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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
___________
FORM 10-K
FOR ANNUAL AND TRANSITION REPORTS
PURSUANT TO SECTIONS 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended
X TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from June 30, 1996 to December 31,
1996.
Commission File Number: 1-9208
NRG GENERATING (U.S.) INC.
(Exact name of registrant as specified in its charter)
Delaware 59-2076187
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
1221 Nicollet Mall, Suite 610, Minneapolis, Minnesota 55403
(612) 373-8834
(Address of principal executive offices) (Zip Code)
(Telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $.01 per share
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months,
and (2) has been subject to such filing requirements for the past
90 days. Yes X No
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K is not contained herein,
and will not be contained, to the best of registrant's knowledge,
in definitive proxy or information statements incorporated by
reference in Part III of this Form 10-K or any amendment to this
Form 10-K.
As of March 20, 1997, there were outstanding 6,440,514
shares of Common Stock. Based on the last sales price at which
such stock was sold on that date, the approximate aggregate
market value of such shares held by non-affiliates was
$35,637,000.
Indicate by check mark whether the registrant has filed all
documents and reports required to be filed by Section 12, 13 or
15(d) of the Securities Exchange Act of 1934 subsequent to the
distribution of securities under a plan confirmed by a court.
X Yes No
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Documents Incorporated By Reference
The information required for the following items is
incorporated by reference to the 1997 Definitive Proxy Statement
of NRG Generating (U.S.) Inc.:
Item 10 - Directors and Executive Officers of the Registrant
Item 11 - Executive Compensation
Item 12 - Security Ownership of Certain Beneficial Owners
and Management
Item 13 - Certain Relationships and Related Transactions
Table of Contents
Page
Number
Part I
Item 1. Business 2
Item 2. Properties 17
Item 3. Legal Proceedings 18
Item 4. Submission of Matters to a Vote of Security
Holders 19
Part II
Item 5. Market for the Registrant's Common Equity and
Related Stockholder Matters 20
Item 6. Selected Financial Data 21
Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations 22
Item 8. Financial Statements and Supplementary Data 31
Item 9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure 31
Part III
Item 10. Directors and Executive Officers of the
Registrant 32
Item 11. Executive Compensation 32
Item 12. Security Ownership of Certain Beneficial
Owners and Management 32
Item 13. Certain Relationships and Related Transactions 32
Part IV
Item 14. Exhibits, Financial Statement Schedules and
Reports on Form 8-K 33
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PART I
ITEM 1. BUSINESS.
General
NRG Generating (U.S.) Inc. (referred to herein with its
consolidated subsidiaries as "NRGG" or the "Company") is engaged
primarily in the business of developing, owning and operating
cogeneration projects which produce electricity and thermal
energy for sale under long-term contracts with industrial and
commercial users and public utilities. In addition to its energy
business, the Company sells and rents power generation and
cogeneration equipment through subsidiaries located in the United
States and the United Kingdom.
In its role as a developer and owner of energy projects, the
Company has developed the following projects in which it
currently has an ownership interest:
(a) The 52 megawatt ("MW") Newark Boxboard Project
(the "Newark Project"), located in Newark, New Jersey,
began operations in November 1990;
(b) The 122 MW E.I. du Pont Parlin Project (the
"Parlin Project"), located in Parlin, New Jersey, began
operations in June 1991; and
(c) The 22 MW Philadelphia Cogeneration Project (the
"Philadelphia Project"), located in Philadelphia,
Pennsylvania, began operations in May 1993.
The Company also owns a one-third interest in the Grays
Ferry Cogeneration Partnership (the "Grays Ferry Partnership"),
which owns a 150 MW cogeneration project (the "Grays Ferry
Project"), located in Philadelphia, Pennsylvania. The Grays Ferry
Project is currently under construction with commercial operation
currently expected to occur in December 1997. The Company also
is currently evaluating a number of prospective projects for the
purpose of determining whether to submit a bid.
The Company was incorporated in Florida in 1981 and
subsequently merged with a Delaware corporation in 1984. Prior
to the merger, the Company was part of a group of several
affiliated companies which had served the power generation market
since 1915.
Emergence from Bankruptcy; NRG Energy Investment
Formerly known as O'Brien Environmental Energy, Inc.
("O'Brien"), the Company changed its name to NRG Generating
(U.S.) Inc. in connection with its emergence from bankruptcy on
April 30, 1996, under a plan of reorganization (the "Plan")
approved by the U.S. Bankruptcy Court for the District of New
Jersey (the "Bankruptcy Court"). O'Brien had filed a voluntary
petition for reorganization under Chapter 11 of the United States
Bankruptcy Code on September 28, 1994 in order to preserve its
business relationships, maintain its operational strength and
assets, restructure its debt and utilize its assets consistent
with the interests of all of its creditors and shareholders.
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In connection with the consummation of the Plan, NRG Energy,
Inc. ("NRG Energy") advanced $71,240,000 under loan agreements
with the Company and purchased new Common Stock of the Company
for aggregate consideration of $21,178,000. NRG Energy also
purchased certain subsidiaries of the Company for $7,500,000 and
funded a cash distribution to the O'Brien stockholders
aggregating $7,500,000. As a result of consummation of the Plan,
NRG Energy now holds approximately 41.86% of the Common Stock of
the Company. NRG Energy's financial backing of the Plan enabled
the Company to provide for full and immediate payment of all
undisputed pre-petition claims as well as a provision for post-
petition interest. In addition, pursuant to the Plan, NRG Energy
and the Company entered into a Co-Investment Agreement (the "Co-
Investment Agreement"), pursuant to which NRG Energy has agreed
to offer to the Company ownership interests in certain power
projects which are initially developed by NRG Energy or with
respect to which NRG Energy has entered into a binding
acquisition agreement with a third party.
Recent Developments
Nasdaq SmallCap Market Listing
On March 4, 1997, The Nasdaq Stock Market, Inc. approved the
listing of the Company's Common Stock on the Nasdaq SmallCap
Market. Trading in NRGG's Common Stock on this market began on
March 10, 1997. There can be no assurance, however, that an
active trading market will develop or continue for the Company's
Common Stock as a result of this listing. See "Item 5. Market
for Registrant's Common Equity and Related Stockholder Matters."
Change in Operations and Maintenance Responsibility
Power Operations, Inc., a new wholly-owned subsidiary of the
Company, assumed operations and maintenance responsibilities for
the Newark facility and the Parlin facility, in each case
replacing the former operator, on November 8, 1996, and December
31, 1996, respectively. The Company believes that such changes
will have no material financial impact on the operations of these
facilities or on the Company's financial condition or results of
operations. On January 1, 1997, Power Operations, Inc. was sold
by the Company to NRG Energy. The terms of this transaction
were approved by the Independent Directors Committee of the
Company's Board of Directors as required by the Company's Bylaws.
Risk Factors
History of Losses
The Company incurred income in the amount of $6,423,000 for
the six month fiscal year ended December 31, 1996. However, due
in part to costs associated with its bankruptcy proceeding, the
Company incurred losses in the amounts of $17,713,000 and
$40,919,000 for the fiscal years ended June 30, 1996, and June
30, 1995, respectively. These losses have had a material adverse
effect on the Company's liquidity and financial position and may
continue to adversely affect the Company's liquidity and results
of operations in future periods by, among other things, rendering
it more difficult for the Company to raise capital or otherwise
to conduct project development activities. See "Item 7.
Management's Discussion and Analysis of Financial Condition and
Results of Operations."
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Capital Requirements
The Company's business is capital intensive. The long-term
growth of the Company, which involves the development and
acquisition of additional power generation projects, will require
the Company to seek substantial funds through various forms of
financing. While the Company is provided with certain rights
under the Co-Investment Agreement which may enable it to finance
the acquisition of ownership interests in certain projects which
may be offered by NRG Energy, there can be no assurance that the
terms on which such financing may be made available will be
satisfactory to the Company, and no financing will be made
available under the Co-Investment Agreement for the development
or acquisition of projects which are not offered to the Company
pursuant to the terms of such agreement. There can be no
assurance that the Company will be able to arrange the financing
needed for these additional projects. If the Company is unable
to secure such financing, or if the terms of such financing as
may be available under the Co-Investment Agreement are not
satisfactory to the Company, its business could be materially
adversely affected. See "Business - Project Development
Activities."
Energy Price Fluctuations and Fuel Supply
The Company's power purchase agreements ("PPAs") with
utilities have typically contained, and may in the future
contain, price provisions which in part are linked to the
utilities' cost of generating electricity. In addition, the
Company's fuel supply prices, with respect to future projects,
may be fixed in some cases or may be linked to fluctuations in
energy prices. These circumstances can result in high volatility
in gross margins and reduced operating income, either of which
could have a material adverse effect on the Company's financial
position or results of operations. Effective April 30, 1996, the
Company renegotiated its PPA with Jersey Central Power and Light
Company ("JCP&L"), the primary electricity purchaser from its
Newark and Parlin Projects. Under the new PPAs, JCP&L is
responsible for all natural gas supply and delivery. The Company
anticipates that this change in the PPAs will reduce its
historical volatility in gross margins by eliminating the
Company's exposure to fluctuations in the price of natural gas
which must be paid by its Newark and Parlin Projects. However,
because energy revenues as well as the cost of energy revenues
will decline under the amended PPAs, the Company anticipates that
its operating gross margins, over time, will remain similar to
historical results, and there can be no assurance that any of the
foregoing steps will improve or maintain gross profit margins in
the future. See "Item 7. Management's Discussion and Analysis
of Financial Condition and Results of Operations - Costs and
Expenses."
Project Development Risks
The development of cogeneration projects often requires many
months or years to complete and involves a high degree of risk
that any particular project will not be completed. Among the
principal elements involved in developing projects are the
selection of a site, obtaining commitments from others to
purchase electrical power and steam, negotiating fuel supply
arrangements, obtaining environmental and other governmental
permits and approvals, arranging project financing and turnkey
construction. These objectives often are achieved independently
of one another, and success in achieving one objective does not
necessarily result in success in achieving others. During the
period that the Company was in bankruptcy, project development
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efforts virtually ceased. Since emerging from bankruptcy these
efforts have resumed, in part as a result of the Co-Investment
Agreement. There can be no assurance, however, that the Company
will be able to obtain satisfactory project agreements,
construction contracts, necessary licenses and permits or
satisfactory financing commitments or that any of the projects
discussed in this report or which otherwise might be pursued will
ultimately be completed. If a project is not completed the
Company may not generate any revenue from the project and may not
otherwise be able to recover its investment in the project, each
of which could have a material adverse effect on the Company.
See "Business - Project Development Activities."
Competition
Many organizations, including equipment manufacturers and
subsidiaries of utilities and contractors, as well as other
organizations similar to the Company, have entered the market for
the development, ownership and operation of cogeneration
projects. Many of these companies have substantially greater
resources and/or access to the capital required to fund such
activities than the Company. In addition, obtaining power
contracts with utilities has become more competitive with the
increased use of competitive bidding procedures and the advent of
deregulation in the electric utility market. This increased
competition may make it more difficult for the Company to secure
future projects, may increase project development costs and may
reduce the Company's operating margins on any future projects.
Any such developments could have a material adverse effect on the
Company's results of operations and financial condition. See
"Business - Independent Power Market Overview."
Proposed Restructuring of the Electric Utility Industry
The U.S. Congress is considering legislation to repeal the
Public Utility Regulatory Policies Act of 1978 ("PURPA")
entirely, or at least to repeal the obligation of utilities to
purchase from qualifying facilities thereunder ("QFs"). There is
strong support for grandfathering existing QF contracts if such
legislation is enacted, and also support for requiring utilities
to conduct competitive bidding for new electric generation if the
PURPA purchase obligation is eliminated. Since the Company
benefits from PURPA, the Company's business could be adversely
affected by a significant change in PURPA. See "Business -
Independent Power Market Overview," and "Business - Regulation."
Various bills have also proposed repeal of the Public
Utility Holding Company Act of 1935 ("PUHCA"). Repeal of PUHCA
would allow both independent power producers and vertically
integrated utilities to acquire retail utilities in the U.S. that
are geographically widespread, as opposed to the current
limitations of PUHCA which require that retail electric systems
be capable of physical integration. Also, registered holding
companies would be free to acquire non-utility businesses, which
they may not do now, with certain limited exceptions.
With the repeal of PURPA or PUHCA, competition for
independent power generators from vertically integrated utilities
would likely increase. While the Company does not believe that
any such repeal would necessarily have a material adverse effect
on its financial position or results of operations, the long term
effect on the Company of any such repeal cannot be predicted.
See "Business - Regulation."
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In addition, the Federal Energy Regulatory Commission
("FERC"), many state public utility commissions ("PUCs") and
Congress are currently studying and beginning preliminary
implementation of proposals to restructure the electric utility
industry in the U.S. to permit consumers to choose their utility
supplier in a competitive electric energy market. The FERC
issued rules in 1996 to require utilities to offer wholesale
customers and suppliers open access on their transmission lines
on a comparable basis to the utilities' own use of the lines.
Virtually all investor-owned utilities have already filed "open
access tariffs for wholesale transmission." The utilities
contend that they should recover from departing customers their
fixed costs that will be "stranded" by the ability of their
wholesale customers (and perhaps eventually, their retail
customers) to choose new electric power suppliers. These include
the costs utilities are required to pay under many QF contracts
which the utilities view as excessive when compared with current
market prices. Many utilities are therefore seeking ways to
lower these contract prices or rescind the contracts altogether,
out of concern that their shareholders will be required to bear
all or part of such "stranded" costs. Some utilities have
engaged in litigation against QFs to achieve these ends. In
addition, future U.S. electric rates may be deregulated in a
restructured U.S. electric utility industry, and increased
competition may result in lower rates and less profit for U.S.
electricity sellers. Falling electricity prices and uncertainty
as to the future structure of the industry are inhibiting U.S.
utilities from entering into long-term power purchase contracts.
While the Company does not believe that any such restructuring
necessarily would have a material adverse effect on its financial
position or results of operations, the long term effect of any
such restructuring on the Company cannot be predicted at this
time. See "Business - Regulation."
Risks Associated with Foreign Operations
The Company's foreign operations (consisting primarily of
its equipment sales and rental operations) are subject to the
risks inherent in doing business in foreign countries, including
changes in currency exchange rates, currency restrictions,
political changes and expropriation. Although it is impossible
to predict the likelihood of such occurrences or their effect on
the Company, the Company believes these risks to be mitigated by
the facts that the Company's foreign activities historically have
not been concentrated in any single country and have been
conducted largely in Europe, which the Company believes to be
subject to fewer of such risks than other regions. In addition,
the Company attempts to secure payment for export sales with
commercial letters of credit or other secured means. See
"Business - Products and Services - Equipment Sales, Rentals and
Services Segment."
Risks Associated with Forward-Looking Statements
This Form 10-K, including the information incorporated by
reference herein, contains various forward-looking statements and
information that are based on the Company's beliefs and
assumptions, as well as information currently available to the
Company. Without limiting the generality of the foregoing, the
words "believe," "anticipate," "estimate," "expect" and similar
expressions, when used in this Form 10-K, are intended to
identify forward-looking statements. All forward-looking
statements and information in this Form 10-K are forward-looking
statements within the meaning of Section 27A of the Securities
Act and Section 21E of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), and are intended to be covered by
the safe harbors created thereby. Investors are cautioned that
all forward-looking statements involve risks and uncertainties
including, without limitation, the factors set forth under the
caption "Risk
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Factors" in this Form 10-K. Although the Company believes that
the assumptions underlying the forward-looking statements
contained herein are reasonable, any of the assumptions could be
inaccurate, and therefore there can be no assurance that the
forward-looking statements included in this Form 10-K will prove
to be accurate. In light of the significant uncertainties
inherent in the forward-looking statements included herein, the
inclusion of such information should not be regarded as a
representation by the Company or any other person that the
objectives and plans of the Company will be achieved.
Independent Power Market Overview
The independent power market (the market for power generated
by companies other than traditional utilities) has evolved and is
expected by the Company to continue to expand as a result of the
growing need for new and replacement power capacity by electric
utilities and industrial customers. Historically, regulated
utilities in the United States have been the only producers of
electric power intended primarily for sale to third parties. The
increase in oil prices during the late 1970s and the increasing
cost of constructing and financing large coal-fired or nuclear
generating facilities along with the enactment of PURPA created a
favorable regulatory environment and favorable market conditions
for the development of energy projects by companies other than
electric utilities. The basic policy judgment behind the
encouragement of the development of cogeneration facilities is
that the United States' dependence on oil and natural gas
resources should be reduced and that the very high incremental
costs of large centralized power production facilities should be
avoided. However, economic considerations remain the central
issue affecting a decision to install a cogeneration project.
PURPA provides significant incentives to developers of
"qualifying facilities" within the meaning of PURPA. It
designates certain small power production (those utilizing
renewable fuels and having a capacity of less than 80 MW) and
certain cogeneration facilities as qualifying facilities eligible
for various benefits under federal law, including exemption from
many of the regulatory requirements applicable to electric
utilities. In accordance with PURPA, the Company's projects with
one exception are exempt, and its proposed projects, are intended
to be exempt, from rate, financial and similar regulation as a
utility as long as they meet the requirements of a qualifying
facility. These projects also benefit from regulations that
require public utilities to purchase power generated by
qualifying projects at the utilities' "avoided cost" (determined
in accordance with a formula which varies from state to state but
which is generally calculated based upon what the cost to the
utility would be to generate the power itself or to purchase it
from another source). Power purchase contracts generally must be
approved by state public utility commissions. Since the Company
benefits from PURPA, the Company's business could be adversely
affected by a significant change in PURPA and could otherwise be
materially impacted by decisions of federal, state and local
legislative, judicial and regulatory bodies. See "Business -
Regulation."
Many organizations, including equipment manufacturers and
subsidiaries of utilities and contractors, as well as other
organizations similar to the Company, have entered the market for
the ownership and operation of cogeneration projects. Many of
these companies have substantially greater resources and/or
access to the capital required to fund such activities than the
Company. In addition, obtaining power contracts with utilities
has become more competitive with
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the increased use of competitive bidding procedures and the
advent of deregulation in the electric utility market. This
increased competition may make it more difficult for the Company
to secure future projects, may increase project development costs
and may reduce the Company's operating margins on any future
projects. Any such developments could have a material adverse
effect on the Company's results of operations and financial
condition. See "Business - Competition."
Project Development Activities
General
The Company, together with its subsidiaries and affiliates,
develops, owns and operates cogeneration projects which produce
electricity and thermal energy for sale under long-term contracts
with industrial and commercial users and public utilities. Under
its Co-Investment Agreement with NRG Energy, the Company also may
acquire ownership interests in certain power projects initially
developed by NRG Energy or to which NRG Energy has entered into a
binding acquisition agreement with a third party. Potential
project structures include (but are not limited to) sole
ownership, general partnerships, limited partnerships, sale
leaseback arrangements and other forms of joint venture or debt
arrangements.
The Company sells the electricity produced by its projects
pursuant to long-term contracts either on a "wholesale basis" to
local public utilities or on a "retail basis" to specific
industrial and commercial users. Presently, most of the
electricity produced by the Company's projects in operation is
sold on a wholesale basis. The mix of future energy sales may
differ based upon future economic conditions and other
circumstances.
The Company also may develop standby/peak shaving projects
such as its Philadelphia Project, which utilize the Company's
power generation equipment as a back-up source of electricity for
large customers. These projects are intended to fill a need
between large electrical users and the requirements of local
utilities. The availability of an alternative energy source
allows these customers to benefit from significantly discounted
interruptible energy tariffs. The standby/peak shaving
generators typically will be required to provide a limited amount
of electricity during peak periods.
Co-Investment Agreement with NRG Energy
Pursuant to the Plan, NRG Energy and the Company entered
into a Co-Investment Agreement pursuant to which NRG Energy has
agreed to offer to the Company ownership interests in certain
power projects which are initially developed by NRG Energy or
with respect to which NRG Energy has entered into a binding
acquisition agreement with a third party. If any eligible
project reaches certain contract milestones (which include the
execution of a binding PPA and fuel supply agreement and the
completion of a feasibility and engineering study) by April 30,
2003, NRG Energy has agreed to offer to sell to the Company all
of NRG Energy's ownership interest in such project. Eligible
projects include, with certain limited exceptions, any proposed
or existing electric power plant within the United States NRG
Energy initially develops or in which NRG Energy proposes to
acquire an ownership interest. NRG Energy is obligated under the
Co-Investment Agreement to offer to the Company, during the three
year period ending on April 30,
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1999, projects with an aggregate equity value of at least
$60,000,000 or a minimum of 150 net MW.
