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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
___________
FORM 10-K
FOR ANNUAL AND TRANSITION REPORTS
PURSUANT TO SECTIONS 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
/x/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE FISCAL YEAR ENDED JUNE 30, 1996
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE OF 1934
For the transition period from _________ to _________
COMMISSION FILE NUMBER: 1-9208
NRG GENERATING (U.S.) INC.
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(Exact name of registrant as specified in its charter)
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DELAWARE 59-2076187
(State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.)
1221 NICOLLET MALL, SUITE 610, MINNEAPOLIS, MINNESOTA 55403 (612) 373-5300
(Address of principal executive offices) (Zip Code) (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:
COMMON STOCK, PAR VALUE $.01 PER SHARE
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Indicate 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, 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 Regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. /x/
As of October 20, 1996, there were outstanding 6,475,062 shares of Common
Stock. Based on the last sales price at which such stock was sold on that
date, the approximate aggregate market value of such shares held by
non-affiliates was $18,399,000.
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Section 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court. /x/ Yes / / No
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DOCUMENTS INCORPORATED BY REFERENCE
The information required for the following items are incorporated by
reference to the 1996 Definitive Proxy Statement of NRG Generating (U.S.) Inc.:
Item 10 -- Directors and Executive Officers of the Registrant
Item 11 -- Executive Compensation
Item 12 -- Security Ownership of Certain Beneficial Owners and Management
Item 13 -- Certain Relationships and Related Transactions
TABLE OF CONTENTS
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NUMBER
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Part I
Item 1. Business.................................................................... 3
Item 2. Properties.................................................................. 21
Item 3. Legal Proceedings........................................................... 22
Item 4. Submission of Matters to a Vote of Security Holders......................... 24
Part II
Item 5. Market for the Registrant's Common Equity and Related
Stockholder Matters......................................................... 25
Item 6. Selected Financial Data..................................................... 26
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................................... 27
Item 8. Financial Statements and Supplementary Data................................. 36
Item 9. Changes in and Disagreements with Accountants on Accounting.................
and Financial Disclosure.................................................... 36
Part III
Item 10. Directors and Executive Officers of the Registrant.......................... 37
Item 11. Executive Compensation...................................................... 37
Item 12. Security Ownership of Certain Beneficial Owners and Management.............. 37
Item 13. Certain Relationships and Related Transactions.............................. 37
Part IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K............. 38
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PART I
ITEM 1. BUSINESS.
A. GENERAL DEVELOPMENT OF BUSINESS.
A. GENERAL
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On April 30, 1996, NRG Generating (U.S.) Inc. (referred to herein with its
subsidiaries as "NRGG" or the "Company"), formerly O'Brien Environmental
Energy, Inc. ("O'Brien"), emerged from bankruptcy. The plan of reorganization,
approved on January 18, 1996 by the U.S. Bankruptcy Court for the District of
New Jersey (the "Bankruptcy Court"), awarded NRG Energy, Inc. ("NRG") the
rights to acquire a 41.86% equity interest in O'Brien and generally provided
for full and immediate payment of all undisputed prepetition liabilities and
included a provision for post-petition interest.
O'Brien filed a voluntary petition for reorganization under Chapter 11 of
the United States Bankruptcy Code with the Bankruptcy Court on September 28,
1994 to pursue financial restructuring efforts under the protection afforded by
the U.S. bankruptcy laws. O'Brien was originally formed in Florida in 1981 and
subsequently merged with a Delaware corporation in 1984. Prior to the merger,
O'Brien was part of a group of several other companies which had served the
power generation market since 1915. On July 1, 1991, O'Brien changed its name
from O'Brien Energy Systems, Inc. to O'Brien Environmental Energy, Inc.
O'Brien was renamed on the April 30, 1996 closing date to NRG Generating (U.S.)
Inc.
The Company is mainly in the business of developing cogeneration, waste
heat recovery and biogas projects which produce electricity and thermal energy
for sale under long-term contracts with industrial and commercial users and
public utilities. In its role as a developer of energy projects the Company
has developed the following projects, which it currently has an ownership
interest in:
(a) The 52 megawatt Newark Boxboard Project (which is owned by
NRG Generating (Newark) Cogeneration Inc., a wholly-owned subsidiary
of the Company ("Newark")) began operations in November 1990;
(b) The 122 megawatt E.I. du Pont Parlin Project (which is owned
by NRG Generating (Parlin) Cogeneration Inc., a wholly-owned
subsidiary of the Company ("Parlin")) began operations in June 1991;
(c) The Company also participates in the area of standby/peak
shaving projects which utilize the Company's power generation
equipment as a backup source of
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electricity for large customers and has developed and operates a 22
megawatt project in Pennsylvania (which is owned 83% by the
Company).
Currently, the Company has a one-third interest in a 150 megawatt natural
gas and oil fired cogeneration facility, which is in construction, with
commercial operation scheduled for late 1997. The Company also has a number of
prospective projects which it is currently evaluating or bidding on.
The Company expanded its equipment sales, rentals and services business by
acquiring O.B. Power Plant Limited, formerly Puma Power Plant Limited ("Puma"),
a United Kingdom company, in 1988 and Mobile Power Rental Company (now
operating under the name O'Brien Energy Services Company) in 1990.
In 1989, the Company acquired American Hydrotherm Corporation ("American
Hydrotherm") and a related company to engineer, manufacture, install and
service waste heat recovery systems based upon patented technology for
industrial processing applications.
B. SIGNIFICANT FACTORS
The items discussed in this "Significant Factors" section have had a
negative impact on the Company's cash flow, its ability to meet current
obligations and its ability to finance operations and ongoing development
activities, and should be carefully considered:
(I) LIQUIDITY; EMERGENCE FROM CHAPTER 11 BANKRUPTCY
On April 30, 1996, the Company (formerly O'Brien Environmental
Energy, Inc.) emerged from bankruptcy. The plan of reorganization (the
"Plan"), approved on January 18, 1996 by the Bankruptcy Court, awarded
NRG the rights to acquire a 41.86% equity interest in O'Brien and
generally provided for full and immediate payment of all undisputed
prepetition liabilities and included a provision for post-petition
interest.
O'Brien filed a voluntary petition for reorganization under Chapter
11 of the United States Bankruptcy Code with the Bankruptcy Court on
September 28, 1994 to pursue financial restructuring efforts under the
protection afforded by the U.S. bankruptcy laws. The decision to seek
Chapter 11 relief was based on the conclusion that O'Brien had to
preserve its business relationships, to maintain the operational strength
and assets, and to restructure its debt and utilize its assets consistent
with the interests of all creditors and shareholders, rather than to
liquidate in order to satisfy the demands of a particular group of
creditors.
Subsequent to September 28, 1994 and until April 30, 1996 when it
emerged from bankruptcy, O'Brien operated as debtor-in-possession under
the Bankruptcy Code. As such, O'Brien was authorized to operate its
business, but not engage in transactions outside the ordinary course of
business without approval, after notice and hearing, of the
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Bankruptcy Court. As a result of this action, pending litigation against
O'Brien (but not its subsidiaries) was stayed and consolidated with the
bankruptcy proceeding. O'Brien's securities were delisted from the
American Stock Exchange and the Philadelphia Stock Exchange. O'Brien was
renamed on the April 30, 1996 closing date to NRG Generating (U.S.) Inc.
Company management will soon seek listing for the Company's Common Stock
on the NASDAQ National Market System. There can be no assurance that
such listing will be obtained or that a trading market will develop for
any of the Company's securities even if they are listed on any of the
foregoing exchanges or quotation systems. See "Market for Registrant's
Common Equity and Related Stockholder Matters."
(II) LOSSES
The Company has incurred losses in the amounts of $17,713,000 and
$40,919,000 for the fiscal years ended June 30, 1996, and June 30, 1995,
respectively. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
(III) CAPITAL REQUIREMENTS
The Company's business is capital intensive. The long-term growth
of the Company, which involves the development and acquisition of
additional projects, will require the Company to seek substantial funds
through various forms of financing. There can be no assurance that the
Company will be able to arrange the financing needed for these additional
projects. If the Company is unable to secure financing, its business
could be materially adversely affected. See "Business -- Energy Segment"
and "Projects in Development--Co-Investment Agreement."
(IV) ENERGY PRICE FLUCTUATIONS AND FUEL SUPPLY
The Company's power purchase agreements with utilities typically
contain price provisions which in part are linked to the utilities' cost
of generating electricity. In addition, the Company's fuel supply prices
may be fixed in some cases or may be linked to fluctuations in energy
prices. The Company renegotiated its power purchase agreements with
Jersey Central Power and Light ("JCP&L"), the primary electricity
purchaser from its Newark and Parlin facilities, and on April 30, 1996
these renegotiated agreements went into effect. Under the new agreements
JCP&L is responsible for all natural gas supply and delivery. See
"Recent Developments--Amendment to the Newark and Parlin Power Purchase
Agreements." Management believes that historical gross margins will
remain similar to historical results, however, there can be no assurance
that any of the foregoing will improve or maintain gross profit margins
in the future. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Costs and Expenses."
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C. RECENT DEVELOPMENTS
The following are certain of the Company's recent developments:
Emerging from bankruptcy
The Company emerged from bankruptcy on April 30, 1996 under a court
approved plan of reorganization submitted by NRG. NRG acquired a 41.86%
equity interest on the April 30, 1996 closing date. The Company was
renamed to NRG Generating (U.S.) Inc. (see Note 1 of the Consolidated
Financial Statements).
NRG funded $107,418,000 on the closing date, NRGG received
$99,918,000 of which $71,240,000 was advanced under the terms of the
NRG-new loans ("NRG-New Loans"); $21,178,000 represented the purchase of
new common stock of NRGG and $7,500,000 was designated as proceeds for
the sale of 10 wholly-owned subsidiaries to NRG. In addition, NRG
transferred $7,500,000 directly to the Company's stock transfer agent
representing a cash distribution by NRG to the current common
stockholders. See Note 1 of the Consolidated Financial Statements.
New stock of NRGG
On April 30, 1996, the outstanding Class A and Class B common shares
of the Company were canceled and exchangeable for a new single issue of
common stock of NRGG. NRGG authorized common stock consisting of
50,000,000 shares, par value $.01 per share. Additionally, the
reorganized company authorized 20,000,000 shares of preferred stock, par
value $.01, in series, as determined and authorized by the Board of
Directors from time to time. The Board of Directors authorized the
designation of 50,000 shares as a new Series A preferred stock, 13.5%
cumulative, par value $.01. The total new common shares issued were
6,474,814 of which 2,710,357 (41.86%) are owned by NRG. Additionally,
49,574 shares of the Series A preferred stock were issued to satisfy
certain prepetition liabilities consisting primarily of subordinated
debentures owned by Wexford Management Corp. in accordance with the Plan
and subsequently redeemed, with dividends, paid in May 1996. See Notes
15 and 24 of the Consolidated Financial Statements.
Prepetition liability funding
Generally, all undisputed prepetition liabilities approved by the
Bankruptcy Court as allowed claims were fully funded (or
cured/reinstated) and paid with post-petition interest on the closing
date. Certain proofs of claims, filed with the Bankruptcy Court,
however, remain in dispute. An escrow fund was established to fully
reserve for these disputed claims. Any remaining funds resulting from
the Bankruptcy Court disallowing any of these disputed claims will be
disbursed pro rata to all allowed non-reinstated creditor claimholders as
additional post-petition interest.
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Additionally, prepetition liabilities of approximately $4,957,000
consisting primarily of subordinated debentures owned by Wexford
Management Corp. were satisfied by the issuance of shares of Series A
preferred stock in the reorganized company. These shares were
subsequently redeemed in May 1996.
Sale of Subsidiaries to NRG
Under the terms of the Plan, NRG purchased the stock of 10
wholly-owned subsidiaries from the Company for $7,500,000 on April 30,
1996. The companies sold (collectively "the Subsidiaries") were O'Brien
Biogas I (SKB), O'Brien Biogas Inc. VI, O'Brien Biogas (Mazzaro) Inc.,
O'Brien Biogas (Corona) Inc., O'Brien Biogas Inc. IV, O'Brien Biogas
(Hackensack) Inc., O'Brien Biogas Inc. III (Atochem), O'Brien Biogas VII,
O'Brien Cogen Inc. II (Artesia) and O'Brien Standby Power Energy, Inc.
The Subsidiaries sold included all of the Company's landfill gas
projects (operating and those in development), the general partner
holding a 3% equity interest in the Artesia Cogeneration partnership and
a standby power project available for service on December 31, 1995.
Debtor-in-Possession financing
On August 30, 1995, the Company and NRG, with the approval of the
Bankruptcy Court, entered into a Chapter 11 financing agreement ("DIP
financing") which provided for a $3,000,000 commitment with interest at
2% over prime. The loan commitment was increased on February 22, 1996 by
an additional $500,000. The Company made periodic drawdowns totaling
$3,450,000 through the April 30, 1996 closing date. The agreement
required monthly interest-only payments. The principal balance was
repaid to NRG in May 1996.
Amendment to Newark and Parlin Power Purchase Agreements
The Company renegotiated the Power Purchase Agreements ("PPAs")
during 1996. The primary commercial difference is that under the amended
PPAs, the projects' principal customer supplies and pays for the cost of
fuel. Until May 1, 1996, Newark and Parlin incurred the cost of fuel as
well as the risk of fluctuating fuel prices. Energy revenues as well as
costs are anticipated to decrease under the new contracts. Thus, it is
believed that operating gross profit margins will remain similar to
historical results. However, margin fluctuations attributable to
periodic swings in fuel costs will be eliminated. Additionally, Parlin
relinquished its claim to qualifying facility status and filed rates as a
public utility under the Federal Power Act. However, Parlin has been
determined to be an exempt wholesale generator. Additionally, the Parlin
project has changed from a full base load operation to a partial
dispatchable project and the operating requirements relating to
qualifying facility ("QF") status have been eliminated.
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New project financing
On May 17, 1996, the Newark and Parlin project entities entered into
a Credit Agreement (the "New Credit Agreement") with a new lender. The
New Credit Agreement established provisions for a $155,000,000, fifteen
year amortizing loan, a $77,500,000 interest rate swap agreement and a
$5,000,000 debt service reserve line of credit facility. On July 11,
1996, the New Credit Agreement became a joint and several liability of
both the Newark and Parlin project entities.
On May 23, 1996, Newark borrowed $60,000,000 in the form of a
six-month term loan under the terms of the New Credit Agreement. Also
effective May 23, 1996, NRG guaranteed payment of pre-existing
liabilities of Newark and Parlin up to $5,000,000 which will be reduced
as certain defined milestones are reached and will be eliminated no later
than May 23, 2001. The proceeds have been used, among other things, to
repay the Newark nonrecourse project financing and the DIP financing,
redeem the outstanding Series A preferred stock of the Company, and to
reduce the NRG-New Loans.
On June 28, 1996, NRG advanced approximately $53,388,000 to pay off
the Parlin nonrecourse financing which included a $3,100,000 cost to
terminate the interest rate swap agreement. On July 11, 1996, an
additional $95,000,000 was borrowed pursuant to the New Credit Agreement
and combined with Newark's six month term loan which was converted into a
$155,000,000, fifteen year amortizing term loan under the terms of the
New Credit Agreement. Proceeds of this borrowing were used to repay
$53,388,000 to NRG and certain other obligations of the Company as well
as to fund certain required reserve accounts under the terms of the New
Credit Agreement. Also effective July 11, 1996, the Company guaranteed
repayment of up to $25,000,000 of the term loan and that payment of all
income and franchise taxes of Parlin and Newark would be paid when due.
Collateral for the term loan includes a perfected first security interest
on all assets of Newark and Parlin and a pledge of all capital stock of
both Newark and Parlin.
NRG - New Loans
In accordance with the Plan, NRG and the Company executed the
NRG-New Loans on April 30, 1996 with commitments of $45,000,000,
$24,000,000 and $15,855,000 at annual interest rates of 9.5%, 9.5% and
9%, respectively. On April 30, 1996, the NRG funding included
$71,240,000 drawn under these NRG - New Loans. There remains $13,615,000
available to the Company under one of the NRG - New Loans which obligates
NRG to fund, if needed, a court established reserve to adequately cover
the anticipated administrative, priority and tax claims that are
contingent, unliquidated or unmatured or for allowed claim amounts which
were undetermined on the April 30, 1996 closing date. See Note 13 of the
Consolidated Financial Statements.
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O'Brien Schuylkill Note and Stock Option Agreement
In March 1996, NRG and O'Brien (Schuylkill) Cogeneration
Inc.("OSC"), a wholly-owned subsidiary of the Company, entered into a
$10,000,000 loan agreement ("the Note") to provide a means of funding an
OSC capital contribution obligation to the Grays Ferry Partnership (see
Note 8 of the Consolidated Financial Statements). No amounts have yet
been borrowed under the Note.
In connection with NRG's assistance with the Gray's Ferry project,
its financing and the Note, the Company granted NRG the right, approved
by the Bankruptcy Court in March 1996, to convert a portion of borrowings
under the note to common stock of the Company. The option agreement
provides that NRG can convert $3,000,000 of borrowings under the Note for
common stock of the reorganized Company which would equal, on a fully
diluted basis, 5.76% of the shares of common stock (396,301 new common
shares) of the Company as of the NRG Plan effective date, April 30, 1996.
B. FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS.
During the fiscal year ended June 30, 1996, the Company operated
principally in two industry segments: (i) energy -- the development and
ownership of cogeneration and waste heat recovery projects, the development,
ownership and operation of standby/peak shaving projects and biogas projects
through wholly-owned subsidiaries and limited partnerships; and (ii) equipment
sales, rentals and service - the selling and renting of power generating,
cogenerating and standby/peak shaving equipment and services. Fees recognized
in connection with the development and construction of cogeneration projects
formed as limited partnerships are related to energy projects.
See Note 25 of the Consolidated Financial Statements of the Company for
financial information with respect to industry segments.
C. NARRATIVE DESCRIPTION OF BUSINESS.
GENERAL
The Company develops, owns and operates cogeneration, waste heat recovery
and biogas projects which produce electricity and thermal energy for sale under
long-term contracts with industrial and commercial users and public utilities.
Cogeneration involves the sequential production of two or more forms of usable
energy (i.e. electricity and thermal energy) using a single fuel source,
thereby substantially increasing fuel efficiency. A waste heat recovery
project utilizes heat resulting from industrial processes as the energy source
for the simultaneous production of steam and electricity in a manner similar to
cogeneration. Biogas projects such as the Company's landfill and sewage
digested gas projects collect otherwise wasted and
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unproductive methane gas and convert it into usable energy. These projects
offer an industrial user potential cost savings and, where electricity is sold
to the user, increased reliability and added security against power failures.
The Company has subsequently exited the landfill gas business by selling its
operating and development subsidiaries to NRG. See Note 21 of the Consolidated
Financial Statements.
As a project developer, the Company serves as a single source responsible
for the evaluation, design, installation and operation of a project. The
Company also assumes the responsibility for evaluating project alternatives;
obtaining financing, insurance, all necessary licenses, permits and
certifications; conducting contract negotiations with local utilities and
arranging turnkey construction. In connection with obtaining financing, the
Company may negotiate for credit support facilities with equipment suppliers,
large turnkey construction firms and financial institutions. Potential project
structures include sole ownership, general partnerships, limited partnerships,
sale leaseback arrangements and other forms of joint venture or debt
arrangements. To date, other than the limited partnership substantially owned
by a subsidiary of Chrysler Capital Corporation, the Company's projects in
operation have been structured as wholly-owned subsidiaries. On April 30, 1996
the Company's interest in the limited partnership was sold to NRG Energy, Inc.
See Note 21 of the Consolidated Financial Statements.
The Company sells the electricity produced by its projects pursuant to
long-term contracts either on a "wholesale basis" to local public utilities or
on a "retail basis" to specific industrial and commercial users. Presently,
most of the electricity produced by the Company's projects in operation is sold
on a wholesale basis. The mix of future energy sales may differ based upon
future economic conditions and other circumstances.
A portion of the Company's business relates to design and assembly of
power generation systems for sale and rental, electrical control and
distribution subsystems, and high temperature heat transfer equipment and
subsystems.
The Company also participates in the area of standby/peak shaving projects
which utilize the Company's power generation equipment as a back-up source of
electricity for large customers. These projects are intended to fill a need
between large electrical users and the requirements of local utilities. The
availability of an alternative energy source allows these customers to benefit
from significantly discounted interruptible energy tariffs. The standby/peak
shaving generators typically will be required to provide a limited amount of
electricity during peak periods.
At present, the Company has three projects in operation totaling
approximately 192 net equity megawatts of electric generating capacity
including two wholly-owned projects developed by the Company totaling
approximately 174 megawatts.
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INDEPENDENT POWER MARKET
The independent power market (the market for power generated by companies
other than traditional utilities) has evolved and is expected by the Company to
continue to expand as a result of the growing need for new and replacement
power capacity by electric utilities and industrial customers. Historically,
regulated utilities in the United States have been the only producers of
electric power intended primarily for sale to third parties. The increase in
oil prices during the late 1970s and the increasing cost of constructing and
financing large coal-fired or nuclear generating facilities along with the
enactment of the Public Utilities Regulatory Policies Act of 1978 ("PURPA"),
created a favorable regulatory environment and favorable market conditions for
the development of energy projects by companies other than electric utilities.
