<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
X Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange
- --- Act of 1934
Transition report pursuant to Section 13 or 15(d) of the Securities
- --- Exchange Act of 1934
For Quarter Ended March 31, 1998 Commission File Number 333-33397
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NRG Energy, Inc.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Minnesota 41-1724239
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
1221 Nicollet Mall, Minneapolis, Minnesota 55403
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(Address of principal executive officers) (Zip Code)
Registrant's telephone number, including area code (612) 373-5300
-----------------------------
None
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Former name, former address and former fiscal year, if changed since last report
Indicated by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
----- -----
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
Class Outstanding at May 1, 1998
----------------------------- --------------------------
Common Stock, $1.00 par value 1,000 Shares
All outstanding common stock of NRG Energy, Inc., is owned beneficially
and of record by Northern States Power Company, a Minnesota corporation.
The Registrant meets the conditions set forth in general instruction H (1)
(a) and (b) of Form 10-Q and is therefore filing this form with the reduced
disclosure format.
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INDEX
PAGE NO.
--------
PART I
Item 1 Consolidated Financial Statements and Notes
Consolidated Statements of Income 1
Consolidated Balance Sheets 2-3
Consolidated Statements of Stockholder's Equity 4
Consolidated Statements of Cash Flows 5
Notes to Financial Statements 6-7
Item 2 Management's Discussion and Analysis of Financial
Condition and Results of Operations 8-10
PART II
Item 1 Legal Proceedings 11
Item 6 Exhibits, Financial Statements Schedules and Reports 12-13
on Form 8-K
SIGNATURES 14
<PAGE> 3
PART I
ITEM 1 - CONSOLIDATED FINANCIAL STATEMENTS AND NOTES
CONSOLIDATED STATEMENTS OF INCOME
NRG ENERGY, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
(Thousands of Dollars) 1998 1997
- ------------------------------------------------------------------------------------------------
(UNAUDITED)
<S> <C> <C>
OPERATING REVENUES
Revenues from wholly-owned operations $ 24,522 $ 21,665
Equity in operating earnings of unconsolidated affiliates 16,081 8,492
- ------------------------------------------------------------------------------------------------
Total operating revenues 40,603 30,157
- ------------------------------------------------------------------------------------------------
OPERATING COSTS AND EXPENSES
Cost of wholly-owned operations 13,646 12,222
Depreciation and amortization 3,676 2,176
General, administrative, and development 13,170 8,833
- -------------------------------------------------------------------------------------------------
Total operating costs and expenses 30,492 23,231
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OPERATING INCOME 10,111 6,926
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OTHER EXPENSE
Minority interest in earnings of consolidated subsidiary (1,032) -
Other income, net 57 2,018
Interest expense (11,453) (4,063)
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Total other expense (12,428) (2,045)
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INCOME (LOSS) BEFORE INCOME TAXES (2,317) 4,881
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INCOME TAXES - BENEFIT 8,406 1,922
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NET INCOME $ 6,089 $ 6,803
=================================================================================================
</TABLE>
See notes to consolidated financial statements.
1
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CONSOLIDATED BALANCE SHEETS
NRG ENERGY, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
(Thousands of Dollars) 1998 1997
- --------------------------------------------------------------------------------------------------------
ASSETS (UNAUDITED)
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 6,396 $ 11,986
Restricted cash 1,783 1,588
Accounts receivable-trade, less allowance
for doubtful accounts of $100 13,999 15,520
Accounts receivable-affiliates 15,564 29,162
Current portion of notes receivable - affiliates 17,503 48,816
Current portion of notes receivable 3,729 3,729
Income taxes receivable 2,663 -
Inventory 2,619 2,619
Prepayments and other current assets 3,048 5,002
- --------------------------------------------------------------------------------------------------------
Total current assets 67,304 118,422
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PROPERTY, PLANT AND EQUIPMENT, AT ORIGINAL COST
In service 260,890 255,433
Under construction 7,835 9,758
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268,725 265,191
Less accumulated depreciation (82,057) (79,300)
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Net property, plant and equipment 186,668 185,891
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OTHER ASSETS
Investments in projects 750,144 694,655
Capitalized project costs 17,246 17,791
Notes receivable, less current portion - affiliates 78,339 71,759
Notes receivable, less current portion 4,624 4,624
Intangible assets, net of accumulated amortization of $2,257 and $2,012 20,660 21,414
Debt issuance costs, net of accumulated amortization of $1,038 and $779 6,330 6,569
Other assets, net of accumulated amortization of $5,310 and $4,782 46,449 46,977
- --------------------------------------------------------------------------------------------------------
Total other assets 923,792 863,789
- --------------------------------------------------------------------------------------------------------
TOTAL ASSETS $1,177,764 $1,168,102
========================================================================================================
</TABLE>
See notes to consolidated financial statements.