To facilitate the Company's ability to acquire ownership
interests which may be offered pursuant to the Co-Investment
Agreement, NRG Energy has agreed to finance the Company's
purchase of such ownership interests on commercially competitive
terms to the extent funds are unavailable to the Company on
comparable terms from other sources. Any such financing provided
by NRG Energy under the terms of the Co-Investment Agreement is
required to be recourse to the Company and secured by a lien on
the ownership interest acquired. Such financing also is required
to be repaid from the net proceeds received by the Company from
offerings of equity or debt securities of the Company (when
market conditions permit such offerings to be made on favorable
terms) after taking into account the working capital and other
cash requirements of the Company as determined by its Board of
Directors.
Grays Ferry Project
The Company has executed a partnership agreement with an
affiliate of PECO Energy Company and an affiliate of Trigen
Energy Corporation to jointly develop and own this 150 MW
project. The partnership has executed a 25-year agreement with
the Trigen-Philadelphia Thermal Energy Corporation for the sale
of steam and a 20-year agreement for the sale of electric output
with PECO Energy Company, in addition to numerous other project
documents. The project is under construction and is expected to
be in commercial operation in December 1997. However, the
Company believes that the project is subject to normal
construction and completion risks, and no assurance can be made
that commercial operation will occur in December 1997. Any
failure of the Grays Ferry Project to achieve commercial
operation by December 1997 could have a material adverse effect
on the Company. See Note 8 of the Consolidated Financial
Statements.
Other Potential Projects
The Company from time to time identifies and considers
potential opportunities to develop additional projects as well as
to acquire projects in operation or under development and owned
by third parties. As of the date of this report, the Company is
not party to any definitive agreements with respect to any such
potential projects, and no assurances can be made with respect to
the likelihood of entering into any such agreements with respect
to any such potential projects.
As a project developer, the Company is responsible for the
evaluation, design, installation and operation of a project. The
Company also assumes the responsibility for evaluating project
alternatives; obtaining financing, insurance, all necessary
licenses, permits and certifications; conducting contract
negotiations with local utilities and arranging turnkey
construction. In connection with obtaining financing, the
Company may negotiate for credit support facilities with
equipment suppliers, turnkey construction firms and financial
institutions.
The Company anticipates that in the ordinary course of its
business it will investigate and/or pursue opportunities with
respect to various potential projects which will not be
completed. Moreover, in certain instances the Company may not
generate any revenue from such
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projects and may not be able to recover its investment in such
projects, each of which could have a material adverse effect on
the Company.
Products and Services
During the six month fiscal year ended December 31, 1996,
the Company operated principally in two industry segments: (i)
energy - the development and ownership of cogeneration projects,
the development, ownership and operation of standby/peak shaving
projects through wholly-owned subsidiaries and limited
partnerships; and (ii) equipment sales, rentals and service - the
selling and renting of power generating, cogenerating and
standby/peak shaving equipment and services. See Note 25 of the
Consolidated Financial Statements of the Company for financial
information with respect to industry segments.
Energy Segment
Overview
Set forth below are descriptions of the Company's three
projects in operation as of December 31, 1996. Each of these
projects is currently producing revenues through the sale of
energy under long-term contracts. In connection with the
obtaining of financing for its three cogeneration projects in
operation, the Company has obtained business interruption
insurance and performance guarantees by the operators of its
cogeneration projects. These arrangements are negotiated and
secured prior to commencement of operations of a project. Taken
as a whole, these arrangements reduce the risks associated with
any past and future equipment problems or unscheduled plant
shutdowns. For example, in the event of an unscheduled
breakdown, the Company generally is entitled, pursuant to its
business interruption insurance policy, to the net profit which
it is prevented from earning from the particular project,
including all charges and expenses which continue during the
period of interruption, less the applicable deductible amounts.
There can be no assurance that such insurance or guarantees will
sufficiently mitigate the risk of unforeseen contingencies.
<TABLE>
<CAPTION>
Name and Location Rated Approximate Date of Power Company's
Of Project Capacity(1) Capital Cost Operation Purchaser Lender Interest
(in MWs) (in thousands)
<S> <C> <C> <C> <C> <C> <C>
Cogeneration
Parlin 122.0 $97,000 June 1991 Jersey Central Credit 100%
Power & Light Suisse(3)
Company
Newark 52.0 52,000 November 1990 Jersey Central Credit 100%
Power & Light Suisse(3)
Company
Standby/Peak
Shaving
Philadelphia 22.0 12,000 May 1993 Philadelphia (2) 83%
Municipal
Authority
_____ ________
196.0 $161,000
</TABLE>
_____________________
(1) See discussion of each particular project which follows for current
contract production, which may be less than the stated rated capacity.
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(2) This project is financed by various lenders through equipment credit
facilities.
(3) See Note 12 of the Consolidated Financial Statements.
Cogeneration
Cogeneration involves the sequential production of two or
more forms of usable energy (e.g. electricity and thermal energy)
using a single fuel source, thereby substantially increasing fuel
efficiency. The key elements of a cogeneration project are
permit applications, contracts for sales of electricity and
thermal energy, contracts or arrangements for fuel supply, and
project financing and construction. The Company attempts to
design and develop its projects so that they qualify for the
benefits of PURPA, which exempts qualifying projects from rate,
financial and similar utility regulation and requires public
utilities to purchase power generated by these projects.
Electricity may be sold to utilities and end users of electrical
power, including large industrial facilities. Thermal energy
from cogeneration plants may be sold to commercial enterprises
and other institutions. Large industrial users of thermal energy
include plants in the chemical processing, food processing,
pharmaceutical and paper industries.
The Company has developed and currently owns two
cogeneration projects, the Newark and Parlin Projects. Natural
gas for these projects is provided by JCP&L as a part of its
obligations under the terms of its PPAs with NRG Generating
(Newark) Cogeneration Inc. ("NRGG Newark") and NRG Generating
(Parlin) Cogeneration Inc. ("NRGG Parlin"), respectively, as
renegotiated effective April 30, 1996. Previously, the Company
bore the risk of fluctuating natural gas prices. Power
Operations, Inc., a wholly-owned subsidiary of the Company which
was sold to NRG Energy on January 1, 1997, assumed the operations
and maintenance responsibilities for the Newark and Parlin
facilities under long-term contracts on November 8, 1996 and
December 31, 1996, respectively. The Newark and Parlin Projects
previously had been operated and maintained under agreement with
a subsidiary of Stewart & Stevenson, Inc. See "Item 7.
Management's Discussion and Analysis of Financial Condition and
Results of Operations."
Newark Project. This 52 MW project, which commenced
operation in November 1990, is 100%-owned by NRGG Newark, a
wholly-owned subsidiary of the Company. The Newark Project is
designed to operate continuously and to provide up to 75,000
lbs./hr. of steam to a recycled paper boxboard manufacturing
plant owned by Newark Boxboard Company, a subsidiary of the
Newark Group Industries, Inc., and 52 MW of electricity to JCP&L,
each under agreements extending into the year 2015. See Note 12
of the Company's Consolidated Financial Statements for a
discussion of this project's refinancing. For the six month
fiscal year ended December 31, 1996, this project accounted for
approximately $9,590,000 in gross revenues, representing
approximately 23% of the Company's gross revenues.
Parlin Project. This 122 MW project, which commenced
operation in June 1991, is 100%-owned by NRGG Parlin, a wholly-
owned subsidiary of the Company. The Parlin Project provides up
to 120,000 lbs./hr. of steam to a manufacturing plant in Parlin,
New Jersey owned by E.I. du Pont de Nemours and Company ("E.I. du
Pont"), under an agreement extending until 2021. In addition,
the project sells 41 MW of base electric power and up to 73 MW of
dispatchable power to JCP&L, under an agreement with an initial
term until 2011. Finally, the
11
<PAGE>
project sells up to 9 MW of power to NRG Parlin, Inc. ("NPI"), a
wholly-owned subsidiary of NRG Energy. NPI resells this power at
retail to E.I. du Pont under an agreement extending until 2021.
See Note 12 of the Company's Consolidated Financial Statements
for a discussion of this project's refinancing. For the six
month fiscal year ended December 31, 1996, this project accounted
for approximately $10,327,000 in gross revenues, representing
approximately 26% of the Company's gross revenues.
Standby/Peak Shaving
Standby/peak shaving projects utilize the Company's power
generation equipment as a back-up source of electricity for large
electrical demand customers. The availability of an alternative
energy source allows these customers to benefit from
significantly discounted interruptible energy tariffs. The
standby/peak shaving generators typically will be required to
provide a specified amount of electricity during peak periods.
Philadelphia Project. This 22 MW project, owned by O'Brien
(Philadelphia) Cogeneration, Inc. ("OPC"), commenced operations
in May 1993. The Company owns an 83% interest in OPC, with the
remaining 17% interest owned by an unrelated private investor.
See Note 27 of the Consolidated Financial Statements. Pursuant
to a 20-year energy service agreement, the Philadelphia Municipal
Authority (the "Authority") has the right to be supplied with 20
MW of electricity from the project at any time on one hour's
notice. In addition, the project is required to use excess
digester gas collected at the Authority's northeast and southwest
Philadelphia plants to generate up to an approximate 2 MW of
electricity which is delivered to the Authority pursuant to a 10-
year power generation agreement. In October 1998, the
Authority's rate structure with its electrical utility is due to
be renegotiated. The outcome of these negotiations could
adversely affect the project. The Company's Board of Directors
has authorized Wexford Management LLC ("Wexford") to arrange a
sale of the Company's interest in the Philadelphia Project, if
satisfactory terms can be obtained, pursuant to a Liquidating
Asset Management Agreement entered into in connection with the
consummation of the Plan.
Equipment Sales, Rentals and Services Segment
In addition to the energy business, the Company sells and
rents power generation and cogeneration equipment and provides
related services. The Company operates its equipment sales,
rentals and services business principally through two
subsidiaries. In the United States, the equipment sales, rentals
and services business operates under the name of O'Brien Energy
Services Company ("OES"). NRG Generating Limited, a wholly-owned
United Kingdom subsidiary, is the holding company for a number of
subsidiaries that operate in the United Kingdom under the common
name of Puma ("Puma").
O'Brien Energy Services Company
A significant portion of the Company's equipment rental
business is attributable to the operations of OES. The Company
rents power generation and cogeneration equipment to the
construction, industrial, military, transportation, mining,
utility and entertainment markets. In addition to its rental
business, OES sells (i) equipment manufactured by others to
turnkey
12
<PAGE>
contractors in connection with the construction of the Company's
projects, (ii) equipment purchased by it for projects unrelated
to those being developed by the Company, and (iii) equipment
purchased and reconditioned by it. Finally, OES provides related
services including the design, assembly, repair and maintenance
of permanent or standby power generation equipment. On a
national level, the Company competes with a number of other
companies; in addition, there are numerous local competitors in
each of the geographic areas in which the Company operates. The
Company competes on the basis of experience, service, price and
depth of its rental fleet.
Puma
Puma designs and assembles diesel and natural gas fueled
power generation systems ranging in size from 5 kilowatts to 5
MW. These products are engineered and sold for use in prime
power base load applications as well as for standby or main
failure emergency situations. Major markets for these products
include commercial buildings, governmental institutions such as
schools, hospitals and public facilities, industrial
manufacturing or production plants, shipyards, the entertainment
industry and offshore drilling operations. The Company exports
many of its products primarily through established distributors
and dealers in local areas for delivery to markets such as the
Far East, including Hong Kong and mainland China, together with
the Middle East and South America.
Puma also designs and manufactures custom electrical
control and distribution subsystems. These include medium voltage
cubicle switchboards, main distribution systems, control
instrumentation panels and packaged substations. This equipment
receives and distributes power through a building, ship or other
self-contained structure.
The revenues and operations of the Company's foreign
operations in the United Kingdom disclosed below are attributable
solely to the equipment sales and services segment of the
Company's business. The revenues from such operations accounted
for in excess of 50% of that particular segment's revenue in the
six month fiscal year ended December 31, 1996.
<TABLE>
<CAPTION>
December 31, June 30, June 30, June 30,
1996 1996 1995 1994
(In Thousands)
<S> <C> <C> <C> <C>
Revenues:
United States $ 27,937 $ 82,917 $ 89,332 $ 93,090
United Kingdom 11,979 13,630 12,915 13,499
$ 39,916 $ 96,547 $ 102,247 $ 106,589
Net Income (Loss):
United States $ 6,087 $ (17,591) $ (40,905) $ (14,570)
United Kingdom 336 (122) (14) (1,931)
$ 6,423 $ (17,713) $ (40,919 $ (16,501)
Identifiable Assets:
United States $ 164,631 $ 169,657 $ 179,793 $ 230,343
United Kingdom 8,993 8,505 9,955 7,473
$ 173,624 $ 178,162 $ 189,748 $ 237,816
</TABLE>
13
<PAGE>
Regulation
In connection with the development and operation of its
projects, the Company is substantially affected by federal, state
and local energy and environmental laws and regulations.
The enactment in 1978 of PURPA and the adoption of
regulations thereunder by the FERC provided incentives for the
development of small power production facilities (those utilizing
renewable fuels and having a capacity of less than 80 MW) and
cogeneration facilities (collectively referred to as "qualifying
facilities" or "QFs"). Electric utilities are required to
purchase power from such facilities at rates based on the
incremental cost of electrical energy (so called "avoided cost").
Under regulations adopted by the FERC and upheld by the United
States Supreme Court, such rates are based upon "the incremental
cost to an electric utility of electrical energy or capacity or
both which, but for the purchase from the qualifying facility or
qualifying facilities, such utility would generate itself or
purchase from another source." Historically, and as it affects
the Company's sales of power from qualifying facilities, avoided
cost is generally a function of the purchasing utility's
otherwise applicable cost of fuel required to generate
electricity and its cost of capital required to construct a power
plant to supply such capacity.
With the exception of the Parlin Project and parts of the
Philadelphia Project, all of the Company's existing electric
generating facilities are qualifying small power production
facilities or qualifying cogeneration facilities, as these terms
are defined in PURPA. Pursuant to authority granted to FERC
under PURPA, FERC has promulgated regulations which at present
generally exempt qualifying facilities from the Federal Power
Act, PUHCA and state laws on electric utility regulation.
In order to qualify for the benefits provided by PURPA, the
Company's QFs must meet certain size, efficiency, fuel and
ownership requirements. For its major cogeneration projects, the
Company's practice has been to obtain an order from FERC
confirming the qualification of its facilities. However, the
standards for qualification and the regulations described above
are subject to amendment. If the regulations were to be amended,
the Company cannot predict the effect of any such amendment on
the extent of regulation to which the Company may thereby become
subject.
In the event that one of the Company's cogeneration
facilities failed to meet the requirements of being a "qualifying
facility" after relying on that status, the Company would be
materially adversely affected. See "Business - Risk Factors -
Proposed Restructuring of the Electric Utility Industry."
The Company renegotiated the PPA for the Parlin Project
during 1996. As permitted under the terms of its renegotiated
agreements, NRGG Parlin filed rates with the FERC as a public
utility under the Federal Power Act. Previously, the Parlin
Project had been certified as a QF by FERC. However, the effect
of the rate filing by NRGG Parlin was to relinquish its claim to
QF status. FERC has approved the rates filed by NRGG Parlin
effective April 30, 1996, and given certain other approvals to
NRGG Parlin in connection with the consummation of the Plan.
Among other things, NRGG Parlin has received a determination from
FERC that it is an exempt wholesale generator ("EWG"). It is
thus exempt from all provisions of the PUHCA, and the
14
<PAGE>
ownership of NRGG Parlin by the Company does not subject the
Company to regulation under PUHCA.
The Company is also subject to the Powerplant and Industrial
Fuel Use Act of 1978 ("FUA"), which generally limits the ability
of power producers to burn natural gas in new baseload generation
facilities unless such facilities also have the capability to use
coal or any other alternate fuel as a primary energy source. All
of the Company's existing projects have either received permanent
exemption from the FUA or otherwise complied with its provisions.
Environmental Regulations
In addition to the regulations described above, the
Company's projects must comply with applicable federal, state and
local environmental regulations, including those related to water
and air quality. These laws and regulations in many cases
require a lengthy and complex process of obtaining licenses,
permits and approvals from federal, state and local agencies.
The environmental regulations under which the Company's projects
operate are subject to amendment. The Company cannot predict
what effect compliance with such amendments may have on the
Company's business or operations. Compliance could require
modification of a project and thereby increase its costs, extend
its completion date or otherwise adversely affect a project.
The environmental regulations likely to have the greatest
impact on the Company's business and operations are air quality
regulations under the Clean Air Act. All of NRGG's operating
plants perform at levels better than current federal performance
standards mandated for such plants under the Clean Air Act.
Based on the current trend of environmental regulation, the
Company believes that this area of regulation in the U.S. will
become more strict.
In November 1990, Congress passed the Clean Air Act
Amendments of 1990 ("the 1990 Amendments"). The Environmental
Protection Agency ("EPA") is still in the process of implementing
the requirements mandated by the 1990 Amendments. In addition,
EPA and the States are in the process of revising existing
requirements under the Clean Air Act to make them more stringent.
The 1990 Amendments require EPA to establish technology-
based emission standards for hazardous air pollutants. "Electric
utility steam generating units" that are greater than 25 MW are
excluded from regulation while EPA conducts a study of hazardous
air pollutant emissions from these units to determine whether
such regulation is "appropriate and necessary." This study is
currently underway, and in 1996 EPA submitted an interim report
to Congress. If, in the final report EPA finds that such
regulations are necessary, the Company may be required to meet
additional pollution control requirements. EPA plans to issue
hazardous air pollutant regulations for combustion sources not
included within the scope of EPA's electric utility study,
including internal combustion engines, by November 2000. These
regulations may also require the Company to meet additional
control requirements.
The Company's business and operations may also be impacted
by changes to existing regulations under the Clean Air Act. For
example, EPA and the states are in the process of developing more
stringent emission limitations to control ground-level ozone.
EPA and a number
15
<PAGE>
of states have established the Ozone Transport Assessment Group
("OTAG"), composed of federal, state and local air regulatory
officials from the 37 eastern-most states to review the need for
additional NOx emission reduction requirements to address ozone
transport and ozone nonattainment under the current federal
ambient ozone standard. The OTAG process could result in new NOx
emission standards being required by EPA and/or the states. If
more stringent NOx standards are adopted by EPA and/or certain
states, NRGG could be required to install additional NOx emission
control technology at some of its facilities. In addition, EPA
has proposed to revise the current National Ambient Air Quality
Standards for ground-level ozone and particulate matter to make
them more stringent. EPA plans to finalize these rules this
summer. If EPA decides to make these standards more stringent,
additional control technology requirements may be imposed on
existing NRGG plants.
The Company does not believe that the effect of any such
additional requirements, if implemented, will have a material
adverse effect on its financial condition or results of
operations.
In the spring of 1996, the Company discovered numerous minor
and unintentional permit infractions of certain air emission
limits for its Newark and Parlin facilities which occurred over a
period of time as a result of an operational error. Upon
discovering such infractions, the Company promptly notified the
New Jersey Department of Environmental Protection ("NJDEP") and
took measures to correct the operational error and prevent its
recurrence. The cumulative effect of the excess emissions on a
"pounds per hour" basis was small. In June 1996, the Company met
with representatives of NJDEP to discuss the permit violations
and submitted a report to NJDEP concerning the violations. At
this time, NJDEP has not indicated that it will assess any
penalty and has not required any other action as a result of such
violations. The Company considers the matter resolved and
believes that no further actions are required.
All projects in operation and under development are believed
to be operating in substantial compliance with or designed to
meet currently applicable environmental requirements. To date,
compliance with these environmental regulations has not had a
material effect on the Company's earnings nor has it required the
Company to expend significant capital expenditures.
Competition
Many organizations, including equipment manufacturers and
subsidiaries of utilities and contractors, as well as other
organizations similar to the Company, have entered the
cogeneration market. Many of these organizations have
substantially greater resources than the Company. In addition,
obtaining power contracts with utilities has become more
competitive with the increased use of competitive bidding
procedures and the movement towards deregulation of electricity
energy market. This increased competition may make it more
difficult for the Company to secure future projects, may increase
project development costs and may reduce the Company's operating
margins. Even though many of its potential competitors have
substantially greater resources than the Company, the Company
believes that its experience, particularly if combined with a
strategic alliance with a third party with regard to larger
projects, will enable it to compete effectively.
16
<PAGE>
Principal Customer
The Company derived 46%, 62%, 65% and 53% of its revenues in
the six months ended December 31, 1996, and the fiscal years
ended June 30, 1996, 1995 and 1994, respectively, from JCP&L as a
result of the operation of the Newark and Parlin facilities.
Employees
As of December 31, 1996, the Company had approximately 120
full-time employees.
Patents
The Company and its subsidiaries do not own any patents or
trademarks.
