second quarter 2004 financial results august 5, 2004
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Second Quarter 2004 Financial Results Second Quarter 2004 Financial Results
August 5, 2004August 5, 2004
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Safe Harbor StatementSafe Harbor Statement
This Investor Presentation 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. Forward-looking statements are subject to certain risks, uncertainties and assumptions and typically can be identified by the use of words such as “expect,” “estimate,” “anticipate,” “forecast,” “plan,” “believe” and similar terms. Such forward-looking statements include, but are not limited to, expected earnings, future growth and financial performance, the successful closing of announced transactions, the successful closing of the coal transportation agreement, the successful implementation of our acquisition and repowering strategy, the outcome of hearings on our RMR agreements and cost tracker for scheduled expenses. 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, 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 generation facilities, out ability to convert facilities to western coal, our substantial indebtedness and the possibility that we may incur additional indebtedness, adverse results in current and future litigation, delays in or failure to meet closing conditions in announced transactions, failure to identify or successfully implement acquisitions and repowerings, the amount of proceeds from asset sales and adverse rulings on our RMR agreements and cost tracker for scheduled expenses, resulting in us refunding certain payments received to date.
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 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 Investor Presentation 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.
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AgendaAgenda
Operational Update
Q2 Financial Results and Outlook
Q&A
Operational Update
Q2 Financial Results and Outlook
Q&A
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Second quarter performanceSecond quarter performance
– Adjusted EBITDA of $232 million Adjusted EBITDA of $232 million
– Reported net income of $83 millionReported net income of $83 million
YTD performanceYTD performance
– Adjusted EBITDA of $489 millionAdjusted EBITDA of $489 million
– Reported net income of $113 millionReported net income of $113 million
– Free cash flow of $355 millionFree cash flow of $355 million
Financial Financial HighlightsHighlightsFinancial Financial HighlightsHighlights
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Operating HighlightsOperating Highlights The Company exhibited continued strength in all
phases of operating performance:
– Safety 20% lower injury frequency rate than industry average with
continuing improvement
– Plant availability 96% in-market availability through May 2004
– Environmental Met and exceeded environmental standards for compliance with air, waste, and water regulations
– Summer Maintenance at 12 plants preparedness completed on time and within
budget
The Company exhibited continued strength in all phases of operating performance:
– Safety 20% lower injury frequency rate than industry average with
continuing improvement
– Plant availability 96% in-market availability through May 2004
– Environmental Met and exceeded environmental standards for compliance with air, waste, and water regulations
– Summer Maintenance at 12 plants preparedness completed on time and within
budget
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We continue to make progress rationalizing We continue to make progress rationalizing nonsupported assets for value:nonsupported assets for value:
Asset Sales - 2004Asset Sales - 2004
NameName LocationLocation
Actual or expectedActual or expectedcash proceedscash proceeds
(Millions)(Millions)
Balance Balance Sheet Debt Sheet Debt
(Millions)(Millions) StatusStatus
Various $20 $45
Batesville
Others (4)*
