<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
___________
(Mark one)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED
JUNE 30, 1997
OR
_ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM
TO
Commission File Number 1-9208
NRG GENERATING (U.S.) INC.
(Exact name of Registrant as Specified in Charter)
Delaware 59-2076187
(State or other jurisdiction (I.R.S. Employer
of incorporation) Identification No.)
___________
1221 Nicollet Mall, Suite 610
Minneapolis, Minnesota 55403-2445
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (612) 373-8834
Indicate by check mark whether the registrant: (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such
shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for
the past 90 days. X Yes No
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS
DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all
documents and reports required to be filed by Sections 12, 13 or
15(d) of the Securities Exchange Act of 1934 subsequent to the
distribution of securities under a plan confirmed by a court.
X Yes No
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's
classes of common stock as of the latest practicable date: 6,440,514
shares of Common Stock, $0.01 par value per share, as of August 8,
1997.
<PAGE>
NRG GENERATING (U.S.) INC.
FORM 10-Q
June 30, 1997
INDEX
Page
Part I - Financial Information:
Item 1. Financial Statements.......................................2
Consolidated Balance Sheets -
June 30, 1997 and December 31, 1996.......................2
Consolidated Statements of Operations -
Three months and six months ended
June 30, 1997 and June 30, 1996...........................3
Consolidated Statements of Cash Flows -
Six months ended June 30, 1997 and June 30, 1996..........4
Notes to Consolidated Financial Statements.................5
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations........................7
Part II - Other Information
Item 1. Legal Proceedings.........................................14
Item 4. Submission of Matters to a Vote of Security Holders.......14
Item 6. Exhibits and Reports on Form 8-K..........................16
Signature............................................................17
Index to Exhibits....................................................18
1
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PART 1
FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
NRG GENERATING (U.S.) INC.
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
<TABLE>
<CAPTION>
ASSETS
June 30, December 31,
1997 1996
(Unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents.................................... $ 2,177 $ 3,187
Restricted cash and cash equivalents......................... 9,332 8,174
Accounts receivable, net..................................... 10,714 11,920
Receivables from related parties............................. 64 186
Notes receivable, current.................................... 80 1,119
Inventories.................................................. 2,998 2,897
Other current assets......................................... 944 992
Total current assets....................................... 26,309 28,475
Property, plant and equipment, net............................. 129,849 132,203
Equipment held for sale........................................ 1,648 2,628
Project development costs...................................... 366 346
Notes receivable, noncurrent................................... - 83
Investments in equity affiliates............................... 4,760 3,653
Deferred financing costs, net.................................. 5,328 5,530
Other assets................................................... 667 706
Total assets............................................... $ 168,927 $ 173,624
</TABLE>
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
<S> <C> <C>
Current liabilities:
Accounts payable............................................. $ 3,794 $ 6,131
Accounts payable and accrued interest due NRG Energy, Inc.... 1,002 1,256
Current portion of long-term debt............................ 10,563 10,820
Accrued interest payable..................................... 267 1,104
Prepetition liabilities...................................... 538 1,433
Short-term borrowings........................................ 1,961 2,388
Other current liabilities.................................... 3,342 2,852
Total current liabilities.................................. 21,467 25,984
Loans due NRG Energy, Inc., net of current portion............. 15,488 14,388
Long-term debt, net of current portion......................... 144,545 150,311
Deferred income taxes.......................................... 13,404 13,404
Other noncurrent liabilities................................... - 50
Total liabilities.......................................... 194,904 204,137
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 shares
outstanding as of June 30, 1997 and
December 31, 1996, respectively............................ 64 64
Additional paid-in capital................................... 62,719 62,719
Accumulated deficit.......................................... (88,386) (92,944)
Other........................................................ (374) (352)
Total stockholders' equity (deficit)....................... (25,977) (30,513)
Total liabilities and stockholders' equity (deficit)....... $ 168,927 $ 173,624
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
2
<PAGE>
NRG GENERATING (U.S.) INC.
CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
(Dollars in thousands, except per share amounts)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30, June 30, June 30,
1997 1996 1997 1996
<S> <C> <C> <C> <C>
REVENUES:
Energy................................ $ 9,002 $ 11,491 $ 21,393 $ 30,624
Equipment sales and services.......... 4,586 6,660 9,192 13,025
Rental revenues....................... 467 489 927 875
Development fees and other............ - 450 - 1,122
14,055 19,090 31,512 45,646
COST OF REVENUES:
Cost of energy........................ 4,072 8,218 7,232 24,312
Cost of equipment sales and services.. 3,662 5,842 7,561 11,392
Cost of rental revenues............... 440 422 823 751
Cost of development fees and other.... - 431 - 1,049
8,174 14,913 15,616 37,504
Gross profit........................ 5,881 4,177 15,896 8,142
Selling, general and
administrative expenses.............. 1,663 6,075 3,916 8,481
Income (loss) from operations....... 4,218 (1,898) 11,980 (339)
Interest and other income............. 231 (215) 432 1,010
Reorganization costs.................. - (4,983) - (8,251)
Interest and debt expense............. (3,794) (5,119) (7,331) (9,547)
Income (loss) before income taxes... 655 (12,215) 5,081 (17,127)
Provision for income taxes (benefit)... 184 (504) 523 (489)
Net income (loss)................... $ 471 $ (11,711) $ 4,558 $ (16,638)
Net income (loss) per share............ $ 0.07 $ (2.12) $ 0.69 $ (3.61)
Weighted average shares outstanding.... 6,645 5,519 6,634 4,615
The accompanying notes are an integral part of these consolidated financial
statements.
3
<PAGE>
NRG GENERATING (U.S.) INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(Dollars in thousands)
</TABLE>
<TABLE>
<CAPTION>
Six Months Ended
June 30, June 30,
1997 1996
<S> <C> <C>
Cash Flows from Operating Activities:
Net income (loss).............................................. $ 4,558 $ (16,638)
Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating activities:
Depreciation and amortization.............................. 3,572 4,055
Amortization of debt discount and deferred financing costs. 202 1,261
Deferred tax benefit....................................... - (904)
Project development costs expensed......................... - 180
Bankruptcy fees accrued.................................... - (1,899)
Loss on disposition of property and equipment.............. 491 -
Other, net................................................. (81) (3,471)
Changes in operating assets and liabilities:
Accounts receivable, net................................. 1,183 4,861
Inventories.............................................. (121) 748
Receivables from related parties......................... 121 601
Other assets............................................. 23 -
Accounts payable and other current liabilities........... (2,067) 399
Accrued interest payable................................. (837) (3,947)
Net cash provided by (used in) operating activities.... 7,044 (14,754)
Cash Flows from Investing Activities:
Capital expenditures........................................... (1,277) -
Proceeds from disposition of property and equipment............ 600 -
Investment in equity affiliates................................ (1,100) -
Proceeds from sale of subsidiaries............................. - 7,500
Project development costs...................................... (15) (1,718)
Collections on notes receivable................................ 1,122 790
Deposits into restricted cash accounts, net.................... (1,158) (5,151)
Other, net..................................................... - 260
Net cash (used in) provided by investing activities.... (1,828) 1,681
Cash Flows from Financing Activities:
Proceeds from NRG Energy, Inc. loans........................... 1,100 125,078
Proceeds from long-term debt................................... - 60,226
Repayments of NRG Energy, Inc. loans........................... - (26,398)
Repayments of long-term debt................................... (6,016) (85,319)
NRG capital contribution....................................... - 21,178
Net repayments of short-term borrowings........................ (415) (29)
Payments on prepetition liabilities............................ (895) (70,180)
Deferred financing costs....................................... - (4,579)
Redemption of preferred shares................................. - (4,957)
Preferred dividends paid....................................... - (57)
Net cash (used in) provided by financing activities.... (6,226) 14,963
Net (decrease) increase in cash and cash equivalents............ (1,010) 1,890
Cash and cash equivalents, beginning of period.................. 3,187 3,132
Cash and cash equivalents, end of period........................ $ 2,177 $ 5,022
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C>
Supplemental disclosure of cash flow information:
Interest paid during the period............................... $ 8,040 $ 9,547
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
4
<PAGE>
NRG GENERATING (U.S.) INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
JUNE 30, 1997
(Dollars in thousands)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
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.
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.
The accompanying unaudited consolidated financial statements and
notes should be read in conjunction with the Company's Report on Form
10-K for the fiscal year ended December 31, 1996. In the opinion of
management, the consolidated financial statements reflect all
adjustments necessary for a fair presentation of the interim periods
presented. Results of operations for an interim period may not give a
true indication of results for the year.
Net Income (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.
