NRG ENERGY, INC. - S-1/A - 19971203 - AUDITORS_OPINION
REPORT OF DELOITTE & TOUCHE GMBH, INDEPENDENT AUDITORS
To the Shareholders
Saale Energie GmbH
Schkopau, Germany
We have audited the accompanying balance sheet of Saale Energie GmbH (SEG)
as of December 31, 1996, and the related statements of operations and of cash
flows for the year then ended. These financial statements are the
responsibility of SEG's management. Our responsibility is to express an
opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards in Germany and the United States of America. Those standards
require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts
and disclosures in the financial statements. An audit also includes assessing
the accounting principles used and significant estimates made by management,
as well as evaluating the overall financial statement presentation. We
believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Saale Energie GmbH as of
December 31, 1996, and the results of its operations for the year then ended,
in conformity with accounting principles generally accepted in Germany.
Generally accepted accounting principles in Germany vary in certain
significant respects from generally accepted accounting principles in the
United States of America. Application of generally accepted accounting
principles in the United States of America would have affected the results of
operations for the year ended December 31, 1996 and shareholders' equity as
of December 31, 1996 to the extent summarized in Note C to the financial
statements.
YEAR ENDED
DECEMBER 31,
1996
--------------
Sales revenue ......................................... 161,309
Other operating income................................. 3
--------------
Total revenue ......................................... 161,312
Cost of materials and service purchased ............... 170,897
Depreciation of intangible and tangible fixed assets . 1
Other operating expenses .............................. 1,060
--------------
Total operating expenses .............................. 171,958
Results from operations................................ (10,646)
--------------
Income from companies in which participations are
held.................................................. 6,581
Interest expense (net) ................................ (3,845)
--------------
Results from ordinary activities ...................... (7,910)
Income tax ............................................ (40)
--------------
Net loss .............................................. (7,870)
==============
See accompanying Notes to Financial Statements
F-119
SAALE ENERGIE GMBH
BALANCE SHEET
(IN THOUSANDS DM)
AT DECEMBER 31,
NOTE 1996
--------- ---------------
ASSETS
Contributions outstanding........... 713
NON-CURRENT ASSETS
FIXED ASSETS
Tangible assets
Factory and office equipment ...... B 2
FINANCIAL ASSETS
1.Subsidiaries...................... B, E 49
2.Participations ................... B, E 200,677
3.Loans granted to participations .. B, F 82,200
---------------
TOTAL NON-CURRENT ASSETS ........... 282,928
CURRENT ASSETS
INVENTORIES
Raw materials and supplies......... B 325
RECEIVABLES AND OTHER ASSETS
1.Trade receivables ................ B, D, G 24,764
2.Other assets...................... B, G 14,549
CHEQUES, CASH-IN-HAND, BANK
BALANCES .......................... B 28,748
---------------
TOTAL CURRENT ASSETS ............... 68,386
---------------
TOTAL ASSETS ........................ 352,027
===============
SHAREHOLDERS' EQUITY AND LIABILITIES
Shareholders' Equity................ H
Subscribed capital.................. 1,000
Capital reserve..................... 48,041
Net loss for the year............... (7,870)
Profit/loss carried foreward ....... (3,513)
---------------
TOTAL SHAREHOLDERS' EQUITY ......... 37,658
PROVISIONS
1.Taxation accruals ................ --
PROVISIONS
Other accruals..................... B 40
LIABILITIES
1.Trade payables.................... B, I 8,836
2.Payables to shareholders.......... B, I 92,084
3.Payables to subsidiaries.......... B, I 4,375
4.Payables to participations ....... B, I 174,885
5.Other payables.................... B, I 34,149
---------------
TOTAL SHAREHOLDERS' EQUITY AND
LIABILITIES ........................ 352,027
===============
See accompanying Notes to Financial Statements
F-120
SAALE ENERGIE GMBH
STATEMENT OF CASH FLOWS
(IN THOUSANDS DM)
YEAR ENDED
DECEMBER 31, 1996
-----------------
Cash flows from operating activities:
Net loss for the year....................................... (7,870)
Adjustments to reconcile net loss to net cash provided by
operating activities:
Depreciation on tangible assets and current asset
write-offs................................................ 4
Change in assets and liabilities:
Inventories............................................... 384
Short-term trade receivables ............................. (24,647)
Other assets.............................................. (14,415)
Decrease in accruals...................................... (1,535)
Short-term trade payables................................. 8,218
Interest payable.......................................... 3,583
Other liabilities......................................... 114,597
-----------------
CASH PROVIDED BY OPERATING ACTIVITIES ...................... 78,319
-----------------
Cash flows from investing activities:
Increase in participations.................................. (82,658)
-----------------
CASH USED FOR INVESTING ACTIVITIES ......................... (82,658)
-----------------
Cash flows from financing activities:
Increase in capital reserve................................. 1,600
Increase in other payables.................................. 25,468
Increase in payables to shareholders........................ 4,132
-----------------
CASH PROVIDED BY FINANCING ACTIVITIES....................... 31,200
-----------------
NET INCREASE IN CASH ....................................... 26,861
CASH AT BEGINNING OF YEAR .................................. 1,887
-----------------
CASH AT END OF YEAR ........................................ 28,748
=================
See accompanying Notes to Consolidated Financial Statements
F-121
SAALE ENERGIE GMBH
NOTES TO FINANCIAL STATEMENTS
(IN THOUSANDS DM)
NOTE A ORIGINATION AND NATURE OF BUSINESS
ORIGINATION According to the Articles of Association, Saale Energie Gmbh
("SEG") was established on November 11, 1993. The company's shares are held
at 50% by NRGenerating International B.V., Amsterdam and at 50% by PowerGen
Holdings B.V., Rotterdam.
NATURE OF BUSINESS: The operations of SEG include all activities relating
to the direct and indirect acquisition, ownership, administration and
operation of power generating facilities located in Schkopau, including the
purchase of fuel and the sale of energy produced in the facilities. The
business of the company further constitutes all activities relating to the
supply of management, maintenance and consulting services in respect of power
stations and related plants. The company is authorized to take all other
actions and engage in all other businesses which appear to be necessary and
useful in order to carry into effect the purpose of the company. In
particular it is authorized to hold, acquire and create subsidiaries,
branches, companies and interest in other enterprises.
NOTE B SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The financial statements of SEG have been prepared in accordance with the
German Commercial Code, which represents accounting principles generally
accepted in Germany ("German GAAP"). German GAAP vary in certain significant
respects from accounting principles generally accepted in the United States
of America ("US GAAP"). Application of US GAAP would have affected the result
of operations for the year ended December 31, 1996 to the extent summarized
in Note C to the financial statements. All amounts herein are shown in
thousands of Deutsche Mark ("DM") unless otherwise stated.
SEG was not required to prepare consolidated financial statements for
1996. SEG owns a 98% share of its subsidiary Saale Energie Service GmbH. The
company is included at cost in SEG's financial statements. Furthermore, SEG
holds a 41.1% share in the Kraftwerk Schkopau GbR and a 44.4% share in the
Kraftwerk Schkopau Betriebsgesellschaft mbH. These companies are included at
cost and referred to as participations in these financial statements.
USE OF ESTIMATES: The preparation of financial statement in conformity
with generally accepted accounting principles necessarily requires management
to make estimates and assumptions that affect the reported amounts of assets
and liabilities and disclosure of contingent assets and liabilities at the
balance sheet date and the reported amounts of revenues and expenses during
the reported period. Actual results could differ from those estimates.
TOTAL COST METHOD: The income statement has been presented according to
the total cost (or type of expenditure) format as commonly used in Germany.
According to this format, production and all other expenses incurred during
the period are classified by type of expenses.
REVENUE RECOGNITION: Revenue is recognized when title passes or services
are rendered, net of discounts, customer bonuses and rebates granted.
FIXED ASSETS: Fixed tangible assets are recorded on the basis of
acquisition or manufacturing cost and subsequently reduced by scheduled
depreciation charges over the assets' useful lives.
FINANCIAL ASSETS: Inventories are accounted for at historical purchase
cost.
RECEIVABLES AND OTHER ASSETS: All receivables are recorded at nominal
value. No provision for doubtful accounts has been recorded.
BANK BALANCES: Bank balances include current accounts.
ACCRUALS AND LIABILITIES: Accruals have been recorded for known
obligations at the balance sheet date at the amounts of the estimated
liability. Liabilities are valued at the amounts outstanding.
F-122
SAALE ENERGIE GMBH
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
NOTE C SIGNIFICANT DIFFERENCES BETWEEN GERMAN AND UNITED STATES GENERALLY
ACCEPTED ACCOUNTING PRINCIPLES
SEG's financial statements comply with German GAAP, which differs in
certain significant respects from US GAAP. The differences that would have a
significant effect on net income and shareholders' equity are set out below.
1. CONSOLIDATION
SEG was not required to prepare consolidated financial statements for
1996. If US GAAP had been applied, SEG would be required to prepare
consolidated financial statements including the financial statements of Saale
Energie Service GmbH (SES), its 98% owned subsidiary.
US GAAP financial statements would therefore include the 1996 operating
results of SES, net of minority interest, and would exclude the dividend
income received by SEG.
2. ACCOUNTING FOR LONG TERM SERVICE AND SUPPLY AGREEMENTS
For German GAAP purposes the amounts billed to SEG resulting from the use
and benefit agreement between SEG and Kraftwek Schkopau GbR were recorded as
expenses of the period. Parallel, the amounts attributable to the long-term
electricity supply contract were recorded as revenue in the period they were
received. See Note D.
In accordance with US GAAP, these agreements would be considered as
leasing agreements. The use and benefit agreement would be considered as a
capital lease and the long-term sales agreement as it relates to capacity
availability is treated as a direct financing lease arrangement. The revenues
and expenses recorded based upon current billings would be replaced by the
amortization of unearned direct finance lease income and interest expense on
lease obligations in accordance with US GAAP.
The net present value of the minimum lease payments to be made by VEAG
under the terms of the agreement amounts to DM875.272, whereas the net
present value of the lease obligation liable to GbR over the minimum period
of 25 years is DM728.240 at December 31, 1996.
3. OUTSTANDING CONTRIBUTIONS BY SHAREHOLDERS'
As of December 31, 1996 contributions from shareholders were outstanding
at DM713, which were not deducted from German shareholders' equity. US GAAP
shareholders' equity has to be reduced by the outstanding contributions.
4. DEFERRED TAXES
Under German GAAP, SEG did not accrue for income tax, because of net
operating losses in 1996. Deferred tax assets and liabilities have not been
recorded, because under German GAAP they are only recognized to the extent
that deferred tax liabilities exceed deferred tax assets. Deferred tax assets
are not recorded for operating loss carryforwards.
For US GAAP accounting purposes, mainly due to the application of lease
accounting, the financial values differ significantly from the tax basis.
F-123
SAALE ENERGIE GMBH
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Significant components of SEG's deferred tax liabilities and assets at
December 31, 1996, that result from carryforwards and temporary differences
between the US GAAP financial statement basis and tax basis of assets and
liabilities are summarized as follows:
1996
------
Deferred tax liability
lease accounting ................................ 17.6
investment in GbR ............................... 50.2
------
Total deferred liability ....................... 67.8
------
Deferred tax assets operating loss carryforwards 54.7
------
Net deferred tax liability ....................... 13.1
======
Because all differences in the opening balances between German and US GAAP
are taxable for German tax purposes these differences, which result in a net
taxable difference, would be considered to be temporary in accordance with US
GAAP.
RECONCILIATION TO US GAAP
The following is a summary of the significant adjustments to net income
for the year 1996 which will be required if US GAAP had been applied instead
of German GAAP.
YEAR ENDED
DECEMBER 31,
NOTE 1996
------ --------------
Net loss as reported in the income statement under
German GAAP ...................................... (7,870)
Adjustments required to conform with US GAAP:
Consolidation of SES ............................. (1) (40)
Lease adjustment ................................. (2) 31,536
Deferred taxes ................................... (4) (14,101)
--------------
Net income in accordance with US GAAP ............. 9,525
==============
The following is a summary of the significant adjustments to shareholders'
equity as of December 31, 1996 which will be required if US GAAP had been
applied instead of German GAAP.
YEAR ENDED
DECEMBER 31,
NOTE 1996
------ --------------
Shareholders' equity as reported in the balance sheet
under German GAAP ........................................ 37,658
Adjustments required to conform with US GAAP:
Consolidation of SES ..................................... (1) 3,277
Lease adjustment ......................................... (2) 31,536
Outstanding contributions ................................ (3) (713)
Deferred taxes ........................................... (4) (13,087)
--------------
Shareholders' equity in accordance with US GAAP .......... 58,671
==============
F-124
SAALE ENERGIE GMBH
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
NOTE D LONG-TERM SALES AND SERVICE AGREEMENTS
According to a long-term electricity supply contract between SEG and
Vereinigte Energie AG (VEAG), SEG supplies its total available electricity
capacity to VEAG. The contract was closed for a 25 years period starting at
the date of commissioning of the power plant. In terms of the contract VEAG
is obliged to pay on a monthly basis a price that covers (1) the availability
of electrical supply capacity and (2) the operating cost incurred to produce
the electricity. Under the terms of this agreement VEAG has agreed to make
payments of DM2,142.7 million over the period of the agreement (25 years). In
1996 SEG's sales revenues of DM161,309 solely relate to sales made to VEAG.
SEG has a use and benefit agreement with Kraftwerk Schkopau GbR (GbR),
under which GbR grants SEG a notional share of 400 MW (power share) in the
total net capacity of the power station for its sole use. The SEG power share
encompasses all equipment and installations of the power station. In return
SEG has obliged to pay all costs of GbR related to the SEG-power share as
stipulated in the agreement plus profit mark-up plus value added tax. In 1996
the SEG has recorded expenses of DM95,797 related to this agreement.
In order to manage and operate its share in the power plan SEG closed a
contract with Kraftwerk Schkopau Betriebsgesellschaft mbH (KSB) on December
10, 1993. In terms of this contract, SEG commissions KSB with the conversion
of coal using its power share of 400 MW of the Schkopau power plant, and KSB
accepts responsibility for all costs of operating and maintaining the power
plant. In terms of the contract SEG is obliged to pay for KSB's services.
NOTE E INVESTMENTS IN SUBSIDIARIES AND PARTICIPATIONS
SEG holds a 98% share in Saale Energie Service GmbH (SES). The investment
is accounted for at its historical acquisition cost of DM49. The business of
the company comprises of all activities relating to the supply of management,
maintenance and consulting services in respect of power stations and related
plants, especially for the lignite power stations of the Mitteldeutsche
Braunkohlengesellschaft mbH (MIBRAG) and its subsidiaries.
A 41.1% participation in the Kraftwerk Schkopau GbR (GbR), which is the
owner of the Schkopau power plant, is held by SEG, and is recorded at cost.
SEG's 44.4% share in the Kraftwerk Schkopau Betriebsgesellschaft mbH (KSB)
has been recorded at the historical acquisition cost of DM22. SEG has
assigned its share in KSB to C & L Deutschland Revision AG in security for
VEBA Vereinigte Kraftwerke Ruhr AG (VKR).
NOTE F LOAN TO KRAFTWERK SCHKOPAU GBR
In terms of the loan agreement between the participants of the GbR, SEG
has granted a loan of DM98 million to GbR, of which DM16,440 was drawn during
1996. The balance outstanding at December 31, 1996 was DM82,200. The loan is
unsecured and bears interest at a fixed rate of 7% p.a. The loan has been
granted for an indefinite period and the repayment terms are not fixed.
NOTE G RECEIVABLES AND OTHER ASSETS
The trade receivables of DM25, as reported on December 31, 1996, relate
solely to power supplies to VEAG. The other assets are mainly receivables
from tax authorities.
NOTE H CHANGE IN SHAREHOLDERS' EQUITY
The Shareholders' equity of SEG changed in 1996 solely by the net loss of
1996 (DM7,870) from DM45,528 to DM37,658.
F-125
SAALE ENERGIE GMBH
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
NOTE I LIABILITIES
The maturity periods of the liabilities are as follows (in DM):
MATURITY PERIOD MATURITY PERIOD TOTAL BALANCE
OF LESS THAN BETWEEN AS OF
1 YEAR 1 AND 5 YEARS DEC. 31, 1996
--------------- --------------- ---------------
1)Trade payables .............................. 8,836 -- 8,836
2)Payables to shareholding companies ......... 6,387 85,697 92,084
3)Payables to subsidiaries .................... -- 4,375 4,375
4)Payables to companies in which participants
are held ..................................... 174,884 -- 174,884
5)Other liabilities ........................... -- 34,150 34,150
--------------- --------------- ---------------
190,107 124,222 314,329
=============== =============== ===============
2) PowerGen plc., London and NRGenerating B.V., Amsterdam granted a loan
to SEG for the partial funding of its financial requirements at a total
amount of DM148,054. The loans are not collateralized and bear interest at a
fixed rate of 7.5% p.a. The loans are granted for an indefinite period and no
fixed repayment terms have been set.
The loans from shareholding companies comprise as follows (in DM:)
3) In terms of the loan agreements dated February 7, 1996 and September
25, 1996 SES granted to SEG loans amounting DM6,500 and DM1,000 respectively.
DM3,368 was repaid during 1996. The unsecured loans bear interest at a
variable rate equal to the German Central Bank's discount rate plus 2% p.a.
Included in the balance as of December 31, 1996 are interest payable of
DM243. The loans can be called up at any time.
4) The liability as of December 31, 1996 comprises as follows (in DM):
a) The payables to GbR comprise of two components. DM110,109 refer to the
fees due for 1996 in terms of the use and benefit agreement dated December
10, 1993 and represent SEG's share in the power plant's expenses. DM58,803
result from SEG's obligation to reimburse its share
F-126
SAALE ENERGIE GMBH
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
in the shortfall achieved in the 1995 financial statement of the GbR as
well as the shortfall achieved in 1996 up to the commissioning date of the
power plant (March 31).
b) The liability mainly arises from the regulations of the coal
conversion contract, closed on December 10, 1993 between SEG and KSB. In
terms of this contract SEG commissions KSB with the conversion of coal
using its power share of 400 MW of the Schkopau power plant, and KSB
accepts responsibility for all costs of operating and maintaining the
power plant. In terms of the contract SEG is obliged to pay for KSB's
services.
5) VEBA Vereinigte Kraftwerke Ruhr AG (VKR), the other participant of the
GbR, granted a loan up to DM50 million to SEG for purposes of funding the
interest due during the construction period of the power plant. DM8,682 and
DM25,468 has been drawn by SEG during 1995 and 1996 respectively. A variable
interest rate of 3 month LIBOR plus 1.5% p.a. was agreed upon.
NOTE J OTHER FINANCIAL COMMITMENTS
In order to provide the GbR with own funds, the two participants of the
GbR closed on December 10, 1993 a financing agreement. In terms of this
agreement SEG is obliged to contribute DM82 million to the GbR, which is
already fulfilled. SEG is also required to grant a loan of DM98 million in
total to the GbR, of which DM82 million have been called up as of December
31, 1996. The remaining DM16 million can be called up any time.
For financial commitments relating to the leased assets and lease
commitments see note C.
NOTE K RELATED PARTY TRANSACTIONS
SEG has a long-term coal supply agreement with MIBRAG, a company in which
SEG's parent companies each have one-third ownership. Under the terms of this
agreement MIBRAG delivers raw brown coal to the power station in Schkopau
until 2010 at market prices paid by SEG. The annual volume of coal to be
delivered by MIBRAG was not fixed in the agreement.
Additionally, SES, a subsidiary of SEG, and MIBRAG entered into a
consulting and management agreement. This agreement determines certain
consultancy services provided by SES. MIBRAG is obliged to pay the
cost-related remuneration for these services. In 1996 MIBRAG paid DM7,894 to
SES.
F-127
SAALE ENERGIE GMBH
STATEMENT OF OPERATIONS (UNAUDITED)
(IN THOUSANDS DM)
YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31,
1995 1994
-------------- --------------
Sales revenue.......................................... 101 --
Other operating income.................................
