<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 June 30, 1998 Commission File Number 333-33397
------------- ---------
NRG Energy, Inc.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 41-1724239
- --------------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
1221 Nicollet Mall, Minneapolis, Minnesota 55403
- --------------------------------------------------------------------------------
(Address of principal executive officers) (Zip Code)
Registrant's telephone number, including area code (612) 373-5300
---------------------------
None
- --------------------------------------------------------------------------------
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 August 10, 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.
<PAGE> 2
INDEX
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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
on Form 8-K
SIGNATURES 13
<PAGE> 3
PART I
ITEM 1 - CONSOLIDATED FINANCIAL STATEMENTS AND NOTES
- --------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF INCOME
NRG ENERGY, INC. AND SUBSIDIARIES
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
(Thousands of Dollars) 1998 1997 1998 1997
- -------------------------------------------------------------------------------------------------------------------------
OPERATING REVENUES
<S> <C> <C> <C> <C>
Revenues from wholly-owned operations $ 25,260 $ 21,020 $ 49,782 $ 42,685
Equity in earnings of unconsolidated affiliates 13,102 5,354 29,183 13,846
- -------------------------------------------------------------------------------------------------------------------------
Total operating revenues 38,362 26,374 78,965 56,531
- -------------------------------------------------------------------------------------------------------------------------
OPERATING COSTS AND EXPENSES
Cost of wholly-owned operations 12,659 10,474 26,305 22,696
Depreciation and amortization 4,373 2,368 8,049 4,544
General, administrative, and development 11,210 9,206 24,380 18,039
- -------------------------------------------------------------------------------------------------------------------------
Total operating costs and expenses 28,242 22,048 58,734 45,279
- -------------------------------------------------------------------------------------------------------------------------
OPERATING INCOME 10,120 4,326 20,231 11,252
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OTHER INCOME (EXPENSE)
Minority interest in earnings of consolidated subsidiary (128) - (1,160) -
Other income, net 1,842 4,249 1,899 6,267
Interest expense (12,798) (7,119) (24,251) (11,182)
- -------------------------------------------------------------------------------------------------------------------------
Total other expense (11,084) (2,870) (23,512) (4,915)
- -------------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) BEFORE INCOME TAXES ( 964) 1,456 (3,281) 6,337
INCOME TAXES - BENEFIT (7,933) (3,730) (16,339) (5,652)
- -------------------------------------------------------------------------------------------------------------------------
NET INCOME $ 6,969 $ 5,186 $ 13,058 $ 11,989
=========================================================================================================================
</TABLE>
See notes to consolidated financial statements.
1
<PAGE> 4
CONSOLIDATED BALANCE SHEETS
NRG ENERGY, INC. AND SUBSIDIARIES
(UNAUDITED)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
(Thousands of Dollars) 1998 1997
- -----------------------------------------------------------------------------------------------------------------------
ASSETS
CURRENT ASSETS
<S> <C> <C>
Cash and cash equivalents $ 5,383 $ 11,986
Restricted cash 4,558 1,588
Accounts receivable-trade, less allowance
for doubtful accounts of $100 17,565 15,520
Accounts receivable-affiliates 19,078 29,162
Current portion of notes receivable - affiliates 20,004 48,816
Current portion of notes receivable 3,537 3,729
Inventory 2,621 2,619
Prepayments and other current assets 3,840 5,002
- -----------------------------------------------------------------------------------------------------------------------
Total current assets 76,586 118,422
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PROPERTY, PLANT AND EQUIPMENT, AT ORIGINAL COST
In service 271,129 255,433
Under construction 8,382 9,758
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279,511 265,191
Less accumulated depreciation (85,561) (79,300)
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Net property, plant and equipment 193,950 185,891
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OTHER ASSETS
Investments in projects 781,496 694,655
Capitalized project costs 20,454 17,791
Notes receivable, less current portion - affiliates 62,282 71,759
Notes receivable, less current portion 3,744 4,624
Intangible assets, net of accumulated amortization of $2,559 and $2,012 20,418 21,414
Debt issuance costs, net of accumulated amortization of $1,201 and $779 6,258 6,569
Other assets, net of accumulated amortization of $5,824 and $4,782 45,935 46,977
- -----------------------------------------------------------------------------------------------------------------------
Total other assets 940,587 863,789
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TOTAL ASSETS $ 1,211,123 $ 1,168,102
=======================================================================================================================
</TABLE>
See notes to consolidated financial statements.
