Explaining its wild swing from a $108 million ($0.37/share) gain in continuing operations during the third quarter 2002 to a $791 million ($2.69/share) loss during the third quarter of 2003, Reliant Resources Inc. blamed the difference on its previously announced goodwill impairment and settlement with FERC.

Excluding the items, the company posted earnings from continuing operations of $218 million ($0.74/share) in the third quarter of 2003. Reliant said the goodwill impairment of $985 million related to the company’s investment in its wholesale segment. The FERC settlement on “various outstanding western market investigations” also accounted for a $37 million pre-tax charge.

“Our retail business performed exceptionally well, and our wholesale business turned in a solid performance in spite of continued weak market conditions,” said Joel Staff, Reliant CEO. “We also moved forward with actions to enhance the future performance of our company. Our retail business has been very successful in adding customers both in Texas and in the Northeast. In relation to our wholesale business, we are making good progress in the strategic review of our asset portfolio and in creating a business model that is appropriate for the environment in which we are operating.”

Reliant’s retail energy segment produced earnings before interest and taxes (EBIT) of $371 million in the third quarter of 2003, compared to $241 million of EBIT in the third quarter of 2002. The company attributed the improvement to increased margins from the sales of electricity and from the true-up of estimates from prior periods, partially offset by increased ERCOT load-related fees. Reliant noted that the year-over-year comparison was also affected by an $89 million charge in the third quarter of 2002 for a payment to CenterPoint Energy Inc.

More than offsetting retail’s contribution, Reliant’s wholesale energy segment reported a loss before interest and taxes of $876 million in the third quarter of 2003, compared to EBIT of $91 million in the third quarter of 2002. Excluding the impairment and settlement, the wholesale segment produced EBIT of $146 million.

As indicated by the sale of its European energy operations to nv Nuon, Reliant said that as of February 2003 its European energy segment would be counted as discontinued operations.

Reliant said it recorded a loss from discontinued operations of $125 million for the third quarter of 2003, compared to a loss of $58 million for the same period of 2002. Breakdown of the loss included a $53 million increase in the estimated loss on the anticipated disposition of the European energy segment and a $75 million loss on disposition of the Desert Basin plant.

Looking ahead to full-year results, Reliant said that — excluding the goodwill impairment and the FERC settlement charge — it expects 2003 earnings for adjusted income from continuing operations to come in at its previously issued guidance of $0.10/share.

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