<PAGE>
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q/A
AMENDMENT NO. 1
___________
(Mark one)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
- SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED
MARCH 31, 1998
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: 6,836,769 shares of Common
Stock, $0.01 par value per share, as of May 11, 1998.
- -------------------------------------------------------------------------------
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<PAGE>
The Registrant's Quarterly Report on Form 10-Q for the quarter ended March
31, 1998 is hereby amended and restated in its entirety by this Amendment No.
1 on Form 10-Q/A ("Amendment No. 1"). The purpose of this Amendment No. 1 is
to add Note 4 "INVESTMENT IN GRAYS FERRY" to the Notes to Consolidated
Financial Statements.
NRG GENERATING (U.S.) INC.
FORM 10-Q/A
MARCH 31, 1998
INDEX
<TABLE>
<CAPTION>
PAGE
<S> <C>
PART I - FINANCIAL INFORMATION:
Item 1. Financial Statements............................................. 3
Consolidated Balance Sheets -
March 31, 1998 and December 31, 1997............................. 3
Consolidated Statements of Operations -
Three months ended March 31, 1998 and March 31, 1997............. 4
Consolidated Statements of Cash Flows -
Three months ended March 31, 1998 and March 31, 1997............. 5
Notes to Consolidated Financial Statements.......................... 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.............................. 8
PART II - OTHER INFORMATION
Item 1. Legal Proceedings............................................... 15
Item 3. Defaults Upon Senior Securities................................. 16
Item 6. Exhibits and Reports on Form 8-K................................ 17
Signature................................................................ 18
Index to Exhibits........................................................ 19
</TABLE>
2
<PAGE>
PART 1
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
NRG GENERATING (U.S.) INC.
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
ASSETS
<TABLE>
<CAPTION>
MARCH 31, DECEMBER
1998 1997
----------- --------
(UNAUDITED)
<S> <C> <C>
Current assets:
Cash and cash equivalents.................................... $ 4,979 $ 3,444
Restricted cash and cash equivalents......................... 8,634 8,527
Accounts receivable, net..................................... 11,401 11,099
Receivables from related parties............................. 65 87
Notes receivable, current.................................... 1 27
Inventories.................................................. 2,131 2,134
Other current assets......................................... 696 1,022
-------- --------
Total current assets....................................... 27,907 26,340
Property, plant and equipment, net............................. 125,908 127,574
Property under construction.................................... 71,274 46,247
Project development costs...................................... 129 129
Investments in equity affiliates............................... 14,394 13,381
Deferred financing costs, net.................................. 5,518 5,643
Deferred tax assets, net....................................... 7,996 7,996
Other assets................................................... 557 584
-------- --------
Total assets............................................... $253,683 $227,894
-------- --------
-------- --------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of loans and payables due NRG Energy, Inc.... $ 1,966 $ 2,864
Current portion of nonrecourse long-term debt................ 8,796 8,525
Current portion of recourse long-term debt................... 455 495
Short-term borrowings........................................ 1,793 1,313
Accounts payable............................................. 23,270 20,582
Prepetition liabilities...................................... 780 775
Other current liabilities.................................... 2,678 3,083
-------- --------
Total current liabilities.................................. 39,738 37,637
Loans due NRG Energy, Inc...................................... 4,439 4,439
Nonrecourse long-term debt..................................... 186,000 165,020
Recourse long-term debt........................................ 25,000 25,000
-------- --------
Total liabilities.......................................... 255,177 232,096
-------- --------
Stockholders' equity (deficit):
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, 6,871,069 shares issued,
6,836,769 shares outstanding as of
March 31, 1998 and December 31, 1997, respectively......... 68 68
Additional paid-in capital................................... 65,715 65,715
Accumulated deficit.......................................... (66,919) (69,592)
Accumulated other comprehensive income (loss)................ (358) (393)
-------- --------
Total stockholders' equity (deficit)....................... (1,494) (4,202)
-------- --------
Total liabilities and stockholders' equity (deficit)....... $253,683 $227,894
-------- --------
-------- --------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
3
<PAGE>
NRG GENERATING (U.S.) INC.