-------------- --------------
Total revenue.......................................... 101 --
Cost of materials...................................... 1,223 --
Depreciation of intangible and tangible fixed assets .. -- --
Other operating expenses............................... 241 311
-------------- --------------
Total operating expenses............................... 1,464 311
Results from operations................................ (1,363) (311)
-------------- --------------
Income from companies in which participations are
held.................................................. -- --
Interest expense (net)................................. (2,375) 578
-------------- --------------
Results from ordinary activities....................... (3,738) 267
Income tax............................................. -- 40
-------------- --------------
Net loss............................................... (3,738) 227
============== ==============
See accompanying Notes to Financial Statements
F-128
SAALE ENERGIE GMBH
BALANCE SHEET (UNAUDITED)
(IN THOUSANDS DM)
AT DECEMBER 31, AT DECEMBER 31,
NOTE 1995 1994
------- --------------- ---------------
ASSETS
Contributions outstanding................ 713 713
NON-CURRENT ASSETS
Fixed assets
Tangible assets
Factory and office equipment............ B 3 4
Financial assets
1. Subsidiaries.......................... B,D 49 49
2. Participations........................ B,D 136,867 44,682
3. Loans granted to participations ...... B,E 65,760 24,660
--------------- ---------------
TOTAL NON-CURRENT ASSETS................. 202,679 69,395
CURRENT ASSETS
Inventories
Raw materials and supplies.............. B 712 0
Receivables and other assets
1. Trade receivables..................... B,C,F 117 0
2. Other assets.......................... B,F 134 28
Cheques, cash-in-hand, bank balances .... B 1,887 1,246
--------------- ---------------
TOTAL CURRENT ASSETS..................... 2,850 1,274
--------------- ---------------
TOTAL ASSETS.............................. 206,242 71,382
=============== ===============
SHAREHOLDERS' EQUITY AND LIABILITIES
SHAREHOLDERS' EQUITY
Subscribed capital....................... 1,000 1,000
Capital reserve.......................... 48,040 31,125
Net profit/loss for the year............. (3,738) (2)
Profit/Loss carried foreward............. 225 227
--------------- ---------------
TOTAL SHAREHOLDERS' EQUITY............... 45,527 32,350
Provisions
Tax accruals............................ 40 40
Other accruals.......................... B 1,535 151
Liabilities
1. Trade payables........................ B,G 618 38
2. Payables to shareholders.............. B,G 87,125 28,348
3. Payables to participations............ B,G 56,212 0
4. Other payables........................ B,G 15,185 10,455
--------------- ---------------
TOTAL SHAREHOLDERS' EQUITY AND
LIABILITIES............................... 206,242 71,382
=============== ===============
See accompanying Notes to Financial Statements
F-129
SAALE ENERGIE GMBH
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(IN THOUSANDS DM)
YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31,
1995 1994
-------------- --------------
Cash flows from operating activities:
Net loss (1994: profit) for the year............................... (3,738) 227
Adjustments to reconcile net loss to net cash provided by
operating activities:
Depreciation on intangible and tangible assets.................... 4
Change in assets and liabilities:
Inventories...................................................... (712) 0
Short-term receivables and other assets.......................... (223) (28)
Increase in accruals............................................. 1,384 191
Short-term payables.............................................. 578 38
Other liabilities................................................ 1,048 456
-------------- --------------
CASH PROVIDED BY OPERATING ACTIVITIES.............................. (1,659) 884
-------------- --------------
Cash flows from investing activities:
Increase in financial investments.................................. (77,074) (69,346)
-------------- --------------
CASH USED FOR INVESTING ACTIVITIES................................. (77,074) (69,346)
-------------- --------------
Cash flows from financing activities:
Additional paid-in capital......................................... 16,915 31,126
Increase in long-term liabilities.................................. 62,459 38,346
-------------- --------------
CASH PROVIDED BY FINANCING ACTIVITIES.............................. 79,374 69,472
-------------- --------------
NET INCREASE IN CASH............................................... 641 1,010
CASH AT BEGINNING OF YEAR.......................................... 1,246 236
-------------- --------------
CASH AT YEAR-END................................................... 1,887 1,246
============== ==============
See accompanying notes to Consolidated Financial Statements
F-130
SAALE ENERGIE GMBH
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
(IN THOUSANDS DM)
NOTE A ORIGINATION AND NATURE OF BUSINESS
ORIGINATION: According to the Articles of Association, Saale Energie GmbH
("SEG") was established on November 11, 1993. The company's shares are held
at 50% by NRGenerating International B.V., Amsterdam and at 50% by PowerGen
Holdings B.V., Rotterdam.
NATURE OF BUSINESS: The operations of SEG include all activities relating
to the direct and indirect acquisition, ownership, administration and
operation of power generating facilities located in Schkopau, including the
purchase of fuel and the sale of energy produced in the facilities. The
business of the company further constitutes all activities relating to the
supply of management, maintenance and consulting services in respect of power
stations and related plants. The company is authorized to take all other
actions and engage in all other businesses which appear to be necessary and
useful in order to carry into effect the purpose of the company. In
particular it is authorized to hold, acquire and create subsidiaries,
branches, companies and interest in other enterprises.
NOTE B SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The financial statements of SEG have been prepared in accordance with the
German Commercial Code, which represents accounting principles generally
accepted in Germany ("German GAAP"). German GAAP vary in certain significant
respects from accounting principles generally accepted in the United States
of America ("US GAAP").
SEG was not required to prepare consolidated financial statements for 1994
and 1995. SEG owns a 98% share of its subsidiary Saale Energie Service GmbH.
The company is included at cost in SEG's financial statements. Furthermore,
SEG holds a 41.1% share in the Kraftwerk Schkopau GbR and a 44.4% share in
the Kraftwerk Schkopau Betriebsgesellschaft mbH. These companies are included
at cost and referred to as participations in these financial statements.
USE OF ESTIMATES: The preparation of financial statement in conformity
with generally accepted accounting principles necessarily requires management
to make estimates and assumptions that affect the reported amounts of assets
and liabilities and disclosure of contingent assets and liabilities at the
balance sheet date and the reported amounts of revenues and expenses during
the reported period. Actual results could differ from those estimates.
TOTAL COST METHOD: The income statement has been presented according to
the total cost (or type of expenditure) format as commonly used in Germany.
According to this format, production and all other expenses incurred during
the period are classified by type of expenses.
REVENUE RECOGNITION: Revenue is recognized when title passes or services
are rendered, net of discounts, customer bonuses and rabates granted.
FIXED ASSETS: Fixed tangible assets are recorded on the basis of
acquisition or manufacturing cost and subsequently reduced by scheduled
depreciation charges over the assets' useful lives.
FINANCIAL ASSETS: The long-term loans and investments are recorded at
cost.
INVENTORIES: Inventories are accounted for at historical purchase cost.
RECEIVABLES AND OTHER ASSETS: All receivables are recorded at nominal
value. No provision for doubtful accounts has been recorded.
BANK BALANCES: Bank balances include current accounts.
ACCRUALS AND LIABILITIES: Accruals have been recorded for known
obligations at the balance sheet date at the amounts of the estimated
liability. Liabilities are valued at the amounts outstanding.
F-131
SAALE ENERGIE GMBH
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) -- (CONTINUED)
NOTE C LONG-TERM SALES AND SERVICE AGREEMENTS
According to a long-term electricity supply contract between SEG and
Vereinigte Energie AG (VEAG), dated December 7, 1993, SEG supplies its total
available electricity capacity to VEAG. The contract was closed for a 25
years period starting at the date of commissioning of the power plant. In
terms of the contract VEAG is obliged to pay on a monthly basis a price that
covers (1) the availability of electrical supply capacity and (2) the
operating cost incurred to produce the electricity. SEG began to supply such
available capacity in late 1995.
SEG has a use and benefit agreement with Kraftwerk Schkopau GbR (GbR),
under which GbR grants SEG a notional share of 400 MW (power share) in the
total net capacity of the power station for its sole use. The SEG power share
encompasses all equipment and installations of the power station.
In order to manage and operate its share in the power plant SEG closed a
contract with Kraftwerk Schkopau Betriebsgesellschaft mbH (KSB) on December
10, 1993. In terms of this contract, SEG commissions KSB with the conversion
of coal using its power share of 400 MW of the Schkopau power plant, and KSB
accepts responsibility for all costs of operating and maintaining the power
plant. In terms of the contract SEG is obliged to pay for KSB's services.
NOTE D INVESTMENTS IN SUBSIDIARIES AND PARTICIPATIONS
SEG holds a 98% share in Saale Energie Service GmbH (SES). The investment
is accounted for at its historical acquisition cost of DM 49. The business of
the company comprises of all activities relating to the supply of management,
maintenance and consulting services in respect of power stations and related
plants, especially for the lignite power stations of the Mitteldeutsche
Braunkohlengesellschaft mbH (MIBRAG) and its subsidiaries.
A 41.1% participation in the Kraftwerk Schkopau GbR (GbR), which is the
owner of the Schkopau power plant, is held by SEG, and is recorded at cost.
SEG's 44.4% share in the Kraftwerk Schkopau Betriebsgesellschaft mbH (KSB)
has been recorded at the historical acquisition cost of DM 22. SEG has
assigned its share in KSB to C & L Deutschland Revision AG in security for
VEBA Vereinigte Kraftwerke Ruhr AG (VKR).
NOTE E LOAN TO KRAFTWERK SCHKOPAU GBR
In terms of the loan agreement between the participants of the GbR, SEG
has granted a loan of DM 98 million to GbR, of which DM 41,100 was drawn
during 1995 (1994: DM 24,660). The balance outstanding at December 31, 1995
was DM 65,760 (1994: DM 24,660). The loan is unsecured and bears interest at
a fixed rate of 7% p.a. The loan has been granted for an indefinite period
and the repayment terms are not fixed.
NOTE F RECEIVABLES AND OTHER ASSETS
The trade receivables of DM 117, as reported on December 31, 1995 (1994:
DM 0) relate solely to power supplies to VEAG. The other assets are mainly
receivables from tax authorities.
F-132
SAALE ENERGIE GMBH
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) -- (CONTINUED)
NOTE G LIABILITIES
The maturity periods of the liabilities are as follows (in DM):
MATURITY PERIOD MATURITY PERIOD TOTAL BALANCE
OF LESS THAN MORE THAN AS OF
DECEMBER 31, 1995 1 YEAR 1 YEAR DEC. 31, 1995
------------------------------------- --------------- --------------- ---------------
1) Trade payables .................... 617 -- 617
2) Payables to shareholding
companies............................ -- 87,126 87,126
3) Payables to companies in which
participations are held.............. 27,800 28,412 56,212
4) Other liabilities ................. 6,504 8,681 15,185
--------------- --------------- ---------------
34,921 124,219 159,140
=============== =============== ===============
MATURITY PERIOD MATURITY PERIOD TOTAL BALANCE
OF LESS THAN MORE THAN AS OF
DECEMBER 31, 1994 1 YEAR 1 YEAR DEC. 31, 1994
-------------------------------------- --------------- --------------- ---------------
1) Trade payables ..................... 38 -- 38
2) Payables to shareholding companies 28,348 -- 28,348
4) Other liabilities .................. 5,455 5,000 10,455
--------------- --------------- ---------------
33,841 5,000 38,841
=============== =============== ===============
2) PowerGen plc., London and NRGenerating B.V., Amsterdam granted a loan
to SEG for the partial funding of its financial requirements at an total
amount of DM 148,054. The loans are not collateralized and bear interest at a
fixed rate of 7.5% p.a The loans are granted for an indefinite period and no
fixed repayment terms have been set.
The loans from shareholding companies comprise as follows (in DM):
3) The liability as of December 31,1995 of DM 58,803 result from SEG's
obligation to reimburse its share in the shortfall achieved in the 1995
financial statement of the GbR.
4) The balance is mainly comprised of a loan granted to SEG by VEBA
Vereinigte Kraftwerke Ruhr AG and the outstanding portion of the purchase
price to VKR for the shares in Kraftwerk Schkopau GbR.
VEBA Vereinigte Kraftwerke Ruhr AG (VKR), the other participant of the
GbR, granted a loan up to DM 50 million to SEG for purposes of funding the
interest due during the construction period of the power plant. DM 8,682 has
been drawn by SEG during 1995. A variable interest rate of 3 month LIBOR plus
1.5% p.a. was agreed upon.
The purchase price for 41.1% in the shares of GbR was in total DM 20,000.
The outstanding balance as of December 31, 1995 was DM 5,000, as of December
31,1994 DM 10,000.
NOTE H OTHER FINANCIAL COMMITMENTS
In order to provide the GbR with own funds, the two participants of the
GbR closed on December 10, 1993 a financing agreement. In terms of this
agreement SEG is obliged to contribute DM 82 million to the GbR, which is
already fulfilled. SEG is also required to grant a loan of DM 98 million in
total to the GbR, of which DM 66 million have been called up as of December
31, 1995 (1994: DM 25 million). The remaining amount can be called up any
time.
F-133
QUIET LIFE LIMITED
ACN 065 381 240
(formerly Loy Yang Power Ltd, name changed 13 May 1997)
PROFIT AND LOSS STATEMENT
FOR THE YEAR ENDED 30 JUNE 1997
30 JUNE 1997 30 JUNE 1996
NOTES $ $
------- --------------- --------------
OPERATING REVENUE .............................. 2 459,899,793 574,009,434
--------------- --------------
Operating Profit before Income Tax ............. 3 52,179,438 185,233,791
Income Tax Attributable to Operating Profit ... 5 21,659,694 67,547,498
--------------- --------------
OPERATING PROFIT AFTER INCOME TAX .............. 30,519,744 117,686,293
--------------- --------------
Extraordinary Item--Profit on sale of business . 4 1,335,852,636 0
Income Tax Attributable to Extraordinary Item .. 5 383,195,543 0
--------------- --------------
PROFIT ON EXTRAORDINARY ITEM AFTER INCOME TAX . -- 952,657,093 0
--------------- --------------
OPERATING PROFIT AND EXTRAORDINARY PROFIT AFTER
INCOME TAX .................................... 983,176,837 117,686,293
--------------- --------------
Retained Earnings at Beginning of Period ....... 14 50,618,229 50,618,229
Dividends Paid or Payable....................... 1,033,795,086 117,686,293
--------------- --------------
RETAINED EARNINGS AT END OF PERIOD.............. 14 0 50,618,229
--------------- --------------
This Profit and Loss Statement should be read in conjunction with the Notes To
And Forming Part of the Financial Statements
F-134
QUIET LIFE LIMITED
ACN 065 381 240
(formerly Loy Yang Power Ltd, name changed 13 May 1997)
BALANCE SHEET
AS AT 30 JUNE 1997
30 JUNE 1997 30 JUNE 1996
NOTES $ $
------- -------------- ---------------
CURRENT ASSETS
Cash.......................... 15.1 15 657,800
Receivables................... 6 0 73,048,889
Inventories................... 7 0 3,559,857
Other assets ................. 8 0 1,714,627
-------------- ---------------
TOTAL CURRENT ASSETS........... 15 78,981,173
NON-CURRENT ASSETS
Receivables................... 6 0 1,574,810
Inventories................... 7 0 13,176,115
Other assets ................. 8 0 5,662,559
Investments................... 9 0 100
Property, plant and
equipment..................... 10 0 3,159,101,974
-------------- ---------------
TOTAL NON-CURRENT ASSETS ...... 0 3,179,515,558
-------------- ---------------
TOTAL ASSETS .................. 15 3,258,496,731
-------------- ---------------
CURRENT LIABILITIES
Creditors and borrowings ..... 11 0 2,039,618,476
Provisions.................... 12 0 9,110,358
-------------- ---------------
TOTAL CURRENT LIABILITIES ..... 0 2,048,728,834
NON-CURRENT LIABILITIES ......
Creditors and borrowings ..... 11 0 1,057,832,534
Provisions.................... 12 0 101,317,119
-------------- ---------------
TOTAL NON-CURRENT LIABILITIES
0 1,159,149,653
-------------- ---------------
TOTAL LIABILITIES ............. 0 3,207,878,487
-------------- ---------------
NET ASSETS .................... 15 50,618,244
-------------- ---------------
EQUITY
Share capital................. 13 15 15
Retained earnings ............ 14 0 50,818,229
-------------- ---------------
TOTAL EQUITY .................. 15 50,618,244
-------------- ---------------
This Balance Sheet should be read in conjunction with the Notes To
And Forming Part of the Financial Statements
F-135
QUIET LIFE LIMITED
ACN 065 381 240
(formerly Loy Yang Power Ltd, name changed 13 May 1997)
STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED 30 JUNE 1997
30 JUNE 1997 30 JUNE 1996
NOTES $ $
------- --------------- ---------------
CASH FLOWS FROM OPERATING ACTIVITIES
Receipts from customers.......................... 447,989,416 661,857,250
Payments to suppliers and employees.............. (132,408,127) (252,601,057)
Income tax paid.................................. (484,975,104) 0
--------------- ---------------
NET CASH FLOW (USED IN) PROVIDED BY OPERATING
ACTIVITIES ...................................... 15.2 (179,393,815) 409,256,193
--------------- ---------------
CASH FLOWS (USED IN) FROM INVESTING ACTIVITIES
Proceeds from sale of the business............... 15.3 4,484,928,944 0
Cash balance transferred on sale of business .... (22,412,523) 0
Payments to acquire property, plant and
equipment....................................... (14,813,737) (8,356,243)
Proceeds from sale of property, plant and
equipment ...................................... 0 34,091
Proceeds from sale of investments................ 0 223,296
Dividends received............................... 0 127,400
--------------- ---------------
NET CASH FLOW (USED IN) FROM INVESTING
ACTIVITIES....................................... 4,447,702,684 (7,971,456)
--------------- ---------------
CASH FLOWS FROM FINANCING ACTIVITIES
Interest and other items of a similar nature
received........................................ 3,063,264 1,907,373
Interest and other costs of finance paid ........ (109,537,439) (115,063,116)
Hedging receipts associated with borrowings ..... 12,007,845 20,764,959
Hedging payments associated with borrowings ..... (19,553,416) (30,861,150)
Buyback of swaps................................. (79,619,663) (7,906,790)
Proceeds from borrowings......................... 1,222,785,627 86,056,400
Repayment of borrowings.......................... (1,129,666,657) (36,221,000)
Repayment of shareholder loan.................... (1,917,491,710) 0
Buyback of borrowings............................ (1,157,854,106) (264,281,672)
Dividends paid................................... (1,095,481,066) (56,000,000)
--------------- ---------------
NET CASH FLOW USED IN FINANCING ACTIVITIES ....... (4,268,346,521) (401,604,996)
--------------- ---------------
NET INCREASE/(DECREASE) IN CASH HELD.............. (37,652) (320,259)
--------------- ---------------
CASH AT BEGINNING OF PERIOD....................... 37,667 357,926
--------------- ---------------
CASH AT END OF PERIOD............................. 15.1 15 37,667
--------------- ---------------
This Statement of Cashflows should be read in conjunction with the Notes To
And Forming Part of the Financial Statements
F-136
QUIET LIFE LIMITED
ACN 065 381 240
(FORMERLY LOY YANG POWER LTD, NAME CHANGED 13 MAY 1997)
NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS
1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
1.1 BASIS OF ACCOUNTING
The financial report is a general purpose financial report which has been
prepared in accordance with the requirements of the Corporations Law and
applicable Accounting Standards. Other mandatory professional reporting
requirements (Urgent Issues Group Censensus Views) have also been complied
with.
The report is prepared in accordance with the historical cost convention,
except for certain assets which, as noted, are at valuation. The accounting
policies are consistent with those of the previous year.
1.2 SIGNIFICANT CHANGE IN AFFAIRS
CHANGE OF COMPANY NAME
The company (A.C.N. 065 381 240) changed its name from Loy Yang Power Ltd.
to Quiet Life Limited on 13 May 1997.
SALE OF BUSINESS
On 12 May 1997 the company ceased trading and sold all of its cash,
receivables, inventories, property, plant and equipment, and contract
liabilities and certain creditors (refer note 15.3). All employees were
allocated to the new owner with existing employment conditions. The proceeds
from the sale were used to extinguish all of the company's debt finance, pay
income tax liabilities and to pay a dividend to shareholders equal to the
value of retained earnings.
1.3 PRIOR PERIOD COMPARISONS
Comparative information is reclassified where appropriate, to enhance
comparability.
