-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, A98oPE7/z0cCelpfmXFi0f0lqAktjuHT9oUrkk1bjql3kD+0dUNX7Cq706khwAMB S/rCcUYCvrWgbuulo7SRmw== 0000912057-00-015937.txt : 20000405 0000912057-00-015937.hdr.sgml : 20000405 ACCESSION NUMBER: 0000912057-00-015937 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 9 CONFORMED PERIOD OF REPORT: 19991231 FILED AS OF DATE: 20000404 FILER: COMPANY DATA: COMPANY CONFORMED NAME: TRIGEN ENERGY CORP CENTRAL INDEX KEY: 0000925655 STANDARD INDUSTRIAL CLASSIFICATION: STEAM & AIR CONDITIONING SUPPLY [4961] IRS NUMBER: 133378939 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 001-13264 FILM NUMBER: 592840 BUSINESS ADDRESS: STREET 1: ONE WATER ST CITY: WHITE PLAINS STATE: NY ZIP: 10601 BUSINESS PHONE: 9142866600 MAIL ADDRESS: STREET 1: ONE WATER ST CITY: WHITE PLAINS STATE: NY ZIP: 10601 10-K 1 FORM 10-K ================================================================================ UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------- ANNUAL REPORT TO STOCKHOLDERS AND FORM 10-K |X| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999 OR |_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM TO . COMMISSION FILE NUMBER 1-13264 TRIGEN ENERGY CORPORATION (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) DELAWARE 13-3378939 (STATE OR OTHER JURISDICTION (I.R.S. EMPLOYER OF INCORPORATION OR ORGANIZATION) IDENTIFICATION NUMBER) ONE WATER STREET WHITE PLAINS, NEW YORK 10601-1009 (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE) (914) 286-6600 (REGISTRANT'S TELEPHONE NUMBER INCLUDING AREA CODE) SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: NAME OF EACH EXCHANGE TITLE OF EACH CLASS ON WHICH REGISTERED Common Stock, Par Value $.01 Per Share New York Stock Exchange SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: NONE Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes |X| No |_| Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. |_| The aggregate market value of voting stock held by non-affiliates of the registrant was $11,294,429 based upon the closing sale price quoted by the New York Stock Exchange on March 27, 2000. There were 12,401,808 shares of the registrant's Common Stock outstanding on March 27, 2000. ================================================================================ THIS DOCUMENT IS A COPY OF THE ANNUAL REPORT TO STOCKHOLDERS AND FORM 10-K FILED ON MARCH 31, 2000 PURSUANT TO A RULE 201 TEMPORARY HARDSHIP EXEMPTION TABLE OF CONTENTS
PAGE PART I Disclosure Regarding Forward-Looking Statements Item 1. Business................................................................................... 2 Item 2. Properties................................................................................. 7 Item 3. Legal Proceedings.......................................................................... 7 Item 4. Submission of Matters to a Vote of Security Holders........................................ 10 PART II Item 5. Market for Registrant's Common Stock and Related Shareholder Matters....................... 11 Item 6. Selected Financial Data.................................................................... 12 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations...... 13 Item 7A. Quantitative and Qualitative Disclosures About Market Risk................................. 18 Item 8. Financial Statements and Supplementary Data................................................ 18 Item 9. Changes in and Disagreements with Accountants On Accounting and Financial Disclosure....... 18 PART III Item 10. Directors and Executive Officers of the Company............................................ 18 Item 11. Executive Compensation..................................................................... 21 Item 12. Security Ownership of Certain Beneficial Owners and Management............................. 26 Item 13. Certain Relationships and Related Transactions............................................. 28 PART IV Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K............................ 29 Index to Financial Statements and Financial Statement Schedules....................................... F-1
1 PART I DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS This Annual Report includes historical information as well as statements regarding our future expectations. The statements regarding the future (referred to as "forward-looking statements") include among other things statements about energy markets in 2000; cost reduction targets; return on capital goals; development, production and acceptance of new products and process technologies; ongoing and planned capacity additions and expansions and joint ventures. Important factors that could cause actual results to differ materially from those discussed in such forward-looking statements include: supply/demand for our products, competitive pricing pressures, weather patterns, changes in industry laws and regulations, competitive technology, failure to achieve our cost reduction targets or complete construction projects on schedule and Year 2000 computer related difficulties. We believe in good faith that the forward-looking statements in this Annual Report have a reasonable basis, including without limitation, management's examination of historical operating trends, data contained in our records and other data available from third parties, but such forward looking statements are not guarantees of future performance and actual results may differ materially from any results expressed or implied by such forward looking statements. ITEM 1. BUSINESS GENERAL Trigen Energy Corporation was incorporated under the laws of Delaware on November 21, 1986. In this Annual Report, the pronouns "Trigen", "we" and "our" refer to Trigen Energy Corporation together with its wholly owned subsidiaries and the Trigen-Cinergy joint venture subsidiaries ( See "Revenue Growth/Acquisitions" below). We seek to produce and deliver the maximum economic value of energy and minimum pollution from each unit of fuel burned. Our approach is to use fuel to produce electricity or mechanical power, and in the same process also produce thermal energy (heating and/or cooling). In some locations our facilities are connected to pipeline networks which distribute our thermal energy to multiple buildings (district energy), in others our facilities are located adjacent to industrial plants and dedicated to the needs of those plants (onsite energy). On January 19, 2000, Elyo, an energy subsidiary of the Suez Lyonnaise des Eaux Group, T Acquisition Corp., an indirect wholly owned subsidiary of Elyo, and the Company entered into a merger agreement, pursuant to which Elyo, through T Acquisition Corp., would acquire all of the outstanding shares of Trigen Common Stock it did not already own. On February 28, 2000, T Acquisition Corp. commenced a tender offer to purchase any and all of the issued and outstanding shares of Common Stock of Trigen at a price of $23.50 per share, net to the seller in cash, without interest thereon. The tender offer is being made pursuant to the terms of the merger agreement. On March 27, 2000, Elyo announced the completion of the tender offer. As of that date, Elyo had beneficial ownership of approximately 96% of Trigen's stock. On January 19, 2000, Richard E. Kessel, formerly executive vice president, chief operating officer and a director of Trigen, was elected president and chief executive officer. Mr. Kessel joined Trigen in 1993, when the Company acquired United Thermal Corporation of which he was CEO. He also serves as Chairman of the Board's executive committee. Mr. Kessel succeeds Thomas R. Casten who resigned the position of President and Chief Executive Officer to pursue other interests. We operate fourteen district energy systems serving urban customers and seventeen single customer industrial/commercial energy projects. Our major customers include industrial plants, electric utilities, commercial and office buildings, government buildings, colleges and universities, hospitals, residential complexes, hotels, sports arenas and convention centers. Our two largest customers are Long Island Power Authority and Coors' Brewing Company (See Note 2 to Consolidated Financial Statements Summary of Accounting Policies, Revenue Recognition). A significant portion of our revenues and operating profit from sales of thermal energy for non-industrial users is subject to seasonal fluctuations (See Item 7 Management's Discussion and Analysis of Financial Condition and Results of Operations). Our choice of fuels, technology, blend of heat, cooling, and power produced, and distribution media are determined by local prices for fuel, prices for conventionally generated energy products and the convertibility of existing plant and equipment to more efficient cogeneration or trigeneration. Cogeneration is the combined production of electricity and useful thermal energy (heating OR cooling) by the sequential use of energy from one unit of fuel. Trigeneration is the combined production of electricity and useful thermal energy (heating AND cooling) from one unit of fuel. We develop, own, and operate facilities that produce and deliver thermal energy to commercial, governmental, and industrial customers in the form of steam, hot water, and/or chilled water. Our plants use various technologies - gas turbines, diesel engines, boilers and chillers - and various fuels, including natural gas, coal, oil, wood waste, municipal solid waste, and industrial by-products or scrap. To complement our basic business and to enhance our ability to add energy value, we have a separate technical product division that develops and produces products that conserve energy or extract more value from steam or help users 2 manage energy more efficiently. At present, this division offers steam pipeline insulation products, which may be installed without removing pipe from the ground and a low temperature thermal stratification fluid designed to lower the freezing point of water thus increasing the efficiency of conventional chiller plants. This division also produces back-pressure steam turbine generator sets and power units. Our back-pressure turbines take the place of steam pressure reducing valves and extract mechanical energy from the steam pressure reduction process. We also provide total energy management services to building owners and operators by providing operational services and management expertise with respect to energy production, procurement and usage. Our cogeneration or trigeneration plants emit up to 95% less nitrous oxides than the conventional electric generation they replace, and because of greater energy efficiency, emit less than half as much carbon dioxide (an ingredient in global warming) as would be produced by conventional production of the same energy. When we burn bio-mass fuels in our plants we eliminate the need to dispose of this waste in a landfill and we produce no more carbon dioxide than if these wastes were allowed to decay in a landfill. REVENUE GROWTH/ACQUISITIONS Our revenues have increased from approximately $1 million in 1987 (our first full year of operation) to $280.4 million in 1999 through acquisitions and internal growth. This Annual Report includes Consolidated Statements of Operations, which report our revenues and operating income for the last three fiscal years. Total assets at the end of 1999, 1998 and 1997 were $727.5 million, $618.2 million and $526.0 million respectively. We report the amount and percentage of our total revenue from thermal energy sales and electric energy sales for the last three years in Item 7 of this Annual Report ("Management's Discussion and Analysis of Financial Condition and Results of Operations"). Our revenue from sales outside the United States for the last three years was not material. We have not held a material amount of assets outside the United States over the last three years. In 1995, we formed a limited partnership with a subsidiary of Tucson Electric Power Company which purchased the energy systems of Coors' Brewing Company and Coors Energy Company in Golden, Colorado. In September of 1998, we purchased an additional 48% interest in that limited partnership from the subsidiary of Tucson Electric and in June 1999 purchased the remaining 1%. We now own 100% of those energy systems. In January 1998, we acquired Power Sources, Inc., which has been renamed Trigen-BioPower, Inc. Trigen-BioPower operates seven biomass-to-energy plants, producing steam for seven industrial customers from roughly 600,000 tons per year of renewable biomass fuels, including wood residues, rice hulls, cotton waste and paper mill sludge. As of December 1999, Trigen-BioPower has one additional biomass plant under construction in St. Mary's, GA. We have an active joint venture with Cinergy Corp. to build, own and operate cogeneration and trigeneration facilities in the United States, Canada, the United Kingdom and Ireland. We own 51% of most of the Trigen-Cinergy joint venture investments and 49% of others. NEW ON SITE INDUSTRIAL/COMMERCIAL PROJECTS During 1999, we focused greater efforts on industrial customers. Since the start of 1999, the Trigen-Cinergy joint venture began operating a district cooling system Orlando, FL and took over large heating and cooling facilities in Boca Raton, FL and College Park, MD. Trigen-Cinergy took over operations of cogeneration facilities in Baltimore, MD and Ashtabula, OH. Trigen-Cinergy has other projects currently under construction in Baltimore MD, St. Paul, MN, Silver Grove, KY, and Rochester, NY. Trigen took over operations at a plant in Decatur, AL and has a plant under construction in Denver, CO. We intend to continue these efforts in the future and will selectively pursue electricity and sales to the grid where that electricity is a by-product of efficient heat and cooling production. Internationally, we are prepared to pursue selected opportunities in Canada, Mexico and Central America or other countries where our customers have facilities that favor a power project with high efficiency, reliability and waste heat recovery. Trigen has one new plant under construction in Tampico, Mexico. BUSINESS STRATEGY We are a thermal sciences company. We seek ways to reduce fossil fuel usage with cost effective efficiency. Our mission is to provide heating, cooling and electricity with half the fossil fuel and half the pollution of conventional generation. We use our expertise in thermodynamic engineering and proprietary trigeneration processes to convert fuel to various forms of thermal energy and electricity and achieve over 90% overall energy efficiency compared to the 33% average efficiency of the U.S. electric utility industry in 1997. We believe industrial and institutional energy users will increasingly turn to specialist energy companies, and will contract out all of their energy and other utility needs in a process called outsourcing. We offer industrial customers outsourcing options ranging from operating their systems to investing our capital to provide new on site energy services and facilities. We specialize in adding electric power generation sized to provide for the basic thermal requirements of the 3 customer with normally wasted exhaust heat. We believe that our expertise in developing and running cogeneration projects and projects which use biomass fuels will be very attractive to these industrial customers. We see opportunities to expand our existing urban and industrial systems to serve additional customers and the expanded needs of existing customers. We will evaluate the acquisition of existing urban district energy or industrial systems and the development of new systems to provide district energy or independent power wherever our expertise provides a competitive advantage. Our strengths for the future include: - STABLE CUSTOMER BASE. Our long term contracts (i.e. contracts with remaining terms in excess of 3 years) provide consolidated revenues of over $275 million per year for the five-year period 2000 through 2005 and approximately $5.5 billion cumulatively for the period 2000 through 2030 (before inflation, renewals and changes in consumption from 1999 levels). - TECHNICAL INNOVATION AND PLANT OPTIMIZATION. We have special expertise in the design and operation of energy systems which we use to optimize the efficiency of energy assets. Among other things, we have installed computerized, automated control systems, which place real-time production cost information in the hands of the plant operator, as well as back-pressure turbines, and thermal storage tanks that allow us to produce energy during off peak usage periods for use during peak periods. - SERVICE RATE STRUCTURES ALIGN OUR INTERESTS WITH OUR CUSTOMERS. Our thermal service rate structures seek recovery of all fixed costs and a profit from fixed charges per month, which are adjusted with inflation, and then add a usage charge that is very close to our variable fuel and water cost. This lets us help customers to use less energy without reducing our gross margins and aligns our interests with customers. This feature has led to reductions of customer energy use per unit of product, or per square foot of building of as much as 20% in three years. Our price structures typically enable us to pass through to our customers fuel and most other commodity prices associated with providing energy services. For that reason, changes in such prices (which constitute approximately 49% of our costs) have little impact on our operating income. - PROTECTING THE ENVIRONMENT. By extracting and delivering the maximum value of energy from fuel and by employing pollution control technology, we emit substantially less pollution than would result from conventional generation of the same heat, electricity, and cooling. The principal reasons for lower emissions are the fuel efficiency of cogeneration and trigeneration, the use of biomass, employment of refrigerants other than CFC's and wherever possible, thermal, chemical, and catalytic destruction of exhaust contaminants. Our modern cogeneration plants produce as little as 5% of the nitrogen oxide emissions associated with conventional generation. - ENTREPRENEURIAL MISSION DRIVEN MANAGEMENT. Our senior management has extensive experience in developing and operating plants and processes that increase the value extracted from each unit of energy. These activities include the development and operation of district energy systems and cogeneration technologies. OVERVIEW OF OUR PRODUCTS AND SERVICES The plants we operated at the end of 1999 have the total capacity to produce 6,104 Megawatts of end use energy, of which approximately 86% is steam or hot water, 7% is electricity and 7% is chilled water. These products are distributed to customers through 156.4 miles (251.6 kilometers) of pipeline. Separate pipelines are used for steam, hot water and chilled water. When we produce electricity with diesel or gas turbines, we recover the exhaust heat to produce additional electricity, steam or hot water and/or chilled water. Because demand for steam and hot water has daily and yearly cycles, we cannot always use all the waste heat generated by our plants to produce steam and hot water for immediate use. Trigeneration plants enable us to recover and use waste heat to produce chilled water when heat demands are low. We also store chilled water produced off-peak for sale during the peak usage hours. By generating two or three energy products from a single fuel source, cogeneration and trigeneration increase the value of useful energy output. Average US electric-only generation converts 33% of fuel energy to high value electricity, but exhausts 67% of the fuel energy as waste heat. Conventional heat-only production converts 60% to 85% of the fuel energy to a much lower value energy form -- typically steam, hot water, or hot air -- and fails to extract the high value electric energy. Our approach is to combine the generation of heat and power to maximize the value of energy produced from each unit of fuel and minimize the resultant pollution. We balance the costs of producing and delivering these various energy products, including the cost of capital, labor, line losses, and fuel with the market value of the products to each user. The resulting plants seek to generate profits after debt service by extracting more delivered value than conventional single product generation. 4 Reliability of service is a key. Most of our facilities have sufficient heating capacity to generate peak loads with their largest production unit out of service, and have the ability to use two or more different fuels. STEAM AND HOT WATER. We produce steam and/or hot water at substantially all of our systems. Our customers use our steam and/or hot water for space heating and hot water, for various industrial process uses, for cooling (by powering on-site steam-driven chillers or absorption chillers), and for humidification and sterilization. Currently, the States of Missouri and Pennsylvania regulate our district steam energy business. Pennsylvania requires us to seek State regulatory approval of our prices for steam service. Missouri requires us to seek State regulatory approval of our prices for steam service from our Kansas City facilities. Our other businesses are not subject to State utility price regulation. In 1999, Maryland and New Jersey removed the requirement to seek State regulatory approval of pricing for steam. ELECTRICITY. We produce electricity at seventeen of our plants. The electricity produced is sold to the local utility company or used by our customers or us. Our electric generating plants, which sell their power to the local utility, are located in Kansas City, MO, London, Ontario (Canada), Nassau County, NY, Philadelphia, PA and Trenton, NJ. The plants in Nassau County, NY, Philadelphia, PA, Trenton, NJ and Kansas City, MO are qualified for an exemption from regulation under the Public Utility Regulatory Policies Act of 1978. CHILLED WATER. At fifteen of our facilities, we produce chilled water, which we provide to customers to cool commercial building space and for process chilling. OTHER ENERGY SERVICES. We provide other utility services to our customers such as compressed air and water treatment. We also provide operating supervision, management and maintenance of facilities as well as advice and assistance regarding initial design, construction and start-up, with respect to energy use as well as energy audits. FUEL AND RAW MATERIALS We are a significant purchaser of gas, coal, oil and biomass fuels, as well as chillers, boilers, generators and other equipment used for heating, cooling and electric generation. Most of our gas, coal, oil and biomass fuel requirements, as well as most of our other supplies, are purchased from local suppliers. We believe that we have adequate sources of fuel, supplies and equipment. COMPETITION PROVISION OF DISTRICT HEATING, ELECTRICITY AND COOLING The sale of electricity at wholesale over the interstate electric power grid is highly competitive. Where permitted by State law, the sale of electric power to individual end-users is also highly competitive. Some States continue to ban retail sales of electric power by non-utility companies as a means to protect the local electric utility monopoly. Other States permit non-utility generators to sell their electric power to only one user on the same site as their power plant. The provision of heating and cooling services through a multiple-user distribution system is highly competitive with on-site generation of the heat and cooling. There are currently very few competing operators of multiple-user district energy systems. Our principal thermal energy competition is from potential customers who own and operate their own boiler and chilled water plants. These customers are often provided financial incentives to install and retain their own plants by the suppliers of raw energy (such as local oil, natural gas and electricity companies) and by equipment suppliers that sell products and services to users who self-generate thermal energy. In several locations, local utilities are competing directly with us through unregulated subsidiaries offering steam and/or cooling. We believe that competition in the district energy business turns on the customers' evaluation of expected cost savings and reliability of service. We compete to attract and retain customers, and also compete for contracts and other awards to develop new facilities and systems. A significant additional factor is the high capital cost involved in constructing a district energy system. While this factor provides a competitive advantage once we are operating a completed system, high initial capital costs typically require us to have a significant number of customers, preferably under long-term contracts, prior to undertaking construction of a new cooling or heating system. We will pursue opportunities to expand our district energy systems and services wherever our expertise provides a competitive advantage. TECHNOLOGY Our research and development efforts have focused on improving the value of the energy products we extract and deliver. Our principal focus has been on finding ways to more efficiently convert fuel to energy and on improved generating, monitoring, automation and storage technologies. These efforts have resulted in the trigeneration machine, innovations in chilled water storage and control systems, innovative applications of standard modular equipment, and various incremental operational improvements. Expenditures for customer-sponsored or Company-sponsored research and development are not separately reflected in our financial statements, and the Company believes that if such expenditures were so allocated, the amounts would not be material. We have been granted patents for the trigeneration 5 machine, our freeze suppression chemical for stratified cold water storage and a fuel blending system for emissions control. None of these patents are believed to be material. YEAR 2000 COMPUTER ISSUES We discuss our Year 2000 computer processing compliance status in Item 7 of this Annual Report ("Management's Discussion and Analysis of Financial Condition and Results of Operations"). ENVIRONMENTAL Our operations are subject to extensive federal, state, provincial and local environmental laws and regulations that govern, among other matters, emissions into the air, the discharge of effluents, the use of water, fuel tank management and the storage, handling and disposal of toxic waste material. We believe that our facilities are in substantial compliance with applicable environmental laws and regulations and seek to maintain such compliance through appropriate management policies and procedures. We invest substantial funds to modify facilities to comply with applicable environmental laws and plan additional capital expenditures for these purposes in the future. We spent approximately $ 2.9 million and $ 3.9 million in 1999 and 1998, respectively, to comply with these requirements and estimate that the expenditures for environmental compliance in 2000 through 2002 will be approximately $ 11.2 million in the aggregate. These expenditures may include improvements at certain facilities for air emission control and monitoring equipment, wastewater discharge control equipment, asbestos control and other applicable environmental requirements. Additional amounts to be spent for environmental compliance in future years will depend on new laws and regulations and other changes in environmental concerns and legal requirements. Our United States facilities are subject to regulation by the U. S. Environmental Protection Agency under the Clean Air Act, among other laws. In May of 2003, regulations under the Clean Air Act are scheduled to create an allocation and trading program with respect to the release of nitrogen oxides into the atmosphere from facilities located in 12 States in the northeast United States. We produce nitrogen oxides at substantially all of our facilities. Our facilities in Philadelphia, PA and Nassau County, NY are currently expected to be required to comply with a nitrogen oxides emissions budget. Based on the current emissions budget allocated by the EPA to our facilities in Philadelphia, PA and Nassau County, NY, we do not believe that our compliance with these requirements will have a material impact on our results of operations. If the EPA revises our current budget, that may have a material impact on our results of operations. Our other facilities may become subject to nitrogen oxide emissions reductions requirements in the future. We are not able to predict what the impact of any new requirements would be at this time. EMPLOYEES As of December 31, 1999, we had approximately 846 employees of which 110 were covered by union agreements. 6 ITEM 2. PROPERTIES We operate 51 energy plants at 36 different locations. We own all or a portion of the interests in most of our facilities, lease some facilities and manage others. Note 13 of the Notes to Consolidated Financial Statements of the Company (included later in this Annual Report) describes how our assets are pledged as security under our financing agreements. We operate district energy systems in Boston, MA, Baltimore, MD, Charlottetown, Prince Edward Island (Canada), Kansas City, MO, London, Ontario (Canada), Oklahoma City, OK, Orlando, FL, Philadelphia, PA, St. Louis, MO, Trenton, NJ and Tulsa, OK. In Philadelphia, PA, we have a one half interest in the Grays Ferry Cogeneration Facility. We operate energy systems on the site of our industrial and commercial customers in Nassau County, NY, Chicago, IL, Golden, CO, Eden NC, Forest City, NC, Greenville, MS, Lenoir, NC, Loudon, TN, Marion, NC, Tuscola, IL, Boca Raton, FL, Baltimore, MD, Decatur, AL, Champaign, IL, Ashtabula, OH, College Park, MD, Rochester, NY and Syracuse, NY. Certain of these facilities are subject to minority interests due to investments by our Trigen-Cinergy joint venture, among other factors. The Company leases approximately 22,000 square feet in White Plains, New York, which houses our executive offices, financial, engineering, marketing, legal and data processing staffs. The term of the lease extends through March 31, 2005 and the annual rent due thereunder is approximately $.5 million. We believe that these facilities are adequate to meet our needs for the foreseeable future, and that suitable replacement space is readily available. ITEM 3. LEGAL PROCEEDINGS OKLAHOMA LITIGATION In September 1996, our subsidiary, Trigen-Oklahoma City Energy Corporation ("Trigen-Oklahoma City"), commenced an antitrust action in Federal District Court in Oklahoma City seeking injunctions and actual, treble and punitive damages from a local utility, Oklahoma Gas and Electric Company ("OG&E"), based on alleged anti-competitive actions against Trigen-Oklahoma City Energy Corporation by OG&E. Trigen-Oklahoma City's antitrust action went to trial in 1998 and on December 21, 1998, the jury returned a verdict in favor of Trigen. On January 19, 1999, the Court entered a judgment in favor of Trigen in the amount of $27.8 million. On January 25, 2000 the court decided post-trial motions to vacate or modify the judgment reducing the judgment to $20.6 million. OG&E has filed an appeal to the Tenth Circuit Court of Appeals and has posted a bond in order to stay enforcement of the judgment pending appeal. Trigen has filed a cross-appeal. Trigen's separate motion for attorney's fees (seeking approximately $3 million) is pending but OG&E has requested that the court postpone a hearing on that motion until the appeals are decided by the Circuit Court. We have not recognized any gain with respect to this matter because we cannot predict the final outcome. KINETIC ENERGY LITIGATION On May 2, 1997, a judgment was entered against us in the amount of $4.3 million following a jury trial in a law suit by Kinetic Energy Development Corporation against Trigen in the Circuit Court of Jackson County, Missouri, in connection with our acquisition of the Kansas City steam system. Kinetic claimed for compensation alleged to be owed to it by Trigen in connection with that acquisition. On August 6, 1997, the Court set aside the jury verdict and granted judgment for Trigen. Kinetic Energy Development Corporation appealed that order and on December 8, 1998, the Missouri Court of Appeals set aside the lower court decision and ordered a new trial. On December 22, 1998, we filed a motion for rehearing with the Missouri Court of Appeals and/or a review by the Missouri Supreme Court. The Court of Appeals granted our motion for rehearing. On September 7, 1999, the Court of Appeals held that Kinetic had proven only nominal damages at trial and returned the case to Circuit Court for retrial. The retrial will allow Kinetic to attempt to establish that it is entitled to some award for the reasonable value of its services, if any, in connection with the Trigen acquisition of the Kansas City steam system. The case presently awaits rescheduling for trial. We believe we have good defenses to these claims. Accordingly, we have not recognized any loss or expense (other than defense costs) with respect to this matter, although we cannot predict the final outcome. GRAYS FERRY LITIGATION On April 23, 1999, the Pennsylvania Court of Common Pleas of Philadelphia County approved a settlement agreement which ended the lawsuit brought by Grays Ferry Cogeneration Partnership (the "Partnership"), Trigen-Schuylkill Cogeneration, Inc. and CogenAmerica Schuylkill Inc. against PECO Energy Company and Adwin (Schuylkill) Cogeneration, Inc. The Partnership is the owner of the Grays Ferry Cogeneration Facility located in Philadelphia, Pennsylvania. The Partnership, Trigen-Schuylkill and CogenAmerica commenced this lawsuit in reaction to the alleged 7 termination by PECO on March 3, 1998, of the electric power purchase agreements between the Partnership and PECO (the "Power Purchase Agreements"). Prior to the settlement, we owned a one-third interest in the Partnership through our wholly owned subsidiary, Trigen-Schuylkill. CogenAmerica and Adwin owned the other two-thirds interests in the Partnership. Adwin is an indirect wholly owned subsidiary of PECO. Under the settlement agreement, PECO's subsidiary, Adwin, surrendered its rights to its one-third partnership interest in the Partnership to the two remaining partners, Trigen-Schuylkill and CogenAmerica. As a result, we own one half of the Partnership and CogenAmerica owns the other half. In the year 2001, the energy price under the Power Purchase Agreements will be based upon a percentage of a market based index, which we expect to produce substantially lower revenues from sales to PECO than the more favorable rates of the early contract years. Under the settlement agreement the Partnership gained the right to sell to third parties electric energy and capacity from the facility in excess of the 150 megawatts which PECO is required to purchase under the Power Purchase Agreements, subject to a right of first refusal for PECO. We expect that the ability to sell to third parties electric energy and capacity above the 150 megawatts under contract to PECO, will result in an opportunity to improve the financial performance of the Partnership. The Partnership will now have the ability to institute capital modifications to the combustion turbine to increase electric capacity during the summer months when the price of electric capacity and energy are historically the highest. Separately, The Chase Manhattan Bank, as agent for several commercial banks (collectively "Chase"), and Westinghouse Power Generation, which collectively financed the construction of the Gray's Ferry Cogeneration Facility, agreed to dismiss their lawsuits against PECO. Chase and Westinghouse also agreed that they will not charge the Partnership for any default interest up to April 16, 1999, although they have reserved the right to do so with respect to periods after April 16, 1999. The Partnership is in default under its separate credit agreements with Westinghouse and Chase for the following reasons. The Partnership did not convert on time its short-term construction loan from Chase to a longer term loan. The Partnership could not complete that conversion because of a dispute with the construction contractor, which has now been resolved. The Partnership also did not make principal payments to Westinghouse because the Chase loan agreement prohibits such payments to subordinate parties while the Partnership is in default. Westinghouse is a subordinate party. The Partnership owes a total principal amount of approximately $79.4 million to Chase. Chase has not accelerated the debt owing under the Credit Agreement. Chase has required to date, and may require in the future, the Partnership to apply available cash held by Partnership (net of operating expenses) toward repayment of the principal amount of the loans outstanding to Chase. The Partnership owes a total principal amount of approximately $15 million to Westinghouse. On March 1, 2000, Westinghouse demanded full payment of the amount owing to Westinghouse under its credit agreement. Only the Partnership assets and the Partners' ownership interests in the Partnership secure the Partnership's debt under the Chase and Westinghouse loans. The Partnership has accrued $3.0 million in default interest since April 16, 1999. To resolve these matters we have negotiated an amendment to the credit agreement with Chase and we are negotiating with Westinghouse and other subordinate parties. NASSAU LITIGATION On May 29, 1998, the County of Nassau, New York commenced an action against Trigen Energy Corporation and Trigen-Nassau Energy Corporation in New York State Supreme Court. Trigen-Nassau provides energy services to Nassau County under various agreements. Nassau County alleges that Trigen-Nassau breached those agreements by, among other means, charging the County for certain real estate taxes that the County contends are Trigen-Nassau's responsibility. On October 8, 1998, the Court dismissed the claims against Trigen Energy Corporation. On November 9, 1998, Trigen-Nassau filed counterclaims against Nassau County, seeking $1.6 million in damages. Trigen-Nassau alleges that Nassau County breached the parties' agreements by, among other things, failing to operate and maintain certain facilities and equipment. On January 21, 1999, the County requested that the Court dismiss Trigen-Nassau's counterclaims. On April 5, 1999, the Court dismissed some but not all of Trigen-Nassau's counterclaims. The Court declined to dismiss Trigen-Nassau's counterclaims that seek approximately $1.5 million in damages. The County is seeking approximately $10 million in damages. We believe we have good defenses to the County's claims. Accordingly, we have not recognized any loss or expense (other than defense costs) with respect to this matter, although we cannot predict the final outcome. 