<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
------
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): SEPTEMBER 16, 1996
NRG GENERATING (U.S.) INC.
- -------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 1-9208 59-2076187
- ----------------------------- ------------------------ ---------------------
(State or other jurisdiction (Commission File Number) (IRS Employer
of incorporation) Identification Number)
1221 NICOLLET MALL, MINNEAPOLIS, MINNESOTA 55403
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (612) 373-5300
----------------------------
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(Former name or former address, if changed since last report)
<PAGE> 2
ITEM 5. OTHER EVENTS.
On September 28, 1994, the registrant (then named O'Brien Environmental
Energy, Inc.) filed a voluntary petition for reorganization under Chapter 11 of
the United States Bankruptcy Code with the United States Bankruptcy Court for
the District of New Jersey (the "Court"). On April 30, 1996, the registrant
emerged from bankruptcy. The registrant has filed with the Securities and
Exchange Commission under cover of Form 8-K the monthly reports which were
filed with the Court relating to periods during which the registrant was under
the protection of the bankruptcy laws. However, because of the pendency of the
bankruptcy proceeding and the related disruptions to the registrant's business
and organization, it was necessary for the registrant to delay the preparation
of audited financial statements for the fiscal year ended June 30, 1995. Such
financial statements have been prepared and the report thereon of the
registrant's accountants, Price Waterhouse LLP, dated September 16, 1996, has
been issued. This Report on Form 8-K is filed to report such results.
Particularly in light of the completion of the bankruptcy proceeding and
the age of the referenced financial statements, the registrant believes that
the following financial statements are not representative of the current
financial or operational status of the registrant, and that investors should
exercise caution in evaluating such statements. The registrant expects
to complete the preparation of its financial statements for the year ended June
30, 1996, in October 1996 and to file its Report on Form 10-K for the year ended
June 30, 1996, at the earliest practicable date thereafter. Investors are
strongly encouraged to review such Report on Form 10-K in its entirety when it
is available and to evaluate the financial statements filed herewith in the
context of the more complete and current information which will be included in
such filing.
2
<PAGE> 3
O'Brien Environmental Energy, Inc.
Debtor-in-Possession
Index to Consolidated Financial Statements
June 30, 1995
<TABLE>
PAGE
<S> <C>
Report of Independent Accountants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Financial Statements:
Consolidated Balance Sheets as of June 30, 1995 and 1994 . . . . . . . . . . . . . . . . . . . 2
Consolidated Statements of Operations for the Years Ended
June 30, 1995, 1994 and 1993 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Consolidated Statements of Stockholders' Equity (Deficit) for the
Years Ended June 30, 1995, 1994 and 1993 . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Consolidated Statements of Cash Flows for the
Years Ended June 30, 1995, 1994 and 1993 . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . 6 - 41
</TABLE>
<PAGE> 4
[PRICE WATERHOUSE LLP LETTERHEAD]
Report of Independent Accountants
September 16, 1996
To the Stockholders and Board of Directors
of NRG Generating (U.S.) Inc.
In our opinion, the accompanying consolidated balance sheet and the related
consolidated statements of operations, of stockholders' equity and of cash
flows present fairly, in all material respects, the financial position of
O'Brien Environmental Energy, Inc., Debtor-in-Possession, and its subsidiaries
at June 30, 1995, and the results of their operations and their cash flows for
the year 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 audit. We conducted our audit of these statements in accordance with
generally accepted auditing standards which 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,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audit provides a reasonable basis for the opinion expressed
above. The consolidated financial statements of O'Brien Environmental Energy,
Inc., Debtor-in-Possession, for the years ended June 30, 1994 and 1993 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 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.
/s/ Price Waterhouse LLP
4
<PAGE> 5
O'BRIEN ENVIRONMENTAL ENERGY, INC.
DEBTOR-IN-POSSESSION
CONSOLIDATED BALANCE SHEETS
JUNE 30, 1995 AND 1994
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
1995 1994
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 4,083 $ 5,681
Restricted cash and cash equivalents 3,563 4,594
Accounts receivable, net 12,357 12,100
Receivable from related parties 684 633
Notes receivable, current 853 780
Inventories 3,610 3,241
Other current assets 2,176 3,167
----------- ----------
Total current assets 27,326 30,196
Property, plant and equipment, net 151,130 176,514
Equipment held for sale 3,228 8,458
Project development costs 1,080 5,126
Notes receivable, noncurrent 1,078 5,026
Notes receivable from officers - 238
Investments in equity affiliates 3,483 3,175
Excess of cost of investment in subsidiaries over net assets
at date of acquisition, net - 1,987
Deferred financing costs, net 1,530 5,269
Other assets 893 1,827
----------- ----------
$ 189,748 $ 237,816
=========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable $ 9,546 $ 18,358
Convertible senior subordinated debentures - 49,174
Current portion of recourse long-term debt 8,751 39,042
Current portion of nonrecourse project financing 85,320 35,830
Accrued interest payable 7,655 5,145
Prepetition liabilities 87,743 -
Short-term borrowings 1,600 2,386
Other current liabilities 11,300 5,944
----------- ----------
Total current liabilities 211,915 155,879
Recourse long-term debt, net of current portion 3,405 7,073
Nonrecourse project financing, net of current portion - 60,310
Deferred income taxes 15,086 12,808
Other liabilities 100 1,610
----------- ----------
230,506 237,680
----------- ----------
Commitments and contingencies
Stockholders' equity:
Preferred stock, par value $.01, 10,000,000 shares authorized,
none issued
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 and 1994 130 130
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 and 1994 39 39
Minority interest - -
Additional paid-in capital 41,353 41,353
Accumulated deficit (81,654) (40,735)
Other (626) (651)
----------- ----------
Total stockholders' equity (deficit) (40,758) 136
----------- ----------
Total liabilities and stockholders' equity (deficit) $ 189,748 $ 237,816
=========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
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<PAGE> 6
O'BRIEN ENVIRONMENTAL ENERGY, INC.
DEBTOR-IN-POSSESSION
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED JUNE 30, 1995, 1994 AND 1993
(DOLLARS AND SHARES IN THOUSANDS)
<TABLE>
<CAPTION>
1995 1994 1993
<S> <C> <C> <C>
Energy revenues $ 74,455 $ 62,647 $ 65,136
Equipment, sales and services 19,639 24,304 18,955
Rental revenues 2,362 5,372 3,636
Revenues from related parties - - 515
Development fees and other 5,791 14,266 9,450
----------- ----------- ----------
102,247 106,589 97,692
----------- ----------- ----------
Cost of energy revenues 46,694 49,961 44,889
Cost of equipment sales and services 17,622 21,890 16,431
Cost of rental revenues 2,357 2,730 2,458
Cost of revenues from related parties - - 452
Cost of development fees and other 5,491 9,593 7,520
----------- ----------- ----------
72,164 84,174 71,750
----------- ----------- ----------
Gross profit 30,083 22,415 25,942
Provision for loss on equipment 21,640 6,250 -
Selling, general and administrative expenses 20,320 19,680 21,872
----------- ----------- ----------
Income (loss) from operations (11,877) (3,515) 4,070
Involuntary conversion gain - 6,066 -
Interest and other income 2,587 874 993
Reorganization costs (8,366) - -
Interest and debt expense (20,583) (18,013) (15,696)
----------- ----------- ----------
Loss before income taxes (38,239) (14,588) (10,633)
Provision for income taxes 2,680 1,913 3,078
----------- ----------- ----------
Net loss $ (40,919) $ (16,501) $ (13,711)
=========== =========== ==========
Net loss per share $ (2.43) $ (.98) $ (.82)
=========== =========== ==========
Weighted average shares outstanding 16,871 16,871 16,821
=========== =========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
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<PAGE> 7
O'BRIEN ENVIRONMENTAL ENERGY, INC.
