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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended MARCH 31, 2000
--------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from _____ to _____
Commission File Number: 33-69762
CHI ENERGY, INC.
(Exact name of registrant as specified in its charter)
Delaware 06-1138478
- ----------------------------------- ------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
680 Washington Boulevard, Stamford, Connecticut 06901
- ----------------------------------------------- ---------
(Address of principal executive office) (Zip Code)
Registrant's telephone number, including area code (203) 425-8850
NONE
--------------------------------------------------------------
(Former name or former address, if changed since last report.)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No __
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Sections 12, 13, or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court. Yes X No __
Indicate the number of shares of each of the issuer's classes of common stock,
as of the latest practicable date:
Class A Outstanding as of May 10, 2000
- ---------------------------- ------------------------------
Common stock, $.01 par value 9,085,290
Class B Outstanding as of May 10 2000
- ---------------------------- -----------------------------
Common stock, $.01 par value 914,710
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38684.0003
INDEX
Page No.
--------
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements.......................................................................... 2
Consolidated Statement of Income for the three months
ended March 31, 2000 and 1999 (Unaudited)................................................. 3
Consolidated Balance Sheet at March 31, 2000 (Unaudited)
and December 31, 1999 ................................................................... 4
Consolidated Statement of Stockholders' Equity
for the three months ended March 31, 2000 (Unaudited)..................................... 5
Consolidated Statement of Cash Flows for the three months
ended March 31, 2000 and 1999 (Unaudited)................................................. 6-7
Notes to Consolidated Financial Statements (Unaudited) ...................................... 8-9
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations............................................. 10-16
Item 3. Quantitative and Qualitative Disclosures
About Market Risk......................................................................... 16
PART II. OTHER INFORMATION
Item 1. Legal Proceedings............................................................................ 17
Item 6. Exhibits and Reports on Form 8-K............................................................. 17
Signature
i
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CHI ENERGY, INC.
CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2000
2
CHI ENERGY, INC.
CONSOLIDATED STATEMENT OF INCOME
(Amounts in thousands except share and per share amounts)
(Unaudited)
THREE MONTHS ENDED
MARCH 31,
---------
2 0 0 0 1 9 9 9
------- -------
Operating revenues:
Power generation revenue $ 14,073 $ 14,016
Management fees and operations & maintenance revenues 1,096 1,095
Equity income in partnership interests and other partnership income 622 562
----------- -----------
15,791 15,673
----------- -----------
COSTS AND EXPENSES:
Operating 3,859 3,725
General and administrative 1,310 1,979
Depreciation and amortization 2,001 1,814
Lease expense 1,616 1,497
----------- -----------
8,786 9,015
----------- -----------
Income from operations 7,005 6,658
INTEREST INCOME 333 325
OTHER INCOME 48 92
INTEREST EXPENSE (1,645) (1,695)
----------- -----------
Income before provision for income taxes 5,741 5,380
PROVISION FOR INCOME TAXES (2,310) (2,165)
----------- -----------
NET INCOME $ 3,431 $ 3,215
=========== ===========
BASIC AND DILUTED NET INCOME PER COMMON SHARE $ 0.34 $ 0.32
WEIGHTED AVERAGE NUMBER OF COMMON SHARES 10,000,000 10,000,000
The accompanying notes are an integral part of the
consolidated financial statements
3
CHI ENERGY, INC.
