1
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
Transition report pursuant to Section 13 or 15(d) of the Securities
- --- Exchange Act of 1934
For Quarter Ended September 30, 1999 Commission File Number 333-33397
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NRG Energy, Inc.
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(Exact name of registrant as specified in its charter)
Delaware 41-1724239
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
1221 Nicollet Mall, Minneapolis, Minnesota 55403
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(Address of principal executive officers) (Zip Code)
Registrant's telephone number, including area code (612) 373-5300
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None
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Former name, former address and former fiscal year, if changed since last report
Indicated 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 period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
--- ---
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
Class Outstanding at November 11, 1999
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Common Stock, $1.00 par value 1,000 Shares
All outstanding common stock of NRG Energy, Inc., is owned beneficially
and of record by Northern States Power Company, a Minnesota corporation.
The Registrant meets the conditions set forth in general instruction H
(1) (a) and (b) of Form 10-Q and is therefore filing this form with the reduced
disclosure format.
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INDEX
PAGE NO.
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PART I
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Item 1 Consolidated Financial Statements and Notes
Consolidated Statements of Income 1
Consolidated Balance Sheets 2-3
Consolidated Statements of Stockholder's Equity 4
Consolidated Statements of Cash Flows 5
Notes to Consolidated Financial Statements 6-9
Item 2 Management's Discussion and Analysis of Financial
Condition and Results of Operations 10-12
PART II
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Item 1 Legal Proceedings 13
Item 6 Exhibits, Financial Statement Schedules, and Reports 14
on Form 8-K
SIGNATURES 15
3
CONSOLIDATED STATEMENTS OF INCOME
NRG ENERGY, INC. AND SUBSIDIARIES
(UNAUDITED)
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
(Thousands of Dollars) 1999 1998 1999 1998
- ----------------------------------------------------------------------------------------------------------------------------
OPERATING REVENUES
Revenues from wholly-owned operations $ 139,974 $ 25,047 $ 237,855 $ 74,829
Equity in earnings of unconsolidated affiliates 30,434 29,249 45,726 58,432
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Total operating revenues 170,408 54,296 283,581 133,261
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OPERATING COSTS AND EXPENSES
Cost of wholly-owned operations 79,147 13,079 148,211 39,384
Depreciation and amortization 12,663 4,511 23,688 12,560
General, administrative, and development 20,650 15,201 52,923 39,581
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Total operating costs and expenses 112,460 32,791 224,822 91,525
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OPERATING INCOME 57,948 21,505 58,759 41,736
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OTHER INCOME (EXPENSE)
Minority interest in earnings of consolidated subsidiaries (382) (492) (1,537) (1,652)
Write-down of investment in projects - (23,410) - (23,410)
Other income, net 2,196 1,206 5,504 3,105
Interest expense (30,760) (13,598) (57,607) (37,849)
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Total other expense (28,946) (36,294) (53,640) (59,806)
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INCOME (LOSS) BEFORE INCOME TAXES 29,002 (14,789) 5,119 (18,070)
INCOME TAX EXPENSE (BENEFIT) 1,395 (10,014) (23,889) (26,353)
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NET INCOME $ 27,607 $ (4,775) $ 29,008 $ 8,283
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See notes to consolidated financial statements.
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4
CONSOLIDATED BALANCE SHEETS
NRG ENERGY, INC. AND SUBSIDIARIES
(UNAUDITED)
SEPTEMBER 30, DECEMBER 31,
(Thousands of Dollars) 1999 1998
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ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 25,236 $ 6,381
Restricted cash 2,122 4,021
Accounts receivable-trade, less allowance
for doubtful accounts of $110 and $100 84,721 15,223
Accounts receivable-affiliates 33,879 7,324
Current portion of notes receivable - affiliates 11,461 4,460
Current portion of notes receivable - 26,200
Income taxes receivable - 21,169
Inventory 59,535 2,647
Prepayments and other current assets 15,086 4,533
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Total current assets 232,040 91,958
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PROPERTY, PLANT AND EQUIPMENT, AT ORIGINAL COST
In service 1,229,082 291,558
Under construction 17,173 5,352
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1,246,255 296,910
Less accumulated depreciation (116,019) (92,181)
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Net property, plant and equipment 1,130,236 204,729
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OTHER ASSETS
Investments in projects 894,106 800,924
Capitalized project costs 53,475 13,685
Notes receivable, less current portion - affiliates 96,589 101,887
Notes receivable, less current portion 5,324 3,744
Intangible assets, net of accumulated amortization of $4,292 and $2,984 49,743 22,507
Debt issuance costs, net of accumulated amortization of $4,545 and $1,675 15,543 7,276
Other assets, net of accumulated amortization of $8,395 and $7,350 49,305 46,716
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Total other assets 1,164,085 996,739
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TOTAL ASSETS $ 2,526,361 $ 1,293,426
==================================================================================================================
See notes to consolidated financial statements.