DEBTOR-IN-POSSESSION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED JUNE 30, 1995, 1994 AND 1993
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
Class A Class B Additional Total
Common Common Paid-in Accumulated Stockholders'
Stock Stock Capital Deficit Other Equity
<S> <C> <C> <C> <C> <C> <C>
Balance, June 30, 1992 $ 126 $ 42 $ 39,659 $ (10,221) $ (201) $ 29,405
Issuance of 94,365 shares of
Class A common stock upon
the exercise of stock options 1 386 387
Conversion of 250,000 shares of
Class B common stock into
Class A common stock 3 (3)
Currency translation adjustment (414) (414)
Other 8 8
Net loss (13,711) (13,711)
------ ---- ---------- ---------- ------- ----------
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)
====== ==== ========== ========== ======= ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
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<PAGE> 8
O'BRIEN ENVIRONMENTAL ENERGY, INC.
DEBTOR-IN-POSSESSION
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED JUNE 30, 1995, 1994 AND 1993
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
1995 1994 1993
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss $ (40,919) $ (16,501) $ (13,711)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Depreciation and amortization 9,003 10,550 10,098
Amortization of goodwill 1,987 98 98
Amortization of debt discount and deferred financing costs 3,882 1,752 452
Deferred tax expense 2,278 1,913 3,078
Project development costs expensed 4,418 539 1,782
Provision for loss on equipment held for sale 5,655 6,250 -
Provision for equipment appraisal writedown 15,985 - -
Involuntary conversion gain - (6,066) -
Gain on sale of projects - - (1,691)
Reserve for uncollectible note receivable 3,121 - -
Bankruptcy professional fees accrued 4,415 - -
Non-cash litigation costs - - 621
Other 709 1,527 2,504
Changes in operating assets and liabilities:
Accounts receivable (257) 294 4,424
Inventories (369) 805 (766)
Receivables from related parties (51) 542 97
Notes receivable 824 1,784 (314)
Accounts payable (4,994) (2,892) 508
Accrued interest payable 6,633 - -
---------- ---------- ----------
Net cash provided by operating activities 12,320 595 7,180
---------- ---------- ----------
Cash flows from investing activities:
Capital expenditures (744) (2,496) (7,207)
Capital expenditures and costs to repair Newark Plant - (21,041) (2,641)
Insurance proceeds for Newark Plant - 27,000 2,000
Project development costs (358) (529) (764)
Proceeds from the sale of projects, net of notes receivable 1,762 2,000 1,318
(Deposits into) withdrawals from restricted cash accounts 1,032 470 (1,856)
Other (676) 622 (437)
---------- ---------- ----------
Net cash provided by (used in) investing activities 1,016 6,026 (9,587)
---------- ---------- ----------
Cash flows from financing activities:
Proceeds from long-term debt 5,711 15,622 21,816
Repayments of long-term debt (18,061) (21,660) (23,708)
Proceeds from stock issuances - - 387
Net proceeds (repayments) of short-term borrowings (785) 187 301
Principal payments on prepetition debt authorized by the Court (1,799) - -
Other - (302) -
---------- ---------- ----------
Net cash used in financing activities (14,934) (6,153) (1,204)
---------- ---------- ----------
Net increase (decrease) in cash and cash equivalents (1,598) 468 (3,611)
Cash and cash equivalents at beginning of year 5,681 5,213 8,824
---------- ---------- ----------
Cash and cash equivalents at end of year $ 4,083 $ 5,681 $ 5,213
========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
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<PAGE> 9
O'BRIEN ENVIRONMENTAL ENERGY, INC.
DEBTOR-IN-POSSESSION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1995
(DOLLARS IN THOUSANDS)
1. BUSINESS - LIQUIDITY AND CAPITAL RESOURCES
O'Brien Environmental Energy, Inc. and its subsidiaries (the "Company")
develop, own and operate biogas projects and 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, O'Brien Environmental Energy, Inc., 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").
O'Brien Environmental Energy, Inc., 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 Bankruptcy 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.
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
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<PAGE> 10
O'BRIEN ENVIRONMENTAL ENERGY, INC.
DEBTOR-IN-POSSESSION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1995
(DOLLARS IN THOUSANDS)
were submitted to the Bankruptcy Court. On November 17, 1995, the Company
distributed a Master Disclosure Statement urging that creditors and equity
security holders vote to accept both plans of reorganization to further
enhance recovery. The competitive bidding process extended to the
confirmation hearings.
On January 18, 1996, the Bankruptcy 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. 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. The funding also included a $7,500 escrow fund
for a prorata direct distribution by NRG to shareholders. 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 these disputed claims. Any
remaining funds resulting from the Court disallowing any disputed claims
will be disbursed prorata to all allowed non-reinstated creditor
claimholders as additional post-petition interest (see Note 32).
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.
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<PAGE> 11
O'BRIEN ENVIRONMENTAL ENERGY, INC.
DEBTOR-IN-POSSESSION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1995
(DOLLARS IN THOUSANDS)
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 subject to the Court
proceedings are presented separately on the June 30, 1995 balance sheet
as prepetition liabilities at amounts expected to be approved by the
court as allowed claims.
Reorganization costs
Expenses incurred after filing bankruptcy incurred in 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.
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.
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<PAGE> 12
O'BRIEN ENVIRONMENTAL ENERGY, INC.
DEBTOR-IN-POSSESSION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1995
(DOLLARS IN THOUSANDS)
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.
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.
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<PAGE> 13
O'BRIEN ENVIRONMENTAL ENERGY, INC.
DEBTOR-IN-POSSESSION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1995
(DOLLARS IN THOUSANDS)
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 has 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 being 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 these costs to be 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 the convertible senior subordinated
debentures and other common stock equivalents would be antidilutive.
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.
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<PAGE> 14
O'BRIEN ENVIRONMENTAL ENERGY, INC.
DEBTOR-IN-POSSESSION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1995
(DOLLARS IN THOUSANDS)
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.
3. CASH AND RESTRICTED CASH
Due to restrictions in the Newark and Parlin project financing
agreements, $3,520 and $2,346 of cash and cash equivalents at June 30,
1995 and 1994, respectively, is generally available for use only by those
projects.
Additionally, the Company has classified certain cash and cash
equivalents that are not fully available for use in its operations as
restricted. Restricted cash and cash equivalents relate primarily to debt
service reserve accounts for O'Brien (Newark) Cogeneration, Inc. and
O'Brien (Parlin) Cogeneration, Inc. (see Note 17) and compensating
balances maintained by the Company at financial institutions in
connection with lines of credit extended to its United Kingdom
subsidiaries (see Note 13).
Restricted cash and cash equivalents consist of the following:
<TABLE>
<CAPTION>
1995 1994
<S> <C> <C>
O'Brien (Newark) Cogeneration, Inc. $ 3,129 $ 1,503
O'Brien (Parlin) Cogeneration, Inc. 101 1,701
United Kingdom subsidiaries 241 1,246
Other 92 144
-------- --------
$ 3,563 $ 4,594
======== ========
</TABLE>
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<PAGE> 15
O'BRIEN ENVIRONMENTAL ENERGY, INC.
DEBTOR-IN-POSSESSION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1995
(DOLLARS IN THOUSANDS)
4. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consist of the following:
<TABLE>
<CAPTION>
1995 1994
<S> <C> <C>
Equipment related to energy revenues $ 166,044 $ 170,346
Rental equipment 20,806 31,050
Furniture and fixtures 1,694 1,631
Land, buildings and improvements 2,424 2,329
Other equipment 469 530
---------- -----------
191,437 205,886
Accumulated depreciation and amortization (40,307) (32,630)
---------- -----------
151,130 173,256
Equipment held for future projects - 3,258
---------- -----------
$ 151,130 $ 176,514
========== ===========
</TABLE>
Depreciation expense was $8,892, $9,717 and $9,643 in 1995, 1994 and
1993, 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. Additionally, the Company
reclassified the reduced appraised value of certain equipment held for
future projects to equipment held for sale based upon the anticipated
implementation of the NRG plan of reorganization.
Equipment related to energy revenues includes the property and equipment
of the Newark and Parlin cogeneration plants and the biogas projects.
