<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K/A
(X) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998.
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM ______ TO________.
COMMISSION FILE NO. 333-33397
NRG ENERGY, INC.
----------------
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 41-1724239
-------- ----------
(STATE OR OTHER JURISDICTION (I.R.S. EMPLOYER
OF INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
1221 NICOLLET MALL, SUITE 700
MINNEAPOLIS, MINNESOTA 55403
---------------------- -----
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
(612) 373-5300
--------------
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: None
Indicated by check mark whether the Registrant (1) has filed all reports to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter 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 by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulations S-K is not contained herein, and will not be contained,
to the best of the Registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form
10-K/A or any amendment to this Form 10-K/A. Yes X No
--- ---
As of June 23, 1999, there were 1,000 shares of common stock, $1.00 par
value, outstanding, all of which were owned by Northern States Power
Company. No other voting or non-voting common equity is held by
non-affiliates of the Registrant.
The Registrant meets the conditions set forth in General Instruction I (1)
(a) and (b) of Form 10-K and is therefore filing this Form with the reduced
disclosure format.
Documents Incorporated by Reference: None
<PAGE> 2
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) 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, on June 23, 1999.
NRG ENERGY, INC.
By: /s/ Leonard A. Bluhm
----------------------------------
Leonard A. Bluhm
Executive Vice President and
Chief Financial Officer
<PAGE> 3
SUPPLEMENTAL INFORMATION TO BE FURNISHED WITH REPORTS FILED PURSUANT TO
SECTION 15 (d) OF THE ACT BY REGISTRANTS WHICH HAVE NOT REGISTERED
SECURITIES PURSUANT TO SECTION 12 OF THE ACT.
An annual report has been sent to security holders and was supplementally filed
with the Commission. Such annual report to security holders shall not be
deemed "filed" with the Commission or otherwise subject to the liabilities of
Section 18 of the Securities Exchange Act of 1934. No proxy material will be
sent to security holders.
52
<PAGE> 1
EXHIBIT 99.2
Halle, May 14, 1999
Saale Energie GmbH,
Schkopau
Report on the audit of the
financial statements for the
years ended December 31, 1998 and 1997
in accordance with German GAAP
and on the audit of the respective
US GAAP reconciliation
Copy no. (9)
<PAGE> 2
SAALE ENERGIE GMBH
INDEX TO THE FINANCIAL STATEMENTS
Page
Report of Independent Auditors 1
Annual Financial Statements
Statements of Income for the years 1998 and 1997 2
Balance Sheets as of December 31, 1998 and 1997 3
Statements of Cash Flows for the year 1998 and 1997 4
Notes to the Financial Statements 5
<PAGE> 3
REPORT OF INDEPENDENT AUDITORS
To the Shareholders of
Saale Energie GmbH
Schkopau, Germany
We have audited the accompanying balance sheets of Saale Energie GmbH (SEG) as
of December 31, 1998 and 1997, and the related statements of income and cash
flows for the years then ended. These financial statements are the
responsibility of SEG's management. Our responsibility is to express an opinion
on these financial statements based on our audit.
We conducted our audits in accordance with auditing standards generally accepted
in Germany and the United States of America. Those standards require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Saale Energie GmbH as of
December 31, 1998 and 1997, and the results of its operations and its cash flows
for the years then ended, in conformity with accounting principles generally
accepted in Germany.
Generally accepted accounting principles in Germany vary in certain significant
respects from generally accepted accounting principles in the United States of
America. Application of generally accepted accounting principles in the United
States of America would have affected the results of operations for the year
ended December 31, 1998 and 1997 and shareholders' equity as of December 31,
1998 and 1997 to the extent summarized in Note C to the financial statements.
/s/ Deloitte & Touche GmbH
DELOITTE & TOUCHE GmbH
Wirtschaftsprufungsgesellschaft
Halle, Germany
May 14, 1999
1
<PAGE> 4
SAALE ENERGIE GMBH
STATEMENT OF INCOME
(IN THOUSANDS DM)
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31,
NOTES 1998 1997
-------- ------------ ------------
<S> <C> <C> <C>
Sales D 218,642 224,502
Other operating income 27 21
-------- -------
Total revenue 218,669 224,523
-------- -------
Cost of materials D/K 215,763 225,669
Depreciation of tangible fixed assets 1 1
Other operating expenses 1,112 1,122
-------- -------
Total operating expenses 216,876 226,792
-------- -------
Result of operations 1,793 -2,269
Income from companies in which
participations are held 8,515 7,162
Interest income (net) I 2,280 -3,152
-------- -------
Results of ordinary activities 12,588 1,741
Extraordinary loss (net) L -4,856 0
-------- -------
Profit before taxes on income 7,732 1,741
Taxes on income 0 0
-------- -------
Net profit for the year 7,732 1,741
======== =======
</TABLE>
See accompanying Notes to the Financial Statements
2
<PAGE> 5
SAALE ENERGIE GMBH
BALANCE SHEETS
(IN THOUSANDS DM)
<TABLE>
<CAPTION>
AT DECEMBER 31, AT DECEMBER 31,
NOTE 1998 1997
------------ --------------- ---------------
<S> <C> <C> <C>
ASSETS
Outstanding contributions 713 713
NON-CURRENT ASSETS
Fixed assets
Tangible assets
Factory and office equipment B 0 1
Financial asset
1. Shares in affiliated companies B, E 49 49
2. Participations B, E 204,193 200,677
3. Loans to participations B, F 83,800 82,200
------- -------
TOTAL NON-CURRENT ASSETS 288,042 282,927
CURRENT ASSETS
Inventories
Raw materials and supplies B 847 714
Receivables and other assets
1. Trade receivables B, D, G 22,505 18,860
2. Other assets B, G 4,151 3,541
Bank balances B 107,823 16,522
------- -------
TOTAL CURRENT ASSETS 135,326 39,637
------- -------
TOTAL ASSETS 424,081 323,277
======= =======
SHAREHOLDERS' EQUITY AND LIABILITIES
SHAREHOLDERS' EQUITY H
Subscribed capital 1,000 1,000
Capital reserve 48,041 48,041
Net income for the year 7,732 1,741
Accumulated losses brought forward -9,642 -11,383
------- -------
TOTAL SHAREHOLDERS' EQUITY 47,131 39,399
Accruals
Other accruals B 3,292 80
Liabilities
1. Trade payables B, I 3,940 3,541
2. Payables to shareholding companies B, I 77 69
3. Payables to affiliated companies B, I 373 3,140
4. Payables to participations B, I 324,663 234,837
5. Other payables B, I 44,605 42,211
------- -------
TOTAL SHAREHOLDERS' EQUITY AND LIABILITIES 424,081 323,277
======= =======
</TABLE>
See accompanying Notes to the Financial Statements
3
<PAGE> 6
SAALE ENERGIE GMBH
STATEMENT OF CASH FLOWS
(IN THOUSANDS DM)
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31,
1998 1997
------------ ------------
<S> <C> <C>
Cash generated by operations:
Net income for the year 7,732 1,741
Adjustments to reconcile the net profit to the cash generated by operations:
Depreciation on tangible assets and current asset write-offs 1 1
Change in assets and liabilities:
Inventories -133 -389
Short-term trade receivables -3,645 5,904
Other assets -610 11,009
Accruals 3,212 40
Short-term trade payables 400 -5,295
Other liabilities 84,717 65,579
------- --------
CASH RETAINED FROM OPERATING ACTIVITIES 91,674 78,590
------- --------
Cash flows from financing activities:
Proceeds from loans -373 -90,816
------- --------
CASH UTILIZED IN FINANCING ACTIVITIES -373 -90,816
------- --------
NET DECREASE IN CASH 91,301 -12,226
CASH AT BEGINNING OF YEAR 16,522 28,748
------- --------
CASH AT END OF YEAR 107,823 16,522
======= ========
</TABLE>
See accompanying notes to the Financial Statements
4
<PAGE> 7
SAALE ENERGIE GMBH
NOTES TO THE FINANCIAL STATEMENTS
(IN THOUSANDS DM)
NOTE A ORIGINATION AND NATURE OF BUSINESS
ORIGINATION: According to the Articles of Association, Saale Energie GmbH
("SEG") was established on November 11, 1993. The company's shares are held at
50 % by NRGenerating International B.V., Amsterdam and at 50 % by PowerGen
Holdings B.V., Rotterdam.
NATURE OF BUSINESS: The operations of SEG include all activities relating to the
direct and indirect acquisition, ownership, administration and operation of
power generating facilities located in Schkopau, including the purchase of fuel
and the sale of energy produced in the facilities. The business of the company
further constitutes all activities relating to the supply of management,
maintenance and consulting services in respect of power stations and related
plants. The company is authorized to take all other actions and engage in all
other businesses which appear to be necessary and useful in order to carry into
effect the purpose of the company. In particular it is authorized to hold,
acquire and create subsidiaries, branches, companies and interests in other
enterprises.
