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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended: June 30, 1994
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number 1-7477
CRSS INC.
(Exact name of registrant as specified in its charter)
DELAWARE 74-1677382
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
1177 WEST LOOP SOUTH, SUITE 800 77027
HOUSTON, TEXAS (Zip Code)
(Address of principal executive offices)
Registrant's telephone number, including area code (713) 552-2000
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each Exchange on which registered
COMMON STOCK, $1 PAR VALUE 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 the 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. /X/
As of August 25, 1994, 12,964,120 common shares were outstanding. The
aggregate market value of the common shares (based upon the closing sales price
on the New York Stock Exchange on August 25, 1994) of CRSS Inc. held by
nonaffiliates was approximately $129,043,000.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the CRSS Inc.'s Proxy Statement with respect to its Annual
Meeting of Shareholders to be held October 27, 1994 are incorporated by
reference into Part III.
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TABLE OF CONTENTS
ITEM
NO. PAGE NO.
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PART I
1. Business.................................................................... 1
2. Properties.................................................................. 14
3. Legal Proceedings........................................................... 14
4. Submission of Matters to a Vote of Security Holders......................... 14
PART II
5. Market for Registrant's Common Equity and Related Shareholder Matters....... 15
6. Selected Financial Data..................................................... 16
7. Management's Discussion and Analysis of Financial Condition and
Results of Operations..................................................... 16
8. Financial Statements and Supplementary Data................................. 23
9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure...................................................... 52
PART III
10. Directors and Executive Officers of the Registrant.......................... 52
11. Executive Compensation...................................................... 52
12. Security Ownership of Certain Beneficial Owners and Management.............. 52
13. Certain Relationships and Related Transactions.............................. 52
PART IV
14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
Index to Financial Statements and Schedules............................... 53
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PART I
ITEM 1. BUSINESS
GENERAL
CRSS Inc. ("CRSS" or the "Company"), together with its subsidiary CRSS
Capital, Inc. ("CRSS Capital"), provides to its customers a competitive
advantage by developing, owning, and operating energy and process facilities
worldwide.
The Company and its subsidiaries are engaged in the business of managing,
owning and operating energy (power and steam) and process facilities and are
also involved in the construction management and maintenance of projects in
which the Company has an ownership interest. CRSS Capital has become involved in
projects at various developmental stages, sometimes developing projects from the
conceptual stage, other times acquiring an interest in an early phase of
development or investing in completed and operating projects.
Historically, producers of electric power consisted of regulated utilities
and industrial users that produced electricity to satisfy their own needs. In
response to the energy crisis of the 1970s, however, federal legislation
fostered the development of an "independent power market" by encouraging and in
some cases requiring utilities to purchase power from "Qualifying Facilities"
("QFs"), including cogenerators and small power producers, while also exempting
these QFs from most utility regulatory requirements. As a result, a significant
market for electric power produced by independent power generators has developed
in the United States. CRSS Capital was one of the early entrants in that market
and today is one of the larger independent power producers.
Most independent power producers have focused almost exclusively upon the
production of electricity. CRSS, however, offers a much broader array of energy
products to industrial customers which includes, but is not limited to, the sale
of high and low pressure steam, electricity, compressed air, black liquor
processing services, solid and liquid waste disposal services, waste water and
water treatment services and waste heat recovery services. During fiscal year
1994 more than 50 percent of the aggregate gross revenues of the projects in
which the Company is involved have been derived from the sale of products or
services other than electricity.
Process industries, such as the pulp and paper, chemical, petro-chemical,
fibers, food and manufacturing industries, experience high levels of energy
related capital investment associated with their manufacturing operations.
Further, these industries are increasingly subject to legislation and public
pressure to reduce environmental emissions. Energy intensive industries are also
often assessing and proceeding with the unbundling of core process assets from
non-core power and utility assets as one way of rationalizing their business
focus. The Company is working with existing and potential customers to lower
manufacturing costs, shift production to higher margin product lines or simply
provide a third party source of financing at an overall lower cost. The
Company's experiences have shown that cost and reliability improvements can be
significant when older, cash starved, out of favor energy assets are
re-invigorated with active, enthusiastic management and provided with
appropriate amounts of new capital.
Another avenue being pursued by CRSS is power marketing. The impetus for
power marketing comes from the National Energy Policy Act which mandated that
investor-owned utilities, and other owners of transmission facilities, provide
open transmission access at just and reasonable rates to promote the
economically efficient transmission and generation of electricity as an aid to
the public's search for lower cost electric service.
CRSS is creating a competitive edge for its customers through its power
marketing capability in support of new utility generation and industrial energy
supply opportunities. For industry, CRSS delivers electric power procurement
strategies incorporating self-generation, load management, self-service wheeling
and power marketing. Additionally, CRSS is teaming with certain investor-owned
utilities in order to provide full service, broad scope energy supply solutions
to satisfy the needs of any customer.
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The Company believes that it has unique competencies in the pulp and paper
and industrial utility asset markets. CRSS Capital developed and owns two
operational energy production projects in the pulp and paper industry and was
the first entity to project finance energy assets relying solely upon the
economic capacity of a customer's mill. In the industrial utility asset
management arena, CRSS Capital is pursuing opportunities for the acquisition or
joint management of power and utility functions from major industrial
corporations at various manufacturing sites in the United States and around the
world.
Under the Public Utility Regulatory Policies Act of 1978 ("PURPA"),
electrical utilities are required to purchase electricity made available by
"qualifying cogeneration facilities" and "qualifying small power production
facilities" (as those terms are defined under PURPA) at a price equal to the
utility's "avoided cost" (the marginal cost of generating the same amount of
electricity or purchasing it from another available source). Cogeneration is the
sequential production of electricity and thermal energy from the same source of
fuel through an integrated system, which is typically more efficient than more
conventional power projects which produce only electricity. All of the Company's
current plants are qualifying cogeneration facilities or qualifying small power
production facilities.
PURPA is generally implemented by the various states, subject to federal
guidelines established by the Federal Energy Regulatory Commission ("FERC"). The
state regulatory agencies of the various states responsible for implementation
of PURPA have developed different methods for calculating "avoided costs" and
for encouraging the construction of certain cogeneration projects on the basis
of the price of power under the power purchase contract and other factors. Under
certain circumstances, power purchase contracts may be required to be approved
by state commissions.
The Company believes that the cost advantage generally inherent in the
simultaneous production of electricity and thermal energy, coupled with PURPA's
mandate for utilities to buy electricity from cogeneration facilities under
certain circumstances, as well as other regulatory advantages afforded to
qualifying cogeneration and small power production facilities, provide
significant opportunities for unregulated companies to prosper in the power
generation business, a field historically dominated by regulated public
utilities.
The Company anticipates that unregulated electrical energy sales will be
attractive in selected markets on a long-term basis because of projected
increases in power consumption, lack of significant new generating capacity
construction by utilities in those markets and potential future energy pricing
trends. In the Company's view, the more attractive geographic markets for
unregulated power production are currently located in the Western, Southern and
Mid-Atlantic states, since portions of these areas have generally higher
electricity rates as well as an anticipated need for additional capacity.
CRSS Capital has adopted a portfolio approach to the unregulated power and
cogeneration market. As a result, it has developed and acquired interests in
projects with a diversity of partners, geographic areas, fuel types, combustion
technology and power and steam purchasers. This portfolio approach is intended
to permit CRSS Capital to minimize the risk of being tied to any single partner,
geographic area, fuel type, technology or power purchaser.
CRSS Capital arranges project financing on a non-recourse basis for its
energy and process projects. Thus, each project itself, along with its contracts
and cash flows, provide the security required by lenders for that particular
project. CRSS Capital's financial obligation is usually limited to equity
commitments and construction cost overruns, if any.
CRSS Capital's success is dependent upon its ability to compete for future
projects, meet completion schedules, control construction costs, arrange
financing at acceptable costs, sell energy from its operating units at
competitive prices, offer customer responsive terms and conditions, and operate
its facilities on a cost-effective basis.
Through its subsidiary, CRSS Capital, CRSS currently has significant
ownership in seven operational cogeneration and small power plants. The combined
capacity of the seven operating plants is approximately 579 megawatts of
electrical capacity and approximately five million pounds per hour of process
steam capacity. The combined total assets of these seven plants and related
facilities was approximately $750 million
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at June 30, 1994. During fiscal year 1994 aggregate gross revenues for CRSS'
seven operating projects was approximately $200 million.
CRSS Capital is also actively pursuing additional projects in the United
States and overseas that are in various stages of development. There can be no
assurance, however, that any of such projects will be completed.
Since 1985, CRSS Capital has raised approximately $750 million of capital
for its facilities in operation or under construction. Each such plant has been
financed through project financing structures that are substantially
non-recourse to CRSS Capital, CRSS Inc., and to its other projects. To date, the
sole exception to this policy is that the Company has agreed to cross
collateralize its three wood waste fired projects, Northumberland, McBain and
Lincoln, as part of a refinancing. The Company generally relies on the capital
markets to provide 100 percent of the construction and 80 percent to 90 percent
of the term financing for its projects. The Company finances its development
costs and its equity investments in project subsidiaries from internally
generated funds and credit facilities.
In fiscal year 1994, plants operated by CRSS Capital averaged 97.9 percent
"availability". ("Availability" is defined by the North American Electric
Reliability Council as the available hours divided by the period hours. In this
case, to determine the system availability, each facility was weighted based on
rated megawatt output consistent with general utility practices.) CRSS Capital
plants on average have had a safety record significantly better than the average
for the electricity generating industry.
CORPORATE HISTORY
CRSS was founded as an architectural partnership in 1946 and was
incorporated in the state of Delaware on October 16, 1970, as CRS Design
Associates, Inc. CRSS expanded its service capabilities through both internal
development and acquisition of two architectural and two construction firms
between July 1981 and January 1983. In July 1983, CRSS acquired all of the
outstanding common stock of J.E. Sirrine Company, an engineering firm that
provided comprehensive engineering, planning, project management and
construction services.
Through its subsidiary, CRSS Services, Inc. ("CRSS Services"), CRSS
provided comprehensive architectural, engineering and construction and program
management services to industrial, institutional, commercial and public sector
clients. Beginning in 1983, in an effort to diversify and decrease its
dependence on the architectural, engineering and construction industry, CRSS
expanded and diversified its operations to include (i) independent power and
cogeneration, (ii) acid rain/pollution control and (iii) domestic and
international third party insurance and reinsurance.
CRSS Capital was incorporated on December 8, 1983.
In 1986, the Company through its subsidiaries, expanded its insurance
operations beyond self-insurance, to include issuance of third party domestic
and international insurance and reinsurance business in certain niche markets.
On June 30, 1989, the Company issued 2,527 shares of voting and nonvoting
common stock in CRSS Capital, representing a 19 percent interest, to Paribas
North America, Inc. ("Paribas") for a gross purchase price of $8 million. The 19
percent interest owned by Paribas was subsequently reduced to a 15 percent
interest as a result of the purchase by the Company of additional shares of
common stock of CRSS Capital in connection with the funding of the acquisition
of three wood-fired facilities. On October 12, 1989, CRSS Capital acquired from
Energy Factors, Incorporated, the remaining 51 percent interest not previously
owned by CRSS Capital in three 18.5-megawatt wood-fired facilities (the "Viking
Projects") by acquiring the Energy Factors, Incorporated subsidiary, which owned
such interest. The purchase price included $5.5 million in cash plus
reimbursement of equity contributions of approximately $5.1 million. In October
1991, Paribas increased its interest in CRSS Capital to the original 19 percent
interest by purchasing additional shares of CRSS Capital common stock for $1.8
million. On January 31, 1994, the Company (via redemption by CRSS Capital)
repurchased all of the common stock of CRSS Capital owned by Paribas for $17.0
million, resulting in CRSS Capital once again becoming a wholly-owned subsidiary
of CRSS.
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During 1989, CRSS and Industrial Resources, Inc. formed NaTec Resources,
Inc. ("NaTec") to develop, engineer and market integrated systems and products
which control pollutants commonly associated with acid rain. CRSS has a 48
percent ownership interest and a 52 percent voting interest in NaTec.
As a result of the continued growth of the independent power industry and
CRSS Capital in recent years, the Company has redirected its focus toward this
single line of business. In January 1992, the Company completed the sale of its
domestic and international third party insurance and reinsurance business
followed by an announcement in August 1992 of the Company's intent to divest its
interest in NaTec. In July 1994, CRSS sold its design, engineering and
construction services subsidiaries. Accordingly, these businesses have been
reflected as discontinued operations. (See "Discontinued Operations" on page
11.)
POWER AND COGENERATION OPERATIONS
A summary of CRSS' power and cogeneration operations and activities
follows:
Westwood Facility
A limited partnership among CRSS Westwood, Inc. (a wholly-owned subsidiary
of CRSS Capital), Westwood Funding Corporation (a wholly-owned subsidiary of ABB
Combustion Engineering, Inc.), UtilCo Group, Inc. (a wholly-owned subsidiary of
UtilCorp United), and Kenvil Energy Company developed the Westwood Generating
Station, a 30-megawatt power plant operating in Schuylkill County, Pennsylvania.
CRSS Westwood, Inc. owns a 47.5 percent interest in the partnership while
Westwood Funding Corporation, UtilCo Group, Inc. and Kenvil Energy Company own
9.5 percent, 38 percent and 5 percent interests, respectively. The facility
began commercial operation in July 1988 and was completed at a cost of
approximately $82.3 million. The facility utilizes a circulating fluidized bed
boiler to burn anthracite mining refuse to produce electricity. A large quantity
of anthracite mining refuse located on the property and owned by the partnership
sits immediately adjacent to or near the facility. The facility has received
certification from the FERC as a "qualifying small power production facility"
under PURPA.
The Westwood facility was financed primarily through the issuance of
tax-exempt industrial revenue bonds issued by the Schuylkill County Industrial
Development Authority. These bonds have been secured by the facility, the
revenue generating contracts associated with the facility and a non-recourse
letter of credit issued by a commercial bank. The interest rate on the bonds has
not been fixed but rather, fluctuates on a daily basis in response to market
conditions. The Company has infused cash equity of $4.5 million and has
guaranteed to contribute an additional $3.0 million equity contribution if cash
flow is not sufficient to meet debt service requirements. As of June 30, 1994, a
total of $54.7 million in bonds were outstanding.
The partnership has executed a 20-year contract with Metropolitan Edison
Company for the sale of the electricity produced by the facility. The
partnership has also entered into backup power purchase and electricity
transmission agreements with Pennsylvania Power & Light Company ("PP&L").
CRSS Capital provides administrative management and overall management of
operations and maintenance for this project.
Northumberland Facility.
CRSS Capital has developed, constructed and currently operates an
18.5-megawatt wood-fired cogeneration facility in Northumberland, Pennsylvania.
This facility utilizes conventional stoker boiler technology to burn various
types of wood and fiber wastes. CRSS Capital, through wholly-owned subsidiaries,
owns a 100 percent interest in the limited partnership which owns the project.
The project cost approximately $33.5 million and achieved commercial operation
in December, 1989. The project has received certification under PURPA from the
FERC as both a "qualifying small power production facility" and a "qualifying
cogeneration facility".
The Northumberland facility was originally financed on a non-recourse basis
through a commercial bank providing both construction and term debt. During
fiscal year 1989, this debt was refinanced and replaced by a 20-year, fixed
rate, non-recourse borrowing obtained from institutional investors. CRSS Capital
arranged for
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the refinancing of the non-recourse term debt of this project along with the
McBain and Lincoln facilities (discussed below) on terms and conditions which
were more attractive than the original term loans. As of June 30, 1994, the
amount of long-term non-recourse financing was $17.3 million. The Company has
infused cash equity of $12.4 million and has agreed to make an additional $3.5
million equity contribution to fund a debt service reserve account. This reserve
account may be drawn upon as a result of debt service payment shortfalls on the
Northumberland, McBain and/or Lincoln projects.
The partnership has executed a 20-year contract with PP&L for the sale of
electricity produced by the project. The partnership has also executed a 20-year
contract with Furman Foods, Inc. ("Furman") for the sale of steam produced by
the facility and required by Furman for its normal operations.
The partnership has entered into multiple short and long-term fuel supply
contracts with various suppliers for the delivery of wood fuel, composed of wood
fiber and sawdust.
CRSS Capital provides administrative management and overall management of
operations and maintenance for this project.
McBain Facility
CRSS Capital developed, constructed, currently operates, and through
wholly-owned subsidiaries, owns 100 percent of an 18.5-megawatt wood-fired
facility located in McBain, Michigan. The project achieved commercial operation
during December, 1989. The design of this facility is almost identical to the
Northumberland facility in Pennsylvania. The project has been certified by the
FERC as a "qualifying small power production facility".
The McBain facility was originally financed on a non-recourse basis through
the same commercial bank used for the Lincoln facility. The lender provided both
construction and term debt. During fiscal year 1989, this debt was refinanced
and replaced by a 20-year, fixed rate, non-recourse borrowing obtained from
institutional investors. The total project cost was approximately $31.3 million.
As of June 30, 1994, the total amount of long-term non-recourse project
financing on the McBain facility was $22.4 million. The Company has infused cash
equity of $8.4 million and has agreed to contribute an additional sum (as noted
above) to fund a debt service reserve account.
Consumers Power Company ("Consumers Power") has agreed to purchase
electrical power generated by the McBain facility under a long-term power supply
contract for an initial term beginning with commercial operation and ending on
December 31, 2018. The contract provides for price adjustments based on the
results of pricing reviews by the Michigan Public Service Commission ("MPSC").
Under a 1987 Michigan law, these contractual provisions are limited for the
period of financing of those facilities or 17.5 years, whichever is less. As a
result, under current law there can be no state regulatory review of the
capacity rate paid under each contract for the duration of the existing term
loan.
The partnership entered into multiple short and long-term fuel supply
contracts with various suppliers for the delivery of wood fuel, composed of wood
fiber and sawdust.
CRSS Capital provides administrative management and overall management of
operations and maintenance for this project.
Lincoln Facility
CRSS Capital developed, constructed, currently operates, and through
wholly-owned subsidiaries, owns 100 percent of an 18.5-megawatt wood-fired
facility located in Lincoln, Michigan. The project achieved commercial operation
during January, 1990. The design of this facility is almost identical to the
Northumberland facility in Pennsylvania. The project has been certified by the
FERC as a "qualifying small power production facility".
The Lincoln facility was originally financed on a non-recourse basis
through the same commercial bank used for the McBain facility. The lender
provided both construction and term debt. During fiscal year 1989, this debt was
refinanced and replaced by a 20-year, fixed rate, non-recourse borrowing
obtained from
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institutional investors. The total project cost was approximately $30.2 million.
As of June 30, 1994, the total amount of long-term non-recourse project
financing on the Lincoln facility was $23.6 million. The Company has infused
cash equity of $5.5 million and has agreed to contribute an additional sum (as
noted above) to fund a debt service reserve account.
Consumers Power Company has agreed to purchase electrical power generated
by the Lincoln facility under a long-term power supply contract for an initial
term beginning with commercial operation and ending on December 31, 2018. The
contract provides for price adjustments based on the results of pricing reviews
by the MPSC. Under a 1987 Michigan law, these contractual provisions are limited
for the period of financing of those facilities or 17.5 years, whichever is
less. As a result, under current law there can be no state regulatory review of
the capacity rate paid under each contract for the duration of the existing term
loan.
The partnership entered into multiple short and long-term fuel supply
contracts with various suppliers for the delivery of wood fuel, composed of wood
fiber and sawdust.
CRSS Capital provides administrative management and overall management of
operations and maintenance for this project.
Hopewell Facility
A limited partnership owned by a subsidiary of CRSS Capital, American
National Power, (a subsidiary of National Power PLC), and Mission Energy, (a
subsidiary of SCEcorp), owns and is operating a 365-megawatt natural gas-fired
cogeneration facility located in Hopewell, Virginia. CRSS Capital owns a 50
percent interest while American National Power and Mission Energy each own a 25
percent interest in this limited partnership. The Hopewell facility achieved
commercial operation in August, 1990, and was completed at a total cost of
approximately $198 million. The project provides capacity and energy to Virginia
Electric and Power Company ("Virginia Power") under a 25-year Power Purchase and
Operating Agreement ("Power Contract"). The project is compensated for providing
capacity as measured semi-annually in accordance with the Power Contract and for
energy which is escalated in accordance with an index which represents a
substantial pass through of energy costs at the lower of natural gas or #2 fuel
oil. The Power Contract provides for the facility to be economically
dispatchable by Virginia Power on the basis of the variable cost of operation to
the utility.
