Table of Contents
SECURITIES AND EXCHANGE COMMISSION
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported) August 5, 2004
NRG Energy, Inc.
Delaware
(State or other jurisdiction of incorporation)
| 001-15891 (Commission File Number) |
41-1724239 (IRS Employer Identification No.) |
| 901 Marquette Avenue, Suite 2300 Minneapolis, MN (Address of principal executive offices) |
55402 (Zip Code) |
Registrant’s telephone number, including area code 612-373-5300
(Former name or former address, if changed since last report)
| Item 12. Results of Operations and Financial Condition | ||||||||
| SIGNATURES | ||||||||
| Exhibit Index | ||||||||
| Press Release | ||||||||
Table of Contents
Item 12. Results of Operations and Financial Condition
On August 5, 2004, NRG Energy, Inc. issued a press release reporting its financial and operating results for the quarter ended June 30, 2004. Such press release is furnished as Exhibit 99.1 and incorporated herein by reference. The press release contains certain non-GAAP financial information. The reconciliation of such non-GAAP financial information to GAAP financial measures is included in the press release. Further, the press release contains statements intended as “forward-looking statements” which are subject to the cautionary statement about forward-looking statements set forth therein.
Table of Contents
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 hereunto duly authorized.
| NRG Energy, Inc. (Registrant) |
||||
| By /s/ Timothy W. J. O'Brien | ||||
| Timothy W. J. O'Brien | ||||
| Vice President, Secretary and General Counsel |
||||
| Dated: August 5, 2004 | ||||
Table of Contents
EXHIBIT 99.1
|
NEWS RELEASE |
FOR IMMEDIATE RELEASE
NRG Reports Strong Second Quarter Results; Provides Full-Year Outlook for First Time
MINNEAPOLIS (August 5, 2004)—NRG Energy, Inc. (NYSE: NRG) today reported earnings of $83 million, or $0.83 per diluted share, for the second quarter ended June 30, 2004. This included $14 million or $0.14 per diluted share related to discontinued operations. Earnings from ongoing operations were $69 million, or $0.69 per diluted share.
“Our strong second quarter performance was attributable to our employees maintaining focus on all phases of asset management: plant operations, managing commercial risk, resolving legacy issues, and continuing to pursue transactions which further reduce our balance sheet debt,” said David Crane, NRG’s President and Chief Executive Officer. “Additionally, continued higher natural gas prices supported higher power prices, which improved margins at our coal facilities and helped to offset the impact of unseasonably mild weather during the quarter.”
Second Quarter Financial Highlights:
| • | $282 million in EBITDA; | |||
| • | $1.34 billion of liquidity as of June 30; and | |||
| • | Asset sales resulting in $97 million of cash proceeds and $94 million in balance sheet debt elimination. | |||
The Company reported $282 million of EBITDA and $233 million of Adjusted EBITDA. Adjusted EBITDA excludes certain unusual or nonrecurring items that are listed in the attached EBITDA reconciliation tables.
Operational Summary
During the quarter, NRG benefited from sustained higher natural gas prices, which led to improved energy revenue margin at NRG’s coal-fired facilities. The Company continued to expand its Powder River Basin (PRB) coal conversion program, aimed at substantially reducing sulfur emissions from NRG’s coal-fired plants in New York and Delaware. NRG plant staff focused on preparing for the high-demand summer season with increased seasonal maintenance schedules and continued efforts to improve operations and efficiencies at its facilities.
During the three months ended June 30, 2004, the Company incurred $5.6 million of one-time costs related to its corporate relocation activities, primarily related to employee severance and termination benefits.
1
Equity earnings from West Coast Power, a joint venture with Dynegy, were higher than expected due to favorable market conditions, and settlement adjustments. NRG continues to work with Dynegy to secure a replacement contract for the California Department of Water Resources that expires at year-end 2004.
Liquidity and Cash Flow
Liquidity as of June 30, 2004, remains healthy at $1.34 billion as set forth below:
| Corporate Liquidity (in millions) | March 31, 2004 | June 30, 2004 | |||||||||
Unrestricted Cash: |
|||||||||||
Domestic |
665 | 676 | |||||||||
International |
169 | 145 | |||||||||
Restricted Cash: |
|||||||||||
Domestic |
90 | 97 | |||||||||
International |
52 | 55 | |||||||||
Total Cash |
976 | 973 | |||||||||
Letter of Credit Availability |
137 | 118 | |||||||||
Revolver Availability |
250 | 250 | |||||||||
Total Current Liquidity |
$ | 1,363 | $ | 1,341 | |||||||
Year-to-date cash flow from operations remains strong at $317 million, while net cash flow generated for the first six months was $270 million.