NOTE B SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ACCOUNTING PRINCIPLES: The financial statements of SEG have been prepared in
accordance with the German Commercial Code, which represents accounting
principles generally accepted in Germany ("German GAAP"). German GAAP vary in
certain significant respects from accounting principles generally accepted in
the United States of America ("US GAAP"). Application of US GAAP would have
affected the results of operations for the years ended December 31, 1998 and
1997 and shareholders equity at December 31, 1998 and 1997 to the extent
summarized in Note C to the financial statements. All amounts herein are shown
in thousands of Deutsche Mark ("TDM") unless otherwise stated.
CONSOLIDATION: SEG does not prepare German GAAP consolidated financial
statements. SEG owns a 98 % share of its affiliated company (subsidiary) Saale
Energie Service GmbH ("SES"). The investment in SES is included at cost in SEG's
financial statements. Furthermore, SEG holds a 41.9 % share in the Kraftwerk
Schkopau GbR ("GbR") and a 44.4 % share in the Kraftwerk Schkopau
Betriebsgesellschaft mbH. These companies are included at cost and referred to
as participations in these financial statements.
5
<PAGE> 8
SAALE ENERGIE GMBH
NOTES TO THE FINANCIAL STATEMENTS
(IN THOUSANDS DM)
USE OF ESTIMATES: The preparation of financial statements in conformity with
generally accepted accounting principles necessarily requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent liabilities at the balance sheet date
and the reported amounts of revenues and expenses during the reported period.
Actual results could differ from those estimates.
TOTAL COST METHOD: The statement of operations is presented according to the
total cost (or type of expenditure) format as commonly used in Germany.
According to this format, production and all other expenses incurred during the
period are classified by type of expenses.
REVENUE RECOGNITION: Revenue is recognized when title passes or services are
rendered, net of discounts, customer bonuses and rebates granted.
FIXED ASSETS: Fixed tangible assets are recorded on the basis of acquisition or
manufacturing cost and subsequently reduced by scheduled depreciation charges
over the assets' useful lives.
FINANCIAL ASSETS: The long-term loans and investments are recorded at cost.
INVENTORIES: Inventories are accounted for at historical purchase cost.
RECEIVABLES AND OTHER ASSETS: All receivables are recorded at nominal value. An
allowance for doubtful accounts has been recorded and deducted from the trade
receivables balance.
BANK BALANCES: Bank balances include current accounts and fixed deposits.
ACCRUALS AND LIABILITIES: Accruals have been recorded for known obligations at
the balance sheet date at the amounts of the estimated liabilities. Liabilities
are valued at the amounts outstanding.
EXTRAORDINARY ITEMS: These are non-recurring income and expenses, which do not
result from the ordinary activities of the company. The extraordinary income and
expenses are disclosed in Note L to the financial statements.
6
<PAGE> 9
SAALE ENERGIE GMBH
NOTES TO THE FINANCIAL STATEMENTS
(IN THOUSANDS DM)
NOTE C SIGNIFICANT DIFFERENCES BETWEEN GERMAN AND UNITED STATES GENERALLY
ACCEPTED ACCOUNTING PRINCIPLES
SEG's financial statements comply with German GAAP, which differs in certain
significant respects from US GAAP. The differences that would have a significant
effect on net income and shareholders' equity are set out below.
1. Consolidation
SEG does not prepare consolidated financial statements according to the German
Commercial Code. If US GAAP were applied, SEG would be required to prepare
consolidated financial statements, which would include the financial statements
of SES.
US GAAP financial statements would therefore include the current year's
operating results of SES, net of minority interests, and would exclude the
dividend income received by SEG.
2. Accounting for long term service and supply agreements
For German GAAP purposes, the amounts billed to SEG resulting from the use and
benefit agreement between SEG and GbR are recorded as expenses of the period.
Parallel, the amounts attributable to the long-term electricity supply contract
with the company's sole customer are recorded as revenue in the period they are
invoiced (see Note D).
In accordance with US GAAP, these agreements would be considered as leasing
agreements. The use and benefit agreement would be considered a capital lease,
and the long-term sales agreement, as it relates to capacity availability, would
be treated as a direct financing lease arrangement. The revenues and expenses
recorded based upon current billings would be replaced by the amortization of
unearned direct finance lease income and interest expense on lease obligations
in accordance with US GAAP.
The net present value of the minimum lease payments to be received by SEG under
the terms of the agreement amounts to TDM 813,594, whereas the net present value
of the lease obligation payable by SEG over the minimum period of 25 years is
TDM 512,868 as of December 31, 1998.
7
<PAGE> 10
SAALE ENERGIE GMBH
NOTES TO THE FINANCIAL STATEMENTS
(IN THOUSANDS DM)
3. Outstanding contributions from the shareholders
As of December 31, 1998, outstanding contributions from shareholders amounted to
TDM 713, which were not deducted from shareholders' equity in the German
financial statements. The shareholders' equity for US GAAP purposes has to be
reduced by the outstanding contributions.
4. Deferred taxes
Under German GAAP, SEG did not accrue for income tax, because the accumulated
tax losses of prior years exceed the net profit for the 1998 financial year.
Deferred tax assets and liabilities have not been recorded, because under German
GAAP, they are only required to be recognized to the extent that the deferred
tax liabilities exceed the deferred tax assets. Deferred tax assets are not
recorded for accumulated tax losses brought forward.
For purposes of US GAAP accounting the financial values differ significantly
from the tax basis mainly due to the application of lease accounting.
Significant components of SEG's deferred tax liabilities and assets as of
December 31, 1998 and 1997, that would have resulted from accumulated tax losses
and temporary differences between the US GAAP financial statement basis and tax
basis of assets and liabilities are summarized as follows:
<TABLE>
<CAPTION>
12/31/1998 12/31/1997
TDM TDM
--- ---
<S> <C> <C>
Deferred tax liability:
lease accounting 165.721 109.539
Total deferred liability 165.721 109.539
------- -------
Deferred tax assets:
accumulated tax losses 48.276 51.457
investment in GbR 3.812 3.359
Total deferred asset 52.088 54.816
------- ------
Net deferred tax liability 113.633 54.723
======= ======
</TABLE>
RECONCILIATION TO US GAAP
8
<PAGE> 11
SAALE ENERGIE GMBH
NOTES TO THE FINANCIAL STATEMENTS
(IN THOUSANDS DM)
The following is a summary of the significant adjustments to net income for 1998
and 1997 which would have been be required if US GAAP had been applied instead
of German GAAP.
<TABLE>
<CAPTION>
Year ended Year ended
December 31, December 31,
1998 1997
Item TDM TDM
---- --- ---
<S> <C> <C> <C>
Net income as reported in the statement
of income under German GAAP 7.732 1.741
Consolidation of SES 1. 134 -1.578
Lease adjustment 2. 83.757 71.766
Deferred taxes 4. -58.910 -41.636
Net profit in accordance
with US GAAP 32.713 30.293
======= =======
</TABLE>
9
<PAGE> 12
SAALE ENERGIE GMBH
NOTES TO THE FINANCIAL STATEMENTS
(IN THOUSANDS DM)
The following is a summary of the significant adjustments to shareholders'
equity as of December 31, 1998 and 1997 which would have been required if US
GAAP had been applied instead of German GAAP.
<TABLE>
<CAPTION>
Year ended Year ended
December 31, December 31,
1998 1997
Item TDM TDM
---- --- ---
<S> <C> <C> <C>
Shareholders' equity as reported in the
balance sheet under German GAAP 47.131 39.399
Adjustments required to conform
with US GAAP:
Consolidation of SES C 1. 1.834 1.700
Lease adjustment L 2. 187.059 103.302
Outstanding contributions O 3. -713 -713
Deferred taxes D 4. -113.633 -54.723
Shareholders' equity in
accordance with US GAAP 121.678 88.965
======== =======
</TABLE>
NOTE D LONG-TERM SALES AND SERVICE AGREEMENTS
According to the long-term electricity supply contract between SEG and its sole
customer, SEG supplies its total available electricity capacity to this
customer. The contract has a term of 25 years starting at the date of
commissioning of the power plant. The customer is obliged to pay on a monthly
basis a price that covers (1) the availability of power supply capacity and (2)
the operating costs incurred to produce the electricity. The customer has agreed
to make minimum payments of TDM 2,392,322 over the period of the agreement (25
years). SEG's entire sales in 1998 and 1997 were made to this customer.
10
<PAGE> 13
SAALE ENERGIE GMBH
NOTES TO THE FINANCIAL STATEMENTS
(IN THOUSANDS DM)
SEG closed a use and benefit agreement with Kraftwerk Schkopau GbR under which
GbR grants SEG a notional share of 400 MW (power share) in the total net
capacity of the power station for its sole use. The SEG power share encompasses
all plant and equipment of the power station. In return SEG is obliged to pay
all costs of the GbR related to the SEG-power share as stipulated in the
agreement plus a profit margin plus value added tax. Such billings amounted to
TDM 133,412 and TDM 139,294 in 1998 and 1997, respectively.
