-----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, LZw8Oo0U6fKhFSCgy5lZqtYDA7zfSxaAxshdBTrvIKR6YNnxSQy505HYNAgLPyOL ykebBavyV9CNnxGf/wCT4w== 0000925655-99-000024.txt : 19991115 0000925655-99-000024.hdr.sgml : 19991115 ACCESSION NUMBER: 0000925655-99-000024 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990930 FILED AS OF DATE: 19991112 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-Q SEC ACT: SEC FILE NUMBER: 001-13264 FILM NUMBER: 99749468 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-Q 1 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ------------------------------- FORM 10-Q [ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 1999 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ___________ to____________ Commission File No. 1-13264 TRIGEN ENERGY CORPORATION (Exact name of Registrant as specified in its charter) Delaware 13-3378939 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification Number) One Water Street White Plains, New York 10601-1009 (Address of principal executive offices) (Zip Code) (914) 286-6600 (Registrant's telephone number, including area code) 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 There were 12,407,102 shares of the Registrant's Common Stock outstanding as of November 5, 1999. TRIGEN ENERGY CORPORATION AND SUBSIDIARIES INDEX TO FORM 10-Q Quarter Ended September 30, 1999 Page Part I - Financial Information: Item 1. Financial Statements Consolidated Statements of Operations for the Three Months and Nine Months Ended September 30, 1999 and 1998 (Unaudited) 3 Consolidated Balance Sheets as of September 30, 1999 (Unaudited) and December 31, 1998 4 Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 1999 and 1998 (Unaudited) 5 Notes to Consolidated Financial Statements (Unaudited) 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations .. 9 Item 3.Quantitative and Qualitative Disclosures About Market Risk 13 Part II - Other Information: 14 Signatures: .... 16 Disclosure Regarding Forward-Looking Statements This 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 future energy markets, 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 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.
Part I - Financial Information Item 1. Financial Statements TRIGEN ENERGY CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS For the Three Months and Nine Months Ended September 30, 1999 and 1998 Unaudited (In thousands, except per share data) Three Months Nine Months ----------- ----------- 1999 1998 1999 1998 Revenues ---- ---- ---- ---- Thermal energy....................... $ 40,724 $ 35,300 $153,700 $132,578 Electric energy....................... 11,065 11,001 32,704 31,210 Equity in earnings of non-consolidated partnerships 2,725 1,598 6,749 3,624 Fees earned and other revenues 3,223 2,940 10,899 9,133 --------- ------- ---------- ------- Total revenues 57,737 50,839 204,052 176,545 --------- ------- ---------- ------- Operating Expenses Fuel and consumables 23,279 21,316 84,860 74,012 Production and operating costs 12,476 12,017 39,783 36,068 Depreciation and amortization 5,863 5,839 18,312 17,401 General and administrative 10,123 8,466 30,588 27,785 --------- ------- ---------- ------- Total operating expenses 51,741 47,638 173,543 155,266 --------- ------- ---------- ------- Operating income 5,996 3,201 30,509 21,279 Other income (expense) Interest expense (6,423) (6,046) (18,829) (17,613) Other income, net 50 332 15,397 4,931 --------- ------- ---------- ------- Earnings (losses) before minority interests, income taxes, extraordinary item, and cumulative effect of a change in an accounting principle.... (377) (2,513) 27,077 8,597 Minority interests in earnings of subsidiaries 1,350 799 2,390 2,374 --------- ------- -------- ------- Earnings (losses) before income taxes, extraordinary item and cumulative effect of a change in an accounting principle (1,727) (3,312) 24,687 6,223 Income taxes ( 715) (1,424) 10,220 2,676 --------- ------- -------- ------- Earnings (losses) before extraordinary item and cumulative effect of a change in an accounting principle (1,012) (1,888) 14,467 3,547 Extraordinary loss from extinguishment of debt, net of tax benefit - - - - - - ( 299) Cumulative effect of change in an accounting principle, net of tax benefit - - - - (4,903) - - --------- -------- -------- ------- Net earnings (losses) $ (1,012) $ (1,888) $ 9,564 $ 3,248 ========= ======== ======== ======= Basic earnings per common share Before extraordinary item and Cumulative effect of a change in an accounting principle $ (.09) $ (.15) $ 1.20 $ .30 Extraordinary loss - - - - - - (.03) Cumulative effect of change in an accounting principle - - - - (.41) - - --------- ------- ------ ------ Net earnings (losses)...................$ (.09) $ (.15) $ .79 $ .27 ========= ======= ====== ====== Diluted earnings per common share Before extraordinary item and cumulative effect of a change in an accounting principle $ (.09) $ (.15) $ 1.20 $ .30 Extraordinary loss - - - - - - ( .03) Cumulative effect of change in an accounting principle - - - - (.41) - - --------- ------- ------ ------ Net earnings (losses) $ (.09) $ (.15) $ .79 $ .27 ========= ======== ====== ====== Average shares outstanding - basic 12,051 11,999 12,038 12,010 --------- ------- ------ ------ Average shares outstanding - diluted 12,219 11,999 12,087 12,011 --------- -------- ------ ------ See accompanying notes to consolidated financial statements.