In March 1997, the Financial Accounting Standards Board issued
Statement No. 128, "Earnings Per Share" ("FAS No. 128"). FAS No. 128
applies to entities with publicly held common stock or potential
common stock and is effective for financial statements issued for
periods ending after December 15, 1997. Under FAS No. 128 the
presentation of primary earnings per share is replaced with a
presentation of basic earnings per share. FAS No. 128 requires dual
presentation of basic and diluted earnings per share for entities with
complex capital structures. Basic earnings per share includes no
dilution and is computed by dividing net income (loss) available to
common stockholders by the weighted average number of common shares
outstanding for the period. Diluted earnings per share reflects the
potential dilution of securities that could share in the earnings of
an entity, similar to fully diluted earnings per share. Management
believes the adoption of FAS No. 128 will not have a material effect
on the financial statements.
5
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
JUNE 30, 1997
(Dollars in thousands)
2. LOANS DUE NRG ENERGY, INC.
The loan balance due to NRG Energy, Inc. ("NRG Energy") on June 30,
1997 is $15,488. Of this balance, $14,388 has a maturity date of
April 30, 2001 and $1,100 has a maturity date of June 30, 2005. The
$1,100 amount was borrowed under a $10,000 loan agreement between NRGG
(Schuylkill) Cogeneration, Inc. ("NSC"), a wholly-owned subsidiary of
the Company, and NRG Energy. This loan agreement provides funding for
the NSC capital contribution obligation to the Grays Ferry
Cogeneration Partnership, for the purpose of developing, constructing,
owning, maintaining and operating a 150 megawatt ("MW") natural gas
and oil fired cogeneration facility to produce steam and electricity
in Philadelphia.
3. PROVISION FOR INCOME TAXES
No provision for federal income taxes has been recorded since the
Company has net federal operating loss carryforwards which have not
been recognized in prior periods.
6
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The information contained in this Item 2 updates, and should be
read in conjunction with, the information set forth in Part II, Item
7, of the Company's Report on Form 10-K for the fiscal year ended
December 31, 1996. Capitalized terms used in this Item 2 which are
not defined herein have the meaning ascribed to such terms in the
Notes to the Company's financial statements included in Part I, Item 1
of this Report on Form 10-Q. All dollar amounts set forth in this
Item 2 are in thousands.
General
NRG Generating (U.S.) Inc. 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 and is owned by the Company's
wholly-owned subsidiary NRG Generating (Newark) Cogeneration
Inc. ("Newark");
(b) The 122 MW E.I. du Pont Parlin Project (the "Parlin
Project"), located in Parlin, New Jersey, began operations
in June 1991 and is owned by the Company's wholly-owned
subsidiary NRG Generating (Parlin) Cogeneration Inc.
("Parlin"); 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 make an investment.
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 profit margins and reduced
operating income, either of which could have a material adverse effect
on the Company's
7
<PAGE>
financial position or results of operations. Effective April 30,
1996, the Company renegotiated its PPAs with Jersey Central Power and
Light Company ("JCP&L"), the primary electricity purchaser from its
Newark and Parlin Projects. Under the amended PPAs, JCP&L is
responsible for all fuel supply and delivery. Under the prior PPAs
the Company was responsible for such costs which were reflected in
energy revenues and costs. The Company believes that this change in
the PPAs will reduce volatility in gross margins by eliminating the
Company's exposure to fluctuations in the price of natural gas.
Although energy revenues as well as the cost of energy revenues will
decline under the amended PPAs, the Company does not expect the
changes made to the PPAs to have a material impact on its operating
gross margins over time. However, there can be no assurance that any
of the foregoing steps will improve or maintain gross profit margins
in the future.
Both the Newark and Parlin Projects were previously certified as
qualifying facilities ("QFs") by the Federal Energy Regulatory
Commission ("FERC") under the Public Utility Regulatory Policies Act
of 1978 ("PURPA"). The effect of QF status is generally to exempt a
project's owners from relevant provisions of the Federal Power Act,
the Public Utility Holding Company Act of 1935 ("PUHCA"), and state
utility-type regulation. However, as permitted under the terms of its
renegotiated PPAs, Parlin has chosen to file rates with FERC as a
public utility under the Federal Power Act. The effect of this filing
was to relinquish the Parlin Project's claim to QF status. The FERC
approved Parlin's rates effective April 30, 1996 and has determined
Parlin to be an exempt wholesale generator ("EWG"). As an EWG, Parlin
is exempt from PUHCA, and the ownership of Parlin by the Company does
not subject the Company to regulation under PUHCA. Finally, as a
seller of power exclusively at wholesale, Parlin is not generally
subject to state regulation and, in any case, the Company believes
that Parlin complies with all applicable requirements of state utility
law.
