MIRANT CORP - 10-Q Quarterly Report

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

(Mark One)
ý	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended June 30, 2004
or
o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Transition Period from to

Mirant Corporation
(Exact name of registrant as specified in its charter)

Delaware
(State or other jurisdiction of incorporation or organization)

001-16107
(Commission File Number)

58-2056305
(I.R.S. Employer
Identification No.)

1155 Perimeter Center West, Suite 100, Atlanta, Georgia (Address of Principal Executive Offices)		30338 (Zip Code)
(678) 579-5000 (Registrant's Telephone Number, Including Area Code)		www.mirant.com (Web Page)

Indicate by check mark whether the registrant (1) has 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 registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. ýYes o No

Indicate by check mark whether the registrant is an accelerated filer (as defined by Rule 12b-2 of the Act). ýYes o No

The number of shares outstanding of the Registrant's Common Stock, par value $0.01 per share, at June 30, 2004 was 405,468,084.

TABLE OF CONTENTS

		Page
	Definitions	3
	Cautionary Statement Regarding Forward-Looking Information	3
PART I—FINANCIAL INFORMATION
Item 1.	Interim Financial Statements (unaudited):
	Condensed Consolidated Statements of Operations	5
	Condensed Consolidated Balance Sheets	6
	Condensed Consolidated Statements of Stockholders' Deficit	7
	Condensed Consolidated Statements of Comprehensive Income (Loss)	7
	Condensed Consolidated Statements of Cash Flows	8
	Notes to the Condensed Consolidated Financial Statements	9
Item 2.	Management's Discussion and Analysis of Results of Operations and Financial Condition	44
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	60
Item 4.	Controls and Procedures	63
PART II—OTHER INFORMATION
Item 1.	Legal Proceedings	64
Item 6.	Exhibits and Reports on Form 8-K	67

DEFINITIONS

TERM		MEANING
Chapter 11		Chapter 11 of the Bankruptcy Code
Bankruptcy Code		United States Bankruptcy Code
IRS		Internal Revenue Service
MMBtu		Million British thermal unit
MW		Megawatts
MWh		Megawatt-hour
Mirant Americas Generation		Mirant Americas Generation, LLC
Mirant California		Mirant California, LLC
Mirant Mid-Atlantic		Mirant Mid-Atlantic, LLC
Mirant New England		Mirant New England, Inc.
Mirant New York		Mirant New York, Inc. and Mirant New York Investments, Inc., collectively
Mirant Potomac River		Mirant Potomac River, LLC
West Georgia		West Georgia Generating Company, LLC

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION

The information presented in this Form 10-Q includes forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934 in addition to historical information. These statements involve known and unknown risks and relate to future events, our future financial performance or our projected business results. In some cases, you can identify forward-looking statements by terminology such as "may," "will," "should," "expects," "plans," "anticipates," "believes," "estimates," "predicts," "targets," "potential" or "continue" or the negative of these terms or other comparable terminology.

Forward-looking statements are only predictions. Actual events or results may differ materially from any forward-looking statement as a result of various factors, which include:

General Factors

•: legislative and regulatory initiatives regarding deregulation, regulation or restructuring of the electric utility industry; changes in state, federal and other regulations (including rate and other regulations); changes in, or application of, environmental and other laws and regulations to which we and our subsidiaries and affiliates are subject;
•: the failure of our assets to perform as expected;
•: our pursuit of potential business strategies, including the disposition or utilization of assets, suspension of construction or internal restructuring;
•: changes in market conditions, including developments in energy and commodity supply, demand, volume and pricing or the extent and timing of the entry of additional competition in the markets of our subsidiaries and affiliates;
•: weather and other natural phenomena;
•: war, terrorist activities or the occurrence of a catastrophic loss;
•: deterioration in the financial condition of our counterparties and the resulting failure to pay amounts owed to us or to perform obligations or services due to us; and

•: the disposition of the pending litigation described in this Form 10-Q as well as the Company's Form 10-K for the year ended December 31, 2003 and Form 10-Q for the quarter ended March 31, 2004.

Bankruptcy-Related Factors

•: the actions and decisions of creditors of Mirant and of other third parties with interests in the voluntary petitions for reorganization filed on July 14, 2003, July 15, 2003, August 18, 2003, October 3, 2003 and November 18, 2003, by Mirant Corporation and substantially all of its wholly-owned and certain non-wholly-owned U.S. subsidiaries under Chapter 11 of the Bankruptcy Code;
•: the effects of the Chapter 11 proceedings on our liquidity and results of operations;
•: the instructions, orders and decisions of the bankruptcy court and other effects of legal and administrative proceedings, settlements, investigations and claims;
•: the ability of Mirant to operate pursuant to the terms of the debtor-in-possession financing agreement;
•: the ability of Mirant to successfully reject unfavorable contracts;
•: the ability of Mirant to obtain and maintain normal terms with vendors and service providers and to maintain contracts that are critical to our operations; and
•: the duration of Chapter 11 proceedings.