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 has been financed utilizing nonrecourse project financing (see
Notes 17 and 32).
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 has been financed utilizing nonrecourse project financing (see
Notes 17 and 32).
- 15 -
<PAGE> 16
O'BRIEN ENVIRONMENTAL ENERGY, INC.
DEBTOR-IN-POSSESSION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1995
(DOLLARS IN THOUSANDS)
5. EQUIPMENT HELD FOR SALE
As part of the Company's debt restructuring program and its 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 the fiscal year ended June 30, 1995, the Company
recorded an additional charge of $5,655 based upon a recent independent
appraisal report 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>
1995 1994
<S> <C> <C>
Note receivable with interest at 7.25%,
due August 30, 2003 (a) $ - $ 3,121
Note receivable, non-interest bearing, due in annual
installments of $800 through June 1997 (b) 1,465 2,137
Other (c) 466 548
-------- --------
1,931 5,806
Less current portion (853) (780)
-------- --------
$ 1,078 $ 5,026
======== ========
</TABLE>
(a) Note receivable associated with the sale of coalbed methane
properties in August 1993. Face value of $4,500 discounted by $1,379
in fiscal 1994. In fiscal 1995, an additional discount of $1,166 was
recorded to reflect a March 31, 1995 settlement agreement regarding
a chargeback obligation. The Company has fully reserved the
remaining $1,955 balance at June 30, 1995. Principal and interest
payments are due monthly only to the extent of a percentage of net
revenues, as defined, generated from the properties only after
offset for the chargeback obligation with interest at prime plus 5%,
and then only until
- 16 -
<PAGE> 17
O'BRIEN ENVIRONMENTAL ENERGY, INC.
DEBTOR-IN-POSSESSION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1995
(DOLLARS IN THOUSANDS)
the earlier of (1) the note balance is paid in full or (2) 10 years.
The Company did not recognize any interest income or amortization of
the discount in the fiscal years ended June 30, 1995 or 1994 (see
Note 7).
(b) Note receivable associated with the termination of a power purchase
contract (see Note 21). The note is collateralized by an irrevocable
letter of credit. At June 30, 1995, face value and discount were
$1,600 and $135, respectively, assuming an interest rate of 5.95%.
(c) Notes receivable associated primarily with a direct finance lease
relating to power generation equipment.
7. COALBED METHANE GAS PROPERTIES NOTE
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 which was included in other current liabilities at
June 30, 1994. The Company discounted the note in fiscal 1994 to an
estimated net realizable value in consideration of the Company's plans to
monetize the note and accelerate cash flow. 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 interest. Until the obligation
plus all accrued interest is satisfied in full, the Company has no rights
to the net revenues, as defined, nor can the note receivable be sold,
pledged or assigned to any other party. 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 has reduced the
carrying value of the note by the cost obligation and fully reserved the
balance (see Note 6).
- 17 -
<PAGE> 18
O'BRIEN ENVIRONMENTAL ENERGY, INC.
DEBTOR-IN-POSSESSION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1995
(DOLLARS IN THOUSANDS)
8. PROJECT DEVELOPMENT COSTS
During the years ended June 30, 1995, 1994 and 1993, the Company
determined that certain project development costs should be expensed. The
resulting charges, net of any recoveries, of $4,418, $539 and $1,782 for
1995, 1994 and 1993, respectively, are included in selling, general and
administrative expenses in the accompanying consolidated statements of
operations. Fiscal 1995 includes costs of a project determined to be
unrecoverable based upon the anticipated implementation of the NRG plan
of reorganization.
9. NOTES RECEIVABLE FROM FORMER OFFICER
At June 30, 1995, the Company had notes receivable totaling $238 from a
former officer of the Company. The notes are unsecured and bear 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.
10. INVESTMENTS IN EQUITY AFFILIATES
Investment in equity affiliates consists of the following:
<TABLE>
<CAPTION>
1995 1994
<S> <C> <C>
Gray's Ferry $ 2,504 $ 2,293
Artesia 337 337
PoweRent Limited 642 438
Intrag, Joint Venture - 107
-------- -------
$ 3,483 $ 3,175
======== =======
</TABLE>
Gray's Ferry
In October 1991, O'Brien (Schuylkill) Cogeneration, Inc. ("O'Brien
Schuylkill"), 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 will consist of two phases to be constructed
and operated concurrently. Phase I will consist of the installation and
operation of an auxiliary boiler and steam turbine and Phase II will
consist of the installation and operation of the gas turbine and heat
recovery steam generator along with related equipment.
- 18 -
<PAGE> 19
O'BRIEN ENVIRONMENTAL ENERGY, INC.
DEBTOR-IN-POSSESSION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1995
(DOLLARS IN THOUSANDS)
In March 1996, Trigen (Schuylkill) Cogeneration, an unrelated party, was
admitted to the partnership. O'Brien Schuylkill 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 $10,000
of additional capital to the partnership. Additionally, the stock of
O'Brien Schuylkill was pledged as collateral for the loan.
NRG and O'Brien Schuylkill entered into a $10,000 credit agreement in
March 1996, guaranteed by the Company, to provide funding for this
commitment when required (see Note 32).
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 ("Cogen II"), a wholly-owned
subsidiary of the Company, is the managing general partner. In addition
to its share of the limited partnership's operations, the Company
receives annual management fees of approximately $138 and participates in
a fuel supply partnership. On April 30, 1996, Cogen II was sold to NRG
under the terms of the plan of reorganization (see Note 32).
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.
Intrag, Joint Venture
Intrag, Joint Venture was formed for the purpose of developing power
generation projects and for the manufacture, sale and/or rental of power
generation equipment in Pakistan. The Company relinquished its equity
interest in the Joint Venture opting instead to participate as an
equipment vendor to the project. Under Pakistani law, a Company cannot
simultaneously be a vendor and own an equity interest in the same joint
venture. Accordingly, the Company expensed its investment in equity
affiliate as unrecoverable.
The Company's investment in equity affiliates has been accounted for
using the equity method.
- 19 -
<PAGE> 20
O'BRIEN ENVIRONMENTAL ENERGY, INC.
DEBTOR-IN-POSSESSION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1995
(DOLLARS IN THOUSANDS)
11. COST IN EXCESS OF NET ASSETS ACQUIRED
Excess of cost in investment in subsidiaries over net assets at date of
acquisition consists of the following:
<TABLE>
<CAPTION>
1995 1994
<S> <C> <C>
Excess of investment in subsidiaries over
net assets at date of acquisition $ 2,466 $ 2,466
Accumulated amortization (2,466) (479)
-------- -------
$ - $ 1,987
======== =======
</TABLE>
Amortization expense amounted to $1,987 in 1995 and $98 in each 1994 and
1993. Included in fiscal 1995 amortization is $1,888 which relates
primarily to the unamortized value assigned to an acquired subsidiary's
heat recovery technology which management has deemed not realizable.
12. DEFERRED FINANCING COSTS
Deferred financing costs at June 30, 1995 relates primarily to
nonrecourse debt and consist of the following:
<TABLE>
<CAPTION>
1995 1994
<S> <C> <C>
Deferred financing costs $ 2,767 $ 7,080
Accumulated amortization (1,237) (1,811)
-------- -------
$ 1,530 $ 5,269
======== =======
</TABLE>
Amortization expense amounted to $570 in the fiscal year ending June 30,
1995 which is included in interest and debt expense. Additionally, the
Company charged $3,387 of deferred financing costs to reorganization
costs to adjust the carrying amount of the parent's prepetition
subordinated debentures to the amount approved by the Court as an allowed
claim. Amortization expense amounted to $452 in each fiscal year ending
June 30, 1994 and 1993 and is included in interest and debt expense in
the accompanying consolidated statements of operations.
13. SHORT-TERM BORROWINGS
As of June 30, 1995 and 1994, 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.
- 20 -
<PAGE> 21
O'BRIEN ENVIRONMENTAL ENERGY, INC.
