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 SEPTEMBER 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 November 10, 1997.
NRG GENERATING (U.S.) INC.
FORM 10-Q
September 30, 1997
INDEX
Page
Part I - Financial Information:
Item 1. Financial Statements 2
Consolidated Balance Sheets -
September 30, 1997 and December 31, 1996 2
Consolidated Statements of Operations -
Three months and nine months ended September 30, 1997
and September 30, 1996 3
Consolidated Statements of Cash Flows -
Nine months ended September 30, 1997 and September 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 6. Exhibits and Reports on Form 8-K 15
Signature 16
Index to Exhibits 17
1
PART 1
FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
NRG GENERATING (U.S.) INC.
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
ASSETS
September 30, December 31,
1997 1996
(Unaudited)
Current assets:
Cash and cash equivalents.................................... $ 831 $ 3,187
Restricted cash and cash equivalents......................... 10,679 8,174
Accounts receivable, net..................................... 12,056 11,920
Receivables from related parties............................. 63 186
Notes receivable, current.................................... 50 1,119
Inventories.................................................. 3,102 2,897
Other current assets......................................... 1,025 992
Total current assets....................................... 27,806 28,475
Property, plant and equipment, net............................. 128,335 132,203
Equipment held for sale........................................ 1,598 2,628
Project development costs...................................... 356 346
Notes receivable, noncurrent................................... 0 83
Investments in equity affiliates............................... 8,547 3,653
Deferred financing costs, net.................................. 5,233 5,530
Other assets................................................... 636 706
Total assets............................................... $ 172,511 $ 173,624
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable............................................. $ 4,120 $ 6,131
Accounts payable and accrued interest due NRG Energy, Inc.... 1,177 1,256
Current portion of nonrecourse long-term debt................ 10,711 10,820
Accrued interest payable..................................... 314 1,104
Prepetition liabilities...................................... 538 1,433
Short-term borrowings........................................ 1,635 2,388
Other current liabilities.................................... 2,648 2,852
Total current liabilities.................................. 21,143 25,984
Loans due NRG Energy, Inc., net of current portion............. 19,288 14,388
Nonrecourse long-term debt, net of current portion............. 141,950 150,311
Deferred income taxes.......................................... 13,404 13,404
Other noncurrent liabilities................................... 0 50
Total liabilities.......................................... 195,785 204,137
Stockholders' equity:
Preferred stock, par value $.01, 20,000,000 shares
authorized; none issued or outstanding..................... 0 0
New common stock, par value $.01, 50,000,000 shares
authorized, 6,474,814 shares issued, 6,440,514 shares
outstanding as of September 30, 1997 and
December 31, 1996.......................................... 64 64
Additional paid-in capital................................... 62,719 62,719
Accumulated deficit.......................................... (85,593) (92,944)
Other........................................................ (464) (352)
Total stockholders' equity (deficit)....................... (23,274) (30,513)
Total liabilities and stockholders' equity (deficit)....... $ 172,511 $ 173,624
The accompanying notes are an integral part of these consolidated
financial statements.
2
NRG GENERATING (U.S.) INC.
CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
(Dollars in thousands, except per share amounts)
Three Months Ended Nine Months Ended
September 30, September 30, September 30, September 30,
1997 1996 1997 1996
REVENUES:
Energy................................ $ 11,030 $ 11,564 $ 32,423 $ 42,188
Equipment sales and services.......... 5,243 6,552 14,435 19,577
Rental revenues....................... 616 596 1,543 1,471
Development fees and other............ 0 997 0 2,119
16,889 19,709 48,401 65,355
COST OF REVENUES:
Cost of energy........................ 3,462 4,155 10,694 28,467
Cost of equipment sales and services.. 4,425 5,222 11,986 16,614
Cost of rental revenues............... 419 462 1,242 1,213
Cost of development fees and other.... 0 981 0 2,030
8,306 10,820 23,922 48,324
Gross profit........................ 8,583 8,889 24,479 17,031
Selling, general and
administrative expenses.............. 2,080 2,281 5,996 10,762
Income from operations.............. 6,503 6,608 18,483 6,269
Interest and other income............. 184 167 616 1,177
Reorganization costs.................. 0 0 0 (8,251)
Interest and debt expense............. (3,670) (3,374) (11,001) (12,921)
Income (loss) before income taxes... 3,017 3,401 8,098 (13,726)
Provision for income taxes (benefit)... 224 238 747 (251)
Income (loss) before
extraordinary item................. 2,793 3,163 7,351 (13,475)
Extraordinary item, net of income
taxes................................. 0 1,643 0 1,643
Net income (loss)................... $ 2,793 $ 4,806 $ 7,351 $ (11,832)
Net income (loss) per share before
extraordinary item.................... $ 0.42 $ 0.50 $ 1.10 $ (2.58)
Extraordinary item income per share.... $ 0.00 $ 0.25 $ 0.00 $ 0.31
Net income (loss) per share............ $ 0.42 $ 0.75 $ 1.10 $ (2.27)
Weighted average shares outstanding.... 6,693 6,422 6,661 5,217
The accompanying notes are an integral part of these consolidated
financial statements.