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5
CONSOLIDATED BALANCE SHEETS
NRG ENERGY, INC. AND SUBSIDIARIES
(UNAUDITED)
SEPTEMBER 30, DECEMBER 31,
1999 1998
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LIABILITIES AND STOCKHOLDER'S EQUITY
CURRENT LIABILITIES
Current portion of long-term debt $ 26,707 $ 8,258
Revolving line of credit 208,000 -
Consolidated project-level, non-recourse debt 613,890 -
Accounts payable-trade 46,094 7,371
Income taxes payable 11,356 -
Accrued property and sales taxes 6,006 3,251
Accrued salaries, benefits and related costs 6,836 7,551
Accrued interest 18,202 7,648
Other current liabilities 22,662 8,289
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Total current liabilities 959,753 42,368
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MINORITY INTEREST 12,998 13,516
CONSOLIDATED PROJECT-LEVEL, LONG TERM, NONRECOURSE DEBT 122,348 113,437
CORPORATE LEVEL LONG-TERM DEBT, LESS CURRENT PORTION 675,000 504,781
DEFERRED INCOME TAXES 6,282 19,841
DEFERRED INVESTMENT TAX CREDITS 1,152 1,343
POSTRETIREMENT AND OTHER BENEFIT OBLIGATIONS 16,078 11,060
DEFERRED INCOME AND OTHER LONG-TERM OBLIGATIONS 10,507 7,748
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Total liabilities 1,804,118 714,094
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STOCKHOLDER'S EQUITY
Common stock; $1 par value; 1,000 shares authorized;
1,000 shares issued and outstanding 1 1
Additional paid-in capital 631,913 531,913
Retained earnings 159,023 130,015
Accumulated other comprehensive income (68,694) (82,597)
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Total Stockholder's Equity 722,243 579,332
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TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY $ 2,526,361 $ 1,293,426
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See notes to consolidated financial statements.
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6
CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY
NRG ENERGY, INC. AND SUBSIDIARIES
(UNAUDITED)
Accumulated
Additional Other Total
Common Paid-in Retained Comprehensive Stockholder's
(Thousands of Dollars) Stock Capital Earnings Income Equity
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BALANCES AT JANUARY 1, 1998 $ 1 $ 431,913 $ 88,283 $ (69,499) $ 450,698
Net Income 8,283 8,283
Foreign currency translation adjustments (23,150) (23,150)
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Comprehensive income (14,867)
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BALANCES AT SEPTEMBER 30, 1998 $ 1 $ 431,913 $ 96,566 $ (92,649) $ 435,831
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BALANCES AT JANUARY 1, 1999 $ 1 $ 531,913 $130,015 $ (82,597) $ 579,332
Net Income 29,008 29,008
Foreign currency translation adjustments 13,903 13,903
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Comprehensive income 42,911
Capital Contribution from parent 100,000 100,000
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BALANCES AT SEPTEMBER 30, 1999 $ 1 $ 631,913 $159,023 $ (68,694) $ 722,243
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See notes to consolidated financial statements.
