SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
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FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of report (Date of earliest event reported): March 24, 2003
RELIANT RESOURCES, INC.
(Exact Name of Registrant as Specified in its Charter)
DELAWARE 1-16455 76-0655566
(State or Other Jurisdiction (Commission File Number) (IRS Employer
of Incorporation) Identification No.)
1111 LOUISIANA STREET
HOUSTON, TEXAS 77002
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: (713) 497-3000
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ITEM 5. OTHER EVENTS.
(a) RESTATEMENTS.
Reliant Resources has determined that its consolidated financial
statements for 2000 and 2001 should be restated from amounts previously
reported to reflect all of the transactions described herein. In addition, the
unaudited quarterly financial data for the interim periods ended March 31, 2001
and 2002, June 30, 2001 and 2002, September 30, 2001 and 2002, and December 31,
2000 and 2001 should be restated from amounts previously reported to reflect
all of the transactions described herein.
As previously disclosed in our Annual Report on Form 10-K Amendment No. 2
for the year ended December 31, 2001, subsequent to the issuance of our
financial statements as of and for the year ended December 31, 2001, we
identified four natural gas financial swap transactions that should not have
been recorded in our records. We have concluded, based on the offsetting nature
of the transactions and manner in which the transactions were documented, that
none of the transactions should have been given accounting recognition. We
previously accounted for these transactions in our financial statements as a
reduction in revenues in December 2000 and an increase in revenues in January
2001, with the effect of decreasing net income in the fourth quarter of 2000
and increasing net income in the first quarter of 2001, in each case by $20.0
million pre-tax ($12.7 million after-tax) and the effect of increasing basic
and diluted earnings per share by $0.05 in the first quarter of 2001. There
were no cash flows associated with the transactions.
We have also determined that we incorrectly calculated hedge
ineffectiveness for 2001 and 2002 for hedging instruments entered into prior to
the adoption of SFAS No. 133 "Accounting for Derivative Instruments and Hedging
Activities," as amended (SFAS No. 133). These hedging instruments included
long-term forward contracts for the sale of power in certain markets through
December 2006. The amount of hedge ineffectiveness for these forward contracts
was calculated using the trade date. However, the proper date for the hedge
ineffectiveness calculation is hedge inception, which for these contracts was
deemed to be January 1, 2001, concurrent with the adoption of SFAS No. 133. In
addition, we did not record the amount of ineffectiveness for any hedging
instruments during the first three quarters of 2001. These errors in accounting
for hedge ineffectiveness resulted in an understatement of revenues of $28.7
million ($18.6 million after-tax) and earnings per share of $0.07 in 2001, and
an overstatement of revenues of $12.3 million ($8.0 million after-tax) and
earnings per share of $0.03 in 2002.
OTHER ADJUSTMENTS TO RESULTS OF OPERATIONS FOR 2002.
We also have revised our previously announced annual and fourth quarter
results of operations for 2002. Subsequent to our December 31, 2002 earnings
release as filed on Form 8-K dated January 30, 2003, we determined that
adjustments should be recorded in the fourth quarter of 2002 for (a) an
impairment of our European energy segment's goodwill, (b) the hedge
ineffectiveness miscalculation issue, discussed above, and (c) adjustments
identified in the normal course of preparing our consolidated financial
statements to be included in our Annual Report on Form 10-K for the year ended
December 31, 2002.
Goodwill is required to be tested for impairment at least annually. We
perform our annual test for indications of goodwill impairment as of November
1. In estimating the fair value of our European energy segment for the annual
impairment test, we considered the sales price in the agreement that we signed
in February 2003 to sell our European energy operations to a Netherlands-based
electricity distributor. We concluded that the sales price reflects the best
estimate of fair value of our European energy segment as of November 1, 2002,
to use in our annual impairment test. Based on our annual impairment test, we
determined that an impairment of the full amount of our European energy
segment's net goodwill of $482 million should be recorded in the fourth quarter
of 2002. This goodwill impairment will be reflected in our 2002 results of
operations in our consolidated financials statements included in our Annual
Report on Form 10-K for the year ended December 31, 2002.