1.4 PROPERTY, PLANT AND EQUIPMENT
COST AND VALUATION
Property, plant and equipment were carried at cost.
DEPRECIATION AND AMORTISATION
Depreciation or amortisation was provided for all fixed assets other than
freehold land. The majority of assets were depreciated using the straight
line method to write off the cost of assets over their expected service
lives. The expenditure associated with mine development costs was amortised
on a units of production basis. Depreciation or amortisation for all assets
commenced on the first day of the month closest to the in-service date.
Changes in depreciation rates and/or depreciable amounts were dealt with
on a prospective basis.
1.5 RECOVERABLE AMOUNTS
Non-current assets values did not exceed their recoverable amount. Where
carrying values exceeded their recoverable amount, assets were revalued
downwards to the lower value. The expected net cash flows included in
determining the recoverable amounts of non-current assets were discounted to
their present value using a market determined risk adjusted discount rate.
F-137
QUIET LIFE LIMITED
ACN 065 381 240
(FORMERLY LOY YANG POWER LTD, NAME CHANGED 13 MAY 1997)
NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS (CONTINUED)
1.6 INVENTORIES
Costs were assigned to inventories using the average cost method.
Inventories were valued at lower of cost and net realisable value. An
estimate of items which are likely to be utilised in the next twelve months
was classified as current.
1.7 ACCOUNTING FOR INCOME TAX
The company was until 12 May 1997 subject to the Victorian State
Government Tax Equivalent System (VTES) pursuant to Section 88 of the State
Owned Enterprises Act 1992. On the 12 May 1997 the company settled its final
VTES liability of $494,975,104. The Department of Treasury and Finance
advised on 12 May 1997 that as "the sale transaction involves the transfer of
ownership of Loy Yang Power's assets the company will effectively become a
"shell" after the transaction. Accordingly, and consistent with this
Department's policy on the non-applicability of a Victorian Tax Equivalent
System to non-trading shell entities. Loy Yang Power will cease to be subject
to a VTES effective from the 12 May 1997 and this Department considers this
to be the final transaction under VTES".
The company has adopted the liability method of tax-effect accounting
whereby income tax is regarded as an expense and is matched with the
accounting profit after allowing for permanent differences.
To the extent that timing differences occur between the time items are
recognised in the accounts and when items are taken into account in
determining taxable income, the net related taxation benefit or liability is
disclosed as a future income tax benefit or a provision for deferred income
tax. These account balances are calculated with reference to the rates of
income tax which are expected to apply when those timing differences reverse.
Future income tax benefits are not brought to account unless realisation
of the asset is assured beyond reasonable doubt. The future income tax
benefit arising from tax losses is only carried forward as an asset when the
benefit is virtually certain of being realised.
1.8 DOUBTFUL DEBTS
The value of estimated doubtful debts was reviewed annually on an
individual debtor basis, and appropriate provision made where necessary.
1.9 NEGOTIABLE SECURITIES
Where interest was paid in advance on negotiable securities the interest
was recognised as an asset and progressively charged to the Profit and Loss
Statement over the applicable interest period. Interest payable in arrears
was progressively charged to the Profit and Loss Statement over the
applicable interest period and recognised as a liability.
Discounts and premiums on face value on the issue of negotiable securities
were recognised as variations of the liability to which they relate. The
variations were amortised over the term of the issue, using the effective
yield method.
Changes in the capital value of the outstanding liability on index linked
securities were recognised as variations in the book value of the liability
and charged to the Profit and Loss Statement.
Any gains or losses arising from the buyback of negotiable securities
issued by the company were charged to the Profit and Loss Statement as
incurred or earned.
F-138
QUIET LIFE LIMITED
ACN 065 381 240
(FORMERLY LOY YANG POWER LTD, NAME CHANGED 13 MAY 1997)
NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS (CONTINUED)
1.10 DERIVATIVES
The company was exposed to changes in interest rates and commodity prices
from its activities. It was the company's policy to use derivative financial
instruments to hedge these risks. The company did not enter, hold or issue
derivative financial instruments for trading or speculative purposes.
Derivative financial instruments included forward rate agreements,
futures, options, interest rate swaps and their Treasury Corporation of
Victoria equivalents.
Gains and losses arising from the early termination of general hedges were
amortised over the period of the hedge. The exception to this was bond
futures where gains and losses were amortised over the average term to
maturity of existing fixed.
Gains and losses arising from the early termination of specific hedges
were amortised over the shorter of the period of the borrowing being hedged
or the period of the hedge.
1.11 EMPLOYEE ENTITLEMENTS
WAGES, SALARIES AND LEAVE
Provision was made for employee entitlement benefits accumulated as a
result of employees rendering services up to the sale date. These benefits
included wages and salaries, annual leave and associated oncosts.
Liabilities arising in respect of wages and salaries, annual leave and any
other employee entitlements expected to be settled within twelve months of
the sale date were measured at their nominal amounts. All other employee
entitlement liabilities were measured at the present value of their estimated
future cash outflows to be made in respect of services provided by employees
up to the sale date. In determining the present value of future cash
outflows, the interest rates attaching to Federal Government Guaranteed
Securities which had terms to maturity approximating the terms of the related
liability were used.
Employee entitlement expenses and revenues arising in respect of the
following categories:
o Wages and salaries, non-monetary benefits, annual leave, long service
leave, sick leave and other leave entitlements; and
o other types of employee entitlements,
were charged to the Profit and Loss Statement on a net basis in their
respective categories.
SUPERANNUATION
The company contributed towards the Victorian Electricity Industry (VEI)
Superannuation Fund on behalf of its employees. These contributions were
charged to the Profit and Loss Statement as the liability was recognised
(refer note 17.2).
1.12 PROVISION FOR SITE RESTORATION--POWER STATION AND MINE
Recognition of a liability for the cost of restoring the power station and
mine sites to an acceptable environmental standard at the end of their useful
lives was provided for up until the sale date (refer note 12). This liability
included costs of reclamation, plant closure and dismantling, and waste site
closure.
The liability was recognised on a gradual basis and was calculated by
discounting the estimated future site restoration costs to their net present
value. Annual increments to the liability for each site were charged to the
Profit and Loss Statement over the estimated remaining life of each site.
F-139
QUIET LIFE LIMITED
ACN 065 381 240
(FORMERLY LOY YANG POWER LTD, NAME CHANGED 13 MAY 1997)
NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS (CONTINUED)
Expected future payments for site restoration were discounted using
interest rates attaching, as at the reporting date, to Federal Government
Guaranteed Securities with terms to maturity that match, as closely as
possible, the estimated future cash outflows.
Cost estimates were based on the assumption that current legal
requirements and/or technologies could not change significantly over the life
of the power station and mine sites.
Changes in estimates were dealt with on a prospective basis.
The company's obligations for site restoration were transferred to the
purchaser of the company's business.
1.13 CASH
For the purpose of the Statement of Cash Flows, cash includes cash on hand
and in banks, investments in money market instruments and short-term deposits
and securities, net of outstanding overdrafts.
F-140
QUIET LIFE LIMITED
ACN 065 381 240
(formerly Loy Yang Power Ltd, name changed 13 May 1997)
30 JUNE 1997 30 JUNE 1996
$ $
--------------- --------------
2 OPERATING REVENUE COMPRISES
Sales revenue ................................................ 441,012,062 557,499,891
Interest revenue (refer note 24.5 for related party
component)................................................... 3,057,422 1,845,183
Proceeds from the sale of non-current assets.................. 825,741 587,326
Dividend revenue.............................................. 0 127,400
Other revenue................................................. 15,004,568 13,949,634
--------------- --------------
459,899,793 574,009,434
=============== ==============
---------------------------------------------- ..............................................
3 OPERATING PROFIT BEFORE INCOME TAX
The operating profit before income tax is arrived at after
charging/(crediting) the following items:
DEPRECIATION, AMORTISATION AND DIMINUTION
Plant and equipment........................................... 82,841,704 96,218,635
Development of mine (amortisation) ........................... 1,032,676 1,057,471
Leased plant and equipment (amortisation)..................... 7,488,422 8,678,171
Buildings..................................................... 304,364 320,654
--------------- --------------
TOTAL DEPRECIATION, AMORTISATION AND DIMINUTION .............. 91,667,166 106,274,931
--------------- --------------
AMOUNTS SET ASIDE TO PROVISIONS
Employee entitlements ........................................ 4,926,554 4,492,052
Site restoration--power station............................... 596,917 486,338
Site restoration--mine........................................ 225,033 246,940
--------------- --------------
TOTAL AMOUNT SET ASIDE TO PROVISIONS ......................... 5,747,504 5,225,330
--------------- --------------
FINANCE CHARGES (REFER NOTE 24.5) ............................ 181,865,292 126,710,973
GOVERNMENT MINING ROYALTIES INCURRED ......................... 8,552,827 9,241,836
ENERGY CONSUMPTION LEVY ...................................... 14,419 29,731
SUPERANNUATION CONTRIBUTIONS ................................. 2,320,442 2,697,272
RENTAL OPERATING LEASES ...................................... 247,000 419,000
LOSS (PROFIT) ON SALE OF NON-CURRENT ASSETS .................. 947,326 (50,803)
RESEARCH AND DEVELOPMENT EXPENDITURE ......................... 523,566 518,760
---------------------------------------------- ..............................................
4 PROFIT ON EXTRAORDINARY ITEM
Profit on sale of business (refer note 15.3).................. 1,335,852,636 0
Applicable income tax ........................................ 383,195,543 0
--------------- --------------
952,657,093 0
--------------- --------------
Disclosure of the net assets and liabilities sold can be found in note 15.3.
F-141
QUIET LIFE LIMITED
ACN 065 381 240
(formerly Loy Yang Power Ltd, name changed 13 May 1997)
30 JUNE 1997 30 JUNE 1996
$ $
--------------- --------------
5 INCOME TAX
5.1 INCOME TAX EXPENSE
The prima facie tax on operating profit differs from the
income tax provided in the accounts as follows:
Prima facie income tax expense on operating profit ............ 18,784,598 66,684,165
Increase in income tax expense due to permanent differences
Depreciation on buildings..................................... 0 448,098
Tax on provisions not carried forward......................... 395,157 620,720
Provisions for restoration--non-deductible.................... 125,468 175,082
Non-deductible expenditure.................................... 2,499,703 0
Entertainment and other non-deductible items ................. 79,411 30,561
Under/(over) provision last year ............................. 211,418 0
Decrease in income tax expense due to permanent differences ...
Tax exempt income............................................. 0 (292,629)
Research and development concession .......................... (58,833) (93,377)
General investment allowance ................................. 0 (25,122)
Depreciation on buildings..................................... (377,218) 0
--------------- --------------
TOTAL INCOME TAX EXPENSE ATTRIBUTABLE TO OPERATING PROFIT ..... 21,658,694 67,547,498
=============== ==============
Prima facie income tax expense on extraordinary item .......... 480,906,949 0
Decrease in income tax expense due to permanent differences ...
Non-assessable income on sale of business .................... (97,711,406) 0
--------------- --------------
TOTAL INCOME TAX EXPENSE ATTRIBUTABLE TO
EXTRAORDINARY ITEM............................................ 383,196,543 0
=============== ==============
Total income tax expense is made up of:
Increase/(decrease) in provision for deferred income tax .... (136,405,995) 85,298,790
Income tax paid............................................... 494,975,104 0
(Increase)/decrease future income tax benefit................. 46,286,128 (17,751,292)
--------------- --------------
404,855,237 67,547,498
=============== ==============
5.2 ANALYSIS OF TAX BALANCES CARRIED FORWARD
CURRENT
Future income tax benefit, balance at end of year ............ 0 1,019,366
Less: provision for deferred income tax, balance at end of
year.......................................................... 0 451,107
--------------- --------------
NET FUTURE INCOME TAX BENEFIT (REFER NOTE 8)................... 0 568,259
=============== ==============
NON-CURRENT
Provision for deferred income tax, balance at end of year ..... 0 135,954,868
Less: future income tax benefit, balance at end of year ...... 0 45,266,762
--------------- --------------
NET PROVISION FOR DEFERRED INCOME TAX (REFER NOTE 12) ........ 0 90,688,126
=============== ==============
F-142
QUIET LIFE LIMITED
ACN 065 381 240
(formerly Loy Yang Power Ltd, name changed 13 May 1997)
30 JUNE 1997 30 JUNE 1996
$ $
-------------- --------------
6 RECEIVABLES
CURRENT
Trade debtors (refer note 24.6 for related party
component)................................................ 0 69,683,560
Other debtors (refer note 24.6 for related party
component)................................................ 0 3,365,329
-------------- --------------
0 73,048,889
============== ==============
NON-CURRENT
Trade debtors (refer note 24.6 for related party
component)................................................ 0 1,574,810
============== ==============
-----------------------------------------------------------------------------------------
7 INVENTORIES
CURRENT
General purpose and maintenance stocks at cost............. 0 3,559,857
Less: inventory diminution................................. 0 0
-------------- --------------
0 3,559,857
============== ==============
NON-CURRENT
General purpose and maintenance stocks at cost............. 0 13,664,090
Less: inventory diminution................................. 0 487,975
-------------- --------------
0 13,175,115
============== ==============
-----------------------------------------------------------------------------------------
8 OTHER ASSETS
CURRENT
Prepayments................................................ 0 1,146,368
Future income tax benefit (refer note 5.2)................. 0 568,259
-------------- --------------
0 1,714,627
============== ==============
NON-CURRENT
Unamortised interest rate swap termination losses ......... 0 4,827,954
Unamortised futures termination losses..................... 0 834,605
-------------- --------------
0 5,662,559
============== ==============
-----------------------------------------------------------------------------------------
9 INVESTMENTS
9.1 NON-CURRENT INVESTMENTS AT COST COMPRISE:
Unlisted shares in associated companies................... 0 100
-------------- --------------
0 100
============== ==============
9.2 NON-CURRENT INVESTMENTS IN UNLISTED ASSOCIATED COMPANIES
PowerWorks Pty. Ltd.
PowerWorks Pty. Ltd.'s principal activity is to promote the
electricity
industry to the public
Ownership interest..................................... 0% 33%
Investment carrying amount............................. 0 100
F-143
QUIET LIFE LIMITED
ACN 065 381 240
(formerly Loy Yang Power Ltd, name changed 13 May 1997)
30 JUNE 1997 30 JUNE 1996
$ $
-------------- ---------------
The above investment comprised an interest in the ordinary
share capital of the associate.
The balance date of the associate is 30 June, and the
associate is incorporated in Australia.
There were no material post-balance day events or
dissimilar accounting policies.
-----------------------------------------------------------------------------------------
10 PROPERTY, PLANT AND EQUIPMENT
Land at cost................................................ 0 1,588,736
-------------- ---------------
0 1,588,736
Buildings at cost........................................... 0 8,237,289
Less: accumulated depreciation.............................. 0 457,278
-------------- ---------------
0 7,780,011
Plant and equipment at cost................................. 0 2,986,003,023
Less: accumulated depreciation.............................. 0 136,300,056
-------------- ---------------
0 2,849,702,967
Plant and equipment under lease at cost*.................... 0 274,987,931
Less: accumulated amortisation.............................. 0 12,314,861
-------------- ---------------
0 262,673,070
-------------- ---------------
Mine development at cost.................................... 0 38,841,697
Less: accumulated amortisation.............................. 0 1,484,507
-------------- ---------------
0 37,357,190
TOTAL PROPERTY, PLANT AND EQUIPMENT AT COST................. 0 3,309,658,676
TOTAL ACCUMULATED DEPRECIATION/AMORTISATION................. 0 150,556,702
-------------- ---------------
TOTAL WRITTEN DOWN AMOUNT................................... 0 3,159,101,974
============== ===============
* At 30 June 1996 and until [the] 12 May 1997 the company recorded as an
asset plant and equipment which was under lease to either the State
Electricity Commission of Victoria or Generation Victoria. The plant was
operated in accordance with licences approved by the lessor pending a
formal novation of the arrangement. The company's interest in the leased
plant was transferred to the purchasers of the business on 12 May 1997.
F-144
QUIET LIFE LIMITED
ACN 065 381 240
(formerly Loy Yang Power Ltd, name changed 13 May 1997)
30 JUNE 1997 30 JUNE 1996
$ $
--------------- ---------------
11 CREDITORS AND BORROWINGS
CURRENT
Trade creditors (refer note 24.6 for related party component) .... 0 35,137,803
Bank overdraft (refer note 15.1).................................. 0 620,133
Shareholder loan (interest free).................................. 0 1,917,491,710
Interest accrued (refer note 24.6 for related party component) ... 0 23,764,619
Dividend payable (refer note 24.6 for related party component) ... 0 61,686,000
Other loans (refer note 19)....................................... 0 48,889
Other liabilities (refer note 24.6 for related party component
and note 17.1 for Accrued Salaries and Wages).................... 0 869,322
--------------- ---------------
0 2,039,618,478
=============== ===============
NON-CURRENT
Loans (refer note 19)............................................. 0 1,057,832,534
--------------- ---------------
0 1,057,832,534
=============== ===============
-----------------------------------------------------------------------------------------
12 PROVISIONS
CURRENT
Employee entitlements (refer note 17)............................. 0 7,475,772
Site restoration--mine............................................ 0 140,000
Redundancies (refer note 17)...................................... 0 1,494,586
--------------- ---------------
0 9,110,358
=============== ===============
NON-CURRENT
Employee entitlements (refer note 17)............................. 0 5,926,654
Site restoration--power station................................... 0 3,734,339
Site restoration--mine............................................ 0 968,000
Deferred income tax (refer note 5.2).............................. 0 90,688,128
--------------- ---------------
0 101,317,119
=============== ===============
-----------------------------------------------------------------------------------------
13 SHARE CAPITAL
AUTHORISED CAPITAL:
500,000,000 Ordinary Shares of $1.00 each......................... 500,000,000 500,000,000
ISSUED AND PAID UP CAPITAL:
15 ordinary shares of $1.00 each, fully paid...................... 15 15
-----------------------------------------------------------------------------------------
14 RETAINED EARNINGS
Balance at beginning of year...................................... 50,618,229 50,617,937
Transfer from profit and loss..................................... 983,176,837 117,688,293
--------------- ---------------
Total available for appropriation................................. 1,033,795,066 168,304,229
Interim dividend paid............................................. 0 56,000,000
Final dividend paid (1998 Payable)................................ 1,033,795,066 61,686,000
--------------- ---------------
BALANCE AT END OF YEAR ........................................... 0 50,618,229
=============== ===============
F-145
QUIET LIFE LIMITED
ACN 065 381 240
(formerly Loy Yang Power Ltd, name changed 13 May 1997)
15 STATEMENT OF CASH FLOWS
30 JUNE 1997 30 JUNE 1996
$ $
--------------- --------------
15.1 RECONCILIATION OF CASH
Cash at the end of the financial year as shown in the
Statement of Cash Flows is reconciled to the related items
in the Balance Sheet as follows:
CASH
Cash on hand.......................................... 15 7,800
Short term deposits and securities ................... 0 650,000
--------------- --------------
15 657,800
OVERDRAFT
Bank overdraft ....................................... 0 (620,133)
--------------- --------------
0 (620,133)
--------------- --------------
15 37,667
=============== ==============
15.2 RECONCILIATION OF NET CASH FLOWS FROM OPERATING
ACTIVITIES WITH OPERATING PROFIT AFTER INCOME TAX
Operating profit after income tax ..................... 30,619,744 117,686,293
--------------- --------------
NON-CASH REVENUES AND EXPENSES, AND REVENUES AND
EXPENSES ASSOCIATED WITH FINANCING OR INVESTING
ACTIVITIES:
Depreciation and amortisation expense ................. 91,667,166 106,274,931
Income tax expense on operating profit ................ 0 67,547,498
Income tax expense on extraordinary item .............. (383,195,543) 0
Interest revenue received ............................. (3,057,422) (1,845,183)
Finance charges ....................................... 181,865,292 126,710,973
Dividend revenue received ............................. 0 (127,400)
Loss/(profit) on sold and scrapped non-current assets 947,326 (50,803)
--------------- --------------
(111,773,181) 298,510,016
ADJUST FOR MOVEMENTS IN ASSETS AND LIABILITIES
Decrease in operating expenditure accruals ............ (16,467,837) (30,126,579)
Decrease in deferred income tax ....................... (90,688,126) 0
Increase/(decrease) in provisions ..................... 1,581,423 (4,693,920)
Increase/(decrease) in trust funds and deposits ...... 40,956 (711,010)
Decrease in future income tax benefit ................. 568,259 0
Decrease in accounts receivable/accrued revenue ....... 14,356,026 28,954,710
Increase in prepayments ............................... (7,637,788) (136,169)
Decrease/(increase) in inventory ...................... 106,709 (227,148)
--------------- --------------
(98,140,378) (6,940,116)
--------------- --------------
NET CASH (USED IN) PROVIDED BY OPERATING ACTIVITIES .. (179,393,815) 409,256,193
--------------- --------------
F-146
QUIET LIFE LIMITED
ACN 065 381 240
(formerly Loy Yang Power Ltd, name changed 13 May 1997)
15.3 SALE OF BUSINESS
On 12 May 1997, the Company sold all of its business
operations. Details of the sale are as follows:
30 JUNE 1997 30 JUNE 1996
$ $
--------------- --------------
PROCEEDS FROM SALE OF THE BUSINESS
Cash .............................................. 4,484,928,944 0
--------------- --------------
4,484,928,944 0
--------------- --------------
BOOK VALUE OF NET ASSETS SOLD
Cash .............................................. 22,412,523 0
Receivables ....................................... 60,261,829 0
Inventories ....................................... 16,586,135 0
Other assets ...................................... 8,215,997 0
Property, plant and equipment ..................... 3,083,386,814 0
Creditors and borrowings .......................... (21,034,475) 0
Provisions ........................................ (20,752,516) 0
--------------- --------------
3,149,076,308 0
--------------- --------------
PROFIT ON SALE OF BUSINESS (REFER NOTE 4) ........ 1,335,852,636 0
--------------- --------------
16 EXPENDITURE COMMITMENTS
16.1 CAPITAL EXPENDITURE COMMITMENTS
Outstanding contract commitments for capital expenditure
contracted for at balance date but not provided for comprises
the following:
Payable not later than one year ................... 0 946,000
--------------- --------------
0 946,000
--------------- --------------
16.2 NON-CAPITAL EXPENDITURE COMMITMENTS
Outstanding contract commitments for non-capital expenditure
contracted for at balance date but provided for comprises
the following:
Payable not later than one year ................... 0 6,524,000
Payable greater than one and less than two years . 0 1,566,000
--------------- --------------
0 8,090,000
--------------- --------------
16.3 LEASE EXPENDITURE COMMITMENTS
Outstanding operating lease (non-cancellable) commitments
at balance date but not provided for comprises the following:
Payable not later than one year ................... 0 138,000
Payable greater than one and less than two years . 0 145,000
Payable greater than two and less than five years 0 169,000
--------------- --------------
0 452,000
--------------- --------------
F-147
QUIET LIFE LIMITED
ACN 065 381 240
(formerly Loy Yang Power Ltd, name changed 13 May 1997)
16.4 ASSET SALE OBLIGATIONS
The buyers of the company's business were given certain warranties and
indemnities that may result in part of the sale price being refunded. The
company has been indemnified against these obligations by the State
Electricity Commission of Victoria for the purpose of ensuring that it did
not pay, and is not perceived to pay, a dividend out of its capital. The
indemnity shall in no way limit the company's rights against the Buyers
pursuant to the Asset Sale Agreement.
