8-KEarnings & ResultsOther EventsExhibits & Filings

CENTERPOINT ENERGY INC 8-K Report, Financial Results (Feb 28, 2007)

Filed February 28, 2007For Securities:CNP

Summary

CenterPoint Energy, Inc. (CNP) filed an 8-K on February 28, 2007, to report its fourth quarter and full-year 2006 financial results. The report highlights a significant year-over-year increase in net income for the full year 2006, primarily driven by the resolution of prior-year tax and regulatory issues. Investors should note that while reported net income was strong, a portion of this improvement was due to one-time adjustments. The company also provided details on the impact of these resolutions on earnings per share. The fourth quarter of 2006 showed a decrease in net income and income from continuing operations compared to the same period in 2005. This was partly due to a final agreement with the IRS concerning the tax treatment of specific financial instruments, which resulted in a reduction in earnings for the quarter. The company also detailed the impact of a settlement related to its 2001 unbundled cost of service order in Texas. Investors are encouraged to refer to the press release (Exhibit 99.1) for a comprehensive understanding of these financial results.

Key Highlights

  • 1Full-year 2006 net income was $432 million, or $1.33 per diluted share, a substantial increase from $252 million, or $0.75 per diluted share, in 2005.
  • 2The significant improvement in full-year 2006 net income was largely due to the resolution of two material issues from prior years: a tax settlement with the IRS regarding ZENS and Automatic Common Exchange Securities, and a Texas regulatory settlement for the 2001 unbundled cost of service order (UCOS).
  • 3The IRS tax settlement (ZENS/ACE) provided a $119 million benefit ($0.37/share) in Q2 2006, but a $12 million negative adjustment ($0.04/share) occurred in Q4 2006 due to the final agreement.
  • 4The UCOS settlement resulted in a $21 million after-tax reduction ($0.06/share) in Q2 2006.
  • 5Excluding the impacts of the ZENS tax issue and UCOS settlement, adjusted full-year 2006 earnings would have been $1.11 per diluted share.
  • 6Fourth-quarter 2006 net income was $67 million ($0.20/share), down from $81 million ($0.25/share) in Q4 2005, impacted by the final IRS tax agreement.
  • 7Full-year 2005 net income included an extraordinary gain of $30 million ($0.09/share) related to regulatory assets.

Frequently Asked Questions

For the full year 2006, CenterPoint Energy reported net income of $432 million, or $1.33 per diluted share, a significant increase from $252 million, or $0.75 per diluted share, in 2005. However, net income for the fourth quarter of 2006 decreased to $67 million ($0.20/share) from $81 million ($0.25/share) in the prior year's fourth quarter.

The substantial rise in full-year 2006 net income was primarily due to the resolution of two significant issues from prior years: a favorable tax settlement with the IRS regarding Zero Premium Exchangeable Subordinated Notes (ZENS) and Automatic Common Exchange Securities, and a settlement with the Texas Public Utility Commission concerning the 2001 unbundled cost of service order (UCOS).

A significant portion of the 2006 earnings improvement stemmed from one-time adjustments related to the resolution of past tax and regulatory matters. While the IRS settlement provided a large benefit earlier in the year, a portion was reversed in Q4. Similarly, the UCOS settlement also impacted Q2 earnings. Investors should look beyond these one-time items to assess the ongoing operational performance.

The IRS tax settlement regarding ZENS and Automatic Common Exchange Securities initially resulted in a $119 million benefit ($0.37 per diluted share) in the second quarter of 2006 due to adjustments to previously accrued reserves. However, a final agreement led to an increase in these reserves in the fourth quarter of 2006, reducing income by $12 million ($0.04 per diluted share).