Backlog
At December 31, 1996, the Company's total production
backlog was $1,176,000.
ITEM 2. PROPERTIES.
The Company's corporate headquarters are located in
Minneapolis, Minnesota. The Company leases office and warehouse
space until April 30, 1997 from Christiana River Holdings, Ltd.,
an entity owned by Frank L. O'Brien III, the former CEO of
O'Brien. Rental expense for the six month fiscal year ended
December 31, 1996 was approximately $98,000.
In September 1993, Puma purchased its executive offices and
its principal manufacturing facility located in Ash, Canterbury,
Kent, United Kingdom from III Enterprises, Limited, an entity
owned by Frank L. O'Brien III, for approximately $800,000. See
Note 23 of the Consolidated Financial Statements.
The headquarters of OES are located on approximately four
acres in Wilmington, Delaware. The premises are owned, subject
to a mortgage, in fee simple and include an approximately 55,000
square foot building. In addition, OES owns, subject to a
mortgage, office and warehouse space in Houston, Texas, on
approximately two acres of land. OES leases space for similar
purposes in each of Bakersfield and Benicia, California. The
office and warehouse space in Texas and in the California
locations range from approximately 5,000 to 10,000 square feet.
The Company leases property on the site of its cogeneration
facilities from the commercial user of thermal energy for a
nominal fee. The term of the lease equals or exceeds that
of each respective thermal supply agreement. The Company
believes that the leased premises are suitable and adequate for
the Company's projects.
17
<PAGE>
ITEM 3. LEGAL PROCEEDINGS.
The Company or a subsidiary is party to the following legal
proceedings:
1. Calpine Corporation v. NRG Generating (Parlin) Cogeneration
Inc., Superior Court of Essex County, New Jersey, Civil
Action File No. ESX-L-6905-96, filed June 19, 1996. This is
a dispute over the purchase of certain accounts receivables
allegedly owed by the Company.
2. Stevens, et al. v. O'Brien Environmental Energy, Inc., et
al., United States District Court for the Eastern District
of Pennsylvania, Civil Action No. 94-cv-4577, filed July 27,
1994. This action was filed by certain purchasers of the
Class A Common Stock of the Company's predecessor during the
class period who allege various violations of the Federal
securities laws. The Plaintiffs claim that certain material
misrepresentations and nondisclosures concerning the
Company's financial conditions and prospects allegedly
caused the price of the Common Stock to be artificially
inflated during the class period.
3. Blackman and Frantz v. O'Brien, United States District
Court, Eastern District of Pennsylvania, Civil Action No. 94-
cv-5686, filed October 25, 1995. This action was filed by
purchasers of O'Brien debentures during the class period.
The Plaintiffs object to treatment of the class under the
Bankruptcy Plan. This matter has been consolidated with the
Stevens class action case described in paragraph number 2
above.
4. GEC Alsthom, International, Inc. v. O'Brien Energy Services
Co., Stewart & Stevenson Operations, Inc., and ABC Company
(fictitious), Superior Court of Essex County, New Jersey,
Civil Action File No. L-7389-95, filed June 16, 1995. This
action arises out of the purchase of materials and services
from a vendor to make repairs in connection with a fire
which occurred at the Company's Newark turbine generator
facility on December 25, 1992. The Plaintiff claims that
the Company has failed to meet monetary obligations
aggregating approximately $155,000 under the alleged
agreement, and the Company has filed counter-claims alleging
that the Plaintiff failed to properly install certain
equipment which led to failures at the turbine generator
facility.
5. In re: O'Brien Environmental Energy, Case No. 94-26723, U.S.
Bankruptcy Court for the District of New Jersey, filed
September 29, 1994. The Company's exposure with respect to
its bankruptcy case is limited. The Company believes that
such limited exposure would probably be immaterial to its
operating results.
The Company is subject from time to time to various other
claims that arise in the normal course of business, and the
Company believes that the outcome of these matters (either
individually or in the aggregate) will not have a material
adverse effect on the business or financial condition of the
Company.
18
<PAGE>
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
At the Annual Meeting of Stockholders of the Company held on
November 21, 1996 (the "Meeting"), the following directors were
elected, each of whom will serve until the 1997 annual meeting of
stockholders and until his successor is elected and qualified:
Nominee Affirmative Negative
Votes Votes Abstentions
David H. Peterson 5,903,104 - 6,853
Leonard A. Bluhm 5,903,104 - 6,853
Lawrence I. Littman 5,903,101 - 6,856
Craig A. Mataczynski 5,903,104 - 6,853
Spyros S. Skouras, Jr. 5,902,378 - 7,579
Charles Thayer 5,903,104 - 6,853
Ronald J. Will 5,902,352 - 7,605
In addition, the following proposals were approved at the
Meeting:
Approval of the Company's 1996 Stock Option Plan authorizing
the Company to grant options to purchase up to 500,000 shares of
the Company's Common Stock to members of the Board of Directors,
officers and key employees of the Company or its subsidiaries.
Affirmative Negative
Votes Votes Abstentions
3,923,233 80,735 14,160
Ratification of the selection of Price Waterhouse LLP as the
Company's independent public accountants.
Affirmative Negative
Votes Votes Abstentions
5,900,782 2,911 6,264
19
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS.
From July 1, 1996, through December 31, 1996, the Company's
Common Stock was not listed on an exchange or on the Nasdaq Stock
Market but traded from time to time on the pink sheets and on the
OTC Bulletin Board. According to the NASDAQ News Service, the
range of high and low selling prices during such period was $4.75
to $12.00. Such prices may have reflected inter-dealer prices,
without retail mark-ups, mark downs or commissions, and may not
necessarily represent actual transactions.
As of March 13, 1997, the Company had approximately 600
holders of record of its Common Stock, not including beneficial
owners whose shares are held by banks, brokers and nominees.
The Company presently intends to retain all earnings for the
operation and expansion of its business and does not anticipate
paying cash dividends on its Common Stock in the foreseeable
future. Any future determination as to the payment of dividends
on the common stock will depend upon future earnings, results of
operations, capital requirements, the financial condition of the
Company and any other factors the Board of Directors of the
Company may consider.
The Company's principal operating subsidiaries NRGG Newark
and NRGG Parlin, are parties to a Credit Agreement which
prohibits the payment of dividends by such subsidiaries to the
Company, provided that such dividend payments may be made out of
funds available after the payment of various costs and expenses
set forth in the Credit Agreement (including without limitation
operating costs, various debt service payments and the funding of
various accounts required to be maintained pursuant to the Credit
Agreement) if certain conditions set forth in the Credit
Agreement are satisfied, including without limitation the
maintenance of a debt service coverage ratio set forth in the
Credit Agreement, the absence of any default or event of default
under the Credit Agreement, and the satisfaction of certain
conditions relating to the composition of the Board of Directors
of the Company.
20
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA.
The consolidated selected financial data as of and for
each of the periods indicated have been derived from the
audited financial statements of the Company. This data
should be read in conjunction with, and is qualified in its
entirety by reference to, the related financial statements
and notes included elsewhere in this Report.
<TABLE>
<CAPTION>
Six Months
(Dollars in thousands, Ended
(except per share amounts) December 31, Year Ended June 30
1996(3) 1996 1995 1994 1993 1992
<S> <C> <C> <C> <C> <C> <C>
Statements of Operations Data:
Revenues:
Energy $ 21,669 $ 66,623 $ 74,455 $ 62,647 $ 65,136 $ 71,638
Equipment sales and services 15,607 25,344 19,639 24,304 18,955 21,854
Rental 1,062 1,895 2,362 5,372 3,636 3,191
Related parties - - - - 515 378
Development fees and other 1,578 2,685 5,791 14,266 9,450 3,054
Total 39,916 96,547 102,247 106,589 97,692 100,115
Cost of revenues 21,987 71,753 72,164 84,174 71,750 66,996
Gross profit 17,929 24,794 30,083 22,415 25,942 33,119
Provision for loss on equipment - - 21,640 6,250 - -
Selling, general and administrative
expenses 6,149 12,792 20,320 19,680 21,872 13,133
Income (loss) from operations 11,780 12,002 (11,877) (3,515) 4,070 19,986
Involuntary conversion gain - - - 6,066 - -
Interest and other income 413 569 2,587 874 993 1,204
Interest and debt expense (7,681) (18,646) (20,583) (18,013) (15,696) (17,340)
Reorganization costs - (12,101) (8,366) - - -
Income (loss) before income taxes
and cumulative effect of a change in
accounting principle 4,512 (18,176) (38,239) (14,588) (10,633) 3,850
Provision for (benefit from) income
taxes (268) (463) 2,680 1,913 3,078 2,438
Income (loss) before extraordinary
item 4,780 (17,713) (40,919) (16,501) (13,711) 1,412
Extraordinary item, net of income taxes 1,643 - - - - -
Net income (loss) $ 6,423 $ (17,713) $ (40,919) $ (16,501) $ (13,711) $ 1,412
Net income (loss) per share(1) $ 1.00 $ (4.24) $ (11.02) $ (4.45) $ (3.70) $ 0.43
Weighted average shares outstanding 6,454 4,182 3,712 3,712 3,701 3,280
1996 1996 1995 1994 1993 1992
Balance Sheet Data:
Working capital (deficiency) $ 2,491 $ (6,211) $(184,589)(2)$(125,683) $ (11,119) $ 816
Property, plant and equipment, net 132,203 134,694 151,130 176,514 194,217 195,677
Total assets 173,624 178,162 189,748 237,816 262,529 259,054
Nonrecourse long-term debt, net 150,311 66,789 3,405 7,073 28,012 20,003
Convertible senior subordinated
debentures - - - - 49,174 49,174
Nonrecourse project financing, net - - - 60,310 97,140 107,898
Stockholders' equity (deficit) (30,513) (37,573) (40,758) 136 15,675 29,405
<FN>
(1) Net income (loss) per share has been restated for all periods presented to reflect the
common shares issued under the terms of the Plan.
(2) At June 30, 1995, nonrecourse project financing, net excludes $60,310 of amounts
with long-term repayment terms. This amount was included in current liabilities
(thereby included in working capital deficiency) due to default under the debt agreement.
(3) Effective July 1, 1996, the Company changed its year end from June 30 to December 31.
</TABLE>
21
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.
All amounts set forth in this Item 7 are in thousands.
The Company, formerly known as O'Brien Environmental Energy,
Inc., directly and through its subsidiaries develops and owns
cogeneration projects which produce electricity and thermal
energy for sale to industrial and commercial users and public
utilities. In addition, the Company, through its subsidiaries,
sells and rents power generation, cogeneration and standby/peak
shaving equipment and services.
On April 30, 1996, O'Brien emerged from bankruptcy. The
Plan approved on January 18, 1996 by the Bankruptcy Court awarded
NRG Energy the right 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. O'Brien was renamed on the April 30,
1996 closing date to NRG Generating (U.S.) Inc.
On April 30, 1996, NRG Energy funded approximately $107,418
in accordance with the Plan and acquired a 41.86% equity interest
in the Company. All common shares of O'Brien were canceled and
replaced by a new issue of common stock of NRGG. Net income
(loss) per share has been restated for all periods presented to
reflect the new common shares issued under the terms of the Plan.
Additionally, under the terms of the Plan, NRG Energy
acquired the stock of ten wholly-owned subsidiaries from the
Company on the closing date which included all of the Company's
landfill gas projects (those operating and those in development),
the general partner holding a 3% equity interest in the Artesia
Cogeneration partnership and a standby power project. The
Company believes that the sale of these subsidiaries will not
have a material adverse effect on its results of operations in
future years.
The Company currently owns and operates two cogeneration
facilities (the Newark and Parlin Projects) with an electric
generating capacity of 174 MW and two standby/peak shaving
facilities (together comprising the Philadelphia Project) with a
capacity of 22 MW in which the Company has an 83% interest. On
April 30, 1996, the amended PPAs with JCP&L, the primary customer
of the Newark and Parlin Projects, became effective. Although
energy revenues as well as the cost of energy revenues decreased
under the amended PPAs, the Company believes that operating gross
profit margins will remain similar to historical results.
However, margin fluctuations attributable to periodic swings in
fuel costs have been eliminated.
Equipment sales, rentals and services is the Company's
demand-side management business through which the Company
provides standby power equipment and services to customers for a
fee. The Company is also a one-third partner in a 150 MW
cogeneration facility currently under construction.
22
<PAGE>
Both the Newark and Parlin Projects were previously
certified as QFs by the FERC under PURPA. The effect of QF
status is generally to exempt a project's owners from relevant
provisions of the Federal Power Act, PUHCA, and state utility-
type regulation. However, as permitted under the terms of its
renegotiated PPAs, NRGG Parlin has chosen to file rates with FERC
as a public utility under the Federal Power Act. The effect of
this filing was to relinquish NRGG Parlin's claim to QF status.
The FERC has approved NRGG Parlin's rates effective April 30,
1996, and given certain other approvals to Parlin in conjunction
with the bankruptcy reorganization. In addition, the FERC has
determined Parlin to be an EWG. As an EWG, NRGG Parlin is exempt
from PUHCA, and the ownership of NRGG Parlin by the Company does
not subject the Company to regulation under PUHCA. Finally, as a
seller of power exclusively at wholesale, NRGG Parlin is not
generally subject to state regulation and, in any case, the
Company believes that NRGG Parlin complies with all applicable
requirements of state utility law.
Power Operations, Inc., a new wholly-owned subsidiary of the
Company, assumed operations and maintenance responsibilities for
the Newark facility and the Parlin facility, in each case
replacing the former operator, on November 8, 1996, and December
31, 1996, respectively. The Company believes that such changes
will have no material financial impact on the operations of these
facilities or on the Company's financial condition or results of
operations. On January 1, 1997, Power Operations, Inc. was sold
by the Company to NRG Energy. The terms of this transaction
were approved by the Independent Directors Committee of the
Company's Board of Directors as required by the Company's Bylaws.
The Company entered into a Liquidating Asset Management
Agreement on April 30, 1996 with Wexford, a co-sponsor of the
Plan, which, in accordance with the Plan, retains Wexford as
manager, operator and liquidator of the Liquidating Assets of the
Company pursuant to the terms and conditions of the agreement.
The Board of Directors and officers of the Company have the right
to direct and control which assets will be liquidated and the
extent of management services required for each Liquidating
Asset. The Liquidating Assets identified in the agreement
consist of (a) the Company's engine generator sales, service and
rental business, (b) the Philadelphia Project, (c) unused
equipment and (d) American Hydrotherm ("American Hydrotherm") and
two related companies. The Board of Directors authorized Wexford
to liquidate the Philadelphia Project, American Hydrotherm
and two related companies and the unused equipment. In December
1996, the Company sold American Hydrotherm and two related
companies to the management of American Hydrotherm. Wexford has
received compensation in accordance with the terms of the
agreement (see Note 23 to the Consolidated Financial Statements).
No decision has been made regarding the possible liquidation of
the engine generator business. Management does not expect the
disposition of these businesses to have a material effect on the
Company's financial position or results of operation.
The Company has adopted a change in its fiscal year to a
calendar year effective on December 31, 1996.
23
<PAGE>
Results of Operations for the Six Months Ended December 31, 1996
and the Years Ended June 30, 1996, 1995 and 1994
Revenues
Energy revenues for the six months ended December 31, 1996
and the years ended June 30, 1996, 1995 and 1994 were $21,669,
$66,623, $74,455 and $62,647, respectively. Energy revenues
primarily reflect billings associated with the Newark and Parlin
Projects and the Philadelphia Project. The decrease in energy
revenues for the six months ended December 31, 1996 as compared
to fiscal year 1996 was primarily due to only six months of
revenues reported in the period ended December 31, 1996 and to
the amended PPAs affecting both the Newark and Parlin Projects.
The decrease in energy revenues in 1996 from 1995 was primarily
attributable to a voluntary curtailment of operations at Parlin
and to the negative impact of unit fuel cost fluctuations on the
energy rate calculation under the Parlin Project's previous PPA.
Additionally, a portion of the decrease is attributable to the
amended PPAs affecting both the Newark and Parlin Projects for
the final two months of fiscal 1996.
Revenues recognized by NRGG Parlin for the six months ended
December 31, 1996 and the years ended June 30, 1996, 1995 and
1994 were $10,327, $34,867, $40,784 and $37,910, respectively.
NRGG Parlin revenues decreased for the six months ended December
31, 1996 as compared to fiscal year 1996 primarily due to only
six months of revenues reported in the period ended December 31,
1996 and to the amended PPA. NRGG Parlin initiated a voluntary
curtailment of electric output beginning in the first quarter and
extending into the second quarter of fiscal 1996, during off-peak
hours, to maintain the correct ratio of thermal to electric
production after E.I. du Pont, the steam host, significantly
decreased its steam demand by moving a business segment overseas.
Additionally, NRGG Parlin's fiscal 1996 revenues were affected
by a decrease in the energy rate under the previous PPA adjusted
quarterly based on, in part, the average cost of fuel over the
preceding year. A mild 1995 winter resulted in unusually low
natural gas costs which, after a five quarter lag, lowered the
energy rate received during fiscal 1996. NRGG Parlin revenues
also decreased in fiscal 1996 by approximately $2,680 from the
amended PPA implemented on April 30, 1996.
Fiscal 1994 NRGG Parlin revenues were negatively impacted by
a gas turbine being shut down for unscheduled repairs for
approximately three months during the year.
Revenues recognized at NRGG Newark for the six months ended
December 31, 1996 and the years ended June 30, 1996, 1995 and
1994 were $9,259, $26,820, $28,908 and $23,082, respectively.
NRGG Newark revenues decreased for the six months ended December
31, 1996 as compared to fiscal year 1996 primarily due to only
six months of revenues reported in the period ended December 31,
1996 and to the amended PPA. The increase in revenues in 1995
from 1994 was attributable primarily to a full year of operations
in fiscal 1995 as compared to a partial year of operations in
fiscal 1994. The Newark Project resumed partial operations in
August 1993 and full operations in October 1993 after completing
reconstruction resulting from damage incurred in a December 1992
fire.
24
<PAGE>
Equipment sales and services revenues for the six months
ended December 31, 1996 and the years ended June 30, 1996, 1995
and 1994 were $15,607, $25,344, $19,639 and $ 24,304,
respectively, which principally reflect the operations of OES,
Puma and American Hydrotherm. Revenues decreased for the six
months ended December 31, 1996 as compared to fiscal year 1996
primarily due to only six months of revenues reported in the
period ended December 31, 1996, offset in part by the inclusion
of nine months of revenues in the period from the operations of
Puma. Puma adopted a change in its fiscal year end of March 31
to a calendar year effective on December 31, 1996. Management
attributes the increase in fiscal 1996 to a volume increase
resulting from successful marketing efforts as well as to an
improvement in the U.S. economy. The Company also believes that
its bankruptcy filing in September 1994 had some negative impact
in fiscal 1995 revenues because of customer uncertainty.
OES equipment sales and services revenues for the six months
ended December 31, 1996 and the years ended June 30, 1996, 1995
and 1994 were $1,575, $5,232, $3,575 and $7,789, respectively.
Fiscal 1994 revenue levels were generated from backlog orders
transferred from O'Brien Power Systems, Inc., a company
controlled by a relative of the former CEO of the Company, in
order to expand OES's domestic business in the design and
assembly of generator sets and switchgear. OES was unable to
replenish this transferred backlog until late in the 1995 fiscal
year.
Rental revenues for the six months ended December 31, 1996
and the years ended June 30, 1996, 1995 and 1994 were $1,062,
$1,895, $2,362 and $5,372, respectively. In November 1993, the
Company sold the Philadelphia Project to an unrelated private
investor and subsequently reacquired it in August 1994. Rental
fluctuations are primarily attributable to rental revenues
recognized during the period the project was owned by the private
investor. The Company continued to own and lease the equipment
and facilities to the private investor during the period between
November 1993 and August 1994.
Development fees and other revenues for the six months ended
December 31, 1996 and the years ended June 30, 1996, 1995 and
1994 were $1,578, $2,685, $5,791 and $14,266, respectively. The
decrease in revenues in 1996 from 1995 was attributable primarily
to the Company selling its rights to develop a standby electric
project for $1,763, the expiration of a purchase option whereby,
the Company retained $775 in forfeited escrow deposits and to
higher gas sales to the Artesia Cogeneration partnership in 1995.
The decrease in revenues from 1994 to 1995 was attributable
primarily to the sale of the Company's contractual rights to
develop certain coalbed methane reserves for $5,121 and to the
sale of rights to develop a standby electric project for
approximately $5,000 in 1994.