The basic policy judgment behind the encouragement of the development of biogas
and cogeneration facilities is that the United States' dependence on oil and
natural gas resources should be reduced and that the very high incremental
costs of large centralized power production facilities should be avoided.
However, economic considerations remain the central issue affecting a decision
to install a cogeneration project.
PURPA provides significant incentives to developers of qualifying
facilities. It designates certain small power production (those utilizing
renewable fuels and having a capacity of less than 80 megawatts) and certain
cogeneration facilities as qualifying facilities exempt from many of the
regulatory requirements applicable to electric utilities and eligible for
various benefits under federal law. In accordance with PURPA, the Company's
projects with one exception are exempt, and its proposed projects are intended
to be exempt, from rate, financial and similar regulation as a utility as long
as they meet the requirements of a qualifying facility. These projects also
benefit from regulations that require public utilities to purchase power
generated by qualifying projects at the utilities' "avoided cost" (determined
in accordance with a formula which varies from state to state but which is
generally calculated based upon what the cost to the utility would be to
generate the power itself or to purchase it from another source). Power
purchase contracts generally must be approved by state public utility
commissions. Since the Company benefits from PURPA, the Company's business
could be adversely affected by a significant change in PURPA and could
otherwise be materially impacted by decisions of federal, state and local
legislative, judicial and regulatory bodies. See "Business -- Regulation."
Many organizations, including equipment manufacturers and subsidiaries of
utilities and contractors, as well as other organizations similar to the
Company, have entered the market for the ownership and operation of
cogeneration and biogas projects. Many of these companies have substantially
greater resources than the Company. In addition, obtaining power contracts
with utilities has become more competitive with the increased use of
competitive bidding procedures. This increased competition may make it more
difficult for the Company to secure future projects, may increase project
development costs and may reduce the Company's operating margins on any future
projects.
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PRODUCTS AND MARKETS
Cogeneration. Cogeneration involves the sequential production of two or
more forms of usable energy (i.e. electricity and thermal energy) using a
single fuel source, thereby substantially increasing fuel efficiency. The key
elements of a cogeneration project are permit applications, contracts for sales
of electricity and thermal energy, contracts or arrangements for fuel supply,
and project financing and construction. The Company attempts to design and
develop its projects so that they qualify for the benefits of PURPA, which
exempts qualifying projects from rate, financial and similar utility regulation
and requires public utilities to purchase power generated by these projects.
Electricity may be sold to utilities and end users of electrical power,
including large industrial facilities. Thermal energy from cogeneration plants
may be sold to commercial enterprises and other institutions. Large industrial
users of thermal energy include plants in the chemical processing, food
processing, pharmaceuticals and paper industries.
Standby/Peak Shaving. Standby/peak shaving projects utilize the Company's
power generation equipment as a back-up source of electricity for large
electrical demand customers. The availability of an alternative energy source
allows these customers to benefit from significantly discounted interruptible
energy tariffs. The standby/peak shaving generators typically will be required
to provide a specified amount of electricity during peak periods.
Waste Heat Recovery. A waste heat recovery project utilizes heat
resulting from industrial processes as the energy source for the simultaneous
production of steam and electricity in a manner similar to cogeneration. These
projects are suited to steel, glass, paper, cement and other industries which
generate high quantities of intermittent waste heat from their industrial
processes. The Company has not realized any benefits associated with this
technology (see Notes 1 and 18 of the Consolidated Financial Statements).
Biogas. Biogas projects use a renewable non-fossil fuel as their fuel
source. The Company's biogas projects retrieve otherwise unproductive and
environmentally harmful methane gas generated by landfills or sewage digester
processes and convert it into usable energy. Landfill gas production will
generally continue as long as suitable anaerobic (oxygen-deficient) conditions
exist or until the organic components of the refuse placed at the site are
entirely decomposed. This process may continue for approximately 20 years
after the closing of a landfill site. Sewage digester gas is produced
continuously during the sewage treatment process. The key elements of biogas
projects are permit applications, contracts for gas rights, sales of gas and
electricity, and thermal energy if appropriate, and project financing and
construction. The Company has subsequently exited the landfill gas projects by
selling its operating and development subsidiaries to NRG. See Note 21 of the
Consolidated Financial Statements.
Equipment Sales, Rentals and Services. The Company sells and rents power
generation and cogeneration equipment. The Company provides related services,
including the design, assembly, repair and maintenance of permanent or standby
power generation equipment. In addition, the Company sells equipment
manufactured by others to turnkey contractors in
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connection with the construction of the Company's projects. The Company also
sells equipment purchased by it for projects unrelated to those being developed
by the Company. From time to time, it purchases equipment for reconditioning
and sale. In its rental business the Company serves the construction,
industrial, military, transportation, mining, utility and entertainment
markets.
The Company also designs and manufactures custom electrical control and
distribution subsystems. These include medium voltage cubicle switchboards,
main distribution systems, control instrumentation panels and packaged
substations. This equipment receives and distributes power through a building,
ship or other self-contained structure.
The Company, through its American Hydrotherm subsidiary, is also in the
business of custom designing, engineering, constructing, installing and
servicing high temperature liquid heat transfer systems for industrial
processing applications. Each system is designed by American Hydrotherm to meet
precise temperature and other specifications for processing equipment. These
systems are used in various industries such as steel, plastics, wood, rubber,
paper, chemical, petrochemical and electronics.
ENERGY SEGMENT
Projects in Operation. Set forth below are descriptions of the Company's
three projects currently in operation as of June 30, 1996. Each of these
projects is currently producing revenues through the sale of energy under
long-term contracts. In connection with the obtaining of financing for its
three cogeneration projects in operation, the Company has obtained business
interruption insurance and performance guarantees by the operators of its
cogeneration projects. These arrangements are negotiated and secured prior to
commencement of operations of a project. Taken as a whole, these arrangements
reduce the risks associated with any past and future equipment problems or
unscheduled plant shutdowns. For example, in the event of an unscheduled
breakdown, the Company is entitled, pursuant to its business interruption
policy, to the net profit which it is prevented from earning from the
particular project, including all charges and expenses which continue during
the period of interruption, less the applicable deductible amounts. There can
be no assurance that such insurance or guarantees will sufficiently mitigate
the risk of unforeseen contingencies.
13
<PAGE> 14
<TABLE>
<CAPTION>
NAME AND LOCATION RATED APPROXIMATE DATE OF POWER COMPANY'S
OF PROJECT CAPACITY (1) CAPITAL COST OPERATION PURCHASER LENDER INTEREST
- -------------------- -------------- -------------- ------------- -------------------- ---------------- ------------
(IN MEGAWATTS) (IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
COGENERATION
E.I. du Pont 122.0 $103,350 June 1991 Jersey Central Credit Suisse(3) 100%
Parlin (NJ) Power & Light
Company
Newark Boxboard 52.0 51,000 November 1990 Jersey Central Credit Suisse(3) 100%
(NJ) Power & Light
Company
STANDBY/PEAK
SHAVING
Philadelphia Water 22.0 11,000 May,1993 Philadelphia (2) 83%
Department (PA) Municipal
Authority
----- --------
196.0 $165,350
===== ========
</TABLE>
- --------------------------------
(1) See discussion of each particular project which follows for current
contract production, which may be less than the stated rated capacity.
(2) This project is financed by various lenders through equipment credit
facilities.
(3) See Note 31 of the Consolidated Financial Statements.
COGENERATION
E.I. du Pont -- Parlin. This 122 megawatt project, which commenced
operation in June 1991, is 100%-owned by Parlin, a wholly-owned subsidiary of
the Company. This project is designed to operate continuously and to provide
up to 120,000 lbs./hr. of steam to a photochemical manufacturing plant in
Parlin, New Jersey owned by E.I. du Pont de Nemours and Company ("E.I. du
Pont"), under an agreement extending into the year 2021, and 92 megawatts of
electricity to JCP&L, under an agreement with an initial term extending into
the year 2011. In addition, Parlin sells up to 9 megawatts of electricity to
NRG Parlin, Inc. ("NPI"), a wholly-owned subsidiary of NRG. NPI resells this
power at retail to E. I. DuPont under an agreement extending into the year
2021. Finally, Parlin sells additional electricity to JCP&L on an "as
requested" basis under the contract's dispatch agreement. See Note 31 of the
Company's Consolidated Financial Statements for a discussion of this project's
refinancing.
For the fiscal year ended June 30, 1996, this project accounted for
approximately $34,867,000 in gross revenues, representing approximately 36% of
the Company's consolidated gross revenues.
Natural gas is provided by JCP&L as a part of its power purchase agreement
obligations effective May 1, 1996. Previously, the Company had the risk of
fluctuating natural gas prices. The project is operated and maintained under
agreement with a subsidiary of Stewart & Stevenson, Inc., who is responsible
for the care, custody and control of the facility. The Company and the Stewart
& Stevenson subsidiary renegotiated and executed an Operation and Maintenance
Agreement, which became effective May 1, 1996 and has a term lasting through
May 1, 2002.
14
<PAGE> 15
Newark Boxboard. This 52 megawatt project, which commenced operation in
November 1990, is 100%-owned by Newark, a wholly-owned subsidiary of the
Company. This project is designed to operate continuously and to provide up to
75,000 lbs./hr. of steam to a recycled paper boxboard manufacturing plant owned
by Newark Boxboard Company, a subsidiary of the Newark Group Industries, Inc.,
and 52 megawatts of electricity to JCP&L, each under agreements extending into
the year 2015. See Note 31 of the Company's Consolidated Financial Statements
for a discussion of this project's refinancing.
For the fiscal year ended June 30, 1996, this project accounted for
approximately $26,820,000 in gross revenues, representing approximately 36% of
the Company's consolidated gross revenues.
Natural gas is provided by JCP&L as a part of its power purchase agreement
obligation. The project is operated and maintained under agreement with a
subsidiary of Stewart & Stevenson who is responsible for the care, custody and
control of the project. The Company and the Stewart & Stevenson subsidiary
renegotiated and executed an Operation and Maintenance Agreement, which became
effective on May 1, 1996. The term of the new Operation and Maintenance
Agreement goes through May 1, 2002.
California Milk Producers. This 32 megawatt project, which commenced
operation in February 1990, was developed and structured by the Company as a
limited partnership in which a subsidiary of the Company was the general
partner owning 3%. A wholly-owned subsidiary of Chrysler is the limited
partner of the partnership and has an interest in partnership distributions of
97%. On April 30, 1996, the Company's interest in this project was sold to NRG
Energy, Inc.
STANDBY/PEAK SHAVING
Philadelphia Water Department. This 22 megawatt project commenced
operations in May 1993. Pursuant to a 20-year energy service agreement, the
Philadelphia Municipal Authority (the "Authority") has the right to be supplied
with 20 megawatts of electricity from the project at any time on one hour's
notice. In addition, the project is required to use excess digester gas
collected at the Authority's northeast and southwest Philadelphia plants to
generate up to an approximate 2 megawatts of electricity which is delivered to
the Authority pursuant to a 10-year power generation agreement. In October
1998, the Authority's rate structure with its electrical utility is due to be
renegotiated. These negotiations could adversely impact the project.
On August 5, 1994, the Company repurchased an 83% interest in this project
from an unrelated private investor for $5,000,000, subject to certain rights of
the investor. The remaining 17% interest of the project is owned by the
unrelated private investor. See Note 30 of the Consolidated Financial
Statements.
15
<PAGE> 16
BIOGAS
On April 30, 1996, the Company sold its landfill gas projects to NRG,
which included the following:
Mazzaro. This landfill methane gas project produces approximately 1.8
megawatts of electricity which the Company sold to Duquesne Light Company under
a 20-year contract expiring in 2009.
SmithKline Beecham. The Company used landfill methane gas to fuel a
cogeneration plant which provided up to 1.5 megawatts of electricity and 3,600
lbs./hr. of steam for sale to SmithKline Beecham Corporation under an agreement
which expires in 2004.
Corona. The Company used landfill methane gas to fuel two generators
which currently provide approximately 1.2 megawatts of electricity to the
Southern California Edison under a 20-year contract. An additional generator
fueled with natural gas produces approximately 2.0 megawatts during summer
months to take advantage of special peak demand rates.
PROJECTS IN DEVELOPMENT
Development of cogeneration, biogas, standby/peak shaving and waste heat
recovery projects often require many months or years to complete and involve a
high degree of risk that any given single project will not be completed. To
reduce this risk, the Company has since its inception sought to simultaneously
develop multiple projects in anticipation that some projects added to its
development portfolio will not be completed.
Among the principal items involved in developing projects are the
selecting of a site, the obtaining of commitments from others to purchase
electrical power and steam, negotiating fuel supply arrangements, obtaining
environmental and other governmental permits and approvals, arranging project
financing and turnkey construction. These items are often obtained
independently of one another and success in obtaining one item does not
necessarily result in success in obtaining any others. There is no assurance
that the Company will be able to obtain satisfactory project agreements,
construction contracts, necessary licenses and permits or satisfactory
financing commitments and, therefore, that any of the projects discussed below
will ultimately be completed. If a project is not completed the Company may
neither generate revenue from the project nor be able to recover its investment
in the project.
The Company has secured some project agreements for certain projects
discussed below. Unless otherwise indicated, no definitive agreements have
been executed in connection with these projects.
Schuylkill/Grays Ferry (cogeneration). The Company has executed a
partnership agreement with an affiliate of PECO Energy Company and an affiliate
of Trigen Energy Corporation to jointly develop and own this 150 megawatt
project. The partnership has executed
16
<PAGE> 17
a 25-year agreement with the Trigen-Philadelphia Thermal Energy Corporation for
the sale of steam and a 20-year agreement for the sale of electric output with
PECO Energy Company. The project is under construction. See Note 8 of the
Consolidated Financial Statements. The Company has implemented a plan for
managing the abovementioned project development risk on the Grays Ferry
project.
Other potential projects. The Company has identified and is considering
potential opportunities to develop additional projects as well as to acquire
projects in operation or under development and owned by third parties. If
these projects are not completed the Company may neither generate revenue from
the projects nor be able to recover its investment in the projects.
On April 30, 1996, the Company and NRG executed a Co-Investment Agreement
whereby NRG is obligated to provide power generation investment opportunities
to the Company. The three-year Agreement covers all projects being developed
or acquired by NRG in the geographic United States. These projects must have
in aggregate over the three-year term, an equity value of at least $60,000,000
or a minimum of 150 net megawatts. In addition, NRG has committed to finance
the Company's investment in the projects to the extent funds are unavailable to
the Company on comparable terms from other sources.
SALE OF PROJECTS IN OPERATION
In April 1996, the Company sold ten of its wholly-owned subsidiaries,
including those having ownership in its operating landfill gas and California
Milk Producers (Artesia) projects, to NRG for an aggregate of $7,500,000. See
Note 21 of the Consolidated Financial Statements.
EQUIPMENT SALES, RENTALS AND SERVICES SEGMENT
In addition to the energy business, the Company sells and rents power
generation and cogeneration equipment. A significant portion of the Company's
equipment rental business is attributable to the operations of its subsidiary,
O'Brien Energy Services Company ("OES"). The Company provides related
services, including the design, assembly, repair and maintenance of permanent
or standby power generation equipment. In addition, the Company sells
equipment manufactured by others to turnkey contractors in connection with the
construction of the Company's projects. The Company also sells equipment
purchased by it for projects unrelated to those being developed by the Company.
From time to time, it purchases equipment for reconditioning and sale. In its
rental business the Company serves the construction, industrial, military,
transportation, mining, utility and entertainment markets. On a national level
the Company competes principally with one other company; in addition, there are
numerous local competitors in each of the geographic areas in which the Company
operates. The Company competes on the basis of experience, service, price and
depth of its rental fleet.
Puma Manufacturing, a wholly-owned United Kingdom subsidiary, designs and
assembles diesel and gas fueled power generation systems ranging in size from 5
kilowatts to 5 megawatts. These products are engineered and sold for use in
prime power base load
17
<PAGE> 18
applications as well as for standby or main failure emergency situations.
Major markets for these products include commercial buildings, governmental
institutions such as schools, hospitals and public facilities, industrial
manufacturing or production plants, shipyards, the entertainment industry and
offshore drilling operations. The Company exports many of its products
primarily through established distributors and dealers in local areas for
delivery to markets such as the Far East, including Hong Kong and mainland
China, together with the Middle East and South America.
The Company also designs and manufactures custom electrical control and
distribution subsystems. These include medium voltage cubicle switchboards,
main distribution systems, control instrumentation panels and packaged
substations. This equipment receives and distributes power through a building,
ship or other self-contained structure.
The Company, through its American Hydrotherm subsidiary, is also in the
business of custom designing, engineering, constructing, installing and
servicing high temperature liquid heat transfer systems for industrial
processing applications. Each system is designed by American Hydrotherm to
meet precise temperature and other specifications for processing equipment.
These systems are used in various industries such as steel, plastics, wood,
rubber, paper, chemical, petrochemical and electronics.
REGULATION
In connection with the development and operation of its projects, the
Company is substantially affected by federal, state and local energy and
environmental laws and regulations.
The enactment in 1978 of PURPA and the adoption of regulations thereunder
by the Federal Energy Regulatory Commission ("FERC") provided incentives for
the development of small power production facilities (those utilizing renewable
fuels and having a capacity of less than 80 megawatts) and cogeneration
facilities (collectively referred to as "Qualifying Facilities"). Electric
utilities are required to purchase power from such facilities at rates based on
the incremental cost of electrical energy (so called "avoided cost"). Under
regulations adopted by the FERC and upheld by the United States Supreme Court,
such rates are based upon "the incremental cost to an electric utility of
electrical energy or capacity or both which, but for the purchase from the
qualifying facility or qualifying facilities, such utility would generate
itself or purchase from another source." Historically, and as it effects the
Company's sales of power from QFs, avoided cost is generally a function of the
purchasing utility's otherwise applicable cost of fuel required to generate
electricity and its cost of capital required to construct a power plant to
supply such capacity.
With the exception of the Parlin Project and parts of the Philadelphia
Water Department's standby/peak shaving project, all of the Company's existing
electric generating facilities are qualifying small power production facilities
or qualifying cogeneration facilities, as these terms are defined in PURPA.
Pursuant to authority granted to FERC under PURPA, FERC has promulgated
regulations which at present exempt most of these facilities from the Federal
Power
18
<PAGE> 19
Act, the Public Utility Holding Company Act of 1935 and, except under certain
circumstances, state laws on electric utility regulation.
In order to qualify for the benefits provided by PURPA, the Company's QF's
must meet certain size, efficiency, fuel and ownership requirements. For its
major cogeneration projects, the Company's practice has been to obtain an order
from FERC confirming the qualification of its facilities. However, the
standards for qualification and the regulations described above are subject to
amendment. If the regulations were to be amended, the Company cannot predict
the effect of any such amendment on the extent of regulation to which the
Company may thereby become subject. The Company is not currently aware of any
proposed amendments to PURPA or regulations promulgated by FERC thereunder to
materially alter the standards for qualification.
In the event that one of the Company's cogeneration facilities failed to
meet the requirements of being a "Qualifying Facility" after relying on that
status, the Company would be materially adversely impacted.
The Company renegotiated the power purchase agreements for the Parlin
Project during 1996. As permitted under the terms of its renegotiated
agreements, Parlin filed rates with the Federal Energy Regulatory Commission
("FERC") as a public utility under the Federal Power Act. Previously, the
Parlin Project had been certified as a QF by FERC. However, the effect of the
rate filing by Parlin was to relinquish its claim to QF status. FERC has
approved the rates filed by Parlin effective April 30, 1996, and given certain
other approvals to Parlin in conjunction with the O'Brien Reorganization.
Among other things, Parlin has received a determination from FERC that it is an
exempt wholesale generator ("EWG"). It is thus exempt from all provisions of
the Public Utility Holding Company Act of 1935 ("PUHCA"), and the ownership of
Parlin by the Company does not subject the Company to regulation under PUHCA.
The Company is also subject to the Powerplant and Industrial Fuel Use Act
of 1978 ("FUA"), which generally limits the ability of power producers to burn
natural gas in new baseload generation facilities unless such facilities also
have the capability to use coal or any other alternate fuel as a primary energy
source. All of the Company's existing projects have either received permanent
exemption from the FUA or otherwise complied with its provisions.
In addition to the regulations described above, the Company's projects
must comply with applicable federal, state and local environmental regulations,
including those related to water and air quality. These laws and regulations
in many cases require a lengthy and complex process of obtaining licenses,
permits and approvals from federal, state and local agencies. The
environmental regulations under which the Company's projects operate are
subject to amendment. The Company cannot predict what effect compliance with
such amendments may have on the Company's business or operations. Compliance
could require modification of a project and thereby increase its costs, extend
its completion date or otherwise adversely affect a project.
