-----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, V+5bs4XifvOutmRe4LB1cmAKGhtu6h066wKs8NYeNDBfb3MvOTvIdcMih5siPGVT /LR+mwpTb1Pv3ZSZ1tMp3g== 0000925655-99-000009.txt : 19990402 0000925655-99-000009.hdr.sgml : 19990402 ACCESSION NUMBER: 0000925655-99-000009 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 15 CONFORMED PERIOD OF REPORT: 19981231 FILED AS OF DATE: 19990331 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: 99580336 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 E-51 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ___________________ ANNUAL REPORT TO STOCKHOLDERS and FORM 10-K ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 1998 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 10601-1009 White Plains, New York (Zip Code) (Address of principal executive offices) (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 $64,479,106 based upon the closing sale price quoted by the New York Stock Exchange on March 22, 1999. There were 12,321,295 shares of the registrant's Common Stock outstanding on March 22, 1999. DOCUMENTS INCORPORATED BY REFERENCE Information called for in Part III of this Form 10-K is incorporated by reference from the registrant's definitive proxy statement to be filed in connection with its 1999 annual meeting of shareholders which will be held on May 19, 1999. 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 9 PART II Item 5. Market for Registrant's Common Stock and Related Shareholder Matters 10 Item 6. Selected Financial Data 11 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations 12 Item 7A. Quantitative and Qualitative Disclosures About Market Risk 17 Item 8. Financial Statements and Supplementary Data 17 Item 9. Changes in and Disagreements with Accountants On Accounting and Financial Disclosure 17 PART III Item 10. Directors and Executive Officers of the Company 18 Item 11. Executive Compensation 18 Item 12. Security Ownership of Certain Beneficial Owners and Management 18 Item 13. Certain Relationships and Related Transactions 18 PART IV Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K 19 Index to Financial Statements and Financial Statement Schedules F-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 1999; 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 "we" and "our" refer to Trigen Energy Corporation together with its wholly owned subsidiaries and the Trigen-Cinergy joint venture subsidiaries ( See "Joint Ventures" 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 or cooling). In some locations our facilities are connected to pipeline networks which distribute our thermal energy to multiple buildings, in others our facilities are located adjacent to industrial plants and dedicated to the needs of those plants. We operate 14 district energy systems serving urban customers and eleven single customer industrial sites, with two more industrial sites under construction. 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, Revenue and Cost 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, 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 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 manage energy more efficiently. At present, this division offers steam pipeline insulation products which may be installed without removing pipe from the ground. 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. The new combined heat and power plants we install 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, which is implicated in global warming. 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 $ 242.4 million in 1998 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 1998, 1997 and 1996 were $618,156,000, $525,969,000 and $494,436,000, 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. We now own 99% of that limited partnership. 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 bio-mass fuels including wood residues, rice hulls, cotton waste and paper mill sludge. Since December of 1998, Trigen-BioPower commenced construction of two additional plants and agreed to operate energy facilities for another industrial customer. Joint Venture 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 investments and 49% of others. During 1998, Trigen-Cinergy expanded its cooling operations in Cincinnati, OH. Trigen-Cinergy and the Orlando utilities commission agreed to build and operate a district cooling system in Orlando, FL. Trigen-Cinergy also took over operation of cogeneration and other energy facilities for individual industrial customers at Tuscola, IL, Boca Raton, FL, and Baltimore, MD. We entered the Trigen-Cinergy joint venture, to add the expertise of Cinergy, which burns over 11 million tons of coal per year, to enable us to offer a complete package of energy commodity and energy production services, to reach more customers, and to increase our participation in the evolving deregulated electricity market. 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 up to 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 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 terms of five years to 27 years) provide pro forma consolidated revenues of over $230 million per year for the five-year period 1999 through 2004 and approximately $4.2 billion cumulatively for the period 1999 through 2025 (before inflation and changes in consumption from 1998 levels). The remaining customers with short-term contracts do not operate boiler rooms and chillers, and in most cases do not even have such equipment, and customer attrition has been low. 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, back-pressure turbines, and thermal storage tanks that allow us to produce energy during off peak usage periods for use during peak periods. Growing Industrial Customer Base. During 1998 and in the first quarter of 1999, we increased the number of industrial customers we serve from on site facilities from two to twelve. Last year, we acquired a new subsidiary, Trigen BioPower, which produces steam for seven industrial customers from renewable biomass fuels. Trigen-BioPower has new plants under construction in Georgia and in Alabama for two other new industrial customers. Trigen-BioPower also recently agreed to operate energy facilities for another new industrial customer. In 1998, Trigen-Cinergy also started new projects in Boca Raton, FL (operation of cooling facilities for 1.9 million square feet office complex), in Tuscola, IL (operation and expansion of energy facilities at a large chemical plant) and in Baltimore, MD. (operation and expansion of energy facilities at a large chemical plant). 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 40% 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 fuels (which minimizes the release of fossil fuel carbon dioxide into the atmosphere), employment of refrigerants other than CFC's wherever possible, thermal, chemical, and catalytic destruction of exhaust contaminants and continuous emission monitoring. Our modern combustion equipment produces as little as 5% of the nitrous oxide 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. Senior management as a group holds approximately 16.1% percent of our common stock. Overview of Our Products and Services The plants we owned at the end of 1998 have the capacity to produce 5,021 MW of end use energy, of which approximately 85% is steam or hot water, 8% is electricity and 7% is chilled water. These products are distributed to customers through 154 miles (248 kilometers) of pipeline. Separate pipelines are used for steam, hot water and chilled water. In every case where 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. The Company balances 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. 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 Maryland, Missouri, New Jersey and Pennsylvania regulate our district steam energy business. Maryland and Pennsylvania require us to seek State regulatory approval of our prices for steam service in those states. Missouri requires us to seek State regulatory approval of our prices for steam service from our Kansas City facilities. New Jersey does not require us to seek State regulatory approval of our prices for steam service. Our other businesses are not subject to State utility price regulation. Both Maryland and New Jersey are in the process of deregulating district energy in 1999. Electricity. We produce electricity at fourteen of our plants. The electricity produced is either 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 and Trenton, NJ. The plants in Nassau County, NY, Philadelphia, PA, Trenton and Kansas City are qualified for an exemption from regulation under the Public Utility Regulatory Policies Act of 1978. Chilled Water. At twelve 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. New On Site Industrial Projects We compete directly with a large number of well-capitalized developers for new industrial projects. Competition is based on technical skills, financing ability and market reputation, among other factors. During 1998, we focused greater efforts on industrial customers. Our successes included the acquisition of Trigen-BioPower and the activities of Trigen-Cinergy, which added several on-site industrial customers to our business. 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, the Company is 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. Technology Our research and development efforts have focused on improving the value of energy products we extract and deliver. 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 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 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 $3.9 million and $4.4 million in 1998 and 1997, respectively, to comply with these requirements, and we estimate that our expenditures for environmental compliance in 1999 through 2001 will be approximately $12.4 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, wastewater discharge control equipment, asbestos control and replacement of CFC refrigerants. Additional amounts to be spent for environmental control facilities in future years will depend on new laws and regulations and other changes in environmental concerns and legal requirements, as well as on new projects. In 1998, the United States Environmental Protection Agency promulgated a final rule requiring the eastern 22 States and the District of Columbia to submit State implementation plans that address the regional transport of ground- level ozone (smog) through reductions in nitrogen oxides (NOx). The States must submit the NOx reduction plans to U.S. EPA by September 30, 1999. The NOx reductions for affected facilities must be achieved by 2003. We anticipate that electrical utilities and large fossil-fired boilers will be required by the States to reduce NOx emissions. Some of our facilities will be affected by the new requirements. The facilities that will be subject to the NOx reduction requirements will be determined once the States finalize their regulations. The costs associated in complying with the new requirements cannot be determined at this time. Employees As of December 31, 1998, we had approximately 745 employees. 108 of our employees were covered by union agreements. Item 2. Properties We operate 41 energy plants at 27 different locations. We own all or a portion of the interests in our facilities, lease some facilities and manage others. Footnote 12 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), Nassau County, NY, Oklahoma City, OK, Philadelphia, PA, St. Louis, MO and Trenton, NJ (subject to a 20% minority interest). In Philadelphia, PA, we have a one third interest in the Grays Ferry Cogeneration Facility. We operate power systems on the site of our industrial customers in Alabama (under construction), Colorado (subject to a 1% minority interest), Georgia (under construction), Illinois (one of which is subject to a 50% minority interest), Mississippi, North Carolina, South Carolina, and Tennessee. Our Trigen Cinergy Solutions joint venture operates a district energy system in Cincinnati, OH. Trigen Cinergy operates and/or is developing industrial power systems on the site of its industrial customers in Florida, Illinois and Maryland. 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 $420,000. 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 over $30 million in damages from the local utility, Oklahoma Gas and Electric Company ("OG&E"), based on many years of alleged anti-competitive actions against Trigen-Oklahoma City Energy Corporation by OG&E. These actions culminated in criminal indictments being brought against two OG&E officials for allegedly bribing Oklahoma elected officials to breach a Trigen-Oklahoma City Energy Corporation contract. Trigen- Oklahoma City's antitrust action matter 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 judgement in favor of Trigen in the amount of $27.8 million. Under the anti-trust laws, we are permitted to seek an award of treble damages and legal fees and that issue is under consideration by the Court. We expect OG&E to appeal this judgement. Kinetic Energy Litigation On May 2, 1997, following a jury trial in a suit by Kinetic Energy Development Corporation against the Company in the Circuit Court of Jackson County, Missouri, in connection with our acquisition of the Kansas City steam system, a judgment was entered against the Company in the amount of $4,271,000. 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 the Company. 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. If the Court of Appeals upholds its decision, we plan to seek a review of that decision by the Missouri Supreme Court. If our efforts to reinstate the judgment in our favor fail, the case will return to the Circuit Court and a new trial will be scheduled. Grays Ferry Litigation On April 9, 1998, Grays Ferry Cogeneration Partnership, Trigen-Schuylkill Cogeneration, Inc., Cogen America Schuylkill Inc. (formerly NRGG Schuylkill Cogeneration Inc.) and Trigen-Philadelphia Energy Corporation commenced an action against PECO Energy Company ("PECO") and Adwin (Schuylkill) Cogeneration, Inc. in the Pennsylvania Court of Common Pleas of Philadelphia County (the "Court"). Grays Ferry Cogeneration Partnership (the "Partnership") is the owner of the Grays Ferry Cogeneration Facility located in Philadelphia, Pennsylvania. At December 31, 1998, the Company had an investment of $17.1 million in the Partnership, representing a one third interest in the Partnership through our wholly owned subsidiary, Trigen-Schuylkill Cogeneration, Inc. Cogen America Schuylkill Inc. and Adwin (Schuylkill) Cogeneration, Inc. own the other two- thirds interests in the Partnership. Adwin (Schuylkill) Cogeneration, Inc. is an indirect wholly owned subsidiary of PECO. In addition, at December 31, 1998, the Company had a receivable of $3.2 million due from the Partnership. Included in the Company's revenues for the year ended December 31, 1998 was the Company's share of Partnership earnings of $5.1 million and fees earned from the Partnership of $2.8 million. The Partnership commenced this action in reaction to the wrongful termination by PECO on March 3, 1998, of the electric power purchase agreement between the Partnership and PECO (the "Power Purchase Agreement"). The Partnership is seeking a declaratory judgement to require PECO to comply with the electric power purchase agreement and for damages to be proven at trial in an amount in excess of $200 million. On May 6, 1998, the Court issued a preliminary injunction against PECO which requires PECO to pay the Partnership for its electric energy and capacity at the rates set forth in the Power Purchase Agreement and otherwise to specifically perform in accordance with the Power Purchase Agreement. The preliminary injunction will remain in effect until the Court renders its decision after the final hearing of this matter. On July 7, 1998, PECO withdrew its appeal of the preliminary injunction. On March 10, 1999, the Court granted partial summary judgement to the Partnership before trial and held that PECO breached the Power Purchase Agreement. The Partnerships' other claims against PECO and its request for damages are scheduled to go to trial on March 29, 1999. The Chase Manhattan Bank has issued notices of default to the Partnership under the terms of the Credit Agreement, dated as of March 1, 1996, between the Partnership, The Chase Manhattan Bank, as agent, and certain other commercial banks (collectively the "Banks"). Only the Partnership assets and the partners' ownership interests in the Partnership secure the Partnership's debt under the Credit Agreement of $109.3 million. The Banks have not accelerated the debt owing under the Credit Agreement nor charged default interest charges against the Partnership, although the Banks have reserved the rights to do so. Therefore, the Partnership recorded default interest of $1.8 million through December 31, 1998. The Banks have required to date, and may require in the future, the Partnership to apply available cash held by Partnership (net of operating expenses, other than certain payments to affiliates, and expenses required to complete construction) toward repayment of the principal amount of the loans outstanding. On September 4, 1998, the Banks filed their own complaint against PECO with the Court. Among other things, the Banks are seeking a declaration that PECO's termination of the Power Purchase Agreement was wrongful. We believe that PECO's termination of the Power Purchase Agreement was wrongful, and we intend to aggressively pursue the remedies available to us. In the event we are not successful and PECO's actions are upheld, PECO would be required under federal law to continue to purchase power from the Grays Ferry Cogeneration Facility at PECO's avoided cost. This would generate significantly lower earnings per share for the Company than the contracted power purchase price. While it is possible that our investment in the Partnership and the receivable from the Partnership could become impaired, at this time we do not believe that is likely. 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. That motion and the County's other claims against Trigen-Nassau are pending. The County is seeking approximately $10 million in damages. We believe we have good defenses to the County's claims, although we cannot predict the outcome of this matter. 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, we are not able to estimate the amount of damages that ESI and Latin American are seeking. However, we believe it could involve a material amount. Trigen believes it has good defenses to Coastal's claims and La Casa Castro's claims, although we cannot predict the outcome of this matter. 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. PART II Item 5. Market for the Registrant's Common Stock and Related Shareholder Matters The Company's Common Stock is traded on the New York Stock Exchange under the symbol TGN. As of March 22, 1999 there were approximately 1,682 shareholders of record. The following table sets forth the high and low sales prices for the Company's Common Stock for the periods indicated: High Low 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 1997 First Quarter 29 1/4 24 1/8 Second Quarter 25 1/4 23 5/8 Third Quarter 25 3/16 19 3/4 Fourth Quarter 24 1/4 19 1/2 During 1998 and 1997, the Company declared quarterly dividends in an aggregate annual amount equal to $0.14 per share of Common Stock. See Note 2 to the Condensed Financial Statements of Trigen Energy Corporation (Parent Company) for a statement on amounts available for payment of dividends. Item 6. Selected Financial Data The following table sets forth selected consolidated financial data for the Company and should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the consolidated financial statements of the Company, including the notes thereto, appearing elsewhere in this Annual Report:
Years Ended December 31, ------------------------ 1998 1997 1996 1995 1994 ---- ---- ---- ---- ---- (In thousands, except per share data) Statement of Operations Data: Total revenues $242,394 $240,651 $243,634 $198,710 $185,627 Operating income 31,823 28,743 43,138 37,038 29,718 Interest expense 23,742 18,976 18,840 19,890 16,657 Earnings before extra- ordinary item 6,557 5,025 14,051 10,564 8,561 Extraordinary loss (a) (299) - (1,943) - - Net earnings 6,258 5,025 12,108 10,564 8,561 Basic earnings per common share Before extraordinary item .55 .42 1.21 .93 .89 Extraordinary loss (.03) - (.17) - - -------- -------- -------- -------- -------- Net earnings .52 .42 1.04 .93 .89 -------- -------- -------- -------- -------- Diluted earnings per common share Before extraordinary item .55 .41 1.20 .93 .89 Extraordinary loss (.03) - (.17) - - -------- -------- -------- ------- -------- Net earnings .52 .41 1.03 .93 .89 -------- -------- -------- -------- -------- Dividends per common share .14 .14 .14 .14 .07 -------- -------- -------- -------- -------- Balance Sheet Data (at year end): Working capital (deficit) (9,543) (2,095) (5,400) 282 9,801 Property, plant and equipment, net 442,755 388,448 371,584 341,188 311,418 Total assets 618,156 525,969 494,436 454,906 424,330 Long-term debt 343,685 256,361 226,487 223,371 220,725 Stockholders' equity 147,928 145,482 140,670 118,830 109,354 Other Operating Data: EBITDA $58,493 $45,164 $51,153 $50,260 $42,963 Operating margin 13.1% 11.9% 17.7% 18.6% 16.0% Ratio of earnings to fixed charges (b) 1. 1.2 1.4 2.1 1.8 1.8 Depreciation expense $19,780 $16,021 $7,595 $11,429 $10,948 Capital expenditures $42,910 $39,415 $47,641 $18,454 $22,920 Number of employees (at year end) 745 674 651 632 560 - -----------------
(a) The extraordinary losses in 1998 and 1996 result from the extinguishment of debt. See note 4 to the consolidated financial statements. (b) 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. Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations The following discussion should be read in conjunction with the consolidated financial statements of the Company, 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, 1998: 1998 1997 1996 ---------------- ------------- -------------- Revenue Revenue Revenue ------------- -------------- -------------- Amount % Units Amount % Units Amount % Units ------ - ----- ------ - ----- ------ - ----- (Dollars in millions, Units in thousands of megawatt hours) Thermal energy $182.4 75 5,940 $179.5 75 5,008 $187.7 77 5,400 Electric energy 42.7 18 785 49.0 20 950 44.7 18 860 Fees and other revenues 17.3 7 - 12.2 5 - 11.2 5 - Total $242.4 100 6,725 $240.7 100 5,958 $243.6 100 6,260 The following table shows the components of the Statement of Operations as a percent of total revenues for the three years ended December 31, 1998:
1998 1997 1996 ---- ---- ---- Total revenues 100.0% 100.0% 100.0% Fuel and consumables (39.6) (47.4) (48.6) Production and operating costs (22.2) (19.6) (18.0) Depreciation ( 8.2) ( 6.7) ( 3.1) General and administrative (16.9) (14.4) (12.6) ----- ----- ----- Operating income 13.1 11.9 17.7 Interest expense ( 9.8) ( 7.9) ( 7.7) Other income, net 2.3 1.0 .7 Minority interest in earnings of subsidiaries (1.0) (1.5) (1.1) ------ ------ ------ Earnings before income taxes and extraordinary item 4.6% 3.5% 9.6% ====== ====== =======
