EX-99.1 6 h99513exv99w1.txt UNAUDITED PRO FORMA CON. CONSOLIDATED FIN. STMTS. EXHIBIT 99.1 INTRODUCTION TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS In June 1999, the Texas legislature enacted an electric restructuring law which substantially amended the regulatory structure governing electric utilities in Texas in order to encourage retail electric competition. In response to the Texas electric restructuring law, Reliant Energy, Incorporated (Reliant Energy) submitted a business separation plan to the Public Utility Commission of Texas (Texas Utility Commission) which, as amended, provided that Reliant Energy would restructure its businesses into two separate publicly traded companies that would be independent of each other; CenterPoint Energy, Inc. (CenterPoint Energy) and Reliant Resources, Inc. (Reliant Resources). The Texas Utility Commission issued a final order approving Reliant Energy's business separation plan in April 2001. As an initial step in implementing its business separation plan, Reliant Energy transferred substantially all of its unregulated businesses to a newly organized, wholly owned subsidiary, Reliant Resources, Inc., in order to separate its regulated and unregulated operations. Reliant Resources completed an initial public offering of approximately 20% of its common stock in May 2001. In further response to the Texas electric restructuring law and with the approval of its shareholders received in December 2001, Reliant Energy consummated a restructuring transaction, effective August 31, 2002, as a result of which it became an indirect wholly owned subsidiary of CenterPoint Energy and each share of its common stock was converted into one share of common stock of CenterPoint Energy. Also, as part of the restructuring, (i) Reliant Energy conveyed its Texas electric generation assets and certain buildings and related assets to wholly owned subsidiaries, (ii) Reliant Energy was converted into a Texas limited liability company named CenterPoint Energy Houston Electric, LLC, (iii) the capital stock of all of Reliant Energy's former subsidiaries (other than certain financing subsidiaries), including the subsidiaries that acquired the Texas electric generation assets and buildings and the approximately 83% ownership interest in Reliant Resources, was distributed to CenterPoint Energy. Upon completion of the restructuring, CenterPoint Energy, with its subsidiaries, became subject to regulation as a registered holding company under the Public Utility Holding Company Act of 1935, which directs the SEC to regulate, among other things, financings, sales or acquisitions of assets, and intra-corporate transactions. Under the Texas electric restructuring law, since January 1, 2002, all retail electric customers previously served by Reliant Energy became entitled to purchase their electricity from any of a number of "retail electric providers" which have been certified by the Texas Utility Commission. Beginning January 1, 2002, Reliant Resources' unregulated retail electric operations began to provide retail electric service to all of the approximately 1.7 million customers of Reliant Energy who did not take action to select another retail electric provider. Also since January 1, 2002, electric power generators have ceased to be subject to traditional cost-based regulation in Texas and now sell their generation capacity to wholesale purchasers at prices determined by the market. Reliant Energy's former electric transmission and distribution business, which is now conducted by CenterPoint Energy Houston Electric, LLC (CenterPoint 1 Houston), continues to be subject to cost-of-service rate regulation and is responsible for the delivery of electricity sold to retail customers through retail electric providers. The following unaudited pro forma condensed consolidated financial statements have been prepared to reflect the effect of the restructuring as described above as it relates to CenterPoint Houston. The following unaudited pro forma condensed consolidated financial statements of CenterPoint Houston for each of the three years in the period ended December 31, 2001 and the six months ended June 30, 2002, have been prepared based upon Reliant Energy's historical consolidated financial statements. The unaudited pro forma condensed consolidated financial statements present the former subsidiaries of Reliant Energy that were distributed to CenterPoint Energy in the restructuring and unallocated corporate costs as discontinued operations, in accordance with Statement of Financial Accounting Standards No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets" (SFAS No. 144). Accordingly, the following unaudited pro forma condensed consolidated financial statements of CenterPoint Houston reflect these operations as