3
NRG GENERATING (U.S.) INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(Dollars in thousands)
Nine Months Ended
September 30, September 30,
1997 1996
Cash Flows from Operating Activities:
Net income (loss).............................................. $ 7,351 $ (11,832)
Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating activities:
Extraordinary item......................................... 0 (1,643)
Depreciation and amortization.............................. 5,425 6,074
Amortization of debt discount and deferred financing costs. 297 1,403
Deferred tax expense (benefit)............................. 0 (958)
Project development costs expensed......................... 0 180
Bankruptcy fees accrued.................................... 0 (1,899)
Loss on disposition of property and equipment.............. 585 0
Other, net................................................. (95) (4,293)
Changes in operating assets and liabilities:
Accounts receivable, net................................. (253) 2,173
Inventories............................................. (280) 1,740
Receivables from related parties......................... 120 823
Other assets............................................. (59) (1)
Accounts payable and other current liabilities........... (2,164) (523)
Accrued interest payable................................. (770) (4,626)
Net cash provided by (used in) operating activities.... 10,157 (13,382)
Cash Flows from Investing Activities:
Capital expenditures........................................... (1,636) (12)
Proceeds from disposition of property and equipment............ 552 0
Investment in equity affiliates................................ (4,900) 0
Proceeds from sale of subsidiaries............................. 0 7,500
Project development costs...................................... (15) (1,718)
Collections on notes receivable................................ 1,152 790
Deposits into restricted cash accounts, net.................... (2,505) (4,336)
Other, net..................................................... 0 260
Net cash (used in) provided by investing activities.... (7,352) 2,484
Cash Flows from Financing Activities:
Proceeds from NRG Energy, Inc. loans........................... 4,900 125,078
Proceeds from long-term debt................................... 0 155,226
Repayments of NRG Energy, Inc. loans........................... 0 (113,689)
Repayments of long-term debt................................... (8,455) (89,244)
NRG capital contribution....................................... 0 21,178
Net proceeds (repayments) of short-term borrowings............. (711) 636
Payments on prepetition liabilities............................ (895) (70,180)
Deferred financing costs....................................... 0 (5,708)
Redemption of preferred shares................................. 0 (4,957)
Preferred dividends paid....................................... 0 (57)
Net cash (used in) provided by financing activities.... (5,161) 18,283
Net (decrease) increase in cash and cash equivalents............ (2,356) 7,385
Cash and cash equivalents, beginning of period.................. 3,187 3,132
Cash and cash equivalents, end of period........................ $ 831 $ 10,517
Supplemental disclosure of cash flow information:
Interest paid during the period.............................. $ 12,500 $ 12,921
The accompanying notes are an integral part of these consolidated
financial statements.
4
NRG GENERATING (U.S.) INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
SEPTEMBER 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 stock
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
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
SEPTEMBER 30, 1997
(Dollars in thousands)
2. LOANS DUE NRG ENERGY, INC.
The loan balance due to NRG Energy, Inc. ("NRG Energy") on September
30, 1997 is $19,288. Of this balance, $14,388 has a maturity date of
April 30, 2001 and $4,900 has a maturity date of June 30, 2005. The
$4,900 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.
4. EXTRAORDINARY ITEM
During the quarter ended September 30, 1996, the Company negotiated
a buyout of a subsidiary's capital lease obligation. The lender agreed
to accept a $1,100 payment in full satisfaction of the lease. The
transaction resulted in an extraordinary gain of $1,643 (net of $124 of
state income taxes).