19
<PAGE> 20
All projects in operation and under development are believed to be
operating in substantial compliance with or designed to meet currently
applicable environmental requirements. To date, compliance with these
environmental regulations has not had a material effect on the Company's
earnings nor has it required the Company to expend significant capital
expenditures. In June 1996, the Company submitted a report and met with
representatives of the New Jersey Department of Environmental Protection to
report numerous minor permit infractions of air emission limits for its Newark
and Parlin facilities. The cumulative effect of the permit infractions on a
"pounds per hour" basis is small and the Company has taken measures to comply
with the air permits. The Company considers the issue resolved and no further
actions are required.
EMPLOYEES
As of June 30, 1996, the Company had approximately 150 full-time
employees.
COMPETITION
Many organizations, including equipment manufacturers and subsidiaries of
utilities and contractors, as well as other organizations similar to the
Company, have entered the cogeneration market. Many of these organizations
have substantially greater resources than the Company. In addition, obtaining
power contracts with utilities has become more competitive with the increased
use of competitive bidding procedures and the movement towards deregulation of
electricity energy market. This increased competition may make it more
difficult for the Company to secure future projects, may increase project
development costs and may reduce the Company's operating margins. Even though
many of its potential competitors have substantially greater resources than the
Company, the Company believes that its experience, particularly if combined
with a strategic alliance with a third party with regard to larger projects,
will enable it to compete effectively.
SIGNIFICANT CUSTOMERS
The Company derived 62%, 65% and 53% of its revenues in fiscal 1996, 1995
and 1994, respectively, from JCP&L as a result of the operation of the Newark
and Parlin facilities.
PATENTS
The Company owns patents and trademarks, through American Hydrotherm,
relating to its waste heat storage technology.
BACKLOG
At June 30, 1996, the Company's total production backlog was $7,149,000.
20
<PAGE> 21
D. FINANCIAL INFORMATION ABOUT FOREIGN AND DOMESTIC OPERATIONS AND EXPORT
SALES.
<TABLE>
1996 1995 1994
---- ---- ----
(In thousands)
<S> <C> <C> <C>
Revenues:
United States $ 82,917 $ 89,332 $ 93,090
United Kingdom 13,630 12,915 13,499
-------- -------- --------
$ 96,547 $102,247 $106,589
======== ======== ========
Net Income (Loss):
United States $(17,591) $(40,905) $(14,570)
United Kingdom (122) (14) (1,931)
-------- -------- --------
$(17,713) $(40,919) $(16,501)
======== ======== ========
Identifiable Assets:
United States $169,657 $179,793 $230,343
United Kingdom 8,505 9,955 7,473
-------- -------- --------
$178,162 $189,748 $237,816
======== ======== ========
</TABLE>
The revenues and operations of the Company's foreign operations in the
United Kingdom disclosed above are attributable solely to the equipment sales
and services segment of the Company's business. The revenues from such
operations accounted for in excess of 50% of that particular segment's revenue
in 1996.
The Company's foreign operations are subject to the additional risks
inherent in doing business in foreign countries, including changes in currency
exchange rates, currency restrictions, political changes and expropriation.
Although it is impossible to predict the likelihood of such occurrences or
their effect on the Company, management believes these risks to be acceptable
and, in view of the fact that the Company's foreign activities historically
have been largely concentrated in Europe and not in any single country and the
fact that the Company attempts to secure payment for export sales with
commercial letters of credit or other secured means, does not consider them a
factor materially adverse to its operations as a whole.
ITEM 2. PROPERTIES.
The Company's corporate headquarters are located in Minneapolis,
Minnesota. The Company leases office and warehouse space until October 31,
1996 and April 30, 1997, respectively, from Christiana River Holdings, Ltd., an
entity owned by Frank L. O'Brien III, the former CEO of O'Brien. Rental
expense for fiscal 1996 was approximately $150,000. The Company also leased
office space until May 1996, from Pennsport Partnership, a Pennsylvania
21
<PAGE> 22
partnership in which Frank L. O'Brien III has a 50% ownership interest. Rental
expense for fiscal 1996 was approximately $152,000.
In September 1993, Puma purchased its executive offices and its principal
manufacturing facility located in Ash, Canterbury, Kent, United Kingdom from
III Enterprises, Limited, an entity owned by Frank L. O'Brien III, for
approximately $800,000. See Note 24 of the Consolidated Financial Statements.
The executive and engineering offices of American Hydrotherm are located
in New York City. American Hydrotherm leases this 8,000 square foot facility
under the terms of a ten-year lease executed in 1990. Burr Controls, Inc.
leases approximately 14,000 square feet for its assembly and manufacturing
operations on Long Island, New York.
The headquarters of OES are located on approximately 4 acres in
Wilmington, Delaware. The premises are owned, subject to a mortgage, in fee
simple and include an approximately 55,000 square foot building. In addition,
OES owns, subject to a mortgage, office and warehouse space in Houston, Texas,
on approximately two acres of land. OES leases space for similar purposes in
each of Bakersfield and Benecia, California. The office and warehouse space in
Texas and in the California locations range from approximately 5,000 to 10,000
square feet.
The Company leases, typically for a nominal fee, property on the site of
its proposed cogeneration facilities from the commercial user of thermal
energy. The term of the lease equals or exceeds that of each respective
thermal supply agreement. The Company believes that the leased premises are
suitable and adequate for the Company's projects.
ITEM 3. LEGAL PROCEEDINGS.
The Company or a subsidiary is party to the following material legal
proceedings:
1. Calpine Corporation v. NRG Generating (Parlin) Cogeneration Inc.,
Superior Court of Essex County, New Jersey, Civil Action File No.
ESX-L-6905-96, filed June 19, 1996.
This is a dispute over the purchase of certain accounts receivables
allegedly owed by the Company.
2. Stevens, et al. v. O'Brien Environmental Energy, Inc., et al., United
States District Court for the Eastern District of Pennsylvania, Civil
Action No. 94-cv-4577, filed July 27, 1994.
This action was filed by certain purchasers of the Class A Common Stock
of the Company's predecessor during the class period who allege various
violations of the Federal securities laws. The Plaintiffs claim that
certain material misrepresentations and nondisclosures concerning the
Company's financial conditions and prospects allegedly caused the price
of the Common Stock to be artificially inflated during the class period.
22
<PAGE> 23
3. Blackman and Frantz v. O'Brien, United States District Court, Eastern
District of Pennsylvania, Civil Action No. 94-cv-5686, filed October 25,
1995.
This action was filed by purchasers of O'Brien debentures during the
class period. The Plaintiffs object to treatment of the class under the
Bankruptcy Plan. This matter has been consolidated with the Stevens
class action case described in paragraph number 2 above.
4. GEC Alsthom, International, Inc. v. O'Brien Energy Services Co., Stewart
& Stevenson Operations, Inc., and ABC Company (fictitious), Superior Court
of Essex County, New Jersey, Civil Action File No. L-7389-95, filed June
16, 1995.
This action arises out of the purchase of materials and services from a
vendor to make repairs in connection with a fire which occurred at the
Company's Newark turbine generator facility on December 25, 1992. The
Plaintiff claims that the Company has failed to meet monetary obligations
aggregating approximately $155,000 under the alleged agreement, and the
Company has filed counter-claims alleging that the Plaintiff failed to
properly install certain equipment which led to failures at the turbine
generator facility.
5. In re: O'Brien Environmental Energy, Case No. 94-26723, U.S. Bankruptcy
Court for the District of New Jersey, filed September 29, 1994.
The Bankruptcy Court has entered an order awarding final fees and
expenses (some of which already have been paid) to the claimant entities
as listed below:
1. Moses & Singer ($1,865,979)
2. Bruce Stephens (hearing rescheduled to October 31, 1996)
3. Glass & Associates ($929,350)
4. Sills, Cummis, Zuckerman, Radin, Tischman, Epstein & Gross,
P.C. ($4,391,321)
5. Coopers & Lybrand ($0)
6. Smart & Associates LLP ($335,113)
7. Ravin, Sarasohn, Cook, Baumgarten, Fisch & Rosen ($34,223)
8. Peterson Consulting Limited ($184,681)
9. Rothschild, Inc. ($770,013)
10. Marcus, Montgomery Wolfson P.C. ($1,920,122)
11. Gruntal & Co., Inc. ($724,865)
12. Ravin Greenberg & Marks, P.A. ($20,952)
13. Goldman, Jacobson, Kramer, Fradkin & Starr ($30,782)
14. Kleinberg, Kaplan, Wolff Starr & Cohen, P.C. ($18,410)
15. Richards, Spears, Kibbe & Orbe ($0)
16. Whitman, Hefferman, Rhein & Co., Inc. ($0)
17. Arthur Andersen LLP ($1,057,655)
23
<PAGE> 24
18. Reed Wills ($75,000)
19. Wexford Co. ($200,000)
Calpine Corporation, Manus Corporation and Robert Schinn have filed
claims against the Company in relation to its Chapter 11 bankruptcy case.
Calpine Corporation, an unsuccessful bidder for the acquisition of
O'Brien, has filed an application for allowance of an administrative
claim for approximately $4,500,000 in break-up fees and expenses in the
bankruptcy case. Manus Corporation has filed a claim seeking relief from
an order of the bankruptcy court that bars its prepetition claims of
approximately $125,000 against the Company. Robert Shinn has filed an
application for allowance of an administrative claim in the amount of
$100,000 relating to a consulting contact.
See Note 28 to the Company's Consolidated Financial Statements.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
The Plan was approved by the holders of the Company's former common stock
pursuant to ballots cast in the bankruptcy case during the solicitation period
from November 21 to December 22, 1995. See Item 1, "Business -- General
Development of Business -- Significant Factors -- Liquidity; Emergence from
Chapter 11 Bankruptcy."
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<PAGE> 25
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
On April 30, 1996 the Company emerged from bankruptcy and the
then-outstanding common stock of its predecessor, O'Brien, was canceled and
replaced by a new issue of common shares of the Company. From April 30, 1996,
through June 30, 1996, the Company's Common Stock was not listed on an exchange
or on the Nasdaq Stock Market, and there was not an established public trading
market for the Common Stock. According to the NASDAQ News Service, the range
of high and low selling prices during such period was $1.875 to $2.50. Such
prices may have reflected inter-dealer prices, without retail mark-ups, mark
downs or commissions, and may not necessarily represent actual transactions.
As of October 21, 1996, the Company had approximately 600 holders of
record of its Common Stock, not including beneficial owners whose shares are
held by banks, brokers and nominees.
The Company presently intends to retain all earnings for the operation and
expansion of its business and does not anticipate paying cash dividends on its
Common Stock in the foreseeable future. Any future determination as to the
payment of dividends on the common stock will depend upon future earnings,
results of operations, capital requirements, the financial condition of the
Company and any other factors the Board of Directors of the Company may
consider.
The Company's principal operating subsidiaries are parties to a Credit
Agreement which prohibits the payment of dividends by such subsidiaries to the
Company, provided that such dividend payments may be made out of funds
available after the payment of various costs and expenses set forth in the
Credit Agreement (including without limitation operating costs, various debt
service payments and the funding of various accounts required to be maintained
pursuant to the Credit Agreement) if certain conditions set forth in the Credit
Agreement are satisfied, including without limitation the maintenance of a debt
service coverage ratio set forth in the Credit Agreement, the absence of any
default or event of default under the Credit Agreement, and the satisfaction of
certain conditions relating to the composition of the Board of Directors of the
Company.
25
<PAGE> 26
ITEM 6. SELECTED FINANCIAL DATA.
The consolidated selected financial data as of and for each of
the five years in the period ended June 30, 1996 have been derived
from the audited financial statements of the Company. This data
should be read in conjunction with, and is qualified in its
entirety by reference to, the related financial statements and
notes included elsewhere in this Report.
<TABLE>
<CAPTION>
Year Ended June 30
------------------------------------------------------------
1996 1995 1994 1993 1992
----------- ------------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA:
Revenues:
Energy................................................ $ 66,623 $ 74,455 $ 62,647 $ 65,136 $ 71,638
Equipment sales and services.......................... 25,344 19,639 24,304 18,955 21,854
Rental................................................ 1,895 2,362 5,372 3,636 3,191
Related parties....................................... -- -- -- 515 378
Development fees and other............................ 2,685 5,791 14,266 9,450 3,054
-------- --------- --------- -------- --------
Total................................................ 96,547 102,247 106,589 97,692 100,115
Cost of revenues....................................... 71,753 72,164 84,174 71,750 66,996
Gross profit........................................... 24,794 30,083 22,415 25,942 33,119
Provision for loss on equipment held for sale.......... -- 21,640 6,250 -- --
Selling, general and administrative expenses........... 12,792 20,320 19,680 21,872 13,133
-------- --------- --------- -------- --------
Income (loss) from operations 12,002 (11,877) (3,515) 4,070 19,986
Involuntary conversion gain............................ -- -- 6,066 -- --
Interest and other income.............................. 569 2,587 874 993 1,204
Interest and debt expense.............................. (18,646) (20,583) (18,013) (15,696) (17,340)
Reorganized expense.................................... (12,101) (8,366) -- -- --
-------- --------- --------- -------- --------
Income (loss) before income taxes and
cumulative effect of a change in accounting principle (18,176) (38,239) (14,588) 10,633 3,850
Provision for (benefit from) income taxes.............. (463) 2,680 1,913 3,078 2,438
-------- --------- --------- -------- --------
Net income (loss).................................... $(17,713) $ (40,919) $ (16,501) $(13,711) $ 1,412
======== ========= ========= ======== ========
Net income (loss) per share(1) $ (4.24) $ (11.02) $ (4.45) $ (3.70) $ .43
======== ========= ========= ======== ========
Weighted average shares outstanding.................... 4,182 3,712 3,712 3,701 3,280
<CAPTION>
1996 1995 1994 1993 1992
--------- --------- --------- -------- --------
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital (deficiency)........................... $ (6,211) $(184,589)(2) $(125,683) $(11,119) $ 816
Property, plant and equipment, net..................... 134,694 151,130 176,514 194,217 195,677
Total assets........................................... 178,162 189,748 237,816 262,529 259,054
Recourse long-term debt, net........................... 66,789 3,405 7,073 28,012 20,003
Convertible senior subordinated debentures............. -- -- -- 49,174 49,174
Nonrecourse project financing, net..................... -- -- 60,310 97,140 107,898
Stockholders' equity (deficit) (37,573) (40,758) 136 15,675 29,405
</TABLE>
(1) Net income (loss) per share has been restated for all periods presented to
reflect the new common shares issued under the terms of the Plan. Management
expects a further dilution of earnings (loss) per common share in future
periods because the purchase of 2,710,357 common shares by NRG on April 30,
1996 impacts the weighed average shares outstanding computation for only two
months of the 1996 fiscal year.
(2) At June 30, 1995, nonrecourse project financing, net excludes $60,310 of
amounts with long-term repayment terms. This amount was included in current
liabilities (thereby included in Working Capital Deficiency) due to default
under the debt agreement.
26
<PAGE> 27
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
The Company (formerly O'Brien Environmental Energy, Inc.) emerged from
bankruptcy on April 30, 1996. The plan of reorganization (the "Plan"),
approved on January 18, 1996 by the Bankruptcy Court, awarded NRG the rights to
acquire a 41.86% equity interest in the Company.
O'Brien filed a voluntary petition for reorganization under Chapter 11 of
the United States Bankruptcy Code with the Bankruptcy Court on September 28,
1994, to pursue financial restructuring efforts under the protection afforded
by the U.S. bankruptcy laws. The decision to seek Chapter 11 relief was based
on the conclusion that action had to be taken to preserve its relationships and
maintain the operational strength and assets of the Company, and to restructure
its debt and utilize its assets in a manner consistent with the interests of
all creditors and shareholders rather than liquidate to satisfy the demands of
a particular group of creditors. The Company continued its normal operations
as Debtor-in-Possession during the bankruptcy period but could not engage in
transactions outside the ordinary course of business without approval, after
notice and hearing, of the Bankruptcy Court.
On April 30, 1996, NRG funded approximately $107,418,000 in accordance
with the Plan and acquired a 41.86% equity interest in the Company. All common
shares of O'Brien were canceled and replaced by a new issue of common stock of
NRGG. Additionally, under the terms of the Plan, NRG acquired the stock of ten
wholly-owned subsidiaries from the Company on the closing date which included
all of the Company's landfill gas projects (operating and those in
development), the general partner holding a 3% equity interest in the Artesia
Cogeneration partnership and a standby power project available for service on
December 31, 1995 (see Liquidity and Capital Resources).
There was no gain or loss incurred on the sale of the ten wholly-owned
subsidiaries because management included the $7,500,000 selling price in the
analysis of the fiscal 1995 provision for loss on equipment in adjusting the
carrying basis of fixed assets (see Results of Operations for the years ended
June 30, 1996, 1995 and 1994). The Company believes that the elimination of
these subsidiaries will not have a material adverse effect on the results from
operations in future years. One of the subsidiaries sold completed
construction of an 8.5 megawatt standby power project on December 31, 1995.
The project will be placed in service after air permitting is approved.
Capitalized costs for the project were $1,442,000. The Company received
$2,450,000 under the terms of the project's contract which provided that the
$2,500,000 contract fee be paid in periodic installments upon attainment of
defined milestones. The receipts were recorded as deferred revenue amortizable
over the 15 year life of the contract. The Consolidated Statement of
Operations for fiscal 1996 do not include any revenues or expenses related to
this project.
NRG Generating (Parlin) Cogeneration Inc. ("Parlin") and NRG Generating
(Newark) Cogeneration Inc. ("Newark") renegotiated their Power Purchase
Agreements ("PPAs") during fiscal 1996 with Jersey Central Power & Light
Company ("JCP&L"), the primary
27
<PAGE> 28
customer of both projects. The amended PPAs, which became effective on May 1,
1996, give JCP&L, among other things, the right to curtail operations for a
stated number of hours, modifies the energy rate and obligates JCP&L to
purchase the natural gas to operate both facilities. Although energy revenues
as well as the cost of energy revenues will decrease under the amended PPAs,
management believes that operating gross profit margins will remain similar to
historical results. However, margin fluctuations attributable to periodic
swings in fuel costs will be eliminated.
Both the Parlin and Newark Projects were previously certified as
qualifying facilities ("QFs") by FERC under PURPA. The effect of QF status is
generally to exempt a project's owners from relevant provisions of the Federal
Power Act, the Public Utility Holding Company Act of 1935 ("PUHCA"), and state
utility-type regulation. However, as permitted under the terms of its
renegotiated PPAs, Parlin has chosen to file rates with FERC as a public
utility under the Federal Power Act. The effect of this filing was to
relinquish Parlin's claim to QF status. FERC has approved Parlin's rates
effective April 30, 1996, and given certain other approvals to Parlin in
conjunction with the O'Brien Reorganization. In addition, FERC has determined
Parlin to be an exempt wholesale generator ("EWG"). As an EWG, Parlin is
exempt from PUHCA, and the ownership of Parlin by the Company does not subject
the Company to regulation under PUHCA. Finally, as a seller of power
exclusively at wholesale, Parlin is not generally subject to state regulation
and, in any case, complies with all applicable requirements of state utility
law.
The Company entered into a Liquidating Asset Management Agreement on April
30, 1996 with Wexford Management LLC ("Wexford"), a co-sponsor of the Plan,
which, in accordance with the Plan, retains Wexford as manager, operator and
liquidator of the Liquidating Assets of the Company pursuant to the terms and
conditions of the agreement. The Board of Directors and the Officers have the
right to direct and control which assets will be liquidated and the extent of
management services required for each Liquidating Asset. The Liquidating
Assets identified in the agreement consist of (a) the Company's engine
generator sales, service and rental business, (b) the Philadelphia Water
Department project, (c) unused equipment and (d) American Hydrotherm
Corporation and two related companies. The Board of directors has authorized
Wexford to liquidate the Philadelphia Water Department project, American
Hydrotherm Corporation and two related companies and the unused equipment.
Wexford will receive compensation as per the agreement for unused equipment
sales being undertaken by management. No decision has been made regarding the
possible liquidation of the engine generator business. Management does not
expect the disposal of these businesses to have a material effect on the
Company's financial position or results of operation.
The Company currently owns and operates two cogeneration facilities with
an electric generating capacity of 174 megawatts (as discussed above) and two
standby/peak shaving facilities with a capacity of 22 megawatts in which the
Company has an 83% interest. Prior to April 30, 1996, the Company also owned
certain landfill gas facilities rated at a capacity of 9.2 megawatts and held a
general partnership interest in a 32 megawatt cogeneration facility
substantially owned by Chrysler Capital Corporation (the "Energy" business).
Equipment sales, rentals and services is the Company's demand-side management
business through which the Company provides standby power equipment and
services to a customer for a fee. The
28
<PAGE> 29
Company is also a one-third partner in a 150 megawatt cogeneration facility
currently under construction.
Net earnings (loss) per share have been restated for all periods
presented to reflect the new common shares under the terms of the Plan.
Management expects a further dilution of earnings (loss) per common share in
future periods because the purchase of 2,710,357 common shares by NRG on April
30, 1996 impacts the weighted average shares outstanding computation for only
two months of the 1996 fiscal year.