The Company's preferred rate structures for thermal energy include fixed and variable components. These rate structures are intended to cause revenues to match the Company's 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 the Company's cost of fuel. A significant portion of the Company's 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 the Company's preferred rate structures are not employed. The Company's strategy of converting old contracts to the Company's preferred rate structures, adding cooling, electricity, energy services and industrial process loads has reduced the concentration of revenues in cold months during 1998 and is expected to continue in the future. Results of Operations 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 compared with $.41 per common share last year. Included in net earnings for 1998 was an extraordinary loss of $.3 million, or $.03 per common share, from the early extinguishment of debt. Revenues of $242.4 million were higher than the $240.7 million in 1997. Operating income was $31.8 million 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 the Company is a 33% partner, commenced operations in January 1998 and produced $60.3 million in electrical revenues for the year. Grays Ferry replaced the Company's electric generation in Philadelphia and thus lowered reported revenues from electricity versus the prior year by approximately $3.2 million. The Company's 33% share of Grays Ferry 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 the Company's 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 $96.0 million in 1998, an $18.2 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 the Company's fossil fuel plants. The Company's rates typically enable it to pass changes in its 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 39.6% 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 $53.8 million, a 14.3% 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. Depreciation expense was $19.8 million in 1998, compared with $16.0 million in 1997. The increase is primarily attributable to the addition of Trigen- BioPower depreciation expense in 1998. General and administrative expenses increased $6.4 million to $41.0 million, an 18.4% 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 judgement 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 The Company's 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. Year ended December 31, 1997 compared with year ended December 31, 1996. Overview For the year ended December 31, 1997, net earnings were $5.0 million compared with $12.1 million in 1996 and diluted earnings per common share were $.41 compared with $1.03 per common share in 1996. Included in net earnings for 1996 was an extraordinary loss of $1.9 million, or $.17 per common share, from the extinguishment of debt. Revenues of $240.7 million were lower than the $243.6 million in 1996. Operating income was $28.7 million and the operating margin was 11.9% in 1997 compared with operating income of $43.1 million and an operating margin of 17.7% in 1996. Excluding a condemnation award of $6.4 million and a fee received on completion of a project financing of $1.9 million, operating income was $34.8 million and the operating margin was 14.3% in 1996. The unusually mild winter weather, especially compared with the severe winter of 1996, was a major factor for the lower levels of revenues and profits in 1997. Revenues Revenues of $240.7 million were lower than the $243.6 million in 1996. Thermal energy revenue declined $8.2 million or 4% in 1997 to $179.5 million. Units of thermal energy sold were down 7% as energy systems in Baltimore, Boston and Philadelphia were particularly affected by the milder weather. Contributing to the decline in thermal energy sales were lower fuel prices, which are passed on to customers. Electric energy sales were $49.0 million in 1997, an increase of $4.3 million or 10%. This improvement was due to increased volume. Units of electric energy sold increased by 90,000 megawatt hours or 10%. In 1997, the trigeneration plant in Nassau County, NY, was operational for approximately 800 additional hours. This facility in 1996 was taken off line by the local utility and for an unplanned outage. Fees earned and other revenue increased 8% in 1997 due to the expansion of the Trigen-Ewing Power operation, which was acquired in the first quarter of 1996, and to the sale of a natural gas pipeline. This increase was offset in part by costs incurred in connection with the establishment and marketing of new joint ventures with electric utilities to develop combined heat and power projects. Operating Expenses Fuels and consumables were $114.2 million in 1997 compared with $118.3 million last year. This $4.1 million decrease was due to the lower level of thermal energy revenues and to lower fuel prices. Offsetting in part the decline in fuels and consumables were increased running hours in 1997 for the Nassau plant. The Company's rates typically enable it to pass changes in its 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 48.6% of revenues in 1996 to 47.4% in 1997. 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. Production and operating costs increased 7% to $47.1 million compared with $44.0 million in 1996 and as a percent of revenues increased to 19.6% from 18.0%. The higher costs resulted from expansion of Trigen-Ewing Power, a pipeline rupture in St. Louis and higher pension expense. In addition, production and operating costs for 1996 were reduced by a $1.0 million arbitration award. Offsetting the 1997 increase in part was lower repair and maintenance costs. Depreciation expense was $16.0 million compared with $7.6 million in 1996. Included in 1996 depreciation expense was a $6.4 million gain resulting from a condemnation award. Excluding this gain, 1997 depreciation expense was higher by $2.0 million due to the high level of capital expenditures in 1997 and 1996. General and administrative expenses increased $4.0 million or 13% in 1997, mainly due to higher legal fees of $1.7 million and severance and reorganization expenses of $.7 million. Also contributing to the increase were higher costs incurred in connection with the Company's acquisition program. As a percent of revenues, general and administrative expenses were 14.4% in 1997 and 12.6% in 1996. Other income/(expense) Interest expense was $19.0 million in 1997 compared with $18.8 million in 1996. The reduction due to repaying high interest rate debt was more than offset by the higher level of debt in 1997. Other income, net was $.8 million higher in 1997 due mainly to a $.6 million gain on the sale of marketable securities. Income taxes The Company's effective tax rate is determined primarily by the federal statutory rate of 35%, and state and local income taxes. The effective tax rate was 41.0% in 1997 and 39.7% in 1996. Liquidity and Financial Position The Company ended 1998 with total debt of $375.1 million compared with $285.1 million at year-end 1997. Stockholders' equity increased to $147.9 million in 1998 from $145.5 million in 1997. Working capital was a negative $9.5 million compared with a negative $2.1 million at year-end 1997. At December 31, 1998 and 1997, cash and cash equivalents were $14.7 million and $13.7 million, respectively, of which $13.3 million and $9.7 million, respectively, was restricted as to use. See Note 6 of the Notes to Consolidated Financial Statements for information on the restrictions. The Company's principal sources of funds are proceeds from new borrowings and cash from operations. In 1998, $36.4 million was generated from operating activities compared with $23.3 million in 1997 and $27.6 million in 1996. The improvement was primarily due to cash generated by Trigen-BioPower. During 1998, the Company acquired Trigen-BioPower for $44.1 million, purchased an additional 48% interest in Trigen-Nations Energy Company Limited Partnership for $21.3 million, invested $42.9 million in capital expenditures, $6.4 million in partnership investments, paid dividends of $1.7 million to shareholders, $2.4 million to minority interests and purchased 129,989 shares of common stock for the treasury at a cost of $1.8 million. These expenditures were financed by cash generated from operating activities and by $85.7 million of net new borrowings. Total debt was $375.1 million at December 31, 1998, compared with $285.1 million at the end of 1997. The $90.0 million increase in debt reflects new net borrowings of $85.7 million and the inclusion of $4.3 million of Trigen- BioPower debt assumed in the acquisition. On April 4, 1997, the Company entered into a $160.0 million revolving credit agreement with several banks. This 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 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 Company amended the $160.0 million revolving 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. 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 borrowing 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 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, 1998, the Company had $67.8 million of borrowings available under its credit facilities for working capital and general corporate purposes. The Company's loan agreements contain various restrictions and conditions, with which the Company is in compliance. Certain loan 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 its credit facilities 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 12 of the Notes to Consolidated Financial Statements for information on long-term debt. During 1998, stockholders' equity increased $2.4 million to $147.9 million. This increase reflects $6.3 million of net earnings, $1.2 million from the issuance of common stock and $.7 million of amortization of unearned compensation related to restricted shares, partially offset by $1.7 million of dividend payments to shareholders, a $2.3 million cumulative translation adjustment and the purchase of 129,989 shares of common stock for the treasury at a cost of $1.8 million. Capital Expenditures Capital expenditures were $42.9 million in 1998 compared with $39.4 million in 1997 and $47.6 million in 1996, as the Company continues to invest in capital improvements to increase efficiency, reduce costs, pursue new opportunities, expand production and improve facilities. Capital expenditures during 1998 included construction of a district chilled water system in downtown Kansas City and a major overhaul of the gas and steam turbines at the Nassau plant. Environmental Expenditures The Company's facilities are subject to governmental requirements with respect to the discharge of materials and otherwise relating to protection of the environment. The Company spent approximately $3.9 million and $4.4 million in 1998 and 1997, respectively, to comply with these requirements and estimates that its expenditures for environmental compliance in 1999 through 2001 will be approximately $12.4 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, the Company 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, the Company purchased an additional 48% interest in Trigen-Nations Energy Company Limited Partnership from Nations Energy Corporation for $21.3 million. The acquisitions were funded from the Company's existing credit facilities. See Note 5 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. The Company will adopt SOP 98-5 effective January 1, 1999. The effect of the adoption will be an after-tax charge of $5.3 million which will be reported as a cumulative effect of a change in accounting principle in the first quarter 1999 Consolidated Statements of Operations. Based on preliminary analyses, the Company does not expect that the future adoption of Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities," will have a material effect on the Company's results of operations or financial condition. Year 2000 Date Conversion An issue affecting the Company and others is the inability of many computer systems and applications to process the year 2000 ("Y2K") and beyond. To address this problem, the Company has developed a plan that divides direction for Y2K preparedness into four responsibility areas. These areas are Plant Production, Plant Non-Production, Desktop Systems and Corporate Systems. Plant Production includes primary plant systems that produce steam, chilling and hot water, electricity and other forms of energy. A plan to upgrade all non-compliant software and hardware has been underway since 1996. We plan to test our Plant Production systems for Y2K compatibility in the Spring of 1999. If any Plant and Production systems fail these tests, we plan to take additional steps to make those systems Y2K compatible as soon as possible. We anticipate that all primary plant systems will be compliant by the third quarter of 1999. If we are not successful in these efforts, we may experience operational difficulties in serving our customers at some locations. Plant Non-Production includes Y2K issues related to telecommunications hardware, climate control systems, security systems, elevators, parking controls, and related systems. Generally, these systems achieve 100% compliance with minor hardware upgrades or chip replacements from original parts manufacturers. At this time, we believe that all of our material Plant Non- Production systems are Y2K compliant. The Company anticipates all Desktop systems to be compliant by September 1999 and Corporate Systems, which includes financial and billing systems, to be compliant by December 1999. At this time, we believe our accounting system is Y2K compliant. The Company is in the process of upgrading its billing and other systems to achieve compliance. If we are not successful in these efforts, we believe that it would not impact our ability to serve our customers, although we may experience administrative difficulties. The Company estimates the total external cost to achieve Y2K compliance to be $1 million for the years 1997 through 1999. The Company believes it is staffed sufficiently to address all Y2K issues. The Company purchases raw material from key vendors to produce energy. These vendors include major natural gas, electricity, and water utilities, fuel oil and chemical distributors and coal producers. The Company will continue to survey its key vendors to determine their Y2K compliance. At this time, the Company does not expect any material disruption in services from vendors due to Y2K issues. The Company is, however, dependent in part, upon the ability of its vendors to be Y2K compliant. The Company's Y2K efforts are ongoing and its overall plan, as well as consideration of contingency plans, will continue to evolve as new information becomes available. At this time, the Company does not expect any major interruption of its business activities due to Y2K issues. However, the Company is unable to estimate the ultimate effect Y2K risks will have on its operating results. Item 7A. Quantitative and Qualitative Disclosures about Market Risk. The Company does not engage in the trading of market risk sensitive instruments in the normal course of business. The Company's 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 11 and 12 to Consolidated Financial Statements, Short-Term Debt and Long-Term Debt, included in this Annual Report. Based upon the debt balances at December 31, 1998, a change in the LIBOR rate of .25% would have a corresponding change in interest expense of approximately $605,000 per year when three-month LIBOR is under 6.0% ranging to approximately $539,000 per year when three-month LIBOR is over 7.5%. Three-month LIBOR at December 31, 1998 was 5.08%. The Company uses 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. As of December 31, 1998, the Company had outstanding interest rate swap, cap and collar agreements related to $43.5 million of debt outstanding, with an average fixed interest rate of 5.8% and an average remaining life of 6 years. The cost to terminate the swap, cap and collar would be approximately $183,000 at December 31, 1998. 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 The principal accountant for the Company 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 the satisfaction of the Company. The change in principal accountant was not due to any matter regarding KPMG's accounting services. KPMG's report on the financial statements of the Company 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 will be presented to the shareholders of the Company for ratification at our annual meeting of shareholders, which will take place on May 19, 1999. PART III Item 10. Directors and Executive Officers of the Company Information concerning directors and executive officers of Trigen is hereby incorporated by reference from Trigen's definitive proxy statement which will be filed with the Commission within 120 days after the close of the fiscal year. Trigen's definitive proxy statement will be accompanied by this Annual Report when mailed to Shareholders. Item 11. Executive Compensation Information concerning executive compensation is hereby incorporated by reference from Trigen's definitive proxy statement which will be filed with the Commission within 120 days after the close of the fiscal year. Item 12. Security Ownership of Certain Beneficial Owners and Management Information concerning security ownership of certain beneficial owners and management is hereby incorporated by reference from Trigen's definitive proxy statement which will be filed with the Commission within 120 days after the close of the fiscal year. Item 13. Certain Relationships and Related Transactions Information concerning certain relationships and related transactions is hereby incorporated by reference from Trigen's definitive proxy statement which will be filed with the Commission within 120 days after the close of the fiscal year. 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 period ended December 31, 1998: Item 2. Acquisition of Assets and Item 7. Financial Statements and Exhibits, January 27, 1998 Item 4. Change in Registrant's Certifying Accountant and Item 5. Other Events, March 16, 1998 Item 4. Change in Registrant's Certifying Accountant, Amendment No. 1, March 19, 1998 Item 2. Acquisition of Assets and Item 7. Financial Statements and Exhibits, March 20, 1998 Item 4. Change in Registrant's Certifying Accountants, Amendment No. 2, March 31, 1998 Item 4. Change in Registrant's Certifying Accountant, Amendment No. 3, April 7, 1998 Item 4. Change in Registrant's Certifying Accountants, May 13, 1998 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, 1998 and 1997 F-4 Consolidated Statements of Operations for the Years Ended December 31, 1998, 1997 and 1996 F-5 Consolidated Statements of Cash Flows for the Years Ended December 31, 1998, 1997 and 1996 F-6 Consolidated Statements of Stockholders' Equity for the Years Ended December 31, 1998, 1997 and 1996 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, 1998 and 1997 and for the Years Ended December 31, 1998, 1997 and 1996 S-1 II Valuation and Qualifying Accounts for the Years Ended December 31, 1998, 1997 and 1996 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. REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Board of Directors of Trigen Energy Corporation: We have audited the accompanying consolidated balance sheet of Trigen Energy Corporation and subsidiaries as of December 31, 1998, and the related consolidated statement of operations, cash flows and stockholders' equity for the year 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 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 financial position of Trigen Energy Corporation and subsidiaries as of December 31, 1998, and the results of its operations and its cash flows for the year then ended, in conformity with generally accepted accounting principles. Our audit was made for the purpose of forming an opinion on the basic financial statements taken as 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, 1998 and for the year then ended, have been subjected to the auditing procedures applied in the 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 8, 1999 INDEPENDENT AUDITORS' REPORT The Board of Directors Trigen Energy Corporation: We have audited the accompanying consolidated balance sheet of Trigen Energy Corporation and subsidiaries as of December 31, 1997, and the related consolidated statement of operations, stockholders' equity and cash flows for each of the years in the two-year period ended December 31, 1997. In connection with our audits of the consolidated financial statements, we also have audited the information in the financial statement schedules as listed in the accompanying index as of December 31, 1997 and for each of the years in the two- year period 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 audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Trigen Energy Corporation and subsidiaries as of December 31, 1997, and the results of their operations and their cash flows for each of the years in the two-year period ended December 31, 1997, in conformity with generally accepted accounting principles. Also in our opinion, the related financial statement schedules, as of and for the periods described above, 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
TRIGEN ENERGY CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS As of December 31, 1998 and 1997 (In thousands, except share data) 1998 1997 ---- -- -- ASSETS Current assets: Cash and cash equivalents $ 10,074 $ 8,967 Accounts receivable Trade (less allowance for doubtful accounts of $1,187 in 1998 and $1,074 in 1997) 35,236 34,866 Other 5,686 10,815 -------- ------ Total accounts receivable 40,922 45,681 Inventories 7,074 7,054 Prepaid expenses and other current assets 8,016 7,985 -------- ------ Total current assets 66,086 69,687 Restricted cash and cash equivalents 4,623 4,726 Property, plant and equipment, net 442,755 388,448 Investment in non-consolidated partnerships 30,319 19,560 Intangible assets, net 49,968 21,454 Deferred costs and other assets, net 24,405 22,094 -------- ------ Total assets $618,156 $525,969 ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Short-term debt $ 15,000 $14,200 Current portion of long-term debt 16,398 14,499 Accounts payable 4,756 10,053 Accrued income taxes 5,728 3,933 Accrued fuel 14,121 11,545 Accrued expenses and other current liabilities 19,626 17,552 -------- ------ Total current liabilities 75,629 71,782 Long-term debt 343,685 256,361 Other liabilities 4,254 4,786 Deferred income taxes 39,422 31,237 -------- ------ Total liabilities 462,990 364,166 Minority interests in subsidiaries 7,238 16,321 Stockholders' equity: Preferred stock-$.01 par value, authorized and unissued 15,000,000 shares - - Common stock-$.01 par value, authorized 60,000,000 shares, issued and outstanding 12,417,934 shares in 1998 and 12,070,162 shares in 1997 124 121 Additional paid-in capital 120,595 114,157 Retained earnings 36,417 31,881 Unearned compensation - restricted stock (4,967) - Cumulative translation adjustment (2,002) 296 Treasury stock, at cost, 145,842 shares in 1998 and 45,500 shares in 1997 (2,239) (973) --------- ------- Total stockholders' equity 147,928 145,482 --------- ------- Total liabilities and stockholders' equity $618,156 $525,969 --------- -------- See accompanying notes to consolidated financial statements.
TRIGEN ENERGY CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS For the Years Ended December 31, 1998, 1997 and 1996 (In thousands, except per share data) 1998 1997 1996 ---- ---- ---- Revenues Thermal energy $182,432 $179,527 $187,740 Electric energy 42,667 48,997 44,663 Equity in earnings/(losses) of non- consolidated partnerships 4,475 (1,401) 322 Fees earned and other revenues 12,820 13,528 10,909 -------- -------- -------- Total revenues 242,394 240,651 243,634 Operating expenses Fuel and consumables 95,957 114,168 118,304 Production and operating costs 53,840 47,086 43,959 Depreciation 19,780 16,021 7,595 General and administrative 40,994 34,633 30,638 -------- -------- -------- Total operating expenses 210,571 211,908 200,496 -------- --------- -------- Operating income 31,823 28,743 43,138 Other income (expense) Interest expense (23,742) (18,976) (18,840) Other income, net 5,570 2,448 1,603 -------- --------- -------- Earnings before minority interests, income taxes and extraordinary item 13,651 12,215 25,901 Minority interests in earnings of subsidiaries.. (2,519) (3,699) (2,598) -------- --------- -------- Earnings before income taxes and extraordinary item 11,132 8,516 23,303 Income taxes 4,575 3,491 9,252 -------- --------- -------- Earnings before extraordinary item 6,557 5,025 14,051 Extraordinary loss from extinguishment of debt, net of income tax benefit (299) - (1,943) -------- --------- -------- Net earnings $ 6,258 $ 5,025 $ 12,108 -------- --------- -------- Basic earnings per common share Before extraordinary item $ .55 $ .42 $ 1.21 Extraordinary loss (.03) - (.17) -------- -------- -------- Net earnings $ .52 $ .42 $ 1.04 -------- --------- -------- Diluted earnings per common share Before extraordinary item $ .55 $ .41 $ 1.20 Extraordinary loss (.03) - (.17) -------- --------- --------- Net earnings $ .52 $ .41 $ 1.03 -------- --------- -------- Average common shares outstanding 12,007 12,011 11,612 -------- --------- -------- Average common and common equivalent shares outstanding 12,009 12,130 11,694 -------- --------- -------- Dividends per common share $ .14 $ .14 $ .14 -------- --------- --------
See accompanying notes to consolidated financial statements.