DEBTOR-IN-POSSESSION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1995
(DOLLARS IN THOUSANDS)
14. Prepetition Liabilities
All liabilities at June 30, 1995 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>
<S> <C>
Subordinated debentures (see Note 16) $ 49,174
Recourse debt (see Note 15) 30,368
Prepetition accrued interest 5,634
Accounts payable and accrued expenses 2,567
----------
$ 87,743
==========
</TABLE>
During the bankruptcy proceedings, the Company received approval from the
Court to make payments on certain prepetition liabilities including
employee wages and expense reports incurred prior to the filing. The
Court also ordered the Company to make periodic adequate protection
payments on certain secured debt obligations and allowed the continuation
of payments due on insurance premiums which had been financed prior to
September 28, 1994. In addition, the Company has accrued $6,194 for
post-petition interest through June 30, 1995 on prepetition liabilities
which is included on the balance sheet as a component of accrued interest
expense. The NRG plan of reorganization provides for the payment of
post-petition interest on primarily all prepetition obligations (see Note
32).
15. Recourse Long-Term Debt
Upon the parent company filing a petition for bankruptcy, all debt
subject to compromise was reclassed to prepetition liabilities (see Note
14). Recourse long-term debt at June 30, 1995 consists of post-petition
financing and of all subsidiary long-term recourse debt which is not part
of the bankruptcy proceedings.
- 21 -
<PAGE> 22
O'BRIEN ENVIRONMENTAL ENERGY, INC.
DEBTOR-IN-POSSESSION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1995
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
1995 1994
<S> <C>
Notes payable, due in monthly installments of principal plus
interest at rates ranging from a fixed rate of 7.49% to a rate of 2%
over prime (prime rate at June 30, 1995 was 9.0%), maturing primarily
at various dates through December 1999. $ 4,739 $30,481
Note payable to unrelated third party, due in monthly installments
with interest at 12% (a).
- 5,000
Capital lease obligations, due in monthly installments at rates up
to 13.25%, maturing at various dates through December 2000,
collateralized by certain energy and rental equipment having a net book
value of $6,125 at June 30, 1995. 7,417 9,134
Other - 1,500
------- -------
12,156 46,115
Less amounts classified as current (b) (8,751) (39,042)
------- -------
$ 3,405 $ 7,073
======= =======
</TABLE>
(a) The Company reclassified a $5,000 current liability to long-term
debt at June 30, 1994. The $5,000 repurchase option for the
Philadelphia Water Department project reacquired on August 5, 1994
was funded by long-term financing from an unrelated third party in
August 1994. The refinancing was reclassified to prepetition
liabilities on September 28, 1994 and is collateralized by the
common stock of the reacquired subsidiary.
(b) 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 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, remains
reclassified because of the Chapter 11 bankruptcy filing on
September 28, 1994.
- 22 -
<PAGE> 23
O'BRIEN ENVIRONMENTAL ENERGY, INC.
DEBTOR-IN-POSSESSION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1995
(DOLLARS IN THOUSANDS)
Scheduled maturities, including impact of defaults, 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>
1996 $ 878 $ 4,621
1997 662 2,468
1998 753 1,954
1999 1,240 -
2000 807 -
Thereafter 399 -
Interest component on
capital leases - (1,626)
--------- --------
$ 4,739 $ 7,417
========= ========
</TABLE>
The Company incurred interest charges, exclusive of interest on
nonrecourse project financing, of $9,925, $9,802 and $8,265 in 1995, 1994
and 1993, respectively. Of these amounts $403 and $1,873 were capitalized
in 1994 and 1993, respectively. No amounts were capitalized in 1995.
16. CONVERTIBLE SENIOR SUBORDINATED DEBENTURES
At September 28, 1994, the debentures were reclassified on the balance
sheet to prepetition liabilities (see Note 14). At June 30, 1994,
convertible senior subordinated Debentures consisted of the following:
<TABLE>
<CAPTION>
1994
<S> <C>
7 3/4% Convertible senior subordinated debentures due in
March 2002. Conversion price $4.75 per share. $11,419
11% Convertible senior subordinated debentures due in
March 2010. Conversion price $5.55 per share. 11,500
11% Convertible senior subordinated debentures due in
March 2011. Conversion price $5.46 per share. 26,255
-------
$49,174
=======
</TABLE>
On August 22, 1994, the trustees for each of the 1987 Debentures, 1990
Debentures and 1991 Debentures (collectively, the "Debentures") delivered
acceleration notices to the Company demanding immediate payment of the
total principal of $49,174 and past due interest in the amount of $5,231
as of September 20, 1994 based on the following factors:
- 23 -
<PAGE> 24
O'BRIEN ENVIRONMENTAL ENERGY, INC.
DEBTOR-IN-POSSESSION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1995
(DOLLARS IN THOUSANDS)
- The Board of Directors elected not to make the March 15, 1994 or the
September 15, 1994 semi-annual required interest payments on the
Debentures which total $5,036. Each semi-annual required interest
payment consists of $442, $632 and $1,444 for the 1987 Debentures,
1990 Debentures and 1991 Debentures, respectively.
- The Company was in default under the 1987 indenture's funded
indebtedness covenant (as defined in the 1987 indenture). Such
covenant prohibited the Company from incurring or creating any funded
indebtedness, if, after giving effect to such incurrence or creation,
the total outstanding funded indebtedness of the Company on a
consolidated basis would exceed 75% of the sum of consolidated
stockholders' equity and funded indebtedness.
Additionally, the Company was in default under the 1987 indenture, 1990
indenture and 1991 indenture due to defaults on other indebtedness which
results in the acceleration of the maturity of at least an aggregate of
$1,000, $2,000 and $2,000, respectively, of other indebtedness which is
not cured within 60 days, 90 days and 90 days, respectively, after notice
to the Company.
As a result of the losses experienced by the Company, a covenant in the
1990 indenture and 1991 indenture requiring the Company to purchase 7.5%
of the outstanding 1990 Debentures and 1991 Debentures if the Company's
consolidated stockholders' equity is less than $10,000 at the end of each
of any two consecutive fiscal quarters was triggered. Additionally, a
covenant in the 1987 indenture requires the Company to purchase 7.5% of
the outstanding 1987 Debentures if the Company's consolidated
stockholders' equity is less than $7,500 at the end of each of any two
consecutive fiscal quarters. The Company was unable to satisfy these
default obligations.
In May 1994, the Company filed a Registration Statement on Form S-4 (the
"Registration Statement") with the Securities and Exchange Commission
relating to a proposed exchange offering of cumulative senior preferred
stock and Class A common shares and warrants for each $1 principal amount
of debentures outstanding and a solicitation of consent to certain
proposed amendments to the Indentures as well as the waiver of all
defaults under the debentures. In June 1994, an amendment to the
Registration Statement was filed. Subsequent to such amendment, the
Company began discussions with an ad hoc committee (the "Ad Hoc
Committee") representing the holders of the debentures and entered into a
standstill agreement with the Ad Hoc Committee pursuant to which the
Company agreed, among other things, to assist the Ad Hoc Committee in its
due diligence efforts. The failure to reach an agreement with the Ad Hoc
Committee was one of the factors upon which the Company's decision to
file for protection under the Bankruptcy Code was based (see Note 1).
- 24 -
<PAGE> 25
O'BRIEN ENVIRONMENTAL ENERGY, INC.
DEBTOR-IN-POSSESSION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1995
(DOLLARS IN THOUSANDS)
The Debentures became subject to compromise on the September 28, 1994
bankruptcy filing date. The Court subsequently ruled that the total
principal and accrued interest outstanding on September 28, 1994 in the
amount of $49,174 and $5,231, respectively, were allowed claims. On April
30, 1996, the debentures were fully funded and paid with post-petition
interest in accordance with the NRG plan of reorganization (see Note 32).
The Form S-4 registration statement was declared abandoned by the
Securities and Exchange Commission on March 1, 1996.