Mississippi $27 $292 Executed PSA
Loy Yang A Australia $27 N/A Completed Q2
Cobee Bolivia $50 $24 Completed Q2
Calpine Cogen Various, U.S. $3 N/A Completed Q1
PERC Maine $18 $25 Completed Q2
Completed/PSA
TOTAL $145 $543
Oklahoma N/A $157McClain Completed Q3
* Others include Hsin Yu (Completed) and CALP (Executed PSA)
Connecticut UpdateConnecticut Update
MWMW RevenueRevenue
New RMRNew RMR 1,392 1,392 $5.10/kW-mo$5.10/kW-mo– MiddletownMiddletown– MontvilleMontville– Devon 11-14Devon 11-14
Devon 7 RMRDevon 7 RMR 107 107 $6.09/kW-mo$6.09/kW-mo(through (through
May)May)$10.15/kW-$10.15/kW-
momo(June-(June-
September)September)
Norwalk/CT JetsNorwalk/CT Jets 462 462 Market prices through Market prices through PUSH PUSH biddingbidding
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California UpdateCalifornia Update
CPUC interim procurement order directed at CPUC interim procurement order directed at California utilitiesCalifornia utilities
Aging power plant study to be released, expected Aging power plant study to be released, expected to have a positive impactto have a positive impact
Continued dialogue with California utilities Continued dialogue with California utilities regarding 2005 and beyondregarding 2005 and beyond
CPUC interim procurement order directed at CPUC interim procurement order directed at California utilitiesCalifornia utilities
Aging power plant study to be released, expected Aging power plant study to be released, expected to have a positive impactto have a positive impact
Continued dialogue with California utilities Continued dialogue with California utilities regarding 2005 and beyondregarding 2005 and beyond
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Financial Financial ResultsResults
Financial Financial ResultsResults
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Operating revenues 574 1,174
Gross margin 349683
Net income 83113
EBITDA 282529
Adjusted EBITDA 233489
Operating revenues 574 1,174
Gross margin 349683
Net income 83113
EBITDA 282529
Adjusted EBITDA 233489
$ millions$ millions
Key Financial HighlightsKey Financial Highlights
YTDYTDQ2Q2
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2nd Quarter 2004 Spark Spreads2nd Quarter 2004 Spark Spreads
Dark Gas Dual Fuel/Oil Spread1,2 Spread Spread
North America:
Gross Margin (000s) $71,220 $2,027 $7,351
Spark Spread $/MWh $25.03 $7.94 $43.61
Dark Gas Dual Fuel/Oil Spread1,2 Spread Spread
North America:
Gross Margin (000s) $71,220 $2,027 $7,351
Spark Spread $/MWh $25.03 $7.94 $43.61
11 Dark spread is the spread between energy prices and coal-fired generation costs Dark spread is the spread between energy prices and coal-fired generation costs22 Does not include LaGen contracted output Does not include LaGen contracted output
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NRG Generation by FuelNRG Generation by Fuel
0%
10%
20%
30%
40%
50%
60%
70%
80%
Coal Gas Dual
Capacity
MWhGenerated
22ndnd Quarter North American Generation by Fuel Type Quarter North American Generation by Fuel Type Versus Net North American Capacity OwnedVersus Net North American Capacity Owned
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EBITDA by Operating Segment - YTDEBITDA by Operating Segment - YTD
($ millions) Q2 Q2 Q2 Adj Q1 Adj YTD Adj
EBITDA Adj EBITDA EBITDA EBITDA
Northeast 79.2 .3 79.5 114.8 194.3
South Central 30.3 1.6 31.9 29.7 61.6
West Coast 54.9 -- 54.9 33.4 88.3
Other NA 23.2 (2.6) 20.6 12.3 32.9
International 48.2 (12.9) 35.2 54.2 89.4
Alt. Energy & Services 54.4 (38.9) 15.5 17.0 32.5
Corp – Unallocated (8.6) 3.5 (5.1) (4.5) (9.6)
Total 281.6 (49.0) 232.6 256.9 489.4
($ millions) Q2 Q2 Q2 Adj Q1 Adj YTD Adj
EBITDA Adj EBITDA EBITDA EBITDA
Northeast 79.2 .3 79.5 114.8 194.3
South Central 30.3 1.6 31.9 29.7 61.6
West Coast 54.9 -- 54.9 33.4 88.3
Other NA 23.2 (2.6) 20.6 12.3 32.9
International 48.2 (12.9) 35.2 54.2 89.4
Alt. Energy & Services 54.4 (38.9) 15.5 17.0 32.5
Corp – Unallocated (8.6) 3.5 (5.1) (4.5) (9.6)
Total 281.6 (49.0) 232.6 256.9 489.4