TRIGEN ENERGY CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS Unaudited (In thousands, except share data) September 30, December 31, 1999 1998 ------------- ------------ Assets Current assets Cash and cash equivalents $ 21,544 $ 10,074 Accounts receivable Trade (less allowance for doubtful accounts of $1,460 in 1999 and $1,278 in 1998) 34,791 35,236 Other 9,593 5,686 --------- -------- Total accounts receivable 44,384 40,922 Inventories 7,613 7,074 Prepaid expenses and other current assets 8,350 8,016 -------- ------- Total current assets 81,891 66,086 Restricted cash and cash equivalents 4,552 4,623 Property, plant and equipment, net 484,768 442,755 Investment in non-consolidated partnerships 47,550 30,319 Intangible assets, net 46,749 49,968 Deferred costs and other assets, net 29,847 24,405 ---------- -------- Total assets $695,357 $618,156 ========= ======== Liabilities and Stockholders' Equity Current liabilities Short-term debt $ 11,700 $ 15,000 Current portion of long-term debt 17,054 16,398 Accounts payable 8,067 4,756 Accrued income taxes 4,581 5,728 Accrued fuel 9,495 14,121 Accrued expenses and other current liabilities 26,758 19,626 -------- ------- Total current liabilities 77,655 75,629 Long-term debt 396,614 343,685 Other liabilities 4,132 4,254 Deferred income taxes 43,701 39,422 -------- ------- Total liabilities 522,102 462,990 Minority interests in subsidiaries 14,685 7,238 Stockholders' equity Preferred stock-$.01 par value, authorized and unissued 15,000,000 shares - - - - Common stock-$.01 par value, authorized 60,000,000 shares, issued 12,417,934 shares in 1999 and 1998 124 124 Additional paid-in capital 120,242 120,595 Retained earnings 44,683 36,417 Unearned compensation - restricted stock (4,592) ( 4,967) Accumulated other comprehensive loss (1,254) ( 2,002) Treasury stock, at cost, 41,285 shares in 1999 and 145,842 shares in 1998 (633) (2,239) ------- -------- Total stockholders' equity 158,570 147,928 -------- -------- Total liabilities and stockholders' equity $695,357 $618,156 ======== ======== See accompanying notes to consolidated financial statements.
TRIGEN ENERGY CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS For the Nine Months Ended September 30, 1999 and 1998 Unaudited (In thousands) 1999 1998 ----- ---- Cash flows from operating activities Net earnings $ 9,564 $ 3,248 Reconciliation of net earnings to cash provided by operating activities Non-cash after-tax gain on litigation settlement ( 8,518) - - Extraordinary item - - 299 Cumulative effect of a change in an accounting principle 4,903 - - Depreciation and amortization 18,312 17,401 Deferred income taxes 4,279 199 Provision for doubtful accounts 379 339 Minority interests in subsidiaries 2,390 2,374 Changes in assets and liabilities Accounts receivable (3,290) 13,257 Inventories and other current assets (873) 187 Accounts payable and other current liabilities 2,671 (6,170) Non-current assets and liabilities (2,874) (2,171) --------- -------- Net cash provided by operating activities 26,943 28,963 --------- ------- Cash flows from investing activities Acquisition of energy facilities. (5,903) (65,350) Investments in non-consolidated partnerships (278) (979) Purchase of marketable securities (1,013) -- Capital expenditures (56,530) (28,709) -------- -------- Net cash used in investing activities (63,724) (95,038) --------- --------- Cash flows from financing activities Short-term debt, net (3,300) (3,850) Proceeds of long-term debt 67,950 110,100 Payments of long-term debt (15,136) (32,123) Dividends paid (1,297) (1,293) Purchase of treasury stock (38) (608) Distribution to minority interests - - (2,089) -------- ------- Net cash provided by financing activities 48,179 70,137 Cash and cash equivalents -------- ------- Increase 11,398 4,062 At beginning of period 14,698 13,693 -------- ------- At end of period $ 26,096 $17,755 ======== ======== Current $ 21,544 $13,108 Restricted 4,552 4,647 -------- ------- At end of period $26,096 $17,755 ======= ======= Supplemental disclosure of cash flow information Cash paid during the period for Interest $ 17,543 $10,606 -------- ------- Income taxes 5,708 1,629 -------- ------- See accompanying notes to consolidated financial statements.