2
<PAGE> 5
CONSOLIDATED BALANCE SHEETS
NRG ENERGY, INC. AND SUBSIDIARIES
(UNAUDITED)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
(Thousands of Dollars) 1998 1997
- ------------------------------------------------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDER'S EQUITY
CURRENT LIABILITIES
<S> <C> <C>
Current portion of long-term debt $ 6,193 $ 7,676
Revolving line of credit 175,000 122,000
Accounts payable-trade 6,835 16,101
Accrued income taxes 2,697 3,692
Accrued property and sales taxes 2,880 3,804
Accrued salaries, benefits and related costs 10,941 10,998
Accrued interest 8,183 6,310
Other current liabilities 10,970 10,508
- ------------------------------------------------------------------------------------------------------------------------
Total current liabilities 223,699 181,089
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LONG-TERM DEBT, LESS CURRENT PORTION 509,362 491,179
DEFERRED REVENUES 7,320 9,577
DEFERRED INCOME TAXES 6,976 11,968
DEFERRED INVESTMENT TAX CREDITS 1,470 1,598
DEFERRED COMPENSATION 2,186 2,175
MINORITY INTEREST IN SUBSIDIARY 12,813 19,818
- ------------------------------------------------------------------------------------------------------------------------
Total liabilities 763,826 717,404
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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 101,341 88,283
Accumulated other comprehensive income (85,958) (69,499)
- ------------------------------------------------------------------------------------------------------------------------
Total Stockholder's Equity 447,297 450,698
- ------------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY $ 1,211,123 $ 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
Common Stock Paid-in Retained Comprehensive Stockholder's
(Thousands of Dollars) 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 11,989 11,989
Foreign currency translation adjustments (18,444) (18,444)
--------------
Comprehensive income (6,455)
Capital contributions from parent 81,467 81,467
- ----------------------------------------------------------------------------------------------------------------------------------
BALANCES AT JUNE 30, 1997 $ 1 $ 432,480 $ 78,290 $ (13,845) $ 496,926
==================================================================================
BALANCES AT JANUARY 1, 1998 $ 1 431,913 $ 88,283 $ (69,499) $ 450,698
Net Income 13,058 13,058
Foreign currency translation adjustments (16,459) (16,459)
---------------
Comprehensive income (3,401)
- ----------------------------------------------------------------------------------------------------------------------------------
BALANCES AT JUNE 30, 1998 $ 1 $ 431,913 $ 101,341 $ (85,958) $ 447,297
==================================================================================
</TABLE>
See notes to consolidated financial statements.
4
<PAGE> 7
CONSOLIDATED STATEMENTS OF CASH FLOWS
NRG ENERGY, INC. AND SUBSIDIARIES
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
(Thousands of Dollars) 1998 1997
- --------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES
<S> <C> <C>
Net income $ 13,058 $ 11,989
Adjustments to reconcile net income to net cash
provided (used) by operating activities
Undistributed equity earnings of unconsolidated affiliates (16,210) (12,957)
Depreciation and amortization 8,049 4,544
Deferred income taxes and investment tax credits (5,120) 2,946
Cash provided (used) by changes in certain working capital items, net
of acquisition and divestiture effects
Accounts receivable (2,045) (13,951)
Accounts receivable-affiliates 9,903 2,105
Accrued income taxes (995) 8,790
Prepayments and other current assets 1,162 2,092
Accounts payable-trade (9,266) (2,161)
Accrued property and sales taxes (924) 40
Accrued salaried, benefits and related costs (57) 887
Accrued interest 1,585 (2,856)
Other current liabilities 462 1,213
Cash (used) provided by changes in other assets and liabilities (62) 2,469
- --------------------------------------------------------------------------------------------------------------------
NET CASH (USED) PROVIDED BY OPERATING ACTIVITIES (460) 5,150
- --------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Investments in projects (94,194) (298,517)
Divestiture of projects 9,219 6,724
Changes in notes receivable 32,255 (35,809)
Capital expenditures (14,320) (15,077)
(Increase) decrease in restricted cash (2,970) 17,341
- --------------------------------------------------------------------------------------------------------------------
NET CASH USED BY INVESTING ACTIVITIES (70,010) (325,338)
- --------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Capital contributions from parent - 81,467
Revolving line of credit 53,000 -
Minority Interest (5,722) -
Proceeds from issuance of long-term debt 22,658 250,325
Principal payments on long-term debt (6,069) (1,227)
- --------------------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 63,867 330,565
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (6,603) 10,377
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 11,986 12,438
- --------------------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 5,383 $ 22,815
====================================================================================================================
</TABLE>
See notes to consolidated financial statements.
