<PAGE> 1
Halle, March 31, 2000
SAALE ENERGIE GMBH,
SCHKOPAU
Report on the audit of the financial
statements for the years ended
December 31, 1999, 1998 and 1997
in accordance with German GAAP
and on the audit of the respective
US GAAP reconciliation
<PAGE> 2
SAALE ENERGIE GMBH
INDEX TO THE FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
<S> <C>
Report of Independent Auditors 1
Annual Financial Statements
Statements of Income for the years 1999, 1998 and 1997 2
Balance Sheets as of December 31, 1999 and 1998 3
Statements of Cash Flows for the years 1999, 1998 and 1997 4
Notes to the Financial Statements 5
</TABLE>
<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, 1999 and 1998, and the related statements of income and cash
flows for each of the three years in the period ended December 31, 1999. These
financial statements are the responsibility of SEG's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
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, 1999 and 1998, and the results of its operations and its cash flows
for each of the three years in the period ended December 31, 1999 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 years
ended December 31, 1999, 1998 and 1997 and shareholders' equity as of December
31, 1999 and 1998 to the extent summarized in NOTE C to the financial
statements.
DELOITTE & TOUCHE GmbH
Wirtschaftsprufungsgesellschaft
/s/ Deloitte & Touche GmbH
Halle, Germany
March 31, 2000
1
<PAGE> 4
SAALE ENERGIE GMBH
STATEMENTS OF INCOME
(IN THOUSANDS DM)
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31,
NOTES 1999 1998 1997
----- ------------ ------------ ------------
<S> <C> <C> <C> <C>
Sales D 222,442 218,642 224,502
Other operating income 175 27 21
------------ ------------ ------------
Total revenue 222,617 218,669 224,523
------------ ------------ ------------
Cost of materials D/M 208,864 215,763 225,669
Depreciation of tangible fixed assets 0 1 1
Other operating expenses 1,342 1,112 1,122
------------ ------------ ------------
Total operating expenses 210,206 216,876 226,792
------------ ------------ ------------
------------ ------------ ------------
Result of operations 12,411 1,793 -2,269
Income from companies in which
participations are held 8,667 8,515 7,162
Interest income (net) N 4,946 2,280 -3,152
------------ ------------ ------------
Results of ordinary activities 26,024 12,588 1,741
Extraordinary profit (net) O 574 -4,856 0
------------ ------------ ------------
Profit before taxes on income 26,598 7,732 1,741
Taxes on income J 800 0 0
------------ ------------ ------------
Net profit for the year 25,798 7,732 1,741
Accumulated losses brought forward I -1,910 -9,642 -11,383
Transfer from capital reserves I 46,131 0 0
Distribution to shareholders I -46,131 0 0
------------ ------------ ------------
Retained income/accumulated losses 23,888 -1,910 -9,642
============ ============ ============
</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 1999 1998
------ --------------- ---------------
<S> <C> <C> <C>
ASSETS
Outstanding contributions 713 713
NON-CURRENT ASSETS
Fixed assets
Tangible assets
Factory and office equipment B 0 0
Financial assets
1. Shares in affiliated companies B, E 49 49
2. Participations B, E 204,193 204,193
3. Loans to participations B, F 94,671 83,800
4. Loans to shareholding companies B, G 80,522 0
--------------- ---------------
TOTAL NON-CURRENT ASSETS 379,435 288,042
CURRENT ASSETS
Inventories
Raw materials and supplies B 763 847
Receivables and other assets
1. Trade receivables B, D, H 22,268 22,505
2. Receivables from participations B, H 927 0
3. Other assets B, H 2,735 4,151
Bank balances B 48,243 107,823
--------------- ---------------
TOTAL CURRENT ASSETS 74,936 135,326
--------------- ---------------
TOTAL ASSETS 455,084 424,081
=============== ===============
SHAREHOLDERS' EQUITY AND LIABILITIES
SHAREHOLDERS' EQUITY I
Subscribed capital 1,000 1,000
Capital reserve 1,910 48,041
Retained income/p.y. accumulated losses 23,888 -1,910
--------------- ---------------
TOTAL SHAREHOLDERS' EQUITY 26,798 47,131
Accruals
1. Taxation accruals B, J 800 0
2. Other accruals B 106 3,292