F-148
QUIETLIFE LIMITED
ACN 065 381 240
(formerly Loy Yang Power Ltd. name changed 13 May 1997)
30 JUNE 1997 30 JUNE 1996
$ $
-------------- --------------
17 EMPLOYEE ENTITLEMENTS
17.1 AGGREGATE EMPLOYEE ENTITLEMENT
Current
Accrued Wages & Salaries (refer note 11) .......................... 0 185,083
Provision Employee Entitlements (refer note 12) ................... 0 7,475,772
Provision Redundancies (refer note 12) ............................ 0 1,494,586
Non current
Provision Employee Entitlements (refer note 12) ................... 0 5,926,654
-------------- --------------
0 15,082,085
-------------- --------------
Accrued Wages and salaries ........................................ 0 185,083
Recreation leave .................................................. 0 6,662,680
Long service leave ................................................ 0 6,739,746
Redundancies ...................................................... 0 1,494,586
-------------- --------------
0 15,082,095
-------------- --------------
The amounts for long service leave were measured at their present
values. The following assumptions were adopted in measuring the
present values of the entitlements which were not expected to be
paid or settled within 12 months of balance date.
Long Service Leave:
Weighted average rates of increase in annual employee entitlements
to settlement of the liabilities ................................. 0 2.9%
Weighted average discount rates ................................... 0 8.7%
Weighted average terms to settlement of the liabilities .......... 0 11 Years
17.2 SUPERANNUATION FUND
All permanent and directly hired casual employees of the company
were entitled to benefits on termination from the Victorian
Electricity Industry Superannuation Fund. All casual and permanent
employees engaged after 3 October 1994 were members of an
accumulation fund. Division D or other external accumulation
funds. All other permanent employees were members of Division B or
C of the Fund which provided defined benefits in the form of
pensions (Division B) or lump sums (Division C).
Both defined benefit schemes are closed to new members. The
company contributed to the Fund at the rate of 9.75%.
The effective date of the most recent detailed valuation of the
Fund was 30 June 1996. The review was undertaken by William M.
Mercer Pty. Ltd. Based on that assessment, the situation for the
company as at 30 June 1996 was:
Present value of employees accured benefits ....................... 0 54,100,000#
F-149
QUIETLIFE LIMITED
ACN 065 381 240
(formerly Loy Yang Power Ltd. name changed 13 May 1997)
30 JUNE 1997 30 JUNE 1996
$ $
-------------- --------------
Net market value of assets held by the fund to meet future benefit
payments .......................................................... 0 54,600,000#
Excess/(deficit) of present value of employees' benefits over
assets held to meet future benefit payments ....................... 0 500,000#
Vested benefits ................................................... 0 49,300,000#
The present value of employees' accrued benefits is equal to the
past membership liability calculated in accordance with Australian
Accounting Standard AAS25 "Financial Reporting by Superannuation
Plans".
(Vested benefits are those benefits which would have been paid on
voluntary termination from the Fund.)
The Company's obligation in respect of superannuation were
transferred on 12 May 1997 to the purchasers of the business.
Employer contributions to the fund ................................ 1,910,364 2,697,272
Additional contributions to the fund to compensate for differences
between the resignation and retrenchment benefit, in relation to
voluntary retrenchments. .......................................... 244,964 1,228,000
#Note: Asset and benefit figures were unaudited at the time of
signing the 1995/96 report. The last full audit was conducted at
30 June 1995.
18 TREASURY
18.1 DERIVATIVES
The company's derivative products were dealt through Treasury
Corporation of Victoria (TCV). The only derivative products
outstanding as at 30 June 1996 were Interest Rate Swaps. There
were no derivatives outstanding at 30 June 1997.
INTEREST RATE SWAPS
Under these swaps, the company agreed with the counterparty to
exchange, at specified intervals, the difference between the
fixed-rate and floating-rate interest amounts calculated by
reference to an agreed notional amount. The notional principal
amounts were not exchanged by the parties.
The maturity profile of these swaps in notional principal terms
is:
Later than two years and not later than five years ............. 0 25,000,000
Later than five years ........................................... 0 195,000,000
-------------- --------------
0 220,000,000
-------------- --------------
F-150
QUIETLIFE LIMITED
ACN 065 381 240
(formerly Loy Yang Power Ltd. name changed 13 May 1997)
30 JUNE 1997 30 JUNE 1996
$ $
-------------- --------------
The following table indicates the type of swaps held by the
company and their weighted average interest rates.
Pay-fixed swaps--notional principal amount ........................ 0 220,000,000
Average pay rate--specific cost ................................... 0 12.6%
Average receive rate .............................................. 0 7.6%
F-151
QUIET LIFE LIMITED
ACN 065 381 240
(formerly Loy Yang Power Ltd, name changed 13 May 1997)
30 JUNE 1997 30 JUNE 1996
$ $
-------------- ---------------
19 LOANS (REFER NOTE 24.6)
19.1 LOAN COMPONENTS
CURRENT LOANS (EXCLUDING SHAREHOLDER LOAN)
Premium/(discount) on loans................................. 0 0
Fixed interest loans........................................ 0 48,889
Fixed interest bonds........................................ 0 0
-------------- ---------------
0 48,889
NON-CURRENT LOANS
Premium/(discount) on loans................................. 0 38,899,024
Floating rate notes......................................... 0 249,745,325
Fixed interest bonds........................................ 0 626,695,000
Capital indexed bonds....................................... 0 142,428,804
Fixed interest loans........................................ 0 64,381
-------------- ---------------
0 1,057,832,534
-------------- ---------------
0 1,057,881,423
============== ===============
Liabilities in years of maturity, at face value are:
Not later than one year..................................... 0 48,889
Later than one year and not later than two years ........... 0 353,784,325
Later than two years and not later than five years ......... 0 327,721,000
Later than five years....................................... 0 337,429,000
-------------- ---------------
0 1,018,983,214
Plus unamortised adjustments to face value (refer note
19.2)...................................................... 0 38,899,024
-------------- ---------------
0 1,057,882,238
-------------- ---------------
19.2 ADJUSTMENTS TO FACE VALUE OF LOANS
Current (discount)/premium.................................. 0 0
Non-Current (discount)/premium.............................. 0 38,899,024
-------------- ---------------
0 38,899,024
-------------- ---------------
-------------------------------------------------------------------------------------------
20 AUDITORS' REMUNERATION
Amounts received, or due and receivable, by the
Auditor-General for auditing the financial statements;
Total amount payable for annual audit fee................... 51,000 52,000
F-152
QUIET LIFE LIMITED
ACN 065 381 240
(formerly Loy Yang Power Ltd, name changed 13 May 1997)
30 JUNE 1997 30 JUNE 1996
$ $
---------------- ----------------
21 DIRECTORS' REMUNERATION
Amounts paid, or due and payable to the directors of the company .. 137,203 161,500
The number of directors of the company whose annual remuneration
(including superannuation contributions, falls within the
following bands:
$ BAND LEVELS DIRECTORS DIRECTORS
------------- ---------------- -----------------
$0 -$10,000................................................... 3 0
$20,000 -$29,999................................................... 3 3
$30,000 -$59,999................................................... 1 1
During the year period ended 9 May 1997 the company paid premiums
for the indemnification and insurance of all directors and
officers to the full extent permitted by Corporations Law.
------------------------------------------------------------------------------------------------------
22 EXECUTIVES' REMUNERATION
The number of executives whose remuneration falls within the
following bands is set out below:
$ BAND LEVELS EXECUTIVES EXECUTIVES
------------------------------------------------------------------ ---------------- ----------------
$100,000 -$109,999................................................. 1 0
$110,000 -$119,999................................................. 0 2
$120,000 -$129,999................................................. 0 1
$130,000 -$139,999................................................. 1 3
$140,000 -$149,999................................................. 1 0
$150,000 -$159,999................................................. 1 0
$160,000 -$169,999................................................. 1 0
$170,000 -$179,999................................................. 0 0
$190,000 -$199,999................................................. 2 0
$210,000 -$219,999................................................. 0 1
$280,000 -$289,999................................................. 1 0
Total remuneration paid, or due and payable by the company or
related entities by executive officers of the company whose
remuneration exceeds $100,000...................................... 1,386,261 974,040
-----------------------------------------------------------------------------------------------------
23 SEGMENTS
The company operated entirely in Australia in the production and
sale of electricity and coal.
F-153
QUIET LIFE LIMITED
ACN 065 381 240
(formerly Loy Yang Power Ltd, name changed 13 May 1997)
30 JUNE 1997 30 JUNE 1996
$ $
---------------- ----------------
24 RELATED PARTY DISCLOSURES
24.1 DIRECTORS OF QUIET LIFE
LTD. COMMENCEMENT RESIGNATION
DIRECTORS OF QUIET LIFE LTD. DURING THE FINANCIAL YEAR WERE:
Mr. C. Little.......... 30 January 1995 13 June 1997
Mr. D. Swan............ 30 January 1995 9 May 1997
Mr. J. C. Richards .... 30 January 1995 9 May 1997
Mr. J. S. Grigg........ 1 May 1995 9 May 1997
Mr. G. Brooke.......... 9 May 1997 --
Mr. G. J. Greaves...... 9 May 1997 --
Mr. H. De Jong......... 13 June 1997 --
All directors are non executive.
24.2 TRANSACTIONS WITH DIRECTOR-RELATED ENTITIES
There were no transactions with director-related entities other
than transactions on normal commercial terms with the SECV and
Department of Treasury and Finance (refer Note 24.4 for related
party transactions).
24.3 RESPONSIBLE PERSON AND RELATED PARTIES
The company is a wholly owned subsidiary of the State Electricity
Commission of Victoria; an entity which is 100% controlled by
the Victorian Government. Statutory Corporations and any other
corporate entities owned by the Victorian State government are
related parties.
24.4 RELATED PARTY TRANSACTION CATEGORIES
The following types of related party transactions were transacted during the
year, on normal commercial terms:
Electricity transmission costs
Electricity pool costs
Council rates
Dividends
Auditing services
Brown Coal Royalties
Technical services
Payroll tax
Briquette purchases
Electricity sales revenue
Coal sales revenue
Water purchases and waste water disposals
F-154
QUIET LIFE LIMITED
ACN 065 381 240
(formerly Loy Yang Power Ltd, name changed 13 May 1997)
Land Tax
Land leases
Provision of loan facilities
Gas purchases
Superannuation payments
Victorian equivalent income tax
Vehicle registration charges
In addition there was an interest free loan from the shareholder
(Note 11).
24.5 OPERATING PROFIT AND LOSS TRANSACTIONS WITH RELATED PARTIES
Interest revenue................................... 3,057,422 1,163,621
Interest expense................................... 181,865,292 126,710,973
Dividend Revenue................................... -- 127,400
24.6 RECEIVABLES AND PAYABLES AT BALANCE DATE
AGGREGATE RELATED PARTY RECEIVABLES AT BALANCE DATE
Current.......................................................... 0 57,507,840
Non-current ..................................................... 0 1,566,127
--------------- ---------------
0 59,073,967
=============== ===============
AGGREGATE RELATED PARTY PAYABLES AT BALANCE DATE
Current.......................................................... 0 1,994,184,280
Non-current...................................................... 0 1,058,296,080
--------------- ---------------
0 3,052,480,360
=============== ===============
-------------------------------------------------------------------------------------------------
25.0 INTERESTS HELD
There were no interests held in any related party other than
those disclosed as investments in Note 9 (1996 only).
During the 1996/97 financial year, transactions were undertaken
with other State Government controlled entities, giving rise to
the need for elimination entries in relation to resultant
account balances.
F-155
QUIET LIFE LIMITED
ACN 065 381 240
(formerly Loy Yang Power Ltd, name changed 13 May 1997)
The aggregate eliminations included within the consolidation worksheets
required to be prepared for input to the State's Annual Financial Statements
are as follows:
INTER INTRA
--------------- ---------------
Assets......................................................... 0 0
Liabilities.................................................... 0 0
Revenues....................................................... 77,830,616 0
Expenses....................................................... 589,378,744 0
Dividends Paid................................................. 1,095,481,066 0
--------------- ---------------
The preparation of prior period comparative information has
not been practicable or relevant for this financial year.
F-156
AUDITOR-GENERAL'S REPORT
AUDIT SCOPE
The accompanying financial statements of Quiet Life Limited (formerly Loy
Yang Power Limited) for the year ended 30 June 1997, comprising a profit and
loss statement, balance sheet, statement of cash flows and notes to the
financial statements, have been audited. The company's directors are
responsible for the preparation and presentation of the financial statements
and the information they contain. An independent audit of these financial
statements has been carried out in order to express an opinion on them to the
members of the company as required by the Corporations Law and Audit Act
1994.
The audit has been conducted in accordance with Australian Auditing
Standards to provide reasonable assurance as to whether the financial
statements are free of material misstatement. The audit procedures included
an examination, on a test basis, of evidence supporting the amounts and other
disclosures in the financial statements, and the evaluation of accounting
policies and significant accounting estimates. These procedures have been
undertaken to form an opinion as to whether, in all material respects, the
financial statements are presented fairly in accordance with the basis on
which the accounts have been prepared, namely applicable Accounting
Standards, other mandatory professional reporting requirements and comply
with the Corporations Law, so as to present a view which is consistent with
my understanding of the company's financial position and the results of its
operations and its cash flows.
The audit opinion expressed on the financial statements has been formed on
the above basis.
AUDIT OPINION
In my opinion, the financial statements of Quiet Life Limited (formerly
Loy Yang Power Limited) are properly drawn up:
(a) so as to give a true and fair view of:
(i) the company's state of affairs as at 30 June 1997 and of its
profit and cash flows for the financial year ended on that
date; and
(ii) the other matters required by Divisions 4, 4A and 4B of Part
3.6 of the Corporations Law to be dealt with in the financial
statements;
(b) in accordance with the Corporations Law; and
(c) in accordance with applicable Accounting Standards and other mandatory
professional reporting requirements.
PROFIT AND LOSS STATEMENT FOR THE YEAR ENDED 30 JUNE 1996
30 JUNE 1996 30 JUNE 1995
NOTES $'000 $'000
------- -------------- --------------
OPERATING REVENUE........................... 2 574,009 244,275
-------------- --------------
Operating Profit before Income Tax.......... 3 185,233 79,579
Income Tax Attributable to Operating
Profit..................................... 4 67,547 29,861
-------------- --------------
OPERATING PROFIT AFTER INCOME TAX........... 117,686 50,618
-------------- --------------
Retained Profits at beginning of year ...... 13 50,618 0
Dividends Paid or Payable................... 117,686 0
-------------- --------------
Retained Profits at End of Year............. 50,618 50,618
-------------- --------------
This Profit and Loss Statement should be read in conjunction with the Notes
to and forming part of the Financial Statements.
F-158
FINANCIAL STATEMENTS 1995/96
BALANCE SHEET AS AT 30 JUNE 1996
30 JUNE 1996 30 JUNE 1995
NOTES $'000 $'000
------- -------------- --------------
CURRENT ASSETS
Cash.......................... 14.1 658 1,015
Receivables................... 5 73,048 100,577
Inventories................... 6 3,560 4,043
Other assets.................. 7 1,715 4,155
-------------- --------------
TOTAL CURRENT ASSETS.......... 78,981 109,790
NON-CURRENT ASSETS
Receivables................... 5 1,575 3,132
Inventories................... 6 13,176 20,101
Other assets.................. 7 5,663 0
Investments................... 8 0 128
Property, plant and
equipment.................... 9 3,159,102 3,245,997
-------------- --------------
TOTAL NON-CURRENT ASSETS ..... 3,179,516 3,269,358
-------------- --------------
TOTAL ASSETS.................. 3,258,497 3,379,148
-------------- --------------
CURRENT LIABILITIES
Creditors and borrowings ..... 10 2,039,619 2,113,681
Provisions.................... 11 9,110 15,060
-------------- --------------
TOTAL CURRENT LIABILITIES .... 2,048,729 2,128,741
NON-CURRENT LIABILITIES
Creditors and borrowings ..... 10 1,057,833 1,164,699
Provisions.................... 11 101,317 35,090
-------------- --------------
TOTAL NON-CURRENT
LIABILITIES.................. 1,159,150 1,199,789
-------------- --------------
TOTAL LIABILITIES............. 3,207,879 3,328,530
-------------- --------------
NET ASSETS.................... 50,618 50,618
-------------- --------------
EQUITY
Share capital................. 12 0 0
Retained earnings............. 13 50,618 50,618
-------------- --------------
TOTAL EQUITY.................. 50,618 50,618
-------------- --------------
This Balance Sheet should be read in conjunction with the Notes to and
forming part of the Financial Statements.