“We continue to make significant progress in selling our noncore assets and gaining flexibility on our balance sheet,” commented Crane.
During the second quarter, NRG completed sales of noncore assets, resulting in $97 million in cash proceeds and $94 million in balance sheet debt reduction. Additionally during the quarter, NRG executed a purchase and sale agreement for its Batesville facility, which is expected to reduce debt further by $292 million and contribute additional cash proceeds of $27 million. In July, FERC approved the transfer of NRG’s McClain assets to OG&E Electric Services that will result in an additional $157 million reduction in balance sheet debt.
Outlook
NRG expects the high fuel price environment to continue through the remainder of the year, notwithstanding the mild weather this summer. NRG expects reported cash flow from operations to be $513 million and reported EBITDA to be approximately $837 million; adjusted cash flow from operations and adjusted EBITDA for 2004 are expected to be $441 million and $850 million, respectively. This outlook assumes normalized weather conditions for the second half of the year and no unusual or unforeseen events or significant changes in foreign exchange rates.
Beyond 2004, NRG continues to operate in an overbuilt and challenging wholesale power generation market. The recent suggestion of an improvement in values for power generation assets, in our opinion, is more reflective of the influx of money into funds seeking to invest in this sector than in any sustained recovery in wholesale electricity prices.
2
Earnings Conference Call
On August 5, NRG will host a conference call at 9 a.m. Eastern 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 United States. Its operations include baseload, intermediate, peaking, and cogeneration facilities, thermal energy production and energy resource recovery facilities.
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, August 5, 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
Contacts:
Meredith Moore
|
Katy Sullivan | |
Media Relations
|
Investor Relations | |
612.373.8892
|
612.373.8875 |
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NRG ENERGY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
| Reorganized | Predecessor | Reorganized | Predecessor | |||||||||||||
| NRG |
Company |
NRG |
Company |
|||||||||||||
| Three Months | Six Months | |||||||||||||||
| Ended |
Ended |
|||||||||||||||
| June 30, | June 30, | June 30, | June 30, | |||||||||||||
| 2004 |
2003 |
2004 |
2003 |
|||||||||||||
| (In thousands) | ||||||||||||||||
Operating Revenues |
||||||||||||||||
Revenues from majority-owned operations |
$ | 573,674 | $ | 441,599 | $ | 1,173,992 | $ | 936,609 | ||||||||
Operating Costs and Expenses |
||||||||||||||||
Cost of majority-owned operations |
353,750 | 381,845 | 735,801 | 759,432 | ||||||||||||
Depreciation and amortization |
53,168 | 63,768 | 108,174 | 122,906 | ||||||||||||
General, administrative and development |
45,837 | 39,147 | 82,329 | 87,663 | ||||||||||||
Corporate relocation charges |
5,645 | — | 6,761 | — | ||||||||||||
Reorganization charges |
(2,661 | ) | 6,334 | 3,589 | 6,334 | |||||||||||
Restructuring and impairment charges |
1,676 | 269,631 | 1,676 | 291,767 | ||||||||||||
Total operating costs and expenses |
457,415 | 760,725 | 938,330 | 1,268,102 | ||||||||||||
Operating Income/(Loss) |
116,259 | (319,126 | ) | 235,662 | (331,493 | ) | ||||||||||
Other Income (Expense) |
||||||||||||||||
Minority interest in earnings of consolidated subsidiaries |
(201 | ) | — | (709 | ) | — | ||||||||||
Equity in earnings of unconsolidated affiliates |
46,101 | 46,857 | 63,814 | 92,486 | ||||||||||||
Write downs and gains/(losses) on sales of equity method
investments |
1,205 | (132,436 | ) | (533 | ) | (149,027 | ) | |||||||||
Other income, net |