TRIGEN ENERGY CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) 1. Basis of Presentation Trigen Energy Corporation and its subsidiaries ("we"), develop, own and operate commercial and industrial energy systems in the United States, Canada and Mexico. We use our expertise in thermal engineering and proprietary cogeneration processes to convert fuel to various forms of thermal energy and electricity. We combine heat and power generation, producing electricity as a by-product, for use in our facilities and for sale to customers. The consolidated financial statements of Trigen Energy Corporation and its subsidiaries presented herein are unaudited. However, such information reflects all adjustments, consisting of normal recurring adjustments, which are, in the opinion of management, necessary to present fairly the financial position as of September 30, 1999 and December 31, 1998, and the results of operations for the three and nine months ended September 30, 1999 and 1998 and the cash flows for the nine months ended September 30, 1999 and 1998. The results of operations for the three and nine month periods ended September 30, 1999 and cash flows for the nine month period ended September 30, 1999 are not indicative of those to be expected for the year ending December 31, 1999. These financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto for the year ended December 31, 1998 included in our Annual Report on Form 10-K for the year ended December 31, 1998. Certain reclassifications have been made to the 1998 financial statements to conform to the 1999 presentation. 2. Recent Accounting Pronouncements In September 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities" ("SFAS No. 133"). SFAS No. 133 establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities. In July 1999, SFAS No. 137 was issued, which deferred the effective date of SFAS No. 133. We will adopt SFAS No. 133 effective January 1, 2001. Based on preliminary analysis, we do not expect the future adoption of SFAS No. 133 to have a material effect on results of operations and financial condition. 3. Supplementary Income Information Included in other income, net for the nine months ended September 30, 1999 is a pre-tax gain of $14.5 million related to the Grays Ferry Cogeneration Partnership litigation settlement agreement. The gain represents the market value of the share of the Partnership that we received as part of this settlement. (See Note 6- Legal Proceedings). Included in other income, net for the nine months ended September 30, 1998 were gains of $2.1 million from the sale of nitrogen oxide emission allowances and $1.7 million from an insurance settlement. TRIGEN ENERGY CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) 4. Cumulative Effect of a Change in an Accounting Principle Effective January 1, 1999, we adopted the American Institute of Certified Public Accountants Statement of Position No. 98-5, "Reporting on the Costs of Start-Up Activities" ("SOP 98-5"). SOP 98-5 requires that costs associated with start-up activities and organizational costs be expensed as incurred. The effect of the adoption was an after-tax charge of $4.9 million, net of a tax benefit of $3.5 million, to expense deferred organizational and start-up costs as a cumulative effect of a change in an accounting principle. 5. Extraordinary Item We incurred an extraordinary charge of $.3 million, net of a tax benefit of $.2 million, in the nine months ended September 30, 1998 in connection with the early retirement of debt. 6. Legal Proceedings Grays Ferry Settlement On April 23, 1999, the Pennsylvania Court of Common Pleas of Philadelphia County approved a settlement agreement which ended the lawsuit brought by Grays Ferry Cogeneration Partnership (the "Partnership"), Trigen-Schuylkill Cogeneration, Inc. and Cogen America Schuylkill Inc. against PECO Energy Company and Adwin (Schuylkill) Cogeneration, Inc. The Partnership is the owner of the Grays Ferry Cogeneration Facility located in Philadelphia, Pennsylvania. The Partnership, Trigen-Schuylkill and Cogen America commenced this lawsuit in reaction to the alleged termination by PECO on March 3, 1998, of the electric power purchase agreements between the Partnership and PECO (the "Power Purchase Agreements"). Prior to the settlement we owned a one third interest in the Partnership through our wholly owned subsidiary, Trigen-Schuylkill. Cogen America and Adwin owned the other two-thirds interests in the Partnership. Adwin is an indirect wholly owned subsidiary of PECO. Under the settlement agreement PECO's subsidiary, Adwin, surrendered its rights to its one-third partnership interest in the Partnership to the two remaining partners, Trigen-Schuylkill and Cogen America. As a result, we own one half of the Partnership and Cogen America owns the other half. During the second quarter 1999, we recognized an after tax gain of $8.5 million ($.71 per diluted share) which represents