Except for the historical information contained herein, the following
discussion contains forward-looking statements that involve risks and
uncertainties. The Company's actual results could differ materially from those
discussed here. Factors that could cause or contribute to such differences
include, but are not limited to, those discussed in this section, as well as
the sections entitled "Item 1 -- Business -- Liquidity: Emergence from Chapter
11 Bankruptcy," "Item 1 -- Business -- Capital Requirements," and "Item 1 --
Business -- Energy Price Fluctuations and Fuel Supply."
The Company has adopted a change in its fiscal year to a calendar year
effective on December 31, 1996.
The Company's stock was delisted from the American Stock Exchange and the
Philadelphia Exchange after filing for bankruptcy (see "Part I -- Item 1 --
Significant Factors" and "Part II -- Item 5 -- Market for Registrant's Common
Equity and Related Stockholder Matters").
RESULTS OF OPERATIONS FOR THE YEARS ENDED JUNE 30, 1996, 1995 AND 1994
REVENUES
Energy revenues for the years ended June 30, 1996, 1995 and 1994 were
$66,623,000, $74,455,000 and $62,647,000, respectively. Energy revenues
primarily reflect billings associated with the Newark and Parlin cogeneration
projects, the Company's Philadelphia Water Department standby project and until
April 30, 1996, the landfill gas facilities. The decrease in energy revenues
in 1996 from 1995 was primarily attributable to a voluntary curtailment of
operations at Parlin and to the negative impact of unit fuel cost fluctuations
on the energy rate calculation under Parlin's previous PPA. Additionally, a
portion of the decrease is attributable to the amended PPAs affecting both
Newark and Parlin for the final two months of fiscal 1996.
Revenues recognized at Parlin were $34,867,000, $40,784,000 and
$37,910,000 for the fiscal years ended June 30, 1996, 1995 and 1994,
respectively. Parlin initiated a voluntary curtailment of electric output
beginning in the first quarter and extending into the second quarter of fiscal
1996 during off-peak hours to maintain the correct ratio of thermal to electric
production after du Pont, the steam host, significantly decreased its steam
demand by moving a business segment overseas. Additionally, Parlin's fiscal
1996 revenues were adversely
29
<PAGE> 30
affected by a decrease in the energy rate (price per megawatt hour) under the
previous PPA adjusted quarterly based on, in part, the average cost of fuel
over the preceding year. A mild 1995 winter resulted in unusually low natural
gas costs which after a five quarter lag, lowered the energy rate during
fiscal 1996. Parlin revenues also decreased in fiscal 1996 by approximately
$2,680,000 from the amended PPA implemented on May 1, 1996.
Fiscal 1994 Parlin revenues were negatively impacted by a gas turbine
being shut down for unscheduled repairs for approximately three months during
the year.
Revenues recognized at the Newark facility were $26,820,000, $28,908,000
and $23,082,000 for the fiscal years ended June 30, 1996, 1995 and 1994,
respectively. The decrease in revenues in 1996 from 1995 is primarily
attributable to the May 1, 1996 implementation of the amended PPA. The
increase in revenues in 1995 from 1994 was primarily attributable to a full
year of operations in fiscal 1995 as compared to a partial year of operations
in fiscal 1994. Newark resumed partial operations in August 1993 and full
operations in October 1993 after completing reconstruction resulting from the
damage incurred in a December 1992 fire.
Energy revenues from the Company's landfill gas projects for the ten
months ending April 30, 1996, and for the fiscal years ended June 30, 1995 and
1994 were $862,000, $1,176,000 and $1,655,000, respectively. On April 30,
1996, the landfill gas companies were sold to NRG in accordance with the Plan.
Revenues from landfill gas operations have been steadily declining primarily
because of a lack of available landfill gas at several locations. The sale of
the biogas projects will further reduce overhead and allow management to focus
on its larger cogeneration facilities.
Equipment sales and service revenues for the years ended June 30, 1996,
1995 and 1994 were $25,344,000, $19,639,000 and $ 24,304,000, respectively,
which principally reflect the operations of O'Brien Energy Services, Puma and
American Hydrotherm. Management attributes the increase in fiscal 1996 to a
volume increase resulting from successful marketing efforts as well as to an
improvement in the U.S. economy. The Company also believes that the Parent's
bankruptcy filing in September 1994 had some negative impact in fiscal 1995
revenues because of customer uncertainty.
O'Brien Energy Services ("OES") revenues for the years ended June 30,
1996, 1995 and 1994 were $5,232,000, $3,575,000 and $7,789,000, respectively.
Fiscal 1994 revenue levels were generated from backlog orders transferred from
O'Brien Power Systems, Inc., a company controlled by a relative of the former
CEO of the Company, in order to expand OES's domestic business in the design
and assembly of generator sets and switchgear. OES was unable to replenish
this transferred backlog until late in the 1995 fiscal year.
American Hydrotherm revenues for the years ended June 30, 1996, 1995 and
1994 were $6,482,000, $3,149,000 and $2,990,000, respectively. Equipment sales
and services of Puma for the years ended June 30, 1996, 1995 and 1994 were
$13,630,000, $12,915,000 and
30
<PAGE> 31
$13,499,000, respectively. At June 30, 1996, the Company's total production
backlog was $7,149,000.
Rental revenues for the years ended June 30, 1996, 1995 and 1994 were
$1,895,000, $2,362,000 and $5,372,000 for the years ended June 30, 1996, 1995
and 1994, respectively. In November 1993, the Company sold the Philadelphia
Water Department standby project to an unrelated private investor and
subsequently reacquired it in August 1994. Rental fluctuations are primarily
attributable to rental revenues recognized during the period the project was
owned by the private investor. The Company continued to own and lease the
equipment and facilities to the private investor.
Development fees and other revenues were $2,685,000, $5,791,000 and
$14,266,000 for the years ended June 30, 1996, 1995 and 1994, respectively.
The decrease in revenues in 1996 from 1995 was attributable primarily to the
Company selling its rights to develop a standby electric project for
$1,763,000, the expiration of a purchase option whereby, the Company retained
$775,000 in forfeited escrow deposits and to higher gas sales to the Artesia
Cogeneration partnership in 1995. The decrease in revenues from 1994 to 1995
was attributable primarily to the sale of the Company's contractual rights to
develop certain coalbed methane reserves for $5,121,000 and to the sale of
rights to develop a standby electric project for approximately $5,000,000 in
1994.
COSTS AND EXPENSES
Cost of energy revenues for the years ended June 30, 1996, 1995 and 1994
were $45,663,000, $46,694,000 and $49,961,000, respectively. The decrease in
1996 as compared to 1995 was the result of the amended PPA effective May 1,
1996 whereby JCP&L began assuming the cost of natural gas. The elimination of
natural gas costs in the final two months in fiscal 1996 partially offsets
significantly higher fuel costs in fiscal 1996 prior to May 1. Fiscal 1996 and
1994 included more severe winters than 1995 resulting in significantly higher
natural gas unit rates in these years. Cost of energy revenues also includes a
temporary period of natural gas curtailment in the winters of fiscal 1996 and
1994 requiring both Parlin and Newark to operate using a more expensive
alternative fuel.
Cost of equipment sales and services for the years ended June 30, 1996,
1995 and 1994 was $22,153,000, $17,622,000 and $21,890,000, respectively. The
fluctuations in cost of equipment sales and services between 1996, 1995 and
1994 primarily correlate to the fiscal changes in sales volume at O'Brien
Energy Services and American Hydrotherm.
Cost of rental revenues for the years ended June 30, 1996, 1995 and 1994
were $1,406,000, $2,357,000 and $2,730,000, respectively. The decrease in cost
of equipment rentals between fiscal years is attributable to the sale and
reacquisition of the Philadelphia Water Department standby project to an
unrelated private investor. The Company sold the project in November 1993 and
reacquired it in August 1994 but continued to own and lease the equipment and
facilities to the private investor.
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<PAGE> 32
Cost of development fees and other was $2,531,000, $5,491,000 and
$9,593,000, for the years ended June 30, 1996, 1995 and 1994, respectively.
These costs consist principally of costs associated with the sale of various
projects either under development or in operation and costs associated with a
gas supply management agreement with the California Milk Producers project.
The Company's gross margins were $24,794,000 (25.7% of sales), $30,083,000
(29.4% of sales) and $22,415,000 (21.0% of sales) for the years ended June 30,
1996, 1995 and 1994, respectively. The fluctuations are primarily attributable
to the energy segment which, as discussed above, were due to fluctuations in
the recovery of fuel costs through energy revenues under the PPAs in place
until April 30, 1996.
PROVISION FOR LOSS ON EQUIPMENT HELD FOR SALE AND WRITE DOWN OF PLANT AND
EQUIPMENT.
The Company began actively seeking buyers for specific energy equipment
consisting primarily of gas and steam turbines not currently being used in an
operating project nor critical to the completion of any projects in
development. The value of these assets sold in a secondary market is less than
if incorporated into an internally developed operating project. Accordingly,
the Company recorded a non-cash charge of $6,250,000 against earnings to write
down the carrying value of these assets to an estimated resale value for the
year ended June 30, 1994 and recorded an additional writedown in fiscal 1995 of
$5,655,000 to reflect the Company's intent to accelerate the disposal of this
equipment.
The Company engaged an independent valuation expert to appraise its
property, plant and equipment in connection with the bankruptcy proceedings and
the Plan. Accordingly, the Company recorded a non-cash charge against earnings
in fiscal 1995 of $15,985,000 to write down the carrying value of its property,
plant and equipment to a lower appraised value.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses ("SG&A") for the years ended
June 30, 1996, 1995 and 1994 were $12,792,000, $20,320,000 and $19,680,000,
respectively. Fiscal 1996 includes a $3,100,000 cost incurred to terminate the
interest rate swap agreement in connection with the Parlin nonrecourse project
debt refinancing. Fiscal 1996 SG&A expenses benefited from lower payroll and
related tax costs as well as reduced insurance expenses by approximately
$2,347,000 as compared to fiscal 1995.
Since filing for bankruptcy in September 1994, the Company has attempted
to reduce its SG&A expenses. Fiscal 1995 SG&A includes project development
costs totaling $4,418,000 based upon the anticipated implementation of the Plan
and $1,888,000 in unamortized goodwill primarily associated with the value
assigned to an acquired subsidiary's patented waste heat recovery technology
deemed not realizable.
In January 1994, the Company ceased operations at one of its United
Kingdom subsidiaries which was in the business of manufacturing low voltage
switchgear. Fiscal 1994
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<PAGE> 33
SG&A includes pretax losses associated with this United Kingdom subsidiary of
approximately $1,200,000 which includes $319,000 of costs associated with the
closure of the business.
INVOLUNTARY CONVERSION GAIN
In fiscal 1994, the Company recognized an involuntary conversion gain of
$6,066,000 from the property settlement with the insurance carrier resulting
from the December 25, 1992 fire at the Newark facility. The gain represents the
amount by which the insurance proceeds (replacement cost) exceeded the net book
value of the equipment lost in the fire.
INTEREST AND OTHER INCOME
Other income for the years ended June 30, 1996, 1995 and 1994 was
$569,000, $2,587,000 and $874,000, respectively. Fiscal 1995 other income
includes $1,180,000 recognized in connection with the original construction of
the Philadelphia Water Department project. Other fluctuations in other income
were primarily attributable to interest income earned on escrow account balance
differences established in connection with the nonrecourse financing on the
Newark and Parlin facilities.
REORGANIZATION COSTS
Reorganization costs represent all costs incurred after filing bankruptcy
that relate to the Company's reorganization and restructuring efforts.
Reorganization costs for the years ended June 30, 1996 and 1995 were
$12,101,000 and $8,366,000, respectively. These costs consist primarily of
professional and administrative fees and expenses as well as a fiscal 1995
expense of $3,387,000 incurred to adjust the carrying value of the subordinated
debentures to the amount approved by the Bankruptcy Court as an allowed claim.
INTEREST AND DEBT EXPENSE
Interest and debt expense for the years ended June 30, 1996, 1995 and 1994
were $18,646,000, $20,583,000 and $18,013,000, respectively. Fiscal 1996 and
1995 interest and debt expense includes post-petition interest on prepetition
liabilities of $6,487,000 and $6,194,000, respectively. Fiscal 1996 also
includes $1,098,000 in interest costs associated with loans provided by NRG and
$1,433,000 of deferred financing costs attributable to the Parlin and Newark
nonrecourse debt which were refinanced during the year (see Liquidity and
Capital Resources). Fiscal 1995 interest and debt expense includes $1,050,000
paid to the unrelated private investor to extend the Company's reacquisition
option period for the Philadelphia Water Department project to August 1994.
INCOME TAXES
The provision for income taxes results in a benefit of $463,000 in fiscal
1996 and an expense of $2,680,000 and $1,913,000 in fiscal years 1993 and 1994,
respectively. The 1996 provision includes a net operating loss carryforward
benefit against state income taxes payable
33
<PAGE> 34
as well as a decrease in the deferred tax liability primarily attributable to a
change in temporary differences resulting from the landfill gas equipment sold
to NRG on April 30, 1996. The 1995 and 1994 tax provisions, consisting
primarily of deferred taxes relating to property and equipment, results from
the uncertainty of realizing the benefits of the tax loss carryforwards in
future years against them. Additionally, most professional fees incurred
during the bankruptcy period included in reorganization costs are treated as
capital expenditures and are not deductible for income tax purposes (see Note
23 in the Consolidated Financial Statements).
LIQUIDITY AND CAPITAL RESOURCES
On April 30, 1996, NRG funded $107,418,000 in accordance with the Plan of
which $99,918,000 was paid to NRGG and $7,500,000 wired directly to the
Company's stock transfer agent. Of the total $99,918,000 funding to NRGG,
$21,178,000 represented the purchase of new common stock of NRGG, $71,240,000
was advanced under the terms of three loan agreements between the Company and
NRG and the balance, $7,500,000, was designated as the purchase price for the
stock of ten wholly-owned subsidiaries sold to NRG under the terms of the Plan.
The $7,500,000 paid to the stock transfer agent represented a distribution
by NRG to O'Brien shareholders (approximately $.44 per old common share)
payable upon the exchange of the old O'Brien shares for shares of the new
common stock of the reorganized Company.
All undisputed prepetition claims approved by the Bankruptcy Court were
fully funded (or cured/reinstated) and paid with post-petition interest.
Certain claims filed with the Bankruptcy Court remain in dispute. At June 30,
1996, current liabilities include $11,450,000 associated with obligations
remaining before the Bankruptcy Court, including disputed claims, post-petition
interest and other administrative and priority claims. Remaining balances at
June 30, 1996 of escrow funds established on April 30, 1996 total $8,490,000.
Under the terms of one of the NRG loans, there remains $13,615,000 in available
borrowings, if needed, to fund any shortfall.
On May 17, 1996, the Company entered into a Credit Agreement with a new
lender. The Credit Agreement established provisions for a $155,000,000,
fifteen year loan and a $5,000,000, five year debt service reserve line of
credit. The interest rate on the outstanding principal is variable based on,
at the Company's option, either LIBOR plus a 1.125% margin or a defined base
rate plus a .375% margin, in either case with nominal margin increases in the
sixth and eleventh year. Concurrently with the Credit Agreement, the Company
entered into an interest rate swap agreement with respect to 50% of the
principal amount outstanding under the Credit Agreement, which fixes the
interest rate on such portion of the outstanding principal at 6.9% plus the
margin.
On May 23, 1996, the Company borrowed $60,000,000 in the form of a
six-month term loan drawn under the provisions of the Credit Agreement pending
the availability of the remaining total loan commitment. On July 11, 1996, the
remaining $95,000,000 was
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<PAGE> 35
borrowed which converted the temporary borrowing collectively into the
$155,000,000, fifteen year term loan.
The Company used the proceeds of the new term loan to refinance the Newark
and Parlin project financing, reacquire the new preferred stock issued to
Wexford Management Corp. in satisfaction of certain prepetition allowed claims,
for other obligations of the Company and to repay NRG most of the outstanding
loan balances.
NRG provided the Company with $128,078,000 in loans during fiscal 1996 of
which $101,679,000 remained outstanding at June 30, 1996. In addition to the
$71,240,000 advanced under the Plan, NRG repurchased the Parlin project debt on
June 28, 1996 in the amount of $53,388,000 pending the availability of the
remaining new loan proceeds to avoid certain penalties and an escalation of the
interest rate due the old lender if refinancing did not occur prior to the end
of fiscal year. NRG also provided O'Brien with a Court approved $3,450,000
working capital line of credit while the Company was in bankruptcy. At October
21, 1996, $14,388,000 remains outstanding to NRG (see Note 13 in the
Consolidated Financial Statements).
NRG has provided additional loan commitments to the Company. A
$10,000,000 loan agreement negotiated between NRG and O'Brien (Schuylkill)
Cogeneration, Inc. ("OSC"), a wholly-owned subsidiary, provides funding, if
needed, for an OSC capital contribution obligation to the Grays Ferry
Partnership. In addition, there remains $13,615,000 in available borrowings
under the terms of one of the Plan loan agreements to provide funding for any
bankruptcy obligation shortfalls.
OSC owns a one-third partnership interest in the Grays Ferry Cogeneration
project currently under construction. In March 1996, the partnership entered
into a credit agreement with Chase Manhattan Bank N.A. to finance the project.
The credit agreement obligates a $10,000,000 capital contribution from each of
the three partners.
In August 1996, the Company negotiated a buyout of a subsidiary's capital
lease obligation. The lender agreed to accept a $1,100,000 payment in full
satisfaction of the lease. The transaction resulted in an extraordinary gain,
net of tax, of $1,181,000 to be reflected in fiscal 1997 results of operations.
35
<PAGE> 36
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The following Consolidated Financial Statements of the Company and its
subsidiaries and independent auditors' report thereon are included as pages F-1
through F-36 of this Annual Report on Form 10-K:
<TABLE>
<S> <C>
Report of Independent Accountants............................................ F-1
Financial Statements:
Consolidated Balance Sheets as of June 30, 1996 and 1995.................. F-2
Consolidated Statements of Operations
for the years ended June 30, 1996, 1995 and 1994.......................... F-3
Consolidated Statements of Stockholders' Equity
for the years ended June 30, 1996, 1995 and 1994.......................... F-4
Consolidated Statements of Cash Flows
for the years ended June 30, 1996, 1995 and 1994.......................... F-5
Notes to Consolidated Financial Statements........................... F-6 through F-35
Independent Accountants Report............................................... F-36
</TABLE>
All other supplementary financial information has been omitted because of
the absence of the conditions under which it is required.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
Previously reported in NRG Generating (U.S.) Inc.'s Current Report on Form
8-K dated April 30, 1996, and as amended May 20, 1996.
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PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The information required for this item is incorporated by reference to the
Company's 1996 Definitive Proxy Statement which the Company will file with the
Securities and Exchange Commission no later than 120 days subsequent to June
30, 1996.
ITEM 11. EXECUTIVE COMPENSATION.
The information required for this item is incorporated by reference to the
Company's 1996 Definitive Proxy Statement which the Company will file with the
Securities and Exchange Commission no later than 120 days subsequent to June
30, 1996.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The information required for this item is incorporated by reference to the
Company's 1996 Definitive Proxy Statement which the Company will file with the
Securities and Exchange Commission no later than 120 days subsequent to June
30, 1996.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information required for this item is incorporated by reference to the
Company's 1996 Definitive Proxy Statement which the Company will file with the
Securities and Exchange Commission no later than 120 days subsequent to June
30, 1996.
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PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(a) Documents filed as part of this report.
1. FINANCIAL STATEMENTS
The following consolidated financial statements of the Company and its
Subsidiaries and report of independent auditors thereon are included as Pages
F-1 through F-36 of this Annual Report on Form 10-K:
Index to Consolidated Financial Statements
Report of Independent Accountants
Consolidated Balance Sheets as of June 30, 1996 and 1995
Consolidated Statements of Operations for the years ended June 30, 1996,
1995 and 1994
Consolidated Statements of Stockholders' Equity for the years ended June
30, 1996, 1995 and 1994
Consolidated Statements of Cash Flows for the years ended June 30, 1996,
1995 and 1994
Notes to Consolidated Financial Statements
Independent Accountants Report
2. FINANCIAL STATEMENT SCHEDULES
All schedules are omitted because of the absence of the conditions under
which they are required or because the required information is included in the
financial statements or notes thereto.
38
<PAGE> 39
3. EXHIBITS
The "Index to Exhibits" following the signature page is incorporated
herein by reference. Certain documents related to the projects and other
matters, some of which are listed in the Index to Exhibits, will be filed by
amendment as soon as practicable.
(B) REPORTS ON FORM 8-K
The following reports on Form 8-K were filed during the last quarter of
the fiscal year ended June 30, 1996:
1. Current Report on Form 8-K dated February 13, 1996 reporting
information under Item 7 and including monthly financial statements
filed with the U.S. Bankruptcy Court.
2. Current Report on Form 8-K dated April 30, 1996 reporting
information under Item 4, and Amendment thereto filed May 20, 1996.