2
<PAGE> 5
CONSOLIDATED BALANCE SHEETS
NRG ENERGY, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
(Thousands of Dollars) 1998 1997
- --------------------------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDER'S EQUITY (UNAUDITED)
<S> <C> <C>
CURRENT LIABILITIES
Current portion of long-term debt $ 7,474 $ 7,676
Revolving line of credit 125,000 122,000
Accounts payable-trade 12,605 16,101
Accrued income taxes - 3,692
Accrued property and sales taxes 4,705 3,804
Accrued salaries, benefits and related costs 10,542 10,998
Accrued interest 9,603 6,310
Other current liabilities 9,380 10,508
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Total current liabilities 179,309 181,089
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LONG-TERM DEBT, LESS CURRENT PORTION 496,863 491,179
DEFERRED REVENUES 8,765 9,577
DEFERRED INCOME TAXES 8,990 11,968
DEFERRED INVESTMENT TAX CREDITS 1,534 1,598
DEFERRED COMPENSATION 2,029 2,175
MINORITY INTEREST IN SUBSIDIARY 20,036 19,818
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Total liabilities 717,526 717,404
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STOCKHOLDER'S EQUITY
Common stock; $1 par value; 1,000 shares authorized;
1,000 shares issued and outstanding 1 1
Additional paid-in capital 431,913 431,913
Retained earnings 94,372 88,283
Accumulated other comprehensive income (66,048) (69,499)
- --------------------------------------------------------------------------------------------------
Total Stockholder's Equity 460,238 450,698
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TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY $ 1,177,764 $ 1,168,102
==================================================================================================
</TABLE>
See notes to consolidated financial statements.
3
<PAGE> 6
CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY
NRG ENERGY, INC. AND SUBSIDIARIES
(UNAUDITED)
<TABLE>
<CAPTION>
Accumulated
Additional Other Total
Paid-in Retained Comprehensive Stockholder's
(Thousands of Dollars) Common Stock Capital Earnings Income Equity
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
BALANCES AT JANUARY 1, 1997 $ 1 $ 351,013 $ 66,301 $ 4,599 $ 421,914
Net Income 6,803 6,803
Foreign currency translation adjustments (5,255) (5,255)
------------
Comprehensive income 1,548
Capital contributions from parent 20,000 20,000
- -----------------------------------------------------------------------------------------------------------------------------------
BALANCES AT MARCH 31, 1997 $ 1 $ 371,013 $ 73,104 $ (656) $ 443,462
================================================================================
BALANCES AT JANUARY 1, 1998 $ 1 431,913 $ 88,283 $ (69,499) $ 450,698
Net Income 6,089 6,089
Foreign currency translation adjustments 3,451 3,451
------------
Comprehensive income 9,540
- -----------------------------------------------------------------------------------------------------------------------------------
BALANCES AT MARCH 31, 1998 $ 1 $ 431,913 $ 94,372 $ (66,048) $ 460,238
================================================================================
</TABLE>
See notes to consolidated financial statements.
4
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CONSOLIDATED STATEMENTS OF CASH FLOWS
NRG ENERGY, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
(Thousands of Dollars) 1998 1997
- ----------------------------------------------------------------------------------------------------------
(UNAUDITED)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 6,089 $ 6,803
Adjustments to reconcile net income to net cash
provided (used) by operating activities
Undistributed equity earnings of unconsolidated affiliates (12,541) (6,713)
Depreciation and amortization 3,676 2,176
Deferred income taxes and investment tax credits (3,042) 2,697
Cash provided (used) by changes in certain working capital items, net
of acquisition effects
Accounts receivable 1,521 288
Accounts receivable-affiliates 13,598 (2,757)
Accrued income taxes (6,355) (1,760)
Prepayments and other current assets 1,954 1,415
Accounts payable-trade (3,496) (1,550)
Accrued interest 3,293 (2,928)
Other current liabilities (683) 73
Cash used by changes in other assets and liabilities (335) (268)
- ----------------------------------------------------------------------------------------------------------
NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES 3,679 (2,524)
- ----------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Investments in projects (38,952) (13,815)
Changes in notes receivable 24,733 (6,688)
Purchase of plant, property and equipment (3,534) (7,735)
(Increase) decrease in restricted cash (195) 6,901
Cash distribution from project termination settlement - 6,724
Other, net 218 1,106
- ----------------------------------------------------------------------------------------------------------
NET CASH USED BY INVESTING ACTIVITIES (17,730) (13,507)
- ----------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Capital contributions from parent - 20,000
Borrowings under revolving line of credit 3,000 -
Proceeds from issuance of long-term debt 7,670 -
Principal payments on long-term debt (2,209) (605)
- ----------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 8,461 19,395
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (5,590) 3,364
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 11,986 12,438
- ----------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 6,396 $ 15,802
==========================================================================================================
</TABLE>
See notes to consolidated financial statements.
5
<PAGE> 8
NRG ENERGY, INC.
NOTES TO FINANCIAL STATEMENTS
NRG Energy, Inc, (the Company) is a wholly owned subsidiary of Northern States
Power Company, a Minnesota corporation (NSP).
The accompanying unaudited consolidated financial statements have been prepared
in accordance with SEC regulations for interim financial information and with
the instructions to Form 10-Q. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements. The accounting policies followed by the
Company are set forth in Note 1 to the Company's financial statements in its
Annual Report on Form 10-K for the year ended December 31, 1997 (Form 10-K).
The following notes should be read in conjunction with such policies and other
disclosures in the Form 10-K. Interim results are not necessarily indicative
of results for a full year.