CONSOLIDATED BALANCE SHEET
(Amounts in thousands except share and per share amounts)
MARCH 31, DEC. 31,
2 0 0 0 1 9 9 9
------- -------
ASSETS (unaudited) (audited)
------
CURRENT ASSETS:
Cash and cash equivalents unrestricted $ 9,644 $ 9,674
Cash and cash equivalents restricted 5,667 6,280
Accounts receivable, net of allowance for doubtful accounts of $598 and $608, respectively 9,041 7,472
Prepaid expenses and other current assets 3,671 3,067
----------- -----------
Total current assets 28,023 26,493
PROPERTY, PLANT AND EQUIPMENT, NET 112,181 109,184
REORGANIZATION VALUE IN EXCESS OF AMOUNTS ALLOCABLE TO IDENTIFIABLE ASSETS, NET 7,523 8,655
INTANGIBLE ASSETS, NET 58,100 58,959
INVESTMENTS AND OTHER LONG-TERM ASSETS 35,283 35,641
----------- -----------
$ 241,110 $ 238,932
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES:
Accounts payable and accrued expenses $ 10,503 $ 10,945
Current portion of long-term debt and obligations under capital leases 6,378 11,455
----------- -----------
Total current liabilities 16,881 22,400
LONG-TERM DEBT AND OBLIGATIONS UNDER CAPITAL LEASES 71,152 70,001
DEFERRED CREDIT, STATE INCOME TAXES AND OTHER LONG-TERM LIABILITIES 49,061 48,057
COMMITMENTS AND CONTINGENCIES
----------- -----------
Total liabilities 137,094 140,458
----------- -----------
MINORITY INTEREST IN CONSOLIDATED SUBSIDIARIES 5,806 3,695
----------- -----------
STOCKHOLDERS' EQUITY:
Preferred stock, $.01 par value, 10,000,000 shares authorized, no shares issued - -
Common stock, $.01 par value, 20,000,000 shares authorized
Class A common stock, 9,085,290 shares issued and outstanding 91 91
Class B common stock, 914,710 shares issued and outstanding 9 9
Additional paid-in capital, including $2,064 related to warrants 85,000 85,000
Retained earnings 13,110 9,679
----------- -----------
Total stockholders' equity 98,210 94,779
----------- -----------
$ 241,110 $ 238,932
=========== ===========
The accompanying notes are an integral part of the
consolidated financial statements
4
CHI ENERGY, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE THREE MONTHS ENDED MARCH 31, 2000
(Amounts in thousands except shares and per share amounts)
(Unaudited)
PREFERRED STOCK COMMON STOCK
--------------- ------------
NUMBER NUMBER ADDITIONAL TOTAL
OF SHARES REPORTED OF SHARES PAR PAID-IN RETAINED STOCKHOLDERS'
OUTSTANDING AMOUNT OUTSTANDING VALUE CAPITAL EARNINGS EQUITY
------------ ------------ ------------ ------------ ------------ ------------ ------------
BALANCE DECEMBER 31, 1999 - - 10,000,000 $ 100 $ 85,000 $ 9,679 $ 94,779
Net income 3,431 3,431
------------ ------------ ------------ ------------ ------------ ------------ ------------
BALANCE MARCH 31, 2000 - - 10,000,000 $ 100 $ 85,000 $ 13,110 $ 98,210
============ ============ ============ ============ ============ ============ ============
The accompanying notes are an integral part of the
consolidated financial statements
5
CHI ENERGY, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(Amounts in thousands except share and per share amounts)
(Unaudited)
THREE MONTHS ENDED
MARCH 31,
---------
2 0 0 0 1 9 9 9
------- -------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 3,431 $ 3,215
Adjustments to reconcile net income to net cash provided by
operating activities:
Non-cash interest and other charges 139 164
Provision relating to deferred tax liabilities 2,010 1,883
Depreciation and amortization 2,001 1,814
Undistributed earnings of affiliates (479) (466)
Increase in accounts receivable (1,569) (3,468)
Increase in prepaid expenses and other current assets (604) (625)
Decrease in accounts payable and accrued expenses (623) (1,990)
----------- -----------
Net cash provided by operating activities 4,306 527
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Development expenditures (3,805) -
Capital expenditures (267) (837)
Decrease in investments and other long-term assets 837 1,214
----------- -----------
Net cash (used in)/provided by investing activities (3,235) 377
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term borrowings 3,123 -
Payments on long-term borrowings (7,080) (1,424)
Contribution from minority interest 2,111 -
Increase in other long-term liabilities 132 7
----------- -----------
Net cash used in financing activities (1,714) (1,417)
----------- -----------
NET DECREASE IN CASH AND CASH EQUIVALENTS (643) (513)
CASH AND CASH EQUIVALENTS, AT BEGINNING OF PERIOD 15,954 21,778
----------- -----------
CASH AND CASH EQUIVALENTS, AT END OF PERIOD $ 15,311 $ 21,265
=========== ===========
The accompanying notes are an integral part of the
consolidated financial statements
6
CHI ENERGY, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(Amounts in thousands except share and per share amounts)
(Unaudited)
(continued)
THREE MONTHS ENDED
MARCH 31,
---------
2 0 0 0 1 9 9 9
------- -------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
CASH PAID DURING THE PERIOD FOR:
Interest $ 1,672 $ 1,685
=========== ===========
Income taxes $ 104 $ 127
=========== ===========
SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
As a result of the settlement of certain pre-reorganization
contingencies and the realization of net operating loss credits, during
the three months ended March 31, 2000 and 1999, reorganization value in
excess of amounts allocable to identifiable assets and deferred credit,
state income taxes and other long term liabilities decreased by $962
and $697, respectively.
