UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
FORM 10-Q
þ
|
Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 | |
o
|
Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
For
the quarterly period ended: March 31, 2005
|
Commission File Number: 001-15891 |
NRG Energy, Inc.
| Delaware (State or other jurisdiction of incorporation or organization) |
41-1724239 (I.R.S. Employer Identification No.) |
| 211 Carnegie Center Princeton, New Jersey (Address of principal executive offices) |
08540 (Zip Code) |
(609) 524-4500
(Registrant’s telephone number, including area code)
(Former name, former address and former fiscal year, if changed since last report)
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 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 þ No o
Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12 b-2 of the Exchange Act).
Yes þ No o
Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Section 12, 13 or 15 (d) of the Securities and Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court.
Yes þ No o
As of May 3, 2005, there were 87,045,501 shares of common stock outstanding.
TABLE OF CONTENTS
Index
| Page No. | ||||||||
Part I — FINANCIAL INFORMATION |
||||||||
Item 1. Consolidated Financial Statements and Notes |
3 | |||||||
| 3 | ||||||||
| 4 | ||||||||
| 6 | ||||||||
| 7 | ||||||||
| 8 | ||||||||
| 31 | ||||||||
| 46 | ||||||||
| 48 | ||||||||
| 48 | ||||||||
| 48 | ||||||||
| 49 | ||||||||
| 49 | ||||||||
| 49 | ||||||||
| 49 | ||||||||
| 49 | ||||||||
| 51 | ||||||||
| 52 | ||||||||
| EX-31.1: CERTIFICATION | ||||||||
| EX-31.2: CERTIFICATION | ||||||||
| EX-31.3: CERTIFICATION | ||||||||
| EX-32: CERTIFICATION | ||||||||
2
NRG ENERGY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
| Three Months Ended | ||||||||
| March 31, | March 31, | |||||||
| 2005 | 2004 | |||||||
| (In thousands, except per share amounts) | ||||||||
Operating Revenues |
||||||||
Revenues from majority-owned operations |
$ | 601,142 | $ | 600,265 | ||||
Operating Costs and Expenses |
||||||||
Cost of majority-owned operations |
452,922 | 381,753 | ||||||
Depreciation and amortization |
48,424 | 55,006 | ||||||
General, administrative and development |
49,894 | 36,392 | ||||||
Other charges
|
||||||||
Corporate relocation charges |
3,455 | 1,116 | ||||||
Reorganization items |
— | 6,250 | ||||||
Total operating costs and expenses |
554,695 | 480,517 | ||||||
Operating Income |
46,447 | 119,748 | ||||||
Other Income/(Expense) |
||||||||
Minority interest in earnings of consolidated subsidiaries |
(474 | ) | (508 | ) | ||||
Equity in earnings of unconsolidated affiliates |
36,964 | 17,713 | ||||||
Write downs and losses on sales of equity method investments |
— | (1,738 | ) | |||||
Other income, net |
25,502 | 3,657 | ||||||
Refinancing expenses |
(25,024 | ) | (30,417 | ) | ||||
Interest expense |
(55,991 | ) | (62,729 | ) | ||||
Total other expense |
(19,023 | ) | (74,022 | ) | ||||
Income From Continuing Operations Before Income Taxes |
27,424 | 45,726 | ||||||
Income Tax Expense |
4,802 | 14,280 | ||||||
Income From Continuing Operations |
22,622 | 31,446 | ||||||
Loss From Discontinued Operations, net of Income Taxes |
(4 | ) | (1,211 | ) | ||||
Net Income |
22,618 | 30,235 | ||||||
Dividends for Preferred Shares |
3,872 | — | ||||||
Income Available for Common Stockholders |
$ | 18,746 | $ | 30,235 | ||||
Weighted Average Number of Common Shares
Outstanding — Basic |
87,043 | 100,018 | ||||||
Income From Continuing Operations per Weighted
Average Common Share — Basic |
$ | 0.21 | $ | 0.31 | ||||
Loss From Discontinued Operations per Weighted
Average Common Share — Basic |
— | (0.01 | ) | |||||
Net
Income per Weighted Average Common Share — Basic |
$ | 0.21 | $ | 0.30 | ||||
Weighted Average Number of Common Shares
Outstanding — Diluted |
87,722 | 100,018 | ||||||
Income From Continuing Operations per Weighted
Average Common Share — Diluted |
$ | 0.21 | $ | 0.31 | ||||
Loss From Discontinued Operations per Weighted
Average Common Share — Diluted |
— | (0.01 | ) | |||||
Net
Income per Weighted Average Common Share — Diluted |
$ | 0.21 | $ | 0.30 | ||||
See notes to consolidated financial statements.