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7
CONSOLIDATED STATEMENTS OF CASH FLOWS
NRG ENERGY, INC. AND SUBSIDIARIES
(UNAUDITED)
NINE MONTHS ENDED
SEPTEMBER 30,
(Thousands of Dollars) 1999 1998
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CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 29,008 $ 8,283
Adjustments to reconcile net income to net cash
provided (used) by operating activities
Undistributed equity earnings of unconsolidated affiliates (1,363) (29,873)
Depreciation and amortization 23,688 12,560
Deferred income taxes and investment tax credits (13,750) (7,601)
Minority interest (518) -
Write-down of investment in projects - 23,410
Cash provided (used) by changes in certain working capital items,
net of acquisition effects
Accounts receivable (67,958) (197)
Accounts receivable-affiliates (26,555) 13,934
Income tax receivable 21,169 (3,692)
Inventory (16,945) -
Prepayments and other current assets (10,553) (3,043)
Accounts payable-trade 38,723 (8,636)
Income taxes payable 11,356 -
Accrued property and sales tax 2,755 (512)
Accrued salaries, benefits and related costs (857) 1,274
Accrued interest 10,554 4,430
Other current liabilities 2,260 1,742
Cash used by changes in other assets and liabilities (12,451) 2,808
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NET CASH (USED) PROVIDED BY OPERATING ACTIVITIES (11,437) 14,887
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CASH FLOWS FROM INVESTING ACTIVITIES
Acquisitions, net of liabilities assumed (930,185) -
Investments in projects (118,231) (124,903)
Divestiture of projects 1,000 9,219
Changes in notes receivable (net) 22,917 20,918
Purchase of plant, property and equipment (62,099) (23,265)
Decrease (increase) in restricted cash 1,899 (2,341)
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NET CASH USED BY INVESTING ACTIVITIES (1,084,699) (120,372)
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CASH FLOWS FROM FINANCING ACTIVITIES
Capital contributions from parent 100,000 -
Revolving line of credit 84,000 103,000
Proceeds from issuance of note 613,890 -
Proceeds from issuance of long-term debt 326,713 22,658
Principal payments on long-term debt (9,612) (18,187)
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NET CASH PROVIDED BY FINANCING ACTIVITIES 1,114,991 107,471
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NET INCREASE IN CASH AND CASH EQUIVALENTS 18,855 1,986
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 6,381 11,986
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CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 25,236 $ 13,972
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See notes to consolidated financial statements.
5
8
NRG ENERGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Company is a wholly owned subsidiary of Northern States Power Company (NSP),
a Minnesota corporation. Additional information regarding the Company can be
found in NSP's Form 10-Q for the nine months ended September 30, 1999.
The accompanying unaudited consolidated financial statements have been prepared
in accordance with SEC regulations for interim financial information and with
the instructions to Form 10-Q. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements. The accounting policies followed by the
Company are set forth in Note 1 to the Company's financial statements in its
Annual Report on Form 10-K for the year ended December 31, 1998 (Form 10-K). The
following notes should be read in conjunction with such policies and other
disclosures in the Form 10-K. Interim results are not necessarily indicative of
results for a full year.
In the opinion of management, the accompanying unaudited interim financial
statements contain all material adjustments necessary to present fairly the
consolidated financial position of the Company as of September 30, 1999 and
December 31, 1998, the results of its operations for the three and nine months
ended September 30, 1999 and 1998, and its cash flows and stockholders' equity
for the nine months ended September 30, 1999 and 1998.
1. BUSINESS DEVELOPMENTS
In February 1999, the Company purchased from Thermal Ventures, Inc. (TVI)
the remaining 50.1% limited partnership interests held by TVI in San
Francisco Thermal Limited Partnership and Pittsburgh Thermal Limited
Partnership for $12.3 million. In April 1999, NRG acquired TVI's 50% member
interest in North American Thermal Systems LLC (the entity holding the
general partnership interest in the San Francisco and Pittsburgh
partnerships) for $500,000.
In April 1999, the Company completed the acquisition of the Somerset power
station for approximately $55 million from the Eastern Utilities
Association (EUA). The Somerset station, located in Somerset,
Massachusetts, includes two coal-fired generating facilities and two
aeroderivative combustion turbine peaking units with a nominal capacity
rating of 160 MW.
In May 1999, the Company and Dynegy, through West Coast Power LLC,
completed the acquisition of the Encina generating station and 17
combustion turbines for approximately $356 million from San Diego Gas &
Electric Company. The facilities, which have a combined nominal capacity
rating of 1,218 MW, are located near Carlsbad and San Diego, California.
