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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark one)
X QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1996
OR
_ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM TO
Commission File Number 1-9208
NRG Generating (U.S.) Inc.
(Exact name of Registrant as Specified in Charter)
Delaware 59-2076187
(State or other jurisdiction (I.R.S. Employer
of incorporation) Identification No.)
___________
1221 Nicollet Mall, Suite 610
Minneapolis, Minnesota 55403
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (612) 373-5300
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 (or for such shorter
period that the registrant was required to file such reports), and
(2) has been subject to such filing requirements for the past 90
days. Yes X No
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS
DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all
documents and reports required to be filed by Sections 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
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's
classes of common stock as of the latest practicable date: 6,440,762
shares of Common Stock, $0.01 par value per share, as of November 11,
1996.
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NRG GENERATING (U.S.) INC.
FORM 10-Q
September 30, 1996
INDEX
Page
Part I - Financial Information:
Item 1. Financial Statements 2
Consolidated Statements of Operations -
Three months ended September 30, 1996 and September 30, 1995 2
Consolidated Balance Sheets -
September 30, 1996 and June 30, 1996 3
Consolidated Statements of Cash Flows -
Three months ended September 30, 1996 and September 30, 1995 4
Notes to Consolidated Financial Statements 5
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 7
Part II - Other Information
Item 1. Legal Proceedings 13
Item 6. Exhibits and Reports on Form 8-K 13
Signature 14
Exhibit Index 15
1
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PART 1
FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
NRG GENERATING (U.S.) INC.
CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
(Dollars in thousands, except per share data)
<TABLE>
<CAPTION>
Three Months Ended
September 30, September 30,
1996 1995
<S> <C> <C>
REVENUES:
Energy......................................... $ 11,564 $ 19,776
Equipment, sales and services.................. 6,552 5,701
Rental......................................... 596 509
Development fees and other..................... 997 837
Total revenues............................... 19,709 26,823
COST OF SALES:
Energy......................................... 4,155 9,886
Equipment, sales and services.................. 5,222 5,072
Rental......................................... 462 337
Development fees and other..................... 981 777
Total cost of sales.......................... 10,820 16,072
Gross profit................................. 8,889 10,751
Selling, general and
administrative expenses....................... 2,281 2,391
Income from operations....................... 6,608 8,360
Interest and other income...................... 167 333
Reorganization costs........................... - (1,176)
Interest and debt expense...................... (3,374) (4,648)
Earnings before income taxes................. 3,401 2,869
PROVISION FOR INCOME TAXES...................... 238 298
Income before extraordinary item............. 3,163 2,571
Extraordinary item, net of income taxes......... 1,643 -
Net income................................... $ 4,806 $ 2,571
Net income per share............................ $ 0.75 $ 0.69
Weighted average shares outstanding............. 6,422 3,712
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
2
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NRG GENERATING (U.S.) INC.
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except share data)
<TABLE>
<CAPTION>
ASSETS
September 30, June 30,
1996 1996
(Unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents.................................... $ 10,517 $ 5,022
Restricted cash and cash equivalents......................... 7,904 8,719
Accounts receivable, net..................................... 14,315 11,627
Receivables from related parties............................. 239 461
Notes receivable, current.................................... 1,033 1,029
Inventories.................................................. 2,003 2,995
Other current assets......................................... 1,874 1,721
Total current assets....................................... 37,885 31,574
Property, plant and equipment, net............................. 132,715 134,694
Equipment held for sale........................................ 2,678 2,678
Project development costs...................................... 253 253
Notes receivable, noncurrent................................... 83 86
Investments in equity affiliates............................... 3,491 3,449
Deferred financing costs, net.................................. 5,633 4,630
Other noncurrent assets........................................ 959 798
Total assets............................................... $ 183,697 $ 178,162
</TABLE>
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
<S> <C> <C>
Current liabilities:
Accounts payable............................................. $ 7,910 $ 8,708
Current portion of loans due NRG Energy, Inc................. - 4,750
Current portion of recourse long-term debt................... 10,966 7,115
Accrued interest payable..................................... 5,102 5,895
Prepetition liabilities...................................... 1,735 1,735
Short-term borrowings........................................ 2,458 1,793
Other current liabilities.................................... 7,189 7,789
Total current liabilities.................................. 35,360 37,785
Loans due NRG Energy, Inc., net of current portion............. 14,388 96,929
Recourse long-term debt, net of current portion................ 152,338 66,789
Deferred income taxes.......................................... 14,128 14,182