3
NRG ENERGY, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
| March 31, | December 31, | |||||||
| 2005 | 2004 | |||||||
| (In thousands) | ||||||||
ASSETS |
||||||||
Current Assets |
||||||||
Cash and cash equivalents |
$ | 763,025 | $ | 1,110,045 | ||||
Restricted cash |
78,259 | 112,824 | ||||||
Accounts receivable — trade, less allowance for doubtful
accounts of $1,011 and $1,011 |
229,392 | 272,101 | ||||||
Accounts
receivable - affiliates |
503 | — | ||||||
Current portion of notes receivable and other investments |
26,860 | 85,447 | ||||||
Income taxes receivable |
36,650 | 37,484 | ||||||
Inventory |
208,757 | 248,010 | ||||||
Derivative instruments valuation |
35,196 | 79,759 | ||||||
Prepayments and other current assets |
294,149 | 169,608 | ||||||
Deferred income taxes |
1,023 | — | ||||||
Current assets — discontinued operations |
3,019 | 3,010 | ||||||
Total current assets |
1,676,833 | 2,118,288 | ||||||
Property, Plant and Equipment |
||||||||
In service |
3,562,719 | 3,564,658 | ||||||
Under construction |
24,601 | 17,429 | ||||||
Total property, plant and equipment |
3,587,320 | 3,582,087 | ||||||
Less accumulated depreciation |
(254,886 | ) | (207,536 | ) | ||||
Net property, plant and equipment |
3,332,434 | 3,374,551 | ||||||
Other Assets |
||||||||
Equity investments in affiliates |
754,240 | 734,950 | ||||||
Notes
receivable and other investments, less current portion —
affiliates, less reserve for uncollectible notes receivable of
$14,304
and $4,402 |
118,281 | 128,046 | ||||||
Notes receivable and other investments, less current portion,
less reserve for uncollectible notes receivable of $3,794
and $3,794 |
650,837 | 676,476 | ||||||
Intangible assets, net of accumulated amortization of $59,823 and
$55,010 |
284,909 | 294,350 | ||||||
Debt issuance costs, net of accumulated amortization of $4,120 and
$3,635 |
40,807 | 48,485 | ||||||
Derivative instruments valuation |
24,464 | 41,787 | ||||||
Funded letter of credit |
350,000 | 350,000 | ||||||
Other assets |
60,493 | 63,095 | ||||||
Total other assets |
2,284,031 | 2,337,189 | ||||||
Total Assets |
$ | 7,293,298 | $ | 7,830,028 | ||||
See notes to consolidated financial statements.
4
NRG ENERGY, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
| March 31, | December 31, | |||||||
| 2005 | 2004 | |||||||
| (In thousands, except for share data) | ||||||||
LIABILITIES AND STOCKHOLDERS’ EQUITY |
||||||||
Current Liabilities |
||||||||
Current portion of long-term debt and capital leases |
$ | 85,092 | $ | 512,252 | ||||
Accounts payable — trade |
129,741 | 166,131 | ||||||
Accounts payable — affiliates |
— | 5,591 | ||||||
Accrued property, sales and other taxes |
13,608 | 11,134 | ||||||
Accrued salaries, benefits and related costs |
23,781 | 35,206 | ||||||
Accrued interest |
44,575 | 11,057 | ||||||
Derivative instruments valuation |
123,742 | 16,772 | ||||||
Deferred income taxes |
— | 334 | ||||||
Other bankruptcy settlement |
177,425 | 175,576 | ||||||
Other current liabilities |
147,721 | 152,526 | ||||||
Current liabilities — discontinued operations |
1,374 | 1,362 | ||||||
Total current liabilities |
747,059 | 1,087,941 | ||||||
Other Liabilities |
||||||||
Long-term debt and capital leases |
3,143,369 | 3,253,866 | ||||||
Deferred income taxes |
123,055 | 134,325 | ||||||
Postretirement and other benefit obligations |
109,754 | 116,383 | ||||||
Derivative instruments valuation |
158,458 | 148,445 | ||||||
Non-current out-of-market contracts |
314,021 | 318,664 | ||||||
Other long-term obligations |
79,835 | 71,055 | ||||||
Non-current liabilities — discontinued operations |
1,081 | 1,081 | ||||||
Total non-current liabilities |
3,929,573 | 4,043,819 | ||||||
Total Liabilities |
4,676,632 | 5,131,760 | ||||||
Minority Interest |
6,576 | 6,104 | ||||||
Commitments and Contingencies |
||||||||
Stockholders’ Equity |
||||||||
4% Convertible perpetual preferred stock; $.01 par value;
10,000,000
shares authorized, 420,000 issued and outstanding at March 31,
2005 and December 31, 2004 (shown at liquidation value, net of
