E-51
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
___________________
ANNUAL REPORT TO STOCKHOLDERS
and
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 1998
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 1-13264
TRIGEN ENERGY CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 13-3378939
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification Number)
One Water Street 10601-1009
White Plains, New York (Zip Code)
(Address of principal executive offices)
(914) 286-6600
(Registrant's telephone number including area code)
Securities registered pursuant to Section 12(b) of the Act:
Name of Each Exchange
Title of Each Class on Which Registered
Common Stock, Par Value $.01 Per Share New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
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 if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.
The aggregate market value of voting stock held by non-affiliates of the
registrant was $64,479,106 based upon the closing sale price quoted by the New
York Stock Exchange on March 22, 1999. There were 12,321,295 shares of the
registrant's Common Stock outstanding on March 22, 1999.
DOCUMENTS INCORPORATED BY REFERENCE
Information called for in Part III of this Form 10-K is incorporated by
reference from the registrant's definitive proxy statement to be filed in
connection with its 1999 annual meeting of shareholders which will be held on
May 19, 1999.
TABLE OF CONTENTS
Page
PART I
Disclosure Regarding Forward-Looking Statements
Item 1. Business 2
Item 2. Properties 7
Item 3. Legal Proceedings 7
Item 4. Submission of Matters to a Vote of Security Holders 9
PART II
Item 5. Market for Registrant's Common Stock and Related
Shareholder Matters 10
Item 6. Selected Financial Data 11
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations 12
Item 7A. Quantitative and Qualitative Disclosures About
Market Risk 17
Item 8. Financial Statements and Supplementary Data 17
Item 9. Changes in and Disagreements with Accountants
On Accounting and Financial Disclosure 17
PART III
Item 10. Directors and Executive Officers of the Company 18
Item 11. Executive Compensation 18
Item 12. Security Ownership of Certain Beneficial Owners
and Management 18
Item 13. Certain Relationships and Related Transactions 18
PART IV
Item 14. Exhibits, Financial Statement Schedules and
Reports on Form 8-K 19
Index to Financial Statements and Financial Statement Schedules F-1
PART I
Disclosure Regarding Forward-Looking Statements
This Annual Report includes historical information as well as statements
regarding our future expectations. The statements regarding the future
(referred to as "forward-looking statements") include among other things
statements about energy markets in 1999; cost reduction targets; return on
capital goals; development, production and acceptance of new products and
process technologies; ongoing and planned capacity additions and expansions and
joint ventures. Important factors that could cause actual results to differ
materially from those discussed in such forward-looking statements include:
supply/demand for our products, competitive pricing pressures, weather patterns,
changes in industry laws and regulations, competitive technology, failure to
achieve our cost reduction targets or complete construction projects on schedule
and Year 2000 computer related difficulties. We believe in good faith that the
forward-looking statements in this Annual Report have a reasonable basis,
including without limitation, management's examination of historical operating
trends, data contained in our records and other data available from third
parties, but such forward looking statements are not guarantees of future
performance and actual results may differ materially from any results expressed
or implied by such forward looking statements.
Item 1. Business
General
Trigen Energy Corporation was incorporated under the laws of Delaware on
November 21, 1986. In this Annual Report, the pronouns "we" and "our" refer to
Trigen Energy Corporation together with its wholly owned subsidiaries and the
Trigen-Cinergy joint venture subsidiaries ( See "Joint Ventures" below). We
seek to produce and deliver the maximum economic value of energy and minimum
pollution from each unit of fuel burned. Our approach is to use fuel to produce
electricity or mechanical power, and in the same process also produce thermal
energy (heating or cooling). In some locations our facilities are connected to
pipeline networks which distribute our thermal energy to multiple buildings, in
others our facilities are located adjacent to industrial plants and dedicated to
the needs of those plants.
We operate 14 district energy systems serving urban customers and eleven
single customer industrial sites, with two more industrial sites under
construction. Our major customers include industrial plants, electric
utilities, commercial and office buildings, government buildings, colleges and
universities, hospitals, residential complexes, hotels, sports arenas and
convention centers. Our two largest customers are Long Island Power Authority
and Coors' Brewing Company (See Note 2 to Consolidated Financial Statements,
Revenue and Cost Recognition). A significant portion of our revenues and
operating profit from sales of thermal energy for non-industrial users is
subject to seasonal fluctuations (See Item 7. Management's Discussion and
Analysis of Financial Condition and Results of Operations).
Our choice of fuels, technology, blend of heat, cooling, and power
produced, and distribution media are determined by local prices for fuel, prices
for conventionally generated energy products and the convertibility of existing
plant and equipment to more efficient cogeneration or trigeneration.
Cogeneration is the combined production of electricity and useful thermal energy
(heating or cooling) by the sequential use of energy from one unit of fuel.
Trigeneration is the combined production of electricity, heating and cooling
from one unit of fuel. We develop, own, and operate facilities that produce and
deliver thermal energy to commercial, governmental, and industrial customers in
the form of steam, hot water, and/or chilled water. Our plants use various
technologies - gas turbines, diesel engines, boilers and chillers - and various
fuels, including natural gas, coal, oil, wood waste, municipal solid waste, and
industrial by-products or scrap.
To complement our basic business and enhance our ability to add energy
value, we have a separate technical product division that develops and produces
products that conserve energy or extract more value from steam or help users
manage energy more efficiently. At present, this division offers steam pipeline
insulation products which may be installed without removing pipe from the
ground. This division also produces back-pressure steam turbine generator sets
and power units. Our back pressure turbines take the place of steam pressure
reducing valves and extract mechanical energy from the steam pressure reduction
process. We also provide total energy management services to building owners
and operators by providing operational services and management expertise with
respect to energy production, procurement and usage.
The new combined heat and power plants we install emit up to 95% less
nitrous oxides than the conventional electric generation they replace, and
because of greater energy efficiency, emit less than half as much carbon
dioxide, which is implicated in global warming. When we burn bio-mass fuels in
our plants we eliminate the need to dispose of this waste in a landfill and we
produce no more carbon dioxide than if these wastes were allowed to decay in a
landfill.
Revenue Growth/Acquisitions
Our revenues have increased from approximately $1 million in 1987 (our
first full year of operation) to $ 242.4 million in 1998 through acquisitions
and internal growth. This Annual Report includes Consolidated Statements of
Operations, which report our revenues and operating income for the last three
fiscal years. Total assets at the end of 1998, 1997 and 1996 were $618,156,000,
$525,969,000 and $494,436,000, respectively.
We report the amount and percentage of our total revenue from thermal
energy sales and electric energy sales for the last three years in item 7 of
this annual report ("Management's Discussion and Analysis of Financial Condition
and Results of Operations"). Our revenue from sales outside the United States
for the last three years was not material. We have not held a material amount
of assets outside the United States over the last three years.
In 1995, we formed a limited partnership with a subsidiary of Tucson
Electric Power Company which purchased the energy systems of Coors' Brewing
Company and Coors Energy Company in Golden, Colorado. In September of 1998, we
purchased an additional 48% interest in that limited partnership from the
subsidiary of Tucson Electric. We now own 99% of that limited partnership.
In January 1998, we acquired Power Sources, Inc., Which has been renamed
Trigen-BioPower, inc. Trigen-BioPower operates seven biomass-to-energy plants,
producing steam for seven industrial customers from roughly 600,000 tons per
year of renewable bio-mass fuels including wood residues, rice hulls, cotton
waste and paper mill sludge. Since December of 1998, Trigen-BioPower commenced
construction of two additional plants and agreed to operate energy facilities
for another industrial customer.
Joint Venture
We have an active joint venture with Cinergy corp. To build, own and
operate cogeneration and trigeneration facilities in the United States, Canada,
the United Kingdom and Ireland. We own 51% of most of the Trigen-Cinergy
investments and 49% of others.
During 1998, Trigen-Cinergy expanded its cooling operations in Cincinnati,
OH. Trigen-Cinergy and the Orlando utilities commission agreed to build and
operate a district cooling system in Orlando, FL. Trigen-Cinergy also took over
operation of cogeneration and other energy facilities for individual industrial
customers at Tuscola, IL, Boca Raton, FL, and Baltimore, MD.
We entered the Trigen-Cinergy joint venture, to add the expertise of
Cinergy, which burns over 11 million tons of coal per year, to enable us to
offer a complete package of energy commodity and energy production services, to
reach more customers, and to increase our participation in the evolving
deregulated electricity market.
Business Strategy
We are a thermal sciences company. We seek ways to reduce fossil fuel
usage with cost effective efficiency. Our mission is to provide heating,
cooling and electricity with half the fossil fuel and half the pollution of
conventional generation. We use our expertise in thermodynamic engineering and
proprietary trigeneration processes to convert fuel to various forms of thermal
energy and electricity and achieve up to 90% overall energy efficiency compared
to the 33% average efficiency of the U.S. electric utility industry in 1997.
We believe industrial and institutional energy users will increasingly turn
to specialist energy companies, and will contract out all of their energy and
other utility needs in a process called outsourcing. We offer industrial
customers outsourcing options ranging from operating their systems to investing
our capital to provide new on site energy services and facilities. We specialize
in adding electric power generation sized to provide for the basic thermal
requirements of the customer with normally wasted exhaust heat. We believe that
our expertise in developing and running cogeneration projects and projects which
use biomass fuels will be very attractive to these industrial customers.
We see opportunities to expand our existing urban and industrial systems to
serve additional customers and the expanded needs of existing customers. We
will evaluate the acquisition of existing urban district energy or industrial
systems and the development of new systems to provide district energy or
independent power wherever our expertise provides a competitive advantage.
Our strengths for the future include:
Stable Customer Base. Our long-term contracts (i.e., contracts with terms
of five years to 27 years) provide pro forma consolidated revenues of over $230
million per year for the five-year period 1999 through 2004 and approximately
$4.2 billion cumulatively for the period 1999 through 2025 (before inflation and
changes in consumption from 1998 levels). The remaining customers with
short-term contracts do not operate boiler rooms and chillers, and in most cases
do not even have such equipment, and customer attrition has been low.
Technical Innovation and Plant Optimization. We have special expertise in
the design and operation of energy systems which we use to optimize the
efficiency of energy assets. Among other things, we have installed
computerized, automated control systems, which place real-time production cost
information in the hands of the plant operator, back-pressure turbines, and
thermal storage tanks that allow us to produce energy during off peak usage
periods for use during peak periods.
Growing Industrial Customer Base. During 1998 and in the first quarter of
1999, we increased the number of industrial customers we serve from on site
facilities from two to twelve. Last year, we acquired a new subsidiary, Trigen
BioPower, which produces steam for seven industrial customers from renewable
biomass fuels. Trigen-BioPower has new plants under construction in Georgia and
in Alabama for two other new industrial customers. Trigen-BioPower also
recently agreed to operate energy facilities for another new industrial
customer. In 1998, Trigen-Cinergy also started new projects in Boca Raton, FL
(operation of cooling facilities for 1.9 million square feet office complex), in
Tuscola, IL (operation and expansion of energy facilities at a large chemical
plant) and in Baltimore, MD. (operation and expansion of energy facilities at a
large chemical plant).
Service Rate Structures Align Our Interests with Our Customers. Our
thermal service rate structures seek recovery of all fixed costs and a profit
from fixed charges per month, which are adjusted with inflation, and then add a
usage charge that is very close to our variable fuel and water cost. This lets
us help customers to use less energy without reducing our gross margins and
aligns our interests with customers. This feature has led to reductions of
customer energy use per unit of product, or per square foot of building of as
much as 20% in three years. Our price structures typically enable us to pass
through to our customers fuel and most other commodity prices associated with
providing energy services. For that reason, changes in such prices (which
constitute approximately 40% of our costs) have little impact on our operating
income.
Protecting the Environment. By extracting and delivering the maximum value
of energy from fuel, and by employing pollution control technology, we emit
substantially less pollution than would result from conventional generation of
the same heat, electricity, and cooling. The principal reasons for lower
emissions are the fuel efficiency of cogeneration and trigeneration, the use of
biomass fuels (which minimizes the release of fossil fuel carbon dioxide into
the atmosphere), employment of refrigerants other than CFC's wherever possible,
thermal, chemical, and catalytic destruction of exhaust contaminants and
continuous emission monitoring. Our modern combustion equipment produces as
little as 5% of the nitrous oxide associated with conventional generation.
Entrepreneurial Mission Driven Management. Our senior management has
extensive experience in developing and operating plants and processes that
increase the value extracted from each unit of energy. These activities include
the development and operation of district energy systems and cogeneration
technologies. Senior management as a group holds approximately 16.1% percent of
our common stock.
Overview of Our Products and Services
The plants we owned at the end of 1998 have the capacity to produce 5,021
MW of end use energy, of which approximately 85% is steam or hot water, 8% is
electricity and 7% is chilled water. These products are distributed to customers
through 154 miles (248 kilometers) of pipeline. Separate pipelines are used for
steam, hot water and chilled water.
In every case where we produce electricity with diesel or gas turbines, we
recover the exhaust heat to produce additional electricity, steam or hot water
and/or chilled water. Because demand for steam and hot water has daily and
yearly cycles, we cannot always use all the waste heat generated by our plants
to produce steam and hot water for immediate use. Trigeneration plants enable
us to recover and use waste heat to produce chilled water when heat demands are
low. We also store chilled water produced off-peak for sale during the peak
usage hours.
By generating two or three energy products from a single fuel source,
cogeneration and trigeneration increase the value of useful energy output.
Average US electric-only generation converts 33% of fuel energy to high value
electricity, but exhausts 67% of the fuel energy as waste heat. Conventional
heat-only production converts 60% to 85% of the fuel energy to a much lower
value energy form - typically steam, hot water, or hot air - and fails to
extract the high value electric energy. Our approach is to combine the
generation of heat and power to maximize the value of energy produced from each
unit of fuel and minimize the resultant pollution.
The Company balances the costs of producing and delivering these various
energy products, including the cost of capital, labor, line losses, and fuel
with the market value of the products to each user. The resulting plants seek
to generate profits after debt service by extracting more delivered value than
conventional single product generation.
Reliability of service is a key. Most of our facilities have sufficient
heating capacity to generate peak loads with their largest production unit out
of service, and have the ability to use two or more different fuels.
Steam and Hot Water. We produce steam and/or hot water at substantially
all of our systems. Our customers use our steam and/or hot water for space
heating and hot water, for various industrial process uses, for cooling (by
powering on-site steam-driven chillers or absorption chillers), and for
humidification and sterilization.
Currently, the States of Maryland, Missouri, New Jersey and Pennsylvania
regulate our district steam energy business. Maryland and Pennsylvania require
us to seek State regulatory approval of our prices for steam service in those
states. Missouri requires us to seek State regulatory approval of our prices
for steam service from our Kansas City facilities. New Jersey does not require
us to seek State regulatory approval of our prices for steam service. Our other
businesses are not subject to State utility price regulation. Both Maryland and
New Jersey are in the process of deregulating district energy in 1999.
Electricity. We produce electricity at fourteen of our plants. The
electricity produced is either sold to the local utility company or used by our
customers or us. Our electric generating plants, which sell their power to the
local utility, are located in Kansas City, MO, London, Ontario (Canada), Nassau
County, NY, Philadelphia and Trenton, NJ. The plants in Nassau County, NY,
Philadelphia, PA, Trenton and Kansas City are qualified for an exemption from
regulation under the Public Utility Regulatory Policies Act of 1978.
Chilled Water. At twelve of our facilities, we produce chilled water,
which we provide to customers to cool commercial building space and for process
chilling.
Other Energy Services. We provide other utility services to our customers
such as compressed air and water treatment. We also provide operating
supervision, management and maintenance of facilities as well as advice and
assistance regarding initial design, construction and start-up, with respect to
energy use as well as energy audits.
Fuel and Raw Materials
We are a significant purchaser of gas, coal, oil and biomass fuels, as well
as chillers, boilers, generators and other equipment used for heating, cooling
and electric generation. Most of our gas, coal, oil and biomass fuel
requirements, as well as most of our other supplies, are purchased from local
suppliers. We believe that we have adequate sources of fuel, supplies and
equipment.
Competition
Provision of District Heating, Electricity and Cooling
The sale of electricity at wholesale over the interstate electric power
grid is highly competitive. Where permitted by State law, the sale of electric
power to individual end-users is also highly competitive. Some States continue
to ban retail sales of electric power by non-utility companies as a means to
protect the local electric utility monopoly. Other States permit non-utility
generators to sell their electric power to only one user on the same site as
their power plant. The provision of heating, and cooling services through a
multiple user distribution system is highly competitive with on-site generation
of the heat and cooling. There are currently very few competing operators of
multiple-user district energy systems. Our principal thermal energy competition
is from potential customers who own and operate their own boiler and chilled
water plants. These customers are often provided financial incentives to
install and retain their own plants by the suppliers of raw energy (such as
local oil, natural gas and electricity companies) and by equipment suppliers
that sell products and services to users who self-generate thermal energy. In
several locations, local utilities are competing directly with us through
unregulated subsidiaries offering steam and/or cooling.
We believe that competition in the district energy business turns on the
customers' evaluation of expected cost savings and reliability of service. We
compete to attract and retain customers, and also compete for contracts and
other awards to develop new facilities and systems. A significant additional
factor is the high capital cost involved in constructing a district energy
system. While this factor provides a competitive advantage once we are
operating a completed system, high initial capital costs typically require us to
have a significant number of customers, preferably under long-term contracts,
prior to undertaking construction of a new cooling or heating system. We will
pursue opportunities to expand our district energy systems and services wherever
our expertise provides a competitive advantage.
