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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, 2001
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 (I.R.S. Employer
of 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, 2001, 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 10-Q
PAGE NO.
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PART I: FINANCIAL INFORMATION
Item 1. Consolidated Condensed Financial Statements:
Consolidated Balance Sheets at March 31, 2001 (Unaudited)
and December 31, 2000 3
Consolidated Statements of Income for the Three Months
Ended March 31, 2001 and 2000 (Unaudited) 4
Consolidated Statements of Cash Flows for the Three Months
Ended March 31, 2001 and 2000 (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, 2001 AND DECEMBER 31, 2000
(dollars in thousands)
MARCH 31, DECEMBER 31,
2001 2000
------------ ------------
(Unaudited)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 155,513 $ 131,834
Restricted cash 16,216 10,269
Accounts receivable 61,915 68,460
Inventories 17,595 15,050
Net assets held for sale -- 53,747
Other current assets 3,050 3,284
------------ ------------
Total current assets 254,289 282,644
NET INVESTMENT IN LEASES 499,564 499,774
PROPERTY, PLANT AND EQUIPMENT, net of accumulated
depreciation of $288,425 and $301,825, respectively 392,539 399,832
LAND AND IMPROVEMENTS 7,053 7,053
CONSTRUCTION IN PROGRESS 747,974 607,334
DEFERRED FINANCING COSTS,
net of accumulated amortization of $27,524 and $24,393, respectively 61,113 63,823
INVESTMENTS IN UNCONSOLIDATED AFFILIATES 349,326 346,794
PROJECT DEVELOPMENT COSTS AND TURBINE DEPOSITS 123,052 59,223
OTHER ASSETS 42,723 40,747
------------ ------------
$ 2,477,633 $ 2,307,224
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt $ 76,500 $ 69,483
Accounts payable 23,161 26,458
Accrued compensation 5,742 10,104
Accrued interest payable 21,928 10,336
Accrued dividends payable -- 10,309
Other accrued liabilities 37,340 89,422
------------ ------------
Total current liabilities 164,671 216,112
LONG-TERM DEBT 1,864,977 1,726,915
DEFERRED INCOME TAXES 132,523 105,915
MINORITY INTERESTS 85,623 74,249
OTHER LONG-TERM LIABILITIES 25,191 21,355
------------ ------------
2,272,985 2,144,546
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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 (2,251) (1,152)
Accumulated earnings 206,769 163,700
------------ ------------
204,648 162,678
------------ ------------
$ 2,477,633 $ 2,307,224
============ ============
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, 2001 AND 2000
(UNAUDITED) (dollars in thousands, except share and earnings
per common share amounts)
THREE MONTHS ENDED MARCH 31,
-------------------------------
2001 2000
---------- ----------
OPERATING REVENUES:
Electric $ 90,614 $ 81,799
Steam 8,134 7,541
Lease 11,088 11,193
Service 17,635 14,090
Income from unconsolidated investment in power projects,
net of premium amortization 7,933 15,226
Gain on sales of project interests 60,368 --
Other 5,433 4,934
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201,205 134,783
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OPERATING EXPENSES:
Fuel 33,003 26,678
Cost of service 17,996 15,135
Operations and maintenance 20,291 16,988
General, administrative and development expenses 18,601 12,031
Depreciation and amortization 9,609 10,886
---------- ----------
99,500 81,718
---------- ----------
OPERATING INCOME 101,705 53,065
OTHER INCOME (EXPENSE):
Interest expense (29,649) (23,297)
Investment income and other, net 2,878 2,679
---------- ----------
INCOME BEFORE MINORITY INTERESTS IN INCOME AND
PROVISION FOR INCOME TAXES 74,934 32,447
MINORITY INTERESTS IN INCOME (4,559) (2,945)
---------- ----------
INCOME BEFORE PROVISION FOR INCOME TAXES 70,375 29,502
PROVISION FOR INCOME TAXES (27,306) (11,644)
---------- ----------
NET INCOME $ 43,069 $ 17,858
========== ==========
EARNINGS PER COMMON SHARE: $ 152.73 $ 63.33
========== ==========
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, 2001 AND 2000 (UNAUDITED)
(dollars in thousands)
THREE MONTHS ENDED MARCH 31,
----------------------------------
2001 2000
----------- ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 43,069 $ 17,858
Adjustments to reconcile net income to net cash provided by
operating activities:
Gain on sales of project interests (60,368) --
Depreciation and amortization 9,609 10,886
Deferred income taxes 27,306 9,070
Minority interests in income of joint venture, net of dividends 2,740 (452)
