Reliant Resources to exit telecom business

By the OGJ Online Staff

HOUSTON, Oct. 25, 2001 — Reliant Resources Inc. said it wrote down its communications business by $36 million, which was mostly responsible for a third quarter decrease in income to $133 million, down from $163 million in the 2000 comparable quarter.

But officials increased earnings expectations for 2001 by a dime to $1.75/share based on expanded commercial activity in the wholesale energy segment and improved performance in the retail energy segment.

The Houston company is exiting telecommunications and expects to have the assets sold by the end of the year, said Reliant executives. The total write-down was $27.7 million after tax, which included writing down the good will of the company.

Reliant entered the telecommunications business in Texas in 1999. It also acquired an internet host server business. The company said it didn’t have the scale or geographic scope to realize the kind of revenues it expected from the business.

“This is a complete clean up of the business. There should be nothing else coming down the pipe on that,” said Stephen Naeve, chief financial officer.

Third quarter revenue rose to $10.3 billion, up from $6.8 billion for the comparable period last year.

Reliant’s wholesale energy segment reported operating income dipped to $266 million in the quarter from $320 million last year because of lower margins on gas and power sales and higher operation, maintenance, and regulatory expenses for power plants in the West.

CEO Steve Letbetter called the 2000 third quarter results “exceptional,” noting they were produced by “unique” market conditions.

Reliant is still seeking a buyer for its European energy businesses that reported a third quarter operating loss of $5 million, compared to an operating income of $8 million for the same period last year. The company attributed the loss to the start of wholesale competition in the Netherlands Jan.1, 2001. The decrease was partially offset by the sales of ancillary services and increased trading margins.

Retail energy also reported an operating loss of $7 million, compared to a loss of $18 million for last year’s third quarter. The company attributed the improvement to increased sales of energy and energy services to commercial and industrial customers. But these were offset by higher costs for staff expansion in preparation for full retail competition in Texas beginning in 2002, the company said.

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