The accompanying notes are an integral part of the
consolidated financial statements
7
NOTE 1 - ORGANIZATION
CHI Energy, Inc. ("CHI", and together with its consolidated subsidiaries,
the "Company") has been engaged in the energy business since its founding in
1985. Its principal business strategy is the development, acquisition, operation
and management of renewable energy and other energy-related assets. Renewable
energy generally includes hydroelectric, biomass, landfill gas, wind, solar and
geothermal generating facilities. Currently, all of the Company's revenue is
derived from the ownership and operation of hydroelectric facilities. As of
March 31, 2000 and 1999, the Company had ownership interests in, leased and/or
operated projects with a total operating capacity of 254 megawatts ("MW").
NOTE 2 - BASIS OF PRESENTATION
The consolidated financial statements included herein have been prepared
by the Company, without audit, pursuant to the rules and regulations of the
Securities and Exchange Commission. Certain information and footnote disclosures
normally included in financial statements prepared in accordance with Generally
Accepted Accounting Principles ("GAAP") have been omitted pursuant to such rules
and regulations, although the Company believes that the disclosures herein are
adequate to make the information presented not misleading.
The results of operations for the interim periods shown in this report are
not necessarily indicative of the results to be expected for the fiscal year. In
the opinion of the Company's management, the accompanying unaudited consolidated
financial statements contain all adjustments (consisting only of normal
recurring accruals) necessary to present fairly its financial position as of
March 31, 2000 and December 31, 1999 and the results of its operations and
changes in its financial position for the three months ended March 31, 2000 and
1999. These financial statements should be read in conjunction with the December
31, 1999 audited Consolidated Financial Statements and Notes thereto.
Certain prior period amounts have been reclassified to conform with
current period presentation.
NOTE 3 - ACQUISITIONS
On May 25, 1999, the Company acquired an additional 50% ownership interest
in Pyrites Associates, a partnership which owns an 8.2 MW hydroelectric
facility, for $4.1 million and an additional 50% ownership interest in Hydro
Power Associates, a partnership which owns 25% of three hydroelectric facilities
aggregating 5.4 MW, for $3.2 million. On November 30, 1999, the Company acquired
an additional 50% ownership interest in Copenhagen Associates, a partnership
which owns a 3.3 MW hydroelectric facility, for $2.5 million. The Company now
has a 100% ownership interest in all three partnerships. The transactions were
funded with unrestricted cash. The Company has applied purchase accounting for
the acquisitions on a step-by-step basis. Accordingly, the results of operations
have been included in the Company's consolidated financial statements since the
dates of acquisition.
The following unaudited pro forma consolidated results of operations for
the quarter ended March 31, 1999 assume the acquisitions occurred as of the
beginning of the period presented:
Quarter ended March 31,
1999
----
Operating revenues $ 16,158
Net income $ 3,436
Basic and diluted net income per common share $ .34
Weighted average number of common shares 10,000,000
The pro forma results are not necessarily indicative of the results that
would have been obtained if the acquisitions had been completed as of the
beginning of the fiscal period presented, nor are they necessarily indicative of
future consolidated results.