5
<PAGE> 8
NRG ENERGY, INC.
NOTES TO FINANCIAL STATEMENTS
The Company is a wholly owned subsidiary of Northern States Power Company (NSP),
a Minnesota corporation. Additional information regarding the Company can be
found in NSP's Form 10-Q for the six months ended June 30, 1998.
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 of the Company as of June 30, 1998 and December
31, 1997, the results of its operations for the three months and six months
ended June 30, 1998 and 1997, and its cash flows and shareholders' equity for
the six months ended June 30, 1998 and 1997.
1. BUSINESS DEVELOPMENTS
In April, the Company along with its 50% partner, Dynegy, 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.
Also during April, the Company exercised its option to acquire 16.8 million
convertible, non-voting preference shares of Energy Development 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.
In June, the Company sold two affiliates, Wind Power Partners 1987 LP and
Wind Power Partners 1988 LP, for $9.2 million. These companies were
acquired as part of the Pacific Generation acquisition. There was no gain
or loss recorded from the sale.
In 1996, the Company formed a joint venture with Ansaldo Energia SpA, a
major Italian industrial company ("Ansaldo"), and P.T. Kiani Metra, an
Indonesian industrial company ("PTKM") to develop a 400-megawatt coal-fired
power generation facility in West Java, Indonesia, through P.T. Dayslistrik
Pratama ("PTDP"), a limited liability company created by the joint
venturers. The Company and Ansaldo each have an ownership interest of 45
percent in PTDP, and PTKM has an ownership interest of 10 percent. As a
result of the political and economic instability in Indonesia, all
development efforts have been temporarily halted and the viability of the
project is uncertain. As of June 30, 1998, the Company had invested $9.9
million in the project, including land acquisition and capitalized
development costs. In addition, the Company has an interest rate hedge in
place for a portion of the equity commitment to PTDP. If the hedge was
marked-to market as of June 30, 1998, the Company would incur a settlement
obligation of $5.2 million. If the West Java projects does not go forward,
the Company would write down the majority of these costs. However, at this
time, management remains committed to the project. Consequently, no
impairment loss has been recognized as of June 30, 1998.
2. 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.
6
<PAGE> 9
On July 31, 1998, an arbitration panel required NRG to offer its interest
in the Mid-Continent Power Company project to the Company's 45% owned
affiliate, Cogeneration Corporation of America, formerly known as NRG
Generating (U.S.) Inc. See Part II, Item 1 for further discussion of this
matter.
At the present time, it is not possible to assess the potential exposure to
the Company related to these claims.
3. 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 SIX MONTHS ENDED
JUNE 30, JUNE 30,
(Thousands of Dollars) 1998 1997 1998 1997
------------------------------------ -----------------------------
<S> <C> <C> <C> <C>
Net sales $ 137,831 $ 177,222 $ 399,302 $ 355,358
Other income (expense) 8,946 2,985 (509) 2,932
Costs and expenses:
Cost of sales 117,824 146,717 229,953 287,211
General and administrative 4,738 8,532 12,320 20,036
------------------------------------ -----------------------------
122,562 155,249 242,273 307,247
------------------------------------ -----------------------------
Income before income taxes 24,215 24,958 156,520 51,043
Income taxes 3,846 7,146 5,612 13,263
------------------------------------ -----------------------------
Net income $ 20,369 $ 17,812 $ 150,908 $ 37,780
==================================== =============================
Company's share of net income $ 7,566 $ 6,645 $ 13,395 $ 14,334
==================================== =============================
</TABLE>
4. 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.