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
-----------------------
MARCH 31, MARCH 31,
1998 1997
--------- ---------
<S> <C> <C>
REVENUES:
Energy revenues................................ $ 11,283 $ 12,391
Equipment sales and services................... 5,471 4,606
Rental revenues................................ 875 460
--------- ---------
17,629 17,457
COST OF REVENUES:
Cost of energy revenues........................ 3,513 3,160
Cost of equipment sales and services........... 4,739 3,899
Cost of rental revenues........................ 650 383
--------- ---------
8,902 7,442
Gross profit................................. 8,727 10,015
Selling, general and
administrative expenses........................ 2,107 2,253
--------- ---------
Income from operations....................... 6,620 7,762
--------- ---------
Interest and other income....................... 218 162
Equity in earnings of affiliates................ 1,007 39
Interest and debt expense....................... (3,553) (3,537)
--------- ---------
Income before income taxes................... 4,292 4,426
--------- ---------
Provision for income taxes...................... 1,619 339
--------- ---------
Net income................................... $ 2,673 $ 4,087
--------- ---------
--------- ---------
Basic earnings per share........................ $ 0.39 $ 0.63
--------- ---------
--------- ---------
Diluted earnings per share...................... $ 0.38 $ 0.62
--------- ---------
--------- ---------
Weighted average shares outstanding (Basic)..... 6,837 6,441
--------- ---------
--------- ---------
Weighted average shares outstanding (Diluted)... 7,010 6,624
--------- ---------
--------- ---------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
4
<PAGE>
NRG GENERATING (U.S.) INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
----------------------
MARCH 31, MARCH 31,
1998 1997
-------- ---------
<S> <C> <C>
Cash Flows from Operating Activities:
Net income................................................... $ 2,673 $ 4,087
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization............................ 2,106 1,973
Equity in earnings of affiliates......................... (1,007) (39)
Gain on disposition of property and equipment............ (67) -
Other, net............................................... 29 594
Changes in operating assets and liabilities:
Accounts receivable, net............................... (302) (560)
Inventories............................................ 3 178
Receivables from related parties....................... 22 86
Other assets........................................... 325 626
Accounts payable and other current liabilities......... (1,303) 37
-------- ---------
Net cash provided by operating activities............ 2,479 6,982
-------- ---------
Cash Flows from Investing Activities:
Capital expenditures......................................... (25,314) (291)
Proceeds from disposition of property and equipment.......... 71 175
Project development costs.................................... - (15)
Collections on notes receivable.............................. 26 277
Deposits into restricted cash accounts, net.................. (102) (2,065)
-------- ---------
Net cash used in investing activities................ (25,319) (1,919)
-------- ---------
Cash Flows from Financing Activities:
Proceeds from long-term debt................................. 23,387 -
Repayments of long-term debt................................. (2,176) (2,715)
Net proceeds (repayments) of short-term borrowings........... 3,168 (266)
Payments of prepetition liabilities.......................... - (408)
Deferred financing costs..................................... (4) -
-------- ---------
Net cash provided by (used) in financing activities.. 24,375 (3,389)
-------- ---------
Net increase in cash and cash equivalents..................... 1,535 1,674
Cash and cash equivalents, beginning of period................ 3,444 3,187
-------- ---------
Cash and cash equivalents, end of period...................... $ 4,979 $ 4,861
-------- ---------
-------- ---------
Supplemental disclosure of cash flow information:
Interest paid.............................................. $3,327 $3,537
Income taxes paid.......................................... 347 389
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
5
<PAGE>
NRG GENERATING (U.S.) INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
MARCH 31, 1998
(DOLLARS IN THOUSANDS)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NRG Generating (U.S.) Inc. (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 and all significant intercompany accounts and
transactions have been eliminated. Investments in companies, partnerships
and projects that are more than 20% but less than majority-owned are
accounted for by the equity method.
The accompanying unaudited consolidated financial statements and notes
should be read in conjunction with the Company's Report on Form 10-K for the
year ended December 31, 1997. 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.
RECLASSIFICATIONS
Certain reclassifications have been made to conform prior year's data to
the current presentation. These reclassifications had no impact on
previously reported net income or stockholders' deficit.
NET EARNINGS PER SHARE
Basic earnings per share includes no dilution and is computed by
dividing net income available to common stockholders by the weighted average
shares outstanding. Diluted earnings per share is computed by dividing net
income by the weighted average shares of common stock and dilutive common
stock equivalents outstanding. The Company's dilutive common stock
equivalents result from stock options and are computed using the treasury
stock method.
<TABLE>
<CAPTION>
Three Months Ended Three Months Ended
March 31, 1998 March 31, 1997
----------------------------------------- ------------------------------------------
Income Shares Income Shares
(Numerator) (Denominator) EPS (Numerator) (Denominator) EPS
----------- ------------- -------- ----------- ------------- --------
<S> <C> <C> <C> <C> <C> <C>
Net income:
Basic EPS $ 2,673 6,837 $ 0.39 $ 4,087 6,441 $ 0.63
Effect of dilutive
stock options - 173 - 183
-------- -------- -------- -------
Diluted EPS $ 2,673 7,010 $ 0.38 $ 4,087 6,624 $ 0.62
-------- -------- -------- -------
-------- -------- -------- -------
</TABLE>
6
<PAGE>
2. LOANS DUE NRG ENERGY, INC.
Of the March 31, 1998 loan balance of $4,439 due to NRG Energy, Inc. ("NRG
Energy"), $2,539 has a maturity date of April 30, 2001 and $1,900 has a maturity
date of July 1, 2005.
3. COMPREHENSIVE INCOME
During the three months ended March 31, 1998, the Company adopted the
provisions of Statement of Financial Accounting Standards No. 130, "Reporting
Comprehensive Income." Total comprehensive income for the quarter ended
March 31, 1998 and 1997 was $2,708 and $4,016, respectively. The difference
between total comprehensive income and net income for the above periods was
due to foreign currency translation adjustments.