Costs and Expenses
Cost of energy revenues for the six months ended December
31, 1996 and the years ended June 30, 1996, 1995 and 1994 were
$7,229, $45,663, $46,694 and $49,961, respectively. Cost of
energy revenues decreased for the six months ended December 31,
1996 as compared to fiscal year 1996 primarily due to only six
months of costs reported in the period ended December 31, 1996
and the result of the amended PPAs in which JCP&L began assuming
the cost of fuel for the
25
<PAGE>
Newark and Parlin facilities. Fiscal 1996 and 1994 included more
severe winters than 1995 resulting in significantly higher
natural gas unit rates in these years. Cost of energy revenues
also includes a temporary period of natural gas curtailment in
the winters of fiscal 1996 and 1994 requiring the Newark and
Parlin Projects to operate using a more expensive alternative
fuel.
Cost of equipment sales and services for the six months
ended December 31, 1996 and the years ended June 30, 1996, 1995
and 1994 were $12,365, $22,153, $17,622 and $21,890,
respectively. Cost of equipment sales and services for the six
months ended December 31, 1996 include nine months of costs from
the operations of Puma. The fluctuations in cost of equipment
sales and services between fiscal years 1996, 1995 and 1994
primarily correlate to the fiscal changes in sales volume in the
Company's equipment sales, rental and service businesses.
Cost of rental revenues services for the six months ended
December 31, 1996 and the years ended June 30, 1996, 1995 and
1994 were $834, $1,406, $2,357 and $2,730, respectively. Cost of
rental revenues decreased for the six months ended December 31,
1996 as compared to fiscal year 1996 primarily due to only six
months of costs reported in the period ended December 31, 1996.
The decrease in cost of equipment rentals between fiscal years
1996, 1995 and 1994 is attributable to the reacquisition of the
Philadelphia Project from an unrelated private investor. The
Company sold the project in November 1993 and reacquired it in
August 1994 but continued to own and lease the equipment and
facilities to the private investor during this period.
Cost of development fees and other for the six months ended
December 31, 1996 and the years ended June 30, 1996, 1995 and
1994 were $1,559, $2,531, $5,491 and $9,593, respectively.
These costs consist principally of costs associated with the sale
of various projects either under development or in operation.
The Company's gross margins were $17,929 (44.9% of sales),
$24,794 (25.7% of sales), $30,083 (29.4% of sales) and
$22,415 (21.0% of sales) for the six months ended December
31, 1996 and for the years ended June 30, 1996, 1995 and 1994,
respectively. The fluctuations are primarily attributable to the
energy segment which, as discussed above, were due to
fluctuations in the recovery of fuel costs through energy
revenues under the Newark and Parlin Project PPAs in effect until
April 30, 1996.
Provision for Loss on Equipment Held for Sale and Write Down of
Plant and Equipment
The Company began actively seeking buyers for specific
energy equipment consisting primarily of gas and steam turbines
not currently being used in an operating project nor critical to
the completion of any projects in development. The value of
these assets sold in a secondary market is less than if
incorporated into an internally developed operating project.
Accordingly, the Company recorded a non-cash charge of $6,250
against earnings to write down the carrying value of these assets
to an estimated resale value for the year ended June 30, 1994 and
recorded an additional writedown in fiscal 1995 of $5,655 to
reflect the Company's intent to accelerate the disposal of this
equipment.
26
<PAGE>
The Company engaged an independent valuation expert to
appraise its property, plant and equipment in connection with the
bankruptcy proceedings and the Plan. Accordingly, the Company
recorded a non-cash charge against earnings in fiscal 1995 of
$15,985 to write down the carrying value of its property, plant
and equipment to a lower appraised value.
Selling, General and Administrative Expenses
Selling, general and administrative expenses ("SG&A") for
the six months ended December 31, 1996 and the years ended June
30, 1996, 1995 and 1994 were $6,149, $12,792, $20,320 and
$19,680, respectively. Fiscal 1996 includes a $3,100 cost
incurred to terminate the interest rate swap agreement in
connection with the Parlin nonrecourse project debt refinancing.
Fiscal 1996 SG&A expenses benefited from lower payroll and
related tax costs as well as reduced insurance expenses by
approximately $2,347 as compared to fiscal 1995.
Since filing for bankruptcy in September 1994, the Company
has attempted to reduce its SG&A expenses. Fiscal 1995 SG&A
includes project development costs totaling $4,418 based upon the
anticipated implementation of the Plan and $1,888 in unamortized
goodwill primarily associated with the value assigned to an
acquired subsidiary's patented waste heat recovery technology
deemed not realizable.
In January 1994, the Company ceased operations at one of its
United Kingdom subsidiaries which was in the business of
manufacturing low voltage switchgear. Fiscal 1994 SG&A includes
pretax losses associated with this United Kingdom subsidiary of
approximately $1,200 which includes $319 of costs associated with
the closure of the business.
Involuntary Conversion Gain
In fiscal 1994, the Company recognized an involuntary
conversion gain of $6,066 from the property settlement with the
insurance carrier resulting from the December 25, 1992 fire at
the Newark facility. The gain represents the amount by which the
insurance proceeds (replacement cost) exceeded the net book value
of the equipment lost in the fire.
Interest and Other Income
Other income for the six months ended December 31, 1996 and
the years ended June 30, 1996, 1995 and 1994 were $413, $569,
$2,587 and $874, respectively. Other income for the six months
ended December 31, 1996 was positively impacted by interest
income earned on escrow account balances established in
connection with the recourse financing on the Newark and Parlin
facilities. Fiscal 1995 other income includes $1,180 recognized
in connection with the original construction of the Philadelphia
Project.
Reorganization Costs
Reorganization costs represent all costs incurred after
filing bankruptcy that relate to the Company's reorganization and
restructuring efforts. Reorganization costs for the years ended
27
<PAGE>
June 30, 1996 and 1995 were $12,101 and $8,366,
respectively. These costs consist primarily of professional and
administrative fees and expenses as well as a fiscal 1995 expense
of $3,387 incurred to adjust the carrying value of the
subordinated debentures to the amount approved by the Bankruptcy
Court as an allowed claim.
Interest and Debt Expense
Interest and debt expense for the six months ended December
31, 1996 and the years ended June 30, 1996, 1995 and 1994 were
$7,681, $18,646, $20,583 and $18,013, respectively. Interest and
debt expense decreased for the six months ended December 31, 1996
as compared to fiscal year 1996 primarily due to only six months
of expenses reported in the period ended December 31, 1996 and to
the refinancing of the Newark and Parlin Projects. Fiscal 1996
and 1995 interest and debt expense includes post-petition
interest on prepetition liabilities of $6,487 and $6,194,
respectively. Fiscal 1996 also includes $1,098 in interest costs
associated with loans provided by NRG Energy and $1,433 of
deferred financing costs attributable to the nonrecourse debt
relating to the Newark and Parlin Projects which were refinanced
during the year (see Liquidity and Capital Resources). Fiscal
1995 interest and debt expense includes $1,050 paid to the
unrelated private investor to extend the Company's reacquisition
option period for the Philadelphia Project to August 1994.
Extraordinary Item
In the six month period ended December 31, 1996, the Company
negotiated a buyout of a subsidiary's capital lease obligation.
The lender agreed to accept a $1,100 payment in full satisfaction
of the lease. The transaction resulted in an extraordinary gain
of $1,643 (net of $124 of state income taxes).
Income Taxes
For the six months ended December 31, 1996 and the year
ended June 30, 1996, the Company realized an overall income tax
benefit of $268 and $463, respectively. For the fiscal years
ended June 30, 1995 and June 30, 1994, the provision for income
taxes was $2,680 and $1,913, respectively. The benefit for the
six months ended December 31, 1996 is derived from the Company's
ability to reduce its current and deferred tax liabilities by
using net operating loss carryforwards and existing deductible
temporary differences to offset current taxable income and future
reversals of taxable temporary differences. The benefit for the
fiscal year ended June 30, 1996 was attributable to the
utilization of state net operating loss carryforwards as well as
a decrease in the deferred tax liability primarily attributable
to a change in temporary differences resulting from the landfill
gas equipment sold to NRG on April 30, 1996. The 1995 and 1994
tax provisions, consisting primarily of deferred taxes relating
to property and equipment, results from the uncertainty of
realizing the benefits of the tax loss carryforwards in future
years against them. Additionally, most professional fees
incurred during the bankruptcy period included in reorganization
costs are treated as capital expenditures and are not deductible
for income tax purposes (see Note 24 to the Consolidated
Financial Statements).
28
<PAGE>
Liquidity and Capital Resources
On April 30, 1996, NRG Energy funded $107,418 in accordance
with the Plan. The Company received $99,918 of which $71,240 was
advanced under the terms of three loan agreements between the
Company and NRG Energy; $21,178 represented the purchase of new
common stock of NRGG and $7,500 was designated as the proceeds
for the sale of ten wholly-owned subsidiaries sold to NRG Energy.
In addition, NRG Energy transferred $7,500 directly to the
Company's stock transfer agent representing a cash distribution
by NRG Energy to the O'Brien common stockholders.
In May 1996, the Company's wholly-owned subsidiaries NRGG
Newark and NRGG Parlin entered into a Credit Agreement with a new
lender (the "Credit Agreement"). The Credit Agreement
established provisions for a $155,000 fifteen-year loan and a
$5,000 five-year debt service reserve line of credit. The
interest rate on the outstanding principal is variable based on,
at the option of NRGG Newark and NRGG Parlin, LIBOR plus a 1.125%
margin or a defined base rate plus a 0.375% margin, with nominal
margin increases in the sixth and eleventh year. Concurrent with
the Credit Agreement, NRGG Newark and NRGG Parlin entered into an
interest rate swap agreement with respect to 50% of the principal
amount outstanding under the Credit Agreement. This interest
rate swap agreement fixes the interest rate on the 50% portion of
the principal amount outstanding at 6.9% plus the margin.
On May 23 1996, NRGG Newark borrowed $60,000 in the form of
a six-month term loan under the terms of the Credit Agreement,
pending the availability of the remaining total loan commitment.
On July 11, 1996, the remaining $95,000 loan commitment was
borrowed and combined with the $60,000 into a $155,000, fifteen
year new term loan.
The Company used the proceeds of the new term loan to repay
certain preexisting obligations of the Company including $87,291
of indebtedness to NRG Energy. NRG Energy provided the Company
with loans during fiscal 1996 of which $101,679 was outstanding
at June 30, 1996. At December 31, 1996, loans of $14,388 remain
outstanding to NRG Energy.
NRG Energy has provided additional loan commitments to the
Company. A $10,000 loan agreement negotiated between NRG Energy
and NRGG Schuylkill Cogeneration, Inc. (formerly known as O'Brien
(Schuylkill) Cogeneration, Inc.) ("NSC"), a wholly-owned
subsidiary, provides funding, if needed, for an NSC capital
contribution obligation to the Grays Ferry Partnership. NSC owns
a one-third partnership interest in the Grays Ferry Project
currently under construction. In March 1996, the partnership
entered into a credit agreement with Chase Manhattan Bank N.A. to
finance the project. The credit agreement obligates a $10,000
capital contribution from each of the projects' three partners
prior to the commercial operation of the facility, which is
anticipated to occur by the end of 1997. In addition, there
remains $13,615 in available borrowings under the terms of one of
the Plan loan agreements to provide funding for any bankruptcy
obligation shortfalls.
Except for the historical information contained within this
Management's Discussion and Analysis of Financial Condition and
Results of Operations, the accompanying consolidated financial
statements, and the Notes to Consolidated Financial Statements,
the matters reflected or discussed in this report which relate to
the Company's beliefs, expectations, plans, future
29
<PAGE>
estimates and the like are forward-looking statements that
involve risks and uncertainties including but not limited to:
business conditions and growth in the general economy; regulatory
and other legal developments affecting the markets in which the
Company operates and changes in environmental laws; volatility in
gross margins caused by seasonal factors that cannot be
controlled by the Company; competitive factors, such as price
pressures and other factors which may make it more difficult for
the Company to secure future projects and may increase project
development costs and/or reduce operating margins; the success of
the Company's business partners, including its energy customers
and fuel suppliers; the successful completion of the Grays Ferry
Project and the various other factors discussed in this report,
including without limitation those discussed under "Item 1.
Business - Risk Factors." Such factors may cause the Company's
actual results to differ materially from those discussed herein
and in forward-looking statements made herein.
30
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The following Consolidated Financial Statements of the
Company and its subsidiaries and independent auditors' report
thereon are included as pages F-1 through F-31 immediately
following the signature page of this Annual Report on Form 10-K,
and is incorporated herein by reference:
Report of Independent Accountants F-1
Financial Statements:
Consolidated Balance Sheets as of December 31, 1996,
June 30, 1996 and 1995 F-2
Consolidated Statements of Operations for the six
months ended December 31, 1996 and the years ended
June 30, 1996, 1995 and 1994 F-3
Consolidated Statements of Stockholders' Equity for
the six months ended December 31, 1996 and the years
ended June 30, 1996, 1995 and 1994 F-4
Consolidated Statements of Cash Flows for the six
months ended December 31, 1996 and the years ended
June 30, 1996, 1995 and 1994 F-5
Notes to Consolidated Financial Statements F-6 through F-30
Report of Independent Accountants for fiscal year 1994 F-31
All other supplementary financial information has been
omitted because of the absence of the conditions under which it
is required.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE.
Previously reported in NRG Generating (U.S.) Inc.'s Current
Report on Form 8-K dated April 30, 1996, and as amended May 20,
1996.
31
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The information required for this item is incorporated by
reference to the Company's 1997 Definitive Proxy Statement which
the Company will file with the Securities and Exchange Commission
no later than 120 days subsequent to December 31, 1996.
ITEM 11. EXECUTIVE COMPENSATION.
The information required for this item is incorporated by
reference to the Company's 1997 Definitive Proxy Statement which
the Company will file with the Securities and Exchange Commission
no later than 120 days subsequent to December 31, 1996.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT.
The information required for this item is incorporated by
reference to the Company's 1997 Definitive Proxy Statement which
the Company will file with the Securities and Exchange Commission
no later than 120 days subsequent to December 31, 1996.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information required for this item is incorporated by
reference to the Company's 1997 Definitive Proxy Statement which
the Company will file with the Securities and Exchange Commission
no later than 120 days subsequent to December 31, 1996.
32
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON
FORM 8-K.
(a) Documents filed as part of this report.
1. Financial Statements
The following consolidated financial statements of the
Company and its Subsidiaries and report of independent auditors
thereon are included as Pages F-1 through F-31 immediately
following the signature page of this Annual Report on Form 10-K.
Index to Consolidated Financial Statements
Report of Independent Accountants
Consolidated Balance Sheets as of December 31, 1996 and June
30, 1996 and 1995
Consolidated Statements of Operations for the six months
ended December 31, 1996 and for the years ended June 30,
1996, 1995 and 1994
Consolidated Statements of Stockholders' Equity for the six
months ended December 31, 1996 and for the years ended June
30, 1996, 1995 and 1994
Consolidated Statements of Cash Flows for the six months
ended December 31, 1996 and for the years ended June 30,
1996, 1995 and 1994
Notes to Consolidated Financial Statements
Report of Independent Accountants for fiscal year 1994
2. Financial Statement Schedules
All schedules are omitted because of the absence of the
conditions under which they are required or because the required
information is included in the financial statements or notes
thereto.
33
<PAGE>
3. Exhibits
The "Index to Exhibits" following the Consolidated Financial
Statements of the Company and its subsidiaries is incorporated
herein by reference. Certain documents related to the projects
and other matters, some of which are listed in the Index to
Exhibits, will be filed by amendment as soon aspracticable.
(b) Reports on Form 8-K
The following reports on Form 8-K were filed during the last
quarter of the calendar year ended December 31, 1996:
1. Current Report on Form 8-K dated December 13, 1996
reporting information under Item 5.
34
<PAGE>
Signature
In accordance with Section 13 or 15(d) of the Exchange Act,
the registrant caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.
NRG GENERATING (U.S.) INC.
/s/ Timothy P. Hunstad
By: Timothy P. Hunstad
Title: Vice President and Chief
Financial Officer
Pursuant to the requirements of the Securities Exchange Act
of 1934, this report has been signed below by the following
persons on behalf of the registrant and in the capacities and on
the dates indicated:
Signature Title Date
/s/ Leonard A. Bluhm Chairman of the March 26, 1997
By: Leonard A. Bluhm Board of Directors and
Chief Executive Officer
/s/ Timothy P. Hunstad Vice President and March 26, 1997
By: Timothy P. Hunstad Chief Financial Officer
/s/ Lawrence I. Littman Director March 26, 1997
By: Lawrence I. Littman
/s/ Craig A. Mataczynski Director March 26, 1997
By: Craig A. Mataczynski
/s/ David H. Peterson Director March 26, 1997
By: David H. Peterson
/s/ Spyros S. Skouras, Jr. Director March 26, 1997
By: Spyros S. Skouras, Jr.
/s/ Charles J. Thayer Director March 26, 1997
By: Charles J. Thayer
/s/ Ronald J. Will Director March 26, 1997
By: Ronald J. Will
35
<PAGE>
NRG Generating (U.S.) Inc.
Consolidated Financial Statements
December 31, 1996
Report of Independent Accountants
To the Stockholders and Board of Directors
of NRG Generating (U.S.) Inc.
In our opinion, the accompanying consolidated balance sheets and
the related consolidated statements of operations, of
stockholders' equity and of cash flows present fairly, in all
material respects, the financial position of NRG Generating
(U.S.) Inc. (formerly known as O'Brien Environmental Energy,
Inc.), and its subsidiaries at December 31, 1996, and June 30,
1996 and 1995, and the results of their operations and their cash
flows for the six months ended December 31, 1996 and the twelve
months ended June 30, 1996 and 1995 in conformity with generally
accepted accounting principles. These financial statements are
the responsibility of the Company's management; our
responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these
statements in accordance with generally accepted auditing
standards which require that we plan and perform the audits to
obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting
principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the
opinion expressed above. The consolidated financial statements
of NRG Generating (U.S.) Inc., for the twelve months ended
June 30, 1994 were audited by other independent accountants whose
report dated October 7, 1994 expressed an unqualified opinion on
those statements and included an explanatory paragraph expressing
substantial doubt about the Company's ability to continue as a
going concern. That report also disclosed the voluntary petition
filed by the Company for reorganization under Chapter 11 of the
Federal Bankruptcy Code in the United States Bankruptcy Court on
September 28, 1994.
As discussed in Note 1 to the consolidated financial statements,
on April 30, 1996, O'Brien Environmental Energy, Inc. was
reorganized pursuant to a plan of reorganization submitted by NRG
Energy, Inc., the O'Brien Official Committee of Equity Security
Holders and Wexford Management Corp., and approved by the
Bankruptcy Court for the District of New Jersey on January 18,
1996. As part of the reorganization, NRG Energy, Inc. acquired
an approximate 42% equity interest in the reorganized company,
renamed NRG Generating (U.S.) Inc.
Price Waterhouse LLP
Minneapolis, Minnesota
March 13, 1997
F-1
NRG Generating (U.S.) Inc.
Consolidated Balance Sheets
<TABLE>
<CAPTION>
(Dollars in thousands) December 31, June 30, June 30,
1996 1996 1995
Assets
<S> <C> <C> <C>
Current assets:
Cash and cash equivalents $ 3,187 $ 5,022 $ 4,083
Restricted cash and cash equivalents 8,174 8,719 3,563
Accounts receivable, net 11,920 11,627 12,357
Receivables from related parties 186 461 684
Notes receivable, current 1,119 1,029 853
Inventories 2,897 2,995 3,610
Other current assets 992 1,721 2,176
Total current assets 28,475 31,574 27,326
Property, plant and equipment, net 132,203 134,694 151,130
Equipment held for sale 2,628 2,678 3,228
Project development costs 346 253 1,080
Notes receivable, noncurrent 83 86 1,078
Investments in equity affiliates 3,653 3,449 3,483
Deferred financing costs, net 5,530 4,630 1,530
Other assets 706 798 893
Total assets $173,624 $178,162 $189,748
Liabilities and Stockholders' Equity (Deficit)
Current liabilities:
Accounts payable $ 6,131 $ 8,708 $ 9,546
Current portion of loans and payables due
NRG Energy, Inc. 1,256 4,750 -
Current portion of nonrecourse long-
term debt 10,820 7,115 8,751
Nonrecourse project financing - - 85,320
Accrued interest payable 1,104 5,895 7,655
Prepetition liabilities 1,433 1,735 87,743
Short-term borrowings 2,388 1,793 1,600
Other current liabilities 2,852 7,789 11,300
Total current liabilities 25,984 37,785 211,915
Loans due NRG Energy, Inc., net of current
portion 14,388 96,929 -
Nonrecourse long-term debt, net of current
portion 150,311 66,789 3,405
Deferred income taxes 13,404 14,182 15,086
Other liabilities 50 50 100
Total liabilities 204,137 215,735 230,506
Stockholders' equity:
Preferred stock, par value $.01, 20,000,000
shares authorized; none issued or outstanding - - -
New common stock, par value $.01, 50,000,000
shares authorized, 6,474,814 shares issued,
6,440,514 and 6,422,014 shares outstanding,
respectively 64 64 -
Class A common stock, par value $.01, one vote
per share, 40,000,000 shares authorized,
13,055,597 issued, 12,965,397 outstanding
in 1995 - - 130
Class B common stock, par value $.01, ten votes
per share, 10,000,000 shares authorized,
4,070,770 issued, 3,905,770 outstanding
in 1995 - - 39
Additional paid-in capital 62,719 62,515 41,353
Accumulated deficit (92,944) (99,367) (81,654)
Other (352) (785) (626)
Total stockholders' equity (deficit) (30,513) (37,573) (40,758)
Total liabilities and stockholders'
equity (deficit) $173,624 $178,162 $189,748
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-2
<PAGE>
NRG Generating (U.S.) Inc.