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").
Revenues
Energy revenues for the second quarter 1997 of $9,002 decreased
from revenues of $11,491 for the comparable period in 1996. Energy
revenues for the first six months of 1997 of $21,393 decreased from
$30,624 for the comparable period in 1996. Energy revenues primarily
reflect billings associated with the Parlin and Newark Projects and
the Company's Philadelphia Water Department standby project. The 1996
periods presented also included revenues associated with landfill gas
operations, which the Company sold April 30, 1996. The decrease in
energy revenues in the quarter and six months ended June 30, 1997 as
compared to the same periods one year ago was primarily attributable
to the amended PPAs affecting both Parlin and Newark.
8
<PAGE>
Revenues recognized at Parlin and Newark were $4,317 and $3,615
for the second quarter 1997 and $5,825 and $4,559 for the comparable
period in 1996, respectively. Revenues recognized at Parlin and Newark
were $10,606 and $8,709 for the first six months of 1997 and $16,032
and $12,345 for the comparable period in 1996, respectively. The
decrease was primarily due to the amended PPAs.
Energy revenues from the Company's Philadelphia Water Department
standby facility project for the second quarter 1997 of $1,070
increased from revenues of $1,041 for the comparable period in 1996.
Energy revenues from this project for the first six months of 1997 of
$2,078 increased from the $2,031 of revenues for the comparable period
in 1996. Energy revenues from the Company's landfill gas projects
for the second quarter and first four months of 1996 were $66 and
$216, respectively. On April 30, 1996, the landfill gas projects were
sold to NRG Energy.
Equipment sales and services revenues for the second quarter 1997
of $4,586 decreased from revenues of $6,660 for the comparable period
in 1996. Equipment sales and services revenues for the first six
months of 1997 of $9,192 decreased from the $13,025 of revenues for
the comparable period in 1996. The revenue decrease in the quarter
and six month periods ended June 30, 1997 from the comparable periods
one year ago was primarily attributable to the sale of the Company's
American Hydrotherm business in December 1996.
OES equipment sales and services revenues for the second quarter
1997 of $1,440 increased from revenues of $1,059 for the quarter ended
June 30, 1996. OES equipment sales and services revenues for the
first six months of 1997 of $2,728 increased from the $2,069 of
revenues in the six months ended June 30, 1996. The increase was
primarily due to higher sales volume. As noted above, American
Hydrotherm, which had revenues of $2,065 and $3,538 for the quarter
and six months ended June 30, 1996, respectively, was sold in December
1996. Puma equipment sales and services revenues for the second
quarter 1997 of $3,146 decreased from revenues of $3,536 for the
quarter ended June 30, 1996. Puma equipment sales and services
revenues for the first six months of 1997 of $6,464 decreased from the
$7,418 of revenues in the six months ended June 30, 1996. The
decrease was primarily due to the unfavorable impact of foreign
currency rates in some of its Asian markets.
Rental revenues for the second quarter 1997 of $467 decreased from
revenues of $489 for the quarter ended June 30, 1996. Rental revenues
for the first six months of 1997 of $927 increased from the $875 of
revenues in the six months ended June 30, 1996. The deviation for
each comparable period was due primarily to fluctuations in sales
volume.
There were no development fees and other revenues for the second
quarter and first six months of 1997 compared to $450 and $1,122 for
the comparable periods of 1996, respectively. The decrease was
primarily attributable to the Company's assignment of contract rights
for the sale of gas to the Artesia Cogeneration partnership. These
contract rights were assigned in January 1997 to NRG Energy in a
transaction that was approved by the Independent Committee of the
Board of Directors.
9
<PAGE>
Costs and Expenses
Cost of energy revenues for the second quarter 1997 of $4,072
decreased from costs of $8,218 for the quarter ended June 30, 1996.
Cost of energy revenues for the first six months of 1997 of $7,232
decreased from the $24,312 of costs in the six months ended June 30,
1996. The decreases were primarily the result of the amended PPAs in
which JCP&L began assuming the cost of fuel for the Parlin and Newark
facilities.