The financing of the Hopewell facility was arranged on a non-recourse basis
through a commercial bank syndicate providing both construction and term debt. A
17-year interest rate swap which fixed the interest rate charged on the loan,
was also provided by the lender. In July 1991, CRSS Capital funded its equity
contribution of $10 million to the Hopewell limited partnership. As of June 30,
1994, the total amount of long-term non-recourse project financing on the
Hopewell facility was $154.1 million.
Fuel for the facility is being provided by Transco Energy Marketing
Company, (a subsidiary of Transco Energy Company), under a 15-year fuel supply
agreement. Steam from the facility is being sold to the Aqualon Company under
the terms of a 25-year steam sales and purchase agreement. The Aqualon Company
is a wholly-owned subsidiary of Hercules, Inc. The Hopewell facility has
received "qualifying cogeneration facility" status from FERC.
CRSS Capital is providing administrative project management services and
overall management of operations and maintenance.
Naheola Facility
CRSS Capital, through Naheola Cogeneration Limited Partnership is a 50
percent owner with James River Pennington, (a subsidiary of James River
Corporation), of a chemical recovery and cogeneration facility located at the
James River Naheola Mill in Pennington, Alabama. The facility processes black
liquor solids via a chemical recovery unit and provides steam, compressed air
and a portion of the mill's electrical power requirements pursuant to a 20-year
contract with James River Pennington. The partnership is compensated for being
available to provide services and on a per unit basis for quantities of black
liquor processed and energy
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produced and used by the mill. Prices change annually based upon a nationally
published inflation index. The Naheola facility has received "qualifying
cogeneration facility" status from the FERC.
The facility was completed and began operating in March 1993, more than
three months ahead of schedule, at a cost of approximately $290 million. The
facility has the capacity to supply 5.4 million pounds per day of black liquor
processing services, 1.8 million pounds per hour of process steam, and 80
megawatts per hour of electricity to the mill. Fuels used in the production of
energy include: black liquor solids, coal, wood waste, natural gas, fuel oil and
pulp mill sludge.
CRSS Capital arranged financing for construction and start-up of the
facility through a commercial bank syndicate using 17-year taxable industrial
revenue bonds issued by the Industrial Development Board of the City of Butler,
Alabama. An interest rate swap agreement has been entered into by the
partnership fixing the interest rate over the life of the loan. In July 1993,
CRSS Capital funded its equity contribution of $30 million to the Naheola
limited partnership, of which CRSS's portion was $24.3 million. As of June 30,
1994, a total of $229.9 million in bonds were outstanding.
CRSS Capital is providing administrative project management services.
CRSS Capital has an option to put its interest in Naheola at fair value to
James River in the event that the facility becomes subject to regulation as a
public utility, production levels at the Naheola mill fall below certain levels
due to James River shifting production to other mills, or if the Naheola mill is
sold to a competitor of the Company. James River also has an option to purchase
CRSS Capital's interest at fair value.
Appomattox Facility
CRSS Capital, through the Appomattox Cogeneration Limited Partnership, is
the developer and a 50 percent owner with Catamount Energy, (a subsidiary of
Central Vermont Public Service Company), of an entity which is providing 50
megawatts of capacity and energy to Virginia Power. The project structure
developed by CRSS Capital consists of the acquisition of an existing power sales
agreement between Stone Container Corporation and Virginia Power concurrent with
a long-term lease of power generation assets at Stone Container's Hopewell,
Virginia paper mill. The leased assets produce electricity while simultaneously
providing black liquor processing services (via a chemical recovery unit),
steam, and other utility services to Stone Container. The leased assets include
a power boiler, a chemical recovery boiler, a turbine generator, and related
steam and power generation assets. The limited partnership provides these
industrial energy services to Stone Container pursuant to a 12-year contract
which began in October 1992. Fuels used in the production of energy include:
black liquor solids, coal and bark. The Appomattox facility has received
"qualifying cogeneration facility" status from the FERC. The paper mill has been
operational since 1920.
CRSS Capital arranged a nine-year, fixed rate financing for the Appomattox
project through a syndicate of institutional investors. Total project costs were
$70.6 million. As of June 30, 1994, the total amount of long-term, non-recourse
project financing on the Appomattox project was $49.9 million. The Company has
infused cash equity of $7.1 million.
CRSS Capital is providing administrative project management services.
Backlog
Backlog is based on projected undiscounted contractual revenues for the
seven facilities in which CRSS Capital has an ownership interest. Total backlog
at June 30, 1994 was approximately $4.4 billion, of which CRSS Capital's
interest was approximately $2.5 billion. The projected revenues are based on
remaining contract terms of 10 to 24 years. Although backlog may be an
indication of expected future revenues, the assumptions used for inflation, fuel
prices and average utilization rates are all subject to adjustment, and
therefore no assurances can be made as to the timing or amount of the
realization of such revenues.
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Projects Under Development
CRSS Capital continues to be active in the project development marketplace
selectively seeking to expand its independent power, pulp and paper and
industrial utility asset management project portfolio through in-house project
origination efforts and the acquisition of existing production facilities or
facilities that are currently under construction or development. The majority of
CRSS Capital's project development efforts are focused upon projects in the $50
to $500 million capital cost range.
CRSS Capital has been selected by the Bonneville Power Administration
("BPA") as part of the BPA's Resource Contingency Plan for the development of a
480-megawatt natural gas-fired combined cycle facility in Chehalis, Washington.
CRSS Capital is the sole developer and 100 percent owner of this $400 million
project, which would represent CRSS Capital's largest project to date. The
decision to purchase any power under the BPA's Resource Contingency Plan will be
made by the BPA at the conclusion of the Environmental Impact Statement process.
Competition
Competition for developing, financing and owning energy and process
projects is based primarily on project development expertise, financial
strength, and technical capability. CRSS Capital competes with other independent
power producers, including affiliates of utilities, for project opportunities.
CRSS Capital also encounters competition from finance companies in the pursuit
of industrial investment opportunities.
The recent amendments to PUHCA may increase the number of CRSS Capital's
competitors by reducing certain ownership restrictions currently applicable to
certain projects which are not QFs under PURPA. See "Regulation".
REGULATION
The Company is subject to energy and environmental laws and regulations at
the federal, state, and local levels in connection with the development,
ownership, and operation of its energy plants. Federal laws and regulations
govern transactions with utility companies, the types of fuel which may be
utilized by a plant, the type of energy which may be produced by a plant and the
ownership of a plant. State utility regulatory commissions must usually approve
the rates and, in some instances, other terms and conditions under which public
utilities purchase electric power from independent producers. Under some
circumstances the FERC must approve rates in power contracts. In certain
circumstances where specific exemptions are otherwise unavailable, state utility
regulatory commissions may have broad jurisdiction over non-utility and
industrial electric power plants and even over sales of steam and heat.
Energy-producing projects also are subject to federal, state, and local laws and
administrative regulations which govern emissions produced by a plant and the
geographical location, zoning, land use and operation of a plant. Applicable
federal environmental laws typically have state and local enforcement and
implementation provisions. These environmental laws and regulations generally
require that a wide variety of permits and other approvals be obtained before
the commencement of construction or operation of an energy-producing facility
and that the facility then operate in compliance with such permits and
approvals. CRSS believes that it possesses the technology, technical expertise
and administrative capabilities to comply with existing energy and environmental
laws and regulations.
In order to qualify for the benefits provided a QF by PURPA, projects must
satisfy certain ongoing ownership, fuel and size requirements. Similarly, each
Electric Wholesale Generation Facility ("EWG") must satisfy federal
requirements. The FERC certification of qualifications for both QFs and EWGs may
be obtained based upon the factual representations made by a facility's
operators or owners in an application to the FERC. CRSS Capital has received
opinions of counsel to the effect that all of its projects are QFs. If, however,
the projects fail to continue to comply with federal regulations relating to
QFs, they would fail to remain QFs, which could cause the termination of certain
contracts, including power sales contracts. The standards for qualification and
the applicable regulations are subject to amendment. If the regulations were to
be amended, the Company cannot predict what effect any such amendment would have
on the Company or its
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projects. At the present time the Company has no projects operating or under
construction which are classified as EWGs.
Pursuant to authority granted under PURPA, the FERC has promulgated
regulations that currently exempt QFs and their owners from certain cost of
service and other restrictions imposed by the Federal Power Act ("FPA"), the
Public Utility Holding Company Act ("PUHCA"), and state laws related to the
rates and the financial and organizational regulation of electric utilities.
PURPA, PUHCA, FPA, the Energy Policy Act of 1992 and various state laws and
regulations thereunder are subject to amendment or repeal. State regulatory
bodies may also amend or repeal other laws or regulations materially affecting
the Company's projects. The Company cannot predict the effect that any such
amendment or repeal, if adopted, would have on the qualification of the
projects, or the extent of regulation to which the projects may thereby become
subject to or on the economic viability of the project.
In addition to the regulations described above, the projects must comply
with applicable federal, state, and local laws and regulations relating to land
use and the protection of the environment. The environmental regulations under
which the projects operate are subject to amendment. The Company cannot predict
what effect compliance with such amendments, if adopted, may have on its
business. Compliance with such amendments could require modification of a
project and thereby increase its costs, extend its completion date or otherwise
adversely affect the project's operation.
Because CRSS Capital attempts to design and develop its projects so that
they qualify for the benefits of PURPA, CRSS Capital's business could be
adversely affected by a significant change in PURPA and could otherwise be
materially impacted by decisions of federal, state, and local legislative,
judicial, and regulatory bodies.
Public Utility Regulatory Policies Act
The enactment in 1978 of PURPA and the adoption of regulations thereunder
by the FERC provided incentives for the development of cogeneration facilities
and small power production facilities (those utilizing renewable fuels and
having a capacity of less than 80 megawatts). In 1990, Congress amended PURPA to
lift the 80-megawatt ceiling on facilities using certain renewable fuel
technologies.
PURPA provides two primary benefits to QFs. First, QFs are relieved of
compliance with extensive federal, state, and local regulations that control the
development, financial structure, and operation of an energy-producing plant and
the prices and terms on which energy may be sold by the plant. Second, the
FERC's regulations promulgated under PURPA require that electric utilities
purchase electricity generated by QFs, construction of which commenced on or
after November 9, 1978, at a price based on the purchasing utility's full
"avoided cost", and that the utility sell back-up power to the QF on a
nondiscriminatory basis. The term "avoided cost" is defined as the incremental
costs to an electric utility of electric energy or capacity or both which, but
for the purchase from the qualifying facility or qualifying facilities, such
utility would generate for itself or purchase from another source. The FERC
regulations also permit QFs and utilities to negotiate agreements for utility
purchases of power at rates lower than the utility's avoided costs. Due to
increasing competition for utility contracts, the current practice is for most
power sales contracts to be awarded at below avoided cost. While public
utilities are not explicitly required by PURPA to enter into long-term
contracts, PURPA helped to create a regulatory environment in which it has
become common for long-term contracts to be negotiated.
Public Utility Holding Company Act
Under PUHCA, any corporation, partnership or other legal entity which owns
or controls 10% or more of the outstanding voting securities of a "public
utility company" or a company which is a "holding company" of a public utility
company is subject to registration with the Securities and Exchange Commission
and regulation under PUHCA, unless eligible for an exemption. The FERC, under
PURPA, has declared that QFs and EWGs are not public utility companies under
PUHCA. A holding company of a public utility company that is subject to
registration is required by PUHCA to limit its utility operations to a single
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integrated utility system and to divest any other operations not functionally
related to the operation of that utility system. Approval by the Securities and
Exchange Commission is required for nearly all important financial and business
dealings of the holding company.
If CRSS Capital were to pursue the acquisition or development of a project
which would not qualify as a QF or an EWG, CRSS Capital would structure its
participation in a manner to qualify for other exemptions from regulation under
PUHCA. Such a structure could, for example, consist of CRSS Capital holding a
non-voting, limited partnership interest in a partnership which owns a project.
PUHCA exemptions are available for foreign utility acquisitions.
Federal Power Act
The FPA grants the FERC exclusive rate-making jurisdiction over wholesale
sales of electricity in interstate commerce, including ongoing as well as
initial rate jurisdiction, which enables the FERC to revoke or modify previously
approved rates. Such rates may be based on a cost-of-service approach or on
rates that are determined through competitive bidding or negotiation. While QFs
under PURPA are exempt from the rate-making and certain other provisions of the
FPA, EWGs and projects not qualifying for QF status would be subject to the FPA
and to the FERC rate-making jurisdiction, which may limit their flexibility in
negotiations with power purchasers. However, since such plants would not be
bound by PURPA's thermal energy use requirement, they might have greater
latitude in site selection and facility size.
State Regulation
State public utility commissions ("PUCs") have broad authority to regulate
both the price and financial performance of providers of public utility
services, including in some cases, authority over the sale of steam and heat.
Since a power sales contract will become a part of a utility's cost structure
(and therefore is generally reflected in its rates), power sales contacts from
independents are potentially under the regulatory purview of PUCs. However, many
PUCs are normally favorably disposed toward independent power contracts (and may
even pre-approve contracts with prices that do not exceed the avoided costs of
the purchasing utility) because such contracts often have been acquired through
a competitive or market-based process. Recognizing the competitive nature of the
acquisition process, most PUCs will permit utilities to "pass through" expenses
associated with an independent power contract to the utility's retail customers.
Independent power producers which are not QFs under PURPA are considered to
be public utilities in many states, and are subject to broad regulation by PUCs,
ranging from the requirement of certificates of public convenience and necessity
to regulation of organizational, accounting, financial, and other corporate
matters. Although the FERC generally has exclusive jurisdiction over the rates
charged by such a producer to its wholesale customers, PUCs have the ability, in
practice, to influence the establishment of such rates by asserting jurisdiction
over the purchasing utility's ability to pass through the resulting cost of
purchased power to its retail customers. In addition, states may assert
jurisdiction over the siting and construction of facilities not qualifying as
QFs (as well as QFs), and over the issuance of securities and the sale or other
transfer of assets by these facilities.
Transmission and Wheeling
Energy-producing plants that sell power to distant customers often require
the transmission of electricity over power lines owned by others ("wheeling").
The prices and related terms and conditions of wheeling generally are regulated
by the FERC. PUCs also have limited jurisdiction over the transmission of power
to distant users. Only one of CRSS Capital's projects (Westwood) requires
wheeling.
Environmental Regulation
The construction and operation of power projects are subject to extensive
federal, state, and local laws and regulations adopted for the protection of the
environment and to regulate land use. The laws and regulations applicable to
CRSS Capital primarily involve the discharge of emissions into water and air and
the use of water, but can also include wetlands preservation, endangered
species, waste disposal, and noise
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regulation. These laws and regulations in many cases require a lengthy and
complex process of obtaining licenses, permits and approvals from federal, state
and local agencies. If such laws and regulations are changed and CRSS Capital's
facilities are not exempt from implementing such changes, extensive
modifications to project technologies and facilities could be required.
CRSS Capital monitors applicable environmental standards and evaluates the
selection of technologies to ensure that the applicable standards will be met.
Based on current trends, CRSS Capital expects that environmental and land use
regulation will become more stringent. Accordingly, CRSS Capital plans to
continue to place a strong emphasis on the development and use of
"best-available" technology to minimize the impact of its energy generation on
the environment.
Clean Air Act
In late 1990, Congress passed the Clean Air Act Amendments of 1990 (the
"1990 Amendments"). The original Clean Air Act of 1970 set guidelines for
emissions standards for major pollutants (for example, SO2 and NOx) from
newly-built sources in an attempt to reduce emissions from existing
sources -- particularly large older power plants that were exempted from certain
regulations under the original Clean Air Act. All of CRSS Capital's operating
plants perform at levels better than federal performance standards mandated for
such plants under the 1990 Amendments.
The 1990 Amendments create a marketable commodity called an SO2
"allowance". One allowance permits the discharge of one ton of SO2 by a facility
for the year the allowance is granted. All nonexempt power plants over 25
megawatts that emit SO2 (including independent power plants) must obtain
allowances in order to operate after 1999. Existing utilities will be issued
allowances based on their historical fuel consumption and a reduced emission
rate specified in the statute. To the extent any utility has more allowances
than it needs, either because of shutdown or because of "overcontrolling"
emissions, the utility can transfer or sell those allowances to others.
Significantly, the 1990 Amendments exempt from the SO2 allowance provisions
all existing independent power projects which were operating, under construction
or with power sales contracts (or letters of intent therefor) as of November 15,
1990, as well as plants outside the contiguous 48 states. As a result, all of
CRSS Capital's operating plants, plants under construction and certain of its
projects under development are exempt. Other provisions of the 1990 Amendments
will help to reduce the negative impact of the 1990 Amendments on CRSS Capital's
plants that are under development, but not exempt from the allowance provisions,
by providing alternative sources of allowances other than from utilities. The
new SO2 reductions that will be required of existing utility plants may reduce
the net electricity output of some utility plants and may force others to shut
down, increasing the demand for new power capacity.
The 1990 Amendments also require states to impose annual operating permit
fees of at least $25 per ton of regulated pollutants emitted up to $100,000 per
pollutant (4,000 tons). While such permit fees may be substantial, and will be
greater for coal-fired projects than for those burning gas or other fuel, such
fees are not expected to increase CRSS Capital's plant operating costs
significantly.
DISCONTINUED OPERATIONS
CRSS Services, Inc. -- Architectural, Engineering and Construction Services
CRSS Services, a wholly-owned subsidiary of CRSS, provided comprehensive
architectural, engineering, and construction and program management services
through its three primary wholly-owned operating subsidiaries: CRSS Architects,
Inc. ("Architects"), CRSS Constructors, Inc. ("Constructors"), and CRS Sirrine
Engineers, Inc. ("Engineers").
On July 21, 1994, the Company sold its design subsidiary, Architects, to
Hellmuth, Obata & Kassabaum, Inc. ("HOK") of St. Louis, Missouri. Total
consideration amounted to $6.8 million, consisting of $4.8 million in cash and a
$2.0 million sharing of future net cash distributions from the Peace Shield
project. The Peace Shield project is part of the United States' foreign military
sales program to provide AWACS aircraft to Saudi Arabia. CRSS, in joint venture
with Metcalf & Eddy, Inc. serves as overall program manager for the
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construction of all support facilities for the AWACS aircraft. Completion of the
Peace Shield project is expected in June 1996.
On July 29, 1994, the Company sold its engineering and construction
management operations, consisting primarily of Constructors and certain assets
and liabilities of Engineers, to Jacobs Engineering Group Inc. ("Jacobs"). Total
consideration paid by Jacobs amounted to $33.5 million in cash, representing
$14.0 million over the aggregate book value of the businesses acquired as of
June 30, 1994. The purchase price is subject to adjustment for changes in the
aggregate book value of the businesses acquired between June 30, 1994 and the
closing date of July 29, 1994. As part of the transaction, CRSS retained certain
assets and liabilities (representing net assets of approximately $10.9 million),
the majority of which relate to four power plant engineering, procurement and
construction contracts which are substantially complete or in the later stages
of completion. The Company has agreed to share in the future profit margin
improvement or deterioration for up to three specific projects,
Additionally, the Company has agreed to indemnify HOK and Jacobs against
certain legal claims arising from any acts, errors or omissions prior to July
21, 1994 and July 29, 1994, respectively.
See Note 3 of the Notes to Consolidated and Combined Financial Statements
on page 34 of this Form 10-K for more information related to the discontinuance
of the architectural, engineering, and construction services segment.
NaTec Resources, Inc. -- Acid Rain Pollution Control
In July 1988, CRSS Nahcolite, Inc. ("CRSN"), a wholly-owned subsidiary of
the Company, and Wolf Ridge Corporation, a wholly-owned subsidiary of Industrial
Resources, Inc. ("IRI"), formed NaTec Mines, a limited partnership, to develop,
design and market integrated systems and products to control pollutants commonly
associated with acid rain, to design and construct pilot and commercial plants
for the extraction of minerals from NaTec Mines' sodium leases and to market and
ship sodium, sodium products and sodium technology for industrial and utility
uses. On October 30, 1989, the Company exchanged its outstanding stock in CRSN
(which held the Company's 50 percent interest in NaTec Mines), plus cash of
approximately $6.1 million, for 11.1 million newly issued common shares of IRI.
In conjunction with the transaction, IRI changed its name to NaTec Resources,
Inc. ("NaTec"). As a result of this transaction, the Company owned an equity
interest of approximately 45 percent of the recapitalized NaTec.
NaTec's primary business is related to its dry sorbent injection technology
which utilizes nahcolite, a naturally occurring form of sodium bicarbonate,
which NaTec obtains from a joint venture producer of nahcolite in which NaTec
has a 50 percent interest. The nahcolite, along with patented reagents, is
injected into the flue gas stream at a power plant or industrial facility, where
it reacts with the flue gas, reducing both sulfur dioxide and nitrogen oxide
emissions. NaTec provides consulting services, systems construction, sorbent
supply and processing along with operations and maintenance services. Primary
markets are the utility, independent power production, and industrial markets
which include pulp and paper, municipal solid waste and petroleum refining.