discontinued operations for each of the three years in the period ended December 31, 2001 and as of and for the six months ended June 30, 2002. Additionally, the conveyance of Reliant Energy's Texas generation assets to Texas Genco Holdings, Inc. (Texas Genco), a newly established subsidiary of Reliant Energy (subsequently acquired in the restructuring by CenterPoint Energy), has been reflected as discontinued operations in accordance with SFAS No. 144 for each of the three years in the period ended December 31, 2001 and as of and for the six months ended June 30, 2002. The unaudited pro forma condensed consolidated financial statements do not purport to present the Company's actual results of operations as if the transactions described above had occurred at the beginning of each period, as applicable, nor are they indicative of the Company's financial position or results of operations that may be achieved in the future. 2 UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET JUNE 30, 2002
CENTERPOINT RELIANT ENERGY ENERGY, HOUSTON INCORPORATED ELECTRIC LLC HISTORICAL DISCONTINUED PRO FORMA BALANCE OPERATIONS BALANCE ------------ ------------ ------------ (IN MILLIONS) Cash and cash equivalents .................................. $ 721 $ 703 $ 18 Restricted cash ............................................ 376 376 -- Investment in AOL Time Warner common stock ................. 379 379 -- Accounts and notes receivable, net ......................... 3,087 2,064 1,023 Inventories ................................................ 657 582 75 Trading and marketing assets ............................... 1,368 1,368 -- Non-trading derivative assets .............................. 478 478 -- Other current assets ...................................... 432 428 4 ------------ ------------ ------------ Total current assets ..................................... 7,498 6,378 1,120 ------------ ------------ ------------ Property, Plant and Equipment, net ......................... 20,201 16,378 3,823 ------------ ------------ ------------ Goodwill, net .............................................. 4,124 4,124 -- Other intangibles, net ..................................... 469 430 39 Regulatory assets .......................................... 3,372 28 3,344 Trading and marketing assets ............................... 656 656 -- Non-trading derivative assets .............................. 350 350 -- Equity investments in unconsolidated subsidiaries .......... 290 290 -- Stranded costs indemnification receivable .................. 227 227 -- Other assets ............................................... 1,017 932 85 ------------ ------------ ------------ Total other assets ....................................... 10,505 7,037 3,468 ------------ ------------ ------------ Total Assets ......................................... $ 38,204 $ 29,793 $ 8,411 ============ ============ ============ Short-term borrowings and current portion of long-term debt ..................................................... $ 10,962 $ 10,243 $ 719 Indexed debt securities derivative ......................... 308 308 -- Accounts payable ........................................... 2,032 1,870 162 Taxes and interest accrued ................................. 398 245 153 Trading and marketing liabilities .......................... 1,207 1,207 -- Non-trading derivative liabilities ......................... 463 463 -- Regulatory liabilities ..................................... 236 -- 236 Other current liabilities .................................. 1,037 973 64 ------------ ------------ ------------ Total current liabilities ................................ 16,643 15,309 1,334 ------------ ------------ ------------ Accumulated deferred income taxes .......................... 2,650 1,504 1,146 Trading and marketing liabilities .......................... 592 592 -- Non-trading derivative liabilities ......................... 396 396 -- Regulatory liabilities ..................................... 866 73 793 Non-derivative stranded costs liability .................... 227 227 -- Other liabilities .......................................... 1,899 1,773 126 ------------ ------------ ------------ Total other liabilities .................................. 6,630 4,565 2,065 ------------ ------------ ------------ Long-term Debt ............................................. 5,843 3,086 2,757 ------------ ------------ ------------ Minority Interest in Consolidated Subsidiaries ............. 1,112 1,112 -- ------------ ------------ ------------ Company Obligated Mandatorily Redeemable Preferred Securities of Subsidiary Trusts Holding Solely Junior Subordinated Debentures of the Company ................... 706 706 -- ------------ ------------ ------------ Stockholders' Equity ....................................... 7,270 5,015 2,255 ------------ ------------ ------------ Total Liabilities and Stockholders' Equity ............... $ 38,204 $ 29,793 $ 8,411 ============ ============ ============
