Investments |
The following
is a summary of our investments and the related funding commitments
(in millions):
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December 31,
2013 |
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December 31, |
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Funding |
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2012 |
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Assets |
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Commitments |
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Assets |
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Chem-Mod LLC
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$ |
4.0 |
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$ |
— |
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$ |
4.0 |
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Chem-Mod International
LLC
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2.0 |
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— |
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2.0 |
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C-Quest Technology
LLC
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2.0 |
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— |
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— |
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Clean-coal
investments:
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Non-controlling interest
in three limited liability companies that own seven 2009 Era Clean
Coal Plants
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4.5 |
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0.6 |
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2.8 |
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Controlling interest in
three limited liability companies that own seven 2009 Era Clean
Coal Plants
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13.8 |
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2.7 |
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6.3 |
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Non-controlling interest
in six limited liability companies that own five 2011 Era Clean
Coal Plants
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12.1 |
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— |
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13.2 |
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Controlling interest in
six limited liability companies that own eleven 2011 Era Clean Coal
Plants
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46.0 |
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2.7 |
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9.2 |
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Controlling interest in a
limited liability company that owns four 2011 Era Clean Coal
Plants
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2.3 |
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— |
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5.1 |
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Notes receivable and
interest from co-investorrelated to the sales of three 2009 Era
Plants
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— |
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— |
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8.5 |
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Other
investments
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3.7 |
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5.4 |
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3.0 |
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Total
investments
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$ |
90.4 |
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$ |
11.4 |
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$ |
54.1 |
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Chem-Mod
LLC - At
December 31, 2013, we had a 46.54% controlling interest in
Chem-Mod. Chem-Mod possesses the exclusive
marketing rights in the U.S. and Canada, for technologies used to
reduce emissions created during the combustion of coal. The refined
coal production plants discussed below, as well as those owned by
other unrelated parties, license and use Chem-Mod’s
proprietary technologies, The Chem-Mod™ Solution, in the
production of refined coal. The Chem-Mod™ Solution uses a dual injection
sorbent system to reduce mercury, sulfur dioxide and other
emissions at coal-fired power plants.
We believe
that the application of The Chem-Mod™ Solution qualifies for
refined coal tax credits under IRC Section 45 when used with
refined coal production plants placed in service by
December 31, 2011 or 2009. Chem-Mod has been marketing its
technologies principally to coal-fired power plants owned by
utility companies, including those utilities that are operating
with the IRC Section 45 refined coal production plants in
which we hold an investment.
Chem-Mod is
determined to be a VIE. We are the controlling manager of Chem-Mod
and therefore consolidate its operations into our consolidated
financial statements. At December 31, 2013, total assets and
total liabilities of this VIE included in our consolidated balance
sheet were $8.0 million and $0.8 million, respectively.
For 2013, total revenues and expenses were $37.9 million and
$21.2 million (including non-controlling interest of
$19.2 million), respectively. We are under no obligation to
fund Chem-Mod’s operations in the future.
Chem-Mod
International LLC - At December 31, 2013,
we held a 31.52% non-controlling ownership interest in Chem-Mod
International. Chem-Mod International has the rights to market The
Chem-Mod™ Solution in countries other than the U.S. and
Canada. Such marketing activity has been limited to
date.
C-Quest
Technology LLC - At December 31, 2013, we
held a non-controlling 8% interest in C-Quest’s global
operation. C-Quest possesses rights, information
and technology for the reduction of carbon dioxide emissions
created by burning fossil fuels. Thus far, C-Quest’s operations have been limited
to laboratory testing. C-Quest is determined to be a VIE, but due
to our lack of control over the operation of C-Quest, we do not
consolidate this investment into our consolidated financial
statements. We also have options to acquire an additional 19%
interest in C-Quest’s global operations for
$9.5 million at any time on or prior to August 15, 2016.
On August 1, 2013, we loaned the majority owner
$2.0 million at a 2% interest rate, which matures on
May 15, 2014. The loan can be paid in cash or by delivery of
an additional 4% ownership interest in C-Quest’s global
operations. If the loan is paid by delivery of the additional 4%
ownership interest, our option would be reduced to 15% and the
remaining purchase price would be reduced to
$7.5 million.
Clean Coal
Investments -
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We have investments in limited liability companies that own 34
refined coal production plants which produce refined coal using
proprietary technologies owned by Chem-Mod. We believe the
production and sale of refined coal at these plants is qualified to
receive refined coal tax credits under IRC Section 45. The
fourteen plants placed in service prior to December 31, 2009
(which we refer to as the 2009 Era Plants) can receive tax credits
through 2019 and the twenty plants placed in service prior to
December 31, 2011 (which we refer to as the 2011 Era Plants)
can receive tax credits through 2021.
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On March 1, 2013, we purchased an additional ownership
interest in twelve of the 2009 Era Plants from one of the
co-investors. For nine of the plants, our ownership increased from
24.5% to 49.5%. Our investment in these plants had been accounted
for under the equity method of accounting and will continue to be
accounted for under the equity method. For three of the plants, our
ownership went from 25.0% to 60.0%. Our investment in these plants
had been accounted for under the equity method of accounting. As of
March 1, 2013, we consolidated the operations of the limited
liability company that owns these three plants. For 2013, total
revenues and expenses recorded in our consolidated statement of
earnings related to this acquisition were $128.3 million and
$133.5 million, respectively.
