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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 June 30, 2004

 

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 1-16455

 


 

RELIANT ENERGY, INC.

(Exact Name of Registrant as Specified in Its Charter)

 


 

Delaware   76-0655566

(State or Other Jurisdiction of

Incorporation or Organization)

 

(I.R.S. Employer

Identification No.)

 

1000 Main Street

Houston, Texas 77002

(Address of Principal Executive Offices) (Zip Code)

 

(713) 497-3000

(Registrant’s Telephone Number, Including Area Code)

 


 

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.    Yes  x    No  ¨

 

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).    Yes  x    No  ¨.

 

As of August 2, 2004, the last practicable date for determination, Reliant Energy, Inc. had 298,339,179 shares of common stock outstanding, excluding 1,464,821 shares held by the registrant as treasury stock.

 



Table of Contents

RELIANT ENERGY, INC. AND SUBSIDIARIES

QUARTERLY REPORT ON FORM 10-Q

FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2004

 

Table of Contents

 

PART I. FINANCIAL INFORMATION

    

Item 1.

 

Financial Statements

    
   

Consolidated Statements of Operations (unaudited) Three and Six Months Ended June 30, 2004 and 2003

   1
   

Consolidated Balance Sheets (unaudited) June 30, 2004 and December 31, 2003

   2
   

Consolidated Statements of Cash Flows (unaudited) Six Months Ended June 30, 2004 and 2003

   3
   

Notes to Unaudited Consolidated Interim Financial Statements

   4

Item 2.

 

Management’s Discussion and Analysis of Financial Condition and Results of Operations

   29
   

Recent Developments and Other Information

   29
   

Consolidated Results of Operations

   30
   

Financial Condition

   43

Item 3.

 

Quantitative and Qualitative Disclosures About Non-trading and Trading Activities and Related Market Risks

   48

Item 4.

 

Controls and Procedures

   52

PART II. OTHER INFORMATION

    

Item 1.

 

Legal Proceedings

   53

Item 4.

 

Submission of Matters to a Vote of Security Holders

   53

Item 6

 

Exhibits and Reports on Form 8-K

   54

 

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Cautionary Statement Regarding Forward-Looking Information

 

When we make statements containing projections, estimates or assumptions about our revenues, income and other financial items, our plans for the future, future economic performance, transactions for the sale of parts of our operations and financings related thereto, we are making “forward-looking statements.” Forward-looking statements relate to future events and anticipated revenues, earnings, business strategies, competitive position or other aspects of our operations or operating results. In many cases you can identify forward-looking statements by terminology such as “anticipate,” “estimate,” “believe,” “continue,” “could,” “intend,” “may,” “plan,” “potential,” “predict,” “should,” “will,” “expect,” “objective,” “projection,” “forecast,” “goal,” “guidance,” “outlook,” “effort,” “target” and other similar words. However, the absence of these words does not mean that the statements are not forward-looking. Although we believe that the expectations and the underlying assumptions reflected in our forward-looking statements are reasonable, there can be no assurance that these expectations will prove to be correct. Forward-looking statements are not guarantees of future performance or events. Such statements involve a number of risks and uncertainties, and actual results may differ materially from the results discussed in the forward-looking statements.

 

Among other things, the matters described in (a) (i) “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Risk Factors” in Item 7 and (ii) note 15 to our consolidated financial statements, each included in our Annual Report on Form 10-K for the year ended December 31, 2003 (Form 10-K), (b) (i) notes 11 and 12 to our interim financial statements and (ii) “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” each included in our Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2004 (First Quarter Form 10-Q) and (c) (i) “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and (ii) notes 12 and 13 to our interim financial statements could cause actual results to differ materially from those expressed or implied in our forward-looking statements.

 

Each forward-looking statement speaks only as of the date of the particular statement and we undertake no obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future events or otherwise.

 

ii


Table of Contents

PART I. FINANCIAL INFORMATION

 

ITEM 1. FINANCIAL STATEMENTS

 

RELIANT ENERGY, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(Thousands of Dollars, except per share amounts)

(Unaudited)

 

     Three Months Ended June 30,

    Six Months Ended June 30,

 
     2004

    2003

    2004

    2003

 

Revenues:

                                

Revenues (including $(3,958), $(6,417), $1,501 and $(14,069) unrealized (losses) gains)

   $ 2,227,546     $ 2,686,224     $ 3,928,978     $ 5,203,748  

Trading margins

     (5,418 )     12,384       (2,660 )     (71,299 )
    


 


 


 


Total

     2,222,128       2,698,608       3,926,318       5,132,449  
    


 


 


 


Expenses:

                                

Fuel and cost of gas sold (including $(514), $(1,594), $7,108 and $(8,017) unrealized (losses) gains)

     486,930       294,828       736,391       640,295  

Purchased power (including $(67,146), $(5,166), $(58,796) and $(7,057) unrealized losses)

     1,280,932       1,896,108       2,279,399       3,542,448  

Accrual for payment to CenterPoint Energy, Inc.

