01—Abstract
Summary
Summary of the 10-K filed February 12, 2009. Cited figures are marked; the original filing is the authoritative source.
NRG Energy, Inc. ended 2008 with operating revenues of $6.89 billiona, up from $5.99 billion in 2007, and net income of $1.19 billion, up from $586 million.
Income from continuing operations rose to $1.02 billionb, helped by $414 million of mark-to-market gains in risk management activities as natural gas and power prices fell in the second half of 2008. The company's total liquidity was $4.12 billion, or $3.36 billion excluding collateral received from hedge counterparties, and it described its earnings as strongly supported by a largely hedged, coal- and nuclear-heavy baseload fleet of about 24,005 MW worldwide. The filing also highlights significant near-term obligations and uncertainties.
NRG expects environmental capital expenditures of about $1.2 billionc from 2009 through 2013, and it plans a $300 million share repurchase under its 2009 Capital Allocation Plan. Exelon's unsolicited proposal to acquire all outstanding NRG shares, its tender offer, and a proxy contest seeking nine board seats are described as a significant distraction, and the filing warns that a change of control could trigger defaults under the senior credit facility and senior notes. Pending litigation includes a $940 million California Department of Water Resources refund matter tied to WCP, which NRG says could have a material adverse impact if FERC orders significant refunds.
The company's long-term strategy centers on its Repowering NRG program, including 2,700 MW of planned South Texas Project units 3 and 4 through NINA, and on its econrg low-carbon initiatives. Its wind farms Sherbino and Elbow Creek came online in 2008, and it reported a material weakness related to option premium accounting in the third quarter, which it said was remediated by year-end.
02—Key points
Key Highlights
- Total operating revenues rose to $6,885 million in 2008 from $5,989 million in 2007.
- Net income was $1,188 million in 2008, versus $586 million in 2007, with income from discontinued operations of $172 million, mainly from the $164 million after-tax gain on the ITISA sale.
- Risk management activities contributed $418 million in revenue, including $525 million of mark-to-market results, driven by declining forward power and gas prices.
- Total liquidity was $4,124 million at year-end 2008, or $3,364 million excluding collateral received from hedge counterparties.
- The Exelon unsolicited acquisition proposal (0.485 Exelon shares per NRG share), tender offer, and proxy contest for nine board nominees create uncertainty and a potential change-of-control trigger under NRG's senior credit facility and notes.
- Environmental capital expenditures are estimated at approximately $1.2 billion for 2009 through 2013, and the 2009 Capital Allocation Plan calls for $300 million of share repurchases.
- Credit ratings were placed on positive watch by both S&P and Moody's as of December 31, 2008.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2008, NRG Energy kept $0.18.
- Revenue$6.88B100.0%
- Cost of revenue−$3.60B52.3%
- Gross profit$3.29B47.7%
- Operating costs−$1.01B14.7%
- Operating income$2.27B33.0%
- Interest, other & tax−$1.05B15.2%
- Net income$1.23B17.8%
Where FY2008 revenue went
$6.88B- Cost of revenue: $3.60B, 52% of revenue
- Net income: $1.23B, 18% of revenue
- Interest, other & tax: $1.05B, 15% of revenue
- SG&A: $319.0M, 4.6% of revenue
- Other operating costs: $695.0M, 10% of revenue
Kept 18% as net income
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2008filed February 12, 2009Financial Statements
FY2008 against FY2007
| Line item | FY2008FY2007 | Change |
|---|---|---|
| Revenue | $6.88B$5.99B | +15.0% |
| Cost of Revenue | $3.60B$3.38B | +6.5% |
| Gross Profit | $3.29B$2.61B | +25.9% |
| SG&A Expenses | $319.00M$309.00M | +3.2% |
| Operating Expenses | $4.61B$4.45B | +3.7% |
| Operating Income | $2.27B$1.56B | +45.7% |
| Interest Expense | $583.00M$702.00M | −17.0% |
| Net Income | $1.23B$573.00M | +113.8% |
| EPS (Basic) | $4.98$2.16 | +130.6% |
| EPS (Diluted) | $4.43$1.96 | +126.0% |
| Shares Outstanding (Basic) | 235.00M240.00M | −2.1% |
| Shares Outstanding (Diluted) | 275.00M288.00M | −4.5% |
05—Questions
Frequently Asked Questions
What drove the increase in NRG's 2008 net income?
Net income rose to $1,188 million from $586 million. The main drivers were $414 million of higher risk management revenues from mark-to-market gains as forward prices declined, a $164 million after-tax gain on the sale of ITISA, and higher energy and capacity revenues in Texas. Interest expense fell $69 million, partly offset by higher cost of operations.
What is the status of the Exelon proposal?
On October 19, 2008, Exelon proposed to acquire all NRG shares at 0.485 Exelon shares per NRG share, and launched a tender offer on November 12, 2008. NRG's Board unanimously concluded the proposal was not in stockholders' best interests and recommended that stockholders not tender. On January 30, 2009, Exelon proposed nine nominees for the 2009 board election and an expansion of the board from 12 to 19 seats. Exelon extended its tender offer to February 25, 2009. Two lawsuits by Exelon and several stockholder class actions are pending.
What are the main risks to NRG's cash flows and earnings?
The filing cites exposure to natural gas and power price volatility, since power prices often track gas prices; fuel supply disruptions; the obligation to deliver forward-sold baseload power even during outages; collateral demands from hedge counterparties; and environmental and GHG regulation. It also highlights the potential $940 million CDWR refund matter, the Big Cajun II NSR/PSD claims, and the South Central cooperative contracts, under which NRG has at times bought power at a loss.
What is the company's long-term growth strategy?
NRG's Repowering NRG program plans new multi-fuel, multi-technology generation at existing sites, emphasizing baseload capacity supported by long-term PPAs and non-recourse project financing. Key projects include the 2,700 MW STP units 3 and 4 nuclear project through NINA, with commercial operation for unit 3 expected in 2015; Cedar Bayou Unit 4, expected in mid-2009; and the GenConn peaking facilities in Connecticut. The econrg initiative targets low- and no-carbon generation and CO2 capture.
How much debt and liquidity does NRG have?
Long-term debt including current maturities and capital leases was $8,168 million at year-end 2008. Senior Notes totaled about $4.7 billion in principal, the Term Loan Facility about $2.6 billion, and $440 million of letters of credit were issued under the $1.3 billion synthetic letter of credit facility. The $1.0 billion revolving credit facility was undrawn, and the company's debt-to-total-capitalization ratio was 47.57%.
06—Continue