New On Site Industrial Projects
We compete directly with a large number of well-capitalized developers for
new industrial projects. Competition is based on technical skills, financing
ability and market reputation, among other factors.
During 1998, we focused greater efforts on industrial customers. Our
successes included the acquisition of Trigen-BioPower and the activities of
Trigen-Cinergy, which added several on-site industrial customers to our
business. We intend to continue these efforts in the future and will
selectively pursue electricity and sales to the grid where that electricity is a
by-product of efficient heat and cooling production.
Internationally, the Company is prepared to pursue selected opportunities
in Canada, Mexico and Central America or other countries where our customers
have facilities that favor a power project with high efficiency, reliability and
waste heat recovery.
Technology
Our research and development efforts have focused on improving the value of
energy products we extract and deliver. Principal focus has been on finding
ways to more efficiently convert fuel to energy and on improved generating,
monitoring, automation and storage technologies. These efforts have resulted in
the trigeneration machine, innovations in chilled water storage and control
systems, innovative applications of standard modular equipment, and various
incremental operational improvements. Expenditures for customer-sponsored or
Company-sponsored research and development are not separately reflected in our
financial statements, and the Company believes that if such expenditures were so
allocated, the amounts would not be material. We have been granted patents for
the trigeneration machine, our freeze suppression chemical for stratified cold
water storage and a fuel blending system for emissions control. None of these
patents are believed to be material.
Year 2000 Computer Issues
We discuss our Year 2000 computer processing compliance status in Item 7 of
this Annual Report ("Management's Discussion and Analysis of Financial Condition
and Results of Operations").
Environmental
Our operations are subject to extensive federal, state, provincial and
local environmental laws and regulations that govern, among other matters,
emissions into the air, the discharge of effluents, the use of water, fuel tank
management and the storage, handling and disposal of toxic waste material. We
invest substantial funds to modify facilities to comply with applicable
environmental laws and plan additional capital expenditures for these purposes
in the future. We spent approximately $3.9 million and $4.4 million in 1998 and
1997, respectively, to comply with these requirements, and we estimate that our
expenditures for environmental compliance in 1999 through 2001 will be
approximately $12.4 million in the aggregate. These expenditures include
improvements at certain facilities for air emission control equipment as
required by the United States Clean Air Act, wastewater discharge control
equipment, asbestos control and replacement of CFC refrigerants. Additional
amounts to be spent for environmental control facilities in future years will
depend on new laws and regulations and other changes in environmental concerns
and legal requirements, as well as on new projects.
In 1998, the United States Environmental Protection Agency promulgated a
final rule requiring the eastern 22 States and the District of Columbia to
submit State implementation plans that address the regional transport of ground-
level ozone (smog) through reductions in nitrogen oxides (NOx). The States must
submit the NOx reduction plans to U.S. EPA by September 30, 1999. The NOx
reductions for affected facilities must be achieved by 2003. We anticipate that
electrical utilities and large fossil-fired boilers will be required by the
States to reduce NOx emissions. Some of our facilities will be affected by the
new requirements. The facilities that will be subject to the NOx reduction
requirements will be determined once the States finalize their regulations. The
costs associated in complying with the new requirements cannot be determined at
this time.
Employees
As of December 31, 1998, we had approximately 745 employees. 108 of our
employees were covered by union agreements.
Item 2. Properties
We operate 41 energy plants at 27 different locations. We own all or a
portion of the interests in our facilities, lease some facilities and manage
others. Footnote 12 to Consolidated Financial Statements of the Company
(included later in this Annual Report) describes how our assets are pledged as
security under our financing agreements.
We operate district energy systems in Boston, MA, Baltimore, MD,
Charlottetown, Prince Edward Island (Canada), Kansas City, MO, London, Ontario
(Canada), Nassau County, NY, Oklahoma City, OK, Philadelphia, PA, St. Louis, MO
and Trenton, NJ (subject to a 20% minority interest). In Philadelphia, PA, we
have a one third interest in the Grays Ferry Cogeneration Facility. We operate
power systems on the site of our industrial customers in Alabama (under
construction), Colorado (subject to a 1% minority interest), Georgia (under
construction), Illinois (one of which is subject to a 50% minority interest),
Mississippi, North Carolina, South Carolina, and Tennessee.
Our Trigen Cinergy Solutions joint venture operates a district energy
system in Cincinnati, OH. Trigen Cinergy operates and/or is developing
industrial power systems on the site of its industrial customers in Florida,
Illinois and Maryland.
The Company leases approximately 22,000 square feet in White Plains, New
York, which houses our executive offices, financial, engineering, marketing,
legal and data processing staffs. The term of the lease extends through
March 31, 2005 and the annual rent due thereunder is approximately $420,000. We
believe that these facilities are adequate to meet our needs for the foreseeable
future, and that suitable replacement space is readily available.
Item 3. Legal Proceedings
Oklahoma Litigation
In September 1996, our subsidiary, Trigen-Oklahoma City Energy Corporation
("Trigen-Oklahoma City"), commenced an antitrust action in Federal District
Court in Oklahoma City seeking injunctions and over $30 million in damages from
the local utility, Oklahoma Gas and Electric Company ("OG&E"), based on many
years of alleged anti-competitive actions against Trigen-Oklahoma City Energy
Corporation by OG&E. These actions culminated in criminal indictments being
brought against two OG&E officials for allegedly bribing Oklahoma elected
officials to breach a Trigen-Oklahoma City Energy Corporation contract. Trigen-
Oklahoma City's antitrust action matter went to trial in 1998 and on December
21, 1998, the jury returned a verdict in favor of Trigen. On January 19, 1999,
the Court entered a judgement in favor of Trigen in the amount of $27.8 million.
Under the anti-trust laws, we are permitted to seek an award of treble damages
and legal fees and that issue is under consideration by the Court. We expect
OG&E to appeal this judgement.
Kinetic Energy Litigation
On May 2, 1997, following a jury trial in a suit by Kinetic Energy
Development Corporation against the Company in the Circuit Court of Jackson
County, Missouri, in connection with our acquisition of the Kansas City steam
system, a judgment was entered against the Company in the amount of $4,271,000.
Kinetic claimed for compensation alleged to be owed to it by Trigen in
connection with that acquisition. On August 6, 1997, the Court set aside the
jury verdict and granted judgment for the Company. Kinetic Energy Development
Corporation appealed that order and on December 8, 1998, the Missouri Court of
Appeals set aside the lower court decision and ordered a new trial. On December
22, 1998, we filed a motion for rehearing with the Missouri Court of Appeals
and/or a review by the Missouri Supreme Court. The Court of Appeals granted our
motion for rehearing. If the Court of Appeals upholds its decision, we plan to
seek a review of that decision by the Missouri Supreme Court. If our efforts to
reinstate the judgment in our favor fail, the case will return to the Circuit
Court and a new trial will be scheduled.
Grays Ferry Litigation
On April 9, 1998, Grays Ferry Cogeneration Partnership, Trigen-Schuylkill
Cogeneration, Inc., Cogen America Schuylkill Inc. (formerly NRGG Schuylkill
Cogeneration Inc.) and Trigen-Philadelphia Energy Corporation commenced an
action against PECO Energy Company ("PECO") and Adwin (Schuylkill) Cogeneration,
Inc. in the Pennsylvania Court of Common Pleas of Philadelphia County (the
"Court"). Grays Ferry Cogeneration Partnership (the "Partnership") is the owner
of the Grays Ferry Cogeneration Facility located in Philadelphia, Pennsylvania.
At December 31, 1998, the Company had an investment of $17.1 million in the
Partnership, representing a one third interest in the Partnership through our
wholly owned subsidiary, Trigen-Schuylkill Cogeneration, Inc. Cogen America
Schuylkill Inc. and Adwin (Schuylkill) Cogeneration, Inc. own the other two-
thirds interests in the Partnership. Adwin (Schuylkill) Cogeneration, Inc. is an
indirect wholly owned subsidiary of PECO. In addition, at December 31, 1998,
the Company had a receivable of $3.2 million due from the Partnership. Included
in the Company's revenues for the year ended December 31, 1998 was the Company's
share of Partnership earnings of $5.1 million and fees earned from the
Partnership of $2.8 million.
The Partnership commenced this action in reaction to the wrongful
termination by PECO on March 3, 1998, of the electric power purchase agreement
between the Partnership and PECO (the "Power Purchase Agreement"). The
Partnership is seeking a declaratory judgement to require PECO to comply with
the electric power purchase agreement and for damages to be proven at trial in
an amount in excess of $200 million.
On May 6, 1998, the Court issued a preliminary injunction against PECO
which requires PECO to pay the Partnership for its electric energy and capacity
at the rates set forth in the Power Purchase Agreement and otherwise to
specifically perform in accordance with the Power Purchase Agreement. The
preliminary injunction will remain in effect until the Court renders its
decision after the final hearing of this matter. On July 7, 1998, PECO withdrew
its appeal of the preliminary injunction. On March 10, 1999, the Court granted
partial summary judgement to the Partnership before trial and held that PECO
breached the Power Purchase Agreement. The Partnerships' other claims against
PECO and its request for damages are scheduled to go to trial on March 29, 1999.
The Chase Manhattan Bank has issued notices of default to the Partnership
under the terms of the Credit Agreement, dated as of March 1, 1996, between the
Partnership, The Chase Manhattan Bank, as agent, and certain other commercial
banks (collectively the "Banks"). Only the Partnership assets and the partners'
ownership interests in the Partnership secure the Partnership's debt under the
Credit Agreement of $109.3 million. The Banks have not accelerated the debt
owing under the Credit Agreement nor charged default interest charges against
the Partnership, although the Banks have reserved the rights to do so.
Therefore, the Partnership recorded default interest of $1.8 million through
December 31, 1998. The Banks have required to date, and may require in the
future, the Partnership to apply available cash held by Partnership (net of
operating expenses, other than certain payments to affiliates, and expenses
required to complete construction) toward repayment of the principal amount of
the loans outstanding. On September 4, 1998, the Banks filed their own
complaint against PECO with the Court. Among other things, the Banks are
seeking a declaration that PECO's termination of the Power Purchase Agreement
was wrongful.
We believe that PECO's termination of the Power Purchase Agreement was
wrongful, and we intend to aggressively pursue the remedies available to us. In
the event we are not successful and PECO's actions are upheld, PECO would be
required under federal law to continue to purchase power from the Grays Ferry
Cogeneration Facility at PECO's avoided cost. This would generate significantly
lower earnings per share for the Company than the contracted power purchase
price. While it is possible that our investment in the Partnership and the
receivable from the Partnership could become impaired, at this time we do not
believe that is likely.
Nassau Litigation
On May 29, 1998, the County of Nassau, New York commenced an action against
Trigen Energy Corporation and Trigen-Nassau Energy Corporation in New York State
Supreme Court. Trigen-Nassau provides energy services to Nassau County under
various agreements. Nassau County alleges that Trigen-Nassau breached those
agreements by, among other means, charging the County for certain real estate
taxes that the County contends are Trigen-Nassau's responsibility. On October
8, 1998, the Court dismissed the claims against Trigen Energy Corporation. On
November 9, 1998, Trigen-Nassau filed counterclaims against Nassau County,
seeking $1.6 million in damages. Trigen-Nassau alleges that Nassau County
breached the parties' agreements by, among other things, failing to operate and
maintain certain facilities and equipment. On January 21, 1999, the County
requested that the Court dismiss Trigen-Nassau's counterclaims. That motion and
the County's other claims against Trigen-Nassau are pending. The County is
seeking approximately $10 million in damages. We believe we have good defenses
to the County's claims, although we cannot predict the outcome of this matter.
ESI Litigation
In 1996 ESI, Inc. commenced an action against, among others, Coastal Power
Company, Latin American Energy Development, Inc. and La Casa Castro S.A. de N.V.
in the United States District Court for the Southern District of New York. On
September 17, 1998, ESI, Inc. amended its complaint naming Trigen as an
additional defendant. This action arises out of the development by Trigen,
Latin American Energy, La Casa Castro and others, of an independent power
project in El Salvador between 1993 and 1994. Trigen transferred its interest
in the project to Tenneco Gas International in May 1994. In July 1994, Tenneco
transferred its interest in the project to Coastal Power Company, which
currently owns and operates the project. ESI claimed that ESI was entitled to a
2.5% interest in the project and that Coastal had wrongfully withheld or denied
ESI's interest. ESI further claimed that Trigen had failed to disclose ESI's
interest to Tenneco and so was responsible, in whole or in part, for ESI's
failure to receive a 2.5% interest in the project from Coastal.
On October 8, 1998, Latin American Energy asserted cross-claims against
Trigen, Coastal and Tenneco claiming that it too had been denied its carried
interest in the Project. On October 28, 1998, La Casa Castro asserted cross-
claims against Trigen and on November 6, 1998, Coastal asserted cross-claims
against Trigen for indemnification, each alleged that Trigen failed to disclose
ESI's claimed interest to Tenneco and that Trigen was responsible for any
damages that each may be required to pay to ESI and Latin American.
On December 15, 1998, Trigen filed an amended answer denying liability for
these claims and cross claimed against Latin American Energy, Tenneco, Coastal
and La Casa Castro, asserting that these parties were responsible for any
damages owed to ESI and Latin American. On December 23, 1998, ESI and Latin
American dismissed without prejudice their claims against Trigen.
Coastal and La Casa Castro are continuing to assert their claims against
Trigen for any damages they may be required to pay to ESI or Latin American. At
this time, we are not able to estimate the amount of damages that ESI and Latin
American are seeking. However, we believe it could involve a material amount.
Trigen believes it has good defenses to Coastal's claims and La Casa Castro's
claims, although we cannot predict the outcome of this matter.
Other Litigation
We are subject from time to time to various other claims that arise in the
normal course of business, and we believe that the outcome of these matters
(either individually or in the aggregate) will not have a material adverse
effect on our business results of operation or financial condition.
Item 4. Submission of Matters to a Vote of Security Holders
Not applicable.
PART II
Item 5. Market for the Registrant's Common Stock and Related Shareholder Matters
The Company's Common Stock is traded on the New York Stock Exchange under
the symbol TGN. As of March 22, 1999 there were approximately 1,682 shareholders
of record.
The following table sets forth the high and low sales prices for the
Company's Common Stock for the periods indicated:
High Low
1998
First Quarter 19 15/16 14 13/16
Second Quarter 15 1/8 12 1/8
Third Quarter 13 15/16 9 3/4
Fourth Quarter 15 5/16 11 5/16
1997
First Quarter 29 1/4 24 1/8
Second Quarter 25 1/4 23 5/8
Third Quarter 25 3/16 19 3/4
Fourth Quarter 24 1/4 19 1/2
During 1998 and 1997, the Company declared quarterly dividends in an
aggregate annual amount equal to $0.14 per share of Common Stock. See Note 2 to
the Condensed Financial Statements of Trigen Energy Corporation (Parent Company)
for a statement on amounts available for payment of dividends.
Item 6. Selected Financial Data
The following table sets forth selected consolidated financial data for the
Company and should be read in conjunction with "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and the consolidated
financial statements of the Company, including the notes thereto, appearing
elsewhere in this Annual Report:
Years Ended December 31,
------------------------
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
(In thousands, except per share data)
Statement of Operations Data:
Total revenues $242,394 $240,651 $243,634 $198,710 $185,627
Operating income 31,823 28,743 43,138 37,038 29,718
Interest expense 23,742 18,976 18,840 19,890 16,657
Earnings before extra-
ordinary item 6,557 5,025 14,051 10,564 8,561
Extraordinary loss (a) (299) - (1,943) - -
Net earnings 6,258 5,025 12,108 10,564 8,561
Basic earnings per common share
Before extraordinary item .55 .42 1.21 .93 .89
Extraordinary loss (.03) - (.17) - -
-------- -------- -------- -------- --------
Net earnings .52 .42 1.04 .93 .89
-------- -------- -------- -------- --------
Diluted earnings per common share
Before extraordinary item .55 .41 1.20 .93 .89
Extraordinary loss (.03) - (.17) - -
-------- -------- -------- ------- --------
Net earnings .52 .41 1.03 .93 .89
-------- -------- -------- -------- --------
Dividends per common share .14 .14 .14 .14 .07
-------- -------- -------- -------- --------
Balance Sheet Data (at year end):
Working capital (deficit) (9,543) (2,095) (5,400) 282 9,801
Property, plant and
equipment, net 442,755 388,448 371,584 341,188 311,418
Total assets 618,156 525,969 494,436 454,906 424,330
Long-term debt 343,685 256,361 226,487 223,371 220,725
Stockholders' equity 147,928 145,482 140,670 118,830 109,354
Other Operating Data:
EBITDA $58,493 $45,164 $51,153 $50,260 $42,963
Operating margin 13.1% 11.9% 17.7% 18.6% 16.0%
Ratio of earnings to fixed
charges (b) 1. 1.2 1.4 2.1 1.8 1.8
Depreciation expense $19,780 $16,021 $7,595 $11,429 $10,948
Capital expenditures $42,910 $39,415 $47,641 $18,454 $22,920
Number of employees (at
year end) 745 674 651 632 560
- -----------------
(a) The extraordinary losses in 1998 and 1996 result from the extinguishment of
debt. See note 4 to the consolidated financial statements.
