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NRG Energy: Past, Present and FutureDavid Crane, President and Chief Executive Officer
Robert Flexon, EVP and Chief Financial Officer
NRG Energy: Past, Present and FutureDavid Crane, President and Chief Executive Officer
Robert Flexon, EVP and Chief Financial Officer
Deutsche Bank Global High-Yield ConferenceOctober 6, 2004Scottsdale, AZ
Deutsche Bank Global High-Yield ConferenceOctober 6, 2004Scottsdale, AZ
2
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 sufficiency in the disputed claims reserve, 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, our 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 August 5, 2004 and is based on assumptions believed to be reasonable as of that date. NRG disclaims any current intention to update such guidance from August 5, 2004. 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.
3
AgendaAgenda
NRG in the Past
NRG in the Present
NRG in the Future
NRG in the Past
NRG in the Present
NRG in the Future
4
NRG – A Merchant GeneratorNRG – A Merchant Generator
We are a nonutility electric generation company We are a nonutility electric generation company providing value through competitive markets.providing value through competitive markets.
5
NRG HistoryNRG History
The “old” NRG committed the same blunders as the rest of the wholesale power industry:
Overpaid for acquisitions Overleveraged balance sheet Overextended via turbine orders Over hyped market prospects
The “old” NRG committed the same blunders as the rest of the wholesale power industry:
Overpaid for acquisitions Overleveraged balance sheet Overextended via turbine orders Over hyped market prospects
Xcel subsidiary, NRG completes series of
domestic and international acquisitions leading to
partial IPO in June 2000.
Confidence in energy industry
falters post-Enron. Energy prices fall.
Xcel Energy completes tender offer to acquire
NRG’s outstanding stock
Unable to serve debt accumulated through
acquisitions, NRG files under Chapter
11.
NRG emerges
from Chapter 11
$2.7 bn Exit
Financing
New NRGNew NRGOld NRGOld NRG
Emergence from Chapter 11 marks the birth of the “new” NRG, a very different company:
New balance sheet New strategy New management No legacy issues
Emergence from Chapter 11 marks the birth of the “new” NRG, a very different company:
New balance sheet New strategy New management No legacy issues
1991-2001 2002 2003 2004 Year to Date
Relisted on NYSE
New CFO ’04 Adj.
EBITDA Guidance $850 mn
With Kendall, Total Asset
Sales: $1 bn+
6
New NRG – New StrategyNew NRG – New Strategy
South CentralSouth Central
WestWest
NortheastNortheast
Gas 980 MW
40% Coal 1,489 MW
60%
Gas 693 MW
56%
Dual Fuel 628 MW
44%
Regional Regional concentrations concentrations with fuel and with fuel and dispatch-level dispatch-level
diversitydiversityOur Competitive AdvantagesSizeable asset base in the right marketsLong-term contracts / relationships with retail cooperatives in South CentralLocational advantageHealthy balance sheetFlexibility to act in best interest of stakeholders
Our Competitive AdvantagesSizeable asset base in the right marketsLong-term contracts / relationships with retail cooperatives in South CentralLocational advantageHealthy balance sheetFlexibility to act in best interest of stakeholders
* Other North America includes 2,934 MW outside of core regions
GasGas842 MW 842 MW
11%11%
Coal 2,407 MW
30%
Dual Fuel 2,284 MW
29%
Oil2,350 MW
30%
Leverage off the strength of the asset baseLeverage off the strength of the asset base
7
The New NRGThe New NRG
New CEO and CFO
Best practices approach to Corporate Governance