6
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
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
7
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 has and will
in the future 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 are
expected to 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 third quarter 1997 of $11,030 decreased from
revenues of $11,564 for the comparable period in 1996. Energy revenues
for the first nine months of 1997 of $32,423 decreased from $42,188 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 as compared to the same period one year
ago was primarily attributable to discretionary curtailments imposed by
JCP&L at the Newark cogeneration facility of 416 hours versus 180 hours
in the comparable 1996 quarter. Under the PPA that the Company has
with JCP&L on the Newark facility, JCP&L is entitled to curtail the
facility for 700 hours per year on a discretionary basis. The decrease
in energy revenues in the nine months ended September 30, 1997 as
compared to the same period one year ago was primarily attributable to
the discretionary curtailments imposed at the Newark cogeneration
facility and the amended PPAs affecting both Parlin and Newark. The
8
Company does not anticipate that such discretionary curtailments will
have a significant impact on revenues in the fourth quarter.
Revenues recognized at Parlin and Newark were $6,170 and $3,791 for
the third quarter 1997 and $5,803 and $4,708 for the comparable period
in 1996, respectively. Revenues recognized at Parlin and Newark were
$16,776 and $12,500 for the first nine months of 1997 and $21,835 and
$17,053 for the comparable period in 1996, respectively. The decrease
was primarily due to the discretionary curtailments imposed at the
Newark cogeneration facility and the amended PPAs.
Energy revenues from the Company's Philadelphia Water Department
standby facility project for the third quarter 1997 of $1,069 increased
from $1,053 for the comparable period in 1996. Energy revenues from
this project for the first nine months of 1997 of $3,147 increased from
$3,084 for the comparable period in 1996. Energy revenues from the
Company's landfill gas projects for the third quarter and first four
months of 1996 were none and $216, respectively. On April 30, 1996,
the landfill gas projects were sold to NRG Energy.
Equipment sales and services revenues for the third quarter 1997 of
$5,243 decreased from $6,552 for the comparable period in 1996.
Equipment sales and services revenues for the first nine months of 1997
of $14,435 decreased from $19,577 for the comparable period in 1996.
The revenue decrease in the quarter and nine month periods ended
September 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 third quarter 1997
of $1,538 increased from revenues of $922 for the quarter ended
September 30, 1996. OES equipment sales and services revenues for the
first nine months of 1997 of $4,266 increased from $2,991 in the nine
months ended September 30, 1996. The increase was primarily due to
higher sales volume. As noted above, American Hydrotherm, which had
revenues of $1,238 and $4,776 for the quarter and nine months ended
September 30, 1996, respectively, was sold in December 1996. Puma
equipment sales and services revenues for the third quarter 1997 of
$3,705 decreased from $4,392 for the quarter ended September 30, 1996.
Puma equipment sales and services revenues for the first nine months of
1997 of $10,169 decreased from $11,810 in the nine months ended
September 30, 1996. The decrease was primarily due to the unfavorable
impact of foreign currency rates in some of Puma's Asian markets.
Rental revenues for the third quarter 1997 of $616 increased from
$596 for the quarter ended September 30, 1996. Rental revenues for the
first nine months of 1997 of $1,543 increased from $1,471 in the nine
months ended September 30, 1996. The deviations in each case were due
primarily to fluctuations in sales volume.
There were no development fees and other revenues for the third
quarter and first nine months of 1997 compared to $997 and $2,119,
respectively, for the comparable periods of 1996. 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 Directors Committee of
the Board of Directors.
9
Costs and Expenses
Cost of energy revenues for the third quarter 1997 of $3,462
decreased from $4,155 for the quarter ended September 30, 1996. Cost
of energy revenues for the first nine months of 1997 of $10,694
decreased from $28,467 in the nine months ended September 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 third quarter 1997 of
$4,425 decreased from $5,222 for the quarter ended September 30, 1996.
Cost of equipment sales and services for the first nine months of 1997
of $11,986 decreased from $16,614 in the nine months ended September
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 third quarter 1997 of $419 decreased
from $462 for the quarter ended September 30, 1996. Cost of rental
revenues for the first nine months of 1997 of $1,242 increased from
$1,213 in the nine months ended September 30, 1996. The deviation for
each comparable period was due primarily to fluctuations in sales
volume.
There were no costs of development fees and other for the third
quarter and first nine months of 1997 compared to $981 and $2,030 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 third quarter 1997 of $8,583
(50.8% of sales) decreased from the quarter ended September 30, 1996
gross profit of $8,889 (45.1% of sales). Gross profit for the first
nine months of 1997 of $24,479 (50.6% of sales) increased from gross
profit of $17,031 (26.1% of sales) for the nine months ended September
30, 1996. The gross profit increases, as a percent of revenue, 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 third
quarter 1997 of $2,080 decreased from $2,281 for the quarter ended
September 30, 1996. SG&A for the first nine months of 1997 of $5,996
decreased from $10,762 for the nine months ended September 30, 1996.