On November 1, 1990, CRSS purchased 100,000 shares of NaTec Series A
Cumulative Convertible Exchangeable Preferred Stock ("Preferred Stock") for
$10.0 million. Quarterly dividends of 12.0 percent per annum are payable at the
option of CRSS in (i) cash, (ii) an equivalent amount of NaTec common stock or
(iii) a promissory note. At the option of the Company, and at any time prior to
redemption, the Preferred Stock may be converted into approximately 1.6 million
shares of NaTec common stock. The Preferred Stock has voting rights based upon
the number of "as if converted" shares of NaTec common stock.
On April 25, 1991, CRSS purchased an additional 700,000 shares of NaTec
common stock for approximately $3.3 million. This purchase, along with the
common shares received during fiscal 1991 as payment for Preferred Stock
dividends, increased CRSS' holding of NaTec common stock to approximately 12.0
million shares or a 47.4 percent equity ownership. When combined with the voting
rights obtained in conjunction with the November 1, 1990 Preferred Stock
purchase, CRSS obtained controlling interest in NaTec with voting rights of 50.6
percent as a result of this additional stock purchase.
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During fiscal year 1992, CRSS purchased 10,000 shares of Series B and
10,000 shares of Series C Cumulative Convertible Exchangeable Preferred Stock
("Series B and Series C") for $2.0 million. Dividends are payable quarterly at a
rate of 11.5 percent per annum. Series B and Series C may be converted at the
option of CRSS into approximately 224,000 shares and 279,000 shares,
respectively. Other terms of the Series B and Series C Preferred Stock are
substantially identical to Series A. With the voting rights obtained in
conjunction with these additional purchases of Preferred Stock combined with
common stock received as payment for Preferred Stock dividends, CRSS effectively
controls approximately 51.5 percent of the voting rights of NaTec at June 30,
1994.
Effective December 31, 1992, CRSS consolidated various amounts receivable
from NaTec into a five-year convertible note. Upon conversion of the remaining
balance of the note, CRSS would effectively control approximately 55.5 percent
of the voting rights of NaTec.
NaTec, through its 50 percent ownership of an affiliate, holds federal
leases in Colorado expiring in 2001 which can be renewed for successive 10-year
periods. The leases cover an area of 8,224 acres located approximately 48 miles
northwest of Rifle, Colorado. The two principal sodium materials contained in
the leases are nahcolite and dansonite. Located on the leases in Colorado is a
nahcolite solution mining and processing facility which went into operation in
April 1991.
In August 1992, the Company announced its intent to divest its acid
rain/pollution control related holdings. In June 1994, the Company signed a
nonbinding letter of intent with a third party to sell its holdings in NaTec.
This letter of intent has subsequently expired. Negotiations are continuing,
however, as there still exists a willingness from both parties to attempt to
consummate a transaction.
The acid rain/pollution control operations were classified as discontinued
operations as of June 30, 1992. See Note 3 of the Notes to Consolidated and
Combined Financial Statements on page 34 of this Form 10-K for more information
related to the discontinuance of the acid rain/pollution control operations.
Global Capital Group, Inc. -- Insurance and Specialty Program Underwriter
In 1981, the Company organized Global Capital Insurance Ltd. ("Global"), a
wholly-owned subsidiary, to reinsure a portion of the Company's own insurance
needs (primarily for professional liability insurance) and thereby reduce its
increasing insurance costs. In 1986, Global and successors began to pursue
opportunities for expansion into certain third party specialty domestic and
international insurance and reinsurance markets. In 1987, the Company organized
a new insurance holding company, Global Capital Group, Inc. ("Global Capital").
In January 1992, CRSS and Global Capital completed the sale of its primary
insurance subsidiary, Global Insurance Company ("GIC"), for $8.9 million to
United Republic Reinsurance Company, a subsidiary of the Lawrence Group, Inc.
The sales agreement provided for a guarantee by Global Capital of the GIC
balance sheet, including loss reserves, by an amount up to $2.75 million. As of
June 30, 1994, CRSS has paid the entire $2.75 million guarantee amount. The
insurance operations were classified as discontinued operations as of June 30,
1991. See Note 3 of the Notes to Consolidated and Combined Financial Statements
on page 34 of this Form 10-K for more information related to the discontinuance
of the insurance operations.
EMPLOYEES
As of June 30, 1994, CRSS and its subsidiaries had 1,862 employees
distributed among the various segments as follows:
CRSS Services, Inc........................................................... 1,774
CRSS Capital, Inc............................................................ 37
Corporate.................................................................... 51
-----
Total........................................................................ 1,862
=====
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Following completion of the sale of the architectural, engineering, and
construction services segment, the Company will have 63 employees engaged in
operations, business development and marketing, and general and administrative
functions.
ITEM 2. PROPERTIES
The Company leases office space at 1177 West Loop South in Houston, Texas.
The noncancelable lease, which terminates September 2003, is subject to annual
escalations for increased operating costs. The base rental rate is also subject
to increase in October 1998.
The Company also owns property at 1111 West Loop South which includes land
and a two-story office building with approximately 52,400 square feet.
See discussions in Item 1, regarding power and cogeneration facilities.
ITEM 3. LEGAL PROCEEDINGS
The Company and its subsidiaries are defendants in a number of lawsuits
involving claims typical of those filed against the architectural, engineering,
and construction professions, alleging primarily professional errors, omissions,
and/or delays. The Company has agreed to indemnify HOK and Jacobs against such
claims arising prior to July 21, 1994 and July 29, 1994, respectively. The
Company and its subsidiaries maintain professional liability insurance and other
self-insured reserves, which insure against risk within the existing policy
limits. Management is of the opinion that the CRSS Inc. Consolidated Financial
Statements, incorporated herein, include adequate provision for uninsured
losses.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of security holders during the
fourth quarter of fiscal 1994.
Identification of Executive Officers
The following is a list of executive officers of CRSS, their ages,
positions, and offices, as of August 26, 1994, except those executive officers
who are also directors and are listed in Item 10.
NAME INFORMATION OFFICES AND POSITIONS WITH CRSS AND OTHER
- - ---------------------------------- ---------------------------------------------------------
James T. Stewart (Age 46)......... President. Mr. Stewart joined CRSS in 1983 as Senior Vice
President, Manager of the Power Division. In 1988, Mr.
Stewart was appointed President and Chief Executive
Officer of CRSS Capital, Inc. He became President of CRSS
Inc. effective August 25, 1994.
William J. Gardiner (Age 40)...... Senior Vice President/Chief Financial Officer/Treasurer.
Mr. Gardiner joined CRSS in 1976. In 1982, Mr. Gardiner
was named Assistant Corporate Controller for CRSS and was
promoted to Vice President/Controller -- Architecture
Group in 1985. In 1990, Mr. Gardiner was appointed Senior
Vice President/Chief Financial Officer of CRSS Capital,
Inc. He became Senior Vice President/Chief Financial
Officer/Treasurer of CRSS Inc. in 1992.
(Table continued on following page)
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NAME INFORMATION OFFICES AND POSITIONS WITH CRSS AND OTHER
- - ---------------------------------- ---------------------------------------------------------
Timothy R. Dunne (Age 42)......... Vice President/General Counsel/Secretary. Mr Dunne joined
CRSS Capital, Inc. in 1990 as Assistant General Counsel,
and was promoted to General Counsel of CRSS Capital, Inc.
in 1992. He became Assistant Secretary of CRSS Inc. in
1992 and was appointed Vice President/General
Counsel/Secretary effective August 25, 1994.
Mary V. Gilbert (Age 32).......... Vice President/Controller. Ms. Gilbert joined CRSS
Capital, Inc. in 1989 as Assistant Controller. She was
appointed Vice President/Controller of CRSS Capital, Inc.
in 1992 and became Controller of CRSS Inc. in April 1994.
Ms. Gilbert was elected Vice President effective August
25, 1994.
Effective August 25, 1994, Craig L. Martin (Senior Vice
President/Operations) and Frank Perrone (Vice President/General
Counsel/Secretary) resigned from their positions as executive officers of the
Company.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS
CRSS Inc. common stock is traded on the New York Stock Exchange under the
trading symbol "CRX". The number of holders of record of the Company's common
stock, $1.00 par value, as of August 25, 1994 was 1,235.
PRICE RANGE
DIVIDENDS -------------------------
FISCAL 1994 PER SHARE HIGH LOW
----------- --------- --------- ---------
First Quarter.......................................... $0.03 $ 10 $8 1/4
Second Quarter......................................... 0.03 10 3/8 8 3/8
Third Quarter.......................................... 0.03 13 1/4 9 3/4
Fourth Quarter......................................... 0.03 12 3/8 9 1/2
---------
$0.12
FISCAL 1993
-----------
First Quarter.......................................... $0.03 $10 3/4 $7
Second Quarter......................................... 0.03 11 1/8 7
Third Quarter.......................................... 0.03 11 8 1/2
Fourth Quarter......................................... 0.03 9 5/8 7 1/2
---------
$0.12
Cash dividends have been paid on the Company's common stock since
1974 -- annually for fiscal years 1974 through 1976 and on regular quarterly
dates since November 1976.
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ITEM 6. SELECTED FINANCIAL DATA
The following table presents selected financial information for CRSS Inc.
and its subsidiaries as of and for each of the five years ended June 30, 1994.
Selected financial data should be read in conjunction with the Consolidated
Financial Statements and accompanying notes.
1994 1993 1992 1991 1990
-------- -------- -------- -------- --------
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
Revenues............................ $ 28,419 $ 37,975 $ 30,519 $ 34,065 $ 17,945
Equity income (loss) in
partnerships...................... 14,327 8,038 5,027 2,360 (41)
Operating income (loss) from
continuing operations............. 14,096 13,610 4,676 5,054 (930)
Earnings (loss) from continuing
operations........................ 3,718 4,318 (1,085) (685) (2,669)
Primarily and fully diluted earnings
(loss) per common share from
continuing operations............. 0.28 0.33 (0.08) (0.05) (0.19)
Equity investment in partnerships... 61,538 24,358 14,476 6,480 4,114
Total assets........................ 210,672 219,733 208,242 218,808 251,183
Non-recourse project financing...... 60,937 63,238 65,368 67,296 68,874
Other long-term obligations......... 7,845 8,055 5,635 5,246 5,292
Cash dividends per share............ 0.12 0.12 0.12 0.12 0.12
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
GENERAL
Electricity sales, steam sales and plant operations expense included in the
Company's Consolidated Statement of Operations consist of the revenues and costs
associated with the three Viking cogeneration facilities. These projects are
wholly-owned by CRSS Capital. Equity income in partnerships includes CRSS
Capital's interest in cogeneration facilities that are less than majority-owned
and are accounted for using the equity method. These partnerships include the
Hopewell, Naheola, Westwood, and Appomattox facilities. Operations and
administrative service fees arise from management services provided by CRSS
Capital to each project in which it maintains an ownership interest. Costs
associated with providing these services are included in general and
administrative expense. Other revenues include fees and other revenues earned in
conjunction with the successful development and financial closing of projects.
In addition to the components discussed previously, costs and expenses include
general and administrative overhead costs as well as expenses related to the
Company's project development efforts.
CONTINUING OPERATIONS
Earnings from continuing operations for fiscal 1994 were $3.7 million, or
$0.28 per share compared to $4.3 million, or $0.33 per share for fiscal 1993.
Loss from continuing operations for fiscal 1992 was $1.1 million, or $0.08 per
share. Fiscal 1993 included the development fee and gain on sale of partnership
interest in conjunction with the October 1992 financial closing of the
Appomattox facility at the Stone Container Corporation pulp and paper mill in
Hopewell, Virginia. Excluding the effects of the Appomattox transaction, the
increase in earnings from continuing operations since fiscal 1992 reflects the
growing contribution attributable to the less than majority-owned partnerships
as further discussed below under the caption "Equity income in partnerships."
Total revenues for fiscal 1994 decreased $9.6 million, or 25 percent
compared to fiscal 1993. Fiscal 1993 total revenues increased $7.5 million, or
24 percent compared to fiscal 1992. The fluctuation in total revenues is due
primarily to revenue related to the completion of project development activities
and sales of partnership interests. Fiscal 1993 included revenue of $8.2 million
earned in conjunction with the financial closing on the Appomattox facility as
noted above. Fiscal 1992 included a gain on sale of partnership interest in the
Clean
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Power Cogeneration Limited Partnership of $1.2 million. Revenues attributable to
electricity and steam sales were relatively consistent for fiscal 1994, 1993 and
1992.
Plant operations costs for fiscal 1994 increased $1.1 million, or 6 percent
compared to fiscal 1993. Increased operating costs were primarily due to higher
fuel costs as a result of difficulties during the year in procuring adequate
wood supplies. Plant operations costs for fiscal 1993 were consistent with
fiscal 1992.
Fiscal 1994 general and administrative expenses were $5.7 million compared
to $11.6 million for fiscal 1993, representing a decrease of $5.9 million, or 51
percent. General and administrative expenses for fiscal 1993 increased $1.5
million, or 15 percent as compared to fiscal 1992. The fluctuations are
primarily attributable to expenses related to the closing of the Appomattox
transaction included in fiscal 1993. Additionally, fiscal 1994 general and
administrative expenses were reduced by expense reimbursements of approximately
$1.6 million related to another developmental project. The expenses related to
this project were incurred and included in general and administrative expense in
fiscal 1992.
Marketing and project development expenses were $2.6 million, $1.5 million,
and $1.6 million for fiscal 1994, 1993, and 1992, respectively. The increase for
fiscal 1994 reflects the increase in project development efforts as the Company
seeks to expand and diversify its cogeneration projects.
Non-operating income for fiscal 1994 was $0.3 million compared to $3.0
million for fiscal 1993. Non-operating income for fiscal 1993 included a $1.2
million gain from the sale of a guaranteed interest contract in March 1993 in
addition to $1.0 million of interest income from the guaranteed interest
contract through the date of sale. Also contributing to the decrease for fiscal
1994 was lower cash balances available for investment during the year.
Non-operating income for fiscal 1993 increased $0.7 million compared to fiscal
1992. The increase was primarily due to the $1.2 million gain from the sale of
the guaranteed interest contract noted above, partially offset by $0.3 million
lower interest income related to the guaranteed interest contract. The remainder
of the decrease was attributable to lower interest rates during fiscal 1993 on
short-term investments.
Interest expense, which is primarily attributable to the long-term
non-recourse debt used to finance the Viking cogeneration facilities, was $7.4
million, $7.6 million, and $7.8 million for fiscal 1994, 1993, and 1992
respectively. The decreases in interest expense reflect the reductions in the
outstanding principal balances on the non-recourse debt. The Company incurred
interest expense of $0.1 million for short-term borrowings under the revolving
credit facility during fiscal 1994.
Minority interest in earnings of $0.5 million, $1.2 million, and $0.3
million for fiscal 1994, 1993, and 1992, respectively, represents the 19 percent
minority interest in CRSS Capital owned by Paribas North America, Inc.
("Paribas") through January 31, 1994. On that date, the Company (via redemption
by CRSS Capital) repurchased all of the common stock of CRSS Capital owned by
Paribas resulting in CRSS Capital becoming wholly-owned by the Company.
EQUITY INCOME IN PARTNERSHIPS
Equity income in partnerships reflects CRSS Capital's 50 percent interest
in the Hopewell, Naheola, and Appomattox power and cogeneration facilities and
the 47.5 percent interest in the Westwood facility. Summarized combined
financial information on the less than majority-owned power and cogeneration
partnerships at 100 percent for the years ended June 30, 1994, 1993, and 1992
follows (dollars in thousands):
YEAR ENDED JUNE 30,
---------------------------------
1994 1993 1992
-------- -------- -------
Revenues............................................ $178,740 $113,853 $70,913
Operating income.................................... 75,006 47,435 32,868
Net income.......................................... 28,834 16,167 10,166
Equity income in partnerships was $14.3 million, $8.0 million, and $5.0
million for fiscal 1994, 1993, and 1992, respectively. The increases over the
three years ended June 30, 1994 are primarily attributable to the addition of
the Appomattox and Naheola facilities in October 1992 and March 1993,
respectively.
17
20
Equity income in partnerships for fiscal 1994 increased $6.3 million or 78
percent as compared to fiscal 1993. The Company's equity income from Naheola
increased from $1.2 million in fiscal 1993 to $5.8 million in fiscal 1994 due to
fiscal 1994 including a full year of earnings compared to three months of
earnings in fiscal 1993. Collectively, the Hopewell, Westwood and Appomattox
facilities accounted for the remaining $1.7 million increase for fiscal 1994
with increased earnings for all three projects.
Fiscal 1993 equity income in partnerships increased $3.0 million as
compared to fiscal 1992. The increase in fiscal 1993 was due primarily to a $1.7
million increase in income generated by the Hopewell facility due to lower fuel
costs as compared to fiscal 1992. Also contributing to the increase was the $1.2
million generated by the Naheola facility during its first three months of
operations.
The following represents a proforma condensed combining balance sheet and
statement of operations of the Company assuming the less than majority-owned
partnerships are combined with the Company (dollars in thousands):
PROFORMA CONDENSED COMBINING BALANCE SHEET
AS OF JUNE 30, 1994
UNCONSOLIDATED COMBINED
CRSS INC. PROJECTS CRSS INC.
--------- -------------- ---------
Assets
Current assets.................................. $ 51,019 $ 75,185 $ 126,204
Restricted cash................................. -- 47,392 47,392
Property, plant and equipment, net.............. 78,043 488,694 566,737
Power purchase agreement, net................... -- 60,030 60,030
Equity investment in partnerships............... 61,538 -- --
Other noncurrent assets......................... 20,072 845 20,917
--------- ----------- ---------
$ 210,672 $672,146 $ 821,280
========= =========== =========
Liabilities and Shareholders' Equity
Current liabilities............................. $ 13,552 $ 53,107 $ 66,659
Non-recourse project financing.................. 60,937 460,989 521,926
Other long-term obligations..................... 7,845 34,661 42,506
Deferred income taxes........................... 40,452 -- 40,452
Minority interest in partnerships............... -- -- 61,851
Shareholders' equity............................ 87,886 123,389 87,886
--------- ----------- ---------
$ 210,672 $672,146 $ 821,280
========= =========== =========
PROFORMA CONDENSED COMBINING STATEMENT OF OPERATIONS
FOR THE YEAR ENDED JUNE 30, 1994
UNCONSOLIDATED COMBINED
CRSS INC. PROJECTS CRSS INC.
--------- -------------- ---------
Revenues........................................ $ 28,419 $178,740 $ 207,159
Costs and expenses.............................. 28,650 103,734 132,384
Equity income in partnerships................... 14,327 -- --
--------- ----------- ---------
Operating income from continuing operations..... 14,096 75,006 74,775
Other income (expense), net..................... (7,568) (46,172) (53,740)
Minority interest in earnings of partnerships... -- -- (14,507)
--------- ----------- ---------
Earnings from continuing operations before
income tax.................................... 6,528 28,834 6,528
Income tax expense.............................. 2,810 -- 2,810
--------- ----------- ---------
Earnings from continuing operations............. $ 3,718 $ 28,834 $ 3,718
========= =========== =========
18
21
DISCONTINUED OPERATIONS
Discontinued operations consists of (i) the design, engineering, and
construction management segment, (ii) the acid rain/pollution control segment,
and (iii) the insurance segment. Loss from discontinued operations was $2.2
million, or $0.17 per share, $0.6 million, or $0.04 per share, and $16.9
million, or $1.27 per share for fiscal 1994, 1993, and 1992, respectively.
Design, Engineering, and Construction Management -- CRSS Services
CRSS Services, a wholly-owned subsidiary of CRSS provided comprehensive
architectural, engineering, and construction and program management services
through its three primary wholly-owned subsidiaries: CRSS Architects, Inc.
("Architects"), CRSS Constructors, Inc. ("Constructors"), and CRS Sirrine
Engineers, Inc. ("Engineers").
On July 21, 1994, the Company sold its design subsidiary, Architects, to
Hellmuth, Obata & Kassabaum, Inc. ("HOK") of St. Louis, Missouri. Total
consideration amounted to $6.8 million, consisting of $4.8 million in cash and a
$2.0 million sharing of future net cash distributions from the Peace Shield
project. The Peace Shield project is part of the United States' foreign military
sales program to provide AWACS aircraft to Saudi Arabia. CRSS, in joint venture
with Metcalf & Eddy, Inc., serves as overall program manager for the
construction of all support facilities for the AWACS aircraft. Completion of the
Peace Shield project is expected in June 1996.