4. INVESTMENT IN GRAYS FERRY
CogenAmerica Schuykill Inc., a wholly-owned subsidiary ("CSI"), has a
one-third partnership interest in the Grays Ferry Cogeneration Partnership
("Grays Ferry Partnership"). The other partners are affiliates of PECO Energy
Company ("PECO") and Trigen Energy Corporation ("Trigen"). Grays Ferry has
constructed a 150 MW cogeneration facility located in Philadelphia. Grays
Ferry has a 25-year contract to supply all the steam produced by the project
to an affiliate of Trigen through January 2023 and a 20-year contract to
supply all the electricity produced by the project to PECO through January
2018.
The Company accounts for its investment in Grays Ferry by the equity
method. The investment in Grays Ferry was $13,831 and $12,845 at March 31,
1998 and December 31, 1997, respectively. The Company's equity in the
earnings of Grays Ferry was $986 for the three months ended March 31, 1998.
Grays Ferry commenced commercial operations in January 1998 and therefore had
no earnings in 1997. Summarized income statement information of Grays Ferry for
1998 is presented below.
<TABLE>
<CAPTION>
GRAYS FERRY
-------------
Three Months
Ended
March 31,
1998
------------
<S> <C>
Net revenues $ 17,033
Cost of sales 10,863
Operating income 5,172
Partnership net income 2,958
</TABLE>
5. LITIGATION
The Company's wholly-owned subsidiary through which it owns a one-third
interest in the Grays Ferry Cogeneration Partnership (the "Grays Ferry
Partnership"), filed suit as one of three Plaintiffs (including the Grays
Ferry Partnership) in an action brought against PECO Energy Company ("PECO")
on March 9, 1998, in the United States District Court for the Eastern
District of Pennsylvania, for PECO's refusal to pay the
7
<PAGE>
partnership the electricity rates set forth in the power purchase agreements.
On March 19, 1998, the federal district court dismissed the federal lawsuit
for lack of subject matter jurisdiction. On March 27, 1998, the Plaintiffs
filed a motion for reconsideration and leave to file an amended complaint.
On April 13, 1998 the federal district court judge denied the Plaintiffs'
motion. The Plaintiffs thereafter filed a new lawsuit in state court in
Pennsylvania seeking, among other things, to enjoin PECO from terminating its
power purchase agreements with the partnership and to compel PECO to pay the
electricity rates set forth in the agreements. On May 5, 1998, the Grays
Ferry Partnership obtained a preliminary injunction enjoining PECO from
terminating the power purchase agreements and ordering PECO to comply with
the terms of the power purchase agreements pending the outcome of the
litigation. The Court of Common Pleas in Philadelphia also ordered PECO to
abide by all of the terms and conditions of the power purchase agreements and
pay the rates set forth in the agreements. The Plaintiffs were required to
post a bond in the amount of $50 in connection with the preliminary
injunction. On May 8, 1998, PECO filed a notice of appeal and a motion to
stay the preliminary injunction order. On May 13, 1998, the Grays Ferry
Partnership filed an emergency petition for contempt to compel PECO to pay
the amounts due and owing under the power purchase agreements. The Grays
Ferry Partnership is vigorously pursuing the litigation and expects to
achieve a favorable result. No provision for loss has been recorded.
For additional information see "Part I -- Financial Information -- Item
2. Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources;" "Part II -- Other Information
- --Item 1. Legal Proceedings;" and "Part II - Other Information - Item 3.
Defaults Upon Senior Securities."
8
<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 year ended December 31, 1997.
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/A. All
dollar amounts (except per share amounts) set forth in this Report are in
thousands.
Except for the historical information contained in this Report, 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 within the meaning of Section 27A of the
Securities Act of 1933, as amended, and Section 21E of the Securities
Exchange Act of 1934, as amended. Such forward-looking statements are not
guarantees of future performance and are subject to risks, uncertainties and
other factors that may cause the actual results, performance or achievements
of the Company to differ materially from historical results or from any
results expressed or implied by such forward-looking statements. Such
factors include, without limitation, uncertainties inherent in predicting the
outcome of litigation and other factors discussed in this report and the
Company's Report on Form 10-K for the year ended December 31, 1997 entitled
"Item 1. Business -- Risk Factors." Many of such factors are beyond the
Company's ability to control or predict, and readers are cautioned not to put
undue reliance on such forward-looking statements. The Company disclaims any
obligation to update or review any forward-looking statements contained in
this Report or in any statement referencing this Report, whether as a result
of new information, future events or otherwise.