8
CHI ENERGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in Thousands except per share amounts or otherwise noted)
(Unaudited)
NOTE 4 - COMMITMENTS AND CONTINGENCIES
On August 20, 1997, a former employee of the Company filed a civil action
against the Company in Connecticut Superior Court, District of New Haven
entitled Carol H. Cunningham v. Consolidated Hydro, Inc. alleging that the
Company breached its employment agreement with her. On or about October 13,
1997, the former employee filed a proof of claim in the Bankruptcy Court for
approximately $7.3 million plus unliquidated amounts based primarily on the
allegations in the civil action (the "Claim"). On November 25, 1997, the Company
filed an objection to the Claim on the grounds that, among other things, the
former employee failed to satisfy her obligations under her employment contract
with the Company. The trial was argued during the first quarter of 2000, but a
verdict has not yet been reached. The Company has vigorously defended the Claim
and management believes that the Company's liability with respect to the Claim,
if any, will not have a material adverse effect on the Company's financial
position or results of operations.
9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
GENERAL
CHI Energy, Inc., ("CHI", and together with its consolidated subsidiaries,
the "Company"), has been engaged in the energy business since its founding in
1985 and is currently principally engaged in the development, acquisition,
operation and management of renewable energy and related, environmentally
beneficial infrastructure assets. Currently, all of the Company's revenue is
derived from the ownership and operation of hydroelectric facilities (the
Company's "hydroelectric business"). The Company's operating hydroelectric
projects are located in 14 states and one Canadian province.
The Company's existing U.S. hydroelectric projects are clustered in four
regions: the Northeast, Southeast, Northwest and West, with a concentration in
the Northeast. CHI has developed what it believes to be an efficient "hub"
system of project management designed to maximize the efficiency of each
facility's operations. The economies of scale created by this system include
reduced costs related to centralized administration, operations, maintenance,
engineering, insurance, finance and environmental and regulatory compliance. The
hub system and the Company's operating expertise have enabled the Company to
successfully integrate acquisitions into its current portfolio and increase the
efficiency and productivity of its projects.
Since its inception, the Company has expanded primarily by acquiring
existing hydroelectric facilities in the United States. As of March 31, 2000,
the Company had a 100% ownership or long-term lease interests in 52 projects
(150 megawatts), a partial ownership interest in 9 projects (87 megawatts), and
operations and maintenance ("O&M") contracts with 18 projects (17 megawatts).
CHI sells substantially all of the electric energy and capacity from its
projects to public utility companies pursuant to take or pay power purchase
agreements. These contracts vary in their terms but typically provide scheduled
rates throughout the life of the contracts, which are generally for a term of 15
to 40 years from inception.
The Company believes that it is well positioned to take advantage of new
business opportunities in renewables occasioned both by electric industry
restructuring in the U.S. and other countries, and by increasing public interest
in environmental issues such as global climate change and other potential
effects of fossil fuel consumption. The Company will seek to capitalize on these
new opportunities in energy-related products and services by taking advantage of
its existing technical and financial expertise and using its geographic presence
in most U.S. regions and Eastern Canada to realize economies of scale in
development, acquisition, administration, operation and maintenance of
facilities.
Renewable (also known as "green," "sustainable," or "environmentally
preferred") energy is defined broadly to include energy produced by
hydroelectric, biomass, landfill gas, wind, solar, geothermal and various forms
of waste conversion. Related environmental projects may include waste treatment,
recycling or other facilities that serve such purposes as pollution reduction
and resource conservation. In addition to its hydroelectric assets, the Company
has a 23 MW biomass plant under construction and seeks to acquire and develop a
diversified portfolio of projects using a variety of renewable and related
technologies, applying its existing core competencies (including financing,
operations, asset management, environmental permitting and project management)
that have been developed through its hydroelectric business.
The Company believes that electric industry restructuring, which is
rapidly taking place both in the United States and overseas, is converging with
widespread environmental concerns to create a favorable business opportunity for
renewable energy. In the United States, electric supply competition at the
retail level has begun or is scheduled to begin in several states. In nearly
half of the states, restructuring legislation or regulations also provide for
favorable treatment of renewable energy through portfolio standards, subsidies,
and other requirements and incentives, and the Company expects this trend to
continue as other states move closer to deregulation. Meanwhile, public support
for renewables has intensified in connection with growing concern over global
climate change and international pressures to limit or reduce greenhouse gases.
A strong, active environmental lobby at the state and federal levels favors
action to promote renewables and is using restructuring in the electric industry
as a vehicle to institute incentive programs. Further, there is an emerging
market for "emissions reduction credits" or "greenhouse gas credits" paid by
fossil fuel-based generators to generators of renewable energy, and the future
possibility of government action to create a national market for such credits.