On July 29, 1994, the Company sold its engineering and construction
management operations, consisting primarily of Constructors and certain assets
and liabilities of Engineers, to Jacobs Engineering Group Inc. ("Jacobs"). Total
consideration paid by Jacobs amounted to $33.5 million in cash, representing
$14.0 million over the aggregate book value of the businesses acquired. The
purchase price is subject to adjustment for changes in the aggregate book value
of the businesses acquired between June 30, 1994 and the closing date of July
29, 1994. As part of the transaction, CRSS retained certain assets and
liabilities (representing net assets of approximately $10.9 million), the
majority of which relate to four power plant engineering, procurement, and
construction contracts which are substantially complete or in the later stages
of completion. The Company agreed to share in the future profit margin
improvement or deterioration for up to three specific projects.
Additionally, the Company has agreed to indemnify HOK and Jacobs against
certain legal claims arising from any acts, errors or omissions prior to July
21, 1994 and July 29, 1994, respectively.
Gross revenues generated by the discontinued design, engineering and
construction management subsidiary, CRSS Services, were $550.4 million, $506.5
million and $424.2 million in 1994, 1993, and 1992, respectively. Operating
revenues generated by CRSS Services were $189.3 million, $212.1 million and
$212.3 million for the years ended June 30, 1994, 1993 and 1992, respectively.
Income (loss) from operations of the design, engineering, and construction
management segment for fiscal 1994, 1993, and 1992 was $0.5 million, $(0.6)
million, and $0, respectively. The estimated loss on disposal of this segment
recognized in fiscal 1994 totalled $2.7 million, or $0.21 per share and consists
of (i) a $6.7 million write-off of excess office space, related leasehold
improvements and furniture, (ii) cost of professional liability insurance and a
reserve for future potential legal claims related to the indemnification
provided HOK and Jacobs ($5.3 million), (iii) $1.0 million of transaction
closing costs, (iv) $0.6 million of employee severance and other related costs,
and (v) other costs and expenses estimated to be incurred during the phase-out
of CRSS Services ($3.0 million). These estimated disposal costs and expenses
were partially offset by the $14.0 million premium over the aggregate book value
of the businesses acquired by Jacobs.
Acid Rain/Pollution Control Segment
In August 1992, the Company announced its intent to divest its acid
rain/pollution control related investment holdings. These holdings, which
consisted of (i) a 47.5 percent interest in the common stock of NaTec Resources,
Inc. ("NaTec") and a $12.0 million investment in NaTec Cumulative Convertible
Exchangeable Preferred Stock ("Preferred Stock"), and (ii) a 661,000 share
investment in Dravo Corporation ("Dravo"), were classified as discontinued
operations as of June 30, 1992.
19
22
In September 1992, the Company sold its investment in Dravo stock for $4.5
million. In June 1994, the Company signed a nonbinding letter of intent with a
third party to sell its holdings in NaTec. The letter of intent has expired.
Negotiations are continuing, however, as there still exists a willingness from
both parties to attempt to consummate a transaction.
CRSS' interest in NaTec's fiscal 1992 loss from operations was $1.9
million, or $0.14 per share. The estimated loss on disposal of the NaTec and
Dravo stock holdings recognized in fiscal 1992 of $15.0 million, or $1.12 per
share consisted of charges related to the disposition of the NaTec stock
holdings and corresponding discontinuance of funding to NaTec, and a reduction
in the carrying value of the Dravo stock to market value.
During November 1992, NaTec sold a 50 percent interest in a newly created
subsidiary, White River Nahcolite Minerals, ("White River") to North American
Chemical Company ("NACC") for $10.0 million. White River supplies nahcolite to
both parties. The $10.0 million purchase price is estimated to have an adjusted
value of $7.6 million which reflects (i) the discount to present value of the
$8.0 million note portion of the purchase price, (ii) preferential distributions
to be made by White River to NACC, and (iii) additional capital expenditures to
be made by NaTec to increase the effective annual production levels at the
facility to 106,000 tons. During fiscal year 1994, NACC ceased payment on the
remaining balance of the note ($3.5 million) alleging that the nahcolite
production facility has not yet demonstrated an effective annual production
capacity of 106,000 tons per year. Pursuant to the joint venture agreement,
NaTec was required to make all expenditures necessary for the facility to
achieve the effective annual production capacity of the White River nahcolite
production facility to that level by April 15, 1994. In the event the effective
annual production capacity of 106,000 tons per year had not been achieved on
that date as reasonably agreed between NaTec and NACC, the purchase price
payable by NACC for its interest in White River could have been reduced
proportionately based on the percentage of such capacity that is obtained. Any
such reduction would have been applied pro rata to reduce each subsequent
installment of the purchase price. NaTec could have, however, continued efforts
to demonstrate such effective annual production capacity of 106,000 tons, which
would thereby have acted to defer the computation of the purchase price
adjustment and defer the remaining payments by NACC on the note until such
effective annual production capacity was attained. Management of NaTec believes
that NACC's failure to make its May 31, 1994 payment on the note was wrongful in
view of the facts that production data from the plant demonstrates an effective
annual capacity at or near 106,000 tons and that, as the manager of the joint
venture owning the nahcolite production facility, NACC has prevented the
production facility from achieving its full capacity by its refusal to utilize
additional recovery equipment already located at the facility and to implement
certain process modifications in a timely manner. Accordingly, NaTec has filed a
lawsuit against NACC.
Limited revenues are anticipated for the immediate future as sales of
NaTec's technology and sorbent continue to lag as a result of the timing of the
requirement for utilities and other industries to implement measures to control
the emission of pollutants associated with acid rain formation as legislated by
the Clean Air Act of 1990. Due to the current dispute with NACC and the
associated deferral of collections on the note receivable, in addition to the
potential negative impact on capital resources due to resolving such dispute,
NaTec is uncertain that a sufficient level of internally generated funding will
be available in the foreseeable future to continue its operations.
Insurance Segment
In January 1992, CRSS and Global Capital Group, Inc. ("Global Capital")
completed the sale of its primary insurance subsidiary Global Insurance Company
("GIC"), for $8.9 million to United Republic Reinsurance Company ("United
Republic"), a subsidiary of the Lawrence Insurance Group, Inc. The insurance
segment was classified as discontinued operations as of June 30, 1991.
The agreement with United Republic for the sale of GIC provided for a
guarantee by CRSS of the GIC balance sheet, including loss reserves of up to
$2.75 million. As of June 30, 1994, CRSS has paid the entire $2.75 million
guarantee amount to United Republic.
20
23
CHANGE IN ACCOUNTING PRINCIPLES
Accounting for Postretirement/Postemployment Benefits
In December 1990, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 106 on "Employers'
Accounting for Postretirement Benefits other than Pensions". In November 1992,
the FASB issued SFAS No. 112 on "Employers' Accounting for Postemployment
Benefits". Both of these standards require a change in the accounting for such
benefits from the current "pay-as-you-go" (cash) basis to an accrual method. The
Company adopted SFAS No. 106 and 112 as of the beginning of fiscal 1993.
The Company maintained a postretirement medical plan for employees who were
hired prior to January 1, 1987. In addition, the Company provided life insurance
and dental coverage for certain of its retirees. SFAS No. 106 requires the
accrual of the cost of providing such postretirement benefits, during the active
service period of the employee. The Company elected to immediately recognize the
cumulative effect of the change in accounting for postretirement benefits of
$1.4 million ($0.9 million, or $0.07 per share, net of income tax benefit) which
represents the accumulated postretirement benefit obligation existing at July 1,
1992. Prior to fiscal 1993, the Company recognized expense in the year the
benefits were provided.
The Company also provided certain medical benefits for former employees and
certain dependents. SFAS No. 112 requires the accrual of postemployment benefits
provided to former or inactive employees, their beneficiaries, and covered
dependents. For the Company, this is limited primarily to the cost of health
care continuation benefits to long-term disability participants. The cumulative
effect of the change in accounting for postemployment benefits recognized in
fiscal 1993 was $1.2 million ($0.8 million, or $0.06 per share, net of income
tax benefit).
The annual charge to expense for providing postretirement and
postemployment benefits under the new standards are not materially different
from the annual expense under the "pay-as-you-go" basis, which is not
significant to the Company. The postretirement and postemployment benefit plans
were terminated subsequent to June 30, 1994.
Accounting for Income Taxes
In February 1992, the FASB issued SFAS No. 109 on "Accounting for Income
Taxes". SFAS No. 109 requires a change from the "deferred method" of accounting
for income taxes to use of the "liability method". Under the "liability method"
deferred tax assets and liabilities are recognized for the future tax
consequences attributable to the differences between the financial statement
carrying value of existing assets and liabilities and their respective tax
bases. Deferred tax assets and liabilities are measured by using enacted tax
rates, that are applicable to the future years in which deferred tax assets or
liabilities are expected to be realized or settled. Under SFAS No. 109, the
effect of a change in tax rates on deferred tax assets and liabilities is
recognized in net income in the period in which the tax rate change was enacted.
The Company adopted SFAS No. 109 as of the beginning of fiscal 1993. The
cumulative effect of this change in accounting for income taxes was $7.5
million, or $0.57 per share.
LIQUIDITY AND CAPITAL RESOURCES
Working capital at June 30, 1994, totalled $37.5 million, which included
cash and cash equivalents of $2.2 million. As of June 30, 1993, working capital
was $70.9 million, which included $28.2 million in cash and cash equivalents.
The decrease in working capital and cash and cash equivalents from June 30, 1993
was due primarily to (i) a $30.0 million equity contribution to the Naheola
Cogeneration Limited Partnership (of which CRSS' portion was $24.3 million),
(ii) the repurchase of all of the common stock of CRSS Capital owned by Paribas
for $17.0 million, (iii) payments on long-term obligations of $2.1 million, and
(iv) dividends paid on common stock of $1.5 million. Partially offsetting the
decrease in cash and cash equivalents was (i) $20.0 million provided by the
operations of the discontinued design, engineering, and construction management
segment, (ii) partnership distributions of $7.2 million received by CRSS
Capital, and (iii) proceeds from the exercise of stock options of $1.0 million.
21
24
As noted above, subsequent to June 30, 1994, the Company received $38.3
million from the sale of the design, engineering and construction management
segment. Net proceeds from the sale will be used for the funding and development
of current and future power and cogeneration projects.
CRSS Capital made the $30.0 million equity contribution to the Naheola
Cogeneration Limited Partnership, of which CRSS' portion was $24.3 million in
July 1993. The contribution was funded from available cash.
On January 31, 1994, the Company (via redemption by CRSS Capital)
repurchased all of the common stock of CRSS Capital owned by Paribas for $17.0
million. The purchase price was funded from available cash in addition to
borrowings of $13.0 million obtained under the revolving credit facility
maintained by the Company, as further discussed below.
Partnership distributions received by CRSS Capital were $7.1 million, $5.2
million, and $7.0 million during fiscal 1994, 1993, and 1992, respectively.
The Company's non-recourse project financing represents long-term
non-recourse debt related to the Viking projects. The notes provide for interest
payments at 11.5 percent per annum due in quarterly installments of principal
and interest through the year 2009. Minimum principal maturities on non-recourse
project financing for the next five years are approximately $2.3 million in
1995, $2.5 million in 1996, $2.7 million in 1997, $2.9 million in 1998, and $3.1
million in 1999.
At June 30, 1994 cash totaling $0.3 million has been reserved for plant
maintenance on the Viking projects in accordance with the terms of the
non-recourse project financing.
The Company maintains an unsecured $50.0 million revolving credit facility
with four banks. The amount of facility available for borrowings is reduced by
the amount of all outstanding letters of credit issued thereunder which
currently total $34.3 million. The credit facility, which is available through
December 30, 1994 may be used for general corporate purposes subject to certain
restrictive covenants including, among others, liquidity ratio, tangible net
worth, debt and cash flow ratios, and limitations on capital investments. The
Company had short-term borrowings under the revolving credit facility of $74.3
million during fiscal 1994 which were used for general working capital purposes
and for the repurchase of all of the common stock of CRSS Capital owned by
Paribas. All short-term borrowings were repaid during the year with no balances
outstanding under the revolving credit facility as of June 30, 1994.
Management believes that existing cash, cash flow from operations and
existing credit facilities will be sufficient to meet the current ongoing
requirements of the operations of the Company. In addition, the above sources
can be supplemented with other external sources of funds to meet additional cash
requirements if necessary.
IMPACT OF INFLATION AND CHANGING PRICES
Inflation and changing prices have not significantly affected the Company's
operating results or the markets in which the Company performs services.
22
25
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO FINANCIAL STATEMENTS
PAGE
----
CRSS INC.:
Consolidated Balance Sheet.......................................... 24
Consolidated Statement of Operations................................ 25
Consolidated Statement of Shareholders' Equity...................... 26
Consolidated Statement of Cash Flows................................ 27
EQUITY INVESTMENT PARTNERSHIPS OF CRSS INC.:
Combined Balance Sheet.............................................. 28
Combined Statement of Operations.................................... 29
Combined Statement of Partners' Capital............................. 29
Combined Statement of Cash Flows.................................... 30
Notes to Consolidated and Combined Financial Statements............. 31
Reports of Independent Auditors..................................... 50
Report of Management................................................ 51
Schedule V -- Property, Plant and Equipment......................... 48
Schedule VI -- Accumulated Depreciation and Amortization of
Property, Plant and Equipment.................................... 49
All other Schedules are omitted because they are not applicable, not
required or the information is included in the Financial Statements or notes
thereto.
23
26
CRSS INC.
CONSOLIDATED BALANCE SHEET
AS OF JUNE 30, 1994 AND 1993
(DOLLARS IN THOUSANDS)
ASSETS
JUNE 30,
-----------------------
1994 1993
-------- --------
Current assets:
Cash and cash equivalents.......................................... $ 2,229 $ 28,220
Accounts receivable................................................ 4,664 4,648
Deferred income taxes.............................................. 1,959 3,289
Other current assets............................................... 5,546 3,714
Net current assets from discontinued operations.................... 36,621 48,391
-------- --------
Total current assets....................................... 51,019 88,262
Property, plant and equipment, net................................... 78,043 80,600
Net noncurrent assets from discontinued operations................... 7,326 18,648
Other assets:
Equity investment in partnerships.................................. 61,538 24,358
Other noncurrent assets............................................ 12,746 7,865
-------- --------
74,284 32,223
-------- --------
$210,672 $219,733
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable................................................... $ 946 $ 1,562
Current portion of long-term obligations........................... 3,096 2,965
Other current liabilities.......................................... 9,510 12,836
-------- --------
Total current liabilities.......................................... 13,552 17,363
Non-recourse project financing....................................... 60,937 63,238
Other long-term obligations.......................................... 7,845 8,055
Deferred income taxes................................................ 40,452 37,599
Minority interest in common stock of subsidiary subject to put....... -- 7,084
Shareholders' equity:
Preferred stock, no par value, 2,000,000 shares authorized but
unissued........................................................... -- --
Common stock, $1.00 par value, 50,000,000 shares authorized; issued
1994 -- 16,492,000 and 1993 -- 16,289,000.......................... 16,492 16,289
Additional paid-in capital........................................... 69,253 68,054
Retained earnings.................................................... 29,184 29,244
-------- --------
114,929 113,587
Treasury stock, at cost, 1994 -- 3,574,000 shares 1993 -- 3,559,000
shares............................................................. (26,946) (26,822)
Other................................................................ (97) (371)
-------- --------
87,886 86,394
-------- --------
$210,672 $219,733
======== ========
See Notes to Consolidated and Combined Financial Statements.
24
27
CRSS INC.
CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEARS ENDED JUNE 30, 1994, 1993 AND 1992
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
YEAR ENDED JUNE 30,
--------------------------------
1994 1993 1992
------- ------- --------
Revenues:
Electricity and steam sales................................ $24,822 $25,739 $ 25,791
Operations and administrative service fees................. 3,493 3,858 3,306
Other revenues............................................. 104 8,378 1,422
------- ------- --------
28,419 37,975 30,519
Costs and expenses:
Plant operations........................................... 20,357 19,264 19,152
General and administrative................................. 5,698 11,642 10,140
Marketing and project development.......................... 2,595 1,497 1,578
------- ------- --------
28,650 32,403 30,870
Equity income in partnerships................................ 14,327 8,038 5,027
------- ------- --------
Operating income from continuing operations.................. 14,096 13,610 4,676
Other income (expense):
Non-operating income....................................... 270 3,014 2,294
Interest expense........................................... (7,383) (7,626) (7,827)
Minority interest in earnings.............................. (455) (1,218) (257)
------- ------- --------
(7,568) (5,830) (5,790)
------- ------- --------
Earnings (loss) from continuing operations before income
tax........................................................ 6,528 7,780 (1,114)
Income tax (expense) benefit................................. (2,810) (3,462) 29
------- ------- --------
Earnings (loss) from continuing operations................... 3,718 4,318 (1,085)
Earnings (loss) from discontinued operations, net of income
tax expense of $758 in 1994 and $770 in 1992, and income
tax benefit of $1,738 in 1993.............................. 456 (567) (1,876)
Estimated loss on disposal of discontinued operations, net of
income tax benefit of $776 in 1994......................... (2,700) -- (15,031)
------- ------- --------
Earnings (loss) before cumulative effect of changes in
accounting principles...................................... 1,474 3,751 (17,992)
Cumulative effect of changes in accounting principles, net of
income tax benefit of $882 in 1993......................... -- (9,178) --
------- ------- --------
Net earnings (loss).......................................... $ 1,474 $(5,427) $(17,992)
======= ======= ========
Primary and fully diluted earnings (loss) per common share:
Earnings (loss) from continuing operations................. $ 0.28 $ 0.33 $ (0.08)
Cumulative effect of changes in accounting principles...... -- $ (0.70) --
Net earnings (loss)........................................ $ 0.11 $ (0.41) $ (1.35)
======= ======= ========
Weighted average common shares outstanding................... 13,051 13,138 13,369
======= ======= ========
Dividends per common share................................... $ 0.12 $ 0.12 $ 0.12
======= ======= ========
See Notes to Consolidated and Combined Financial Statements.
25
28
CRSS INC.
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED JUNE 30, 1994, 1993 AND 1992
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
COMMON PAID-IN RETAINED TREASURY
STOCK CAPITAL EARNINGS STOCK OTHER
------- ------- -------- -------- -------
Balance at June 30, 1991................ $16,256 $68,251 $ 55,758 $(23,753) $(3,509)
Cash dividend -- $0.12 per share........ -- -- (1,560) -- --
Issuance of stock under incentive
compensation plans (56,129 shares).... -- 190 -- 410 (479)
Incentive stock awards vested and
forfeited during the year (4,722
shares)............................... -- (32) -- (25) 516
Stock options exercised (15,500
shares)............................... 15 59 -- -- --
Purchase of treasury shares (224,364
shares)............................... -- -- -- (2,066) --
Realized loss on equity investments..... -- -- -- -- 2,879
Other................................... -- (549) -- -- 31
Net loss................................ -- -- (17,992) -- --
------- ------- -------- -------- -------
Balance at June 30, 1992................ 16,271 67,919 36,206 (25,434) (562)
Cash dividend -- $0.12 per share........ -- -- (1,535) -- --
Issuance of stock under incentive
compensation plans (8,943 shares)..... -- 5 -- 67 (8)
Incentive stock awards vested and
forfeited during the year (12,206
shares)............................... -- (20) -- (99) 461
Stock options exercised (18,000
shares)............................... 18 72 -- -- --
Purchase of treasury shares
(190,100 shares)...................... -- -- -- (1,356) --
Other................................... -- 78 -- -- (262)
Net loss................................ -- -- (5,427) -- --
------- ------- -------- -------- -------
Balance at June 30, 1993................ 16,289 68,054 29,244 (26,822) (371)
Cash dividend -- $0.12 per share........ -- -- (1,534) -- --
Issuance of stock under incentive
compensation plans (1,650 shares)..... -- 3 -- 12 (15)
Incentive stock awards vested and
forfeited during the year (2,268
shares)............................... -- (1) -- (24) 105
Stock options exercised (202,300
shares)............................... 203 1,153 -- -- --
Other................................... -- 44 -- (112) 184
Net earnings............................ -- -- 1,474 -- --
------- ------- -------- -------- -------
Balance at June 30, 1994................ $16,492 $69,253 $ 29,184 $(26,946) $ (97)
======= ======= ======== ======== =======
See Notes to Consolidated and Combined Financial Statements.