8,052 | (7,953 | ) | 11,708 | 3,542 | |||||||||||
Interest expense |
(66,225 | ) | (92,087 | ) | (159,371 | ) | (260,761 | ) | ||||||||
Total other expense |
(11,068 | ) | (185,619 | ) | (85,091 | ) | (313,760 | ) | ||||||||
Income/(Loss)
From Continuing Operations Before Income Taxes |
105,191 | (504,745 | ) | 150,571 | (645,253 | ) | ||||||||||
Income Tax Expense |
36,322 | 4,305 | 50,602 | 37,342 | ||||||||||||
Income/(Loss) From Continuing Operations |
68,869 | (509,050 | ) | 99,969 | (682,595 | ) | ||||||||||
Income/(Loss) on Discontinued Operations, net of Income
Taxes |
14,155 | (99,351 | ) | 13,290 | 61,562 | |||||||||||
Net Income/(Loss) |
$ | 83,024 | $ | (608,401 | ) | $ | 113,259 | $ | (621,033 | ) | ||||||
Weighted
Average Number of Common Shares Outstanding — Diluted |
100,478 | 100,214 | ||||||||||||||
Income From Continuing Operations per Weighted Average
Common Share — Diluted |
$ | 0.69 | $ | 1.00 | ||||||||||||
Income From Discontinued Operations per Weighted Average
Common Share — Diluted |
0.14 | 0.13 | ||||||||||||||
Net Income per Weighted Average Common Shares — Diluted |
$ | 0.83 | $ | 1.13 | ||||||||||||
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NRG ENERGY, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (REORGANIZED COMPANY)
(Unaudited)
| June 30, | December 31, | |||||||
| 2004 |
2003 |
|||||||
| (In thousands) | ||||||||
ASSETS |
||||||||
Current Assets |
||||||||
Cash and cash equivalents |
$ | 820,876 | $ | 551,223 | ||||
Restricted cash |
151,673 | 116,067 | ||||||
Accounts receivable — trade, less allowance for
doubtful accounts of $322 and $0 |
313,649 | 201,908 | ||||||
Xcel Energy settlement receivable |
— | 640,000 | ||||||
Current portion of notes receivable — affiliates |
1,917 | 200 | ||||||
Current portion of notes receivable |
123,060 | 65,141 | ||||||
Taxes receivable |
14,824 | — | ||||||
Inventory |
203,672 | 194,926 | ||||||
Derivative instruments valuation |
11,670 | 772 | ||||||
Prepayments and other current assets |
229,961 | 222,178 | ||||||
Current deferred income taxes |
961 | 1,850 | ||||||
Current assets — discontinued operations |
56,955 | 119,574 | ||||||
Total current assets |
1,929,218 | 2,113,839 | ||||||
Property, Plant and Equipment |
||||||||
In service |
3,935,915 | 3,885,465 | ||||||
Under construction |
104,794 | 139,171 | ||||||
Total property, plant and equipment |
4,040,709 | 4,024,636 | ||||||
Less accumulated depreciation |
(119,487 | ) | (11,800 | ) | ||||
Net property, plant and equipment |
3,921,222 | 4,012,836 | ||||||
Other Assets |
||||||||
Equity investments in affiliates |
677,684 | 737,998 | ||||||
Notes receivable, less current portion — affiliates |
122,539 | 130,152 | ||||||
Notes receivable, less current portion |
612,118 | 691,444 | ||||||
Intangible assets, net of accumulated amortization
of $34,404 and $5,212 |
356,068 | 432,361 | ||||||
Debt issuance costs, net of accumulated
amortization of $4,992 and $454 |
63,038 | 74,337 | ||||||
Derivative instruments valuation |
53,474 | 59,907 | ||||||
Funded letter of credit |
250,000 | 250,000 | ||||||
Other assets |
116,129 | 123,145 | ||||||
Non-current assets — discontinued operations |
451,785 | 618,968 | ||||||
Total other assets |
2,702,835 | 3,118,312 | ||||||
Total Assets |
$ | 8,553,275 | $ | 9,244,987 | ||||
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NRG ENERGY, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (REORGANIZED COMPANY)
(Unaudited)
| June 30, | December 31, | |||||||
| 2004 |
2003 |
|||||||
| (In thousands) | ||||||||
LIABILITIES AND STOCKHOLDERS’ EQUITY |
||||||||
Current Liabilities |
||||||||
Current portion of long-term debt and capital leases |
$ | 96,385 | $ | 801,229 | ||||
Short-term debt |
17,826 | 19,019 | ||||||
Accounts payable — trade |
137,033 | 158,683 | ||||||
Accounts payable — affiliates |
