discussion of certain other factors
that may affect Resources' future earnings see "Management's Discussion and
Analysis of Financial Condition and Results of Operations of the
Company - Certain Factors Affecting Future Earnings of the Company and its
Subsidiaries - Competition - Other Operations," "- Fluctuations in Commodity
Prices and Derivative Instruments," "- Environmental Expenditures" and "- Other
Contingencies" in the Company's Form 10-K.
NEW ACCOUNTING ISSUES
Reference is made to "Management's Discussion and Analysis of Financial
Condition and Results of Operations of the Company -- New Accounting Issues" in
the Company's Form 10-Q for a discussion of certain new accounting issues
affecting Resources.
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38
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
Company:
For a description of legal proceedings affecting the Company
and its subsidiaries, please review Item 3 of the Company Form
10-K and Notes 3(b), 12(h) and 12(i) of the Company 10-K
Notes, which are incorporated herein by reference.
Resources:
For a description of legal proceedings affecting Resources,
please review Note 8(g) of the Resources 10-K Notes, which is
incorporated herein by reference.
ITEM 5. OTHER INFORMATION.
Forward-Looking Statements. From time to time, the Company and
Resources may make statements regarding their assumptions, projections,
expectations, intentions or beliefs about future events. These
statements and other statements that are not historical facts are
intended as "forward-looking statements" under the Private Securities
Litigation Reform Act of 1995. The Company and Resources caution that
assumptions, projections, expectations, intentions or beliefs about
future events may and often do vary materially from actual results and
the differences between assumptions, projections, expectations,
intentions or beliefs and actual results can be material. Accordingly,
there can be no assurance actual results will not differ materially
from those expressed or implied by the forward-looking statements.
The following are some of the factors that could cause actual results
to differ from those expressed or implied in forward-looking
statements: (i) state and federal legislative and regulatory
initiatives that affect cost and investment recovery, have an impact on
rate structures and affect the speed and degree to which competition
enters the electric and natural gas industries; (ii) industrial,
commercial and residential growth in service territories of the Company
and Resources; (iii) the weather and other natural phenomena; (iv) the
timing and extent of changes in commodity prices and interest rates;
(v) changes in environmental and other laws and regulations to which
the Company, Resources and their respective subsidiaries are subject or
other external factors over which the Company and Resources have no
control; (vi) the results of financing efforts; (vii) growth in
opportunities for the Company's and Resources' subsidiaries and
diversified operations; (viii) risks incidental to the Company's
overseas operations (including the effects of fluctuations in foreign
currency exchange rates); (ix) the effect of the Company's and
Resources' accounting policies; (x) the timing of the closing of the
Company's acquisition of an interest in UNA; and (xi) other factors
discussed in this and other filings by the Company and Resources with
the Securities and Exchange Commission.
When used in the Company's or Resources' documents or oral
presentations, the words "anticipate," estimate," "expect,"
"objective," "projection," "forecast," "goal" or similar words are
intended to identify forward-looking statements.
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39
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits.
Company:
Exhibit 3 Amendment to the Company's Articles of
Incorporation.
Exhibit 10.1 Employment Agreement effective as of June 1, 1999,
between the Company and Don D. Jordan.
Exhibit 10.2 Share Subscription Agreement dated March 29, 1999
among Reliant Energy Wholesale Holdings (Europe)
Inc., Provincie Noord Holland, Gemeente Amsterdam,
N.V. Provinciaal En Gemeenelijk Utrechts
Stroomleveringsbedrijf, Reliant Energy Power
Generation, Inc. and UNA
Exhibit 10.3 Share Purchase Agreement dated March 29, 1999
among Reliant Energy Wholesale Holdings (Europe)
Inc., Provincie Noord Holland, Gemeente Amsterdam,
N.V. Provinciaal En Gemeenelijk Utrechts
Stroomleveringsbedrijf, Reliant Energy Power
Generation, Inc. and UNA.
Exhibit 12 Ratio of Earnings to Fixed Charges and Preferred
Dividends.
Exhibit 27 Financial Data Schedule.
Exhibit 99 Items incorporated by reference from the Company
Form 10-K: Item 3 "Legal Proceedings." Item 7
"Management's Discussion and Analysis of Financial
Condition and Results of Operations of the Company
- Certain Factors Affecting Future Earnings of the
Company and its Subsidiaries" and "- New
Accounting Issues." and Item 7A "Quantitative and
Qualitative Disclosures About Market Risk." Note
1(c) (Regulatory Assets and Other Long-Lived
Assets), Note 1(n) (Investments in Time Warner
Securities), Note 1(p) (Foreign Currency
Adjustments), Note 1(r) (Change in Accounting
Principle), Note 2 (Derivative Financial
Instruments), Note 3 (Rate Matters), Note 4
(Jointly Owned Electric Utility Plant), Note 5
(Equity Investments and Advances to Unconsolidated
Subsidiaries), Note 8(c) (FinanceCo and FinanceCo
II Credit Facilities), Note 8(d) (Company Credit
Facility), Note 9(a) (Trust Securities - Company),
Note 12 (Commitments and Contingencies) and Note
16(a) (Foreign Currency Devaluation) of the
Company 10-K Notes.