In order to manage and operate its share in the power plant, SEG closed a
contract with Kraftwerk Schkopau Betriebsgesellschaft mbH (KSB). SEG commissions
KSB with the conversion of coal using its power share of 400 MW of the Schkopau
power plant, and KSB accepts responsibility for all costs of operating and
maintaining the power plant. In terms of the contract SEG is obliged to pay for
KSB's services. The management fees levied by the KSB amounted to TDM 54,779 and
TDM 54,713 in 1998 and 1997, respectively.
NOTE E INVESTMENTS IN SUBSIDIARIES AND PARTICIPATIONS
SEG holds a 98 % share in Saale Energie Services GmbH (SES). The investment is
accounted for at its historical acquisition cost of TDM 49. The business of the
company consists of all activities relating to the supply of management,
maintenance and consulting services in respect of power stations and related
plants, especially for the power stations of the Mitteldeutsche
Braunkohlengesellschaft mbH (MIBRAG) and its affiliated companies.
SEG holds a 41.9 % participation in the GbR, which owns the Schkopau power
plant, at the historical cost value of TDM 204,193. SEG's provisional share of
41.1% was adjusted to 41.9 % as determined at the GbR shareholders meeting of
May 28, 1998. See Note L. The investment in the GbR at year-end incorporates an
adjustment (TDM 3,516) for this increased interest of SEG in the GbR.
11
<PAGE> 14
SAALE ENERGIE GMBH
NOTES TO THE FINANCIAL STATEMENTS
(IN THOUSANDS DM)
SEG's 44.4 % share in the Kraftwerk Schkopau Betriebsgesellschaft mbH (KSB) has
been recorded at the historical acquisition cost of TDM 22. SEG has assigned its
share in KSB to PwC Deutsche Revision AG in security for the other partner in
the GbR.
12
<PAGE> 15
SAALE ENERGIE GMBH
NOTES TO THE FINANCIAL STATEMENTS
(IN THOUSANDS DM)
NOTE F LOAN TO KRAFTWERK SCHKOPAU GBR
In terms of the loan agreement between the participants of the GbR, SEG has to
grant a loan of up to TDM 100,560 to GbR. The balance outstanding (and the
amount drawn by the GbR) at December 31, 1998 was TDM 83,800. The loan to the
GbR was increased by 0,8 % as a result of the asset-split agreement (TDM1,600).
The loan is unsecured and bears interest at a fixed rate of 7 % p.a.. The
interest on the loan for 1998 of TDM 5,866 was set-off from the payables to
the GbR (see NOTE I). The loan has been granted for an indefinite period and the
repayment terms are not fixed.
NOTE G RECEIVABLES AND OTHER ASSETS
The net trade receivables of TDM 22,505 and TDM 18,860, as reported on December
31, 1998 and 1997, respectively, relate to power supplied to the company's sole
customer. The balances are net of allowances for doubtful accounts of TDM 75 in
1998 (TDM 0 in 1997).
The other assets are mainly receivables from tax authorities.
NOTE H CHANGE IN SHAREHOLDERS' EQUITY
Shareholders' equity of SEG changed in 1998 and 1997 solely by the net profit
for the year.
13
<PAGE> 16
SAALE ENERGIE GMBH
NOTES TO THE FINANCIAL STATEMENTS
(IN THOUSANDS DM)
NOTE I LIABILITIES
<TABLE>
<CAPTION>
Maturity Maturity
Total balance Maturity period period period of Total balance
as of of less than 1 between 1 more than 5 as of
12/31/1998 year and 5 years years 12/31/1997
TDM TDM TDM TDM TDM
------------- --------------- ------ --------- -------------
<S> <C> <C> <C> <C> <C>
1) Trade payables 3.940 3.940 3.541
2) Payables to
shareholding
companies 77 77 69
3) Payables to
affiliated
companies 373 373 3.140
4) Payables to
companies in
which
participations are
held 324.663 56.080 224.830 43.753 234.837
5) Other liabilities 44.605 44.605 42.211
------- ------- ------- ------ -------
373.658 105.075 224.830 43.753 283.798
======= ======= ======= ====== =======
</TABLE>
The maturity periods of the liabilities are as follows:
The liability as of December 31, 1998 and 1997 comprises of the following:
<TABLE>
<CAPTION>
12/31/1998 12/31/1997
TDM TDM
---------- ----------
<S> <C> <C>
a) Kraftwerk Schkopau GbR (GbR) 319.159 230.111
b) Kraftwerk Schkopau
Betriebsgesellschaft mbH (KSB) 5.504 4.726
------- -------
324.663 234.837
</TABLE>
14
<PAGE> 17
SAALE ENERGIE GMBH
NOTES TO THE FINANCIAL STATEMENTS
(IN THOUSANDS DM)
a) The payables to GbR comprise of three components:
TDM 272,206 (in 1997, TDM 188,275) refers to the fees related to the use and
benefit agreement and represent SEG's share in the power plant's expenses. The
gross fees payable was reduced by the interest on the GbR loans, the share in
the profit of the GbR as well as cash calls by the GbR.
TDM 43,753 (in 1997, TDM 41,837) results from SEG's obligation to reimburse its
share in the shortfall achieved in the 1995 financial statement of the GbR as
well as the shortfall achieved in 1996 up to the commissioning date of the power
plant (March 31, 1996). TDM 16,966 was repaid during 1997. The increase in the
payables reflects the increase in SEG's interest in the Schkopau power plant to
41.9%.
TDM 3,200 comprises of the liability in respect of outstanding equity
contributions and loans to the GbR as a result of the increase of SEG's interest
by 0.8% in the GbR in 1998.
The payables to the GbR are interest free.
b) The liability to the KSB mainly arises from the coal conversion contract
between SEG and KSB. See Note D.
The other owner of the GbR granted a loan of up to TDM 50 million to SEG for
purposes of funding the interest due during the construction period of the power
plant. A variable interest rate of 3 months LIBOR plus 2 % p.a. was charged
during 1998 and 1997.
NOTE J OTHER FINANCIAL COMMITMENTS
For financial commitments relating to the leased assets and lease commitments
see note C.
15
<PAGE> 18
SAALE ENERGIE GMBH
NOTES TO THE FINANCIAL STATEMENTS
(IN THOUSANDS DM)
NOTE K RELATED PARTY TRANSACTIONS
SEG and MIBRAG, a related company with common shareholders NRG Energy Inc. and
PowerGen plc., closed a long-term coal supply agreement. Under the terms of this
agreement MIBRAG delivers lignite to the power station in Schkopau until 2010 at
market prices. The annual volume of coal to be delivered by MIBRAG was not fixed
in the agreement. The lignite purchased by SEG from MIBRAG during 1998 amounted
to TDM 27,706 (1997, TDM 32,052).
In addition, SES and MIBRAG entered into a consulting and management agreement.
In 1998 MIBRAG was billed TDM 4,861 (1997, TDM 4,548) by SES.
NOTE L EXTRAORDINARY LOSS (NET)
The extraordinary items in 1998 relate to the adjustments, in respect of prior
years, which resulted from the asset-split agreement of May 28, 1998. There were
no extraordinary items recorded in 1997.
16
<PAGE> 19
SAALE ENERGIE GMBH
NOTES TO THE FINANCIAL STATEMENTS
(IN THOUSANDS DM)
<TABLE>
<CAPTION>
Year ended
December 31,
1998
TDM
------------
<S> <C>
Extraordinary income
Interest income on loans to participations 112
Interest in the profit of participations 57
-----
169
-----
Extraordinary expenses
Use and benefit fees:
- -1997 2.711
- -1996 1.864
Interest expense from the asset split 450
-----
5.025
-----
Extraordinary loss, net 4.856
=====
</TABLE>
17
<PAGE> 1
EXHIBIT 99.3
SUNSHINE STATE POWER B.V.
ANNUAL FINANCIAL REPORT
DECEMBER 31, 1998
<PAGE> 2
SUNSHINE STATE POWER B.V.
ANNUAL FINANCIAL REPORT
DECEMBER 31, 1998
CONTENTS PAGE
DIRECTORS' REPORT 1 - 2
AUDITORS' REPORT 3
BALANCE SHEET AT DECEMBER 31, 1998 4
STATEMENT OF INCOME FOR THE YEAR ENDED DECEMBER 31, 1998 5
STATEMENT OF CASH FLOWS FOR THE YEAR ENDED DECEMBER 31, 1998 6
NOTES TO THE ANNUAL ACCOUNTS FOR THE YEAR
ENDED DECEMBER 31, 1998 7 - 14
OTHER INFORMATION 15
DIRECTORS
D.H. Peterson
R.J. Will
V.A. Knudsen
<PAGE> 3
SUNSHINE STATE POWER B.V.