Liabilities
1. Trade payables B, K 3,383 3,940
2. Payables to shareholding companies B, K 67 77
3. Payables to affiliated companies B, K 390 373
4. Payables to participations B, K 376,657 324,663
5. Other payables B, K 46,883 44,605
--------------- ---------------
TOTAL SHAREHOLDERS' EQUITY AND LIABILITIES 455,084 424,081
=============== ===============
</TABLE>
See accompanying Notes to the Financial Statements
3
<PAGE> 6
SAALE ENERGIE GMBH
STATEMENTS OF CASH FLOWS
(IN THOUSANDS DM)
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1999 1998 1997
------------ ------------ ------------
<S> <C> <C> <C>
Cash flows from operations:
Net income for the year 25,798 7,732 1,741
Adjustments to reconcile the net profit to the
cash generated by operations:
Depreciation on tangible assets 0 1 1
Change in assets and liabilities:
Inventories 84 -133 -389
Short-term trade receivables 237 -3,645 5,904
Receivables from participations -927 0 0
Taxation accruals 800 0 0
Other accruals -3,186 3,212 40
Short-term trade payables -557 400 -5,295
Other liabilities 54,279 84,717 65,579
Other items 894 -610 11,009
------------ ------------ ------------
CASH PROVIDED BY OPERATING ACTIVITIES 77,422 91,674 78,590
------------ ------------ ------------
Cash flows from investment activities:
Disbursement of loans to participations -10,871 0 0
Disbursement of advances to shareholding companies -80,000 0 0
------------ ------------ ------------
CASH UTILIZED IN INVESTMENT ACTIVITIES -90,871 0 0
------------ ------------ ------------
Cash flows from financing activities:
Distribution of capital reserves -46,131 0 0
Proceeds from loans 0 -373 -90,816
------------ ------------ ------------
CASH UTILIZED IN FINANCING ACTIVITIES -46,131 -373 -90,816
------------ ------------ ------------
NET DECREASE IN CASH -59,580 91,301 -12,226
CASH AT BEGINNING OF YEAR 107,823 16,522 28,748
------------ ------------ ------------
CASH AT END OF YEAR 48,243 107,823 16,522
============ ============ ============
</TABLE>
See accompanying notes to the Financial Statements
4
<PAGE> 7
SAALE ENERGY 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, 1999, 1998
and 1997 and shareholders equity at December 31, 1999 and 1998 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.
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 is recorded and deducted from the trade
receivables balance for unexpected uncollectable accounts.
BANK BALANCES: Bank balances include current accounts and time 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.
5
<PAGE> 8
SAALE ENERGY GMBH
NOTES TO THE FINANCIAL STATEMENTS
(IN THOUSANDS DM)
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 O to the financial statements.
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 784,260, whereas the net present value
of the lease obligation payable by SEG over the minimum period of 25 years is
TDM 447,444 as of December 31, 1999.
6
<PAGE> 9
SAALE ENERGY GMBH
NOTES TO THE FINANCIAL STATEMENTS
(IN THOUSANDS DM)
3. Outstanding contributions from the shareholders
As of December 31, 1999, 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 corporate income tax, because the
accumulated tax losses of prior years exceed the net profit for the 1999
financial year. SEG raised an accrual for the first time in respect of municipal
trade tax during the 1999 financial year (TDM 800). 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, 1999 and 1998, 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>
12/31/1999 12/31/1998
TDM TDM
---------- ----------
<S> <C> <C>
Deferred tax liability:
lease accounting 170,423 165,721
---------- ----------
Total deferred liability 170,423 165,721
---------- ----------
Deferred tax assets:
accumulated tax losses 30,395 48,276
investment in GbR 4,566 3,812
---------- ----------
Total deferred asset 34,961 52,088
---------- ----------
---------- ----------
Net deferred tax liability 135,462 113,633
========== ==========
</TABLE>
The effect of the decrease of the corporate income tax rate for undistributed
earnings from 45% to 40%, effective from 1. January 1999, was a reduction of the
net deferred tax liability by TDM 8,053.