10
In addition, in states where retail competition has begun or is scheduled
to begin soon, there are active efforts to market green energy to retail
customers who have indicated a willingness to pay a premium to promote
environmentally beneficial technologies. While the commercial success of these
marketing efforts is not yet established, they have served to publicize the
benefits of renewable energy to a wide audience. Meanwhile, large industrial
companies appear to be seeking public approval by publicizing their purchases of
green energy.
The renewables business includes many companies seeking to own or develop
renewable projects. Many such companies are small and focused on a single
technology. The Company believes that few are seeking to build a diversified
portfolio of renewable projects in the same manner as the Company.
Power Generation Revenue
The Company's revenues are derived principally from selling electrical
energy and capacity to utilities under long-term power purchase agreements which
require the contracting utilities to purchase energy generated by the Company.
The Company's present power purchase agreements have remaining terms of up to 26
years. After the expiration of such power purchase agreements, rates generally
change to the purchasing utility's avoided cost for delivered energy or market
rates, which are likely to be lower than expiring power purchase agreement
rates. Fluctuations in revenues and related cash flows are generally
attributable to changes in projects in operation, coupled with variations in
water flows and the effect of escalating and declining contract rates in the
Company's power purchase agreements.
Management Fees and Operations & Maintenance Revenues
O&M contracts, from which management fees and operations and maintenance
revenues are derived, generally enable the Company to maximize the use of its
available resources and to generate additional income.
Equity Income In Partnership Interests and Other Partnership Income
In accordance with generally accepted accounting principles, certain of
the Company's partnership interests are accounted for under the equity and the
cost methods of accounting. Fluctuations in equity income and other partnership
income are generally attributable to variations in results of operations and
timing of cash distributions of certain partnerships.
Operating Expenses
Operating expenses consist primarily of project-related costs such as
labor, repairs and maintenance, supplies, insurance and real estate taxes.
Operating expenses include direct expenses related to the production of power
generation revenue as well as direct costs associated with O&M contracts which
are rebillable to applicable third party owners directly or not rebillable since
they are covered through an established management fee.
Lease Expense
Lease expense includes operating leases associated with some of the
hydroelectric projects as well as leases for the corporate and regional
administrative offices. Certain leases provide for payments that are based upon
power sales revenue or cash flow for specific projects. Hence, varying project
revenues will impact overall lease expense, year-to-year.
11
CERTAIN KEY OPERATING RESULTS AND TRENDS
The information in the tables below provides an overview of certain key
operating results and trends which, when read in conjunction with the narrative
discussion that follows, is intended to provide an enhanced understanding of the
Company's results of operations. These tables include information regarding the
Company's ownership of projects by region as well as information on regional
precipitation. As presented, the Company's project portfolio is concentrated in
the Northeastern United States, a region characterized by relatively consistent
long-term water flow and power purchase contract rates which are higher than in
most other regions of the country.
This information should be read in conjunction with the December 31, 1999
audited Consolidated Financial Statements and related Notes thereto.