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Our purchase price for the additional ownership interests in
these twelve plants was the assumption of the promissory note that
we received as consideration for the co-investor’s purchase
of ownership interests in three of the 2009 Era Plants on
March 1, 2010, which had a carrying value, including accrued
interest, of $8.0 million at March 1, 2013, plus the
payment of cash and other consideration of $5.0 million. We
recognized a gain of $9.6 million, which included the increase
in fair value of our prior 25% equity interest in the limited
liability company upon the acquisition of the additional 35% equity
interest, and recorded $26.3 million of fixed and other
amortizable intangible assets and $5.0 million of other assets
in connection with this transaction. The carrying value of our
prior non-controlling interest in the limited liability company was
$4.8 million as of the acquisition date. The fair value of our
prior non-controlling interest in the limited liability company was
determined by allocating, on a pro rata basis, the fair value of
the limited liability company as adjusted for our lack of control
in our prior ownership position. We determined the fair value of
the limited liability company based on provisional estimates of
fair value using similar valuation techniques to those discussed in
Note 3 to these consolidated financial statements.
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On September 1, 2013, we purchased a 99% interest in a
limited liability company that has ownership interests in four
limited liability companies that own five 2011 Era Plants. The
purchase price was $4.0 million in cash plus a
$10.0 million note with 3% interest due in installments
through December 19, 2021. Total revenues and expenses
recorded in our consolidated statement of earnings, for 2013
related to the acquisition, were $33.7 million and
$36.9 million, respectively.
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On December 13, 2013, we purchased a co-investor’s
50.5% interest in one refined fuel plant for $2.5 million in
cash. After this transaction, we own 100% of this plant and
consolidate its results. Total revenues and expenses recorded in
our consolidated statement of earnings, for 2013 related to the
acquisition, were zero and $0.1 million,
respectively.
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As of December 31, 2013:
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Twenty-eight of the plants have long-term production
contracts.
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The remaining six plants are in various stages of seeking and
negotiating long-term production contracts.
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We have a non-controlling, minority interest in twelve plants.
We also have agreements in principle with co-investors for the sale
of majority ownership interests in six additional plants. We may
sell ownership interests in some or all of the remaining plants to
co-investors.
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Seven of the 2009 Era Plants and five of the 2011 Era Plants
that are owned by limited liability companies have been determined
to be VIEs, for which we are not the primary beneficiary. At
December 31, 2013, total assets and total liabilities of these
VIEs were $76.3 million and $41.3 million, respectively.
For 2013, total revenues and expenses of these VIEs were
$342.2 million and $390.1 million,
respectively.
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In all limited liability companies where we are a
non-controlling, minority investor, the membership agreements for
the operations of each of these entities contain provisions that
preclude an individual member from being able to make major
decisions that would denote control. As of the date we became a
non-controlling, minority investor, we deconsolidated these
entities and subsequently accounted for the investments using
equity method accounting.
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For all plants that are not under long-term production
contracts, we estimate that we will invest, on average, an
additional $5.0 million per plant to connect and house each of
them. For those plants that will have majority ownership
co-investors, the average additional investment will be
$2.5 million. We plan to sell majority ownership interests in
such plants to co-investors and relinquish control of the plants,
thereby becoming a non-controlling, minority investor. We are
currently committed to fund an additional $6.0 million under
engineering and construction contracts related to moving,
connecting and housing the refined coal plants that we plan to
redeploy during 2014. We further estimate that we will invest an
additional $30.0 million to $35.0 million to redeploy the
remainder of the refined coal plants later in 2014 and into 2015,
before co-investor contributions.
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Each investor funds its portion of the on-going operations of
the limited liability companies in proportion to its investment
ownership percentage. Other than our portion of the on-going
operational funding, there are no additional amounts that we are
committed to related to funding these investments.
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We are aware that some of the coal-fired power plants that
purchase the refined coal are considering changing to burning
natural gas or shutting down completely for economic reasons. We
and our partners are prepared to move the refined coal productions
plants to other, generally higher volume, coal-fired power plants.
If these potential developments were to occur, we estimate those
plants will not operate for 12 to 18 months during their movement
and redeployment, which could have a material impact on the amount
of tax credits that are generated by these plants.
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Until March 1, 2013, we had a promissory note from a
co-investor that was received as part of the consideration for the
March 1, 2010 sale of ownership interests in three of the 2009
Era Plants. The note assumed by us as part of our purchase of
additional ownership interests in twelve of the 2009 Era Plants as
described above.
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Other
Investments - At December 31, 2013,
we owned a non-controlling, minority interest in five venture
capital funds totaling $3.2 million, a 20% non-controlling
interest in an investment management company totaling
$0.5 million, twelve certified low-income housing developments
with zero carrying value and two real estate entities with zero
carrying value. The low-income housing developments and real estate
entities have been determined to be VIEs, but are not required to
be consolidated due to our lack of control over their respective
operations. At December 31, 2013, total assets and total
liabilities of these VIEs were approximately $60.0 million and
$20.0 million, respectively.
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