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NRG Reports Continued Strong Cash Flow Generation through Third Quarter; Raises Full-Year Outlook
PRINCETON, N.J.--(BUSINESS WIRE)--Nov. 9, 2004--NRG Energy, Inc. (NYSE:NRG) today reported earnings of $54 million, or $0.54 per diluted share, for the third quarter ended September 30, 2004. This included $11 million or $0.11 per diluted share related to discontinued operations. Earnings from ongoing operations were $43 million, or $0.43 per diluted share. Net earnings for the nine months ended September 30, 2004 were $167 million or $1.67 per diluted share. Year-to-date net earnings included $23 million from discontinued operations or $0.23 per diluted share. The Company's net earnings have contributed to net cash flow generation of $554 million year-to-date.
Adjusted net income, excluding discontinued operations and other nonrecurring items, was $88 million or $0.87 per diluted share for three months ended September 30, 2004 and $171 million or $1.71 per diluted shares for nine months ended September 30, 2004. Adjustments were primarily associated with asset impairments, restructuring and relocation charges and litigation settlements.
"The fact that we could achieve such a healthy result and strong cash generation, notwithstanding the mild summer weather, provides further validation for our multifuel, multiregional business model," said David Crane, President and Chief Executive Officer. "It is a testament to our people that we are positioned to raise our full-year adjusted EBITDA target in a year when we have re-established the Company and are building the platform for future growth."
Third Quarter Highlights:
- $1.6 billion of liquidity, an increase of $260 million since
6/30/2004;
- $284 million of net cash flow for the quarter; and
- $272 million of adjusted EBITDA(1).
Business Summary
Adjusted EBITDA by region for the third quarter 2004 was as follows:
Northeast Region $110 South Central Region $30 Western Region $47 Australia $9 Other International $34 Other North America(2) $38 Alternative Energy $6 Nongeneration (Thermal) $12 Corporate - Unallocated $(14) ---------------------------------------------------------------------- Total $272
Northeast: Mild weather limited production from our intermediate and peaking plants in the third quarter. As a result, energy revenues were less than expected for the quarter from our western NY and PJM assets.
The Northeast represented approximately 44% of total capacity revenues for the third quarter, largely driven by our New York City and Connecticut assets. The third quarter included three out of the six months of the summer capability period during which capacity prices in New York City were at their highest level.
Several of our Connecticut facilities (Middletown, Montville, and Devon 11-14) continued to receive cost based reliability-must-run (RMR) payments, which were effective as of January 17, 2004. On November 2, 2004, NRG together with the Connecticut Department of Utility Control, the Connecticut Office of Consumer Council, ISO-New England and other parties, filed an uncontested settlement of all outstanding RMR matters for approval by the Federal Energy Regulatory Commission (FERC). We expect this development to provide NRG with certainty regarding our RMR units' revenues through 2005.
South Central: Our long-term contracts generally provided for capacity and energy payments while strong generation performance, particularly out of Big Cajun 2, provided for increased merchant energy sales, resulting in higher revenues.
Our South Central assets contributed 27% of our capacity revenues this quarter. These capacity payments are typically steady quarter to quarter, and are relatively unaffected by seasonal shifts.
West Coast: Equity earnings from West Coast Power, our 50% joint venture with Dynegy Inc., were higher than expected due to favorable market conditions. NRG and its partner Dynegy Inc., continue to work with the CAISO and incumbent load serving utilities in an effort to secure a replacement contract for the California Department of Water Resources contract that expires at year-end 2004. The Cabrillo I and II RMR (net 575MW) contracts have been extended through 2005.
International: Our Australian results, consisting of 100% owned Flinders and 37.5% interest in Gladstone, benefited from strong pool prices driven primarily by a significant number of plants being out of service. This drove up the prices across the National Electricity Market, including South Australia. Equity earnings from our investment located in the United Kingdom benefited from a $13 million mark-to-market gas contract adjustment. As the German assets (MIBRAG and Schkopau) are fully contracted, sales and profit are not sensitive to spikes in weather or commodity prices.