Power Producing Facilities
AS OF AS OF AS OF
MARCH 31, 2000 DECEMBER 31, 1999 MARCH 31, 1999
-------------- ----------------- --------------
MWS #PROJECTS MWS #PROJECTS MWS #PROJECTS
--- --------- --- --------- --- ---------
Northeast:
100% Ownership (1) 102.38 31 102.38(4) 31(4) 90.88 29
Partial Ownership (2) 59.27 7 59.27(4) 7(4) 70.77 9
O&M Contracts (3) 11.32 15 11.32 15 11.32 15
--------- ---- --------- ---- --------- ----
Total 172.97 53 172.97 53 172.97 53
========= ==== ========= ==== ========= ====
Southeast:
100% Ownership (1) 27.42 13 27.42 13 27.42 13
Partial Ownership (2) -- -- -- -- -- --
O&M Contracts (3) -- -- -- -- -- --
--------- ---- --------- ---- --------- ----
Total 27.42 13 27.42 13 27.42 13
========= ==== ========= ==== ========= ====
West:
100% Ownership (1) 5.38 3 5.38 3 5.38 3
Partial Ownership (2) 4.20 1 4.20 1 4.20 1
O&M Contracts (3) 1.80 2 1.80 2 1.80 2
--------- ---- --------- ---- --------- ----
Total 11.38 6 11.38 6 11.38 6
========= ==== ========= ==== ========= ====
Northwest:
100% Ownership (1) 14.61 5 14.61 5 14.61 5
Partial Ownership (2) 24.00 1 24.00 1 24.00 1
O&M Contracts (3) 4.34 1 4.34 1 4.34 1
--------- ---- --------- ---- --------- ----
Total 42.95 7 42.95 7 42.95 7
========= ==== ========= ==== ========= ====
Total:
100% Ownership (1) 149.79 52 149.79 52 138.29 50
Partial Ownership (2) 87.47 9 87.47 9 98.97 11
O&M Contracts (3) 17.46 18 17.46 18 17.46 18
--------- ---- --------- ---- --------- ----
Total 254.72 79 254.72 79 254.72 79
========= ==== ========= ==== ========= ====
- ------------
(1) Defined as projects in which the Company has 100% of the economic
interest.
(2) Defined as projects in which the Company's economic interest is less than
100%.
(3) Defined as projects in which the Company is an operator pursuant to O&M
contracts with the project's owner or owners. The Company does not have
any ownership interest in such projects.
(4) Reflects the purchase of the remaining ownership interest of two projects
(8.20 and 3.30 megawatts, respectively) on May 25, 1999 and November 30,
1999, respectively.
12
Selected Operating Information (1):
THREE MONTHS ENDED MARCH 31,
2000 1999
------------- ----------------
Power generation revenues (thousands) $ 14,073 $ 14,016
Kilowatt hours produced (thousands) 167,835 175,172
Average rate per kilowatt hour 8.4(cent) 8.0(cent)
- ---------
(1) Limited to projects included in consolidated revenues.
As the above tables indicate, the Company's portfolio of operating
projects may fluctuate from year to year in terms of total operating megawatts.
The Company expects to develop, acquire, sell, or discontinue operations of
certain projects, as it has in the past, if it perceives such actions to be
beneficial. In the case of O&M contracts, such contracts are subject to
termination for a variety of reasons. The total number of operating megawatts in
the Company's portfolio is not necessarily indicative of overall financial
results.
Precipitation, Water Flow and Seasonality
The amount of hydroelectric energy generated at any particular facility
depends upon the quantity of water flow at the site of the facility. Dry periods
tend to reduce water flow at particular sites below historical averages,
especially if the facility has low storage capacity. Excessive water flow may
result from prolonged periods of higher than normal precipitation, or sudden
melting of snow packs, possibly causing flooding of facilities and/or a
reduction of generation until water flows return to normal.
Water flow is generally consistent with precipitation. However, snow and
other forms of frozen precipitation will not necessarily increase water flow in
the same period of such precipitation if temperatures remain at or below
freezing. "Average," as it relates to water flow, refers to the actual long-term
average of historical water flows at the Company's facilities for any given
year. Typically, these averages are based upon hydrologic studies done by
qualified engineers for periods of 20 to 50 years or more, depending on the flow
data available with respect to a particular site. Over an extended period (e.g.,
10 to 15 years) water flows would be expected to be average, whereas for shorter
periods (e.g., three months to three years) variation from average is likely.
Each of the regions in which the Company operates has distinctive precipitation
and water flow characteristics, including the degree of deviation from average.
Geographic diversity helps to minimize short-term variations.
Water Flow by Region (1)
THREE MONTHS ENDED MARCH 31,
2000 1999
---------------------- -------------------
Northeast Average Average
Southeast Below Average Average
West Below Average Below Average
Northwest Above Average Above Average
- ---------
(1) These determinations were made by management based upon water flow in
areas where the Company's projects are located and may not be applicable
to the entire region.
Production of energy by the Company is typically greatest in January
through June, when water flow is at its highest at most of the Company's
projects, and lowest in July through September. The amount of water flow in any
given period will have a direct effect on the Company's production, revenues and
cash flow.
