<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
X Quarterly report pursuant to Section 13 or 15(d) of the
- ----- Securities Exchange Act of 1934
Transition report pursuant to Section 13 or 15(d) of the
- ----- Securities Exchange Act of 1934
For Quarter Ended March 31, 2000 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 May 4, 2000
----------------------------- --------------------------
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
- --------------------------------------------------------------------------------
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 6-10
Item 2 Management's Discussion and Analysis of Financial
Condition and Results of Operations 11-13
PART II
Item 1 Legal Proceedings 14
Item 6 Exhibits, Financial Statement Schedules, and Reports 15
on Form 8-K
SIGNATURES 16
<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
MARCH 31,
(Thousands of Dollars except per share amounts) 2000 1999
- ---------------------------------------------------------------------------------------
<S> <C> <C>
OPERATING REVENUES
Revenues from wholly-owned operations $ 332,671 $ 37,847
Equity (loss) in earnings of unconsolidated affiliates (9,644) 8,667
- ---------------------------------------------------------------------------------------
Total operating revenues 323,027 46,514
=======================================================================================
OPERATING COSTS AND EXPENSES
Cost of wholly-owned operations 214,923 27,940
Depreciation and amortization 19,987 4,734
General, administrative and development 25,180 15,985
- ---------------------------------------------------------------------------------------
Total operating costs and expenses 260,090 48,659
=======================================================================================
OPERATING INCOME (LOSS) 62,937 (2,145)
=======================================================================================
OTHER INCOME (EXPENSE)
Minority interest in earnings of consolidated subsidiary (1,798) (464)
Other income, net 1,531 734
Interest expense (52,317) (11,059)
- ---------------------------------------------------------------------------------------
Total other expense (52,584) (10,789)
=======================================================================================
INCOME (LOSS) BEFORE INCOME TAXES 10,353 (12,934)
INCOME TAXES - EXPENSE (BENEFIT) 1,607 (11,994)
- ---------------------------------------------------------------------------------------
NET INCOME (LOSS) $ 8,746 $ (940)
=======================================================================================
WEIGHTED AVERAGE SHARES OUTSTANDING - BASIC AND DILUTED 147,605 147,605
EARNINGS PER SHARE - BASIC AND DILUTED $ .06 $ (.01)
</TABLE>
See notes to consolidated financial statements.
<PAGE> 4
CONSOLIDATED BALANCE SHEETS
NRG ENERGY, INC. AND SUBSIDIARIES
(UNAUDITED)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
(Thousands of Dollars) 2000 1999
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 137,923 $ 31,483
Restricted cash 14,985 17,441
Accounts receivable-trade, less allowance
for doubtful accounts of $1,392 and $186 146,030 126,376
Income taxes receivable 7,819 --
Inventory 165,501 119,181
Prepayments and other current assets 31,854 29,202
Current portion of notes receivable - affiliates 287 287
- -------------------------------------------------------------------------------------------------------------------
Total current assets 504,399 323,970
===================================================================================================================
PROPERTY, PLANT AND EQUIPMENT, AT ORIGINAL COST
In service 3,759,856 2,078,804
Under construction 86,681 53,448
- -------------------------------------------------------------------------------------------------------------------
3,846,537 2,132,252
Less accumulated depreciation (176,883) (156,849)
- -------------------------------------------------------------------------------------------------------------------
Net property, plant and equipment 3,669,654 1,975,403
- -------------------------------------------------------------------------------------------------------------------
OTHER ASSETS
Investments in projects 893,303 932,591
Capitalized project costs 12,558 2,592
Notes receivable, less current portion - affiliates 65,193 65,494
Notes receivable 5,795 5,787
Intangible assets, net of accumulated amortization of $4,828 and $4,308 56,072 55,586
Debt issuance costs, net of accumulated amortization of $10,093 and $6,640 36,260 20,081
Other assets, net of accumulated amortization of $9,444 and $8,909 50,574 50,180
- -------------------------------------------------------------------------------------------------------------------
Total other assets 1,119,755 1,132,311
===================================================================================================================
TOTAL ASSETS $ 5,293,808 $ 3,431,684
===================================================================================================================
</TABLE>
See notes to consolidated financial statements.