17. NONRECOURSE PROJECT FINANCING
Nonrecourse project financing consists of the following:
<TABLE>
<CAPTION>
1995 1994
<S> <C> <C>
Newark project (a) $ 25,010 $ 29,580
Parlin project (b) 60,310 66,560
--------- ----------
85,320 96,140
Less current portion (85,320) (35,830)
--------- ----------
$ - $ 60,310
========= ==========
</TABLE>
The nonrecourse project financing agreements contain various covenants,
the most restrictive of which are 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.
At June 30, 1995 and 1994, both the Newark and Parlin projects were in
default of the covenant which requires the maintenance of positive
working capital. At June 30, 1995, because of the ongoing bankruptcy
proceedings of the parent, neither the Newark or Parlin subsidiaries
sought waivers from the lenders and accordingly, classified the entire
amounts outstanding as short-term debt due to a default of positive
working capital.
On September 26, 1994, the project lenders agreed to waive this covenant
at June 30, 1994 through July 1, 1995 for the Parlin project only. The
lenders were not willing to provide a similar waiver for the Newark
project at June 30, 1994 and, as a result, $25,010 of Newark's
nonrecourse debt was reclassified from long-term to short-term debt in
fiscal 1994.
(a) The Newark project financing is an obligation of O'Brien (Newark)
Cogeneration, Inc. ("Newark"), a wholly- owned subsidiary of the
Company. The project financing was 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
- 25 -
<PAGE> 26
O'BRIEN ENVIRONMENTAL ENERGY, INC.
DEBTOR-IN-POSSESSION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1995
(DOLLARS IN THOUSANDS)
Agreement (the "agreement") which significantly changed the terms of
the loan. Among other things, the agreement allowed monthly
predetermined cash distributions to the parent, obligated monthly
rather than semi-annual debt payments to the lender, accelerated the
maturity date to January 1997 and provided for escalating interest
rate margin increases initially at 1.25% effective January 1, 1995
increasing to a maximum 2.75% per annum throughout the remaining
term of the loan. The effective interest rate on the loan at June
30, 1995 was 7.37%. Additionally, the agreement designated all cash
as restricted and obligated that Newark's monthly "excess cash," as
defined, be used to pay off any outstanding bank fees and,
thereafter, 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 1995, 1994 and
1993, $2,065, $1,693 and $1,759, respectively, of interest costs
were incurred pursuant to the project financing. The sole collateral
for the term loan is the common stock of Newark, which has net
assets of approximately $40,574 excluding the nonrecourse financing
at June 30, 1995.
On May 17, 1996, the Company entered into a Credit Agreement with a
new lender (the "New Agreement"). On May 23, 1996, the Company
borrowed $60,000 in the form of a six-month term loan pursuant to
the New Agreement and used the proceeds, among other things, to
refinance the Newark nonrecourse project finance debt ($19,001
outstanding on that date). On July 11, 1996, the six-month term loan
was incorporated into a $155,000 term loan which is a joint and
several obligation of both the Newark and Parlin projects (see Note
32).
(b) The Parlin financing is an obligation of O'Brien (Parlin)
Cogeneration, Inc. ("Parlin"), a wholly-owned subsidiary of the
Company. The project financing was 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, $43,389 of
the term loan has a fixed interest rate of approximately 11% per
annum for a period of 10 years. The Company is exposed to credit
loss in the event of nonperformance by the other party to the swap,
however, the Company does not anticipate nonperformance. The balance
of the loan has a variable interest rate tied to LIBOR or the prime
rate unless the Company chooses to fix the interest rate at the
prevailing long-term market rates. At June 30, 1995, approximately
$16,921 of this loan had a floating rate of 7.37%. During 1995, 1994
and 1993, $6,470, $6,633 and $7,166 of interest costs were incurred
pursuant to the term loan which includes $2,050, $3,253 and $3,544
for 1995, 1994 and 1993, respectively, of costs associated with the
interest rate swap agreement. The sole collateral for the term loan
is the common stock of Parlin which has net assets of approximately
$65,610 excluding the nonrecourse financing at June 30, 1995.
- 26 -
<PAGE> 27
O'BRIEN ENVIRONMENTAL ENERGY, INC.
DEBTOR-IN-POSSESSION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1995
(DOLLARS IN THOUSANDS)
On June 28, 1996, NRG purchased the outstanding Parlin nonrecourse
project debt from the lender ($52,838 outstanding on that date) 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. The
New Agreement provides for a $155,000 term loan which is a joint and
several obligation of both the Newark and Parlin projects (see Note
32).
18. STOCKHOLDERS' EQUITY
Preferred stock
The Board of Directors of the Company is authorized to issue shares of
preferred stock in one or more series and to determine the rights and
preferences of each series (see Note 32).
Common stock
Except for voting and conversion privileges, shares of Class A and Class
B common stock are identical. Class A stockholders are entitled to one
vote per share while Class B stockholders are entitled to ten votes per
share. Class B common stock is convertible into Class A common stock on
the basis of one share of Class A common stock for each share of Class B
common stock (see Note 32).
All outstanding shares of Class B common stock were owned by III
Enterprises, Inc., a company wholly-owned by the former Chairman and
Chief Executive Officer of the Company, which had the controlling voting
interest in the Company. In October 1993, III Enterprises, Inc. filed for
bankruptcy protection under Chapter 11 of the Federal Bankruptcy Code.
The Class B shares were pledged to one or more principal lenders of III
Enterprises, Inc. On July 10, 1995, under a foreclosure sale, Wexford
acquired 1,360,000 shares of the pledged Class B common stock from a III
Enterprises, Inc. lender. In addition, Wexford was granted a proxy to
vote a further 1,360,000 shares of the pledged stock held by the lender.
Wexford also acquired 100,000 and 380,000 shares of Class B common stock,
respectively, from two separate III Enterprises, Inc. lenders. Prior to
these acquisitions, Wexford had owned 178,071 shares of Class A common
stock.
As a result of its acquisition of the pledged Class B common stock,
Wexford obtained voting control of the Company and accordingly replaced
all Class B directors at an August 8, 1995 meeting of the Board of
Directors. The ability of Wexford and/or the Board of Directors to direct
the actions of the Company was, however, limited by July 27, 1995 and
August 30, 1995 orders of the Court which generally prohibited the board
from terminating or directing management authority of the Court appointed
Crisis Manager who was acting as Chief Administrative Officer of the
Company.
- 27 -
<PAGE> 28
O'BRIEN ENVIRONMENTAL ENERGY, INC.
DEBTOR-IN-POSSESSION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1995
(DOLLARS IN THOUSANDS)
Outstanding shares at June 30, 1995 and 1994 amounted to the following:
<TABLE>
<CAPTION>
1995 1994
<S> <C> <C>
Class A common stock 12,965,397 12,965,397
========== ==========
Class B common stock 3,905,770 3,905,770
========== ==========
</TABLE>
On April 30, 1996, in accordance with the NRG plan of reorganization, all
Class A and Class B common shares of the Company were canceled and
exchangeable for a new single class of common shares of NRGG, the
reorganized Company. Under the plan, NRGG issued 6,474,814 common shares
of which 2,710,357 (41.86%) is owned by NRG and the remaining 3,764,457
shares (58.14%) became issuable to the existing shareholders of the
Company. In addition, holders of the Company's Class A and Class B shares
became entitled to receive an aggregate $7,500 (approximately $.44 cents
per old share) from NRG. The cash distribution is payable to shareholders
when the old common shares are submitted to the transfer agent for
exchange (see Note 32).
Minority interest
On August 5, 1994, the Company reacquired an 83% interest in the
Philadelphia Water Department Project by exercising its repurchase option
for the common stock of O'Brien (Philadelphia) Cogeneration, Inc. ("OPC")
from an unrelated private investor for $5,000. The remaining 17% interest
was retained by the private investor 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 to
repurchase all, but not less than all, outstanding OPC Preferred Stock at
60% of the Company's redemption price. The Company's redemption price at
June 30, 1995 was approximately $2,084.
The OPC preferred stock also obligates a quarterly distribution of 17% of
the net earnings of OPC, as defined, payable within 50 days of the end of
each respective quarter. These distributions amounted to $209 through
June 30, 1995 and are reported as interest expense in the consolidated
statement of operations (see Note 31).