(b) Earnings used in computing the ratio of earnings to fixed charges consist
of earnings before extraordinary item plus income taxes, fixed charges
(excluding capitalized interest) and income distributions of non-consolidated
partnerships on a cash basis. Fixed charges consist of interest expense,
capitalized interest and a portion of rental expense representative of the
interest factor.
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
The following discussion should be read in conjunction with the
consolidated financial statements of the Company, including the notes thereto,
appearing elsewhere in this Annual Report.
The following table shows revenues and units of megawatt hours sold for the
three years ended December 31, 1998:
1998 1997 1996
---------------- ------------- --------------
Revenue Revenue Revenue
------------- -------------- --------------
Amount % Units Amount % Units Amount % Units
------ - ----- ------ - ----- ------ - -----
(Dollars in millions, Units in thousands of megawatt hours)
Thermal energy $182.4 75 5,940 $179.5 75 5,008 $187.7 77 5,400
Electric energy 42.7 18 785 49.0 20 950 44.7 18 860
Fees and other
revenues 17.3 7 - 12.2 5 - 11.2 5 -
Total $242.4 100 6,725 $240.7 100 5,958 $243.6 100 6,260
The following table shows the components of the Statement of Operations as
a percent of total revenues for the three years ended December 31, 1998:
1998 1997 1996
---- ---- ----
Total revenues 100.0% 100.0% 100.0%
Fuel and consumables (39.6) (47.4) (48.6)
Production and operating costs (22.2) (19.6) (18.0)
Depreciation ( 8.2) ( 6.7) ( 3.1)
General and administrative (16.9) (14.4) (12.6)
----- ----- -----
Operating income 13.1 11.9 17.7
Interest expense ( 9.8) ( 7.9) ( 7.7)
Other income, net 2.3 1.0 .7
Minority interest in earnings of
subsidiaries (1.0) (1.5) (1.1)
------ ------ ------
Earnings before income taxes and
extraordinary item 4.6% 3.5% 9.6%
====== ====== =======
The Company's preferred rate structures for thermal energy include fixed
and variable components. These rate structures are intended to cause revenues to
match the Company's costs of providing capacity, including projected debt
service and return on equity, thermal losses in the distribution network, taxes,
labor and scheduled maintenance and repair. The capacity component, which is
independent of usage in the period, generally includes cost escalation
provisions. These rate structures also contain a charge, which varies with usage
during the period, and which is intended to cover directly variable costs, so as
to pass through to customers the Company's cost of fuel.
A significant portion of the Company's revenues and operating profit are
subject to seasonal fluctuation due to peak heating demand in the winter and
peak cooling demand in the summer. This seasonal fluctuation is accentuated in
those acquired steam systems where the Company's preferred rate structures are
not employed. The Company's strategy of converting old contracts to the
Company's preferred rate structures, adding cooling, electricity, energy
services and industrial process loads has reduced the concentration of revenues
in cold months during 1998 and is expected to continue in the future.
Results of Operations
Year ended December 31, 1998 compared with year ended December 31, 1997
Overview
For the year ended December 31, 1998, net earnings were $6.3 million
compared with $5.0 million in 1997, and diluted earnings per common share were
$.52 compared with $.41 per common share last year. Included in net earnings
for 1998 was an extraordinary loss of $.3 million, or $.03 per common share,
from the early extinguishment of debt. Revenues of $242.4 million were higher
than the $240.7 million in 1997. Operating income was $31.8 million and the
operating margin was 13.1% in 1998 compared with operating income of $28.7
million and an operating margin of 11.9% in 1997. Offsetting the continuing
mild weather and unfavorable results from our Canadian operations were positive
contributions from the Trigen-BioPower acquisition and the Grays Ferry
Cogeneration Partnership. Both were major contributors to the higher levels of
revenues and profits in 1998.
Revenues
Revenues of $242.4 million in 1998 increased $1.7 million from $240.7
million in 1997. Thermal energy revenue increased $2.9 million to $182.4
million. Units of thermal energy sold increased 19% over 1997 primarily
reflecting the contribution of Trigen-BioPower, which was acquired in January
1998. Partially offsetting this increase were lower thermal energy sales in
Philadelphia, Boston and Baltimore due to the effect of milder weather patterns.
Electric energy revenues decreased $6.3 million to $42.7 million in 1998.
The Nassau plant was taken off-line by the local utility, as permitted under
their contract for a longer period of time in 1998 than in 1997. In addition,
in 1998, this facility was taken off-line for twenty-two days for a scheduled
five year major overhaul. The Grays Ferry Cogeneration Partnership, of which the
Company is a 33% partner, commenced operations in January 1998 and produced
$60.3 million in electrical revenues for the year. Grays Ferry replaced the
Company's electric generation in Philadelphia and thus lowered reported revenues
from electricity versus the prior year by approximately $3.2 million. The
Company's 33% share of Grays Ferry electric revenues are $20.1 million and the
resulting profits are reflected in equity earnings of non-consolidated
subsidiaries.
Equity earnings/(losses) of non-consolidated subsidiaries in 1998 exceeded
1997 by $5.9 million, primarily reflecting the Company's share of earnings from
the Grays Ferry Cogeneration Partnership.
Fees earned and other revenues declined slightly in 1998, reflecting the
absence of revenues associated with the sale of a natural gas pipeline in 1997.
This was essentially offset by the inclusion of fees from the Grays Ferry
Cogeneration Partnership in 1998.
Operating Expenses
Fuel and consumables were $96.0 million in 1998, an $18.2 million decrease
from 1997, in spite of a significant increase of 19% in thermal energy units
sold. This decrease reflects the lower level of energy sales due to warm
weather at systems primarily located in the Northeast and lower fuel prices at
the Company's fossil fuel plants. The Company's rates typically enable it to
pass changes in its fuel and most commodity costs to the customer. As a result,
such changes have little impact on operating income. Fuel and consumables'
costs decreased from 47.4% of revenues in 1997 to 39.6% in 1998 largely due to
the addition of seven biomass fueled plants with relatively low fuel prices.
Production and operating costs are those costs incurred to operate the
plants, other than fuel and consumables, and include labor and supervisory
personnel, repair and maintenance costs, and plant operating costs. In 1998,
production and operating costs totaled $53.8 million, a 14.3% increase over
1997. This increase is primarily due to the inclusion of production and
operating costs associated with Trigen-BioPower, which was acquired in January
- -+1998.
Depreciation expense was $19.8 million in 1998, compared with $16.0 million
in 1997. The increase is primarily attributable to the addition of Trigen-
BioPower depreciation expense in 1998.
General and administrative expenses increased $6.4 million to $41.0
million, an 18.4% increase over 1997. Contributing to the increase was the
inclusion of 1998 Trigen-BioPower general and administrative expenses and a $2.0
million increase in insurance and employee-related costs, and the costs of
pursuing the Oklahoma City antitrust lawsuit against OG&E. All of the 1998
costs of the lawsuit were expensed in 1998, and a gain, if any, will not be
recognized until a final judgement is affirmed on appeal or a final settlement
is consummated.
Other income/(expense)
Interest expense increased $4.8 million to $23.7 million in 1998 primarily
due to financing the Trigen-BioPower acquisition and the purchase of an
additional 48% interest in the Trigen-Nations Energy Company Limited
Partnership.
Other income, net was $5.6 million in 1998, an increase of $3.1 million
over 1997. The increase primarily results from gains during 1998 of $2.1
million from the sale of nitrogen oxide emission allowances and $1.7 million
from an insurance settlement.
Income Taxes
The Company's effective tax rate is determined primarily by the federal
statutory rate of 35% and state and local income taxes. The effective tax rate
was 41.1% in 1998 and 41.0% in 1997.
Year ended December 31, 1997 compared with year ended December 31, 1996.
Overview
For the year ended December 31, 1997, net earnings were $5.0 million
compared with $12.1 million in 1996 and diluted earnings per common share were
$.41 compared with $1.03 per common share in 1996. Included in net earnings for
1996 was an extraordinary loss of $1.9 million, or $.17 per common share, from
the extinguishment of debt. Revenues of $240.7 million were lower than the
$243.6 million in 1996. Operating income was $28.7 million and the operating
margin was 11.9% in 1997 compared with operating income of $43.1 million and an
operating margin of 17.7% in 1996. Excluding a condemnation award of $6.4
million and a fee received on completion of a project financing of $1.9 million,
operating income was $34.8 million and the operating margin was 14.3% in 1996.
The unusually mild winter weather, especially compared with the severe winter of
1996, was a major factor for the lower levels of revenues and profits in 1997.
Revenues
Revenues of $240.7 million were lower than the $243.6 million in 1996.
Thermal energy revenue declined $8.2 million or 4% in 1997 to $179.5 million.
Units of thermal energy sold were down 7% as energy systems in Baltimore, Boston
and Philadelphia were particularly affected by the milder weather. Contributing
to the decline in thermal energy sales were lower fuel prices, which are passed
on to customers.
Electric energy sales were $49.0 million in 1997, an increase of $4.3
million or 10%. This improvement was due to increased volume. Units of electric
energy sold increased by 90,000 megawatt hours or 10%. In 1997, the
trigeneration plant in Nassau County, NY, was operational for approximately 800
additional hours. This facility in 1996 was taken off line by the local utility
and for an unplanned outage.
Fees earned and other revenue increased 8% in 1997 due to the expansion of
the Trigen-Ewing Power operation, which was acquired in the first quarter of
1996, and to the sale of a natural gas pipeline. This increase was offset in
part by costs incurred in connection with the establishment and marketing of new
joint ventures with electric utilities to develop combined heat and power
projects.
Operating Expenses
Fuels and consumables were $114.2 million in 1997 compared with $118.3
million last year. This $4.1 million decrease was due to the lower level of
thermal energy revenues and to lower fuel prices. Offsetting in part the decline
in fuels and consumables were increased running hours in 1997 for the Nassau
plant. The Company's rates typically enable it to pass changes in its fuel and
most commodity costs to the customer. As a result such changes have little
impact on operating income. Fuel and consumables' costs decreased from 48.6% of
revenues in 1996 to 47.4% in 1997.
Production and operating costs are those costs incurred to operate the
plants, other than fuel and consumables, and include labor and supervisory
personnel, repair and maintenance costs, and plant operating costs. Production
and operating costs increased 7% to $47.1 million compared with $44.0 million in
1996 and as a percent of revenues increased to 19.6% from 18.0%. The higher
costs resulted from expansion of Trigen-Ewing Power, a pipeline rupture in St.
Louis and higher pension expense. In addition, production and operating costs
for 1996 were reduced by a $1.0 million arbitration award. Offsetting the 1997
increase in part was lower repair and maintenance costs.
Depreciation expense was $16.0 million compared with $7.6 million in 1996.
Included in 1996 depreciation expense was a $6.4 million gain resulting from a
condemnation award. Excluding this gain, 1997 depreciation expense was higher by
$2.0 million due to the high level of capital expenditures in 1997 and 1996.
General and administrative expenses increased $4.0 million or 13% in 1997,
mainly due to higher legal fees of $1.7 million and severance and reorganization
expenses of $.7 million. Also contributing to the increase were higher costs
incurred in connection with the Company's acquisition program. As a percent of
revenues, general and administrative expenses were 14.4% in 1997 and 12.6% in
1996.
Other income/(expense)
Interest expense was $19.0 million in 1997 compared with $18.8 million in
1996. The reduction due to repaying high interest rate debt was more than offset
by the higher level of debt in 1997.
Other income, net was $.8 million higher in 1997 due mainly to a $.6
million gain on the sale of marketable securities.
Income taxes
The Company's effective tax rate is determined primarily by the federal
statutory rate of 35%, and state and local income taxes. The effective tax rate
was 41.0% in 1997 and 39.7% in 1996.
Liquidity and Financial Position
The Company ended 1998 with total debt of $375.1 million compared with
$285.1 million at year-end 1997. Stockholders' equity increased to $147.9
million in 1998 from $145.5 million in 1997. Working capital was a negative
$9.5 million compared with a negative $2.1 million at year-end 1997. At
December 31, 1998 and 1997, cash and cash equivalents were $14.7 million and
$13.7 million, respectively, of which $13.3 million and $9.7 million,
respectively, was restricted as to use. See Note 6 of the Notes to Consolidated
Financial Statements for information on the restrictions.
The Company's principal sources of funds are proceeds from new borrowings
and cash from operations. In 1998, $36.4 million was generated from operating
activities compared with $23.3 million in 1997 and $27.6 million in 1996. The
improvement was primarily due to cash generated by Trigen-BioPower. During
1998, the Company acquired Trigen-BioPower for $44.1 million, purchased an
additional 48% interest in Trigen-Nations Energy Company Limited Partnership for
$21.3 million, invested $42.9 million in capital expenditures, $6.4 million in
partnership investments, paid dividends of $1.7 million to shareholders, $2.4
million to minority interests and purchased 129,989 shares of common stock for
the treasury at a cost of $1.8 million. These expenditures were financed by
cash generated from operating activities and by $85.7 million of net new
borrowings.
Total debt was $375.1 million at December 31, 1998, compared with $285.1
million at the end of 1997. The $90.0 million increase in debt reflects new net
borrowings of $85.7 million and the inclusion of $4.3 million of Trigen-
BioPower debt assumed in the acquisition. On April 4, 1997, the Company entered
into a $160.0 million revolving credit agreement with several banks. This
facility is for an initial period of three years and may be extended by a total
of two one-year periods. Borrowings under the facility bear interest, at the
Company's option, at an annual rate equal to the base rate or the LIBOR rate
plus 3/4%. The base rate is the higher of the prime lending rate or the Federal
Reserve reported Federal funds rate plus 1/2%. On June 10, 1997, the Company
amended the $160.0 million revolving credit agreement by reducing the facility
to $125.0 million and entered into a new $35.0 million revolving credit facility
with the same group of banks. The new facility is for an initial 364-day period
and may be extended annually at the option of the banks. The terms and
conditions of both facilities are the same. On September 23, 1998, the $125.0
million three year facility was increased by $35.75 million and the initial
period was increased by one year. The base rate is the higher of the prime-
lending rate or the Federal Reserve reported Federal funds rate. On December
30, 1998, the Company borrowed from an affiliate, Cofreth American Corporation,
$50.0 million for acquisitions and project development. The $50.0 million was
initially used to partially pay down the Corporate facility. The $50.0 million
borrowing is subordinate and junior in right of payment to all other debt. The
subordinated debt may be redeemed in whole or in part at the option of Cofreth
American Corporation with the proceeds of an equity sale by the Company. The
debt matures on December 31, 2010, and the interest rate is 7.38%.
At December 31, 1998, the Company had $67.8 million of borrowings available
under its credit facilities for working capital and general corporate purposes.
The Company's loan agreements contain various restrictions and conditions, with
which the Company is in compliance. Certain loan agreements restrict payments by
subsidiaries to the Company, unless the payments are for specified purposes or
the subsidiary meets certain covenants. Management believes that cash generated
from operations, borrowings available under its credit facilities and access to
capital markets provide adequate resources to meet ongoing operating needs and
future capital expenditures related to the existing business and development of
new projects. See Note 12 of the Notes to Consolidated Financial Statements for
information on long-term debt.
During 1998, stockholders' equity increased $2.4 million to $147.9 million.
This increase reflects $6.3 million of net earnings, $1.2 million from the
issuance of common stock and $.7 million of amortization of unearned
compensation related to restricted shares, partially offset by $1.7 million of
dividend payments to shareholders, a $2.3 million cumulative translation
adjustment and the purchase of 129,989 shares of common stock for the treasury
at a cost of $1.8 million.
Capital Expenditures
Capital expenditures were $42.9 million in 1998 compared with $39.4 million
in 1997 and $47.6 million in 1996, as the Company continues to invest in capital
improvements to increase efficiency, reduce costs, pursue new opportunities,
expand production and improve facilities. Capital expenditures during 1998
included construction of a district chilled water system in downtown Kansas City
and a major overhaul of the gas and steam turbines at the Nassau plant.
Environmental Expenditures
The Company's facilities are subject to governmental requirements with
respect to the discharge of materials and otherwise relating to protection of
the environment. The Company spent approximately $3.9 million and $4.4 million
in 1998 and 1997, respectively, to comply with these requirements and estimates
that its expenditures for environmental compliance in 1999 through 2001 will be
approximately $12.4 million in the aggregate. These expenditures include
improvements at certain facilities for air emission control equipment as
required by the United States Clean Air Act (the "Clean Air Act"), wastewater
discharge control equipment, asbestos control and replacement of CFC
refrigerants.
Acquisitions
On January 22, 1998, the Company acquired all of the capital stock of Power
Sources, Inc. (renamed Trigen-BioPower, Inc.) a biomass-to-energy power plant
developer and operator, for a cash price of $44.1 million. On September 23,
1998, the Company purchased an additional 48% interest in Trigen-Nations Energy
Company Limited Partnership from Nations Energy Corporation for $21.3 million.
The acquisitions were funded from the Company's existing credit facilities. See
Note 5 of the Notes to Consolidated Financial Statements for information on the
acquisition.
Impact of New Accounting Standards
In April 1998, the American Institute of Certified Public Accountants
issued Statement of Position 98-5, "Reporting on the Costs of Start-Up
Activities" ("SOP 98-5"). SOP 98-5 requires costs of start-up activities and
organizational costs to be expensed as incurred. SOP 98-5 is effective for
financial statements for fiscal years beginning after December 15, 1998. The
Company will adopt SOP 98-5 effective January 1, 1999. The effect of the
adoption will be an after-tax charge of $5.3 million which will be reported as a
cumulative effect of a change in accounting principle in the first quarter 1999
Consolidated Statements of Operations.
