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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended March 31, 2000
Commission File Number: 33-74254
COGENTRIX ENERGY, INC.
(Exact name of registrant as specified in its charter)
NORTH CAROLINA 56-1853081
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
9405 ARROWPOINT BOULEVARD, CHARLOTTE, NORTH CAROLINA 28273-8110
(Address of principal executive offices) (Zipcode)
(704) 525-3800
(Registrant's telephone number, including area code)
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 period that the registrant was required to
file such reports), and (2) has been subject to such filing requirements for the
past 90 days. [X] Yes [ ] No
On May 15, 2000, there were 282,000 shares of common stock, no par value, issued
and outstanding.
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COGENTRIX ENERGY, INC.
INDEX TO QUARTERLY REPORT ON FORM 10Q
PAGE NO.
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PART I: FINANCIAL INFORMATION
Item 1. Consolidated Condensed Financial Statements:
Consolidated Balance Sheets at March 31, 2000 (Unaudited)
and December 31, 1999 3
Consolidated Statements of Income for the Three Months
Ended March 31, 2000 and 1999 (Unaudited) 4
Consolidated Statements of Cash Flows for the Three Months
Ended March 31, 2000 and 1999 (Unaudited) 5
Notes to Consolidated Condensed Financial Statements (Unaudited) 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 7
PART II: OTHER INFORMATION
Item 1. Legal Proceedings 12
Item 6. Exhibits and Reports on Form 8-K 13
Signatures 14
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COGENTRIX ENERGY, INC. AND SUBSIDIARY COMPANIES
CONSOLIDATED BALANCE SHEETS
March 31, 2000 and December 31, 1999
(dollars in thousands)
March 31, December 31,
2000 1999
----------- -----------
(Unaudited)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 40,979 $ 80,344
Restricted cash 62,554 81,647
Accounts receivable 64,955 59,360
Inventories 19,748 20,137
Other current assets 1,741 2,252
----------- -----------
Total current assets 189,977 243,740
NET INVESTMENT IN LEASES 500,093 500,195
PROPERTY, PLANT AND EQUIPMENT, net of accumulated
depreciation of $272,409 and $262,963, respectively 428,561 437,483
LAND AND IMPROVEMENTS 6,339 5,764
CONSTRUCTION IN PROGRESS 418,946 350,243
DEFERRED FINANCING COSTS,
net of accumulated amortization of $25,281 and $23,950, respectively 54,140 51,315
INVESTMENTS IN UNCONSOLIDATED AFFILIATES 337,460 325,504
PROJECT DEVELOPMENT COSTS 5,968 7,124
NOTES RECEIVABLE 18,502 19,502
OTHER ASSETS 83,439 57,516
----------- -----------
$ 2,043,425 $ 1,998,386
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt $ 88,200 $ 90,114
Accounts payable 42,320 37,588
Accrued compensation 2,510 8,415
Accrued interest payable 23,406 25,708
Accrued dividends payable -- 8,683
Other accrued liabilities 15,614 15,621
----------- -----------
Total current liabilities 172,050 186,129
LONG-TERM DEBT 1,549,575 1,518,773
DEFERRED INCOME TAXES 82,288 72,980
MINORITY INTERESTS 69,177 69,608
OTHER LONG-TERM LIABILITIES 30,670 29,445
----------- -----------
1,903,760 1,876,935
----------- -----------
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY:
Common stock, no par value, 300,000 shares authorized;
282,000 shares issued and outstanding 130 130
Accumulated other comprehensive loss (788) (1,144)
Accumulated earnings 140,323 122,465
----------- -----------
139,665 121,451
----------- -----------
$ 2,043,425 $ 1,998,386
=========== ===========
The accompanying notes to consolidated condensed financial statements are an
integral part of these balance sheets.