3. Current Report on Form 8-K dated April 30, 1996 reporting
information under Items 1, 3, 7 and 8.
39
<PAGE> 40
SIGNATURE
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
NRG GENERATING (U.S.) INC.
/s/ Leonard A. Bluhm
-------------------------------
By: Leonard A. Bluhm
Title: Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ David H.Peterson Chairman of the October 25, 1996
- ----------------------------- Board of Directors
By: David H. Peterson
/s/ Leonard A. Bluhm Director, President and October 25, 1996
- ----------------------------- Chief Executive Officer
By: Leonard A. Bluhm
/s/ Timothy P. Hunstad Vice President and October 25, 1996
- ----------------------------- Chief Financial Officer
By: Timothy P. Hunstad (Principal Financial
Officer and Principal
Accounting Officer)
/s/ Lawrence I. Littman Director October 25, 1996
- -----------------------------
By: Lawrence I. Littman
/s/ Craig A. Mataczynski Director October 25, 1996
- -----------------------------
By: Craig A. Mataczynski
/s/ Charles J. Thayer Director October 25, 1996
- -----------------------------
By: Charles J. Thayer
/s/ Spyros S. Skouras, Jr. Director October 25, 1996
- -----------------------------
By: Spyros S. Skouras, Jr.
/s/ Ronald J. Will Director October 25, 1996
- -----------------------------
By: Ronald J. Will
</TABLE>
40
<PAGE> 41
Report of Independent Accountants
October 21, 1996
To the Stockholders and Board of Directors
of NRG Generating (U.S.) Inc.
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of operations, of stockholders' equity and of cash
flows present fairly, in all material respects, the financial position of NRG
Generating (U.S.) Inc. (formerly known as O'Brien Environmental Energy, Inc.),
and its subsidiaries at June 30, 1996 and 1995, and the results of their
operations and their cash flows for the years then ended in conformity with
generally accepted accounting principles. 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 audits. We conducted our
audits of these statements in accordance with generally accepted auditing
standards which require that we plan and perform the audits 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, assessing
the accounting principles used and significant estimates made by management,
and evaluating the overall financial statement presentation. We believe that
our audits provide a reasonable basis for the opinion expressed above. The
consolidated financial statements of NRG Generating (U.S.) Inc., for the year
ended June 30, 1994 were audited by other independent accountants whose report
dated October 7, 1994 expressed an unqualified opinion on those statements and
included an explanatory paragraph expressing substantial doubt about the
Company's ability to continue as a going concern. That report also disclosed
the voluntary petition filed by the Company for reorganization under Chapter 11
of the Federal Bankruptcy Code in the United States Bankruptcy Court on
September 28, 1994.
As discussed in Note 1 to the consolidated financial statements, on April 30,
1996, O'Brien Environmental Energy, Inc. was reorganized pursuant to a plan of
reorganization submitted by NRG Energy, Inc., the O'Brien Official Committee of
Equity Security Holders and Wexford Management Corp., and approved by the
Bankruptcy Court for the District of New Jersey on January 18, 1996. As part of
the reorganization, NRG Energy, Inc. acquired an approximate 42% equity
interest in the reorganized company, renamed NRG Generating (U.S.) Inc.
Price Waterhouse LLP
Minneapolis, Minnesota
F - 1
<PAGE> 42
NRG Generating (U.S.) Inc.
Consolidated Balance Sheets
June 30, 1996 and 1995
<TABLE>
<CAPTION>
(Dollars in thousands)
1996 1995
Assets
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 5,022 $ 4,083
Restricted cash and cash equivalents 8,719 3,563
Accounts receivable, net 11,627 12,357
Receivables from related parties 461 684
Notes receivable, current 1,029 853
Inventories 2,995 3,610
Other current assets 1,721 2,176
-------- --------
Total current assets 31,574 27,326
Property, plant and equipment, net 134,694 151,130
Equipment held for sale 2,678 3,228
Project development costs 253 1,080
Notes receivable, noncurrent 86 1,078
Investments in equity affiliates 3,449 3,483
Deferred financing costs, net 4,630 1,530
Other assets 798 893
-------- --------
Total assets $178,162 $189,748
======== ========
Liabilities and Stockholders' Equity (Deficit)
Current liabilities:
Accounts payable $ 8,708 $ 9,546
Current portion of loans due NRG Energy, Inc. 4,750 -
Current portion of recourse long-term debt 7,115 8,751
Nonrecourse project financing - 85,320
Accrued interest payable 5,895 7,655
Prepetition liabilities 1,735 87,743
Short-term borrowings 1,793 1,600
Other current liabilities 7,789 11,300
-------- --------
Total current liabilities 37,785 211,915
Loans due NRG Energy, Inc., net of current portion 96,929 -
Recourse long-term debt, net of current portion 66,789 3,405
Deferred income taxes 14,182 15,086
Other liabilities 50 100
Commitments and contingencies
-------- --------
Total liabilities 215,735 230,506
Minority interest - -
Stockholders' equity:
Preferred stock, par value $.01, 20,000,000 shares authorized in 1996;
10,000,000 shares authorized in 1995; none issued or outstanding at
June 30, 1996 or 1995 - -
New common stock, par value $.01, 50,000,000 shares authorized,
6,474,814 shares issued, 6,422,014 shares outstanding in 1996 64 -
Class A common stock, par value $.01, one vote per share,
40,000,000 shares authorized, 13,055,597 issued, 12,965,397
outstanding in 1995 - 130
Class B common stock, par value $.01, ten votes per share,
10,000,000 shares authorized, 4,070,770 issued, 3,905,770
outstanding in 1995 - 39
Additional paid-in capital 62,515 41,353
Accumulated deficit (99,367) (81,654)
Other (785) (626)
-------- --------
Total stockholders' equity (deficit) (37,573) (40,758)
-------- --------
Total liabilities and stockholders' equity (deficit) $178,162 $189,748
======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F - 2
<PAGE> 43
NRG Generating (U.S.) Inc.
Consolidated Statements of Operations
For the Years Ended June 30, 1996, 1995 and 1994
(Dollars and shares in thousands, except per share amounts)
<TABLE>
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
Energy revenues $ 66,623 $ 74,455 $ 62,647
Equipment, sales and services 25,344 19,639 24,304
Rental revenues 1,895 2,362 5,372
Development fees and other 2,685 5,791 14,266
-------- -------- --------
96,547 102,247 106,589
-------- -------- --------
Cost of energy revenues 45,663 46,694 49,961
Cost of equipment sales and services 22,153 17,622 21,890
Cost of rental revenues 1,406 2,357 2,730
Cost of development fees and other 2,531 5,491 9,593
-------- -------- --------
71,753 72,164 84,174
-------- -------- --------
Gross profit 24,794 30,083 22,415
Provision for loss on equipment - 21,640 6,250
Selling, general and administrative expenses 12,792 20,320 19,680
-------- -------- --------
Income (loss) from operations 12,002 (11,877) (3,515)
Involuntary conversion gain - - 6,066
Interest and other income 569 2,587 874
Reorganization costs (12,101) (8,366) -
Interest and debt expense (18,646) (20,583) (18,013)
-------- -------- --------
Loss before income taxes (18,176) (38,239) (14,588)
Provision for income taxes (benefit) (463) 2,680 1,913
-------- -------- --------
Net loss $ (17,713) $(40,919) $(16,501)
======== ======== ========
Net loss per share $ (4.24) $ (11.02) $ (4.45)
======== ======== ========
Weighted average shares outstanding 4,182 3,712 3,712
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F - 3
<PAGE> 44
NRG Generating (U.S.) Inc.
Consolidated Statements of Stockholders' Equity
For the Years Ended June 30, 1996, 1995 and 1994
(Dollars in thousands)
<TABLE>
<CAPTION>
Class A Class B New New Additional Total
Common Common Common Preferred Paid-in Accumulated Stockholders'
Stock Stock Stock Stock Capital Deficit Other Equity
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, June 30, 1993 $ 130 $ 39 $ $ $ 40,053 $ (23,932) $ (615) $15,675
Currency translation adjustment (36) (36)
Excess of purchase price over
predecessor cost of facilities acquired (302) (302)
Stock warrants issued 1,300 1,300
Net loss (16,501) (16,501)
------- ------- ------ --------- ---------- ----------- ------ ----------
Balance, June 30, 1994 130 39 41,353 (40,735) (651) 136
Currency translation adjustment 25 25
Net loss (40,919) (40,919)
------- ------- ------ --------- ---------- ----------- ------ ----------
Balance, June 30, 1995 130 39 41,353 (81,654) (626) (40,758)
NRG plan of reorganization:
Purchase of common stock by NRG 27 21,151 21,178
Exchange class A and B common stock
for new common shares, retire treasury
shares (130) (39) 37 68 64 -
Issue preferred shares to Wexford 49 4,908 4,957
Redemption of preferred shares (49) (4,908) (4,957)
Preferred dividends (57) (57)
Currency translation adjustment (223) (223)
Net loss (17,713) (17,713)
------- ------- ------ --------- ---------- ----------- ------ ----------
Balance, June 30, 1996 $ - $ - $ 64 $ - $ 62,515 $ (99,367) $ (785) $ (37,573)
======= ======= ====== ========= ========== =========== ====== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F - 4
<PAGE> 45
NRG Generating (U.S.) Inc.
Consolidated Statements of Cash Flows
For the Years Ended June 30, 1996, 1995 and 1994
<TABLE>
<CAPTION>
(Dollars in thousands)
1996 1995 1994
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss $ (17,713) $(40,919) $(16,501)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Depreciation and amortization 7,961 9,003 10,550
Amortization of goodwill - 1,987 98
Amortization of debt discount and deferred financing costs 1,480 3,882 1,752
Deferred tax expense (benefit) (904) 2,278 1,913
Project development costs expensed 180 4,418 539
Provision for loss on equipment held for sale - 5,655 6,250
Provision for equipment appraisal writedown - 15,985 -
Involuntary conversion gain - - (6,066)
Reserve for uncollectible note receivable - 3,121 -
Bankruptcy professional fees accrued 432 4,415 -
Other, net (216) 709 1,527
Changes in operating assets and liabilities:
Accounts receivable 730 (257) 294
Inventories 615 (369) 805
Receivables from related parties 223 (51) 542
Notes receivable 816 824 1,784
Accounts payable (838) (4,994) (2,892)
Accrued interest payable (1,760) 6,633 -
-------- -------- --------
Net cash provided by (used in) operating activities (8,994) 12,320 595
-------- -------- --------
Cash flows from investing activities:
Capital expenditures (299) (744) (2,496)
Proceeds from sale of subsidiaries 7,500 - -
Capital expenditures and costs to repair Newark Plant - - (21,041)
Insurance proceeds for Newark Plant - - 27,000
Project development costs (1,484) (358) (529)
Proceeds from the sale of projects, net of notes receivable - 1,762 2,000
(Deposits into) withdrawals from restricted cash accounts - net (5,156) 1,032 470
Other, net 227 (676) 622
-------- -------- --------
Net cash provided by investing activities 788 1,016 6,026
-------- -------- --------
Cash flows from financing activities:
Proceeds from NRG loans 128,078 - -
Proceeds from long-term debt 60,226 5,711 15,622
Repayments of NRG loans (26,398) - -
Repayments of long-term debt (92,816) (18,061) (21,660)
NRG capital contribution 21,178 - -
Net proceeds (repayments) of short-term borrowings 193 (785) 187
Payments on prepetition liabilities (71,723) (1,799) -
Deferred financing costs (4,579) - -
Redemption of preferred shares (4,957) - -
Preferred dividends paid (57) - -
Other, net - - (302)
-------- -------- --------
Net cash provided by (used in) financing activities 9,145 (14,934) (6,153)
-------- -------- --------
Net increase (decrease) in cash and cash equivalents 939 (1,598) 468
Cash and cash equivalents at beginning of year 4,083 5,681 5,213
-------- -------- --------
Cash and cash equivalents at end of year $ 5,022 $ 4,083 $ 5,681
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F - 5
<PAGE> 46
NRG Generating (U.S.) Inc.
Notes to Consolidated Financial Statements
June 30, 1996
(Dollars in thousands)
1. Business - Liquidity, Capital Resources and Emergence from Bankruptcy
NRG Generating (U.S.) Inc. (formerly known as O'Brien Environmental
Energy, Inc. ("OEE") and its subsidiaries (the "Company") develop and own
cogeneration and waste-heat recovery projects which produce electricity and
thermal energy for sale to industrial and commercial users and public
utilities. In addition, the Company sells and rents power generation,
cogeneration and standby/peak shaving equipment and services.
On April 30, 1996, OEE, the parent company, emerged from bankruptcy. The
plan of reorganization, approved on January 18, 1996 by the U.S. Bankruptcy
Court for the District of New Jersey (the "Court"), awarded NRG Energy, Inc.
("NRG") the rights to acquire a 41.86% equity interest in the Company and
generally provided for full and immediate payment of all undisputed
prepetition liabilities and included a provision for post-petition interest.
The Company was renamed on the April 30, 1996 closing date to NRG Generating
(U.S.) Inc. ("NRGG").
OEE, the parent company, filed a voluntary petition for reorganization
under Chapter 11 of the United States Bankruptcy Code with the Court on
September 28, 1994 to pursue financial restructuring efforts under the
protection afforded by the U.S. bankruptcy laws. The decision to seek Chapter
11 relief was based on the conclusion that action had to be taken to preserve
its relationships and maintain the operational strength and assets of the
Company and to restructure its debt and utilize its assets in a manner
consistent with the interests of all creditors and shareholders rather than
liquidate to satisfy the demands of a particular group of creditors. The
Company continued its normal operations as Debtor-in-Possession during the
bankruptcy period but could not engage in transactions outside the ordinary
course of business without approval, after notice and hearing, of the Court.
Under the Chapter 11 bankruptcy proceedings, all parent company
("Debtor") liabilities and claims which existed on the September 28, 1994
filing date were stayed. The Company segregated and reclassified these Debtor
liabilities on its balance sheet to "Prepetition Liabilities." Subsequently,
the Debtor received approval from the Court to make payments on certain
prepetition obligations including employee wages and expense reports and was
also directed to make periodic adequate protection payments on specific
secured debt obligations during the bankruptcy period.
Management concluded that the maximum return to creditors and shareholders
could only be accomplished through the sale of an equity interest in the
Company or of substantially all of its assets to a third party and focused
its reorganization efforts on the implementation of a sale process. After
extensive solicitation efforts, two separate third party plans of
reorganization were submitted to the Court. On November 17, 1995, the
Company distributed a Master Disclosure Statement urging that creditors and
equity security holders vote to accept both
F - 6
<PAGE> 47
NRG Generating (U.S.) Inc.
Notes to Consolidated Financial Statements
June 30, 1996
(Dollars in thousands)
plans of reorganization to further enhance recovery. The competitive
bidding process extended to the confirmation hearings.
On January 18, 1996, the Court confirmed the plan of reorganization (the
"Plan") submitted by NRG, the O'Brien Official Committee of Equity Security
Holders and Wexford Management Corp. ("Wexford") in which NRG would acquire
an approximate 42% equity interest in the reorganized company.
On April 30, 1996, NRG funded approximately $107,418 in accordance with
the Plan and acquired a 41.86% equity interest in the Company. NRGG received
$99,918 of which $71,240 was advanced under the terms of the ("NRG-New
Loans"); $21,178 represented the purchase of new common stock of NRGG and
$7,500 was designated as proceeds for the sale of 10 wholly-owned
subsidiaries to NRG. In addition, NRG transferred $7,500 directly to the
Company's stock transfer agent representing a cash distribution by NRG to the
OEE common stockholders. The funds were disbursed according to the Plan's
terms which generally provided for full payment (or cure/reinstatement) of
all undisputed prepetition liabilities including the payment of post-petition
interest on most prepetition obligations. Additionally, disbursements were
made to certain creditors of subsidiary companies whose obligations were not
included in prepetition liabilities and for professional fees incurred during
the bankruptcy proceedings. Certain other bankruptcy claims filed with the
Court remain in dispute. An escrow fund has been established to fully reserve
for the remaining disputed claims submitted to the Court. Any remaining funds
resulting from the Court disallowing any disputed claims will be disbursed
pro rata to all allowed non-reinstated creditor claimholders as additional
post-petition interest.
The Company entered into a Liquidating Asset Management Agreement on
April 30, 1996 with Wexford, which, in accordance with the Plan, retains
Wexford as the manager, operator and liquidator of the Liquidating Assets of
the Company pursuant to the terms and conditions of the agreement. The Board
of Directors and the Officers have the right to direct and control which
assets will be liquidated and the extent of management services required for
each Liquidating Asset. The Liquidating Assets identified in the agreement
consist of (a) the Company's engine generator sales, service and rental
business, (b) the Philadelphia Water Department project, (c) unused
equipment, and (d) American Hydrotherm Corporation and two related companies
The Board of Directors has authorized Wexford to liquidate the Philadelphia
Water project and American Hydrotherm Corporation and its two related
companies. The Board of Directors has authorized management to liquidate the
unused equipment. Wexford will receive compensation as per the agreement for
unused equipment sales being undertaken by management. No decision has been
made regarding the possible liquidation of the engine generator business.
Management does not expect the disposals of these businesses to have a
material effect on the Company's financial position or results of operations.
F - 7
<PAGE> 48
NRG Generating (U.S.) Inc.
Notes to Consolidated Financial Statements
June 30, 1996
(Dollars in thousands)
2. Summary of Significant Accounting Policies
Basis of presentation
The consolidated financial statements include the accounts of the Company
and all significant subsidiaries which are more than 50 percent owned
and controlled. Intercompany transactions and unrealized intercompany profits
and losses on transactions with equity method investees have been eliminated
in consolidation. Foreign subsidiaries with fiscal years ending on March 31
are included in the consolidated financial statements. If events occurred
between March 31 and June 30 which materially affect the consolidated
financial position or results of operations, they would be reflected in the
consolidated financial statements. Investments in less than majority-owned
entities are recorded at cost plus equity in their undistributed earnings or
losses since acquisition.
Use of estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosures of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from these estimates.
Prepetition liabilities
Outstanding and unpaid liabilities of the parent company which existed
as of the filing for bankruptcy on September 28, 1994 and remain subject to
the Court proceedings are presented separately on the June 30, 1996 and 1995
balance sheets as prepetition liabilities at amounts expected to be approved
by the Court as allowed claims.
Reorganization costs
Expenses incurred after filing bankruptcy related to the Company's
reorganization and restructuring efforts have been presented separately in
the statement of operations as reorganization costs.
Revenue recognition
Energy revenues from cogeneration and biogas projects are recognized as
billed over the term of the contract. Profits and losses from sales and
rental of power generation equipment, including sales to projects in which
the Company retains less than a 100% interest are recognized as the equipment
is sold or over the term of the rental. Development fee revenue is recognized
on a cost recovery basis as cash is received (without future lending
provisions) or as equity interest in the partnership increases, whereby
revenues are recognized subsequent to the recovery of all project development
costs.
F - 8
<PAGE> 49
NRG Generating (U.S.) Inc.
Notes to Consolidated Financial Statements
June 30, 1996
(Dollars in thousands)
Inventories
Inventories, consisting principally of power generation equipment and
related parts held for sale, are valued at the lower of cost (determined
primarily by the specific identification method) or market.
Property, plant and equipment
Property, plant and equipment is stated at the lower of cost or
appraised fair market value and depreciated using the straight-line method
over the estimated useful lives of the assets which range from five to thirty
years. Amortization on equipment acquired under capital leases is recognized
on a straight line basis over the shorter of the estimated asset life or
lease term. Depreciation on equipment held for future projects is not
provided until the equipment is placed in service. For income tax purposes,
the Company uses a combination of accelerated and straight-line depreciation
methods.
Cost of maintenance and repairs is charged to expense as incurred.
Betterments and improvements are capitalized. Upon retirement or other
disposition of items of plant and equipment, cost of items and related
accumulated depreciation are removed from the accounts and any gain or loss
is included in the results of operations.
Equipment held for sale
Equipment held for sale consists of power generation equipment not
currently being used in an operating project and is valued at the lower of
cost or estimated net realizable value.
Project development costs
Project development costs consist of fees, licenses and permits, site
testing, bids and other charges, including salary and interest charges
incurred by the Company in developing projects. For wholly-owned projects,
these costs are transferred to property, plant and equipment upon
commencement of construction and depreciated over the contract term when
operations begin. For projects structured as partnerships, these costs may be
recovered through development cost reimbursements from the partnership or
third parties or may be transferred to an investment in the partnership. It
is the Company's policy to expense these costs in any period in which
management determines the costs to be unrecoverable.
Deferred financing costs
Financing costs are deferred and amortized on a straight-line basis over
the term of the related financing.
F - 9
<PAGE> 50
NRG Generating (U.S.) Inc.
Notes to Consolidated Financial Statements
June 30, 1996
(Dollars in thousands)
Recourse long-term debt and nonrecourse project financing
Recourse long-term debt consists of collateralized long-term debt for
which repayment is a general obligation of the Company exclusive of any debt
subject to the bankruptcy proceedings. Nonrecourse project financing consists
of long-term debt for which repayment obligations are limited to specific
project subsidiaries.