Other
The other component of stockholders' equity includes a foreign currency
translation adjustment of ($562), ($587) and ($551) at June 30, 1995,
1994 and 1993, respectively, and treasury stock of $64 at June 30, 1995,
1994 and 1993. Treasury stock is recorded at cost and consists of 90,200
shares of Class A common stock and 165,000 shares of Class B common
stock, including 75,000 shares of Class A common stock and 165,000 shares
of Class B
- 28 -
<PAGE> 29
O'BRIEN ENVIRONMENTAL ENERGY, INC.
DEBTOR-IN-POSSESSION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1995
(DOLLARS IN THOUSANDS)
common stock held by O'Brien Energy Services Company ("OES"), a
wholly-owned subsidiary, at the date of its acquisition by the Company.
19. STOCK OPTIONS
The Company had several stock option plans for the granting of qualified
and/or nonqualified options on Class A common stock to officers,
directors and key employees. Under the terms of the NRG plan of
reorganization, these stock options were terminated on April 30, 1996. No
options were exercised in fiscal 1995 or 1994 nor were any options
exercised through the closing date.
20. BUSINESS INTERRUPTION INSURANCE CLAIMS
During 1995, 1994 and 1993, energy revenues include $1,035, $1,706 and
$6,247 received under net business interruption insurance claims
associated with the Newark and Parlin cogeneration plants.
21. 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 sold its contractual rights to develop
certain coalbed methane reserves. The selling price consisted of a $2,000
cash payment and a production note of $4,500. The Company discounted the
note in fiscal 1994 by $1,379 to reflect a lower estimated net realizable
value in consideration of the Company's plans to monetize the note and
accelerate cash flow. The previously capitalized costs and remaining
drilling obligation amounted to approximately $5,100 resulting in no gain
on the transaction. A March 1995 settlement agreement resolved a dispute
between the Company and the purchaser regarding a chargeback obligation.
The Company further discounted the note for the chargeback obligation and
fully reserved the balance (see Notes 6 and 7).
- 29 -
<PAGE> 30
O'BRIEN ENVIRONMENTAL ENERGY, INC.
DEBTOR-IN-POSSESSION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1995
(DOLLARS IN THOUSANDS)
In December 1992, the Company and a utility entered into an agreement
pursuant to which the electric contract previously entered into was
terminated for $4,000 from the utility, payable in five annual
installments of $800 without interest. The payments are collateralized by
a standby letter of credit. The net present value of the $4,000 was
determined to be $3,462, assuming an interest rate of 5.95% and is
reflected as development fees and other in the accompanying consolidated
statements of operations. The associated project development costs
amounted to $2,386 which resulted in a net gain of $1,076.
In December 1992, the Company sold a biogas project located in the United
Kingdom for $821, of which $331 was paid pursuant to a promissory note
with an interest rate of 8% and is reflected as development and other
fees in the accompanying consolidated statements of operations. The
associated project development costs amounted to $265, which reflects a
$66 discount for early payment offered by the Company.
In September 1992, the Company sold a 50% interest in a biogas project
pursuant to a stock purchase agreement. The remaining 50% interest was
sold on June 30, 1993. The aggregate sale price was $625 of which $555
was paid pursuant to a promissory note with an interest rate of 8%. The
costs associated with the sale amounted to $267 which resulted in a net
gain of $358.
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 1995, 1994 and 1993 the Company recognized approximately $2,975,
$4,015 and $3,989, 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 $2,975, $4,015
and $3,989, respectively.
- 30 -
<PAGE> 31
O'BRIEN ENVIRONMENTAL ENERGY, INC.
DEBTOR-IN-POSSESSION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1995
(DOLLARS IN THOUSANDS)
22. LITIGATION SETTLEMENT COSTS
In September 1993, the Company and certain subsidiaries and an equity
affiliate entered into a settlement agreement with Hawker Siddeley Power
Engineering Inc. and related entities, the turnkey contractor for the
Hartford cogeneration plant. Pursuant to the settlement agreement, the
Company relinquished its 5% general partner interest, paid Hawker $250
and issued a promissory note for $250 to the succeeding general partner,
which resulted in a total charge of $1,121 in fiscal 1993, which is
included in selling, general and administrative expenses in the
accompanying consolidated statement of operations.
23. 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 Newark cogeneration plant generated revenues of
$28,908, $23,082 (including net business interruption proceeds of $980)
and $19,629 (including net business interruption proceeds of $5,880) in
1995, 1994 and 1993, respectively. 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.
24. INCOME TAXES
Income (loss) before income taxes consists of:
<TABLE>
<CAPTION>
1995 1994 1993
<S> <C> <C> <C>
United States $ (38,225) $ (12,657) $ (10,272)
Foreign (14) (1,931) (361)
---------- ----------- ----------
$ (38,239) $ (14,588) $ (10,633)
========== =========== ==========
</TABLE>
- 31 -
<PAGE> 32
O'BRIEN ENVIRONMENTAL ENERGY, INC.
DEBTOR-IN-POSSESSION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1995
(DOLLARS IN THOUSANDS)
The income tax provision consists of:
<TABLE>
<CAPTION>
1995 1994 1993
<S> <C> <C> <C>
Current income taxes:
Federal $ - $ - $ -
State 402 - -
Foreign - - -
-------- -------- --------
Subtotal 402 - -
Deferred income taxes
Federal 912
State 1,366
Foreign -
-------- -------- --------
Subtotal 2,278 1,913 3,078
-------- -------- --------
Total income tax provision $ 2,680 $ 1,913 $ 3,078
======== ======== ========
</TABLE>
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>
1995 1994
<S> <C> <C>
Deferred income tax liabilities:
Property, plant and equipment $ (20,022) $ (18,964)
---------- -----------
Total deferred tax liabilities (20,022) (18,964)
---------- -----------
Deferred income tax assets:
Net operating loss carryforwards 25,241 25,235
Alternative minimum tax credits 84 110
Investment tax credits 1,622 1,623
Miscellaneous 6,848 458
Valuation allowance (28,859) (21,270)
---------- -----------
Total deferred tax assets 4,936 6,156
---------- -----------
Net deferred income tax liabilities $ (15,086) $ (12,808)
========== ===========
</TABLE>
- 32 -
<PAGE> 33
O'BRIEN ENVIRONMENTAL ENERGY, INC.
DEBTOR-IN-POSSESSION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1995
(DOLLARS IN THOUSANDS)
The increase in the valuation allowance from 1994 to 1995 is due
primarily to the uncertainty of being able to realize more likely than
not 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.
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>
1995 1994 1993
<S> <C> <C> <C>
Income tax (benefit) on the amount at
federal statutory rate $ (13,001) $ (4,959) $ (3,615)
State income taxes (286) 387 282
Operating income tax losses with no
current tax benefit (Federal & State) 2,272 5,759 6,248
Increase in valuation allowance 6,233
Excess liabilities 4,000
Other 3,462 726 163
----------- --------- ---------
Total income tax provision $ 2,680 $ 1,913 $ 3,078
=========== ========= =========
</TABLE>
At June 30, 1995, the Company has federal net operating loss
carryforwards available to offset future regular taxable income and
investment tax credit carryforwards available to offset future regular or
alternative minimum federal income taxes payable. These carryforwards
expire as follows:
<TABLE>
<CAPTION>
NET OPERATING INVESTMENT TAX
LOSS CREDIT
CARRYFORWARDS CARRYFORWARDS
<S> <C> <C>
1998 $ - $ 57
1999 - 138
2000 400 255
2001 792 240
2002 2,325 409
2003 3,733 82
2004 1,725 174
2005 5,022 52
2006 13,396 215
2007 4,658 -
2008 15,801 -
2009 11,869 -
2010 6,647 -
---------- --------
$ 66,368 $ 1,622
========== ========
</TABLE>
- 33 -
<PAGE> 34
O'BRIEN ENVIRONMENTAL ENERGY, INC.
