UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 8-K
Current Report
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (date of earliest event reported) – October 14, 2010
Energy Future Holdings Corp.
(Exact name of registrant as specified in its charter)
| | | | |
| Texas | | 1-12833 | | 75-2669310 |
(State or other jurisdiction
of incorporation) | | (Commission
File Number) | | (I.R.S. Employer
Identification No.) |
Energy Future Competitive Holdings Company
(Exact name of registrant as specified in its charter)
| | | | |
| Texas | | 1-34543 | | 75-1837355 |
(State or other jurisdiction
of incorporation) | | (Commission
File Number) | | (I.R.S. Employer
Identification No.) |
Energy Plaza, 1601 Bryan Street, Dallas, Texas 75201
(Address of principal executive offices, including zip code)
214-812-4600
(Registrants’ telephone number, including Area Code)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrants under any of the following provisions (see General Instruction A.2. below):
| ¨ | Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) |
| ¨ | Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) |
| ¨ | Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) |
| ¨ | Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) |
Notes Offering
On October 14, 2010, Texas Competitive Electric Holdings Company LLC (“TCEH”), a wholly-owned subsidiary of Energy Future Competitive Holdings Company (“EFCH”), and TCEH Finance, Inc., a wholly-owned subsidiary of TCEH (collectively with TCEH, the “Issuer”), commenced a private offering (the “Offering”) of up to $300 million aggregate principal amount of its Senior Secured Second Lien Notes due 2021, Series B (the “Notes”). The Issuer disclosed the information below in connection with the Offering. EFCH is a wholly-owned subsidiary of Energy Future Holdings Corp. (“EFH Corp.”). On October 14, 2010, the Issuer issued a press release (the “Press Release”) announcing the commencement of the Offering. A copy of the Press Release is filed as Exhibit 99.1 to this Form 8-K.
Neither this Form 8-K nor the Press Release shall constitute an offer to sell, or the solicitation of an offer to buy, any of the Notes, nor shall there be any sale of the Notes in any state in which such offer, solicitation or sale would be unlawful prior to registration or qualification under the securities laws of such state. The Notes have not been registered under the Securities Act of 1933, as amended (the “Securities Act”), or any state securities laws and may not be offered or sold in the United States absent registration or an applicable exemption from the registration requirements of the Securities Act and applicable state securities laws. The Notes will be offered inside the United States only to qualified institutional buyers in reliance on Rule 144A under the Securities Act and to non-U.S. persons outside the United States in reliance on Regulation S under the Securities Act.
Selected Preliminary Financial Data for the Quarterly Period Ended September 30, 2010
Management of EFCH and TCEH (collectively, the “Companies”) have prepared the selected preliminary financial data below in good faith based upon the most current information available to management. The Companies’ normal quarterly closing and financial reporting processes with respect to such preliminary financial data have not been fully completed. As a result, the actual financial results could be different from such preliminary financial data, and any differences could be material. EFCH’s independent accountants have not performed their customary review procedures with respect to the preliminary financial data provided below, nor
have they expressed any opinion or any other form of assurance on such information.
While the financial data provided is preliminary and subject to change, EFCH does not expect actual operating revenues for the three months ended September 30, 2010 to be different by more than 5% from the preliminary amount provided below. EFCH also does not expect actual net income (loss), excluding a preliminary approximately $4.1 billion non-cash goodwill impairment charge, and TCEH adjusted EBITDA for the three months ended September 30, 2010 to be different by more than 10% and 5%, respectively, from the preliminary amounts provided below.
The preliminary financial data below has been prepared on a basis consistent with EFCH’s historical condensed consolidated financial statements for the three and six months ended June 30, 2010 included in EFCH’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2010 that it filed with the SEC on August 3, 2010. The results of operations for an interim period, including the preliminary interim financial data provided below, may not give a true indication of the results to be expected for a full year or any future period.