8 ESI LITIGATION In 1996, ESI, Inc. commenced an action against, among others, Coastal Power Company, Latin American Energy Development, Inc. and La Casa Castro S.A. de N.V. in the United States District Court for the Southern District of New York. On September 17, 1998, ESI, Inc. amended its complaint naming Trigen as an additional defendant. This action arises out of the development by Trigen, Latin American Energy, La Casa Castro and others, of an independent power project in El Salvador between 1993 and 1994. Trigen transferred its interest in the project to Tenneco Gas International in May 1994. In July 1994, Tenneco transferred its interest in the project to Coastal Power Company, which currently owns and operates the project. ESI claimed that it was entitled to a 2.5% interest in the project and that Coastal had wrongfully withheld or denied ESI's interest. ESI further claimed that Trigen had failed to disclose ESI's interest to Tenneco and so was responsible, in whole or in part, for ESI's failure to receive a 2.5% interest in the project from Coastal. On October 8, 1998, Latin American Energy asserted cross-claims against Trigen, Coastal and Tenneco claiming that it too had been denied its carried interest in the Project. On October 28, 1998, La Casa Castro asserted cross-claims against Trigen and on November 6, 1998, Coastal asserted cross-claims against Trigen for indemnification, each alleged that Trigen failed to disclose ESI's claimed interest to Tenneco and that Trigen was responsible for any damages that each may be required to pay to ESI and Latin American. On December 15, 1998, Trigen filed an amended answer denying liability for these claims and cross-claimed against Latin American Energy, Tenneco, Coastal and La Casa Castro, asserting that these parties were responsible for any damages owed to ESI and Latin American. On December 23, 1998, ESI and Latin American dismissed without prejudice their claims against Trigen. Coastal and La Casa Castro are continuing to assert their claims against Trigen for any damages they may be required to pay to ESI or Latin American. At this time, the case is in the early stages of discovery and as such we are not able to estimate the amount of damages that ESI and Latin American are seeking. We believe we have good defenses to Coastal's claims and La Casa Castro's claims. Accordingly, we have not recognized any loss of expense (other than defense costs) with respect to this matter, although we cannot predict the final outcome. SHAREHOLDER CLASS ACTIONS AGAINST TRIGEN COMPLAINTS OF FOTHERGILL, CORTEZ, AND BERKOWITZ. On September 23, 1999, three complaints were filed in the Court of Chancery of the State of Delaware against: Trigen Energy Corporation, Suez Lyonnaise Des Eaux SA, Patrick Buffet, George F. Keane, Thomas R. Casten, Philippe Brongniart, Olivier Degos, Patrick Desnos, Richard E. Kessel, Charles E. Bayless, Michel Bleitrach, Dominique Mangin D'Ouince and Michel Cassou. The individual defendants were sued in their capacity as Trigen directors and/or former Trigen directors. The complaints were filed, respectively, by Michael Fothergill, Rosa Cortez and Sarah Berkowitz. Each complaint was filed purportedly as a class action on behalf of the Company's shareholders. The complaints raised substantially identical allegations: that Trigen received a proposal from Suez to take Trigen private for $22.00 per share in cash. The plaintiffs alleged that this price does not represent the true value of Trigen and is unfair to the minority shareholders. Plaintiffs further alleged that because Suez owns approximately 52% of Trigen's outstanding shares, Suez has the power to effectuate the transaction without regard to the minority shareholders. Plaintiffs sought class certification, declaratory and injunctive relief (or money damages if the transaction is consummated), and an accounting. By agreement of the parties, an order has been entered consolidating all three actions under the Fothergill caption. On February 22, 2000, counsel for ELYO and the plaintiffs reached an agreement to settle this lawsuit, subject to court approval. The settlement does not require any payment to the plaintiffs from the Company or its directors. Accordingly, we have not recognized any loss or expense (other than defense costs and certain costs of providing Notice of Settlement to Class members) with respect to this matter, although we cannot predict the final outcome. The parties are in the process of submitting this settlement to the Court of Chancery of the State of Delaware for approval. 9 COMPLAINT OF RICE. On March 16, 2000, Adam Rice filed a complaint in the Supreme Court of the State of New York, County of Westchester against Trigen Energy Corporation, Suez Lyonnaise Des Eaux S.A., Elyo, S.A., T Acquisition Corporation, Christine Morin-Postel, Richard E. Kessel, George Keane, Patrick Buffet, Olivier Degos, Philippe Brongniart, Michel Bleitrach, Dominique Mangin D'Ouince and Charles Bayless. The complaint was filed purportedly as a class action on behalf of the Company's shareholders. The individual defendants were sued in their capacity as Trigen directors. The plaintiff alleged that the defendants have breached their fiduciary duties to plaintiff and our public shareholders by not renegotiating and/or reformulating the terms of the tender offer by which T Acquisition Corporation has offered to purchase all of our outstanding shares at a price of $23.50 per share. Plaintiff seeks class certification and money damages as well as other unspecified relief. We believe we have good defenses to these claims. Accordingly, we have not recognized any loss or expense (other than defense costs) with respect tot his matter, although we cannot predict the final outcome. OTHER LITIGATION We are subject from time to time to various other claims that arise in the normal course of business, and we believe that the outcome of these matters (either individually or in the aggregate) will not have a material adverse effect on our business results of operation or financial condition. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS Not applicable. 10 PART II ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED SHAREHOLDER MATTERS Our Common Stock is traded on the New York Stock Exchange under the symbol TGN. As of March 27, 2000 there were approximately 431 shareholders of record. The following table sets forth the high and low sales prices at close for our Common Stock for the periods indicated:
HIGH LOW 1999 First Quarter.................................................................................... 16 13/16 11 3/8 Second Quarter................................................................................... 19 7/16 13 5/8 Third Quarter.................................................................................... 23 3/4 17 1/8 Fourth Quarter................................................................................... 24 16 1998 First Quarter.................................................................................... 19 15/16 14 13/16 Second Quarter................................................................................... 15 1/8 12 1/8 Third Quarter.................................................................................... 13 15/16 9 3/4 Fourth Quarter................................................................................... 15 5/16 11 5/16
During 1999 and 1998, we declared quarterly dividends in an aggregate annual amount equal to $0.14 per share of Common Stock. See Note 2 of the Notes to the Condensed Financial Statements of Trigen Energy Corporation (Parent Company) for a statement on amounts available for payment of dividends. 11 ITEM 6. SELECTED FINANCIAL DATA The following table sets forth our selected consolidated financial data and should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations" and our consolidated financial statements, including the notes thereto, appearing elsewhere in this Annual Report:
YEARS ENDED DECEMBER 31, 1999 1998 1997 1996 1995 ---- ---- ---- ---- ---- (IN THOUSANDS, EXCEPT PER SHARE DATA) STATEMENT OF OPERATIONS DATA: Total revenues.............................. $280,420 $242,394 $240,651 $243,634 $198,710 Operating income............................ 39,551 31,823 28,743 43,138 37,038 Interest expense............................ 25,994 23,742 18,976 18,840 19,890 Earnings before extraordinary item and cumulative effect of a change in accounting principle....................... 16,108 6,557 5,025 14,051 10,564 Extraordinary loss (a)...................... --- (299) --- (1,943) --- Cumulative effect of a change in accounting principle (b)................... (4,903) --- --- --- --- Net earnings................................ 11,205 6,258 5,025 12,108 10,564 Basic earnings per common share............. Before extraordinary item................ 1.34 .55 .42 1.21 .93 Extraordinary loss....................... --- (.03) --- (.17) --- Cumulative effect of a change in accounting principle.................... (.41) --- --- --- --- ------------ ------------- ------------- ------------- ------------- Net earnings............................. .93 .52 .42 1.04 .93 ------------- ------------ ------------ ----------- ------------ Diluted earnings per common share........... Before extraordinary item................ 1.33 .55 .41 1.20 .93 Extraordinary loss....................... --- (.03) --- (.17) --- Cumulative effect of a change in accounting principle.................... (.41) --- --- --- --- ------------ ------------- ------------- ------------- ------------- Net earnings............................. .92 .52 .41 1.03 .93 ------------ ------------- ------------- ----------- ------------ Dividends per common share.................. .14 .14 .14 .14 .14 ------------ ------------- ------------- ------------ ------------ BALANCE SHEET DATA (AT YEAR END): Working capital (deficit)................... (14,575) (9,543) (2,095) (5,400) 282 Property, plant and equipment, net.......... 515,840 442,755 388,448 371,584 341,188 Total assets................................ 727,506 618,156 525,969 494,436 454,906 Long-term debt.............................. 406,755 343,685 256,361 226,487 223,371 Stockholders' equity........................ 160,023 147,928 145,482 140,670 118,830 OTHER OPERATING DATA: Operating margin............................ 14.1% 13.1% 11.9% 17.7% 18.6% Ratio of earnings to fixed charges (c)...... 1.7 1.2 1.4 2.1 1.8 Depreciation expense........................ $23,590 $19,780 $16,021 $7,595 $11,429 Capital expenditures........................ $93,646 $42,910 $39,415 $47,641 $18,454 Number of employees (at year end)........... 846 745 674 651 632
- -------- (a) The extraordinary losses in 1998 and 1996 result from the early extinguishment of debt. See Note 5 of the Notes to Consolidated Financial Statements. (b) Reflects an after-tax charge of $4.9 million related to the adoption of SOP 98-5 "Reporting on the Costs of Start-Up Activities" which was recorded as a cumulative effect of a change in accounting principle. See Note 4 of the Notes to Consolidated Financial Statements. (c) Earnings used in computing the ratio of earnings to fixed charges consist of earnings before extraordinary item plus income taxes, fixed charges (excluding capitalized interest) and income distributions of non-consolidated partnerships on a cash basis. Fixed charges consist of interest expense, capitalized interest and a portion of rental expense representative of the interest factor. 12 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion should be read in conjunction with our consolidated financial statements, including the notes thereto, appearing elsewhere in this Annual Report. The following table shows revenues and units of megawatt hours sold for the three years ended December 31, 1999:
1999 1998 1997 ------------------------------------------------------------------------------------------------------------ REVENUE REVENUE REVENUE AMOUNT % UNITS AMOUNT % UNITS AMOUNT % UNITS (DOLLARS IN MILLIONS, UNITS IN THOUSANDS OF MEGAWATT HOURS) Thermal energy................. $212.5 76 6,347 $182.4 75 5,940 $179.5 75 5,008 Electric energy................ 45.2 16 836 42.7 18 785 49.0 20 950 Fees and other revenues........ 22.7 8 --- 17.3 7 --- 12.2 5 --- -------- ----- -------- -------- ----- ------- -------- ----- -------- Total.......................... $280.4 100 7,183 $242.4 100 6,725 $240.7 100 5,958 ====== === ===== ====== === ===== ====== === =====
The following table shows the components of the Statement of Operations as a percent of total revenues for the three years ended December 31, 1999:
1999 1998 1997 ---- ---- ---- Total revenues.......................................................................... 100.0% 100.0% 100.0% Fuel and consumables.................................................................... (41.8) (41.9) (47.4) Production and operating costs.......................................................... (19.6) (19.9) (19.6) Depreciation and amortization........................................................... (9.9) (10.1) (7.6) General and administrative.............................................................. (14.6) (15.0) (13.5) ----- ----- ----- Operating income........................................................................ 14.1 13.1 11.9 Interest expense........................................................................ (9.3) (9.8) (7.9) Other income, net....................................................................... 6.2 2.3 1.0 Minority interest in earnings of subsidiaries........................................... (1.2) (1.0) (1.5) ------ ------ ------ Earnings before income taxes, extraordinary item and cumulative effect of a change in accounting principle................................... 9.8% 4.6% 3.5% ====== ====== ======
Our preferred rate structure for thermal energy includes fixed and variable components. These rate structures are intended to cause revenues to match our costs of providing capacity, including projected debt service and return on equity, thermal losses in the distribution network, taxes, labor and scheduled maintenance and repair. The capacity component, which is independent of usage in the period, generally includes cost escalation provisions. These rate structures also contain a charge, which varies with usage during the period, and which is intended to cover directly variable costs, so as to pass through to customers our cost of fuel. A significant portion of our revenues and operating profit are subject to seasonal fluctuation due to peak heating demand in the winter and peak cooling demand in the summer. This seasonal fluctuation is accentuated in those acquired steam systems where our preferred rate structures are not employed. Our strategy of converting old contracts to our preferred rate structures, adding cooling, electricity, energy services and industrial process loads has reduced the concentration of revenues in cold months during 1999 and is expected to continue in the future. RESULTS OF OPERATIONS YEAR ENDED DECEMBER 31, 1999 COMPARED WITH YEAR ENDED DECEMBER 31, 1998 OVERVIEW For the year ended December 31, 1999, earnings before a cumulative effect of a change in accounting principle amounted to $16.1 million, or $1.33 per diluted earnings per share. This compared to $6.6 million, or $.55 per diluted earnings per share before extraordinary item reported in 1998. For the year ended December 31, 1999, net earnings amounted to $11.2 million, or $.92 per diluted earnings per share after the effect of the adoption of a change in accounting principle. Revenues of $280.4 million for 1999 increased $38.0 million, or 15.7% over 1998. Operating income was $39.6 million and the operating margin was 14.1% in 1999 compared with operating income of $31.8 million and an operating 13 margin of 13.1% in 1998. Included in net earnings for 1999 was a non-recurring after-tax gain of $8.5 million, or $.70 per diluted share, related to the PECO lawsuit settlement. (See Note 23 of Notes to Consolidated Financial Statements, Legal Proceedings) REVENUES Revenues of $280.4 million in 1999 increased $38.0 million from revenues of $242.4 million in 1998. Thermal energy revenue increased $30.1 million to $212.5 million. Units of thermal energy sold increased 19% over 1998 reflecting a somewhat colder winter and the full year contribution of our joint venture in Tuscola, Illinois. Electric energy revenues increased $2.5 million to $45.2 million in 1999. The predominant reason for this increase is due to our Nassau facility, which operated for the full year in 1999, but was taken off line in 1998 for 22 days for a scheduled five year major overhaul. In addition, our new cogeneration plant in St. Louis began operations and contributed to electricity revenues in 1999. Equity in earnings (losses) of non-consolidated subsidiaries increased $2.9 million in 1999. This is due essentially to the improvement in earnings of the Grays Ferry Cogeneration Partnership and the increase in our ownership share to 50% from 33 1/3% as a result of the PECO settlement. The increase in the Partnership income reflects the reversal of 1998 default interest of $1.8 million (our share is $.9 million) which was waived through April 16, 1999 after such settlement (See Note 23 of the Notes to Consolidated Financial Statements, Legal Proceedings). Fees earned and other revenues increased by $2.5 million in 1999 as a result of our new joint venture projects in Baltimore, MD and Ashtabula, OH. OPERATING EXPENSES Fuel and consumables in 1999 increased $15.8 million to $117.3 million, an increase of 15.6%. This increase reflects the increased level of energy sales. Our rates typically enable us to pass changes in fuel and most commodity costs to the customer. As a result, such changes have little impact on operating income. Production and operating costs are those costs incurred to operate the plants, other than fuel and consumables in 1999, and include labor and supervisory personnel, repair and maintenance costs, and plant operating costs. In 1999, production and operating costs totaled $55.0 million, a 13.9% increase over 1998. This increase is primarily due to the inclusion of production and operating costs associated with 1999 new industrial accounts. Depreciation and amortization expense was $27.8 million in 1999, compared with $24.4 million in 1998. In 1999, we recognized an asset impairment loss of $3.0 million. This loss represents the difference between the carrying value of the long-lived assets of a division of our Canadian subsidiary and the fair value of those assets based on estimated discounted future cash flows. The loss is included in depreciation expense. General and administrative expenses of $40.8 million in 1999 increased $4.4 million compared to 1998. Expenses in 1998 included special cost adjustments of $2.0 million for insurance and employee related costs. Increased costs in 1999 are primarily due to legal expenses incurred in pursuing the Oklahoma City antitrust lawsuit against OG&E, overhead related to new industrial accounts and to increased expenses required to pursue energy outsourcing opportunities. OTHER INCOME/(EXPENSE) Interest expense increased $2.3 million to $26.0 million in 1999 primarily due to higher debt levels required to finance new business. Other income, net was $17.4 million in 1999, an increase of $11.8 million over 1998. This is primarily due to recognizing the gain from our share of the Adwin interest in the Grays Ferry Cogeneration Partnership which was surrendered to us on April 23, 1999 as part of the PECO settlement (See Note 23 of Notes to Consolidated Financial Statements - Legal Proceedings). We recorded a pre-tax gain of $14.5 million which represents the market value of the share of Adwin's interest in the Partnership that was surrendered to us. Other income, net for 1998 included the net results from gains of $2.1 million from the sale of nitrogen oxide emission allowances and $1.7 million from an insurance settlement. 14 INCOME TAXES Our effective tax rate is determined primarily by the federal statutory rate of 35% and state and local income taxes. The effective tax rate was 41.4% in 1999 and 41.1% in 1998. YEAR ENDED DECEMBER 31, 1998 COMPARED WITH YEAR ENDED DECEMBER 31, 1997 OVERVIEW For the year ended December 31, 1998, net earnings were $6.3 million compared with $5.0 million in 1997, and diluted earnings per common share were $.52 in 1998 compared with $.41 per common share 1997. Included in net earnings for 1998 was an extraordinary loss of $.3 million, or $.03 per common share, as a result of the early extinguishment of debt. Revenues of $242.4 million in 1998 increased $1.7 million over revenues of $240.7 million in 1997. Operating income was $31.8 million in 1998 and the operating margin was 13.1% in 1998 compared with operating income of $28.7 million and an operating margin of 11.9% in 1997. Offsetting the continuing mild weather and unfavorable results from our Canadian operations were positive contributions from the Trigen-BioPower acquisition and the Grays Ferry Cogeneration Partnership. Both were major contributors to the higher levels of revenues and profits in 1998. REVENUES Revenues of $242.4 million in 1998 increased $1.7 million from $240.7 million in 1997. Thermal energy revenue increased $2.9 million to $182.4 million. Units of thermal energy sold increased 19% over 1997 primarily reflecting the contribution of Trigen-BioPower, which was acquired in January 1998. Partially offsetting this increase were lower thermal energy sales in Philadelphia, Boston and Baltimore due to the effect of milder weather patterns. Electric energy revenues decreased $6.3 million to $42.7 million in 1998. The Nassau plant was taken off-line by the local utility, as permitted under their contract, for a longer period of time in 1998 than in 1997. In addition, in 1998, this facility was taken off-line for twenty-two days for a scheduled five year major overhaul. The Grays Ferry Cogeneration Partnership, of which we were a 33% partner, commenced operations in January 1998 and produced $60.3 million in electrical revenues for the year. Grays Ferry replaced our electric generation in Philadelphia and thus lowered reported revenues from electricity compared to the prior year by approximately $3.2 million. Our 33% share of the Grays Ferry Cogeneration Partnership's electric revenues are $20.1 million and the resulting profits are reflected in equity earnings of non-consolidated subsidiaries. Equity earnings/(losses) of non-consolidated subsidiaries in 1998 exceeded 1997 by $5.9 million, primarily reflecting our share of earnings from the Grays Ferry Cogeneration Partnership. Fees earned and other revenues declined slightly in 1998, reflecting the absence of revenues associated with the sale of a natural gas pipeline in 1997. This was essentially offset by the inclusion of fees from the Grays Ferry Cogeneration Partnership in 1998. OPERATING EXPENSES Fuel and consumables were $101.5 million in 1998, a $12.7 million decrease from 1997, in spite of a significant increase of 19% in thermal energy units sold. This decrease reflects the lower level of energy sales due to warm weather at systems primarily located in the Northeast and lower fuel prices at our fossil fuel plants. Our rate structure typically enables us to pass changes in fuel and most commodity costs to the customer. As a result, such changes have little impact on operating income. Fuel and consumables' costs decreased from 47.4% of revenues in 1997 to 41.9% in 1998 largely due to the addition of seven biomass fueled plants with relatively low fuel prices. Production and operating costs are those costs incurred to operate the plants, other than fuel and consumables, and include labor and supervisory personnel, repair and maintenance costs, and plant operating costs. In 1998, production and operating costs totaled $48.3 million, a 2.5% increase over 1997. This increase is primarily due to the inclusion of production and operating costs associated with Trigen-BioPower, which was acquired in January 1998. 15 Depreciation and amortization expense was $24.4 million in 1998, compared with $18.2 million in 1997. The increase is primarily attributable to the addition of Trigen-BioPower depreciation expense in 1998. General and administrative expenses increased $4.0 million to $36.4 million in 1998, a 12.3% increase over 1997. Contributing to the increase was the inclusion of 1998 Trigen-BioPower general and administrative expenses and a $2.0 million increase in insurance and employee-related costs, and the costs of pursuing the Oklahoma City antitrust lawsuit against OG&E. All of the 1998 costs of the lawsuit were expensed in 1998, and a gain, if any, will not be recognized until a final judgment is affirmed on appeal or a final settlement is consummated. OTHER INCOME/(EXPENSE) Interest expense increased $4.8 million to $23.7 million in 1998 primarily due to financing the Trigen-BioPower acquisition and the purchase of an additional 48% interest in the Trigen-Nations Energy Company Limited Partnership. Other income, net was $5.6 million in 1998, an increase of $3.1 million over 1997. The increase primarily results from gains during 1998 of $2.1 million from the sale of nitrogen oxide emission allowances and $1.7 million from an insurance settlement. INCOME TAXES Our effective tax rate is determined primarily by the federal statutory rate of 35% and state and local income taxes. The effective tax rate was 41.1% in 1998 and 41.0% in 1997. LIQUIDITY AND FINANCIAL POSITION We ended 1999 with total debt of $441.2 million compared with $375.1 million at year-end 1998. Stockholders' equity increased to $160.0 million in 1999 from $147.9 million in 1998. Our working capital deficit was $14.6 million at year end 1999 compared with a working capital deficit of $9.5 million at year-end 1998. At December 31, 1999 and 1998, cash and cash equivalents were $20.0 million and $14.7 million, respectively, of which $13.6 million and $13.3 million, respectively, was restricted as to use. See Note 7 of the Notes to Consolidated Financial Statements for information on the restrictions. Our principal sources of funds are proceeds from new borrowings and cash from operations. In 1999, $38.6 million was generated from operating activities compared with $36.4 million in 1998 and $23.3 million in 1997. During 1999 we invested $93.6 million in capital expenditures, $5.8 million for the acquisition of energy facilities, and paid dividends of $1.7 million to shareholders. These expenditures were financed by cash generated from operating activities and by $65.1 million of net new borrowings. On April 4, 1997, we entered into a $160.0 million revolving credit agreement with several banks. This facility was used to repay indebtedness outstanding under a $62.5 million credit facility entered into in 1995. The $160.0 million facility is for an initial period of three years and may be extended by a total of two one-year periods. Borrowings under the facility bear interest, at our option, at an annual rate equal to the base rate or the LIBOR rate plus 3/4%. The base rate is the higher of the prime lending rate or the Federal Reserve reported Federal funds rate plus 1/2%. On June 10, 1997, we amended the $160.0 million credit agreement by reducing the facility to $125.0 million and entered into a $35.0 million revolving credit facility with the same group of banks. The new facility is for an initial 364-day period and may be extended annually at the option of the banks. The terms and conditions of both facilities are the same. On September 23, 1998, the $125.0 million three year facility was increased by $35.75 million and the initial period was increased by one year. The base rate is the higher of the prime lending rate or the Federal Reserve reported Federal funds rate. The average effective rate on the facility was 6.0% in 1999 and the rate at December 31, 1999 was 7.2%. On December 30, 1998, we borrowed from an affiliate, Cofreth American Corporation, $50.0 million for acquisitions and project development. The $50.0 million was initially used to partially pay down the corporate facility. The $50.0 million is subordinate and junior in right of payment to all other debt. The subordinated debt may be redeemed in whole or in part at the option of Cofreth American Corporation with the net proceeds of an equity sale by the Company. The debt matures on December 31, 2010 and the interest rate is 7.38%. At December 31, 1999, we had $2.8 million of borrowings available under our credit facilities for working capital and general corporate purposes. Our loan agreements contain various restrictions and conditions with which we are in compliance (See Note 23 for default information related to Grays Ferry Cogeneration Partnership). Certain loan 16 agreements restrict payments by subsidiaries to the Company, unless the payments are for specified purposes or the subsidiary meets certain covenants. Management believes that cash generated from operations, borrowings available under our credit facilities, the ability to obtain financing from our affiliates, and access to capital markets provide adequate resources to meet ongoing operating needs and future capital expenditures related to the existing business and development of new projects. See Note 13 of the Notes to Consolidated Financial Statements for information on long-term debt. During 1999, stockholders' equity increased $12.1 million to $160.0 million. This increase reflects $11.2 million of net earnings, $1.5 million from the issuance of common stock, $.5 million of amortization of unearned compensation related to restricted shares and a $.8 million cumulative translation adjustment, partially offset by $1.7 million of dividend payments to shareholders and the purchase of 14,000 shares of common stock for the treasury at a cost of $.2 million. CAPITAL EXPENDITURES Capital expenditures were $93.6 million in 1999 compared with $42.9 million in 1998 and $39.4 million in 1997, as we continue to invest in capital improvements to increase efficiency, reduce costs, pursue new opportunities, expand production and improve facilities. Capital expenditures during 1999 included construction of facilities in St. Louis, MO, Baltimore, MD, Ashtabula, OH, College Park, MD, Decatur, AL, Tampico, Mexico and St. Mary's, GA. ENVIRONMENTAL EXPENDITURES Our facilities are subject to governmental requirements with respect to the discharge of materials and otherwise relating to protection of the environment. We spent approximately $2.9 million and $3.9 million in 1999 and 1998, respectively, to comply with these requirements and estimate that our expenditures for environmental compliance in 2000 through 2002 will be approximately $11.2 million in the aggregate. These expenditures include improvements at certain facilities for air emission control equipment as required by the United States Clean Air Act (the "Clean Air Act"), wastewater discharge control equipment, asbestos control and replacement of CFC refrigerants. ACQUISITIONS On January 22, 1998, we acquired all of the capital stock of Power Sources, Inc. (renamed Trigen-BioPower, Inc.), a biomass-to-energy power plant developer and operator, for a cash price of $44.1 million. On September 23, 1998, we purchased an additional 48% interest in Trigen-Nations Energy Company Limited Partnership from Nations Energy Corporation for $21.3 million. On June 22, 1999, we purchased the final 1% of the limited partnership for $.3 million. The acquisitions were funded from our existing credit facilities. See Note 6 of the Notes to Consolidated Financial Statements for information on the acquisition. IMPACT OF NEW ACCOUNTING STANDARDS In April 1998, the American Institute of Certified Public Accountants issued Statement of Position 98-5, "Reporting on the Costs of Start-Up Activities" ("SOP 98-5"). SOP 98-5 requires costs of start-up activities and organizational costs to be expensed as incurred. SOP 98-5 is effective for financial statements for fiscal years beginning after December 15, 1998. We adopted SOP 98-5 effective January 1, 1999. The effect of the adoption was an after-tax charge of $4.9 million which was reported as a cumulative effect of a change in an accounting principle. Based on preliminary analyses, we do not expect that the future adoption of Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities," ("SFAS No. 133") will have a material effect on the Company's results of operations or financial condition. We will adopt SFAS No. 133 effective January 1, 2001. YEAR 2000 DATE CONVERSION We experienced no material problems with our information systems or with our customers or suppliers with which we deal, as a result of the date change to the year 2000. We spent approximately $1.0 million for the years 1997 through 1999 to make the required modifications to our systems. There was no material effect on our results of operations as a result of the Year 2000 issue. No significant information technology projects or capital spending were deferred as a result of our Year 2000 program. 