26
29
CRSS INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE YEARS ENDED JUNE 30, 1994, 1993 AND 1992
(DOLLARS IN THOUSANDS)
YEAR ENDED JUNE 30,
---------------------------------
1994 1993 1992
-------- ------- --------
Cash flows from operating activities:
Earnings (loss) from continuing operations.................. $ 3,718 $ 4,318 $ (1,085)
Adjustments to reconcile net income to net cash provided by
operating activities:
Deferred income taxes..................................... 4,182 4,063 4,017
Depreciation and amortization............................. 3,290 3,373 3,432
Equity income in partnerships............................. (14,327) (8,038) (5,027)
(Increase) decrease in receivables........................ (16) (1,979) 1,751
Increase (decrease) in accounts payable and other current
liabilities............................................ (3,699) 7,180 3,154
Distributions from partnerships........................... 7,147 5,218 7,029
Payments (to) from discontinued operations................ 20,007 (7,154) (1,883)
Gain on sale of guaranteed investment contract............ -- (1,161) --
Other operating activities................................ (2,056) 4,301 3,331
-------- ------- --------
Net cash provided by operating activities................. 18,246 10,121 14,719
Cash flows from investing activities:
Additions to property and equipment....................... (737) (407) (850)
Additions to long-term investments and receivables........ -- -- (1,035)
Proceeds from long-term investments and receivables....... -- 13,777 --
Increase in investments in affiliates..................... (30,000) (7,062) (10,000)
Proceeds from sale of Dravo stock......................... -- 4,515 --
Purchase of NaTec preferred stock......................... -- -- (2,000)
Payments and distributions from discontinued operations... 600 -- 6,379
Other investing activities................................ (147) (283) 730
-------- ------- --------
Net cash provided by (used in) investing activities....... (30,284) 10,540 (6,776)
Cash flows from financing activities:
Payments on long-term obligations......................... (2,129) (2,777) (1,578)
Additions to long-term obligations........................ -- -- 850
Proceeds from short-term borrowings....................... 74,300 -- --
Payments on short-term borrowings......................... (74,300) -- --
Proceeds from exercise of stock options................... 1,010 90 74
Redemption of stock by CRSS Capital....................... (17,000) -- --
Contributions from minority interest...................... 5,700 -- --
Purchase of treasury shares............................... -- (1,356) (2,066)
Dividends paid on common stock............................ (1,534) (1,535) (1,560)
-------- ------- --------
Net cash used in financing activities..................... (13,953) (5,578) (4,280)
-------- ------- --------
Net increase (decrease) in cash and cash equivalents........ (25,991) 15,083 3,663
Cash and cash equivalents at beginning of period............ 28,220 13,137 9,474
-------- ------- --------
Cash and cash equivalents at end of period.................. $ 2,229 $28,220 $ 13,137
======== ======= ========
See Notes to Consolidated and Combined Financial Statements.
27
30
EQUITY INVESTMENT PARTNERSHIPS OF CRSS INC.
COMBINED BALANCE SHEET
AS OF JUNE 30, 1994 AND 1993
(DOLLARS IN THOUSANDS)
JUNE 30,
---------------------
1994 1993
-------- --------
Assets
Current assets:
Cash and cash equivalents............................................ $ 51,304 $ 11,144
Accounts receivable.................................................. 18,272 20,031
Accounts receivable from affiliates.................................. 2,735 2,569
Prepaid expenses and other assets.................................... 2,874 1,339
-------- --------
Total current assets.............................................. 75,185 35,083
Restricted cash........................................................ 47,392 35,973
Property, plant and equipment:
Land................................................................. 4,984 4,930
Plant and equipment.................................................. 539,591 519,804
-------- --------
544,575 524,734
Less accumulated depreciation........................................ (56,050) (33,932)
-------- --------
488,525 490,802
Power purchase agreement, net of accumulated amortization of $9,770 at
June 30, 1994 and $3,950 at June 30, 1993............................ 60,030 65,850
Other noncurrent assets................................................ 1,014 1,084
-------- --------
$672,146 $628,792
======== ========
Liabilities and Partners' Capital
Current liabilities:
Accounts payable..................................................... $ 72 $ 1,839
Accounts and notes payables to affiliates............................ 5,699 5,489
Current portion of non-recourse project financing.................... 27,626 14,749
Operations and maintenance reserves.................................. 4,508 5,285
Other current liabilities............................................ 15,202 6,558
-------- --------
Total current liabilities......................................... 53,107 33,920
Non-recourse project financing......................................... 460,989 491,245
Other long-term obligations............................................ 34,661 24,696
Partners' capital...................................................... 123,389 78,931
-------- --------
$672,146 $628,792
======== ========
Supplemental information:
Partners' capital...................................................... $123,389 $ 78,931
Attributable to other partners......................................... (61,851) (54,573)
-------- --------
CRSS' equity investment in partnerships................................ $ 61,538 $ 24,358
======== ========
See Notes to Consolidated and Combined Financial Statements.
28
31
EQUITY INVESTMENT PARTNERSHIPS OF CRSS INC.
COMBINED STATEMENT OF OPERATIONS
FOR THE YEARS ENDED JUNE 30, 1994, 1993 AND 1992
(DOLLARS IN THOUSANDS)
YEAR ENDED JUNE 30,
----------------------------------
1994 1993 1992
-------- -------- --------
Electricity and steam sales................................ $178,740 $113,853 $ 70,913
Costs and expenses:
Plant operations......................................... 98,136 62,784 34,506
General and administrative............................... 5,598 3,634 3,539
-------- -------- --------
103,734 66,418 38,045
Operating income........................................... 75,006 47,435 32,868
Interest expense........................................... (46,172) (31,268) (22,702)
-------- -------- --------
Net earnings............................................... $ 28,834 $ 16,167 $ 10,166
======== ======== ========
Supplemental information:
Net earnings............................................. $ 28,834 $ 16,167 $ 10,166
Attributable to other partners........................... (14,507) (8,129) (5,139)
-------- -------- --------
CRSS' equity income in partnerships...................... $ 14,327 $ 8,038 $ 5,027
======== ======== ========
See Notes to Consolidated and Combined Financial Statements.
EQUITY INVESTMENT PARTNERSHIPS OF CRSS INC.
COMBINED STATEMENT OF PARTNERS' CAPITAL
FOR THE YEARS ENDED JUNE 30, 1994, 1993 AND 1992
(DOLLARS IN THOUSANDS)
TOTAL
OTHER PARTNERS'
CRSS PARTNERS CAPITAL
------- -------- ---------
Balance at June 30, 1991..................................... $ 6,478 $ 36,488 $ 42,966
Allocated earnings........................................... 5,027 5,139 10,166
Contributions from partners.................................. 10,000 10,000 20,000
Distributions to partners.................................... (7,029) (7,029) (14,058)
------- -------- ---------
Balance at June 30, 1992..................................... 14,476 44,598 59,074
Allocated earnings........................................... 8,038 8,129 16,167
Contributions from partners.................................. 7,062 7,063 14,125
Distributions to partners.................................... (5,218) (5,217) (10,435)
------- -------- ---------
Balance at June 30, 1993..................................... 24,358 54,573 78,931
Allocated earnings........................................... 14,327 14,507 28,834
Contributions from partners.................................. 30,000 -- 30,000
Distributions to partners.................................... (7,147) (7,229) (14,376)
------- -------- ---------
Balance at June 30, 1994..................................... $61,538 $ 61,851 $ 123,389
======= ======== =========
See Notes to Consolidated and Combined Financial Statements.
29
32
EQUITY INVESTMENT PARTNERSHIPS OF CRSS INC.
COMBINED STATEMENT OF CASH FLOWS
FOR THE YEARS ENDED JUNE 30, 1994, 1993 AND 1992
(DOLLARS IN THOUSANDS)
YEAR ENDED JUNE 30,
--------------------------------
1994 1993 1992
-------- -------- --------
Cash flows from operating activities:
Earnings..................................................... $ 28,834 $ 16,167 $ 10,166
Adjustments to reconcile net earnings to net cash provided
by operating activities:
Depreciation and amortization.............................. 28,046 16,353 8,830
Loss on replacement of equipment........................... 210 52 --
(Increase) decrease in receivables......................... 1,593 (15,084) 803
(Increase) decrease in prepaid expenses and other assets... (1,535) 1,086 (2,108)
Increase (decrease) in accounts payable and other
current liabilities..................................... 6,310 (1,660) 6,984
-------- -------- --------
Net cash provided by operating activities.................. 63,458 16,914 24,675
Cash flows from investing activities:
Additions to property and equipment........................ (20,089) (79,702) (118,441)
Purchase of power purchase agreement....................... -- (69,800) --
Increase in restricted cash................................ (11,419) (26,435) (2,208)
-------- -------- --------
Net cash used in investing activities...................... (31,508) (175,937) (120,649)
Cash flows from financing activities:
Partnership distributions.................................. (14,376) (10,435) (14,058)
Contributions from partners................................ 30,000 14,125 20,000
Payments on non-recourse project financing................. (44,749) (11,687) (29,614)
Proceeds from non-recourse project financing............... 27,370 135,800 120,200
Increase in other long-term obligations.................... 9,965 22,802 --
-------- -------- --------
Net cash provided by financing activities.................. 8,210 150,605 96,528
Net increase (decrease) in cash and cash equivalents......... 40,160 (8,418) 554
Cash and cash equivalents at beginning of period............. 11,144 19,562 19,008
-------- -------- --------
Cash and cash equivalents at end of period................... $ 51,304 $ 11,144 $ 19,562
======== ======== ========
See Notes to Consolidated and Combined Financial Statements.
30
33
CRSS INC.
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The Consolidated Financial Statements include the accounts of CRSS Inc.
("CRSS") and its wholly-owned subsidiary, CRSS Capital, Inc. ("CRSS Capital"),
collectively referred to herein as the "Company". The accounts of CRSS Services,
Inc. ("CRSS Services"), a wholly-owned subsidiary of CRSS, have been reflected
as discontinued operations as further discussed in Note 3.
All significant intercompany transactions and balances are eliminated.
Certain amounts in the June 30, 1993 and 1992 Consolidated Financial Statements
have been reclassified to conform to current year presentation.
Through CRSS Capital, the Company has three wholly-owned power and
cogeneration limited partnerships: Viking Energy of McBain, Viking Energy of
Lincoln, and Viking Energy of Northumberland, collectively referred to herein as
"the Vikings". These projects are included in the Consolidated Financial
Statements of the Company.
The Combined Financial Statements include the accounts of the four less
than majority-owned power and cogeneration limited partnerships in which CRSS
Capital has equity interests ranging from 47.5 percent to 50 percent: Hopewell
Cogeneration Limited Partnership ("Hopewell"), Naheola Cogeneration Limited
Partnership ("Naheola"), Appomattox Cogeneration Limited Partnership
("Appomattox"), and Westwood Energy Properties Limited Partnership ("Westwood"),
collectively referred to herein as the "Partnerships".
Revenue Recognition
Revenues from the sale of electricity and steam are reported based upon
output delivered and capacity provided at rates specified under long-term power
supply contracts.
Cash Equivalents
The Company considers all highly liquid investments with original
maturities generally of three months or less to be cash equivalents. Cash
equivalents at June 30, 1994 and 1993 consist primarily of interest bearing
deposits with domestic and foreign banks, stated at cost which approximates
market value.
Property, Plant and Equipment
Property, plant and equipment are recorded at cost and include all
expenditures necessary to prepare a facility for operation, including interest
incurred during the construction period. Depreciation on property and equipment
is computed utilizing the straight-line method over the estimated useful lives
of the related assets. Depreciation on plants is computed utilizing the
straight-line method over 30 years or the length of their associated revenue
contract, whichever is greater.
Power Purchase Agreement
Power purchase agreement includes the costs of acquiring the Appomattox
power purchase agreement and the related project development costs. These costs
are being amortized on a straight-line basis over the 12-year term of the
agreement.
Operations and Maintenance Reserves
Repair and maintenance expenses for expected outage costs are accrued
ratably over the estimated period before the outage to match the expense with
the use of the facility.
31
34
CRSS INC.
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
Earnings Per Share
Earnings per common share have been computed by dividing net earnings by
the weighted average number of common and common equivalent shares outstanding
during the respective periods. Common equivalent shares include the effect of
dilutive stock options as determined using the treasury stock method. The
Company has a shareholders' rights plan designed to ensure that all of the
Company's shareholders receive fair and equal treatment in the event of any
proposal to acquire control of the Company. Under the plan, there is one right
for each share of the Company's common stock entitling the holder to purchase
additional shares of the Company's common stock. The rights become exercisable
only after any person or group acquires 20 percent of more of the Company's
outstanding stock, or announces a tender offer that would result in any person
or group becoming the beneficial owner of 30 percent or more of the Company's
outstanding stock. These rights, which may have a potentially dilutive effect,
have been excluded from the weighted average shares computation as preconditions
to the exercisability of such rights have not been satisfied.
Major Customers and Concentration of Credit Risk
Each facility that CRSS Capital has an interest in has one primary utility
or industrial customer under long-term contracts. A cogeneration facility may
also have a single industrial customer to which they provide steam under a
long-term contract. Although this concentration of customers could be similarly
affected by changes in economic, regulatory or other factors, management of the
Company does not believe that these customers represent a significant credit
risk as of June 30, 1994.
Changes in Accounting Principles
Accounting for Postretirement/Postemployment Benefits
In December 1990, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 106 on "Employers'
Accounting for Postretirement Benefits other than Pensions". In November 1992,
the FASB issued SFAS No. 112 on "Employers' Accounting for Postemployment
Benefits". Both of these standards require a change in the accounting for such
benefits from the current "pay-as-you-go" (cash) basis to an accrual method. The
Company adopted SFAS No. 106 and 112 as of the beginning of fiscal 1993.
The Company maintained a postretirement medical plan for employees who were
hired prior to July 1, 1987. In addition, the Company provided life insurance
and dental coverage for certain of its retirees. SFAS No. 106 requires the
accrual of the cost of providing such postretirement benefits, during the active
service period of the employee. The Company elected to immediately recognize the
cumulative effect of the change in accounting for postretirement benefits of
$1,359,000 ($897,000, or $0.07 per share, net of income tax benefit) which
represents the accumulated postretirement benefit obligation existing at July 1,
1992. Prior to 1993, the Company recognized expense in the year the benefits
were provided. The postretirement medical plan was terminated subsequent to June
30, 1994.
The Company also provided certain medical benefits for former employees and
certain dependents. SFAS No. 112 requires the accrual of postemployment benefits
provided to former or inactive employees, their beneficiaries, and covered
dependents. For the Company, this is limited primarily to the cost of health
care continuation benefits to long-term disability participants. The cumulative
effect of the change in accounting for postemployment benefits recognized in
fiscal 1993 is $1,233,000 ($813,000, or $0.06 per share, net of income tax
benefit). The postemployment benefit plan was terminated subsequent to June 30,
1994.
32
35
CRSS INC.
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
Accounting for Income Taxes
In February 1992, the FASB issued SFAS No. 109 on "Accounting for Income
Taxes". SFAS No. 109 requires a change from the "deferred method" of accounting
for income taxes to use of the "liability method". Under the "liability method"
deferred tax assets and liabilities are recognized for the future tax
consequences attributable to the differences between the financial statement
carrying value of existing assets and liabilities and their respective tax
bases. Deferred tax assets and liabilities are measured by using enacted tax
rates, that are applicable to the future years in which deferred tax assets or
liabilities are expected to be realized or settled. Under SFAS No. 109, the
effect of a change in tax rates on deferred tax assets and liabilities is
recognized in net earnings in the period in which the tax rate change was
enacted.
The Company adopted SFAS No. 109 effective the first quarter of fiscal
1993. The cumulative effect of this change in accounting for income taxes was
$7,468,000,or $0.57 per share. Fiscal 1992 financial statements were not
restated to apply the provisions of SFAS No. 109. The remaining disclosure
information required by SFAS No. 109 is included in Note 4.
No income taxes have been recorded by the Partnerships as the individual
partnerships have been organized as such for income tax purposes. Accordingly,
tax liabilities are liabilities of the individual partners and accordingly
reflected in the Consolidated Financial Statements.
NOTE 2: EQUITY INVESTMENT IN PARTNERSHIPS
Equity investment in partnerships consists of CRSS Capital's unconsolidated
equity interests in Hopewell, Westwood, Appomattox, and Naheola.
CRSS Capital has a 50 percent interest in the Hopewell facility. This
facility, which commenced commercial operations in August 1990, is a
combined-cycle cogeneration facility located in Hopewell, Virginia.
Westwood, in which CRSS Capital has a 47.5 percent interest, commenced
commercial operations in July 1988. The facility consists of an electric power
production plant located in Schuylkill County, Pennsylvania.
In October 1992, CRSS Capital completed project development activities and
term financing for the $70,600,000 Appomattox facility at the Stone Container
Corporation ("Stone") pulp and paper mill in Hopewell, Virginia. CRSS Capital
owns a 50 percent partnership interest in this operational project. Assets
necessary for the generation of electricity from the facility are leased from
Stone, which also provides the facility with all operations and maintenance
services and fuel required for operation of the leased assets. Amounts paid to
Stone for the leased assets, fuel, and services are recovered by revenues from
Stone for steam, compressed air, and black liquor solids processing services.
Construction of the Naheola facility at James River Corporation's Naheola
Mill in Pennington, Alabama was completed at a cost of approximately
$290,000,000 and commercial operations began during March 1993. CRSS Capital is
a 50 percent owner in this facility with James River Pennington ("James River").
In July 1993, CRSS Capital made a $30,000,000 equity contribution to the
partnership, of which CRSS's portion was $24,300,000.
Partnership distributions received by CRSS Capital were $7,147,000,
$5,218,000 and $7,029,000 in 1994, 1993 and 1992, respectively.
33
36
CRSS INC.
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 3: DISCONTINUED OPERATIONS
Design, Engineering and Construction Management Segment
As of June 30, 1994, the design, engineering and construction management
segment has been reflected as discontinued operations in conjunction with the
Company's plan to dispose of this business through the sale of CRSS Services'
three primary wholly-owned operating subsidiaries: CRSS Architects, Inc.
("Architects"), CRSS Constructors, Inc. ("Constructors"), and CRS Sirrine
Engineers, Inc. ("Engineers").
On July 21, 1994, the Company sold Architects, its design subsidiary, to
Hellmuth, Obata & Kassabaum, Inc. ("HOK") of St. Louis, Missouri. Total
consideration amounted to $6,800,000, consisting of $4,800,000 in cash and a
$2,000,000 sharing of future net cash distributions from the Peace Shield
project. The Peace Shield project is part of the United States' foreign military
sales program to provide AWACS aircraft to Saudi Arabia. CRSS, in joint venture
with Metcalf & Eddy, Inc., serves as overall program manager for the
construction of all support facilities for the AWACS aircraft. Completion of the
Peace Shield project is expected in June 1996.
On July 29, 1994, the Company sold its engineering and construction
management operations, consisting primarily of Constructors and certain assets
and liabilities of Engineers, to Jacobs Engineering Group Inc. ("Jacobs"). Total
consideration paid by Jacobs amounted to $33,500,000 in cash, representing
$14,000,000 over the aggregate book value of the businesses acquired. The
purchase price is subject to adjustment for changes in the aggregate book value
of the businesses acquired between June 30, 1994 and the closing date of July
29, 1994. As part of the transaction, CRSS retained certain assets and
liabilities (representing net assets of approximately $10,900,000), the majority
of which relate to four power plant engineering, procurement, and construction
contracts which are substantially complete or in the later stages of completion.
Additionally, the Company has agreed to share in the future profit margin
improvement or deterioration for up to three specific projects.
The Company has agreed to indemnify HOK and Jacobs against certain legal
claims arising from any acts, errors, or omissions prior to July 21, 1994 and
July 29, 1994, respectively.
Gross revenues generated by the discontinued design, engineering, and
construction management subsidiary, CRSS Services, were $550,389,000,
$506,477,000, and $424,205,000 in 1994, 1993 and 1992, respectively. Operating
revenues generated by CRSS Services were $189,261,000, $212,072,000, and
$212,325,000 for the years ended June 30, 1994, 1993, and 1992, respectively.
Acid Rain/Pollution Control Segment
In August 1992, the Company announced its intent to divest its acid
rain/pollution control related investment holdings. These holdings, which
consisted of (i) a 47.5 percent interest in the common stock of NaTec Resources,
Inc. ("NaTec") and a $12,000,000 investment in NaTec Cumulative Convertible
Exchangeable Preferred Stock ("Preferred Stock"), and (ii) a 661,000 share
investment in Dravo Corporation ("Dravo"), were classified as discontinued
operations as of June 30, 1992.
In September 1992, the Company sold its investment in Dravo stock for
$4,515,000. In June 1994, the Company signed a non-binding letter of intent with
a third party to sell its holdings in NaTec. The letter of intent has
subsequently expired. Negotiations are continuing, however, as there still
exists a willingness from both parties to attempt to consummate a transaction.