The Company and Dynegy each own a 50% interest in these facilities.
In June 1999, the Company completed its acquisition of the Huntley and
Dunkirk generating stations from Niagara Mohawk Power Corporation (NIMO)
for approximately $355 million. The two coal-fired power generation
facilities are located near Buffalo, New York, and have a combined summer
capacity rating of 1,360 MW.
In June 1999, the Company completed its acquisition of the Arthur Kill
generating station and the Astoria gas turbine site from Consolidated
Edison Company of New York, Inc. for approximately $505 million. These
facilities, which are located in the New York City area, have a combined
nominal capacity rating of 1,456 MW.
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The Company, together with its partner and the Creditor's committee, filed
a plan with the United States Bankruptcy Court for the Middle District of
Louisiana to acquire 1,708 MW of fossil generating assets from Cajun
Electric Power Cooperative of Baton Rouge, Louisiana (Cajun) for
approximately $1.0 billion. During the third quarter, the U.S. Bankruptcy
Judge confirmed the Company's Plan of Reorganization and the Company
exercised an option to purchase its partner's 50-percent interest in the
project. The Company expects to close the acquisition of the Cajun assets
at the end of the first quarter of 2000.
In August, the Company agreed to sell all but a 20 percent ownership
interest in Cogeneration Corporation of America (CogenAmerica) to Calpine
Corporation in connection with Calpine's acquisition of the remaining
shares of CogenAmerica. The Company currently owns approximately 45 percent
of CogenAmerica and upon the closing of the proposed transaction, all
outstanding shares of CogenAmerica common stock (other than those to be
retained by the Company) will be acquired by Calpine for a cash purchase
price of $25.00 per share. The Company will retain a 20-percent ownership
interest in CogenAmerica. The transaction is expected to close during the
fourth quarter of 1999.
In October 1999, the Company completed its acquisition of the Oswego
generating station from NIMO and Rochester Gas and Electric for
approximately $85 million. The oil and gas-fired power generating facility,
which has a nominal capacity rating of 1,700 MW is located on a 93-acre
site in Oswego, New York.
In October 1999, the Company entered into a Standard Offer Service
Wholesale Sales Agreement with Connecticut Light And Power Company (CL&P)
pursuant to which the Company will supply CL&P with 35% of its standard
offer service load during 2000, 40% during 2001 and 2002 and 45% during
2003. In July 1999, the Company executed an agreement to acquire four
fossil fuel generating stations and numerous remote gas turbines from CL&P
for approximately $460 million. These facilities have a combined nominal
capacity rating of 2,235 MW. The Company expects the transaction to close
during the fourth quarter of 1999.
2. CONTINGENT REVENUES
The Company and its partner Dynegy each own a 50% interest in the Long
Beach and El Segundo generating stations ("California Projects"). During
1998, the first year of deregulation of the state of California power
industry, the California Projects accrued certain receivables related to
contingent revenues. These revenues have been deferred pending resolution
of the contingency. Such amounts relate to items that are subject to
contract interpretations, compliance with processes and filed market
disputes. The California Projects are actively pursuing resolution and/or
collection of these amounts, which totaled approximately $40 million (the
Company's share approximates $20 million) as of September 30, 1999. No
assurance can be given that any of these deferred revenues will be
collected, however, if collected, such deferred revenues will be recognized
in the Company's equity income.
3. SUMMARIZED INCOME STATEMENT INFORMATION OF AFFILIATES
The Company has 20-50% investments in four companies that are considered
significant subsidiaries, as defined by applicable SEC regulations, and
accounts for those investments using the equity method. The following
summarizes the income statements of these unconsolidated entities:
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10
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
(Thousands of Dollars) 1999 1998 1999 1998
------------------------ -----------------------
Net sales $ 186,573 $ 209,035 $ 506,994 $ 516,588
Other income (expense) (13,000) 712 - 179
Costs and expenses:
Cost of sales 143,674 146,539 381,077 390,340
Depreciation and amortization 7,785 2,049 7,785 4,079
General and administrative (31,745) 5,416 17,827 17,964
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119,714 154,004 406,689 412,383
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Income before income taxes 53,859 55,743 100,305 104,384
Income taxes 9,903 19,998 21,739 28,817
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Net income $ 43,956 $ 35,745 $ 78,566 $ 75,567
======================== =======================
Company's share of net income $ 16,572 $ 16,981 $ 31,167 $ 32,648
======================== =======================
4. SHORT TERM BORROWINGS
At September 30, 1999, the Company had $613.9 million in short-term project
level borrowings at an average interest rate of 6.62% used for project
acquisitions. The Company has $686.6 million of available borrowing under
this credit facility. The Company plans to refinance this short-term
project-level borrowing with long-term project-level debt later this year.