See Notes to Unaudited Pro Forma Condensed Consolidated Financial Statements 3 UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME FOR THE SIX MONTHS ENDED JUNE 30, 2002
CENTERPOINT RELIANT ENERGY, ENERGY HOUSTON INCORPORATED ELECTRIC LLC HISTORICAL DISCONTINUED PRO FORMA BALANCE OPERATIONS BALANCE --------------- --------------- --------------- (IN MILLIONS) Revenues ......................................... $ 18,434 $ 17,313 $ 1,121 Expenses: Fuel and cost of gas sold ...................... 8,448 8,439 9 Purchased power ................................ 6,694 6,618 76 Operation and maintenance ...................... 1,387 1,120 267 Taxes other than income taxes .................. 290 178 112 Depreciation and amortization .................. 476 347 129 Other .......................................... 1 1 -- --------------- --------------- --------------- Total ........................................ 17,296 16,703 593 --------------- --------------- --------------- Operating Income ................................. 1,138 610 528 --------------- --------------- --------------- Other (Expense) Income: Unrealized loss on AOL Time Warner common stock ........................................ (448) (448) -- Unrealized gain on indexed debt securities ..... 422 422 -- Income from equity investments in unconsolidated subsidiaries .................. 9 9 -- Interest expense ............................... (359) (249) (110) Distribution on trust preferred securities ..... (28) (28) -- Minority interest .............................. (47) (47) -- Other, net ..................................... 36 28 8 --------------- --------------- --------------- Total ........................................ (415) (313) (102) --------------- --------------- --------------- Income from Continuing Operations before Income Taxes ................................... 723 297 426 Income tax expense ............................. 262 117 145 --------------- --------------- --------------- Income from Continuing Operations ................ $ 461 $ 180 $ 281 =============== =============== ===============
See Notes to Unaudited Pro Forma Condensed Consolidated Financial Statements 4 UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME FOR THE YEAR ENDED DECEMBER 31, 2001
CENTERPOINT RELIANT CENTERPOINT ENERGY ENERGY, ENERGY HOUSTON INCORPORATED HOUSTON ELECTRIC LLC HISTORICAL DISCONTINUED ELECTRIC LLC OTHER PRO FORMA BALANCE(a) OPERATIONS CARVE-OUT ADJUSTMENTS(b) BALANCE ------------ ------------ ------------ -------------- ------------ (IN MILLIONS) Revenues ................................. $ 40,902 $ 38,808 $ 2,094 $ -- $ 2,094 Expenses: Fuel and cost of gas sold .............. 19,562 19,562 -- -- -- Purchased power ........................ 15,127 15,110 17 -- 17 Operation and maintenance .............. 2,680 2,040 640 -- 640 Taxes other than income taxes .......... 545 233 312 -- 312 Depreciation and amortization .......... 918 619 299 -- 299 Impairment on Latin America assets ..... 75 75 -- -- -- ------------ ------------ ------------ ------------ ------------ Total ................................ 38,907 37,639 1,268 -- 1,268 ------------ ------------ ------------ ------------ ------------ Operating Income ......................... 1,995 1,169 826 -- 826 ------------ ------------ ------------ ------------ ------------ Other (Expense) Income: Unrealized loss on AOL Time Warner common stock ......................... (70) (70) -- -- -- Unrealized gain on indexed debt securities ........................... 58 58 -- -- -- Income from equity investments in unconsolidated subsidiaries ....... 57 57 -- -- -- Interest expense ....................... (602) (453) (149) (19) (168) Distribution on trust preferred securities ........................... (56) (38) (18) -- (18) Minority interest ...................... (81) (81) -- -- -- Other, net ............................. 118 64 54 -- 54 ------------ ------------ ------------ ------------ ------------ Total ................................ (576) (463) (113) (19) (132) ------------ ------------ ------------ ------------ ------------ Income from Continuing Operations before Income Taxes .................. 1,419 706 713 (19) 694 Income tax expense ..................... 500 275 225 (7) 218 ------------ ------------ ------------ ------------ ------------ Income from Continuing Operations ........ $ 919 $ 431 $ 488 $ (12) $ 476 ============ ============ ============ ============ ============
See Notes to Unaudited Pro Forma Condensed Consolidated Financial Statements 5 UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 2000