6,372 | 7,040 | ||||||
Accrued taxes |
— | 16,095 | ||||||
Accrued property, sales and other taxes |
16,136 | 22,322 | ||||||
Accrued salaries, benefits and related costs |
33,072 | 19,331 | ||||||
Accrued interest |
20,038 | 8,982 | ||||||
Derivative instruments valuation |
20,979 | 429 | ||||||
Creditor pool obligation |
25,000 | 540,000 | ||||||
Other bankruptcy settlement |
221,283 | 220,000 | ||||||
Other current liabilities |
113,773 | 102,861 | ||||||
Current liabilities — discontinued operations |
23,121 | 110,190 | ||||||
Total current liabilities |
731,018 | 2,026,181 | ||||||
Other Liabilities |
||||||||
Long-term debt and capital leases |
3,922,417 | 3,327,782 | ||||||
Deferred income taxes |
144,522 | 149,493 | ||||||
Postretirement and other benefit obligations |
110,842 | 105,946 | ||||||
Derivative instruments valuation |
159,567 | 153,503 | ||||||
Other long-term obligations |
473,247 | 480,938 | ||||||
Noncurrent liabilities — discontinued operations |
469,911 | 558,884 | ||||||
Total non-current liabilities |
5,280,506 | 4,776,546 | ||||||
Total Liabilities |
6,011,524 | 6,802,727 | ||||||
Minority Interest |
5,673 | 5,004 | ||||||
Commitments and Contingencies |
||||||||
Stockholders’ Equity |
||||||||
Serial Preferred Stock; 10,000,000 shares authorized, none
issued and outstanding at June 30, 2004 and December 31, 2003 |
— | — | ||||||
Common stock; $.01 par value; 500,000,000 shares authorized;
100,006,798 shares at June 30, 2004 and 100,000,000 shares at December 31, 2003 issued and outstanding |
1,000 | 1,000 | ||||||
Additional paid-in capital |
2,410,751 | 2,403,429 | ||||||
Retained earnings |
124,284 | 11,025 | ||||||
Accumulated other comprehensive income |
43 | 21,802 | ||||||
Total stockholders’ equity |
2,536,078 | 2,437,256 | ||||||
Total Liabilities and Stockholders’ Equity |
$ | 8,553,275 | $ | 9,244,987 | ||||
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NRG ENERGY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
| Reorganized | Predecessor | |||||||
| NRG |
Company |
|||||||
| Six Months Ended | ||||||||
| June 30 |
||||||||
| 2004 |
2003 |
|||||||
(In thousands) |
||||||||
Cash Flows from Operating Activities |
||||||||
Net Income/(loss) |
$ | 113,259 | $ | (621,033 | ) | |||
Adjustments to reconcile net income/(loss) to net cash provided (used) by operating
activities |
||||||||
Distributions in excess of (less than) equity in earnings of unconsolidated affiliates |
4,751 | (23,943 | ) | |||||
Depreciation and amortization |
113,499 | 145,221 | ||||||
Amortization of debt issuance costs |
20,060 | 11,090 | ||||||
Amortization of debt discount |
11,795 | — | ||||||
Deferred income taxes |
49,384 | 36,525 | ||||||
Minority interest |
2,089 | 466 | ||||||
Unrealized (gains)/losses on derivatives |
(21,458 | ) | 17,796 | |||||
Asset impairment |
1,676 | 347,913 | ||||||
Write downs and losses on sales of equity method investments |
533 | 148,841 | ||||||
Gain on sale of discontinued operations |
(13,012 | ) | (218,536 | ) | ||||
Amortization of power contracts and emission credits |
34,517 | — | ||||||
Cash provided (used) by changes in certain working capital items, net of acquisition
affects |
264 | 179,692 | ||||||
Net Cash Provided by Operating Activities |
317,357 | 24,032 | ||||||
Net Cash Provided by Investing Activities |
1,558 | 27,517 | ||||||
Net Cash Used by Financing Activities |
(85,672 | ) | (33,522 | ) | ||||
Change in Cash from Discontinued Operations |
10,822 | 24,062 | ||||||
Effect of Exchange Rate Changes on Cash and Cash Equivalents |
25,588 | (93,163 | ) | |||||
Net Increase (Decrease) in Cash and Cash Equivalents |
269,653 | (51,074 | ) | |||||
Cash and Cash Equivalents at Beginning of Period |
551,223 | 360,860 | ||||||
Cash and Cash Equivalents at End of Period |
$ | 820,876 | $ | 309,786 | ||||