The hedge ineffectiveness miscalculation, discussed above, resulted in an
understatement of revenues of $4.2 million ($2.7 million after-tax) and basic
and diluted earnings per share of $0.01 for the quarterly period ended December
31, 2002.
In addition, we identified adjustments in the normal course of preparing
our consolidated financial statements to be included in our Annual Report on
Form 10-K for the year ended December 31, 2002 of $9.6 million pre-tax ($5.7
million after-tax) that will have the effect of decreasing the net loss and
basic and diluted loss per share of $0.02 for the quarterly period ended
December 31, 2002.
As a result of the restatements and other adjustments discussed above, our
annual financial statements for 2000, annual and quarterly financial statements
for 2001, and quarterly financial statements for the first three quarters of
2002 will be restated, and the previously announced fourth quarter and annual
results for 2002 will be adjusted.
CONDENSED FINANCIAL INFORMATION FOR 2000, 2001 AND 2002, AS RESTATED AND
ADJUSTED.
The following is our restated condensed annual financial information for
2000 (in millions):
Total revenues (1)............................... $ 3,475
Operating income................................. 458
Income tax expense............................... 96
Income before extraordinary item................. 215
Net income....................................... 223
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(1) Beginning with the quarter ended September 30, 2002, we now report
all energy trading and marketing activities on a net basis as allowed
by Emerging Issues Task Force (EITF) Issue No. 98-10, "Accounting for
Contracts involved in Energy Trading and Risk Management Activities"
(EITF No. 98-10). Comparative revenue information for prior periods
has been reclassified to conform to this presentation.
The following presents our restated condensed annual and quarterly
financial information for 2001 and for the first three quarters of 2002 and
adjusted fourth quarter and annual results for 2002:
YEAR ENDED DECEMBER 31, 2001
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FIRST QUARTER SECOND QUARTER THIRD QUARTER FOURTH QUARTER TOTAL
--------------- --------------- --------------- --------------- ---------------
(AS RESTATED) (AS RESTATED) (AS RESTATED) (AS RESTATED) (AS RESTATED)
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
Total revenues (1)................. $ 1,512 $ 1,657 $ 2,535 $ 796 $ 6,500
Operating income (loss)............ 97 275 425 (27) 770
Income tax expense (benefit)........ 25 113 176 (40) 274
Income before cumulative effect of
accounting change................ 68 216 262 14 560
Net income......................... 71 216 262 14 563
Basic and diluted earnings per
share:
Income before cumulative effect
of accounting change............ $ 0.28 $ 0.78 $ 0.87 $ 0.05 $ 2.02
Net income........................ $ 0.29 $ 0.78 $ 0.87 $ 0.05 $ 2.03
YEAR ENDED DECEMBER 31, 2002
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FIRST QUARTER SECOND QUARTER THIRD QUARTER FOURTH QUARTER TOTAL
--------------- --------------- --------------- --------------- ---------------
(AS RESTATED) (AS RESTATED) (AS RESTATED) (AS ADJUSTED) (AS RESTATED
AND ADJUSTED)
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
Revenues (1)....................... $ 1,754 $ 2,225 $ 5,225 $ 2,138 $ 11,342
Trading margin...................... 53 119 119 19 310
--------------- --------------- --------------- --------------- ---------------
Total revenues (1)................ 1,807 2,344 5,344 2,157 11,652
General, administrative and
development....................... 113 167 224 161 665
Operating income (loss)............ 165 328 271 (550) 214
Income tax expense (benefit)........ 42 104 138 (36) 248
Income (loss) before cumulative
effect of accounting change...... 96 176 51 (586) (263)
Net (loss) income (2).............. (138) 176 51 (586) (497)
Basic earnings (loss) per share:
Income (loss) before cumulative
effect of accounting change..... $ 0.33 $ 0.61 $ 0.17 $ (2.02) $ (0.91)
Net (loss) income (2)............. $ (0.48) $ 0.61 $ 0.17 $ (2.02) $ (1.71)
Diluted earnings (loss) per share:
Income (loss) before cumulative
effect of accounting change..... $ 0.33 $ 0.60 $ 0.17 $ (2.02) $ (0.91)
Net (loss) income (2)............. $ (0.48) $ 0.60 $ 0.17 $ (2.02) $ (1.71)
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(1) Beginning with the quarter ended September 30, 2002, we now report all
energy trading and marketing activities on a net basis as allowed by EITF
No. 98-10. Comparative revenue information for prior periods has been
reclassified to conform to this presentation.