DEBTOR-IN-POSSESSION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1995
(DOLLARS IN THOUSANDS)
The Company has $36,012 of state net operating loss carryforwards
available to offset state taxable income. These carryforwards will expire
starting in 1996 and will continue to expire through 2010.
The Company also has unused net operating loss carryforwards for United
Kingdom income tax purposes. Using the exchange rate at June 30, 1995
these loss carryforwards approximated $1,711. For United Kingdom tax
purposes, these losses can be carried forward and can be used to offset
future taxable income. However, due to the uncertainty of their ultimate
realization, the Company has established a full valuation allowance
against the benefits associated with these 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 $32,750 at June 30, 1995. 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.
25. TRANSACTIONS WITH RELATED PARTIES
PoweRent Limited 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) The Company leases office space 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 1995, 1994 and 1993 was
$242, $289, and $293, respectively. The Company also leases office
space from Christiana River Holdings, Ltd., an entity owned by the
FCEO of the Company. Rental expense was $150 for fiscal 1995 and
1994.
(2) In 1993, the Company recognized $156 of revenue by selling equipment
and related services to PoweRent. The cost of the equipment and
related service was $130.
- 34 -
<PAGE> 35
O'BRIEN ENVIRONMENTAL ENERGY, INC.
DEBTOR-IN-POSSESSION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1995
(DOLLARS IN THOUSANDS)
(3) The Company also was charged commissions by O'Brien Power Systems,
Inc. of $647 in 1994 in connection with equipment sales and services
provided to third parties. In 1993, the Company recognized $346 of
revenue by selling equipment and related services to O'Brien Power
Systems, Inc., a company controlled by a relative of the FCEO of the
Company. The cost of the equipment and related services was $322.
(4) 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 has estimated a fair
value of these facilities indicating a value of approximately
$1,100. However, predecessor cost of $498 has been used to record
the assets purchased and the excess of the purchase price over III
Enterprises Limited's historical net book value of these facilities
has been 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 and $156 in fiscal 1994
and 1993, respectively.
(5) Subsequent to June 30, 1995, the Company obtained a working capital
line of credit facility from NRG totaling $3,500 (see Note 32).
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 10).
26. SEGMENT INFORMATION AND MAJOR CUSTOMERS
The Company operates principally in two industry segments: the
developing, owning and operating of biogas projects and the development
and ownership of cogeneration and waste heat recovery 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>
1995 1994 1993
<S> <C> <C> <C>
Revenues:
Energy $ 80,246 $ 76,913 $ 74,587
Equipment sales, rental and services 22,001 29,676 23,105
---------- ---------- -----------
$ 102,247 $ 106,589 $ 97,692
========== ========== ===========
Identifiable assets:
Energy $ 159,642 $ 180,329 $ 224,352
Equipment, sales, rental and services 27,467 47,329 29,557
Corporate assets 2,639 10,158 8,620
---------- ---------- -----------
$ 189,748 $ 237,816 $ 262,529
========== ========== ===========
</TABLE>
- 35 -
<PAGE> 36
O'BRIEN ENVIRONMENTAL ENERGY, INC.
DEBTOR-IN-POSSESSION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1995
(DOLLARS IN THOUSANDS)
<TABLE>
<S> <C> <C> <C>
Operating income (loss):
Energy $ 19,642 $ 10,280 $ 14,468
Equipment sales, rental and services (20,265) (4,874) (1,799)
General corporate expenses (11,254) (8,921) (8,599)
---------- ---------- -----------
$ (11,877) $ (3,515) $ 4,070
========== ========== ===========
Depreciation and amortization expense:
Energy $ 7,259 $ 7,345 $ 8,008
Equipment sales, rental and services 1,494 2,171 1,446
Not allocable 250 1,486 1,096
---------- ---------- -----------
$ 9,003 $ 11,002 $ 10,550
========== ========== ===========
</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 from officers 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.
Information with respect to the Company's geographical areas of business
is as follows:
<TABLE>
<CAPTION>
1995 1994 1993
<S> <C> <C> <C>
Revenues:
United States $ 89,332 $ 93,090 $ 83,797
United Kingdom 12,915 13,499 13,895
---------- ---------- -----------
$ 102,247 $ 106,589 $ 97,692
========== ========== ===========
Net income (loss):
United States $ (40,905) $ (14,570) $ (13,350)
United Kingdom (14) (1,931) (361)
---------- ---------- -----------
$ (40,919) $ (16,501) $ (13,711)
========== ========== ===========
Identifiable assets:
United States $ 179,793 $ 230,343 $ 252,863
United Kingdom 9,955 7,473 9,666
---------- ---------- -----------
$ 189,748 $ 237,816 $ 262,529
========== ========== ===========
</TABLE>
- 36 -
<PAGE> 37
O'BRIEN ENVIRONMENTAL ENERGY, INC.
DEBTOR-IN-POSSESSION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1995
(DOLLARS IN THOUSANDS)
Revenues from one energy customer accounted for 65%, 53% and 65% of 1995,
1994 and 1993 revenues, respectively.
27. 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>
1996 $ 927
1997 870
1998 733
1999 547
2000 350
Thereafter 60
--------
$ 3,487
========
</TABLE>
Total rental expense under various operating leases was approximately
$1,300, $1,308 and $1,434 in 1995, 1994 and 1993, respectively.
28. STATEMENTS OF CASH FLOWS
Supplemental disclosure of cash flow information:
<TABLE>
<CAPTION>
1995 1994 1993
<S> <C> <C> <C>
Interest paid during the year, net of amounts
capitalized $ 11,869 $ 13,027 $ 15,287
</TABLE>
Supplemental schedule of noncash investing and financing activities:
<TABLE>
<CAPTION>
1995 1994 1993
<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 3,232
Notes receivable in connection with the
sale of projects (3,121) 3,121 3,590
</TABLE>
- 37 -
<PAGE> 38
O'BRIEN ENVIRONMENTAL ENERGY, INC.
DEBTOR-IN-POSSESSION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1995
(DOLLARS IN THOUSANDS)
<TABLE>
<S> <C> <C> <C>
Capital expenditures acquired by capital
leases $ - $ - $ 4,546
Exchange of note receivable for note payable - - 655
</TABLE>
29. 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 O'Brien Environmental Energy, Inc. entered
into a settlement agreement with Hawker Siddeley, Power Engineering,
Inc., the ("Hawker Settlement Agreement"), other than a $1,500 Promissory
Note ("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 Note be paid by October 6, 1994.
The note became subject to the bankruptcy proceedings on September 28,
1994 and paid with post petition interest on April 13, 1996 (see Note
32).
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.
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 O'Brien Environmental Energy,
Inc. and certain of its officers and directors. The complaints allege
that O'Brien Environmental Energy, Inc. 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 Bankruptcy Court, by its confirmation order dated February
13, 1996, limited the rights of these claimants against
- 38 -
<PAGE> 39
O'BRIEN ENVIRONMENTAL ENERGY, INC.
DEBTOR-IN-POSSESSION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1995
(DOLLARS IN THOUSANDS)
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
creditor claims as well as certain professional fees and administrative
priority claims filed with the Bankruptcy 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.
30. 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, 1995 AMOUNT VALUE
<S> <C> <C>
Assets:
Cash and cash equivalents(1) $ 4,083 $ 4,083
Restricted cash and cash equivalents(1) 3,563 3,563
Accounts receivable(1) 12,357 12,357
Receivable from related parties(1) 684 684
Notes receivable(1) 1,931 1,931
Liabilities:
Accounts payable(1) 9,546 9,546
Short-term borrowings(1) 1,600 1,600
Recourse long-term debt(1) 12,156 12,156
Prepetition liabilities(2) 87,743 87,743
Off-balance sheet financial instruments:
Interest rate swap(3) - 4,701
</TABLE>
- 39 -
<PAGE> 40
O'BRIEN ENVIRONMENTAL ENERGY, INC.