Coal Sourcing: We continue to work diligently on the implementation of our long-term coal strategy. This strategy is based on an integrated approach to multisource procurement of private railcar capacity, rail transportation services and the commodity itself. The Company, during the third quarter, implemented a critical component of this strategy by ordering 1,540 new bulk coal railcars from Johnstown America Corporation. NRG expects to begin taking delivery of this railcar fleet in the first quarter 2005.
Liquidity and Cash Flow
Liquidity as of September 30, 2004, increased to $1.6 billion as set forth below:
Table 1: Corporate Liquidity (in millions) June 30, September 30, 2004 2004 Unrestricted Cash: Domestic 676 936 International 145 169 Restricted Cash: Domestic 97 94 International 55 55 ---------------------------------------------------------------------- Total Cash 973 1,254 Letter of Credit Availability 118 97 Revolver Availability 250 250 ---------------------------------------------------------------------- Total Current Liquidity $1,341 1,601
During the third quarter, NRG completed sales of noncore assets (Batesville and McClain), resulting in $27 million in cash proceeds and $449 million debt reduction. Additionally, NRG executed a purchase and sale agreement for its Kendall facility, which is expected to reduce consolidated debt further by nearly $450 million. Excluding Kendall, our net debt to total capital, excluding operating cash, stood at 50% at the end of the third quarter. We anticipate the Kendall sale to close by year-end.
"As a necessary first step in our capital allocation plan, we are working to refinance our senior bank facility," said Robert Flexon, Chief Financial Officer. "Our goal for refinancing is to reduce our interest costs and to improve the allocation of capital for the benefit of our shareholders."
Outlook
The Company's updated outlook for 2004 is as follows:
Table 2: 2004 EBITDA Outlook(3) ($millions) Prior Updated Reported Cash from Operations $513 $555 Reported EBITDA(4) $837 $873 Adjusted Cash from Operations $441 $480 Adjusted EBITDA $850 $875
Through the remainder of the year, the Company's gross margin is substantially hedged. With respect to 2005, fuel supply interruptions related to Hurricane Ivan and more general market concerns about the adequacy of winter gas supplies have recently resulted in a significant increase in forward gas prices. Although we believe long term natural gas prices remain well supported we expect prices to be highly volatile and extremely sensitive to weather, in the short term. As a result, while we continue to manage our generation portfolio actively, the recent run up in forward prices has provided an opportunity to increase our hedging of coal margins for 2005.
S-4 Filing
On November 3, 2004, the Company filed a Registration Statement on Form S-4 with the Securities and Exchange Commission. This is the first step in the registration of the $1.75 billion of our 8% second priority senior secured notes due 2013 that were issued in December 2003 and January 2004.
Earnings Conference Call
On November 9, NRG will host a conference call at 9 a.m. EST to discuss these results. To access the live webcast and accompanying slide presentation, log on to NRG's website at http://www.nrgenergy.com and click on "Investors." To participate in the call, dial 877.407.8035. International callers should dial 201.689.8035. Participants should dial in or log on approximately five minutes prior to the scheduled start time.
The call will be available for replay shortly after completion of the live event on the "Investors" section of the NRG website.
About NRG
NRG Energy, Inc. owns and operates a diverse portfolio of power-generating facilities, primarily in the Northeast, South Central and West Coast regions of the United States. Its operations include baseload, intermediate, peaking, and cogeneration facilities, thermal energy production and energy resource recovery facilities. NRG also has ownership interests in international generating facilities in Australia, Germany and the United Kingdom.
Safe Harbor Disclosure
This news release contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Such forward-looking statements are subject to certain risks, uncertainties and assumptions and include, but are not limited to, expected earnings, future growth and financial performance, and typically can be identified by the use of words such as "expect," "estimate," "anticipate," "forecast," "plan," "believe" and similar terms. Although NRG believes that its expectations are reasonable, it can give no assurance that these expectations will prove to have been correct, and actual results may vary materially. Factors that could cause actual results to differ materially from those contemplated above include, among others, general economic conditions, hazards customary in the power industry, weather conditions, foreign exchange rates, competition in wholesale power markets, the volatility of energy and fuel prices, failure of customers to perform under contracts, changes in the wholesale power markets and related government regulation, the condition of capital markets generally, our ability to access capital markets, unanticipated outages at our generation facilities, our ability to convert facilities to burn western coal, our substantial indebtedness and the possibility that we may incur additional indebtedness, adverse results in current and future litigation, the willingness of counterparties to negotiate new contracts in California, and the amount of proceeds from asset sales.
