01—Abstract
Summary
Summary of the 10-K filed February 23, 2010. Cited figures are marked; the original filing is the authoritative source.
NRG Energy, Inc. describes itself as primarily a wholesale power generation company with a significant presence in major competitive U.S. power markets, plus a major retail electricity franchise in ERCOT (Texas).
As of December 31, 2009, the company reported approximately 24,115 MW of aggregate generation capacity across 44 plants, with approximately 400 MW under construction, and 365 MW of renewable capacity. The key 2009 event was the May 1, 2009 acquisition of Reliant Energy's Texas retail business for cash consideration of $360 milliona, net of cash acquired, which added $4.4 billion of retail revenue in the eight months to year-end. Total operating revenues rose to $8,952 million from $6,885 million, but income from continuing operations fell to $941 million from $1,053 million, and net income attributable to NRG was $942 million, versus $1,225 million in 2008, which included discontinued operations.
Underlying wholesale results weakened under lower natural gas and power prices. Energy revenue fell to $3,031 millionb from $4,519 million, and capacity revenue declined to $1,030 million from $1,359 million. The filing attributes these declines to lower average Henry Hub natural gas prices, which were $3.92/MMBtu in 2009 versus $8.85 in 2008, and to weaker demand from the recession.
Cash flow from operations rose to $2,106 millionc from $1,479 million, largely due to the contribution of Reliant Energy. The company repurchased 19,305,500 shares for $500 million during 2009, and reported $3.8 billion of total liquidity excluding collateral received at year-end. Investors should also weigh material uncertainties disclosed in the filing.
These include the South Texas Project Units 3 and 4 nuclear expansion, where an estimated overnight EPC cost of approximately $11.5 billiond compares with NRG's stated target of $9.8 billion, and where a February 17, 2010 agreement in principle with CPS would raise NINA's ownership from 50% to 92.375%. An impairment would require a write-down of the $299 million of construction-in-progress capitalized through December 31, 2009. Other contingencies include the CDWR refund litigation at WCP, a Department of Justice Clean Air Act suit involving Big Cajun II, and a $32 billion damages claim by CPS that was later the subject of settlement discussions.
02—Key points
Key Highlights
- Total operating revenues increased to $8,952 million in 2009 from $6,885 million in 2008, driven by $4,440 million of retail revenue from Reliant Energy, which was acquired May 1, 2009.
- Net income attributable to NRG Energy, Inc. was $942 million in 2009, compared with $1,225 million in 2008, which included $172 million from discontinued operations.
- Energy revenue declined to $3,031 million from $4,519 million, reflecting lower natural gas prices (Henry Hub averaged $3.92/MMBtu in 2009 versus $8.85 in 2008) and lower generation.
- Cash flow from operating activities rose to $2,106 million from $1,479 million, and the company repurchased $500 million of common stock during 2009 under its capital allocation plan.
- Total liquidity, excluding collateral received, was $3.8 billion at December 31, 2009, and the company sold its 50% interest in MIBRAG for $284 million net proceeds, recognizing a $128 million pre-tax gain.
- The STP Units 3 and 4 nuclear project carries an estimated EPC cost of approximately $11.5 billion against NRG's $9.8 billion target, with $299 million of construction-in-progress exposed to impairment if the project does not proceed.
- Net debt-to-capital target range is 45% to 60%, and the company's senior unsecured notes carry BB- ratings from S&P, with the Term Loan Facility rated BB+.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2009, NRG Energy kept $0.11.
- Revenue$8.95B100.0%
- Cost of revenue−$5.32B59.5%
- Gross profit$3.63B40.5%
- Operating costs−$1.47B16.4%
- Operating income$2.16B24.1%
- Interest, other & tax−$1.22B13.6%
- Net income$942.0M10.5%
Where FY2009 revenue went
$8.95B- Cost of revenue: $5.32B, 59% of revenue
- Interest, other & tax: $1.22B, 14% of revenue
- Net income: $942.0M, 11% of revenue
- SG&A: $550.0M, 6.1% of revenue
- Other operating costs: $920.0M, 10% of revenue
Kept 11% as net income
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2009filed February 23, 2010Financial Statements
FY2009 against FY2008
| Line item | FY2009FY2008 | Change |
|---|---|---|
| Revenue | $8.95B$6.88B | +30.0% |
| Cost of Revenue | $5.32B$3.60B | +47.9% |
| Gross Profit | $3.63B$3.29B | +10.4% |
| SG&A Expenses | $550.00M$319.00M | +72.4% |
| Operating Expenses | $6.79B$4.61B | +47.3% |
| Operating Income | $2.16B$2.27B | −5.0% |
| Interest Expense | $634.00M$583.00M | +8.7% |
| Net Income | $942.00M$1.23B | −23.1% |
| EPS (Basic) | $3.70$4.98 | −25.7% |
| EPS (Diluted) | $3.44$4.43 | −22.3% |
| Shares Outstanding (Basic) | 246.00M235.00M | +4.7% |
| Shares Outstanding (Diluted) | 271.00M275.00M | −1.5% |
05—Questions
Frequently Asked Questions
How did the Reliant Energy acquisition change NRG's financial profile in 2009?
NRG acquired Reliant Energy, the Texas retail business of RRI, on May 1, 2009, for cash consideration of $360 million, net of cash acquired. In the eight months ended December 31, 2009, Reliant Energy added $4.4 billion in retail revenue and $3.5 billion in cost of sales. The filing notes that Reliant Energy contributed about $855 million to consolidated operating cash flow in 2009, and it gives Reliant about 1.5 million Mass customers and 0.1 million C&I customers.
Why did wholesale energy revenue fall in 2009?
Energy revenue decreased $1.5 billion, to $3,031 million from $4,519 million. The filing attributes the decline mainly to lower average natural gas prices, with Henry Hub averaging $3.92/MMBtu in 2009 versus $8.85 in 2008, and to a recession-driven drop in power demand. Generation fell in the Northeast by 31% and in Texas by 4%, while capacity revenue also dropped to $1,030 million from $1,359 million.
What is the main risk in the STP Units 3 and 4 nuclear project?
NINA's EPC estimate from prime contractor TANE was approximately $11.5 billion, versus NRG's stated target of $9.8 billion. The project also depends on a conditional DOE loan guarantee and on resolving litigation with CPS. Under a February 17, 2010 agreement in principle, NINA would raise its stake from 50% to 92.375% and pay CPS $80 million. If that deal or the loan guarantee falls through, the filing says the project could be reassessed and $299 million of construction-in-progress could be written down.
How is NRG returning capital to shareholders?
In 2009 NRG repurchased 19,305,500 shares for $500 million under its capital allocation plan. The Board raised the authorized repurchase amount from $330 million to $500 million in July 2009. On February 23, 2010, the company announced a 2010 Capital Allocation Plan to purchase $180 million of common stock. The company has not declared or paid common dividends, and its debt covenants limit the amount that can be returned to shareholders.
What environmental and regulatory exposures could affect future results?
The filing estimates environmental capital expenditures of approximately $0.9 billion for 2010 through 2014, with $902 million in the table. The largest pieces are in the Northeast ($467 million) and South Central ($340 million). Major open matters include a Department of Justice Clean Air Act lawsuit over Big Cajun II, which seeks BACT installation and civil penalties, and the CDWR refund proceeding at the FERC, where a reconsideration could require significant refunds. The filing states that NRG cannot predict the outcome of these matters.
06—Continue