2
<PAGE> 5
CONSOLIDATED BALANCE SHEETS
NRG ENERGY, INC. AND SUBSIDIARIES
(UNAUDITED)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
2000 1999
- ---------------------------------------------------------------------------------------------------
<S> <C> <C>
LIABILITIES AND STOCKHOLDER'S EQUITY
CURRENT LIABILITIES
Current portion of long-term debt $ 24,789 $ 30,462
Revolving line of credit 304,000 340,000
Consolidated project level, non-recourse debt -- 35,766
Corporate level, recourse debt 300,000 --
Accounts payable-trade 115,837 61,211
Accounts payable-affiliate 3,202 6,404
Accrued income taxes -- 4,730
Accrued property and sales taxes 7,173 4,998
Accrued salaries, benefits and related costs 5,542 9,648
Accrued interest 33,768 13,479
Other current liabilities 12,996 17,657
- ---------------------------------------------------------------------------------------------------
Total current liabilities 807,307 524,355
===================================================================================================
MINORITY INTEREST 12,679 14,373
CONSOLIDATED PROJECT-LEVEL, LONG TERM, NON-RECOURSE DEBT 2,300,888 1,026,398
CORPORATE LEVEL LONG-TERM, RECOURSE DEBT, LESS CURRENT PORTION 1,169,608 915,000
DEFERRED INCOME TAXES 27,910 16,940
DEFERRED INVESTMENT TAX CREDITS 1,024 1,088
POSTRETIREMENT AND OTHER BENEFIT OBLIGATIONS 38,373 24,613
OTHER LONG-TERM OBLIGATIONS AND DEFERRED INCOME 63,899 15,263
- ---------------------------------------------------------------------------------------------------
Total liabilities 4,421,688 2,538,030
===================================================================================================
STOCKHOLDER'S EQUITY
Class A common stock; $.01 par value; 250,000 shares authorized;
147,605 shares issued and outstanding 1,476 1,476
Additional paid-in capital 780,438 780,438
Retained earnings 195,956 187,210
Accumulated other comprehensive income (105,750) (75,470)
- ---------------------------------------------------------------------------------------------------
Total Stockholder's Equity 872,120 893,654
===================================================================================================
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY $ 5,293,808 $ 3,431,684
===================================================================================================
</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
Class A Additional Other Total
Common Paid-in Retained Comprehensive Stockholder's
(Thousands of Dollars) Stock Capital Earnings Income Equity
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
BALANCES AT JANUARY 1, 1999 $ 1,476 $ 530,438 $ 130,015 $ (82,597) $ 579,332
Net (Loss) Income (940) (940)
Foreign currency translation adjustments 1,625 1,625
---------------
Comprehensive income 685
Capital Contribution from parent 100,000 100,000
----------------------------------------------------------------------------------
BALANCES AT MARCH 31, 1999 $ 1,476 $ 630,438 $ 129,075 $ (80,972) $ 680,017
----------------------------------------------------------------------------------
BALANCES AT JANUARY 1, 2000 $ 1,476 $ 780,438 $ 187,210 $ (75,470) $ 893,654
Net Income 8,746 8,746
Foreign currency translation adjustments (30,280) (30,280)
---------------
Comprehensive income (21,534)
----------------------------------------------------------------------------------
BALANCES AT MARCH 31, 2000 $ 1,476 $ 780,438 $ 195,956 $ (105,750) $ 872,120
----------------------------------------------------------------------------------
</TABLE>
See notes to consolidated financial statements.
4
<PAGE> 7
CONSOLIDATED STATEMENTS OF CASH FLOWS
NRG ENERGY, INC. AND SUBSIDIARIES
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
(Thousands of Dollars) 2000 1999
- -----------------------------------------------------------------------------------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $ 8,746 $ (940)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities
Undistributed equity earnings of unconsolidated affiliates 17,145 2,427
Depreciation and amortization 19,987 4,734
Deferred income taxes and investment tax credits 10,906 463
Minority interest (1,694) (534)
Cash provided (used) by changes in certain working capital items,
net of acquisition effects
Accounts receivable 4,401 (1,645)
Accounts receivable-affiliates -- (11,282)
Accrued income taxes (13,793) 13,564
Inventory 10,450 (1,639)
Prepayments and other current assets (2,652) 746
Accounts payable-trade 28,778 5,375
Accounts payable-affililates (3,202) --
Accrued property and sales tax 2,175 1,798
Accrued salaries, benefits and related costs (4,106) (2,440)
Accrued interest 20,289 1,471
Other current liabilities (5,937) (2,800)
Cash provided by changes in other assets and liabilities 65,317 (1,641)
- ----------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 156,810 7,657
- ----------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisitions, net of liabilities assumed (1,723,158) --
Investments in projects (17,933) (16,267)
Changes in notes receivable (net) 293 18,438
Capital expenditures (43,390) (6,331)
Decrease in restricted cash 2,456 1,884
- ----------------------------------------------------------------------------------------------------
NET CASH USED BY INVESTING ACTIVITIES (1,781,732) (2,276)
- ----------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Capital contributions from parent -- 100,000
Proceeds from issuance of long-term debt 2,482,853 --
Revolving line of credit (36,000) --
Principal payments on long-term debt (715,491) (99,294)
- ----------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 1,731,362 706
====================================================================================================
NET INCREASE IN CASH AND CASH EQUIVALENTS 106,440 6,087
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 31,483 6,381
====================================================================================================
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 137,923 $ 12,468
====================================================================================================
</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 three months ended March 31, 2000.