GENERAL
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, and is owned by the Company's wholly-owned subsidiary
NRG Generating (Newark) Cogeneration Inc. ("Newark");
(b) The 122 MW E.I. du Pont de Nemours 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");
9
<PAGE>
(c) The 22 MW Philadelphia Cogeneration Project (the "Philadelphia PWD
Project"), located in Philadelphia, Pennsylvania, began operations in
May 1993, and is owned by an 83%-owned subsidiary of the Company; and
(d) The 150 MW Grays Ferry Project, located in Philadelphia, Pennsylvania,
began operations in January 1998. The Company owns a one-third
interest in the Grays Ferry Partnership, which owns the Grays Ferry
Project.
In December 1997, the Company acquired from NRG Energy a 117 MW steam and
electricity cogeneration project located in Morris, Illinois (the "Morris
Project"). The Morris Project is currently under construction with commercial
operation currently expected to occur during the fourth quarter of 1998.
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 PPAs 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. Management believes
that this change in these PPAs has reduced its historical volatility in gross
margins on revenues from such projects by eliminating the Company's exposure
to fluctuations in the price of natural gas that must be paid by its Newark
and Parlin Projects.
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, management 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
10
<PAGE>
that operate in the United Kingdom under the common name of Puma ("Puma").
The Company has determined that OES and Puma are not a part of its strategic
plan for the future, and the Company is currently pursuing several avenues
for the disposition of these businesses. The disposition of these businesses
is not expected to have a material impact on the Company's financial position.
NET INCOME AND EARNINGS PER SHARE
Pre-tax earnings for the 1998 first quarter were $4,292 compared to
$4,426 in the prior year comparable quarter. Net income for the 1998 first
quarter was $2,673, or diluted earnings per share of $0.38, compared to first
quarter 1997 net income of $4,087, or diluted earnings per share of $0.62.
The decrease in net income is primarily due to lower income tax expense in
1997 as a result of recognition of net operating loss carryforwards. During
the 1997 fourth quarter, the Company reduced the valuation allowance
established for net operating loss carryforwards and other deferred tax
assets, resulting in recognition in earnings of most remaining net operating
loss carryforwards. Consequently, beginning with the 1998 first quarter,
income taxes are generally charged against pre-tax earnings without any
reduction for net operating loss carryforwards that continue to be used to
reduce income taxes currently payable. Prior to the 1997 fourth quarter, net
operating loss carryforwards were recognized as a reduction of income tax
expense based on pre-tax earnings reported for the period. The decrease in
diluted earnings per share is due to the higher effective income tax rate and
an increase in the weighted average shares outstanding. Weighted average
shares outstanding increased primarily due to the conversion by NRG Energy in
October 1997 of $3,000 of borrowings to the Company into 396,255 shares of
the Company's common stock.
On a pro forma basis, 1997 first quarter net income would have been
$2,662, or diluted earnings per share of $0.40, assuming the same effective
tax rate as in the 1998 first quarter.
REVENUES
Energy revenues for the first quarter 1998 of $11,283 decreased from
first quarter 1997 revenues of $12,391. Energy revenues primarily reflect
billings associated with the Newark and Parlin Projects and the Company's
Philadelphia PWD Project. The decrease in energy revenues was primarily
attributable to seasonal capacity revenues recognized in the first quarter
1997.
Revenues recognized at Parlin and Newark were $5,386 and $4,845 for the
first quarter 1998 and $6,289 and $5,094 for the first quarter 1997,
respectively. The decreases were primarily due to a milder winter in the
first quarter 1998 as compared to the comparable period in 1997 and to
seasonal capacity revenues recognized in the first quarter 1997.
Energy revenues from the Company's Philadelphia PWD Project for the
first quarter 1998 of $1,052 increased slightly from first quarter 1997
revenues of $1,008.
Equipment sales and services revenues for the first quarter 1998 of
$5,471 increased from first quarter 1997 revenues of $4,606. The revenue
increase is primarily attributable to higher sales volume.
11
<PAGE>
OES equipment sales and services revenues for the first quarter 1998 of
$2,248 increased from first quarter 1997 revenues of $1,288. The increase is
primarily due to higher sales volume. Puma equipment sales and services
revenues for the first quarter 1998 of $3,223 decreased from first quarter
1997 revenues of $3,318. The decrease was primarily due to the unfavorable
impact of foreign currency rates in some of Puma's Asian markets.
Rental revenues for the first quarter 1998 of $875 increased from first
quarter 1997 revenues of $460. The increase was due primarily to higher
sales volume due to the ice storms in the northeastern United States and
Canada.
COSTS AND EXPENSES
Cost of energy revenues for the first quarter 1998 of $3,513 increased
from first quarter 1997 costs of $3,160. The increase was primarily the
result of depreciation costs associated with equipment capitalized at the
Newark and Parlin facilities in periods subsequent to the first quarter of
1997.
Cost of equipment sales and services for the first quarter 1998 of
$4,739 increased from first quarter 1997 costs of $3,899. The increase was
primarily due to increased costs associated with higher sales volume at OES.
Cost of rental revenues for the first quarter 1998 of $650 increased
from first quarter 1997 costs of $383. The increase was primarily due to
increased sales volume due to the ice storms in the northeastern United
States and Canada.