Based on preliminary analyses, the Company does not expect that the future
adoption of Statement of Financial Accounting Standards No. 133, "Accounting for
Derivative Instruments and Hedging Activities," will have a material effect on
the Company's results of operations or financial condition.
Year 2000 Date Conversion
An issue affecting the Company and others is the inability of many computer
systems and applications to process the year 2000 ("Y2K") and beyond. To
address this problem, the Company has developed a plan that divides direction
for Y2K preparedness into four responsibility areas. These areas are Plant
Production, Plant Non-Production, Desktop Systems and Corporate Systems.
Plant Production includes primary plant systems that produce steam,
chilling and hot water, electricity and other forms of energy. A plan to
upgrade all non-compliant software and hardware has been underway since 1996.
We plan to test our Plant Production systems for Y2K compatibility in the Spring
of 1999. If any Plant and Production systems fail these tests, we plan to take
additional steps to make those systems Y2K compatible as soon as possible. We
anticipate that all primary plant systems will be compliant by the third quarter
of 1999. If we are not successful in these efforts, we may experience
operational difficulties in serving our customers at some locations.
Plant Non-Production includes Y2K issues related to telecommunications
hardware, climate control systems, security systems, elevators, parking
controls, and related systems. Generally, these systems achieve 100% compliance
with minor hardware upgrades or chip replacements from original parts
manufacturers. At this time, we believe that all of our material Plant Non-
Production systems are Y2K compliant.
The Company anticipates all Desktop systems to be compliant by September
1999 and Corporate Systems, which includes financial and billing systems, to be
compliant by December 1999. At this time, we believe our accounting system is
Y2K compliant. The Company is in the process of upgrading its billing and other
systems to achieve compliance. If we are not successful in these efforts, we
believe that it would not impact our ability to serve our customers, although we
may experience administrative difficulties.
The Company estimates the total external cost to achieve Y2K compliance to
be $1 million for the years 1997 through 1999. The Company believes it is
staffed sufficiently to address all Y2K issues.
The Company purchases raw material from key vendors to produce energy.
These vendors include major natural gas, electricity, and water utilities, fuel
oil and chemical distributors and coal producers. The Company will continue to
survey its key vendors to determine their Y2K compliance. At this time, the
Company does not expect any material disruption in services from vendors due to
Y2K issues. The Company is, however, dependent in part, upon the ability of its
vendors to be Y2K compliant.
The Company's Y2K efforts are ongoing and its overall plan, as well as
consideration of contingency plans, will continue to evolve as new information
becomes available. At this time, the Company does not expect any major
interruption of its business activities due to Y2K issues. However, the Company
is unable to estimate the ultimate effect Y2K risks will have on its operating
results.
Item 7A. Quantitative and Qualitative Disclosures about Market Risk.
The Company does not engage in the trading of market risk sensitive
instruments in the normal course of business. The Company's short and long-term
debt is subject to fixed and variable interest rates including rates primarily
based on LIBOR. An analysis of debt is found in Notes 11 and 12 to Consolidated
Financial Statements, Short-Term Debt and Long-Term Debt, included in this
Annual Report. Based upon the debt balances at December 31, 1998, a change in
the LIBOR rate of .25% would have a corresponding change in interest expense of
approximately $605,000 per year when three-month LIBOR is under 6.0% ranging to
approximately $539,000 per year when three-month LIBOR is over 7.5%. Three-month
LIBOR at December 31, 1998 was 5.08%.
The Company uses financial instruments to limit the financial risk of
increases in interest rates on its floating rate debt. The differential to be
paid or received under financial instruments is accrued and recognized in
interest expense as interest rates change. As of December 31, 1998, the Company
had outstanding interest rate swap, cap and collar agreements related to $43.5
million of debt outstanding, with an average fixed interest rate of 5.8% and an
average remaining life of 6 years. The cost to terminate the swap, cap and
collar would be approximately $183,000 at December 31, 1998. We do not expect
these financial instruments to have a material effect on our earnings or cash
flows or on the fair value of these instruments.
Item 8. Financial Statements and Supplementary Data
The financial statements and financial statement schedules that are filed
as part of this Annual Report begin on page F-1 hereof.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
The principal accountant for the Company for the fiscal years ending
December 31, 1994, December 31, 1995, December 31, 1996 and December 31, 1997
was KPMG Peat Marwick LLP ("KPMG"). In 1998, we made a decision to change our
principal accountant for our fiscal year ending December 31, 1998, for the
reason set forth below. In 1998, the Audit Committee and the Board of Directors
of the Company approved this determination.
KPMG is also in the business of providing consulting services to clients
with respect to issues related to the energy business. In 1997, a dispute arose
between the Company and the consulting services division of KPMG with respect to
the conduct of consulting services provided to a third party. That dispute was
not resolved to the satisfaction of the Company. The change in principal
accountant was not due to any matter regarding KPMG's accounting services.
KPMG's report on the financial statements of the Company for 1996 and 1997 did
not contain an adverse opinion or a disclaimer of opinion, nor was it qualified
or modified as to uncertainty, audit scope or accounting principles. Neither
were there, during the 1996 and 1997 fiscal years or the period since December
31, 1997, any disagreement with KPMG on any matter of accounting principles or
practices, financial statement disclosure, or auditing scope or procedure, which
disagreement, if not resolved to the satisfaction of KPMG, would have caused it
to make reference to the subject matter of the disagreement in connection with
its report.
In 1998, the Board of Directors selected Arthur Andersen LLP as our new
principal accountant. This selection will be presented to the shareholders of
the Company for ratification at our annual meeting of shareholders, which will
take place on May 19, 1999.
PART III
Item 10. Directors and Executive Officers of the Company
Information concerning directors and executive officers of Trigen is hereby
incorporated by reference from Trigen's definitive proxy statement which will be
filed with the Commission within 120 days after the close of the fiscal year.
Trigen's definitive proxy statement will be accompanied by this Annual Report
when mailed to Shareholders.
Item 11. Executive Compensation
Information concerning executive compensation is hereby incorporated by
reference from Trigen's definitive proxy statement which will be filed with the
Commission within 120 days after the close of the fiscal year.
Item 12. Security Ownership of Certain Beneficial Owners and Management
Information concerning security ownership of certain beneficial owners and
management is hereby incorporated by reference from Trigen's definitive proxy
statement which will be filed with the Commission within 120 days after the
close of the fiscal year.
Item 13. Certain Relationships and Related Transactions
Information concerning certain relationships and related transactions is
hereby incorporated by reference from Trigen's definitive proxy statement which
will be filed with the Commission within 120 days after the close of the fiscal
year.
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a) (1) and (2) The Financial Statements and Financial Statement Schedules
listed under "Index to Financial Statements and Financial Statement Schedules"
on page F-1 hereof are filed as part of this Annual Report.
(a) (3) The Exhibits listed under "Index of Exhibits" on pages E-1 to E-3
hereof are filed as part of this Annual Report.
(b) The following reports on Form 8-K were made during the period ended
December 31, 1998:
Item 2. Acquisition of Assets and Item 7. Financial Statements and
Exhibits, January 27, 1998
Item 4. Change in Registrant's Certifying Accountant and Item 5. Other
Events, March 16, 1998
Item 4. Change in Registrant's Certifying Accountant, Amendment No. 1,
March 19, 1998
Item 2. Acquisition of Assets and Item 7. Financial Statements and
Exhibits, March 20, 1998
Item 4. Change in Registrant's Certifying Accountants, Amendment No. 2,
March 31, 1998
Item 4. Change in Registrant's Certifying Accountant, Amendment No. 3,
April 7, 1998
Item 4. Change in Registrant's Certifying Accountants, May 13, 1998
TRIGEN ENERGY CORPORATION AND SUBSIDIARIES
INDEX TO FINANCIAL STATEMENTS AND
FINANCIAL STATEMENT SCHEDULES
Page
Registrant's Financial Statements
Independent Auditors' Report F-2 , F-3
Consolidated Balance Sheets as of December 31, 1998 and 1997 F-4
Consolidated Statements of Operations for the Years Ended
December 31, 1998, 1997 and 1996 F-5
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1998, 1997 and 1996 F-6
Consolidated Statements of Stockholders' Equity for the Years
Ended December 31, 1998, 1997 and 1996 F-7
Notes to Consolidated Financial Statements F-8
Registrant's Financial Statement Schedules
I Condensed Financial Information of the Registrant as
of December 31, 1998 and 1997 and for the Years
Ended December 31, 1998, 1997 and 1996 S-1
II Valuation and Qualifying Accounts for the Years Ended
December 31, 1998, 1997 and 1996 S-5
All other schedules are omitted because they are not applicable or the
required information is shown in the consolidated financial statements or notes
thereto.
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of
Trigen Energy Corporation:
We have audited the accompanying consolidated balance sheet of Trigen
Energy Corporation and subsidiaries as of December 31, 1998, and the related
consolidated statement of operations, cash flows and stockholders' equity for
the year then ended. These consolidated financial statements and financial
statement schedules are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements and financial statement schedules based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. 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 consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Trigen
Energy Corporation and subsidiaries as of December 31, 1998, and the results of
its operations and its cash flows for the year then ended, in conformity with
generally accepted accounting principles.
Our audit was made for the purpose of forming an opinion on the basic
financial statements taken as whole. The schedules listed in the accompanying
index are presented for purposes of complying with the Securities and Exchange
Commission's rules and are not a required part of the basic financial
statements. These schedules, as of December 31, 1998 and for the year then
ended, have been subjected to the auditing procedures applied in the audit of
the basic financial statements and, in our opinion, fairly state, in all
material respects the financial data required to be set forth therein in
relation to the basic financial statements taken as a whole.
ARTHUR ANDERSEN LLP
Stamford, Connecticut
February 8, 1999
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Trigen Energy Corporation:
We have audited the accompanying consolidated balance sheet of Trigen
Energy Corporation and subsidiaries as of December 31, 1997, and the related
consolidated statement of operations, stockholders' equity and cash flows for
each of the years in the two-year period ended December 31, 1997. In connection
with our audits of the consolidated financial statements, we also have audited
the information in the financial statement schedules as listed in the
accompanying index as of December 31, 1997 and for each of the years in the two-
year period ended December 31, 1997. These consolidated financial statements
and financial statement schedules are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements and financial statement schedules based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. 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 audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Trigen
Energy Corporation and subsidiaries as of December 31, 1997, and the results of
their operations and their cash flows for each of the years in the two-year
period ended December 31, 1997, in conformity with generally accepted accounting
principles. Also in our opinion, the related financial statement schedules, as
of and for the periods described above, when considered in relation to the basic
consolidated financial statements taken as a whole, present fairly, in all
material respects, the information set forth therein.
KPMG LLP
February 3, 1998
Stamford, Connecticut
TRIGEN ENERGY CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
As of December 31, 1998 and 1997
(In thousands, except share data)
1998 1997
---- --
--
ASSETS
Current assets:
Cash and cash equivalents $ 10,074 $ 8,967
Accounts receivable
Trade (less allowance for doubtful accounts of
$1,187 in 1998 and $1,074 in 1997) 35,236 34,866
Other 5,686 10,815
-------- ------
Total accounts receivable 40,922 45,681
Inventories 7,074 7,054
Prepaid expenses and other current assets 8,016 7,985
-------- ------
Total current assets 66,086 69,687
Restricted cash and cash equivalents 4,623 4,726
Property, plant and equipment, net 442,755 388,448
Investment in non-consolidated partnerships 30,319 19,560
Intangible assets, net 49,968 21,454
Deferred costs and other assets, net 24,405 22,094
-------- ------
Total assets $618,156 $525,969
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Short-term debt $ 15,000 $14,200
Current portion of long-term debt 16,398 14,499
Accounts payable 4,756 10,053
Accrued income taxes 5,728 3,933
Accrued fuel 14,121 11,545
Accrued expenses and other current liabilities 19,626 17,552
-------- ------
Total current liabilities 75,629 71,782
Long-term debt 343,685 256,361
Other liabilities 4,254 4,786
Deferred income taxes 39,422 31,237
-------- ------
Total liabilities 462,990 364,166
Minority interests in subsidiaries 7,238 16,321
Stockholders' equity:
Preferred stock-$.01 par value, authorized
and unissued 15,000,000 shares - -
Common stock-$.01 par value, authorized 60,000,000
shares, issued and outstanding 12,417,934
shares in 1998 and 12,070,162 shares in 1997 124 121
Additional paid-in capital 120,595 114,157
Retained earnings 36,417 31,881
Unearned compensation - restricted stock (4,967) -
Cumulative translation adjustment (2,002) 296
Treasury stock, at cost, 145,842 shares in 1998
and 45,500 shares in 1997 (2,239) (973)
--------- -------
Total stockholders' equity 147,928 145,482
--------- -------
Total liabilities and stockholders' equity $618,156 $525,969
--------- --------
See accompanying notes to consolidated financial statements.
TRIGEN ENERGY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Years Ended December 31, 1998, 1997 and 1996
(In thousands, except per share data)
1998 1997 1996
---- ---- ----
Revenues
Thermal energy $182,432 $179,527 $187,740
Electric energy 42,667 48,997 44,663
Equity in earnings/(losses) of non-
consolidated partnerships 4,475 (1,401) 322
Fees earned and other revenues 12,820 13,528 10,909
-------- -------- --------
Total revenues 242,394 240,651 243,634
Operating expenses
Fuel and consumables 95,957 114,168 118,304
Production and operating costs 53,840 47,086 43,959
Depreciation 19,780 16,021 7,595
General and administrative 40,994 34,633 30,638
-------- -------- --------
Total operating expenses 210,571 211,908 200,496
-------- --------- --------
Operating income 31,823 28,743 43,138
Other income (expense)
Interest expense (23,742) (18,976) (18,840)
Other income, net 5,570 2,448 1,603
-------- --------- --------
Earnings before minority interests, income
taxes and extraordinary item 13,651 12,215 25,901
Minority interests in earnings of subsidiaries.. (2,519) (3,699) (2,598)
-------- --------- --------
Earnings before income taxes and extraordinary item 11,132 8,516 23,303
Income taxes 4,575 3,491 9,252
-------- --------- --------
Earnings before extraordinary item 6,557 5,025 14,051
Extraordinary loss from extinguishment of debt,
net of income tax benefit (299) - (1,943)
-------- --------- --------
Net earnings $ 6,258 $ 5,025 $ 12,108
-------- --------- --------
Basic earnings per common share
Before extraordinary item $ .55 $ .42 $ 1.21
Extraordinary loss (.03) - (.17)
-------- -------- --------
Net earnings $ .52 $ .42 $ 1.04
-------- --------- --------
Diluted earnings per common share
Before extraordinary item $ .55 $ .41 $ 1.20
Extraordinary loss (.03) - (.17)
-------- --------- ---------
Net earnings $ .52 $ .41 $ 1.03
-------- --------- --------
Average common shares outstanding 12,007 12,011 11,612
-------- --------- --------
Average common and common equivalent shares
outstanding 12,009 12,130 11,694
-------- --------- --------
Dividends per common share $ .14 $ .14 $ .14
-------- --------- --------
See accompanying notes to consolidated financial statements.
TRIGEN ENERGY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years Ended December 31, 1998, 1997 and 1996
(In thousands)
1998 1997 1996
---- ---- ----
Cash flows from operating activities
Net earnings $6,258 $5,025 $12,108
Reconciliation of net earnings to cash
provided by operating activities
Extraordinary item 299 - 1,943
Depreciation and amortization 25,224 19,504 10,333
Deferred income taxes 1,824 863 4,871
Provision for doubtful accounts 317 331 664
Gain on sale of marketable securities - ( 612) -
Minority interests in subsidiaries 2,519 3,699 2,598
Changes in assets and liabilities, net of
effects of acquisitions
Accounts receivable 4,447 ( 7,097) (984)
Inventories and other current assets 1,451 (422) (1,613)
Accounts payable and other current liabilities ( 1,285) 1,866 1,848
Noncurrent assets and liabilities ( 4,659) 173 (4,149)
-------- -------- --------
Net cash provided by operating activities 36,395 23,330 27,619
-------- -------- --------
Cash flows from investing activities
Acquisition of energy facilities (67,901) - -
Capital expenditures (42,910) (39,415) (47,641)
Purchase of a fuel management agreement and
related inventory - ( 8,871) -
Proceeds on sale of property, plant and equipment 737 3,000 -
Investment in non-consolidated partnerships (6,417) (12,294) (1,911)
Purchase of marketable securities - ( 4,139) -
Sale of marketable securities - 4,751 -
Proceeds of condemnation award, net - - 6,821
-------- -------- --------
Net cash used in investing activities (116,491) (56,968) (42,731)
--------- -------- --------
Cash flows from financing activities
Short-term debt, net 800 ( 4,300) 4,335
Proceeds from long-term debt 122,510 77,253 42,384
Payments of long-term debt (37,576) (46,379) (28,934)
Sale of interest rate caps - - 1,003
Dividends paid ( 1,722) ( 1,682) ( 1,640)
Issuance of common stock, net ( 562) 1,309 5,949
Distribution to minority interests 2,350) (4,146) (2,884)
-------- -------- --------
Net cash provided by financing activities 81,100 22,055 20,213
-------- -------- --------
Cash and cash equivalents
Increase/(decrease) 1,004 (11,583) 5,101
At beginning of period 13,693 25,276 20,175
-------- -------- --------
At end of period $14,697 $13,693 $25,276
-------- -------- --------
Current $10,074 $ 8,967 $14,598
Noncurrent 4,623 4,726 10,678
-------- -------- --------
At end of period $14,697 $13,693 $25,276
-------- -------- --------
Supplemental disclosure of cash flow information
Non-cash investing activity
Acquisition of subsidiary - - $ 1,037
------- ------- --------
Non-cash financing activity
Issuance of common stock for acquisition of
subsidiary - - $ 1,037
------- ------- --------
Issuance of common stock for extinguishment
of long-term debt - - $ 4,250
------- ------- --------
See accompanying notes to consolidated financial statements.