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, 1999 (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 March 31, 2000 and December
31, 1999, the results of its operations for the three months ended March 31,
2000 and 1999, and its cash flows and stockholders' equity for the three months
ended March 31, 2000 and 1999. Certain prior year amounts have been reclassified
for comparative purposes. These reclassifications had no effect on net income or
stockholders equity as previously reported.
1. BUSINESS DEVELOPMENTS
In February 2000, the Company executed a memorandum of understanding with
GE Power Systems, a division of General Electric Company, to purchase 11
gas turbine generators and five steam turbine generators, with an option to
purchase additional units. The purchases will take place over the next five
years with the first delivery scheduled to be made in 2002. The 16 turbines
have an equivalent generation output of approximately 3,000 MW and an
acquisition cost of approximately $500 million.
In March 2000, the Company entered into an agreement with Great River
Energy under which Great River assigned to the Company all of its rights
and obligations with respect to two 135 MW turbines being built for it by
Siemens Westinghouse. The Company's total cost for the turbines, which are
scheduled for delivery in the first and second quarter of 2001, will be
approximately $43 million.
In March 2000, the Company acquired the Killingholme A generation facility
from National Power plc for (pound)390 million (approximately $615 million
at the time of acquisition), subject to post-closing adjustments.
Killingholme is a combined cycle gas-fired baseload facility located in
North Lincolnshire, England. The facility comprises three units with a
total generating capacity of 680 MW. The Company owns and operates the
facility, which sells its power into the wholesale electricity market of
England and Wales.
In March 2000, the Company acquired 1,708 MW of coal and gas-fired
generation assets in Louisiana for approximately $1,026 million. These
assets were formally owned by Cajun Electric Power Cooperative, Inc. The
Company sells a significant amount of the energy and capacity of the Cajun
facilities to 11 of Cajun Electric's former power cooperative members.
Seven of these cooperatives have entered into 25-year power purchase
agreements with the Company, and four have entered into two to four year
power purchase agreements. In addition, the Company sells power under
contract to two municipal power authorities and one investor-owned utility
that were former customers of Cajun Electric. The Company estimates that
payments under the contracts with the 11 cooperatives will account for
approximately 72% of the Cajun facilities' projected 2001 revenues, and
that payments under the contracts with the municipal power authorities and
the investor-owned utility will account for approximately an additional 7%
of such revenues.
6
<PAGE> 9
2. SUMMARIZED INCOME STATEMENT INFORMATION OF AFFILIATES
The Company has 20-50% investments in four companies that are considered
significant subsidiaries, as defined by applicable SEC regulations, and
accounts for those investments using the equity method. The following
summarizes the income statements of these unconsolidated entities:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
(Thousands of Dollars) 2000 1999
-------------------------------------
<S> <C> <C>
Net sales $ 185,771 $ 154,389
Other income 696 2,056
Costs and expenses:
Cost of sales 169,521 129,846
Interest expense 6,470 294
General and administrative 6,012 6,354
Other 195 1,422
-------------------------------------
182,198 137,916
-------------------------------------
Income before income taxes 4,269 18,529
Income taxes 5,801 5,033
-------------------------------------
Net (loss) income $ (1,532) $ 13,496
=====================================
Company's share of net (loss) income $ (2,871) $ 5,275
=====================================
</TABLE>
3. SHORT TERM DEBT
The Company has a $500 million revolving credit facility under a commitment
fee arrangement that matures in March 9, 2001. This facility provides
short-term financing in the form of bank loans. At March 31, 2000 the
Company had $304 million outstanding under this facility.
In March 2000, the Company borrowed $300 million under a short-term bridge
facility that expires on August 31, 2000 and bears interest at a floating
rate, which was 6.43% at March 31, 2000. Proceeds from this loan were used
to fund the acquisition of the Cajun facilities. In connection with the
extension of this bridge facility, NSP provided a support agreement on the
Company's behalf to the lender. The Company plans to refinance this
short-term corporate level borrowing with more permanent equity financing
later this year.