The Company's gross profit for the first quarter 1998 of $8,727 (49.5%
of sales) decreased from the first quarter 1997 gross profit of $10,015
(57.4% of sales). The gross profit decrease is primarily attributable to
energy segment seasonal capacity revenues recognized in the first quarter of
1997 and to lower gross margin equipment sales in the first quarter 1998.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses ("SG&A") for the first
quarter 1998 of $2,107 decreased from first quarter 1997 SG&A expenses of
$2,253. The reduction is primarily due to lower bad debts and lower
insurance costs, offset in part by increased legal expenses.
INTEREST AND OTHER INCOME
Interest and other income for the first quarter 1998 of $218 increased
from first quarter 1997 interest and other income of $162. The increase was
primarily attributable to a gain on the disposal of equipment in the quarter
ended March 31, 1998.
12
<PAGE>
EQUITY IN EARNINGS OF AFFILIATES
Equity in earnings of affiliates for the first quarter 1998 of $1,007
increased from first quarter 1997 equity in earnings of affiliates of $39.
The increase was primarily due to the earnings of the Grays Ferry Project
which commenced operations in January 1998 and accounted for approximately
$986 of the Company's equity in earnings of affiliates for the first quarter
of 1998. The earnings of the Grays Ferry Project reflect the contract price
of electricity under the terms of the power purchase agreements. The
electric power purchaser from the Grays Ferry Project has asserted that such
power purchase agreements are not effective and that the power purchaser is
not obligated to pay the rates set forth in the agreements, and the Company
and the Grays Ferry Partnership are in litigation with the power purchaser
over that issue. The Grays Ferry Partnership is vigorously pursuing this
litigation and expects to achieve a favorable result. For additional
information see "Part I -- Financial Information -- Item 2. Management's
Discussion and Analysis of Financial Condition and Results of Operations --
Liquidity and Capital Resources" and "Part II -- Other Information -- Item 1.
Legal Proceedings."
INTEREST AND DEBT EXPENSE
Interest and debt expense for the first quarter 1998 of $3,553 increased
from first quarter 1997 interest and debt expense of $3,537.
INCOME TAXES
The income tax provision for the quarter ended March 31, 1998 is based
on the effective tax rate expected to be applicable for the full year.
During the 1997 fourth quarter, the Company reduced the valuation allowance
established for tax benefits attributable to net operating loss carryforwards
and other deferred tax assets, resulting in recognition of most remaining
operating loss carryforwards in 1997 fourth quarter earnings. Consequently,
beginning with the 1998 first quarter, income taxes are generally charged
against pre-tax earnings without any reduction for operating loss
carryforwards that continue to be used to reduce income taxes currently
payable. Prior to the 1997 fourth quarter, net operating losses were
recognized as a reduction of income tax expense based on pre-tax income
reported for the period.
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 $141,321 was
outstanding at March 31, 1998) 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. For any quarterly period where the debt service
coverage ratio is in excess of 1.4:1, both margins are reduced by 0.125%.
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 such principal amount ($70,661 at March 31, 1998)
at 6.9% plus the margin.
13
<PAGE>
NRGG Schuylkill Cogeneration, Inc. ("NSC"), a wholly-owned subsidiary of
the Company, owns a one-third partnership interest in the Grays Ferry
Project. In March 1996, the Grays Ferry Partnership entered into a credit
agreement with The Chase Manhattan Bank N.A. to finance the project. The
credit agreement obligated each of the project's three partners to make a
$10,000 capital contribution prior to the commercial operation of the
facility. The Company made its required capital contribution in 1997.
NRG Energy entered into a loan commitment to provide NSC the funding, if
needed, for the NSC capital contribution obligation to the Grays Ferry
Partnership. Prior to March 31, 1998, NSC had borrowed $10,000 from NRG
Energy under this loan agreement, of which $1,900 remained outstanding to NRG
Energy at March 31, 1998, and contributed the proceeds to the Grays Ferry
Partnership as part of the above-referenced capital contribution. In
connection with this loan commitment for the Grays Ferry Project, the Company
granted NRG Energy the right to convert $3,000 of borrowings under the
commitment into 396,255 shares of common stock of the Company. In October
1997, NRG Energy exercised such conversion right in full.
In connection with its acquisition of the Morris Project, NRGG Funding
Inc. (a wholly-owned subsidiary of the Company) ("NRGG Funding") assumed all
of the obligations of NRG Energy to provide future equity contributions to
the project, which obligations are limited to the lesser of 20% of the total
project cost or $22,000. NRG Energy has guaranteed to the Morris Project's
lenders that NRGG Funding will make these future equity contributions, and
the Company has guaranteed to NRG Energy the obligation of NRGG Funding to
make these future equity contributions (which guarantee is secured by a
second priority lien on the Company's interest in the Morris Project). The
Company intends to arrange financing for either NRGG Funding or itself (the
terms and manner of which have not been determined by the Company) to fund
the required future equity contributions by NRGG Funding to the Morris
Project. In addition, NRG Energy has committed in a Supplemental Loan
Agreement between the Company, NRGG Funding and NRG Energy to loan NRGG
Funding and the Company (as co-borrower) the full amount of such equity
contributions by NRGG Funding, subject to certain conditions precedent, at
NRGG Funding's option. Any such loan will be secured by a second priority
lien on all of the membership interests of the project and will be recourse
to NRGG Funding and the Company.