issuance costs) |
406,306 | 406,359 | ||||||
Common stock; $.01 par value; 500,000,000 shares authorized;
100,045,104 and 100,041,935 shares issued at March 31, 2005
and December 31, 2004; 87,045,104 and 87,041,935
outstanding at March 31, 2005 and December 31, 2004 |
1,000 | 1,000 | ||||||
Additional paid-in capital |
2,420,982 | 2,417,021 | ||||||
Retained earnings |
215,388 | 196,642 | ||||||
Less
treasury stock, at cost — 13,000,000 shares |
(405,312 | ) | (405,312 | ) | ||||
Accumulated other comprehensive income/(loss) |
(28,274 | ) | 76,454 | |||||
Total stockholders’ equity |
2,610,090 | 2,692,164 | ||||||
Total Liabilities and Stockholders’ Equity |
$ | 7,293,298 | $ | 7,830,028 | ||||
See notes to consolidated financial statements.
5
NRG ENERGY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
| Three Months Ended | ||||||||
| March 31, | March 31, | |||||||
| 2005 | 2004 | |||||||
| (In thousands) | ||||||||
Cash Flows from Operating Activities |
||||||||
Net income |
$ | 22,618 | $ | 30,235 | ||||
Adjustments to reconcile net income to net cash provided
by operating activities |
||||||||
Distributions less/(more) than equity earnings of unconsolidated
affiliates |
(31,996 | ) | 19,709 | |||||
Depreciation and amortization |
48,423 | 59,114 | ||||||
Reserve for note and interest receivable |
(98 | ) | — | |||||
Amortization of financing costs and debt discount |
2,344 | 9,243 | ||||||
Write-off of deferred financing costs and debt premium |
(8,413 | ) | 15,312 | |||||
Write down and loss on sale of equity method investments |
— | 1,738 | ||||||
Deferred income taxes and investment tax credits |
(5,548 | ) | 11,948 | |||||
Unrealized (gains)/losses on derivatives |
85,082 | (5,393 | ) | |||||
Minority interest |
474 | 1,428 | ||||||
Amortization of power contracts and emission credits |
11,153 | 22,747 | ||||||
Amortization of unearned equity compensation |
2,064 | — | ||||||
Cash provided by (used in) changes in certain working capital
items, net of effects from acquisitions and dispositions |
||||||||
Accounts receivable, net |
41,506 | (29,674 | ) | |||||
Xcel Energy settlement receivable |
— | 288,000 | ||||||
Inventory |
39,700 | 21,035 | ||||||
Prepayments and other current assets |
(124,549 | ) | 29,793 | |||||
Accounts payable |
(35,701 | ) | (1,978 | ) | ||||
Accounts payable – affiliates, net |
(9,030 | ) | — | |||||
Accrued expenses |
18,683 | 40,529 | ||||||
Other current liabilities |
(2,482 | ) | (6,410 | ) | ||||
Creditor pool obligation payments |
— | (163,000 | ) | |||||
Other assets and liabilities |
9,611 | 5,779 | ||||||
Net Cash Provided by Operating Activities |
63,841 | 350,155 | ||||||
Cash Flows from Investing Activities |
||||||||
Proceeds from sale of investments |
— | 2,500 | ||||||
Decrease (Increase) in restricted cash and trust funds |
34,325 | (17,714 | ) | |||||
Decrease in notes receivable |
68,202 | 15,940 | ||||||
Capital expenditures |
(11,782 | ) | (34,728 | ) | ||||
Return of capital from projects |
1,095 | — | ||||||
Investments in projects |
— | (476 | ) | |||||
Net Cash Provided by (Used in) Investing Activities |
91,840 | (34,478 | ) | |||||
Cash Flows from Financing Activities |
||||||||
Proceeds from issuance of long-term debt |
203,545 | 486,028 | ||||||
Payment of dividends to preferred stockholders |
(3,872 | ) | — | |||||
Deferred debt issuance costs |
(1,293 | ) | (7,233 | ) | ||||
Issuance expense of preferred shares |
(53 | ) | — | |||||
Principal payments on short and long-term debt |
(698,943 | ) | (516,912 | ) | ||||
Net Cash Used in Financing Activities |
(500,616 | ) | (38,117 | ) | ||||
Effect of Exchange Rate Changes on Cash and Cash Equivalents |
(2,033 | ) | (401 | ) | ||||
Change in Cash from Discontinued Operations |
(52 | ) | 3,098 | |||||
Net Increase/(Decrease) in Cash and Cash Equivalents |
(347,020 | ) | 280,257 | |||||
Cash and Cash Equivalents at Beginning of Period |
1,110,045 | 551,223 | ||||||
Cash and Cash Equivalents at End of Period |
$ | 763,025 | $ | 831,480 | ||||
See notes to consolidated financial statements.