TRIGEN ENERGY CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS For the Years Ended December 31, 1998, 1997 and 1996 (In thousands) 1998 1997 1996 ---- ---- ---- Cash flows from operating activities Net earnings $6,258 $5,025 $12,108 Reconciliation of net earnings to cash provided by operating activities Extraordinary item 299 - 1,943 Depreciation and amortization 25,224 19,504 10,333 Deferred income taxes 1,824 863 4,871 Provision for doubtful accounts 317 331 664 Gain on sale of marketable securities - ( 612) - Minority interests in subsidiaries 2,519 3,699 2,598 Changes in assets and liabilities, net of effects of acquisitions Accounts receivable 4,447 ( 7,097) (984) Inventories and other current assets 1,451 (422) (1,613) Accounts payable and other current liabilities ( 1,285) 1,866 1,848 Noncurrent assets and liabilities ( 4,659) 173 (4,149) -------- -------- -------- Net cash provided by operating activities 36,395 23,330 27,619 -------- -------- -------- Cash flows from investing activities Acquisition of energy facilities (67,901) - - Capital expenditures (42,910) (39,415) (47,641) Purchase of a fuel management agreement and related inventory - ( 8,871) - Proceeds on sale of property, plant and equipment 737 3,000 - Investment in non-consolidated partnerships (6,417) (12,294) (1,911) Purchase of marketable securities - ( 4,139) - Sale of marketable securities - 4,751 - Proceeds of condemnation award, net - - 6,821 -------- -------- -------- Net cash used in investing activities (116,491) (56,968) (42,731) --------- -------- -------- Cash flows from financing activities Short-term debt, net 800 ( 4,300) 4,335 Proceeds from long-term debt 122,510 77,253 42,384 Payments of long-term debt (37,576) (46,379) (28,934) Sale of interest rate caps - - 1,003 Dividends paid ( 1,722) ( 1,682) ( 1,640) Issuance of common stock, net ( 562) 1,309 5,949 Distribution to minority interests 2,350) (4,146) (2,884) -------- -------- -------- Net cash provided by financing activities 81,100 22,055 20,213 -------- -------- -------- Cash and cash equivalents Increase/(decrease) 1,004 (11,583) 5,101 At beginning of period 13,693 25,276 20,175 -------- -------- -------- At end of period $14,697 $13,693 $25,276 -------- -------- -------- Current $10,074 $ 8,967 $14,598 Noncurrent 4,623 4,726 10,678 -------- -------- -------- At end of period $14,697 $13,693 $25,276 -------- -------- -------- Supplemental disclosure of cash flow information Non-cash investing activity Acquisition of subsidiary - - $ 1,037 ------- ------- -------- Non-cash financing activity Issuance of common stock for acquisition of subsidiary - - $ 1,037 ------- ------- -------- Issuance of common stock for extinguishment of long-term debt - - $ 4,250 ------- ------- -------- See accompanying notes to consolidated financial statements.
TRIGEN ENERGY CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY For the Years Ended December 31, 1998, 1997 and 1996 (In thousands, except share data) Additional Common Stock Paid-In Retained Shares Amount Capital Earnings Balance, December 31, 1995 11,416,418 $114 $100,788 $18,070 Issuance of common stock 594,179 6 12,048 - Repurchase of common stock - - - - Dividends - - - (1,640) Comprehensive income: Net earnings - - - 12,108 Cumulative translation adj. - - - - Total comprehensive income - - - - ---------- ----- ------- ----- - --- Balance, December 31, 1996 12,010,597 120 112,836 28,538 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. - - - - -Total comprehensive income - - - - ---------- ------ -------- ------ Balance, December 31, 1997 12,070,162 121 114,157 31,881 Issuance of common stock 347,772 3 6,409 - Repurchase of common stock - - - - Dividends - - 29 ( 1,722) Amortization of unearned compensation - - - - Comprehensive income: Net earnings - - - 6,258 Cumulative translation adj. - - - - Total comprehensive income - - - - ---------- ---- -------- ----- - -- Balance, December 31, 1998 12,417,934 $124 $120,595 $36,417 ========== ==== ======== ======= Unearned Compensation Cumulative -Restricted Translation Treasury Stock Stock Adjustment Shares Amount Total ------------ ---------- -------- ----- ----- Balance, December 31, 1995 $ - $ - 7,268 $(142) $118,830 Issuance of common stock - - - - 12,054 Repurchase of common stock - - 38,872 (818) (818) Dividends - - - - (1,640) Comprehensive income: Net earnings - - - - Cumulative translation adj. - 136 - - - Total comprehensive income - - - - 12,244 ----------- ----------- ----- ------------- Balance, December 31, 1996 - 136 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. - 160 - - - Total comprehensive income - - - - 5,185 ------- ------- ------ ----- ----- Balance, December 31, 1997 - 296 45,500 (973) 145,482 Issuance of common stock (5,707) - (29,647) 476 1,181 Repurchase of common stock - - 129,989 (1,742)(1,742) Dividends (29) - - - (1,722) Amortization of unearned compensation 769 - - - 769 Comprehensive income: Net earnings - - - - Cumulative translation adj. - (2,298) - - Total comprehensive income - - - - 3,960 -------- --------- --------- ------- ----- - --- Balance, December 31, 1998 $(4,967) $(2,002) 145,842 $(2,239) $147,928 ======= ======= ======= ======== ========= See accompanying notes to consolidated financial statements.
TRIGEN ENERGY CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. Organization Trigen Energy Corporation (the "Parent Company", and together with its subsidiaries, the "Company") develops, owns and operates commercial and industrial energy systems in the United States and Canada. The Company uses its expertise in thermal engineering and proprietary cogeneration processes to convert fuel to various forms of thermal energy and electricity. The Company combines heat and power generation, producing electricity as a by-product, for use in its facilities and for sale to customers. At December 31, 1998, the Company operated 41 plants at 27 locations. Suez Lyonnaise Des Eaux, a French corporation, through its energy services affiliate Elyo, a French corporation, owns 52.8% of the Company's common stock. Elyo and the Company have entered into a licensing agreement to provide technical assistance to the Company 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. The Company has established joint ventures with electric utilities to develop and operate combined heat and power plants. The Company's 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 the Company's 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 133"). SFAS No. 133 establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities. Based on preliminary analyses, the Company does not expect 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. The Company will adopt SOP 98-5 effective January 1, 1999. The effect of the adoption will be an after-tax charge of $5.3 million which will be reported as a cumulative effect of a change in accounting principle in the first quarter 1999 Consolidated Statements of Operations. In January 1998, the Company adopted SFAS No. 130 "Reporting Comprehensive Income." The statement establishes standards for reporting and display of comprehensive income and its components in a full set of general purpose financial statements. In December 1997, the Company adopted SFAS No. 128, "Earnings Per Share," which requires dual presentation of basic and diluted earnings per common share in the Consolidated Statements of Operations and a reconciliation of earnings and shares between the basic and diluted computations. Long term assets are reviewed for impairment following the provisions of SFAS No. 121 "Accounting for the Impairment of Long-Lived Assets and for Long- Lived Assets to be Disposed Of." 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 1998 presentation. 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 are two customers whose revenues were more than 10% of total Company revenues. Revenues for one customer were 12%, 13% and 12% of total Company revenues in 1998, 1997 and 1996, respectively. The other customer accounted for 11%, 13% and 12% of total revenues in 1998, 1997 and 1996, respectively. These two customers accounted for 21% of the total trade receivable balance at December 31, 1998. 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 the Company's 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 the Company's 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 Cost and Other Assets Included in deferred costs and other assets are capitalized costs associated with debt financing, development projects and other non-current assets. Financing costs are capitalized and amortized over the debt term using methods that approximate the interest method. Costs incurred in developing energy generation facilities after the execution of binding contracts are accumulated by project and included in the acquisition cost or as construction in process for that project. 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. The Company continuously assesses 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 the Company's 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 The Company uses 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 The Company uses 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 two years ended December 31, 1998 (in thousands, except per share data). 1998 1997 ---- ---- Basic Diluted Basic Diluted ----- ------- ----- ------- Earnings before extraordinary item $6,557 $6,557 $5,025 $5,025 ------ ------ ------ ------ Average equivalent shares Common shares outstanding 12,007 12,007 12,011 12,011 Stock options - 2 - 119 -------- -------- -------- ------- Average equivalent shares 12,007 12,009 12,011 12,130 Earnings per common share $ .55 $ .55 $ .42 $ .41 ====== ====== ====== ====== Certain stock options are not considered in the above computations due to the fact that they would be anti-dilutive. 3. Supplementary Income Information Included in other income, net for the year ended December 31, 1998, were pre-tax gains of $2,102,000 from the sale of nitrogen oxide emission allowances and $1,678,000 from an insurance settlement. 4. Extraordinary Item The Company incurred extraordinary charges of $299,000, net of a tax benefit of $161,000,in 1998 and $1,943,000, net of a $1,046,000 tax benefit, in 1996 in connection with the early retirement of debt. 5. Acquisitions On January 22, 1998, the Company 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 $44,100,000, funded from the Company's existing credit facility. Trigen-BioPower had revenues of $18,967,000 and net earnings of $2,441,000 for the twelve-month period ended December 31, 1997. Results for Trigen-BioPower are included with those of the Company 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 $10,398,000 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 and the year ended December 31, 1997 as if the acquisition had occurred at the beginning of the years presented (in thousands, except per share data): 1998 1997 ---- ---- Revenues $243,531 $259,618 Earnings before extraordinary item 6,627 5,325 Diluted earnings per common share - Before extraordinary item $ .55 $ .44 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 years presented, or of results which may occur in the future. On September 23, 1998, the Company purchased for $21,250,000 an additional 48% interest in the Trigen-Nations Energy Company Limited Partnership from Nations Energy Corporation. This limited partnership owns the energy production assets in service to Coors Brewing Company in Golden, Colorado. The excess of purchase price over the net assets purchased was $9,547,000 and is being amortized over a period not exceeding 32 years. This purchase increases the Company's investment in Trigen-Nations Energy Company from 51% to 99%. 6. Restricted Funds Under the terms of the Company's 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, 1998 and 1997 were (in thousands): 1998 1997 ---- ---- Current Non-Current Current Non-Current ------- ----------- ------- ----------- Restricted $ 8,699 $4,623 $5,006 $ 4,726 Unrestricted 1,375 - 3,961 - -------- ---------- ------- ------- Cash and cash equivalents $ 10,074 $4,623 $8,967 $ 4,726 ======= ======= ====== ======= 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. 7. Inventories Inventories at December 31, 1998 and 1997 were (in thousands): 1998 1997 ------ ------ Fuel $2,200 $2,055 Operating supplies and spare parts 4,874 4,999 ------- ------ Total $7,074 $7,054 ====== ====== At December 31, 1998, the Company 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 $14.0 million based on current spot prices. These contracts expire at varying dates from August 1999 through September 2000. The Company has fuel cost pass-through clauses in its rates with customers for all of these commitments. 8. Property, Plant and Equipment Property, plant and equipment at December 31, 1998 and 1997 was (in thousands): Estimated Useful Lives (Years) 1998 1997 ---- ---- Land - $ 10,418 $ 10,418 Plant, machinery and equipment 15-35 454,854 392,643 Buildings 40 41,556 34,607 Furniture, fixtures and leasehold improvements 3-5 9,225 7,611 Construction in process - 22,147 20,421 --------- --------- 538,200 465,700 Less: Accumulated depreciation (95,445) (77,252) --------- -------- $442,755 $388,448 ========= ======== Substantially all of the Company's assets are pledged as collateral under the Company's debt agreements (Note 12). 9. Intangible Assets Intangible assets at December 31, 1998 and 1997 were (in thousands): 1998 1997 ---- ---- Costs in excess of net assets acquired $25,545 $ 5,599 Non-compete agreements 21,667 10,000 Fuel management agreement 8,500 8,500 Organization costs 3,333 3,496 ------- -------- 59,045 27,595 Less: Accumulated amortization (9,077) (6,141) ------- -------- $49,968 $21,454 ======= ======== Amortization expense for the years ended December 31, 1998, 1997 and 1996 was $2,936,000, $1,651,000, and $1,415,000, respectively. 10. Deferred Costs and Other Assets Deferred costs and other assets at December 31, 1998 and 1997 were (in thousands): 1998 1997 ------- ------- Deferred financing costs $17,890 $18,066 Less: Accumulated amortization (9,434) (7,928) ------- ------- 8,456 10,138 Project development costs 6,443 1,855 Non-current receivables 4,619 3,480 Non-current inventories 2,162 2,038 Other 2,725 4,583 ------- ------- $24,405 $22,094 ======= ======= Amortization expense for the years ended December 31, 1998, 1997 and 1996 was $1,605,000, $1,830,000 and $1,323,000, respectively. 11. 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, 1999, and, upon approval of the lender, for additional one year periods thereafter. The UTC Revolver is secured pro rata with the UTC Term Loan (Note 12). 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 balances outstanding under this facility at December 31, 1998 and 1997 were $15 million and $14.2 million, respectively, and the average rates on these borrowings were 6.5% in 1998 and 6.6% in 1997. The effective rate at December 31, 1998 was 6.3%. 12. Long-term Debt Long-term debt outstanding at December 31, 1998 and 1997 was (in thousands): 1998 1997 ---- ---- 1997 credit facility (a) $128,000 $74,500 UTC term loan (b) 50,441 58,441 Nassau term loan (c) 41,664 44,939 Nassau bonds (c) 14,350 14,350 Trenton bonds (d) 34,625 35,995 Oklahoma term loan (e) 16,311 17,579 Oklahoma bonds (e) 4,920 4,920 Trigen Energy Canada term loan (f) 18,272 20,136 Trigen-BioPower credit facility (g) 1,500 - Subordinated debt (h) 50,000 - -------- ------- 360,083 270,860 Less: Current portion included above (16,398) (14,499) -------- ------- $343,685 $256,361 ========= ======== (a) On April 4, 1997, the 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 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 Company amended the $160.0 million credit agreement by reduc- ing 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 6.2% in 1998 and the rate at December 31, 1998 was 6.3%. (b) The UTC term loan and the UTC Revolver (Note 11) (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. Interest on the UTC term loan is at variable rates based on LIBOR. The average effective rate was 7.8% in 1998, 7.3% in 1997 and 7.6% in 1996. The rate at December 31, 1998 was 7.2%. UTC has purchased interest rate protection agreements (Note 13). 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 6.8% in 1998, 6.7% in 1997 and 6.8% in 1996. At December 31, 1998, the effective rate was 6.5%. 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 3.78% in 1998. 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 7.0% in 1998, 7.1% in 1997 and 6.9% in 1996. The rate at December 31, 1998, was 6.5%. 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 1998 based on Canadian bankers' acceptances. The average effective rate was 5.39% in 1998, 4.6% in 1997 and 4.7% in 1996. At December 31, 1997, Trigen- Canada entered into an interest rate swap agreement fixing the rate on the outstanding principal amount (Note 13). The rate at December 31, 1998 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) The 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. (h) 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%. The Company's debt agreements limit or restrict cash payments, the payment of dividends, capital expenditures, incurrence of new debt and transactions with affiliates. At December 31, 1998, the Company was in compliance with all covenants contained in its debt agreements (See Note 21 for default information related to Grays Ferry Cogeneration Partnership). Maturities of long-term debt for the next five years are as follows (in thousands): 1999 $16,399 2000 17,307 2001 18,449 2002 20,002 2003 165,706 Based upon the debt balances at December 31, 1998, a change in the LIBOR rate of .25% would have a corresponding change in interest expense of approximately $605,000 per year when three-month LIBOR is under 6.0% ranging to approximately $539,000 per year when three-month LIBOR is over 7.5%. Three-month LIBOR at December 31, 1998 was 5.08%. Cash paid for interest was $21.0 million, $17.3 million and $17.5 million in 1998, 1997 and 1996, respectively. 13. Financial Instruments The estimated fair value of long term debt approximates carrying value at December 31, 1998. The fair value of receivables, payables and short-term debt approximates carrying value at December 31, 1998 due to the short-term maturity of these instruments. As of December 31, 1998, the Company had outstanding interest rate swap, cap and collar agreements related to $43.5 million of debt outstanding, with an average fixed interest rate of 5.8% and an average remaining life of 6 years. The fair value of the swap, cap and collar agreements was a payable of $183,000. In addition to the letters of credit issued with respect to the Nassau and Oklahoma bonds (Note 12), the Company had outstanding a contingent liability for letters of credit of $5.8 million at December 31, 1998. 14. Leases The Company has entered into various leasing arrangements for office space, land and equipment. These arrangements are accounted for as operating leases. Future minimum rental payments under operating leases with remaining non- cancelable terms in excess of one year at December 31, 1998 are (in thousands): 1999 $ 3,232 2000 3,319 2001 2,905 2002 2,533 2003 2,425 Thereafter 18,059 Total minimum payments $32,473 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 $912,000 and the total remaining commitments at December 31, 1998 are estimated to be $28.4 million. Rental expense was $4,201,000 in 1998, $3,653,000 in 1997 and $2,932,000 in 1996. 