Other noncurrent liabilities................................... 50 50
Total liabilities.......................................... 216,264 215,735
Stockholders' equity:
Preferred stock, par value $.01 per share, authorized
20,000,000 shares; none issued and outstanding............. - -
Common stock, par value $.01 per share, authorized
50,000,000 shares; issued 6,474,814 shares, and
outstanding 6,422,014 shares as of September 30, 1996
and June 30, 1996, respectively............................ 64 64
Additional paid-in capital................................... 62,515 62,515
Accumulated deficit.......................................... (94,561) (99,367)
Other........................................................ (585) (785)
Total stockholders' equity (deficit)....................... (32,567) (37,573)
Total liabilities and stockholders' equity (deficit)....... $ 183,697 $ 178,162
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
3
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NRG GENERATING (U.S.) INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(Dollars in thousands)
<TABLE>
<CAPTION>
Three Months Ended
September 30, September 30,
1996 1995
<S> <C> <C>
Cash Flows from Operating Activities:
Net income..................................................... $ 4,806 $ 2,571
Adjustments to reconcile net income to net
cash provided by operating activities:
Extraordinary item........................................... (1,643) -
Depreciation and amortization................................ 2,019 1,897
Amortization of debt discount and deferred financing costs... 142 109
Deferred tax (benefit) expense............................... (54) 226
Other, net................................................... (822) (635)
Changes in operating assets and liabilities:
Accounts receivable, net................................... (2,688) (4,958)
Inventories................................................ 992 (20)
Receivables from related parties........................... 222 (426)
Notes receivable, net...................................... (1) 6
Accounts payable........................................... (922) (2,089)
Accrued interest payable................................... (679) 4,056
Net cash provided by operating activities................ 1,372 737
Cash Flows from Investing Activities:
Capital expenditures........................................... (12) (314)
Withdrawals from restricted cash accounts, net................. 815 1,436
Other, net..................................................... - (361)
Net cash provided by investing activities................ 803 761
Cash Flows from Financing Activities:
Proceeds from long-term debt................................... 95,000 -
Repayments of NRG Energy, Inc. loans........................... (87,291) -
Repayments of recourse long-term debt.......................... (3,925) (2,443)
Net proceeds of short-term borrowings.......................... 665 527
Deferred financing costs....................................... (1,129) -
Net cash provided by (used in) financing activities...... 3,320 (1,916)
Net increase (decrease) in cash and cash equivalents............ 5,495 (418)
Cash and cash equivalents, beginning of period.................. 5,022 4,083
Cash and cash equivalents, end of period........................ $ 10,517 $ 3,665
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
4
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NRG GENERATING (U.S.) INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
SEPTEMBER 30, 1996
(Dollars in thousands)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NRG Generating (U.S.) Inc. and its subsidiaries (the "Company" or
"NRGG"), formerly known as O'Brien Environmental Energy, Inc. ("OEE"),
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,
through its subsidiaries, sells and rents power generation, cogeneration
and standby/peak shaving equipment and services.
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 periods ending on June 30 are included in the consolidated
financial statements. If events occurred between June 30 and September
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.
The accompanying unaudited consolidated financial statements and
notes should be read in conjunction with the Company's Report on Form
10-K for the year ended June 30, 1996. In the opinion of management, the
consolidated financial statements reflect all adjustments necessary for
a fair presentation of the interim periods presented. Results of
operations for an interim period may not give a true indication of
results for the year.
Net Income Per Share
Net income per share is calculated by dividing net income by the
weighted average shares of common stock and common stock equivalents
outstanding. Fully diluted net income per share is not presented
because conversion of any common stock equivalents does not have a
material dilutive effect on reported net income per share. Net income
per share has been restated for all periods presented to reflect the new
common shares issued on April 30, 1996 pursuant to the terms of the plan
of reorganization (the "Plan") approved on January 18, 1996 by the U.S.
Bankruptcy Court for the District of New Jersey.
2. RECOURSE LONG-TERM DEBT
On May 17, 1996, the Company's wholly-owned subsidiaries, NRG
Generating (Newark) Cogeneration, Inc. ("Newark") and NRG Generating
(Parlin) Cogeneration, Inc. ("Parlin") entered into a Credit Agreement
(the "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 Newark and Parlin's
option, LIBOR plus a 1.125% margin or a defined base rate plus a 0.375%
margin. Nominal margin increases for both the LIBOR and the defined
base rate will occur in year six and eleven. Concurrent with the Credit
Agreement, Newark and Parlin entered into an interest rate swap
agreement with respect to
5
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
SEPTEMBER 30, 1996
(Dollars in thousands)
2. RECOURSE LONG-TERM DEBT (Continued)
50% of the principal amount outstanding under the Credit Agreement.