the market value of our share of Adwin's interest. Separately, The Chase Manhattan Bank and Westinghouse Power Generation, which financed the construction of the Gray's Ferry Cogeneration facility, agreed to dismiss their lawsuits against PECO. The Chase Manhattan Bank also agreed that they will not charge the Partnership for any default interest up to April 16, 1999. During the second quarter 1999, the Partnership therefore reversed previously accrued default interest of $2.9 million including $1.8 million that was recorded in 1998. Our share of the interest reversal was $1.4 million. TRIGEN ENERGY CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) In the year 2001, the energy price under the Power Purchase Agreements will begin to be based upon a percentage of a market based index, which we expect to produce substantially lower revenues from sales to PECO than the more favorable rates of the early contract years. Under the settlement agreement, the Partnership gained the right to sell to third parties electric energy and capacity from the facility in excess of the 150 megawatts which PECO is required to purchase under the Power Purchase Agreements, subject to a right of first refusal for PECO. We expect that the ability to sell to third parties electric energy and capacity above the 150 megawatts under contract to PECO, will result in an opportunity to improve the financial performance of the Partnership. The Partnership will now have the ability to institute capital modifications to the combustion turbine to increase electric capacity during the summer months when the price of electric capacity and energy are historically the highest. 7. Comprehensive Income Effective January 1, 1998, we adopted Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive Income". This statement requires disclosure of all items recognized under accounting standards as components of comprehensive income. Following are the components of comprehensive income for the three months and nine months ended September 30, 1999 and 1998 (in thousands). Three Months Ended Nine Months Ended September 30, September 30, ------------------- ----------------- 1999 1998 1999 1998 ---- ---- ---- ---- Net earnings (losses)..........$(1,012) (1,888) $ 9,564 $3,248 Other comprehensive income Cumulative foreign currency Translation adjustment... 315 36 748 55 -------- -------- ------- ----- Comprehensive income (loss)..... $( 697) $(1,852) $10,312 $3,303 ======== ======== ======= ====== Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Results of Operations Three Months ended September 30, 1999 compared with Three Months ended September 30, 1998. Overview For the quarter ended September 30, 1999, we reported a loss of $1.0 million or $.09 per diluted share. This compared with a loss of $1.9 million or $.15 per diluted share in the third quarter of 1998. Revenues were $57.7 million in the third quarter compared with $50.8 million in the third quarter of last year. Third quarter operating income of $6.0 million increased $2.8 million over the $3.2 million in the like quarter last year. This increase reflects higher sales volume in most of the district energy systems and positive contributions from new industrial accounts. In addition, equity earnings from unconsolidated subsidiaries increased by $1.1 million in the third quarter of 1999 versus the third quarter of 1998 due to an increase in our ownership share of the Grays Ferry Cogeneration Partnership. A significant portion of our revenues and profits are subject to seasonal fluctuation due to peak heating demand in the winter and peak cooling demand in the summer. Revenues Revenues of $57.7 million were up $6.9 million during the third quarter of 1999 or 13.6% from the third quarter of 1998, due to increased sales volume in most of the district energy systems and positive contributions from our new industrial accounts which became operational in 1999. Thermal energy sales were up $5.4 million to $40.7 million while electric energy sales remained level with last year at $11.1 million. Equity earnings from unconsolidated subsidiaries were up $1.1 million from the third quarter of 1998, primarily due to an increase in our ownership share of the Grays Ferry Cogeneration Partnership to 50% from 33 1/3%. Operating Expenses Fuel and consumables costs were $23.3 million in the third quarter of 1999 compared with $21.3 million in the third quarter of 1998. This increase was due to the higher level of energy revenues and the addition of fuel and consumables costs associated with new industrial accounts. Production and operating costs increased $.5 million to $12.5 million in the third quarter of 1999 due to the increase in revenues and the inclusion of production and operating costs associated with new industrial accounts. General and administrative expenses increased 19% in the quarter to $10.1 million primarily due to the inclusion of overhead attributable to new