The ultimate results of the forward looking statements and the terms of any reorganization plan ultimately confirmed can affect the value of our various pre-petition liabilities, common stock and/or other securities. No assurance can be given as to what values, if any will be ascribed in the bankruptcy proceedings to each of these constituencies. A plan of reorganization could result in holders of the liabilities and/or securities of the Company, Mirant Americas Generation and Mirant Mid-Atlantic receiving no value for their interests. Because of such possibilities, the value of these liabilities and/or securities is highly speculative. Accordingly, we urge that caution be exercised with respect to existing and future investments in any of these liabilities and/or securities.

The Company expressly disclaims any duty to update any information.

Factors that Could Affect Future Performance

In addition to the discussion of certain risks in Management's Discussion and Analysis of Financial Condition and Results of Operations and the Notes to Mirant's consolidated financial statements, other factors that could affect the Company's future performance (business, financial condition or results of operations and cash flows) are set forth in the Company's 2003 Annual Report on Form 10-K.

MIRANT CORPORATION AND SUBSIDIARIES
(Debtor-in-Possession)
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)

			Three Months Ended June 30,						Six Months Ended June 30,
			2004			2003			2004			2003
			(In millions, except per share data)
Operating Revenues:
	Generation		$	1,126		$	1,128		$	2,158		$	2,451
	Integrated utilities and distribution			136			127			270			256
	Net trading revenue			2			(7	)		20			39

Total operating revenues				1,264			1,248			2,448			2,746
Cost of fuel, electricity and other products				768			816			1,501			1,794

Gross Margin				496			432			947			952

Operating Expenses:
Operations and maintenance				251			338			498			587
Depreciation and amortization				77			89			157			176
Impairment losses and restructuring charges				53			2,076			55			2,088
Loss (gain) on sales of assets, net				1			(25	)		(15	)		(26	)

	Total operating expenses			382			2,478			695			2,825

Operating Income (Loss)				114			(2,046	)		252			(1,873	)

Other (Expense) Income, net:
Interest expense				(33	)		(168	)		(66	)		(311	)
Equity in income of affiliates				7			8			13			15
Interest income				2			8			5			17
Other, net				35			27			32			32

	Total other income (expense), net			11			(125	)		(16	)		(247	)

Income (Loss) From Continuing Operations Before Reorganization items, Income Taxes and Minority Interest				125			(2,171	)		236			(2,120	)
Reorganization items, net				73			—			130			—
Provision for Income Taxes				13			11			32			32
Minority Interest				7			13			12			28

Income (Loss) From Continuing Operations				32			(2,195	)		62			(2,180	)

Loss from Discontinued Operations, net of tax				—			(7	)		—			(22	)

Income (Loss) before Cumulative Effect of Changes in Accounting Principles				32			(2,202	)		62			(2,202	)
Cumulative Effect of Changes in Accounting Principles, net of tax				—			—			—			(28	)

Net Income (Loss)			$	32		$	(2,202	)	$	62		$	(2,230	)

Earnings (Loss) Per Share:
	Basic and Diluted:
		From continuing operations	$	0.08		$	(5.42	)	$	0.15		$	(5.39	)
		From discontinued operations		—			(0.02	)		—			(0.05	)
		From cumulative effect of change in accounting principle		—			—			—			(0.07	)

		Net income (loss)	$	0.08		$	(5.44	)	$	0.15		$	(5.51	)

The accompanying notes are an integral part of these condensed consolidated financial statements.

MIRANT CORPORATION AND SUBSIDIARIES
(Debtor-in-Possession)
CONDENSED CONSOLIDATED BALANCE SHEETS

				At June 30, 2004			At December 31, 2003
				(Unaudited)
				(in millions)
ASSETS
Current Assets:
	Cash and cash equivalents			$	1,274		$	1,589
	Funds on deposit				304			150
	Receivables, net				1,092			1,319
	Price risk management assets				150			104
	Inventories				300			288
	Other				266			339

		Total current assets			3,386			3,789

Property, Plant and Equipment, net					6,567			6,767

Noncurrent Assets:
	Goodwill				587			587
	Other intangible assets, net				275			293
	Investments				245			267
	Price risk management assets				132			135
	Other				463			435

		Total noncurrent assets			1,702			1,717

			Total assets	$	11,655		$	12,273

LIABILITIES AND STOCKHOLDERS' (DEFICIT)
Current Liabilities:
	Short-term debt			$	25		$	28
	Current portion of long-term debt				202			256
	Accounts payable and accrued liabilities				488			698
	Price risk management liabilities				248			151
	Transition power agreements and other obligations				125			353
	Other				257			226