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Cash Flow YTDCash Flow YTD
$ in millions$ in millions Q1 ActualQ1 Actual Q2 ActualQ2 Actual YTDYTD
EBITDAEBITDA 246.9246.9 281.6281.6 528.5528.5
Interest PaymentsInterest Payments (31.1)(31.1) (81.6)(81.6) (112.7)(112.7)
Income TaxIncome Tax (3.0)(3.0) (27.5)(27.5) (30.5)(30.5)
Equity Earnings in Excess of Cash DistributionsEquity Earnings in Excess of Cash Distributions (30.9)(30.9) (26.2)(26.2) (57.1)(57.1)
Other Funds used by OperationsOther Funds used by Operations 10.810.8 (36.2)(36.2) (25.4)(25.4)
FFOFFO 192.7192.7 110.1110.1 302.8302.8
Working Capital ChangesWorking Capital Changes 25.025.0 (135.4)(135.4) (110.4)(110.4)
Xcel Settlement, netXcel Settlement, net 125.0125.0 ---- 125.0125.0
CFOCFO 342.7342.7 (25.3)(25.3) 317.4317.4
Asset DivestituresAsset Divestitures 3.03.0 85.985.9 88.988.9
CapExCapEx (35.0)(35.0) (29.7)(29.7) (64.7)(64.7)
Other Cash used by InvestingOther Cash used by Investing (2.0)(2.0) (20.6)(20.6) (22.6)(22.6)
FX Rate Changes & Disc Ops.FX Rate Changes & Disc Ops. 9.69.6 26.826.8 36.436.4
FCFFCF 318.3318.3 37.137.1 355.4355.4
Cash Used by FinancingCash Used by Financing (38.0)(38.0) (47.7)(47.7) (85.7)(85.7)
Net Cash FlowNet Cash Flow 280.3280.3 (10.6)(10.6) 269.7269.7
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LiquidityLiquidity
06/30/04 03/31/04
Unrestricted Cash:
Domestic 676 665
International 145 169
Restricted Cash:
Domestic 97 90
International 55 52
Total Cash 973 976
Letter of Credit Availability 118 137
Revolver Availability 250 250
Total Current Liquidity $1,341 $1,363
06/30/04 03/31/04
Unrestricted Cash:
Domestic 676 665
International 145 169
Restricted Cash:
Domestic 97 90
International 55 52
Total Cash 973 976
Letter of Credit Availability 118 137
Revolver Availability 250 250
Total Current Liquidity $1,341 $1,363
$ millions$ millions
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2004 EBITDA and FCF Outlook2004 EBITDA and FCF Outlook
$ in millions$ in millions ReportedReported
OutlookOutlook
AdjustmentAdjustment AdjustedAdjusted
OutlookOutlook
EBITDAEBITDA 837837 1313 850850
Interest PaymentsInterest Payments (278)(278) 1515 (263)(263)
Income TaxIncome Tax (36)(36) ---- (36)(36)
Other Cash Used by OperationsOther Cash Used by Operations (50)(50) ---- (50)(50)
FFOFFO 473473 2828 501501
Working Capital ChangesWorking Capital Changes (60)(60) ---- (60)(60)
Xcel Settlement, netXcel Settlement, net 100100 (100)(100) ----
CFOCFO 513513 (72)(72) 441441
Asset DivestituresAsset Divestitures 145145 (145)(145) ----
CapExCapEx (130)(130) ---- (130)(130)
Other Cash used by InvestingOther Cash used by Investing (7)(7) ---- (7)(7)
FCFFCF 521521 (217)(217) 304304
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($4.7) million($4.7) million100 bps100 bpsInterest ratesInterest rates
$35.7 million$35.7 million$1.00/mmbtu$1.00/mmbtuNatural GasNatural Gas
----$1.00/ton$1.00/tonCoalCoal
----$1.00/bbl$1.00/bblOilOil
Results in the Results in the following change tofollowing change to
2004 pre-tax income:2004 pre-tax income:Factor Factor
Increased by:Increased by:FactorsFactors
Sensitivities are for the remaining 6 months of 2004, Sensitivities are for the remaining 6 months of 2004, assuming current hedged positionsassuming current hedged positions
2004 Forecast Sensitivity Analysis2004 Forecast Sensitivity Analysis
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Enterprise ValueEnterprise Value
As of 6/30/04 As of 6/30/04 $ in millions$ in millions TotalTotal Nonsupported Nonsupported 11 SupportedSupported
Consolidated DebtConsolidated Debt $ 4,037$ 4,037 $ 1,003$ 1,003 $ 3,034$ 3,034
Unrestricted CashUnrestricted Cash 821821 3131 790790
Restricted CashRestricted Cash 152152 6363 8989
Total CashTotal Cash 973973 9494 879879
Net DebtNet Debt $ 3,064$ 3,064 $ 909$ 909 $ 2,155$ 2,155
Equity ValueEquity Value $ 2,700$ 2,700 -- $ 2,700$ 2,700
Enterprise ValueEnterprise Value $ 5,764$ 5,764 $ 909$ 909 $ 4,855$ 4,855