F-159
LOY YANG POWER ANNUAL REPORT 1995/96
STATEMENT OF CASH FLOWS FOR THE YEAR ENDED 30 JUNE 1996
30 JUNE 1996 30 JUNE 1995
NOTES $'000 $'000
------- -------------- --------------
CASH FLOWS FROM OPERATING ACTIVITIES
Receipts from customers............................... 661,857 262,004
Payments to suppliers and employees................... (252,601) (98,270)
-------------- --------------
NET CASH FLOW FROM OPERATING ACTIVITIES .............. 14.2 409,256 163,734
-------------- --------------
CASH FLOWS FROM INVESTING ACTIVITIES
Payments to acquire property, plant and equipment .... (8,356) (5,447)
Proceeds from sale of property, plant and equipment .. 34 117
Proceeds from sale of investments..................... 223 0
Dividends received.................................... 127 0
Net cash allocated.................................... 0 (629)
-------------- --------------
NET CASH FLOW USED IN INVESTING ACTIVITIES............ (7,972) (5,959)
-------------- --------------
CASH FLOWS FROM FINANCING ACTIVITIES
Interest and other items of a similar nature
received............................................. 1,907 832
Interest and other costs of finance paid.............. (115,063) (70,817)
Hedging receipts associated with borrowings .......... 20,765 10,980
Hedging payments associated with borrowings .......... (30,861) (15,490)
Buyback of swaps...................................... (7,905) 0
Proceeds from borrowings.............................. 86,056 49,706
Repayment of borrowings............................... (36,221) (47,170)
Buyback of borrowings................................. (264,282) (85,458)
Dividends paid........................................ (56,000) 0
-------------- --------------
NET CASH FLOW USED IN FINANCING ACTIVITIES............ (401,604) (157,417)
-------------- --------------
NET INCREASE/(DECREASE) IN CASH HELD.................. (320) 358
-------------- --------------
CASH AT BEGINNING OF YEAR............................. 358 0
-------------- --------------
CASH AT END OF YEAR................................... 14.1 38 358
-------------- --------------
This Statement of Cash Flows should be read in conjunction with the Notes to
and forming part of the Financial Statements.
F-160
FINANCIAL STATEMENTS 1995/96
NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS
1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
1.1 BASIS OF ACCOUNTING
The financial report is a general purpose financial report which has been
prepared in accordance with the requirements of the Corporations Law which
include disclosures required by Schedule S and applicable Accounting
Standards. Other mandatory professional reporting requirements (Urgent Issues
Group Consensus Views) have also been complied with.
The report is prepared in accordance with the historical cost convention,
except for certain assets which, as noted, are at valuation. The accounting
policies are consistent with those of the previous year.
1.2 PRIOR PERIOD COMPARISONS
Loy Yang Power Ltd. was incorporated for the twelve months ended 30 June
1995, however the company did not commence trading in its principal
activities until 1 February 1995 when substantially all the assets and
liabilities of the business were vested in the company pursuant to an
Allocation Statement made under the Electricity Industry (Further Amendment)
Act 1994.
As a result, comparative profit and loss and cash flow figures reflect
five months trading from 1 February 1995 to 30 June 1995.
Comparative information is reclassified where appropriate, to enhance
comparability.
1.3 PROPERTY, PLANT AND EQUIPMENT
COST AND VALUATION
Property, plant and equipment are carried at cost.
DEPRECIATION AND AMORTISATION
Depreciation or amortisation is provided for all fixed assets other than
freehold land. The majority of assets are depreciated using the straight line
method to write off the cost of assets over their expected service lives. The
expenditure associated with mine development costs is amortised on a units of
production basis. Depreciation or amortisation for all assets commences on
the first day of the month closest to the in-service date.
Changes in depreciation rates and/or depreciable amounts are dealt with on
a prospective basis.
1.4 RECOVERABLE AMOUNTS
Non-current assets values do not exceed their recoverable amount. Where
carrying values exceed their recoverable amount, assets are revalued
downwards to the lower value. The expected net cash flows included in
determining the recoverable amounts of non-current assets have been
discounted to their present value using a market determined risk adjusted
discount rate.
1.5 INVENTORIES
Costs are assigned to inventories using the average cost method. Inventories
are valued at lower of cost and net realisable value. As estimate of items
which are likely to be utilised in the next twelve months is classified as
current.
F-161
LOY YANG POWER ANNUAL REPORT 1995/96
NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS (CONTINUED)
1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
1.6 ACCOUNTING FOR INCOME TAX
Loy Yang Power Ltd. is subject to the Victorian State Government Tax
Equivalent System pursuant to Section 88 of the State Owned Enterprises Act
1992.
Loy Yang Power Ltd. has adopted the liability method of tax-effect
accounting whereby income tax is regarded as an expense and is managed with
the accounting profit after allowing for permanent differences.
To the extent that timing differences occur between the time items are
recognised in the accounts and when these are taken into account in
determining taxable income, the net related taxation benefit or liability is
disclosed as a future income tax benefit or a provision for deferred income
tax. These account balances are calculated with reference to the rates of
income tax which are expected to apply when those timing differences reverse.
Future income tax benefits are not brought to account unless realisation
of the asset is assured beyond reasonable doubt. The future income tax
benefit arising from tax losses is only carried forward as an asset when the
benefit is virtually certain of being realised.
1.7 DOUBTFUL DEBTS
The value of estimated doubtful debts is reviewed annually on an individual
debtor basis, and appropriate provision is made where necessary.
1.8 NEGOTIABLE SECURITIES
Where interest is paid in advance on negotiable securities the interest is
recognised as an asset and progressively charged to the Profit and Loss
Statement over the applicable interest period. Interest payable in arrears is
progressively charged to the Profit and Loss Statement over the applicable
interest period and recognised as a liability.
Discounts and premiums on face value on the issue of negotiable securities
are recognised as variations of the liability to which they relate. The
variations are amortised over the term of the issue, using the effective
yield method.
Changes in the capital value of the outstanding liability on index linked
securities are recognised as variations in the book value of the liability
and are charged to the Profit and Loss Statement.
Any gains or losses arising from the buyback of negotiable securities
issued by Loy Yang Power Ltd. are charged to the Profit and Loss Statement as
incurred or earned.
1.9 DERIVATIVES
Loy Yang Power Ltd. is exposed to changes in interest rates and commodity
prices from its activities. It is Loy Yang Power Ltd.'s policy to use
derivative financial instruments to hedge these risks. Loy Yang Power Ltd.
does not enter, hold or issue derivative financial instruments for reading or
speculative purposes.
Derivative financial instruments include forward rate agreements, futures,
options, interest rate swaps and their Treasury Corporation of Victoria
equivalents.
Gains and losses arising from the early termination of general hedges are
amortised over the period of the hedge. The exception to this is bond futures
where gains and losses are amortised over the average term to maturity of
existing fixed debt.
Gains and losses arising from the early termination of specific hedges are
amortised over the shorter of the period of the borrowing being hedged or the
period of the hedge.
F-162
FINANCIAL STATEMENTS 1995/96
NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS (CONTINUED)
1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
1.10 EMPLOYEE ENTITLEMENTS
WAGES, SALARIES AND LEAVE
Provision is made for employee entitlement benefits accumulated as a result
of employees rendering services up to the reporting date. These benefits
include wages and salaries, annual leave and associated oncosts.
Liabilities arising in respect of wages and salaries, annual leave and any
other employee entitlements expected to be settled within twelve months of
the reporting date are measured at their nominal amounts. All other employee
entitlement liabilities are measured at the present value of their estimated
future cash outflows to be made in respect of services provided by employees
up to the reporting date. In determining the present value of future cash
outflows, the interest rates attaching to Federal Government Guaranteed
Securities which have terms to maturity approximating the terms of the
related liability are used.
Employee entitlement expenses are revenues arising in respect of the
following categories:
o wages and salaries, non-monetary benefits, annual leave, long service
leave, sick leave and other leave entitlements; and
o other types of employee entitlements;
are charged to the Profit and Loss Statement on a net basis in their
respective categories.
SUPERANNUATION
Loy Yang Power Ltd. contributes towards the Victorian Electricity Industry
(VEI) Superannuation Fund on behalf of its employees. These contributions are
charged to the Profit and Loss Statement as the liability arises (refer note
17.2).
1.11 PROVISION FOR SITE RESTORATION: POWER STATION AND MINE
Recognition of a liability for the cost of restoring the power station and
mine sites to an acceptable environmental standard at the end of their useful
lives has been provided for in these accounts (refer notes 11 and 16). This
liability includes costs of reclamation, plant closure and dismantling, and
waste site closure.
The liability is recognised on a gradual basis and is calculated by
discounting the estimated future site restoration costs to their net present
value. Annual increments to the liability for each site are charged to the
Profit and Loss Statement over the estimated remaining life of each site.
Expected future payments for site restoration are discounted using
interest rates attaching, as at the reporting date, to Federal Government
Guaranteed Securities with terms to maturity that match, as closely as
possible, the estimated future cash outflows.
Cost estimates are based on the assumption that current legal requirements
and/or technologies will not change significantly over the life of the power
station and mine sites.
Changes in estimates are dealt with on a prospective basis.
1.12 CASH
For the purpose of the Statement of Cash Flows, cash includes cash on hand
and in banks, investments in money market instruments and short-term deposits
and securities, net of outstanding overdrafts.
F-163
LOY YANG POWER ANNUAL REPORT 1995/96
NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS (CONTINUED)
30 JUNE 1996 30 JUNE 1995
$'000 $'000
-------------- --------------
2 OPERATING REVENUE COMPRISES
Sales revenue............................................. 557,500 238,468
Interest revenue (refer note 25.5) ....................... 1,845 637
Proceeds from the sale of non-current assets.............. 587 117
Dividend revenue.......................................... 127 0
Other revenue............................................. 13,950 5,053
-------------- --------------
574,009 244,275
============== ==============
-----------------------------------------------------------------------------------------
3 OPERATING PROFIT
The operating profit before income tax is arrived at
after charging/(crediting) the following items:
DEPRECIATION, AMORTISATION AND DIMINUTION
Plant and equipment....................................... 96,219 40,255
Development of mine (amortisation)........................ 1,058 427
Leased plant and equipment (amortisation)................. 8,678 3,637
Buildings................................................. 320 137
Diminution in value of inventories........................ 0 727
-------------- --------------
TOTAL DEPRECIATION, AMORTISATION AND DIMINUTION .......... 106,275 45,183
============== ==============
AMOUNTS SET ASIDE TO PROVISIONS
Bad and doubtful debts.................................... 0 0
Employee entitlements..................................... 4,492 1,170
Site restoration--power station........................... 486 430
Site restoration--mine ................................... 247 356
-------------- --------------
TOTAL AMOUNT SET ASIDE TO PROVISIONS ..................... 5,225 1,956
============== ==============
INTEREST EXPENSE (REFER NOTE 25.5)........................ 126,711 59,145
GOVERNMENT MINING ROYALTIES INCURRED...................... 9,242 3,654
ENERGY CONSUMPTION LEVY................................... 30 7
SUPERANNUATION CONTRIBUTIONS.............................. 2,697 1,194
RENTAL OPERATING LEASES................................... 419 233
PROFIT/(LOSS) ON SALE OF NON-CURRENT ASSETS............... 51 (16)
RESEARCH AND DEVELOPMENT EXPENDITURE...................... 519 0
F-164
FINANCIAL STATEMENTS 1995/96
NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS (CONTINUED)
30 JUNE 1996 30 JUNE 1995
$'000 $'000
-------------- --------------
4 INCOME TAX
4.1 INCOME TAX EXPENSE
The prima facie tax on operating profit differs from the income tax
provided in the accounts as follows:
Prima facie income tax expense calculated at 36% (1995: 33%) on the
operating profit....................................................... 66,684 26,261
Increase in income tax expense due to permanent differences
Depreciation on buildings............................................. 448 281
Tax on provisions not carried forward................................. 621 280
Provisions for restoration--non-deductible ........................... 175 142
Entertainment and other non-deductible items ......................... 31 444
Decrease in income tax expense due to permanent differences
Tax exempt income..................................................... (293) 0
Research and development concession................................... (94) 0
General investment allowance.......................................... (25) 0
Depreciation on buildings............................................. 0 (328)
Add: Restatement of deferred tax balances due to change in income tax
rate................................................................... 0 1,881
-------------- --------------
TOTAL INCOME TAX EXPENSE ATTRIBUTABLE TO OPERATING PROFIT ............ 67,547 28,961
============== ==============
Total income tax expense is made up of:
Deferred income tax provision......................................... 85,298 51,107
Less: future income tax benefit....................................... 17,751 22,146
-------------- --------------
67,547 28,961
============== ==============
4.2 ANALYSIS OF TAX BALANCES CARRIED FORWARD
CURRENT
Future income tax benefit, balance at end of year...................... 1,019 3,505
Less: provision for deferred income tax, balance at end of year ....... 450 360
-------------- --------------
NET FUTURE INCOME TAX BENEFIT (REFER NOTE 7)........................... 569 3,145
============== ==============
NON-CURRENT
Provision for deferred income tax, balance at end of year ............. 135,955 50,747
Less: future income tax benefit, balance at end of year................ 45,267 25,030
-------------- --------------
NET PROVISION FOR DEFERRED INCOME TAX (REFER NOTE 11) ................. 90,688 25,717
============== ==============
The future income tax benefit will only be obtained if:
a)future assessable income is derived of a nature and of an amount
sufficient to enable the benefit to be realised;
b)the conditions for deductibility imposed by tax legislation continue
to be complied with; and
(c)no changes in tax legislation adversely affect Loy Yang Power Ltd.
in realising the benefit.
------------------------------------------------------------------------------------------------------
5 RECEIVABLES
CURRENT
Trade debtors (refer note 25.6)........................................ 69,684 97,843
Other debtors (refer note 25.6)........................................ 3,364 2,734
-------------- --------------
73,048 100,577
============== ==============
NON-CURRENT
Trade debtors (refer note 25.6)........................................ 1,575 3,132
Other debtors (refer note 25.6)........................................ 0 0
-------------- --------------
1,575 3,132
============== ==============
F-165
LOY YANG POWER ANNUAL REPORT 1995/96
NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS (CONTINUED)
30 JUNE, 1996 30 JUNE, 1995
$'000 $'000
--------------- ---------------
6 INVENTORIES
CURRENT
General purpose and maintenance stocks at cost........................ 3,560 4,043
Less: inventory diminution............................................ 0 0
--------------- ---------------
3,560 4,043
=============== ===============
NON-CURRENT
General purpose and maintenance stocks at cost........................ 13,664 20,828
Less: inventory diminution............................................ 488 727
--------------- ---------------
13,176 20,101
--------------- ---------------
A review undertaken during the year identified 57.6 million of items
that should correctly be identified as depreciable spares. This
amount has been transferred to property, plant and equipment.
-------------------------------------------------------------------------------------------------------
7 OTHER ASSETS
Current
Prepayments........................................................... 1,146 1,010
Future income tax benefit (refer note 4.2)............................ 569 3,145
--------------- ---------------
1,715 4,155
--------------- ---------------
NON-CURRENT
Unamortized interest rate swap termination losses..................... 4,828 0
Unamortized futures termination losses................................ 835 0
--------------- ---------------
5,663 0
--------------- ---------------
-------------------------------------------------------------------------------------------------------
8 INVESTMENTS
8.1 NON-CURRENT INVESTMENTS AT COST COMPRISE:
Unlisted shares....................................................... 0 128
Unlisted shares in associated companies............................... 0 0
--------------- ---------------
0 128
--------------- ---------------
8.2 NON-CURRENT INVESTMENTS IN UNLISTED ASSOCIATED COMPANIES
PowerWorks Pty. Ltd. .................................................
PowerWorks Pty. Ltd's principal activity is to promote the
electricity industry to the public
Ownership interest.................................................... 33.3% 33.3%
Investment carrying amount............................................ 0.1 0.1
The above investment is held by Loy Yang Power Ltd. and is comprised
of interest in the ordinary share capital of the associate.
The balance date of the associate is 30 June, and the associate is
incorporated in Australia.
There are no material post-balance day events or dissimilar
accounting policies.
During the period, unlisted shares held at cost were sold for
$223,296
F-166
FINANCIAL STATEMENTS 1995/96
NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS (CONTINUED)
30 JUNE 1996 30 JUNE 1995
$'000 $'000
-------------- --------------
9 PROPERTY, PLANT AND EQUIPMENT AT COST
Land at cost........................................................... 1,589 1,589
-------------- --------------
1,589 1,589
Buildings at cost 8,237 8,237
Less: accumulated depreciation......................................... 457 137
-------------- --------------
7,780 8,100
Plant and equipment at cost............................................ 2,986,003 2,966,792
Less: accumulated depreciation......................................... 136,300 40,250
-------------- --------------
2,849,703 2,926,542
Plant and equipment under lease at cost (refer note 15.3) ............. 274,988 274,988
Less: accumulated amortisation......................................... 12,315 3,637
-------------- --------------
262,673 271,351
Mine development at cost............................................... 38,842 38,842
Less: accumulated amortisation......................................... 1,485 427
-------------- --------------
37,357 38,415
Total Fixed Assets at Cost............................................. 3,309,659 3,290,448
Total Accumulated Depreciation/Amortisation............................ 150,557 44,451
-------------- --------------
Total Written Down Amount.............................................. 3,159,102 3,245,997
-------------- --------------
------------------------------------------------------------------------------------------------------
10 CREDITORS AND BORROWINGS
CURRENT
Trade creditors (refer note 25.6)...................................... 35,138 61,047
Bank overdraft (refer note 14.1)....................................... 620 657
Shareholder loan*...................................................... 1,917,492 1,917,492
Interest accrued (refer note 25.6)..................................... 23,765 30,819
Dividend payable (refer note 25.6)..................................... 61,686 0
Other loans (refer note 20)............................................ 49 102,091
Other liabilities (refer note 25.6).................................... 869 1,580
-------------- --------------
2,039,619 2,113,681
-------------- --------------
NON-CURRENT
Loans (refer note 20).................................................. 1,057,833 1,164,699
-------------- --------------
1,057,833 1,164,699
-------------- --------------
There are no guarantees or securities over assets with respect to
borrowings.
*In accordance with the Electricity Industry (Further Amendment) Act
1994 section 153F and the Electricity Industry (Amendment) Act 1995
section 153W, the shareholder loan is an amount owing to the State
Electricity Commission of Victoria and, whilst the loan holds a legal
obligation, it holds no interest payable and no term is specified for
repayment. Loy Yang Power Ltd., however, will be making repayments
against the shareholder loan in 1996/97.
F-167
LOY YANG POWER ANNUAL REPORT 1995/96
NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS (CONTINUED)
30 JUNE 1996 30 JUNE 1995
$'000 $'000
-------------- --------------
11 PROVISIONS
CURRENT
Employee entitlements (refer note 17)............ 7,476 7,587
Uninsured losses................................. 0 75
Site restoration--mine (refer note 16)........... 140 60
Redundancies..................................... 1,494 7,338
-------------- --------------
9,110 15,060
-------------- --------------
NON-CURRENT
Employee entitlements (refer note 17)............ 5,927 5,219
Site restoration--power station (refer note 16) . 3,734 3,248
Site restoration--mine (refer note 16)........... 968 906
Deferred income tax (refer note 4.2)............. 90,688 25,717
-------------- --------------
101,317 35,090
-------------- --------------
--------------------------------------------------------------------------------
12 SHARE CAPITAL
AUTHORISED CAPITAL
500,000,000 Ordinary Shares of $1.00 each ....... 500,000 500,000
ISSUED AND PAID UP CAPITAL
15 ordinary shares of $1.00 each, fully paid .... 0 0
(Balance not shown due to rounding)
--------------------------------------------------------------------------------
13 RETAINED EARNINGS
Balance at Beginning of Year..................... 50,618 0
Transfer from profit and loss.................... 117,686 50,618
-------------- --------------
Total available for appropriation................ 168,304 50,618
Interim dividend paid............................ 56,000 0
Final dividend payable........................... 61,686 0
-------------- --------------
BALANCE AT END OF YEAR........................... 50,618 50,618
-------------- --------------
F-168
FINANCIAL STATEMENTS 1995/96
NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS (CONTINUED)
30 JUNE 1996 30 JUNE 1995
$'000 $'000
-------------- --------------
14 STATEMENT OF CASH FLOWS
14.1 RECONCILIATION OF CASH
Cash at the end of the financial year as shown in the Statement of
Cash Flows is reconciled to the related items in the Balance Sheet as
follows:
CASH
Cash on hand........................................................... 8 8
Short term deposits and securities..................................... 650 1,007
-------------- --------------
658 1,015
OVERDRAFT
Bank overdraft......................................................... (620) (657)
-------------- --------------
(620) (657)
-------------- --------------
38 358
-------------- --------------
Loy Yang Power Ltd. has a bank overdraft facility of $5 million (1995:
$10 million) arranged with the National Australia Bank. $4.4 million
of the facility is available at 30 June 1996.