6
NRG ENERGY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
AND COMPREHENSIVE INCOME/(LOSS)
Three Months Ended March 31, 2005 and 2004
(Unaudited)
| Accumulated | Total | |||||||||||||||||||||||||||||||||||
| Additional | Other | Stock- | ||||||||||||||||||||||||||||||||||
| Serial Preferred | Common | Paid-in | Retained | Treasury | Comprehensive | holders’ | ||||||||||||||||||||||||||||||
| Stock | Shares | Stock | Shares | Capital | Earnings | Stock | Income/(Loss) | Equity | ||||||||||||||||||||||||||||
| (in thousands) | ||||||||||||||||||||||||||||||||||||
Balances at December 31, 2003 |
$ | — | — | $ | 1,000 | 100,000 | $ | 2,403,429 | $ | 11,025 | $ | — | $ | 21,802 | $ | 2,437,256 | ||||||||||||||||||||
Net income |
30,235 | 30,235 | ||||||||||||||||||||||||||||||||||
Foreign currency translation
adjustments and other |
(2,413 | ) | (2,413 | ) | ||||||||||||||||||||||||||||||||
Deferred unrealized loss on
derivatives, net |
(22,565 | ) | (22,565 | ) | ||||||||||||||||||||||||||||||||
Comprehensive income for the
three months ended March 31, 2004 |
5,257 | |||||||||||||||||||||||||||||||||||
Equity based compensation |
3,342 | 3,342 | ||||||||||||||||||||||||||||||||||
Balances at March 31, 2004 |
$ | — | — | $ | 1,000 | 100,000 | $ | 2,406,771 | $ | 41,260 | $ | — | $ | (3,176 | ) | $ | 2,445,855 | |||||||||||||||||||
Balances at December 31, 2004 |
$ | 406,359 | 420 | $ | 1,000 | 87,042 | $ | 2,417,021 | $ | 196,642 | $ | (405,312 | ) | $ | 76,454 | $ | 2,692,164 | |||||||||||||||||||
Net income |
22,618 | 22,618 | ||||||||||||||||||||||||||||||||||
Foreign currency translation
adjustments and other |
(22,841 | ) | (22,841 | ) | ||||||||||||||||||||||||||||||||
Deferred unrealized loss on
derivatives, net |
(81,887 | ) | (81,887 | ) | ||||||||||||||||||||||||||||||||
Comprehensive loss for the three
months ended March 31, 2005 |
(82,110 | ) | ||||||||||||||||||||||||||||||||||
Preferred stock issue costs |
(53 | ) | (53 | ) | ||||||||||||||||||||||||||||||||
4% preferred stock dividend |
(3,872 | ) | (3,872 | ) | ||||||||||||||||||||||||||||||||
Equity based compensation |
3 | 3,961 | 3,961 | |||||||||||||||||||||||||||||||||
Balances at March 31, 2005 |
$ | 406,306 | 420 | $ | 1,000 | 87,045 | $ | 2,420,982 | $ | 215,388 | $ | (405,312 | ) | $ | (28,274 | ) | $ | 2,610,090 | ||||||||||||||||||
See notes to consolidated financial statements.
7
NRG ENERGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 1 — General
NRG Energy, Inc., or “NRG Energy”, the “Company”, “we”, “our”, or “us”, is a wholesale power generation company, primarily engaged in the ownership and operation of power generation facilities, the transacting in and trading of fuel and transportation services and the marketing and trading of energy, capacity and related products in the United States and internationally.