4. LONG TERM DEBT
In February 2000, NRG Northeast Generating LLC issued $750 million of
senior secured bonds to refinance short-term project borrowings and for
certain other purposes. The bond offering included three tranches: $320
million with an interest rate of 8.065 percent due in 2004, $130 million
with an interest rate of 8.842 percent due in 2015 and $300 million with an
interest rate of 9.292 percent due in 2024.
In March 2000, the Company issued (pound)160 million (approximately $250
million at the time of issuance) of 7.97% reset senior notes due 2020,
principally to finance our equity investment in the Killingholme facility.
On March 15, 2005, these senior notes may be remarketed by Bank of America,
N.A. at a fixed rate of interest through the maturity date or, at a
floating rate of interest for up to one year and then at a fixed rate of
interest through 2020. Interest is payable semi-annually on these
securities beginning September 15, 2000 through March 15, 2005, and then at
intervals and interest rates established in the remarketing process.
In March 2000, NRG South Central Generating LLC, a subsidiary of the
Company, issued $800 million of senior secured bonds in a two-part
offering. The first tranche was for $500 million with a coupon of 8.962
percent and a maturity of 2016. The second tranche was for $300 million
with a coupon of 9.479 percent and a maturity of 2024. During March 2000,
the proceeds were used to finance the Company's investment in the Cajun
generating facilities.
7
<PAGE> 10
In March 2000, three of the Company's foreign subsidiaries entered into a
(pound)335 million ($533 million at March 31, 2000) secured borrowing
facility agreement with Bank of America International Limited, as arranger.
Under this facility, the financial institutions have made available to our
subsidiaries various term loans totaling (pound)235 million ($374 million
at March 31, 2000) for the purpose of financing the acquisition of the
Killingholme facility and (pound)100 million ($159 million at March 31,
2000) of revolving credit and letter of credit facilities to provide
working capital for operating the Killingholme facility. The final maturity
date of the facility is the earlier of June 30, 2019, or the date on which
all borrowings and commitments under the largest tranche of the term
facility have been repaid or cancelled.
GUARANTEES
The Company may be directly liable for the obligations of certain of its
project affiliates and other subsidiaries pursuant to guarantees relating
to certain of their indebtedness, equity and operating obligations. As of
March 31, 2000, the Company's obligations pursuant to its guarantees of the
performance, equity and indebtedness obligations of its subsidiaries
totaled approximately $504 million.
5. FINANCIAL INSTRUMENTS
As of March 31, 2000, the Company had four-interest rate swap agreements
with notional amounts totaling approximately $692 million. If the swaps had
been discontinued on March 31, 2000, the Company could have owed the
counter-parties approximately $2 million. Based on the investment grade
rating of the counter-parties, the Company believes that its exposure to
credit risk due to nonperformance by the counter-parties to our hedging
contracts is insignificant.
- The Company entered into a swap agreement effectively converting
the 7.5% fixed rate on $200 million of our Senior Notes due 2007 to
a variable rate based on the London Interbank Offered Rate. The
swap expires on June 1, 2009.
- A second swap effectively converts a $16 million issue of
non-recourse variable rate debt into a fixed rate debt. The swap
expires on September 30, 2002 and is secured by the Camas Power
Boiler assets.
- A third swap converts $177 million of non-recourse variable rate
debt into fixed rate debt. The swap expires on December 17, 2014
and is secured by the Crockett Cogeneration assets.
- A fourth swap converts (pound)188 million of non-recourse variable
rate debt into fixed rate debt. The swap expires on June 30, 2019
and is secured by the Killingholme assets.
6. SEGMENT REPORTING
NRG conducts its business within three segments: Independent Power
Generation, Alternative Energy (Resource Recovery and Landfill Gas) and
Thermal projects. These segments are distinct components of NRG with
separate operating results and management structures in place. The "Other"
category includes operations that do not meet the threshold for separate
disclosure and corporate charges that have not been allocated to the
operating segments. Segment information for the quarter ended March 31,
2000 and 1999 is as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31, 2000 INDEPENDENT
(Thousands of Dollars) POWER ALTERNATIVE
GENERATION ENERGY THERMAL OTHER TOTAL
------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
OPERATING REVENUES
Revenues from wholly-owned operations $ 300,063 $ 7,017 $ 21,575 $ 3,716 $ 332,371
Intersegment revenues -- 300 -- -- 300
Equity in earnings of unconsolidated affiliates (7,151) (2,498) 5 -- (9,644)
------------------------------------------------------------
Total operating revenues 292,912 4,819 21,580 3,716 323,027
------------------------------------------------------------
NET INCOME (LOSS) $ 25,680 $ 3,373 $ 2,003 $ (22,310) $ 8,746
</TABLE>
8
<PAGE> 11
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31, 1999 INDEPENDENT
(Thousands of Dollars) POWER ALTERNATIVE
GENERATION ENERGY THERMAL OTHER TOTAL
---------------------------------------------------------
<S> <C> <C> <C> <C> <C>
OPERATING REVENUES
Revenues from wholly-owned operations $ 13,064 $ 6,280 $ 15,145 $ 3,034 $ 37,523
Intersegment revenues -- 324 -- -- 324
Equity in earnings of unconsolidated affiliates 7,830 249 1,162 (574) 8,667
---------------------------------------------------------
Total operating revenues 20,894 6,853 16,307 2,460 46,514
---------------------------------------------------------
NET INCOME (LOSS) $ 949 $ 3,513 $ 2,163 $ (7,565) $ (940)
</TABLE>
7. COMMITMENTS AND CONTINGENCIES
In March 2000, the Company entered into an agreement with Great River
Energy under which Great River assigned to the Company, all of its rights
and obligations with respect to two 135 MW turbines being built for it by
Siemens Westinghouse. The Company's total cost for the turbines, which are
scheduled for delivery in the first or second quarter of 2001, will be $43
million. The Company expects to install these turbines at either existing
plant sites in the United States or new greenfield sites.