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COGENTRIX ENERGY, INC. AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENTS OF INCOME
For the Three Months Ended March 31, 2000 and 1999 (Unaudited)
(dollars in thousands, except share and earnings per common share amounts)
Three Months Ended
March 31,
-------------------------
2000 1999
--------- ---------
OPERATING REVENUE:
Electric $ 81,799 $ 74,408
Steam 7,541 6,712
Lease 11,193 11,161
Service 14,090 11,870
Income from unconsolidated investments in power projects,
net of premium amortization 15,226 5,410
Other 4,934 3,878
--------- ---------
134,783 113,439
--------- ---------
OPERATING EXPENSES:
Fuel 26,678 17,696
Operations and maintenance 16,988 16,976
Cost of services 15,135 12,481
General, administrative and development 12,031 12,649
Depreciation and amortization 10,886 10,871
--------- ---------
81,718 70,673
--------- ---------
OPERATING INCOME 53,065 42,766
OTHER INCOME (EXPENSE):
Interest expense (23,297) (23,732)
Investment and other income, net 2,679 2,091
Equity in net loss of affiliates -- (39)
--------- ---------
INCOME BEFORE MINORITY INTERESTS IN INCOME AND
PROVISION FOR INCOME TAXES 32,447 21,086
MINORITY INTERESTS IN INCOME (2,945) (3,826)
--------- ---------
INCOME BEFORE PROVISION FOR INCOME TAXES 29,502 17,260
PROVISION FOR INCOME TAXES (11,644) (6,866)
--------- ---------
NET INCOME $ 17,858 $ 10,394
========= =========
EARNINGS PER COMMON SHARE $ 63.33 $ 36.86
========= =========
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING 282,000 282,000
========= =========
The accompanying notes to consolidated condensed financial statements are an
integral part of these statements.
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COGENTRIX ENERGY, INC. AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Three Months Ended March 31, 2000 and 1999 (Unaudited)
(dollars in thousands)
Three Months Ended
March 31,
-----------------------
2000 1999
-------- --------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 17,858 $ 10,394
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization 10,886 10,871
Deferred income taxes 9,070 6,234
Minority interests in income, net of dividends (452) 3,767
Equity in net income of unconsolidated affiliates, net of dividends (10,300) (1,186)
Minimum lease payments received 11,298 10,779
Amortization of unearned lease income (11,196) (11,161)
Increase in accounts receivable (5,595) (1,241)
Decrease in inventories 389 203
Increase (decrease) in accounts payable 4,732 (5,960)
Increase (decrease) in accrued liabilities (8,285) 9,927
Decrease in other 6,382 2,910
-------- --------
Net cash flows provided by operating activities 24,787 35,537
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Property, plant and equipment additions, net (1,101) (208)
Investments in unconsolidated affiliates (1,656) --
Construction in progress and project development costs (67,355) --
Expenditures for turbines (29,620) (2,335)
Decrease (increase) in restricted cash 19,093 (15,431)
-------- --------
Net cash flows used in investing activities (80,639) (17,974)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Dividends paid (8,683) (7,398)
Proceeds from issuance of long-term debt 54,712 15,000
Repayments of long-term debt (26,386) (24,184)
Increase in deferred financing costs (4,156) (395)
Decrease in notes receivable 1,000 --
-------- --------
Net cash flows provided by (used in) financing activities 16,487 (16,977)
-------- --------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (39,365) 586
CASH AND CASH EQUIVALENTS, beginning of period 80,344 48,207
-------- --------
CASH AND CASH EQUIVALENTS, end of period $ 40,979 $ 48,793
======== ========
The accompanying notes to consolidated condensed financial statements are an
integral part of these statements.
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COGENTRIX ENERGY, INC. AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
1. PRINCIPLES OF CONSOLIDATION AND BASIS OF PRESENTATION
The accompanying consolidated condensed financial statements include
the accounts of Cogentrix Energy, Inc. ("Cogentrix Energy") and its
subsidiary companies (collectively, the "Company"). Wholly-owned and
majority-owned subsidiaries, including a 50%-owned joint venture in which
the Company has effective control through majority representation on the
board of directors of the managing general partner, are consolidated.
Less-than-majority-owned subsidiaries and subsidiaries for which control is
deemed to be temporary are accounted for using the equity method.
Investments in unconsolidated affiliates in which the Company has less than
a 20% interest and does not exercise significant influence over operating
and financial policies are accounted for under the cost method. All
material intercompany transactions and balances among Cogentrix Energy, its
subsidiary companies and its consolidated joint ventures have been
eliminated in the accompanying consolidated condensed financial statements.
Information presented as of March 31, 2000 and for the three months
ended March 31, 2000 and 1999 is unaudited. In the opinion of management,
however, such information reflects all adjustments, which consist of normal
recurring adjustments necessary to present fairly the financial position of
the Company as of March 31, 2000, and the results of operations and cash
flows for the three months ended March 31, 2000 and 1999. The results of
operations for these interim periods are not necessarily indicative of
results which may be expected for any other interim period or for the
fiscal year as a whole.