Consolidated Statements of Operations
<TABLE>
<CAPTION>
(Dollars in thousands, except per share amounts)
Six Months
Ended Twelve Months Ended
December 31, June 30, June 30, June 30,
1996 1996 1995 1994
<S> <C> <C> <C> <C>
Energy revenues $21,669 $66,623 $74,455 $62,647
Equipment sales and services 15,607 25,344 19,639 24,304
Rental revenues 1,062 1,895 2,362 5,372
Development fees and other 1,578 2,685 5,791 14,266
39,916 96,547 102,247 106,589
Cost of energy revenues 7,229 45,663 46,694 49,961
Cost of equipment sales and
services 12,365 22,153 17,622 21,890
Cost of rental revenues 834 1,406 2,357 2,730
Cost of development fees and other 1,559 2,531 5,491 9,593
21,987 71,753 72,164 84,174
Gross profit 17,929 24,794 30,083 22,415
Provision for loss on equipment - - 21,640 6,250
Selling, general and administrative
expenses 6,149 12,792 20,320 19,680
Income (loss) from operations 11,780 12,002 (11,877) (3,515)
Involuntary conversion gain - - - 6,066
Interest and other income 413 569 2,587 874
Reorganization costs - (12,101) (8,366) -
Interest and debt expense (7,681) (18,646) (20,583) (18,013)
Income (loss) before income
taxes 4,512 (18,176) (38,239) (14,588)
Provision for income taxes (benefit) (268) (463) 2,680 1,913
Income (loss) before
extraordinary item 4,780 (17,713) 40,919) (16,501)
Extraordinary item, net of income
taxes 1,643 - - -
Net income (loss) $ 6,423 $(17,713)$(40,919)$(16,501)
Net income (loss) per common share:
Income (loss) before extraordinary
item $ 0.75 $ (4.24)$ (11.02)$ (4.45)
Extraordinary item 0.25 - - -
Net income (loss) per common
share $ 1.00 $ (4.24)$ (11.02)$ (4.45)
Weighted average shares
outstanding 6,454 4,182 3,712 3,712
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE>
NRG Generating (U.S.) Inc.
Consolidated Statements of Stockholders' Equity
<TABLE>
<CAPTION>
(Dollars in thousands)
Class A Class B Additional Total
Common Common Common Preferred Paid-in Accumulated Stockholders'
Stock Stock Stock Stock Capital Deficit Other Equity
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, June 30, 1993 $ 130 $ 39 $ $ $40,053 $(23,932) $ (615) $ 15,675
Currency translation adjustment (36) (36)
Excess of purchase price over
predecessor cost of facilities acquired (302) (302)
Stock warrants issued 1,300 1,300
Net loss (16,501) (16,501)
Balance, June 30, 1994 130 39 41,353 (40,735) (651) 136
Currency translation adjustment 25 25
Net loss (40,919) (40,919)
Balance, June 30, 1995 130 39 41,353 (81,654) (626) (40,758)
NRG plan of reorganization:
Purchase of common stock by NRG 27 21,151 21,178
Exchange class A and B common stock
for new common shares, retire
treasury shares (130) (39) 37 68 64 -
Issue preferred shares to Wexford 49 4,908 4,957
Redemption of preferred shares (49) (4,908) (4,957)
Preferred dividends (57) (57)
Currency translation adjustment (223) (223)
Net loss (17,713) (17,713)
Balance, June 30, 1996 - - 64 - 62,515 (99,367) (785) (37,573)
Payment received on treasury stock
resulting from reorganization 105 105
Issue restricted stock 99 99
Currency translation adjustment 433 433
Net income 6,423 6,423
Balance, December 31, 1996 $ - $ - $ 64 $ - $62,719 $(92,944) $ (352) $(30,513)
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
NRG Generating (U.S.) Inc.
Consolidated Statements of Cash Flows
(Dollars in thousands) Six Months
Ended Twelve Months Ended
December 31, June 30, June 30, June 30,
1996 1996 1995 1994
Cash flows from operating activities:
Net income (loss) $ 6,423 $(17,713) $(40,919) $(16,501)
Adjustments to reconcile net income
(loss) to net cash provided by
(used in) operating activities:
Extraordinary item, net of income
taxes (1,643) - - -
Depreciation and amortization 4,670 7,961 9,003 10,550
Amortization of goodwill - - 1,987 98
Amortization of debt discount and
deferred financing costs 199 1,480 3,882 1,752
Deferred tax expense (benefit) (778) (904) 2,278 1,913
Project development costs expensed - 180 4,418 539
Provision for loss on equipment
held for sale - - 5,655 6,250
Provision for equipment appraisal
writedown - - 15,985 -
Involuntary conversion gain - - - (6,066)
Reserve for uncollectible note
receivable - - 3,121 -
Bankruptcy professional fees accrued - 432 4,415 -
Other, net (70) (216) 709 1,527
Changes in operating assets and
liabilities:
Accounts receivable (1,011) 730 (257) 294
Inventories (13) 615 (369) 805
Receivables from related parties 275 223 (51) 542
Accounts payable and other current
liabilities (6,677) (838) (4,994) (2,892)
Accrued interest payable (4,677) (1,760) 6,633 -
Net cash (used in) provided by
operating activities (3,302) (9,810) 11,496 (1,189)
Cash flows from investing activities:
Capital expenditures (1,222) (299) (744) (2,496)
Proceeds from sale of property and
equipment 104 - - -
Proceeds from sale of subsidiaries - 7,500 - -
Capital expenditures and costs to
repair Newark Plant - - - (21,041)
Insurance proceeds for Newark Plant - - - 27,000
Project development costs (93) (1,484) (358) (529)
Proceeds from the sale of projects,
net of notes receivable - - 1,762 2,000
Collections on notes receivable 10 816 824 1,784
Divestitures of businesses, net of
cash given (120) - - -
Withdrawals from (deposits into)
restricted cash accounts - net 545 (5,156) 1,032 470
Other, net - 227 (676) 622
Net cash (used in) provided by
investing activities (776) 1,604 1,840 7,810
Cash flows from financing activities:
Proceeds from NRG loans - 128,078 - -
Proceeds from long-term debt 95,000 60,226 5,711 15,622
Repayments of NRG loans (86,035) (26,398) - -
Repayments of long-term debt (6,098) (92,816) (18,061) (21,660)
NRG capital contribution - 21,178 - -
Net proceeds (repayments) of short-
term borrowings 595 193 (785) 187
Payments on prepetition liabilities (302) (71,723) (1,799) -
Deferred financing costs (1,121) (4,579) - -
Payment received on treasury stock
resulting from reorganization 105 - - -
Issuance of restricted stock 99 - - -
Redemption of preferred shares - (4,957) - -
Preferred dividends paid - (57) - -
Other, net - - - (302)
Net cash provided by (used in)
financing activities 2,243 9,145 (14,934) (6,153)
Net (decrease) increase in cash and
cash equivalents (1,835) 939 (1,598) 468
Cash and cash equivalents at
beginning of year 5,022 4,083 5,681 5,213
Cash and cash equivalents at end
of year $ 3,187 $ 5,022 $ 4,083 $ 5,681
Supplemental disclosure of cash flow information:
Interest paid during the year $12,472 $ 18,926 $ 11,869 $ 13,027
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE>
NRG Generating (U.S.) Inc.
Notes to Consolidated Financial Statements
(Dollars in thousands)
1. Business - Liquidity, Capital Resources and Emergence from
Bankruptcy
NRG Generating (U.S.) Inc. ("NRGG" or the "Company") and its
subsidiaries develop and own cogeneration projects which produce
electricity and thermal energy for sale to industrial and
commercial users and public utilities. In addition, the Company,
through its subsidiaries, sells and rents power generation,
cogeneration and standby/peak shaving equipment and services.
On April 30, 1996, O'Brien Environmental Energy, Inc. ("OEE"),
the formerly named parent company, emerged from bankruptcy. The
Plan, approved on January 18, 1996 by the U.S. Bankruptcy Court
for the District of New Jersey (the "Court"), awarded NRG Energy
the rights to acquire a 41.86% equity interest in the Company and
generally provided for full and immediate payment of all
undisputed prepetition liabilities and included a provision for
post-petition interest. The Company was renamed on the April 30,
1996 closing date to NRG Generating (U.S.) Inc.
OEE 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 business
relationships, restructure its debt and maintain the operational
strength and assets of the Company. 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 of the Court.
Under the Chapter 11 bankruptcy proceedings, all parent company
liabilities and claims which existed as of the September 28, 1994
filing date were stayed. The Company segregated and reclassified
these liabilities and claims on its balance sheet as prepetition
liabilities. Subsequently, the Company received approval from the
Court to make payments on certain prepetition obligations
including employee wages and expense reports and was also
directed to make periodic adequate protection payments on
specific secured debt obligations during the bankruptcy period.
Management concluded that the maximum return to creditors and
shareholders could only be accomplished through the sale of an
equity interest in the Company or of substantially all of its
assets to a third party. After extensive solicitation efforts,
two separate third party plans of reorganization were submitted
to the Court. On November 17, 1995, the Company distributed a
Master Disclosure Statement urging that creditors and equity
security holders vote to accept its plan of reorganization.
On January 18, 1996, the Court confirmed the Plan submitted by
NRG Energy, the O'Brien Official Committee of Equity Security
Holders and Wexford Management LLC ("Wexford"). According to the
Plan, NRG would acquire approximately 42% equity interest in the
reorganized company.
On April 30, 1996, NRG funded approximately $107,418 in
accordance with the Plan and acquired a 41.86% equity interest in
the Company. NRGG received $99,918 of which $71,240 was advanced
under the terms of the three loans agreements between the Company
and NRG Energy; $21,178 represented the purchase of new common
stock of NRGG and $7,500 was designated as proceeds for the sale
of ten wholly-owned subsidiaries sold to NRG Energy. In
addition, NRG Energy transferred $7,500 directly to the Company's
stock transfer agent representing a cash distribution by NRG
Energy to the OEE common stockholders. The funds were disbursed
according to the Plan's
F-6
<PAGE>
NRG Generating (U.S.) Inc.
Notes to Consolidated Financial Statements
(Dollars in thousands)
terms which generally provided for full payment (or
cure/reinstatement) of all undisputed prepetition liabilities
including the payment of post-petition interest on most
prepetition obligations. Additionally, disbursements were made
to certain creditors of subsidiary companies whose obligations
were not included in prepetition liabilities and for professional
fees incurred during the bankruptcy proceedings. Certain other
bankruptcy claims filed with the Court remain in dispute. An
escrow fund has been established to fully reserve for the
remaining disputed claims submitted to the Court. Any remaining
funds resulting from the Court disallowing any disputed claims
will be disbursed pro rata to all allowed non-reinstated creditor
claimholders as additional post-petition interest.
The Company entered into a Liquidating Asset Management Agreement
on April 30, 1996 with Wexford, which, in accordance with the
Plan, retains Wexford as the manager, operator and liquidator of
the Liquidating Assets of the Company pursuant to the terms and
conditions of the agreement. The Board of Directors and the
Officers have the right to direct and control which assets will
be liquidated and the extent of management services required for
each Liquidating Asset. The Liquidating Assets identified in the
agreement consist of (a) the Company's engine generator sales,
service and rental business, (b) the Philadelphia Water
Department project, (c) unused equipment, and (d) American
Hydrotherm Corporation and two related companies. The Board of
Directors has authorized Wexford to liquidate the Philadelphia
Water Department project and American Hydrotherm Corporation and
its two related companies. American Hydrotherm Corporation and
its two related companies were sold to subsidiary management in
December 1996. The Board of Directors has authorized management
to liquidate the unused equipment. Wexford has received
compensation per the agreement for the sale of unused equipment.
No decision has been made regarding the possible liquidation of
the engine generator business. Management does not expect the
disposals of these businesses to have a material effect on the
Company's financial position or results of operations.
2. Summary of Significant Accounting Policies
Basis of Presentation
The consolidated financial statements include the accounts of all
majority-owned subsidiaries of the Company. All significant
intercompany investments, accounts and transactions have been
eliminated. The investments in and the operating results of
companies in which the Company has an ownership of 50% or less
are included in the financial statements on the basis of the
equity method of accounting.
Effective July 1, 1996, the Company changed its year end from
June 30 to December 31. The following are summarized comparative
results for the six months ended December 31, 1996 and 1995. Due
to the reorganization the comparisons are not meaningful.
F-7
<PAGE>
NRG Generating (U.S.) Inc.
Notes to Consolidated Financial Statements
(Dollars in thousands)
Unaudited
Six Months Six Months
Ended Ended
December 31, December 31,
1996 1995
Revenue $39,916 $50,901
Gross profit 17,929 16,652
Income tax provision (benefit) (268) 25
Income (loss) before extraordinary item 4,780 (1,075)
Extraordinary item 1,643 -
Net income (loss) 6,423 (1,075)
Net income (loss) per common share:
Net income (loss) before extraordinary
item 0.75 (0.29)
Extraordinary item 0.25 -
Net income (loss) per common share 1.00 (0.29)
The years ended June 30, 1996, 1995 and 1994 are sometimes
referred to in these Notes to Consolidated Financial Statements
as fiscal 1996, 1995 and 1994.
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.
Reorganization Costs
Expenses incurred after filing bankruptcy related to the
Company's reorganization and restructuring efforts have been
presented separately in the statement of operations as
reorganization costs.
Revenue Recognition
Energy revenues from cogeneration 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.
F-8
<PAGE>
NRG Generating (U.S.) Inc.
Notes to Consolidated Financial Statements
(Dollars in thousands)
Property, Plant and Equipment
Property, plant and equipment is stated at the lower of cost or
appraised fair market value and depreciated using the straight-
line method over the estimated useful lives of the assets which
range from five to thirty years. Amortization on equipment
acquired under capital leases is recognized on a straight line
basis over the shorter of the estimated asset life or lease term.
Depreciation on equipment held for future projects is not
provided until the equipment is placed in service. For income
tax purposes, the Company uses a combination of accelerated and
straight-line depreciation methods.
Cost of maintenance and repairs is charged to expense as
incurred. Betterments and improvements are capitalized. Upon
retirement or other disposition of items of plant and equipment,
cost of items and related accumulated depreciation are removed
from the accounts and any gain or loss is included in the results
of operations.
Equipment Held for Sale
Equipment held for sale consists of power generation equipment
not currently being used in an operating project and is valued at
the lower of cost or estimated net realizable value.
Project Development Costs
Project development costs consist of fees, licenses and permits,
site testing, bids and other charges, including salary and
interest charges incurred by the Company in developing projects.
For wholly-owned projects, project development 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
project development 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.
Nonrecourse Long-term Debt
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
F-9
<PAGE>
NRG Generating (U.S.) Inc.
Notes to Consolidated Financial Statements
(Dollars in thousands)
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.
Interest Rate Swap Agreement
The Company entered into interest rate swap agreements 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.
Net Income (Loss) Per Share
Net income (loss) per share is calculated by dividing net income
(loss) by the weighted average number of shares of common stock
and common stock equivalents outstanding during each period.
Common stock equivalents result from dilutive stock options and
restricted stocks computed using the treasury stock method. All
periods have been restated to reflect the common shares issued
under the terms of the Plan (see Note 14).
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 included in net income
(loss).
Cash and Cash Equivalents
For purposes of the consolidated statements of cash flows, the
Company considers all highly liquid investments with maturities
of three months or less at the time of purchase to be cash
equivalents.
Concentration of Credit Risk
The Company primarily sells electricity and steam to public
utilities and corporations on the east coast 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. These securities typically mature within ninety
days and, therefore, bear minimal risk. The Company has not
experienced any losses on these deposits.
F-10
<PAGE>
NRG Generating (U.S.) Inc.
Notes to Consolidated Financial Statements
(Dollars in thousands)
Reclassification
Certain reclassifications have been made to conform prior years
data to the current presentation.
3. Restricted Cash and Cash Equivalents
The Company has classified certain cash and cash equivalents that
are not fully available for use in its operations as restricted.
At December 31, 1996, restricted cash and cash equivalents relate
primarily to debt service reserve accounts required by the
nonrecourse project debt for O'Brien (Newark) Cogeneration, Inc.
("Newark") and O'Brien (Parlin) Cogeneration, Inc. ("Parlin")
which were refinanced in 1996 (see Note 12). At June 30, 1996,
restricted cash and cash equivalents relate primarily to debt
service reserve accounts required by the nonrecourse project debt
refinancing for Newark and Parlin and to escrow accounts
established on April 30, 1996, pursuant to the Plan, relating to
various administrative, priority and unsecured claims which
remain in dispute or are subject to final resolution by the
Court. Restricted cash and cash equivalents at June 30, 1995
relate primarily to debt service reserve accounts required by the
nonrecourse project debt for Newark and Parlin.
Additionally, restricted cash and cash equivalents at December
31, 1996 and June 30, 1996 and 1995 include compensating balances
maintained by the Company at a financial institution in
connection with a line of credit extended to its United Kingdom
subsidiaries (see Note 10).
Restricted cash and cash equivalents consist of the following:
December 31, June 30, June 30,
1996 1996 1995
NRGG bankruptcy escrow accounts $2,388 $8,490 $ -
O'Brien (Newark) Cogeneration, Inc. 2,050 - 3,129
O'Brien (Parlin) Cogeneration, Inc. 3,736 - 101
United Kingdom subsidiaries - 229 241
Other - - 92
Total $8,174 $8,719 $3,563
4. Property, Plant and Equipment
Property, plant and equipment consists of the following:
December 31, June 30, June 30,
1996 1996 1995
Equipment related to energy revenues $155,802 $154,578 $171,520
Rental equipment 15,233 15,166 15,330
Furniture and fixtures 759 898 1,694
Land, buildings and improvements 1,538 1,972 2,424
Other equipment 44 378 469
Total $173,376 $172,992 $191,437
Accumulated depreciation and
amortization 41,173 38,298 40,307
Total $132,203 $134,694 $151,130
F-11
<PAGE>
NRG Generating (U.S.) Inc.
Notes to Consolidated Financial Statements
(Dollars in thousands)
Depreciation expense was $3,626, $7,858, $8,892 and $9,717 in the
six months ended December 31, 1996, and fiscal 1996, 1995 and
1994, respectively.
The Company recorded a charge of $15,985 in fiscal 1995 to reduce
the carrying amount of property, plant and equipment to a lower
appraised fair market value.
Equipment related to energy revenues includes the property and
equipment of the Newark and Parlin cogeneration plants, the
Philadelphia Water Department standby project and, until sold on
April 30, 1996, the biogas projects (see Note 23).
The Newark project consists of a 52 MW 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 Parlin project consists of a 122 MW cogeneration power plant
in Parlin, New Jersey which commenced operations on June 26, 1991
and is supplying up to 114 MW of electricity pursuant to a 20
year electric supply contract and steam pursuant to a 30-year
supply contract.
5. Equipment Held for Sale
As part of the Company's efforts to improve both short-term and
long-term liquidity, it is 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 of
$6,250 in fiscal 1994 to adjust the carrying value of these
assets to estimated resale value, based upon appraisals made by
the Company. In fiscal 1995, the Company recorded an additional
charge of $5,655 based upon an independent appraisal to further
reduce the carrying value to reflect the Company's intent to
accelerate the disposal of this equipment.
6. Notes Receivable
Notes receivable consist of the following:
December 31, June 30, June 30,
1996 1996 1995
Notes receivable, non-interest
bearing, final installment of
$800 due in June 1997 (a) $ 754 $ 754 $1,465
Other (b) 448 361 466
Total 1,202 1,115 1,931
Less current portion 1,119 1,029 853
Total noncurrent $ 83 $ 86 $1,078
F-12
<PAGE>
NRG Generating (U.S.) Inc.