The following tables, which show revenues from power sales and kilowatt
hour production by quarter, respectively, highlight the seasonality of the
Company's revenue stream. These tables should be reviewed in conjunction with
the water flow information included above.
13
Power Generation Revenues (in thousands) (1)
TWELVE MONTHS ENDED TWELVE MONTHS ENDED
DECEMBER 31, 2000 DECEMBER 31, 1999(2)
------------------------- --------------------------
$ % $ %
- - - -
First Quarter $ 14,073 100.0 $ 14,016 33.9
Second Quarter 10,220 24.7
Third Quarter 6,382 15.4
Fourth Quarter 10,724 26.0
------------ --------- ---------- --------
Total $ 14,073 100.0 $ 41,342 100.0
============ ========= ========== ========
- -----------------
(1) Limited to projects included in consolidated revenues.
(2) Includes business interruption revenue of $907 representing claims for
lost generation recoverable from an insurance company for the twelve
months ended December 31, 1999.
Kilowatt Hours (kWh) Produced (in thousands) (1)
TWELVE MONTHS ENDED TWELVE MONTHS ENDED
DECEMBER 31, 2000 DECEMBER 31, 1999(2)
----------------------- -----------------------
KWH % KWH %
--- - --- -
First Quarter 167,835 100.0 175,172 32.4
Second Quarter 145,505 27.0
Third Quarter 84,707 15.7
Fourth Quarter 134,322 24.9
------------ -------- ----------- --------
Total 167,835 100.0 539,706 100.0
============ ======== =========== ========
- -------------
(1) Limited to projects included in consolidated revenues.
(2) Includes the production equivalent of 15,483 kWh of the business
interruption revenue recoverable as a result of insurance claims for the
twelve months ended December 31, 1999.
THREE MONTHS ENDED MARCH 31, 2000 COMPARED TO THREE MONTHS ENDED MARCH 31, 1999
Operating Revenues
- ------------------
Power Generation Revenue. The Company's power generation revenue increased
by $0.1 million (0.7%), from $14.0 million to $14.1 million for the three months
ended March 31, 1999 and 2000, respectively.
The Northeast region experienced an increase in revenues of $0.5 million
primarily as a result of the acquisition of the remaining ownership interest in
two partnerships during 1999, as discussed more fully in Note 3 to the unaudited
Consolidated Financial Statements included herein.
The Southeast region experienced decreased revenues of $0.3 million for
the three months ended March 31, 2000 primarily as a result of decreased water
flows and the expiration of certain power purchase agreements which were at
rates higher than current market rates being paid for project output.
The West and Northwest regions (combined) experienced decreased revenues
of $0.1 million for the three months ended March 31, 2000, primarily due to
decreased water flows in the West.
The Company as a whole experienced increased revenue per kilowatt hour of
0.4(cent) (5.0%), from 8.0(cent) to 8.4(cent) in the three months ended March
31, 1999 versus the three months ended March 31, 2000, respectively, primarily
as a result of positive variations in the production mix and increased contract
rates at certain projects.
14
Costs and Expenses
- ------------------
General and Administrative Expenses. General and administrative expenses
decreased by $0.7 million (35.0%) from $2.0 million to $1.3 million for the
three months ended March 31, 1999 and 2000, respectively, primarily due to (i)
decreased business development expenditures; (ii) decreased net worth taxes; and
(iii) decreased salaries and benefits expenses.
Income Taxes
- ------------
For the three months ended March 31, 2000, the Company's effective income
tax rate of 40.2% differed from the federal statutory rate primarily due to
current state and alternative minimum tax liability.
LIQUIDITY AND CAPITAL RESOURCES
As more fully described in the March 31, 2000 unaudited Consolidated
Financial Statements and related Notes thereto included herein, the cash flow of
the Company was comprised of the following:
THREE MONTHS ENDED
MARCH 31, 2000 MARCH 31, 1999
-------------- --------------
(AMOUNTS IN THOUSANDS)
Cash provided by/(used in):
Operating activities $ 4,306 $ 527
Investing activities (3,235) 377
Financing activities (1,714) (1,417)
-------------- --------------
Net decrease in cash $ (643) $ (513)
============== ==============
The Company's primary source of liquidity is internally generated cash
from operations. Management believes that cash provided by operations will be
sufficient to satisfy all of the Company's working capital, capital expenditure
and debt service requirements during 2000. Available external sources of
liquidity include a $35.0 million secured revolving working capital and letter
of credit facility (see - "Summary of Indebtedness"). This facility provides
additional liquidity to support the Company's existing operations as well as its
future growth. As of May 10, 2000, $8.3 million of letters of credit have been
issued and are outstanding and $26.7 million was available for working capital
purposes or additional letter of credit issuances. In addition, should growth
opportunities warrant significant additional cash requirements, the Company may
pursue other external sources of funds through debt and/or equity offerings.