The accompanying unaudited consolidated condensed financial statements
have been prepared pursuant to the rules and regulations of the United
States Securities and Exchange Commission (the "Commission"). Certain
information and note disclosures normally included in annual financial
statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to those rules and
regulations, although management believes that the disclosures made are
adequate to make the information presented not misleading. It is suggested
that these unaudited consolidated condensed financial statements be read in
conjunction with the audited consolidated financial statements and the
notes thereto included in the Company's most recent report on Form 10-K for
the year ended December 31, 1999, which the Company filed with the
Commission on March 30, 2000.
2. RATHDRUM, IDAHO FACILITY
On March 9, 2000, Rathdrum Power, LLC ("Rathdrum Power") entered into
a credit agreement with a bank, as agent for a group of lending banks, and
a financial institution which provides up to $126.0 million in borrowings
and a $5.0 million debt service reserve letter of credit. Rathdrum Power is
owned 51% by a wholly-owned project subsidiary of the Company and 49% by
Avista Power, Inc. Proceeds from the credit agreement will be used to
construct an approximate 270 megawatt combined-cycle natural gas-fired
generating facility located in Rathdrum, Idaho. The Company has committed
to provide an equity contribution to the project subsidiary of
approximately $16.7 million upon the earliest to occur of (a) an event of
default under the project subsidiary's financing agreement, (b) the
incurrence of construction costs after all project financing has been
expended, or (c) October 1, 2002. This equity contribution commitment is
supported by a letter of credit, which is provided under Cogentrix Energy's
corporate credit facility. An indirect, wholly-owned subsidiary of
Cogentrix Energy has entered into an engineering, procurement and
construction contract (the "EPC Contract") with Rathdrum Power to construct
the Rathdrum facility. Cogentrix Energy is providing a guarantee supporting
the subsidiary's obligations under the EPC Contract. The Company expects
the Rathdrum facility, which the Company will operate, to begin operation
in the third quarter of 2001. Electricity generated by the Rathdrum
facility will be sold under a 25 year power purchase agreement with
Avista Turbine Power, Inc. ("Avista Turbine"). In addition, Avista Turbine
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will supply fuel to the Rathdrum facility. Rathdrum Power has been
consolidated in the accompanying consolidated financial statements.
The credit agreement provides borrowings up to $49.0 million from the
financial institution and $77.0 million from the banks. The financial
institution loans accrue interest at 8.56% per annum and have a term equal
to the construction period plus 25 years and the bank loans accrue interest
at the applicable LIBOR rate plus an applicable margin ranging from 1.25%
to 2.25% and will have a term equal to the construction period plus periods
up to 18 years. At March 31, 2000, $26.9 million of bank loans were
outstanding.
3. CLAIMS AND LITIGATION
One of the Company's indirect, wholly-owned subsidiaries is party to
certain product liability claims related to the sale of coal combustion
by-products for use in various construction projects. Management cannot
currently estimate the range of possible loss, if any, the Company will
ultimately bear as a result of these claims. However, management believes
based on its knowledge of the facts and legal theories applicable to these
claims and after consultations with various counsel retained to represent
these subsidiaries in their defense of such claims - that the ultimate
resolution of these claims should not have a material adverse effect on the
Company's consolidated financial position or results of operations or
Cogentrix Energy's ability to generate sufficient cash flow to service its
outstanding debt.
In addition to the litigation described above, the Company experiences
other routine litigation in the normal course of its business. Management
is of the opinion that none of this routine litigation will have a material
adverse impact on the Company's consolidated financial position or results
of operations.
4. SUBSEQUENT EVENT
Subsequent to March 31, 2000, the Company closed a credit facility
with several banks which provides for loans to be used to construct a 300
megawatt, fuel oil-fired, combined-cycle generating facility located in the
Dominican Republic. The Company will own a 65% interest in the facility,
with the other 35% owned by Commonwealth Development Corporation of Great
Britain. The facility will sell electricity under a 20-year power purchase
agreement with Corporacion Dominicana de Electricidad supported by a
Dominican government guarantee of the payment obligation. The project is
expected to commence operations in 2001.
5. RECLASSIFICATIONS
Certain amounts included in the accompanying consolidated financial
statements for the period ended March 31, 1999 and as of December 31, 1999
have been reclassified from their original presentation to conform with the
presentation as of and for the period ended March 31, 2000.
PART I - FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED CONDENSED FINANCIAL STATEMENTS.
