Reliant Energy Reports Third Quarter 2008 Results
- Retail financial results impacted by Hurricane Ike
- Strong power plant operating performance offset by lower commodity prices and mild weather
- Executing plan outlined in September to end credit-enhanced retail structure while protecting asset value
- Outlook based on plan announced in September with a wind-down of the commercial and industrial retail business
- Board of Directors pursuing strategic alternatives to enhance shareholder value
HOUSTON--(BUSINESS WIRE)--Reliant Energy, Inc. reported open EBITDA of $105 million for the third quarter of 2008, compared to $443 million for the third quarter of 2007. The decline was primarily due to lower retail contribution margin from the effects of Hurricane Ike, which includes lower sales volumes, the sale of excess supply at a loss and the cancellation of planned price increases.
Adjusted EBITDA, which includes the effect of historical and operational wholesale hedges and gains on sales of assets and emission and exchange allowances, was $239 million for the third quarter of 2008, compared to $443 million for the third quarter of 2007. The improvement in historical and operational hedges was offset by the decline in retail contribution margin mentioned above.
“We are experiencing a series of unprecedented events in our industry and the economy as a whole,” said Mark Jacobs, president and chief executive officer. “It is important to step back from the financial turmoil and recognize that we have two valuable businesses, one with a diverse portfolio of wholesale generation assets and another with a strong and loyal retail customer franchise.” Jacobs added, “In September we announced a plan to unwind the credit-enhanced retail structure with Merrill Lynch and raise additional capital to support the transition. The Board of Directors is reviewing strategic alternatives to improve upon this plan.”
The loss from continuing operations before income taxes for the third quarter of 2008 was $1,600 million, compared to income of $224 million for the third quarter of 2007. The 2008 GAAP results include net unrealized losses from energy derivatives of $1,694 million. The reported numbers for 2007 include net unrealized losses from energy derivatives of $28 million.
Open EBITDA was $339 million for the first nine months of 2008, compared to $750 million for the same period of 2007. The decline was primarily due to lower retail contribution margin resulting from extraordinary market conditions in ERCOT in the second quarter combined with the financial impact of Hurricane Ike in the third quarter. Adjusted EBITDA was $610 million for the first nine months of 2008, compared to $689 million for the same period of 2007. Improvement in historical and operational hedges partially offset the decline in retail contribution margin. Free cash flow provided by continuing operations was $47 million for the first nine months of 2008, compared to a free cash flow provided by continuing operations of $8 million for the same period in 2007.
The loss from continuing operations before income taxes for the first nine months of 2008 was $418 million, compared to income of $180 million for the first nine months of 2007. The 2008 GAAP results include net unrealized losses from energy derivatives of $566 million and a $37 million charge for western states litigation and similar settlements. The reported numbers for 2007 include net unrealized gains from energy derivatives of $168 million, a $22 million charge for western states litigation and similar settlements and a $72 million charge for debt extinguishments. Operating cash flow from continuing operations was $261 million for the first nine months of 2008, compared to $332 million for the same period of 2007.
OUTLOOK
Reliant Energy’s outlook is based on forward commodity prices as of September 26, 2008 and includes a range for the retail segment contribution margin. The outlook also assumes an orderly unwind of the credit-enhanced retail structure, completion of the previously announced $1 billion of new capital commitments and a wind-down of the commercial and industrial part of the retail business, and also includes other assumptions and estimates by Reliant Energy.
As previously announced, the Board of Directors is conducting a full review of strategic alternatives to enhance stockholder value. The objective of this process is to consider a full range of possible strategic actions to determine the best alternative for enhancing stockholder value. The possible strategic actions include, but are not limited to, the sale of all or substantially all of Reliant Energy as well as the sale of some or all of our retail business. The outlook does not reflect these possible strategic actions.
The outlook range for open EBITDA is $305 to $355 million, $748 to $823 million and $855 to $930 million for the years ending December 31, 2008, 2009 and 2010, respectively. The outlook range for adjusted EBITDA, which includes the impact of historical and operational wholesale hedges and gains on the sales of assets and emission and exchange allowances, net is $728 to $778 million, $886 to $961 million and $902 to $977 million for the same periods. The outlook range for free cash flow provided by continuing operations is ($46) to $4 million, $440 to $516 million and $578 to $657 million for the years ending December 31, 2008, 2009 and 2010, respectively.