Cost of equipment sales and services for the second quarter 1997
of $3,662 decreased from costs of $5,842 for the quarter ended June 30,
1996. Cost of equipment sales and services for the first six months
of 1997 of $7,561 decreased from the $11,392 of costs in the six
months ended June 30, 1996. The decreases were primarily due to lower
costs from the Puma operations and the sale of American Hydrotherm.
Cost of rental revenues for the second quarter 1997 of $440
increased from costs of $422 for the quarter ended June 30, 1996.
Cost of rental revenues for the first six months of 1997 of $823
increased from the $751 of costs in the six months ended June 30,
1996. The deviation for each comparable period was due primarily to
fluctuations in sales volume.
There were no cost of development fees and other for the second
quarter and first six months of 1997 compared to $431 and $1,049 for
the comparable periods of 1996, respectively. The decrease was
primarily attributable to the Company's assignment of contract rights
for the sale of gas to the Artesia Cogeneration partnership.
The Company's gross profit for the second quarter 1997 of $5,881
(41.8% of sales) increased from the quarter ended June 30, 1996 gross
profit of $4,177 (21.9% of sales). Gross profit for the first six
months of 1997 of $15,896 (50.4% of sales) increased from gross profit
of $8,142 (17.8% of sales) for the six months ended June 30, 1996.
The gross profit increases were primarily attributable to results from
the energy segment, including particularly fluctuations in the
recovery of fuel costs through energy revenues under the Parlin and
Newark Project PPAs in effect until April 30, 1996.
Selling, General and Administrative Expenses
Selling, general and administrative expenses ("SG&A") for the
second quarter 1997 of $1,663 decreased from the quarter ended June
30, 1996 SG&A expenses of $6,075. SG&A for the first six months of
1997 of $3,916 decreased from SG&A of $8,481 for the six months ended
June 30, 1996. The reductions were primarily due to a $3,100 cost
incurred in the quarter ended June 30, 1996 to terminate the interest
rate swap agreement in connection with the refinancing of Parlin
nonrecourse project debt. Fiscal 1997 SG&A expenses benefited from
lower payroll costs and related tax costs as well as reduced insurance
expenses and legal fees.
10
<PAGE>
Interest and Other Income
Interest and other income for the second quarter 1997 of $231
increased from interest and other income of $(215) for the quarter
ended June 30, 1996. Interest and other income for the first six
months of 1997 of $432 decreased from interest and other income of
$1,010 for the six months ended June 30, 1996. The increase for the
comparable quarters was primarily due to the net costs associated with
the landfill gas projects sold to NRG Energy on April 30, 1996. The
decrease for the comparable six month periods was primarily
attributable to a one time gain of $1,000 in the quarter ended March
31, 1996 for the admission of a third partner into the Grays Ferry
Partnership offset in part by the net costs associated with the sale
of the landfill gas projects.
During the first quarter 1997 the Company recognized a gain from
the sale of its interest in a development project in Pakistan. This
gain was offset by a loss on the sale of unused equipment.
Reorganization Costs
Reorganization costs represent all costs incurred after filing for
bankruptcy that relates to the Company's reorganization and
restructuring efforts. Reorganization costs for the quarter and six
months ended June 30, 1996 were $4,983 and $8,251, respectively.
These costs consist primarily of professional and administrative fees
and expenses.
Interest and Debt Expense
Interest and debt expense for the second quarter 1997 of $3,794
decreased from second quarter 1996 interest and debt expense of
$5,119. Interest and debt expense for the first six months of 1997 of
$7,331 decreased from interest and debt expense of $9,547 for the six
months ended June 30, 1996. The decreases were due primarily to post-
petition interest on prepetition liabilities included in the quarter
and six month periods ended June 30, 1996. In addition, the average
interest rate was lower in the quarter and six month periods ended
June 30, 1997 than in the comparable periods one year ago due to the
refinancing of the Newark and Parlin Projects.
Income Taxes
The provision for income taxes for the quarter and six months
Ended June 30, 1997 relates primarily to state income taxes on
earnings of the Company's subsidiaries.
Net Income (Loss) Per Share
Net income (loss) per share is calculated by dividing net income
(loss) by the weighted average shares of common stock and common stock
equivalents outstanding. Fully dilutive net income (loss) per share
is not presented because conversion of any common stock equivalents
does not have a material dilutive effect on reported net income (loss)
per share. Weighted average shares increased for the quarter and six
month periods ended June 30, 1997 from the comparable periods one year
ago
11
<PAGE>
primarily due to the purchase of 2,710,357 common shares by NRG Energy
on April 30, 1996.