The information called for by this item is hereby incorporated herein
by reference to pages 3 through 7 of this report.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
In addition to discussing and analyzing our recent historical financial
results and condition, the following "Management's Discussion and Analysis of
Financial Condition and Results of Operations" includes statements concerning
certain trends and other forward-looking information affecting or relating to us
which are intended to qualify for the protections afforded "Forward-Looking
Statements" under the Private Securities Litigation Reform Act of 1995, Public
Law 104-67. The forward-looking statements made herein are inherently subject to
risks and uncertainties which could cause our actual results to differ
materially from the forward-looking statements.
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GENERAL
Cogentrix Energy, Inc. is an independent power producer that, through
its direct and indirect subsidiaries, acquires, develops, owns and operates
electric generating plants, principally in the United States. We derive most of
our revenue from the sale of electricity, but we also produce and sell steam. We
sell the electricity we generate, primarily under long-term power purchase
agreements, to regulated electric utilities and power marketers. We sell the
steam we produce to industrial customers with manufacturing or other facilities
located near our electric generating plants. We were one of the early
participants in the market for electric power generated by independent power
producers that developed as a result of energy legislation the United States
Congress enacted in 1978. We believe we are one of the larger independent power
producers in the United States based on our total project megawatts in
operation.
We currently own - entirely or in part - a total of 25 electric
generating facilities in operation in the United States. Our 25 facilities are
designed to operate at a total production capability of approximately 4,000
megawatts. After taking into account our part interests in the 16 plants that
are not wholly-owned by us, which range from 1.7% to approximately 74.0%, our
net ownership interests in the total production capability of our 25 electric
generating facilities is approximately 1,840 megawatts. We currently operate 12
of our facilities, 10 of which we developed and constructed.
We also have ownership interests in and will operate four facilities
currently under construction in Mississippi, Oklahoma, Idaho and the Dominican
Republic with an aggregate production capability of approximately 2,170
megawatts. Once these facilities begin operation, we will have ownership
interests in a total of 28 domestic and 1 international electric generating
facilities that are designed with an aggregate production capability of
approximately 6,170 megawatts. Our net equity interest in the total production
capability of those 29 facilities will be approximately 3,380 megawatts.
Unless the context requires otherwise, references in this report to
"we," "us," "our," or "Cogentrix" refer to Cogentrix Energy, Inc. and its
subsidiaries, including subsidiaries that hold investments in other corporations
or partnerships whose financial results are not consolidated with ours. The term
"Cogentrix Energy" refers only to Cogentrix Energy, Inc., which is a development
and management company that conducts its business primarily through
subsidiaries. Cogentrix Energy's subsidiaries that are engaged in the
development, ownership or operation of electric generating facilities are
sometimes referred to individually as a "project subsidiary" and collectively as
Cogentrix Energy's "project subsidiaries."
RESULTS OF OPERATIONS - THREE MONTHS ENDED MARCH 31, 2000 AND 1999
THREE MONTHS ENDED MARCH 31,
----------------------------------------------
2000 1999
-------------------- --------------------
Total operating revenues $134,783 100.0% $113,439 100.0%
Operating costs 58,801 43.6 47,153 41.6
General, administrative and development 12,031 8.9 12,649 11.2
Depreciation and amortization 10,886 8.1 10,871 9.6
-------- --------
Operating income $ 53,065 39.4% $ 42,766 37.7%
======== ========
Total operating revenues increased 18.8% to $134.8 million for the
first quarter of 2000 as compared to the first quarter of 1999. The increase in
operating revenues resulted primarily from a $9.6 million increase in electric
and service revenue related to an increase in megawatt hours sold to the
purchasing utilities at several of our electric generating facilities. The
increase in operating revenues is also attributable to a $9.8 million increase
in income from unconsolidated investments in power projects. This increase is
the result of acquisitions of an additional 40% interest in the Indiantown
facility in the second and third quarter of 1999, increased capacity revenue at
several facilities, an increase in megawatt hours sold to the purchasing utility
at several facilities and a change in accounting for major overhaul expenses at
four of the facilities. The new accounting policy requires major maintenance
overhauls to be expensed as incurred. Previously, the estimated cost of major
maintenance overhauls were reserved
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in advance instead of being expensed as incurred. Upon adoption of this
accounting policy, these entities recorded a benefit in earnings during the
first quarter of 2000. Operating revenues were also impacted, to a lesser
extent, by an increase in other income as a result of excess gas remarketed to
third parties.
Our operating costs increased 24.7% to $58.8 million for the first
quarter of 2000 as compared to the first quarter of 1999. The increase was
primarily attributable to an increase in fuel and cost of services expense,
components of operating costs, as a result of an overall increase in megawatt
hours sold to the purchasing utilities at several of our electric generating
facilities.