14.2 RECONCILIATION OF NET CASH FLOWS FROM OPERATING ACTIVITIES
Operating profit after income tax...................................... 117,686 50,618
-------------- --------------
Non-cash revenues and expenses, and revenues and expenses associated
with financing or investing activities:
Depreciation and amortisation expense.................................. 106,275 44,456
Income tax expense..................................................... 67,547 28,961
Interest revenue received.............................................. (1,845) (912)
Finance charges........................................................ 126,711 59,145
Dividend revenue received.............................................. (127) 0
Loss/(profit) on sold and scrapped non-current assets.................. (51) 16
-------------- --------------
298,510 131,666
ADJUST FOR MOVEMENTS IN ASSETS AND LIABILITIES
Increase/(decrease) in operating expenditure accruals.................. (30,126) 29,572
Increase/(decrease) in provisions...................................... (4,694) (8,343)
Increase/(decrease) in trust funds and deposits........................ (711) 1,308
Decrease/(increase) in accounts receivable/accrued revenue ............ 28,954 (41,753)
Decrease/(increase) in prepayments..................................... (136) 1,474
Decrease/(increase) in inventory....................................... (227) (808)
-------------- --------------
(6,940) (18,550)
-------------- --------------
NET CASH PROVIDED BY OPERATING ACTIVITIES.............................. 409,256 163,734
-------------- --------------
F-169
LOY YANG POWER ANNUAL REPORT 1995/96
NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS (CONTINUED)
30 JUNE 1996 30 JUNE 1995
$'000 $'000
-------------- --------------
15 EXPENDITURE COMMITMENTS
15.1 CAPITAL EXPENDITURE COMMITMENTS
Outstanding contract commitments for capital expenditure
contracted for at balance date but not provided for comprises
the following:
Payable not later than one year.................................. 946 596
-------------- --------------
946 596
-------------- --------------
15.2 NON-CAPITAL EXPENDITURE COMMITMENTS
Outstanding contract commitments for non-capital expenditure
contracted for at balance date but not provided for comprises
the following:
Payable not later than one year.................................. 6,524 3,938
Payable greater than one and less than two years................. 1,566 0
-------------- --------------
8,090 3,938
-------------- --------------
15.3 LEASE EXPENDITURE COMMITMENTS
Outstanding operating lease (non-cancellable) commitments at
balance date but not provided for comprises the following:
Payable not later than one year.................................. 138 0
Payable greater than one and less than two years................. 145 0
Payable greater than two and less than five years................ 169 0
-------------- --------------
452 0
-------------- --------------
Loy Yang Power Ltd. holds $263 million of plant disclosed as leased assets in
note 9. The leases for these assets have not yet been novated to Loy Yang
Power Ltd., and they remain with the current lessees being either the State
Electricity Commission of Victoria or Generation Victoria. As a consequence
Loy Yang Power Ltd. has no lease liability in respect to these leases. Loy
Yang Power Ltd. and the State Electricity Commission of Victoria are
progressing issues to achieve their formal novation to Loy Yang Power Ltd.
The lessors have given their conditional consent for Loy Yang Power Ltd. to
use the assets until such time as the leases are formally novated.
Included in the above is a lease relating to an individual asset valued at
$67.7 million (written down value) which has an expiry date of 31 December
1999 unless not renewed by the lessor with effect from 30 June 1996. The
renewal option is yet to be exercised. The lessor's consent for Loy Yang
Power Ltd. to use the asset continues.
16 SITE RESTORATION COSTS--POWER STATION AND MINE
Provision for site restoration of the power
station and mine sites of $4.8 million has
been provided for in the accounts as at 30
June 1996. The total net present value of
estimated future cash outflows for site
restoration is $26 million.
F-170
FINANCIAL STATEMENTS 1995/96
NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS (CONTINUED)
30 JUNE 1996 30 JUNE 1995
$'000 $'000
-------------- --------------
17 EMPLOYEE ENTITLEMENTS
17.1 AGGREGATE EMPLOYEE ENTITLEMENT
Wages and salaries................................................ 185 219
Recreation leave.................................................. 6,663 6,176
Long service leave................................................ 6,740 6,630
Redundancies...................................................... 1,494 7,338
-------------- --------------
15,082 20,363
-------------- --------------
The amounts for long service leave are measured at their present
values. The following assumptions were adopted in measuring the
present values of the entitlements which are not expected to be
paid or settled within 12 months of balance date.
LONG SERVICE LEAVE
Weighted average rates of increase in annual employee
entitlements to settlement of the liabilities .................... 2.9% 4.0%
Weighted average discount rates .................................. 8.7% 8.8%
Weighted average terms to settlement of the liabilities ......... 11 years 11 years
17.2 SUPERANNUATION FUND
All permanent and directly hired casual employees of Loy Yang
Power Ltd. are entitled to benefits on termination from the
Victorian Electricity Industry Superannuation Fund. All casual
and permanent employees engaged after 3 October 1994 are members
of an accumulation fund, Division D or other external
accumulation funds. All other permanent employees are members of
Division B or C of the Fund which provide defined benefits in the
form of pensions (Division B) or lump sums (Division C). Both
defined benefit schemes are closed to new members. During July
1995 the company contributed to the Fund at the rate of 10% for
the defined benefit schemes, and thereafter at a rate of 9.75%.
Contributions in excess of those required by the Superannuation
Guarantee Charge Act 1992 (6%) are not legally enforceable.
F-171
LOY YANG POWER ANNUAL REPORT 1995/96
NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS (CONTINUED)
30 JUNE 1996 30 JUNE 1995
$'000 $'000
-------------- --------------
17 EMPLOYEE ENTITLEMENTS (CONTINUED)
17.2 SUPERANNUATION FUND (CONTINUED)
The effective date of the most recent detailed valuation of the Fund
was 30 June 1996. The review was undertaken by William M. Mercer Pty
Ltd. Based on that assessment, the situation for the company as at 30
June 1996 was:
Present value of employees accrued benefits............................ 54,100* 45,800
Net market value of assets held by the fund to meet future benefit
payments............................................................... 54,600* 47,500
Excess/(deficit) of present value of employees' benefits over assets
held to meet future benefit payments................................... 500* 1,700
Vested benefits........................................................ 49,300* 45,700
The present value of employees' accrued benefits is equal to the past
membership liability calculated in accordance with Australian
Accounting Standard AAS25 "Financial Reporting by Superannuation
Plans". (Vested benefits are those benefits which would have been paid
on voluntary termination from the Fund.)
Employer contributions to the fund..................................... 2,697 1,194
Additional contributions to the fund to compensate for differences
between the resignation and retrenchment benefit, in relation to
voluntary retrenchments................................................ 1,228 1,140
*Note: Asset and benefit figures are unaudited at the time of signing
this report. The last full audit was conducted at 30 June 1995.
18 CONTINGENT EVENTS
18.1 Loy Yang Power Ltd. was allocated its assets and liabilities from
Generation Victoria through an allocation statement in accordance with
the Electricity Industry (Further Amendment) Act 1994. Under section
153B of this Act, the allocation statement may be amended at any time
at the direction of the Victorian Government Treasurer and relevant
Minister.
18.2 Upon the disaggregation of the State Electricity Commission of
Victoria (SECV) on 3 January 1994, Generation Victoria entered into a
contract with the SECV to meet the SECV's obligations under its
contracts for the supply of coal and infrastructure services to the
Loy Yang B Joint Venture in consideration of receipt of all SECV's
revenues under those contracts. Upon the disaggregation of Generation
Victoria on 31 January 1995, Generation Victoria's rights and
obligations were allocated to Loy Yang Power Ltd.
Under the contract Loy Yang Power Ltd. is directly liable to the SECV
to use its "best endeavours", backed by an indemnity in favour of the
SECV for performance of these obligations, subject only to force
majeure relief. A failure by Loy Yang Power Ltd. to use its "best
endeavours" may result in liabilities being imposed on Loy Yang Power
Ltd. At the time of preparation of this report, Loy Yang Power Ltd. is
not aware of any breaches of performance obligations on its part.
The SECV remains the contracting party under the contracts with the
Loy Yang B Joint Venture.
F-172
FINANCIAL STATEMENTS 1995/96
NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS (CONTINUED)
30 JUNE 1996 30 JUNE 1995
$'000 $'000
-------------- --------------
19 TREASURY
19.1 LOY YANG POWER LTD. DERIVATIVES
Loy Yang Power Ltd.'s derivative products are dealt through Treasury
Corporation of Victoria (TCV). The only derivative products
outstanding as at 30 June 1996 were Interest Rate Swaps.
INTEREST RATE SWAPS
Under these swaps, Loy Yang Power Ltd. agrees with the counterpart to
exchange, at specified intervals, the difference between the
fixed-rate and floating-rate interest amounts calculated by reference
to an agreed notional amount. The notional principal amounts are not
exchanged by the parties.
The maturity profile of these swaps in notional principal terms is:
Later than two years and not later than five years.................... 25,000 33,744
Later than five years................................................. 195,000 245,000
-------------- --------------
220,000 278,744
-------------- --------------
The following table indicates the type of swaps held by Loy Yang Power
Ltd. and their weighted average interest rates.
Pay-fixed swaps: notional principal amount............................ 220,000 278,744
Average pay rate: Loy Yang Power Ltd. specific cost................... 12.6% 12.5%
Average receive rate.................................................. 7.6% 7.7%
Loy Yang Power Ltd.'s credit exposures on these swaps is nil as the
counterpart in each case is TCV.
VIC INTEREST RATE FORWARDS & VIC HOTSTOCK FORWARDS
The maturity profile in notional principal amount terms, of these
Interest Rate and Hotstock Forwards is:
Not Later than one year............................................... 0 90,000
-------------- --------------
0 90,000
-------------- --------------
Both Vic Interest Rate Forwards and Vic Hotstock Forwards were created
by TCV for use by their Participating Authorities following the State
Treasurer's instructions that TCV Participating Authorities were to no
longer deal in derivative products directly with the financial markets
from 1 July 1995.
Vic Interest Rate Forwards are similar to Bill Futures except that
there are no initial and variation margins to be paid by either
counterpart. Vic Hotstock Forwards are similar to Bond Futures except
the maturity dates are specific to TCV's physical hotstocks.
F-173
LOY YANG POWER ANNUAL REPORT 1995/96
NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS (CONTINUED)
30 JUNE 1996 30 JUNE 1995
$'000 $'000
-------------- --------------
20 LOANS (refer note 25.6)
20.1 LOAN COMPONENTS
CURRENT LOANS
Premium/(discount) on loans................................. 0 1,782
Fixed interest loans........................................ 49 88
Fixed interest bonds........................................ 0 100,221
-------------- --------------
49 102,091
NON-CURRENT LOANS
Premium/(discount) on loans ................................ 38,899 39,055
Floating rate notes ........................................ 249,745 334,746
Fixed interest bonds ....................................... 626,695 654,895
Capital indexed bonds ...................................... 142,429 135,890
Fixed interest loans ....................................... 65 113
-------------- --------------
1,057,833 1,164,699
-------------- --------------
1,057,882 1,266,790
-------------- --------------
Liabilities in years of maturity, at face value are:
Not later than one year.................................... 49 100,309
Later than one year and not later than two years .......... 353,784 21,249
Later than two years and not later than five years ....... 327,721 813,505
Later than five years...................................... 337,429 290,890
-------------- --------------
1,018,983 1,225,953
-------------- --------------
Plus unamortised adjustments to face value (refer note
20.2)...................................................... 38,899 40,837
-------------- --------------
1,057,882 1,266,790
-------------- --------------
20.2 ADJUSTMENTS TO FACE VALUE OF LOANS
Current (discount)/premium.................................. 0 1,782
Non-Current (discount)/premium.............................. 38,899 39,055
-------------- --------------
38,899 40,837
-------------- --------------
F-174
FINANCIAL STATEMENTS 1995/96
NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS (CONTINUED)
30 JUNE 1996 30 JUNE 1995
$'000 $'000
-------------- --------------
20 LOANS (CONTINUED)
20.3 SECURITY--LOANS
All loan funding for Loy Yang Power Ltd. is arranged via Treasury Corporation of
Victoria (TCV). Legal inability to the end investor for Loy Yang Power Ltd. loans
rests with TCV.
These loans are guaranteed by the State Government of Victoria. In return Loy Yang
Power Ltd. pays a financial accommodation levy to the State Government which increases
the cost of debt to reflect market rates, based on an assessment of credit risk.
For debt novated to TCV, back-to-back loans have been established between Loy Yang
Power Ltd. and TCV. Pursuant to Section 36D of the Treasury Corporation of Victoria
(Debt Centralisation) Act 1993, Loy Yang Power Ltd. will reimburse TCV for all
settlement amounts relating to these loans.
-------------------------------------------------------------------------------------------------------------
21 AUDITORS' REMUNERATION
Amounts received, or due and receivable, by the Auditor-General for auditing the
financial statements:
Total amount payable for annual audit fee ................................... 52 62
-------------------------------------------------------------------------------------------------------------
22 DIRECTORS' REMUNERATION
Amounts received, or due and receivable, by the directors of
Loy Yang Power Ltd. ......................................................... 162 56
The number of directors of Loy Yang Power Ltd. whose annual remuneration (including
superannuation contributions) falls within the following bands:
$ Band levels Directors Directors
--------------------------------------------------------------------------------- ------------- -------------
$30,000 -$39,999 ................................................................ 3 3
$60,000 -$69,999 ................................................................ 1 1
During the year Loy Yang Power Ltd. paid premiums for the indemnification and insurance
of all directors and officers of Loy Yang Power Ltd. to the full extent permitted by
Corporations Law.
The directors have applied ASC Class Order 95/741 in the disclosure of directors'
remuneration.
---------------------------------------------------------------------------------------------------------------
23 EXECUTIVES' REMUNERATION
The number of executives of Loy Yang Power Ltd. whose remuneration falls within the
following bands is set out below:
$ BAND LEVELS EXECUTIVES EXECUTIVES
------------------------------------------------------------------------------ -------------- --------------
$100,000 -$109,999 ........................................................... 0 1
$110,000 -$119,999 ........................................................... 2 4
$120,000 -$129,999 ........................................................... 1 0
$130,000 -$139,999 ........................................................... 3 1
$200,000 -$209,999 ........................................................... 0 1
$210,000 -$219,999 ........................................................... 1 0
Total remuneration received, or due and receivable, from Loy Yang Power Ltd.
or related entities by executive officers of Loy Yang Power Ltd. whose
remuneration exceeds $100,000: ............................................... 974 890
1994/95 amounts represent annual equivalents.
1995/96 amounts represent 12 months actual.
F-175
LOY YANG POWER ANNUAL REPORT 1995/96
NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS (CONTINUED)
24 SEGMENTS
Loy Yang Power Ltd. operated entirely in Australia in the production and sale
of electricity and coal.
25 RELATED PARTY DISCLOSURES
25.1 DIRECTORS OF LOY YANG POWER LTD.
Directors of Loy Yang Power Ltd. during the financial year were:
Mr. C. Little
Mr. D. Swan
Mr. J. C. Richards
Mr. J. S. Grigg
All directors are non executive.
25.2 TRANSACTIONS WITH DIRECTOR-RELATED ENTITIES
There were no transactions with director-related entities.
25.3 WHOLLY OWNED GROUP
The wholly owned group comprises the ultimate holding entity of Loy Yang
Power Ltd., the Victorian State Government, and therefore all Victorian State
Government Departments, Statutory Corporations and any other corporate
entities owned by the Victorian State Government are related parties.
25.4 RELATED PARTY TRANSACTION CATEGORIES
The following types of related party transactions were transacted during the
year, on normal commercial terms:
Electricity purchases
Electricity transmission costs
Electricity pool costs
Council rates
Auditing services
Brown Coal Royalties
Technical services
Payroll tax
Briquette purchases
Electricity sales revenue
Coal sales revenue
Water purchases and waste water disposals
Loans from shareholder
Land leases
Provision of loan facilities
Gas purchases
Superannuation payments
F-176
FINANCIAL STATEMENTS 1995/96
NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS (CONTINUED)
30 JUNE 1996 30 JUNE 1995
$'000 $'000
-------------- --------------
25 RELATED PARTY DISCLOSURES (continued)
25.5 OPERATING PROFIT AND LOSS TRANSACTIONS WITH RELATED PARTIES
Interest revenue.............................................................. 1,164 371
Dividend revenue.............................................................. 127 0
Interest expense ............................................................. 126,711 58,707
25.6 RECEIVABLE AND PAYABLES AT BALANCE DATE
AGGREGATE RELATED PARTY RECEIVABLES AT BALANCE DATE
Current ...................................................................... 57,508 99,469
Non-current................................................................... 1,566 3,132
-------------- --------------
59,074 102,601
-------------- --------------
AGGREGATE RELATED PARTY PAYABLES AT BALANCE DATE
Current ...................................................................... 1,994,185 2,097,008
Non-current................................................................... 1,058,296 1,164,997
-------------- --------------
3,052,481 3,262,005
-------------- --------------
25.7 INTERESTS HELD
There are no interests held in any related party other than those disclosed
as investments in note 8.
F-177
LOY YANG POWER ANNUAL REPORT 1995/96
AUDITOR-GENERAL'S REPORT
AUDIT SCOPE
The accompanying financial statements of Loy Yang Power Limited for the year
ended 30 June 1996, comprising a profit and loss statement, balance sheet,
statement of cash flows and notes to the financial statements, have been
audited. The company's directors are responsible for the preparation and
presentation of the financial statements and the information they contain. An
independent audit of these financial statements has been carried out in order
to express an opinion on them to the manager of the company, as required by
the Corporations Law and Audit Act of 1996.
The audit has been conducted in accordance with Australian Auditing Standards
to provide reasonable assurance as to whether the financial statements are
free of material misstatement. The audit procedures included an examination,
on a test basis, of evidence supporting the amounts and other disclosures in
the financial statements, and the evaluation of accounting policies and
significant accounting estimates. These procedures have been undertaken to
form an opinion as to whether, in all material respects, the financial
statements are presented fairly in accordance with the basis on which the
accounts have been prepared, namely applicable Accounting Standards, other
mandatory professional reporting requirements and comply with the
Corporations Law, so as to present a view which is consistent with my
understanding of the company's financial position and the results of its
operations and its cash flows.
The audit opinion expressed in the financial statements has been formed on
the above basis.
AUDIT OPINION
In my opinion, the financial statements of Loy Yang Power Limited are
properly drawn up:
a) so as to give a true and fair view of:
i) the company's state of affairs as at 30 June 1996 and of its profit
and cash flows for the financial year ended on that date; and
ii) the other matters required by Divisions 1, 4A and 4B of Part 3.6 of
the Corporations Law to be dealt with in the financial statements,
b) in accordance with the Corporations Law, and
c) in accordance with applicable Accounting Standards and other mandatory
professional reporting requirements.
NRG Energy Inc
1221 Nicollet Mall
Suite 700
Minneapolis MN 55403-2445
UNITED STATES OF AMERICA
Dear Sirs/Mesdames
LOY YANG POWER -- REPORT ON US GAAP RECONCILIATION AND PRIOR YEAR AUDIT
WORKPAPERS
At your request, we have performed the agreed-upon procedures set out
below with respect to Loy Yang Power Limited for the period 1 February 1995
to 30 June 1995, the financial year ended 30 June 1996, and the period from 1
July 1996 to 12 May 1997. These financial periods were covered by financial
statements for the financial years ended 30 June 1995 and 30 June 1996 of Loy
Yang Power Limited, and for the financial year ended 30 June 1997 for Quite
Life Limited (formerly Loy Yang Power Limited). Each of these financial
statements was subject to audit by the Victorian Auditor-General's Office.