industrial accounts, legal expenses incurred in connection with ongoing litigation and increased headcount required to pursue energy outsourcing opportunities. Income Taxes Our effective tax rate is determined primarily by the federal statutory rate of 35%, and state and local income taxes. The effective income tax rate for the third quarter of 1999 and 1998 was 41.4% and 43.0%, respectively. Nine Months ended September 30, 1999 compared with Nine Months ended September 30, 1998 Overview For the nine months ended September 30, 1999, we reported earnings before a cumulative effect of a change in an accounting principle of $14.5 million or $1.20 per diluted share. This compared to $3.5 million and $.30 of diluted earnings per share before extraordinary item during the same period last year. Net earnings for the nine months ended September 30, 1999, amounted to $9.6 million or $.79 per diluted share after the effect of the adoption of the change in accounting principle. Net earnings included a non-recurring after-tax gain of $8.5 million, or $.71 per diluted share, related to the PECO lawsuit settlement. Operating income was $30.5 million on revenues of $204.1 million in the first nine months of 1999 compared with operating income of $21.3 million on revenues of $176.5 million in first nine months of 1998. The operating margin was 14.9% in the first nine months of 1999 compared with 12.1% in the first nine months of 1998. Revenues Revenues of $204.1 million were up $27.6 million or 15.6% over 1998. Thermal energy sales increased $21.1 million to $153.7 million and electric energy sales increased $1.5 million to $32.7 million. The increase in thermal energy sales is due to increased sales volume reflecting a colder winter than 1998 and from positive contributions from our new industrial accounts which became operational in 1999. Equity earnings from unconsolidated subsidiaries increased 86% to $6.7 million. This is primarily due to the increase in our ownership share of the Grays Ferry Cogeneration Partnership to 50% from 33 1/3% and from our $1.4 million share of the reversal of accrued default interest on the Partnership debt through April 16, 1999. Fees earned and other revenues increased $1.8 million to $10.9 million primarily due to increased equipment sales and to new industrial accounts. Operating Expenses Fuel and consumables costs were $84.9 million compared with $74.0 million during the same period last year. This is due to the higher level of energy revenues and the addition of fuel and consumables costs associated with new industrial accounts. Production and operating costs increased 10.2% to $39.8 million due to the increase in revenues and operating costs associated with new industrial accounts. Depreciation and amortization expense was $18.3 million versus $17.4 million in 1998. The increase reflects the higher level of capital expenditures. General and administrative expenses increased $2.8 million compared to 1998. Expenses in 1998 included special cost adjustments of $2.0 million for insurance and employee related costs. Increased costs in 1999 are primarily due to legal expenses incurred in pursuing the Oklahoma City antitrust lawsuit against Oklahoma Gas and Electric Company, overhead related to new industrial accounts and to increased headcount required to pursue energy outsourcing opportunities. Interest Expense, Net Interest expense increased $1.2 million to $18.8 million due to higher debt levels. Other Income, Net Other income, net is up $10.5 million compared to 1998. This is primarily due to recognizing the gain from our share of the Adwin interest in the Grays Ferry Cogeneration Partnership which was surrendered to us on April 23, 1999 as part of a legal settlement agreement (see Note 6-Legal Proceedings). We recorded a pre-tax gain of $14.5 million which represents the market value of the share of Adwin's interest in the Partnership that was surrendered to us. 1998 other income, net included the net results from gains of $2.1 million from the sale of nitrogen oxide emission allowances and $1.7 million from an insurance settlement. Income Taxes Our effective tax rate is determined primarily by the federal statutory rate of 35%, and state and local income taxes. The effective tax rate for 1999 and 1998 was 41.4% and 43.0%, respectively. Cumulative effect of a Change in an Accounting Principle We incurred an after-tax charge of $4.9 million, net of a tax benefit of $3.5 million, related to the adoption of SOP 98-5 "Reporting on the Costs of Start-Up Activities" which was recorded as a cumulative effect of a change in an accounting principle. Reference is made to Note 4 of the Notes to Consolidated Financial Statements with respect to the cumulative effect of a change in an accounting principle. Liquidity and Financial Position Cash and cash equivalents were $26.1 million at September 30, 1999 (which included $4.6 million of restricted cash and cash