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Open EBITDA Outlook Reconciliation |
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| ($ millions) | 2007A | 2008E | 2009E | 2010E | ||||||||||||
| Income (loss) from continuing operations before income taxes | $ | 493 | ($101)–($51) | $605-$680 | $484-$559 | |||||||||||
| Unrealized (gains) losses on energy derivatives | (445 | ) | 231 | (265 | ) | (102 | ) | |||||||||
| Western states litigation and similar settlements | 22 | 37 | --- | --- | ||||||||||||
| Debt extinguishments | 73 | 1 | --- | --- | ||||||||||||
| Depreciation and amortization | 424 | 341 | 326 | 320 | ||||||||||||
| Interest expense, net | 315 | 219 | 220 | 200 | ||||||||||||
| Adjusted EBITDA | $ | 882 | $728 - $778 | $886-$961 | $902-$977 | |||||||||||
| Historical and operational wholesale hedges | 92 | (339 | ) | (138 | ) | (47 | ) | |||||||||
| Gains on sales of assets and emission and exchange allowances, net |
(26 |
) |
(84 |
) |
--- |
--- |
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| Open EBITDA | $ | 948 | $305 - $355 | $748-$823 | $855- 930 | |||||||||||
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Free Cash Flow from Continuing Operations Outlook Reconciliation |
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| ($ millions) | 2007A | 2008E | 2009E | 2010E | ||||||||||||
| Operating cash flow from continuing operations | $ | 755 | $303-$353 | $780 - $856 | $757-$836 | |||||||||||
| Western states litigation and similar settlements payments |
57 |
37 |
--- |
--- |
||||||||||||
| Change in margin deposits, net1 | (297 | ) | (26 | ) | (45 | ) | (18 | ) | ||||||||
| Adjusted cash flow provided by continuing operations | $ | 515 | $314-$364 | $735 -$811 | $739-$818 | |||||||||||
| Maintenance capital expenditures | (85 | ) | (90 | ) | (65 | ) | (79 | ) | ||||||||
| Environmental capital expenditures and capitalized interest2 |
(104 |
) |
(242 |
) |
(154 |
) |
(20 |
) |
||||||||
| Emission and exchange allowances activity, net | (85 | ) | (24 | ) | (27 | ) | (13 | ) | ||||||||
| Preferred stock dividend | --- | (4 | ) | (49 | ) | (49 | ) | |||||||||
| Free cash flow provided by (used in) continuing operations |
$ |
241 |
($46)-$4 |
$440-$516 |
$578-$657 |
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|
1. |
Outlook does not include obligations for collateral posting related to the unwind of the credit-enhanced retail structure. |
|
2. |
Estimate represents the low end of the range. |
NON-GAAP FINANCIAL MEASURES
This press release and the attached financial tables include the following non-GAAP financial measures:
| Retail gross margin |
| Retail contribution margin |
| Open energy gross margin |
| Open wholesale gross margin |
| Open wholesale contribution margin |
| EBITDA |
| Adjusted EBITDA |
| Open EBITDA |
| Adjusted cash flow provided by continuing operations |
| Free cash flow provided by continuing operations |
| Gross debt |
A reconciliation of these financial measures and the most directly comparable GAAP measures is included above or in the attached financial tables. Additional information regarding these measures, including a discussion of their usefulness and purpose, is included in the Form 8-K furnished along with this press release. Certain factors that could affect GAAP financial measures are not accessible on a forward-looking basis, but could be material to future reported earnings and cash flows.
WEBCAST OF EARNINGS CONFERENCE CALL
Reliant Energy has scheduled its third quarter 2008 earnings conference call for Friday, November 7, 2008, at 7:00 a.m. CT. Interested parties may listen to a live audio broadcast of the conference call at www.reliant.com in the investors section. A replay of the call can be accessed approximately two hours after the completion of the call. A copy of the presentation accompanying the call is also available at this Website address.
Reliant Energy, Inc. (NYSE:RRI) based in Houston, provides electricity and energy services to retail and wholesale customers in the United States. The company provides service to approximately 1.8 million retail electricity customers primarily in Texas, including residential and small business customers. Reliant also serves commercial, industrial, governmental and institutional customers in Delaware, Illinois, Maryland, New Jersey, New York Pennsylvania, and Washington, D.C.
The company is one of the largest independent power producers in the nation with more than 14,000 megawatts of power generation capacity across the United States. These strategically located generating assets use natural gas, fuel oil and coal. For more information, visit http://www.reliant.com. Reliant Energy, Inc. routinely posts all important information on its web site.
This news release contains "forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Forward-looking statements are statements that contain projections, estimates or assumptions about our revenues, income, capital structure and other financial items, and our plans and objectives for future operations or about our future economic performance, transactions and dispositions and financings and approvals related thereto. 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.
Actual results may differ materially from those expressed or implied by forward-looking statements as a result of many factors or events, including, but not limited to, ongoing negotiations with Merrill Lynch and GS Loan Partners, ability to complete the issuance of convertible preferred stock to an affiliate of First Reserve, outcome of strategic alternative review, legislative, regulatory and/or market developments, the outcome of pending lawsuits, governmental proceedings and investigations, the effects of competition, financial market conditions, access to capital, the timing and extent of changes in commodity prices and interest rates, weather conditions and other factors we discuss or refer to in the “Risk Factors” section of our most recent Annual Report on Form 10-K filed with the Securities and Exchange Commission.