Income taxes
The provision for income taxes has been calculated using the asset and
liability approach of accounting for income taxes. Under this approach,
deferred taxes represent the future tax consequences expected to occur when
the reported amounts of assets and liabilities are recovered or paid. The
provision for income taxes represents income taxes payable or paid for the
current year and the change in deferred taxes during the year. Deferred taxes
result from differences between the tax and financial bases of the Company's
assets and liabilities and are adjusted for any changes in the tax rates and
laws. Valuation allowances are recorded when it is more likely than not that
a tax benefit will not be realized.
Gas swap agreements
The Company enters into gas swap agreements from time to time to reduce
the impact of changes in gas prices on its operating income. The
differentials to be paid or received under such agreements are accrued and
are recorded as increments or decrements to gas expense.
Interest rate swap agreement
The Company entered into an interest rate swap agreement to reduce the
impact of changes in interest rates on certain of its variable rate
nonrecourse debt. The differentials paid or received under such agreements
are accrued and are recorded as increments or decrements to interest and debt
expense.
Cost in excess of net assets acquired
Excess of cost of investment in subsidiaries over net assets at the date
of acquisition is amortized by charges to operations on a straight-line basis
over twenty-five years. It is the Company's policy to expense excess cost of
investment in any period in which management determines that unamortized
costs are unrecoverable.
Net income (loss) per share
Net income (loss) per share is calculated by dividing net income (loss)
by the weighted average shares of common stock and common stock equivalents
outstanding. Fully diluted net income (loss) per share is not presented
because conversion of any common stock equivalents would be antidilutive. All
periods have been restated to reflect the new common shares issued under the
terms of the Plan (see Note 15).
F - 10
<PAGE> 51
NRG Generating (U.S.) Inc.
Notes to Consolidated Financial Statements
June 30, 1996
(Dollars in thousands)
Foreign currency accounting
The financial statements of foreign subsidiaries have been translated in
accordance with Statement of Financial Accounting Standards No. 52, whereby
assets and liabilities are translated at year-end rates of exchange and
statements of operations are translated at the average rates of exchange for
the year. Currency translation adjustments are accumulated in the other
component of stockholders' equity until the entity is substantially sold or
liquidated.
Transaction gains and losses associated with foreign activities are reflected
in operations.
Cash and cash equivalents
For purposes of the consolidated statements of cash flows, the Company
considers all highly liquid investments with maturities of three months or
less at the time of purchase to be cash equivalents.
Concentration of credit risk
The Company primarily sells electricity and steam to public utilities
and corporations on the east and west coasts of the United States under
long-term agreements. Also, the Company services, sells and rents equipment
to various entities worldwide. The Company performs on-going credit
evaluations of its customers and generally does not require collateral. The
Company maintains reserves for potential credit losses and such losses have
been within management's expectations.
The Company invests its excess cash in deposits with financial
institutions. Those securities typically mature within ninety days and,
therefore, bear minimal risk. The Company has not experienced any losses on
these deposits.
Reclassification
Certain reclassifications have been made to conform prior years data to
the current presentation.
3. Cash and Restricted Cash
Cash and cash equivalents Due to restrictions in the Newark and Parlin
project financing agreements, $3,520 of cash and cash equivalents at June 30,
1995 was generally available for use only by those projects.
Restricted cash and cash equivalents
The Company has classified certain cash and cash equivalents that are
not fully available for use in its operations as restricted. At June 30,
1996, restricted cash and cash equivalents relate primarily to escrow
accounts established on April 30, 1996 pursuant to the Plan and is comprised
of remaining balances for various administrative, priority and unsecured
claims which remain in dispute or are subject to final resolution by the
Court.
F - 11
<PAGE> 52
NRG Generating (U.S.) Inc.
Notes to Consolidated Financial Statements
June 30, 1996
(Dollars in thousands)
Restricted cash and cash equivalents at June 30, 1995 relate primarily to
debt service reserve accounts required by the nonrecourse project debt
for O'Brien (Newark) Cogeneration, Inc. ("Newark") and O'Brien (Parlin)
Cogeneration, Inc. ("Parlin") which were refinanced prior to June 30,
1996 (see Note 31).
Additionally, restricted cash and cash equivalents at June 30, 1996 and
1995 include compensating balances maintained by the Company at a
financial institution in connection with a line of credit extended to its
United Kingdom subsidiaries (see Note 10).
Restricted cash and cash equivalents consist of the following:
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
NRGG bankruptcy escrow accounts $ 8,490 $ -
O'Brien (Newark) Cogeneration, Inc. - 3,129
O'Brien (Parlin) Cogeneration, Inc. - 101
United Kingdom subsidiaries 229 241
Other - 92
-------- --------
$ 8,719 $ 3,563
======== ========
</TABLE>
4. Property, Plant and Equipment
Property, plant and equipment consist of the following:
<TABLE>
<CAPTION>
1996 1995
<S> <C>
Equipment related to energy revenues $ 154,578 $ 171,520
Rental equipment 15,166 15,330
Furniture and fixtures 898 1,694
Land, buildings and improvements 1,972 2,424
Other equipment 378 469
---------- -----------
172,992 191,437
Accumulated depreciation and amortization (38,298) (40,307)
---------- -----------
$ 134,694 $ 151,130
========== ===========
</TABLE>
Depreciation expense was $7,858, $8,892 and $9,717 in 1996, 1995 and
1994, respectively.
The Company recorded a charge of $15,985 in the fiscal 1995 fourth
quarter to reduce the carrying amount of property, plant and equipment to
a lower fair market appraised value.
Equipment related to energy revenues includes the property and equipment
of the Newark and Parlin cogeneration plants, the Philadelphia Water
Department standby project and, until sold on April 30, 1996, the biogas
projects (see Note 21).
F - 12
<PAGE> 53
NRG Generating (U.S.) Inc.
Notes to Consolidated Financial Statements
June 30, 1996
(Dollars in thousands)
The Newark project consists of a 52 megawatt cogeneration power plant in
Newark, New Jersey which commenced operations in November 1990 and is
supplying electricity and steam pursuant to 25 year supply contracts. The
facility's nonrecourse project financing was replaced in 1996 (see Note
31).
The Parlin project consists of a 122 megawatt cogeneration power plant in
Parlin, New Jersey which commenced operations on June 26, 1991 and is
supplying 101 megawatts of electricity pursuant to a 20 year electric
supply contract and steam pursuant to a 30 year supply contract. The
facility's nonrecourse project financing was replaced in 1996 (see Note
31).
5. Equipment Held for Sale
As part of the Company's efforts to improve both short-term and long-term
liquidity, it has actively begun seeking buyers for specific energy
equipment not currently being used in an operating project nor critical
to the completion of any projects in development. These assets,
consisting mainly of gas and steam turbines, are being held for sale in
order to raise cash.
The value of these assets sold in a secondary market is less than if they
were incorporated into an internally developed operating project.
Accordingly, the Company recorded a noncash charge in the fourth quarter
of the fiscal 1994 period in the amount of $6,250 to adjust the carrying
value of these assets to an estimated resale value of $8,458 based upon
appraisals made by the Company.
In the fourth quarter of fiscal 1995, the Company recorded an additional
charge of $5,655 based upon an independent appraisal to further reduce
the carrying value to reflect the Company's intent to accelerate the
disposal of this equipment.
6. Notes Receivable
Notes receivable consist of the following:
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Note receivable, non-interest bearing, final installment
of $800 due in June 1997 (a) 754 1,465
Other (b) 361 466
-------- --------
1,115 1,931
Less current portion (1,029) (853)
-------- --------
$ 86 $ 1,078
======== ========
</TABLE>
F - 13
<PAGE> 54
NRG Generating (U.S.) Inc.
Notes to Consolidated Financial Statements
June 30, 1996
(Dollars in thousands)
(a) Note receivable associated with the termination of a power purchase
contract. The note is collateralized by an irrevocable letter of
credit. At June 30, 1996, face value and discount were $800 and $46,
respectively, assuming an interest rate of 5.95%.
(b) Notes receivable associated primarily with a direct finance lease
relating to power generation equipment.
7. Project Development Costs
During the years ended June 30, 1996, 1995 and 1994, the Company
determined that certain project development costs should be expensed. The
resulting charges, net of any recoveries, of $180, $4,418 and $539 for
1996, 1995 and 1994, respectively, are included in selling, general and
administrative expenses in the accompanying consolidated statements of
operations. Fiscal 1995 included costs of a project determined to be
unrecoverable based upon the anticipated implementation of the Plan.
8. Investments in Equity Affiliates
Investment in equity affiliates consists of the following:
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Gray's Ferry $ 2,778 $ 2,504
Artesia - 337
PoweRent Limited 671 642
-------- -------
$ 3,449 $ 3,483
======== =======
</TABLE>
Gray's Ferry
In October 1991, O'Brien (Schuylkill) Cogeneration, Inc. ("OSC"), a
wholly-owned subsidiary, executed a partnership agreement with Adwin
Equipment Company ("Adwin") for the purpose of developing, constructing,
owning, maintaining and operating a 150 megawatt natural gas and oil fired
cogeneration facility to produce steam and electricity in Philadelphia.
The project, currently under construction, consists of the installation
and operation of an auxiliary boiler and steam turbine and the
installation and operation of a gas turbine and heat recovery steam
generator along with related equipment.
In March 1996, Trigen (Schuylkill) Cogeneration, an unrelated party, was
admitted to the partnership. OSC and Adwin each received a $1,000
admittance fee. Net operating profits and losses will be allocated to the
partners, generally equally, based upon the terms and provisions as
stated in the partnership agreement. Also in March 1996, the partnership
entered into a credit agreement with Chase Manhattan Bank N.A. to finance
the construction and equipment for the facility. Pursuant to the credit
agreement, the three partners will each contribute
F - 14
<PAGE> 55
NRG Generating (U.S.) Inc.
Notes to Consolidated Financial Statements
June 30, 1996
(Dollars in thousands)
$10,000 of additional capital to the partnership to be funded after all
construction loan proceeds have been utilized or at such time as is required
by the lender.. Additionally, the stock of OSC was pledged as collateral
for the loan.
In March 1996, NRG and OSC entered into a $10,000 loan agreement ("the
Note") to provide a source of funding for the OSC capital contribution
obligation to the partnership. No amounts have yet been contributed to the
partnership or borrowed under the Note.
Artesia
The Artesia project consists of a 32 megawatt cogeneration facility in
Artesia, California which commenced operations in 1990 and is supplying
electricity and steam pursuant to 30-year supply contracts. The project is
owned and operated by O'Brien California Cogen Limited, a limited
partnership. O'Brien Cogeneration, Inc. II, a wholly-owned subsidiary of the
Company and managing general partner, was sold to NRG under the terms of the
plan of reorganization on April 30, 1996 (see Note 21).
PoweRent Limited
PoweRent Limited, an entity in which a subsidiary of the Company owns a
50% interest, is a United Kingdom company that sells and rents power
generation equipment. The remaining 50% of PoweRent is owned by an
officer of a wholly-owned United Kingdom subsidiary.
The Company's investment in equity affiliates has been accounted for
using the equity method.
9. Deferred Financing Costs
Deferred financing costs at June 30, 1996 relates primarily to the cost of
refinancing the nonrecourse debt and consists of the following:
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Deferred financing costs $ 4,810 $ 2,767
Accumulated amortization (180) (1,237)
-------- -------
$ 4,630 $ 1,530
======== =======
</TABLE>
Amortization expense, included in interest and debt expense, in fiscal
year ending June 30, 1996 was $1,480 which includes a charge of $1,043 to
expense unamortized deferred financing costs attributable to the
nonrecourse project debt which was refinanced in 1996 (see Note 31).
F - 15
<PAGE> 56
NRG Generating (U.S.) Inc.
Notes to Consolidated Financial Statements
June 30, 1996
(Dollars in thousands)
Amortization expense amounted to $570 and $452 in the fiscal years ended
June 30, 1995 and 1994, respectively, which is included in interest and
debt expense. Additionally, the Company charged $3,387 of deferred
financing costs to reorganization costs in fiscal 1995 to adjust the
carrying amount of the parent's prepetition subordinated debentures to
the amount approved by the Court as an allowed claim.
10. Short-Term Borrowings
As of June 30, 1996 and 1995, short-term borrowings consist of foreign
lines of credit payable to financial institutions bearing interest at
foreign (U.K.) short-term rates. Collateral for the lines of credit
consists primarily of certain restricted cash balances.
11. Prepetition Liabilities
All liabilities at June 30, 1996 and 1995 which remain subject to the
bankruptcy proceedings have been classified on the balance sheet as
prepetition liabilities stated at amounts expected to be approved by the
Court as allowed claims and consist of the following:
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Subordinated debentures $ - $ 49,174
Recourse debt (see Note 12) - 30,368
Prepetition accrued interest 11 5,634
Accounts payable and accrued expenses 1,724 2,567
-------- ----------
$ 1,735 $ 87,743
======== ==========
</TABLE>
Generally, all undisputed prepetition liabilities approved by the Court
as allowed claims were fully funded (or cured/reinstated) and paid with
post-petition interest on the closing date. Certain proofs of claims,
filed with the Court, however, remain in dispute. An escrow fund was
established to fully reserve for these disputed claims. Any remaining
funds resulting from the Court disallowing any of these disputed claims
will be disbursed pro rata to all allowed non-reinstated creditor
claimholders as additional post-petition interest.
Additionally, prepetition liabilities of approximately $4,957 consisting
primarily of subordinated debentures owned by Wexford were satisfied by
the issuance of preferred shares in the reorganized company. These shares
were subsequently redeemed in May 1996.
The subordinated debentures carried interest rates ranging from 7 3/4% to
11% up to the date of filing for bankruptcy, September 28, 1994.
F - 16
<PAGE> 57
NRG Generating (U.S.) Inc.
Notes to Consolidated Financial Statements
June 30, 1996
(Dollars in thousands)
12. Recourse Long-Term Debt
Upon the parent company filing a petition for bankruptcy, all debt
subject to compromise was reclassified to prepetition liabilities (see
Note 11). On April 30, 1996, certain notes payable were cured and
reinstated. Subsequently, an amount of $8,898 was reclassified back to
long-term recourse debt from prepetition liabilities. Recourse long-term
debt at June 30, 1995 consisted of only post-petition financing and of
all subsidiary long-term recourse debt which was not part of the
bankruptcy proceedings.
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Notes payable, due in monthly installments of principal plus
interest at rates ranging from 8.3% to 13.48% maturing on various dates
through March 2002.
$ 8,995 $ 4,739
Capital lease obligations, due in monthly installments at rates up
to 13.48%, maturing at various dates through December 2000,
collateralized by certain energy and rental equipment having a net book
value of $4,978 at June 30, 1996. 4,909 7,417
New financing (b) 60,000 -
------- -------
73,904 12,156
Less amounts classified as current (a) (7,115) (8,751)
------- -------
$66,789 $ 3,405
======= =======
</TABLE>
(a) As a result of defaults under certain of a subsidiary company's loan
agreements, the Company reclassified $4,374 out of a long-term
classification at June 30, 1995 for a total of $8,751 of its recourse
debt as a current liability. Of this amount, approximately $2,383 was
triggered by non-payment and the remainder, $1,991, was reclassified
because of the Chapter 11 bankruptcy filing on September 28, 1994.
(b) On May 23, 1996, Newark borrowed $60,000 in the form of a six-month
term loan ("New Financing Proceeds") under the terms of a
Credit Agreement ("the New Agreement") with a new lender and used the
proceeds, among other things, to refinance the nonrecourse financing
for the Newark project. The term loan was converted into a 15 year
loan on July 11, 1996. The interest rate on the term loan at June 30,
1996 is LIBOR (5.43%) plus 1.125%. Current maturities of recourse
debt excludes $57,000 of the six-month term loan based upon the terms
of the refinancing under the New Agreement (see Note 31).
F - 17
<PAGE> 58
NRG Generating (U.S.) Inc.
Notes to Consolidated Financial Statements
June 30, 1996
(Dollars in thousands)
Scheduled maturities of recourse long-term debt and capital lease
obligations, including interest for the next five years and thereafter
are as follows:
<TABLE>
<CAPTION>
Year Ending June 30, Recourse Long-Term Debt Capital Leases
<S> <C> <C>
1997 5,179 2,455
1998 4,535 2,132
1999 5,362 1,096
2000 4,968 91
2001 4,970 -
Thereafter 43,981 -
Interest component on
capital leases - (865)
--------- --------
$ 68,995 $ 4,909
========= ========
</TABLE>
The Company incurred interest charges, exclusive of interest on
nonrecourse project financing and the loans due NRG of $8,351, $9,925 and
$9,802 in 1996, 1995 and 1994, respectively. Of these amounts $403 was
capitalized in 1994. No amounts were capitalized in 1996 or 1995.
13. Loans due NRG Energy, Inc.
In accordance with the Plan, NRG and NRGG executed three loan agreements
on April 30, 1996 (the "NRG - New Loans") with commitments of $45,000,
$24,000 and $15,855 at annual interest rates of 9.5%, 9.5% and 9%,
respectively. On April 30, 1996, the NRG funding included $71,240 drawn
under these NRG - New Loans. The Company repaid $22,948 in May 1996 from
the New Financing Proceeds.
Current liabilities on the consolidated balance sheet at June 30, 1996
include $11,450 relating to the remaining disputed claims, professional
fees, additional post-petition interest on prepetition obligations as
well as certain administrative and priority claims relating to the
bankruptcy proceeding. At June 30, 1996, restricted cash includes
balances of $8,490 remaining in various escrow accounts established on
April 30, 1996 under the Plan. There remains $13,615 in available
borrowings under one of the New-NRG Loans, if needed, with interest at
9%, to provide a source of funds for any unfunded obligations from the
final rulings of the Court.
On August 30, 1995, the Company and NRG with the approval of the Court,
entered into a Chapter 11 financing agreement ("DIP financing") which
provided for a $3,000 commitment with interest at 2% over prime. The loan
commitment was increased on February 22, 1996 by an additional $500. The
Company made periodic drawdowns totaling $3,450 through the April
F- 18
<PAGE> 59
NRG Generating (U.S.) Inc.
Notes to Consolidated Financial Statements
June 30, 1996
(Dollars in thousands)
30, 1996 closing date. The DIP financing was repaid to NRG from the New
Financing Proceeds in May 1996.
On June 28, 1996, NRG advanced $53,388 to payoff the lender of the Parlin
nonrecourse debt which included a $3,100 cost to terminate the interest
rate swap agreement. The advance was subject to a loan modification
agreement between NRG and the Company which obligated repayment on July
11, 1996 ("the Additional Funding Date") with interest at LIBOR (5.430%
at June 30, 1996) plus 1.5% (see Note 31).
At June 30, 1996, loans due NRG Energy, Inc. ("the Loans") consist of the
following:
<TABLE>
<S> <C>
NRG - New Loans, (at 9.5%) $ 48,291
Parlin's nonrecourse debt refinancing 53,388
---------
Total Loans due NRG Energy, Inc. 101,679
Less current maturities 4,750
---------
Long-term portion $ 96,929
=========
</TABLE>
The Company received $95,000 on the Additional Funding Date under the New
Agreement (see Note 31) and repaid NRG $87,291 on the Loans. Current
maturities at June 30, 1996 of the loans have been reclassified to long
term to the extent and terms of the refinancing under the New Agreement.
The balance of the Loans not repaid ($14,388) has a maturity date of
April 30, 2001.
Interest expense in fiscal 1996 includes $1,098 attributable to the loans
due NRG.
14. Nonrecourse Project Financing
Nonrecourse project financing was refinanced in 1996 and consisted of the
following at June 30, 1995:
<TABLE>
<S> <C>
Newark project (a) $ 25,010
Parlin project (b) 60,310
---------
85,320
Less current portion (85,320)
---------
$ -
=========
</TABLE>
The nonrecourse project financing agreements contained various
restrictive covenants which were the maintenance of positive working
capital, limitation on the payment of dividends or other distributions to
the Company and a restriction on additional borrowings by the project
subsidiaries.
F- 19
<PAGE> 60
NRG Generating (U.S.) Inc.
Notes to Consolidated Financial Statements
June 30, 1996
(Dollars in thousands)
At June 30, 1995, both the Newark and Parlin projects were in default of
the covenant which requires the maintenance of positive working capital
and accordingly, classified the entire amounts outstanding as short-term
debt due to a default of positive working capital.
(a) The Newark project financing was an obligation of O'Brien (Newark)
Cogeneration, Inc. ("Newark"), a wholly- owned subsidiary of the
Company, converted from a nonrecourse construction loan to a
nonrecourse 12-year term loan in October 1990. On June 6, 1995,
Newark executed a Settlement and Restructuring Agreement which,
among other things, allowed monthly predetermined cash distributions
to the Parent, accelerated the maturity date to January 1997,
provided for escalating interest rate margin increases throughout
the remaining term of the loan and obligated that Newark's monthly
"excess cash," as defined, be applied as additional principal
payments on the term loan. Previously, the term loan provided for a
variable interest rate tied to either LIBOR or the prime rate.