Equity in net income of unconsolidated affiliates, net of dividends (2,514) (10,300)
Minimum lease payments received 11,298 11,298
Amortization of unearned lease income (11,088) (11,196)
(Increase) decrease in accounts receivable 6,545 (5,595)
(Increase) decrease in inventories (2,545) 389
Increase (decrease) in accounts payable (3,297) 4,732
Decrease in accrued liabilities (2,640) (8,285)
Increase in other, net 7,256 6,382
----------- ------------
Net cash flows provided by operating activities 25,371 24,787
----------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sales of project interests 112,300 --
Property, plant and equipment additions (861) (1,101)
Construction in progress, project development costs and turbine deposits (241,334) (96,975)
Investments in unconsolidated affiliates -- (1,656)
Decrease (increase) in restricted cash (5,947) 19,093
----------- ------------
Net cash flows used in investing activities (135,842) (80,639)
----------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from notes payable and long-term debt 174,700 54,712
Repayments of notes payable and long-term debt (29,820) (25,386)
Increase in deferred financing costs (421) (4,156)
Common stock dividends paid (10,309) (8,683)
----------- ------------
Net cash flows provided by financing activities 134,150 16,487
----------- ------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 23,679 (39,365)
CASH AND CASH EQUIVALENTS, beginning of period 131,834 80,344
----------- ------------
CASH AND CASH EQUIVALENTS, end of period $ 155,513 $ 40,979
=========== ============
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 and a 50%-owned limited liability company in which
the Company has effective control by managing and operating the facility, are
consolidated. Less-than-majority-owned subsidiaries 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, 2001 and for the three months
ended March 31, 2001 and 2000 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, 2001, and the results of operations and cash flows for
the three months ended March 31, 2001 and 2000. 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, 2000, which the Company
filed with the Commission on April 2, 2001.
2. ADOPTION OF NEW ACCOUNTING PRONOUNCEMENT
On January 1, 2001, the Company adopted the Financial Accounting
Standards Board Statement of Financial Accounting Standard ("SFAS") No. 133,
"Accounting for Derivative Instruments and Hedging Activities" as amended by
SFAS 138, "Accounting for Certain Derivative Instruments and Certain Hedging
Activities, an amendment of SFAS No. 133." SFAS No. 133, as amended, requires
the fair value of derivative instruments designated as hedges to be recorded on
the balance sheet as an asset or liability. Changes in the fair value of
derivative financial instruments are either recognized periodically in income or
shareholder's equity (as a component of comprehensive income), depending on
whether the derivative is being used to hedge changes in fair value or cash
flow. The fair value of the Company's derivatives is determined by reference to
market values from various third party sources. The adoption of SFAS 133 did not
have a material effect on the consolidated financial statements of the Company.
The Company uses derivative instruments to manage the risk that changes
in interest rates will affect the amount of future interest payments. The
Company primarily engages in interest rate swap agreements, under which the
Company agrees to pay fixed rates of interest. These contracts are considered
hedges against future cash flows associated with changes in interest rates.
Accordingly, the interest rate swaps were recorded in the accompanying
consolidated balance sheet at their fair value, with the related gains or losses
recorded as an adjustment to other comprehensive income. As of March 31, 2001,
the Company recorded approximately $1.1 million, net of deferred taxes, in
deferred losses related to its interest rate swaps in other comprehensive
income. The Company currently has interest rate swaps that will mature from 2001
thru 2006.
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3. SALES OF PROJECT INTERESTS
On February 15, 2001, Ouachita Holdings, Inc. ("Ouachita Holdings"), an
indirect, wholly-owned subsidiary of the Company and sole member of Ouachita
Power, LLC ("Ouachita Power") sold a 50% membership interest in Ouachita Power
to MEP-I, LLC, an indirect subsidiary of General Electric Capital Corporation.