General, administrative and development expense decreased 4.9% to $12.0
million for the first quarter of 2000 as compared to the first quarter of 1999.
This decrease related primarily to the capitalization of certain corporate
development costs related to certain project development efforts during the
first quarter of 2000. The decrease in general, administrative and development
expenses was partially offset by an increase in compensation expense related to
an increase in the number of corporate employees and an increase in incentive
compensation expense related to our increased profitability.
Interest expense decreased 1.8% to $23.3 million for the quarter ended
March 31, 2000 as compared to the first quarter of 1999. Our average long-term
debt increased to $1.6 billion, as compared to weighted average long-term debt
of $1.2 billion for the first quarter of 1999. The increase in average long-term
debt is the result of the inclusion of $326.0 million of project financing debt
related to the Batesville facility, and additional construction borrowings
incurred during the quarter of 2000 for projects under construction in Rathdrum,
Idaho, and Jenks, Oklahoma. Interest incurred for these construction borrowings
is being capitalized during the construction phase. The decrease in interest
expense resulted primarily from the scheduled repayments on outstanding project
financing debt at several of our project subsidiaries. The decrease was
partially offset by an increase in interest expense incurred on borrowings
incurred under revolving credit facilities at some of our subsidiaries.
The decrease in minority interest in income for the first quarter of
2000 as compared to the first quarter of 1999 related primarily to a decrease in
earnings at the Hopewell facility as a result of routine maintenance costs
incurred during the quarter. The decrease is also a result of the inclusion of
the losses incurred at the Batesville facility, which is currently under
construction, as a result of our consolidation of its operations beginning in
December 1999.
LIQUIDITY AND CAPITAL RESOURCES
The principal components of operating cash flow for the first quarter
of 2000 were net income of $17.9 million, increases due to adjustments for
depreciation and amortization of $10.9 million, deferred income taxes of $9.1
million and amortization of unearned lease income, net of minimum lease payments
received of $0.1 million, which were partially offset by minority interest in
income, net of dividends of $0.5 million, $10.3 million equity in net income of
unconsolidated affiliates, net of dividends and a net $2.4 million use of cash
reflecting changes in other working capital assets and liabilities. Cash flow
provided by operations of $24.8 million, proceeds from borrowings of $54.7
million, $19.1 million of funds released from escrow, repayments on notes
receivable of $1.0 million and $39.4 million of cash on hand at the beginning of
the period were primarily used to purchase property, plant and equipment of $1.1
million, invest $1.7 million in unconsolidated affiliates, make payments on
construction in progress and project development costs of $67.3 million, make
deposits on turbines of $29.6 million, pay a common stock dividend of $8.7
million, repay project finance borrowings of $26.4 million, and pay deferred
financing costs of $4.2 million.
Historically, we have financed each facility primarily under financing
arrangements and related documents, which generally require the extensions of
credit to be repaid solely from the project's revenues and provide that the
repayment of the extensions of credit (and interest thereon) is secured solely
by the physical assets, agreements, cash flow and, in certain cases, the capital
stock of or the partnership interest in that project subsidiary. This type of
financing is generally referred to as "project financing". The project financing
debt of our subsidiaries and joint ventures (aggregating $1.3 billion as of
March 31, 2000) is non-recourse to Cogentrix Energy and our other project
subsidiaries, except in connection with certain transactions where Cogentrix
Energy has agreed to certain limited guarantees and other obligations with
respect to such projects. These limited guarantees and other obligations
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include agreements for the benefit of the project lenders to three project
subsidiaries to fund cash deficits that the projects may experience as a result
of incurring certain costs, subject to an aggregate cap of $40.6 million.
In addition, Cogentrix, Inc., which is an indirect subsidiary of
Cogentrix Energy, has guaranteed two project subsidiaries' obligations to the
purchasing utility under five power sales agreements. Three of these power sales
agreements provide that in the event of early termination that is not for cause,
the project subsidiary must pay the utility a termination charge equal to the
excess paid for capacity and energy over what would have been paid to the
utility under the utility's published five-year capacity credit and variable
energy rates plus interest. The remaining two power sales agreements provide
that in the event of early termination, the project subsidiary must pay the
utility the cost of replacing the electricity from a third party for the
remainder of the agreement's term. Because these project subsidiaries'
obligations do not by their terms stipulate a maximum dollar amount of
liability, the aggregate amount of potential exposure under these guarantees
cannot be quantified. If we or our subsidiary were required to satisfy all of
these guarantees and other obligations or even one or more of the significant
ones, it could impair Cogentrix Energy's ability to service its outstanding
debt.
