CenterPoint Energy, Inc.
The decrease in income from continuing operations for the third quarter of 2002 reflects the fundamental change in the company's electric operations as a result of the Texas electric restructuring law. The other segments of the company reported operating improvements, including the natural gas distribution and pipeline and gathering operations. Results for the third quarter of 2002 also reflected higher interest expense than the third quarter of 2001. On January 1, 2002, the company discontinued amortizing goodwill in accordance with SFAS No. 142, "Goodwill and Other Intangible Assets". During the third quarter of 2001, $12 million of goodwill amortization expense was recognized.
For the nine months ended September 30, 2002, CenterPoint Energy reported income from continuing operations before the cumulative effect of accounting change of $394 million, or $1.32 per diluted share. For the same period of 2001, income from continuing operations before the cumulative effect of accounting change was $427 million, or $1.46 per diluted share. The year- over-year comparison for this period was impacted by the same factors discussed above. The amount of goodwill amortization expense that was recognized for the first nine months of 2001 was $37 million.
"We are pleased to report another excellent quarter as our employees continued to focus on effectively operating our portfolio of regulated businesses," said David McClanahan, president and chief executive officer. "We will continue to build upon our strong business fundamentals and execute our strategy of building America's leading energy delivery company."
Summary of Two New Reportable Business Segments
With the opening of the Texas market to retail electric competition in January 2002, generation and retail electric sales were deregulated. Retail electric sales are no longer included in the company's operations. Pursuant to these changes, CenterPoint Energy started reporting two new business segments, electric generation and electric transmission and distribution. The previously regulated generation operations in Texas are reported in the electric generation segment. The electric transmission and distribution segment includes results from regulated transmission and distribution operations as well as the impact of generation-related stranded costs recoverable by the regulated utility.
As a result of the implementation of deregulation, there are no meaningful comparisons for these segments against prior periods.
EBIT BY SEGMENT DETAILED Electric Transmission and Distribution
The electric transmission and distribution segment reported earnings before interest and taxes (EBIT) of $407 million for the third quarter of 2002, reflecting seasonal demand. The $407 million of EBIT was comprised of $167 million for the regulated electric transmission and distribution business and non-cash EBIT of $240 million associated with generation-related regulatory assets, or Excess Cost Over Market (ECOM), as described below.
The electric transmission and distribution business recovers the cost of its service through an energy delivery charge. This business benefited from growth in residential demand in the third quarter of 2002 compared to the same period of last year, partially offset by an anticipated decline in deliveries to industrial customers resulting from a move to self-generation. Metered customers, totaling 1.77 million at the end of the third quarter of 2002, continue to grow at a healthy annualized rate of 2 percent.
Under the Texas restructuring law, a regulated utility may recover as part of its stranded investment any difference between market prices received by its affiliated power generation company and the market prices used in the Texas Public Utility Commission's ECOM model. This difference, which is recorded as a regulatory asset, produced $240 million of non-cash EBIT in the third quarter of 2002.
Electric Generation
The electric generation segment is comprised of over 14,000 MW of electric generation located entirely in the state of Texas. With the restructuring of the company into CenterPoint Energy, Inc. on August 31, 2002, these assets were transferred to a separate subsidiary called Texas Genco. This segment reported EBIT of $7 million for the third quarter of 2002. The company expects to distribute to its shareholders approximately 19 percent of the common stock of Texas Genco in a taxable distribution in late 2002 or early 2003.
Natural Gas Distribution
The natural gas distribution segment reported a loss before interest and taxes of less than $1 million for the third quarter of 2002 compared to a loss before interest and taxes of $20 million for the same period of 2001. The amount of goodwill amortization expense recognized in the third quarter of 2001 was approximately $8 million for this segment. A significant reduction in bad debt expense in the third quarter of 2002 compared to the high levels of bad debt experienced in the same period last year contributed to the improvement in operating results.
Pipelines and Gathering
EBIT for the pipelines and gathering segment continued to produce consistent and stable margins and increased to $43 million for the third quarter of 2002 compared to $34 million for the same period of 2001. The amount of goodwill amortization expense recognized in the third quarter of 2001 was approximately $4 million.