17 ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. We do not engage in the trading of market risk sensitive instruments in the normal course of business. Our short and long-term debt is subject to fixed and variable interest rates including rates primarily based on LIBOR. An analysis of debt is found in Notes 12 and 13 of the Notes to Consolidated Financial Statements, Short-Term Debt and Long-Term Debt, included in this Annual Report. Based upon the debt balances at December 31, 1999, a change in the LIBOR rate of .25% would have a corresponding change in interest expense of approximately $.8 million per year when three-month LIBOR is under 6.0% ranging to approximately $.7 million per year when three-month LIBOR is over 7.5%. Three-month LIBOR at December 31, 1999 was 6.00125%. We use financial instruments to limit the financial risk of increases in interest rates on our floating rate debt. The differential to be paid or received under financial instruments is accrued and recognized in interest expense as interest rates change. As of December 31, 1999, we had outstanding interest rate swap, cap and collar agreements related to $39.4 million of debt outstanding, with an average fixed interest rate of 6.2% and an average remaining life of 5 years. The fair value of the swap, cap and collar was a receivable of $1.5 million at December 31, 1999. We do not expect these financial instruments to have a material effect on our earnings or cash flows or on the fair value of these instruments. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The financial statements and financial statement schedules that are filed as part of this Annual Report begin on page F-1 hereof. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE Our principal accountant for the fiscal years ending December 31, 1994, December 31, 1995, December 31, 1996 and December 31, 1997 was KPMG Peat Marwick LLP ("KPMG"). In 1998, we made a decision to change our principal accountant for our fiscal year ending December 31, 1998, for the reason set forth below. In 1998, the Audit Committee and the Board of Directors of the Company approved this determination. KPMG is also in the business of providing consulting services to clients with respect to issues related to the energy business. In 1997, a dispute arose between the Company and the consulting services division of KPMG with respect to the conduct of consulting services provided to a third party. That dispute was not resolved to our satisfaction. The change in principal accountant was not due to any matter regarding KPMG's accounting services. KPMG's report on our financial statements for 1996 and 1997 did not contain an adverse opinion or a disclaimer of opinion, nor was it qualified or modified as to uncertainty, audit scope or accounting principles. Neither were there, during the 1996 and 1997 fiscal years or the period since December 31, 1997, any disagreement with KPMG on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure, which disagreement, if not resolved to the satisfaction of KPMG, would have caused it to make reference to the subject matter of the disagreement in connection with its report. In 1998, the Board of Directors selected Arthur Andersen LLP as our new principal accountant. This selection was presented to our shareholders and ratified at our annual meeting of shareholders, which took place on May 19, 1999. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY CLASS A: serving until the annual election of directors in 2001 or until a successor is elected and qualified: PATRICK BUFFET, 46, was elected a Director of Trigen on September 9, 1998. Since 1998, he has been Executive Vice President of Suez Lyonnaise des Eaux ("Suez Lyonnaise"). From 1994 to 1998 he was Director of Industrial Holdings and Strategy of Societe Generale de Belgique, a subsidiary of Suez Lyonnaise. 18 RICHARD E. KESSEL, 50, has been President and Chief Executive Officer of Trigen since January 19, 2000 and has served as a Director of Trigen since 1994. He is also a member of the Executive Committee. He was Executive Vice President and Chief Operating Officer of Trigen from 1993 to January 19, 2000. CLASS B: serving until the annual election of directors in 2002 or until a successor is elected and qualified: CHRISTINE MORIN-POSTEL, 53, has served as a Director and non-executive Chairman of the Board since January, 2000. She has been Chief Executive Officer and Chairman of the Management Committee of Societe Generale de Belgique since 1998. From 1996 to 1998, she was Chairman and Chief Executive Officer of Compagnie Hypothecaire and Credisuez. She was a General Partner of Financiere Indosuez from 1993 to 1995. She served as a Director of Trigen from December, 1986 to June, 1993. GEORGE F. KEANE, 70, has served as a Director since 1994 and was non-executive Chairman of the Board from 1994 to January 19, 2000. He is the Chairman of the Audit Committee and a member of the Nominating Committee. From 1993 through 1996, he served as President Emeritus and Senior Investment Adviser to The Common Fund, a company that he helped organize and that manages the investment of over $17 billion in endowment funds and operating cash for more than 1,300 member colleges, universities and independent schools. Since 1996, Mr. Keane has been self-employed. He serves on the boards of Universal Stainless & Alloy Products, Global Pharmaceutical, United Water Resources, The Bramwell Funds, Nicholas-Applegate Investment Trust and Northern Trust of Connecticut. PHILIPPE BRONGNIART, 61, has been a Director of Trigen since 1997. Since 1997 he has been Directeur General of Suez Lyonnaise. From 1993 to 1997 he was General Manager of Societe Lyonnaise des Eaux ("Lyonnaise"). He has been Chairman and Chief Executive Officer of Sita since 1988. OLIVIER DEGOS, 38, since 1995, has been Chief Financial Officer of ELYO, a subsidiary of Suez Lyonnaise engaged in energy management. From 1994 to 1995, was Deputy Chief Financial Officer of Sita, a waste services company and subsidiary of Suez Lyonnaise. CLASS C: serving until the annual election of directors in 2000 or until a successor is elected and qualified: CHARLES E. BAYLESS, 56, has served as a Director of Trigen since 1994. He is a member of the Compensation Committee, the Nominating Committee and the Audit Committee. Since 1998 he has been President and Chief Executive Officer of Illinova Power Company. He was Chairman of Tucson Electric Power Company ("Tucson Electric"), an electric utility corporation, from 1992 to 1998. From 1990 to 1998 he was President and Chief Executive Officer of Tucson Electric. He became Chairman, President and Chief Executive Officer of UniSource Energy on January 1, 1998. UniSource Energy is Tucson Electric's holding company. MICHEL BLEITRACH, 54, has been a Director of Trigen since 1995. He is Chairman of the Compensation Committee. Mr. Bleitrach has been the Chairman of Elyo since 1995 and has been the Chief Executive Officer of Elyo since 1993. DOMINIQUE MANGIN D'OUINCE, 50, has been a Director of Trigen since 1995. He is a member of the Executive Committee. Mr. Mangin d'Ouince has been an Executive Vice President and Managing Director of Elyo since 1995 and was a Managing Director in charge of Business Development of Lyonnaise from 1990 to 1997. EXECUTIVE OFFICERS The executive officers of the Company include Richard E. Kessel, who is also on the Board of Directors, and the following: BENOIT ANSART, 39, has been Vice President - Energy Marketing and Development since September, 1999. He was Director of Engineering for Trigen from 1993 to 1999. DANIEL FIORE, 54, has been Vice President - Project Services for Trigen since June, 1999. From 1995 to 1999 he was Vice President - Fossil Services worldwide for Burns & Roe, a consulting, engineering and enterprises construction company. 19 MARK C. HALL, 32, has been Vice President, External Affairs since August, 1999. From 1998 to 1999, he was Director of Government Affairs for Trigen. From 1997 to 1998, he was Manager of Environmental Health and Safety and Manager, Legislative and Regulatory Affairs for Trigen. From 1995 to 1997, he was an environmental engineer for Trigen. JAMES F. LOWRY, 61, has been Vice President of Mergers and Acquisitions since 1997. He was Vice President, Development of Trigen from 1995 to 1997. From 1993 to 1995 he was a principal in International Ventures Group, which provided consulting services to developing businesses in countries of the former USSR. JEAN M. MALAHIEUDE, 61, has been Executive Vice President, Engineering since 1997, and also heads the Company's Project Development Division. He was Vice President, Engineering of Trigen from 1987 to 1997. Since 1987 he has been Executive Vice President of Cofreth-American Corporation ("CAC"). EUGENE E. MURPHY, 65, has been Vice President and General Counsel of Trigen since 1986. He has been Secretary of Trigen since 1988. From 1986 to 1994 he was a Director of Trigen. DANIEL J. SAMELA, 52, has been Controller of Trigen since 1995. From 1991 to 1995 he was Chief Financial Officer of the Dealer Division of Savin Corporation, a distributor of office machinery and equipment. STEVEN G. SMITH, 58, has been Vice President since 1998. Since 1997 he has headed the Operations Division of the Company. Since 1990 he has been President of Trigen-Philadelphia Energy Corporation, a subsidiary of the Company. MARTIN S. STONE, 64, has been Vice President and Chief Financial Officer of Trigen since 1998. From 1971 through 1997, he held various positions at Helmsley Enterprises, Inc., including Treasurer, the last being Vice President and Corporate Secretary. STEPHEN K. SWINSON, 42, has been Vice President since 1998. Since 1997 he has headed the Technology Division of the Company. From 1996 to 1997 he was President of the Western Region of the Company. From 1995 to 1997 he was President of Trigen-Colorado Energy Corporation, a subsidiary of the Company, and from 1993 to 1997 he was President of Trigen-Kansas City Energy Corporation, a subsidiary of the Company. STEPHEN T. WARD, 57, has been Treasurer of Trigen since 1995. From 1988 to 1995 he was Treasurer of TI Group Inc. TI Group plc is a London-based manufacturer of automotive and aerospace products. TI Group Inc. is their U.S. holding company. MICHAEL WEISER, 57, has been Vice President, Development of Trigen since 1992. From 1986 to 1994 he was a Director of Trigen. From 1986 to 1992 he was Treasurer of Trigen. SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE Section 16(a) of the Securities Exchange Act of 1934 requires the Company's officers, directors and persons who own more than 10% of the Company's common stock to file certain reports with respect to each such person's beneficial ownership of the Company's common stock. In addition, Item 405 of Regulation S-K requires the Company to identify each reporting person that failed to file on a timely basis reports required by Section 16(a) of the Exchange Act during the most recent fiscal year or prior fiscal years. The 0initial statement of beneficial ownership on Form 3 for the month of August, 1999 for Mr. Mark C. Hall, for the month of September, 1999 for Mr. Benoit Ansart and for the month of June, 1999 for Mr. Daniel Fiore were not filed on a timely basis. Both were newly elected officers at that time. Form 4 for the month of December 1998 for Mr. Thomas R. Casten was not filed on a timely basis. 20 ITEM 11. EXECUTIVE COMPENSATION The following table presents before-tax information on compensation earned, paid, awarded or accrued as of the end of fiscal years 1999, 1998 and 1997 for services by the Named Executive Officers, including options granted. SUMMARY COMPENSATION TABLE
LONG TERM COMPENSATION AWARDS ANNUAL COMPENSATION SECURITIES PAYOUTS (2) (4) (5) OTHER (3) UNDERLYING ALL NAME AND ANNUAL RESTRICTED OPTIONS/ LTIP OTHER PRINCIPAL (1) COMPENSA- STOCK SARS PAY- COMPEN- POSITION YEAR SALARY($) BONUS($) TION($) AWARDS($) GRANTED(#) OUTS($) SATION($) Thomas R. Casten 1999 415,700 269,374 24,336 -0- -0- -0- 21,614 President & Chief 1998 401,700 170,000 24,070 745,313 30,000 10,992 Executive Officer 1997 390,000 -0- 24,650 -0- 30,000 11,825 at 12/31/99 Richard E. Kessel 1999 355,000 185,566 21,840 -0- -0- -0- 17,656 Executive Vice Pres 1998 342,790 146,000 21,574 536,625 19,000 8,905 Chief Operating 1997 332,800 -0- 22,058 -0- 19,000 8,920 Officer at 12/31/99 Eugene E. Murphy 1999 200,000 78,408 19,318 -0- -0- -0- 11,877 Vice President and 1998 176,750 50,000 19,034 258,375 9,000 8,359 General Counsel 1997 171,600 -0- 19,439 -0- 9,000 8,223 Steven G. Smith 1999 230,000 103,587 55,236 -0- -0- -0- 13,599 Vice President 1998 220,000 101,850 14,874 357,750 12,500 8,933 1997 187,575 23,162 14,558 -0- 12,500 7,616 Martin S. Stone (6) 1999 204,000 75,692 14,240 -0- -0- -0- 11,372 Vice President and 1998 86,923 24,000 6,064 125,531 9,000 4,267 Chief Financial Officer
- ----------------------- (1) Amounts shown in this column are bonuses earned in the year shown, rather than bonuses paid in the year shown, except that, the following amounts included in the Bonus column were paid in 1998 for prior years' work: Mr. Kessel - $21,000 for 1997, Mr. Smith - $40,250 for 1996, and Mr. Murphy - $7,500 for 1997. (2) For each of the individuals listed, in 1999 the portion of Other Annual Compensation which is auto allowance for each respective individual is as follows: Mr. Casten - $23,296, Mr. Kessel - $20,800, Mr. Murphy - $18,278, Mr. Smith - $14,100, and Mr. Stone - $13,200. For Mr. Smith the portion of his Other Annual Compensation which is a relocation reimbursement is $40,096. For each of the individuals listed, in 1998 the portion of Other Annual Compensation which is auto allowance for each respective individual is as follows: Mr. Casten - $23,296, Mr. Kessel - $20,800, Mr. Murphy - $18,278, Mr. Smith - $14,100 and Mr. Stone - $5,737. In 1997, the portion of Other Annual Compensation which is auto allowance for each respective individual is as follows: Mr. Casten - $24,192, Mr. Kessel - $21,600, Mr. Murphy - $18,981, and Mr. Smith - $14,100. (3) The number and value of the aggregate restricted stockholdings for the Named Executive Officers as of December 31, 1999, including reinvested dividends, are as follows: Mr. Casten - 38,120 shares, $662,335; Mr. Kessel - 27,447 shares, $476,892; Mr. Murphy - 13,215 shares, $229,611; Mr. Smith - 18,298 shares, $317,928; Mr. Stone - 9,831 shares, $170,814. (4) Options granted in 1998 merely replaced options granted in 1997. (5) Amount shown is the total of the Company's matching contribution to the 401(k) Plan, profit sharing contribution, and term life insurance premiums. (6) Mr. Stone began his employment with the Company in July, 1998. 21 FISCAL YEAR-END OPTIONS/SAR VALUES
UNDERLYING VALUE OF UNEXERCISED UNEXERCISED IN-THE-MONEY OPTIONS/SARS AT OPTIONS/SARS AT FISCAL YEAR-END(#) FISCAL YEAR END($) EXERCISABLE/ EXERCISABLE/ NAME UNEXERCISABLE UNEXERCISABLE Thomas R. Casten 62,100/18,000 115,088/60,750 Richard E. Kessel 36,600/11,400 67,575/38,475 Eugene E. Murphy 13,200/10,800 27,750/18,225 Steven G. Smith 19,400/ 7,500 40,275/25,313 Martin S. Stone 1,800/ 7,200 8,413/33,650
No named Executive Officer exercised options in 1999. Compensation of Directors Directors who are regularly employed officers of the Company receive no fees for serving as directors of the Company. Each non-officer director receives $20,000 (the Chairman receives $30,000) per year plus $1,000 per day of meetings of the Board or Committee of the Board attended, and each may elect to receive such compensation in shares of common stock. Upon his election to the Board in 1999, Olivier Degos received options to purchase 10,000 shares of common stock exercisable at $15.938 per share (the price per share on the date of the grant). Upon his election to the Board in 1998, Patrick Buffet received options to purchase 10,000 shares of common stock exercisable at $10.625 per share (the price per share on the date of the grant).Upon his election to the Board in 1997, Philippe Brongniart received options to purchase 10,000 shares of common stock exercisable at $25.00 per share (the price per share on the date of the grant). Upon their election to the Board in 1995, Messrs. Bleitrach and Mangin d'Ouince each received options to purchase 10,000 shares of common stock exercisable at $22.13 per share (the price per share on the date of the grant). During 1994, each individual who was then a Director received options to purchase 10,000 shares of common stock (20,000 for the Chairman) exercisable at $15.75 per share (the price per share on the date of the grant). In July 1996 the Chairman received additional options to purchase 10,000 shares of Common Stock exercisable at $18.75 per share. Each Director is reimbursed for the out-of-pocket costs of attending meetings. Ms. Christine Morin-Postel did not receive options upon her election to the Board when elected Chairman in January, 2000. EMPLOYMENT AGREEMENTS The Company has entered into employment agreements (the "Employment Agreements") with Thomas R. Casten, Richard E. Kessel and Eugene E. Murphy, ("Named Executive Officers"). Each of the Employment Agreements was initially for a period of three years commencing as of August 12, 1994 and is renewable for additional annual extensions unless terminated by either party. The base salaries under the Employment Agreements are subject to review by the Compensation Committee. The Employment Agreements also provide for the payment of incentive compensation. An Employment Agreement for a particular Executive Officer contains other specified benefits only if those benefits have been approved by a member of the Board of Directors who has been authorized to review and approve such provisions. Mr. Casten's employment terminated on January 19, 2000. On January 19, 2000 Mr. Casten entered into an agreement with Elyo pursuant to which Mr. Casten shall sell his shares of Stock in Trigen to Elyo, and Elyo shall purchase such shares on the thirty-first (31st) calendar day following the filing of Schedule TO by Elyo and certain of its affiliates in connection with the offer by T Acquisition Corp., a Delaware corporation and an indirect, wholly owned subsidiary of Elyo, to purchase any and all of the outstanding shares of Trigen. Also on January 19, 2000, Mr. Casten entered into a Separation Agreement and Release (the "Separation Agreement") with Trigen whereby Mr. Casten resigned as a director and officer of Trigen effective January 19, 2000. Pursuant to the Separation Agreement, Mr. Casten resigned from his positions as President, Chief Executive Officer and a director of Trigen and is eligible for salary and benefits continuation until the earlier of (a) January 19, 2002, or (b) the date on which he breaches any of his obligations under the Separation Agreement. Mr. Casten's obligations include non-disparagement, non-competition, cooperation, non-solicitation and confidentiality covenants. If Mr. Casten breaches any of these covenants, his right to payments under the terms of the Separation Agreement will be extinguished. Restricted 22 stock and unvested options held by Mr. Casten will continue to vest in accordance with their terms as if Mr. Casten remained employed by the Company and to the extent not vested on January 19, 2002 will become fully vested on that date to the extent not previously canceled by reason of a breach of the Separation Agreement. Alternatively, immediately prior to the effective time of the merger, if the merger occurs, (i) Mr. Casten's options will be canceled and he will receive for each share subject thereto the excess of the merger consideration over the exercise price, and (ii) Mr. Casten's shares of restricted stock will be canceled and he will receive an amount per share equal to the merger consideration in respect of one-fourth of such shares and will be eligible to receive on January 19, 2002 an amount per share equal to the merger consideration in respect of three-fourths of such shares. Mr. Casten is entitled to remain a general partner of the Trenton District Energy Company ("TDEC"), but may not interfere with or participate in the day-to-day operations of TDEC. Trigen has agreed that if TDEC refinances, Trigen will, subject to certain exceptions, use its good faith efforts so that Mr. Casten does not recognize income as a result of such refinancing as long as such efforts do not adversely impact TDEC, Trigen or its affiliates. REPORT OF THE COMPENSATION COMMITTEE COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION All decisions on compensation of the Company's executive officers, including decisions about awards under certain of the Company's stock-based compensation plans, are made by the members of the Compensation Committee, each of whom is a non-employee director. This report addresses the Company's compensation policies for 1999 as they affected Messrs. Casten, Kessel, Murphy, Smith and Stone, the chief executive officer and the four highest paid executive officers of the Company for 1999 (collectively, the "Named Executive Officers"). COMPENSATION POLICIES The Compensation Committee's executive compensation policies are designed to (a) provide competitive compensation opportunities when financial and operational performance attains pre-set ambitious levels, (b) reward executives consistent with the Company's performance, (c) recognize individual performance and responsibility, (d) underscore the importance of shareholder value creation, and (e) assist the Company in attracting, retaining and inspiring qualified executives. The overall focus of the compensation policy is to balance the near-term goals and needs of management and other employees with the long-term perspective to drive performance and results to provide a consistent commitment to the growth of the Company and enhance the creation of shareholder value. The principal elements of compensation employed by the Committee to meet these objectives are base salaries, annual cash incentives, business development incentives, and long term stock-based incentives. By design, the variable or "at-risk" components of compensation are proportionately greater for more senior executives, in recognition of their greater potential impact on the Company's results. All compensation decisions are determined following a detailed review of many factors that the Committee believes are relevant, including external competitive data, the Company's achievements over the past year, the individual's contributions to the Company's success, any significant changes in role or responsibility, and the reasonableness of compensation in relation to that of other employees. The competitiveness of the Company's total compensation program (incorporating base salaries, annual cash bonuses, and long term stock-based incentives) is assessed regularly with the assistance of an independent expert compensation consultant. Comparisons are made with executives in similarly sized firms with comparable responsibilities. Data for these comparisons is drawn from two primary sources: (1) a national compensation survey of similar publicly traded companies, and (2) the proxy statements of identified competitors, including all companies within a selected group of peer industry organizations (the "Compensation Peer Groups"). One of the guiding principles is to pay at a level that allows the Company to compensate key executives competitively compared with similarly placed executives within the Compensation Peer Groups. This comparison is performed while considering the Company's performance in relation to the performance results of those companies. In general, the Committee intends to pay base salary levels at the median or average levels of competitive compensation for executives with comparable responsibilities in the Company's Compensation Peer Groups. In addition to base salary, the Company's total compensation program includes an annual cash incentive plan, a business development growth incentive and a long-term stock-based incentive program. The targeted total compensation levels for the Named Executive Officers 23 are intended to be consistent with competitive levels (as measured by the total compensation levels of similar positions at the Compensation Peer Groups) when the Company attains its targeted corporate performance objectives. Actual payouts, if any, depend upon actual Company performance. Thus, the total compensation levels and individual compensation components received in any particular year could be demonstrably lesser or greater than the Compensation Peer Groups' average. The Company compensation philosophy for senior management emphasizes pay at risk, highlights a long-term performance results perspective, provides executive commitment via stock ownership, and bolsters the creation of shareholder value. BASE SALARY. Base salaries for all Named Executive Officers, including the Chief Executive Officer, are reviewed by the Committee on an annual basis. In determining appropriate base salaries, the Committee considers external competitiveness, the roles and responsibilities of the individual, the reasonableness of compensation in relation to that of other employees, and the contributions of the individual. ANNUAL CASH INCENTIVES. The Company believes that its incentive compensation plan should reward executives and other employees for their contributions to the success and profitability of the business, as well as the achievement of their personal goals and objectives which support the overall growth of the Company. Incentives paid under the Incentive Compensation Plan reflect the Committee's assessment of the degree to which the Company and business units met predetermined earnings per share and profitability objectives, and the executives and other participants achieved their individual goals and objectives that were agreed to between the Company and the executive. All Named Executive Officers, including the Chief Executive Officer, are eligible to participate in this program. LONG TERM STOCK-BASED INCENTIVES. The Company also believes that it is essential to link management and shareholder interests. To meet this objective, the Company implemented the 1994 Stock Incentive Plan ("Stock Plan"), which allows the Committee to grant stock options, restricted stock, performance shares, and stock appreciation rights to help attract, retain, and inspire executives and other employees by providing them with an opportunity to share in the Company's success. In determining actual awards, the Committee considers the externally competitive market, the contributions of the individual to the success of the Company, and the need to retain the individual over time. All Named Executive Officers, including the Chief Executive Officer, are eligible to participate in this program. The Company implemented a long-term program in 1997 under the Stock Plan in which senior management, including all Named Executive Officers, were granted a combination of incentive stock options and restricted shares. A key component of this program is for management to meet share ownership goals in order to participate fully in this program. By encouraging employees to obtain a stake in the Company's on-going success, the Company believes this will focus employees' attention on managing the Company as a shareholder with an equity position. The Company intends to continue granting stock options on a periodic basis to its employees, executives, and directors. The Committee has reviewed Internal Revenue Code Section 162(m) and has determined that, at present, its limitations are not applicable to the Company. Annually, the Committee will continue to consider the implications of this statute. The Committee's policy regarding the compensation of other executive officers of the firm is consistent with the approach outlined here. 1999 COMPENSATION As in prior years, the Company engaged the services of an outside, independent compensation consulting firm to conduct and verify to the Committee its findings concerning the compensation levels and practices of the Compensation Peer Groups and its recommendations for compensation actions for the Named Executive Officers. As outlined under "Compensation Policies", the Committee is thoroughly committed to the Company's variable pay concept. Under this philosophy, the Company is driven to leverage its compensation dollars and reward high performance levels when the Company's shareholder value added levels warrant. Base salaries paid in 1999 to the Named Executive Officers, including the CEO, reflect the Committee's review of external competitiveness, the roles, responsibilities and contributions of the individuals and the reasonableness of compensation in relation to that of other employees. 24 Incentive Compensation Plan incentives to be paid to all Named Executive Officers for 1999 were determined in conjunction with the Committee's assessment of the Company's performance with respect to predetermined earnings per share and profitability objectives. Overall, the Company's performance as measured by earnings per share was significantly above the target levels established in 1999 for the Incentive Compensation Plan. Accordingly, the CEO and the other Named Executive Officers received an incentive proportionately greater than their individual target levels for 1999. In addition to the Corporate earnings per share target, the business units in 1999 also were measured by an operating income performance criteria. Most business units did achieve their goals although two business units were below their threshold, and the remaining business units were slightly below their assigned threshold levels. Overall, the incentive levels are greater than the approved target levels for those Named Executive Officers who did receive an incentive. The Company launched a long-term stock-based compensation program in 1997. The program's primary objective is to focus management on increasing shareholder value. The program has three components: a) stock ownership goals, b) a restricted share award, and c) an incentive stock option grant. The restricted shares, which have a life cycle of eight years, will remain restricted until the Company announces accumulated basic earnings per share over four consecutive fiscal quarters of $2.08. This earnings target represents a doubling of the Company's 1996 earnings per share figure. In addition to the earnings target, the shares are also restricted from vesting unless the participant achieves his/her prescribed stock ownership levels. Each participant, including the Named Executive Officers, have been provided with a stock ownership target. The stock ownership targets are stated as a percentage of the participant's restricted share award and the percentages are progressive based on the increase in role and responsibility. COMPENSATION COMMITTEE INTERLOCKS AND INSIDE PARTICIPATION IN COMPENSATION DECISIONS COMPENSATION COMMITTEE Michel Bleitrach Charles E. Bayless Olivier Degos There are no Compensation Committee interlocks. Mr. Bleitrach, a Director of Trigen, is the Chairman and Chief Executive Officer of Elyo. Mr. Bayless, a Director of Trigen, is Chairman of Illinova Power. Mr. Degos is the Chief Financial Officer of Elyo. STOCK PERFORMANCE INFORMATION The following graph assumes the investment on August 12, 1994 of $100 in each of the four investment alternatives. For the Standard & Poor's Mid-Cap 400 Index and the Peer Group, the initial investment was assumed to be allocated among the respective companies based on their market capitalizations at the start of the period. The graphs assume dividends were reinvested when received. The Peer Group is composed of companies in the independent power producer sector, and includes the Company (which represented 4.0% of the market capitalization of the Peer Group at the start of the period). The other companies in the "Peer Group" are AES Corporation, Calpine Corp., Cogeneration Corp. of America, Destec Energy, Inc., Kenetech Corp., Magma Power Company (acquired by CalEnergy Company, Inc. in March 1995), MidAmerican Energy Holdings (formerly CalEnergy Company Inc.) and Sithe Energies USA, Inc., during the periods that each company has been publicly traded. 25 [INSERT GRAPHIC] ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The following table sets forth the ownership of the Company's common stock as of January 27, 2000, of each person known by the Company to own beneficially more than 5% of the common stock outstanding as of such date. Except as otherwise indicated, all shares are owned directly. Unless otherwise noted, each of the stockholders has sole voting and investment power with respect to the shares shown.
SHARES BENEFICIALLY OWNED NAME AND ADDRESS OF BENEFICIAL OWNER NUMBER PERCENT Suez Lyonnaise des Eaux 6,507,944(1) 52.5 1, rue d'Astorg Paris, France 75008 Societe Generale de Belgique 6,507,944(1) 52.5 Rue Royale 30 B-100 Brussels, Belgium Elyo 6,507,944(1) 52.5 235, Avenue Georges Clemenceau Nanterre, France 92000 Cofreth American Corporation ("CAC") 4,870,670(1) 39.3 c/o John M. Malahieude One Water Street White Plains, New York 10601 Compagnie Parisienne de Chauffage Urbain 1,637,274(1) 13.2 185 Rue de Bercy ("CPCU") 75012 Paris, France Thomas R. Casten 1,147,354(2) 9.3 One Water Street White Plains, New York 10601
26 Dimensional Fund Advisors Inc. 847,200(3) 6.8 Investment Counselors of Maryland, Inc. 800,000(4) 6.5
- ----------------------- (1) Suez Lyonnaise owns 100% of Societe Generale de Belgique which owns 100% of Elyo, which directly owns 80.5% of the outstanding voting stock of CAC, and may be deemed to own beneficially 90.7% of the outstanding voting stock of CAC due to its ownership of stock in certain other entities which are themselves owners of outstanding voting stock of CAC. CPCU is a direct subsidiary of Elyo. All shares directly held by CAC or CPCU are indirectly held by Elyo, Societe Generale de Belgique and Suez Lyonnaise. (2) Includes 43,950 shares held by his wife and children, 322,832 shares held by the Casten Family Limited Partnership, and 85,171 shares owned by an S-corporation in which he shares beneficial ownership with two other officers of the Company. (3) Based upon information filed by Dimensional Fund Advisors Inc. with the Securities and Exchange Commission in a report on Schedule 13G dated February 4, 2000. Dimensional Fund Advisors Inc. is a registered investment advisor to managed portfolios. As such, it may be deemed to be the beneficial owner of the shares of stock set forth above. (4) Based upon information filed by Investment Counselors of Maryland, Inc. with the Securities and Exchange Commission in a report on Schedule 13G dated February 10, 2000. Investment Counselors of Maryland, Inc. is a registered investment advisor to managed portfolios. As such, it may be deemed to be the beneficial owner of the shares of stock set forth above. The following table sets forth information furnished by the following persons and, where possible, confirmed from records of the Company, as to the number of shares of the Company's common stock beneficially owned by the directors, the Named Executive Officers of the Company and all directors and executive officers as a group as of January 27, 2000.