DIRECTORS' REPORT
DECEMBER 31, 1998
(in Australian dollars)
1. OPERATIONS AND YEAR END POSITION
Sunshine State Power B.V.'s principal operating activity is the ownership of 20%
of the Gladstone Power Station Joint Venture. The Gladstone Power Station Joint
Venture owns and operates the Gladstone Power Station located in Queensland,
Australia. The Gladstone Power Station Joint Venture is an unincorporated joint
venture and therefore not a separate legal entity. Accordingly, the Gladstone
Power Station Joint Venture owners act as tenants in common owning their
proportionate shares of the unincorporated joint venture's assets, liabilities,
and results of operations. Sunshine State Power B.V.'s net turnover and net
result for the year ended December 31, 1998 were AUD 57.2 million and AUD 5.8
million, respectively. Sunshine State Power B.V.'s net turnover and net result
for period ended December 31, 1997 were AUD 55.5 million and AUD 2.4 million,
respectively. The Gladstone Power Station performed satisfactorily during the
period and the financial position at year end remains good.
2. SIGNIFICANT EVENTS AND FUTURE PROSPECTS
On March 30, 1994, the Gladstone Power Station Joint Venture purchased the
Gladstone Power Station from the Queensland Transmission and Electric
Corporation (formerly Queensland Electric Commission) for approximately AUD 750
million. Sunshine State Power B.V.'s share of the acquisition was financed with
long-term debt with banks and subordinated notes payable from its shareholders,
NRGenerating International B.V. and Gunwale B.V., which are ultimately
wholly-owned by NRG Energy, Inc., which is incorporated in the United States of
America.
The Gladstone Power Station Joint Venture is contracted to spend approximately
AUD 12 million in improvements and refurbishment's over the next five years as
part of a continuing capital works project on the Gladstone Power Station. These
expenditures, of which AUD 3 million are planned for 1999, are expected to
improve the efficiency, operations and environmental compliance of the Gladstone
Power Station. There are no significant changes expected in the level of
Gladstone Power Station Joint Venture financing during 1999 at the Gladstone
Power Station.
-1-
<PAGE> 4
3. RESEARCH AND DEVELOPMENT
As part of the operations of the Gladstone Power Station, research and
development is performed to improve the efficiency and operations of the station
and to increase its environmental compliance.
For and behalf of the Board
Amsterdam, the Netherlands
March 12, 1999
D.H. Peterson
R.J. Will
V.A. Knudsen
-2-
<PAGE> 5
COPY
TO THE SHAREHOLDERS OF SUNSHINE STATE POWER B.V.
AUDITORS' REPORT
INTRODUCTION
In accordance with your instructions, we have audited the 1998 financial
statements of Sunshine State Power B.V., Queensland, Australia set out on pages
4 to 14 of this report. These financial statements are the responsibility of the
company's management. Our responsibility is to express an opinion on these
financial statements based on our audit.
SCOPE
We conducted our audit in accordance with auditing standards generally accepted
in the Netherlands. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis for our
opinion.
OPINION
In our opinion, the financial statements give a true and fair view of the
financial position of the company as of December 31, 1998 and of the result for
the year then ended in accordance with accounting principles generally accepted
in the Netherlands and comply with the financial reporting requirements included
in Part 9, Book 2 of the Dutch Civil Code.
PRICEWATERHOUSECOOPERS N.V.
Amsterdam, March 12, 1999
-3-
<PAGE> 6
SUNSHINE STATE POWER B.V.
BALANCE SHEET AT DECEMBER 31, 1998 (Before appropriation of the result for the
year) (Amounts expressed in thousands of Australian dollars)
<TABLE>
<CAPTION>
1998 1997
AUD'000 AUD'000
<S> <C> <C>
ASSETS
- ------
FIXED ASSETS
Intangible fixed assets 7 455 7 926
Tangible fixed assets 157 432 161 545
------- -------
164 887 169 471
CURRENT ASSETS
Stocks 3 497 2 254
Receivables 5 521 4 470
Cash and bank balances 11 471 10 885
------- -------
20 489 17,609
------- -------
TOTAL ASSETS 185 376 187 080
------- -------
SHAREHOLDERS' EQUITY AND LIABILITIES
- ------------------------------------
SHAREHOLDERS' EQUITY
Issued share capital 30 30
Retained earnings 26 580 24 147
Result for the year 5 826 2 433
------- -------
32 436 26 610
------- -------
Provisions 17 918 16 195
Long-term liabilities 125 480 135 435
Current liabilities 9 542 8 840
------- -------
TOTAL SHAREHOLDERS' EQUITY AND LIABILITIES 185 376 187 080
------- -------
</TABLE>
The accompanying notes form an integral part of the annual accounts.
-4-
<PAGE> 7
SUNSHINE STATE POWER B.V.
STATEMENT OF INCOME FOR THE YEAR ENDED DECEMBER 31, 1998 (Amounts expressed in
thousands of Australian dollars)
<TABLE>
<CAPTION>
1998 1997
AUD'000 AUD'000
<S> <C> <C>
Net turnover
Queensland Transmission & Supply Corporation 18 819 24 105
Boyne Smelters Limited 38 377 31 386
------- -------
TOTAL 57 196 55 491
Cost of turnover
Non-fuel 9 345 8 864
Fuel 24 864 19 972
------- -------
TOTAL 34 209 28 836
------- -------
GROSS PROFIT ON TURNOVER 22 987 26 655
------- ------
Operating expenses 1 624 2 484
Depreciation and amortization expense 6 409 6 328
------- -------
TOTAL EXPENSES 8 033 8 812
------- ------
NET PROFIT ON TURNOVER 14 954 17 843
------- -------
Interest expense 6 942 7 831
Interest income (566) (667)
Foreign exchange loss 995 6 951
Disposal of assets loss/(gain) 19 (73)
------- -------
NET FINANCIAL EXPENSE 7 390 14 042
------- -------
Result from ordinary operations before taxation 7 564 3 801
Taxation 1 738 1 368
------- -------
NET RESULT 5 826 2 433
------- -------
</TABLE>
The accompanying notes form an integral part of the annual accounts.
-5-
<PAGE> 8
SUNSHINE STATE POWER B.V.
STATEMENT OF CASH FLOWS FOR THE YEAR ENDED DECEMBER 31, 1998 (Amounts expressed
in thousands of Australian dollars)
<TABLE>
<CAPTION>
1998 1997
AUD'000 AUD'000
<S> <C> <C>
Cash flows from operating activities
Net result 5 826 2 433
Adjustments to reconcile net result to net cash provided by
operating activities:
Depreciation and amortization 6 409 6 328
Deferred income taxes 1 738 1 368
Foreign exchange loss 995 6 951
Loss/(gain) on sale of fixed assets 19 (73)
Changes in operating assets and liabilities:
Stocks (1 243) 1 282
Receivables (1 051) 407
Provisions (15) 209
Current liabilities 164 48
------- -------
NET CASH FLOWS PROVIDED BY
OPERATING ACTIVITIES 12 842 18 953
------- ------
Cash flows from investing activities
Purchases of tangible fixed assets (1 867) (2 251)
Proceeds from sale of fixed assets 23 94
------- -------
NET CASH FLOWS USED BY
INVESTING ACTIVITIES (1 844) (2 157)
------- -------
Cash flows from financing activities
Repayments of notes payable (4 974) (12 896)
Repayments of long-term debt (5 438) (4 913)
------- -------
NET CASH FLOWS USED BY
FINANCING ACTIVITIES (10 412) (17 809)
------- -------
NET INCREASE (DECREASE) IN
CASH AND BANK BALANCES 586 (1 013)
------- -------
Cash and bank balances
Beginning of year 10 885 11 898
------- -------
End of year 11 471 10 885
------- -------
SUPPLEMENTAL DISCLOSURE OF
CASH PAID FOR INTEREST 7 744 8 072
------- -------
</TABLE>
The accompanying notes form an integral part of the annual accounts.
-6-
<PAGE> 9
SUNSHINE STATE POWER B.V.
NOTES TO THE ANNUAL ACCOUNTS FOR THE YEAR ENDED DECEMBER 31, 1998
(Amounts expressed in thousands of Australian dollars)
1. GENERAL
ACTIVITIES
Sunshine State Power B.V. (the Company) was incorporated on November 11, 1993
and is seated in Amsterdam, the Netherlands. The Company's principal operating
activity is the ownership of 20% of the Gladstone Power Station Joint Venture.
The Gladstone Power Station Joint Venture owns and operates the Gladstone Power
Station located in Queensland, Australia which it acquired on March 30, 1994.