Other Operations
The company's other continuing operations reported a loss before interest and taxes for the third quarter of 2002 of $8 million compared to a loss of $26 million for the same period of 2001. This change is primarily attributable to a $5 million net gain in the third quarter of 2002 compared to a $9 million net loss in the same period of 2001 related to the company's indexed debt securities and investment in AOL Time Warner.
Accounting Treatment of the Spin-off of Reliant Resources
On September 30, 2002, the company distributed its investment in Reliant Resources to CenterPoint Energy shareholders. In accounting for this distribution, the company wrote down its $5 billion investment in RRI to its then fair value of $847 million. This write-down will be reported as a non- cash charge in discontinued operations. The company also reduced additional paid-in-capital for the $847 million fair value to record the distribution as a return of capital. RRI's historical results will be reported as discontinued operations.
OUTLOOK FOR 2002 AND 2003
CenterPoint Energy has previously provided earnings guidance within a range of $1.17 to $1.22 per diluted share for 2002. The company is increasing its 2002 earnings guidance to a range of $1.30 to $1.35 per diluted share. This increase takes into consideration the company's strong performance to date, the expectation of low seasonal demand for electricity and somewhat stronger seasonal demand for natural gas during the fourth quarter, higher borrowing costs, inherent uncertainties regarding additional financings expected during the remainder of the year and other variables associated with its businesses.
For 2003, the company expects to achieve continued strong operating performance. However, higher borrowing costs and pension-related increases are expected to negatively impact the company's results. Although the company is not prepared to provide more specific guidance, CenterPoint Energy currently expects that its 2003 diluted earnings per share will be below our previous 2002 guidance.
WEBCAST OF EARNINGS CONFERENCE CALL
CenterPoint Energy has scheduled its third quarter 2002 earnings conference call for Thursday, October 17, 2002, at 1:30 p.m. Central time. Interested parties may listen to a live audio broadcast of the conference call at www.centerpointenergy.com/investors . A replay of the call can be accessed approximately two hours after the completion of the call.
CenterPoint Energy, Inc., headquartered in Houston, Texas, is a domestic energy delivery company that includes electricity transmission and distribution, natural gas distribution and sales, interstate pipeline and gathering operations, and more than 14,000 megawatts of power generation in Texas. The company serves nearly five million customers primarily in Arkansas, Louisiana, Minnesota, Mississippi, Missouri, Oklahoma, and Texas. Assets total nearly $19 billion. CenterPoint Energy became the new holding company for the regulated operations of the former Reliant Energy, Incorporated in August 2002.
With more than 11,000 employees, CenterPoint Energy and its predecessor companies have been in business for more than 130 years. For more information, visit our Web site at www.centerpointenergy.com .
This news release includes forward-looking statements. Actual events and results may differ materially from those projected. Factors that could affect actual results include the timing and impact of future regulatory and legislative decisions, effects of competition, weather variations, changes in CenterPoint Energy's business plans, financial market conditions, ability to raise needed capital and other factors discussed in the company's filings with the Securities and Exchange Commission.