NRG undertakes no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. The adjusted EBITDA guidance is an estimate as of today's date, November 9, 2004 and is based on assumptions believed to be reasonable as of this date. NRG expressly disclaims any current intention to update such guidance. The foregoing review of factors that could cause NRG's actual results to differ materially from those contemplated in the forward-looking statements included in this news release should be considered in connection with information regarding risks and uncertainties that may affect NRG's future results included in NRG's filings with the Securities and Exchange Commission at www.sec.gov.
More information on NRG is available at www.nrgenergy.com
(1) The Company reported $230 million of EBITDA for the three months ended September 30, 2004. Adjusted EBITDA excludes certain unusual or nonrecurring items that are listed in the attached EBITDA reconciliation tables.
(2) Includes Kendall EBITDA of $14 million for the quarter
(3) Includes Kendall EBITDA of $42 million. This outlook assumes normalized weather conditions for the remainder of the year, the existing portfolio of assets and no additional unusual or unforeseen events or significant changes in foreign exchange rates and/or changes in power prices and fuel costs which may cause significant changes in counterparty collateral calls as well as other factors listed under the caption "Safe Harbor" below. This outlook does not include any costs associated with a potential refinancing.
(4) Includes the net impact of discontinued operations.
NRG ENERGY, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) Reorganized Predecessor Reorganized Predecessor NRG Company NRG Company ----------- ----------- ----------- ----------- Three Months Nine Months Ended Ended ----------------------- ----------------------- September September September September 30, 30, 30, 30, 2004 2003 2004 2003 ----------- ----------- ----------- ----------- (In thousands, except for per share amounts) Operating Revenues Revenues from majority-owned operations $606,663 $570,701 $1,780,551 $1,507,186 ----------- ----------- ----------- ----------- Operating Costs and Expenses Cost of majority- owned operations 381,010 384,386 1,116,021 1,142,976 Depreciation and amortization 51,373 56,510 159,547 179,225 General, administrative and development 54,307 34,420 136,445 122,052 Other charges Legal settlement -- 396,000 -- 396,000 Corporate relocation charges 5,713 -- 12,474 -- Reorganization items (5,245) 20,698 (1,656) 27,032 Restructuring and impairment charges 40,507 6,252 42,183 298,019 ----------- ----------- ----------- ----------- Total operating costs and expenses 527,665 898,266 1,465,014 2,165,304 ----------- ----------- ----------- ----------- Operating Income/(Loss) 78,998 (327,565) 315,537 (658,118) ----------- ----------- ----------- ----------- Other Income (Expense) Minority interest in (earnings) losses of consolidated subsidiaries 128 -- (581) -- Equity in earnings of unconsolidated affiliates 53,373 63,272 117,187 155,758 Write downs and gains/(losses) on sales of equity method investments (13,524) 12,310 (14,057) (136,717) Other income, net 5,502 7,300 17,210 10,118 Interest expense (66,883) (34,424) (226,254) (294,460) ----------- ----------- ----------- ----------- Total other income (expense) (21,404) 48,458 (106,495) (265,301) ----------- ----------- ----------- ----------- Income/(Loss) From Continuing Operations Before Income Taxes 57,594 (279,107) 209,042 (923,419) Income Tax Expense 14,264 5,437 64,866 42,779 ----------- ----------- ----------- ----------- Income/(Loss) From Continuing Operations 43,330 (284,544) 144,176 (966,198) Income/(Loss) From Discontinued Operations, net of Income Taxes 10,891 (250) 23,304 60,371 ----------- ----------- ----------- ----------- Net Income/(Loss) $54,221 $(284,794) $167,480 $(905,827) =========== =========== =========== =========== Weighted Average Number of Common Shares Outstanding -- Diluted 100,616 100,328 Income From Continuing Operations per Weighted Average Common Share -- Diluted $0.43 $1.44 Income From Discontinued Operations per Weighted Average Common Share -- Diluted 0.11 0.23 ----------- ----------- Net Income per Weighted