EFCH Preliminary Financial Data
Selected preliminary financial data for EFCH for the three months ended September 30, 2010 and actual financial data for the three months ended September 30, 2009 (amounts in millions) are provided in the table below:
| | | | | | | | |
| | | Three Months Ended | |
| | | September 30,
2010
(Preliminary) | | | September 30,
2009 | |
Operating revenues | | $ | 2,607 | | | $ | 2,433 | |
Net income (loss) | | $ | (3,727 | ) | | $ | (72 | ) |
TCEH adjusted EBITDA | | $ | 1,150 | | | $ | 1,108 | |
Preliminary TCEH adjusted EBITDA for the twelve months ended September 30, 2010 totaled $3,916 million. Actual TCEH adjusted EBITDA for the twelve months ended September 30, 2009 totaled $3,559 million.
Preliminary net income (loss) includes a preliminary approximately $4.1 billion non-cash goodwill impairment charge. Remaining goodwill after the charge is expected to total approximately $6.2 billion. The charge is not deductible for income tax purposes. The goodwill impairment charge reflects the estimated effect of lower wholesale power prices on the value of TCEH, driven by the sustained decline in forward natural gas prices, as indicated by EFCH’s cash flow projections and declines in market values of securities of comparable companies.
As shown (in millions) in the table below, EFCH’s available liquidity at September 30, 2010 totaled $3.1 billion as compared to $2.3 billion at December 31, 2009.
| | | | | | | | | | |
| | | September 30,
2010
(Preliminary) | | December 31,
2009 | | Change | |
Cash and cash equivalents | | $ | 78 | | $ | 94 | | $ | (16 | ) |
TCEH Revolving Credit Facility (a) | | | 2,620 | | | 1,721 | | | 899 | |
TCEH Letter of Credit Facility | | | 410 | | | 399 | | | 11 | |
| | | | | | | | | | |
Subtotal | | $ | 3,108 | | $ | 2,214 | | $ | 894 | |
Short-term investment (b) | | | — | | | 65 | | | (65 | ) |
| | | | | | | | | | |
Total liquidity | | $ | 3,108 | | $ | 2,279 | | $ | 829 | |
| | | | | | | | | | |
| (a) | As of September 30, 2010 and December 31, 2009, the TCEH Revolving Credit Facility includes $229 million and $141 million, respectively, of commitments from an affiliate of Lehman Brothers Holdings Inc. that is currently in bankruptcy that are only available from the fronting banks and the swingline lender. |
| (b) | December 31, 2009 amount includes $65 million in letters of credit posted related to certain interest rate transactions. Pursuant to the related agreement, the collateral was returned in March 2010. |
Set forth below is a reconciliation (amounts in millions) of net income (loss) to EBITDA and then to TCEH adjusted EBITDA for the three and twelve months ended September 30, 2010 (preliminary) and 2009 (actual). For more information on EBITDA and adjusted EBITDA and why management believes adjusted EBITDA is a useful measure, see note (a) below.