Effective December 31,1992, the Company consolidated various amounts
receivable from NaTec into a five-year convertible note bearing interest equal
to prime plus 2.0 percent. The remaining balance of the note as of June 30, 1994
is $4,123,000, which is convertible at the option of the Company into 2,443,025
additional shares of NaTec common stock. Repayment of the remaining balance of
the note is made via quarterly
34
37
CRSS INC.
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
principal amounts ranging from $150,000 to $318,550, plus accrued interest.
Additionally, as of June 30, 1994, the Company has accrued dividends from NaTec
of $1,788,000 related to the preferred stock holdings.
Gross revenues generated by the discontinued acid rain/pollution control
segment were $1,224,000, $4,015,000, and $2,991,000 for the years ended June 30,
1994, 1993 and 1992, respectively.
During November 1992, NaTec sold a 50 percent interest in a newly created
subsidiary, White River Nahcolite Minerals, ("White River") to North American
Chemical Company ("NACC") for $10,000,000. White River supplies nahcolite to
both parties. The $10,000,000 purchase price is estimated to have an adjusted
value of $7,600,000 which reflects (i) the discount to present value of the
$8,000,000 note portion of the purchase price, (ii) preferential distributions
to be made by White River to NACC, and (iii) additional capital expenditures to
be made by NaTec to increase the effective annual production levels at the
facility to 106,000 tons. During fiscal year 1994, NACC ceased payment on the
remaining balance of the note ($3,500,000) alleging that the nahcolite
production facility has not yet demonstrated an effective annual production
capacity of 106,000 tons per year. Pursuant to the joint venture agreement,
NaTec was required to make all expenditures necessary for the facility to
achieve the effective annual production capacity of the White River nahcolite
production facility to that level by April 15, 1994. In the event the effective
annual production capacity of 106,000 tons per year had not been achieved on
that date as reasonably agreed between NaTec and NACC, the purchase price
payable by NACC for its interest in White River could have been reduced
proportionately based on the percentage of such capacity that is obtained. Any
such reduction would have been applied pro rata to reduce each subsequent
installment of the purchase price. NaTec could have, however, continued efforts
to demonstrate such effective annual production capacity of 106,000 tons, which
would thereby have acted to defer the computation of the purchase price
adjustment and defer the remaining payments by NACC on the note until such
effective annual production capacity was attained. NaTec believes that NACC's
failure to make its May 31, 1994 payment on the note was wrongful in view of the
facts that production data from the plant demonstrates an effective annual
capacity at or near 106,000 tons and that, as the manager of the joint venture
owning the nahcolite production facility, NACC has prevented the production
facility from achieving its full capacity by its refusal to utilize additional
recovery equipment already located at the facility and to implement certain
process modifications in a timely manner. The failure of NACC to make the May
1994 payment and the uncertainty of the timing of the resolution of such dispute
and corresponding future collections on the note have limited NaTec's already
strained capital resources.
Insurance Segment
In January 1992, CRSS and Global Capital Group, Inc. ("Global Capital")
sold its primary insurance subsidiary, Global Insurance Company ("GIC"), for
$8,900,000 to United Republic Reinsurance Company, a subsidiary of the Lawrence
Group, Inc. The $8,900,000 of sales proceeds were distributed to CRSS by Global
Capital in the form of a $6,400,000 dividend and in settlement of payables to
CRSS of $2,500,000. The insurance segment was classified as discontinued
operations as of June 30, 1991.
35
38
CRSS INC.
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
Combined Segments
Income (loss) from operations of the discontinued operations by segment
follows:
YEAR ENDED JUNE 30,
--------------------------
1994 1993 1992
---- ----- -------
(DOLLARS IN THOUSANDS)
Design, Engineering, and Construction Management.......... $456 $(567) $ 3
Acid Rain/Pollution Control............................... -- -- (1,879)
---- ----- -------
$456 $(567) $(1,876)
==== ===== =======
The estimated loss on disposal of the discontinued design, engineering, and
construction management segment recorded in fiscal 1994 totalled $2,700,000, or
$0.21 per share. The estimated loss on disposal consists of (i) a $6,735,000
writeoff of excess office space, related leasehold improvements and furniture,
(ii) cost of professional liability insurance and a reserve for future potential
legal claims related to the indemnification provided to HOK and Jacobs
($5,250,000), (iii) $1,035,000 of transaction closing costs (broker commissions,
legal and accounting fees, etc.), (iv) $644,000 of severance costs and
transaction closing bonuses, and (v) other costs and expenses estimated to be
incurred during the phase-out of CRSS Services ($3,036,000). These estimated
disposal costs and expenses were partially offset by the $14,000,000 premium
over the aggregate book value of the businesses acquired by Jacobs.
The estimated loss on disposal of the discontinued acid rain/pollution
control holdings recorded in fiscal 1992 totalled $15,031,000 or $1.12 per
share. The estimated loss on disposal consisted of charges related to the
disposition of the NaTec stock holdings and corresponding discontinuance of
funding to NaTec, and a reduction in the carrying value of the Dravo stock to
market value. The reduction in the carrying value of the Dravo stock was a
result of the reclassification from long-term to short-term marketable equity
security.
The net assets of the discontinued operations by segment are as follows:
JUNE 30,
-------------------
1994 1993
------- -------
(DOLLARS IN
THOUSANDS)
Net Current Assets:
Design, Engineering, and Construction Management........... $24,190 $44,517
Acid Rain/Pollution Control................................ 12,431 3,874
------- -------
$36,621 $48,391
======= =======
Net Noncurrent Assets:
Design, Engineering, and Construction Management........... $ 7,326 $ 8,901
Acid Rain/Pollution Control................................ -- 9,747
------- -------
$ 7,326 $18,648
======= =======
Net assets of the design, engineering, and construction management segment
at June 30, 1994 consists primarily of cash, accounts receivable, property,
plant and equipment, and deferred taxes, net of accounts payable, unbilled fees
and accrued discontinuance costs. The remaining net assets at June 30, 1994 of
the discontinued acid rain/pollution control segment consist primarily of
NaTec's investment in White River.
NOTE 4: INCOME TAXES
As discussed in Note 1, the Company elected early adoption of SFAS No. 109,
which required a change from the "deferred method" of accounting for income
taxes to use of the "liability method". The Company reported the cumulative
effect of the change in the method of accounting for income taxes of $7,468,000,
or
36
39
CRSS INC.
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
$0.57 per share effective to the first quarter of fiscal 1993. Also pursuant to
SFAS No. 109, the Company was required to restate certain assets and the related
deferred tax liability associated with a prior purchase business combination.
This restatement resulted in an increase of property, plant and equipment and
accumulated depreciation of $3,250,000 and $271,000, respectively.
The components of income taxes on consolidated earnings from continuing
operations for the three years ended June 30 are:
1994 1993 1992
------- ------- -------
(DOLLARS IN THOUSANDS)
Current:
Federal........................................... $(1,047) $(1,012) $(4,046)
State............................................. (325) 411 --
Deferred:
Federal........................................... 4,678 3,684 4,017
State............................................. (496) 379 --
------- ------- -------
$ 2,810 $ 3,462 $ (29)
======= ======= =======
Cash payments (refunds) for income taxes amounted to $1,785,000 in 1994,
($2,584,000) in 1993, and ($3,238,000) in 1992.
The following is a reconciliation of the provision for income taxes from
continuing operations computed utilizing the statutory U.S. Federal income tax
rate to the effective tax rate:
1994 1993 1992
---------------- ---------------- ----------------
AMOUNT % AMOUNT % AMOUNT %
------ ------ ------ ------ ------ ------
(DOLLARS IN THOUSANDS, EXCEPT PERCENTAGES)
Tax Computed at U.S. statutory rate.... $2,252 34.5 $2,648 34.0 $(379) 34.0
Increase (decrease) in taxes resulting
from:
State income tax..................... (105) (1.7) 522 6.7 -- --
Nondeductible expenses............... 147 2.3 67 0.8 19 (1.7)
Minority interest.................... 157 2.4 414 5.3 87 (7.8)
Other................................ 359 5.5 (189) (2.4) 244 (21.9)
------ ----- ------ ---- ----- -----
Tax computed at effective tax rate..... $2,810 43.0 $3,462 44.4 $ (29) 2.6
====== ==== ====== ==== ====== =====
37
40
CRSS INC.
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
Total deferred tax assets and deferred tax liabilities at June 30, 1994
were $15,515,000 and $54,007,000, respectively and $13,595,000 and $47,905,000
at June 30, 1993. The tax effects of temporary differences that give rise to
significant portions of the deferred tax assets and deferred tax liabilities at
June 30, 1994 and 1993 are as follows:
1994 1993
-------- --------
(DOLLARS IN
THOUSANDS)
Current deferred tax assets
Accruals and allowances...................................... $ 1,911 $ 2,763
Other, net................................................... 48 526
-------- --------
Total net current deferred tax asset................. 1,959 3,289
Noncurrent deferred tax assets (liabilities)
Accruals and allowances...................................... 2,036 1,840
Deferred state taxes......................................... 2,219 2,391
Excess tax depreciation...................................... (25,372) (24,875)
Investment in partnerships................................... (17,781) (12,328)
Alternative minimum tax credit carryforward.................. 2,910 4,016
State deferred tax liabilities............................... (6,431) (6,927)
Net operating loss carryforward.............................. 6,390 1,993
Other........................................................ (4,423) (3,709)
-------- --------
Total net noncurrent deferred tax liability.......... (40,452) (37,599)
-------- --------
Net deferred tax liability................................... $(38,493) $(34,310)
======== ========
Prior to the adoption of SFAS No. 109, the principal items giving rise to
timing differences that resulted in deferred income taxes from continuing
operations were as follows:
1992
----------------------
(DOLLARS IN THOUSANDS)
Power and cogeneration facilities................................. $ 7,132
Alternative minimum tax credit carryforward....................... (2,044)
Charitable contribution limitation................................ (432)
Other............................................................. (639)
--------
$ 4,017
========
Regular net operating loss carryforwards for federal income tax purposes at
June 30, 1994 are $22,915,000 which are available to offset future federal
taxable income through 2008. In addition, the Company has $4,500,000 in capital
loss carryforwards which are available to offset future capital gains through
1998.
38
41
CRSS INC.
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 5: PROPERTY, PLANT AND EQUIPMENT
The Company's property, plant and equipment consist of the following:
JUNE 30,
---------------------
1994 1993
-------- --------
(DOLLARS IN
THOUSANDS)
Power and cogeneration facilities.............................. $ 87,329 $ 86,882
Machinery and equipment........................................ 1,815 1,552
Buildings and leasehold improvements........................... 4,350 4,327
Furniture and fixtures......................................... 1,137 1,138
Land........................................................... 951 951
-------- --------
95,582 94,850
Less accumulated depreciation.................................. (17,539) (14,250)
-------- --------
$ 78,043 $ 80,600
======== ========
Power and cogeneration facilities represent operating cogeneration plants
and related assets associated with the Vikings. Property, plant and equipment of
the Partnerships are reflected on the Combined Balance Sheet.
NOTE 6: RELATED PARTY TRANSACTIONS
CRSS Capital provides management, administrative, and development services
for some of the Partnerships. Revenues, including reimbursable expenses, earned
by CRSS Capital related to these services were $3,493,000, $3,858,000, and
$3,306,000 for fiscal 1994, 1993, and 1992, respectively. Accounts receivable
due CRSS Capital from the Partnerships were $86,000 and $120,000 at June 30,
1994 and 1993, respectively.
CRSS Capital holds a note receivable from Westwood for $500,000 payable on
demand with interest at prime. Total interest accrued at June 30, 1994 and 1993
was $253,000 and $222,000, respectively.
In addition to the administrative, operations, and maintenance services
provided by CRSS Capital as noted above, the Partnerships are also provided
various services by their other partners and their affiliates. Total expenses
incurred by the Partnerships related to the services provided by their partners
were $41,989,000, $34,391,000, and $19,312,000 for the years ended June 30,
1994, 1993, and 1992, respectively.
Appomattox and Naheola provide steam, compressed air, black liquor
processing services, and electrical power to the respective Stone and James
River mills. Revenues recognized for such services were $97,319,000 and
$39,698,000 for the years ended June 30, 1994 and 1993, respectively.
NOTE 7: OTHER CURRENT LIABILITIES
Other current liabilities of the Company consist of the following:
JUNE 30,
--------------------
1994 1993
------ -------
(DOLLARS IN
THOUSANDS)
Accrued incentive compensation.................................. $2,351 $ 4,279
Liability for cancelled stock appreciation rights............... 897 1,129
Operations and maintenance reserve.............................. 742 443
Accrued 401-K contributions..................................... 684 693
Other........................................................... 4,836 6,292
------ -------
$9,510 $12,836
====== =======
39
42
CRSS INC.
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 8: NON-RECOURSE PROJECT FINANCING AND CREDIT FACILITIES
The Company's non-recourse project financing represents long-term
non-recourse debt related to the Viking projects. The Viking cogeneration
facilities are pledged as collateral on the notes which provide for interest at
11.15 percent due in quarterly installments of principal and interest through
the year 2009. Minimum principal maturities on non-recourse project financing
for the next five years are $2,301,000 in 1995, $2,474,000 in 1996, $2,672,000
in 1997, $2,876,000 in 1998, and $3,093,000 in 1999.
Credit Facilities
The Company maintains an unsecured $50,000,000 revolving credit facility
with four banks. The amount of facility available for borrowings is reduced by
the amount of all outstanding letters of credit issued thereunder which
currently total $34,335,000. The loan bears interest, at the Company's option,
at the prevailing prime interest rate or adjusted London InterBank Offered Rate.
The credit facility, which is available through December 30, 1994, may be used
for general corporate purposes subject to certain restrictive covenants
including, among others, liquidity ratio, tangible net worth, debt and cash flow
ratios, and limitations on capital investments. Borrowings under the facility
bear interest at prime, or, at the Company's option, the London Interbank
Offered Rate plus 1.50 percent. A commitment fee of 0.37 percent per annum is
payable quarterly on each lending institution's commitment on the revolving
credit facility. The Company had no outstanding borrowings under the revolving
credit facility at June 30, 1994 or 1993.
Interest paid related to all Company obligations was $7,513,000,
$7,589,000, and $7,763,000 in fiscal 1994, 1993, and 1992, respectively. These
payments relate primarily to the non-recourse project financing for the Viking
projects.
Partnerships
Hopewell is being financed by a consortium of banks through a combination
of Base, Eurodollar, and CD rate loans ("Loans") and through the sale of
commercial paper. The commercial paper program is backed by an irrevocable
letter of credit not to exceed the balance of the outstanding debt. Hopewell
pays fees on the Loans at rates from 0.25 percent to 1.375 percent and pays fees
on the letter of credit at escalating rates from 0.625 percent to 1.125 percent.
Under the terms of a swap agreement, Hopewell pays a fixed interest rate of
10.56 percent on a notional amount which was $7,200,000 higher than the original
amount borrowed, resulting in an effective interest rate in excess of the stated
rate. This notional amount decreases ratable over the term of the financing,
which expires June 30, 2005.
Financing for Naheola is being provided by Taxable Industrial Revenue Bonds
issued by the Industrial Development Board of the City of Butler, Alabama. Under
the terms of a swap agreement with a consortium of banks, Naheola has agreed to
pay the difference between the average Eurodollar rate and a fixed rate each
quarter over the term of the financing, which expires March 31, 2006. The fixed
rate escalates over the term of the agreement from 8.86 percent to 9.48 percent.
Financing for Appomattox was provided by a consortium of lenders through
$56,500,000 of 9.02 percent senior secured notes due in 2001. In lieu of
maintaining a debt service reserve account, Appomattox established an
irrevocable letter of credit for $4,617,000.
Westwood was financed utilizing tax-exempt Resource Recovery Revenue Bonds
("the Bonds") through the Schuylkill County Industrial Revenue Authority, and
through taxable notes payable to the general partners. The Bonds are secured by
an irrevocable, direct-pay letter of credit in the amount of $57,691,000, issued
by a consortium of banks, which is secured by a deed of trust on the Westwood
facility. Westwood is charged an annual letter of credit commitment fee of 1.3
percent of the outstanding letter of credit amount in addition to an annual
fronting fee of 0.35 percent of the outstanding letter of credit participation
amount. The Bonds pay a variable rate of interest, which represents the 30-day
yield evaluations at par of tax-exempt
40
43
CRSS INC.
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
securities of issues of commercial paper rated by Moody's Investors Service or
Standard and Poor's Corporation in its highest commercial paper rating category.
The rate is determined daily by the remarketing agent. Redemption of the Bonds
is required upon failure to renew or replace the letter of credit, upon a change
in the determination of taxability of the Bonds, and through mandatory sinking
fund and optional redemptions. The Bonds have required semi-annual redemptions
through November 2009.
Assets for each partnership are pledged as collateral on their respective
loans or Bonds.
Combined future minimum principal maturities and sinking fund requirements
on the financing of the Partnerships for the next five years are $27,627,000,
$29,617,000, $32,636,000, $35,797,000, and $39,034,000.
Cash paid for interest by the Partnerships, including capitalized interest,
was $41,454,000, $35,837,000, and $30,896,000 for the years ended June 30, 1994,
1993, and 1992. Interest capitalized during the years ended June 30, 1993 and
1992 was $5,833,000 and $7,790,000, respectively. No interest was capitalized
during the year ended June 30, 1994.
NOTE 9: RESTRICTED CASH AND OTHER LONG-TERM OBLIGATIONS OF THE PARTNERSHIPS
Each of the Partnerships has restricted cash as required by either their
respective financing arrangements or under their respective partnership
operating agreements.
In accordance with Hopewell's financing agreement, restricted cash balances
are maintained to be used for repair and maintenance costs. Restricted cash
balances for Hopewell were $4,820,000 and $3,368,000 at June 30, 1994 and 1993,
respectively. Westwood had restricted cash of $580,000 at June 30, 1994 and 1993
for bond redemption purposes. Under its letter of credit agreement, Westwood is
also required to keep a debt service reserve in case of default of the Bonds.
This $7,330,000 reserve at June 30, 1994 and 1993 has been invested in tax-free
municipal bonds in accordance with the agreement.
Stone provided a reserve for Appomattox which may be accessed in the event
Stone fails to fulfill its contractual obligations to the partnership.
Additionally, Appomattox maintains a reserve to fund future maintenance on the
leased assets. Amounts included in restricted cash and other long-term
obligations related to these reserves were $26,549,000 and $23,075,000 at June
30, 1994 and 1993, respectively.
Naheola maintains an operator reserve. The amount included in restricted
cash and other long-term obligations at June 30, 1994 and 1993 was $8,112,000
and $1,621,000, respectively.
NOTE 10: MINORITY INTEREST
On January 31, 1994, the Company (via redemption by CRSS Capital)
repurchased all of the common stock of CRSS Capital owned by Paribas North
America, Inc., the 19 percent minority interest owner for $17,000,000. The
acquisition was accounted for using the purchase method of accounting.
41
44
CRSS INC.
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
The following unaudited proforma consolidated financial information for the
years ended June 30, 1994 and 1993, which gives effect to the acquisition as if
it had occurred on July 1, 1992, reflects adjustments made to the financial
statements for (i) amortization of goodwill ($3,898,000) over a 20 year period,
(ii) interest expense on additional borrowings of $13,000,000 at a rate of 4.875
percent per annum (LIBOR plus 1.125 percent), (iii) additional 19 percent of net
earnings of CRSS Capital, and (iv) related income tax adjustments.
YEAR ENDED JUNE
30,
------------------
1994 1993
------- -------
(DOLLARS IN
THOUSANDS)
Revenues.......................................................... $28,419 $37,975
Earnings from continuing operations before income tax............. 6,500 8,169
Earnings from continuing operations............................... 3,815 4,948
Earnings per common share from continuing operations.............. 0.29 0.38
NOTE 11: LEASE COMMITMENTS
The Company leases its office facilities and certain furniture under
operating lease agreements. Certain leases contain renewal options and
escalation clauses. As a result of the divestiture of the design and
construction services business as further discussed in Note 3, a significant
portion of the Company's leased office space has become excess to the Company's
current and anticipated future requirements. The Company is currently subleasing
a portion of this excess space and intends to continue efforts to sublease the
remaining available space in the near future. The Company accrued approximately
$3,179,000 in 1994 for future rental obligations net of estimated future
sublease income related to this excess office space, which is reflected in
discontinued operations. Total rental expense for operating leases included in
continuing operations was approximately $603,000 per year in 1994, 1993, and
1992.
The following is a schedule of future noncancelable minimum lease payments
under leases with an initial or remaining term of more than one year. Minimum
lease payments have not been reduced by sublease rental income anticipated in
the future.