This interest rate swap agreement fixes the interest rate on 50% of
the principal amount outstanding at 6.9% plus the margin. On July 11,
1996, all borrowings under the Credit Agreement became a joint and
several liability of Newark and Parlin. 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. The proceeds were used primarily to
repay certain preexisting obligations of the Company. Also effective
May 23, 1996, NRG Energy, Inc. ("NRG Energy") guaranteed payment of pre-
existing liabilities of Newark and Parlin up to $5,000. The guarantee
amount of $5,000 will be reduced as certain defined milestones are
reached and eliminated no later than May 23, 2001.
On July 11, 1996, an additional $95,000 was borrowed pursuant to the
Credit Agreement and combined with Newark's six-month term loan and
converted to a $155,000 fifteen-year term loan (the "Term Loan"). The
Term Loan will be amortized as specified under the terms of the Credit
Agreement. Proceeds of the $95,000 borrowing were used to repay $53,388
advanced by NRG Energy on June 28, 1996 in connection with the
refinancing of certain nonrecourse debt of Parlin and $33,903 of
outstanding indebtedness to NRG Energy. The remaining balance was used
for various obligations of the Company as well as funding certain
restricted cash reserve accounts required to be maintained by Newark and
Parlin under the terms of the Credit Agreement. Also, effective
July 11, 1996, the Company guaranteed repayment of up to $25,000 of the
Term Loan and payment of all income and franchise taxes of Newark and
Parlin as they come 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 Newark and Parlin.
3. LOANS DUE NRG ENERGY, INC.
Of the $95,000 received on July 11, 1996 under the Credit Agreement,
the Company used $87,291 to repay loans due to NRG Energy. The
September 30, 1996 loan balance of $14,388 due to NRG Energy has a
maturity date of April 30, 2001.
4. EXTRAORDINARY ITEM
During the quarter ended September 30, 1996, the Company negotiated
a buyout of a subsidiary's capital lease obligation. The lender agreed
to accept a $1,100 payment in full satisfaction of the lease. The
transaction resulted in an extraordinary gain of $1,643 (net of $124 of
state income taxes).
5. PROVISION FOR INCOME TAXES
No provision for federal income taxes has been recorded since the
Company has net federal operating loss carryforwards which have not been
recognized in prior periods.
6
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Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The information contained in this Item 2 updates, and should be read
in conjunction with, the information set forth in Part II, Item 7, of
the Company's Report on Form 10-K for the year ended June 30, 1996.
Capitalized terms used in this Item 2 which are not defined herein have
the meaning ascribed to such terms in the Notes to the Company's
financial statements included in Part I, Item 1 of this Report. All
dollar amounts set forth in this Item 2 are in thousands.
Overview
NRG Generating (U.S.) Inc. and its subsidiaries, formerly known as
O'Brien Environmental Energy, Inc., 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, through its subsidiaries, 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, approved on January 18, 1996 by the U.S. Bankruptcy Court for
the District of New Jersey, awarded NRG Energy 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.
On April 30, 1996, NRG Energy funded approximately $107,418 in
accordance with the Plan and acquired a 41.86% equity interest in the
Company. All common shares of OEE were canceled and replaced by a new
issue of common stock of NRGG. Net income per share has been restated
for all periods presented to reflect the new common shares issued under
the terms of the Plan.
Additionally, under the terms of the Plan, NRG Energy 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 (those
operating and those in development), the general partner holding a 3%
equity interest in the Artesia Cogeneration partnership and a standby
power project. The Company believes that the sale of these subsidiaries
will not have a material adverse effect on the results from operations
in future years.
The Company currently owns and operates two cogeneration facilities
with an electric generating capacity of 174 megawatts and two
standby/peak shaving facilities with a capacity of 22 megawatts in which
the Company has an 83% interest. On May 1, 1996, Newark and Parlin's
amended Power Purchase Agreements ("PPAs") became effective and the
quarter ended September 30, 1996, is the first full quarter which Parlin
and Newark operated under these PPAs with Jersey Central Power & Light
Company, the primary customer of both projects. Although energy
revenues as well as the cost of energy revenues decreased 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 have been eliminated.