equivalents), an increase of $11.4 million from year end 1998. Working capital was $4.2 million compared with a negative $9.5 million at December 31, 1998. At September 30, 1999, receivables increased $3.5 million and inventories increased $.5 million to $44.4 million and $7.6 million, respectively, from the balances at the end of 1998. Accounts payable were up $3.3 million to $8.1 million, accrued fuels decreased by $4.6 million to $9.5 million and accrued expenses and other current liabilities were up $7.2 million to $26.8 million at September 30, 1999. Our working capital requirements vary in line with the peak heating demand in the winter and peak cooling demand in the summer. During the first nine months of 1999, we generated $26.9 million of cash from operating activities compared with $29.0 million in the like period last year. The decrease in cash generated from operations in 1999 was due primarily to higher working capital requirements. During the first nine months of 1999, we invested $56.5 million in capital expenditures, $5.9 million in the acquisition of energy facilities and non-consolidated partnership investments and paid dividends of $1.3 million to shareholders. Total debt was $425.4 million at September 30, 1999 compared with $375.1 million at the end of 1998. The $50.3 million increase, along with cash generated from operations, was predominately used to fund capital expenditures. During the first nine months of 1999, stockholders' equity increased $10.6 million to $158.6 million at September 30, 1999. This increase reflects $9.6 million of net earnings, $.4 million of amortization of unearned compensation related to restricted shares, a $.7 million cumulative translation adjustment and reduction in treasury stock related to profit sharing contributions and employee stock purchase plan of $1.2 million, partially offset by $1.3 million of dividend payments to shareholders. Reference is made to Note 6 of the Notes to Consolidated Financial Statements with respect to legal proceedings involving the Company. Year 2000 Date Conversion An issue affecting us and other businesses is the inability of many computer systems and applications to process the year 2000 ("Y2K") and beyond. To address this problem, we have 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 have completed testing of our material Plant Production systems for Y2K compatibility. At this time, we believe that all of our material Plant Production systems are Y2K compatible. 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. We anticipate all material Desktop systems to be compliant by December 1999 and Corporate Systems, which include financial and billing systems, to be compliant by December 1999. At this time, we believe our accounting system is Y2K compliant. We are in the process of upgrading our 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. We estimate the total external cost to achieve Y2K compliance to be $1 million for the years 1997 through 1999. These costs have been substantially incurred and expensed. We believe we are staffed sufficiently to address all Y2K issues. We purchase 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. We will continue to survey our key vendors to determine their Y2K compliance. At this time, we do not expect any material disruption in services from vendors due to Y2K issues. We are, however, dependent in part, upon the ability of our vendors to be Y2K compliant. Our Y2K efforts are ongoing and our overall plan, as well as consideration of contingency plans, will continue to evolve as new information becomes available. At this time, we do not expect any major interruption of our business activities due to Y2K issues. However, we are unable to estimate the ultimate effect Y2K risks will have on our operating results. Item 3. Quantitative and Qualitative Disclosures About Market Risk We do not engage in the trading of market risk sensitive instruments in the normal course of business. Our short and long-term debt is subject to fixed and variable interest rates including rates based primarily on LIBOR. Based upon the debt balances at September 30, 1999, a change in the LIBOR rate of .25% would have a corresponding change in interest expense of approximately $655,000 per year when three-month LIBOR is over 7.5% ranging to approximately $776,000 per year when three-month LIBOR is under 6.0%. Three-month LIBOR at September 30, 1999 was 6.08%. We use financial instruments to limit the financial risk of increases in interest rates on our floating rate debt. The differential to be paid or received under financial instruments is accrued and recognized in interest expense as interest rates change. As of September 30, 1999, we had outstanding interest rate swap, cap and collar agreements related to $40.8 million of debt outstanding, with an average fixed interest rate of 5.8% and an average remaining life of 5.6 years. If Trigen had liquidated the swap, cap