7
<PAGE> 10
SAALE ENERGY GMBH
NOTES TO THE FINANCIAL STATEMENTS
(IN THOUSANDS DM)
RECONCILIATION TO US GAAP
The following is a summary of the significant adjustments to net income for
1999, 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 Year ended
December 31, December 31, December 31,
1999 1998 1997
Items TDM TDM TDM
----- ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net income as reported in the statement
of income under German GAAP 25,798 7,732 1,741
Consolidation of SES 1. -744 134 -1,578
Lease adjustment 2. 33,292 83,757 71,766
Deferred taxes 4. -21,829 -58,910 -41,636
------------ ------------ ------------
Net profit in accordance
with US GAAP 36,517 32,713 30,293
============ ============ ============
</TABLE>
The following is a summary of the significant adjustments to shareholders'
equity as of December 31, 1999 and 1998 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,
1999 1998
Items TDM TDM
----- ------------ ------------
<S> <C> <C> <C>
Shareholders' equity as reported in the
balance sheet under German GAAP 26,798 47,131
Adjustments required to conform with US GAAP:
Consolidation of SES 1. 1,090 1,834
Lease adjustment 2. 220,351 187,059
Outstanding contributions 3. -713 -713
Deferred taxes 4. -135,462 -113,633
------------ ------------
Shareholders' equity in
accordance with US GAAP 112,064 121,678
============ ============
</TABLE>
8
<PAGE> 11
SAALE ENERGY GMBH
NOTES TO THE FINANCIAL STATEMENTS
(IN THOUSANDS DM)
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 1999, 1998 and 1997 were made to this customer,
except for an amount of TDM 232, which was invoiced to the Kraftwerk Schopau
Betriebsgesellschaft mbH (KSB) in 1999 for start-up operating losses and own
power consumption incurred in the power plant during 1998.
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 122,752, TDM 133,412 and TDM 139,294 in 1999, 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 57,274,
TDM 54,779 and TDM 54,713 in 1999, 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. The final "asset split" agreement was, however, only signed on September
30, 1999 (see NOTE O).
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 as security for the other partner in
the GbR.
NOTE F LOANS 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 83,800 to GbR. The full amount has been drawn as of
December 31, 1999. The loan is unsecured and bears interest at a fixed rate of 7
% p.a. The interest on the loan for 1999 of TDM 5,866 was set-off from the
payables to the GbR (see NOTE K). The loan has been granted for an indefinite
period and the repayment terms are not fixed.
As a result of the asset split transaction, SEG was required to grant additional
loans amounting to TDM 10,871 to the GbR. The loans are unsecured and bear
interest at fixed rates of between 4.75% and 7.79% per annum. The interest on
the loans for 1999 amounted to TDM 603, of which TDM 78 was paid during 1999.
The balance of TDM 525 is disclosed as receivables from participations (GbR).
The accounting treatment of the asset split transaction is disclosed in NOTES N
and O.
9
<PAGE> 12
SAALE ENERGY GMBH
NOTES TO THE FINANCIAL STATEMENTS
(IN THOUSANDS DM)
NOTE G LOANS TO SHAREHOLDING COMPANIES
SEG entered into agreements with NRGenerating International B.V. and PowerGen
International Ltd. on 10/21/1999 to make loans of TDM 40,000 to each
shareholder. The advances plus accrued interest are repayable on 12/31/2005. The
advances bear interest at the Euribor rate plus a margin. The margins amount to
0% in respect of the PowerGen advance and 0.275% in respect of the NRG advance.