15. Stock Options The Company's 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, the Company 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 1998, 1997 and 1996 is summarized as follows: Number of Average Shares Exercise Price --------- -------------- Outstanding December 31, 1995 567,300 $16.54 Granted 67,200 20.05 Exercised (38,500) 16.05 Canceled (31,940) 16.95 --------- Balance 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 ------- The following summarizes information about stock options outstanding at December 31, 1998. Outstanding Exercisable ---------------- ------------ Range of Average Average Average Exercise Prices Options Life (a) Exercise Price Options Exercise Price - --------------- ------- ------- -------------- ------- -------------- $11.88 - $19.75 735,210 8.1 $16.40 370,788 $15.79 20.00 - 24.00 54,200 7.4 21.55 39,380 21.46 24.25 - 27.75 19,500 8.4 25.43 7,400 26.11 ------- --- ------ ------- ----- Total 808,910 8.0 $18.89 417,568 $16.50 ------- --- ------ ------- ------ _________ (a) Average contractual life remaining in years. The Company applies APB 25 in accounting for its stock option plan. Accordingly, compensation expense would be recorded on the date of grant only if the current market price of the Company's 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 FAS No. 123, net earnings would have decreased by $557,102 ($.05 per common share) and $341,000 ($.03 per common share) in 1998 and 1997, 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 5.3% and 6.2% for 1998 and 1997, respectively; annual dividend yields of 1.22% and .7% for 1998 and 1997, respectively; expected option life of 8 years for 1998 and 8.4 years for 1997; and volatility of 37% and 31% for 1998 and 1997, respectively. The weighted average fair value of an option granted during 1998 and 1997 was $6.33 and $10.15 per share, respectively. In connection with the employee stock purchase plan, the Company allocated 200,000 shares of common stock for purchases pursuant to such plan. Stock purchased in 1998, 1997 and 1996 pursuant to the employee stock purchase plan was 46,050, 32,028 and 28,325 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 The Company 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 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 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 1998, the Company granted 330,575 restricted shares to certain employees. Deferred compensation based on the market price of the stock on the date of the grants totaling $6,333,000 was recorded in 1998. 34,800 restricted shares were canceled in 1998 due to employees leaving the Company, resulting in a reduction in unearned compensation of $692,000. The Company is amortizing this unearned compensation into earnings over a vesting period of eight years. 16. Retirement Plans The Company sponsors a 401(k) Plan which allows participants to make contributions pursuant to Section 401(k) of the Internal Revenue Code. The Company matches employee contributions in varying percentages according to a schedule up to an annual maximum Company contribution of approximately $1,290 per employee. Employees vest immediately in both employee and Company contributions. Company contributions to the 401(k) Plan were $1,003,000 (including the cost of 21,576 shares of Company common stock), $1,099,000 (including the cost of 23,902 shares of Company common stock), and $1,375,000 (including the cost of 27,460 shares of Company common stock) in 1998, 1997 and 1996, respectively. Effective January 1, 1995, the 401(k) Plan was open to all Company 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 $39,000, $316,000 and $122,000 in 1998, 1997 and 1996, respectively. The Company's net obligation under the plan at December 31, 1998 was not significant. 17. Income Taxes The provision for income taxes was (in thousands): 1998 1997 ---- ---- Current Deferred Total Current Deferred Total ------- -------- ----- ------- -------- ----- State/Local $1,147 $ 106 $1,253 $ 738 $ 45 $ 783 U.S. Federal & foreign 1,604 1,718 3,322 1,890 818 2,708 ------ ------ ------ ------ ----- ------ Total $2,751 $1,824 $4,575 $2,628 $863 $3,491 ====== ====== ====== ====== ==== ====== 1996 ---- Current Deferred Total ------- -------- ----- State/Local $1,081 $ 492 $1,573 U.S. Federal & foreign 3,300 4,379 7,679 ------ ------ ------ Total $4,381 $4,871 $9,252 ====== ====== ====== The tax effects of temporary differences that give rise to deferred tax liabilities and assets at December 31, 1998 and 1997 are (in thousands): 1998 1997 ---- ---- Deferred income tax liabilities Property, plant and equipment $45,019 $35,193 ------- ------- Deferred income tax assets AMT credit carryforwards 4,779 3,744 Tax loss carryforwards 1,202 874 Environmental costs 832 832 Revenue and receivable allowances 23 1,502 Other, net 2,626 1,830 ------- ------- Gross deferred income tax assets 9,462 8,782 Valuation allowances (443) (409) ------- ------- Net deferred income tax assets 9,019 8,373 ------- ------- Net deferred income tax liability $36,000 $26,820 ======= ======= Net current deferred income tax assets of $3,422,000 and $4,417,000 at December 31, 1998 and 1997, respectively are included in prepaid expenses and other current assets, net in the Consolidated Balance Sheet. At December 31, 1998, a loss carryforward of $975,000 was available through 2009 to offset U.S. taxable income. In addition, at December 31, 1998, a loss carryforward of $2,857,000 was available to offset Canadian taxable income expiring $139,000 in 1999, $366,000 in 2000, $128,000 in 2001, $618,000 in 2003, $857,000 in 2004 and $749,000 in 2005. At December 31, 1998, an alternative minimum tax credit carryforward of $4,779,000 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, local and Canadian jurisdictions that may expire before being used. Management believes that it is more than likely that the Company 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. A reconciliation of tax at the U.S. statutory rate to income taxes follows: 1998 1997 1996 ---- ---- ---- Tax at U.S. statutory rate 35.0% 35.0% 35.0% State/local income taxes, net of Federal benefit 7.6 6.2 5.7 Taxes related to foreign operations (1.1) (1.3) (.1) (Increase)/decrease in valuation allowances .3 1.6 (3.6) Other items, net (.7) (.5) 2.7 ----- ----- ----- Income taxes 41.1% 41.0% 39.7% ===== ===== ===== The Company made income tax payments of $2,164,000, $2,213,000 and $2,267,000 in 1998, 1997 and 1996, 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 $666,000, $799,000 and $810,000 in 1998, 1997 and 1996, respectively. 18. Equity Investment in Grays Ferry Cogeneration Partnership As of December 31, 1998, the Company has an investment of $17.1 million in the Grays Ferry Cogeneration Partnership (the Partnership"), representing a one- third interest in the Partnership through the Company's wholly owned subsidiary Trigen-Schuylkill Cogeneration, which is accounted for under the equity method. Cogen America Schuylkill Inc. and Adwin Cogeneration Inc. own the other two- thirds interests in the Partnership. The Company derives a significant portion of its income from the Partnership. Included in the Company's revenues for the year ended December 31, 1998 was the Company's share of the Partnership earnings of $5.1 million and fees earned from the Partnership of $2.8 million. The summarized financial information presented below as of December 31, 1998 represents an aggregation of 100% of the Partnership (in thousands). 1998 ---- Condensed Income Statement Information: Revenues $78,126 Gross profit 31,450 Net income 15,295 Condensed Balance Sheet Information: Current assets 33,393 Non-current assets 150,771 Current liabilities 133,427 Partners capital 50,737
19. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED) For the Quarter(a) ------------------- March 31 June 30 Sept. 30 Dec. 31 -------- -------- --------- -------- (In thousands, except per share data) 1998 Revenues $74,912 $50,794 $50,839 $65,849 Operating income 15,806 2,272 3,201 10,544 Earnings (losses) before extra- ordinary item 5,448 (13) (1,888) 3,010 Extraordinary loss (b) (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 ------- -------- -------- -------- 1996 Revenues $86,219 $48,685 $41,646 $67,084 Operating income 21,941 4,715 2,651 13,831 Earnings (losses) before extra- ordinary item 10,076 (240) (1,210) 5,425 Extraordinary loss (b) - - (1,943) - ------- -------- -------- -------- Net earnings (losses) 10,076 (240) (3,153) 5,425 Basic earnings per common share Before extraordinary item .88 (.02) (.10) .45 Extraordinary loss - - (.17) - ------- -------- -------- -------- Net earnings (losses) .88 (.02) (.27) .45 ------- -------- -------- -------- Diluted earnings per common share Before extraordinary item .87 (.02) (.10) .45 Extraordinary loss - - (.17) - ------- -------- -------- -------- Net earnings (losses) .87 (.02) (.27) .45 ------- -------- -------- --------
________ (a) As of January 1, 1998, the Company changed its accounting policy for interim reporting for certain operating costs from an average costing method to an actual costing method. The Company believes that use of an actual costing methodology better reflects the results of its 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, 1998 and 1997 or on any prior years. The amounts presented above have been restated to reflect this change in accounting policy. (b) Represents extraordinary losses of $299,000, net of a $161,000 tax benefit, incurred in 1998 and $1,943,000, net of a $1,046,000 tax benefit, incurred in 1996 in connection with the early retirement of debt. 20. Contingencies The Company is subject from time to time to legal proceedings and other claims that arise in the normal course of business, and the Company believes, except as set forth in Note 21, that the outcome of these matters will not have a material adverse effect on the results of operations or financial condition of the Company. 21. 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 over $30 million in damages from the local utility, Oklahoma Gas and Electric Company ("OG&E"), based on many years of alleged anti-competitive actions against Trigen-Oklahoma City Energy Corporation by OG&E. These actions culminated in criminal indictments being brought against two OG&E officials for allegedly bribing Oklahoma elected officials to breach a Trigen-Oklahoma City Energy Corporation contract. Trigen- Oklahoma City's antitrust action matter 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 judgement in favor of Trigen in the amount of $27.8 million. Under the anti-trust laws, we are permitted to seek an award of treble damages and legal fees and that issue is under consideration by the Court. We expect OG&E to appeal this judgement. Kinetic Energy Litigation On May 2, 1997, following a jury trial in a suit by Kinetic Energy Development Corporation against the Company in the Circuit Court of Jackson County, Missouri, in connection with our acquisition of the Kansas City steam system, a judgment was entered against the Company in the amount of $4,271,000. 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 the Company. 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. If the Court of Appeals upholds its decision, we plan to seek a review of that decision by the Missouri Supreme Court. If our efforts to reinstate the judgment in our favor fail, the case will return to the Circuit Court and a new trial will be scheduled. Grays Ferry Litigation On April 9, 1998, Grays Ferry Cogeneration Partnership, Trigen-Schuylkill Cogeneration, Inc., Cogen America Schuylkill Inc. (formerly NRGG Schuylkill Cogeneration Inc.) and Trigen-Philadelphia Energy Corporation commenced an action against PECO Energy Company ("PECO") and Adwin (Schuylkill) Cogeneration, Inc. in the Pennsylvania Court of Common Pleas of Philadelphia County (the "Court"). Grays Ferry Cogeneration Partnership (the "Partnership") is the owner of the Grays Ferry Cogeneration Facility located in Philadelphia, Pennsylvania. At December 31, 1998, the Company had an investment of $17.1 million in the Partnership, representing a one third interest in the Partnership through our wholly owned subsidiary, Trigen-Schuylkill Cogeneration, Inc. Cogen America Schuylkill Inc. and Adwin (Schuylkill) Cogeneration, Inc. own the other two- thirds interests in the Partnership. Adwin (Schuylkill) Cogeneration, Inc. is an indirect wholly owned subsidiary of PECO. In addition, at December 31, 1998, the Company had a receivable of $3.2 million due from the Partnership. Included in the Company's revenues for the year ended December 31, 1998 was the Company's share of Partnership earnings of $5.1 million and fees earned from the Partnership of $2.8 million. The Partnership commenced this action in reaction to the wrongful termination by PECO on March 3, 1998, of the electric power purchase agreement between the Partnership and PECO (the "Power Purchase Agreement"). The Partnership is seeking a declaratory judgement to require PECO to comply with the electric power purchase agreement and for damages to be proven at trial in an amount in excess of $200 million. On May 6, 1998, the Court issued a preliminary injunction against PECO which requires PECO to pay the Partnership for its electric energy and capacity at the rates set forth in the Power Purchase Agreement and otherwise to specifically perform in accordance with the Power Purchase Agreement. The preliminary injunction will remain in effect until the Court renders its decision after the final hearing of this matter. On July 7, 1998, PECO withdrew its appeal of the preliminary injunction. On March 10, 1999, the Court granted partial summary judgement to the Partnership before trial and held that PECO breached the Power Purchase Agreement. The Partnerships' other claims against PECO and its request for damages are scheduled to go to trial on March 29, 1999. The Chase Manhattan Bank has issued notices of default to the Partnership under the terms of the Credit Agreement, dated as of March 1, 1996, between the Partnership, The Chase Manhattan Bank, as agent, and certain other commercial banks (collectively the "Banks"). Only the Partnership assets and the partners' ownership interests in the Partnership secure the Partnership's debt under the Credit Agreement of $109.3 million. The Banks have not accelerated the debt owing under the Credit Agreement nor charged default interest charges against the Partnership, although the Banks have reserved the rights to do so. Therefore, the Partnership recorded default interest of $1.8 million through December 31, 1998. The Banks have required to date, and may require in the future, the Partnership to apply available cash held by Partnership (net of operating expenses, other than certain payments to affiliates, and expenses required to complete construction) toward repayment of the principal amount of the loans outstanding. On September 4, 1998, the Banks filed their own complaint against PECO with the Court. Among other things, the Banks are seeking a declaration that PECO's termination of the Power Purchase Agreement was wrongful. We believe that PECO's termination of the Power Purchase Agreement was wrongful, and we intend to aggressively pursue the remedies available to us. In the event we are not successful and PECO's actions are upheld, PECO would be required under federal law to continue to purchase power from the Grays Ferry Cogeneration Facility at PECO's avoided cost. This would generate significantly lower earnings per share for the Company than the contracted power purchase price. While it is possible that our investment in the Partnership and the receivable from the Partnership could become impaired, at this time we do not believe that is likely. 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. That motion and the County's other claims against Trigen-Nassau are pending. The County is seeking approximately $10 million in damages. We believe we have good defenses to the County's claims, although we cannot predict the outcome of this matter. 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 claimed that Trigen was responsible for any damages that Coastal 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, we are not able to estimate the amount of damages that ESI and Latin American are seeking. However, we believe it could involve a material amount. Trigen believes it has good defenses to Coastal's claims and La Casa Castro's claims, although we cannot predict the outcome of this matter. 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.
Schedule I TRIGEN ENERGY CORPORATION (Parent Company) CONDENSED BALANCE SHEETS December 31, 1998 and 1997 (In thousands) 1998 1997 ---- ---- Assets Cash and cash equivalents $ 541 $ 402 Other current assets 2,798 4,402 Property, plant and equipment, net 12,148 10,438 Deferred costs and other assets, net 4,333 3,496 Investments in and amounts due from subsidiaries, net 314,448 205,008 -------- -------- Total assets $334,268 $223,746 ======== ======== Liabilities and Stockholders' Equity Short-term debt $ - $ - Long-term debt 178,000 74,500 Other liabilities 8,340 3,764 Total liabilities 186,340 78,264 Stockholders' equity: Preferred stock - - Common stock 124 121 Additional paid-in capital 120,595 114,157 Retained earnings 36,417 31,881 Unearned compensation - restricted stock (4,967) - Cumulative translation adjustment (2,002) 296 Treasury stock, at cost (2,239) (973) --------- --------- Total stockholders' equity 147,928 145,482 -------- -------- Total liabilities and stockholders' equity $334,268 $223,746 ======== ======== See accompanying notes to condensed financial statements.
Schedule I-(Continued) TRIGEN ENERGY CORPORATION (Parent Company) CONDENSED STATEMENTS OF OPERATIONS Years Ended December 31, 1998, 1997 and 1996 (In thousands) 1998 1997 1996 ---- ---- ---- Revenues Management fees and costs recovered from subsidiaries $11,806 $12,472 $11,156 Interest income from subsidiaries 7,048 2,276 2,015 ------- ------- ------- Total revenues 18,854 14,748 13,171 Costs and expenses General and administrative 19,248 15,555 14,262 Interest expense 9,081 3,247 1,689 Other (income) expense, net 90 (1,034) (436) ------ ------- -------- Total costs and expenses 28,419 17,768 15,515 ------ ------ ------- Loss before income tax benefit, equity in earnings of sub- sidiaries and extraordinary item (9,565) (3,020) (2,344) Income tax benefit 3,452 1,057 820 Equity in earnings of subsidiaries, net 12,670 6,988 15,575 ------ ------ ------- Earnings before extraordinary item 6,557 5,025 14,051 Extraordinary loss from extinguishment of subsidiaries' debt, net of subsidiaries' income tax benefits (299) - ( 1,943) ------- ------ -------- Net earnings $6,258 $5,025 $12,108 ====== ====== ======= See accompanying notes to condensed financial statements.
Schedule I-(Continued) TRIGEN ENERGY CORPORATION (Parent Company) CONDENSED STATEMENTS OF CASH FLOWS Years Ended December 31, 1998, 1997 and 1996 (In thousands) 1998 1997 1996 ---- ---- ---- Increase (decrease) in cash and cash equivalents Cash flows from operating activities Net earnings $ 6,258 $ 5,025 $12,108 Reconciliation of net earnings to cash provided by operating activities: Equity in earnings of subsidiaries (12,670) (6,988) (15,575) Dividends received from subsidiaries - - - Extraordinary item 299 - 1,943 Other, net 1,806 (2,029) (3,209) ------- --------- -------- Net cash used in operating activities (4,307) (3,992) (4,733) -------- --------- -------- Cash flows from investing activities Capital expenditures (441) (992) (10,800) Purchase of a fuel management agreement and related inventory - (8,871) - Acquisition of energy facilities (65,350) - - Investments in and advances to sub- sidiaries, net (24,562) (19,429) (7,272) Investment in non-consolidated partnerships (6,417) (12,294) (1,911) -------- --------- -------- Net cash used in investing activities (96,770) (41,586) (19,983) -------- --------- --------- Cash flows from financing activities Short-term debt, net - (5,000) 5,000 Proceeds of long-term debt 107,000 45,500 17,250 Payments of long-term debt ( 3,500) - - Dividends paid ( 1,722) ( 1,682) ( 1,640) Issuance of common stock, net (562) 1,309 5,949 -------- -------- -------- Net cash provided by financing Activities 101,216 40,127 26,559 ------- -------- -------- Cash and cash equivalents Increase/(decrease) 139 (5,451) 1,843 At beginning of year 402 5,853 4,010 ------- -------- -------- At end of year $ 541 $ 402 $ 5,853 ------- -------- -------- Supplemental disclosure of cash flow information Non-cash investing activity Acquisition of subsidiary - - $ 1,037 ------- -------- -------- Non-cash financing activity Issuance of common stock for acquisi- tion of subsidiary - - $ 1,037 -------- -------- -------- Issuance of common stock for extinguishment of long-term debt - - $ 4,250 ========= ========= ========= See accompanying notes to condensed financial statements.
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, 1998 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 $1.4 million at December 31, 1998, and $4.0 million at December 31, 1997. (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 6.2% in 1998 and the rate at December 31, 1998 was 6.3%. 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.