TRIGEN ENERGY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
For the Years Ended December 31, 1998, 1997 and 1996
(In thousands, except share data)
Additional
Common Stock Paid-In Retained
Shares Amount Capital Earnings
Balance, December 31, 1995 11,416,418 $114 $100,788 $18,070
Issuance of common stock 594,179 6 12,048 -
Repurchase of common stock - - - -
Dividends - - - (1,640)
Comprehensive income:
Net earnings - - - 12,108
Cumulative translation adj. - - - -
Total comprehensive income - - - -
---------- ----- ------- -----
- ---
Balance, December 31, 1996 12,010,597 120 112,836 28,538
Issuance of common stock 59,565 1 1,321 -
Repurchase of common stock - - - -
Dividends - - - ( 1,682)
Comprehensive income:
Net earnings - - - 5,025
Cumulative translation adj. - - -
- -Total comprehensive income - - - -
---------- ------ -------- ------
Balance, December 31, 1997 12,070,162 121 114,157 31,881
Issuance of common stock 347,772 3 6,409 -
Repurchase of common stock - - - -
Dividends - - 29 ( 1,722)
Amortization of unearned
compensation - - - -
Comprehensive income:
Net earnings - - - 6,258
Cumulative translation adj. - - - -
Total comprehensive income - - - -
---------- ---- -------- -----
- --
Balance, December 31, 1998 12,417,934 $124 $120,595 $36,417
========== ==== ======== =======
Unearned
Compensation Cumulative
-Restricted Translation Treasury Stock
Stock Adjustment Shares Amount Total
------------ ---------- -------- ----- -----
Balance, December 31, 1995 $ - $ - 7,268 $(142) $118,830
Issuance of common stock - - - - 12,054
Repurchase of common stock - - 38,872 (818) (818)
Dividends - - - - (1,640)
Comprehensive income:
Net earnings - - - -
Cumulative translation adj. - 136 - - -
Total comprehensive income - - - - 12,244
----------- ----------- ----- -------------
Balance, December 31, 1996 - 136 46,140 (960) 140,670
Issuance of common stock - - (30,640) 637 1,959
Repurchase of common stock - - 30,000 (650) (650)
Dividends - - - - (1,682)
Comprehensive income:
Net earnings - - - - -
Cumulative translation adj. - 160 - - -
Total comprehensive income - - - - 5,185
------- ------- ------ ----- -----
Balance, December 31, 1997 - 296 45,500 (973) 145,482
Issuance of common stock (5,707) - (29,647) 476 1,181
Repurchase of common stock - - 129,989 (1,742)(1,742)
Dividends (29) - - - (1,722)
Amortization of unearned
compensation 769 - - - 769
Comprehensive income:
Net earnings - - - -
Cumulative translation adj. - (2,298) - -
Total comprehensive income - - - - 3,960
-------- --------- --------- ------- -----
- ---
Balance, December 31, 1998 $(4,967) $(2,002) 145,842 $(2,239) $147,928
======= ======= ======= ======== =========
See accompanying notes to consolidated financial statements.
TRIGEN ENERGY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Organization
Trigen Energy Corporation (the "Parent Company", and together with its
subsidiaries, the "Company") develops, owns and operates commercial and
industrial energy systems in the United States and Canada. The Company uses its
expertise in thermal engineering and proprietary cogeneration processes to
convert fuel to various forms of thermal energy and electricity. The Company
combines heat and power generation, producing electricity as a by-product, for
use in its facilities and for sale to customers. At December 31, 1998, the
Company operated 41 plants at 27 locations.
Suez Lyonnaise Des Eaux, a French corporation, through its energy services
affiliate Elyo, a French corporation, owns 52.8% of the Company's common stock.
Elyo and the Company have entered into a licensing agreement to provide
technical assistance to the Company to construct, operate and maintain community
energy systems within North America, as well as the right to use patents and
licenses of Elyo in connection with the generation and distribution of
electricity, chilled water and waste incineration.
The Company has established joint ventures with electric utilities to
develop and operate combined heat and power plants. The Company's equity share
in the operating results of these joint ventures is reported in equity in
earnings/(losses) of non-consolidated partnerships in the Consolidated
Statements of Operations.
A significant portion of the Company's revenues and operating profit are
subject to seasonal fluctuation due to peak heating demand in the winter and
peak cooling demand in the summer.
2. Summary of Accounting Policies
Recent Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities" ("SFAS 133"). SFAS No. 133 establishes
accounting and reporting standards for derivative instruments, including certain
derivative instruments embedded in other contracts, and for hedging activities.
Based on preliminary analyses, the Company does not expect the future adoption
of SFAS No. 133 will have a material effect on results of operations and
financial condition.
In April 1998, the American Institute of Certified Public Accountants
issued Statement of Position 98-5, "Reporting on the Costs of Start-Up
Activities" ("SOP 98-5"). SOP 98-5 requires costs of start-up activities and
organizational costs to be expensed as incurred. SOP 98-5 is effective for
financial statements for fiscal years beginning after December 15, 1998. The
Company will adopt SOP 98-5 effective January 1, 1999. The effect of the
adoption will be an after-tax charge of $5.3 million which will be reported as a
cumulative effect of a change in accounting principle in the first quarter 1999
Consolidated Statements of Operations.
In January 1998, the Company adopted SFAS No. 130 "Reporting Comprehensive
Income." The statement establishes standards for reporting and display of
comprehensive income and its components in a full set of general purpose
financial statements.
In December 1997, the Company adopted SFAS No. 128, "Earnings Per Share,"
which requires dual presentation of basic and diluted earnings per common share
in the Consolidated Statements of Operations and a reconciliation of earnings
and shares between the basic and diluted computations.
Long term assets are reviewed for impairment following the provisions of
SFAS No. 121 "Accounting for the Impairment of Long-Lived Assets and for Long-
Lived Assets to be Disposed Of."
Principles of Consolidation
The consolidated financial statements include the accounts of the Parent
Company and all wholly-and majority-owned subsidiaries. Intercompany accounts
and transactions are eliminated.
Certain reclassifications have been made to the prior years' financial
statements to conform to the 1998 presentation.
Use of Estimates
The preparation of financial statements in accordance with generally
accepted accounting principles 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 date of the financial
statements, and the reported amounts of revenue and expenses during the
reporting period. Actual results could differ from those estimates.
Revenue Recognition
Revenue for energy sold includes both fixed charges and amounts based on
energy delivered. Contract rates are either directly negotiated with the
customer or approved by the applicable regulatory authority. Sales not billed by
month-end are accrued based upon estimated usage. Fees earned are recognized as
services are performed.
There are two customers whose revenues were more than 10% of total Company
revenues. Revenues for one customer were 12%, 13% and 12% of total Company
revenues in 1998, 1997 and 1996, respectively. The other customer accounted for
11%, 13% and 12% of total revenues in 1998, 1997 and 1996, respectively. These
two customers accounted for 21% of the total trade receivable balance at
December 31, 1998.
Cash and Cash Equivalents
Cash and cash equivalents include demand deposits and temporary investments
in high-grade instruments with original maturities at date of purchase of three
months or less.
Fuel Expense and Deferred Fuel
Certain of the Company's subsidiaries, either as a result of regulation or
contractual agreements with their customers, are allowed to recover all or
substantially all of their fuel costs, which is the Company's largest expense.
Certain of these subsidiaries estimate the future cost of fuel in current
contract rates. Differences between the estimated fuel costs and actual fuel
costs are deferred and subsequently charged to or rebated to the customer
through future rate adjustments.
Inventories
Inventories are comprised principally of fuel, operating supplies and spare
parts. Fuel inventories are stated at cost determined on a first-in, first-out
basis and materials and supplies and spare parts are stated at average cost. The
portion of spare parts inventories not expected to be used within one year is
classified as non-current.
Property, Plant and Equipment
Property, plant and equipment are recorded at cost. Depreciation is
computed by the straight-line method over the estimated useful lives commencing
when assets, or major components thereof, are placed in service. Renewals or
betterments are capitalized, while maintenance and repair costs are expensed.
Deferred Cost and Other Assets
Included in deferred costs and other assets are capitalized costs
associated with debt financing, development projects and other non-current
assets. Financing costs are capitalized and amortized over the debt term using
methods that approximate the interest method. Costs incurred in developing
energy generation facilities after the execution of binding contracts are
accumulated by project and included in the acquisition cost or as construction
in process for that project.
Intangible Assets
Included in intangible assets are costs in excess of the net assets of
acquired companies, non-compete agreements with former majority owners of
acquired companies, a fuel management contract and organization costs. The costs
in excess of the net assets of acquired companies is being amortized over
periods not exceeding 32 years. The non-compete and fuel management agreements
are being amortized over the terms of the agreements, 15 and 19 years,
respectively. The Company continuously assesses the recoverability of these
intangible assets by evaluating whether the amortization of the intangible
assets over the remaining lives can be recovered through expected future
results. Expected future results are based on projected undiscounted operating
results before the effects of intangible amortization. The amount of impairment,
if any, is measured based on projected discounted future results, using a
discount rate reflecting the Company's average cost of funds.
Foreign Currency Translation
Income and expenses of Canadian subsidiaries are translated to U. S.
dollars at rates in effect during the year, and assets and liabilities at year-
end rates. Translation adjustments are included in stockholders' equity in the
Consolidated Balance Sheet. Foreign currency transaction gains and losses are
included in net earnings.
Financial Instruments
The Company uses financial instruments to limit the financial risk of
increases in interest rates on its floating rate debt. The differential to be
paid or received under financial instruments is accrued and recognized in
interest expense as interest rates change.
Income Taxes
The Company uses the asset and liability method of accounting for income
taxes following the provisions of Statement of Financial Accounting Standards
No. 109 "Accounting for Income Taxes." Under this method, deferred tax assets
and liabilities are recognized for the future tax consequences attributable to
differences between the financial statement carrying amounts of existing assets
and liabilities, and their respective tax bases. Deferred income tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be
recovered or settled.
Environmental Expenditures
Expenditures that relate to an existing condition, which do not contribute
to current or future revenue generation and expenditures incurred for
environmental compliance with respect to pollution prevention and ongoing
monitoring programs, are expensed as incurred. Expenditures that increase the
value of the property are capitalized.
Earnings Per Common Share
Following is a reconciliation of basic earnings per common share to diluted
earnings per common share for the two years ended December 31, 1998 (in
thousands, except per share data).
1998 1997
---- ----
Basic Diluted Basic Diluted
----- ------- ----- -------
Earnings before extraordinary item $6,557 $6,557 $5,025 $5,025
------ ------ ------ ------
Average equivalent shares
Common shares outstanding 12,007 12,007 12,011 12,011
Stock options - 2 - 119
-------- -------- -------- -------
Average equivalent shares 12,007 12,009 12,011 12,130
Earnings per common share $ .55 $ .55 $ .42 $ .41
====== ====== ====== ======
Certain stock options are not considered in the above computations due to
the fact that they would be anti-dilutive.
3. Supplementary Income Information
Included in other income, net for the year ended December 31, 1998, were
pre-tax gains of $2,102,000 from the sale of nitrogen oxide emission allowances
and $1,678,000 from an insurance settlement.
4. Extraordinary Item
The Company incurred extraordinary charges of $299,000, net of a tax
benefit of $161,000,in 1998 and $1,943,000, net of a $1,046,000 tax benefit, in
1996 in connection with the early retirement of debt.
5. Acquisitions
On January 22, 1998, the Company acquired all of the capital stock of Power
Sources, Inc. (renamed Trigen-BioPower, Inc.), a biomass-to-energy power plant
developer and operator, for a total cash investment of $44,100,000, funded from
the Company's existing credit facility. Trigen-BioPower had revenues of
$18,967,000 and net earnings of $2,441,000 for the twelve-month period ended
December 31, 1997. Results for Trigen-BioPower are included with those of the
Company since the date of acquisition.
The acquisition was accounted for under the purchase method of accounting.
The purchase price has been allocated to the assets acquired and liabilities
assumed based on fair market value at the date of acquisition. The excess of
the purchase price over the net assets was $10,398,000 and is being amortized
over a period of 30 years. The fair value of the assets acquired and
liabilities assumed is as follows (in thousands):
Current assets $ 3,325
Property, plant equipment 32,265
Intangibles 11,687
Costs in excess of net assets acquired 10,398
Current liabilities ( 2,147)
Long-term debt ( 4,290)
Other liabilities ( 7,138)
--------
Total purchase price $44,100
=======
The following unaudited pro forma summary presents the consolidated results
of operations for the year ended December 31, 1998 and the year ended December
31, 1997 as if the acquisition had occurred at the beginning of the years
presented (in thousands, except per share data):
1998 1997
---- ----
Revenues $243,531 $259,618
Earnings before extraordinary item 6,627 5,325
Diluted earnings per common share -
Before extraordinary item $ .55 $ .44
The pro forma results included certain adjustments for depreciation expense
as a result of a step up in the basis of property, plant and equipment and an
increase in the remaining useful lives, amortization expense as a result of
goodwill and other intangible assets and interest expense on borrowings to
finance the acquisition. The pro forma results do not purport to be indicative
of the results of operations which actually would have resulted had the
acquisition been made at the beginning of the years presented, or of results
which may occur in the future.
On September 23, 1998, the Company purchased for $21,250,000 an additional
48% interest in the Trigen-Nations Energy Company Limited Partnership from
Nations Energy Corporation. This limited partnership owns the energy production
assets in service to Coors Brewing Company in Golden, Colorado. The excess of
purchase price over the net assets purchased was $9,547,000 and is being
amortized over a period not exceeding 32 years. This purchase increases the
Company's investment in Trigen-Nations Energy Company from 51% to 99%.
6. Restricted Funds
Under the terms of the Company's debt agreements, a portion of the cash of the
operating subsidiaries is restricted in use, first to paying the operating costs
of the respective subsidiary, then its debt service obligations, in the priority
stipulated in the respective debt agreements. Restricted funds at December 31,
1998 and 1997 were (in thousands):
1998 1997
---- ----
Current Non-Current Current Non-Current
------- ----------- ------- -----------
Restricted $ 8,699 $4,623 $5,006 $ 4,726
Unrestricted 1,375 - 3,961 -
-------- ---------- ------- -------
Cash and cash equivalents $ 10,074 $4,623 $8,967 $ 4,726
======= ======= ====== =======
Under the terms of the debt agreements, payments from subsidiaries to
affiliated companies, including the Parent Company, are permitted, provided no
default exists or would be created by the payment and either (a) the payment is
to reimburse the Parent Company for management costs as permitted by the
respective debt agreement or (b) the subsidiary meets financial tests, which may
include debt coverage, working capital or equity tests, as specified in the
respective agreement.
7. Inventories
Inventories at December 31, 1998 and 1997 were (in thousands):
1998 1997
------ ------
Fuel $2,200 $2,055
Operating supplies and spare parts 4,874 4,999
------- ------
Total $7,074 $7,054
====== ======
At December 31, 1998, the Company had purchase commitments for fuel at
prices discounted from the spot market and at fixed prices. The aggregate
commitment under these contracts is estimated to be $14.0 million based on
current spot prices. These contracts expire at varying dates from August 1999
through September 2000.
The Company has fuel cost pass-through clauses in its rates with customers
for all of these commitments.
8. Property, Plant and Equipment
Property, plant and equipment at December 31, 1998 and 1997 was (in
thousands):
Estimated Useful
Lives (Years) 1998 1997
---- ----
Land - $ 10,418 $ 10,418
Plant, machinery and equipment 15-35 454,854 392,643
Buildings 40 41,556 34,607
Furniture, fixtures and leasehold
improvements 3-5 9,225 7,611
Construction in process - 22,147 20,421
--------- ---------
538,200 465,700
Less: Accumulated depreciation (95,445) (77,252)
--------- --------
$442,755 $388,448
========= ========
Substantially all of the Company's assets are pledged as collateral under
the Company's debt agreements (Note 12).
9. Intangible Assets
Intangible assets at December 31, 1998 and 1997 were (in thousands):
1998 1997
---- ----
Costs in excess of net assets acquired $25,545 $ 5,599
Non-compete agreements 21,667 10,000
Fuel management agreement 8,500 8,500
Organization costs 3,333 3,496
------- --------
59,045 27,595
Less: Accumulated amortization (9,077) (6,141)
------- --------
$49,968 $21,454
======= ========
Amortization expense for the years ended December 31, 1998, 1997 and 1996
was $2,936,000, $1,651,000, and $1,415,000, respectively.
10. Deferred Costs and Other Assets
Deferred costs and other assets at December 31, 1998 and 1997 were (in
thousands):
1998 1997
------- -------
Deferred financing costs $17,890 $18,066
Less: Accumulated amortization (9,434) (7,928)
------- -------
8,456 10,138
Project development costs 6,443 1,855
Non-current receivables 4,619 3,480
Non-current inventories 2,162 2,038
Other 2,725 4,583
------- -------
$24,405 $22,094
======= =======
Amortization expense for the years ended December 31, 1998, 1997 and 1996
was $1,605,000, $1,830,000 and $1,323,000, respectively.