The Gladstone Power Station Joint Venture is an unincorporated joint venture and
therefore not a separate legal entity. Accordingly, the Gladstone Power Station
Joint Venture owners act as tenants in common owning their proportionate shares
of the unincorporated joint venture's assets, liabilities and results of
operations. The unincorporated joint venture's assets liabilities results of
operations and cash flows have been taken up in this annual financial report on
a proportionate basis.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
GENERAL
Unless otherwise stated assets and liabilities are carried at nominal value.
FOREIGN CURRENCIES
Assets and liabilities at year-end and transactions during the period
denominated in a foreign currency are translated into the Company's functional
currency (Australian dollars) at the exchange rates ruling at year-end and at
the time of the transaction, respectively. Exchange adjustments are taken to the
statement of income.
INTANGIBLE FIXED ASSETS
Project development expenditures
Project development expenditures represent the Company's share of project
development expenditures incurred by the Gladstone Power Station Joint Venture
to organize the acquisition of the Gladstone Power Station and operate it
subsequent to the acquisition.
-7-
<PAGE> 10
Capitalised development expenditures are being amortized over the term of the
Gladstone Power Station Power sales agreements (35 years), commencing from the
date the investment in the project was consummated. The carrying values of
capitalized development expenditures and the amortization periods are reviewed
annually and any necessary write down is charged against income. Research
expenditures and expenditures on development of existing projects are charged
against income in the year in which they are incurred.
Financing costs
Financing costs represent the Company's share of the costs incurred by the
Gladstone Power Station Joint Venture to acquire the long-term debt used to
finance the acquisition of the Gladstone Power Station. Capitalized financing
costs are being amortized over a ten year period, which represents the timeframe
until the Company expects the long-term debt will be refinanced.
TANGIBLE FIXED ASSETS
All tangible fixed assets are stated at cost. The Company has not had any
revaluations performed on its tangible fixed assets. Tangible fixed assets, with
the exception of land, are depreciated over their estimated useful lives or over
the life of the power purchase agreement by the straight line method. Ordinary
maintenance and repairs are expensed as incurred; replacements and improvements
are capitalized.
The estimated useful lives are:
Site roads and preparation 35 years
Generators, systems, stacks, etc. 35 years
Coal handling plant 10 - 35 years
Other operating fixed assets 3 - 10 years
STOCKS
Stocks are carried at the lower of cost (principally by the FIFO method or
another method which approximates FIFO) and net realisable value. In valuing
stocks, appropriate allowance is made for obsolete or slow-moving items.
TRADE DEBTORS
Trade debtors are stated at nominal value net of provision for doubtful debtors.
PROVISIONS
Employee provisions
Provisions are made for amounts expected to be paid to the operator of the
Gladstone Power Station in respect of its employees for the pro rata
entitlements for long service and annual leave. These amounts are accrued at
actual pay rates having regard to experience of employee's departure and period
of service. The provisions are divided into current (expected to be paid in the
ensuing twelve months) and non-current portions.
-8-
<PAGE> 11
Deferred tax
Provisions for deferred taxes have been set up where items entering into the
determination of accounting profit for one period are recognised for taxation
purposes in another. The principal difference arises in connection with the
depreciation of fixed assets. In calculating the provision, current tax rates
are applied.
COMPANY INCOME TAX
Company income tax is based upon the results reported in the statement of income
as adjusted for permanent differences. Current Australian tax rates are applied.
During 1998, the Company recognised AUD 985 for accumulated Australian
development allowances which reduced the current provision.
CASH FLOW STATEMENT
The cash flow statement has been prepared using the indirect method.
3. INTANGIBLE FIXED ASSETS
The movements in the intangible fixed assets are summarised as follows:
<TABLE>
<CAPTION>
Project
development Financing
expenditures costs Total
------------ --------- -------
AUD'000 AUD'000 AUD'000
<S> <C> <C> <C>
COST
Balance at December 31, 1997 6 984 2 707 9 691
Additions for the year ended
December 31, 1998 -- -- --
------ ------ ------
Balance at December 31, 1998 6 984 2 707 9 691
------ ------ ------
ACCUMULATED AMORTIZATION
Balance at December 31, 1997 (749) (1 016) ()
Amortisation for the year ended
December 31, 1998 (200) (271) (471)
------ ------ ------
Balance at December 31, 1998 (949) (1 287) (2 236)
------ ------ ------
Net book value at December 31, 1998 6 035 1 420 7 455
------ ------ ------
</TABLE>
-9-
<PAGE> 12
4. TANGIBLE FIXED ASSETS
The movements in the tangible fixed assets are summarised as follows:
<TABLE>
<CAPTION>
Other
Site roads Generators, Coal operating
and systems, handling fixed
Land preparation stacks plant assets Total
---- ----------- ------ ----- ------ -----
AUD'000 AUD'000 AUD'000 AUD'000 AUD'000 AUD'000
<S> <C> <C> <C> <C> <C> <C>
COST
Balance at
December 31, 1997 216 2 834 165 774 9 708 2 972 181 504
Additions 13 1 386 28 295 1 722
Disposals -- -- -- (43) (43)
------- ------- ------- ------- -------- -------
Balance at
December 31, 1998 216 2 847 167 160 9 736 3 224 183 183
------- ------- ------- ------- -------- -------
ACCUMULATED DEPRECIATION
Balance at
December 31, 1997 -- (333) (16 536) (2 060) (1 181) (20 110)
Charge for the year -- (155) (4 819) (689) (276) (5 939)
------- ------- ------- ------- -------- -------
Balance at
December 31, 1998 -- (488) (21 355) (2 749) (1 457) (26 049)
------- ------- ------- ------- -------- -------
Net book value at
December 31, 1998 216 2 359 145 805 6 987 1 767 157 134
------- ------- ------- ------- -------- -------
Construction in progress
at December 31, 1998 298
(construction in progress
at December 31, 1997 was AUD 151) -------
Net tangible fixed assets
at December 31, 1998 157 432
-------
</TABLE>
5. STOCKS
<TABLE>
<CAPTION>
December 31, December 31,
1998 1997
---- ----
AUD'000 AUD'000
<S> <C> <C>
Coal 2 309 1 046
Fuel oils 84 146
Chemicals 7 5
Spares and consumables 1 097 1 057
----- -----
3 497 2 254
----- -----
</TABLE>
-10-
<PAGE> 13
6. RECEIVABLES
<TABLE>
<CAPTION>
December 31, December 31,
1998 1997
---- ----
AUD'000 AUD'000
<S> <C> <C>
Trade debtors 5 444 4 249
Prepayments 77 221
----- -----
5 521 4 470
----- -----
</TABLE>
All receivables are due in less than one year.
7. CASH AND BANK BALANCES
All cash and bank balances are held by banks and include investments with
maturities of three months or less which are readily convertible to cash. The
Company's long-term debt agreement places restrictions on the amount of cash and
bank balances which must be maintained. At December 31, 1998 and 1997, the
restricted cash and bank balances totalled AUD 6 400 and AUD 6 200,
respectively.
8. ISSUED SHARE CAPITAL
The authorised share capital consists of 2,000 shares each having a nominal
value of 30 Australian dollars (40 Dutch Guilders), of which 1,000 shares have
been issued and fully paid up at December 31, 1998. The Company's shares are
owned by NRGenerating International B.V. (990) and Gunwale B.V. (10). Both
NRGenerating International B.V. and Gunwale B.V. are wholly-owned by NRG Energy,
Inc., which is incorporated in the United States of America.
9. RETAINED EARNINGS
<TABLE>
<CAPTION>
1998 1997
AUD'000 AUD'000
<S> <C> <C>
Balance at January 1 24 147 15 014
Appropriation of prior years result 2 433 9 133
------- -------
Balance at December 31 26 580 24 147
------- -------
</TABLE>
-11-
<PAGE> 14
10. PROVISIONS
<TABLE>
<CAPTION>
Employee provisions Deferred tax Total
------------------- ------------ -------
AUD'000 AUD'000 AUD'000
<S> <C> <C> <C>
Balance at December 31, 1997 1 244 14 951 16 195
Charged/(released) to income (15) 1 738 1 723
----- ------ ------
Balance at December 31, 1998 1 229 16 689 17 918
----- ------ ------
</TABLE>
Approximately AUD 663 of the employee provisions are current and expected to be
paid during 1999.
11. LONG-TERM LIABILITIES
Secured long-term debt due to third parties
<TABLE>
<CAPTION>
December 31, December 31,
1998 1997
------------ ------------
AUD'000 AUD'000
<S> <C> <C>
Secured - with banks 97 408 103 383
------- -------
</TABLE>
Current installments of bank long-term debt are included under current
liabilities. The interest rate for long-term debt is variable based on an
average of the bid rates quoted by the banks plus a margin of 1.4% at December
31, 1998.
The bank long-term debt is repayable as follows (in AUD'000):
<TABLE>
<S> <C>
1999 5 975
2000 6 600
2001 7 275
2002 8 012
2003 8 850
Thereafter 66 671
-------
103 383
-------
</TABLE>
The bank long-term debt is secured by the Company's ownership interest in the
Gladstone Power Station Joint Venture.