AMOUNTS IN COL. 2 INCLUDE THE FOLLOWING SHARES SUBJECT AMOUNT AND NATURE TO ACQUISITION OF BENEFICIAL PERCENT THROUGH CURRENTLY NAME OF BENEFICIAL OWNER OWNERSHIP(1) OF CLASS EXERCISABLE OPTIONS Thomas R. Casten 1,147,354(2)(6) 9.3 62,100 George F. Keane 57,275(3)(5) (4) 30,000 Richard E. Kessel 83,413 (4) 36,600 Charles E. Bayless 19,949(5) (4) 10,000 Michel Bleitrach 14,485(5) (4) 10,000 Philippe Brongniart 12,933(5) (4) 10,000 Patrick Buffet 11,822(5) (4) 10,000 Olivier Degos 10,764(5) (4) 10,000 Dominique Mangin d'Ouince 14,856(5) (4) 10,000 Eugene E. Murphy 261,899(6) 2.1 13,200 Steven G. Smith 45,543 (4) 19,400 Martin S. Stone 14,925 (4) 1,800 All directors and executive officers as a group (21 persons) 2,077,406(2) 16.8 318,200
- -------------- (1) Includes shares subject to acquisition through currently exercisable stock options. See column 4 for amounts. (2) See Note 2 to the preceding table. (3) Includes 15,000 shares held by the Keane Family Trust of which George Keane is the trustee, and 275 shares held by his wife. (4) Less than 1% of the outstanding shares. (5) Includes shares acquired through the 1994 Director Stock Plan. (6) Includes 85,171 shares owned by an S-Corporation in which he is a director. 27 ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS See information presented under Compensation Committee Interlocks and Inside Participation in Compensation Decisions under Item 11 above. TRENTON PARTNERSHIP Trigen-Trenton Company, L.P., a limited partnership ("Trigen-Trenton"), which was formed in 1982, four (4) years before the formation of the Company, owns and operates the community energy system in Trenton, New Jersey. Trenton Energy Corporation, a wholly owned subsidiary of Trigen ("TEC"), is the managing general partner of Trigen-Trenton and owns a 72.25% partnership interest in Trigen-Trenton. Mr. Casten, who was the chief executive officer and a director of Trigen until January 19, 2000, Mr. Weiser, who is an officer of Trigen, and Jeanne N. Murphy, whose husband is an officer of Trigen, are general partners in Trigen-Trenton owning approximately 1.04%, 0.46%, and 0.12%, respectively, of the partnership interests. CDC is also a general partner of Trigen-Trenton and owns 2.08% of the partnership interests. Messrs. Casten, Weiser and Murphy own approximately 59.5%, 23% and 17.5%, respectively, of the shares of common stock of CDC. The remaining general and limited partnership interests in Trigen-Trenton are owned by persons not affiliated with the Company. The Company itself owns directly a 7.48% limited partnership interest in Trigen-Trenton. RELATIONSHIPS WITH THE ELYO GROUP LICENSE AGREEMENT. Elyo and the Company have entered into an Intercompany Services and License Agreement (the "License Agreement"). Under the License Agreement, Elyo will continue to provide to the Company on a non-exclusive basis technical assistance and technical knowledge. The Company will have the right to use such technical knowledge to construct, operate and maintain community energy systems within North America as well as the right to use patents and licenses of Elyo and its subsidiaries in connection with the generation and distribution of electricity, chilled water and waste incineration. Elyo has also agreed that it may make available to the Company, upon request, new support letters or other similar credit support, at mutually agreed rates. Pursuant to the License Agreement the Company will have the first right to develop any corporate opportunities relating to the application of the licensed technologies in North America that are presented to Elyo or its subsidiaries. Elyo also agreed that neither it nor its subsidiaries will engage in activities that may cause the Company to become or be regulated as a public-utility holding company or a subsidiary of a public-utility holding company under federal, state or local laws or regulations. The initial term is for three years with automatic two year renewals, unless terminated sooner as a result of a default or bankruptcy or related event or a change of control with respect to Trigen. The Company reimbursed Elyo Group and/or paid third party providers on behalf of Elyo $465,515 for salary, bonus, and expenses paid to Jean Malahieude, an Executive Officer of Trigen, and an additional $235,237 for benefits of Mr. Malahieude and other professionals in 1999. SUBORDINATED DEBT. On December 30, 1998 CAC loaned the Company $50 million at 7.38% in subordinated debt pursuant to an agreement which requires repayment on December 31, 2010. Since January 1, 2000 CAC has loaned the Company an additional $36.0 million in intercompany loans at an interest rate equal to the London Interbank Offered Rate plus 2.25%. 28 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a) (1) and (2) The Financial Statements and Financial Statement Schedules listed under "Index to Financial Statements and Financial Statement Schedules" on page F-1 hereof are filed as part of this Annual Report. (a) (3) The Exhibits listed under "Index of Exhibits" on pages E-1 to E-3 hereof are filed as part of this Annual Report. (b) The following reports on Form 8-K were made during the fourth quarter of the year ended December 31, 1999: None. 29 TRIGEN ENERGY CORPORATION AND SUBSIDIARIES INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES
PAGE REGISTRANT'S FINANCIAL STATEMENTS Independent Auditors' Report........................................................................... F-2,F-3 Consolidated Balance Sheets as of December 31, 1999 and 1998........................................... F-4 Consolidated Statements of Operations for the Years Ended December 31, 1999, 1998 and 1997............. F-5 Consolidated Statements of Cash Flows for the Years Ended December 31, 1999, 1998 and 1997............. F-6 Consolidated Statements of Stockholders' Equity for the Years Ended December 31, 1999, 1998 and 1997........................................................................................... F-7 Notes to Consolidated Financial Statements............................................................. F-8 REGISTRANT'S FINANCIAL STATEMENT SCHEDULES I Condensed Financial Information of the Registrant as of December 31, 1999 and 1998 and for the Years Ended December 31, 1999, 1998 and 1997....................................................... S-1 II Valuation and Qualifying Accounts for the Years Ended December 31, 1999, 1998 and 1997.............. S-5
All other schedules are omitted because they are not applicable or the required information is shown in the consolidated financial statements or notes thereto. F-1 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Board of Directors of TRIGEN ENERGY CORPORATION: We have audited the accompanying consolidated balance sheets of Trigen Energy Corporation and subsidiaries as of December 31, 1999 and 1998 , and the related consolidated statements of operations, cash flows and stockholders' equity for the years then ended. These consolidated financial statements and financial statement schedules are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Trigen Energy Corporation and subsidiaries as of December 31, 1999 and 1998, and the results of its operations and its cash flows for the years then ended in conformity with accounting principles generally accepted in the United States. Our audit was made for the purpose of forming an opinion on the basic financial statements taken as a whole. The schedules listed in the accompanying index are presented for purposes of complying with the Securities and Exchange Commission's rules and are not a required part of the basic financial statements. These schedules, as of December 31, 1999 and 1998 and for the years then ended, have been subjected to the auditing procedures applied in our audit of the basic financial statements and, in our opinion, fairly state, in all material respects the financial data required to be set forth therein in relation to the basic financial statements taken as a whole. ARTHUR ANDERSEN LLP Stamford, Connecticut February 9, 2000 F-2 INDEPENDENT AUDITORS' REPORT The Board of Directors TRIGEN ENERGY CORPORATION: We have audited the accompanying consolidated statement of operations of Trigen Energy Corporation and subsidiaries and the related consolidated statements of stockholders' equity and cash flows for the year ended December 31, 1997. In connection with our audit of the consolidated financial statements, we also have audited the information in the financial statement schedules as listed in the accompanying index for the year ended December 31, 1997. These consolidated financial statements and financial statement schedules are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements and financial statement schedules based on our audit. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the results of operations and cash flows of Trigen Energy Corporation and subsidiaries for the year ended December 31, 1997, in conformity with generally accepted accounting principles. Also in our opinion, the related financial statement schedules, for the year ended December 31, 1997, when considered in relation to the basic consolidated financial statements taken as a whole, present fairly, in all material respects, the information set forth therein. KPMG LLP February 3, 1998 Stamford, Connecticut F-3 TRIGEN ENERGY CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS AS OF DECEMBER 31, 1999 AND 1998 (IN THOUSANDS, EXCEPT SHARE DATA)
1999 1998 ASSETS Current assets: Cash and cash equivalents.............................................................. $ 15,380 $ 10,074 Accounts receivable.................................................................... Trade (less allowance for doubtful accounts of $1,266 in 1999 and $1,187 in 1998).... 46,816 35,236 Other................................................................................ 3,489 5,686 ----------- ----------- Total accounts receivable............................................................ 50,305 40,922 Inventories............................................................................ 8,799 7,074 Prepaid expenses and other current assets.............................................. 7,946 8,016 ----------- ----------- Total current assets............................................................. 82,430 66,086 Restricted cash and cash equivalents...................................................... 4,628 4,623 Property, plant and equipment, net........................................................ 515,840 442,755 Investment in non-consolidated partnerships............................................... 50,510 30,319 Intangible assets, net.................................................................... 46,063 49,968 Deferred costs and other assets, net...................................................... 28,035 24,405 ----------- ----------- Total assets..................................................................... $727,506 $618,156 =========== =========== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Short-term debt........................................................................ $ 15,000 $ 15,000 Current portion of long-term debt...................................................... 19,474 16,398 Accounts payable....................................................................... 14,221 4,756 Accrued income taxes................................................................... 5,977 5,728 Accrued fuel........................................................................... 14,240 14,121 Accrued expenses and other current liabilities......................................... 28,093 19,626 ----------- ----------- Total current liabilities........................................................ 97,005 75,629 Long-term debt............................................................................ 406,755 343,685 Other liabilities......................................................................... 3,584 4,254 Deferred income taxes..................................................................... 44,343 39,422 ----------- ----------- Total liabilities................................................................ 551,687 462,990 Minority interests in subsidiaries........................................................ 15,796 7,238 Stockholders' equity:..................................................................... Preferred stock--$.01 par value, authorized and unissued 15,000,000 shares.............. -- -- Common stock--$.01 par value, authorized 60,000,000 shares, issued and outstanding 12,424,762 shares in 1999 and 12,417,934 shares in 1998................................ 124 124 Additional paid-in capital............................................................. 120,376 120,595 Retained earnings...................................................................... 45,890 36,417 Unearned compensation - restricted stock............................................... (5,101) (4,967) Cumulative translation adjustment...................................................... (1,163) (2,002) Treasury stock, at cost, 9,670 shares in 1999 and 145,842 shares in 1998............... (103) (2,239) ------------ ----------- Total stockholders' equity....................................................... 160,023 147,928 ------------ ----------- Total liabilities and stockholders' equity....................................... $727,506 $618,156 ============ ===========
See accompanying notes to consolidated financial statements. F-4 TRIGEN ENERGY CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997 (IN THOUSANDS, EXCEPT PER SHARE DATA)
1999 1998 1997 ---- ---- ---- Revenues Thermal energy............................................................ $212,539 $182,432 $179,527 Electric energy........................................................... 45,184 42,667 48,997 Equity in earnings/(losses) of non-consolidated partnerships.............. 7,396 4,475 (1,401) Fees earned and other revenues............................................ 15,301 12,820 13,528 ---------- ---------- ---------- Total revenues...................................................... 280,420 242,394 240,651 Operating expenses........................................................... Fuel and consumables...................................................... 117,270 101,475 114,168 Production and operating costs............................................ 54,971 48,322 47,086 Depreciation and amortization............................................. 27,787 24,384 18,209 General and administrative................................................ 40,841 36,390 32,445 ---------- ---------- --------- Total operating expenses............................................ 240,869 210,571 211,908 ---------- ---------- --------- Operating income............................................................. 39,551 31,823 28,743 Other income (expense)....................................................... Interest expense.......................................................... (25,994) (23,742) (18,976) Other income, net......................................................... 17,433 5,570 2,448 ---------- ----------- ---------- Earnings before minority interests, income taxes, extraordinary item and cumulative effect of a change in accounting principle...................... 30,990 13,651 12,215 Minority interests in earnings of subsidiaries............................... (3,502) (2,519) (3,699) ---------- ----------- ---------- Earnings before income taxes, extraordinary item and cumulative effect of a change in accounting principle................................. 27,488 11,132 8,516 Income taxes................................................................. 11,380 4,575 3,491 ---------- ----------- ---------- Earnings before extraordinary item and cumulative effect of a change in accounting principle.................................................... 16,108 6,557 5,025 Extraordinary loss from extinguishment of debt, net of income tax benefit.... -- (299) -- Cumulative effect of a change in accounting principle, net of income tax..... (4,903) -- -- ----------- ----------- ----------- Net earnings................................................................. $ 11,205 $ 6,258 $ 5,025 ----------- ----------- ----------- Basic earnings per common share.............................................. Before extraordinary item and cumulative effect of a change in accounting principle......................................................$ 1.34 $ .55 $ .42 Extraordinary loss........................................................ -- (.03) -- Cumulative effect of a change in accounting principle..................... (.41) -- -- ----------- ------------ ------------ Net earnings..............................................................$ .93 $ .52 $ .42 ----------- ------------ ------------ Diluted earnings per common share............................................ Before extraordinary item and cumulative effect of a change in accounting principle......................................................$ 1.33 $ .55 $ .41 Extraordinary loss........................................................ -- (.03) -- Cumulative effect of a change in accounting principle..................... (.41) -- -- ------------ ------------ ------------ Net earnings..............................................................$ .92 $ .52 $ .41 ------------ ------------ ------------ Average common shares outstanding............................................ 12,049 12,007 12,011 ---------- ------------ ------------ Average common and common equivalent shares outstanding...................... 12,148 12,009 12,130 ---------- ------------ ------------ Dividends per common share...................................................$ .14 $ .14 $ .14 ---------- ------------ ------------
See accompanying notes to consolidated financial statements. F-5 TRIGEN ENERGY CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997 (IN THOUSANDS)
1999 1998 1997 ---- ---- ---- Cash flows from operating activities Net earnings............................................................ $ 11,205 $ 6,258 $ 5,025 Reconciliation of net earnings to cash provided by operating activities Non-cash gain on litigation settlement................................ (8,518) -- -- Cumulative effect of a change in accounting principle................. 4,903 -- -- Gain on sale of marketable securities................................. (1,765) -- (612) Extraordinary item.................................................... -- 299 -- Depreciation and amortization......................................... 27,787 24,384 18,209 Deferred income taxes................................................. 4,536 1,824 863 Provision for doubtful accounts....................................... 725 317 331 Minority interests in subsidiaries.................................... 3,502 2,519 3,699 Changes in assets and liabilities, net of effects of acquisitions Accounts receivable................................................. (12,748) 4,447 (7,097) Inventories and other current assets................................ (1,655) 1,451 (422) Accounts payable and other current liabilities...................... 17,043 (1,285) 1,866 Non-current assets and liabilities.................................. (6,385) (3,820) 1,468 ----------- ------------ ----------- Net cash provided by operating activities........................... 38,630 36,394 23,330 ----------- ------------ ----------- Cash flows from investing activities Acquisition of energy facilities........................................ (5,822) (67,901) -- Capital expenditures.................................................... (93,646) (42,910) (39,415) Purchase of a fuel management agreement and related inventory........... -- -- (8,871) Proceeds on sale of property, plant and equipment....................... 32 737 3,000 Investment in non-consolidated partnerships............................. (310) (6,417) (12,294) Purchase of marketable securities....................................... (1,013) -- (4,139) Sale of marketable securities........................................... 2,778 -- 4,751 ----------- ------------ ----------- Net cash used in investing activities............................... (97,981) (116,491) (56,968) ----------- ------------ ----------- Cash flows from financing activities Short-term debt, net.................................................... -- 800 (4,300) Proceeds from long-term debt............................................ 87,234 122,510 77,253 Payments of long-term debt.............................................. (22,163) (37,576) (46,379) Dividends paid.......................................................... (1,731) (1,722) (1,682) Issuance of common stock, net........................................... 1,322 (561) 1,309 Distribution to minority interests...................................... -- (2,350) (4,146) ----------- ------------ ----------- Net cash provided by financing activities........................... 64,662 81,101 22,055 ----------- ------------ ----------- Cash and cash equivalents Increase/(decrease)..................................................... 5,311 1,004 (11,583) At beginning of period.................................................. 14,697 13,693 25,276 ----------- ------------ ----------- At end of period........................................................ $ 20,008 $ 14,697 $ 13,693 ----------- ------------ ----------- Current................................................................. $ 15,380 $ 10,074 $ 8,967 Non-current............................................................. 4,628 4,623 4,726 ----------- ------------ ----------- At end of period........................................................ $ 20,008 $ 14,697 $ 13,693 ----------- ------------ -----------
See accompanying notes to consolidated financial statements. F-6 TRIGEN ENERGY CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997 (IN THOUSANDS, EXCEPT SHARE DATA)
UNEARNED ADDITIONAL COMPENSATION CUMULATIVE COMMON STOCK PAID-IN RETAINED RESTRICTED TRANSLATION SHARES AMOUNT CAPITAL EARNINGS STOCK ADJUSTMENT Balance, December 31, 1996 12,010,597 $ 120 $ 112,836 $ 28,538 $ -- $ 136 Issuance of common stock 59,565 1 1,321 -- -- -- Repurchase of common stock -- -- -- -- -- -- Dividends -- -- -- (1,682) -- -- Comprehensive income: Net earnings -- -- -- 5,025 -- -- Cumulative translation adj -- -- -- -- -- 160 Total comprehensive income -- -- -- -- -- -- ---------- ---------- ---------- ---------- ---------- ---------- Balance, December 31, 1997 12,070,162 121 114,157 31,881 -- 296 Issuance of common stock 347,772 3 6,409 -- (5,707) -- Repurchase of common stock -- -- -- -- -- -- Dividends -- -- 29 (1,722) (29) -- Amortization of unearned compensation -- -- -- -- 769 -- Comprehensive income: Net earnings -- -- -- 6,258 -- -- Cumulative translation adj -- -- -- -- -- (2,298) Total comprehensive income -- -- -- -- -- -- ---------- ---------- ---------- ---------- ---------- ---------- Balance, December 31, 1998 12,417,934 124 120,595 36,417 (4,967) (2,002) Issuance of common stock 6,828 -- (219) -- (584) -- Repurchase of common stock -- -- -- -- -- -- Dividends -- -- -- (1,732) (11) -- Amortization of unearned compensation -- -- -- -- 461 -- Comprehensive income: Net earnings -- -- -- 11,205 -- -- Cumulative translation adj -- -- -- -- -- 839 Total comprehensive income -- -- -- -- -- -- ---------- ---------- ---------- ---------- ---------- ---------- Balance, December 31, 1999 12,424,762 $ 124 $ 120,376 $ 45,890 $ (5,101) $ (1,163) ========== ========== ========== ========== ========== ==========
TREASURY STOCK SHARES AMOUNT TOTAL Balance, December 31, 1996 $ 46,140 $ (960) $ 140,670 Issuance of common stock (30,640) 637 1,959 Repurchase of common stock 30,000 (650) (650) Dividends -- -- (1,682) Comprehensive income: Net earnings -- -- Cumulative translation adj -- -- Total comprehensive income -- -- 5,185 --------- ---------- ---------- Balance, December 31, 1997 45,500 (973) 145,482 Issuance of common stock (29,647) 476 1,181 Repurchase of common stock 129,989 (1,742) (1,742) Dividends -- -- (1,722) Amortization of unearned compensation -- -- 769 Comprehensive income: Net earnings -- -- -- Cumulative translation adj -- -- -- Total comprehensive income -- -- 3,960 --------- ---------- ---------- Balance, December 31, 1998 145,842 (2,239) 147,928 Issuance of common stock (150,964) 2,342 1,539 Repurchase of common stock 14,000 (217) (217) Dividends 792 11 (1,732) Amortization of unearned compensation -- -- 461 Comprehensive income: Net earnings -- -- -- Cumulative translation adj -- -- -- Total comprehensive income -- -- 12,044 --------- ---------- ---------- Balance, December 31, 1999 $ 9,670 $ (103) $ 160,023 ========= ========== ==========
See accompanying notes to consolidated financial statements. F-7 TRIGEN ENERGY CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. ORGANIZATION Trigen Energy Corporation (the "Parent Company", and together with its subsidiaries, "We") develop, own and operate commercial and industrial energy systems in the United States, Canada and Mexico. We use our expertise in thermal engineering and proprietary cogeneration processes to convert fuel to various forms of thermal energy and electricity. We combine heat and power generation, producing electricity as a by-product, for use in our facilities and for sale to customers. Suez Lyonnaise Des Eaux, a French corporation, through its energy services affiliate Elyo, a French corporation, owns 52.8% of our common stock. We have entered into a licensing agreement with Elyo to provide us with technical assistance to construct, operate and maintain community energy systems within North America, as well as the right to use patents and licenses of Elyo in connection with the generation and distribution of electricity, chilled water and waste incineration. Subsequent to year end, we have entered into an agreement with Elyo in which Elyo will purchase all of the outstanding shares that it does not already own (See Note 22 of Notes to Consolidated Financial Statements). We have established joint ventures with electric utilities to develop and operate combined heat and power plants. Our equity share in the operating results of these joint ventures is reported in equity in earnings/(losses) of non-consolidated partnerships in the Consolidated Statements of Operations. A significant portion of our revenues and operating profit are subject to seasonal fluctuation due to peak heating demand in the winter and peak cooling demand in the summer. 2. SUMMARY OF ACCOUNTING POLICIES RECENT ACCOUNTING PRONOUNCEMENTS In June 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities" ("SFAS No. 133"). SFAS No. 133 establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities. In July 1999, SFAS No. 137 was issued, which deferred the effective date of SFAS No. 133. We will adopt SFAS No. 133 effective January 1, 2001. Based on preliminary analyses, we do not expect that the future adoption of SFAS No. 133 will have a material effect on results of operations and financial condition. In April 1998, the American Institute of Certified Public Accountants issued Statement of Position 98-5, "Reporting on the Costs of Start-Up Activities" ("SOP 98-5"). SOP 98-5 requires costs of start-up activities and organizational costs to be expensed as incurred. SOP 98-5 is effective for financial statements for fiscal years beginning after December 15, 1998. We adopted SOP 98-5 effective January 1, 1999. The effect of the adoption was an after-tax charge of $4.9 million net of a tax benefit of $3.5 million, to expense deferred organizational and start-up costs as a cumulative effect of a change in an accounting principle. PRINCIPLES OF CONSOLIDATION The consolidated financial statements include the accounts of the Parent Company and all wholly-and majority-owned subsidiaries. Intercompany accounts and transactions are eliminated. Certain reclassifications have been made to the prior years' financial statements to conform to the 1999 presentation. F-8 TRIGEN ENERGY CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS USE OF ESTIMATES The preparation of financial statements in accordance with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates. REVENUE RECOGNITION Revenue for energy sold includes both fixed charges and amounts based on energy delivered. Contract rates are either directly negotiated with the customer or approved by the applicable regulatory authority. Sales not billed by month-end are accrued based upon estimated usage. Fees earned are recognized as services are performed. There is one customer whose revenues were more than 10% of total revenues in 1999. Revenues for the one customer were 11%, 12% and 13% of total revenues in 1999, 1998 and 1997, respectively. Another customer accounted for 11% and 13% of total revenues in 1998 and 1997, respectively. The one customer accounted for 6.9% of the total trade receivable balance at December 31, 1999. CASH AND CASH EQUIVALENTS Cash and cash equivalents include demand deposits and temporary investments in high-grade instruments with original maturities at date of purchase of three months or less. FUEL EXPENSE AND DEFERRED FUEL Certain of our subsidiaries, either as a result of regulation or contractual agreements with their customers, are allowed to recover all or substantially all of their fuel costs, which is our largest expense. Certain of these subsidiaries estimate the future cost of fuel in current contract rates. Differences between the estimated fuel costs and actual fuel costs are deferred and subsequently charged to or rebated to the customer through future rate adjustments. INVENTORIES Inventories are comprised principally of fuel, operating supplies and spare parts. Fuel inventories are stated at cost determined on a first-in, first-out basis and materials and supplies and spare parts are stated at average cost. The portion of spare parts inventories not expected to be used within one year is classified as non-current. PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment are recorded at cost. Depreciation is computed by the straight-line method over the estimated useful lives commencing when assets, or major components thereof, are placed in service. Renewals or betterments are capitalized, while maintenance and repair costs are expensed. DEFERRED COSTS AND OTHER ASSETS Included in deferred costs and other assets are capitalized costs associated with debt financing, deferred contract costs, development projects and other non-current assets. Financing costs are capitalized and amortized over the debt term using methods that approximate the interest method. Deferred contract costs are costs incurred to complete certain energy contracts. These costs are deferred and amortized over the contract period. Costs incurred in developing energy generation facilities after the execution of a letter of intent are accumulated by project and included in the acquisition cost or as construction in process for that project. F-9 TRIGEN ENERGY CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS INTANGIBLE ASSETS Included in intangible assets are costs in excess of the net assets of acquired companies, non-compete agreements with former majority owners of acquired companies, a fuel management contract and organization costs. The costs in excess of the net assets of acquired companies is being amortized over periods not exceeding 32 years. The non-compete and fuel management agreements are being amortized over the terms of the agreements, 15 and 19 years, respectively. We continuously assess the recoverability of these intangible assets by evaluating whether the amortization of the intangible assets over the remaining lives can be recovered through expected future results. Expected future results are based on projected undiscounted operating results before the effects of intangible amortization. The amount of impairment, if any, is measured based on projected discounted future results, using a discount rate reflecting our average cost of funds. FOREIGN CURRENCY TRANSLATION Income and expenses of Canadian subsidiaries are translated to U. S. dollars at rates in effect during the year, and assets and liabilities at year-end rates. Translation adjustments are included in stockholders' equity in the Consolidated Balance Sheet. Foreign currency transaction gains and losses are included in net earnings. FINANCIAL INSTRUMENTS We use financial instruments to limit the financial risk of increases in interest rates on its floating rate debt. The differential to be paid or received under financial instruments is accrued and recognized in interest expense as interest rates change. INCOME TAXES We use the asset and liability method of accounting for income taxes following the provisions of Statement of Financial Accounting Standards No. 109 "Accounting for Income Taxes." Under this method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities, and their respective tax bases. Deferred income tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. ENVIRONMENTAL EXPENDITURES Expenditures that relate to an existing condition, which do not contribute to current or future revenue generation and expenditures incurred for environmental compliance with respect to pollution prevention and ongoing monitoring programs, are expensed as incurred. Expenditures that increase the value of the property are capitalized. EARNINGS PER COMMON SHARE Following is a reconciliation of basic earnings per common share to diluted earnings per common share for the three years ended December 31, 1999 (in thousands, except per share data).