As of September 30, 1999, the Company had $350 million in revolving credit
facilities under a commitment fee arrangement. These facilities provide
short-term financing in the form of bank loans and letters of credit. At
September 30, 1999, the Company has $208 million outstanding under its
revolving credit agreements.
5. LONG TERM DEBT
In March 1999, the Company filed a shelf registration statement with the
Securities and Exchange Commission for up to $500 million in debt
securities. The net proceeds will be used to finance the Company's equity
investments in connection with pending acquisitions and for general
corporate purposes, which may include financing the development and
construction of new facilities, working capital, debt reduction and capital
expenditures. In May 1999, the Company issued $300 million of 7.5% senior
notes due in 2009 under this registration statement. In September 1999, the
Company entered into a $200 million swap agreement effectively converting
the 7.5% fixed rate on these senior notes to a variable rate based on
LIBOR. In November 1999, the Company issued $240 million of Remarketable or
Redeemable Securities (ROARS) with an 8 percent coupon, a re-marketing date
of November 2003 and a final maturity of November 2013.
During the third quarter of 1999 NRG Northeast Generating LLC (N.E.
Generating), a wholly owned subsidiary of the Company, entered into $600
million of treasury locks at various interest rates. These treasury locks,
which expire in February of 2000, are an interest rate hedge of N.E.
Generating's anticipated bond offering in the first quarter of 2000. The
proceeds of any such bond offering will be used to pay off N.E.
Generating's currently existing short-term credit facility.
6. SEGMENT REPORTING
The Company conducts its business within three segments: Independent Power
Generation, Alternative Energy (Resource Recovery and Landfill Gas) and
Thermal projects. These segments are distinct components of the Company
with separate operating results and management structures in place. The
`Other" category includes operations that do not meet the threshold for
separate disclosure and corporate charges that have not been allocated to
the operating segments. Segment information for the three and nine months
ended September 30, 1999 and 1998 are as follows:
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THREE MONTHS ENDED
SEPTEMBER 30, 1999 INDEPENDENT
(Thousands of Dollars) POWER ALTERNATIVE
GENERATION ENERGY THERMAL OTHER TOTAL
----------------------------------------------------------------
OPERATING REVENUES
Revenues from wholly-owned operations $ 115,447 $ 5,356 $ 18,450 $ 506 $ 139,759
Intersegment revenues - 215 - - 215
Equity in earnings of unconsolidated
affiliates 30,744 (3,365) 588 2,467 30,434
----------------------------------------------------------------
Total operating revenues 146,191 2,206 19,038 2,973 170,408
----------------------------------------------------------------
NET INCOME (LOSS) $ 48,272 $ 683 $ 1,498 $ (22,846) $ 27,607
THREE MONTHS ENDED
SEPTEMBER 30, 1998 INDEPENDENT
(Thousands of Dollars) POWER ALTERNATIVE
GENERATION ENERGY THERMAL OTHER TOTAL
-----------------------------------------------------------------
OPERATING REVENUES
Revenues from wholly-owned operations $ 307 $ 7,642 $ 13,293 $ 3,446 $ 24,688
Intersegment revenues - 359 - - 359
Equity in earnings of unconsolidated
affiliates 29,678 (361) 58 (126) 29,249
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Total operating revenues 29,985 7,640 13,351 3,320 54,296
-----------------------------------------------------------------
NET INCOME (LOSS) $ 14,077 $ 3,247 $ 1,553 $(23,653) $ (4,776)
NINE MONTHS ENDED
SEPTEMBER 30, 1999 INDEPENDENT
(Thousands of Dollars) POWER ALTERNATIVE
GENERATION ENERGY THERMAL OTHER TOTAL
-----------------------------------------------------------------
OPERATING REVENUES
Revenues from wholly-owned operations $156,579 $ 20,498 $ 55,005 $ 4,810 $236,892
Intersegment revenues - 963 - - 963
Equity in earnings of unconsolidated
affiliates 50,871 (2,029) 1,671 (4,787) 45,726