Liquidity and Capital Resources
In May 1996, the Company's wholly-owned subsidiaries Newark and
Parlin entered into a Credit Agreement (the "Credit Agreement") which
established provisions for a $155,000 fifteen-year loan (of which
$147,250 was outstanding at June 30, 1997) and a $5,000 five-year debt
service reserve line of credit. The interest rate on the outstanding
principal is variable based on, at the option of Newark and Parlin,
LIBOR plus a 1.125% margin or a defined base rate plus a 0.375%
margin, with nominal margin increases in the sixth and eleventh year.
Concurrent with the Credit Agreement, Newark and Parlin entered into
an interest rate swap agreement with respect to 50% of the principal
amount outstanding under the Credit Agreement. This interest rate
swap agreement fixes the interest rate on the 50% portion of the
principal amount outstanding at 6.9% plus the margin.
NRGG Schuylkill Cogeneration, Inc. (formerly known as O'Brien
(Schuylkill) Cogeneration, Inc.) ("NSC"), a wholly-owned subsidiary of
the Company, 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 each of the
project's three partners to make a $10,000 capital contribution prior
to the commercial operation of the facility, which is anticipated to
occur by the end of 1997.
NRG Energy has provided additional loan commitments to the Company.
A $10,000 loan agreement negotiated between NRG Energy and NSC
provides funding, if needed, for a NSC capital contribution obligation
to the Grays Ferry Partnership. At June 30, 1997, NSC had borrowed
$1,100 from NRG Energy under this loan agreement. At June 30, 1997,
loans of $14,388 remained outstanding to NRG Energy under another loan
agreement.
The Company and NRG Energy have 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, 1999, projects with an aggregate equity value of at least $60,000
or a minimum of 150 net MW.
To facilitate the Company's ability to acquire ownership interests
which may be offered pursuant to its Co-Investment Agreement, NRG
Energy has agreed to finance the Company's purchase of such ownership
interests at commercially
12
<PAGE>
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.
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 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; the
successful completion and addition of new energy projects and various
other factors including without limitation those discussed in this
report and the Company's Report on Form 10-K for the fiscal year ended
December 31, 1996 under the caption "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.
13
<PAGE>
PART II
OTHER INFORMATION
ITEM 1 Legal Proceedings.
There have been material developments in the following legal
proceedings of the Company or a subsidiary which have previously been
reported in the Company's Report on Form 10-K for the transition
period ended December 31, 1996:
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 was a dispute over the
purchase of certain accounts receivable allegedly owed by the
Company. On May 15, 1997, the Company settled this claim for a
payment of $730,000. This settlement did not have a material
adverse effect on the business or financial condition of the
Company.
2. 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 arose out of the
purchase of materials and services from a vendor to make repairs
in connection with a fire that 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. On June 9, 1997,
the Company settled this claim for a net payment of $115,000. This
settlement did not have a material adverse effect on the business
or financial condition of the Company.
The Company is party to other legal proceedings, but 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.
ITEM 4 Submission of Matters to a Vote of Security Holders.
At the Annual Meeting of Stockholders of the Company held on May
22, 1997 (the "Meeting"), the following directors were elected, each
of whom will serve until the 1998 annual meeting of stockholders and
until his successor is elected and qualified:
Nominee Affirmative Negative
Votes Votes Abstentions
Leonard A. Bluhm 5,717,429 9,571 -
Lawrence I. Littman 5,718,956 8,044 -
Craig A. Mataczynski 5,718,956 8,044 -
David H. Peterson 5,718,956 8,044 -
Robert T. Sherman, Jr. 5,718,956 8,044 -
Spyros S. Skouras, Jr. 5,718,956 8,044 -
Charles J. Thayer 5,718,956 8,044 -
Ronald J. Will 5,718,956 8,044 -
14
<PAGE>
In addition, the following proposals were approved at the
Meeting:
Approval of the Company's 1997 Stock Option Plan authorizing the
Company to grant options to purchase up to 250,000 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
5,719,569 3,323 4,108
Ratification of the selection of Price Waterhouse LLP as the
Company's independent public accountants.
Affirmative Negative
Votes Votes Abstentions
5,493,478 150,548 22,035
15
<PAGE>
ITEM 6 Exhibits and Reports on Form 8-K.