The reduction for the first nine months of 1996 was primarily due to a
$3,100 cost incurred 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.
Interest and Other Income
Interest and other income for the third quarter 1997 of $184
increased from interest and other income of $167 for the quarter ended
September 30, 1996. Interest and other income for the first nine
months of 1997 of $616 decreased from interest and other income of
$1,177 for the nine months ended September 30, 1996. The decrease
10
for the comparable nine 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 of 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 and fees paid
by the Company to Wexford Management LLC under the Liquidating Asset
Management Agreement.
Reorganization Costs
Reorganization costs represent all costs incurred after filing for
bankruptcy that relate to the Company's reorganization and
restructuring efforts. Reorganization costs for the nine months ended
September 30, 1996 were $8,251 and none were incurred in the nine
months ended September 30, 1997. These costs consist primarily of
professional and administrative fees and expenses.
Interest and Debt Expense
Interest and debt expense for the third quarter 1997 of $3,670
increased from third quarter 1996 interest and debt expense of $3,374.
Interest and debt expense for the first nine months of 1997 of $11,001
decreased from interest and debt expense of $12,921 for the nine months
ended September 30, 1996. The increase for the comparable quarters was
primarily attributable to interest expense on the NRG loan. The
decrease in the nine month periods was due primarily to post-petition
interest on prepetition liabilities included in the nine month period
ended September 30, 1996, offset in part by the interest expense on the
NRG loan. In addition, the average interest rate was lower in the nine
month period ended September 30, 1997 than in the comparable period one
year ago due to the refinancing of the Newark and Parlin Projects.
Extraordinary Item
During the quarter ended September 30, 1996, the Company negotiated
a buyout of a subsidiary's capital lease obligation. The lender agreed
to accept a $1,100 payment in full satisfaction of the lease. The
transaction resulted in an extraordinary gain of $1,643 (net of $124 of
state income taxes).
Income Taxes
The provision for income taxes for the quarter and nine months ended
September 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 nine
11
month periods ended September 30, 1997 from the comparable periods one
year ago primarily due to the purchase of 2,710,357 common shares by
NRG Energy on April 30, 1996 and due to the issuance of stock options
under the 1996 Stock Option Plan and 1997 Stock Option Plan.
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
$145,351 was outstanding at September 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 entered into a loan commitment to provide NSC the
funding, if needed, for the NSC capital contribution obligation to the
Grays Ferry Partnership. At September 30, 1997, NSC had borrowed
$4,900 from NRG Energy under this loan agreement and contributed the
proceeds to the Grays Ferry Partnership.
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 356,255 shares of common stock of
the Company. At September 30, 1997, no such borrowings had been
converted into common stock. Subsequent to such date NRG Energy
exercised such conversion right in full, thereby reducing the amount
outstanding under such commitment 10 $1,900.
At September 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
12
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 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.
The Company has been offered, and is currently evaluating the
investment in two projects by NRG Energy pursuant to the Co-Investment
Agreement. The Company is in negotiations with NRG Energy on whether
and on what terms such transaction will be accepted by the Company.
There can be no assurance that either project will be accepted by the
Company.
The Company's Board of Directors has decided not to liquidate the
Philadelphia Cogeneration Project, which was identified in the
Liquidating Asset Management Agreement. As a result of this decision,
Wexford Management LLC received compensation in accordance with the
terms of the Liquidating Asset Management Agreement during the quarter
ending September 30, 1997. The Company is continuing its strategic
analysis regarding its investment in the Company's equipment sales,
rental and services businesses.
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.
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PART II
OTHER INFORMATION
ITEM 1 Legal Proceedings.
Except as disclosed in the Company's quarterly report on Form 10-Q
for the quarter ended June 30, 1997, there were no material
developments in any litigation disclosed in the Company's interim
report on Form 10-K for the period ended December 31, 1996 during the
period covered by this report. 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.
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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 September 30, 1997:
None.
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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: November 13, 1997 By: /s/ Timothy P. Hunstad
Timothy P. Hunstad
Vice President and Chief Financial Officer
(Principal Financial Officer and Duly Authorized Officer)
16
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 Amended and Restated Bylaws of the Company.
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.
10.2 Employment Agreement dated March 28, 1997 between the Company and
Robert T. Sherman, Jr.
11 Computation of Earnings Per Common Share
27 Financial Data Schedule (for SEC filing purposes only)
17