– Non-executive Chairman
– Board of Directors are independent*
– All Directors selected by NRG Creditors Committee
New CEO and CFO
Best practices approach to Corporate Governance
– Non-executive Chairman
– Board of Directors are independent*
– All Directors selected by NRG Creditors Committee
California settled
CL&P contract expired
McClain sold
Turbine purchase obligations resolved
California settled
CL&P contract expired
McClain sold
Turbine purchase obligations resolved
New Management No Legacy Issues
*Excluding CEO
8
New NRG – Post-emergence focusNew NRG – Post-emergence focus
Objectives met– Noncore assets continue
to be sold– Strong liquidity
maintained– Restructured corporate
organization– 2004 financial guidance
provided– Conversion of New York
coal-fired plants to PRB and initial steps in Delaware
Objectives met– Noncore assets continue
to be sold– Strong liquidity
maintained– Restructured corporate
organization– 2004 financial guidance
provided– Conversion of New York
coal-fired plants to PRB and initial steps in Delaware
Focus remains– Building regional
businesses with customer focus
– Increasing operational efficiencies in maintenance and fuel procurement
– Solving for California– Allocating capital among
shareholders, debt service and growth
– Strengthening trading and marketing platform
Focus remains– Building regional
businesses with customer focus
– Increasing operational efficiencies in maintenance and fuel procurement
– Solving for California– Allocating capital among
shareholders, debt service and growth
– Strengthening trading and marketing platform
New NRG: Significant progress since bankruptcy, but plenty of work still remains
9
New NRG - Early Returns are GoodNew NRG - Early Returns are Good
Operating revenues 574 1,174
Gross margin 349683
Net income 83113
EBITDA 282529
Adjusted EBITDA* 233489
Free Cash Flow 37355
Operating revenues 574 1,174
Gross margin 349683
Net income 83113
EBITDA 282529
Adjusted EBITDA* 233489
Free Cash Flow 37355
$ millions$ millions YTDYTDQ2Q2
While we plan and organize for the future, the Company has stayed focused on
delivering the present:
*Full-year guidance for 2004 Adjusted EBITDA is $850 million*Full-year guidance for 2004 Adjusted EBITDA is $850 million
10
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
Net Debt / FY Adj. EBITDANet Debt / FY Adj. EBITDA 2.87x2.87x
1) Includes expected asset sales1) Includes expected asset sales
How we look at equity value:How we look at equity value:
11
Portfolio ManagementPortfolio Management Strengthening the Balance SheetStrengthening the Balance Sheet
A 2004 PriorityA 2004 Priority
Targeted Unproductive CapitalTargeted Unproductive CapitalInvested CapitalInvested Capital Net DebtNet Debt
Asset Sale
Debt
EBITDA1
Leverage Ratio
McClain $156.5m $10m 15.65x
Batesville $289.1m $39m 7.41x
Kendall $447.4m $43m 10.40x
Subtotal $893.0m $92m
9.71x
Other $ 94.2m N/A2
N/A
$0
$1,000
$2,000
$3,000
$4,000
12/ 03A 12/ 04E$0
$1,000
$2,000
$3,000
$4,000
$5,000
$6,000
$7,000
12/ 03A 12/ 04E
18% Decline in Capital
34% Decline in Net Debt
1Full-year 2004 estimate 2Break-even at time of sale
New NRG – Balance Sheet ManagementNew NRG – Balance Sheet Management
Asset sales announced year-to-date also generated close to $150mn of cash proceeds
Total liquidity now exceeds $1.6 billion Corporate maturities due over the next
five years are less than $50 million in aggregate
Asset sales announced year-to-date also generated close to $150mn of cash proceeds
Total liquidity now exceeds $1.6 billion Corporate maturities due over the next
five years are less than $50 million in aggregate
12
NRG PerformanceNRG Performance