and collar the amount received would have approximated $357,000. We do not expect these financial instruments to have a material effect on our earnings or cash flows. Part II - Other Information Item 1. Legal Proceedings. We report information regarding our legal proceedings under Note 6 to the Consolidated Financial Statements in this Report and in our Annual Report on Form 10-K for the year ended December 31, 1998 as well as in other reports we have filed with the SEC earlier this year. Shareholder Litigation On September 21, 1999, three complaints were filed in Delaware Chancery Court against: Trigen Energy Corporation, Suez Lyonnaise Des Eaux SA, Patrick Buffet, George F. Keane, Thomas R. Casten, Philippe Brongniart, Olivier Degos, Patrick Desnos, Richard E. Kessel, Charles E. Bayless, Michel Bleitrach, Dominique Mangin D'Ouince and Michel Cassou. The individual defendants were sued in their capacity as Trigen directors and/or former Trigen directors. A complaint was filed by Michael Fothergill; another complaint was filed by Rosa Cortez; and the third complaint was filed by Sarah Berkowitz. The complaints raise substantially identical allegations: that Trigen received a proposal from Suez to take Trigen private for $22.00 per share in cash. The plaintiffs allege that this price does not represent the true value of Trigen and is unfair to the minority shareholders. Plaintiffs further allege that because Suez owns approximately 52% of Trigen's outstanding shares, Suez has the power to effectuate the transaction without regard to the minority shareholders. Plaintiffs seek class certification, declaratory and injunctive relief (or money damages if the transaction is consummated), and an accounting. Item 3. Defaults Upon Senior Securities. As part of the settlement of the lawsuit between Grays Ferry Cogeneration Partnership (the "Partnership") and PECO Energy Company, The Chase Manhattan Bank and certain other commercial banks (collectively the "Banks") and Westinghouse Power Generation agreed to waive claims for default interest against the Partnership up to April 16, 1999. The Banks and Westinghouse financed the construction of the Grays Ferry Cogeneration Facility under separate loan agreements. The Partnership owes a total principal amount of approximately $84,400,000 to the Banks. The Partnership owes a total principal amount of approximately $15,000,000 to Westinghouse. As of the date of this Report, the Partnership is in default under its debt agreements with the Banks and Westinghouse for the following reasons. The Partnership did not convert on time the Bank's short term construction loan for the Grays Ferry Cogeneration Facility to a longer term loan. The Partnership could not complete that conversion because of a dispute with the construction contractor which has now been resolved. The Partnership also did not make a principal payment to Westinghouse because the Banks required the Partnership to apply the Partnership's available cash (net of operating expenses) to repayment of principal owed to the Banks. Westinghouse and the Banks have not accelerated the debt owed to them nor charged default interest against the Partnership, although the Banks have reserved their rights to do so. The Banks also reserved their right to apply available cash held by the 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 loan outstanding. Item 5. Other Information. On September 20, 1999, we received a letter from the management of the majority stockholder, ELYO, indicating its offer to purchase the outstanding stock of Trigen for $22.00 per share in cash. Our Board of Directors has appointed an independent committee of the Board of Directors to evaluate the offer. ELYO and its parent, Suez Lyonnaise des Eaux, control approximately 52% of our outstanding stock. Item 6. Exhibits and Reports on Form 8-K (a) The following exhibits are filed as part of this report: 27 Financial Data Schedule (b) The following reports on Form 8-K were filed during the quarter ended September 30, 1999 Form 8-K/A-2. Item 2. Acquisition or Disposition of Assets, July 2, 1999, and Item 7. Financial Statements and Exhibits, July 2, 1999. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. TRIGEN ENERGY CORPORATION /s/ Martin S. Stone ---------------------------- Martin S. Stone Vice President Finance & Chief Financial Officer /s/ Daniel J. Samela ----------------------------- Daniel J. Samela Controller Date: November 12, 1999 EX-27 2
5 This schedule contains summary financial information extracted from SEC Form 10-Q for quarter ending September 30, 1999 and is qualified in its entirety by reference to such financial statements. 9-MOS DEC-31-1999 SEP-30-1999 $ 26,096 0 45,844 1,460 7,613 81,891 595,241 110,473 695,357 77,655 396,614 0 0 124 158,446 695,357 204,052 204,052 142,955 173,543 ( 13,007) 0 18,829 24,687 10,220 14,467 0 0 ( 4,903) 9,564 .79 .79
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