Average Common Share -- Diluted $0.54 $1.67 =========== =========== NRG ENERGY, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (REORGANIZED COMPANY) (Unaudited) September 30, December 31, 2004 2003 ------------- ------------- (In thousands) ASSETS Current Assets Cash and cash equivalents $1,104,783 $551,223 Restricted cash 148,919 116,067 Accounts receivable -- trade, less allowance for doubtful accounts of $908 and $0 242,245 201,921 Xcel Energy settlement receivable -- 640,000 Current portion of notes receivable -- affiliates -- 200 Current portion of notes receivable 121,599 65,141 Taxes receivable 30,931 -- Inventory 214,980 194,926 Derivative instruments valuation 5,516 772 Prepayments and other current assets 196,078 222,138 Current deferred income taxes 989 1,850 Current assets -- held for sale 43,851 -- Current assets -- discontinued operations 3,042 119,601 ------------- ------------- Total current assets 2,112,933 2,113,839 ------------- ------------- Property, Plant and Equipment In service 3,439,499 3,885,465 Under construction 68,135 139,171 ------------- ------------- Total property, plant and equipment 3,507,634 4,024,636 Less accumulated depreciation (156,643) (11,800) ------------- ------------- Net property, plant and equipment 3,350,991 4,012,836 ------------- ------------- Other Assets Equity investments in affiliates 689,974 737,998 Notes receivable, less current portion -- affiliates 118,200 130,152 Notes receivable, less current portion 612,443 691,444 Intangible assets, net of accumulated amortization of $45,593 and $5,212 326,030 432,361 Debt issuance costs, net of accumulated amortization of $7,372 and $454 60,658 74,337 Derivative instruments valuation 48,928 59,907 Funded letter of credit 250,000 250,000 Other assets 95,441 118,940 Non-current assets -- held for sale 519,986 -- Non-current assets -- discontinued operations -- 623,173 ------------- ------------- Total other assets 2,721,660 3,118,312 ------------- ------------- Total Assets $8,185,584 $9,244,987 ============= ============= NRG ENERGY, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (REORGANIZED COMPANY) (Unaudited) September 30, December 31, 2004 2003 ------------- ------------- (In thousands, except for share data) LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities Current portion of long-term debt and capital leases $100,105 $801,229 Short-term debt -- 19,019 Accounts payable -- trade 115,270 158,646 Accounts payable -- affiliates 5,301 3,092 Accrued taxes -- 16,095 Accrued property, sales and other taxes 13,672 22,301 Accrued salaries, benefits and related costs 33,362 19,330 Accrued interest 65,011 8,982 Derivative instruments valuation 18,038 429 Creditor pool obligation 25,000 540,000 Other bankruptcy settlement 220,492 220,000 Other current liabilities 127,073 102,860 Current liabilities -- held for sale 6,855 -- Current liabilities -- discontinued operations 1,752 114,198 ------------- ------------- Total current liabilities 731,931 2,026,181 ------------- ------------- Other Liabilities Long-term debt and capital leases 3,511,231 3,327,782 Deferred income taxes 143,129 149,493 Postretirement and other benefit obligations 113,640 105,946 Derivative instruments valuation 140,787 153,503 Other long-term obligations 385,496 480,937 Non-current liabilities -- held for sale 555,546 -- Non-current liabilities -- discontinued operations 1,081 558,885 ------------- ------------- Total non-current liabilities 4,850,910 4,776,546 ------------- ------------- Total Liabilities 5,582,841 6,802,727 ------------- ------------- Minority Interest 5,592 5,004 Commitments and Contingencies Stockholders' Equity Serial Preferred Stock; 10,000,000 shares authorized, none issued and outstanding at September 30, 2004 and December 31, 2003 -- -- Common stock; $.01 par value; 500,000,000 shares authorized; 100,008,053 shares at September 30, 2004 and 100,000,000 shares at December 31, 2003 issued and outstanding 1,000 1,000 Additional paid-in capital 2,413,962 2,403,429 Retained earnings 178,505 11,025 Accumulated other comprehensive income 3,684 21,802 ------------- ------------- Total stockholders' equity 2,597,151 2,437,256 ------------- ------------- Total Liabilities and Stockholders' Equity $8,185,584 $9,244,987 ============= ============= NRG ENERGY, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) Reorganized Predecessor NRG Company ----------- ----------- Nine Months Ended September 30, ----------------------- 2004 2003 ----------- ----------- (In thousands) ----------------------- Cash Flows from Operating Activities Net income/(loss) $167,480 $(905,827) Adjustments to reconcile net income/(loss) to net cash provided by operating activities Distributions less than equity in earnings of unconsolidated affiliates (13,703) (47,500) Depreciation and amortization 164,872 211,201 Amortization of debt issuance costs 22,440 14,306 Amortization of debt discount 15,685 -- Deferred income taxes 67,655 18,502 Minority interest 1,961 2,010 Unrealized gains on derivatives (33,232) (12,500) Asset impairment 42,183 353,871 Write downs and losses on sales of equity method investments 14,057 136,531 Gain on sale of discontinued operations (29,924) (217,920) Amortization of power contracts and emission credits 42,822 -- Reserve for note and interest receivable 4,572 -- Cash provided by changes in certain working capital items 128,553 568,641 ----------- ----------- Net Cash Provided by Operating Activities 595,421 121,315 ----------- ----------- Net Cash Provided (Used) by Investing Activities 210,806 (160,124) ----------- ----------- Net Cash Used by Financing Activities (227,633) (24,119) ----------- ----------- Change in Cash from Discontinued Operations (22,527) 31,309 Effect of Exchange Rate Changes on Cash and Cash Equivalents (2,507) (52,537) ----------- ----------- Net Increase (Decrease) in Cash and Cash Equivalents 553,560 (84,156) Cash and Cash Equivalents at Beginning of Period 551,223 360,860 ----------- ----------- Cash and Cash Equivalents at End of Period $1,104,783 $276,704 =========== =========== NRG ENERGY, INC. AND SUBSIDIARIES Reconciliation of NonGAAP Financial Measures Adjusted Net Income Reconciliation The following table summarizes the calculation of adjusted net income and provides a reconciliation to GAAP net income/(loss), including per share amounts: Three Months Ended YTD Reorganized Predecessor September 30, 2004 NRG NRG (Dollars in September Diluted September Diluted thousands, except 30, EPS 30, EPS per share amounts) 2004 2003 Net Income (Loss) $54,221 $0.54 $(284,794) $167,480 $1.67 Plus: (Income) Loss from Discontinued Operations, net of tax (400) - (374) (915) (0.01) (Gain) Loss from Discontinued Operations (10,491) (0.10) 624 (22,389) (0.22) Corporate relocation charges, net of tax 4,296 0.04 - 8,607 0.08 Reorganization items, net of tax (3,944) (0.04) 20,305 (1,143) (0.01) Restructuring and impairment charges, net of tax 30,461 0.30 6,133 29,106 0.29 FERC-authorized settlement with Connecticut Light and Power, net of tax - - - (26,466) (0.26) Write down of Note Receivable, net of tax 3,438 0.03 - 3,155 0.03 Write downs and (gains)/losses on sales of equity method investments, net of tax 10,170 0.10 (12,064) 13,776 0.14 ----------- ------- ---------- --------- -------- Adjusted Net Income $87,751 $0.87 $(270,170) $171,211 $1.71 EBITDA Reconciliation The following table summarizes the calculation of EBITDA and provides a reconciliation to net income/(loss): Three Months Ended YTD Reorganized Predecessor NRG NRG ----------- ------------ September September September 30, 30, 30, 2004 2003 2004 (Dollars in thousands) Net Income / (Loss) $54,221 $(284,794) $167,480 Plus: Income Tax Expense 14,264 5,437 64,866 Interest expense, excluding amortization of debt issuance costs and debt discount/ (premium) 61,061 30,932 193,260 Depreciation and amortization 51,373 56,510 159,547 WCP CDWR contract amortization (included in equity in earnings of unconsolidated affiliates) 28,098 - 89,704 Amortization of power contracts 3,715 - 29,294 Amortization of emission credits 4,919 - 14,837 Amortization of debt issuance costs and debt discount/(premium) 5,822 3,492 32,994 ----------- ------------ --------- EBITDA $223,473 $(188,423) $751,982 Plus: (Income) Loss from Discontinued Operations, net of Income Taxes (400) (374) (915) (Gain) Loss from Discontinued Operations (10,491) 624 (22,389) Corporate relocation charges 5,713 - 12,474 Reorganization items (5,245) 20,698 (1,656) Restructuring and