(a) Exhibits
The "Index to Exhibits" following the signature page is
incorporated herein by reference.
(b) Reports on Form 8-K
The following Reports on Form 8-K were filed by the
registrant during the fiscal quarter ended June 30, 1997:
1. Current Report on Form 8-K dated April 7, 1997, reporting
information under Item 5.
16
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned hereunto duly authorized.
NRG GENERATING (U.S.), INC.
Registrant
Date: August 12, 1997 By: /s/ Timothy P. Hunstad
Timothy P. Hunstad
Vice President and Chief Financial Officer
(Principal Financial Officer and Duly Authorized Officer)
17
<PAGE>
INDEX TO EXHIBITS
3.1 Amended and Restated Certificate of Incorporation of the Company
filed as Exhibit 3.1 to the Company's Current Report on Form 8-K
dated April 30, 1996 and incorporated herein by this reference.
3.2 Bylaws of the Company filed as Exhibit 3.2 to the Company's
Current Report on Form 8-K dated April 30, 1996 and incorporated
herein by this reference.
10.1 NRG Generating (U. S.) Inc. 1997 Stock Option Plan filed as
Appendix A to the Company's Proxy Statement dated April 24, 1997
and incorporated herein by this reference.
11 Computation of Earnings Per Common Share
27 Financial Data Schedule (for SEC filing purposes only)
18
<PAGE>
EXHIBIT 11.0
NRG Generating (U. S.) INC.
Computation of Earnings Per Common Share
(Dollars in thousands, except per share amounts)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30, June 30, June 30,
1997 1996 1997 1996
<S> <C> <C> <C> <C>
Net income (loss) applicable to
common shares:
Net income (loss) $ 471 $ (11,711) $ 4,558 $ (16,638)
Primary:
Shares for common and common share
equivalent earnings (loss) per share (1):
Weighted average number of
common shares outstanding 6,440,514 5,518,562 6,440,514 4,615,109
Dilutive effect of outstanding
stock options and warrants 204,438 0 193,286 0
6,644,952 5,518,562 6,633,800 4,615,109
Net income (loss) per common share
and common share equivalents $ 0.07 $ (2.12) $ 0.69 $ (3.61)
Fully Diluted:
Shares for common and common share
equivalent earnings (loss) per share (2):
Weighted average number of
common shares outstanding 6,440,514 5,518,562 6,440,514 4,615,109
Dilutive effect of outstanding
stock options and warrants 215,717 0 211,124 0
6,656,231 5,518,562 6,651,638 4,615,109
Net income (loss) per common share
and common share equivalents $ 0.07 $ (2.12) $ 0.69 $ (3.61)
<FN>
(1) Outstanding stock options, warrants, and shares issuable under
employee stock purchase plans are converted to common share
equivalents by the treasury stock method using the average market
price of the Company's shares during each period.
(2) Outstanding stock options, warrants, and shares issuable under
employee stock purchase plans are converted to common share
equivalents by the treasury stock method using the greater of the
average market price or the period-end market price of the
Company's shares during each period.
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND> THIS SCHEDULE CONTAINS SUMMARY FINANCIAL
INFORMATION EXTRACTED FROM THE REGISTRANT'S
FINANCIAL STATEMENTS FOR ITS SECOND QUARTER
OF FISCAL YEAR 1997 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> Dec-31-1997
<PERIOD-END> Jun-30-1997
<CASH> 11,509
<SECURITIES> 0
<RECEIVABLES> 10,714
<ALLOWANCES> 0
<INVENTORY> 2,998
<CURRENT-ASSETS> 26,309
<PP&E> 129,849
<DEPRECIATION> 0
<TOTAL-ASSETS> 168,927
<CURRENT-LIABILITIES> 21,467
<BONDS> 0
<COMMON> 64
0
0
<OTHER-SE> (26,041)
<TOTAL-LIABILITY-AND-EQUITY> 168,927
<SALES> 31,512
<TOTAL-REVENUES> 31,512
<CGS> 15,616
<TOTAL-COSTS> 15,616
<OTHER-EXPENSES> 3,484
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 7,331
<INCOME-PRETAX> 5,081
<INCOME-TAX> 523
<INCOME-CONTINUING> 4,558
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,558
<EPS-PRIMARY> 0.69
<EPS-DILUTED> 0.69
</TABLE>