		Total current liabilities			1,345			1,712

Noncurrent Liabilities:
	Long-term debt				1,261			1,282
	Price risk management liabilities				123			96
	Transition power agreements and other obligations				8			54
	Other				690			699

		Total noncurrent liabilities			2,082			2,131

Liabilities Subject to Compromise					8,816			9,084
Minority Interest in Subsidiary Companies					165			169
Commitments and Contingencies
Stockholders' Deficit:
Common stock, $.01 par value, per share Authorized—2,000,000,000 shares Issued—June 30, 2004: 405,568,084 shares —December 31, 2003: 405,568,084 shares Treasury—June 30, 2004: 100,000 shares —December 31, 2003: 100,000 shares					4			4
Additional paid-in capital					4,918			4,918
Accumulated deficit					(5,617	)		(5,679	)
Accumulated other comprehensive loss					(56	)		(64	)
Treasury stock, at cost					(2	)		(2	)

		Total stockholders' deficit			(753	)		(823	)

		Total liabilities and stockholders' deficit		$	11,655		$	12,273

The accompanying notes are an integral part of these condensed consolidated financial statements.

MIRANT CORPORATION AND SUBSIDIARIES
(Debtor-in-Possession)
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' DEFICIT (UNAUDITED)

		Common Stock		Additional Paid-In Capital		Accumulated Deficit			Accumulated Other Comprehensive Loss			Treasury Stock
						(in millions)
Balance, December 31, 2003		$	4	$	4,918	$	(5,679	)	$	(64	)	$	(2	)
	Net income						62
	Other comprehensive income									8

Balance, June 30, 2004		$	4	$	4,918	$	(5,617	)	$	(56	)	$	(2	)

MIRANT CORPORATION AND SUBSIDIARIES
(Debtor-in-Possession)
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (UNAUDITED)

			Six Months Ended June 30,
			2004			2003
			(in millions)
Net income (loss)			$	62		$	(2,230	)
Other comprehensive (loss) income, net of tax
		Net change in fair value of derivative hedging instruments		—			(1	)
		Reclassification of TIERS investment unrealized gains to earnings		(7	)		—
		Reclassification of derivative net gains to earnings		—			9
		Cumulative translation adjustment		10			(20	)
		Unrealized gains on TIERS investments		5			12

	Other comprehensive income, net of tax			8			—

Total Comprehensive Income (Loss)			$	70		$	(2,230	)

The accompanying notes are an integral part of these condensed consolidated financial statements.

MIRANT CORPORATION AND SUBSIDIARIES
(Debtor-in-Possession)
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

				Six Months Ended June 30,
				2004			2003
				(in millions)
Cash Flows from Operating Activities:
Net income (loss)				$	62		$	(2,230	)
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
	Equity in income of affiliates				(14	)		(15	)
	Dividends received from equity investments				12			10
	Non-cash charges for reorganization items				91			—
	Cumulative effect of changes in accounting principles				—			28
	Depreciation and amortization				161			184
	Amortization of obligations under energy delivery and purchase commitments				(236	)		(234	)
	Impairment losses and restructuring charges				48			2,072
	Energy marketing and risk management activities, net				(66	)		46
	Deferred income taxes				5			15
	Gain on sales of assets				(15	)		(4	)
	Minority interest				12			17
	Other, net				4			58
	Changes in operating assets and liabilities, excluding effects from acquisitions:
		Receivables, net			113			(148	)
		Other current assets			(117	)		40
		Other assets			(12	)		(61	)
		Accounts payable and accrued liabilities			(303	)		(144	)
		Taxes accrued			19			(45	)
		Other current liabilities			8			(11	)
		Other liabilities			(23	)		(4	)

			Total adjustments		(313	)		1,804

			Net cash used in operating activities		(251	)		(426	)

Cash Flows from Investing Activities:
Capital expenditures					(60	)		(401	)
Cash paid for acquisitions					(21	)		(61	)
Issuance of notes receivable					—			(27	)
Repayments on notes receivable					1			96
Proceeds from the sales of assets					3			288
Cash paid related to disposition					(12	)		—

			Net cash used in investing activities		(89	)		(105	)

Cash Flows from Financing Activities:
Proceeds from issuance of debt					132			127
Repayment of long-term debt					(101	)		(200	)
Proceeds from issuance of common stock					—			2
Capital contributions from minority interest owners					—			1
Payment of dividends to minority interests					(7	)		(4	)
Issuance of short-term debt, net					(3	)		(34	)
Purchase of TIERS Certificates					—			(51	)
Change in debt service reserve fund					4			5

			Net cash provided by (used in) financing activities		25			(154	)

Effect of Exchange Rate Changes on Cash and Cash Equivalents					—			4