Any project we develop in the future, and those electric generating
facilities we may seek to acquire, are likely to require substantial capital
investment. Our ability to arrange financing on a non-recourse basis and the
cost of such capital are dependent on numerous factors. In order to access
capital on a non-recourse basis in the future, we may have to make larger equity
investments in, or provide more financial support for, the project entity.
The ability of our project subsidiaries to pay dividends and management
fees periodically to Cogentrix Energy is subject to certain limitations in our
respective financing documents. Such limitations generally require that: (a)
debt service payments be current, (b) debt service coverage ratios be met, (c)
all debt service and other reserve accounts be funded at required levels and (d)
there be no default or event of default under the relevant financing documents.
There are also additional limitations that are adapted to the particular
characteristics of each subsidiary. Management does not believe that such
restrictions or limitations will adversely affect Cogentrix Energy's ability to
meet its debt obligations.
As of March 31, 2000, we had long-term debt (including the current
portion thereof) of approximately $1.6 billion. With the exception of the $355.0
million of senior notes currently outstanding, substantially all of such
indebtedness is project financing debt, a large portion of which is non-recourse
to Cogentrix Energy. Future annual maturities of long-term debt range from $54.8
million to $105.9 million in the five-year period ending December 31, 2004. We
believe that our project subsidiaries and the project entities in which we have
an investment will generate sufficient cash flow to pay all required debt
service on the project financing debt and to allow them to pay management fees
and dividends to Cogentrix Energy periodically in sufficient amounts to allow
Cogentrix Energy to pay all required debt service on outstanding balances under
the corporate credit facility, the senior notes, to fund a significant portion
of its development activities and meet its other obligations. If, as a result of
unanticipated events, our ability to generate cash from operating activities is
significantly impaired, we could be required to curtail our development
activities to meet our debt service obligations.
On March 3, 2000, our corporate credit facility was amended to increase
available borrowings from $125.0 million to $175.0 million and to modify certain
covenants. The credit facility has been extended through October 2002 and is
unsecured. The corporate credit facility provides direct advances to, or the
issuance of letters of credit for, our benefit in an amount up to $175.0
million. At March 31, 2000, we had utilized approximately $134.0 million of the
credit available under the corporate credit facility for letters of credit
issued in connection with electric generating facilities we purchased during
1998 and 1999 and the projects under construction in Rathdrum, Idaho, and Jenks,
Oklahoma. The balance of the commitment under the corporate credit facility is
available, subject to any limitations imposed by the covenants contained therein
and in the indentures, to be drawn upon by us to repay other outstanding
indebtedness or for general corporate purposes, including equity investments in
new projects or acquisitions of existing electric generating facilities or those
under development.
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Two of our wholly-owned subsidiaries, Cogentrix Eastern America, Inc.
and Cogentrix Mid-America, Inc. ("Mid-America"), formed to hold interests in
electric generating facilities acquired in 1999 and 1998, maintain credit
agreements with banks to provide for $75.0 million and $25.0 million of
revolving credit, respectively. The credit facilities provide for credit in the
form of direct advances and the Mid-America facility provides issuances of
letters of credit. Including the credit facilities described above, and the
revolving credit facility at one of our project subsidiaries, we maintain
revolving credit, which is non-recourse to Cogentrix Energy, Inc., with
aggregate commitments of $143.0 million. As of March 31, 2000, we had
approximately $42.1 million available under these facilities.
On March 9, 2000, a partnership, in which we own a 51% interest, closed
a credit agreement with a bank and a financial institution which provides for a
$126.0 million construction loan and a $5.0 million debt service reserve letter
of credit. Proceeds from the construction loan are being used to construct an
approximate 270 megawatt combined-cycle natural gas-fired generating facility
located in Rathdrum, Idaho. We have committed to provide an equity contribution
to the project subsidiary of approximately $16.7 million upon the earliest to
occur of (a) an event of default under the project subsidiary's financing
agreement, (b) the incurrence of construction costs after all project financing
has been expended, or (c) October 1, 2002. This equity contribution commitment
is supported by a letter of credit, which is provided under the corporate credit
facility. An indirect, wholly-owned subsidiary of Cogentrix Energy has entered
into an engineering, procurement and construction (EPC) contract with the
partnership to construct the Rathdrum facility. Cogentrix Energy is providing a
guarantee supporting the subsidiary's obligations under the EPC contract. We
expect the Rathdrum facility, which we will operate, to begin operation in the
third quarter of 2001. Electricity generated by the Rathdrum facility will be
sold under a long-term power purchase agreement to Avista Turbine Power, Inc.