In April 2000, the Company announced an agreement with Statoil Energy, Inc.
to acquire Harrisburg Steam Works and Statoil Energy Power/Paxton L.P.
(Statoil) located in Harrisburg, Pennsylvania for approximately $11
million. Harrisburg Steam Works provides steam to more then 300
residential, commercial and industrial customers, including the City of
Harrisburg and the Commonwealth of Pennsylvania. Statoil is a cogeneration
facility capable of supplying nearly 30 percent of the steam requirements
for Harrisburg Steam Works and a chiller plant that serves the Harrisburg
hospital. Statoil also operates a nationwide diesel engine service
business.
On March 30, 2000 the Company received notification from the New York
Independent System Operator (NYISO) of their petition to the Federal Energy
Regulatory Commission (FERC) to place a $2.52 per megawatt hour market cap
on ancillary service revenues. The NYISO also requested authority to impose
this cap on a retroactive basis to March 1, 2000.
Noting that FERC orders have not, to date, adjusted rates retroactively to
address market operations or market power concerns, in the context of an
independent system operator or otherwise, our internal legal counsel have
no reason to believe that the Company will not ultimately collect all of
the amounts due from the NYISO for ancillary services provided in March
2000.
If the FERC authorizes the NYISO to impose the market cap on a retroactive
basis, the Company would record an $8.2 million pretax reduction in
earnings.
8. EARNINGS PER SHARE
On April 19, 2000, the Company filed a registration statement with the
Securities and Exchange Commission for an initial public offering of up to
18 percent of its common stock. Since the Company expects to complete the
public offering it has included earnings per share data on the Consolidated
Statements of Income. Earnings per share is calculated by dividing Net
Income (Loss) by the Weighted average shares outstanding.
9
<PAGE> 12
9. PRO FORMA RESULTS OF OPERATIONS - CAJUN ACQUISITION
During March 2000, the Company completed the acquisition of two fossil
fueled generating plants from Cajun Electric Power Cooperative, Inc. for
approximately $1.026 billion. The following information summarizes the pro
forma results of operations as if the acquisition had occurred as of the
beginning of the three-month period ended March 31, 2000 and 1999. The pro
forma information presented is for informational purposes only and is not
necessarily indicative of future earnings or financial position or of what
the earnings and financial position would have been had the acquisition of
the Cajun Electric Facilities been consummated at the beginning of the
respective periods or as of the date for which pro forma financial
information is presented.
<TABLE>
<CAPTION>
Pro Forma Pro Forma
3 Months Ended 3 Months Ended
(In Thousands) March 31, 2000 March 31, 1999
------------------------------------
<S> <C> <C>
OPERATING REVENUES
Revenues from wholly-owned operations $ 412,653 $ 116,450
Equity in earnings of unconsolidated affiliates (9,644) 8,667
------------------------------------
TOTAL OPERATING REVENUES 403,009 125,117
Total operating costs and expenses 328,198 114,729
------------------------------------
OPERATING INCOME 74,811 10,388
Other income (expense) (70,375) (28,885)
------------------------------------
INCOME (LOSS) BEFORE INCOME TAXES 4,436 (18,497)
Income tax (benefit) expense (841) (14,296)
------------------------------------
NET INCOME (LOSS) $ 5,277 $ (4,201)
------------------------------------
</TABLE>
10. INVENTORY
At March 31, 2000, inventory, which is stated at the lower of weighted
average cost or market, consisted of:
<TABLE>
<CAPTION>
(IN THOUSANDS)
------------------
<S> <C>
Fuel oil $ 40,342
Spare parts 86,274
Coal 37,486
Kerosene 841
Other 558
------------------
TOTAL $165,501
==================
</TABLE>
11. SUBSEQUENT EVENT
On May 5, 2000, the Board of Directors approved a conversion of the 1,000
shares of common stock outstanding into 147,604,500 shares of Class A
common stock, par value $.01. In addition, the Board of Directors approved
the amendment of the Company's certificate of incorporation to include,
among other things, the authorization of 250,000,000 shares of Class A
common stock, par value $.01, 550,000,000 shares of common stock, par value
$.01, and 200,000,000 shares of preferred stock. Shares of Class A common
stock have identical rights to common stock except they have ten votes per
share. All share and per share data included in the financial statements
have been restated to reflect the exchange and reclassification.