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, 1996: Allowance for doubtful accounts $ 697 664 (233) $1,128 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
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, 1999. Trigen Energy Corporation By: /s/ Thomas R. Casten Thomas R. Casten 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, 1999. Signature Title --------- ----- /s/ THOMAS R. CASTEN Director, President and Chief Executive - ------------------------ Officer (Principal Executive Officer) Thomas R. Casten /s/ MARTIN S. STONE Vice President-Finance, - ------------------------ Chief Financial Officer Martin S. Stone /s/ DANIEL J. SAMELA Controller (Principal Accounting Officer) - ------------------------ Daniel J. Samela /s/ RICHARD E. KESSEL Director, Executive Vice President, - ------------------------- Chief Operating Officer Richard E. Kessel /s/ GEORGE F. KEANE Director and Chairman of the Board - ------------------------ George F. Keane /s/ PHILLIPE BRONGNIART Director - ------------------------ Philippe Brongniart /s/ DOMINIQUE MANGIN D'OUINCE Director - ------------------------- Dominique Mangin d'Ouince /s/ PATRICK DESNOS Director - -------------------------- Patrick Desnos /s/ MICHEL BLEITRACH Director - -------------------------- Michel Bleitrach /s/ PATRICK BUFFET 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.) 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. 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. 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. 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. 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. 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. 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). 11* Computation of Earnings Per Share. 12.1* Computation of Ratio of Earnings to Fixed Charges. 18* Letter re change in accounting principles. 21* Subsidiaries of Trigen Energy Corporation. 23.1* Consent of Arthur Andersen LLP. 23.2* Consent of KPMG. 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, 1998 and 1997. * Filed herewith. ** Incorporated by reference to the corresponding exhibit to the indicated prior filing. EX-4 2 EXHIBIT 4.9 Amendment No. 1 dated as of June 10, 1997 to the Revolving Credit Facility dated as of April 4 1997 --------------------------------------------------- Reference is made to that certain One Hundred and Sixty Million Dollars ($160,000,000) Revolving Credit Facility, dated as of April 4, 1997 (the "Revolving Credit Facility"), among Trigen Energy Corporation (the "Borrower"), the Societe Generale (the "Issuing Bank and Agent") and the Banks listed on the signature pages thereof. Capitalized terms used herein but not otherwise defined herein shall have the meanings ascribed to them in the Revolving Credit Facility. The undersigned agree as follows: 1. The first sentence of Article 1, Section 1.01 of the Revolving Credit Facility is hereby amended to read as follows: "The Revolving Credit Facility available to the Borrower pursuant to this Agreement is One Hundred Twenty Five Million Dollars ($125,000,000)." 2. Article 6, Section 6.01 is hereby amended to add a new subsection (j), which reads as follows: "Any event of default under Section 6.01(a) of the 364-Day Revolving Credit Facility". 3. Article 10, Section 10.01 is hereby amended to add the following definition: "364-DaY Revolving Credit Facility" means the Thirty-Five Million Dollar ($35,000,000) 364-day Revolving Credit Facility dated as of June 10, 1997, among the Borrower, the Issuing Bank and Agent and the Banks listed on the signature pages thereof, as the same may be amended, modified or restated from time to time. 4. The definition of "Agreement Date" in Article 10, Section 10.1 is restated in its entirety as follows: "Agreement Date" means the date set forth on the first page of the Agreement, which is the date the executed copies of the Agreement were deemed delivered by all parties hereto and, accordingly, this Agreement became effective and the Banks first became committed to make the Loans and other extensions of credit contemplated by this Agreement. 5. Annex A to the Revolving Credit Facility is hereby amended and is restated in its entirety by Annex A hereto. 6. Whenever and wherever in the Revolving Credit Facility the amount of the Facility is expressed to be One Hundred Sixty Million Dollars ($160,000,000), it shall henceforth be deemed to read as One Hundred Twenty Five Million Dollars ($125,000,000). 7. On the date hereof, the Borrower is executing and delivering Notes in favor of the Banks which express the principal amount of the Facility as One Hundred Twenty Five Million Dollars ($125,000,000). In exchange, the Issuing Bank and Agent shall cancel and return any Notes which express the principal amount of the Facility as being One Hundred Sixty Million Dollars ($160,000,000). 8. Except as expressly amended herein (which Amendment shall be effective only in the specific instances and for the specific purposes provided herein) whenever the term "Revolving Credit Facility" or the term "Agreement" is used in the Agreement, and the other Loan Documents it shall be deemed to refer and mean the Revolving Credit Facility, as amended by this Amendment No. 1, and that the same may be subsequently amended or modified from time to time. 9. This Amendment No. 1 may be executed in any number of counterparts, each of which shall be deemed to be an original with the same effect as if the signature thereto and hereto were upon the same instrument. 10. This Amendment No. 1 and the rights and obligations of the parties hereunder shall be construed in accordance in with and governed by the laws of the State of New York (without giving effect to its choice of law principles other than Section 5-1401 of the General Obligations Law). 11. This Amendment No. 1 shall be effective on the date first above written. IN WITNESS WHEREOF the undersigned have executed this Amendment No. 1 this 10th day of June, 1997. TRIGEN ENERGY CORPORATION, Company By /s/ Stephen T. Ward_ Title: Treasurer Name: Stephen T. Ward SOCIETE GENERALE, NEW YORK BRANCH, Issuing Bank and Agent By _/s/ Betty Burg Title: Vice Pres. Intnat'l Banking Name: Betty Burg COMPAGNIE FINANCIERE DE CIC ET DE L'UNION EUROPEENNE, Bank By /s/ Albert Calo /Eric Longuet Title: Vice Pres. / Vice Pres. Name: Albert Calo / Eric Longuet UMB BANK, N.A., Bank By /s/ David A. Proffitt Title: _Senior Vice President Name: _David A. Proffitt_ CREDIT LOCAL DE FRANCE, Bank By _/s/ Philippe Ducos /Mary Power Title: Duputy Gen'l Mgr/Vice President Name: _Philippe Ducos /Mary Power MELON BANK, N.A., Bank By __/s/ Arlene Pedovitch_ Title: _Vice President____ Name: __Arlene Pedovitch__ IN WITNESS WHEREOF the undersigned have executed this Amendment No. 1 this 10th day of June, 1997. THE DAI-ICHI KANGYO BANK, LTD., Bank By __/s/ Naoki Yamamori___ Title: VP & Department Head Name: _Naoki Yamamori_____ BANQUE FRANCAISE DU COMMERCE EXTERIEUR, Bank By:/s/ Pieter J. van Tulder / John Rigo Title:_VP & Mgr Intn'l Group/A.V.Pres__ Name: _Pieter J. van Tulder/John Rigo CREDIT COMMERCIAL DE FRANCE, Bank By _/s/ Jean-Paul Foity___ Title: __General Manager__ Name: __Jean-Paul Foity___ ANNEX A Banks, Lending Offices Percentage and Notice Addresses Commitments Interest - ---------------------- ----------- ---------- SOCIETE GENERALE, NEW YORK BRANCH $23,437,500 18.750% Domestic Lending Office: SOCIETE GENERALE, NEW YORK BRANCH 1221 Avenue of the Americas New York, New York 10020 Eurodollar Lending Office: SOCIETE GENERALE, NEW YORK BRANCH 1221 Avenue of the Americas New York, New York 10020 Information Address: SOCIETE GENERALE, NEW YORK BRANCH 1221 Avenue of the Americas New York, New York 10020 Fax No.: (212) 278-7463 Telephone No.: (212) 278-6926 Attention: Betty Burg Vice President, French Corporate Group Notice: Attention: Corporate Banking Officer Fax No.: (212) 278-7463 Telephone No.: (212) 278-6931 Notice concerning Letters of Credit: Attention: Specialized Letters of Credit Services Fax No.: (212) 278-7428 Telephone No.: (212) 278-6927 Wire Transfer Instructions: Societe Generale-New York ABA No. 026-004226 Account No. 01-72863 Reference: Trigen Energy Corporation ANNEX A Banks, Lending Offices Percentage and Notice Addresses Commitments Interest - ------------------------- ------------ ----------- COMPAGNIE FINANCIERE DE CIC $19,531,250 15.625% ET DE L'UNION EUROPEENNE Domestic Lending Office: COMPAGNIE FINANCIERE DE CIC ET DE L'UNION EUROPEENNE 520 Madison Avenue New York, New York 10022 Fax No.: 212-715-4535 Telephone No.: 212-715-4425 Attention: Albert M. Calo Eurodollar Lending Office: COMPAGNIE FINANCIERE DE CIC ET DE L'UNION EUROPEENNE 520 Madison Avenue New York, New York 10022 Fax No.: 212-715-4535 Telephone No.: 212-715-4425 Attention: Albert M. Calo Information Address: COMPAGNIE FINANCIERE DE CIC ET DE L'UNION EUROPEENNE 520 Madison Avenue New York, New York 10022 Fax No.: 212-715-4535 Telephone No.: 212-715-4425 Attention: Albert M. Calo ANNEX A Banks, Lending Offices Percentage and Notice Addresses Commitments Interest - ---------------------- ----------- ------------- UMB BANK, N.A. $7,812,500 6.250% Domestic Lending Office: UMB BANK, N.A. 1010 Grand Boulevard Kansas City, MO 60141 Fax No.: 816-860-7143 Telephone No.: 816-860-7935 Attention: David A. Proffitt Eurodollar Lending Office: UMB BANK, N.A. 1010 Grand Boulevard Kansas City, MO 60141 Fax No.: 816-860-7143 Tel No.: 816-860-7935 Attention: David A. Proffitt Information Address: UMB BANK, N.A. 1010 Grand Boulevard Kansas City, MO 60141 Fax No.: 816-860-7143 Telephone No.: 816-860-7935 Attention: David A. Proffitt ANNEX A Banks, Lending Offices Percentage and Notice Addresses Commitments Interest - ---------------------- ----------- ---------- CREDIT LOCAL DE FRANCE $18,750,000 15.000% Domestic Lending Office: CREDIT LOCAL DE FRANCE 450 Park Avenue 3rd Floor New York, New York 10022 Fax No.: 212-753-7522 Telephone No.: 212-753-2613 // 212-753-2763 Attention: Ms. Aida Slabotzky Eurodollar Lending Office: CREDIT LOCAL DE FRANCE 450 Park Avenue 3rd Floor New York, New York 10022 Fax No.: 212-753-7522 Telephone No.: 212-753-2613 // 212-753-2763 Attention: Ms. Aida Slabotzky Information Address: CREDIT LOCAL DE FRANCE 450 Park Avenue 3rd Floor New York, New York 10022 Fax No.: 212-753-5522 Telephone No.: 212-753-2763 // 212-753-3546 Attention: Ms. Mary Power ANNEX A Banks, Lending Offices Percentage and Notice Addresses Commitments Interest - --------------------- ---------- ----------- MELLON BANK, N.A. $10,156,250 8.125% Domestic Lending Office: MELLON BANK, N.A. 65 East 55th Street New York, New York 10022 Fax No.: 412-236-2027 Telephone No.: 412-234-3699 Attention: Ms. Pinkey Holiday Eurodollar Lending Office: MELLON BANK BANK, N.A. 65 East 55th Street New York, New York 10022 Fax No.: 412-236-2027 Telephone No.: 412-234-3699 Attention: Ms. Pinkey Holiday Information Address: MELLON BANK, N.A. 65 East 55th Street New York, New York 10022 Fax No.: 212-702-5269 Telephone No.: 212-702-5258 Attention: Ms. Arlene Pedovitch ANNEX A Banks, Lending Offices Percentage and Notice Addresses Commitments Interest - -------------------- ------------ ---------- THE DAI-ICHI KANGYO BANK, LTD. $7,812,500 6.250% Domestic Lending Office: THE DAI-ICHI KANGYO BANK, LTD. One World Trade Center 48th Floor New York, New York 10048 Fax No.: 212-488-8955 Telephone No.: 212-432-8436 Attention: Mr. Paul Colatrella Eurodollar Lending Office: THE DAI-ICHI KANGYO BANK, LTD. One World Trade Center 48th Floor New York, New York 10048 Fax No.: 212-488-8955 Telephone No.: 212-432-8436 Attention: Mr. Paul Colatrella Information Address: THE DAI-ICHI KANGYO BANK, LTD. One World Trade Center 48th Floor New York, New York 10048 Fax No.: 212-488-8955 Telephone No.: 212-432-8436 Attention: Mr. Paul Colatrella ANNEX A Banks, Lending Offices Percentage and Notice Addresses Commitments Interest - --------------------- ----------- ----------- BANQUE FRANCAISE DU COMMERCE EXTERIEUR $18,750,000 15.000% Domestic Lending Office: BANQUE FRANCAISE DU COMMERCE EXTERIEUR 645 Fifth Avenue New York, New York 10022 Fax No.: 212-872-5045 Telephone No.: 212-872-5119 Attention: Mr. John Rigo Eurodollar Lending Office: BANQUE FRANCAISE DU COMMERCE EXTERIEUR 645 Fifth Avenue New York, New York 10022 Fax No.: 212-872-5045 Telephone No.: 212-872-5119 Attention: Mr. John Rigo Information Address: BANQUE FRANCAISE DU COMMERCE EXTERIEUR 645 Fifth Avenue New York, New York 10022 Fax No.: 212-872-5045 Telephone No.: 212-872-5119 Attention: Mr. John Rigo ANNEX A Banks, Lending Offices Percentage and Notice Addresses Commitments Interest - ---------------------- ----------- ----------- CREDIT COMMERCIAL DE FRANCE $18,750,000 15.000% Domestic Lending Office: CREDIT COMMERCIAL DE FRANCE 590 Madison Avenue 25th Floor New York, New York 10022 Fax No.: 212-832-7469 Telephone No.: 212-848-0554 Attention: Ms. Janine Ayoub Eurodollar Lending Office: CREDIT COMMERCIAL DE FRANCE 590 Madison Avenue 25th Floor New York, New York 10022 Fax No.: 212-832-7469 Telephone No.: 212-848-0554 Attention: Ms. Janine Ayoub Information Address: CREDIT COMMERCIAL DE FRANCE 590 Madison Avenue 25th Floor New York, New York 10022 Fax No.: 212-832-7469 Telephone No.: 212-848-0554 Attention: Ms. Janine Ayoub EX-4 3 EXHIBIT 4.10 Amendment No. 1 dated as of September 22, 1998 to the 364-Day Revolving Credit Facility dated as of June 10. 1997 Reference is made to that certain 364-Day Revolving Credit Facility, dated as of June 10, 1997, (as amended the "364-Day Revolving Credit Facility") among Trigen Energy Corporation the "Borrowers"), Societe Generale (the "Issuing Bank and Agent") and the banks listed on the signature pages thereof. Capitalized terms used herein but not otherwise defined herein shall have the meanings ascribed to them in the 364-Day Revolving Credit Facility. The undersigned agree as follows: 1. Article 1, Section 1.08 (c) is hereby amended to read as follows: "(c) Utilization Fee. If on any day the sum of the outstanding aggregate principal amount of: (i) the Loans, Unreimbursed Letters of Credit Obligations and the aggregate of all Letter of Credit Amounts, and (ii) the Loans, Unreimbursed Letters of Credit Obligations, and the aggregate of all Letters of Credit Amounts as defined under the Other Credit Facility, exceeds $160,000,000, the Borrower shall pay to the Agent for the account of each Bank, a Utilization Fee. The Utilization Fee shall be paid quarterly in arrears on the last day of each calendar quarter and on the Repayment Date". 2. The definition of "Utilization Fee" in Article 10, Section 10.01 is added in its entirety as follows: "Utilization Fee" means the fee of 1.25% per annum of the aggregate daily amount of the Loans, Letters of Credit Amounts and Unreimbursed Letter of Credit Obligations as described in Section 1.08(e) of this Facility." 3. Except as expressly amended herein (which Amendment shall be effective only in the specific instances and for the specific purposes provided herein) whenever the term "Facility" is used in the Agreement or the term "364-Day Revolving Credit Facility" is used in the Agreement and the other Loan Documents it shall be deemed to refer to and mean the 364-Day Revolving Credit Facility, as amended by this Amendment, and as the same may be subsequently amended or modified find time to time. 4. This Amendment No. 1 may be executed in any number of counterparts, each of which shall be deemed to be an original with the same effect as if the signature thereto and hereto were upon the same instrument. 5. This Amendment No. 1 and the rights and obligations of the parties hereunder shall be construed in accordance with and governed by the laws of the State of New York (without giving effect to its choice of law principles over than Section 5-1401 of the General Obligations Law). 6. This Amendment No. 1 shall be effective on the date first above written. IN WITNESS WHEREOF the undersigned have executed this Amendment No 1 as of this 22nd day of September, 1998. TR1GEN ENERGY CORPORATION, Company By: /s/ Stephen T. Ward Name: Stephen T. Ward Title: Treasurer SOCIETE GENERALE, NEW YORK BRANCH, Issuing Bank and Agent By: /s/ Betty Burg Name: __Betty Burg Title: Director COMPAGNIE FINANCIERE DE CIC ET DE L'UNION EUROPEENNE, Bank By: /s/ Albert Calo/E. Longuet Name: Albert Calo/E. Longuet Title: Vice Pres./Vice Pres. UNITED MISSOURI BANK, N.A., Bank By: /s/ David A. Proffitt Name: David A. Proffitt Title: Senior Vice President CREDIT LOCAL DE FRANCE, Bank By: /s/ James R. Miller/Timothy Ononin Name: James R. Miller/Timothy Ononin Title: Gen'l Mgr./Asst. Vice President MELLON BANK, N.A., Bank By: /s/ Peyton R. Latimer Name: Peyton R. Latimer Title: Senior Vice President THE DAI-ICHI KANGYO BANK, LTD., Bank By: _/s/ Andreas Panteli Name: Andreas Panteli Title: Senior Vice President NATEXIS BANQUE, Bank By: /s/ Pieter J. van Tulder/John Rigo Name: Pieter J. van Tulder/John Rigo Title: VP & Mgr. / Asst. VP CREDIT COMMERCIAL DE FRANCE, Bank By: _/s/ J.J. Salomon/Janine M. Ayoub Name: _J.J. Salomon/Janine M. Ayoub Title: _Senior VP/Asst. Treas. EX-4 4 EXHIBIT 4.11 Amendment No. 2 dated as of November 6, 1997 to the Revolving Credit Facility dated as of April 4. 1997 Reference is made to that certain One Hundred and Sixty Million Dollars ($160,000,000) Revolving Credit Facility, dated as of April 4, 1997, and amended as of June 24, 1997 (as amended the "Revolving Credit Facility"), among Trigen Energy Corporation (the "Borrower"), Societe Generale (the "Issuing Bank and Agent") and the Banks listed on the signature pages thereof. Capitalized terms used herein but not otherwise defined herein shall have the meanings ascribed to them in the Revolving Credit Facility. The undersigned agree as follows: 1. The definition of "Eurodollar Rate" in Article 10, Section 10.1 is hereby amended to read in its entirety as follows: "Eurodollar Rate" means, for any Interest Period, the rate that appears on the Telerate Screen Page in the column headed "USD" for a period equal to such Interest Period, at 11:00 a.m. (London time) two Eurodollar Business Days before the first day of such Interest Period. If the Telerate Screen Page becomes unavailable or if for any other reason determined by the Agent in good faith (including, but not limited to, the failure of the Telerate Screen Page to quote a rate for the applicable Interest Period), the Agent is unable to determine the appropriate Eurodollar Rate by reference to the Telerate Screen Page, then "Eurodollar Rate" shall mean, for such Interest Period, the rate per annum determined by the Agent to be the rate per annum determined by the Reference Bank to be the rate at which the Reference Bank offered or would have offered to place with first-class banks in the London interbank market deposits in Dollars in amounts comparable to the Eurodollar Rate Loan of the Reference Bank to which such Interest Period applies, for a period equal to such Interest Period, at 11:00 a.m. (London time) on the second Eurodollar Business Day before the first day of such Interest Period. 