CenterPoint Energy, Inc. and Subsidiaries
Statements of Consolidated Income
(Thousands of Dollars)
(Unaudited)
Quarter Ended Nine Months Ended
--------------------- ---------------------
September 30, September 30,
2002 2001 2002 2001
--------- ---------- --------- ----------
Revenues:
Electric Operations $--- $1,608,014 $--- $4,520,553
Electric Transmission &
Distribution 660,342 --- 1,756,744 ---
Electric Generation 526,388 --- 1,265,683 ---
Natural Gas Distribution 680,917 607,905 2,657,512 3,819,225
Pipelines and Gathering 87,448 91,605 281,799 317,685
Other Operations 6,940 23,198 15,767 76,033
Eliminations (39,163) (30,654) (171,939) (85,180)
Total 1,922,872 2,300,068 5,805,566 8,648,316
Expenses:
Fuel and cost of gas sold 813,197 832,798 2,718,872 4,288,686
Purchased power 34,955 229,109 87,906 1,005,426
Operation and maintenance 388,375 444,674 1,155,011 1,311,201
Taxes other than income
taxes 94,734 142,424 312,872 415,636
Depreciation and
amortization 160,473 216,277 460,675 531,792
Total 1,491,734 1,865,282 4,735,336 7,552,741
Operating Income 431,138 434,786 1,070,230 1,095,575
Other (Expense) Income:
Loss on AOL Time Warner
investment (82,189) (512,447) (530,000) (44,464)
Gain on indexed debt
securities 86,622 503,077 508,578 38,845
Interest (170,234) (141,266) (427,870) (422,374)
Distribution on trust
preferred securities (13,898) (13,900) (41,647) (41,699)
Other - net 3,220 11,382 22,305 44,328
Total (176,479) (153,154) (468,634) (425,364)
Income from Continuing
Operations Before Income
Taxes and Cumulative
Effect of Accounting Change 254,659 281,632 601,596 670,211
Income Tax Expense 93,208 98,562 207,345 242,714
Income from Continuing
Operations Before
Cumulative Effect of
Accounting Change $161,451 $183,070 $394,251 $427,497
Reference is made to the Notes to the Consolidated Financial Statements
contained in the Amended Annual Report on Form 10-K/A of Reliant Energy,
Incorporated.
CenterPoint Energy, Inc. and Subsidiaries
Selected Data From Statements of Consolidated Income
(Thousands of Dollars, Except Per Share Amounts)
(Unaudited)
Quarter Ended Nine Months Ended
-------------------- ---------------------
September 30, September 30,
2002 2001 2002 2001
-------- --------- --------- ----------
Basic Earnings Per Common
Share - Continuing Operations
Income from continuing
operations before
cumulative effect of
accounting change $0.54 $0.63 $1.32 $1.48
Diluted Earnings Per Common
Share - Continuing Operations
Income from continuing
operations before
cumulative effect of
accounting change $0.54 $0.63 $1.32 $1.46
Dividends per Common Share $0.160 $0.375 $0.910 $1.125
Weighted Average Common
Shares Outstanding (000):
- Basic 298,794 290,318 297,580 289,143
- Diluted 299,629 292,212 298,608 291,832
EBIT by Segment
Electric Operations $--- $454,722 $--- $1,007,769
Electric Transmission &
Distribution 406,727 --- 942,679 ---
Electric Generation 7,146 --- (70,828) ---
Natural Gas Distribution (506) (20,291) 123,722 76,139
Pipelines and Gathering 43,164 34,507 122,229 106,957
Other Operations (8,303) (26,307) (30,304) (45,088)
Eliminations/other (9,437) (5,833) (16,385) (11,493)
Total $438,791 $436,798 $1,071,113 $1,134,284
Reference is made to the Notes to the Consolidated Financial Statements
contained in the Amended Annual Report on Form 10-K/A of Reliant Energy,
Incorporated.