In the opinion of management, the accompanying unaudited interim financial
statements contain all material adjustments necessary to present fairly the
consolidated financial position, the results of operations, cash flows, and
shareholders' equity of the Company for the three months ended March 31, 1998
and 1997.
1. BUSINESS ACQUISITIONS
During March, the Company along with its 50% partner, NGC Corporation,
concluded the acquisition of the Long Beach Generating Station, one of two
Southern California Edison plants awarded to the NRG and NGC consortium.
The Long Beach Station is a gas-fired plant comprised of seven 60 MW gas
turbine generators and two steam turbines totaling 140 MW.
2. SUBSEQUENT EVENTS
During April, the Company along with its 50% partner, NGC Corporation (NGC),
concluded the acquisition of the El Segundo Generating Station. The El
Segundo Generating Station is a gas-fired plant with a capacity rating of
1,020 MW.
During April, the Company exercised its option to acquire 16.8 million
convertible, non-voting preference shares of Energy Developments Limited
(EDL) for $24.8 million, bringing the Company's total investment in EDL to
$48.8 million or approximately a 35 percent ownership interest. EDL is a
listed Australian company that owns 189 MW and operates 238 MW of generation
throughout Australia and the United Kingdom.
During April, the Court in the Cajun bankruptcy issued a scheduling order
establishing the time for the parties to file post-confirmation hearing
briefs. Final briefs must be filed by July 2, 1998 and the Court is
expected to rule on confirmation of the proposed plans of reorganization
this year.
3. COMMITMENTS AND CONTINGENT LIABILITIES
In April, 1998, an employee of the Company was sued in Minnesota State Court
by the estate of a former co-employee who died as a result of work-related
injuries sustained in an incident which occurred in 1996. Under the
Company's By-Laws, the Company is obligated to indemnify each employee
against costs, expenses and judgments incurred in connection with litigation
against such employee if such employee acted in good faith and in a manner
reasonably believed to be in the best interests of the Company. Based
thereon, the Company is advancing the expenses required for its employee to
defend
6
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the wrongful death litigation pending in State Court. The Company has been
denied insurance coverage for this claim under its General Liability Policy
but is continuing to pursue this and other potential insurance coverage
claims it may have for this case. At the present time, it is not possible to
assess the potential exposure to the Company related to this litigation.
On January 30, 1998, NRG's 45% owned affiliate, NRG Generating (U.S.) Inc.
(NRGG) gave notice that it intended to seek arbitration of its claim that
the Company sold the MCPC facility to Oklahoma Gas & Electric in violation
of its obligation to offer certain project investments to NRGG under the
Co-Investment Agreement between the Company and NRGG. (See "Form 10-K -
Item 1 - Significant Investments and Acquisitions in 1997 - NRG Generating
(U.S.) Inc.") An arbitration panel has been formed to hear the proceedings.
NRGG is seeking a ruling from the arbitration panel that the Company must
sell the MCPC facility to NRGG. The Company believes that it had no
obligation to offer the MCPC facility to NRGG.
4. SUMMARIZED INCOME STATEMENT INFORMATION OF AFFILIATES
The Company has 20-50% investments in three companies that are considered
significant subsidiaries, as defined by applicable SEC regulations, and
accounts for those investments using the equity method. The following
summarizes the income statements of these unconsolidated entities:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
(Thousands of Dollars) 1998 1997
----------------------
(Unaudited)
<S> <C> <C>
Net sales $ 137,831 $ 177,222
Other income 8,946 2,985
Costs and expenses:
Cost of sales 117,824 146,717
General and administrative 4,738 8,532
---------- ----------
122,562 155,249
---------- ----------
Income before income taxes 24,215 24,958
Income taxes 3,846 7,146
---------- ----------
Net income $ 20,369 $ 17,812
========== ==========
========== ==========
Company's share of net income $ 7,566 $ 6,645
========== ==========
</TABLE>
5. NEW ACCOUNTING PRONOUNCEMENTS
In 1998, the Company adopted Financial Accounting Standard Statement (SFAS)
No. 130, "Reporting Comprehensive Income." This statement establishes rules
for reporting comprehensive income and its components. Comprehensive income
consists of net income and foreign currency translation adjustments and is
presented in the Consolidated Statement of Stockholder's Equity. The
adoption of SFAS No. 130 had no impact on total stockholder's equity.
Certain reclassifications to prior year financial statements have been made
in order to conform to the SFAS No. 130 requirements.
7
<PAGE> 10
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Management's Discussion and Analysis of Financial Condition is omitted per
conditions as set forth in General Instructions H (1) (a) and (b) of Form 10-Q
for wholly owned subsidiaries. It is replaced with management's narrative
analysis of the results of operations set forth in General Instructions H (2)
(a) of Form 10-Q for wholly owned subsidiaries (reduced disclosure format).
This analysis will primarily compare the Company's revenue and expense items
for the three months ended March 31, 1998 with the three months ended March 31,
1997.