7
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Equipment sales, rentals and services is the Company's demand-side
management business through which the Company provides standby power
equipment and services to customers for a fee. The Company is also a
one-third partner in a 150 megawatt cogeneration facility currently
under construction.
Both the Parlin and Newark Projects were previously certified as
qualifying facilities ("QFs") by the Federal Energy Regulatory
Commission ("FERC") under the Public Utilities Regulatory Policies Act
of 1978. 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 bankruptcy 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.
On November 8, 1996, Power Operations, Inc., a new wholly-owned
subsidiary of the Company, assumed the operations and maintenance of the
Newark facility, replacing Stewart and Stevenson Operations, Inc. The
Company believes that there will be no material financial impact on the
operations of the facility.
Revenues
Energy revenues for the quarters ended September 30, 1996 and 1995
were $11,564 and $19,776, 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 the quarter ended September 30, 1996 as compared to
the same period one year ago was primarily attributable to the amended
PPAs affecting both Newark and Parlin. Additionally, a portion of the
decrease is attributable to the negative impact of unit fuel cost
fluctuations on the energy rate (price per megawatt hour) calculation
under Parlin's previous PPA.
Revenues recognized at Parlin were $5,803 and $10,813 for the
quarters ended September 30, 1996 and 1995, respectively. Parlin
revenues decreased in the quarter ended September 30, 1996 as compared
to the same period one year ago primarily due to the amended PPA.
Additionally, Parlin's fiscal 1996 revenues were affected by a decrease
in the energy rate 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 received during fiscal 1996.
Revenues recognized at the Newark facility were $4,708 and $7,550 for
the quarters ended September 30, 1996 and 1995, respectively. The
decrease in revenues in the quarter ended September 30, 1996 as compared
to the same period one year ago is primarily attributable to the amended
PPA.
8
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Energy revenues from the Company's Philadelphia Water Department
standby facility project for the quarters ended September 30, 1996 and
1995 were $1,053 and $1,024, respectively. Energy revenues from the
Company's landfill gas projects for the quarters ended September 30,
1996 and 1995 were $0 and $389, respectively. On April 30, 1996, the
landfill gas companies were sold to NRG Energy in accordance with the
Plan.
Equipment sales and service revenues for the quarters ended September
30, 1996 and 1995 were $6,552 and $5,701, respectively, which primarily
reflects the operations of the Company's equipment sales and services
operations; O'Brien Energy Services, O.B. Power Plant (UK Holdings)
Limited ("O.B. Power Plant") and American Hydrotherm. The Company
attributes the revenue increase in the quarter ended September 30, 1996
from the comparable quarter one year ago primarily to its O.B. Power
Plant operation.
O'Brien Energy Services equipment sales and services revenues for the
quarters ended September 30, 1996 and 1995 were $922 and $1,243,
respectively. American Hydrotherm revenues for the quarters ended
September 30, 1996 and 1995 were $1,238 and $1,472, respectively.
Equipment sales and services of O.B. Power Plant for the quarters ended
September 30, 1996 and 1995 were $4,392 and $2,986, respectively.
Rental revenues for the quarters ended September 30, 1996 and 1995
were $596 and $509, respectively.
Development fees and other revenues were $997 and $837 for quarters
ended September 30, 1996 and 1995, respectively. The increase in
revenues in the quarter ended September 30, 1996 as compared to the same
period one year ago was attributable primarily to higher gas sales to
the Artesia Cogeneration partnership.
Costs and Expenses
Cost of energy sales for the quarters ended September 30, 1996 and
1995 were $4,155 and $9,886, respectively. The decrease in the cost of
energy for the quarter ended September 30, 1996 as compared to the same
period one year ago was primarily the result of the amended PPAs in
which Jersey Central Power & Light Company began assuming the cost of
fuel for the Newark and Parlin facilities.
Cost of equipment sales and services for the quarters ended September
30, 1996 and 1995 were $5,222 and $5,072, respectively. The
fluctuations in cost of equipment sales and services between the quarter
ended September 30, 1996 as compared to the same period one year ago
primarily correlate to the changes in sales volume at O.B. Power Plant.
Cost of rental sales for the quarters ended September 30, 1996 and
1995 were $462 and $337, respectively. The increase in cost of
equipment rentals relates to the increase in the sales volume.
Cost of development fees and other were $981 and $777 for the
quarters ended September 30, 1996 and 1995, 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.