-----------------------------------------------------------------
Total operating revenues 207,450 19,432 56,676 23 283,581
-----------------------------------------------------------------
NET INCOME (LOSS) $ 55,799 $ 6,847 $ 4,682 $(38,320) $ 29,008
NINE MONTHS ENDED
SEPTEMBER 30, 1998 INDEPENDENT
(Thousands of Dollars) POWER ALTERNATIVE
GENERATION ENERGY THERMAL OTHER TOTAL
-----------------------------------------------------------------
OPERATING REVENUES
Revenues from wholly-owned operations $ 1,165 $ 22,994 $ 39,946 $ 9,683 $ 73,788
Intersegment revenues - 1,041 - - 1,041
Equity in earnings of unconsolidated
affiliates 58,629 13 294 (504) 58,432
-----------------------------------------------------------------
Total operating revenues 59,794 24,048 40,240 9,179 133,261
-----------------------------------------------------------------
NET INCOME (LOSS) $ 35,324 $ 12,095 $ 4,490 $(43,626) $ 8,283
7. FINANCIAL INSTRUMENTS
During the first quarter of 1999, the Company entered into a forward
contract to exchange approximately $10.5 million of U.S. dollars for
British pounds. This foreign exchange contract, which expires in December,
1999 is a hedge of the Company's equity commitment to the Enfield project
currently under construction in England.
NEW ACCOUNTING PRONOUNCEMENTS
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." This statement requires that all
derivatives be recognized at fair value in the Balance Sheet, and that
changes in fair value be recognized either currently in earnings or
deferred as a component of Other Comprehensive Income, depending on the
intended use of the derivative, its resulting designation and its
effectiveness. The Company plans to adopt this standard in 2001, as
required. The Company has not determined the potential impact of
implementing this statement.
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ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Management's Discussion and Analysis of Financial Condition is omitted
per conditions as set forth in General Instructions H (1) (a) and (b) of Form
10-Q for wholly owned subsidiaries. It is replaced with management's narrative
analysis of the results of operations as permitted by General Instructions H (2)
(a) of Form 10-Q for wholly owned subsidiaries (reduced disclosure format). This
analysis compares the Company's revenue and expense items for the nine months
ended September 30, 1999 with the nine months ended September 30, 1998.
RESULTS OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 1999 COMPARED TO NINE MONTHS
ENDED SEPTEMBER 30, 1998
Net income for the nine months ended September 30, 1999, was $29.0
million compared to $8.3 million for the same period in 1998. The increase in
net income of $20.7 million was due to the factors described below.
OPERATING REVENUES
For the nine months ended September 30, 1999, revenues were $283.6
million, an increase of $150.3 million, or 113%, over the same period in 1998.
The operating revenues from wholly owned operations for the nine months
ended September 30, 1999 were $237.9 million, an increase of $163.0 million, or
218%, over the same period in 1998. Approximately $115.5 million of the increase
relates to the Dunkirk, Huntley, Somerset, Astoria and Arthur Kill facilities
that were acquired during the second quarter of 1999. Approximately $41.3
million of the increase is from energy sales to Eastern Utilities Association
(EUA) under an agreement that went into effect on January 1, 1999. Under the
terms of the power sales agreement, the Company will provide various affiliates
of EUA with a fixed percentage of their energy needs for a period of 6.2 to 11
years. In addition, approximately $15.5 million of the increased revenues
relates to the Company's increased ownership in the Pittsburgh and San Francisco
Thermal operations as a result of the acquisition of the remaining 50% interest
in these projects in April, 1999. For the nine months ended September 30, 1999,
revenues from wholly owned operations consisted of revenue from electrical
generation (77%), heating, cooling and thermal activities (20%) and technical
services (3%).