Subsequent to March 31, 2000, we made a $5.0 million equity
contribution to the project subsidiary engaged in the construction of the
electric generating facility in Batesville, Mississippi. We currently own an
approximate 51% interest in the project facility. We have committed to provide
an additional $49.0 million to the project subsidiary. The remainder of the
commitment is supported by a letter of credit provided under the corporate
credit facility. The $5.0 million contribution was made from corporate cash
balances.
On April 28, 2000, a partnership, in which we own a 65% interest,
closed a credit facility with a group of lending banks that will provide
construction loans to be used to construct an approximate 300 megawatt electric
generating plant in the Dominican Republic. This project will utilize fuel
oil-fired, combined-cycle technology. We have committed to provide an equity
contribution to the project subsidiary of approximately $50.0 million upon the
earliest to occur of (a) an event of default under the project subsidiary's
financing agreement, (b) completion of construction of the facility, or (c)
February 2003. This equity commitment is supported by a letter of credit, which
is provided under the corporate credit facility.
We have entered into commitments with a turbine supplier to purchase a
specified number of turbines with specified delivery dates. We have made
approximately $29.6 million in non-refundable deposits related to these
commitments during the first quarter of 2000. We expect to make additional
progress payments of $49.7 million in 2000 of which approximately $46.2 million
would be repaid or funded from proceeds of financings we anticipate closing.
For the fiscal year ended December 31, 1999, our board of directors
declared a dividend on our outstanding common stock of $8.7 million. The
dividend was paid in March 2000. The board of directors' policy, which is
subject to change at any time, provides for a dividend payout ratio of no more
than 20% of our net income for the immediately preceding fiscal year. In
addition, under the terms of the indentures for the senior notes and the
corporate credit facility, our ability to pay dividends and make other
distributions to our shareholders is restricted.
IMPACT OF ENERGY PRICE CHANGES, INTEREST RATES AND INFLATION
Energy prices are influenced by changes in supply and demand, as well
as general economic conditions, and therefore tend to fluctuate significantly.
Through various hedging mechanisms, we have attempted to mitigate the impact of
changes on the results of operations of most of our projects. The basic hedging
mechanism against increased fuel and transportation costs is to provide
contractually for matching increases in the energy payments our project
subsidiaries receive from the utility purchasing the electricity generated by
the facility.
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Under the power sales agreements for certain of our facilities, energy
payments are indexed, subject to certain caps, to reflect the purchasing
utility's solid fuel cost of producing electricity or provide periodic,
scheduled increases in energy prices that are designed to match periodic,
scheduled increases in fuel and transportation costs that are included in the
fuel supply and transportation contracts for the facilities.
Changes in interest rates could have a significant impact on us.
Interest rate changes affect the cost of capital needed to construct projects as
well as interest expense of existing project financing debt. As with fuel price
escalation risk, we attempt to hedge against the risk of fluctuations in
interest rates by arranging either fixed-rate financing or variable-rate
financing with interest rate swaps, collars or caps on a portion of its
indebtedness.
Although hedged to a significant extent, our financial results will
likely be affected to some degree by fluctuations in energy prices, interest
rates and inflation. The effectiveness of the hedging techniques implemented by
us is dependent, in part, on each counterparty's ability to perform in
accordance with the provisions of the relevant contracts. We have sought to
reduce the risk by entering into contracts with creditworthy organizations.
Other Financial Ratio Data
Set forth below are other financial data and ratios for the periods
indicated (in thousands, except ratio data):
Last Twelve-Months Ended
March 31, 2000
--------------
Parent EBITDA $93,192
Parent Fixed Charges $32,728
Parent EBITDA/Parent Fixed Charges 2.85
Parent EBITDA represents cash flow to Cogentrix Energy prior to debt
service and income taxes of Cogentrix Energy. Parent Fixed Charges include cash
payments made by Cogentrix Energy related to outstanding indebtedness of
Cogentrix Energy and the cost of funds associated with Cogentrix Energy's
guarantees of some of its subsidiaries' indebtedness. Parent EBITDA is not
presented here as a measure of operating results. Our management believes Parent
EBITDA is a useful measure of Cogentrix Energy's ability to service debt. Parent
EBITDA should not be construed as an alternative either (a) to operating income
(determined in accordance with generally accepted accounting principles) or (b)
to cash flows from operating activities (determined in accordance with generally
accepted accounting principles).