Forecasted Adjusted EBITDA Forecasted Adjusted EBITDA $ 850 $ 100 $ 850 $ 100
$ 750 $ 750
TEV / FY Adjusted EBITDATEV / FY Adjusted EBITDA 6.47x6.47x
1) Includes expected asset sales1) Includes expected asset sales
How we look at equity value:How we look at equity value:
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ConclusionConclusion
Continued focus on operating performance
Continued focus on rationalizing our businesses
Continued focus on maintaining strong leverage ratios
Continued focus on operating performance
Continued focus on rationalizing our businesses
Continued focus on maintaining strong leverage ratios
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Supplemental informationSupplemental information
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Adjusted Net Income ReconciliationAdjusted Net Income Reconciliation
NRG ENERGY, INC. AND SUBSIDIARIES
Reconciliation of NonGAAP Financial Measures
Adjusted Net Income Reconciliation
Three Months Ended Three Months Ended
Predecessor
NRG YTD
(Dollars in thousands, except per share amounts) 6/ 30/ 03
Diluted EPS Diluted EPS Diluted EPS
Net Income / (Loss) $83,024 $0.83 (608,401)$ 30,235$ $0.30 113,259$ $1.13
Plus:
(Income) Loss from Discontinued Operations,
net of tax (2,257) (0.02) 97,285 865 $0.01 (1,392) (0.01)
(Gain) Loss from Discontinued Operations (11,898) (0.12) 2,066 - - (11,898) (0.12)
Corporate relocation charges, net of tax 3,692 0.04 - 737 $0.01 4,489 0.04
Reorganization items, net of tax (1,740) (0.02) 4,206 4,125 $0.04 2,383 0.02
Restructuring and impairment charges, net of tax 1,096 0.01 179,035 - - 1,113 0.01
FERC-authorized settlement with Connecticut Light
and Power, net of tax (25,085) (0.25) - - - (25,469) (0.25)
Write downs and (gains)/ losses on sales of equity
method investments, net of tax (788) (0.01) 87,937 1,147 $0.01 354 0.00
Adjusted net income $46,043 $0.46 (237,872)$ $37,109 $0.37 82,839$ $0.83
6/ 30/ 04
Reorganized NRG
6/ 30/ 04
Reorganized NRG
3/ 31/ 04
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Adjusted EBITDA ReconciliationAdjusted EBITDA Reconciliation
NRG ENERGY, INC. AND SUBSIDIARIES
Reconciliation of NonGAAP Financial Measures
Adjusted EBITDA Reconciliation
Reorganized NRG Predessor NRG Reorganized NRG YTD
(Dollars in thousands, except per share amounts) 6/ 30/ 04 6/ 30/ 03 3/ 31/ 04 6/ 30/ 04
Net Income / (Loss) $83,024 ($608,401) $30,235 $113,259
Plus:
Income Tax Expense 36,322 4,305 14,280 50,602
Interest expense, excluding amortization of
debt issuance costs and debt discount/
(premium) noted below 60,210 88,168 71,989 132,199
Depreciation and amortization 53,168 63,768 55,006 108,174
WCP CDWR contract amortization (included in
equity in earnings of unconsolidated affiliates) 30,638 - 30,968 61,606
Amortization of power contracts 8,614 - 16,965 25,579
Amortization of emission credits 3,648 - 6,270 9,918
Amortization of debt issuance costs
and debt discount/ (premium) 6,015 3,919 21,157 27,172
EBITDA $281,639 ($448,241) $246,870 $528,509
Plus:
(Income) Loss from Discontinued Operations,
net of Income taxes (2,257) 97,285 865 (1,392)
(Gain) Loss from Discontinued Operations (11,898) 2,066 - (11,898)
Corporate relocation charges 5,645 - 1,116 6,761
Reorganization items (2,661) 6,334 6,250 3,589
Restructuring and impairment charges 1,676 269,631 - 1,676
FERC-authorized settlement with Connecticut Light
and Power (38,357) - - (38,357)
Write downs and (gains)/ losses on sales of equity
method investments (1,205) 132,436 1,738 533
Adjusted EBITDA $232,582 $59,511 $256,839 $489,421
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GAAP Reconciliation (cont.)GAAP Reconciliation (cont.)
EBITDA, Adjusted EBITDA and adjusted net income are non-GAAP 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 nonrecurring 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 believe 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 noncash 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.
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