11. Short-term Debt
United Thermal Corporation, a wholly-owned subsidiary of the Parent
Company, together with its affiliated companies ("UTC") have a $15 million
revolving credit facility available (the "UTC Revolver") through June 30, 1999,
and, upon approval of the lender, for additional one year periods thereafter.
The UTC Revolver is secured pro rata with the UTC Term Loan (Note 12). UTC is
required to have 60 consecutive days each year with no outstanding borrowings
under the UTC Revolver. UTC has several interest rate options under the UTC
Revolver including LIBOR. The balances outstanding under this facility at
December 31, 1998 and 1997 were $15 million and $14.2 million, respectively, and
the average rates on these borrowings were 6.5% in 1998 and 6.6% in 1997. The
effective rate at December 31, 1998 was 6.3%.
12. Long-term Debt
Long-term debt outstanding at December 31, 1998 and 1997 was (in
thousands):
1998 1997
---- ----
1997 credit facility (a) $128,000 $74,500
UTC term loan (b) 50,441 58,441
Nassau term loan (c) 41,664 44,939
Nassau bonds (c) 14,350 14,350
Trenton bonds (d) 34,625 35,995
Oklahoma term loan (e) 16,311 17,579
Oklahoma bonds (e) 4,920 4,920
Trigen Energy Canada term loan (f) 18,272 20,136
Trigen-BioPower credit facility (g) 1,500 -
Subordinated debt (h) 50,000 -
-------- -------
360,083 270,860
Less: Current portion included above (16,398) (14,499)
-------- -------
$343,685 $256,361
========= ========
(a) On April 4, 1997, the Company entered into a $160.0 million revolving
credit agreement with several banks. This facility was used to repay
indebtedness outstanding under a $62.5 million credit facility entered into in
1995. The $160.0 million facility is for an initial period of three years and
may be extended by a total of two one-year periods. Borrowings under the
facility bear interest, at the Company's option, at an annual rate equal to the
base rate or the LIBOR rate plus 3/4%. The base rate is the higher of the prime
lending rate or the Federal Reserve reported Federal funds rate plus 1/2%.On
June 10, 1997, the Company amended the $160.0 million credit agreement by reduc-
ing the facility to $125.0 million and entered into a $35.0 million revolving
credit facility with the same group of banks. The new facility is for an initial
364-day period and may be extended annually at the option of the banks. The
terms and conditions of both facilities are the same. On September 23, 1998,
the $125.0 million three year facility was increased by $35.75 million and the
initial period was increased by one year. The base rate is the higher of the
prime lending rate or the Federal Reserve reported Federal funds rate. The
average effective rate on the facility was 6.2% in 1998 and the rate at December
31, 1998 was 6.3%.
(b) The UTC term loan and the UTC Revolver (Note 11) (together the "UTC Debt")
are secured by all the assets and revenues of UTC. The Parent Company has
guaranteed the UTC Debt in an amount which is limited, except for liabilities of
UTC arising from environmental matters, to the lesser of $31.7 million and one-
third of the UTC Debt commitments.
Interest on the UTC term loan is at variable rates based on LIBOR. The average
effective rate was 7.8% in 1998, 7.3% in 1997 and 7.6% in 1996. The rate at
December 31, 1998 was 7.2%. UTC has purchased interest rate protection
agreements (Note 13). Principal repayments commenced in June 1994, with final
maturity in September 2004.
(c) Interest on the Nassau term loan is at variable rates based on LIBOR. The
average effective rate was 6.8% in 1998, 6.7% in 1997 and 6.8% in 1996. At
December 31, 1998, the effective rate was 6.5%. Principal repayments commenced
in June 1992, with final maturity in December 2003.
The Nassau bonds were issued by the Town of Hempstead Industrial Development
Authority. In February 1998, the Nassau bonds were refinanced as variable rate
demand tax-exempt industrial development bonds. A bank has issued a letter of
credit in favor of the bondholders in the event of default. Interest is
variable, and the average effective rate was 3.78% in 1998.
The Nassau term loan and the Nassau bonds are without recourse to the Parent
Company. All the assets and revenues of Trigen-Nassau Energy Corporation
("Trigen-Nassau"), a wholly owned subsidiary of the Parent Company are pledged
to secure the term loan and bonds. Upon certain events, Trigen-Nassau will be
required to enter into interest rate protection agreements the effect of which
is to fix the rate on 50% of the aggregate outstanding principal amounts of the
term loan and bonds for a minimum of five years.
(d) The Trenton bonds were issued by the New Jersey Economic Development
Authority, and are payable solely from revenues and other funds pledged by
Trigen-Trenton Energy Company, L.P. a majority-owned subsidiary of the Parent
Company. The bonds require annual sinking fund payments that began December 1993
with final maturity in December 2010. The interest rates were fixed to maturity
at 6.1%-6.2% on $34.6 million of the bonds (the tax-exempt portion).
(e) Interest on the Oklahoma term loan is at variable rates based on LIBOR. The
average effective rate was 7.0% in 1998, 7.1% in 1997 and 6.9% in 1996. The
rate at December 31, 1998, was 6.5%. Principal repayments commenced in December
1994, with final maturity in September 2007.
The Oklahoma bonds were issued by the Oklahoma City Industrial and Cultural
Facilities Trust. Interest is 6.75% per year. Principal payments are due from
2008 through 2017. A bank has issued a letter of credit in favor of the
bondholders in the event of default.
The Oklahoma term loan and the Oklahoma bonds are without recourse to the Parent
Company. All the assets of Trigen-Oklahoma Energy Corporation ("Trigen-
Oklahoma"), a wholly owned subsidiary of the Parent Company, are pledged to
secure the term loan and bonds. Upon certain events, Trigen-Oklahoma will be
required to enter into interest rate protection agreements the effect of which
is to fix the rate on 75% of the aggregate outstanding principal amounts of the
term loan and bonds for an average life of seven years.
(f) Interest on the term loan for Trigen Energy Canada Inc., a wholly owned
subsidiary of the Parent Company, ("Trigen-Canada") was at variable rates during
1998 based on Canadian bankers' acceptances. The average effective rate was
5.39% in 1998, 4.6% in 1997 and 4.7% in 1996. At December 31, 1997, Trigen-
Canada entered into an interest rate swap agreement fixing the rate on the
outstanding principal amount (Note 13). The rate at December 31, 1998 was 5.3%.
The term loan is secured by the assets of Trigen-Canada, with limited recourse
to the Parent Company in the event of any shortfall in debt service payments by
Trigen-Canada.
(g) The Trigen-BioPower ("BioPower") secured revolving credit facility is
without recourse to the Parent Company. All the assets of BioPower, a wholly
owned subsidiary of the Parent Company are pledged to secure the loan. The
facility requires BioPower to meet certain financial tests and contains
restrictions.
(h) On December 30, 1998, the Company borrowed from an affiliate, Cofreth
American Corporation, $50.0 million for acquisitions and project development.
The $50.0 million was initially used to partially pay down the Corporate
facility. The $50.0 million is subordinate and junior in right of payment to
all other debt. The subordinated debt may be redeemed in whole or in part at
the option of Cofreth American Corporation with the net proceeds of an equity
sale by the Company. The debt matures on December 31, 2010 and the interest
rate is 7.38%.
The Company's debt agreements limit or restrict cash payments, the payment of
dividends, capital expenditures, incurrence of new debt and transactions with
affiliates. At December 31, 1998, the Company was in compliance with all
covenants contained in its debt agreements (See Note 21 for default information
related to Grays Ferry Cogeneration Partnership).
Maturities of long-term debt for the next five years are as follows (in
thousands):
1999 $16,399
2000 17,307
2001 18,449
2002 20,002
2003 165,706
Based upon the debt balances at December 31, 1998, a change in the LIBOR rate of
.25% would have a corresponding change in interest expense of approximately
$605,000 per year when three-month LIBOR is under 6.0% ranging to approximately
$539,000 per year when three-month LIBOR is over 7.5%. Three-month LIBOR at
December 31, 1998 was 5.08%.
Cash paid for interest was $21.0 million, $17.3 million and $17.5 million
in 1998, 1997 and 1996, respectively.
13. Financial Instruments
The estimated fair value of long term debt approximates carrying value at
December 31, 1998. The fair value of receivables, payables and short-term debt
approximates carrying value at December 31, 1998 due to the short-term maturity
of these instruments.
As of December 31, 1998, the Company had outstanding interest rate swap,
cap and collar agreements related to $43.5 million of debt outstanding, with an
average fixed interest rate of 5.8% and an average remaining life of 6 years.
The fair value of the swap, cap and collar agreements was a payable of $183,000.
In addition to the letters of credit issued with respect to the Nassau and
Oklahoma bonds (Note 12), the Company had outstanding a contingent liability for
letters of credit of $5.8 million at December 31, 1998.
14. Leases
The Company has entered into various leasing arrangements for office space,
land and equipment. These arrangements are accounted for as operating leases.
Future minimum rental payments under operating leases with remaining non-
cancelable terms in excess of one year at December 31, 1998 are (in thousands):
1999 $ 3,232
2000 3,319
2001 2,905
2002 2,533
2003 2,425
Thereafter 18,059
Total minimum payments $32,473
Excluded from the above future minimum rental payments are two operating
leases, one for a term of 25 years and the other for 99 years. The 25-year lease
is for land, facilities and equipment and the 99-year lease is for land. The
current annual rental payments for these leases are $912,000 and the total
remaining commitments at December 31, 1998 are estimated to be $28.4 million.
Rental expense was $4,201,000 in 1998, $3,653,000 in 1997 and $2,932,000 in
1996.
15. Stock Options
The Company's stock incentive plan provides for the granting of stock
options, stock appreciation rights, performance shares, restricted stock and
other stock awards to officers and key employees and stock options to non-
employee directors. In 1997, shareholders approved an increase in the number of
shares of common stock that may be issued under the stock incentive plan to
2,000,000 shares.
Stock options outstanding under the stock incentive plan were granted at a
price equal to 100% of the market price on the date of grant. Stock options
granted to non-employee directors are exercisable six months from the date of
grant, and are exercisable until the earlier of the tenth anniversary of the
date of grant, or the first anniversary of leaving the Board of Directors. Stock
options granted to employees vest at the rate of 20% per year, starting on the
first anniversary of the grant date and are exercisable over a period of ten
years from the date of grant, with the exception of grants of stock options in
1995 for 18,800 shares, which vested immediately.
During 1998, the Company reviewed the stock option program and approved an
option exchange program covering 291,100 outstanding stock options which were
granted under the 1997 stock-based compensation program with stock exercise
prices greater than $14.00 per share. This exchange program provided that all
eligible management had the right to exchange existing options with strike
prices greater than $14.00 for new options with a strike price of $14.00.
Information relating to stock options granted during 1998, 1997 and 1996 is
summarized as follows:
Number of Average
Shares Exercise Price
--------- --------------
Outstanding December 31, 1995 567,300 $16.54
Granted 67,200 20.05
Exercised (38,500) 16.05
Canceled (31,940) 16.95
---------
Balance December 31, 1996 564,060 17.05
Granted 371,500 21.37
Exercised (24,740) 17.08
Canceled (43,290) 18.34
--------
Balance December 31, 1997 867,530 18.83
Granted 38,100 13.84
Exercised (730) 15.75
Canceled (95,990) 19.05
--------
Balance December 31, 1998 808,910 18.57
-------
The following summarizes information about stock options outstanding at December
31, 1998.
Outstanding Exercisable
---------------- ------------
Range of Average Average Average
Exercise Prices Options Life (a) Exercise Price Options Exercise Price
- --------------- ------- ------- -------------- ------- --------------
$11.88 - $19.75 735,210 8.1 $16.40 370,788 $15.79
20.00 - 24.00 54,200 7.4 21.55 39,380 21.46
24.25 - 27.75 19,500 8.4 25.43 7,400 26.11
------- --- ------ ------- -----
Total 808,910 8.0 $18.89 417,568 $16.50
------- --- ------ ------- ------
_________
(a) Average contractual life remaining in years.
The Company applies APB 25 in accounting for its stock option plan.
Accordingly, compensation expense would be recorded on the date of grant only if
the current market price of the Company's common stock exceeded the exercise
price. Had compensation expense for the stock option plan been determined based
on the fair value at the grant dates for awards under the plan consistent with
FAS No. 123, net earnings would have decreased by $557,102 ($.05 per common
share) and $341,000 ($.03 per common share) in 1998 and 1997, respectively.
The fair value of each option was estimated on the date of grant using the
Black Scholes option-pricing model with the following assumptions: risk free
interest rates of 5.3% and 6.2% for 1998 and 1997, respectively; annual dividend
yields of 1.22% and .7% for 1998 and 1997, respectively; expected option life of
8 years for 1998 and 8.4 years for 1997; and volatility of 37% and 31% for 1998
and 1997, respectively. The weighted average fair value of an option granted
during 1998 and 1997 was $6.33 and $10.15 per share, respectively.
In connection with the employee stock purchase plan, the Company allocated
200,000 shares of common stock for purchases pursuant to such plan. Stock
purchased in 1998, 1997 and 1996 pursuant to the employee stock purchase plan
was 46,050, 32,028 and 28,325 shares, respectively. The acquisition price of the
stock is 85% of the lower of the closing market price on the first and last day
of the six-month purchase period.
Restricted Stock
The Company launched a long-term restricted stock-based compensation
program in 1997. The program's primary objective is to focus management on
increasing shareholder value. The program has two components: (a) stock
ownership goals; and (b) a restricted share award. The restricted shares, which
have a life cycle of eight years, will remain restricted until the Company
announces accumulated basic Earnings per Share over four consecutive fiscal
quarters of $2.08. This earnings target represents a doubling of the Company's
1996 Earnings per Share figure. In addition to the earnings target, the shares
are also restricted from vesting unless the participant achieves his/her
prescribed stock ownership levels. Each participant has been provided with a
stock ownership target. The stock ownership targets are stated as a percentage
of the participant's restricted share award and the percentages are progressive
based on the increase in role and responsibility.
During 1998, the Company granted 330,575 restricted shares to certain
employees. Deferred compensation based on the market price of the stock on the
date of the grants totaling $6,333,000 was recorded in 1998. 34,800 restricted
shares were canceled in 1998 due to employees leaving the Company, resulting in
a reduction in unearned compensation of $692,000. The Company is amortizing
this unearned compensation into earnings over a vesting period of eight years.
16. Retirement Plans
The Company sponsors a 401(k) Plan which allows participants to make
contributions pursuant to Section 401(k) of the Internal Revenue Code. The
Company matches employee contributions in varying percentages according to a
schedule up to an annual maximum Company contribution of approximately $1,290
per employee. Employees vest immediately in both employee and Company
contributions. Company contributions to the 401(k) Plan were $1,003,000
(including the cost of 21,576 shares of Company common stock), $1,099,000
(including the cost of 23,902 shares of Company common stock), and $1,375,000
(including the cost of 27,460 shares of Company common stock) in 1998, 1997 and
1996, respectively. Effective January 1, 1995, the 401(k) Plan was open to all
Company employees excluding certain employees covered by other retirement plans.
Benefits payable under a defined benefit plan were frozen as of December
31, 1994 pending vesting and distribution to participants. Benefits under the
plan are based primarily on salary during the term of employment and length of
service. Pension expense was $39,000, $316,000 and $122,000 in 1998, 1997 and
1996, respectively. The Company's net obligation under the plan at December 31,
1998 was not significant.
17. Income Taxes
The provision for income taxes was (in thousands):
1998 1997
---- ----
Current Deferred Total Current Deferred Total
------- -------- ----- ------- -------- -----
State/Local $1,147 $ 106 $1,253 $ 738 $ 45 $ 783
U.S. Federal
& foreign 1,604 1,718 3,322 1,890 818 2,708
------ ------ ------ ------ ----- ------
Total $2,751 $1,824 $4,575 $2,628 $863 $3,491
====== ====== ====== ====== ==== ======
1996
----
Current Deferred Total
------- -------- -----
State/Local $1,081 $ 492 $1,573
U.S. Federal
& foreign 3,300 4,379 7,679
------ ------ ------
Total $4,381 $4,871 $9,252
====== ====== ======
The tax effects of temporary differences that give rise to deferred tax
liabilities and assets at December 31, 1998 and 1997 are (in thousands):
1998 1997
---- ----
Deferred income tax liabilities
Property, plant and equipment $45,019 $35,193
------- -------
Deferred income tax assets
AMT credit carryforwards 4,779 3,744
Tax loss carryforwards 1,202 874
Environmental costs 832 832
Revenue and receivable allowances 23 1,502
Other, net 2,626 1,830
------- -------
Gross deferred income tax assets 9,462 8,782
Valuation allowances (443) (409)
------- -------
Net deferred income tax assets 9,019 8,373
------- -------
Net deferred income tax liability $36,000 $26,820
======= =======
Net current deferred income tax assets of $3,422,000 and $4,417,000 at
December 31, 1998 and 1997, respectively are included in prepaid expenses and
other current assets, net in the Consolidated Balance Sheet.