The interest on the advances for 1999 of TDM 522 was added to the loan balance.
NOTE H RECEIVABLES AND OTHER ASSETS
Net trade receivables of TDM 22,268 and TDM 22,505 as reported on December 31,
1999 and 1998, respectively, relate to power supplied to the company's sole
customer. The balance as of December 31, 1998 was net of an allowance for
doubtful accounts of TDM 75.
The receivables from participations include interest on the additional loans to
the GbR (TDM 525), receivables in respect of legal expenses incurred on behalf
of the GbR (TDM 131) and receivables from the KSB in respect of compensation for
start up losses incurred and own power consumption during 1998 in the power
plant (TDM 271).
The other assets are mainly receivables from tax authorities.
10
<PAGE> 13
SAALE ENERGY GMBH
NOTES TO THE FINANCIAL STATEMENTS
(IN THOUSANDS DM)
NOTE I CHANGE IN SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
Accumulated
Subscribed Capital Net income losses brought Total
capital reserve for the year forward
TDM TDM TDM TDM TDM
---------- ------- ------------ -------------- -------
<S> <C> <C> <C> <C> <C>
Balance at January 1, 1997 1,000 48,041 -7,870 -3,513 37,658
Net profit for the period 9,611 -7,870 1,741
---------- ------- ------------ -------------- -------
Balance at January 1, 1998 1,000 48,041 1,741 -11,383 39,399
Net profit for the period 5,991 1,741 7,732
---------- ------- ------------ -------------- -------
Balance at January 1, 1999 1,000 48,041 7,732 -9,642 47,131
Net profit for the period 18,066 7,732 25,798
Loss carried forward -1,910 1,910 0
Transfer from capital reserve -46,131 46,131 0
Distribution to the
shareholding companies -46,131 -46,131
---------- ------- ------------ -------------- -------
Balance at December 31, 1999 1,000 1,910 23,888 0 26,798
========== ======= ============ ============== =======
</TABLE>
In accordance with the shareholders resolution of June 30, 1999, TDM 23,065 was
distributed from the capital reserve to each of the shareholding companies.
NOTE J TAXATION ACCRUALS
An accrual of TDM 800 was raised for municipal trade tax in respect of 1999.
11
<PAGE> 14
SAALE ENERGY GMBH
NOTES TO THE FINANCIAL STATEMENTS
(IN THOUSANDS DM)
NOTE K LIABILITIES
The maturity periods of the liabilities are as follows:
<TABLE>
<CAPTION>
Total balance Maturity period Maturity period Maturity period Total balance as
as of of less than between 1 and of more than of 12/31/1998
12/31/1999 1 year 5 years 5 years
TDM TDM TDM TDM TDM
------------- --------------- --------------- --------------- ----------------
<S> <C> <C> <C> <C> <C>
Trade payables 3,383 3,383 3,940
Payables to shareholding companies 66 66 77
Payables to affiliated companies 390 390 373
Payables to companies in which
participations are held 376,658 20,597 175,771 180,290 324,663
Other liabilities 46,883 46,883 44,605
------------- --------------- --------------- --------------- ----------------
427,380 71,319 175,771 180,290 373,658
============= =============== =============== =============== ================
</TABLE>
to 4)
The liability as of December 31, 1999 and 1998 comprises of the following:
<TABLE>
<CAPTION>
12/31/1999 12/31/1998
TDM TDM
---------- ----------
<S> <C> <C>
a) Kraftwerk Schkopau GbR (GbR) 370,862 319,159
b) Kraftwerk Schkopau Betriebsgesellschaft mbH (KSB) 5,795 5,504
---------- ----------
376,657 324,663
========== ==========
</TABLE>
12
<PAGE> 15
SAALE ENERGY GMBH
NOTES TO THE FINANCIAL STATEMENTS
(IN THOUSANDS DM)
a) The payables to GbR comprise of the following components:
TDM 328,211 (in 1998, TDM 272,206) 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 42,651 (in 1998, TDM 43,753) 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). In accordance with the terms of the asset split
agreement TDM 1,102 was paid during 1999.
