8-KFinancial Events

CENTERPOINT ENERGY INC 8-K Report, Financial Restatement (Dec 16, 2005)

Filed December 16, 2005For Securities:CNP

Summary

CenterPoint Energy, Inc. (CNP) and its subsidiary CenterPoint Energy Resources Corp. (CERC) have identified accounting errors related to inter-segment natural gas transactions. These errors resulted in an overstatement of revenues and natural gas expenses for 2004 by approximately $520 million and for the first nine months of 2005 by approximately $430 million. Crucially, the company states that these misstatements did not impact previously reported operating income, net income, earnings per share, or cash flows, nor did they mask changes in earnings trends, affect regulatory or debt covenant compliance, or involve unlawful transactions. As a consequence of these errors, the company's previously issued financial statements for 2004 and the first three quarters of 2005 will be restated. This will be accomplished through amended 10-K and 10-Q filings, expected by December 31, 2005. The company has also determined that it had a material weakness in its internal controls over financial reporting during these periods, contrary to previous assertions. Management's annual report on internal controls for fiscal year 2004 should therefore no longer be relied upon. CenterPoint is actively reviewing and revising its internal control processes.

Key Highlights

  • 1Restatement of 2004 and first three quarters of 2005 financial statements required due to accounting errors.
  • 2Overstatement of revenues and natural gas expenses identified in inter-segment natural gas transactions.
  • 32004 revenues and expenses overstated by approximately $520 million; 2005 (9-month period) overstated by approximately $430 million.
  • 4Company asserts no impact on operating income, net income, EPS, or cash flows for the affected periods.
  • 5Determination of a 'material weakness' in internal controls over financial reporting.
  • 6Management's previous assessment of internal controls for FY 2004 is no longer reliable.
  • 7Amended financial filings (10-K and 10-Q) expected by December 31, 2005.

Frequently Asked Questions

The company is filing this 8-K to inform investors that its previously issued financial statements for 2004 and the first three quarters of 2005 are no longer reliable due to accounting errors. These errors involved the improper elimination of inter-segment natural gas transactions, leading to overstated revenues and expenses.

According to the company, the identified errors did not have an adverse effect on previously reported operating income, net income, earnings per share, or cash flows for the periods in question. The overstatement was solely in revenues and natural gas expenses, with these items offsetting each other in terms of net income impact.

The determination of a material weakness means that CenterPoint's internal controls over financial reporting were not effective during 2004 and the 2005 reporting periods. This contradicts previous management assessments. As a result, management's previous report on internal controls should not be relied upon, and the company is undertaking a review and revision of its control processes.

CenterPoint expects to file amended 10-K and 10-Q forms to restate the affected financial statements by December 31, 2005. However, the company notes that the preparation and review process is ongoing, and further time may be required.