On December 17, 1997, the Company entered into a credit agreement
providing for a $30,000 reducing revolving credit facility with a new lender.
The facility is secured by the assets and cash flows of the Philadelphia PWD
Project as well as the distributable cash flows of the Newark and Parlin
Projects, and the Grays Ferry Partnership. On December 19, 1997 the Company
borrowed $25,000 under this facility. The proceeds were used to repay
$16,949 to NRG Energy, to repay $6,551 of obligations of the Philadelphia PWD
Project and $1,500 for general corporate purposes. The remaining $5,000 of
the facility will become available once security interests in the
Philadelphia PWD Project are perfected. As a consequence of the pending
Grays Ferry Partnership litigation, however, the Company has agreed not to
draw additional funds under this facility. The Company is unable to predict
whether or when additional funds may become available under this facility.
The facility reduces by $2,500 on the first and second anniversaries of the
agreement and repayment of the outstanding balance is due on the third
anniversary of the agreement. Interest is based, at the Company's option, on
LIBOR plus a margin ranging from 1.50% to 1.875% or the prime rate plus a
14
<PAGE>
margin ranging from 0.75% to 1.125%. The interest rate was 7.56% at March
31, 1998. The facility provides for commitment fees of 0.375% on the unused
facility.
As previously noted, the electric power purchaser from the Grays Ferry
Project has asserted that such power purchase agreements are not effective
and that the power purchaser is not obligated to pay the rates set forth in
the agreements. The Company and the Grays Ferry Partnership are in
litigation with the power purchaser over its obligations under such
agreements. After initially refusing to pay the rates set forth in the power
purchase agreements, the power purchaser has been ordered by the court in
which the litigation is pending to comply with power purchase agreements
pending the outcome of the litigation. However, the power purchaser has
filed a notice of appeal and motion to stay the court's order, and there can
be no assurance that such order will not be stayed or reversed on appeal.
Moreover, the Grays Ferry Partnership is in default of its principal credit
agreement, and the lenders thereunder have the ability to prevent the Grays
Ferry Partnership from distributing cash held or generated by the Grays Ferry
Project. Such rights, if exercised by such lenders, could prevent the Grays
Ferry Partnership from meeting its obligations to suppliers and others and
from distributing cash to its partners during the pendency of the litigation.
Any such actions by the Grays Ferry Partnership's lenders could materially
disrupt the Grays Ferry Partnership's relations with its suppliers and could
have other potentially material adverse effects on its operations and
profitability and on the Company. On May 13, 1998, the Grays Ferry
Partnership filed an emergency petition for contempt to compel the power
purchaser to pay the amounts due and owing under the power purchase
agreements, in accordance with a preliminary injunction entered against the
power purchaser on May 5, 1998. The Company believes the receipt by the
Grays Ferry Partnership of such payments would materially reduce the
likelihood that such lenders will cause such adverse effects to occur.
The Company believes that the Grays Ferry Partnership is likely either
to prevail in the pending litigation with its electric power purchaser or
otherwise to achieve a favorable resolution of this dispute. However, the
Company believes that if the power purchaser's position ultimately were to be
sustained, the Grays Ferry Partnership would cease to be economically viable
as currently structured and the Company's earnings and financial position
could be materially adversely affected. In addition, the Company could incur
other material costs associated with such litigation which would not be
recovered and could suffer cross-defaults under one or more of its credit
agreements. While the Company intends to continue to pursue a rapid and
favorable resolution of the litigation with the power purchaser, there can be
no assurance that such an outcome will be obtained.
15
<PAGE>
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
ALL DOLLAR AMOUNTS ARE IN THOUSANDS.
GRAYS FERRY COGENERATION PARTNERSHIP, TRIGEN-SCHUYLKILL COGENERATION,
INC., NRGG (SCHUYLKILL) COGENERATION INC. AND TRIGEN-PHILADELPHIA ENERGY
CORP. V. PECO ENERGY COMPANY, ADWIN (SCHUYLKILL) COGENERATION, INC. AND THE
PENNSYLVANIA PUBLIC UTILITY COMMISSION, the United States District Court for
the Eastern District of Pennsylvania, Civil Action No. 98-CV-1243, filed
March 9, 1998. On March 19, 1998, the federal district court dismissed this
lawsuit for lack of subject matter jurisdiction. On March 27, 1998, the
Plaintiffs filed a motion for reconsideration and leave to file an amended
complaint. On April 13, 1998 the federal district court judge denied the
Plaintiffs' motion.