Notes to Consolidated Financial Statements
(Dollars in thousands)
(a) Note receivable associated with the termination of a
power purchase contract. The note is collateralized by an
irrevocable letter of credit. At December 31, 1996, face
value and discount were $800 and $46, respectively, assuming
an interest rate of 5.95%.
(b) Notes receivable associated primarily with a direct
finance lease relating to power generation equipment.
7. Project Development Costs
During fiscal 1996, 1995 and 1994, the Company determined that
certain project development costs should be expensed. The
resulting charges, net of any recoveries, of $180, $4,418 and
$539, respectively, are included in selling, general and
administrative expenses in the accompanying consolidated
statements of operations. The fiscal 1995 charge included costs
of a project determined to be unrecoverable based upon the
anticipated implementation of the Plan.
8. Investments in Equity Affiliates
Investment in equity affiliates consist of the following:
December 31, June 30, June 30,
1996 1996 1995
Grays Ferry (33% owned) $2,659 $2,778 $2,504
Artesia (3% owned) - - 337
PoweRent Limited (50% owned) 994 671 642
Total $3,653 $3,449 $3,483
Grays Ferry
In October 1991, NRGG (Schuylkill) Cogeneration, Inc. ("NSC"), a
wholly-owned subsidiary, executed a partnership agreement with
Adwin Equipment Company ("Adwin"), a wholly-owned subsidiary of
PECO Energy, for the purpose of developing, constructing, owning,
maintaining and operating a 150 MW natural gas and oil fired
cogeneration facility to produce steam and electricity in
Philadelphia. The project, currently under construction, consists
of the installation and operation of an auxiliary boiler and
steam turbine and the installation and operation of a gas turbine
and heat recovery steam generator along with related equipment.
In March 1996, Trigen (Schuylkill) Cogeneration, an unrelated
party, was admitted to the partnership. NSC and Adwin each
received a $1,000 admittance fee. Net operating profits and
losses will be allocated to the partners 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 to be funded after all construction loan proceeds
have been utilized or at such time as is required by the lender.
Additionally, the stock of NSC was pledged as collateral for the
loan.
In March 1996, NRG Energy and NSC entered into a $10,000 loan
agreement to provide a source of funding for the NSC capital
contribution obligation to the partnership. No amounts have yet
been contributed to the partnership or borrowed under this loan
agreement.
F-13
<PAGE>
NRG Generating (U.S.) Inc.
Notes to Consolidated Financial Statements
(Dollars in thousands)
PoweRent Limited
PoweRent Limited, an entity in which a subsidiary of the Company
owns a 50% interest, is a United Kingdom company that sells and
rents power generation equipment. The remaining 50% of PoweRent
is owned by an officer of a wholly-owned United Kingdom
subsidiary.
The Company's investment in equity affiliates has been accounted
for using the equity method.
9. Deferred Financing Costs
Deferred financing costs relate primarily to the cost of
refinancing the nonrecourse debt and consist of the following:
December 31, June 30, June 30,
1996 1996 1995
Deferred financing costs $5,940 $4,810 $2,767
Accumulated amortization 410 180 1,237
Total $5,530 $4,630 $1,530
Amortization expense, included in interest and debt expense,
amounted to $199 for the six month period ended December 31,
1996. In addition, deferred financing costs of $31, associated
with a capital lease obligation, were written off as a result of
a negotiated buyout of the capital lease obligation (see Note
16).
Amortization expense, included in interest and debt expense, in
fiscal year ending June 30, 1996 was $1,480 which includes a
charge of $1,043 to expense unamortized deferred financing costs
attributable to the nonrecourse project debt which was refinanced
in 1996 (see Note 12).
Amortization expense amounted to $570 and $452 in the fiscal
years ended June 30, 1995 and 1994, respectively, which is
included in interest and debt expense. Additionally, the Company
charged $3,387 of deferred financing costs to reorganization
costs in fiscal 1995 to adjust the carrying amount of the
parent's prepetition subordinated debentures to the amount
approved by the Court as an allowed claim.
10. Short-Term Borrowings
As of December 31, 1996, and June 30, 1996 and 1995, short-term
borrowings consist primarily of foreign lines of credit payable
to financial institutions bearing interest at foreign (U.K.)
short-term rates.
11. Prepetition Liabilities
All liabilities which remain subject to the bankruptcy
proceedings have been classified on the balance sheet as
prepetition liabilities. Prepetition liabilities are stated at
amounts expected to be approved
F-14
<PAGE>
NRG Generating (U.S.) Inc.
Notes to Consolidated Financial Statements
(Dollars in thousands)
by the Court as allowed claims and consist of the following:
December 31, June 30, June 30,
1996 1996 1995
Subordinated debentures $ - $ - $49,174
Nonrecourse debt (see Note 12) - - 30,368
Prepetition accrued interest - 11 5,634
Accounts payable and accrued expenses 1,433 1,724 2,567
Total $1,433 $1,735 $87,743
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.
However, certain proofs of claims filed with the Court remain in
dispute. An escrow fund was established to fully reserve for
these disputed claims. Any remaining funds resulting from the
Court disallowing any of these disputed claims will be disbursed
pro rata to all allowed non-reinstated creditor claimholders as
additional post-petition interest.
Additionally, prepetition liabilities of approximately $4,957
consisting primarily of subordinated debentures owned by Wexford
were satisfied by the issuance of preferred shares in the
reorganized company. These shares were subsequently redeemed in
May 1996. The subordinated debentures carried interest rates
ranging from 7% to 11% up to the date of filing for bankruptcy
on September 28, 1994.
12. Nonrecourse Long-Term Debt
On May 17, 1996, the Company's wholly-owned subsidiaries, Newark
and Parlin entered into a Credit Agreement (the "Credit
Agreement") with a new lender. The Credit Agreement established
provisions for a $155,000 fifteen-year loan and a $5,000 five-
year debt service reserve line of credit. The interest rate on
the outstanding principal is variable based on, at Newark and
Parlin's option, LIBOR plus a 1.125% margin or a defined base
rate plus a 0.375% margin. Nominal margin increases for both the
LIBOR and the defined base rate will occur in year six and eleven
of the Credit Agreement. Concurrent with the Credit Agreement,
Newark and Parlin entered into an interest rate swap agreement
with respect to 50% of the principal amount outstanding under the
Credit Agreement. This interest rate swap agreement fixes the
interest rate on 50% of the principal amount outstanding at 6.9%
plus the margin. On May 23, 1996, Newark borrowed $60,000 in the
form of a temporary six-month term loan under the terms of the
Credit Agreement. The proceeds were used primarily to repay
certain preexisting obligations of the Company. Also effective
May 23, 1996, NRG Energy guaranteed payment of pre-existing
liabilities of Newark and Parlin up to $5,000. The guarantee
amount of $5,000 will be reduced as certain defined milestones
are reached and eliminated no later than May 23, 2001.
On July 11, 1996, an additional $95,000 was borrowed pursuant to
the Credit Agreement, combined with Newark's $60,000 six month-
term loan and converted into a $155,000 fifteen-year term loan
(the "Term Loan") which is a joint and several liability of
Newark and Parlin. The Term Loan will be amortized as specified
under the terms of the Credit Agreement. Proceeds of the $95,000
borrowing were used to repay $53,388 advanced by NRG Energy on
June 28, 1996 in connection with the refinancing of certain
nonrecourse debt of Parlin and $33,903 of outstanding
indebtedness to NRG Energy. The remaining balance was used for
various obligations of the Company as well as funding
F-15
<PAGE>
NRG Generating (U.S.) Inc.
Notes to Consolidated Financial Statements
(Dollars in thousands)
certain restricted cash reserve accounts required to be
maintained by Newark and Parlin under the terms of the Credit
Agreement. Also, effective July 11, 1996, the Company guaranteed
repayment of up to $25,000 of the Term Loan and payment of all
income and franchise taxes of Newark and Parlin as they come due.
Collateral for the Term Loan includes a perfected first security
interest on all assets of Newark and Parlin and a pledge of all
capital stock of Newark and Parlin.
Upon the parent company filing a petition for bankruptcy, all
debt subject to compromise was reclassified to prepetition
liabilities (see Note 11). On April 30, 1996, certain notes
payable were cured and reinstated. Subsequently, an amount of
$8,898 was reclassified back to long-term nonrecourse debt from
prepetition liabilities. Nonrecourse long-term debt at June 30,
1995 consisted of only post-petition financing and all subsidiary
long-term nonrecourse debt which was not part of the bankruptcy
proceedings. Nonrecourse long-term debt consists of the
following:
December 31, June 30, June 30,
1996 1996 1995
Notes payable, due in monthly
installments of principal plus interest
at rates ranging from 8.3% to 13.48%
maturing on various dates through
March 2002 $ 8,610 $ 8,995 $4,739
Capital lease obligations, due in monthly
installments at rates up to 13.48%,
maturing at various dates through
December 2000, collateralized by certain
energy and rental equipment having a net
book value of $4,840 at December 31, 1996 1,474 4,909 7,417
Credit Agreement financing 151,047 60,000 -
Total 161,131 73,904 12,156
Less amounts classified as current (a) 10,820 7,115 8,751
Total noncurrent recourse debt $150,311 $66,789 $3,405
a)As a result of defaults under certain of a subsidiary
company's loan agreements, the Company reclassified $4,374
out of a long-term classification at June 30, 1995 for a
total of $8,751 of its nonrecourse debt as a current liability.
Of this amount, approximately $2,383 was triggered by non-
payment and the remainder, $1,991, was reclassified because of
the Chapter 11 bankruptcy filing on September 28, 1994.
Scheduled maturities of nonrecourse long-term debt and capital
lease obligations for the next five years and thereafter are as
follows:
Year Ending December 31, Long-Term Debt Capital Leases
1997 $ 9,687 $1,133
1998 10,813 466
1999 11,069 -
2000 9,805 -
2001 11,735 -
Thereafter 106,548 -
Interest component on
capital leases - (125)
Total $159,657 $1,474
F-16
<PAGE>
NRG Generating (U.S.) Inc.
Notes to Consolidated Financial Statements
(Dollars in thousands)
The Company incurred interest charges, exclusive of interest on
nonrecourse project financing and the loans due to NRG Energy, of
$7,042, $8,351, $9,925 and $9,802 in the six month period ended
December 31, 1996, and fiscal years ended 1996, 1995 and 1994,
respectively. Of these amounts $403 was capitalized in fiscal
1994. No amounts were capitalized in the six month period ended
December 31, 1996 or fiscal 1996 or 1995.
Nonrecourse project financing, which was refinanced in fiscal
1996, consisted of the following at June 30, 1995:
Newark project (a) $25,010
Parlin project (b) 60,310
Total 85,320
Less current portion 85,320
Total noncurrent $ -
Nonrecourse project financing agreements contained various
restrictive covenants consisting of 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,
nonrecourse project financing was classified as current because
the Newark and Parlin projects were in default of the covenant
requiring the maintenance of positive working capital.
(a) The Newark project financing was an obligation of
Newark, a wholly-owned subsidiary of the Company. 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
Agreement which allowed monthly predetermined cash
distributions to the parent company, accelerated the
maturity date to January 1997, provided for escalating
interest rate margin increases throughout the remaining term
of the loan and obligated that Newark's monthly excess cash
be applied as additional principal payments on the term loan.
Previously, the term loan provided for a variable interest
rate tied to either LIBOR or the prime rate. During fiscal
1996, 1995 and 1994, $1,753, $2,065 and $1,693, respectively,
of interest costs were incurred pursuant to the term loan.
On May 23, 1996, the Company used the $60,000 under the
Credit Agreement, among other things, to refinance the Newark
nonrecourse project finance debt.
(b) The Parlin financing was an obligation of Parlin, a
wholly-owned subsidiary of the Company. 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, a portion of the term
loan had a fixed interest rate of approximately 11% per
annum. The balance of the loan had a variable interest rate
tied to LIBOR. During fiscal 1996, 1995 and 1994, $5,730,
$6,470 and $6,633, respectively, of interest costs were
incurred pursuant to the term loan. These interest costs
include $1,642, $2,050 and $3,253 for fiscal 1996, 1995 and
1994, respectively, of costs associated with the interest
rate swap agreement. On June 28, 1996, the outstanding
Parlin nonrecourse project financing debt was refinanced and
a $3,100 breakage fee was paid to terminate the interest rate
swap agreement. On July 11, 1996, the Company used the
$95,000 under the Credit Agreement, among other things, to
repay NRG Energy for the funds advanced on June 28, 1996 (see
Note 13).
F-17
<PAGE>
NRG Generating (U.S.) Inc.
Notes to Consolidated Financial Statements
(Dollars in thousands)
13. Loans due NRG Energy, Inc.
In accordance with the Plan, the Company and NRG Energy entered
into various loan agreements. At December 31, 1996, the loan
balance due to NRG Energy is $14,388 with a maturity date of
April 30, 2001. Interest expense in the six month period ended
December 31, 1996 includes $648 attributable to the loans due NRG
Energy.
14. Stockholders' Equity
Preferred stock
The Company's Certificate of Incorporation authorizes the
issuance of an aggregate of 20,000,000 shares of Preferred Stock,
par value $.01 per share in series. The Board of Directors is
authorized to fix the voting rights, designations, powers,
preferences, qualifications, limitations or restrictions of any
such series and to fix the number of shares constituting such
series.
On April 30, 1996, the Board of Directors authorized the
designation of 50,000 shares as a Series A 13.5% cumulative
preferred stock, par value $.01. The Company issued 49,574
shares to Wexford in satisfaction of $4,957 of prepetition
unsecured claims allowed by the Court. The preferred shares were
reacquired by the Company in May 1996 for $4,957 and paid $57 in
dividends.
Common stock
On April 30, 1996, the outstanding Class A and Class B common
shares of the Company were canceled and became exchangeable for a
new single issue of common stock ("Common Stock"). The Company
authorized 50,000,000 shares, par value $.01. The Company issued
6,474,814 common shares of which 2,710,357 (41.86%) were
purchased by NRG Energy and the remaining 3,764,457 shares
(58.14%) became issuable to the existing shareholders of the
Company. Holders of the Company's Class A and Class B shares
also became entitled to receive an aggregate $7,500
(approximately $.44 cents per Class A and Class B common share)
from NRG Energy upon submission of the Class A and Class B common
shares to the transfer agent for exchange.
Except for voting and conversion privileges, shares of Class A
and Class B common stock were identical.
O'Brien Energy Services Company ("OES"), a wholly-owned
subsidiary, owned 75,000 shares of Class A common stock and
165,000 shares of Class B common stock at the date of its
acquisition by the Company. On April 30, 1996, these shares were
converted into 52,800 shares of Common Stock. On October 8,
1996, the Company reacquired 18,500 shares of the Common Stock
held by OES and issued such shares for aggregate proceeds of $99
to certain members of Company management and the board of
directors. At December 31, 1996, there remains 34,300 shares
held by OES. Outstanding shares at December 31, 1996, June 30,
1996 and June 30, 1995 exclude the stock owned by OES.
F-18
<PAGE>
NRG Generating (U.S.) Inc.
Notes to Consolidated Financial Statements
(Dollars in thousands)
Stock options
Under the 1996 Stock Option Plan adopted in October 1996 (the
"Stock Option Plan"), the Compensation Committee of the Company's
Board of Directors may award either nonqualified stock options
("NQSOs") or incentive stock options ("ISOs") to officers,
directors and key employees of the Company who occupy responsible
managerial, professional or advisory positions and who have the
capability of making a substantial contribution to the success of
the Company. Nonemployee directors may only receive NQSOs under
the Stock Option Plan. The Company has reserved 500,000 shares
of Common Stock for issuance pursuant to awards under the Stock
Option Plan. During the six months ended December 31, 1996, the
Company granted 399,000 stock options at an exercise price range
of $5.4375 to $6.575 per share. No stock options have been
exercised as of December 31, 1996.
The exercise price for the stock options granted under the Stock
Option Plan may not be less than the fair market value of a share
of the underlying Common Stock on the date the option is granted
and must be paid in cash unless the Compensation Committee
permits payment in shares of the Company's stock. An option will
generally expire ten years after the date it is granted and will
ordinarily become exercisable as to one third of the shares
subject to the option on each of the three succeeding
anniversaries of the grant. The Compensation Committee may
modify the exercisability of an option at its discretion. If an
award under the Stock Option Plan expires or terminates without
being exercised in full or is forfeited, the shares subject
thereto are generally available for new awards.
The Company has elected to recognize compensation cost for its
stock-based compensation plan in accordance with Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees". Generally, no compensation expense is recognized for
stock options with exercise prices equal to the market value of
the underlying stock at the date of grant. Pro forma amounts of
net income and net income per share reflecting compensation cost
determined based on the fair value at the date of grant
consistent with the method of Statement of Financial Accounting
Standards No. 123 "Accounting for Stock-Based Compensation," have
not been presented because the amounts are not material.
Following a "change of control" all options granted under the
Stock Option Plan will become immediately exercisable.
Other
The other component of stockholders' equity includes the
cumulative foreign currency translation adjustment of ($352),
($785), and ($562) at December 31, 1996, June 30, 1996 and June
30, 1995, respectively, and treasury stock of ($64) at June 30,
1995. Treasury stock at June 30, 1995 is recorded at cost and
consisted of 15,200 shares of Class A common stock which were
retired on April 30, 1996.
F-19
<PAGE>
NRG Generating (U.S.) Inc.
Notes to Consolidated Financial Statements
(Dollars in thousands)
15. Common Stock Option Right Granted to NRG Energy
In connection with NRG Energy's assistance with the Grays Ferry
project (see Note 8), the Company granted NRG Energy the right,
approved by the Court in March 1996, to convert a portion of
borrowings under the $10,000 loan agreement to Common Stock of
the Company. The option right provides that NRG Energy can
convert $3,000 of borrowings under the loan agreement for Common
Stock which would equal 396,301 common shares issued as of April
30, 1996. No amounts have been borrowed under the loan
agreement.
16. Extraordinary Item
During the six month period ended December 31, 1996, the Company
negotiated a buyout of a subsidiary's capital lease obligation.
The lender agreed to accept a $1,100 payment in full satisfaction
of the lease. The transaction resulted in an extraordinary gain
of $1,643 (net of $124 of state income taxes).
17. Business Interruption Insurance Claims
Energy revenues for fiscal 1995 and 1994 include $1,035 and
$1,706 received under net business interruption insurance claims
associated with the Newark and Parlin cogeneration plants.
18. Amortization of Cost in Excess of Net Assets Acquired
Amortization of cost in excess of net assets acquired amounted to
$1,987 and $98 in fiscal 1995 and 1994, respectively. Included
in fiscal 1995 amortization is $1,888 which related primarily to
the unamortized value assigned to an acquired subsidiary's heat
recovery technology which management deemed not realizable.
19. Amendment to Newark and Parlin Power Purchase Agreement
Effective April 30, 1996, the Company renegotiated its PPA with
JCP&L, the primary electricity purchaser from its Newark and
Parlin Projects. Under the new PPAs, JCP&L is responsible for
all natural gas supply and delivery. The Company anticipates
that this change in the PPAs will reduce its historical
volatility in gross margins by eliminating the Company's risk to
fluctuations in the price of natural gas which must be paid by
its Newark and Parlin Projects. However, because energy revenues
as well as the cost of energy revenues declined under the amended
PPAs, the Company anticipates that its operating gross margins,
over time, will remain similar to historical results.
Additionally, Parlin relinquished its claim to qualifying
facility status and filed rates as a public utility under the
Federal Power Act. However, Parlin has been determined to be an
exempt wholesale generator (EWG). The Parlin project has also
changed from a full base load operation to a partial base
load/partial dispatchable project.
F-20
<PAGE>
NRG Generating (U.S.) Inc.
Notes to Consolidated Financial Statements
(Dollars in thousands)
20. Development Fees and Other
In September 1994, the Company sold its rights to develop a 14 MW
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. This
sale was recorded in development fees and other income. The costs
associated with the development rights were insignificant.
In August 1993, the Company entered into an arrangement with an
unrelated third party joint venture to sell substantially all
proved and unproved coalbed methane gas properties for $6,500.
The Company received $2,000 in cash and a production payment note
receivable of $4,500. In addition, the Company agreed to
contribute up to $800 to complete non-producing wells into
commercial wells. The Company discounted the production payment
note in fiscal 1994 to an estimated net realizable value. Fiscal
1994 development fees and other includes $5,121 of revenues
recognized in connection with this sale. In May 1994, the joint
venture filed a complaint with the American Arbitration
Association. The Company subsequently counterclaimed. On
March 31, 1995, a settlement agreement was executed with the
joint venture to resolve all disputes in which the Company
accepted responsibility for $1,166 in cost reimbursement toward
completion on non-producing wells with interest at prime plus 5%.