RESULTS OF OPERATIONS
FIRST QUARTER ENDED MARCH 31, 1998 COMPARED TO FIRST QUARTER ENDED MARCH 31,
1997
Net income for the quarter ended March 31, 1998, was $6.1 million, a
decrease of $0.7 million or 11%, compared to net income of $6.8 million in the
same period in 1997. This decrease was primarily due to increased interest
costs associated with the $250 million senior notes issued in mid-1997 and
balances outstanding on its line of credit. Earnings, including tax credits,
from interests in the Loy Yang project in Australia, Pacific Generation
Company, Energy Developments Limited (EDL), and other new projects, all
purchased after the first quarter of 1997, along with increased earnings from
existing projects partially offset the decrease.
OPERATING REVENUES
For the first quarter ended March 31, 1998, the Company had total revenues
of $40.6 million, compared to $30.2 million for the quarter ended March 31,
1997, an increase of 35%.
WHOLLY-OWNED OPERATIONS
The Company's operating revenues from wholly owned operations for the
quarter ended March 31, 1998 were $24.5 million, an increase of $2.9 million,
or 13%, over the same period in 1997. Revenues increased by approximately $4
million due to new projects, including San Diego Power and Cooling and certain
Pacific Generation operations. This increase was partially offset by lower
revenues from certain heating and cooling subsidiaries due to the unusually
mild weather. For the quarter ended March 31, 1998, revenues from wholly owned
operations consisted primarily of revenue from heating, cooling and thermal
activities (52%), electrical generation (43%) and technical services (5%).
EQUITY IN OPERATING EARNINGS OF UNCONSOLIDATED AFFILIATES
Equity in earnings of unconsolidated affiliates was $16.1 million for the
quarter ended March 31, 1998, compared to $8.5 million for the quarter ended
March 31, 1997, an increase of 89%. The increase was due to new projects
including those acquired in the Pacific Generation transaction, the Company's
acquisition of its interest in EDL as well as higher earnings from MIBRAG.
8
<PAGE> 11
OPERATING COSTS AND EXPENSES
Cost of wholly owned operations was $13.6 million for the quarter ended
March 31, 1998, an increase of $1.4 million, or 12%, over the same period in
1997. The increase was due primarily to increased sales volume and labor costs.
Cost of operations as a percentage of revenues from wholly owned operations was
55% which is 1% lower than the same period in 1997.
Depreciation and amortization costs were $3.7 million for the quarter
ended March 31, 1998, compared to $2.2 million for the quarter ended March 31,
1997. The $1.5 million increase was due primarily to increased amortization of
intangible assets related to the Pacific Generation acquisition and additional
NEO project depreciation.
General, administrative and development costs were $13.2 million for the
quarter ended March 31, 1998, compared to $8.8 million for the quarter ended
March 31, 1997. The $4.4 million increase was due primarily to increased
business development, associated legal, technical, and accounting expenses,
headcount and equipment resulting from expanded operations.
OTHER EXPENSE
Other expense was $12.4 million for the first quarter ended March 31,
1998, compared with $2.0 million for the quarter ended March 31, 1997. The
$10.4 million increase was primarily due to interest expense, which increased
by $7.4 million. This increase was due to the issuance of the $250 million
Senior Notes at the end of June 1997 and interest on the Company's revolving
line of credit. Also, the first quarter of 1998 included $1.0 million for
minority interest in earnings of a consolidated subsidiary that the Company did
not own during the same period in 1997. The remaining increase reflects a
decline in interest income on cash investments.
INCOME TAX
The Company has recognized an income tax benefit due to domestic tax
losses and the recognition of certain tax credits. The net income tax benefit
for the quarter ended March 31, 1998, increased by $6.5 million to $8.4 million
as compared to $1.9 million for the same quarter one year earlier. This was
due primarily to increased tax credits and tax effects of higher interest
expense.
FORWARD-LOOKING STATEMENTS
In addition to any assumptions and other factors referred to specifically
in connection with such forward-looking statements, factors that could cause
the Company's actual results to differ materially from those contemplated in
any forward-looking statements include, among others, the following:
- Economic conditions including inflation rates and monetary
fluctuations;
- Trade, monetary, fiscal, taxation, and environmental
policies of governments, agencies and similar organizations in
geographic areas where the Company has a financial interest;
- Customer business conditions including demand for their
products or services and supply of labor and materials used in
creating their products and services;
- Financial or regulatory accounting principles or policies
imposed by the Financial Accounting Standards Board, the Securities
and Exchange Commission, the Federal Energy Regulatory Commission
and similar entities with regulatory oversight;
- Availability or cost of capital such as changes in:
interest rates; market perceptions of the power generation
industry, the Company or any of its subsidiaries; or security
ratings;
9
<PAGE> 12
- Factors affecting power generation operations such as
unusual weather conditions; catastrophic weather-related damage;
unscheduled generation outages, maintenance or repairs;
unanticipated changes to fossil fuel, or gas supply costs or
availability due to higher demand, shortages, transportation
problems or other developments; environmental incidents; or
electric transmission or gas pipeline system constraints;
- Employee workforce factors including loss or retirement of
key executives, collective bargaining agreements with union
employees, or work stoppages;
- Increased competition in the power generation industry;
- Cost and other effects of legal and administrative
proceedings, settlements, investigations and claims;
- Technological developments that result in competitive
disadvantages and create the potential for impairment of existing
assets;
- Factors associated with various investments including
conditions of final legal closing, foreign government actions,
foreign economic and currency risks, political instability in
foreign countries, partnership actions, competition, operating
risks, dependence on certain suppliers and customers, domestic and
foreign environmental and energy regulations;
- Limitations on the Company's ability to control the
development or operation of projects in which the Company has less
than 100% interest;
- Other business or investment considerations that may be
disclosed from time to time in the Company's Securities and
Exchange Commission filings or in other publicly disseminated
written documents, including the Company's Registration Statement
No. 333-33397, as amended.