1999 1998 1997 ---- ---- ---- BASIC DILUTED BASIC DILUTED BASIC DILUTED Earnings before extraordinary item and cumulative effect of a change in accounting principle........................$16,108 $16,108 $ 6,557 $ 6,557 $ 5,025 $ 5,025 ------- ------- ------- ------- ------- ------- Average equivalent shares Common shares outstanding........................................12,049 12,049 12,007 12,007 12,011 12,011 Stock options and restricted stock .............................. -- 99 -- 2 -- 119 ------- ------- ------- ------- ------- ------- Average equivalent shares .......................................12,049 12,148 12,007 12,009 12,011 12,130 Earnings per common share...................................$ 1.34 $ 1.33 $ .55 $ .55 $ .42 $ .41 ======= ======= ======= ======= ======= =======
Certain stock options are not considered in the above computations due to the fact that they would be anti-dilutive. F-10 TRIGEN ENERGY CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 3. SUPPLEMENTARY INCOME INFORMATION Included in other income, net for the year ended December 31, 1999, is a pre-tax gain of $14.5 million related to the Grays Ferry Cogeneration Partnership litigation settlement agreement. The gain represents the market value of the share of the Partnership that we received as part of this settlement. (See Note 23 of Notes to Consolidated Financial Statements, Legal Proceedings). In addition, included in other income, net for the year ended December 31, 1999, is a pre-tax gain of $1.8 million associated with the sale of marketable securities. Included in other income, net for the year ended December 31, 1998, were pre-tax gains of $2.1 million from the sale of nitrogen oxide emission allowances and $1.7 million from an insurance settlement. 4. CUMULATIVE EFFECT OF A CHANGE IN AN ACCOUNTING PRINCIPLE Effective January 1, 1999, we adopted the American Institute of Certified Public Accountants Statement of Position No. 98-5, "Reporting on the Costs of Start-Up Activities" ("SOP 98-5"). SOP 98-5 requires that costs associated with start-up activities and organizational costs be expensed as incurred. The effect of the adoption was an after-tax charge of $4.9 million, net of a tax benefit of $3.5 million, to expense deferred organizational and start-up costs as a cumulative effect of a change in an accounting principle. 5. EXTRAORDINARY ITEM We incurred extraordinary charges of $.3 million during 1998, net of a tax benefit of $.2 million, in connection with the early retirement of debt. 6. ACQUISITIONS On January 22, 1998, we acquired all of the capital stock of Power Sources, Inc. (renamed Trigen-BioPower, Inc.), a biomass-to-energy power plant developer and operator, for a total cash investment of $44.1 million, funded from our existing credit facility. Results for Trigen-BioPower have been consolidated with our results since the date of acquisition. The acquisition was accounted for under the purchase method of accounting. The purchase price has been allocated to the assets acquired and liabilities assumed based on fair market value at the date of acquisition. The excess of the purchase price over the net assets was $10.4 million and is being amortized over a period of 30 years. The fair value of the assets acquired and liabilities assumed is as follows (in thousands): Current assets............................................... $ 3,325 Property, plant equipment.................................... 32,265 Intangibles.................................................. 11,687 Costs in excess of net assets acquired....................... 10,398 Current liabilities.......................................... (2,147) Long-term debt............................................... (4,290) Other liabilities............................................ (7,138) ------- Total purchase price..................................... $44,100 =======
The following unaudited pro forma summary presents the consolidated results of operations for the year ended December 31, 1998 as if the acquisition had occurred at the beginning of the year presented (in thousands, except per share data):
1998 ---- Revenues............................................... $243,531 Earnings before extraordinary item..................... 6,627 Diluted earnings per common share - Before extraordinary item............................ $ .55
F-11 TRIGEN ENERGY CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The pro forma results included certain adjustments for depreciation expense as a result of a step up in the basis of property, plant and equipment and an increase in the remaining useful lives, amortization expense as a result of goodwill and other intangible assets and interest expense on borrowings to finance the acquisition. The pro forma results do not purport to be indicative of the results of operations which actually would have resulted had the acquisition been made at the beginning of the year presented, or of results which may occur in the future. On September 23, 1998, we purchased an additional 48% interest in the Trigen-Nations Energy Company Limited Partnership from Nations Energy Corporation for $21.3 million. This limited partnership owns the energy production assets in service to Coors Brewing Company in Golden, Colorado. On June 22, 1999, we purchased an additional 1% of the limited partnership for $.3 million. The combined excess of purchase price over the net assets purchased was $9.6 million and is being amortized over a period not exceeding 32 years. These purchases increased our investment in Trigen-Nations Energy Company from 51% to 100%. 7. RESTRICTED FUNDS Under the terms of our debt agreements, a portion of the cash of the operating subsidiaries is restricted in use, first to paying the operating costs of the respective subsidiary, then its debt service obligations, in the priority stipulated in the respective debt agreements. Restricted funds at December 31, 1999 and 1998 were (in thousands):
1999 1998 ---- ---- CURRENT NON-CURRENT CURRENT NON-CURRENT ------- ----------- ------- ----------- Restricted........................................................ $ 8,926 $4,628 $ 8,699 $ 4,623 Unrestricted...................................................... 6,454 -- 1,375 -- -------- ------ ------- ------- Cash and cash equivalents......................................... $15,380 $4,628 $10,074 $ 4,623 ======= ====== ======= =======
Under the terms of the debt agreements, payments from subsidiaries to affiliated companies, including the Parent Company, are permitted, provided no default exists or would be created by the payment and either (a) the payment is to reimburse the Parent Company for management costs as permitted by the respective debt agreement or (b) the subsidiary meets financial tests, which may include debt coverage, working capital or equity tests, as specified in the respective agreement. 8. INVENTORIES Inventories at December 31, 1999 and 1998 were (in thousands):
1999 1998 Fuel.............................................. $3,079 $2,200 Operating supplies and spare parts................ 5,720 4,874 ------ ------ Total......................................... $8,799 $7,074 ====== ======
At December 31, 1999, we had purchase commitments for fuel at prices discounted from the spot market and at fixed prices. The aggregate commitment under these contracts is estimated to be $14.2 million based on current spot prices. These contracts expire at varying dates from March 2000 through December 2000. We have fuel cost pass-through clauses in our rates with customers for all of these commitments. F-12 TRIGEN ENERGY CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 9. PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment at December 31, 1999 and 1998 was (in thousands):
ESTIMATED USEFUL LIVES (YEARS) 1999 1998 ------------- ---- ---- Land...................................................... -- $ 10,284 $ 10,418 Plant, machinery and equipment............................ 15-35 489,995 454,854 Buildings................................................. 40 45,440 41,556 Furniture, fixtures and leasehold improvements............ 3-5 10,624 9,225 Construction in process................................... -- 73,969 22,147 -------- -------- 630,312 538,200 Less: Accumulated depreciation............................ (114,472) (95,445) -------- -------- $515,840 $442,755 -------- --------
Substantially all of our assets are pledged as collateral under our debt agreements (See Note 13 of Notes to Consolidated Financial Statements). In 1999, we recognized an asset impairment loss of $3.0 million ($1.8 million net of tax) in accordance with SFAS 121 "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of". This loss is the difference between the carrying value of the long-lived assets of a division of our Canadian subsidiary and the fair value of those assets based on discounted estimated future cash flows. The loss is included in depreciation expense. 10. INTANGIBLE ASSETS Intangible assets at December 31, 1999 and 1998 were (in thousands):
1999 1998 ---- ---- Costs in excess of net assets acquired....................... $25,625 $ 25,545 Non-compete agreements....................................... 21,667 21,667 Fuel management agreement.................................... 8,500 8,500 Other ....................................................... 47 3,333 ------- -------- 55,839 59,045 Less: Accumulated amortization............................... (9,776) (9,077) ------- -------- $46,063 $49,968 ------- --------
Amortization expense for the years ended December 31, 1999, 1998 and 1997 was $2.7 million, $2.9 million, and $1.7 million, respectively. 11. DEFERRED COSTS AND OTHER ASSETS Deferred costs and other assets at December 31, 1999 and 1998 were (in thousands):
1999 1998 Deferred financing costs.............................. $18,503 $17,890 Less: Accumulated amortization........................ (11,152) (9,434) ------- --------- 7,351 8,456 Deferred contract costs............................... 10,543 2,556 Project development costs............................. 2,782 6,443 Non-current receivables............................... 5,113 4,619 Non-current inventories............................... 2,077 2,162 Other................................................. 169 169 ------- ---------- $28,035 $24,405 ------- ----------
F-13 TRIGEN ENERGY CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Amortization expense for the years ended December 31, 1999, 1998 and 1997 was $2.2 million, $1.6 million and $1.8 million, respectively. 12. SHORT-TERM DEBT United Thermal Corporation, a wholly-owned subsidiary of the Parent Company, together with its affiliated companies ("UTC"), have a $15 million revolving credit facility available (the "UTC Revolver") through June 30, 2000, and, upon approval of the lender, for additional one year periods thereafter. The UTC Revolver is secured pro rata with the UTC Term Loan (See Note 13 of the Notes to Consolidated Financial Statements). UTC is required to have 60 consecutive days each year with no outstanding borrowings under the UTC Revolver. UTC has several interest rate options under the UTC Revolver including LIBOR. The balance outstanding under this facility at December 31, 1999 and 1998 was $15 million, and the average rate on this borrowing was 6.4% in 1999 and 6.5% in 1998. The effective rate at December 31, 1999 was 7.3%. 13. LONG-TERM DEBT Long-term debt outstanding at December 31, 1999 and 1998 was (in thousands):
1999 1998 ---- ---- 1997 credit facility (a)................................ $193,000 $128,000 UTC term loan (b)....................................... 41,641 50,441 Nassau term loan (c).................................... 37,221 41,664 Nassau bonds (c)........................................ 14,350 14,350 Trenton bonds (d)....................................... 33,175 34,625 Oklahoma term loan (e).................................. 14,929 16,311 Oklahoma bonds (e)...................................... 4,920 4,920 Trigen Energy Canada term loan (f)...................... 18,549 18,272 Trigen-BioPower credit facility (g)..................... 4,344 1,500 Trigen-BioPower bonds (h)............................... 14,100 --- Subordinated debt (i)................................... 50,000 50,000 --------- --------- ........................................................ 426,229 360,083 Less: Current portion included above.................... (19,474) (16,398) --------- --------- $406,755 $343,685 --------- ---------
(a) On April 4, 1997, we entered into a $160.0 million revolving credit agreement with several banks. This facility was used to repay indebtedness outstanding under a $62.5 million credit facility entered into in 1995. The $160.0 million facility is for an initial period of three years and may be extended by a total of two one-year periods. Borrowings under the facility bear interest, at our option, at an annual rate equal to the base rate or the LIBOR rate plus3/4%. The base rate is the higher of the prime lending rate or the Federal Reserve reported Federal funds rate plus1/2%. On June 10, 1997, we amended the $160.0 million credit agreement by reducing the facility to $125.0 million and entered into a $35.0 million revolving credit facility with the same group of banks. The new facility is for an initial 364-day period and may be extended annually at the option of the banks. The terms and conditions of both facilities are the same. On September 23, 1998, the $125.0 million three year facility was increased by $35.75 million and the initial period was increased by one year. The base rate is the higher of the prime lending rate or the Federal Reserve reported Federal funds rate. The average effective rate on the facility was 6.0% in 1999 and the rate at December 31, 1999 was 7.2%. (b) The UTC term loan and the UTC Revolver (Note 12) (together the "UTC Debt") are secured by all the assets and revenues of UTC. The Parent Company has guaranteed the UTC Debt in an amount which is limited, except for liabilities of UTC arising from environmental matters, to the lesser of $31.7 million and one-third of the UTC Debt commitments. F-14 TRIGEN ENERGY CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Interest on the UTC term loan is at variable rates based on LIBOR. The average effective rate was 7.3% in 1999, 7.8% in 1998 and 7.3% in 1997. The rate at December 31, 1999 was 8.1%. UTC has purchased interest rate protection agreements (See Note 14 of Notes to Consolidated Financial Statements). Principal repayments commenced in June 1994, with final maturity in September 2004. (c) Interest on the Nassau term loan is at variable rates based on LIBOR. The average effective rate was 6.4% in 1999, 6.8% in 1998 and 6.7% in 1997. At December 31, 1999, the effective rate was 7.2%. Principal repayments commenced in June 1992, with final maturity in December 2003. The Nassau bonds were issued by the Town of Hempstead Industrial Development Authority. In February 1998, the Nassau bonds were refinanced as variable rate demand tax-exempt industrial development bonds. A bank has issued a letter of credit in favor of the bondholders in the event of default. Interest is variable, and the average effective rate was 3.2% in 1999. The Nassau term loan and the Nassau bonds are without recourse to the Parent Company. All the assets and revenues of Trigen-Nassau Energy Corporation ("Trigen-Nassau"), a wholly owned subsidiary of the Parent Company are pledged to secure the term loan and bonds. Upon certain events, Trigen-Nassau will be required to enter into interest rate protection agreements the effect of which is to fix the rate on 50% of the aggregate outstanding principal amounts of the term loan and bonds for a minimum of five years. (d) The Trenton bonds were issued by the New Jersey Economic Development Authority, and are payable solely from revenues and other funds pledged by Trigen-Trenton Energy Company, L.P., a majority-owned subsidiary of the Parent Company. The bonds require annual sinking fund payments that began December 1993 with final maturity in December 2010. The interest rates were fixed to maturity at 6.1%-6.2% on $34.6 million of the bonds (the tax-exempt portion). (e) Interest on the Oklahoma term loan is at variable rates based on LIBOR. The average effective rate was 6.6% in 1999, 7.0% in 1998 and 7.1% in 1997. The rate at December 31, 1999, was 7.0%. Principal repayments commenced in December 1994, with final maturity in September 2007. The Oklahoma bonds were issued by the Oklahoma City Industrial and Cultural Facilities Trust. Interest is 6.75% per year. Principal payments are due from 2008 through 2017. A bank has issued a letter of credit in favor of the bondholders in the event of default. The Oklahoma term loan and the Oklahoma bonds are without recourse to the Parent Company. All the assets of Trigen-Oklahoma Energy Corporation ("Trigen-Oklahoma"), a wholly owned subsidiary of the Parent Company, are pledged to secure the term loan and bonds. Upon certain events, Trigen-Oklahoma will be required to enter into interest rate protection agreements the effect of which is to fix the rate on 75% of the aggregate outstanding principal amounts of the term loan and bonds for an average life of seven years. (f) Interest on the term loan for Trigen Energy Canada Inc., a wholly owned subsidiary of the Parent Company, ("Trigen-Canada") was at variable rates during 1999 based on Canadian bankers' acceptances. The average effective rate was 6.3% in 1999, 5.39% in 1998 and 4.6% in 1997. At December 31, 1997, Trigen-Canada entered into an interest rate swap agreement fixing the rate on the outstanding principal amount (See Note 14 of Notes to Consolidated Financial Statements). The rate at December 31, 1999 was 5.3%. The term loan is secured by the assets of Trigen-Canada, with limited recourse to the Parent Company in the event of any shortfall in debt service payments by Trigen-Canada. (g) Trigen-BioPower ("BioPower") secured revolving credit facility is without recourse to the Parent Company. All the assets of BioPower, a wholly owned subsidiary of the Parent Company are pledged to secure the loan. The facility requires BioPower to meet certain financial tests and contains restrictions. The average effective rate was 7.63% for 1999 and 7.03% for 1998. The effective rate at December 31, 1999 was 8.13% and 7.03% in 1998. F-15 TRIGEN ENERGY CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (h) Trigen-BioPower bonds were issued by the Development Authority of St. Mary's (Georgia) as variable rate demand tax-exempt pollution control revenue bonds. A bank has issued a letter of credit in favor of the bondholders in the event of default. Interest is variable, and the average effective rate was 3.68%. The Parent Company has guaranteed this debt. (i) On December 30, 1998, we borrowed from an affiliate, Cofreth American Corporation, $50.0 million for acquisitions and project development. The $50.0 million was initially used to partially pay down the Corporate facility. The $50.0 million is subordinate and junior in right of payment to all other debt. The subordinated debt may be redeemed in whole or in part at the option of Cofreth American Corporation with the net proceeds of an equity sale by the Company. The debt matures on December 31, 2010 and the interest rate is 7.38%. Our debt agreements limit or restrict cash payments, the payment of dividends, capital expenditures, incurrence of new debt and transactions with affiliates. At December 31, 1999, we were in compliance with all covenants contained in our debt agreements (See Note 23 of Notes to Consolidated Financial Statements for default information related to Grays Ferry Cogeneration Partnership). Maturities of long-term debt for the next five years are as follows (in thousands): 2000..................................................... $ 19,474 2001..................................................... 215,742 2002..................................................... 19,289 2003..................................................... 37,319 2004..................................................... 12,734
Based upon the debt balances at December 31, 1999, a change in the LIBOR rate of .25% would have a corresponding change in interest expense of approximately $.8 million per year when three-month LIBOR is under 6.0% ranging to approximately $.7 million per year when three-month LIBOR is over 7.5%. Three-month LIBOR at December 31, 1999 was 6.00125%. Cash paid for interest was $23.8 million, $21.0 million and $17.3 million in 1999, 1998 and 1997, respectively. 14. FINANCIAL INSTRUMENTS The estimated fair value of long term debt approximates carrying value at December 31, 1999. The fair value of receivables, payables and short-term debt approximates carrying value at December 31, 1999 due to the short-term maturity of these instruments. As of December 31, 1999, we had outstanding interest rate swap, cap and collar agreements related to $39.4 million of debt outstanding, with an average fixed interest rate of 6.2% and an average remaining life of 5 years. The fair value of the swap, cap and collar agreements was a receivable of $1.5 million. In addition to the letters of credit issued with respect to the Nassau, BioPower and Oklahoma bonds (See Note 13 of Notes to Consolidated Financial Statements), we had outstanding a contingent liability for letters of credit of $7.9 million at December 31, 1999. 15. LEASES We have entered into various leasing arrangements for office space, land and equipment. These arrangements are accounted for as operating leases. F-16 TRIGEN ENERGY CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Future minimum rental payments under operating leases with remaining non-cancelable terms in excess of one year at December 31, 1999 are (in thousands): 2000................................................ $ 3,289 2001................................................ 3,007 2002................................................ 2,568 2003................................................ 2,399 2004................................................ 1,905 Thereafter.......................................... 14,670 ------- Total minimum payments.............................. $27,838 =======
Excluded from the above future minimum rental payments are two operating leases, one for a term of 25 years and the other for 99 years. The 25-year lease is for land, facilities and equipment and the 99-year lease is for land. The current annual rental payments for these leases are $1.0 million and the total remaining commitments at December 31, 1999 are estimated to be $27.5 million. Rental expense was $4.4 million in 1999, $4.2 million in 1998 and $3.7 million in 1997. 16. STOCK OPTIONS Our stock incentive plan provides for the granting of stock options, stock appreciation rights, performance shares, restricted stock and other stock awards to officers and key employees and stock options to non-employee directors. In 1997, shareholders approved an increase in the number of shares of common stock that may be issued under the stock incentive plan to 2,000,000 shares. Stock options outstanding under the stock incentive plan were granted at a price equal to 100% of the market price on the date of grant. Stock options granted to non-employee directors are exercisable six months from the date of grant, and are exercisable until the earlier of the tenth anniversary of the date of grant, or the first anniversary of leaving the Board of Directors. Stock options granted to employees vest at the rate of 20% per year, starting on the first anniversary of the grant date and are exercisable over a period of ten years from the date of grant, with the exception of grants of stock options in 1995 for 18,800 shares, which vested immediately. During 1998, we reviewed the stock option program and approved an option exchange program covering 291,100 outstanding stock options which were granted under the 1997 stock-based compensation program with stock exercise prices greater than $14.00 per share. This exchange program provided that all eligible management had the right to exchange existing options with strike prices greater than $14.00 for new options with a strike price of $14.00. Information relating to stock options granted during 1999, 1998 and 1997 is summarized as follows:
NUMBER OF AVERAGE SHARES EXERCISE PRICE ------ -------------- Outstanding December 31, 1996......................... 564,060 $17.05 Granted............................................ 371,500 21.37 Exercised.......................................... (24,740) 17.08 Canceled........................................... (43,290) 18.34 ------- Balance December 31, 1997............................. 867,530 18.83 Granted............................................ 38,100 13.84 Exercised.......................................... (730) 15.75 Canceled........................................... (95,990) 19.05 -------- Balance December 31, 1998............................. 808,910 18.57 Granted............................................ 105,600 16.30 Exercised.......................................... (4,200) 13.58 Canceled........................................... (70,100) 18.94 ------- Balance December 31, 1999............................. 840,210 18.11 -------
F-17 TRIGEN ENERGY CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The following summarizes information about stock options outstanding at December 31, 1999.
OUTSTANDING EXERCISABLE ----------- ----------- RANGE OF AVERAGE AVERAGE AVERAGE EXERCISE PRICES OPTIONS LIFE(a) EXERCISE PRICE OPTIONS EXERCISE PRICE --------------- ------- ------- -------------- ------- -------------- $10.63 - $19.75 770,210 8.4 $15.98 474,550 $15.50 19.94 - 24.00 52,500 7.4 21.66 35,000 21.43 24.38 - 27.75 17,500 8.0 25.43 7,000 26.18 ------- --- ------ ------- ------ Total 840,210 8.1 $18.11 516,550 $16.05 ------- --- ------ ------- ------
- --------- (a) Average contractual life remaining in years. We apply APB 25 in accounting for our stock option plan. Accordingly, compensation expense would be recorded on the date of grant only if the current market price of our common stock exceeded the exercise price. Had compensation expense for the stock option plan been determined based on the fair value at the grant dates for awards under the plan consistent with SFAS No. 123, net earnings would have decreased by $.6 million ($.05 per common share) and $.6 million ($.05 per common share) in 1999 and 1998, respectively. The fair value of each option was estimated on the date of grant using the Black Scholes option-pricing model with the following assumptions: risk free interest rates of 5.7 % and 5.3% for 1999 and 1998, respectively; annual dividend yields of 1.22% for 1999 and 1998; expected option life of 8.1 years for 1999 and 8 years for 1998; and volatility of 41% and 37% for 1999 and 1998, respectively. The weighted average fair value of an option granted during 1999 and 1998 was $8.15 and $6.33 per share, respectively. Pursuant to the terms of the Merger Agreement (See Note 22 of Notes to Consolidated Financial Statements) all options to acquire Trigen's stock will be cancelled. Each holder of an option will receive an amount in cash equal to the excess, if any, of the merger consideration over the per share exercise price of such option without interest. In connection with the employee stock purchase plan, we allocated 200,000 shares of common stock for purchases pursuant to such plan. On September 9, 1999, we amended the 1994 Stock Purchase Plan to increase the number of shares of stock available thereunder from 200,000 to 400,000. The amendment is subject to approval by our stockholders. Stock purchased in 1999, 1998 and 1997 pursuant to the employee stock purchase plan was 63,367, 46,050 and 32,028 shares, respectively. The acquisition price of the stock is 85% of the lower of the closing market price on the first and last day of the six-month purchase period. RESTRICTED STOCK We launched a long-term restricted stock-based compensation program in 1997. The program's primary objective is to focus management on increasing shareholder value. The program has two components: (a) stock ownership goals; and (b) a restricted share award. The restricted shares, which have a life cycle of eight years, will remain restricted until we announce accumulated basic Earnings per Share over four consecutive fiscal quarters of $2.08. This earnings target represents a doubling of our 1996 Earnings per Share figure. In addition to the earnings target, the shares are also restricted from vesting unless the participant achieves his/her prescribed stock ownership levels. Each participant has been provided with a stock ownership target. The stock ownership targets are stated as a percentage of the participant's restricted share award and the percentages are progressive based on the increase in role and responsibility. During 1999, we granted 32,400 restricted shares to certain employees. Deferred compensation based on the market price of the stock on the date of the grants totaling $.7 million was recorded in 1999. 5,525 restricted shares were canceled in 1999 due to employees leaving the Company, resulting in a reduction in unearned compensation of $.1 million. We are amortizing unearned compensation into earnings over the vesting period of eight years. Pursuant to the terms of the Merger Agreement (See Note 22 of Notes to Consolidated Financial Statements), these shares of restricted stock will be cancelled and each holder will, promptly after the effective time of the merger, receive, for each share of restricted stock, an amount of cash equal to one-fourth of the merger consideration. F-18 TRIGEN ENERGY CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 17. RETIREMENT PLANS We sponsor a 401(k) Plan which allows participants to make contributions pursuant to Section 401(k) of the Internal Revenue Code. We match employee contributions in varying percentages according to a schedule up to an annual maximum employer contribution of approximately $1,290 per employee. Employees vest immediately in both employee and employer contributions. Employer contributions to the 401(k) Plan were $1.1 million (including the cost of 47,646 shares of our common stock), $1.0 million (including the cost of 21,576 shares of our common stock), and $1.1 million (including the cost of 23,902 shares of our common stock) in 1999, 1998 and 1997, respectively. Effective January 1, 1995, the 401(k) Plan was open to all of our employees excluding certain employees covered by other retirement plans. Benefits payable under a defined benefit plan were frozen as of December 31, 1994 pending vesting and distribution to participants. Benefits under the plan are based primarily on salary during the term of employment and length of service. Pension expense was $42,000, $39,000 and $316,000 in 1999, 1998 and 1997, respectively. Our net obligation under the plan at December 31, 1998 was not significant. 18. INCOME TAXES The provision for income taxes was (in thousands):
1999 1998 1997 ---- ---- ---- CURRENT DEFERRED TOTAL CURRENT DEFERRED TOTAL CURRENT DEFERRED TOTAL ------- -------- ----- ------- -------- ----- ------- -------- ----- State/Local $1,821 $ 803 $ 2,624 $1,147 $ 106 $1,253 $ 738 $ 45 $ 783 U.S. Federal & foreign 5,023 3,733 8,756 1,604 1,718 3,322 1,890 818 2,708 ------ ------- ------ ------ ---- ------ Total $6,844 $4,536 $11,380 $2,751 $1,824 $4,575 $2,628 $863 $3,491 ====== ====== ======= ====== ====== ====== ====== ==== ======
The tax effects of temporary differences that give rise to deferred tax liabilities and assets at December 31, 1999 and 1998 are (in thousands):
1999 1998 ---- ---- Deferred income tax liabilities Property, plant and equipment...................................... $53,062 $45,019 ------- ------- Deferred income tax assets AMT credit carryforwards........................................... 5,848 4,779 Tax loss carryforwards............................................. 2,344 1,202 Environmental costs................................................ 832 832 Revenue and receivable allowances.................................. 274 23 Other, net......................................................... 5,447 2,626 ------- ------- Gross deferred income tax assets..................................... 14,745 9,462 Valuation allowances................................................. (526) (443) ------- ------- Net deferred income tax assets....................................... 14,219 9,019 ------- ------- Net deferred income tax liability.................................... $38,843 $36,000 ======= =======
Net current deferred income tax assets of $5.5 million and $3.4 million at December 31, 1999 and 1998, respectively, are included in prepaid expenses and other current assets, net in the Consolidated Balance Sheet. At December 31, 1999, a loss carryforward of $2.9 million was available to offset Canadian taxable income expiring $.7 million in 2003, $.9 million in 2004, $.8 million in 2005 and $.6 million in 2006. At December 31, 1999, an alternative minimum tax credit carryforward of $5.8 million was available to offset future U.S. regular income taxes, if any, over an indefinite period. Valuation allowances were primarily for tax loss carryforwards in state and local jurisdictions that may expire before being used. We believe that it is more likely than not that we will generate taxable income sufficient to realize the loss carryforwards prior to their expiration. This belief is based upon projected taxable income and available tax planning strategies. F-19 TRIGEN ENERGY CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS A reconciliation of tax at the U.S. statutory rate to the effective income tax rate follows:
1999 1998 1997 ---- ---- ---- Tax at U.S. statutory rate................................. 35.0% 35.0% 35.0% State/local income taxes, net of Federal benefit........... 6.2 7.6 6.2 Taxes related to foreign operations........................ (1.8) (1.1) (1.3) (Increase)/decrease in valuation allowances................ .3 .3 1.6 Other items, net........................................... 1.7 (.7) (.5) ----- ---- ---- Income taxes............................................... 41.4% 41.1% 41.0% ===== ==== ====
We made income tax payments of $5.9 million, $2.2 million and $2.2 million in 1999, 1998 and 1997, respectively. Taxes on receipts or capital, imposed by some jurisdictions in lieu of taxes on income are included in general and administrative expenses. These taxes were $1.3 million, $.7 million and $.8 million in 1999, 1998 and 1997, respectively. 19. EQUITY INVESTMENT IN GRAYS FERRY COGENERATION PARTNERSHIP As of December 31, 1999, we had an investment of $39.3 million in the Grays Ferry Cogeneration Partnership (the "Partnership"), representing a one-half interest in the Partnership through our wholly owned subsidiary Trigen-Schuylkill Cogeneration, which is accounted for under the equity method. Cogen America Schuylkill Inc. owns the other one-half interest in the Partnership. We derive a significant portion of our income from the Partnership. Included in our revenues for the year ended December 31, 1999 was our pre-tax share of the Partnership earnings of $8.1 million and fees earned from the Partnership of $3.1 million. The summarized financial information presented below as of December 31, 1999 represents an aggregation of 100% of the Partnership (in thousands).