CENTERPOINT RELIANT ENERGY ENERGY, HOUSTON INCORPORATED ELECTRIC LLC HISTORICAL DISCONTINUED PRO FORMA BALANCE(a) OPERATIONS BALANCE ------------ ------------ ------------ (IN MILLIONS) Revenues .................................... $ 28,327 $ 26,166 $ 2,161 Expenses: Fuel and cost of gas sold ................. 15,093 15,093 -- Purchased power ........................... 7,580 7,565 15 Operation and maintenance ................. 2,389 1,818 571 Taxes other than income taxes ............. 501 183 318 Depreciation and amortization ............. 918 561 357 Loss on disposal/impairment of Latin America assets .......................... 218 218 -- ------------ ------------ ------------ Total ................................... 26,699 25,438 1,261 ------------ ------------ ------------ Operating Income ............................ 1,628 728 900 ------------ ------------ ------------ Other (Expense) Income: Unrealized loss on AOL Time Warner common stock ............................ (205) (205) -- Unrealized gain on indexed debt securities .............................. 102 102 -- Income from equity investments in unconsolidated subsidiaries .......... 43 43 -- Interest expense .......................... (725) (583) (142) Distribution on trust preferred securities .............................. (54) (25) (29) Minority interest ......................... 1 1 -- Other, net ................................ (32) (51) 19 ------------ ------------ ------------ Total ................................... (870) (718) (152) ------------ ------------ ------------ Income from Continuing Operations before Income Taxes ..................... 758 (34) 792 Income tax expense (benefit) .............. 318 84 234 ------------ ------------ ------------ Income from Continuing Operations ........... $ 440 $ (118) $ 558 ============ ============ ============
See Notes to Unaudited Pro Forma Condensed Consolidated Financial Statements 6 UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME FOR THE YEAR ENDED DECEMBER 31, 1999
CENTERPOINT RELIANT ENERGY ENERGY, HOUSTON INCORPORATED ELECTRIC LLC HISTORICAL DISCONTINUED PRO FORMA BALANCE(a) OPERATIONS BALANCE ------------ ------------ ------------ (IN MILLIONS) Revenues ............................... $ 13,874 $ 12,207 $ 1,667 Expenses: Fuel and cost of gas sold ............ 6,379 6,379 -- Purchased power ...................... 3,095 3,090 5 Operation and maintenance ............ 1,804 1,265 539 Taxes other than income taxes ........ 444 179 265 Depreciation and amortization ........ 911 637 274 ------------ ------------ ------------ Total .............................. 12,633 11,550 1,083 ------------ ------------ ------------ Operating Income ....................... 1,241 657 584 ------------ ------------ ------------ Other (Expense) Income: Unrealized gain on AOL Time Warner common stock ....................... 2,452 2,452 -- Unrealized loss on indexed debt securities ......................... (630) (630) -- Loss from equity investments in unconsolidated subsidiaries ........ (1) (1) -- Interest expense ..................... (513) (416) (97) Distribution on trust preferred securities ......................... (51) (23) (28) Minority interest .................... 1 1 -- Other, net ........................... 65 51 14 ------------ ------------ ------------ Total .............................. 1,323 1,434 (111) ------------ ------------ ------------ Income from Continuing Operations before Income Taxes ................ 2,564 2,091 473 Income tax expense ................... 899 749 150 ------------ ------------ ------------ Income from Continuing Operations ...... $ 1,665 $ 1,342 $ 323 ============ ============ ============
See Notes to Unaudited Pro Forma Condensed Consolidated Financial Statements 7 NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (a) As a result of the adoption of Statement of Financial Accounting Standards No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets," Latin America operations have been presented on a gross basis in the consolidated financial statements. Accordingly, the results of operations have been restated for each of the three years in the period ended December 31, 2001 to conform to this presentation. (b) In preparing carve-out financial statements for CenterPoint Houston, interest expense incurred prior to January 1, 2002 that had been historically recorded by Reliant Energy's electric utility was allocated to CenterPoint Houston based on the net assets of Reliant Energy's electric transmission and distribution utility. On January 1, 2002, specific debt obligations were allocated to Reliant Energy's transmission and distribution utility. Carve-out interest expense for 2001 has been adjusted to reflect this allocation of debt as if it had occurred January 1, 2001. * * * 8