Unsecured subordinated notes payable (AUD'000)
-12-
<PAGE> 15
On March 25, 1994 the Company received loans from NRGenerating International
B.V. and Gunwale B.V., the primary shareholders of the Company, in the amounts
of AUD 48 312 and AUD 488 respectively. The notes payable are subordinated to
all other liabilities of the Company, bear no interest and are to be repaid in
US dollars. The Company repaid AUD 4 655 and AUD 319 to NRGenerating
International B.V. and Gunwale B.V., respectively during 1998 and repaid AUD 12
767 and AUD 129 to NRGenerating International B.V. and Gunwale B.V.,
respectively during 1997. Repayments on the notes payable are at the discretion
of the Company, unless certain events of termination occur, as defined, and then
the entire balance of the notes becomes due. The note balances, as adjusted for
current period activity and foreign exchange fluctuations, were AUD 28 072 and
AUD 0 to NRGenerating International B.V. and Gunwale B.V. at December 31, 1998,
respectively and AUD 31 733 and AUD 319 to NRGenerating International B.V. and
Gunwale B.V. at December 31, 1997, respectively.
12. CURRENT LIABILITIES
<TABLE>
<CAPTION>
December 31, December 31,
1998 1997
AUD'000 AUD'000
<S> <C> <C>
Current installments of bank long-term debt 5 975 5 437
Trade creditors/suppliers 758 945
Accrued coal/rail costs 2 337 1 633
Accrued interest 472 559
Other accrued expenses -- 266
----- -----
9 542 8 840
----- -----
</TABLE>
13. RELATED PARTIES
An affiliate of the Company, Sunshine State Power (No. 2) B.V. owns 17.5% of the
Gladstone Power Station Joint Venture. Sunshine State Power (No. 2) B.V. is
owned by the owners of the Company.
The Gladstone Power Station is operated by NRG Gladstone Operating Services Pty
Ltd, which is ultimately a wholly-owned subsidiary of NRG Energy Inc. NRG
Gladstone Operating Services Pty Ltd operates the Gladstone Power Station under
the terms of the Operation and Maintenance Agreement with the Gladstone Power
Station Joint Venture. During the periods ended December 31, 1998 and 1997, the
Company paid NRG Gladstone Operating Services Pty Ltd approximately AUD 398 and
AUD 298 respectively in operators fees under the terms of the Operation and
Maintenance Agreement.
-13-
<PAGE> 16
14. NUMBER OF EMPLOYEES
The average number of persons employed at the Gladstone Power Station during
1998 was approximately 397 (1997: 453). These individuals are primarily employed
in the operations and maintenance areas of the station. The Company is
responsible for 20% of the related costs for these employees. The Company itself
has no employees.
15. REMUNERATION OF DIRECTORS
During the periods ended December 31, 1998 and 1997, none of the directors
received remuneration for their services as directors of the Company.
------------------------------
-14-
<PAGE> 17
SUNSHINE STATE POWER B.V.
OTHER INFORMATION
DECEMBER 31, 1998
1. AUDITORS' REPORT
The report of the auditors, PricewaterhouseCoopers N.V., is presented on page 3.
2. APPROPRIATION OF RESULT - PROVISIONS IN COMPANY'S STATUTES
Article 21 of the statutes of the Company states that the result for the year is
at the disposition of the shareholders.
3. APPROPRIATION OF PROFIT - MANAGEMENT PROPOSAL
The directors will make a recommendation in respect of the appropriation of the
result for the year prior to the annual general meeting.
4. EVENTS SUBSEQUENT TO THE BALANCE SHEET DATE
Since December 31, 1998, the directors are not aware of any matter or
circumstance that has affected or may significantly effect the operations of the
Company.
------------------------------
-15-
<PAGE> 18
SUNSHINE STATE POWER (NO. 2) B.V.
ANNUAL FINANCIAL REPORT
DECEMBER 31, 1998
<PAGE> 19
SUNSHINE STATE POWER (NO. 2) B.V.
ANNUAL FINANCIAL REPORT
DECEMBER 31, 1998
<TABLE>
<CAPTION>
CONTENTS PAGE
- -------- ----
<S> <C>
DIRECTORS' REPORT 1 - 2
AUDITORS' REPORT 3
BALANCE SHEET AT DECEMBER 31, 1998 4
STATEMENT OF INCOME FOR THE YEAR ENDED DECEMBER 31, 1998 5
STATEMENT OF CASH FLOWS FOR THE YEAR
ENDED DECEMBER 31, 1998 6
NOTES TO THE ANNUAL ACCOUNTS FOR THE YEAR ENDED
DECEMBER 31, 1998 7 - 14
OTHER INFORMATION 15
</TABLE>
DIRECTORS
D.H. Peterson
R.J. Will
V.A. Knudsen
<PAGE> 20
SUNSHINE STATE POWER (NO. 2) B.V.
DIRECTORS' REPORT
DECEMBER 31, 1998
1. OPERATIONS AND YEAR END POSITION
Sunshine State Power (No. 2) B.V.'s principal operating activity is the
ownership of 17.5% of the Gladstone Power Station Joint Venture. The
Gladstone Power Station Joint Venture owns and operates the Gladstone Power
Station located in Queensland, Australia. The Gladstone Power Station Joint
Venture is an unincorporated joint venture and therefore not a separate
legal entity. Accordingly, the Gladstone Power Station Joint Venture owners
act as tenants in common owning their proportionate shares of the
unincorporated joint venture's assets, liabilities, and results of
operations. Sunshine State Power (No. 2) B.V.'s net turnover and net result
for the year ended December 31, 1998 were AUD 50.0 million and AUD 5.1
million, respectively. Sunshine State Power (No. 2) B.V.'s net turnover and
net result for period ended December 31, 1997 were AUD 48.6 million and AUD
2.1 million, respectively. The Gladstone Power Station performed
satisfactorily during the period and the financial position at year end
remains good.
2. SIGNIFICANT EVENTS AND FUTURE PROSPECTS
On March 30, 1994, the Gladstone Power Station Joint Venture purchased the
Gladstone Power Station from the Queensland Transmission and Electric
Corporation (formerly Queensland Electric Commission) for approximately AUD
750 million. Sunshine State Power (No. 2) B.V.'s share of the acquisition
was financed with long-term debt with banks and subordinated notes payable
from its shareholders, NRGenerating International B.V. and Gunwale B.V.,
which are ultimately wholly-owned by NRG Energy, Inc., which is
incorporated in the United States of America.
The Gladstone Power Station Joint Venture is contracted to spend
approximately AUD 11 million in improvements and refurbishments over the
next five years as part of a continuing capital works project on the
Gladstone Power Station. These expenditures, of which AUD 4 million are
planned for 1999, are expected to improve the efficiency, operations and
environmental compliance of the Gladstone Power Station. There are no
significant changes expected in level of Gladstone Power Station Joint
Venture financing during 1999.
-1-
<PAGE> 21
3. RESEARCH AND DEVELOPMENT
As part of the operations of the Gladstone Power Station, research and
development is performed to improve the efficiency and operations of the
station and to increase its environmental compliance.
For and behalf of the Board
Amsterdam, the Netherlands
March 12, 1999
D.H. Peterson
R.J. Will
V.A. Knudsen
-2-
<PAGE> 22
COPY
TO THE SHAREHOLDERS OF
SUNSHINE STATE POWER (NO. 2) B.V.
AUDITORS' REPORT
INTRODUCTION
In accordance with your instructions, we have audited the 1998 financial
statements of Sunshine State Power (No. 2) B.V., Queensland, Australia set
out on pages 4 to 14 of this report. These financial statements are the
responsibility of the company's management. Our responsibility is to
express an opinion on these financial statements based on our audit.
SCOPE
We conducted our audit in accordance with auditing standards generally
accepted in the Netherlands. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures
in the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation. We believe
that our audit provides a reasonable basis for our opinion.
OPINION
In our opinion, the financial statements give a true and fair view of the
financial position of the company as of December 31, 1998 and of the result
for the year then ended in accordance with accounting principles generally
accepted in the Netherlands and comply with the financial reporting
requirements included in Part 9, Book 2 of the Dutch Civil Code.
PRICEWATERHOUSECOOPERS N.V.
Amsterdam, March 12, 1999
-3-
<PAGE> 23
SUNSHINE STATE POWER (NO. 2) B.V.