The procedures performed were as follows:
o We audited the reconciliations of both the operating profit after tax
for each of the financial periods listed above and shareholders equity
as at 30 June 1995, 30 June 1996 and 12 May 1997, from Australian
generally accepted accounting principles ("GAAP") to United States
("US") GAAP.
o We reviewed the workpapers of the Victorian Auditor-General's Office
for the purpose of determining whether the audit procedures performed
in support of the audit opinions on the financial statements as
described above were in accordance with US generally accepted auditing
standards ("GAAS").
The following statements are made as a result of the performance of these
agreed-upon procedures.
AUDIT OF US GAAP RECONCILIATION
We have audited the reconciliation of operating profit after tax of Loy
Yang Power Limited for the period from 1 February 1995 to 30 June 1995, the
financial year ended 30 June 1996, and the period from 1 July 1996 to 12 May
1997, and of shareholders equity as at 30 June 1995, 30 June 1996 and 12 May
1997, from Australian GAAP to US GAAP, as set out in Schedule 1.
Our audit has been conducted in accordance with Australian Auditing
Standards to provide reasonable assurance of whether the US GAAP
reconciliations are free of material misstatement. Our procedures included
the examination of the audited financial statements for each of the financial
period listed above of Loy Yang Power Limited in order to identify the
application of accounting polices which would be inconsistent with US GAAP,
and the examination of the US GAAP reconciliation including examination, on a
test basis, of evidence supporting the amounts of the reconciling items.
These procedures have been undertaken to form an opinion whether, in all
material respects, the US GAAP reconciliations are presented fairly, and
represent an amount of operating profit after tax and shareholders equity in
accordance with US GAAP. The audit opinion expressed in this report has been
formed on the above basis.
F-179
In our opinion, the US GAAP reconciliations of Loy Yang Power Limited are
properly drawn up to give a true and fair view of:
o Operating profit after tax for the period from 1 February 1995 to 30
June 1995, the financial year ended 30 June 1996, and the period from
1 July 1996 to 12 May 1997 under US GAAP; and
o Shareholders equity as at 30 June 1995, 30 June 1996 and 12 May 1997
under US GAAP.
REVIEW OF WORKPAPERS OF THE VICTORIAN AUDITOR-GENERAL'S OFFICE
We have reviewed the workpapers of the Victorian Auditor-General's Office
in support of the audit opinions expressed by the Auditor-General on the
financial statements for the financial years ended 30 June 1995 and 30 June
1996 for Loy Yang Power Limited, and for the financial year ended 30 June
1997 for Quite Life Limited (formerly Loy Yang Power Limited).
Our review has been conducted in accordance with Australian Auditing
Standards in order to state whether, on the basis of the procedures
described, anything has come to our attention that would indicate that the
audits performed by the Auditor-General were not performed in accordance with
US GAAS. Our procedures involved the examination of the workpapers of the
Auditor-General for each of the financial statements listed above, and an
assessment of whether the procedures documented therein would constitute an
audit in accordance with US GAAS. As our review does not constitute an audit
made in accordance with Australian auditing standards, we do not express an
opinion on whether the audit has been performed in accordance with US GAAS.
Based on our review however, nothing has come to our attention that causes
us to believe that the audits performed by the Auditor-General on the
financial statements for the financial years ended 30 June 1995 and 30 June
1996 for Loy Yang Power Limited, and for the financial year ended 30 June
1997 for Quite Life Limited (formerly Loy Yang Power Limited), have not been
performed in accordance with US GAAS.
This report has been prepared to assist you with your reporting
obligations to the Securities Exchange Commission, and is not to be used for
any purpose.
If you have any queries in relation to the above, please do not hesitate
to contact either Mr Michael Perry (613) 9286 8734 or Mr Scott Ward (613)
9286 8194.
Yours faithfully
/s/ Arthur Andersen
Enc
F-180
SCHEDULE 1
LOY YANG POWER LIMITED
US GAAP Reconciliation
A$'000 A$'000 A$'000
PERIOD TO YEAR TO PERIOD TO
12 MAY 1997 30 JUNE 1996 30 JUNE 1995
------------- -------------- --------------
Operating profit and extraordinary items under
Australian GAAP ...................................... 983,177 117,686 50,618
Less: Extraordinary gain on sale of business net of
tax................................................... 7 (952,657)
Add: Loss on buy-back of debt securities .............. 7 82,576
------------- -------------- --------------
Operating profit before sale of business under
Australian GAAP....................................... 113,096 117,686 50,618
Add/(less): US GAAP adjustments
Provision for redundancies ........................... 1 (650) (3,740) (5,053)
Pension plan ......................................... 2 1,472 (768) (320)
Tax rate change ...................................... 3 (1,881) 1,881
Revaluation of property, plant & equipment .......... 4 4,435 5,142 2,151
Reclassification of spares ........................... 5 (1,830)
Shareholder loan ..................................... 6 (81,022) (76,311) (32,838)
------------- -------------- --------------
Operating profit before sale of business under US GAAP 57,331 38,298 16,439
============= ============== ==============
A$'000 A$'000 A$'000
AT AT AT
12 MAY 1997 30 JUNE 1996 30 JUNE 1995
------------- -------------- --------------
Shareholders equity under Australian GAAP ............. 0 50,618 50,618
Less: Extraordinary gain on sale of business net of
tax................................................... 7 (952,657)
Add: Dividend paid on sale of business ................ 7 1,033,795
Add: Loss on buy-back of debt securities .............. 7 82,576
-------------
Shareholders equity before sale of business under
Australian GAAP ...................................... 163,714 50,618 50,618
Add/(less): US GAAP adjustments
Provision for redundancies ........................... 1 (9,443) (8,793) (5,053)
Pension plan ......................................... 2 1,792 320 1,088
Dividend payable ..................................... 8 (61,686) 61,686
Tax rate change ...................................... 3 1,881
Revaluation of property, plant & equipment .......... 4 11,728 7,293 2,151
Reclassification of spares ........................... 5 (1,830) (1,830)
Shareholder loan ..................................... 6 61,022 137,334
------------- -------------- --------------
Shareholders equity before sale of business under US
GAAP ................................................. 104,275 170,316 188,019
============= ============== ==============
F-181
LOY YANG POWER LIMITED
US GAAP Reconciliation -- Footnotes
1. PROVISION FOR REDUNDANCIES
A provision for labour redundancies was recognised on the
commercialisation of the company on 1 February 1995. In accordance with
Australian GAAP, a provision for redundancies can be recognised where
positions have been identified as being surplus to requirements, provided the
circumstances are such that a constructive liability exists. Under US GAAP, a
provision for redundancies can only be recognised in certain restricted
circumstances. In particular, a provision redundancies involving voluntary
severance offers is restricted to employees who have accepted those offers.
Where the conditions for recognition of a redundancy provision do not exist,
redundancy benefits paid are expensed as incurred.
2. CONTRIBUTIONS TO PENSION PLANS
Under Australian GAAP, contributions made to pension plans are expensed
when due. Under US GAAP, the net periodic pension cost is charged against the
profit and loss account in accordance with US Statement of Financial
Accounting Standards No. 87.
3. RESTATEMENT OF DEFERRED TAX BALANCES FOR TAX RATE CHANGE
The company's deferred tax balances were restated at 30 June 1995
following the increase in the Australian company tax rate from 33% to 36%
announced by the Australian Treasurer in Parliament on 19 May 1995. This
increase was applicable to the company from 1 July 1995. Under Australian
GAAP, such an announcement is normally acceptable as adequate evidence that
the change will occur. Under US GAAP, a change of tax rate is not recognised
until it has been enacted.
4. UPWARD REVALUATIONS OF PROPERTY, PLANT AND EQUIPMENT
Upward revaluations of property, plant and equipment to an amount above
historical cost are permitted under Australian GAAP, which result in an
increase in depreciation expense charged against the profit and loss account.
Since US GAAP does not permit property, plant and equipment to be valued at
an amount above historical cost, the company's depreciation expense has been
restated to reflect historical cost depreciation.
5. CHANGE IN ACCOUNTING POLICY
Under Australian GAAP, a change in accounting policy which resulted in
non-depreciable inventory being classified as depreciable property, plant and
equipment was brought to account through prospective adjustment to
depreciation charged to the profit and loss account. Under US GAAP, a charge
to the profit and loss account made in the period of reclassification,
representing a retrospective adjustment for depreciation charges incurred to
date.
6. SHAREHOLDER LOAN
Under Australian GAAP, non-interest bearing debt is recognised as the
amount of principal due for repayment, and no interest expense is charged to
the profit and loss account. Under US GAAP, a notional interest cost is
recognised through adjusting the carrying value of the debt to the present
value of future obligations for principal repayments.
7. REVERSAL OF RESULT FROM SALE OF BUSINESS
The result from the sale of the business, including the final dividend to
the State Electricity Commission of Victoria, and the loss incurred on the
buy back of debt securities has been reversed in determining the results of
operations and shareholder equity under Australian GAAP.
8. DIVIDEND PAYABLE
Under Australian GAAP, dividends are recognised in the period to which
they relate and provision for dividends payable is made where a constructive
liability exists for the payment of such dividends at year end. Under US
GAAP, a dividends are recognised in the period in which they are declared and
become legally payable.
F-182
NO DEALER, SALESMAN OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS IN CONNECTION WITH THIS OFFERING, AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY NRG. THE INFORMATION CONTAINED HEREIN IS AS OF THE DATE HEREOF
AND SUBJECT TO CHANGE, COMPLETION OR AMENDMENT WITHOUT NOTICE. DELIVERY OF
THIS PROSPECTUS AT ANY TIME SHALL NOT CREATE ANY IMPLICATION THAT THERE HAS
BEEN NO CHANGE IN THE INFORMATION SET FORTH HEREIN OR IN THE AFFAIRS OF NRG
SINCE THE DATE HEREOF OR THAT THE INFORMATION SET FORTH HEREIN IS CORRECT AS
OF ANY TIME SUBSEQUENT TO ITS DATE. THIS PROSPECTUS DOES NOT CONSTITUTE AN
OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY SECURITY OTHER THAN
THE NOTES OFFERED HEREBY, NOR DOES IT CONSTITUTE AN OFFER TO SELL OR A
SOLICITATION OF AN OFFER TO BUY ANY OF THE NOTES OFFERED HEREBY IN ANY
JURISDICTION IN WHICH IT IS UNLAWFUL TO MAKE SUCH AN OFFER OR SOLICITATION TO
SUCH PERSON.
TABLE OF CONTENTS
PAGE
------
Summary................................. 3
Risk Factors............................ 16
Use of Proceeds ........................ 24
The Exchange Offer ..................... 25
Capitalization ......................... 32
Selected Consolidated Financial Data .. 33
Selected Pro Forma Condensed Financial
Data .................................. 36
Management's Discussion and Analysis of
Financial Condition and Results of
Operations ............................ 38
Business ............................... 47
Regulation ............................. 81
Management ............................. 86
Ownership of Capital Stock ............. 92
Certain Transactions ................... 93
Certain Indebtedness ................... 95
Description of Notes ................... 96
Certain Federal Income Tax
Considerations ........................ 106
Ratings ................................ 108
Plan of Distribution ................... 109
Legal Matters .......................... 110
Experts ................................ 110
Index to Consolidated Financial
Statements............................. F-1
UNTIL , ALL DEALERS EFFECTING TRANSACTIONS IN THE NEW NOTES,
WHETHER OR NOT PARTICIPATING IN THE EXCHANGE OFFER, MAY BE REQUIRED TO
DELIVER A PROSPECTUS.
$250,000,000
NRG ENERGY INC.
7 1/2% SENIOR NOTES
DUE 2007
[GRAPHIC OF NRG LOGO]
PROSPECTUS
DATED , 1997
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following is an estimate of all expenses in connection with the
issuance and distribution of the securities being registered hereby:
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
As authorized by Section 145 of the General Corporation Law of the State
of Delaware, each director and officer of NRG may be indemnified by NRG
against expenses (including attorney's fees, judgments, fines and amounts
paid in settlement) actually and reasonably incurred in connection with the
defense or settlement of any threatened, pending or completed legal
proceedings in which he is involved by reason of the fact that he is or was a
director or officer of NRG if he acted in good faith and in a manner that he
reasonably believed to be in or not opposed to the best interests of NRG and,
with respect to any criminal action or proceeding, if he had no reasonable
cause to believe that his conduct was unlawful. However, if the legal
proceeding is by or in the right of NRG, the director or officer may not be
indemnified in respect of any claim, issue or matter as to which he shall
have been adjudged to be liable for negligence or misconduct in the
performance of his duty to NRG unless a court determines otherwise.
In addition, Article VI of NRG's By-Laws provides that NRG shall indemnify
and hold harmless, to the fullest extent permitted by applicable law, any
person who was or is made or is threatened to be made a party or is otherwise
involved in any action, suit or proceeding, whether civil, criminal,
administrative or investigative (a "Proceeding") by reason of the fact that
he or she, or a person for whom he or she is the legal representative, is or
was a director, officer, employee or agent of NRG or is or was serving at the
request of NRG as a director, officer, employee or agent of another company
or of a partnership, joint venture, trust, enterprise or non-profit entity,
including service with respect to employee benefit plans, against all
liability and loss suffered and expenses reasonably incurred by such person.
NRG shall be required to indemnify a person in connection with a Proceeding
initiated by such person only if the Proceeding was authorized by the Board
of Directors of NRG.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
On June 12, 1997, NRG sold $250,000,000 aggregate principal amount of its
7-1/2% Senior Notes Due 2007 (the "Old Notes") to Salomon Brothers Inc, ABN
AMRO Chicago Corporation and Chase Securities Inc. (the "Initial Purchasers")
for $250,000,000 less the aggregate discount to Initial Purchasers of
$1,625,000. Such transaction was exempt from the registration requirements of
the Securities Act of 1933, in reliance on Section 4(2) of the Securities Act
on the basis that such transactions did not involve a public offering. In
accordance with the agreement pursuant to which the Initial Purchasers
purchased the Old Notes, such Initial Purchasers agreed to offer and sell the
Old Notes only to "qualified institutional buyers" (as defined in Rule 144A
under the Securities Act) and pursuant to offers and sales that occur outside
the United States within the meaning of Regulation S under the Securities
Act.
On January 29, 1996, NRG sold $125,000,000 aggregate principal amount of
its 7.625% Senior Notes Due 2006 (the "1996 Notes") to Bear, Stearns & Co.
Inc. and Merrill Lynch & Co. (the "1996 Note Initial Purchasers") for
$125,000,000 less the aggregate discount to 1996 Note Initial Purchasers of
II-1
$812,500. Such transaction was exempt from the registration requirements of
the Securities Act of 1933, in reliance on Section 4(2) of the Securities Act
on the basis that such transactions did not involve a public offering. In
accordance with the agreement pursuant to which the 1996 Note Initial
Purchasers purchased the 1996 Notes, such 1996 Note Initial Purchasers agreed
to offer and sell the 1996 Notes only to "qualified institutional buyers" (as
defined in Rule 144A under the Securities Act), a limited number of
institutional "accredited investors" (as defined in Rule 501(a)(1), (2), (3)
or (7) under the Securities Act) and pursuant to offers and sales that occur
outside the United States within the meaning of Regulation S under the
Securities Act.
II-2
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
EXHIBIT
-----------
3.1 Certificate of Incorporation of NRG.*
3.2 By-Laws of NRG.*
4.1 Indenture, dated as of June 1, 1997, between NRG and Norwest Bank Minnesota, National Association.*
4.2 Form of Exchange Notes.*
4.3 Registration Rights Agreement, dated as of June 12, 1997, by and among NRG, Salomon Brothers Inc, ABN AMRO
Chicago Corporation and Chase Securities Inc.*
5.1 Opinion and consent of Skadden, Arps, Slate, Meagher & Flom LLP as to legality of the Exchange Notes to be
issued by NRG.
5.2 Opinion of James J. Bender, Vice President and General Counsel of NRG.
10.1 Employment Contract, dated as of June 28, 1995, between NRG and David H. Peterson.*
10.2 Indenture, dated as of January 31, 1996, between NRG and Norwest Bank Minnesota, National Association, as
Trustee.*
10.3 Revolving Credit Agreement, dated as of March 17, 1997, among NRG, the banks party thereto and ABN AMRO Bank,
N.V. as Agent.*
10.4 Note Agreement, dated August 20, 1993, among NRG Energy Center, Inc. and each of the purchasers named therein.*
10.5 Master Shelf and Revolving Credit Agreement, dated August 20, 1993 among NRG Energy Center, Inc., The Prudential
Insurance Company of America and each Prudential Affiliate which becomes party thereto.*
10.6 Energy Agreement, dated February 12, 1988 between NRG (formerly known as Norenco Corporation) and Waldorf
Corporation (the "Energy Agreement").*
10.7 First Amendment to the Energy Agreement, dated August 27, 1993.*
10.8 Second Amendment to the Energy Agreement, dated January 31, 1996.*
10.9 Third Amendment to the Energy Agreement, dated August 25, 1997.*
10.10 Construction, Acquisition and Term Loan Agreement, dated September 2, 1997 by and among NEO Landfill Gas,
Inc., as Borrower, the lenders named on the signature pages, Credit Lyonnais New York Branch, as
Construction/Acquisition Agent and Lyon Credit Corporation, as Term Agent.*
10.11 Guaranty, dated September 12, 1997 by NRG in favor of Credit Lyonnais New York Branch as agent for the
Construction/Acquisition Lenders.*
10.12 Construction, Acquisition and Term Loan Agreement, dated September 2, 1997 by and among Minnesota Methane
LLC, as Borrower, the lenders named on the signature pages, Credit Lyonnais New York Branch, as
Construction/Acquisition Agent and Lyon Credit Corporation, as Term Agent.*
10.13 Guaranty, dated September 12, 1997 by NRG in favor of Credit Lyonnais New York Branch as agent for the
Construction/Acquisition Lenders.*
10.14 Non Operating Interest Acquisition Agreement, dated as of September 12, 1997, by and among NRG and NEO Corporation.*
12.1 Computation of ratio of earnings to fixed charges.
21 Subsidiaries of NRG.*
23.1 Consent of Price Waterhouse LLP.
23.2 Consent of Deloitte & Touche LLP.
23.3 Consent of Price Waterhouse Nederland BV.
23.4 Consent of Coopers & Lybrand L.L.P.
23.5 Consent of Deloitte & Touche GmbH (MIBRAG).
23.6 Consent of Deloitte & Touche GmbH (SEG).
23.7 Consent of the Australian Auditor General.
23.8 Consent of Arthur Andersen LLP.
23.9 Consent of Skadden, Arps, Slate, Meagher & Flom LLP (included in Exhibit 5.1).
23.10 Consent of James J. Bender (included in Exhibit 5.2).
24 Power of Attorney of certain officers and directors of NRG.*
25 Form T-1 Statement of Eligibility of Norwest Bank Minnesota, National Association to act as trustee under
the Indenture.*
27 Financial Data Schedule.
99.1 Form of Letter of Transmittal.*
99.2 Form of Notice of Guaranteed Delivery.*
99.3 Form of Exchange Agent Agreement.*
* Previously filed.
II-3
ITEM 17. UNDERTAKINGS.
(a) The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part
of this registration statement in reliance upon Rule 430A and contained in
a form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to
the securities offered herein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
(b) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and
controlling persons of the Registrant pursuant to the foregoing provisions,
or otherwise, the Registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public
policy as expressed in the Act and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment by the Registrant of expenses incurred or paid by a director, officer
or controlling person of the Registrant in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
Registrant will, unless in the opinion of its counsel the matter has been
settled by the controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against
public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
II-4
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, NRG Energy,
Inc. certifies that it has reasonable grounds to believe that it meets all of
the requirements for filing on Form S-1 and has duly caused this amendment to
the registration statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of Minneapolis, in the State of
Minnesota, on the 3rd day of December, 1997.
NRG Energy, Inc.