GRAYS FERRY COGENERATION PARTNERSHIP, TRIGEN-SCHUYLKILL COGENERATION,
INC., NRGG (SCHUYLKILL) COGENERATION INC. AND TRIGEN-PHILADELPHIA ENERGY
CORP. V. PECO ENERGY COMPANY, ADWIN (SCHUYLKILL) COGENERATION, INC. AND THE
PENNSYLVANIA PUBLIC UTILITY COMMISSION, Court of Common Pleas Philadelphia
County, April Term 1998, No. 544, filed April 9, 1998. This action arose out
of PECO Energy Company's ("PECO") notification to the Grays Ferry
Cogeneration Partnership (the "Grays Ferry Partnership") that PECO believes
its power purchase agreements with the Grays Ferry Partnership relating to
the Grays Ferry Cogeneration Project (the "Grays Ferry Project") are no
longer effective and PECO's refusal to pay the electricity rates set forth in
the agreement based on its allegations that the Pennsylvania Public Utility
Commission has denied cost recovery of the power purchase agreements in
retail electric rates. The Grays Ferry Partnership's complaint against PECO
asserts claims which include breach of contract, fraud, breach of implied
covenant of good faith, conversion, breach of fiduciary duties and tortious
interference with contract. The Plaintiffs are seeking to enjoin PECO from
terminating the power purchase agreements and to compel PECO to pay the rates
set forth therein. The Plaintiffs also are seeking actual and punitive
damages and attorneys' fees and costs. On April 22, 1998, the court allowed
the Grays Ferry Partnership to file an amended complaint to discontinue the
suit against the Pennsylvania Public Utility Commission without prejudice. On
May 5, 1998, the Grays Ferry Partnership obtained a preliminary injunction
pending the outcome of the litigation enjoining PECO from terminating the
power purchase agreements and ordering PECO to comply with the terms of the
power purchase agreements. The Court of Common Pleas in Philadelphia also
ordered PECO to abide by all of the terms and conditions of the power
purchase agreements and pay the rates set forth in the agreements. The
Plaintiffs were required to post a bond in the amount of $50 in connection
with the preliminary injunction. On May 8, 1998, PECO filed a notice of
appeal and a motion to stay the preliminary injunction order. On May 13,
1998, the Grays Ferry Partnership filed an emergency petition for contempt to
compel PECO to pay the amounts due and owing under the power purchase
agreements.
NRG Generating (U.S.) Inc. (the "Company") is subject from time to time
to various other claims that arise in the normal course of business, and
management believes that
16
<PAGE>
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 3. DEFAULTS UPON SENIOR SECURITIES.
ALL DOLLAR AMOUNTS ARE IN THOUSANDS.
GRAYS FERRY COGENERATION PARTNERSHIP
NRGG Schuylkill Cogeneration, Inc., a wholly-owned subsidiary of the
Company, owns a one-third partnership interest in the Grays Ferry Partnership
which owns the Grays Ferry Project. The Grays Ferry Partnership and The
Chase Manhattan Bank N.A. ("Chase"), as Agent bank for the Lenders (as
defined therein), are parties to a Credit Agreement dated March 1, 1996 to
finance the Grays Ferry Project (the "Chase Facility"), of which $113,000 was
outstanding as of March 31, 1998. Certain actions taken by PECO, the
electric power purchaser under two power purchase agreements with the Grays
Ferry Partnership, have caused certain defaults to occur under the Chase
Facility. Such defaults have included defaults in the obligation to make
interest payments thereon of $639 due on April 8, 1998 and $639 due on May 8,
1998, as well as certain other defaults resulting directly or indirectly from
the actions taken by PECO. As of the date of this Report, the aggregate
interest arrearage on the Chase Facility is approximately $1,300. In
addition, as of the date of this Report, the Grays Ferry Partnership is in
default of an aggregate of approximately $177 of payments due Chase as
counterparty under interest rate swap arrangements entered into in connection
with the Chase Facility. The Grays Ferry Partnership has sufficient funds to
pay such amounts; however, Chase has declined to permit disbursements from
the Grays Ferry Partnership's bank accounts due to the actions by PECO. The
Grays Ferry Partnership believes that once PECO has paid the amounts owed
under the power purchase agreements, Chase will release the funds needed to
pay such obligations. For additional information see "Part I -- Financial
Information -- Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Liquidity and Capital Resources" and
"Part II -- Other Information -- Item 1. Legal Proceedings."
THE COMPANY
The Company, MeesPierson Capital Corp. ("MeesPierson") and certain other
Lenders (as defined therein) are parties to a Credit Agreement dated as of
December 17, 1997 which provides for a $30,000, three-year reducing,
revolving credit facility agreement (the "MeesPierson Facility"), of which
$25,000 was outstanding on March 31, 1998. The MeesPierson Facility includes
cross-default provisions that cause defaults to occur under the MeesPierson
Facility in the event certain defaults or other adverse events occur under
certain other instruments or agreements (including financing and other
project documents) to which the Company or one or more of its subsidiaries or
other entities in which it owns an ownership interest is a party. The
actions taken by PECO have resulted in certain cross-defaults under the
MeesPierson Facility. As of the date of this Report, all such cross-defaults
have been waived by MeesPierson, as Agent under the MeesPierson Facility.
