10-QPeriod: Q1 FY2003

CENTERPOINT ENERGY INC Quarterly Report for Q1 Ended Mar 31, 2003

Filed May 12, 2003For Securities:CNP

Summary

CenterPoint Energy, Inc. (CNP) reported a significant increase in net income attributable to common shareholders for the three months ended March 31, 2003, reaching $168.4 million, a substantial rise from $31.6 million in the same period of the prior year. This improvement was largely driven by a considerable increase in revenues, which grew from $2.08 billion to $2.90 billion, and a positive cumulative effect of accounting change related to SFAS No. 143. However, income from continuing operations before the cumulative effect of accounting change declined to $80.9 million from $144.6 million year-over-year, primarily due to a significant increase in interest expenses stemming from higher debt levels and borrowing costs. The company's balance sheet showed total assets increasing to $20.24 billion from $19.63 billion at year-end 2002. Total liabilities also rose, and shareholders' equity saw a slight decrease. Significant items in the financial statements include the ongoing restructuring efforts, the impact of the Texas electric restructuring law, and substantial ongoing legal proceedings and environmental matters which the company believes will not have a material adverse effect on its financial condition. Investors should note the company's efforts to manage its debt and capital structure, including amendments to its credit facilities and recent debt issuances.

Key Highlights

  • 1Net income attributable to common shareholders surged to $168.4 million in Q1 2003, up from $31.6 million in Q1 2002.
  • 2Total revenues increased significantly, reaching $2.90 billion for the first quarter of 2003, compared to $2.08 billion in the prior year's quarter.
  • 3Income from continuing operations before accounting change decreased to $80.9 million, down from $144.6 million year-over-year, primarily due to increased interest expenses.
  • 4Total assets grew to $20.24 billion as of March 31, 2003, from $19.63 billion at December 31, 2002.
  • 5The company adopted SFAS No. 143 effective January 1, 2003, resulting in a cumulative effect of accounting change of $80.1 million recognized in net income.
  • 6Significant debt restructuring and refinancing activities occurred, including amendments to the $3.85 billion bank facility and substantial new debt issuances.
  • 7The company continues to manage substantial legal proceedings and environmental matters, which management believes will not materially impact its financial condition.

Frequently Asked Questions

The primary driver for the substantial increase in net income attributable to common shareholders was the cumulative effect of adopting SFAS No. 143 ($80.1 million after-tax) and a significant increase in revenues. While continuing operations faced higher interest expenses, the adoption of the new accounting standard provided a large boost to the bottom line.

CenterPoint Energy engaged in significant debt management activities. Key actions included amending its $3.85 billion bank facility to extend maturity and eliminate mandatory prepayments, issuing substantial new long-term debt for its subsidiaries CenterPoint Houston and CERC Corp., and repaying portions of existing debt. The company also highlighted its plan to potentially extinguish warrants issued as part of the credit facility amendment.

Key risks and uncertainties include ongoing legal proceedings and environmental matters, many of which are related to past operations of its predecessor and former subsidiaries, and the potential impact of fluctuating commodity prices and interest rates on its financial performance. The company also faces regulatory risks, particularly concerning the recovery of stranded costs and the outcome of the 2004 True-Up Proceeding in Texas. Additionally, the recent South Texas Project Unit 1 outage could adversely affect Texas Genco's operating results.

CenterPoint Energy is actively managing its position within the evolving Texas electric restructuring landscape. This includes accounting for 'stranded costs' and 'Excess Cost Over Market' (ECOM) as regulatory assets, with their ultimate recovery subject to the 2004 True-Up Proceeding. The company is also engaged in discussions and proceedings regarding fuel reconciliation and compliance with new environmental regulations like NOx emission reductions.