YEAR ENDED JUNE 30, (DOLLARS IN THOUSANDS)
------------------- ----------------------
1995.............................................................. $ 2,116
1996.............................................................. 2,011
1997.............................................................. 1,913
1998.............................................................. 1,913
1999.............................................................. 2,585
2000 and thereafter............................................... 10,457
----------
$ 20,995
==========
NOTE 12: LONG-TERM INCENTIVE COMPENSATION, STOCK OPTION AND STOCK AWARD PLANS
1990 Long-term Incentive Plan
On October 26, 1989, the shareholders approved the 1990 Long-term Incentive
Plan ("1990 Plan") administered solely by the Long-term Incentive Plan Committee
of the Board of Directors ("Committee"). Under the 1990 Plan, 1,338,524 shares
are reserved for distribution which were the unissued common shares authorized
under the Company's 1984, 1981, 1980, and 1974 stock award, option, and bonus
plans. No additional awards may be granted under these prior plans. As of June
30, 1994, approximately 182,000 shares were available for distribution under the
1990 Plan. In July 1994, the Committee authorized an additional 500,000 shares
for use in the 1990 Plan, subject to shareholder approval.
42
45
CRSS INC.
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
The Company issues non-qualified stock options and restricted stock awards
under the 1990 Plan to officers and key employees of the Company and its
subsidiaries. Options are priced at market value on the date of grant and are
generally exercisable beginning within one year from date of grant. Options may
not be exercised after ten years from the vesting date. Restricted stock awards
vest 20 percent on the date of the grant with the remaining shares vesting
within four years. The cost of the awards are charged to expense over the
vesting period. Restricted stock awards granted under the 1990 Plan amounted to
1,650, 1,000 and 45,850 shares in 1994, 1993, and 1992.
The 1990 Plan also permits grants of performance units to key employees of
the Company's subsidiaries. These performance units consist of phantom stock
option units and phantom stock units which have redemption values determined by
the respective subsidiary's growth in earnings calculated in accordance with
pre-defined criteria. Redemption payments for the units may be in the form of
cash, common shares of CRSS Inc., or other property or any combination thereof
as determined by the Committee.
In July 1993, the Performance Grant Program related to CRSS Capital was
terminated and its phantom stock option units and phantom stock units were
manditorily redeemed. In conjunction with such termination $1.2 million was paid
in August 1993 to respective participants. The remaining obligation of $1.4
million is payable by December 30, 1994. Compensation expense associated with
the performance units was $2,110,000 and $490,000 in 1993 and 1992,
respectively. There was no compensation expense associated with the performance
units in 1994.
1984 Non-qualified Stock Option Plan and the 1981 Incentive Stock Option Plan
Prior to the 1990 Plan, the Company had two stock option plans, the 1984
Non-Qualified Stock Option Plan and the 1981 Incentive Stock Option Plan.
Depending on the terms of the options, options are exercisable upon date of
grant or date of vesting; however, options granted prior to December 31, 1986
must be exercised in order of grant while options granted after December 31,
1986 may be exercised in any order. Options subject to a vesting schedule are
exercisable 20 percent a year with the first 20 percent vesting immediately upon
date of grant. Options under both plans expire ten years from date of grant or
date of vesting.
The Committee may, at its discretion, grant stock appreciation rights
("SARs"). Upon exercise of such rights, the optionee surrenders the exercisable
portion of the option in exchange for payment of the difference between the
aggregate option price and the aggregate fair market value on the date of
surrender. Payment may be in the form of cash and/or common stock valued at its
fair market value on the date of surrender. SARs utilize the same shares
reserved for issuance of options, and the exercise of an SAR or option
automatically cancels the related option or SAR. SARs become exercisable and
expire on the same dates as the related options. In January 1991, all
outstanding SARs (319,000), but not the related options, were cancelled.
43
46
CRSS INC.
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
The following is a summary of the activity with respect to all option plans
for the three years ended June 30, 1994:
SHARES OPTION PRICE
--------- ----------------
Outstanding at June 30, 1991............................ 1,174,530 $ 4.34 to 17.63
Granted............................................... 220,500 $ 8.80 to 12.15
Exercised............................................. (15,500) $ 4.34 to 6.19
Cancelled............................................. (13,260) $12.43 to 15.00
---------
Outstanding at June 30, 1992............................ 1,366,270 $ 4.34 to 17.63
Granted............................................... 54,500 $ 8.15
Exercised............................................. (18,000) $ 4.75 to 6.19
Cancelled............................................. (46,240) $ 9.05 to 17.63
---------
Outstanding at June 30, 1993............................ 1,356,530 $ 4.34 to 17.63
Granted............................................... 237,496 $ 9.00
Exercised............................................. (202,300) $ 5.00 to 6.25
Cancelled............................................. (14,670) $ 6.19 to 15.00
---------
Outstanding at June 30, 1994............................ 1,377,056 $ 4.34 to 17.63
========
Exercisable at June 30, 1994............................ 1,040,910
========
1980 Incentive Stock Bonus Plan and 1974 Incentive Stock Award Plan
Prior to the 1990 Plan, the Company had two stock award plans, the 1980
Incentive Stock Bonus Plan and the 1974 Incentive Stock Award Plan ("1974
Plan"). The cost of the bonus shares and awards are charged to expense over the
vesting periods. Generally, 20 percent of the shares covered by an award vest at
the end of the first year following the date of the award and at the end of each
succeeding year, provided the employee remains in the service of the Company on
the vesting date. As of July 1, 1987, all awards were fully vested under the
Company's 1980 Incentive Stock Bonus Plan.
Compensation expense associated with the vesting of stock awards granted
under the 1990 Plan and the 1974 Plan was $102,000, $223,000, and $626,000 in
1994, 1993, and 1992, respectively.
The vesting and exercise periods for all outstanding options (approximately
359,000 as of June 30, 1994) and stock awards (approximately 27,000 as of June
30, 1994) was extended by the Committee for those employees that will be
employed by HOK and Jacobs. The extension is through the period of their
employment with HOK or Jacobs, plus, for exercise purposes, for three months
after termination of employment, but in no event beyond August 1, 1995.
Additionally, the Company has a right of first refusal for any sales prior to
August 1, 1995, of any stock obtained through the exercise of such options or
the vesting of such awards.
NOTE 13: COMMITMENTS AND CONTINGENCIES
The Company had outstanding letters of credit of approximately $41,715,000
at June 30, 1994, which included $24,505,000 related to the discontinued design,
engineering, and construction management services business, and $2,578,000
related to the discontinued acid rain pollution control business. Of the amount
related to the discontinued design, engineering, and construction management
services business, $23,200,000 relates to a letter of credit issued in support
of certain payment and performance obligations related to a single power plant
project retained by CRSS.
44
47
CRSS INC.
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
The remaining letters of credit are primarily issued in support of:
performance and payment obligations, and advance payments, including amounts
normally withheld as retainage. Management is of the opinion that capital
resources are adequate to fulfill these letters of credit.
The three Viking projects owned by CRSS Capital have entered into contracts
of varying lengths with all of its suppliers. These contracts are for set prices
that vary by contract and specify minimum and maximum aggregate amounts of wood
to be purchased per year. Substantially all wood is purchased under these
contracts. Each of these contracts allows the project to cancel these
commitments in the event of default by the supplier or project equipment
failure.
CRSS Capital has an option to put its interest in Naheola at fair value to
James River in the event that the facility becomes subject to regulation as a
public utility, production levels at the Naheola mill fall below certain levels
due to James River shifting production to other mills, or if the Naheola mill is
sold to a competitor of the Company. James River also has an option to purchase
CRSS Capital's interest at fair value.
45
48
CRSS INC.
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 14: QUARTERLY OPERATING RESULTS (UNAUDITED)
Quarterly operating results of the Company are as follows:
YEAR ENDED JUNE 30, 1994
------------------------------------------
QUARTER
------------------------------------------
1 2 3 4(A)
-------- ------- ------ ------
(DOLLARS IN THOUSANDS,
EXCEPT PER SHARE AMOUNTS)
Revenues..................................... $ 7,413 $ 7,521 $7,067 $6,418
Operating income from continuing
operations................................. 3,589 2,969 3,671 3,867
Earnings from continuing operations.......... 965 465 1,056 1,232
Earnings (loss) from discontinued
operations................................. 65 719 244 (3,272)
Net earnings (loss).......................... 1,030 1,184 1,300 (2,040)
Primary and fully diluted earnings (loss) per
common share:
Earnings from continuing operations........ $ 0.07 $ 0.04 $ 0.08 $ 0.09
Net earnings (loss)........................ $ 0.08 $ 0.09 $ 0.10 $(0.16)
YEAR ENDED JUNE 30, 1993
------------------------------------------
QUARTER
------------------------------------------
1(B) 2 3 4(C)
-------- ------- ------ ------
Revenues..................................... $ 7,563 $16,549 $7,028 $6,835
Operating income from continuing
operations................................. 1,070 8,754 1,720 2,066
Earnings (loss) from continuing operations... (207) 3,625 679 221
Earnings (loss) from discontinued
operations................................. (1,158) (844) 238 1,197
Cumulative effect of changes in accounting
principles................................. (9,178) -- -- --
Net earnings (loss).......................... (10,543) 2,781 917 1,418
Primary and fully diluted earnings (loss) per
common share:
Earnings (loss) from continuing
operations.............................. $ (0.02) $ 0.28 $ 0.05 $ 0.02
Net earnings (loss)........................ $ (0.79) $ 0.21 $ 0.07 $ 0.11
- - ---------------
(a) During the fourth quarter of fiscal 1994, the Company announced its intent
to divest its design and construction services subsidiaries. The Company
recorded certain charges to earnings during the fourth quarter related to
the discontinuance of this segment, as further discussed in Note 3 to the
Consolidated and Combined Financial Statements. The Consolidated Financial
Statements and related quarterly information have been restated to reflect
the design and construction services segment as discontinued operations.
(b) The Company adopted SFAS No. 106, 109, and 112 effective July 1, 1992. The
first quarter of fiscal 1993 reflects the $9,178,000 cumulative effect of
the changes in accounting principles, net of income tax benefits, as of the
beginning of the fiscal year.
(c) Earnings from discontinued operations for the fourth quarter of fiscal 1993
includes a $3,500,000 increase in profitability of a major program
management services project offset by an increase in the provision for
contract claims.
46
49
CRSS INC.
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
Quarterly operating results of the Partnerships follows:
YEAR ENDED JUNE 30, 1994
-------------------------------------------
QUARTER
-------------------------------------------
1 2 3 4
------- ------- ------- -------
(DOLLARS IN THOUSANDS)
Revenues.................................... $45,137 $43,210 $46,328 $44,065
Net earnings................................ 5,910 9,325 6,485 7,114
YEAR ENDED JUNE 30, 1993 (A)
-------------------------------------------
QUARTER
-------------------------------------------
1 2 3 4
------- ------- ------- -------
(DOLLARS IN THOUSANDS)
Revenues.................................... $15,749 $24,011 $31,722 $42,371
Net earnings................................ 1,713 4,375 4,743 5,336
- - ---------------
(a) The year ended June 30, 1993 reflects the operations of Appomattox beginning
in October 1992 and the operations of Naheola beginning in March 1993, as
further discussed in Note 2 to the Consolidated and Combined Financial
Statements.
47
50
SCHEDULE V
CRSS INC.
PROPERTY, PLANT AND EQUIPMENT
THREE YEARS ENDED JUNE 30, 1994
(DOLLARS IN THOUSANDS)
BALANCE AT BALANCE
BEGINNING OF ADDITIONS AT OTHER AT END
CLASSIFICATION PERIOD COST RETIREMENTS CHANGES OF PERIOD
- - ------------------------------------------ ------------ ------------ ----------- ------- ---------
Year ended June 30, 1994:
Land.................................... $ 951 $ -- $ -- $ -- $ 951
Power and cogeneration facilities....... 86,882 447 -- -- 87,329
Buildings and leasehold improvements.... 4,327 23 -- -- 4,350
Furniture and fixtures.................. 1,138 -- 1 -- 1,137
Machinery and equipment................. 1,552 267 4 -- 1,815
--------- ------ ------- ------ --------
$ 94,850 $737 $ 5 $ 0 $ 95,582
========= ====== ======= ====== ========
Year ended June 30, 1993:
Land.................................... $ 951 $ -- $ -- $ -- $ 951
Power and cogeneration facilities....... 83,870 178 416 3,250 (a) 86,882
Buildings and leasehold improvements.... 4,327 -- -- -- 4,327
Furniture and fixtures.................. 1,113 25 -- -- 1,138
Machinery and equipment................. 1,358 204 10 -- 1,552
--------- ------ ------- ------ --------
$ 91,619 $407 $ 426 $3,250 $ 94,850
========= ====== ======= ====== ========
Year ended June 30, 1992:
Land.................................... $ 951 $ -- $ -- $ -- $ 951
Power and cogeneration facilities....... 83,395 492 17 -- 83,870
Buildings and leasehold improvements.... 4,327 -- -- -- 4,327
Furniture and fixtures.................. 1,096 17 -- -- 1,113
Machinery and equipment................. 1,029 341 12 -- 1,358
--------- ------ -------- ------ --------
$ 90,798 $850 $ 29 $ 0 $ 91,619
========= ====== ======== ====== ========
- - ---------------
The annual provisions for depreciation have been computed on a straight-line
basis over useful lives from 3 to 40 years.
(a) Other addition is due to a restatement of a prior business combination
pursuant to the adoption of SFAS No. 109, as further discussed in Note 4.
48
51
SCHEDULE VI
CRSS INC.
ACCUMULATED DEPRECIATION AND AMORTIZATION
OF PROPERTY, PLANT AND EQUIPMENT
THREE YEARS ENDED JUNE 30, 1994
(DOLLARS IN THOUSANDS)
ADDITIONS
BALANCE AT CHARGED TO BALANCE
BEGINNING COSTS AND OTHER AT END
DESCRIPTION OF PERIOD EXPENSES RETIREMENTS CHANGES OF PERIOD
----------- ---------- ---------- ----------- ------- ---------
Year ended June 30, 1994:
Power and cogeneration facilities....... $ 10,165 $2,882 $ -- $ -- $ 13,047
Buildings and leasehold improvements.... 2,032 251 -- -- 2,283
Furniture and fixtures.................. 877 82 -- -- 959
Machinery and equipment................. 1,176 75 1 -- 1,250
-------- -------- -------- ------ ---------
$ 14,250 $3,290 $ 1 $ 0 $ 17,539
======== ======== ======== ====== =========
Year ended June 30, 1993:
Power and cogeneration facilities....... $ 7,029 $2,868 $ 3 $ 271(a) $ 10,165
Buildings and leasehold improvements.... 1,882 150 -- -- 2,032
Furniture and fixtures.................. 793 84 -- -- 877
Machinery and equipment................. 912 271 7 -- 1,176
-------- -------- -------- ------ ---------
$ 10,616 $3,373 $ 10 $ 271 $ 14,250
======== ======== ======== ====== =========
Year ended June 30, 1992:
Power and cogeneration facilities....... $ 4,312 $2,717 $ -- $ -- $ 7,029
Buildings and leasehold improvements.... 1,634 248 -- -- 1,882
Furniture and fixtures.................. 680 113 -- -- 793
Machinery and equipment................. 564 354 6 -- 912
-------- -------- -------- ------ ---------
$ 7,190 $3,432 $ 6 $ 0 $ 10,616
======== ======== ======== ====== =========
- - ---------------
(a) Other addition is due to a restatement of a prior business combination
pursuant to the adoption of SFAS No. 109, as further discussed in Note 4.
49
52
REPORTS OF INDEPENDENT AUDITORS
The Board of Directors and Shareholders of CRSS Inc.
We have audited the accompanying consolidated balance sheets of CRSS Inc.
and subsidiaries ("the Company") as of June 30, 1994 and 1993, and the related
consolidated statements of operations, shareholders' equity, and cash flows for
each of the three years in the period ended June 30, 1994. Our audits also
included the financial statement schedules listed in the Index at Item 14(a).
These financial statements and financial statement schedules are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these 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 consolidated financial position of
CRSS Inc. and subsidiaries at June 30, 1994 and 1993, and the consolidated
results of their operations and their cash flows for each of the three years in
the period ended June 30, 1994, in conformity with generally accepted accounting
principles. Also, in our opinion, the related financial statement schedules,
when considered in relation to the basic financial statements taken as a whole,
present fairly in all material respects the information set forth therein.
As discussed in Note 1 to the Consolidated and Combined Financial
Statements, in fiscal year 1993 the Company changed its method of accounting for
income taxes.
ERNST & YOUNG LLP
August 12, 1994
The Board of Directors and Shareholders of CRSS Inc.
We have audited the accompanying combined balance sheets as of June 30,
1994 and 1993, of the Equity Investment Partnerships of CRSS Inc. listed in Note
1 ("the Partnerships"), and the related combined statements of operations,
partners' capital, and cash flows for each of the three years in the period
ended June 30, 1994. These financial statements are the responsibility of the
Partnerships' management. Our responsibility is to express an opinion on these
financial statements 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 financial statements referred to above present fairly,
in all material respects, the combined financial position of the Equity
Investment Partnerships of CRSS Inc. listed in Note 1 at June 30, 1994 and 1993,
and the combined results of their operations and their cash flows for each of
the three years in the period ended June 30, 1994, in conformity with generally
accepted accounting principles.
ERNST & YOUNG LLP
August 12, 1994
50
53
REPORT OF MANAGEMENT
The management of CRSS Inc. and its subsidiaries has prepared the
accompanying Consolidated and Combined Financial Statements and related
footnotes. The statements and footnotes were prepared in accordance with
generally accepted accounting principles applied on a consistent basis and
accordingly, include certain estimates which reflect management's judgement and
interpretation of currently available information.
Management of the Company has established and maintains an effective system
of internal control designed to provide reasonable assurance as to the integrity
and reliability of the financial statements as well as the safeguarding of
company assets. The Company also maintains an internal auditing program that
independently assesses the effectiveness of the internal controls and recommends
possible improvements to both management and the Audit Committee of the Company.
This system includes the selection and training of qualified personnel, an
organizational structure providing appropriate delegation of authority and
division of responsibility, the establishment of accounting and business
policies for the Company, and the conduct of internal audits. However, inherent
in any system of internal controls are limitations based on the cost of the
system versus the benefits derived.
The Audit Committee of the Board of Directors, composed solely of outside
directors, meets with the independent auditors and internal auditors to evaluate
the effectiveness of the work performed by them in discharging their respective
responsibilities and to assure their independent and free access to the
Committee.
The Company's financial statements have been audited by Ernst and Young,
independent certified public accountants. Management has made available to Ernst
and Young all the Company's financial records and related data, as well as the
minutes of shareholders' and directors' meetings.
51
54
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information with respect to the Company's directors will be contained under
the caption "Election of Directors" in CRSS Inc.'s Proxy Statement with respect
to the Company's Annual Meeting of Shareholders, to be held October 27, 1994,
and is hereby incorporated by reference thereto.
Information with respect to the Company's executive officers appears under
the unnumbered item in Part I of this Form 10-K Annual Report, which is
incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
Information required by this item will be contained under the caption
"Executive Compensation and Other Information" of CRSS Inc.'s Proxy Statement
with respect to the Company's Annual Meeting of Shareholders, to be held October
27, 1994, and is hereby incorporated by reference thereto.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information required by this item will be contained under the caption
"Security Ownership of Certain Beneficial Owners and Management" of CRSS Inc.'s
Proxy Statement with respect to the Company's Annual Meeting of Shareholders, to
be held October 27, 1994, and is hereby incorporated by reference thereto.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information required by this item will be contained under the caption
"Certain Transactions" of CRSS Inc.'s Proxy Statement with respect to the
Company's Annual Meeting of Shareholders, to be held October 27, 1994, and is
hereby incorporated by reference thereto.
52
55
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) The following documents are filed as part of this report or
incorporated by reference:
1. and 2. Financial Statements and Financial Statement Schedules
See Index to the Financial Statements in Item 8, which information is
herein incorporated by reference.
3. Exhibits:
3.1 -- Certificate of Incorporation of CRS Design Associates, Inc. filed
October 16, 1970 (incorporated by reference as Exhibit 3.1 to the
Company's Fiscal Year 1989 Annual Report of Form 10-K).
3.2 -- Certificate of Amendment of Certificate of Incorporation of CRS
Design Associates, Inc. filed December 26, 1978 (incorporated by
reference as Exhibit 3.2 to the Company's Fiscal Year 1989 Annual
Report on Form 10-K).
3.3 -- Certificate of Amendment of Certificate of Incorporation of The CRS
Group, Inc. filed October 30, 1981 (incorporated by reference as
Exhibit 3.3 to the Company's Fiscal Year 1989 Annual Report on Form
10-K).