During 1996, 1995 and 1994, $1,753, $2,065 and $1,693, respectively,
of interest costs were incurred pursuant to the project financing.
On May 23, 1996, the Company used the New Financing Proceeds, among
other things, to refinance the Newark nonrecourse project finance
debt (see Note 31).
(b) The Parlin financing was an obligation of O'Brien (Parlin)
Cogeneration, Inc. ("Parlin"), a wholly-owned subsidiary of the
Company, converted from a nonrecourse construction loan to a
nonrecourse 12-year term loan in December 1990. Through the use of
an interest rate swap agreement, a portion of the term loan had a
fixed interest rate of approximately 11% per annum. The balance of
the loan had a variable interest rate tied to LIBOR. During 1996,
1995 and 1994, $5,730, $6,470 and $6,633, respectively, of interest
costs were incurred pursuant to the term loan which includes $1,642,
$2,050 and $3,253 for 1996, 1995 and 1994, respectively, of costs
associated with the interest rate swap agreement.
On June 28, 1996, NRG purchased the outstanding Parlin nonrecourse
project debt from the lender and paid a $3,100 brokerage fee to
terminate the interest rate swap agreement. On July 11, 1996, the
Company borrowed $95,000 under the terms of the New Agreement and
used the proceeds, among other things, to repay NRG for the funds
advanced on June 28, 1996 (see Notes 13 and 31).
F- 20
<PAGE> 61
NRG Generating (U.S.) Inc.
Notes to Consolidated Financial Statements
June 30, 1996
(Dollars in thousands)
15. Stockholders' Equity
Preferred stock
NRGG's Certificate of Incorporation authorizes the issuance of an
aggregate of 20,000,000 shares of Preferred Stock, par value $.01 per
share, from time to time in series. The Board of Directors is authorized
to fix the voting rights, designations, powers, preferences, and other
rights, and the qualifications, limitations or restrictions of any such
series, and to fix the number of shares constituting such series.
On April 30, 1996, the Board of Directors authorized the designation of
50,000 shares as a Series A 13.5% cumulative preferred stock, par value
$.01. Simultaneously, the Company issued 49,574 shares to Wexford in
satisfaction of $4,957 of prepetition unsecured claims allowed by the
Court. The preferred shares were subsequently reacquired in May 1996 and
paid along with $57 in dividends from the New Financing Proceeds.
Common stock
On April 30, 1996, the outstanding Class A and Class B common shares of
the Company were canceled and became exchangeable for a new single issue
of common stock ("New Common Stock") of NRGG. NRGG authorized 50,000,000
shares, par value $.01. NRGG issued 6,474,814 common shares of which
2,710,357 (41.86%) were purchased by NRG and the remaining 3,764,457
shares (58.14%) became issuable to the existing shareholders of the
Company. Holders of the Company's Class A and Class B shares also became
entitled to receive an aggregate $7,500 (approximately $.44 cents per old
share) from NRG payable to shareholders when the old common shares were
submitted to the transfer agent for exchange.
Except for voting and conversion privileges, shares of Class A and Class
B common stock were identical.
Outstanding shares at June 30, 1996 and 1995 amounted to the following:
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
New Common Stock 6,422,014 -
============= =============
Class A common stock - 12,965,397
============= =============
Class B common stock - 3,905,770
============= =============
</TABLE>
F - 21
<PAGE> 62
NRG Generating (U.S.) Inc.
Notes to Consolidated Financial Statements
June 30, 1996
(Dollars in thousands)
O'Brien Energy Services Company ("OES"), a wholly-owned subsidiary, owned
75,000 shares of Class A common stock and 165,000 shares of Class B
common stock at the date of its acquisition by the Company. On April 30,
1996, these shares were converted into 52,800 shares of New Common Stock.
Outstanding shares at June 30, 1996 and 1995 exclude the stock owned by
OES.
Other
The other component of stockholders' equity includes the cumulative
foreign currency translation adjustment of ($785), ($562) and ($587) at
June 30, 1996, 1995 and 1994, respectively, and treasury stock of $64 at
June 30, 1995 and 1994. Treasury stock at June 30, 1995, is recorded at
cost, and consisted of 15,200 shares of Class A common stock which were
retired on April 30, 1996.
Net earnings (loss) per share
Net earnings (loss) per share have been restated for all periods
presented to reflect the new common shares issued under the terms of the
Plan. Management expects a further dilution of earnings (loss) per common
share in future periods because the purchase of 2,710,357 common shares
by NRG on April 30, 1996 impacts the weighted average shares outstanding
computation for only two months of the 1996 fiscal year.
16. Stock Options
In connection with NRG's assistance with the Gray's Ferry project, its
financing and the Note (see Note 8), the Company granted NRG the right,
approved by the Court in March 1996, to convert a portion of borrowings
under the Note to New Common Stock of NRGG. The option agreement
provides that NRG can convert $3,000 of borrowings under the Note for New
Common Stock which would equal, on a fully diluted basis, 5.76% of the
common stock (396,301 new common shares) issued on April 30, 1996. No
amounts have been borrowed under the Note.
17. Business Interruption Insurance Claims
During 1995 and 1994, energy revenues include $1,035 and $1,706 received
under net business interruption insurance claims associated with the
Newark and Parlin cogeneration plants.
18. Amortization of Cost in Excess of Net Assets Acquired
Amortization of excess of cost in investment in subsidiaries over net
assets acquired amounted to $1,987 in 1995 and $98 in 1994. Included in
fiscal 1995 amortization is $1,888 which
F - 22
<PAGE> 63
NRG Generating (U.S.) Inc.
Notes to Consolidated Financial Statements
June 30, 1996
(Dollars in thousands)
related primarily to the unamortized value assigned to an acquired
subsidiary's heat recovery technology which management deemed not
realizable.
19. Amendment to Newark and Parlin Power Purchase Agreement
The Company renegotiated the Power Purchase Agreements ("PPAs") for the
Parlin and Newark cogeneration projects effective on May 1, 1996. The
primary commercial difference is that under the amended PPAs, the
project's customer supplies and pays for the cost of fuel with a
commensurate reduction in the energy rate. Until May 1, 1996, Newark and
Parlin have incurred the cost of fuel as well as the risk of fluctuating
fuel prices. Although energy revenues as well as cost of energy revenues
will decrease under the amended contracts, management believes that
operating gross profit margins will remain similar to historical results.
However, margin fluctuations attributable to periodic swings in fuel
costs will be eliminated.
Additionally, Parlin relinquished its claim to qualifying facility status
and filed rates as a public utility under the Federal Power Act.
However, Parlin has been determined to be an exempt wholesale generator
(EWG). The Parlin project has also changed from a full base load
operation to a partial base load/partial dispatchable project.
20. Development Fees and Other
In September 1994, the Company sold its rights to develop a 14 megawatt
standby electric facility project for $1,762.
In June 1994, the Company sold its rights to develop a standby/peak
shaving project for a $5,000 cash payment which is included in
development fees and other income. The costs associated with the
development rights were insignificant.
In August 1993, the Company entered into an arrangement with an unrelated
third party joint venture to sell substantially all proved and unproved
coalbed methane gas properties for $6,500. The Company received $2,000 in
cash and a production payment note receivable of $4,500. In addition, the
Company agreed to contribute up to $800 to complete non-producing wells
into commercial wells. The Company discounted the note in fiscal 1994 to
an estimated net realizable value. Fiscal 1994 development fees and other
includes $5,121 of revenues recognized in connection with this sale. In
May 1994, the joint venture filed a complaint with the American
Arbitration Association. The Company subsequently counterclaimed. On
March 31, 1995, a settlement agreement was executed with the joint
venture to resolve all disputes in which the Company accepted
responsibility for $1,166 in cost reimbursement toward completion on
non-producing wells with interest at prime plus 5%. The joint venture
accepted an assignment of any and all payments due the Company on the
note receivable in satisfaction of the obligation until the sums withheld
satisfy the obligation plus all accrued
F - 23
<PAGE> 64
NRG Generating (U.S.) Inc.
Notes to Consolidated Financial Statements
June 30, 1996
(Dollars in thousands)
interest. Until the obligation is satisfied, the Company has no rights
to the net revenues, as defined, nor can the note receivable be sold,
pledged or assigned. The joint venture is not entitled to look to the
Company for the payment of any cost obligations. Only after recoupment of
the chargeback obligation, will payment on the note receivable be paid
from a percentage of net revenues, as defined, from the coalbed methane
properties until the earlier of (1) the note is paid in full or (2) 10
years. At June 30, 1995, the Company reduced the carrying value of the
note by the cost obligation and fully reserved the balance.
In June 1992, the Company sold the power purchase, landfill gas and other
agreements associated with two biogas projects that were operated by the
Company to two unrelated limited partnerships for $323 in cash and $1,725
in notes receivable with interest rates of 9.5% and 10%. In addition, the
Company entered into equipment rental agreements with the respective
buyers of those projects to lease certain power generation equipment for
annual rentals of $185 through December 31, 2002. The leases may be
extended for six years at the option of the lessee. Also, the annual
rentals may be reduced if equipment is removed from the project sites by
the Company in accordance with provisions in the rental agreements. In
January 1994, these notes receivable were satisfied for $1,100, which
reflects a $202 discount for early payment offered by the Company.
During 1996, 1995 and 1994 the Company recognized approximately $2,531,
$2,975 and $4,015, respectively, of revenues associated with the sale of
natural gas to the Artesia project under a fuel management contract. The
costs associated with the fuel transactions amounted to $2,531, $2,975
and $4,015, respectively.
21. Sale of Subsidiaries to NRG
Under the terms of the Plan, NRG purchased the stock of 10 wholly-owned
subsidiaries from the Company for $7,500 on April 30, 1996. The companies
sold (collectively "the Subsidiaries") were O'Brien Biogas I (SKB),
O'Brien Biogas Inc. VI, O'Brien Biogas (Mazzaro) Inc., O'Brien Biogas
(Corona) Inc., O'Brien Biogas Inc. IV, O'Brien Biogas (Hackensack) Inc.,
O'Brien Biogas Inc. III (Atochem), O'Brien Biogas VII, O'Brien Cogen Inc.
II (Artesia) and O'Brien Standby Power Energy, Inc.
F - 24
<PAGE> 65
NRG Generating (U.S.) Inc.
Notes to Consolidated Financial Statements
June 30, 1996
(Dollars in thousands)
The Subsidiaries sold include all of the Company's landfill gas projects
(operating and those in development), the general partner holding a 3%
equity interest in the Artesia Cogeneration partnership and a standby
power project ready for service on December 31, 1995. The fiscal 1996
consolidated statement of operations includes $982 in revenues associated
with the Subsidiaries through April 30, 1996 when sold at their basis.
22. Involuntary Conversion Gain
On December 25, 1992, a fire disabled the Newark cogeneration plant. The
damage to the plant caused by the fire has been repaired. The plant
returned to partial operations in August 1993 and resumed full operation
in October 1993. The Company received $36,000 from its insurance carrier
which covered a substantial majority of the Company's cost of repair and
loss of net profits due to business interruption. Additionally, the
Company recognized an involuntary conversion gain of $6,066 in fiscal
1994.
23. Income Taxes
Income (loss) before income taxes consists of:
<TABLE>
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
United States $ (18,054) $ (38,225) $ (12,657)
Foreign (122) (14) (1,931)
---------- ----------- ----------
$ (18,176) $ (38,239) $ (14,588)
========== =========== ==========
</TABLE>
The income tax provision consists of:
<TABLE>
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
Current income taxes:
Federal $ - $ - $ -
State 792 402 -
Foreign - - -
---------- ----------- ----------
Subtotal 792 402 -
Deferred income taxes:
Federal (493) 912
State (411) 1,366
Foreign - -
---------- ----------- ----------
Subtotal (904) 2,278 1,913
Current benefit of operating loss carryforwards:
Federal - - -
State (351) - -
Foreign - - -
---------- ----------- ----------
Subtotal (351) - -
Total income tax provision $ (463) $ 2,680 $ 1,913
========== =========== ==========
</TABLE>
F - 25
<PAGE> 66
NRG Generating (U.S.) Inc.
Notes to Consolidated Financial Statements
June 30, 1996
(Dollars in thousands)
Deferred income taxes arise from temporary differences between the
tax bases of assets and liabilities and their reported amounts in the
financial statements. A summary of the components of the net deferred
tax assets and liabilities follows:
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Deferred income tax liabilities:
Property, plant & equipment $ (18,109) $ (20,022)
----------- ----------
Total deferred tax liabilities (18,109) (20,022)
----------- ----------
Deferred income tax assets:
Net operating loss carryforwards 28,219 25,241
Alternative minimum tax credits 84 84
Investment tax credits 1,622 1,622
Miscellaneous 5,521 6,848
Valuation allowance (31,519) (28,859)
----------- ----------
Total deferred tax assets 3,927 4,936
----------- ----------
Net deferred income tax liabilities $ (14,182) $ (15,086)
=========== ==========
</TABLE>
The increase in the valuation allowance from 1995 to 1996 is due
primarily to the uncertainty of being able to realize the benefits
associated with loss carryforwards generated in 1996.
The difference between the provision calculated at the U.S. federal
statutory tax rate and the Company's effective tax rate is reconciled
below:
<TABLE>
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
Income tax (benefit) on the
amount of Federal statutory rate $ (6,180) $ (13,001) $ (4,959)
State income taxes (benefit) 252 (286) 387
Current benefit of state operating
loss carryforwards (232) - -
Operating income tax losses with
no current tax benefit (federal & state) 3,204 2,272 5,759
Other increase (decrease) in valuation allowance (544) 6,233 -
Excess liabilities - 4,000 -
Reorganization costs 2,636 1,712 -
Other 401 1,750 726
--------- ---------- ---------
Total income tax provision (benefit) $ (463) $ 2,680 $ 1,913
========= ========== =========
</TABLE>
At June 30, 1996, the Company has federal net operating loss
carryforwards available to offset future regular taxable income and
investment tax credit carryforwards available to offset future
F - 26
<PAGE> 67
NRG Generating (U.S.) Inc.
Notes to Consolidated Financial Statements
June 30, 1996
(Dollars in thousands)
regular or alternative minimum federal income taxes payable. These
carryforwards expire as follows:
<TABLE>
<CAPTION>
Net Operating Loss Investment Tax
June 30, Carryforwards Credit Carryforwards
-------- ------------- --------------------
<S> <C> <C>
1997 $ - $ -
1998 - 57
1999 - 138
2000 400 255
2001 792 240
2002 2,325 409
2003 3,729 82
2004 1,725 174
2005 5,010 52
2006 13,327 215
2007 4,607 -
2008 15,741 -
2009 11,644 -
2010 6,608 -
2011 8,117 -
--------- --------
$ 74,025 $ 1,622
========= ========
</TABLE>
The Company has $43,393 of state net operating loss carryforwards
available to offset state taxable income. These carryforwards will expire
starting in 1997 and will continue to expire through 2011. The Company
also has unused net operating loss carryforwards for United Kingdom
income tax purposes of approximately $1,711. For United Kingdom tax
purposes these losses can be carried forward and can be used to offset
future taxable income. Based upon the weight of available negative
evidence, it is more likely than not that the deferred tax assets will
not all be realized. Accordingly, the Company has established a partial
valuation allowance against the federal and state loss and tax credit
carryforwards and a full valuation allowance against the United Kingdom
loss carryforwards.
Additionally, a federal alternative minimum tax may be imposed at a 20%
rate on the Company's alternative minimum taxable income which is
determined by making statutory adjustments to the Company's regular
taxable income. For alternative minimum tax purposes, loss carryforwards
may offset only 90% of the Company's alternative minimum taxable income.
The net operating loss carryforwards for alternative minimum tax purposes
are approximately $38,155 at June 30, 1996. In 1992, the Company was
subject to the alternative minimum tax which resulted in an alternative
minimum tax expense of $84. This amount will be allowed as a credit
carryover against future regular income tax expense and is not subject to
expiration.
F - 27
<PAGE> 68
NRG Generating (U.S.) Inc.
Notes to Consolidated Financial Statements
June 30, 1996
(Dollars in thousands)
Under the Plan, approved on January 18, 1996 by the Court, NRG acquired
a 41.86% equity interest in the Company. This acquisition, along with
other shifts in shareholders' stock holdings, amounted to more than a 50%
change in ownership in the Company over a three year period. Under the
general net operating loss and tax credit carryover rules, the utilization
of the losses and tax credits would be limited. However, the Internal
Revenue Code provides an exception to the general rules for loss
corporations that undergo an ownership change by reason of certain
bankruptcy proceedings. The Company believes it qualifies for the
bankruptcy exception and its net operating loss and tax credit
carryforwards are not subject to the change of ownership limitations. The
bankruptcy exception rules also provide that if a subsequent ownership
change should occur within the two years following the bankruptcy
protected change, the benefits of the bankruptcy exception will be lost
and the Company's net operating loss and tax credit carryforwards will be
effectively eliminated.
The increase in the valuation allowance from 1994 to 1995 is due
primarily to the uncertainty of being able to realize the benefits
associated with loss carryforwards and future net deductible temporary
differences generated in 1995 and an increased valuation allowance
against the benefits associated with loss carryforwards generated prior
to 1995.
24. Transactions with Related Parties
PoweRent Limited ("PoweRent") is 50% owned by the Company and 50% by an
officer of a wholly-owned subsidiary. Amounts receivable from or payable
to related parties are noninterest bearing and are classified as current,
as settlement is expected to occur within one year.
A summary of activity with related parties is as follows:
(1) NRG provided the Company with a total of $128,078 in loans during
1996 in addition to funding a capital contribution of $21,178.
Interest expense includes $1,098 attributable to the loans. Selling,
general and administrative expenses include $129 for reimbursement of
services provided by NRG to the Company in fiscal 1996 under the terms
of a management services agreement.
(2) The Company leased office space until May 10, 1996 from Pennsport
Partnership, a Pennsylvania partnership in which the former
Chief Executive Officer and former Principal Stockholder ("FCEO") of
the Company has a 50% ownership interest. Rental expense for 1996,
1995 and 1994 was $152, $242 and $289, respectively. The Company also
leases office space from Christiana River Holdings, Ltd., an entity
owned by the FCEO. Rental expense was $150 for each fiscal 1996, 1995
and 1994.
F - 28
<PAGE> 69
NRG Generating (U.S.) Inc.
Notes to Consolidated Financial Statements
June 30, 1996
(Dollars in thousands)
(3) In 1996, the Company recognized $1,039 of revenue by selling
equipment and related services to PoweRent. The cost of the
equipment and related service was $940.
(4) The Company was charged commissions by O'Brien Power Systems,
Inc. of $647 in fiscal 1994 in connection with equipment sales
and services provided to third parties.
(5) In September 1993, O.B. Power Plant Limited, a wholly-owned (U.K.
subsidiary), ("Puma"), purchased its executive offices and its
principal facility located in Ash, Canterbury, Kent, United Kingdom
from III Enterprises Limited, an entity owned by the FCEO of the
Company for approximately $800. The Company estimated a fair value of
these facilities at approximately $1,100. However, predecessor cost of
$498 was used to capitalize the assets purchased and the excess of the
purchase price over III Enterprises Limited's historical net book
value was reflected as an increase in the accumulated deficit. Prior
to September 1993, Puma leased the facility from III Enterprises
Limited with rental expense amounting to $66 in fiscal 1994.
(6) At June 30, 1995, the Company had notes receivable totaling $238 from
a former officer of the Company. The notes were unsecured with
interest at 8.25% per annum. At June 30, 1995, the Company established
a reserve for the notes and accrued interest to reflect a court
approved stipulation agreement between the Official Committee of
Unsecured Creditors ("the Committee") and the former officer whereby,
in consideration of the notes, the former officer agreed to withdraw
his claim against the Company and assist the Committee with its
prosecution of objections to certain identified disputed claims in the
bankruptcy proceedings.
(7) Wexford was issued 49,574 shares of NRGG 13.5% cumulative Series A
preferred stock on April 30, 1996 in satisfaction of $4,957 in
prepetition liabilities approved by the Court as allowed claims. In
May 1996, the Company reacquired the preferred shares for $4,957 and
paid $57 in dividends. Additionally, the Company paid Wexford a $200
administrative fee approved by the Court. Wexford has been designated
as the exclusive liquidator of the Company's Liquidating Assets (see
Note 1).
In addition, the Company has had transactions with projects structured as
partnerships in which the Company had or retains a general partnership
interest (see Note 8).
F - 29
<PAGE> 70
NRG Generating (U.S.) Inc.
Notes to Consolidated Financial Statements
June 30, 1996
(Dollars in thousands)
25. Segment Information and Major Customers
The Company operates principally in two industry segments: the
development and ownership of cogeneration, standby/peak shaving projects
and until April 30, 1996, the biogas projects (energy) and the selling
and renting of power generation, cogeneration and standby/peak shaving
equipment and services (equipment sales, rental and services).