impairment charges 40,507 6,252 42,183 FERC-authorized settlement with Connecticut Light and Power - - (38,357) Write down of Note Receivable 4,572 - 4,572 Write downs and (gains)/losses on sales of equity method investments 13,524 (12,310) 14,057 ----------- ------------ --------- Adjusted EBITDA $271,653 $(173,533) $761,951 Forecasted Adjusted EBITDA Reconciliation The following table summarizes the calculation of adjusted EBITDA and provides a reconciliation to forecasted cash flow from operations: $ in millions Reported Adjustment Adjusted Outlook Outlook EBITDA 865 10 875 Interest Payments (278) 15 (263) Income Tax (32) -- (32) Other Cash Used by Operations (40) -- (40) Working Capital Changes (60) -- (60) Xcel Settlement, net 100 (100) -- -------- ---------- -------- Cash Flow from Operations 555 ( 75) 480
EBITDA, Adjusted EBITDA and adjusted net income are nonGAAP financial measures. These measurements are not recognized in accordance with GAAP and should not be viewed as an alternative to GAAP measures of performance. The presentation of Adjusted EBITDA and adjusted net income should not be construed as an inference that NRG's future results will be unaffected by unusual or non-recurring items.
EBITDA represents net income before interest, taxes, depreciation and amortization. EBITDA is presented because NRG considers it an important supplemental measure of its performance and believes debt-holders frequently use EBITDA to analyze operating performance and debt service capacity. EBITDA has limitations as an analytical tool, and you should not consider it in isolation, or as a substitute for analysis of our operating results as reported under GAAP. Some of these limitations are:
- EBITDA does not reflect cash expenditures, or future
requirements for capital expenditures, or contractual
commitments;
- EBITDA does not reflect changes in, or cash requirements for,
working capital needs;
- EBITDA does not reflect the significant interest expense, or
the cash requirements necessary to service interest or
principal payments, on debts;
- Although depreciation and amortization are non-cash charges,
the assets being depreciated and amortized will often have to
be replaced in the future, and EBITDA does not reflect any
cash requirements for such replacements; and
- Other companies in this industry may calculate EBITDA differently than NRG does, limiting its usefulness as a comparative measure.
Because of these limitations, EBITDA should not be considered as a measure of discretionary cash available to use to invest in the growth of NRG's business. NRG compensates for these limitations by relying primarily on our GAAP results and using EBITDA and Adjusted EBITDA only supplementally. See the statements of cash flow included in the financial statements that are a part of this press release.
Adjusted EBITDA is presented as a further supplemental measure of operating performance. Adjusted EBITDA represents EBITDA adjusted for reorganization, restructuring, impairment and corporate relocation charges, discontinued operations, and write downs and losses on the sales of equity method investments; factors which we do not consider indicative of future operating performance. The reader is encouraged to evaluate each adjustment and the reasons NRG considers it appropriate for supplemental analysis. As an analytical tool, Adjusted EBITDA is subject to all of the limitations applicable to EBITDA. In addition, in evaluating Adjusted EBITDA, the reader should be aware that in the future NRG may incur expenses similar to the adjustments in this presentation.
Similar to Adjusted EBITDA, Adjusted net income represents net income adjusted for reorganization, restructuring, impairment and corporate relocation charges, discontinued operations, and write downs and losses on the sales of equity method investments; factors which we do not consider indicative of future operating performance. The reader is encouraged to evaluate each adjustment and the reasons NRG considers it appropriate for supplemental analysis. In addition, in evaluating Adjusted net income, the reader should be aware that in the future NRG may incur expenses similar to the adjustments in this presentation.
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