3.4 -- Certificate of Amendment of Certificate of Incorporation of The CRS
Group, Inc. filed November 7, 1983 (incorporated by reference as
Exhibit 3.4 to the Company's Fiscal Year 1989 Annual Report on Form
10-K).
3.5 -- Certificate of Amendment of Certificate of Incorporation of CRS
Sirrine, Inc. filed November 27, 1984 (incorporated by reference as
Exhibit 3.5 to the Company's Fiscal Year 1989 Annual Report on Form
10-K).
3.6 -- Certificate of Amendment of Certificate of Incorporation of CRS
Sirrine, Inc. filed December 8, 1986 (incorporated by reference as
Exhibit 3.6 to the Company's Fiscal Year 1989 Annual Report on Form
10-K).
3.7 -- Certificate of Amendment of Certificate of Incorporation of CRSS Inc.
filed October 30, 1989 (incorporated by reference as Exhibit 4.7 to
the Company's registration statement Form S-3 filed November 17,
1989).
3.8 -- By-Laws of the Company (incorporated by reference as Exhibit 3.8 to
the Company's Fiscal Year 1989 Annual Report on Form 10-K).
3.9 -- Amendments to By-Laws of the Company filed October 30, 1989
(incorporated by reference as Exhibit 4.9 to the Company's
Registration Statement Form S-3 filed November 17, 1989).
4.1 -- Specimen Certificate of Common Stock of the Company (incorporated by
reference as Exhibit 4.1 to the Company's Fiscal Year 1990 Annual
Report on Form 10-K).
4.2 -- Rights Agreement dated as of November 29, 1988 between CRS Sirrine,
Inc. and Morgan Shareholder Services Trust Company, as Agent
(incorporated by reference to Exhibit 1 to the Company's Form 8-A).
4.3 -- Amendment dated January 27, 1994 to the Rights Agreement dated as of
November 28, 1988 between CRS Sirrine, Inc. and Morgan Shareholder
Services Trust Company, as Agent (incorporated by reference to
Exhibit 3 to the Company's Form 8-A/A).
53
56
4.4 -- Indenture dated as of November 29, 1988 between CRS Sirrine, Inc. and
Morgan Guaranty Trust Company of New York, as Trustee (incorporated
by reference to Exhibit 2 to the Company's Form 8-A).
10.1 -- CRS Sirrine, Inc. Incentive Stock Option Plan Amended and Restated
July, 1986 (incorporated by reference to Exhibit 10.1 to the
Company's Fiscal Year 1989 Annual Report on Form 10-K).
10.2 -- Amendments to CRS Sirrine, Inc. Incentive Stock Option Plan Amended
and Restated July, 1986 (incorporated by reference to Exhibit 10.2 to
the Company's Fiscal Year 1989 Annual Report on Form 10-K).
10.3 -- 1984 Non-Qualified Stock Option Plan of CRS Sirrine, Inc. Amended and
Restated July, 1986 (incorporated by reference to Exhibit 10.3 to the
Company's Fiscal Year 1989 Annual Report on Form 10-K).
10.4 -- Amendments to 1984 Non-Qualified Stock Option Plan of CRS Sirrine,
Inc. Amended and Restated July, 1986 (incorporated by reference to
Exhibit 10.4 to the Company's Fiscal Year 1989 Annual Report on Form
10-K).
10.5 -- CRS Sirrine, Inc. 1974 Incentive Stock Award Plan Amended and
Restated July, 1981 and 1984 (incorporated by reference to Exhibit
10.5 to the Company's Fiscal Year 1989 Annual Report on Form 10-K).
10.6 -- CRS Sirrine, Inc. 1990 Long-Term Incentive Plan (incorporated by
reference to Exhibit 10.6 to the Company's Fiscal Year 1989 Annual
Report on Form 10-K).
10.7 -- CRS Sirrine, Inc. Thrift Plan Trust Agreement between CRS Sirrine,
Inc., Metro Southwest Construction, Inc., Western Empire
Constructors, Inc., CRSS, Inc., J. E. Sirrine Company, Sirrine
Services, Inc., Globe Engineering Corporation and Fidelity Management
Trust Company dated as of August 1, 1984 (incorporated by reference
to Exhibit 10.8 to the Company's Fiscal Year 1989 Annual Report on
Form 10-K).
10.8 -- CRS Sirrine, Inc. 401(k) Savings and Investment Plan effective July
1, 1988 (incorporated by reference to Exhibit 10.9 to the Company's
Fiscal Year 1989 Annual Report on Form 10-K).
10.9 -- Indemnity Agreements dated as of July 1, 1986 between CRS Sirrine,
Inc. and Mike A. Myers, John Naisbitt, Joe C. Denman, Jr., William L.
Carpenter, C. Herbert Paseur, Thomas A. Bullock, Bruce W. Wilkinson
and Richard L. Daerr, Jr. (incorporated by reference to Exhibit 10.10
to the Company's Fiscal Year 1989 Annual Report on Form 10-K).
*10.10 -- Amended and Restated Employment Agreement dated as of June 30, 1988
by and between CRS Sirrine, Inc. and Bruce W. Wilkinson.
*10.11 -- Amendment No. 1 dated as of July 1, 1989 to Amended and Restated
Employment Agreement dated as of June 30, 1988 by and between CRS
Sirrine, Inc. and Bruce W. Wilkinson.
*10.12 -- Amendment No. 2 dated as of October 24, 1990 to Amended and Restated
Employment Agreement dated as of June 30, 1988 by and between CRSS
Inc. and Bruce W. Wilkinson
10.13 -- Employment Agreement dated as of July 1, 1989 by and between CRSS
Capital, Inc. and James T. Stewart (incorporated by reference as
Exhibit 10.16 to the Company's Fiscal Year 1992 Annual Report on Form
10-K).
54
57
10.14 -- Amendment to Employment Agreement dated as of July 1, 1989 by and
between CRSS Capital, Inc. and James T. Stewart (incorporated by
reference as Exhibit 10.17 to the Company's Fiscal Year 1992 Annual
Report on Form 10-K).
*10.15 -- Contract for Design, Procurement and Construction Management Services
between the United States Air Force and CRS/Sirrine and Metcalf &
Eddy, Joint Venture dated as of March 30, 1988.
10.16 -- Amendments to Contract for Design, Procurement and Construction
Management Services between the United States Air Force and
CRS/Sirrine and Metcalf & Eddy, Joint Venture dated through August
25, 1989 (incorporated by reference to Exhibit 10.18 to the Company's
Fiscal Year 1989 Annual Report on Form 10-K).
10.17 -- Amendments to Contract for Design, Procurement and Construction
Management Services between the United States Air Force and
CRS/Sirrine and Metcalf & Eddy, Joint Venture dated August 26, 1989
through September 10, 1990 (incorporated by reference to Exhibit
10.16 to the Company's Fiscal Year 1990 Annual Report on Form 10-K).
10.18 -- Amendments to Contract for Design, Procurement and Construction
Management Services between the United States Air Force and
CRS/Sirrine and Metcalf & Eddy, Joint Venture dated November 27, 1990
through August 30, 1991 (incorporated by reference to Exhibit 10.19
to the Company's Fiscal Year 1991 Annual Report on Form 10-K).
10.19 -- Amendments to Contract for Design, Procurement and Construction
Management Services between the United States Air Force and
CRS/Sirrine and Metcalf & Eddy, Joint Venture dated September 20,
1991 through June 22, 1992 (incorporated by reference as Exhibit
10.25 to the Company's Fiscal Year 1992 Annual Report on Form 10-K).
10.20 -- Amendments to Contract for Design, Procurement and Construction
Management Services between the United States Air Force and
CRS/Sirrine and Metcalf & Eddy, Joint Venture dated August 26, 1992
through August 3, 1993 (incorporated by reference as Exhibit 10.27 to
the Company's Fiscal Year 1993 Annual Report on Form 10-K).
*10.21 -- Amendments to Contract for Design, Procurement and Construction
Management Services between the United States Air Force and
CRS/Sirrine and Metcalf & Eddy, Joint Venture dated September 22,
1993 through June 28, 1994.
*10.22 -- Supplemental Executive Retirement Plan of CRS Sirrine, Inc. effective
as of November 1, 1987.
*10.23 -- Supplemental Executive Retirement Plan Amendment as of June 1988.
10.24 -- Agreement of Limited Partnership of Westwood Energy Properties
Limited Partnership dated as of September 1, 1985 by and among
Westwood Funding Corporation, CRSS Westwood, Inc. and Kenvil Energy
Company (incorporated by reference to Exhibit 10.21 to the Company's
Fiscal Year 1989 Annual Report on Form 10-K).
10.25 -- First Amendment to Agreement of Limited Partnership of Westwood
Energy Properties Limited Partnership dated as of June 26, 1987 by
and among Westwood Funding Corporation, CRSS Westwood, Inc., Kenvil
Energy Company and Utilco Group Inc. (incorporated by reference to
Exhibit 10.22 to the Company's Fiscal Year 1989 Annual Report on Form
10-K).
55
58
10.26 -- Viking Energy of Northumberland Limited Partnership Agreement amended
and restated as of November 15, 1988 by and among Viking Energy of
Northumberland, Inc., CRSS Northumberland, Inc. and EFV
Northumberland, Inc. (incorporated by reference as Exhibit 10.21 to
the Company's Fiscal Year 1990 Annual Report on Form 10-K).
10.27 -- Viking Energy of McBain Limited Partnership Agreement amended and
restated as of November 15, 1988 by and among Viking Energy of
McBain, Inc., CRSS McBain, Inc. and EFV McBain, Inc. (incorporated by
reference as Exhibit 10.22 to the Company's Fiscal Year 1990 Annual
Report on Form 10-K).
10.28 -- Viking Energy of Lincoln Limited Partnership Agreement amended and
restated as of November 15, 1988 by and among Viking Energy of
Lincoln, Inc., CRSS Lincoln, Inc. and EFV Lincoln, Inc. (incorporated
by reference to Exhibit 10.25 to the Company's Fiscal Year 1989
Annual Report on Form 10-K).
10.29 -- Credit Agreement dated as of February 1, 1993 among CRSS Inc. and
NationsBank of Texas, N.A. as agent, ABN AMRO Bank N.V., and Texas
Commerce Bank National Association (incorporated by reference to
Exhibit 10.1 to the Company's March 31, 1993 Quarterly Report on Form
10-Q).
10.30 -- Amendment dated as of March 10, 1993 to Credit Agreement dates as of
February 1, 1993 among CRSS Inc. and NationsBank of Texas, N.A. as
agent, ABN AMRO Bank N.V., Texas Commerce Bank National Association,
and First Interstate Bank of Texas, N.A. (incorporated by reference
to Exhibit 10.2 to the Company's March 31, 1993 Quarterly Report on
Form 10-Q).
10.31 -- Amended and Restated Credit Agreement dated as of January 18, 1994
among CRSS Inc. and NationsBank of Texas, N.A. as agent, ABN AMRO
Bank N.V., Texas Commerce Bank National Association, and First
Interstate Bank of Texas, N.A. (incorporated by reference to Exhibit
10.1 to the Company's December 31, 1993 Quarterly Report on Form
10-Q).
*10.32 -- First Amendment dated July 29, 1994 to Amended and Restated Credit
Agreement dated as of January 18, 1994 among CRSS Inc. and
NationsBank of Texas, N.A. as agent, ABN AMRO Bank N.V., Texas
Commerce Bank National Association, and First Interstate Bank of
Texas, N.A
10.33 -- Hopewell Cogeneration Limited Partnership Agreement amended and
restated as of May 12, 1989 by and among Hopewell Cogeneration, Inc.,
CRSS Hopewell Cogeneration, Inc., Prince George Energy Company and
Transco Energy Ventures Company (incorporated by reference as Exhibit
10.25 to the Company's Fiscal Year 1990 Annual Report on Form 10-K).
10.34 -- Exchange Agreement between CRS Sirrine, Inc. and Industrial
Resources, Inc. dated as of July 24, 1989 (incorporated by reference
to Exhibit 2.1 to the Company's Fiscal Year 1989 Annual Report on
Form 10-K).
10.35 -- Agreement of Limited Partnership of NaTec, Ltd. between CRSS
Nahcolite, Inc. and Wolf Ridge Corporation dated as of July 8, 1988
(incorporated by reference to Exhibit 2.2 to the Company's Fiscal
Year 1989 Annual Report on Form 10-K).
10.36 -- Stock Purchase Agreement among Paribas North America, Inc., CRS
Sirrine, Inc., and CRSS Capital, Inc. dated June 30, 1989
(incorporated by reference to Exhibit 2.3 to the Company's Fiscal
Year 1989 Annual Report on Form 10-K).
56
59
10.37 -- Stock Redemption Agreement By and Between CRSS Capital, Inc. and
Paribas North America, Inc. dated as of January 31, 1994
(incorporated by reference to Exhibit 10.1 to the Company's Form 8-K
dated January 31, 1994).
10.38 -- Naheola Cogeneration Limited Partnership Agreement amended and
restated as of March 14, 1991 by and among Naheola Cogeneration,
Inc., James River-Pennington and Capital Naheola Limited Partnership
(incorporated by reference as Exhibit 10.33 to the Company's Fiscal
Year 1991 Annual Report on Form 10K).
10.39 -- Second Amended and Restated Limited Partnership Agreement of
Appomattox Cogeneration Limited Partnership dated as of October 22,
1992 by and among Appomattox Cogeneration, Inc., Capital Appomattox,
Inc. and Appomattox Vermont Corporation (incorporated by reference as
Exhibit 10.41 to the Company's Fiscal Year 1993 Annual Report on Form
10-K).
10.40 -- Series A Cumulative Convertible Exchangeable Preferred Stock Purchase
Agreement dated as of October 24, 1990, by and among CRSS Inc. and
NaTec Resources, Inc. (incorporated by reference as Exhibit 10.34 to
the Company's Fiscal Year 1991 Annual Report on Form 10-K).
10.41 -- First Amendment as of September 3, 1991 to Series A Cumulative
Convertible Exchangeable Preferred Stock Purchase Agreement dated as
of October 24, 1990, by and among CRSS Inc. and NaTec Resources, Inc.
(incorporated by reference as Exhibit 10.35 to the Company's Fiscal
Year 1991 Annual Report on Form 10-K).
10.42 -- Second Amendment to Series A Cumulative Convertible Exchangeable
Preferred Stock Purchase Agreement dated as of October 24, 1990, by
and among CRSS Inc. and NaTec Resources, Inc (incorporated by
reference as Exhibit 10.42 to the Company's Fiscal Year 1992 Annual
Report on Form 10-K).
10.43 -- Third Amendment to Series A Cumulative Convertible Exchangeable
Preferred Stock Purchase Agreement dated as of October 24, 1990, by
and among CRSS Inc. and NaTec Resources, Inc. (incorporated by
reference as Exhibit 10.46 to the Company's Fiscal Year 1993 Annual
Report on Form 10-K).
10.44 -- Fourth Amendment to Series A Cumulative Convertible Exchangeable
Preferred Stock Purchase Agreement dated as of October 24, 1990, by
and among CRSS Inc. and NaTec Resources, Inc. (incorporated by
reference as Exhibit 10.47 to the Company's Fiscal Year 1993 Annual
Report on Form 10-K).
10.45 -- Cumulative Convertible Exchangeable Preferred Stock Purchase
Agreement dated as of July 22, 1991, by and among CRSS Inc. and NaTec
Resources, Inc. (incorporated by reference as Exhibit 10.36 to the
Company's Fiscal Year 1991 Annual Report on Form 10-K).
10.46 -- First Amendment to Cumulative Convertible Exchangeable Preferred
Stock Purchase Agreement dated as of July 22, 1991, by and among CRSS
Inc. and NaTec Resources, Inc (incorporated by reference as Exhibit
10.44 to the Company's Fiscal Year 1992 Annual Report on Form 10-K).
10.47 -- Second Amendment to Cumulative Convertible Exchangeable Preferred
Stock Purchase Agreement dated as of July 22, 1991, by and among CRSS
Inc. and NaTec Resources, Inc. (incorporated by reference as Exhibit
10.50 to the Company's Fiscal Year 1993 Annual Report on Form 10-K).
57
60
10.48 -- Third Amendment to Cumulative Convertible Exchangeable Preferred
Stock Purchase Agreement dated as of July 22, 1991, by and among CRSS
Inc. and NaTec Resources, Inc. (incorporated by reference as Exhibit
10.51 to the Company's Fiscal Year 1993 Annual Report on Form 10-K).
10.49 -- Cumulative Convertible Exchangeable Preferred Stock Purchase
Agreement dated as of September 1, 1991, by and among CRSS Inc. and
NaTec Resources Inc. (incorporated by reference as Exhibit 10.37 to
the Company's Fiscal Year 1991 Annual Report on Form 10-K).
10.50 -- First Amendment to Cumulative Convertible Exchangeable Preferred
Stock Purchase Agreement dated as of September 1, 1991, by and among
CRSS Inc. and NaTec Resources Inc (incorporated by reference as
Exhibit 10.46 to the Company's Fiscal Year 1992 Annual Report on Form
10-K).
10.51 -- Second Amendment to Cumulative Convertible Exchangeable Preferred
Stock Purchase Agreement dated as of September 1, 1991, by and among
CRSS Inc. and NaTec Resources Inc. (incorporated by reference as
Exhibit 10.55 to the Company's Fiscal Year 1993 Annual Report on Form
10-K).
10.52 -- Third Amendment to Cumulative Convertible Exchangeable Preferred
Stock Purchase Agreement dated as of September 1, 1991, by and among
CRSS Inc. and NaTec Resources Inc (incorporated by reference as
Exhibit 10.55 to the Company's Fiscal Year 1993 Annual Report on Form
10-K).
10.53 -- Stock Purchase Agreement dated as of August 28, 1991, by and among
CRSS Inc., and Global Capital Group, Inc. and Lawrence Insurance
Group, Inc., and United Republic Reinsurance Company (incorporated by
reference as Exhibit (c)(i) to the Company's Current Report on Form
8-K dated January 29, 1992).
10.54 -- Amendment to Stock Purchase Agreement dated as of August 28, 1991, by
and among CRSS Inc., and Global Capital Group, Inc. and Lawrence
Insurance Group, Inc., and United Republic Reinsurance Company
(incorporated by reference as Exhibit (c)(ii) to the Company's
Current Report on Form 8-K dated January 29, 1992).
10.55 -- Purchase Agreement by and among Hellmuth, Obata and Kassabaum, Inc.
and CRSS Inc., and CRSS Services, Inc., dated July 21, 1994
(incorporated by reference as Exhibit 10.1 to the Company's Form 8-K
dated July 21, 1994).
10.56 -- Purchase Agreement by and between Jacobs Engineering Group Inc. and
CRSS Inc., dated July 29, 1994 (incorporated by reference as Exhibit
10.1 to the Company's Form 8-K dated July 21, 1994).
*21.1 -- List of significant subsidiaries of the registrant.
*27.1 -- Financial data schedules.
- - ---------------
* Filed with this report.
(b) Reports on Form 8-K Filed in the Fourth Quarter of Fiscal Year 1994:
None
58
61
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, CRSS Inc. has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
CRSS Inc.
(Registrant)
Date: September 2, 1994
By /s/ BRUCE W. WILKINSON
------------------------------
(Bruce W. Wilkinson)
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 and on the dates indicated:
SIGNATURE TITLE DATE
--------- ----- ----
/s/ BRUCE W. WILKINSON Chairman of the Board, Chief September 2, 1994
- - -------------------------------------------- Executive Officer and
(Bruce W. Wilkinson) Director (Principal
Executive Officer)
/s/ THOMAS A. BULLOCK Director September 2, 1994
- - --------------------------------------------
(Thomas A. Bullock)
/s/ JOE C. DENMAN, JR. Director September 2, 1994
- - --------------------------------------------
(Joe C. Denman, Jr.)
/s/ MIKE A. MYERS Director September 2, 1994
- - --------------------------------------------
(Mike A. Myers)
/s/ C. HERBERT PASEUR Director September 2, 1994
- - --------------------------------------------
(C. Herbert Paseur)
/s/ JOHN M. SEIDL Director September 2, 1994
- - --------------------------------------------
(John M. Seidl)
/s/ BEN R. STUART Director September 2, 1994
- - --------------------------------------------
(Ben R. Stuart)
/s/ LARRY E. TEMPLE Director September 2, 1994
- - --------------------------------------------
(Larry E. Temple)
/s/ WILLIAM J. GARDINER Senior Vice President/Chief September 2, 1994
-------------------------------------------- Financial Officer and
(William J. Gardiner) Treasurer (Principal
Financial and Accounting
Officer)