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
amounted to TDM 3,200 as of December 31, 1998. The liability was fully paid
during 1999 in accordance with the terms of the asset split agreement.
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.
to 5)
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 1999 and 1998.
NOTE L OTHER FINANCIAL COMMITMENTS
For financial commitments relating to the leased assets and lease commitments
see note C.
NOTE M 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 1999 amounted
to TDM 28,754 (1998: TDM 27,706; 1997: TDM 32,052).
In addition, SES and MIBRAG entered into a consulting and management agreement.
In 1999 MIBRAG was billed TDM 3,375 (1998: TDM 4,861; 1997: TDM 4,548) by SES.
13
<PAGE> 16
SAALE ENERGY GMBH
NOTES TO THE FINANCIAL STATEMENTS
(IN THOUSANDS DM)
NOTE N INTEREST INCOME (NET)
<TABLE>
<CAPTION>
Year ended Year ended Year ended
December 31, December 31, December 31,
1999 1998 1997
TDM TDM TDM
------------ ------------ ------------
<S> <C> <C> <C>
Interest income
Interest on asset split receivables 1998-1999 1,383
Interest on loans to participations 6,469 5,866 5,754
Interest on loans to shareholding companies 522
Bank interest 2,392 1,473 1,023
------------ ------------ ------------
10,766 7,339 6,777
------------ ------------ ------------
Interest expenses
Interest on construction period loan 2,135 2,394 1,871
Commission for acceptance of liability 2,536 2,550 2,428
Interest on loans from shareholding companies 5,412
Bank interest 218
Interest on asset split payables 1998-1999 1,131 50
Interest on loan from affiliated company 17 65
------------ ------------ ------------
5,819 5,059 9,929
------------ ------------ ------------
------------ ------------ ------------
Interest income, net 4,947 2,280 -3,152
============ ============ ============
</TABLE>
The interest income and interest expenses on the asset split receivables and
payables respectively mainly relate to the "split external loan" agreements,
which were only signed and recorded during 1999. The interest for the financial
years 1999 and 1998 were treated as part of ordinary operations as the asset
split adjustment entries were basically made to correct the financial entries
for the years before 1998 (see NOTE O).
14
<PAGE> 17
SAALE ENERGY GMBH
NOTES TO THE FINANCIAL STATEMENTS
(IN THOUSANDS DM)
NOTE O EXTRAORDINARY PROFIT (NET)
<TABLE>
<CAPTION>
Year ended Year ended Year ended
December 31, December 31, December 31,
1999 1998 1997
TDM TDM TDM
------------ ------------ ------------
<S> <C> <C> <C>
Extraordinary income
Interest income from the asset split 1994-1997 2,180 112 0
Interest in the profit of participations 1996 0 57 0
------------ ------------ ------------
2,180 169 0
------------ ------------ ------------
Extraordinary expenses
Interest expense from the asset split 1994-1997 1,606 450 0
Use and benefit fees 1996-1997 0 4,575 0
------------ ------------ ------------
1,606 5,025 0
------------ ------------ ------------
------------ ------------ ------------
Extraordinary profit, net 574 -4,856 0
============ ============ ===========
</TABLE>
The extraordinary items in 1999 and 1998 relate to the adjustments, in respect
of the financial years before 1998, which resulted from the asset split
agreement of May 28, 1998. The final asset split contract was signed on
September 30, 1999. The asset split interest income and expense items mainly
relate to the adjustment of the "split external loans" in respect of the
financial years before the asset split.
15