For additional information see "Part I --Financial Information -- Item 2.
Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources."
17
<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 March 31, 1998:
1. Current Report on Form 8-K dated December 30, 1997, reporting
information under Items 2 and 7.
2. Current Report on Form 8-K dated March 9, 1998, reporting
information under Item 5.
18
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this amendment to be signed on its behalf by the
undersigned hereunto duly authorized.
NRG GENERATING (U.S.), INC.
--------------------------------------
Registrant
Date: December [ ], 1998
-----------------------------------
Timothy P. Hunstad
VICE PRESIDENT AND CHIEF FINANCIAL OFFICER
(Principal Financial Officer and Duly Authorized Officer)
19
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<S> <C>
3.1 Amended and Restated Certificate of Incorporation of the Company filed
as Exhibit 3.1 to Amendment No. 1 to the Company's Annual Report on Form
10-K for the fiscal year ended June 30, 1996 and incorporated herein by
this reference.
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 Restated Bylaws of the Company filed as Exhibit 3.3 to the Company's
Annual Report on Form 10-K for the fiscal year ended December 31, 1997
and incorporated herein by this reference.
27.1 Financial Data Schedule for the quarter ended March 31, 1998 (for SEC
filing purposes only).
27.2 Restated Financial Data Schedule for the quarters ended March 31, 1997,
June 30, 1997 and September 30, 1997 (for SEC filing purposes only).
</TABLE>
20
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
REGISTRANT'S FINANCIAL STATEMENTS FOR ITS FIRST QUARTER OF FISCAL YEAR 1998 AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> MAR-31-1998
<CASH> 13,613
<SECURITIES> 0
<RECEIVABLES> 11,401
<ALLOWANCES> 0
<INVENTORY> 2,131
<CURRENT-ASSETS> 27,907
<PP&E> 125,908
<DEPRECIATION> 0
<TOTAL-ASSETS> 253,683
<CURRENT-LIABILITIES> 39,738
<BONDS> 0
0
0
<COMMON> 68
<OTHER-SE> (1,562)
<TOTAL-LIABILITY-AND-EQUITY> 253,683
<SALES> 17,629
<TOTAL-REVENUES> 17,629
<CGS> 8,902
<TOTAL-COSTS> 8,902
<OTHER-EXPENSES> 882
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,553
<INCOME-PRETAX> 4,292
<INCOME-TAX> 1,619
<INCOME-CONTINUING> 2,673
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,673
<EPS-PRIMARY> 0.39
<EPS-DILUTED> 0.38
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS RESTATED SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
REGISTRANT'S FINANCIAL STATEMENTS FOR ITS QUARTERS ENDED MARCH 31, 1997, JUNE
30, 1997 AND SEPTEMBER 30, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL STATEMENTS
</LEGEND>
<S> <C> <C> <C>
<PERIOD-TYPE> 9-MOS 6-MOS 3-MOS
<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1997 DEC-31-1997
<PERIOD-END> SEP-30-1997 JUN-30-1997 MAR-31-1997
<CASH> 11,510 11,509 15,100
<SECURITIES> 0 0 0
<RECEIVABLES> 12,056 10,714 12,403
<ALLOWANCES> 0 0 0
<INVENTORY> 3,102 2,998 2,674
<CURRENT-ASSETS> 27,806 26,309 31,528
<PP&E> 128,335 129,849 132,488
<DEPRECIATION> 0 0 0
<TOTAL-ASSETS> 172,511 168,927 174,163
<CURRENT-LIABILITIES> 21,143 21,467 25,511
<BONDS> 0 0 0
0 0 0
0 0 0
<COMMON> 64 64 64
<OTHER-SE> (23,338) (26,041) (26,561)
<TOTAL-LIABILITY-AND-EQUITY> 172,511 168,927 174,163
<SALES> 48,401 31,512 17,457
<TOTAL-REVENUES> 48,401 31,512 17,457
<CGS> 23,922 15,616 7,442
<TOTAL-COSTS> 23,992 15,616 7,442
<OTHER-EXPENSES> 5,380 3,484 2,052
<LOSS-PROVISION> 0 0 0
<INTEREST-EXPENSE> 11,001 7,331 3,537
<INCOME-PRETAX> 8,098 5,081 4,426
<INCOME-TAX> 747 523 339
<INCOME-CONTINUING> 7,351 4,558 4,087
<DISCONTINUED> 0 0 0
<EXTRAORDINARY> 0 0 0
<CHANGES> 0 0 0
<NET-INCOME> 7,351 4,558 4,087
<EPS-PRIMARY> 1.14 0.71 0.63
<EPS-DILUTED> 1.11 0.69 0.62
</TABLE>