Each forward-looking statement speaks only as of the date of the particular statement and we undertake no obligation to update or revise any forward-looking statement, whether as a result of new information, future events or otherwise.
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Reliant Energy, Inc. and Subsidiaries Consolidated Statements of Operations (Unaudited) |
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Three Months Ended September 30, |
Nine Months Ended September 30, |
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| 2008 | 2007 | 2008 | 2007 | |||||||||||||
| (thousands of dollars, except per share amounts) | ||||||||||||||||
| Revenues: | ||||||||||||||||
|
Revenues (including $(6,173), $7,205, $(13,130) and $10,927 unrealized gains (losses)) (including $0, $39,805, $253,001 and $39,805 from affiliates) |
$ | 3,738,106 | $ | 3,543,192 | $ | 9,977,065 | $ | 8,555,708 | ||||||||
| Expenses: | ||||||||||||||||
|
Cost of sales (including $(1,688,016), $(34,719), $(552,571) and $157,443 unrealized gains (losses)) (including $1,234, $37,782, $201,364 and $37,782 from affiliates) |
4,899,393 | 2,838,950 | 9,059,914 | 6,758,157 | ||||||||||||
| Operation and maintenance | 201,987 | 209,374 | 643,888 | 674,081 | ||||||||||||
| Selling, general and administrative | 114,870 | 99,796 | 275,934 | 290,477 | ||||||||||||
| Western states litigation and similar settlements | 3,467 | - | 37,467 | 22,000 | ||||||||||||
| Gains on sales of assets and emission and exchange allowances, net | (16,561 | ) | (16,769 | ) | (39,484 | ) | (18,496 | ) | ||||||||
| Depreciation and amortization | 84,228 | 121,449 | 261,597 | 324,021 | ||||||||||||
| Total operating expense | 5,287,384 | 3,252,800 | 10,239,316 | 8,050,240 | ||||||||||||
| Operating Income (Loss) | (1,549,278 | ) | 290,392 | (262,251 | ) | 505,468 | ||||||||||
| Other Income (Expense): | ||||||||||||||||
| Income of equity investment, net | 1,405 | 1,549 | 2,600 | 4,075 | ||||||||||||
| Debt extinguishments | (594 | ) | (1,320 | ) | (1,017 | ) | (72,589 | ) | ||||||||
| Other, net | 4,593 | 1,590 | 4,619 | 2,084 | ||||||||||||
| Interest expense | (62,484 | ) | (74,235 | ) | (188,815 | ) | (283,280 | ) | ||||||||
| Interest income | 6,259 | 5,777 | 26,510 | 24,473 | ||||||||||||
| Total other expense | (50,821 | ) | (66,639 | ) | (156,103 | ) | (325,237 | ) | ||||||||
| Income (Loss) from Continuing Operations Before Income Taxes | (1,600,099 | ) | 223,753 | (418,354 | ) | 180,231 | ||||||||||
| Income tax expense (benefit) | (562,208 | ) | 63,850 | (110,299 | ) | 41,028 | ||||||||||
| Income (Loss) from Continuing Operations | (1,037,891 | ) | 159,903 | (308,055 | ) | 139,203 | ||||||||||
| Income (loss) from discontinued operations | (29 | ) | 2,479 | 6,035 | (1,062 | ) | ||||||||||
| Net Income (Loss) | $ | (1,037,920 | ) | $ | 162,382 | $ | (302,020 | ) | $ | 138,141 | ||||||
| Basic Earnings Per Share: | ||||||||||||||||
| Income (loss) from continuing operations | $ | (2.97 | ) | $ | 0.47 | $ | (0.89 | ) | $ | 0.41 | ||||||
| Income (loss) from discontinued operations | - | - | 0.02 | (0.01 | ) | |||||||||||
| Net income (loss) | $ | (2.97 | ) | $ | 0.47 | $ | (0.87 | ) | $ | 0.40 | ||||||
| Diluted Earnings Per Share: | ||||||||||||||||
| Income (loss) from continuing operations | $ | (2.97 | ) | $ | 0.45 | $ | (0.89 | ) | $ | 0.40 | ||||||
| Income (loss) from discontinued operations | - | 0.01 | 0.02 | (0.01 | ) | |||||||||||
| Net income (loss) | $ | (2.97 | ) | $ | 0.46 | $ | (0.87 | ) | $ | 0.39 | ||||||
| Weighted Average Common Shares Outstanding (in thousands): | ||||||||||||||||