40.00%
60.00%
80.00%
100.00%
120.00%
140.00%
160.00%
1/2/
2004
1/16
/200
4
1/30
/200
4
2/13
/200
4
2/27
/200
4
3/12
/200
4
3/26
/200
4
4/9/
2004
4/23
/200
4
5/7/
2004
5/21
/200
4
6/4/
2004
6/18
/200
4
7/2/
2004
7/16
/200
4
7/30
/200
4
8/13
/200
4
8/27
/200
4
9/10
/200
4
9/24
/200
4
NRG %
DYN %
RRI %
AES %
CPN %
NRG versus Peer Group
13
NRG PerformanceNRG Performance
78.000
80.000
82.000
84.000
86.000
88.000
90.000
92.000
94.000
96.000
98.000
100.000
102.000
104.000
106.000
108.000
110.000
112.000
114.000
116.000
118.000
12/1
8/200
3
1/1/
2004
1/15
/200
4
1/29
/200
4
2/12
/200
4
2/26
/200
4
3/11
/200
4
3/25
/200
4
4/8/
2004
4/22
/200
4
5/6/
2004
5/20
/200
4
6/3/
2004
6/17
/200
4
7/1/
2004
7/15
/200
4
7/29
/200
4
8/12
/200
4
8/26
/200
4
9/9/
2004
(Pri
ce,
% o
f Pa
r)
NRG 8% due '13 ($1,725MM)
Dynegy 10.125% due '13 ($900MM)
Reliant Res. 9.5% due '13 ($550MM)
AES 8.75% due '13 ($1,200MM)
Calpine 8.75% due '13 ($900MM)
CSFB High Yield Index78.000
80.000
82.000
84.000
86.000
88.000
90.000
92.000
94.000
96.000
98.000
100.000
102.000
104.000
106.000
108.000
110.000
112.000
114.000
116.000
118.000
12/1
8/200
3
1/1/
2004
1/15
/200
4
1/29
/200
4
2/12
/200
4
2/26
/200
4
3/11
/200
4
3/25
/200
4
4/8/
2004
4/22
/200
4
5/6/
2004
5/20
/200
4
6/3/
2004
6/17
/200
4
7/1/
2004
7/15
/200
4
7/29
/200
4
8/12
/200
4
8/26
/200
4
9/9/
2004
(Pri
ce,
% o
f Pa
r)
NRG 8% due '13 ($1,725MM)
Dynegy 10.125% due '13 ($900MM)
Reliant Res. 9.5% due '13 ($550MM)
AES 8.75% due '13 ($1,200MM)
Calpine 8.75% due '13 ($900MM)
CSFB High Yield Index
Secondary Market Performance: NRG versus Peer Group
14
NRG: Working Towards a Super-Regional Business ModelNRG: Working Towards a Super-Regional Business Model
We are transitioning NRG from a loose collection of power plants into three coherent regional businesses, each focused on developing as a foundation to their businesses, commercial relationships with the in-market retail load providers
We are transitioning NRG from a loose collection of power plants into three coherent regional businesses, each focused on developing as a foundation to their businesses, commercial relationships with the in-market retail load providers
Locational advantageLocational advantageBase load coal /Base load coal /long term contractslong term contracts
Base load coalBase load coalPrincipal StrengthPrincipal Strength
2% (4% gross)2% (4% gross)5%5%4%4%Market ShareMarket Share
1,321 (2,692 gross)1,321 (2,692 gross)2,4692,4697,8847,884Our MWsOur MWs
Lack of capacityLack of capacitymarketmarket
Shortfall of our Shortfall of our generation relative generation relative to load we serveto load we serve
Reduction inReduction intransmission transmission constraintsconstraints
PrincipalPrincipalVulnerabilityVulnerability
60,00060,00050,00050,000180,000180,000Total MWsTotal MWs
WestWestSouth CentralSouth CentralNortheastNortheastRegionRegion
15
NRG Strategy – Beyond Back to BasicsNRG Strategy – Beyond Back to Basics
WestCoast
SouthCentral
NortheastExtracting maximum value from existing
fleet
Reinvestment in repowering of key
assets
Selective acquisitions to fill out regional lineups
Our Objective: to be a multi-regional, multi-fuel, scale generator with assets across the merit order in each of our core regional businesses and with the capability to procure, transport and trade all of the commodities involved in our business.
17
Supplemental informationSupplemental information
18
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
19
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
20
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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