At December 31, 1998, a loss carryforward of $975,000 was available through
2009 to offset U.S. taxable income. In addition, at December 31, 1998, a loss
carryforward of $2,857,000 was available to offset Canadian taxable income
expiring $139,000 in 1999, $366,000 in 2000, $128,000 in 2001, $618,000 in 2003,
$857,000 in 2004 and $749,000 in 2005. At December 31, 1998, an alternative
minimum tax credit carryforward of $4,779,000 was available to offset future
U.S. regular income taxes, if any, over an indefinite period. Valuation
allowances were primarily for tax loss carryforwards in state, local and
Canadian jurisdictions that may expire before being used. Management believes
that it is more than likely that the Company will generate taxable income
sufficient to realize the loss carryforwards prior to their expiration. This
belief is based upon projected taxable income and available tax planning
strategies.
A reconciliation of tax at the U.S. statutory rate to income taxes follows:
1998 1997 1996
---- ---- ----
Tax at U.S. statutory rate 35.0% 35.0% 35.0%
State/local income taxes, net of
Federal benefit 7.6 6.2 5.7
Taxes related to foreign operations (1.1) (1.3) (.1)
(Increase)/decrease in valuation
allowances .3 1.6 (3.6)
Other items, net (.7) (.5) 2.7
----- ----- -----
Income taxes 41.1% 41.0% 39.7%
===== ===== =====
The Company made income tax payments of $2,164,000, $2,213,000 and
$2,267,000 in 1998, 1997 and 1996, respectively.
Taxes on receipts or capital, imposed by some jurisdictions in lieu of
taxes on income are included in general and administrative expenses. These taxes
were $666,000, $799,000 and $810,000 in 1998, 1997 and 1996, respectively.
18. Equity Investment in Grays Ferry Cogeneration Partnership
As of December 31, 1998, the Company has an investment of $17.1 million in
the Grays Ferry Cogeneration Partnership (the Partnership"), representing a one-
third interest in the Partnership through the Company's wholly owned subsidiary
Trigen-Schuylkill Cogeneration, which is accounted for under the equity method.
Cogen America Schuylkill Inc. and Adwin Cogeneration Inc. own the other two-
thirds interests in the Partnership. The Company derives a significant portion
of its income from the Partnership. Included in the Company's revenues for the
year ended December 31, 1998 was the Company's share of the Partnership earnings
of $5.1 million and fees earned from the Partnership of $2.8 million. The
summarized financial information presented below as of December 31, 1998
represents an aggregation of 100% of the Partnership (in thousands).
1998
----
Condensed Income Statement Information:
Revenues $78,126
Gross profit 31,450
Net income 15,295
Condensed Balance Sheet Information:
Current assets 33,393
Non-current assets 150,771
Current liabilities 133,427
Partners capital 50,737
19. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
For the Quarter(a)
-------------------
March 31 June 30 Sept. 30 Dec. 31
-------- -------- --------- --------
(In thousands, except per share data)
1998
Revenues $74,912 $50,794 $50,839 $65,849
Operating income 15,806 2,272 3,201 10,544
Earnings (losses) before extra-
ordinary item 5,448 (13) (1,888) 3,010
Extraordinary loss (b) (299) - - -
Net earnings (losses) 5,149 (13) (1,888) 3,010
Basic earnings per common share
Before extraordinary item .45 - (.15) .25
Extraordinary loss (.03) - - -
-------- -------- --------- --------
Net earnings (losses) .42 - (.15) .25
-------- -------- --------- --------
Diluted earnings per common share
Before extraordinary item .45 - (.15) .25
Extraordinary loss (.03) - - -
-------- -------- --------- --------
Net earnings (losses) .42 - (.15) .25
-------- -------- --------- --------
1997
Revenues $83,521 $48,107 $43,024 $65,999
Operating income 16,803 2,056 (505) 10,389
Net earnings (losses) 7,087 (1,736) 3,796) 3,470
Basic earnings per common share .59 (.14) (.32) .29
Diluted earnings per common share .58 (.14) (.31) .28
------- -------- -------- --------
1996
Revenues $86,219 $48,685 $41,646 $67,084
Operating income 21,941 4,715 2,651 13,831
Earnings (losses) before extra-
ordinary item 10,076 (240) (1,210) 5,425
Extraordinary loss (b) - - (1,943) -
------- -------- -------- --------
Net earnings (losses) 10,076 (240) (3,153) 5,425
Basic earnings per common share
Before extraordinary item .88 (.02) (.10) .45
Extraordinary loss - - (.17) -
------- -------- -------- --------
Net earnings (losses) .88 (.02) (.27) .45
------- -------- -------- --------
Diluted earnings per common share
Before extraordinary item .87 (.02) (.10) .45
Extraordinary loss - - (.17) -
------- -------- -------- --------
Net earnings (losses) .87 (.02) (.27) .45
------- -------- -------- --------
________
(a) As of January 1, 1998, the Company changed its accounting policy for
interim reporting for certain operating costs from an average costing method to
an actual costing method. The Company believes that use of an actual costing
methodology better reflects the results of its operations and conforms internal
and external reporting of such results. This change effects interim quarterly
reporting only and has no effect on an annual basis for the years ended December
31, 1998 and 1997 or on any prior years. The amounts presented above have been
restated to reflect this change in accounting policy.
(b) Represents extraordinary losses of $299,000, net of a $161,000 tax benefit,
incurred in 1998 and $1,943,000, net of a $1,046,000 tax benefit, incurred in
1996 in connection with the early retirement of debt.
20. Contingencies
The Company is subject from time to time to legal proceedings and other
claims that arise in the normal course of business, and the Company believes,
except as set forth in Note 21, that the outcome of these matters will not have
a material adverse effect on the results of operations or financial condition of
the Company.
21. Legal Proceedings
Oklahoma Litigation
In September 1996, our subsidiary, Trigen-Oklahoma City Energy Corporation
("Trigen-Oklahoma City"), commenced an antitrust action in Federal District
Court in Oklahoma City seeking injunctions and over $30 million in damages from
the local utility, Oklahoma Gas and Electric Company ("OG&E"), based on many
years of alleged anti-competitive actions against Trigen-Oklahoma City Energy
Corporation by OG&E. These actions culminated in criminal indictments being
brought against two OG&E officials for allegedly bribing Oklahoma elected
officials to breach a Trigen-Oklahoma City Energy Corporation contract. Trigen-
Oklahoma City's antitrust action matter went to trial in 1998 and on December
21, 1998, the jury returned a verdict in favor of Trigen. On January 19, 1999,
the Court entered a judgement in favor of Trigen in the amount of $27.8 million.
Under the anti-trust laws, we are permitted to seek an award of treble damages
and legal fees and that issue is under consideration by the Court. We expect
OG&E to appeal this judgement.
Kinetic Energy Litigation
On May 2, 1997, following a jury trial in a suit by Kinetic Energy Development
Corporation against the Company in the Circuit Court of Jackson County,
Missouri, in connection with our acquisition of the Kansas City steam system, a
judgment was entered against the Company in the amount of $4,271,000. Kinetic
claimed for compensation alleged to be owed to it by Trigen in connection with
that acquisition. On August 6, 1997, the Court set aside the jury verdict and
granted judgment for the Company. Kinetic Energy Development Corporation
appealed that order and on December 8, 1998, the Missouri Court of Appeals set
aside the lower court decision and ordered a new trial. On December 22, 1998,
we filed a motion for rehearing with the Missouri Court of Appeals and/or a
review by the Missouri Supreme Court. The Court of Appeals granted our motion
for rehearing. If the Court of Appeals upholds its decision, we plan to seek a
review of that decision by the Missouri Supreme Court. If our efforts to
reinstate the judgment in our favor fail, the case will return to the Circuit
Court and a new trial will be scheduled.
Grays Ferry Litigation
On April 9, 1998, Grays Ferry Cogeneration Partnership, Trigen-Schuylkill
Cogeneration, Inc., Cogen America Schuylkill Inc. (formerly NRGG Schuylkill
Cogeneration Inc.) and Trigen-Philadelphia Energy Corporation commenced an
action against PECO Energy Company ("PECO") and Adwin (Schuylkill) Cogeneration,
Inc. in the Pennsylvania Court of Common Pleas of Philadelphia County (the
"Court"). Grays Ferry Cogeneration Partnership (the "Partnership") is the owner
of the Grays Ferry Cogeneration Facility located in Philadelphia, Pennsylvania.
At December 31, 1998, the Company had an investment of $17.1 million in the
Partnership, representing a one third interest in the Partnership through our
wholly owned subsidiary, Trigen-Schuylkill Cogeneration, Inc. Cogen America
Schuylkill Inc. and Adwin (Schuylkill) Cogeneration, Inc. own the other two-
thirds interests in the Partnership. Adwin (Schuylkill) Cogeneration, Inc. is an
indirect wholly owned subsidiary of PECO. In addition, at December 31, 1998,
the Company had a receivable of $3.2 million due from the Partnership. Included
in the Company's revenues for the year ended December 31, 1998 was the Company's
share of Partnership earnings of $5.1 million and fees earned from the
Partnership of $2.8 million.
The Partnership commenced this action in reaction to the wrongful
termination by PECO on March 3, 1998, of the electric power purchase agreement
between the Partnership and PECO (the "Power Purchase Agreement"). The
Partnership is seeking a declaratory judgement to require PECO to comply with
the electric power purchase agreement and for damages to be proven at trial in
an amount in excess of $200 million.
On May 6, 1998, the Court issued a preliminary injunction against PECO
which requires PECO to pay the Partnership for its electric energy and capacity
at the rates set forth in the Power Purchase Agreement and otherwise to
specifically perform in accordance with the Power Purchase Agreement. The
preliminary injunction will remain in effect until the Court renders its
decision after the final hearing of this matter. On July 7, 1998, PECO withdrew
its appeal of the preliminary injunction. On March 10, 1999, the Court granted
partial summary judgement to the Partnership before trial and held that PECO
breached the Power Purchase Agreement. The Partnerships' other claims against
PECO and its request for damages are scheduled to go to trial on March 29, 1999.
The Chase Manhattan Bank has issued notices of default to the Partnership
under the terms of the Credit Agreement, dated as of March 1, 1996, between the
Partnership, The Chase Manhattan Bank, as agent, and certain other commercial
banks (collectively the "Banks"). Only the Partnership assets and the partners'
ownership interests in the Partnership secure the Partnership's debt under the
Credit Agreement of $109.3 million. The Banks have not accelerated the debt
owing under the Credit Agreement nor charged default interest charges against
the Partnership, although the Banks have reserved the rights to do so.
Therefore, the Partnership recorded default interest of $1.8 million through
December 31, 1998. The Banks have required to date, and may require in the
future, the Partnership to apply available cash held by Partnership (net of
operating expenses, other than certain payments to affiliates, and expenses
required to complete construction) toward repayment of the principal amount of
the loans outstanding. On September 4, 1998, the Banks filed their own
complaint against PECO with the Court. Among other things, the Banks are
seeking a declaration that PECO's termination of the Power Purchase Agreement
was wrongful.
We believe that PECO's termination of the Power Purchase Agreement was
wrongful, and we intend to aggressively pursue the remedies available to us. In
the event we are not successful and PECO's actions are upheld, PECO would be
required under federal law to continue to purchase power from the Grays Ferry
Cogeneration Facility at PECO's avoided cost. This would generate significantly
lower earnings per share for the Company than the contracted power purchase
price. While it is possible that our investment in the Partnership and the
receivable from the Partnership could become impaired, at this time we do not
believe that is likely.
Nassau Litigation
On May 29, 1998, the County of Nassau, New York commenced an action against
Trigen Energy Corporation and Trigen-Nassau Energy Corporation in New York State
Supreme Court. Trigen-Nassau provides energy services to Nassau County under
various agreements. Nassau County alleges that Trigen-Nassau breached those
agreements by, among other means, charging the County for certain real estate
taxes that the County contends are Trigen-Nassau's responsibility. On October
8, 1998, the Court dismissed the claims against Trigen Energy Corporation. On
November 9, 1998, Trigen-Nassau filed counterclaims against Nassau County,
seeking $1.6 million in damages. Trigen-Nassau alleges that Nassau County
breached the parties' agreements by, among other things, failing to operate and
maintain certain facilities and equipment. On January 21, 1999, the County
requested that the Court dismiss Trigen-Nassau's counterclaims. That motion and
the County's other claims against Trigen-Nassau are pending. The County is
seeking approximately $10 million in damages. We believe we have good defenses
to the County's claims, although we cannot predict the outcome of this matter.
ESI Litigation
In 1996 ESI, Inc. commenced an action against, among others, Coastal Power
Company, Latin American Energy Development, Inc. and La Casa Castro S.A. de N.V.
in the United States District Court for the Southern District of New York. On
September 17, 1998, ESI, Inc. amended its complaint naming Trigen as an
additional defendant. This action arises out of the development by Trigen,
Latin American Energy, La Casa Castro and others, of an independent power
project in El Salvador between 1993 and 1994. Trigen transferred its interest
in the project to Tenneco Gas International in May 1994. In July 1994, Tenneco
transferred its interest in the project to Coastal Power Company, which
currently owns and operates the project. ESI claimed that ESI was entitled to a
2.5% interest in the project and that Coastal had wrongfully withheld or denied
ESI's interest. ESI further claimed that Trigen had failed to disclose ESI's
interest to Tenneco and so was responsible, in whole or in part, for ESI's
failure to receive a 2.5% interest in the project from Coastal.
On October 8, 1998, Latin American Energy asserted cross-claims against
Trigen, Coastal and Tenneco claiming that it too had been denied its carried
interest in the Project. On October 28, 1998, La Casa Castro asserted cross-
claims against Trigen and on November 6, 1998, Coastal asserted cross-claims
against Trigen for indemnification, each alleged that Trigen failed to disclose
ESI's claimed interest to Tenneco and claimed that Trigen was responsible for
any damages that Coastal may be required to pay to ESI and Latin American.
On December 15, 1998, Trigen filed an amended answer denying liability for
these claims and cross claimed against Latin American Energy, Tenneco, Coastal
and La Casa Castro, asserting that these parties were responsible for any
damages owed to ESI and Latin American. On December 23, 1998, ESI and Latin
American dismissed without prejudice their claims against Trigen.
Coastal and La Casa Castro are continuing to assert their claims against
Trigen for any damages they may be required to pay to ESI or Latin American. At
this time, we are not able to estimate the amount of damages that ESI and Latin
American are seeking. However, we believe it could involve a material amount.
Trigen believes it has good defenses to Coastal's claims and La Casa Castro's
claims, although we cannot predict the outcome of this matter.
Other Litigation
We are subject from time to time to various other claims that arise in the
normal course of business, and we believe that the outcome of these matters
(either individually or in the aggregate) will not have a material adverse
effect on our business results of operation or financial condition.
Schedule I
TRIGEN ENERGY CORPORATION (Parent Company)
CONDENSED BALANCE SHEETS
December 31, 1998 and 1997
(In thousands)
1998 1997
---- ----
Assets
Cash and cash equivalents $ 541 $ 402
Other current assets 2,798 4,402
Property, plant and equipment, net 12,148 10,438
Deferred costs and other assets, net 4,333 3,496
Investments in and amounts due from
subsidiaries, net 314,448 205,008
-------- --------
Total assets $334,268 $223,746
======== ========
Liabilities and Stockholders' Equity
Short-term debt $ - $ -
Long-term debt 178,000 74,500
Other liabilities 8,340 3,764
Total liabilities 186,340 78,264
Stockholders' equity:
Preferred stock - -
Common stock 124 121
Additional paid-in capital 120,595 114,157
Retained earnings 36,417 31,881
Unearned compensation - restricted stock (4,967) -
Cumulative translation adjustment (2,002) 296
Treasury stock, at cost (2,239) (973)
--------- ---------
Total stockholders' equity 147,928 145,482
-------- --------
Total liabilities and stockholders' equity $334,268 $223,746
======== ========
See accompanying notes to condensed financial statements.
Schedule I-(Continued)
TRIGEN ENERGY CORPORATION (Parent Company)
CONDENSED STATEMENTS OF OPERATIONS
Years Ended December 31, 1998, 1997 and 1996
(In thousands)
1998 1997 1996
---- ---- ----
Revenues
Management fees and costs
recovered from subsidiaries $11,806 $12,472 $11,156
Interest income from subsidiaries 7,048 2,276 2,015
------- ------- -------
Total revenues 18,854 14,748 13,171
Costs and expenses
General and administrative 19,248 15,555 14,262
Interest expense 9,081 3,247 1,689
Other (income) expense, net 90 (1,034) (436)
------ ------- --------
Total costs and expenses 28,419 17,768 15,515
------ ------ -------
Loss before income tax benefit,
equity in earnings of sub-
sidiaries and extraordinary
item (9,565) (3,020) (2,344)
Income tax benefit 3,452 1,057 820
Equity in earnings of subsidiaries, net 12,670 6,988 15,575
------ ------ -------
Earnings before extraordinary item 6,557 5,025 14,051
Extraordinary loss from extinguishment
of subsidiaries' debt, net of
subsidiaries' income tax benefits (299) - ( 1,943)
------- ------ --------
Net earnings $6,258 $5,025 $12,108
====== ====== =======
See accompanying notes to condensed financial statements.