DEBTOR-IN-POSSESSION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1995
(DOLLARS IN THOUSANDS)
(1) The carrying amount of these items are a reasonable estimate of
their value as of June 30, 1995.
(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 of reorganization, primarily all allowed claims will be
paid in full, along with post-petition interest.
(3) The fair value of interest rate swap in the amount at which it could
be settled based on an estimate obtained from the dealer.
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.
31. SALE AND REPURCHASE OF PHILADELPHIA WATER DEPARTMENT PROJECT
On November 12, 1993, the Company sold the capital stock of O'Brien
(Philadelphia) Cogeneration, Inc. ("OPC") and Philadelphia BioGas Supply,
Inc. ("Biogas"), 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 Biogas consist of a 20-year energy service agreement
and a digester gas supply agreement with the Philadelphia Municipal
Authority ("Authority").
On August 5, 1994, the Company exercised its option to repurchase 83% of
OPC and Biogas for $5,000. The Company continued to own and rent to OPC
and Biogas 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.
The repurchase agreement obligates OPC to distribute quarterly, 17% of
its net earnings, as defined. These distributions totaled $209 in fiscal
1995 and are recorded in 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 to repurchase all, but not less
than all, of
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<PAGE> 41
O'BRIEN ENVIRONMENTAL ENERGY, INC.
DEBTOR-IN-POSSESSION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1995
(DOLLARS IN THOUSANDS)
the outstanding preferred stock at 60% of the Company's redemption price.
The Company's redemption price at June 30, 1995 was approximately $2,084.
None of the Company's Class A common stock warrants issued to the private
investor on November 12, 1993 have been exercised. Under the terms of the
NRG plan of reorganization, the warrants were terminated on the April 30,
1996 closing date.
32. SUBSEQUENT EVENTS
Emerging from bankruptcy
The Company emerged from bankruptcy on April 30, 1996 under a court
approved plan of reorganization submitted by NRG. NRG acquired an
approximate 42% equity interest on the April 30, 1996 closing date. The
Company was renamed to NRGG (see Note 1).
NRG funded $107,418 on the closing date. NRGG received $99,918 of which
$71,240 was advanced under the terms of the ("NRG-New Loans"); $21,178
was allocated as an equity contribution 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 current common
stockholders.
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 50,000,000 shares, par value $.01.
Additionally, the reorganized company authorized 50,000 shares of a new
Series A preferred stock, par value $.01. The preferred stock is
cumulative with a cash dividend per share at a rate per annum equal to
the lesser of 14% or 400 basis points above the rate of interest being
paid on the NRG loan to the Company. 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 preferred stock were issued to Wexford in
accordance with the plan of reorganization and subsequently redeemed,
with dividends, paid on May 23, 1996 from proceeds of the new project
financing loan.
Prepetition liability funding
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 bankruptcy court, however, remain in dispute. An
- 41 -
<PAGE> 42
O'BRIEN ENVIRONMENTAL ENERGY, INC.
DEBTOR-IN-POSSESSION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1995
(DOLLARS IN THOUSANDS)
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 prorata to all allowed non-reinstated
creditor claimholders as additional post-petition interest. An
approximate allocation of the $99,918 funding to NRGG is as follows:
<TABLE>
<S> <C>
Prepetition liabilities $ 76,129
Post-petition interest 9,376
Administrative priority claims 9,368
Payment for subsidiary obligations 3,573
Other 1,472
---------
$ 99,918
=========
</TABLE>
Additionally, prepetition liabilities of approximately $4,957 consisting
primarily of subordinated debentures owned by Wexford Management Corp.
were satisfied by the issuance of preferred shares in the reorganized
company. These shares were subsequently redeemed in May 1996 from the
new project financing proceeds.
Sale of subsidiaries to NRG
Under the terms of the plan of reorganization, 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.
The subsidiaries sold include all of the Company's biogas projects
(operating and those in development), the general partner holding a 3%
equity interest in the Artesia Cogeneration partnership and a standby
power project placed in service on December 31, 1995. Assets included on
the June 30, 1995 consolidated balance sheet attributable to the
subsidiaries total $10,458. The fiscal 1995 consolidated statement of
operations include $1,315 in revenues and income (loss) from operations
attributable to the subsidiaries of $(4,021) which includes an allocation
of the equipment appraisal writedown of $2,839.
Debtor-in-Possession financing
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 30,
1996 closing date. The agreement required monthly interest-only payments.
The principal balance was repaid to NRG from the project refinancing in
May 1996.
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<PAGE> 43
O'BRIEN ENVIRONMENTAL ENERGY, INC.
DEBTOR-IN-POSSESSION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1995
(DOLLARS IN THOUSANDS)
Amendment to Newark and Parlin Power Purchase Agreements
The Company renegotiated the Power Purchase Agreements ("PPAs") for the
Parlin and Newark projects in early 1996. Effective May 1, 1996, Parlin
began operating as an Electric Wholesale Generator ("EWG") for the
remaining term of the original contract. Historically, both projects have
operated as Qualifying Facilities ("QF's"). The primary commercial
difference is that under the amended PPAs, the project's customer
supplies and pays for the cost of fuel. Until May 1, 1996, Newark and
Parlin have incurred the cost of fuel as well as the risk of fluctuating
prices. Although energy revenues as well as cost of energy revenues are
anticipated to decrease under the new contracts, 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, the Parlin project has changed
from a full base load operation to a half base load/half dispatchable
project and the operating requirements relating to QF status have been
eliminated.
New project financing
On May 17, 1996, Newark and Parlin entered into a Credit Agreement ("the
new agreement") with a new lender. The new agreement established
provisions for a $155,000 15 year amortizing loan, a $77,500 interest
rate swap agreement and a $5,000 debt service reserve line of credit
facility. 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 six-month term
loan under the terms of the new agreement. Also effective May 23, 1996,
NRG Energy, Inc. 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 June 28, 1996, NRG advanced approximately $56,000 to payoff the Parlin
nonrecourse financing which included a $3,100 cost to terminate the
interest rate swap agreement. On July 11, 1996, an additional $95,000 was
borrowed pursuant to the new 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 new agreement. Proceeds of this
borrowing were used to repay $56,000 to NRG, obligations of NRGG as well
as to fund certain required reserve accounts under the terms of the new
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 new agreement.
- 43 -
<PAGE> 44
O'BRIEN ENVIRONMENTAL ENERGY, INC.
DEBTOR-IN-POSSESSION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1995
(DOLLARS IN THOUSANDS)
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.
New NRG loans
In accordance with the plan of reorganization, NRG and NRGG executed
three loan agreements on April 30, 1966 ("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. There remains $13,615
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.
O'Brien Schuylkill Note and Stock Option Agreement
In March 1996, NRG and O'Brien (Schuylkill) Cogen ("OSC"), a wholly-owned
subsidiary of the Company, entered into a $10,000 loan agreement ("the
note") to provide a means of funding an OSC capital contribution
obligation to the Grays Ferry Partnership (see Note 10). 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 NRGG. The option agreement provides
that NRG can convert $3,000 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 of the Company as of the NRG Plan
Effective Date, April 30, 1996.
- 44 -
<PAGE> 45
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS.
(c) Exhibits
23.1 Consent of Price Waterhouse LLP.
45
<PAGE> 46
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, the registrant has duly caused this report to be signed on its behalf
by the undersigned hereunto duly authorized.
NRG GENERATING (US.) INC.
/s/ Leonard A. Bluhm
By: Leonard A. Bluhm
President and Chief Executive Officer
Date: September 25, 1996
46
<PAGE> 47
INDEX TO EXHIBITS
Sequentially
Exhibit Numbered
Number Description Page
- ------ ----------- ------------
23.1 Consent of Price Waterhouse LLP
<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
O'Brien Environmental Energy, Inc. of our report dated September 16, 1996
relating to the consolidated financial statements of O'Brien Environmental
Energy, Inc., Debtor-in-Possession, for the year ended June 30, 1995, which
appears on page 4 of this Current Report on Form 8-K.
Price Waterhouse LLP
Minneapolis, Minnesota
September 25, 1996