By: /s/ VALORIE A. KNUDSEN
-------------------------------
Valorie A. Knudsen
Vice President, Finance
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities indicated on the dates indicated:
Signature Title Date
------------------------------- ---------------------------- ------------------
* Chairman of the Board, December 3, 1997
------------------------------- President and Chief
David H. Peterson Executive Officer
*
------------------------------- Executive Vice President December 3, 1997
Leonard A. Bluhm and Chief Financial
* Officer
-------------------------------
Gary R. Johnson Director December 3, 1997
*
-------------------------------
Cynthia L. Lesher Director December 3, 1997
*
-------------------------------
Edward J. McIntyre Director December 3, 1997
*
-------------------------------
John A. Noer Director December 3, 1997
*By:/s/ VALORIE A. KNUDSEN
----------------------------
Attorney-in-fact
II-5
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION PAGE NO.
--------------- ------------------------------------------------------------------------------------ ------------
3.1 Certificate of Incorporation of NRG.*
3.2 By-Laws of NRG.*
4.1 Indenture, dated as of June 1, 1997, between NRG and Norwest Bank Minnesota, National
Association.*
4.2 Form of Exchange Notes.*
4.3 Registration Rights Agreement, dated as of June 12, 1997, by and among NRG, Salomon Brothers
Inc, ABN AMRO Chicago Corporation and Chase Securities Inc.*
5.1 Opinion and consent of Skadden, Arps, Slate, Meagher & Flom LLP as to legality of the
Exchange Notes to be issued by NRG.
5.2 Opinion of James J. Bender, Vice President and General Counsel of NRG.
10.1 Employment Contract, dated as of June 28, 1995, between NRG and David H. Peterson.*
10.2 Indenture, dated as of January 31, 1996, between NRG and Norwest Bank Minnesota, National
Association, as Trustee.*
10.3 Revolving Credit Agreement, dated as of March 17, 1997, among NRG, the banks party thereto
and ABN AMRO Bank, N.V. as Agent.*
10.4 Note Agreement, dated August 20, 1993, among NRG Energy Center, Inc. and each of the purchasers
named therein.*
10.5 Master Shelf and Revolving Credit Agreement, dated August 20, 1993 among NRG Energy Center,
Inc., The Prudential Insurance Company of America and each Prudential Affiliate which
becomes party thereto.*
10.6 Energy Agreement, dated February 12, 1988 between NRG (formerly known as Norenco Corporation)
and Waldorf Corporation (the "Energy Agreement").*
10.7 First Amendment to the Energy Agreement, dated August 27, 1993.*
10.8 Second Amendment to the Energy Agreement, dated January 31, 1996.*
10.9 Third Amendment to the Energy Agreement, dated August 25, 1997.*
10.10 Construction, Acquisition and Term Loan Agreement, dated September 2, 1997 by and among
NEO Landfill Gas, Inc., as Borrower, the lenders named on the signature pages, Credit
Lyonnais New York Branch, as Construction/Acquisition Agent and Lyon Credit Corporation,
as Term Agent.*
10.11 Guaranty, dated September 12, 1997 by NRG in favor of Credit Lyonnais New York Branch
as agent for the Construction/Acquisition Lenders.*
10.12 Construction, Acquisition and Term Loan Agreement, dated September 2, 1997 by and among
Minnesota Methane LLC, as Borrower, the lenders named on the signature pages, Credit Lyonnais
New York Branch, as Construction/Acquisition Agent and Lyon Credit Corporation, as Term
Agent.*
10.13 Guaranty, dated September 12, 1997 by NRG in favor of Credit Lyonnais New York Branch
as agent for the Construction/Acquisition Lenders.*
10.14 Non Operating Interest Acquisition Agreement, dated as of September 12, 1997, by and among
NRG and NEO Corporation.*
12.1 Computation of ratio of earnings to fixed charges.
21 Subsidiaries of NRG.*
23.1 Consent of Price Waterhouse LLP.
23.2 Consent of Deloitte & Touche LLP.
23.3 Consent of Price Waterhouse Nederland BV.
23.4 Consent of Coopers & Lybrand L.L.P.
23.5 Consent of Deloitte & Touche GmbH (MIBRAG).
23.6 Consent of Deloitte & Touche GmbH (SEG).
23.7 Consent of The Australian Auditor General.
23.8 Consent of Arthur Andersen LLP.
23.9 Consent of Skadden, Arps, Slate, Meagher & Flom LLP (included in Exhibit 5.1).
23.10 Consent of James J. Bender (included in Exhibit 5.2).
24 Power of Attorney of certain officers and directors of NRG.*
25 Form T-1 Statement of Eligibility of Norwest Bank Minnesota, National Association to act
as trustee under the Indenture.*
27 Financial Data Schedule.
99.1 Form of Letter of Transmittal.*
99.2 Form of Notice of Guaranteed Delivery.*
99.3 Form of Exchange Agent Agreement.*
* Previously filed.
SKADDEN, ARPS, SLATE, MEAGHER & FLOM LLP
919 THIRD AVENUE
NEW YORK, NEW YORK 10022
TEL: (212) 735-3000
FAX: (212) 735-2000
December 2, 1997
NRG Energy, Inc.
1221 Nicollet Mall, Suite 700
Minneapolis, Minnesota 55403
Re: NRG Energy, Inc.
Registration Statement on Form S-1
Ladies and Gentlemen:
We have acted as special counsel to NRG Energy, Inc., a
Delaware corporation ("NRG"), in connection with the issuance by NRG of
$250,000,000 aggregate principal amount of NRG's 7-1/2% Senior Notes due 2007
(the "New Notes") to be issued under the Indenture, dated as of June 1, 1997
(the "Indenture"), between NRG and Norwest Bank Minnesota, National
Association, as Trustee (the "Trustee"), in exchange for a like principal
amount of NRG's existing 7-1/2% Senior Notes due 2007 (the "Old Notes").
This opinion is being furnished in accordance with the
requirements of Item 601(b)(5) of Regulation S-K under the Securities Act of
1933, as amended (the "Act").
In connection with this opinion, we have examined originals
or copies, certified or otherwise identified to our satisfaction, of (i) the
Registration Statement on Form S-1 (File No. 333-33397) as filed with the
Securities and Exchange Commission (the "Commission") on August 12, 1997 under
the Act, Amendment No. 1 thereto as filed with the Commission on October 9,
1997, Amendment
NRG Energy, Inc.
December 2, 1997
Page 2
No. 2 thereto as filed with the Commission on November 12, 1997 and Amendment
No. 3 thereto with which this opinion is being filed (such Registration
Statement, as so amended, being hereinafter referred to as the "Registration
Statement"); (ii) an executed copy of the Indenture; (iii) the form of the New
Notes; (iv) the Form T-1 Statement of Eligibility of the Trustee filed as an
exhibit to the Registration Statement; (v) the Certificate of Incorporation of
NRG, as presently in effect; (vi) the By-Laws of NRG, as presently in effect;
and (vii) certain resolutions of the Board of Directors of NRG and the Pricing
Committee of the Board of Directors of NRG in each case relating to the
issuance and sale of the Old Notes and the issuance and exchange of the Old
Notes for the New Notes and related matters. We have also examined originals or
copies, certified or otherwise identified to our satisfaction, of such records
of NRG and such agreements, certificates of public officials, certificates of
officers or other representatives of NRG and others, and such other documents,
certificates and records as we have deemed necessary or appropriate as a basis
for the opinions set forth herein.
In our examination, we have assumed the legal capacity of all
natural persons, the genuineness of all signatures, the authenticity of all
documents submitted to us as originals, the conformity to original documents of
all documents submitted to us as certified, conformed or photostatic copies and
the authenticity of the originals of such latter documents. In making our
examination of documents executed or to be executed by parties other than NRG,
we have assumed that such parties had or will have the power, corporate or
other, to enter into and perform all obligations thereunder and have also
assumed the due authorization by all requisite action, corporate or other, and
execution and delivery by such parties of such documents and the validity and
binding effect thereof. As to any facts material to the opinions expressed
herein which we have not independently established or verified, we have relied
upon statements and representations of officers and other representatives of
NRG and others.
Members of our firm are admitted to the bar in the State of
New York, and we do not express any opinion
2
NRG Energy, Inc.
December 2, 1997
Page 3
as to the laws of any other jurisdiction other than the Delaware General
Corporation Law (the "DGCL").
Based upon and subject to the foregoing, we are of the
opinion that when (i) the Registration Statement becomes effective under the
Act and the Indenture has been qualified under the Trust Indenture Act of 1939,
as amended; (ii) the New Notes, upon consummation of the exchange offer
described in the Registration Statement (the "Exchange Offer"), have been duly
executed and authenticated in accordance with the terms of the Indenture; and
(iii) the New Notes issuable upon consummation of the Exchange Offer have been
duly delivered against receipt of Old Notes surrendered in exchange therefor
pursuant to the terms of the Exchange Offer, the New Notes issuable upon
consummation of the Exchange Offer will constitute valid and binding
obligations of NRG entitled to the benefits of the Indenture and enforceable
against NRG in accordance with their terms, except to the extent that
enforcement thereof may be limited by (1) bankruptcy, insolvency,
reorganization, moratorium, fraudulent conveyance or other similar laws now or
hereafter in effect relating to creditors' rights generally and (2) general
principles of equity (regardless of whether enforceability is considered in a
proceeding at law or in equity).
In rendering our opinion set forth above, we have relied
without independent investigation upon the opinion of James J. Bender, Vice
President and General Counsel to NRG, dated the date hereof, to be filed as
Exhibit 5.2 to the Registration Statement, that the execution and delivery by
NRG of the Indenture and the New Notes and the performance by NRG of its
obligations thereunder do not and will not violate, conflict with or constitute
a default under (i) any agreement or instrument to which NRG or any of its
properties is subject (except that we do not make the assumption set forth in
this clause (i) with respect to the Certificate of Incorporation or By-laws of
NRG), (ii) any judicial or regulatory order or decree of any governmental
authority or (iii) any consent, approval, license, authorization or validation
of, or filing, recording or registration with any governmental authority.
3
NRG Energy, Inc.
December 2, 1997
Page 4
We hereby consent to the filing of this opinion with the
Commission as an exhibit to the Registration Statement. We also consent to the
reference to our firm under the caption "Legal Matters" in the Registration
Statement. In giving this consent, we do not thereby admit that we are included
in the category of persons whose consent is required under Section 7 of the Act
or the rules and regulations of the Commission.
Very truly yours,
/S/ SKADDEN, ARPS, SLATE,
MEAGHER & FLOM LLP
4
NRG Energy, Inc.
1221 Nicollet Mall, Suite 700
Minneapolis, MN 55403-2445
December 2, 1997
Ladies and Gentlemen:
I am Vice President and General Counsel of NRG Energy, Inc.,
a Delaware corporation (the "Company"), and have acted as such in connection
with the issuance by the Company of $250,000,000 aggregate principal amount of
NRG's 7-1/2% Senior Notes due 2007 (the "New Notes") to be issued under the
Indenture, dated as of June 1, 1997 (the "Indenture"), between the Company and
Norwest Bank Minnesota, National Association, as trustee, in exchange for a
like principal amount of NRG's existing 7-1/2% Senior Notes due 2007.
This opinion is being furnished in accordance with the
requirements of Item 601(b)(5) of Regulation S-K under the Securities Act of
1933, as amended (the "Securities Act").
In connection with this opinion, I have examined originals or
copies, certified or otherwise identified to my satisfaction, of (i) the
registration statement on Form S-1 (File No. 333-33397) of the Company relating
to the New Notes, filed with the Securities and Exchange Commission (the
"Commission") on August 12, 1997 under the Securities act of 1933 (the
"Securities Act"), Amendment No. 1 thereto filed with the Commission on October
9, 1997, Amendment No. 2 thereto filed with the Commission on November 12,
1997 and Amendment No. 3 thereto with which this opinion is being filed (such
registration statement, as so amended, being hereinafter referred to as the
"Registration Statement") and such other documents, corporate records,
certificates of such public officials and other instruments as I have deemed
necessary or advisable to enable me to render the opinion set forth below. In
my examination, I have assumed the genuineness of all signatures, the legal
capacity of natural persons, the authenticity of all documents submitted to me
as originals, the conformity to original documents of all documents submitted
to me as certified or photostatic copies, as the au-
thenticity of the originals of such copies. As to any facts material to this
opinion, I have relied upon statements and representations of officers and
other representatives of the Company, public officials and others.
Based on the foregoing examination, and in reliance thereon,
and subject to the assumptions, qualifications, limitations and exceptions set
forth herein, I am of the opinion that neither the execution and delivery by
the Company of the Indenture and the New Notes, nor the performance by the
Company of its obligations thereunder do not and will not conflict with, result
in a breach or violation of, or constitute a default under (i) any law, (ii)
the terms of any indenture or other agreement or instrument known to me and to
which the Company is a party or bound, (iii) any judgment, order or decree
known to me to be applicable to the Company of any court, regulatory body,
administrative agency, governmental body or arbitrator having jurisdiction
over the Company or (iv) any consent, approval, license authorization or
validation of, or filing, recording or registration known to me to be
applicable to the Company of any court, regulatory body, administrative
agency, governmental body or arbitrator having jurisdiction over NRG.
I am admitted to the Bar of the State of Minnesota and I do
not express any opinion as to the laws of any other jurisdiction other than the
Delaware General Corporation Law and federal laws of the United States.
I hereby consent to the filing of this opinion with the
Commission as an exhibit to the Registration Statement and to the reliance on
this opinion by Skadden, Arps, Slate, Meagher & Flom LLP in rendering its
opinion dated the date hereof. I also consent to the reference to me under the
caption "Legal Matters" in the Registration Statement. In giving this consent,
I do not thereby admit that we are included in the category of persons whose
consent is required under Section 7 of the Securities Act or the rules and
regulations of the Commission.
Very truly yours,
/S/ James J. Bender
2
EXHIBIT 12.1
NRG ENERGY, INC.
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(In thousands)
NINE MONTHS ENDED
FOR THE YEAR ENDED DECEMBER 31, SEPTEMBER 30,
---------------------------------------------------------------------------
1992 1993 1994 1995 1996 1996 1997
---------- -------- ---------- ---------- ---------- --------- ---------
Income (loss) before Income
taxes ..................... $(5,307) $4,528 $ 32,010 $ 40,011 $ 14,323 $ 6,911 $ 3,274
Undistributed equity in
operating earnings of
unconsolidated affiliates . (633) (674) (18,511) (20,074) (17,827) (8,408) (2,662)
Equity in gain from project
termination settlements -- -- (9,685) (29,850) -- -- --
Cash distributions from
project termination
settlements ............... -- -- 9,685 14,179 15,671 15,671 --
---------- -------- ---------- ---------- ---------- --------- ---------
(5,940) 3,654 13,498 4,266 12,167 14,174 612
Interest expense ........... 1,622 2,679 6,682 7,089 15,430 11,303 19,815
Interest capitalized ....... -- -- 45 253 364 332 87
Amortization of debt
issuance costs ............ 44 41 42 41 149 122 304
Reasonable approximation of
the interest factor of
rental expense ............ 33 50 59 265 247 167 236
---------- -------- ---------- ---------- ---------- --------- ---------
Total fixed charges ....... 1,699 2,770 6,828 7,648 16,190 11,924 20,442
Earnings ................... $(4,241) $6,424 $ 20,327 $ 11,914 $ 28,357 $26,098 $21,054
========== ======== ========== ========== ========== ========= =========
Ratio of earnings to fixed
charges (B)(C)............. (A) 2.32 2.98 1.56 1.75 2.19 1.03
(A) Due primarily to the loss incurred in 1992, NRG was unable to fully
cover fixed charges. Earnings did not cover fixed charges by $5,940.
(B) The 1995 ratio of earnings to fixed charges calculation includes the
effect of an equity gain and cash distribution from a project
termination settlement. If the project termination had not occurred,
NRG would have been unable to fully cover fixed charges and earnings
would not have covered fixed charges by $9,913.
(C) The 1996 ratio of earnings to fixed charges calculations include the
effect of a cash distribution from a 1995 project termination
settlement. If the project termination had not occurred, NRG would have
been unable to fully cover fixed charges and earnings would not have
covered fixed charges by $1,497 for the nine months ended September 30,
1996, and $3,504 for the year ended December 31, 1996.
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Prospectus constituting part of this
Registration Statement on Form S-1 of our report dated April 8, 1997 relating
to the financial statements of NRG Energy, Inc. for the two years ended
December 31, 1996, which appears in such Prospectus. We also consent to the
reference to us under the heading "Experts" in such Prospectus.
Price Waterhouse LLP
Minneapolis, Minnesota
November 26, 1997
EXHIBIT 23.2
INDEPENDENT AUDITOR'S CONSENT
We consent to the use in this Registration Statement of NRG Energy, Inc.
on Form S-1 of our report dated March 24, 1995, appearing in the Prospectus,
which is a part of this Registration Statement, and to the reference to us
under the heading "Experts" in such Prospectus.
Deloitte & Touche LLP
Minneapolis, Minnesota
November 26, 1997
EXHIBIT 23.3
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Prospectus constituting part of this
Registration Statement on Form S-1 of our reports dated March 21, 1997
relating to the financial statements of Sunshine State Power BV and Sunshine
State Power (No. 2) BV for the three years ended December 31, 1996, which
appears in such Prospectus. We also consent to the reference to us under the
heading "Experts" in such Prospectus.
Price Waterhouse Nederland BV
Amsterdam, The Netherlands
November 26, 1997
EXHIBIT 23.4
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this Amendment No. 3 to Registration
Statement on Form S-1 (File No. 333-33397) of our report dated February 29,
1996 on our audits of the financial statements of San Joaquin Valley Energy
Partners I, L.P. We also consent to the reference of our firm under the
caption "Experts."
/s/ Coopers & Lybrand L.L.P.
Sacramento, California
November 26, 1997
EXHIBIT 23.5
FOR MIBRAG November 26, 1997
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Amendment No. 3 to Registration Statement No.
333-33397 of NRG Energy, Inc. on Form S-1 of our report dated October 24,
1997 (relating to the financial statements of Mitteldeutsche
Braunkohlengesellschaft mbH as of December 31, 1996, 1995 and 1994 and for
each of the years in the three-year period ended December 31, 1996 presented
separately herein) appearing in the Prospectus, which is part of this
Registration Statement.
We also consent to the reference to us under the heading "Experts" in such
Prospectus.
DELOITTE &
TOUCHE GmbH
Wirtshaftsprufungsgesellschaft
EXHIBIT 23.6
FOR SAALE ENERGIE GMBH November 26, 1997
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Amendment No. 3 to Registration Statement No.
333-33397 of NRG Energy, Inc. on Form S-1 of our report dated October 31,
1997 (relating to the financial statements of Saale Energie GmbH as of and
for the year ended December 31, 1996 presented separately herein) appearing
in the Prospectus, which is part of this Registration Statement.
We also consent to the reference to us under the heading "Experts" in such
Prospectus.
DELOITTE &
TOUCHE GmbH
Wirschaftsprufungsgesellschaft
EXHIBIT 23.7
CONSENT OF AUDITOR-GENERAL
I hereby consent to the use in the Prospectus constituting part of the
Registration Statement on Form S-1 of the following reports which appear in
such Prospectus:
DATE OF REPORT ENTITY FINANCIAL YEAR ENDED
6 September 1995 Loy Yang Power Limited 30 June 1995
29 August 1996 Loy Yang Power Limited 30 June 1996
29 August 1997 Quiet Life Limited* 30 June 1997
*Name changed on 13 May 1997, formerly Loy Yang Power Limited.
I also consent to the reference to my name under the heading of "Experts" in
such Prospectus, being that of auditor of the above entities.
/s/ C. Baragwanath
MELBOURNE C. BARAGWANATH
24/11/1997 Auditor-General
EXHIBIT 23.8
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Amendment No. 3 to Registration Statement No.
333-33397 of NRG Energy, Inc. on Form S-1 of our report dated 27 November
1997 (relating to Loy Yang Power Limited on certain agreed upon procedures
covering the period from 1 February 1995 to 30 June 1995, the financial year
ended 30 June 1996, and the period from 1 July 1996 to 12 May 1997) appearing
in the Prospectus, which is part of this Registration Statement.
We also consent to the reference to us under the heading "Experts" in such
prospectus.
/s/ Arthur Andersen
Chartered Accountants
/s/ Michael S. Perry
Michael S. Perry
Partner
December 1, 1997
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