| | | | | | | | | | | | | | | | |
| | | Three Months
Ended
September 30,
2010 | | | Three Months
Ended
September 30,
2009 | | | Twelve Months
Ended
September 30,
2010 | | | Twelve Months
Ended
September 30,
2009 | |
Net income (loss) | | $ | (3,690 | ) | | $ | (25 | ) | | $ | (3,430 | ) | | $ | (7,559 | ) |
Income tax expense (benefit) | | | 214 | | | | (11 | ) | | | 377 | | | | 343 | |
Interest expense and related charges | | | 852 | | | | 770 | | | | 3,017 | | | | 3,492 | |
Depreciation and amortization | | | 345 | | | | 303 | | | | 1,337 | | | | 1,127 | |
| | | | | | | | | | | | | | | | |
EBITDA (a) | | $ | (2,279 | ) | | $ | 1,037 | | | $ | 1,301 | | | $ | (2,597 | ) |
| | | | |
Interest income | | | (23 | ) | | | (21 | ) | | | (89 | ) | | | (55 | ) |
Amortization of nuclear fuel | | | 38 | | | | 27 | | | | 139 | | | | 97 | |
Purchase accounting adjustments (b) | | | 33 | | | | 63 | | | | 186 | | | | 343 | |
Impairment of goodwill | | | 4,100 | | | | — | | | | 4,100 | | | | 8,070 | |
Impairment of assets and inventory write down (c) | | | — | | | | 2 | | | | 38 | | | | 710 | |
EBITDA amount attributable to consolidated unrestricted subsidiaries | | | — | | | | 1 | | | | — | | | | 3 | |
Unrealized net gain resulting from hedging transactions | | | (767 | ) | | | (3 | ) | | | (2,127 | ) | | | (3,263 | ) |
Amortization of “day one” net loss on Sandow 5 power purchase agreement | | | (9 | ) | | | (7 | ) | | | (22 | ) | | | (7 | ) |
| | | | | | | | | | | | | | | |
Corporate depreciation, interest and income tax expenses included in SG&A expense | | | 4 | | | 5 | | | | 9 | | | | 5 | |
Losses on sale of receivables | | | — | | | 2 | | | | 3 | | | | 17 | |
Noncash compensation expense (d) | | | — | | | (3 | ) | | | 11 | | | | 3 | |
Severance expense (e) | | | — | | | 1 | | | | 4 | | | | 10 | |
Transition and business optimization costs (f) | | | 1 | | | 3 | | | | 6 | | | | 26 | |
Transaction and merger expenses (g) | | | 11 | | | 1 | | | | 31 | | | | 12 | |
Insurance settlement proceeds (h) | | | — | | | — | | | | — | | | | (21 | ) |
Restructuring and other (i) | | | — | | | (22 | ) | | | (4 | ) | | | (15 | ) |
Expenses incurred to upgrade or expand a generation station (j) | | | — | | | — | | | | 100 | | �� | | 100 | |
| | | | | | | | | | | | | | | |
Adjusted EBITDA per Incurrence Covenant | | $ | 1,109 | | $ | 1,086 | | | $ | 3,686 | | | $ | 3,438 | |
Expenses related to unplanned generation station outages | | | 31 | | | 13 | | | | 152 | | | | 93 | |
Pro forma adjustment for Sandow 5 and Oak Grove 1 reaching 70% capacity in Q1 2010 (k) | | | — | | | — | | | | 42 | | | | — | |
Other adjustments allowed to determine Adjusted EBITDA per Maintenance Covenant (l) | | | 10 | | | 9 | | | | 36 | | | | 28 | |
| | | | | | | | | | | | | | | |
Adjusted EBITDA per Maintenance Covenant | | $ | 1,150 | | $ | 1,108 | | | $ | 3,916 | | | $ | 3,559 | |
| | | | | | | | | | | | | | | |
| (a) | EBITDA refers to earnings (net income) before interest expense, income taxes, depreciation and amortization. Adjusted EBITDA refers to EBITDA adjusted to exclude non-cash items, unusual items and other adjustments allowable under certain of TCEH’s debt arrangements. Adjusted EBITDA and EBITDA are not recognized terms under generally accepted accounting principles (“GAAP”) and, thus, are non-GAAP financial measures. EFCH is providing TCEH’s adjusted EBITDA solely because of the important role that it plays in respect of the certain covenants contained in its debt arrangements. EFCH does not intend for adjusted EBITDA (or EBITDA) to be an alternative to net income as a measure of operating performance or an alternative to cash flows from operating activities as a measure of liquidity or an alternative to any other measure of financial performance presented in accordance with GAAP. Additionally, EFCH does not intend for adjusted EBITDA (or EBITDA) to be used as a measure of free cash flow available for management’s discretionary use, as the measure excludes certain cash requirements such as interest payments, tax payments and other debt service requirements. Because not all companies use identical calculations, EFCH’s presentation of adjusted EBITDA (and EBITDA) may not be comparable to similarly titled measures of other companies. |