The joint venture accepted an assignment of any and all payments
due the Company on the note receivable in satisfaction of the
obligation until the sums withheld satisfy the obligation plus
all accrued interest. Until the obligation is satisfied, the
Company has no rights to the net revenues, as defined, nor can
the note receivable be sold, pledged or assigned. The joint
venture is not entitled to look to the Company for the payment of
any cost obligations. Only after recoupment of the chargeback
obligation, will payment on the note receivable be paid from a
percentage of net revenues, as defined, from the coalbed methane
properties until the earlier of (1) the note is paid in full or
(2) 10 years. At June 30, 1995, the Company reduced the carrying
value of the note by the cost obligation and fully reserved the
balance.
21. Involuntary Conversion Gain
On December 25, 1992, a fire disabled the Newark cogeneration
plant. The damage to the plant caused by the fire has been
repaired. The plant returned to partial operations in August
1993 and resumed full operation in October 1993. The Company
received $36,000 from its insurance carrier which covered a
substantial majority of the Company's cost of repair and loss of
net profits due to business interruption. Additionally, the
Company recognized an involuntary conversion gain of $6,066 in
fiscal 1994.
22. Disclosures about Fair Value of Financial Instruments
At December 31, 1996 and June 30, 1996, the carrying amounts and
fair values of the Company's financial instruments are as
follows:
F-21
<PAGE>
NRG Generating (U.S.) Inc.
Notes to Consolidated Financial Statements
(Dollars in thousands)
December 31, 1996 June 30, 1996
Carrying Fair Carrying Fair
Amount Value Amount Value
Assets:
Cash and cash equivalents $ 3,187 $ 3,187 $ 5,022 $ 5,022
Restricted cash and cash equivalents 8,174 8,174 8,719 8,719
Notes receivable 1,202 1,202 1,115 1,115
Liabilities:
Short-term borrowings 2,388 2,388 1,793 1,793
Nonrecourse long-term debt 161,131 161,131 73,904 73,904
Prepetition liabilities 1,433 1,433 1,735 1,735
Loans and payables due NRG Energy, Inc. 15,644 15,644 101,679 101,679
Interest rate swap - 1,439 - -
The carrying amounts of cash and equivalents, restricted cash and
cash equivalents and notes receivable approximates the fair value
of those instruments due to their short maturity. The fair value
of short-term and long-term debt and amounts due NRG Energy are
based on interest rates available to the Company for issuance of
similar debt with similar remaining maturities. The fair value
of prepetition liabilities is stated at the value of the amount
expected to be approved by the Court as allowed claims. Under
the terms of the Plan primarily all allowed claims and post-
petition interest will be paid in full. The fair value of the
interest rate swap generally reflects the estimated amount that
the Company would pay to terminate the interest rate swap
agreement at the reporting date.
Fair value estimates are made at a specific point in time based
on relevant market information about the financial instruments.
The estimated fair values of financial instruments presented are
not necessarily indicative of the amounts the Company might
realize in actual market transactions.
23. Transactions with Related Parties
NRG Energy provided the Company with a total of $128,078 in loans
during fiscal 1996 in addition to funding a capital contribution
of $21,178. The December 31, 1996 loan balance is $14,388 with a
maturity date of April 30, 2001. Interest expense for the six
months ended December 31, 1996, and for fiscal year ended June
30, 1996 is $648 and $1,098, respectively. Selling, general and
administrative expenses include $608 and $129 for reimbursement
of services provided by NRG Energy to the Company for the six
months ended December 31, 1996 and for the fiscal year ended June
30, 1996 under the terms of a management services agreement.
On November 8, 1996, Power Operations, Inc., a new wholly-owned
subsidiary of the Company, assumed the operations and maintenance
of the Newark facility, replacing Stewart and Stevenson
Operations, Inc. On December 31, 1996, Power Operations, Inc.
assumed the operations and maintenance of the Parlin facility,
replacing Stewart and Stevenson Operations, Inc. On January 1,
1997, Power Operations, Inc. was sold by the Company to NRG
Energy. The terms of this transaction were approved by the
Independent Directors Committee of the Company's Board of
Directors as required by the Company's Bylaws. The Company
believes that such changes will have no material financial impact
on the operations of these facilities or on the Company's
financial condition or results of operations.
F-22
<PAGE>
NRG Generating (U.S.) Inc.
Notes to Consolidated Financial Statements
(Dollars in thousands)
Under the terms of the Plan, on April 30, 1996, NRG Energy
purchased the stock of 10 wholly-owned subsidiaries from the
Company for $7,500. 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.
Wexford was issued 49,574 shares of NRGG 13.5% cumulative Series
A preferred stock on April 30, 1996 in satisfaction of $4,957 in
prepetition liabilities approved by the Court as allowed claims.
In May 1996, the Company reacquired the preferred shares for
$4,957 and paid $57 in dividends. Additionally, the Company paid
Wexford a $200 administrative fee approved by the Court. Wexford
has an agreement with the Company to sell the Company's
Liquidating Assets (see Note 1). In the six month period ended
December 31, 1996, the Company paid Wexford $281 under the
Liquidating Asset Management Agreement.
The Company leased office space until May 10, 1996 from Pennsport
Partnership, a Pennsylvania partnership in which the former Chief
Executive Officer and former Principal Stockholder ("FCEO") of
the Company has a 50% ownership interest. Rental expense for
fiscal 1996, 1995 and 1994 was $152, $242 and $289, respectively.
The Company also leases office space until April 30, 1997 from
Christiana River Holdings, Ltd., an entity owned by the FCEO.
Rental expense was $55 for the six month period ended December
31, 1996 and $150 for each fiscal year ended 1996, 1995 and 1994.
In the six months ended December 31, 1996, the Company recognized
$43 of revenue by selling equipment and related services to
PoweRent. In fiscal 1996, the Company recognized $1,039 of
revenue by selling equipment and related services to PoweRent.
The cost of the equipment and related service was $940.
The Company was charged commissions by O'Brien Power Systems,
Inc. of $647 in fiscal 1994 in connection with equipment sales
and services provided to third parties.
In September 1993, NRG Generating Limited ("Puma"), a wholly-
owned subsidiary located in the United Kingdom, purchased its
executive offices and its principal facility located in Kent from
III Enterprises Limited, an entity owned by the FCEO of the
Company, for approximately $800. The Company estimated a fair
value of these facilities at approximately $1,100. However,
predecessor cost of $498 was used to capitalize the assets
purchased and the excess of the purchase price over III
Enterprises Limited's historical net book value was reflected as
an increase in the accumulated deficit. Prior to September 1993,
Puma leased the facility from III Enterprises Limited with rental
expense amounting to $66 in fiscal 1994.
At June 30, 1995, the Company had notes receivable totaling $238
from a former officer of the Company. The notes were unsecured
with interest at 8.25% per annum. At June 30, 1995, the Company
established a reserve for the notes and accrued interest to
reflect a court approved stipulation agreement between the
Official Committee of Unsecured Creditors (the "Committee") and
the former officer whereby, in consideration of the notes, the
former officer agreed to withdraw his claim against the Company
and assist the Committee with its prosecution of objections to
certain identified disputed claims in the bankruptcy proceedings.
F-23
<PAGE>
NRG Generating (U.S.) Inc.
Notes to Consolidated Financial Statements
(Dollars in thousands)
24. Income Taxes
Income (loss) before income taxes and extraordinary consists of
the following:
Six Months
Ended Twelve Months Ended
December 31, June 30, June 30, June 30,
1996 1996 1995 1994
United States $ 4,195 $(18,054) $(38,225) $(12,657)
Foreign 317 (122) (14) (1,931)
Total $ 4,512 $(18,176) $(38,239) $(14,588)
The income tax provision (benefit) consists of:
Current income taxes:
Federal $ 803 $ - $ - $ -
State 570 792 402 -
Subtotal 1,373 792 402 -
Deferred income taxes:
Federal (2,292) (493) 912 -
State 651 (762) 1,366 -
Subtotal (1,641) (1,255) 2,278 1,913
Income tax provision (benefit)
excluding extraordinary item $ (268) $ (463) $ 2,680 $ 1,913
Deferred income taxes arise from temporary differences between
the tax bases of assets and liabilities and their reported
amounts in the financial statements. The components of the net
deferred tax liabilities are as follows:
December 31, June 30, June 30,
1996 1996 1995
Deferred income tax liabilities:
Property, plant & equipment $(18,445) $(18,109) $(20,022)
Total deferred tax liabilities (18,445) (18,109) (20,022)
Deferred income tax assets:
Net operating loss carryforwards 26,502 28,219 25,241
Alternative minimum tax credits 183 84 84
Investment tax credits 1,622 1,622 1,622
Miscellaneous 5,571 5,521 6,848
Valuation allowance (28,837) (31,519) (28,859)
Total deferred tax assets 5,041 3,927 4,936
Net deferred income tax
liabilities $(13,404) $(14,182) $(15,086)
F-24
<PAGE>
NRG Generating (U.S.) Inc.
Notes to Consolidated Financial Statements
(Dollars in thousands)
The decrease in the valuation allowance from June 30, 1996 to
December 31, 1996 is due primarily to the utilization of net
operating loss carryforwards and existing deductible temporary
differences against current year taxable income and the future
reversals of existing taxable temporary differences.
The difference between tax expense (benefit) calculated at the
U.S. federal statutory tax rate and the recorded tax expense
(benefit) on income from continuing operations (exclusive of the
December 31, 1996 extraordinary item) is reconciled below:
Six Months
Ended Twelve Months Ended
December 31, June 30, June 30, June 30,
1996 1996 1995 1994
Income tax (benefit) on the amount
of Federal statutory rate $ 1,534 $(6,180) $(13,001) $(4,959)
State income taxes (benefit) 806 252 (286) 387
Current benefit of state operating
loss carryforwards (655) (232) - -
Operating income tax losses with
no current tax benefit (federal
& state) - 3,204 2,272 5,759
Other increase (decrease) in
valuation allowance (1,630) (544) 6,233 -
Excess liabilities - - 4,000 -
Reorganization costs - 2,636 1,712 -
Other (323) 401 1,750 726
Total income tax provision
(benefit) $ (268) $ (463) $ 2,680 $ 1,913
At December 31, 1996, the Company has federal net operating loss
carryforwards available to offset future regular taxable income
and investment tax credit carryforwards available to offset
future regular or alternative minimum federal income taxes
payable. These carryforwards expire as follows:
Net Operating Loss Investment Tax
December 31, Carryforwards Credit Carryforwards
1997 $ - $ -
1998 - 57
1999 - 138
2000 - 255
2001 - 240
2002 3,553 409
2003 1,725 82
2004 5,010 174
2005 13,327 52
2006 4,607 215
2007 15,741 -
2008 10,715 -
2009 6,414 -
2010 8,117 -
Total $69,209 $1,622
F-25
<PAGE>
NRG Generating (U.S.) Inc.
Notes to Consolidated Financial Statements
(Dollars in thousands)
The Company has $44,289 of state and local net operating loss
carryforwards available to offset future state and local taxable
income. These carryforwards will expire starting in 1997 and
will continue to expire through 2010. The Company also has
unused net operating loss carryforwards for United Kingdom income
tax purposes of approximately $1,480. For United Kingdom tax
purposes these losses can be carried forward and can be used to
offset future taxable income. Based upon the weight of available
negative evidence, it is more likely than not that the deferred
tax assets will not all be realized. Accordingly, the Company
has established a partial valuation allowance against the federal
and state loss and tax credit carryforwards and a full valuation
allowance against the United Kingdom loss carryforwards. The net
operating loss carryforwards for alternative minimum tax purposes
are approximately $33,677 at December 31, 1996.
Under the Plan, approved on January 18, 1996 by the Court, NRG
Energy acquired a 41.86% equity interest in the Company. This
acquisition, along with other shifts in shareholders' stock
holdings, amounted to more than a 50% change in ownership in the
Company over a three year period. Under the general net
operating loss and tax credit carryover rules, the utilization of
the losses and tax credits would be limited. However, the
Internal Revenue Code provides an exception to the general rules
for loss corporations that undergo an ownership change by reason
of certain bankruptcy proceedings. The Company believes it
qualifies for the bankruptcy exception and its net operating loss
and tax credit carryforwards are not subject to the change of
ownership limitations. The bankruptcy exception rules also
provide that if a subsequent ownership change should occur within
the two years following the bankruptcy protected change, the
benefits of the bankruptcy exception will be lost and the
Company's net operating loss and tax credit carryforwards will be
effectively eliminated.
25. Segment Information and Major Customers
The Company operates principally in two industry segments. The
energy segment consists of the development and ownership of
cogeneration and standby/peak shaving projects. The equipment
sales, rental and services segment consists of the selling and
renting of power generation, cogeneration and standby/peak
shaving equipment and services. Information with respect to
these segments of the business is as follows:
Six Months
Ended Twelve Months Ended
December 31, June 30, June 30, June 30,
1996 1996 1995 1994
Revenues:
Energy $ 23,247 $ 69,308 $ 80,246 $ 76,913
Equipment sales, rental and
services 16,669 27,239 22,001 29,676
Total $ 39,916 $ 96,547 $102,247 $106,589
Identifiable assets:
Energy $141,890 $142,390 $164,243 $180,329
Equipment, sales, rental and
services 16,170 21,342 22,866 47,329
Corporate assets 15,564 14,430 2,639 10,158
Total $173,624 $178,162 $189,748 $237,816
F-26
<PAGE>
NRG Generating (U.S.) Inc.
Notes to Consolidated Financial Statements
(Dollars in thousands)
Six Months
Ended Twelve Months Ended
December 31, June 30, June 30, June 30,
1996 1996 1995 1994
Operating income (loss):
Energy $ 12,136 $ 16,785 $ 19,642 $ 10,280
Equipment sales, rental and
services 1,018 (754) (20,265) (4,874)
General corporate expenses (1,374) (4,029) (11,254) (8,921)
Total $ 11,780 $ 12,002 $(11,877) $ (3,515)
Depreciation and amortization expense:
Energy $ 3,686 $ 7,123 $ 7,259 $ 7,345
Equipment sales, rental and
services 481 756 1,494 2,171
Not allocable 503 82 250 1,486
Total $ 4,670 $ 7,961 $ 9,003 $ 11,002
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. Selling, general and administrative
expenses have been allocated to the individual segments on the
basis of segment revenues and geographical location.
Identifiable assets by segment are those assets that are used in
the operations of each segment. Corporate assets are those not
used in the operations of a specific segment and consist
primarily of cash, notes receivable and deferred financing costs.
Information with respect to the Company's geographical areas of
business is as follows:
Six Months
Ended Twelve Months Ended
December 31, June 30, June 30, June 30,
1996 1996 1995 1994
Revenues:
United States $ 27,937 $ 82,917 $ 89,332 $ 93,090
United Kingdom 11,979 13,630 12,915 13,499
Total $ 39,916 $ 96,547 $102,247 $106,589
Net income (loss):
United States $ 6,087 $(17,591) $(40,905) $(14,570)
United Kingdom 336 (122) (14) (1,931)
Total $ 6,423 $(17,713) $(40,919) $(16,501)
Identifiable assets:
United States $164,631 $169,657 $179,793 $230,343
United Kingdom 8,993 8,505 9,955 7,473
Total $173,624 $178,162 $189,748 $237,816
Revenues from one energy customer accounted for 46%, 62%, 65% and
53% for the six month period ended December 31, 1996, and for
fiscal years 1996, 1995 and 1994, respectively.
F-27
<PAGE>
NRG Generating (U.S.) Inc.
Notes to Consolidated Financial Statements
(Dollars in thousands)
26. Operating Leases
The Company leases equipment and primarily conducts its
operations in leased facilities which expire on various dates
through the year 2000. Under the terms of most of the lease
agreements, the Company is required to pay taxes, insurance,
maintenance and other operating costs of the facilities. The
total minimum annual lease payments under non-cancelable
operating lease agreements are as follows:
Year Ending December 31,
1997 $ 181
1998 114
1999 26
2000 1
Total $ 322
Total rental expense under various operating leases was
approximately $504, $804, $1,300, and $1,308 in the six month
period ended December 31, 1996, and the fiscal years 1996, 1995
and 1994, respectively.
27. Minority Interest
On November 12, 1993, the Company sold the capital stock of OPC
and Philadelphia BioGas Supply, Inc. ("PBG"), wholly-owned
subsidiaries, and issued 5.5 million warrants for Class A common
stock to entities controlled by an unrelated private investor for
$5,000 in cash. The warrants were exercisable at prices ranging
from $4.00 to $6.00 per share and assigned a value of $1,300
which was reflected in additional paid-in capital. The primary
assets of OPC and PBG consist of a 20-year energy service
agreement and a digester gas supply agreement with the
Philadelphia Municipal Authority.
On August 5, 1994, the Company exercised its option to repurchase
83% of OPC and PBG for $5,000. The Company continued to own and
rent to OPC and PBG the facilities and all related generation and
associated equipment to the project during the period the project
was owned by the unrelated private investor and accordingly
recognized rental revenues of approximately $254 and $2,187 in
fiscal 1995 and 1994, respectively. Additionally, fiscal 1995
interest expense includes $1,050 paid to the private investor to
extend the Company's reacquisition option period to August 1994.
The repurchase agreement obligates OPC to distribute quarterly
17% of its net earnings. These distributions totaled $125, $227
and $209 in the six month period ended December 31, 1996, and
fiscal 1996 and 1995, respectively, and are recorded as interest
expense in the consolidated statement of operations. The 17%
minority interest retained by the private investor is represented
by 100 shares of OPC series A preferred stock, $.01 par value and
redeemable by the Company at its option for a price equal to 17%
of the present value of the projected income stream of the
project as set forth in the repurchase agreement. The private
investor can also obligate the Company, upon certain events of
default, to repurchase all, but not less than all, of the
outstanding preferred stock at 60% of the Company's redemption
price. The Company's redemption price at December 31, 1996 was
approximately $2,257. There are no events of default.
F-28
<PAGE>
NRG Generating (U.S.) Inc.
Notes to Consolidated Financial Statements
(Dollars in thousands)
The Company's Class A common stock warrants issued to the private
investor were terminated on the April 30, 1996 closing date under
the terms of the Plan.
28. Litigation
Hawker Siddeley
The Company was involved in litigation with Hawker Siddeley Power
Engineering, Inc. ("Hawker"), the turnkey contractor for the
Parlin (the "Parlin Action") and former Salinas projects (the
"Salinas Action"). In the aggregate, Hawker's lawsuits, as
amended, sought compensatory damages of $15,000 and $3,000 from
the Parlin and former Salinas projects, respectively. In May
1994, Parlin, O'Brien Cogeneration Inc. II, and the Company
entered into a settlement agreement with Hawker Siddeley, Power
Engineering, Inc. (the "Hawker Settlement Agreement"). Under the
Hawker Settlement Agreement all parties dismissed their claims
related to the Parlin Action and the Company issued a $1,500
promissory note to Hawker in satisfaction of the Salinas Action.
The promissory note became subject to the bankruptcy proceedings
on September 28, 1994 and was subsequently paid with post-
petition interest on April 30, 1996.
Newark Fire Deaths
During September 1993 to November 1993, three actions were filed
against Newark by survivors of three employees of the independent
operator of the Newark Cogeneration facility who were killed as
the result of a fire which occurred at the facility in December
1992. All three actions were settled and covered in full by the
Company's insurance carrier.
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 and certain of its former officers and
former directors. The complaints allege that O'Brien and the
other defendants violated the Securities Exchange Act of 1934 and
disseminated or were responsible for the disseminating of a
series of false and misleading statements concerning the
Company's business, results of operations and future prospects.
The Court, by its confirmation order dated February 13, 1996,
limited the rights of these claimants against the reorganized
Company to the extent of any recoveries available to the Company
under the insurance policies providing any insurance coverage in
respect to such claims.
The reorganized Company is continuing its dispute of certain
prepetition claims as well as certain administrative priority
claims filed with the Court. Although the Company cannot give
definitive assurance regarding the ultimate resolution of the
various claims described above, the Company does not presently
believe the matters described above or the resolution thereof
will have a material adverse impact on the Company's financial
statements.
F-29
<PAGE>
NRG Generating (U.S.) Inc.
Notes to Consolidated Financial Statements
(Dollars in thousands)
29. Subsequent Events
Sale of Power Operations, Inc.
On November 8, 1996, Power Operations, Inc., a new wholly-owned
subsidiary of the Company, assumed the operations and maintenance
of the Newark facility, replacing the former operator. On
December 31, 1996, Power Operations, Inc. assumed the operations
and maintenance of the Parlin facility, replacing the former
operator. On January 1, 1997, Power Operations, Inc. was sold
by the Company to NRG Energy. The terms of this transaction
were approved by the Independent Directors Committee of the
Company's Board of Directors as required by the Company's Bylaws.