Ouachita Power is constructing an approximate 816-megawatt, combined-cycle,
natural gas-fired electric generating facility located near the city of
Sterlington, Louisiana. In exchange for the membership interest, Ouachita
Holdings received $48.3 million in cash and was relieved of $56.3 million of its
original equity contribution commitment to Ouachita Power. This equity
commitment was previously supported by a letter of credit under Cogentrix
Energy's corporate credit facility. The Company will retain a 50% membership
interest in Ouachita Power and will continue to manage and operate the facility.
As part of the purchase of the 50% membership interest, MEP-I, LLC assumed a
proportional share of the net liabilities of Ouachita Power and the Company
recorded a gain of approximately $51.8 million, net of transaction costs related
to this sale.
On March 30, 2001, the Company sold its entire interest (51.4%) in an
electric generating facility in Batesville, Mississippi to NRG Energy, Inc. In
exchange, the Company received $64.0 million and assigned our responsibility for
the operation and maintenance of the Batesville facility to an indirect
subsidiary of NRG Energy, Inc. The Company recorded a gain of approximately $8.6
million, net of transaction costs related to this sale.
4. 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,
after consultations with various counsel retained to represent the subsidiary in
the defense of such claims, and considering all claims resolved to date--that
the ultimate resolution of these claims should not have a material adverse
effect on its consolidated financial position or 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, the Company experiences
other routine litigation in the normal course of business. The Company's
management is of the opinion that none of this routine litigation will have a
material adverse impact on its consolidated financial position or results of
operations.
5. RECLASSIFICATIONS
Certain amounts included in the accompanying consolidated condensed
financial statements for the period ended March 31, 2000 and as of December 31,
2000, have been reclassified from their original presentation to conform with
the presentation as of and for the period ended March 31, 2001.
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 to regulated electric utilities and power
marketers, primarily under long-term power purchase agreements. 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 22 electric
generating facilities in the United States. Our 22 plants are designed to
operate at a total production capability of approximately 3,914 megawatts. After
taking into account our partial interests in the 16 plants that are not
wholly-owned by us, that range from 1.6% to approximately 74.2%, our net
ownership interests in the total production capability of our 22 electric
generating facilities is approximately 1,754 megawatts. We currently operate
nine of our facilities, seven of which we developed and constructed.
We also have ownership interests in and will operate four facilities
currently under construction in Louisiana, Oklahoma, Idaho and the Dominican
Republic. Once these facilities begin operation, we will have ownership
interests in a total of 25 domestic - and one international - electric
generating facilities that are designed with a total production capability of
approximately 6,110 megawatts. Our net equity interest in the total production
capability of those 26 facilities will be approximately 3,305 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 cogeneration facilities are sometimes
referred to individually as a "project subsidiary" and collectively as Cogentrix
Energy's "project subsidiaries." The unconsolidated affiliates of Cogentrix
Energy that are engaged in the ownership and operation of electric generating
facilities and in which we have less than a majority interest are sometimes
referred to individually as a "project affiliate" or collectively as "project
affiliates."
RESULTS OF OPERATIONS - THREE MONTHS ENDED MARCH 31, 2001 AND 2000
THREE MONTHS ENDED MARCH 31,
-------------------------------------------------------
2001 2000
------------------------ -----------------------
(dollars in thousands)
Total operating revenues $ 201,205 100.0% $ 134,783 100.0%
Operating expenses 71,290 35.4 58,801 43.6
General, administrative and development 18,601 9.2 12,031 8.9
Depreciation and amortization 9,609 4.8 10,886 8.1
--------- ---------
Operating income $ 101,705 50.5% $ 53,065 39.4%
========= =========
THREE MONTHS ENDED MARCH 31, 2001 AS COMPARED TO THREE MONTHS ENDED MARCH 31,
2000
Operating Revenues
Total operating revenues increased 49.3% to $201.2 million for the three
months ended March 31, 2001 as compared to $134.8 million for the three months
ended March 31, 2000 as a result of the following:
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- Electric revenue increased approximately $8.8 million as a result of the
recognition of electric revenue generated from the Batesville facility,
which commenced commercial operation in August 2000 (see Liquidity and
Capital Resources -- Other Significant Events, below), and an increase
in megawatt hours sold to the purchasing utilities at most of our
electric generating facilities. The increase in electric revenue was
partially offset by a decrease in electric revenue at three of our
facilities as the result of the termination of their power purchase
agreements during the second half of 2000.