(2) During the third quarter of 2002, we completed the transitional impairment
test for the adoption of SFAS No. 142 "Goodwill and Other Intangible
Assets," on our consolidated financial statements, including the review of
goodwill for impairment as of January 1, 2002. Based on this impairment
test, we recorded an impairment of our European energy segment's goodwill
of $234 million, net of tax as a cumulative effect of a change in
accounting.
EFFECTS OF RESTATEMENTS AND OTHER ADJUSTMENTS.
2000 Quarterly Restatement Impacts. The effect of the four natural gas
financial swap transactions is an understatement of revenues of $20.0 million
and net income of $12.7 million for the fourth quarter of 2000.
2001Quarterly Restatement Impacts. A summary of the principal combined
effects of the four natural gas financial swap transactions and the hedge
ineffectiveness issues for 2001 is as follows (increase (decrease)):
YEAR ENDED DECEMBER 31, 2001
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FIRST QUARTER SECOND QUARTER THIRD QUARTER FOURTH QUARTER TOTAL
--------------- --------------- --------------- --------------- ---------------
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
Revenues........................... $ (17) $ (19) $ 73 $ (28) $ 9
Operating income................... (17) (19) 73 (28) 9
Income before cumulative effect of
accounting change................ (11) (12) 48 (19) 6
Net income......................... (11) (12) 48 (19) 6
Basic and diluted earnings per
sharee........................... $ (0.05) $ (0.04) $ 0.16 $ (0.06) $ 0.02
2002 Quarterly Restatement Impacts. A summary of the principal effects of
the hedge ineffectiveness miscalculation for the quarterly periods ended March
31, 2002, June 30, 2002 and September 30, 2002 is as follows (increase
(decrease)):
NINE MONTHS ENDED SEPTEMBER 30, 2002
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FIRST QUARTER SECOND QUARTER THIRD QUARTER TOTAL
--------------- --------------- --------------- ---------------
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
Revenues.......................................... $ (1) $ (4) $ (11) $ (16)
Operating income.................................. (1) (4) (11) (16)
Income before cumulative effect of accounting
change.......................................... (1) (3) (7) (11)
Net income........................................ (1) (3) (7) (11)
Basic and diluted earnings per share............... $ - $ (0.01) $ (0.03) $ (0.04)
Fourth Quarter of 2002 Other Adjustments Impacts. A summary of the
principal combined effects on the fourth quarter of 2002 of (a) the impairment
of our European energy segment's goodwill, (b) the hedge ineffectiveness
miscalculation issue, discussed above, and (c) the adjustments identified in
the normal course of preparing our consolidated financial statements to be
included in our Annual Report on Form 10-K for the year ended December 31, 2002
is as follows (increase (decrease)) (in millions, expect per share amounts):
Total revenues............................................... $ 15
Operating loss............................................... (468)
Loss before cumulative effect of accounting change........... (473)
Net loss..................................................... (473)
Basic and diluted loss per share............................. $ (1.63)
(b) Attached hereto as Exhibit 99.1 and incorporated by reference herein
is the text of Reliant Resources, Inc.'s press release dated March
21, 2003.
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS.
(c) Exhibits.
99.1 Press release issued by Reliant Resources, Inc. on March 21, 2003.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
RELIANT RESOURCES, INC.
(Registrant)
Date: March 24, 2003 By: /s/ Mark M. Jacobs
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Mark M. Jacobs
Executive Vice President and
Chief Financial Officer
EXHIBIT INDEX
Exhibit
Number Exhibit Description
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99.1 Press release issued by Reliant Resources, Inc. on March 21, 2003.