1999 ---- CONDENSED INCOME STATEMENT INFORMATION: Revenues.................................................. $78,671 Gross profit.............................................. 29,632 Net income................................................ 16,647 CONDENSED BALANCE SHEET INFORMATION: Current assets............................................ $28,328 Non-current assets........................................ 145,376 Current liabilities....................................... 106,320 Partners' Capital......................................... 67,384
F-20 TRIGEN ENERGY CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 20. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
FOR THE QUARTER (a) ------------------- MARCH 31 JUNE 30 SEPT. 30 DEC. 31 -------- ------- -------- ------- (IN THOUSANDS, EXCEPT PER SHARE DATA) 1999 Revenues........................................ $85,429 $60,886 $57,737 $76,368 Operating income................................ 16,885 7,628 5,996 9,042 Earnings (losses) before cumulative effect of a change in accounting principle............ 6,129 9,350 (1,012) 1,641 Cumulative effect of a change in accounting principle (b).................................. (4,903) -- -- -- Net earnings (losses)........................... 1,226 9,350 (1,012) 1,641 Basic earnings per common share Before cumulative effect of a change in accounting principle......................... .51 .78 (.09) .14 Cumulative effect of a change in accounting principle......................... (.41) -- -- -- ------- ------- ------- ------- Net earnings (losses)......................... .10 .78 (.09) .14 ------- ------- ------- ------- Diluted earnings per common share Before cumulative effect of a change in accounting principle......................... .51 .78 (.09) .13 Cumulative effect of a change in accounting principle......................... (.41) -- -- -- ------- ------- ------- ------- Net earnings (losses)......................... .10 .78 (.09) .13 ------- ------- ------- ------- 1998 Revenues........................................ $74,912 $50,794 $50,839 $65,849 Operating income................................ 15,806 2,272 3,201 10,544 Earnings (losses) before extraordinary item..... 5,448 (13) (1,888) 3,010 Extraordinary loss (c).......................... (299) -- -- -- Net earnings (losses)........................... 5,149 (13) (1,888) 3,010 Basic earnings per common share Before extraordinary item..................... .45 -- (.15) .25 Extraordinary loss............................ (.03) -- -- -- ------- ------- ------- ------- Net earnings (losses)......................... .42 -- (.15) .25 ------- ------- ------- ------- Diluted earnings per common share Before extraordinary item..................... .45 -- (.15) .25 Extraordinary loss............................ (.03) -- -- -- ------- ------- ------- ------- Net earnings (losses)......................... .42 -- (.15) .25 ------- ------- ------- ------- 1997 Revenues........................................ $83,521 $48,107 $43,024 $65,999 Operating income................................ 16,803 2,056 (505) 10,389 Net earnings (losses)........................... 7,087 (1,736) (3,796) 3,470 Basic earnings per common share................. .59 (.14) (.32) .29 Diluted earnings per common share............... .58 (.14) (.31) .28 ----------- ------------ ----------- -----------
- ---------- (a) As of January 1, 1998, we changed our accounting policy for interim reporting for certain operating costs from an average costing method to an actual costing method. We believe that use of an actual costing methodology better reflects the results of our operations and conforms internal and external reporting of such results. This change effects interim quarterly reporting only and has no effect on an annual basis for the years ended December 31, 1999, 1998 and 1997 or on any prior years. The amounts presented above for 1998 and 1997 have been restated to reflect this change in accounting policy. (b) Reflects an after-tax charge of $4.9 million related to the adoption of SOP 98-5 "Reporting on the costs of Start-Up Activities" which was recorded as a cumulative effect of a change in accounting principle. See Note 4 of Notes to Consolidated Financial Statements. (c) Represents extraordinary losses of $.3 million, net of a $.2 million tax benefit, incurred in 1998, in connection with the early retirement of debt. F-21 TRIGEN ENERGY CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 21. CONTINGENCIES We are subject from time to time to legal proceedings and other claims that arise in the normal course of business, and we believe, except as set forth in Note 23 of Notes to Consolidated Financial Statements, that the outcome of these matters will not have a material adverse effect on our results of operations or financial condition. 22. SUBSEQUENT EVENT On January 19, 2000, Trigen and Elyo, an energy subsidiary of the Suez Lyonnaise des Eaux Group, jointly announced that they have entered into a definitive merger agreement for Elyo to purchase all of the outstanding shares of Trigen it does not already own for $23.50 a share in cash. Elyo's subsidiaries currently own approximately 53% of Trigen common stock. On March 27, 2000, Elyo announced the completion of the tender offer. As of that date, Elyo had beneficial ownership of aproximately 96% of Trigen's common stock. 23. LEGAL PROCEEDINGS OKLAHOMA LITIGATION In September 1996, our subsidiary, Trigen-Oklahoma City Energy Corporation ("Trigen-Oklahoma City"), commenced an antitrust action in Federal District Court in Oklahoma City seeking injunctions and actual, treble and punitive damages from a local utility, Oklahoma Gas and Electric Company ("OG&E"), based on alleged anti-competitive actions against Trigen-Oklahoma City Energy Corporation by OG&E. Trigen-Oklahoma City's antitrust action went to trial in 1998 and on December 21, 1998, the jury returned a verdict in favor of Trigen. On January 19, 1999, the Court entered a judgment in favor of Trigen in the amount of $27.8 million. On January 25, 2000 the court decided post-trial motions to vacate or modify the judgment reducing the judgment to $20.6 million. OG&E has filed an appeal to the Tenth Circuit Court of Appeals and has posted a bond in order to stay enforcement of the judgment pending appeal. Trigen has filed a cross-appeal. Trigen's separate motion for attorney's fees (seeking approximately $3 million) is pending but OG&E has requested that the court postpone a hearing on that motion until the appeals are decided by the Circuit Court. We have not recognized any gain with respect to this matter because we cannot predict the final outcome. KINETIC ENERGY LITIGATION On May 2, 1997, a judgment was entered against us in the amount of $4.3 million following a jury trial in a law suit by Kinetic Energy Development Corporation against Trigen in the Circuit Court of Jackson County, Missouri, in connection with our acquisition of the Kansas City steam system. Kinetic claimed for compensation alleged to be owed to it by Trigen in connection with that acquisition. On August 6, 1997, the Court set aside the jury verdict and granted judgment for Trigen. Kinetic Energy Development Corporation appealed that order and on December 8, 1998, the Missouri Court of Appeals set aside the lower court decision and ordered a new trial. On December 22, 1998, we filed a motion for rehearing with the Missouri Court of Appeals and/or a review by the Missouri Supreme Court. The Court of Appeals granted our motion for rehearing. On September 7, 1999, the Court of Appeals held that Kinetic had proven only nominal damages at trial and returned the case to Circuit Court for retrial. The retrial will allow Kinetic to attempt to establish that it is entitled to some award for the reasonable value of its services, if any, in connection with the Trigen acquisition of the Kansas City steam system. The case presently awaits rescheduling for trial. We believe we have good defenses to these claims. Accordingly, we have not recognized any loss or expense (other than defense costs) with respect to this matter, although we cannot predict the final outcome. F-22 TRIGEN ENERGY CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS GRAYS FERRY LITIGATION On April 23, 1999, the Pennsylvania Court of Common Pleas of Philadelphia County approved a settlement agreement which ended the lawsuit brought by Grays Ferry Cogeneration Partnership (the "Partnership"), Trigen-Schuylkill Cogeneration, Inc. and CogenAmerica Schuylkill Inc. against PECO Energy Company and Adwin (Schuylkill) Cogeneration, Inc. The Partnership is the owner of the Grays Ferry Cogeneration Facility located in Philadelphia, Pennsylvania. The Partnership, Trigen-Schuylkill and CogenAmerica commenced this lawsuit in reaction to the alleged termination by PECO on March 3, 1998, of the electric power purchase agreements between the Partnership and PECO (the "Power Purchase Agreements"). Prior to the settlement, we owned a one-third interest in the Partnership through our wholly owned subsidiary, Trigen-Schuylkill. CogenAmerica and Adwin owned the other two-thirds interests in the Partnership. Adwin is an indirect wholly owned subsidiary of PECO. Under the settlement agreement PECO's subsidiary, Adwin, surrendered its rights to its one-third partnership interest in the Partnership to the two remaining partners, Trigen-Schuylkill and CogenAmerica. As a result, we own one half of the Partnership and CogenAmerica owns the other half. During 1999, we recognized an after tax gain of $8.5 million ($.70 per diluted share) which represents the market value of our share of Adwin's interest. In the year 2001, the energy price under the Power Purchase Agreements will be based upon a percentage of a market based index, which we expect to produce substantially lower revenues from sales to PECO than the more favorable rates of the early contract years. Under the Settlement the Partnership gained the right to sell to third parties electric energy and capacity from the facility in excess of the 150 megawatts which PECO is required to purchase under the Power Purchase Agreements, subject to a right of first refusal for PECO. We expect that the ability to sell to third parties electric energy and capacity above the 150 megawatts under contract to PECO, will result in an opportunity to improve the financial performance of the Partnership. The Partnership will now have the ability to institute capital modifications to the combustion turbine to increase electric capacity during the summer months when the price of electric capacity and energy are historically the highest. Separately, The Chase Manhattan Bank, as agent for several commercial banks (collectively "Chase"), and Westinghouse Power Generation, which collectively financed the construction of the Gray's Ferry Cogeneration Facility, agreed to dismiss their lawsuits against PECO. Chase and Westinghouse also agreed that they will not charge the Partnership for any default interest up to April 16, 1999, although they have reserved the right to do so with respect to the period after April 16, 1999. The Partnership is in default under its separate credit agreements with Westinghouse and Chase for the following reasons. The Partnership did not convert on time its short-term construction loan from Chase to a longer term loan. The Partnership could not complete that conversion because of a dispute with the construction contractor, which has now been resolved. The Partnership also did not make principal payments to Westinghouse because the Chase loan agreement prohibits such payments to subordinate parties while the Partnership is in default. Westinghouse is a subordinate party. The Partnership owes a total principal amount of approximately $79.4 million to Chase. Chase has not accelerated the debt owing under the Credit Agreement. Chase has required to date, and may require in the future, the Partnership to apply available cash held by Partnership (net of operating expenses) toward repayment of the principal amount of the loans outstanding to Chase. The Partnership owes a total principal amount of approximately $15 million to Westinghouse. On March 1, 2000, Westinghouse demanded full payment of the amount owing to Westinghouse under its credit agreement. Only the Partnership assets and the Partners' ownership interests in the Partnership secure the Partnership's debt under the Chase and Westinghouse loans. To resolve these matters we have negotiated an amendment to the credit agreement with Chase and we are negotiating with Westinghouse and other subordinate parties. The Partnership has accrued $3.0 million in default interest since April 16, 1999. F-23 TRIGEN ENERGY CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NASSAU LITIGATION On May 29, 1998, the County of Nassau, New York commenced an action against Trigen Energy Corporation and Trigen-Nassau Energy Corporation in New York State Supreme Court. Trigen-Nassau provides energy services to Nassau County under various agreements. Nassau County alleges that Trigen-Nassau breached those agreements by, among other means, charging the County for certain real estate taxes that the County contends are Trigen-Nassau's responsibility. On October 8, 1998, the Court dismissed the claims against Trigen Energy Corporation. On November 9, 1998, Trigen-Nassau filed counterclaims against Nassau County, seeking $1.6 million in damages. Trigen-Nassau alleges that Nassau County breached the parties' agreements by, among other things, failing to operate and maintain certain facilities and equipment. On January 21, 1999, the County requested that the Court dismiss Trigen-Nassau's counterclaims. On April 5, 1999, the Court dismissed some but not all of Trigen-Nassau's counterclaims. The Court declined to dismiss Trigen-Nassau's counterclaims that seek approximately $1.5 million in damages. The County is seeking approximately $10 million in damages. We believe we have good defenses to the County's claims. Accordingly, we have not recognized any loss or expense (other than defense costs) with respect to this matter, although we cannot predict the final outcome. ESI LITIGATION In 1996 ESI, Inc. commenced an action against, among others, Coastal Power Company, Latin American Energy Development, Inc. and La Casa Castro S.A. de N.V. in the United States District Court for the Southern District of New York. On September 17, 1998, ESI, Inc. amended its complaint naming Trigen as an additional defendant. This action arises out of the development by Trigen, Latin American Energy, La Casa Castro and others, of an independent power project in El Salvador between 1993 and 1994. Trigen transferred its interest in the project to Tenneco Gas International in May 1994. In July 1994, Tenneco transferred its interest in the project to Coastal Power Company, which currently owns and operates the project. ESI claimed that ESI was entitled to a 2.5% interest in the project and that Coastal had wrongfully withheld or denied ESI's interest. ESI further claimed that Trigen had failed to disclose ESI's interest to Tenneco and so was responsible, in whole or in part, for ESI's failure to receive a 2.5% interest in the project from Coastal. On October 8, 1998, Latin American Energy asserted cross-claims against Trigen, Coastal and Tenneco claiming that it too had been denied its carried interest in the Project. On October 28, 1998, La Casa Castro asserted cross-claims against Trigen and on November 6, 1998, Coastal asserted cross-claims against Trigen for indemnification, each alleged that Trigen failed to disclose ESI's claimed interest to Tenneco and that Trigen was responsible for any damages that each may be required to pay to ESI and Latin American. On December 15, 1998, Trigen filed an amended answer denying liability for these claims and cross-claimed against Latin American Energy, Tenneco, Coastal and La Casa Castro, asserting that these parties were responsible for any damages owed to ESI and Latin American. On December 23, 1998, ESI and Latin American dismissed without prejudice their claims against Trigen. Coastal and La Casa Castro are continuing to assert their claims against Trigen for any damages they may be required to pay to ESI or Latin American. At this time, the case is in the early stages of discovery and as such we are not able to estimate the amount of damages that ESI and Latin American are seeking. We believe we have good defenses to Coastal's claims and La Casa Castro's claims. Accordingly, we have not recognized any loss or expense (other than defense costs) with respect to this matter, although we cannot predict the final outcome. F-24 TRIGEN ENERGY CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS SHAREHOLDER CLASS ACTIONS AGAINST TRIGEN COMPLAINTS OF FOTHERGILL, CORTEZ, AND BERKOWITZ. On September 23, 1999, three complaints were filed in the Court of Chancery of the State of Delaware against: Trigen Energy Corporation, Suez Lyonnaise Des Eaux SA, Patrick Buffet, George F. Keane, Thomas R. Casten, Philippe Brongniart, Olivier Degos, Patrick Desnos, Richard E. Kessel, Charles E. Bayless, Michel Bleitrach, Dominique Mangin D'Ouince and Michel Cassou. The individual defendants were sued in their capacity as Trigen directors and/or former Trigen directors. The complaints were filed, respectively, by Michael Fothergill, Rosa Cortez and Sarah Berkowitz. Each complaint was filed purportedly as a class action on behalf of the Company's shareholders. The complaints raised substantially identical allegations: that Trigen received a proposal from Suez to take Trigen private for $22.00 per share in cash. The plaintiffs alleged that this price does not represent the true value of Trigen and is unfair to the minority shareholders. Plaintiffs further alleged that because Suez owns approximately 52% of Trigen's outstanding shares, Suez has the power to effectuate the transaction without regard to the minority shareholders. Plaintiffs sought class certification, declaratory and injunctive relief (or money damages if the transaction is consummated), and an accounting. By agreement of the parties, an order has been entered consolidating all three actions under the Fothergill caption. On February 22, 2000, counsel for ELYO and the plaintiffs reached an agreement to settle this lawsuit, subject to court approval. The settlement does not require any payment to the plaintiffs from the Company or its directors. Accordingly, we have not recognized any loss or expense (other than defense costs and certain costs of providing Notice of settlement to the Class members) with respect to this matter, although we cannot predict the final outcome. The parties are in the process of submitting this settlement to the Court of Chancery of the State of Delaware for approval. COMPLAINT OF RICE. On March 16, 2000, Adam Rice filed a complaint in the Supreme Court of the State of New York, County of Westchester against Trigen Energy Corporation, Suez Lyonnaise Des Eaux S.A., Elyo, S.A., T Acquisition Corporation, Christine Morin-Postel, Richard E. Kessel, George Keane, Patrick Buffet, Olivier Degos, Philippe Brongniart, Michel Bleitrach, Dominique Mangin D'Ouince and Charles Bayless. The complaint was filed purportedly as a class action on behalf of the Company's shareholders. The individual defendants were sued in their capacity as Trigen directors. The plaintiff alleged that the defendants have breached their fiduciary duties to plaintiff and our public shareholders by not renegotiating and/or reformulating the terms of the tender offer by which T Acquisition Corporation has offered to purchase all of our outstanding shares at a price of $23.50 per share. Plaintiff seeks class certification and money damages as well as other unspecified relief. We believe we have good defenses to these claims. Accordingly, we have not recognized any loss or expense (other than defense costs) with respect to this matter, although we cannot predict the final outcome. OTHER LITIGATION We are subject from time to time to various other claims that arise in the normal course of business, and we believe that the outcome of these matters (either individually or in the aggregate) will not have a material adverse effect on our business results of operation or financial condition. F-25
SCHEDULE I TRIGEN ENERGY CORPORATION (PARENT COMPANY) CONDENSED BALANCE SHEETS DECEMBER 31, 1999 AND 1998 (IN THOUSANDS) 1999 1998 ---- ----- Assets Cash and cash equivalents........................................................ $ 563 $ 541 Other current assets............................................................. 1,119 2,798 Property, plant and equipment, net............................................... 5,978 12,148 Deferred costs and other assets, net............................................. 4,449 4,333 Investments in and amounts due from subsidiaries, net............................ 402,547 314,448 --------- --------- Total assets................................................................... $414,656 $334,268 ======== ======== Liabilities and Stockholders' Equity Short-term debt.................................................................. $ --- $ --- Long-term debt................................................................... 243,000 178,000 Other liabilities................................................................ 11,633 8,340 ---------- ---------- Total liabilities.............................................................. 254,633 186,340 Stockholders' equity: Preferred stock.................................................................. --- --- Common stock..................................................................... 124 124 Additional paid-in capital....................................................... 120,376 120,595 Retained earnings................................................................ 45,890 36,417 Unearned compensation - restricted stock......................................... (5,101) (4,967) Cumulative translation adjustment................................................ (1,163) (2,002) Treasury stock, at cost.......................................................... (103) (2,239) ----------- ----------- Total stockholders' equity..................................................... 160,023 147,928 --------- --------- Total liabilities and stockholders' equity..................................... $414,656 $334,268 ======== ========
See accompanying notes to condensed financial statements. S-1 SCHEDULE I--(CONTINUED) TRIGEN ENERGY CORPORATION (PARENT COMPANY) CONDENSED STATEMENTS OF OPERATIONS YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997 (IN THOUSANDS)
1999 1998 1997 ----- ----- ----- Revenues Management fees and costs recovered from subsidiaries........................ $14,774 $11,806 $12,472 Other revenues............................................................... 6,480 --- --- Interest income from subsidiaries............................................ 8,914 7,048 2,276 -------- -------- -------- Total revenues............................................................. 30,168 18,854 14,748 Costs and expenses Production and operating costs............................................... 6,480 --- --- General and administrative................................................... 20,429 19,248 15,555 Interest expense............................................................. 13,691 9,081 3,247 Other (income) expense, net.................................................. (1,223) 90 (1,034) -------- -------- -------- Total costs and expenses................................................... 39,377 28,419 17,768 -------- -------- -------- Loss before income tax benefit, equity in earnings of subsidiaries, extraordinary item and cumulative effect of a change in accounting principle. (9,209) (9,565) (3,020) Income tax benefit.............................................................. 3,223 3,452 1,057 Equity in earnings of subsidiaries, net......................................... 22,094 12,670 6,988 -------- -------- -------- Earnings before extraordinary item and cumulative effect of a change in accounting principle....................................................... 16,108 6,557 5,025 Extraordinary loss from extinguishment of subsidiaries' debt, net of subsidiaries' income tax benefits.......................................................... --- (299) --- Cumulative effect of a change in accounting principle, net of subsidiaries' income tax benefits (4,903) --- --- -------- -------- -------- Net earnings $ 11,205 $ 6,258 $ 5,025 ======== ======== ========
See accompanying notes to condensed financial statements. S-2 SCHEDULE I--(CONTINUED) TRIGEN ENERGY CORPORATION (PARENT COMPANY) CONDENSED STATEMENTS OF CASH FLOWS YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997 (IN THOUSANDS)
1999 1998 1997 ---- ---- ----- Cash flows from operating activities Net earnings............................................................ $ 11,205 $ 6,258 $ 5,025 Reconciliation of net earnings to cash provided by operating activities: Equity in earnings of subsidiaries.................................... (22,094) (12,670) (6,988) Dividends received from subsidiaries.................................. 470 --- --- Cumulative effect of a change in accounting principle................. 4,903 --- --- Gain on sale of marketable securities................................. (1,765) --- (612) Extraordinary item.................................................... --- 299 -- Other, net............................................................ 5,479 1,805 (1,417) --------- --------- --------- Net cash used in operating activities............................... (1,802) (4,308) (3,992) --------- --------- --------- Cash flows from investing activities Capital expenditures.................................................... (962) (441) (992) Purchase of a fuel management agreement and related inventory........... --- --- (8,871) Acquisition of energy facilities........................................ (5,822) (67,901) --- Investments in and advances to subsidiaries, net........................ (57,438) (22,011) (20,041) Investment in non-consolidated partnerships............................. (310) (6,417) (12,294) Purchase of marketable securities....................................... (1,013) --- (4,139) Sale of marketable securities........................................... 2,778 --- 4,751 --------- --------- --------- Net cash used in investing activities............................... (62,767) (96,770) (41,586) --------- --------- --------- Cash flows from financing activities Short-term debt, net.................................................... --- --- (5,000) Proceeds of long-term debt.............................................. 66,000 107,000 45,500 Payments of long-term debt.............................................. (1,000) (3,500) --- Dividends paid.......................................................... (1,731) (1,722) (1,682) Issuance of common stock, net........................................... 1,322 ( 561) 1,309 --------- --------- --------- Net cash provided by financing activities........................... 64,591 101,217 40,127 --------- --------- --------- Cash and cash equivalents.................................................. Increase/(decrease)..................................................... 22 139 (5,451) At beginning of year.................................................... 541 402 5,853 --------- --------- --------- At end of year.......................................................... $ 563 $ 541 $ 402 ========= ========= =========
See accompanying notes to condensed financial statements. S-3 SCHEDULE I--(CONTINUED) TRIGEN ENERGY CORPORATION (PARENT COMPANY) NOTES TO CONDENSED FINANCIAL INFORMATION OF REGISTRANT (1) TRIGEN ENERGY CORPORATION (PARENT COMPANY) FINANCIAL STATEMENTS The accompanying condensed financial information has been prepared in accordance with Regulation S-X of the Securities Act of 1933 and does not include all information and notes necessary for a fair presentation of financial position, results of operations and cash flows in conformity with generally accepted accounting principles since the user of these statements is assumed to read them in conjunction with Trigen Energy Corporation's consolidated financial statements and the notes thereto for the year ended December 31, 1999 included elsewhere in this document. (2) TRANSACTIONS WITH SUBSIDIARIES The Parent Company derives cash from management fees and costs recovered from its subsidiaries, distributions by its subsidiaries and, at times, repayment to the Parent Company from proceeds of long-term financing obtained by the subsidiaries for funds previously advanced to subsidiaries for construction in advance of obtaining permanent financing. Certain subsidiaries have restrictive debt agreements which generally permit distributions to the Parent Company only when certain ratios and other financial covenants are satisfied. Cash available to the Parent Company without restrictions as to use, including amounts distributable by subsidiaries was $6.5 million at December 31, 1999, and $1.4 million at December 31, 1998. (3) DEBT On April 4, 1997, the Parent Company entered into a $160.0 million revolving credit agreement with several banks. This facility was used to repay indebtedness outstanding under a $62.5 million credit facility entered into in 1995. The $160.0 million facility is for an initial period of three years and may be extended by a total of two one-year periods. Borrowings under the facility bear interest, at the Parent Company's option, at an annual rate equal to the base rate or the LIBOR rate plus 3/4%. The base rate is the higher of the prime lending rate or the Federal Reserve reported Federal funds rate plus 1/2%. On June 10, 1997, the Parent Company amended the $160.0 million credit agreement by reducing the facility to $125.0 million and entered into a new $35.0 million revolving credit facility with the same group of banks. The new facility is for an initial 364-day period and may be extended annually at the option of the banks. The terms and conditions of both facilities are the same. On September 23, 1998, the $125.0 million three year facility was increased by $35.75 million and the initial period was increased by one year. The base rate is the higher of the prime lending rate or the Federal Reserve reported Federal funds rate. The average effective rate on the facility was 6.0% in 1999 and the rate at December 31, 1999 was 7.2%. The Parent Company has issued certain guarantees relating to the debt of UTC. The Parent Company has guaranteed the UTC debt in an amount which is limited, except for liabilities of UTC arising from environmental matters, to the lesser of $31.7 million and one-third of the UTC debt commitments. On December 30, 1998, the Company borrowed from an affiliate, Cofreth American Corporation, $50.0 million for acquisitions and project development. The $50.0 million was initially used to partially pay down the Corporate facility. The $50.0 million is subordinate and junior in right of payment to all other debt. The subordinated debt may be redeemed in whole or in part at the option of Cofreth American Corporation with the net proceeds of an equity sale by the Company. The debt matures on December 31, 2010 and the interest rate is 7.38%. (4) INCOME TAXES The Parent Company and its domestic subsidiaries file a consolidated U.S. Federal income tax return. The Parent Company's state income taxes are filed on a separate return basis. A valuation allowance for state tax loss carryforwards has been provided because there are carryforwards which may expire before being used. S-4 SCHEDULE II TRIGEN ENERGY CORPORATION AND SUBSIDIARIES VALUATION AND QUALIFYING ACCOUNTS (IN THOUSANDS)
BALANCE AT CHARGED TO BALANCE BEGINNING COSTS AND AT END DESCRIPTION OF YEAR EXPENSES DEDUCTIONS OF YEAR - ----------- ------- -------- ---------- ------- Year ended December 31, 1997: Allowance for doubtful accounts.............................. $1,128 331 (385) $1,074 Year ended December 31, 1998: Allowance for doubtful accounts.............................. $1,074 317 (204) $1,187 Year ended December 31, 1999: Allowance for doubtful accounts.............................. $1,187 725 (646) $1,266
S-5 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized on March 30, 2000. TRIGEN ENERGY CORPORATION By: /s/ Richard E. Kessel Richard E. Kessel President and Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities indicated on March 30, 2000.
SIGNATURE TITLE /s/ RICHARD E. KESSEL - ------------------------------- Director, President and Chief Executive Officer Richard E. Kessel (Principal Executive Officer) /s/ MARTIN S. STONE Vice President-Finance, Chief Financial Officer - ------------------------------- Martin S. Stone /s/ DANIEL J. SAMELA Controller (Principal Accounting Officer) - ------------------------------- Daniel J. SAMELA Director and Chairman of the Board - ------------------------------- Christine Morin-Postel /s/ GEORGE F. KEANE Director - ------------------------------- George F. Keane Director - ------------------------------- Dominique Mangin d'Ouince /s/ OLIVIER DEGOS Director - ------------------------------- Olivier Degos /s/ MICHEL BLEITRACH Director - ------------------------------- Michel Bleitrach Director - ------------------------------- Philippe Brongniart Director - ------------------------------- Patrick Buffet /s/ CHARLES E. BAYLESS Director - ------------------------------- Charles E. Bayless
TRIGEN ENERGY CORPORATION INDEX OF EXHIBITS
EXHIBIT DESCRIPTION 2.1** Stock Purchase Agreement, dated December 9, 1997, between Canal Industries, Inc. and ChemFirst Inc. as Sellers, and Trigen Energy Corporation, as Buyer (Form 8-K Current Report dated January 27, 1998.) 2.2** Final Settlement Decree and Order of the Pennsylvania Court of Common Pleas Philadelphia County, dated April 23, 1999. (Form 8-K Current Report dated April 26, 1999) 3.1** Restated Certificate of Incorporation of Trigen (Registration Statement No. 33-80410). 3.2** Restated and Amended By-Laws of Trigen (Registration Statement No. 33-80410). 4.1** Credit Agreement, dated as of December 2, 1993, among Trigen Acquisition Inc., Trigen, the Lenders named therein, and Toronto Dominion (Texas), Inc., as Agent (Registration Statement No. 33-80410). 4.2** Loan Agreement, dated as of June 1, 1993, between Trigen-Trenton District Energy Company, L.P. and the New Jersey Economic Development Authority (District Heating and Cooling Revenue Bonds) (Registration Statement No. 33-80410). 4.3 Trigen Energy Corporation hereby undertakes to furnish a copy of any instrument with respect to long term debt not otherwise filed herewith to the Securities and Exchange Commission upon request. 4.4** See Exhibits 3.1 and 3.2 (Registration Statement No. 33-80410). 4.5** Revolving Credit Facility, Dated as of April 4, 1997 between the Company, Banks Listed on the Signature Page and Societe Generale as Issuing Bank and Agent. (Form 10-Q Quarterly Report for the quarterly period ended June 30, 1997). 4.6** Amendment No.1, Dated as of June 10, 1997, to the Revolving Credit Facility Dated as of April 4, 1997. (Form 10-Q Quarterly Report for the quarterly period ended June 30, 1997). 4.7** Revolving Credit Facility, Dated as of June 10, 1997 between the Company, Banks Listed on the Signature Page and Societe Generale as Issuing Bank and Agent. (Form 10-Q Quarterly Report for the quarterly period ended June 30, 1997). 4.8** Amended and Restated Credit and Acceptance Agreement dated as of December 20, 1996 among Trigen Energy Canada Inc., Certain Commercial Lending Institutions as the Lenders, Societe Generale, New York Branch, as the Administrative Agent for the Lenders and Societe Generale (Canada) as the Collateral Agent for the Lenders. (Form 10-K Annual Report for 1996). 4.9** Amendment No. 1 dated as of June 10, 1997 to the Revolving Credit Facility dated as of April 4, 1997 among Trigen Energy Corporation, Societe Generale and the banks listed on the signature pages thereof. (Form 10-K Annual Report for 1998) 4.10** Amendment No. 1 dated as of September 22, 1998 to the 364-Day Revolving Credit Facility dated as of June 10, 1997 among Trigen Energy Corporation, Societe Generale and the banks listed on the signature pages thereof. (Form 10-K Annual Report for 1998) 4.11** Amendment No. 2 dated as of November 6, 1997 to the Revolving Credit Facility dated as of April 4, 1997 among Trigen Energy Corporation, Societe Generale and the Banks listed on the signature pages thereof. (Form 10-K Annual Report for 1998) 4.12** Amendment No. 3 dated as of September 22, 1998 to the Revolving Credit Facility dated as of April 4, 1997 among Trigen Energy Corporation, Societe Generale and the Banks listed on the signature pages thereof. (Form 10-K Annual Report for 1998)
4.13** Unsecured Subordinated Redeemable Term Note for $50,000,000 dated as of December 30, 1998 between Trigen Energy Corporation and Cofreth American Corporation. (Form 10-K Annual Report for 1998) 9.1** Stockholders' Agreement, dated August 10, 1994 by and among Trigen, Thomas R. Casten, Michael Weiser, Eugene E. Murphy, Richard E. Kessel, John J. Ludwig, Cofreth American Corporation and Compagnie Parisienne de Chauffage Urbain, S.A. (Registration Statement No. 33-80410). 9.2** Stockholder's Agreement dated as of January 17, 1996 by and between Thomas Ewing and Trigen Energy Corporation. 10.1** Reimbursement and Credit Agreement, dated as of September 1, 1992, among Trigen-Oklahoma District Energy Corporation, the Banks named therein, and Societe Generale, Southwest Agency, as Agent and Collateral Agent (Registration Statement No. 33-80410). 10.2** Loan Agreement, dated as of September 1, 1992, between Oklahoma City Industrial and Cultural Facilities Trust, as Lender and Trigen-Oklahoma District Energy Corporation, as Borrower (District Heating and Cooling Revenue Bonds, Series 1992) (Registration Statement No. 33-80410). 10.3** Lease Agreement, dated as of August 1, 1990, between Town of Hempstead Industrial Development Agency and Nassau District Energy Corporation (Industrial Development Revenue Bonds) (Registration Statement No. 33-80410). 10.4** Letter Agreement, dated February 24, 1994, between Trigen and Credit Commerciale de France, New York Branch, (Registration Statement No. 33-80410). 10.5** Standby Letter of Credit Agreement, dated November 16, 1993, between Trigen and Societe Generale, New York Branch (Registration Statement No. 33-80410). 10.6** Application and Agreement for Irrevocable Standby Letter of Credit, dated December 14, 1992, between Societe Generale, New York Branch, and Trigen-Chicago District Energy Corporation (Registration Statement No. 33-80410). 10.7** Noncompetition Agreement, dated December 3, 1993, among Catalyst Energy Corporation, Great Lakes Power Limited, Century Power Corporation, Trigen Acquisition, Inc. and Trigen (Registration Statement No. 33-80410). 10.8** Site Lease Agreement, dated as of December 16, 1992, between Metropolitan Pier and Exposition Authority and Trigen-Peoples District Energy Company (Registration Statement No. 33-80410). 10.9** Lease Agreement, dated as of November 30, 1993, between Housing Authority of Baltimore City and Baltimore Thermal Energy Corporation (Registration Statement No. 33-80410). 10.10** Spring Gardens Land Lease, dated February 28, 1985, between Baltimore Gas and Electric Company and Baltimore Steam Company (Registration Statement No. 33-80410). 10.11** Lease Agreement, dated as of June 26, 1991, between King Real Estate Corporation, Trustee of King Terminal Trust and Boston Thermal Energy Corporation, as amended by the First Amendment to Lease, dated July 5, 1991, and by the Second Amendment to Lease, dated June 23, 1992. (Registration Statement No. 33-80410). 10.12** Lease Agreement, dated as of April 1, 1991, between Aetna Life Insurance Company and Boston Thermal Energy Corporation (Registration Statement No. 33-80410). 10.13** Lease Agreement, dated March 29, 1990, between Kansas City Power & Light Company and Trigen-Kansas City District Energy Corporation (Registration Statement No. 33-80410). 10.14** Indenture, dated September 14, 1993, between George Chioros Holdings Ltd., as Lessor, and Trigen-London District Energy Corporation, as Lessee (Registration Statement No. 33-80410).