Information with respect to the segments of the business is as follows:
<TABLE>
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
Revenues:
Energy $ 69,308 $ 80,246 $ 76,913
Equipment sales, rental and services 27,239 22,001 29,676
---------- ---------- -----------
$ 96,547 $ 102,247 $ 106,589
========== ========== ===========
Identifiable assets:
Energy $ 142,390 $ 164,243 $ 180,329
Equipment, sales, rental and services 21,342 22,866 47,329
Corporate assets 14,430 2,639 10,158
---------- ---------- -----------
$ 178,162 $ 189,748 $ 237,816
========== ========== ===========
Operating income (loss):
Energy $ 16,785 $ 19,642 $ 10,280
Equipment sales, rental and services (754) (20,265) (4,874)
General corporate expenses (4,029) (11,254) (8,921)
---------- ---------- -----------
$ 12,002 $ (11,877) $ (3,515)
========== ========== ===========
Depreciation and amortization expense:
Energy $ 7,123 $ 7,259 $ 7,345
Equipment sales, rental and services 756 1,494 2,171
Not allocable 82 250 1,486
---------- ---------- -----------
$ 7,961 $ 9,003 $ 11,002
========== ========== ===========
</TABLE>
Revenue by segment consists of sales to unaffiliated customers;
intersegment sales are not significant. For the purpose of this
presentation, development and other fees are considered revenues of the
energy segment.
Identifiable assets by segment are those assets that are used in the
operations of each segment. Corporate assets are those not used in the
operations of a specific segment and consist primarily of cash, notes
receivable and deferred financing costs. Investments in limited
partnerships are included in the identifiable assets of the energy
segment.
Selling, general and administrative expenses have been allocated to the
individual segments on the basis of segment revenues and geographical
location.
F - 30
<PAGE> 71
NRG Generating (U.S.) Inc.
Notes to Consolidated Financial Statements
June 30, 1996
(Dollars in thousands)
Information with respect to the Company's geographical areas of business
is as follows:
<TABLE>
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
Revenues:
United States $ 82,917 $ 89,332 $ 93,090
United Kingdom 13,630 12,915 13,499
---------- ---------- -----------
$ 96,547 $ 102,247 $ 106,589
========== ========== ===========
Net income (loss):
United States $ (17,591) $ (40,905) $ (14,570)
United Kingdom (122) (14) (1,931)
---------- ---------- -----------
$ (17,713) $ (40,919) $ (16,501)
========== ========== ===========
Identifiable assets:
United States $ 169,657 $ 179,793 $ 230,343
United Kingdom 8,505 9,955 7,473
---------- ---------- -----------
$ 178,162 $ 189,748 $ 237,816
========== ========== ===========
</TABLE>
Revenues from one energy customer accounted for 62%, 65% and 53% of 1996,
1995 and 1994 revenues, respectively.
26. Operating Leases
The Company leases equipment and primarily conducts its operations in
leased facilities which expire on various dates through the year 2000.
Under the terms of most of the lease agreements, the Company is required
to pay taxes, insurance, maintenance and other operating costs of the
facilities. The total minimum annual lease payments under non-cancelable
operating lease agreements are as follows:
<TABLE>
<CAPTION>
Year Ending June 30,
<S> <C>
1997 $ 506
1998 435
1999 368
2000 291
2001 60
Thereafter -
--------
$ 1,660
========
</TABLE>
Total rental expense under various operating leases was approximately
$804, $1,300, and $1,308 in 1996, 1995 and 1994, respectively.
F - 31
<PAGE> 72
NRG Generating (U.S.) Inc.
Notes to Consolidated Financial Statements
June 30, 1996
(Dollars in thousands)
27. Statements of Cash Flows
Supplemental disclosure of cash flow information:
<TABLE>
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
Interest paid during the year, net of amounts
capitalized $ 18,926 $ 11,869 $ 13,027
</TABLE>
Supplemental schedule of noncash investing and financing activities:
<TABLE>
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
Transfer of project development costs to property,
plant and equipment $ - $ - $ 176
Reduction of property, plant and equipment
resulting from the settlement of litigation - - 2,400
Notes receivable in connection with the
sale of projects - (3,121) 3,121
</TABLE>
28. Litigation
Hawker Siddeley
The Company was involved in litigation with Hawker Siddeley Power
Engineering, Inc. ("Hawker"), the turnkey contractor for the Parlin (the
"Parlin Action") and former Salinas projects (the "Salinas Action"). In
the aggregate, Hawker's lawsuits, as amended, sought compensatory damages
of $15,000 and $3,000 from the Parlin and former Salinas Projects,
respectively. In May 1994, Parlin, O'Brien Cogeneration Inc. II,
wholly-owned subsidiaries, and NRG Generating (U.S.) Inc. entered into a
settlement agreement with Hawker Siddeley, Power Engineering, Inc., the
("Hawker Settlement Agreement"), other than a $1,500 Promissory Note
issued by the Company to Hawker Siddeley, no money was exchanged and
O'Brien (Parlin) Cogeneration, Inc. was not obligated to pay the $5,100
contract price withheld and all parties dismissed their claims related to
the Parlin Action. Pursuant to the Hawker Settlement Agreement, the
Salinas Action, prior to being dismissed, required that the first payment
under the Promissory Note be paid by October 6, 1994.
The Promissory Note became subject to the bankruptcy proceedings on
September 28, 1994 and was subsequently paid with post-petition interest
on April 30, 1996.
Newark Fire Deaths
During September 1993 to November 1993, three actions were filed against
Newark by survivors of three employees of the independent operator of the
Newark Cogeneration facility who were killed as the result of a fire
which occurred at the facility in December 1992. All three actions were
settled and covered in full by the Company's insurance carrier.
F - 32
<PAGE> 73
NRG Generating (U.S.) Inc.
Notes to Consolidated Financial Statements
June 30, 1996
(Dollars in thousands)
Other Proceedings
On July 27, 1994, an alleged stockholder of the Company filed suit
seeking money damages in an amount allegedly sustained by the
stockholder. On September 15, 1994, two alleged debenture holders filed
suit seeking money damages in an amount allegedly sustained by debenture
holders who purchased debentures from September 28, 1992 through April
12, 1994. The complaints name as defendants NRGG and certain of its
former officers and former directors. The complaints allege that NRGG and
the other defendants violated the Securities Exchange Act of 1934 and
disseminated or were responsible for the disseminating of a series of
false and misleading statements concerning the Company's business,
results of operations and future prospects. The Court, by its
confirmation order dated February 13, 1996, limited the rights of these
claimants against the reorganized Company to the extent of any recoveries
available to the Company under the insurance policies providing any
insurance coverage in respect to such claims.
The reorganized Company is continuing its dispute of certain prepetition
claims as well as certain administrative priority claims filed with the
Court. Although the Company cannot give definitive assurance regarding
the ultimate resolution of the various claims described above, the
Company does not presently believe the matters described above or the
resolution thereof will have a material adverse impact on the Company's
financial statements.
29. Disclosures about Fair Value of Financial Instruments
The following disclosures of the estimated fair value of financial
instruments have been determined based on the Company's assessment of
available market information and appropriate valuation methodologies.
<TABLE>
<CAPTION>
Carrying Fair
June 30, 1996 Amount Value
<S> <C> <C>
Assets:
Cash and cash equivalents(1) $ 5,022 $ 5,022
Restricted cash and cash equivalents(1) 8,719 8,719
Accounts receivable(1) 11,627 11,627
Receivable from related parties(1) 461 461
Notes receivable(1) 1,115 1,115
Liabilities:
Accounts payable(1) 8,708 8,708
Short-term borrowings(1) 1,793 1,793
Recourse long-term debt(1) 73,904 73,904
Prepetition liabilities(2) 1,735 1,735
Loans due NRG Energy, Inc. 101,679 101,679
</TABLE>
(1) The carrying amount of these items are a reasonable estimate of
their value as of June 30, 1996.
F - 33
<PAGE> 74
NRG Generating (U.S.) Inc.
Notes to Consolidated Financial Statements
June 30, 1996
(Dollars in thousands)
(2) Prepetition liabilities are stated at the value of the amount expected
to be approved by the Court as allowed claims. Under the NRG
Plan primarily all allowed claims will be paid in full, along with
post-petition interest.
Fair value estimates are made at a specific point in time, based on
relevant market information about the financial instruments. These
estimates are subjective in nature, involve uncertainties and are matters
of significant judgment and therefore cannot be determined with
precision. Changes in assumptions could significantly affect the
estimates.
30. Minority Interest
On November 12, 1993, the Company sold the capital stock of O'Brien
(Philadelphia) Cogeneration, Inc. ("OPC") and Philadelphia BioGas Supply,
Inc. ("PBG"), wholly-owned subsidiaries, and issued 5.5 million warrants
for Class A common stock to entities controlled by an unrelated private
investor for $5,000 in cash. The warrants were exercisable at prices
ranging from $4.00 to $6.00 per share and assigned a value of $1,300
which was reflected in additional paid-in capital. The primary assets of
OPC and PBG consist of a 20-year energy service agreement and a digester
gas supply agreement with the Philadelphia Municipal Authority.
On August 5, 1994, the Company exercised its option to repurchase 83% of
OPC and PBG for $5,000. The Company continued to own and rent to OPC and
PBG the facilities and all related generation and associated equipment to
the project during the period the project was owned by the unrelated
private investor and accordingly recognized rental revenues of
approximately $254 and $2,187 in fiscal 1995 and 1994, respectively.
Additionally, fiscal 1995 interest expense includes $1,050 paid to the
private investor to extend the Company's reacquisition option period to
August 1994.
The repurchase agreement obligates OPC to distribute quarterly, 17% of
its net earnings, as defined. These distributions totaled $227 and $209
in fiscal 1996 and 1995, respectively, and are recorded as interest
expense in the consolidated statement of operations. The 17% minority
interest retained by the private investor is represented by 100 shares of
OPC series A preferred stock, $.01 par value and redeemable by the
Company at its option for a price, as defined, equal to 17% of the
present value of the projected income stream of the project as set forth
in the repurchase agreement. The private investor can also obligate the
Company, upon certain events of default, to repurchase all, but not less
than all, of the outstanding preferred stock at 60% of the Company's
redemption price. The Company's redemption price at June 30, 1996 was
approximately $2,105. There are no events of default.
The Company's Class A common stock warrants issued to the private
investor were terminated on the April 30, 1996 closing date under the
terms of the Plan.
F - 34
<PAGE> 75
NRG Generating (U.S.) Inc.
Notes to Consolidated Financial Statements
June 30, 1996
(Dollars in thousands)
31. Subsequent Events
New Project Financing
On May 17, 1996, the Company entered into a Credit Agreement with a new
lender. The Credit Agreement established provisions for a $155,000,
fifteen year loan and a $5,000, five year debt service reserve line of
credit. The interest rate on the outstanding principal is variable based
on, at the Company's option, either LIBOR plus a 1.125% margin or a
defined base rate plus a .375% margin, in either case with nominal margin
increases in the sixth and eleventh year. Concurrently with the Credit
Agreement, the Company entered into an interest rate swap agreement with
respect to 50% of the principal amount outstanding under the Credit
Agreement, which fixes the interest rate on such portion of the
outstanding principal at 6.9% plus the margin. On July 11, 1996, the New
Agreement became a joint and several liability of both the Newark and
Parlin projects.
On May 23, 1996, Newark borrowed $60,000 in the form of a temporary
six-month term loan under the terms of the Credit Agreement. Also
effective May 23, 1996, NRG guaranteed payment of pre-existing
liabilities of Newark and Parlin up to $5,000 which will be reduced as
certain defined milestones are reached and will be eliminated no later
than May 23, 2001. The proceeds were used, among other things, to repay
the Newark nonrecourse project financing and the DIP financing, redeem
the Wexford preferred stock, and to reduce the NRG-New Loans.
On July 11, 1996, an additional $95,000 was borrowed pursuant to the
Credit Agreement and combined with Newark's six month term loan which was
converted into a $155,000 15 year amortizing term loan under the terms of
the Credit Agreement. Proceeds of this borrowing were used to repay
$53,388 advanced by NRG on June 28, 1996 for Parlin's nonrecourse debt
refinancing, $33,904 was repaid on the NRG-New Loans and the balance was
used for various obligations of NRGG as well as funding certain required
restricted cash reserve accounts at Parlin and Newark under the terms of
the Credit Agreement. Also effective July 11, 1996, NRGG guaranteed
repayment of up to $25,000 of the term loan and that payment of all
income and franchise taxes of Parlin and Newark would be paid when due.
NRG is required to maintain an investment of not less than $29,000 in the
Company during the term of the Credit Agreement. Collateral for the term
loan includes a perfected first security interest on all assets of Newark
and Parlin and a pledge of all capital stock of both Newark and Parlin.
F - 35
<PAGE> 76
INDEPENDENT ACCOUNTANTS REPORT
The Board of Directors and Stockholders
NRG Generating (U.S.) Inc.
We have audited the accompanying consolidated statement of operations, of
stockholders' equity and of cash flows of NRG Generating (U.S.) Inc. and
subsidiaries ("Company") (formerly known as O'Brien Environmental Energy, Inc.)
for the year ended June 30, 1994. 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.
We conducted our audit in accordance with generally accepted auditing
standards. 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.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated stockholders' equity of NRG
Generating (U.S.) Inc. and subsidiaries as of June 30, 1994 and the
consolidated results of their operations, changes in their stockholders' equity
and their cash flows for the year ended June 30,1994 in conformity with
generally accepted accounting principles.
As discussed in Note 28 to the consolidated financial statements, the Company
is a defendant in several lawsuits. The ultimate outcome of the litigations
cannot presently be determined. Accordingly, no provisions for any liabilities
that may result has been made in the accompanying consolidated statements for
the year ended June 30, 1994.
The accompanying consolidated statement of operations, of stockholders' equity,
and of cash flows for the year ended June 30, 1994 have been prepared assuming
that the Company will continue as a going concern. As discussed in Note 1 to
the consolidated financial statements, the Company has experienced significant
operating problems and setbacks which have contributed to its losses and
liquidity problems. Further, O'Brien Environmental Energy, Inc. filed a
voluntary petition for reorganization under Chapter 11 of the Federal
Bankruptcy Code in the United States Bankruptcy Court on September 28, 1994.
These events and circumstances, including the Company's highly leveraged
capital structure, raise substantial doubt about its ability to continue as a
going concern. Management's plans in regard to these matters are described in
Note 1 to the consolidated financial statements. The consolidated statement of
operations, of stockholders' equity, and of cash flows for the year ended June
30, 1994 do not include any adjustments that might result from the outcome of
this uncertainty.
COOPERS & LYBRAND L.L.P.
2400 Eleven Penn Center
Philadelphia, Pennsylvania
October 7, 1994
F - 36
<PAGE> 77
INDEX TO EXHIBITS
EXHIBIT NO. DESCRIPTION
- ----------- ------------
2.1 Amended and Restated Stock Purchase and Reorganization
Agreement (including, without limitation, Exhibit A (Co-Investment
Agreement between NRG Energy, Inc. and the Company dated April 30,
1996); Exhibit B (Chapter 11 Financing Agreement between NRG
Energy, Inc. and the Company dated August 30, 1996); Exhibit C
(Liquidating Asset Management Agreement between NRG Generating
(U.S.), Inc. and Wexford Management Corp. dated April 30, 1996)
and Exhibit D (Management Services Agreement) dated as of January
31, 1996, by and between NRG Energy, Inc. and O'Brien
Environmental Energy, Inc.) filed as Exhibit 10.1 to the Company's
Current Report on Form 8-K dated February 13, 1996 and
incorporated herein by this reference.
2.2 Order Confirming Composite Fourth Amended and Restated Plan of
Reorganization for O'Brien Proposed by O'Brien, the Official
Committee of Equity Security Holders, Wexford Management Corp.,
and NRG Energy, Inc. dated February 13, 1996 and entered on
February 22, 1996, and filed as Exhibit 2.1 to the Company's
Current Report on Form 8-K dated February 13, 1996 and
incorporated herein by this reference.
2.3 Composite Fourth Amended and Restated Plan of Reorganization for
O'Brien Environmental Energy, Inc., dated January 31, 1996,
proposed by O'Brien Environmental Energy, Inc. the Official
Committee of Equity Security Holders, Wexford Management Corp.,
and NRG Energy, Inc., and filed as Exhibit 2.2 to the Company's
Current Report on Form 8-K dated February 13, 1996 and
incorporated herein by this reference.
3.1 Amended and Restated Certificate of Incorporation of the
Company filed as Exhibit 3.1 to the Company's Current Report on
Form 8-K dated April 30, 1996 and incorporated herein by this
reference.
3.2 Bylaws of the Company filed as Exhibit 3.2 to the Company's
Current Report on Form 8-K dated April 30, 1996 and incorporated
herein by this reference.
3.3 Preferred Stock Certificate of Designation of the Company filed as
Exhibit 3.3 to the Company's Current Report on Form 8-K dated
April 30, 1996 and incorporated herein by this reference.
10.1* Amended and Restated Stock Purchase Agreement and Reorganization
Agreement, dated as of January 31, 1996, by and between NRG
Energy, Inc. and O'Brien Environmental Energy, Inc.
10.2 Supplemental Loan Agreement dated April 30, 1996, between NRG
Energy, Inc. and the Company filed as Exhibit 10.2 to the
Company's Current Report on Form 8-K dated February 13, 1996 and
incorporated herein by this reference.
<PAGE> 78
10.3 Loan Agreement dated April 30, 1996, between NRG Energy, Inc. and
the Company filed as Exhibit 10.3 to the Company's Current Report
on Form 8-K dated February 13, 1996 and incorporated herein by
this reference.
10.4 NRG Newark Cogen Loan Agreement dated April 30, 1996, between NRG
Energy, Inc. and the Company, and filed as Exhibit 10.4 to the
Company's Current Report on Form 8-K dated February 13, 1996 and
incorporated herein by reference.
10.5* Credit Agreement by and among NRG Generating (Newark) Cogeneration
Inc. and NRG Generating (Parlin) Cogeneration Inc., Credit Suisse,
Greenwich Funding Corporation and any Purchasing lender, as
Lender, and Credit Suisse, as Agent, dated as of May 17, 1996.
10.6* Guaranty dated as of May 17, 1996 by NRG Energy, Inc., as
Guarantor, to Credit Suisse, as Agent for the benefit of Credit
Suisse, Greenwich Funding Corporation and any Purchasing lender,
as Lenders under the Credit Agreement.
10.7* Guaranty dated as of June 28, 1996 by NRG Generating (U.S.) Inc.,
as Guarantor, to Credit Suisse, as Agent for the benefit of Credit
Suisse, Greenwich Funding Corporation and any Purchasing lender,
as Lenders under the Credit Agreement.
10.8* Tax Indemnification Agreement among NRG Generating (Newark)
Cogeneration Inc., NRG Generating (Parlin) Cogeneration Inc., NRG
Generating (U.S.) Inc. and Credit Suisse, as Agent.
21 List of Subsidiaries of the Registrant
23.1 Consent of Price Waterhouse LLP
23.2 Consent of Coopers & Lybrand LLP
* To be filed by amendment.
<PAGE> 1
EXHIBIT 21
LIST OF SUBSIDIARIES OF REGISTRANT
<TABLE>
<S> <C>
Name of Subsidiary State or Other Jurisdiction
of Incorporation
----------------------------------------- ----------------
O'Brien Energy Services Company Delaware
O'Brien Thermal Technologies Delaware
O'Brien Parlin Supply Corporation Delaware
O'Brien Newark Supply Corporation Delaware
NRGG (Newark) Cogeneration, Inc. Delaware
NRGG (Parlin) Cogeneration, Inc. Delaware
SDN Power, Inc. Delaware
NRGG (Asia), Inc. Delaware
Power Service Company Delaware
O'Brien (Philadelphia) Cogeneration, Inc. Delaware
O'Brien Fuels, Inc. Delaware
O'Brien Mobile Power Rental Company Delaware
O'Brien Power Equipment, Inc. Texas
American Thermotech, Inc. Delaware
American Hydrotherm Corp. New York
Burr Controls, Inc. New York
O.B. Power Plant, Ltd. United Kingdom
Puma Manufacturing Ltd. United Kingdom
Puma Export Finance, Ltd. United Kingdom
Puma Freight Forwarding Ltd. United Kingdom
Puma Far East Ltd. United Kingdom
Enercol Energy Systems, Ltd. United Kingdom
O'Brien Energy Europe United Kingdom
</TABLE>
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statements on Form S-8 (No. 33-15786, No. 33-25316, and No. 33-50784) of NRG
Generating (U.S.) Inc. (formerly known as O'Brien Environmental Energy, Inc.)
of our report dated October 21, 1996 appearing in this Form 10-K.
Price Waterhouse LLP
Minneapolis, Minnesota
October 24, 1996
<PAGE> 1
EXHIBIT 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statements on Form S-8 (No. 33-15786, No. 33-25316, and No. 33-50784) of NRG
Generating (U.S.) Inc. (formerly known as O'Brien Environmental Energy, Inc.)
of our report dated October 7, 1994, appearing in this Form 10-K.
Coopers & Lybrand L.L.P.
Philadelphia, Pennsylvania
October 24, 1996