BALANCE SHEET AT DECEMBER 31, 1998
(Before appropriation of the result for the year)
(Amounts expressed in thousands of Australian dollars)
<TABLE>
<CAPTION>
1998 1997
AUD'000 AUD'000
<S> <C> <C>
ASSETS
------
FIXED ASSETS
Intangible fixed assets 6 526 6 937
Tangible fixed assets 137 749 141 349
------- -------
144 275 148 286
CURRENT ASSETS
Stocks 3 060 1 972
Receivables 4 830 3 910
Cash and bank balances 10 037 9 535
------- -------
17 927 15 417
------- -------
TOTAL ASSETS 162 202 163 703
------- -------
SHAREHOLDERS' EQUITY AND LIABILITIES
------------------------------------
SHAREHOLDERS' EQUITY
Issued share capital 30 30
Retained earnings 23 247 21 108
Result for the year 5 096 2 139
------- -------
28 373 23 277
------- -------
PROVISIONS 15 671 14 164
LONG-TERM LIABILITIES 109 669 118 545
CURRENT LIABILITIES 8 489 7 717
------- -------
TOTAL SHAREHOLDERS' EQUITY AND LIABILITIES 162 202 163 703
------- -------
</TABLE>
The accompanying notes form an integral part of the annual accounts.
-4-
<PAGE> 24
SUNSHINE STATE POWER (NO. 2) B.V.
STATEMENT OF INCOME FOR THE YEAR ENDED DECEMBER 31, 1998
(Amounts expressed in thousands of Australian dollars)
<TABLE>
<CAPTION>
1998 1997
AUD'000 AUD'000
<S> <C> <C>
NET TURNOVER
Queensland Electricity Commission 16 466 21 092
Boyne Smelters Limited 33 580 27 462
------ ------
TOTAL 50 046 48 554
COST OF TURNOVER
Non-fuel 8 177 7 756
Fuel 21 756 17 475
------ ------
TOTAL 29 933 25 231
------ ------
GROSS PROFIT ON TURNOVER 20 113 23 323
------ ------
EXPENSES
Operating expenses 1 424 2 144
Depreciation and amortization expense 5 608 5 537
------ ------
TOTAL EXPENSES 7 032 7 681
------ ------
NET PROFIT ON TURNOVER 13 081 15 642
------ ------
Interest expense 6 074 6 852
Interest income (458) (584)
Foreign exchange loss 833 6 096
Disposal of assets (gain)/loss 17 (64)
------ ------
NET FINANCIAL EXPENSE 6 466 12 300
------ ------
Result from ordinary operations before taxation 6 615 3 342
Taxation 1 519 1 203
------ ------
NET RESULT 5 096 2 139
------ ------
</TABLE>
The accompanying notes form an integral part of the annual accounts.
-5-
<PAGE> 25
SUNSHINE STATE POWER (NO. 2) B.V.
STATEMENT OF CASH FLOWS FOR THE YEAR ENDED DECEMBER 31, 1998
(Amounts expressed in thousands of Australian dollars)
<TABLE>
<CAPTION>
1998 1997
AUD'000 AUD'000
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net result 5 096 2 139
Adjustments to reconcile net result to net cash provided by
operating activities:
Depreciation and amortization 5 608 5 537
Deferred income taxes 1 519 1 203
Foreign exchange loss 833 6 096
Loss/(gain) on sale of fixed assets 17 (64)
Changes in operating assets and liabilities:
Stocks (1 088) 1 121
Receivables (920) 357
Provisions (12) 182
Current liabilities 302 (3)
------ -------
NET CASH FLOWS PROVIDED BY
OPERATING ACTIVITIES 11 355 16 568
------ -------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of tangible fixed assets (1 633) (1 969)
Proceeds from sale of fixed assets 19 83
------ -------
NET CASH FLOWS USED BY
INVESTING ACTIVITIES (1 614) (1 886)
------ -------
CASH FLOWS FROM FINANCING ACTIVITIES
Repayments of notes payable (4 481) (11 265)
Repayments of long-term debt (4 758) (4 298)
------ -------
NET CASH FLOWS USED BY
FINANCING ACTIVITIES (9 239) (15 563)
------ -------
NET INCREASE (DECREASE) IN
CASH AND BANK BALANCES 502 (881)
------ -------
CASH AND BANK BALANCES
Beginning of year 9 535 10 416
------ -------
End of year 10 037 9 535
------ -------
SUPPLEMENTAL DISCLOSURE
OF CASH PAID FOR INTEREST 5 998 7 063
------ -------
</TABLE>
The accompanying notes form an integral part of the annual accounts
-6-
<PAGE> 26
SUNSHINE STATE POWER (NO. 2) B.V.
NOTES TO THE ANNUAL ACCOUNTS FOR THE YEAR ENDED DECEMBER 31, 1998
1. GENERAL
ACTIVITIES
Sunshine State Power (No. 2) B.V. (the Company) was incorporated on
February 24, 1994 and is seated in Amsterdam, the Netherlands. The
Company's principal operating activity is the ownership of 17.5% of the
Gladstone Power Station Joint Venture. The Gladstone Power Station Joint
Venture owns and operates the Gladstone Power Station located in
Queensland, Australia, which it acquired on March 30, 1994. The Gladstone
Power Station Joint Venture is an unincorporated joint venture and
therefore not a separate legal entity. Accordingly, the Gladstone Power
Station Joint Venture owners act as tenants in common owning their
proportionate shares of the unincorporated joint venture's assets,
liabilities and results of operations. The unincorporated joint venture's
assets liabilities results of operations and cash flows have been taken up
in this annual financial report on a proportionate basis.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
GENERAL
Unless otherwise stated assets and liabilities are carried at nominal
value.
FOREIGN CURRENCIES
Assets and liabilities at year-end and transactions during the period
denominated in a foreign currency are translated into the Company's
functional currency (Australian dollars) at the exchange rates ruling at
year-end and at the time of the transaction, respectively. Exchange
adjustments are taken to the statement of income.
INTANGIBLE FIXED ASSETS
PROJECT DEVELOPMENT EXPENDITURES
Project development expenditures represent the Company's share of project
development expenditures incurred by the Gladstone Power Station Joint
Venture to organize the acquisition of the Gladstone Power Station and
operate it subsequent to the acquisition.
-7-
<PAGE> 27
Capitalised development expenditures are being amortized over the term of
the Gladstone Power Station Power sales agreements (35 years), commencing
from the date the investment in the project was consummated. The carrying
values of capitalized development expenditures and the amortization periods
are reviewed annually and any necessary write down is charged against
income. Research expenditures and expenditures on development of existing
projects are charged against income in the year in which they are incurred.
FINANCING COSTS
Financing costs represent the Company's share of the costs incurred by the
Gladstone Power Station Joint Venture to acquire the long-term debt used to
finance the acquisition of the Gladstone Power Station. Capitalized
financing costs are being amortized over a ten year period, which
represents the timeframe until the Company expects the long-term debt will
be refinanced.
TANGIBLE FIXED ASSETS
All tangible fixed assets are stated at cost. The Company has not had any
revaluations performed on its tangible fixed assets. Tangible fixed assets,
with the exception of land, are depreciated over their estimated useful
lives by the straight line method. Ordinary maintenance and repairs are
expensed as incurred; replacements and improvements are capitalized.
The estimated useful lives are:
<TABLE>
<S> <C>
Site roads and preparation 35 years
Generators, systems, stacks, etc. 35 years
Coal handling plant 10 - 35 years
Other operating fixed assets 3 - 10 years
</TABLE>
STOCKS
Stocks are carried at the lower of cost (principally by the FIFO method or
another method which approximates FIFO) and net realisable value. In
valuing stocks, appropriate allowance is made for obsolete or slow-moving
items.
TRADE DEBTORS
Trade debtors are stated at nominal value net of provision for doubtful
debtors.
PROVISIONS
EMPLOYEE PROVISIONS
Provisions are made for amounts expected to be paid to the operator of the
Gladstone Power Station in respect of its employees for the pro rata
entitlements for long service and annual leave. These amounts are accrued
at actual pay rates having regard to experience of employee's departure and
period of service. The provisions are divided into current (expected to be
paid in the ensuing twelve months) and non-current portions.
-8-
<PAGE> 28
DEFERRED TAX
Provisions for deferred taxes have been set up where items entering into
the determination of accounting profit for one period are recognised for
taxation purposes in another. The principal difference arises in connection
with the depreciation of fixed assets. In calculating the provision,
current tax rates are applied.
COMPANY INCOME TAX
Company income tax is based upon the results reported in the statement of
income as adjusted for permanent differences. Current Australian tax rates
are applied. During 1998, the Company recognised AUD 862 for accumulated
Australian development allowances which reduced the current provision.
CASH FLOW STATEMENT
The cash flow statement has been prepared using the indirect method.