10.15** Standard Lease, dated as of August 7, 1990, between the United States Postal Service and Trigen-Oklahoma District Energy Corporation (Registration Statement No. 33-80410). 10.16** Schuylkill Station Lease Agreement, dated January 30, 1987, between Philadelphia Electric Company and Philadelphia Thermal Corporation (Registration Statement No. 33-80410). 10.17** Amended and Restated Site Lease, dated September 17, 1993, between Philadelphia Thermal Energy Corporation and Grays Ferry Cogeneration Partnership (Registration Statement No. 33-80410). 10.18** Lease Agreement, dated as of March 5, 1975, between the City of St. Louis and Union Electric Company (Registration Statement No. 33-80410). 10.19** Ground Lease, dated as of December 1, 1982, between the City of Trenton and Trenton District Energy Company (Registration Statement No. 33-80410). 10.20** Thermal Energy Agreement, dated July 22, 1981, between Mercer Medical Center and Trenton District Energy Company, as amended September 1981, as amended August 22, 1984, and as further amended May 27, 1986 (Registration Statement No. 33-80410). 10.21** See Exhibits 4.1, 4.2 and 4.3 (Registration Statement No. 33-80410). 10.22** Trigen Energy Corporation 1994 Director Stock Plan (Registration Statement No. 33-80410). 10.23** Trigen Energy Corporation 1994 Stock Incentive Plan (Registration Statement No. 33-80410). 10.24** Intercompany Services and License Agreement, dated August 10, 1994, between Ufiner-Cofreth, S.A. and Trigen (Registration Statement No. 33-80410). 10.25** Form of Employment Agreement, dated as of August 12, 1994 between Trigen and Thomas R. Casten (Form 10-K Annual Report for 1994). 10.26** Form of Employment Agreement, dated as of August 12, 1994, between Trigen and Richard E. Kessel (Form 10-K Annual Report for 1994). 10.27** Form of Employment Agreement, dated as of August 12, 1994, between Trigen and Eugene E. Murphy (Form 10-K Annual Report for 1994). 10.28** Form of Employment Agreement, dated as of August 12, 1994, between Trigen and Michael Weiser (Form 10-K Annual Report for 1994). 10.29** Acquisition Agreement dated March 1, 1996 among Adwin (Schuylkill) Cogeneration, Inc., O'Brien (Schuylkill) Cogeneration, Inc. and Trigen--Schuylkill Cogeneration, Inc. 10.30** Amended and Restated Partnership Agreement dated March 1, 1996 among Adwin (Schuylkill) Cogeneration, Inc., O'Brien (Schuylkill) Cogeneration, Inc. and Trigen--Schuylkill Cogeneration, Inc. 10.32** Form of Employment Agreement, dated as of March 1, 1995, between Trigen and James F. Lowry. (Form 10-K Annual Report for 1998) 10.33** Form of Incentive Stock Option Agreement between Trigen and Thomas R. Casten, Richard E. Kessel, Eugene E. Murphy, Steven G. Smith and Richard S. Strong (Form 10-Q Quarterly report for the period ended September 30, 1998). 10.34** Form of Incentive Stock Option Agreement between Trigen and Martin S. Stone (Form 10-Q Quarterly report for the period ended September 30, 1998). 10.35** Agreement and Plan of Merger dated as of January 19, 2000 among Elyo, T Acquisition Corp. and the Company (Form 8-K Current Report dated January 24, 2000) 10.36** Tender and Voting Agreement between Elyo, T Acquisition Corp., George F. Keane, Charles E. Bayless, et al. (Form 8-K Current Report dated January 24, 2000)
10.37** Letter Agreement among Elyo and Thomas R. Casten dated January 19, 2000 (Form 8-K Current Report dated January 24, 2000) 10.38** Separation Agreement and Release, dated as of January 19, 2000 between Trigen Energy Corporation and Thomas R. Casten (Schedule TO (Rule 14D-100) filed by T Acquisition Corp., Elyo and Suez Lyonnaise des Eaux dated February 28, 2000) 10.39** Form of Confidentiality, Non-Compete and Severance Agreement, dated July 28, 1998 between Trigen and Martin S. Stone (Form 10-Q Quarterly Report for the Quarterly period ended June 30, 1999) 11* Computation of Earnings Per Share. 12.1* Computation of Ratio of Earnings to Fixed Charges. 21* Subsidiaries of Trigen Energy Corporation. 23.1* Consent of Arthur Andersen LLP. 23.2* Consent of KPMG LLP. 23.3* Consent of Deloitte & Touche LLP. 27* Financial Data Schedule (for electronic filing only) 99* Grays Ferry Cogeneration Partnership financial statements for the years ended December 31, 1999 and 1998.
* Filed herewith. ** Incorporated by reference to the corresponding exhibit to the indicated prior filing. EX-11 2 EXHIBIT 11 Exhibit 11 Trigen Energy Corporation and Subsidiaries Computation of Earnings Per Share (In thousands, except per share data)
Year ended December 31, ---------------------------------------------------------------------------- 1999 1998 1997 1996 1995 ------- ------- ------- -------- ------- Basic earnings per common share - ---------------------------------------------- Earnings before extraordinary item $16,108 $6,557 $5,025 $14,051 $10,564 Average equivalent shares Common shares outstanding 12,049 12,007 12,011 11,612 11,390 Basic earnings per common share $ 1.34 $ 0.55 $ 0.42 $ 1.21 $ 0.93 Diluted earnings per common share - ---------------------------------------------- Earnings before extraordinary item and cumulative effect of a change in accounting principles $16,108 $ 6,557 $ 5,025 $ 14,051 $ 10,564 Average equivalent shares Common shares outstanding 12,049 12,007 12,011 11,612 11,390 Stock options and restricted stock 99 2 119 82 -- ------- ------- ------- -------- --------- Average equivalent shares 12,148 12,009 12,130 11,694 11,390 ------- ------- ------- -------- --------- Diluted earnings per common share $ 1.33 $ 0.55 $ 0.41 $ 1.20 $ 0.93 ------- ------- ------- -------- ---------
EX-12.1 3 EXHIBIT 12.1 Exhibit 12.1 Trigen Energy Corporation and Subsidiaries Computation of Ratio of Earnings to Fixed Charges (in thousands)
1999 1998 1997 1996 1995 -------- -------- -------- -------- -------- Earnings before extraordinary item and cumulative effect of a change in accounting principle $16,108 $6,557 $5,025 $14,051 $10,564 Add (deduct): Income taxes 11,380 4,575 3,491 9,252 7,324 Fixed charges 28,458 25,666 20,508 20,145 20,883 Interest capitalization (1,013) (524) (374) (328) (300) (Income)/losses of less than 50% owned companies (7,396) (4,475) 266 (322) (316) Distributions from less than 50% owned companies 2,000 -- -- -- -- -------- -------- -------- -------- -------- Earnings before extraordinary item and cumulative effect of a change in accounting principle, as adjusted $ 49,537 $31,799 $28,916 $42,798 $38,155 Fixed Charges Interest expense $25,994 $23,742 $18,840 $18,840 $19,890 Interest capitalized 1,013 524 374 328 300 Portion of rents representative of interest factor(1) 1,451 1,400 1,158 977 693 -------- ------- -------- -------- -------- Total fixed charges $28,458 $25,666 $20,508 $20,145 $20,883 -------- ------- -------- -------- -------- Ratio of earnings to fixed charges 1.7 1.2 1.4 2.1 1.8 -------- ------- --------- -------- -------
- -------------------- Note: (1) Estimated to be 1/3 of total rent expense. EX-21 4 EXHIBIT 21 Exhibit 21 TRIGEN ENERGY CORPORATION AND SUBSIDIARIES Baltimore Steam Company Baltimore Thermal Development Corporation Catalyst Steam Corporation Energy Equipment Leasing LLC Gray's Ferry Cogeneration Partnership 3003252 Nova Scotia Limited NSP Trigen Incorporated Ohio Thermal Energy Corp. Ohio Valley Coke & Energy LLC Owings Mills Energy Equipment Leasing LLC Philadelphia United Power Corporation Philadelphia Thermal Development Corporation Philadelphia Steam Development Corporation Philadelphia Thermal Services Corporation St. Louis Thermal Development Corporation Thermal Technologies, Inc. Trenton Energy Corporation Tulsa Cold Storage, Inc. Trigen Acquisitions Corp. Trigen-Alabama Energy Corporation Trigen-Baltimore Energy Corporation Trigen-Barford Company LLC Trigen-Biopower, Inc. Trigen-Boston Energy Corporation Trigen Building Services Corporation Trigen-Chicago Energy Corporation TRIGEN-CHOLLA LLC Trigen-Cinergy Solutions LLC TRIGEN-CINERGY SOLUTIONS OF ASHTABULA LLC TRIGEN-CINERGY SOLUTIONS OF BALTIMORE LLC Trigen-Cinergy Solutions of Boca Raton, LLC Trigen-Cinergy Solutions of Cincinnati LLC TRIGEN-CINERGY SOLUTIONS OF COLLEGE PARK LLC TRIGEN-CINERGY SOLUTIONS OF DANVILLE Trigen-Cinergy Solutions of Illinois LLC Trigen-Cinergy Solutions of Orlando LLC TRIGEN-CINERGY SOLUTIONS OF OWINGS MILLS LLC Trigen-Cinergy Solutions of Rochester LLC TRIGEN-CINERGY SOLUTIONS OF SAN DIEGO LLC TRIGEN-CINERGY SOLUTIONS OF SILVER GROVE LLC Trigen-Cinergy Solutions of The Southeast LLC Trigen-Cinergy Solutions of St. Paul LLC Trigen-Cinergy Solutions of Tuscola, LLC Trigen-College Park Energy Corporation Trigen-Colorado Energy Corporation TRIGEN-DELAWARE VALLEY ENERGY CORPORATION Trigen Development Corporation Trigen Energia, Inc. Trigen Energy Canada Inc. Trigen Energy Corporation Trigen-Ewing Power, Inc. The Trigen Foundation Trigen Fuels Corporation Trigen-Glen Cove Energy Corporation Trigen-Golden Energy Corporation Trigen-HQ Energy Services LLC Trigen Innovations, Inc. Trigen Insulation Corporation Trigen-Kansas City Energy Corporation Trigen Lindbergh Corporation Trigen-Maryland Energy Corporation Trigen-Maryland Steam Corporation Trigen-Mid-Atlantic Development Corporation Trigen M/I Corporation Trigen-Missouri Energy Corporation Trigen-Nassau Energy Corporation Trigen National Capital, Inc. Trigen-Nations Energy Company, LLLP Trigen-New England Energy Corporation Trigen-New Jersey Development Corporation Trigen-Oklahoma Energy Corporation Trigen-Oklahoma City Energy Corporation Thermal Science Technologies LLC Trigen-Peoples District Energy Company TRIGEN-PHILADELPHIA ENERGY CORPORATION Trigen Power Resources, Inc. Trigen-Schuylkill Cogeneration, Inc. Trigen Services Corporation Trigen Services of College Park, Inc. Trigen Services of Illinois, Inc. Trigen Services of San Diego, Inc. Trigen Energy Services, Inc. Trigen Solutions, Inc. Trigen-St. Louis Energy Corporation TRIGEN-SYRACUSE ENERGY CORPORATION Trigen-Trenton Energy Company, L.P. Trigen-Tulsa Energy Corporation United Thermal Corporation United Thermal Development Corporation United Thermal Services Corporation EX-23.1 5 EXHIBIT 23.1 EXHIBIT 23.1 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS AS INDEPENDENT PUBLIC ACCOUNTANTS, WE HEREBY CONSENT TO THE INCORPORATION BY REFERENCE IN THIS FORM 10-K OF OUR REPORT DATED FEBRUARY 9, 2000 INCLUDED IN THE COMPANY'S PREVIOUSLY FILED REGISTRATION STATEMENTS NO. 333-4198 ON FORM S-3; AND NO. 33-92468, NO. 333-36151, NO. 33-83736 AND NO. 333-87277 ON FORM S-8 AND POST-EFFECTIVE AMENDMENT NO. 1 TO FORM S-8 OF TRIGEN ENERGY CORPORATION AND SUBSIDIARIES AS OF DECEMBER 31, 1999. ARTHUR ANDERSEN LLP STAMFORD, CONNECTICUT MARCH 29, 2000 EX-23.2 6 EXHIBIT 23.2 EXHIBIT 23.2 CONSENT OF INDEPENDENT ACCOUNTANTS THE BOARD OF DIRECTORS TRIGEN ENERGY CORPORATION WE CONSENT TO INCORPORATION BY REFERENCE IN THE REGISTRATION STATEMENTS NO. 333-4198 ON FORM S-3, NO. 33-92468 AND NO. 333-36151 ON FORM S-8, AND NO. 33-83736 ON FORM S-8 AND POST EFFECTIVE AMENDMENT NO. 1 TO FORM S-8 AND NO. 333-87277 ON FORM S-8 OF TRIGEN ENERGY CORPORATION AND SUBSIDIARIES OF OUR REPORT DATED FEBRUARY 3, 1998, RELATING TO THE CONSOLIDATED STATEMENT OF OPERATIONS, STOCKHOLDERS' EQUITY AND CASH FLOWS FOR THE YEAR ENDED DECEMBER 31, 1997 OF TRIGEN ENERGY CORPORATION AND SUBSIDIARIES, AND THE RELATED SCHEDULES, AS OF AND FOR THE PERIODS DESCRIBED THEREIN, WHICH REPORT APPEARS IN THE DECEMBER 31, 1999 ANNUAL REPORT ON FORM 10-K OF TRIGEN ENERGY CORPORATION. KPMG PEAT MARWICK LLLP MARCH 28, 2000 STAMFORD, CONNECTICUT EX-23.3 7 EXHIBIT 23.3 Exhibit 23.3 CONSENT OF INDEPENDENT ACCOUNTANTS WE CONSENT TO THE INCORPORATION BY REFERENCE IN THE PREVIOUSLY FILED REGISTRATION STATEMENTS ON (I) FORM S-3 (FILE NO. 333-4198) AND (II) FORMS S-8 (NO. 33-92468, 333-36151, 33-83736 AND POST EFFECTIVE AMENDMENT NO. 1 TO FORM S-8 AND NO. 333-87277) OF TRIGEN ENERGY CORPORATION OF OUR REPORT, DATED JANUARY 28, 2000 RELATING TO THE BALANCE SHEETS OF GRAYS FERRY COGENERATION PARTNERSHIP AS OF DECEMBER 31, 1999 AND 1998 AND THE RELATED STATEMENTS OF CHANGES IN PARTNERS' EQUITY AND CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997 AND THE RELATED STATEMENT OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1999 AND THE PERIOD JANUARY 9, 1998 (DATE OF COMMERCIAL OPERATION) TO DECEMBER 31, 1998 APPEARING IN THIS FORM 10K. DELOITTE & TOUCHE LLP PHILADELPHIA, PENNSYLVANIA MARCH 29, 2000 EX-27 8 EXHIBIT 27
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM SEC FORM 10-K FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 12-MOS DEC-31-1999 DEC-31-1999 20,008 0 51,571 1,266 8,799 82,430 630,312 114,472 727,506 97,005 406,755 0 0 124 159,899 727,506 280,420 280,420 200,028 240,869 (13,931) 0 25,994 27,488 11,380 16,108 0 0 (4,903) 11,205 .93 .92
EX-99 9 EXHIBIT 99 EXHIBIT 99 - -------------------------------------------------------------------------------- GRAYS FERRY COGENERATION PARTNERSHIP FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997 AND INDEPENDENT AUDITORS' REPORT INDEPENDENT AUDITORS' REPORT To the Partners of Grays Ferry Cogeneration Partnership: We have audited the accompanying balance sheets of Grays Ferry Cogeneration Partnership (the "Partnership"), as of December 31, 1999 and 1998, and the related statements of changes in partners' capital, and cash flows for the years ended December 31, 1999, 1998 and 1997 and the related statements of income for the year ended December 31, 1999 and for the period from January 9, 1998 (date of commercial operation) to December 31, 1998. These financial statements are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, such financial statements present fairly, in all material respects, the financial position of the Partnership as of December 31, 1999 and 1998, and its cash flows for the years ended December 31, 1999, 1998 and 1997, and the results of its operations for the year ended December 31, 1999 and for the period from January 9, 1998 (date of commercial operation) to December 31, 1998 in conformity with generally accepted accounting principles. The accompanying financial statements have been prepared assuming that the Partnership will continue as a going concern. As discussed in Note 2 to the financial statements, the Partnership has failed to convert the construction loan to a term loan. As a consequence, the Project Lender has determined that the Partnership is in default. These actions raise substantial doubt about the Partnership's ability to continue as a going concern. Management's plans concerning these matters are also discussed in Note 2. The financial statements do not include any adjustment that might result from the outcome of these uncertainties, other than the classification of the Partnership debt as current. As discussed in Note 8 to the financial statements, in 1999 the Partnership changed its method of accounting for the cost of start-up activities to conform with Statement of Position 98-5. DELOITTE & TOUCHE LLP Philadelphia, Pennsylvania January 28, 2000 GRAYS FERRY COGENERATION PARTNERSHIP BALANCE SHEETS DECEMBER 31, 1999 AND 1998 - --------------------------------------------------------------------------------
1999 1998 ASSETS CURRENT ASSETS: Cash and cash equivalents $ 18,390,037 $ 18,628,423 Accounts receivable - related parties 2,544,955 10,678,770 Accounts receivable - other 5,901,621 1,805,350 Inventory 1,367,589 2,163,444 Prepaid expenses 123,646 116,976 ------------- ------------- Total current assets 28,327,848 33,392,963 PROPERTY, PLANT AND EQUIPMENT: Plant in service 151,463,731 151,297,117 Accumulated depreciation (14,978,041) (7,402,171) ------------- ------------- Property, plant and equipment - net 136,485,690 143,894,946 ------------- ------------- OTHER ASSETS (Net of accumulated amortization of $863,281 and $426,949 in 1999 and 1998, respectively) 8,890,393 6,875,906 ------------- ------------- TOTAL ASSETS $ 173,703,931 $ 184,163,815 ============= ============= LIABILITIES AND PARTNERS' CAPITAL CURRENT LIABILITIES: Construction loan (Notes 2 and 6) $ 79,400,682 $ 94,324,049 Subordinated debt (Note 6) 15,000,000 15,000,000 Accounts payable and accrued liabilities - related parties 760,779 3,503,417 Accounts payable and accrued liabilities - other 11,158,154 15,017,152 Retainage payable 5,581,729 ------------- ------------- Total liabilities 106,319,615 133,426,347 PARTNERS' CAPITAL 67,384,316 50,737,468 TOTAL LIABILITIES AND PARTNERS' CAPITAL $ 173,703,931 $ 184,163,815 ------------- -------------
See notes to financial statements. - -2- GRAYS FERRY COGENERATION PARTNERSHIP STATEMENTS OF INCOME YEAR ENDED DECEMBER 31, 1999 AND PERIOD FROM JANUARY 9, 1998 (DATE OF COMMERCIAL OPERATION) TO DECEMBER 31, 1998 - --------------------------------------------------------------------------------
1999 1998 REVENUES (Note 4): Electric energy sales: Related party $ 14,202,432 $ 50,776,226 Other 36,974,898 Steam sales - related party 14,904,924 14,741,775 Capacity fees: Electric: Related party 3,017,100 9,531,900 Other 6,728,400 Steam - related party 2,842,962 3,075,988 ------------ ------------ Total revenues 78,670,716 78,125,889 ------------ ------------ OPERATING EXPENSES (Note 4): Fuel and consumables: Related party 2,423,788 2,531,844 Other 34,579,738 32,394,334 Operation and maintenance: Related parties 1,681,877 1,527,916 Other 2,777,004 2,819,680 General and administrative: Related parties 3,029,132 2,772,641 Other 3,103,746 2,373,432 Depreciation 7,575,870 7,402,171 ------------ ------------ Total operating expenses 55,171,155 51,822,018 ------------ ------------ INCOME FROM OPERATIONS 23,499,561 26,303,871 ------------ ------------ OTHER INCOME (EXPENSE): Interest income 835,733 665,765 Interest expense (11,642,670) (11,674,898) Interest forgiven (Note 2) 2,887,433 Recovery for business interruption 1,573,511 Other (149,720) ------------ ------------ Total other expense - net (6,495,713) (11,009,133) ------------ ------------ NET INCOME BEFORE CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE 17,003,848 15,294,738 CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE (Note 8) (357,000) ------------ ------------ NET INCOME $ 16,646,848 $ 15,294,738 ============ ============
See notes to financial statements. - -3- GRAYS FERRY COGENERATION PARTNERSHIP STATEMENTS OF CHANGES IN PARTNERS' CAPITAL YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997 - --------------------------------------------------------------------------------
ADWIN COGENAMERICA TRIGEN TOTAL (SCHUYLKILL) SCHUYLKILL, (SCHUYLKILL) PARTNERS' COGENERATION, INC. INC. COGENERATION, INC. CAPITAL BALANCE, JANUARY 1, 1996 $ 2,784,214 $ 2,658,516 $ 5,442,730 Capital contributions 10,000,000 10,000,000 $10,000,000 30,000,000 ------------ ----------- ----------- ----------- BALANCE, DECEMBER 31, 1997 12,784,214 12,658,516 10,000,000 35,442,730 Net income for period 5,098,246 5,098,246 5,098,246 15,294,738 ------------ ----------- ----------- ----------- BALANCE, DECEMBER 31, 1998 17,882,460 17,756,762 15,098,246 50,737,468 Assignment of partnership interest (Note 2) (17,882,460) 8,941,230 8,941,230 Net income for period 8,323,424 8,323,424 16,646,848 ------------ ----------- ----------- ----------- BALANCE, DECEMBER 31, 1999 $ - $35,021,416 $32,362,900 $67,384,316 ============ =========== =========== ===========
See notes to financial statements. - -4- GRAYS FERRY COGENERATION PARTNERSHIP STATEMENTS OF CASH FLOWS YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997 - --------------------------------------------------------------------------------
1999 1998 1997 OPERATING ACTIVITIES: Net income $ 16,646,848 $ 15,294,738 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation 7,575,870 7,402,171 Amortization of other assets 436,332 426,949 Cumulative effect of change in accounting principle 357,000 Changes in assets and liabilities which provided (used) cash: Accounts receivable - related parties 6,988,836 (8,048,677) Accounts receivable - other (4,096,271) (1,805,350) Prepaid assets (6,670) (116,976) Inventories 795,855 (1,142,975) Accounts payable and accrued expenses - related parties 3,055,461 3,503,417 Accounts payable and accrued expenses - other (3,858,998) 15,017,152 Other assets (2,450,819) (758,260) ------------ ------------ Net cash provided by operating activities 25,443,444 29,772,189 ------------ ------------ INVESTING ACTIVITIES: Construction expenditures (47,489) (6,968,920) $(74,253,351) Decrease in other construction related expenses (2,439,849) Decrease in construction related accruals - related parties (558,759) Decrease in construction related accruals - other (10,710,974) (6,381,865) (4,812,728) ------------ ------------ ------------ Net cash used in investing activities (10,758,463) (13,909,544) (81,505,928) ------------ ------------ ------------ FINANCING ACTIVITIES: Proceeds from borrowings under construction loan agreement and subordinated debt 15,000,000 57,900,000 Repayment of construction loan agreement (14,923,367) (18,675,951) ------------ ------------ ------------ Partners' capital contributions 30,000,000 ------------ ------------ ------------ Net cash (used in) provided by financing activities (14,923,367) (3,675,951) 87,900,000 ------------ ------------ ------------ NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (238,386) 12,186,694 6,394,072 CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 18,628,423 6,441,729 47,657 ------------ ------------ ------------ CASH AND CASH EQUIVALENTS, END OF PERIOD $ 18,390,037 $ 18,628,423 $ 6,441,729 ============ ============ ============ SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION - Cash paid during the year for interest, net of amounts capitalized in 1997 $ 7,702,252 $ 7,770,075 $ ============ ============ ============ SUPPLEMENTAL DISCLOSURE OF NONCASH TRANSACTIONS: During 1999, $476,125 of adjustments were made to plant in service due to change orders received for construction, reducing accrued expenses by $668,854, and the write-off of accounts receivable of $1,144,979.