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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 |
||||||||||||
| Reorganized | Predecessor | |||||||||||
| NRG | NRG | |||||||||||
| June 30, 2004 |
Diluted EPS |
June 30, 2003 |
||||||||||
(Dollars in thousand, except per share amounts) |
||||||||||||
Net Income (Loss) |
$ | 83,024 | $ | 0.83 | $ | (608,401 | ) | |||||
Plus: |
||||||||||||
(Income) Loss from Discontinued Operations, net of tax |
(2,257 | ) | (0.02 | ) | 97,285 | |||||||
(Gain) Loss from Discontinued Operations |
(11,898 | ) | (0.12 | ) | 2,066 | |||||||
Corporate relocation charges, net of tax |
3,692 | 0.04 | — | |||||||||
Reorganization items, net of tax |
(1,740 | ) | (0.02 | ) | 4,206 | |||||||
Restructuring and impairment charges, net of tax |
1,096 | 0.01 | 179,035 | |||||||||
FERC-authorized settlement with Connecticut Light and
Power, net of tax |
(25,085 | ) | (0.25 | ) | — | |||||||
Write downs and (gains)/losses on sales of equity
method investments, net of tax |
(788 | ) | 0.01 | 87,937 | ||||||||
Adjusted Net Income |
$ | 46,044 | $ | 0.46 | $ | (237,872 | ) | |||||
EBITDA Reconciliation
The following table summarizes the calculation of EBITDA and provides a reconciliation to net income/(loss):
| Three Months Ended |
||||||||
| Reorganized NRG |
Predecessor NRG |
|||||||
| June 30, 2004 |
June 30, 2003 |
|||||||
| (Dollars in thousands) | ||||||||
Net Income / (Loss) |
$ | 83,024 | $ | (608,401 | ) | |||
Plus: |
||||||||
Income Tax Expense |
36,322 | 4,305 | ||||||
Interest expense, excluding amortization of debt issuance costs
and debt discount/ (premium) noted below |
60,210 | 88,168 | ||||||
Depreciation and amortization |
53,168 | 63,768 | ||||||
WCP CDWR contract amortization (included in equity in earnings
of unconsolidated affiliates) |
30,638 | — | ||||||
Amortization of power contracts |
8,614 | — | ||||||
Amortization of emission credits |
3,648 | — | ||||||
Amortization of debt issuance costs and debt discount/(premium) |
6,015 | 3,919 | ||||||
EBITDA |
$ | 281,639 | $ | (448,241 | ) | |||
Plus: |
||||||||
(Income) Loss from Discontinued Operations, net of Income taxes |
(2,257 | ) | 97,285 | |||||
(Gain) Loss from Discontinued Operations |
(11,898 | ) | 2,066 | |||||
Corporate relocation charges |
5,645 | — | ||||||
Reorganization items |
(2,661 | ) | 6,334 | |||||
Restructuring and impairment charges |
1,676 | 269,631 | ||||||
FERC-authorized settlement with Connecticut Light and Power |
(38,357 | ) | — | |||||
Write downs and (gains)/losses on sales of equity method
investments |
(1,205 | ) | 132,436 | |||||
Adjusted EBITDA |
$ | 232,582 | $ | 59,511 | ||||
8
Forecasted Adjusted EBITDA Reconciliation
The following table summarizes the calculation of adjusted EBITDA and provides a reconciliation to forecasted cash flow from operations:
| Reported | Adjusted | |||||||||||
| $ in millions |
Outlook |
Adjustment |
Outlook |
|||||||||
EBITDA |
837 | 13 | 1 | 850 | ||||||||
Interest Payments |
(278 | ) | 15 | 2 | (263 | ) | ||||||
Income Tax |
(36 | ) | — | (36 | ) | |||||||
Other Cash Used by Operations |
(50 | ) | — | (50 | ) | |||||||
Working Capital Changes |
(60 | ) | — | (60 | ) | |||||||
Xcel Settlement, net |
100 | (100 | ) | — | ||||||||
Cash Flow from Operations |
513 | ( 72 | ) | 441 | ||||||||
1 Adjustments to EBITDA include a $38.5 million reduction for a settlement with CT Light and Power and increases for the following items: losses on discontinued operations of $2 million, corporate relocation charges of $30 million, reorganization and restructuring charges of $5 million and impairment charges and losses on sales of equity investments of $14 million.
2 Prepayment penalty from debt refinancing.
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
9
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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