9
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The Company's gross margins were $8,889 (45% of sales) and $10,751
(40% of sales) for the quarters ended September 30, 1996 and 1995,
respectively. The gross margin increase is primarily attributable to
the Company's energy segment. The gross margin percentage for the
quarter ended September 30, 1995 was lower due to the lagging effect of
how fuel costs were reflected in energy pricing in the prior PPAs.
Selling, General and Administrative Expenses
Selling, general and administrative expenses ("SG&A") for the
quarters ended September 30, 1996 and 1995 were $2,281 and $2,391,
respectively. SG&A expenses benefited in the quarter ended September
30, 1996 as compared to the same period one year ago from lower payroll
and related tax costs as well as reduced insurance expenses, accounting
and technical consulting fees.
Interest and Other Income
Interest and other income for the quarters ended September 30, 1996
and 1995 was $167 and $333, respectively. The decrease in other income
was primarily attributable to a one time gain of $214 in the quarter
ended September 30, 1995 which is offset by an increase in interest
income earned on escrow account balances established in connection with
the recourse financing on the Newark and Parlin facilities.
Reorganization Costs
Reorganization costs represent all costs incurred after filing for
bankruptcy that relate to the Company's reorganization and restructuring
efforts. Reorganization costs for the quarter ended September 30, 1995
were $1,176. These costs consist primarily of professional and
administrative fees and expenses.
Interest and Debt Expense
Interest and debt expense for the quarters ended September 30, 1996
and 1995 were $3,374 and $4,648, respectively. The decline in interest
and debt expense is due primarily to post-petition interest on
prepetition liabilities included in the quarter ended September 30,
1995. In addition, the average interest rate was lower in the quarter
ended September 30, 1996 than in the comparable period one year ago due
to the refinancing of the Newark and Parlin projects.
Extraordinary Income
During the quarter ended September 30, 1996, the Company negotiated
a buyout of a subsidiary's capital lease obligation. The lender agreed
to accept a $1,100 payment in full satisfaction of the lease. The
transaction resulted in an extraordinary gain of $1,643 (net of $124 of
state income taxes).
10
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Net Income Per Share
Net income per share is calculated by dividing net income by the
weighted average shares of common stock and common stock equivalents
outstanding. Fully dilutive net income per share is not presented
because conversion of any common stock equivalents does not have a
material dilutive effect on reported net income per share. Weighted
average shares increased significantly for the quarter ended September
30, 1996 from the quarter ended September 30, 1995 primarily due to the
purchase of 2,710 common shares by NRG Energy on April 30, 1996.
Liquidity and Capital Resources
On April 30, 1996, NRG Energy funded $107,418 in accordance with the
Plan. The Company received $99,918 of which $71,240 was advanced under
the terms of three loan agreements between the Company and NRG Energy;
$21,178 represented the purchase of new common stock of NRGG and $7,500
was designated as the proceeds for the sale of ten wholly-owned
subsidiaries sold to NRG Energy. In addition, NRG Energy transferred
$7,500 directly to the Company's stock transfer agent representing a
cash distribution by NRG Energy to the OEE common stockholders.
In May 1996, the Company's wholly-owned subsidiaries Newark and
Parlin entered into the 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 option of
Newark and Parlin, LIBOR plus a 1.125% margin or a defined base rate
plus a 0.375% margin, with nominal margin increases in the sixth and
eleventh year. Concurrent with the Credit Agreement, Newark and Parlin
entered into an interest rate swap agreement with respect to 50% of the
principal amount outstanding under the Credit Agreement. This interest
rate swap agreement fixes the interest rate on the 50% portion of the
principal amount outstanding at 6.9% plus the margin.
On May 23 1996, Newark borrowed $60,000 in the form of a six-month
term loan under the terms of the Credit Agreement, pending the
availability of the remaining total loan commitment. On July 11, 1996,
the remaining $95,000 loan commitment was borrowed and combined with the
$60,000 into a $155,000, fifteen year new term loan.
The Company used the proceeds of the new term loan to repay certain
preexisting obligations of the Company including $87,291 of indebtedness
to NRG Energy. NRG Energy provided the Company with loans during fiscal
1996 of which $101,679 was outstanding at June 30, 1996. At November
11, 1996, loans of $14,388 remain outstanding to NRG Energy.
NRG Energy has provided additional loan commitments to the Company.