For the three months ended March 31, 2000, the cash flow provided by
operating activities was principally the result of the $7.1 million of net
income adjusted for non-cash items, offset by $2.8 million of cash utilized by a
change in operating assets and liabilities. Significant non-cash items include a
$2.0 million provision relating to deferred tax liabilities, $2.0 million of
depreciation and amortization and $0.5 million of undistributed earnings of
affiliates. The cash flow used in investing activities was primarily
attributable to $3.8 million of development expenditures related to the
construction of a 23 MW biomass facility. The cash flow used in financing
activities was due to the repayment of $7.1 million of debt, offset by $3.1
million in borrowings and $2.1 million of contributions from a minority
interest.
Cash provided by operating activities increased by $3.8 million for the
three months ended March 31, 2000, as compared to the three months ended March
31, 1999. The increase resulted from a difference in cash utilized by a change
in operating assets and liabilities of $3.3 million and an increase in net
income adjusted for non-cash items of $0.5 million. The difference in cash
utilized by a change in operating assets and liabilities is mainly attributed to
timing of cash receipts and payments.
15
Summary of Indebtedness
PRINCIPAL AMOUNT OUTSTANDING AS OF
MARCH 31, 2000 DECEMBER 31, 1999
-------------- -----------------
(AMOUNTS IN THOUSANDS)
----------------------
Company debt, excluding non-recourse debt of
subsidiaries $ 250 $ 5,550
Non-recourse debt of subsidiaries 77,280 75,906
Current portion of long-term debt (6,378) (11,455)
-------- --------
Total long-term debt obligations $ 71,152 $ 70,001
======== ========
In November 1999, the Company obtained a $35.0 million secured revolving
working capital and letter of credit facility with an initial expiration date of
December 31, 2001 (the "Facility"). Upon expiration of the Facility, any
outstanding revolving loans will, at the Company's option, be converted into a
five-year term loan. The interest rate on the revolving loans is prime + 1.5%.
As of May 10, 2000, no revolving loan is outstanding under the Facility and $8.3
million of letters of credit have been issued and are outstanding.
CAUTIONARY STATEMENT REGARDING FORWARD LOOKING STATEMENTS
Certain statements contained herein that are not related to historical
facts may contain "forward looking" information, as that term is defined in the
Private Securities Litigation Reform Act of 1995. Such statements are based on
the Company's current beliefs as to the outcome and timing of future events, and
actual results may differ materially from those projected or implied in the
forward looking statements. Further, certain forward looking statements are
based upon assumptions of future events which may not prove to be accurate. The
forward looking statements involve risks and uncertainties including, but not
limited to, the uncertainties relating to industry trends; risks related to
hydroelectric, renewable energy and other acquisition and development projects;
risks related to the Company's power purchase agreements; risks and
uncertainties related to weather conditions; and other risk factors detailed
herein and in other of the Company's Securities and Exchange Commission filings.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not Applicable
16
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
CHI is involved in various legal proceedings which are routine and
incidental to the conduct of its business. CHI's management currently believes
that none of the pending claims against the Company will have a material adverse
effect on the Company.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit 27.1 Financial Data Schedule
(b) Reports on Form 8-K
NONE
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
Date: May 10, 2000 CHI ENERGY, INC.
By:/s/ Thomas G. Beaumonte
----------------------------------
Thomas G. Beaumonte
Controller and Assistant Treasurer
signing on behalf of the registrant
and as Principal Accounting Officer
18
EXHIBIT INDEX
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NUMBER DESCRIPTION
- ------ -----------
Exhibit 27.1 Financial Data Schedule
19