Accumulated Other Comprehensive Income, as presented therein and on the
Balance Sheet, consists solely of foreign currency translation adjustments.
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.
In 1997, the Financial Accounting Standards Board (FASB) issued SFAS No.
131, "Disclosures about Segments of an Enterprise and Related Information."
This Statement establishes standards for reporting information about
operating segments in annual financial statements and requires that
companies report selected information by operating segments in interim
financial reports. The Company will be required to adopt this statement in
its December 31, 1998 financial reports. The Company has not yet determined
its reportable segments under the statement.
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." This statement requires that all
derivatives be recognized at fair value in the Balance Sheet, and that
changes in fair value be recognized either currently in earnings or
deferred as a component of Other Comprehensive Income, depending on the
intended use of derivative and the resulting designation (e.g., as a
qualifying hedge). The Company will be required to adopt this statement in
the third quarter of 1999, but can elect to adopt it in 1998. The Company
has not yet determined the potential impacts of implementing this statement
or the expected adoption date.
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
six month periods ended June 30, 1998 and June 30, 1997.
RESULTS OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1998 COMPARED TO SIX MONTHS ENDED JUNE 30, 1997
Net income for the six months ended June 30, 1998, was $13.1 million, an
increase of $1.1 million or 9%, compared to net income of $12.0 million for the
same period in 1997. The Company reported a loss before taxes of $3.3 million in
1998 as compared to net income of $6.3 million during the same period one year
earlier. The increase in net income was due to new projects and increased tax
benefits, partially offset by increased interest expense on corporate debt.
OPERATING REVENUES
For the six months ended June 30, 1998, the Company had total revenues of
$79.0 million, compared to $56.5 million for the six months ended June 30, 1997,
an increase of 40%.
The Company's operating revenues from wholly owned operations for the six
months ended June 30, 1998 were $49.8 million, an increase of $7.1 million, or
17%, over the same period in 1997. The increase in the six month revenues was
due primarily 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 six months ended June 30, 1998, revenues from wholly owned
operations consisted primarily of revenue from heating, cooling and thermal
activities (46%), electric generation (47%) and technical services (7%).
Equity in earnings of unconsolidated affiliates was $29.2 million for the
six months ended June 30, 1998, compared to $13.8 million for the six months
ended June 30, 1997, an increase of 111%. The increase was due to new projects,
including El Segundo and certain Pacific Generation operations, an increase in
the Company's holdings in EDL and higher earnings from MIBRAG.
OPERATING COSTS AND EXPENSES
Operating costs and expenses for the six months ended June 30, 1998, were
$58.7 million, an increase of $13.4 million or 29.7%, compared to $45.3 million
for the same period in 1997. As a percent of revenue, operating costs and
expense were 74.4% as compared to 80.1% during the same period one year earlier.
Costs of wholly-owned operations were $26.3 million for the six months
ended June 30, 1998. This is an increase of $3.6 million or 16% over the same
period in 1997. The increase was primarily due to new projects including certain
Pacific Generation and NEO subsidiaries. Costs of wholly-owned operations as a
percentage of revenues from wholly-owned operations for the six month period was
53%, approximately the same amount as for the same period in 1997.
Depreciation and amortization costs were $8.0 million for the six months
ended June 30, 1998, compared to $4.5 million for the six months ended June 30,
1997. The depreciation and amortization increase was due primarily to increased
amortization of goodwill related to the Pacific Generation acquisition and
additional depreciation from new NEO projects.
8
<PAGE> 11
General, administrative and development costs were $24.4 million for the
six months ended June 30, 1998, compared to $18.0 million for the six months
ended June 30, 1997. The increase was due primarily to increased business
development activities and increased legal, technical, and accounting expenses
resulting from expanded operations.
OTHER INCOME (EXPENSE)
Other expense for the six months ended June 30, 1998, was $23.5 million, an
increase of $18.6 million, compared to $4.9 million for the same period in 1997.
As a percent of revenue, other expense for the six months was 29.8% as compared
to 8.7% during the same period one year earlier.