Equity in earnings of unconsolidated affiliates was $45.7 million for
the nine months ended September 30, 1999, compared to $58.4 million for the nine
months ended September 30, 1998, a decrease of $12.7 million, or 22%. The
decrease was due to several factors, including a $6.8 million reduction in
earnings from the Mt. Poso project primarily due to curtailment revenues that
were recorded in 1998, a $3.9 million decrease in earnings from West Coast Power
LLC due to cooler weather conditions partially offset by earnings from the
Encina facility which was acquired during the second quarter of 1999. In
addition, there was a $2.1 million net decrease in equity earnings due to a
transaction adjustment related to the Kladno Project. A portion of the Kladno
project's debt is denominated in U.S. dollars and German deutsche marks, which
strengthened against the Czech koruna in the first six months of 1999. Under
SFAS No. 52, Foreign Currency Translation, the Kladno project records foreign
currency gains and losses through the income statement.
OPERATING COSTS AND EXPENSES
Cost of wholly owned operations was $148.2 million for the nine months
ended September 30, 1999. This is an increase of $108.8 million, or 276%, over
the same period in 1998. The increase is due to increased operating costs from
new acquisitions and energy purchases made to satisfy the EUA power sales
agreement.
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Depreciation and amortization costs were $23.7 million for the nine
months ended September 30, 1999, compared to $12.6 million for the nine months
ended September 30, 1998. The depreciation and amortization increase was due
primarily to the acquisition of new projects, including the Somerset, Dunkirk,
Huntley, Astoria and Arthur Kill facilities and depreciation from the Pittsburgh
and San Francisco thermal facilities that were previously recorded on the equity
method of accounting.
General, administrative and development costs were $52.9 million for
the nine months ended September 30, 1999, compared to $39.6 million for the nine
months ended September 30, 1998. The $13.3 million increase was due primarily to
increased business development activities, associated legal, technical, and
accounting expenses, labor and other costs resulting from expanded operations
and pending acquisitions. The Company's total assets increased from
approximately $1.3 billion to approximately $2.5 billion during the first nine
months of 1999.
OTHER INCOME (EXPENSE)
Other expense for the nine months ended September 30, 1999, was $53.6
million, a decrease of $6.2 million from $59.8 million for the same period in
1998. The decrease was due to a $23.4 million write-down that was recorded in
the third quarter of 1998 related to the West Java project in Indonesia and
other projects. This amount was partially offset by $19.8 million of additional
interest costs in 1999 related to the issuance of $300 million of 7.5% senior
notes in May 1999 and approximately $540 million of additional short-term debt.
INCOME TAX
The Company recognized an income tax benefit due to a pre-tax loss from
domestic operations and due to the recognition of certain tax credits. The net
income tax benefit for the nine months ended September 30, 1999, decreased by
$2.5 million to $23.9 million as compared to $26.4 million for the same period
during 1998. The decrease in tax benefits for the nine month period was due
primarily to increased earnings from domestic operations.
YEAR 2000 (Y2K) READINESS
To the extent allowed, the information in the following section is
designated as a "Year 2000 Readiness Disclosure." The Company continues to incur
costs to modify or replace existing technology, including computer software, for
uninterrupted operation in the year 2000 and beyond. A committee made up of
senior management is leading the Company's initiatives to identify Y2K related
issues and remediate business processes as necessary. The Company is also
partnering with its parent, Northern States Power Company, to ensure a
consistent overall company process in addressing the Y2K issue, as discussed in
the Company's 1998 Form 10-K.
The Company is on schedule for completion of its Y2K project based on the
following revised timetable.
- - Assessment/discovery/analysis - Completed
- - Final testing - Completed
- - Y2K Ready - November 15, 1999
The Company is currently updating contingency plans for all material
Y2K risks and is on track to meet the contingency planning schedule that has
been established. In addition to Y2K readiness, the Company's contingency
planning addresses the failure of key third party contracts to be Y2K compliant.
A Y2K readiness plan is obtained as part of all new acquisitions.