The Company undertakes no obligation to publicly update or revise any
forward-looking statements, whether as a result of new information, future
events or otherwise. The foregoing review of factors pursuant to the Act
should not be construed as exhaustive.
10
<PAGE> 13
PART II
ITEM 1 - LEGAL PROCEEDINGS
In April, 1998, an employee of the Company was sued in Minnesota State Court
by the estate of a former co-employee who died as a result of work-related
injuries sustained in an incident which occurred in 1996. Under the
Company's By-Laws, the Company is obligated to indemnify each employee
against costs, expenses and judgments incurred in connection with litigation
against such employee if such employee acted in good faith and in a manner
reasonably believed to be in the best interests of the Company. Based
thereon, the Company is advancing the expenses required for its employee to
defend the wrongful death litigation pending in State Court. The Company
has been denied insurance coverage for this claim under its General
Liability Policy but is continuing to pursue this and other potential
insurance coverage claims it may have for this case. At the present time,
it is not possible to assess the potential exposure to the Company related
to this litigation.
On January 30, 1998, the Company's 45% owned affiliate NRG Generating (U.S.)
Inc., ("NRGG"), gave notice that it intended to seek arbitration of its
claim that the Company sold the Mid-Continent Power Company ("MCPC")
facility to Oklahoma Gas & Electric in violation of the Company's obligation
to offer certain project investments to NRGG under the Co-Investment
Agreement between the Company and NRGG. (See "Form 10-K, Item 1 -
Significant Investments and Acquisitions in 1997 - NRG Generating (U.S.)
Inc.") An arbitration panel has been formed and hearings are scheduled for
June, 1998. NRGG is seeking a ruling from the arbitration panel that the
Company must sell the MCPC facility to NRGG. The Company believes that it
had no obligation to offer the MCPC facility to NRGG.
Other legal proceedings are set forth in Part I, Item 3 of the Company's
Form 10-K for the year ended December 31, 1997.
11
<PAGE> 14
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
The following exhibits are filed with this report:
10.17 Employment Agreement dated as of April 15, 1998 between the Company
and certain officers. The Employment Agreement between James J.
Bender and the Company is filed with this report. Shown below is
a schedule of each NRG officer who signed a substantially
identical agreement dated as of April 15, 1998 and the title of
such officer's position with the Company, as set forth in such
agreement:
Leonard A. Bluhm Executive Vice President and Chief Financial
Officer
Craig A. Mataczynski Vice President, U.S. Business Development
Louise T. Routhe Vice President, Human Resources and
Administration
Ronald J. Will Vice President, Operations and Engineering
27 Financial data schedule for the three month period ended
March 31, 1998
(b) Reports on Form 8-K
On January 16, 1998, NRG filed a Report on Form 8-K reporting under the
following items:
Item 2 - Acquisition or disposition of assets
Item 7 - Financial Statements and Exhibits
The following financial information was also filed with the Form 8-K:
a. Financial Statements of Businesses Acquired
1. Audited Consolidated Balance Sheets of Pacific Generation
Company at December 31, 1996 and 1995 and the audited Consolidated
Statements of Operations, Shareholders Equity and Cash flows for the
years ended December 31, 1996 and 1995 and Independent Auditors
Report.
2. Unaudited Consolidated Balance Sheet at September 30, 1997
and Unaudited Consolidated Statement of Operations and Cash Flows
for the period January 1, 1997 to September 30, 1997.
3. Reports of Other Independent Accountants.
b. Pro Forma Financial Information.
12
<PAGE> 15
1. Introduction to the pro forma financial statements.
2. A pro forma balance sheet at December 31, 1996, which
combines the balance sheet of the Company and the balance sheet of
Pacific Generation Company along with a description of material pro
forma adjustments.
3. A pro forma income statement which combines the results of
the Company and the results of Pacific Generation Company, for the
year ended December 31, 1996, along with a description of material
pro forma adjustments.
4. A pro forma balance sheet at September 30, 1997, which
combines the balance sheet of the Company and the balance sheet of
Pacific Generation Company along with a description of material pro
forma adjustments.
5. A pro forma income statement which combines the results of
the Company and the results of Pacific Generation Company for nine
months ended September 30, 1997, along with a description of
material pro forma adjustments.
13
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SIGNATURES
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 thereunto duly authorized.
NRG ENERGY, INC.
---------------------------
(Registrant)
/s/ Leonard A. Bluhm
---------------------------
Leonard A. Bluhm
Executive Vice President and
Chief Financial Officer
(Principal Financial Officer)
/s/ David E. Ripka
---------------------------
David E. Ripka
Controller
(Principal Accounting Officer)
Date: May 13, 1998
--------------------
14
<PAGE> 17
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION
- ----------- -----------
10.17 From the Employment Agreement between
the Company and certain officers.
27 Financial data schedule for the three months
ended March 31, 1998.
