NRG Energy, Inc. — Form 10-Q Summary
Reporting period: Quarter and six months ended June 30, 2013. Results are unaudited. NRG acquired GenOn on December 14, 2012, so 2013 includes GenOn while the comparable 2012 periods do not; reported year-over-year changes are therefore not fully comparable.
Financial performance and position
| Metric | Q2 2013 | Q2 2012 | Six months 2013 | Six months 2012 |
|---|---|---|---|---|
| Operating revenue | $2.929 billion | $2.166 billion | $5.010 billion | $4.028 billion |
| Operating income | $295 million | $397 million | $36 million | $227 million |
| Net income (loss) attributable to NRG | $130 million | $251 million | $(198) million | $44 million |
| Basic diluted EPS | $0.39 | $1.09 basic / $1.08 diluted | $(0.63) | $0.17 |
- Q2 revenue rose 35%, but operating income fell 26% and attributable net income fell 48%. For the first half, revenue increased 24%, while operating income declined sharply and NRG reported a net loss.
- Q2 operating costs and expenses were $2.634 billion, up 49%; six-month costs were $4.974 billion, up 31%. Higher GenOn operating costs, depreciation, integration expense and financing costs weighed on results.
- Retail gross margin declined $67 million in Q2 and $71 million for the six-month period, reflecting lower unit margins and less favorable weather. Conventional generation gross margin increased $279 million in Q2 and $582 million in the first half, principally including GenOn contribution. Alternative Energy and NRG Yield margins also increased with new projects entering service.
- Six-month operating cash flow was negative $78 million, versus positive $585 million a year earlier. Investing cash outflow was $1.375 billion, including $1.281 billion of capital expenditure cash payments; financing provided $736 million. Cash and cash equivalents fell to $1.368 billion from $2.087 billion at year-end.
- June 30 liquidity, excluding collateral received, was $2.816 billion, down from $3.362 billion at December 31, 2012. It comprised $1.368 billion cash, $267 million restricted cash and $1.181 billion credit-facility availability.
- Long-term debt and capital leases totaled $16.626 billion, including $737 million current and $15.889 billion non-current. Total liabilities were $23.940 billion. The current debt portion increased from $147 million at year-end.
Material changes and financing
- In June, NRG amended its term loan, borrowing an additional $450 million and reducing the spread to LIBOR plus 2.00%. It also increased its revolving facility to $2.5 billion, repriced it to LIBOR plus 2.25%, and extended maturity to July 1, 2018.
- NRG redeemed $575 million of GenOn 2014 notes at 106.778% of face value and repurchased other senior notes above face value. The six-month results include $49 million of debt-extinguishment losses; Q2 includes $21 million.
- After quarter-end, NRG Yield, Inc. completed an IPO on July 22, raising approximately $468 million net. It used $395 million to buy units from NRG and $73 million for newly issued units; NRG retained a controlling interest and continued to consolidate NRG Yield.
- NRG paid common dividends of $0.09 per share in Q1 and $0.12 in Q2. It announced an intended annual dividend increase to $0.48 per share and had authority to repurchase $200 million of shares in 2013; $25 million had been spent by June 30.
Outlook, risks and unusual items
- Management said available liquidity and operating cash flows should be adequate for operations, maintenance capital expenditure, dividends and other commitments. The filing provides no numeric earnings guidance.
- Management estimated remaining 2013 capital expenditure at $1.484 billion gross, or $560 million net of expected financing, partner funding and grants. Estimated environmental capital expenditure for 2013–2017 was $522 million.
- Key exposures include volatile power and fuel prices, weather, generation outages, wholesale market and regulatory changes, environmental compliance costs, counterparty credit, collateral calls and substantial indebtedness. A $0.50/MMBtu natural-gas price move was estimated to change margin collateral posted by about $104 million; a 1 MMBtu/MWh heat-rate move by about $78 million.
- Environmental obligations include a Big Cajun II consent decree requiring emissions controls, a $3.5 million civil penalty and $10.5 million in mitigation projects. A Maryland ash-site consent decree was approved, with $47 million reserved for synthetic caps; the company said the upper range of possible remediation costs could not yet be estimated.
- NRG disclosed a June 2013 Maryland environmental lawsuit concerning alleged water-discharge violations, ongoing regulatory and permitting matters, and other litigation. Management warns that ultimate contingency outcomes could differ materially from reserves.
- Other notable items: $37 million of Q2 acquisition and integration costs; a $61 million Q2 tax benefit, primarily associated with solar investment tax credits; and settlement of the Texas franchise tax dispute for $11 million, with the remaining accrual reversed.
Important facts for investors to verify
- How much of reported revenue and generation-margin growth reflects the GenOn acquisition versus underlying performance, given the non-comparable periods.
- Drivers and expected duration of negative operating cash flow, working-capital use and collateral requirements; confirm current liquidity and revolver availability.
- Debt maturities, refinancing terms, project-level debt and the effect of debt service on cash available for dividends and planned repurchases.
- Actual progress and funding for 2013 growth projects, NRG Yield asset transfers, and the stated environmental expenditure estimates.
- Developments in environmental litigation and remediation, regulatory proceedings, and uncertain tax positions that could change reserves or cash requirements.