FORWARD-LOOKING STATEMENTS
This quarterly report on Form 10-Q includes forward-looking statements that
are subject to certain risks, uncertainties and assumptions. Such
forward-looking statements are intended to be identified in this document by the
words "anticipate," "estimate," "expect," "objective," "possible," "potential"
and similar expressions. Without limitation, forward-looking statements are
contained under the heading "business developments". In addition to any
assumptions and other factors referred to specifically in connection with such
forward looking statements, factors that could cause the actual results to
differ materially from those contemplated in any forward-looking statements
include among others the following: the failure to timely satisfy the closing
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conditions contained in definitive agreements for transactions not yet closed,
including obtaining all necessary regulatory approvals, many of which are beyond
the Company's control; limitations on the Company's ability to control projects
or transactions in which the Company has less than 100% interest; and other
business or investment considerations that may be disclosed from time to time in
the Company's Securities and Exchange Commission filings and in other publicly
disseminated written documents, including the Company's registration statement
number 333-74519, as amended, and all supplements thereto.
The Company undertakes no obligation to publicly update or revise any
forward-looking statements, whether as a result of new information, future
events or otherwise. The foregoing review of factors should not be construed as
exhaustive.
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PART II
ITEM 1. LEGAL PROCEEDINGS
On or about July 12, 1999, Fortistar Capital, Inc. ("Fortistar") commenced
an action against the Company in Hennepin County (Minnesota) District
Court, seeking damages in excess of $100 million and an order restraining
the Company from consummating the acquisition of NIMO's Oswego generating
station. Fortistar's motion for a temporary restraining order was denied
and a temporary injunction hearing was held on September 27, 1999. The
acquisition of the Oswego generating station was closed on October 22, 1999
following notification to the Court of the closing date. The Company
intends to continue to vigorously defend the suit and believes Fortistar's
claims to be without merit. The Company has asserted numerous counterclaims
against Fortistar.
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PART II
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(A) EXHIBITS
10.31 First Amendment to the Employment Agreement of David H.
Peterson, dated June 27, 1999.
10.32 Second Amendment to the Employment Agreement of David H.
Peterson, dated August 26, 1999.
10.33 Third Amendment to the Employment Agreement of David H.
Peterson, dated October 20, 1999.
10.34 [Swap] Master Agreement between Niagara Mohawk Power
Corporation and NRG Power Marketing, Inc., dated
June 11, 1999.
10.35 Standard Offer Service Wholesale Sales Agreement between
the Connecticut Light And Power Company and NRG Power
Marketing, Inc., dated October 29, 1999.
27 Financial data schedule for the period ended September 30,
1999.
(B) REPORTS ON FORM 8-K:
On July 8, 1999, NRG filed a Form 8-K reporting under Item 5 - Other
Events. NRG announced its acquisition of the Arthur Kill and Astoria
generating assets from the Consolidated Edison Company of New York,
Inc.
On July 16, 1999, NRG filed a Form 8-K reporting under Item 5 - Other
Events. NRG announced that earnings for the six months ended June 30,
1999 would be below expectations.
On September 14, 1999 NRG filed a Form 8-K reporting under Item 5 -
Other Events. NRG announced forecasted earnings for the twelve months
ending December 31, 1999 and 2000.
On October 14, 1999, NRG filed a Form 8-K reporting under Item 5 -
Other Events. NRG announced earnings for the nine months ended
September 30, 1999 and reduced its forecast for the twelve months
ending December 31, 1999.
On November 3, 1999 NRG filed a Form 8-K reporting under Item 5 - Other
Events. NRG filed certain exhibits relating to the offering of $240
million principal amount of the Company's 8.0% Remarketable or
Redeemable Securities (ROARS) due November 1, 2013 (Remarketing date
November 1, 2003).
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SIGNATURES
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 thereunto duly authorized.
NRG ENERGY, INC.
(Registrant)
/s/ Leonard A. Bluhm
----------------------------------
Leonard A. Bluhm
Executive Vice President and
Chief Financial Officer
(Principal Financial Officer)
/s/ David E. Ripka
----------------------------------
David E. Ripka
Vice President and Controller
(Principal Accounting Officer)
Date: November 12, 1999
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