A $10,000 loan agreement negotiated between NRG Energy and NRGG
Schuylkill Cogeneration, Inc. (formerly known as O'Brien (Schuylkill)
Cogeneration, Inc.) ("NSC"), a wholly-owned subsidiary, provides
funding, if needed, for an NSC capital contribution obligation to the
Grays Ferry Partnership. NSC 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 capital contribution from each of the projects'
three partners prior to the commercial operation of the facility, which
is anticipated to occur
11
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by the end of 1997. In addition, there remains $13,615 in available
borrowings under the terms of one of the Plan loan agreements to provide
funding for any bankruptcy obligation shortfalls.
Except for the historical information contained within this
Management's Discussion and Analysis of Financial Condition and Results
of Operations, the accompanying consolidated financial statements, and
the Notes to Consolidated Financial Statements, the matters reflected or
discussed in this quarterly report which relate to the Company's
beliefs, expectations, plans, future estimates and the like are forward-
looking statements that involve risks and uncertainties including but
not limited to: business conditions and growth in the general economy;
volatility in gross margins caused by seasonal factors that can not be
controlled by the Company; competitive factors, such as price pressures;
the success of the Company's business partners; the successful
construction of the Grays Ferry project and other factors discussed
herein and in the sections of the Company's Report on Form 10-K for the
year ended June 30, 1996 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." Such factors may cause the Company's actual results to
differ materially from those discussed herein and in forward-looking
statements herein.
12
<PAGE>
PART II
OTHER INFORMATION
ITEM 1 Legal Proceedings
In the Company's Report on Form 10-K for the year ended June
30, 1996, the Company reported that Calpine Corporation
("Calpine") had filed claims against the Company in relation to
its bankruptcy case, In re: O'Brien Environmental Energy,
Case No. 94-26723, U.S. Bankruptcy Court for the District of
New Jersey, filed September 29, 1994. Calpine, an unsuccessful
bidder for the acquisition of OEE, had filed an application for
allowance of an administrative claim for approximately
$4,500,000 in break-up fees and expenses in the bankruptcy
case. On November 8, 1996, the Court entered an Opinion
denying the claim of Calpine in its entirety. Once an Order
has been entered denying Calpine's request, Calpine will have
ten days to appeal. It is expected that an Order, consistent
with the Opinion, will be entered in the next few days.
ITEM 6 Exhibits and Reports on Form 8-K
(a) Exhibits
The "Index to Exhibits" following the signature page is
incorporated herein by reference.
(b) Reports on Form 8-K
The following Reports on Form 8-K were filed by the registrant
during the fiscal quarter ended September 30, 1996:
1. Current Report on Form 8-K dated August 22, 1996, reporting
information under Item 5.
2. Current Report on Form 8-K dated September 16, 1996,
reporting information under Item 5 and including financial
statements for the fiscal year ended June 30, 1995.
13
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned hereunto duly authorized.
NRG GENERATING (U.S.), INC.
Registrant
Date: November 13, 1996 /s/ Timothy P. Hunstad
Timothy P. Hunstad
Vice President and Chief Financial Officer
(Chief Financial Officer and Chief
Accounting Officer)
14
<PAGE>
INDEX TO EXHIBITS
2.1 Amended and Restated Stock Purchase and Reorganization Agreement
(including, without limitation, Exhibit A (Co-Investment Agreement
between NRG Energy and the Company dated April 30, 1996); Exhibit B
(Chapter 11 Financing Agreement between NRG Energy 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 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.
27 Financial Data Schedule.
15
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND> THIS SCHEDULE CONTAINS SUMMARY FINANCIAL
INFORMATION EXTRACTED FROM THE REGISTRANT'S
FINANCIAL STATEMENTS FOR ITS FISCAL QUARTER ENDED
SEPTEMBER 30, 1996 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS
<CAPTION>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> Dec-31-1996
<PERIOD-END> Sep-30-1996
<CASH> 18,421
<SECURITIES> 0
<RECEIVABLES> 14,315
<ALLOWANCES> 0
<INVENTORY> 2,003
<CURRENT-ASSETS> 37,885
<PP&E> 135,393
<DEPRECIATION> 0
<TOTAL-ASSETS> 183,697
<CURRENT-LIABILITIES> 35,360
<BONDS> 0
<COMMON> 64
0
0
<OTHER-SE> (32,631)
<TOTAL-LIABILITY-AND-EQUITY> 183,697
<SALES> 19,709
<TOTAL-REVENUES> 19,709
<CGS> 10,820
<TOTAL-COSTS> 10,820
<OTHER-EXPENSES> 2,114
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,374
<INCOME-PRETAX> 3,401
<INCOME-TAX> 238
<INCOME-CONTINUING> 3,163
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<EXTRAORDINARY> 1,643
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