| (b) | Purchase accounting adjustments include amortization of the intangible net asset value of retail and wholesale power sales agreements, environmental credits, coal purchase contracts, nuclear fuel contracts and power purchase agreements and the stepped up value of nuclear fuel. Also include certain credits not recognized in net income due to purchase accounting. |
| (c) | Impairment of assets includes impairment of trade name intangible asset and impairment of land and the natural gas-fueled generation fleet. |
| (d) | Noncash compensation expenses are accounted for under accounting standards related to stock compensation and exclude capitalized amounts. |
| (e) | Severance expense includes amounts incurred related to outsourcing, restructuring and other amounts deemed to be in excess of normal recurring amounts. |
| (f) | Transition and business optimization costs include professional fees primarily for retail billing and customer care systems enhancements and incentive compensation. |
| (g) | Transaction and merger expenses include costs related to the Merger, outsourcing transition costs and costs related to certain growth initiatives. |
| (h) | Insurance settlement proceeds include the amount received for property damage to certain mining equipment. |
| (i) | Restructuring and other for the twelve months ended September 30, 2010 includes restructuring and nonrecurring activities, and for the twelve months ended September 30, 2009 primarily represents reversal of certain liabilities accrued in purchase accounting and recorded as other income, partially offset by restructuring and nonrecurring activities. |
| (j) | Expenses incurred to upgrade or expand a generation station reflect noncapital outage costs. |
| (k) | Pro forma adjustment represents the annualization of the actual nine months ended September 30, 2010 EBITDA results for these two units. |
| (l) | Primarily pre-operating expenses relating to Oak Grove 2. |
Sierra Club Lawsuit
In September 2010, the Sierra Club sued EFH Corp. and Luminant Generation Company LLC (“Luminant”), a wholly-owned subsidiary of TCEH, under the Clean Air Act (the “CAA”) in the United States District Court for the Eastern District of Texas (Texarkana Division) for alleged violations of the CAA at Luminant’s Martin Lake generation facility. As previously disclosed, in July 2008, the Sierra Club gave Luminant notice of its intention to sue. While we are unable to estimate any possible loss or predict the outcome of the litigation, we believe that the Sierra Club’s claims are without merit, and we intend to vigorously defend this litigation.
Forward-Looking Statements
The information set forth in this Form 8-K and in Exhibit 99.1 contains forward-looking statements, which are subject to various risks and uncertainties that could cause actual results to differ materially from management’s current projections, forecasts, estimates and expectations. All statements, other than statements of historical facts, that are included in this current report that address activities, events or developments that EFH Corp. or EFCH expect or anticipate to occur in the future (often, but not always, through the use of words or phrases such as “intend to,” “will likely result,” “is expected to,” “will continue,” “is anticipated,” “estimated,” “projection,” “target,” “goal,” “objective,” and “outlook”), are forward-looking statements. Although EFH Corp. and EFCH believe that in making any such forward-looking statement their expectations are based on reasonable assumptions, any such forward-looking statement involves uncertainties and is qualified in its entirety by reference to the discussion of risk factors in EFH Corp.’s and EFCH’s reports filed with the Securities and Exchange Commission (including the sections entitled “Risk Factors,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Forward-Looking Statements” contained therein).
| Item 9.01. | Financial Statements and Exhibits. |
| | | | |
| (d) | | Exhibit No. | | Description |
| | |
| | 99.1 | | Press Release dated October 14, 2010 |
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, each registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| | |
| ENERGY FUTURE HOLDINGS CORP. |
|
/s/ Stan J. Szlauderbach |
| Name: | | Stan J. Szlauderbach |
| Title: | | Senior Vice President & Controller |
|
| ENERGY FUTURE COMPETITIVE HOLDINGS COMPANY |
|
/s/ Stan J. Szlauderbach |
| Name: | | Stan J. Szlauderbach |
| Title: | | Senior Vice President & Controller |
Dated: October 14, 2010