15
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EXHIBIT 10.17
NRG ENERGY, INC.
AGREEMENT OF EMPLOYMENT
THIS AGREEMENT is entered into as of the 15th day of April, 1998 by and
between NRG Energy, Inc. ("Company"), a Delaware corporation, and James J.
Bender ("Employee").
WHEREAS:
A. Employee desires to continue being employed by Company as its "Vice
President and General Counsel."
B. Employee and Company recognize and acknowledge that Employee's executive
responsibilities give Employee knowledge of substantially all aspects of the
Company's operations, including its business plans and strategies, current and
contemplated generation projects and ventures, customers, etc., which
information could seriously harm the Company if provided to a competitor.
Likewise, Employee's responsibilities allow Employee to develop business
relationships with affiliates, customers, suppliers and other Company employees
that, if used on behalf of a competitor, could seriously harm the Company.
C. Employee and Company recognize and acknowledge the Company's need to
protect its confidential and proprietary information as well as its business
relationships and goodwill.
D. In exchange for Employee's agreement not to compete with Company and
not to reveal Company's confidential information as set forth in this Agreement,
Company has agreed to the severance arrangement described below, which
consideration Employee agrees is full and adequate consideration for this
Agreement.
NOW, THEREFORE, in consideration of the mutual promises contained in this
Agreement, Employee and Company, intending to be legally bound, agree as
follows:
1. EMPLOYMENT.
(a) Position and Duties. Company agrees to employ Employee as
its "Vice President and General Counsel," with such duties as may be
determined by Company from time to time. Employee shall perform these
duties subject to the direction and supervision of the Chief Executive
Officer. Subject to the provisions of subparagraph (c) of this
paragraph, the Company reserves the right to reassign Employee to
another position within the Company at its discretion and Employee
acknowledges that the provisions of paragraph
1
<PAGE> 2
2 below apply to any reassigned position. Employee accepts such
employment and agrees to devote his or her full time and skills to the
conduct of Company's business, performing to the best of Employee's
abilities such duties as may be reasonably requested by Company.
Employee agrees to serve Company diligently and faithfully so as to
advance Company's best interests and agrees to not take any action in
conflict with Company's interests.
(b) Term. This Agreement shall be effective April 15th, 1998
and shall continue thereafter for a rolling three year period unless
either party gives written notice to the other in advance of any annual
anniversary date of this Agreement (which shall be April 15th of each
year) that the term shall expire two years from such annual anniversary
date.
(c) Termination. During the term of the Agreement, Company may
terminate Employee's employment due to Employee's death or Disability
or for Cause and Employee may voluntarily resign his or her employment
with or without Good Cause. For purposes of this Agreement, (i) "Cause"
means theft, or sexual harassment, or a material violation of NRG
corporate policy (including any NRG Code of Conduct which may be
adopted), as reasonably applied, constituting gross misconduct, (ii)
"Disability" means a disability that qualifies the Employee for
disability pension benefits under the Northern State Power Company
Pension Plan and (iii) resign with "Good Cause" means resigning within
3 months of a material change or reduction in Employee's job
responsibilities with the Company or resigning as a result of a
material breach by the Company of the compensation or benefit terms of
this Agreement, provided that Employee has given Company written notice
of, and a reasonable opportunity to cure, such breach. If Employee's
employment is terminated due to Employee's death or Disability or for
Cause or if Employee voluntarily resigns without Good Cause, Company
shall pay Employee's base salary (but not incentives) and employee
benefits through the date of termination or resignation and Company
shall have no further obligations under this Agreement. If during the
term of this Agreement Company terminates Employee's employment for any
reason other than death, Disability or Cause, or if Employee
voluntarily resigns for Good Cause, Company shall continue to pay
Employee amounts equal to Employee's then current total compensation,
including base pay, anticipated incentives and all employee benefits
for a period of three years following the date of termination or
resignation, as severance. Incentives shall include awards under the
NRG Officer Equity Plan and the Annual Incentive Plan, by whatever
name, and any other incentive plans which are applicable. Company shall
provide Employee with incentives in amounts equal to the target amounts
provided in Employee's incentive plans in effect on the date of
Employee's termination or resignation as if Employee's employment
continued, notwithstanding any requirements of active employment which
may be contained in the Company's incentive plans, and as of the end of
the three year period following the date of termination or resignation
(i) Employee shall be deemed to be fully vested under all such
incentive plans, notwithstanding any vesting requirements which may be
contained in such plans, and (ii) for purposes of all incentive plans,
Employee shall be treated as if Employee had retired from the Company
as of end of such three year period, notwithstanding Employee's
eligibility for retirement.
2
<PAGE> 3
(d) Compensation and Benefits. Whether or not Company
reassigns employee pursuant to paragraph 1(a), Company shall pay
Employee such base salary and incentives as may be separately agreed
upon from time to time, but not less than the rates for salary and
incentives in effect on the date of this Agreement, and shall provide
such vacation, holiday, medical and other benefits as are provided by
Company to its other executive officers. The benefits provided by
Company to its employees are subject to change from time to time at the
discretion of Company with or without prior notice. With respect to
incentives, if Company reassigns Employee pursuant to paragraph 1(a),
Company shall provide Employee with incentives in amounts equal to the
target amounts provided in Employee's incentive packages in effect
immediately prior to such reassignment. Incentives shall include awards
under the NRG Officer Equity Plan and the Annual Incentive Plan, by
whatever name, and any other incentive plans which are applicable.