     —         —         1,658       46,700  

Operation and maintenance

     233,511       243,097       465,723       454,733  

Selling and marketing

     21,261       29,044       38,927       48,553  

Bad debt expense

     11,564       19,798       20,308       36,844  

Other general and administrative

     44,222       73,987       100,263       131,819  

Depreciation

     122,906       81,478       223,693       157,310  

Amortization

     10,916       7,839       19,345       16,915  
    


 


 


 


Total

     2,212,242       2,646,179       3,885,707       5,075,617  
    


 


 


 


Operating Income

     9,886       52,429       40,611       56,832  
    


 


 


 


Other Income (Expense) :

                                

(Losses) gains from investments, net

     (496 )     211       (665 )     1,855  

Loss of equity investments

     (8,783 )     (2,390 )     (9,588 )     (3,599 )

Loss on sales of receivables

     (10,063 )     (4,039 )     (19,250 )     (7,874 )

Other, net

     3,117       2,061       3,877       2,860  

Interest expense

     (104,010 )     (101,064 )     (200,628 )     (184,153 )

Interest income

     7,405       5,002       12,531       19,133  
    


 


 


 


Total other expense

     (112,830 )     (100,219 )     (213,723 )     (171,778 )
    


 


 


 


Loss from Continuing Operations Before Income Taxes

     (102,944 )     (47,790 )     (173,112 )     (114,946 )

Income tax benefit

     (33,654 )     (13,681 )     (57,835 )     (31,899 )
    


 


 


 


Loss from Continuing Operations

     (69,290 )     (34,109 )     (115,277 )     (83,047 )

(Loss) income from discontinued operations before income taxes

     (6,642 )     52,728       (8,900 )     (315,220 )

Income tax (benefit) expense

     (4,256 )     25,390       (6,840 )     35,989  
    


 


 


 


(Loss) income from discontinued operations

     (2,386 )     27,338       (2,060 )     (351,209 )
    


 


 


 


Loss Before Cumulative Effect of Accounting Changes

     (71,676 )     (6,771 )     (117,337 )     (434,256 )

Cumulative effect of accounting changes, net of tax

   $ —       $ 862     $ 7,290     $ (24,055 )
    


 


 


 


Net Loss

   $ (71,676 )   $ (5,909 )   $ (110,047 )   $ (458,311 )
    


 


 


 


Basic and Diluted (Loss) Earnings per Share:

                                

Loss from continuing operations

   $ (0.23 )   $ (0.12 )   $ (0.39 )   $ (0.28 )

(Loss) income from discontinued operations, net of tax

     (0.01 )     0.10       —         (1.21 )
    


 


 


 


Loss before cumulative effect of accounting changes

     (0.24 )     (0.02 )     (0.39 )     (1.49 )

Cumulative effect of accounting changes, net of tax

     —         —         0.02       (0.08 )
    


 


 


 


Net loss

   $ (0.24 )   $ (0.02 )   $ (0.37 )   $ (1.57 )
    


 


 


 


 

See Notes to our Unaudited Consolidated Interim Financial Statements

 

1


Table of Contents

RELIANT ENERGY, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(Thousands of Dollars, except share amounts)

(Unaudited)

 

     June 30, 2004

    December 31, 2003

 
ASSETS                 

Current Assets:

                

Cash and cash equivalents

   $ 155,285     $ 146,244  

Restricted cash

     192,283       234,113  

Accounts and notes receivable, principally customer, net of allowance of $40,849 and $73,940

     532,567       569,403  

Notes receivable related to receivables facility

     414,867       393,822  

Net California receivables subject to refund

     —         198,609  

Inventory

     251,004       266,430  

Trading and derivative assets

     518,864       493,046  

Margin deposits on energy trading and hedging activities

     294,020       76,871  

Prepayments and other current assets

     281,091       245,787  

Current assets of discontinued operations

     58,203       65,327  
    


 


Total current assets

     2,698,184       2,689,652  
    


 


Property, plant and equipment, gross

     8,723,172       8,695,694  

Accumulated depreciation

     (857,039 )     (705,149 )
    


 


Property, Plant and Equipment, net

     7,866,133       7,990,545  
    


 


Other Assets:

                

Goodwill

     435,534       482,534  

Other intangibles, net

     667,975       650,549  

Net California receivables subject to refund

     224,000       —    

Equity investments

     84,639       95,223  

Trading and derivative assets

     234,312       199,716  

Prepaid lease

     214,275       217,781  

Restricted cash

     29,812       36,916  

Other

     320,614       327,904  

Long-term assets of discontinued operations

     654,752       617,828  
    


 


Total other assets

     2,865,913       2,628,451  
    


 


Total Assets

   $ 13,430,230     $ 13,308,648  
    


 


LIABILITIES AND STOCKHOLDERS’ EQUITY                 

Current Liabilities:

                

Current portion of long-term debt and short-term borrowings

   $ 365,379     $ 391,403  

Accounts payable, principally trade

     642,819       509,499  

Trading and derivative liabilities

     349,208       348,614  

Margin deposits from customers on energy trading and hedging activities

     7,007       36,136  

Retail customer deposits