10
<PAGE> 13
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 and Results
of Operations 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 NRG's revenue
and expense items for the three months ended March 31, 2000 with the three
months ended March 31, 1999.
RESULTS OF OPERATIONS
---------------------
FOR THE QUARTER ENDED MARCH 31, 2000
COMPARED TO THE QUARTER ENDED MARCH 31, 1999
Net income for the quarter ended March 31, 2000, was $8.7 million, an
increase of $9.7 million compared to a net loss of $0.9 million in the same
period in 1999. This increase was due to the factors described below.
The independent system operator for the New York Power Pool has
recently sought authority from FERC to adjust the market clearing prices for
certain ancillary services on a retroactive basis beginning January 29, 2000.
The Company and several other independent power producers are challenging this
action. If the independent system operator prevails, the Company's revenues from
ancillary services sold in the New York Power Pool could be substantially
reduced. Although the Company would attempt to adjust its business operations to
mitigate the future impacts of such a ruling, the potential negative impacts on
the Company's revenues for the first quarter of 2000 would include the potential
refund of approximately $8.0 million of revenues collected in February 2000 and
the inability to collect approximately $8.2 million included in revenues, but
not yet collected, for March 2000. At this time the Company cannot predict the
outcome of this action.
OPERATING REVENUES
For the quarter ended March 31, 2000, the Company had total revenues of
$323.0 million, which includes operating revenues and equity in earnings of
unconsolidated affiliates, compared to $46.5 million for the quarter ended March
31, 1999, an increase of $276.5 million or 594.5%. The Company's operating
revenues from wholly-owned operations were $332.7 million, an increase of $294.8
million or 780%, over the same period in 1999. Revenues from the Company's
Northeast assets that were acquired during 1999 accounted for approximately
$228.0 million of this increase. Approximately $35.8 million of the increase was
due to a tolling agreement related to the Killingholme facility, which was in
effect from January 1, 2000 to the date of the Company's acquisition of this
facility, March 29, 2000. Also, the acquisition of additional ownership
interests in, and the resulting consolidation of, the Company's Pittsburgh and
San Francisco thermal operations together with the consolidation of Crockett
Cogeneration accounted for approximately $25.5 million of the increase in
revenues. For the quarter ended March 31, 2000, revenues from wholly owned
operations consisted of revenue from electrical generation (92.4%), heating,
cooling and thermal activities (6.5%) and technical services (1.1%).
Equity in losses of unconsolidated project affiliates was $9.6 million
for the quarter ended March 31, 2000, compared to earnings of $8.7 million for
the quarter ended March 31, 1999, a decrease of 211%. Reduced earnings from the
Company's investment in West Coast Power LLC accounted for $11.1 million of the
decrease. The West Coast Power LLC results were down due to interest on project
level debt that was issued in June 1999, a favorable business interruption
insurance settlement that was recorded in the first quarter of 1999, and costs
associated with the Encina facility and the San Diego combustion turbines which
are summer peaking facilities that were acquired in May 1999. In addition,
equity earnings from NEO decreased by $2.4 million primarily due to operating
losses from a project that was acquired in October 1999. This project produces a
net profit for the Company after consideration of Section 29 credits, which are
included in income taxes. Equity earnings from the Loy Yang project decreased by
$2.4 million due to a change in accounting for tax benefits associated with the
project. Equity earnings were also reduced by the
11
<PAGE> 14
consolidation of the Company's Pittsburgh and San Francisco thermal operations
and Crockett Cogeneration subsidiaries during 1999.
OPERATING COSTS AND EXPENSES
Cost of wholly owned operations was $214.9 million for the quarter, an
increase of $187.0 million, or 669.2%, over the same period in 1999.