2. NON-COMPETITION.
(a) Employee understands and agrees that, in addition to
Employee's below-described exposure to Company's Confidential
Information or Trade Secrets, Employee may, in his or her capacity as
an employee, at times meet with Company's customers and suppliers, and
that as a consequence of using and associating with Company's name,
goodwill, and professional reputation, Employee will be in a position
to develop personal and professional relationships with Company's past,
current, and prospective customers and suppliers. Employee further
acknowledges that during the course and as a result of employment by
Company, Employee may be provided certain specialized training or
know-how. Employee understands and agrees that this goodwill and
reputation, as well as Employee's knowledge of Confidential Information
or Trade Secrets and specialized training and know-how, could be used
unfairly in competition against Company.
(b) Accordingly, Employee agrees that, during the course of
Employee's employment with Company and for one year from the date of
Employee's voluntary or involuntary resignation from, or termination of
employment with, Company, Employee shall not:
(i) Directly or indirectly own, manage, consult,
associate with, operate, join, work for, control or
participate in the ownership, management, operation or control
of, or be connected in any manner with, any business (whether
in corporate, proprietorship, or partnership form or
otherwise), as more than a 10% owner in such business or
member of a group controlling such business, which is engaged
in any activity which competes with the business of Company as
conducted one year prior to (and up through) the date of
Employee's resignation from, or termination of employment
with, Company or which will compete with any proposed business
activity of Company in the planning stage on such date of
resignation or termination. Employee and Company agree that
this provision is reasonably enforced as to any geographic
area.
3
<PAGE> 4
(ii) Directly or indirectly solicit, service,
contract with or otherwise engage any past (one year prior),
existing or prospective customer, client, or account who then
has a relationship with Company for current or prospective
business on behalf of a competitor of the Company, or on
Employee's own behalf for a competing business. Employee and
Company agree that this provision is reasonably enforced with
reference to any geographic area applicable to such
relationships with the Company.
(iii) Cause or attempt to cause any existing or
prospective customer, client, or account, who then has a
relationship with the Company for current or prospective
business, to divert, terminate, limit or in any manner modify,
or fail to enter into any actual or potential business
relationship with Company. Employee and Company agree that
this provision is reasonably enforced with reference to any
geographic area applicable to such relationships with the
Company.
(iv) Directly or indirectly solicit, employ or
conspire with others to employ any of Company's employees. The
term "employ" for purposes of this paragraph means to enter
into an arrangement for services as a full-time or part-time
employee, independent contractor, consultant, agent or
otherwise. Employee and Company agree that this provision is
reasonably enforced as to any geographic area.
(c) Employee further agrees to inform any new employer or
other person or entity with whom Employee enters into a business
relationship during the one year non-competition period, before
accepting such employment or entering into such a business
relationship, of the existence of this Agreement and give such
employer, person or other entity a copy of this paragraph 2.
(d) Company agrees that the terms "activity which competes
with the business of the Company," "competitor of the Company,"
"competing business," and "relationship with the Company" as used in
this Agreement shall be narrowly applied and that it is not the belief
of Company that all companies in the energy business are competitors of
Company. Company further agrees that this Agreement shall not be so
broadly construed that Employee is prevented during the non-compete
period from obtaining all other employment in the energy industry.
3. RETURN OF PROPERTY. Employee agrees that upon the termination
of employment with Company the originals and all copies of any and all documents
(including computer data, disks, programs, or printouts) that contain any
customer information, financial information, product information, or other
information that in any way relates to Company, its products or services, its
clients, its suppliers, or other aspects of its business shall be immediately
returned to Company. Employee further agrees to not retain any summary of such
information.
4
<PAGE> 5
4. CONFIDENTIAL INFORMATION/TRADE SECRETS.
(a) Employee acknowledges that during the course and as a
result of his or her employment, Employee may receive or otherwise have
access to, or contribute to the production of, Confidential Information
or Trade Secrets. "Confidential Information" or "Trade Secrets" means
information that is proprietary to or in the unique knowledge of
Company (including information discovered or developed in whole or in
part by Employee); the Company's business methods and practices; or
information that derives independent economic value, actual or
potential, from not being generally known to, and not being readily
ascertainable by proper means by, other persons who can obtain economic
value from its disclosure or use, and is the subject of efforts that
are reasonable under the circumstances to maintain its secrecy. It
includes, among other things, strategies, procedures, manuals,
confidential reports, lists of clients, customers, suppliers, past,
current or possible future products or services, and information
concerning research, development, accounting, marketing, selling or
leases and the prices or charges paid by the Company's customers to the
Company, or by the Company to its suppliers.
(b) Employee further acknowledges and appreciates that any
Confidential Information or Trade Secret constitutes a valuable asset
of Company and that Company intends any such information to remain
secret and confidential. Employee therefore specifically agrees that
except to the extent required by Employee's duties to Company or as
permitted by the express written consent of the Board of Directors,
Employee shall never, either during employment with Company or at any
time thereafter, directly or indirectly use, discuss or disclose any
Confidential Information or Trade Secrets of Company or otherwise use
such information to his or her own or a third party's benefit.