2. The definition of "Interest Period" in Article 10, Section 10.1 is hereby amended to read in its entirety as follows: "Interest Period" means a period commencing, in the case of the first Interest Period applicable to a Eurodollar Rate Loan, on the date of the making of, or conversion into, such Loan, and, in the case of each subsequent, successive Interest Period applicable thereto, on the last day of the immediately preceding Interest Period or on a day determined by the Company, and ending, not more than 184 days thereafter, except that (a) any Interest Period that would otherwise end on a day that is not a Eurodollar Business Day shall be extended to the next succeeding Eurodollar Business Day unless such Eurodollar Business Day falls in another calendar month, in which case such Interest Period shall end on the next preceding Eurodollar Business Day, (b) any Interest Period that is specified by the Company as a one-month, two month, three month or six month Interest Period and that begins on the last Eurodollar Business Day of a calendar month (or on a day for which there is no numerically corresponding day in the calendar month in which such Interest Period ends) shall end on the last Eurodollar Business Day of a calendar month and (c) no Interest Period shall be shorter than one month. 3. The definition of "Type" in Article 10, Section 10.1 is hereby amended to add the following definition: "Type" means, with respect to Loans, any of the following, each of which shall be deemed to be a different "Type" of Loan: Base Rate Loans, Eurodollar Rate Loans having different Interest Periods. Any Eurodollar Rate Loan having an Interest Period that differs from the duration specified for a Type of Eurodollar Rate Loan listed above solely as a result of the operation of clauses (a) and (b) of the definition of "Interest Period" shall be deemed to be a Loan of such above-listed Type notwithstanding such difference in duration of Interest Periods. 4. This Amendment No. 2 may be executed in any number of counterparts, each of which shall be deemed to be an original with the same effect as if the signature thereto and hereto were upon the same instrument. 5. This Amendment No. 2 and the rights and obligations of the parties hereunder shall be construed in accordance in with and governed by the laws of the State of New York (without giving effect to its choice of law principles other than Section 5-1401 of the General Obligations Law). 6. This Amendment No. 2 shall be effective when it has been executed and delivered by the Borrower, the Issuing Bank and Agent, and each of the Banks. IN WITNESS WHEREOF the undersigned have executed this Amendment No. 2 as of this 6th day of November, 1997. TRIGEN ENERGY CORPORATION, Company By: /s/ Stephen T. Ward Title: Treasurer Name: Stephen T. Ward SOCIETE GENERALE, NEW YORK BRANCH, Issuing Bank and Agent By: /s/ Betty Burg Title:Vice Pres.,French Corp. Group Name: Betty Burg COMPAGNIE FINANCIERS DE CIC ET DE L'UNION EUROPEENNE, Bank By: /s/ Albert Calo /B.Bonwis Title: Vice Pres./Vice Pres Name Albert Calo /B Bonwis UMB BANK, N.A., Bank By: /s/ David A. Proffitt Title: Senior Vice President Name: David A. Proffitt CREDIT LOCAL DE FRANCE, Bank By: /s/ Philippe Ducos /Mary Power Title: _Dep.Gen'l.Mgr./Vice Pres. Name: Philippe Ducos /Mary Power MELLON BANK, N.A., Bank By: /s/ Caroline R. Walsh Title: Assist. Vice President Name: Caroline R. Walsh THE DAI-ICHI KANGYO BANK, LTD., Bank By: /s/Takeshi Kurita Title: Vice President Name: Takeshi Kurita NATEXIS BANQUE Bank By:/s/ Pieter J.vanTulder/J.Richard Title: Vice Pres. & Mgr. Name: Pieter J.van Tulder/J. Richard CREDIT COMMERCIAL DE FRANCE, Bank By: /s/ F.van Moere/J.J.Jalohon Title: A.V.Pres. /Sen.V.Pres Name: F. van Moere/J.J. Jalohon EX-4 5 EXHIBIT 4.12 Amendment No. 3 dated as of September 22, 1998 to the Revolving Credit Facility dated as of April 4, 1997 Reference is made to that certain One Hundred and Sixty Million Dollars ($160,000,000) Revolving Credit Facility, dated as of April 4, 1997, amended as of June IO, 1997, and as of November 6, 1997 (as amended the "Revolving Credit Facility"), among Trigen Energy Corporation (the "Borrower"), Societe Generale (the "Issuing Bank and Agent") and the Banks listed on the signature pages thereof. Capitalized terms used herein but not otherwise defined herein shall have the meanings ascribed to them in the Revolving Credit Facility. The undersigned agree as follows,: 1. The first sentence of Article 1, Section 1.01 of the Revolving Credit Facility is hereby amended to read as follows: "The Revolving Credit Facility available to the Borrower pursuant to this Agreement is One Hundred Sixty Million Seven Hundred Fifty Thousand Dollars ($160,750,000)." 2. Annex A to the Revolving Credit Facility is hereby amended and is restated in its entirety by Annex A hereto. 3. Article 1, Section 1.01(c) is hereby amended to read as follows: "(c) Extension of Facility Period. The initial Facility Period shall be four years, but may be extended by a total of two one-year extensions with the prior written consent of the Banks, the Agent and the Issuing Bank. Seventeen months before the end of a Facility Period, the Borrower may request that the Banks extend the Facility Period by one year. Such a request shall be in writing (and shall be irrevocable) and shall be delivered to Agent with such other documentation as the Agent may request. Each Bank, the Agent and the Issuing Bank each in its sole discretion may, but shall not be required to, grant such a one-year extension to the Facility Period. The Agent will notify the Borrower in writing fifteen mouths before the end of the Facility Period as to whether the one-year extension will be granted and to advise the Borrower of the new Termination Date and any other conditions to such extension, provided that in the absence of such a notice by the Agent, the extension request will be deemed denied." 4. Article 1, Section 1.08 (e) is hereby amended to read as follows: "(e) Utilization Fee. If on any day the sum of the outstanding aggregate principal amount of: (i) the Loans, Unreimbursed Letters of Credit Obligations and the aggregate of all of Credit Amounts, and (ii) the Loans, Unreimbursed Letters of Credit Obligations, and the aggregate of all Letter of Credit Amounts as definer under the 364-Day Revolving Credit Facility, exceeds $160,000,000, the Borrower shall pay to the Agent for the account of each Bank, a Utilization Fee. The Utilization Fee shall be paid quarterly in arrears on the last day of each calendar quarter and on the Repayment Date." 5. The definition of "Termination Date" in Article 10, Section 10.01 is restated in its entirety as follows: "Termination Date" means: (a) the fourth anniversary of the Agreement Date; or (b) if the Facility Period has been extended pursuant to Section 1.01 (c) either the fifth or sixth anniversary of the Agreement Date, as contained in a notice from the Agent to the Borrower." 6. The definition of "Utilization Fee" in Article 1O, Section 10.01 is amended and restated in its entirety as follows: "Utilization Fee" means the fee of .125% per annum of the aggregate daily amount of the Loans, Letter of Credit Amounts and Unreimbursed Letter of Credit Obligations as described in Section 1.08 (e)." 7. Whenever and wherever in the Revolving Credit Facility the amount of the Facility is expressed to be One Hundred Twenty Five Million Dollars ($125,000,000), it shall henceforth be deemed to read as One Hundred Sixty Million Seven Hundred Fifty Thousand Dollars ($160,750,000). 8. On the date hereof, the Borrower is executing and delivering Notes in favor of the Banks which express the principal amount of the Facility as One Hundred Sixty Million Seven Hundred Fifty Thousand Dollars ($160,750,000). In exchange, the issuing Bank and Agent shall cancel and return any Notes which express the principal amount of the Facility as being One Hundred Twenty Five Million Dollars (S125,000,000). 9. Except as expressly amended herein (which Amendment shall be effective only in the specific instances and for the specific purposes provided herein) whenever the term "Revolving Credit Facility" or the term "Agreement" is used in the Agreement, and in the other Loan Documents or the term "Other Credit Facility" is used in the 364-Day Revolving Credit Facility, it shall be deemed to refer to and mean the Revolving Credit Facility, as amended by this Amendment and Amendments Nos. 1 and 2, and that the same may be subsequently amended or modified from time to time. 10. This Amendment No. 3 may be executed in any number of counted, each of which shall be deemed to be an original with the same effect as if the signature thereto and hereto were upon the same instrument. 11. This Amendment No. 3 and the rights and obligations of the parties hereunder shall be construed in accordance with and governed by the laws of the State of New York (without giving effect to its choice of law principles other than Section 5-1401 of the General Obligations Law). 12 This Amendment No. 3 shall be effective on the date first above written. IN WITNESS WHEREOF the undersigned have executed this Amendment No. 3 as of this 22nd day of September, 1998. TRIGEN ENERGY CORPORATION, Company By: /s/ Stephen T. Ward Name: Stephen T. Ward Title: Treasurer SOCIETE GENERALE, NEW YORK BRANCH Issuing Bank and Agent By: /s/ Betty Burg Name: Betty Burg Title: Director COMPAGNIE FINANCIERE DE CIC ET DE L'UNION EUROPEENNE, Bank By: /s/ Albert Cola/G. Longuet Name: Albert Cola/G. Longuet Title:Vice President/Vice President UNITED MISSOURI BANK, N.A., Bank By: /s/ David A. Proffitt Name: David A. Proffitt Title: Senior Vice President CREDIT LOCAL DE FRANCE, Bank By:/s/James R.Miller/Timothy Ononin Name:James R. Miller/Timothy Ononin Title:Gen'l Mgr./Asst.VicePresident MELLON BANK N.A, Bank By: /s/ Peyton R. Latimer Name: Peyton R. Latimer Title: Senior Vice President THE DAI-ICHI KANGYO BANK, LTD, Bank By: /s/ Andreas Panteli Name: Andreas Panteli Title: Senior Vice President NATEXIS BANQUE, Bank By:/s/Pieter J. vanTulder/John Rigo Name: Pieter J. vanTulder/John Rigo Title: Vice Pres. And Mgr./AVP CREDIT COMMERCIAL DE FRANCE, Bank By: /s/ J.J.Salomon/Janine M. Ayoub Name: J.J.Salomon/Janine M. Ayoub Title: Senior VP/Asst. Treasurer ANNEX A Banks, Lending Offices Percentage and Notice Addresses Commitments Interest - -------------------- ----------- ---------- SOCIETY GENERALE, NEW YORK BRANCH $33,437,500 20.801% Domestic Lending Office: SOCIETE GENERALE, NEW YORK BRANCH 1221 Avenue of the Americas New York, New York 10020 Eurodollar Lending Office: SOCIETE GENERALE, NEW YORK BRANCH 1221 Avenue of the Americas New York, New York 10020 Information Address: SOCIETE GENERALE, NEW YORK BRANCH 1221 Avenue of the Americas New York, New York 10020 Fax No.: (212) 278-7463 Tel No.: (212) 278-6926 Attention: Betty Burg Director, European Corporate Group Notice: Attention: Mary Fawzi Corporate Banking Officer Fax No.: (212) 278-7463 Tel No.: (212) 278-6931 Notice concerning Letters of Credit: Attention: Specialized Letters of Credit Services Fax No.: (212) 278-7428 Tel No.: (212) 278-6921 Annex A Wire Transfer Instructions: Societe Generale-New York ABA No. 026~004226 Account No. 09031308 Reference: Trigen Energy Corporation Annex A Banks, Lending Offices Percentage and Notice Addresses Commitments Interest - ---------------------- ----------- ----------- COMPAGNIE FINANCIERE DE CIC $27,781,250 17.282% ET DE L'UNION EUROPEENNE Domestic Lending Office: COMPAGNIE FINANCIERE DE CIC ET DE L'UNION EUROPEENNE 520 Madison Avenue New York, New York 10022 Fax No.: 212-715-4535 Tel No.: 212-715-4425 Attention: Albert M. Calo Eurodollar Lending Office: COMPAGNIE FINANCIERE DE CIC ET DE L'UNION EUROPEENNE 520 Madison Avenue New York, New York 10022 Fax No.: 212-715-4535 Tel No.: 212-715-4425 Attention: Albert M. Calo Information Address: COMPAGNIE FINANCIERE DE CIC ET DE L'UNION EUROPEENNE 520 Madison Avenue New York, New York 10022 Fax No.: 212-715-4535 Tel No.: 212-715-4425 Attention: Albert M. Calo Annex A Banks, Lending Offices Percentage and Notice Addresses Commitments Interest - ---------------------- ----------- ---------- UNITED MISSOURI BANK, N.A. $7,812,500 4.860% Domestic Lending Office: UNITED MISSOURI BANK, N.A. 1010 Grand Boulevard Kansas City, MO 60141 Fax No.: 816-860-7143 Tel No.: 816-860-7935 Attention: David A. Proffitt Eurodollar Lending Office: UNITED MISSOURI BANK, N.A. 1010 Grand Boulevard Kansas City, MO 60141 Fax 240: 816-860-7143 Tel No.: 816-860-7935 Attention: David A. Proffitt Information Address: UNITED MISSOURI BANK, N.A. 1010 Grand Boulevard Kansas City, MO 00141 Fax No.: 816-860-7143 Tel No.: 816-860-7935 Attention: David A. Proffitt Annex A Banks, Lending Offices Percentage and Notice Addresses Commitments Interest - ---------------------- ----------- --------- CREDIT LOCAL DE FRANCE $18,750,000 11.664% Domestic Lending Office: CREDIT LOCAL DE FRANCE 450 Park Avenue 3rd Floor New York, New York 10022 Fax No.: 212-753-7522 Tel No.: 212-753-2613 // 212-753-2763 Attention: Ms. Aida Slabotzky Eurodollar Lending Office: CREDIT LOCAL DE FRANCE 450 Park Avenue 3rd Floor New York, New York 10022 Fax No.: 212-753-7522 Tel No.: 212-753-2613 // 212-7S3-2763 Attention: Ms. Aida Slabotzky Information Address: CREDIT LOCAL DE FRANCE 450 Park Avenue 3rd Floor New York, New York 10022 Fax No.: 212-753-5522 Tel No.: 212-753-2763 // 212-753-3546 Attention: Ms. Mary Popover Annex A Banks, Lending Offices Percentage And Notice Addresses Commitments Interest - ---------------------- ----------- ---------- MELLON BANK, N.A. $10,156,250 6.318% Domestic Lending Once: MELLON BANK, N.A. 65 East 55th Street New York, New York 10022 Fax No.: 412-236-2027 Tel No.: 412-234-3699 Attention: Ms. Pinkey Holiday Eurodo11ar Deciding Office: MELLON BANK, N.A. 65 East 55th Street New York, New York 10022 Fax No.: 412-236-2027 Tel No.: 412-234-3699 Attention: Ms. Pinkey Holiday Information Address: MELLON BANIC, N.A. 65 East 55th Strew New York, New York 10022 Fax No.: 212-702-5269 Tel No.: 212-702-5258 Attention: Ms. Arlene Pedovitch Annex A Banks, Lendlug Offices Percentage and Notice Addresses Commitments interest - ---------------------- ----------- ----------- THE DAI-ICHI KANGYO BANK, LTD. $7,812,500 4.860% Domestic Lending Office: THE DAI-ICHI KANGYO BANK, LTD. One World Trade Center 48th Floor New York, New York 10048 Fax No.: 212-488-8955 Tel No.: 21Z-432-8436 Attention: Mr. Paul Colatrella Eurodollar Lending Office THE DAI-ICHI KANGYO BANK, BANK One World Trade Center 48th Floor New York, New York 10048 Fax No.: 212-488-8955 Tel No.: 212-432-8436 Attention: Mr. Paul Colatrella Information Address: THE DAI-ICHI KANGYO BANK, LTD. One World Trade Center 48th Floor New York, New York 10048 Fax No.: 212-488-8955 Tel No.: 212-432-8436 Attention: Mr. Paul Colatrella Annex A Banks, Lending Offices Percentage and Notice Addresses Commitments Interest - ---------------------- ----------- ---------- NATEXIS BANQUE $24,750,000 15.397% Domestic Lending Office: NATEXIS BANQUE 645 Fifth Avenue New York, New York 10022 Fax No.: 212-872-5045 Tel No,.: 212-872-5119 Attention: Mr. John Rigo Eurodollar Lending Office: NATEXIS BANQUE: 645 Fifth Avenue New York, lvew York 10022 Fax No.: 212-872-5045 Tel NO.: 212-872-5119 Attention: Mr. John Rigo Information Address: NATEXIS BANQUE 645 Fifth Avenue New York, New York 10022 Fax No.: 212-872-5045 Tel No.: 212-872-5119 Attention: Mr. John Rigo Annex A Banks, Lending Offices Percentage and Notice Addresses Commitments Interest - ---------------------- ----------- ---------- CREDIT COMMERCIAL DE FRANCE $30,250,000 18.818% Domestic Lending Office: CREDIT COMMERCIAL DE FRANCE 590 Madison Avenue 25th Floor New York, New York 10022 Fax No.: 212-832-7469 Tel No.: 212-848-0554 Attention: Ms. Janine Ayoub Eurodollar Lending Office: CREDIT COMMERCIAL DE FRANCE 590 Madison Avenue 25th Floor New York, New York 10022 Fax No.: 212-832-7469 Tel No.: 212-848-0554 Attention: Ms. Janine Ayoub Information Address: CREDIT COMMERCIAL DE FRANCE 590 Madison Avenue 25th Floor New York, New York 10022 Fax No.: 212-832-7469 Tel No.: 212-848-0554 Attention: Ms. Janine Ayoub EX-11 6 EXHIBIT 11
Trigen Energy Corporation and Subsidiaries Computation of Earnings Per Share (In thousands, except per share data) Year ended December 31, ---------------------------------------- 1998 1997 1996 1995 1994 ---- ---- ---- ---- ---- Basic earnings per common share - -------------------------------- Earnings before extraordinary item $6,557 $5,025 $14,051 $10,564 $8,561 Average equivalent shares Common shares outstanding 12,007 12,011 11,612 11,390 9,619 Basic earnings per common share $0.55 $0.42 $1.21 $0.93 $ 0.89 Diluted earnings per common share - ---------------------------------- Earnings before extraordinary item $6,557 $5,025 $14,051 $10,564 $8,561 Average equivalent shares Common shares outstanding 12,007 12,011 11,612 11,390 9,619 Stock option 2 119 82 -- -- ------ ------ ------- ----- ----- Average equivalent shares 12,009 12,130 11,694 11,390 9,619 ------ ------- ------- ------ ----- Diluted earnings per common share $0.55 $0.41 $1.20 $0.93 $0.89 ------- ------- ------- ------ -----
EX-12 7 EXHIBIT 12.1
Trigen Energy Corporation and Subsidiaries Computation of Ratio of Earnings to Fixed Charges (in thousands) 1998 1997 1996 1995 1994 ---- ---- ---- ---- ---- Earnings before extra- Ordinary item $6,557 $5,025 $14,051 $10,564 $8,561 Add (deduct): Income taxes 4,575 3,491 9,252 7,324 5,949 Fixed charges 24,268 20,508 20,145 20,883 17,774 Interest capitalization ( 524) ( 374) ( 328) ( 300) ( 250) (Income)/losses of less than 50% owned companies (4,475) 266 ( 322) ( 316) ( 224) ------- ------- ------- ------- ----- Earnings before extraordi- Nary item, as adjusted $30,401 $28,916 $42,798 $38,155 $31,810 Fixed Charges Interest expense $23,742 $18,840 $18,840 $19,890 $16,657 Interest capitalized 524 374 328 300 250 Portion of rents representa- tive of interest factor(1) 1,400 1,158 977 693 867 ------ ------- ------- ------- ------ Total fixed charges $25,666 $20,508 $20,145 $20,883 $17,774 ------- ------- ------- ------- ------ Ratio of earnings to Fixed charges 1.2 1.4 2.1 1.8 1.8 ------- ------- ------- ------- ------- Note: (1) Estimated to be 1/3 of total rent expense.