Approximately $146 million of the increase was due to the acquisition of the
Northeast assets during 1999. The remaining increase was primarily due to the
consolidation of Crockett Cogeneration and the Pittsburgh and San Francisco
thermal operations. Cost of operations, as a percentage of revenues from
wholly-owned operations for the period, was 64.6% which is 12.6% less then the
prior year period.
Depreciation and amortization costs were $20.0 million for the quarter
ended March 31, 2000, compared to $4.7 million for the quarter ended March 31,
1999. The increase resulted primarily from the addition of the Northeast assets
during 1999 and the acquisition of additional ownership interests in and the
resulting consolidation of the Company's Pittsburgh and San Francisco thermal
operations, together with the consolidation of Crockett Cogeneration, which
contributed to the increase in depreciation and amortization.
General, administrative and development costs were $25.2 million for
the quarter ended March 31, 2000, compared to $16.0 million for the quarter
ended March 31, 1999. The $9.2 million increase is due primarily to increased
business development, associated legal, technical, and accounting expenses,
employees and equipment resulting from expanded operations and preparation for
several acquisitions that took place in 1999 and during the first quarter of
2000. As a percent of total revenues, administrative and general expenses
declined to 7.8% from 34.4% during the same period one-year earlier.
OTHER (EXPENSE) INCOME
Other expense was $52.6 million for the quarter, compared with $10.8
million for the same period in 1999. The increase in other expense was primarily
due to an increase in interest expense, which was $52.3 million for the quarter,
compared to $11.0 million for the quarter ended March 31, 1999. The Company
added $750 million of project level debt related to the Northeast asset
acquisitions resulting in $18.2 million of incremental interest expense. In
addition, the Company issued $300 million of senior notes in June 1999 and $240
million of senior notes in November 1999. Also, a higher average outstanding
balance of the Company's revolving line of credit and the consolidation of
Crockett Cogeneration and the Company's Pittsburgh and San Francisco thermal
operations contributed to higher interest expense.
INCOME TAX
Because the Company is included in the consolidated federal income tax
return of Northern States Power (NSP), the Company pays to and is paid by NSP on
a dollar-for-dollar basis for the increase or reduction, respectively, of NSP's
taxes attributable to the respective tax liabilities or benefits the Company
creates. Income tax expense was $1.6 million for the quarter ended March 31,
2000 compared to an income tax benefit of $12.0 million for the quarter ended
March 31, 1999. The increase in income tax expense was primarily due to higher
United States taxable income versus foreign taxable income. In addition, the
Company no longer recognized the tax benefits related to the losses generated by
the Loy Yang facility. This increase in tax expense was partially offset by
additional Section 29 tax credits generated by growth in NEO's portfolio of
landfill gas projects.
YEAR 2000 (Y2K) READINESS
Although it appears that the Company successfully transitioned into the
year 2000 with no Y2K disruptions to customers or to internal operations, there
are no guarantees that a Y2K related problem will not surface at a later date.
The Company is not presently aware of any such situations; however, occurences
of this type could adversely affect the Company's business, operating results or
financial condition.
12
<PAGE> 15
ACCOUNTING CHANGE
In June 1998, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standard 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 all changes in fair value be
recognized currently in earnings or deferred as a component of other
comprehensive income, depending on the intended use of the derivative, its
resulting designation and its effectiveness. The Company plans to adopt this
Statement in 2001, as required. The Company has not determined the potential
impact of implementing this Statement.
FILING OF REGISTRATION STATEMENT
On April 19, 2000, the Company filed a registration statement with the
Securities and Exchange Commission for an initial public offering of up to 18
percent of its common stock. The Company will receive all proceeds from the
offering. Approximately $300 million of the proceeds are expected to be used to
repay the short-term bridge loan, which matures in August 2000 and was used to
finance the acquisition of the Cajun facilities. Any remaining net proceeds are
expected to be used for general corporate purposes, which may include funding of
capital expenditures and potential acquisitions, the development and
construction of new facilities and additions to working capital. Funds not
immediately required for such purposes may be used to temporarily reduce any
outstanding balances under the Company's revolving credit facility.
13
<PAGE> 16
PART II
ITEM 1. LEGAL PROCEEDINGS
On or about July 12, 1999, Fortistar Capital, Inc., a Delaware Corporation,
filed a complaint in the Fourth Judicial District, Hennepin County,
Minnesota against the Company, asserting claims for injunctive relief and
for damages as a result of our alleged breach of a confidentiality letter
agreement with Fortistar relating to the Oswego facility. The Company
disputed Fortistar's allegations and has asserted numerous counterclaims.