Minority interest in projects was $1.2 million for the six month period
ended June 30, 1998, versus zero for the same period in 1997. Minority interest
relates to the Pacific Generation acquisition that took place in the fourth
quarter of 1997.
Other income was $1.9 million for the six months ended June 30, 1998
compared with $6.3 million for the six months ended June 30, 1997. The decline
was due primarily to a reduction in short term investments.
Interest expense was $24.2 million for the six months ended June 30, 1998
compared with $11.2 million for the six months ended June 30, 1997. The increase
in interest expense was due primarily to the issuance of the $250 million Senior
Notes in June 1997, interest on the Company's revolving line of credit, new debt
obtained for certain NEO projects and debt assumed as part of the Pacific
Generation acquisition.
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
six months ended June 30, 1998, increased by $10.7 million to $16.3 million as
compared to the same period one year earlier. The increase in tax benefits was
due to increased interest expense on corporate debt, an increase in Section 29
energy credits, and foreign tax benefits associated with the Loy Yang project.
YEAR 2000 ISSUE
NRG is in the process of examining year 2000 issues and is partnering with
its parent, NSP, in employing a systematic approach to deal with the Year 2000
issue. The Company expects to be well along in the process of completing its
analysis by the end of 1998. As part of the process, the Company is verifying
that all critical hardware and software systems within the corporate, subsidiary
and affiliate operations will not incur year 2000 issues. Additionally, the
Company, in conjunction with NSP, is working with its significant suppliers to
identify and eliminate any business interruptions due to year 2000 issues in the
suppliers' business processes. The cost to address the Year 2000 issues has not
yet been fully determined. Despite these efforts, there can be no assurances
that every year 2000 related issue will be identified and addressed beforehand.
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;
9
<PAGE> 12
- 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;
- 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
- --------------------------------------------------------------------------------
On July 31, 1998, an arbitration panel ordered the Company to offer its
interest in the Mid-Continent Power Company ("MCPC") facility to the
Company's 45% owned affiliate Cogeneration Corporation of America
("CogenAmerica") (formerly known as NRG Generating (U.S.) Inc.) and
enjoined the Company's pending sale of the MCPC facility to a wholly-owned
subsidiary of OGE Energy Corp. ("OGE Energy"). In accordance with the
arbitration panel's order, on August 4, 1998 the Company offered is
interest in the MCPC facility to CogenAmerica on the same terms as it had
agreed to sell to OGE Energy. Under the order, CogenAmerica has 30 days
from such date in which to accept the Company's offer, and if the offer is
not accepted in that time period, the Company has the right to request
that the arbitration panel lift the injunction. Finally, if CogenAmerica
accepts the offer, the Company will be required to finance the purchase
price of approximately $25 million in the event that other financing is not
commercially available to CogenAmerica.
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 and in Part II, Item 1 of
the Company's Form 10-Q for the quarter ended March 31, 1998.
11
<PAGE> 14
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
- --------------------------------------------------------------------------------
(a) Exhibits
27 Financial data schedule for the six month period ended
June 30, 1998
(b) None
12
<PAGE> 15
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)
---------------------------------
Leonard A. Bluhm
Executive Vice President and Chief Financial
Officer
(Principal Financial Officer)
------------------------------------
David E. Ripka
Controller
(Principal Accounting Officer)
Date: August 12, 1998
---------------
13
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE JUNE
30, 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> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 5,383
<SECURITIES> 0
<RECEIVABLES> 21,202
<ALLOWANCES> 100
<INVENTORY> 2,621
<CURRENT-ASSETS> 76,586
<PP&E> 279,511
<DEPRECIATION> 85,561
<TOTAL-ASSETS> 1,211,123
<CURRENT-LIABILITIES> 223,699
<BONDS> 509,362
0
0
<COMMON> 1
<OTHER-SE> 447,296
<TOTAL-LIABILITY-AND-EQUITY> 1,211,123
<SALES> 49,782
<TOTAL-REVENUES> 78,965
<CGS> 26,305
<TOTAL-COSTS> 58,734
<OTHER-EXPENSES> (739)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 24,251
<INCOME-PRETAX> (3,281)
<INCOME-TAX> (16,339)
<INCOME-CONTINUING> 13,058
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 13,058
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