CenterPoint Energy, Inc. and Subsidiaries
Results of Operations by Segment
(Millions of Dollars)
(Unaudited)
Electric
Transmission & Electric
Distribution Generation Eliminations
-----------------------------------------
Quarter Ended September 30,
-----------------------------------------
2002
-----------------------------------------
Results of Operations:
Operating Revenues:
Operating revenues $420 $526 $---
ECOM true-up 240 --- ---
Total Revenues 660 526 ---
Operating Expenses:
Fuel and purchased power --- 372 ---
Operation and maintenance 130 98 ---
Depreciation and amortization 75 39 ---
Taxes other than income 56 10 ---
Total 261 519 ---
Operating Income 399 7 ---
Non-operating Income 8 --- ---
Earnings Before Interest and Taxes $407 $7 $---
Electric
Total Operations
--------- -------------
Quarter Ended September 30,
--------------------------- % Diff
2002 2001 Fav/(Unfav)
---------- --------- -----------
Results of Operations:
Operating Revenues:
Operating revenues $946 $1,608 (41%)
ECOM true-up 240 --- ---
Total Revenues 1,186 1,608 (26%)
Operating Expenses:
Fuel and purchased power 372 634 41%
Operation and maintenance 228 255 11%
Depreciation and amortization 114 161 29%
Taxes other than income 66 115 43%
Total 780 1,165 33%
Operating Income 406 443 (8%)
Non-operating Income 8 12 (33%)
Earnings Before Interest and Taxes $414 $455 (9%)
Electric
Transmission & Electric
Distribution Generation Eliminations
-----------------------------------------
Nine Months Ended September 30,
-----------------------------------------
2002
-----------------------------------------
Results of Operations:
Operating Revenues:
Operating revenues $1,206 $1,266 $(56)
ECOM true-up 551 --- ---
Total Revenues 1,757 1,266 (56)
Operating Expenses:
Fuel and purchased power 56 901 (56)
Operation and maintenance 401 272 ---
Depreciation and amortization 204 118 ---
Taxes other than income 168 49 ---
Total 829 1,340 (56)
Operating Income (Loss) 928 (74) ---
Non-operating Income 15 3 ---
Earnings (Loss) Before
Interest and Taxes $943 $(71) $---
Electric
Total Operations
--------- -------------
Nine Months Ended Sept. 30,
--------------------------- % Diff
2002 2001 Fav/(Unfav)
---------- --------- -----------
Results of Operations:
Operating Revenues:
Operating revenues $2,416 $4,521 (47%)
ECOM true-up 551 --- ---
Total Revenues 2,967 4,521 (34%)
Operating Expenses:
Fuel and purchased power 901 2,132 58%
Operation and maintenance 673 736 9%
Depreciation and amortization 322 369 13%
Taxes other than income 217 313 31%
Total 2,113 3,550 40%
Operating Income (Loss) 854 971 (12%)
Non-operating Income 18 37 (51%)
Earnings (Loss) Before
Interest and Taxes $872 $1,008 (13%)
Electric Operations Quarter Ended September 30,
Operating Data: ---------------------------
Actual MWH Delivered 2002 2001
----------- ------------
Residential 7,966,132 7,709,623 3%
Commercial 5,147,531 5,232,239 (2%)
Industrial 7,766,084 7,908,002 (2%)
Other 36,856 99,475 (63%)
Total 20,916,603 20,949,339 ---
Weather (average for
service area):
Percentage of normal:
Cooling degree days 98% 96% 2%
Heating degree days --- --- ---
Average number of metered
customers:
Residential 1,549,909 1,523,521 2%
Commercial 214,858 208,535 3%
Industrial 1,822 1,773 3%
Other --- 22 (100%)
Total 1,766,589 1,733,851 2%
Physical Electric Generation
Power Sales (MWH) 15,475,590 N/A
Electric Operations Nine Months Ended September 30,
Operating Data: -------------------------------
Actual MWH Delivered 2002 2001
------------- ---------------
Residential 18,735,392 17,445,248 7%
Commercial 13,911,310 13,740,945 1%
Industrial 20,535,812 23,853,399 (14%)
Other 116,227 776,851 (85%)
Total 53,298,741 55,816,443 (5%)
Weather (average for service
area):
Percentage of normal:
Cooling degree days 102% 99% 3%
Heating degree days 99% 106% (7%)
Average number of metered
customers:
Residential 1,540,302 1,514,680 2%
Commercial 211,413 206,598 2%
Industrial 1,832 1,760 4%
Other 2 26 (92%)
Total 1,753,549 1,723,064 2%
Physical Electric Generation
Power Sales (MWH) 41,922,693 N/A
Reference is made to the Notes to the Consolidated Financial Statements
contained in the Amended Annual Report on Form 10-K/A of Reliant Energy,
Incorporated.