5. CONSIDERATION. Employee and Company agree that the provisions
of this Agreement are reasonable and necessary for the protection of Company and
its business. In exchange for Employee's agreement to be bound by the terms of
this Agreement, Company has provided Employee the consideration provided in
paragraph 1. Employee accepts and acknowledges the adequacy of such
consideration for this Agreement.
6. REMEDIES FOR BREACH. Employee and Company acknowledge that a
breach of the provisions of this Agreement may cause irreparable harm that may
not be fully remedied by monetary damages. Accordingly, Employee and Company
shall, in addition to any relief afforded by law, be entitled to injunctive
relief from the other for breach. Employee and Company agree that both damages
at law and injunctive relief shall be proper modes of relief and are not to be
considered alternative remedies. Employee and Company further agree that the
prevailing party shall be entitled to recover from the other party reasonable
costs of litigation and reasonable attorney fees incurred in any litigation to
enforce this Agreement.
5
<PAGE> 6
7. EMPLOYEE'S ACKNOWLEDGEMENT OF REVIEW. Employee represents that
Employee has carefully read and fully understands all provisions of this
Agreement and that Employee has had a full opportunity to review this Agreement
before signing and to have all the terms of this Agreement explained to him or
her by counsel.
8. GENERAL PROVISIONS. Employee and Company acknowledge and
agree as follows:
(a) This Agreement contains the entire understanding of the
parties with regard to all matters contained herein. There are no other
agreements, conditions, or representations, oral or written, express or
implied, with regard to such matters. This Agreement supersedes and
replaces any prior agreement between the parties generally relating to
the same subject matter.
(b) This Agreement may be amended or modified only by a
writing signed by both parties.
(c) Waiver by either Company or Employee of a breach of any
provision, term or condition hereof shall not be deemed or construed as
a further or continuing waiver thereof or a waiver of any breach of any
other provision, term or condition of this Agreement.
(d) This Agreement shall inure to the benefit of and be
binding upon Company and its successors and assigns. Company shall
require any successor (whether direct or indirect, by asset or stock
purchase, merger, consolidation or otherwise) to all or substantially
all of the business and/or assets of Company expressly to assume and
agree to perform this Agreement in the same manner and to the same
extent that Company would have been required to perform it if no such
succession had taken place. As used in this Agreement, "Company" shall
mean NRG Energy, Inc., its affiliates or assigns and any such successor
that assumes and agrees to perform this Agreement, by operation of law
or otherwise. No assignment of this Agreement shall be made by
Employee, and any purported assignment shall be null and void.
(e) No provision of this Agreement shall be construed as
denying Company or Employee the right to terminate this Agreement
consistent with the terms hereof.
(f) Employee's obligations under paragraphs 2, 3, and 4 of
this Agreement shall survive any changes in Employee's employment
status with Company, by promotion or otherwise, or Employee's
resignation from, or termination of employment with, Company.
(g) If any court finds any provision or part of this Agreement
to be unreasonable, in whole or in part, such provision shall be deemed
and construed to be reduced to the maximum duration, scope or subject
matter allowable under applicable law. Any invalidation of any
provision or part of this Agreement will not invalidate any other
provision or part of this Agreement.
6
<PAGE> 7
(h) This Agreement will be construed and enforced in
accordance with the laws and legal principles of the State of
Minnesota. The Employee consents to the jurisdiction of the Minnesota
courts for the enforcement of this Agreement.
(i) This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original, but all
of which together will constitute one and the same instrument.
THIS AGREEMENT IS INTENDED TO BE A LEGALLY BINDING DOCUMENT FULLY ENFORCEABLE
IN ACCORDANCE WITH ITS TERMS. IF IN DOUBT, SEEK COMPETENT LEGAL ADVICE BEFORE
SIGNING.
/s/ James J. Bender 4/9/98
- -------------------------------- -----------------
(Employee) Date
NRG ENERGY, INC.
By /s/ David H. Peterson 4/13/98
------------------------------ -----------------
Its Chairman, President & CEO Date
Employee acknowledges that he or she has received a copy of this Agreement.
7
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE MARCH
31, 1998 FINANCIAL STATEMENTS INCLUDED IN THE COMPANY'S FORM 10-Q AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FORM 10-Q.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 6,396
<SECURITIES> 0
<RECEIVABLES> 17,828
<ALLOWANCES> 100
<INVENTORY> 2,619
<CURRENT-ASSETS> 67,304
<PP&E> 268,725
<DEPRECIATION> 82,057
<TOTAL-ASSETS> 1,177,764
<CURRENT-LIABILITIES> 179,309
<BONDS> 496,863
0
0
<COMMON> 1
<OTHER-SE> 460,237
<TOTAL-LIABILITY-AND-EQUITY> 1,177,764
<SALES> 24,522
<TOTAL-REVENUES> 40,603
<CGS> 13,646
<TOTAL-COSTS> 30,492
<OTHER-EXPENSES> 12,428
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 11,453
<INCOME-PRETAX> (2,317)
<INCOME-TAX> (8,406)
<INCOME-CONTINUING> 6,089
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6,089
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