Resources:
Exhibit 12 Ratio of Earnings to Fixed Charges.
Exhibit 27 Financial Data Schedule.
Exhibit 99 Items incorporated by reference from Resources
Form 10-K: Item 3 "Legal Proceedings." Item 7
"Management's Discussion and Analysis of Financial
Condition and Results of Operations of the Company
- Certain Factors Affecting Future Earnings of the
Company and its Subsidiaries" and "- New
Accounting Issues." Item 7A "Quantitative and
Qualitative Disclosures About Market Risk." Item
7 "Management's Narrative Analysis of the Results
of Operations of Reliant Energy Resources Corp.
and Consolidated Subsidiaries." Note 1(c)
(Regulatory Assets and Regulation), Note 2
(Derivative Financial Instruments), Note 4
(Long-Term and Short-Term Financing), Note 5
(Trust Securities); and Note 8 (Commitments and
Contingencies) of Resources 10-K Notes.
(b) Reports on Form 8-K.
Company:
Form 8-K dated January 26,1999 (filed February 1, 1999) filing press
release regarding currency devaluation in Brazil.
Form 8-K dated February 23, 1999 (filed February 26, 1999) regarding
the issuance and sale of 7.20% Trust Original Preferred Securities,
Series C.
Resources:
None.
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40
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 P. Ricciardello
Vice President and Comptroller
(Principal Accounting Officer)
Date: May 14, 1999
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41
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 P. Ricciardello
Vice President and Comptroller
(Principal Accounting Officer)
Date: May 14, 1999
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Exhibit Index
EXHIBIT
NUMBER DESCRIPTION
------- -----------
Company
Exhibit 3 Amendment to the Company's Articles of
Incorporation.
Exhibit 10.1 Employment Agreement effective as of June 1, 1999,
between the Company and Don D. Jordan.
Exhibit 10.2 Share Subscription Agreement dated March 29, 1999
among Reliant Energy Wholesale Holdings (Europe)
Inc., Provincie Noord Holland, Gemeente Amsterdam,
N.V. Provinciaal En Gemeenelijk Utrechts
Stroomleveringsbedrijf, Reliant Energy Power
Generation, Inc. and UNA.
Exhibit 10.3 Share Purchase Agreement dated March 29, 1999
among Reliant Energy Wholesale Holdings (Europe)
Inc., Provincie Noord Holland, Gemeente Amsterdam,
N.V. Provinciaal En Gemeenelijk Utrechts
Stroomleveringsbedrijf, Reliant Energy Power
Generation, Inc. and UNA.
Exhibit 12 Ratio of Earnings to Fixed Charges and Preferred
Dividends.
Exhibit 27 Financial Data Schedule.
Exhibit 99 Items incorporated by reference from the Company
Form 10-K: Item 3 "Legal Proceedings." Item 7
"Management's Discussion and Analysis of Financial
Condition and Results of Operations of the Company
- Certain Factors Affecting Future Earnings of the
Company and its Subsidiaries" and "- New
Accounting Issues." and Item 7A "Quantitative and
Qualitative Disclosures About Market Risk." Note
1(c) (Regulatory Assets and Other Long-Lived
Assets), Note 1(n) (Investments in Time Warner
Securities), Note 1(p) (Foreign Currency
Adjustments), Note 1(r) (Change in Accounting
Principle), Note 2 (Derivative Financial
Instruments), Note 3 (Rate Matters), Note 4
(Jointly Owned Electric Utility Plant), Note 5
(Equity Investments and Advances to Unconsolidated
Subsidiaries), Note 8(c) (FinanceCo and FinanceCo
II Credit Facilities), Note 8(d) (Company Credit
Facility), Note 9(a) (Trust Securities - Company),
Note 12 (Commitments and Contingencies) and Note
16(a) (Foreign Currency Devaluation) of the
Company 10-K Notes.
Resources
Exhibit 12 Ratio of Earnings to Fixed Charges.
Exhibit 27 Financial Data Schedule.
Exhibit 99 Items incorporated by reference from Resources
Form 10-K: Item 3 "Legal Proceedings." Item 7
"Management's Discussion and Analysis of Financial
Condition and Results of Operations of the Company
- Certain Factors Affecting Future Earnings of the
Company and its Subsidiaries" and "- New
Accounting Issues." Item 7A "Quantitative and
Qualitative Disclosures About Market Risk." Item
7 "Management's Narrative Analysis of the Results
of Operations of Reliant Energy Resources Corp.
and Consolidated Subsidiaries." Note 1(c)
(Regulatory Assets and Regulation), Note 2
(Derivative Financial Instruments), Note 4
(Long-Term and Short-Term Financing), Note 5
(Trust Securities); and Note 8 (Commitments and
Contingencies) of Resources 10-K Notes.