The Company believes that such changes will have no material
financial impact on the operations of these facilities or on
the Company's financial condition or results of operations.
Pakistan Development Project
In February 1997, NRGG (Asia), Inc., a wholly-owned subsidiary of
the Company, sold its rights to a development project in
Pakistan. The Company believes that there will be no material
financial impact as a result of this sale.
F-30
<PAGE>
Independent Accountants Report
The Board of Directors and Stockholders
NRG Generating (U.S.) Inc.
We have audited the accompanying consolidated statement of
operations, of stockholders' equity and of cash flows of NRG
Generating (U.S.) Inc. and subsidiaries ("Company") (formerly
known as O'Brien Environmental Energy, Inc.) for the year ended
June 30, 1994. These financial statements are the responsibility
of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that
our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to
above present fairly, in all material respects, the consolidated
stockholders' equity of NRG Generating (U.S.) Inc. and
subsidiaries as of June 30, 1994 and the consolidated results of
their operations, changes in their stockholders' equity and their
cash flows for the year ended June 30,1994 in conformity with
generally accepted accounting principles.
As discussed in Note 28 to the consolidated financial statements,
the Company is a defendant in several lawsuits. The ultimate
outcome of the litigations cannot presently be determined.
Accordingly, no provisions for any liabilities that may result
has been made in the accompanying consolidated statements for the
year ended June 30, 1994.
The accompanying consolidated statement of operations, of
stockholders' equity, and of cash flows for the year ended June
30, 1994 have been prepared assuming that the Company will
continue as a going concern. As discussed in Note 1 to the
consolidated financial statements, the Company has experienced
significant operating problems and setbacks which have
contributed to its losses and liquidity problems. Further,
O'Brien Environmental Energy, Inc. filed a voluntary petition for
reorganization under Chapter 11 of the Federal Bankruptcy Code in
the United States Bankruptcy Court on September 28, 1994. These
events and circumstances, including the Company's highly
leveraged capital structure, raise substantial doubt about its
ability to continue as a going concern. Management's plans in
regard to these matters are described in Note 1 to the
consolidated financial statements. The consolidated statement of
operations, of stockholders' equity, and of cash flows for the
year ended June 30, 1994 do not include any adjustments that
might result from the outcome of this uncertainty.
COOPERS & LYBRAND L.L.P.
2400 Eleven Penn Center
Philadelphia, Pennsylvania
October 7, 1994
F-31
<PAGE>
Index to Exhibits
Exhibit
No. Description
2.1* Composite Fourth Amended and Restated Plan of
Reorganization for the Company dated January 31, 1996
and proposed by the Company, the Official Committee of
Equity Security Holders, Wexford Management Corp.
("Wexford") and NRG Energy, Inc. ("NRG Energy").
2.2 Order confirming Composite Fourth Amended and Restated
Plan of Reorganization for the Company proposed by the
Company, the Official Committee of Equity Security
Holders, Wexford and NRG Energy dated February 13, 1996
and entered on February 22, 1996 and filed as Exhibit
2.1 to the Company's Current Report on Form 8-K dated
February 13, 1996 and incorporated herein by this
reference.
2.3 Amended and Restated Stock Purchase and Reorganization
Agreement dated January 31, 1996 between the Company
and NRG Energy filed as Exhibit 10.1 to the Company's
Current Report on Form 8-K dated February 13, 1996 and
incorporated herein by this reference.
2.4* Letter Agreement dated April 26, 1996 between the
Company and NRG Energy amending the Stock Purchase and
Reorganization Agreement.
2.5* Agreement dated April 30, 1996 relating to Purchase of
the Stock of Ten Wholly Owned Subsidiaries of the
Company by NRG Energy.
3.1* Amended and Restated Certificate of Incorporation of
the Company.
3.2 Preferred Stock Certificate of Designation of the
Company filed as Exhibit 3.3 to the Company's Current
Report on Form 8-K dated April 30, 1996 and
incorporated herein by this reference.
3.3 Bylaws of the Company filed as Exhibit 3.2 to the
Company's Current Report on Form 8-K dated April 30,
1996 and incorporated herein by this reference.
10.1* Co-Investment Agreement dated April 30, 1996 between
the Company and NRG Energy.
10.2.1* Chapter 11 Financing Agreement dated August 30, 1995
between the Company and NRG Energy.
10.2.2* Letter Agreement dated February 20, 1996 between the
Company and NRG Energy amending the Chapter 11
Financing Agreement.
10.2.3* Letter Agreement dated April 30, 1996 between the
Company and NRG Energy further amending the Chapter 11
Financing Agreement.
10.3* Liquidating Asset Management Agreement dated April 30,
1996 between the Company and Wexford.
10.4* Management Services Agreement dated as of January 31,
1996 between the Company and NRG Energy.
10.5.1* Loan Agreement dated April 30, 1996 between the Company
and NRG Energy.
10.5.2* Note dated April 30, 1996 from the Company to NRG
Energy in the principal amount
36
<PAGE>
of $45,000,000.
10.6.1* Supplemental Loan Agreement dated April 30, 1996
between NRG Energy and the Company.
10.6.2* Note dated April 30, 1996 from the Company to NRG
Energy in the principal amount of $15,855,545.25.
10.7.1* NRG Newark Cogen Loan Agreement dated April 30, 1996
between NRG Energy and the Company.
10.7.2* Note dated April 30, 1996 from the Company to NRG
Energy in the principal amount of $24,000,000.
10.8.1* Credit Agreement dated May 17, 1996 between NRG
Generating (Newark) Cogeneration Inc. ("NRGG Newark"),
NRG Generating (Parlin) Cogeneration Inc. ("NRGG
Parlin"), Credit Suisse, Greenwich Funding Corporation
and any Purchasing lender, as Lenders under the Credit
Agreement.
10.8.2* Amendment No. 1 to the Credit Agreement dated June 28,
1996 between NRG Generating (Newark) Inc., NRG
Generating (Newark) Inc. and Credit Suisse, Greenwich
Funding Corporation and any Purchase Lender (as defined
therein).
10.8.3* Stock Pledge Agreement dated June 28, 1996 between the
Company as Pledgor and Credit Suisse.
10.8.4* Guaranty dated as of May 17, 1996 by NRG Energy, as
Guarantor, to Credit Suisse, as Agent for the benefit
of Credit Suisse, Greenwich Funding Corporation and any
Purchasing lender, as Lenders under the Credit
Agreement.
10.8.5* Guaranty dated as of June 28, 1996 by the Company as
Guarantor to Credit Suisse as Agent for the benefit of
Credit Suisse, Greenwich Funding Corporation and any
Purchasing lender, as Lenders under the Credit
Agreement.
10.8.6* Tax Indemnification Agreement dated June 28, 1996
between the Company, NRGG Newark, NRGG Parlin and
Credit Suisse.
10.8.7* Assignment and Security Agreement dated June 28, 1996
between NRGG Parlin and Credit Suisse
10.8.8* Amended and Restated Leasehold Mortgage, Assignment of
Leases and Rents and Security Agreement dated June 28,
1996 between NRGG Newark and Credit Suisse
10.8.9* Leasehold Mortgage, Assignment of Leases and Rents and
Security Agreement dated June 28, 1996 between NRGG
Parlin and Credit Suisse.
10.8.10* Interest Rate Swap Agreement dated August 2, 1996
between NRGG Newark, NRGG Parlin and Credit Suisse.
10.9.1* Loan Agreement dated March 8, 1996 between O'Brien
(Schuylkill) Cogeneration Inc. and NRG Energy in
connection with the Grays Ferry Partnership.
10.9.2* Option Agreement dated May 1, 1996 between O'Brien
(Schuylkill) Cogeneration Inc. and NRG Energy.
10.10.1 Gas Supply Agreement dated June 30, 1992 between the
Company and The
37
<PAGE>
Philadelphia Municipal Authority (the "PMA") regarding
the NE Plant (Philadelphia Project) and filed as an
exhibit to the Company's Annual Report on Form 10-K for
the fiscal year ended June 30, 1992 and incorporated
herein by this reference.
10.10.2 Gas Supply Agreement dated June 30, 1992 between the
Company and the PMA regarding the SW Plant
(Philadelphia Project) and filed as an exhibit to the
Company's Annual Report on Form 10-K for the fiscal
year ended June 30, 1992 and incorporated herein by
this reference.
10.10.3 Energy Service Agreement dated June 30, 1992 between
the Company and the PMA regarding the NE Plant
(Philadelphia Project) and filed as an exhibit to the
Company's Annual Report on Form 10-K for the fiscal
year ended June 30, 1992 and incorporated herein by
this reference.
10.10.4 Energy Service Agreement dated June 30, 1992 between
the Company and the PMA regarding the SW Plant
(Philadelphia Project) and filed as an exhibit to the
Company's Annual Report on Form 10-K for the fiscal
year ended June 30, 1992 and incorporated herein by
this reference.
10.10.5 Stock Purchase Agreement dated November 12, 1993
between the Company, OPC Acquisition, Inc. and BioGas
Acquisition, Inc. and filed as an exhibit to the
Company's Annual Report on Form 10-K for the fiscal
year ended June 30, 1993 and incorporated herein by
this reference.
10.10.6* Loan Agreement between the Company and PECO.
10.11.1 Long Term Power Purchase Contract for Cogeneration and
Small Power Production dated March 10, 1986 between the
Company and Jersey Central Power and Light ("JCP&L")
and filed as an exhibit to the Company's Registration
Statement (File No. 33-11789) and incorporated herein
by this reference.
10.11.2* Letter Agreement dated June 2, 1986 between the Company
and JCP&L amending the Long Term Power Purchase
Contract.
10.11.3* Second Amendment to Power Purchase Agreement dated
March 1, 1988 between the Company and JCP&L.
10.11.4* Letter Agreement dated April 30, 1996 between O'Brien
(Newark) Cogeneration, O'Brien (Parlin) Cogeneration
and JCP&L.
10.11.5* Third Amendment to Power Purchase Agreement dated April
30, 1996 between O'Brien (Newark) Cogeneration and
JCP&L.
10.12* Gas Service Agreement dated May 13, 1993 between
O'Brien (Newark) Cogeneration, Inc. and Public Service
Electric and Gas Company.
10.13.1* Interim Gas Service Agreement dated March 27, 1996
between JCP&L and Public Service Electric and Gas
Company.
10.13.2* New Jersey Board of Public Utilities approval of
Interim Gas Service Agreement.
10.14* Transmission Service and Interconnection Agreement
dated November 17, 1987 between O'Brien Energy Systems,
Inc. and Public Service Electric and Gas Company.
10.15.1* Steam Purchase Agreement dated October 3, 1986 between
O'Brien Cogeneration IV,
38
<PAGE>
Inc. and Newark Boxboard Co.
10.15.2* Amendment to Steam Purchase Agreement dated March 15,
1988 between O'Brien Cogeneration IV, Inc. and Newark
Boxboard Co.
10.15.3* Amendment to Steam Purchase Agreement dated July 18,
1988 between O'Brien (Newark) Cogeneration, Inc. and
Newark Group Industries, Inc.
10.16.1* Operating and Maintenance Agreement dated May 1, 1996
between NRGG Newark and Stewart & Stevenson Operations,
Inc.
10.16.2* Letter Agreement dated May 10, 1996 between the Company
and Stewart & Stevenson Operations, Inc.
10.16.3* Letter Agreement dated May 20, 1996 between NRG
Generating (Newark) Cogeneration and Stewart &
Stevenson Operations, Inc.
10.17.1 Agreement for Purchase and Sale of Electric Power dated
October 20. 1986 between the Company and JCP&L and
filed as an exhibit to the Company's Registration
Statement (File No. 33-11789) and incorporated herein
by this reference.
10.17.2* First Amendment to Agreement for Purchase and Sale
Electric Power dated June 11, 1991 between the Company
and JCP&L.
10.17.3* Amended and Restated Agreement for Purchase and Sale of
Electric Power dated April 30, 1996 between O'Brien
(Parlin) Cogeneration, Inc. and JCP&L.
10.17.4* Letter Agreement dated April 30, 1996 between O'Brien
(Parlin) Cogeneration, Inc. and JCP&L.
10.18* Gas Service Agreement dated May 13, 1993 between
O'Brien (Parlin) Cogeneration, Inc. and Public Service
Electric and Gas Company.
10.19.1* Interim Gas Service Agreement dated March 27, 1996
between JCP&L and Public Service Electric and Gas
Company.
10.19.2* New Jersey Board of Public Utilities approval of
Interim Gas Service Agreement.
10.20.1* Steam Purchase Contract dated December 8, 1986 between
the Company and E.I. du Pont de Nemours("E.I. du Pont")
and Company.
10.20.2* Amendment No. 1 to Steam Purchase Contract dated
January 12, 1988 between the Company and E.I. du Pont.
10.20.3* Letter Agreement dated July 25, 1988 between the
Company and E.I. du Pont.
10.20.4* Amendment No. 3 to Steam Purchase Agreement dated
December 12, 1988 between the Company and E.I. du Pont.
10.20.5* Amendment No. 4 to Steam Purchase Contract dated July
14, 1989 between the Company and E.I. du Pont.
10.20.6* Amendment No. 5 to Steam Purchase Contract dated
February 16, 1993 between the Company and E.I. du Pont.
10.21.1* Electricity Purchase Contract dated January 18, 1988
between the Company and E.I. du Pont.
39
<PAGE>
10.21.2* Electricity Purchase Contract dated April 30, 1996
between O'Brien (Parlin) Cogeneration Inc. and NRG
Parlin Inc.
10.21.3* Assignment of Electricity Purchase Contract dated April
30, 1996 between O'Brien (Parlin) Cogeneration, Inc.,
NRG Parlin, Inc. and E.I. du Pont.
10.22.1* Operating & Maintenance Agreement dated May 1, 1996
between NRG Generating (Parlin) Cogeneration, Inc. and
Stewart Stevenson Operations, Inc.
10.22.2* Agreement dated May 1, 1996 between the Company, NRGG
Newark, NRGG Parlin and Stewart & Stevenson Operations,
Inc.
10.22.3* Letter Agreement dated May 20, 1996 between NRG
Generating (Parlin) Cogeneration, Inc. and Stewart &
Stevenson Operations, Inc.
10.23* Amended and Restated Partnership Agreement of Grays
Ferry Cogeneration Partnership ("Grays Ferry") dated
March 1, 1996, between Adwin (Schuylkill) Cogeneration,
Inc. ("Adwin Schuylkill"), O'Brien (Schuylkill)
Cogeneration, Inc ("O'Brien Schuylkill") and Trigen-
Schuylkill Cogeneration, Inc. ("Trigen-Schuylkill").
10.24.1* Acquisition Agreement dated March 1, 1996 between Adwin
Schuylkill, O'Brien Schuylkill and Trigen-Schuylkill.
10.24.2* Side Agreement dated March 1, 1996 between Adwin
Schuylkill, O'Brien Schuylkill and Trigen-Schuylkill.
10.25.1* Contingent Capacity Purchase Addendum to the Agreement
for Purchase of Electric Output (Phase I) dated
September 17, 1993 between PECO and Grays Ferry.
10.25.2* Contingent Capacity Purchase Addendum to the Agreement
for Purchase of Electric Output (Phase II) dated
September 17, 1993 between PECO and Grays Ferry.
10.25.3* Amendment Agreement dated January 31, 1994 between PECO
and Grays Ferry.
10.25.4* Agreement for Purchase of Electric Output (Phase I)
dated July 28, 1992 between PECO Energy Company
("PECO") and Grays Ferry.
10.25.5* Agreement for Purchase of Electric Output (Phase II)
dated July 28, 1992 between PECO and Grays Ferry.
10.26.1* Amended and Restated Steam Purchase Agreement dated
September 17, 1993 among Philadelphia Thermal Energy
Corporation ("PTEC"), Adwin Equipment Company
("Adwin"), O'Brien Environmental Energy, Inc.
("O'Brien") and Grays Ferry.
10.26.2* Amended and Restated Steam Venture Agreement dated
September 17, 1993 among PTEC, Philadelphia United
Power Corporation ("PUPCO"), Adwin and O'Brien.
10.27.1* Amended and Restated Project Services and Development
Agreement dated September 17, 1993 by and between PUPCO
and Grays Ferry
10.27.2* Consent to Assignment of Agreement dated March 1, 1996
between PUPCO, Grays Ferry Cogeneration Partnership and
The Chase Manhattan Bank, N.A.
10.28* Amended and Restated Site lease, dated September 17,
1993 between PTEC and Grays Ferry.
10.29* Newark Lease.
40
<PAGE>
10.30* Parlin Lease.
10.31.1* NRG Generating (U.S.) Inc. 1996 Stock Option Plan dated
September 20, 1996 and filed as Appendix A to the
Company's Proxy Statement dated October 28, 1996 and
incorporated herein by reference.
10.31.2* Form of an Incentive Stock Option Agreement.
10.31.3* Form of a Nonqualified Stock Option Agreement.
10.31.4* Form of a Nonemployee Director Nonqualified Stock
Option Agreement.
10.32* Employment Agreement dated April 30, 1996 between the
Company and Leonard A. Bluhm.
21 List of Subsidiaries of the Registrant.
23.1 Consent of Price Waterhouse LLP.
23.2 Consent of Coopers & Lybrand LLP.
27 Financial Data Schedule.
____________
* To be filed by amendment.
41
<PAGE>
Exhibit 21
List of Subsidiaries of Registrant
State or Other Jurisdiction
Name of Subsidiary of Incorporation
O'Brien Energy Services Company Delaware
NRGG Parlin Supply Corporation Delaware
NRGG Newark Supply Corporation Delaware
NRG Generating (Newark) Cogeneration Inc. Delaware
NRG Generating (Parlin) Cogeneration Inc. Delaware
NRGG Schuylkill Cogeneration Inc. Delaware
SDN Power, Inc. Delaware
NRGG (Asia), Inc. Delaware
Power Service Company Delaware
O'Brien (Philadelphia) Cogeneration, Inc. Delaware
O'Brien Fuels, Inc. Delaware
O'Brien Mobile Power Rental Company Delaware
O'Brien Power Equipment, Inc. Texas
NRG Generating Ltd. United Kingdom
Puma Manufacturing Ltd. United Kingdom
Puma Export Finance, Ltd. United Kingdom
Puma Freight Forwarding Ltd. United Kingdom
Puma Far East Ltd. United Kingdom
Enercol Energy Systems, Ltd. United Kingdom
O'Brien Energy Europe United Kingdom
42
<PAGE>
Exhibit 23.1
Consent of Independent Accountants
We hereby consent to the incorporation by reference in the
Registration Statements on Form S-8 (No. 33-15786, No. 33-25316,
and No. 33-50784) of NRG Generating (U.S.) Inc. (formerly known
as O'Brien Environmental Energy, Inc.) of our report dated March
13, 1997 appearing in this Form 10-K.
Price Waterhouse LLP
Minneapolis, Minnesota
March 24, 1997
43
<PAGE>
Exhibit 23.2
Consent of Independent Accountants
We hereby consent to the incorporation by reference in the
Registration Statements on Form S-8 (No. 33-15786, No. 33-25316,
and No. 33-50784) of NRG Generating (U.S.) Inc. (formerly known
as O'Brien Environmental Energy, Inc.) of our report dated
October 7, 1994, appearing in this Form 10-K.
Coopers & Lybrand L.L.P.
Philadelphia, Pennsylvania
March 24, 1997
44
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND> THIS SCHEDULE CONTAINS SUMMARY FINANCIAL
INFORMATION EXTRACTED FROM THE REGISTRANT'S
FINANCIAL STATEMENTS FOR ITS YEAR ENDED
DECEMBER 31, 1996 AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> Dec-31-1996
<PERIOD-END> Dec-31-1996
<CASH> 11,361
<SECURITIES> 0
<RECEIVABLES> 11,920
<ALLOWANCES> 0
<INVENTORY> 2,897
<CURRENT-ASSETS> 28,475
<PP&E> 134,831
<DEPRECIATION> 0
<TOTAL-ASSETS> 173,624
<CURRENT-LIABILITIES> 25,984
<BONDS> 0
<COMMON> 64
0
0
<OTHER-SE> (30,577)
<TOTAL-LIABILITY-AND-EQUITY> 173,624
<SALES> 39,916
<TOTAL-REVENUES> 39,916
<CGS> 21,987
<TOTAL-COSTS> 21,987
<OTHER-EXPENSES> 5,736
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 7,681
<INCOME-PRETAX> 4,512
<INCOME-TAX> (268)
<INCOME-CONTINUING> 4,780
<DISCONTINUED> 0
<EXTRAORDINARY> 1,643
<CHANGES> 0
<NET-INCOME> 6,423
<EPS-PRIMARY> 1.00
<EPS-DILUTED> 0.99
</TABLE>