- Service revenue increased approximately $3.5 million as a result of an
increase in the variable energy rate charged to the purchasing utilities
at our Cottage Grove and Whitewater facilities. The increase in the
variable energy rate was a direct result of an overall increase in
natural gas prices during the three months ended March 31, 2001 as
compared to the corresponding period in 2000. The increase in service
revenue was partially offset by a decrease in megawatt hours sold to the
purchasing utilities at these facilities.
- Income from unconsolidated investments in power projects decreased
approximately $7.3 million primarily as a result of a planned outage at
the Northampton facility, an unscheduled outage at the Morgantown
facility, losses at the Cedar Bay facility and an increase in
maintenance expenses at four project affiliates. These decreases were
partially offset by increased earnings at the Birchwood facility.
- Gain on sale of project interests increased approximately $60.4 million
primarily as a result of the sale of a 50% interest in our Ouachita
facility on which we recorded revenue of approximately $51.8 million,
net of transaction costs, and the sale of our entire interest in the
Batesville facility on which we recorded revenue of approximately $8.6
million, net of transaction costs.
Operating Expenses
Total operating expenses increased 21.3% to $71.3 million for the three
months ended March 31, 2001 as compared to $58.8 million for the three months
ended March 31, 2000 as a result of the following:
- Fuel expense increased approximately $6.3 million as a result of an
increase in megawatt hours sold to the purchasing utilities by most of
our electric generating facilities. The increase was partially offset by
a decrease in fuel expense at three of our facilities as a result of the
termination of their power purchase agreements during the second half of
2000.
- Operations and maintenance costs increased $3.3 million primarily as a
result of the commencement of commercial operations at the Batesville
facility in August 2000.
- Cost of services increased $2.9 million as a result of an increase in
fuel costs at our Cottage Grove and Whitewater facilities. The increase
in fuel costs resulted from an overall increase in natural gas prices
during the three months ended March 31, 2001 as compared to the
corresponding period of 2000.
General, Administrative and Development Expenses
General, administrative and development expenses increased 55.0% to
$18.6 million for the three months ended March 31, 2001 as compared to $12.0
million for the three month ended March 31, 2000. This increase is primarily due
to 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
Interest expense increased 27.0% to $29.6 million for the three months
ended March 31, 2001 as compared to $23.3 million for the three months ended
March 31, 2000. The increase in interest expense is primarily related to
incremental interest expense from the inclusion of long-term debt from the
Batesville facility which began commercial operations in August 2000, additional
borrowings of approximately $25.2 million at our Richmond facility in June 2000,
and the issuance of an additional $100.0 million of our 2008 senior notes in
September 2000.
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The increase in interest expense was offset by a reduction in interest expense
at several of our project subsidiaries due to scheduled repayments and
retirements of outstanding project financing debt.
LIQUIDITY AND CAPITAL RESOURCES
Consolidated Information
The primary components of cash flows from operations for the three
months ended March 31, 2001, were as follows (dollars in millions):
- Net income...................................................... $ 43.1
- Gain on sale of interests in electric generating facilities..... (60.4)
- Deferred income taxes........................................... 27.3
- Depreciation and amortization................................... 9.6
Total cash flows from operations of $25.4 million, proceeds from
borrowings of $174.7 and proceeds from sales of interests in electric generating
facilities of $112.3 were primarily used to (dollars in millions):
- Purchase property, plant and equipment and to fund
project development costs and turbine deposits.................. $ 242.2
- Repay project financing borrowings and long-term debt........... 29.8
- Pay dividends................................................... 10.3
The ability of our project subsidiaries and project affiliates to pay
dividends and management fees periodically to Cogentrix Energy is subject to
limitations imposed by various financing documents. These limitations generally
require that: (1) debt service payments be current, (2) debt service coverage
ratios be met, (3) all debt service and other reserve accounts be funded at
required levels and (4) 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 project subsidiary and project
affiliate. Management does not believe that these restrictions or limitations
will adversely affect Cogentrix Energy's ability to meet its debt obligations.