CenterPoint Energy, Inc. and Subsidiaries
Results of Operations by Segment
(Millions of Dollars)
(Unaudited)
Natural Gas Distribution
----------------------------------------
Quarter Ended September 30,
--------------------------- % Diff
2002 2001 Fav/(Unfav)
----- ----- -----------
Results of Operations:
Operating Revenues $681 $608 12%
Operating Expenses:
Natural gas 509 437 (16%)
Operation and maintenance 125 139 10%
Depreciation and amortization 32 37 14%
Taxes other than income 19 20 5%
Total 685 633 (8%)
Operating Income (Loss) (4) (25) 84%
Non-operating Income 4 5 (20%)
Earnings (Loss) Before Interest
and Taxes $--- $(20) ---
Natural Gas Distribution Operating
Data:
Throughput data in BCF
Residential and Commercial 35 36 (3%)
Industrial Sales 9 13 (31%)
Transportation 14 10 40%
Retail 130 100 30%
Total Throughput 188 159 18%
Weather (average for service area)
Percentage of normal:
Heating degree days 68% 99% (31%)
Average number of customers:
Residential 2,695,432 2,651,984 2%
Commercial and Industrial
Sales 244,631 241,442 1%
Total 2,940,063 2,893,426 2%
Natural Gas Distribution
--------------------------------------------
Nine Months Ended September 30,
------------------------------- % Diff
2002 2001 Fav/(Unfav)
----- ----- -----------
Results of Operations:
Operating Revenues $2,658 $3,819 (30%)
Operating Expenses:
Natural gas 1,997 3,139 36%
Operation and maintenance 381 420 9%
Depreciation and amortization 94 110 15%
Taxes other than income 72 88 18%
Total 2,544 3,757 32%
Operating Income (Loss) 114 62 84%
Non-operating Income 10 14 (29%)
Earnings (Loss) Before Interest and
Taxes $124 $76 63%
Natural Gas Distribution Operating
Data:
Throughput data in BCF
Residential and Commercial 216 225 (4%)
Industrial Sales 33 36 (8%)
Transportation 42 36 17%
Retail 346 339 2%
Total Throughput 637 636 ---
Weather (average for service area)
Percentage of normal:
Heating degree days 99% 103% (4%)
Average number of customers:
Residential 2,713,793 2,679,646 1%
Commercial and Industrial
Sales 249,013 245,446 1%
Total 2,962,806 2,925,092 1%
Pipelines and Gathering
------------------------------------------------
Quarter Ended Nine Months Ended
September 30, % Diff September 30, % Diff
------------- Fav/ ----------------- Fav/
2002 2001 (Unfav) 2002 2001 (Unfav)
----- ----- ------- ----- ----- -------
Results of Operations:
Operating Revenues $88 $92 (4%) $282 $318 (11%)
Operating Expenses:
Natural gas 3 7 57% 20 65 69%
Operation and
maintenance 27 31 13% 99 90 (10%)
Depreciation and
amortization 11 15 27% 31 44 30%
Taxes other than
income 4 5 20% 13 13 ---
Total 45 58 22% 163 212 23%
Operating Income 43 34 26% 119 106 12%
Non-operating Income --- --- --- 3 1 200%
Earnings Before
Interest and Taxes $43 $34 26% $122 $107 14%
Pipelines and Gathering
Operating Data:
Throughput data in BCF
Natural Gas Sales 1 2 (50%) 12 11 9%
Transportation 192 174 10% 633 613 3%
Gathering 72 76 (5%) 213 223 (4%)
Elimination (1) (1) --- (2) (2) ---
Total Throughput 264 251 5% 856 845 1%
Reference is made to the Notes to the Consolidated Financial Statements
contained in the Amended Annual Report on Form 10-K/A of Reliant Energy,
Incorporated.
CenterPoint Energy, Inc. and Subsidiaries
Results of Operations by Segment
(Millions of Dollars)
(Unaudited)
Other Operations
-------------------------------------------------
Quarter Ended Nine Months Ended
September 30, % Diff September 30, % Diff
--------------- Fav/ ----------------- Fav/
2002 2001 (Unfav) 2002 2001 (Unfav)
----- ----- ------- ----- ----- -------
Results of Operations:
Operating Revenues $7 $23 (70%) $16 $76 (79%)
Operating Expenses 21 40 48% 32 119 73%
Operating Loss (14) (17) 18% (16) (43) 63%
Non-operating Income
(Expense) 6 (9) 167% (14) (2) (600%)
Loss Before Interest
and Taxes $(8) $(26) 69% $(30) $(45) 33%
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