See notes to financial statements. - -5- GRAYS FERRY COGENERATION PARTNERSHIP NOTES TO FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997 - -------------------------------------------------------------------------------- 1. ORGANIZATION OF PARTNERSHIP Grays Ferry Cogeneration Partnership, (the "Partnership") was organized on October 29, 1991 as a Pennsylvania general partnership for the sole purpose of developing, owning, constructing and operating a 150 megawatt gas and oil fired qualifying cogeneration facility (the "Project") at the Schuylkill Station of the Trigen-Philadelphia Energy Corporation ("TPEC") in Philadelphia, Pennsylvania. For the period from October 29, 1991 (date of inception) through January 8, 1998, the Partnership was considered a development stage entity as its sole activity was construction of the facility. Pursuant to 20-year electricity and 25-year steam purchase agreements between the Partnership and its two customers, sales of electricity and steam began in January 9, 1998, the date of Commercial Operation. The Partnership's date of Commercial Operation of January 9, 1998 was chosen because it was the date its customers started paying it for electricity and steam sold to them under its 20-year electricity purchase agreements and its 25-year steam purchase agreements. The Partnership's original general partners are Adwin Equipment Company, a wholly owned subsidiary of Eastern Pennsylvania Development Company, which is a wholly owned subsidiary of PECO Energy Company ("PECO") and O'Brien (Schuylkill) Cogeneration, Inc., ("O'Brien"), a wholly owned subsidiary of O'Brien Environmental Energy, Inc. Subsequent to the original Partnership formation, Adwin (Schuylkill) Cogeneration, Inc. ("Adwin"), a wholly owned subsidiary of Adwin Equipment Company, was assigned all rights, responsibilities, and obligations of the Partnership previously held by Adwin Equipment Company. Then on April 23, 1999, Adwin assigned its share of the Partnership equally to the remaining partners. Trigen (Schuylkill) Cogeneration, Inc. ("Trigen"), a wholly owned subsidiary of Trigen Energy Corporation and an affiliate of TPEC, Philadelphia Thermal Development Corporation, ("PTDC"), and Philadelphia United Power Corporation, ("PUPCO"), joined the Partnership as an equal partner as of March 1, 1996. In a reorganization plan, approximately 40% of the capital stock of O'Brien Environmental Energy, Inc. was acquired by NRG Energy, Inc., and the Company was renamed NRG Generating (U.S.) Inc. As a result of this reorganization, O'Brien became known as NRGG (Schuylkill) Cogeneration, Inc. ("NRGG"). During 1998, NRGG was renamed CogenAmerica Schuylkill, Inc. ("Cogen"). Adwin's partnership interest was assigned to the Partnership on April 23, 1999 in connection with the resolution of the litigation described in Note 2. The two remaining general partners are equal partners, with net operating profits and losses and distributions to be allocated to them equally subject to the terms and provisions as stated in the Amended and Restated Partnership Agreement. 2. CONTINUATION OF BUSINESS The accompanying financial statements have been prepared assuming that the Partnership will continue as a going concern. As discussed below, in 1998, PECO had taken action to terminate its power purchase agreements with the Partnership. As a consequence, the banking agent ("Project Lender") determined that the Partnership was in default on its Credit Agreement. The events of default with the Project Lender have continued through the date of this report, as the Partnership has been unable to convert its construction loan to a term loan as required in its Credit Agreement. Management is currently in the process of negotiating a term loan with the Project Lender. Due to the continuing events of default, the Partnership's long-term debt has been reclassified as current in the Partnership's balance sheets. These actions raise substantial doubt about the Partnership's ability to continue as a going concern. The financial statements do not include any adjustment that might result from the outcome of these uncertainties, other than the classification of the Project debt as current. E-1 PECO - In March 1998, the Partnership received notice from PECO that PECO believed its power purchase agreements with the Partnership were no longer effective. PECO refused to pay the rates set forth in the agreements based on its allegations that the Pennsylvania Public Utilities Commission (the "PPUC") had denied cost recovery of the power purchase agreements in retail electric rates. On March 9, 1998, the Partnership, along with Trigen, NRGG and TPEC (collectively "Plaintiffs") filed suit against PECO, Adwin and the PPUC (collectively "Defendants") in United States District Court for the District of Pennsylvania. The suit sought to enjoin PECO from terminating the power purchase agreements and to compel PECO to pay the rates set forth in the agreements. In addition, the Plaintiffs sought actual damages, punitive damages, attorneys' fees and costs. On March 19, 1998, the federal district court dismissed the lawsuit for lack of subject matter jurisdiction. On April 9, 1998, the Plaintiffs filed suit against the Defendants in the Court of Common Pleas (the "Court") for Philadelphia County in the State of Pennsylvania. Preliminary injunctive relief against PECO in the form of specific performance of the electric sale agreements, including payments according to the contract terms, was granted by the Court on May 6, 1998. A $50,000 bond required by the Court was posted by the Plaintiffs on May 7, 1998. On May 8, 1998, PECO sought a stay of the May 6 Order which was denied on May 20, 1998. Also on May 20, 1998, the Court issued a separate order adjudging PECO to be in civil contempt of the May 6 Order. A Coercive sanction of $50,000 per day, or portion thereof, for nonpayment of all sums owing by PECO in accordance to the contract terms was included in the May 20, 1998 Order. An emergency application of stay by PECO of the May 6 Order was denied on May 22, 1998. As a result, PECO complied with the May 6 Order on May 22, 1998. On March 10, 1999, the Court of Common Pleas granted the Partnership's motion for partial summary judgment effectively deciding the issue of liability on the contract claim against PECO and in favor of the Partnership. This action had the effect of limiting the scope of the trial to the amount of damages PECO would have had to pay the Partnership and the counts of fraud, conversion, breach of the implied covenant of good faith and fair dealing and breach of fiduciary duties. Subsequently, the litigation was settled pursuant to a Final Settlement Decree and Order of the Court of Common Pleas, Philadelphia County, dated April 23, 1999. The settlement was comprised of an amendment to the Power Purchase Agreements which increased the electric rates paid in 2001-2004 and decreased the electric rates paid in 2005-2017, and the assignment of PECO's Partnership interest to the Partnership. CONSTRUCTION LOAN DEFAULT - On March 17, 1998 the Partnership received a notice of default from the Project Lender stating that PECO's determination that the power purchase agreements were no longer in effect constituted a material adverse effect as defined under the credit agreement. As of the date of this report, the default has not been waived; accordingly, the Partnership's long-term debt has been reclassified as current in the Partnership's balance sheets (see Note 6). The Project Lender has also restricted the Partnership's ability to make distributions to related parties for certain transactions, along with distributions to the Partners of Partnership earnings. In addition, the interest rate charged under the credit agreement increased to prime plus 2.00%, the penalty interest rate. The Project Lender waived interest accrued at the penalty rate through April 16, 1999 in connection with the settlement of the Partnership's litigation with PECO described above. The notice of default from the Project Lender described above resulted in a cross-default on the Partnership's subordinate debt. As of the date of this report, the default has not been waived; accordingly, the Partnership's subordinate debt has been reclassified as current in the Partnership's balance sheets (see Note 6). In addition, the interest rate charged on the subordinate debt increased to prime plus 3.5%, the penalty rate. Westinghouse Electric Corporation ("Contractor") waived interest accrued at the penalty rate through April 23, 1999 in connection with the settlement of the Partnership's litigation with PECO described above. 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (a) CAPITALIZED PROJECT COSTS - Construction of the Project was originally scheduled to be completed on or about December 8, 1997 (see Notes 1 and 5), at an estimated cost of $158,000,000. $128,000,000 was provided from the proceeds of the credit agreements (see Note 6), and $30,000,000 was provided from partners' capital contributions (see Note 7). The remainder has been financed through accounts and retainage payable. Capitalized Project costs include costs incurred in the development and construction of the gas and oil fired 150-megawatt cogeneration facility. The majority of these costs represent expenditures made under the Engineering, Procurement and E-2 Construction contract between the Partnership and the Contractor. Other costs represent expenditures for legal, consulting, engineering and financing activities relating to the Project. All costs related to the design and construction of the Project from the date the initial purchase power agreement was reached up to the date of Commercial Operation on January 9, 1998, have been capitalized as construction work-in-progress when incurred and now are classified as plant in service, except deferred financing fees which are included in other assets. Substantially all of the property, plant and equipment is being depreciated over 20 years, the life of the Project's electric and contingent capacity sales agreements (see Note 4). (b) REVENUE RECOGNITION - The Partnership's primary source of revenues is from the sale of steam to TPEC and the sale of electricity generated by the Project to PECO. Pursuant to the Steam Sales Agreement, TPEC is obligated to purchase all of its steam requirements from the Project as defined in the agreement. Under the provisions of the Power Purchase Agreements, PECO has agreed to purchase, or accept delivery of, the net electric output from the Project, up to the lesser of 150 megawatts or the amount of electric output for which the Federal Energy Regulatory Commission ("FERC") has certified the Project. (c) SEGMENT REPORTING - The Partnership currently operates the Project, which produces two forms of salable energy from one generation process. Revenues from each of the two forms are disclosed on the statement of income. (d) INVENTORY - Inventory, which is recorded on the first-in, first-out basis, consists of the following at December 31:
1999 1998 Fuel $ 716,276 $1,532,987 Spare Parts 651,313 630,457 ---------- ---------- $1,367,589 $2,163,444 ========== ==========
(e) FAIR VALUE OF FINANCIAL INSTRUMENTS - The estimated fair value amounts presented in these notes to the financial statements have been determined by the Partnership using available market information and appropriate methodologies. However, considerable judgment is required in interpreting market data to develop the estimates of fair value. The estimates presented herein are not necessarily indicative of the amounts that the Partnership could realize in a current market exchange. The use of different market assumptions and/or estimation methodologies may have a material effect on the estimated fair value amounts. Such fair value estimates are based on pertinent information available to management as of December 31, 1999 and 1998, and have not been comprehensively revalued for purposes of these financial statements since such date. Current estimates of fair value may differ significantly from the amounts presented herein. The following disclosure of the estimated fair value of financial instruments is made in accordance with the provisions of SFAS NO. 107, DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS: CASH AND CASH EQUIVALENTS, ACCOUNTS RECEIVABLE, ACCOUNTS PAYABLE, AND OTHER CURRENT ASSETS - The carrying amounts of these items approximate fair value because of the short maturity of these instruments. CONSTRUCTION LOAN AND SUBORDINATED DEBT - Rates currently available to the Partnership for debt with similar terms and maturity are used to estimate the fair value of the debt issued. E-3 Accordingly, the fair value of the Construction Loan and Subordinated Debt approximates the carrying value. (f) ACCOUNTING FOR INCOME TAXES - The Partnership is not a taxpaying entity for income tax purposes. Taxable income or loss from the Partnership is reportable by the Partners on their respective income tax returns. Accordingly, there is no recognition of income taxes in the financial statements. (g) INTEREST RATE HEDGING - The Partnership entered into interest rate swap agreements in order to hedge against future increases in interest rates. For swap contracts that effectively hedge interest rate exposures, the net cash amounts paid or received on the contract are accrued and recognized as an adjustment to interest expense over the period of the contract. (h) FUEL COLLAR AGREEMENT - The Partnership entered into a commodity collar transaction (the "Collar") in order to hedge against future fluctuations in the price of natural gas. During the first quarter of 1999, fuel costs were below the floor price in the Collar and the Partnership was required to make payments to the counterparty which were recorded as a component of fuel costs. During the remainder of the year, the fuel costs were within the cap and floor range and no payments were required of either party. The Collar is in effect through December 31, 2000. (i) USE OF ESTIMATES - The preparation of the Partnership's financial statements in conformity with generally accepted accounting principles necessarily requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the balance sheet dates and the amounts of expenses during the reporting periods. Actual results could differ from those estimates. (j) CASH AND CASH EQUIVALENTS - The Partnership classifies all investments with terms to maturity of less than three months upon purchase as cash and cash equivalents. Cash and cash equivalents at December 31, 1999 and 1998 consist primarily of a money market investment account, which is carried at market, which approximates cost. (k) DEFERRED FINANCING COSTS - Deferred financing costs of $7,230,101 and $6,544,596 at December 31, 1999 and 1998, respectively, are amortized over the life of the credit agreements and are included in other assets. (l) IMPAIRMENT OF LONG-LIVED ASSETS - Long-lived assets and certain identifiable intangibles are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability is assessed based on the future cash flows expected to result from the use of the asset and its eventual disposition. If the sum of the undiscounted cash flows is less than the carrying value of the asset, an impairment loss is recognized. Any impairment loss, if indicated, is measured as the amount by which the carrying amount of the asset exceeds the estimated fair value of the asset. (m) REAL ESTATE TAXES - The Partnership has accrued real estate taxes as required in the Facility Lease (see Note 4). The Partnership has made its best estimate of its anticipated real estate taxes, but has not yet been billed by its local taxing authority. However, management does not believe that actual taxes due will be materially different than the amounts currently accrued. 4. RELATED PARTY AGREEMENTS AND TRANSACTIONS FACILITY LEASE - The Project is located at 2600 Christian Street, Philadelphia, Pennsylvania, on the site of TPEC's Schuylkill Station and PECO's Schuylkill Station, which is owned by PECO. The Partnership has leased a portion of the land which TPEC has leased from PECO. The lease agreement with TPEC commenced on the date construction began, March 8, 1996, and will terminate 25 years from the date of Commercial E-4 Operation. The Partnership is obligated to pay TPEC $1 per year as rent. The Partnership is required to pay any increase in taxes, assessments and fees assessed against the site or the facility during the lease term. DOCK FACILITY SERVICE AGREEMENT - The Partnership has an agreement with PTDC and TPEC, an affiliate of PTDC, for fuel oil transportation and storage services. The Partnership pays operating fees based on the number of barrels received at, or delivered to, the dock as well as a storage fee for barrels stored for use by the Project. These fees are adjusted annually based on the Consumer Price Index ("CPI"). During 1999, 1998 and 1997, the Partnership incurred costs associated with these services of $156,399, $199,640 and $100,923, respectively, of which $13,297 and $12,862 is included in accounts payable at December 31, 1999 and 1998, respectively. The entrance to the Schuylkill Station of TPEC, which is also the entrance to the Project, was upgraded in 1997. The Partnership had previously agreed to reimburse TPEC for its share of the cost which amounted to $250,000. OPERATIONS AND MAINTENANCE AGREEMENT - PUPCO, a Delaware corporation, an affiliate of TPEC, manages and performs all operation and maintenance of the Project subsequent to the Commercial Operation date in accordance with a 25-year agreement. Prior to Commercial Operation, PUPCO was reimbursed for certain costs incurred during mobilization and received a monthly fee of $25,000 limited to $150,000 in total monthly fees. After Commercial Operation begins, the Partnership is required to pay PUPCO an annual operating fee of $600,000 as detailed in the agreement. A portion of the operating fee, $400,000, is adjusted annually based on changes in the CPI. As an additional fee, PUPCO will receive 30% of all payments received by the Partnership pursuant to the Contingent Capacity Purchase Addendum (Phase 1). The Partnership was billed by PUPCO annual operating fees of $786,240 and $600,000 in 1999 and 1998, respectively, capacity fees of $757,416 in 1999 and 1998, and reimbursable expenses of $1,685,662 and $1,647,658 for 1999 and 1998, respectively, of which $256,584 and $1,497,003 was included in accounts payable at December 31, 1999 and 1998, respectively. Included in the billings in 1998 and 1997 were $29,192 and $32,851 of fees and reimbursable expenses, respectively, which were capitalized as construction cost. STEAM SALE AGREEMENT - The Partnership has a 25-year agreement with TPEC in which the Partnership sells all of the steam produced by the plant to TPEC. The price for low- and high-pressure steam is determined based on a function of weighted average fuel price, CPI and the City of Philadelphia Tariff Water and Sewer Rates. The agreement requires TPEC to pay for a minimum of 3.3 Mlbs on an annual basis upon Commercial Operation. During 1999, 1998 and 1997, $17,747,886, $18,113,962 and $851,182, respectively, was billed by the Partnership to TPEC for steam produced and capacity charges. Of the amounts billed in 1998 and 1997, $296,199 and $851,182, respectively, were capitalized as a reduction of construction costs as such sales occurred as a result of plant testing. Accounts receivable as of December 31, 1999 and 1998 include $2,544,955 and $3,985,346, respectively, due from TPEC for these billings. ELECTRIC AND CONTINGENT CAPACITY SALES AGREEMENTS - The Partnership has two 20-year electric sale agreements with PECO, commencing at the Commercial Operation date, whereby the Partnership supplies PECO with electric output at costs defined by the agreements. The terms of agreements require PECO to purchase or accept delivery of the net electric output from the power plant of the lesser of 150 megawatts or the amount of electric output for which the FERC has certified the power plant. The two parties also entered into a 20-year Contingent Capacity Purchase Addendum which requires PECO to purchase electric capacity from the Partnership. The addendum term commenced on the date of Commercial Operation. During 1999, 1998 and 1997, $17,219,532, through April 23, 1999, when PECO transferred its Partnership interest to the remaining payments (see Note 1) and ceased being considered a related party, $61,932,981 and $1,778,911, respectively, was billed by the Partnership to PECO for electricity produced and capacity charges. Of the amounts billed in 1999, 1998 and 1997, $0, $1,624,855 and $1,778,911, respectively, were applied as a reduction of construction costs as such sales occurred as a result of plant testing. Accounts receivable as of December 31, 1999 and 1998 include $5,606,051 and $6,693,424, respectively, due from PECO for these billings. As a result of the Project, PECO was required to construct an interconnection between its facility and the Partnership's facility. The costs associated with the interconnection, $2,355,426, were reimbursed to PECO by the Partnership during 1997. Other amounts paid to PECO during 1997 for reimbursement of expenses were $6,000 for the Partnership's portion of a joint thermal modeling study. STEAM VENTURE AGREEMENT - On September 17, 1993, TPEC, PUPCO and the Partnership entered into an Amended and Restated Steam Venture Agreement for the purpose of the Partnership designing, constructing, starting-up, and testing and owning a cogeneration facility, with the assistance of the other two participants. The agreement required the Partnership to pay PUPCO quarterly fees of $150,000 up to Commercial Operation. Amounts billed in 1997 were capitalized as construction costs. After Commercial Operation commenced, PUPCO receives annual fees of $1,200,000 payable in monthly installments. Two-thirds of the annual fee is subject to an escalation of 3% per annum. During 1998 the Partnership was billed $1,200,000 by PUPCO under this agreement, of which $25,806 was capitalized as construction E-5 cost. The Partnership was billed $1,224,000 during 1999. Accounts payable at December 31, 1999 and 1998, include $102,000 and $1,200,000, respectively, related to these billings. In addition, during 1997, the Partnership incurred PUPCO mobilization fees of $150,000. FUEL MANAGEMENT AGREEMENT - From the commencement of Commercial Operation through February 28, 1999, the Partnership had an agreement with Exelon Corporation, a subsidiary of PECO, for fuel management services. Under the terms of the agreement, the Partnership paid Exelon a fee based on the amount of natural gas and liquid fuels delivered to the Project. During 1998, the Partnership incurred costs associated with these services of $176,480, of which $4,474 was capitalized as construction costs and $176,480 was included in accounts payable at December 31, 1998. On February 28, 1999, the agreement with Exelon was terminated by mutual consent among the parties. The Partnership was billed $31,336 in fuel management service fees by Exelon through February 28, 1999, all of which was paid by December 31, 1999. On February 28, 1999 the Partnership entered into an agreement with PUPCO for fuel management services substantially identical to the services provided under the previous agreement with Exelon. Under the terms of the agreement, the Partnership reimburses PUPCO for all reasonable labor and other out-of-pocket costs incurred in the provision of its services. During 1999, PUPCO billed the Partnership $50,885 for the services, of which $4,523 remained in accounts payable at December 31, 1999. CONSTRUCTION MANAGEMENT - NRGG received fees and reimbursed expenses for management services provided to the Project and for acting as the Partnership's representative to administer all third-party contracts during the construction phase. The arrangement commenced on March 8, 1996 and ceased upon Commercial Operation. During 1998, NRGG billed the Partnership fees and reimbursed expenses of $56,250 and $214,795, respectively, all of which were capitalized as construction cost. MANAGEMENT SERVICES AND OTHER - In accordance with the Partnership agreement, the Partnership is required to pay its Managing Partner $150,000 per year for providing management services to the Partnership. NRGG acted as Managing Partner through November 15, 1998 and billed the Partnership fees and reimbursable expenses of $131,250 and $36,719, respectively, of which $118,750 was included in accounts payable at December 31, 1998. Of these fees, $3,387 was capitalized as construction cost. Effective November 15, 1998, Trigen became the Managing Partner and billed the Partnership fees of $156,480 and $18,750 for the years ended December 31, 1999 and 1998, respectively, of which $13,040 and $18,750 was included in accounts payable as of December 31, 1999 and 1998, respectively. Trigen also billed the Partnership reimbursable expenses of $154,083 for the year ended December 31, 1999, of which $80,701 was included in accounts payable as of December 31, 1999. In addition, the Partnership purchases demineralized water from Trigen. For the years ended December 31, 1999 and 1998, the Partnership purchased $2,132,296 and $2,206,869, respectively, of demineralized water from Trigen of which $46,671 was capitalized as a construction cost prior to commercial operation during 1998 and $290,634 and $498,322 was included in accounts payable as of December 31, 1999 and 1998, respectively. 5. OTHER SIGNIFICANT CONTRACTS GAS SUPPLY AGREEMENT - The Partnership has a gas sales agreement with Aquila Energy Marketing Corporation ("Aquila"), a Delaware corporation, providing for the purchase of natural gas to meet the power plant's requirements. The purchase of gas as stated in the agreement is divided into two tiers based on quantity purchased. The price of the first tier, for daily purchases up to 32,000 million British Thermal units (MMBtu) is based on the gas spot market plus a premium. The second tier, for daily purchases above the initial 32,000 MMBtu, is also based on the gas spot market plus a premium. The premium on second tier gas purchases is subject to annual negotiations effective for years beginning January 1, 1999 and after. In addition, beginning in 2001 the price of both tiers is indexed based on the electricity rate received by the Project. The agreement also has a pricing provision for winter quantity gas delivered to certain redelivery points as defined in the agreement. The initial term of the gas sales agreement is 192 months from the initial delivery and may be extended for one-year renewal periods unless terminated by either party. During 1999 and 1998, the Partnership purchased $28,071,455 and $14,691,090, respectively, of gas under this agreement. GAS TRANSPORTATION ARRANGEMENTS - The Partnership and the Philadelphia Authority for Industrial Development ("PAID") entered into a service agreement dated January 28, 1996, whereby PAID agreed to deliver non-interruptible local gas service to the Project for up to 50,000 Dekatherms ("Dth") per day from the date of Commercial Operation via an established agreement with Philadelphia Gas Works ("PGW"). The agreement between the Partnership and PAID is E-6 for a period of 25 years and may be extended at the mutual agreement of the two parties. The Partnership is committed to purchase transportation services for a minimum annual quantity based in part, on steam sales to Trigen. In addition, TPEC permanently released capacity of 15,000 Dth to the Partnership beginning November 1, 1997. TPEC retained first refusal privileges on this released capacity in the event that the Partnership does not require the additional capacity. During 1999 and 1998, the Partnership purchased $3,627,758 and $3,187,640, respectively, of transportation services under these agreements. ENGINEERING, PROCUREMENT AND CONSTRUCTION CONTRACT - The Partnership has a $116,300,000 engineering, procurement and construction contract (the "EPC") with the Contractor. The contract guaranteed that the Project would be provisionally completed by December 8, 1997, the projected date of Commercial Operation. Provisions of the contract included rebates to the Partnership of $70,000 a day should the Contractor fail to complete the Project on schedule as well as bonus payments to the Contractor should the Project be completed prior to schedule. The contract was not completed on time. As such, a rebate in the amount of $1,722,000 was recorded in accounts receivable at December 31, 1998 and this amount was received during 1999. The Partnership and the Contractor resolved all of their differences related to the completion of the EPC contract on April 26, 1999 when they executed an amendment to that contract. The amendment fixed the date of Provisional Acceptance at April 26, 1999 and adjusted the amounts remaining payable under the contract on the date of the amendment downward $2,417,000 for late completion and other items. COMBUSTION TURBINE PARTS SUPPLY AND REPAIR AND SCHEDULED OUTAGE SERVICES AGREEMENT - The Partnership entered into a combustion turbine parts supply and repair and scheduled outage services agreement with Westinghouse Electric Corporation as of August 29, 1997. The agreement requires the Partnership to purchase from the Contractor parts and miscellaneous hardware for the gas turbine comprising a portion of the Project, repair of parts for the gas turbine comprising a portion of the Project, and scheduled outage services and technical field assistance for unscheduled outages as defined in the agreement. The Partnership was billed $360,000 for 1998 services provided and has estimated the same amount for 1999. On April 26, 1999, the parties signed an Amendment to the original agreement which provides a $400,000 credit towards the purchase of Contractor services. The Partnership applied the credit toward the 1999 and 1998 expenses. The amount included in accounts payable to the Contractor on December 31, 1999 was $182,600. 6. CREDIT AGREEMENTS CONSTRUCTION CREDIT AGREEMENT - On March 1, 1996 the Partnership entered into a $125,000,000 Credit Agreement (the "Agreement") to provide construction and term loan financing for the purpose of financing a major portion of the Project facility. The Agreement provides the Partnership with $113,000,000 of construction loan commitments (the "Construction Loan") which are convertible to term loan commitments (the "Term Loan") after completion of certain criteria as stated in the Agreement, $7,000,000 in letter of credit commitments (the "LOC Commitment"), and $5,000,000 in working capital loan commitments (the "WC Loan"). Upon completion of the Project, the Construction Loan is due and payable or may be converted to a 15-year Term Loan, payable in quarterly installments through the year 2013. The Term Loan is available only to repay the Construction Loan. Substantially all of the Partnership's assets have been pledged as collateral under the Agreement. The Partnership had $79,400,682 and $94,324,049 outstanding under the Construction Loan at December 31, 1999 and 1998, respectively. The Partnership has pledged $3,000,000 and $5,000,000 under its LOC Commitment for outstanding letters of credit as of December 31, 1999 and 1998, respectively. Interest on balances outstanding under the Construction Loan and the WC Loan prior to conversion of Construction Loan to Term Loan, is based on either the base rate, as defined in the Agreement, or LIBOR plus 1.1% as elected by the Partnership at the time of borrowing, and was 7.60% and 6.66% at December 31, 1999 and 1998, respectively. Interest on balances outstanding under the Term Loan and the WC Loan, subsequent to conversion of Construction Loan to Term Loan, is based on the rates as noted during the Construction Loan period and is subject to an increase in the percentage as defined in the Agreement. Interest on letters of credit outstanding under the LOC Commitment is currently 1.1%, and is subject to periodic increases during the term of the Agreement. The LOC Commitment also is subject to a fee of 0.125%, due quarterly. The Agreement provides for commitment fees of 0.375% on the unused Construction Loan, WC Loan and LOC Commitment. E-7 To protect the Project Lender from the uncertainty of interest rate changes during the term of the loan, the Partnership entered into an agreement (the "Swap Agreement") with Chase Manhattan Bank (the "Counterparty"), a participating bank in the Loan Agreement on March 1, 1996. Under the Swap Agreement, the Partnership agreed to swap interest payments with the Counterparty. Effective December 8, 1997, the Partnership is obligated to make fixed interest payments at a rate of 7.18% from effective date of December 8, 1997 through termination date of December 8, 2012 on a balance of $56,500,000 at December 8, 1997 and decreasing in accordance with the Swap Agreement. The Counterparty is obligated to make variable interest payments based on a three-month LIBOR, which was 6.1% and 5.2% at December 31, 1999 and 1998, respectively, on the same balance. SUBORDINATE CREDIT AGREEMENT - The Partnership also has a Subordinate Credit Commitment with the Project's Contractor. The Contractor agreed to lend the Partnership $15,000,000 to provide additional funding for the construction of the Project. The funds were made available after the Construction Loan commitments described above were exhausted and the Partners made their equity contribution of $30,000,000 used for the continuation of the Project's construction. The term of the Subordinate Debt is nine years and interest on the Subordinate Debt is calculated using the prime rate for the first four years and prime rate plus 1.5% for the remaining years. During 1998, the Partnership borrowed the full $15,000,000 available under the Subordinate Debt, all of which remains outstanding at December 31, 1999. During 1998, the Partnership received a notice of default from the Project Lender. Such default resulted in a cross-default on the Partnership's subordinate debt. (See Note 2). 7. CAPITAL CONTRIBUTIONS During 1997, the Construction Loan (see Note 6) was fully utilized. Each of the Partners made an equity contribution of $10,000,000. The last contributions were made December 29, 1997. 8. NEW ACCOUNTING PRONOUCEMENTS In April 1998, the American Institute of Certified Public Accountants issued Statement of Position 98-5 (SOP 98-5), REPORTING ON THE COSTS OF START-UP ACTIVITIES. This statement, which requires that costs related to start-up activities generally be expensed as incurred, is effective for fiscal years beginning after December 25, 1998. The Company recorded a $357,000 charge against income in the year ended December 31, 1999 as the cumulative effect of change in accounting principle due to adoption of this pronouncement. As these costs were incurred prior to the year ended December 31, 1997, pro forma income for the year ended December 31, 1997, assuming the method is applied retroactively, would not be materially different from the income as reported. Therefore, no pro forma disclosure of the effect of this change in accounting principal is necessary. In June 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards ("SFAS") No. 133, ACCOUNTING FOR DERIVATIVE INSTRUMENT AND HEDGING ACTIVITIES. This statement establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts (collectively referred to as derivatives), and for hedging activities. It requires an entity to recognize all derivatives as either assets or liabilities in the balance sheet and measure those instruments at fair value. This statement, as amended by SFAS No. 137, ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES - DEFERRAL OF THE EFFECTIVE DATE OF FASB STATEMENT NO. 133, is effective for fiscal years beginning after June 15, 2000. The Partnership is in the process of analyzing the impact that SFAS No. 133 will have on its financial position and results of operations when such statement is adopted. E-8 9. COMMITMENTS AND CONTINGENCIES The Partnership is committed to purchase non-interruptible local gas service for the Project from the Philadelphia Authority for Industrial Development ("PAID") through a service agreement dated January 28, 1996. The agreement between the Partnership and PAID is for a period of 25 years and may be extended at the mutual agreement of the two parties. The service agreement requires the Partnership to purchase a minimum annual quantity of gas transportation. The minimum annual amounts, based on the minimum quantities and costs per the agreement are as follows:
MINIMUM YEAR ANNUAL AMOUNT 2000 $ 880,000 2001 1,184,000 2002 - 2016 688,000 2017 - 2022 536,000
These minimums are subject to downward revisions for the amount of gas delivered to Trigen as well as the quantity of steam produced at the Schuylkill station. ****** -----END PRIVACY-ENHANCED MESSAGE-----