Note 2 — Summary of Significant Accounting Policies
Basis of Presentation
The accompanying unaudited interim consolidated financial statements have been prepared in accordance with the Securities and Exchange Commission’s regulations for interim financial information and with the instructions to Form 10-Q. Accordingly, they do not include all of the information and notes required by generally accepted accounting principles for complete financial statements. The accounting policies we follow are set forth in Note 2 to the Company’s financial statements in our Annual Report on Form 10-K for the year ended December 31, 2004. 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 consolidated financial statements contain all material adjustments (consisting of normal, recurring accruals) necessary to present fairly our consolidated financial position as of March 31, 2005, the results of our operations and stockholders’ equity for the three months ended March 31, 2005 and 2004, and our cash flows for the three months ended March 31, 2005 and 2004. Certain prior-year amounts have been reclassified for comparative purposes.
Restricted Cash
Restricted cash consists primarily of funds held to satisfy the requirements of certain debt agreements and funds held within our projects that are restricted in their use. These funds are used to pay for current operating expenses and current debt service payments, per the restrictions of the debt agreements.
Accounting Estimates
Management of the Company is required to make certain estimates and assumptions during the preparation of the consolidated financial statements in accordance with generally accepted accounting principles. These estimates and assumptions impact the reported amount of assets and liabilities and disclosures of contingent assets and liabilities as of the date of the consolidated financial statements. They also impact the reported amount of net earnings during any period. Actual results could differ from those estimates.
Note 3 — Discontinued Operations
We have classified certain business operations, and gains/(losses) recognized on sale, as discontinued operations for projects that were sold or have met the required criteria for such classification. The financial results for all of these businesses have been accounted for as discontinued operations. Accordingly, current period operating results and prior periods have been restated to report the operations as discontinued.
Statement of Financial Accounting Standards, or SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets” requires that discontinued operations be valued on an asset-by-asset basis at the lower of carrying amount or fair value less costs to sell. In applying those provisions, our management considered cash flow analyses and offers related to the assets and businesses. This amount is included in income/(loss) from discontinued operations, net of income taxes in the accompanying consolidated statements of operations. In accordance with SFAS No. 144, assets held for sale will not be depreciated commencing with their classification as such.
The assets and liabilities reported in the balance sheets as of March 31, 2005 and December 31, 2004 as discontinued operations
8
represent those of NRG McClain. The assets of NRG McClain were sold in July 2004 however certain assets and liabilities remained to effect its liquidation and on April 29, 2005, we settled all outstanding obligations of NRG McClain. All other projects were sold as of December 31, 2004.
For the three months ended March 31, 2005, discontinued operations consisted of various expenses related to NRG McClain as noted above. For the three months ended March 31, 2004, discontinued operations included our NRG McClain LLC; Penobscot Energy Recovery Company, or PERC; Compania Boliviana De Energia Electrica S.A. Bolivian Power Company Limited, or Cobee; Hsin Yu, LSP Energy (Batesville) and four NEO Corporation projects (NEO Nashville LLC, NEO Hackensack LLC, NEO Prima Deshecha and NEO Tajiguas LLC). McClain, PERC and LSP Energy (Batesville) are included in our Wholesale Power Generation — Other North America segment. Cobee and Hsin Yu are included in the All Other — Other International segment and the four NEO projects are included in the All Other - Alternative Energy segment.
Summarized results of operations of discontinued operations were as follows:
| Three Months Ended | ||||||||
| March 31, | March 31, | |||||||
| 2005 | 2004 | |||||||
| (In thousands) | ||||||||
Operating revenues |
$ | — | $ | 58,876 | ||||
Pretax loss from operations of discontinued components |
(4 | ) | (230 | ) | ||||
Loss from operations of discontinued operations, net
of income taxes |
(4 | ) | (1,211 | ) | ||||
Note 4 —Corporate Relocation Charges
On March 16, 2004, we announced plans to implement a new regional business strategy and structure. The new plan called for a reorganized management structure and corporate headquarters relocation to Princeton, New Jersey. The transition of our corporate headquarters was completed in December 2004.
For the three months ended March 31, 2005 and 2004, we recorded $3.5 million and $1.1 million, respectively, for charges related to our corporate relocation activities, primarily for employee severance and termination benefits, employee related transition costs and lease termination costs. These charges are classified separately in our statement of operations, in accordance with SFAS No. 146, “Accounting for Costs Associated with Exit or Disposal Activities”. Relocation charges for the year ended December 31, 2004 were $16.2 million. We expect to incur an additional $1.8 million in the second and third quarters of 2005 of SFAS No. 146-classified expenses in connection with corporate relocation charges for a total of $21.4 million.
A summary of the SFAS No. 146-classified expenses is as follows:
| Three Months | ||||||||||||||||