3. INTANGIBLE FIXED ASSETS
The movements in the intangible fixed assets are summarised as follows:
<TABLE>
<CAPTION>
Project
development Financing
expenditures costs Total
------------ ----- -----
AUD'000 AUD'000 AUD'000
<S> <C> <C> <C>
COST
Balance at December 31, 1997 6 111 2 369 8 480
Additions for the year
ended December 31, 1998 -- -- --
----- ----- ------
Balance at December 31, 1998 6 111 2 369 8 480
----- ----- ------
ACCUMULATED AMORTIZATION
Balance at December 31, 1997 (655) (888) (1543)
Amortisation for the year ended
December 31, 1998 (174) (237) (411)
----- ----- ------
Balance at December 31, 1998 (829) (1 125) (1 954)
----- ----- ------
Net book value at December 31, 1998 5 282 1 244 6 526
----- ----- ------
</TABLE>
-9-
<PAGE> 29
4. TANGIBLE FIXED ASSETS
The movements in the tangible fixed assets are summarised as follows:
<TABLE>
<CAPTION>
Other
Site roads Generators, Coal operating
and systems handling fixed
Land preparation stacks plant assets Total
<S> <C> <C> <C> <C> <C> <C>
COST
Balance at
December 31, 1997 189 2 480 145 051 8 495 2 600 158 815
Additions -- 11 1 216 30 249 1 506
Disposals -- -- -- -- (36) (36)
---- ----- ------- ------ ------ -------
Balance at
December 31, 1998 189 2 491 146 267 8 525 2 813 160 285
---- ----- ------- ------ ------ -------
ACCUMULATED
DEPRECIATION
Balance at
December 31, 1997 -- (292) (14 468) (1 805) (1 033) (17 598)
Charge for the year -- (135) (4 172) (602) (288) (5 197)
---- ----- ------- ------ ------ -------
Balance at
December 31, 1998 -- (427) 18 640) (2 407) (1 321) (22 795)
---- ----- ------- ------ ------ -------
Net book value at
December 31, 1998 189 2 064 127 627 6 118 1 492 137 490
---- ----- ------- ------ ------ -------
Construction in progress
at December 31, 1998 (AUD 132 at
December 31, 1997) 259
-------
Net tangible fixed assets
at December 31, 1998 137 749
-------
</TABLE>
5. STOCKS
<TABLE>
<CAPTION>
December 31, December 31,
1998 1997
AUD'000 AUD'000
<S> <C> <C>
Coal 2 021 915
Fuel oils 73 128
Chemicals 6 4
Spares and consumables 960 925
----- -----
3 060 1 972
----- -----
</TABLE>
6. RECEIVABLES
<TABLE>
<CAPTION>
December 31, December 31,
1998 1997
AUD'000 AUD'000
<S> <C> <C>
Trade debtors 4 763 3 717
</TABLE>
-10-
<PAGE> 30
<TABLE>
<S> <C> <C>
Prepayments 67 193
----- -----
4 830 3 910
----- -----
</TABLE>
All receivables are due in less than one year.
7. CASH AND BANK BALANCES
All cash and bank balances are held by banks and include investments with
maturities of three months or less which are readily convertible to cash.
The Company's long-term debt agreement places restrictions on the amount of
cash and bank balances which must be maintained. At December 31, 1998 and
1997, the restricted cash and bank balances totalled AUD 5 425 and AUD 6
100, respectively.
8. ISSUED SHARE CAPITAL
The authorised share capital consists of 2,000 shares each having a nominal
value of 75 Australian dollars (100 Dutch Guilders), of which 400 shares
have been issued and fully paid up at December 31, 1998. The Company's
shares are owned by NRGenerating International B.V. (396) and Gunwale B.V.
(4). Both NRGenerating International B.V. and Gunwale B.V. are wholly-owned
by NRG Energy, Inc., which is incorporated in the United States of America.
9. RETAINED EARNINGS
<TABLE>
<CAPTION>
1998 1997
AUD'000 AUD'000
<S> <C> <C>
Balance at January 1 21 108 13 158
Appropriation of prior years result 2 139 7 950
------- -------
Balance at December 31 23 247 21 108
------- -------
</TABLE>
-11-
<PAGE> 31
10. PROVISIONS
<TABLE>
<CAPTION>
Employee provisions Deferred tax Total
------------------- ------------ -------
AUD'000 AUD'000 AUD'000
<S> <C> <C> <C>
Balance at December 31, 1996 906 11 873 12 779
Charged to income 182 1 203 1 385
----- ------ ------
Balance at December 31, 1997 1 088 13 076 14 164
Charged/(released) to income (12) 1 519 1 507
----- ------ ------
Balance at December 31, 1998 1 076 14 595 15 671
----- ------ ------
</TABLE>
Approximately AUD 580 of the employee provisions are current and expected
to be paid during 1998.
11. LONG-TERM LIABILITIES
Secured long-term debt due to third parties
<TABLE>
<CAPTION>
December 31, December 31,
1998 1997
AUD'000 AUD'000
<S> <C> <C>
Secured - with banks 85 232 90 460
------ ------
</TABLE>
Current installments of bank long-term debt are included under current
liabilities. The interest rate for long-term debt is variable based on an
average of the bid rates quoted by the banks plus a margin of 1.4% at
December 31, 1998.
The bank long-term debt is repayable as follows (in AUD'000):
<TABLE>
<S> <C>
1999 5 228
2000 5 775
2001 6 366
2002 7 011
2003 7 744
Thereafter 58 336
------
90 460
------
</TABLE>
The bank long-term debt is secured by the Company's ownership interest in
the Gladstone Power Station Joint Venture.
Unsecured subordinated note payable (AUD'000)
-12-
<PAGE> 32
On March 25, 1994 the Company received loans from NRGenerating
International B.V. and Gunwale B.V., the primary shareholders of the
Company, in the amount of AUD 42,273 and AUD 427, respectively. The notes
payable are subordinated to all other liabilities of the Company, bear no
interest and are to be repaid in US dollars. The Company repaid AUD 4,202
and AUD 279 to NRGenerating International B.V. and Gunwale B.V.,
respectively during 1998 and AUD11,152 and AUD 113 to NRGenerating
International B.V. and Gunwale B.V., respectively during 1997. Repayments
on the notes payable are at the discretion of the Company, unless certain
events of termination occur, as defined, and then the entire balance of the
notes becomes due. The note balances, as adjusted for current period
activity and foreign exchange fluctuations, were AUD 24,437 and AUD 0 to
NRGenerating International B.V. and Gunwale B.V. at December 31, 1998
respectively and AUD 27,806 and AUD 279 to NRGenerating International B.V.
and Gunwale B.V. at December 31, 1997, respectively.
12. CURRENT LIABILITIES
<TABLE>
<CAPTION>
December 31, December 31,
1998 1997
AUD'000 AUD'000
<S> <C> <C>
Current installments of bank long-term debt 5 228 4 758
Trade creditors/suppliers 709 826
Accrued coal/rail costs 2 045 1 429
Accrued interest 413 489
Other accrued expenses 94 215
----- -----
8 489 7 717
----- -----
</TABLE>
13. RELATED PARTIES
An affiliate of the Company, Sunshine State Power B.V. owns 20% of the
Gladstone Power Station Joint Venture. Sunshine State Power B.V. is owned
by the owners of the Company.
The Gladstone Power Station is operated by NRG Gladstone Operating Services
Pty. Ltd., which is ultimately a wholly-owned subsidiary of NRG Energy Inc.
NRG Gladstone Operating Services Pty. Ltd. operates the Gladstone Power
Station under the terms of the Operation and Maintenance Agreement with the
Gladstone Power Station Joint Venture. During the periods ended December
31, 1998 and 1997, the Company paid NRG Gladstone Operating Services Pty.
Ltd. approximately AUD 345 and AUD 260 (AUD'000) respectively in operators
fees under the terms of the Operation and Maintenance Agreement.
-13-
<PAGE> 33
15. NUMBER OF EMPLOYEES
The average number of persons employed at the Gladstone Power Station
during 1998 was approximately 397 (1997: 453). These individuals are
primarily employed in the operations and maintenance areas of the station.
The Company is responsible for 17.5% of the related costs for these
employees. The Company itself has no employees.
16. REMUNERATION OF DIRECTORS
During the periods ended December 31, 1998 and 1997, none of the directors
received remuneration for their services as directors of the Company.
----------------------------
-14-
<PAGE> 34
SUNSHINE STATE POWER (NO. 2) B.V.
OTHER INFORMATION
DECEMBER 31, 1998
1. AUDITORS' REPORT
The report of the auditors, PricewaterhouseCoopers N.V., is presented on
page 3.
2. APPROPRIATION OF RESULT - PROVISIONS IN COMPANY'S STATUTES
Article 21 of the statutes of the Company states that the result for the
year is at the disposition of the shareholders.
3. APPROPRIATION OF PROFIT - MANAGEMENT PROPOSAL
The directors will make a recommendation in respect of the appropriation of
the result for the year prior to the annual general meeting.
4. EVENTS SUBSEQUENT TO THE BALANCE SHEET DATE
Since December 31, 1998, the directors are not aware of any matter or
circumstance that has affected or may significantly effect the operations
of the Company.
------------------------------
-15-