Schedule I-(Continued)
TRIGEN ENERGY CORPORATION (Parent Company)
CONDENSED STATEMENTS OF CASH FLOWS
Years Ended December 31, 1998, 1997 and 1996
(In thousands)
1998 1997 1996
---- ---- ----
Increase (decrease) in cash and
cash equivalents
Cash flows from operating activities
Net earnings $ 6,258 $ 5,025 $12,108
Reconciliation of net earnings to cash
provided by operating activities:
Equity in earnings of subsidiaries (12,670) (6,988) (15,575)
Dividends received from subsidiaries - - -
Extraordinary item 299 - 1,943
Other, net 1,806 (2,029) (3,209)
------- --------- --------
Net cash used in operating activities (4,307) (3,992) (4,733)
-------- --------- --------
Cash flows from investing activities
Capital expenditures (441) (992) (10,800)
Purchase of a fuel management agreement
and related inventory - (8,871) -
Acquisition of energy facilities (65,350) - -
Investments in and advances to sub-
sidiaries, net (24,562) (19,429) (7,272)
Investment in non-consolidated
partnerships (6,417) (12,294) (1,911)
-------- --------- --------
Net cash used in investing activities (96,770) (41,586) (19,983)
-------- --------- ---------
Cash flows from financing activities
Short-term debt, net - (5,000) 5,000
Proceeds of long-term debt 107,000 45,500 17,250
Payments of long-term debt ( 3,500) - -
Dividends paid ( 1,722) ( 1,682) ( 1,640)
Issuance of common stock, net (562) 1,309 5,949
-------- -------- --------
Net cash provided by financing
Activities 101,216 40,127 26,559
------- -------- --------
Cash and cash equivalents
Increase/(decrease) 139 (5,451) 1,843
At beginning of year 402 5,853
4,010
------- -------- --------
At end of year $ 541 $ 402 $ 5,853
------- -------- --------
Supplemental disclosure of cash
flow information
Non-cash investing activity
Acquisition of subsidiary - - $ 1,037
------- -------- --------
Non-cash financing activity
Issuance of common stock for acquisi-
tion of subsidiary - - $ 1,037
-------- -------- --------
Issuance of common stock for
extinguishment of long-term debt - - $ 4,250
========= ========= =========
See accompanying notes to condensed financial statements.
Schedule I-(Continued)
TRIGEN ENERGY CORPORATION (Parent Company)
NOTES TO CONDENSED FINANCIAL INFORMATION OF REGISTRANT
(1) Trigen Energy Corporation (Parent Company) Financial Statements
The accompanying condensed financial information has been prepared in
accordance with Regulation S-X of the Securities Act of 1933 and does not
include all information and notes necessary for a fair presentation of financial
position, results of operations and cash flows in conformity with generally
accepted accounting principles since the user of these statements is assumed to
read them in conjunction with Trigen Energy Corporation's consolidated financial
statements and the notes thereto for the year ended December 31, 1998 included
elsewhere in this document.
(2) Transactions with Subsidiaries
The Parent Company derives cash from management fees and costs recovered
from its subsidiaries, distributions by its subsidiaries and, at times,
repayment to the Parent Company from proceeds of long-term financing obtained by
the subsidiaries for funds previously advanced to subsidiaries for construction
in advance of obtaining permanent financing. Certain subsidiaries have
restrictive debt agreements which generally permit distributions to the Parent
Company only when certain ratios and other financial covenants are satisfied.
Cash available to the Parent Company without restrictions as to use, including
amounts distributable by subsidiaries was $1.4 million at December 31, 1998, and
$4.0 million at December 31, 1997.
(3) Debt
On April 4, 1997, the Parent Company entered into a $160.0 million
revolving credit agreement with several banks. This facility was used to repay
indebtedness outstanding under a $62.5 million credit facility entered into in
1995. The $160.0 million facility is for an initial period of three years and
may be extended by a total of two one-year periods. Borrowings under the
facility bear interest, at the Parent Company's option, at an annual rate equal
to the base rate or the LIBOR rate plus 3/4%. The base rate is the higher of the
prime lending rate or the Federal Reserve reported Federal funds rate plus 1/2%.
On June 10, 1997, the Parent Company amended the $160.0 million credit agreement
by reducing the facility to $125.0 million and entered into a new $35.0 million
revolving credit facility with the same group of banks. The new facility is for
an initial 364-day period and may be extended annually at the option of the
banks. The terms and conditions of both facilities are the same. On September
23, 1998, the $125.0 million three year facility was increased by $35.75 million
and the initial period was increased by one year. The base rate is the higher
of the prime lending rate or the Federal Reserve reported Federal funds rate.
The average effective rate on the facility was 6.2% in 1998 and the rate at
December 31, 1998 was 6.3%.
The Parent Company has issued certain guarantees relating to the debt of
UTC. The Parent Company has guaranteed the UTC debt in an amount which is
limited, except for liabilities of UTC arising from environmental matters, to
the lesser of $31.7 million and one-third of the UTC debt commitments.
On December 30, 1998, the Company borrowed from an affiliate, Cofreth
American Corporation, $50.0 million for acquisitions and project development.
The $50.0 million was initially used to partially pay down the Corporate
facility. The $50.0 million is subordinate and junior in right of payment to
all other debt. The subordinated debt may be redeemed in whole or in part at
the option of Cofreth American Corporation with the net proceeds of an equity
sale by the Company. The debt matures on December 31, 2010 and the interest
rate is 7.38%.
(4) Income Taxes
The Parent Company and its domestic subsidiaries file a consolidated U.S.
Federal income tax return. The Parent Company's state income taxes are filed on
a separate return basis. A valuation allowance for state tax loss carryforwards
has been provided because there are carryforwards which may expire before being
used.
Schedule II
TRIGEN ENERGY CORPORATION AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
(In thousands)
Balance at Charged to Balance
Beginning Costs and at End
Description of Year Expenses Deductions of Year
- ----------- ----------- --------- --------- ----
- --
Year ended December 31, 1996:
Allowance for doubtful accounts $ 697 664 (233) $1,128
Year ended December 31, 1997:
Allowance for doubtful accounts $1,128 331 (385) $1,074
Year ended December 31, 1998:
Allowance for doubtful accounts $1,074 317 (204) $1,187
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized on March 30, 1999.
Trigen Energy Corporation
By: /s/ Thomas R. Casten
Thomas R. Casten
President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities indicated on March 30, 1999.
Signature Title
--------- -----
/s/ THOMAS R. CASTEN Director, President and Chief Executive
- ------------------------ Officer (Principal Executive Officer)
Thomas R. Casten
/s/ MARTIN S. STONE Vice President-Finance,
- ------------------------ Chief Financial Officer
Martin S. Stone
/s/ DANIEL J. SAMELA Controller (Principal Accounting Officer)
- ------------------------
Daniel J. Samela
/s/ RICHARD E. KESSEL Director, Executive Vice President,
- ------------------------- Chief Operating Officer
Richard E. Kessel
/s/ GEORGE F. KEANE Director and Chairman of the Board
- ------------------------
George F. Keane
/s/ PHILLIPE BRONGNIART Director
- ------------------------
Philippe Brongniart
/s/ DOMINIQUE MANGIN D'OUINCE Director
- -------------------------
Dominique Mangin d'Ouince
/s/ PATRICK DESNOS Director
- --------------------------
Patrick Desnos
/s/ MICHEL BLEITRACH Director
- --------------------------
Michel Bleitrach
/s/ PATRICK BUFFET Director
- --------------------------
Patrick Buffet
/s/ CHARLES E. BAYLESS Director
- --------------------------
Charles E. Bayless
TRIGEN ENERGY CORPORATION
INDEX OF EXHIBITS
Exhibit Description
2.1** Stock Purchase Agreement, dated December 9, 1997, between Canal
Industries, Inc. and ChemFirst Inc. as Sellers, and Trigen Energy
Corporation, as Buyer (Form 8-K Current Report dated January 27,
1998.)
3.1** Restated Certificate of Incorporation of Trigen (Registration
Statement No. 33-80410).
3.2** Restated and Amended By-Laws of Trigen (Registration Statement No.
33-80410).
4.1** Credit Agreement, dated as of December 2, 1993, among Trigen
Acquisition Inc., Trigen, the Lenders named therein, and Toronto
Dominion (Texas), Inc., as Agent (Registration Statement No. 33-
80410).
4.2** Loan Agreement, dated as of June 1, 1993, between Trigen-Trenton
District Energy Company, L.P. and the New Jersey Economic Development
Authority (District Heating and Cooling Revenue Bonds) (Registration
Statement No. 33-80410).
4.3 Trigen Energy Corporation hereby undertakes to furnish a copy of any
instrument with respect to long term debt not otherwise filed herewith
to the Securities and Exchange Commission upon request.
4.4** See Exhibits 3.1 and 3.2 (Registration Statement No. 33-80410).
4.5** Revolving Credit Facility, Dated as of April 4, 1997 between the
Company, Banks Listed on the Signature Page and Societe Generale as
Issuing Bank and Agent. (Form 10-Q Quarterly Report for the quarterly
period ended June 30, 1997).
4.6** Amendment No.1, Dated as of June 10, 1997, to the Revolving Credit
Facility Dated as of April 4, 1997. (Form 10-Q Quarterly Report for
the quarterly period ended June 30, 1997).
4.7** Revolving Credit Facility, Dated as of June 10, 1997 between the
Company, Banks Listed on the Signature Page and Societe Generale as
Issuing Bank and Agent. (Form 10-Q Quarterly Report for the quarterly
period ended June 30, 1997).
4.8** Amended and Restated Credit and Acceptance Agreement dated as of
December 20, 1996 among Trigen Energy Canada Inc., Certain Commercial
Lending Institutions as the Lenders, Societe Generale, New York
Branch, as the Administrative Agent for the Lenders and Societe
Generale (Canada) as the Collateral Agent for the Lenders. (Form 10-K
Annual Report for 1996).
4.9* Amendment No. 1 dated as of June 10, 1997 to the Revolving Credit
Facility dated as of April 4, 1997 among Trigen Energy Corporation,
Societe Generale and the banks listed on the signature pages thereof.
4.10* Amendment No. 1 dated as of September 22, 1998 to the 364-Day
Revolving Credit Facility dated as of June 10, 1997 among Trigen
Energy Corporation, Societe Generale and the banks listed on the
signature pages thereof.
4.11* Amendment No. 2 dated as of November 6, 1997 to the Revolving Credit
Facility dated as of April 4, 1997 among Trigen Energy Corporation,
Societe Generale and the Banks listed on the signature pages thereof.
4.12* Amendment No. 3 dated as of September 22, 1998 to the Revolving Credit
Facility dated as of April 4, 1997 among Trigen Energy Corporation,
Societe Generale and the Banks listed on the signature pages thereof.
4.13* Unsecured Subordinated Redeemable Term Note for $50,000,000 dated as
of December 30, 1998 between Trigen Energy Corporation and Cofreth
American Corporation.
9.1** Stockholders' Agreement, dated August 10, 1994 by and among Trigen,
Thomas R. Casten, Michael Weiser, Eugene E. Murphy, Richard E. Kessel,
John J. Ludwig, Cofreth American Corporation and Compagnie Parisienne
de Chauffage Urbain, S.A. (Registration Statement No. 33-80410).
9.2** Stockholder's Agreement dated as of January 17, 1996 by and between
Thomas Ewing and Trigen Energy Corporation.
10.1** Reimbursement and Credit Agreement, dated as of September 1, 1992,
among Trigen-Oklahoma District Energy Corporation, the Banks named
therein, and Societe Generale, Southwest Agency, as Agent and
Collateral Agent (Registration Statement No. 33-80410).
10.2** Loan Agreement, dated as of September 1, 1992, between Oklahoma City
Industrial and Cultural Facilities Trust, as Lender and Trigen-
Oklahoma District Energy Corporation, as Borrower (District Heating
and Cooling Revenue Bonds, Series 1992) (Registration Statement No.
33-80410).
10.3** Lease Agreement, dated as of August 1, 1990, between Town of Hempstead
Industrial Development Agency and Nassau District Energy Corporation
(Industrial Development Revenue Bonds) (Registration Statement No. 33-
80410).
10.4** Letter Agreement, dated February 24, 1994, between Trigen and Credit
Commerciale de France, New York Branch, (Registration Statement No.
33-80410).
10.5** Standby Letter of Credit Agreement, dated November 16, 1993, between
Trigen and Societe Generale, New York Branch (Registration Statement
No. 33-80410).
10.6** Application and Agreement for Irrevocable Standby Letter of Credit,
dated December 14, 1992, between Societe Generale, New York Branch,
and Trigen-Chicago District Energy Corporation (Registration Statement
No. 33-80410).
10.7** Noncompetition Agreement, dated December 3, 1993, among Catalyst
Energy Corporation, Great Lakes Power Limited, Century Power
Corporation, Trigen Acquisition, Inc. and Trigen (Registration
Statement No. 33-80410).
10.8** Site Lease Agreement, dated as of December 16, 1992, between
Metropolitan Pier and Exposition Authority and Trigen-Peoples District
Energy Company (Registration Statement No. 33-80410).
10.9** Lease Agreement, dated as of November 30, 1993, between Housing
Authority of Baltimore City and Baltimore Thermal Energy Corporation
(Registration Statement No. 33-80410).
10.10** Spring Gardens Land Lease, dated February 28, 1985, between Baltimore
Gas and Electric Company and Baltimore Steam Company (Registration
Statement No. 33-80410).
10.11** Lease Agreement, dated as of June 26, 1991, between King Real Estate
Corporation, Trustee of King Terminal Trust and Boston Thermal Energy
Corporation, as amended by the First Amendment to Lease, dated July 5,
1991, and by the Second Amendment to Lease, dated June 23, 1992.
(Registration Statement No. 33-80410).
10.12** Lease Agreement, dated as of April 1, 1991, between Aetna Life
Insurance Company and Boston Thermal Energy Corporation (Registration
Statement No. 33-80410).
10.13** Lease Agreement, dated March 29, 1990, between Kansas City Power &
Light Company and Trigen-Kansas City District Energy Corporation
(Registration Statement No. 33-80410).
10.14** Indenture, dated September 14, 1993, between George Chioros Holdings
Ltd., as Lessor, and Trigen- London District Energy Corporation, as
Lessee (Registration Statement No. 33-80410).
10.15** Standard Lease, dated as of August 7, 1990, between the United States
Postal Service and Trigen- Oklahoma District Energy Corporation
(Registration Statement No. 33-80410).
10.16** Schuylkill Station Lease Agreement, dated January 30, 1987, between
Philadelphia Electric Company and Philadelphia Thermal Corporation
(Registration Statement No. 33-80410).
10.17** Amended and Restated Site Lease, dated September 17, 1993, between
Philadelphia Thermal Energy Corporation and Grays Ferry Cogeneration
Partnership (Registration Statement No. 33-80410).
10.18** Lease Agreement, dated as of March 5, 1975, between the City of St.
Louis and Union Electric Company (Registration Statement No. 33-
80410).
10.19** Ground Lease, dated as of December 1, 1982, between the City of
Trenton and Trenton District Energy Company (Registration Statement
No. 33-80410).
10.20** Thermal Energy Agreement, dated July 22, 1981, between Mercer Medical
Center and Trenton District Energy Company, as amended September 1981,
as amended August 22, 1984, and as further amended May 27, 1986
(Registration Statement No. 33-80410).
10.21** See Exhibits 4.1, 4.2 and 4.3 (Registration Statement No. 33-80410).
10.22** Trigen Energy Corporation 1994 Director Stock Plan (Registration
Statement No. 33-80410).
10.23** Trigen Energy Corporation 1994 Stock Incentive Plan (Registration
Statement No. 33-80410).
10.24** Intercompany Services and License Agreement, dated August 10, 1994,
between Ufiner-Cofreth, S.A. and Trigen (Registration Statement No.
33-80410).
10.25** Form of Employment Agreement, dated as of August 12, 1994 between
Trigen and Thomas R. Casten (Form 10-K Annual Report for 1994).
10.26** Form of Employment Agreement, dated as of August 12, 1994, between
Trigen and Richard E. Kessel (Form 10-K Annual Report for 1994).
10.27** Form of Employment Agreement, dated as of August 12, 1994, between
Trigen and Eugene E. Murphy (Form 10-K Annual Report for 1994).
10.28** Form of Employment Agreement, dated as of August 12, 1994, between
Trigen and Michael Weiser (Form 10-K Annual Report for 1994).
10.29** Acquisition Agreement dated March 1, 1996 among Adwin (Schuylkill)
Cogeneration, Inc., O'Brien (Schuylkill) Cogeneration, Inc. and
Trigen-Schuylkill Cogeneration, Inc.
10.30** Amended and Restated Partnership Agreement dated March 1, 1996 among
Adwin (Schuylkill) Cogeneration, Inc., O'Brien (Schuylkill)
Cogeneration, Inc. and Trigen-Schuylkill Cogeneration, Inc.
10.32* Form of Employment Agreement, dated as of March 1, 1995, between
Trigen and James F. Lowry.
10.33** Form of Incentive Stock Option Agreement between Trigen and Thomas R.
Casten, Richard E. Kessel, Eugene E. Murphy, Steven G. Smith and
Richard S. Strong (Form 10-Q Quarterly report for the period ended
September 30, 1998).
10.34** Form of Incentive Stock Option Agreement between Trigen and Martin S.
Stone (Form 10-Q Quarterly report for the period ended September 30,
1998).
11* Computation of Earnings Per Share.
12.1* Computation of Ratio of Earnings to Fixed Charges.
18* Letter re change in accounting principles.
21* Subsidiaries of Trigen Energy Corporation.
23.1* Consent of Arthur Andersen LLP.
23.2* Consent of KPMG.
23.3* Consent of Deloitte & Touche LLP.
27* Financial Data Schedule (for electronic filing only)
99* Grays Ferry Cogeneration Partnership financial statements for the
years ended December 31, 1998 and 1997.
* Filed herewith.
** Incorporated by reference to the corresponding exhibit to the indicated
prior filing.