EX-21 8 EXHIBIT 21 12/31/98 Trigen Energy Corporation And Subsidiaries U.S. Corporations Incorporated Baltimore Thermal Development Corporation Maryland Catalyst Steam Corporation Delaware Philadelphia United Power Corporation Delaware Philadelphia Thermal Development Corporation Pennsylvania Philadelphia Steam Development Corporation Pennsylvania Philadelphia Thermal Services Corporation Pennsylvania St. Louis Thermal Development Corporation Missouri Trenton Energy Corporation Delaware Tulsa Cold Storage, Inc. Delaware Trigen-Alabama Energy Corporation Delaware Trigen-Baltimore Energy Corporation Maryland Trigen-BioPwer, Inc. North Carolina Trigen-Boston Energy Corporation Delaware Trigen Building Services Corporations Delaware Trigen-Chicago Energy Corporation Delaware Trigen-College Park Energy Corporation Maryland Trigen-Colorado Energy Corporation Delaware Trigen Development Corporation Delaware Trigen Energia, Inc. Delaware Trigen Energy Corporation Delaware Trigen-Ewing Power, Inc. Delaware The Trigen Foundation Delaware Trigen Fuels Corporation Delaware Trigen-Glen Cove Energy Corporation Delaware Trigen-Golden Energy Corporation Delaware Trigen Insulation Corporation Delaware Trigen-Kansas City Energy Corporation Delaware Trigen Lindbergh Corporation Delaware Trigen-Mid-Atlantic Development Corporation Delaware Trigen M/I Corporation Delaware Trigen-Missouri Energy Corporation Delaware Trigen-Nassau Energy Corporation Delaware Trigen National Capital, Inc. Delaware Trigen-New England Energy Corporation Delaware Trigen-New Jersey Development Corporation Delaware Trigen-Oklahoma Energy Corporation Delaware Trigen-Oklahoma City Energy Corporation Delaware Trigen-Philadelphia Energy Corporation Pennsylvania Trigen Power Resources, Inc. Delaware Trigen-Schuylkill Cogeneration, Inc. Pennsylvania Trigen Services Corporation Delaware Trigen Services Of Baltimore, Inc. Delaware Trigen Services Of Florida, Inc. Delaware Trigen Services Of Illinois, Inc. Delaware Trigen Services Of Missouri, Inc. Delaware Trigen Services Of Ohio, Inc. Delaware Trigen Services Of St. Paul, Inc. Delaware Trigen Solutions, Inc. Delaware Trigen-St. Louis Energy Corporation Missouri Trigen-Tulsa Energy Corporation Delaware United Thermal Corporation Delaware United Thermal Development Corporation Delaware United Thermal Services Corporation Delaware Canadian Corporations - --------------------- 3003252 Nova Scotia Limited Nova Scotia Trigen Energy Canada Inc. Canada Partnerships - ------------ Baltimore Steam Company Maryland Gray's Ferry Cogeneration Partnership Ohio Valley Coke & Energy LLC Delaware Thermal Science Technologies LLC Delaware Trigen-Barford Company LLC Delaware Trigen-Cinergy Solutions LLC Delaware Trigen-Cinergy Solutions of Baltimore LLC Delaware Trigen-Cinergy Solutions Of Boca Raton, LLC Delaware Trigen-Cinergy Solutions Of Cincinnati LLC Ohio Trigen-Cinergy Solutions of College Park LLC Delaware Trigen-Cinergy Solutions Of Illinois L.L.C. Delaware Trigen-Cinergy Solutions Of Orlando LLC Delaware Trigen-Cinergy Solutions Of St. Paul LLC Delaware Trigen-Cinergy Solutions Of Tuscola, LLC Delaware Trigen-HQ Energy Services LLC Delaware Trigen-Nations Energy Company, LLLP Colorado Trigen-Peoples District Energy Company LLP Illinois Trigen-Trenton Energy Company, L.P. Delaware Canadian Partnerships - --------------------- NSP Trigen Incorporated Nova Scotia EX-4 9 EXHIBIT 4.13 UNSECURED SUBORDINATED REDEEMABLE TERM NOTE ------------------------------------------- THE INDEBTEDNESS EVIDENCED BY THIS NOTE IS SUBORDINATE TO THE PRIOR PAYMENT IN FULL OF THE SENIOR DEBT (AS HEREINAFTER DEFINED) PURSUANT TO THE TERMS HEREOF AND TO THE EXTENT PROVIDED HEREIN. THIS NOTE WAS ORIGINALLY ISSUED IN A TRANSACTION EXEMPT FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND THIS NOTE MAY NOT BE SOLD OR OTHERWISE TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR AN APPLICABLE EXEMPTION THEREFROM. THE HOLDER HEREOF AGREES FOR THE BENEFIT OF TRIGEN ENERGY CORPORATION (THE "BORROWER") THAT (A) THIS NOTE MAY BE RESOLD, PLEDGED OR OTHERWISE TRANSFERRED ONLY (I) TO A PERSON OR ENTITY WHO THE BORROWER REASONABLY BELIEVES IS A QUALIFIED INSTITUTIONAL BUYER (AS DEFINED IN RULE 144A PROMULGATED UNDER THE SECURITIES ACT OF 1933), IN A TRANSACTION MEETING THE REQUIREMENTS OF SUCH RULE 144A, (II) TO AN INSTITUTION THAT IS AN "ACCREDITED INVESTOR" WITHIN THE MEANING OF RULE 501(a)(1), 501(a)(2), 501(a)(3) OR 501(a)(7) OF REGULATION D PROMULGATED UNDER THE SECURITIES ACT IN A TRANSACTION EXEMPT FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT, IF AVAILABLE, (III) PURSUANT TO THE EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT, PROVIDED BY RULE 144 PROMULGATED THEREUNDER (IF AVAILABLE) OR (IV) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT, AND IN EACH OF CASES (I) THROUGH (IV) ABOVE IN ACCORDANCE WITH ANY APPLICABLE SECURITIES LAWS OF THE STATES AND OTHER JURISDICTIONS OF THE UNITED STATES, AND (B) THE HOLDER HEREOF SHALL, AND EACH SUBSEQUENT HOLDER HEREOF IS REQUIRED TO, NOTIFY ANY PURCHASER OF THIS NOTE OF THE RESALE RESTRICTIONS REFERRED TO IN CLAUSE (A) ABOVE. REDEMPTION OF THIS NOTE IS SUBJECT TO THE REQUIREMENTS SET FORTH HEREIN. UNSECURED SUBORDINATED REDEEMABLE TERM NOTE $50,000,000.00 As of December 30, 1998 White Plains, New York FOR VALUE RECEIVED and intending to be legally bound, the undersigned, Trigen Energy Corporation, a Delaware corporation (the "Borrower"), having offices at One Water Street, White Plains, New York 10601, hereby unconditionally and irrevocably promises to pay to the order of Cofreth American Corporation, a New York corporation (the "Lender"), at the Lender's offices located at One Water Street, White Plains, New York 10601 or at such other location as the Lender may designate to the Borrower from time to time (the "Payment Office"), the principal sum of FIFTY MILLION DOLLARS ($50,000,000.00) (the "Loan Amount"), with interest as set forth below, in lawful money of the United States of America, in immediately available funds, without defense or counterclaim of any kind whatsoever, upon the following terms and conditions: 1. Interest. Interest on the Loan Amount from time to time outstanding shall accrue for the period commencing from (and including) the date of this Note to December 31, 2010 (the "Final Payment Date"), at the per annum rate (the "Base Rate") of 7.38%. All interest under this Note shall be calculated on the basis of a year of 360 days for the actual number of days elapsed. 2. Principal and Interest Payments. The Loan Amount shall be due and payable on the Final Payment Date. The Lender shall make payments of interest on the Loan Amount accrued in accordance with Section 1 hereof, in consecutive quarterly installments (each, an "Interest Payment"), payable on the last day of each applicable calendar quarter (each, an "Interest Payment Date", together with the Final Payment Date, each, a "Payment Date"), commencing March 31, 1999 (each such quarterly period, an "Interest Period"). Notwithstanding any other provision of this Note, Interest Payments (or portions thereof) that are not made by the Borrower on or prior to the applicable Interest Payment Dates up to an amount (based upon the percentage of the Interest Payment not made) equivalent to eight Interest Payments shall be added to the Loan Amount for all purposes hereof as of the applicable Interest Payment Dates. No such non-payment of such Interest Payments (or portions thereof) at such times shall be deemed a default (or, with the passage of time, an Event of Default (as defined in Section 6 hereof)) hereunder. No such unpaid amount of such Interest Payments shall be deemed a past due amount hereunder as of the applicable Interest Payment Dates. 3. Late Payments. If any portion of the Loan Amount or, except as set forth in Section 2 hereof, any Interest Payment is not paid on the applicable Payment Date hereunder, interest on the past due Loan Amount or the past due Interest Payment ("Default Interest") shall accrue from (and including) the applicable Payment Date at the per annum rate (the "Default Rate") equal to the sum of: (x) the Base Rate, plus (y) two percent (2%). Default Interest shall from time to time be payable on demand, in arrears. Notwithstanding any demand for payment, acceleration and/or the entry of judgment for such sums, Default Interest shall continue to accrue at the Default Rate on past due portions of the Loan Amount and past due portions of Interest Payments. Subject to the right of the Lender to accelerate the maturity of this Note in accordance with Section 6 hereof, notwithstanding any other provision hereof, interest on the unpaid (but not past due) portion of the Loan Amount from time to time outstanding shall accrue, and be payable by the Borrower on the Final Payment Date, at the Base Rate. 4. Default Payments. After the occurrence and during the continuance of an Event of Default (as defined in Section 6 hereof), the Loan Amount, together with the interest accrued thereon in accordance with Section 1 hereof (collectively, the "Default Amount"), shall bear interest from (and including) the date of default at the Default Rate, which interest shall from time to time be payable on demand, in arrears. Notwithstanding any demand for payment, acceleration and/or the entry of judgment for such sums, interest shall continue to accrue on the unpaid Default Amount at the Default Rate. Any payments made by the Borrower following any default under this Note shall be applied first to Default Interest due and owing, then to the costs and expenses incurred by the Lender under Section 10 hereof, then to the Interest Payments due and owing and lastly to the Loan Amount then outstanding. 5. Prepayments; Business Day. All prepayments of the Loan Amount shall be made together with payment of all interest accrued on the amount prepaid, but without premium or penalty. Whenever any payment hereunder shall be stated to be due, or whenever the last day of any Interest Period would otherwise occur, on a day that is not a Business Day (as hereinafter defined), such payment shall be made, and the last day of such Interest Period shall occur, on the next succeeding Business Day, and such extension of time shall in such case be included in the computation of payment of interest. For purposes of this Note, "Business Day" means a day of the year on which banks in New York City are not authorized or required by law (including executive order) to close and on which the New York Stock Exchange is not closed. 6. Event of Default. In the event (each, an "Event of Default") of: (a) (i) a change in control of the Borrower (where "control" means possession, directly or indirectly, of power to direct or cause the direction of management or policies (whether through ownership of securities or partnership or other ownership interests, by contract or otherwise)) (provided that a change of control shall not include any transfer of securities of the Borrower to any majority-owned affiliate of the ultimate parent entity of the Lender), (ii) the failure of the Borrower to pay any past due portion of the Loan Amount or any past due portion of any Interest Payment to the Lender after the receipt by the Borrower of notice from the Lender of such late payment, (iii) the failure of the Borrower to pay any other indebtedness of the Borrower to the Lender when due after the receipt by the Borrower of notice from the Lender of such late payment, (iv) any bond, debenture, note or other evidence of indebtedness issued or guaranteed by the Borrower in the aggregate amount of $5 million or more shall have been declared to be due and payable immediately and such acceleration shall not have been rescinded or annulled; (v) the commencement of any proceeding under any bankruptcy or insolvency laws (but only, in the case of an involuntary proceeding, if the proceeding has not been dismissed or stayed within 60 days of its commencement) against the Borrower or by the Borrower with respect to itself, (vi) the appointment of a receiver, trustee or liquidator of any part of the property of the Borrower, (vii) a general assignment for the benefit of creditors of the Borrower or (viii) the Borrower being unable, or admitting in writing its inability, to pay its debts as they mature; and (b) the Borrower shall not cure such default within 18 months of such occurrence (provided that, if no Senior Debt is outstanding, or if all Senior Debt is repaid during the foregoing cure period, such cure period shall be 30 days, or 30 days from the date all such Senior Debt is repaid, as the case may be), THEN the Borrower shall be in default hereunder and an Event of Default shall have occurred, and thereupon, subject to the limitations contained in Section 8 of this Note, the entire balance outstanding hereunder shall be immediately due and payable. Subject to such limitations, the Lender shall thereupon have the option at any time and from time to time to exercise any or all of its rights and remedies set forth herein or otherwise available at law or in equity. 7. Redemption of Note. (a) Subject to and upon compliance with the provisions of this Section 7, this Note may be redeemed in whole or in part at the option of the Lender on or after any Redemption Date with the net proceeds of any Equity Sale ("Equity Proceeds"). For purposes of this Note, "Redemption Date" means the effective date of any Equity Sale (as hereinafter defined) following the date hereof by the Borrower, and "Equity Sale" means any distribution of Common Stock, par value $.01 per share, of the Borrower, whether pursuant to an offering registered under the U.S. Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder, or pursuant to any offering exempt from such registration; provided that "Equity Sale" shall not include the issuance or sale of any shares of Common Stock to any employees or directors of the Borrowers pursuant to any employee benefit plans, stock option plans or similar arrangements. (b) The Borrower shall, not less than 20 days prior to any anticipated Redemption Date, notify the Lender in writing of such Redemption Date (the "Redemption Notice"). (c) The Lender shall notify the Borrower not less than 3 Business Days prior to the Redemption Date set forth in the Redemption Notice of the exercise of the Lender's option to cause the Borrower to redeem this Note, in whole or in part. Such notice of the Lender shall set forth the amounts due, owing and outstanding under this Note (collectively, the "Outstanding Amounts") that are to be redeemed or otherwise paid by the Borrower on the Redemption Date. In the event that not all the Outstanding Amounts are to be redeemed or paid, the Outstanding Amounts shall be retired in the following order of priority: first, Default Interest due and owing, if any, then to the costs and expenses incurred by the Lender under Section 10 hereof, if any, then to the Interest Payments due and owing and lastly to the Loan Amount then outstanding. The Borrower shall satisfy its redemption obligation hereunder on the Redemption Date at the Payment Office, but solely out of Equity Proceeds; in no event shall any funds of the Borrower other than Equity Proceeds be applied to the redemption in whole or in part of this Note. (d) In the event all the Outstanding Amounts are to be redeemed, the Lender shall surrender this Note, duly endorsed or assigned to the Borrower or in blank at the Borrower's address first set forth above. (e) Absent manifest error, the books and records of the Lender with respect to this Note and the Outstanding Amounts shall be binding upon the Borrower and the Lender with respect to the level of the Outstanding Amounts at all times prior to, on and following the Redemption Date. (f) In addition to the Redemption Notice, the Borrower shall cause to be contemporaneously provided to the Lender all notices with respect to each Equity Sale at the time that such notices are provided to the public generally. 8. Subordination. (a) Generally. The Subordinated Debt shall be and hereby is expressly made subordinate and junior in right of payment to all Senior Debt to the extent and in the manner provided in these subordination provisions. These subordination provisions are made for the benefit of the holders of Senior Debt, and such holders are hereby made obligees hereunder with the same effect as if their names were written as such in these subordination provisions and any such holder or all of them may proceed to enforce such provisions. The Lender waives any and all notice of the creation or accrual of any such Senior Debt and notice of proof of reliance upon these subordination provisions by any holder of any Senior Debt. These subordination provisions shall be binding upon the Lender and any successors and assigns of the Subordinated Debt and any interest therein, and the Senior Debt shall conclusively be deemed to have been created, contracted or incurred in reliance upon these subordination provisions and all dealings between the Borrower and the holders of any such Senior Debt so arising shall be deemed to have been consummated in reliance upon these subordination provisions. (b) Certain Definitions. As used in this Section 8, the following terms have the meanings set forth below: "Financial Debt" of the Borrower means (i) any and all obligations of the Borrower under or in respect of the Loan Agreements, (ii) any indebtedness of the Borrower evidenced by bonds, debentures, notes or similar instruments, and (iii) any obligation of the Borrower in respect of guaranties issued by the Borrower or letters of credit issued for the account of the Borrower to assure or secure payment of indebtedness for borrowed money of others. "Indefeasibly Paid" means, with respect to the making of any payment on or in respect of any Senior Debt, a payment of such Senior Debt in full which is not subject to avoidance under Section 547 of the United States Bankruptcy Code or any other law or equitable principle. "Loan Agreements" means the Revolving Credit Facility, dated as of April 4, 1997, and the 364-Day Revolving Credit Facility, dated as of June 10, 1997, each among the Borrower, the banks and other lenders from time to time parties thereto and Societe Generale, as Issuing Bank and as Agent, in each case as amended through the date of this Note and as the same may be further amended, modified or supplemented from time to time hereafter. "Proceeding" means any (i) insolvency, bankruptcy, receivership, liquidation, reorganization, readjustment, composition or other similar proceeding relating to the Borrower, its property or its creditors as such, (ii) proceeding for any liquidation, dissolution or other winding-up of the Borrower, voluntary or involuntary, whether or not involving insolvency or bankruptcy proceedings, (iii) assignment for the benefit of creditors of the Borrower or (iv) other marshalling of the assets of the Borrower. "Senior Debt" means the principal of, premium, if any and interest on, and any and all other amounts payable to the holders thereof in connection with, (i) any Financial Debt of the Borrower that is not by its terms, made subordinated to all other senior unsecured indebtedness of the Borrower and (ii) any other indebtedness of the Borrower that by its express terms is stated to be Senior Debt of the Borrower for purposes of this Note, including without limitation, in each case referred to in clause (i) or clause (ii), any interest accruing thereon at the legal rate after the commencement of any Proceeding and any additional interest that would have accrued thereon but for the commencement of such Proceeding. "Senior Event of Default" means, with respect to any Senior Debt outstanding in an aggregate principal amount of $500,000 or more, an "event of default" or similar event, howsoever defined, the occurrence of which permits the holder or holders of such Senior Debt, or a trustee for such holders, to accelerate such Senior Debt or to demand that such Senior Debt be immediately paid in full. "Lender" means the payee of this Note and any assignee or other holder from time to time of Subordinated Debt. "Subordinated Debt" means the principal indebtedness evidenced by this Note, together with all interest hereon and all other amounts payable by the Borrower under or in respect of this Note pursuant to the terms hereof. (c) Subordination of Subordinated Debt Principal. Except for Redemption in whole or in part of this Note with the proceeds of one or more Equity Sales as provided in Section 7, above, no direct or indirect payment, purchase or redemption (in cash, property or securities or by set off or otherwise) shall be made or agreed to be made on account of any principal portion of the Subordinated Debt, or as a sinking fund for any Subordinated Debt, or in respect of any redemption, retirement, purchase or other acquisition of any of the principal portion of the Subordinated Debt, unless and until all amounts then outstanding under the Senior Debt shall have been Indefeasibly Paid. (d) Subordination of Subordinated Debt Payments. Without limiting the provisions of Section 8(c): (i) Upon receipt by the Lender of a notice from the Company or any holder of Senior Debt that there exists a Senior Event of Default in respect of such Senior Debt, no direct or indirect payment, purchase or redemption (in cash, property or securities or by set-off or otherwise) shall be made or agreed to be made on account of any Subordinated Debt, or as a sinking fund for any Subordinated Debt, or in respect of any redemption, retirement, purchase or other acquisition of any of the Subordinated Debt, in respect of all or any portion of the Subordinated Debt unless and until the Lender shall have received written notice from such holder of Senior Debt, or the agent or trustee of such holder, that such Senior Event of Default has been cured or waived. (ii) The holders of the Senior Debt shall be entitled pro rata in accordance with the principal amounts of Senior Debt then held by them and subject to the priorities, if any, then existing among such holders to vote all claims of or in respect of the Subordinated Debt in any Proceeding. Notwithstanding the foregoing, in the event that the holders of the Senior Debt shall allow the Lender to retain the right to vote and otherwise act in any Proceeding (including, without limitation, the right to vote to accept or reject any plan of partial or complete liquidation, reorganization, arrangement, composition or extension), the Lender shall not vote with respect to any such plan or take any other action in any way so as to contest (A) the validity of any liens or security interests granted to, or for the benefit of, the holders of any Senior Debt, (B) the relative rights and duties of the holders of the Senior Debt, or (C) the enforceability of the Senior Debt or these subordination provisions. (iii) In connection with any Proceeding, the Lender irrevocably authorizes the holders of the Senior Debt, or any of them, to demand, sue for, collect and receive all payments and distributions, to give acquittance therefor and to take such other actions as such holders of the Senior Debt may deem necessary or advisable for the enforcement of these subordination provisions. Such payments and distributions shall then be distributed among holders of Senior Debt pro rata in accordance with such holders' allowable claims in such Proceeding. The Lender further agrees duly and promptly to take such action as may be requested at any time or from time to time by the holders of the Senior Debt, to file appropriate proofs of claim in respect of the Subordinated Debt, and to execute and deliver such powers of attorney, assignments or proofs of claim or other instruments as may be requested by the holders of the Senior Debt, all as may be necessary or advisable to enable such holders of the Senior Debt to enforce any and all claims upon or in respect of the Subordinated Debt and to receive any and all payments or distributions. (e) Turnover of Improper Payments. If any payment or distribution of any character or any security, whether in cash, securities or other property shall be received by the Lender in contravention of any of the terms hereof, such payment or distribution or security shall be received in trust for the benefit of the holders of the Senior Debt at the time outstanding in accordance with the priorities then existing among such holders, and shall be paid over or delivered and transferred, with any necessary endorsement, to the Borrower for application to the payment of all Senior Debt remaining unpaid, to the extent necessary to pay all such Senior Debt in full. (f) No Prejudice or Impairment. (i) The rights under these subordination provisions of the holders of any Senior Debt as against the Lender shall remain in full force and effect without regard to, and shall not be impaired or affected by: (A) any act or failure to act on the part of the Borrower; or (B) any extension or indulgence in respect of any payment or prepayment of any Senior Debt or any part thereof or in respect of any other amount payable to any holder of any Senior Debt; or (C) any amendment, modification or waiver of, or addition or supplement to, or deletion from, or compromise, release, consent or other action in respect of, any of the terms of any Senior Debt; or (D) any exercise or non-exercise by the holder of any Senior Debt of any right, power, privilege or remedy under or in respect of such Senior Debt or these subordination provisions, or any waiver of any such right, power, privilege or remedy or of any default in respect of such Senior Debt or these subordination provisions, or any receipt by the holder of any Senior Debt or any security, or any failure by such holder to perfect a security interest in, or any release by such holder of, any security for the payment of such Senior Debt, or (E) any merger or consolidation of the Borrower or any of its subsidiaries into or with any other person, or any sale, lease or transfer of any or all of the assets of the Borrower or any of its subsidiaries to any other person; or (F) absence of any notice to, or knowledge by, any holder of the Subordinated Debt of the existence or occurrence of any of the matters or events set forth in the foregoing subdivisions (A) through (E); or (G) any other circumstances. (ii) The