Credit Facilities
We maintain a corporate credit facility with available commitments of
$250.0 million. The credit facility matures in October 2003 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 $250.0 million. Currently,
we have used approximately $122.2 million of the credit available primarily for
letters of credit issued in connection with projects we have under construction
in Idaho, Oklahoma and the Dominican Republic. The balance of the commitments
under the corporate credit facility is available, subject to any limitations
imposed by its covenants included in the indentures under which we have issued
our senior debt, 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.
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 $67.5 million and $25.0 million of
revolving credit, respectively. Both credit facilities provide for credit in the
form of direct advances, and the Mid-America facility provides for 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 that is non-recourse to Cogentrix Energy, with aggregate
commitments of $129.7 million. As of March 31, 2001, we had approximately $27.5
million available under these facilities. The aggregate commitments on these
facilities will decrease to $105.4 million by December 31, 2001.
Other Significant Events
During February 2001, our wholly-owned subsidiary sold a 50% membership
interest in our Ouachita Parish, Louisiana facility currently under
construction. In exchange, we received $48.3 million in cash and were relieved
of our original equity commitment up to approximately $56.3 million that was
previously supported by a letter of credit. We will continue to own 50% of this
facility and we will operate the facility upon commercial operations. As part of
the purchase of the 50% membership interest, MEP-I, LLC, assumed a proportional
share of the net liabilities of Ouachita Power, and the Company recorded a gain
of approximately $51.8 million, net of transaction costs related to this sale.
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During March 2001, we sold our entire 51.37% interest in the Batesville
facility to NRG Energy, Inc. for $64.0 million in cash. In connection with the
sale, we also assigned our responsibility for the operation and maintenance of
the Batesville facility to an indirect subsidiary of NRG Energy, Inc. The
Company recorded a gain of approximately $8.6 million, net of transaction costs
related to this sale.
During March 2001, we redeemed $20.0 million of our unsecured senior
notes due 2004 as required by the terms of the indenture under which these notes
were issued. Eighty million of these notes remain outstanding. We are required
to redeem an additional $20 million of these notes in 2002.
We have commitments with a turbine supplier to purchase a specified
number of turbines with specified delivery dates. We have made approximately
$51.6 million in non-refundable deposits related to these commitments during the
first quarter of 2001. Cogentrix Energy expects to make additional progress
payments of $61.2 million in 2001 which would be reimbursed from proceeds of
financings we anticipate closing.
For the fiscal year ended December 31, 2000, our board of directors
declared a dividend on our outstanding common stock of $10.3 million. The
dividend was paid in March 2001. 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. We
protect against the risk of changes in the market price for electricity by
entering into contracts with fuel suppliers, utilities or power marketers that
reduce or eliminate our exposure to this risk by establishing future prices and
quantities for the electricity produced independent of the short-term market.
Through various hedging mechanisms, we have attempted to mitigate the impact of
changes on the results of operations of most of our projects. The hedging
mechanism against increased fuel and transportation costs for most of our
currently operating facilities 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.
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.
Most of our facilities currently under construction have tolling
arrangements in place to minimize the impact of fluctuating fuel prices. Under
these tolling arrangements, each customer is typically obligated to supply and
pay for fuel necessary to generate the electrical output expected to be
dispatched by the customer.
Changes in interest rates could have a significant impact on our results
of operations because they 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 or caps on a portion of our 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 this risk by entering into contracts with creditworthy organizations.
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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, 2001 March 31, 2000
-------------- --------------
Parent EBITDA $ 171,094 $ 93,192
Parent Fixed Charges $ 38,836 $ 32,728
Parent EBITDA / Parent Fixed Charges 4.41 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, 2001, 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, 2000 filed with the Commission on April 2, 2001.
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, after consultations with various
counsel retained to represent the subsidiary in the defense of such claims, and
considering all claims resolved to date - that the ultimate resolution of these
claims should not have a material adverse effect on our consolidated financial
position or 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 business. Our management is of the
opinion that none of this routine litigation will have a material adverse impact
on our consolidated financial position or results of operations.
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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)
(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, 2001 /s/Thomas F. Schwartz
----------------------------------------
Thomas F. Schwartz
Group Senior Vice President, and
Chief Financial Officer
(Principal Financial and Accounting
Officer)
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