The Company has counterclaimed against Fortistar for breach of contract,
fraud and negligent misrepresentations and omissions, tortuous interference
with contract, prospective business opportunities and prospective
contractual relationships, unfair competition and breach of covenant of
good faith and fair dealing. The Company seeks, among other things,
dismissal of Fortistar's complaint with prejudice and rescission of the
letter agreement.
A temporary injunction hearing was held on September 27, 1999. The
acquisition of the Oswego facility was closed on October 22, 1999,
following notification to the court of the Company's and Niagara Mohawk
Power Corporation's intention to close on that date. On January 14, 2000,
the court denied Fortistar's request for a temporary injunction. The
Company intends to continue to vigorously defend the suit and believe
Fortistar's complaint to be without merit. No trial date has been set.
On October 12, 1999, the Company received a letter from the Office of the
Attorney General of the State of New York alleging that based on a
preliminary analysis, it believes that major modifications were made to the
Company's Huntley and Dunkirk facilities during prior ownership of those
facilities without the required permits having been obtained. The Company
believes that the Attorney General sent identical letters to the owners and
operators of all of the coal-fired utility plants in New York. On January
12, 2000, the Company received a formal request from the New York
Department of Environmental Conservation seeking documents relating to the
matters covered by the Attorney General's letter. The Company understands
that this request supersedes the Attorney General's request. While the
Company does not have knowledge at this time that the previous owner of the
Huntley and Dunkirk facilities did not comply with the preconstruction
permit requirement, the Company cannot predict the outcome of the state's
investigation, as the Company has only owned these facilities since June
1999. Although, the Company has a right to indemnification by the previous
owner for penalties resulting from the previous owner's failure to comply
with environmental laws and regulations, if these facilities did not comply
with the applicable permit requirements, the Company could be required,
among other things, to install specified pollution control technology to
further reduce pollutant emissions from the Dunkirk and Huntley facilities,
and the Company could become subject to fines and penalties associated with
the period of time it has operated the facilities.
The independent system operator for the New York Power Pool has recently
imposed price limitations on certain ancillary services sold in this
market, and, together with several New York utilities, has sought authority
from FERC to adjust the market clearing prices for 10 minute reserve
services on a retroactive basis. The Company has joined several other
independent power producers in New York in filing a claim with FERC
challenging these actions. If the independent system operator prevails, the
Company's revenues for ancillary services sold in the New York Power Pool
could be substantially reduced. Although the Company would attempt to
adjust its business operations to mitigate the future impact of such a
ruling, the potential negative impact on the Company's revenues for the
first quarter of 2000 would include the potential refund of approximately
$8.0 million collected in February 2000 and the inability to collect
approximately $8.2 million included in revenues, but not collected, for
March 2000. At this time the Company cannot predict the outcome of this
action.
There are no other material legal proceedings pending, other than ordinary
routine litigation incidental to the Company's business, to which the
Company is a party. There are no material legal proceedings to which an
officer or director is a party or has a material interest adverse to the
Company or its subsidiaries. There are no material administrative or
judicial proceedings arising under environmental quality or civil rights
statutes pending or known to be contemplated by governmental agencies to
which the Company is or would be a party.
14
<PAGE> 17
PART II
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(A) EXHIBITS
27 Financial Data Schedule for the period ended March 31, 2000.
(B) REPORTS ON FORM 8-K:
On April 8, 2000, the Company filed a Form 8-K reporting under Item 5 -
Other Events.
The Company announced that on March 29, 2000, it completed the
acquisition, from National Power plc, of the 680 MW gas-fired
Killingholme A combined-cycle, gas-turbine power station.
On April 8, 2000, the Company filed a Form 8-K reporting under Item 5 -
Other Events.
The Company announced that on March 31, 2000, it completed the
acquisition of two fossil fueled generating plants from Cajun
Electric Power Cooperative, Inc.
On April 19, 2000, the Company filed a Form 8-K reporting under Item 5
- Other Events.
The Company announced that on April 19, 2000, it filed a
registration statement with the Securities and Exchange Commission
for an initial public offering of up to 18 percent of its common
stock.
15
<PAGE> 18
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
NRG ENERGY, INC.
(Registrant)
/s/ Leonard A. Bluhm
---------------------
Leonard A. Bluhm
Executive Vice President and Chief Financial Officer
(Principal Financial Officer)
/s/ David E. Ripka
---------------------
David E. Ripka
Vice President and Controller
(Principal Accounting Officer)
Date: May 11, 2000
-------------
16
<TABLE> <S> <C>
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<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE MARCH
31, 2000 FINANCIAL STATEMENTS INCLUDED IN THE COMPANY'S FORM 10-Q AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FORM 10-Q.
</LEGEND>
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<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
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<RECEIVABLES> 146030
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