Lender unconditionally waives: (A) notice of any of the matters referred to in Section 8(f)(i), (B) to the extent permitted by law, all notices which may be required, whether by statute, rule of law or otherwise, to preserve intact any rights of any holder of any Senior Debt against the Borrower, including, without limitation, any demand, presentment and protest, proof of notice of nonpayment under any Senior Debt, (C) any right to the enforcement, assertion or exercise by any holder of any Senior Debt of any right, power, privilege or remedy conferred in such Senior Debt, or otherwise, (D) any requirement of diligence on the part of any holder of any of the Senior Debt, (E) any requirement on the part of any holder of any Senior Debt to mitigate damages resulting from any default under such Senior Debt, and (F) any notice of any sale, transfer or other disposition of any Senior Debt by any holder thereof. (iii) The obligations of the Lender under these subordination provisions shall continue to be effective, or be reinstated, as the case may be, if at any time any payment in respect of any Senior Debt, or any other payment to any holder of any Senior Debt in its capacity as such, is rescinded or must otherwise be restored or returned by the holder of such Senior Debt upon the occurrence of any Proceeding, or upon or as a result of the appointment of a receiver, intervenor or conservator of, or trustee or similar officer for, the Borrower or any substantial part of its property, or otherwise, all as though such payment had not been made. (g) Subrogation. The Lender shall not have any subrogation or other rights as the holder of a Senior Debt, and the Lender hereby waives all such rights of subrogation and all rights of reimbursement or indemnity whatsoever and all rights of recourse to any security for any Senior Debt, until such time as all the Senior Debt shall be Indefeasibly Paid and all of the obligations of the Borrower under or in respect of the Senior Debt shall have been duly performed. From and after the time at which all Senior Debt have been Indefeasibly Paid, the Lender shall be subrogated to all rights of any holders of Senior Debt to receive any further payments or distributions applicable to the Senior Debt until the Subordinated Debt shall have been Indefeasibly Paid, and for the purposes of such subrogation, no payment or distribution received by the holders of Senior Debt of cash, securities or other property to which the Lender would have been entitled except for these subordination provisions shall, as between the Borrower and its creditors other than the holders of Senior Debt, on the one hand, and the Lender, on the other, be deemed to be a payment or distribution by the Borrower to or on account of the Senior Debt. (h) Limitation on Actions. The Lender, by its acceptance of this Note, agrees and undertakes that, upon the occurrence of an Event of Default under this Note, unless and until the principal portion of all Senior Debt shall have been accelerated: (i) The Lender shall not (A) accelerate all or any portion of the Subordinated Debt, (B) take any action to foreclose or realize upon any collateral securing the Subordinated Debt or otherwise enforce this Note, (C) take, obtain or hold (or permit anyone acting on its behalf to take, obtain or hold) any assets of the Borrower, whether as a result of any administrative, legal or equitable action, or (D) otherwise commence, prosecute or participate in any administrative, legal or equitable action against the Borrower relating to the Subordinated Debt, provided, however, that anything in these subordination provisions contained to the contrary notwithstanding. (X) The Lender, may, but not more than one year prior to the expiration of any applicable limitation period provided by any applicable statute of limitation, (1) accelerate all or any portion of the Subordinated Debt and/or (2) commence and prosecute to judgment any action necessary to enforce such Subordinated Debt against the Borrower, but the Lender shall not take any action to enforce or collect any judgment so obtained or to enforce any lien of the Subordinated Debt unless expressly permitted by these subordination provisions, and (Y) in the event that any Proceeding is commenced by or against the Borrower, the Lender may appear as a party in such action or proceeding and assert and perfect his rights with respect to such Subordinated Debt provided that, in so acting, the Lender shall recognize the rights of the holders of Senior Debt under these subordination provisions, including, without limitation, the right to vote the claim represented by such Subordinated Debt to the extent necessary to enforce these subordination provisions. (ii) If the Lender, in violation of the provisions herein set forth, shall commence, prosecute or participate in any suit, action, case or proceeding against the Borrower, the Borrower may interpose as a defense or plea the provisions set forth herein, and any holder of any Senior Debt may intervene and interpose such defense or plea in its own name or in the name of the Borrower, and shall, in any event, be entitled to restrain the enforcement of the payment provisions of this Note in its own name or in the name of the Borrower, as the case may be, in the same suit, action, case or proceeding or in any independent suit, action, case or proceeding.. (i) Accrual of Interest; Addition of Interest to Principal. Nothing contained in this Section 8 shall be deemed to limit or impair the accrual of interest on this Note or the addition of accrued and unpaid interest on this Note to the principal of this Note, in each case to the maximum extent permitted hereunder or under applicable law. 9 Waiver. The Borrower hereby waives diligence, presentment, protest, demand for payment and notice (including, without limitation, any and all notices of default arising under Section 6 hereof) of any kind whatsoever. 10 Costs and Expenses. The Borrower hereby agrees to pay or reimburse the Lender for all reasonable costs, expenses or losses incurred by the Lender in connection with the collection or enforcement of the provisions hereof or of its rights in connection with this Note (whether or not any formal action or proceeding is commenced), including, but not limited to, the reasonable legal or collection fees and disbursements incurred by the Lender. 11 No Waiver. No course of dealing between the Borrower and the Lender or any failure, delay or omission on the part of the Lender in exercising any right hereunder shall operate or be construed as a waiver of such right or any other right hereunder at any other time or times. The waiver by the Lender of a breach or default of any provision of this Note shall not operate or be construed as a waiver of any subsequent breach or default thereof or any other breach or default hereunder at any other time or times. 12 Governing Law. This Note shall be governed by and construed under the laws of the State of New York and, in any litigation in connection with this Note, the Borrower hereby consents to and confers personal jurisdiction on the courts of the State of New York and on the Federal courts therein and expressly waives any objection as to venue in any of such courts. 13 Successors and Assigns. This Note shall be binding upon the Borrower and its successors and inure to the benefit of the Lender and its successors and assigns. 14 Notices. All notices and other communications provided for hereunder shall be in writing and mailed or delivered to the Borrower or the Lender, as applicable, at its address set forth above or, as to each such party, at such other address as shall be designated by such party in a written notice to the other party. All such notices and communications shall when mailed be effective when deposited in the mails and when delivered be effective upon delivery. 15 Severability. The provisions of this Note are severable and the invalidity or unenforceability of any provision shall not alter or impair the remaining provisions of this Note. 16 Headings. Section headings in this Note are included herein for convenience of reference only and shall not constitute a part of this Note for any other purpose. TRIGEN ENERGY CORPORATION By: /s/ Stephen T. Ward -------------------------- Name: Stephen T. Ward Title: Treasurer ATTEST: _______________________________ (Corporate Seal) EX-18 10 EXHIBIT 18 ARTHUR ANDERSEN February 8, 1999 Arthur Andersen LLP Champion Plaza 400 Atlantic Street Trigen Energy Corporation PO Box 120021 One Water Street Stamford CT 06912-0021 White Plains, New York 10601 Writer's Direct Dial [203] 353 3400 RE: Form 10-K Report for the year ended December 31,1998 Dear Sirs: This letter is written to meet the requirements of Regulation S-K calling for a letter from a registrant's independent accountants whenever there has been a change in accounting principle or practice. As of January 1,1999, the Trigen Energy Corporation (the "Company") changed from the average costing method of accounting for certain operating costs to the actual costing method. According to the management of the Company, this change was made to better reflect the results of its operations and conforms to internal and external reporting of such results. A complete coordinated set of financial and reporting standards for determining the preferability of accounting principles among acceptable alternative principles has not been established by the accounting profession. Thus, we cannot make an objective determination of whether the change in accounting described in the preceding paragraph is to a preferable method. However, we have reviewed the pertinent factors, including those related to financial reporting, in this particular case on a subjective basis, and our opinion stated below is based on our determination made in this manner. We are of the opinion that the Company's change in method of accounting is to an acceptable alternative method of accounting, which, based upon the reasons stated for the change and our discussions with you, is also preferable under the circumstances in this particular case. In arriving at this opinion, we have relied on the business judgment and business planning of your management. Very truly yours, /s/ Arthur Andersen LLP ARTHUR ANDERSEN LLP JB EX-23 11 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 8, 1998 included in the Company's previously filed Registration Statements No. 333-4198 on Form S-3; and No. 33-92468 and No. 333-36151 and No. 33-83736 on Form S-8 and Post-Effective Amendment No. 1 to Form S-8 of Trigen Energy Corporation and subsidiaries as of December 31, 1998. /S/ Arthur Andersen LLP ARTHUR ANDERSEN LLP March 29, 1999 Stamford, Connecticut EX-23 12 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 of Trigen Energy Corporation and subsidiaries of our report dated February 3, 1998, relating to the consolidated balance sheets of Trigen Energy Corporation and subsidiaries as of December 31, 1997, and the related consolidated statements of operations, stockholders' equity and cash flows for each of the years in the two-year period ended December 31, 1997, and the related schedules, as of and for the periods described therein, which report appears in the December 31, 1998 Annual Report on Form 10-K of Trigen Energy Corporation. KPMG Peat Marwick LLLP March 26, 1998 Stamford, Connecticut EX-23 13 EXHIBIT 23.3 CONSENT OF INDEPENDENT ACCOUNTANTS We hereby consent to the incorporation by reference in the previously filed Registration Statements on (i) Form S-3 (File No. 333-4198) and (ii) Form S-8 (No. 33-92468, 333-36151, 33-83736 and Post Effective Amendment No. 1 to Form S-8 of Trigen Energy Corporation of our report, dated January 26, 1999 (except for Note 9, as to which the date is March 10, 1999), on the financial statements for the years ended December 31, 1998 and 1997 of Grays Ferry Cogeneration Partnership appearing in this Form 10-K. Deloitte & Touche LLP Philadelphia, Pennsylvania March 30, 1999 EX-27 14
5 This schedule contains summary financial information extracted from SEC Form 10-K for the fiscal year ended December 31, 1998 and is qualified in its entirety by reference to such financial statements. 1,000 12-MOS DEC-31-1998 DEC-31-1998 10,074 0 42,109 1,187 7,074 8,016 538,200 (95,445) 618,156 75,629 343,685 0 0 124 147,804 618,156 242,394 242,394 169,577 210,571 2,519 0 18,172 11,132 4,575 6,557 0 (299) 0 6,258 .52 .52
EX-99 15 EXHIBIT 99 Grays Ferry Cogeneration Partnership Financial Statements for the Years Ended December 31, 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, 1998 and 1997, and the related statements of changes in partners' capital, and cash flows for the years then ended, and the related statement of income 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, 1998 and 1997, and its cash flows for the years then ended, and the results of its operations 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, PECO Energy has taken action to terminate its power purchase agreements with the Partnership. 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 Project debt as current. Deloitte & Touche LLP Philadelphia, Pennsylvania January 26, 1999 (except Note 9, as to which the date is March 10, 1999) GRAYS FERRY COGENERATION PARTNERSHIP
BALANCE SHEETS DECEMBER 31, 1998 AND 1997 ASSETS 1998 1997 CURRENT ASSETS: Cash and cash equivalents $18,628,423 $6,441,729 Accounts receivable - related parties 10,678,770 2,630,093 Accounts receivable - other 1,805,350 Inventory 2,163,444 1,020,469 Prepaid expenses 116,976 ----------- --------- Total current assets 33,392,963 10,092,291 PROPERTY, PLANT AND EQUIPMENTS: Construction work-in-progress 144,328,197 Plant in service 151,297,117 ----------- ---------Total Property, plant & equipment 151,297,117 144,328,197 Accumulated depreciation (7,402,171) ----------- --------- Property, plant and equipment - net 143,894,946 144,328,197 OTHER ASSETS (Net of accumulated amortization of $426,949 in 1998) 6,875,906 6,544,595 ----------- --------- TOTAL ASSETS $184,163,815 $160,965,083 =========== =========== LIABILITIES AND PARTNERS' CAPITAL CURRENT LIABILITIES: Construction loan (Notes 2 and 6) $94,324,049 $113,000,000 Subordinated debt (Note 6) 15,000,000 Accounts payable and accrued liabilities - related parties 3,503,417 558,759 Accounts payable and accrued liabilites - other 15,017,152 6,381,865 Retainage payable 5,581,729 5,581,729 ------------ --------- Total liabilities 133,426,347 125,522,353 PARTNERS' CAPITAL 50,737,468 35,442,730 ----------- ---------- TOTAL LIABILITIES AND PARTNERS' CAPITAL $184,163,815 160,965,083 ============ =========== See notes to financial statements.
GRAYS FERRY COGENERATION PARTNERSHIP
STATEMENT OF INCOME PERIOD FROM JANUARY 9, 1998 (Date of Commercial Operation) TO DECEMBER 31, 1998 REVENUES FROM RELATED PARTIES: Electric energy sales $50,776,226 Steam sales 14,741,775 Capacity fees: Electric 9,531,900 Steam 3,075,988 ---------- Total revenues 78,125,889 ------------ OPERATING EXPENSES: Fuel and consumables: Related party 2,531,844 Other 32,394,334 Operation and maintenance: Related parties 1,527,916 Other 2,819,680 General and administrative: Related parties 2,772,641 Other 2,373,432 Depreciation 7,402,171 ----------- Total operating expenses 51,822,018 ----------- INCOME FROM OPERATIONS 26,303,871 ------------ OTHER INCOME (EXPENSE): Interest income 665,765 Interest expense (11,674,898) ------------ Total other expense (11,009,133) ------------- NET INCOME $ 15,294,738 ============ See notes to financial statements.
GRAYS FERRY COGENERATION PARTNERSHIP STATEMENTS OF CHANGES IN PARTNERS' CAPITAL YEARS ENDED DECEMBER 31, 1998 AND 1997 Adwin CogenAmerica Trigen Total (Schuylkill) Schuylkill (Schuylkill) Partners' Cogeneration, Inc. Cogeneration, Capital Ind. Inc. ------------ ------------------ ------ -------- BALANCE, JAN. 1, 1996 $ 2,784,214 $2,658,516 $5,442,730 Capital Con- tributions 10,000,000 10,000,000 10,000,000 30,000,000 ---------- ---------- ----------- --------- BALANCE, DEC. 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, DEC. 31, 1998 $17,882,460 $17,756,762 $15,098,246 $50,737,468 ========== =========== =========== ===========
See notes to financial statements. GRAYS FERRY COGENERATION PARTNERSHIP
STATEMENTS OF CASH FLOWS YEARS ENDED DECEMBER 31, 1998 AND 1997 1998 1997 OPERATING ACTIVITIES: Net income $15,294,738 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation 7,402,171 Amortization of other asset 426,949 Changes in assets and liabilities which provided (used) cash: Accounts receivable - related parties (8,048,677) Accounts receivable - other (1,805,350) Prepaid assets (116,976) Inventories (1,142,975) Accounts payable and accrued expenses - related parties 3,503,417 Accounts payable and accrued expenses - other 15,017,152 Other assets (758,260) ---------- Net cash provided by operating activities 29,772,189 ----------- INVESTING ACTIVITIES: Construction expenditures (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 (6,381,865) (4,812,728) ----------- ----------- Net cash used in investing activities (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(18,675,951) Partners' capital contributions 30,000,000 Net cash (used in) provided by financing activities (3,675,951) 87,900,000 ------------ ------------ NET INCREASE IN CASH AND CASH EQUIVALENTS 12,186,694 6,394,072 CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 6,441,729 47,657 ----------- -------- ---- CASH AND CASH EQUIVALENTS, END OF PERIOD 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 $ 7,770,075 $ - =========== ============ See notes to financial statements.
Grays Ferry Cogeneration Partnership NOTES TO FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 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 TrigenPhiladelphia 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 believes the date should have been December 30, 1997 and is litigating this issue as part of the litigation described in Note 2. 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. 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"). The three general partners are equal partners, with net operating profits and losses and distributions to be allocated equally to the partners, 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, PECO has taken action to terminate its power purchase agreements with the Partnership. 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. 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. Engineering, Procurement and Construction Contract - Although the Partnership began Commercial Operation on January 9, 1998, the Partnership has not yet accepted care, custody or control of the Project from Westinghouse Electric Corporation (the "Contractor") due to the Partnership's concerns over design and construction issues. This issue is in arbitration. PECO - In March 1998, the Partnership received notice from PECO that PECO believes its power purchase agreements with the Partnership are no longer effective. PECO has refused to pay the rates set forth in the agreements based on its allegations that the Pennsylvania Public Utilities Commission (the "PPUC") has 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. 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 are no longer in effect constitutes a Material Adverse Effect as defined under the credit agreement. In addition, the Subordinate Credit Commitment (the "Subordinate Debt") contains cross-default provisions; accordingly upon notice of default from the Project Lender, the Partnership was in default on its Subordinate Debt. 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 sheet (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%, and the interest on the Subordinate Debt increased to prime plus 3.5% (9.75% and 11.25%, respectively, at December 31, 1998), the penalty interest rates. Management intends to vigorously pursue enforcement of the power purchase agreements, which if successful, should result in a cure of the construction loan and Subordinate Debt default. 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 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 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: 1998 1997 Fuel $1,532,987 $1,020,469 Spare Parts 630,457 ---------- --------- $2,163,444 $1,020,469 ========== ========== (e) Fair Value of Financial Instruments - The amounts reported in the balance sheets for accounts receivable, accounts payable and debt approximate fair 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) 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. (i) Reclassifications - Certain amounts in the 1997 financial statements have been reclassified to conform to current year presentation. (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, 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 $6,544,596 are amortized over the life of the credit agreements and are included in other assets. (l) 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 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 1998 and 1997, the Partnership incurred costs associated with these services of $199,640 and $100,923, respectively, of which $12,862 and $100,923 is included in accounts payable at December 31, 1998 and 1997, 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 $600,000 and a capacity fee of $757,416, and reimbursable expenses of $1,647,658 for 1998, of which $1,497,003 was included in accounts payable at December 31, 1998. Included in those billings 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 1998 and 1997, $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, 1998 and 1997 include $3,985,346 and $851,182, 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 1998 and 1997, $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 1998 and 1997, $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, 1998 and 1997 include $6,693,424 and $1,778,911, 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; however, $252,635 was in accounts payable at December 31, 1997. 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 cost. Accounts payable at December 31, 1998, include $1,200,000 related to these billings. In addition, during 1997, the Partnership incurred PUPCO mobilization fees of $150,000. Fuel Management Agreement - During 1998, the Partnership had an agreement with Exelon Corporation, a subsidiary of PECO, for fuel management services. Under the terms of the agreement, the Partnership was to pay 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. 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 was capitalized as construction cost. Accounts payable at December 31, 1997 included $205,201 of such fees and expenses. Management Services and Other - In accordance with the Partnership agreement, the Partnership is required to pay it's 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 $18,750 for the year ended December 31, 1998, all of which was included in accounts payable as of December 31, 1998. In addition, the Partnership purchases demineralized water from Trigen. For the year ended December 31, 1998, the Partnership purchased $2,206,869 of demineralized water from Trigen of which $46,671 was capitalized as a construction cost prior to commercial operation and $498,322 was included in accounts payable as of December 31, 1998. 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 1998, the Partnership purchased $14,691,090 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 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 1998, the Partnership purchased $3,187,640 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 has been recorded in accounts receivable at December 31, 1998. The Partnership believes this accrual is based on a conservative estimate. Currently, the Partnership and the Contractor are in arbitration over the completion of the EPC contract (see Note 2). Provisional acceptance of the Project has not yet occurred. 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. 6. CREDIT AGREEMENTS 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 $94,324,049 outstanding under the Construction Loan at December 31, 1998. The Partnership has pledged $5,000,000 under its LOC Commitment for outstanding letters of credit as of December 31, 1998. 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 6.66% at December 31, 1998. 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. 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 5.2% at December 31, 1998, on the same balance. 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 are available after the Construction Loan commitments described above have been exhausted and the Partners have made their equity contribution of $30,000,000 to be used for the continuation of the Project's construction. The term of the Subordinate Debt is nine years and interest on the Subordinate Debt will be 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. 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 PRONOUNCEMENTS 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. At this time, the Partnership has not determined the impact the adoption of this standard will have on the Partnership's financial statements. In July 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standard No. 133, ("SFAS No. 133") Accounting for Derivative Instruments and Hedging Activities. This statement, which establishes accounting and reporting standards for derivative instruments, including certain derivative instruments imbedded in other contracts, and for hedging activities, is effective for fiscal years beginning after June 15, 1999. At this time, the Partnership has not determined the impact the adoption of this standard will have on the Partnership's financial statements. 9. SUBSEQUENT EVENTS On February 28, 1999, the 20 year agreement with Exelon for fuel management services was terminated by mutual consent among the parties. On March 10, 1999, the Court of Common Pleas granted the Partnership's motion for partial summary judgement effectively deciding the issue of liability on the contract claim against PECO and in favor of the Partnership in the matter discussed in Note 2. The trial will now be limited to the amount of damages PECO must 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. The trial is scheduled to begin March 29, 1999. ****** -----END PRIVACY-ENHANCED MESSAGE-----