Interest Rate Sensitivity
We routinely enter into derivative financial instruments and other
financial instruments to hedge our risk against interest rate fluctuations. As
of March 31, 2000, there have been no significant changes in the portfolio of
instruments as disclosed in our report on Form 10-K for the year ended December
31, 1999 filed with the Commission on March 30, 2000.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
One of our indirect, wholly-owned subsidiaries is party to certain
product liability claims related to the sale of coal combustion by-products for
use in various construction projects. Management cannot currently estimate the
range of possible loss, if any, we will ultimately bear as a result of these
claims. However, our management believes - based on its knowledge of the facts
and legal theories applicable to these claims and after consultations with
various counsel retained to represent these subsidiaries in its defense of such
claims - that the ultimate resolution of these claims should not have a material
adverse effect on our consolidated financial position, results of operations or
on Cogentrix Energy's ability to generate sufficient cash flow to service its
outstanding debt.
In addition to the litigation described above, we experience other
routine litigation in the normal course of its business. Our management is of
the opinion that none of this routine litigation will have a material adverse
effect on our financial position or results of operation.
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ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit No. Description of Exhibit
----------- ----------------------
3.1 Articles of Incorporation of Cogentrix
Energy, Inc. (3.1) (1)
3.2 Amended and Restated Bylaws of Cogentrix
Energy, Inc., as amended (3.2) (5)
4.1 Indenture, dated as of March 15, 1994,
between Cogentrix Energy, Inc. and First
Union National Bank of North Carolina, as
Trustee, including form of 8.10% 2004 Senior
Note (4.1) (2)
4.2 Indenture, dated as of October 20, 1998,
between Cogentrix Energy, Inc. and First
Union National Bank, as Trustee, including
form of 8.75% Senior Note (4.2) (3)
4.3 First Supplemental Indenture, dated as of
October 20, 1998, between Cogentrix Energy,
Inc. and First Union National Bank, as
Trustee (4.3) (3)
4.4 Registration Agreement, dated as of October
20, 1998, by and among Cogentrix Energy,
Inc., Salomon Smith Barney Inc., Goldman,
Sachs & Co. and CIBC Oppenheimer Corp. (4.4)
(3)
4.5 Registration Agreement, dated as of November
25, 1998, between Cogentrix Energy, Inc. and
Salomon Smith Barney, Inc. (4.5) (3)
4.6 Amendment No. 1 to the First Supplemental
Indenture, dated as of November 25, 1998,
between Cogentrix Energy, Inc. and First
Union National Bank, as Trustee (4.6) (4)
10.1 Guarantee, dated as of June 30, 1999,
between Cogentrix Energy, Inc. in favor of
Rathdrum Power, LLC.
10.1(a) First Amendment to Guarantee dated as of
March 8, 2000 between Cogentrix Energy, Inc.
and Rathdrum Power, LLC.
27 Financial Data Schedule, which is submitted
electronically to the U.S. Securities and
Exchange Commission for information only and
is not filed.
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the quarter covered
by this report.
(1) Incorporated by reference to Registration Statement
on Form S-1 (File No. 33-74254) filed January 19,
1994. The number designating the exhibit on the
exhibit index to such previously-filed report is
enclosed in parentheses at the end of the description
of the exhibit above.
(2) Incorporated by reference to the Form 10-K (File No.
33-74254) filed September 28, 1994. The number
designating the exhibit on the exhibit index to such
previously-filed report is enclosed in parentheses at
the end of the description of the exhibit above.
(3) Incorporated by reference to the Registration
Statement on Form S-4 (File No. 33-67171) filed
November 12, 1998. The number designating the exhibit
on the exhibit index to such previously-filed report
is enclosed in parentheses at the end of the
description of the exhibit above.
(4) Incorporated by reference to Amendment No. 1 to the
Registration Statement on Form S-4 (File No.
33-67171) filed January 27, 1999. The number
designating the exhibit on the exhibit index to such
previously-filed report is enclosed in parentheses at
the end of the description of the exhibit above.
(5) Incorporated by reference to the Form 10-K (File No.
33-74254) filed March 30, 1998. The number
designating the exhibit on the exhibit index to such
previously-filed report is enclosed in parentheses at
the end of the description of the exhibit above.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
COGENTRIX ENERGY, INC.
(Registrant)
May 15, 2000 /s/Thomas F. Schwartz
--------------------------------------------
Thomas F. Schwartz
Group Senior Vice President, and
Chief Financial Officer
(Principal Financial and Accounting Officer)
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